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UNITED STATES PRIVATE
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 20-F
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/ / 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
For the year ended December 31, 1996
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)
PROVINCE OF ONTARIO, 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)
NEW YORK STOCK EXCHANGE
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
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:
25,427,140 common shares, without par value as of December 31, 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
All financial information contained in this document is expressed in United
States dollars, unless otherwise stated.
- - - --------------------------------------------------------------------------------
BIOVAIL, the Biovail word logo, Tiazac, Viazem, and Crystaal are all trademarks
of the Company which may be registered in Canada, the United States and certain
other jurisdictions.
All other product names referred to in this document are the property of their
respective owners.
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TABLE OF CONTENTS
GENERAL INFORMATION
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I
Item 1. Description of Business .............................................. 3
Item 2. Description of Properties ............................................ 9
Item 3. Legal Proceedings .................................................... 9
Item 4. Control of Registrant ................................................ 10
Item 5. Nature of Trading Market ............................................. 10
Item 6. Exchange Controls and Other Limitations
Affecting Security Holders ......................................... 11
Item 7. Taxation ............................................................. 12
Item 8. Selected Financial Data .............................................. 14
Item 9. Management's Discussion and Analysis of
Financial Conditions and Results of Operations ..................... 15
Item 10. Directors and Officers of the Company ................................ 18
Item 11. Compensation of Directors and Officers ............................... 21
Item 12. Options to Purchase Securities from the Company or Subsidiaries ...... 23
Item 13. Interest of Management in Certain Transactions ....................... 24
PART II
Item 14. (Not Applicable) ..................................................... 25
PART III
Item 15. (Not Applicable) ..................................................... 25
Item 16. (Not Applicable) ..................................................... 25
PART IV
Item 17. Financial Statements ................................................. 26
Item 18. Financial Statements ................................................. 26
Item 19. Financial Statements and Exhibits .................................... 26
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Biovail Corporation International ("Biovail" or 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 integrated global pharmaceutical company
that applies advanced proprietary controlled release delivery technologies to
the development and manufacture of drug products for the treatment of major
chronic conditions, including cardiovascular and cardiopulmonary diseases, bone
and joint disorders and others. Biovail's formulations either improve on
conventional dosage forms of existing products by providing the therapeutic
benefits of controlled release or are generically equivalent to existing
once-daily high volume branded products while in both instances providing
significant cost advantages.
The Company is internationally recognized as a leader in the application of
controlled release drug delivery technologies. Biovail has proven expertise in
all stages of development, formulation, testing, regulatory filing and
manufacture of controlled release drug products. The company operates its
research and development and manufacturing activities from state-of-the-art
facilities in Canada and Puerto Rico.
Biovail's products are globally marketed through strategic partnerships and
licensing agreements with many of the world's leading pharmaceutical companies.
Biovail's products are currently marketed in 55 countries around the world,
including the U.S. and many European Community (EC) nations. The company is
dedicated to ongoing research and development and currently has a development
pipeline of several highly promising controlled release products in late-stage
development.
Operations are supplemented by a dedicated Contract Research Division that
provides comprehensive clinical and laboratory testing services to third party
pharmaceutical companies, as well as Biovail itself. In addition, Crystaal
Corporation, a wholly-owned subsidiary, has been established to market Biovail's
and in-licensed products within Canada.
Biovail Corporation International has its headquarters in Toronto, Canada. The
Company's Common stock is traded on the Toronto Stock Exchange and the New York
Stock Exchange under the symbol BVF.
NOTICE CONCERNING FORWARD-LOOKING STATEMENTS
Some of the statements made in this Form 20-F are forward-looking in nature,
including but not limited to Biovail's product development plans, plans
concerning the commercialization of products, and other statements that are not
historical facts. The occurrence of the events described, and the achievement of
the intended results, are subject to the future occurrence of many events, some
or all of which are not predictable or within Biovail's control; therefore,
actual results may differ materially from those anticipated in any
forward-looking statements. Many risks and uncertainties are inherent in the
pharmaceutical industry; others are more specific to Biovail's business. Many of
the significant risks related to Biovail's business are described in this Form
20-F, including risks associated with technology and product development, risks
relating to clinical development and medical acceptance of products, changes in
the health care marketplace, patent and intellectual property matters,
regulatory and manufacturing issues, and risks associated with competition from
other companies.
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PRODUCT PIPELINE
As of June 6, 1997, the Company had twelve controlled release products under
development, four of which have been submitted for regulatory approval to the
U.S. Food and Drug Administration ("FDA"). The products filed with the FDA
include: (i) an abbreviated New Drug Application ("ANDA") for a once-daily
generic version of diltiazem CD (Cardizem CD); (ii) an ANDA for a twice-daily
generic version of diltiazem SR (Cardizem SR); (iii) an ANDA for a generic
extended release version of pentoxifylline SR (Trental); and (iv) an ANDA for a
once-daily generic version of verapamilSR (Verelan).
In addition to the products filed with the FDA, the Company has eight other
once-daily controlled release generic products in its development pipeline.
These products will compete in the cardiovascular, cardio-pulmonary,
anti-arthritic and pain management categories for the treatment of chronic
conditions that affect large and expanding patient populations.
OPERATING UNITS
RESEARCH AND DEVELOPMENT
Biovail's team of scientists has expertise in all aspects of research and
development, from pre-formulation studies and formulation development through to
pharmacokinetics and technology applications. The Company has successfully
developed appropriate delivery systems for pharmaceutical compounds exhibiting a
wide range of solubility and hydrophobicity characteristics. The Company has
regularly invested significant resources towards its R & D efforts, spending
$2.5 million, $4.5 million and $7.5 million in 1994, 1995 and 1996 respectively.
In 1996, the Company further enhanced its research capabilities through the
development of its new primary Canadian R & D facilities. This 24,000 ft.
facility in Toronto is equipped with state-of-the-art technology. Complementing
the technology is the group's optimized computer modelling and simulation
expertise. This combination of highly specialized equipment, scientific
expertise and proprietary internal technology platforms places the Company at
the forefront of controlled release drug delivery research and development.
REGULATORY AFFAIRS AND QUALITY ASSURANCE
The Company's Corporate Regulatory Affairs and Quality Assurance Department
performs a key role in every aspect of the development and registration of each
product and has prepared product submissions for regulatory agencies in the
United States, Canada, the United Kingdom, and the European Union. The
Department also coordinates all data and document management, including
amendments, supplements and adverse events reporting. Quality Assurance ensures
that all stages of product development and production fully comply with Good
Clinical, Laboratory and Manufacturing Practices (GCP, GLP, cGMP).
MANUFACTURING
The Company operates two modern, fully-integrated pharmaceutical manufacturing
facilities located in Steinbach, Manitoba, Canada and Carolina, Puerto Rico.
Both facilities are FDA approved and meet cGMP requirements. The manufacturing
facilities are inspected on a regular basis by the FDA, the Health Protection
Branch of Health Canada ("HPB"), other regulatory bodies and the Company's
auditing team to ensure compliance on an ongoing basis with cGMP requirements.
The Company's 75,000 square foot plant in Steinbach, Manitoba was constructed in
1994 and its manufacturing processes include: granulation and coating with
solvents, bead extrusion and spheronization; fluid bed drying and tableting;
high speed encapsulation with 100% quality control weight checks; and high
speed, automatic packaging lines.
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The Carolina, Puerto Rico facilities total 34,000 square feet, including 23,000
square feet acquired as part of the Galephar transaction, and 11,000 square feet
of additional leased warehouse space. This plant is specially constructed for
the high capacity production of controlled release beads and is currently
producing Tiazac( beads for distribution in the United States. Acquired by the
Company in 1995, this facility has been expanded and its equipment upgraded.
CONTRACT RESEARCH DIVISION ("CRD")
The CRD provides pharmaceutical companies with a broad range of pharmaceutical
development services, including pharmacokinetic studies, bioanalytical
laboratory testing, clinical research studies, and regulatory support, including
assistance in the preparation and filing of regulatory submissions with
regulatory bodies. The CRD can also provide support services to its clients in
the area of quality assurance.
Operating as an independent business unit with its own independent internal
review board, the CRD is located in a 35,000 square foot stand-alone facility
owned by the Company in Toronto, Ontario. This facility includes a fully
equipped bioanalytical laboratory, a department of biopharmaceutics and
statistical analysis and a live-in 140-bed clinic.
To date, the CRD has designed and conducted approximately 1,200 Phase I
bioavailability, bioequivalence and drug interaction studies on approximately
500 compounds. Therapeutic areas in which studies have been completed include
cardiovascular, cardio-pulmonary, bone and joint disease, pain management,
infectious diseases, central nervous system, gastroenterology and endocrinology.
In addition, the CRD is active and experienced in the design and implementation
of Phase III and Phase IV clinical trials from protocol design and monitoring to
completion of statistical reports.
The CRD includes a full service bioanalytical laboratory which performs
specialized bioanalytical and quality control testing and method development as
well as other laboratory services for major regional and multinational
pharmaceutical concerns. The laboratory is subject to full compliance with GLP
regulations and standards required by the FDA, the HPB and other foreign
regulatory bodies.
SALES AND MARKETING
Crystaal Corporation, the Canadian marketing and sales subsidiary of the
Company, provides sales and marketing services for the Company's products as
well as for products licensed from third parties worldwide. Crystaal Corporation
is located in an 8,300 square foot leased office facility in Montreal, Quebec,
Canada. Established in 1995, Crystaal Corporation is dedicated to providing high
quality, cost effective pharmaceuticals to Canadian health care professionals,
patients and third party payers.
Crystaal Corporation's strategy is to source and develop pharmaceutical
specialties for original products, and to form strategic joint ventures and
partnerships providing access to novel pharmaceutical products. This, combined
with Biovail's portfolio of existing and new controlled release products, places
Crystaal Corporation in an excellent position to become a significant force in
the Canadian market.
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PRODUCTS
LICENSED AND MARKETED PRODUCTS
The following table sets forth the Company's controlled release products that
are currently 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.
<TABLE>
<CAPTION>
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PRODUCTS CURRENTLY MARKETED
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<S> <C>
TIAZAC(R) (anti-hypertensive/anti-anginal)
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ORUVAIL (anti-inflammatory)
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NORPACE (antiarhythmic)
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THEO-24 (bronchodilator)
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ISOKET RETARD (coronary vasodillator)
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ELANTAN LONG (coronary vasodilator)
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SIRDALUD CR (muscle relaxant)
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GASTRO-TIMELETS (GI motility modifier)
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NOVAGENT (anti-inflammatory)
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BETA-TIMELETS (anti-hypertensive)
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TIAMON MONO (analgesic)
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REGENON RETARD (anti-obesity)
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</TABLE>
TIAZAC(R)
The major product of the Company in 1996 was Tiazac(R), accounting for
approximately 84% of total revenues generated. No other product or service
individually accounted for 10% or more of the Company's revenue base. In 1996
all of Tiazac(R) revenues were generated from one customer, Forest Laboratories,
Inc., ("Forest").
Tiazac(R) is a once-daily controlled release formulation of diltiazem indicated
for the treatment of hypertension with FDA approval for angina expected in 1997.
Tiazac(R) has several advantages over other formulations of diltiazem; a much
smaller capsule size, wider dosing range (approved for a maximum daily dose up
to 540 mgs.), lower pricing and labelling permitting physicians to switch
patients to Tiazac(R) from other formulations of diltiazem at the nearest
equivalent daily dose. A New Drug Application ("NDA") was approved by the FDA in
September, 1995, and approval from the U.K. Medicines Control Agency ("MCA") was
received in April, 1996. The remaining worldwide territories are expected to
receive approval throughout 1997-1998.
The Company licensed the right to market Tiazac(R) in the United States to
Forest in September 1995 and the formal product launch took place in February,
1996. The License Agreement with Forest provides for a royalty payment of 8% of
net sales for a period of 16 years commencing December, 1995. In addition, the
Company and Forest also entered into a 16 year Supply Agreement, also commencing
December, 1995, under which the Company acts as the exclusive manufacturer of
Tiazac(R) and receives contractually agreed upon manufacturing fees.
Tiazac(R) will be sold as Viazem(R) and by other trademarks in Europe and is
licensed to DuPont Merck for the United Kingdom and Ireland, Laboratorios Alter,
S.A. for Spain, Pierre Fabre Medicament, S.A. for France and 17 protectorate
countries, Ratiopharm GmbH and Heumann GmbH for Germany, and Zambon B.V. for The
Netherlands. Additional European licensing agreements will be signed over the
coming months.
Canadian approval to market Tiazac(R) was received in April 1997 and the
Company's subsidiary, Crystaal Corporation, has launched the product in Canada.
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OTHER PRODUCTS
The Company's technology has been used to formulate 10 other oral controlled
release products which were licensed to marketing partners and for which the
Company receives royalties, the majority of which approximate 3% of licensee net
sales. The most significant product in this group is Oruvail, a controlled
release formulation of ketoprofen indicated for the treatment of rheumatoid
arthritis and osteoarthritis, chronic conditions that affect an estimated 18
million people in the U.S. alone. Oruvail is a leading edge product in many
ways, being the world's first extended release, once-daily pH-dependent
non-steroidal anti-inflammatory drug (NSAID).
Oruvail is internationally established as an effective anti-arthritic treatment
and is currently marketed in 55 countries. In the U.S., Oruvail is marketed by
Wyeth-Ayerst Laboratories while Rhone-Polenc Rorer markets Oruvail in all other
countries. Worldwide licensee sales of Oruvail approached $200 million in 1996.
CONTROLLED RELEASE TECHNOLOGY
The Company focuses on developing oral controlled release formulations of major
drugs. 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 and offers a number of
advantages, particularly for the treatment of chronic conditions. These
advantages include enhanced therapeutic effectiveness, less frequent dosing, an
improved side effect profile, improved compliance and potential cost savings.
The Company's controlled release technologies can provide a broad range of
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
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 a suitable location(s) in the GI tract.
The Company utilizes four proprietary drug delivery technologies, described
below, based on multiparticulate beads in capsules or matrix tablets. These
technologies are capable of producing controlled release drug formulations, with
release rates that are not greatly influenced by the gastrointestinal
environment.
PELLETIZATION SYSTEMS (MACROCAP)
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 MacroCap process utilizes the features of pH activated or pH independent
diffusion, osmotic diffusion or a combination of these mechanisms. The pH
activated diffusion system developed by the Company uses specifically designed
polymer coating membranes to control the delivery of drugs depending upon the
acidic conditions of the stomach or the intestinal tract. Under the osmotic
diffusion system developed by Biovail, the rate of release of the drug from the
pellets is controlled by a combination of principles involved in osmosis and
diffusion.
Diffusion Controlled Matrix System (DiMatrix)
These are matrix systems presented either as beads made by
extrusion-spheronization or by powder/solution layering on non-pareil beads or
in the form of a tablet matrix. The mechanism of release is by diffusion of
dissolved drug molecules.
Constant Surface Area Drug Delivery Shuttle (Consurf)
The mechanism of drug release is the concurrent swelling and dissolution of a
matrix tablet in an "intelligent" manner, in a way that a constant surface area
is presented during the drug's transit through the gastrointestinal tract.
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Multiparticle Drug Dispersing Shuttle (Multipart)
The drug delivery devise consists of a tablet which carries controlled release
beads or pellets through the gastrointestinal tract while maintaining their
integrity and release properties. Release and distribution of the beads is
triggered by superdisintegration of the tablet.
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. Many of these competitors have greater financial resources and
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 governmental authorities in the United
States, Canada, and comparable authorities in other foreign countries. These
government authorities 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 increases and regulators acquire additional experience in this area.
Pharmaceutical products intended for human use are governed by the FDA in the
United States, the HPB in Canada and by comparable agencies in other countries.
Regulations require extensive clinical trials and other testing and government
review and final approval before these products can be lawfully marketed. The
cost of this process can be substantial. There can be long delays in obtaining
required clearances from the FDA, HPB and foreign regulatory authorities after
applications are filed.
Government regulations also specify standards for manufacturing and marketing
pharmaceutical products. These regulations govern a range of activities in
manufacturing, quality assurance, advertising and record-keeping. Any failure by
the Company to obtain, or any delay in obtaining, regulatory approvals could
adversely affect the marketing of any products developed by the Company, and its
financial results.
Requirements for approval may vary widely from country to country outside of the
United States and Canada. Whether or not FDA or HPB approval has been obtained,
final approval of a product by comparable regulatory authorities in other
countries must be obtained prior to the commencement of marketing the product in
those countries. The time required to obtain any such approval may be longer or
shorter than that required for FDA or HPB approval.
Environmental regulations may also affect the manufacturing process. As a
pharmaceutical company, the Company uses in its business chemicals and materials
which may be classified as hazardous or toxic which require special handling and
disposal. In addition, the Company undertakes to minimize releases to the
environment and exposure of its employees and the public to such materials. The
costs of these activities have increased substantially in recent years, and it
is possible that such costs may continue to increase significantly in the future
from additional government regulations.
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PATENTS AND PROPRIETARY RIGHTS
While the Company does not routinely seek patents on its controlled release
technology, it has received patent protection for its controlled release
formulation of Tiazac(R). Historically, 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.
EMPLOYEES
As of December 31, 1996, the Company employed 301 persons, including 128 at its
manufacturing operations in Manitoba and Puerto Rico, 44 at its Canadian sales
and marketing operation, 82 at its contract research organization, 25 at its
formulation research operation and 22 in its corporate offices. Of the above
employees, 61 are employed on a part-time basis.
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 35,000 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
In 1995, the Company's contractual, legal and financial relationships with its
former licensee Hoechst-Roussel Pharmaceuticals, Inc. ("Hoechst") were resolved.
Hoechst was previously the Company's licensee for the once-daily controlled
release formulation of diltiazem. As a result of Hoechst's acquisition of Marion
Merrell Dow Inc. ("Marion"), a competitor of the Company, the Rights Agreement
between the Company and Hoechst was terminated effective June 30, 1995 and their
licensing and other relationships ceased at that time.
As well, all litigation that had been commenced by Marion for patent
infringement with respect to this diltiazem product was dismissed by agreement
with full releases issued.
In 1996, the Company entered into a Settlement Agreement with Elan Corporation
plc. ("Elan") which resolved all claims and counter claims made in a New Jersey
litigation with respect to alleged patent infringement by the Company of Elan's
diltiazem patents.
From time to time, the Company becomes involved in various legal matters which
it considers to be in the ordinary course of business. While the Company is not
currently able to determine the potential liability, if any, related to such
matters, the Company believes none of the matters, individually or in the
aggregate, will have a material adverse effect on its financial position.
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ITEM 4. CONTROL OF REGISTRANT
Shareholders owning more than ten percent of voting securities as of May 9,
1997.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER COMMON SHARES OWNED PERCENTAGE
- - - ------------------------ ------------------- ----------
<S> <C> <C>
Eugene Melnyk ............................ 5,659,727 22.2%
c/o Biovail Corporation International
2488 Dunwin Drive
Mississauga, Ontario
L5L 1J9
</TABLE>
Officers and directors as a group owning voting securities as of May 9, 1997.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER COMMON SHARES OWNED PERCENTAGE
- - - ------------------------ ------------------- ----------
<S> <C> <C>
Officers and directors as a Group
(8 persons) .............................. 6,151,055 24.2%
</TABLE>
ITEM 5. NATURE OF TRADING MARKET
The Common Shares are listed for trading under the symbol "BVF", on the New York
Stock Exchange in the United States and on the Toronto Stock Exchange in Canada.
The Company's Common Shares have been listed for trading on the New York Stock
Exchange since December 12, 1996. Prior to that date the Common Shares were
listed for trading on the American Stock Exchange.
The following table sets forth, for the periods indicated, the high and low sale
prices of the Company's Common Shares.
<TABLE>
<CAPTION>
AMERICAN/NEW YORK STOCK EXCHANGE
--------------------------------
(U.S.$)
1996 1995
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1ST Q 2ND Q 3RD Q 4TH Q 1ST Q 2ND Q 3RD Q 4TH Q
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High 30.75 40.00 36.88 37.25 5.17 6.46 11.96 26.00
Low 21.75 22.50 20.25 25.38 2.29 4.17 6.21 10.63
</TABLE>
<TABLE>
<CAPTION>
TORONTO STOCK EXCHANGE
----------------------
(CDN.$)
1996 1995
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1ST Q 2ND Q 3RD Q 4TH Q 1ST Q 2ND Q 3RD Q 4TH Q
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High 43.00 54.50 50.10 50.00 7.33 8.67 16.17 35.03
Low 29.75 31.00 28.25 34.50 3.33 6.00 8.80 14.33
</TABLE>
At March 31, 1997, the closing prices for the Company's Common Shares were U.S.
$23.25 on the New York Stock Exchange and Cdn. $32.30 on the Toronto Stock
Exchange.
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The following table indicates as of May 9, 1997, the approximate total number of
holders of record of Common Shares, the total number of Common Shares
outstanding, the number of holders of record of Common Shares with United States
addresses, the portion of the outstanding Common Shares held in the United
States, and the percentage of Common Shares held in the United States:
<TABLE>
<CAPTION>
TOTAL NUMBER TOTAL NUMBER OF NUMBER OF PORTION OF PERCENTAGE OF
OF HOLDERS OF COMMON SHARES U.S.HOLDERS COMMON SHARES COMMON SHARES
RECORD (1) OUTSTANDING OF RECORD (2) HELD BY U.S. HELD BY U.S.
- - - ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
337 25,444,140 162 18,864,152 74.14%
</TABLE>
(1)A substantial number of the Common Shares are held by depositories,
brokerage firms and financial institutions in "street name". Based upon the
number of annual reports and proxy statements requested by such nominees, the
Company estimates that the total number of beneficial holders of Common
Shares exceeds 2,500 holders.
(2)The computation of the portion of Common Shares held in the United States is
based upon the number of holders of record with United States' addresses.
United States residents may beneficially own Common Shares owned of record by
non-United States residents.
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Shares, and at this time
it intends to continue this policy for the foreseeable future in order to retain
earnings for the development and growth of the Company's business. The Company's
dividend policy will be reviewed periodically depending on the Company's
financial position, capital requirements, general business conditions and on
other factors.
MARKET PRICE VOLATILITY OF COMMON SHARES
Market prices for the securities of pharmaceutical and biotechnology companies,
including Biovail, have historically been highly volatile, and the market has
from time to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. Factors such as
fluctuations in the Company's operating results, the aftermath of public
announcements by the Company concern as to safety of drugs and general market
conditions can have an adverse effect on the market price of the Company's
Common Shares.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are currently no limitations imposed by Canadian federal or provincial
laws on the rights of non-resident or foreign owners of Canadian securities to
hold or vote the securities held. There are also no such limitations imposed by
the Company's articles and bylaws with respect to the Common Shares of the
Company.
INVESTMENT CANADA ACT
Under the Investment Canada Act, the acquisition of certain "businesses" by
"non-Canadians" are subject to review by Investment Canada, a government agency,
and will not be allowed unless they are found likely to be of net benefit to
Canada. An acquisition will be reviewable by Investment Canada only if the value
of the assets of the Canadian business being acquired is CDN$5 million or more
in the case of a "direct" acquisition (or where the Canadian assets acquired
constitute more than 50% of the value of all entities acquired), or CDN$50
million or more in the case of an "indirect" acquisition.
11
<PAGE> 13
These thresholds have been increased for the purposes of acquisition of Canadian
businesses by investors from members of the World Trade Organization ("WTO"),
including Americans, or WTO member-controlled companies. A direct acquisition by
a WTO investor is reviewable only if it involves the direct acquisition of a
Canadian business with assets of CDN$172 million or more (this figure is
adjusted annually to reflect inflation). Indirect acquisitions by WTO investors
are not reviewable, regardless of the size of the Canadian business acquired,
unless the Canadian assets acquired constitute more than 50% of the value of all
entities acquired, in which case the CDN$172 million threshold applies.
These increased thresholds do not apply to acquisitions of Canadian businesses
engaged in certain sensitive areas such as uranium production, financial
services, transportation or cultural heritage or national identity. If the
foregoing thresholds are not met, the acquisition of a Canadian business will
not be subject to review unless it relates to Canada's cultural heritage or
national identity. Even if the transaction is not reviewable, a non-Canadian
must still give notice to Investment Canada of the acquisition of a Canadian
business within 30 days after its completion.
COMPETITION ACT
Under the Competition Act (Canada), certain transactions are subject to the
pre-notification requirements of the Act whereby notification of the transaction
and specific information in connection therewith must be provided to the
Director of Investigation and Research, Competition Bureau and the transaction
may not be completed, in normal circumstances, until either 21 days after the
Director has received the information required under the Act or 7 days after the
Director has received the information where a short filing is permitted.
A proposed transaction is subject to pre-notification only if the parties to the
transaction together with their affiliates have assets in Canada that exceed CDN
$400 million in aggregate value. Having met this first threshold, the parties
must then provide pre-notification if any one of the following additional
thresholds is met: 1) for an acquisition of assets in Canada (either directly or
by means of a share purchase) where the aggregate value of the assets or the
gross revenues from sales in or from Canada that are being acquired exceeds CDN
$35 million; 2) in the case of an acquisition of shares of a company in Canada,
where as a result of the proposed acquisition, the person acquiring the shares,
together with its affiliates, would own more than 20% (or, if the person making
the acquisition already owns 20% or more of the voting shares of the target,
then 50%) of the shares of a corporation that are publicly traded, or in the
case of a company of which the shares are not publicly traded, the threshold is
35% (and 50% if the acquiror owns 35% or more of the shares of the subject
company prior to making the acquisition); or 3) in the case of a proposed
amalgamation of two or more corporations where one or more of the amalgamating
corporations carries on an operating business (either directly or indirectly)
where the aggregate value of the assets in Canada that would be owned by the
continuing corporation resulting from the amalgamation would exceed CDN $70
million or the gross revenues from sales in or from Canada generated from the
assets of the amalgamated entity would exceed CDN $70 million.
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
Shares 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 Shares in or in the
course of carrying on business in Canada and, in the case of insurers who carry
on an insurance business in Canada and elsewhere, do not hold Common Shares that
is effectively connected with an insurance business carried on in Canada.
12
<PAGE> 14
GAINS ON DISPOSITION OF COMMON SHARES
Under the Canadian Act, a non-resident person who disposes or is deemed to
dispose of "taxable Canadian property" is subject to tax in Canada on any gain.
The Common Shares will be taxable Canadian property of a person who at any time
in the immediately preceding five year period either individually or together
with one or more other persons with whom the person does not deal at arm's
length, has owned 25% or more of the Common Shares or of any other class of
stock of the Company. In some cases, tax treaties entered into between Canada
and other countries may provide an exemption from such tax.
Under the provisions of the 1980 Convention between Canada and the United States
with respect to Taxes on Income and on Capital, as amended by the 1995 Protocol
thereto ("the Convention"), United States corporations or individual residents
of the United States ("U.S. Shareholders") that do not, and are not deemed to,
use or hold the Common Shares in carrying on a business in Canada ("Unconnected
U.S. Shareholders") generally will not be subject to Canadian federal income tax
on any capital gain recognized upon the disposition of their Common Shares,
provided that the value of the Common Shares is not derived principally from
real estate situated in Canada, as determined at the time of their disposition.
The Company is of the view that the Common Shares currently do not derive their
value principally from such real estate.
Under the Convention, Canada reserves the right to tax a capital gain of a U.S.
resident individual if the Common Shares are taxable Canadian property and the
individual was a resident of Canada for 120 months during any period of 20
consecutive months preceding the disposition and was a resident of Canada at any
time during the 10 years immediately preceding the disposition, if the Common
Shares (or any shares for which they were substituted in a non-recognition
transaction) were owned by the individual when he or she ceased to be a resident
of Canada.
For United States federal income tax purposes, an Unconnected U.S. Shareholder
generally will recognize capital gain or loss on the disposition of Common
Shares in an amount equal to the difference between the amount realized upon the
disposition and the U.S. Shareholder is adjusted basis in the Common Shares.
Capital losses are deductible to the extent of capital gains and, in the case of
non-corporate U.S. Shareholders, may be used to offset ordinary income.
TAXATION OF DIVIDENDS
Dividends paid to Unconnected U.S. Shareholders owning less than 10% of the
voting shares of the Company generally are subject to Canadian withholding tax
at the reduced rate of 15% under the Convention. In the case of a corporate
Unconnected U.S. Shareholder owning 10% or more of such shares, the withholding
tax rate generally is reduced to 5% under the Convention.
Unconnected U.S. Shareholders generally will treat the gross amount of dividends
paid by the Company, without reduction for Canadian withholding taxes, as
ordinary taxable income for United States federal income tax purposes. In
certain circumstances, however, Unconnected U.S. Shareholders may be eligible to
receive a foreign tax credit for such taxes and, in the case of a corporate
Unconnected U.S. Shareholder owning 10% or more of the voting shares of the
Company, for a portion of the Canadian taxes paid by the Company itself.
Dividends paid by the Company to United States corporations will not, however,
give rise to the dividends received deduction generally allowed those
corporations under United States federal income tax law.
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.
13
<PAGE> 15
ITEM 8. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company is qualified
by reference to and should be read in conjunction with the consolidated
financial statements, related notes thereto, other financial data, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" included elsewhere herein.
The consolidated operating data for the years ended December 31, 1994, 1995 and
1996, and the consolidated balance sheet data as at December 31, 1995 and 1996
are derived from and are qualified by reference to, the audited consolidated
financial statements included elsewhere in this document. The consolidated
operating data for the years ended December 31, 1992 and 1993 and the
consolidated balance sheet data as December 31, 1992, 1993 and 1994 are derived
from the audited consolidated financial statements included as part of the
Annual Report on Form 20-F for the prior three fiscal years.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING DATA:
Revenue Contract .................. $ 4,374 $ 4,333 $ 3,909 $ 3,771 $ 3,148
Manufacturing ...................... 54,313 7,915 4,975 - -
Royalty, Licensing and Other ....... 7,743 7,396 7,680 5,959 2,814
------- -------- -------- -------- --------
66,430 19,644 16,564 9,730 5,962
------- -------- -------- -------- --------
Expenses
Cost of Contract Revenue ........... 3,417 2,732 3,036 2,783 2,548
Cost of Manufactured Goods Sold .... 21,757 2,715 2,102 - -
Research and Product Development ... 7,484 4,462 2,542 2,737 4,632
Selling and Administrative ......... 10,166 7,182 6,359 5,718 5,507
------- -------- -------- -------- --------
42,824 17,091 14,039 11,238 12,687
------- -------- -------- -------- --------
Operating Income (Loss) ............ 23,606 2,553 2,525 (1,508) (6,725)
Interest Income (Expense), Net ..... 392 (99) (589) (722) (1,186)
Gain on Licensing Settlement ....... - 3,617 - - -
Gain on Debt Settlement ............ - - 7,955 - -
Offering Expenses .................. - - - - (1,115)
------- -------- -------- -------- --------
Income (Loss) before Income Taxes .. 23,998 6,071 9,891 (2,230) (9,026)
Provision for Income Taxes ......... 714 201 430 248 349
------- -------- -------- -------- --------
Income (Loss) Before Undernoted .... 23,284 5,870 9,461 (2,478) (9,375)
Minority Interest .................. - - - (726) (780)
Dilution Gain on Issuance of
Common Shares By a
Subsidiary Company ............... - - - 5,871 1,941
Gain on Sale of a
Subsidiary Company ............... - - - 1,260 -
------- -------- -------- -------- --------
Net Income (Loss) .................. $23,284 $ 5,870 $ 9,461 $ 3,927 $ (8,214)
------- -------- -------- -------- --------
Earnings (Loss) Per Share (1) ...... $ 0.92 $ 0.23 $ 0.43 $ 0.28 $ (0.70)
======= ======== ======== ======== ========
BALANCE SHEET DATA:
Working Capital (Deficiency) ....... $ 9,606 $ 696 $ 547 $ 2,338 $ (3,341)
Total Assets ....................... 58,606 60,867 25,630 23,265 23,457
Long-Term Debt ..................... 4,670 7,951 9,782 21,398 19,874
Minority Interest .................. - - - 2,167 2,536
Shareholders' Equity
(Capital Deficiency) (2) ......... 36,943 14,592 7,693 (4,760) (7,969)
</TABLE>
14
<PAGE> 16
Summary of differences between generally accepted accounting principles ("GAAP")
in Canada ("CDA") and the United States ("U.S.")
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Consolidated Income (Loss):
Net earnings (loss) - CDA GAAP .. $23,284 $ 5,870 $ 9,461 $ 3,927 $ (8,214)
Differences
Items excluded from
income under U.S. GAAP
Dilution gain on issuance of
Common shares by a then
Subsidiary company ......... - - - (5,871) (1,942)
Gain on debt settlement
treated as Contributed
surplus under U.S. GAAP .... - - (7,955) - -
------- ------- -------- -------- --------
Net income (loss) - U.S. GAAP ... $23,284 $ 5,870 $ 1,506 $ (1,944) $(10,156)
======= ======= ======== ======== ========
Earnings (loss) per share
- U.S. GAAP .................. $ 0.87 $ 0.22 $ 0.07 $ (0.16) $ (0.99)
======= ======= ======== ======== ========
Weighted average number of
common shares outstanding
under U.S. GAAP (1) (000's) .. 26,784 26,422 22,635 12,199 10,229
======= ======= ======== ======== ========
</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.
(1)The capital deficiency which would be reported under U.S. GAAP differ from
the amounts reported under CDN GAAP. The shareholders' equity (capital
deficiency) under U.S. GAAP would have been $(9,141,000) and $(6,303,000) at
December 31, 1992 and 1993, respectively. There are no material differences
between shareholders' equity determined under CDN and U.S. GAAP at either
December 31, 1994, 1995, or 1996.
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
RESULTS OF OPERATIONS
Nineteen ninety-six was the most successful year in the Company's history.
Revenues increased by 239% to $66,430,000 compared to $19,644,000 in 1995,
primarily as a result of the successful launch of Tiazac(R) in the U.S. market.
Net income of $23,284,000, or $0.92 per share, was achieved in 1996,
representing a major improvement over the $5,870,000, or $0.23 per share, earned
in 1995 and $9,461,000, or $0.43 per share, in 1994.
15
<PAGE> 17
REVENUE
The Company's contract research operation generated revenues from external
customers of $4,374,000 in 1996, compared to $4,333,000 and $3,909,000 in 1995
and 1994 respectively. A significant increase in the volume of business was
achieved in 1996 when activity conducted on behalf of external parties is
combined with activity conducted for internal requirements. In addition,
significant one-time settlements were received in 1995, if, when adjusted for,
would result in 1996 revenues increasing by approximately 30% over 1995.
Manufacturing revenue was $54,513,000 in 1996, compared to $7,915,000 in 1995
and $4,975,000 in 1994. All manufacturing revenues were generated from the sale
of Tiazac(R). In 1996 all sales were to the Company's licensee, Forest
Laboratories Inc. ("Forest"). In 1995, sales were primarily to Forest, but
included sales to the Company's previous licensee Hoechst for launch supplies of
Tiazac(R). In 1994 all sales were to Hoechst for launch supplies of Tiazac.
Net royalty revenue earned by the Company in 1996 was $7,743,000 as compared to
$6,655,000 in 1995 and $6,124,000 in 1994. The increase in net royalty revenue
in 1996 is due primarily to royalties earned on sales of Tiazac(R) by Forest in
the United States. The increase in net royalty revenue in 1995 over 1994 is
primarily due to increased Oruvail sales volumes in the United States by the
Company's licensee, Wyeth-Ayerst Laboratories.
There were no revenues generated from the licensing of new products in 1996 as
compared to $741,000 in 1995 and $1,556,000 in 1994. Licensing revenues received
in 1995 and 1994 relate to the rights for Tiazac(R) granted to the former
licensee for the United States and to a licensee for Canada.
EXPENSES
The cost of contract research increased to 78.1% in 1996 from 63.0% in 1995.
However, 1995 was favourably impacted due to the inclusion in revenue of
non-refundable prepaid amounts which were retained by the Company as part of the
settlement with Hoechst, the exclusion of which would have resulted in the cost
of contract research at 81%. Comparable cost of contract research in 1994 was
77.8%.
The cost of manufactured goods was 40.1% in 1996 compared to 34.3% and 42.3% in
1995 and 1994 respectively. However, 1995 and 1994 are not meaningful
comparisons due to the low sales volumes. In 1996 the cost of manufactured goods
was impacted by the higher proportion of Tiazac(R) samples versus trade supplies
sold, approximating 60% versus 40% respectively and the higher cost of
manufacture associated with sample production.
Research and product development expenses were $7,484,000 in 1996, a 68%
increase over $4,462,000 expended in 1995, while spending in 1995 was increased
76% over the $2,542,000 expended in 1994. The increasing expenditures year over
year reflect the Company's increased activities in expanding its product
pipeline and the establishment in 1996 of a research and development facility in
Toronto.
Selling, general and administrative costs increased to $10,166,000 compared to
$7,182,000 in 1995 and $6,359,000 in 1994. The year to year increases are
primarily as a result of the hiring of key management personnel, the
establishment of the Canadian sales operation in 1996 and 1995 and increased
activities associated with the Company's manufacturing facilities.
Operating income of $23,606,000 was achieved in 1996 compared to operating
income of $2,553,000 in 1995 and $2,525,000 in 1994. Canadian operations
incurred losses of $6,153,000, $6,720,000, and $1,307,000 in each of 1996, 1995,
and 1994, respectively. Operating income of $4,167,000, $2,571,000 and
$2,225,000 in each of 1996, 1995 and 1994, respectively was earned by the
Company's subsidiary in Switzerland through royalties earned on the Company's
products. Puerto Rico and Barbados contributed operating income of $25,592,000
in 1996, $6,702,000 in 1995 and $1,607,000 in 1994. The increase in operating
income in Puerto Rico and Barbados in 1996 and 1995 is due to Tiazac(R) sales.
16
<PAGE> 18
Interest income was $392,000 in 1996, compared to interest expense of $99,000 in
1995 and $589,000 in 1994. Net interest income in 1996 was earned as a result of
surplus cash and short-term deposits and lower rates on and levels of interest
bearing debt as compared to 1995 and 1994.
There were no unusual items included in income for 1996. Included in income in
1995 and 1994 were non-operating items of $3,617,000 and $7,955,000
respectively. In 1995, the non-operating item was a gain resulting from proceeds
from Hoechst in the sum of $7.5 million, less legal and other related expenses,
with respect to a settlement of the Company's entitlement under the Rights
Agreement. The 1994 non-operating item was recorded with respect to a 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 6,656,000 Common Shares
of a former subsidiary, owned by the Company.
Income taxes in 1996, 1995 and 1994 in the amounts of $714,000, $201,000 and
$430,000, respectively, relate primarily to the Company's foreign subsidiaries.
The 1996 provision increased to $714,000 from $201,000 in 1995 and $430,000 in
1994, as a result of increased operating income. The 1995 provision included a
reduction of income taxes relating to Biovail SA's operation in Switzerland due
to a change in taxation law in that jurisdiction, effective January 1, 1995. No
provision for income taxes was recorded in 1995 and 1994 with respect to gains
on debt settlement and licensing settlement as tax losses from Canadian
operations were sufficient to offset such gains in their entirety.
Income from operations of $23,284,000, or $0.92 per share, was achieved in 1996
compared to $2,253,000 in 1995 and $1,506,000 in 1994, or $0.09 and $0.07 per
share respectively. After taking into account unusual gains realized in 1995 and
1994, net income of $23,284,000 or $0.92 per share, in 1996 compares to
$5,870,000 or $0.23 per share in 1995, and $9,461,000 or $0.43 per share in
1994.
Earnings per share have been calculated using the weighted average number of
shares outstanding during each year and take into effect the 3 for 1 stock split
completed in January, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations was $25,251,000 in 1996 compared to $7,108,000 in 1995
and $2,316,000 in 1994. After taking into account changes in assets and
liabilities, net cash flow from operating activities was a deficiency of
$5,622,000 in 1996 compared to a positive cash contribution of $31,146,000 in
1995 and $2,555,000 in 1994. The deficiency in 1996 was primarily attributable
to reductions in customer prepayments combined with increases in accounts
receivable and inventories.
Net cash of $2,980,000 was used in financing activities in 1996 as compared to
cash generated by financing activities of $261,000 and $380,000 in 1995 and
1994, respectively. The 1996 cash utilization was as a result of long-term debt
repayments of $4,018,000, offset in part by issuance of Common Shares of
$197,000, and increases in long-term debt of $841,000. In each of 1995 and 1994,
cash generated by financing activities was primarily by means of increases in
long-term debt and the issuance of shares, offset by debt repayments.
Net cash of $10,365,000 was used in 1996 for investing activities as compared to
$10,502,000 in 1995 and $3,020,000 in 1994. Additions to fixed assets utilized
cash of $6,692,000, $2,642,000 and $1,173,000 in 1996, 1995 and 1994,
respectively. The acquisition of product rights and intangibles required cash of
$1,161,000 in 1996 and $2,617,000 in 1995. In 1996, the Company loaned
$2,512,000 to certain officers under its Executive Stock Purchase Plan, to
acquire on the open market shares of the Company. Cash of $4,288,000 was
utilized in 1995 to acquire the operating assets from Galephar Puerto Rico Inc.,
Limited. Completion of the acquisition of subsidiary companies utilized cash of
$955,000 and $2,008,000 in 1995 and $151,000 in 1994.
As a result of the foregoing, the Company's cash position as at December 31,
1996 was $4,526,000 compared to $24,323,000 and $2,753,000 at December 31, 1995
and 1994, respectively.
17
<PAGE> 19
The Company's long-term debt was $6,968,000 as at December 31, 1996 and
$10,195,000 at December 31, 1995 and represents debt to equity ratio's of 0.2
and 0.7 to 1 respectively. The Company has available a line of credit of
$10,950,000 for short-term financing, which was not utilized in 1996.
Biovail 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.
ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY
The name, municipality of residence, their ages as of June 12, 1997, and
position with the Company of each of the directors and executive officers are
set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - - ---- --- --------
<S> <C> <C>
Eugene N. Melnyk (1) 38 Chairman of the Board and
St. Philip, Barbados Director
Bruce D. Brydon 50 President, Chief Executive Officer
Milton, Ontario, Canada and Director
Rolf K. Reininghaus 51 Senior Vice President and Director
Mississauga, Ontario, Canada
Mahmood Khan 43 Senior Vice President,
Etobicoke, Ontario, Canada Chief Operating Officer and
Director
Kenneth C. Cancellara 50 Senior Vice President,
Toronto, Ontario, Canada General Counsel, Secretary and
Director
Robert A. Podruzny 49 Vice President Finance,
Scarborough, Ontario, Canada Chief Financial Officer, and
Director
Wilfred G. Bristow (1) 65 Director
Campbellville, Ontario, Canada
Roger Rowan 44 Director
Toronto, Ontario, Canada
Robert Vujea 72 Director
Grand Rapids, Michigan USA.
</TABLE>
(1) Member of the Audit Committee
18
<PAGE> 20
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. Podruzny joined the Company as Vice President, Finance and Chief Financial
Officer in January, 1996 and was elected Director of the Company in June 1997.
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.
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. Rowan was elected a Director of the Company in June 1997. Mr. Rowan has been
President and Chief Operating Officer of Watt Charmichael Inc., a private
investment firm, since May, 1994. Prior thereto, Mr. Rowan was the Executive
Vice President and Chief Operating Officer of Watt Charmichael since 1991.
Mr. Robert Vujea was elected a Director of the Company in June, 1997. Mr. Vujea
has been President of R & D Chemical Corporation, a chemical manufacturer and
distributor since 1974. Prior hereto, Mr. Vujea has held senior management
positions within a number of companies including American Greeting Card
Corporation, Cole National Corporation and Diverco Incorporated.
19
<PAGE> 21
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.
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.
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 Medications." He is a Fellow
of the Academy of Pharmaceutical Sciences, the American Academy of
Pharmaceutical Scientists and the American Foundation for Pharmaceutical
Education.
20
<PAGE> 22
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 1996 ("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 PAYMENTS
----------------------- ---------
OTHER SECURITIES RESTRICTED
ANNUAL UNDER SHARES OR ALL OTHER
COMPEN- OPTIONS RESTRICTED LTIP COMPEN-
NAME AND SALARY SATION (4) GRANTED (5) SHAREUNITS PAYOUTS SATION (4)
PRINCIPAL 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 ................ 1996 343,148 - - - - - -
Chairman of the Board 1995 313,969 - - 345,000 - - -
1994 278,454 - - 180,000 - - -
Bruce D. Brydon (1) (2) ......... 1996 131,328 - - - - - -
President and Chief 1995 113,480 - - 270,000 - 287,279 -
Executive Officer 1994 - - - - - - -
Kenneth Cancellara (1)(3) ....... 1996 150,718 - - - - - -
Senior Vice President 1995 - - - 210,000 - 160,640 -
and General Counsel 1994 - - - - - - -
Rolf Reininghaus (1) ............ 1996 131,784 - - - - - -
Senior Vice-President 1995 131,800 11,089 - 105,000 - - -
1994 118,101 10,356 - 150,000 - - -
Mahmood Khan (1) ................ 1996 124,241 - - - - - -
Senior Vice-President and 1995 124,854 11,580 - 105,000 - - -
Chief Operating Officer 1994 110,188 10,814 - 150,000 - - -
</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: 1996 -
.7296; 1995 - .7332; and 1994 - .7134.
(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) Mr. Cancellara joined the Company as Senior Vice President and General
Counsel on March 18, 1996 and has been a director of the Company since 1995.
(4) Perquisites and other personal benefits for Named Executive Officers did not
exceed the minimum threshold disclosure level in 1996.
(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 1/3% 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.
21
<PAGE> 23
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 $362,363, 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 CDN $168,000 during the term of the Employment Agreement, as well as
reimbursement of business related expenses and an automobile allowance.
Kenneth Cancellara, as Senior Vice President, General Counsel and Director,
pursuant to an Employment Agreement made as of January 10, 1996, receives an
annual salary of CDN $250,000, subject to a cost of living adjustment,
reimbursement of business expenses and an automobile allowance during the term
of the Employment Agreement which has a term of five years, expiring in March,
2001 and thereafter is terminable by the Company upon six months' written notice
and is terminable by Mr. Cancellara upon 90 days' prior notice.
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 CDN $169,361, 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 CDN $159,174, 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.
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 1996 fiscal year the
premiums in respect of such insurance were in the approximate aggregate amount
of $20,000.
REMUNERATION OF DIRECTORS
Certain directors who are not officers or employees of the Company receive an
annual fee of $2,900 and a participation fee of $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 below in item 12.
During 1996, one of the seven directors who was not an officer of the Company
exercised his options to purchase 39,999 Common Shares at $3.18 per share.
No stock options were granted to any director of the Company in 1996.
22
<PAGE> 24
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, 1996, the Company has granted an aggregate of 2,751,000
options outstanding at exercise prices ranging from CDN $1.00 to U.S. $34.75 per
share.
There were no stock options granted to the Named Executive Officers in 1996.
The following table provides information on the aggregate holdings at the end of
1996 of options by the Named Executive Officers.
AGGREGATE OPTIONS EXERCISED IN LAST FISCAL YEAR AND OPTION VALUES
<TABLE>
<CAPTION>
Unexercised Value of Unexercised
Options at Fiscal in-the-Money Options
Securities Aggregate Year-End Fiscal Year-End
Acquired on Value Exercisable/ Exercisable/
Exercise Realized Unexercisable Unexercisable (1)
Name (#) (U.S.$) (#) (U.S.$)
- - - ------------------ ----------- --------- ----------------- --------------------
<S> <C> <C> <C> <C>
Eugene Melnyk ................ - - 690,000/345,000 16,743,170/9,049,550
Bruce Brydon ................. - - 90,000/150,000 2,087,100/844,500
Kenneth C. Cancellara ........ - - 70,196/120,004 741,362/1,018,490
Rolf Reininghaus ............. - - 180,000/105,000 4,240,512/591,150
Mahmood Khan ................. - - 240,000/105,000 5,734,536/591,150
</TABLE>
(1) Value of unexercised in-the-money options calculated using the closing price
of common shares of the Company, on the New York Stock Exchange on December
31, 1996 (U.S. $25.63), less the exercise price of in-the-money options.
23
<PAGE> 25
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 CDN $100 investment on December 31, 1991.
[GRAPH]
<TABLE>
<CAPTION>
As at December 31, 1991 1992 1993 1994 1995 1996
- - - ------------------ ------ ----- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Biovail Common ....... 100.00 55.26 57.89 113.16 1,102.63 1,100.53
TSE 300 Index ........ 100.00 98.57 130.65 130.42 149.37 191.71
</TABLE>
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
INDEBTEDNESS OF EXECUTIVE OFFICERS
In 1996, the Company authorized the making of loans to its Chairman and
executive officers, as named in the table set forth below; to finance the
acquisition of shares of the Company on the open market. These loans are secured
by the shares and bear interest at 1/4% over the bank prime rate, equal to the
Company's rate of borrowing. The loans are due on the earlier of termination of
employment or December 31, 1997.
24
<PAGE> 26
TABLE OF INDEBTEDNESS UNDER EXECUTIVE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
FINANCIALLY
LARGEST AMOUNT ASSISTED
AMOUNT OUTSTANDING SECURITIES
INVOLVEMENT OUTSTANDING AS AT PURCHASED
NAME AND PRINCIPAL OF ISSUER DURING 1996 MAY 9, 1997 DURING 1996 SECURITY FOR
POSITION OR SUBSIDIARY (U.S. $) (U.S. $) (#) INDEBTEDNESS
- - - -------------------- ------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Eugene N. Melnyk ................. Lender 418,589 426,038 14,800 14,800
Chairman Common Shares
Bruce D. Brydon .................. Lender 418,589 426,038 14,900 14,900
President and Chief Common Shares
Executive Officer
Kenneth C. Cancellara ............ Lender 418,589 426,038 14,900 14,900
Senior Vice President Common Shares
and General Counsel
Rolf Reininghaus ................. Lender 418,589 426,038 14,900 14,900
Senior Vice President Common Shares
Mahmood Khan ..................... Lender 418,589 426,038 14,900 14,900
Senior Vice President Common Shares
and Chief Operating Officer
Robert A. Podruzny ............... Lender 418,589 426,038 14,900 14,900
Vice President, Finance and Common Shares
Chief Financial Officer
</TABLE>
PART II
Item 14. (Not Applicable)
PART III
Item 15. (Not Applicable)
Item 16. (Not Applicable)
25
<PAGE> 27
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 and have been reconciled to United
States GAAP.
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, 1996
and 1995.
- Consolidated Statements of Income and Retained Earnings (Deficit)
for the years ended December 31, 1996, 1995 and 1994.
- Consolidated Statements of Cash Flows for the years ended December
31, 1996, 1995 and 1994.
- Notes to the Consolidated Financial Statements.
26
<PAGE> 28
B. EXHIBITS ALREADY FILED IN PREVIOUS YEARS.
EXHIBIT
NUMBER
- - - -------
2.9 - Amalgamation Agreement between Trimel Corporation and
Biovail Corporation International dated January 12, 1994.**
3.3 - Articles of Amalgamation of the Registrant.**
3.4 - By-Laws of the Registrant.**
4.1 - Specimen Certificate for Common Stock.**
10.104A - 1993 Stock Option Plan as amended.+++
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.+
10.135 - 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.+
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 dated September 11, 1995
Filed as Exhibit 2++
10.140 - License Agreement between Forest Laboratories, Inc. and
Biovail Corporation International
Filed as Exhibit 4++
27
<PAGE> 29
EXHIBIT
NUMBER
- - - -------
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 as of September
11, 1995.
Filed as Exhibit 7++
10.144 - Performance Guarantee Agreement between Biovail Corporation
International and Forest Laboratories, Inc.
Filed as Exhibit 8++
21.1 - Subsidiaries of the Registrant.**
C. EXHIBITS FILED PREVIOUSLY THIS YEAR.
No exhibits were filed.
D. EXHIBITS FILED WITH THIS SUBMISSION
No exhibits were filed.
** 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, 1994, file
no. 011-11145.
++ Incorporated by reference to Registrant's Schedule 14D-9
filing dated September 18, 1995.
+++Incorporated by reference to Registrantis Annual Report on
Form 20-F for the fiscal year ended December 31, 1995, file
no. 011-111454
28
<PAGE> 30
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 Podruzny
--------------------------------------
Robert A. Podruzny
Vice President, Finance and
Chief Financial Officer
DATE: JUNE 25, 1997
29
<PAGE> 31
BIOVAIL CORPORATION INTERNATIONAL
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, 1996 and 1995 .............................. F - 4
Consolidated Statements of Income and Retained Earnings (Deficit) for each of the years
in the three year period ended December 31, 1996 ....................................... F - 5
Consolidated Statements of Cash Flows for each of the years
in the three year period ended December 31, 1996 ....................................... F - 6
Notes to the Consolidated Financial Statements ............................................ F - 7 to F - 17
</TABLE>
F - 1
<PAGE> 32
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 the
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 reappointment 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.
/s/ Eugene N. Melnyk /s/ Robert A. Podruzny
- - - ------------------------------- -------------------------------
Eugene N. Melnyk Robert A. Podruzny
Chairman of the Board Vice President, Finance and
Chief Financial Officer
F - 2
<PAGE> 33
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, 1996 and 1995 and the consolidated statements
of income and retained earnings (deficit) and of cash flows for each of the
years in the three year period ended December 31, 1996. 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, 1996
and 1995 and the results of its operations and its cash flows for each of the
years in the three year period ended December 31, 1996 in accordance with
generally accepted accounting principles in Canada.
/s/ DELOITTE & TOUCHE
- - - -------------------------
DELOITTE & TOUCHE
Chartered Accountants
Toronto, Canada
February 21, 1997
F - 3
<PAGE> 34
BIOVAIL CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEETS
As at December 31, 1996 and 1995
(All dollar amounts are expressed in thousands of U.S. dollars)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
ASSETS
CURRENT
Cash and short-term deposits .................... $ 4,526 $ 24,323
Accounts receivable (Note 5) .................... 10,364 6,379
Inventories (Note 6) ............................ 8,134 3,868
Executive stock purchase plan loans (Note 7) .... 2,512 --
Deposits and prepaid expenses ................... 1,063 176
-------- --------
26,599 34,746
FIXED ASSETS, net (Note 8) ......................... 24,819 19,910
OTHER ASSETS, net (Note 9) ......................... 7,188 6,211
-------- --------
$ 58,606 $ 60,867
======== ========
LIABILITIES
CURRENT
Accounts payable ................................ $ 5,468 $ 5,628
Accrued liabilities ............................. 1,738 3,043
Income taxes payable ............................ 808 968
Customer prepayments (Note 10) .................. 6,681 22,167
Current portion of long-term debt (Note 11) ..... 2,298 2,244
-------- --------
16,993 34,050
CUSTOMER PREPAYMENTS (Note 10) ..................... -- 4,274
LONG-TERM DEBT (Note 11) ........................... 4,670 7,951
-------- --------
21,663 46,275
-------- --------
SHAREHOLDERS' EQUITY
Share capital (Note 12) ......................... 14,614 14,489
Retained earnings (deficit) ..................... 22,712 (572)
Cumulative translation adjustment ............... (383) 675
-------- --------
36,943 14,592
-------- --------
$ 58,606 $ 60,867
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
On behalf of the Board:
/s/ Eugene N. Melnyk /s/ Bruce D. Brydon
- - - ----------------------------------- -----------------------------------
Eugene N. Melnyk Bruce D. Brydon
Chairman of the Board Director, President and Chief
Executive Officer
F - 4
<PAGE> 35
BIOVAIL CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (DEFICIT)
For the years ended December 31, 1996, 1995 and 1994
(All dollar amounts except per share data are expressed in thousands of
U.S. dollars)
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE
Contract ................................ $ 4,374 $ 4,333 $ 3,909
Manufacturing ........................... 54,313 7,915 4,975
Royalty and licensing ................... 7,743 7,396 7,680
------------ ------------ ------------
66,430 19,644 16,564
------------ ------------ ------------
EXPENSES
Cost of contract revenue ................ 3,417 2,732 3,036
Cost of manufactured goods sold ......... 21,757 2,715 2,102
Research and product development ........ 7,484 4,462 2,542
Selling, general and administrative ..... 10,166 7,182 6,359
------------ ------------ ------------
42,824 17,091 14,039
------------ ------------ ------------
OPERATING INCOME ........................... 23,606 2,553 2,525
INTEREST INCOME (EXPENSE), net (Note 11) ... 392 (99) (589)
GAIN ON LICENSING SETTLEMENT (note 17) ..... -- 3,617 --
GAIN ON DEBT SETTLEMENT (Note 3) ........... -- -- 7,955
------------ ------------ ------------
INCOME BEFORE INCOME TAXES ................. 23,998 6,071 9,891
PROVISION FOR INCOME TAXES (Note 14) ....... 714 201 430
------------ ------------ ------------
NET INCOME ................................. 23,284 5,870 9,461
DEFICIT, BEGINNING OF YEAR ................. (572) (6,442) (15,903)
------------ ------------ ------------
RETAINED EARNINGS (DEFICIT), END OF YEAR ... $ 22,712 $ (572) $ (6,442)
============ ============ ============
EARNINGS PER SHARE (Note 13) ............... $ 0.92 $ 0.23 $ 0.43
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING (Note 13) ..... 25,378,000 24,993,000 21,850,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F - 5
<PAGE> 36
BIOVAIL CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
(All dollar amounts are expressed in thousands of U.S. dollars)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
NET INFLOW (OUTFLOW) OF CASH RELATED
TO THE FOLLOWING ACTIVITIES
OPERATING
Net income for the year .......................... $ 23,284 $ 5,870 $ 9,461
Depreciation and amortization .................... 1,967 1,238 810
Gain on debt settlement (Note 3) ................. -- -- (7,955)
-------- -------- -------
25,251 7,108 2,316
Change in non-cash operating items (Note 16) ..... (30,873) 24,038 239
-------- -------- -------
(5,622) 31,146 2,555
-------- -------- -------
INVESTING
Additions to fixed assets, net ................... (6,692) (2,642) (1,173)
Purchase of product rights
and intangibles, net (Note 9) .................. (1,161) (2,617) --
Executive stock purchase plan loans (Note 7) ..... (2,512) -- --
Business acquisition (Note 4) .................... -- (4,288) --
Additional consideration with respect to
the acquisition of subsidiary companies and
non-controlling interest therein (Note 4) ..... -- (955) (2,008)
Investments and advances ......................... -- -- 161
-------- -------- -------
(10,365) (10,502) (3,020)
-------- -------- -------
FINANCING
Issuance of share capital (Note 12) .............. 197 702 62
Increase in long-term debt ....................... 841 2,852 367
Reduction in long-term debt ...................... (4,018) (3,293) (49)
-------- -------- -------
(2,980) 261 380
-------- -------- -------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH .................................. (830) 599 151
-------- -------- -------
(DECREASE) INCREASE IN CASH ......................... (19,797) 21,504 66
CASH AND SHORT-TERM DEPOSITS,
BEGINNING OF YEAR ................................ 24,323 2,819 2,753
-------- -------- -------
CASH AND SHORT-TERM DEPOSITS,
END OF YEAR ...................................... $ 4,526 $ 24,323 $ 2,819
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F - 6
<PAGE> 37
BIOVAIL CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of U.S. dollars except number of shares and
per share data)
1. GOVERNING STATUTE
Biovail Corporation International (the "Company"), was amalgamated
effective March 29, 1994 (See Note 3) under the laws of the province of
Ontario.
2. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Canada. The financial
statements differ in certain respects from generally accepted accounting
principles in the United States, as described in Note 19.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and those of all its subsidiaries. All significant intercompany
transactions and balances have been eliminated.
USE OF ESTIMATES
In preparing the Company's financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets
and liabilities, and the 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of all financial assets and liabilities
approximates their carrying values at December 31, 1996. Fair value of a
financial instrument is defined as the amount at which the instrument could
be exchanged in a current transaction between willing parties.
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 and is net of amounts payable to
sublicensees.
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.
F - 7
<PAGE> 38
2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
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.
REPORTING CURRENCY AND FOREIGN CURRENCY TRANSLATIONS
REPORTING CURRENCY
The Company reports its financial statements in U.S. dollars, while the
currency of measurement for the Company's operations varies depending
upon location.
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 fluctuations in the exchange rate in
respect to the Swiss Franc.
F - 8
<PAGE> 39
2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
CUSTOMER PREPAYMENTS
Amounts received from customers as prepayments for goods or services to be
provided in the future are recorded on the balance sheet as customer
prepayments. When the goods or services are provided at a future date, they
are billed to the customer at contractual rates. Accounts receivable on
these billings are recorded net of that portion that relates to the
prepayments received, which amount is recorded as a reduction to customer
prepayments.
1995 AND 1994 FIGURES
Certain of the 1995 and 1994 figures have been reclassified to conform to
the 1996 presentation.
3. 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 in 1994 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 shareholder took place. Accordingly, the
transaction has been accounted for based on the carrying amounts of BCI's
assets and liabilities prior to the amalgamation.
4. BUSINESS ACQUISITIONS
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 paid is as follows:
<TABLE>
<S> <C>
Fixed assets ...................................... $ 3,743
Working capital deficiency ........................ (415)
Goodwill .......................................... 960
-------
Net assets acquired ............................... $ 4,288
=======
Cash consideration paid ........................... $ 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., 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 in 1994, and the remaining
$955,000 paid in 1995. This transaction resulted in the recording of
additional goodwill of $1,947,000 in 1994, being the amount of additional
consideration paid in excess of the net book value of the non-controlling
interests acquired.
F - 9
<PAGE> 40
5. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Trade and royalties .................. $ 8,082 $5,656
Other receivables .................... 2,282 723
------- ------
$10,364 $6,379
======= ======
</TABLE>
Other receivables comprise primarily amounts relating to refundable
withholding taxes, goods and service tax, and customs and duties.
6. INVENTORIES
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Raw materials ..................... $4,212 $1,460
Work in process ................... 3,922 2,408
------ ------
$8,134 $3,868
====== ======
</TABLE>
7. EXECUTIVE STOCK PURCHASE PLAN LOANS
Executive stock purchase plan loans as at December 31, 1996 comprise loans
of $2,512,000 made to finance the acquisition of shares of the Company on
the open market by executive officers. These loans are secured by the
shares, bear interest at 1/4% over the bank prime rate, equal to the
Company's rate for borrowings, and are due on December 31, 1997.
8. FIXED ASSETS
<TABLE>
<CAPTION>
1996 1995
--------------------------- --------------------------
ACCUMULATED Accumulated
COST DEPRECIATION Cost Depreciation
--------------------------- --------------------------
<S> <C> <C> <C> <C>
Land ............................ $ 1,314 $ -- $ 1,314 $ --
Buildings ....................... 15,834 1,649 14,511 1,103
Machinery and equipment ......... 10,024 2,002 6,340 1,444
Other equipment
and leasehold improvements .... 2,369 1,071 1,055 763
------- ------- ------- -------
$29,541 $ 4,722 $23,220 $ 3,310
Less accumulated depreciation ... 4,722 3,310
------- ======= ------- =======
$24,819 $19,910
======= =======
</TABLE>
9. OTHER ASSETS
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Goodwill, net ......................... $3,377 $3,594
Product rights, net ................... 3,619 2,617
Other ................................. 192 --
------ ------
$7,188 $6,211
====== ======
</TABLE>
F - 10
<PAGE> 41
10. CUSTOMER PREPAYMENTS
Effective September 18,1995, the Company entered into a 16 year license and
supply agreement with Forest Laboratories Inc. ("Forest") whereby Forest
markets the Company's once-daily controlled release formulation of
diltiazem (Tiazac(R)) in the United States, for which the Company will
receive royalty and manufacturing revenues. The agreement required Forest
to advance to the Company non-refundable payments of $20,000,000 which are
being applied based on a pre-determined formula, against amounts owing by
Forest for the purchase of Tiazac(R).
The agreement also provides for additional prepayments by Forest applicable
to on-going purchases of Tiazac(R). These prepayments are required to be
made by Forest at the time of issue of each purchase order in accordance
with the terms of the agreement.
Customer prepayments also include amounts relating to the Company's
contract research activities.
11. LONG-TERM DEBT AND LINE OF CREDIT
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
NON-INTEREST BEARING GOVERNMENT 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 is
repayable on a semi-annual installment basis commencing in 1996 and ending
in 2001 ....................................................................... $ 2,850 $ 2,789
OTHER
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
1.0%. This loan is repayable in equal quarterly principal instalments of
$182,000 with a final payment due December 31, 1998 ........................... 1,459 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 certain manufacturing facility land and building, bearing
interest at bank prime rate plus 1.0%. This loan is repayable in equal
quarterly principal instalments of $182,000 with a final payment due
September 30, 2000 ............................................................ 2,659 3,405
Mortgage Payable .............................................................. -- 1,801
------- -------
6,968 10,195
Less current portion .......................................................... 2,298 2,244
------- -------
$ 4,670 $ 7,951
======= =======
</TABLE>
F - 11
<PAGE> 42
11. LONG-TERM DEBT AND LINE OF CREDIT - CONTINUED
The Company has an operating line of credit of $10,950,000 with a Canadian
chartered bank for which a specified charge on accounts receivable and
inventories has been given. As at December 31, 1996, there were no
outstanding borrowings under this line of credit.
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.
Interest expense on long-term debt amounted to $591,000, $718,000, and
$702,000 in the years ended December 31, 1996, 1995, and 1994,
respectively.
Principal repayments on long-term debt are as follows:
<TABLE>
<S> <C>
1997 .................................. $ 2,298
1998 .................................. 1,970
1999 .................................. 1,459
2000 .................................. 1,241
-------
$ 6,968
=======
</TABLE>
12. 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 common shares without par value.
<TABLE>
<CAPTION>
Number of Shares Amount
---------------- ------
<S> <C> <C>
COMMON SHARES
Balance, December 31, 1993 ....................................... 4,201 $ 8,255
Issued in exchange for all outstanding 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
Issued on the exercise of options ................................ 100 197
Effect of exchange rate change ................................... -- (72)
------ --------
Balance, December 31, 1996 ....................................... 25,427 $ 14,614
====== ========
</TABLE>
F - 12
<PAGE> 43
12. SHARE CAPITAL - CONTINUED
STOCK OPTIONS
The Company provides stock option incentive plans and has, with shareholder
approval, issued options to certain directors outside of the plans. The
plans are intended to provide long term incentives and rewards to executive
officers, directors, key employees and consultants, contingent upon an
increase in the market value of the Company's common stock. The total
number of shares which are reserved and set aside for issue under the Stock
Option Plan, and under all other management options outstanding shall not
in the aggregate exceed 4,500,000 common shares. (Options for all years
presented, have been calculated after giving effect to the 3 for 1 stock
split in January, 1996.)
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Options outstanding at beginning of year ......... 2,779 1,908 1,201
Options granted during the year .................. 209 1,461 833
Options exercised during the year ................ (100) (504) (86)
Options cancelled during the year ................ (137) (86) (40)
----- ----- -----
Options outstanding at end of year ............... 2,751 2,779 1,908
===== ===== =====
Options exercisable at end of year ............... 1,308 1,060 306
Price range of options granted during the year ... $20.00 - $34.75 $2.44 - $20.00 $2.34 - $2.44
</TABLE>
The outstanding options expire from 1998 to 2001 at exercise prices ranging
from Cdn. $1.00 to U.S. $34.75 per share. During 1996 options for 100,000
common shares were exercised for proceeds of $197,000.
13. 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. The earnings per share
in 1996, 1995 and 1994 on a fully diluted basis giving effect to the
exercise of all options granted would have been $0.83 and $0.21 and $0.36
per share, respectively.
14. 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 before income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Provision for income taxes based on statutory rate ...... $ 10,664 $ 2,692 $ 4,195
Reduction of income taxes resulting from income of
foreign subsidiaries taxed at lower effective rate ... (12,932) (4,271) (615)
Benefit of losses not recognized for
accounting purposes .................................. 2,982 1,780 --
Benefit of utilization of losses carried forward ........ -- -- (2,268)
Non-taxable portion of capital gain on
settlement of debt ................................... -- -- (882)
-------- ------- -------
$ 714 $ 201 $ 430
======== ======= =======
</TABLE>
F - 13
<PAGE> 44
14. INCOME TAXES - CONTINUED
At December 31, 1996, 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 :
<TABLE>
<CAPTION>
Losses Investment Tax Credits
------------------- ----------------------
Federal Provincial
------- ----------
<S> <C> <C> <C>
1997 .............. $ 3,534 $ 4,251 $ -
1998 .............. 6,997 7,656 89
1999 .............. 3,415 4,130 943
2000 .............. 682 1,264 507
2001 .............. 2,271 2,259 490
2002 .............. - 1,306 466
2003 .............. 1,479 1,491 626
2004 .............. - - 844
2005 .............. - - 808
------- ------- ---------
1997 .............. $18,378 $22,357 $ 4,773
======= ======= =========
</TABLE>
The benefits of these losses carried forward and investment tax credits
will be recorded when realized.
15. OPERATING LEASES
Minimum lease commitments under operating leases for each of the next five
years are as follows:
<TABLE>
<S> <C> <C>
1997 ................................................ $ 599
1998 ................................................ 566
1999 ................................................ 151
2000 ................................................ 59
2001 ................................................ 5
</TABLE>
16. CHANGE IN NON-CASH OPERATING ITEMS
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Accounts receivable ............ $ (4,194) $ (963) $(2,598)
Inventories .................... (4,489) (3,795) (480)
Deposits and prepaid expenses .. (888) (111) 200
Accounts payable ............... 892 2,450 1,268
Accrued liabilities ............ (2,280) 1,096 718
Income taxes payable ........... (153) 193 223
Customer prepayments ........... (19,761) 25,168 908
-------- -------- -------
$(30,873) $ 24,038 $ 239
======== ======== =======
</TABLE>
F-14
<PAGE> 45
17. LITIGATION
In 1995, the Company's contractual, legal and financial relationships with
its former licensee, Hoechst-Roussel Pharmaceuticals, Inc. ("Hoechst") were
resolved. Hoechst was previously licensed by the Company for the once-daily
controlled release formulation of diltiazem. As a result of Hoechst's
acquisition of Marion Merrell Dow Inc., a competitor of the Company, the
Rights Agreement between the Company and Hoechst was terminated effective
June 30, 1995, resulting in a gain to the Company of $3,617,000, net of
legal and other expenses relating to the settlement.
In 1996, the Company entered into a Settlement Agreement with Elan
Corporation plc. ("Elan") which resolved all claims and counter claims made
in a New Jersey litigation with respect to alleged patent infringement by
the Company of Elan's diltiazem patents.
From time to time, the Company becomes involved in various legal matters
which it considers to be in the ordinary course of business. While the
Company is not currently able to determine the potential liability, if any,
related to such matters, the Company believes none of the matters,
individually or in the aggregate, will have a material adverse effect on
its financial position.
18. SEGMENTED INFORMATION AND MAJOR CUSTOMERS
The Company considers that its operations fall principally into one class-
the development and sale of pharmaceutical products for the pharmaceutical
industry. Information about the Company's revenue, profitability and assets
by geographic area for the years ended December 31, 1996, 1995 and 1994
follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Canada ...................................... $ 19,585 $ 6,952 $ 10,965
Switzerland ................................. 6,433 6,242 6,136
Barbados and Puerto Rico .................... 58,588 10,120 2,043
-------- -------- --------
84,606 23,314 19,144
Less intersegment ........................... (18,176) (3,670) (2,580)
-------- -------- --------
$ 66,430 $ 19,644 $ 16,564
======== ======== ========
NET INCOME
Canada ...................................... $ (6,153) $ (6,720) $ (1,307)
Switzerland ................................. 4,167 2,571 2,225
Barbados and Puerto Rico .................... 25,592 6,702 1,607
-------- -------- --------
23,606 2,553 2,525
Other income (expense) net of income taxes .. (322) 3,317 6,936
-------- -------- --------
Net Income .................................. $ 23,284 $ 5,870 $ 9,461
======== ======== ========
TOTAL ASSETS
Canada ...................................... $ 26,357 $ 21,675 $ 21,764
Switzerland ................................. 7,214 9,467 3,803
Barbados and Puerto Rico .................... 25,035 29,725 63
-------- -------- --------
$ 58,606 $ 60,867 $ 25,630
======== ======== ========
</TABLE>
Major Customers:
Manufacturing revenues in 1996, 1995 and 1994 relate to the sale of
Tiazac(R) in the United States. In 1996, all of these revenues were
generated in sales to the Company's licensee, Forest Laboratories Inc.
F-15
<PAGE> 46
19. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles ("Cdn. GAAP") which conforms in
all material respects applicable to the Company, with those in the United
States ("U.S. GAAP") during the periods presented except with respect to
the following:
a) Reconciliation of net income under Cdn. and U.S. GAAP
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Net income as shown in the consolidated
statement of income and retained
earnings (deficit) ..................... $23,284 $ 5,870 $ 9,461
Item excluded from income under U.S. GAAP
Gain on debt settlement treated as
contributed surplus under U.S. GAAP .... - - (7,955)
------- ------- --------
Net income according to U.S. GAAP ......... $23,284 $ 5,870 $ 1,506
======= ======= ========
Earnings per share under U.S. GAAP ........ $ 0.87 $ 0.22 $ 0.07
======= ======= ========
Weighted average number of common shares
outstanding under U.S. GAAP (1) ........ 26,784 26,422 22,635
======= ======= ========
</TABLE>
(1) The weighted average number of common shares outstanding for purposes
of the computation of the earnings per share data under U.S. GAAP gives
effect to the exercise of outstanding options and the 3 for 1 stock split
in January, 1996.
b) There are no differences between shareholders' equity determined under
Cdn. and U.S. GAAP at either December 31, 1996 or 1995.
c) Under U.S. GAAP, the following additional supplemental cash flow
disclosure would be provided:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cash paid for:
Interest $ 608 $ 827 $ 542
Income taxes 603 69 358
</TABLE>
d) 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, 1996, the Company has unused tax benefits of
approximately $12,296,000 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 $2,982,000 and $1,780,000 in the years ended December 31,
1996 and 1995 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> 47
19. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - CONTINUED
e) The Company does not recognize compensation expense for its stock-based
compensation plans. Had compensation cost for the stock option plans
been determined based upon fair value at the grant date for awards under
these plans consistent with the methodology prescribed under SFAS No.
123 - "Accounting for Stock-Based Compensation," the Company's net
income and earnings per share would have been reduced by approximately
$3,584,000, $1,035,000 and $500,000 or $0.13, $0.04 and $0.02 per share
in the years 1996, 1995 and 1994, respectively. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions
used for grants in 1996, 1995 and 1994; dividend yield of 0%, expected
volatility of 48%, risk-free interest rate of 6.9% and expected lives of
an average of 4 years.
F-17
