Analysts Express Confidence in Biovail's New Strategy

Biovail Corp.'s (BVF) acquisition of Prestwick Pharmaceuticals on Wednesday may not have been well received by investors, but according to RBC Capital analyst Douglas Miehm, it is a move in the right direction for the pharmaceutical company in transition. 

On Wednesday, Biovail said it bought privately held Prestwick for $100 million in cash. Prestwick holds the Canadian and U.S. rights to Xenazine (tetrabenazine tablets), a recently approved treatment for chorea associated with Huntingdon's disease.  With the deal, Biovail also get the rights to Prestwick's pipeline of products including the potential Parkinson's treatments, Lisuride Sub Q and Lisuride Patch, and D-Serine that is being developed for the treatment of schizophrenia.

In a note to clients, Mr. Miehm said:

The acquisition is Biovail's first step in its recently announced central nervous system strategy and meets all the criteria mentioned by the company over the last several months. 

While the company indicated that the transaction would be accretive on a GAAP basis, we believe the deal would be only modestly accretive. In fact, we are lowering EPS slightly on a GAAP basis (accretive on a cash basis however) as we have adopted a conservative stance given the lack of information regarding pricing and amortization charges.

He told clients that Wednesday's 8% drop in Biovail stock was likely due to "a lack of clarity on pricing and resulting accretion questions plus the use of cash in a very skittish market." The stock has rebounded nicely Thursday, rising 5% to $10.48 in early afternoon trading.

Mr. Miehm added that while the new strategy carries increased clinical risk, Biovail stock is trading at an attractive valuation of approximately 9x his revised 2009 estimated EPS – down from $1.08 to $1.01 – and offers a 16.1% yield. 

He maintained his "outperform" rating and left his $13 price target unchanged.

Canaccord Adams analyst Neil Maruoka, also expressed confidence in Biovail's new strategy, initiating coverage on the company with "buy" recommendation and $14 price target.

In a note, he wrote:

We believe that the current share price reflects the fair value of the base business for Biovail, while the implementation and execution of the new strategy represents significant upside for investors.