VALEANT PHARMACEUTICALS INTERNATIONAL, INC. FORM 20-F (Annual and Transition Report (foreign private issuer)) Filed 07/12/96 for the Period Ending 12/31/95 Telephone 514-744-6792 CIK 0000885590 Symbol VRX SIC Code 2834 - Pharmaceutical Preparations Industry Biotechnology & Drugs Sector Healthcare Fiscal Year 12/31 http://www.edgar-online.com © Copyright 2012, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.
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VALEANT PHARMACEUTICALSINTERNATIONAL, INC.
FORM 20-F(Annual and Transition Report (foreign private issuer))
Filed 07/12/96 for the Period Ending 12/31/95
Telephone 514-744-6792
CIK 0000885590Symbol VRX
SIC Code 2834 - Pharmaceutical PreparationsIndustry Biotechnology & Drugs
Sector HealthcareFiscal Year 12/31
http://www.edgar-online.com© Copyright 2012, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
/ / Registration Statement Pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934
or /X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition period from _______ to _______
Commission file number 001-11145
BIOVAIL CORPORATION INTERNATIONAL (Exact Name of Registrant as Specified in its Charter)
NOT APPLICABLE (Translation of Registrant's Name into English)
CANADA (Jurisdiction of incorporation or organization)
2488 DUNWIN DRIVE
MISSISSAUGA, ONTARIO CANADA, L5L 1J9
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
COMMON SHARES WITHOUT PAR VALUE (Title of Class)
AMERICAN STOCK EXCHANGE (Name of exchange on which registered)
Securities registered or to be registered pursuant to Section 12(g) of the Act: NONE
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE
Number of outstanding shares of the registrant's common stock as of December 31, 1995: 25,327,092 (after giving effect to a 3-for-1 stock split in January, 1996)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 X Item 18
GENERAL INFORMATION
CURRENCY TRANSLATION
Effective January 1, 1995, the Company commenced reporting its financial statements in U.S. dollars, while the currency of measurement remains Canadian dollars. For purposes of this presentation, Canadian dollar amounts including 1995, 1994, 1993, 1992 and 1991 amounts shown for purposes of comparison, have been translated into U.S. dollars at the respective year end rates of exchange. (Unless otherwise indicated, references herein to "dollars" or "$" are to United States dollars.)
Exchange Rate Data
The following table sets forth, for the years indicated, certain exchange rates based on the noon buying rates in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. Such rates are quoted as U.S. dollars per Canadian dollar.
=================================================== ==================================== Year Ended December 31, - ------------------------------------------------- -------------------------------------- 1991 1992 1993 1994 1995 - ------------------------------------------------- -------------------------------------- Exchange Rate at end of year............ $.8654 $.7867 $.7553 $.7134 $.7332 =================================================== ====================================
TABLE OF CONTENTS
GENERAL INFORMATION
PART I PAGE ---- Item 1. Description of Business................... ................................... 2 Item 2. Description of Properties................. ................................... 13 Item 3. Legal Proceedings......................... ................................... 14 Item 4. Control of Registrant..................... ................................... 14 Item 5. Nature of Trading Market.................. ................................... 15 Item 6. Exchange Controls and Other Limitations Affecting Security Holders............... ................................... 16 Item 7. Taxation ................................. ................................... 17 Item 8. Selected Financial Data................... ................................... 20 Item 9. Management's Discussion and Analysis of Financial Conditions and Results of Opera tions.............................. 22 Item 10. Directors and Officers of the Company..... ................................... 25 Item 11. Compensation of Directors and Officers.... ................................... 29 Item 12. Options to Purchase Securities from the Company or Subsidiaries.................. ................................... 31 Item 13. Interest of Management in Certain Transact ions (not applicable).............. 34 PART II (Not Applicable) PART III (Not Applicable) PART IV Item 17. Financial Statements...................... ................................... 34 Item 18. Not Applicable............................ ................................... 34 Item 19. Financial Statements and Exhibits......... ................................... 34
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Biovail Corporation International (the "Company") was established under the Business Corporation Act 1990 (Ontario) R.S.O. 1990 on March 29, 1994 as a result of the amalgamation of Trimel Corporation ("Trimel") and its then subsidiary, Biovail Corporation International ("BCI").
BUSINESS
Biovail Corporation International is an international, full-service pharmaceutical company engaged in the formulation, clinical testing, registration and manufacture of drug products utilizing advanced drug delivery technologies. The Company markets its products worldwide through marketing partners. The Company develops its products through the synergistic application of proprietary drug delivery technologies, state-of-the-art development techniques and sound scientific principles.
The Company does not engage in basic research to discover new chemical entities. Instead, the Company, as part of its business strategy, applies its controlled release technologies to specific pharmaceutical compounds that are free of patent protection or nearing patent expiration, placing particular emphasis on products indicated for the treatment of chronic disorders such as cardiovascular, inflammatory and respiratory conditions and for pain management.
Oral controlled release technology permits the development of specialized oral drug delivery systems that improve the absorption and utilization by the human body of a variety of pharmaceutical compounds. The Company's controlled release technology is capable of providing a broad range of controlled release profiles, taking into account the physical and chemical characteristics of a drug product, the therapeutic use of the particular drug and the optimal site for release of the drug in the gastrointestinal tract (the "GI tract").
The Company's technology has been used to formulate 11 products that are marketed by licensees in one or more of 55 countries. These products, for which the Company currently receives royalties, include, among others, once-daily formulations of: diltiazem (marketed under the brand name Tiazac(R) by Forest Laboratories, Inc. ("Forest") in the United States), ketoprofen (marketed under the brand name Oruvail(R) by Wyeth-Ayerst Laboratories in the United States and by Rhone-Poulenc Rorer outside of the United States), theophylline (marketed as Theo-24(R) by UCB Pharma Inc. and by G. D. Searle & Co.), disopyramide (marketed as Norpace CR(R) by G.D. Searle & Co.) and isorbide dinitrate (marketed as Isoket Retard(R) by Schwarz Pharma).
The Company's strategy is to control all or most aspects of the product development process including; formulation development, clinical research (including bioavailability, clinical and other studies), regulatory submissions and manufacturing. The Company believes that this strategy provides economies of scale, allows for optimal efficiencies in product testing and development, accelerates the submission of regulatory filings, and will permit the Company to enter into licensing agreements that provide for significant royalty rates or significant shares of profits from product sales. Lower royalty rates of 1% to 4.5% of net sales in earlier licensing agreements reflected the Company's need, due to its limited financial and operating resources, to fund the expenses of product development and of obtaining regulatory approval by entering into licenses under which these expenses were assumed by the licensees.
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As of June 10, 1996, the Company had several controlled release products under development, two of which have been submitted for regulatory approval; one to the U.S. Food and Drug Administration ("FDA") and one to the Canadian Health Protection Branch ("HPB"). These products are funded primarily by the Company through the entire development and regulatory approval process and include (i) a once-daily formulation of diltiazem for which an NDS was filed with the HPB; (ii) a twice-daily formulation of diltiazem for which an abbreviated New Drug Application ("ANDA") was submitted with the FDA; (iii) a once-daily formulation of verapamil; and (iv) a once-daily formulation of nifedipine.
The Company has commenced operation of a domestic Canadian Marketing and Sales organization, Biovail Pharma. The business unit is located in Montreal, Quebec and is currently staffed with 50 people,including 40 sales positions located across the country. Biovail Pharma will market the Company's products in Canada and will seek to obtain the Canadian rights to products developed by foreign companies which do not operate business units in Canada.
The Company has two pharmaceutical manufacturing facilities; one in Steinbach, Manitoba, Canada, which is approximately 75,000 square feet, and in September, 1995, the Company acquired the operating assets of Galephar, Puerto Rico Inc. Limited ("Galephar"), a drug delivery company specializing in the development of controlled release products. Galephar's operating assets included a 23,000 square foot manufacturing facility. Both facilities are operational and are producing commercial supplies of the Company's product Tiazac(R).
In addition to its product development activities, the Company provides pharmaceutical companies with a broad range of contract research and development services, including pharmacokinetic studies, bioanalytical laboratory testing, clinical research studies and regulatory services consisting of the development, preparation and filing of drug submissions with the FDA, HPB and comparable foreign regulatory agencies. The Company has provided such services to many pharmaceutical companies, including certain subsidiaries of Bristol-Myers, Burroughs Wellcome, Ciba-Geigy, Johnson & Johnson, Rhone-Poulenc Rorer, The Upjohn Co. and G.D. Searle & Co.
PRODUCTS
Licensed and Marketed Products
The following table sets forth the Company's controlled release products that are presently licensed and marketed. These formulations have been designed for once-daily dosing unless otherwise specified. Except for Tiazac(R), which is a registered trademark of the Company, the trade names for the pharmaceutical products described below and elsewhere in this Annual Report are the property of (and may be registered trademarks of) the Company's licensees and marketing partners or others.
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The major products of the Company, accounting for approximately 96% of total royalties received, are Oruvail(R), Norpace(R), Tiazac(R), Isoket Retard(R) and Theo-24(R)/Pulmo-Timelets(R), and are described in more detail, following.
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Product Name: Principal Licensee or Therapeutic Use (Drug Class) Trad e Name Marketing Co Status - ---------------------------- -- -------- ------------ ------ Diltiazem SR: Hypertension and Angina Tiaz ac(R) Forest Marketed in the U.S. and Puerto Rico; Appro ved in the U.K. Ketoprofen SR: Arthritis Oruv ail(R) Rhone-Poulenc Rorer Marketed in approximately 55 (Non-Steroidal Anti-Inflammatory) counties in cluding the UK, Canada, Aus tralia, Japan, Sweden, Aus tria and France; submitted f or regulatory approval in Germany and Italy Oruv ail(R) Wyeth-Ayerst Marketed in the U.S. and its possessions Disopyramide SR: Arrhythmias Norp ace CR(R) Searle Marketed in the U.S., Malaysia (Type I Antiarrhythmic) and certain Caribbean counties (Twice daily) Isosorbide Dinitrate SR: Angina Isok et Retard(R) Schwarz Pharma Marketed in Switzerland, Germany, (Vasodilator) Finland, th e Philippines, Hong Kong, Russia and Korea; submitted for regulatory approval in Italy, Pakistan and Taiwan Theophylline SR: Asthma and Bronchitis Theo -24(R) Searle Marketed in Italy, New Zealand (Xanthine Bronchodilator) and certain Asian countries UCB Pharma Marketed in the U. S. and Puerto Rico. Pulm o timelets(R) Temmler Marketed in Germany Tizanidine SR: Muscle Relaxant Sird alud CR(R) Sandoz Pharma Marketed in Switzerland, Mexico, (Muscle Relaxant) Turkey and the Netherlands Sanofi Licensed fo r registration and marketing i n France Athena Licensed fo r registration and marketing i n the U.S. and Canada Metoclopramide SR: Gastric Reflux Gast ro-Timelets(R) Temmler Marketed in Switzerland and Germany (GI Tract Motility Modifer) Kemipharma Marketed in Denmark Gast romax(R) Farmitalia Marketed in the U.K. Ibuprofen SR: Arthritis Novo gent(R) Temmler Marketed in Germany (Non-Steroidal Anti-Inflammatory) Adcock-Ingram Marketed in South Africa (Twice-daily) Propranolol SR: Hypertension and Angina Beta timelets(R) Temmler Marketed in Germany (Beta Blocking Agent) Adcock-Ingram Marketed in South Africa Dihydrocodeine SR: Analgesic Tiam on Mono(R) Temmler Marketed in Germany (Opioid Derivative) (Twice-daily) Diethylpropion SR: Anti-Obesity Therapy Rege non Retard(R) Temmler Marketed in Germany (Sympathomimetic Agent) Kemipharma Marketed in Denmark
Oruvail(R)/Oscorel(R) is a controlled release formulation of ketoprofen indicated for treatment of the symptoms of inflammation and pain associated with rheumatoid arthritis and osteoarthritis. The technology necessary to manufacture Oruvail(R), as well as the exclusive right to market the drug worldwide, except in the United States, is licensed to Rhone-Poulenc Rorer. This license agreement provides for a royalty of 3% of net sales with respect to certain countries for ten years from the date of launch in each of such countries and at rate of 1% for years ten (10) to sixteen (16) with respect to these countries, and 1% with respect to other countries until September 1998.
In addition, the Company has licensed the exclusive right to market Oruvail(R) in the United States to Wyeth-Ayerst Laboratories. The license agreement with Wyeth-Ayerst Laboratories provides for a royalty payment of 3% of net sales for a period of 16 years commencing October, 1993.
Norpace CR(R) is a controlled release formulation of disopyramide, which is indicated for treatment of arrhythmias, an irregular beating of the heart. Norpace CR(R) is licensed to G.D. Searle & Co. until October 1998 for the 12-hour formulation and 16 years from the date of first marketing for the 24-hour formulation for sale worldwide except in Europe and portions of Africa and the Middle East. The license agreement provides for a royalty of 3% of net sales up to a specified annual threshold, and 1.5% on any sales thereafter for any such year.
Tiazac(R) is a once-daily controlled release formulation of diltiazem indicated for the treatment of hypertension. An NDA was approved by the FDA in September, 1995, and the Company licensed the right to market Tiazac(R) in the United States to Forest. The license agreement with Forest provides for a royalty payment of 8% of net sales for a period of 16 years commencing December, 1995.
Isoket Retard(R) is a controlled release formulation of isosorbide dinitrate indicated for the treatment of chronic, stable angina pectoris. Isoket Retard has been licensed worldwide, except North America and the Middle East, to Schwarz Pharma pursuant to a license agreement that expires in December 1999 and provides for a 2.5% royalty on net sales of products containing isosorbide dinitrate as the sole active ingredient.
Theo-24(R)/Pulmo-Timelets(R) is a once-daily formulation of anhydrous theophylline, a xanthine bronchodilator, that is indicated for treatment of asthma, chronic bronchitis and chronic obstructive pulmonary disease. Theo-24(R) is licensed to G.D. Searle & Co. for marketing in Italy and certain other countries, until August 1999. Pursuant to an amendment and partial assignment dated December 23, 1991, UCB Pharma (formerly Whitby Pharmaceutical, Inc.), acquired the marketing rights to Theo-24(R) from G.D. Searle & Co. for the U.S. and Puerto Rico. UCB commenced active marketing of Theo-24(R) in the second quarter of 1992. Temmler Pharma is licensed to market Pulmo-Timelets(R) in Germany, Austria and Switzerland pursuant to a license agreement that expires in July 1999. Each of these license agreements provides for a royalty to the Company of 3% of net sales of the product.
The Company believes certain of these products could generate additional royalties in the future if regulatory approvals pending in several countries are received and if new licenses are entered into for as yet unlicensed territories. There can be no assurance, however, that any such increased royalties will be achieved. Additionally, the Company is currently developing study protocols for certain of these products in an effort to expand the therapeutic application of such products.
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PRODUCTS AWAITING REGULATORY APPROVAL
The Company has several products under active development, of which one has been submitted to the FDA in the United States and one to the HPB in Canada for regulatory approval.
Diltiazem is a calcium channel blocker that relaxes and dilates the smooth muscle of the blood vessels and is indicated for the treatment of high blood pressure and prophylactic management of angina pectoris. The Company's diltiazem product, Tiazac(R) is marketed in the U.S. as a controlled release, once-daily dosage form by Forest. Diltiazem is also marketed in the U.S. in an immediate release, three-to-four-times daily dosage form by Hoechst-Marion-Roussel. Hoechst-Marion-Roussel also markets a controlled release, twice-daily dosage version under the brand name Cardizem SR(R) and a once-daily controlled release form under the brand name Cardizem CD(R).
An NDS was filed by the Company for its once-daily controlled release formulation of diltiazem (Tiazac(R)) with the HPB in September 1993.
An ANDA was filed by the Company for its twice-daily controlled release formulation of diltiazem with the FDA in February, 1996.
LICENSING AGREEMENTS
The Company does not engage in direct marketing or sales of its products outside of Canada but instead seeks to enter into licensing agreements with various regional and multinational pharmaceutical companies for the marketing and sale of its products in specified territories. While the specific terms of each license agreement vary, the agreements in general require the licensee to pay the Company a royalty based on a specific percentage of net sales, or a share of the net profits from the sales of the licensed products, and in certain instances, to purchase the products from the Company.
The existing licensing arrangements for the marketing of the Company's products reflect the past strategy of seeking third-party funding to complete product development and obtain regulatory approval. This strategy resulted in relatively low royalty rates generally ranging from 1% to 4.5% of net sales and royalty percentages that often decrease in the latter stages of the term of the license agreement and may also decrease in the event a competing product is introduced into the defined territory. While each license agreement has unique provisions, they generally provide the licensee the right to manufacture the product using the Company's controlled release technology and to market the product in an exclusive, defined territory. The Company is required under the terms of each license agreement to furnish consulting services to the licensee in connection with personnel training and manufacturing know-how. During the term of each agreement, the licensee is required to make available to the Company all experimental information with regard to the clinical effect of the product in human testing. At the expiration of a licensing agreement, the licensee typically may continue to manufacture, market and sell the licensed product in the licensed territory without royalty obligations to the Company. Similarly, the Company may typically manufacture, market and license the licensed product at the expiration of the licensing agreement, with the exception of its licensing agreements with each of Rhone-Poulenc Rorer and Wyeth-Ayerst Laboratories covering Oruvail under which the Company is prohibited from marketing in the licensed territory at expiration.
In September, 1995, the Company entered into licence and supply agreements for Tiazac(R), its once daily formulation of diltiazem with Forest. The terms of the agreements are 16 years during which period Forest will pay a royalty of 8% of net sales and manufacturing fees for the supply of product. In addition, a significant non-refundable advance payment was made to the Company by Forest which is being applied toward manufacturing supplies of Tiazac(R).
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Pursuant to the terms of Know-How Transfer and Licensing Agreements with Galephar, the Company may use the Galephar technology in a once-daily form of diltiazem, and six other once-daily formulations of other active ingredients. The Company is required under these agreements to pay Galephar a royalty ranging from 4% to 6% of the net sales of the covered products in Canada, the United States, Mexico and certain other countries for a term ranging from 16 to 20 years, commencing, with respect to each country, from the date of first marketing of the drug in such country.
Pursuant to the terms of a licensing agreement with Laboratoires SMB S.A. and Pharlyse S.A., the Company has acquired the right to market its once-daily form of diltiazem (Tiazac(R)) in Sweden, Finland, Norway and Switzerland and in the European Economic Community, excluding Belgium and Luxembourg. The Company is required and has paid to Pharlyse S.A. a non-refundable, advance royalty of U.S.$2,650,000. The Company has also entered into a supply agreement with Laboratoires SMB S.A. to supply to the Company and sub-licensees all or a portion of their requirements of the product for marketing in the covered territories for a period of ten years from the date of first commercial sale in each country.
Pursuant to the terms of a licensing agreement with BM Research, A/S, the Company is required to pay a royalty of 5% of the net sales of products utilizing BM Research's licensed technology. In addition, the Company is required to remit an initial development fee of U.S. $300,000 in nineteen instalments ranging from U.S. $15,000 to U.S. $30,000 - as well as, periodic milestone payments in an amount of 8% of payments received from any marketing partner or licensee selected by the Company.
CONTROLLED RELEASE TECHNOLOGY
The design of oral controlled release systems involves a consideration of the physiology of the GI tract, the characteristics of the drug to be delivered, the effect of food on absorption and the transit time of the product through the GI tract, the desired location and extent of absorption at any given site in the GI tract and the chemical and physical characteristics of the drug. The objective is to provide a delivery system allowing for a single dose per 12-to-24 hour period while assuring gradual and controlled release of the subject drug at suitable location(s) in the GI tract.
The controlled release technology utilized by the Company takes the form of either a pelletization or a tablet matrix system depending upon, among other factors, the chemical characteristics of the drug to be delivered.
Pelletization Technology
The Company's controlled release pelletization systems are based on the technology of coating pellets containing pharmaceutical compounds with specialized polymers and plasticizers to control the rate and location of drug release in the GI tract. The pellets can be prepared using one of two basic techniques. The first involves the layering of the drug as a solution or dry powder onto neutral sugar beads while the second involves the mixing of the drug into a starch-based "dough" which is used to produce pellets through an extrusion-spheronization process.
Once prepared, the pellets are coated with a thin membrane of permeable, semi-permeable and/or pH sensitive polymers and plasticizers to control the rate and location of release in the GI tract of the drug from the surface of the pellets. The Company's pelletization delivery systems utilize the features of pH activated or pH independent diffusion, osmotic diffusion or a combination of these mechanisms.
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The pH activated diffusion system developed by the Company is suitable for delivery of drugs known to cause gastric upset or ulceration if released in the stomach. Through the application of specifically designed polymer coating membranes, the release of the drug is delayed while the pellets are located in the acidic conditions of the stomach, with controlled release of the drug commencing upon its reaching the less acidic conditions in the upper intestinal tract, thus reducing gastric irritation. Upon reaching the upper intestine, the polymer membrane surrounding each pellet may dissolve releasing the drug immediately or not dissolve but develop pores allowing release of the drug at a controlled rate as the pellets progress through the intestinal tract. Absorption of the drug from the pellets continues while they descend through the GI tract, thus providing sustained availability of the drug.
Under the osmotic diffusion system developed by the Company, the rate of release of the drug from the pellets is controlled by a combination of principles involved in osmosis and diffusion. If immediate release of the drug is required, the drug in its free form is applied to the outside of the controlled release membrane. For example, to provide immediate and sustained relief from bronchial constriction for asthma patients, the outer membrane of the drug pellets is coated with a small amount of theophylline (an asthma-relief drug) to provide for immediate absorption in the stomach and immediate therapeutic relief. An osmotic membrane envelops the remaining theophylline on the pellets. The free drug is released in the stomach to give a quick input of the drug and then further release occurs under osmotic pressure to provide controlled release and absorption of the theophylline into the bloodstream over a 24-hour period.
Tablet Technology
Egalet from BM Research, A/S is a patented controlled release technology based on a new concept - namely erosion of a matrix using controlled geometric surfaces. With Egalet, it is possible to achieve an accurate control of the release profile of the drug, such as, for instance, a constant ("zero-order") release profile. Egalet is a programmable release system, the cornerstone of which is its defined surface-erodible matrix. This matrix is slowly water-soluble, yet the dissolution takes place only at the exposed surfaces, meaning that water does not diffuse into the matrix. When the matrix is exposed to an aqueous medium, it dissolves gradually and thus the drug imbedded in the matrix is released. The latter consists of a cylinder with an outer coating, with one or two "free-ends". Since the "erosion" of the matrix occurs only at the exposed ends within a well defined surface, a constant erosion of the matrix and, therefore, a constant "zero-order" release is achieved. Nearly any drug can be formulated using Egalet, but it is particularly well suited for so-called sparingly soluble drugs.
Products formulated using the Egalet system are produced using injection molding technology. It is this technology which is used commonly today in producing all kinds of parts and finished products. This means that, in spite of being a relatively new technology, it is a very well documented technology. Both the matrix and the coat of the Egalet system are based on thermoplastic polymers (albeit unusual in being water-soluble with different rates of dissolution) and, therefore, can be processed using known procedures. The main advantages of using this technology are good reproducibility of performance, flexibility in drug release and automation of production.
The Company also utilizes a matrix tablet technology, which entails the mixing of a drug compound with rate-controlling polymers to form a granulation which is pressed into tablets. The tablets are spray-coated with rate-controlling polymer for optimal drug release.
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CLINICAL RESEARCH AND REGULATORY APPROVAL SERVICES
Clinical research and regulatory approval services are also performed by the Company for multinational, regional and generic pharmaceutical companies. The Company has performed such services for many companies, including subsidiaries of Bristol-Myers, Burroughs Wellcome, Ciba-Geigy, Johnson & Johnson, Rhone-Poulenc Rorer, The Upjohn Co. and G.D. Searle & Co.
The Company provides pharmaceutical companies with a broad range of pharmaceutical development services, including pharmacokinetic studies, bioanalytical laboratory testing, clinical research studies and regulatory services, including the preparation and filing of drug submissions with the FDA, HPB and other foreign regulatory agencies. These services are also performed for the Company's own product development and registration programs.
Pharmacokinetic Study Services
The Company conducts Phase I human bioavailability, bioequivalency and drug interaction studies at its 140 bed, sleep-in clinic located in Scarborough, a suburb of Toronto, Ontario. Therapeutic areas in which studies have been completed include respiratory, cardiovascular, pain management, infectious diseases, arthritis, the central nervous system, gastroenterology and endocrinology. The Company's clinical facility is suitable for studies requiring the monitoring of individuals for up to 30 days. Long-term observation periods are imperative for studies where close subject supervision and absolute dosing compliance is required. The research procedures include repeated blood sampling at frequent intervals followed by precision analysis of the drug levels in the blood to determine whether the drug under review meets the criteria expected for the specific compounds under investigation.
BIOANALYTICAL LABORATORY SERVICES
The Company performs specialized bioanalytical and quality control test method development and other laboratory services for major regional and multinational pharmaceutical concerns. The Company's analytical laboratory, located in its clinical facility in Scarborough, Ontario, is subject to full compliance with the Good Laboratory Practice Regulations and Standards required by the FDA, the HPB and other foreign regulatory agencies.
Clinical Trials
The Company prepares suitable protocols and case reports for Phase II and III studies of pharmacologically active agents. The Company organizes clinical trials, contracts with medical investigators, monitors trials, and tabulates and analyzes trial data in a manner consistent with regulatory filing criteria. The Company's experience in clinical trials enhances its ability to coordinate North American multi-centre trials. In the United States, all trials are required to be conducted according to Good Clinical Practice Guidelines and Regulations. In Canada, all clinical testing must be conducted in accordance with the Food and Drugs Act and regulations thereunder, as well as certain guidelines for the conduct of experiments with human subjects.
Regulatory Services
The Company has 17 years of experience in working with regulatory authorities located in the United States and Canada. The Company has experience in the regulatory approval process through and including
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the preparation and filing of an Investigational New Drug Application ("IND"), NDA or ANDA or an equivalent submission with other regulatory agencies.
COMPETITION
The pharmaceutical industry is highly competitive and subject to rapid and significant technological change. The Company's products face intense competition from both conventional forms of drug delivery and controlled release drug delivery systems developed, or under development by, other pharmaceutical concerns with substantially greater financial and technical resources than the Company. Almost all of these competitors have greater marketing capabilities than those of the Company. Competitors of the Company in the United States and abroad are numerous and include, among others, major pharmaceutical and chemical companies, including without limitation some of the licensees of the Company's products, specialized contract, research and development firms, universities and other research institutions. The Company believes that its controlled release technology combined with its strategy of funding and controlling all or most aspects of its controlled release pharmaceutical business will provide the cost savings, efficiencies in product development and acceleration of regulatory filings necessary for it to compete effectively with such firms and institutions. There can be no assurance, however, that the Company's competitors will not succeed in developing technologies and products that are as, or more, clinically- or cost-effective than any that are being developed or licensed by the Company or that would render the Company's technologies and products obsolete and non-competitive. In addition, certain of the Company's competitors have greater experience than the Company in clinical testing and human clinical trials of pharmaceutical products and in obtaining FDA and other regulatory approvals.
GOVERNMENT REGULATION
The research and development, manufacture and marketing of controlled release products are subject to regulation by the FDA, HPB and comparable authorities in other foreign countries. These national agencies and other federal, state, provincial and local entities regulate the testing, manufacture, safety and promotion of the Company's products. The regulations applicable to the Company's products may change as the currently limited number of approved controlled release products increase and regulators acquire additional experience in this area.
UNITED STATES REGULATION
New Drug Application. The Company is required by the FDA to comply with NDA procedures prior to marketing certain of its products. These procedures include (i) preclinical laboratory and animal toxicology tests; (ii) submission of an IND, which must become effective before human clinical trials commence; (iii) adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for its intended indication; (iv) the submission of an NDA to the FDA; and (v) FDA approval of an NDA prior to any commercial sale or shipment of the product, including pre-approval and post approval inspections of its manufacturing facilities.
Preclinical laboratory and animal toxicology tests must be performed to assess the safety and potential efficacy of the product. The results of these preclinical tests are then submitted to the FDA as part of an IND requesting authorization to initiate human clinical trials. Upon approval of the IND by the FDA, clinical trials may be initiated.
Clinical trials involve the administration of the controlled release product to individuals under the supervision of qualified medical investigators. Clinical studies are conducted in accordance with protocols
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that detail the objectives of a study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol is submitted to the FDA prior to the commencement of each clinical trial. Clinical studies are typically conducted in three sequential phases, which may overlap. In Phase I, the initial introduction of the product into human subjects, the compound is tested for safety, dosage, tolerance, metabolic interaction, distribution, excretion and pharmacodynamics. Phase II involves studies in a limited patient population to (i) determine the efficacy of the product for specific, targeted indications, (ii) determine optimal dosage and (iii) identify possible adverse effects and safety risks. In the event Phase II evaluations demonstrate that the controlled release product is effective and has an acceptable safety profile, Phase III clinical trials are undertaken to further evaluate clinical efficacy of the product and to further test for its safety within an expanded patient population at geographically dispersed clinical study sites. The FDA or the Company may suspend clinical trials at any time if they believe the clinical subjects are being exposed to unacceptable health risks. The results of the product development, analytical laboratory studies and clinical studies are submitted to the FDA as part of an NDA for approval of the marketing and commercialization of the controlled release product.
If the approval being sought is for a new dosage form of an approved chemical entity, as has been the case for each of the Company's products submitted under an NDA to date, the approval process may not require preclinical toxicity tests normally required as part of the NDA process.
Abbreviated New Drug Application. In certain cases, where the Company's objective is to develop a generic version of an approved product already on the market in controlled release dosages, an ANDA may be filed in lieu of filing an NDA. Under the ANDA procedure, the FDA typically waives the requirement to submit complete reports of preclinical and clinical studies of safety and efficacy and instead requires the submission of bioequivalency data. An ANDA would be available to the Company for a new formulation of a drug for which controlled release forms have already been approved by the FDA. The advantages of an ANDA over an NDA include reduced research and development costs associated with bringing a product to market, and generally a shorter review and approval time at the FDA.
The FDA may deny approval of an NDA or an ANDA if applicable regulatory criteria are not satisfied or may require additional testing. Product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. The FDA may require further testing and surveillance programs to monitor the pharmaceutical product that has been commercialized. Noncompliance with applicable requirements can result in fines and other judicially imposed sanctions, including product seizures, injunction actions and criminal prosecutions.
CANADIAN REGULATION
The requirements for selling pharmaceutical drugs in Canada are substantially similar to those of the United States described above.
Investigational New Drug Application. Before conducting clinical trials of a new drug in Canada, the Company must submit an IND to the HPB. This application includes information about the methods of manufacture of the drug and controls, and preclinical laboratory and animal toxicology tests on the safety and potential efficacy of the drug. If, within 60 days of receiving the application, the HPB does not notify the Company that its application is unsatisfactory, the Company may proceed with clinical trials of the drug. The phases of clinical trials are the same as those described above under "United States Regulation - New Drug Application."
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New Drug Submission. Before selling a new drug in Canada, the Company must submit a New Drug Submission ("NDS") to the HPB and receive a notice of compliance from the HPB to sell the drug. The NDS includes information describing the new drug, including its proper name, the proposed name under which the new drug will be sold, a quantitative list of ingredients of the new drug, the methods of manufacturing, processing, and packaging the new drug, the controls applicable to these operations, the tests conducted to establish the safety of the new drug, the tests to be applied to control the potency, purity, stability and safety of the new drug, the results of clinical trials and the effectiveness of the new drug when used as intended. The HPB reviews the NDS. If the NDS meets the requirements of Canada's Food and Drugs Act and Regulations, the HPB will issue a notice of compliance for the new drug.
Where the HPB has already approved a drug for sale in controlled release dosages, the Company may seek approval from the HPB to sell an equivalent drug. In certain cases, the HPB does not require the manufacturer of a drug that is equivalent to a drug that has already been approved for sale by the HPB to conduct preclinical tests and clinical trials; instead, the HPB accepts data to establish that the drug is "bioequivalent" to the drug that has already been approved. The manufacturer must submit this data with an NDS to the HPB.
The HPB may deny approval of an NDS if applicable regulatory criteria are not satisfied or may require additional testing. Product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. The HPB may require further testing and surveillance programs to monitor the pharmaceutical product which has been commercialized. Noncompliance with applicable requirements can result in fines and other judicially imposed sanctions, including product seizures and criminal prosecutions.
Additional Regulatory Considerations
Sales of the Company's products by licensees outside of the United States and Canada are subject to regulatory requirements governing the testing, registration and marketing of pharmaceuticals, which vary widely from country to country.
There can be no assurance that problems will not arise which could delay or prevent the commercialization of the Company's products currently under development, or that the FDA, HPB and foreign regulatory agencies will be satisfied with the results of clinical trials to approve the marketing of such products.
The Company's manufacturing facilities located at Steinbach, Manitoba and Carolina, Puerto Rico operate according to Current Good Manufacturing Practices Regulations. The manufacturing facilities are inspected on a regular basis by the FDA, the HPB, other regulatory authorities and the Company's self-auditing team to ensure compliance on an ongoing basis with Current Good Manufacturing Practices. From time to time, the FDA, the HPB or other regulatory agencies may adopt regulations that may significantly affect the manufacture and marketing of the Company's products.
Certain provincial regulatory authorities in Canada have the ability to determine whether the cost of a drug sold within such province will be reimbursed by a provincial government health plan by listing drugs on formularies. These provincial formularies may affect the prices of drugs sold within provinces and the volume of drugs sold within provinces.
In addition to the regulatory approval process, pharmaceutical companies are subject to regulations under provincial, state and federal law, including requirements regarding occupational safety, laboratory
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practices, environmental protection and hazardous substance control, and may be subject to other present and future local, provincial, state, federal and foreign regulations, including possible future regulations of the pharmaceutical industry.
Proposals have recently been made that, if implemented, would significantly change Canada's drug approval system. In general, the recommendations emphasize the need for efficiency in Canadian drug review. Proposals include establishment of a separate agency for drug regulation and modelling the approval system on those found in European Community countries. There is no assurance, however, that such changes will be implemented or, if implemented, will expedite the approval of controlled release products.
The Canadian government has regulations which prohibit the issuance of a notice of compliance (NOC) for a medicine, other than the first medicine marketed in Canada, provided that the patent owner of the medicine has filed a list of its Canadian patents covering that medicine with the HPB. After receiving the list, the HPB may refuse to issue NOCs permitting the importation or sale of a patented medicine to persons other than a patent owner until patents on the medicine expire or are declared invalid by a court of competent jurisdiction.
PATENTS AND PROPRIETARY RIGHTS
The Company does not routinely seek patents on its controlled release technology. Instead, the Company has relied on trade secrets, know-how and other proprietary information. While certain of the Company's licensors have sought patents on controlled release technology licensed to the Company, there can be no assurance that any patents will be issued, or if issued, that such patents will not infringe upon a pre-existing patent or technology. The Company's ability to compete effectively with other companies will depend, in part, upon its ability to maintain the proprietary nature of its technology. To protect its rights in these areas, the Company requires all licensors, licensees and significant employees to enter into confidentiality agreements. There can be no assurance, however, that these agreements will provide meaningful protection for the Company's trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure of such trade secrets, know-how or other proprietary information. A patent for the Tiazac(R) controlled release formulation has been issued.
DIVIDEND POLICY
It is anticipated that for the foreseeable future any earnings generated from the Company's operations will be retained for use in the Company's business. Any future determination as to the payment of dividends will be at the discretion of the Board of Directors and will depend on the Company's earnings, operating results, financial condition and capital requirements, general business conditions and such other factors as the Board of Directors may deem relevant.
EMPLOYEES
As of June 10, 1996, the Company employed 295 persons, including 125 at its manufacturing operations in Manitoba and Puerto Rico, 50 at its Canadian sales and marketing operation, 81 at its contract research organization, 19 at its formulation research operation and 20 in its corporate office. Of the above employees, 52 are employed on a part-time basis.
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Item 2. DESCRIPTION OF PROPERTIES
The Company and its subsidiaries own and lease space for manufacturing, warehousing, research, development, sales, marketing, and administrative purposes. The Company owns two pharmaceutical manufacturing facilities; one in Steinbach, Manitoba, Canada totalling 75,000 square feet and the second in Carolina, Puerto Rico totalling 23,000 square feet. The Company's contract research organization is located in a 33,000 square foot owned facility in Toronto, Ontario, Canada. The Company's corporate office and formulations development research are located in a 24,300 square foot leased facility in Mississauga, Ontario, Canada. The Company's Canadian sales and marketing operation is located in an 8,300 square foot office leased facility in Montreal, Quebec, Canada. The Company also leases 2,500 square feet of office space in St. Michael, Barbados and 11,000 square feet of warehouse space in Carolina, Puerto Rico.
ITEM 3. LEGAL PROCEEDINGS
On November 12, 1993, a patent infringement lawsuit was commenced in the U.S.District Court, for the District of New Jersey, by Marion Merrell Dow, Inc. ("MMD"), Carderm Capital LP and Elan Corporation plc ("Elan") against Hoechst-Roussel Pharmaceuticals, Inc. ("Hoechst").
Hoechst was licensed by the Company for the once-daily controlled release formulation of Diltiazem. A complaint alleged that Hoechst had infringed certain patents relating to controlled absorption diltiazem formulation and sought, among other things, to enjoin Hoechst from infringing the plaintiffs' patents.
As a result of the Settlement Agreement among Hoechst, MMD and Carderm Capital LP, that suit was discontinued on behalf of those plaintiffs. However, Elan has continued this suit as sole plaintiff.
The Company has answered Elan's allegations of patent infringement by denying any such infringement and by asserting that, in any event, Elan's patents are invalid and therefore unenforceable.
The Company has received a legal opinion that Elan's lawsuit is without merit and it has, accordingly, launched an Application for a summary dismissal of Elan's complaint.
ITEM 4. CONTROL OF REGISTRANT
The following table sets forth certain information as of May 31, 1996 concerning the beneficial ownership of common stock of the Company as to (a) each person known to the management of the Company that is the beneficial owner of more than 10% of the outstanding shares of the Company's common stock and (b) Company's officers and directors as a group:
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Ownership of Common Stock(1) ---------------------------- Name and Address Number of Shares Percent - ---------------- ---------------- ------- Eugene Melnyk 5,431,077 21.4% c/o Biovail Corporation International 2488 Dunwin Drive Mississauga, Ontario L5L 1J9 Officers and Directors of the Company 5,835,405 23.0% as a Group (8 persons)
(1) unless otherwise noted, each person listed has, to the best of the Company's knowledge and belief, sole voting and investment power with respect to the indicated shares.
ITEM 5. NATURE OF TRADING MARKET
As discussed in Item 1, Business - General, the Company was formed upon the Amalgamation of each of Trimel and BCI effective March 29, 1994. Prior to the Amalgamation, the common stock of BCI (as the predecessor entity) was traded in the over-the-counter market with price quotations listed on the OTC Bulletin Board, an NASD sponsored and operated inter-dealer automated quotation system for equity securities not included in the NASDAQ System, as well as in the NQB Pink Sheets published by the National Quotation Bureau Incorporated. Such quotations were limited and sporadic and should not be deemed to indicate the existence of an "established public trading market" for the Company's common stock during such period. Prior to the Amalgamation, the common stock of Trimel was traded on the Toronto Stock Exchange under the symbol "TXM". Effective upon the amalgamation of Trimel and BCI to form Biovail Corporation International, as the surviving amalgamated corporation, the common stock of the Company was traded on NASDAQ under the symbol "BIOVF"." Effective September 20, 1994, the common stock of the Company cesed trading on NASDAQ and commenced trading on the American Stock Exchange and continued trading on the Toronto Stock Exchange under the symbol"BVF".
The following table sets forth, for the periods indicated, the high and low reported price of the Company's common stock on the American Stock Exchange, NASDAQ and the Toronto Stock Exchange, and takes into effect the 3-for-1 stock split completed in January, 1996.
(1) NASDAQ (2) NASDAQ/AMEX
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AMERICAN STOCK EXCHANGE TORONTO STOCK EXCHANGE -------- --------------- ---------------------- PRICE RANGE (U.S.$) PRICE RANGE (CDN.$) HI GH LOW HIGH LOW -- -- --- ---- --- 1996 - ---- First Quarter 30. 75 21.75 43.00 29.75 Second Quarter (to May 31) 40. 00 22.50 54.50 31.00 1995 - ---- First Quarter 5. 17 2.29 7.33 3.33 Second Quarter 6. 46 4.17 8.67 6.00 Third Quarter 11. 96 6.21 16.17 8.80 Fourth Quarter 26. 00 10.63 35.03 14.33 1994 - ---- First Quarter - - 2.42 1.50 Second Quarter (1) 2. 42 1.17 3.10 1.83 Third Quarter (2) 2. 50 1.75 3.43 2.67 Fourth Quarter 3. 42 2.38 4.47 3.40
The Company estimates that approximately 15,300,000 shares of its outstanding common stock (representing 60%) are held by United States shareholders and that there are approximately 137 recordholders of the Company's common stock located in the United States.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFF ECTING SECURITY HOLDERS
Canada has no system of exchange controls. There are no exchange restrictions on borrowing from foreign countries nor on the remittance of dividends, interest, royalties and similar payments, management fees, loan repayments, settlement of trade debts or the repatriation of capital.
The Investment Canada Act (the "Act") enacted on June 20, 1985, as amended by the Canada-United States Free Trade Agreement Implementation Act (Canada), requires the prior notification and, in certain cases, advance review and approval by the Government of Canada of the acquisition by a "non-Canadian" of "control" of a "Canadian business", all as defined in the Act. For the purposes of the Act, "control" can be acquired through the acquisition of all or substantially all of the assets used in the Canadian business, or the direct or indirect acquisition of interests in an entity that carries on a Canadian business or which controls the entity which carries on the Canadian business. Under the Act, control of a corporation is deemed to be acquired through the acquisition of a majority of the voting shares of a corporation, and is presumed to be acquired where more than one-third, but less than a majority, of the voting shares of a corporation are acquired, unless it can be established that the corporation is not controlled in fact through the ownership of voting shares. Other rules apply with respect to the acquisition of non-corporate entities.
Investments requiring review and approval include direct acquisitions of Canadian businesses with assets with a gross book value of CDN $5,000,000 or more; indirect acquisitions of Canadian businesses with assets of CDN $50,000,000 or more; and indirect acquisitions of Canadian businesses where the value of assets of the entity or entities carrying on business in Canada, control of which is indirectly being acquired, is greater than CDN $5,000,000 and represents greater than 50% of the total value of the assets of all of the entities, control of which is being acquired. Subject to certain exceptions, where an investment is made by an "American," or the vendor of the Canadian business is an "American" (as defined in the Act), the monetary thresholds discussed above are higher. In these circumstances the monetary threshold with regard to direct acquisitions is CDN $150,000,000 in constant 1992 dollars as determined in accordance with the Act. The monetary threshold for indirect acquisitions, where the value of the assets of the entity or entities carrying on business in Canada is greater than 50% of the total value of the assets of all of the entities being acquired, is CDN $150,000,000 in constant 1992 dollars as determined in accordance with the Act. Other indirect acquisitions of Canadian businesses by or from Americans are not subject to review. An "American", as defined under the Act, includes an individual who is a national of the United States or is lawfully admitted for permanent residence within the meaning of the Immigration and Nationality Act of the United States, and a corporation that is controlled by an American in accordance with the Act. Special rules apply with respect to investments by non-Canadians to acquire control of Canadian businesses that engage in certain specified activities, including financial services, transportation services and activities relating to Canada's cultural heritage or national identity. If an investment is reviewable, an application for review in the form prescribed by regulation is normally required to be filed with the Agency (established by the Act) prior to the investment taking place and the investment may not be consummated until the review has been completed and ministerial approval obtained. Applications for review concerning indirect acquisitions may be filed up to 30 days after the investment is consummated. Applications concerning reviewable investments in culturally sensitive and other specified activities referred to in the preceding paragraph are required upon receipt of a notice for review. There is, moreover,
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provision for the Minister (a person designated as such under the Act) to permit an investment to be consummated prior to completion of review if he is satisfied that delay would cause undue hardship to the acquirer or jeopardize the operation of the Canadian business that is being acquired.
The Agency will submit the application for review to the Minister, together with any other information or written undertakings given by the acquirer and any representation submitted to the Agency by a province that is likely to be significantly affected by the investment. The Minister will then determine whether the investment is likely to be of "net benefit to Canada," taking into account the information provided and having regard to certain factors of assessment prescribed under the Act. Among the factors to be considered are: (i) the effect of the investment on the level and nature of economic activity in Canada, including the effect on employment, on resource processing, on the utilization of parts, components and services produced in Canada, and on exports from Canada; (ii) the degree and significance of participation by Canadians in the Canadian business and in any industry in Canada of which it forms a part; (iii) the effect of the investment on productivity, industrial efficiency, technological development, product innovation and product variety in Canada; (iv) the effect of the investment on competition within any industry or industries in Canada; (v) the compatibility of the investment with national industrial, economic and cultural objectives enunciated by the government or legislature of any province likely to be significantly affected by the investment; and (vi) the contribution of the investment to Canada's ability to compete in world markets.
Within 45 days after a completed application for review has been received, the Minister must notify the investor that (a) he is satisfied that the investment is likely to be of "net benefit to Canada," or (b) he is unable to complete his review in which case he shall have 30 additional days to complete his review (unless the investor agrees to a longer period) or (c) he is not satisfied that the investment is likely to be of "net benefit to Canada."
If the Minister is unable to complete his review and no decision has been taken within the prescribed or agreed upon time, the Minister is deemed to be satisfied that the investment is likely to be of "net benefit to Canada."
Where the Minister has advised the investor that he is not satisfied that the investment is likely to be of net benefit to Canada, the acquirer has the right to make representations and submit undertakings within 30 days of the date of the notice (or any further period that is agreed upon between the investor and the Minister). On the expiration of the 30-day period (or an agreed extension), the Minister must notify the investor whether or not he is satisfied that the investment is likely to be of "net benefit to Canada." In the latter case, the investor may not proceed with the investment or, if the investment has already been consummated, must relinquish control of the Canadian business.
ITEM 7. TAXATION
CANADIAN FEDERAL INCOME TAXATION
The following discussion is a summary of the principal Canadian federal income tax considerations generally applicable to purchasers of the Company's Common Stock pursuant to this Annual Report who, for purposes of the Income Tax Act (Canada) (the "Canadian Act"), deal at arm's length with the Company, hold shares of Common Stock as capital property, are not residents of Canada at any time when holding Common Stock and do not use or hold and are not deemed to use or hold Common Stock in or in the course of carrying on business in Canada and, in the case of insurers who carry on an insurance business
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in Canada and elsewhere, do not hold Common Stock that is effectively connected with an insurance business carried on in Canada.
This summary is based on the current provision of the Canadian Act, the regulations thereunder and the Canada-United States Income Tax Convention (1980) (the "Treaty") as amended. This summary takes into account specific proposals to amend the Canadian Act and the regulations thereunder publicly announced by the Minister of Finance prior to the date hereof and the Company's understanding of the current published administrative and assessing practices of Revenue Canada, Taxation. This summary does not take into account Canadian provincial income tax laws or the income tax laws of any country other than Canada.
A shareholder of the Company will generally not be subject to tax pursuant to the Canadian Act on a capital gain realized on a disposition of Common Stock unless the Capital Stock is "taxable Canadian property" to the shareholder for purposes of the Canadian Act and the shareholder is not eligible for relief pursuant to an applicable bilateral tax treaty. The Capital Stock will not be taxable Canadian property to a shareholder provided that the Company is a "public corporation" within the meaning of the Canadian Act and provided that such shareholder, or persons with whom such shareholder did not deal at arm length (within the meaning of the Canadian Act), or any combination thereof, did not own 25% or more of the issued shares of any class or series of the Company at any time within five years immediately preceding the date of disposition. The Company has qualified and elected to be a "public corporation" within the meaning of the Canadian Act. In addition, the Treaty will generally exempt a shareholder who is a resident of the United States for purposes of the Treaty from tax in respect of a disposition of Common Stock provided that the value of the shares of the Company is not derived principally from real property (including resource property) situated in Canada and provided such shareholder does not have and has not had within the 12-month period preceding the disposition a permanent establishment or fixed base available to such shareholder in Canada.
Any dividend, including stock dividends, paid or credited, or deemed to be paid or credited, by the Company to a shareholder will be subject to Canadian withholding tax at the rate of 25% on the gross amount of the dividend, subject to the provisions of any applicable income tax convention. Pursuant to the Treaty, the rate of withholding tax generally will be reduced to 15% in respect of dividends paid to a shareholder who is a resident of the United States for purposes of the Treaty and further reduced to 5% if the beneficial owner of the shares is a corporation owning at least 10% of the voting shares of the Company. The reduction to 5% for corporations owning at least 10% of the voting shares of the Company is phased in at 7% for dividends paid before 1996 and at 6% for dividends paid before 1997.
UNITED STATES TAXATION
For federal income tax purposes, an individual who is a citizen or resident of the United States or a domestic corporation ("U.S. Taxpayer") will recognize a gain or loss on the sale of the Company's Common Stock equal to the difference between the proceeds from such sale and the adjusted cost basis in the Common Stock. The gain or loss will be a capital gain or capital loss if the Company's Common Stock is a capital asset in the hands of the U.S. Taxpayer.
For federal income tax purposes, a U.S. Taxpayer will be required to include in gross income dividends received on the Company's Common Stock. A U.S. Taxpayer who pays Canadian tax on a dividend on the Common Stock will be entitled, subject to certain limitations, to a credit ( or alternatively, a deduction) against federal income tax liability. A domestic corporation that owns at least 10% of the voting stock of
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the Company should consult its tax advisor as to applicability of the dividends received deduction or deemed paid foreign tax credit with respect to dividends paid on the Company's Common Stock.
For any taxable year of the Company, if at least 75% of the Company's gross income is "passive income" (as defined in the Internal Revenue Code of 1986, as amended (the "Code")), or if at least 50% of the Company's assets, by average fair market value, are assets that produce or are held for the production of passive income, the Company will be a Passive Foreign Investment Company ("PFIC"). While the Company does not believe that it is likely to be a PFIC in its current or future taxable years, because the PFIC determination is made annually on the basis of facts and circumstances that may be beyond the Company's control, there can be no assurance that the Company will not be a PFIC for such years.
If the Company is a PFIC for any taxable year during which a U.S. Taxpayer owns any Common Stock, the U.S. Taxpayer will be subject to special U.S. federal income tax rules, set forth in Sections 1291 to 1297 of the Code, with respect to all of such U.S. Taxpayer's Common Stock. For example, gifts, exchanges pursuant to corporate reorganizations and use of the Common Stock as security for a loan may be treated as taxable disposition, and a stepped-up basis upon the death of such a U.S. Taxpayer may not be available. Furthermore, in the absence of an election by such U.S. Taxpayer to treat the Company as a "qualified electing fund" (the "QEF election") , as discussed below, the U.S. Taxpayer would be required to (i) report any gain on disposition of any Common Stock as ordinary income rather than capital gain, (ii) to compute the tax liability on such gain and on certain distributions as if the items had been earned pro rata over the U.S. Taxpayer's holding period (or a certain portion thereof) for the Common Stock and (iii) would be subject to the highest ordinary income tax rate for each taxable year of the U.S. Taxpayer in which the items were treated as having been earned. Such U.S. Taxpayer would also be liable for interest (which may be non-deductible by certain U.S. Taxpayers) on the foregoing tax liability as if such liability had been due with respect to each such prior year.
If the Company is a PFIC for any taxable year during which a U.S. Taxpayer owns any Common Stock, the adverse taxation of disposition gains and certain distributions may be avoided by any U.S. Taxpayer who makes a QEF Election on or before the due date (including extensions) for filing such U.S. Taxpayer's tax return for such taxable year. Such a U.S. Taxpayer would be taxed on dividends and capital gains as if the Company had never been a PFIC, but would also be taxed on its pro-rata share of the Company's earnings and profits for the Company's taxable year in which it was (or was treated as) a PFIC and which ends with or within such U.S. Taxpayer's taxable year, regardless of whether such amounts are actually distributed by the Company. Should such an election be made (and if the Company is a PFIC, U.S. Taxpayers are strongly urged to consider this special election), there are a number of specific rules and requirements applicable thereto, and such an electing U.S. Taxpayer is strongly urged to consult his own tax advisor in that regard.
The foregoing discussion of Canadian taxation and United States taxation is of a general and summary nature only and is not intended to be, nor should it be considered to be, legal or tax advice to any particular shareholder. Accordingly, prospective investors should consult their own tax advisors as to the tax consequences of receiving dividends from the company or disposing of their common stock.
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ITEM 8. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the Company. Insofar as it relates to the Company as of and for each of the years in the five year period ended December 31, 1995, the data has been derived from financial statements prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP") that have been audited by Deloitte & Touche, Toronto, Canada. The data set forth below should be read in conjunction with the Company's consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein.
(1) Earning (loss) per share take into effect the 3-for-1 stock split completed in January, 1996.
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YEARS ENDED DECEMBER 31, -------------------------------------------------- ---------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- (ALL DOLLAR AMOUNTS ARE EXPRESSED IN T HOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AND FOOT NOTED DATA) OPERATING DATA: Revenue Contract ................................... $ 4,333 $ 3,909 $ 3,771 $ 3,148 $ 3,190 Manufacturing .............................. 7,915 4,975 -- -- -- Royalty, Licensing and Other ............... 8,321 8,404 7,358 2,815 2,633 -------- -------- -------- -- ------ -------- 20,569 17,288 11,129 5,962 5,823 -------- -------- -------- -- ------ -------- Expenses Cost of Contract Revenue ................... 2,732 3,036 2,783 2,548 2,343 Cost of Manufactured Goods Sold ............ 2,715 2,102 -- -- -- Research and Product Development ........... 4,462 2,542 2,737 4,632 4,576 Selling and Administrative ................. 7,182 6,359 5,718 5,483 4,538 Royalty and Commission ..................... 925 724 1,399 -- -- -------- -------- -------- -- ------ -------- 8,016 14,763 12,637 12,663 11,427 -------- -------- -------- -- ------ -------- Operating Income (Loss) ........................ 2,553 2,525 (1,508) (6,701) (5,634) Interest Expense, Net .......................... (99) (589) (722) (1,186) (1,198) Gain on Licensing Settlement ................... 3,617 -- -- -- -- Gain on Debt Settlement ........................ -- 7,955 -- -- -- Offering Expenses .............................. -- -- -- (1,115) -- -------- -------- -------- -- ------ -------- Income (Loss) before Income Taxes .............. 6,071 9,891 (2,230) (9,001) (6,832) Provision for Income Taxes ..................... 201 430 248 349 199 -------- -------- -------- -- ------ -------- Income (Loss) Before Undernoted ................ 5,870 9,461 (2,478) (9,350) (7,031) Minority Interest .............................. -- -- (726) (780) (416) Dilution Gain on Issuance of Common Shares By a Subsidiary Company ..................... -- -- 5,871 1,941 -- Gain on Sale of a Subsidiary Company ........... -- -- 1,260 -- -- Share of Net Loss of Equity Accounted Investment .................................. -- -- -- (25) (165) -------- -------- -------- -- ------ -------- Net Income (Loss) .............................. $ 5,870 $ 9,461 $ 3,927 $ (8,214) $ (7,612) ======== ======== ======== == ====== ======== Earnings (Loss) Per Share (1) .................. $ 0.23 $ 0.43 $ 0.28 $ (0.70) $ (0.78) ======== ======== ======== == ====== ======== BALANCE SHEET DATA: Working Capital (Deficiency) ................... $ 26,817 $ 547 $ 2,338 $ (3,341) $ (2,801) Total Assets ................................... 60,867 25,630 23,265 23,457 22,090 Long-Term Debt ................................. 7,951 9,782 21,398 19,874 19,834 Minority Interest .............................. -- -- 2,167 2,536 1,020 Shareholders' Equity (Capital Deficiency) (2) .. 14,592 7,693 (4,760) (7,969) (8,034)
Summary of differences between generally accepted accounting principles ("GAAP") in Canada and in the United States (U.S.)
(1) The weighted average number of common shares outstanding for purposes of the computation of the earnings (loss) per share data under U.S. GAAP gives effect to the exercise of all outstanding options and the 3-for-1 stock split in January, 1996.
(2) The capital deficiency which would be reported under U.S. GAAP differ from the amounts reported under Canadian GAAP. The shareholders' equity (capital deficiency) under U.S. GAAP would have been $(9,271,000), $(9,141,000) and $(6,303,000) at December 31, 1991, 1992 and 1993, respectively. There are no material differences between shareholders' equity determined under Canadian and U.S. GAAP at either December 31, 1994 or 1995.
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YEARS ENDED DECEMBER 31, - --------------------------------------------------- -------------------- 1995 1994 1993 19 92 1991 ---- ---- ---- -- -- ---- (ALL DOLLAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF U.S. DOLLARS) OPERATING DATA Net earnings (loss) - Canadian GAAP ........... $ 5,870 $ 9,461 $ 3,927 $ (8 ,214) $ (7,612) Differences Use of weighted average rate for the year versus year end rate for purposes of translating net income amounts from Canadian dollars (the currency of measurement) to U.S. dollars (the reporting currency) .................... (36) 252 105 423 63 Items excluded from income under U.S. GAAP Dilution gain on issuance of common shares by a then subsidiary company ......................... -- -- (5,871) ( 1942) -- Gain on debt settlement treated as contributed surplus under U.S. GAAP ....................................... -- (7,955) -- -- -- - ------- -------- -------- ---- ---- -------- Net income (loss) - U.S. GAAP ................. $ 5,834 $ 1,758 $ (1,839) $ (9 ,733) $ (7,549) = ======= ======== ======== ==== ==== ======== Earnings (loss) per share - U.S.GAAP ......... $ 0.22 $ 0.07 $ (0.15) $ ( 0.95) $ (0.80) = ======= ======== ======== ==== ==== ======== Weighted average number of common shares outstanding under U.S. GAAP (1) (000's) ...... 26,940 22,635 12,199 10 ,229 9,463 = ======= ======== ======== ==== ==== ========
Item 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FIN ANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the related Notes to the Consolidated Financial Statements.
OVERVIEW
The Company derives its revenues from (1) the development and licensing of oral controlled release products using its proprietary drug delivery technology; (2) the manufacture of such drugs for sale to licensees: (3) royalties from sales by licensees of Company developed products; and (4) providing contract research services including pharmacokinetic studies, bioanalytical laboratory testing, clinical research studies and regulatory services.
The Company's profitability in a given year is directly impacted by the level of its research and product development activities. Such costs are charged to earnings in the year they are incurred notwithstanding the fact that the benefits therefrom are not realized until later periods when the products under development are licensed and brought to market and revenues are generated from royalties based on the level of sales and manufacturing revenues are generated through the retention of manufacturing rights.
Effective January 1, 1995, the Company commenced reporting its financial statements in U.S. dollars, while the currency of measurement remains the Canadian dollar. For purposes of this presentation, Canadian dollar amounts have been translated into U.S. dollars at the respective year end rates of exchange.
RESULTS OF OPERATIONS
Contract revenue of the contract research operation was $4,333,000, $3,909,000 and $2,316,000 in 1995, 1994 and 1993, respectively. The continued growth of the contract research operation was due to the stabilization of the Canadian market and an increasing level of business activity from U.S. clients as a result of a favourable U.S. exchange rate. Contract revenue in 1993 includes revenue of $1,455,000 related to an electronic information operation which was sold in 1993.
Manufacturing revenue was $7,915,000 in 1995 as compared to $4,975,000 in 1994. Manufacturing operations commenced in 1994 with shipments of the Company's once-daily diltiazem ("Tiazac(R)") resulting from an order received from the Company's then licensee, Hoechst-Roussel Pharmaceuticals, Inc. ("Hoechst-Roussel") for the manufacture of launch supplies of Tiazac(R). 1995 manufacturing revenue was derived from the sale of Tiazac(R) TO Hoechst-Roussel and to the Company's new licensee, Forest Laboratories, Inc. ("Forest").
Royalty revenue earned by the Company in 1995 was $7,321,000 as compared to $6,404,000 in 1994 and $3,077,000 in 1993. The 1994 amount included a settlement of $1,130,000 received from Schwarz Pharma in respect to the termination and re-acquisition by the Company of the Elanton Long(R) licensing agreement. Excluding this settlement, the increase in royalty revenues in each of 1995 and 1994 are primarily due to Oruvail(R)SR sales volumes in the United States by Wyeth-Ayerst Laboratories. In addition, royalties were earned in 1995 from the launch of Tiazac(R) by Forest in the United States.
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Revenue from the licensing of new products was $1,000,000, $2,000,000 and $4,281,000 in 1995, 1994 and 1993, respectively. The licensing revenues received in these periods relate to the assignment and licensing rights for Tiazac(R) to the Company's then licensees, Hoechst-Roussel in the United States and Sanofi Winthrop in Canada.
The gross margin on contract revenue increased to 37% in 1995 from 22.3% in 1994. This improvement was partially due to the higher level of revenue in 1995 and resultant improved absorption of fixed overhead and partially due to the inclusion in revenue of $567,000 of non-refundable prepaid amounts. During 1994 as compared to 1993, gross margins decreased to 22.3% from 26.2% as a result of the absence of the electronic information operation.
The gross margin on manufacturing revenue was 66% in 1995 as compared to 58% in 1994 due to the impact of higher net product pricing, and reduction of cost of goods manufactured as a result of the acquisition of the Puerto Rico operation.
Research and product development expenses were $4,462,000 in 1995, $2,542,000 in 1994 and $2,737,000 in 1993. These expenses are incurred primarily as a result of the Company's increased research and development activities. The Company intends to continue to incur expenditures to fund on-going formulation and development and to support pre-clinical testing and clinical trials necessary for regulatory filings. The amount and timing of these expenditures will depend on a number of factors.
Selling, general and administrative expenses increased to $7,182,000 in 1995 compared to $6,359,000 in 1994 and $5,718,000 in 1993. The year-to-year increases are primarily as a result of increased activities associated with the manufacturing and research and development facility in Canada in 1995 and 1994, and the start-up of a Canadian sales operation in 1995.
Royalty and commission expenses were $925,000 in 1995 as compared to $724,000 in 1994 and $1,399,000 in 1993, and represent fees paid to technology and other partners.
Operating income of $2,553,000 was achieved in 1995 as compared to operating income of $2,525,000 in 1994 and an operating loss of $1,508,000 in 1993. Canadian operations incurred losses of $6,720,000, $1,307,000 and $3,346,000 in each of 1995, 1994 and 1993, respectively. Operating income of $2,571,000, $2,225,000 and $1,872,000 in each of 1995, 1994 and 1993, respectively was earned by the Company's subsidiary in Switzerland through royalties earned on the Company's products. Other foreign country operations, which include Puerto Rico and Barbados, contributed operating income of $6,702,000 in 1995, $1,607,000 in 1994 and a marginal loss of $34,000 in 1993. The increased operating contribution in Puerto Rico and Barbados in 1995 is primarily due to the sales of Tiazac(R) to Forest.
Interest expense was $99,000 in 1995 as compared to $589,000 in 1994 and $722,000 in 1993. The reduction in interest expense was due to the lower level of interest bearing debt in 1995 and 1994 as compared with 1993. Interest expense in 1995 was further reduced as a result of interest income from surplus cash and short-term deposits.
Included in income in 1995, 1994 and 1993 were non-operating items of $3,617,000, $2,955,000 and $7,131,000, respectively. In 1995, the non-operating item was a gain on licensing settlement relating to the proceeds of $7.5 million, less legal and other related expenses, received from Hoechst-Roussel. The 1994 non-operating item was recorded with respect to a
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gain on the settlement of debt whereby a company controlled by a director of Biovail assumed net indebtedness of $9,604,000 in exchange for 1,656,000 common shares of a former subsidiary, owned by the Company. In 1993, non-operating items consisted of a dilution gain of $5,871,000 arising on issuance of common shares by a former subsidiary company, and $1,260,000 relating to a gain on sale of a subsidiary company.
There was no minority interest in 1995 and 1994 as compared to $726,000 in 1993, due to the acquisition of the minority interest in the Company's subsidiaries, effective January 1, 1994.
Income taxes in 1995, 1994 and 1993 in the amounts of $201,000, $430,000 and $248,000, respectively, relate primarily to the Company's foreign subsidiaries. The 1994 increase to $430,000 over the 1993 provision of $248,000 was due to the increased level of royalty revenue earned by Biovail SA on sales of Oruvail SR(R) in the United States. The 1995 provision decreased to $201,000 from the $430,000 recorded in 1994, as a result of the reduction of income taxes relating to Biovail SA's operations in Switzerland due to change in taxation law in that jurisdiction, effective January 1, 1995. No provision for income taxes has been recorded with respect to gains on debt settlement and licensing settlement as tax losses from Canadian operations are sufficient to offset such gains in their entirety.
In 1995, the Company reported net income from operations of $2,253,000, or $0.09 per share as compared to net income from operations of $1,506,000, or $0.07 per share in 1994, and net loss from operations of $2,478,000 or a net loss of $0.20 per share, in 1993. Net income from operations exclude non-operating income of $3,617,000, or $0.14 per share, $7,955,000, or $0.36 per share and $7,131,000, or $0.56 per share in each of the years 1995, 1994 and 1993, respectively.
Earnings per share have been calculated using the weighted average number of shares outstanding during each respective year. For the purpose of this calculation, the income for the years 1994, and 1993 was reduced by cumulative undeclared dividends on the Class A special shares. See Note 9 of Notes to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1995, the Company generated $31,146,000 in cash from operating activities compared to $2,555,000 in 1994 and an operating cash flow deficiency of $2,089,000 in 1993. The increase in cash generated from operations in 1995 as compared to 1994 arose as a result of an increase in non-cash operating items, primarily a deferred revenue increase of $25,168,000. This amount relates to significant non-refundable advance payments toward manufacturing supplies received from Forest, as a result of a 16 year license and supply agreement on the marketing of Tiazac(R) by Forest in the United States. In addition, improved operating activities in each of the years contributed further cash flow increases.
Cash generated by financing activities in 1995 totalled $ 261,000 as compared to $380,000 in 1994 and $3,712,000 in 1993. In each of 1995 and 1994, cash generated by financing activities was primarily by means of increases in long-term debt offset by debt repayments and cash received on the issuance of shares. In 1993, cash generated by financing activities was significantly higher, primarily as a result of transactions of subsidiary companies, including issuance of common shares and proceeds on sale of a subsidiary, net of dividends paid to minority interests, for a net cash generation of $4,105,000.
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In the year ended December 31, 1995, net cash of $10,502,000 was used for investing activities as compared to $3,020,000 in 1994 and $845,000 in 1993. Cash of $4,288,000 was utilized in 1995 to acquire the operating assets from Galephar Puerto Rico Inc., Limited and $2,617,000 to acquire the worldwide product rights to Tiazac(R). Additions to fixed assets utilized cash of $2,642,000, $1,173,000 and $249,000 in 1995, 1994 and 1993, respectively. Completion of the acquisition of subsidiary companies utilized cash of $955,000, $2,008,000 and $541,000 in 1995, 1994 and 1993, respectively.
Exchange rate changes on cash balances held in Switzerland resulted in an increase of $599,000 in 1995 and $151,000 in 1994 and a decrease of $45,000 in 1993.
As a result of the foregoing, cash balances increased to $24,323,000 in 1995 as compared to $2,819,000 in 1994 and $2,753,000 in 1993.
The Company's total long-term debt was $10,195,000 as at December 31, 1995, as compared to $10,349,000 at December 31, 1994. Long-term debt at December 31, 1995, is comprised of $6,194,000 related to the manufacturing facility located in Manitoba, Canada; $1,801,000 is a mortgage payable on its laboratory facility; and, $2,200,000 is a bank term loan. With respect to the debt relating to the manufacturing facility, an aggregate amount of $2,789,000 is a non-interest bearing loan from a Canadian government agency and $3,405,000 is a construction bank loan from a Canadian chartered bank. The Company has available a line of credit of $1,500,000 for short-term financing.
The Company believes it has adequate capital and sources of financing to support its ongoing operational requirements. Furthermore, the Company believes it will be able to obtain long-term capital, if necessary, to support its growth objectives.
INFLATION
Inflation has not had a material impact on the Company's operations.
FOREIGN CURRENCY
The Company does not currently engage in hedging or other activities to reduce exchange rate risk but may do so in the future, if conditions warrant.
ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY
Directors and executive officers of the Company, their ages and their positions are as follows:
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NAME AGE POSITION - ---- --- -------- Eugene N. Melnyk (1) 37 Chairman of the Board and Director Bruce D. Brydon 49 President, Chie f Executive Officer and Director Rolf Reininghaus 50 Senior Vice Pre sident and Director Mahmood Khan 42 Senior Vice Pre sident, Chief Operating Officer and Director Kenneth C. Cancellara 49 Senior Vice Pre sident, General Counsel, Secretary and D irector
(1) Member of the Audit Committee
Mr. Melnyk has been the Chairman of the Board, and a Director of the Company from the effective date of the Amalgamation, March 29, 1994. Prior to that time, he had been the Chairman of the Board of BCI since October 1991 and was instrumental in acquiring, financing and organizing the companies or businesses that comprised BCI. Mr. Melnyk also founded Trimel and served as its President and Chief Executive Officer from 1983 through July 1991.
Mr. Brydon has been the President and Chief Executive Officer of the Company since January 13, 1995 and a Director since May, 1995. Prior to joining the Company and since 1990 he had been President, Managing Director and Chairman of the Board of the Canadian Operations of Boehringer Mannheim. In the late 1980s Mr. Brydon served as President and CEO of Beiersdorf Canada.
Mr. Reininghaus has been a Senior Vice President and a Director of the Company from the effective date of the Amalgamation, March 29, 1994. Prior to that time, he had been the President, Chief Operating Officer and a Director of BCI since October 1991 and Executive Vice President and a Director of Trimel or its affiliates since November 1987. Prior to his employment by Trimel, Mr. Reininghaus was the Marketing Manager of the Canadian operations of Miles Pharmaceuticals, a division of Bayer AG.
Mr. Khan has been the Senior Vice President, Chief Operating Officer and a Director of the Company from January, 1996. Prior to that time he had been the Senior Vice President - Finance and Chief Financial Officer, Secretary and a Director of the Company from the effective date of the Amalgamation, March 29, 1994. Prior to that time, he had been the Vice President - Finance, Secretary and a Director of BCI since its inception and had been Vice President - Finance, Chief Financial Officer, Secretary and a Director of Trimel since September 1987. Prior to that time, Mr. Khan was a senior staff auditor with Pannell Kerr MacGillivray, Chartered Accountants.
Mr. Cancellara joined the Company as Senior Vice President and General Counsel in March, 1996, was appointed as Secretary of the Company in April, 1996, and has been a Director of the Company since May, 1995. Prior to joining the Company, Mr. Cancellara was a partner with the law firm of Cassels, Brock and Blackwell since 1980 where he served as chairman of the Executive Committee and managing partner for many years.
Mr. Bristow has been a Director of the Company from the effective date of the Amalgamation, March 29, 1994. Prior to that time, he had been a Director of BCI since January 1993. Mr. Bristow has been a senior investment advisor at Nesbitt Thompson Inc., a Canadian investment banking firm, since December 1991. From September 1975 to December 1991, he served as vice president and director of Richardson Greenshields of Canada, an investment banking firm. Mr. Bristow is currently a director of Conversion Industries, Inc., a merchant bank.
Mr. Henry was elected a Director of the Company in May, 1996. Mr. Henry has been Managing Director of G. Howard Associates, Inc., a private investment firm, since 1986. Prior thereto, Mr. Henry spent six years with the predecessor of Schroeder,Wertheim & Co., Inc., an
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Wilfred G. Bristow (1) 64 Director George H. Henry (1) 42 Director Robert A. Podruzny 48 Vice President - Finance and Chief Financial Officer
investment banking firm, most recently as a Vice President in the Corporate Finance Department. Mr Henry is currently a director of Phonetell Technologies, Inc., a publicly held telecommunications company, and a trustee of Mitchell College.
Mr. Podruzny joined the Company as Vice President of Finance and Chief Financial Officer in January, 1996. Mr. Podruzny came to Biovail from Browning-Ferris Industries Ltd. where he served as the Chief Financial Officer and as a Director of the Canadian operation from 1993 to 1995. From 1987 to 1992, Mr. Podruzny served as General Manager of the U.S. Health Promotion Division of MDS Health Group, a Toronto-based medical services company. Mr. Podruzny is a Chartered Accountant in Canada and holds an MBA in finance.
SCIENTIFIC ADVISORY BOARD
The Company's Scientific Advisory Board advises the Company on developments relevant to current and future forms of controlled release drug delivery system technology. The Scientific Advisory Board has significant experience in the areas of pharmaceutical chemistry, controlled release formulation development, international drug development, pharmacokinetics, polymer coatings, and U.S., Canadian and international drug approval process requirements. In addition, Scientific Advisory Board members consult with the Company on aspects of controlled drug release formulation planning and feasibility studies. While the Scientific Advisory Board holds formal meetings with the Company on a quarterly basis during the year, most of the members of the Scientific Advisory Board are also consultants to the Company and, accordingly, counsel and advise the Company on a continual basis throughout the year. Members of the Scientific Advisory Board include:
Arnold H. Beckett, O.B.E, B.Sc., Ph.D., D.Sc., Chairman of the Scientific Advisory Board, is the former Head of the School of Pharmacy and Director of Medicinal Chemistry, Kings College, University of London, 1959-1985. In addition to honourary degrees at such universities as the University of Heriot-Watt, Scotland, the University of Uppsala, Sweden, and Leuven, Belgium, Dr. Beckett was the Chairman of the Board of Pharmaceutical Sciences of the International Pharmaceutical Federation from 1970-1980 and President of the Royal Pharmaceutical Society from 1981-1982. Dr. Beckett is currently a member of the Medical Commission of the International Olympic Committee and Chairman of the International Tennis Federation Medical Commission. Dr. Beckett founded the National Drug Control and Teaching Centre in the United Kingdom. Dr. Beckett has published over 400 papers in the areas of pharmaceutical and medicinal chemistry and has played a major role in the establishment of drug release technology.
Dr. Burford, B.Sc., M.Sc., Ph.D. Pharm., F.A.C.A., is Vice-President - Scientific Affairs of the Company and has held the position from the effective date of the Amalgamation, March 29, 1994. Prior to that time, he had been Vice President - Scientific Affairs of BCI since January 1993. Dr. Burford has been President of American Clinical Research Consultants, a consulting organization, since November 1989, and served as President of McGraw-Hill Clinical Research International from 1987 to November 1989. Dr. Burford was with G.D. Searle & Company in Chicago and G.D. Searle & Co. of Canada in various senior clinical positions for 14 years. Previous pharmacological and drug development activities include positions with Merck-Frosst Laboratories and Bio-Research Laboratories of Montreal, Canada.
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Shrikant V. Dighe, Ph.D., M.Sc., B.Sc., is a pharmaceutical consultant in Bethesda, Maryland. He has more than 30 years of experience as research scientist, review scientist and scientific manager. Dr. Dighe has had twenty years with the Food and Drug Administration (FDA). He has a broad scientific expertise in medicinal and organic chemistry, biopharmaceutics, pharmacokinetics, analytical chemistry and instrumental analysis, pharmacology and statistics. Dr. Dighe is skilled in setting up and implementing division policies; evaluating, editing and writing scientific reports; and supervising and coordinating review activities of scientific reviewers. He has represented the FDA at various national and international forums, made numerous presentations at national and international meetings and symposia. Dr. Dighe has published a number of scientific articles, prepared over one hundred guidance documents and jointly edited three books.
Norman W. Lavy, M.D., F.A.C.P., is a private consultant in pharmaceutical research and medical and regulatory affairs based in Westfield, New Jersey. Among his clients have been the National Institute on Drug Abuse, leading and start-up biotechnology companies, other consulting firms, over-the-counter drug firms and several of the world's largest pharmaceutical companies. Dr. Lavy graduated from The Johns Hopkins University and the University of Maryland School of Medicine. He served an internal medicine residency and post-doctoral fellowships before joining E.R. Squibb & Sons in 1966. For 15 years, ending in 1987, he headed Squibb's Drug Regulatory Affairs department, the last ten years as Vice-President. He has served on the Commission on the Federal Drug Approval Process, as a member of the Scientific Advisory Committee of the Pharmaceutical Manufacturers Association Foundation, as Chairman of the Pharmaceutical Manufacturers Association, Medical Section, and as a Vice-President of the American Society for Clinical Pharmacology and Therapeutics. Dr. Lavy is a Fellow of the American College of Physicians.
William A. Mahon, M.D., FRCPC, is presently Director, Clinical Pharmacology Clinical Trials Unit, Centre for Cardiovascular Research, The Toronto Hospital and Professor of Pharmacology in Medicine at the University of Toronto. Dr. Mahon served on the Drug Quality and Therapeutics Committee, Ontario Ministry of Health for 10 years and was Chairman for six years. He has served on Federal Government Health Advisory Committees and has been Chairman of the hospital's Pharmacy and Therapeutics Committee. He is a past president of the Canadian Society for Clinical Pharmacology. Dr. Mahon has published over 60 papers in Clinical Pharmacology and Clinical Medicine.
J. Thiessen, Ph.D., is presently a Professor of Pharmacy (Pharmacokinetics), School of Pharmacy, University of Toronto. Dr. Thiessen served for nine years on the Ontario Ministry of Health's Drug Quality and Therapeutics Committee and was Chairman from 1989 through 1991. He is presently a member of the HPB Expert Advisory Committee on Bioavailability. Additionally, Dr. Thiessen has carried out extensive research in the pharmacokinetics of drugs in fever, genetic trials, cystic fibrosis and cancer, as well as other disease states and has over 100 publications and presentations in the field of pharmacokinetics and biopharmaceutics.
Herbert A. Lieberman, B.S. Chem., B.S. Pharm., M.A., M.S., Ph.D., is the President of his own business, H.H. Lieberman Associates, a private pharmaceutical consulting firm. Dr. Lieberman was with the Consumer Products Research Group of the Warner-Lambert Company for over 24 years, holding various senior research and executive positions. Prior to that time, he was a Senior Research Pharmacist at Wyeth Laboratories and held a teaching position in Chemistry at Columbia University, College of Pharmacy. Dr. Lieberman has edited 16 textbooks on industrial pharmacy, including "Pharmaceutical Dosage Forms: Disperse Systems" and, most recently, "Parenteral
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Medications." He is a Fellow of the Academy of Pharmaceutical Sciences, the American Academy of Pharmaceutical Scientists and the American Foundation for Pharmaceutical Education.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
The following table sets forth the compensation information for each of the last three fiscal years for the Chief Executive Officer and the four other most highly compensated executive officers of the Company who served as executive officers at the end of 1995 ("Named Executive Officers"). This information includes the dollar value of base salaries, performance bonus awards, long-term incentive compensation payments, and certain other compensation.
SUMMARY COMPENSATION TABLE
(1) The amount of compensation paid to the named Executive Officers, other than Mr. Melnyk was determined and paid by the Company. These amounts were paid in Canadian dollars and, for the purposes of this table, converted to U.S. dollars at the respective year end rates of exchange as follows: 1995 -.7332; 1994 - .7134; and 1993 - .7553.
(2) Mr. Brydon was announced as President and Chief Executive Officer of the Company January 13, 1995 and assumed the responsibilities of the position full-time, effective March 20, 1995.
(3) Prior to January 5, 1996, Mr. Khan served as Senior Vice President and Chief Financial Officer.
(4) Perquisites and other personal benefits for Named Executive Officers did not exceed the minimum threshold disclosure level in 1995.
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- ------------------------------------------------- --------------------------------------------------- ----------------------------- Annual Compensation Long Term Compensatio n ------------ -------------------- ----------------------------- ----------- Awards Payouts ----------------------------- ----------- Restricted Other Securities Shares or Annual Under Restricted All Other Compen- Options Share LTIP Compen- Name and Principal Salary B onus sation (4) granted (5) Units Payouts sation (4) Position Year (U.S.$) (U .S.$) (U.S.$) (#) (U.S.$) (U.S.$) (U.S.$) - ------------------------------------------------- --------------------------------------------------- --------------------------- Eugene N. Melnyk 1995 313,969 - - 345,000 - - - Chairman of the Board 1994 278,454 - - 180,000 - - - 1993 251,797 - - 510,000 - - - - ------------------------------------------------- --------------------------------------------------- --------------------------- Bruce D. Brydon (1)(2) 1995 113,480 - - 270,000 - 287,279 - President and Chief 1994 - - - - - - - Executive Officer 1993 - - - - - - - - ------------------------------------------------- --------------------------------------------------- --------------------------- Rolf Reininghaus (1) 1995 131,800 1 1,089 - 105,000 - - - Senior Vice-President 1994 118,101 1 0,356 - 150,000 - - - 1993 122,643 1 0,400 - 30,000 - - - - ------------------------------------------------- --------------------------------------------------- --------------------------- Mahmood Khan (1)(3) 1995 124,854 1 1,580 - 105,000 - - - Senior Vice-President and 1994 110,188 1 0,814 - 150,000 - - - Chief Operating Officer 1993 116,142 1 0,861 - 90,000 - - - - ------------------------------------------------- --------------------------------------------------- --------------------------- Marcel Giguere (1) 1995 88,497 7,332 - 30,000 - 680,923 - Vice President, 1994 80,650 1 3,839 - 90,000 - - - Manufacturing Operations 1993 83,306 1 4,652 - 12,000 - - - =================================================== =================================================== =========================
(5) The options were granted under the Company's Stock Option Plan, as amended, established in 1993. All options are for the purchase of common shares of the Company and are for a term of 5 years. The options become exercisable as to a maximum of 33 % on each of the first, second and third anniversaries of the date of grant, based on the achievement of predetermined benchmarks, except for 120,000 options granted to Mr. Melnyk on January 15, 1995, which become exercisable on the second anniversary date of the grant.
EMPLOYMENT AGREEMENTS
Eugene Melnyk, as Chairman of the Board of the Company, pursuant to a Management Agreement, effective February 1, 1992, receives annual compensation for services in the amount of $329,421, which amount is subject to 10% annual increases during the term of the Management Agreement, and is reimbursed for business related expenses. The Management Agreement will continue automatically for renewal periods of one year unless terminated by either party upon prior written notice.
Bruce Brydon, as President and Chief Executive Officer and Director, pursuant to an Employment Agreement made as of January 13, 1995, receives an annual salary of $168,000 CDN. during the term of the Employment Agreement, as well as reimbursement of business related expenses and an automobile allowance.
Rolf Reininghaus, as Senior Vice President and Director, pursuant to an Employment Agreement made as of February 1, 1992, as amended, receives an annual salary of $169,361 CDN, subject to a cost of living adjustment, a bonus at the discretion of the Board of Directors, as well as reimbursement of business expenses and an automobile allowance during the term of the Employment Agreement, which is terminable by the Company upon one year's written notice and is terminable by Mr. Reininghaus upon two months' prior written notice.
Mahmood Khan, as Senior Vice President, Chief Operating Officer and Director, pursuant to an Employment Agreement made as of February 1, 1992, as amended, receives an annual salary of $159,174 CDN, which amount is subject to up to 10% annual increases, during the term of the Employment Agreement, a bonus at the discretion of the Board of Directors, as well as reimbursement of business related expenses and an automobile allowance.
Marcel Giguere, as Vice President and General Manager, Canadian Manufacturing Operations, pursuant to an Employment Agreement made as of March 26, 1991, receives an annual salary of $121,700 CDN, subject to cost of living adjustment and a bonus of up to 20% of his annual salary based on the satisfaction of mutually agreed performance criteria, as well as reimbursement of business-related expenses and an automobile allowance.
Directors' and Officers' Liability Insurance:
The Company maintains insurance for the benefit of its Directors and Officers against certain liabilities incurred by them in their capacity as directors or officers of the Company or its subsidiaries. During the 1995 fiscal year the premiums in respect of such insurance were in the approximate aggregate amount of U.S.$17,000.
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REMUNERATION OF DIRECTORS
Certain directors who are not officers or employees of the Company receive an annual fee of U.S.$2,900 and a participation fee of U.S.$370 for each meeting of the Board of Directors attended. All directors have been reimbursed for expenses incurred in connection with attending Board of Directors meetings. Directors of the Company have been granted stock options for serving as a Director pursuant to the terms of the Company's stock option plan referred to above. During 1995, three of the seven directors who were not officers of the Company exercised their options to purchase a total of 100,000 shares (on a post-split basis) of common stock at prices ranging from of CDN$1.00 to U.S.$3.92 per share.
COMPENSATION COMMITTEE:
The Company does not have a compensation committee. The duties of such a committee are carried out by the Board of Directors. The Board of Directors meets on compensation matters as and when required with respect to executive compensation.
PENSION PLAN:
The Company does not maintain a pension plan for its employees, officers or directors.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM THE CO MPANY OR SUBSIDIARIES
STOCK OPTION PLAN
Under the Company's Stock Option Plan, as amended, (the "Plan") established in 1993 and approved by the shareholders at the Special Meeting held on March 28, 1994, the Company may grant to directors, officers, key employees, consultants and advisors, options to purchase Common Shares of the Company. The purpose of the Plan is to provide incentives to certain of the Company's directors, officers, key employees, consultants and advisors. The aggregate number of shares reserved for issuance under the Plan shall not exceed 4,500,000 common shares. The number of shares reserved for issuance to any one person under the Plan together with shares which that person may acquire under any similar plan of the Company may not exceed 5% of the total issued and outstanding Common Shares. Under the Plan, the Company designates the maximum number of shares that are subject to an option. The exercise price per share of an option is the fair market value of the share at the date of grant as determined by the Company, less the applicable discount, if any, as determined by the Company. Such discount may not exceed the maximum discount permitted under applicable legislation or stock exchange rules. As at December 31, 1995, the Company has granted options for an aggregate of 2,779,000 shares of common stock at exercise prices ranging from CDN$1.00 to U.S.$20.00 per share.
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The following 2 tables provide information on the exercise in 1995 and the aggregate holdings at the end of 1995 of options by the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR (ON A POST-SPLIT BASIS)
(1) The options were granted under the Company's Stock Option Plan, as amended, established in 1993. All options are for the purchase of Common Shares of the Company and are for a term of 5 years. The options become exercisable as to a maximum of 33 % on each of the first, second and third anniversaries of the date of grant, based on the achievement of predetermined benchmarks, except for 120,000 options granted to Mr. Melnyk on January 15, 1995, which become exercisable on the second anniversary of the date of the grant.
AGGREGATE OPTIONS EXERCISED IN LAST FISCAL YEAR AND OPTION VALUES (ON A POST-SPLIT BASIS)
(1) Value of unexercised in-the-money options calculated using the closing price (on a post-split basis) of common shares of the Company, on the American Stock Exchange on December 29, 1995 (U.S.$25.75), less the exercise price of in-the-money options.
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- ------------------------------------------------- --------------------------------------------------- - Market Value of Securities % of Total Securities Under Options Exercise Underlying Options Options Granted to Price on the Date of Granted Employees in (U.S.$/ Grant Name # (1) Period Security) (U.S.$/Security) Expiration Date - ------------------------------------------------- --------------------------------------------------- - Eugene Melnyk 225,000 15.4% 20.00 19.96 December 18, 2000 120,000 8.2% 2.44 2.71 January 14, 2000 - ------------------------------------------------- --------------------------------------------------- - Bruce Brydon 150,000 10.3% 20.00 19.96 December 18, 2000 - ------------------------------------------------- --------------------------------------------------- - Rolf Reininghaus 105,000 7.2% 20.00 19.96 December 18, 2000 - ------------------------------------------------- --------------------------------------------------- - Mahmood Khan 105,000 7.2% 20.00 19.96 December 18, 2000 - ------------------------------------------------- --------------------------------------------------- - Marcel Giguere 30,000 2.0% 20.00 19.96 December 18, 2000 - ------------------------------------------------- --------------------------------------------------- -
- ------------------------------------------------- --------------------------------------------------- ----------- Value of Unexer cised Unexercised Options in-the-Money Optio ns Fiscal at Year-End Securities Aggre gate Fiscal Year-End (U.S.$) Acquired on Val ue (#) Exercisable / Exercise Real ized Exercisable/ Unexercisable (1) Name (#) (U.S .$) Unexercisable - ------------------------------------------------- --------------------------------------------------- ----------- Eugene Melnyk - - 630,000/405,000 15,420,900/5,49 1,350 - ------------------------------------------------- --------------------------------------------------- ----------- Bruce Brydon 30,000 287, 279 49,998/190,002 1,165,953/1,79 5,347 - ------------------------------------------------- --------------------------------------------------- ----------- Rolf Reininghaus - - 130,000/155,000 3,092,600/1,77 4,750 - ------------------------------------------------- --------------------------------------------------- ----------- Mahmood Khan - - 190,000/155,000 4,593,800/1,77 4,750 - ------------------------------------------------- --------------------------------------------------- ----------- Marcel Giguere 72,000 680, 923 0/60,000 0/875,100 - ------------------------------------------------- --------------------------------------------------- -----------
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative shareholder return on the Company's common shares ("BVF") compared to the cumulative total return of the Toronto Stock Exchange 300 Index for the past five years, assuming $100 investment on December 31, 1990.
33
AS AT DECEMBER 31, 1990 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- ---- BIOVAIL COMMON 100 165.22 91.30 95.65 186.96 1,821.74 TSE 300 INDEX 100 107.85 102.88 132.69 129.38 144.73
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACT IONS
Not applicable
PART II
(NOT APPLICABLE)
PART III
(NOT APPLICABLE)
PART IV
ITEM 17. FINANCIAL STATEMENTS
The financial statements filed as part of this Annual Report are listed in Item 19 - Financial Statements and Exhibits.
All financial statements herein, are stated in accordance with generally accepted accounting principles in Canada. Such financial statements have been reconciled to United States GAAP. For the history of exchange rates which were in effect for Canadian dollars against United States dollars, see "General Information".
ITEM 18. FINANCIAL STATEMENTS
The Company has elected to provide financial statements pursuant to Item 17.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements and exhibits are filed as part of this Annual report:
A. Financial statements
- Consolidated Balance Sheets of the Company as at December 31, 1995 and 1994.
- Consolidated Statements of Income and Deficit for the years ended December 31, 1995, 1994 and 1993.
- Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993.
- Notes to the Consolidated Financial Statements.
B. Exhibits (See exhibits' index immediately following the financial statements)
34
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Company certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
BIOVAIL CORPORATION INTERNATIONAL
Robert A. Podruzny Vice President - Finance and Chief Financial Officer
Date: June 27, 1996
35
/s/ Robert A. Podruzny ----------------------- (Signature)
INDEX TO FINANCIAL STATEMENTS
F-1
PAGE Report of Management............................... ................................ F-2 Independent Auditors' Report....................... ................................ F-3 Consolidated Balance Sheets as at December 31, 1995 and 1994....................... F-4 Consolidated Statements of Income and Deficit for e ach of the years in the three year period ended December 31, 1995........... ................................ F-5 Consolidated Statements of Cash Flows for each of t he years in the three year period ended December 31, 1995..... ................................ F-6 Notes to the Consolidated Financial Statements..... ................................ F-7
REPORT OF MANAGEMENT
The Company's management is responsible for preparing the accompanying consolidated financial statements in conformity with accounting principles generally accepted in Canada. The effect of the application of accounting principles generally accepted in the United States is described in the notes to consolidated financial statements. In preparing these consolidated financial statements, management selects appropriate accounting policies and uses its judgment and best estimates to report events and transactions as they occur. Management has determined such amounts on a reasonable basis in order to ensure that the financial statements are presented fairly, in all material respects. Financial data included throughout this Annual Report is prepared on a basis consistent with that of the financial statements.
The Company maintains a system of internal accounting controls designed to provide reasonable assurance, at a reasonable cost, that assets are safeguarded and that transactions are executed and recorded in accordance with the Company's policies for doing business. This system is supported by written policies and procedures for key business activities; the hiring of qualified, competent staff; and by a continuous planning and monitoring program.
Deloitte & Touche has been engaged by the Company's shareholders to audit the consolidated financial statements. During the course of their audit, Deloitte & Touche reviewed the Company's system of internal control to the extent necessary to render their opinion on the consolidated financial statements.
The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The Board carries out this responsibility principally through its Audit Committee. The majority of the members of the Audit Committee are outside Directors. The Committee considers, for review by the Board of Directors and approval by the shareholders, the engagement or re-appointment of the external auditors. Deloitte & Touche has full and free access to the Audit Committee.
Management acknowledges its responsibility to provide financial information that is representative of the Company's operations, is consistent and reliable, and is relevant for the informed evaluation of the Company's activities.
Toronto, Canada Eugene Melnyk Mahmood Khan February 19, 1996 Chairman of the Board Senior Vice President
F-2
AUDITORS' REPORT
To the Board of Directors and Shareholders of BIOVAIL CORPORATION INTERNATIONAL
We have audited the consolidated balance sheets of Biovail Corporation International as at December 31, 1995 and 1994 and the consolidated statements of income and deficit and of cash flows for each of the years in the three year period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards in Canada. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1995 and 1994 and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 1995 in accordance with generally accepted accounting principles in Canada.
DELOITTE & TOUCHE Chartered Accountants
Toronto, Canada February 19, 1996
F-3
CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994
(All dollar amounts are expressed in thousands of U.S. dollars)
The accompanying notes are an integral part of the consolidated financial statements.
F-4
1995 1994 ------------------ ASSETS - ------ CURRENT Cash and short-term deposits $24,323 $ 2,819 Trade accounts receivable 6,379 5,346 Inventories (Note 4) 3,868 480 Deposits and prepaid expenses 176 57 ------------------ 34,746 8,702 FIXED ASSETS, net (Note 5) 19,910 14,182 GOODWILL, net 3,594 2,746 PRODUCT RIGHTS, net 2,617 -- ------------------ $60,867 $25,630 ================== LIABILITIES - ----------- CURRENT Accounts payable $ 5,628 $ 2,864 Accrued liabilities 3,043 1,794 Income taxes payable 968 736 Deferred revenue (Note 6) 22,167 1,239 Amount due on acquisition (Note 3) -- 955 Current portion of long-term debt (Note 7) 2,244 567 ------------------ 34,050 8,155 DEFERRED REVENUE (Note 6) 4,274 -- ------------------ LONG-TERM DEBT (Note 7) Non-interest bearing and forgivable interest gov ernment loans 2,019 4,717 Other 5,932 5,065 7,951 9,782 ------------------ 46,275 17,937 ================== SHAREHOLDERS' EQUITY - -------------------- Share capital (Note 8) 14,489 13,415 Deficit (572) (6,442) Cumulative translation adjustment 675 720 ------------------ 14,592 7,693 ------------------ $60,867 $25,630 ==================
CONSOLIDATED STATEMENTS OF INCOME AND DEFICIT
Years ended December 31, 1995, 1994 and 1993 (All dollar amounts except per share data are expressed in thousands of U.S. dollars)
The accompanying notes are an integral part of the consolidated financial statements.
F-5
19 95 1994 1993 ------ ----------------------------------- REVENUE Contract $ 4,333 $ 3,909 $ 3,771 Manufacturing 7,915 4,975 -- Royalty and licensing 8,321 8,404 7,358 ------ ----------------------------------- 2 0,569 17,288 11,129 EXPENSES Cost of contract revenue 2,732 3,036 2,783 Cost of manufactured goods sold 2,715 2,102 -- Research and product development 4,462 2,542 2,737 Selling, general and administrative 7,182 6,359 5,718 Royalty and commission 925 724 1,399 ------ ----------------------------------- 1 8,016 14,763 12,637 OPERATING INCOME (LOSS) 2,553 2,525 (1,508) INTEREST EXPENSE, net (Note 7) (99) (589) (722) GAIN ON LICENSING SETTLEMENT (Note 13) 3,617 -- -- GAIN ON DEBT SETTLEMENT (Note 2) -- 7,955 -- INCOME (LOSS) BEFORE INCOME TAXES 6,071 9,891 (2,230) PROVISION FOR INCOME TAXES (Note 10) 201 430 248 INCOME (LOSS) BEFORE UNDERNOTED 5,870 9,461 (2,478) MINORITY INTEREST -- -- (726) DILUTION GAIN ON ISSUANCE OF COMMON SHARES OF A SUBSIDIARY COMPANY (Note 7) -- -- 5,871 GAIN ON SALE OF A SUBSIDIARY COMPANY (Note 3) -- 1,260 -- NET INCOME (Note 14) 5,870 9,461 3,927 DEFICIT, BEGINNING OF YEAR ( 6,442) (15,903) (19,830) DEFICIT, END OF YEAR $ (572) $ (6,442) $ (15,903) EARNINGS PER SHARE (Note 9) $ 0.23 $ 0.43 $ 0.28 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (Note 9) 24,99 3,000 21,850,000 12,667,000
CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1995, 1994 and 1993
(All dollar amounts are expressed in thousands of U.S. dollars)
The accompanying notes are an integral part of the consolidated financial statements.
F-6
1995 1994 1993 ------------------------------ NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES OPERATING Net income for year $ 5,870 $ 9,461 $ 3,927 Depreciation and amortization 1,238 810 681 Minority interest -- -- 726 Dilution gain on issuance of common shares by a subsidiary company -- -- (5,871) Gain on debt settlement (Note 2) -- (7,955) -- Gain on sale of a subsidiary company (Note 3) -- -- (1,260) 7,108 2,316 (1,797) Change in non-cash operating items (Note 12) 24,038 239 (292) ------------------------------ 31,146 2,555 (2,089) ------------------------------ INVESTING Business acquisition (Note 3) (4,288) -- -- Acquisition of product rights (2,617) -- -- Additions to fixed assets, net (2,642) (1,173) (249) Investments and advances -- 161 (55) Additional consideration with respect to the acquisition of subsidiary companies and minority interest therein (Note 3) (955) (2,008) (541) ------------------------------ (10,502) (3,020) (845) ============================== FINANCING Issuance of share capital (Note 8) 702 62 174 Redemption of share capital (Note 8) -- -- (1,136) Increase in long-term debt 2,852 367 1,125 Reduction in long-term debt (3,293) (49) (429) Purchase of common shares -- -- (127) Subsidiary company transactions including issuance of common shares and proceeds on sale of a subsidiary, net of dividends paid to minority in terest -- -- 4,105 261 380 3,712 EFFECT OF EXCHANGE RATE CHANGES ON CASH 599 151 (45) ------------------------------ INCREASE IN CASH 21,504 66 733 CASH AND SHORT-TERM DEPOSITS, BEGINNING OF YEAR 2,819 2,753 2,020 ------------------------------ CASH AND SHORT-TERM DEPOSITS, END OF YEAR $ 24,323 $ 2,819 $ 2,753 ==============================
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in U.S. dollars)
1. SIGNIFICANT ACCOUNTING POLICIES
Biovail Corporation International (the "Company"), was amalgamated effective March 29, 1994 (See Note 2) under the laws of the province of Ontario. The Company's accounting and reporting policies conform to generally accepted accounting principles in Canada. The applicable differences between generally accepted accounting principles in Canada and generally accepted accounting principles in the United States are disclosed in Note 14.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Company's significant accounting policies are as follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all companies more than 50% owned. All significant intercompany transactions and balances have been eliminated.
REVENUE RECOGNITION
Revenue from contract research activities is recognized using the percentage of completion method based upon the stage of the project or the amount of time spent on the project.
Revenue from the sale of manufactured products is recognized when the product is shipped to the customer.
Royalty revenue is recognized on an accrual basis in accordance with the contractual agreements with third parties.
Licensing revenue is recognized at the date the license is granted unless there are specific events which must be completed under the terms of the licensing agreement in which case a portion of the revenue is recognized upon the completion of each specific event.
Amounts received in excess of revenue recognized are included in deferred revenue (See Note 6).
INVENTORIES
Raw materials are valued at the lower of cost and replacement cost. Work in process and finished goods are valued at the lower of cost and net realizable value. Cost is determined on the first-in, first-out basis.
F-7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE EXPRESSED IN U.S. DOLLARS)
1. SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
FIXED ASSETS AND RELATED DEPRECIATION
Fixed assets are recorded at cost. Annual rates and basis of depreciation applied to depreciate the cost of fixed assets over their estimated useful lives using the straight line basis are as follows:
INTANGIBLE ASSETS
Goodwill and product rights are amortized on a straight-line basis over the estimated lives of the assets, 16 to 20 years. Goodwill and product rights are evaluated periodically, based on estimated future cash flows computed on a discounted basis and if conditions warrant, an impairment valuation is provided.
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development costs, net of any investment tax credits, are charged to earnings in the year in which they are incurred.
CHANGE IN REPORTING CURRENCY AND FOREIGN CURRENCY T RANSLATIONS
- Change in reporting currency
Effective January 1, 1995, the Company commenced reporting its financial statements in U.S. dollars, while the currency of measurement remains Canadian dollars. For purposes of this presentation, Canadian dollar amounts, including the 1994 and 1993 amounts shown for purposes of comparison, have been translated into U.S. dollars at the respective year end rates of exchange.
- Foreign currency transactions
Monetary assets and liabilities are translated at the rate of exchange prevailing at the balance sheet date. Non-monetary assets and liabilities are translated at historic rates. Revenue and expenses are translated at the average rate of exchange for the year. Exchange gains and losses are included in earnings except for unrealized gains or losses on long-term debt which are deferred and amortized over the term of the debt.
- Self-sustaining foreign subsidiaries
Assets and liabilities of self-sustaining foreign subsidiaries are translated at the rate of exchange in effect at the balance sheet date. Revenue and expenses are translated at the average rate of exchange for the year. Gains or losses arising on the translation of financial statements of self-sustaining foreign subsidiaries are deferred and included as a separate component of shareholders' equity. The net change in the cumulative translation adjustment balance in the years presented is primarily due to the fluctuations in the exchange rate in respect to the Swiss Franc. 1993 and 1994 figures. Certain of the 1993 and 1994 figures have been reclassified to conform to the 1995 presentation.
F-8
Buildings ......................................... ... 25 years Machinery and equipment ........................... ... 5 - 10 years Other equipment ................................... ... 3 - 5 years Leasehold improvements ............................ ... term of lease
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in U.S. dollars)
2. AMALGAMATION AND DEBT ASSUMPTION AGREEMENTS
The Company was formed on the amalgamation of its predecessor companies, Trimel Corporation ("Trimel") and its then subsidiary Biovail Corporation International ("BCI"), effective March 29, 1994. Concurrent with the amalgamation, certain indebtedness of Trimel was transferred to a company controlled by a director of the Company in exchange for shares of BCI. This transaction resulted in a gain on settlement of debt of $7,955,000.
Since virtually all of the assets of the amalgamated company were those of BCI prior to the amalgamation, in substance no change in the ownership interests of the respective shareholders took place. Accordingly, the transaction has been accounted for based on the carrying amounts of BCI's assets and liabilities prior to the amalgamation.
3. BUSINESS ACQUISITIONS AND DISPOSITIONS
ACQUISITION OF OPERATING ASSETS OF GALEPHAR PUERTO RICO INC., LIMITED
Effective September 13, 1995, a subsidiary of the Company acquired the operating assets of Galephar Puerto Rico Inc., Limited ("Galephar"), a drug delivery company specializing in the development of controlled release products. This acquisition has been accounted for using the purchase method and the net assets acquired at the fair value assigned thereto and consideration given is as follows (In thousands):
The historical operations of Galephar, when compared to the historical operations of Biovail, were not significant.
ACQUISITION OF BIOVAIL SA AND BIOSYTES N.V.
Pursuant to a 1991 agreement relating to the purchase of a majority interest in Biovail SA and Biosytes N.V., additional consideration of $541,000 was effected in 1993. The remaining interest in these subsidiaries was acquired effective January 1, 1994 for consideration of $2,963,000, of which $2,008,000 was paid prior to December 31, 1994, and the remaining $955,000 paid in January, 1995. These transactions resulted in the recording of additional goodwill of $1,947,000 and $541,000 in 1994 and 1993, respectively, being the amount of additional consideration paid in excess of the net book value of the minority interests acquired.
DISPOSITION OF PROFESSIONAL DRUG SYSTEMS INC.
As part of a strategy to dispose of non-core business activities, the Company's investment in Professional Drug Systems Inc., was sold in 1993 resulting in a gain on sale of $1,260,000.
F-9
Fixed assets ...................................... ........ $3,743 Working capital deficiency ........................ ........ (415) Goodwill .......................................... ........ 960 ------ Net assets acquired ............................... ........ $4,288 ====== Cash consideration given .......................... ........ $4,288 ======
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in U.S. dollars)
4. INVENTORIES
5. FIXED ASSETS
6. DEFERRED REVENUE
Effective September 18, 1995, the Company entered into a 16 year license and supply agreement with Forest Laboratories Inc. ("Forest") whereby Forest will market the Company's once-daily controlled release formulation of diltiazem (Tiazac(R)) in the United States, for which the Company will receive a royalty and manufacturing revenues. The agreement required Forest to advance to the Company non-refundable payments of $20,000,000 which will be applied, based on a pre-determined formula, against future amounts owing by Forest for the purchase of Tiazac(R). These advance payments have been recorded as deferred revenue and as at December 31, 1995, $18,335,000, (of which $4,274,000 is reflected as long-term) remains as deferred revenue, and will be recognized as income as future orders from Forest are completed. Deferred revenue at December 31, 1995 and 1994, also includes amounts relating to the Company's contract research activities.
F-10
December 31, (In thousands) --------------------------- 1995 1994 --------------------------- Raw materials .............................. $1,460 $275 Work in process ............................ 2,408 205 --------------------------- $3,868 $480 ===========================
December 31, (In thousands) ------------ ---------------------------------------- 1995 1994 ------------ ---------------------------------------- Accumulated Accumulated Cost D epreciation Cost Depreciation ------------ ---------------------------------------- Land ............................... $ 1,314 $ -- $ 895 $ -- Buildings .......................... 14,511 1,103 11,544 581 Machinery and equipment ............ 6,340 1,444 3,030 974 Other equipment and leasehold improvements ..................... 1,055 763 914 646 23,220 $3,310 16,383 $2,201 Less accumulated depreciation ...... 3,310 2,201 ------------ ---------------------------------------- $19,910 $14,182 ------------ ----------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in U.S. dollars)
7. LONG-TERM DEBT
The fair value of the long-term debt is considered to be equivalent to its carrying value based upon consideration of borrowings with similar credit ratings and maturities.
F-11
December 31, (I n thousands) --------------- ------------- 1995 1994 --------------- ------------- NON-INTEREST BEARING AND FORGIVABLE INTEREST GOVERNMENT LOANS Non-Interest Bearing Unsecured Loan Payable to Western Economic Diversification, a Canadian federal government agency. This loan will be advanced to a maximum of $4,360,000 to assist in the building and equipping of a manufacturing f acility. This loan, after receipt of the maximum loan amount, is repayabl e on a semi-annual instalment basis commencing in 1996 and ending in 2001 ... .................................... $ 2,789 $ 2,614 Forgivable Interest Loan Payable to Manitoba Development Corporation and secured by a debenture with a fixed charge on the manufacturing facility, l and and building ................... -- 2,103 ---------- --------- OTHER 2,789 4,717 ---------- --------- Term Bank Loan Secured by a general security agreement, provid ing a first floating charge over all of the Company's assets, bearing inter est at bank prime rate plus 1.5%. This loan is repayable in equal quarterly principal instalments of $183,000 with a final payment due December 31, 1999 ............................... 2,200 -- Construction Bank Loan Secured by a general security agreement, pledgi ng all of the Company's assets, including the shares of subsidiary comp anies and a debenture with a fixed charge on the manufacturing facility land and building, bearing interest at bank prime rate plus 1.5%. This loa n is repayable in equal quarterly principal instalments of $183,000 wit h a final payment due September 30, 2000 ............................ .................................... 3,405 3,873 Mortgage Payable Secured by land and building, bearing interest at 12.125% per annum, payable in blended monthly instalments of $18,000 and t he balance of approximately $1,760,000 is due on maturity, No vember 1, 1999 ..................... 1,801 1,759 ---------- --------- 7,406 5,632 ---------- --------- 10,195 10,349 Less current portion .......................... .................................... 2,244 567 ---------- --------- $ 7,951 $ 9,782 ========== =========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in U.S. dollars)
Interest expense on long-term debt amounted to $718,000, $702,000 and $781,000 in the years ended December 31, 1995, 1994 and 1993, respectively.
In November 1992, a then subsidiary company issued 4% convertible subordinated debentures (the "Debentures") with an aggregate principal amount of $6,842,000. On December 31, 1992 and February 23, 1993, $2,400,000 and $4,192,000 principal amounts, respectively, of the Debentures plus accrued interest thereon were converted into 344,000 and 628,000 shares of common stock of a then subsidiary company, at a per share conversion price of $7.00. The conversions of these Debentures resulted in dilution gains of $1,942,000 and $3,607,000 in 1992 and 1993, respectively. In addition, on September 3, 1993, the then subsidiary company issued 464,000 shares of common stock at a price of $7.00 per share for net proceeds of $2,633,000 resulting in a further dilution gain of $2,264,000.
Principal repayments on long-term debt are as follows (In thousands):
8. SHARE CAPITAL
AUTHORIZED AND ISSUED SHARES
Effective January, 1996, the shareholders of the Company authorized a 3 for 1 split with respect to the issued common shares, and an increase in the authorized capital to 60,000,000 shares of common stock without par value.
F-12
1996 .............................................. ........... $ 2,244 1997 .............................................. ........... 2,318 1998 .............................................. ........... 1,989 1999 .............................................. ........... 3,171 2000 and thereafter ............................... ........... 473 ------- $10,195 =======
(In thous ands) ----------------- ---- Number Common Shares of Shares Am ount ----------------- ---- Balance, December 31, 1992 ........................ ............................. 4,196 $ 8 ,490 Issued on the exercise of options ................. ............................. 40 174 Shares acquired for cancellation .................. ............................. (35) (70) Effect of exchange rate change .................... ............................. -- (339) Balance, December 31, 1993 ........................ ............................. 4,201 8 ,255 ----------------- ---- Issued in exchange for Class A Special Shares on am algamation .................. 906 3 ,460 Issued in exchange for BCI's common shares held by the minority interest ................................. ............................. 3,138 2 ,097 Issued on the exercise of options ................. ............................. 29 62 Effect of exchange rate change .................... ............................. -- (459) ----------------- ---- Balance, December 31, 1994 ........................ ............................. 8,274 13 ,415 Issued on the exercise of options ................. ............................. 168 702 Effect of exchange rate change .................... ............................. -- 372 Balance, December 31, 1995, before stock split .... ............................. 8,442 14 ,489 ----------------- ---- Effect of 3 for 1 stock split ..................... ............................. 16,885 -- ----------------- ---- Balance, December 31, 1995, after giving effect to stock split ................. 25,327 $ 14 ,489 ================= ====
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in U.S. dollars)
As at December 31, 1995, the Company has granted to certain directors, employees, and consultants options which entitle them to acquire an aggregate of 2,779,000 (on a post-split basis) shares of common stock at exercise prices ranging from CDN $1.00 to U.S.$20.00 per share and which become exercisable in three equal annual amounts commencing one year after the date of grant. As at December 31, 1995, options on 1,060,000 shares of common stock were exercisable.
9. EARNINGS PER SHARE
Earnings per share, for all years presented, has been calculated using the weighted average number of shares outstanding during the year, after giving effect to the 3 for 1 stock split in January, 1996. For the purpose of this calculation, the income for the years ended December 31, 1993 and 1994 was reduced, by cumulative undeclared dividends on the Class A Special Shares. The earnings per share in 1993 on a fully diluted basis giving effect to the exercise of all options and conversion of all Class A Special Shares into common shares effective January 1, 1993 would have been $0.26 per share. Adjusted basic earnings per share in 1994, calculated as though the conversion of Class A Special shares had occurred at the beginning of the year amounted to $0.42 per share. Fully diluted earnings per share in 1994, giving effect to the conversion of Class A Special Shares and the exercise of all outstanding options as if they had occurred at the beginning of the year, amounted to $0.36 per share. The earnings per share in 1995 on a fully diluted basis giving effect to the exercise of all options would have been $0.21 per share.
10. INCOME TAXES
The major factors which caused variations from the Company's combined federal and provincial statutory income tax rate of 44.34% applicable to income (loss) before income taxes are as follows:
F-13
(In thousands) Number Class A Special Shares of Shares Amount ---------------------- Balance, December 31, 1992 ........................ . 6,354 $ 4,999 Shares acquired on redemption ..................... . (1,504) (1,136) Effect of exchange rate change .................... . -- (200) ---------------------- Balance, December 31, 1993 ........................ . 4,850 3,663 Exchange for common shares on amalgamation ........ . (4,850) (3,460) Effect of exchange rate change .................... . -- (203) ---------------------- Balance, December 31, 1994 ........................ . -- $ -- ======================
YEARS ENDED DECEMBER 31, (IN THOUSANDS) --------------------------------------- 1995 1994 1993 --------------------------------------- Provision for (recovery of) income taxes based on statutory rate ........................ ......... $ 2,692 $ 4,195 $ (990 ) Reduction of income taxes resulting from income of foreign subsidiaries taxed at lower effective ra te ...... (4,271) (615) (577 ) Non-taxable portion of capital gain on settlement o f debt .. -- (882) -- Benefit of losses not recognized for accounting pur poses ... 1,780 -- 1,815 Benefit of utilization of losses carried forward .. ......... -- (2,268) -- --------------------------------------- $ 201 $ 430 $ 248 =======================================
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in U.S. dollars)
10. INCOME TAXES - (CONTINUED)
At December 31, 1995, the Company has accumulated losses for federal and provincial income tax purposes and unclaimed investment tax credits for which no accounting benefit has been recognized and which can be used to offset future taxable income and/or to reduce income taxes payable. These losses and investment tax credits expire as follows (In thousands):
The benefits of these losses carried forward and investment tax credits will be recorded when realized.
11. OPERATING LEASES
Minimum lease commitments under operating leases for each of the next five years are as follows (In thousands):
12. CHANGE IN NON-CASH OPERATING ITEMS
F-14
Investment Losses Tax Credits -------------------------------- Federal Provincial -------------------------------- 1996 .............................................. ........... $ -- $ 250 $ -- 1997 .............................................. ........... 3,552 4,272 -- 1998 .............................................. ........... 7,032 7,693 89 1999 .............................................. ........... 3,431 4,150 948 2000 .............................................. ........... 685 1,270 510 2001 .............................................. ........... 2,282 2,271 492 2002 .............................................. ........... 3,593 3,593 469 2003 .............................................. ........... -- -- 629 2004 .............................................. ........... -- -- 653 -------------------------------- $20,575 $23,499 $3,790 ================================
1996 .............................................. . $285 1997 .............................................. . 310 1998 .............................................. . 275 1999 .............................................. . 115 2000 .............................................. . 61
Years ended December 31, (In thousa nds) ----------------------------------- --- 1995 1994 1 993 ----------------------------------- --- Accounts receivable ............................... .......... $ (963) $(2,598) $(1, 287) Deposits and prepaid expenses ..................... .......... (111) 200 75 Inventories ....................................... .......... (3,795) (480) -- Accounts payable .................................. .......... 2,450 1,268 1, 246 Accrued liabilities ............................... .......... 1,096 718 ( 559) Income taxes payable .............................. .......... 193 223 ( 118) Deferred revenue .................................. .......... 25,168 908 351 ----------------------------------- --- $ 24,038 $ 239 $ ( 292) =================================== ===
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in U.S. dollars)
13. CONTINGENCIES
In 1995, the Company's contractual, legal and financial relationships with its former licensee Hoechst-Roussel Pharmaceuticals, Inc. ("Hoechst-Roussel") were resolved. Hoechst-Roussel was previously licensed by the Company for the once-daily controlled release formulation of diltiazem. As a result of Hoechst-Roussel's acquisition of Marion Merrell Dow Inc. ("MMD") a competitor of the Company, the Rights Agreement between the Company and Hoechst-Roussel was terminated effective June 30, 1995, resulting in a gain to the Company of $3,617,000, which is net of legal and other expenses relating to the settlement.
Pursuant to signed Agreements, MMD and Carderm Capital L.P. have terminated their involvement as plaintiffs in the New Jersey suit brought against Hoechst-Roussel. Efforts continue to be made to compel Elan Corporation plc ("Elan") to discontinue its involvement as plaintiff in that New Jersey suit. A Motion is being prepared on behalf of the Company for a summary dismissal of Elan's claim. In addition, the Company has launched a substantial counterclaim against Elan based on Elans anti-trust activities. The Company believes that Elan's suit which alleges certain patent infringements is without merit.
14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The items included in the table below give rise to differences in net income under generally accepted accounting principles in the United States ("U.S. GAAP"). Whereas, except in the case of adjustments with respect to translating amounts to U.S. dollars, these items are appropriately included in the Company's consolidated statement of income and deficit under Canadian GAAP, they would be reflected as capital transactions under U.S. GAAP.
F-15
Years ended December 31, (In thousands except per share d ata) ------ --------------------------------------------------- ---- 1995 1994 1 993 --------------------------------- --- Reconciliation of net income (loss) under Canadian and U.S. GAAP Net income as shown in the consolidated statement of income and deficit ................ ............ $ 5,870 $ 9,461 $ 3, 927 Use of weighted average rate for the year versus year end rate for purposes of translating net in come amounts from Canadian dollars (the currency of measurement) to U.S. dollars (the reporting curr ency) ...... (36) 252 105 Items excluded from income under U.S. GAAP Dilution gain on issuance of common shares by a then subsidiary company ............................. ............ -- -- (5, 871) Gain on debt settlement treated as contributed surplus under U.S. GAAP ........................ ............ -- (7,955) -- --------------------------------- --- Net income (loss) according to U.S. GAAP .......... ............ $ 5,834 $ 1,758 $ (1, 839) ================================= === Earnings (loss) per share under U.S. GAAP ......... ............ $ 0.22 $ 0.07 $ (0 .15) ================================= === Weighted average number of common shares outstanding under U.S. GAAP(1) ........... ............ 26,940 22,635 12, 199 ================================= ===
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in U.S. dollars)
14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - (CONTINUED)
1) The weighted average number of common shares outstanding for purposes of the computation of the earnings (loss) per share data under U.S. GAAP gives effect to the exercise of all outstanding options and the 3 for 1 stock split in January, 1996.
There are no differences between shareholders' equity determined under Canadian and U.S. GAAP at either December 31, 1995 or 1994.
Under U.S. GAAP, for purposes of presentation of cash flows, the following non-cash transactions in 1993 would not be shown as financing or investing activities but would be shown as supplemental cash flow information (In thousands):
Under U.S. GAAP, the following additional supplemental cash flow disclosure would be provided:
Under U.S. GAAP, the following additional disclosure would be provided pursuant to the requirements of SFAS No. 109 - "Accounting for Income Taxes":
As at December 31, 1995, the Company has unused tax benefits of approximately $12,910,000 related to net operating loss and tax credit carry forwards. Under U.S. GAAP, a valuation allowance of an equivalent amount would be recognized to offset the related deferred tax asset due to the uncertainty of realizing the benefit of the loss and tax credit carry forwards.
The net change in the valuation allowance for the deferred tax asset was an increase of $1,780,000 and $1,815,000 in the years ended December 31, 1995, and 1993, respectively due to the uncertainty of realizing the benefit of tax losses not recognized and a reduction of $2,268,000 in the year ended December 31, 1994 related to the utilization of benefits arising from the operating losses carried forward.
F-16
Conversion of Debentures into common shares and the equivalent aggregate amount included in minorit y interest and dilution gain ........................ ................................... $3,941 Issuance of common shares on the exercise of stock options ........................... 174
Years ended December 31, (In thousands ) ------------------------------------- - 1995 1994 199 3 ------------------------------------- - Cash paid for: Interest ....................................... ........ $827 $542 $64 9 Income taxes ................................... ........ 69 358 37 8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in U.S. dollars)
15. SEGMENTED INFORMATION AND MAJOR CUSTOMERS
The Company considers that its operations fall principally into one class - providing formulation, development and registration of pharmaceutical products for the pharmaceutical industry. Information about the Company's sales and profitability by geographic area for the years ended December 31, 1995, 1994 and 1993 follows:
Major Customers:
Substantially all of the Company's royalty revenue is earned by its subsidiary in Switzerland. Over 92% of such revenue is received from five licensees, the largest of which accounts for approximately 55% of royalty revenue in 1995. The licensing revenue in 1995, 1994 and 1993 relates primarily to the assignment and licensing of the marketing rights for a product to licensees in each of the United States and Canada. Manufacturing revenues in 1995 and 1994 relate to sales of the licensed product to certain of these licensees in the United States, the major one being Forest Laboratories Inc., an approximate 20% shareholder of the Company (see Note 6).
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YEARS ENDED DECEMBER 31, (IN THOUSAND S) ---------------------------------------- -- 1995 1994 19 93 ---------------------------------------- -- Revenue Canada external .......................................... ... $ 6,632 $ 10,846 $ 6,6 70 intersegment ...................................... ... 578 1,281 1,1 78 ---------------------------------------- -- 7,210 12,127 7,8 48 Switzerland ....................................... ... 6,590 6,405 3,0 75 Barbados .......................................... ... 7,347 37 1,3 84 ---------------------------------------- -- 21,147 18,569 12,3 07 Less intersegment ................................. ... (578) (1,281) (1,1 78) ---------------------------------------- -- $ 20,569 $ 17,288 $ 11,1 29 ======================================== == Net Income Operating income (loss) Canada ............................................ ... $ (6,720) $ (1,307) $ (3,3 46) Switzerland ...................................... ... 2,571 2,225 1,8 72 Barbados ......................................... ... 6,702 1,607 ( 34) ---------------------------------------- -- 2,553 2,525 (1,5 08) Other income net of income taxes .................. ... 3,317 6,936 5,4 35 ---------------------------------------- -- Net income ........................................ ... $ 5,870 $ 9,461 $ 3,9 27 ======================================== == Total Assets Canada ............................................ ... $ 21,675 $ 21,764 $ 20,1 66 Switzerland ....................................... ... 9,467 3,803 3,0 10 Barbados .......................................... ... 29,725 63 89 ---------------------------------------- -- $ 60,867 $ 25,630 $ 23,2 65 ======================================== ==
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
INDEX
E-1
NUMBER DESCRIPTION - ------ ----------- 2.1 - Memorandum of Agreement between TXM Corporation and Biovail Corporation Internationa l dated as of March 19, 1992 relating to the exchange of shares.* 2.1 A - Schedule "A" to Memorand um of Agreement between TXM Corporation and Biovail Corporation International dated as of May 19, 1992.* 2.2 - Memorandum of Agreement between Biovail Corporation International and Trimel Corporation d ated March 20, 1992 relating to the exchange of shares.* 2.3 - Agreement between TXM Co rporation and Trimel Corporation dated as of March 20, 1992 relating to the transfer of shares of Biovail Corporation International.* 2.4 - Facilities Purchase Agre ement between Trimel Corporation and Biovail Research Corporation dat ed as of March 24, 1992 relating to the manufacturing facility* 2.5 - Amendment to Memorandum of Agreement between TXM Corporation and Biovail Corporation International dated as of May 14, 1992 amending the Memorandum of Agreem ent between TXM Corporation and Biovail Corporation Internationa l dated as of March 19, 1992.* 2.6 - Agreement of Amendment b etween TXM Corporation and Trimel Corporation dated as of May 14, 1992 amending the Agreement between TXM Corporation and Trim el Corporation dated as of March 20, 1992.* 2.7 - Amendment to Memorandum of Agreement between Trimel Corporation and Biovail Corporation International dated as of May 14, 1992 amending the Memorandum of Agreem ent between Trimel Corporation and Biovail Corporation Internationa l dated as of March 20, 1992.* 2.8 - Amalgamation Agreement b etween Biovail Corporation International and Biovail Research Corpora tion dated December 7, 1993.** 2.9 - Amalgamation Agreement between Trimel Corporation and Biovail Corporation Internationa l dated January 12, 1994.** 2.10 - Assumption Agreement bet ween Trimel Corporation and Trimel (Canada) Inc. dated January 12, 1 994.** 3.3 - Articles of Amalgamation of the Registrant.**
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3.4 - By-Laws of the Registrant.** 4.1 - Specimen Certificate for Comm on Stock.** 5.1 - Opinion of Stewart, Roper & A ssociates.** 5.2 - Opinion of Robinson, St. John & Wayne.** 8.1 - Tax Opinion of Cassels, Brock & Blackwell.** 8.2 - Tax Opinion of Robinson, St. John & Wayne.** 10.1 - License Agreement between Bio vail SA and Rhone-Poulenc Sante dated August 13, 1982 relating to K etoprofen, including letters dated September 24, 1982, September 28, 1984, Mar ch 25, 1986, November 12, 1986 and November 20, 1986 amending th e License Agreement.* 10.2 - License Agreement between Bio vail SA and Schwarz GmbH dated September 15, 1985 relating t o Isosorbide 5 Mononitrate.* 10.3 - License Agreement between Bio vail SA and Ives Laboratories, Inc. dated June 24, 1986 relating to Ket oprofen.* 10.4 - License Agreement between Bio vail SA and Trimel Corporation dated October 30, 1990; Addendum da ted February 1, 1991; Notice of Assignment dated January 16, 1992 assign ing the rights of Trimel Corporation to Biovail Research Corporation.* 10.4A - Notice of Assignment dated Fe bruary 18, 1992, relating to the License Agreement between Biovail SA and Trimel Corporation dated October 30, 1990.* 10.5 - License Agreement between Bio vail SA and Sanol Schwarz-Monheim GmbH dated September 5, 1979 relat ing to Isosorbide Dinitrate together with letters dated January 18, 1984, April 15, 1987 and June 4, 1987.* 10.6 - License Agreement between Bio vail SA and G.D. Searle & Co. dated October 24, 1980 relating to Theophylline; amendments to License Agreement dated November 13, 1981, December 3, 1982, May 20, 1984, April 9, 1986 and December 12 , 1986; Amendment to and Partial Assignment of License Agreeme nt among Biovail SA, G.D. Searle & Co. and Whitby, Inc. dated as of Dece mber 23, 1991.* 10.6A - Page 1 to the License Agreeme nt between Biovail SA and G.D. Searle & Co. dated October 24, 1980.* 10.7 - Agreement between Biovail SA, G.D. Searle & Co. and Temmler-Werke GmbH dated December 3, 1982 r elating to regulatory submissions.* 10.8 - License Agreement between Bio vail SA and G.D. Searle & Co. dated March 15, 1984 relating to Disopyra mide.*
E-3
10.9 - License Agreement between Bio vail SA and Temmler-Werke GmbH dated June 6, 1985 relating to Theo phylline.* 10.10 - License Agreement between Tri mel International Inc. (predecessor to Biovail International Incorporated) a nd Geneva Pharmaceuticals, Inc. dated June 25, 1991 relating to Erythromycin DR and Diltiazem SR B.I.D.; Notice of Assignment dated January 16, 1992 assigning the rights of Biovail International Incorporated to Biovail Research Corporation.* 10.11 - Marketing Agreement between B iovail International Incorporated and Zenith Laboratories, Inc. dated as o f December 5, 1991 relating to GLX Nifedipine SR; Assignment and Amendment to Marketing Agreement dated as of February 26, 1992 substitutin g Biovail Research Corporation for Biovail International Incorporated.* 10.12 - Licensing Agreement between T rimel International Inc. and Galephar P.R. Inc. dated May 1, 1991; Notic e of Assignment dated January 16, 1992 assigning the rights of Biova il International Incorporated to Biovail Research Corporation.* 10.12A - Page 24 to Licensing Agreemen t between Trimel International Inc. and Galephar P.R. Inc. dated May 1, 1991.* 10.13 - License Agreement between Gal en Pharma, Inc. and Verex Laboratories, Inc. dated January 10, 1988 relati ng to Verapamil and Diltiazem tablets; Notice of Assignment dated January 16, 1992 assigning the rights of Trimel Corporation to Biovail Resear ch Corporation.* 10.14 - Licensing Agreement #2 betwee n Galen Pharma, Inc. and Verex Laboratories, Inc. dated Febr uary 15, 1988 relating to Diltiazem, Naproxen, Salbutomol, Captopril, Propra nolol, Indomethacin and Isosorbide Dinitrate; Amend ment to Licensing Agreement #2, da ted July 13, 1988; Notice of Assignment dated January 16, 1992 assigning th e rights of Trimel Corporation to Biovail Research Corporation.* 10.14A - Notice of Assignment dated Fe bruary 20, 1992 relating to the Licensing Agreement #2 between Galen Ph arma, Inc. and Verex Laboratories, Inc. dated February 15, 1988, as a mended.* 10.15 - Research and Development Agre ement between Galen Pharma, Inc. and Verex Laboratories, Inc. date d February 15, 1988 relating to Diltiazem, Nifedipine, Naproxen, Salbuto mol, Captopril, Propranolol, Indomethacin and Isosorbide Dinitrate and Rese arch and Development Amendment and Acknowledgment Agreement date d December 5, 1988.* 10.15A - Notice of Assignment dated Fe bruary 20, 1992 relating to the Research and Development Agreement between Galen Pharma, Inc. and Verex Laboratories, Inc. dated Febr uary 15, 1988, as amended.* 10.16 - License Agreement between Bio vail SA and Temmler-Werke GmbH dated May 21, 1985 relating to Prop ranolol.*
E-4
10.17 - License Agreement between Bio vail SA and Adcock-Ingram Laboratories Limited, dated 1985, relating to Metaclopramide, Ibuprofen, Clonidine, Propranolol, Diethyl-propion Hydrochloride; Manufacturing and Co- operation Agreement between B iovail SA and Adcock-Ingram Laboratories Limited, dated November 19, 1 985 and letters dated June 17, 1986 and April 2, 1987.* 10.18 - License Agreement between Bio vail SA and Temmler-Werke GmbH dated September 16, 1983 relating t o Metoclopramide.* 10.19 - License Agreement between Bio sytes N.V. and Sandoz Ltd. dated May 4, 1984 relating to Tizanidine; License Agreement between Biovail SA and Biosytes N.V. dated May 4, 19 84.* 10.19A - Appendix dated March 5, 1992 to License Agreement between Biosytes N.V. and Sandoz Ltd. dated May 4, 1984.* 10.20 - License Agreement between Bio vail SA and Temmler-Werke GmbH dated March 7, 1979 relating to Diethylpropi on and Dimethylpropion.* 10.21 - Consulting Agreement among Am erican Clinical Research Consultants Inc., Robert Burford and Biovail Re search Corporation effective November 11, 1990.* 10.21A - Letter Amendment dated March 5, 1993 to Consulting Agreement among American Clinical Research Co nsultants, Inc., Robert Burford and Biovail Research Corporation effectiv e November 11, 1990.* 10.22 - Consulting and Confidentialit y Agreement between Norman W. Lavy, M.D., F.A.C.P. and Biovail Internat ional Inc. dated November 21, 1991; Notice of Assignment dated January 16, 1992 assigning the rights of Biovail International Incorporated to Biovail Research Corporation.* 10.23 - Special Projects Consulting A greement between Biotox Enterprises (Canada) Ltd. and Trimel Corporation d ated February 1, 1989; Notice of Assignment dated January 16, 1992 assign ing the rights of Trimel Corporation to Biovail Research Corporation.* 10.24 - Consulting Agreement between Biovail Research Corporation and Arnold H. Beckett and dated November 2, 1992.* 10.25 - Consulting Agreement between Biovail SA and Dr. Akbar Noormohammadi effective May 8, 1991.* 10.26 - Agreement among Robert Goldma n, Biovail SA, Biosytes, N.V., Biosytes (UK) Ltd. and Biosytes (US) I nc. dated as of April 1, 1988, as amended by a Waiver Agreement dated May 4, 1991 and a Royalty Agreement dated November 13, 1991.*
E-5
10.27 - Consulting Agreement between Biovail SA and Robert Goldman dated November 14, 1985.* 10.28 - Radix Agreement dated as of J anuary 16, 1992 among Biovail SA, Radix Organization, Inc. and D.S. F riedkin.* 10.29 - Assignment and Assumption Agr eement between Biovail International Incorporated and Biovail Rese arch Corporation dated January 15, 1992.* 10.30 - Assignment and Assumption Agr eement between Biovail International Incorporated and Biovail Rese arch Corporation dated March 10, 1992.* 10.31 - Assignment and Assumption Agr eement between Trimel Corporation and Biovail Research Corporation dated March 20, 1992.* 10.32 - Lease Agreement dated April 2 3, 1990 between the Canadian Aging and Rehabilitation Product Develo pment Corp. and Trimel Corporation; Assignment and Assumption Agr eement between Trimel Corporation and Biovail Corporation Internati onal dated March 23, 1992 relating to the lease.* 10.33 - Lease between Westpen Propert ies, Ltd. and Trimel Corporation dated April 4, 1990.* 10.34 - Intercompany Agreement betwee n Biovail Corporation International and Trimel Corporation dated as o f March 20, 1992, as amended.* 10.35 - Management Agreement between Biovail Research Corporation and Eugene Melnyk dated February 1, 1992 .* 10.36 - Employment Agreement between Biovail Research Corporation and Rolf Reininghaus dated as of Febru ary 1, 1992, as amended.* 10.36A - Amendment to Employment Agree ment between Biovail Research Corporation and Rolf Reiningh aus dated as of July 26, 1993.* 10.37 - Employment Agreement between Biovail Research Corporation and Mahmood Khan dated as of Febr uary 1, 1992, as amended.* 10.37A - Amendment to Employment Agree ment between Biovail Research Corporation and Mahmood Khan dated as of July 26, 1993.* 10.38 - Management Agreement between Biovail Research Corporation and Robert G. Burford dated as of Januar y 1, 1993.* 10.39 - 1991 Stock Option Plan (inclu ding form of Stock Option Agreement).* 10.40 - Demand Debenture in favor of The Royal Bank of Canada by Trimel Corporation dated March 8, 19 91 relating to the manufacturing facility; Letter of Offer of Credit Fac ilities from The Royal Bank of Canada dated January 4, 1991; Consent Lett er of The Royal Bank dated March 10, 1992 to assignment of the credit faci lity to Biovail Research Corporation.*
E-6
10.41 - General Security Agreement be tween The Royal Bank of Canada and Trimel Corporation.* 10.42 - Guaranty and Postponement of Claim dated December 14, 1990 to The Royal Bank of Canada from IWF Resea rch Corporation (predecessor to Biovail Research Corporation) on beha lf of Trimel Corporation.* 10.43 - Guaranty and Postponement of Claim dated December 14, 1990 to The Royal Bank of Canada from Trimel Co rporation, a New Jersey corporation, on behalf of Trimel Corporation, an Ontario corporation.* 10.44 - Certificate of Charge for Mor tgage No. 139863 from Trimel Corporation in favor of The Royal Bank of Ca nada relating to the manufacturing facility.* 10.45 - Debenture in favor of Manitob a Development Corporation by Trimel Corporation dated March 7, 19 91 relating to the manufacturing facility; Offer of Financial Assistance from Manitoba Industrial Opportunity Program ("MIOP") dated April 18, 1990 ; Consent Letter dated March 9, 1992 of Manitoba Development Corporat ion to assignment of the loan facility to Biovail Research Corporation. * 10.46 - Certificate of Charge for Mor tgage No. 1398964 from Trimel Corporation in favor of Manitoba Development Corporation relating to the manufacturing facility.* 10.47 - Proposal dated March 26, 1990 , from the Minister of Western Economic Diversification to Trimel rel ating to the manufacturing facility, as amended by letter dated May 22, 1990, October 1, 1990, May 10, 1991, October 1, 1991 and October 26, 1991; Co nsent Letter of Western Economic Diversification dated March 2 0, 1992 to the assignment of the loan facility to Biovail Research Corporation. * 10.48 - Mortgage of Land dated Octobe r, 1989 between IWF Research Laboratories Inc. and The Prudential Assur ance Company of England (Canada) relating to the clinic.* 10.49 - Document General/Assumption o f Charge Agreement between IWF Research Corporation and the Prudentia l Life Assurance Company of England (Canada) dated as of November 20, 1989 relating to the clinic; Consent Letter dated March 17 , 1992 from Prudential to the assignment of the loan facility to Biova il Research Corporation.* 10.50 - Charge/Mortgage of Land and F ixed Charge Debenture between IWF Research Corporation and The Royal Bank of Canada dated December 7, 1989; Consent Letter dated Ma rch 10, 1992.* 10.51 - General Security Agreement be tween IWF Research Corporation and The Royal Bank of Canada dated De cember 7, 1989.*
E-7
10.52 - Guarantee and Postponement of Claim to The Royal Bank of Canada from Trimel Corporation on behalf of IWF Research Corporation dated December 7, 1989.* 10.53 - Postponement of Claim to The Royal Bank of Canada from Trimel Corporation on behalf of IWF Research Corporation dated December 7, 1989.* 10.54 - Mortgage No. 1395255 from Tri mel Corporation to Royal HealthCare Investment Corporation relati ng to the manufacturing facility.* 10.55 - Postponement of Rights and Ad vances Agreement dated March 8, 1991 by Royal HealthCare Investment C orporation in favor of Manitoba Development Corporation.* 10.56 - Postponement of Rights and Ad vances Agreement dated March 8, 1991 by Royal HealthCare Investment C orporation in favor of the Royal Bank of Canada.* 10.57 - Prime Agreement between Trime l Corporation and The Cambrian Engineering Group Limited dat ed June 18, 1990.* 10.58 - Design - Build Stipulated Pri ce Contract between Trimel Corporation and Penn-Co Construction Ltd. dat ed November 28, 1990 relating to the construction of the manufactu ring facility.* 10.59 - Letter Agreement, dated July 12, 1990, between The Royal Bank of Canada and IWF Research Corporation. * 10.60 - License Agreement between Bio vail Research Corporation and Zenith Laboratories, Inc. dated as o f May 14, 1992 relating to Indomethacin.* 10.61 - Letter of Consent dated May 1 5, 1992 from The Royal Bank of Canada to Trimel Corporation.* 10.61A - Page 2 to Letter of Consent d ated May 15, 1992, from The Royal Bank of Canada to Trimel Corporation. * 10.62 - Supplemental Debenture betwee n Trimel Corporation, Biovail Research Corporation, and Biovail Corp oration International relating to MIOP, together with the Letter of C onsent of MIOP, both dated May 15, 1992.* 10.63 - Guarantee of Biovail Corporat ion International in favor of MIOP dated May 15, 1992.* 10.64 - Bill of Sale dated May 15, 19 92 between Trimel Corporation and Biovail Research Corporation.*
E-8
10.65 - General Conveyance dated May 15, 1992 between Trimel Corporation and Biovail Research Corporation. * 10.66 - Assignment and Assumption Agr eement dated May 15, 1992 between Trimel Corporation and Biovail Resea rch Corporation.* 10.67 - Demand Debenture in the princ ipal amount of CDN$5,894,000 made by Biovail Research Corporation in favor of The Royal Bank of Canada dated May 15, 1992.* 10.68 - General Security Agreement da ted May 15, 1992 by Biovail Research Corporation in favor of The R oyal Bank of Canada.* 10.69 - Guarantee and Postponement of Claim dated May 15, 1992 by Trimel Corporation in favor of The R oyal Bank of Canada.* 10.70 - Guarantee and Postponement Cl aim dated May 15, 1992 by Biovail Corporation International in favor of The Royal Bank of Canada.* 10.71 - General Security Agreement da ted May 15, 1992 made by Biovail Corporation International in favor of The Royal Bank of Canada.* 10.72 - Environmental Indemnity Agree ment dated May 15, 1992 made by Biovail Research Corporation in favor of The Royal Bank of Canada.* 10.73 - Environmental Indemnity Agree ment dated May 15, 1992 made by Trimel Corporation and Biovail Corpo ration International in favor of the Royal Bank of Canada.* 10.74 - Priority Agreement dated May 15, 1992 among The Royal Bank of Canada, Biovail Research Corporation, Manitoba Development Corporation, Trimel Corporation and Biovail Corpo ration International.* 10.75 - Irrevocable Assignment and Di rection dated May 15, 1992 to Western Economic Diversification and Department of Industry, Trade & Tourism by Biovail Research Corporation. * 10.76 - Pledge of Debenture dated May 15, 1992 by Biovail Research Corporation in Favor of The Royal Bank of Ca nada.* 10.77 - Shareholders Agreement dated May 4, 1991 among TXM Corporation, Robert Goldman and Biovail SA , as amended.*
E-9
10.77A - Agreement of Amendment dated March 16, 1993 to Shareholders Agreement dated May 4, 1991 among TXM C orporation, Robert Goldman and Biovail SA.* 10.78 - Employment Agreement between Biovail Research Corporation and Ervin Gregory Szekely dated July 13 , 1992.* 10.79 - Marketing Service Agreement b etween Pharmaconsult and Biovail Research Corporation dated October 5, 1992.* 10.80 - Technical Assistance Agreemen t among Biovail SA, Kerfoot Pharmaceuticals and Biovail R esearch Corporation dated December 21, 1992.* 10.81 - Licensing Agreement between B iovail Research Corporation and Galephar P.R. Inc. dated December 1, 1 992.* 10.81A - Page 17 to Licensing Agreemen t between Biovail Research Corporation and Galephar P.R. Inc. dated Dece mber 1, 1992.* 10.82 - Licensing Agreement between B iovail Research Corporation and Galephar P.R. Inc. dated April 1, 1992 .* 10.82A - Pages 18 and 19 to Licensing Agreement between Biovail Research Corporation and Galephar P.R. Inc. dated April 1, 1992.* 10.83 - Form of 4% Convertible Subord inated Debenture.* 10.84 - Interim Service Agreement bet ween Biovail Corporation International and Trimel Corporation dated Febr uary 1, 1993.* 10.85 - Promissory Note dated Februar y 3, 1993 in the principal amount of up to CDN$2,947,000 made by Biovail Research Corporation in favor of Trimel Corporation.* 10.86 - Marketing and Supply Agreemen t dated May 14, 1992 between Zenith Laboratories, Inc. and Biovai l Research Corporation.* 10.87 - Amendment and Addendum to Lic ensing Agreement dated September 1, 1992 to Licensing Agreement b etween Biovail Research Corporation and Galephar P.R. Inc. dated May 1, 1991.* 10.88 - Amendment and Addendum to Lic ensing Agreement dated September 1, 1992 to Licensing Agreement b etween Biovail Research Corporation and Galephar P.R. Inc. dated Apri l 1, 1992.*
E-10
10.89 - Licensing Agreement between B iovail SA and Temmler Pharma GmbH dated October 28, 1992.* 10.90 - Letter Agreement between Biov ail Research Corporation and Hoechst- Rousell Pharmaceuticals, Inc. dated June 30, 1993.* 10.91 - Lease Amendment Agreement by and among Trimel Corporation, Biovail Corporation International and Westpen Properties Ltd.* 10.92 - Amendment of Financing Propos al for the Western Economic Diversification Canada dated April 8, 1993.* 10.93 - Escrow Agreement between Biov ail Corporation International and Midlantic National Bank dated July 26, 1993.* 10.94 - License and Supply Agreement between Biovail Research Corporation and Sanofi Winthrop dated Septemb er 15, 1993.** 10.95 - Distribution Agreement among Trimel Corporation, Watson Laboratories, Inc. and Gynex Laboratories L .P. dated April 28, 1989.** 10.96 - Addendum to Distribution Agre ement, between Trimel Corporation and Watson Laboratories, Inc. dat ed as of June 21, 1993.** 10.97 - Licensing Agreement between T rimel (Barbados) Corporation and Mepha Ltd. effective November 29, 1 990.** 10.98 - Licensing Agreement between T rimel Corporation and Mepha Ltd. effective June 1, 1990.** 10.99 - Amendment to Employment Agree ments between each of Biovail Research Corporation and Trimel Corpor ation and Rolf Reininghaus dated as of December 15, 1993.** 10.100 - Amendment to Management Agree ments between each of Biovail Research Corporation and Trimel Corpor ation and Eugene Melnyk dated as of December 15, 1993.** 10.101 - Amendment to Employment Agree ments between each of Biovail Research Corporation and Trimel Corpor ation and Mahmood Khan dated as of December 15, 1993.** 10.102 - Supply Agreement between Biov ail Research Corporation and Hoechst- Roussel Pharmaceuticals Inc. effective as of June 30, 1993.**
E-11
10.103 - Rights Agreement between Biov ail Research Corporation and Hoechst Roussel Pharmaceuticals, Inc. effective as of June 30, 1993.** 10.104 - 1993 Stock Option Plan of Tri mel Corporation.** 10.105 - Letter of Offer from the Mini ster Of Western Economic Diversification to Trimel Corporation and Biovai l Research Corporation dated April 8, 1993, as amended by letter dated Oc tober 21, 1993.** 10.106 - Letter Agreement between Roya l Bank of Canada and Trimel Corporation dated September 21, 1993, as revised on October 5, 1993.** 10.107 - Notice of Assignment dated Oc tober 22, 1993 by Biovail Research Corporation to Geneva Pharmac eutical, Inc. with respect to the License Agreement dated June 25, 1991 .** 10.108 - Letter dated November 8, 1993 by Manitoba Development Corporation to Trimel Corporation relating t o the financing of the manufacturing facility.** 10.109 - Letter of understanding betwe en Galephar P.R., Inc. and Biovail Research Corporation dated August 26, 1993.** 10.110 - Minutes of Settlement respect ing to Research and Development Agreement dated February 15, 1988 betwe en Biovail Research Corporation and Verex Laboratories, Inc. dated as o f August 1, 1993.** 10.111 - Letter Agreement between Hoec ht-Roussel Pharmaceuticals Inc. and Biovail Research Corporation dated Ja nuary 18, 1994.** 10.112 - Insurance Policy on the life of Eugene Melnyk for the benefit of Trimel Corporation issued by Gerling Global Life Insurance Company.** 10.113 - Insurance Policy on the life of Rolf Reininghaus for the benefit of Trimel Corporation issued by Toronto Mutual Life Insurance Company.** 10.114 - Insurance Policy on the life of Mahmood Khan for the benefit of Trimel Corporation issued by Toronto Mutual Life Insurance Company.** 10.115 - Amendment dated January 18, 1 994 to License Agreement between Biovail SA and Rhone-Poulenc Rorer S. A. (previously known as Rhone-Poulenc Sante) dated August 13, 1982. ** 10.116 - Consulting Agreement dated Fe bruary 9, 1994 between Strategic Associates Incorporated and Biovail Corp oration International.**
E-12
10.117 - Commitment letter from Royal Bank of Canada to Biovail Corporation International dated February 21, 1994.** 10.118 - Commitment letter from Royal Bank of Canada to Trimel Corporation dated February 21, 1994.** 10.119 - Agreement between Trimel Corp oration, Trimel (Canada) Inc., Biovail Corporation International, Eu gene Melnyk and G. Dewar Laing, dated January 18, 1994.** 10.120 - Clinical study agreement for Diltiazem OD ER between Biovail Corporation International and Hoechst-Rou ssel Pharmaceuticals, Inc. dated April 21, 1994.*** 10.121 - Agreement between the Ministe r of Western Economic Diversification and Biovail Corporation Internati onal dated April 19, 1994.*** 10.122 - Amendment to Supply Agreement (Diltiazem) between Biovail Corporation International Hoechst-Roussel Pharmaceuticals, Inc. dated June 3, 1994.*** 10.123 - General Security Agreement da ted June 23, 1994 made by Biovail Corporation International in favour of the Royal Bank of Canada.*** 10.124 - Demand Debenture in the princ ipal amount of $1,000,000 made by Biovail Corporation International in favor of the Royal Bank of Canada dated June 23, 1994.*** 10.125 - Charge/Mortgage of Land June 23, 1994 between Biovail Corporation International and the Royal B ank of Canada relating to 460 Comstock Road.*** 10.126 - Environmental Indemnity Agree ment dated June 23, 1994 made by Biovail Corporation International in favour of the Royal Bank of Canada.*** 10.127 - Security Confirmation Agreeme nt dated June 23, 1994 made by Biovail Corporation International in favor of the Royal Bank of Canada.*** 10.128 - Pledge of Debenture dated Jun e 27, 1994 by Biovail Corporation International in favor of the Royal Bank of Canada.*** 10.129 - Guarantee Confirmation Agreem ent dated June 27, 1994 made by Trimel Corporation, a New Jersey Cor poration, in favor of the Royal Bank of Canada.***
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10.130 - Consulting Agreement between Trimel Laboratories Inc. and Professor Arnold H. Beckett effective a s of July 15, 1994.- 10.131 - Employment Agreement between Biovail Corporation International and Bruce D. Brydon dated as of D ecember 19, 1994.- 10.132 - Settlement Agreement between Biovail Corporation International and Robert Goldman dated January 24, 199 5.- 10.133 - Letter Agreement between the Bank of Nova Scotia and Biovail Corporation International dated March 23, 1995.- 10.134 - Amendment to the letter of of fer from Manitoba Industrial Opportunities program dated March 24, 1995. - 10.135 - Letter Agreement outlining te rms of litigation settlement between Cassels, Brock & Blackwell on behalf o f Biovail Corporation International and Lerner & Associates on behalf of Ian W. French dated April 13, 1995.- 10.136 - Amendment to Financing propos al from Western Economic Diversification Canada dated April 20, 1995.- 10.137 - Settlement Agreement and rele ase between Biovail Corporation International, Hoechst-Aktiengesellschaft an d Hoechst-Roussel Pharmaceuticals Inc. dated April 28, 1995.- 21.1 - Subsidiaries of the Registran t.** 23.1 - Consent of Deloitte & Touche. ** 23.2 - Consent of Deloitte & Touche. ** 23.3 - Consent of Doane Raymond.** 23.4 - Consent of Robinson, St. John & Wayne.** 23.5 - Consent of Stewart, Roper & A ssociates.** 23.6 - Consent of Price Waterhouse.* * 23.7 - Consent of Cassels Brock & Bl ackwell.** 23.8 - Consent of Deloitte & Touche 24.1 - Powers of Attorney.**
C. Exhibits filed previously this year.
D. EXHIBITS FILED WITH THIS SUBMISSION
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99.1 - Form of Proxy to be used in s oliciting holders of Trimel Corporation Common Stock.** 99.2 - Form of Proxy to be used in s oliciting holders of Biovail Corporation International Common Stock.** 99.3 - Valuation Report and Fairness Opinion of Price Waterhouse.** 99.4 - Consent of George Henry.**
10.138 - Offer to Purchase of Forest L aboratories, Inc. dated September 18, 1995 Filed as Exhibit 1 -- 10.139 - Investment Agreement by and a mong Forest Laboratories, Inc., Biovail Corporation International, Eu gene Melnyk, Trimel (Canada) Inc. and Royal Healthcare Investment C orporation Filed as Exhibit 2-- 10.40 - License Agreement between For est Laboratories, Inc. and Biovail Corporation International Filed as Exhibit 4-- 10.141 - Option Agreement between Fore st Laboratories, Inc. and Biovail Corporation International Filed as Exhibit 5-- 10.142 - Supply Agreement between Fore st Laboratories, Inc. and Biovail Laboratories, Inc. Filed as Exhibit 6-- 10.143 - Registration Rights Agreement between Forest Laboratories, Inc. and Biovail Corporation International Filed as Exhibit 7-- 10.144 - Performance Guarantee Agreeme nt between Biovail Corporation Interntional and Forest Laboratories, Inc. Filed as Exhibit 8-- 101.45 - Loan Agreement, Promissory No te and Pledge Agreement made by Eugene Melnyk in favour of Forest La boratories, Inc. Filed as Exhibit 12--
10-104A - 1993 Stock Option Plan as ame nded.
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- -------------- * Incorporated by referenc e to Registrant's registration statement o n Form F-1, Registration Statement No. 33-57938. ** Incorporated by referenc e to Registrant's registration statement o n Form F-4, Registration Statement No. 33-74120 *** Incorporated by referenc e to Registrant's Annual Report on Form 20-F for the fiscal year ended December 31, 1993, file no. 011-11145. - Incorporated by reference to Rei strant's Annual Report on Form 220-F for the fiscal year e nded December 31, 1994, file no. 011-11145. -- Incorporated by reference to Reg istrant's Schedule 14D-9 filing dated September 18, 1995. ---------------
BIOVAIL CORPORATION INTERNATIONAL
1993 STOCK OPTION PLAN, AS AMENDED
1. PURPOSE: The purpose of this Stock Option Plan (the "Plan") is to attract and retain the services of directors, employees, consultants and advisors of Biovail Corporation International, its subsidiaries and affiliates (the "Corporation") who are primarily responsible for the management and profitable growth of its business and to advance the interests of the Corporation by enabling them to acquire common shares (the "Shares") of the Corporation as an additional incentive for superior performance by such persons.
2. ELIGIBILITY: Options may be granted under the Plan to directors, senior officers, or to a personal holding corporation controlled by such persons, officers, employees and consultants of the Corporation, whether or not they are full or part time employees of the Corporation; provided, however, that options may be conditionally granted to persons who are prospective directors or employees of, or consultants or advisors to, the Corporation, but no such grant shall become, by its terms, effective earlier than the date as of which the board of directors approves the grant or the date as of which the Optionee becomes an officer, employee or director of, or a consultant or advisor to (as the case may be), the Corporation.
3. ADMINISTRATION: The Plan shall be administered by the Board of Directors who shall have full authority to interpret the Plan and to make such rules and regulations and establish such procedures as they deem appropriate for the administration of the Plan. A decision of the majority of persons comprising the Board in respect of any matter hereunder shall be binding and conclusive for all purposes and upon all persons.
4. SHARES SUBJECT TO THE PLAN: The total number of shares which are reserved and set aside for issue under this Plan, and under all other management options outstanding and employee stock purchase plans, if any, shall not in the aggregate exceed 1,500,000 common shares. All shares issued pursuant to the exercise of options granted or deemed to be granted under the Plan will be so issued as fully paid common shares.
5. PARTICIPATION: Options shall be granted under the Plan only to directors or senior officers or their personal holding corporation or to officers, employees, consultants and field personnel of the Corporation (the "Optionee") as shall be designated from time to time by the Board of Directors and shall be subject to the approval of such regulatory authorities as may have jurisdiction. Approval of the Plan also constitutes shareholders approval of options that may be granted under the Plan to directors or senior officers of the Corporation or to their personal holding corporation.
6. OPTION AGREEMENTS: Each option shall be evidenced by a written agreement (an "Option Agreement"), containing such terms and conditions, not inconsistent with the Plan, as the Board of Directors may, in its discretion, determine. Option Agreement shall be executed on behalf of the Corporation and the Optionee. Option Agreements may differ among Optionees.
7. TERMS AND CONDITIONS OF OPTIONS: The terms and conditions of each option granted under the Plan shall include the following, as well as such other provisions, not inconsistent with the Plan as may be deemed advisable by the Board of Directors:
(a) Number of Shares: The number of subject to the option.
(b) Option Price: The option price of any shares in respect of which an option may be granted under the Plan shall be fixed by the Board of Directors but shall be not less than the fair market value of the shares at the time the option is granted, less an amount up to the maximum discount allowed by regulatory authorities or stock exchanges having jurisdiction as may be determined by the Board of Directors. For the purpose of this paragraph, the "fair market value" shall be deemed to be the closing market price at which the shares are traded on the Toronto Stock Exchange on the day prior to the date the option is granted, or if not so traded, the average between the closing bid and ask prices thereof as reported for that day.
(c) Payment: The full purchase price payable under the option shall be paid in cash or certified funds upon the exercise thereof. A holder of an option shall have none of the rights of a shareholder until the shares are issued.
(d) Term of Option: Options may be granted under this Plan over a period not exceeding ten (10) years. Each option shall be subject to earlier termination as provided in subparagraph (f) of this paragraph 7.
(e) Exercise of Option: Subject to the provisions contained in subparagraph (f) of this paragraph 7, no option may be exercised unless the Optionee is then a director, senior officer, officer, employee, consultant and advisor of the Corporation. This Plan shall not confer upon the Optionee any right with respect to continuation of employment by the Corporation. Absence on leave approved by an officer of the Corporation authorized to give such approval shall not be considered an interruption of employment for any purpose of the Plan. Subject to the provisions of the Plan, an option may be exercised from time to time by delivery to the Corporation at Toronto of written notice of exercise specifying the number of shares with respect to which the option is being exercised and accompanied by payment in full of the purchase price of the then being purchased.
(f) Termination of Options: Any option granted pursuant hereto, to the extent not validly exercised, will terminate on the date of expiration specified in the option agreement, being not more than ten (10) years after the date upon which the option was granted.
(g) Nontransferability of Stock Option: No option shall be transferable, except to a personal holding corporation of the Optionee, by the Optionee other than by will or the laws of descent and distribution and such option shall be exercisable during the lifetime of the Optionee.
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(h) Applicable Law or Regulations: The Corporation's obligation to sell and deliver shares under each option is subject to such compliance by the Corporation and any Optionee as the Corporation deems necessary or advisable with all laws, rules and regulations of Canada and any provinces and/or territories thereof applying to the authorization, issuance, listing or sale of securities and is also subject to the acceptance for listing of the shares which may be issued upon the exercise thereof by each stock exchange upon which of the Corporation are then listed for trading.
8. TERMINATION OF EMPLOYMENT, DISABILITY AND DEATH: The Board of Directors may determine the period or periods of time during which an Optionee may exercise an option following (i) the termination by the Corporation, with or without cause, of the Optionee's employment or other relationship with the Corporation, (ii) the termination by the Optionee of any such relationship with the Corporation, or (iii) the death or permanent and total disability of the Optionee. Such period or periods shall be set forth in the Option Agreement evidencing such option.
9. ADJUSTMENTS IN SHARES SUBJECT TO THE PLAN: The aggregate number and kind of shares available under the Plan and the exercise price thereof shall be appropriately adjusted in the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering or any other change in the corporate structure or shares of the Corporation. any of such events, the Board of Directors may determine the adjustments to be made in the number and kind of shares covered by options theretofore granted or to be granted and in the option price.
10. AMENDMENT AND TERMINATION OF PLAN: Subject to the approval of the Toronto Stock Exchange or other regulatory authorities having jurisdiction, the Board of Directors may from time to time amend or revise the terms of the Plan or may terminate the Plan at any time provided, however, that no such action shall, without the consent of the Optionee, in any manner adversely affect his rights under any option theretofore granted under the Plan.
11. CORPORATE TRANSACTIONS: In the event the Shares are exchanged for securities, cash or other property of any other corporation or entity as the result of a reorganization, merger or consolidation in which the Corporation is not the surviving corporation, the dissolution or liquidation of the Corporation, or the sale of all or substantially all the assets of the Corporation, the Board of Directors or the board of directors of any successor corporation or entity may, in its discretion, as to outstanding options (a) accelerate the exercise date or dates of such options pursuant to section 7(e), (b) upon written notice to the holders thereof, provided the options have been accelerated pursuant to paragraph (a) above, terminate all such options prior to consummation of the transaction unless exercised within a prescribed period, (c) provide for payment of an amount equal to the excess of the fair market value, as determined by the Board of Directors or such board, over the Option Price of such as of the date of the transaction, in exchange for the surrender of the right to exercise such options, or (d) provide for the assumption of such options, or the substitution therefor of new options, by the successor corporation or entity.
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12. EFFECTIVE DATE AND DURATION OF PLAN: Subject to the approval of the shareholders of the Corporation, the Plan becomes effective on the date of its adoption by the Board of Directors and options may be granted immediately thereafter. The Plan shall remain in full force and effect until the tenth anniversary of the date on which the Plan was adopted by the Board of Directors, (ii) the tenth anniversary of the date on which the Plan is approved by the shareholders of the Corporation, or (iii) the date as of which the Board of Directors, in its sole discretion, determines to terminate the Plan, whichever is the earlier.
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End of Filing
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