<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER PURSUANT TO RULE 13a - 16 AND 15d - 16 OF
THE SECURITIES EXCHANGE ACT OF 1934
JUNE 21, 1999 COMMISSION FILE NUMBER 001-11145
BIOVAIL CORPORATION INTERNATIONAL
(TRANSLATION OF REGISTRANT'S NAME INTO ENGLISH)
2488 DUNWIN DRIVE, MISSISSAUGA, ONTARIO L5L 1J9, CANADA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (416) 285-6000
INDICATE BY CHECK MARK WHETHER THE REGISTRANT FILES OR WILL
FILE ANNUAL REPORTS UNDER COVER OF FORM 20-F OR FORM 40-F
FORM 20-F X FORM 40-F __
INDICATE BY CHECK MARK WHETHER FOR REGISTRANT BY FURNISHING THE INFORMATION
CONTAINED IN THIS FORM IS ALSO THEREBY FURNISHING THE INFORMATION TO THE
COMMISSION PURSUANT TO RULE 12g 3-2 (b) UNDER THE SECURITIES EXCHANGE ACT OF
1934.
YES ___ NO _X_
<PAGE> 2
BIOVAIL CORPORATION INTERNATIONAL
QUARTERLY REPORT
INDEX
PART 1. FINANCIAL INFORMATION
PART II. OTHER INFORMATION .......................................... 1
(ALL DOLLAR AMOUNTS IN THIS DOCUMENT ARE EXPRESSED IN U.S. DOLLARS UNLESS
OTHERWISE STATED.)
<PAGE> 3
BIOVAIL CORPORATION INTERNATIONAL
PART II - OTHER INFORMATION
1. The material issued by the Company to Shareholders are attached as the
following exhibits:
a) The First Quarter Report to Shareholders
b) 1998 Annual Report
c) Notice of Annual and Special Meeting of Shareholders - July 22, 1999
d) Management Information Circular
e) Proxy for Annual and Special Meeting of Shareholders
2. Reporting Issued to Canadian Security Administrators and Stock Exchanges
f) National Policy 31
- Change in Auditor Notification
1
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Biovail Corporation International
June 21, 1999 By /s/John R. Miszuk
John R. Miszuk,
Vice President, Controller
2
<PAGE> 1
BIOVAIL
CORPORATION INTERNATIONAL
2488 Dunwin Drive, Mississauga, Ontario, Canada L5J 1J9
<PAGE> 2
BIOVAIL
CORPORATION INTERNATIONAL
INTERIM REPORT 1999
FIRST QUARTER
<PAGE> 3
DEAR FELLOW SHAREHOLDER
I am pleased to report that the first quarter of 1999 has been an excellent one
for Biovail. The company has begun the year once again posting record quarterly
financial results. Many factors contributed to these results, which continue to
build on our achievements of last year. In addition to steady progress in our
core business operations and increasing sales across our portfolio, the first
quarter was marked by a significant international licensing agreement and
several exciting milestones in our Canadian marketing endeavours.
TIAZAC(R) EXPANSION
In 1998, Biovail achieved record production and shipment levels of Tiazac(R),
the Company's once-daily diltiazem medication.This was driven by steady market
growth in the US for the hypertension indication, as well FDA approval for the
treatment of angina and the introduction of a 420mg dosage - making Tiazac(R)
the only 420mg once daily diltiazem product available in the large US market.
In the first quarter of this year, Tiazac(R)'s potential in Canada was
bolstered tremendously by its inclusion in the Ontario Drug Benefit Formulary
(ODBF). Crystaal, Biovail's Canadian marketing division, had restricted access
to Ontario, which represents 42% of the Cdn.$123 million diltiazem market in
Canada. With the ODBF listing, market share is expected to grow significantly.
CITALOPRAM JOINT DEVELOPMENT
AND CO-PROMOTION
In January, Biovail announced an exciting agreement to develop a novel
controlled release formulation of the leading anti-depressant Citalopram. As
part of a multi-faceted deal concluded with Citalopram's innovator, H.Lundbeck
A/S of Denmark, Biovail will develop, manufacture and supply a controlled
release version of Citalopram for commercialization by Lundbeck and its
licensees. The deal also calls for Crystaal to co-promote with Lundbeck the
current version of Citalopram in Canada.
<PAGE> 4
Clinical depression affects countless people around the world, including
one in ten Americans, and is associated with greater levels of physical and
social impairment than other chronic conditions, including heart disease.
Citalopram, a selective serotonin reuptake inhibitor, is marketed in more
than 60 countries under the brand names Celexa, Cipramil and Seropram. The
worldwide annual market for this class of anti-depressants is estimated to be in
excess of $7 billion, with an annual growth rate of 17%.
Citalopram has been shown to have an improved side effect profile and
lower incidence of drug interactions compared to many other serotonin reuptake
inhibitors. It is currently the best selling anti-depressant in 13
countries, including eight in Europe, where its sales are growing at the rate of
28% annually.
CRYSTAAL PORTFOLIO EXPANSION
The first quarter of 1999 has been an extremely busy one for Crystaal, the
Company's Canadian marketing operation. In February,Health Canada's Therapeutic
Products Programme approved the marketing of Celexa (Citalopram) for the
symptomatic relief of depression. Under the terms of the recently completed
agreement, Crystaal will co-promote Celexa in collaboration with Lundbeck
Canada. Crystaal will concentrate its efforts on primary care physicians, where
their strong sales network is already well established. The Canadian
anti-depressant market is valued at approximately US$300 million annually. In
addition, it is estimated that only a third of the 20-25% of Canadians who
suffer from depression presently receive appropriate treatment.
Also in the first quarter, Crystaal received marketing approval in Canada
for Brexidol, a unique product for the treatment of mild to severe pain,
including sports injuries, post-operative pain, primary dysmenorrhea, dental
pain headache. Brexidol, utilizes the Nobel Prize winning Host-Guest chemistry
system, in-licensed from Chiesi Farmaceutici S.p.a.
<PAGE> 5
Brexidol will compete in the Canadian pain and anti-inflammatory product
market, valued at approximately US$150 million annually. The product has been
marketed in Europe for nearly 10 years and has established an excellent safety
and efficacy record in over 20 million patients.
The addition of Celexa and Brexidol further enhances Crystaal's already
impressive portfolio of exciting products, which also includes: Tiazac(R),
Retavase, d-methylphenidate and Corlopam.
RECORD FINANCIAL RESULTS
Biovail marked the start of 1999 with record first quarter financial
results. Revenues for the first quarter of 1999 were $28.2 million, a 29%
increase over 1998 first quarter revenues of $21.9 million. Operating income
for the first quarter was $11.6 million, a 38% improvement over 1998 first
quarter figures of $8.4 million. Net income for the first quarter of 1999 was
$8.3 million, or $0.34 per share, compared to net income of $7.8 million, or
$0.29 share, realized in the first quarter of 1998.
With this extremely positive start to 1999, and the continued progress in
our sales and product development activities, the Company is well positioned for
another excellent year.
On behalf of the Board, I would like to thank all of our employees for
their dedication and hard work, and our shareholders for their continued support
of our Company.
(signed) Eugene Melnyk
EUGENE MELNYK
Chairman of the Board
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
(All dollar amounts are expressed in thousands of U.S. dollars)
<TABLE>
<CAPTION>
MARCH 31, December 31,
1999 1998
(Unaudited) (Audited)
------------ ---------
<S> <C> <C>
ASSETS
Current
Cash and short-term deposits $ 79,256 $ 78,279
Accounts receivable 41,383 42,768
Inventories 13,760 10,542
Executive loans 2,975 2,924
Deposits and prepaids 3,254 3,357
------------ ---------
140,628 137,870
LONG-TERM INVESTMENTS 10,055 10,055
CAPITAL 24,818 23,677
OTHER, net 27,769 28,317
------------ ---------
$ 203,270 $ 199,919
------------ ---------
LIABILITIES
Current
Accounts payable $ 7,319 $ 12,244
Accrued liabilities 8,147 4,129
Income taxes payable 594 1,004
Customer prepayments 13,956 4,516
Current portion of long-term debt 733 653
------------ ---------
30,749 22,546
LONG-TERM DEBT 125,836 126,182
------------ ---------
156,585 148,728
------------ ---------
SHAREHOLDERS' EQUITY
Share capital 20,939 19,428
Warrants 8,244 8,244
Retained earnings 18,345 24,748
Cumulative translation adjustment (843) (1,229)
------------ ---------
46,685 51,191
------------ ---------
$ 203,270 $ 199,919
============ =========
</TABLE>
<PAGE> 7
CONSOLIDATED STATEMENTS OF INCOME
(all dollar amounts except per share data are expressed
in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(Unaudited) 1999 1998
---------- ----------
<S> <C> <C>
REVENUE
Product Sales $ 12,562 $ 11,467
Research and development 6,717 7,844
Royalty and licensing 8,952 2,578
---------- ----------
28,231 21,889
---------- ----------
EXPENSES
Cost of goods sold 5,039 5,142
Research and development 5,324 4,029
Selling, general and administrative 6,245 4,311
---------- ----------
16,608 13,482
---------- ----------
OPERATING INCOME 11,623 8,407
INTEREST INCOME (EXPENSE), net (2,792) (68)
---------- ----------
INCOME BEFORE INCOME TAXES 8,831 8,339
PROVISION FOR INCOME TAXES 533 491
---------- ----------
NET INCOME $ 8,298 $ 7,848
---------- ----------
EARNINGS PER SHARE $ 0.34 $ 0.29
---------- ----------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 24,603,400 26,736,000
========== ==========
</TABLE>
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all dollar amounts data are expressed in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(Unaudited) 1999 1998
----------- ---------
<S> <C> <C>
NET INFLOW (OUTFLOW) OF CASH RELATED
TO THE FOLLOWING ACTIVITIES
OPERATING
Net income for the period $ 8,298 $ 7,848
Depreciation and amortization 1,489 1,164
----------- ---------
9,787 9,012
----------- ---------
Changes in non-cash operating items:
(Increase) decrease accounts
receivable 1,466 (3,191)
(Increase) decrease inventory (3,030) (2,332)
(Increase) decrease deposits
& prepaid expenses 103 (78)
Increase (decrease) accounts
payable & accrued liabilities (383) 339
Increase (decrease) income
taxes payable (386) 135
Increase (decrease) customer
prepayments 9,440 4,511
----------- ---------
7,210 (616)
----------- ---------
16,997 8,396
----------- ---------
INVESTING
Additions to fixed assets, net (1,611) (1,207)
Executive stock purchase plan loans (52) 213
Acquisition of royalty interest - (15,000)
Long-term investments - (7,500)
----------- ---------
(1,663) (23,494)
----------- ---------
FINANCING
Acquisition of share capital (14,933) -
Issuance of share capital 1,424 3,660
Reduction in other long-term debt (300) (597)
Repayment of other long-term debt - 15,000
----------- ---------
(13,809) 18,063
----------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (548) 8
----------- ---------
INCREASE (DECREASE) IN CASH 977 2,973
----------- ---------
CASH, AND SHORT TERM DEPOSITS,
BEGINNING OF PERIOD 78,279 8,275
----------- ---------
CASH, AND SHORT TERM DEPOSITS,
END OF PERIOD $ 79,256 $ 11,248
=========== =========
</TABLE>
<PAGE> 9
CORPORATE INFORMATION
BOARD OF DIRECTORS
Eugene Melnyk
Chairman of the Board
Biovail Corporation International
Bruce Brydon
Chief Executive Officer
Biovail Corporation International
Robert Podruzny
President and Chief Operating Officer
Biovail Corporation International
Kenneth Cancellara, Q.C.
Senior Vice President
General Counsel and Secretary
Biovail Corporation International
Rolf Reininghaus
Senior Vice President
Biovail Corporation International
President
Crystaal Division of Biovail Corporation International
Wilfred Bristow
Senior Vice President
Nesbitt Burns Inc.
Roger Rowan
President and Chief Operating Officer
Watt Charmichael Inc.
Robert Vujea
President
R&D Chemical Corporation
AUDITORS REGISTRARS AND
Deloitte & Touche, TRANSFER AGENTS
Chartered Accountants CIBC Mellon Trust Company
Toronto, Canada Toronto, Ontario
ChaseMellon
STOCK LISTING Shareholder Services
New York Stock Exchange New York, USA
Toronto Stock Exchange
Symbol: BVF
<PAGE> 10
SHAREHOLDER INFORMATION
Head office
Biovail Corporation International
2488 Dunwin Drive
Mississauga, Ontario
Canada L5L 1J9
The Annual Meeting of Shareholders
The annual meeting of shareholders will be held
at 10:00 a.m. Thursday, July 22, 1999
at the Royal York Hotel, Territories Room,
100 Front Street, Toronto, Ontario.
How to Reach Us for More Information
For additional copies of this report, the annual report
on form 20-F as filed with the United States Securities
and Exchange Commission, for quarterly reports
or for further information, please contact Investor Relations.
By mail:
Biovail Corporation International
2488 Dunwin Drive
Mississauga, Ontario
Canada L5L 1J9
By phone:
(416) 285-6000
By fax:
(416) 285-6499
By e-mail: [email protected]
<PAGE> 1
BIOVAIL
CORPORATION INTERNATIONAL
[GROWTH ILLUSTRATION}
1998 ANNUAL REPORT
<PAGE> 2
Biovail Corporation International is a pharmaceutical company employing
proprietary drug delivery technologies to develop branded and generic
controlled-release once-daily tablet and capsule formulations to treat chronic
conditions. As a fully integrated company, Biovail engages in all stages of
product development including formulation development, laboratory
investigation, clinical testing, regulatory filing and manufacturing.
Biovail products are sold in more than 55 countries through licensing
agreements and partnerships with some of the world's leading pharmaceutical
companies, as well as through its own Canadian sales and marketing division,
Crystaal. Biovail's contract research division provides clinical and laboratory
services to third party pharmaceutical companies, as well as the parent
organization.
TABLE OF CONTENTS
Letter to shareholders 3
OPPORTUNITY + PROVEN ABILITY = GROWTH
Biovail's technology foundation 7
The well patient 8
The market and the pipeline 10
The vision behind Biovail's pipeline 12
Management's discussion and analysis 17
Financial statements and notes 24
<PAGE> 3
GROWTH
OPPORTUNITY
The advanced drug delivery sector is growing at 17% a year - almost double the
pace of the pharmaceutical industry itself. The opportunities are vast and
Biovail has been selective in identifying its development pipeline products,
initiating product projects only for those opportunities providing the best
potential for continued growth. The pipeline includes 16 branded and generic
products with annual brand revenues of more than $6 billion a year.
PROVEN ABILITY
Biovail has the proven ability, resources and strategies to capture a
significant share of its target markets. Distinguished by our technology, we
have laid a foundation of state-of-the art research and development
capabilities, manufacturing capacity and marketing skills that will allow us to
achieve our goal: To be a leading producer of branded drugs before 2005.
1 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 4
<TABLE>
<CAPTION>
December 31
($ in U.S. thousands except percentage and per 1998 1997 1996
share data) ----------- ----------- ------------
<S> <C> <C> <C>
Revenue $ 112,836 $ 82,379 $ 66,430
Research and development expenditures 17,490 14,386 10,901
% of revenues 15.5% 17.5% 16.4%
Operating income 49,145 37,533 23,606
% of revenues 43.6% 45.6% 35.5%
Net income 45,419 35,241 23,284
% of revenues 40.3% 42.8% 35.1%
Earnings per share $ 1.70 $ 1.38 $ 0.92
Cash flow per share $ 1.99 $ 0.17 $ (0.22)
Weighted average shares outstanding 26,641,000 25,606,000 25,378,000
Number of employees 489 377 315
Cash $ 78,279 $ 8,275 $ 4,526
Working capital 115,324 47,663 9,606
Total assets 199,919 93,739 58,606
Long term debt 126,182 2,960 4,670
Shareholders equity $ 50,677 $ 75,458 $ 38,946
</TABLE>
[GRAPHS]
2 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 5
LETTER TO SHAREHOLDERS
Dear fellow shareholders,
The past five years have been dedicated to building the foundation of a
fully-integrated world-class pharmaceutical company. The marketing approval and
subsequent demand for Tiazac(R) is compelling evidence of the company's ability
to identify, develop, gain approval for its products, and select strong
marketing partners. Biovail's significant generic pipeline, with seven drugs
waiting approval by the U.S. Food and Drug Administration ("FDA"), validates the
company's technology and further proves the scientific strength and flexibility
of the organization.
Since the launch of Tiazac(R) in early 1996, Biovail's revenues have grown
to $112.8 million in 1998 from $82.5 million in 1997 and only $19.5 million in
1995. Our earnings per share have also climbed - to $1.70 in 1998 from only
$0.23 in 1995.
Our performance has been outstanding and we believe Biovail is well
positioned to take advantage of opportunities that will be presented by the
global pharmaceuticals market over the next few years.
THE REASONS BEHIND OUR CONFIDENCE
During 1998, Biovail met virtually every milestone and target which we
established for ourselves and our partners. Although the timing of the release
of our generic version of Cardizem CD remains clouded by unrelated third party
litigation, we hope to be able to bring this product to market in the near
future and begin to capture our share of the almost $700 million in annual sales
of the Cardizem CD brand. The balance of the company's generic product pipeline,
which targets such brands as Adalat CC and Procardia XL, continues to progress
through the FDA's approval process - with expected approvals over the next 18
months.
[PHOTO}
EUGENE N. MELNYK
Chairman of the Board
3 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 6
LETTER TO SHAREHOLDERS
1998 has provided several other confidence builders:
o In Canada, Tiazac(R) was approved for Ontario drug benefit formulary
listing. This gives Tiazac(R) universal market access in Canada's most
populous province. Absence of this listing had restricted market penetration
and caused Biovail to rely on other regions to provide the expected growth of
Tiazac(R) sales in Canada. The listing opened Ontario's entire $52 million
once-daily diltiazem opportunity to Biovail.
o Growth of Tiazac(R) sales in the U.S. continue with the approval by the FDA
of a new 420 milligram dosage. We now have six strengths approved for
Tiazac(R) compared to four for Cardizem CD and three for Dilacor XR, our key
competition.
o We met all of the formulation and product development milestones established
under our agreement with our U.S. generic marketing partner Teva
Pharmaceuticals and thereby received the balance of all fees due Biovail
under this 1997 agreement.
o We raised U.S. $125 million through a senior note offering, $30 million was
attributed to retiring existing debt. We plan to use a portion to expand our
manufacturing capacity in Manitoba and Puerto Rico. Another important use of
the funds raised will be to pursue strategic acquisitions of new technologies
and product opportunities.
o Crystaal, Biovail's Canadian sales and marketing division, concluded six
in-licensing agreements to market a broad range of products including
Retavase, a fibrinolytic product used for heart attack patients;
D-methylphenidate, employed in the treatment of attention deficit
disorders;Corlopam, used for the in-hospital management of acute
hypertension;and Brexidol, used for the relief of mild to severe pain
resulting from sports injuries and dysmenorrhea.
o The development of formulations for the Intelligent Polymers Limited pipeline
of branded products is on schedule. The brand sales of these products in
their current multiple dose form have increased significantly, doubling to
$2.8 billion a year from $1.4 billion when they were selected for the
portfolio. This improves an already exciting opportunity by almost 100% in
one year.
4 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 7
THE FOUR-STAGE GROWTH PLATFORM
[GRAPHIC]
Biovail is building upon the royalties which it earns from contract research
conducted over the past 20 years to become a leading developer and manufacturer
of brand-name medications. To leverage its expertise and maintain earnings
momentum during the transition, it will develop and manufacture a portfolio of
generic products.
o Biovail's Contract Research division is working on a record amount of
contracted research for pharmaceutical companies from around the world. This
third-party work, along with the fees received from Intelligent Polymers,
increased revenues for contract research to $32 million in 1998, compared to
$19.6 million in 1997.
These accomplishments and events place Biovail on schedule to meet our
expectations in all areas of our business.
OUR RISKS AND CHALLENGES
Although we are not involved in the discovery of novel drugs and, consequently,
not exposed to the extraordinary costs or risks which are inherent in that
segment of the
5 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 8
industry, our competitive and regulatory environment is complex, especially in
the generic segment. The situation surrounding the approval of our generic
formulation of Cardizem CD is unusual but it makes it impossible to ignore the
fact that we face challenges in successfully implementing our plans within
certain time lines.
In the branded segment of our business, the establishment of Intelligent
Polymers has helped the company minimize the development cost risks for those
projects. However, speed remains critical in the development of formulations and
the completion of their New Drug Application filings with the FDA.
OUTLOOK
At the end of 1998, the company had seven generic products on file at the FDA
awaiting approval. On average, the FDA requires about two years to approve these
types of applications. Therefore, we anticipate that as many as four of these
significant product opportunities should gain market approval during 1999 and
early 2000.
The branded product pipeline is maturing well with individual products
being on or ahead of plan. We believe that at least two products will enter
safety and efficacy trials this year both in Canada and the United States.
Our accomplishments in the past year are significant and could not have
been achieved without the hard work and dedication of all of our employees.
Every location and discipline within the company has contributed significantly
to the success we enjoy. We look forward to another tremendous year as our
strategies are implemented and the ensuing success unfolds.
(signed) Eugene N. Melnyk
EUGENE N. MELNYK
Chairman of the Board
May 14, 1999
6 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 9
OPPORTUNITY + PROVEN ABILITY = GROWTH
BIOVAIL'S TECHNOLOGY FOUNDATION
BIOVAIL HAS BEEN BUILT AROUND PROPRIETARY ADVANCED ORAL CONTROLLED-RELEASE
technologies which are used to produce improved versions of existing drugs. Most
drugs which are taken orally release into the blood stream as soon as the dose
is swallowed by the patient. In this circumstance, the concentration of the drug
in the blood stream peaks rapidly, then gradually diminishes until another dose
must be taken - usually after three or four hours.
Biovail controlled-release products, however, are taken only once a day.
Unlike regular medications, the application of our proprietary pharmaceutical
science causes the medication to be absorbed smoothly over a 24-hour period
after it is taken.
Biovail develops both generic versions of branded controlled-release
products and branded controlled-release versions of immediate-release drugs. In
1998, we had 13 products on the market, including 11 developed under research
sponsored by pharmaceutical companies in the United States and Europe. Sold
under license in 55 countries, sales of these products are approximately $350
million a year. From this activity, Biovail receives annual royalties.
Completing the total of 13 products are Tiazac(R), an extended release
once-daily version of the calcium channel blocker diltiazem first marketed in
early 1996, and the company's controlled-release generic version of Trental, a
product used to treat peripheral vascular disease. Biovail's generic version of
Trental was launched in the fall of 1998. These two products represent the first
that Biovail selected, developed and steered through the legal and approval
process to market.
Biovail is one of a few companies with the expertise to prosper in the
oral controlled-release pharmaceutical niche. We have been conducting oral
controlled-release research since 1977 and have overcome the inherent
difficulties in achieving an effective controlled-release profile, a challenge
which makes it difficult for competitors to enter our market.
7 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 10
OPPORTUNITY + PROVEN ABILITY = GROWTH
THE WELL PATIENT
THE MOST SIGNIFICANT BENEFIT OF CONTROLLED-RELEASE DELIVERY IS A WELL PATIENT.
Immediate-release drugs must be taken as often as four or five times a day to
maintain an effective concentration of the drug substance in the blood stream.
It is inconvenient and patients tend to forget, or choose not to, take their
medication occasionally.
Even when taken regularly, the immediate-release form of the drug often
results in periods of time throughout the day when the patient has either too
much medication in his or her blood, which can cause side effects, or too
little, which makes it ineffective in controlling symptoms.
The advantages of controlled-release products are clear:
o improved effectiveness. The medication is released slowly and predictably
into the blood stream, avoiding both the immediate release of too much drug
accompanied by a rapid decline in drug concentration leading to side effects
and reoccurrence of symptoms.
o improved patient compliance. Its once-a-day ease of use makes the patient far
less likely to miss a dose.
o preferred by patients, physicians and the insurance administrators or
companies which pay for the medication.
[PHOTO]
8 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 11
THE IMPACT OF BIOVAIL'S CONTROLLED-RELEASE TECHNOLOGY
[GRAPH]
Our technologies allow oral medications to be slowly released into the
individual's blood stream, usually over 24 hours, improving the
effectiveness of the drug while reducing unwanted side effects and making
it possible for the drug to be taken as seldom as once a day.
Biovail has been conducting advanced drug delivery research since 1977.
The technologies which we have developed overcome the inherent
difficulties in achieving an effective controlled-release profile, a
challenge which makes it difficult for competitors to enter our market.
9 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 12
OPPORTUNITY + PROVENABILITY = GROWTH
THE MARKET AND THE PIPELINE
OVER THE PAST DECADE, THE RACE TO PROVIDE BETTER SOLUTIONS FOR THE
MEDICAL challenges of today has created phenomenal growth in the
pharmaceutical industry. In the United States, revenues for the
industry climbed to $85 billion in 1998 - and annual growth rates of
9% are expected to continue into 2001. As impressive as this growth
is, the annual growth rate for oral controlled-release drugs is
climbing to 17% a year, almost double that of the pharmaceutical
industry.
Although this is caused in part by the development of more
effective technologies which produce the advanced oral delivery of
drugs, there is also an unusual number of product patents expiring. We
have found close to 60 major branded controlled-release drugs with
patents close to expiration. These medications have sales of $8
billion to $9 billion a year or 10% of the revenues of all
prescription drugs sold in the U.S. The patents on 40 of these drugs
have expired - yet generic versions have been created for only seven.
Almost all of the 60 brands will be off-patent by 2000.
Concomitant to our generic developments, we have targeted the
fastest growing segments of the pharmaceutical industry to identify
those immediate-release drugs which offer the best market potential
for controlled-release versions.
Only the most promising drugs have been selected for our development
pipeline - 11 generic and 5 branded products.
The treatment of angina and hypertension remain at the heart of our
generic pipeline but our branded product stream is concentrated in
five high growth segments:non-narcotic analgesics, anti-depressants,
anti-convulsants, central nervous system (CNS) disorders and diabetes.
10 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 13
STRONG PRODUCT PIPELINE DRIVING EARNINGS GROWTH
<TABLE>
<CAPTION>
GENERIC PRODUCTS INDICATION U.S. MARKET STAGE OF DEVELOPMENT
($ MILLION) PRE-FORMULATION BIOEQUIVALENCE ANDA FILING
<S> <C> <C> <C> <C> <C>
Diltiazem
Cardizem CD Angina, hypertension 696
Cardizem SR Angina, hypertension 31
Dilacor XR Angina, hypertension 136
Verapamil - Verelan Angina, hypertension 93
Nifedipine - Procardia XL Angina, hypertension 637
Nifedipine - Adalat CC Angina, hypertension 357
Diclofenac - Voltaren XR Arthritis 112
4 products to file Chronic disease 1000
</TABLE>
<TABLE>
<CAPTION>
BRANDED PRODUCTS INDICATION U.S. MARKET
($ MILLION)
<S> <C> <C>
Metformin - Glucophage Diabetes 727
Bupropion - Wellbutrin/Zyban Depression,
smoking cessation 656
Buspirone - Buspar Anxiety, depression 464
Gabapentin - Neurontin Epilepsy 430
Tramadol - Ultram Chronic pain 384
</TABLE>
As many as four of Biovail's generic products could gain market approval
during 1999 and 2000. The branded product pipeline is also maturing well.
It is possible two products will enter clinical trials by late 1999 or
early 2000.
Our challenge doesn't end in the laboratory. It extends to the market place.
In the past two years, we have built a Canadian sales team of more than 60
people - and developed partnerships with companies including Teva
Pharmaceuticals and Forest Laboratories - to meet the market place
challenges.
11 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 14
OPPORTUNITY + PROVENABILITY = GROWTH
THE VISION BEHIND BIOVAIL'S PIPELINE
DURING THE RESEARCH AND DEVELOPMENT OF NEW DRUGS, THE TRADITIONAL
pharmaceutical industry tends to overlook improved drug delivery in
the rush to bring its products to market. In an industry where being
first-to-market brings substantial competitive advantages, losing the
time to develop and seek approval of an advanced drug delivery
formulation - better ways to deliver the molecule to the patient's
blood stream - could seriously damage a drug's long-term revenue
stream.
The development of these platforms and their application to drug
products is where Biovail has established its business and reputation.
In fact, there are two approval processes;the new drug application
(NDA) for branded drugs and the abbreviated new drug application
(ANDA) for generic drugs, Biovail has significant experience with both
of these approval processes.
MAINTAINING EARNINGS MOMENTUM WITH GENERIC PRODUCTS
Under the NDA process, Biovail must prove both the safety and efficacy
of its drug products. It's a lengthy and expensive process which can
cost $10 million or more and take up to three years. In the ANDA
process, the drug product is deemed safe and effective. Biovail must
simply prove that its generic version is bioequivalent to the original
brand. Although made complicated by litigation risks, the cost of
developing an ANDA drug is closer to $2 million and it will take
approximately two years once filed to gain marketing approval.
12 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 15
COMPARING GENERIC AND BRANDED PRODUCTS
<TABLE>
<CAPTION>
GENERIC (ANDA) PRODUCTS BRANDED (NDA) PRODUCTS
<S> <C> <C>
DEVELOPMENT
o Safety and efficacy proven by the original brand. o Safety and efficacy must be proven
Biovail must prove bioequivalence only. by Biovail.
o Cost: $2 million + o Cost: $10 million +
o Time: 1 year + o Time: 3 years +
REVENUE PROFILE
o Rapid revenue uptake o Sustainable revenue
o Shorter life span o Longer life span
o Intense price competition leading to tight margins o Lucrative and sustainable margins
TARGET AUDIENCE
o Pharmacists o Physicians
o Sold by corporate partners to pharmacists. o Promoted directly by Crystaal and corporate
These partners must be able to offer a partners to physicians concerned about
breadth of products at a competitive price therapeutic effectiveness
o Pharmacists dispense generic medications o Physicians prescribe the medications
in place of the branded medications prescribed for their patients
by the physician
</TABLE>
THE CRYSTAAL PORTFOLIO
<TABLE>
<CAPTION>
PRODUCT CORPORATE INDICATION MILESTONES
PARTNER
<S> <C> <C> <C>
Tiazac Biovail Angina, hypertension Marketed June, 1997
Celexa H-Lundbeck Depression Marketed April, 1999
Retavase Centocor Myocardia infarction Marketed Dec. , 1998
Brexidol Chiesi Mild to severe pain,
dysmenorrhea Marketed April, 1999
D-methylphenidate Celgene Attention deficit
disorders TPP filing Q-4, 1999
Corlopam Elan Hypertension TPP filing Q-3, 1999
</TABLE>
13 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 16
OPPORTUNITY + PROVEN ABILITY = GROWTH
There are also significant differences in the marketing audience
for generic and branded drugs. Branded drugs are marketed to
individual physicians who must be convinced that a product will be
more effective in treating patients than those which the doctor is
already prescribing. Generic drugs are marketed to pharmacists who
will substitute the less expensive generic for the prescribed branded
drug.
The result is rapid returns and revenue growth for generic
products due to the short development time frame, lower development
costs, and quick acceptance by the market. By undertaking the entire
development process at Biovail, we maintain the manufacturing rights
- - - - and earn the manufacturing revenues - and receive a significant
share of the profits from sales.
We expect that the marketing of our controlled-release generic
products over the next two years will enhance our earnings growth as
we move the core of our business into the development and manufacture
of branded pharmaceuticals.
BECOMING A LEADING DEVELOPER OF BRANDED PRODUCTS
Concentrating on manufacturing and marketing generic products over the
next few years will drive Biovail's earnings growth, but it is an
interim step for us. The market environment in which generic products
compete is intense. Capturing market share rests upon price alone,
which inevitably reduces profitability. Finally, generic products are
vulnerable to competition as pharmacists quickly switch to the least
expensive product.
Earnings from branded products, on the other hand, are not only
stable, but higher than those earned from generic drugs. Branded
products compete on their therapeutic effectiveness and safety -
physicians must be
14 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 17
convinced they are better medications before they will prescribe them
for their patients. Once prescribed, branded products are not easily
replaced by competitors. This gives them a longer life cycle and
places them at less competitive risk while maintaining satisfactory
margins.
CRYSTAAL AND THE OPPORTUNITY
Our challenge doesn't end in the laboratory. It extends to the market place. In
the past two years, we have built a sales team of more than 60 people at
Crystaal.
Traditionally, Biovail has depended upon licensing agreements
with pharmaceutical companies with established sales forces to market
its products. The establishment of Crystaal, which is responsible for
the sale of branded products in Canada, will allow Biovail to
maintain even higher margins on its future branded products and to
enhance those revenues by providing sales and marketing services for
products licensed to Crystaal from third parties for the Canadian
market.
Today, Crystaal owns a pipeline that will require intense
marketing activity. The division has four products to launch this
year - a full docket of work - and continues to look for
opportunities with third parties for possible products to launch in
2000, 2001 and beyond.
DEBT OFFERING AND PURSUIT OF OPPORTUNITIES
Over the past two years, intense competition within the specialty
pharmaceutical industry is resulting in many companies migrating
away from the commodity-like generic business into segments in which
they can establish strong competitive differences from their peers.
Among our peers, we have seen a trend toward consolidation as
companies attempt to broaden their research and development
capabilities, product pipelines, and sales and marketing
infrastructures.
Biovail's $125 million senior note offering in November, 1998
will give the company the financial ability to compete for
synergistic opportunities to acquire products, technologies and
in-process research and development. This will assist in building
upon the strengths inherent in our company today.
15 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 18
FINANCIAL REVEIW
[GRAPH]
REVENUE
(in $U.S. millions)
<TABLE>
<S> <C> <C>
[GRAPH] [GRAPH] [GRAPH]
RESEARCH AND DEVELOPMENT CASH FLOW FROM OPERATIONS WORKING CAPITAL
EXPENDITURES (in $U.S. millions) (in $U.S. millions)
(in $U.S. millions)
[GRAPH] [GRAPH] [GRAPH]
MARKET CAPITALIZATION EBITDA NUMBER OF EMPLOYEES
(in $U.S. millions) (in $U.S. millions)
</TABLE>
16 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 19
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
YEAR ENDED DECEMBER 31, 1998.
OVERVIEW
Biovail Corporation International ("Biovail" or "the Company") derives
its revenues from (i) developing and licensing oral controlled-release
pharmaceutical 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
Revenues for 1998 were $112,836,000, a 37% increase over the $82,379,000
recorded in 1997. Revenues for 1997 were 24% higher than the $66,430,000
recorded in 1996. Net income in 1998 increased by 29% to $45,419,000 or $1.70
per share, compared to $35,241,000, or $1.38 per share in 1997 and $23,284,000
or $0.92 per share in 1996. The continued growth of the company is due primarily
to the success of Tiazac(R) in the US market, the launch and growing acceptance
of Tiazac(R) in the Canadian market, and the growth in Tiazac(R) sales to
other international markets. Research and development revenues increased
significantly, reflecting record activity at the Contract Research Division on
behalf of third parties.
Biovail's growth is also supported by several development and marketing
agreements in respect of the Company's products.
Intelligent Polymers Limited ("IPL") was formed by the Company in
July 1997 to develop once-daily controlled-release versions of
selected drugs whose patents have expired, by combining the Company's
proprietary drug delivery technologies with various drug compounds. In
October 1997, IPL completed a public offering of units and raised net
proceeds of approximately $69,500,000. Substantially all of the proceeds of
the offering are being used to make payments to the Company under a Development
Contract whereby Biovail is undertaking the development on IPL's behalf, of five
identified once-daily controlled release branded generic versions of designated
products and one controlled-release generic product.
In December 1997, the Company entered into an agreement with a
subsidiary of Teva Pharmaceutical Industries Ltd. ("Teva") for the
development and marketing of twelve generic oral controlled-release
products. Under the terms of the agreement, Teva paid the Company
$18,500,000 in 1998 and $16,000,000 in 1997 for reimbursement of
research and development fees and product shipments.
17 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 20
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
In December 1998, the Company entered into an agreement with H.
Lundbeck A/S of Copenhagen, Denmark ("Lundbeck") for the development,
manufacture and supply of a controlled release (CR) formulation of the
anti-depressant Citalopram. In terms of the agreement Lundbeck will
pay Biovail product development fees of $8,500,000 and an agreed
supply price upon commercialization of the CR formulation. $3,500,000
was recorded as revenue in 1998.
The Company's growth strategy relies on product shipments and
advancing the development and regulatory approval of its pipeline
products. In support of this strategy the Company incurred research
and development expenses totaling $17,490,000 in 1998.
REVENUE
Product Sales in 1998 were $69,154,000 compared with $50,333,000
and $54,313,000 in 1997 and 1996, respectively. The 37% growth in
1998 is attributable to increased sales of Tiazac(R) to Forest
Laboratories Inc. ("Forest") for the U.S. market, where the FDA
approved the product for the treatment of angina, significant growth
in shipments of Tiazac(R) to the European market and the shipment of
product to Teva. The decrease in manufacturing revenues in 1997
compared with 1996 was due to a one-time contractual price reduction
to Forest of approximately 25%, which occurred at the end of the
second quarter of 1997.
Research and development revenue from third-party customers in
1998 was $32,070,000 compared with $19,559,000 and $4,374,000
in 1997 and 1996, respectively. The increase in 1998 relates to
product development activities undertaken for IPL, Teva and
Lundbeck.
Royalty and licensing revenue, net of related expenses, totaled
$11,612,000 in 1998, compared with $12,487,000 and $7,743,000
in 1997 and 1996, respectively. 1998 was favorably impacted by
increased royalty revenues in respect of Forest sales of Tiazac(R) in
the U.S. market, and by the elimination of the royalty obligation to
Galephar on sales of Tiazac(R) in the U.S. and Canada. Revenues in
1998 were adversely affected by the amortization expense related to
the elimination of the royalty obligation and by lower royalty
revenues in respect of Oruvail sales in the U.S., where a competing
generic product was introduced.
COST OF GOODS SOLD AND GROSS MARGINS
The cost of goods sold as a percentage of product sales was 41% in
1998 compared with 33% in 1997 and 40% in 1996. The Company's gross
margins are impacted by product sales price, product mix and
manufacturing volumes. In 1998, sales of Tiazac(R) to U.S. trade
customers (excluding sample sales) approximated 74% of total U.S.
unit sales as compared to
18 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 21
83% in 1997. Since trade supplies are sold at a higher price than
sample sales and also have a lower cost due to lower packaging and
labor costs, margins were adversely affected. Margins in the U.S.
were also reduced as a result of the one-time price reduction to
Forest of approximately 25% which occurred in the second quarter of
1997. As a result of the lower percentage of trade sales, and
contractual price reductions to the Company's marketing partner in the
U.S., manufacturing margins decreased to 59% in 1998, as compared to
67% in 1997. In 1997, manufacturing margins increased to 67% from 60%
in 1996, on account of a higher percentage of trade sales in the U.S.,
the launch of Tiazac(R) in Canada where relatively high margins are
realized due to the company's direct marketing, and improved
manufacturing efficiencies.
RESEARCH AND DEVELOPMENT
Research and development expenses for 1998 were $17,490,000 compared
with $14,386,000 and $10,901,000 in 1997 and 1996, respectively.
The increased spending relates to the increased level of activity in
respect of branded generic products being developed on behalf of IPL,
the generic products being developed under the Teva agreement, and
other activities for third party contract development customers. The
IPL and Teva agreements were not in place during 1996 and had a
relatively minor impact in 1997.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased to $17,608,000
(16% of total revenues) in 1998, compared to $13,989,000 (17% of
total revenues) and $10,166,000 (15% of total revenues) in 1997 and
1996 respectively. The increase in 1998 was as a result of higher
level of activities throughout the Company, including:the full year
impact of increased sales and marketing costs related to the sale of
Tiazac(R) in Canada, registration costs associated with the
introduction of Tiazac(R) to European markets, increased legal costs
and the hiring of key management personnel.
OPERATING INCOME
Operating income for 1998 was $49,145,000 compared to $37,533,000
in 1997 and $23,606,000 in 1996. Segment operating income, before
unallocated selling, general and administrative expenses, was $55,099,000
in 1998 compared to $40,435,000 in 1997 and $25,087,000 in 1996. Of this
total, product sales accounted for $30,780,000 compared to $24,845,000
in 1997 and $25,947,000 in 1996. The increase in 1998 relates to the
increased sales of Tiazac(R) to the U.S. and European markets and shipment
of product to Teva. Research
19 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 22
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
and Development accounted for $13,047,000 in 1998 compared to $3,589,000
in 1997 and an operating loss of $8,115,000 in 1996. The increase in
1998 reflects higher product development activities for IPL, Teva and
Lundbeck, and improved margins from the Contract Research Division.
Royalty and licensing activities generated segment operating income of
$11,272,000 compared to $11,992,000 in 1997 and $7,255,000 in 1996.
In 1998 increased royalty revenues from Tiazac(R) sales were more than
offset by the lower royalties from Oruvail sales in the U.S. where a
competing generic product was introduced.
INTEREST
Net interest expense in 1998 was $1,702,000, compared with $351,000 in
1997 and net interest income of $392,000 in 1996. Prior to November 15, 1998,
the Company used its operating line of credit to support its working
capital requirements which were comparable with the prior year. After
November 15, 1998, net interest expense includes interest on the $125 million
U.S. Dollar Senior Notes, less interest earned on the proceeds invested,
after repayment of bank borrowings and costs of the share repurchase program.
Net interest income in 1996 was earned as a result of surplus cash and
short-term investments.
INCOME TAXES
Income taxes in 1998, 1997 and 1996 of $2,024,000, $1,941,000 and $714,000,
respectively, relate to the Company's foreign subsidiaries, in respect of
which lower statutory tax rates apply than those in Canada. The benefit of
tax losses incurred in Canadian entities has not been recognized for
accounting purposes to date.
NET INCOME
The Company recorded net income of $45,419,000 or $1.70 per share in 1998,
compared with $35,241,000 or $1.38 per share in 1997 and $22,712,000 or
$0.92 per share in 1996. Earnings per share have been calculated using
the weighted average number of common shares outstanding during the year.
EBITDA
EBITDA, which is defined as earnings before interest, taxes, depreciation
and amortization, in 1998 was $54,103,000 compared with $40,690,000 in 1997.
The ratio of total debt to EBITDA for 1998 was 2.3:1 compared with 0.1:1 in
1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company's working capital was $115,324,000 compared
with $47,663,000 at December 31, 1997 which represented a working capital
ratio of 6.1:1
20 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 23
compared with 4.1:1, respectively. Cash generated from operations was
$50,376,000 and $38,398,000 in 1998 and 1997, respectively.
Cash flow from operations was $53,573,000 in 1998 compared to
$4,316,000 in 1997. Working capital increased in 1998 due to a
lower level of inventories and an increase in customer prepayments
and accounts payable, offset by a higher level of accounts
receivable.
Investing activities in 1998 included the acquisition of the royalty
interest from Galephar for $15,000,000, long-term investments of $10,043,000,
the acquisition from Centocor, Inc. of the exclusive distribution rights in
Canada for Retavase for $4,000,000, and fixed asset additions of $3,744,000. In
1997, investing activities primarily comprised fixed asset additions of
$2,664,000.
Net cash was generated from financing activities of $49,493,000 in 1998
compared to $2,635,000 in 1997. The 1998 cash generated was as a result of the
issuance of U.S. Senior Notes, net of financing costs, of $120,400,000, and
the receipt of $3,929,000 from the issuance of common shares on the exercise of
stock options, offset by the open-market purchase of 2,272,000 common shares at
a cost of $72,141,000 and net long-term debt repayment of $2,695,000. Financing
activities in 1997 generated cash of $2,635,000. This amount comprised
$4,464,000 from the issuance of shares on the exercise of stock options, offset
by net repayments of long-term debt of $1,829,000.
Exchange rate changes on foreign cash balances resulted in a reduction of
cash of $109,000 and $19,000 in 1998 and 1997, respectively.
As a result of the foregoing, the Company's cash position at December 31,
1998 was $78,729,000, compared with $8,275,000 at December 31, 1997.
The Company's total long-term debt was $126,835,000 at
December 31, 1998 compared with $4,847,000 at December 31, 1997,
resulting in a debt to equity ratio of 2.5:1 and 0.06:1
respectively.
The Company believes that it has adequate capital and sources of
financing to support its ongoing operational requirements.
Furthermore, the Company believes that it will be able to raise
additional equity capital to support its growth objectives. There can
be no assurance, however, that the Company's capital and sources of
financing or its ability to obtain additional capital, or sources of
financing, on acceptable terms, will be sufficient to sustain the
Company's ongoing operational requirements or its growth objectives.
The Company and its subsidiaries generate revenue and expenses primarily
in U.S.and Canadian dollars. In 1998, revenue was generated in the following
proportions: 88%
21 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 24
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
in U.S. dollars and 12% in Canadian dollars. In addition, expenses
were incurred in the following proportions:72% in U.S. dollars and
28% in Canadian dollars. The Company does not believe that its
exposure to foreign currency exchange risk is significant because of
the relative stability of the Canadian dollar in relation to the U.S.
dollar. The Company does not utilize foreign exchange hedging
instruments.
YEAR 2000 COMPLIANCE
The "Year 2000 issue" arises because many computer hardware and
software systems use only two digits to represent the year. As a
result, these systems and programs may not process dates beyond 1999.
The Company is reliant upon information technology primarily in the
areas of financial management and manufacturing. The Year 2000 issue
has potential implications for the Company's business applications and
for its automated pharmaceutical manufacturing processes, which may be
reliant on process controllers and electronic measuring devices.
Responsibility for overseeing the Company's response to the Year
2000 issue has been assigned to the Chief Financial Officer. A Year
2000 project team has been assembled and management of the project
has been assigned to the Manager of Information Technology.
As part of its Year 2000 preparedness program, the Company
purchased and is now in the final stages of installing an
enterprise-wide business system to handle financial and manufacturing
applications at all of its locations. The Company expects the system
to be fully functional in mid-1999. Although the system was
represented by the vendor to be Year 2000 compliant, the Company is
performing detailed analysis of all applications to ensure
compliance.
The Company's approach to Year 2000 readiness has focused on:
1. Business system hardware and software, including interfaces with
third party systems.
2. Embedded technologies related to equipment that controls laboratory
testing, pharmaceutical manufacturing, environmental and communication
equipment.
3. Business relationships with vendors and customers.
After initial identification of all areas that might be affected
by the Year 2000 issue, the Company performed an impact analysis to
assess the relative risk potential for the Company's operations. Based
on this, priorities for detailed system analysis were established and
planning for appropriate remedial action was undertaken. The project
team has been working with consultants and other third parties to
implement this remedial plan. The plan includes testing for the
business system and other ancillary systems and equipment, including
22 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 25
facility environmental systems, phone, fax and desktop computers.
Testing of all systems includes simulation of dates prior to,
during and after the century change. This effort is expected to be
completed by mid-1999.
COSTS.
The Company estimates that the cost of achieving Year 2000 compliance
(excluding the cost of purchasing the new business system) will be
approximately $500,000. All costs, which are not deemed material,
will be expensed.
RISKS AND CONTINGENCY PLANS.
Examples of the risks that the Year 2000 issue could pose, are as follows:
1. Business applications such as payroll, accounts payable and purchasing could
be disrupted until the systems can be corrected.
2. Manufacturing operations could be disrupted and product quality affected
through failure of environmental systems.
3. Manufacturing operations could be adversely affected through disruptions in
the provision of critical supplies and services by vendors.
4. Non-compliance on the part of a major customer might adversely effect that
customer's ability to pay for the Company's products.
The Company is in the process of developing a contingency plan,
which it expects to complete by mid-1999, to address the possibility
of the Company and/or its suppliers not being Year 2000 compliant. The
plan will specifically address the risks presented to manufacturing
and product quality.
The Company believes that it is taking the necessary steps to
resolve Year 2000 issues;however, there can be no assurance that one
or more such failures would not have a material adverse effect on
the Company.
FORWARD - LOOKING STATEMENTS
To the extent any statements made in this annual report contain
information that is not historical, these statements are essentially
forward-looking. As such, they are subject to risks and uncertainties,
including the difficulty of predicting FDA and TPP approvals,
acceptance and demand for new pharmaceutical products, the impact of
competitive products and pricing, new product development and launch,
reliance on key strategic alliances, availability of raw materials,
the regulatory environment, fluctuations in operating results and
other risks detailed from time to time in the Company's filings with
the U.S. Securities and Exchange Commission and Canadian securities
authorities.
23 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 26
REPORT OF MANAGEMENT
The Company's management is responsible for preparing the accompanying
consolidated financial statements in conformity with accounting
principles generally accepted in Canada. The effect of the
application of accounting principles generally accepted in the United
States is described in the notes to consolidated financial statements.
In preparing these consolidated financial statements, management
selects appropriate accounting policies and uses its judgment and best
estimates to report events and transactions as they occur. Management
has determined such amounts on a reasonable basis in order to ensure
that the financial statements are presented fairly, in all material
respects. Financial data included throughout this Annual Report is
prepared on a basis consistent with that of the financial statements.
The Company maintains a system of internal accounting controls
designed to provide reasonable assurance, at a reasonable cost, that
assets are safeguarded and that transactions are executed and
recorded in accordance with the Company's policies for doing
business. This system is supported by written policies and procedures
for key business activities;the hiring of qualified, competent
staff;and by a continuous planning and monitoring program.
Deloitte & Touche LLP has been engaged by the Company's
shareholders to audit the consolidated financial statements. During
the course of their audit, Deloitte & Touche LLP reviewed the
Company's system of internal controls to the extent necessary to
render their opinion on the consolidated financial statements.
The Board of Directors is responsible for ensuring that
management fulfills its responsibility for financial reporting and
is ultimately responsible for reviewing and approving the financial
statements. The Board carries out the responsibility principally
through its Audit Committee. The majority of the members of the
Audit Committee are outside Directors. The Committee considers, for
review by the Board of Directors and approval by the shareholders,
the engagement or reappointment of the external auditors. Deloitte
& Touche LLP has full and free access to the Audit Committee.
Management acknowledges its responsibility to provide financial
information that is representative of the Company's operations, is
consistent and reliable, and is relevant for the informed evaluation
of the Company's activities.
(signed) Eugene N. Melnyk (signed) Kenneth Howling
EUGENE N. MELNYK KENNETH HOWLING
Chairman of the Board Vice President, Finance and Chief Financial
Officer
24 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 27
AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF BIOVAIL CORPORATION INTERNATIONAL
We have audited the consolidated balance sheets of Biovail Corporation
International as at December 31, 1998 and 1997 and the consolidated
statements of income and retained earnings and of cash flows for each
of the years in the three year period ended December 31, 1998. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards in Canada. Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as at December 31, 1998 and 1997 and the results of its
operations and its cash flows for each of the years in the three year
period ended December 31, 1998 in accordance with generally accepted
accounting principles in Canada.
(signed) Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Chartered Accountants
Toronto, Canada
May 14, 1999
25 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 28
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As at December 31, 1998 and 1997
(All dollar amounts are expressed in thousands of U.S. dollars) 1998 1997
<S> <C> <C>
ASSETS
CURRENT
Cash and short-term deposits (Note 3) $ 78,279 $ 8,275
Accounts receivable (Note 4) 42,768 33,114
Inventories (Note 5) 10,542 16,609
Executive stock purchase plan loans (Note 6) 2,924 2,933
-------- -------
Deposits and prepaid expenses 3,357 2,053
137,870 62,984
LONG-TERM INVESTMENTS (Note 7) 10,055 12
CAPITAL (Note 8) 23,677 24,172
OTHER, net (Note 9) 28,317 6,571
-------- -------
$199,919 $93,739
======== =======
LIABILITIES
CURRENT
Accounts payable $ 12,244 $ 4,579
Accrued liabilities 4,129 6,002
Income taxes payable 1,004 1,013
Customer prepayments 4,516 1,840
Current portion of long-term debt (Note 10) 653 1,887
-------- -------
22,546 15,321
LONG-TERM DEBT (Note 10) 126,182 2,960
-------- -------
148,728 18,281
SHAREHOLDERS' EQUITY
Share capital (Note 11) 19,428 18,465
Warrants (Note 11) 8,244 8,244
Retained earnings 24,748 49,709
Cumulative translation adjustment (1,229) (960)
-------- -------
51,191 75,458
-------- -------
$199,919 $93,739
======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
On behalf of the Board:
(signed) Eugene N. Melnyk (signed) Bruce D. Brydon
EUGENE N. MELNYK BRUCE D. BRYDON
Chairman of the Board Director and Chief Executive Officer
26 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 29
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
For the years ended December 31, 1998, 1997 and 1996
(All dollar amounts except per share data
are expressed in thousands of U.S. dollars) 1998 1997 1996
<S> <C> <C> <C>
REVENUE
Product sales $ 69,154 $ 50,333 $ 54,313
Research and development 32,070 19,559 4,374
Royalty and licensing 11,612 12,487 7,743
------- ------ ------
112,836 82,379 66,430
------- ------ ------
EXPENSES
Cost of goods sold 28,593 16,471 21,757
Research and development 17,490 14,386 10,901
Selling, general and administrative 17,608 13,989 10,166
------- ------ ------
63,691 44,846 42,824
------- ------ ------
OPERATING INCOME 49,145 37,533 23,606
INTEREST (EXPENSE) INCOME, net (Note 10) (1,702) (351) 392
------- ------ ------
INCOME BEFORE INCOME TAXES 47,443 37,182 23,998
PROVISION FOR INCOME TAXES (Note 13) 2,024 1,941 714
------- ------ ------
NET INCOME 45,419 35,241 23,284
RETAINED EARNINGS (DEFICIT),
BEGINNING OF YEAR 49,709 22,712 (572)
EXCESS OF COST COMMON SHARES ACQUIRED
OVER THE STATED CAPITAL THEREOF (Note 11) (70,380) - -
CONTRIBUTION TO INTELLIGENT
POLYMERS LIMITED (Note 11) - (8,244) -
---------- ---------- ----------
RETAINED EARNINGS, END OF YEAR $ 24,748 $ 49,709 $ 22,712
========== ========== ==========
EARNINGS PER SHARE (Note 12) $ 1.70 $ 1.38 $ 0.92
---------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (Note 12) 26,641,000 25,606,000 25,378,000
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 30
CONSOLIDATED STATEMENTS OF CASHFLOWS
<TABLE>
<CAPTION>
For the years ended December 31, 1998, 1997 and 1996
(All dollar amounts are expressed in thousands of U.S. dollars) 1998 1997 1996
<S> <C> <C> <C>
NET INFLOW (OUTFLOW) OF CASH
RELATED TO THE FOLLOWING ACTIVITIES
OPERATING
Net income for the year $ 45,419 $ 35,241 $ 23,284
Depreciation and amortization 4,957 3,157 1,967
-------- -------- --------
50,376 38,398 25,251
Change in non-cash operating
items (Note 15) 3,197 (34,082) (30,873)
-------- -------- --------
53,573 4,316 (5,622)
INVESTING
Acquisition of royalty interest (Note 9) (15,000) - -
Acquisition of long-term
investments (Note 7) (10,043) (12) -
Acquisition of product rights (Note 9) (4,000) - -
Additions to capital assets, net (3,744) (2,664) (6,692)
Executive Stock Purchase
plan loans (Note 6) 10 (421) (2,512)
Increase in other assets (176) (86) (1,161)
-------- -------- --------
(32,953) (3,183) (10,365)
-------- -------- --------
FINANCING
Issuance of U.S. Senior Notes,
net of financing costs (Note 10) 120,400 - -
Increase in other long-term debt 19,143 373 841
Repayment of other long-term debt (21,838) (2,202) (4,018)
Repurchase of share capital (Note 11) (72,141) - -
Issuance of share capital (Note 11) 3,929 4,464 197
-------- -------- --------
49,493 2,635 (2,980)
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (109) (19) (830)
-------- -------- --------
INCREASE (DECREASE) IN CASH 70,004 3,749 (19,797)
CASH AND SHORT-TERM DEPOSITS,
BEGINNING OF YEAR 8,275 4,526 24,323
-------- -------- --------
CASH AND SHORT-TERM DEPOSITS,
END OF YEAR $ 78,279 $ 8,275 $ 4,526
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
28 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of U.S. dollars except number of shares and
per share data)
1. GOVERNING STATUTE AND NATURE OF OPERATIONS
Biovail Corporation International (the "Company") is incorporated
under the laws of the province of Ontario. The Company is an
international full-service pharmaceutical company engaged in the
formulation, clinical testing, registration and manufacture of drug
products utilizing advanced drug delivery technologies.
2. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in Canada.
The financial statements differ in certain respects from generally
accepted accounting principles in the United States, as described
in Note 19.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and those of all its subsidiaries. All significant
intercompany transactions and balances have been eliminated.
USE OF ESTIMATES
In preparing the Company's financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and the disclosure of contingent
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of all financial assets and liabilities,
other than long-term debt, approximates their carrying values at
December 31, 1998. Fair value of a financial instrument is defined as
the amount at which the instrument could be exchanged in a current
transaction between willing parties. The fair value of long-term
debt is disclosed in Note 10.
REVENUE RECOGNITION
Research and development revenue represents fees earned from third
party customers for services rendered or attainment of development and
regulatory approval milestones, with respect to contract research and
product development done on their behalf. The Company's policy is to
expense as incurred all research and product development costs, net of
investment tax credits, related to both costs incurred on its own
behalf and on behalf of its third party customers.
Revenue from product sales is recognized when the product is
shipped to the customer.
Royalty revenue is recognized on an accrual basis in accordance
with contractual agreements with third parties and is net of amounts
payable to sublicensees.
Licensing revenue is recognized at the date the license is
granted unless there are specific events which must be completed under
the terms of the licensing agreement in which case a portion of the
revenue is recognized upon the completion of each specific event.
CASH AND SHORT-TERM DEPOSITS
Cash and short-term deposits include highly liquid investments
with original maturities of three months or less when purchased.
29 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS
INVENTORIES
Inventories are comprised of raw materials, work in process, and
finished goods which are valued at the lower of cost and replacement
cost. Cost is determined on the first-in, first-out basis.
LONG-TERM INVESTMENTS
Long-term investments are reported at cost less any provision which
may be required to recognize a permanent decline in value.
CAPITAL ASSETS AND RELATED DEPRECIATION
Capital assets are recorded at cost less accumulated depreciation.
Annual rates applied to depreciate the cost of capital assets over
their estimated useful lives using the straight line basis are as
follows:
<TABLE>
<S> <C>
Buildings . . . . . . . . . . . . . . . . . 25 years
Machinery and equipment . . . . . . . . . . . . . 5 - 10 years
Other equipment . . . . . . . . . . . . . . . 3 - 5 years
Leasehold improvements . . . . . . . . . . . . .term of lease
</TABLE>
OTHER ASSETS
Goodwill, product rights and royalty interest are amortized on a
straight-line basis over the estimated lives of the assets, 8 to 20
years. Goodwill and product rights are evaluated periodically, based
on estimated future cash flows computed on a discounted basis and if
conditions warrant, an impairment valuation is provided.
Deferred financing costs are amortized on a straight line basis
over the term of the related debt and the charge is included as a
component of interest expense.
Advertising and promotion costs related to new product launches
are deferred and amortized over a one-year period commencing at
launch date.
REPORTING CURRENCY AND FOREIGN CURRENCY TRANSLATIONS
Reporting currency The Company reports its financial statements in
U.S. dollars, while the currency of measurement for the Company's
operations varies depending upon location.
Foreign currency transactions Monetary assets and liabilities are
translated at the rate of exchange prevailing at the balance sheet
date. Non-monetary assets and liabilities are translated at historic
rates. Revenue and expenses are translated at the average rate of
exchange for the year. Exchange gains and losses are included in
earnings.
Self-sustaining foreign subsidiaries Assets and liabilities of
self-sustaining foreign subsidiaries are translated at the rate of
exchange in effect at the balance sheet date. Revenue and expenses
are translated at the average rate of exchange for the year. Gains or
losses arising on the translation of financial statements of
self-sustaining foreign subsidiaries are deferred and included as a
separate component of shareholders'equity. The net change in the
cumulative translation adjustment balance in the years presented is
primarily due to fluctuations in the exchange rate with respect to
the Swiss franc and Canadian dollar.
CUSTOMER PREPAYMENTS
Amounts received from customers as prepayments for goods or services
to be provided in the future are recorded on the balance sheet as
customer prepayments. When the goods or services are provided at a
future date, they are billed to the customer at contractual rates.
Accounts receivable on these billings are recorded net of that portion
that relates to the prepayments received, which amount is recorded as
a reduction to customer prepayments.
1997 AND 1996 FIGURES
Certain of the 1997 and 1996 figures have been reclassified to conform to the
1998 presentation.
30 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 33
3. CASH AND SHORT - TERM DEPOSITS
Components of cash and short-term deposits are:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash and bank certificates of deposit $37,160 $8,275
Corporate debt securities maturing within one month 41,119 -
------- ------
$78,279 $8,275
======= ======
</TABLE>
Corporate debt securities are carried at cost which equals fair value.
4. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Trade and royalties $36,638 $31,331
Insurance claims recoverable 3,458 -
Other receivables 2,672 1,783
------- -------
$42,768 $33,114
======= =======
</TABLE>
Insurance claims recoverable relate to property damage and business
interruption losses arising from hurricane activity in Puerto Rico in
September 1998.
Other receivables primarily comprise amounts relating to refundable withholding
taxes, goods and services tax, and excise duties.
5. INVENTORIES
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Raw materials $ 4,759 $ 6,145
Work in process 5,478 10,262
Finished goods 305 202
------- -------
$10,542 $16,609
======= =======
</TABLE>
6. EXECUTIVE STOCK PURCHASE PLAN LOANS
Executive Stock Purchase Plan ("ESPP") loans of $2,924,000 (1997 -
$2,933,000) were made to finance the acquisition of shares of the
Company on the open market by executive officers. In 1997, an
additional loan of $289,000 was made to an executive officer of the
Company. The ESPP loans are secured by shares of the Company owned by
executive officers, bear interest at 1/4% over bank prime rate, equal
to the Company's rate for borrowings, and are due on December 1, 1999.
The additional loan to an executive officer of the Company bore
interest at 1/4% over the bank prime rate. This loan and all
outstanding interest were repaid to the Company in January 1998.
7. LONG - TERM INVESTMENTS
In March, 1998, the Company invested $7,543,000 in a marketable
securities fund for a term of two years. The fair value of the
investment at December 31, 1998, was $6,096,000.
In July, 1998, in connection with the acquisition from Celgene
Corporation ("Celgene") of Canadian marketing and distribution rights
in respect of immediate release and pulse release formulations of
products containing d-methylphenidate hydrochloride, the Company made
a $2,500,000 investment in common shares of Celgene, the supplier of the
product. The shares are required to be held for a minimum of one year.
The fair value of the investment at December 31, 1998 was $3,070,000.
Long-term investments also include 12,000 special shares of
Intelligent Polymers Limited ("IPL") at a cost of $12,000 acquired
in 1997. These shares have no entitlement to profits of IPL (See
Note 17).
The above investments are carried at cost less any provision
which may be required to recognize a permanent decline in value. No
provision was required as of December 31, 1998.
31 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. CAPITAL ASSETS
<TABLE>
<CAPTION>
1998 1997
------------------------ ---------------------
ACCUMULATED Accumulated
COST DEPRECIATION Cost Depreciation
<S> <C> <C> <C> <C>
Land $ 1,220 $ - $ 1,314 $ -
Buildings 14,972 2,864 15,511 2,323
Machinery and
equipment 13,218 4,874 11,625 3,243
Other equipment and
leasehold improvements 4,061 2,056 2,816 1,528
------- ---------- ------- ------
$33,471 $ 9,794 $31,266 $7,094
======= ========== ======= ======
Less accumulated
depreciation 9,794 7,094
------- ----------
$23,677 $ 24,172
======= ==========
</TABLE>
9.OTHER ASSETS
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Goodwill $ 3,277 $3,111
Product rights and royalty interest 20,522 3,460
Deferred financing costs 4,518 -
------- ------
$28,317 $6,571
======= ======
</TABLE>
Amortization amounted to $1,883,000 and $441,000 in 1998 and 1997
respectively.
In March, 1998, the Company completed the acquisition of the royalty
interest held by Galephar Puerto Rico, Inc. Limited ("Galephar") in certain of
the Company's products. The Company paid $15,000,000 to Galephar in full
satisfaction of the Company's royalty obligations on the sales of Tiazac(R)' and
the Company's generic controlled release version of Cardizem CD in the United
States and Canada. In September, 1998, the Company acquired from Centocor, Inc.
the exclusive distribution rights in Canada for Retavase for $4,000,000. Both
these amounts, net of amortization, are included in "Product rights and royalty
interest".
In November, 1998, the Company completed the issue of U.S. Dollar Senior
Notes, due 2005, for gross proceeds of $125,000,000. The out of pocket costs
associated with this transaction have been deferred and are being amortized on a
straight-line basis over the seven-year term of the debt.
10. LONG - TERM DEBT
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
NON-INTEREST BEARING GOVERNMENT LOAN
Payable to Western Economic Diversification,
a Canadian federal government agency. This loan
is repayable on a semi-annual installment basis with
the final payment due in 2001. $ 1,835 $2,300
U.S. DOLLAR SENIOR NOTES, DUE 2005
Issued under an indenture dated November 16, 1998,
the U.S. Dollar Senior Notes are general unsecured
senior obligations of Biovail Corporation International
(Canadian Corporation), bearing interest at 10 7/8%,
payable semi-annually in arrears on May 15 and
November 15 of each year. The U.S. Dollar Senior
Notes mature on November 15, 2005. 125,000 -
</TABLE>
32 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 35
10. LONG - TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
TERM BANK LOAN
Secured by a general security agreement, providing a first
floating charge over all of the Company's assets, bearing
interest at bank prime rate plus 0. 75%. The loan was repaid
on November 16, 1998 from the proceeds of the U.S. Dollar
Senior Notes offering. - 699
BANK LOAN
Secured by a general security agreement, pledging all of
the Company's assets, including the shares of subsidiary
companies and a debenture with a fixed charge on certain
manufacturing facility land and building, bearing interest
at bank prime rate plus 0. 75%. The loan was repaid on
November 16, 1998 from the proceeds of the U.S. Dollar
Senior Notes offering. - 1,848
-------- ------
126,835 4,847
Less current portion 653 1,887
-------- ------
$126,182 $2,960
======== ======
</TABLE>
On or after November 15, 2002, the U.S. Dollar Senior Notes will be
redeemable at the option of the Company at the following prices if
redeemed during the twelve months beginning November of the years
indicated below:
<TABLE>
<CAPTION>
Year Percentage of Principal Outstanding
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . . 105.438%
2003 . . . . . . . . . . . . . . . . . . . . . 102.719%
2004 . . . . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
At any time on or before November 15, 2001, the Company may, at its
option, redeem up to a maximum of 35% of the aggregate principal
amount of the U.S. Dollar Senior Notes with the net cash proceeds of
one or more equity offerings or the net cash proceeds received upon
the exercise of warrants to purchase capital stock of the Company, at
a redemption price equal to 110.875% of the principal amount thereof.
At December 31, 1998, the fair value of the long-term debt
approximates its carrying value of $126,835,000.
Interest expense on long-term debt amounted to $2,358,000,
$199,000 and $591,000 in the years ended December 31, 1998, 1997
and 1996, respectively.
Principal repayments on long-term debt are as follows:
<TABLE>
<S> <C>
1999. . . . . . . . . . . . . . . . . . . . . . $ 653
2000. . . . . . . . . . . . . . . . . . . . . . 718
2001 . . . . . . . . . . . . . . . . . . . . . . 464
2002 . . . . . . . . . . . . . . . . . . . . . -
2003 . . . . . . . . . . . . . . . . . . . . . -
2004 . . . . . . . . . . . . . . . . . . . . . -
2005 . . . . . . . . . . . . . . . . . . . . . 125,000
$ 126,835
</TABLE>
33 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. SHARE CAPITAL
AUTHORIZED AND ISSUED SHARES
Effective January, 1996, the shareholders of the Company authorized a
3 for 1 split with respect to the issued common shares. In July, 1998,
the shareholders of the Company approved an increase in the authorized
capital to 120,000,000 common shares without par value.
By resolutions of the Board of Directors dated August 11, 1998, and
November 16, 1998, the Company implemented a stock repurchase program under
which the Company was enabled to purchase up to 10% of its issued and
outstanding common shares. Up to December 31, 1998, 2,271,900 common shares had
been repurchased under this plan at a cost of $72,141,000. The excess of the
cost of the common shares acquired over the stated capital thereof, totaling
$70,380,000, has been charged to retained earnings.
<TABLE>
<CAPTION>
(in thousands) Number of Shares Amount
<S> <C> <C>
Balance, December 31, 1995, after giving
effect to stock split 25,327 $14,489
Issued on the exercise of options 100 197
Effect of exchange rate change - (72)
------ -------
Balance, December 31, 1996 25,427 14,614
Issued on the exercise of options 1,233 4,434
Issued under Employee Stock Purchase Plan 1 30
Effect of exchange rate change - (613)
------ -------
Balance, December 31, 1997 26,661 18,465
Issued on the exercise of options 470 3,886
Issued under Employee Stock Purchase Plan 2 43
Cancelled under stock repurchase program (2,272) (1,761)
Effect of exchange rate change - (1,205)
------ -------
Balance, December 31, 1998 24,861 $19,428
====== =======
</TABLE>
STOCK OPTIONS
The Company provides stock option incentive plans and has, with
shareholder approval, issued options to certain directors outside of
the plans. The plans are intended to provide long-term incentives and
rewards to executive officers, directors, key employees and
consultants, contingent upon an increase in the market value of the
Company's common shares. The total number of shares which are reserved
and set aside for issue under the Employee Stock Option Plan, and
under all other management options outstanding shall not in aggregate
exceed 7,000,000 common shares.
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
<S> <C> <C> <C>
Options outstanding at beginning of year 2,520 2,751 2,779
Options granted during the year 301 1,179 209
Options exercised during the year (470) (1,233) (100)
Options cancelled during the year (140) (177) (137)
------------- ------------- -------------
Options outstanding at end of year 2,211 2,520 2,751
------------- ------------- -------------
Options exercisable at end of year 587 708 1,308
------------- ------------- -------------
Price range of options granted during the year $30.37-$37.00 $22.00-$35.40 $20.00-$34.75
</TABLE>
The outstanding options expire from 2000 to 2003 at exercise prices ranging
from $20.00 to $37.00 per share.
EMPLOYEE STOCK PURCHASE PLAN
The Company provides an Employee Stock Purchase Plan whereby full-time employees
may purchase stock in the Company through payroll deductions. The total number
of shares which are reserved and set aside for issue under the Employee Stock
Purchase Plan shall not in aggregate exceed 300,000 common shares. As of
December 31, 1998 the Company had issued 4,620 shares pursuant to the Plan, of
which 1,465 were issued in 1998.
34 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 37
WARRANTS
In October, 1997, IPL completed a public offering of 3,737,500
units. Each unit comprised one common share of IPL and one warrant
to purchase one common share of the Company. The net proceeds to
IPL of the offering before offering expenses amounted to
approximately $69,500,000. Beginning on September 30, 1999, the
units will separate and the IPL common shares and the Company
warrants may trade independently of each other. The warrants are
exercisable at $40.00 per share from October 1, 1999, until
September 30, 2002.
In 1997, the Company recorded a credit to equity of $8,244,000
equal to the proceeds attributable to the warrants included in the
offering as determined at the time of their issuance and recorded a
charge to retained earnings to reflect the equivalent contribution to IPL.
12. EARNINGS PER SHARE
Earnings per share, for all years presented, has been calculated
using the weighted average number of shares outstanding during the
year. The earnings per share in 1998, 1997 and 1996 on a fully
diluted basis giving effect to the exercise of all options and
warrants granted, would have been $1.63, $1.32, and $0.83 per
share, respectively.
13. INCOME TAXES
The major factors which caused variations from the Company's combined
federal and provincial statutory income tax rate of 44.81% in 1998
and 44.34% in 1997, and 1996 respectively, applicable to income
before income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Provision for income taxes
based on statutory rate $ 21,258 $ 16,486 $ 10,664
Reduction in income taxes resulting
from income of foreign subsidiaries
taxed at lower effective rate (22,970) (14,331) (12,932)
Benefit of losses not recognized for
accounting purposes 3,736 - 2,982
Benefit of utilization of losses
carried forward - (214) -
-------- -------- --------
$ 2,024 $ 1,941 $ 714
======== ======== ========
</TABLE>
At December 31, 1998, the Company has accumulated non-capital losses
for federal and provincial income tax purposes in Canada and
unclaimed Canadian investment tax credits for which no accounting
benefit has been recognized and which can be used to offset future
taxable income and/or reduce income taxes payable. These losses and
investment tax credits expire as follows:
<TABLE>
<CAPTION>
Investment
Non-Capital Losses Tax Credits
------------------ -----------
Federal Provincial
<S> <C> <C> <C>
1999 $ - $ 800 $ -
2000 - 1,132 -
2001 - 2,023 -
2002 - 1,170 -
2003 - 2,962 -
2004 115 115 488
2005 4,192 4,192 488
2006 - - 1,093
2007 - - 1,547
2008 - - 1,985
------ ------- ------
$4,307 $12,394 $5,601
====== ======= ======
</TABLE>
The benefits of these losses carried forward and investment tax credits will be
recorded when realized.
35 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, the Company has pooled research and development
expenditures amounting to approximately $19,600,000 available for
offset against future taxable income. The tax benefit of these
expenditures has not been recognized in these financial statements.
14. OPERATING LEASES
Minimum lease commitments under operating leases for each of the next five
years are as follows:
<TABLE>
<S> <C>
1999 . . . . . . . . . . . . . . . . . . . . . . $ 719
2000 . . . . . . . . . . . . . . . . . . . . . . 597
2001 . . . . . . . . . . . . . . . . . . . . . . . 275
2002 . . . . . . . . . . . . . . . . . . . . . . 64
2003 . . . . . . . . . . . . . . . . . . . . . . 4
</TABLE>
15. CHANGE IN NON - CASH OPERATING ITEMS
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Accounts receivable $(10,036) $(23,145) $ (4,194)
Inventories 6,307 (8,622) (4,489)
Deposits and prepaid expenses (1,304) (991) (888)
Accounts payable 7,363 (875) 892
Accrued liabilities (1,800) 4,190 (2,280)
Income taxes payable (9) 201 (153)
Customer prepayments 2,676 (4,840) (19,761)
-------- -------- --------
$ 3,197 $(34,082) $(30,873)
======== ======== ========
</TABLE>
16. LITIGATION
In January, 1998, Andrx Pharmaceutical, Inc. ("Andrx") commenced
action against the Food and Drug Administration ("FDA"), the Company
and Faulding Inc., seeking an order from the Court which would
preclude the FDA from approving any subsequently-filed Abbreviated New
Drug Application ("ANDA"s), including the Company's filed ANDA for
generic version of Cardizem CD until Andrx receives 180 days of market
exclusivity based on its status as the first to file for approval of
such a product. The Company has asserted affirmative defenses based
upon the Company's status as an unsued ANDA submitter and counter-sued
Andrx for breach of anti-trust laws based on the filing of this suit
and Andrx' entry into an alleged collusive agreement with Hoechst
Marion Roussel relating to Andrx' generic Cardizem CD which could
result in keeping generic competition from entering the marketplace in
a regular and timely manner. Andrx has since discontinued its action
against the Company and the FDA. The Company's counter-suit, however,
continues.
In March, 1998, the Company commenced an action in the District
of New Jersey against Hoechst Aktiengesellschaft and related parties
to recover damages estimated at $1.2 billion and for injunctive
relief for the alleged violation by the defendants of the anti-trust
laws of the United States, for breach of contract, deceptive trade
practices and restraint of trade, unfair competition and other
violations for the common law. A reasonable estimation of the
Company's potential recovery for damages cannot be made at this time.
In August, 1998, the Company commenced a patent infringement suit
against Andrx, upon receipt of a Certification Notice relating to
Andrx' filed application for a generic version of Tiazac(R). The
effect of the Company's suit is that the FDA is not permitted to issue
approval to Andrx until the lapse of 30 months or a final judgement
dismissing the Company's suit, whichever occurs earlier. The Company
believes at this time that it has brought a meritorious suit.
From time to time, the Company becomes involved in various legal
proceedings which it considers to be in the ordinary course of
business. The vast majority of these proceedings involve intellectual
property issues that often result in patent infringement suits brought
by patent holders upon
36 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 39
the Company's filing of its ANDA applications. The timing of these
actions is mandated by statute and may result in a delay of FDA's
approval for such filed ANDAs until the final resolution of such
actions or the expiry of 30 months, whichever occurs earlier. The
Company is currently litigating two separate actions for alleged
infringement of the applicable patents related to the Company's
filing of ANDAs for the generic equivalent of Adalat CC and Procardia
XL products.
Both actions make a technical claim of infringement and, by
virtue of applicable statutory provisions, the filing of these suits
may delay approval of the Company's ANDAs for a period of 30 months or
resolutions of these patent infringement questions, whichever occurs
sooner. The Company is vigorously defending these suits by denying
infringement of the patents and has brought an application for the
summary dismissal of these suits. No decision has yet been rendered on
the Company's application. In addition, the Company has brought an
action against the patent holders seeking declaratory judgement and
invalidity of the relevant patent and seeking damages for violation of
the anti-trust laws and for tortuous interference with the Company's
prospective business advantage.
17. RESEARCH AND DEVELOPMENT ARRANGEMENTS
IPL
IPL was formed by the Company in July, 1997. In September, 1997, the
Company concluded a development and license agreement (the
"Development Contract") and a services agreement (the "Services
Agreement") with IPL, whereby the Company develops on IPL's behalf
once-daily controlled release branded generic versions of designated
products. In October, 1997, IPL completed a public offering of 3,737,500
units resulting in net proceeds to IPL, before offering expenses, of
approximately $69,500,000.
The proceeds of the offering are being used by IPL primarily to make
payments to the Company under the Development Contract. The Development
Contract provides for the Company to conduct product development in respect
of certain designated products. Such costs are being computed with respect
to internal costs incurred by the Company at its fully absorbed cost plus
a mark-up, consistent with contractual relationships the Company has with
other third parties.
Revenue received by the Company from IPL pursuant to the Development
Contract, was $9.7 million and $9.6 million 1998 and 1997 respectively.
The cost of providing these services amounted to $6.6 million in 1998 as
compared to $4.2 million in 1997.
Included in 1997 revenue was $3.5 million for access to and use by IPL of
the Company's proprietary technology in connection with product development.
The Company, as the holder of all of the issued and outstanding special
shares of IPL, has an option, exercisable at its sole discretion, to
purchase all, but not less than all, of the outstanding common shares of IPL
commencing on the closing date of the offering and ending on the earlier of
(i) September 30, 2002, or (ii) the 90th day after the date IPL provides the
Company with quarterly financial statements showing cash or cash equivalents
of less than $3 million. If the purchase option is exercised, the purchase
price calculated on a per share basis would be as follows:
<TABLE>
<CAPTION>
Purchase Option
Exercise Price
<S> <C>
Before October 1, 2000. . . . . . . . . . . .. . . . . . .$ 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 purchase option exercise price may be paid in cash or the
Company's common shares, or any combination of the foregoing, at
the Company's sole discretion.
TEVA PHARMACEUTICALS
In December 1997, the Company entered into an agreement with a
subsidiary of Teva Pharmaceutical Industries Ltd. ("Teva") for the
development and marketing of twelve generic oral controlled release
37 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
products. Eight of the twelve products have been identified. As at
December 31, 1998, one, a generic version of Trental, has been
approved by the FDA and ANDAs for seven others have been filed with
the FDA.
The Company will incur all costs and expenses for the development
and registration of the eight identified products. The Company and
Teva will jointly select and equally share the costs associated with
the development and registration of the four products in the process
of being identified.
Under the terms of the agreement, Teva was obligated to pay the
Company an aggregate of $34.5 million, subject to certain milestones.
Of the $34.5 million, $23.5 million related to reimbursement of
research and development costs and $11.0 million to the initial
purchase of product. Revenue received by the Company from Teva
pursuant to the agreement in the year ended December 31, 1998,
included $13.5 million reimbursement of research and development
costs (1997 - $10.0 million) and $5.0 million of product sales (1997
- - - - $6.0 million).
H. LUNDBECK A/S
In December, 1998, the Company entered into an agreement with H.
Lundbeck A/S ("Lundbeck") based in Copenhagen, Denmark, for
formulation, development, manufacture and supply of a novel
controlled-release formulation of the anti-depressant Citalopram.
Under the terms of the agreement, Lundbeck will pay the Company
product development fees aggregating $8.5 million, subject to
certain milestones.
Revenue received by the Company from Lundbeck for product
development, pursuant to the agreement, was $3.5 million in the
year ended December 31, 1998.
18. SEGMENTED INFORMATION AND MAJOR CUSTOMERS
Biovail is an international full service pharmaceutical company. The
Company operates in a single industry and is engaged in formulation,
clinical testing, registration and manufacture of drug products
utilizing advanced drug delivery technologies.
Organizationally, the Company's operations consist of three
segments - Product Sales, Research and Development, and Royalty and
Licensing. The segments are determined based on several factors
including customer base, the nature of the product or service
provided, delivery channels and other factors.
The PRODUCT SALES segment covers sales of production from the
Company's Puerto Rico and Canadian facilities and sales by Crystaal,
the Canadian marketing division of the Company.
The RESEARCH AND DEVELOPMENT segment covers all revenues
generated by the Company's integrated research and development
facilities, and comprises research and development services
provided to third parties, including IPL, and product development
milestone fees.
The ROYALTY AND LICENSING segment covers royalty revenues
received from licensees in respect of products for which the Company
has manufacturing, marketing and/or intellectual property rights.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The
Company evaluates segment performance based on operating income after
deducting selling, general and administrative expense attributable to
the business units. Corporate general and administrative expense, and
interest expense, are not allocated to segments. Depreciation expense
related to manufacturing and research and development assets is
allocated to the Product Sales and Research and Development segments,
respectively. Amortization expense related to product rights and other
intangibles is allocated to the Royalty and Licensing segment.
Amortization and depreciation of administrative assets are included as
a component of selling, general and administrative expense.
38 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 41
The following table sets forth information regarding segment operating income
and segment assets:
<TABLE>
<CAPTION>
Product Research and Royalty and
1998 Sales Development Licensing Total
<S> <C> <C> <C> <C>
Revenues from external customers $69,154 $32,070 $11,612 $112,836
------- ------- ------- --------
Segment operating income 30,780 13,047 11,272 55, 099
Unallocated amounts
Selling, general and
administrative expenses (5, 954)
Interest expense, net (1, 702)
Income before income taxes $47,443
------- ------- ------- --------
Total assets for operating segments $86,420 $ 7,845 $18,016 $112,281
Cash and investments not
allocated to segments 78, 503
Other unallocated assets 9, 135
--------
Enterprise total consolidated assets $199,919
------- ------- ------- --------
Expenditure on capital and other assets
Attributable to segments $ 6,383 $ 740 $15,000 $22,123
Other unallocated assets 5, 385
------- ------- ------- --------
$27,508
------- ------- ------- --------
Amortization of capital and other assets
Attributable to segments $ 2,209 $ 842 $ 1,482 $4,533
Unallocated 423
------- ------- ------- --------
$4,956
------- ------- ------- --------
</TABLE>
<TABLE>
<CAPTION>
Product Research and Royalty and
1997 Sales Development Licensing Total
<S> <C> <C> <C> <C>
Revenues from external customers $50,333 $19,559 $12,487 $ 82,379
------- ------- ------- --------
Segment operating income 24,854 3,589 11,992 40,435
Unallocated amounts
Selling, general and
administrative expenses (2,902)
Interest expense, net (351)
Income before income taxes $ 37,182
------- ------- ------- --------
Total assets for operating segments $69,308 $ 6,448 $ 5,005 $ 80,761
Cash and investments not
allocated to segments 6,078
Other unallocated assets 6,900
------- ------- ------- --------
Enterprise total consolidated assets $ 93,739
------- ------- ------- --------
Expenditure on capital and other assets
Attributable to segments $ 1,700 $ 870 $ - $ 2,570
Other unallocated assets 179
------- ------- ------- --------
$ 2,749
------- ------- ------- --------
Amortization of capital and other assets
Attributable to segments $ 1,756 $ 716 $ 392 $ 2,864
Unallocated 256
------- ------- ------- --------
$ 3,120
------- ------- ------- --------
</TABLE>
39 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Research Royalty
Product and and
1996 Sales Development Licensing Total
<S> <C> <C> <C> <C>
Revenues from external customers $54,313 $ 4,374 $7,743 $66,430
------- ------- ------ -------
Segment operating income 25,947 (8,115) 7,255 25,087
Unallocated amounts
Selling, general and
administrative expenses (1,481)
Interest expense, net 392
Income before income taxes $23,998
------- ------- ------ -------
Total assets for operating segments $37,726 $ 6,593 $6,906 $51,225
Cash and investments not
allocated to segments 3,993
Other unallocated assets 3,388
------- ------- ------ -------
Enterprise total consolidated assets $58,606
------- ------- ------ -------
Expenditure on capital and other assets
Attributable to segments $ 4,891 $ 2,768 $ - $ 7,659
Other unallocated assets 213
------- ------- ------ -------
$ 7,872
------- ------- ------ -------
Amortization of capital and other assets
Attributable to segments $ 1,262 $ 385 $ 171 $ 1,818
Unallocated 149
------- ------- ------ -------
$ 1,967
------- ------- ------ -------
</TABLE>
GEOGRAPHIC INFORMATION
The following table sets out certain geographic information relative to the
Company:
<TABLE>
<CAPTION>
Revenue (i) Long-lived Assets (ii)
------------------------------- ---------------------------
1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Canada $ 10,735 $11,938 $ 2,034 $23,786 $20,079 $20,784
United States 76,498 57,965 60,777 - - -
Puerto Rico and
Barbados - - - 27,694 9,889 10,254
Other foreign
countries 25,603 12,476 3,619 514 775 969
-------- ------- ------- ------- ------- -------
$112,836 $82,379 $66,430 $51,994 $30,743 $32,007
======== ======= ======= ======= ======= =======
</TABLE>
(i) Revenues are attributed to countries based on location of customer.
(ii) Consists of Capital and Other Assets, net.
INFORMATION ABOUT MAJOR CUSTOMERS
External customers accounting for 10% or more of the Company's revenues in 1998
are set out as follows:
<TABLE>
<CAPTION>
% of Total
Revenue Revenues Included in Reportable Segment
<S> <C> <C> <C>
Forest Laboratories Inc. $57,159 51 Pharmaceutical Sales
Teva Pharmaceutical 18,502 16 Pharmaceutical Sales (4% of
Industries total revenues)
Research and Development
(12% of total revenues)
</TABLE>
40 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 43
19. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in Canada
("Cdn. GAAP") which differ in certain material respects from those
applicable in the United States ("U.S. GAAP").
Subsequent to the issuance of the financial statements of the
Company for the year ended December 31, 1997, the Company's management
determined that the compensation cost of certain compensatory stock
option arrangements had not been identified as a difference between
Canadian and U.S. GAAP. As a result, net income and earnings per
share for the years ended December 31, 1997 and 1996, under U.S.
GAAP, have been restated from amounts previously reported to reflect
this difference. The restatement had no effect on amounts previously
reported for proforma net income or earnings per share for 1997 and
1996 under the methodology prescribed by SFAS No. 123, as described in
note (f) below.
The material differences as they apply to the Company's financial
statements are as follows:
a) Reconciliation of net income under Cdn. and U.S. GAAP
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net income under Cdn. GAAP $45,419 $35,241 $23,284
U.S. GAAP adjustments
Write-off of product launch
advertising costs (i) (426) - -
Collection of warrant subscription
receivable (ii) (1,179) (750) -
Compensation cost for employee stock
options (iii) (2,237) (1,669) (620)
------- ------- -------
Net income according to U.S. GAAP $41,577 $32,822 $22,664
------- ------- -------
Earnings per share under U.S. GAAP
Basic $ 1.56 $ 1.28 $ 0.89
Fully diluted $ 1.53 $ 1.23 $ 0.84
Weighted average number of common
Shares outstanding under U.S. GAAP
Basic 26,641 25,606 25,378
Fully diluted 27,236 26,619 26,932
</TABLE>
(i) For the purposes of reporting under U.S. GAAP, companies are
required to write off certain product launch and advertising costs
incurred during the year. This adjustment represents the portion of
product launch and advertising costs deferred under Canadian GAAP
required to be written off under U.S. GAAP.
(ii) See Note 19 (c)
(iii) For the purposes of reporting under U.S. GAAP, the Company
accounts for compensation expense for certain employee stock option
plans under the provisions of Accounting Principles Board Opinion 25.
No such expense is required to be determined under Cdn. GAAP.
In accordance with Statement of Financial Accounting Standard ("SFAS")
No. 128 "Earnings per Share", basic earnings per share is computed by
dividing income available to common shareholders by the weighted
average number of common shares outstanding for the reporting period.
Fully diluted earnings per share reflect the dilution that would occur
if outstanding stock options and warrants were exercised or converted
into common shares. The computation of diluted earnings per share does
not include stock options and warrants with dilutive potential that
would have an antidilutive effect on earnings per share.
41 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
b) Comprehensive income
Under U.S. GAAP, the following additional disclosure would be
provided pursuant to the requirements of SFAS No. 130 "Reporting
Comprehensive Income"which established standards for the reporting of
comprehensive income and its components:
<TABLE>
<CAPTION>
Statement of comprehensive income (loss) 1998 1997 1996
<S> <C> <C> <C>
Net income according to U.S. GAAP $41,577 $32,822 $22,664
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment (269) (577) (1,058)
Unrealized holding losses on long-term
investments (i) (877) - -
------- ------- -------
Other comprehensive loss (1,146) (577) (1,058)
------- ------- -------
Comprehensive income under U.S. GAAP $40,431 $32,245 $21,606
======= ======= =======
</TABLE>
(i) Under U.S. GAAP, specifically SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities", the Company has
classified certain of its long term investments as securities
available-for-sale and accordingly, is required to include the change
in net unrealized holding losses on these securities in other
comprehensive income.
<TABLE>
<CAPTION>
Accumulated other
comprehensive income balances
1998 1997
--------------------------------------- ---------------------------------
Foreign Unrealized Foreign Unrealized
Currency Losses on Currency Losses on
Translation Investments Total Translation Investments Total
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning
of year $ (960) $ - $ (960) $(383) $ - $(383)
Current year change (269) (877) (1,146) (577) (577)
------- ----- --------- ----- ---- -----
Balance, end of year $(1,229) $(877) $ (2,106) $(960) $ - $(960)
======= ===== ========= ===== ==== =====
</TABLE>
c) The components of shareholders'equity under U.S. GAAP are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Share capital $19,428 $18,465
Warrants 8,244 8,244
Warrant subscription receivable (6,315) (7,494)
Retained earnings 26,111 54,914
Accumulated other comprehensive loss (2,106) (960)
------- -------
$45,362 $73,169
======= =======
</TABLE>
Under U.S. GAAP, the Company would record in paid-up capital an
amount equal to the proceeds attributable to 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 has been recorded as a reduction in retained
earnings.
d) Under U.S. GAAP, the following additional supplemental cash flow disclosure
would be provided:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash paid for:
Interest $1,050 $ 691 $ 608
Income taxes $2,153 $1,736 $ 603
</TABLE>
e) Under U.S. GAAP, the following additional disclosure would
be provided pursuant to the requirements of SFAS No. 109 -
"Accounting for Income Taxes":
42 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 45
As at December 31, 1998, the Company has unused tax benefits of
approximately $6,293,000 related to net operating loss and tax
credit carry forwards, all of which relate to the Canadian
operations. Under U.S. GAAP, a valuation allowance of an equivalent
amount would be recognized to offset the related deferred tax asset
due to the uncertainty of realizing the benefit of the loss and tax
credit carry forwards.
The net change in valuation allowance for the deferred tax asset
was an increase of $3,736,000 and $2,982,000 in 1998 and 1996
respectively, and a decrease of $214,000 in 1997.
f) The Company accounts for compensation expense for certain members
of its employee stock option plan under the provisions of Accounting
Principles Board Opinion 25. Had compensation cost for the employee
stock option plan been determined based upon fair value at the grant
date for awards under this plan consistent with the methodology
prescribed under SFAS no. 123 - "Accounting for Stock-based
Compensation", the Company's net income and earnings per share would
have been reduced by approximately $5,264,000, $2,053,000 and
$2,525,000 or $0.20, $0.08 and $0.10 per share in the years 1998,
1997 and 1996, respectively. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used for grants
in 1998, 1997 and 1996;dividend yield of 0%, expected volatility of
48%, risk-free interest rate of 5.5% and expected lives of an average
of 4 years.
g) There were no impairment write-downs related to goodwill, product
rights, or fixed assets required under U.S. GAAP.
h) New statements of Financial Accounting Standards
In June, 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at
fair value. The statement is likely to be effective for the fiscal
quarters of the year ended December 31, 2001. The Company does not
anticipate that the implementation of this statement will have a
material impact on the consolidated financial statements.
20. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in
errors when information using 2000 dates is processed. In addition,
similar problems may arise in some systems which use certain dates in
1999 to represent something other than a date. The effects of the Year
2000 issue may be experienced before, on, or after January 1, 2000,
and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure
which could affect an entity's ability to conduct normal business
operations. It is not possible to be certain that all aspects of the
Year 2000 Issue affecting the Company including those related to the
efforts of customers, suppliers, or other third parties, will be fully
resolved.
21. SUBSEQUENT EVENTS
From January 1, 1999 to April 30, 1999, in accordance with the Company's stock
repurchase program as described in Note 11, the Company has repurchased an
additional 371,500 common shares at a cost of $14,933,000. The excess of the
cost of the common shares acquired over the stated capital thereof, totaling
$14,701,000 has been charged to retained earnings.
43 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 46
SIX YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
(Dollars in millions, except per share) 1998 1997 1996 1995 1994 1993
OPERATING RESULTS
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Product sales 69,154 50,333 54,313 7,915 4,975 -
Research and development 32,070 19,559 4,374 4,333 3,909 3,771
Royalty and licensing 11,612 12,487 7,743 7,396 7,680 5,959
------- ------ ------ ------ ------ ------
TOTAL NET REVENUES 112,836 82,379 66,430 19,644 16,564 9,730
EXPENSES
Cost of goods sold 28,593 16,471 21,757 2,715 2,102 -
Research and development 17,490 14,386 10,901 7,194 5,578 5,520
Selling, general and administrative 17,608 13,989 10,166 7,182 6,359 5,718
------- ------ ------ ------ ------ ------
TOTAL OPERATING EXPENSES 63,691 44,846 42,824 17,091 14,039 11,238
------- ------ ------ ------ ------ ------
OPERATING INCOME 49,145 37,533 23,606 2,553 2,525 (1,508)
NET INCOME (LOSS) 45,419 35,241 23,284 5,870 9,461 3,927
EARNINGS PER SHARE 1.70 1.38 0.92 0.23 0.43 0.28
FINANCIAL POSITION
Cash 78,279 8,275 4,526 24,323 2,819 2,825
Current assets 137,870 62,984 26,599 34,746 8,702 6,791
Capital assets (net) 23,677 24,172 24,819 19,910 14,182 14,455
TOTAL ASSETS 199,919 93,739 58,606 60,867 25,630 23,265
Current liabilities 22,546 15,321 16,993 34,050 8,155 4,467
Total debt 126,835 4,847 6,968 10,195 10,349 21,450
Shareholder's equity (deficit) 50,677 75,458 36,943 14,592 7,693 (4,760)
Book capitalization 177,512 80,305 43,911 24,787 18,402 16,690
------- ------ ------ ------ ------ ------
CHANGES IN FINANCIAL POSITION
Cash inflow (outflow) from operations 53,059 4,316 (5,622) 31,146 2,555 (2,089)
Purchases of fixed assets (3,744) (2,664) (6,692) (2,642) (1,173) (249)
Purchase of product rights/royalty interests (19,000) (86) (1,161) (2,617) - -
Other investing activities (10,209) (433) (2,512) (5,243) (1,847) (596)
Net share capital issued (repurchased) (68,212) 4,464 197 702 62 (962)
Issuance of senior notes 125,000
Other financing activities and exchange (6,890) (1,848) (4,007) 158 469 4,629
------- ------ ------- ------ ------ ------
INCREASE (DECREASE) IN CASH 70,004 3,749 (19,797) 21,504 66 733
======= ====== ======= ====== ====== ======
OTHER
Depreciation and amortization 4,957 3,157 1,967 1,238 810 681
EBITDA 54,103 40,690 25,573 3,791 3,335 (827)
EBITDA per share 2.03 1.59 1.01 0.15 0.18 (0.07)
Weighted average shares outstanding 26,641 25,606 25,378 24,993 18,711 12,594
Number of employees at year end 489 377 315 250 207 163
</TABLE>
44 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 47
BOARD OF DIRECTORS
<TABLE>
<S> <C>
Eugene N. Melnyk Rolf K. Reininghaus
Chairman of the Board Senior Vice President
Biovail Corporation International Biovail Corporation International
President
Bruce D. Brydon Crystaal Division of Biovail Corporation
Chief Executive Officer International
Biovail Corporation International
Wilfred Bristow
Robert A. Podruzny Senior Vice President
President and Chief Operating Officer Nesbitt Burns Inc.
Biovail Corporation International
Roger Rowan
Kenneth C. Cancellara, Q. C. President and Chief Operating Officer
Senior Vice President Watt Charmichael Inc.
General Counsel and Secretary
Biovail Corporation International Robert Vujea
President
R&D Chemical Corporation
</TABLE>
OFFICERS
<TABLE>
<S> <C>
Eugene N. Melnyk Robert A. Podruzny
Chairman of the Board President and Chief Operating Officer
Bruce D. Brydon Rolf K. Reininghaus
Chief Executive Officer Senior Vice President
President, Crystaal Division
Kenneth C. Cancellara, Q. C.
Senior Vice President and Kenneth G. Howling
General Counsel Vice President and Chief Financial Officer
Dr. Kenneth S. Albert John R. Miszuk
Vice President, Research and Development Vice President and Controller
and Chief Scientific Officer
Patrick Dwyer
Marc Canton Vice President, Manufacturing
Vice President and General Manager
Contract Research Division
</TABLE>
45 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 48
SHAREHOLDER INFORMATION
<TABLE>
<S> <C>
Head office Stock Exchange Listings
Biovail Corporation International Toronto Stock Exchange
2488 Dunwin Drive New York Stock Exchange
Mississauga, Ontario
Canada L5L 1J9 Stock Symbol
BVF
Manufacturing facilities
Steinbach, Manitoba Shares outstanding at December 31, 1998
Carolina, Puerto Rico 24,861,000
Research and development facilities How to Reach Us for More Information
Steinbach, Manitoba For additional copies of this report, the annual
Toronto, Ontario report on form 20-F as filed with the United
States Securities and Exchange Commission,
Crystaal Corporation for quarterly reports or for further information,
2480 Dunwin Drive please contact Investor Relations.
Mississauga, Ontario
Canada L5L 1J9 By mail:
Biovail Corporation International
Auditors 2488 Dunwin Drive
Deloitte & Touche LLP Mississauga, Ontario
Chartered Accountants Canada L5L 1J9
Toronto, Canada
By phone:
Legal Counsel (416) 285-6000
Cassels, Brock & Blackwell
Toronto, Ontario By fax:
(416) 285-6499
Cahill, Gordon, Reindel
New York, New York By e-mail:
ir@biovail. com
The Annual Meeting of Shareholders
The annual meeting of shareholders will be The following words and logos are
held at 10:00 a. m. Thursday, July 22, 1999 trademarks of the company and may be
at the Royal York Hotel, Territories Room, registered in Canada, the United States and
100 Front Street, Toronto, Ontario. certain other jurisdictions:Biovail, Tiazac(R),
Viazem and Crystaal.
</TABLE>
48 | BIOVAIL CORPORATION INTERNATIONAL
<PAGE> 49
COMMON SHARE PERFORMANCE
[GRAPH]
Monthly closing stock prices (from March 1994) as quoted on the New
York Stock Exchange and the American Stock Exchange (taking into effect
the three for one stock split completed January 1, 1996).
SELECTED QUARTERLY DATA
(U. S. $ in thousands except per share amounts and stock prices)
<TABLE>
<CAPTION>
Net Stock Price* Stock Price*
Revenue EBITDA Income EPS High Low
<S> <C> <C> <C> <C> <C> <C>
1998
First Quarter $ 21,889 $ 9,571 $ 7,848 $0.29 $48.94 $33.50
Second Quarter 25,256 11,324 9,544 0.36 46.50 30.31
Third Quarter 26,990 15,118 13,204 0.49 34.75 24.25
Fourth Quarter 36,702 18,090 14,823 0.56 37.81 21.75
-------- ------- ------- -----
Total Year $112,837 $54,103 $45,419 $1.70
1997
First Quarter $ 16,392 $ 6,562 $ 5,550 $0.22 $29.88 $21.25
Second Quarter 18,450 8,246 7,078 0.28 32.63 20.88
Third Quarter 21,232 10,799 9,409 0.37 30.13 25.44
Fourth Quarter 26,305 15,082 13,204 0.51 39.06 26.63
-------- ------- ------- -----
Total Year $ 82,379 $40,689 $35,241 $1.38
</TABLE>
*The stock price reflects the high and low for the Company's common shares on
the New York Stock Exchange
<PAGE> 50
BIOVAIL
CORPORATION INTERNATIONAL
2488 Dunwin Drive, Mississauga, Ontario, Canada L5J 1J9 Tel 416-285-6000
Fax 416-285-6499
<PAGE> 1
BIOVAIL CORPORATION INTERNATIONAL
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 22, 1999
NOTICE IS HEREBY GIVEN that the Annual and Special Meeting (the "Meeting") of
shareholders of Biovail Corporation International (the "Company") will be held
at the Royal York Hotel, Territories Room, 100 Front Street West, Toronto,
Ontario, Canada, on Thursday, the 22nd day of July, 1999, at the hour of 10:00
A.M. (Toronto time) for the following purposes:
1. To receive the annual report and consider the financial statements of the
Company contained therein as at and for the year ended December 31, 1998
and the report of the auditors thereon.
2. To elect directors of the Company for the ensuing year.
3. To appoint the auditor of the Company and authorize the directors of the
Company for the ensuing year and to authorize the directors of the Company
to fix the remuneration of the auditor.
4. To transact such further or other business as may properly come before
the Meeting or at any adjournment thereof.
An annual report, a management information circular, a form of proxy and a
return card for purposes of the Company's supplemental mailing list accompanies
this Notice.
DATED at Toronto this 7th day of June, 1999.
BY ORDER OF THE BOARD
"Kenneth C. Cancellara"
Secretary
If you are not able to be present at the Meeting, kindly date, execute and
return the enclosed form of proxy in the envelope provided for the purpose.
All instruments appointing proxies to be used at the Meeting must be returned
to the CIBC Mellon Trust Company at 320 Bay Street, P.O. Box 1, Toronto,
Ontario, M5H 4A6, on or before the close of business on the business day
preceding the day of the Meeting or any adjournment thereof at which the proxy
is to be used, or delivered to the Chairman of the Meeting on the day of the
Meeting or any adjournment thereof prior to the time of voting.
<PAGE> 1
BIOVAIL CORPORATION INTERNATIONAL
2488 DUNWIN DRIVE
MISSISSAUGA, ONTARIO
L5L 1J9
MANAGEMENT INFORMATION CIRCULAR
SOLICITATION OF PROXIES
THIS MANAGEMENT INFORMATION CIRCULAR IS FURNISHED IN CONNECTION WITH THE
SOLICITATION OF PROXIES BY AND ON BEHALF OF THE MANAGEMENT OF BIOVAIL
CORPORATION INTERNATIONAL (THE "COMPANY") FOR USE AT THE ANNUAL AND SPECIAL
MEETING OF SHAREHOLDERS TO BE HELD AT 10:00 A.M., (TORONTO TIME), AT THE ROYAL
YORK HOTEL, TERRITORIES ROOM, 100 FRONT STREET WEST, TORONTO, ONTARIO, CANADA,
ON JULY 22, 1999, AND AT ANY AND ALL ADJOURNMENTS THEREOF (THE "MEETING"). It
is expected that the solicitation will be primarily by mail, possibly
supplemented by telephone or other personal contact by regular employees of the
Company. None of these individuals will receive extra compensation for such
efforts. The Company may also pay brokers, investment dealers or nominees
holding common shares in their names or in the names of their principals for
their reasonable expenses in sending solicitation material to their principals.
The cost of the solicitation will be borne by the Company.
No person is authorized to give any information or to make any
representations other than those contained in this circular and, if given or
made, such information must not be relied upon as having been authorized.
Except as otherwise indicated, information contained herein is given as at
June 7th, 1999.
APPOINTMENT OF PROXY
A SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON (WHO NEED NOT BE A
SHAREHOLDER OF THE COMPANY) TO ATTEND, ACT AND VOTE FOR HIM AND ON HIS BEHALF
AT THE MEETING OR ANY ADJOURNMENT(S) THEREOF, OTHER THAN THE PERSONS DESIGNATED
IN THE ENCLOSED FORM OF PROXY, BY INSERTING SUCH PERSON'S NAME IN THE SPACE
PROVIDED IN THE FORM OF PROXY AND BY DELETING THE NAMES THEREIN.
All common shares (hereinafter referred to as "common shares" or "shares")
represented by properly executed proxies received by the Secretary of the
Company in a timely fashion will be voted or withheld from voting in accordance
with the instructions of the Shareholder on any ballot that may be called for
at the Meeting; if a choice is specified in respect of any matter to be acted
upon, the shares will be voted accordingly. IN THE ABSENCE OF SUCH DIRECTION,
THE SHARES WILL BE VOTED FOR SUCH MATTER, ALL AS MORE PARTICULARLY DESCRIBED
IN THIS MANAGEMENT INFORMATION CIRCULAR.
1
<PAGE> 2
THE ENCLOSED FORM OF PROXY, WHEN PROPERLY EXECUTED, CONFERS DISCRETIONARY
AUTHORITY WITH RESPECT TO ALL AMENDMENTS OR VARIATIONS TO MATTERS IDENTIFIED IN
THE NOTICE OF MEETING OR OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE
MEETING.
The enclosed form of proxy must be dated and executed by the Shareholder
or his/her attorney authorized in writing, or if the Shareholder is a company,
by an officer or attorney thereof duly authorized. If the form of proxy is
executed by an attorney, the authority of the attorney to act must accompany
the form of proxy. The form of proxy must be received by the Company's
Registrar and Transfer Agent, the CIBC Mellon Trust Company, at 320 Bay Street,
P.O. Box 1, Toronto, Ontario, M5H 4A6, on or before the close of business on
the business day preceding the day of the Meeting, or any adjournment thereof
at which the proxy is to be used, or delivered to the Chairman of the Meeting
on the day of the Meeting or any adjournment thereof prior to the time of
voting.
REVOCATION OF PROXIES
Pursuant to Section 110(4) of the Business Corporations Act, (Ontario)
(the "OBCA"), any Shareholder giving a proxy may revoke a proxy by instrument
in writing executed by the Shareholder or by his/her attorney authorized in
writing, or if the Shareholder is a company, by an officer or attorney thereof
duly authorized and deposited with the Company, at 2488 Dunwin Drive,
Mississauga, Ontario L5L 1J9, or with the Company's Registrar and Transfer
Agent, the CIBC Mellon Trust Company, at 320 Bay Street, P.O. Box 1, Toronto,
Ontario, M5H 4A6, on or before the close of business of the last business day
preceding the day of the Meeting, or any adjournment thereof, at which the
proxy is to be used, or delivered to the Chairman of the Meeting on the day of
the Meeting or any adjournment thereof prior to the time of voting, or in any
other manner permitted by law.
All matters to be submitted to the Shareholders at the Meeting, unless
otherwise stated herein, require a favourable majority of the votes cast by the
holders of common shares of the Company at the Meeting for approval.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Except as set out herein and except insofar as they may be shareholders of
the Company, no director or officer of the Company or any proposed nominee of
management of the Company for election as a director of the Company, nor any
associate or affiliate of the foregoing persons, has any material interest,
direct or indirect, by way of beneficial ownership of securities or otherwise,
in matters to be acted upon at the Meeting.
2
<PAGE> 3
COMMON SHARES AND PRINCIPAL HOLDERS THEREOF
The holders of common shares of the Company will be entitled to vote at
the Meeting on all matters. Pursuant to Section 100(2) of the OBCA and in
accordance with National Policy Statement No. 41 adopted by the Ontario
Securities Commission, each holder of a common share of the Company at the
close of business on June 7, 1999 (the "Record Date") is entitled to one (1)
vote for each such share held, except to the extent that such shares may have
been transferred after the Record Date and the transferee produces properly
endorsed share certificates or otherwise establishes that he/she owns the
shares and demands, not later than ten (10) days before the Meeting, that the
Company's Transfer Agent, the CIBC Mellon Trust Company at 320 Bay Street, P.O.
Box 1, Toronto, Ontario, M5H 4A6, include his/her name on the list of
Shareholders. As at June 7, 1999, 24,487,919 common shares of the Company were
issued and outstanding.
To the knowledge of the directors and senior officers of the Company, at
June 7, 1999, the following was the only person who beneficially owned,
directly or indirectly, or exercised control or direction over common shares of
the Company carrying more than ten percent of the voting rights attached to all
common shares of the Company:
<TABLE>
<CAPTION>
Approximate Number of Common
Shares Beneficially Owned,
Directly or Indirectly, Percentage of Outstanding
or over which Control or Common Shares
Name of Shareholder Direction is Exercised Represented
<S> <C> <C>
Eugene N. Melnyk 6,782,957 27.7%
</TABLE>
PARTICULARS OF ITEMS TO BE ACTED UPON
1. ELECTION OF DIRECTORS
The current Board of Directors of the Company consists of eight (8)
directors. Management proposes that the number of Directors on the Board be
maintained at eight (8), all of whom are nominated and listed below. Each of
the proposed nominees has held the principal occupation referred to in the
table below for the preceding 5 years, except as follows: (i) prior to joining
the Company in January, 1995, Mr. Brydon was the President, Managing Director
and Chairman of the Board of the Canadian operations of Boehringer Mannheim;
(ii) prior to joining the Company in January, 1996, Mr. Podruzny was the Chief
Financial Officer and Director of the Canadian operation of Browning Ferris
Industries Ltd.; and (iii) prior to joining the Company in March, 1996, Mr.
Cancellara was a partner with the law firm of Cassels, Brock and Blackwell.
UNLESS A PROXY SPECIFIES THAT THE SHARES IT REPRESENTS SHOULD BE WITHHELD
FROM VOTING IN THE ELECTION OF DIRECTORS, THE PROXYHOLDERS NAMED IN THE
ACCOMPANYING PROXY INTEND TO VOTE FOR THE ELECTION OF THE FOLLOWING NOMINEES,
ALL OF WHOM ARE NOW DIRECTORS AND HAVE BEEN SINCE THE DATES INDICATED.
Management does not contemplate that any nominee will be unable to serve
as a Director, but, if such an event should occur for any reason prior to the
Meeting, the persons named in the enclosed form of proxy reserve the right to
3
<PAGE> 4
vote for another nominee in their discretion, unless authority to vote the
proxy for the election of directors has been withheld. Each Director elected
will hold office until the next annual meeting of shareholders or until his
successor is duly elected, unless the office is earlier vacated in accordance
with the by-laws of the Company.
The Company does not have an Executive Committee of its Board of
Directors, but is required pursuant to Section 158(1) of the OBCA to have, and
does have, an Audit Committee comprised of Messrs. Wilfred G. Bristow, Roger
Rowan and Eugene N. Melnyk.
The following table and notes thereto state the names of all persons
proposed to be nominated by management for election as a director, all offices
with the Company currently held by them, their principal occupation or
employment, the year in which they first became a director of the Company and
the approximate number of common shares of the Company beneficially owned,
directly or indirectly, or over which control or direction is exercised by each
of them as at June 7, 1999:
<TABLE>
<CAPTION>
NUMBER OF COMMON
SHARES BENEFICIALLY
OWNED, DIRECTLY OR
PRESENT PRINCIPAL INDIRECTLY, OR OVER
OCCUPATION OR WHICH CONTROL OR
EMPLOYMENT; POSITION YEAR FIRST DIRECTION IS
NAME, ADDRESS WITH COMPANY BECAME A DIRECTOR EXERCISED (1) (4)
<S> <C> <C> <C>
Eugene N. Melnyk (2) (3) Chairman of the Board of Directors
Barbados, WI of the Company 1994 6,782,957
Bruce Brydon
Milton, Ontario Chief Executive Officer of the Company 1995 18,000
Robert Podruzny President and Chief Operating Officer
Scarborough, Ontario of the Company 1997 27,600
Kenneth C. Cancellara Senior Vice-President and General
Toronto, Ontario Counsel of the Company 1995 31,800
Rolf Reininghaus
Mississauga, Ontario Senior Vice-President of the Company 1994 189,666
Wilfred G. Bristow (2) Senior Vice-President, Nesbitt Burns
Campbellville, Ontario Inc. (investment banking firm) 1994 5,000
President and Chief Operating Officer
Roger Rowan, (2) Watt Charmichael Inc. (investment
Toronto, Ontario banking firm) 1997 819,725
Robert Vujea,
Michigan, USA President, R&D Chemical Corporation 1997 26,400
</TABLE>
(1) Information with respect to the number of common shares beneficially owned,
directly or indirectly, or over which control or direction is exercised,
not being within the knowledge of the Company, has been provided by
the respective nominees.
(2) Member of the Audit Committee.
4
<PAGE> 5
(3) See "Common Shares and Principal Holders Thereof".
(4) Each of the above-noted directors hold options to purchase Common
Shares of the Company as of June 7, 1999 as follows: Eugene N. Melnyk -
1,065,000; Bruce Brydon - 150,000; Robert A. Podruzny - 96,000; Kenneth C.
Cancellara - 80,000; Rolf Reininghaus - 135,000; Wilfred Bristow - 15,000,
Roger Rowan - 20,000; Robert Vujea - 20,000, which common shares are not
included in the above table.
2. APPOINTMENT OF AUDITORS
The persons named in the form of proxy which accompanies this Management
Information Circular intend to vote for the appointment of Ernst and Young LLP,
Chartered Accountants, as the auditor of the Company, to hold office until its
successor is appointed and to authorize the directors of the Company to fix the
remuneration of the auditor, unless the shareholder has specified in the form
of proxy that the shares represented by such form of proxy are to be withheld
from voting in respect thereof.
The audit committee of the directors of the Company and the directors of
the Company are not recommending Deloitte & Touche LLP, Chartered Accountants,
for reappointment as auditors of the Company. Deloitte & Touche were first
appointed the auditors of the Company on April 6, 1992.
The audit committee of the directors of the Company and the directors of
the Company have recommended Ernst & Young LLP, Chartered Accountants, for
appointment as the auditor of the Company.
A notice of change of auditor, the letters of the former and successor
auditor of the Company and the confirmation of the audit committee of the
Directors of the Company are attached to this Management Information Circular
in Schedule A in accordance with the requirements of National Policy No. 31.
5
<PAGE> 6
EXECUTIVE COMPENSATION
The following table sets forth the compensation information for each of
the last three fiscal years for the Chief Executive Officer and the four other
most highly compensated executive officers of the Company who served as
executive officers at the end of 1998 ("Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
Awards Payments
Other Securities Restricted
Annual Compen- Under Shares or Restricted All Other Compen-
Name and Principal Salary (1) Bonus sation (2) Options ShareUnits LTIP Payouts (5) sation (2)
Position Year (U.S.$) (U.S.$) (U.S.$) Granted (3) (#) (U.S.$) (U.S.$) (U.S.$)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Eugene N. Melnyk 1998 415,210 - - - - - -
Chairman of the 1997 377,463 - - 810,000 - 23,488,158 -
Board 1996 343,148 - - - - - -
- - - ------------------------------------------------------------------------------------------------------------------------------------
Bruce D. Brydon 1998 266,033 - - - - 2,473,617 -
Chief Executive 1997 232,805 20,970 - - - 453,751 -
Officer 1996 131,328 - - - - - -
- - - ------------------------------------------------------------------------------------------------------------------------------------
Robert A. Podruzny 1998 134,700 25,754 - - - - -
President, Chief 1997 126,895 15,937 - 42,000 - - -
Operating Officer 1996 107,912 - - 24,000 - - -
- - - ------------------------------------------------------------------------------------------------------------------------------------
Kenneth Cancellara 1998 168,375
Senior Vice 1997 183,138 - - - - 2,957,262 -
President and 1996 150,718 - - - - - -
General Counsel - - - - - -
- - - ------------------------------------------------------------------------------------------------------------------------------------
Rolf Reininghaus 1998 118,536 - - - - 6,108,192 -
Senior 1997 134,577 10,654 - - - - -
Vice-President 1996 131,784 - - - - - -
</TABLE>
(1) The amount of compensation paid to the Named Executive Officers was
determined and paid by the Company. Other than Mr. Melnyk these amounts
were paid in Canadian dollars and, for the purposes of this table,
converted to U.S. dollars at the respective year end rates of exchange as
follows: 1998 - .6735; 1997 - .6990; and 1996 - .7296.
(2) Perquisites and other personal benefits for each Named Executive
Officer was less than the lesser of $50,000 and 10% of such officers'
total annual salary and bonus.
(3) The options were granted under the Company's Stock Option Plan, as
amended, established in 1993. All options are for the purchase of common
shares of the Company and are for a term of 5 years. The options become
exercisable as to a maximum of 33 1/3% on each of the first, second and
third anniversaries of the date of grant.
(4) The compensation of all officers and directors as a group for the year
ended December 31, 1998 was $2,123,000.
(5) Relates to the value of options exercised pursuant to the stock option
plan.
6
<PAGE> 7
STOCK OPTION PLAN
Under the Company's Stock Option Plan, as amended (the "Plan"),
established in 1993 and approved by the shareholders at the Special Meeting
held on March 28, 1994, the Company may grant to directors, officers, key
employees, consultants and advisors, options to purchase common shares of the
Company. The purpose of the Plan is to provide incentives to certain of the
Company's directors, officers, key employees, consultants and advisors. The
aggregate number of shares reserved for issuance under the Plan shall not
exceed 7,000,000 Common Shares. The number of shares reserved for issuance to
any one person under the Plan together with shares which that person may
acquire under any similar plan of the Company may not exceed 5% of the total
issued and outstanding common shares. Under the Plan, the Company designates
the maximum number of shares that are subject to an option. The exercise price
per share of an option is the closing market price at which the shares are
traded on The New York Stock Exchange on the day prior to the date the option
is granted, or if not so traded, the average between the closing bid and ask
prices thereof as reported for that day.
As at April 30, 1999, the Company has granted an aggregate of 2,292,092
options which are outstanding at exercise prices ranging from $20.00 to $40.00
per share. The options are exercisable up to dates between December 19, 2000
and February 19, 2004. There were no stock options granted to the Named
Executive Officers in 1998.
The following table sets forth details of all exercises of options
during the fiscal year ended December 31, 1998, by each of the Named
Executive Officers and the fiscal year-end value of unexercised options held
by the Named Executive Officers on an aggregate basis:
AGGREGATE OPTIONS EXERCISED IN LAST FISCAL YEAR AND OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Unexercised Options in-the-Money Options
Securities at Fiscal Year-End at Fiscal Year-End
Acquired on Exercisable/ Exercisable/
Exercise Aggregate Value Unexercisable Unexercisable (1)
Name (#) Realized (U.S.$) (#) (U.S.$)
<S> <C> <C> <C> <C>
Eugene Melnyk - - 150,000 / 885,000 2,671,875 / 6,854,063
- - - ------------- -------------------- -------------------- -------------------- ---------------------
Bruce Brydon 72,000 2,473,920 100,000 /50,000 1,781,250 / 890,625
- - - ------------ -------------------- -------------------- -------------------- ---------------------
Robert A. Podruzny - - 16,000 / 50,000 285,000 / 470,625
- - - ------------------ -------------------- -------------------- -------------------- ---------------------
Kenneth C. Cancellara 140,200 2,956,890 50,000 / 0 890,625 / 0
- - - --------------------- -------------------- -------------------- -------------------- ---------------------
Rolf Reininghaus 180,000 6,108,390 70,000/35,000 1,246,875 / 623,438
- - - ---------------- -------------------- -------------------- -------------------- ---------------------
</TABLE>
(1) Value of unexercised in-the-money options calculated using the closing
price of common shares of the Company, on the New York Stock Exchange on
December 31, 1998 (U.S. $37.81), less the exercise price of in-the-money
options.
(2) The options were granted under the Plan, as amended, established in
1993. All options are for the purchase of common shares of the Company
and are for a term of 5 years. The options become exercisable as to a
maximum of 33 1/3% on each of the first, second and third anniversaries
of grant.
7
<PAGE> 8
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
In 1996, the Company authorized the making of loans to its Chairman and
executive officers, as named in the table set forth below, in order to finance
the acquisition of shares of the Company on the open market. These loans are
secured by the shares and bear interest at 1/4% over the bank prime rate,
equal to the Company's rate of borrowing. The loans are due on the earlier of
30 days following termination of employment or December 1, 1999.
The aggregate indebtedness of these Directors, Executive Officers and
Senior Officers as at June 1, 1999 is U.S. $2,806,995.
The following table sets forth details of the indebtedness to, or
guaranteed or supported by, the Company or any of its subsidiaries, of each
director, executive officer, senior officer, proposed nominee for election as
a director of the Company and each associate of any such director, officer or
proposed nominee, for the fiscal year ended December 31, 1998:
TABLE OF INDEBTEDNESS
UNDER EXECUTIVE SECURITIES PURCHASE PROGRAM
<TABLE>
<CAPTION>
Largest Amount Amount Outstanding
Outstanding during as at June Financially Assisted
Name and Principal Involvement of the 1998 1, 1999 Securities Purchased Security for
Position Company (U.S. $) (U.S. $) during 1998 (#) Indebtedness
<S> <C> <C> <C> <C> <C>
Eugene N. Melnyk 24,000
Chairman of the Board Lender 665,408 741,846 NIL common shares
Robert A. Podruzny
President, and Chief 22,350
Operating Officer Lender 665,408 688,383 NIL common shares
Kenneth C. Cancellara
Senior Vice
President and 22,350
General Counsel Lender 665,408 688,383 NIL common shares
Rolf Reininghaus 22,350
Senior Vice President Lender 665,408 688,383 NIL common shares
-------------------- -------------------- -------------------- --------------------
</TABLE>
8
<PAGE> 9
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the
cumulative shareholder return on the Company's common shares ("BVF") compared
to the cumulative total return of the Toronto Stock Exchange, 300 Index ("TSE
300 Index") for the past five fiscal years, assuming CDN $100 investment on
December 31, 1993.
[GRAPH]
<TABLE>
<CAPTION>
As at December 31, 1993 1994 1995 1996 1997 1998
- - - ------------------ ------ ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BVF 100.00 195.45 1,904.55 1,900.91 3,000.00 3,163.64
- - - --- ------ ------ -------- -------- -------- --------
TSE 300 Index 100.00 99.82 114.33 146.73 168.71 166.04
============= ====== ====== ======== ======== ======== ========
</TABLE>
COMPENSATION COMMITTEE
The Company does not have a compensation committee. The duties of such a
committee are carried out by the Board of Directors. The Board of Directors
meets on compensation matters as and when required with respect to executive
compensation.
REPORT ON EXECUTIVE COMPENSATION
It is the responsibility of the Board of Directors to determine the level
of compensation in respect of the Company's senior executives with a view to
providing such executives with a competitive compensation package having regard
to performance. Performance is defined to include achievement of the
corporate, divisional and personal objectives and enhancement of shareholder
value through increases in the stock price resulting from increases in sales
revenue, cost efficient production and enhanced annual cash flow.
Compensation for executive officers is composed primarily of three
components; namely, base salary, performance bonuses and the granting of stock
options. Performance bonuses are considered from time to time having regard to
the above referenced objectives.
9
<PAGE> 10
\
In establishing the levels of base salary, the award of stock options and
performance bonuses the Board of Directors takes into consideration individual
performance, responsibilities, length of service and levels of compensation
provided by industry competitors.
PLANS
The Company does not have any plan pursuant to which cash or non-cash
compensation was paid or distributed to executive officers during the most
recently completed financial year or pursuant to which cash or non-cash
compensation is proposed to be paid or distributed to executive officers in a
future year, other than the option agreements described under the headings
"Stock Option Plan" and "Remuneration of Directors".
At the special meeting of shareholders held on January 2, 1996, the
shareholders of the Company approved an Employee Stock Purchase Plan (the
"ESPP"). The purpose of the ESPP is to provide a convenient method for
full-time employees, consultants and advisors of the Company or any of its
direct or indirect subsidiaries to participate in the share ownership of the
Company or to increase their share ownership in the Company. Under the ESPP,
the board of directors of the Company may fix certain dates during which the
Company will offer to eligible employees an opportunity to purchase common
shares of the Company via payroll or contractual deduction. The maximum
discount from the market price at which participants may purchase shares under
the ESPP is ten percent (10%).
The total number of shares that may be issued under the ESPP shall not
exceed 300,000 common shares. At the discretion of a committee of the Board of
Directors that will administer the ESPP, the Company may issue shares directly
from treasury or purchase shares in the market from time to time to satisfy its
obligations under the ESPP. All eligible participants of the Company that meet
certain minimum criteria are eligible to participate under the ESPP. A
participant may authorize a payroll or contractual deduction of up to a maximum
of 10% of the base salary or remuneration to be received during any purchase
period. Each participant may purchase common shares of the Company as the
participant's contributions permit. The purchase price shall be 90% of the
fair market value per share of stock on the date on which the period ends.
Directors, senior officers or insiders of the Company and their respective
associates are not eligible to participate in the ESPP.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
The Company maintains insurance for the benefit of its directors and
officers against certain liabilities incurred by them in their capacity as
directors or officers of the Company or its subsidiaries in the aggregate amount
of $15,000,000. The policy governing such insurance is subject to standard
exclusions and limitations. During the 1998 fiscal year the amount of the
premiums paid in respect of such insurance was $46,000.
REMUNERATION OF DIRECTORS
Certain directors who are not officers or employees of the Company
receive an annual fee of $2,900 and a participation fee of $370 for each
meeting of the Board of Directors attended. All directors are reimbursed for
expenses incurred in connection with attending Board of Directors meetings.
Directors are also eligible to be granted
10
<PAGE> 11
stock options pursuant to the terms of the Company's Stock Option Plan.
During 1998, no options were granted to directors of the Company.
EMPLOYMENT AGREEMENTS
Eugene Melnyk, as Chairman of the Board of the Company, pursuant to a
Management Agreement, effective February 1, 1992, receives annual compensation
for services, which amount is subject to 10% annual increases during the term
of the Management Agreement, and is reimbursed for business related expenses.
The Management Agreement will continue automatically for renewal periods of
one year unless terminated by either party upon prior written notice.
Bruce Brydon, as Chief Executive Officer and Director, pursuant to an
Employment Agreement which expired December 31, 1998, received an annual
salary as well as reimbursement of business related expenses and an
automobile allowance. Under an Employment Agreement effective January 1,
1999, Mr. Brydon receives an annual salary plus business expenses. The
Employment Agreement is terminable by the Company and/or Mr. Brydon upon 90
days' written notice.
Robert Podruzny, President, Chief Operating Officer and Director,
pursuant to an Employment Agreement made as of January 8, 1996, receives an
annual salary, subject to a cost of living adjustment, reimbursement of
business expenses and an automobile allowance. The Employment Agreement is
terminable by the Company, and/or Mr. Podruzny upon three months' written
notice.
Kenneth Cancellara, as Senior Vice President, General Counsel and
Director, pursuant to an Employment Agreement made as of January 10, 1996,
receives an annual salary, subject to a cost of living adjustment,
reimbursement of business expenses and an automobile allowance. The Employment
Agreement has a term of five years, expiring in March, 2001 and thereafter is
terminable by the Company upon six months' written notice and is terminable by
Mr. Cancellara upon 90 days' prior notice.
Rolf Reininghaus, as Senior Vice President and Director, pursuant to an
Employment Agreement made as of February 1, 1992, as amended, receives an
annual salary, subject to a cost of living adjustment, a bonus at the
discretion of the Board of Directors as well as reimbursement of business
expenses and an automobile allowance. The Employment Agreement is terminable
by the Company upon one year's written notice and is terminable by Mr.
Reininghaus upon two months' prior written notice.
11
<PAGE> 12
LEGAL PROCEEDINGS
In January, 1998, Andrx Pharmaceutical, Inc. ("Andrx") commenced action
against the Food and Drug Administration ("FDA"), the Company and Faulding
Inc., seeking an order from the Court which would preclude the FDA from
approving any subsequently-filed Abbreviated New Drug Application ("ANDA"s),
including the Company's filed ANDA for generic version of Cardizem CD until
Andrx receives 180 days of market exclusivity based on its status as the first
to file for approval of such a product. The Company has asserted affirmative
defenses based upon the Company's status as an unsued ANDA submitter and
counter-sued Andrx for breach of anti-trust laws based on the filing of this
suit and Andrx' entry into an alleged collusive agreement with Hoechst Marion
Roussel relating to Andrx' generic Cardizem CD which could result in keeping
generic competition from entering the marketplace in a regular and timely
manner. Andrx has since discontinued its action against the Company and the
FDA. The Company's counter-suit, however, continues.
In March,1998, the Company commenced an action in the District of New
Jersey against Hoechst Aktiengesellschaft and related parties to recover
damages estimated at $1.2 billion and for injunctive relief for the alleged
violation by the defendants of the anti-trust laws of the United States, for
breach of contract, deceptive trade practices and restraint of trade, unfair
competition and other violations of the common law. A reasonable estimation
of the Company's potential recovery for damages cannot be made at this time.
In August, 1998, the Company commenced a patent infringement suit against
Andrx, upon receipt of a Certification Notice relating to Andrx' filed
application for a generic version of Tiazaca(R). The effect of the Company's
suit is that the FDA is not permitted to issue approval to Andrx until the lapse
of 30 months or a final judgment dismissing the Company's suit, whichever occurs
earlier. The Company believes at this time that it has brought a meritorious
suit.
From time to time, the Company becomes involved in various legal
proceedings which it considers to be in the ordinary course of business. The
vast majority of these proceedings involve intellectual property issues that
often result in patent infringement suits brought by patent holders upon the
Company's filing of its ANDA applications. The timing of these actions is
mandated by statute and may result in a delay of FDA's approval for such filed
ANDAs until the final resolution of such actions or the expiry of 30 months,
whichever occurs earlier. The Company is currently litigating two separate
actions for alleged infringement of the applicable patents related to the
Company's filing of ANDAs for the generic equivalent of Adalat CC and Procardia
XL products.
Both actions make a technical claim of infringement and, by virtue of
applicable statutory provisions, the filing of these suits may delay approval
of the Company's ANDAs for a period of 30 months or resolutions of these patent
infringement questions, whichever occurs sooner. The Company is vigorously
defending these suits by denying infringement of the patents and has brought an
application for the summary dismissal of these suits. No decision has yet been
rendered on the Company's application. In addition, the Company has brought an
action against the patent holders seeking declaratory judgement and invalidity
of the relevant patent and seeking damages for violation of the anti-trust laws
and for tortious interference with the Company's prospective business
advantage.
12
<PAGE> 13
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
CORPORATE GOVERNANCE PRACTICES
The principles set out below contain a description of the Company's
corporate governance practices, as approved by the Board of Directors. The
Board of Directors of the Company believes that a clearly defined system of
corporate governance is essential to the effective and efficient operation of
the Company. The system of corporate governance should reflect the Company's
particular circumstances, having always as its ultimate objective the best
long-term interests of the Company and the enhancement of value for all
shareholders.
MANDATE OF THE BOARD
There is no specific written mandate of the Board of Directors of the
Company other than the corporate standard of care set out in OBCA, the
governing corporate legislation of the Company. The OBCA states that each
director and officer of a corporation, in exercising his or her powers and
discharging his or her duties, shall act honestly and in good faith with a view
to the best interests of the Company and exercise the care, diligence and skill
that a reasonably prudent person would exercise in comparable circumstances.
The Board of Directors of the Company assumes responsibility for stewardship of
the Company, including:
(a) adoption of a strategic planning process;
(b) the identification of the principal risks of the Company's business
and ensuring the implementation of appropriate systems to manage
these risks;
(c) succession planning, including appointing, training and monitoring
senior management;
(d) a communications policy for the Company; and
(e) the integrity of the Company's internal control and management
information systems.
Although the Board of Directors supervises, directs and oversees the
business and affairs of the Company, it delegates the day-to-day management to
the Company's executive officers, while reserving the ability to intervene in
management decisions and to exercise final judgment on any matter.
In order to carry out the foregoing responsibilities the Board of
Directors meets quarterly and otherwise as required by circumstances.
COMPOSITION OF THE BOARD
The Board of Directors of the Company consists of eight individuals, five
of whom are officers of the Company and, as such, may be considered to be
"related" directors. The remaining directors are free from any interest and
any business or other relationship which could, or could reasonably be
perceived to, materially interfere with the director's ability to act with a
view to the best interests of the Company, other than interests and
relationships arising from shareholding. The Company believes that the number
of unrelated directors is adequate to present a point of view independent of
management. Each of the nominated directors of the Company has a minority
shareholding interest in the Company, as set out under the heading "Election of
Directors". Management is of the view that minority shareholders are
adequately represented on the Board of Directors.
13
<PAGE> 14
The Company and its Board operate in such a way that efficiency is created
by the consideration of certain matters directly by the Board instead of by
Board committees. The Company believes that the nature of the relationships of
the related directors of the Board would not adversely affect their
independence or ability to act in the best interests of Company.
The members of the Company's audit committee are Eugene Melnyk (related
director), Wilfred Bristow (unrelated director) and Roger Rowan (unrelated
director). The Company's audit committee is appointed by the Board of
Directors annually. The audit committee meets as required with management and
the independent auditors to satisfy itself that management and the independent
auditors are each properly discharging their responsibilities. The audit
committee, among other things, reviews matters related to the quality of audits
and financial reporting and maintains practices intended to preserve the
independence of the Company's auditors. The independent auditors have the
right to request a meeting with the audit committee at any time. The audit
committee reviews the financial statements, the independent auditors' report,
the annual and quarterly reports to the shareholders, as well as any public
disclosure document which contains financial information and reports thereon to
the Board of Directors prior to the Board approving such information for public
disclosure.
DECISIONS REQUIRING PRIOR BOARD APPROVAL
The Board monitors management on a regular basis. Management of the
Company is aware of the need to obtain Board approval for significant corporate
or business transactions outside of the normal course of business. The annual
budget is reviewed regularly by the Board of Directors as a key roadmap to
assess performance and progress. Decisions which would affect the budget
require prior board approval. This procedure is favoured over the use of
formal mandates which may serve to inhibit management initiatives. Less
significant activities which can be addressed by management are often reported
to the Board of Directors, with whom management has a good working
relationship.
RECRUITMENT OF NEW DIRECTORS AND PERFORMANCE ENHANCING MEASURES
There are no formal procedures in place for recruiting new directors or to
address other performance enhancing measures. The size of the Board, the
nature of the business conducted by the Company and the familiarity of all
Board members with the business are such that the directors believe that a less
formal approach is adequate.
To date, due to the size and nature of the Company, the Board has not
constituted a committee composed exclusively of outside directors, a majority
of whom are unrelated directors, to assess the effectiveness of the Board as a
whole, the committees of the Board and the contributions of individual
directors.
SHAREHOLDER FEEDBACK AND CONCERNS
The Company is dedicated to the maintenance of good shareholder relations
and attempts to deal with any expressed concerns of shareholders in an
effective and timely manner. In particular, the Company takes special efforts
to ensure that all legal and stock exchange requirements are addressed in a
timely and effective manner. The Company has few
14
<PAGE> 15
concerns or complaints expressed to it by shareholders, but attempts to deal
with any concerns or complaints that it does receive effectively, in an
informal manner.
BOARD EXPECTATIONS OF MANAGEMENT
The Board of Directors expects management to operate the business in
accordance with the mandate referred to above and to achieve maximum
shareholder value, consistent with public and employee safety and the other
objectives referred to above. The results of the management activities are
reviewed on a continuous basis by the Board.
OUTSIDE ADVISORS
The Board has not adopted a system which would enable an individual
director to engage an outside adviser at the expense of the Company in
appropriate circumstances.
Given the considerations noted above, the Company's approach to corporate
governance differs in certain respects from the proposed guidelines for
effective corporate goveranance of The Toronto Stock Exchange (the
"Guidelines"). The Board of Directors believes that the existing corporate
governance structure is appropriate in the circumstances and the Company is in
the process of examining its own requirements and procedures in order to
determine the appropriateness of its current systems and procedures in the
context of the Guidelines.
MISCELLANEOUS
The management of the Company knows of no amendments, variations or other
matters which are likely to be brought before the Meeting. HOWEVER, IF ANY
AMENDMENTS, VARIATIONS, OR OTHER MATTERS OF WHICH THE MANAGEMENT IS NOT NOW
AWARE ARE PROPERLY PRESENTED TO THE MEETING, IT IS THE INTENTION OF THE PERSONS
NAMED IN THE ENCLOSED FORM OF PROXY TO VOTE SAID PROXIES IN ACCORDANCE WITH
THEIR JUDGMENT ON SUCH MATTERS.
The undersigned hereby certifies that the contents herein, and the sending
hereof, have been approved by the Board of Directors of the Company for mailing
to the shareholders, directors and auditors of the Company.
Non-registered shareholders who wish to be placed on the Company's
supplemental mailing list for interim reports are also requested to complete,
sign and return the enclosed request form to The CIBC Mellon Trust Company.
Dated at Toronto this 7st day of June, 1999.
BY ORDER OF THE BOARD OF DIRECTORS
"Kenneth C. Cancellara "
Secretary
15
<PAGE> 16
SCHEDULE A
Schedule A includes the following documents:
o Notice of Change of Auditors
o Confirmation of former auditors
o Confirmation of successor auditors
o Confirmation of audit committee
16
<PAGE> 17
June 10, 1999
Ontario Securities Commission
British Columbia Securities Commission
Ernst & Young LLP
Chartered Accountants
Deloitte & Touche LLP
Chartered Accountants
RE: NOTICE OF CHANGE OF AUDITOR
In compliance with National Policy No. 31 - Change of Auditor of a Reporting
Issuer, please be advised as follows:
1. The former auditor of Biovail Corporation International (the
"Corporation"), Deloitte and Touche LLP, Chartered Accountants (the
"Former Auditor"), is not being proposed for re-appointment at the next
annual meeting of Shareholders. Subject to all applicable regulatory and
Shareholder approvals, the Corporation's new auditor will be Ernst & Young
LLP, Chartered Accountants (the "Successor Auditor"), and it is being
proposed that they be appointed at the next annual and special meeting of
Shareholders scheduled for July 22, 1999.
2. There were no reservations in the auditor's reports for either of the
Corporation's two most recently completed fiscal years nor for any period
subsequent thereto for which an audit report was issued and preceding the
date hereof.
3. The decision not to recommend the Former Auditor for reappointment and the
appointment of the Successor Auditor was considered and approved by the
Audit Committee and the Board of Directors of the Corporation.
4. In the opinion of the Audit Committee and the Board of Directors of the
Corporation, there were no "Reportable Events" within the meaning of
National Policy No. 31 of the Canadian Securities Administrators.
DATED this 10th day of June, 1999
ON BEHALF OF THE BOARD OF DIRECTORS
"Kenneth C. Cancellara"
Secretary
17
<PAGE> 18
June 16, 1999
British Columbia Securities Commission
Ontario Securities Commission
- - - - and to -
Biovail Corporation International
Dear Sirs:
Re: BIOVAIL CORPORATION INTERNATIONAL - CHANGE OF AUDITOR
As required by National Policy No. 31, we confirm that we have reviewed the
information contained in the notice of change of auditor of Biovail Corporation
International (the "Corporation") dated as of the 10th day of June, 1999 (the
"Notice") and, based on our knowledge of the information at the time, we agree
with the information contained in the Notice.
We understand that a copy of the Notice and this letter will be mailed to the
shareholders of the Corporation.
Yours very truly,
(signed)
DELOITTE & TOUCHE LLP
Chartered Accountants
18
<PAGE> 19
June 16, 1999
British Columbia Securities Commission
Ontario Securities Commission
- - - - and to -
Biovail Corporation International
Dear Sirs:
RE: BIOVAIL CORPORATION INTERNATIONAL - CHANGE OF AUDITOR
As required by National Policy No. 31, we confirm that we have reviewed the
information contained in the notice of change of auditor of Biovail Corporation
International (the "Corporation") dated as of the 10th day of June, 1999 (the
"Notice") and, based on our knowledge of the information at the time, we agree
with the information contained in the Notice.
We understand that a copy of the Notice and this letter will be mailed to the
shareholders of the Corporation.
Yours very truly,
(signed)
ERNST & YOUNG LLP
Chartered Accountants
19
<PAGE> 20
TO: British Columbia Securities Commission
Ontario Securities Commission
- and to -
Biovail Corporation International
- and to -
Ernst & Young LLP
Chartered Accountants
- and to -
Deloitte & Touche LLP
Chartered Accountants
CONFIRMATION
The undersigned, a member of the audit committee and a director of Biovail
Corporation International ( the "Corporation"), hereby confirms on behalf of
the audit committee of the directors of the Corporation, that the notice of
change of auditor, the letter from the former auditor and the letter from the
proposed successor auditor of Corporation, a copy of each of which is attached
to this confirmation, have been reviewed by the audit committee of the
directors of the Corporation.
DATED as of the 16th of June, 1999
(signed)
Eugene N. Melnyk
20
<PAGE> 1
BIOVAIL CORPORATION INTERNATIONAL
PROXY FOR ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
SOLICITED ON BEHALF OF MANAGEMENT
The undersigned shareholder of Biovail Corporation International hereby
appoints Eugene Melnyk, Chairman of the Board of Directors, or failing
him, Bob Podruzny, President and Chief Operating Officer, or failing
him, Kenneth C. Cancellara, Senior Vice President and General Counsel,
or failing him, _____________________ as nominee of the undersigned
with full power of substitution to attend and act for and on behalf of
the undersigned at THE ANNUAL AND SPECIAL MEETING OF THE SHAREHOLDERS
OF THE COMPANY TO BE HELD ON JULY 22, 1999 AT 10:00 A.M. (TORONTO TIME)
AT THE ROYAL YORK HOTEL, TERRITORIES ROOM, 100 FRONT STREET WEST,
TORONTO, ONTARIO, CANADA AND AT ANY ADJOURNMENT(S) THEREOF and without
limiting the general authority and power hereby given to such nominee,
the shares represented by this proxy are specifically directed to be
voted as indicted on the reverse side of this proxy.
This proxy will be voted and where a
choice is specified, will be voted
as directed. WHERE NO CHOICE IS
SPECIFIED, THIS PROXY WILL CONFER
DISCRETIONARY AUTHORITY AND WILL BE
VOTED IN FAVOUR OF THE MATTERS
REFERRED TO ON THE REVERSE SIDE
HEREOF.
THIS PROXY ALSO CONFERS
DISCRETIONARY AUTHORITY TO VOTE IN
RESPECT OF ANY OTHER MATTER WHICH
MAY PROPERLY COME BEFORE THE MEETING
AND IN SUCH MANNER AS SUCH NOMINEE
IN HIS JUDGMENT MAY DETERMINE.
A SHAREHOLDER HAS THE RIGHT TO
APPOINT A PERSON TO ATTEND AND ACT
FOR HIM AND ON HIS BEHALF AT THE
MEETING OTHER THAN THE PERSONS
DESIGNATED IN THIS FORM OF PROXY.
SUCH RIGHT MAY BE EXERCISED BY
FILLING THE NAME OF SUCH PERSON IN
THE BLANK SPACE PROVIDED AND
STRIKING OUT THE NAMES OF
MANAGEMENT'S NOMINEES ABOVE.
DATED this________ day of_______ , 1999.
_______________________________________
Signature of Shareholder
_______________________________________
Name of Shareholder (print)
_______________________________________
Number of Shares
(SEE OVER)
<PAGE> 2
NOTE:
1. A person appointed as nominee to represent a shareholder need not be a
shareholder.
<TABLE>
<S> <C> <C>
[ ] 1. For the election of directors nominated by management as set forth in
VOTE the accompanying Management Information Circular.
WITHHOLD [ ] A SHAREHOLDER MAY WITHHOLD AUTHORITY TO VOTE FOR A PARTICULAR NOMINEE(S)
VOTE BY LINING THROUGH OR OTHERWISE STRIKING OUT THE NAME(S) OF THE
PARTICULAR NOMINEE(S) AND CHECKING THE "VOTE" BOX.
The directors to be elected (all for a one year term): Eugene N.
Melnyk, Bruce Brydon, Robert A. Podruzny, Kenneth C. Cancellara, Rolf
Reininghaus, Wilfred G. Bristow, Roger Rowan, Robert Vujea.
VOTE [ ] 2. For the appointment of Ernst & Young LLP, Chartered Accountants, the
auditors of the Company.
WITHHOLD [ ]
VOTE
VOTE [ ] 3. For the authorization of the directors to fix the remuneration of the
auditors.
WITHHOLD [ ]
VOTE
</TABLE>
<PAGE> 1
June 10, 1999
Ontario Securities Commission
British Columbia Securities Commission
Ernst & Young LLP
Chartered Accountants
Deloitte & Touche LLP
Chartered Accountants
RE: NOTICE OF CHANGE OF AUDITOR
In compliance with National Policy No. 31 - Change of Auditor of a Reporting
Issuer, please be advised as follows:
1. The former auditor of Biovail Corporation International (the
"Corporation"), Deloitte and Touche LLP, Chartered Accountants (the
"Former Auditor"), is not being proposed for re-appointment at the next
annual meeting of Shareholders. Subject to all applicable regulatory and
Shareholder approvals, the Corporation's new auditor will be Ernst & Young
LLP, Chartered Accountants (the "Successor Auditor"), and it is being
proposed that they be appointed at the next annual and special meeting of
Shareholders scheduled for July 22, 1999.
2. There were no reservations in the auditor's reports for either of the
Corporation's two most recently completed fiscal years nor for any period
subsequent thereto for which an audit report was issued and preceding the
date hereof.
3. The decision not to recommend the Former Auditor for reappointment and the
appointment of the Successor Auditor was considered and approved by the
Audit Committee and the Board of Directors of the Corporation.
4. In the opinion of the Audit Committee and the Board of Directors of the
Corporation, there were no "Reportable Events" within the meaning of
National Policy No. 31 of the Canadian Securities Administrators.
DATED this 10th day of June, 1999
ON BEHALF OF THE BOARD OF DIRECTORS
"Kenneth C. Cancellara"
Secretary
<PAGE> 2
June 16, 1999
British Columbia Securities Commission
Ontario Securities Commission
- - - - and to -
Biovail Corporation International
Dear Sirs:
Re: BIOVAIL CORPORATION INTERNATIONAL - CHANGE OF AUDITOR
As required by National Policy No. 31, we confirm that we have reviewed the
information contained in the notice of change of auditor of Biovail Corporation
International (the "Corporation") dated as of the 10th day of June, 1999 (the
"Notice") and, based on our knowledge of the information at the time, we agree
with the information contained in the Notice.
We understand that a copy of the Notice and this letter will be mailed to the
shareholders of the Corporation.
Yours very truly,
(signed)
DELOITTE & TOUCHE LLP
Chartered Accountants
<PAGE> 3
June 16, 1999
British Columbia Securities Commission
Ontario Securities Commission
- - - - and to -
Biovail Corporation International
Dear Sirs:
RE: BIOVAIL CORPORATION INTERNATIONAL - CHANGE OF AUDITOR
As required by National Policy No. 31, we confirm that we have reviewed the
information contained in the notice of change of auditor of Biovail Corporation
International (the "Corporation") dated as of the 10th day of June, 1999 (the
"Notice") and, based on our knowledge of the information at the time, we agree
with the information contained in the Notice.
We understand that a copy of the Notice and this letter will be mailed to the
shareholders of the Corporation.
Yours very truly,
(signed)
ERNST & YOUNG LLP
Chartered Accountants
<PAGE> 4
TO: British Columbia Securities Commission
Ontario Securities Commission
- and to -
Biovail Corporation International
- and to -
Ernst & Young LLP
Chartered Accountants
- and to -
Deloitte & Touche LLP
Chartered Accountants
CONFIRMATION
The undersigned, a member of the audit committee and a director of Biovail
Corporation International ( the "Corporation"), hereby confirms on behalf of
the audit committee of the directors of the Corporation, that the notice of
change of auditor, the letter from the former auditor and the letter from the
proposed successor auditor of Corporation, a copy of each of which is attached
to this confirmation, have been reviewed by the audit committee of the
directors of the Corporation.
DATED as of the 16th of June, 1999
(signed)
Eugene N. Melnyk
