Biovail Finanical Analysis Quarterly Earnings

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MEMO TO: Mr. David Maris
DATE: September 9, 2010
SUBJECT: Biovail Concerns

This report discusses the concerns regarding the Biovail pharmaceutical company and the causes, implication and ramifications of its recently released quarterly earnings guidance. Specifically, this report covers Biovail’s reasons for missing previous expectations for quarterly earnings and an analysis of the validity of these reasons. The focus will be on the assertion that a recent truck accident containing a major shipment of Wellbutrin® XL was the primary cause of the company’s decreased earnings guidance. In addition the report will verify the actual dollar value impact of the truck accident and why it fails to explain the entire decrease in earnings. The possibility that Biovail is using overly aggressive accounting techniques and the doubt on the sustainability of Biovail’s sales growth will also be analyzed. Biovail released an adjusted guidance that estimated third quarter revenues to be between $215 and $235 million. This was a $25 to $45 million decrease to the previously reported guidance Biovail released, which reported revenue expectations to be $260 million. A press release claimed that an accident resulted in the loss of revenue, but the company also stated the revenue loss from the accident was in the range of $10 to $20 million. Using Biovail’s high estimate of revenue loss and low estimate of third quarter revenue expectations still results in missing the guidance by $5 million. Biovail’s uncertainty of the value of goods in transit shows poor operational management and, when combined with Brian Crombie’s claim of using FOB shipping point, implies inadequate accounting practices. If Biovail was using FOB Shipping Point, as Crombie claimed, then the exact value of the goods should have been known and recorded as revenues on Sept. 30th when the goods left the Biovail Distributor (see exhibit 1). Since the ownership of the goods had been transferred, the...
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