<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 SEPTEMBER 30, 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
PART I - FINANCIAL INFORMATION
Consolidated balance sheets as at September 30, 2000 and
December 31, 1999 .................................................... 2
Consolidated statements of loss for the nine months and
three months ended September 30, 2000 and 1999 ...................... 3
Consolidated statements of cash flows for the nine months
ended September 30, 2000 and 1999 .................................... 4
Condensed notes to the consolidated financial statements .................. 5
Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................ 16
PART II - OTHER INFORMATION
Operational Information ................................................... 24
Legal Proceedings ......................................................... 24
Material Issued to Shareholders ........................................... 24
Additional Development .................................................... 24
(All dollar amounts in this Report are expressed in U.S. dollars
unless otherwise stated.)
1
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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>
SEPTEMBER 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
A S S E T S
CURRENT
Cash and cash equivalents $ 348,702 $ 178,086
Short-term investments 49,169 65,893
Accounts receivable 86,224 60,571
Inventories (Note 2) 23,533 12,701
Assets held for disposal (Note 3) - 20,000
Deposits and prepaid expenses 4,955 3,172
--------- ---------
512,583 340,423
LONG-TERM INVESTMENTS (Note 4) 2,071 12
PROPERTY, PLANT AND EQUIPMENT, net 48,834 45,300
OTHER ASSETS, net (Note 5) 92,418 86,478
--------- ---------
$ 655,906 $ 472,213
========= =========
L I A B I L I T I E S
CURRENT
Accounts payable $ 20,278 $ 22,685
Accrued liabilities 27,090 31,107
Income taxes payable 8,364 3,585
Customer prepayments 10,467 4,962
Deferred tax liability 336 336
Current portion of long-term debt (Note 6) 512 12,016
--------- ---------
67,047 74,691
DEFERRED TAX LIABILITY 4,447 4,698
CONVERTIBLE SUBORDINATED PREFERRED EQUIVALENT DEBENTURES (Note 7) 300,000 -
LONG-TERM DEBT (Note 6) - 125,488
--------- ---------
371,494 204,877
--------- ---------
S H A R E H O L D E R S ' E Q U I T Y
Common shares, no par value, unlimited shares authorized,
129,831,000 and 124,392,000 issued and outstanding at
September 30, 2000 and December 31, 1999, respectively (Note 8) 478,055 373,962
Warrants 8,244 8,244
Warrant subscription receivable - (2,287)
Deficit (201,047) (113,843)
Accumulated other comprehensive income (loss) (840) 1,260
--------- ---------
284,412 267,336
--------- ---------
$ 655,906 $ 472,213
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
2
<PAGE>
BIOVAIL CORPORATION
CONSOLIDATED STATEMENTS OF 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUE
Product sales $ 50,296 $ 28,730 $ 126,289 $ 66,271
Research and development 33,284 11,254 59,280 25,209
Royalty and licensing 5,113 4,637 10,426 16,139
------------- ------------- ------------- -------------
88,693 44,621 195,995 107,619
------------- ------------- ------------- -------------
EXPENSES
Cost of goods sold 16,798 8,946 41,371 21,833
Research and development 22,713 7,699 48,421 19,482
Selling, general and administrative 10,954 8,038 32,352 21,304
Acquired research and development (Note 14) 141,500 - 141,500 -
------------- ------------- ------------- -------------
191,965 24,683 263,644 62,619
------------- ------------- ------------- -------------
OPERATING INCOME (LOSS) (103,272) 19,938 (67,649) 45,000
EQUITY LOSS - (57,142) - (57,142)
INTEREST INCOME (EXPENSE), net 3,102 (2,722) 5,219 (8,171)
------------- ------------- ------------- -------------
LOSS BEFORE INCOME TAXES (100,170) (39,926) (62,430) (20,313)
PROVISION FOR INCOME TAXES 2,478 1,062 4,735 2,370
------------- ------------- ------------- -------------
LOSS BEFORE EXTRAORDINARY ITEM (102,648) (40,988) (67,165) (22,683)
EXTRAORDINARY ITEM - Premium paid on early
extinguishment of U.S. Dollar Senior Notes
(Note 6) - - (20,039) -
------------- ------------- ------------- -------------
NET LOSS $ (102,648) $ (40,988) $ (87,204) $ (22,683)
============= ============= ============= =============
BASIC LOSS PER SHARE (Note 9)
Loss before extraordinary item $ (0.79) $ (0.42) $ (0.52) $ (0.23)
Extraordinary item - - (0.16) -
------------- ------------- ------------- -------------
Net loss $ (0.79) $ (0.42) $ (0.68) $ (0.23)
============= ============= ============= =============
DILUTED LOSS PER SHARE (Note 9)
Loss before extraordinary item $ (0.79) $ (0.42) $ (0.52) $ (0.23)
Extraordinary item - - (0.16) -
------------- ------------- ------------- -------------
Net loss $ (0.79) $ (0.42) $ (0.68) $ (0.23)
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (Note 9)
Basic 129,739,000 97,804,000 128,285,000 97,804,000
============= ============= ============= =============
Diluted 146,377,000 101,668,000 143,402,000 101,668,000
============= ============= ============= =============
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (87,204) $ (22,683)
Depreciation and amortization 14,926 4,960
Deferred income tax recovery (252) -
Acquired research and development (Note 14) 141,500 -
Extraordinary item - Premium paid on early extinguishment
of U.S. Dollar Senior Notes (Note 6) 20,039 -
Equity loss - 57,142
Compensation cost for employee stock options - 1,350
--------- ---------
89,009 40,769
Change in non-cash operating items (Note 11) (42,802) 13,950
--------- ---------
46,207 54,719
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment, net (11,074) (5,281)
Investment in IPL Acquireco 2000 Ltd. (Note 14) (141,500) -
Maturity of short-term investments, net 16,725 -
Acquisition of long-term investments, net (2,273) -
Proceeds from assets held for disposal 20,000 -
Decrease in other assets 333 -
Investment in Fuisz Technologies Ltd. - (77,479)
Acquisition of product rights - (2,203)
Repayment of executive stock purchase plan loans - 719
--------- ---------
(117,789) (84,244)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common shares (Note 8) 104,093 2,985
Repurchase of common shares - (30,593)
Issuance of Convertible Subordinated Preferred Equivalent
Debentures, net of financing costs (Note 7) 288,500 -
Repurchase of U.S. Dollar Senior Notes (Note 6) (141,017) -
Reduction in other long-term debt (11,432) (667)
Collection of warrant subscription receivable 2,287 2,383
--------- ---------
242,431 (25,892)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (233) 76
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 170,616 (55,341)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 178,086 78,279
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 348,702 $ 22,938
========= =========
</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
Prior to the current fiscal year, Biovail Corporation ("Biovail" or the
"Company") reported its consolidated results in accordance with Canadian
generally accepted accounting principles ("GAAP"). As of January 1, 2000,
the Company began to report its financial results in accordance with U.S.
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 attached as Exhibit 99.1 to 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 consolidated 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,
5
<PAGE>
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 from 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. In July 2000, the SEC
further delayed the implementation date to the fourth 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.
2. INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Raw materials $ 7,900 $ 5,149
Work in process 11,837 4,258
Finished goods 3,796 3,294
------- -------
$23,533 $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. The Company recognized no gain or
loss on this transaction as Clonmel was included at fair value in the
purchase price allocation at November 12, 1999.
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.
6
<PAGE>
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 September 30, 2000 was $2,036,000.
5. OTHER ASSETS
The following table summarizes other assets net of accumulated
amortization:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Goodwill $38,098 $31,771
Core technology and workforce 17,165 18,195
Product rights and royalty interests 25,897 31,945
Deferred financing costs 11,258 4,219
Other intangibles - 348
------- -------
$92,418 $86,478
======= =======
</TABLE>
Amortization amounted to $8,722,000 and $2,226,000 for the nine months
ended September 30, 2000 and 1999, respectively, and $2,717,000 and
$852,000 for the three months ended September 30, 2000 and 1999,
respectively.
Included in the determination of the net assets of Fuisz acquired, on
November 12, 1999, were related accrued restructuring costs. At September
30, 2000, the Company had settled substantially all of these costs,
resulting in an adjustment to increase goodwill by approximately
$7,800,000.
Deferred financing costs at September 30, 2000 relate to the 6.75%
Convertible Subordinated Preferred Equivalent Debentures, due March 31,
2025 (the "Convertible Preferred Securities") 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 10 7/8% 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 notes and recorded in the extraordinary item in the first
quarter of 2000.
7
<PAGE>
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Non-interest bearing government loan $ 467 $ 1,250
U.S. Dollar Senior Notes - 125,000
Term bank loan - 10,799
Other debt 45 455
-------- --------
512 137,504
Less current portion 512 12,016
-------- --------
$ - $125,488
======== ========
</TABLE>
On March 22, 2000, the Company repurchased all of its outstanding 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 were recorded as an extraordinary item in the
first quarter of 2000.
Under the terms of the sale of Clonmel, the Company repaid the IRL8,452,000
term bank loan outstanding at December 31, 1999.
The Company has a $75,000,000 credit facility available 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 September 30, 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 $300,000,000 of 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 $30.337 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 $45.505 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
8
<PAGE>
Company, from the proceeds on the sale of equity securities of the Company
delivered to the Trustee of the Convertible Preferred Securities.
8. COMMON SHARES
In September 2000, the Company's common shares split on a 2 for 1 basis.
All share and per share amounts in these financial statements have been
retroactively adjusted to give effect to the 2 for 1 stock split.
On March 22, 2000, concurrent with the Convertible Preferred Securities
offering, the Company issued 4,000,000 common shares for gross proceeds of
$101,125,000 less offering costs of $5,800,000.
During the nine months ended September 30, 2000, 1,439,078 stock options
were exercised for proceeds of $8,768,000.
The number of common shares outstanding at September 30, 2000 and December
31, 1999 were 129,830,646 and 124,391,568, respectively.
9. LOSS PER SHARE
Loss per share, for all periods presented, was calculated using the
weighted average number of common shares outstanding during the period
after giving retroactive effect to the 2 for 1 stock split. The
reconciliation of the numerator and denominator for the calculation of
basic and diluted loss per share was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss $ (102,648) $ (40,988) $ (87,204) $ (22,683)
============ ============ ============ ============
Weighted average number of
common shares outstanding 129,739,000 97,804,000 128,285,000 97,804,000
============ ============ ============ ============
Basic and diluted loss per share $ (0.79) $ (0.42) $ (0.68) $ (0.23)
============ ============ ============ ============
</TABLE>
For all periods presented, all warrants and stock options were excluded
from the calculation of diluted loss per share because the effect would
have been antidilutive. The potential dilutive effect of warrants and stock
options on the weighted average number of commons shares outstanding was as
follows:
9
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- -----------------------------
2000 1999 2000 1999
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 129,739,000 97,804,000 128,285,000 97,804,000
Dilutive effect of warrants 10,438,000 3,167,000 9,620,000 3,167,000
Dilutive effect of stock options 6,200,000 697,000 5,497,000 697,000
----------- ----------- ----------- -----------
Adjusted weighted average
number of common shares
outstanding 146,377,000 101,668,000 143,402,000 101,668,000
=========== =========== =========== ===========
</TABLE>
10. COMPREHENSIVE 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ----------------------------
2000 1999 2000 1999
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss $ (102,648) $ (40,988) $ (87,204) $ (22,683)
---------- ----------- ---------- ----------
Other comprehensive income
(loss)
Foreign currency translation
adjustment (357) (443) (1,886) 1,535
Unrealized holding gain
(loss) on long-term
investments 429 2,626 (214) 1,990
---------- ----------- ---------- ----------
Other comprehensive income
(loss) 72 2,183 (2,100) 3,525
---------- ----------- ---------- ----------
Comprehensive loss $ (102,576) $ (38,805) $ (89,304) $ (19,158)
========== =========== ========== ==========
</TABLE>
11. CHANGE IN NON-CASH OPERATING ITEMS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Accounts receivable $ (26,361) $ (5,174)
Inventories (10,975) (3,432)
Deposits and prepaid expenses (1,783) (396)
Accounts payable and accrued liabilities (12,714) 8,999
Income taxes payable 3,526 1,026
Customer prepayments 5,505 12,927
---------- -----------
$ (42,802) $ 13,950
========== ===========
</TABLE>
10
<PAGE>
12. 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 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 with documentary and
witness discovery. Biovail anticipates a trial by mid 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.
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 in Florida 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 received
tentative approval from 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. The appeal hearing has been scheduled for December 4, 2000.
11
<PAGE>
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 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 is vigorously defending 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.
13. SEGMENTED INFORMATION
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.
12
<PAGE>
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 ("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 following table sets forth information regarding segment operating
income (loss):
<TABLE>
<CAPTION>
THREE MONTHS ENDED PRODUCT RESEARCH AND ROYALTY AND
SEPTEMBER 30, 2000 SALES DEVELOPMENT LICENSING TOTAL
------------------ -------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenue from external
customers $ 50,296 $ 33,284 $ 5,113 $ 88,693
-------- ---------- ------- ---------
Segment operating income
(loss) 30,179 (132,107) 4,886 (97,042)
Unallocated amounts
Selling, general and
administrative expenses (6,230)
Interest income, net 3,102
---------
Loss before income taxes $(100,170)
=========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED PRODUCT RESEARCH AND ROYALTY AND
SEPTEMBER 30, 1999 SALES DEVELOPMENT LICENSING TOTAL
------------------ -------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenue from external
customers $ 28,730 $ 11,254 $ 4,637 $ 44,621
-------- ---------- ------- ---------
Segment operating income 14,511 3,029 4,651 22,191
Unallocated amounts
Selling, general and
administrative expenses (2,253)
Equity loss (57,142)
Interest expense, net (2,722)
---------
Loss before income taxes $ (39,926)
=========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED PRODUCT RESEARCH AND ROYALTY AND
SEPTEMBER 30, 2000 SALES DEVELOPMENT LICENSING TOTAL
------------------ -------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenue from external
customers $126,289 $ 59,280 $10,426 $ 195,995
-------- ---------- ------- ---------
Segment operating income
(loss) 68,496 (136,114) 10,146 (57,472)
Unallocated amounts
Selling, general and
administrative expenses (10,177)
Interest income, net 5,219
---------
Loss before income taxes $ (62,430)
=========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED PRODUCT RESEARCH AND ROYALTY AND
SEPTEMBER 30, 1999 SALES DEVELOPMENT LICENSING TOTAL
------------------ -------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenue from external
customers $ 66,271 $ 25,209 $16,139 $ 107,619
-------- ---------- ------- ---------
Segment operating income 30,583 4,207 15,928 50,718
Unallocated amounts
Selling, general and
administrative expenses (5,718)
Equity loss (57,142)
Interest expense, net (8,171)
---------
Loss before income taxes $ (20,313)
=========
</TABLE>
14. RESEARCH AND DEVELOPMENT ARRANGEMENT
The Company formed IPL in July 1997. In September 1997, the Company
concluded a development and license agreement (the "Development Contract")
with IPL whereby the Company developed on IPL's behalf once-daily
controlled release branded generic versions of designated products. Revenue
earned by the Company from IPL pursuant to the Development Contract was
$52,873,000 and $17,144,000 for the nine months ended September 30, 2000
and 1999, respectively, and $30,340,000 and $7,091,000 for the three months
ended September 30, 2000 and 1999, respectively.
The Company, as the holder of all of the issued and outstanding special
shares of IPL, had an option, exercisable at its sole discretion, to
purchase all, but not less than all, of the outstanding common shares of
IPL, subject to certain conditions.
On September 29, 2000, the Company sold all of its interest in and to the
special shares of IPL to IPL Acquireco 2000 Ltd. ("Acquireco"), in exchange
for non-voting common shares of Acquireco. In addition, the Company
invested $141,500,000 in Class A shares of Acquireco. On the same date,
Acquireco, as holder of the special shares of IPL, consummated the purchase
of all the issued and outstanding common shares of IPL and thereby IPL
became a wholly-owned subsidiary of Acquireco. As a result of Acquireco's
acquisition of IPL, certain provisions of the Development Contract have
been amended.
14
<PAGE>
The Company, as holder of all of the non-voting common shares of Acquireco,
has the option, exercisable at its sole discretion, to purchase all of the
voting common shares of Acquireco, at any time prior to October 1, 2002. If
the option were exercised, the redemption price would be $1 per share plus
15% per annum prior to January 1, 2001, and $1 per share plus 35% per annum
on or after January 1, 2001. At September 30, 2000, Acquireco had 6,500,000
voting common shares issued and outstanding.
The Company recorded a $141,500,000 charge to operations, equal to its
investment in Class A shares of Acquireco, as acquired research and
development since the recovery of the Company's investment is dependent,
under all circumstances, upon the eventual commercial success of products
under development. As of the investment date, the products under
development were in various stages of completion, had not reached
technological feasibility, and had no known alternative uses.
The efforts required to develop the acquired research and development into
commercially viable products include the completion of the development
stages of the products, clinical-trial testing, FDA approval, and
commercialization. Acquireco intends to continue the program of research
and development on IPL's once-daily controlled release branded generic
products, and has arranged the necessary financing from third parties to
fund this activity in the near term.
15. SUBSEQUENT EVENT
On October 6, 2000, the Company acquired 100% of DJ Pharma, Inc., a
privately held specialty pharmaceutical sales and marketing company for
$162,500,000 in cash plus the assumption of approximately $50,000,000 of
debt. The transaction will be accounted for using the purchase method of
accounting.
DJ Pharma is engaged in the marketing and selling of branded products to
physicians for the treatment of respiratory and allergy conditions and skin
and soft tissue infections. DJ Pharma currently promotes products developed
by other companies such as Eli Lilly and Co., Schering-Plough, Dura
Pharmaceuticals, Abbott Laboratories and Adams Laboratories. DJ Pharma has
approximately 300 pharmaceutical sales representatives detailing products
to high prescribing primary care and pediatric healthcare professionals.
15
<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
As of January 1, 2000, we began to report our consolidated results in accordance
with U.S. 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 quarter ended September 30, 2000 was $88.7 million and for the
nine months ended September 30, 2000 was $196.0 million, increases of $44.1
million or 99% and $88.4 million or 82%, respectively over the comparable
periods in 1999.
After deducting a $141.5 million charge for acquired research and development,
the operating loss for the quarter ended September 30, 2000 was $103.3 million,
compared to operating income of $19.9 million for the same period of 1999. For
the nine months ended September 30, 2000, the operating loss was $67.6 million,
compared to operating income of $45.0 million for the same period in 1999.
A net loss of $102.6 million, or ($0.79) per share on a diluted basis, was
recorded in the quarter ending September 30, 2000, compared to a net loss of
$41.0 million, or ($0.42) per share on a diluted basis, in the same period of
1999. Included in the third quarter 1999, was an equity loss in Fuisz
Technologies Ltd. ("Fuisz"), which included a charge for acquired in-process
research and development of $57.1 million. During the first quarter of 2000, we
repurchased all of our outstanding 10 7/8% U.S. Dollar Senior Notes (the "Senior
Notes") at a premium resulting in an extraordinary charge of $20.0 million. The
loss before this extraordinary item for the nine months ended September 30,
2000, was $67.2 million, or ($0.52) per share on a diluted basis, compared to a
loss before extraordinary item of $22.7 million, or ($0.23) per share on a
diluted basis, in the
16
<PAGE>
same period of 1999. Net loss for the nine months ended September 30, 2000 was
$87.2 million, or ($0.68) per share on a diluted basis.
Product sales for the quarter ended September 30, 2000 were $50.3 million and
for the nine months ended September 30, 2000 were $126.3 million, increases of
$21.6 million or 75% and $60.0 million or 91%, respectively over the comparable
periods in 1999. The growth in product sales was attributable an increase in the
number of products we manufacture and sell, including Adalat CC, Voltaren XR and
Procardia XL.
Research and development revenue for the quarter ended September 30, 2000 was
$33.3 million and for the nine months ended September 30, 2000 was $59.3
million, increases of $22.0 million or 196% and $34.1 million or 135%,
respectively over the comparable periods in 1999. The increase was primarily due
to a higher level of activity relating to the development of branded generic
products on behalf of Intelligent Polymers Limited ("IPL"), including Phase III
clinical trials on once-daily controlled release versions of Buspirone and
Tramadol.
Net royalty and licensing revenue for the quarter ended September 30, 2000 was
$5.1 million and for the nine months ended September 30, 2000 was $10.4 million,
compared to $4.6 million and $16.1 million for the same periods of 1999. The
decline in royalty and licensing revenue for the nine months ended September 30,
2000, compared to the same period in 1999, was due to a fee received in the
first quarter of 1999 from Mylan Pharmaceuticals Inc. ("Mylan") related to a
co-marketing agreement with respect to a generic version of Verelan.
COST OF GOODS SOLD AND GROSS MARGINS
The cost of goods sold as a percentage of product sales was 33% for the quarter
and nine months ended September 30, 2000, compared to 31% for the quarter ended
September 30, 1999 and 33% for the nine months ended September 30, 1999.
Gross margins on product sales for the quarter and nine months ended September
30, 2000 were 67%, compared to 69% for the quarter ended September 30, 1999 and
67% for the nine months ended September 30, 1999. The Company's gross margins
were impacted by product sales price, product mix, manufacturing volumes and
manufacturing costs.
RESEARCH AND DEVELOPMENT
Research and development expenses for the quarter ended September 30, 2000
were $22.7 million and for the nine months ended September 30, 2000 were
$48.4 million, increases of $15.0 million or 195% and $28.9 million or 149%,
respectively over the comparable periods in 1999. The higher spending related
to increased activity on the development of NDA products for IPL and the
development of rapid dissolve products utilizing our Flash Dose-Registered
Trademark- technology.
We have continued the development of acquired in-process research and
development projects relating to the Fuisz acquisition. In April 2000,
Nurofen Meltlets, a new form of ibuprofen, was
17
<PAGE>
approved and launched in the United Kingdom. This was the first commercial
introduction of a Flash Dose-Registered Trademark- product.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the quarter ended September 30,
2000 were $11.0 million and for the nine months ended September 30, 2000 were
$32.4 million, increases of $2.9 million or 36% and $11.0 million or 52%,
respectively over the comparable periods in 1999. The increases were due to
increased legal activity, the addition of Biovail Technologies Ltd. ("BTL")
including the amortization of goodwill, and executive additions to our
management team.
ACQUIRED RESEARCH AND DEVELOPMENT
On September 29, 2000, we sold all of our interest in and to the special shares
of IPL to IPL Acquireco 2000 Ltd. ("Acquireco"), in exchange for non-voting
common shares of Acquireco. In addition, we invested $141,500,000 in Class A
shares of Acquireco. On the same date, Acquireco, as holder of the special
shares of IPL, consummated the purchase of all the issued and outstanding common
shares of IPL and thereby IPL became a wholly-owned subsidiary of Acquireco. As
a result of Acquireco's acquisition of IPL, certain provisions of our
development and license agreement with IPL have been amended. Under the amended
agreement, we will not be entitled to receive future revenues from IPL, as IPL
will conduct product development on its own behalf.
We, as holder of all of the non-voting common shares of Acquireco, have the
option, exercisable at our sole discretion, to purchase all of the voting common
shares of Acquireco, at any time prior to October 1, 2002. If we were to
exercise the option, the redemption price would be $1 per share plus 15% per
annum prior to January 1, 2001, and $1 per share plus 35% per annum on or after
January 1, 2001. At September 30, 2000, Acquireco had 6,500,000 voting common
shares issued and outstanding.
We have recorded a $141,500,000 charge to operations, equal to our investment in
Class A shares of Acquireco, as acquired research and development since the
recovery of our investment is dependent, under all circumstances, upon the
eventual commercial success of products under development. As of the investment
date, the products under development were in various stages of completion, had
not reached technological feasibility, and had no known alternative uses.
The efforts required to develop the acquired research and development into
commercially viable products include the completion of the development stages of
the products, clinical-trial testing, FDA approval, and commercialization.
Acquireco intends to continue the program of research and development on IPL's
once-daily controlled release branded generic products, and has arranged the
necessary financing from third parties to fund this activity in the near term.
18
<PAGE>
OPERATING LOSS
After deducting acquired research and development, we had an operating loss of
$103.3 million for the quarter ended September 30, 2000 and $67.6 million for
the nine months ended September 30, 2000. Operating income for the quarter ended
September 30, 1999 was $19.9 million and for the nine months ended September 30,
1999 was $45.0 million.
Segment operating loss for the quarter ended September 30, 2000, before
unallocated selling, general and administrative expenses, was $97.0 million,
compared to segment operating income of $22.2 million for the same period of
1999. The product sales segment had operating income of $30.2 million,
compared to $14.5 million in 1999. The increase relates primarily to sales of
Tiazac-Registered Trademark-, and generic Adalat CC and Procardia XL in the
U.S., and increased sales of Tiazac-Registered Trademark- and Celexa in
Canada. The research and development segment had an operating loss, which
included acquired research and development, of $132.1 million in 2000,
compared to operating income of $3.0 million in 1999. Royalty and licensing
activities generated operating income of $4.9 million in 2000, compared to
$4.7 million in 1999.
Segment operating loss for the nine months ended September 30, 2000, before
unallocated selling, general and administrative expenses, was $57.5 million,
compared to segment operating income of $50.7 million for the same period of
1999. The product sales segment had operating income of $68.5 million, compared
to $30.6 million in the prior year. The increase is the result of the launch of
a number of significant products in the U.S. including generic Adalat CC,
Voltaren XR and Procardia XL. The research and development segment had an
operating loss, which included acquired research and development, of $136.1
million in 2000, compared to operating income of $4.2 million in 1999. Royalty
and licensing activities generated operating income of $10.1 million in 2000,
compared to $15.9 million in 1999, which included the fee received related to
the co-marketing agreement with Mylan with respect to Verelan in the first
quarter of 1999.
INTEREST
For the quarter ended September 30, 2000, net interest income of $3.1 million
was comprised of interest income of $8.5 million net of interest expense of $5.4
million, compared to net interest expense of $2.7 million in the same period of
1999, comprised of interest income of $839,000 net of interest expense of $3.5
million. For the nine months ended September 30, 2000, net interest income of
$5.2 million, was comprised of interest income of $20.0 million net of interest
expense of $14.8 million, compared to net interest expense of $8.2 million in
the same period of 1999, comprised of interest income of $2.5 million net of
interest expense of $10.7 million. For the quarter and nine months ended
September 30, 2000, interest income was earned primarily on the proceeds from
the concurrent offering on March 22, 2000 of 6.75% Convertible Subordinated
Preferred Equivalent Debentures, due March 31, 2025 (the "Convertible Preferred
Securities") and two million common shares, that have been invested in
high-grade commercial paper. Partially offsetting the interest earned on these
proceeds, was interest expense on the Convertible Preferred Securities after
March 22, 2000 and on the Senior Notes prior to this date. In 1999, net interest
expense was primarily related to interest on the Senior Notes.
19
<PAGE>
INCOME TAXES
Income taxes for the quarter ended September 30, 2000 were $2.5 million compared
to $1.1 million in the same period of 1999. For the nine months ended September
30, 2000, income taxes were $4.7 million compared to $2.4 million 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 BTL has not been recognized for accounting purposes
to-date.
LOSS BEFORE EXTRAORDINARY ITEM
Loss before extraordinary item for the nine months ended September 30, 2000 was
$67.2 million, or ($0.52) per share on a diluted basis, and $22.7 million, or
($0.23) per share on a diluted basis, for the comparable period of 1999.
EXTRAORDINARY ITEM
In March 2000, 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 LOSS
Net loss for the quarter ended September 30, 2000 was $102.6 million, or ($0.79)
per share on a diluted basis, compared to $41.0 million, or ($0.42) per share on
a diluted basis, in the same period of 1999. After deducting the extraordinary
item, net loss for the nine months ended September 30, 2000 was $87.2 million,
or ($0.68) per share on a diluted basis, compared to $22.7 million, or ($0.23)
per share on a diluted basis, for the same period of 1999.
EBITDA
For the reasons set forth above, EBITDA, which is defined as earnings before
interest, taxes, depreciation and amortization, increased by $21.4 million or
98% to $43.1 million for the quarter ended September 30, 2000 from $21.7 million
in the comparable period of 1999. For the nine months ended September 30, 2000,
EBITDA increased by $38.8 million or 78% to $88.8 million from $50.0 million in
the comparable period of 1999. The ratio of total debt at September 30, 2000 to
EBITDA for the nine months ended September 30, 2000 was 3.4:1 compared to 2.5:1
for the same periods of 1999.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, our cash position was $348.7 million, our cash plus
short-term investments was $397.9 million and our working capital was $445.5
million, representing a working capital ratio of 7.6:1. At December 31, 1999,
our cash position was $178.1 million, our
20
<PAGE>
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 flows from operating activities (after changes in non-cash operating items)
was $46.2 million for the nine months ended September 30, 2000 compared to $54.7
million in the same period of 1999. The decline from the prior year was
primarily due to increases in accounts receivable and inventories, reflecting
higher levels of product shipments and manufacturing activity.
Cash used in investing activities was $117.8 million for the nine months ended
September 30, 2000 compared to $84.2 million in the same period of 1999. For the
nine months ended September 30, 2000, uses of cash related mainly to the $141.5
million investment in Class A shares of Acquireco, and additions to property,
plant and equipment totaling $11.1 million. Sources of cash related to the
proceeds from the sale of Clonmel Healthcare Limited ("Clonmel") of $20.0
million and the net activity in short-term investments of $16.7 million. For the
nine months ended September 30, 1999, cash used in investing activities related
mainly to the $77.5 million investment in Fuisz, and additions to property,
plant and equipment of $5.3 million.
Cash flows from financing activities was $242.4 million for the nine months
ended September 30, 2000 compared to cash used of $25.9 million in the same
period of 1999. For the nine months ended September 30, 2000, sources of cash
include the concurrent offering on March 22, 2000 of Convertible Preferred
Securities and common shares. The Convertible Preferred Securities were issued
for gross proceeds of $300 million ($288.5 million, net of financing costs) and
the common shares were issued for gross proceeds of $101.1 million ($95.3
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 $11.4 million. Common shares issued on the exercise of
stock options generated $8.8 million during the nine months ended September 30,
2000. In the same period of 1999, cash used in financing activities reflected
the repurchase of common shares in the amount of $30.6 million and the repayment
of long-term debt of $667,000, offset in part by the issuance of common shares
on the exercise of stock options for $3.0 million. Cash received from IPL
pursuant to the development and licensing agreement was prorated between
research and development revenue and the warrant subscription receivable. For
the nine months ended September 30, 2000, the amount allocated to the warrant
subscription receivable was $2.3 million compared to $2.4 million in the same
period of 1999.
Exchange rate changes on foreign currency denominated cash balances resulted in
a decrease in cash of $233,000 in the nine months ended September 30, 2000
compared to a increase in cash of $76,000 in the same period of 1999.
As a result of the foregoing, we had positive cash flow of $170.6 million for
the nine months ended September 30, 2000 compared to negative cash flow of $55.3
million in the same period of 1999.
21
<PAGE>
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 $300.5
million at September 30, 2000, compared to $137.5 million at December 31, 1999.
The debt-to-equity ratio at September 30, 2000 was 1.1:1 compared to 0.5:1 at
December 31, 1999. Long-term debt at September 30, 2000 was comprised of $300
million of Convertible Preferred Securities and $512,000 of other debt. In
addition, we have a $75 million banking facility available. At September 30,
2000, we had 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.
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. 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 of Convertible Preferred
Securities. 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 of 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.
We are determining the impact of the adoption of the new statement.
22
<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. In July 2000, the SEC further delayed the implementation
date to the fourth quarter of 2000. SAB 101 summarizes the SEC's views in
applying GAAP to revenue recognition in financial statements. We are continuing
to evaluate SAB 101's potential future impact on our financial position and
results of operations with respect to upfront fees and milestone payments earned
by us 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.
ACQUISITION
On October 6, 2000, we acquired 100% of DJ Pharma, Inc., a privately held
specialty pharmaceutical sales and marketing company for $162.5 million in cash
plus the assumption of approximately $50.0 million of debt. We will account for
this transaction using the purchase method of accounting. An independent
valuation is currently underway to support the purchase price allocation.
The assets, liabilities, revenue and expenses of DJ Pharma will be included in
our consolidated financial statements beginning in October 2000. We expect that
the results of DJ Pharma will increase our product sales, cost of goods sold,
selling, general and administrative expenses and interest expense. We expect the
transaction will be accretive to 2000 earnings and in future years.
DJ Pharma is engaged in the marketing and selling of branded products to
physicians for the treatment of respiratory and allergy conditions and skin and
soft tissue infections. DJ Pharma currently promotes products developed by other
companies such as Eli Lilly and Co., Schering-Plough, Dura Pharmaceuticals,
Abbott Laboratories and Adams Laboratories. DJ Pharma has approximately 300
pharmaceutical sales representatives detailing products to high prescribing
primary care and pediatric healthcare professionals.
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.
23
<PAGE>
BIOVAIL CORPORATION
PART II - OTHER INFORMATION
1. OPERATIONAL INFORMATION
The press releases issued by the Company subsequent to the filing of SEC
Form 6-K on August 25, 2000 were as follows:
a) On September 19, 2000, the Company announced the initiation of
Tramadol Phase III clinical trials.
b) On September 28, 2000, the Company announced that it had received
final approval from the FDA for its generic version of Procardia XL.
The Company also announced a 2 for 1 stock split.
c) On October 4, 2000, the Company and DJ Pharma, Inc. announced they
had entered into a definitive agreement under which the Company
would acquire 100% of DJ Pharma for $212.5 million.
d) On October 26, 2000, the Company announced record third quarter 2000
financial results.
e) On November 1, 2000, the Company announced that it had been added to
the Standard & Poors / Toronto Stock Exchange 60 Index.
2. LEGAL PROCEEDINGS
For detailed information concerning legal proceedings, reference is made to
Note 12 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 are attached as the
following exhibits:
Exhibit 99.1 Consolidated financial statements in U.S. dollars and in
accordance with Canadian GAAP
Exhibit 99.2 Interim Report 2000 - Third Quarter Report to Shareholders
4. ADDITIONAL DEVELOPMENT
The additional development affecting the Company subsequent to the filing
of SEC Form 6-K on August 25, 2000 was as follows:
PROCARDIA XL
In September 2000, the Company received final approval from the U.S. Food
and Drug Administration for its generic once daily controlled release
version of Procardia XL. Procardia XL is a nifedipine product indicated for
the treatment of hypertension and
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angina. The Company immediately began to market its generic Procardia XL
through its marketing partner, Teva Pharmaceuticals Industries Ltd.
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
November 27, 2000 By /s/ John R. Miszuk
----------------------
John R. Miszuk
Vice President, Controller
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