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 The following section contains forward-looking information. Readers are cautioned that there are factors that could cause actual results to differ materially, and reference should be made to 'Disclaimers'. Early in 2008, Biovail’s Board established an independent committee of Directors for the purpose of, among other things, considering strategic alternatives to enhance shareholder value. The Independent Committee retained an investment bank and other external advisors to assist in this process. Following a review of a wide range of alternatives, the Independent Committee determined that the preferred course of action to enhance shareholder value was to explore operational strategies that would allow the Company to create sustainable growth, more effectively capitalize on its core capabilities and continue to return capital to shareholders. Under the Independent Committee's direction, and with financial advice from Morgan Stanley and management consultant support from a major global consulting company with extensive experience in the pharmaceutical industry, management prepared its New Strategic Focus. The New Strategic Focus is based on leveraging the Company's core capabilities in drug delivery and formulation for the development of products targeted towards specialty CNS disorders. The New Strategic Focus was reviewed by the Independent Committee and the Independent Committee then recommended the New Strategic Focus to the full Board. At a meeting on May 7, 2008, the Board considered and unanimously approved the New Strategic Focus, which it believes will enhance value for all shareholders. External pressure on the pharmaceutical industry has risen significantly due largely to the increase in number and value of medicines losing exclusivity to generic competition, a slowdown of new drug approvals and increasing financial pressures from third party payors. Regulators and third party payors increasingly demand evidence of clinically meaningful benefits, resulting in increased development risk and costs. Incremental advances in convenience and patient compliance (e.g. Wellbutrin XL®) can no longer command price premiums and pharmacies have strong financial incentives to substitute generics, when available, for branded products and once-daily formulations (e.g. Ultram® ER). Given this environment, the average effective sales exclusivity period for oral controlled-release products is now only three to five years, down from five to seven years. It is also becoming increasingly difficult to establish and defend intellectual property, particularly as it relates to reformulated or combination products. Amidst this industry pressure, Biovail has company-specific, short and longer-term challenges to address. In the short term, the Company needs to (1) continue to resolve historical legal and regulatory matters that have caused significant reputational, financial and human capital expense; and (2) adjust its infrastructure to align more closely with its revenues. In the longer term, Biovail must (1) create growth and long term value by developing its product pipeline; and (2) establish more efficient commercialization pathways through which to bring products to market. The New Strategic Focus has been designed to address these industry and company-specific challenges. New Business Model Biovail believes that the current state of the
According to industry sources, CNS represents an approximately $70 billion market globally (approximately $45 billion in the U.S.), and growth is expected to be in the low- to mid- double digits in many niche specialty CNS markets, such as those within broader diseases like Parkinson's and multiple sclerosis. Specialty CNS is an area of high unmet medical need exhibiting favourable reimbursement and pricing characteristics and spanning several attractive sub-areas (including epilepsy, Parkinson's, migraines, Alzheimer's and multiple sclerosis) with a largely overlapping prescribing community. As many specialty CNS products target smaller patient populations, competition from large multinational pharmaceutical companies may be less severe. Based on available industry data, the niche specialty CNS market also features a relatively small audience of experts and physicians, with approximately 30 top opinion-leaders, 200 top clinicians and local opinion influencers, 2,000 high-volume prescribers and 11,000 total prescribers. This allows for the deployment of a relatively small, specialized commercial sales organization.
Biovail believes that moving to its new business model focusing on a specific therapeutic area provides the Company with an opportunity to leverage its existing and expanded technologies and capabilities, including drug delivery, scale-up and manufacturing, and other assets including current pipeline programs. It will also provide the focus and specialization believed to be necessary to successfully compete in the new regulatory and market environment. The Company believes that moving to its new business model involving focus and specialization on a specific therapeutic area will be beneficial in a challenging regulatory and market environment.
Biovail intends to invest $600 million in research-and-development from 2008 to 2012, exploring niche in-licensed and acquired late-stage NCEs, new indications and in-house reformulation opportunities. Infrastructure and Cost Rationalization In order to achieve
its objectives in a challenging period for the The infrastructure and cost rationalization includes the following specific plans: 1.
Consolidation of manufacturing resources through the closure of
Biovail’s two Puerto Rico manufacturing facilities and the transfer of certain
manufacturing processes to the Steinbach, 2. Consolidation and retooling of Biovail’s pharmaceutical sciences resources, through the closure of its R&D facility in Dublin, Ireland, and the streamlining and consolidation of activities at the Company's facility in Chantilly, Virginia. This component of the plan will reduce overhead and ongoing infrastructure costs, and facilitate maximum leveraging of this key capability in the therapeutic focus area of the new business model. 3. Rationalization of general and administrative expenses executed primarily through reduced legal expenses stemming from resolution of litigation and regulatory issues related to the period from 2001 to March 2004, that have cost the Company in excess of $287 million (more than $209 million net of insurance recoveries) in cumulative legal expenses, settlements and penalties. Capital Allocation Strategies Biovail intends to allocate cash flow from operations, which will be further supported by the rationalization initiatives described above, to support the transition to and realization of the New Strategic Focus. Other Initiatives Biovail is also exploring the divestiture and/or monetization of certain non-core assets, which management believes could result in cash proceeds of $100 million. The Company has also appointed a Chief Scientific Officer (November 2008) and has established an External Advisory Board to provide medical, scientific and commercial input into Biovail's development-pipeline efforts in specialty CNS disorders. Financial Impact Benefiting All Shareholders Biovail expects
that the implementation of the New Strategic Focus, including the closure
of the Company’s The Company anticipates that these efficiency initiatives, once implemented, will result in annual savings of $40 million to $60 million. Biovail expects that as the New Strategic Focus is implemented, the current base business will provide strong cash flows that can be utilized to fund business needs and sustain the Company’s dividend policy. The implementation of the New Strategic Focus is expected to provide additional capital by driving operating efficiencies and freeing up capital through the monetization of low-return and/or non-core assets. The Company expects that it can redirect capital and management focus toward creating shareholder value by remaining committed to resolving various legal and regulatory matters that relate to the 2001 to March 2004 period. The New Strategic Focus is expected to offer more consistent, sustainable growth. Capital that is generated from the foregoing initiatives is expected to be utilized to (i) support the transition to the New Strategic Focus, (ii) invest in research-and-development, (iii) pursue focused business development, and (iv) return capital to shareholders. Implementation Strategies for Successful Achievement of Objectives Under the direction of the Company’s Board of Directors, a number of whom were instrumental in the adoption of the New Strategic Focus, the Company is implementing the new plan using carefully designed strategies relating to (i) product origination and business development, (ii) clinical and medical affairs, (iii) commercialization, (iv) regulatory affairs, and (v) finance. The product origination strategy, with a focus on specialty CNS, is designed to position Biovail as a partner of choice in a market characterized by numerous small and mid-sized specialty CNS originator companies. Product origination for the product pipeline will include efforts to (i) use Biovail’s existing drug delivery technology and acquired technology to enhance existing specialty CNS products, and (ii) license or acquire specialty CNS compounds in late-stage development, with a particular interest in orphan drug categories and other specialty therapies targeting smaller patient and physician populations, typically designed for fast-track review, and offering the prospect of better pricing and longer exclusivity. Business development within specialty CNS will cover broad geographies and will include public, private, academic and government sources. Biovail intends to apply rigorous financial analysis to investment decisions for product development opportunities sourced internally and externally. The Company intends to continue to apply core drug delivery and formulation technologies to opportunities outside the core therapeutic focus, but only if those opportunities meet common stringent economic hurdles. In addition, the Company expects to selectively pursue branded generics primarily in the specialty CNS therapeutic area, when current delivery capabilities provide competitive advantage and potentially limit competition. Under the clinical/medical affairs implementation strategy for the therapeutic focus, experienced "in-house" specialty CNS experts in clinical research and medical affairs will enhance peer relationships with opinion leaders, design critical clinical trials, and support sourcing activities and due diligence. Biovail will continue to rely heavily on contract research organizations for clinical trial execution, but it is anticipated that in-house clinical research expertise will be important to oversee matters such as physician recruitment and site selection. In implementing the commercialization strategy for its therapeutic focus, Biovail intends to investigate and use, as appropriate, multiple commercialization channels in addition to partnering, including (i) direct commercialization through a developed or acquired specialty sales force and (ii) specialty field-based scientific liaisons to interact with key opinion leaders. Biovail intends to continue to leverage the Company’s Canadian commercialization infrastructure to support its physician-targeted focus and to capitalize on other commercialization opportunities as appropriate. Regulatory affairs implementation is expected to further the Company’s existing CNS capabilities with a focus on the development of deep expertise specifically in the core therapeutic focus area, including the enhancement of good working relationships with key regulatory decision makers. Risk Since Biovail’s announcement of its New Strategic Focus in May 2008, there has been much discussion in the investment community regarding the risk profile of this initiative. It is important to note that pharmaceutical companies and products face a number of different risks, including developmental, regulatory, and commercial risk. In aggregate, by focusing on “niche” and “specialty” CNS product opportunities, Biovail believes that its New Strategic Focus reduces the overall risk involved in commercializing products in the U.S. Developmental Risk Under the New Strategic Focus, in addition to maintaining a definite focus on developing new drugs using its world-leading drug delivery technologies, Biovail will also focus on developing products that address significant medical need in niche CNS markets opportunities. There are two critical issues with respect to how Biovail’s strategy dramatically mitigates risk.
• First, the size of the clinical trials (the number of patients needed to support the clinical trial process and to support the New Drug Application process with the FDA) is low, resulting in lower financial risk. • Second, the clinical endpoint (the benefit the trial is designed to confirm) is typically clear and well defined. The types of trials Biovail would be looking at conducting require a low number of patients (on average 300 to 500 patients), which significantly lowers the financial risk, and the endpoints are more easily measured. More specifically, a study designed to measure how quickly it takes for a patient to walk 25 feet, and the improvement in that score following the dosing of a new drug Biovail is testing, is clearly measured and easy to analyze versus a typical CNS depression or anxiety trial that tries to analyze if a patient is more or less depressed / anxious (particularly given very high placebo rates found in these types of studies). Typically, when someone thinks of CNS (more broadly), people think of very large trial sizes with endpoints that are not very clear (patients may be asked “are you less anxious / depressed today versus the other day?”). These types of studies are extremely “risky” which is why Biovail is NOT looking at these types of studies.
Clearly, every pharmaceutical company has to manage developmental risk.
Biovail believes its New Strategic Focus helps to mitigate these risks given the
fact that the trial size is smaller, the investment required is smaller and the
Regulatory Risk
Biovail’s New Strategic Focus leverages the Company’s expertise in
clinical trial design and knowledge of the required regulatory process. Biovail
has developed and filed multiple drugs for approval with the FDA in the
United States and the TPD in
Canada. The clinical pathway and
regulatory process for the niche CNS products Biovail intends to develop under
its strategy The fact is that Biovail has fully constituted Regulatory Affairs and Clinical Development Groups comprising people that have extensive track records in previous tenures in taking NCEs to market with well-known, innovative pharmaceutical and biotech companies. Commercial Risk Biovail’s strategy is focused on developing drugs that address medical needs in the marketplace, which should result in favorable reimbursement treatment from third party payors. When a drug gets favorable reimbursement from third party payors, the cost to a patient for the treatment is low. This has a dramatic impact on the market penetration for a new drug and, therefore, the ability to achieve a favorable return on one’s R&D investment. Biovail’s strategy also highlights that at the appropriate time, the Company will make a prudent investment to build a small sales force that can readily call on the small number of doctors that participate in the respective niche market. This allows Biovail to keep 100% of all revenues associated with the sales of the product versus being dependent on, and paying a significant portion of the sales to, a commercialization partner. |
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Compelling
Reasons for a New Strategic Focus