Biovail Corp. is slashing its dividend while making a half-billion-dollar deal to take back the U.S. rights to one-a-day antidepressant Wellbutrin XL.
Canada's largest publicly traded drug maker is also shutting its research and development centre in Mississauga, west of Toronto. This activity will be transferred to Chantilly, Va., and R&D staff is to be cut in half, by about 50 jobs.
Biovail, which keeps its accounts in U.S. dollars, said Wednesday the quarterly dividend is being cut to nine cents from 37.5 cents. The reduced payout, saving the company $180-million a year, represents a yield of 3.2 per cent at Biovail's stock price before the announcement.
The $510-million deal with GlaxoSmithKline gives Biovail full American rights to Wellbutrin XL, which the Canadian company developed and manufactures. It has been distributed in the U.S. through GSK since 2003.
"This deal is all about accelerating our new strategic focus," CEO Bill Wells told a quarterly conference call. "You have to have a strong foundation to build a house."
American sales of the timed-release formulation of bupropion will be "immediately and significantly accretive to revenues, earnings and cash flows," Mr. Wells declared, projecting a payback within five years, with $200-million in additional cash flow through 2010.
Biovail's Wellbutrin XL revenues were down by two-thirds from a year ago to $67.9-million in the first quarter of this year - the third quarter of generic competition. But Mr. Wells said it has suffered less erosion than most drugs hit by generics, and the deal with GSK is based on a "conservative scenario" of ongoing decline in prescription volumes.
GlaxoSmithKline, the world's second-largest drugmaker, will retain rights to Wellbutrin XL outside the United States and Canada.
Acquiring the Wellbutrin XL U.S. cash flow "is all about accelerating our shift into speciality neurology," Mr. Wells said, adding that the deal results from his direct approach to the CEO of GSK.
The dividend cut, he said, was partly motivated by the prospect of "additional business development activity in the near term."
The R&D cutbacks are expected to save $8-million a year. The company said work at the Mississauga centre was essentially related to technology transfer. Biovail previously shut down an R&D centre in Dublin, Ireland, aiming for $100-million in sales of non-core assets. It also is shutting two manufacturing plants in Puerto Rico.
Wednesday's announcements came as Biovail reported first-quarter earnings of $39-million, down from $56.4-million a year ago.
Revenue dropped to $173.3-million from $208.5-million and earnings per share fell to 25 cents from 35 cents in what Mr. Wells characterized as "yet another quarter of solid financial results."
Biovail is focusing on drugs to treat central nervous system disorders and its first specialty CNS product, tetrabenazine for Huntington's chorea, is performing "better than expected," Mr. Wells said.
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