[MFI #2] Biovail Corp
Biovail Corp [ticker: BVF] is a pharmaceutical company that develops, manufactures, and delivers drugs to the United States and Canada.
Pros:
New CEO in 2004 has shaken things up at the company, eliminating losing divisions and tripling the dividend.
Cons:
Restating earnings from 2006,2005,2004. The restatement has occurred due to weak financial controls. They overstated the amortization expense for a drug they ordered from GlaxoSmithKline. This resulted in a 17.4M net income recognition in 2007. It’s possible the accounting tricks have not stopped.
This is a drug company, in August they were denied FDA approval on one of their drugs which send the stock down 20%, this could happen again with any of the drugs they have in their pipeline.
Biovail is a Canadian company, so currency risk is involved in both their sales, and from the investor standpoint the purchase of their stock and dividends.
Warnings:
The accounting revisions are troubling, there could possibly be more problems. The auditor as of March 2007 stated that they do not believe internal controls can catch accounting problems. This statement is extremely troubling.
Due to the nature of the business there could be significant litigation. I am not as worried about this in the near-term. But the news of a possible lawsuit could severely depress the price of the issue.
Cash Flow:
The cash flow is strong, but can be spotty. In the fiscal year 2006 free cash flow was as follows:
- Q1 - 76,480,000
- Q2 - 98,116,000
- Q3 - 78,913,000 (made possible by an asset writes down of 147M, otherwise a loss)
- Q4 - 228,561,000
Dividend Policy:
There’s a $1.5 dividend per share which is about an 8% yield.
Debt/Equity:
No long term debt
Long Term Growth:
I don’t see anything in the near term impeding Biovail’s growth.
Management:
CEO Dr. Douglas J.P. Squires is a relatively new in the position. He was also recently named interim Chairman. CEO Squires has taken an active approach in turning the company around.
The CFO who presided over the accounting scandal has left.
Price:
As of 10/4/2007 BVF closed at: $18.45
October 7th, 2007 at 12:31 pm
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November 29th, 2007 at 12:26 pm
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