<PAGE>
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
FOR QUARTER ENDED MARCH 31, 2000 COMMISSION FILE NUMBER 001-11145
------------------------
BIOVAIL CORPORATION
(Translation of registrant's name into English)
2488 DUNWIN DRIVE, MISSISSAUGA, ONTARIO L5L 1J9, CANADA
(ADDRESS OF PRINCIPAL EXECUTIVE 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 the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
commission pursuant to Rule 12g 3-2 (b) under the Securities Exchange Act of
1934.
YES ___ NO _X_
<PAGE>
BIOVAIL CORPORATION
QUARTERLY REPORT
THIS REPORT OF FOREIGN ISSUER ON FORM 6-K IS INCORPORATED BY REFERENCES INTO
THE REGISTRATION STATEMENT ON FORM S-8 OF BIOVAIL CORPORATION (REGISTRATION
NO. 333-92229)
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets, March 31, 2000 and
December 31, 1999......................................... 2
Consolidated Statements of Income (Loss) for the three
months ended March 31, 2000 and 1999...................... 3
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999............................. 4
Condensed Notes to Consolidated Financial Statements........ 5
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 13
PART II. OTHER INFORMATION
Operational Information..................................... 18
Legal Proceedings........................................... 19
Material Issued to Shareholders............................. 19
Additional Developments..................................... 19
Consolidated Financial Statements in U.S. dollars and in
Accordance with Canadian Generally Accepted Accounting
Principles................................................ 19
</TABLE>
(ALL DOLLAR AMOUNTS IN THIS DOCUMENT ARE EXPRESSED IN U.S. DOLLARS UNLESS
OTHERWISE STATED.)
1
<PAGE>
BIOVAIL CORPORATION
CONSOLIDATED BALANCE SHEETS
IN ACCORDANCE WITH U.S. GAAP
(All dollar amounts are expressed in thousands of U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------- -------------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 475,670 $ 178,086
Short-term investments 19,547 65,893
Accounts receivable 75,577 60,571
Inventories (Note 2) 18,130 12,701
Assets held for disposal (Note 3) -- 20,000
Deposits and prepaid expenses 1,984 3,172
--------- ---------
590,908 340,423
LONG-TERM INVESTMENTS (Note 4) 3,190 12
PROPERTY, PLANT AND EQUIPMENT, net 47,193 45,300
OTHER ASSETS, net (Note 5) 89,878 86,478
--------- ---------
$ 731,169 $ 472,213
========= =========
LIABILITIES
CURRENT
Accounts payable $ 26,521 $ 22,685
Accrued liabilities 26,813 31,107
Income taxes payable 3,412 3,585
Customer prepayments 4,473 4,962
Deferred tax liability 336 336
Current portion of long-term debt (Note 6) 1,318 12,016
--------- ---------
62,873 74,691
DEFERRED TAX LIABILITY 4,614 4,698
CONVERTIBLE SUBORDINATED PREFERRED EQUIVALENT DEBENTURES
(Note 7) 300,000 --
LONG-TERM DEBT (Note 6) -- 125,488
--------- ---------
367,487 204,877
--------- ---------
SHAREHOLDERS' EQUITY
Common shares, no par value, unlimited shares authorized,
64,731,000 and 62,196,000 issued and outstanding at
March 31, 2000 and December 31, 1999, respectively
(Note 8) 475,470 373,962
Warrants 8,244 8,244
Warrant subscription receivable (1,005) (2,287)
Deficit (120,741) (113,843)
Accumulated other comprehensive income 1,714 1,260
--------- ---------
363,682 267,336
--------- ---------
$ 731,169 $ 472,213
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
BIOVAIL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
IN ACCORDANCE WITH U.S. GAAP
(All dollar amounts except per share data are expressed in thousands of U.S.
dollars)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
REVENUE
Product sales $ 33,631 $ 12,562
Research and development 10,501 6,077
Royalty and licensing 2,728 8,952
----------- -----------
46,860 27,591
----------- -----------
EXPENSES
Cost of goods sold 11,035 5,039
Research and development 11,766 5,324
Selling, general and administrative 9,839 6,468
----------- -----------
32,640 16,831
----------- -----------
OPERATING INCOME 14,220 10,760
INTEREST EXPENSE, net (266) (2,792)
----------- -----------
INCOME BEFORE INCOME TAXES 13,954 7,968
PROVISION FOR INCOME TAXES 813 533
----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 13,141 7,435
EXTRAORDINARY ITEM -- Premium paid on early extinguishment
of U.S. Dollar Senior Notes (Note 6) (20,039) --
----------- -----------
NET INCOME (LOSS) $ (6,898) $ 7,435
=========== ===========
BASIC EARNINGS (LOSS) PER SHARE (Note 9)
Income before extraordinary item $ 0.21 $ 0.15
Extraordinary item (0.32) --
----------- -----------
Net income (loss) $ (0.11) $ 0.15
=========== ===========
DILUTED EARNINGS (LOSS) PER SHARE (Note 9)
Income before extraordinary item $ 0.19 $ 0.15
Extraordinary item (0.29) --
----------- -----------
Net income (loss) $ (0.10) $ 0.15
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
(Note 9)
Basic 62,792,000 49,207,000
=========== ===========
Diluted 70,261,000 50,388,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
BIOVAIL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN ACCORDANCE WITH U.S. GAAP
(All dollar amounts are expressed in thousands of U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (6,898) $ 7,435
Depreciation and amortization 5,540 1,489
Deferred income tax recovery (84) --
Extraordinary item -- Premium paid on early extinguishment
of U.S. Dollar Senior Notes (Note 6) 20,039 --
Compensation cost for employee stock options -- 281
--------- --------
18,597 9,205
Change in non-cash operating items:
Decrease (increase) in accounts receivable (12,340) 1,466
Increase in inventories (5,550) (3,030)
Decrease in deposits and prepaid expenses 1,188 45
Decrease in accounts payable and accrued liabilities (3,241) (383)
Decrease in income taxes payable (177) (386)
Increase (decrease) in customer prepayments (489) 9,440
--------- --------
(20,609) 7,152
--------- --------
(2,012) 16,357
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment, net (3,929) (1,611)
Maturity of short-term investments, net 46,346 --
Acquisition of long-term investments (2,285) --
Proceeds from assets held for disposal (Note 3) 17,000 --
Decrease in other assets 261 --
Advance of executive stock purchase plan loans -- (52)
--------- --------
57,393 (1,663)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common shares 102,298 1,424
Repurchase of common shares -- (14,933)
Issuance of convertible subordinated preferred equivalent
debentures, net of financing costs 290,312 --
Repurchase of U.S. Dollar Senior Notes (Note 6) (141,017) --
Reduction in other long-term debt (10,651) (300)
Collection of warrant subscription receivable 1,282 640
--------- --------
242,224 (13,169)
--------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (21) (548)
--------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 297,584 977
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 178,086 78,279
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 475,670 $ 79,256
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
BIOVAIL CORPORATION
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF U.S.
DOLLARS)
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
CHANGE IN ACCOUNTING REPORTING CONVENTION
Biovail Corporation ("Biovail" or the "Company") has historically reported
its consolidated results in accordance with Canadian Generally Accepted
Accounting Principles ("GAAP"). Beginning with the period ended March 31,
2000, the Company began to report its financial results in accordance with
United States GAAP. Historical consolidated results have been restated to
reflect this change.
The decision to provide U.S. GAAP financial results was driven by the
Company's desire to make it easier for the majority of its shareholders to
assess the Company's financial performance by using accounting rules that
are more familiar to these shareholders. This presentation is also more
consistent with the presentation of financial results of most of the
Company's industry customers and competitors.
Consolidated financial statements in U.S. dollars and prepared in accordance
with Canadian GAAP are included in Part II of this Report.
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by the Company in U.S. dollars and in accordance with U.S. GAAP,
applied on a consistent basis. These unaudited condensed notes to the
consolidated financial statements should be read in conjunction with the
audited financial statements and notes on Form 20-F for the year ended
December 31, 1999.
In preparing the Company's consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could
differ from these estimates and the operating results for the interim
periods presented are not necessarily indicative of the results expected for
the full year.
NEW ACCOUNTING STANDARDS
In July 1999, the Financial Accounting Standards Board ("FASB") announced
the delay of the effective date of Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"), for one
year to the first quarter of 2001. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires companies to recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair
value. Gains or losses resulting form changes in the values of those
derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting under SFAS No. 133. The
Company is determining the impact of the adoption of SFAS No. 133.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). In March 2000, the SEC delayed the implementation
date of SAB 101 to the second quarter of 2000. SAB 101 summarizes the SEC's
views in applying GAAP to revenue recognition in financial statements. The
Company is
5
<PAGE>
BIOVAIL CORPORATION
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF U.S.
DOLLARS)
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
continuing to evaluate SAB 101's potential future impact on Biovail's
financial position and results of operations with respect to upfront fees
and milestone payments earned by the Company under certain research and
development agreements and under certain licensing and supply agreements. It
is possible that under SAB 101, certain of these fees would be required to
be deferred and recognized as revenue over future periods rather than
immediately on a one-time basis.
2. INVENTORIES
<TABLE>
<CAPTION>
MARCH 31, December 31,
2000 1999
---------- -------------
<S> <C> <C>
Raw materials $ 8,519 $ 5,149
Work in process 6,916 4,258
Finished goods 2,695 3,294
------- -------
$18,130 $12,701
======= =======
</TABLE>
3. ASSETS HELD FOR DISPOSAL
The Company determined, as part of its evaluation of the purchase of Fuisz
Technologies Ltd. ("Fuisz") on November 12, 1999, that certain operations of
Fuisz were not strategic to the Company's business plans and accordingly
should be sold.
Effective January 4, 2000, the Company entered into an agreement to sell all
of the issued share capital of Clonmel Healthcare Limited ("Clonmel"), a
pharmaceutical and antibiotic manufacturer and distributor located in
Ireland, for proceeds of $20,000,000. No gain or loss was recognized by the
Company on this transaction as Clonmel was included at fair value in the
purchase price allocation at November 12, 1999. Since the date of sale, the
Company has received cash proceeds of $17,000,000 and expects to receive the
balance owing, which has been included in accounts receivable, following the
finalization and issuance of the 1999 audited financial statements of
Clonmel.
In addition, under the terms of the sale of Clonmel, the Company repaid an
IRL8,452,000 term bank loan connected with the 1997 acquisition of Clonmel
by Fuisz. As a result, the cash balance of $11,258,000 that was pledged as
collateral against the term bank loan at December 31, 1999 and included in
short-term investments has become unrestricted.
4. LONG-TERM INVESTMENTS
In February 2000, in connection with the acquisition from Hemispherx
Biopharma, Inc. ("Hemispherx") of the exclusive Canadian marketing rights to
Ampligen, the Company made a $2,250,000 investment in common shares of
Hemispherx, the supplier of the product. The investment represents
approximately 1% of the outstanding common shares of Hemispherx and has been
classified as being available-for-sale. The fair value of the investment at
March 31, 2000 was $3,143,000.
6
<PAGE>
BIOVAIL CORPORATION
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF U.S.
DOLLARS)
(UNAUDITED)
5. OTHER ASSETS
The following table summarizes other assets net of accumulated amortization.
<TABLE>
<CAPTION>
MARCH 31, December 31,
2000 1999
---------- -------------
<S> <C> <C>
Goodwill $31,134 $31,771
Core technology and workforce 12,813 13,096
Product rights and royalty interests 29,166 31,945
Deferred financing costs 11,500 4,219
Other intangibles 5,265 5,447
------- -------
$89,878 $86,478
======= =======
</TABLE>
Amortization amounted to $3,774,000 and $511,000 for the three months ended
March 31, 2000 and March 31, 1999, respectively.
Deferred financing costs at March 31, 2000 relate to the Convertible
Subordinated Preferred Equivalent Debentures issued on March 22, 2000. These
costs are being amortized over the 25 year term of the debentures.
Deferred financing costs at December 31, 1999 related to the U.S. Dollar
Senior Notes (the "Senior Notes") that the Company repurchased on March 22,
2000. The remaining costs at March 22, 2000, amounting to $4,022,000, were
included in the determination of the premium paid to retire the Senior Notes
and recorded in the extraordinary item in the period.
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 31, December 31,
2000 1999
---------- -------------
<S> <C> <C>
Non-interest bearing government loan $ 863 $ 1,250
U.S. Dollar Senior Notes -- 125,000
Term bank loan -- 10,799
Other debt 455 455
------ --------
1,318 137,504
Less current portion 1,318 12,016
------ --------
$-- $125,488
====== ========
</TABLE>
On March 22, 2000, the Company repurchased all of its outstanding 10 7/8%
Senior Notes at a redemption price of 112.820% of the principal amount. The
premium paid by the Company of $16,017,000 together with the unamortized
financing costs of $4,022,000 have been recorded as an extraordinary item in
the period.
Under the terms of the sale of Clonmel, the Company repaid the IRL8,452,000
term bank loan.
7
<PAGE>
BIOVAIL CORPORATION
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF U.S.
DOLLARS)
(UNAUDITED)
6. LONG-TERM DEBT (CONTINUED)
During the period, the Company obtained a $75,000,000 credit facility with a
Canadian chartered bank. Advances under the credit facility can be drawn in
either U.S. or Canadian funds and are secured by accounts receivable and
inventories. Interest rates available to the Company in respect of advances
are U.S. base rate plus 0.25%, LIBOR plus 1.25% and the bank's prime lending
rate plus 0.25%. A standby fee of 0.0625% applies to the unused portion of
the credit facility. At March 31, 2000, the Company had not utilized any
portion of the credit facility.
7. CONVERTIBLE SUBORDINATED PREFERRED EQUIVALENT DEBENTURES
On March 22, 2000, the Company issued $300 million of 6.75% Convertible
Subordinated Preferred Equivalent Debentures, due March 31, 2025 (the
"Convertible Preferred Securities"). The Convertible Preferred Securities
are unsecured and subordinated to all Senior Indebtedness, as defined, of
the Company. The Convertible Preferred Securities are convertible at any
time into common shares at $60.675 per common share and may be redeemed at
the option of the Company beginning on March 31, 2003 at a redemption price
of 104.725% declining each year as prescribed in the indenture agreement to
100% by March 31, 2010. The Company has a special right to redeem the
Convertible Preferred Securities prior to March 31, 2003 at 106.75% if the
trading price of the Company's stock equals or exceeds $91.01 per share on
the NYSE for a specified period, subject to certain conditions. Interest is
payable quarterly in arrears commencing June 30, 2000. Subject to certain
conditions, the Company has the right to defer payment of interest on the
Convertible Preferred Securities for up to 20 consecutive quarterly periods.
Interest and principal are payable in cash or, at the option of the Company,
from the proceeds on the sale of equity securities of the Company delivered
to the trustee of the Convertible Preferred Securities.
8. SHARE CAPITAL
On March 22, 2000, concurrent with the Convertible Preferred Securities
offering, the Company issued 2,000,000 common shares for gross proceeds of
$101,125,000 less offering costs of $5,800,000.
During the period, 535,000 options were exercised for proceeds of
$6,183,000.
8
<PAGE>
BIOVAIL CORPORATION
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF U.S.
DOLLARS)
(UNAUDITED)
9. EARNINGS (LOSS) PER SHARE
The reconciliation of the numerator and denominator for the calculation of
basic and diluted earnings (loss) per share is as follows (number of shares
in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE
Net income (loss) $(6,898) $ 7,435
======= =======
Weighted average number of common shares outstanding 62,792 49,207
======= =======
Basic earnings (loss) per share $ (0.11) $ 0.15
======= =======
DILUTED EARNINGS (LOSS) PER SHARE
Net income (loss) $(6,898) $ 7,435
======= =======
Weighted average number of common shares outstanding 62,792 49,207
Dilutive effect of warrants 4,700 --
Dilutive effect of stock options 2,769 1,181
------- -------
Adjusted weighted average number of common shares
outstanding 70,261 50,388
======= =======
Diluted earnings (loss) per share $ (0.10) $ 0.15
======= =======
</TABLE>
10. COMPREHENSIVE INCOME (LOSS)
Pursuant to the requirements of SFAS No. 130 "Reporting Comprehensive
Income", which established standards for the reporting of comprehensive
income and its components, the following disclosure is provided:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Net income (loss) $(6,898) $7,435
------- ------
Other comprehensive income (loss)
Foreign currency translation adjustment (439) 386
Unrealized holding gain (loss) on long-term investments 893 (818)
------- ------
Other comprehensive income (loss) 454 (432)
------- ------
Comprehensive income (loss) $(6,444) $7,003
======= ======
</TABLE>
11. LEGAL PROCEEDINGS
In March 1998, Biovail commenced an action in the district court of New
Jersey against Hoechst Aktiengesellschaft and related parties to recover
monetary damages and gain injunctive relief for what
9
<PAGE>
BIOVAIL CORPORATION
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF U.S.
DOLLARS)
(UNAUDITED)
11. LEGAL PROCEEDINGS (CONTINUED)
Biovail believes to be violations of U.S. anti-trust law. In addition,
Biovail's complaint alleges that the various defendant parties engaged in
breach of contract, deceptive trade practices, restraint of trade, unfair
competition and other violations of the law. The action is proceeding to
documentary and witness discovery. Biovail anticipates a trial by early
2001.
From time to time, Biovail 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
filing of ANDA applications. The timing of these actions is mandated by
statute and may result in a delay of FDA approval for such filed ANDAs until
the final resolution of such actions or the expiry of 30 months, whichever
occurs earlier.
In this regard, Biovail and its wholly owned subsidiary, Biovail
Laboratories, Inc. ("Biovail Laboratories"), have been sued in separate
lawsuits by Bayer AG and Bayer Corporation, as well as by Pfizer Inc.
("Pfizer"), upon the filing by Biovail Laboratories of separate ANDAs for
generic versions of Procardia XL and Adalat CC. These actions make the
usual, technical claims of infringement. Biovail is vigorously defending
these suits and is aggressively pursuing motions for summary judgment in due
course. Biovail has denied the allegations and has pleaded affirmative
defenses that the patents are invalid, have not been infringed and are
unenforceable.
On April 23, 1998, Biovail filed a four-count complaint against Bayer AG,
Bayer Corporation and Pfizer seeking a declaratory judgment that their
patent is invalid, unenforceable, and not infringed by our filing of the
ANDAs. Biovail has also asserted that Bayer corporation and Pfizer have
violated anti-trust laws and have interfered with Biovail's prospective
economic advantage. Biovail's action has been stayed until the conclusion of
the patent infringement suits.
On August 25, 1998, Andrx Pharmaceutical, Inc. ("Andrx") submitted to
Biovail a Notice of Certification under the FDC Act certifying that the ANDA
filed by Andrx for a generic version of Tiazac-Registered Trademark- did not
infringe on Biovail's patent. In October 1998, Biovail commenced a patent
infringement suit against Andrx. A non-jury trial in this action was
completed in February 2000. On March 8, 2000, the district court ruled in
favor of Andrx stating that there was no infringement of Biovail's patent.
Biovail has appealed this ruling. Andrx' ANDA for its generic version of
Tiazac has not yet been tentatively approved by the FDA. Under current FDA
regulations, the FDA will not approve Andrx' ANDA for a period of 30 months
from the date Biovail first received the Notice of Patent Certification or
the date when Andrx successfully defends Biovail's appeal, whichever occurs
first.
In November 1999, Biovail acquired Fuisz Technologies Ltd. ("Fuisz"). Fuisz
is now a wholly-owned subsidiary of Biovail and has been renamed Biovail
Technologies Ltd. ("Biovail Technologies").
In February 2000 Biovail Technologies filed a complaint in Circuit Court of
Fairfax County, Va. against Richard C. Fuisz, former chairman of Fuisz
Technologies Ltd., and several other former Fuisz executives, directors and
employees and related parties (the "Complaint"). The Complaint charges
breaches of fiduciary duties, breaches of contract, fraud, conversion,
business conspiracy and unjust enrichment arising out of a pattern of
misconduct in which the defendants pursued their personal
10
<PAGE>
BIOVAIL CORPORATION
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF U.S.
DOLLARS)
(UNAUDITED)
11. LEGAL PROCEEDINGS (CONTINUED)
advancement at the expense of Fuisz. Biovail Technologies seeks $25 million
in damages, treble damages of $75 million, interest, punitive damages and
attorneys fees. Biovail believes that the allegations against the defendants
are meritorious and is in the process of vigorously litigating the suit.
In connection with the Fuisz acquisition Biovail entered into a Consulting
Agreement (the "Consulting Agreement") and an Option Agreement (the "Option
Agreement") (together, the "Agreements") with Richard Fuisz. Pursuant to the
Agreements Biovail acquired Richard Fuisz' shares in Fuisz
Technologies Ltd. In March 2000, Richard Fuisz commenced an action in the
district court of Delaware against Biovail (the "Delaware Action"). The
Delaware Action alleges that Biovail fraudulently induced the Agreements and
that Biovail is in breach of the Agreements. The Delaware Action seeks
rescission of the Agreements plus damages or, in the alternative,
entitlement to a sum of $8 million plus interest pursuant to the Consulting
Agreement. Though it is currently premature to predict the outcome of this
action, Biovail believes that the Delaware Action is without merit and
intends to vigorously defend the lawsuit.
While Biovail is not currently able to determine the potential liability, if
any, related to such matters, Biovail believes that none of the matters,
individually or in aggregate, will have a material adverse effect on
Biovail's financial position, results of operations or cash flows.
12. 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
Intelligent Polymers Limited, 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.
11
<PAGE>
BIOVAIL CORPORATION
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF U.S.
DOLLARS)
(UNAUDITED)
12. SEGMENTED INFORMATION AND MAJOR CUSTOMERS (CONTINUED)
The following table sets forth information regarding segment operating
income:
<TABLE>
<CAPTION>
PRODUCT RESEARCH AND ROYALTY AND
THREE MONTHS ENDED MARCH 31, 2000 SALES DEVELOPMENT LICENSING TOTAL
--------------------------------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Revenue from external customers $33,631 $10,501 $2,728 $46,860
------- ------- ------ -------
Segment operating income (loss) 16,463 (2,794) 2,688 16,357
Unallocated amounts
Selling, general and administrative expenses (2,137)
Interest expense, net (266)
-------
Income before income taxes $13,954
=======
</TABLE>
<TABLE>
<CAPTION>
PRODUCT RESEARCH AND ROYALTY AND
THREE MONTHS ENDED MARCH 31, 1999 SALES DEVELOPMENT LICENSING TOTAL
--------------------------------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Revenue from external customers $12,562 $6,077 $8,952 $27,591
------- ------ ------ -------
Segment operating income 3,205 302 8,753 12,260
Unallocated amounts
Selling, general and administrative expenses (1,500)
Interest expense, net (2,792)
-------
Income before income taxes $ 7,968
=======
</TABLE>
12
<PAGE>
BIOVAIL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(ALL DOLLAR AMOUNTS ARE EXPRESSED IN U.S. DOLLARS)
OVERVIEW
We derive our revenues from: (i) developing and licensing oral
controlled-release products utilizing our proprietary drug delivery
technologies; (ii) manufacturing such products for sale to licensees and
wholesalers and from direct marketing of proprietary and in-licensed products in
Canada; and (iii) providing pharmaceutical contract research services to third
parties.
CHANGE IN ACCOUNTING REPORTING CONVENTION
We have historically reported our consolidated results in accordance with
Canadian Generally Accepted Accounting Principles ("GAAP"). Beginning with the
period ended March 31, 2000, we began to report our financial results in
accordance with United States GAAP. Historical consolidated results have been
restated to reflect this change.
The decision to provide U.S. GAAP financial results was driven by our desire
to make it easier for the majority of our shareholders to assess our financial
performance by using accounting rules that are more familiar to these
shareholders. This presentation is also more consistent with the presentation of
financial results of most of our industry customers and competitors.
RESULTS OF OPERATIONS
Revenue for the first three months of 2000 was $46.9 million, compared to
$27.6 million in the same period of 1999. The increase was primarily due to
higher product sales and third party research and development revenue, partially
offset by lower royalty and licensing revenues. During the quarter, we
repurchased all of our outstanding 10 7/8% U.S. Dollar Senior Notes (the "Senior
Notes") resulting in an extraordinary charge of $20.0 million. Income before
extraordinary item for the three months ended March 31, 2000, was
$13.1 million, or $0.19 per share on a diluted basis, an increase of 77% over
income before extraordinary item of $7.4 million, or $0.15 per share on a
diluted basis, in the same period of 1999. After deducting the extraordinary
item, the net loss for the three months ended March 31, 2000 was $6.9 million,
or $(0.10) per share on a diluted basis, compared to net income of
$7.4 million, or $0.15 per share on a diluted basis, in the same period of 1999.
Product sales were $33.6 million for the first three months of 2000,
compared to $12.6 million in the same period of 1999. The growth in product
sales was attributable to increased sales of Tiazac-Registered Trademark- to
Forest Laboratories ("Forest") for the U.S. market and recent launches of
generic versions of Adalat CC 30mg, Voltaren XR and Cardizem CD in the U.S.
marketplace.
Research and development revenue was $10.5 million for the three months
ended March 31, 2000 compared to $6.1 million in the same period of 1999. The
increase was primarily due to a higher level of activity relating to the
development of branded products on behalf of Intelligent Polymers Limited
("IPL").
Net royalty and licensing revenue was $2.7 million in the first three months
of 2000, compared to the $9.0 million in the same period of 1999. First quarter
1999 royalty and licensing revenue was favourably impacted by a fee received
from Mylan Pharmaceuticals related to a co-marketing agreement with respect to a
generic version of Verelan.
13
<PAGE>
COST OF GOODS SOLD AND GROSS MARGINS
The cost of goods sold as a percentage of product sales was 33% in the first
three months of 2000 as compared to 40% in the same period of 1999.
Gross margins in 2000 on product sales for the first three months were 67%,
as compared to 60% for the first three months of 1999. The Company's gross
margins are impacted by product sales price, product mix, manufacturing volumes
and manufacturing costs. The increase in gross margins was due to the impact of
higher margin contributions from new products.
RESEARCH AND DEVELOPMENT
Research and development expenses were $11.8 million for the first three
months of 2000 compared to $5.3 million in the same period of 1999. The
increased spending reflected the increased level of activity related to the
development of NDA products for IPL and work related to the development of rapid
dissolve products utilizing our Flash Dose-Registered Trademark- technology.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $9.8 million in the first
three months of 2000, compared to $6.5 million in the same period of 1999. The
increase was due to ongoing sales and marketing expenses at our Crystaal
division to support the four products launched in the Canadian marketplace
during 1999. Also contributing to the increase are the additions to our
management base and the inclusion of the first full quarter of ongoing
administrative expenses and amortization expense associated with our Biovail
Technologies Ltd. subsidiary.
OPERATING INCOME
Operating income increased to $14.2 million for the three months ending
March 31, 2000, as compared to $10.8 million for the same period of 1999.
Segment operating income for the first three months of 2000, before unallocated
selling, general and administrative expenses, was $16.4 million, compared to
$12.3 million for the same period of 1999. Of the 2000 total, product sales
accounted for $16.5 million, compared to $3.2 million in the previous year. This
increase relates primarily to the higher sales of Tiazac-Registered Trademark-
and the impact of recent launches of Adalat CC 30mg, Voltaren XR and Cardizem
CD. The research and development segment had an operating loss of $2.8 million
in 2000, compared to operating income of $302,000 in 1999. The loss in 2000 is
attributable to work being performed at Biovail Technologies to develop rapid
dissolve products that will utilize our Flash Dose-Registered Trademark-
technology. Royalty and licensing activities generated operating income of
$2.7 million in 2000 compared to $8.8 million in 1999, which included the
co-marketing agreement with Mylan with respect to Verelan.
INTEREST
Net interest expense was $266,000 in the first three months of 2000 compared
to $2.8 million in the same period of 1999. The decline in net interest expense
was due to an increase in interest income as the surplus proceeds from the
October 1999 equity offering have been invested in high grade commercial paper.
INCOME TAXES
Income taxes in the first three months of 2000 were $813,000 compared to
$533,000 in the same period of 1999. The Company's tax provision is related to
our foreign subsidiaries, in which lower statutory tax rates apply than those in
Canada. The benefit of tax losses historically incurred by the Canadian
operations and by the U.S. operations of Biovail Technologies Ltd. have not been
recognized for accounting purposes to-date.
14
<PAGE>
INCOME BEFORE EXTRAORDINARY ITEM
Income before extraordinary item for the three months ended March 31, 2000
was $13.1 million, or $0.19 per share on a diluted basis, and $7.4 million, or
$0.15 per share on a diluted basis, for the three months ended March 31, 1999.
EXTRAORDINARY ITEM
During the period, we successfully tendered for and retired our Senior
Notes. We recorded a $20.0 million extraordinary charge related to the premium
paid on early extinguishment and the write-off of the deferred financing costs
associated with the notes.
NET INCOME (LOSS)
After deducting the extraordinary item, the net loss for the three months
ended March 31, 2000 was $6.9 million, or $(0.10) per share on a diluted basis,
compared to net income of $7.4 million, or $0.15 per share on a diluted basis,
for the three months ended March 31, 1999.
EBITDA
For the reasons set forth above, EBITDA, which is defined as earnings before
interest, taxes, depreciation and amortization, increased by $7.6 million or 61%
to $19.8 million for the first three months of 2000 from $12.2 million in the
comparable period of 1999. The ratio of total debt at March 31 to EBITDA for the
three months ended March 31 was 15.2:1 in 2000 compared to 10.3:1 in 1999.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, our cash position was $475.7 million, our cash plus
short-term investments was $495.2 million and our working capital was
$528.0 million, representing a working capital ratio of 9.4:1. At December 31,
1999 our cash position was $178.1 million, our cash plus short-term investments
was $244.0 million and our working capital was $265.7 million, representing a
working capital ratio of 4.6:1.
Cash used in operating activities (after changes in non-cash operating
items) was $2.0 million for the three months ended March 31, 2000 compared to
cash provided by operating activities of $16.4 million in the same period of
1999. The decline from the prior year was primarily due to increases in accounts
receivable and inventories, only partially offset by higher net income adjusted
for non-cash items.
Cash flows from investing activities, for the first three months of 2000,
totaled $57.4 million and related mainly to the activity in short-term
investments ($46.3 million) and proceeds received to-date from the sale of
Clonmel Healthcare Limited ("CLONMEL") ($17.0 million). Additions to property,
plant and equipment totaled $3.9 million in the first three months of 2000
compared to $1.6 million in same period of 1999. Acquisitions of long-term
investments totaled $2.3 million in the three months ended March 31, 2000 and no
investments were made in the same period of 1999.
Cash flows from financing activities, for the three months ended March 31,
2000, include a concurrent offering of 6.75% Convertible Subordinated Preferred
Equivalent Debentures (the "Convertible Preferred Securities"), due March 31,
2025 and two million common shares. The Convertible Preferred Securities were
issued for gross proceeds of $300 million ($290.3 million net of financing
costs) and the common shares were issued for gross proceeds of $101.1 million
($96.1 million net of issuance costs). On the same date, $141.0 million of the
proceeds were used to repurchase the $125 million principal of our outstanding
Senior Notes, and pay a premium of $16.0 million. We reduced other long-term
debt, principally through the repayment of the term bank loan in connection with
the sale of Clonmel, by $10.7 million. Common shares issued on the exercise of
stock options generated $6.2 million during the first three months of 2000. In
the same period of 1999, cash used in financing activities reflected the
repurchase of common shares in
15
<PAGE>
the amount of $14.9 million, offset in part by the issuance of common shares on
the exercise of stock options for $1.4 million.
Exchange rate changes in foreign cash balances resulted in a decrease in
cash of $21,000 in the first three months of 2000 as compared to a reduction in
cash of $548,000 in the same period of 1999.
As a result of the foregoing, we had positive cash flow of $297.6 million
for the first three months of 2000 compared to $977,000 in the same period of
1999.
After completing our Convertible Preferred Securities offering, the
repurchase of our Senior Notes and the repayment of a portion of our other
long-term debt, we had total long-term debt (including current portions thereof)
of $301.3 million at March 31, 2000, compared to $137.5 million at December 31,
1999. The debt-to-equity ratio at March 31, 2000 was 0.8:1 compared to 0.5:1 at
December 31, 1999. Long-term debt at March 31, 2000 is comprised of
$300 million of Convertible Preferred Securities and $1.3 million of other debt.
In addition, we have established a new $75 million banking facility. At
March 31, 2000, we have not utilized any portion of this facility.
We believe we have adequate capital and sources of financing to support our
ongoing operational and interest requirements and investment objectives. We
believe that we would be able to raise capital, if necessary, to support our
objectives.
It is possible that our results of operations for the current fiscal year
will be impacted by potential costs relating to the rationalization of certain
of our research and development facilities. We are currently evaluating our
business plans and, accordingly, we are not able to determine the costs of this
process at the present time.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not believe that we have material exposure to financial market risks,
including changes in foreign currency exchange rates and interest rates on debt
instruments and short-term investments.
We and our subsidiaries generate revenue and incur expenses primarily in
U.S. dollars. For the three months ended March 31, 2000, revenue was generated
in the following proportions: 91% in U.S. dollars and 9% in Canadian dollars.
Expenses were incurred in the following proportions: 54% in U.S. dollars and 46%
in Canadian dollars. We do not believe that we have significant exposure to
exchange risk because of the relative stability of the Canadian dollar in
relation to the U.S. dollar.
On March 22, 2000, we issued $300 million 6.75% Convertible Preferred
Securities, due March 31, 2025. The interest rate on these securities is fixed
and therefore is not subject to interest rate risk. The proceeds were used, in
part, to repurchase our $125 million Senior Notes, due November 15, 2005 for
consideration of $141.0 million. Such consideration included a consent payment
of $2.5 million and a premium of approximately $13.5 million calculated by
reference to the bid price and yield on March 6, 2000 for the 5 3/4% U.S.
Treasury Note due November 20, 2002.
From time to time we have surplus funds available for investment. Our policy
is to invest such funds in high grade commercial paper and U.S. government
treasury bills with varying maturities, typically of less than 90 days. In light
of the high quality and short-term duration of these investments, the Company
believes that there is no significant risk to the principal value of these
investments.
Inflation has not had a material impact on our operations.
RECENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board has issued Statement No. 133
"Accounting for Derivative Instruments and Hedging Activities", as amended by
Statement No. 137, which is required to be adopted in the first quarter of 2001.
The Company is determining the impact of the adoption of the new statement.
16
<PAGE>
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). In March 2000, the SEC delayed the implementation date of SAB 101
to the second quarter of 2000. SAB 101 summarizes the SEC's views in applying
GAAP to revenue recognition in financial statements. The Company is continuing
to evaluate SAB 101's potential future impact on Biovail's financial position
and results of operations with respect to upfront fees and milestone payments
earned by the Company under certain research and development agreements and
under certain licensing and supply agreements. It is possible that under SAB
101, certain of these fees would be required to be deferred and recognized as
revenue over future periods rather than immediately on a one-time basis.
FORWARD-LOOKING STATEMENTS
To the extent any statements made in this 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.
17
<PAGE>
BIOVAIL CORPORATION
PART II -- OTHER INFORMTION
1. OPERATIONAL INFORMATION
The press releases issued by the Company subsequent to the filing of SEC
Form 6-K on November 30, 1999 are attached as the following exhibits:
a) On December 1, 1999, the Company announced the purchase of a generic
version of Procardia XL from Intelligent Polymers.
b) On December 22, 1999, the Company announced a proposed stock split and
the expiration of Biovail Technologies Ltd.'s offer to purchase its
outstanding 7% convertible subordinated debentures.
c) On December 23, 1999, the Company announced receipt of final approval
for generic Cardizem CD.
d) On January 6, 2000, the Company announced that its shareholders approved
all proposed resolutions.
e) On January 19, 2000, the Company announced the divestiture of its Irish
manufacturing operations.
f) On February 4, 2000, the Company announced the initiation of Buspirone
clinical trials.
g) On February 7, 2000, the Company announced that it would acquire
significant manufacturing facilities in Puerto Rico and expand other
sites in Virginia and Manitoba.
h) On February 11, 2000, the Company announced it had acquired Ampligen
marketing rights for Canada.
i) On February 17, 2000, the Company announced it had received final
approval for Voltaren XR generic.
j) On February 24, 2000, the Company announced record 1999 fourth quarter
and year-end financial results.
k) On March 1, 2000, the Company announced public offerings.
l) On March 6, 2000, the Company announced it had received FDA approval for
novel once daily diltiazem formulation -- New Drug Application optioned
to Forest Laboratories.
m) On March 7, 2000, the Company announced it had received majority of
consents in connection with debt tender offer.
n) On March 8, 2000, the Company announced its appeal to District Court
decisions.
o) On March 13, 2000, the Company announced FDA final approval of generic
Adalat CC 30mg.
p) On March 17, 2000, the Company announced it had completed concurrent
offerings.
q) On March 23, 2000, the Company announced the completion of its
concurrent common share and Convertible Subordinated Preferred Equivalent
Debenture offerings and its cash tender offer for Senior Notes.
r) On April 7, 2000, the Company announced the launch of first commercial
product using patented Flash Dose-Registered Trademark- technology.
s) On April 27, 2000, the Company announced record 2000 first quarter
financial results.
18
<PAGE>
2. LEGAL PROCEEDINGS
For detailed information concerning legal proceedings, reference is made to
Note 11 in the financial statement contained as part hereof and to the
Annual Report on Form-20F for the year ended December 31, 1999.
3. MATERIAL ISSUED TO SHAREHOLDERS
The material issued by the Company to shareholders is attached as the
following exhibit:
t) The 2000 First Quarter Report to Shareholders
4. ADDITIONAL DEVELOPMENTS
NUROFEN MELTLETS
In April 2000, the first commercial introduction of a Flash
Dose-Registered Trademark- product took place. Nurofen Meltlets, a new form
of ibuprofen, were launched in the United Kingdom by Crookes
Healthcare Ltd., a division of Boots Healthcare International. Nurofen
Meltlets are manufactured for Boots by the Company's subsidiary, Biovail
Technologies, using its patented Flash Dose-Registered Trademark-
technology.
ADALAT CC
In March 2000, the Company received final approval from the U.S. Food and
Drug Administration for its in-licensed 30mg dosage strength of Adalat CC.
The Company in-licensed the 30mg dosage strength from Elan Corporation plc
in October 1999. This arrangement allowed the Company to market the 30mg
dosage strength, through its marketing partner Teva Pharmaceuticals
Industries Ltd., six months earlier than originally scheduled.
VOLTAREN XR
In February 2000, the Company received final approval from the U.S. Food and
Drug Administration for its generic version of Voltaren XR. The Company
immediately began to market its generic Voltaren XR through its marketing
partner, Teva Pharmaceuticals Industries Ltd.
5. CONSOLIDATED FINANCIAL STATEMENTS IN U.S. DOLLARS AND IN ACCORDANCE WITH
CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Consolidated financial statements in U.S. dollars and in accordance with
Canadian Generally Accepted Accounting Principles are attached to this
report as exhibit "u".
19
<PAGE>
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
<TABLE>
<S> <C>
May 30, 2000 By /s/ JOHN R. MISZUK
----------------------
John R. Miszuk
Vice President,
Controller
</TABLE>
20
