Biovail: Cloudy Future, but Good Entry-Point for Investors

Biovail Corp. (BVF) may have only gained a nickel after the company unveiled its new chief executive, Bill Wells, but there is plenty more upside, according to RBC Capital Markets analyst Douglas Miehm. However, it may be a challenge to convince investors of this view, since they have driven the stock down 60% in the past year.

With the dividend issue aside given that the pharmaceutical company’s new boss indicated that it is safe for the long term, a number of other issues remain. While Mr. Wells will surely get to work right away, some of the long-term issues require in-depth analysis that may take some time to implement, the analyst told clients in a note. An upcoming proxy fight may also serve to distract management somewhat.

An upcoming FDA decision regarding Biovail’s Wellbutrin salt is one piece of news that will be watched carefully since it will affect the company’s product pipeline. Mr. Miehm said the outcome of this decision, as well as first quarter results and the new CEO’s upcoming comments, will be important in shaping investor sentiment.

Therefore, while Biovail’s future remains hazy, particularly in the near term, a 13.6% yield and shares that are trading at 10.4 times expected earnings for 2009, is enough to convince RBC that the stock is well-valued – if investors are willing to accept the risk associated with the recent shake-up.

Mr. Miehm rates Biovail at “outperform” with a $17 price target.