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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 20-F
/ / Registration Statement Pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934
or
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from _______ to _______
Commission file number 001-11145
BIOVAIL CORPORATION INTERNATIONAL
(Exact Name of Registrant as Specified in its Charter)
NOT APPLICABLE
(Translation of Registrant's Name into English)
CANADA
(Jurisdiction of incorporation or organization)
2488 DUNWIN DRIVE
MISSISSAUGA, ONTARIO
CANADA, L5L 1J9
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
COMMON SHARES WITHOUT PAR VALUE
(Title of Class)
AMERICAN STOCK EXCHANGE
(Name of exchange on which registered)
Securities registered or to be registered pursuant to Section 12(g) of the Act:
NONE
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: NONE
Number of outstanding shares of the registrant's common stock as of December 31,
1995: 25,327,092 (after giving effect to a 3-for-1 stock split in January, 1996)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark which financial statement item the
registrant has elected to follow.
Item 17 X Item 18
--- ---
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GENERAL INFORMATION
CURRENCY TRANSLATION
Effective January 1, 1995, the Company commenced reporting its
financial statements in U.S. dollars, while the currency of measurement remains
Canadian dollars. For purposes of this presentation, Canadian dollar amounts
including 1995, 1994, 1993, 1992 and 1991 amounts shown for purposes of
comparison, have been translated into U.S. dollars at the respective year end
rates of exchange. (Unless otherwise indicated, references herein to "dollars"
or "$" are to United States dollars.)
Exchange Rate Data
The following table sets forth, for the years indicated, certain exchange rates
based on the noon buying rates in New York City for cable transfers in foreign
currencies as certified for customs purposes by the Federal Reserve Bank of New
York. Such rates are quoted as U.S. dollars per Canadian dollar.
<TABLE>
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Year Ended December 31,
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1991 1992 1993 1994 1995
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<S> <C> <C> <C> <C> <C>
Exchange Rate at end of year............ $.8654 $.7867 $.7553 $.7134 $.7332
=======================================================================================
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TABLE OF CONTENTS
GENERAL INFORMATION
<TABLE>
<CAPTION>
PART I PAGE
----
<S> <C>
Item 1. Description of Business...................................................... 2
Item 2. Description of Properties.................................................... 13
Item 3. Legal Proceedings............................................................ 14
Item 4. Control of Registrant........................................................ 14
Item 5. Nature of Trading Market..................................................... 15
Item 6. Exchange Controls and Other Limitations
Affecting Security Holders.................................................. 16
Item 7. Taxation .................................................................... 17
Item 8. Selected Financial Data...................................................... 20
Item 9. Management's Discussion and Analysis of
Financial Conditions and Results of Operations.............................. 22
Item 10. Directors and Officers of the Company........................................ 25
Item 11. Compensation of Directors and Officers....................................... 29
Item 12. Options to Purchase Securities from the
Company or Subsidiaries..................................................... 31
Item 13. Interest of Management in Certain Transactions (not applicable).............. 34
PART II
(Not Applicable)
PART III
(Not Applicable)
PART IV
Item 17. Financial Statements......................................................... 34
Item 18. Not Applicable............................................................... 34
Item 19. Financial Statements and Exhibits............................................ 34
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Biovail Corporation International (the "Company") was established under
the Business Corporation Act 1990 (Ontario) R.S.O. 1990 on March 29, 1994 as a
result of the amalgamation of Trimel Corporation ("Trimel") and its then
subsidiary, Biovail Corporation International ("BCI").
BUSINESS
Biovail Corporation International is an international, full-service
pharmaceutical company engaged in the formulation, clinical testing,
registration and manufacture of drug products utilizing advanced drug delivery
technologies. The Company markets its products worldwide through marketing
partners. The Company develops its products through the synergistic application
of proprietary drug delivery technologies, state-of-the-art development
techniques and sound scientific principles.
The Company does not engage in basic research to discover new chemical
entities. Instead, the Company, as part of its business strategy, applies its
controlled release technologies to specific pharmaceutical compounds that are
free of patent protection or nearing patent expiration, placing particular
emphasis on products indicated for the treatment of chronic disorders such as
cardiovascular, inflammatory and respiratory conditions and for pain management.
Oral controlled release technology permits the development of
specialized oral drug delivery systems that improve the absorption and
utilization by the human body of a variety of pharmaceutical compounds. The
Company's controlled release technology is capable of providing a broad range of
controlled release profiles, taking into account the physical and chemical
characteristics of a drug product, the therapeutic use of the particular drug
and the optimal site for release of the drug in the gastrointestinal tract (the
"GI tract").
The Company's technology has been used to formulate 11 products that
are marketed by licensees in one or more of 55 countries. These products, for
which the Company currently receives royalties, include, among others,
once-daily formulations of: diltiazem (marketed under the brand name Tiazac(R)
by Forest Laboratories, Inc. ("Forest") in the United States), ketoprofen
(marketed under the brand name Oruvail(R) by Wyeth-Ayerst Laboratories in the
United States and by Rhone-Poulenc Rorer outside of the United States),
theophylline (marketed as Theo-24(R) by UCB Pharma Inc. and by G. D. Searle &
Co.), disopyramide (marketed as Norpace CR(R) by G.D. Searle & Co.) and isorbide
dinitrate (marketed as Isoket Retard(R) by Schwarz Pharma).
The Company's strategy is to control all or most aspects of the product
development process including; formulation development, clinical research
(including bioavailability, clinical and other studies), regulatory submissions
and manufacturing. The Company believes that this strategy provides economies of
scale, allows for optimal efficiencies in product testing and development,
accelerates the submission of regulatory filings, and will permit the Company to
enter into licensing agreements that provide for significant royalty rates or
significant shares of profits from product sales. Lower royalty rates of 1% to
4.5% of net sales in earlier licensing agreements reflected the Company's need,
due to its limited financial and operating resources, to fund the expenses of
product development and of obtaining regulatory approval by entering into
licenses under which these expenses were assumed by the licensees.
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As of June 10, 1996, the Company had several controlled release
products under development, two of which have been submitted for regulatory
approval; one to the U.S. Food and Drug Administration ("FDA") and one to the
Canadian Health Protection Branch ("HPB"). These products are funded primarily
by the Company through the entire development and regulatory approval process
and include (i) a once-daily formulation of diltiazem for which an NDS was filed
with the HPB; (ii) a twice-daily formulation of diltiazem for which an
abbreviated New Drug Application ("ANDA") was submitted with the FDA; (iii) a
once-daily formulation of verapamil; and (iv) a once-daily formulation of
nifedipine.
The Company has commenced operation of a domestic Canadian Marketing
and Sales organization, Biovail Pharma. The business unit is located in
Montreal, Quebec and is currently staffed with 50 people,including 40 sales
positions located across the country. Biovail Pharma will market the Company's
products in Canada and will seek to obtain the Canadian rights to products
developed by foreign companies which do not operate business units in Canada.
The Company has two pharmaceutical manufacturing facilities; one in
Steinbach, Manitoba, Canada, which is approximately 75,000 square feet, and in
September, 1995, the Company acquired the operating assets of Galephar, Puerto
Rico Inc. Limited ("Galephar"), a drug delivery company specializing in the
development of controlled release products. Galephar's operating assets included
a 23,000 square foot manufacturing facility. Both facilities are operational and
are producing commercial supplies of the Company's product Tiazac(R).
In addition to its product development activities, the Company provides
pharmaceutical companies with a broad range of contract research and development
services, including pharmacokinetic studies, bioanalytical laboratory testing,
clinical research studies and regulatory services consisting of the development,
preparation and filing of drug submissions with the FDA, HPB and comparable
foreign regulatory agencies. The Company has provided such services to many
pharmaceutical companies, including certain subsidiaries of Bristol-Myers,
Burroughs Wellcome, Ciba-Geigy, Johnson & Johnson, Rhone-Poulenc Rorer, The
Upjohn Co. and G.D. Searle & Co.
PRODUCTS
Licensed and Marketed Products
The following table sets forth the Company's controlled release
products that are presently licensed and marketed. These formulations have been
designed for once-daily dosing unless otherwise specified. Except for Tiazac(R),
which is a registered trademark of the Company, the trade names for the
pharmaceutical products described below and elsewhere in this Annual Report are
the property of (and may be registered trademarks of) the Company's licensees
and marketing partners or others.
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Product Name: Principal Licensee or
Therapeutic Use (Drug Class) Trade Name Marketing Co Status
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<S> <C> <C> <C>
Diltiazem SR: Hypertension and Angina Tiazac(R) Forest Marketed in the U.S. and Puerto
Rico; Approved in the U.K.
Ketoprofen SR: Arthritis Oruvail(R) Rhone-Poulenc Rorer Marketed in approximately 55
(Non-Steroidal Anti-Inflammatory) counties including the UK,
Canada, Australia, Japan,
Sweden, Austria and France;
submitted for regulatory
approval in Germany and Italy
Oruvail(R) Wyeth-Ayerst Marketed in the U.S. and its possessions
Disopyramide SR: Arrhythmias Norpace CR(R) Searle Marketed in the U.S., Malaysia
(Type I Antiarrhythmic) and certain Caribbean counties
(Twice daily)
Isosorbide Dinitrate SR: Angina Isoket Retard(R) Schwarz Pharma Marketed in Switzerland, Germany,
(Vasodilator) Finland, the Philippines, Hong Kong,
Russia and Korea; submitted for
regulatory approval in Italy, Pakistan
and Taiwan
Theophylline SR: Asthma and Bronchitis Theo-24(R) Searle Marketed in Italy, New Zealand
(Xanthine Bronchodilator) and certain Asian countries
UCB Pharma Marketed in the U. S. and Puerto Rico.
Pulmo timelets(R) Temmler Marketed in Germany
Tizanidine SR: Muscle Relaxant Sirdalud CR(R) Sandoz Pharma Marketed in Switzerland, Mexico,
(Muscle Relaxant) Turkey and the Netherlands
Sanofi Licensed for registration and
marketing in France
Athena Licensed for registration and
marketing in the U.S. and Canada
Metoclopramide SR: Gastric Reflux Gastro-Timelets(R) Temmler Marketed in Switzerland and Germany
(GI Tract Motility Modifer) Kemipharma Marketed in Denmark
Gastromax(R) Farmitalia Marketed in the U.K.
Ibuprofen SR: Arthritis Novogent(R) Temmler Marketed in Germany
(Non-Steroidal Anti-Inflammatory) Adcock-Ingram Marketed in South Africa
(Twice-daily)
Propranolol SR: Hypertension and Angina Beta timelets(R) Temmler Marketed in Germany
(Beta Blocking Agent) Adcock-Ingram Marketed in South Africa
Dihydrocodeine SR: Analgesic Tiamon Mono(R) Temmler Marketed in Germany
(Opioid Derivative)
(Twice-daily)
Diethylpropion SR: Anti-Obesity Therapy Regenon Retard(R) Temmler Marketed in Germany
(Sympathomimetic Agent) Kemipharma Marketed in Denmark
</TABLE>
The major products of the Company, accounting for approximately 96% of
total royalties received, are Oruvail(R), Norpace(R), Tiazac(R), Isoket
Retard(R) and Theo-24(R)/Pulmo-Timelets(R), and are described in more detail,
following.
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Oruvail(R)/Oscorel(R) is a controlled release formulation of ketoprofen
indicated for treatment of the symptoms of inflammation and pain associated with
rheumatoid arthritis and osteoarthritis. The technology necessary to manufacture
Oruvail(R), as well as the exclusive right to market the drug worldwide, except
in the United States, is licensed to Rhone-Poulenc Rorer. This license agreement
provides for a royalty of 3% of net sales with respect to certain countries for
ten years from the date of launch in each of such countries and at rate of 1%
for years ten (10) to sixteen (16) with respect to these countries, and 1% with
respect to other countries until September 1998.
In addition, the Company has licensed the exclusive right to market
Oruvail(R) in the United States to Wyeth-Ayerst Laboratories. The license
agreement with Wyeth-Ayerst Laboratories provides for a royalty payment of 3% of
net sales for a period of 16 years commencing October, 1993.
Norpace CR(R) is a controlled release formulation of disopyramide, which is
indicated for treatment of arrhythmias, an irregular beating of the heart.
Norpace CR(R) is licensed to G.D. Searle & Co. until October 1998 for the
12-hour formulation and 16 years from the date of first marketing for the
24-hour formulation for sale worldwide except in Europe and portions of Africa
and the Middle East. The license agreement provides for a royalty of 3% of net
sales up to a specified annual threshold, and 1.5% on any sales thereafter for
any such year.
Tiazac(R) is a once-daily controlled release formulation of diltiazem
indicated for the treatment of hypertension. An NDA was approved by the FDA in
September, 1995, and the Company licensed the right to market Tiazac(R) in the
United States to Forest. The license agreement with Forest provides for a
royalty payment of 8% of net sales for a period of 16 years commencing
December, 1995.
Isoket Retard(R) is a controlled release formulation of isosorbide
dinitrate indicated for the treatment of chronic, stable angina pectoris. Isoket
Retard has been licensed worldwide, except North America and the Middle East, to
Schwarz Pharma pursuant to a license agreement that expires in December 1999 and
provides for a 2.5% royalty on net sales of products containing isosorbide
dinitrate as the sole active ingredient.
Theo-24(R)/Pulmo-Timelets(R) is a once-daily formulation of anhydrous
theophylline, a xanthine bronchodilator, that is indicated for treatment of
asthma, chronic bronchitis and chronic obstructive pulmonary disease. Theo-24(R)
is licensed to G.D. Searle & Co. for marketing in Italy and certain other
countries, until August 1999. Pursuant to an amendment and partial assignment
dated December 23, 1991, UCB Pharma (formerly Whitby Pharmaceutical, Inc.),
acquired the marketing rights to Theo-24(R) from G.D. Searle & Co. for the U.S.
and Puerto Rico. UCB commenced active marketing of Theo-24(R) in the second
quarter of 1992. Temmler Pharma is licensed to market Pulmo-Timelets(R) in
Germany, Austria and Switzerland pursuant to a license agreement that expires in
July 1999. Each of these license agreements provides for a royalty to the
Company of 3% of net sales of the product.
The Company believes certain of these products could generate additional
royalties in the future if regulatory approvals pending in several countries are
received and if new licenses are entered into for as yet unlicensed territories.
There can be no assurance, however, that any such increased royalties will be
achieved. Additionally, the Company is currently developing study protocols for
certain of these products in an effort to expand the therapeutic application of
such products.
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PRODUCTS AWAITING REGULATORY APPROVAL
The Company has several products under active development, of which one has
been submitted to the FDA in the United States and one to the HPB in Canada for
regulatory approval.
Diltiazem is a calcium channel blocker that relaxes and dilates the smooth
muscle of the blood vessels and is indicated for the treatment of high blood
pressure and prophylactic management of angina pectoris. The Company's diltiazem
product, Tiazac(R) is marketed in the U.S. as a controlled release, once-daily
dosage form by Forest. Diltiazem is also marketed in the U.S. in an immediate
release, three-to-four-times daily dosage form by Hoechst-Marion-Roussel.
Hoechst-Marion-Roussel also markets a controlled release, twice-daily dosage
version under the brand name Cardizem SR(R) and a once-daily controlled release
form under the brand name Cardizem CD(R).
An NDS was filed by the Company for its once-daily controlled release
formulation of diltiazem (Tiazac(R)) with the HPB in September 1993.
An ANDA was filed by the Company for its twice-daily controlled release
formulation of diltiazem with the FDA in February, 1996.
LICENSING AGREEMENTS
The Company does not engage in direct marketing or sales of its products
outside of Canada but instead seeks to enter into licensing agreements with
various regional and multinational pharmaceutical companies for the marketing
and sale of its products in specified territories. While the specific terms of
each license agreement vary, the agreements in general require the licensee to
pay the Company a royalty based on a specific percentage of net sales, or a
share of the net profits from the sales of the licensed products, and in certain
instances, to purchase the products from the Company.
The existing licensing arrangements for the marketing of the Company's
products reflect the past strategy of seeking third-party funding to complete
product development and obtain regulatory approval. This strategy resulted in
relatively low royalty rates generally ranging from 1% to 4.5% of net sales and
royalty percentages that often decrease in the latter stages of the term of the
license agreement and may also decrease in the event a competing product is
introduced into the defined territory. While each license agreement has unique
provisions, they generally provide the licensee the right to manufacture the
product using the Company's controlled release technology and to market the
product in an exclusive, defined territory. The Company is required under the
terms of each license agreement to furnish consulting services to the licensee
in connection with personnel training and manufacturing know-how. During the
term of each agreement, the licensee is required to make available to the
Company all experimental information with regard to the clinical effect of the
product in human testing. At the expiration of a licensing agreement, the
licensee typically may continue to manufacture, market and sell the licensed
product in the licensed territory without royalty obligations to the Company.
Similarly, the Company may typically manufacture, market and license the
licensed product at the expiration of the licensing agreement, with the
exception of its licensing agreements with each of Rhone-Poulenc Rorer and
Wyeth-Ayerst Laboratories covering Oruvail under which the Company is prohibited
from marketing in the licensed territory at expiration.
In September, 1995, the Company entered into licence and supply agreements
for Tiazac(R), its once daily formulation of diltiazem with Forest. The terms of
the agreements are 16 years during which period Forest will pay a royalty of 8%
of net sales and manufacturing fees for the supply of product. In addition, a
significant non-refundable advance payment was made to the Company by Forest
which is being applied toward manufacturing supplies of Tiazac(R).
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Pursuant to the terms of Know-How Transfer and Licensing Agreements with
Galephar, the Company may use the Galephar technology in a once-daily form of
diltiazem, and six other once-daily formulations of other active ingredients.
The Company is required under these agreements to pay Galephar a royalty ranging
from 4% to 6% of the net sales of the covered products in Canada, the United
States, Mexico and certain other countries for a term ranging from 16 to 20
years, commencing, with respect to each country, from the date of first
marketing of the drug in such country.
Pursuant to the terms of a licensing agreement with Laboratoires SMB S.A.
and Pharlyse S.A., the Company has acquired the right to market its once-daily
form of diltiazem (Tiazac(R)) in Sweden, Finland, Norway and Switzerland and in
the European Economic Community, excluding Belgium and Luxembourg. The Company
is required and has paid to Pharlyse S.A. a non-refundable, advance royalty of
U.S.$2,650,000. The Company has also entered into a supply agreement with
Laboratoires SMB S.A. to supply to the Company and sub-licensees all or a
portion of their requirements of the product for marketing in the covered
territories for a period of ten years from the date of first commercial sale in
each country.
Pursuant to the terms of a licensing agreement with BM Research, A/S, the
Company is required to pay a royalty of 5% of the net sales of products
utilizing BM Research's licensed technology. In addition, the Company is
required to remit an initial development fee of U.S. $300,000 in nineteen
instalments ranging from U.S. $15,000 to U.S. $30,000 - as well as, periodic
milestone payments in an amount of 8% of payments received from any marketing
partner or licensee selected by the Company.
CONTROLLED RELEASE TECHNOLOGY
The design of oral controlled release systems involves a consideration of
the physiology of the GI tract, the characteristics of the drug to be delivered,
the effect of food on absorption and the transit time of the product through the
GI tract, the desired location and extent of absorption at any given site in the
GI tract and the chemical and physical characteristics of the drug. The
objective is to provide a delivery system allowing for a single dose per
12-to-24 hour period while assuring gradual and controlled release of the
subject drug at suitable location(s) in the GI tract.
The controlled release technology utilized by the Company takes the form of
either a pelletization or a tablet matrix system depending upon, among other
factors, the chemical characteristics of the drug to be delivered.
Pelletization Technology
The Company's controlled release pelletization systems are based on the
technology of coating pellets containing pharmaceutical compounds with
specialized polymers and plasticizers to control the rate and location of drug
release in the GI tract. The pellets can be prepared using one of two basic
techniques. The first involves the layering of the drug as a solution or dry
powder onto neutral sugar beads while the second involves the mixing of the drug
into a starch-based "dough" which is used to produce pellets through an
extrusion-spheronization process.
Once prepared, the pellets are coated with a thin membrane of permeable,
semi-permeable and/or pH sensitive polymers and plasticizers to control the rate
and location of release in the GI tract of the drug from the surface of the
pellets. The Company's pelletization delivery systems utilize the features of pH
activated or pH independent diffusion, osmotic diffusion or a combination of
these mechanisms.
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The pH activated diffusion system developed by the Company is suitable for
delivery of drugs known to cause gastric upset or ulceration if released in the
stomach. Through the application of specifically designed polymer coating
membranes, the release of the drug is delayed while the pellets are located in
the acidic conditions of the stomach, with controlled release of the drug
commencing upon its reaching the less acidic conditions in the upper intestinal
tract, thus reducing gastric irritation. Upon reaching the upper intestine, the
polymer membrane surrounding each pellet may dissolve releasing the drug
immediately or not dissolve but develop pores allowing release of the drug at a
controlled rate as the pellets progress through the intestinal tract. Absorption
of the drug from the pellets continues while they descend through the GI tract,
thus providing sustained availability of the drug.
Under the osmotic diffusion system developed by the Company, the rate of
release of the drug from the pellets is controlled by a combination of
principles involved in osmosis and diffusion. If immediate release of the drug
is required, the drug in its free form is applied to the outside of the
controlled release membrane. For example, to provide immediate and sustained
relief from bronchial constriction for asthma patients, the outer membrane of
the drug pellets is coated with a small amount of theophylline (an asthma-relief
drug) to provide for immediate absorption in the stomach and immediate
therapeutic relief. An osmotic membrane envelops the remaining theophylline on
the pellets. The free drug is released in the stomach to give a quick input of
the drug and then further release occurs under osmotic pressure to provide
controlled release and absorption of the theophylline into the bloodstream over
a 24-hour period.
Tablet Technology
Egalet from BM Research, A/S is a patented controlled release technology
based on a new concept - namely erosion of a matrix using controlled geometric
surfaces. With Egalet, it is possible to achieve an accurate control of the
release profile of the drug, such as, for instance, a constant ("zero-order")
release profile. Egalet is a programmable release system, the cornerstone of
which is its defined surface-erodible matrix. This matrix is slowly
water-soluble, yet the dissolution takes place only at the exposed surfaces,
meaning that water does not diffuse into the matrix. When the matrix is exposed
to an aqueous medium, it dissolves gradually and thus the drug imbedded in the
matrix is released. The latter consists of a cylinder with an outer coating,
with one or two "free-ends". Since the "erosion" of the matrix occurs only at
the exposed ends within a well defined surface, a constant erosion of the matrix
and, therefore, a constant "zero-order" release is achieved. Nearly any drug can
be formulated using Egalet, but it is particularly well suited for so-called
sparingly soluble drugs.
Products formulated using the Egalet system are produced using injection
molding technology. It is this technology which is used commonly today in
producing all kinds of parts and finished products. This means that, in spite of
being a relatively new technology, it is a very well documented technology. Both
the matrix and the coat of the Egalet system are based on thermoplastic polymers
(albeit unusual in being water-soluble with different rates of dissolution) and,
therefore, can be processed using known procedures. The main advantages of using
this technology are good reproducibility of performance, flexibility in drug
release and automation of production.
The Company also utilizes a matrix tablet technology, which entails the
mixing of a drug compound with rate-controlling polymers to form a granulation
which is pressed into tablets. The tablets are spray-coated with
rate-controlling polymer for optimal drug release.
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CLINICAL RESEARCH AND REGULATORY APPROVAL SERVICES
Clinical research and regulatory approval services are also performed by
the Company for multinational, regional and generic pharmaceutical companies.
The Company has performed such services for many companies, including
subsidiaries of Bristol-Myers, Burroughs Wellcome, Ciba-Geigy, Johnson &
Johnson, Rhone-Poulenc Rorer, The Upjohn Co. and G.D. Searle & Co.
The Company provides pharmaceutical companies with a broad range of
pharmaceutical development services, including pharmacokinetic studies,
bioanalytical laboratory testing, clinical research studies and regulatory
services, including the preparation and filing of drug submissions with the FDA,
HPB and other foreign regulatory agencies. These services are also performed for
the Company's own product development and registration programs.
Pharmacokinetic Study Services
The Company conducts Phase I human bioavailability, bioequivalency and drug
interaction studies at its 140 bed, sleep-in clinic located in Scarborough, a
suburb of Toronto, Ontario. Therapeutic areas in which studies have been
completed include respiratory, cardiovascular, pain management, infectious
diseases, arthritis, the central nervous system, gastroenterology and
endocrinology. The Company's clinical facility is suitable for studies requiring
the monitoring of individuals for up to 30 days. Long-term observation periods
are imperative for studies where close subject supervision and absolute dosing
compliance is required. The research procedures include repeated blood sampling
at frequent intervals followed by precision analysis of the drug levels in the
blood to determine whether the drug under review meets the criteria expected for
the specific compounds under investigation.
BIOANALYTICAL LABORATORY SERVICES
The Company performs specialized bioanalytical and quality control test
method development and other laboratory services for major regional and
multinational pharmaceutical concerns. The Company's analytical laboratory,
located in its clinical facility in Scarborough, Ontario, is subject to full
compliance with the Good Laboratory Practice Regulations and Standards required
by the FDA, the HPB and other foreign regulatory agencies.
Clinical Trials
The Company prepares suitable protocols and case reports for Phase II and
III studies of pharmacologically active agents. The Company organizes clinical
trials, contracts with medical investigators, monitors trials, and tabulates and
analyzes trial data in a manner consistent with regulatory filing criteria. The
Company's experience in clinical trials enhances its ability to coordinate North
American multi-centre trials. In the United States, all trials are required to
be conducted according to Good Clinical Practice Guidelines and Regulations. In
Canada, all clinical testing must be conducted in accordance with the Food and
Drugs Act and regulations thereunder, as well as certain guidelines for the
conduct of experiments with human subjects.
Regulatory Services
The Company has 17 years of experience in working with regulatory
authorities located in the United States and Canada. The Company has experience
in the regulatory approval process through and including
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the preparation and filing of an Investigational New Drug Application ("IND"),
NDA or ANDA or an equivalent submission with other regulatory agencies.
COMPETITION
The pharmaceutical industry is highly competitive and subject to rapid and
significant technological change. The Company's products face intense
competition from both conventional forms of drug delivery and controlled release
drug delivery systems developed, or under development by, other pharmaceutical
concerns with substantially greater financial and technical resources than the
Company. Almost all of these competitors have greater marketing capabilities
than those of the Company. Competitors of the Company in the United States and
abroad are numerous and include, among others, major pharmaceutical and chemical
companies, including without limitation some of the licensees of the Company's
products, specialized contract, research and development firms, universities and
other research institutions. The Company believes that its controlled release
technology combined with its strategy of funding and controlling all or most
aspects of its controlled release pharmaceutical business will provide the cost
savings, efficiencies in product development and acceleration of regulatory
filings necessary for it to compete effectively with such firms and
institutions. There can be no assurance, however, that the Company's competitors
will not succeed in developing technologies and products that are as, or more,
clinically- or cost-effective than any that are being developed or licensed by
the Company or that would render the Company's technologies and products
obsolete and non-competitive. In addition, certain of the Company's competitors
have greater experience than the Company in clinical testing and human clinical
trials of pharmaceutical products and in obtaining FDA and other regulatory
approvals.
GOVERNMENT REGULATION
The research and development, manufacture and marketing of controlled
release products are subject to regulation by the FDA, HPB and comparable
authorities in other foreign countries. These national agencies and other
federal, state, provincial and local entities regulate the testing, manufacture,
safety and promotion of the Company's products. The regulations applicable to
the Company's products may change as the currently limited number of approved
controlled release products increase and regulators acquire additional
experience in this area.
UNITED STATES REGULATION
New Drug Application. The Company is required by the FDA to comply with NDA
procedures prior to marketing certain of its products. These procedures include
(i) preclinical laboratory and animal toxicology tests; (ii) submission of an
IND, which must become effective before human clinical trials commence; (iii)
adequate and well-controlled human clinical trials to establish the safety and
efficacy of the drug for its intended indication; (iv) the submission of an NDA
to the FDA; and (v) FDA approval of an NDA prior to any commercial sale or
shipment of the product, including pre-approval and post approval inspections of
its manufacturing facilities.
Preclinical laboratory and animal toxicology tests must be performed to
assess the safety and potential efficacy of the product. The results of these
preclinical tests are then submitted to the FDA as part of an IND requesting
authorization to initiate human clinical trials. Upon approval of the IND by the
FDA, clinical trials may be initiated.
Clinical trials involve the administration of the controlled release
product to individuals under the supervision of qualified medical investigators.
Clinical studies are conducted in accordance with protocols
10
<PAGE> 13
that detail the objectives of a study, the parameters to be used to monitor
safety and the efficacy criteria to be evaluated. Each protocol is submitted to
the FDA prior to the commencement of each clinical trial. Clinical studies are
typically conducted in three sequential phases, which may overlap. In Phase I,
the initial introduction of the product into human subjects, the compound is
tested for safety, dosage, tolerance, metabolic interaction, distribution,
excretion and pharmacodynamics. Phase II involves studies in a limited patient
population to (i) determine the efficacy of the product for specific, targeted
indications, (ii) determine optimal dosage and (iii) identify possible adverse
effects and safety risks. In the event Phase II evaluations demonstrate that the
controlled release product is effective and has an acceptable safety profile,
Phase III clinical trials are undertaken to further evaluate clinical efficacy
of the product and to further test for its safety within an expanded patient
population at geographically dispersed clinical study sites. The FDA or the
Company may suspend clinical trials at any time if they believe the clinical
subjects are being exposed to unacceptable health risks. The results of the
product development, analytical laboratory studies and clinical studies are
submitted to the FDA as part of an NDA for approval of the marketing and
commercialization of the controlled release product.
If the approval being sought is for a new dosage form of an approved
chemical entity, as has been the case for each of the Company's products
submitted under an NDA to date, the approval process may not require preclinical
toxicity tests normally required as part of the NDA process.
Abbreviated New Drug Application. In certain cases, where the Company's
objective is to develop a generic version of an approved product already on the
market in controlled release dosages, an ANDA may be filed in lieu of filing an
NDA. Under the ANDA procedure, the FDA typically waives the requirement to
submit complete reports of preclinical and clinical studies of safety and
efficacy and instead requires the submission of bioequivalency data. An ANDA
would be available to the Company for a new formulation of a drug for which
controlled release forms have already been approved by the FDA. The advantages
of an ANDA over an NDA include reduced research and development costs associated
with bringing a product to market, and generally a shorter review and approval
time at the FDA.
The FDA may deny approval of an NDA or an ANDA if applicable regulatory
criteria are not satisfied or may require additional testing. Product approvals
may be withdrawn if compliance with regulatory standards is not maintained or if
problems occur after the product reaches the market. The FDA may require further
testing and surveillance programs to monitor the pharmaceutical product that has
been commercialized. Noncompliance with applicable requirements can result in
fines and other judicially imposed sanctions, including product seizures,
injunction actions and criminal prosecutions.
CANADIAN REGULATION
The requirements for selling pharmaceutical drugs in Canada are
substantially similar to those of the United States described above.
Investigational New Drug Application. Before conducting clinical trials of
a new drug in Canada, the Company must submit an IND to the HPB. This
application includes information about the methods of manufacture of the drug
and controls, and preclinical laboratory and animal toxicology tests on the
safety and potential efficacy of the drug. If, within 60 days of receiving the
application, the HPB does not notify the Company that its application is
unsatisfactory, the Company may proceed with clinical trials of the drug. The
phases of clinical trials are the same as those described above under "United
States Regulation - New Drug Application."
11
<PAGE> 14
New Drug Submission. Before selling a new drug in Canada, the Company must
submit a New Drug Submission ("NDS") to the HPB and receive a notice of
compliance from the HPB to sell the drug. The NDS includes information
describing the new drug, including its proper name, the proposed name under
which the new drug will be sold, a quantitative list of ingredients of the new
drug, the methods of manufacturing, processing, and packaging the new drug, the
controls applicable to these operations, the tests conducted to establish the
safety of the new drug, the tests to be applied to control the potency, purity,
stability and safety of the new drug, the results of clinical trials and the
effectiveness of the new drug when used as intended. The HPB reviews the NDS. If
the NDS meets the requirements of Canada's Food and Drugs Act and Regulations,
the HPB will issue a notice of compliance for the new drug.
Where the HPB has already approved a drug for sale in controlled release
dosages, the Company may seek approval from the HPB to sell an equivalent drug.
In certain cases, the HPB does not require the manufacturer of a drug that is
equivalent to a drug that has already been approved for sale by the HPB to
conduct preclinical tests and clinical trials; instead, the HPB accepts data to
establish that the drug is "bioequivalent" to the drug that has already been
approved. The manufacturer must submit this data with an NDS to the HPB.
The HPB may deny approval of an NDS if applicable regulatory criteria are
not satisfied or may require additional testing. Product approvals may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur after the product reaches the market. The HPB may require further
testing and surveillance programs to monitor the pharmaceutical product which
has been commercialized. Noncompliance with applicable requirements can result
in fines and other judicially imposed sanctions, including product seizures and
criminal prosecutions.
Additional Regulatory Considerations
Sales of the Company's products by licensees outside of the United States
and Canada are subject to regulatory requirements governing the testing,
registration and marketing of pharmaceuticals, which vary widely from country to
country.
There can be no assurance that problems will not arise which could delay or
prevent the commercialization of the Company's products currently under
development, or that the FDA, HPB and foreign regulatory agencies will be
satisfied with the results of clinical trials to approve the marketing of such
products.
The Company's manufacturing facilities located at Steinbach, Manitoba and
Carolina, Puerto Rico operate according to Current Good Manufacturing Practices
Regulations. The manufacturing facilities are inspected on a regular basis by
the FDA, the HPB, other regulatory authorities and the Company's self-auditing
team to ensure compliance on an ongoing basis with Current Good Manufacturing
Practices. From time to time, the FDA, the HPB or other regulatory agencies may
adopt regulations that may significantly affect the manufacture and marketing of
the Company's products.
Certain provincial regulatory authorities in Canada have the ability to
determine whether the cost of a drug sold within such province will be
reimbursed by a provincial government health plan by listing drugs on
formularies. These provincial formularies may affect the prices of drugs sold
within provinces and the volume of drugs sold within provinces.
In addition to the regulatory approval process, pharmaceutical companies
are subject to regulations under provincial, state and federal law, including
requirements regarding occupational safety, laboratory
12
<PAGE> 15
practices, environmental protection and hazardous substance control, and may be
subject to other present and future local, provincial, state, federal and
foreign regulations, including possible future regulations of the pharmaceutical
industry.
Proposals have recently been made that, if implemented, would significantly
change Canada's drug approval system. In general, the recommendations emphasize
the need for efficiency in Canadian drug review. Proposals include establishment
of a separate agency for drug regulation and modelling the approval system on
those found in European Community countries. There is no assurance, however,
that such changes will be implemented or, if implemented, will expedite the
approval of controlled release products.
The Canadian government has regulations which prohibit the issuance of a
notice of compliance (NOC) for a medicine, other than the first medicine
marketed in Canada, provided that the patent owner of the medicine has filed a
list of its Canadian patents covering that medicine with the HPB. After
receiving the list, the HPB may refuse to issue NOCs permitting the importation
or sale of a patented medicine to persons other than a patent owner until
patents on the medicine expire or are declared invalid by a court of competent
jurisdiction.
PATENTS AND PROPRIETARY RIGHTS
The Company does not routinely seek patents on its controlled release
technology. Instead, the Company has relied on trade secrets, know-how and other
proprietary information. While certain of the Company's licensors have sought
patents on controlled release technology licensed to the Company, there can be
no assurance that any patents will be issued, or if issued, that such patents
will not infringe upon a pre-existing patent or technology. The Company's
ability to compete effectively with other companies will depend, in part, upon
its ability to maintain the proprietary nature of its technology. To protect its
rights in these areas, the Company requires all licensors, licensees and
significant employees to enter into confidentiality agreements. There can be no
assurance, however, that these agreements will provide meaningful protection for
the Company's trade secrets, know-how or other proprietary information in the
event of any unauthorized use or disclosure of such trade secrets, know-how or
other proprietary information. A patent for the Tiazac(R) controlled release
formulation has been issued.
DIVIDEND POLICY
It is anticipated that for the foreseeable future any earnings generated
from the Company's operations will be retained for use in the Company's
business. Any future determination as to the payment of dividends will be at the
discretion of the Board of Directors and will depend on the Company's earnings,
operating results, financial condition and capital requirements, general
business conditions and such other factors as the Board of Directors may deem
relevant.
EMPLOYEES
As of June 10, 1996, the Company employed 295 persons, including 125 at its
manufacturing operations in Manitoba and Puerto Rico, 50 at its Canadian sales
and marketing operation, 81 at its contract research organization, 19 at its
formulation research operation and 20 in its corporate office. Of the above
employees, 52 are employed on a part-time basis.
13
<PAGE> 16
Item 2. DESCRIPTION OF PROPERTIES
The Company and its subsidiaries own and lease space for manufacturing,
warehousing, research, development, sales, marketing, and administrative
purposes. The Company owns two pharmaceutical manufacturing facilities; one in
Steinbach, Manitoba, Canada totalling 75,000 square feet and the second in
Carolina, Puerto Rico totalling 23,000 square feet. The Company's contract
research organization is located in a 33,000 square foot owned facility in
Toronto, Ontario, Canada. The Company's corporate office and formulations
development research are located in a 24,300 square foot leased facility in
Mississauga, Ontario, Canada. The Company's Canadian sales and marketing
operation is located in an 8,300 square foot office leased facility in Montreal,
Quebec, Canada. The Company also leases 2,500 square feet of office space in St.
Michael, Barbados and 11,000 square feet of warehouse space in Carolina, Puerto
Rico.
ITEM 3. LEGAL PROCEEDINGS
On November 12, 1993, a patent infringement lawsuit was commenced in the
U.S.District Court, for the District of New Jersey, by Marion Merrell Dow, Inc.
("MMD"), Carderm Capital LP and Elan Corporation plc ("Elan") against
Hoechst-Roussel Pharmaceuticals, Inc. ("Hoechst").
Hoechst was licensed by the Company for the once-daily controlled release
formulation of Diltiazem. A complaint alleged that Hoechst had infringed certain
patents relating to controlled absorption diltiazem formulation and sought,
among other things, to enjoin Hoechst from infringing the plaintiffs' patents.
As a result of the Settlement Agreement among Hoechst, MMD and Carderm
Capital LP, that suit was discontinued on behalf of those plaintiffs. However,
Elan has continued this suit as sole plaintiff.
The Company has answered Elan's allegations of patent infringement by
denying any such infringement and by asserting that, in any event, Elan's
patents are invalid and therefore unenforceable.
The Company has received a legal opinion that Elan's lawsuit is without
merit and it has, accordingly, launched an Application for a summary dismissal
of Elan's complaint.
ITEM 4. CONTROL OF REGISTRANT
The following table sets forth certain information as of May 31, 1996
concerning the beneficial ownership of common stock of the Company as to (a)
each person known to the management of the Company that is the beneficial owner
of more than 10% of the outstanding shares of the Company's common stock and (b)
Company's officers and directors as a group:
<TABLE>
<CAPTION>
Ownership of Common Stock(1)
----------------------------
Name and Address Number of Shares Percent
- - ---------------- ---------------- -------
<S> <C> <C>
Eugene Melnyk 5,431,077 21.4%
c/o Biovail Corporation International
2488 Dunwin Drive
Mississauga, Ontario L5L 1J9
Officers and Directors of the Company 5,835,405 23.0%
as a Group (8 persons)
</TABLE>
14
<PAGE> 17
(1) unless otherwise noted, each person listed has, to the best of the
Company's knowledge and belief, sole voting and investment power with
respect to the indicated shares.
ITEM 5. NATURE OF TRADING MARKET
As discussed in Item 1, Business - General, the Company was formed upon the
Amalgamation of each of Trimel and BCI effective March 29, 1994. Prior to the
Amalgamation, the common stock of BCI (as the predecessor entity) was traded in
the over-the-counter market with price quotations listed on the OTC Bulletin
Board, an NASD sponsored and operated inter-dealer automated quotation system
for equity securities not included in the NASDAQ System, as well as in the NQB
Pink Sheets published by the National Quotation Bureau Incorporated. Such
quotations were limited and sporadic and should not be deemed to indicate the
existence of an "established public trading market" for the Company's common
stock during such period. Prior to the Amalgamation, the common stock of Trimel
was traded on the Toronto Stock Exchange under the symbol "TXM". Effective upon
the amalgamation of Trimel and BCI to form Biovail Corporation International, as
the surviving amalgamated corporation, the common stock of the Company was
traded on NASDAQ under the symbol "BIOVF"." Effective September 20, 1994, the
common stock of the Company cesed trading on NASDAQ and commenced trading on the
American Stock Exchange and continued trading on the Toronto Stock Exchange
under the symbol"BVF".
The following table sets forth, for the periods indicated, the high and low
reported price of the Company's common stock on the American Stock Exchange,
NASDAQ and the Toronto Stock Exchange, and takes into effect the 3-for-1 stock
split completed in January, 1996.
<TABLE>
<CAPTION>
AMERICAN STOCK EXCHANGE TORONTO STOCK EXCHANGE
----------------------- ----------------------
PRICE RANGE (U.S.$) PRICE RANGE (CDN.$)
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
1996
- - ----
First Quarter 30.75 21.75 43.00 29.75
Second Quarter (to May 31) 40.00 22.50 54.50 31.00
1995
- - ----
First Quarter 5.17 2.29 7.33 3.33
Second Quarter 6.46 4.17 8.67 6.00
Third Quarter 11.96 6.21 16.17 8.80
Fourth Quarter 26.00 10.63 35.03 14.33
1994
- - ----
First Quarter - - 2.42 1.50
Second Quarter (1) 2.42 1.17 3.10 1.83
Third Quarter (2) 2.50 1.75 3.43 2.67
Fourth Quarter 3.42 2.38 4.47 3.40
</TABLE>
(1) NASDAQ
(2) NASDAQ/AMEX
15
<PAGE> 18
The Company estimates that approximately 15,300,000 shares of its outstanding
common stock (representing 60%) are held by United States shareholders and that
there are approximately 137 recordholders of the Company's common stock located
in the United States.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
Canada has no system of exchange controls. There are no exchange
restrictions on borrowing from foreign countries nor on the remittance of
dividends, interest, royalties and similar payments, management fees, loan
repayments, settlement of trade debts or the repatriation of capital.
The Investment Canada Act (the "Act") enacted on June 20, 1985, as amended
by the Canada-United States Free Trade Agreement Implementation Act (Canada),
requires the prior notification and, in certain cases, advance review and
approval by the Government of Canada of the acquisition by a "non-Canadian" of
"control" of a "Canadian business", all as defined in the Act. For the purposes
of the Act, "control" can be acquired through the acquisition of all or
substantially all of the assets used in the Canadian business, or the direct or
indirect acquisition of interests in an entity that carries on a Canadian
business or which controls the entity which carries on the Canadian business.
Under the Act, control of a corporation is deemed to be acquired through the
acquisition of a majority of the voting shares of a corporation, and is presumed
to be acquired where more than one-third, but less than a majority, of the
voting shares of a corporation are acquired, unless it can be established that
the corporation is not controlled in fact through the ownership of voting
shares. Other rules apply with respect to the acquisition of non-corporate
entities.
Investments requiring review and approval include direct acquisitions of
Canadian businesses with assets with a gross book value of CDN $5,000,000 or
more; indirect acquisitions of Canadian businesses with assets of CDN
$50,000,000 or more; and indirect acquisitions of Canadian businesses where the
value of assets of the entity or entities carrying on business in Canada,
control of which is indirectly being acquired, is greater than CDN $5,000,000
and represents greater than 50% of the total value of the assets of all of the
entities, control of which is being acquired. Subject to certain exceptions,
where an investment is made by an "American," or the vendor of the Canadian
business is an "American" (as defined in the Act), the monetary thresholds
discussed above are higher. In these circumstances the monetary threshold with
regard to direct acquisitions is CDN $150,000,000 in constant 1992 dollars as
determined in accordance with the Act. The monetary threshold for indirect
acquisitions, where the value of the assets of the entity or entities carrying
on business in Canada is greater than 50% of the total value of the assets of
all of the entities being acquired, is CDN $150,000,000 in constant 1992 dollars
as determined in accordance with the Act. Other indirect acquisitions of
Canadian businesses by or from Americans are not subject to review. An
"American", as defined under the Act, includes an individual who is a national
of the United States or is lawfully admitted for permanent residence within the
meaning of the Immigration and Nationality Act of the United States, and a
corporation that is controlled by an American in accordance with the Act.
Special rules apply with respect to investments by non-Canadians to acquire
control of Canadian businesses that engage in certain specified activities,
including financial services, transportation services and activities relating to
Canada's cultural heritage or national identity. If an investment is reviewable,
an application for review in the form prescribed by regulation is normally
required to be filed with the Agency (established by the Act) prior to the
investment taking place and the investment may not be consummated until the
review has been completed and ministerial approval obtained. Applications for
review concerning indirect acquisitions may be filed up to 30 days after the
investment is consummated. Applications concerning reviewable investments in
culturally sensitive and other specified activities referred to in the preceding
paragraph are required upon receipt of a notice for review. There is, moreover,
16
<PAGE> 19
provision for the Minister (a person designated as such under the Act) to permit
an investment to be consummated prior to completion of review if he is satisfied
that delay would cause undue hardship to the acquirer or jeopardize the
operation of the Canadian business that is being acquired.
The Agency will submit the application for review to the Minister, together
with any other information or written undertakings given by the acquirer and any
representation submitted to the Agency by a province that is likely to be
significantly affected by the investment. The Minister will then determine
whether the investment is likely to be of "net benefit to Canada," taking into
account the information provided and having regard to certain factors of
assessment prescribed under the Act. Among the factors to be considered are: (i)
the effect of the investment on the level and nature of economic activity in
Canada, including the effect on employment, on resource processing, on the
utilization of parts, components and services produced in Canada, and on exports
from Canada; (ii) the degree and significance of participation by Canadians in
the Canadian business and in any industry in Canada of which it forms a part;
(iii) the effect of the investment on productivity, industrial efficiency,
technological development, product innovation and product variety in Canada;
(iv) the effect of the investment on competition within any industry or
industries in Canada; (v) the compatibility of the investment with national
industrial, economic and cultural objectives enunciated by the government or
legislature of any province likely to be significantly affected by the
investment; and (vi) the contribution of the investment to Canada's ability to
compete in world markets.
Within 45 days after a completed application for review has been received,
the Minister must notify the investor that (a) he is satisfied that the
investment is likely to be of "net benefit to Canada," or (b) he is unable to
complete his review in which case he shall have 30 additional days to complete
his review (unless the investor agrees to a longer period) or (c) he is not
satisfied that the investment is likely to be of "net benefit to Canada."
If the Minister is unable to complete his review and no decision has been
taken within the prescribed or agreed upon time, the Minister is deemed to be
satisfied that the investment is likely to be of "net benefit to Canada."
Where the Minister has advised the investor that he is not satisfied that
the investment is likely to be of net benefit to Canada, the acquirer has the
right to make representations and submit undertakings within 30 days of the date
of the notice (or any further period that is agreed upon between the investor
and the Minister). On the expiration of the 30-day period (or an agreed
extension), the Minister must notify the investor whether or not he is satisfied
that the investment is likely to be of "net benefit to Canada." In the latter
case, the investor may not proceed with the investment or, if the investment has
already been consummated, must relinquish control of the Canadian business.
ITEM 7. TAXATION
CANADIAN FEDERAL INCOME TAXATION
The following discussion is a summary of the principal Canadian federal
income tax considerations generally applicable to purchasers of the Company's
Common Stock pursuant to this Annual Report who, for purposes of the Income Tax
Act (Canada) (the "Canadian Act"), deal at arm's length with the Company, hold
shares of Common Stock as capital property, are not residents of Canada at any
time when holding Common Stock and do not use or hold and are not deemed to use
or hold Common Stock in or in the course of carrying on business in Canada and,
in the case of insurers who carry on an insurance business
17
<PAGE> 20
in Canada and elsewhere, do not hold Common Stock that is effectively connected
with an insurance business carried on in Canada.
This summary is based on the current provision of the Canadian Act, the
regulations thereunder and the Canada-United States Income Tax Convention (1980)
(the "Treaty") as amended. This summary takes into account specific proposals to
amend the Canadian Act and the regulations thereunder publicly announced by the
Minister of Finance prior to the date hereof and the Company's understanding of
the current published administrative and assessing practices of Revenue Canada,
Taxation. This summary does not take into account Canadian provincial income tax
laws or the income tax laws of any country other than Canada.
A shareholder of the Company will generally not be subject to tax pursuant
to the Canadian Act on a capital gain realized on a disposition of Common Stock
unless the Capital Stock is "taxable Canadian property" to the shareholder for
purposes of the Canadian Act and the shareholder is not eligible for relief
pursuant to an applicable bilateral tax treaty. The Capital Stock will not be
taxable Canadian property to a shareholder provided that the Company is a
"public corporation" within the meaning of the Canadian Act and provided that
such shareholder, or persons with whom such shareholder did not deal at arm
length (within the meaning of the Canadian Act), or any combination thereof, did
not own 25% or more of the issued shares of any class or series of the Company
at any time within five years immediately preceding the date of disposition. The
Company has qualified and elected to be a "public corporation" within the
meaning of the Canadian Act. In addition, the Treaty will generally exempt a
shareholder who is a resident of the United States for purposes of the Treaty
from tax in respect of a disposition of Common Stock provided that the value of
the shares of the Company is not derived principally from real property
(including resource property) situated in Canada and provided such shareholder
does not have and has not had within the 12-month period preceding the
disposition a permanent establishment or fixed base available to such
shareholder in Canada.
Any dividend, including stock dividends, paid or credited, or deemed to be
paid or credited, by the Company to a shareholder will be subject to Canadian
withholding tax at the rate of 25% on the gross amount of the dividend, subject
to the provisions of any applicable income tax convention. Pursuant to the
Treaty, the rate of withholding tax generally will be reduced to 15% in respect
of dividends paid to a shareholder who is a resident of the United States for
purposes of the Treaty and further reduced to 5% if the beneficial owner of the
shares is a corporation owning at least 10% of the voting shares of the Company.
The reduction to 5% for corporations owning at least 10% of the voting shares of
the Company is phased in at 7% for dividends paid before 1996 and at 6% for
dividends paid before 1997.
UNITED STATES TAXATION
For federal income tax purposes, an individual who is a citizen or resident
of the United States or a domestic corporation ("U.S. Taxpayer") will recognize
a gain or loss on the sale of the Company's Common Stock equal to the difference
between the proceeds from such sale and the adjusted cost basis in the Common
Stock. The gain or loss will be a capital gain or capital loss if the Company's
Common Stock is a capital asset in the hands of the U.S. Taxpayer.
For federal income tax purposes, a U.S. Taxpayer will be required to
include in gross income dividends received on the Company's Common Stock. A U.S.
Taxpayer who pays Canadian tax on a dividend on the Common Stock will be
entitled, subject to certain limitations, to a credit ( or alternatively, a
deduction) against federal income tax liability. A domestic corporation that
owns at least 10% of the voting stock of
18
<PAGE> 21
the Company should consult its tax advisor as to applicability of the dividends
received deduction or deemed paid foreign tax credit with respect to dividends
paid on the Company's Common Stock.
For any taxable year of the Company, if at least 75% of the Company's gross
income is "passive income" (as defined in the Internal Revenue Code of 1986, as
amended (the "Code")), or if at least 50% of the Company's assets, by average
fair market value, are assets that produce or are held for the production of
passive income, the Company will be a Passive Foreign Investment Company
("PFIC"). While the Company does not believe that it is likely to be a PFIC in
its current or future taxable years, because the PFIC determination is made
annually on the basis of facts and circumstances that may be beyond the
Company's control, there can be no assurance that the Company will not be a PFIC
for such years.
If the Company is a PFIC for any taxable year during which a U.S. Taxpayer
owns any Common Stock, the U.S. Taxpayer will be subject to special U.S. federal
income tax rules, set forth in Sections 1291 to 1297 of the Code, with respect
to all of such U.S. Taxpayer's Common Stock. For example, gifts, exchanges
pursuant to corporate reorganizations and use of the Common Stock as security
for a loan may be treated as taxable disposition, and a stepped-up basis upon
the death of such a U.S. Taxpayer may not be available. Furthermore, in the
absence of an election by such U.S. Taxpayer to treat the Company as a
"qualified electing fund" (the "QEF election") , as discussed below, the U.S.
Taxpayer would be required to (i) report any gain on disposition of any Common
Stock as ordinary income rather than capital gain, (ii) to compute the tax
liability on such gain and on certain distributions as if the items had been
earned pro rata over the U.S. Taxpayer's holding period (or a certain portion
thereof) for the Common Stock and (iii) would be subject to the highest ordinary
income tax rate for each taxable year of the U.S. Taxpayer in which the items
were treated as having been earned. Such U.S. Taxpayer would also be liable for
interest (which may be non-deductible by certain U.S. Taxpayers) on the
foregoing tax liability as if such liability had been due with respect to each
such prior year.
If the Company is a PFIC for any taxable year during which a U.S. Taxpayer
owns any Common Stock, the adverse taxation of disposition gains and certain
distributions may be avoided by any U.S. Taxpayer who makes a QEF Election on or
before the due date (including extensions) for filing such U.S. Taxpayer's tax
return for such taxable year. Such a U.S. Taxpayer would be taxed on dividends
and capital gains as if the Company had never been a PFIC, but would also be
taxed on its pro-rata share of the Company's earnings and profits for the
Company's taxable year in which it was (or was treated as) a PFIC and which ends
with or within such U.S. Taxpayer's taxable year, regardless of whether such
amounts are actually distributed by the Company. Should such an election be made
(and if the Company is a PFIC, U.S. Taxpayers are strongly urged to consider
this special election), there are a number of specific rules and requirements
applicable thereto, and such an electing U.S. Taxpayer is strongly urged to
consult his own tax advisor in that regard.
The foregoing discussion of Canadian taxation and United States taxation is
of a general and summary nature only and is not intended to be, nor should it be
considered to be, legal or tax advice to any particular shareholder.
Accordingly, prospective investors should consult their own tax advisors as to
the tax consequences of receiving dividends from the company or disposing of
their common stock.
19
<PAGE> 22
ITEM 8. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company. Insofar as it relates to the Company as of and for each of the years in
the five year period ended December 31, 1995, the data has been derived from
financial statements prepared in accordance with Canadian Generally Accepted
Accounting Principles ("GAAP") that have been audited by Deloitte & Touche,
Toronto, Canada. The data set forth below should be read in conjunction with the
Company's consolidated financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(ALL DOLLAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF
U.S. DOLLARS EXCEPT PER SHARE AND FOOTNOTED DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue
Contract ................................... $ 4,333 $ 3,909 $ 3,771 $ 3,148 $ 3,190
Manufacturing .............................. 7,915 4,975 -- -- --
Royalty, Licensing and Other ............... 8,321 8,404 7,358 2,815 2,633
-------- -------- -------- -------- --------
20,569 17,288 11,129 5,962 5,823
-------- -------- -------- -------- --------
Expenses
Cost of Contract Revenue ................... 2,732 3,036 2,783 2,548 2,343
Cost of Manufactured Goods Sold ............ 2,715 2,102 -- -- --
Research and Product Development ........... 4,462 2,542 2,737 4,632 4,576
Selling and Administrative ................. 7,182 6,359 5,718 5,483 4,538
Royalty and Commission ..................... 925 724 1,399 -- --
-------- -------- -------- -------- --------
8,016 14,763 12,637 12,663 11,427
-------- -------- -------- -------- --------
Operating Income (Loss) ........................ 2,553 2,525 (1,508) (6,701) (5,634)
Interest Expense, Net .......................... (99) (589) (722) (1,186) (1,198)
Gain on Licensing Settlement ................... 3,617 -- -- -- --
Gain on Debt Settlement ........................ -- 7,955 -- -- --
Offering Expenses .............................. -- -- -- (1,115) --
-------- -------- -------- -------- --------
Income (Loss) before Income Taxes .............. 6,071 9,891 (2,230) (9,001) (6,832)
Provision for Income Taxes ..................... 201 430 248 349 199
-------- -------- -------- -------- --------
Income (Loss) Before Undernoted ................ 5,870 9,461 (2,478) (9,350) (7,031)
Minority Interest .............................. -- -- (726) (780) (416)
Dilution Gain on Issuance of Common Shares
By a Subsidiary Company ..................... -- -- 5,871 1,941 --
Gain on Sale of a Subsidiary Company ........... -- -- 1,260 -- --
Share of Net Loss of Equity Accounted
Investment .................................. -- -- -- (25) (165)
-------- -------- -------- -------- --------
Net Income (Loss) .............................. $ 5,870 $ 9,461 $ 3,927 $ (8,214) $ (7,612)
======== ======== ======== ======== ========
Earnings (Loss) Per Share (1) .................. $ 0.23 $ 0.43 $ 0.28 $ (0.70) $ (0.78)
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Working Capital (Deficiency) ................... $ 26,817 $ 547 $ 2,338 $ (3,341) $ (2,801)
Total Assets ................................... 60,867 25,630 23,265 23,457 22,090
Long-Term Debt ................................. 7,951 9,782 21,398 19,874 19,834
Minority Interest .............................. -- -- 2,167 2,536 1,020
Shareholders' Equity (Capital Deficiency) (2) .. 14,592 7,693 (4,760) (7,969) (8,034)
</TABLE>
(1) Earning (loss) per share take into effect the 3-for-1 stock split completed
in January, 1996.
20
<PAGE> 23
Summary of differences between generally accepted accounting principles ("GAAP")
in Canada and in the United States (U.S.)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(ALL DOLLAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN
THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Net earnings (loss) - Canadian GAAP ........... $ 5,870 $ 9,461 $ 3,927 $ (8,214) $ (7,612)
Differences
Use of weighted average rate for the
year versus year end rate for purposes
of translating net income amounts
from Canadian dollars (the currency
of measurement) to U.S. dollars
(the reporting currency) .................... (36) 252 105 423 63
Items excluded from income under
U.S. GAAP
Dilution gain on issuance of
common shares by a then
subsidiary company ......................... -- -- (5,871) (1942) --
Gain on debt settlement treated as
contributed surplus under U.S.
GAAP ....................................... -- (7,955) -- -- --
-------- -------- -------- -------- --------
Net income (loss) - U.S. GAAP ................. $ 5,834 $ 1,758 $ (1,839) $ (9,733) $ (7,549)
======== ======== ======== ======== ========
Earnings (loss) per share - U.S.GAAP ......... $ 0.22 $ 0.07 $ (0.15) $ (0.95) $ (0.80)
======== ======== ======== ======== ========
Weighted average number of common shares
outstanding under U.S. GAAP (1) (000's) ...... 26,940 22,635 12,199 10,229 9,463
======== ======== ======== ======== ========
</TABLE>
(1) The weighted average number of common shares outstanding for purposes of
the computation of the earnings (loss) per share data under U.S. GAAP gives
effect to the exercise of all outstanding options and the 3-for-1 stock
split in January, 1996.
(2) The capital deficiency which would be reported under U.S. GAAP differ from
the amounts reported under Canadian GAAP. The shareholders' equity (capital
deficiency) under U.S. GAAP would have been $(9,271,000), $(9,141,000) and
$(6,303,000) at December 31, 1991, 1992 and 1993, respectively. There are
no material differences between shareholders' equity determined under
Canadian and U.S. GAAP at either December 31, 1994 or 1995.
21
<PAGE> 24
Item 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and the related Notes to the Consolidated
Financial Statements.
OVERVIEW
The Company derives its revenues from (1) the development and licensing of
oral controlled release products using its proprietary drug delivery technology;
(2) the manufacture of such drugs for sale to licensees: (3) royalties from
sales by licensees of Company developed products; and (4) providing contract
research services including pharmacokinetic studies, bioanalytical laboratory
testing, clinical research studies and regulatory services.
The Company's profitability in a given year is directly impacted by the
level of its research and product development activities. Such costs are charged
to earnings in the year they are incurred notwithstanding the fact that the
benefits therefrom are not realized until later periods when the products under
development are licensed and brought to market and revenues are generated from
royalties based on the level of sales and manufacturing revenues are generated
through the retention of manufacturing rights.
Effective January 1, 1995, the Company commenced reporting its financial
statements in U.S. dollars, while the currency of measurement remains the
Canadian dollar. For purposes of this presentation, Canadian dollar amounts have
been translated into U.S. dollars at the respective year end rates of exchange.
RESULTS OF OPERATIONS
Contract revenue of the contract research operation was $4,333,000,
$3,909,000 and $2,316,000 in 1995, 1994 and 1993, respectively. The continued
growth of the contract research operation was due to the stabilization of the
Canadian market and an increasing level of business activity from U.S. clients
as a result of a favourable U.S. exchange rate. Contract revenue in 1993
includes revenue of $1,455,000 related to an electronic information operation
which was sold in 1993.
Manufacturing revenue was $7,915,000 in 1995 as compared to $4,975,000 in
1994. Manufacturing operations commenced in 1994 with shipments of the Company's
once-daily diltiazem ("Tiazac(R)") resulting from an order received from the
Company's then licensee, Hoechst-Roussel Pharmaceuticals, Inc.
("Hoechst-Roussel") for the manufacture of launch supplies of Tiazac(R). 1995
manufacturing revenue was derived from the sale of Tiazac(R) TO Hoechst-Roussel
and to the Company's new licensee, Forest Laboratories, Inc. ("Forest").
Royalty revenue earned by the Company in 1995 was $7,321,000 as compared to
$6,404,000 in 1994 and $3,077,000 in 1993. The 1994 amount included a settlement
of $1,130,000 received from Schwarz Pharma in respect to the termination and
re-acquisition by the Company of the Elanton Long(R) licensing agreement.
Excluding this settlement, the increase in royalty revenues in each of 1995 and
1994 are primarily due to Oruvail(R)SR sales volumes in the United States by
Wyeth-Ayerst Laboratories. In addition, royalties were earned in 1995 from the
launch of Tiazac(R) by Forest in the United States.
22
<PAGE> 25
Revenue from the licensing of new products was $1,000,000, $2,000,000 and
$4,281,000 in 1995, 1994 and 1993, respectively. The licensing revenues received
in these periods relate to the assignment and licensing rights for Tiazac(R) to
the Company's then licensees, Hoechst-Roussel in the United States and Sanofi
Winthrop in Canada.
The gross margin on contract revenue increased to 37% in 1995 from 22.3% in
1994. This improvement was partially due to the higher level of revenue in 1995
and resultant improved absorption of fixed overhead and partially due to the
inclusion in revenue of $567,000 of non-refundable prepaid amounts. During 1994
as compared to 1993, gross margins decreased to 22.3% from 26.2% as a result of
the absence of the electronic information operation.
The gross margin on manufacturing revenue was 66% in 1995 as compared to 58%
in 1994 due to the impact of higher net product pricing, and reduction of cost
of goods manufactured as a result of the acquisition of the Puerto Rico
operation.
Research and product development expenses were $4,462,000 in 1995,
$2,542,000 in 1994 and $2,737,000 in 1993. These expenses are incurred primarily
as a result of the Company's increased research and development activities. The
Company intends to continue to incur expenditures to fund on-going formulation
and development and to support pre-clinical testing and clinical trials
necessary for regulatory filings. The amount and timing of these expenditures
will depend on a number of factors.
Selling, general and administrative expenses increased to $7,182,000 in 1995
compared to $6,359,000 in 1994 and $5,718,000 in 1993. The year-to-year
increases are primarily as a result of increased activities associated with the
manufacturing and research and development facility in Canada in 1995 and 1994,
and the start-up of a Canadian sales operation in 1995.
Royalty and commission expenses were $925,000 in 1995 as compared to
$724,000 in 1994 and $1,399,000 in 1993, and represent fees paid to technology
and other partners.
Operating income of $2,553,000 was achieved in 1995 as compared to operating
income of $2,525,000 in 1994 and an operating loss of $1,508,000 in 1993.
Canadian operations incurred losses of $6,720,000, $1,307,000 and $3,346,000 in
each of 1995, 1994 and 1993, respectively. Operating income of $2,571,000,
$2,225,000 and $1,872,000 in each of 1995, 1994 and 1993, respectively was
earned by the Company's subsidiary in Switzerland through royalties earned on
the Company's products. Other foreign country operations, which include Puerto
Rico and Barbados, contributed operating income of $6,702,000 in 1995,
$1,607,000 in 1994 and a marginal loss of $34,000 in 1993. The increased
operating contribution in Puerto Rico and Barbados in 1995 is primarily due to
the sales of Tiazac(R) to Forest.
Interest expense was $99,000 in 1995 as compared to $589,000 in 1994 and
$722,000 in 1993. The reduction in interest expense was due to the lower level
of interest bearing debt in 1995 and 1994 as compared with 1993. Interest
expense in 1995 was further reduced as a result of interest income from surplus
cash and short-term deposits.
Included in income in 1995, 1994 and 1993 were non-operating items of
$3,617,000, $2,955,000 and $7,131,000, respectively. In 1995, the non-operating
item was a gain on licensing settlement relating to the proceeds of $7.5
million, less legal and other related expenses, received from Hoechst-Roussel.
The 1994 non-operating item was recorded with respect to a
23
<PAGE> 26
gain on the settlement of debt whereby a company controlled by a director of
Biovail assumed net indebtedness of $9,604,000 in exchange for 1,656,000 common
shares of a former subsidiary, owned by the Company. In 1993, non-operating
items consisted of a dilution gain of $5,871,000 arising on issuance of common
shares by a former subsidiary company, and $1,260,000 relating to a gain on sale
of a subsidiary company.
There was no minority interest in 1995 and 1994 as compared to $726,000 in
1993, due to the acquisition of the minority interest in the Company's
subsidiaries, effective January 1, 1994.
Income taxes in 1995, 1994 and 1993 in the amounts of $201,000, $430,000 and
$248,000, respectively, relate primarily to the Company's foreign subsidiaries.
The 1994 increase to $430,000 over the 1993 provision of $248,000 was due to the
increased level of royalty revenue earned by Biovail SA on sales of Oruvail
SR(R) in the United States. The 1995 provision decreased to $201,000 from the
$430,000 recorded in 1994, as a result of the reduction of income taxes relating
to Biovail SA's operations in Switzerland due to change in taxation law in that
jurisdiction, effective January 1, 1995. No provision for income taxes has been
recorded with respect to gains on debt settlement and licensing settlement as
tax losses from Canadian operations are sufficient to offset such gains in their
entirety.
In 1995, the Company reported net income from operations of $2,253,000, or
$0.09 per share as compared to net income from operations of $1,506,000, or
$0.07 per share in 1994, and net loss from operations of $2,478,000 or a net
loss of $0.20 per share, in 1993. Net income from operations exclude
non-operating income of $3,617,000, or $0.14 per share, $7,955,000, or $0.36 per
share and $7,131,000, or $0.56 per share in each of the years 1995, 1994 and
1993, respectively.
Earnings per share have been calculated using the weighted average number of
shares outstanding during each respective year. For the purpose of this
calculation, the income for the years 1994, and 1993 was reduced by cumulative
undeclared dividends on the Class A special shares. See Note 9 of Notes to the
Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1995, the Company generated $31,146,000 in
cash from operating activities compared to $2,555,000 in 1994 and an operating
cash flow deficiency of $2,089,000 in 1993. The increase in cash generated from
operations in 1995 as compared to 1994 arose as a result of an increase in
non-cash operating items, primarily a deferred revenue increase of $25,168,000.
This amount relates to significant non-refundable advance payments toward
manufacturing supplies received from Forest, as a result of a 16 year license
and supply agreement on the marketing of Tiazac(R) by Forest in the United
States. In addition, improved operating activities in each of the years
contributed further cash flow increases.
Cash generated by financing activities in 1995 totalled $ 261,000 as
compared to $380,000 in 1994 and $3,712,000 in 1993. In each of 1995 and 1994,
cash generated by financing activities was primarily by means of increases in
long-term debt offset by debt repayments and cash received on the issuance of
shares. In 1993, cash generated by financing activities was significantly
higher, primarily as a result of transactions of subsidiary companies, including
issuance of common shares and proceeds on sale of a subsidiary, net of dividends
paid to minority interests, for a net cash generation of $4,105,000.
24
<PAGE> 27
In the year ended December 31, 1995, net cash of $10,502,000 was used for
investing activities as compared to $3,020,000 in 1994 and $845,000 in 1993.
Cash of $4,288,000 was utilized in 1995 to acquire the operating assets from
Galephar Puerto Rico Inc., Limited and $2,617,000 to acquire the worldwide
product rights to Tiazac(R). Additions to fixed assets utilized cash of
$2,642,000, $1,173,000 and $249,000 in 1995, 1994 and 1993, respectively.
Completion of the acquisition of subsidiary companies utilized cash of $955,000,
$2,008,000 and $541,000 in 1995, 1994 and 1993, respectively.
Exchange rate changes on cash balances held in Switzerland resulted in an
increase of $599,000 in 1995 and $151,000 in 1994 and a decrease of $45,000 in
1993.
As a result of the foregoing, cash balances increased to $24,323,000 in 1995
as compared to $2,819,000 in 1994 and $2,753,000 in 1993.
The Company's total long-term debt was $10,195,000 as at December 31, 1995,
as compared to $10,349,000 at December 31, 1994. Long-term debt at December 31,
1995, is comprised of $6,194,000 related to the manufacturing facility located
in Manitoba, Canada; $1,801,000 is a mortgage payable on its laboratory
facility; and, $2,200,000 is a bank term loan. With respect to the debt relating
to the manufacturing facility, an aggregate amount of $2,789,000 is a
non-interest bearing loan from a Canadian government agency and $3,405,000 is a
construction bank loan from a Canadian chartered bank. The Company has available
a line of credit of $1,500,000 for short-term financing.
The Company believes it has adequate capital and sources of financing to
support its ongoing operational requirements. Furthermore, the Company believes
it will be able to obtain long-term capital, if necessary, to support its growth
objectives.
INFLATION
Inflation has not had a material impact on the Company's operations.
FOREIGN CURRENCY
The Company does not currently engage in hedging or other activities to
reduce exchange rate risk but may do so in the future, if conditions warrant.
ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY
Directors and executive officers of the Company, their ages and their
positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - ---- --- --------
<S> <C> <C>
Eugene N. Melnyk (1) 37 Chairman of the Board and Director
Bruce D. Brydon 49 President, Chief Executive Officer and Director
Rolf Reininghaus 50 Senior Vice President and Director
Mahmood Khan 42 Senior Vice President, Chief Operating Officer
and Director
Kenneth C. Cancellara 49 Senior Vice President, General Counsel,
Secretary and Director
</TABLE>
25
<PAGE> 28
<TABLE>
<S> <C> <C>
Wilfred G. Bristow (1) 64 Director
George H. Henry (1) 42 Director
Robert A. Podruzny 48 Vice President - Finance and Chief Financial
Officer
</TABLE>
(1) Member of the Audit Committee
Mr. Melnyk has been the Chairman of the Board, and a Director of the
Company from the effective date of the Amalgamation, March 29, 1994. Prior to
that time, he had been the Chairman of the Board of BCI since October 1991 and
was instrumental in acquiring, financing and organizing the companies or
businesses that comprised BCI. Mr. Melnyk also founded Trimel and served as its
President and Chief Executive Officer from 1983 through July 1991.
Mr. Brydon has been the President and Chief Executive Officer of the
Company since January 13, 1995 and a Director since May, 1995. Prior to joining
the Company and since 1990 he had been President, Managing Director and Chairman
of the Board of the Canadian Operations of Boehringer Mannheim. In the late
1980s Mr. Brydon served as President and CEO of Beiersdorf Canada.
Mr. Reininghaus has been a Senior Vice President and a Director of the
Company from the effective date of the Amalgamation, March 29, 1994. Prior to
that time, he had been the President, Chief Operating Officer and a Director of
BCI since October 1991 and Executive Vice President and a Director of Trimel or
its affiliates since November 1987. Prior to his employment by Trimel, Mr.
Reininghaus was the Marketing Manager of the Canadian operations of Miles
Pharmaceuticals, a division of Bayer AG.
Mr. Khan has been the Senior Vice President, Chief Operating Officer
and a Director of the Company from January, 1996. Prior to that time he had been
the Senior Vice President - Finance and Chief Financial Officer, Secretary and a
Director of the Company from the effective date of the Amalgamation, March 29,
1994. Prior to that time, he had been the Vice President - Finance, Secretary
and a Director of BCI since its inception and had been Vice President - Finance,
Chief Financial Officer, Secretary and a Director of Trimel since September
1987. Prior to that time, Mr. Khan was a senior staff auditor with Pannell Kerr
MacGillivray, Chartered Accountants.
Mr. Cancellara joined the Company as Senior Vice President and General
Counsel in March, 1996, was appointed as Secretary of the Company in April,
1996, and has been a Director of the Company since May, 1995. Prior to joining
the Company, Mr. Cancellara was a partner with the law firm of Cassels, Brock
and Blackwell since 1980 where he served as chairman of the Executive Committee
and managing partner for many years.
Mr. Bristow has been a Director of the Company from the effective date
of the Amalgamation, March 29, 1994. Prior to that time, he had been a Director
of BCI since January 1993. Mr. Bristow has been a senior investment advisor at
Nesbitt Thompson Inc., a Canadian investment banking firm, since December 1991.
From September 1975 to December 1991, he served as vice president and director
of Richardson Greenshields of Canada, an investment banking firm. Mr. Bristow is
currently a director of Conversion Industries, Inc., a merchant bank.
Mr. Henry was elected a Director of the Company in May, 1996. Mr. Henry
has been Managing Director of G. Howard Associates, Inc., a private investment
firm, since 1986. Prior thereto, Mr. Henry spent six years with the predecessor
of Schroeder,Wertheim & Co., Inc., an
26
<PAGE> 29
investment banking firm, most recently as a Vice President in the Corporate
Finance Department. Mr Henry is currently a director of Phonetell Technologies,
Inc., a publicly held telecommunications company, and a trustee of Mitchell
College.
Mr. Podruzny joined the Company as Vice President of Finance and Chief
Financial Officer in January, 1996. Mr. Podruzny came to Biovail from
Browning-Ferris Industries Ltd. where he served as the Chief Financial Officer
and as a Director of the Canadian operation from 1993 to 1995. From 1987 to
1992, Mr. Podruzny served as General Manager of the U.S. Health Promotion
Division of MDS Health Group, a Toronto-based medical services company. Mr.
Podruzny is a Chartered Accountant in Canada and holds an MBA in finance.
SCIENTIFIC ADVISORY BOARD
The Company's Scientific Advisory Board advises the Company on
developments relevant to current and future forms of controlled release drug
delivery system technology. The Scientific Advisory Board has significant
experience in the areas of pharmaceutical chemistry, controlled release
formulation development, international drug development, pharmacokinetics,
polymer coatings, and U.S., Canadian and international drug approval process
requirements. In addition, Scientific Advisory Board members consult with the
Company on aspects of controlled drug release formulation planning and
feasibility studies. While the Scientific Advisory Board holds formal meetings
with the Company on a quarterly basis during the year, most of the members of
the Scientific Advisory Board are also consultants to the Company and,
accordingly, counsel and advise the Company on a continual basis throughout the
year. Members of the Scientific Advisory Board include:
Arnold H. Beckett, O.B.E, B.Sc., Ph.D., D.Sc., Chairman of the
Scientific Advisory Board, is the former Head of the School of Pharmacy and
Director of Medicinal Chemistry, Kings College, University of London, 1959-1985.
In addition to honourary degrees at such universities as the University of
Heriot-Watt, Scotland, the University of Uppsala, Sweden, and Leuven, Belgium,
Dr. Beckett was the Chairman of the Board of Pharmaceutical Sciences of the
International Pharmaceutical Federation from 1970-1980 and President of the
Royal Pharmaceutical Society from 1981-1982. Dr. Beckett is currently a member
of the Medical Commission of the International Olympic Committee and Chairman of
the International Tennis Federation Medical Commission. Dr. Beckett founded the
National Drug Control and Teaching Centre in the United Kingdom. Dr. Beckett has
published over 400 papers in the areas of pharmaceutical and medicinal chemistry
and has played a major role in the establishment of drug release technology.
Dr. Burford, B.Sc., M.Sc., Ph.D. Pharm., F.A.C.A., is Vice-President -
Scientific Affairs of the Company and has held the position from the effective
date of the Amalgamation, March 29, 1994. Prior to that time, he had been Vice
President - Scientific Affairs of BCI since January 1993. Dr. Burford has been
President of American Clinical Research Consultants, a consulting organization,
since November 1989, and served as President of McGraw-Hill Clinical Research
International from 1987 to November 1989. Dr. Burford was with G.D. Searle &
Company in Chicago and G.D. Searle & Co. of Canada in various senior clinical
positions for 14 years. Previous pharmacological and drug development activities
include positions with Merck-Frosst Laboratories and Bio-Research Laboratories
of Montreal, Canada.
27
<PAGE> 30
Shrikant V. Dighe, Ph.D., M.Sc., B.Sc., is a pharmaceutical consultant
in Bethesda, Maryland. He has more than 30 years of experience as research
scientist, review scientist and scientific manager. Dr. Dighe has had twenty
years with the Food and Drug Administration (FDA). He has a broad scientific
expertise in medicinal and organic chemistry, biopharmaceutics,
pharmacokinetics, analytical chemistry and instrumental analysis, pharmacology
and statistics. Dr. Dighe is skilled in setting up and implementing division
policies; evaluating, editing and writing scientific reports; and supervising
and coordinating review activities of scientific reviewers. He has represented
the FDA at various national and international forums, made numerous
presentations at national and international meetings and symposia. Dr. Dighe has
published a number of scientific articles, prepared over one hundred guidance
documents and jointly edited three books.
Norman W. Lavy, M.D., F.A.C.P., is a private consultant in
pharmaceutical research and medical and regulatory affairs based in Westfield,
New Jersey. Among his clients have been the National Institute on Drug Abuse,
leading and start-up biotechnology companies, other consulting firms,
over-the-counter drug firms and several of the world's largest pharmaceutical
companies. Dr. Lavy graduated from The Johns Hopkins University and the
University of Maryland School of Medicine. He served an internal medicine
residency and post-doctoral fellowships before joining E.R. Squibb & Sons in
1966. For 15 years, ending in 1987, he headed Squibb's Drug Regulatory Affairs
department, the last ten years as Vice-President. He has served on the
Commission on the Federal Drug Approval Process, as a member of the Scientific
Advisory Committee of the Pharmaceutical Manufacturers Association Foundation,
as Chairman of the Pharmaceutical Manufacturers Association, Medical Section,
and as a Vice-President of the American Society for Clinical Pharmacology and
Therapeutics. Dr. Lavy is a Fellow of the American College of Physicians.
William A. Mahon, M.D., FRCPC, is presently Director, Clinical
Pharmacology Clinical Trials Unit, Centre for Cardiovascular Research, The
Toronto Hospital and Professor of Pharmacology in Medicine at the University of
Toronto. Dr. Mahon served on the Drug Quality and Therapeutics Committee,
Ontario Ministry of Health for 10 years and was Chairman for six years. He has
served on Federal Government Health Advisory Committees and has been Chairman of
the hospital's Pharmacy and Therapeutics Committee. He is a past president of
the Canadian Society for Clinical Pharmacology. Dr. Mahon has published over 60
papers in Clinical Pharmacology and Clinical Medicine.
J. Thiessen, Ph.D., is presently a Professor of Pharmacy
(Pharmacokinetics), School of Pharmacy, University of Toronto. Dr. Thiessen
served for nine years on the Ontario Ministry of Health's Drug Quality and
Therapeutics Committee and was Chairman from 1989 through 1991. He is presently
a member of the HPB Expert Advisory Committee on Bioavailability. Additionally,
Dr. Thiessen has carried out extensive research in the pharmacokinetics of drugs
in fever, genetic trials, cystic fibrosis and cancer, as well as other disease
states and has over 100 publications and presentations in the field of
pharmacokinetics and biopharmaceutics.
Herbert A. Lieberman, B.S. Chem., B.S. Pharm., M.A., M.S., Ph.D., is
the President of his own business, H.H. Lieberman Associates, a private
pharmaceutical consulting firm. Dr. Lieberman was with the Consumer Products
Research Group of the Warner-Lambert Company for over 24 years, holding various
senior research and executive positions. Prior to that time, he was a Senior
Research Pharmacist at Wyeth Laboratories and held a teaching position in
Chemistry at Columbia University, College of Pharmacy. Dr. Lieberman has edited
16 textbooks on industrial pharmacy, including "Pharmaceutical Dosage Forms:
Disperse Systems" and, most recently, "Parenteral
28
<PAGE> 31
Medications." He is a Fellow of the Academy of Pharmaceutical Sciences, the
American Academy of Pharmaceutical Scientists and the American Foundation for
Pharmaceutical Education.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
The following table sets forth the compensation information for each of
the last three fiscal years for the Chief Executive Officer and the four other
most highly compensated executive officers of the Company who served as
executive officers at the end of 1995 ("Named Executive Officers"). This
information includes the dollar value of base salaries, performance bonus
awards, long-term incentive compensation payments, and certain other
compensation.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
-------------------------------- ----------------------------------------
Awards Payouts
----------------------------------------
Restricted
Other Securities Shares or
Annual Under Restricted All Other
Compen- Options Share LTIP Compen-
Name and Principal Salary Bonus sation (4) granted (5) Units Payouts sation (4)
Position Year (U.S.$) (U.S.$) (U.S.$) (#) (U.S.$) (U.S.$) (U.S.$)
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Eugene N. Melnyk 1995 313,969 - - 345,000 - - -
Chairman of the Board 1994 278,454 - - 180,000 - - -
1993 251,797 - - 510,000 - - -
- - -------------------------------------------------------------------------------------------------------------------------------
Bruce D. Brydon (1)(2) 1995 113,480 - - 270,000 - 287,279 -
President and Chief 1994 - - - - - - -
Executive Officer 1993 - - - - - - -
- - -------------------------------------------------------------------------------------------------------------------------------
Rolf Reininghaus (1) 1995 131,800 11,089 - 105,000 - - -
Senior Vice-President 1994 118,101 10,356 - 150,000 - - -
1993 122,643 10,400 - 30,000 - - -
- - -------------------------------------------------------------------------------------------------------------------------------
Mahmood Khan (1)(3) 1995 124,854 11,580 - 105,000 - - -
Senior Vice-President and 1994 110,188 10,814 - 150,000 - - -
Chief Operating Officer 1993 116,142 10,861 - 90,000 - - -
- - -------------------------------------------------------------------------------------------------------------------------------
Marcel Giguere (1) 1995 88,497 7,332 - 30,000 - 680,923 -
Vice President, 1994 80,650 13,839 - 90,000 - - -
Manufacturing Operations 1993 83,306 14,652 - 12,000 - - -
===============================================================================================================================
</TABLE>
(1) The amount of compensation paid to the named Executive Officers, other than
Mr. Melnyk was determined and paid by the Company. These amounts were paid
in Canadian dollars and, for the purposes of this table, converted to U.S.
dollars at the respective year end rates of exchange as follows: 1995
-.7332; 1994 - .7134; and 1993 - .7553.
(2) Mr. Brydon was announced as President and Chief Executive Officer of the
Company January 13, 1995 and assumed the responsibilities of the position
full-time, effective March 20, 1995.
(3) Prior to January 5, 1996, Mr. Khan served as Senior Vice President and
Chief Financial Officer.
(4) Perquisites and other personal benefits for Named Executive Officers did
not exceed the minimum threshold disclosure level in 1995.
29
<PAGE> 32
(5) The options were granted under the Company's Stock Option Plan, as amended,
established in 1993. All options are for the purchase of common shares of
the Company and are for a term of 5 years. The options become exercisable
as to a maximum of 33 % on each of the first, second and third
anniversaries of the date of grant, based on the achievement of
predetermined benchmarks, except for 120,000 options granted to Mr. Melnyk
on January 15, 1995, which become exercisable on the second anniversary
date of the grant.
EMPLOYMENT AGREEMENTS
Eugene Melnyk, as Chairman of the Board of the Company, pursuant to a
Management Agreement, effective February 1, 1992, receives annual compensation
for services in the amount of $329,421, which amount is subject to 10% annual
increases during the term of the Management Agreement, and is reimbursed for
business related expenses. The Management Agreement will continue automatically
for renewal periods of one year unless terminated by either party upon prior
written notice.
Bruce Brydon, as President and Chief Executive Officer and Director,
pursuant to an Employment Agreement made as of January 13, 1995, receives an
annual salary of $168,000 CDN. during the term of the Employment Agreement, as
well as reimbursement of business related expenses and an automobile allowance.
Rolf Reininghaus, as Senior Vice President and Director, pursuant to an
Employment Agreement made as of February 1, 1992, as amended, receives an annual
salary of $169,361 CDN, subject to a cost of living adjustment, a bonus at the
discretion of the Board of Directors, as well as reimbursement of business
expenses and an automobile allowance during the term of the Employment
Agreement, which is terminable by the Company upon one year's written notice and
is terminable by Mr. Reininghaus upon two months' prior written notice.
Mahmood Khan, as Senior Vice President, Chief Operating Officer and
Director, pursuant to an Employment Agreement made as of February 1, 1992, as
amended, receives an annual salary of $159,174 CDN, which amount is subject to
up to 10% annual increases, during the term of the Employment Agreement, a bonus
at the discretion of the Board of Directors, as well as reimbursement of
business related expenses and an automobile allowance.
Marcel Giguere, as Vice President and General Manager, Canadian
Manufacturing Operations, pursuant to an Employment Agreement made as of March
26, 1991, receives an annual salary of $121,700 CDN, subject to cost of living
adjustment and a bonus of up to 20% of his annual salary based on the
satisfaction of mutually agreed performance criteria, as well as reimbursement
of business-related expenses and an automobile allowance.
Directors' and Officers' Liability Insurance:
The Company maintains insurance for the benefit of its Directors and
Officers against certain liabilities incurred by them in their capacity as
directors or officers of the Company or its subsidiaries. During the 1995 fiscal
year the premiums in respect of such insurance were in the approximate aggregate
amount of U.S.$17,000.
30
<PAGE> 33
REMUNERATION OF DIRECTORS
Certain directors who are not officers or employees of the Company
receive an annual fee of U.S.$2,900 and a participation fee of U.S.$370 for each
meeting of the Board of Directors attended. All directors have been reimbursed
for expenses incurred in connection with attending Board of Directors meetings.
Directors of the Company have been granted stock options for serving as a
Director pursuant to the terms of the Company's stock option plan referred to
above. During 1995, three of the seven directors who were not officers of the
Company exercised their options to purchase a total of 100,000 shares (on a
post-split basis) of common stock at prices ranging from of CDN$1.00 to
U.S.$3.92 per share.
COMPENSATION COMMITTEE:
The Company does not have a compensation committee. The duties of such
a committee are carried out by the Board of Directors. The Board of Directors
meets on compensation matters as and when required with respect to executive
compensation.
PENSION PLAN:
The Company does not maintain a pension plan for its employees,
officers or directors.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM THE COMPANY OR SUBSIDIARIES
STOCK OPTION PLAN
Under the Company's Stock Option Plan, as amended, (the "Plan")
established in 1993 and approved by the shareholders at the Special Meeting held
on March 28, 1994, the Company may grant to directors, officers, key employees,
consultants and advisors, options to purchase Common Shares of the Company. The
purpose of the Plan is to provide incentives to certain of the Company's
directors, officers, key employees, consultants and advisors. The aggregate
number of shares reserved for issuance under the Plan shall not exceed 4,500,000
common shares. The number of shares reserved for issuance to any one person
under the Plan together with shares which that person may acquire under any
similar plan of the Company may not exceed 5% of the total issued and
outstanding Common Shares. Under the Plan, the Company designates the maximum
number of shares that are subject to an option. The exercise price per share of
an option is the fair market value of the share at the date of grant as
determined by the Company, less the applicable discount, if any, as determined
by the Company. Such discount may not exceed the maximum discount permitted
under applicable legislation or stock exchange rules. As at December 31, 1995,
the Company has granted options for an aggregate of 2,779,000 shares of common
stock at exercise prices ranging from CDN$1.00 to U.S.$20.00 per share.
31
<PAGE> 34
The following 2 tables provide information on the exercise in 1995 and
the aggregate holdings at the end of 1995 of options by the Named Executive
Officers.
OPTION GRANTS IN LAST FISCAL YEAR (ON A POST-SPLIT BASIS)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------
Market Value of
Securities % of Total Securities
Under Options Exercise Underlying Options
Options Granted to Price on the Date of
Granted Employees in (U.S.$/ Grant
Name # (1) Period Security) (U.S.$/Security) Expiration Date
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Eugene Melnyk 225,000 15.4% 20.00 19.96 December 18, 2000
120,000 8.2% 2.44 2.71 January 14, 2000
- - -----------------------------------------------------------------------------------------------------
Bruce Brydon 150,000 10.3% 20.00 19.96 December 18, 2000
- - -----------------------------------------------------------------------------------------------------
Rolf Reininghaus 105,000 7.2% 20.00 19.96 December 18, 2000
- - -----------------------------------------------------------------------------------------------------
Mahmood Khan 105,000 7.2% 20.00 19.96 December 18, 2000
- - -----------------------------------------------------------------------------------------------------
Marcel Giguere 30,000 2.0% 20.00 19.96 December 18, 2000
- - -----------------------------------------------------------------------------------------------------
</TABLE>
(1) The options were granted under the Company's Stock Option Plan, as amended,
established in 1993. All options are for the purchase of Common Shares of
the Company and are for a term of 5 years. The options become exercisable
as to a maximum of 33 % on each of the first, second and third
anniversaries of the date of grant, based on the achievement of
predetermined benchmarks, except for 120,000 options granted to Mr. Melnyk
on January 15, 1995, which become exercisable on the second anniversary of
the date of the grant.
AGGREGATE OPTIONS EXERCISED IN LAST FISCAL YEAR
AND OPTION VALUES (ON A POST-SPLIT BASIS)
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------
Value of Unexercised
Unexercised Options in-the-Money Options Fiscal
at Year-End
Securities Aggregate Fiscal Year-End (U.S.$)
Acquired on Value (#) Exercisable/
Exercise Realized Exercisable/ Unexercisable (1)
Name (#) (U.S.$) Unexercisable
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Eugene Melnyk - - 630,000/405,000 15,420,900/5,491,350
- - ---------------------------------------------------------------------------------------------------------------
Bruce Brydon 30,000 287,279 49,998/190,002 1,165,953/1,795,347
- - ---------------------------------------------------------------------------------------------------------------
Rolf Reininghaus - - 130,000/155,000 3,092,600/1,774,750
- - ---------------------------------------------------------------------------------------------------------------
Mahmood Khan - - 190,000/155,000 4,593,800/1,774,750
- - ---------------------------------------------------------------------------------------------------------------
Marcel Giguere 72,000 680,923 0/60,000 0/875,100
- - ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Value of unexercised in-the-money options calculated using the closing
price (on a post-split basis) of common shares of the Company, on the
American Stock Exchange on December 29, 1995 (U.S.$25.75), less the
exercise price of in-the-money options.
32
<PAGE> 35
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the
cumulative shareholder return on the Company's common shares ("BVF") compared to
the cumulative total return of the Toronto Stock Exchange 300 Index for the past
five years, assuming $100 investment on December 31, 1990.
<TABLE>
<CAPTION>
AS AT DECEMBER 31, 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
BIOVAIL COMMON 100 165.22 91.30 95.65 186.96 1,821.74
TSE 300 INDEX 100 107.85 102.88 132.69 129.38 144.73
</TABLE>
33
<PAGE> 36
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Not applicable
PART II
(NOT APPLICABLE)
PART III
(NOT APPLICABLE)
PART IV
ITEM 17. FINANCIAL STATEMENTS
The financial statements filed as part of this Annual Report are listed
in Item 19 - Financial Statements and Exhibits.
All financial statements herein, are stated in accordance with
generally accepted accounting principles in Canada. Such financial statements
have been reconciled to United States GAAP. For the history of exchange rates
which were in effect for Canadian dollars against United States dollars, see
"General Information".
ITEM 18. FINANCIAL STATEMENTS
The Company has elected to provide financial statements pursuant to
Item 17.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements and exhibits are filed as part of
this Annual report:
A. Financial statements
- Consolidated Balance Sheets of the Company as at December 31,
1995 and 1994.
- Consolidated Statements of Income and Deficit for the years
ended December 31, 1995, 1994 and 1993.
- Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993.
- Notes to the Consolidated Financial Statements.
B. Exhibits
(See exhibits' index immediately following the financial statements)
34
<PAGE> 37
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Company certifies that it meets all of the requirements for filing on
Form 20-F and has duly caused this Annual Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
BIOVAIL CORPORATION INTERNATIONAL
/s/ Robert A. Podruzny
-----------------------
(Signature)
Robert A. Podruzny
Vice President - Finance and
Chief Financial Officer
Date: June 27, 1996
-------------------------
35
<PAGE> 38
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Management............................................................... F-2
Independent Auditors' Report....................................................... F-3
Consolidated Balance Sheets as at December 31, 1995 and 1994....................... F-4
Consolidated Statements of Income and Deficit for each of the years in the three
year period ended December 31, 1995........................................... F-5
Consolidated Statements of Cash Flows for each of the years in the
three year period ended December 31, 1995..................................... F-6
Notes to the Consolidated Financial Statements..................................... F-7
</TABLE>
F-1
<PAGE> 39
REPORT OF MANAGEMENT
The Company's management is responsible for preparing the accompanying
consolidated financial statements in conformity with accounting principles
generally accepted in Canada. The effect of the application of accounting
principles generally accepted in the United States is described in the notes to
consolidated financial statements. In preparing these consolidated financial
statements, management selects appropriate accounting policies and uses its
judgment and best estimates to report events and transactions as they occur.
Management has determined such amounts on a reasonable basis in order to ensure
that the financial statements are presented fairly, in all material respects.
Financial data included throughout this Annual Report is prepared on a basis
consistent with that of the financial statements.
The Company maintains a system of internal accounting controls designed to
provide reasonable assurance, at a reasonable cost, that assets are safeguarded
and that transactions are executed and recorded in accordance with the Company's
policies for doing business. This system is supported by written policies and
procedures for key business activities; the hiring of qualified, competent
staff; and by a continuous planning and monitoring program.
Deloitte & Touche has been engaged by the Company's shareholders to audit the
consolidated financial statements. During the course of their audit, Deloitte &
Touche reviewed the Company's system of internal control to the extent necessary
to render their opinion on the consolidated financial statements.
The Board of Directors is responsible for ensuring that management fulfills its
responsibility for financial reporting and is ultimately responsible for
reviewing and approving the financial statements. The Board carries out this
responsibility principally through its Audit Committee. The majority of the
members of the Audit Committee are outside Directors. The Committee considers,
for review by the Board of Directors and approval by the shareholders, the
engagement or re-appointment of the external auditors. Deloitte & Touche has
full and free access to the Audit Committee.
Management acknowledges its responsibility to provide financial information that
is representative of the Company's operations, is consistent and reliable, and
is relevant for the informed evaluation of the Company's activities.
Toronto, Canada Eugene Melnyk Mahmood Khan
February 19, 1996 Chairman of the Board Senior Vice President
F-2
<PAGE> 40
AUDITORS' REPORT
To the Board of Directors and Shareholders of
BIOVAIL CORPORATION INTERNATIONAL
We have audited the consolidated balance sheets of Biovail Corporation
International as at December 31, 1995 and 1994 and the consolidated statements
of income and deficit and of cash flows for each of the years in the three year
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly,
in all material respects, the financial position of the Company as at December
31, 1995 and 1994 and the results of its operations and its cash flows for each
of the years in the three year period ended December 31, 1995 in accordance with
generally accepted accounting principles in Canada.
DELOITTE & TOUCHE
Chartered Accountants
Toronto, Canada
February 19, 1996
F-3
<PAGE> 41
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(All dollar amounts are expressed in thousands of U.S. dollars)
<TABLE>
<CAPTION>
1995 1994
------------------
<S> <C> <C>
ASSETS
- - ------
CURRENT
Cash and short-term deposits $24,323 $ 2,819
Trade accounts receivable 6,379 5,346
Inventories (Note 4) 3,868 480
Deposits and prepaid expenses 176 57
------------------
34,746 8,702
FIXED ASSETS, net (Note 5) 19,910 14,182
GOODWILL, net 3,594 2,746
PRODUCT RIGHTS, net 2,617 --
------------------
$60,867 $25,630
==================
LIABILITIES
- - -----------
CURRENT
Accounts payable $ 5,628 $ 2,864
Accrued liabilities 3,043 1,794
Income taxes payable 968 736
Deferred revenue (Note 6) 22,167 1,239
Amount due on acquisition (Note 3) -- 955
Current portion of long-term debt (Note 7) 2,244 567
------------------
34,050 8,155
DEFERRED REVENUE (Note 6) 4,274 --
------------------
LONG-TERM DEBT (Note 7)
Non-interest bearing and forgivable interest government loans 2,019 4,717
Other 5,932 5,065
7,951 9,782
------------------
46,275 17,937
==================
SHAREHOLDERS' EQUITY
- - --------------------
Share capital (Note 8) 14,489 13,415
Deficit (572) (6,442)
Cumulative translation adjustment 675 720
------------------
14,592 7,693
------------------
$60,867 $25,630
==================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 42
CONSOLIDATED STATEMENTS OF INCOME AND DEFICIT
Years ended December 31, 1995, 1994 and 1993
(All dollar amounts except per share data are expressed in thousands
of U.S. dollars)
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------------
<S> <C> <C> <C>
REVENUE
Contract $ 4,333 $ 3,909 $ 3,771
Manufacturing 7,915 4,975 --
Royalty and licensing 8,321 8,404 7,358
-----------------------------------------
20,569 17,288 11,129
EXPENSES
Cost of contract revenue 2,732 3,036 2,783
Cost of manufactured goods sold 2,715 2,102 --
Research and product development 4,462 2,542 2,737
Selling, general and administrative 7,182 6,359 5,718
Royalty and commission 925 724 1,399
-----------------------------------------
18,016 14,763 12,637
OPERATING INCOME (LOSS) 2,553 2,525 (1,508)
INTEREST EXPENSE, net (Note 7) (99) (589) (722)
GAIN ON LICENSING SETTLEMENT (Note 13) 3,617 -- --
GAIN ON DEBT SETTLEMENT (Note 2) -- 7,955 --
INCOME (LOSS) BEFORE INCOME TAXES 6,071 9,891 (2,230)
PROVISION FOR INCOME TAXES (Note 10) 201 430 248
INCOME (LOSS) BEFORE UNDERNOTED 5,870 9,461 (2,478)
MINORITY INTEREST -- -- (726)
DILUTION GAIN ON ISSUANCE OF COMMON
SHARES OF A SUBSIDIARY COMPANY (Note 7) -- -- 5,871
GAIN ON SALE OF A SUBSIDIARY
COMPANY (Note 3) -- 1,260 --
NET INCOME (Note 14) 5,870 9,461 3,927
DEFICIT, BEGINNING OF YEAR (6,442) (15,903) (19,830)
DEFICIT, END OF YEAR $ (572) $ (6,442) $ (15,903)
EARNINGS PER SHARE (Note 9) $ 0.23 $ 0.43 $ 0.28
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING (Note 9) 24,993,000 21,850,000 12,667,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 43
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
(All dollar amounts are expressed in thousands of U.S. dollars)
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------
<S> <C> <C> <C>
NET INFLOW (OUTFLOW) OF CASH RELATED
TO THE FOLLOWING ACTIVITIES
OPERATING
Net income for year $ 5,870 $ 9,461 $ 3,927
Depreciation and amortization 1,238 810 681
Minority interest -- -- 726
Dilution gain on issuance of common shares
by a subsidiary company -- -- (5,871)
Gain on debt settlement (Note 2) -- (7,955) --
Gain on sale of a subsidiary company (Note 3) -- -- (1,260)
7,108 2,316 (1,797)
Change in non-cash operating items (Note 12) 24,038 239 (292)
------------------------------
31,146 2,555 (2,089)
------------------------------
INVESTING
Business acquisition (Note 3) (4,288) -- --
Acquisition of product rights (2,617) -- --
Additions to fixed assets, net (2,642) (1,173) (249)
Investments and advances -- 161 (55)
Additional consideration with respect to the
acquisition of subsidiary companies and
minority interest therein (Note 3) (955) (2,008) (541)
------------------------------
(10,502) (3,020) (845)
==============================
FINANCING
Issuance of share capital (Note 8) 702 62 174
Redemption of share capital (Note 8) -- -- (1,136)
Increase in long-term debt 2,852 367 1,125
Reduction in long-term debt (3,293) (49) (429)
Purchase of common shares -- -- (127)
Subsidiary company transactions including issuance
of common shares and proceeds on sale of a
subsidiary, net of dividends paid to minority interest -- -- 4,105
261 380 3,712
EFFECT OF EXCHANGE RATE CHANGES
ON CASH 599 151 (45)
------------------------------
INCREASE IN CASH 21,504 66 733
CASH AND SHORT-TERM DEPOSITS,
BEGINNING OF YEAR 2,819 2,753 2,020
------------------------------
CASH AND SHORT-TERM DEPOSITS,
END OF YEAR $ 24,323 $ 2,819 $ 2,753
==============================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 44
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in U.S. dollars)
1. SIGNIFICANT ACCOUNTING POLICIES
Biovail Corporation International (the "Company"), was amalgamated effective
March 29, 1994 (See Note 2) under the laws of the province of Ontario. The
Company's accounting and reporting policies conform to generally accepted
accounting principles in Canada. The applicable differences between generally
accepted accounting principles in Canada and generally accepted accounting
principles in the United States are disclosed in Note 14.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company's significant accounting policies are as follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all companies
more than 50% owned. All significant intercompany transactions and balances
have been eliminated.
REVENUE RECOGNITION
Revenue from contract research activities is recognized using the percentage
of completion method based upon the stage of the project or the amount of
time spent on the project.
Revenue from the sale of manufactured products is recognized when the
product is shipped to the customer.
Royalty revenue is recognized on an accrual basis in accordance with the
contractual agreements with third parties.
Licensing revenue is recognized at the date the license is granted unless
there are specific events which must be completed under the terms of the
licensing agreement in which case a portion of the revenue is recognized
upon the completion of each specific event.
Amounts received in excess of revenue recognized are included in deferred
revenue (See Note 6).
INVENTORIES
Raw materials are valued at the lower of cost and replacement cost. Work in
process and finished goods are valued at the lower of cost and net
realizable value. Cost is determined on the first-in, first-out basis.
F-7
<PAGE> 45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE EXPRESSED IN U.S. DOLLARS)
1. SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
FIXED ASSETS AND RELATED DEPRECIATION
Fixed assets are recorded at cost. Annual rates and basis of depreciation
applied to depreciate the cost of fixed assets over their estimated useful
lives using the straight line basis are as follows:
<TABLE>
<S> <C>
Buildings ............................................ 25 years
Machinery and equipment .............................. 5 - 10 years
Other equipment ...................................... 3 - 5 years
Leasehold improvements ............................... term of lease
</TABLE>
INTANGIBLE ASSETS
Goodwill and product rights are amortized on a straight-line basis over the
estimated lives of the assets, 16 to 20 years. Goodwill and product rights
are evaluated periodically, based on estimated future cash flows computed on
a discounted basis and if conditions warrant, an impairment valuation is
provided.
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development costs, net of any investment tax credits,
are charged to earnings in the year in which they are incurred.
CHANGE IN REPORTING CURRENCY AND FOREIGN CURRENCY TRANSLATIONS
- Change in reporting currency
Effective January 1, 1995, the Company commenced reporting its financial
statements in U.S. dollars, while the currency of measurement remains
Canadian dollars. For purposes of this presentation, Canadian dollar
amounts, including the 1994 and 1993 amounts shown for purposes of
comparison, have been translated into U.S. dollars at the respective year
end rates of exchange.
- Foreign currency transactions
Monetary assets and liabilities are translated at the rate of exchange
prevailing at the balance sheet date. Non-monetary assets and liabilities
are translated at historic rates. Revenue and expenses are translated at the
average rate of exchange for the year. Exchange gains and losses are
included in earnings except for unrealized gains or losses on long-term debt
which are deferred and amortized over the term of the debt.
- Self-sustaining foreign subsidiaries
Assets and liabilities of self-sustaining foreign subsidiaries are
translated at the rate of exchange in effect at the balance sheet date.
Revenue and expenses are translated at the average rate of exchange for the
year. Gains or losses arising on the translation of financial statements of
self-sustaining foreign subsidiaries are deferred and included as a separate
component of shareholders' equity. The net change in the cumulative
translation adjustment balance in the years presented is primarily due to
the fluctuations in the exchange rate in respect to the Swiss Franc. 1993
and 1994 figures. Certain of the 1993 and 1994 figures have been
reclassified to conform to the 1995 presentation.
F-8
<PAGE> 46
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in U.S. dollars)
2. AMALGAMATION AND DEBT ASSUMPTION AGREEMENTS
The Company was formed on the amalgamation of its predecessor companies,
Trimel Corporation ("Trimel") and its then subsidiary Biovail Corporation
International ("BCI"), effective March 29, 1994. Concurrent with the
amalgamation, certain indebtedness of Trimel was transferred to a company
controlled by a director of the Company in exchange for shares of BCI. This
transaction resulted in a gain on settlement of debt of $7,955,000.
Since virtually all of the assets of the amalgamated company were those of
BCI prior to the amalgamation, in substance no change in the ownership
interests of the respective shareholders took place. Accordingly, the
transaction has been accounted for based on the carrying amounts of BCI's
assets and liabilities prior to the amalgamation.
3. BUSINESS ACQUISITIONS AND DISPOSITIONS
ACQUISITION OF OPERATING ASSETS OF GALEPHAR PUERTO RICO INC., LIMITED
Effective September 13, 1995, a subsidiary of the Company acquired the
operating assets of Galephar Puerto Rico Inc., Limited ("Galephar"), a drug
delivery company specializing in the development of controlled release
products. This acquisition has been accounted for using the purchase method
and the net assets acquired at the fair value assigned thereto and
consideration given is as follows (In thousands):
<TABLE>
<S> <C>
Fixed assets .............................................. $3,743
Working capital deficiency ................................ (415)
Goodwill .................................................. 960
------
Net assets acquired ....................................... $4,288
======
Cash consideration given .................................. $4,288
======
</TABLE>
The historical operations of Galephar, when compared to the historical
operations of Biovail, were not significant.
ACQUISITION OF BIOVAIL SA AND BIOSYTES N.V.
Pursuant to a 1991 agreement relating to the purchase of a majority interest
in Biovail SA and Biosytes N.V., additional consideration of $541,000 was
effected in 1993. The remaining interest in these subsidiaries was acquired
effective January 1, 1994 for consideration of $2,963,000, of which
$2,008,000 was paid prior to December 31, 1994, and the remaining $955,000
paid in January, 1995. These transactions resulted in the recording of
additional goodwill of $1,947,000 and $541,000 in 1994 and 1993,
respectively, being the amount of additional consideration paid in excess of
the net book value of the minority interests acquired.
DISPOSITION OF PROFESSIONAL DRUG SYSTEMS INC.
As part of a strategy to dispose of non-core business activities, the
Company's investment in Professional Drug Systems Inc., was sold in 1993
resulting in a gain on sale of $1,260,000.
F-9
<PAGE> 47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in U.S. dollars)
4. INVENTORIES
<TABLE>
<CAPTION>
December 31, (In thousands)
---------------------------
1995 1994
---------------------------
<S> <C> <C>
Raw materials .............................. $1,460 $275
Work in process ............................ 2,408 205
---------------------------
$3,868 $480
===========================
</TABLE>
5. FIXED ASSETS
<TABLE>
<CAPTION>
December 31, (In thousands)
----------------------------------------------------
1995 1994
----------------------------------------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
----------------------------------------------------
<S> <C> <C> <C> <C>
Land ............................... $ 1,314 $ -- $ 895 $ --
Buildings .......................... 14,511 1,103 11,544 581
Machinery and equipment ............ 6,340 1,444 3,030 974
Other equipment and leasehold
improvements ..................... 1,055 763 914 646
23,220 $3,310 16,383 $2,201
Less accumulated depreciation ...... 3,310 2,201
----------------------------------------------------
$19,910 $14,182
----------------------------------------------------
</TABLE>
6. DEFERRED REVENUE
Effective September 18, 1995, the Company entered into a 16 year license and
supply agreement with Forest Laboratories Inc. ("Forest") whereby Forest
will market the Company's once-daily controlled release formulation of
diltiazem (Tiazac(R)) in the United States, for which the Company will
receive a royalty and manufacturing revenues. The agreement required Forest
to advance to the Company non-refundable payments of $20,000,000 which will
be applied, based on a pre-determined formula, against future amounts owing
by Forest for the purchase of Tiazac(R). These advance payments have been
recorded as deferred revenue and as at December 31, 1995, $18,335,000, (of
which $4,274,000 is reflected as long-term) remains as deferred revenue,
and will be recognized as income as future orders from Forest are completed.
Deferred revenue at December 31, 1995 and 1994, also includes amounts
relating to the Company's contract research activities.
F-10
<PAGE> 48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in U.S. dollars)
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31, (In thousands)
----------------------------
1995 1994
----------------------------
NON-INTEREST BEARING AND FORGIVABLE INTEREST
GOVERNMENT LOANS
<S> <C> <C>
Non-Interest Bearing Unsecured Loan
Payable to Western Economic Diversification, a Canadian federal government
agency. This loan will be advanced to a maximum of $4,360,000 to assist in
the building and equipping of a manufacturing facility. This loan, after
receipt of the maximum loan amount, is repayable on a semi-annual instalment
basis commencing in 1996 and ending in 2001 ....................................... $ 2,789 $ 2,614
Forgivable Interest Loan
Payable to Manitoba Development Corporation and secured by a debenture with
a fixed charge on the manufacturing facility, land and building ................... -- 2,103
-------------------
OTHER 2,789 4,717
-------------------
Term Bank Loan
Secured by a general security agreement, providing a first floating charge
over all of the Company's assets, bearing interest at bank prime rate plus
1.5%. This loan is repayable in equal quarterly principal instalments of
$183,000 with a final payment due December 31, 1999 ............................... 2,200 --
Construction Bank Loan
Secured by a general security agreement, pledging all of the Company's
assets, including the shares of subsidiary companies and a debenture with a
fixed charge on the manufacturing facility land and building, bearing
interest at bank prime rate plus 1.5%. This loan is repayable in equal
quarterly principal instalments of $183,000 with a final payment due
September 30, 2000 ................................................................ 3,405 3,873
Mortgage Payable
Secured by land and building, bearing interest at 12.125% per annum, payable
in blended monthly instalments of $18,000 and the balance of
approximately $1,760,000 is due on maturity, November 1, 1999 ..................... 1,801 1,759
-------------------
7,406 5,632
-------------------
10,195 10,349
Less current portion .............................................................. 2,244 567
-------------------
$ 7,951 $ 9,782
===================
</TABLE>
The fair value of the long-term debt is considered to be equivalent to its
carrying value based upon consideration of borrowings with similar credit
ratings and maturities.
F-11
<PAGE> 49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in U.S. dollars)
Interest expense on long-term debt amounted to $718,000, $702,000 and $781,000
in the years ended December 31, 1995, 1994 and 1993, respectively.
In November 1992, a then subsidiary company issued 4% convertible subordinated
debentures (the "Debentures") with an aggregate principal amount of $6,842,000.
On December 31, 1992 and February 23, 1993, $2,400,000 and $4,192,000 principal
amounts, respectively, of the Debentures plus accrued interest thereon were
converted into 344,000 and 628,000 shares of common stock of a then subsidiary
company, at a per share conversion price of $7.00. The conversions of these
Debentures resulted in dilution gains of $1,942,000 and $3,607,000 in 1992 and
1993, respectively. In addition, on September 3, 1993, the then subsidiary
company issued 464,000 shares of common stock at a price of $7.00 per share for
net proceeds of $2,633,000 resulting in a further dilution gain of $2,264,000.
Principal repayments on long-term debt are as follows (In thousands):
<TABLE>
<S> <C>
1996 ......................................................... $ 2,244
1997 ......................................................... 2,318
1998 ......................................................... 1,989
1999 ......................................................... 3,171
2000 and thereafter .......................................... 473
-------
$10,195
=======
</TABLE>
8. SHARE CAPITAL
AUTHORIZED AND ISSUED SHARES
Effective January, 1996, the shareholders of the Company authorized a 3 for
1 split with respect to the issued common shares, and an increase in the
authorized capital to 60,000,000 shares of common stock without par value.
<TABLE>
<CAPTION>
(In thousands)
---------------------
Number
Common Shares of Shares Amount
---------------------
<S> <C> <C>
Balance, December 31, 1992 ..................................................... 4,196 $ 8,490
Issued on the exercise of options .............................................. 40 174
Shares acquired for cancellation ............................................... (35) (70)
Effect of exchange rate change ................................................. -- (339)
Balance, December 31, 1993 ..................................................... 4,201 8,255
---------------------
Issued in exchange for Class A Special Shares on amalgamation .................. 906 3,460
Issued in exchange for BCI's common shares held by the
minority interest .............................................................. 3,138 2,097
Issued on the exercise of options .............................................. 29 62
Effect of exchange rate change ................................................. -- (459)
---------------------
Balance, December 31, 1994 ..................................................... 8,274 13,415
Issued on the exercise of options .............................................. 168 702
Effect of exchange rate change ................................................. -- 372
Balance, December 31, 1995, before stock split ................................. 8,442 14,489
---------------------
Effect of 3 for 1 stock split .................................................. 16,885 --
---------------------
Balance, December 31, 1995, after giving effect to stock split ................. 25,327 $ 14,489
=====================
</TABLE>
F-12
<PAGE> 50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in U.S. dollars)
<TABLE>
<CAPTION>
(In thousands)
Number
Class A Special Shares of Shares Amount
----------------------
<S> <C> <C>
Balance, December 31, 1992 ......................... 6,354 $ 4,999
Shares acquired on redemption ...................... (1,504) (1,136)
Effect of exchange rate change ..................... -- (200)
----------------------
Balance, December 31, 1993 ......................... 4,850 3,663
Exchange for common shares on amalgamation ......... (4,850) (3,460)
Effect of exchange rate change ..................... -- (203)
----------------------
Balance, December 31, 1994 ......................... -- $ --
======================
</TABLE>
As at December 31, 1995, the Company has granted to certain directors,
employees, and consultants options which entitle them to acquire an
aggregate of 2,779,000 (on a post-split basis) shares of common stock at
exercise prices ranging from CDN $1.00 to U.S.$20.00 per share and which
become exercisable in three equal annual amounts commencing one year after
the date of grant. As at December 31, 1995, options on 1,060,000 shares of
common stock were exercisable.
9. EARNINGS PER SHARE
Earnings per share, for all years presented, has been calculated using the
weighted average number of shares outstanding during the year, after giving
effect to the 3 for 1 stock split in January, 1996. For the purpose of this
calculation, the income for the years ended December 31, 1993 and 1994 was
reduced, by cumulative undeclared dividends on the Class A Special Shares.
The earnings per share in 1993 on a fully diluted basis giving effect to the
exercise of all options and conversion of all Class A Special Shares into
common shares effective January 1, 1993 would have been $0.26 per share.
Adjusted basic earnings per share in 1994, calculated as though the
conversion of Class A Special shares had occurred at the beginning of the
year amounted to $0.42 per share. Fully diluted earnings per share in 1994,
giving effect to the conversion of Class A Special Shares and the exercise
of all outstanding options as if they had occurred at the beginning of the
year, amounted to $0.36 per share. The earnings per share in 1995 on a fully
diluted basis giving effect to the exercise of all options would have been
$0.21 per share.
10. INCOME TAXES
The major factors which caused variations from the Company's combined
federal and provincial statutory income tax rate of 44.34% applicable to
income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, (IN THOUSANDS)
---------------------------------------
1995 1994 1993
---------------------------------------
<S> <C> <C> <C>
Provision for (recovery of) income taxes
based on statutory rate ................................. $ 2,692 $ 4,195 $ (990)
Reduction of income taxes resulting from income of
foreign subsidiaries taxed at lower effective rate ...... (4,271) (615) (577)
Non-taxable portion of capital gain on settlement of debt .. -- (882) --
Benefit of losses not recognized for accounting purposes ... 1,780 -- 1,815
Benefit of utilization of losses carried forward ........... -- (2,268) --
---------------------------------------
$ 201 $ 430 $ 248
=======================================
</TABLE>
F-13
<PAGE> 51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in U.S. dollars)
10. INCOME TAXES - (CONTINUED)
At December 31, 1995, the Company has accumulated losses for federal and
provincial income tax purposes and unclaimed investment tax credits for
which no accounting benefit has been recognized and which can be used to
offset future taxable income and/or to reduce income taxes payable. These
losses and investment tax credits expire as follows (In thousands):
<TABLE>
<CAPTION>
Investment
Losses Tax Credits
--------------------------------
Federal Provincial
--------------------------------
<S> <C> <C> <C>
1996 ......................................................... $ -- $ 250 $ --
1997 ......................................................... 3,552 4,272 --
1998 ......................................................... 7,032 7,693 89
1999 ......................................................... 3,431 4,150 948
2000 ......................................................... 685 1,270 510
2001 ......................................................... 2,282 2,271 492
2002 ......................................................... 3,593 3,593 469
2003 ......................................................... -- -- 629
2004 ......................................................... -- -- 653
--------------------------------
$20,575 $23,499 $3,790
================================
</TABLE>
The benefits of these losses carried forward and investment tax credits will be
recorded when realized.
11. OPERATING LEASES
Minimum lease commitments under operating leases for each of the next five
years are as follows (In thousands):
<TABLE>
<S> <C>
1996 ............................................... $285
1997 ............................................... 310
1998 ............................................... 275
1999 ............................................... 115
2000 ............................................... 61
</TABLE>
12. CHANGE IN NON-CASH OPERATING ITEMS
<TABLE>
<CAPTION>
Years ended December 31, (In thousands)
--------------------------------------
1995 1994 1993
--------------------------------------
<S> <C> <C> <C>
Accounts receivable ......................................... $ (963) $(2,598) $(1,287)
Deposits and prepaid expenses ............................... (111) 200 75
Inventories ................................................. (3,795) (480) --
Accounts payable ............................................ 2,450 1,268 1,246
Accrued liabilities ......................................... 1,096 718 (559)
Income taxes payable ........................................ 193 223 (118)
Deferred revenue ............................................ 25,168 908 351
--------------------------------------
$ 24,038 $ 239 $ (292)
======================================
</TABLE>
F-14
<PAGE> 52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in U.S. dollars)
13. CONTINGENCIES
In 1995, the Company's contractual, legal and financial relationships with
its former licensee Hoechst-Roussel Pharmaceuticals, Inc.
("Hoechst-Roussel") were resolved. Hoechst-Roussel was previously licensed
by the Company for the once-daily controlled release formulation of
diltiazem. As a result of Hoechst-Roussel's acquisition of Marion Merrell
Dow Inc. ("MMD") a competitor of the Company, the Rights Agreement between
the Company and Hoechst-Roussel was terminated effective June 30, 1995,
resulting in a gain to the Company of $3,617,000, which is net of legal and
other expenses relating to the settlement.
Pursuant to signed Agreements, MMD and Carderm Capital L.P. have terminated
their involvement as plaintiffs in the New Jersey suit brought against
Hoechst-Roussel. Efforts continue to be made to compel Elan Corporation plc
("Elan") to discontinue its involvement as plaintiff in that New Jersey
suit. A Motion is being prepared on behalf of the Company for a summary
dismissal of Elan's claim. In addition, the Company has launched a
substantial counterclaim against Elan based on Elans anti-trust activities.
The Company believes that Elan's suit which alleges certain patent
infringements is without merit.
14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The items included in the table below give rise to differences in net income
under generally accepted accounting principles in the United States ("U.S.
GAAP"). Whereas, except in the case of adjustments with respect to
translating amounts to U.S. dollars, these items are appropriately included
in the Company's consolidated statement of income and deficit under Canadian
GAAP, they would be reflected as capital transactions under U.S. GAAP.
<TABLE>
<CAPTION>
Years ended December 31, (In thousands except per share data)
-------------------------------------------------------------
1995 1994 1993
------------------------------------
<S> <C> <C> <C>
Reconciliation of net income (loss)
under Canadian and U.S. GAAP
Net income as shown in the consolidated
statement of income and deficit ............................ $ 5,870 $ 9,461 $ 3,927
Use of weighted average rate for the year versus
year end rate for purposes of translating net income
amounts from Canadian dollars (the currency of
measurement) to U.S. dollars (the reporting currency) ...... (36) 252 105
Items excluded from income under U.S. GAAP
Dilution gain on issuance of common shares by a then
subsidiary company ......................................... -- -- (5,871)
Gain on debt settlement treated as contributed
surplus under U.S. GAAP .................................... -- (7,955) --
------------------------------------
Net income (loss) according to U.S. GAAP ...................... $ 5,834 $ 1,758 $ (1,839)
====================================
Earnings (loss) per share under U.S. GAAP ..................... $ 0.22 $ 0.07 $ (0.15)
====================================
Weighted average number of common
shares outstanding under U.S. GAAP(1) ....................... 26,940 22,635 12,199
====================================
</TABLE>
F-15
<PAGE> 53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in U.S. dollars)
14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - (CONTINUED)
1) The weighted average number of common shares outstanding for purposes of
the computation of the earnings (loss) per share data under U.S. GAAP
gives effect to the exercise of all outstanding options and the 3 for 1
stock split in January, 1996.
There are no differences between shareholders' equity determined under
Canadian and U.S. GAAP at either December 31, 1995 or 1994.
Under U.S. GAAP, for purposes of presentation of cash flows, the following
non-cash transactions in 1993 would not be shown as financing or investing
activities but would be shown as supplemental cash flow information (In
thousands):
<TABLE>
<S> <C>
Conversion of Debentures into common shares and
the equivalent aggregate amount included in minority
interest and dilution gain ........................................................... $3,941
Issuance of common shares on the exercise of stock options ........................... 174
</TABLE>
Under U.S. GAAP, the following additional supplemental cash flow disclosure
would be provided:
<TABLE>
<CAPTION>
Years ended December 31, (In thousands)
--------------------------------------
1995 1994 1993
--------------------------------------
<S> <C> <C> <C>
Cash paid for:
Interest ............................................... $827 $542 $649
Income taxes ........................................... 69 358 378
</TABLE>
Under U.S. GAAP, the following additional disclosure would be provided pursuant
to the requirements of SFAS No. 109 - "Accounting for Income Taxes":
As at December 31, 1995, the Company has unused tax benefits of approximately
$12,910,000 related to net operating loss and tax credit carry forwards. Under
U.S. GAAP, a valuation allowance of an equivalent amount would be recognized to
offset the related deferred tax asset due to the uncertainty of realizing the
benefit of the loss and tax credit carry forwards.
The net change in the valuation allowance for the deferred tax asset was an
increase of $1,780,000 and $1,815,000 in the years ended December 31, 1995, and
1993, respectively due to the uncertainty of realizing the benefit of tax losses
not recognized and a reduction of $2,268,000 in the year ended December 31, 1994
related to the utilization of benefits arising from the operating losses carried
forward.
F-16
<PAGE> 54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in U.S. dollars)
15. SEGMENTED INFORMATION AND MAJOR CUSTOMERS
The Company considers that its operations fall principally into one class -
providing formulation, development and registration of pharmaceutical
products for the pharmaceutical industry. Information about the Company's
sales and profitability by geographic area for the years ended December 31,
1995, 1994 and 1993 follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, (IN THOUSANDS)
------------------------------------------
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
Revenue
Canada
external ............................................. $ 6,632 $ 10,846 $ 6,670
intersegment ......................................... 578 1,281 1,178
------------------------------------------
7,210 12,127 7,848
Switzerland .......................................... 6,590 6,405 3,075
Barbados ............................................. 7,347 37 1,384
------------------------------------------
21,147 18,569 12,307
Less intersegment .................................... (578) (1,281) (1,178)
------------------------------------------
$ 20,569 $ 17,288 $ 11,129
==========================================
Net Income
Operating income (loss)
Canada ............................................... $ (6,720) $ (1,307) $ (3,346)
Switzerland ......................................... 2,571 2,225 1,872
Barbados ............................................ 6,702 1,607 (34)
------------------------------------------
2,553 2,525 (1,508)
Other income net of income taxes ..................... 3,317 6,936 5,435
------------------------------------------
Net income ........................................... $ 5,870 $ 9,461 $ 3,927
==========================================
Total Assets
Canada ............................................... $ 21,675 $ 21,764 $ 20,166
Switzerland .......................................... 9,467 3,803 3,010
Barbados ............................................. 29,725 63 89
------------------------------------------
$ 60,867 $ 25,630 $ 23,265
==========================================
</TABLE>
Major Customers:
Substantially all of the Company's royalty revenue is earned by its
subsidiary in Switzerland. Over 92% of such revenue is received from five
licensees, the largest of which accounts for approximately 55% of royalty
revenue in 1995. The licensing revenue in 1995, 1994 and 1993 relates
primarily to the assignment and licensing of the marketing rights for a
product to licensees in each of the United States and Canada. Manufacturing
revenues in 1995 and 1994 relate to sales of the licensed product to certain
of these licensees in the United States, the major one being Forest
Laboratories Inc., an approximate 20% shareholder of the Company (see Note
6).
F-17
<PAGE> 55
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- - ------ -----------
<S> <C>
2.1 - Memorandum of Agreement between TXM Corporation and Biovail
Corporation International dated as of March 19, 1992 relating to the
exchange of shares.*
2.1 A - Schedule "A" to Memorandum of Agreement between TXM Corporation
and Biovail Corporation International dated as of May 19, 1992.*
2.2 - Memorandum of Agreement between Biovail Corporation International
and Trimel Corporation dated March 20, 1992 relating to the exchange of
shares.*
2.3 - Agreement between TXM Corporation and Trimel Corporation dated as of
March 20, 1992 relating to the transfer of shares of Biovail Corporation
International.*
2.4 - Facilities Purchase Agreement between Trimel Corporation and Biovail
Research Corporation dated as of March 24, 1992 relating to the
manufacturing facility*
2.5 - Amendment to Memorandum of Agreement between TXM Corporation
and Biovail Corporation International dated as of May 14, 1992 amending
the Memorandum of Agreement between TXM Corporation and Biovail
Corporation International dated as of March 19, 1992.*
2.6 - Agreement of Amendment between TXM Corporation and Trimel
Corporation dated as of May 14, 1992 amending the Agreement between
TXM Corporation and Trimel Corporation dated as of March 20, 1992.*
2.7 - Amendment to Memorandum of Agreement between Trimel Corporation
and Biovail Corporation International dated as of May 14, 1992 amending
the Memorandum of Agreement between Trimel Corporation and Biovail
Corporation International dated as of March 20, 1992.*
2.8 - Amalgamation Agreement between Biovail Corporation International and
Biovail Research Corporation dated December 7, 1993.**
2.9 - Amalgamation Agreement between Trimel Corporation and Biovail
Corporation International dated January 12, 1994.**
2.10 - Assumption Agreement between Trimel Corporation and Trimel (Canada)
Inc. dated January 12, 1994.**
3.3 - Articles of Amalgamation of the Registrant.**
</TABLE>
E-1
<PAGE> 56
<TABLE>
<S> <C>
3.4 - By-Laws of the Registrant.**
4.1 - Specimen Certificate for Common Stock.**
5.1 - Opinion of Stewart, Roper & Associates.**
5.2 - Opinion of Robinson, St. John & Wayne.**
8.1 - Tax Opinion of Cassels, Brock & Blackwell.**
8.2 - Tax Opinion of Robinson, St. John & Wayne.**
10.1 - License Agreement between Biovail SA and Rhone-Poulenc Sante dated
August 13, 1982 relating to Ketoprofen, including letters dated September 24,
1982, September 28, 1984, March 25, 1986, November 12, 1986 and
November 20, 1986 amending the License Agreement.*
10.2 - License Agreement between Biovail SA and Schwarz GmbH dated
September 15, 1985 relating to Isosorbide 5 Mononitrate.*
10.3 - License Agreement between Biovail SA and Ives Laboratories, Inc. dated
June 24, 1986 relating to Ketoprofen.*
10.4 - License Agreement between Biovail SA and Trimel Corporation dated
October 30, 1990; Addendum dated February 1, 1991; Notice of Assignment
dated January 16, 1992 assigning the rights of Trimel Corporation to Biovail
Research Corporation.*
10.4A - Notice of Assignment dated February 18, 1992, relating to the License
Agreement between Biovail SA and Trimel Corporation dated October 30,
1990.*
10.5 - License Agreement between Biovail SA and Sanol Schwarz-Monheim GmbH
dated September 5, 1979 relating to Isosorbide Dinitrate together with letters
dated January 18, 1984, April 15, 1987 and June 4, 1987.*
10.6 - License Agreement between Biovail SA and G.D. Searle & Co. dated
October 24, 1980 relating to Theophylline; amendments to License
Agreement dated November 13, 1981, December 3, 1982, May 20, 1984,
April 9, 1986 and December 12, 1986; Amendment to and Partial
Assignment of License Agreement among Biovail SA, G.D. Searle & Co. and
Whitby, Inc. dated as of December 23, 1991.*
10.6A - Page 1 to the License Agreement between Biovail SA and G.D. Searle & Co.
dated October 24, 1980.*
10.7 - Agreement between Biovail SA, G.D. Searle & Co. and Temmler-Werke
GmbH dated December 3, 1982 relating to regulatory submissions.*
10.8 - License Agreement between Biovail SA and G.D. Searle & Co. dated March
15, 1984 relating to Disopyramide.*
</TABLE>
E-2
<PAGE> 57
<TABLE>
<S> <C>
10.9 - License Agreement between Biovail SA and Temmler-Werke GmbH dated
June 6, 1985 relating to Theophylline.*
10.10 - License Agreement between Trimel International Inc. (predecessor to Biovail
International Incorporated) and Geneva Pharmaceuticals, Inc. dated June 25,
1991 relating to Erythromycin DR and Diltiazem SR B.I.D.; Notice of
Assignment dated January 16, 1992 assigning the rights of Biovail
International Incorporated to Biovail Research Corporation.*
10.11 - Marketing Agreement between Biovail International Incorporated and Zenith
Laboratories, Inc. dated as of December 5, 1991 relating to GLX Nifedipine
SR; Assignment and Amendment to Marketing Agreement dated as of
February 26, 1992 substituting Biovail Research Corporation for Biovail
International Incorporated.*
10.12 - Licensing Agreement between Trimel International Inc. and Galephar P.R.
Inc. dated May 1, 1991; Notice of Assignment dated January 16, 1992
assigning the rights of Biovail International Incorporated to Biovail Research
Corporation.*
10.12A - Page 24 to Licensing Agreement between Trimel International Inc. and
Galephar P.R. Inc. dated May 1, 1991.*
10.13 - License Agreement between Galen Pharma, Inc. and Verex Laboratories, Inc.
dated January 10, 1988 relating to Verapamil and Diltiazem tablets; Notice of
Assignment dated January 16, 1992 assigning the rights of Trimel
Corporation to Biovail Research Corporation.*
10.14 - Licensing Agreement #2 between Galen Pharma, Inc. and Verex
Laboratories, Inc. dated February 15, 1988 relating to Diltiazem, Naproxen,
Salbutomol, Captopril, Propranolol, Indomethacin and Isosorbide Dinitrate; Amendment
to Licensing Agreement #2, dated July 13, 1988; Notice of Assignment dated
January 16, 1992 assigning the rights of Trimel Corporation to Biovail Research
Corporation.*
10.14A - Notice of Assignment dated February 20, 1992 relating to the Licensing
Agreement #2 between Galen Pharma, Inc. and Verex Laboratories, Inc.
dated February 15, 1988, as amended.*
10.15 - Research and Development Agreement between Galen Pharma, Inc. and
Verex Laboratories, Inc. dated February 15, 1988 relating to Diltiazem,
Nifedipine, Naproxen, Salbutomol, Captopril, Propranolol, Indomethacin and
Isosorbide Dinitrate and Research and Development Amendment and
Acknowledgment Agreement dated December 5, 1988.*
10.15A - Notice of Assignment dated February 20, 1992 relating to the Research and
Development Agreement between Galen Pharma, Inc. and Verex
Laboratories, Inc. dated February 15, 1988, as amended.*
10.16 - License Agreement between Biovail SA and Temmler-Werke GmbH dated
May 21, 1985 relating to Propranolol.*
</TABLE>
E-3
<PAGE> 58
<TABLE>
<S> <C>
10.17 - License Agreement between Biovail SA and Adcock-Ingram Laboratories
Limited, dated 1985, relating to Metaclopramide, Ibuprofen, Clonidine,
Propranolol, Diethyl-propion Hydrochloride; Manufacturing and Co-
operation Agreement between Biovail SA and Adcock-Ingram Laboratories
Limited, dated November 19, 1985 and letters dated June 17, 1986 and April
2, 1987.*
10.18 - License Agreement between Biovail SA and Temmler-Werke GmbH dated
September 16, 1983 relating to Metoclopramide.*
10.19 - License Agreement between Biosytes N.V. and Sandoz Ltd. dated May 4,
1984 relating to Tizanidine; License Agreement between Biovail SA and
Biosytes N.V. dated May 4, 1984.*
10.19A - Appendix dated March 5, 1992 to License Agreement between Biosytes N.V.
and Sandoz Ltd. dated May 4, 1984.*
10.20 - License Agreement between Biovail SA and Temmler-Werke GmbH dated March 7,
1979 relating to Diethylpropion and Dimethylpropion.*
10.21 - Consulting Agreement among American Clinical Research Consultants Inc.,
Robert Burford and Biovail Research Corporation effective November 11,
1990.*
10.21A - Letter Amendment dated March 5, 1993 to Consulting Agreement among
American Clinical Research Consultants, Inc., Robert Burford and Biovail
Research Corporation effective November 11, 1990.*
10.22 - Consulting and Confidentiality Agreement between Norman W. Lavy, M.D.,
F.A.C.P. and Biovail International Inc. dated November 21, 1991; Notice of
Assignment dated January 16, 1992 assigning the rights of Biovail
International Incorporated to Biovail Research Corporation.*
10.23 - Special Projects Consulting Agreement between Biotox Enterprises (Canada)
Ltd. and Trimel Corporation dated February 1, 1989; Notice of Assignment
dated January 16, 1992 assigning the rights of Trimel Corporation to Biovail
Research Corporation.*
10.24 - Consulting Agreement between Biovail Research Corporation and Arnold H.
Beckett and dated November 2, 1992.*
10.25 - Consulting Agreement between Biovail SA and Dr. Akbar Noormohammadi
effective May 8, 1991.*
10.26 - Agreement among Robert Goldman, Biovail SA, Biosytes, N.V., Biosytes
(UK) Ltd. and Biosytes (US) Inc. dated as of April 1, 1988, as amended by a
Waiver Agreement dated May 4, 1991 and a Royalty Agreement dated
November 13, 1991.*
</TABLE>
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<PAGE> 59
<TABLE>
<S> <C>
10.27 - Consulting Agreement between Biovail SA and Robert Goldman dated
November 14, 1985.*
10.28 - Radix Agreement dated as of January 16, 1992 among Biovail SA, Radix
Organization, Inc. and D.S. Friedkin.*
10.29 - Assignment and Assumption Agreement between Biovail International
Incorporated and Biovail Research Corporation dated January 15, 1992.*
10.30 - Assignment and Assumption Agreement between Biovail International
Incorporated and Biovail Research Corporation dated March 10, 1992.*
10.31 - Assignment and Assumption Agreement between Trimel Corporation and
Biovail Research Corporation dated March 20, 1992.*
10.32 - Lease Agreement dated April 23, 1990 between the Canadian Aging and
Rehabilitation Product Development Corp. and Trimel Corporation;
Assignment and Assumption Agreement between Trimel Corporation and
Biovail Corporation International dated March 23, 1992 relating to the lease.*
10.33 - Lease between Westpen Properties, Ltd. and Trimel Corporation dated April
4, 1990.*
10.34 - Intercompany Agreement between Biovail Corporation International and
Trimel Corporation dated as of March 20, 1992, as amended.*
10.35 - Management Agreement between Biovail Research Corporation and Eugene
Melnyk dated February 1, 1992.*
10.36 - Employment Agreement between Biovail Research Corporation and Rolf
Reininghaus dated as of February 1, 1992, as amended.*
10.36A - Amendment to Employment Agreement between Biovail Research
Corporation and Rolf Reininghaus dated as of July 26, 1993.*
10.37 - Employment Agreement between Biovail Research Corporation and
Mahmood Khan dated as of February 1, 1992, as amended.*
10.37A - Amendment to Employment Agreement between Biovail Research
Corporation and Mahmood Khan dated as of July 26, 1993.*
10.38 - Management Agreement between Biovail Research Corporation and Robert
G. Burford dated as of January 1, 1993.*
10.39 - 1991 Stock Option Plan (including form of Stock Option Agreement).*
10.40 - Demand Debenture in favor of The Royal Bank of Canada by Trimel
Corporation dated March 8, 1991 relating to the manufacturing facility;
Letter of Offer of Credit Facilities from The Royal Bank of Canada dated
January 4, 1991; Consent Letter of The Royal Bank dated March 10, 1992 to
assignment of the credit facility to Biovail Research Corporation.*
</TABLE>
E-5
<PAGE> 60
<TABLE>
<S> <C>
10.41 - General Security Agreement between The Royal Bank of Canada and Trimel
Corporation.*
10.42 - Guaranty and Postponement of Claim dated December 14, 1990 to The Royal
Bank of Canada from IWF Research Corporation (predecessor to Biovail
Research Corporation) on behalf of Trimel Corporation.*
10.43 - Guaranty and Postponement of Claim dated December 14, 1990 to The Royal
Bank of Canada from Trimel Corporation, a New Jersey corporation, on
behalf of Trimel Corporation, an Ontario corporation.*
10.44 - Certificate of Charge for Mortgage No. 139863 from Trimel Corporation in
favor of The Royal Bank of Canada relating to the manufacturing facility.*
10.45 - Debenture in favor of Manitoba Development Corporation by Trimel
Corporation dated March 7, 1991 relating to the manufacturing facility; Offer
of Financial Assistance from Manitoba Industrial Opportunity Program
("MIOP") dated April 18, 1990; Consent Letter dated March 9, 1992 of
Manitoba Development Corporation to assignment of the loan facility to
Biovail Research Corporation.*
10.46 - Certificate of Charge for Mortgage No. 1398964 from Trimel Corporation in
favor of Manitoba Development Corporation relating to the manufacturing
facility.*
10.47 - Proposal dated March 26, 1990, from the Minister of Western Economic
Diversification to Trimel relating to the manufacturing facility, as amended
by letter dated May 22, 1990, October 1, 1990, May 10, 1991, October 1,
1991 and October 26, 1991; Consent Letter of Western Economic
Diversification dated March 20, 1992 to the assignment of the loan facility to
Biovail Research Corporation.*
10.48 - Mortgage of Land dated October, 1989 between IWF Research Laboratories
Inc. and The Prudential Assurance Company of England (Canada) relating to
the clinic.*
10.49 - Document General/Assumption of Charge Agreement between IWF Research
Corporation and the Prudential Life Assurance Company of England
(Canada) dated as of November 20, 1989 relating to the clinic;
Consent Letter dated March 17, 1992 from Prudential to the assignment
of the loan facility to Biovail Research Corporation.*
10.50 - Charge/Mortgage of Land and Fixed Charge Debenture between IWF
Research Corporation and The Royal Bank of Canada dated December 7,
1989; Consent Letter dated March 10, 1992.*
10.51 - General Security Agreement between IWF Research Corporation and The
Royal Bank of Canada dated December 7, 1989.*
</TABLE>
E-6
<PAGE> 61
<TABLE>
<S> <C>
10.52 - Guarantee and Postponement of Claim to The Royal Bank of Canada from
Trimel Corporation on behalf of IWF Research Corporation dated December
7, 1989.*
10.53 - Postponement of Claim to The Royal Bank of Canada from Trimel
Corporation on behalf of IWF Research Corporation dated December 7,
1989.*
10.54 - Mortgage No. 1395255 from Trimel Corporation to Royal HealthCare
Investment Corporation relating to the manufacturing facility.*
10.55 - Postponement of Rights and Advances Agreement dated March 8, 1991 by
Royal HealthCare Investment Corporation in favor of Manitoba Development
Corporation.*
10.56 - Postponement of Rights and Advances Agreement dated March 8, 1991 by
Royal HealthCare Investment Corporation in favor of the Royal Bank of
Canada.*
10.57 - Prime Agreement between Trimel Corporation and The Cambrian
Engineering Group Limited dated June 18, 1990.*
10.58 - Design - Build Stipulated Price Contract between Trimel Corporation and
Penn-Co Construction Ltd. dated November 28, 1990 relating to the
construction of the manufacturing facility.*
10.59 - Letter Agreement, dated July 12, 1990, between The Royal Bank of Canada
and IWF Research Corporation.*
10.60 - License Agreement between Biovail Research Corporation and Zenith
Laboratories, Inc. dated as of May 14, 1992 relating to Indomethacin.*
10.61 - Letter of Consent dated May 15, 1992 from The Royal Bank of Canada to
Trimel Corporation.*
10.61A - Page 2 to Letter of Consent dated May 15, 1992, from The Royal Bank of
Canada to Trimel Corporation.*
10.62 - Supplemental Debenture between Trimel Corporation, Biovail Research
Corporation, and Biovail Corporation International relating to MIOP,
together with the Letter of Consent of MIOP, both dated May 15, 1992.*
10.63 - Guarantee of Biovail Corporation International in favor of MIOP dated May
15, 1992.*
10.64 - Bill of Sale dated May 15, 1992 between Trimel Corporation and Biovail
Research Corporation.*
</TABLE>
E-7
<PAGE> 62
<TABLE>
<S> <C>
10.65 - General Conveyance dated May 15, 1992 between Trimel Corporation and
Biovail Research Corporation.*
10.66 - Assignment and Assumption Agreement dated May 15, 1992 between Trimel
Corporation and Biovail Research Corporation.*
10.67 - Demand Debenture in the principal amount of CDN$5,894,000 made by
Biovail Research Corporation in favor of The Royal Bank of Canada dated
May 15, 1992.*
10.68 - General Security Agreement dated May 15, 1992 by Biovail Research
Corporation in favor of The Royal Bank of Canada.*
10.69 - Guarantee and Postponement of Claim dated May 15, 1992 by Trimel
Corporation in favor of The Royal Bank of Canada.*
10.70 - Guarantee and Postponement Claim dated May 15, 1992 by Biovail
Corporation International in favor of The Royal Bank of Canada.*
10.71 - General Security Agreement dated May 15, 1992 made by Biovail
Corporation International in favor of The Royal Bank of Canada.*
10.72 - Environmental Indemnity Agreement dated May 15, 1992 made by Biovail
Research Corporation in favor of The Royal Bank of Canada.*
10.73 - Environmental Indemnity Agreement dated May 15, 1992 made by Trimel
Corporation and Biovail Corporation International in favor of the Royal Bank
of Canada.*
10.74 - Priority Agreement dated May 15, 1992 among The Royal Bank of Canada,
Biovail Research Corporation, Manitoba Development Corporation, Trimel
Corporation and Biovail Corporation International.*
10.75 - Irrevocable Assignment and Direction dated May 15, 1992 to Western
Economic Diversification and Department of Industry, Trade & Tourism by
Biovail Research Corporation.*
10.76 - Pledge of Debenture dated May 15, 1992 by Biovail Research Corporation in
Favor of The Royal Bank of Canada.*
10.77 - Shareholders Agreement dated May 4, 1991 among TXM Corporation,
Robert Goldman and Biovail SA, as amended.*
</TABLE>
E-8
<PAGE> 63
<TABLE>
<S> <C>
10.77A - Agreement of Amendment dated March 16, 1993 to Shareholders Agreement
dated May 4, 1991 among TXM Corporation, Robert Goldman and Biovail
SA.*
10.78 - Employment Agreement between Biovail Research Corporation and Ervin
Gregory Szekely dated July 13, 1992.*
10.79 - Marketing Service Agreement between Pharmaconsult and Biovail Research
Corporation dated October 5, 1992.*
10.80 - Technical Assistance Agreement among Biovail SA, Kerfoot
Pharmaceuticals and Biovail Research Corporation dated December 21,
1992.*
10.81 - Licensing Agreement between Biovail Research Corporation and Galephar
P.R. Inc. dated December 1, 1992.*
10.81A - Page 17 to Licensing Agreement between Biovail Research Corporation and
Galephar P.R. Inc. dated December 1, 1992.*
10.82 - Licensing Agreement between Biovail Research Corporation and Galephar
P.R. Inc. dated April 1, 1992.*
10.82A - Pages 18 and 19 to Licensing Agreement between Biovail Research
Corporation and Galephar P.R. Inc. dated April 1, 1992.*
10.83 - Form of 4% Convertible Subordinated Debenture.*
10.84 - Interim Service Agreement between Biovail Corporation International and
Trimel Corporation dated February 1, 1993.*
10.85 - Promissory Note dated February 3, 1993 in the principal amount of up to
CDN$2,947,000 made by Biovail Research Corporation in favor of Trimel
Corporation.*
10.86 - Marketing and Supply Agreement dated May 14, 1992 between Zenith
Laboratories, Inc. and Biovail Research Corporation.*
10.87 - Amendment and Addendum to Licensing Agreement dated September 1,
1992 to Licensing Agreement between Biovail Research Corporation and
Galephar P.R. Inc. dated May 1, 1991.*
10.88 - Amendment and Addendum to Licensing Agreement dated September 1,
1992 to Licensing Agreement between Biovail Research Corporation and
Galephar P.R. Inc. dated April 1, 1992.*
</TABLE>
E-9
<PAGE> 64
<TABLE>
<S> <C>
10.89 - Licensing Agreement between Biovail SA and Temmler Pharma GmbH
dated October 28, 1992.*
10.90 - Letter Agreement between Biovail Research Corporation and Hoechst-
Rousell Pharmaceuticals, Inc. dated June 30, 1993.*
10.91 - Lease Amendment Agreement by and among Trimel Corporation, Biovail
Corporation International and Westpen Properties Ltd.*
10.92 - Amendment of Financing Proposal for the Western Economic Diversification
Canada dated April 8, 1993.*
10.93 - Escrow Agreement between Biovail Corporation International and Midlantic
National Bank dated July 26, 1993.*
10.94 - License and Supply Agreement between Biovail Research Corporation and
Sanofi Winthrop dated September 15, 1993.**
10.95 - Distribution Agreement among Trimel Corporation, Watson Laboratories,
Inc. and Gynex Laboratories L.P. dated April 28, 1989.**
10.96 - Addendum to Distribution Agreement, between Trimel Corporation and
Watson Laboratories, Inc. dated as of June 21, 1993.**
10.97 - Licensing Agreement between Trimel (Barbados) Corporation and Mepha
Ltd. effective November 29, 1990.**
10.98 - Licensing Agreement between Trimel Corporation and Mepha Ltd. effective
June 1, 1990.**
10.99 - Amendment to Employment Agreements between each of Biovail Research
Corporation and Trimel Corporation and Rolf Reininghaus dated as of
December 15, 1993.**
10.100 - Amendment to Management Agreements between each of Biovail Research
Corporation and Trimel Corporation and Eugene Melnyk dated as of
December 15, 1993.**
10.101 - Amendment to Employment Agreements between each of Biovail Research
Corporation and Trimel Corporation and Mahmood Khan dated as of
December 15, 1993.**
10.102 - Supply Agreement between Biovail Research Corporation and Hoechst-
Roussel Pharmaceuticals Inc. effective as of June 30, 1993.**
</TABLE>
E-10
<PAGE> 65
<TABLE>
<S> <C>
10.103 - Rights Agreement between Biovail Research Corporation and Hoechst
Roussel Pharmaceuticals, Inc. effective as of June 30, 1993.**
10.104 - 1993 Stock Option Plan of Trimel Corporation.**
10.105 - Letter of Offer from the Minister Of Western Economic Diversification to
Trimel Corporation and Biovail Research Corporation dated April 8, 1993,
as amended by letter dated October 21, 1993.**
10.106 - Letter Agreement between Royal Bank of Canada and Trimel Corporation
dated September 21, 1993, as revised on October 5, 1993.**
10.107 - Notice of Assignment dated October 22, 1993 by Biovail Research
Corporation to Geneva Pharmaceutical, Inc. with respect to the License
Agreement dated June 25, 1991.**
10.108 - Letter dated November 8, 1993 by Manitoba Development Corporation to
Trimel Corporation relating to the financing of the manufacturing facility.**
10.109 - Letter of understanding between Galephar P.R., Inc. and Biovail Research
Corporation dated August 26, 1993.**
10.110 - Minutes of Settlement respecting to Research and Development Agreement
dated February 15, 1988 between Biovail Research Corporation and Verex
Laboratories, Inc. dated as of August 1, 1993.**
10.111 - Letter Agreement between Hoecht-Roussel Pharmaceuticals Inc. and Biovail
Research Corporation dated January 18, 1994.**
10.112 - Insurance Policy on the life of Eugene Melnyk for the benefit of Trimel
Corporation issued by Gerling Global Life Insurance Company.**
10.113 - Insurance Policy on the life of Rolf Reininghaus for the benefit of Trimel
Corporation issued by Toronto Mutual Life Insurance Company.**
10.114 - Insurance Policy on the life of Mahmood Khan for the benefit of Trimel
Corporation issued by Toronto Mutual Life Insurance Company.**
10.115 - Amendment dated January 18, 1994 to License Agreement between Biovail
SA and Rhone-Poulenc Rorer S.A. (previously known as Rhone-Poulenc
Sante) dated August 13, 1982.**
10.116 - Consulting Agreement dated February 9, 1994 between Strategic Associates
Incorporated and Biovail Corporation International.**
</TABLE>
E-11
<PAGE> 66
<TABLE>
<S> <C>
10.117 - Commitment letter from Royal Bank of Canada to Biovail Corporation
International dated February 21, 1994.**
10.118 - Commitment letter from Royal Bank of Canada to Trimel Corporation dated
February 21, 1994.**
10.119 - Agreement between Trimel Corporation, Trimel (Canada) Inc., Biovail
Corporation International, Eugene Melnyk and G. Dewar Laing, dated
January 18, 1994.**
10.120 - Clinical study agreement for Diltiazem OD ER between Biovail Corporation
International and Hoechst-Roussel Pharmaceuticals, Inc. dated April 21,
1994.***
10.121 - Agreement between the Minister of Western Economic Diversification and
Biovail Corporation International dated April 19, 1994.***
10.122 - Amendment to Supply Agreement (Diltiazem) between Biovail Corporation
International Hoechst-Roussel Pharmaceuticals, Inc. dated June 3, 1994.***
10.123 - General Security Agreement dated June 23, 1994 made by Biovail
Corporation International in favour of the Royal Bank of Canada.***
10.124 - Demand Debenture in the principal amount of $1,000,000 made by Biovail
Corporation International in favor of the Royal Bank of Canada dated June
23, 1994.***
10.125 - Charge/Mortgage of Land June 23, 1994 between Biovail Corporation
International and the Royal Bank of Canada relating to 460 Comstock
Road.***
10.126 - Environmental Indemnity Agreement dated June 23, 1994 made by Biovail
Corporation International in favour of the Royal Bank of Canada.***
10.127 - Security Confirmation Agreement dated June 23, 1994 made by Biovail
Corporation International in favor of the Royal Bank of Canada.***
10.128 - Pledge of Debenture dated June 27, 1994 by Biovail Corporation
International in favor of the Royal Bank of Canada.***
10.129 - Guarantee Confirmation Agreement dated June 27, 1994 made by Trimel
Corporation, a New Jersey Corporation, in favor of the Royal Bank of
Canada.***
</TABLE>
E-12
<PAGE> 67
<TABLE>
<S> <C>
10.130 - Consulting Agreement between Trimel Laboratories Inc. and Professor
Arnold H. Beckett effective as of July 15, 1994.-
10.131 - Employment Agreement between Biovail Corporation International and
Bruce D. Brydon dated as of December 19, 1994.-
10.132 - Settlement Agreement between Biovail Corporation International and Robert
Goldman dated January 24, 1995.-
10.133 - Letter Agreement between the Bank of Nova Scotia and Biovail Corporation
International dated March 23, 1995.-
10.134 - Amendment to the letter of offer from Manitoba Industrial Opportunities
program dated March 24, 1995.-
10.135 - Letter Agreement outlining terms of litigation settlement between Cassels,
Brock & Blackwell on behalf of Biovail Corporation International and Lerner
& Associates on behalf of Ian W. French dated April 13, 1995.-
10.136 - Amendment to Financing proposal from Western Economic Diversification
Canada dated April 20, 1995.-
10.137 - Settlement Agreement and release between Biovail Corporation International,
Hoechst-Aktiengesellschaft and Hoechst-Roussel Pharmaceuticals Inc. dated
April 28, 1995.-
21.1 - Subsidiaries of the Registrant.**
23.1 - Consent of Deloitte & Touche.**
23.2 - Consent of Deloitte & Touche.**
23.3 - Consent of Doane Raymond.**
23.4 - Consent of Robinson, St. John & Wayne.**
23.5 - Consent of Stewart, Roper & Associates.**
23.6 - Consent of Price Waterhouse.**
23.7 - Consent of Cassels Brock & Blackwell.**
23.8 - Consent of Deloitte & Touche
24.1 - Powers of Attorney.**
</TABLE>
E-13
<PAGE> 68
<TABLE>
<S> <C>
99.1 - Form of Proxy to be used in soliciting holders of Trimel Corporation
Common Stock.**
99.2 - Form of Proxy to be used in soliciting holders of Biovail Corporation
International Common Stock.**
99.3 - Valuation Report and Fairness Opinion of Price Waterhouse.**
99.4 - Consent of George Henry.**
</TABLE>
C. Exhibits filed previously this year.
<TABLE>
<S> <C>
10.138 - Offer to Purchase of Forest Laboratories, Inc. dated September 18, 1995
Filed as Exhibit 1 --
10.139 - Investment Agreement by and among Forest Laboratories, Inc., Biovail
Corporation International, Eugene Melnyk, Trimel (Canada) Inc. and
Royal Healthcare Investment Corporation
Filed as Exhibit 2--
10.40 - License Agreement between Forest Laboratories, Inc. and Biovail
Corporation International
Filed as Exhibit 4--
10.141 - Option Agreement between Forest Laboratories, Inc. and Biovail Corporation
International
Filed as Exhibit 5--
10.142 - Supply Agreement between Forest Laboratories, Inc. and Biovail
Laboratories, Inc.
Filed as Exhibit 6--
10.143 - Registration Rights Agreement between Forest Laboratories, Inc. and Biovail
Corporation International
Filed as Exhibit 7--
10.144 - Performance Guarantee Agreement between Biovail Corporation Interntional
and Forest Laboratories, Inc.
Filed as Exhibit 8--
101.45 - Loan Agreement, Promissory Note and Pledge Agreement made by Eugene
Melnyk in favour of Forest Laboratories, Inc.
Filed as Exhibit 12--
</TABLE>
D. EXHIBITS FILED WITH THIS SUBMISSION
<TABLE>
<S> <C>
10-104A - 1993 Stock Option Plan as amended.
</TABLE>
E-14
<PAGE> 69
- - --------------
* Incorporated by reference to Registrant's
registration statement on Form F-1, Registration
Statement No. 33-57938.
** Incorporated by reference to Registrant's
registration statement on Form F-4, Registration
Statement No. 33-74120
*** Incorporated by reference to Registrant's Annual
Report on Form 20-F for the fiscal year ended
December 31, 1993, file no. 011-11145.
- Incorporated by reference to Reistrant's Annual Report on
Form 220-F for the fiscal year ended December 31, 1994, file
no. 011-11145.
-- Incorporated by reference to Registrant's Schedule 14D-9
filing dated September 18, 1995.
---------------
E-15
<PAGE> 1
BIOVAIL CORPORATION INTERNATIONAL
1993 STOCK OPTION PLAN, AS AMENDED
1. PURPOSE: The purpose of this Stock Option Plan (the "Plan") is to attract and
retain the services of directors, employees, consultants and advisors of Biovail
Corporation International, its subsidiaries and affiliates (the "Corporation")
who are primarily responsible for the management and profitable growth of its
business and to advance the interests of the Corporation by enabling them to
acquire common shares (the "Shares") of the Corporation as an additional
incentive for superior performance by such persons.
2. ELIGIBILITY: Options may be granted under the Plan to directors, senior
officers, or to a personal holding corporation controlled by such persons,
officers, employees and consultants of the Corporation, whether or not they are
full or part time employees of the Corporation; provided, however, that options
may be conditionally granted to persons who are prospective directors or
employees of, or consultants or advisors to, the Corporation, but no such grant
shall become, by its terms, effective earlier than the date as of which the
board of directors approves the grant or the date as of which the Optionee
becomes an officer, employee or director of, or a consultant or advisor to (as
the case may be), the Corporation.
3. ADMINISTRATION: The Plan shall be administered by the Board of Directors who
shall have full authority to interpret the Plan and to make such rules and
regulations and establish such procedures as they deem appropriate for the
administration of the Plan. A decision of the majority of persons comprising the
Board in respect of any matter hereunder shall be binding and conclusive for all
purposes and upon all persons.
4. SHARES SUBJECT TO THE PLAN: The total number of shares which are reserved and
set aside for issue under this Plan, and under all other management options
outstanding and employee stock purchase plans, if any, shall not in the
aggregate exceed 1,500,000 common shares. All shares issued pursuant to the
exercise of options granted or deemed to be granted under the Plan will be so
issued as fully paid common shares.
5. PARTICIPATION: Options shall be granted under the Plan only to directors or
senior officers or their personal holding corporation or to officers, employees,
consultants and field personnel of the Corporation (the "Optionee") as shall be
designated from time to time by the Board of Directors and shall be subject to
the approval of such regulatory authorities as may have jurisdiction. Approval
of the Plan also constitutes shareholders approval of options that may be
granted under the Plan to directors or senior officers of the Corporation or to
their personal holding corporation.
6. OPTION AGREEMENTS: Each option shall be evidenced by a written agreement (an
"Option Agreement"), containing such terms and conditions, not inconsistent with
the Plan, as the Board of Directors may, in its discretion, determine. Option
Agreement shall be executed on behalf of the Corporation and the Optionee.
Option Agreements may differ among Optionees.
<PAGE> 2
7. TERMS AND CONDITIONS OF OPTIONS: The terms and conditions of each option
granted under the Plan shall include the following, as well as such other
provisions, not inconsistent with the Plan as may be deemed advisable by the
Board of Directors:
(a) Number of Shares: The number of subject to the option.
(b) Option Price: The option price of any shares in respect of which an
option may be granted under the Plan shall be fixed by the Board of
Directors but shall be not less than the fair market value of the
shares at the time the option is granted, less an amount up to the
maximum discount allowed by regulatory authorities or stock exchanges
having jurisdiction as may be determined by the Board of Directors. For
the purpose of this paragraph, the "fair market value" shall be deemed
to be the closing market price at which the shares are traded on the
Toronto Stock Exchange on the day prior to the date the option is
granted, or if not so traded, the average between the closing bid and
ask prices thereof as reported for that day.
(c) Payment: The full purchase price payable under the option shall be paid
in cash or certified funds upon the exercise thereof. A holder of an
option shall have none of the rights of a shareholder until the shares
are issued.
(d) Term of Option: Options may be granted under this Plan over a period
not exceeding ten (10) years. Each option shall be subject to earlier
termination as provided in subparagraph (f) of this paragraph 7.
(e) Exercise of Option: Subject to the provisions contained in subparagraph
(f) of this paragraph 7, no option may be exercised unless the Optionee
is then a director, senior officer, officer, employee, consultant and
advisor of the Corporation. This Plan shall not confer upon the
Optionee any right with respect to continuation of employment by the
Corporation. Absence on leave approved by an officer of the Corporation
authorized to give such approval shall not be considered an
interruption of employment for any purpose of the Plan. Subject to the
provisions of the Plan, an option may be exercised from time to time by
delivery to the Corporation at Toronto of written notice of exercise
specifying the number of shares with respect to which the option is
being exercised and accompanied by payment in full of the purchase
price of the then being purchased.
(f) Termination of Options: Any option granted pursuant hereto, to the
extent not validly exercised, will terminate on the date of expiration
specified in the option agreement, being not more than ten (10) years
after the date upon which the option was granted.
(g) Nontransferability of Stock Option: No option shall be transferable,
except to a personal holding corporation of the Optionee, by the
Optionee other than by will or the laws of descent and distribution and
such option shall be exercisable during the lifetime of the Optionee.
2
<PAGE> 3
(h) Applicable Law or Regulations: The Corporation's obligation to sell and
deliver shares under each option is subject to such compliance by the
Corporation and any Optionee as the Corporation deems necessary or
advisable with all laws, rules and regulations of Canada and any
provinces and/or territories thereof applying to the authorization,
issuance, listing or sale of securities and is also subject to the
acceptance for listing of the shares which may be issued upon the
exercise thereof by each stock exchange upon which of the Corporation
are then listed for trading.
8. TERMINATION OF EMPLOYMENT, DISABILITY AND DEATH: The Board of
Directors may determine the period or periods of time during which an Optionee
may exercise an option following (i) the termination by the Corporation, with or
without cause, of the Optionee's employment or other relationship with the
Corporation, (ii) the termination by the Optionee of any such relationship with
the Corporation, or (iii) the death or permanent and total disability of the
Optionee. Such period or periods shall be set forth in the Option Agreement
evidencing such option.
9. ADJUSTMENTS IN SHARES SUBJECT TO THE PLAN: The aggregate number and kind of
shares available under the Plan and the exercise price thereof shall be
appropriately adjusted in the event of a reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger, consolidation, rights
offering or any other change in the corporate structure or shares of the
Corporation. any of such events, the Board of Directors may determine the
adjustments to be made in the number and kind of shares covered by options
theretofore granted or to be granted and in the option price.
10. AMENDMENT AND TERMINATION OF PLAN: Subject to the approval of the Toronto
Stock Exchange or other regulatory authorities having jurisdiction, the Board of
Directors may from time to time amend or revise the terms of the Plan or may
terminate the Plan at any time provided, however, that no such action shall,
without the consent of the Optionee, in any manner adversely affect his rights
under any option theretofore granted under the Plan.
11. CORPORATE TRANSACTIONS: In the event the Shares are exchanged for
securities, cash or other property of any other corporation or entity as the
result of a reorganization, merger or consolidation in which the Corporation is
not the surviving corporation, the dissolution or liquidation of the
Corporation, or the sale of all or substantially all the assets of the
Corporation, the Board of Directors or the board of directors of any successor
corporation or entity may, in its discretion, as to outstanding options (a)
accelerate the exercise date or dates of such options pursuant to section 7(e),
(b) upon written notice to the holders thereof, provided the options have been
accelerated pursuant to paragraph (a) above, terminate all such options prior to
consummation of the transaction unless exercised within a prescribed period, (c)
provide for payment of an amount equal to the excess of the fair market value,
as determined by the Board of Directors or such board, over the Option Price of
such as of the date of the transaction, in exchange for the surrender of the
right to exercise such options, or (d) provide for the assumption of such
options, or the substitution therefor of new options, by the successor
corporation or entity.
3
<PAGE> 4
12. EFFECTIVE DATE AND DURATION OF PLAN: Subject to the approval of the
shareholders of the Corporation, the Plan becomes effective on the date of its
adoption by the Board of Directors and options may be granted immediately
thereafter. The Plan shall remain in full force and effect until the tenth
anniversary of the date on which the Plan was adopted by the Board of Directors,
(ii) the tenth anniversary of the date on which the Plan is approved by the
shareholders of the Corporation, or (iii) the date as of which the Board of
Directors, in its sole discretion, determines to terminate the Plan, whichever
is the earlier.
4
