<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1997
REGISTRATION STATEMENT NOS.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM F-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------------------
INTELLIGENT POLYMERS LIMITED
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
BERMUDA 2834 NOT APPLICABLE
(State or other jurisdiction of (Primary Standard Industrial Classification (I.R.S. Employer Identification No.)
incorporation Code Number)
or organization)
</TABLE>
CONYERS DILL & PEARMAN
CLARENDON HOUSE, 2 CHURCH STREET, HAMILTON HM 11, BERMUDA
ATTENTION: DAVID J. DOYLE, (441) 295-1422
(Address and telephone number of Registrant's principal executive offices)
CT CORPORATION SYSTEM
1633 BROADWAY, NEW YORK, NEW YORK 10015 (212) 664-1666
(Name, address and telephone number of agent for service)
------------------------------------
FORM F-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------------------
BIOVAIL CORPORATION INTERNATIONAL
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
ONTARIO, CANADA NOT APPLICABLE
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
BIOVAIL CORPORATION INTERNATIONAL
2488 DUNWIN DRIVE, MISSISSAUGA, ONTARIO, CANADA L5L 1J9
ATTN: ROBERT A. PODRUZNY (416) 285-6000
(Address and telephone number of Registrant's principal executive offices)
CT CORPORATION SYSTEM
1633 BROADWAY, NEW YORK, NEW YORK 10015 (212) 664-1666
(Name, address and telephone number of agent for service)
------------------------------------
COPIES TO:
<TABLE>
<CAPTION>
<S> <C>
BRUCE D. BRYDON DAVID J. DOYLE
PRESIDENT AND CHIEF EXECUTIVE OFFICER COMMON DIRECTOR/SECRETARY
BIOVAIL CORPORATION INTERNATIONAL INTELLIGENT POLYMERS LIMITED
2488 DUNWIN DRIVE, MISSISSAUGA, ONTARIO, CANADA L5L 1J9 CLARENDON HOUSE, 2 CHURCH STREET, HAMILTON HM 11, BERMUDA
ROGER ANDRUS, ESQ. MARK KESSEL, ESQ.
CAHILL GORDON & REINDEL BRICE T. VORAN, ESQ.
80 PINE STREET, NEW YORK, NEW YORK 10005 SHEARMAN & STERLING
(212) 701-3000 599 LEXINGTON AVENUE, NEW YORK, NEW YORK 10022
</TABLE>
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
------------------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS AMOUNT TO BE PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(2) OFFERING PRICE(2)(3) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units each consisting of one
Common Share, par value $.01
per share, of Intelligent
Polymers Limited and one
Warrant to purchase one
Biovail Common Share(1)....... 3,737,500 Units $20.00 $74,750,000 $22,652
- ----------------------------------------------------------------------------------------------------------------------------------
Intelligent Polymers Limited
Common Shares included in
Units........................ 3,737,500 Shares -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Warrants to purchase Biovail
Common Shares included in
Units........................ 3,737,500 Warrants -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Biovail Common Shares, $.01
par value(4)................. (5) (5) $145,986,750 $44,239
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Each Warrant grants the holder the right to purchase one Common Share, no
par value, of Biovail Corporation International.
(2) Estimated solely for purposes of calculating the amount of the registration
fee.
(3) Includes 487,500 Units which the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(4) Shares to be issued if Biovail exercises that certain Purchase Option
described in the Prospectus contained herein at any time on or before
September 30, 2000 and pays the exercise price in common shares of Biovail
Corporation International.
(5) Omitted pursuant to Rule 457(o) under the Securities Act.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 1997
PROSPECTUS
, 1997
3,250,000 UNITS
[LOGO] [LOGO]
INTELLIGENT POLYMERS LIMITED
BIOVAIL CORPORATION INTERNATIONAL
EACH UNIT CONSISTING OF
ONE COMMON SHARE, PAR VALUE $.01 PER SHARE,
OF INTELLIGENT POLYMERS LIMITED AND ONE WARRANT
TO PURCHASE ONE COMMON SHARE, NO PAR VALUE, OF BIOVAIL CORPORATION INTERNATIONAL
The Common Stock, par value $.01 per share (the "Intelligent Polymers Common
Shares"), of Intelligent Polymers Limited ("Intelligent Polymers") and the
Warrants (the "Warrants") to purchase Common Shares of Biovail Corporation
International ("Biovail Common Shares") which comprise the units (the "Units")
will trade only as units (and not separately) through September 30, 1999 or such
earlier date as the Purchase Option (as defined below) is exercised or expires
unexercised. The Units have been approved for listing on the American Stock
Exchange (the "AMEX"), subject to notice of issuance. The Warrants are
exercisable at any time from October 1, 1999 through September 30, 2002. The
exercise price of the Warrants is $ per Biovail Common Share. See
"Description of the Warrants and the Biovail Common Shares." On September 16,
1997, the last reported sale price of a Biovail Common Share on the New York
Stock Exchange (the "NYSE") was $28 15/16.
Prior to the offering of the Units (the "Unit Offering"), there has been no
public market for the Units. Intelligent Polymers will receive all of the net
proceeds of the Unit Offering. Intelligent Polymers will, pursuant to the terms
of a development contract, pay to Biovail substantially all of the net proceeds
of this Unit Offering in licensing and product development fees. See "Use of
Proceeds."
Beginning on the closing date of the Unit Offering and ending on the earlier
of (i) September 30, 2002 and (ii) the 90th day after Intelligent Polymers
provides Biovail with quarterly financial statements of Intelligent Polymers
showing cash or cash equivalents of less than $3 million (which period may be
extended by Biovail under certain circumstances, but in no event beyond
September 30, 2002), Biovail will have an option to purchase all (but not less
than all) of the Intelligent Polymers Common Shares at a substantial premium to
the offering price. The option price may be paid in cash, Biovail Common Shares,
or any combination of the foregoing, at Biovail's sole discretion. See "The
Agreements and the Purchase Option -- Purchase Option."
SEE "RISK FACTORS" ON PAGE 15 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN
CONSIDERATIONS RELATED TO AN INVESTMENT IN THE UNITS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS TO
TO THE DISCOUNTS AND INTELLIGENT
PUBLIC COMMISSIONS(1) POLYMERS(2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit..................................... $20.00 $ $
Total(3)..................................... $65,000,000 $ $
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Intelligent Polymers and Biovail have agreed to indemnify the Underwriters
(as defined below) against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses, estimated at $ , payable by Intelligent
Polymers.
(3) Intelligent Polymers and Biovail have granted the Underwriters an option
exercisable within 30 days after the date hereof, to purchase up to an
aggregate of 487,500 additional Units at the price to the public less
underwriting discounts and commissions for the purpose of covering
over-allotments, if any. If the Underwriters exercise such option in full,
the total price to the public, underwriting discounts and commissions, and
proceeds to Intelligent Polymers will be $74,750,000, $ and
$ , respectively. See "Underwriting."
The Units are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by counsel for the Underwriters. It is expected that delivery of the Units will
be made in New York, New York on or about , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SBC WARBURG DILLON READ INC.
LAZARD FRERES & CO. LLC
<PAGE> 3
[DESCRIPTION OF INSIDE COVER]
THE HEALTH OF TOMORROW.
[Photo of researcher]
[BIOVAIL LOGO] [INTELLIGENT POLYMERS LOGO]
[DESCRIPTION OF GATEFOLD INSIDE COVER]
RESEARCH TODAY FOR THE HEALTH OF TOMORROW.
SCIENTIFIC EXPERTISE
CONTROLLED RELEASE TECHNOLOGIES
R&D PIPELINE
EXPERIENCED MANAGEMENT
Controlled release drug delivery technology can hold the key to better
tolerated, more effective medications for the treatment of many chronic
conditions. However, the application of this technology requires specialized
scientific expertise and dedicated research.
Intelligent Polymers is dedicated to research and development of once-daily
controlled release formulations for selected products whose performance may be
enhanced through controlled release technology. Intelligent Polymers will
concentrate on the development of once-daily controlled release pharmaceutical
products for the treatment of chronic conditions.
The annual oral controlled release prescription drug market in the U.S. alone
currently exceeds $6 billion. With an existing R&D pipeline of products, a
solid management strategy and access to Bioval's scientific expertise in oral
drug delivery technology, Intelligent Polymers' mandate is industry leadership
in controlled release research.
[Photo of research personnel and laboratory equipment]
[BIOVAIL LOGO] [INTELLIGENT POLYMERS LOGO]
<TABLE>
<S> <C> <C> <C> <C>
Anxiety, Chronic Hypertension, Diabetes Elevated
Depression Pain Angina Cholesterol
</TABLE>
<PAGE> 4
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements made in this Prospectus are forward-looking in
nature, including but not limited to Biovail's and Intelligent Polymers' 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 and Intelligent Polymers' 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 and Intelligent Polymers' businesses. Many of the
significant risks related to Biovail's and Intelligent Polymers' businesses are
described in this Prospectus, 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.
CERTAIN PERSONS PARTICIPATING IN THIS UNIT OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF ANY OF
THE UNITS, THE INTELLIGENT POLYMERS COMMON SHARES, THE BIOVAIL COMMON SHARES OR
THE WARRANTS. SPECIFICALLY, THE REPRESENTATIVES OF THE UNDER-WRITERS MAY
OVERALLOT IN CONNECTION WITH THE UNIT OFFERING AND MAY BID FOR AND PURCHASE
UNITS, INTELLIGENT POLYMERS COMMON SHARES, BIOVAIL COMMON SHARES OR WARRANTS IN
THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------------
AVAILABLE INFORMATION
Biovail is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), applicable to
foreign private issuers and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the "Commission"). The
reports and other information filed by Biovail with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Regional Offices of the Commission located at 7 World Trade Center, 13th
Floor, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661-2511. Copies of such material can also be obtained by
mail from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains an
Internet web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission (http://www.sec.gov). Although Biovail and Intelligent Polymers may
not be required to file electronically materials which would be required to be
filed electronically by domestic issuers, it is the current intention of each of
the companies to make such material available electronically. In addition, such
material may be inspected and copied at the offices of the NYSE, 20 Broad
Street, New York, New York 10005, on which exchange the Biovail Common Shares
are listed.
Upon completion of the Unit Offering, Intelligent Polymers is expected to
be subject to the information and reporting requirements of the Exchange Act
applicable to foreign private issuers and in accordance therewith to file
reports and other information with the Commission. Holders of Intelligent
Polymers Common Shares will receive annual reports containing financial
information including the report of independent chartered accountants as to the
financial statements of Intelligent Polymers.
Biovail and Intelligent Polymers have filed with the Commission a
Registration Statement under the Securities Act of 1933, as amended (the "Act"),
with respect to the securities offered by this Prospectus. For further
information with respect to Biovail, Intelligent Polymers and the securities
offered hereby, reference is made to such Registration Statement and the
exhibits thereto, which may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the
fees prescribed by the Commission.
3
<PAGE> 5
This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. The Registration Statement and any
amendments thereto, including exhibits filed as a part thereof, are available
for inspection and copying as set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by Biovail
pursuant to the Exchange Act are incorporated herein by this reference:
(i) Biovail's Annual Report on Form 20-F for the fiscal year ended
December 31, 1996;
(ii) the description of Biovail's Common Shares contained in Biovail's
Report on Form 8-A dated December 10, 1996; and
(iii) Biovail's Reports on Form 6-K filed with the Commission on May
14 and August 5, 1997.
In addition, all filings on Form 20-F filed by Biovail pursuant to the
Exchange Act, and, to the extent so designated therein, any reports on Form 6-K
of Biovail, after the initial filing of the Registration Statement of which this
Prospectus forms a part, after the date of this Prospectus and prior to the
termination of the Unit Offering shall be deemed incorporated by reference in
this Prospectus and to be a part hereof from the date any such document is
filed. Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document which also is incorporated by reference
herein) modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed to constitute a part hereof except as so modified
or superseded. All information appearing in this Prospectus is qualified in its
entirety by the information and consolidated financial statements (including
notes thereto) appearing in the documents incorporated herein by reference,
except to the extent set forth in the immediately preceding sentence.
Copies of documents incorporated by reference with respect to Biovail that
are not presented herein or delivered herewith (not including exhibits to such
documents unless such exhibits are specifically incorporated by reference in
such documents or herein) are available without charge to any person to whom
this Prospectus is delivered upon written or oral request to Biovail's principal
executive office: Biovail Corporation International, 2488 Dunwin Drive,
Mississauga, Ontario, Canada, L5L 1J9, Attn: Investor Relations.
Intelligent Polymers is a Bermuda exempted company formed in July 1997 and
has conducted no business to date. Bermuda exempted companies are discussed
under the heading "Bermuda Exchange Control; Other Bermuda Issuer
Considerations" in the section titled "Exchange Controls and Other Limitations
Affecting Securityholders." Intelligent Polymers' principal executive office is
located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda, c/o
Conyers Dill & Pearman, telephone number: (441) 295-1422.
CURRENCY TRANSLATION
Biovail reports its financial statements in U.S. dollars while the currency
of measurement for its operations varies depending upon location. Unless
otherwise indicated, all references to dollars or "$" are to United States
dollars and references to "Cdn$" are to Canadian dollars.
------------------------------
COPIES OF THIS DOCUMENT, HAVING ATTACHED THERETO THE DOCUMENTS SPECIFIED HEREIN,
HAVE BEEN DELIVERED TO THE REGISTRAR OF COMPANIES IN BERMUDA FOR REGISTRATION.
4
<PAGE> 6
ENFORCEABILITY OF CIVIL LIABILITIES
UNDER UNITED STATES FEDERAL SECURITIES LAWS
Biovail is an Ontario, Canada corporation. Most of Biovail's directors,
officers and controlling persons, as well as certain of the experts named
herein, reside outside the United States and all or a substantial portion of the
assets of such persons and of Biovail are located outside the U.S. Consequently,
it may be difficult or impossible for investors to effect service of process
within the U.S. upon Biovail or such persons, or to realize against them upon
judgments of courts of the U.S. predicated upon civil liabilities under the
federal securities laws of the U.S. There is doubt as to the enforceability in
Canada against Biovail or any of its directors and officers or experts named
herein who are not residents of the U.S. in original actions or in actions for
enforcement of judgments rendered by U.S. courts, of civil liabilities
predicated solely on U.S. federal securities laws. In addition, investors should
not assume that courts of Canada (i) would enforce judgments of U.S. courts
obtained in actions against Biovail in the U.S. or such persons predicated upon
the civil liability provisions of the U.S. federal securities laws or the
securities or blue sky laws of any state within the U.S. or (ii) would enforce,
in original actions, liabilities against Biovail or such persons predicated upon
the U.S. federal securities laws or any such state securities or blue sky laws.
Intelligent Polymers is a Bermuda corporation. Most of Intelligent
Polymers' directors, officers and controlling persons, as well as certain of the
experts named herein, reside outside the U.S. and all or a substantial portion
of the assets of such persons, and of Intelligent Polymers, are located outside
the U.S. Consequently, it may be difficult or impossible for investors to effect
service of process within the U.S. upon Intelligent Polymers or such persons or
to realize against them upon judgments of courts of U.S. predicated upon civil
liabilities under U.S. federal securities laws. Intelligent Polymers has been
advised by Conyers Dill & Pearman, Bermuda counsel to Intelligent Polymers, that
the U.S. and Bermuda do not have a treaty providing for reciprocal recognition
and enforcement of judgments in civil and commercial matters and a final
judgment for the payment of money rendered by any federal or state court in the
U.S. based on civil liability, whether or not predicated solely upon the U.S.
federal securities laws, would, therefore, not be automatically enforceable in
Bermuda. A Bermuda court may impose civil liability on Intelligent Polymers or
its directors or officers in a suit brought in the Supreme Court of Bermuda
against Intelligent Polymers or such persons with respect to a violation of U.S.
federal securities laws, provided that the facts surrounding such violation
would constitute or give rise to a cause of action under Bermuda law.
Each of Biovail and Intelligent Polymers has irrevocably appointed CT
Corporation System as its agent to receive service of process solely in actions
against it arising out of or in connection with the U.S. federal securities laws
or out of violations of such laws in any federal court or state court in New
York, New York, relating to the transactions covered by this Prospectus.
TRADEMARKS
Biovail, the Biovail word logo, Tiazac(R), Viazem, and Crystaal are all
trademarks of Biovail which are registered in Canada, the United States or
certain other jurisdictions. Intelligent Polymers and the Intelligent Polymers
word logo are trademarks of Intelligent Polymers.
All other product names referred to in this document are the property of
their respective owners.
5
<PAGE> 7
PROSPECTUS SUMMARY
The information set forth below should be read in conjunction with, and is
qualified in its entirety by, the more detailed information, including "Risk
Factors" and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus or incorporated by reference herein. All Biovail
share and per share information presented herein gives effect to the 3-for-1
stock split which was completed in January 1996. Unless the context otherwise
requires, reference herein to "Biovail" includes its predecessor companies and
the consolidated subsidiaries of Biovail. Unless otherwise stated, market data
and market share data set forth herein are based on reports of IMS America
Limited.
BIOVAIL
Biovail is a global integrated pharmaceutical product development company
specializing in the application of advanced oral controlled release delivery
technologies. Biovail's proprietary technologies are used in formulations which
either improve upon conventional dosage forms of existing products by providing
the therapeutic benefits of controlled release or are generically equivalent to
existing once-daily branded products, while in both instances providing
significant cost advantages. Biovail develops controlled release formulations
for the generic and branded market segments which are manufactured by it or by
others under license. Biovail does not engage in basic research to discover new
chemical entities.
Biovail's business has evolved from licensing its controlled release
formulations to pharmaceutical companies to developing, manufacturing, testing,
registering, marketing and out-licensing its own products. Products developed by
Biovail are currently sold under license in more than 55 countries. One of these
products, Tiazac(R), is manufactured by Biovail for sale under its brand name by
its licensees in the U.S. and Europe and by its wholly owned subsidiary,
Crystaal Corporation ("Crystaal"), in Canada. Tiazac(R) is currently Biovail's
principal product. See "Business of Biovail -- Products of Biovail --
Tiazac(R)." The products currently under development by Biovail are generic
controlled release versions of major brand name drugs, in particular, products
indicated for the treatment of chronic disorders such as cardiovascular,
inflammatory and respiratory conditions and for pain management. As of July 31,
1997, Biovail had 12 such controlled release products under development, four of
which have been submitted for regulatory approval to the U.S. Food and Drug
Administration (the "FDA"). The four products awaiting approval of the FDA
include generic formulations of Cardizem SR, Cardizem CD and Verelan, all three
of which are calcium channel blockers used for the treatment of hypertension, as
well as a generic formulation of Trental used for the treatment of peripheral
vascular disease. See "Business of Biovail -- Products of Biovail -- Generic
Product Pipeline."
Biovail derives its revenues from (i) developing and licensing oral
controlled release products using its proprietary drug delivery technologies;
(ii) manufacturing such products for sale to licensees and wholesalers; and
(iii) providing pharmaceutical contract research services to third parties. For
the 12 months ended June 30, 1997, Biovail had revenues of $66.7 million and net
income of $25.5 million. The three areas referred to in clauses (i), (ii) and
(iii) accounted for 11.3%, 82.4% and 6.3%, respectively, of Biovail's total
revenues for such 12 month period.
Controlled release products are formulations which release active drug
compounds in the body gradually and predictably over a 12 or 24 hour period and
which therefore need be taken only once- or twice-daily. Controlled release
products typically provide numerous benefits over immediate release drugs,
including: (i) greater effectiveness in the treatment of chronic conditions;
(ii) reduced side effects; (iii) greater convenience (only once or twice a day);
and (iv) higher levels of patient compliance due to a simplified dosing
schedule. Biovail has four proprietary technologies for the controlled release
of drugs. These technologies are broadly applicable to a wide range of compounds
and may be used to formulate controlled release versions of products available
in immediate release formulations. These technologies are used in the 12 Biovail
products that are currently marketed or in the 12 generic controlled release
products under development.
The oral controlled release prescription drug market in the United States
was $6.1 billion for the 12 months ended March 31, 1997. There are more than 60
FDA approved controlled release branded products available in the United States.
The patent and exclusivity period on the drug compound have expired on two-
6
<PAGE> 8
thirds of such branded products and, by 2000, 95% will have expired. Because of
the technological barriers associated with the development of controlled release
drugs, there has not been the same proliferation of generic drugs in the
controlled release segment as in the immediate release segment of the industry.
As a result, there are only seven oral controlled release brands which have been
genericized. Sales of these generic products accounted for approximately 7% of
the total U.S. oral controlled release prescription drug market in the 12 months
ended March 31, 1997.
In general, large pharmaceutical companies are under pressure to begin
marketing a drug as soon as it is developed in order to recoup the significant
development costs as well as to secure an early entry into the market. Even
though a controlled release version of a given drug might be a more effective
product, pharmaceutical companies typically have not spent the time required to
develop controlled release versions of their products while their immediate
release version is under patent. Instead they have begun marketing the immediate
release versions as soon as a drug is developed.
When a new drug product is developed, the innovator company typically
applies for and is granted a product patent which expires on the date 20 years
from the first date a patent application was filed (or, for patents in force on,
or that result from a patent application filed before, June 8, 1995, the later
of such date and the date 17 years from the date a patent is issued). Because no
other company can, without authorization, make, use, sell, import or offer for
sale a generic version of such original branded product until the patent on such
product expires, the innovator has a monopoly during the patent period on
marketing a branded product. Once the product patent and, if applicable, the
exclusivity period (the three or five year period during which there is an
exclusive right to market a brand name product granted by the FDA), on a product
expires, other companies may be able to market a generic version of that branded
product if no other patents or exclusivity periods apply and regulatory approval
is obtained. Upon regulatory approval of a generic product, it is labeled as a
generic substitute for the branded product and pharmacists generally can
substitute the generic product for the branded product prescribed by a physician
(and many times must substitute the lower cost generic product for patients
covered by a managed care or insurance program which pays pharmacy benefits).
A generic pharmaceutical product is approved by the FDA upon the
establishment of bioequivalence to the original branded product. Demonstration
of bioequivalence requires that the generic product produce the same rate of
release and concentration of the drug in the blood over time as the original
branded product. Such generic products are generally sold at a significant price
discount to the corresponding branded product and are generally manufactured by
small, independent generic pharmaceutical companies to compete with the larger
pharmaceutical companies on the basis of price. Such generic products have
received widespread market acceptance. However, oral controlled release generic
products typically have not been subject to the deep price discounts of
immediate release generic products.
Products which include the same compound as the original branded products
but are not generic versions of these brands may, however, be approved by the
FDA on the basis of the more extensive regulatory procedures applicable to
branded products. Once such products are approved, they may be marketed as
distinct brands in competition with other brand name products upon expiration of
the applicable patent on the drug compound in the original branded products.
Biovail believes that there is a significant opportunity for the marketing of
products so approved as branded once-daily controlled release versions of
products currently available only in an immediate release form or in a
controlled release form requiring multiple daily dosing. To take advantage of
this opportunity, Biovail has formed, and proposes to enter into certain
contractual relationships with, Intelligent Polymers. The proposed structure of
the Unit Offering (including the Purchase Option) allows Biovail and Intelligent
Polymers to allocate specific business opportunities, benefits and risks between
themselves and allows investors to hold securities of each of Biovail and
Intelligent Polymers. In addition, this structure offers holders of Intelligent
Polymers Common Shares the potential for significant returns upon any exercise
of the Purchase Option. Biovail believes that Intelligent Polymers' access to
Biovail's technology and integrated infrastructure and its strategy of
developing products for itself, rather than on behalf of other, larger
pharmaceutical companies, should favorably position it to succeed in this market
and should enable Intelligent Polymers to retain a larger portion of the
proceeds of commercialization of any Products which are successfully developed.
7
<PAGE> 9
INTELLIGENT POLYMERS
Intelligent Polymers was formed by Biovail in July 1997, primarily to
develop once-daily controlled release versions of selected drugs which are
currently marketed only in immediate release form or in controlled release form
requiring multiple daily dosing and whose patents have or will have expired upon
the anticipated date of receipt of FDA marketing approval for the once-daily
controlled release formulations to be developed. Upon development and regulatory
approval of such products, Intelligent Polymers expects that such products will
be marketed under distinct brand names. Intelligent Polymers has not yet
conducted any business and has no employees other than its sole executive
officer, who is not a full-time employee and who is a full-time employee of
Biovail. Intelligent Polymers does not intend to perform any research or other
activities on its own behalf, but rather will pay Biovail to perform all such
activities pursuant to the terms of the Development Contract (as defined below).
Substantially all of the net proceeds from the Unit Offering, together with
interest earned thereon, will be used for payments under the Development
Contract to develop the Additional Product (as defined below) and once-daily
controlled release branded generic versions of the following compounds:
<TABLE>
<CAPTION>
CURRENTLY BRAND NAME U.S.
MARKETED PRODUCT U.S. PRODUCT
BRAND PATENT SALES(2)
COMPOUND NAME U.S. MARKETER INDICATION EXPIRATION(1) (IN MILLIONS)
------------- ---------- -------------------- -------------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Bupropion Wellbutrin Glaxo Wellcome Depression Expired $ 150.0
Buspirone Buspar Bristol-Myers Squibb Anxiety, depression Expired $ 352.4
Lovastatin(3) Mevacor Merck Elevated cholesterol June 2001 $ 768.0
Metformin Glucophage Bristol-Myers Squibb Diabetes Expired $ 356.0
Tramadol Ultram Johnson & Johnson Chronic pain Expired $ 278.9
</TABLE>
- ------------------------------
(1) Patent expiration refers to expiry of U.S. patents (inclusive of any
extensions) on drug compounds. Patents outside the United States may differ
from those in the U.S. Under U.S. law, the expiration of a patent on a drug
compound does not create a right to make, use or sell that compound. There
may be additional patents relating to a person's proposed manufacture, use
or sale of a product that could potentially prohibit such person's proposed
commercialization of a drug compound. Intelligent Polymers does not believe
any such additional patents will prohibit the proposed commercialization of
the Products as it is not aware of any U.S. patents which might be
infringed by the Products as currently contemplated to be manufactured,
used or sold by Intelligent Polymers.
(2) U.S. product sales are for the 12 months ended March 31, 1997.
(3) Intelligent Polymers will seek to develop a once-daily controlled release
version of Lovastatin which will include such compound in combination with
Niacin. Niacin is marketed by various persons in the U.S. under a variety
of brand names. Like Lovastatin, Niacin also is indicated for elevated
cholesterol. Intelligent Polymers is not aware of any U.S. patents on the
Niacin drug compound.
In addition to seeking to develop once-daily controlled release versions of
the products listed above, Intelligent Polymers will also seek to complete
development of a generic version (the "Additional Product") of a controlled
release nifedipine formulation. The Additional Product has been developed to the
clinical testing stage by Biovail. A controlled release version of nifedipine is
currently marketed in the U.S. by Pfizer Inc. ("Pfizer") under the brand name
Procardia XL. Nifedipine is indicated for the treatment of hypertension and
angina. The U.S. patent on the drug compound nifedipine and the exclusivity
period on such drug compound and on Procardia XL have expired, but several other
patents are listed with the FDA as being applicable to the product marketed by
Pfizer. However, Intelligent Polymers believes that such other patents will not
delay the marketing of Biovail's generic formulation upon receipt of FDA
approval as it is not aware of any U.S. patents which might be infringed by the
products as currently contemplated to be manufactured, used or sold by
Intelligent Polymers. In the 12 months ended March 31, 1997, Procardia XL had
U.S. sales of
8
<PAGE> 10
$923 million. This is the only Product (as defined below) for which Intelligent
Polymers currently expects to seek FDA approval through an Abbreviated New Drug
Application ("ANDA").
The Board of Directors of Intelligent Polymers has the right, with the
consent of Biovail, to select additional controlled release products for
development under the Development Contract. See "The Agreements and the Purchase
Option -- Development Contract." The once-daily controlled release versions of
the compounds listed in the table above as well as the Additional Product and
other products which may be mutually agreed to by Biovail and Intelligent
Polymers for inclusion under the Development Contract are collectively referred
to as the "Products."
Each of the Products will involve the application of Biovail's oral
controlled release drug delivery technology to compounds that have received
regulatory approval and have achieved substantial sales. Other than with respect
to the Additional Product, only preliminary development work on the Products has
been undertaken by Biovail, which has completed studies on the applicability of
its controlled release delivery technology to such compounds solely for uses
reasonably related to the development and submission of information to obtain
U.S. regulatory approval. The Additional Product is currently in the clinical
testing stage of development. There can be no assurance that the Products will
be successfully developed or receive the necessary FDA approvals, or as to when
or if manufacturing or marketing of any of the Products will commence.
RISK FACTORS
An investment in the Units involves certain risks associated with the
business of Biovail and Intelligent Polymers, the industry in which they compete
and the Unit Offering. For a more detailed discussion of these risks, see "Risk
Factors."
THE UNIT OFFERING
<TABLE>
<S> <C>
Units Offered..................................................................... 3,250,000
Number of Intelligent Polymers Common Shares Offered and to Be Outstanding
after the Unit Offering..................................................... 3,250,000
Warrants to Purchase Biovail Common Shares Offered........................... 3,250,000
Proposed AMEX Symbol for Unit..................................................... INP
</TABLE>
TRADING INFORMATION
The Units have been approved for listing on the AMEX, subject to notice of
issuance. The Intelligent Polymers Common Shares and the Warrants comprising the
Units will trade only as units until September 30, 1999 or such earlier date as
the Purchase Option (as defined below) is exercised or expires unexercised (the
"Separation Date"). See "Description of the Warrants and the Biovail Common
Shares -- The Warrants." It is expected that the Intelligent Polymers Common
Shares will be eligible for quotation after the Separation Date on the AMEX and
the Warrants will be eligible for quotation on the NYSE. There can be no
assurance that there will be an active trading market for the Units or that,
after the Separation Date, there will be active trading markets for the
Intelligent Polymers Common Shares or the Warrants. The Biovail Common Shares
currently are quoted on the NYSE and the Toronto Stock Exchange ("TSE").
THE WARRANTS
Each Unit includes one Warrant to purchase one Biovail Common Share. The
Warrants will be exercisable from October 1, 1999 through September 30, 2002
(the "Warrant Expiration Date") at an exercise price of $ per Biovail
Common Share (the "Warrant Exercise Price"). The Warrants will trade separately
from Intelligent Polymers Common Shares beginning on the Separation Date. In the
event that Biovail exercises the Purchase Option, holders of Intelligent
Polymers Common Shares will retain their Warrants, unless sold or otherwise
transferred by those holders. See "Description of the Warrants and the Biovail
Common Shares -- The Warrants."
9
<PAGE> 11
PURCHASE OPTION
Biovail, as the holder of all of the issued and outstanding special shares,
par value $1.00 per share, of Intelligent Polymers (the "Special Shares") has
the right to purchase all, but not less than all, of the Intelligent Polymers
Common Shares outstanding at the time such right is exercised (the "Purchase
Option"). The Purchase Option will be exercisable by notice (the "Exercise
Notice") given at any time during the period beginning on the closing date of
the Unit Offering and ending on the earlier of (i) September 30, 2002 and (ii)
the 90th day after the date Intelligent Polymers provides Biovail (as such
holder) with quarterly financial statements of Intelligent Polymers showing cash
or cash equivalents of less than $3 million (the "Financial Notice"), although
Biovail may at its election extend such period by providing additional funding
for the continued development of any or all of the Products (but in no event
beyond September 30, 2002). If the Purchase Option is exercised, the purchase
price calculated on a per share basis (the "Purchase Option Exercise Price") is
currently expected to be as follows:
<TABLE>
<CAPTION>
IF THE INTELLIGENT POLYMERS COMMON SHARES ARE ACQUIRED EXPECTED PURCHASE OPTION
PURSUANT TO THE PURCHASE OPTION: EXERCISE PRICE
<S> <C>
Before October 1, 2000................................................. $39.06
On or after October 1, 2000 and on or before September 30, 2001........ 48.83
On or after October 1, 2001 and on or before September 30, 2002........ 61.04
</TABLE>
The Expected Purchase Option Exercise Prices set forth above are subject to
change at the time of the pricing of the Unit Offering based on the
considerations described under "Underwriting," including the compound annual
rate of return, as required by potential investors, to be achieved upon any
exercise of the Purchase Option, but will not be less than $34.56 for the period
before October 1, 2000, $41.47 for the period from October 1, 2000 through
September 30, 2001 and $49.77 for the period from October 1, 2001 through
September 30, 2002. See "Underwriting" for a discussion of factors considered in
determining the Purchase Option Exercise Price.
The Purchase Option Exercise Price may be paid in cash or Biovail Common
Shares, or any combination of the foregoing, at Biovail's sole discretion. Any
such Biovail Common Shares will be valued based upon the average of the closing
prices for Biovail Common Shares on the NYSE for the five trading days
immediately preceding the date of the Exercise Notice. See "The Agreements and
the Purchase Option -- Purchase Option."
Biovail owns all of the issued and outstanding Special Shares of
Intelligent Polymers, which grant the holder of a majority of such Special
Shares the Purchase Option and confer limited voting and other rights on the
holder. The Special Shares and the rights attached thereto are unconditionally
transferable without limitation subject to compliance with the law and the prior
written approval of the Bermuda Monetary Authority (Foreign Exchange Control).
At present Biovail has no intention of transferring such Special Shares. Under
Intelligent Polymers' Bye-Laws, Intelligent Polymers will be restricted, until
the expiration of the Purchase Option, from taking or permitting certain actions
inconsistent with Biovail's rights under the Purchase Option. For example, until
the expiration of the Purchase Option, Intelligent Polymers will not be able to,
among other things, without the consent of the holder of a majority of the
Special Shares, pay any dividends, issue additional shares of capital stock,
have outstanding borrowings in excess of an aggregate of $1 million, amalgamate
or alter the Purchase Option. See "Description of Intelligent Polymers Capital
Stock."
DEVELOPMENT CONTRACT
Intelligent Polymers has entered into a development and license agreement
with Biovail (the "Development Contract") under which Biovail has agreed to use
diligent efforts to (i) conduct toxicity studies, formulation development and
clinical studies for, and pursue U.S. regulatory approval of, the Products other
than the Additional Product and (ii) conduct clinical testing for, and pursue
U.S. regulatory approval of, the Additional Product, each in accordance with the
terms of the Development Contract. Although the pricing structure of the
Development Contract is considered by Biovail to be consistent with contractual
relationships
10
<PAGE> 12
it has had and continues to have with other third parties, the Development
Contract was not negotiated on an arm's-length basis. See "Risk Factors --
Conflicts of Interest" and "The Agreements and the Purchase Option --
Development Contract."
Payments to Biovail under the Development Contract will be in an amount
equal to the full amount of all Development Costs (as defined below) incurred by
Biovail in performing these activities, up to the maximum amount of funds
available to Intelligent Polymers (which includes any licensing or marketing
income earned by Intelligent Polymers and any cash received upon the exercise of
the Biovail Option), less working capital to be retained by Intelligent Polymers
of $1.0 million and a reserve of $1.5 million for possible litigation relating
to the Additional Product (the "Available Funds," which term shall include any
portion of the litigation reserve remaining after FDA approval of the Additional
Product). Such payments to Biovail will include an initial payment of $3.5
million for access to and use of Biovail's proprietary technology in connection
with such product development and of $1.25 million as payment for the transfer
of the Additional Product, based on Biovail's Development Costs in May and June
1997 relating to the development of the Additional Product.
Biovail has agreed, subject to customary business constraints and
limitations, to provide appropriate scientific and technical personnel,
necessary laboratories and equipment and administration of research and
development operations. Under the Development Contract, Biovail is not required
to allocate any specified amount of time or resources to perform its obligations
thereunder. The development obligations of Biovail and Intelligent Polymers
under the Development Contract will terminate upon the expenditure of all
Available Funds, which is projected by Intelligent Polymers to occur on or about
March 31, 2001 (without taking into account any licensing or marketing income
earned by Intelligent Polymers and any cash received upon exercise of the
Biovail Option), or at such other time as Intelligent Polymers and Biovail may
mutually determine. See "The Agreements and the Purchase Option -- Development
Contract."
On the 90th day after the Financial Notice, to the extent Biovail has
neither exercised the Purchase Option nor extended the termination date of the
Purchase Option as discussed above under "-- Purchase Option," Intelligent
Polymers and Biovail shall commence negotiations as to the terms on which
Biovail might provide additional funding for any or all of the Products. Such
negotiations will extend for a maximum period of 60 days and will take into
account relevant issues, including but not limited to the amount and timing of
such funding, possible alterations in the terms of the Biovail Option if the
Biovail Option has not yet been exercised or the possibility of granting Biovail
a renewed Biovail Option if the Biovail Option has been exercised and the terms
of the Development Contract (including as it relates to manufacturing and
licensing). If the parties successfully negotiate new funding terms, the
Purchase Option can be extended, but not beyond September 30, 2002. See "The
Agreements and the Purchase Option -- Purchase Option." During such period of
negotiation, Intelligent Polymers will have the right, but will not be required,
to expend any Available Funds under the Development Contract. As to any Product
for which Intelligent Polymers and Biovail fail to reach agreement as to any
additional funding by Biovail, Biovail will grant to Intelligent Polymers a
worldwide license for all of its patent rights and other intellectual property
(as reasonably agreed to by Biovail and Intelligent Polymers as being necessary
to develop further any such Product) solely in connection with the application
of such rights and property to the Products. See "The Agreements and the
Purchase Option -- License." The license to Intelligent Polymers shall be
non-royalty bearing and exclusive for the License Period and non-exclusive
thereafter.
LICENSE
Pursuant to the Development Contract and subject to the Biovail Option (as
defined below), Intelligent Polymers will have a license (the "License") to
manufacture or obtain manufacturing for (subject to Biovail's exclusive
manufacture period, right of first refusal and right of approval described
below), sell and otherwise market and sublicense others to market, throughout
the world (other than in Canada), Products developed for Intelligent Polymers
under the Development Contract or, as to Products for which Intelligent Polymers
and Biovail fail to reach agreement as to any necessary additional funding,
under other arrangements. Intelligent Polymers will have a non-royalty bearing
license with respect to the rights described above which is exclusive for the
License Period (as defined below) and is non-exclusive thereafter. Pursuant to
the terms of the Development Contract, Biovail will have the exclusive right to
manufacture any Product manufactured
11
<PAGE> 13
through the fifth anniversary of FDA approval of each such Product and will be
obligated during such period, at the request of Intelligent Polymers, to
manufacture any Product approved by the FDA at Biovail's standard cost of
manufacture plus 25% of such cost. Thereafter, Intelligent Polymers' right to
obtain manufacturing will be subject to a right of first refusal on the part of
Biovail to match any manufacturing arrangements offered by third-party
manufacturers and, in the event Biovail does not exercise such right of first
refusal, to Biovail's right to approve any proposed manufacturer or sublicensee,
which approval may be withheld only if any such manufacturer (including a
manufacturer on behalf of a sublicensee) has insufficient or inadequate
manufacturing capability (including lack of compliance with GMP (as defined
below) regulations) or if any such sublicensee's activities will have a material
adverse effect on Biovail's overall competitive position in the pharmaceutical
industry. In the event that Biovail exercises its right to reject a manufacturer
proposed by Intelligent Polymers and Intelligent Polymers and Biovail cannot
agree on an alternative manufacturer, Biovail will be obligated to manufacture
any such Product for Intelligent Polymers at prevailing market rates but not
less than Biovail's standard cost of manufacture plus 15% of such cost. Biovail
will have the right to terminate the License as to any Product in the event that
Intelligent Polymers does not market such Product within nine months from the
date of marketing approval by the FDA.
The License as to any particular product will be exclusive until the
expiration of any patents covering the licensed Product or, if there are no such
patents, for a period of 10 years from the date of the first commercial sale of
the Product (such longer period being the "License Period"). Any such license
shall be royalty-free and, after the License Period, non-exclusive.
Crystaal will pay to Intelligent Polymers royalties equal to 3% of net
sales of any Product (other than any Product as to which Biovail exercises the
Biovail Option) sold in Canada during the License Period by Biovail or its
sublicensees.
Biovail will have the right to acquire an exclusive license with respect to
any one Product which would otherwise be licensed to Intelligent Polymers,
exercisable within 60 days of U.S. regulatory approval of such Product (the
"Biovail Option") upon Biovail's agreement to pay, at Biovail's option, either
of (i) base royalties of 10% of net sales from the relevant Product during the
License Period or (ii) within 30 days of the exercise of the Biovail Option, a
lump sum of $25.0 million. In the event that Biovail exercises the Biovail
Option, Biovail will possess all rights, including, without limitation, the
right to manufacture or obtain manufacturing for, license and market the Product
covered by the Biovail Option.
SERVICES AGREEMENT
Intelligent Polymers has entered into a services agreement with Biovail
(the "Services Agreement") pursuant to which Biovail has agreed to provide
management and administrative services to Intelligent Polymers for a quarterly
fee of $100,000. The Services Agreement terminates one year after termination of
the Purchase Option. In addition, Intelligent Polymers may terminate the
Services Agreement at any time upon 90 days' notice. Either Biovail or
Intelligent Polymers may terminate the Services Agreement in the event that the
other party (i) breaches any material obligation thereunder or under the
Development Contract, which breach continues for 60 days after notice thereof,
or (ii) enters into any liquidation or bankruptcy proceedings.
U.S. FEDERAL INCOME TAX CONSEQUENCES
A U.S. Holder of a Unit will not recognize gain or loss at the time that
the Warrants and the Intelligent Polymers Common Shares become separately
tradeable. U.S. Holders will not be entitled to claim a dividends-received
deduction with respect to dividends paid by (i) Intelligent Polymers on
Intelligent Polymers Common Shares or (ii) Biovail on Biovail Common Shares.
It is expected that Intelligent Polymers will initially be classified as a
"passive foreign investment company" ("PFIC") for U.S. federal income tax
purposes. If Intelligent Polymers is so classified, a U.S. Holder will be
subject to a special U.S. tax regime with respect to certain distributions
received from Intelligent Polymers as well as with respect to gain from the
disposition of Intelligent Polymers Common Shares (including as part of the
Units), unless such U.S. Holder elects to currently include in gross income a
12
<PAGE> 14
pro rata share of the earnings of Intelligent Polymers each year for which
Intelligent Polymers is a PFIC. See "Taxation -- United States Tax
Considerations."
The material U.S. federal income tax consequences of the purchase of Units
in the Unit Offering and the subsequent sale of Units, Intelligent Polymers
Common Shares, Warrants and Biovail Common Shares by purchasers of Units in the
Unit Offering are discussed under "Taxation -- United States Tax
Considerations."
USE OF PROCEEDS
The net proceeds from the Unit Offering will be approximately $ million
($ million if the Underwriters' over-allotment option is exercised in full),
all of which will be received by Intelligent Polymers. Any net proceeds received
from the exercise of the over-allotment option will be included in Available
Funds. To the extent Available Funds are adequate, and Biovail and Intelligent
Polymers agree, any additional Product may be included for development under the
Development Contract. Intelligent Polymers expects to use substantially all of
the net proceeds from the Unit Offering and interest to be earned thereon, less
$1.0 million to be used as working capital and a reserve of $1.5 million for
possible litigation relating to the Additional Product, and to use up to the
full amount of any additional Available Funds, if necessary, for payments under
the Development Contract for the purpose of (i) conducting toxicity studies,
formulation development and clinical studies for, and pursuing U.S. regulatory
approval of, the Products other than the Additional Product and (ii) conducting
clinical testing for, and pursuing U.S. regulatory approval of, the Additional
Product, under the Development Contract. Such payments to Biovail will include
an initial payment of $3.5 million for access to and use of Biovail's
proprietary technology in connection with such product development and of $1.25
million as payment for the transfer of the Additional Product, based on
Biovail's Development Costs in May and June 1997 relating to the development of
the Additional Product. Intelligent Polymers will, during the term of the
Development Contract, pay Biovail up to the full amount of the Available Funds
in licensing and product development fees pursuant to the Development Contract.
Intelligent Polymers expects that it will have very limited sources of revenue
other than the net proceeds of the Unit Offering and interest to be earned
thereon. See "Use of Proceeds."
13
<PAGE> 15
SUMMARY FINANCIAL DATA OF BIOVAIL
The following summary financial data of Biovail 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 Operations of Biovail" included
elsewhere or incorporated by reference herein. The Summary Financial Data of
Biovail included herein are prepared and presented in accordance with generally
accepted accounting principles in Canada ("CDN GAAP"), which differ in certain
significant respects from generally accepted accounting principles in the U.S.
("U.S. GAAP"). See Footnote 1 under the caption "Selected Financial Data of
Biovail" for a description of the principal differences between CDN GAAP and
U.S. GAAP as they relate to Biovail.
The consolidated income statement data for the years ended December 31,
1994, 1995 and 1996 are derived from, and are qualified by reference to, the
audited consolidated financial statements of Biovail incorporated by reference
in this document. The consolidated income statement data for the years ended
December 31, 1992 and 1993 are derived from the audited consolidated financial
statements included as part of Biovail's Annual Report on Form 20-F for the
prior three fiscal years. The data for the six months ended June 30, 1997 and
1996 are derived from Biovail's unaudited consolidated financial statements,
which, in the opinion of management, include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
information set forth therein. The results of operations for the interim periods
presented are not indicative of the results that may be expected for the full
year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT
DATA:
Revenue
Contract.............. $ 3,148 $ 3,771 $ 3,909 $ 4,333 $ 4,374 $ 2,344 $ 2,159
Manufacturing......... -- -- 4,975 7,915 54,313 27,901 28,537
Royalty, licensing and
other............... 2,815 5,959 7,680 7,396 7,743 4,332 4,146
------- ------- ------- ------- ------- ------- -------
Total revenue.............. 5,962 9,730 16,564 19,644 66,430 34,577 34,842
Operating income (loss).... (6,725) (1,508) 2,525 2,553 23,606 10,736 13,377
Income (loss) before income
taxes.................... (9,026) (2,230) 9,891 6,071 23,998 11,057 13,311
Net income (loss)(1)....... $(8,214) $ 3,927 $ 9,461 $ 5,870 $23,284 $10,437 $12,628
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per
share(1)(2).............. $ (0.70) $ 0.28 $ 0.43 $ 0.23 $ 0.92 $ 0.41 $ 0.50
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-------------------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA(3):
Working capital........................................................ $20,797
Total assets........................................................... 75,582
Long-term debt (excluding current portion)............................. 3,659
Shareholders' equity................................................... 49,793
</TABLE>
- ------------------------------
(1) Under U.S. GAAP, the earnings (loss) per share for the six months ended June
30, 1996 and 1997 was $0.39 and $0.47, respectively and for the years ended
December 31, 1992, 1993, 1994, 1995 and 1996 was $(0.99), $(0.16), $0.07,
$0.22 and $0.87, respectively. Financial Accounting Standard 128 -- Earnings
Per Share ("FAS 128"), which is effective for interim and annual periods
ending after December 15, 1997, specifies a basis of computation of earnings
per share which would result in the reporting of earnings per share data
under U.S. GAAP equivalent to that under CDN GAAP.
(2) 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 outstanding options.
(3) Upon consummation of the Unit Offering, Biovail will account for its
investment in Intelligent Polymers consisting of Special Shares at its cost
of $12,000.
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<PAGE> 16
RISK FACTORS
In connection with an investment in the Units, prospective investors should
consider, among other factors, the following:
CONFLICTS OF INTEREST
COMMON MANAGEMENT
The Development Contract, Purchase Option and Services Agreement were
approved by Biovail, as the controlling shareholder of Intelligent Polymers. Two
members of the present Board of Directors of Intelligent Polymers are persons
who are directors and/or officers of Biovail or its affiliates.
THE DEVELOPMENT CONTRACT
The Development Contract (including the License and the Biovail Option) was
not negotiated on an arm's-length basis and Biovail and Intelligent Polymers did
not retain separate counsel in connection therewith. In particular, the Board of
Directors of Intelligent Polymers may have been influenced by Biovail, as the
controlling shareholder of Intelligent Polymers, in entering into the
Development Contract. Biovail is the contractor under the Development Contract
and will perform or participate in all development activities thereunder.
Intelligent Polymers will be responsible for and will pay the Development Costs
that are incurred by Biovail under the Development Contract. Biovail will
unilaterally determine certain activities to be undertaken under the Development
Contract and in all events Biovail will have substantial influence over all
activities and procedures (including the timing and priorities thereof) to be
undertaken pursuant to the Development Contract. Biovail has no obligation to
complete any development activity after all funds have been expended under the
Development Contract. Biovail's own projects and other third-party projects may
compete for time and resources with projects undertaken pursuant to the
Development Contract and the resources Biovail expends under the Development
Contract may therefore be limited.
THE BIOVAIL OPTION
If Biovail exercises the Biovail Option for a Product, it will have sole
discretion to control the commercialization of such Product, including
discretion to allocate its marketing resources among that Product and other
Biovail products.
THE PURCHASE OPTION EXERCISE PRICE; TRANSFERABILITY OF PURCHASE OPTION
The Purchase Option Exercise Price will be determined by Biovail and
Intelligent Polymers giving consideration to the implied returns to investors
purchasing securities with a similar structure historically and the
comparability of the Unit Offering to those prior offerings; the value of the
Warrants; the nature of the Products; the agreements between Biovail and
Intelligent Polymers; such other factors as Biovail and Intelligent Polymers
deem appropriate; and advice given by the Underwriters. Therefore, such price
will not be determined on an arm's-length basis. There can be no assurance that
the Purchase Option Exercise Price will accurately reflect the fair market value
of the Intelligent Polymers Common Shares at the time of exercise and that the
Purchase Option Exercise Price will not be significantly higher or lower than
such fair market value. Furthermore, Biovail may transfer ownership of a
majority of the Special Shares at any time and there can be no assurance that
such new holder would have the same incentives or ability to exercise the
Purchase Option as Biovail. In the event the Purchase Option were transferred,
the payment by the subsequent holder of the majority of the Special Shares could
be made in cash or, if such holder is a company whose common equity securities
are listed on a national securities exchange in the United States or admitted to
unlisted trading privileges or listed on the Nasdaq National Market System, in
the sole discretion of such holder, in shares of such listed common equity
security.
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APPROVAL OF MANUFACTURERS/LICENSEES
Upon expiry of the period of Biovail's exclusive right of manufacture,
Intelligent Polymers' right to obtain manufacturing will be subject to a right
of first refusal on the part of Biovail to match any manufacturing arrangements
offered by third-party manufacturers. In the event Biovail does not exercise
such right of first refusal, Biovail has the right to approve any proposed
manufacturer or sublicensee (including a manufacturer on behalf of a
sublicensee), which approval may be withheld only if any such manufacturer has
insufficient or inadequate manufacturing capability (including lack of
compliance with Good Manufacturing Practice ("GMP") regulations) or if any such
sublicensee's activities will have a material adverse effect on Biovail's
overall competitive position in the pharmaceutical industry. In the event that
Biovail exercises its right to reject a manufacturer proposed by Intelligent
Polymers and Intelligent Polymers and Biovail cannot agree on an alternative
manufacturer, Biovail will be obligated to manufacture any such Product for
Intelligent Polymers at prevailing market rates but not less than Biovail's
standard cost of manufacture plus 15% of such cost. There can be no assurance
that Biovail will not object to potential manufacturers on such grounds or that
such objection will not have an adverse effect on Intelligent Polymers' ability
to secure satisfactory manufacturing or sublicensing arrangements.
BUSINESS RISKS RELATED TO INTELLIGENT POLYMERS
NO ASSURANCE OF SUCCESSFUL FINAL DEVELOPMENT OF THE PRODUCTS
Intelligent Polymers has agreed with Biovail that Biovail will use diligent
efforts to (i) conduct toxicity studies, formulation development and clinical
studies for, and pursue U.S. regulatory approval of, the Products other than the
Additional Product and (ii) conduct clinical testing for, and pursue U.S.
regulatory approval of, the Additional Product. Biovail's historical performance
is not necessarily indicative of the future performance of Intelligent Polymers.
Other than with respect to the Additional Product, only preliminary development
work has been undertaken by Biovail, which has completed studies on the
applicability of its controlled release delivery technology to such compounds.
The Additional Product is currently in the clinical testing stage. There can be
no assurance that Intelligent Polymers or Biovail will be able to complete the
development, gain regulatory approval and successfully commercialize any of the
Products or that the Products can be introduced in a timely manner, if at all.
The successful development of any of the Products will require, among other
things, demonstration through human clinical studies that such Products are safe
and effective.
NO ASSURANCE OF SUFFICIENT FUNDS
Although Intelligent Polymers believes that the proceeds of the Unit
Offering will be sufficient to enable it to advance six Products to the approval
stage in accordance with the Development Contract, there can be no assurance
that this will be the case. Until the expiration of the Purchase Option,
Intelligent Polymers is significantly restricted from raising additional funds
without the consent of Biovail as the holder of the majority of the Special
Shares, and there can be no assurance that Intelligent Polymers will have
sufficient funds to successfully develop the Products to regulatory approval.
Currently, Intelligent Polymers has no alternative sources for funding that may
be needed to complete the development and commercialization of the Products.
Therefore, if additional funding is necessary, such development and
commercialization of the Products may not be possible. While Biovail may provide
additional funding at its absolute discretion, upon terms to be negotiated at
such time, Biovail is under no obligation to provide such additional funds and
there can be no assurance that it will provide such additional funds.
NO ASSURANCE OF SUCCESSFUL MANUFACTURING OR MARKETING
Intelligent Polymers has no manufacturing or marketing capability. Except
in Canada, Biovail has no marketing infrastructure. Intelligent Polymers will be
required to sell and otherwise market the Products worldwide (other than Canada)
based upon its own licensing and/or marketing resources and may be required to
negotiate supply arrangements with third parties. If Biovail exercises the
Biovail Option, it will have the sole right to sell and otherwise market the
Product which is the subject of such exercise. In addition, Biovail will have
the right to terminate Intelligent Polymers' license to market any particular
Product in the event that
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Intelligent Polymers does not market such Product within nine months from the
date of marketing approval by the FDA. If Biovail either exercises the Biovail
Option for a Product or manufactures any Product for Intelligent Polymers which
Intelligent Polymers markets, Biovail may be required to expand its commercial
manufacturing capabilities for such Product, which may involve delay or the need
by Biovail to attempt to arrange financing. If either Intelligent Polymers or
Biovail is required to rely on third-party manufacturing or marketing, there can
be no assurance that such third-party arrangements can be successfully
negotiated or that any such arrangements will be on commercially reasonable
terms. Even if acceptable and timely manufacturing and marketing capabilities
are available, there can be no assurance that the Products developed in
accordance with the Development Contract will be accepted in the marketplace or
that, if initially accepted, sales of such Products will not thereafter decline.
NO PRIOR OPERATING HISTORY; NO ASSURANCE OF PROFITABILITY
Intelligent Polymers was recently formed. There is no operating history of
Intelligent Polymers upon which investors may base an evaluation of its
anticipated performance and Biovail's historical performance should not be
relied upon by investors as a possible prediction or indication of Intelligent
Polymers' future performance. Intelligent Polymers anticipates that
substantially all of the proceeds of the Unit Offering may be expended prior to
the receipt of any significant revenues by Intelligent Polymers, resulting in
significant losses. In addition, any licensing or marketing income earned by
Intelligent Polymers and any cash received upon exercise of the Biovail Option
will be Available Funds during the term of the Development Contract, and will be
spent on developing the Products if necessary. Further, there can be no
assurance that the Products under the Development Contract can be licensed or
marketed profitably. Even if such Products are commercialized profitably, the
initial losses may never be recovered. It is expected that Intelligent Polymers
will not pay dividends on the Intelligent Polymers Common Shares.
ABILITY OF SPECIAL SHAREHOLDER TO LIMIT CERTAIN INTELLIGENT POLYMERS
ACTIVITIES
Pursuant to the Bye-Laws of Intelligent Polymers, until the expiration of
the Purchase Option, no resolution or act of Intelligent Polymers to authorize
or permit any of the following will be effective without the prior written
approval of the holders of a majority of the outstanding Special Shares: (i) the
allotment or issue of shares or other securities of Intelligent Polymers or the
creation of any right to such allotment or issue; (ii) the reduction of
Intelligent Polymers' authorized share capital; (iii) outstanding borrowings by
Intelligent Polymers in excess of an aggregate of $1.0 million; (iv) the sale or
other disposition of, or the creation of any lien or liens on, the whole or a
part of Intelligent Polymers' undertaking or assets; (v) the declaration or
payment of dividends or the making of any other distributions to shareholders;
(vi) the amalgamation of Intelligent Polymers; and (vii) any alteration of the
Purchase Option. Accordingly, Biovail, as the holder of a majority of the
outstanding Special Shares, could preclude the holders of a majority of the
outstanding Intelligent Polymers Common Shares and the Board of Directors of
Intelligent Polymers from taking any of the foregoing actions during such
period.
UNCERTAINTY REGARDING SUFFICIENT AVAILABILITY OF BIOVAIL RESEARCH PERSONNEL
AND FACILITIES
Although Biovail believes that its research personnel and facilities
currently are or will be adequate for the performance of its duties under the
Development Contract, its research personnel will perform services in the same
facilities for Biovail and client companies of Biovail. Biovail is not required
to allocate any specified amount of time or resources to its duties under the
Development Contract. Biovail's obligations to other present and future clients
may restrict the amount of resources that otherwise could be devoted to its
duties under the Development Contract. Subject to its obligation to use diligent
efforts under the Development Contract, consistent with commercially reasonable
practices, Biovail may allocate both its research personnel and its facilities
as it deems appropriate under the circumstances. See "The Agreements and the
Purchase Option -- Development Contract."
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NO ASSURANCE THAT THE PURCHASE OPTION EXERCISE PRICE WILL BE REPRESENTATIVE
OF THE VALUE OF
INTELLIGENT POLYMERS
The Purchase Option Exercise Price will be set forth in the Intelligent
Polymers Bye-Laws and will be established as of the date of this Prospectus and
therefore may not be representative of the value of the Intelligent Polymers
Common Shares at the time of any exercise of the Purchase Option.
NO ASSURANCE OF EXERCISE OF OPTIONS
Biovail is not obligated to exercise the Purchase Option or the Biovail
Option, and it will exercise either or both of such options only if, in the
opinion of Biovail's Board of Directors, it is in Biovail's best interest to do
so. Even if Products are developed and approved, if Biovail does not exercise
the Biovail Option for a Product and/or does not exercise the Purchase Option,
Intelligent Polymers will be required to find alternative ways to commercially
market or exploit such Products and there can be no assurance that Intelligent
Polymers will be able to do so. In the event Biovail fails to exercise the
Purchase Option and Intelligent Polymers determines to market Products itself
(other than any Product as to which Biovail has exercised the Biovail Option),
Intelligent Polymers will require substantial additional funds. There can be no
assurance that such funds will be available on attractive terms, if at all.
Similarly, if Intelligent Polymers determines to license products to third
parties, such arrangements, if available, may be on terms less favorable to
Intelligent Polymers or its shareholders than would be the exercise of the
Purchase Option.
LIMITATION OR TERMINATION OF RIGHTS AND OBLIGATIONS IN BANKRUPTCY
In the event that Biovail voluntarily or involuntarily is party to a
bankruptcy, winding up, receivership, appointment of examiner, insolvency,
compromise with creditors or similar proceeding, the liquidator, receiver,
examiner or administrator of Biovail's business and properties may have broad
powers to deal with such business and properties, including the ability to
terminate certain contracts, in which case Intelligent Polymers' rights as they
relate to the License or its right to receive proceeds of Product sales from
Biovail pursuant to the terms of the Development Contract may be adversely
affected and any claims of Intelligent Polymers in such case will rank with
other claims on an unsecured basis.
RELIANCE ON BIOVAIL
Substantially all of the management and operating activities of Intelligent
Polymers will be carried out by Biovail under the Development Contract and the
Services Agreement. Accordingly, Intelligent Polymers is subject, through its
reliance on Biovail, to the business risks related to Biovail.
BUSINESS RISKS RELATED TO INTELLIGENT POLYMERS AND BIOVAIL
HIGHLY COMPETITIVE INDUSTRY; RAPID AND SIGNIFICANT TECHNOLOGICAL CHANGE
The pharmaceutical industry is highly competitive and subject to rapid and
significant technological change. Biovail's and Intelligent Polymers' 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 Biovail and Intelligent
Polymers. Competitors of Biovail and Intelligent Polymers in the U.S. and abroad
are numerous and include, among others, major pharmaceutical and chemical
companies, including without limitation some of the licensees (or potential
licensees) of Biovail's and Intelligent Polymers' products, specialized contract
research and research and development firms, universities and other research
institutions. Biovail and Intelligent Polymers believe that their controlled
release technology combined with their strategy of funding and controlling all
or most aspects of their controlled release pharmaceutical business will provide
the cost savings, efficiencies in product development and acceleration of
regulatory filings necessary for them to compete effectively with such firms and
institutions. There can be no assurance, however, that Biovail's and Intelligent
Polymers' 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 Biovail or Intelligent Polymers or that would render
Biovail's and Intelligent Polymers'
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technologies and products obsolete or uncompetitive. In addition, certain of
Biovail's and Intelligent Polymers' competitors have greater experience than
Biovail and Intelligent Polymers in clinical testing and human clinical trials
of pharmaceutical products and in obtaining FDA and other regulatory approvals.
LIMITATIONS IMPOSED BY GOVERNMENT REGULATION
The research and development, manufacture and marketing of controlled
release products are subject to regulation by governmental authorities in the
United States and Canada and comparable authorities in other foreign countries.
These governmental authorities regulate the testing, manufacture, safety and
promotion of Biovail's and Intelligent Polymers' products. The regulations
applicable to Biovail's and Intelligent Polymers' products may change as the
currently limited number of approved controlled release products increases and
regulators acquire additional expertise in this area.
Pharmaceutical products intended for human use are governed by the FDA in
the United States, the Health Protection Branch of Health Canada ("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 Biovail or Intelligent Polymers to obtain, or any delay in
obtaining, regulatory approvals could adversely affect the marketing of any
products developed by Biovail or Intelligent Polymers, as the case may be, 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, Biovail may use in its business chemicals and materials
which may be classified as hazardous or toxic which require special handling and
disposal. In addition, Biovail and Intelligent Polymers expect to undertake to
minimize releases to the environment and exposure of its employees and the
public to any 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.
Biovail does not currently use any hazardous materials in the manufacture of its
products.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY TECHNOLOGY; UNPREDICTABILITY
OF PATENT PROTECTION
While Biovail does not routinely seek patents on its controlled release
technology, Biovail has an exclusive right to the patented technology for its
controlled release formulation of Tiazac(R). Intelligent Polymers' and Biovail's
success will depend, in part, on their ability to obtain patents, protect trade
secrets and other proprietary information and operate without infringing on the
proprietary rights of others. Competitors may have filed patent applications, or
hold issued patents, relating to products or processes competitive with those
being developed by Biovail or Intelligent Polymers. There can be no assurance
that patent applications for a Product will be approved, that Intelligent
Polymers will develop any Product or process to the point that it is patentable,
that any issued patents for a Product will provide Intelligent Polymers with
adequate protection or will not be challenged by others, or that the patents of
others will not impair the ability of Intelligent Polymers or Biovail to do
business. Furthermore, there can be no assurance that others have not or will
not independently develop similar products, duplicate any of Biovail's or
Intelligent Polymers' unpatented products or design around any patented Products
in development or marketed by Intelligent Polymers.
Historically, Biovail has relied on trade secrets, know-how and other
proprietary information. Intelligent Polymers will also rely on non-disclosure
to protect technology where patent protection is not believed to be
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appropriate or obtainable. There can be no assurance that any confidentiality
agreement entered into by Biovail or Intelligent Polymers with third parties
will not be breached, that Intelligent Polymers will have adequate remedies for
any breach, that others have not or will not independently develop substantially
equivalent proprietary information or that third parties have not or will not
otherwise gain access to proprietary information concerning the Products.
There has been substantial litigation in the pharmaceutical industry with
respect to the manufacture, use and sale of new products that are the subject of
conflicting patent rights. When either Biovail or Intelligent Polymers files an
ANDA for a generic drug, the filing party will be required to certify to the FDA
that any patent which has been listed with the FDA as covering the branded
product has expired, the date any such patent will expire, or that any such
patent is invalid or will not be infringed by the manufacture, sale or use of
the new drug for which the application is submitted. Approval of an ANDA will
not become effective until each listed patent expires, unless the applicant
certifies that the patents at issue are not infringed or are invalid and so
notifies the patent holder and the holder of the branded product New Drug
Application ("NDA"). A patent holder may challenge a notice of non-infringement
or invalidity by filing suit for patent infringement within 45 days of receiving
notice. Such a challenge would prevent any FDA approval for a period of 30
months from the receipt of notice, or sooner if an appropriate court rules that
the patent is invalid or not infringed. From time to time, in the ordinary
course of business, each of Biovail and Intelligent Polymers faces such
challenges. In addition, even if a product is found not to infringe patents of
the pioneer manufacturer, or if no claim of infringement is filed, if the
certifying party is not the first to submit an ANDA for a particular product,
approval may be delayed for as long as 180 days beyond the date that the first
generic applicant begins commercial marketing. A competitor of Intelligent
Polymers and Biovail has submitted an ANDA for a generic version of Procardia XL
which would be a direct competitor with the Additional Product and two
competitors of Biovail have submitted ANDAs for generic versions of Cardizem CD
prior to Biovail's submission of an ANDA for such product. See "Business of
Intelligent Polymers -- The Products -- Nifedipine" and "Business of Biovail --
Business Overview."
Regardless of the outcome of any FDA approval, should any entity commence a
lawsuit with respect to any alleged patent infringement by Biovail or
Intelligent Polymers, whether arising from the filing of an ANDA or otherwise,
the uncertainties inherent in patent litigation make the outcome of such
litigation difficult to predict. The expense of such litigation, whether or not
Biovail or Intelligent Polymers is successful, could have a material adverse
effect on Biovail's or Intelligent Polymers' business, results of operations,
financial condition and cash flows. No assurance can be given that such lawsuits
will not be brought or that the ultimate outcome of such litigation, if
commenced, would not have a material adverse effect on Biovail's or Intelligent
Polymers' business, results of operations, financial condition and cash flows.
The Additional Product is the only Product for which Intelligent Polymers
currently expects to seek an ANDA approval. Because such litigation is commonly
instituted by holders of approved NDAs, Intelligent Polymers has established a
reserve of $1.5 million for possible litigation relating to the Additional
Product.
NO ASSURANCE OF ADEQUATE THIRD-PARTY REIMBURSEMENT
The ability of each of Biovail and Intelligent Polymers to commercialize
its products and product candidates successfully, if FDA approval is obtained,
will depend in part on the extent to which appropriate reimbursement levels for
the cost of the products and related treatment are obtained from government
authorities, private health insurers and other organizations, such as health
maintenance organizations ("HMOs") and managed care organizations ("MCOs").
Third-party payors are increasingly challenging pricing of pharmaceutical
products. In addition, the trend toward managed health care in the United
States, the growth of organizations, such as HMOs and MCOs and legislative
proposals to reform health care and government insurance programs could
significantly influence the purchase of pharmaceutical products, resulting in
lower prices and reducing demand for the products of each of Biovail and
Intelligent Polymers. Such cost containment measures and health care reform
could affect the ability of each of Biovail and Intelligent Polymers to sell
their products and may have a material adverse effect on Biovail's and
Intelligent Polymers' business, results of operations and financial condition.
Significant uncertainty exists about the reimbursement status of newly approved
pharmaceutical products. There can be no assurance that reimburse-
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ment in the United States or foreign countries will be available for any product
of Biovail or Intelligent Polymers, that any reimbursement granted will be
maintained or that limits on reimbursement available from third-party payors
will not reduce the demand for, or negatively affect the price of, such
products. The unavailability or inadequacy of third-party reimbursement for
products of Biovail or Intelligent Polymers could have a material adverse effect
on the business, results of operations and financial condition of Biovail and
Intelligent Polymers. Biovail and Intelligent Polymers are unable to predict if
additional legislation or regulation impacting the health care industry or
third-party coverage and reimbursement may be enacted in the future, or what
effect such legislation or regulation would have on the business of either
Biovail or Intelligent Polymers.
BUSINESS RISKS RELATED TO BIOVAIL
NO ASSURANCE OF CONTINUED SUCCESSFUL LICENSING AND MARKETING
Biovail's revenues are derived primarily from sales of its products, which,
outside of Canada, are marketed through agreements with third parties, by way of
license agreements or otherwise. There can be no assurance that such third party
arrangements can continue to be successfully negotiated or that any such
arrangements will be on commercially reasonable terms. Even if acceptable and
timely marketing arrangements are available, there can be no assurance that
products developed by Biovail will be accepted in the marketplace or that, if
initially accepted, sales of such products will not thereafter decline.
Additionally, since Biovail's clients or marketing partners in many cases make
material marketing and other commercialization decisions with respect to
products developed by Biovail, a significant number of the variables that may
affect Biovail's revenues and net income are not exclusively within its control.
DEPENDENCE ON A PARTICULAR PRODUCT AND CUSTOMER
Biovail's revenues are currently dependent upon its relationships with the
clients to which it licenses its products. Agreements with Forest Laboratories,
Inc. ("Forest") for one Product, Tiazac(R), accounted for approximately 84% of
Biovail's total revenues in fiscal 1996 and 67% of total revenues in the six
month period ended June 30, 1997. Total sales of Tiazac(R), including those by
Crystaal in Canada, accounted for approximately 84% of Biovail's total revenue
in each of fiscal 1996 and the six month period ended June 30, 1997. If a new
drug were developed that were significantly more effective in the treatment of
hypertension, or if the medical industry determined that another preexisting
product were significantly more effective in the treatment of hypertension, the
result could be a significant reduction in Tiazac(R) sales and could have a
material adverse effect on Biovail. Furthermore, when the three-year rights to
exclusivity relating to Tiazac(R) expire in September 1998, generic drug
manufacturers could, subject to Biovail's right to bring a legal challenge on
the basis of patent infringement, attempt to introduce generic alternatives for
Tiazac(R). See "Business of Biovail -- Products of Biovail -- Tiazac(R)." This
may affect Tiazac(R)'s market share and may reduce the price at which Tiazac(R)
could be sold and could therefore have a material adverse effect on Biovail.
PRICING PRESSURE
Global efforts to contain health care costs, particularly among managed
care organizations, continue to exert downward pressure on product pricing.
Furthermore, a number of regulatory and legislative proposals aimed at changing
the health care industry in the U.S. and other countries have been proposed.
There can be no assurance that private sector reform or governmental health care
reform measures, if adopted, will not have a negative impact upon Biovail and
its operations.
NO ASSURANCE OF SUCCESSFUL DEVELOPMENT OF PIPELINE OF PRODUCTS
Biovail currently has 12 products (including the Additional Product, which
will be transferred to Intelligent Polymers) at various stages of development.
As of July 31, 1997, four of these have been filed as ANDAs with the FDA. There
is no assurance that FDA approval will be granted for any of these four products
or that as ANDAs Biovail will be successful in filing the remaining seven
products with the FDA and obtaining FDA approval.
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DEPENDENCE ON SCIENTIFIC AND MANAGEMENT PERSONNEL
Biovail's success to date has resulted, in large part, from the particular
scientific and management skills of its personnel. There can be no assurance
that such personnel will continue to be available to Biovail or, were they to be
no longer available, that Biovail would be able to attract employees with
similar skills. In particular, Biovail's success to date in developing new
products has resulted from the activities of a core group of research scientists
under the direction of Biovail's Director of Research and Development, Dr. Isa
Odidi. The continued availability of this group is important to the continued
success of Biovail.
TAX RISKS TO U.S. SHAREHOLDERS
The status of Biovail and Intelligent Polymers as foreign corporations may
pose special tax risks to U.S. investors. See "Taxation."
It is expected that Intelligent Polymers will initially be classified as a
PFIC for U.S. federal income tax purposes. If Intelligent Polymers is so
classified, a U.S. person owning Intelligent Polymers Common Shares will be
subject to a special U.S. tax regime with respect to certain distributions
received from Intelligent Polymers as well as with respect to gain from the
disposition of Intelligent Polymers Common Shares (including as part of the
Units), unless such U.S. person elects to currently include in gross income a
pro rata share of the earnings of Intelligent Polymers each year for which
Intelligent Polymers is a PFIC (a "qualified election"). Failure to make such
qualified election could be disadvantageous to certain U.S. investors.
Therefore, prospective investors who are U.S. persons should consult their tax
advisors to decide whether to make a qualified election with respect to their
Intelligent Polymers Common Shares. See "Taxation -- United States Tax
Considerations."
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES OF AN INVESTMENT IN THE UNITS.
NO PRIOR MARKETS FOR UNITS, WARRANTS AND INTELLIGENT POLYMERS COMMON SHARES; NO
ASSURANCE
OF TRADING MARKETS
Until the Separation Date, the Warrants and the Intelligent Polymers Common
Shares that constitute the Units will be transferable only as Units. No
assurance can be given that an active trading market for the Units will develop.
After the Separation Date, the Warrants and the Intelligent Polymers Common
Shares will be separately transferable. There can be no assurance that factors
related to Biovail or otherwise will not depress the value of the Warrants, or
that factors related to Intelligent Polymers or otherwise will not depress the
value of Intelligent Polymers Common Shares, in either case reducing the
liquidity of an investment in the Units. Although it is expected that the
Warrants will be traded on the NYSE and the Intelligent Polymers Common Shares
will be traded on the AMEX, there can be no assurance that there will be an
active trading market for the Warrants or the Intelligent Polymers Common
Shares.
Prior to the Unit Offering, there has been no public market for the Units,
the Intelligent Polymers Common Shares or the Warrants. The offering price for
the Units has been determined by negotiations among Biovail, Intelligent
Polymers and the Underwriters. See "Underwriting."
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USE OF PROCEEDS
Based on an initial offering price of $20.00 per Unit, the net proceeds
from the Unit Offering will be approximately $ million ($ million if the
Underwriters' over-allotment option is exercised in full), all of which will be
received by Intelligent Polymers. Any net proceeds received from the exercise of
the over-allotment option will be included in Available Funds. To the extent
Available Funds are adequate, and Biovail and Intelligent Polymers agree, any
additional Product may be included for development under the Development
Contract. Intelligent Polymers expects to use substantially all of the net
proceeds from the Unit Offering, less $1.0 million to be used as working capital
and a reserve of $1.5 million for possible litigation relating to the Additional
Product, and to use up to the full amount of any additional Available Funds, if
necessary, for payments under the Development Contract for the purpose of (i)
conducting toxicity studies, formulation development and clinical studies for,
and pursuing U.S. regulatory approval of, the Products other than the Additional
Product and (ii) conducting clinical testing for, and pursuing U.S. regulatory
approval of, the Additional Product, under the Development Contract. Such
payments to Biovail will include an initial payment of $3.5 million for access
to and use of Biovail's proprietary technology in connection with such product
development and of $1.25 million as payment for the transfer of the Additional
Product, based on Biovail's Development Costs in May and June 1997 relating to
the development of the Additional Product. Intelligent Polymers expects that
during the term of the Development Contract it will be engaged solely in
development of the Products in accordance with the Development Contract and will
have very limited sources of revenue other than the net proceeds from the Unit
Offering and the interest earned thereon. See "The Agreements and the Purchase
Option -- Development Contract." Pending expenditure of such funds, the net
proceeds will be invested in short-term interest-bearing or other debt
securities. Biovail's obligation to perform development work under the
Development Contract will terminate upon the payment to Biovail of all Available
Funds, which is projected by Intelligent Polymers to occur on or about March 31,
2001 (without taking into account any licensing or marketing income earned by
Intelligent Polymers or any cash received upon the exercise of the Biovail
Option). Upon receipt of the Financial Notice, Biovail may elect to provide
additional funding for the development of any or all of the Products. See "The
Agreements and the Purchase Option -- Purchase Option" and "-- Development
Contract."
23
<PAGE> 25
The following table sets forth the estimated schedule of expenditures under
the Development Contract through March 31, 2001, assumes no exercise of the
Underwriters' over-allotment option and does not take into account any licensing
or marketing income earned by Intelligent Polymers or any cash received upon the
exercise of the Biovail Option. The estimated schedule of expenditures was not
prepared with a view toward public disclosure or with a view toward complying
with the guidelines established by the American Institute of Certified Public
Accountants with respect to prospective financial information, but, in the view
of Intelligent Polymers' and Biovail's managements, was prepared on a reasonable
basis, to reflect the best currently available estimates and present, to the
best of such managements' knowledge and belief, the estimated expenditures of
Intelligent Polymers assuming consummation of the Unit Offering. The assumptions
and estimates underlying this information are inherently uncertain and are
subject to a wide variety of significant business, economic and competitive
risks and uncertainties that could cause actual results to differ. Because of
the long-range nature of the development plans, there can be no assurance that
funds will be expended as set forth below and Intelligent Polymers and Biovail
reserve the right, subject to mutual agreement, to add Products, abandon
Products or reallocate funds as they deem appropriate. Neither Intelligent
Polymers' nor Biovail's independent auditors, nor any independent accountants or
financial advisors, have compiled, examined or performed any procedures with
respect to the estimated expenditures contained herein, nor have they expressed
any opinion or any form of assurance on such information and assume no
responsibility for, and disclaim any association with, the information. See
"Risk Factors" for a discussion of various factors that could materially affect
the results of operations of Intelligent Polymers.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1998 1999 2000 2001 TOTAL
1997 (3 MONTHS)
(3 MONTHS)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Beginning cash balance........................ $ -- $50.4 $42.9 $21.1 $ 3.0 $ --
Net proceeds of the Unit Offering(1).......... 54.7 -- -- -- -- 54.7
Interest income(2)............................ 0.6 2.3 1.6 0.3 0.0 4.8
---------- ----- ----- ----- ---------- -----
Total............................... 55.3 52.7 44.5 21.4 3.0 59.5
Development Contract payments:
Bupropion................................ 0.5 2.0 5.3 2.6 -- 10.4
Buspirone................................ 0.5 2.0 5.2 2.7 -- 10.4
Lovastatin/Niacin........................ -- 1.4 3.1 5.7 0.2 10.4
Metformin................................ -- 2.0 4.1 4.3 -- 10.4
Nifedipine (Additional Product).......... 3.3(3) -- -- -- -- 3.3
Tramadol................................. 0.5 2.0 5.3 2.7 -- 10.5
General and administrative expenses:
Services Agreement....................... 0.1 0.4 0.4 0.4 0.1 1.4
---------- ----- ----- ----- ---------- -----
Total............................... 4.9 9.8 23.4 18.4 0.3 56.8
---------- ----- ----- ----- ---------- -----
Ending cash balance........................... $ 50.4 $42.9 $21.1 $ 3.0 $ 2.7 $ 2.7
======== ===== ===== ===== ======== =====
</TABLE>
- ------------------------------
(1) Represents gross proceeds of $65.0 million, less $1.25 million as payment
for the transfer of the Additional Product, based on Biovail's Development
Costs in May and June 1997 relating to the development of such Product, $3.5
million as payment for access to and use of Biovail's proprietary technology
in connection with product development, $4.55 million in underwriting
discounts and commissions and $1.0 million of other estimated expenses
relating to the Unit Offering.
(2) Assumes an interest rate of 5%.
(3) Based on Biovail's estimated Development Costs from July through December
1997.
24
<PAGE> 26
PRICE RANGE OF BIOVAIL COMMON SHARES
AND DIVIDEND POLICIES OF BIOVAIL
AND INTELLIGENT POLYMERS
Biovail Common Shares are traded on the NYSE and on the TSE the principal
trading markets for Biovail's securities, under the symbol "BVF." Prior to
December 12, 1996, Biovail Common Shares were traded on the AMEX under the same
symbol. The following table sets forth the high and low per share sale prices
for the Biovail Common Shares for the periods indicated, as reported on the
original TSE and AMEX or NYSE trading tapes, as the case may be. The closing
price of Biovail Common Shares on September 16, 1997 on the NYSE was $28.94 and
on the TSE was Cdn$40.10.
<TABLE>
<CAPTION>
PRICE RANGE OF
BIOVAIL COMMON SHARES
------------------------------------
NYSE/AMEX TSE
HIGH LOW HIGH LOW
(US $) (CDN $)
<S> <C> <C> <C> <C>
Year Ended December 31, 1995:
1st Quarter............................................... $ 4.92 $ 2.50 $ 7.33 $ 3.33
2nd Quarter............................................... 6.25 4.29 8.67 6.00
3rd Quarter............................................... 11.88 6.46 16.21 8.83
4th Quarter............................................... 25.75 10.79 35.04 14.33
Year Ended December 31, 1996:
1st Quarter............................................... $30.75 $21.75 $46.00 $28.00
2nd Quarter............................................... 38.75 23.00 54.50 31.00
3rd Quarter............................................... 36.13 21.38 50.10 28.25
4th Quarter............................................... 36.63 25.63 50.00 34.50
Year Ended December 31, 1997:
1st Quarter............................................... $29.88 $21.25 $40.25 $28.45
2nd Quarter............................................... 32.63 20.88 46.00 29.00
3rd Quarter through September 16, 1997.................... 30.13 25.44 42.00 35.45
</TABLE>
At July 28, 1997, the total number of Biovail Common Shares outstanding was
25,471,140, the number of holders of record of Biovail Common Shares was 340 and
the number of holders of record of Biovail Common Shares in the U.S. was 163. At
July 28, 1997, holders of record of Biovail Common Shares in the U.S. held
18,874,952 Biovail Common Shares. Because certain of these Biovail Common Shares
were held by brokers or other nominees, the number of holders of record or
registered holders in the U.S. and Canada is not representative of the number of
beneficial holders or of the residence of beneficial holders.
Biovail has not paid cash dividends on the Biovail Common Shares. The
declarations of any cash dividends will be at the recommendation of each of
their boards of directors. The Board of Directors' recommendations will depend
upon the earnings, capital requirements and financial condition of Biovail or
Intelligent Polymers as the case may be, and other relevant factors. Although
neither Biovail nor Intelligent Polymers anticipates that it will pay any cash
dividends for the foreseeable future, each of Biovail or Intelligent Polymers
expects that its Board of Directors will review its dividend policy on a regular
basis.
25
<PAGE> 27
BIOVAIL CAPITALIZATION
The following table sets forth the cash and capitalization of Biovail as of
June 30, 1997.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997(2)
----------------------
<S> <C>
Cash...................................................................... $ 6,774
======
Short-term debt........................................................... $ 11,288
Long-term debt (excluding current portion)................................ 3,659
------
Total debt........................................................... 14,947
Common shareholders' equity:
Common shares, no par value, 60,000,000
shares authorized; 25,471,140 shares
issued and outstanding(1).......................................... 14,847
Retained earnings.................................................... 35,340
Cumulative translation adjustment.................................... (394)
------
Total common shareholders' equity.................................... 49,793
------
Total capitalization...................................................... $ 64,740
======
</TABLE>
- ------------------------------
(1) Does not include 2,660,080 Biovail Common Shares issuable in respect of
outstanding options, including options outstanding under Biovail's employee
stock option plans as of June 30, 1997.
(2) No adjustment has been made to the capitalization of Biovail as of June 30,
1997 to give effect to the Unit Offering. Under U.S. GAAP, the Unit
Offering would result in the recording of paid-up capital in Biovail in an
amount equal to the market value of the Warrants as determined at the time
of their issuance along with an offsetting contra equity account, "Warrant
subscription receivable." Under CDN GAAP the offsetting amount would be a
reduction in retained earnings. The Unit Offering has no immediate effect
on aggregate shareholders' equity under either CDN or U.S. GAAP. The fair
value of the Warrants will be determined by agreement among Biovail,
Intelligent Polymers and the Underwriters shortly after the completion of
the Unit Offering and will be based on valuation principles applicable to
such contingent securities. See "Description of the Warrants and the
Biovail Common Shares -- The Warrants."
INTELLIGENT POLYMERS CAPITALIZATION
The following table sets forth the capitalization of Intelligent Polymers
at September 8, 1997 and as adjusted to reflect the sale of the Units, assuming
the Underwriters' over-allotment option is not exercised.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 8, 1997
------------------------
ACTUAL AS ADJUSTED(2)
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Common shares, par value $.01 per share; 5,300,000 shares authorized;
no shares issued and outstanding; 3,250,000 shares issued and
outstanding as adjusted............................................. $ -- $ 33
Special shares, par value $1.00 per share; 12,000 shares authorized,
issued and outstanding; 12,000 shares issued and outstanding as
adjusted(1)......................................................... 12 12
Additional paid-in capital (common shares and warrants)............... -- 59,417
---- ------
Total capitalization.................................................. $ 12 $ 59,462
==== ======
</TABLE>
- ------------------------------
(1) Held by Biovail.
(2) Adjusted to give effect to the assumed issue of 3,250,000 Units for proceeds
of $65,000,000 net of underwriting discounts and commissions and estimated
expenses of the Unit Offering aggregating $5,550,000.
26
<PAGE> 28
BUSINESS OF INTELLIGENT POLYMERS
GENERAL
Intelligent Polymers was formed by Biovail in July 1997, primarily to
develop once-daily controlled release versions of selected drugs which are
currently marketed only in immediate release form or in controlled release form
requiring multiple daily dosing and whose patents have or will have expired upon
the anticipated date of receipt of FDA marketing approval for the once-daily
controlled release formulations to be developed. Upon development and regulatory
approval of such products, Intelligent Polymers expects that such products will
be marketed under distinct brand names. Intelligent Polymers has not yet
conducted any business and has no employees other than its sole executive
officer, who is not a full-time employee and who is a full-time employee of
Biovail. Intelligent Polymers does not intend to perform any research or other
activities on its own behalf, but rather will pay Biovail to perform all such
activities pursuant to the terms of the Development Contract. Substantially all
of the net proceeds from the Unit Offering, together with interest earned
thereon, will be used for payments under the Development Contract to develop the
Products.
In addition to seeking to develop once-daily controlled release versions of
certain products currently marketed only in immediate release form or in
controlled release form requiring multiple daily dosing, Intelligent Polymers
will also seek to complete development the Additional Products of a generic
version of a controlled release nifedipine formulation. The Additional Product
has been developed to the clinical testing stage by Biovail. A controlled
release version of nifedipine is currently marketed in the U.S. by Pfizer under
the brand name Procardia XL. Nifedipine is indicated for the treatment of
hypertension and angina. The U.S. patent on the drug compound nifedipine and the
exclusivity period on such drug compound and on Procardia XL have expired, but
several other patents are listed with the FDA as being applicable to the product
manufactured by Pfizer. However, Intelligent Polymers believes that such other
patents will not delay the marketing of Intelligent Polymers' generic
formulation upon receipt of FDA approval. See "Risk Factors -- Business Risks
Related to Intelligent Polymers and Biovail -- Uncertainty Regarding Patents and
Proprietary Technology; Unpredictability of Patent Protection." In the 12 months
ended March 31, 1997, Procardia XL had U.S. sales of $923 million. This is the
only product for which Intelligent Polymers currently expects to seek FDA
approval through an ANDA.
Each of the Products will involve the application of Biovail's oral
controlled release drug delivery technology to compounds that have received
regulatory approval and have achieved substantial sales. Other than with respect
to the Additional Product, only preliminary development work on the Products has
been undertaken by Biovail, which has completed studies on the applicability of
its controlled release delivery technology to such compounds. The Additional
Product is currently in the clinical testing stage. There can be no assurance
that the Products will be successfully developed or will receive the necessary
FDA approvals, or as to when or if manufacturing or marketing of any of the
Products will commence.
THE PRODUCTS
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 offer a number of
advantages, in particular, allowing the patient to take only one or two doses a
day. Less frequent dosage, enhanced therapeutic effectiveness, reduced side
effects, improved compliance and potential cost effectiveness make controlled
release drugs better suited for the treatment of chronic conditions. Controlled
release versions of immediate release drug products have typically reduced the
incidence and severity of side effects normally associated with the immediate
release product by providing sustained drug plasma levels. Intelligent Polymers
intends to complete development of the Additional Product as well as develop
controlled release versions of the following products, each to be marketed under
a brand name to be chosen during development:
BUPROPION
A four-times daily immediate release formulation of Bupropion, introduced
in July 1989 by Glaxo Wellcome Inc. ("Glaxo"), is marketed in the U.S. under the
brand name Wellbutrin. In addition a twice-
27
<PAGE> 29
daily controlled release formulation of Bupropion, introduced in November 1996
by Glaxo, is marketed in the U.S. under the brand name Wellbutrin SR. In August
1997, Bupropion also began to be marketed in the U.S. under the brand name Zyban
for use as an aid in smoking cessation. For the 12 months ended March 31, 1997
and 1996, U.S. sales of Bupropion were $150 million and $102 million,
respectively.
Indication. Bupropion is indicated for the symptomatic relief of
depressive illness. Major depression is frequently encountered by patients of
primary care physicians. Depression may occur in neurosis as well as in mood
disorders and is a manifestation of major psychiatric illness. Bupropion is also
indicated in the U.S. for use as an aid in smoking cessation.
Clinical Efficacy. Bupropion has been proved to be effective in the
treatment of depression. An open, uncontrolled study of 3,167 patients at 105
sites showed that functional status improved in patients treated with Wellbutrin
SR for up to 56 days. This improvement was highly correlated with improvement in
clinical symptoms.
Bupropion can also be used in conjunction with other anti-depressant drugs.
When combined with another class of anti-depressants, specified neurotransmitter
modulators ("SNMs"), in 27 patients, greater symptomatic improvement was found
in 19 (70%) of those 27 subjects during a combined daily use of Bupropion with
an SNM (Prozac-equivalent) than with either drug alone.
Intelligent Polymer's once-daily controlled release formulation of
Bupropion will seek to significantly improve upon the existing sustained release
formulation by providing sustained plasma levels with better control of symptoms
and improved compliance with convenient once-a-day dosing. Clinically, it is
important that symptoms in the depressed patient be adequately controlled as
compliance is a major concern in these patients.
In a study in children with attention deficit disorder with hyperactivity
(ADDH), the results indicated that Bupropion may also be a useful addition to
available treatments for ADDH.
In addition, Bupropion has been demonstrated to be an effective aid in
smoking cessation. In a controlled trial of transdermal nicotine and
sustained-release Bupropion, both together with a placebo in 893 patients for
nine weeks, smoking cessation rates were 20% with placebo, 32% with nicotine
alone, 46% with Bupropion alone and 51% with both transdermal nicotine and
Bupropion.
Market Size. The largest segment in the anti-depressant market is
represented by SNMs (with which Bupropion is used in combination or with which
it competes) which had U.S. sales of $4.0 billion in the 12 months ended March
31, 1997. The anti-depressant market consists of four major drug categories:
tricyclic anti-depressants, monoamine oxidase inhibitors, anti-mania drugs and
SNMs. Major marketed brands include Tofranil (imipramine), Prozac (fluoxetine),
Paxil (paroxetine), Luvox (fluoxamine) and Zoloft (sertaline). The smoking
cessation market reached $409 million in U.S. sales for the 12 months ended
March 31, 1997. Major marketed brands of smoking cessation products include
nicotine products such as Nicoderm, Habitrol, Nicorette, Nicotrol and Prostep.
BUSPIRONE
A three-times daily immediate release formulation of Buspirone, introduced
in October 1986 by Bristol-Myers Squibb Company, is marketed in the United
States under the brand name Buspar. For the 12 months ended March 31, 1997 and
1996, U.S. sales of Buspar were $352 million and $295 million, respectively.
Indication. Buspirone is indicated for the short-term symptomatic relief
of excessive anxiety in patients with generalized anxiety disorder ("GAD"),
which is also known as anxiety neurosis. GAD is a neurotic disorder
characterized by chronic unrealistic anxiety often punctuated by acute attacks
of anxiety or panic. Anxiety is a symptom of almost all psychiatric disorders
and is encountered in day-to-day practice by both the general practitioner and
the psychiatrist.
Clinical Efficacy. Controlled studies suggest that Buspirone is effective
in treating GAD and that, unlike other anti-anxiety drugs, tolerance to the
therapeutic effect of Buspirone does not develop. In one study involving 121
patients, Buspirone was found to be effective in improving both anxiety and
depressive
28
<PAGE> 30
symptoms in GAD patients. Another study showed that Buspirone was more effective
and had fewer side effects than lorazepam, a competing drug, and that, unlike
patients treated with Lorazepam, those treated with Buspirone did not exhibit
rebound anxiety. Given its effectiveness in treating symptoms of depression
associated with GAD, Buspirone is also an effective and well tolerated drug for
the treatment of depressive disorders.
Market Size. The anti-anxiety market had $770 million in U.S. sales for
the 12 months ended March 31, 1997, of which Buspirone was the market leader
with a 46% share. Due to its efficacy in treating depressive symptoms in GAD
patients, Buspirone also indirectly competes in the market for antidepressant
drugs, including the market for SNMs, which represented U.S. sales of $4.0
billion in the 12 months ended March 31, 1997. Major anti-anxiety brands other
than Buspirone include Xanax (alprazolam), Librium (chlordiazepoxide), Valium
(diazepam), Ativan (lorazepam), Serax (oxazepam) and Atarax (hydroxyzine).
LOVASTATIN/NIACIN
An immediate release formulation of Lovastatin, introduced in September
1987 by Merck and Company Incorporated, is marketed in the United States under
the brand name Mevacor. For the 12 months ended March 31, 1997 and 1996, U.S.
sales of Mevacor were $768 million and $842 million, respectively. A once-daily
controlled release formulation of Niacin was approved by the FDA on July 28,
1997 and is expected to be marketed by Kos Pharmaceuticals, under the brand name
Niaspan.
Indication. Lovastatin and Niacin are indicated for the treatment of
elevated cholesterol levels ("hyperlipidemia") when the response to diet and
other non-pharmacological measures alone has not been adequate. The National
Institute of Health recommends Niacin to be the first-line therapy for the
treatment of hyperlipidemia.
Clinical Efficacy. Niacin is effective in reducing triglyceride levels and
in increasing High Density Lipoprotein ("HDL") levels significantly, both of
which are beneficial in the treatment of hyperlipidemia. Niaspan also reduces
Low Density Lipotriglycerides ("LDLs"), however not to the degree that
Lovastatin does. Lovastatin has been found to lower LDL cholesterol to target
levels and to slow the progression of coronary atherosclerosis in patients with
coronary artery disease.
In a recent clinical trial, Niacin demonstrated a 14% to 19% reduction in
LDL cholesterol, a 25% to 35% reduction in triglycerides and an increase of 22%
to 29% in HDL cholesterol. In a clinical trial of 1,650 patients treated with
Lovastatin, LDL cholesterol levels were reduced by proportions ranging from 24%
to 40%, depending on the dose of Lovastatin used.
In a recently published paper, the author reviewed different treatments to
develop an optimum strategy that reduces total cholesterol levels, including
LDLs. Three studies evaluated combination therapy with Niacin and statins
(Lovastatin, Fluvastatin and Simvastatin). The author found that if Niacin is
added to statin therapy, the effect of combined therapy on LDL cholesterol
levels is additive. However, until the approval of Niaspan in July 1997, Niacin
had only existed in immediate release form, which has significant adverse
effects in the doses used in the treatment of hyperlipidemia. Thus, Intelligent
Polymers believes that a controlled release combination of Niacin and Lovastatin
will provide an effective total cholesterol lowering effect in a single product
with improved compliance and reduced side effects.
Market Size. The market for cholesterol lowering drugs represented $3.1
billion in U.S. sales for the 12 months ended March 31, 1997, of which Mevacor
had captured a 25% market share. Major market brands of cholesterol lowering
drugs include Zocor (simvastatin), Pravachol (pravastatin), Lescol
(fluvastatin), Lopid (gemfibrozil) and Lipitor (atorvastatin).
METFORMIN
A two to three times daily immediate release formulation of Metformin,
introduced in April 1995 by Bristol-Myers Squibb Company, is marketed in the
United States under the brand name Glucophage. For the 12 months ended March 31,
1997 and 1996, U.S. sales of Glucophage were $356 million and $128 million,
respectively.
29
<PAGE> 31
Indication. Metformin is indicated for the treatment of diabetes mellitus
which cannot be controlled by proper dietary management, exercise and weight
reduction or when insulin therapy is not appropriate. Diabetes is a common
disorder in which there are inappropriately elevated blood glucose levels and a
variety of end organ complications leading to impaired kidney function and
accelerated atherosclerosis.
Clinical Efficacy. Clinical advantages of Metformin include achieving
control of elevated blood sugar levels without exacerbating weight gain, which
is a common side effect of other anti-diabetic treatments. Metformin differs
from the sulfonylureas in that it does not elevate insulin secretion and does
not produce abnormally low blood sugar levels.
In controlled trials, Metformin has shown efficacy in lowering elevated
blood sugar levels in the treatment of diabetes mellitus. In one such study of
289 obese patients with non-insulin dependent diabetes, poorly controlled with
diet, the patients were given Metformin or a placebo. Blood sugar levels were on
average 29% lower in patients receiving Metformin than in patients receiving a
placebo. Furthermore, total cholesterol, LDL, and triglyceride concentrations
decreased in patients receiving Metformin, but did not change in patients
receiving a placebo.
Market Size. The oral anti-diabetic market represented $1.1 billion in
U.S. sales for the 12 months ended March 31, 1997 of which Glucophage had
captured a 34% market share, only two years after its introduction. Other major
anti-diabetic products include Glucotrol XL (glipizide) and Glynase (glyburide).
TRAMADOL
A three to four times daily immediate release formulation of Tramadol,
introduced in March 1995 by Johnson & Johnson, is marketed in the United States
under the brand name Ultram. For the 12 months ended March 31, 1997 and 1996,
U.S. sales of Ultram were $279 million and $176 million, respectively.
Indication. Tramadol is indicated for the treatment of a variety of pain
syndromes, including management of moderate to moderately severe chronic pain
associated with cancer and other terminal illnesses. Pain is a common symptom of
many diseases and is generally seen in everyday clinical practice.
Clinical Efficacy. Tramadol is one of a number of narcotic (opioid)
analgesics, which are among the most effective and valuable medications for the
treatment of chronic pain. Tramadol's minimal propensity to induce typical
opioid adverse effects is an advantage over other morphine-like agents. For
example, relative to morphine, Tramadol causes less dependence and less
respiratory depression. Tramadol also demonstrates a low potential for abuse or
addiction and appears to be a promising drug for postoperative pain relief.
In a recent article published in the American Journal of Medicine, the
author concluded that, based on clinical experience, Tramadol appears to have a
low potential for abuse or addiction. Results from U.S. and European studies
indicated that Tramadol is an effective analgesic that may have a particularly
important role in the management of chronic pain. Tramadol has been prescribed
for almost two decades in Europe.
Two long-term safety studies conducted on patients with chronic,
nonmalignant pain demonstrated the efficacy of Tramadol in a variety of pain
conditions.
Intelligent Polymers' once-daily controlled release formulation of Tramadol
will seek to provide sustained pain control, as compared to the immediate
release form. This would be especially useful to cancer or terminally ill
patients who need analgesics as a 24-hour treatment.
Market Size. The combined market for narcotic and non-narcotic analgesics
had U.S. sales of $1.5 billion for the 12 months ended March 31, 1997. The
market for drugs for the relief of chronic pain consists of two major
categories, narcotic and non-narcotic drugs. Narcotic analgesics include
morphine, codeine, meperidine and methadone. Among the non-narcotic analgesics,
Anaprox DS (naprosyn), Toradol (ketorolac) and Cataflam (diclofenac) are
commonly used.
30
<PAGE> 32
NIFEDIPINE
A three to four times daily immediate release formulation of Nifedipine,
introduced in January 1982 by Pfizer, is marketed in the U.S. under the brand
name Procardia. A controlled release version was introduced by Pfizer in
September 1989 under the brand name Procardia XL. For the 12 months ended March
31, 1997, U.S. sales of Procardia XL were $923 million.
Intelligent Polymers intends to seek to complete the development of a
generic version of Procardia XL, which has been undergoing clinical testing
(studies to demonstrate bioequivalence) at Biovail's Contract Research Division.
Indication. Nifedipine is indicated for the management of hypertension and
angina.
Clinical Efficacy. The controlled release formulation of nifedipine has
been tested in numerous clinical trials. In all these trials, nifedipine was
found to be highly effective in controlling elevated blood pressure and
relieving symptoms of angina in a wide variety of patients. Side effects of the
controlled release form are mild and rarely require discontinuation of therapy.
Market Size. Nifedipine is a member of the drug class known as calcium
channel blockers, which drug class, in 1996, accounted for $3.3 billion in U.S.
sales. Other major marketed brands include Cardizem CD and Tiazac(R)
(diltiazem), Isoptin (verapamil) and Norvasc (amlodipine). In addition, an ANDA
covering a generic version of Procardia XL was recently filed by Mylan
Pharmaceuticals Inc.
------------------------------
The Board of Directors of Intelligent Polymers has the right, with the
consent of Biovail, to select additional controlled release Products for
development under the Development Contract. There are no restrictions on either
Intelligent Polymers' right to suggest additional products or on Biovail's right
to reject any such product suggested. See "The Agreements and the Purchase
Option -- Development Contract."
PATENTS
A number of patents having claims which may be competitive with products
marketed or processes used by Biovail have been issued to other companies or
institutions. In addition, competitors may have filed patent applications, may
have been issued patents or may obtain additional patents and proprietary rights
relating to products or processes competitive with one or more of the Products
being developed by Biovail. Biovail believes that the patents issued to date to
third parties in the U.S. will not preclude Intelligent Polymers and Biovail
from marketing these Products. With respect to the Additional Product, patent
litigation instituted by the innovator of the branded nifedipine formulation
could result in a bar on the FDA approving the Additional Product for up to 30
months from the date the innovator receives an appropriate patent certification.
Because such litigation is commonly instituted by holders of approved NDAs,
Intelligent Polymers has established a reserve of $1.5 million for possible
litigation relating to the Additional Product. See "Risk Factors -- Business
Risks Related to Intelligent Polymers and Biovail -- Uncertainty Regarding
Patents and Proprietary Technology; Unpredictability of Patent Protection" and
"Regulation -- United States Regulation -- Patent Certification Issues."
ARRANGEMENTS WITH BIOVAIL
Pursuant to the Development Contract, Biovail has agreed to use diligent
efforts to (i) conduct toxicity studies, formulation development and clinical
studies for, and pursue U.S. regulatory approval of, the Products other than the
Additional Product and (ii) conduct clinical testing for, and pursue U.S.
regulatory approval of, the Additional Product, each in accordance with the
terms of the Development Contract. Although the pricing structure of the
Development Contract is considered by Biovail to be consistent with contractual
relationships it has had and continues to have with other third parties, the
Development Contract was not negotiated on an arm's-length basis. Payments to
Biovail under the Development Contract will be in an amount equal to the full
amount of all Development Costs incurred by Biovail in performing these
activities, up to the maximum amount of Available Funds. Such payments to
Biovail will include an initial payment of $3.5 million for access
31
<PAGE> 33
to and use of Biovail's proprietary technology in connection with such product
development and of $1.25 million as payment for the transfer of the Additional
Product, based on Biovail's Development Costs in May and June 1997 relating to
the development of the Additional Product. See "Risk Factors -- Conflicts of
Interest" and "The Agreements and the Purchase Option -- Development Contract."
Substantially all of the management and operating activities of Intelligent
Polymers will be carried out by Biovail under the Development Contract and the
Services Agreement. Accordingly, Intelligent Polymers is subject, through its
reliance on Biovail, to the business risks related to Biovail. See "Risk Factors
- -- Business Risks Related to Intelligent Polymers -- Reliance on Biovail."
Biovail will own all rights to the Products which it will develop for
Intelligent Polymers pursuant to the Development Contract. However, Intelligent
Polymers will have a license (the "License") to manufacture or obtain
manufacturing for (subject to Biovail's exclusive manufacture period, right of
first refusal and right of approval), sell and otherwise market and sublicense
others to market, throughout the world (other than in Canada), such Products or,
as to Products for which Intelligent Polymers and Biovail fail to reach
agreement as to any necessary additional funding, under other arrangements.
Intelligent Polymers will have a non-royalty bearing license with respect to the
rights described above which is exclusive for the License Period and is
nonexclusive thereafter. Biovail will have the right to terminate the License as
to any Product in the event that Intelligent Polymers does not market such
Product within nine months from the date of marketing approval by the FDA. See
"The Agreements and the Purchase Option -- License." Crystaal will pay to
Intelligent Polymers royalties equal to 3% of net sales of any Product (other
than any Product as to which Biovail exercises the Biovail Option) sold in
Canada during the License Period by Biovail or its sublicensees.
Biovail will have the right to exercise the Biovail Option upon Biovail's
agreement to pay, at Biovail's option, either of (i) base royalties of 10% of
net sales from the relevant Product during the License Period or (ii) within 30
days of the exercise of the Biovail Option, a lump sum of $25.0 million. In the
event that Biovail exercises the Biovail Option, Biovail will possess all
rights, including, without limitation, the right to manufacture or obtain
manufacturing for, license and market the Product covered by the Biovail Option.
Pursuant to the Development Contract, Biovail will cause to be filed any
patent applications with respect to the Products that it reasonably believes to
be patentable and technically significant. Although Biovail's patents, pending
patent applications, and any patents obtained in the future covering the
Products may be of importance to future operations, there can be no assurance
that any additional patents will be issued or that any patents, now or hereafter
issued, will be of commercial benefit. Biovail will own any such patents granted
but such patents will be subject to the License.
Intelligent Polymers has entered into the Services Agreement pursuant to
which Biovail has agreed to provide management and administrative services to
Intelligent Polymers for a quarterly fee of $100,000. The Services Agreement
terminates one year after termination of the Purchase Option. In addition,
Intelligent Polymers may terminate the Services Agreement at any time upon 90
days' notice. Either Biovail or Intelligent Polymers may terminate the Services
Agreement in the event that the other party (i) breaches any material obligation
thereunder or under the Development Contract, which breach continues for 60 days
after notice thereof, or (ii) enters into any liquidation or bankruptcy
proceedings. See "The Agreements and the Purchase Option -- Services Agreement."
DEVELOPMENT FACILITIES
A substantial amount of the work under the Development Contract will be
conducted at Biovail's facilities. See "Business of Biovail -- Operations --
Manufacturing and Facilities." Biovail believes that its available facilities
are sufficient to satisfy its obligations for performance under the Development
Contract. However, the same facilities are used by Biovail for work performed
for its own account and in the performance of third party contracts. See "Risk
Factors -- Business Risks Related to Intelligent Polymers -- Uncertainty
Regarding Sufficient Availability of Biovail Research Personnel and Facilities,"
"The Agreements and the Purchase Option -- Development Contract" and "Business
of Biovail -- Operations -- Research and Development."
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COMPETITION
Intelligent Polymers views its primary competitors as the current marketers
of the drugs for which it is developing once-daily controlled release versions,
as well as other drug delivery companies which could develop controlled release
versions of these same drugs. Intelligent Polymers will compete with such
marketers by providing products with therapeutic benefits, in terms of greater
efficacy, reduced side effects and/or higher levels of patient compliance as
compared to such drugs without increasing the cost. Intelligent Polymers is
subject to the same type of competition to which Biovail is subject,
particularly with respect to the Additional Product. See "Risk Factors --
Business Risks Related to Intelligent Polymers and Biovail -- Highly Competitive
Industry; Risk of Rapid and Significant Technological Change."
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BUSINESS OF BIOVAIL
BUSINESS OVERVIEW
Biovail is a global integrated pharmaceutical product development company
specializing in the application of advanced oral controlled release delivery
technologies. Biovail's proprietary technologies are used in formulations which
either improve upon conventional dosage forms of existing products by providing
the therapeutic benefits of controlled release or are generically equivalent to
existing once-daily branded products, while in both instances providing
significant cost advantages. Biovail develops controlled release formulations
for the generic and branded market segments which are manufactured by it or by
others under license. Biovail does not engage in basic research to discover new
chemical entities.
Biovail's business has evolved from licensing its controlled release
technology to pharmaceutical companies to developing, manufacturing and
marketing and out-licensing its own products. Products developed by Biovail are
currently sold under license in more than 55 countries. One of these products,
Tiazac(R), is manufactured by Biovail for sale under its brand name by its
licensees in the U.S. and Europe and by its wholly owned subsidiary, Crystaal,
in Canada. Tiazac(R) is currently Biovail's principal product. See "Business of
Biovail -- Products of Biovail -- Tiazac(R)." The products currently under
development by Biovail are generic controlled release versions of major brand
name drugs, in particular, products indicated for the treatment of chronic
disorders such as cardiovascular, inflammatory and respiratory conditions and
for pain management. As of July 31, 1997, Biovail had 12 such controlled release
products under development, four of which have been submitted for regulatory
approval to the FDA. The four products awaiting approval of the FDA include
generic formulations of Cardizem SR, Cardizem CD and Verelan, all three of which
are calcium channel blockers used for the treatment of hypertension, as well as
a generic formulation of Trental used for the treatment of peripheral vascular
disease. See "Business of Biovail -- Products of Biovail -- Generic Product
Pipeline."
Biovail derives its revenues from (i) developing and licensing oral
controlled release products using its proprietary drug delivery technologies;
(ii) manufacturing such products for sale to licensees and wholesalers; and
(iii) providing pharmaceutical contract research services to third parties. For
the 12 months ended June 30, 1997, Biovail had revenues of $66.7 million and net
income of $25.5 million. The three areas referred to in clauses (i), (ii) and
(iii) above accounted for 11.3%, 82.4% and 6.3%, respectively, of Biovail's
total revenues for such 12 month period
Controlled release products are formulations which release active drug
compounds in the body gradually and predictably over a 12 to 24 hour period and
which therefore need be taken only once -- or twice-daily. Controlled release
products typically provide numerous benefits over immediate release drugs,
including: (i) greater effectiveness in the treatment of chronic conditions;
(ii) reduced side effects; (iii) greater convenience (only once or twice a day);
and (iv) higher levels of patient compliance due to a simplified dosing
schedule. Biovail has four proprietary technologies for the controlled release
of drugs. These technologies are broadly applicable to a wide range of compounds
and may be used to formulate controlled release versions of products available
in immediate release formulations. These technologies are used in the 12 Biovail
products that are currently marketed or the 12 generic controlled release
products under development.
The oral controlled release prescription drug market in the United States
was $6.1 billion for the 12 months ended March 31, 1997. There are more than 60
FDA approved controlled release branded products in the United States. The
patent and exclusivity period on the drug compound have expired on two-thirds of
such branded products and, by 2000, 95% will have expired. Because of the
technological barriers associated with the development of controlled release
drugs, there has not been the same proliferation of generic drugs in the
controlled release segment as in the immediate release segment of the industry.
As a result, there are only seven oral controlled release brands which have been
genericised. Sales of these generic products accounted for approximately 7% of
the total U.S. oral controlled release prescription drug market in the 12 months
ended March 31, 1997.
In general, large pharmaceutical companies are under pressure to begin
marketing a drug as soon as it is developed in order to recoup the significant
development costs as well as to secure an early entry into the
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market. Even though a controlled release version of a given drug might be a more
effective product, pharmaceutical companies typically have not spent the time
required to develop controlled release versions of their products while their
immediate release version is under patent. Instead they have begun marketing the
immediate release versions as soon as a drug is developed.
When a new drug product is developed, the innovator company typically
applies for and is granted a product patent which expires on the date 20 years
from the first date a patent application was filed (or, for patents in force on,
or that result from a patent application filed before, June 8, 1995, the later
of such date and the date 17 years from the date a patent is issued). Because no
other company can , without authorization, make, use, sell, import or offer for
sale a generic version of such original branded product until the patent on such
product expires, the innovator has a monopoly during the patent period on
marketing a branded product. Once the product patent and, if applicable, the
exclusivity period, on a product expires, other companies may be able to market
a generic version of that branded product if no other patents apply and
regulatory approval is obtained. Upon regulatory approval of a generic product,
it is labeled as a generic substitute for the branded product and pharmacists
generally can substitute the generic product for the branded product prescribed
by a physician (and many times must substitute the lower cost generic product
for patients covered by a managed care or insurance program which pays pharmacy
benefits).
A generic pharmaceutical product is approved by the FDA upon the
establishment of bioequivalence to the original branded product. Demonstration
of bioequivalence requires that the generic product produce the same rate of
release and concentration of the drug in the blood over time as the original
branded product. Such generic products are generally sold at a significant price
discount to the corresponding branded product and are generally manufactured by
small, independent generic pharmaceutical companies to compete with the larger
pharmaceutical companies on the basis of price. Such generic products have
received widespread market acceptance. However, oral controlled release generic
products typically have not been subject to the deep price discounts of
immediate release generic products.
Products which include the same compound as the original branded products
but are not generic versions of these brands may, however, be approved by the
FDA on the basis of the more extensive regulatory procedures applicable to
branded products. Once such products are approved, they may be marketed as
distinct brands in competition with other brand name products upon expiration of
the applicable patent on the drug compound in the original branded products.
Biovail believes that there is a significant opportunity for the marketing of
products so approved as branded once-daily controlled release versions of
products currently available only in an immediate release form or in a
controlled release form requiring multiple daily dosing. To take advantage of
this opportunity, Biovail has formed, and proposes to enter into certain
contractual relationships with, Intelligent Polymers. Biovail believes that
Intelligent Polymers' access to Biovail's technology and integrated
infrastructure and its strategy of developing products for itself, rather than
on behalf of other, larger, pharmaceutical companies, should favorably position
it to succeed in this market and should enable Intelligent Polymers to retain a
larger portion of the proceeds of commercialization of any Products which are
successfully developed.
HISTORY
Biovail was co-founded in 1977 by Professor Arnold Beckett, one of the
pioneers in the development of controlled delivery technologies for
pharmaceuticals. Under Professor Beckett's leadership, Biovail focused primarily
on developing novel and clinically useful technologies for mainly scientific
rather than strictly commercial purposes. Biovail applied these technologies to
the development of certain controlled release products, which were subsequently
manufactured and marketed by third-party pharmaceutical companies to which
Biovail had licensed such products. For the year ended December 31, 1996, sales
of such products by licensees were approximately $250 million.
In 1989 Trimel Corporation ("Trimel"), a Canadian company operated by
current Biovail chairman Eugene Melnyk, acquired I.W.F. Research Laboratories,
Inc., one of Canada's largest contract research organizations with developed
expertise in clinical studies important to the development of its drug products.
In 1991, Biovail was acquired by Trimel. Trimel and Biovail were merged in 1994
with the surviving corporation
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renamed Biovail. In September 1995, Biovail purchased the business of Galephar
P.R. Inc. ("Galephar"), a drug delivery company specializing in the development
of controlled release products to gain control of the primary FDA-approved
production facility for Tiazac(R). Galephar's operating assets included a 23,000
square foot manufacturing facility in Puerto Rico, to which Biovail added 11,000
square feet of additional leased space. Biovail now also conducts certain
research and development operations at this facility. In the acquisition,
Biovail also acquired additional international marketing rights for Tiazac(R)
and technology for future products. Today, Biovail is an integrated drug
delivery technology company with extensive experience and proven expertise in
all aspects of the development of controlled release products.
TECHNOLOGY
Biovail has four oral drug delivery technologies which are applicable to
the development of controlled release products. These technologies enable
Biovail to develop both branded and generic pharmaceutical products. Biovail's
formulations for these products are either patented or proprietary. Accordingly,
other generic manufacturers may be inhibited from duplicating products because
of Biovail's patented or proprietary rights or because of the difficulty in
duplicating Biovail's formulations.
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 offer a number of
advantages, in particular, allowing the patient to take only one or two doses a
day. This combined with enhanced therapeutic effectiveness, reduced side
effects, improved compliance and potential cost effectiveness makes controlled
release drugs ideally suited for the treatment of chronic conditions.
Biovail'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 release mechanism varies depending on the particular technology
employed. Most of the release mechanisms rely on either (i) the disintegration
of intelligent polymers, that is, polymers which have been engineered to act in
a specific manner based on particular conditions such as the pH level, or
acidity, at various locations in the GI tract, or (ii) osmotic diffusion, which
is based on the diffusion of the active ingredient across a semi-permeable
membrane. In osmotic diffusion, active ingredients which are to be released in a
controlled manner and absorbed into the body over time are placed within a
semi-permeable membrane and diffuse across the membrane gradually over a 24 hour
period, depending on the relative particulate concentration on the other side of
the membrane as the drug travels through the GI tract. Release patterns are
characterized as zero order, which indicates constant release over time, or
first order, which indicates decreasing release over time.
Biovail utilizes four proprietary drug delivery platforms, described below,
involving matrix tablets or multiparticulate beads in capsules. These platforms
are capable of producing a wide variety of controlled release drug formulations.
DIMATRIX
Dimatrix is a diffusion controlled matrix technology for water soluble
drugs in the form of tablets. The drug compound is uniformly dispersed in an
intelligent polymer matrix. The mechanism of release involves the swelling of
polymers within the matrix, thus enabling the drug to be dissolved and released
by diffusion through an unstirred boundary layer. The release pattern is
characterized as first order, as the rate of drug diffusion out of the swollen
matrix is dependent upon the concentration gradient.
MACROCAP
Macrocap consists of immediate release beads made by
extrusion/spheronization pelletization techniques or by layering powders or
solutions on non-pareil seeds. Release modulating intelligent polymers are
sprayed
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on the beads using various coating techniques. The coated beads are filled in
hard gelatin capsules. Drug release occurs by diffusion associated with
bioerosion or by osmosis via the surface membrane. The release mechanism can be
pH activated or pH independent. The beads can be formulated to produce first
order or zero order release.
CONSURF
Consurf is an intelligent zero order drug delivery system for hydrophilic
and hydrophobic drugs in the form of matrix tablets. The drug compound is
uniformly dispersed in a matrix consisting of a unique blend of intelligent
polymers. The mechanism of release involves the concurrent swelling and
dissolution of the matrix such that a constant surface tablet area is maintained
during transit through the GI tract, resulting in zero order release.
MULTIPART
Multipart consists of a tablet carrier for the delivery of controlled
release beads which preserves the integrity and release properties of the beads.
The distribution of the beads is triggered by disintegration of the tablet
carrier in the stomach. Drug release from the beads can be pH activated or pH
independent and can occur by disintegration or osmosis. The beads can be
formulated to produce first or zero order release.
PATENTS AND PROPRIETARY RIGHTS
Biovail has not routinely sought patents on its controlled release
technology because (i) its current products under development are generic drugs
and when an ANDA is filed which competes with any Biovail ANDA filed for a
Biovail generic product, patent protection would not afford benefits (which
normally accrue to NDA holders) before the FDA and (ii) the filing of certain
patents may provide potential competitors with information relating to such
technology which may enable such competitors to exploit information related to
such technology which is not within the confines of the protection of the
patent. However, Biovail has an exclusive right to the patented technology for
its controlled release formulation of Tiazac(R). Historically, Biovail has
relied on trade secrets, know-how and other proprietary information. While
certain of Biovail's licensors have sought patents on controlled release
technology licensed to Biovail, there can be no assurance that any patents will
be issued or, if issued, that the manufacture, use, sale, importation or offer
for sale of the patented such matter will not infringe upon other patents or
technology. The ability of Biovail 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, Biovail 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 Biovail'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.
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PRODUCTS OF BIOVAIL
LICENSED AND MARKETED PRODUCTS
The following table sets forth the controlled release products developed by
Biovail 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 Biovail, the trade names for the
pharmaceutical products described below and elsewhere in this Prospectus are the
property of (and may be registered trademarks of) Biovail's licensees and
marketing partners or others.
<TABLE>
<CAPTION>
PRODUCTS CHEMICAL INDICATION PRINCIPAL LICENSEE
- ---------------- ------------------------ ---------------------- --------------------------------
<S> <C> <C> <C>
Tiazac(R) Diltiazem (anti-hypertensive/ Forest Laboratories (U.S.)
anti-anginal)
Oruvail Ketoprofen (anti-inflammatory) Wyeth-Ayerst Laboratories (U.S.)
Norpace* Disopyramide (anti-arrhythmic) G.D. Searle (U.S.)
Theo-24 Theophylline (bronchodilator) UCB Pharma (U.S.)
Isoket Retard Isosorbide Dinitrate (coronary vasodilator) Schwarz Pharma (Germany)
Elantan Long Isosorbide-5-Mononitrate (coronary vasodilator) Schwarz Pharma (Germany)
Sirdalud CR Tizanidine (muscle relaxant) Novartis (Switzerland)
Gastro-Timelets Metoclopramide (GI motility Temmler (Germany)
modifier)
Novagent Ibuprofen (anti-inflammatory) Temmler (Germany)
Beta-Timelets Propanolol (anti-hypertensive) Temmler (Germany)
Tiamon Mono Dihydrocodeine (analgesic) Temmler (Germany)
Regenon Retard Diethylpropion (anti-obesity) Temmler (Germany)
</TABLE>
- ------------------------------
*Twice-daily dosing.
TIAZAC(R)
The major product of Biovail is Tiazac(R), accounting for approximately 84%
of total revenues generated in each of fiscal 1996 and the six month period
ended June 30, 1997. No other product or service individually accounted for 10%
or more of Biovail's revenue base during such periods. In 1996 all Tiazac(R)
revenues were generated from Forest.
Tiazac(R) belongs to a class of drugs for the treatment of hypertension
called calcium channel blockers, which, in 1996, represented U.S. sales of $3.3
billion. Within the market for calcium channel blockers, diltiazem related
once-daily products accounted for approximately $880 million of U.S. sales in
the twelve months ended September 30, 1996, the largest portions of which are
represented by Cardizem CD ($731 million) and Dilacor ($126 million), both of
which are branded generics for diltiazem. Tiazac(R) is another branded generic
for diltiazem. In the period from February 1996 (when the first commercial sales
of Tiazac(R) were made) through September 30, 1996, U.S. sales of Tiazac by
licensees of Biovail were reported by IMS America Limited to be $22 million.
Patients for whom diltiazem-related drugs are prescribed must renew their
prescriptions several times a year. The success of a new drug entering the
market is measured by the percentage of new prescriptions, including such
renewals, represented by such new drug. In March 1996, the first full month of
commercial sales for Tiazac(R) in the U.S., 2.3% of all new prescriptions in the
once-daily diltiazem market were represented by Tiazac(R). The percentage has
increased each month since such that by August 1997 Tiazac(R) represented 10.9%
of all new prescriptions. There can be no assurance that levels of new
prescriptions for Tiazac(R) will continue to grow or can be sustained or that
such levels will be representative of Tiazac(R)'s market share of all sales of
diltiazem products.
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When a new drug formulation is approved by the FDA, it may be granted a
three year exclusivity period under the Waxman-Hatch Act, during which it is
protected from generic competition. Tiazac(R)'s exclusivity period expires in
September 1998, but Biovail will be entitled, if a competitor files an ANDA for
a generic version of Tiazac(R) with the FDA, to file a lawsuit against the
competitor for patent infringement which bars automatically the FDA from
granting approval for 30 months, subject to earlier resolution of the legal
issues. Other than awaiting the expiration of the Tiazac(R) patent and
exclusivity, the only way a generic applicant can avoid triggering the 30 month
moratorium is by not seeking approval as a generic equivalent of Tiazac(R), but
by filing an NDA under Section 505(b)(1) of the Federal Food, Drug, and Cosmetic
Act (the "FDC Act"), which is more expensive and costly to prepare than an ANDA.
Tiazac(R) is a once-daily controlled release formulation of diltiazem
currently indicated for the treatment of hypertension, with FDA approval for the
treatment of angina expected by Biovail 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 mg), lower
pricing and labelling which specifically permits physicians to switch patients
to Tiazac(R) from other formulations of diltiazem at the nearest equivalent
daily dose. An NDA for Tiazac(R) was approved by the FDA in September 1995, by
the U.K. Medicines Control Agency ("MCA") in April 1996 and by the HPB in April
1997. Approvals in various other countries are expected throughout 1997 and
1998.
Biovail 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. A 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,
Biovail and Forest also entered into a 16 year supply agreement, also commencing
December 1995, under which Biovail acts as the exclusive manufacturer of
Tiazac(R) and receives contractually determined manufacturing fees.
Tiazac(R) will be sold as Viazem and under 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
protectorates; Ratiopharm GmbH and Heumann GmbH for Germany; and Zambon B.V. for
The Netherlands. Additional European licensing agreements are expected to be
signed over the coming months. Tiazac has been launched in Canada by Crystaal
and in the United Kingdom by Dupont Merck.
OTHER PRODUCTS
Biovail formulated 11 other oral controlled release products which were
licensed to marketing partners and for which Biovail 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 the world's first once-daily pH-dependent non-steroidal anti-inflammatory
drug.
Oruvail is internationally established as an effective anti-arthritic
treatment and is currently marketed by Wyeth-Ayerst Laboratories in the U.S. and
by Rhone-Poulenc Rorer in other countries. Worldwide licensee sales of Oruvail
approached $200 million in 1996.
GENERIC PRODUCT PIPELINE
Biovail has a pipeline of 12 generic versions of branded controlled release
products, of which one, the Additional Product, will be transferred to
Intelligent Polymers upon consummation of the Unit Offering. These branded drugs
represented $4.4 billion in sales in the U.S. in the 12 months ended September
30, 1996. The 12 drugs in the pipeline are indicated primarily for the treatment
of chronic conditions in the cardiovascular, cardiopulmonary and bone and joint
disease areas and for pain management, conditions for which controlled release
formulations provide significant clinical and economic benefits. Two of these
are generic versions of diltiazem products, Cardizem SR (a twice-daily
formulation) and Cardizem CD (a once-daily formulation). Tiazac(R) itself,
although a once-daily diltiazem formulation, is not a generic for Cardizem CD.
It has a different release profile and is marketed as a branded version of
diltiazem in general, not as a generic to Cardizem CD specifically. As a result,
Biovail's management believes that introduction of a
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generic for Cardizem CD by Biovail will not significantly impact Tiazac(R) sales
but will erode Cardizem CD sales.
Biovail filed an ANDA with the FDA for generic versions of Cardizem SR and
Cardizem CD in the second quarter of 1996 and the second quarter of 1997,
respectively. In addition, Biovail filed an ANDA with the FDA for a generic
version of Verelan, another calcium channel blocker used in the treatment of
hypertension, in the second quarter of 1997 and an ANDA for a generic version of
Trental, used for the treatment of peripheral vascular disease, in the fourth
quarter of 1996. Collectively, the branded versions of these four products
represented $1.1 billion in sales in the U.S. in the 12 months ended December
31, 1996. Of the seven pipeline products which are not before the FDA, two are
in the late stages of development and five are in more preliminary stages. The
branded versions of these seven products represented an additional $2.3 billion
in sales in the U.S. in the 12 months ended September 30, 1996.
Biovail expects to price its generic products at a discount to the branded
price. Because of the technological barriers associated with developing
controlled release products and the high value-added nature of these products,
Biovail does not expect its controlled release products to experience as much
price erosion as do products in conventional dosage forms, which are easier to
replicate.
OPERATIONS
RESEARCH AND DEVELOPMENT
Biovail's staff of scientists has expertise in all aspects of research and
development, from pre-formulation studies and formulation development to
pharmacokinetics and technology applications. Biovail has successfully developed
appropriate delivery systems for pharmaceutical compounds exhibiting a wide
range of solubility and hydrophobicity characteristics. The scientific staff is
led by Dr. Isa Odidi, Director of Research and Development, who is supported by
Dr. Arnold Beckett, one of the pioneers in the drug delivery technology field.
See "Risk Factors -- Business Risks Related to Biovail -- Dependence on
Scientific and Management Personnel."
In 1996, Biovail further enhanced its research capabilities when it opened
its new primary Canadian research and development facilities. This 24,000 square
foot facility in Toronto is equipped with state-of-the-art technology and
equipment. Complementing the technology is the group's optimized computer
modelling and simulation expertise. Biovail believes that this combination of
highly specialized equipment, scientific expertise and proprietary internal
technology platforms enable Biovail to effectively pursue its controlled release
drug delivery research and development programs.
MANUFACTURING AND FACILITIES
Biovail operates two modern, fully-integrated pharmaceutical manufacturing
facilities located in Steinbach, Manitoba, Canada and Carolina, Puerto Rico.
Both facilities meet GMP requirements and are inspected on a regular basis by
the FDA, the HPB, other regulatory bodies and Biovail's auditing team to ensure
compliance on an ongoing basis with GMP. Both manufacturing facilities are
currently producing Tiazac(R) beads for distribution in the United States and
Canada.
Biovail's 75,000 square foot plant in Steinbach, Manitoba was constructed
in 1994. 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.
The Carolina, Puerto Rico facilities total 34,000 square feet, including
23,000 square feet acquired in 1995 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.
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CONTRACT RESEARCH DIVISION
Biovail's Contract Research Division ("CRD") serves Biovail and also
provides other pharmaceutical companies with a broad range of pharmaceutical
development services, including pharmacokinetic studies, bioanalytical
laboratory testing and clinical research studies. 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
ethics review board, the CRD is located in a 35,000 square foot stand-alone
facility owned by Biovail in Toronto, Ontario. This facility includes a fully
equipped bioanalytical laboratory, a department of biopharmaceutics and
statistical analysis and a live-in 140-bed study 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 Good
Laboratory Practices regulations and standards required by the FDA, the HPB and
certain other foreign regulatory bodies.
SALES AND MARKETING
Outside of Canada, Biovail does not engage in direct marketing or sales of
its products but instead seeks to enter into licensing agreements with various
regional and multinational pharmaceutical companies for the marketing and sale
of its products in specified territories. While the specific terms of each
license agreement vary, the agreements in general require the licensee to pay
Biovail a royalty based on a specific percentage of net sales, or a share of the
net profits from the sales of the licensed products, and in the case of
Tiazac(R), to purchase the drugs from Biovail.
Crystaal, the Canadian marketing and sales subsidiary of Biovail, provides
sales and marketing services for Biovail's products as well as for products
licensed from third parties worldwide. Crystaal is located in an 8,300 square
foot leased office facility in Montreal, Quebec, Canada. Crystaal is dedicated
to providing high quality, cost effective branded pharmaceuticals to Canadian
health care professionals, patients and third party payers.
Crystaal has adopted a strategy of in-licensing branded drug products
through strategic joint ventures and partnerships. Biovail believes that this,
combined with Biovail's portfolio of existing and new controlled release branded
generic products, places Crystaal in an excellent position to seek to become a
significant force in the Canadian market.
Forest and Biovail acquired a mutual option to negotiate with the other
regarding their respective pipeline products. For example, Biovail will license
Forest's Flumadine, an anti-viral drug for the treatment of influenza A, for
sale in Canada through Crystaal. This agreement does not apply in the event that
either Forest or Biovail decides to market its respective products either itself
or through subsidiaries or affiliates.
COMPETITION
The pharmaceutical industry is highly competitive and subject to rapid and
significant technological change. Biovail's and Intelligent Polymers' 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 Biovail and Intelligent
Polymers. Competitors of Biovail and Intelligent Polymers in the U.S. and abroad
are numerous and include, among others, major pharmaceutical and chemical
companies,
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<PAGE> 43
including without limitation some of the licensees (or potential licensees) of
Biovail's and Intelligent Polymers' products, specialized contract research and
research and development firms, universities and other research institutions.
Biovail and Intelligent Polymers believe that their controlled release
technology combined with their strategy of funding and controlling all or most
aspects of their controlled release pharmaceutical business will provide the
cost savings, efficiencies in product development and acceleration of regulatory
filings necessary for them to compete effectively with such firms and
institutions. There can be no assurance, however, that Biovail's and Intelligent
Polymers' 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 Biovail or Intelligent Polymers or that would render
Biovail's and Intelligent Polymers' technologies and products obsolete or
uncompetitive. In addition, certain of Biovail's and Intelligent Polymers'
competitors have greater experience than Biovail and Intelligent Polymers in
clinical testing and human clinical trials of pharmaceutical products and in
obtaining FDA and other regulatory approvals.
REGULATORY AFFAIRS AND QUALITY ASSURANCE
Biovail'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
U.S., Canada, the United Kingdom, and the European Union. This department also
coordinates all data and document management, including amendments, supplements
and adverse events reporting. The department seeks to ensure that all stages of
product development and production fully comply with Good Clinical, Laboratory
and Manufacturing Practices.
EMPLOYEES
As of December 31, 1996, Biovail 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. None of Biovail's employees is
represented by a union.
LEGAL PROCEEDINGS
In 1995, Biovail's contractual, legal and financial relationships with its
former licensee Hoechst-Roussel Pharmaceuticals, Inc. ("Hoechst") were resolved.
Hoechst was previously Biovail's licensee for Tiazac(R). As a result of
Hoechst's acquisition of Marion Merrell Dow Inc. ("Marion"), a competitor of
Biovail, the agreement between Biovail and Hoechst was terminated effective June
30, 1995 and their licensing and other relationships ceased. In addition, all
litigation that had been commenced by Marion, the patent holder for Cardizem CD,
for patent infringement with respect to Tiazac(R) was dismissed with prejudice
by agreement with full releases exchanged.
In 1996, Biovail entered into a settlement agreement with Elan Corporation,
plc ("Elan") which resolved all claims and counterclaims made in a litigation
with respect to alleged patent infringement by Biovail of Elan's controlled
release patents for the drug-delivery system employed in Cardizem CD. Such
settlement agreement requires the payment of royalties by Biovail on U.S. sales
of Tiazac(R) and on U.S. sales of any generic version of Cardizem CD introduced
by Biovail and by Elan on U.S. sales of Verelan. Pursuant to such settlement
agreement, Biovail expects to be able to seek to introduce a generic version of
Cardizem CD, free of patent infringement litigation by Elan. Furthermore,
pursuant to such settlement agreement, Elan is precluded in substance from
commencing a lawsuit for patent infringement of its generic version of Verelan.
However, Elan's exclusive licensee has commenced a patent infringement suit on
behalf of such licensee and Elan, which suit could delay FDA approval of
Biovail's ANDA for a generic version of Verelan. Biovail intends to vigorously
defend such suit. In addition, Biovail believes that such licensee's sales of
Verelan may violate a patent to which Biovail holds the exclusive license.
Furthermore, Biovail believes, regardless of the outcome, that such suit will
not have a material adverse effect on its financial position, results of
operations or cash flows.
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<PAGE> 44
In August 1997, Geneva Pharmaceuticals, Inc. ("Geneva") commenced a lawsuit
against Biovail alleging breach of a licensing agreement entered into in June
1991 under which Biovail had contracted to develop two generic drugs for Geneva.
Geneva alleges that Biovail failed to use its best efforts to bring one of those
two generic drugs to market and that Biovail made certain misrepresentations
about its technological capabilities in order to induce Geneva to enter into the
licensing agreement. Geneva seeks compensatory and punitive damages. Biovail
intends to vigorously defend such suit. Biovail believes, regardless of the
outcome, that such suit will not have a material adverse effect on its financial
position, results of operations or cash flows.
From time to time, Biovail becomes involved in various legal matters which
it considers to be in the ordinary course of business. While Biovail is not
currently able to determine the potential liability, if any, related to such
matters, Biovail believes none of the matters, individually or in the aggregate,
will have a material adverse effect on its financial position, results of
operations or cash flows.
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<PAGE> 45
REGULATION
The research and development, manufacture and marketing of controlled
release pharmaceuticals are subject to regulation by the FDA, HPB and comparable
authorities in other foreign countries. These national agencies and other
federal, state, provincial and local entities regulate the testing,
manufacturing, safety and promotion of Biovail's products. The regulations
applicable to products of Biovail or Intelligent Polymers may change as the
currently limited number of approved controlled release products increases and
regulators acquire additional experience in this area.
UNITED STATES REGULATION
NEW DRUG APPLICATION
It is expected that Biovail and Intelligent Polymers will be required by
the FDA to comply with NDA procedures prior to marketing the Products (other
than the Additional Product). New drug compounds and new formulations for
existing drug compounds which cannot be filed as ANDAs are subject to NDA
procedures. These procedures include (i) preclinical laboratory and animal
toxicology tests; (ii) scaling and testing of production batches; (iii)
submission of an Investigational New Drug Application ("IND"), which must become
effective before human clinical trials commence; (iv) adequate and
well-controlled human clinical trials to establish the safety and efficacy of
the drug for its intended indication; (v) the submission of an NDA to the FDA;
and (vi) FDA approval of an NDA prior to any commercial sale or shipment of the
product, including pre-approval and post-approval inspections of its
manufacturing and testing facilities. If all of this data in the product
application is owned by the applicant, the FDA will issue its approval without
regard to patent rights that might be infringed or exclusivity periods that
would affect the FDA's ability to grant an approval if the application relied
upon data which the applicant did not own. Other than with respect to the ANDA
which Intelligent Polymers intends to file for the Additional Product, neither
Biovail nor Intelligent Polymers intends to file applications where it does not
own all the data either submitted with or included in its applications.
Preclinical laboratory and animal toxicology tests must be performed to
assess the safety and potential efficacy of the product. The results of these
preclinical tests together with information regarding the methods of manufacture
of the products and quality control testing are then submitted to the FDA as
part of an IND requesting authorization to initiate human clinical trials. Once
the IND notice period has expired, clinical trials may be initiated, unless a
hold on clinical trials has been issued by the FDA.
Clinical trials involve the administration of a pharmaceutical product to
individuals under the supervision of qualified medical investigators. Clinical
studies are conducted in accordance with protocols that detail the objectives of
a study, the parameters to be used to monitor safety and the efficacy criteria
to be evaluated. Each protocol is submitted to the FDA and to an Institutional
Review Board prior to the commencement of each clinical trial. Clinical studies
are typically conducted in three sequential phases, which may overlap. In Phase
I, the initial introduction of the product into human subjects, the compound is
tested for safety, dosage, tolerance, metabolic interaction, distribution,
excretion and pharmacodynamics. Phase II involves studies in a limited patient
population to (i) determine the efficacy of the product for specific, targeted
indications, (ii) determine optimal dosage and (iii) identify possible adverse
effects and safety risks. In the event Phase II evaluations demonstrate that a
pharmaceutical product is effective and has an acceptable safety profile, Phase
III clinical trials are undertaken to further evaluate clinical efficacy of the
product and to further test for its safety within an expanded patient population
at geographically dispersed clinical study sites. Periodic reports on the
clinical investigations are required. The FDA or Biovail (or Intelligent
Polymers, with respect to the Products) may suspend clinical trials at any time
if it believes the clinical subjects are being exposed to unacceptable health
risks. The results of the product development, analytical laboratory studies and
clinical studies are submitted to the FDA as part of an NDA for approval of the
marketing and commercialization of a pharmaceutical product.
The above-described NDA procedures are premised on the applicant being the
owner of, or having obtained a right of reference to, all of the data required
to prove safety and efficacy. These NDAs are governed by 21 U.S.C. sec.
355(b)(1), also known as section 505(b)(1) of the FDC Act.
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<PAGE> 46
ABBREVIATED NEW DRUG APPLICATION
In certain cases, where the objective is to develop a generic version of an
approved product already on the market in controlled release dosages, an ANDA
may be filed in lieu of filing an NDA. Under the ANDA procedure, the FDA waives
the requirement to submit complete reports of preclinical and clinical studies
of safety and efficacy and instead requires the submission of bioequivalency
data, that is, demonstration that the generic drug produces the same effect in
the body as its brand-name counterpart and has the same pharmacokinetic profile,
or change in blood concentration over time. An ANDA would be available to
Biovail or Intelligent Polymers for a generic version of a drug product approved
by the FDA. In certain cases, an ANDA applicant may submit a suitability
petition to the FDA requesting permission to submit an ANDA for a drug product
that differs from a previously approved reference drug product (the "Listed
Drug"), when the change is one authorized by statute. Permitted variations from
the listed drug includes changes in: (i) route of administration; (ii) dosage
form; (iii) strength; and (iv) one of the active ingredients of the Listed Drug
when the Listed Drug is a combination product. The FDA must approve the petition
before the ANDA may be submitted. An applicant is not permitted to petition for
any other kinds of changes from listed drugs. The information in a suitability
petition must demonstrate that the change from the Listed Drug requested for the
proposed drug product may be adequately evaluated for approval without data from
investigations to show the proposed drug product's safety or effectiveness. The
advantages of an ANDA over an NDA include reduced research and development costs
associated with bringing a product to market, and generally a shorter review and
approval time at the FDA.
PATENT CERTIFICATION AND EXCLUSIVITY ISSUES
ANDAs are required to include certifications with respect to any patents
which claim that the drug for which such investigations were conducted or which
claims a use for such drug for which the applicant is seeking approval. If
applicable patents are in effect and this information has been submitted to the
FDA, the FDA must delay approval of the ANDA until the patents expire. If the
applicant believes it will not infringe the patents, it can make a patent
certification which may result in patent infringement litigation which could
delay the FDA approval of the ANDA for up to 30 months. If the drug product
covered by an ANDA were to be found by a court to infringe another company's
patents, approval of the ANDA could be delayed until the patents expire. Even if
a product is found not to infringe patents of the pioneer manufacturer, or if no
claim of infringement is filed, if the certifying party is not the first to
submit an ANDA for a particular product, approval may be delayed for as long as
180 days beyond the date that the first generic applicant begins commercial
marketing.
The FDC Act contains non-patent market exclusivity provisions which offer
additional protection to pioneer drug products and are independent of any patent
coverage that might also apply. Exclusivity refers to the fact that the
effective date of approval of a potential competitor's ANDA to copy the pioneer
drug may be delayed, or, in certain cases, an ANDA may not be submitted, until
the exclusivity period expires. Five years of exclusivity are granted to the
first approval of a "new chemical entity." Three years of exclusivity may apply
to products which are not new chemical entities, but for which new clinical
investigations are essential to the approval. For example, a new indication for
use or a new dosage strength of a previously-approved product may be entitled to
exclusivity, but only with respect to that indication or dosage strength.
Exclusivity only offers protection against a competitor entering the market via
the ANDA route, and does not operate against a competitor that generates all of
its own data and submits a full NDA under Section 505(b)(1) of the FDC Act.
If applicable regulatory criteria are not satisfied, the FDA may deny
approval of an NDA or an ANDA or may require additional testing. Product
approvals may be withdrawn if compliance with regulatory standards is not
maintained or if problems occur after the product reaches the market. The FDA
may require further testing and surveillance programs to monitor the
pharmaceutical product that has been commercialized. Noncompliance with
applicable requirements can result in additional penalties, including product
seizures, injunction actions and criminal prosecutions.
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<PAGE> 47
CANADIAN REGULATION
The requirements for selling pharmaceutical drugs in Canada are
substantially similar to those of the United States described above.
INVESTIGATIONAL NEW DRUG APPLICATION
Before conducting clinical trials of a new drug in Canada, Biovail must
submit an IND to the HPB. This application includes information about the
methods of manufacture of the drug and controls, and preclinical laboratory and
animal toxicology tests on the safety and potential efficacy of the drug. If,
within 60 days of receiving the application, the HPB does not notify Biovail or
Intelligent Polymers, as the case may be, that its application is
unsatisfactory, Biovail may proceed with clinical trials of the drug. The phases
of clinical trials are the same as those described above under "-- United States
Regulation -- New Drug Application."
NEW DRUG SUBMISSION
Before selling a new drug in Canada, Biovail must submit a New Drug
Submission ("NDS") to the HPB and receive a notice of compliance from the HPB to
sell the drug. The NDS includes information describing the new drug, including
its proper name, the proposed name under which the new drug will be sold, a
quantitative list of ingredients in the new drug, the methods of manufacturing,
processing, and packaging the new drug, the controls applicable to these
operations, the tests conducted to establish the safety of the new drug, the
tests to be applied to control the potency, purity, stability and safety of the
new drug, the results of clinical trials, the intended indications for which the
new drug may be prescribed and the effectiveness of the new drug when used as
intended. The HPB reviews the NDS. If the NDS meets the requirements of Canada's
Food and Drugs Act and Regulations, the HPB will issue a notice of compliance
for the new drug.
Where the HPB has already approved a drug for sale in controlled release
dosages, Biovail may seek approval from the HPB to sell an equivalent generic
drug. In certain cases, the HPB does not require the manufacturer of a drug that
is equivalent to a drug that has already been approved for sale by the HPB to
conduct preclinical tests and clinical trials; instead, the manufacturer must
satisfy HPB that the drug is bioequivalent to the drug that has already been
approved.
The HPB may deny approval of an NDS if applicable regulatory criteria are
not met or may require additional testing. Product approvals may be withdrawn if
compliance with regulatory standards is not maintained or if problems occur
after the product reaches the market. Noncompliance with applicable requirements
can result in fines and other sanctions, including product seizures and criminal
prosecutions.
Proposals have recently been made that, if implemented, would significantly
change Canada's drug approval system. In general, the recommendations emphasize
the need for efficiency in Canadian drug review. Proposals include establishment
of a separate agency for drug regulation and modeling the approval system on
those found in European Union countries. There is no assurance, however, that
such changes will be implemented or, if implemented, will expedite the approval
of controlled release products.
The Canadian government has regulations which prohibit the issuance of a
notice of compliance ("NOC") for a patented medicine to a generic competitor,
provided that the patentee or an exclusive licensee has filed a list of its
Canadian patents covering that medicine with the HPB. After receiving the list,
the HPB may be prohibited from issuing an NOC permitting the importation or sale
of a patented medicine to a generic competitor until patents on the medicine
expire or the wave of infringement and/or validity of the patent(s) in question
is resolved by litigation in the manner set out in such regulations.
Certain provincial regulatory authorities in Canada have the ability to
determine whether the consumers of a drug sold within such province will be
reimbursed by a provincial government health plan for that drug by listing drugs
on formularies. The listing or non-listing of a drug on provincial formularies
may affect the prices of drugs sold within provinces and the volume of drugs
sold within provinces.
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ADDITIONAL REGULATORY CONSIDERATIONS
Sales of products of Biovail or Intelligent Polymers by licensees outside
of the United States and Canada are subject to regulatory requirements governing
the testing, registration and marketing of pharmaceuticals, which vary widely
from country to country.
Biovail's manufacturing facilities located at Steinbach, Manitoba and
Carolina, Puerto Rico operate according to GMP. The manufacturing facilities are
inspected on a regular basis by the FDA, the HPB and other regulatory
authorities. Biovail's self-auditing team seeks to ensure compliance on an
ongoing basis with GMP. From time to time, the FDA, the HPB or other regulatory
agencies may adopt regulations that may significantly affect the manufacture and
marketing of Biovail's products.
In addition to the regulatory approval process, pharmaceutical companies
are subject to regulations under provincial, state and federal law, including
requirements regarding occupational safety, laboratory practices, environmental
protection and hazardous substance control, and may be subject to other present
and future local, provincial, state, federal and foreign regulations, including
possible future regulations of the pharmaceutical industry. Each of Biovail and
Intelligent Polymers believes that it is in compliance in all material respects
with such regulations as are currently in effect.
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MANAGEMENT
OFFICERS AND DIRECTORS
INTELLIGENT POLYMERS
The following table provides information concerning the current officers
and directors of Intelligent Polymers. The current sole executive officer and a
majority of the current directors of Intelligent Polymers are also officers or
employees of Biovail. Subsequent to consummation of the Unit Offering, the
current directors will, pursuant to delegated authority from the existing sole
shareholder of Intelligent Polymers, appoint independent directors such that
independent directors will constitute a majority of the board. As the holder of
the Special Shares, Biovail has the right to elect one director (the "Special
Director"). All other directors (the "Common Directors") in the future will be
elected by the holders of the Intelligent Polymers Common Shares. The Special
Director and the Common Directors owe certain duties and responsibilities to
Intelligent Polymers as provided in the Bye-Laws of Intelligent Polymers,
pursuant to the Bermuda Companies Act 1981 and under Bermuda common law. These
duties and responsibilities provide, among other things, that the Special
Director and the Common Directors in exercising their powers and discharging
their duties shall act honestly and in good faith with a view to the best
interests of Intelligent Polymers and shall exercise the care, diligence and
skill that a reasonably prudent person would exercise in comparable
circumstances. Intelligent Polymers has no employees other than its sole
executive officer, who is not a full-time employee of Intelligent Polymers and
who is a full-time employee of Biovail.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH INTELLIGENT POLYMERS
<S> <C> <C>
Eugene N. Melnyk................... 38 Chairman/Chief Executive Officer
Robert A. Podruzny................. 49 Special Director
David J. Doyle..................... 43 Common Director/Secretary
</TABLE>
Mr. Doyle has been a Common Director of Intelligent Polymers since its
organization. Mr. Doyle has been an associate in the law firm of Conyers Dill &
Pearman, Hamilton, Bermuda, since March 1, 1996, and specializes in
international corporate matters with particular emphasis on insurance and
reinsurance. Prior thereto, Mr. Doyle was a partner of the law firm of Appleby,
Spurling & Kempe, Hamilton, Bermuda. Mr. Doyle is a director and officer of
numerous Bermuda companies for which Conyers Dill & Pearman acts as legal
counsel and for which its associated company, Codan Services, Ltd., provides
corporate administrative services.
Biographies of Mr. Melnyk and Mr. Podruzny are set forth below.
BIOVAIL
The following table lists the executive officers and directors of Biovail.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH BIOVAIL
<S> <C> <C>
Eugene N. Melnyk................... 38 Chairman of the Board of Directors
Bruce D. Brydon.................... 50 President, Chief Executive Officer and Director
Rolf K. Reininghaus................ 51 Senior Vice President, Corporate and Strategic
Development and Director
Mahmood Khan....................... 43 Senior Vice President, Chief Operating Officer and
Director
Kenneth C. Cancellara, Q.C......... 50 Senior Vice President, General Counsel, Secretary
and Director
Robert A. Podruzny................. 49 Vice President Finance, Chief Financial Officer
and Director
</TABLE>
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<PAGE> 50
<TABLE>
<CAPTION>
NAME AGE POSITION WITH BIOVAIL
<S> <C> <C>
Wilfred Bristow.................... 65 Director
Roger Rowan........................ 44 Director
Robert Vujea....................... 72 Director
</TABLE>
Mr. Melnyk has been the Chairman of the Board of Directors of Biovail since
Trimel was merged into Biovail on March 29, 1994 (the "Amalgamation"). From
October 1991 to March 1994, he was the Chairman of the Board of Directors of
Biovail Corporation International ("BCI"), a predecessor of Biovail which was
then a subsidiary of Trimel. Mr. Melnyk 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 Biovail
since January 13, 1995 and a Director since May 1995. From 1990 to 1994, he was
President, Managing Director and Chairman of the Board of the Canadian
operations of Boehringer Mannheim. In the late 1980's, Mr. Brydon served as
President and CEO of Beiersdorf Canada.
Mr. Reininghaus has been a Senior Vice President, Corporate and Strategic
Development, and a Director of Biovail from the effective date of the
Amalgamation, March 29, 1994. He was the President, Chief Operating Officer and
a Director of BCI from October 1991 to March 1994 and Executive Vice President
and a Director of Trimel or its affiliates from November 1987 to March 1994.
Prior to his employment by Trimel, Mr. Reininghaus was Marketing Manager of the
Canadian operations of Miles Pharmaceuticals, a division of Bayer AG.
Mr. Khan has been a Senior Vice President and Chief Operating Officer since
January 1996 and has been a Director since the effective date of the
Amalgamation, March 29, 1994. He previously served as the Senior Vice President
- -Finance, Chief Financial Officer and Secretary from March 29, 1994. He was the
Vice President - Finance, Secretary and a Director of BCI from October 1991 to
March 1994 and was Vice President - Finance, Chief Financial Officer, Secretary
and a Director of Trimel from September 1987 to March 1994.
Mr. Cancellara has been Senior Vice President and General Counsel since
March 1996 and Secretary since April 1996, and has been a Director since May
1995. Prior to joining Biovail in March 1996, Mr. Cancellara was a partner with
the law firm of Cassels Brock & Blackwell since 1980 where he served as chairman
of the Executive Committee and managing partner for many years.
Mr. Podruzny has been the Vice President of Finance and Chief Financial
Officer since January 1996 and a Director since 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 January 1993
to October 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 Director of Biovail from the effective date of the
Amalgamation. Prior to that time, he had been a Director of BCI since January
1993. Mr. Bristow has been a senior investment advisor at Nesbitt Burns 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. Rowan was elected a Director of Biovail 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. Vujea was elected a Director of Biovail in June 1997. Mr. Vujea has
been Chairman of the Board of Directors and President of R & D Chemical
Corporation, a chemical manufacturer and distributor, since
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<PAGE> 51
1974. Prior thereto, Mr. Vujea held senior management positions within a number
of companies including American Greeting Card Corporation, Cole National
Corporation and Diverco Incorporated.
SCIENTIFIC ADVISORY BOARD OF BIOVAIL
Biovail's Scientific Advisory Board (the "Scientific Advisory Board")
advises Biovail 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. The Scientific Advisory Board holds meetings with
Biovail throughout the year. Most of the members of the Scientific Advisory
Board act as consultants to Biovail and counsel and advise Biovail on a
continuous basis throughout the year. The following table and subsequent
biographies profile the members of the Scientific Advisory Board:
<TABLE>
<CAPTION>
NAME POSITION
<S> <C>
Arnold H. Beckett, Ph.D............ Chairman of the Scientific Advisory Board
Shrikant V. Dighe, Ph.D............ Pharmaceutical Consultant -- Bethesda, Maryland
Norman W. Lavy, M.D................ Pharmaceutical Research and Medical and Regulatory
Affairs Consultant -- Westfield, New Jersey
Herbert A. Lieberman, Ph.D......... President, H.H. Lieberman Associates, Pharmaceutical
Consulting Firm
</TABLE>
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 honorary degrees at such universities as the University of Heriot-Watt,
Scotland, the University of Uppsala, Sweden, and Leuven, Belgium, Professor
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. Professor Beckett is currently a
member of the Medical Commission of the International Olympic Committee and
Chairman of the International Tennis Federation Medical Commission. Professor
Beckett founded the national Drug Control and Teaching Center in the United
Kingdom. Professor 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. Professor Beckett co-founded Biovail
in 1977.
Shrikant V. Dighe, Ph.D., M.Sc., is a pharmaceutical consultant in
Bethesda, Maryland. He has more than 30 years of experience as a research
scientist, review scientist and scientific manager. Dr. Dighe spent twenty years
with the 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, and 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 of 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 and Sons in 1966. For 15 years, ending in
1987, he headed Bristol-Myers 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
Pharmaceuti-
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<PAGE> 52
cal 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 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.
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<PAGE> 53
SELECTED FINANCIAL DATA OF BIOVAIL
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
The following selected financial data of Biovail 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 of Biovail" included
elsewhere or incorporated by reference herein. The Selected Financial Data
included herein is prepared and presented in accordance with CDN GAAP, which
differ in certain significant respects from U.S. GAAP. See Footnote 1 below for
a description of the principal differences between CDN GAAP and U.S. GAAP as
they relate to Biovail.
The consolidated income statement data for the years ended December 31,
1994, 1995 and 1996 and the consolidated balance sheet data as of December 31,
1995 and 1996 are derived from and are qualified by reference to the audited
consolidated financial statements of Biovail incorporated by reference in this
document. The consolidated income statement data for the years ended December
31, 1992 and 1993 and the consolidated balance sheet data as of December 31,
1992, 1993 and 1994 are derived from the audited consolidated financial
statements included as part of Biovail's Annual Report on Form 20-F for the
prior three fiscal years. The data for the six months ended June 30, 1996 and
1997 are derived from Biovail's unaudited consolidated financial statements,
which, in the opinion of management, include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
information set forth therein. The results of operations for the interim periods
presented are not indicative of the results that may be expected for the full
year.
52
<PAGE> 54
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ -----------------
1992 1993 1994 1995 1996 1996 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT
DATA(1):
Revenue
Contract............. $ 3,148 $ 3,771 $ 3,909 $ 4,333 $ 4,374 $ 2,344 $ 2,159
Manufacturing........ -- -- 4,975 7,915 54,313 27,901 28,537
Royalty, licensing
and other.......... 2,814 5,959 7,680 7,396 7,743 4,332 4,146
-------- ------- ------- ------- ------- ------- -------
Total revenue............. 5,962 9,730 16,564 19,644 66,430 34,577 34,842
Expenses
Cost of contract
revenue............ 2,548 2,783 3,036 2,732 3,417 1,876 1,194
Cost of manufactured
goods sold......... -- -- 2,102 2,715 21,757 11,696 8,181
Research and product
development........ 4,632 2,737 2,542 4,462 7,484 4,015 5,365
Selling, general and
administrative..... 5,507 5,718 6,359 7,182 10,166 6,254 6,725
-------- ------- ------- ------- ------- ------- -------
Total expenses............ 12,687 11,238 14,039 17,091 42,824 23,841 21,465
-------- ------- ------- ------- ------- ------- -------
Operating income (loss)... (6,725) (1,508) 2,525 2,553 23,606 10,736 13,377
Interest income (expense),
net..................... (1,186) (722) (589) (99) 392 321 (66)
Gain on licensing
settlement.............. -- -- -- 3,617 -- -- --
Gain on debt settlement... -- -- 7,955 -- -- -- --
Offering expenses......... (1,115) -- -- -- -- -- --
Income (loss) before
income taxes............ (9,026) (2,230) 9,891 6,071 23,998 11,057 13,311
Provision for income
taxes................... 349 248 430 201 714 620 683
-------- ------- ------- ------- ------- ------- -------
Income (loss) before
undernoted.............. (9,375) (2,478) 9,461 5,870 23,284 10,437 12,628
Minority interest......... (780) (726) -- -- --
Dilution gain on issuance
of common shares by a
subsidiary company...... 1,941 5,871 -- -- -- -- --
Gain on sale of a
subsidiary company...... -- 1,260 -- -- -- -- --
-------- ------- ------- ------- ------- ------- -------
Net income (loss)......... $ (8,214) $ 3,927 $ 9,461 $ 5,870 $23,284 $10,437 $12,628
======== ======= ======= ======= ======= ======= =======
Earnings (loss) per
share(2)(3)............. $ (0.70) $ 0.28 $ 0.43 $ 0.23 $ 0.92 $ 0.41 $ 0.50
-------- ------- ------- ------- ------- ------- -------
Weighted average number of
common shares
outstanding under CDN
GAAP.................... 10,852 12,667 21,850 24,993 25,378 25,346 25,435
======== ======= ======= ======= ======= ======= =======
</TABLE>
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<PAGE> 55
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------------------------------------ -----------------
1992 1993 1994 1995 1996 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA(1)(5):
Working capital
(deficiency)............ $ (3,341) $ 2,338 $ 547 $ 696 $ 9,606 $ 2,902 $20,797
Total assets.............. 23,457 23,265 25,630 60,867 58,606 67,071 75,582
Long-term debt (excluding
current portion)........ 19,874 21,398 9,782 7,951 4,670 6,867 3,659
Shareholders' equity
(capital
deficiency)(4).......... (7,969) (4,760) 7,693 14,592 36,943 24,478 49,793
</TABLE>
- ------------------------------
(1) Summary of differences between CDN GAAP and U.S. GAAP.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ -----------------
1992 1993 1994 1995 1996 1996 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) -- CDN
GAAP..................... $ (8,214) $ 3,927 $ 9,461 $ 5,870 $23,284 $10,437 $12,628
Items excluded from income
under U.S. GAAP
Dilution gain on
issuance of common
shares by a
subsidiary
company............. (1,941) (5,871) -- -- -- -- --
Gain on debt
settlement treated
as contributed
surplus under U.S.
GAAP................ -- -- (7,955) -- -- -- --
-------- ------- ------- ------- ------- ------- -------
Net income (loss) -- U.S.
GAAP..................... $(10,155) $(1,944) $ 1,506 $ 5,870 $23,284 $10,437 $12,628
======== ======= ======= ======= ======= ======= =======
Earnings (loss) per share
-- U.S. GAAP............. $ (0.99) $ (0.16) $ 0.07 $ 0.22 $ 0.87 $ 0.39 $ 0.47
-------- ------- ------- ------- ------- ------- -------
Weighted average number of
common shares outstanding
under U.S. GAAP(3)....... 10,229 12,199 22,635 26,422 26,784 26,763 26,891
-------- ------- ------- ------- ------- ------- -------
</TABLE>
(2) FAS 128, which is effective for interim and annual periods ending after
December 15, 1997 specifies a basis of computation of earnings per share
which would result in the reporting of earnings per share data under U.S.
GAAP equivalent to that under CDN GAAP.
(3) 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 outstanding options.
(4) The capital deficiency which would be reported under U.S. GAAP differs from
the amounts reported under CDN GAAP. The 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 GAAP and U.S. GAAP at December 31, 1994, 1995
and 1996 and June 30, 1996 and 1997.
(5) Upon consummation of the Unit Offering, Biovail will account for its
investment in Intelligent Polymers consisting of Special Shares at its cost
of $12,000.
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<PAGE> 56
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF BIOVAIL
GENERAL
Biovail derives its revenues from (i) developing and licensing oral
controlled release products using its proprietary drug delivery technologies;
(ii) manufacturing such products for sale to licensees and wholesalers; and
(iii) providing pharmaceutical contract research services to third parties.
RESULTS OF OPERATIONS
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 TO SIX MONTHS ENDED JUNE 30, 1996
Revenues for the six months ended June 30, 1997 were $34,842,000, compared
to $34,577,000 in the comparable period in 1996. While the 1997 revenue increase
was small, a sales mix change with respect to Tiazac(R) resulted in a larger
improvement in manufacturing margins and net income, as described below. As a
result, net income for the first six months of 1997 of $12,628,000 represented a
21% improvement over net income of $10,437,000 in the comparable period in 1996.
Revenue realized by the CRD from third-party customers was $2,159,000 in
the six months ended June 30, 1997, compared to $2,344,000 in the comparable
period in 1996. Revenues decreased in the first six months of 1997 primarily as
a result of the CRD having performed more services for Biovail and fewer
services for third parties. The operating margin on the CRD's services to third
parties was 45% in the six months ended June 30, 1997, compared to 20% in the
comparable period in 1996 as a result of cost reductions and a more profitable
mix of services.
Manufacturing revenues of $28,537,000 were generated on sales of Tiazac(R)
in the six months ended June 30, 1997, compared to $27,901,000 in the comparable
period in 1996. In the six months ended June 30, 1997, U.S. "trade sales" (sales
other than sample sales) were approximately 80% of total unit sales as compared
to only 40% in the comparable period in 1996. Trade supplies are sold at a
slightly higher price than sample sales and also have a lower cost of
manufacture due to lower packaging and labor costs, resulting in a higher margin
for trade sales. In addition, Biovail launched Tiazac(R) in Canada in 1997,
accounting for approximately 20% of total manufacturing revenues in the first
six months of 1997. Canadian sales are at a higher margin than U.S. sales due to
the direct sale by Biovail's distribution subsidiary in Canada, Crystaal, as
opposed to U.S. sales, which are made through a third-party distributor. As a
result of the higher percentage of trade sales, launch of Tiazac(R), in Canada
and improved manufacturing efficiencies, the manufacturing margin increased to
71% in the first six months of 1997 as compared to 58% in the comparable period
in 1996.
Royalty revenue, net of royalty expenses, totaled $4,146,000 in the six
months ended June 30, 1997, compared to $4,332,000 in the comparable period in
1996. Net royalty revenues decreased relative to the first six months of 1996 as
a result of royalties paid to Galephar on Canadian Tiazac(R) sales by Crystaal
in the first six months of 1997.
Research and product development expenses were $5,365,000 in the six months
ended June 30, 1997, an increase from $4,015,000 in the comparable period in
1996, reflecting significant activity on the development of pipeline products.
Selling, general and administrative expenses were $6,725,000 in the six
months ended June 30, 1997, an increase from $6,254,000 in the comparable period
in 1996, primarily as a result of promotional costs related to the launch of
Tiazac(R) in Canada.
Operating income of $13,377,000 was achieved in the six months ended June
30, 1997 compared to operating income of $10,736,000 in the comparable period in
1996. Canadian operations incurred operating losses of $141,000 in the six
months ended June 30, 1997 as compared to operating losses of $5,611,000 in the
comparable period in 1996. The decrease in operating losses is due to the impact
of the launch of Tiazac(R) in Canada in 1997. Losses in Canadian operations are
due to the current low level of revenues generated in Canada compared to
expenses incurred with respect to its corporate office, sales and marketing
operations and
55
<PAGE> 57
research and development activity. Operating income of $2,619,000 and $2,129,000
in each of the six months ended June 30, 1997 and the comparable period in 1996,
respectively, was earned by Biovail's subsidiary in Switzerland through
royalties earned on Biovail's products. Biovail's operations in Barbados and
Puerto Rico contributed operating income of $10,899,000 in the six months ended
June 30, 1997 compared to $14,218,000 in the comparable period in 1996. The
decline in operating income was due primarily to the higher level of research
and development costs in the 1997 period.
COMPARISON OF FISCAL YEARS 1996, 1995 AND 1994
Revenues in 1996 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 was achieved in 1996, compared with $5,870,000
earned in 1995 and $9,461,000 in 1994.
Included in income in 1995 and 1994 were non-operating items of $3,617,000
and $7,955,000, respectively. The 1995 non-operating item was a gain resulting
from proceeds from a settlement with Hoechst in the sum of $7.5 million, less
legal and other related expenses. The 1994 non-operating item was a gain on the
settlement of debt when, in connection with the Amalgamation, a company
controlled by a director of Biovail assumed net indebtedness of $9,604,000 in
exchange for 1,656,000 common shares of a former subsidiary, owned by Biovail.
Excluding these non-operating items in 1995 and 1994, net income would have been
$2,253,000 and $1,506,000, respectively.
Revenue. The CRD generated revenues from third parties of $4,374,000 in
1996, compared to $4,333,000 and $3,909,000 in 1995 and 1994, respectively. Net
of significant one-time settlements received in 1995, 1996 CRD revenues
increased 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, respectively. All manufacturing revenues were
generated from the sale of Tiazac(R). In 1996, all sales were to Forest. In
1995, sales were primarily to Forest, but included sales to Biovail's previous
licensee, Hoechst. In 1994, all sales were to Hoechst.
Net royalty revenue earned by Biovail in 1996 was $7,743,000, compared to
$6,655,000 in 1995 and $6,124,000 in 1994. The increase in net royalty revenue
in 1996 was 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 was
primarily due to increased Oruvail sales in the United States by Biovail'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 related to the rights for Tiazac(R) granted to Hoechst
for the United States and to a licensee for Canada.
Expenses. The cost of contract research increased to 78.1% of contract
revenue in 1996 from 63.0% in 1995. However, 1995 was favorably impacted due to
the inclusion in revenue of non-refundable prepaid amounts which were retained
by Biovail as part of a settlement with Hoechst, the exclusion of which would
have resulted in a cost of contract research of 81%. Cost of contract research
in 1994 was 77.8%.
The cost of manufactured goods sold was 40.1% in 1996. Data for 1995 and
1994 are not meaningful because of the low sales volumes in those years. In
1996, the cost of manufactured goods sold was impacted by the higher proportion
of Tiazac(R) samples versus trade sales, approximating 60% versus 40%,
respectively.
Research and product development expenses were $7,484,000 in 1996, a 68%
increase over the $4,462,000 expended in 1995, while such expense in 1995
increased 76% over the $2,542,000 expended in 1994. The increasing expenditures
year over year reflect Biovail's increased activities in developing its product
pipeline and the establishment in 1996 of a research and development facility in
Toronto.
Selling, general and administrative expenses increased to $10,166,000,
compared to $7,182,000 in 1995 and $6,359,000 in 1994, respectively. The year to
year increases are primarily due to the hiring of key management personnel, the
establishment of the Canadian sales operation in 1996 and 1995 and increased
administrative activities associated with Biovail's manufacturing facilities.
56
<PAGE> 58
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. Losses in Canadian operations are due to the current low
level of revenues generated in Canada compared to expenses incurred with respect
to its corporate office, sales and marketing operations and research and
development activity. Operating income of $4,167,000, $2,571,000 and $2,225,000
in each of 1996, 1995 and 1994, respectively, was earned by Biovail's subsidiary
in Switzerland through royalties earned on Biovail's products. Biovail's
operations in 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.
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.
Income taxes in 1996, 1995 and 1994 in the amounts of $714,000, $201,000
and $430,000, respectively, relate primarily to Biovail'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 tax law in that jurisdiction, effective January 1, 1995. No
provision for income taxes was recorded in 1995 and 1994 with respect to gains
on the debt settlement or the licensing settlement because tax losses from
Canadian operations were sufficient to offset such gains.
LIQUIDITY AND CAPITAL RESOURCES
As at June 30, 1997, Biovail's working capital was $20,797,000, compared to
$9,606,000 at December 31, 1996, which represented a working capital ratio of
1.9:1 as compared to 1.6:1, respectively.
Biovail had negative cash flow of $3,887,000 in the six months ended June
30, 1997, compared to positive cash flow of $2,080,000 in the comparable period
in 1996. Although cash generated from operations before the change in non-cash
operating items was $14,059,000 and $11,430,000 in the six months ended June 30,
1997 and 1996, respectively, increased working capital requirements in the first
six months of 1997 exceeded the cash flow otherwise generated from operations,
primarily due to an increase in accounts receivable related to the initial
launch of Tiazac(R) in Canada and substantial shipments of Tiazac(R) to Forest
in June 1997, resulting in the net negative cash flow from operations in the
first six months of 1997. Although similar increases in the non-cash components
of working capital relative to operating income may occur in the future, Biovail
believes such increases are temporary in nature and are not expected to have a
long-term effect on Biovail's cash flows.
For the first six months of 1997 and 1996, cash flow used in investing
activities was $2,198,000 and $3,351,000, respectively, in each case,
representing primarily additions to fixed assets.
In the six months ended June 30, 1997, $1,304,000 of long-term debt was
repaid and proceeds of $337,000 were received from the issuance of common
shares. In the comparable period in 1996, net long-term debt repayments were
$488,000, and proceeds of $99,000 were received from the issuance of common
shares.
Exchange rate changes on foreign cash balances resulted in a reduction of
cash of $32,000 in the six months ended June 30, 1997, compared to a reduction
of $727,000 in the comparable period in 1996.
As a result of the foregoing, Biovail's cash as at June 30, 1997 was
$6,774,000, compared to $4,526,000 and $21,936,000 at December 31, 1996 and June
30, 1996, respectively.
Biovail's total long-term debt was $5,615,000 at June 30, 1997, compared to
$6,968,000 at December 31, 1996 and $9,694,000 at June 30, 1996. In addition,
Biovail has available lines of credit aggregating $45,000,000 for short-term
financing, of which $9,332,000 was utilized as of June 30, 1997 and none was
utilized as of December 31, 1996.
Biovail believes it has adequate capital and sources of financing to
support its ongoing operational requirements for at least the next 24 months and
that payments to Biovail under the Development Contract will be sufficient to
fund its obligations thereunder. Furthermore, Biovail believes it will be able
to obtain long-
57
<PAGE> 59
term capital, if necessary, to support its growth objectives. There can be no
assurance, however, that Biovail's capital and sources of financing or its
ability to obtain additional capital or sources of financing, at acceptable
terms, will be sufficient to sustain Biovail's ongoing operational requirements
or its growth objectives.
Biovail and its subsidiaries generate revenue and expenses primarily in
U.S. and Canadian dollars. For the period ending June 30, 1997, revenue was
generated in the following proportions: 75% in U.S. dollars, 23% in Canadian
dollars and 2% in other currencies. In addition, expenses were incurred in the
following proportions: 70% in U.S. dollars and 30% in Canadian dollars. Since
Biovail's revenue and expenses are primarily denominated in U.S. and Canadian
dollars and because of the relative stability of the Canadian dollar compared to
the U.S. dollar, Biovail does not currently believe that its exposure to foreign
currency exchange risk is significant. Biovail has not historically utilized
foreign currency hedging instruments.
INFLATION
Inflation has not had a material impact on Biovail's operations.
INTELLIGENT POLYMERS
Intelligent Polymers was formed by Biovail in July 1997 and has not yet
conducted any business. Intelligent Polymers has entered into the Development
Contract and Service Agreement with Biovail. Payments to Biovail under the
Development Contract will be in amounts equal to Biovail's actual internal
costs, plus 45%, consistent with contractual relationships Biovail has with
other third parties. Services provided by third parties under contract to
Biovail, however, will be billed at Biovail's actual cost plus 15%. Under CDN
GAAP, Biovail will record all such payments, including the initial payments
under the Development Contract of $3.5 million and $1.25 million, respectively,
as either research and development contract or licensing revenue. Under U.S.
GAAP, the payments received pursuant to the Development Contract will be
prorated between revenue and the warrant subscription receivable recorded as a
contra-equity account in shareholders' equity (as described below). The Biovail
Option will be granted pursuant to the Development Contract and the option price
has been determined by negotiations between Biovail and Intelligent Polymers
giving consideration to similar provisions of agreements between other parties
in similar transactions. The Biovail Option may be exercised by Biovail upon its
agreement to pay, at Biovail's option, either of (i) base royalties of 10% of
the net sales from the relevant Product during the License Period or (ii) within
30 days of the exercise of the Biovail Option, a lump sum of $25.0 million.
Payments to Biovail under the Services Agreement will be in the amount of
$100,000 per quarter to cover the provision of management and administrative
services by Biovail.
Intelligent Polymers will receive net proceeds of approximately $
as a result of the Unit Offering ($ if the Underwriters' over-allotment
option is exercised in full.) All such proceeds, including the proceeds
attributable to the value of the Biovail Warrants will be included in
Intelligent Polymers' shareholder's equity either as capital attributable to
Intelligent Polymers' Common Shares or additional paid-in capital attributable
to the Warrants.
As a consequence of the Unit Offering, under CDN GAAP, Biovail will record
a credit to equity equal to the proceeds attributable to the Warrants included
in the Unit Offering and a charge of an equivalent amount to retained earnings
to reflect the equivalent contribution to Intelligent Polymers. For U.S. GAAP
purposes, Biovail will recognize the fair value of the Warrants as a credit to
equity with an offsetting debit to a contra-equity account entitled "warrant
subscription receivable."
Intelligent Polymers expects to use substantially all of the net proceeds
of the Unit Offering, less $1 million to be used as working capital and a
reserve of $1.5 million for possible litigation relating to the Additional
Product, for payments under the Development Contract for the purpose of (i)
conducting toxicity studies, formulation development and clinical studies for,
and pursuing U.S. regulatory approval of, the Products other than the Additional
Product and (ii) conducting clinical studies for, and pursuing U.S. regulatory
approval of, the Additional Product. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Intelligent Polymers -- Liquidity and Capital Resources."
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<PAGE> 60
Upon consummation of the Unit Offering, Biovail will account for its
investment in Intelligent Polymers consisting of Special Shares at its cost of
$12,000.
Biovail, as the holder of all of the issued and outstanding Special Shares,
has the right under the Purchase Option to purchase all, but not less than all,
of Intelligent Polymers' Common Shares. The Purchase Option Exercise Price will
be determined by Biovail and Intelligent Polymers giving consideration to the
compound annual rate of return, as required by potential investors, to be
achieved upon any exercise of the Purchase Option, the implied returns to
investors purchasing securities with a similar structure historically and the
comparability of the Unit Offering to those prior offerings; the value of the
Warrants; the nature of the Products; the agreements between Biovail and
Intelligent Polymers; and such other factors as Biovail and Intelligent Polymers
deem appropriate and advice given by the Underwriters. The Purchase Option
Exercise Price may be paid by Biovail in cash or Biovail Common Shares, or any
combination thereof. Payment by Biovail of the Purchase Option Exercise Price in
cash would have a significant effect on Biovail's financial position and payment
by Biovail in Biovail Common Shares would have an effect on Biovail's
capitalization and result in dilution of existing shareholders' ownership
percentage. Until the actual proportion of the Purchase Option Exercise Price
that will be paid in cash, if any, is determined, the impact on Biovail's
financial position and capitalization cannot be quantified precisely.
Under U.S. GAAP, a portion of any purchase price paid on the acquisition of
Intelligent Polymers would be allocated to "in-process research and
development". Accordingly, the exercise of the Purchase Option and the
acquisition of Intelligent Polymers would result in an immediate charge to
operations if and when the Purchase Option were to be exercised. Under CDN GAAP,
the entire cost of the acquisition, including the portion allocated to
"in-process research and development," would be capitalized and there would be
no immediate write-off.
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<PAGE> 61
SELECTED FINANCIAL DATA OF INTELLIGENT POLYMERS
Intelligent Polymers was recently formed and has no prior operating
history. Prior to the consummation of the Unit Offering, Intelligent Polymers
was nominally capitalized, with share capital of $12,000. See "Risk Factors --
Risks Related to Intelligent Polymers -- No Assurance of Profitability."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OF INTELLIGENT POLYMERS
GENERAL
Intelligent Polymers was formed by Biovail in July 1997 and has not yet
conducted any business. Intelligent Polymers has entered into the Development
Contract with Biovail. Intelligent Polymers will receive net proceeds of
approximately $ as a result of the Unit Offering ($ if the
Underwriters' over-allotment option is exercised in full). Intelligent Polymers
expects to use substantially all of such proceeds, less $1.0 million to be used
as working capital and a reserve of $1.5 million for possible litigation
relating to the Additional Product, for payments under the Development Contract
for the purpose of (i) conducting toxicity studies, formulation development and
clinical studies for, and pursuing U.S. regulatory approval of, the Products
other than the Additional Product and (ii) conducting clinical studies for, and
pursuing U.S. regulatory approval of, the Additional Product. For an estimated
schedule of expenditures by Intelligent Polymers under the Development Contract,
see "Use of Proceeds."
SPECIAL SHARES
There are currently issued 12,000 Special Shares, all of which are held by
Biovail. These shares have no right to any profits of Intelligent Polymers.
Following the issuance of the Intelligent Polymers Common Shares, the Special
Shares do not confer on the holders thereof the right to vote at any meeting of
Intelligent Polymers shareholders except as referred to in the next paragraph
and except that holders of a majority of Special Shares are entitled to elect
one director. In the event of the winding up of Intelligent Polymers, the
Intelligent Polymers Common Shares shall have a priority over the Special Shares
with respect to return of capital, and the Special Shares shall not otherwise be
entitled to participate in any way in the profits or assets of Intelligent
Polymers.
Until the expiration of the Purchase Option, no resolution or act of
Intelligent Polymers to authorize or permit any of the following will be
effective without the prior written approval of the holders of a majority of the
outstanding Special Shares: (i) the allotment or issue of shares or other
securities of Intelligent Polymers or the creation of any right to such an
allotment or issue; (ii) the reduction of Intelligent Polymers' authorized share
capital; (iii) outstanding borrowings by Intelligent Polymers over an aggregate
of $1 million; (iv) the sale or other disposition of or the creation of any lien
or liens on the whole or a material part of Intelligent Polymers' undertaking or
assets; (v) the declaration or payment of dividends or the making of any other
distributions to shareholders; (vi) the amalgamation of Intelligent Polymers;
and (vii) any alteration of the Purchase Option. See "The Agreements and the
Purchase Options -- Purchase Option"
Thus Biovail, as the holder of a majority of the outstanding Special
Shares, could preclude the holders of a majority of the outstanding Intelligent
Polymers Common Shares and the Board of Directors of Intelligent Polymers from
taking any of the foregoing actions during such period. In addition, any
resolution to wind up the affairs of or liquidate Intelligent Polymers will
confer upon the holders of the Special Shares a right to vote and such Special
Shares will carry a number of votes equal to the total number of votes carried
by the Intelligent Polymers Common Shares at the time outstanding.
PURCHASE OPTION
Biovail's Purchase Option, as the holder of the Special Shares of
Intelligent Polymers, is set forth in Intelligent Polymers' Bye-Laws. The
Purchase Option is an exclusive, irrevocable option to purchase all, but not
less than all, of the issued and outstanding Intelligent Polymers Common Shares.
The Purchase Option will be exercisable by written notice given at any time
beginning on the closing date of the Unit Offering and
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ending on the earlier of (i) September 30, 2002 and (ii) the 90th day, after the
Financial Notice; provided, however, that if Biovail, prior to such 90th day,
shall provide written confirmation to Intelligent Polymers that Biovail will use
commercially reasonable efforts, at no expense to Intelligent Polymers beyond
the Available Funds, to continue to develop any or all of the Products, the
Purchase Option shall continue in effect through such date for so long as
Biovail continues to use commercially reasonable efforts, but in no case beyond
September 30, 2002.
EXPENSES
Intelligent Polymers will treat payments to Biovail under the Development
Contract as research and development expenses for accounting purposes.
LIQUIDITY AND CAPITAL RESOURCES
It is anticipated that Intelligent Polymers will pay to Biovail under the
Development Contract substantially all of the net proceeds of the Unit Offering,
together with interest earned thereon, less working capital to be retained by
Intelligent Polymers of $1.0 million and a reserve of $1.5 million for possible
litigation.
It is anticipated that the estimated net proceeds of the Unit Offering of
$54.7 million (after payments of the underwriting discounts and commissions and
other estimated expenses relating to the Unit Offering and the initial payments
under the Development Contract of $1.25 million and $3.5 million, respectively)
will be spent over the period beginning upon issuance of the Units and ending
March 31, 2001. Currently, Intelligent Polymers has no alternative sources for
funding.
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DESCRIPTION OF THE WARRANTS AND THE BIOVAIL COMMON SHARES
THE WARRANTS
Each Unit includes one Warrant to purchase one Biovail Common Share. Until
the Separation Date, the Warrants will trade only with the Intelligent Polymers
Common Shares as Units. From and after such date, the Warrants will be separable
from the Intelligent Polymers Common Shares and will trade independently.
The Warrants will be exercisable at any time from October 1, 1999 through
September 30, 2002 (the "Warrant Expiration Date") at an exercise price per
Biovail Common Share of $ (the "Warrant Exercise Price"), subject to certain
adjustments, as described below. Warrants not exercised on or prior to the
Warrant Expiration Date shall become void and all rights in respect thereof
shall cease as of such time.
Biovail has executed a Warrant Agreement with (the "Warrant
Agent") in favor of the Warrant holders which will provide that the number of
Biovail Common Shares to be obtained upon exercise of a Warrant and the Warrant
Exercise Price are subject to adjustment (a) in the event of a stock dividend,
split-up, subdivision, consolidation or reclassification of Biovail Common
Shares, (b) in the event of a merger or amalgamation of Biovail with another
entity or the sale of substantially all of the assets of Biovail and (c) in the
event that securities or assets of Biovail are issued as a dividend on
outstanding Biovail Common Shares.
The Warrants do not confer upon the holder thereof any voting, preemptive
or other rights as a stockholder of Biovail.
Warrants may be exercised in whole or in increments of ten Biovail Common
Shares. The Warrants may be exercised by surrender to the Warrant Agent of a
duly executed certificate evidencing the Warrants accompanied by payment in full
by check, payable to the order of Biovail, for the Warrant Exercise Price.
Biovail intends to pay the Warrant Agent's fee for the collection of the
Warrant, if applicable, and the Warrant Agent's fee for the issuance of the
Biovail Common Shares.
Certificates evidencing the Warrants will bear the following legend:
"Until September 30, 1999 or such earlier date as the Purchase Option
is exercised or expires unexercised (the 'Separation Date'), the
Warrants represented by this Certificate may be traded, exchanged or
otherwise transferred only together with the Common Shares of
Intelligent Polymers Limited issued herewith. The holder hereof may,
but need not, submit this Certificate for the removal of this legend
after the Separation Date."
The fair value of the Warrants will be determined by agreement among
Biovail, Intelligent Polymers and the Underwriters subsequent to the completion
of the Unit Offering and will be based on valuation principles applicable to
such contingent securities. The fair value of the Warrants will be estimated
using an option pricing model that will take into account as of the date of
issue of the Warrants: the Warrant Exercise Price, the then current price of
Biovail Common Shares, the life of the Warrants, the non-separability of each
Warrant from its Unit for the first two years, the expected volatility in the
Biovail Common Shares' market price, the expected dividend payments from Biovail
and the then current risk-free interest rate estimated for the expected life of
the Warrants.
THE BIOVAIL COMMON SHARES
Biovail is authorized to issue 60,000,000 Biovail Common Shares, without
par value. As of July 28, 1997, Biovail had outstanding 25,471,140 Biovail
Common Shares. Each holder of Biovail Common Shares is entitled to one vote per
share in the election of directors of Biovail and on all other matters submitted
to a vote of shareholders of Biovail. The holders of Biovail Common Shares are
entitled to share pro rata in any dividends declared by the Board of Directors
of Biovail and, in the event of liquidation, in the net assets of Biovail
available for distribution. There are no preemptive or conversion rights, and
the Biovail Common Shares are not subject to redemption. All Biovail Common
Shares now outstanding and to be outstanding upon exercise of the Warrants are,
and will be, fully paid and non-assessable.
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Biovail's by-laws provide for certain of the rights of shareholders of
Biovail in accordance with statutory guidelines of the Business Corporations Act
(Ontario) which provide that such by-laws may be amended by a majority vote of
the shareholders or by a majority vote of the Board of Directors of Biovail. Any
amendment of the by-laws by action of the Board of Directors of Biovail must be
submitted to the next meeting of the shareholders of Biovail whereupon the
by-laws amendment must be confirmed, confirmed as amended or repealed by a
majority vote of the shareholders of Biovail.
Shareholders do not have cumulative voting rights for the election of
directors. Therefore, the holders of more than 50% of the shares voting for the
election of directors could, if they choose to do so, elect all of the directors
and, in such event, the holders of the remaining shares would not be able to
elect any director.
While the payment of dividends rests within the discretion of the Board of
Directors, Biovail presently intends to retain all earnings, if any, in the
foreseeable future for use in the development of its business. See "Price Range
of Biovail Common Shares and Dividend Policies."
ChaseMellon Shareholder Services and CIBC Mellon Trust Company are the
principal transfer agents and registrars for the Biovail Common Shares in the
U.S. and Canada, respectively.
There is no provision in Biovail's charter or by-laws that would have the
effect of delaying, deferring or preventing a change in control in Biovail or
that would operate only with respect to an extraordinary corporate transaction
involving Biovail, such as a merger, reorganization, tender offer, sale or
transfer of substantially all of Biovail's assets or liquidation. However,
certain special requirements apply to the acquisition by a non-Canadian of
control of a Canadian business. See "Exchange Controls and Other Limitations
Affecting Security Holders."
DESCRIPTION OF INTELLIGENT POLYMERS CAPITAL STOCK
Intelligent Polymers authorized capital stock consists of 5,300,000 common
shares, par value $0.01 per share (the "Intelligent Polymers Common Shares"),
and 12,000 Special Shares, par value $1.00 per share. It is not expected that
Intelligent Polymers will pay any dividends for the foreseeable future.
INTELLIGENT POLYMERS COMMON SHARES
GENERAL
Upon completion of the Unit Offering all of the outstanding Intelligent
Polymers Common Shares will be duly authorized, fully paid and validly issued.
See "The Agreements and the Purchase Option -- Purchase Option." Holders of
Intelligent Polymers Common Shares are entitled to receive such dividends as may
be recommended by the Board of Directors of Intelligent Polymers and approved by
the majority Special Shareholder. It is expected that Intelligent Polymers will
not pay dividends on the Intelligent Polymers Common Shares. In a solvent
winding-up or liquidation of Intelligent Polymers, the assets available for
distribution among the holders of Intelligent Polymers Common Shares shall be
distributed pro rata. Intelligent Polymers Common Shares have no conversion or
redemption rights. Prior to the Unit Offering, no Intelligent Polymers Common
Shares are outstanding.
VOTING RIGHTS
The Bye-Laws of Intelligent Polymers provide that the holders of
Intelligent Polymers Common Shares are entitled to one vote per share, either in
person or by proxy, at shareholder meetings. Two or more shareholders present in
person or by proxy holding not less than one third of the issued and outstanding
Intelligent Polymers Common Shares constitutes a quorum at such meetings. A
majority of votes cast is required for most items of business placed before a
general meeting of shareholders. The consent of the holder of Special Shares is
required for certain actions. See "Risk Factors -- Business Risks Related to
Intelligent Polymers -- Limitation on Certain Intelligent Polymers Activities."
Shareholders do not have cumulative voting rights for the election of directors,
which means that the holders of a majority of the shares elect all of the
directors.
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SHAREHOLDER MEETINGS
Under Bermuda company law, a meeting of the shareholders of a company must
be convened at least once every calendar year. This meeting, referred to as the
annual general meeting, may, but as a matter of law need not, be held in
Bermuda. Notice of all general meetings of the shareholders must be furnished to
shareholders, specifying the place, the day and the hour of the meeting and the
general nature of the business to be considered.
CLASS ACTION SUITS AND SHAREHOLDERS' ACTIONS
Bermuda law permits an action by a shareholder in his own right where he
alleges that his personal rights have been infringed. If such a shareholder has
rights which are identical to those enjoyed by other members or by all members
of the same class of shareholders, it is possible for the shareholder to
commence a suit in a representative capacity on behalf of himself and the other
persons affected.
Additionally, under Bermuda company law any shareholder of a company who
claims that the affairs of the company are being conducted, or that the powers
of the directors of the company are being exercised, in a manner oppressive to
him or any of the shareholders (including himself) or in disregard of his or
their interests as shareholders, may apply to the courts for an appropriate
order.
DIRECTORS' INTERESTS
Subject to the provisions of the Bermuda Companies Act, 1981 (the
"Companies Act"), a director of a company may, notwithstanding his office, be a
party to or otherwise interested in any transaction or arrangement with such
company or in which such company is otherwise interested; and be a director or
officer of, or employed by, or a party to any transaction or arrangement with,
or otherwise interested in, any body corporate promoted by such company or in
which such company is interested. So long as, where it is necessary, a director
declares the nature of his interest at the first opportunity at a meeting of the
board or by writing to the directors as required by the Companies Act, a
director shall not by reason of his office be accountable to a company for any
benefit which he derives from any office or employment to which the bye-laws of
the company allow him to be appointed or from any transaction or arrangement in
which the bye-laws of such company allow him to be interested, and no such
transaction or arrangement shall be liable to be avoided on the ground of any
such interest or benefit. A general notice to the directors by a director or
officer declaring that he is a director or officer or has an interest in a
person and is to be regarded as interested in any transaction or arrangement
made with that person shall be a sufficient declaration of interest in relation
to any transaction or arrangement so made.
INTELLIGENT POLYMERS SPECIAL SHARES
There are currently issued 12,000 Special Shares, all of which are held by
Biovail. Following the issuance of the Intelligent Polymers Common Shares, the
Special Shares do not confer on the holders thereof the right to vote at any
meeting of Intelligent Polymers shareholders except as referred to in the next
paragraph and except that holders of a majority of Special Shares are entitled
to elect one director. Nor do these shares have the right to any profits of
Intelligent Polymers. In the event of the winding up of Intelligent Polymers,
the Intelligent Polymers Common Shares shall have a priority over the Special
Shares with respect to return of capital, and the Special Shares shall not
otherwise be entitled to participate in any way in the profits or assets of
Intelligent Polymers.
Until the expiration of the Purchase Option, no resolution or act of
Intelligent Polymers to authorize or permit any of the following will be
effective without the prior written approval of the holders of a majority of the
outstanding Special Shares: (i) the allotment or issue of shares or other
securities of Intelligent Polymers or the creation of any right to such an
allotment or issue; (ii) the reduction of Intelligent Polymers' authorized share
capital; (iii) outstanding borrowings by Intelligent Polymers over an aggregate
of $1 million; (iv) the sale or other disposition of or the creation of any lien
or liens on the whole or a material part of Intelligent Polymers' undertaking or
assets; (v) the declaration or payment of dividends or the making of any other
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distributions to shareholders; (vi) the amalgamation of Intelligent Polymers;
and (vii) any alteration of the Purchase Option. See "The Agreements and the
Purchase Options -- Purchase Option."
Thus Biovail, as the holder of a majority of the outstanding Special
Shares, could preclude the holders of a majority of the outstanding Intelligent
Polymers Common Shares and the Board of Directors of Intelligent Polymers from
taking any of the foregoing actions during such period. In addition, any
resolution to wind up the affairs of or liquidate Intelligent Polymers will
confer upon the holders of the Special Shares a right to vote and such Special
Shares will carry a number of votes equal to the total number of votes carried
by the Intelligent Polymers Common Shares at the time outstanding.
THE AGREEMENTS AND THE PURCHASE OPTION
PURCHASE OPTION
Biovail's Purchase Option, as the holder of the Special Shares of
Intelligent Polymers, is set forth in Intelligent Polymers' Bye-Laws. The
Purchase Option is an exclusive, irrevocable option to purchase all, but not
less than all, of the issued and outstanding Intelligent Polymers Common Shares.
The Purchase Option will be exercisable by written notice given at any time
beginning on the closing date of the Unit Offering and ending on the earlier of
(i) September 30, 2002 and (ii) the 90th day, after the Financial Notice;
provided, however, that if Biovail, prior to such 90th day, extends such period
by providing additional funding for the continued development of any or all of
the Products or provides written confirmation to Intelligent Polymers that
Biovail will use commercially reasonable efforts, at no expense to Intelligent
Polymers beyond the Available Funds, to continue to develop any or all of the
Products, the Purchase Option shall continue in effect through such date, but in
no case beyond September 30, 2002.
The Purchase Option Exercise Price per share is currently expected to be as
follows:
<TABLE>
<CAPTION>
EXPECTED PURCHASE
IF THE INTELLIGENT POLYMERS COMMON SHARES ARE ACQUIRED PURSUANT TO THE OPTION
PURCHASE OPTION: EXERCISE PRICE
- ----------------------------------------------------------------------- -----------------------
<S> <C>
Before October 1, 2000................................................. $ 39.06
On or after October 1, 2000 and on or before September 30, 2001........ 48.83
On or after October 1, 2001 and on or before September 30, 2002........ 61.04
</TABLE>
The Expected Purchase Option Excercise Prices set forth above are subject
to change at the time of the pricing of the Unit Offering based on the
considerations described under "Underwriting," including the compound annual
rate of return, as required by potential investors, to be achieved upon any
exercise of the Purchase Option, but will not be less than $34.56 for the period
before October 1, 2000, $41.47 for the period from October 1, 2000 through
September 30, 2001 and $49.77 for the period from October 1, 2001 through
September 30, 2002.
The Purchase Option Exercise Price may be paid in cash or in Biovail Common
Shares, or in any combination of the foregoing, at Biovail's sole discretion.
Any such Biovail Common Shares will be valued based upon the average of the
closing prices for Biovail Common Shares on the NYSE for the five trading days
immediately preceding the date of any such notice. In the event the Purchase
Option were transferred, the payment by the subsequent holder of the majority of
the Special Shares could be made in cash or, if such holder is a company whose
common equity securities are listed on a national securities exchange in the
United States or admitted to unlisted trading privileges or listed on the Nasdaq
National Market System, in the sole discretion of such holder, in shares of such
listed common equity security.
Under its Bye-Laws, Intelligent Polymers will be restricted from taking or
permitting certain actions inconsistent with Biovail's rights under the Purchase
Option. For example, until the expiration of the Purchase Option, Intelligent
Polymers may not, without the consent of the holder of a majority of the Special
Shares, issue additional capital stock, amalgamate or amend its Bye-Laws to
alter the Purchase Option. The Special Shares and the rights attached thereto
are unconditionally transferable without limitation, subject to compliance with
the law and the prior written approval of the Bermuda Monetary Authority
(Foreign
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Exchange Control). At present Biovail has no intention of transferring such
Special Shares. See "Description of Intelligent Polymers Capital Stock."
Certificates evidencing the Intelligent Polymers Common Shares will bear
the following legend:
"The securities of Intelligent Polymers Limited, a Bermuda company
('Intelligent Polymers'), evidenced hereby are subject to an option of
the holder or holders of a majority of the Special Shares of
Intelligent Polymers, as described in the Bye-Laws of Intelligent
Polymers, to purchase such securities at an agreed upon price,
exercisable by notice at any time beginning on the closing date of the
Unit Offering and ending on the earlier of (i) September 30, 2002 and
(ii) the 90th day after the date that Intelligent Polymers provides
such holder or holders with quarterly financial statements of
Intelligent Polymers showing cash or cash equivalents of less than
$3.0 million. Copies of the Bye-Laws of Intelligent Polymers are
available at the registered office of Intelligent Polymers at Conyers
Dill & Pearman, Clarendon House, 2 Church Street, Hamilton HM 11,
Bermuda, and will be furnished to any shareholder of Intelligent
Polymers on request and without cost.
"Until September 30, 1999 or such earlier date as the Purchase Option
is exercised or expires unexercised (the 'Separation Date'), the
shares represented by this Certificate may be traded, exchanged or
otherwise transferred only together with the Warrants of Biovail
Corporation International issued herewith. The holder hereof may, but
need not, submit this Certificate for the removal of this legend after
the Separation Date."
DEVELOPMENT CONTRACT
Under the Development Contract, Biovail has agreed to use diligent efforts
to (i) conduct toxicity studies, formulation development and clinical studies
for, and pursue U.S. regulatory approval of, the Products other than the
Additional Product and (ii) conduct clinical testing, and pursue U.S. regulatory
approval of, the Additional Product. Biovail and Intelligent Polymers have
mutually designated the Products for development under the Development Contract.
The Board of Directors of Intelligent Polymers has the right, with the consent
of Biovail, to select additional controlled release Products for development
under the Development Contract. It is anticipated that Intelligent Polymers will
pay to Biovail under the Development Contract substantially all of the net
proceeds of the Unit Offering, together with interest earned thereon, less
working capital to be retained by Intelligent Polymers of $1.0 million and a
reserve of $1.5 million for possible litigation relating to the Additional
Product.
Payments to Biovail under the Development Contract will be in amounts equal
to the full amount of all of Biovail's research expenses, general and
administrative expenses, capital asset costs and all other costs and expenses
(the "Development Costs") incurred by Biovail in performing the activities
described above, up to the amount of Available Funds. Development Costs consist
of (i) development expenses (including salaries, benefits and supplies), which
are billed at a rate of cost plus 45% of costs; provided, however, that services
provided by third parties will be billed at a rate of cost plus 15% of costs;
(ii) an initial payment of $3.5 million for access to and use of Biovail's
proprietary technology in connection with product development; and (iii) an
initial payment of $1.25 million as payment for the transfer of the Additional
Product, based on Biovail's Development Costs in May and June 1997 relating to
the development of the Additional Product.
The pricing structure is considered by Biovail to be consistent with
contractual relationships it has had with other third parties.
Intelligent Polymers will make payments to Biovail quarterly, in advance,
based on initial budgets prepared by Biovail for all of the Development Costs
expected to be incurred during such quarter. Biovail is required to provide
quarterly reports to Intelligent Polymers stating the Development Costs incurred
during such quarter and a summary of work performed by Biovail. To the extent
that actual expenditures by Biovail for the quarter exceed or are less than the
amount set forth in the budget for such quarter, Intelligent Polymers shall make
an additional payment as the expenditures are made or receive a credit against
the advance payment to be made for the next quarter. Budgets for succeeding
quarters may be adjusted to take into account any material budget variances from
the prior quarter.
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Biovail's and Intelligent Polymers' respective development obligations
under the Development Contract will terminate upon the payment to Biovail of all
Available Funds, which is projected by Intelligent Polymers to occur on or about
March 31, 2001 (without taking into account any licensing or marketing income
earned by Intelligent Polymers and any cash received upon the exercise of the
Biovail Option), or at such other time as Intelligent Polymers and Biovail may
mutually determine. Intelligent Polymers and Biovail each may terminate the
Development Contract (i) if the other party breaches an obligation thereunder
and such breach is not remedied within 60 days after written notice by the
non-breaching party or (ii) on 30 days' notice after the other party enters into
any proceeding, voluntary or involuntary, in bankruptcy, liquidation,
receivership, reorganization or an arrangement or composition for the benefit of
its creditors or there is a change in the control of the other party.
On the 90th day after the Financial Notice, to the extent Biovail has
neither exercised the Purchase Option nor extended the termination date of the
Purchase Option, Intelligent Polymers and Biovail shall commence negotiating as
to the terms on which Biovail might provide additional funding for any or all of
the Products. Such negotiations will extend for a maximum period of 60 days and
will take into account relevant issues, including, but not limited to, the
amount and timing of such funding, possible alterations in the terms of the
Biovail Option if the Biovail Option has not yet been exercised or the
possibility of granting Biovail a renewed Biovail Option if the Biovail Option
has been exercised and the terms of the Development Contract (including as it
relates to manufacturing and licensing). If the parties negotiate successfully
new funding terms, the Purchase Option can be extended, but not beyond September
30, 2002. See "-- Purchase Option." During such period of negotiation,
Intelligent Polymers will have the right, but will not be required, to expend
any Available Funds under the Development Contract. If Intelligent Polymers and
Biovail fail to reach agreement as to any additional funding by Biovail, Biovail
will grant to Intelligent Polymers a worldwide license for all of its patent
rights and other intellectual property (as reasonably agreed to by Biovail and
Intelligent Polymers as being necessary to develop further any such Products)
solely in connection with the application of such rights and property to the
Products. See "-- License." The license to Intelligent Polymers shall be
non-royalty bearing and shall be exclusive during the License Period and
non-exclusive thereafter.
During the term of the Development Contract, each of Intelligent Polymers
and Biovail will provide the other with quarterly reports with respect to all
payments due and all credits taken for such quarter. Such reports shall indicate
for such quarter the quantity and amount of sales of Products by Intelligent
Polymers and Biovail and their respective affiliates, subsidiaries, sublicensees
and distributors with respect to which such payments are due or credits are
taken. Each of Intelligent Polymers and Biovail is required to maintain and make
available for inspection by an independent chartered accountant selected by the
requesting party, once in each calendar year and upon reasonable notice and
during regular business hours, such records of the other party as may be
necessary to verify the accuracy of reports and payments made in respect of the
Development Contract.
LICENSE
Pursuant to the Development Contract and subject to the Biovail Option,
Intelligent Polymers will have a license (the "License") to manufacture or
obtain manufacturing for (subject to Biovail's exclusive manufacture period,
right of first refusal and right of approval described below), sell and
otherwise market and sublicense others to market, throughout the world (other
than Canada), any one or more of the Products developed for Intelligent Polymers
under the Development Contract or, as to Products for which Intelligent Polymers
and Biovail fail to reach agreement as to any necessary additional funding,
under other arrangements. Intelligent Polymers will have a non-royalty bearing
license with respect to the rights described above which is exclusive for the
License Period and is non-exclusive thereafter. Pursuant to the terms of the
Development Contract, Biovail will have the exclusive right to manufacture any
Product manufactured through the fifth anniversary of FDA approval of any such
Product approved by the FDA and will be obligated during such period, at the
request of Intelligent Polymers, to manufacture any Product at Biovail's cost of
manufacture plus 25% of such cost. Thereafter, Intelligent Polymers' right to
obtain manufacturing will be subject to a right of first refusal on the part of
Biovail to match any manufacturing arrangements offered by third-party
manufacturers and, in the event Biovail does not exercise such right of first
refusal, to Biovail's
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right to approve any proposed manufacturer or sublicensee, which approval may be
withheld only if any such manufacturer (including a manufacturer on behalf of a
sublicensee) has insufficient or inadequate manufacturing capability (including
lack of compliance with GMP regulations) or if any such manufacturer's
activities will have a material adverse effect on Biovail's overall competitive
position in the pharmaceutical industry. In the event that Biovail exercises its
right to reject a manufacturer proposed by Intelligent Polymers and Intelligent
Polymers and Biovail cannot agree on an alternative manufacturer, Biovail will
be obligated to manufacture any such Product for Intelligent Polymers at
prevailing market rates but not less than Biovail's standard cost of manufacture
plus 15% of such cost. Biovail will have the right to terminate the License for
any particular product in the event that Intelligent Polymers does not market
such Product within nine months from the date of marketing approval by the FDA.
Crystaal will pay to Intelligent Polymers royalties equal to 3% of net
sales of any Product (other than any Product as to which Biovail exercises the
Biovail Option) sold in Canada during the License Period by Biovail or its
sublicensees.
Biovail will have the right to acquire an exclusive license with respect to
any one Product which would otherwise be licensed to Intelligent Polymers,
exercisable within 60 days of U.S. regulatory approval of such Product (the
"Biovail Option") upon Biovail's agreement to pay, at Biovail's option, either
of (i) base royalties of 10% of the net sales of the relevant Product during the
License Period or (ii) a lump sum of $25 million within 30 days of the exercise
of the Biovail Option. In the event that Biovail exercises the Biovail Option,
Biovail will possess all rights, including, without limitation, the right to
manufacture or obtain manufacturing for, license and market the Product covered
by the Biovail Option.
During the term of the Development Contract, Biovail will cause appropriate
patent applications to be prepared and prosecuted with respect to the Products
in accordance with the Development Contract which Biovail reasonably believes
are patentable and technically significant. Biovail is required to take
reasonable measures to maintain such patents as Intelligent Polymers and Biovail
shall reasonably agree from time to time, all at Intelligent Polymers' expense.
In the event Intelligent Polymers or Biovail is charged by a third party
with infringement of a patent or patents in relation to the commercialization of
a Product, such party shall promptly notify the other party and Intelligent
Polymers and Biovail shall mutually agree upon a defense strategy. If the
alleged infringement arises from the use or sale of a Product, the selling party
shall hold the other party free, clear and harmless from any and all costs,
expenses and damages arising from such litigation. If the alleged infringement
arises from the manufacturing process used for a Product, (i) if Biovail
manufactures such Product for Intelligent Polymers under the Development
Contract, Biovail shall hold Intelligent Polymers free, clear and harmless from
any and all costs, expenses (including attorneys' fees and disbursements) and
damages arising from such litigation, and (ii) if Intelligent Polymers has
obtained such manufacturing from any other person, Intelligent Polymers shall
hold Biovail free, clear and harmless from any and all costs, expenses
(including attorneys' fees and disbursements) and damages arising from such
litigation. If the circumstances in both of the previous two sentences apply to
the infringement alleged by a third party, Biovail and Intelligent Polymers
shall share equally all costs, expenses and damages arising from such
litigation. Intelligent Polymers has established a cash reserve of $1.5 million
for litigation costs relating to the Additional Product and has agreed that such
funds will be used to pay up to $1.5 million of any such costs.
Pursuant to the terms of the Development Contract, in the event Intelligent
Polymers or Biovail becomes aware of alleged infringement of any patent, it
shall promptly notify the other party of such infringement and Intelligent
Polymers and Biovail shall mutually agree upon an appropriate strategy to pursue
the alleged infringer. If Intelligent Polymers or Biovail declines to join any
infringement action, such party nevertheless shall join the other party if
necessary as a plaintiff but shall be held free, clear and harmless from any and
all costs and expenses (including attorney's fees and disbursements) of any
litigation by the other party, who shall thereafter be solely entitled to retain
any sums recovered in such suit or in settlement thereof.
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SERVICES AGREEMENT
Pursuant to the Services Agreement, Biovail will provide management and
administrative services to Intelligent Polymers for a quarterly fee of $100,000.
In addition, all out-of-pocket expenses incurred by Biovail in connection with
the Unit Offering will be billed to Intelligent Polymers upon consummation of
the Unit Offering. The Services Agreement terminates one year after the
termination of the Purchase Option. In addition, Intelligent Polymers may
terminate the Services Agreement at any time upon 90 days' notice. Either
Biovail or Intelligent Polymers may terminate the Services Agreement in the
event that the other party (a) breaches any material obligation thereunder or
under the Development Contract or any license granted under the Development
Contract and such breach continues for a period of 60 days after written notice
thereof, or (b) enters into any liquidation or bankruptcy proceedings.
TAXATION
The following discussion is a summary of the material Bermuda, Canadian and
United States federal income tax considerations relevant to an investment
decision by a U.S. Holder (as defined below) with respect to the Units,
Warrants, Intelligent Polymers Common Shares and Biovail Common Shares (the
"Securities"). This discussion does not purport to deal with the tax
consequences of owning the Securities to all categories of investors, some of
which (such as insurance companies, tax-exempt organizations, financial
institutions, dealers in securities, investors who own 5% or more of the shares
of either Intelligent Polymers or Biovail, and investors whose functional
currency is not the U.S. dollar) may be subject to special rules. This
discussion deals only with holders who purchase Units in connection with this
offering. Prospective purchasers of Units are advised to consult their own tax
advisors concerning the overall tax consequences arising in their own particular
situations under U.S. federal, state, local or foreign law of the ownership of
the Securities. In addition, the discussion is based in part on the description
of Intelligent Polymers' business as described in "Business of Intelligent
Polymers" above and assumes that Intelligent Polymers continues to conduct its
business as described therein.
BERMUDA TAX CONSIDERATIONS
In the opinion of Conyers Dill & Pearman, Bermuda counsel for Intelligent
Polymers, the following are the material tax consequences of the ownership of
the Securities under Bermuda law.
Intelligent Polymers is incorporated in Bermuda. Under current Bermuda law,
Intelligent Polymers is not subject to tax on income or capital gains, and no
Bermuda withholding tax will be imposed upon payments of dividends by
Intelligent Polymers to its shareholders. Furthermore, Intelligent Polymers has
received from the Minister of Finance of Bermuda under the Exempted Undertakings
Tax Protection Act of 1966, as amended, an undertaking that, in the event that
Bermuda enacts any legislation imposing any tax computed on profits or income,
including any dividend or capital gains withholding tax, or computed on any
capital assets, appreciation, or any tax in the nature of an estate, duty or
inheritance tax, the imposition of such tax shall not be applicable to
Intelligent Polymers or any of its operations, nor to the shares, debentures or
other obligations of Intelligent Polymers, until March 28, 2016. This
undertaking does not, however, prevent the imposition of property taxes on
Intelligent Polymers-owned real property or leasehold interests in Bermuda.
Intelligent Polymers is not expected to own or lease property in Bermuda.
As an exempted company, Intelligent Polymers is liable to pay to the
Bermuda government an annual registration fee calculated on a sliding-scale
basis by reference to its assessable capital, that is, its authorized capital
plus any share premium.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Cassels Brock & Blackwell, Canadian counsel for Biovail,
the following are the material Canadian federal income tax considerations
generally applicable to purchasers of Units who, for purposes of the Income Tax
Act (Canada) (the "Canadian Act"), deal at arm's length with Biovail, hold
Warrants or Biovail Common Shares as capital property, are not residents of
Canada at all times when holding Warrants,
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Intelligent Polymers Common Shares or Biovail Common Shares and do not use or
hold and are not deemed to use or hold Warrants, Intelligent Polymers Common
Shares or Biovail 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 Warrants, Intelligent Polymers or Biovail Common
Shares that are effectively connected with an insurance business carried on in
Canada.
This summary is based on the current provisions of the Canadian Act and the
regulations thereto (the "Regulations") in force as of the date hereof,
counsel's understanding of the current administrative practices of Revenue
Canada Customs, Excise & Taxation ("Revenue Canada") and all specific proposals
to amend the Canadian Act or the regulations that have been publicly announced
prior to the date hereof (the "Amendments"). This summary is not exhaustive of
all possible Canadian federal income tax considerations and, except for the
Amendments, does not take into account or anticipate any changes in law, whether
by legislative, governmental or judicial decision or action, nor does it take
into account provincial or foreign tax considerations, which may differ
significantly from those discussed herein.
This summary assumes that Intelligent Polymers will not be resident in
Canada at any relevant time for purposes of the Canadian Act. The Canadian Act
contains provisions which may deem a non-resident person to be resident in
Canada, to dispose of property or to be carrying on business in Canada.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO
THEIR PARTICULAR CIRCUMSTANCES RELATING TO ANY OF THE IMPLICATIONS UNDER THE
CANADIAN ACT.
GAINS ON DISPOSITION OF WARRANTS, INTELLIGENT POLYMERS COMMON SHARES AND
BIOVAIL COMMON SHARES
Warrants and Biovail 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 Warrants and the Biovail 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 Warrants or Biovail Common Shares or of any other class of stock
of Biovail. The definition of taxable Canadian property includes, in certain
circumstances, an interest or option in shares. Revenue Canada has stated that
warrants to acquire shares of a public corporation held by a non-resident person
will be treated as if the warrant had been exercised to acquire shares of the
particular class in question, and warrants held by persons not dealing at arm's
length with the particular non-resident person will also be considered to have
been exercised for the same purpose. Accordingly, in determining whether
Warrants or Biovail Common Shares are taxable Canadian property, a non-resident
person will be regarded as owning the Biovail Common Shares that can be acquired
upon exercise of the Warrants. As a result, in determining whether the Warrants
or Biovail Common Shares are taxable Canadian property, the non-resident person
must take into account the implications of exercising the Warrant or having been
deemed to do so.
Intelligent Polymers Common Shares. The Intelligent Polymers Common Shares
will be taxable Canadian property at a particular time if during the immediately
preceding 12 months, the fair market value of certain of the assets of
Intelligent Polymers consisting of, inter alia, taxable Canadian property
constituted more than 50% of the fair market value of all of the assets of
Intelligent Polymers and more than 50% of the fair market value of the
Intelligent Polymers Common Shares is derived directly or indirectly from, inter
alia, real property situated in Canada. Biovail has advised counsel that it is
of the view that the Intelligent Polymers Common Shares and assets of
Intelligent Polymers currently do not and will not in the future derive their
value principally from or consist of such assets as would cause the Intelligent
Polymers Common Shares to be taxable Canadian property.
Tax Treaties. In some cases, tax treaties entered into between Canada and
other countries may provide an exemption from tax on such gains. Under the
provisions of the Canada-United States income Tax Convention (1980), as amended
(the "Convention"), United States corporations and individuals who are resident
in the United States (collectively, "U.S. Shareholders") that do not, and are
not deemed to, use or hold Warrants or Biovail 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
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upon the disposition or deemed disposition of Warrants, Intelligent Polymers
Common Shares or Biovail Common Shares, provided the value of the Warrants,
Intelligent Polymers Common Shares or Biovail Common Shares is not derived
principally from real estate situated in Canada, as determined at the time of
the disposition. Biovail has advised counsel that it is of the view that the
Biovail 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 an
individual who is a resident of the U.S. if the Warrants, Intelligent Polymers
Common Shares or Biovail Common Shares are taxable Canadian property and the
individual was a resident of Canada for a period of 120 months during any period
of 20 consecutive years preceding the disposition and was a resident of Canada
at any time during the 10 years immediately preceding the disposition, if the
Warrants, Intelligent Polymers Common Shares or Biovail Common Shares (or any
property 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.
If a non-resident person disposes of Warrants, Intelligent Polymers Common
Shares or Biovail Common Shares in circumstances such that they constitute
taxable Canadian property and no exemption is available under the Convention or
under any other relevant tax treaty, generally three-quarters of any capital
gain must be included in income in the year of disposition. In addition, each
holder of Warrants, Intelligent Polymers Common Shares or Biovail Common Shares
will have an "adjusted cost base" that is equal to the total cost of all such
securities owned at that time, plus or minus certain adjustments required by the
Canadian Act, divided by the number of such shares held. Accordingly, any
capital gain realized on a disposition or deemed disposition will be measured by
reference to the average cost of all Warrants, Intelligent Polymers Common
Shares or Biovail Common Shares held immediately before the disposition.
Exercise or Expiration Warrants. No gain or loss should be realized by a
holder of a Warrant on the exercise thereof. The cost of each Biovail Common
Share acquired on the exercise of a Warrant will be the aggregate of the
adjusted cost base of the Warrant to the holder immediately prior to the
exercise thereof and the exercise price paid for the Biovail Common Shares
received upon exercise.
A holder of a Unit will not recognize gain or loss at the time the Warrant
and the Intelligent Polymers Common Shares become separately tradable.
Any gain realized on the sale or other disposition of a Warrant will be
subject to the same rules that apply to a sale or other disposition of Biovail
Common Shares, if the Warrant is taxable Canadian property and no exemption is
available under the Convention or any other relevant tax treaty.
For purposes of determining the adjusted cost base of the Warrants, a
holder who purchases a Unit will be required to allocate the purchase price for
the Unit between the Intelligent Polymers Common Shares and the Warrants, on a
reasonable basis, at the time of purchase. Counsel understand that Intelligent
Polymers intends to allocate as consideration for each Intelligent Polymers
Common Share and as consideration for each Warrant. Although Intelligent
Polymers and Biovail believe that this allocation is reasonable, the allocation
is not binding on Revenue Canada.
Taxation of Dividends. Dividends paid by Biovail to a non-resident
shareholder will generally be subject to Canadian withholding tax at the rate of
25%. Dividends paid to Unconnected U.S. Shareholders who own less than 10% of
the voting shares of Biovail will generally be subject to Canadian withholding
tax at the reduced rate of 15% under the Convention. Where a corporation
resident in the U.S. for purposes of the Convention is an Unconnected U.S.
Shareholder and owns 10% or more of the Biovail Common Shares, the withholding
tax rate will generally be reduced to 5% under the Convention.
Where a shareholder of Biovail resides in a country other than the U.S., a
reduction in the withholding rate below 25% may be applicable, depending on the
terms of any relevant tax treaty.
UNITED STATES TAX CONSIDERATIONS
In the opinion of Cahill Gordon & Reindel, U.S. counsel for Biovail and
Intelligent Polymers ("U.S. Counsel"), the following are the material U.S.
federal income tax consequences of the purchase,
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ownership and disposition of the Securities to U.S. Holders. This discussion is
based on the Internal Revenue Code of 1986, as amended (the "Code"), judicial
decisions, administrative pronouncements, and existing and proposed regulations
issued by the U.S. Department of the Treasury (the "Treasury Department") now in
effect, all of which are subject to change, possibly with retroactive effect.
As used herein, the term "U.S. Holder" means a beneficial owner of
Securities that (i) owns the Securities as capital assets and (ii) is a U.S.
citizen or resident, a U.S. corporation, an estate the income of which is
subject to U.S. federal income taxation regardless of its source or a trust that
meets the following two tests: (A) a U.S. court is able to exercise primary
supervision over the administration of the trust, and (B) one or more U.S.
fiduciaries have the authority to control all substantial decisions of the
trust.
It is expected that Intelligent Polymers will initially be classified as a
"passive foreign investment company" for U.S. federal income tax purposes. If
Intelligent Polymers is so classified, a U.S. Holder will generally be subject
to a special U.S. tax regime with respect to certain distributions received from
Intelligent Polymers as well as with respect to gain from the disposition of
Intelligent Polymers Common Shares (including as part of the Units), unless such
U.S. Holder makes the qualified election described below. See "Other
Considerations -- Passive Foreign Investment Company Considerations."
TAXATION OF UNITS
Sale, Exchange or Other Disposition. Subject to the discussion under
"Passive Foreign Investment Company Considerations" below, U.S. Holders will
recognize capital gain or loss for U.S. federal income tax purposes on the sale
or other disposition of a Unit measured by the difference between the amount
received and such holder's tax basis in the Unit.
A U.S. Holder of a Unit will not recognize gain or loss at the time that
the Warrant and the Intelligent Polymers Common Shares become separately
tradable. The respective holding period of each constituent part of a Unit on
and after the Separation Date will include the holding period for the Unit prior
to the Separation Date.
TAXATION OF INTELLIGENT POLYMERS COMMON SHARES
Taxation of Dividends. U.S. Holders will not be entitled to claim a
dividends received deduction with respect to dividends paid by Intelligent
Polymers on Intelligent Polymers Common Shares.
Sale, Exchange or Other Disposition. Subject to the discussion under " --
Other Considerations -- Passive Foreign Investment Company Considerations"
below, U.S. Holders will recognize capital gain or loss for U.S. federal income
tax purposes on the sale or other disposition of Intelligent Polymers Common
Shares in the same manner as on the sale or other disposition of any other
shares held as capital assets.
For purposes of determining a U.S. Holder's tax basis in the Intelligent
Polymers Common Shares and Warrants, a U.S. Holder who purchases a Unit will be
required to allocate the purchase price for the Unit between the Common Share
and Warrant according to their respective fair market values at the time of
purchase.
U.S. Gift and Estate Tax. An individual U.S. Holder of Intelligent
Polymers Common Shares will be subject to U.S. gift and estate taxes with
respect to the Intelligent Polymers Common Shares in the same manner and to the
same extent as with respect to other types of personal property.
WARRANTS AND BIOVAIL COMMON SHARES
Warrants. No gain or loss will be realized for U.S. federal income tax
purposes on the exercise of a Warrant. A U.S. Holder's basis in the Biovail
Common Shares received on exercise of a Warrant will include the amount paid on
exercise of such Warrant, but its holding period for such Biovail Common Shares
will not include its holding period for the Warrant.
If a Warrant expires unexercised, a U.S. Holder will recognize a capital
loss equal to such holder's tax basis in the Warrant.
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Adjustments to the exercise price of a Warrant pursuant to the
anti-dilution provisions of the Warrant Agreement, or the failure to make
adjustments to the exercise price upon the occurrence of certain events, may
result in constructive dividends to the holders of the Warrants under Section
305 of the Code regardless of whether there is a distribution of cash or
property.
Gain realized on the sale or other disposition of a Warrant will be subject
to the same rules that apply to a sale of Biovail Common Shares.
Taxation of Dividends. Dividends paid by Biovail on Biovail Common Shares,
if any, will not qualify for the dividends received deduction otherwise
available to U.S. corporate shareholders.
Sale, Exchange or Other Disposition. U.S. Holders will recognize capital
gain or loss for U.S. federal income tax purposes on the sale or other
disposition of Biovail Common Shares in the same manner as on the sale or other
disposition of any other shares held as capital assets.
U.S. Gift and Estate Tax. An individual U.S. Holder of Biovail Common
Shares will be subject to U.S. gift and estate taxes with respect to the Biovail
Common Shares in the same manner and to the same extent as with respect to other
types of personal property.
OTHER CONSIDERATIONS
Backup Withholding and Information Reporting. A U.S. Holder of Biovail
Common Shares or Intelligent Polymers Common Shares (collectively, the "Shares")
may, under certain circumstances, be subject to certain information reporting
requirements and backup withholding tax at the rate of 31% with respect to
dividends paid on the Shares or the proceeds of a disposition of the Shares,
unless such holder (i) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact or (ii) provides a correct
taxpayer identification number ("T.I.N."), (iii) certifies that such holder is
not subject to backup withholding and (iv) otherwise complies with applicable
requirements of the backup withholding rules. A U.S. Holder of Shares who does
not provide a correct T.I.N. may be subject to penalties imposed by the Internal
Revenue Service (the "IRS"). Any amount withheld under these rules will be
creditable against the holder's U.S. federal income tax liability.
Passive Foreign Investment Company Considerations. A "passive foreign
investment company" ("PFIC") is any foreign corporation if, after the
application of certain "look-through" rules, (i) at least 75% of its gross
income is "passive income" or (ii) at least 50% of the average value of its
assets is attributable to assets that produce "passive income" or that are held
for the production of "passive income." The determination as to PFIC status is
made annually. Whether Intelligent Polymers or Biovail is a PFIC in any year and
the tax consequences relating to PFIC status will depend on the composition of
the income of Intelligent Polymers and Biovail. Because Intelligent Polymers
will receive interest income and may receive royalties, it is expected that
Intelligent Polymers will initially be a PFIC and a U.S. Holder would be subject
to the PFIC taxation rules regardless of whether Intelligent Polymers continues
to be a PFIC in any subsequent year. Under the PFIC taxation rules, U.S. Holders
owning shares of a PFIC are subject to a special U.S. federal income tax regime
with respect to certain distributions received from the PFIC and with respect to
gain from the sale or disposition of PFIC stock.
If Intelligent Polymers is a PFIC for any taxable year during which a U.S.
Holder holds Intelligent Polymers Common Shares, unless such U.S. Holder makes
the qualified election described below, such U.S. Holder would generally be
subject to various adverse U.S. tax consequences. Generally, the direct and
indirect U.S. shareholders of a PFIC must either (i) elect to have Intelligent
Polymers treated, with respect to the holder's shareholding, as a "Qualified
Electing Fund" and to report currently their pro rata share of the PFIC's
ordinary earnings and net capital gain even if they do not receive distributions
(the "qualified election"), or (ii) upon disposition of the shares of the PFIC,
including a disposition pursuant to an otherwise tax-free reorganization, or
receipt of an "excess distribution" (generally the U.S. Holder's ratable share
of distributions in any year that are greater than 125% of the average annual
distributions received by such U.S. Holder in the three preceding years or its
holding period, if shorter), be subject generally to tax at the highest
applicable rate of tax imposed on ordinary income in effect for that year as if
the gain or distribution were
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earned ratably over the period in which the Intelligent Polymers Common Shares
were held (including payment of an interest charge at the rate equal to the
charge generally applicable to underpayments of tax, on the deferred tax). A
shareholder that makes a qualified election may recognize ordinary income or
loss as a result of currency fluctuations between the dates of deemed and actual
distributions from the PFIC.
The qualified election is made on a shareholder-by-shareholder basis and
can be revoked only with the consent of the IRS. Each shareholder should consult
with his own tax advisor to decide whether to make the "qualified election."
This election is made by attaching the shareholder election statement, the PFIC
annual information statement and Form 8621 to such shareholder's timely filed
income tax return with a copy of the shareholder election statement and Form
8621 being sent to the Internal Revenue Service Center, P.O. Box 21086,
Philadelphia, Pennsylvania 19114. Intelligent Polymers will supply the PFIC
annual information statement to all shareholders of record for each year. Copies
of the Form 8621 must also be filed every year during which the "qualified
election" is outstanding, both with such shareholder's tax return and with the
IRS Service Center in Philadelphia.
THE FOREGOING SUMMARY OF BERMUDA, CANADA AND UNITED STATES TAX CONSEQUENCES
IS BASED ON THE APPLICABLE INCOME TAX CONVENTION, ESTATE TAX CONVENTION, UNITED
STATES LAW, BERMUDA LAW, CANADIAN LAW, AND REGULATIONS, ADMINISTRATIVE RULINGS
AND PRACTICES OF THE UNITED STATES, BERMUDA AND CANADA, ALL AS THEY EXIST AS OF
THE DATE OF THIS PROSPECTUS. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS THAT MAY
BE RELEVANT TO PROSPECTIVE INVESTORS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.
IN PARTICULAR, IT DOES NOT ADDRESS THE CONSEQUENCES TO PROSPECTIVE INVESTORS
RESIDENT OR ORDINARILY RESIDENT OR DOMICILED IN CANADA OR DOING BUSINESS IN
CANADA. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS WITH
RESPECT TO THEIR OWN PARTICULAR CIRCUMSTANCES, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS, ESTATE TAX LAWS AND PROPOSED
CHANGES IN APPLICABLE LAWS.
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.
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.
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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.
BERMUDA EXCHANGE CONTROL; OTHER BERMUDA ISSUER CONSIDERATIONS
Intelligent Polymers has been designated as a non-resident for exchange
control purposes by the Bermuda Monetary Authority, whose permission for the
issue of the Intelligent Polymers Common Shares pursuant to this Prospectus has
been obtained. The transfer of Intelligent Polymers Common Shares between
persons regarded as resident outside Bermuda for exchange control purposes may
be effected without specific consent under The Bermuda Exchange Control Act 1972
(the "Bermuda Act") and regulations made thereunder. Issues and transfers of
Intelligent Polymers Common Shares involving any person regarded as resident in
Bermuda for Exchange Control purposes require specific prior authorization under
the Bermuda Act. Pursuant to its non-resident status, Intelligent Polymers may
hold any non-Bermudian currency and convert that currency into any other
currency (other than Bermuda dollars) without restriction.
Non-Bermuda owners of Intelligent Polymers Common Shares are not restricted
in the exercise of the rights to hold or vote such shares. Because Intelligent
Polymers has been designated as a non-resident for Bermuda exchange control
purposes, there are no restrictions on its ability to transfer funds in and out
of Bermuda or to pay dividends to United States residents who are holders of
Intelligent Polymers Common Shares, other than in respect of local Bermuda
currency.
In accordance with Bermuda law, share certificates are only issued in the
names of corporations, partnerships or individuals. In the case of an applicant
acting in a special capacity (for example as a trustee), certificates may, at
the request of the applicant, record the capacity in which the applicant is
acting. Notwithstanding the recording of any such special capacity, Intelligent
Polymers is not bound to investigate or
75
<PAGE> 77
incur any responsibility in respect of the proper administration of any such
trust. Intelligent Polymers will take no notice of any trust applicable of any
of its shares whether or not it had notice of such trust.
As an "exempted company," Intelligent Polymers is exempt from Bermuda laws
which restrict the percentage of share capital that may be held by
non-Bermudians, but as an exempted company Intelligent Polymers may not
participate in certain business transactions including: (1) the acquisition or
holding of land in Bermuda (except that required for its business and held by
way of lease or tenancy for terms of not more than 21 years); (2) the taking of
mortgages on land in Bermuda to secure an amount in excess of $50,000 without
the consent of the Minister of Finance of Bermuda; (3) the acquisition of
securities created or issued by, or any interest in, any local company or
business, other than certain types of Bermuda government securities or
securities of another "exempted" company, partnership or other corporation
resident in Bermuda but incorporated abroad; or (4) the carrying on of business
of any kind in Bermuda, except in furtherance of the business of Intelligent
Polymers carried on outside Bermuda or under a license granted by the Minister
of Finance of Bermuda.
76
<PAGE> 78
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting
Agreement, the underwriters named below (the "Underwriters"), for whom
Donaldson, Lufkin & Jenrette Securities Corporation, SBC Warburg Dillon Read
Inc. and Lazard Freres & Co. LLC are acting as representatives (the
"Representatives"), have severally agreed to purchase from Biovail and
Intelligent Polymers an aggregate of 3,250,000 Units. The number of Units that
each Underwriter has agreed to purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS UNITS
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation...............................
SBC Warburg Dillon Read Inc.......................................................
Lazard Freres & Co. LLC...........................................................
---------
Total................................................................... 3,250,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept Units are subject to approval of certain
legal matters by counsel and to certain other conditions. The Underwriters are
obligated to take and pay for all Units offered hereby (other than in connection
with the over-allotment option described below), if any are taken.
Biovail and Intelligent Polymers have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Act, or to
contribute to payments that the Underwriters may be required to make in respect
thereof.
The Representatives have advised Biovail and Intelligent Polymers that the
Underwriters propose to offer the Units to the public initially at the price to
the public set forth on the cover page of this Prospectus and to certain dealers
(who may include the Underwriters) at such price less a concession not in excess
of $ per Unit. The Underwriters may allow, and such dealers may
reallow, discounts not in excess of $ per Unit to any other Underwriter
and certain other dealers.
Pursuant to the Underwriting Agreement, Biovail and Intelligent Polymers
have granted to the Underwriters an option to purchase up to an aggregate of
487,500 additional Units at the initial public offering price less underwriting
discounts and commissions solely to cover over-allotments, if any. Such option
may be exercised at any time until 30 days after the date of this Prospectus. To
the extent that the Representatives exercise such option, each of the
Underwriters will be committed, subject to certain conditions, to purchase a
number of Units proportionate to such Underwriter's initial commitment as
indicated in the preceding table.
In connection with the Unit Offering, the Representatives may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Units, the Intelligent Polymers Common Shares, the Warrants and the Biovail
Common Shares. Specifically, the Representatives may overallot the Unit
Offering, creating a syndicate short position. In addition, the Representatives
may bid for and purchase shares of the Units, the Intelligent Polymers Common
Shares, the Warrants and the Biovail Common Shares in the open market to cover
syndicate short positions or to stabilize the price of the Units, the
Intelligent Polymers Common Shares, the Warrants and the Biovail Common Shares.
Finally, the underwriting syndicate may reclaim selling concessions from
syndicate members in the Unit Offering, if the syndicate repurchases previously
distributed the Units, the Intelligent Polymers Common Shares, the Warrants and
the Biovail Common Shares in syndicate covering transactions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the Units, the Intelligent Polymers Common Shares, the Warrants
or the Biovail Common Shares above independent market levels. The
Representatives are not required to engage in these activities, and may end any
of these activities at any time. The Representatives have advised Biovail and
77
<PAGE> 79
Intelligent Polymers that such transactions may be effected on the AMEX, the
NYSE, the TSE or otherwise and, if commenced, may be discontinued at any time.
The Representatives have informed Biovail and Intelligent Polymers that the
Underwriters do not intend to sell as part of the initial Unit Offering Units
offered hereby to accounts over which they exercise discretionary authority.
Prior to the Unit Offering, there has been no established public trading
market for the Units, the Warrants or the Intelligent Polymers Shares. The
initial public offering price for the Units has been determined by negotiation
among Biovail and Intelligent Polymers and the Representatives. Among the
factors considered in such negotiations were the history of and the prospects
for the industry in which Biovail and Intelligent Polymers compete, the past and
present operations of Biovail and Intelligent Polymers, the historical results
of operations of Biovail, the prospects for future earnings of Biovail and
Intelligent Polymers, the market price of Biovail Common Shares, the volatility
of Biovail Common Shares, the interest rate environment, the potential terms of
the Warrants, the potential price to exercise the Purchase Option and the
general condition of the securities markets at the time of the Unit Offering.
The Purchase Option Exercise Price will be determined by Biovail and
Intelligent Polymers giving consideration to the compound annual rate of return,
as required by potential investors, to be achieved upon any exercise of the
Purchase Option, the implied returns to investors purchasing securities with a
similar structure historically and the comparability of the Unit Offering to
those prior offerings; the value of the Warrants; the nature of the Products;
the agreements between Biovail and Intelligent Polymers; and such other factors
as Biovail and Intelligent Polymers deem appropriate and advice given by the
Underwriters.
Biovail and its officers and directors and Intelligent Polymers' officers
and directors have agreed not to offer, sell, contract to sell, grant any option
to purchase or otherwise dispose of Biovail Common Shares (or, in the case of
Biovail, rights to acquire Biovail Common Shares), subject to certain
exceptions, without the prior written consent of the Underwriters, for a period
of 120 days after the date of this Prospectus.
The Units have been approved for listing on the AMEX, subject to notice of
issuance, under the symbol "INP."
LEGAL MATTERS
Certain U.S. legal matters relating to the Unit Offering will be passed
upon by Cahill Gordon & Reindel, a partnership including a professional
corporation, New York, New York, U.S. counsel for Biovail and Intelligent
Polymers. Certain Canadian legal matters, including the validity of the
underlying Biovail Common Shares and certain legal matters relating to the
Warrants, will be passed upon by Cassels Brock & Blackwell, Canadian counsel for
Biovail. Certain Bermuda legal matters relating to Intelligent Polymers will be
passed upon by Conyers Dill & Pearman, Bermuda counsel for Intelligent Polymers.
Certain legal matters in connection with the Unit Offering will be passed upon
for the Underwriters by Shearman & Sterling, New York, New York, counsel for the
Underwriters. Cahill Gordon & Reindel and Shearman & Sterling may rely upon
Cassels Brock & Blackwell with respect to certain matters governed by Canadian
law and upon Conyers Dill & Pearman with respect to certain matters governed by
the laws of Bermuda.
78
<PAGE> 80
EXPERTS
The consolidated financial statements of Biovail as of December 31, 1996
and 1995, and for each of the years in the three-year period ended December 31,
1996 incorporated by reference from the Company's Annual Report on Form 20-F for
the year ended December 31, 1996 have been audited by Deloitte & Touche,
independent accountants, as stated in their report, which is incorporated herein
by reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The balance sheet of Intelligent Polymers as of September 8, 1997, included
in this prospectus, has been audited by Deloitte & Touche, independent
accountants, as stated in their report included herein, and is included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
79
<PAGE> 81
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Report of Independent Chartered Accountants.......................................... F-2
Balance Sheet of Intelligent Polymers Limited as at September 8, 1997................ F-3
Notes to the Balance Sheet of Intelligent Polymers Limited........................... F-4
</TABLE>
F-1
<PAGE> 82
REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS
To the Directors of Intelligent Polymers Limited
We have audited the balance sheet of Intelligent Polymers Limited as at
September 8, 1997. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, this balance sheet presents fairly, in all material
respects, the financial position of the Company as at September 8, 1997, in
accordance with accounting principles generally accepted in the United States.
DELOITTE & TOUCHE
Chartered Accountants
Toronto, Ontario, Canada
September 9, 1997
F-2
<PAGE> 83
INTELLIGENT POLYMERS LIMITED
BALANCE SHEET
AS AT SEPTEMBER 8, 1997
(U.S.$000)
<TABLE>
<S> <C>
ASSETS
Cash.................................................................................. $12
---
Total assets.......................................................................... $12
===
Commitments (Note 3)
SHAREHOLDER'S EQUITY
Special shares, par value $1.00 per share;
12,000 shares issued and outstanding (Note 2)......................................... $12
---
Total shareholder's equity............................................................ $12
===
</TABLE>
F-3
<PAGE> 84
INTELLIGENT POLYMERS LIMITED
NOTES TO THE BALANCE SHEET
1. INCORPORATION AND DESCRIPTION OF BUSINESS
Intelligent Polymers Limited ("Intelligent Polymers" or the "Company") was
incorporated on July 30, 1997 pursuant to the terms of the Bermuda Companies
Act, 1981.
Intelligent Polymers was formed by Biovail in July 1997, primarily to
develop once-daily controlled release versions of selected drugs which are
currently marketed only in immediate release form or in controlled release form
requiring multiple daily dosing and whose patents have or will have expired upon
the anticipated date of receipt of U.S. Food and Drug Administration (the "FDA")
marketing approval for the once-daily controlled release formulations to be
developed. Upon development and regulatory approval of such products,
Intelligent Polymers expects that such products will be marketed under distinct
brand names. Intelligent Polymers has not yet conducted any business and has no
employees other than its sole executive officer, who is not a full-time employee
and who is a full-time employee of Biovail Corporation International ("Biovail")
which owns all of Intelligent Polymers' issued special shares. Intelligent
Polymers does not intend to perform any research or other activities on its own
behalf, but rather will pay Biovail to perform all such activities pursuant to
the terms of the Development Contract (see Note 3).
The Company prepares its financial statements in accordance with accounting
principles generally accepted in the United States.
2. SHARE CAPITAL
<TABLE>
<CAPTION>
NUMBER $
------ ------
<S> <C> <C>
Authorized and Issued:
Special shares, par value $1.00 per share............................. 12,000 12,000
As of September 8, 1997, Intelligent Polymers is a wholly-owned
subsidiary of Biovail.
</TABLE>
3. CERTAIN TRANSACTIONS WITH BIOVAIL
The Company intends to enter into certain agreements with Biovail including
a development and licensing agreement and a services agreement relating to the
proposed research, development and licensing of once-daily controlled release
drug products. Pursuant to a development contract (the "Development Contract"),
Biovail has agreed to use diligent efforts to conduct toxicity studies,
formulation development and clinical studies for, and pursue U.S. regulatory
approval of, certain agreed upon drug products. Payments to Biovail under the
Development Contract will be in an amount equal to the full amount of all
development costs incurred by Biovail in performing these activities. Such costs
shall be computed with respect to internal costs incurred by Biovail at
Biovail's cost plus 45% and with respect to services provided by third parties
under contract to Biovail at Biovail's cost plus 15% to the maximum amount of
available funds, as defined. Such payments to Biovail will include an initial
payment of $3.5 million for access to and use of Biovail's proprietary
technology in connection with such product development and of $1.25 million as
payment for the transfer of a specific product, based on Biovail's development
costs in May and June 1997 relating to the development of that product.
Intelligent Polymers will treat payments to Biovail under the Development
Contract as research and development expenses.
Substantially all of the management and operating activities of Intelligent
Polymers will be carried out by Biovail under the Development Contract and a
services agreement ("Services Agreement").
Biovail will own all rights to the products which it will develop for
Intelligent Polymers pursuant to the Development Contract. However, Intelligent
Polymers will have a license (the "License") to manufacture or obtain
manufacturing for (subject to Biovail's exclusive manufacture period, right of
first refusal and right of
F-4
<PAGE> 85
INTELLIGENT POLYMERS LIMITED
NOTES TO THE BALANCE SHEET
3. CERTAIN TRANSACTIONS WITH BIOVAIL -- CONTINUED
approval), sell and otherwise market and sublicense others to market, throughout
the world (other than in Canada), such products or, as to products for which
Intelligent Polymers and Biovail fail to reach agreement as to any necessary
additional funding, under other arrangements. Intelligent Polymers will have a
non-royalty bearing license with respect to the rights described above which is
exclusive for the license period and is nonexclusive thereafter. Biovail will
have the right to terminate the License as to any product in the event that
Intelligent Polymers does not market such product within nine months from the
date of marketing approval by the FDA. The License as to any particular product
will be exclusive until the expiration of any patents covering the licensed
product or, if there are no such patents, for a period of 10 years from the date
of the first commercial sale of the product (such longer period being the
"License Period"). Any such license shall be royalty-free and, after the License
Period, non-exclusive. Crystaal Corporation, a subsidiary of Biovail, will pay
to Intelligent Polymers royalties equal to 3% of net sales (as defined) of any
product developed under the Development Contract (other than any product as to
which Biovail exercises the Biovail Option) sold in Canada during the License
Period by Biovail or its sublicensee.
Biovail will have the right to acquire an exclusive license with respect to
any one product which would otherwise be licensed to Intelligent Polymers,
exercisable within 60 days of U.S. regulatory approval of such product (the
"Biovail Option") upon Biovail's agreement to pay, at Biovail's option, either
of (i) base royalties of 10% of net sales from the relevant product during the
License Period or (ii) within 30 days of the exercise of the Biovail Option, a
lump sum of $25.0 million. In the event that Biovail exercises the Biovail
Option, Biovail will possess all rights, including, without limitation, the
right to manufacture or obtain manufacturing for, license and market the product
covered by the Biovail Option.
Biovail, as the holder of all of the issued and outstanding special shares,
par value $1.00 per share, of Intelligent Polymers (the "Special Shares") has
the right to purchase all, but not less than all, of the Intelligent Polymers
Common Shares outstanding at the time such right is exercised (the "Purchase
Option"). The Purchase Option will be exercisable by notice (the "Exercise
Notice") given at any time during the period beginning on the closing date of
the Unit Offering described in Note 5 and ending on the earlier of (i) September
30, 2002 and (ii) the 90th day after the date Intelligent Polymers provides
Biovail (as such holder) with quarterly financial statements of Intelligent
Polymers showing cash or cash equivalents of less than $3.0 million (the
"Financial Notice"), although Biovail may at its election extend such period by
providing additional funding for the continued development of any or all of the
products covered by the Development Contract (but in no event beyond September
30, 2002). If the Purchase Option is exercised, the purchase price calculated on
a per share basis (the "Purchase Option Exercise Price") will be as determined
at the time of the pricing of the Unit Offering. The Purchase Option Exercise
Price will vary depending upon the date of exercise.
The Purchase Option Exercise Price may be paid in cash or Biovail Common
Shares, or any combination of the foregoing, at Biovail's sole discretion. Any
such Biovail Common Shares will be valued based upon the average of the closing
prices for Biovail Common Shares on the NYSE for the five trading days
immediately preceding the date of the Exercise Notice.
Biovail owns all of the issued and outstanding Special Shares of
Intelligent Polymers, which grant the holder of a majority of such Special
Shares the Purchase Option and confer limited voting and other rights on the
holder. The Special Shares and the rights attached thereto are unconditionally
transferable without limitation subject to compliance with the law and the prior
written approval of the Bermuda Monetary Authority (Foreign Exchange Control).
Under Intelligent Polymers' Bye-Laws, Intelligent Polymers will be restricted,
until the expiration of the Purchase Option, from taking or permitting certain
actions inconsistent with Biovail's rights under the Purchase Option. For
example, until the expiration of the Purchase Option, Intelligent Polymers will
not be able to, among other things, without the consent of the holder of a
majority of
F-5
<PAGE> 86
INTELLIGENT POLYMERS LIMITED
NOTES TO THE BALANCE SHEET
3. CERTAIN TRANSACTIONS WITH BIOVAIL -- CONTINUED
the Special Shares, pay any dividends, issue additional shares of capital stock,
have outstanding borrowings in excess of an aggregate of $1.0 million,
amalgamate or alter the Purchase Option.
Intelligent Polymers has entered into the Services Agreement pursuant to
which Biovail has agreed to provide management and administrative services to
Intelligent Polymers for a quarterly fee of $100,000. The Services Agreement
terminates one year after termination of the Purchase Option. In addition,
Intelligent Polymers may terminate the Services Agreement at any time upon 90
days' notice. Either Biovail or Intelligent Polymers may terminate the Services
Agreement in the event that the other party (i) breaches any material obligation
thereunder or under the Development Contract, which breach continues for 60 days
after notice thereof, or (ii) enters into any liquidation or bankruptcy
proceedings.
4. TAXES
At the present time, no income, profit, capital or capital gains taxes are
levied in Bermuda and, accordingly, no provision for such taxes has been
recorded by Intelligent Polymers.
5. PROPOSED UNIT OFFERING
The Company intends to file a Registration Statement with the U.S.
Securities and Exchange Commission with respect to the proposed offering of
3,250,000 units, each unit consisting of one Common Share, par value $.01 per
share, of Intelligent Polymers and one Warrant to purchase one Common Share, no
par value, of Biovail (the "Units"). The Warrants will be exercisable at any
time from October 1, 1999 through September 30, 2002. The exercise price of the
Warrants will be determined by negotiations between Biovail and Intelligent
Polymers giving consideration to similar provisions of agreements between other
parties in similar transactions.
The proceeds attributable to the Intelligent Polymers Common Shares will be
shown as capital (split between the par value and additional paid-in capital)
and the proceeds attributable to the value of the Biovail Warrants will be shown
as a separate component of additional paid-in capital.
F-6
<PAGE> 87
======================================================
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY BIOVAIL CORPORATION INTERNATIONAL,
INTELLIGENT POLYMERS LIMITED OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE UNITS
BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Disclosure Regarding Forward-Looking
Statements.................................... 3
Available Information........................... 3
Incorporation of Certain Documents by
Reference..................................... 4
Currency Translation............................ 4
Enforceability of Civil Liabilities Under United
States Federal Securities Laws................ 5
Trademarks...................................... 5
Prospectus Summary.............................. 6
Risk Factors.................................... 15
Use of Proceeds................................. 23
Price Range of Biovail Common Shares and
Dividend Policies of Biovail and Intelligent
Polymers...................................... 25
Biovail Capitalization.......................... 26
Intelligent Polymers Capitalization............. 26
Business of Intelligent Polymers................ 27
Business of Biovail............................. 34
Regulation...................................... 44
Management...................................... 48
Selected Financial Data of Biovail.............. 52
Management's Discussion and Analysis of
Financial Condition and Results of Operations
of Biovail.................................... 55
Selected Financial Data of Intelligent
Polymers...................................... 60
Management's Discussion and Analysis of
Financial Condition of Intelligent Polymers... 60
Description of the Warrants and the Biovail
Common Shares................................. 62
Description of Intelligent Polymers Capital
Stock......................................... 63
The Agreements and the Purchase Option.......... 65
Taxation........................................ 69
Exchange Controls and Other Limitations
Affecting Security Holders.................... 74
Underwriting.................................... 77
Legal Matters................................... 78
Experts......................................... 79
Index to Financial Statements................... F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE UNIT OFFERING)
ALL DEALERS EFFECTING TRANSACTIONS IN THE UNITS, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
LOGO
INTELLIGENT POLYMERS
LIMITED
LOGO
BIOVAIL CORPORATION
INTERNATIONAL
3,250,000 UNITS
UNITS CONSISTING OF ONE
COMMON SHARE
OF INTELLIGENT POLYMERS LIMITED AND
ONE WARRANT TO PURCHASE ONE
COMMON SHARE OF BIOVAIL
CORPORATION INTERNATIONAL
-------------------------
PROSPECTUS
-------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SBC WARBURG DILLON READ INC.
LAZARD FRERES & CO. LLC
, 1997
======================================================
======================================================
<PAGE> 88
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13 (FORM F-1)/ITEM 14 (FORM F-3).* OTHER EXPENSES OF ISSUANCE AND
DISTRIBUTION
The following table sets forth the costs and expenses payable by
Intelligent Polymers in connection with the sale of Units being registered (all
amounts are estimated except the SEC Registration Fee and the American Stock
Exchange Listing Application Fee):
<TABLE>
<S> <C>
SEC Registration Fee..................................................... $ 66,891
Listing Application Fee..................................................
Blue Sky Qualification Fees and Expenses.................................
Accounting Fees..........................................................
Legal Fees and Expenses..................................................
NASD Filing Fee.......................................................... 22,574
Printing and Engraving................................................... 100,000
Miscellaneous............................................................
--------
Total.................................................................... $
========
</TABLE>
- ------------------------------
* Pursuant to the Services Agreement, Biovail and Intelligent Polymers have
agreed that Intelligent Polymers will pay all expenses associated with the
issuance and distribution of the Units.
ITEM 14 (FORM F-1)/ITEM 15 (FORM F-3). INDEMNIFICATION OF DIRECTORS AND
OFFICERS
Except as hereinafter set forth, there is no charter provision, by-law,
contract, arrangement or statute under which any director or officer of either
of the Registrants is insured or indemnified in any manner against any liability
which he may incur in his capacity as such.
With respect to Intelligent Polymers:
Intelligent Polymers' Bye-Laws provide that Intelligent Polymers shall
indemnify out of the funds of Intelligent Polymers, except as set forth below,
every director and officer of Intelligent Polymers and every member of a
committee of the Board of Directors of Intelligent Polymers, against all civil
liabilities, loss, damage or expense (including but not limited to liabilities
under contract, tort and statute or any applicable foreign law or regulation and
all reasonable legal and other costs and expenses properly payable) incurred or
suffered by him as such director, officer or committee member and any person
acting as a director, officer or committee member in the reasonable belief that
he has been so appointed or elected notwithstanding any defect in such
appointment or election provided always that the indemnity contained by the
Bye-Laws shall not extend to any matter in respect of any fraud or dishonesty
which may attach to any of the foregoing persons. To the extent that any
director, officer or member of a committee duly constituted under the Bye-Laws
is entitled to claim an indemnity pursuant to the Bye-Laws in respect of amounts
paid or discharged by him, the relative indemnity shall take effect as an
obligation of Intelligent Polymers to reimburse the person making such payment
or effecting such discharge. No director, secretary or other duly appointed
officer of Intelligent Polymers shall be personally liable to Intelligent
Polymers or its shareholders for monetary damages in respect of the exercise or
non-exercise of any power or duty vested in such director, secretary or officer,
provided, however, the foregoing shall not extend to any matter in respect of
any fraud or dishonesty which may attach to any of the foregoing persons.
Expenses incurred in defending a civil or criminal action, suit or proceeding
shall be paid by Intelligent Polymers in advance of the final disposition of
such action, suit or proceeding as authorized by the Board of Directors of
Intelligent Polymers upon receipt of an undertaking by or on behalf of a
director, officer, liquidator or trustee to repay such amount, unless it shall
be ultimately determined that he is entitled to be indemnified by Intelligent
Polymers as authorized in the Bye-Laws or otherwise pursuant to applicable laws.
II-1
<PAGE> 89
With respect to Biovail:
Section 6.04 of By-Law No. 1 of Biovail provides as follows:
Subject to the limitations contained in statutory law, Biovail shall
indemnify a director or officer, a former director or officer, or a person who
acts or acted at Biovail's request as a director or officer of a body corporate
of which Biovail is or was a shareholder or creditor, and his heirs and legal
representatives, against all costs, charges and expenses, including an amount
paid to settle an action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal or administrative action or proceeding to which
he is made a party by reason of being or having been a director or officer of
Biovail or such body corporate, if
(a) he acted honestly and in good faith with a view to the best
interest of Biovail; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he had reasonable grounds for
believing that his conduct was lawful.
Biovail shall also indemnify such person in such other circumstances as
statutory law permits or requires.
ITEM 15 (FORM F-1). RECENT SALES OF UNREGISTERED SECURITIES
On July 30, 1997 Intelligent Polymers sold 12,000 Special Shares to Biovail
for an aggregate cash purchase price of $12,000. The Special Shares were issued
without registration under the Securities Act of 1933, as amended, in reliance
upon the exemption provided by Section 4(2) of the Act. No underwriting
commissions were paid in connection with such issuance.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement
2.9** -- Amalgamation Agreement between Trimel Corporation and Biovail Corporation
International dated January 12, 1994
3.1* -- Memorandum of Association of Intelligent Polymers
3.2* -- Bye-Laws of Intelligent Polymers
4.1* -- Purchase Option (included in Exhibit 3.2)
4.2* -- Form of Warrant Agreement
4.3* -- Form of Warrant (included in Exhibit 4.2)
4.4* -- Form of Unit Certificate
4.5+ -- Specimen Stock Certificate for Biovail Common Shares
4.6* -- Specimen Stock Certificate for Intelligent Polymers Common Shares (included in
Exhibit 4.4)
4.7* -- Specimen Stock Certificate for Intelligent Polymers Special Shares
5.1* -- Opinion of Cassels Brock & Blackwell as to legality of underlying Biovail
Common Shares, including consent
5.2* -- Opinion of Conyers Dill & Pearman as to legality of Intelligent Polymers
Common Shares, including consent
8.1* -- Opinion of Cahill Gordon & Reindel as to U.S. tax matters, including consent
8.2* -- Opinion of Cassels Brock & Blackwell as to Canadian tax matters, including
consent
8.3* -- Opinion of Conyers Dill & Pearman as to Bermuda tax matters, including consent
10.1* -- Form of Development and License Agreement
</TABLE>
II-2
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------
<C> <C> <S>
10.2* -- Form of Services Agreement
21.1* -- List of Subsidiaries of Biovail
23.1* -- Consent of Cahill Gordon & Reindel (included in Exhibit 8.1)
23.2* -- Consent of Cassels Brock & Blackwell (included in Exhibit 5.1 and Exhibit 8.2)
23.3* -- Consent of Conyers Dill & Pearman (included in Exhibit 5.2 and Exhibit 8.3)
23.4 -- Consent of Deloitte & Touche, independent Chartered Accountants, regarding
Intelligent Polymers Balance Sheet and Biovail Consolidated Financial
Statements
24.1 -- Powers of Attorney (included on signature pages)
</TABLE>
- ------------------------------
* To be filed by amendment.
** Incorporated by reference to Registrant's registration statement on Form F-4,
Registration Statement No. 33-74120.
+ Incorporated by reference to Biovail's registration statement on Form F-4,
Registration Statement No. 33-74120.
ITEM 17. UNDERTAKINGS
The undersigned Registrants hereby undertake:
(1) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under item 14
above, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(2) For the purpose of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(4) For purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Intelligent Polymers hereby undertakes to provide to the Underwriters at
the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-3
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Mississauga, Canada, on September 17, 1997.
BIOVAIL CORPORATION INTERNATIONAL
By: /s/ ROBERT A. PODRUZNY
------------------------------------
(Robert A. Podruzny)
Vice President Finance,
Chief Financial Officer and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned officers
and directors of Biovail Corporation International, a Canadian corporation, does
hereby constitute and appoint Robert A. Podruzny and Kenneth C. Cancellara, and
each of them the lawful attorney and agent or attorney or agent, with power and
authority to do any and all acts and things and to execute any and all
instruments which said attorney and agent determines may be necessary or
advisable or required to enable said corporation to comply with the Securities
Act of 1933, as amended, and any rules or regulations or requirements of the
Securities and Exchange Commission in connection with this Registration
Statement. Without limiting the generality of the foregoing power and authority,
the powers granted include the power and authority to sign the names of the
undersigned officers and directors in the capacities indicated below to this
Registration Statement, to any and all amendments, all whether pre-effective or
post-effective, and all supplements to this Registration Statement and to any
and all instruments or documents filed as part of or in conjunction with this
Registration Statement or amendments, whether pre-effective or post-effective,
or supplements to this Registration Statement, and each of the undersigned
hereby ratifies and confirms all that said attorney and agent shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on behalf of Biovail Corporation
International by the following persons in the capacities and on the dates
indicated
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- -------------------
<C> <S> <C>
/s/ EUGENE N. MELNYK Chairman of the Board of September 17, 1997
- ----------------------------------------- Directors
Eugene N. Melnyk
/s/ BRUCE D. BRYDON President, Chief Executive September 17, 1997
- ----------------------------------------- Officer and Director (Principal
Bruce D. Brydon Executive Officer)
/s/ ROLF K. REININGHAUS Senior Vice President, September 17, 1997
- ----------------------------------------- Corporate and Strategic
Rolf K. Reininghaus Development and Director
</TABLE>
II-4
<PAGE> 92
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- -------------------
<C> <S> <C>
/s/ MAHMOOD KHAN Senior Vice President, September 17, 1997
- ----------------------------------------- Chief Operating Officer and
Mahmood Khan Director
/s/ KENNETH C. CANCELLARA Senior Vice President, General September 17, 1997
- ----------------------------------------- Counsel, Secretary and Director
Kenneth C. Cancellara
/s/ ROBERT A. PODRUZNY Vice President Finance, September 17, 1997
- ----------------------------------------- Chief Financial Officer and
Robert A. Podruzny Director (Principal Financial
and Accounting Officer)
/s/ WILFRED G. BRISTOW Director September 17, 1997
- -----------------------------------------
Wilfred G. Bristow
/s/ ROGER ROWAN Director September 17, 1997
- -----------------------------------------
Roger Rowan
/s/ ROBERT VUJEA Director September 17, 1997
- -----------------------------------------
Robert Vujea
Authorized Representative in the U.S. September 17, 1997
/s/ EUGENE N. MELNYK September 17, 1997
- -----------------------------------------
Biovail Americas Corp.
</TABLE>
II-5
<PAGE> 93
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that is has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in St. Philip, Barbados on September 17, 1997.
INTELLIGENT POLYMERS LIMITED
By: /s/ EUGENE N. MELNYK
------------------------------------
Eugene N. Melnyk
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned officers
and directors of Intelligent Polymers Limited, a Bermuda company, does hereby
constitute and appoint Robert A. Podruzny and Kenneth C. Cancellara, and each of
them the lawful attorney and agent or attorney or agent, with power and
authority to do any and all acts and things and to execute any and all
instruments which said attorney and agent determines may be necessary or
advisable or required to enable said corporation to comply with the Securities
Act of 1933, as amended, and any rules or regulations or requirements of the
Securities and Exchange Commission in connection with this Registration
Statement. Without limiting the generality of the foregoing power and authority,
the powers granted include the power and authority to sign the names of the
undersigned officers and directors in the capacities indicated below to this
Registration Statement, to any and all amendments, all whether pre-effective or
post-effective, and all supplements to this Registration Statement and to any
and all instruments or documents filed as part of or in conjunction with this
Registration Statement or amendments, whether pre-effective or post-effective,
or supplements to this Registration Statement, and each of the undersigned
hereby ratifies and confirms all that said attorney and agent shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on behalf of Intelligent Polymers Limited
by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- -------------------
<C> <S> <C>
/s/ EUGENE N. MELNYK Chairman/Chief Executive Officer September 17, 1997
- ---------------------------------------- (Principal Executive, Financial
Eugene N. Melnyk and Accounting Officer)
/s/ ROBERT A. PODRUZNY Special Director September 17, 1997
- ----------------------------------------
Robert A. Podruzny
/s/ DAVID J. DOYLE Common Director, Secretary September 17, 1997
- ----------------------------------------
David J. Doyle
Authorized Representative in the U.S.
/s/ EUGENE N. MELNYK September 17, 1997
- ----------------------------------------
Biovail Americas Corp.
</TABLE>
II-6
<PAGE> 94
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ---------------------------------------------------------------------
<C> <C> <S> <C>
1.1* -- Form of Underwriting Agreement
2.9** -- Amalgamation Agreement between Trimel Corporation and Biovail
Corporation International dated January 12, 1994
3.1* -- Memorandum of Association of Intelligent Polymers
3.2* -- Bye-Laws of Intelligent Polymers
4.1* -- Purchase Option (included in Exhibit 3.2)
4.2* -- Form of Warrant Agreement
4.3* -- Form of Warrant (included in Exhibit 4.2)
4.4* -- Form of Unit Certificate
4.5+ -- Specimen Stock Certificate for Biovail Common Shares
4.6* -- Specimen Stock Certificate for Intelligent Polymers Common Shares
(included in Exhibit 4.4)
4.7* -- Specimen Stock Certificate for Intelligent Polymers Special Shares
5.1* -- Opinion of Cassels Brock & Blackwell as to legality of underlying
Biovail Common Shares, including consent
5.2* -- Opinion of Conyers Dill & Pearman as to legality of Intelligent
Polymers Common Shares, including consent
8.1* -- Opinion of Cahill Gordon & Reindel as to U.S. tax matters, including
consent
8.2* -- Opinion of Cassels Brock & Blackwell as to Canadian tax matters,
including consent
8.3* -- Opinion of Conyers Dill & Pearman as to Bermuda tax matters,
including consent
10.1* -- Form of Development and License Agreement
10.2* -- Form of Services Agreement
21.1* -- List of Subsidiaries of Biovail
23.1* -- Consent of Cahill Gordon & Reindel (included in Exhibit 8.1)
23.2* -- Consent of Cassels Brock & Blackwell (included in Exhibit 5.1 and
Exhibit 8.2)
23.3* -- Consent of Conyers Dill & Pearman (included in Exhibit 5.2 and
Exhibit 8.3)
23.4 -- Consent of Deloitte & Touche, independent Chartered Accountants,
regarding Intelligent Polymers Balance Sheet and Biovail Consolidated
Financial Statements
24.1 -- Powers of Attorney (included on signature pages)
</TABLE>
- ------------------------------
* To be filed by amendment.
** Incorporated by reference to Registrant's registration statement on Form F-4,
Registration Statement No. 33-74120.
+ Incorporated by reference to Biovail's registration statement on Form F-4,
Registration Statement No. 33-74120.
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement
of Biovail Corporation International on Form F-3 of our report dated February
21, 1997, appearing in the Annual Report on Form 20-F of Biovail Corporation
International for the year ended December 31, 1996 and to the use in the
Registration Statement of Intelligent Polymers Limited on Form F-1 of our report
dated September 9, 1997 appearing in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
/s/ DELOITTE & TOUCHE
DELOITTE & TOUCHE
Toronto, Canada
September 16, 1997
