--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
COMMISSION FILE NUMBER 001-11145
---------------------
BIOVAIL CORPORATION
(Translation of Registrant's name into English)
2488 DUNWIN DRIVE, MISSISSAUGA, ONTARIO, L5L 1J9, CANADA
(Address of principal executive office and zip code)
Registrant's telephone number, including area code: (416) 285-6000
Indicate by check mark whether the registrant files or will file annual reports
under cover of
Form 20-F or Form 40-F.
FORM 20-F /X/ FORM 40-F / /
Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
commission pursuant to Rule 12g 3-2(b) under the Securities Exchange Act of
1934.
YES / / NO /X/
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
BIOVAIL CORPORATION
QUARTERLY REPORT
THIS REPORT OF FOREIGN ISSUER ON FORM 6-K IS INCORPORATED BY REFERENCES INTO
THE REGISTRATION STATEMENT ON FORM S-8 OF BIOVAIL CORPORATION (REGISTRATION
NO. 333-92229).
INDEX
PART I -- FINANCIAL INFORMATION
Financial Statements
Consolidated Balance Sheets as at March 31, 2001 and
December 31, 2000...................................... 3
Consolidated Statements of Income (Loss) for the three
months ended March 31, 2001 and 2000................... 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 2001 and 2000................... 5
Condensed Notes to the Consolidated Financial
Statements............................................. 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 11
Quantitative and Qualitative Disclosure about Market Risk... 15
PART II -- OTHER INFORMATION
Operational Information..................................... 16
Legal Proceedings........................................... 16
Material Issued to Shareholders............................. 16
All dollar amounts in this quarterly report are expressed in U.S. dollars unless
otherwise stated.
2
BIOVAIL CORPORATION
CONSOLIDATED BALANCE SHEETS
IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(ALL DOLLAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
MARCH 31, DECEMBER 31,
2001 2000
---------- -------------
(Unaudited)
ASSETS
CURRENT
Cash and cash equivalents................................... $ 49,566 $ 125,144
Accounts receivable [note 3]................................ 87,178 105,850
Inventories [note 4]........................................ 31,845 24,108
Deposits and prepaid expenses............................... 10,727 5,347
---------- ----------
179,316 260,449
Long-term investments....................................... 1,674 1,561
Property, plant and equipment, net.......................... 62,025 52,541
Goodwill, net............................................... 100,168 103,105
Intangible assets, net [note 5]............................. 659,545 667,431
Other assets, net........................................... 22,014 22,180
---------- ----------
$1,024,742 $1,107,267
========== ==========
LIABILITIES
CURRENT
Accounts payable............................................ $ 28,871 $ 34,683
Accrued liabilities......................................... 46,896 35,452
Income taxes payable........................................ 6,151 6,711
Deferred revenue............................................ 29,632 26,334
Current portion of long-term obligations [note 6]........... 136,500 182,564
---------- ----------
248,050 285,744
Deferred revenue............................................ 26,700 27,900
Long-term obligations [note 6].............................. 177,021 256,180
Convertible Subordinated Preferred Equivalent Debentures.... 299,985 299,985
---------- ----------
751,756 869,809
---------- ----------
SHAREHOLDERS' EQUITY
Common shares, no par value, unlimited shares authorized,
132,142,000 and 131,461,000 issued and outstanding at
March 31, 2001 and December 31, 2000, respectively
[note 7].................................................. 500,648 492,733
Warrants.................................................... 7,912 7,912
Deficit..................................................... (232,653) (261,819)
Accumulated other comprehensive loss........................ (2,921) (1,368)
---------- ----------
272,986 237,458
---------- ----------
$1,024,742 $1,107,267
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
3
BIOVAIL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(ALL DOLLAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF
U.S. DOLLARS)
THREE MONTHS ENDED
MARCH 31,
----------------------
2001 2000
-------- --------
(Unaudited)
REVENUE
Product sales............................................... $111,927 $ 35,853
Research and development.................................... 1,566 11,651
Royalty and licensing....................................... 5,734 3,278
-------- --------
119,227 50,782
-------- --------
EXPENSES
Cost of goods sold.......................................... 26,554 11,035
Research and development.................................... 11,407 11,766
Selling, general and administrative......................... 36,878 11,936
-------- --------
74,839 34,737
-------- --------
Operating income............................................ 44,388 16,045
Interest expense, net....................................... (12,472) (266)
-------- --------
Income before income taxes.................................. 31,916 15,779
Provision for income taxes.................................. 2,750 813
-------- --------
Income before extraordinary item and cumulative effect of
change in
accounting principle...................................... 29,166 14,966
Extraordinary item.......................................... -- (20,039)
-------- --------
Income (loss) before cumulative effect of change in
accounting principle...................................... 29,166 (5,073)
Cumulative effect of change in accounting principle
[note 2].................................................. -- (43,500)
-------- --------
NET INCOME (LOSS)........................................... $ 29,166 $(48,573)
======== ========
BASIC EARNINGS (LOSS) PER SHARE [note 8]
Income before extraordinary item and cumulative effect of
change in
accounting principle.................................... $ 0.22 $ 0.12
Extraordinary item........................................ -- (0.16)
Cumulative effect of change in accounting principle....... -- (0.35)
-------- --------
Net income (loss)......................................... $ 0.22 $ (0.39)
======== ========
DILUTED EARNINGS (LOSS) PER SHARE [note 8]
Income before extraordinary item and cumulative effect of
change in
accounting principle.................................... $ 0.20 $ 0.11
Extraordinary item........................................ -- (0.15)
Cumulative effect of change in accounting principle....... -- (0.31)
-------- --------
Net income (loss)......................................... $ 0.20 $ (0.35)
======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (000S)
[note 8]
Basic..................................................... 131,773 125,584
======== ========
Diluted................................................... 148,084 140,522
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
4
BIOVAIL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(ALL DOLLAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
THREE MONTHS ENDED
MARCH 31,
------------------------
2001 2000
--------- ---------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................... $ 29,166 $ (48,573)
Depreciation and amortization............................... 13,403 5,540
Amortization of discount on long-term obligations........... 3,954 --
Deferred income taxes....................................... 1,450 --
Compensation cost for employee stock options................ 500 --
Extraordinary item.......................................... -- 20,039
Cumulative effect of change in accounting principle......... -- 43,500
--------- ---------
48,473 20,506
Change in non-cash operating items [note 10]................ 16,857 (22,518)
--------- ---------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES............. 65,330 (2,012)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment, net............. (12,987) (3,929)
Additions to intangible assets.............................. (14,002) --
Reduction in intangible assets.............................. 8,750 261
Acquisition of long-term investments........................ (42) (2,285)
Maturity of short-term investments, net..................... -- 46,346
Proceeds from sale of assets held for disposal.............. -- 17,000
--------- ---------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES............. (18,281) 57,393
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common shares................................... 7,415 102,298
Repayments under revolving term credit facility............. (76,095) --
Reduction in other long-term obligations.................... (53,820) (10,651)
Issuance of Convertible Subordinated Preferred Equivalent
Debentures, net of financing costs........................ -- 290,312
Repurchase of U.S. Dollar Senior Notes...................... -- (141,017)
Collection of warrant subscription receivable............... -- 1,282
--------- ---------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............. (122,500) 242,224
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... (127) (21)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (75,578) 297,584
Cash and cash equivalents, beginning of period.............. 125,144 178,086
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 49,566 $ 475,670
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
5
BIOVAIL CORPORATION
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF
U.S. DOLLARS)
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by the Company in U.S. dollars and in accordance with
U.S. generally accepted accounting principles ("GAAP"). The interim
financial statements have been prepared using accounting policies that are
consistent with policies used in preparing the 2000 annual consolidated
financial statements. Accordingly, these unaudited condensed notes to the
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and notes on Form 20-F for the
year ended December 31, 2000. Certain of the prior year's interim figures
have been reclassified to conform to the current interim period's
presentation.
In preparing the Company's consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could
differ from these estimates and the operating results for the interim
periods presented are not necessarily indicative of the results expected for
the full year.
2. CHANGES IN ACCOUNTING POLICIES
REVENUE RECOGNITION
Non-refundable, up-front fees for access to the Company's proprietary
technology in connection with certain research and development arrangements
are deferred and recognized as revenue on a straight-line basis over the
term of the relevant arrangement. License revenue is deferred and recognized
on a straight-line basis over the license period. If there are future
performance obligations of the Company, or contingent future events relating
to the amounts received or receivable under license agreements, revenue
attributable to these obligations or future events is deferred and
recognized upon the completion of the specific event.
In the fourth quarter of 2000, the Company implemented the provisions of the
U.S. Securities and Exchange Commission's, Staff Accounting Bulletin
No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements",
retroactively to January 1, 2000, as required. Accordingly, the Company
changed its method of accounting to that described above for up-front
research and development, product license and certain other fees. The
Company historically recognized these fees as revenues when all the
conditions to payment had been met, and there were no further performance
contingencies or conditions to the Company's receipt of payment. These fees
were not creditable against future payments. At January 1, 2000, the
cumulative effect of the change in accounting principle on prior years
resulted in a charge of $43,500,000, which is included in the net loss for
the three months ended March 31, 2000. The related deferred revenue
recognized for the three months ended March 31, 2001 and 2000 was $1,575,000
and $1,825,000, respectively.
ACCOUNTING FOR DERIVATIVES
The Company implemented the Financial Accounting Standards Board's,
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 requires a
company to recognize all derivative instruments as assets or liabilities in
its balance sheet and to measure them at fair value. The adoption of SFAS
No. 133 did not result in any cumulative effect adjustment in the
consolidated statements of income (loss), and did not have a material impact
on the Company's financial position or results of operation for the three
months ended March 31, 2001.
3. ACCOUNTS RECEIVABLE
MARCH 31, DECEMBER 31,
2001 2000
---------- -------------
Trade....................................................... $79,796 $ 98,442
Royalties................................................... 4,825 3,565
Other....................................................... 2,557 3,843
------- --------
$87,178 $105,850
======= ========
6
BIOVAIL CORPORATION
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF
U.S. DOLLARS)
(UNAUDITED)
4. INVENTORIES
MARCH 31, DECEMBER 31,
2001 2000
---------- -------------
Raw materials............................................... $ 7,342 $ 7,140
Work in process............................................. 6,962 5,079
Finished goods.............................................. 17,541 11,889
------- -------
$31,845 $24,108
======= =======
5. INTANGIBLE ASSETS
MARCH 31, DECEMBER 31,
2001 2000
---------- -------------
Workforce................................................... $ 7,241 $ 7,241
Core technology............................................. 11,185 11,185
Brand names, product rights and royalty interests........... 663,547 662,096
-------- --------
681,973 680,522
Less accumulated amortization............................... 22,428 13,091
-------- --------
$659,545 $667,431
======== ========
Amortization expense amounted to $9,553,000 and $3,162,000 for the three
months ended March 31, 2001 and 2000, respectively.
6. LONG-TERM OBLIGATIONS
MARCH 31, DECEMBER 31,
2001 2000
---------- -------------
Revolving term credit facility.............................. $133,905 $210,000
Aventis obligation.......................................... 122,917 161,828
Elan obligation............................................. 48,164 58,090
Deferred compensation....................................... 8,490 8,311
Non-interest bearing government loan........................ -- 470
Other debt.................................................. 45 45
-------- --------
313,521 438,744
Less current portion........................................ 136,500 182,564
-------- --------
$177,021 $256,180
======== ========
Interest expense on long-term obligations amounted to $7,887,000 and
$3,704,000 for the three months ended March 31, 2001 and 2000, respectively.
Interest expense for the three months ended March 31, 2001 includes
$3,954,000 related to the amortization of the discount on the Aventis and
Elan obligations.
7. COMMON SHARES
For the three months ended March 31, 2001, 681,151 common shares were issued
on the exercise of stock options and through the Company's Employee Stock
Purchase Plan. The Company received proceeds of $7,415,000.
The number of common shares outstanding at March 31, 2001 and December 31,
2000 were 132,142,211 and 131,461,060, respectively.
The number of stock options outstanding at March 31, 2001 and December 31,
2000 were 9,415,000 and 10,049,000, respectively.
7
BIOVAIL CORPORATION
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF
U.S. DOLLARS)
(UNAUDITED)
8. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is determined in accordance with SFAS No. 128,
"Earnings Per Share". Earnings (loss) per share is based on net income
(loss). Basic earnings per share is computed using the weighted average
number of common shares outstanding during the reporting period. Diluted
earnings (loss) per share is computed after giving effect to the potentially
dilutive warrants, stock options and convertible securities. The computation
of basic and diluted earnings (loss) per share was as follows:
THREE MONTHS
ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
BASIC EARNINGS (LOSS) PER SHARE
Net income (loss)........................................... $ 29,166 $(48,573)
Weighted average number of common shares outstanding
(000s).................................................... 131,773 125,584
-------- --------
Basic earnings (loss) per share............................. $ 0.22 $ (0.39)
======== ========
DILUTED EARNINGS (LOSS) PER SHARE
Net income (loss)........................................... $ 29,166 $(48,573)
Weighted average number of common shares outstanding
(000s).................................................... 131,773 125,584
Dilutive effect of warrants (000s).......................... 10,718 9,400
Dilutive effect of stock options (000s)..................... 5,593 5,538
-------- --------
Adjusted weighted average
number of common shares outstanding (000s)................ 148,084 140,522
-------- --------
Diluted earnings (loss) per share........................... $ 0.20 $ (0.35)
======== ========
For both periods presented, the Convertible Subordinated Preferred
Equivalent Debentures have been excluded from the calculation of diluted
earnings (loss) per share because the effect would have been anti-dilutive.
9. COMPREHENSIVE INCOME (LOSS)
Pursuant to the requirements of SFAS No. 130 "Reporting Comprehensive
Income", which established standards for the reporting of comprehensive
income and its components, the following disclosure is provided:
THREE MONTHS
ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
Net income (loss)........................................... $29,166 $(48,573)
------- --------
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment..................... (1,624) (439)
Unrealized holding gain on long-term investments............ 71 893
------- --------
Other comprehensive income (loss)........................... (1,553) 454
------- --------
Comprehensive income (loss)................................. $27,613 $(48,119)
======= ========
8
BIOVAIL CORPORATION
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF
U.S. DOLLARS)
(UNAUDITED)
10. CHANGE IN NON-CASH OPERATING ITEMS
THREE MONTHS
ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
Accounts receivable......................................... $18,730 $(12,340)
Inventories................................................. (7,714) (5,550)
Deposits and prepaid expenses............................... (5,380) 1,188
Accounts payable and accrued liabilities.................... 9,681 (3,241)
Income taxes payable........................................ (558) (261)
Deferred revenue............................................ 2,098 (2,314)
------- --------
$16,857 $(22,518)
======= ========
11. LEGAL PROCEEDINGS
For detailed information concerning legal proceedings, reference is made to
Item 8.A. of the Company's Annual Report on Form 20-F for the year ended
December 31, 2000.
12. RELATED PARTY TRANSACTIONS
In March 2001, the Company loaned $600,000 to an executive officer of the
Company. The loan is secured by a mortgage/charge on the officer's personal
residence. The loan does not bear interest until March 1, 2004 and,
thereafter, bears interest at a rate equal to the Company's rate of
borrowing. The loan is due on the earlier of termination of employment or
March 31, 2008.
13. SEGMENTED INFORMATION
Organizationally, the Company's operations consist of three
segments -- Product Sales, Research and Development, and Royalty and
Licensing. The segments are determined based on several factors including
customer base, the nature of the product or service provided, delivery
channels and other factors.
The PRODUCT SALES segment covers sales of production from the Company's
Puerto Rican and Canadian facilities, and sales of proprietary and
in-licensed branded products by the Company's sales and marketing
operations.
The RESEARCH AND DEVELOPMENT segment covers all revenues generated by the
Company's integrated research and development facilities, and comprises
research and development services provided to third parties, including
Intelligent Polymers Limited prior to September 29, 2000, and product
development milestone fees.
The ROYALTY AND LICENSING segment covers royalty revenues received from
licensees in respect of products for which the Company has manufacturing,
marketing and/or intellectual property rights.
9
BIOVAIL CORPORATION
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF
U.S. DOLLARS)
(UNAUDITED)
13. SEGMENTED INFORMATION (CONTINUED)
INFORMATION BY REPORTABLE SEGMENTS
THREE MONTHS ENDED
MARCH 31, 2001
------------------------------------------------
PRODUCT RESEARCH AND ROYALTY AND
SALES DEVELOPMENT LICENSING TOTAL
-------- ------------ ----------- --------
Revenue from external customers............................. $111,927 $ 1,566 $5,734 $119,227
-------- -------- ------ --------
Segment operating income (loss)............................. 54,781 (11,140) 5,647 49,288
UNALLOCATED AMOUNTS
Selling, general and administrative expenses................ (4,900)
Interest expense, net....................................... (12,472)
--------
Income before income taxes.................................. $ 31,916
========
THREE MONTHS ENDED
MARCH 31, 2000
------------------------------------------------
PRODUCT RESEARCH AND ROYALTY AND
SALES DEVELOPMENT LICENSING TOTAL
-------- ------------ ----------- --------
Revenue from external customers............................. $35,853 $11,651 $3,278 $50,782
------- ------- ------ -------
Segment operating income (loss)............................. 16,588 (1,644) 3,238 18,182
UNALLOCATED AMOUNTS
Selling, general and administrative expenses................ (2,137)
Interest expense, net....................................... (266)
-------
Income before income taxes.................................. $15,779
=======
10
BIOVAIL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(ALL DOLLAR AMOUNTS ARE EXPRESSED IN U.S. DOLLARS)
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") should be read in conjunction with the
accompanying unaudited consolidated financial statements and condensed notes
thereto. This MD&A should also be read in conjunction with the MD&A and audited
consolidated financial statements and notes thereto on Form 20-F for the year
ended December 31, 2000.
OVERVIEW
Our results for the first quarter 2001 reflected the impact of the strategic
business acquisitions completed during 2000. Most notably the increase in our
product sales reflected the addition of the Cardizem-Registered Trademark-
product line ("Cardizem-Registered Trademark-") which we acquired from Aventis
Pharmaceuticals Inc. ("Aventis"). Cardizem-Registered Trademark- is being
marketed in Canada through Crystaal, and in the United States through Biovail
Pharmaceuticals, Inc. ("Biovail Pharmaceuticals"), formerly DJ Pharma, Inc. ("DJ
Pharma") which we acquired in October 2000. In addition to
Cardizem-Registered Trademark-, our first quarter 2001 product sales included
the incremental revenue from Biovail Pharmaceuticals' existing product
portfolio. The decline in research and development revenue reflected our
December 2000 acquisition of Intelligent Polymers Limited ("Intelligent
Polymers") and its development pipeline of branded generic products, which we
were developing on their behalf prior to September 29, 2000.
Our revenues are derived from sales of pharmaceutical products, providing
research and development services, and from royalties and license fees. Product
sales include sales of products developed and manufactured by us for our
licensees, direct marketing in Canada and the United States of proprietary and
in-licensed products, and revenue derived from product co-promotion. Research
and development revenues relate to product development activity on behalf of
third parties, and pharmaceutical contract research services. Royalties
primarily arise on sales of the products we developed. License fees are derived
from the license of our technologies or product rights.
CHANGES IN ACCOUNTING PRINCIPLES
REVENUE RECOGNITION
We have adopted the U.S. Securities and Exchange Commission's ("SEC"), Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements", retroactively applied to January 1, 2000. Accordingly, we have
changed our revenue recognition accounting policy for up-front research and
development, product license and certain other fees. Historically, we had
recognized these fees as revenues when all the conditions to payment had been
met, and there were no further performance contingencies or conditions to our
receipt of payment. These fees were not creditable against future payments. At
January 1, 2000, the cumulative effect of the change in accounting principle on
prior years resulted in a charge of $43.5 million, which is included in the net
loss for the three months ended March 31, 2000. The related deferred revenue
recognized for the three months ended March 31, 2001 and 2000, was $1.6 million
and $1.8 million, respectively.
ACCOUNTING FOR DERIVATIVES
We implemented the Financial Accounting Standards Board's, Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 requires a company to
recognize all derivative instruments as assets or liabilities in its balance
sheet and to measure them at fair value. The adoption of SFAS No. 133 did not
result in any cumulative effect adjustment in the consolidated statements of
income (loss), and did not have a material impact on our financial position or
results of operation for the three months ended March 31, 2001.
11
RESULTS OF OPERATIONS
Total revenue for the first quarter 2001 was $119.2 million, an increase of
$68.4 million or 134% from $50.8 million for the first quarter 2000. Income
before extraordinary item and cumulative effect of change in accounting
principle for the first quarter 2001 was $29.2 million, or diluted earnings per
share of $0.20, compared to $15.0 million, or diluted earnings per share of
$0.11, for the first quarter 2000. Income before extraordinary item and
cumulative effect of change in accounting principle and diluted earnings per
share increased by 95% and 81%, respectively for the first quarter 2001 compared
to the first quarter 2000.
The results for the first quarter 2000 include charges of $20.0 million for
the premium paid to extinguish our 10 7/8% U.S. Dollar Senior Notes (the "Senior
Notes"), and $43.5 million for the cumulative effect of the adoption of
SAB 101.
REVENUE
PRODUCT SALES
Product sales for the first quarter 2001 were $111.9 million compared to
$35.9 million for the first quarter 2000, an increase of $76.0 million or 212%.
The increase in product sales was due to a combination of the contribution from
Cardizem-Registered Trademark-, incremental revenues from Biovail
Pharmaceuticals' Dura-Vent, Rondec and Cedax products, and strong sales from our
generic product portfolio, which were favourably impacted by the February 2001
launch of Procardia XL 30mg dosage and the 2000 launches of Voltaren XR, Adalat
CC 30mg and 60mg dosages, and Procardia XL 60mg dosage.
Product sales were negatively impacted by lost sales of Biovail
Pharmaceuticals' Keftab product. On March 7, 2001, Eli Lilly & Company ("Eli
Lilly") announced a voluntary recall of Keftab tablets because of undefined
problems with stability. We believe Eli Lilly is responsible for manufacturing
and supplying acceptable products to us, as well as for the cost of the recall.
RESEARCH AND DEVELOPMENT
Research and development revenue for the first quarter 2001 was
$1.6 million, a decline of $10.1 million or 87% from $11.7 million for the first
quarter 2000. This decline reflects our acquisition of Intelligent Polymers in
December 2000, and the elimination of revenue from development activities
performed on their behalf. We earned revenue of $9.7 million from Intelligent
Polymers in the first quarter of 2000.
ROYALTY AND LICENSING
Net royalty and licensing revenue for the first quarter 2001 was
$5.7 million compared to $3.3 million for the first quarter 2000, an increase of
$2.4 million or 75%. In both quarters, most of our royalties were derived from
sales of Tiazac-Registered Trademark- to Forest Laboratories Inc. The increase
in the first quarter of 2001 reflected higher Tiazac-Registered Trademark-
product sales, and the inclusion of a royalty associated with sales of
Cardizem-Registered Trademark- by a third party.
OPERATING EXPENSES
COST OF GOODS SOLD AND GROSS MARGINS
Cost of goods sold was $26.6 million for the first quarter 2001 compared to
$11.0 million for the first quarter 2000. The $15.6 million, or 141%, quarter
over quarter increase was the result of increased product sales volumes from the
additions of Cardizem-Registered Trademark-, Biovail Pharmaceuticals' products,
and generic product launches.
Gross margins based on product sales for the first quarter 2001 and 2000
were 76% and 69%, respectively. Our gross margins are impacted quarter to
quarter by sales volumes, pricing, product mix and manufacturing volumes. The
increase in gross margin for the first quarter 2001 compared to the first
quarter 2000 reflected the positive impact of Cardizem-Registered Trademark-
sales, and the inclusion of Biovail Pharmaceuticals' directly marketed products.
12
RESEARCH AND DEVELOPMENT
Research and development expenses for the first quarter 2001 were
$11.4 million compared to $11.8 million for the first quarter 2000. Research and
development expenses reflected direct spending on the development of branded
generic and generic products, and rapid dissolve products utilizing our
FlashDose technology. The slight quarter over quarter decline in the research
and development expenses reflected a reduction in overhead costs at Biovail
Technologies Ltd., formerly Fuisz Technologies Ltd. ("Fuisz") following a period
of transition and integration in the first quarter of 2000.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the first quarter 2001 were
$36.9 million, an increase of $25.0 or 209% from $11.9 million for the first
quarter 2000. The increase in selling, general and administrative expenses
reflected the acquisitions of, and the related amortization expense associated
with, DJ Pharma and Cardizem-Registered Trademark-.
NON-OPERATING ITEMS
INTEREST EXPENSE
For the first quarter 2001, net interest expense of $12.5 million was
comprised of interest expense of $13.1 million net of interest income of
$578,000, compared to net interest expense of $266,000 for the first quarter of
2000, comprised of interest expense of $4.2 million net of interest income of
$3.9 million.
The increase in interest expense primarily reflected interest on advances
under our revolving term Senior Secured Credit Facility (the "Credit Facility")
and the amortization of the discount on the obligation to Aventis for
Cardizem-Registered Trademark-.
The decrease in interest income reflected a decline in the average size of
our investment portfolio following the acquisitions of DJ Pharma and Intelligent
Polymers in the fourth quarter of 2000, and after the first quarterly instalment
payment to Aventis and repayments made under the Credit Facility in the first
quarter of 2001.
INCOME TAXES
Our tax rate was affected by the relative profitability of our operations in
various foreign tax jurisdictions. We recorded provisions for income taxes of
$2.8 million and $813,000 in the first quarter of 2001 and 2000, respectively.
These provisions reflect effective tax rates on income before taxes, excluding
non-deductible amounts, of approximately 9% and 6% in the first quarter of 2001
and 2000, respectively. The low effective tax rate reflected that most of our
income was derived from foreign subsidiaries with lower statutory tax rates than
those that apply in Canada. The benefit of tax losses historically incurred by
our Canadian operations has not been recognized for accounting purposes to date.
With our acquisitions of DJ Pharma and Fuisz we have experienced some upward
movement in our effective tax rate, as these operations earn income
predominately in the United States.
EXTRAORDINARY ITEM
The total consideration paid to repurchase our Senior Notes was
$141.0 million of which $16.0 million was an inducement premium to the holders.
As a result of this transaction, we replaced our high yield debt with
convertible debt at a significantly lower cost of borrowing. The extraordinary
item reported in the first quarter of 2000 included the premium paid, and
$4.0 million of deferred financing costs associated with the Senior Notes that
were written-off.
EBITDA
EBITDA, which is defined as earnings before interest, taxes, depreciation
and amortization, increased by $36.2 million or 168% to $57.8 million for the
first quarter 2001 from $21.6 million for the first quarter 2000.
13
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, we had cash and cash equivalents of $49.6 million
compared to cash and cash equivalents of $125.1 million at December 31, 2000. In
December 2000, we arranged a $300 million Credit Facility that, subject to
certain covenants, permits us to borrow funds for general corporate purposes
including acquisitions.
At March 31, 2001, we had total long-term obligations of $313.5 million,
including the current portion thereof. Long-term obligations consisted of
$133.9 million drawn on the Credit Facility, $122.9 million discounted amount
owing to Aventis for Cardizem-Registered Trademark-, $48.2 million discounted
amount owing to Elan Corporation, plc ("Elan") for the exclusive marketing
rights to generic Adalat CC 30mg, and $8.5 million of other obligations. At
December 31, 2000, we had $438.7 million of long-term obligations, including the
current portion thereof, which consisted of $210 million drawn on the Credit
Facility, $161.8 million discounted amount owing to Aventis, $58.1 million
discounted amount owing to Elan, and $8.8 million of other obligations.
Also at March 31, 2001 and December 31, 2000, we had $300.0 million of
Convertible Subordinated Preferred Equivalent Debentures (the "Debentures")
outstanding, which are due March 31, 2025. The Debentures are convertible at any
time into our common shares at $30.337 per common share, and may be redeemed at
our option beginning on March 31, 2003 at prescribed redemption prices. We have
the special right to redeem the Debentures if the trading price of our common
shares equals or exceeds $45.505 on the New York Stock Exchange for a specified
period, subject to certain restrictions. Interest on the Debentures is payable
quarterly in arrears. Subject to certain conditions, we have the right to defer
the payment of interest for up to twenty consecutive quarters. Interest and
principal are payable in cash or, at our option, using the proceeds from the
sale of our common shares or other equity securities.
At March 31, 2001, our working capital ratio was 0.7:1 compared to 0.9:1 at
December 31, 2000. This decline was primarily due to a lower cash and cash
equivalents balance reflecting repayments made under the Credit Facility.
Cash provided by operating activities, after changes in non-cash operating
items, was $65.3 million for the first quarter 2001 compared to cash used in
operating activities of $2.0 million for the first quarter 2000. This increase
reflects net income, after adjustments for non-cash items, of $48.5 million for
the first quarter 2001 compared to $20.5 million in the first quarter 2000.
Changes in non-cash operating items provided cash of $16.9 million in the first
quarter of 2001, and used cash of $22.5 million in the first quarter of 2000.
Net cash used in investing activities was $18.3 million for the first
quarter 2001 compared to cash provided by investing activities of $57.4 million
for the first quarter 2000. Additions to property, plant and equipment were
$13.0 million and $3.9 million in the first quarter of 2001 and 2000,
respectively. Additions in the first quarter of 2001 included the payment of the
remaining purchase price of $10 million for the Dorado, Puerto Rico,
pharmaceutical manufacturing facility. We settled $4.0 million of acquisition
costs related to Cardizem-Registered Trademark-, and acquired other product
rights for $10.0 million in the first quarter of 2001, offset by $8.8 million
recovered from Elan as a reduction to the minimum license payments otherwise
payable under the Adalat CC 30mg marketing agreement. The net activity in
short-term investments provided cash of $46.3 million in the first quarter of
2000. During 2000, as our short-term investments matured we generally converted
them into cash equivalents with original maturities of 90 days or less. In the
first quarter of 2000, we received proceeds of $17 million on the disposal of
Clonmel Healthcare Limited, a subsidiary of Fuisz.
Net cash used in financing activities was $122.5 million for the first
quarter 2001 compared to cash provided by financing activities of
$242.2 million for the first quarter 2000. Proceeds from issue of common shares
on the exercise of stock options and through our Employee Stock Purchase Plan
were $7.4 million and $6.2 million for the first quarter of 2001 and 2000,
respectively. Net proceeds from the concurrent offering in March 2000 were
$96.1 million from the issue of common shares, and $290.3 million from the issue
of Debentures. A portion of these proceeds was used to repurchase our Senior
Notes for $141.0 million. In the first quarter of 2001, we repaid $76.1 million
under our Credit Facility, and $53.8 million of other long-term obligations,
including the first quarterly instalment to Aventis of $42.5 million and
$10.9 million to Elan. In the first quarter of 2000, we repaid the debt assumed
on the acquisition of Fuisz and other long-term obligations of $10.7 million. We
collected $1.3 million of the warrant subscription receivable in the first
quarter of 2000.
14
Overall, our cash and cash equivalents decreased by $75.6 million in the
first quarter of 2001, and increased by $297.6 million in the first quarter of
2000.
We believe we have adequate capital resources and sources of financing to
support our ongoing operational and interest requirements, investment
objectives, and to meet our obligations as they become due. We believe we will
be able to raise additional capital, if necessary, to support our objectives.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to financial market risks, including changes in foreign
currency exchange rates, interest rates on investments and debt obligations and
equity market prices on long-term investments. We do not use derivative
financial instruments for speculative or trading purposes.
Inflation has not had a significant impact on our results of operations.
FOREIGN CURRENCY RISK
We operate internationally, however a substantial portion of our revenue and
expense activities and capital expenditures are transacted in U.S. dollars. Our
only other significant transactions are in Canadian dollars, and we do not
believe we have a material exposure to foreign currency risk because of the
relative stability of the Canadian dollar in relation to the U.S. dollar. A 10%
adverse change in foreign currency exchange rates would not have a material
effect on our consolidated results of operations, financial position, or cash
flows.
INTEREST RATE RISK
The primary objective of our investment policy is the protection of
principal, and accordingly we invest in high-grade commercial paper and
U.S. government treasury bills with varying maturities, but typically less than
90 days. External independent fund administrators manage our investments. As it
is our intent and policy to hold these investments until maturity, we do not
have a material exposure to interest rate risk. Therefore, a 100 basis-point
adverse change in interest rates would not have a material effect on our
investment portfolio.
We are exposed to interest rate risk on borrowings from our Credit Facility.
The Credit Facility bears interest based on LIBOR, U.S. dollar base rate,
Canadian dollar prime rate, or Canadian dollar Bankers' Acceptances. Based on
projected advances under the Credit Facility, a 100 basis-point adverse change
in interest rates would increase interest expense by approximately $2 million on
an annual basis. This risk is mitigated by our ability, at our option, to lock
in a rate of interest for a period of up to one year.
The interest rate on our Debentures is fixed and therefore not subject to
interest rate risk. Likewise, the imputed rate of interest used to discount our
long-term obligations to Aventis and Elan is fixed and therefore not subject to
interest rate risk.
EQUITY MARKET PRICE RISK
We are exposed to equity market price risks on our long-term,
available-for-sale investments in traded companies. We do not hold significant
investments in these types of securities, and therefore our equity market price
risk is not material. Therefore, a 10% adverse change in equity market prices
would not have a material effect on our financial position.
FORWARD LOOKING STATEMENTS
To the extent any statements made in this document contain information that
is not historical, these statements are essentially forward looking and are
subject to risks and uncertainties, including the difficulty of predicting FDA
approvals, acceptance and demand for new pharmaceutical products, the impact of
competitive products and pricing, new product development and launch, reliance
on key strategic alliances, availability of raw materials, the regulatory
environment, fluctuations in operating results and other risks. Many risks and
uncertainties are inherent in the pharmaceutical industry; others are more
specific to our business. Many of the significant risks related to our business
are described in Item 1 of our Form 20-F filing with the SEC.
15
BIOVAIL CORPORATION
PART II -- OTHER INFORMATION
1. OPERATIONAL INFORMATION
The press releases issued by the Company subsequent to filing of Form 6-K on
November 27, 2000 were as follows:
a) On December 5, 2000, the Company announced it had received final
approval from the FDA for Adalat CC 60mg.
b) On January 2, 2001, the Company announced the acquisition of the
Cardizem-Registered Trademark- product line from Aventis
Pharmaceuticals Inc.
c) On January 3, 2001, the Company announced the filing of ANDA's for
generic versions of Adalat CC 90mg, Procardia XL 90mg and Tegretol 400mg.
d) On January 30, 2001, the Company confirmed that a new patent covering
Tiazac-Registered Trademark- had been listed in the FDA Orange Book.
e) On February 7, 2001, the Company announced it had received final
approval from the FDA for Procardia XL 30mg.
f) On February 14, 2001, the Company confirmed the docket posting of the
new Tiazac-Registered Trademark- patent in the FDA Orange Book.
g) On February 28, 2001, the Company announced record fourth quarter and
year-end 2000 financial results.
h) On March 7, 2001, the Company commented on the Florida court hearing.
i) On April 6, 2001, the Company announced that a federal court in Georgia
has dismissed a patent infringement lawsuit filed by Bayer AG.
j) On April 26, 2001, the Company announced record first quarter 2001
financial results.
k) On May 11, 2001, the Company announced that it had been included in the
Toronto Stock Exchange (TSE) 35 Index.
2. LEGAL PROCEEDINGS
For detailed information concerning legal proceedings, reference is made to
Item 8.A. of the Company's Annual Report on Form 20-F for the year ended
December 31, 2000.
3. MATERIAL ISSUED TO SHAREHOLDERS
The material issued by the Company to shareholders are attached as the
following exhibits:
Exhibit 99.1 First Quarter 2001 Interim Report for Canadian Regulatory
Purposes
Exhibit 99.2 Interim Report 2001 -- First Quarter Report to Shareholders
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOVAIL CORPORATION
By: /s/ JOHN R. MISZUK
----------------------------------------------
John R. Miszuk
VICE PRESIDENT, CONTROLLER
May 30, 2001
17