Generic Outcome Key to Biovail Dividend

Since Biovail Corp. (BVF) had expected a 60-day review of its new bupropion anti-depressant treatment, the U.S. Food and Drug Administration’s decision to classify its review as class II (six months) is a disappointment.

Investors responded accordingly, sending Biovail shares down more than 11% on Tuesday.

The launch date is now expected to be in May 2008 rather than January, according to RBC Capital Markets analyst Douglas Miehm, who expects the FDA will take its time (up to April 23) to make a decision on the approvability of the Wellbutrin salt (BVF-033).

As a result of these developments, Mr. Miehm has cut his estimated earnings forecast for 2008 by US2¢ to US$1.45 per share, since the drug was expected to contribute little to next year’s earnings.

However, he noted that Biovail’s earnings will swing dramatically depending on whether or not Anchen Pharmaceuticals Inc. launches a generic 150mg version of Wellbutrin XL. Mr. Miehm continues to expect this will come in March, which is based on its winning a court ruling.

In the worst case scenario, it launches in January, which means Biovail’s earnings are expected to come in at US$1.32 per share. The analyst’s best case scenario is for the generic to come in June, which means Biovail’s earnings should be US$1.66.

Mr. Miehm thinks Biovail can maintain its US$1.50 per share dividend in a best case scenario for both earnings and cash flow. This is also considered possible in the worst case scenario, albeit with no room for error.

He cut his price target by US$5 to US$19, but maintained an “outperform” rating given the stock’s recent decline.