IN RE BIOVAIL CORPORATION + Master File No . 03-CV-8917 (RO)
SECURITIES LITIGATIO N
CONSOLIDATED AMENDED CLASS ACTION COMPLAIN T
BERNSTEIN LITOWITZ RERGER
& GROSSMANN LL P
Daniel L . Berger (DB-7748)
J . Erik Sandstedt (JS 9118)
Javier Bleichmar (JB-0435)
1285 Avenue of the Americas
New York, New York 10019
Tel : 212-554-1400
Fax : 212-554-1444
Co-Lead Counsel and Counsel for Co-Lead
Plaintiff Ontario Teachers ' Pension Plan
Board
SCHULMAN LL P
Sanford P . Dumain (SD-8712)
Ann M . Lipton (AL-3010)
One Pennsylvania Plaza
New York, New York 10119
Tel : 212-594-530 0
Fax : 212-868-122 9
Co-Lead Counsel and Counsel for Co-Lead
Plaintiff Local 282 Welfare Trust Fund

TABLE OF CONTENTS
I .
II .
III .
IV .
V .
Page
NATURE OF THE ACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
JURISDICTION AND VENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
CLASS ACTION ALLEGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3
SUBSTANTIVE ALLEGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 4
A . Background of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 4
B . Biovail's Prospects and Stock Price in 2003 Depended on the Successfu l
Launch of Cardizem LA and Wellbutrin XL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6
C . Biovail's February 7, 2003 Guidance and the FDA Approval of Cardize m
LA . .. . .. . . .. . . . .. . . .. . . .. . . .. . . . .. . . .. . . . .. . . . . .. . . .. . . .. .. . . . .. . . .. .. . . .. . . . .. . . .. . . .. . . . .. . . .. . .. . . .. .. . . .. . . .. . . . .. . . . .. 1 8
D . Undisclosed Adverse Facts Affecting Biovail's Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6
1 . Biovail's Projections for the Cardizem Family of Products Were
Knowingly False . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2 . Biovail was Unable to Manufacture Sufficient Quantities o f
Cardizem LA to Support a Successful Launch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 8
3 . Biovail Implemented the PLACE Program to Deceive Investors . . . . . . . . . . . . 3 3
E . Biovail Also Made Unreasonable Projections for 2003 Sales of th e
Cardizem Family of Products Because by December 2002, Biovail' s
Distribution Channels were Stuffed with Cardizem CD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 7
F . Biovail Continued to Knowingly Mislead Investors with Respect to the
Launch of Cardizem LA After February 7, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 9
1 . The March 4, 2003 Earnings Conference Call . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 9
2 . The April 29, 2003 Press Releases and Conference Call . . . . . . . . . . . . . . . . . . . . . . . . . . 40
3 . May 7, 2003 Press Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 8
4. The July 29, 2003 Earnings Release and Conference Calls . . . . . . . . . . . . . . . . . . . . . . 4 9
G. The Fraud Is Partially Revealed, But Defendants Continued to Lie to
Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7
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1 . On October 3, 2003, Biovail Announced That It Had Missed It s
Third Quarter Estimates , But Lied About the Reasons to Hide the
Fact that Revenue from Cardizem LA Had Been Disastrous . . . . . . . . . . . . . . . . . . . 5 7
2 . October 30, 2003 Earnings Release and Conference Call . .... ...... . ... . .... .... 63
3 . U .S . and Canadian Authorities Commenced Investigations as a
Result of Biovail's Third Qua rter Earnings Disclosures -- th e
Company Lied About the Existence of the Canadian Investigation . . . . . . . . . 6 9
H . The Fraud is Completely Revealed : Biovail's Announcement of Its Fisca l
2003 Results . . . .. . . .. . . .. . . . .. . . .. .. . . .. . . . .. . . .. . .. . . .. . . . . .. . .. . . .. . .. . .. . . . . .. . . .. . . .. . . . . .. . . . . .. . . .. . . . . .. . . .. . .. 7 1
1.
Scienter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
1 . Defendants Had Actual Knowledge of the Fraud And Flat-Out
Lied . . .. . . . . .. . .. . . . . .. . . .. . . . . .. . . . .. . . .. . . .. . . . .. . . .. . . .. . . .. . .. . . .. . . . . .. . . .. . . . .. . . . .. . . . .
. . .. . . 7 5
2 . Defendants Had Motive and Opportunity to Commit Fraud . . . . . . . . . . . . . . . . . . . . 7 8
VI .
VII .
3 . Circumstantial Evidence Raising a Strong Inference of Scienter . . . . . . . . . . . . . 8 0
DEFENDANTS FALSE AND MISLEADING STATEMENTS ISSUED
DURING THE CLASS PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
CLAIMS FOR RELIEF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 09
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Lead Plaintiffs Ontario Teachers' Pension Plan Board ("Ontario Teachers") and Local
282 Welfare Trust Fund ("Local 282 Welfare Fund") (together "Lead Plaintiffs") bring this action as a class action, individually, and on behalf of all other persons and entities who purchased the publicly traded common stock of Biovail Corporation ("Biovail" or the
"Company") during the period February 7, 2003, through and including, March 2, 2004 (the
"Class Period") .'
1 .
NATURE OF THE ACTION
1 . By February 2003, Biovail was a pharmaceutical company whose market value depended entirely on two drugs : Cardizem LA and Wellbutrin XL . The successful launch of these drugs would mark the transition of Biovail from a relatively minor player . in the pharmaceutical industry into a "specialty pharmaceutical" business with valuable assets driving its revenue and growth . As noted by one analyst who followed Biovail in late 2002, "[t]wo upcoming major new products launches remain critical in enhancing Biovail's earnings growth visibility, including the anticipated fourth quarter approval of Cardizem [LA] (hypertension) followed by the planned second half 2003 introduction of a new once-daily form of Welibutrin
[XL] through GlaxoSmithKline ." Another analyst mimicked this analysis in early February
2003, when she emphasized that "Cardizem LA is an essential part of our Biovail investment thesis as it is their first self-developed, self-launched product, pushing them into the Specialty
Pharmaceutical business model from a historical drug delivery business model . "
2 . Fully cognizant of the importance of these key products, on February 7, 2003,
Biovail made two critical public announcements . First, it announced that Cardizem LA had bee n
' The Court also appointed Houston Municipal Employees' Pension System ("HMEPS") as Lead Plaintiff on March
3, 2004. HMEPS, however, did not purchase Biovail common stock during the Class Period alleged in this complaint, February 7, 2003 to March 2, 2004 . Accordingly, HMEPS will file a notice of withdrawal as Co-Lead
Plaintiff shortly .
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approved by the Food and Drug Administration (the "FDA") . Second, it gave Wall Street analysts projections for upcoming sales of bnth Cardiz.em LA and Wellhutrin XL, which were based entirely on the successful launches of these products . Biovail informed the market that it would commercially launch Cardizem LA on April 2, 2003, and then Wellbutrin XL in the third quarter of 2003 . Biuvail's revenue projection for the Cardizem family of drugs was $140-$200 million . These figures included internal projected sales of Cardizem LA of $90 million to $100 million . Subsequently, Defendants repeatedly assured investors that Biovail was making great strides in promoting and distributing Cardizem LA, and that the launch of this product had been a tremendous success . For example, on April 29, 2003, Biovail issued a press release entitled,
"Biovail Reports Positive Cardizem LA Launch Results ." One week later, on May 7, 2003, the
Company issued a new press release with the headline, "Biovail's Cardizem LA Obtains
Favorable Formulary Coverage ; Access to over 74 Million Managed Care Lives "
3 . The Defendants knew, however, that these self-promoting press releases and th e initial projections for Cardizem LA were materially false and misleading . The truth of the matter was that at the time these projections were made, Biovail was experiencing severe problems manufacturing Cardizem LA, and there was absolutely no way that Biovail could generate sufficient quantities of this product to support a successful launch in April 2003 . In fact, former employees stated that they specifically told the Defendants that the maximum sales of Cardizem
LA Biovail could expect in 2003 was $50 million (actual sales in 2003 were $47 .7 million), and that the $90-$100 million figures that Defendants wanted to utilize were "outlandish ."
Nevertheless, Defendants issued materially false and misleading projections, knowing that they would mislead investors and artificially inflate Biovail's stock price .
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4 . The Defendants then concocted a scheme to disguise the fact that they did not have enough product to support a successful launch of Cardizem LA . Specifically, the
Defendants understood that Wall Street analysts would be looking at the number of prescriptions that doctors wrote for Cardizem LA in assessing the success of the launch . So, in advance of the launch, they instituted what they called the PLACE Program (Proving LA through Clinical
Experience) . The PLACE program was billed by the Company as a "clinical experience" program aimed at developing meaningful, scientific data for Cardizem LA . However, in reality,
PLACE was nothing more than a vehicle to bribe doctors to write prescriptions for Cardizem
LA . Specifically, doctors were paid between $1,000 and $1,500 for every 10 to 15 prescriptions they wrote . Not surprisingly, over 17,000 doctors wrote tens of thousands of prescriptions for
Cardizem LA . Once the PLACE program ended, however, doctors had no financial incentive to continue prescribing the drug and the number of prescriptions written quickly dropped off .
Tellingly, no meaningful scientific data was generated, and no significant client base for the drug was established. Nevertheless, based in large part on the sheer number of prescriptions that were written through the PLACE program, Biovail touted the launch of Cardizem LA as a terrific success .
5 . Defendants' fraudulent scheme quickly fell apart . In the third quarter of 2003 ,
Cardizem LA generated a mere $6 .2 million in revenues, causing the Company to miss its earnings projections by tens of millions of dollars . Defendants knew, however, that they could not admit that Cardizem LA was a failure, for to do so would drive the stock price into the ground . So they continued to deceive investors by lying about the root causes of Biovail's earnings shortfall .
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6 . Specifically, the Defendants took the unconscionable step of exploiting a tragic -indeed, fatal -- accident involving one of their trucks . On October 1, 2003, just after the close of the third quarter, a Biovail truck was involved in a multi-car accident that resulted in eight deaths and fifteen hospitalizations . The truck, in fact, contained a minimal amount of Biovail's new drug, Wellbutrin XL, which had been shipped just hours before the close of the quarter . But seeing an opportunity to explain away the Cardizem LA debacle, which had caused third quarter earnings to fall well short of earnings projections, Defendants publicly announced that the truck held approximately $15 to $20 million worth of Wellbutrin XL, and that the value of the medication on the truck would have to be eliminated from its third quarter 2003 revenues forecast . They further announced that as a result of the accident and two other' circumstances unrelated to the botched launch of Cardizem LA -- i .e ., an alleged "backorder" of Cardizem CD and unexpected lower revenues from another drug, Prilosec Biovail would miss analysts' earnings expectations for that quarter.
7 . The market was quick to react. The stock price dropped from $37 .77 on October
2, 2003, to $31 .10 at the close of trading on October 3, 2003 - approximately 20% . Within days, at least one analyst questioned the veracity of Biovail's statements about the amount of
Wellbutrin XL in the truck. Throughout this period, however, Defendants continually denied that they had lied about the traffic accident . They also lied about several other facts that would have tipped investors, off to the fact that the Defendants had committed a massive fraud . For example, when asked point-blank whether he had pledged any of his Biovail stock for personal loans, defendant Eugene Melnyk ("Melnyk") (Chairman and Chief Executive Officer) answered
"nu ." In fact, Melnyk had pledged his stock against two personal lines of credit, totaling $72 million, a circumstance that provided strong motive for him to artificially inflate the value o f
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Biovail stock . Similarly, Biovail specifically denied that it was the subject of an investigation by the Ontario Securities Commission ("OSC"), when, in fact, an investigation into suspicious trading in Biovail stock had been commenced by that regulatory agency . This false statement prompted the OSC to take the extraordinary step of publicly announcing its investigation to clear up any "misunderstanding among investors as to what the facts were . "
8 . It was not until the Company finally announced its financial results for fiscal 200 3 that investors finally understood the extent of the instant fraud . On March 3, 2004, Biovail announced that its fourth quarter and full year financial results had once again fallen far short of its revised earnings guidance, which had just been reduced on October 30, 2003 . The Company also finally admitted that the quantity of Wellbutrin XL involved in the October 1, 2003 accident was $5 million, not as much as $20 million as they had continually professed, and that th e mysterious "backorder" of Cardizem CD -- the second justification for Biovail's earning miss in the third quarter 2003 -- had never actually existed . Then, in May 2004, the true reasons for
Biovail's dramatic shortfall in the third quarter of 2003 became glaringly obvious for the first time : projected blockbuster sales of Cardizem LA had never materialized . Indeed, in Biovail's
Report on Form 20-F filed with the Securities and Exchange Commission (the "SEC") on May
14, 2004 (the "2003 20-F"), describing the Company's results for 2003, the Company finally admitted that sales of Cardizem LA in the third quarter had amounted to only $6 .2 million -- tens of millions of dollars lower than the Company's original projections .
9 . Of course, by that time, the damage was done. As a result of the Defendants' fraud, Biovail's stock price dropped from a Class Period high of over $50 per share to approximately $18, and investors, in turn, suffered hundreds of millions of dollars in damages .
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IT .
JURISDICTION AND VENU E
10 . The claims alleged herein arise under Sections 10(b) and 20(a) of the Securitie s
Exchange Act of 1934 (the `Exchange Act"), 15 U .S .C . §§ 78j(b) and 78t(a), and Rule 10-5, 1 7
C .F .R . § 240 .1Ob- 5 promulgated thereunder .
11 . The jurisdiction of this Court is based on Section 27 of the Exchange Act, 1 5
U .S .C . § 78aa, and 28 U .S .C . §§ 1331 and 1337 .
12 . Venue is proper in this District pursuant to Section 27 of the Exchange Act and 2 8
U .S .C . § 1391(b) . The Company's stock traded in the New York Stock Exchange (the "NYSE" ) at all relevant times and Melnyk, upon information and belief, maintains a residence in thi s district .
13 . Pursuant to the "effect test" of extraterritorial jurisdiction, this Court may properly exercise subject matter jurisdiction over the claims of (a) all investors who purchased o r acquired Biovail common stock on markets located in the United States, and (b) investors base d in the United States who purchased or acquired Biovail common stock regardless of where thos e securities traded .
14 . This Court may also properly exercise subject matter jurisdiction over the claim s of foreign class members who acquired Biovail common stock on foreign markets under the
"conduct test," which provides that a federal court has subject matter jurisdiction if (a) the
Defendants' activities in the United States were more than "merely preparatory" to a securities fraud conducted elsewhere, and (b) these activities or culpable failures to act within the United
States caused the claimed losses .
15 . Defendants engaged in extensive fraud-related conduct in the United States , which artificially inflated earnings, by, inter alia, (i) failing to disclose severe manufacturin g
problems with Cardizem LA, (ii ) conducting a Cardizem LA sales launch meeting, in Flo ri da, in
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March 2003, in which upper level sales managers were instructed not to disclose to Biovail's sales representatives that Biovail did not have sufficient quantities of Cardizem LA to launch the product, (iii) failing to disclose payments to doctors in the United States pursuant to the PLACE program, (iv) conducting earnings conference calls with Wall Street research analysts located in the United States in which Defendants made false and misleading statements,, (v) filing false and misleading financial statements with the SEC, and (vi) issuing financial statements that were false and misleading pursuant to U .S . Generally Accepted Accounting Principles ("GAAP") . As a result of this fraudulent conduct in the United States, the SEC and the U.S . Attorney's Office are conducting investigations of the Company's actions that occurred here-
16 . As set forth in detail below, the fundamental fraud at issue here concerns the launch of Cardizem LA and subsequent lack of sales of the drug in the United States . The FDA approved Cardizern LA for sale in the United States on February 7, 2003, which inarks the beginning of the Class Period . Biovail issued false and misleading statements leading the investing public to believe that the launch of Cardizem LA in the United States was a success and that sales of the drug were spectacular . In reality, Biovail faced severe manufacturing problems with Cardizem LA .
17 . Biovail concealed its manufacturing problems with Cardizem LA in two ways .
First, Biovail conducted a national sales meeting on March 15, 2003 in Orlando, Florida in which it misled its sales representatives and did not inform them that the Company could not manufacture sufficient quantities of Cardizem LA . Senior management specifically instructed senior sales managers not to disclose to the sales force that manufacturing of Cardizem LA faced severe problems . Second, the Company launched a marketing campaign in the United States called PLACE, which Biovail misleadingly explained was a clinical experience program . The
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Company failed to disclose that PLACE paid U .S . doctors $1,000, or more, for prescribing
CaidiLcui LA to a certain number of patients, and that it was nothing more than a bribing scheme designed to inflate the prescriptions written by doctors . All the conduct therefore took place in this country. The prescriptions were written in the United States, the payments to doctors also were made here, and the ensuing investigation by U .S . federal authorities is based on events that occurred within their jurisdiction .
18 . In addition to the fraudulent conduct that took place in the United States, th e
Company is primarily a United States company, at least in terms of the percentage of sales and operations that take place in this country compared to any other nation . Biovail's 2003 20-F admits as much, stating, "[o]ur primary market is the U .S ." Further, in 2003, which includes 11 of the 13 months in the Class Period, Biovail reported S548 million in revenues from product sales in the United States, out of total product sales of $632 million, or 87% . Tluce of its four manufacturing plants are located in the United States, specifically in Chantilly, Virginia ; Dorado,
Puerto Rico, and Carolina, Puerto Rico . Biovail's sales, marketing and administration offices in
Bridgewater, New Jersey comprise 110,000 square feet, which constitutes 66% of th e
Company's total business offices, excluding manufacturing plants and R&D facilities . The offices in Bridgewater, New Jersey are the largest sales and marketing offices of the Company, which only has one other sales and marketing office, located in Canada, which is half the size and also includes the Company's executive suites .
19 . Moreover, the Company's common stock trades in the NYSE, and as of April 30,
2004, almost 90% of the shares of Biovail common stock were owned by holders of record located in the United States .
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20 . Finally, a significant portion of Defendants' false and misleading statements wer e initially made in the United States, and are contained in Biovail's SEC filings, Biovail's press releases and SEC filings were broadly disseminated within the United States through the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone and electronic communications, and the facilities of national securities exchanges .
Biovail also conducted investor conferences and conference calls with financial analysts tha t took place, in large measure , in the United States, pursuant to U .S . financial disclosure
guidelines and GAAP accounting regulations .
21 . The foregoing facts clearly demonstrate that Biovail's conduct in the Unite d
States was not "merely preparatory" to Defendants' scheme to defraud . Instead, Defendants '
United States conduct directly caused the staggering losses suffered by investors .
22 . In connection with the acts, transactions and conduct alleged herein, th e
Defendants used the means and instrumentalities of interstate commerce, including the Unite d
States mails, interstate telephone communications and the facilities of national securitie s exchanges and markets .
23 .
III .
PARTIE S
Lead Plaintiffs .
(a) Ontario Teachers . Co-Lead Plaintiff Ontario Teachers is a public pension system organized for the benefit of current and retired teachers in Ontario, Canada . Ontari o
Teachers has approximately $53 billion in total assets under management . Ontario Teachers i s responsible for the retirement income of approximately 154,000 elementary and secondar y school teachers, 93,000 retired teachers and their survivors, and 91,000 former teachers wit h entitlements in the plan. As reflected in the accompanying certification (Exhibit A), Ontari o
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Teachers purchased Biovail common stock during the Class Period in the NYSE and the Toronto
Stock Exchange .
(b) Local 282 Welfare Fund . Local 282 Welfare Fund is a multiemployer employee benefit plan providing health and welfare benefits to participants . The Welfare Trust
Fund is established and maintained pursuant to the Agreement and Declaration of Trust as amended and restated from time to time . Employer contributions are received by the Welfare
Trust Fund pursuant to written collective bargaining agreements between employers and Local
282, International Brotherhood of Teamsters . As of August 31, 2003, Local 282 Welfare Fund was comprised of approximately $120 million in assets under management . Local 282 Welfare
Fund purchased Biovail common stock during the Class Period, as set forth in the accompanying certification (Exhibit A) .
24 .
Other Plaintiffs .
(a) The City of Dearborn Heights Act 345 Pension System purchased Biovail common stock in the NYSE during the Class Period, as set forth in the accompanying certification (Exhibit A) .
(b) William A . Emery is a Canadian resident and purchased Biovail common stock in the Toronto Stock Exchange during the Class Period, as set forth in the accompanying certification (Exhibit A) .
(c) Vera A . Hays, a resident of Pittsburgh, Pennsylvania, purchased Biovail common stock in the NYSE during the Class Period in the transactions set forth in the accompanying certification (Exhibit A) .
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(d) Robert Atkinson is a Canadian resident and purchased Biovail commo n stock in the Toronto Stock Exchange during the Class Period in the transactions set forth in the
accompanying ce rt ification (Exhibit A) .
(e) S . D . Gokhale is a United States resident and purchased Biovail common stock in the NYSE during the Class Period in the transactions set forth in the accompanyin g
(f) Mohammed Sobhan is a Canadian resident and purchased Biovail common stock in the Toronto Stock Exchange during the Class Period in the transactions se t forth in the accompanying certification (Exhibit A) .
25 .
Defendants .
(a) Biovail . Defendant Biovail is a corporation chartered in Ontario, Canada , with its registered principal address located at 7150 Mississauga Road, Mississauga, ON, Canad a
L5N 8M5 . Throughout the Class Period, Biovail's common stock traded in efficient markets o n the NYSE and the Toronto Stock Exchange .
(b) Eugene N . Mclnyk ("Mclnyk") . Defendant M clnyk was , at all relevan t times, Chairman and Chief Executive Officer of Biovail . On information and belief, Melny k
maintains a residence in this distri ct at 101 West 67`h Street, #44A, New York, New York 10023 .
Melnyk had direct involvement in the daily activities of the Company and participated in the preparation and dissemination of the Company's communications to the public, including, bu t not limited to, the Company's press releases and financial statements .
(c) Brian H . Crombie ("Crombie") . Defendant Crombie was, at all relevant times, Chief Financial Officer and Senior Vice President of Riovail . Cromhie had direc t involvement in the daily activities of the Company and participated in the preparation an d
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dissemination of the Company's communications to the public, including, but not limited to, the
Company's press releases and financial statements .
(d) John R . Miszuk ("Miszuk") . Defendant Miszuk was, at all relevant times,
Vice President, Controller and Assistant Secretary of Biovail . Miszuk had direct involvement in the daily activities of the Company and participated in the preparation and dissemination of the
Company's communications to the public, including, but not limited to, the Company's press releases and financial statements .
(e) Kenneth Howling ("Howling"). Defendant Howling was, at all relevant times, Vice President of Finance of Biovail . Howling had direct involvement in the daily activities of the Company and participated in the preparation and dissemination of the
Company's communications to the public, including, but not limited to, the Company's press releases and financial statements .
26 . Defendants Melnyk, Crombie, Miszuk and Howling are collectively referred to herein as the "Individual Defendants ." The Individual Defendants, because of their positions with the Company, possessed the power and authority to control the contents of Biovail's quarterly reports, press releases and presentations to securities analysts, money and portfolio managers and institutional investors . Each defendant was provided with copies of the
Company's reports and press releases alleged herein to be misleading prior to or shortly after their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected .
27 . Because of their positions and access to material non-public information, each of the Individual Defendants knew that the material facts described herein had not been disclosed and, in fact, were being concealed from the investing public, and that numerous of their own an d
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the Company's representations during the Class Period were materially false and'misleading a t the time they were made . Pursuant to the "group-pleading" doctrine, each of the Individual
Defendants is liable for each of the Company's false statements made in the Company's pres s releases and financial statements described below, for those statements constituted "grouppublished" information and, thus, were the result of the collective actions of the Individua l
Defendants in connection with their direct involvement in the daily business of the Company .
IV .
CLASS ACTION ALLEGATION S
28 . Plaintiffs bring this action as a class action pursuant to Rule 23 of the Federal
Rules of Civil Procedure on behalf of all persons who purchased Biovail publicly trade d common stock (the "Class") during the period February 7, 2003, through and including, March 2 ,
2004 (the "Class Period") . Excluded from the Class are : Biovail ; Biovail's subsidiaries, affiliates, predecessor and successor entities; Ernst & Young LLP and any of its affiliates, subsidiaries, and predecessor and successor entities ; Ernst & Young LLP partners and partners o f any of its affiliates, subsidiaries, and predecessor and successor entities ; the Individual
Defendants ; members of the immediate families of the Individual Defendants ; any entity in which any defendant has a controlling interest ; any person who was an officer or director o f
Biovail during the Class Period ; and the legal representatives, heirs, successors or assigns of an y of the foregoing excluded persons or entities .
29 . The members of the Class are so numerous that joinder of all members i s impracticable . The disposition of their claims in a class action will provide substantial benefit s to the parties and the Court . During the Class Period, Biovail had more than 159 million shares of stock outstanding, owned by hundreds if not thousands of persons .
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30 . There is a well-defined community of interest in the questions of law and fac t involved in this case . Questions of law and fact common to the members of the Class, whic h predominate over questions which may affect individual Class members, include :
• Whether Defendants violated the 1934 Act ;
Whether Defendants omitted and/or misrepresented material facts ;
• Whether Defendants' statements omitted material facts necessary to make the statements made, in light of the circumstances under which they were made, not misleading;
• Whether Defendants knew or deliberately disregarded that their statements were false and misleading ; '
• Whether the prices of Biovail's publicly traded securities were artificially inflated ; an d
• The extent of damages sustained by Class members and the appropriate measure of damages .
31 . Lead Plaintiffs' claims are typical of the claims of the members of the Class as all members of the Class are similarly affected by Defendants' wrongful conduct in violation o f federal law that is complained of herein .
32 . Lead Plaintiffs will adequately protect the interests of the members of the Clas s and have retained counsel competent and experienced in class action securities litigation . Courtappointed Lead Plaintiffs have no interests which may conflict with other members of the Class .
33 . A class action is superior to other available methods for the fair and efficient adjudication of this controversy since joinder of all members is impracticable .
A.
V.
SUBSTANTIVE ALLEGATION S
Background of the Compan y
34 . Biovail is a pharmaceutical company engaged in the development, manufacture , marketing, licensing, and distribution of pharmaceutical products for the treatment of chroni c
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medical conditions . The Company's sales and operations facilities are primarily located in the
United States . Of the Company's four manufacturing plants, three are located in the United
States in Chantilly, Virginia; Dorado, Puerto Rico ; and Carolina, Puerto Rico . The fourth is located in Canada in Steinbach, Manitoba. In 2003, Biovail generated $548 million in revenues from product sales in the United States out of total product sales of $632 million, or 87% .
Biovail's principal sales office, with more than 130 employees, is located in Bridgewater, New
Jersey .
35 . The Company's products are focused on cardiovascular disease, central nervous system disorders, and pain management . A key element of Biovail's business strategy is the application of the Company's advanced, proprietary delivery technology to drugs originally developed by other pharmaceutical companies . Basically, Biovail reformulates existing drugs to make them easier to administer to patients . For example, Biovail may reformulate a drug that needs to be taken four times a day so that it can be taken in a single daily dose . Biovail's delivery technology platforms include : (a) controlled-release technologies, (b) FlashDose(R)
(orally disintegrating tablet technology), (c) enhanced absorption/super bioavailable, and (d) oral colonic drug delivery .
36 . A prominent example of Biovail's use of its drug delivery technology to develop new products is Cardizem LA . Cardizem is the brand name for a class of drugs known generically as diltiazem, which is available from a number of generic manufacturers . Biovail also makes a generic version of Cardizem . The Cardizem family of products has provided leading medications for the treatment of hypertension in the calcium channel blocker category of cardiovascular drugs for more than 20 years . One of the leading Cardizem products is Cardizem
CD .
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37 . On February 7, 2003, the FDA approved a new, patented formulation o f
Cardizem, called Cardizem LA . This new formulation was a graded extended-release formulation providing 24-hour blood pressure control with a single, daily dose .
38 . Biovail also applied its drug delivery technology to a drug marketed under th e brand name Wellbutrin . Wellbutrin was introduced originally in July 1989 by GlaxoSmiLhKline
("GSK") for the treatment of depression . This original version was an immediate release formulation that had to be administered four-times a day. In 1996, GSK launched a twice-daily controlled-release formulation, named Wellbutrin SR . In 2003, Biovail, in partnership wit h
GSK, produced a once-daily formulation, Wellbutrin XL . By late 2002, Cardizem LA and
Wellbutrin XL were recognized as Biovail's future "flagship" products, which would drive the
Company's revenue growth throughout 2003 . Indeed, by January 2003, the valuation of the
Company's stock was principally based on the prospects for these two drugs .
B .
Biovail ' s Prospects and Stock Price in 2003 Depended on the Successful Launch of
Cardizem LA and Wellbutrin X L
39 . From the outset of the Class Period, Biovail faced strong pressure from the investment community to continue its stellar earnings and revenue growth . In 2002, Biovail's revenues and diluted earnings per share had grown 30% compared to 2001 . Biovail and Wall
Street analysts expected the trend to continue in 2003 through the successful launch of Cardizem
LA and Wellbutrin XL . Analysts had been expecting Biovail to launch these two drugs since the fall of 2002, and were keenly focused on the drugs' revenue potential . For example, on
September 19, 2002, an analyst from Credit Suisse First Boston, Kenneth Kulju, published a report that highlighted the importance of Cardizem LA and Wellbutrin XL : "[t]wo upcoming major new products launches remain critical in enhancing Biovail's earnings growth visibility, including the anticipated fourth quarter approval of Cardizem XL [subsequently renamed "LA" ]
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(hypertension) followed by the planned second half 2003 introduction of a new once-daily form of Wellbutrin XR [subsequently renamed "XL"] through GlaxoSmithKline ." (Emphasis supplied) . At the time, Biovail's stock price was approximately $25 per share .
40 . Other Wall Street analysts echoed Kulju 's valuation approach to Biovail , emphasizing the launch of Cardizem LA and Wellbutrin XL . According to a December 3, 200 2 report by J .P . Morgan's well-renowned pharmaceutical analyst, Corey Davis, a successful launch of Cardizem LA was "crucial" to Biovail's stock price .
We feel that a successful Cardizem [LA] launch is crucial for Biovail to achieve more of a[n earnings] multiple expansion, since early script data will provide convincing evidence to the Street that [earnings per share o fl
S2 .30 in 2003 is achievable . For this reason, we think the stock will not see a major move until January, after the Rx data starts, to roll in
[assuming a December 2002 FDA approval] . . . . If it becomes apparent that our estimate of $140M in Cardizem [LA] revenue in 2003 is achievable, we believe it would not be unreasonable to see the BVF multiple expand from its current 15x up towards 25x -- still well below our projected 32% organic growth rate . This would translate to around a $58 stock and about a 70% return for the current $34 .
'41 . In sum, Biovail had stressed to the market that the launch of Cardizem LA was critical to Biovail's 2003 projections and analysts were therefore focused on its success . As
Corey Davis had concluded in his December 3, 2002 report, "IF the Cardizem [LA] launch goes smoothly and the Street becomes convinced that the 30%+ growth rate in 2003 is achievable, we find that a 25x multiple is very reasonable - translating to around a $58 stock ." (capital letters in original) .
42 . The FDA did not approve Cardizem LA until February 7, 2003, instead of in th e fourth quarter of 2002, as expected by Davis and other Wall Street analysts . Biovail's stock price suffered as a result, dropping from approximately $35 per share in the first days o f
December to $25 per share by the end of the month . This delay made the subsequent February 7
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press releases and April 2, 2003 launch of Cardizem LA even more important to the market s
valuation of Rinvail for 2003 .
C .
Biovail 's February 7, 2003 Guidance and the FDA Approval of Cardizem L A
43 . On February 7, 2003, the first day of the Class Period, Biovail issued two pres s releases . In one, Biovail announced that the FDA had approved Cardizem LA and that th e
commercial launch of the product was scheduled for April 2, 2003 .
44 . The press release, which listed Defendant Howling as a contact, stated as follows :
FDA Approves t3iovail'5 Cardizem LA for Hypertension
TORONTO--(BUSINESS WIRE)--Feb . 7, 2003--Biovail Corporation
(NYSE :DVr)(Tox:DVr )
Cardizem(R) LA "graded release" provides 24-hour blood pressure control
Convenience and flexibility of once-daily dosin g
Clinical trials indicate safety and tolerability even at higher doses
Conference call scheduled for 11 :30 a .m . E .S .T .
Biovail Corporation (NYSE :BVF)(TSX :BVF) announced today that the U .S . Food and
Drug Administration (FDA) has approved Cardizem(R) LA, a new graded extendedrelease formulation of diltiazem HCi for the treatment of high blood pressure or hypertension . Cardizem(R) LA -- long acting -- provides 24-hour blood pressure control with a single daily dose and a flexible dosing range from 120mg to 540mg .
Cardizam(R) I A iG the only product laheleri to allow administration in either tha morning or the evening . With evening administration and the unique graded release technology, clinical trials have shown increased reduction in blood pressure in the early morning hours, which is when patients may be at greatest risk of significant cardiac events .
"Cardizem(R) LA is the first New Drug Application (NDA) product that Biovail will launch directly to physicians using our own fully-integrated sales force in the United
States," stated Eugene Melnyk, Gnairman and CEO of Blovall . °Tne Introduction of
Cardizem(R) LA offers physicians a once daily formulation of the compound diltiazem, a drug that is well-regarded for its safety profile and one with a brand name that physicians have come to know and trust . "
Hypertensio n
Clinical studies indicate that morning or evening dosing of Cardlzem(R) LA provides effective 24-hour blood pressure control .
"llncnntrnlled hyportensinn plays a -i0nifirant rnla in thn rtnntho of hiincirnrbs of thousands of heart-disease patients in the U .S . each year,(1)" said Joel Neutel, MD, assistant clinical professor, University of California at Irvine . "With the approval of
Cardizem(R) LA, we now have a proven therapy that provides effective and safe 24hour blood pressure control with potential added benefits for patients with specific hypertensive risks ."
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Approximately 50 million American adults -- or one in four -- have high blood pressure, and 25 percent of these are not adequately treated . Uncontrolled hypertension kills 430,000 Americans each year and contributes to the deaths of
210,000 others .
Clinical Studies
In two randomized, placebo-controlled clinical trials, Cardizem(R) LA demonstrated dose-related mean reductions in trough diastolic blood pressure (DBP) following evening administration of 120mg, 240mg, 360mg and 540mg doses when compared to placebo. Reductions ranged from -2 .0 millimeters of mercury (mm/Hp) with the
120mg dose to -8 .1mm/Hg with the 540mg dose . A similar range of morning doses showed a linear decrease in DBP from -1 .9mm Hg with a 120mg dose to -8 .6mm/Hg with 540mg . All doses above 120mg maintained their anti-hypertensive effect for a complete 24-hour period. Side effects at dosages up to 540mg were similar to placebo .
"The data demonstrate that Cardizem(R) LA delivers 24-hour blood pressure control whether dosed in the morning or the evening," said Stephen Glasser, MD, professor of epidemiology at the University of Minnesota, School of Public Health . "We continue to explore the clinical significance of the blood pressure effect of evening Cardizem(R)
LA administration and have seen favorable clinical trial results in the treatment of angina ."
The most commonly reported side effects with Cardizem(R) LA were headache, edema and upper respiratory tract infection . Side effect incidence was similar to placebo .
Cardizem(R) LA should not be used by patients who have abnormal heart rhythms due to sick sinus syndrome or very slow heartbeats as a result of second- or thirddegree AV block, except in the presence of a functioning ventricular pacemaker.
Patients should also avoid Cardizem(R) LA if they have hypotension (less than
90mm/Hg systolic blood pressure), hypersensitivity to diltiazem or acute myocardial infarction and pulmonary congestion confirmed by x-ray.
Cardizem(R) LA will be launched in doses of 120mg, 180mg, 240mg, 300mg, 360mg and 420mg . Dosing up to 540mg has been approved by the FDA and Biovail currently has a single dose 540mg product under development.
Other Clinical Studie s
In October of 2002, Biovail released the positive results from a Phase III clinical trial focused on the use of Cardizem(R) LA in chronic stable angina pectoris . This study illustrated that significantly greater efficacy is demonstrated in the morning time period when dosed in the evening and that evening dosing demonstrates efficacy 24 hours after dosing in patients with chronic stable angina . Biovail intends to file an NDA for the treatment of angina with the FDA based on the results of this study .
Three Cardizem(R) LA Phase IV clinical studies have been initiated comparing
Cardizem(R) LA to ramipril and to amlodipine. One of these studies involves African
American patients with hypertension . A second study involves diabetic patients with proteinuria . Both of these trials are progressing on schedule . A third study, which was completed in October of 2002, evaluated the safety and efficacy of Cardizem(R) LA dosed at night compared to the ACE-inhibitor ramipril also dosed at night in patients with stage-one and stage-two central hypertension . Results of this study showed that, versus ramiprii, Cardizem(R) LA not only provided better blood pressure control during the critical morning hours but better blood pressure control over a full 24 hours .
Biovail expects to launch Cardizem(R) LA commercially on April 2, 2003 .
-19-

"Safe Harbor" statement under the Private Securities Litigation Reform Act of 199 5
To the extent any statements made in this release contain information that is not historical, these statements are essentially forward looking and are subject to risks and uncertainties, including the difficulty of predicting FDA approvals, acceptance and demand for new pharmaceutical products, the impact of competitive products and pricing, new product development and launch, reliance on key strategic alliances, availability of raw materials, the regulatory environment, fluctuations in operating results and other risks detailed from time to time in the company's filings with the
Securities and Exchange Commission . (Citation omitted) .
45 . Also on February 7, 2003, Biovail issued another press release containing its financial guidance for 2003 (the "February 7 Press Release") and also listing Howling as a contact . The announcement reiterated the impending release of Cardizem LA and promised 30% growth in revenues and diluted earnings for the year . In 2002, Biovail had generated revenues of
$788 million and diluted earnings per share of $0 .55 under GAAP ($1 .78 per share, excluding one time charges) .
46 . The press release provided investors and Wall Street analysts with specifi c revenue projections by product category . For example, Biovail specifically projected that sale s of Wellbutrin XL would be between $75 and $150 million . Similarly, the Company projecte d
revenues of $170 to $200 million fr om "controlled- release gene ri cs," and that sales in the Unite d
States of branded and generic Tiazac (for the treatment of hypertension) would be between $5 0 and $70 million .
47 . Biovail did not provide specific revenue projections with respect to Cardizem LA .
Instead, it lumped Cardizem LA together with the older versions of Cardizem, Cardizem CD an d
Cardizem SR . Combined, Biovail projected that these three products would generate $140 t o
$200 million in revenues from sales in the United States .
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48 . The press release stated, in its entirety, as follows :
Biovail Provides 2003 Guidance
TORONTO--(BUSINESS WIRE)--Feb . 7, 2003--Biovail Corporation (NYSE :BVF)
(TSE :BVF )
Revenues expected to grow in excess of 30 %
Diluted earnings per share expected to grow by 30 %
Biovail 's 2003 product launch expectations include Cardizem(R) LA,
Wellbutrin(R) XL, Teveten(R) HCT and Zovirax(R) Crea m
Biovail Corporation (NYSE :BVF) (TSX:BVF) announced today its revenue and earnings guidance for 2003. The financial guidance presented today continues to reflect the Company's considerable opportunities for growth and its ability to capitalize on its drug delivery technological asset base and its rich pipeline .
Biovail'c annual product sales revenue by major category , rosoarch and development revenue, royalty and co-promote revenue and total revenue for 2003 is expected to
grow approximately 30% and be within the following annual ranges :
Product Categories Ranges
1$ mi.llions l
----------------------------------------------------------------------
U .S . Tiazac(R) (branded and generic} 50 70
Controlled-release generics _70 200
Biovail Pharmaceuticals Canada (including Cardizem(R) CT)') 75 100
Biovail Pharmaceuticals USA (ex Cardizem((Rl) 210 280
U .S . Cardizem ( R) Family ( CD, SR and LA ) 140 200
Wellbutrin(R ; XL 75 `50
Total product sales revenues (1( B45 930
Research & development revenues 15 25
Royalty and cc-promote revenues 85 125
Total Revenues (1 950 1,050
----------------------------------------------------------------------
(1) Does not necessarily ad d
Numerous factors may impact the Company' s quarterly results including the timing of
various product launches and the associated launch costs , the potential erosion of revenues related to branded products due to competitive or generic activity and in the
case of Tiazac( R), the potentia l that this product may be genericised at some point in
2003 . Quarterly product revenue will likely increase throughout the year on a quarter
over quarter basis due to these factors and are expected to be within the following ranges :
Revenue Ranges Q1 $2 53 Q4
($ millions )
--------------------- ------------ ---------- ----------- ------
Product sales 135 - 150 17 _ - 195 250 - 28-'_1 2!,5 - _ll)
Research & development 3- 5 3 - 5 3 - 5 3 - 5
Royalty and co promote 35 45 35 45 5 30 5 - 10
Total 270 - 201, 215 - 245 260 - 300 290 - 310
---------------------- ---------- ------- -- ---------- ----------
Gross margins are forecast to be higher in 2003 than in 2002 and are expected to be in the range of 76% to 78% of product sales revenue . Research and development spending is forecast to be in the range of 375 million to $90 million reflecting an expected increase in clinical activity . Selling, general and administrative expenses are expected to be in the range of 20% to 23% (excluding amortization expense) of tota l
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revenue for the year . Selling, general and administrative expenses are expected to be significantly higher in the first two quarters of 2003 due to the launch of several products and are expected to be lower, in percentage terms, during the second half of
2003 .
Amortization expense for 2003 will vary depending on the values assigned to certain assets the Company acquired at the end of 2002 . Consistent with prior years, the
Company's tax rate is expected to remain in the 7% to 8% range .
Fully diluted earnings per share are expected to increase by 30% or more in 2003 versus 2002 and be in the range of $2 .25 and $2 .35 . Fully diluted earnings per share in 2004 are also expected to grow in excess of 30% based on continued success of anticipated product launches and a favorable competitive market environment . On a quarterly basis, 2003 year over year growth will likely be lower than 30% for the first two quarters versus the prior year's applicable quarterly results due to the timing of expenses associated with launching several products . Fully diluted earnings per share could be significantly higher than 30% during 03 and Q4 of 2003 depending on numerous factors including the timing and success of product launches, a higher level of first half 2003 spending associated with the launch costs for these products and due to the anticipated launch of Wellbutrin(R) XL in the second half of 2003 . The
Company will not be incurring launch expenses associated with the commercialization of Wellbutrin(R) XL in the United States as our marketing partner will be bearing these expenses .
Quarterly fully diluted 2003 earnings per share guidance by quarter is as follows :
Q' Q2 Q3 Q4
----------------------------------------------------------------------
Earnings
per share $0 .35 - $0 .40 $0 .43 $0 .50 $0 .58
- $0 .68 $0 .70 - $0 .80
----------------------------------------------------------------------
For further information, please contact Ken Howling at 905/286-3000 or send inquiries to it@biovail .com .
Biovail Corporation is an international full-service pharmaceutical company, engaged in the formulation, clinical testing, registration, manufacture, sale and promotion of pharmaceutical products utilizing advanced drug delivery technologies . More information on Biovail Corporation can be found on http ://www .biovail .com .
"Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995 .
To the extent any statements made in this release contain information that is not historical, these statements are essentially forward looking and are subject to risks and uncertainties, including the difficulty of predicting FDA approvals, acceptance and demand for new pharmaceutical products, the impact of competitive products and pricing, new product development and launch, reliance on key strategic alliances, availability of raw materials, the regulatory environment, fluctuations in operating results and other risks detailed from time to time in the company's filings with the
Securities and Exchange Commission .
--30--EL/sf' DJL/c l
CONTACT : Biovail Corporatio n
Kenneth G . Howling, 905/286-3000
(Emphasis supplied) .
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49 . Both press releases issued on February 7, 2003 were prepared and disseminated with the participation of the Individual Defendants and constituted the collective work of the
Individual Defendants in light of their direct involvement in the daily business of the Company .
50 . On February 7, 2003, Biovail also held a conference call with analysts, in which
Melnyk, Crombie and Howling participated . During this call, Howling repeated the projections set forth in Biovail's press release and emphasized that with the approval of Cardizem LA an d the upcoming approval of Wellbutrin XL, the Company expected "total revenues to be in the range of $950 million to $1 .5 billion," with total product sales in the range of $845 to $930 million, and earnings per share growth of 30% compared to 2002 . Melnyk emphasized the benefits of Cardizem LA and told analysts that "the total sales force number behind the launch o f this product [is] approximately 800 representatives, who would be promoting Cardizem LA in the first position during 2003 . "
51 . Subsequent to the issuance of the two press releases and the conference call, on that same day, J .P . Morgan analyst Corey Davis issued a research report, which stated as follows : "[w]e never thought that approval was in jeopardy, but it comes as a huge relief to the market, as uncertainty over the past several wks [sic] has been the major factor holding back the stock ." He further added that "[t]his watershed event marks BVF's official transition into a fully integrated specialty pharma company, and exactly what we believe the market was looking for to improve the psychology of the stock ." Davis also revised his Cardizem LA revenue estimate s for 2003 to $80 million, from approximately $120-5140 million, in light of the delayed launch, which was then scheduled for April 2, 2003 . Davis also highlighted again the overwhelming importance of the Cardizem LA launch for the value of Biovail stock in a February 27, 2003 report : "Since we think most investors are focused on the launch of Cardizem LA in April, w e
-23-

don't think Biovail's 4Q'02 [earnings' announcement] will move the stock much' unless there is some shocking news ." Davis continued :
Most of the Street's attention right now is focused on the Cardizem
LA launch with Glaxo's approval for Wellbutrin XL right behind it .
Our current thinking is that you own this stock for the psychological boost that will be provided by the LA launch (the
company has finally proven it can self-market its own internally
derived new drugs) and for the tremendous profitability that
Wellbutrin XL will afford (with 30% of GSK sales going to BVF, a 5% COGS, and a 7% tax rate, 23% of GSK sales drop straight to
Biovail's net income line) . At $36 .27 and using $2 .30 for 2003
EPS, BVF is trading at 16x - only i/2 of its'03 growth rate of 32% .
If the multiple expands to our specialty pharma group average of
19%, it would be around a $44 stock . We see it attaining this level in the next month or so . Over the next 12 months, if the market applies this same multiple to 2004 EPS of $2 .98, it would translate to roughly a $57 level (a potential 57% return) . (emphasis supplied) .
52 . Salomon Smith Barney's specialty pharmaceuticals analyst Angela Larso n
("Larson"), also based her valuation of Biovail on the launch of Cardizern LA . In a February 7,
2003 report she said : "Cardizem LA is an essential part of our Biovail investment thesis as it is their first self-developed, self-launched product, pushing them into the Specialty
Pharmaceutical business model front a historical drug delivery business model. " (emphasis in original) . She also set the parameters by which Cardizem LA sales would be measured : "Biovail expects to launch Cardizem LA in early April and we plan to measure Biovail's marketin g capability vs . the historical launch of Tiazac, that we believe is a good stick by which to measure
Biovail's marketing capabilities ." As set forth below, Biovail subsequently touted Cardizem LA by comparing the number of prescriptions written for LA with Tiazac .
53 . Larson issued a subsequent research report on March 24, 2003, again hinging her valuation of Biovail on Cardizem LA . The report was entitled "BVF : Valuation to be Driven by
Cardizem LA," and stated as follows :
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Cardizem LA has long held our attention as we view it as the key product launch which, if successful, can land Biovail squarely into the "Specialty Pharmaceutical" sector from prior peer comparisons to drug delivery (primarily royalty driven revenues) and generics
(commodity Rx market) . . . . We expect stock price volatility until the launch trend is established ; given the April 2 launch, RX data may not establish a clear trend until early-mid June .
[T]he Street perceptions of Biovail will continue to evolve from a lower multiple drug distribution company to a higher multiple specialty pharmaceuticals company . Moreover, if Cardizem LA can be as successful as our model suggests, and given that we expect a second new product launch in 2H03 [second half of 2003]
- Wellbutrin once-daily with GlaxoSmithKline - then we estimate that the company can sustain revenue and earnings growth rates of at least 30% for several years, which in turn could allow BVF shares to trade at a 20% to 40% premium to the specialty pharmaceutical average multiple (currently 2004 sector p/e is 15x) .
Historically in pharmaceuticals , we've observed a three wave
trading pattern around products . . . . For Biovail, we believe the
pattern has followed the development of Cardizem LA . . . . The next wave is dependent on how well the company does in
marketing the product.
This is the wave we believe Biovail now
faces. Conce rns in this wave are most likely to focus on marketing muscle, market share gains of the product and stock valuation . . . .
The most significant ri sk is Biovail ' s perceived lack of marketing history. We view Biovail as having a good marketing track record,
albeit not a long one . . . .
Importantly, we view Cardizem LA as
critically impo rt ant to Biovail, but not to the total and large
hypert ension market . ( emphasis in o ri ginal) .
54 . Based on the Company's projections for Cardizem and Wellbutrin XL, Biovail' s stock price surged . From February 6 through February 28, the stock price appreciated 30%, from approximately $28 .50 to $37 .20 per share . By early June 2003, Biovail's stock price ha d reached its Class Period high of over $50 per share .
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D .
Undisclosed Adverse Facts Affecting Biovail' s Busines s
1 .
Biovail's Projections for the Cardizem Family of Products Were Knowingly
Fals e
55 . As of February 7, 2003, Defendants had actual knowledge that the revenues and earnings projections Biovail announced were unattainable and unreasonable, especially the projection of S140 to $200 million for the Cardizem Family of Products . As set forth below, former employees have stated that Melnyk and the Finance Department set sales targets based on the dollar figures needed to achieve Wall Street's earning expectations, without considering whether these sales targets were realistic . The Finance Department would then impose those targets on Biuvail's iiiaiketiug direelurs .
56 . Confidential Witness 1 was a product manager for Biovail from 2000 throug h
October 2003, and worked as a product manager for Cardizem products (CD, SR, and LA) from
October 2001 through his departure . Witness 1 was responsible for ensuring that Biovail's drugs smoothly made their way from the manufacturing plant to the wholesalers . He thus had to ensure that sufficient quantities of the drug were made available to wholesalers, a process that involved assessing the likely future demand for drugs and Biovail's manufacturing capacity . As a product manager, he worked directly under Harold "Tim" Slone ("Slone"), a Biovail director of marketing, who reported directly to Biovail's Vice President of Marketing, Ken McBain
("McBain") . Witness 1 was also in regular contact with Biovail's manufacturing team in
Steinbach, Manitoba, which included Larry Thiesen . Witness 1, Slone and McBain therefor e were key members of the Cardizem LA team and had first hand knowledge of the potential sales of Cardizem LA.
57 . Despite their deep understanding of the market for Cardizem LA and the othe r drugs they managed, on a monthly or quarterly basis, Witness 1, Slone and McBain would ge t
-26-

revenue targets from Biovail's Finance department, specifically from Defendants Crombie and
Miszuk . Witness 1 explained that Finance did not have a sense of product demand in terms of volume, however, and simply instructed that certain revenue targets be met . With respect to
Cardizem LA, those targets were unreasonable .
58 . Witness 1 further indicated that, he, Slone and McBain had considered all aspects of the market and concluded that $50 million in sales of Cardizem LA was reasonable for th e first year . They then presented their figures to Defendants Melnyk, Miszuk and Crombie, as well as Rolf Reininghaus ("Reininghaus"), a Director of the Company and Senior Vice President of
Corporate and Strategic Development . McKinsey & Co . ("McKinsey"), which had been retained by Biovail to assist with the Cardizem LA launch, projected $35 million . Nevertheless, Melnyk,
Miszuk and Crombie decided that Biovail would publicly project sales of Cardizem LA for 2003 of 590-$100 million . Ultimately, sales for 2003 were $47 .7, million, as predicted by Witness 1,
Slone, and McBain.
59 . Witness 1 said that he, Slone and McBain openly protested the $90-$ 100 million number in meetings with Melnyk, Miszuk and Crombic, and told them that these projection s were completely unrealistic . Indeed, Troy Hampton ("Hampton"), another Biovail employee who worked with Witness 1 on the projections of Cardizem LA sales, described the $90-$100 million projection as "obscene" and "beyond what we could in any realistic terms do ." Witness
1 stated that the word "outlandish" was also used in conversations and brainstorming meetings .
60 . Biovail's method of issuing unreasonable projections did not stop with Cardizem
LA . The product manager for Teveten, Josh Franklin ("Franklin"), experienced the same type of top-down pressure to adopt "outlandish" projections as Witness 1 . According to Confidential
Witness 2, a former sales district manager in Houston with a sales team of ten people throughou t
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2003, Franklin, Slone and Linda Secola (a Biovail product manager) attended meetings with
Melnyk and McKinsey where Melnyk would distribute the sales plan for the upcoming year with specific sales targets . Witness 2 was responsible for marketing Biovail's drugs directly to physicians in order to persuade them to prescribe the products to their patients . Witness 2 reported to Franklin, and stated that Franklin told Witness 2 that McKinsey and Melnyk set sales targets by first making financial projections to shareholders, and then instructing the sales force to meet whatever targets were necessary to meet the financial projections .
61 . For Teveten, the plans required that sales quadruple in 2003, from $11 .7 millio n to approximately $47 million. This was impossible, according to Witness 2, because Teveten was a poor seller . There were several competing products on the market and Teveten had been the eighth drug to enter the same product class . The competing products were manufactured and distributed by blue chip pharmaceutical companies, such as Bristol-Myers, Astra Zeneca,
Novartis, and Merck . According to Witness 2, when a product is the eighth in a market occupied by such big names, sales could not possibly quadruple . It was simply impossible . In the end,
Witness 2 was correct . Teveten sales in 2003 did not quadruple and only increased to $22 .2
million .
2 .
Biovail was Unable to Manufacture Sufficient Quantities of Cardizem LA to
Support a Successful Launc h
62 . Several former Biovail employees, including Witness 2, 3 and 5 (described below), have confirmed that the Cardizem LA launch was marred by manufacturing problems that resulted in severe product shortages .
63 . Confidential Witness 3 was an account manager and vice-president of Biovail from October 2000 until October 2003 . As account manager, Witness 3 was sales director for the Northeast region and subsequently promoted to vice-president and charged with building the
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sales force for the Cardizem LA launch . Witness 3 reported directly to Jim Petrillo ("Petrillo"),
Vice President and General Manager of Biovail's U .S . Operations . Petrillo reported to William
Poole ("Poole"), then President of Biovail North American Pharmaceuticals .
64 . Witness 3 attended a Cardizem LA launch meeting conducted by Biovail for th e entire sales force in Orlando, Florida, on or about March 15, 2003 . Rcininghaus directed the meeting and was in charge of the launch . To assist him, Biovail had also hired McKinsey to provide consulting services . Marla Kessler and Chris Simon, both Principals at McKinsey's
New York office, provided substantial advice to Biovail, and, in particular, Reininghaus .
65 . Witness 3 stated that, just days before the March 15 launch meeting, there was a n emergency meeting with Reininghaus, McKinsey and Petrillo, where everybody was in a state of panic because they said nobody was to breathe a word that there was a manufacturing problem .
The Company simply did not have enough product availahle because it was not able to manufacture sufficient quantities of Cardizem LA . Reininghaus and Petrillo told Witness 3 and other managers that this information was to be kept in the strictest confidence, so as not to alarm the investing public . Indeed, senior managers were not even supposed to inform sales representatives of the problems .
66 . Several other former employees of Biovail confirmed Witness 3's account .
According to Witness 2, in March 2003, he and other district managers were pulled aside by
Matt Heck ("Matt Heck," Biovail's Vice President of Sales), Mike Goolsby ("Goolsby,"
Biovail's Director of Sales) and perhaps Slone, all three of whom reported to Poole . These three men told the district managers that the Company did not have enough Cardizem LA to sell .
Witness 2 said that Cardi7.em T .A was supposed to be the big product but that when he went to the launch meeting in March 2003, the district managers were told that the Company was goin g
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to have to do a limited product launch because manufacturing could not make the product . Matt
Heck, Goolsby and Slone told the managers that there was no retail stocking and very limited supply, and that the only way to handle the problem was to have all prescriptions faxed to a single location to distribute the product (resulting in the PLACE program, described further below) .
67 . Confidential Witness 5, also confirmed Witness 3's and Witness 2's account o f the facts . Witness 5 was a district manager in the Midwest from 2002 through April 2004 and explained that prior to the launch of Cardizem LA, district managers were warned that the drug launch would proceed even though "we just don't have any to send out . They had a shortage of the retail amount that was necessary ." When the district managers asked why the launch was proceeding, they were instructed to "manage through it ." Also according to Witness 5, Biovail doubled the sales force to sell upcoming products . But what confused him, and the rest of the sales force, was that there just wasn't enough drug for the sales force to sell . "It was ludicrous," he said.
68 . The manufacturing problems were also no resolved subsequent to the launch , according to these employees . Witness 2 indicated that the lack of product continued to adversely affect sales throughout 2003, and once Wellbutrin XL was launched in the third quarter of 2003, the situation got worse because Wellbutrin XL had manufacturing priority over
Cardizem LA . There were "constant stock-outs" of Cardizem LA, according to Witness 2 .
Although he was told that Cardizem LA was supposed to be a key product for the Company,
Biovail had been "lying" all along about the manufacturing capabilities because Wellbutrin XL had manufacturing priority over Cardiz.em LA_ "Rut they knew all along that manufacturin g
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could not keep up with the demand for that product," referring to Cardizem LA. As a result, according to Witness 2, week after week Cardizem LA was out of stock .
69 . Witness 1 also confirmed that Biovail was never able to manufacture enough
Cardizem LA because Wellbutrin XL was given priority . Witness 1 explained that batches of
Cardizem LA frequently failed basic quality- control tests, and when he called the manufacturing personnel to discuss the problems, including Thiesen, they would tell him that they were unable to spare the time to improve Cardizem LA quality because they were focused on manufacturing
Wellbutrin XL .
70 . That there were severe problems in manufacturing Cardizem LA is als o confirmed by the delay in the launch of Cardizem LA, as compared to the launch of Wellbutrin
XL. Biovail first received from the FDA an Approvable Letter for Cardizem LA on June 17,
2002 . The Approvable Letter, as reported by Biovail, stated that the FDA had reviewed the application and that Cardizem LA was approvable, subject to the completion of labeling matters and the submission and review of certain information . The FDA, however, did not give final approval until February 7, 2003 and, tellingly, Biovail did not book a single dollar in revenue from Cardizem LA until the next quarter, beginning in April 2003, or two months after final approval . Biovail was then unable to completely stock its channel until the end of the second quarter ended June 30, 2003, a full year after the FDA issued its Approvable Letter .
71 . By way of comparison, Biovail's launch of Wellbutrin XL was markedly differen t and radically faster . The FDA issued its Approvable Letter for Wellbutrin XL on June 26, 2003 .
That same quarter, which ended just four days after the Approvable Letter was issued, Biovail sold $8 .1 million dollars of Wellbutrin XL to begin stocking the channel . The FDA approved
Wellbutrin XL on August 28, 2003 . Biovail then launched the product that same quarter and
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booked another $8 .2 million in revenues . Thus, Biovail had already generated $16 .3 million i n revenues from Wellbutrin XL by the end of the same quarter in which Wellbutrin XL had bee n approved.
72 . Witness 2 also stated that the delay between the Cardizem LA Approvable Lette r and the product launch was unusual in the industry and due to the Company's inability t o manufacture sufficient quantities of the drug . Witness 2, who has worked in the pharmaceutical industry for 30 years, stated that a product launch typically occurs six to eight weeks after a n approvable letter is received .
73 . Biovail tacitly acknowledged that manufacturing problems plagued the launch o f
Cardizem LA in its post-Class Period filing with the SEC of its 2003 20-F on May 14, 2004 .
Tellingly, Biovail's new 20-F included a brand new section that had not appeared in its earlier
20-Fs . Every year, Biovail filed its annual financial statements on Forrn 20-F discussing the results of the prior year, and included a statement of "risk factors" that could affect Biovail's business . However, after the disastrous Cardizem LA launch, marred by Biovail's crippling inability to manufacture the drug in sufficient quantities, Biovail's new 20-F for the first tim e included an extensive discussion of the difficulties Biovail might encounter in its efforts t o manufacture its products . Specifically, the new 20-F stated :
Our business could suffer as a result of manufacturing issues .
The continued increase in the number of products we market and have pending at the FDA and TPD requires us to continue to expand our manufacturing capabilities, including making changes to our manufacturing facilities in Puerto Rico and Steinbach, Manitoba, The timely completion of these efforts is necessary for us to have sufficient manufacturing capacity for the anticipated quantities of our existing products and the products we expect to market or out-license in the future, and will require significant levels of capital investment . Our inability to complete our expansion and conversion projects, or adequately equip the facilities in a timely manner, or delays in receiving
FDA and TPD approval could adversely affect our results of operations, financial condition and cash flows .
32-

Our manufacturing and other processes utilize sophisticated equipment, which sometimes requires a significant amount of time to obtain and install . Although we endeavor to properly maintain our equipment and have key spare parts on hand, our business could suffer if certain manufacturing or other equipment, or a portion of, our facilities were to become inoperable for period of time . This could occur for various reasons, including catastrophic events such as hurricane or explosion, but also equipment failures and/or delays in obtaining components or replacements thereof, as well as equipment issues, construction delays or defects and other events, both within and outside of our control .
We have at times operated some of our manufacturing facilities on a 24-hour a day, 7-day a week production cycle in order to meet the market demand for current and anticipated products . Operating on that basis and meeting the anticipated market demand requires minimal equipment failures and product rejections . However, because we manufacture products that employ a variety of technology platforms,, some of our manufacturing capabilities may at times be over-utilized, while others may be under-utilized, resulting in inefficiencies, equipment failures and rejection of lots . Until our manufacturing processes are
optimized, and our manufacturing facilities are expanded, we may
have difficulty at times fulfilling all of the market demand for our
existing and future products , which could adversely affect our
results of operations, financial condition and cash flows . A portion of our pharmaceutical manufacturing capacity as well as other critical business functions are located in areas subject to hurricane and earthquake casualty risks . Although we have certain limited protection afforded by insurance, our business and our earnings could be materially adversely affected in the event of a major windstorm or earthquake ,
Our manufacturing facilities are located outside the continental
U .S . while most of our sales are within the U .S . Border controls may have an impact on our ease of access to the U .S . market place .
(Emphasis supplied) .
74 . The timing of Biovail's new, prominent risk warning, added only after the end o f the Class Period, further supports the accounts of former employees that Biovail had experience d overwhelming difficulties in manufacturing Cardizem LA from the start of the Class Period .
Rinvail Implemented the PLACE Program to Deceive Investors
75 . According to Witness 3, because Biovail did not have sufficient product,
Defendants created a two-phase launch program . Phase one would involve a purportedly clinica l
experience program called PLACE . Phase two would consist of a more typical pharmaceutical product release in which the product would be stocked in retail pharmacies and wholesal e
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distributors - i .e ., the channel . This two-step strategy, however, was a debacle, and the
Company's sales of Cardizem LA to patients never materialized . Nevertheless, as detailed below, the Company concealed this fact from investors and misled them into believing that the launch of Cardizem LA had been a glowing success .
76 . Under the PLACE program, doctors received $1,000 to $1,500 if they wrote 10 to
15 prescriptions, which patients could fill at no charge through a special mail order pharmacy .
Biovail then asked doctors to fill out some rudimentary information about the patients that had to be mailed to Biovail, thereby supposedly justifying the "clinical" aspect of the program .
77 . But the clinical aspect of PLACE was just a cover to legitimize the pay-forprescription arrangement, and the "clinical" data generated was worthless, as Biovail well knew .
According to a July 21, 2003 article in The Wall Street Journal entitled, "Biovail Is Paying
Physicians Prescribing New Heart Drug," participating doctors dismissed the idea that Biovail could use the data they provided for scientific papers or trials . The Journal quoted George
Massing, a cardiologist in Mobile, Alabama, who had received $250 at the time and expected to receive an additional $750, as saying, "[t]hey can call it a study, but there's no science with it whatsoever . . . . It's worthless data . It takes less than five minutes for each patient, and an extra few minutes to explain to the patient that I want you to try this medicine and why ."
78 . A similar article in Barron's that same day, entitled "Pill Pusher: Drug maker
Biovail sparks controversy by paying doctors to write prescriptions," confirmed that PLACE was scientifically worthless and nothing more than a marketing ploy . According to Barron 's,
"[d]espite the cover letter from a respected cardiology professor, the Biovail program that is being pitched to physicians wasn't put together by academic researchers and isn't part of a Phase
III or IV study for the Food and Drug Administration - often a sign of rigorous research ."
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Further, Dr . Peter Goodfield, a cardiologist in Hendersonville, North Carolina was quoted as saying : "It's rather transparent that Biovail is trying to get around [the American Medical
Association's rules on remuneration for prescribing drugs] by calling this research . "
79 . Until these two articles were published in The Wall Street Journal and Barron 's , on July 21, 2003, Biovail had not disclosed that the PLACE program paid doctors to presc ri b e
Cardizem LA. Following the publication of these articles, Biovail received a letter from th e
United States Attorney for the District of Massachusetts that informed the Company that th e
United States Office of the Inspector General ("OIG") of Health and Human Services ha d
initiated a criminal investigation of the PLACE program . The Wall Street Journal first made the investigation public on August 24, 2003 in an article entitled, "Biovail's Tactics on Marketin g
Heart Medicine Focus of Probe ." This article described the PLACE program as what it was -- a kickback scheme :
U .S . government regulators have launched an inquiry into whether
Biovail Corp . has been paying kickbacks to doctors who prescribe a heart medication produced by the company . . . . At issue is a marketing effort in which Biovail, a large Canadian drug company, has been paying as much as $1,000 each to thousands of doctors in the U .S . prescribing a new heart medication called Cardizem LA . .
. . [R]egulators are concerned that some medical companies are adopting creative ways to market products, such as soliciting doctors for pseudoclinical trials in which the doctors receive compensation or educational grants . . . . Drug companies found to have compensated doctors to encourage them to prescribe their drugs could violate federal antikickback statutes that prevent illegal inducements to doctors that treat patients receiving
Medicare or Medicaid benefits . The obvious concern : Such payments could interfere with the judgment of doctors .
80 . Incentivized by Biovail's "kickbacks," doctors wrote thousands of Cardizem L A prescriptions . Not surprisingly, Biovail repeatedly touted the number of prescriptions that ha d been written - as opposed to the number of pills dispensed or the revenues actually generated --
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as proof that the Cardizem LA launch was a success . For example, in Biovail's July 29, 2003 conference call with analysts, Melnyk reported that "[b]y week 16 [after the launch], Cardizem
LA had nearly 166,000 prescriptions whereas Tiazac had reached 38,000 . Cardizem LA is tracking over 4 .5 times better than Tiazac did 16 weeks after its launch by Forrest Labs ."
However, as is now apparent, 166,000 prescriptions was a completely misleading measure of
Cardizem LA's acceptance, given that the PLACE program had enrolled 17,000 doctors and each doctor had to write 10 to 15 prescriptions to get paid .
81 . To implement the PLACE program, Witness 3 was instructed to find a mail orde r house to process orders . "It was a monumental task," she said, and she actually was loaned the corporate jet to fly to Florida to open an account with a mail order pharmacy . The mail order pharmacy, however, was "horrible," according to Witness 3, because it could not process the orders correctly and could not handle the volume . As a result, doctors were not getting paid, even though they had satisfied the requirements under the program . According to Witness 3,
"doctors were furious . They weren't getting paid . "
82 . Witness'2 also said that the mail order pharmacy failed to timely supply the product to patients . Witness 2 had been told that the plan was that when the doctor faxed in a
Cardizem LA prescription the patient would get the drug within 72 hours . But this did not happen . "Seventy-two hours turned into 4 to 5 days, to 7 days, and the whole thing was botched .
It was just a total disaster ." According to Witness 2, management should not have been telling people that it was a successful launch because it simply wasn't .
83 . The PLACE program was fundamentally flawed for another reason . In many cases, once doctors received their $1,000 "bribe," they simply did not continue writing Cardizem
LA prescriptions . According to Confidential Witness 6, a sales representative at Biovail fro m
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July 2000 until October 2003, after physicians started getting paid their $1,000 for completing the program and getting 15 patients on it, they stopped writing any more prescriptions . They just did it for the money and did not believe in the product . She also added that Biovail got thousands of prescriptions written in the second quarter 2003 because they were all paid for through the PLACE program but that, in the third quarter 2003, when the renewals should have been starting, they never happened .
E .
Biovail Also Made Unreasonable Projections for 2003 Sales of the Cardizem Family of Products Because by December 2002, Biovail's Distribution Channels were
Stuffed with Cardizem C D
84 . The February 7 Press Release projected an unreasonable amount of revenue in
2003 from Cardizem products (CD, SR and LA) : $140 to $200 million in the United States alone . In addition, Biovail forecasted an undisclosed amount of Cardizem sales in Canada, which was included in its "Biovail Pharmaceuticals Canada" revenue line of $75 to S100 million .
85 . These projections were unreasonable not only because of the sever e manufacturing difficulties Biovail was experiencing with Cardizem LA, but also because the
Company had filled the channel with four months supply of Cardizem CD in December 2002 .
Four months supply is an extraordinary amount of product . Most pharmaceutical companies keep two to four weeks of product in the channel and Biovail typically had maintained about one month of Cardizem CD until that time . In fact, as of December of 1999, 2000 and 20U1, the
Cardizem CD inventory was 0 .9, 0 .9, and 1 .5 months, respectively . Biovail therefore knew that sales of Cardizem CD in 2003 would be lower in light of the amount of extra product the
Company had "pre-sold" the prior year, as made evident from the excessive amount of inventory in the channel in December 2002 compared to prior years, as reported below :
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Cardizem CD
Inventory at AWP (in mans of $)
Dec-99
34
Inventory at 80% of AWP (in mins of $) 7.7
Dec - 00
19
16
Dec-01
23 is
-
Dec-02
4 5
3 6
Inventory in caplets (in mins)
19 10 11 2 1
Months of Inventory on Hand 0 .9
0 .9
1 .5
4 . 0
Source: HMO Nesbitt Burns research report dated Oct. 27, 2003 . Data obtained from IMS Heal th and NDC
Health
86 . Cardizem 2003 sales projections of $140 to $200 million were also unreasonable because demand for Cardizem CD had been dropping precipitously in 2002 . Prescriptions eac h
month in 2002 were down an average of 34% compared to the same month a year earlier. Give n that Cardizem product sales (CD and SR) in 2002 were $161 million, if the trend simpl y continued, without any additional erosive factors, Biovail could project, at best, $106 million i n revenues (66% of 2002 sales of $161 million) .
87 . But Biovail knew that sales would be even lower for two reasons . First, becaus e
2002 sales had been inflated, in large measure, by the unprecedented volume of sales into th e channel in the fourth quarter of 2002 . Second, the launch of Cardizem LA in 2003 would
difference is that LA is a once-a-day version of the same drug . Accordingly, any increase i n sales of LA would have a negative effect on the sales of CD . Biovail recognized this in its first quarter earnings conference call, when Melnyk admitted as much : "[w]e thought that it was one of the smartest things we could do was to bring down [Cardizem] inventory - global inventor y levels on all the products . The last thing in the world we wanted to do was to have a ver y successful Cardizem LA launch and have the potential at the pharmacy level with any type o f significant inventories of let's say Cardizem CD being there to be substitute for Cardizem LA ."
88 . Simply put, Biovail's projection of $140 to $200 million of revenue fro m
Cardizem products in 2003 had no reasonable basis . Biovail could not manufacture Cardizem
2 Average Wholesaler Price
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LA . Sales of Cardizem CD were plummeting at a 34% rate on a year-over-year basis . The channel had been pre-sold in 2002 with four months of supply . And any sales of Cardizem LA would further cannibalize sales of Cardizem CD in 2003 . To this day, Biovail has not disclosed its sales of all Cardizem related products in 2003 . Even when it filed its 2003 20-F with the
SEC, on May 14, 2003, it only revealed sales of Cardizem LA, which were $47 .7 million .
F.
Biovail Continued to Knowinjjy Mislead Investors with Respect to the Launch of
Cardizem LA After February 7, 2003
1 .
The March 4, 2003 Earnings Conference Cal l
89 . On March 4, 2003, Biovail held a conference call with analysts to discuss its results for the fourth quarter and full year 2002 . Melnyk, Howling and Crombie spoke on behalf of Biovail and heavily promoted the upcoming launch of Cardizem LA . Melnyk reminded analysts that "we entered into a co-promotion agreement with Reliant Pharmaceuticals to strengthen our internal sales force, bringing our U .S . sales force total to over 800 in preparation for the launch of Cardizem LA ." Poole, who also participated in the call, also promoted
Cardizem LA, and stated, "[w]e have finalized launch plans and programs for Cardizem LA and have set up intensive training programs for our reps and our Reliant partner reps for late March ."
Ken Albert, vice-president of Biovail Clinical Development, stated, "[w]e are excited about winning final approval for Cardizem LA from the FDA, and look forward to the upcoming product launch . "
90 . These statements were false and misleading because, as Defendants knew, the
Company simply did not have enough Cardizem LA to support the launch . In fact, when research analysts asked defendant Crombie if Biovail was experiencing any manufacturing constraints, he did not disclose the problems with Cardizem LA . Specifically, David Lickrish, from Punk Ziegel & Company, asked Crombie, "T also wanted to know with respect to Tiazac ,
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given your ramping up of Cardizem LA here, are you running into any manufacturing constraint s or anything of the like? "
91 . In response, Crombie told investors, "with respect to the manufacturing, we are we have just recently completed the expansion of our Steinbach plant . We added more than enough capacity to meet the needs of the GSK for Wellbutrin . We continue to manufacture i n
Puerto Rico, where most of our Tiazac and LA manufacturing is taking place . I think we are well positioned ." Crombie then continued, "[w]e - in the last 12 months, we're upgrading, an d as you know, we acquired the Dorado, Puerto Rico facility, which is from Johnson & Johnson .
That's a substantial facility . We have just, as I said, we have had a significant expansion of our
Steinbach facilities . That's more than enough in the next several years of Wellbutrin production .
We're in good shape here . "
92 . These statements were false and misleading because, as described above, th e
Company was experi encing devastating difficulties in manufacturing Cardizem LA .
93 . In the days following the conference call, the stock price rose from a closing pric e of $36 .06 on March 3, 2003, to $38 .95 per share by March 7, 2003 .
2 .
The April 29, 2003 Press Releases and Conference Call
94 . Fully cognizant of the fact that Wall Street was thirsting for positive news abou t the launch of Cardizcni LA after April 2, the Defcndalits obliged . On April 29, 2003, Biovail issued an earnings press release reporting first quarter 2003 results and listing Howling as a contact . Biovail reported net income of S63 million and earnings per share of $0.39. These earnings beat Wall Street's consensus forecast (as reported by Thompson One Analytics in its website at http ://www .thomsononeanal)tics .com ) by one penny. The press release opened with the statement, "Biovail Corporation today announced record financial results for the three month
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period ended March 31, 2003 and first month performance of Cardizem LA, which is in exces s of 20,000 prescriptions ." Melnyk was also quoted, as follows :
The successful relaunch of Teveten, the launch of Teveten HCT and the performance of Cardizem LA since its launch earlier this month demonstrates the effectiveness of our sales and marketing product launch capabilities . . . . Operationally, our management team has been strengthened, our pipeline programs are on track including the expected launch of Wellbutrin XL in the second half of 2003 and we continue to explore numerous opportunities .
These and other activities give us confidence that we will meet or exceed our objective of 30% earnings per share growth for 2003 .
95 . That same day, Biovail issued a second press release, also with Howling as a contact, specifically touting the launch of Cardizem LA . The press release was entitled, "Biovail
Reports Positive Cardizem LA Launch Results," and stated that prescriptions of Cardizem L A exceeded 20,000 and that more than 45,000 retail pharmacies had the drug in stock, whic h
represented over 80% of the chain . It also discussed the PLACE program to investors , for the first time, as follows :
Biovail is currently executing its planned multi-phased approach to the launch of Cardizem(R)LA . A clinical experience program entitled P .L .A .C .E . (Proving LA through Clinical Experience) is being conducted as a means of introducing the unique attributes of
Cardizem(R)LA to patients through targeted physicians . To ensure these prescriptions are filled prior to the completion of the retail stocking program, the prescriptions written during Phase I were filled through select mail order pharmacies . These mail order organizations do not report to IMS or NDC data tracking systems .
As a result, there are 20,000 prescriptions filled over and above the total that appears in the IMS or NDC prescription summary data .
Significantly, the payments to doctors, or the amount, were not disclosed .
96 . Both press releases issued on April 29, 2003 were prepared and disseminated wit h the participation of the Individual Defendants and constituted the collective work of the
Individual Defendants in light of their direct involvement in the daily business of the Company.
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97 . These rosy characterizations of the first phase of the Cardizem LA launch were
repeated during a conference call with investors that same day . Defendants Melnyk, Howling, and Crombie participated in the call . Melnyk repeated the earnings report that had been include d in the press release and continued to promote the success of the Cardizem LA launch. Melnyk also told investors that "[i]n the latter part of March we held a national sales launch meeting with our sales organization which included our Reliant partners, a group of over a thousand people .
Incredible energy enthusiasm and professionalism demonstrated by the two sales forces will go a long way towards fueling the success of this product [Cardizem LA] in the market place . "
Melnyk went on to say:
We're only four weeks post-launch [of Cardizem LA] and we~are extremely pleased with the success we have had in this short period of time . We surpassed our own expectations with respect to scrip numbers and getting positive feedback from physicians . Both of these bode well for the future of this product . We've been tracking Cardizem LA against a post launch data from Tiazac, and the early results clearly indicate that this product has hit the market with even greater force than Tiazac . We have achieved a level of performance we initially didn't expect to achieve until at least
June . While these are still very early days, this result i s encouraging .
98 . Petrillo, who also participated in the call, echoed Melnyk's assessment, stating ,
"we are currently executing a multi-pronged approach to the launch of Cardizem LA that is proceeding exceptionally well in the early stages ." Petrillo also explained the purposes of the
PLACE program : "We are conducing this clinical experience program . . . as a means of quickly introducing the unique attributes of Cardizem LA to appropriate patients first through those highvalue physicians . . . This program gives these physicians the opportunity to gain clinical experience with Cardizem LA's sustain efficacy . "
99 . Later in the call, in response to a question from an analyst, Melnyk added :
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Our manufacturing capacity was virtually dedicated to Cardizem
LA . We had in excess of 23,000 prescriptions written for the LA during the launch period, and that's in four weeks . To put that in perspective, the total launch is 2,700 scrips, and Tiazac, which is basically our bench mark, was around 1,300 versus 23,000 . So the demand was, you know, pretty dramatic .
100 . Melnyk also reiterated 2003 guidance based on sales of Cardizem LA an d
Wellbutrin XL, stating, "I think there's no change in our guidance . There's in fact, we're reiterating our guidance for the year as far as EPS is concerned . You're going to see it coming from our product sales of mainly Wellbutrin and from Cardizein LA . "
101 . In the same conference call, Howling stated,
Diluted earnings per share for first quarter 2003 was 39 cents versus diluted earnings per share of 32 cents for first quarter 2002, reflecting an increase of 22% .
Furthermore, inventory levels in the distribution channel for branded Tiazac are also reduced given the utilization rate for this product being lower now due to the introduction of a generic version of Tiazac . This strategic initiative was undertaken to aid in the stocking campaign of Cardizem LA . . . . The results of this strategy are already evident and in approximately four weeks we have achieved retail stocking for Cardizem LA of over 40,000 retail pharmacy outlets reflecting coverage of 80% .
102 . Analysts eagerly accepted the Company's statements that the Cardizem L A launch was a "success ." National Bank Financial issued a report on April 29, 2003, stating that the reported 20,000 Cardizem LA prescriptions "is comparable to roughly 2,700 prescriptions for the Benicar launch and 1,300 during the Tiazac launch for the first month . Biovail expects at least a 30% rate of conversion of these initial 20,000 prescriptions to paying customers . The realities of this will be evident in Q2 2003 . So far, we are very pleased with the response to th e
-43-

Cardizem LA launch ." Unbeknownst to the analysts, they were relying on false and misleading statements .
103 . The Company's statements were false and misleading for the reasons given above . Biovail was fully aware that crippling manufacturing problems were impeding the
Cardizem LA launch and that its sales force simply did not have the product to sell . Biovail knew that it could not meet earnings projections for the year for the reasons given above , including the manufacturing problems with Cardizem LA and the declining sales of Cardizem
CD . Finally, Biovail's much-touted 23,000 Cardizem LA prescriptions were misleading, because Biovail did not inform investors that doctors were actually paid to prescribe the product, much less that they were paid $1,000 to $1,500 to write 10-15 prescriptions . Biovail also misled investors about the reason for instituting the PLACE program . As described above, the program was developed as a method to disguise Biovail's manufacturing shortfall while inflating prescriptions by paying doctors.
104 . Biovail's report of its first quarter earnings was false for another reason : th e
Company had met Wall Street analysts' expectations for first quarter earnings through an improper accounting gimmick . The consensus estimate by research analysts of earnings per share for that quarter was $0 .38 . When Biovail reported first quarter results on April 29, 2003, it beat those expectations by a penny . To do so, however, it reported earnings that unbeknownst to the public did not comply with GAAP accounting standards . The false earnings report was subsequently filed on Form 6-K with the SEC on May 30, 2003 . On March 3, 2004, Biovail issued a press release that disclosed, inter alia, that its earnings for the first three quarters of
2003 had been improperly reported under GAAP . As a result, Biovail was forced to restate earnings for those three quarters .
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105 . A restatement is an accounting term of art, which means that previously issued financial statements were not prepared in conformity with GAAP and that they materially misstated Biovail's financial condition and results of operations . Under GAAP, a restatement of a previously issued financial statement is the most serious step, reserved only for circumstances where no lesser remedy is available . Under Accounting Principles Board Opinion No . 20,
Accounting Changes, prior period adjustments ("restatements") are only permitted (and are required) to correct material accounting errors that existed at the time the financial statements were previously issued .
106 . On May 14, 2004, Biovail filed with the SEC an amended 6-K for the quarterly period ended March 31, 2003, restating the 6-K previously filed on May 30, 2003 . The restated financial statements for the first quarter showed that Biovail, in fact, had earnings per share of
$0 .36, not the $0 .39 previously reported on April 29, 2003 .
107 . Biovail overstated earnings by manipulating the U .S . dollar foreign exchange rate used to value an obligation that it had incurred in Canadian dollars . Specifically, in December
2002, Biovail had purchased the rights to two drugs in a transaction executed in Canadia n dollars . At the time of the acquisition, Biovail recorded the acquired rights and a related longterm obligation on its financial statements in U .S . dollars , using the exchange rate in effect on the date of the acquisition . Therefore, to comply with GAAP, Biovail was required to adjust the value of the long-term obligation each quarter to reflect any changes in the exchange rate between the Canadian dollar (in which the obligation was to be satisfied) and the U .S . dollar (in which the obligation was recorded in the financial statements) . Applying this principle, changes in the exchange rate between year-end 2002 and the first quarter 2003 caused Biovail to incur a
$5 .4 million loss with respect to the value of this obligation . But Biovail chose to ignore GAA P
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and not record this $5 .4 loss . Had Biovail complied with GAAP and properly adjusted the value of the obligation, it would have had to reduce earnings to 50 .36 per share, instead of $0 .39, a s reported, and completely failed to meet the Street's earnings expectations of $0 .38 per share .
108 . Biovail specifically violated Statement on Financial Accounting Standard s
("SFAS") No . 52, paragraph 15, which explicitly requires that exchange rate fluctuations b e reflected in the income statement, other than under certain exceptions that are not applicabl e here . SFAS No . 52 states :
A change in exchange rates between the functional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of the transaction. That increase or decrease in expected functional currency cash flow is a foreign currency
transaction gain or loss that generally shall be included in determining net income for the period in which the exchange rate changes . Likewise a transaction gain or loss (measured from the
transaction date or the most recent intervening balance sheet date, whichever is later) realized upon settlement of a foreign currency transaction generally shall be included in determining net income for the period in which the transaction is settled . The exceptions of this requirement for inclusion in net income of transaction gains and losses are set forth in paragraphs 20 and 21 and pertain to certain intercompany transactions and to transactions that are designated as, and effective as, economic hedges of net investments and foreign currency commitments . (Emphasis in original) .
109 . Because Biovail did not follow SFAS No . 52, it was forced to restate its financial
statements . The restatement for the first quarter 2003, said ,
RESTATEMENT AND RECLASSIFICATION OF
COMPARATIVE FIGURE S
During the course of the preparation of its annual consolidated financial statements, the Company determined that it had applied an inappropriate exchange rate to a Canadian dollar denominated long-term obligation . In December 2002, the Company acquired the rights, through a subsidiary whose functional currency is the
U .S . dollar, to Wellbutrin(R) SR and Zyban in Canada fro m
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GlaxoSmithKline plc in a transaction denominated in Canadian
dollars . At the date of acquisition , the Company recorded the acquired assets and the related long-term obligation in U .S . dollars at the exchange rate existing at that date . However, in the previously issued interim financial statements for 2003, the
Company did not adjust the Wellbut ri n(R) obligation to reflect changes in the exchange rate except for payments made on that obligation when a foreign exchange loss was recorded on those
transactions . There was no payment made on the Wellbut rin(R) obligation in the three months ended March 31, 2003 and, as a
result, there was no foreign exchange loss recorded in that pe ri od .
U .S . generally accepted accounting principles ("GAAP" ) require monetary balances denominated in a currency other than an entity's functional currency be translated to reflect the exchange rates in
existence at each balance sheet date . Consequently, the translation
of the Wellbutri n (R) obligation, using the exchange rates existing
at March 31 , 2003, had the following impact on the Company's
previously repo rted results of operations for the three months ended March 31, 2003 :
Three Months Ended
March 31, 200 3
Net income as previously reported $ 62,991
Foreign exchange adjustment (5,392 )
Net income as restated $ 57,59 9
Basic earn ings per share
As previously reported $ 0 .40
As restated $ 0 .3 6
Diluted earnings per share
As previously reported $ 0 .39
As restated $ 0 .3 6
110 . Miszuk signed the Form 6-K filed on May 30, 2003, which was false and misleading and which was also certified by Meln_yk and Crombie as required by the Sarbanes-
Oxley Act of 2002, 15 U .S .C .A . §§ 7201 et seq . The certifications signed by Melnyk and
Crombie explicitly represented, falsely, that the financial statements reported in the 6-Ks were not false and misleading . The certifications stated :
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Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chapter 63, Title 18 U .S .C . §1350(a) and (b)), the undersigned hereby certifies that the Report of Foreign Private Issuer on Form
6-K for the quarterly period ended March 31, 2003 of Biovail
Corporation (the "Company") fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (15 U .S .C . 78m(a) or 78o(d)) and that the information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of the Company .
3 .
May 7, 2003 Press Releas e
111 . On May 7, 2003, Biovail continued to hype the Cardizem LA launch . In a pres s release listing Howling as a contact, the Company announced that "Biovail has signe d agreements giving Cardizem LA a favorable formulary position with a number of Pharmac y
Benefits Managers (PBMs) and Managed Care Organizations (MCOs) ." The release quote d
Mclnyk as saying, "This is an excellent position for Cardizem LA to be in four weeks postlaunch . . . . The favorable formulary coverage . . . will offer an additional opportunity fo r
physicians to continue to choose Cardizem LA for their patients ." After the press release ,
Biovail's stock rose from a closing price of $39 .80 on May 6, 2003 to $50 .30 on June 5, 2003 , the Class Period high .
112 . These statements were false and misleading because, as Biovail knew but did no t disclose, crippling manufacturing problems coupled with the fact that Biovail had paid doctors t o prescribe Cardizcin LA meant that the launch was not as successful as Biovail claimed .
113 . On July 21, 2003, however, some of the details of Biovail's PLACE program , which had been previously undisclosed, were revealed to the market . The two articles described above from The Wall Street Journal and Barron 's exposed that Biovail had been paying doctor s for prescriptions . The market reacted negatively to these disclosures and on July 21, 2003, the day the articles appeared, Biovail's stock closed at $39 .17, down from its previous closing pric e of $41 per share on July 18, 2003 .
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114 . The press release issued on May 7, 2003 was prepared and disseminated with th e participation of the Individual Defendants and constituted the collective work of the Individua l
Defendants in light of their direct involvement in the daily business of the Company .
4 .
The July 29, 2003 Earnings Release and Conference Call s
115 . On July 29, 2003, Biovail issued a press release announcing financial results for the second quarter of 2003 and listing Howling as a contact . The Company reported revenues o f
$217 .3 million, which reflected revenue growth of only 17% compared to second quarter 200 2 revenues of $185 .1 million . Product revenues were especially flat year over year, $157 .7 million in the second quarter of 2003 compared to $157 .8 million in the same quarter of 2002 . The release pointed out, however, that although GAAP net income resulted in a loss of one penny per share, when excluding a one-time charge for acquired research and development, net income was
$83 .2 million for the second quarter 2003 and diluted earnings per share $0 .52, a 33% increase over the same period the prior year. The press release quoted Melnyk, who said, "The dramatic increase in market share for Biovail's Cardizem franchise from 7% to over 11% in the 16 week s since the launch of Cardizem LA has surpassed our expectations . "
116 . The press release further stated :
Biovail reconfirms previously issued EPS guidance - -
Biovail Corporation announced today record financial results for the three months and six month periods ending June 30, 2003 . . . .
Contributing to these favorable results was the launch of Cardizem
LA in April 2003, contributions from Wellbutrin XL, which received an Approvable Letter in June 2003, growth from
Canadian product sales and the benefit from an economic interest in the gross profits from the sales of a generic version of Prilosec .
Second quarter 2003 net loss of $1 .0 million and diluted loss per share of $0 .01 compared to net income of $62 .6 million and diluted earnings per share of $0 .39 for second quarter 2002 .
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Excluding acquired research and development, second quarter
2003 net income of $83 .2 million and diluted earnings per share of
$0 .52 both grew 33% versus comparable 2002 results of $62 .5
million and $0 .39 per share
Second quarter 2003 net loss of $1 .0 million and diluted loss per share of $0 .01 compared to net income of $62 .6 million and diluted earnings per share of $0 .39 for second quarter 2002 . . . .
First half 2003 net income of $62 .0 million and diluted earnings per share of $0 .39 compared to net income of $115 .6 million and diluted earnings per share of $0 .70 for the 2002 first half.
Product sales revenues for second quarter 2003 of $157 .7
compared to $157 .8 million for second quarter 2002 . First half
2003 product sales revenue of $284 .6 million compared to first half 2002 product sales revenue of $287 .6 million . Product sales were favorably impacted in the second quarter and first half of
2003 by Canadian product sales revenues, the launch of Cardizem
LA and by revenues related to the upcoming launch of Wellhutrin
XL . Generic product sales to Teva Pharmaceuticals were less than expected during the second quarter and are tracking well below underlying prescription trends for the primary products in this portfolio . Biovail is working with Teva Pharmaceuticals to better understand this inconsistency and resolve the situation expeditiously . Additionally, supply constraints related to branded
Cardizem CD, which is manufactured by Aventis Pharmaceuticals, resulted in a backorder situation of approximately $20 million .
Biovail is currently working with Aventis to rectify this .
117 . The press release issued on July 29, 2003 was prepared and disseminated with th e participation of the Individual Defendants and constituted the collective work of the Individual
Defendants in light of their direct involvement in the daily business of the Company .
118 . On that same day, Biovail also held a conference call with analysts . Defendant s
Melnyk, Howling, and Crombic participated in the call . Melnyk and Howling repeated th e earnings release statement that, excluding acquired research and development, net income for th e quarter was $0 .52 per share, representing a 33% increase over the same period the prior year .
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119 . Additionally, Melnyk attempted to minimize the impact that the PLACE program had had on prescriptions of Cardizem LA . Melnyk did not state, however, that PLACE had paid doctors millions of dollars, in the aggregate, to prescribe Cardizem LA in the initial phase of the launch and, instead, reported that "[b]y week 16 [after the launch], Cardizem LA had nearly
166,000 prescriptions whereas Tiazac had reached 38,000 . Cardizcrn LA is tracking over 4 .5
times better than Tiazac did 16 weeks after its launch by Forrest Labs . "
120 . Melnyk continued,
Although these are very early results, we are very encouraged by this trend and believe it is an indication that physicians are adopting Cardizem LA in their hypertension treatment of programs . Total prescriptions are starting to separate from new prescriptions which is a good indication that patients are responding favorably to the product . To better evaluate Cardizem
LA's performance Biovail initiated a commonly used research program known as a clinical experience program .
PLACE, or Proving LA through Clinical Experience, was designed to provide important information regarding certain variables that physicians consider when prescribing hypertensive agents and to provide information regarding Cardizem LA's performance in a clinical practice setting .
To ensure that everyone has a good understanding of the program,
I will take a few minutes to describe how the program worked and the expected uses of the data being compiled . Patients enrolled in the study had Cardizem LA supplied to them by Biovail free of charge via prescription and a free goods coupon . Quintiles
Transnational managed the mechanics of receiving and processing the enrollment forms . For this program we targeted 25,000 doctors and expected between 6,000 and 6,500 to participate .
The program generated greater than expected interest due to
Cardizem recognition and physician desire to evaluate Cardizem
LA in their practices . As a result approximately 17,000 doctors were enrolled . In addition to patient specific data such as gender, blood pressure levels and ethnicity, we are gathering broad data such as the risk factors physicians consider when prescribing an antihypertensive for a patient and the number of new or
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uncontrolled patients a physician may see in a specific period of time .
This information is of value as we can use it to design future phase
IV clinical trials and publish the data to provide physicians with a better understanding of how Cardizem LA may be used to meet their patients' needs. One final comment on PLACE. Recent media stories have attempted to describe these type of research programs negatively . It is important to point out that in Biovail's
PLACE programs, doctors only receive honorariums if they completed all necessary documentation including the detailed final evaluation questionnaire which is a critical component for the final publication report . We believe this program is in full compliance with all applicable, regulatory and legal requirements .
121 . The statements in the earnings release and conference call were false an d misleading . As Biovail knew, manufacturing problems had crippled the Cardizem LA launch .
Moreover, the 166,000 prescri ptions was a misleading measure of success, given that the PLACE program had enrolled 17,000 doctors . Finally, while Biovail trumpeted its PLACE program an d the number of Cardizem LA prescriptions written by doctors, it did not report actual sale s numbers of Cardizem LA . It took this tack because the Company knew that sales to patients were lagging as a result of, among other things, the lack of availability of the product at the retail level due to Biovail's manufacturing problems . Indeed, many of the prescriptions that had been written by doctors in connection with the PLACE program never actually got filled .
Significantly, Biovail did not break out in its financial statements the actual sales of Cardize m
LA in 2003 until May 14, 2004 - two months after the end of the Class Period .
122 . Once "phase one" of the Cardizem LA launch was completed and the PLAC E
LA in the second quarter of 2003 (the first quarter it was launched) were $21 .6 million . Bu t according to Witness 2, these sales reflected shipments to wholesalers and the stocking of th e distribution chain . It did not reflect actual sales to patients, which ultimately is the metric tha t
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investors need to properly assess the sales potential of Cardizem LA and the value of Biovail stock. As would later be revealed, Cardizem LA sales dropped shockingly in the subsequent quarter (the third quarter 2003) to $6 .2 million . These figures, which were subsequently revealed in May 2004, prove that once wholesalers were supplied with the product, patients simply failed to purchase the drug .
123 . Additionally, during the conference call, Biovail reiterated its full year revenue guidance . Howling stated,
We feel it is prudent to reduce our generic controlled release product sales and total product sales guidance for the balance of the year by $20 to $30 million . We are also upwardly revising the low end of previously issued royalty and co-promote revenue financial guidance by $20 million as our economic interest and the gross profits associated with the sales of a generic version of
Prilosec to continue to exceed our expectations . These two changes leave total revenue guidance unchanged .
124 . This projection was false and misleading not only because of the problems th e
Company was experiencing with Cardizem LA and the impossibility of Cardizem CD filling in the gap, but also because of the results the Company had already reported during the year . The
Company's first and second quarter results were substantially below the Company's February 7,
2003 guidance of 30% revenue growth for 2003 . To bolster its continued assertion of 30% yearly revenue growth, Defendants concocted a bigger excuse : that Biovail had orders for and was prepared to ship $20 million of Cardizem CD, but had been unable to fill those orders due to the inability of the drug's manufacturer, Aventis, to fill Biovail's back order for $20 million o f
Cardizem CD . As Howling stated, "We currently have a backorder position on Cardizem CD of approximately $20 million and are working with Aventis who supplied this product to us to rectify the situation ." Biovail told investors that, but for the "backorder problem," revenues in the second quarter 2003 would have been $237 .3 million, representing revenue growth of 28 %
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compared to the second quarter of 2002, and right in line with the Company's growth guidance of 30% for the year .
125 . Analysts questioned Biovail's explanation that there was an unfilled backorder for
Cardizem CD in the second quarter conference call on July 29, 2003 . Inventory in the channel at the end of the quarter reflected a supply of $32 million (on an AWP basis), or more than 3 months of inventory on hand, which, on the surface, contradicted the Company's explanation .
Melnyk responded in the second quarter conference call by saying that although there was a large inventory of Cardizem CD in the channel, a particular dosage (360mg), was virtually not available . This dosage was especially profitable for Biovail because it had no generic competition . Melnyk explained : "If you take a look at the wholesaler inventory levels and I'm going to get very specific, the 360 milligram, it is depleted . So a big bulk of the 360 is just not out there . So that is about 70 percent of that S20 million- "
126 . In the same conference call, Corey Davis, the J .P . Morgan analyst, asked point blank: "So this [backorder] is not a major problem and we should just shift that $20 million into the next quarter?" Melnyk responded, "Yes, no question. "
127 . The truth was that no such backorder existed. The Company would eventuall y admit this at the end of the Class Period in its early morning press release and conference call on
March 3, 2004 . But before doing so, it stalled analysts again with false claims that the backorder persisted during its third quarter conference call on October 30, 2003 . Thus, Biovail's projected revenues for the year, as well as its claim to be experiencing a Cardizem CD backorder, were false and misleading, both because no such backorder existed, and because the problem with
Cardizem LA launch coupled with the decline in Cardizem CD sales made the projected revenues and earnings per share growth for 2003 impossible to achieve . Witness 1, in fact,
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confirmed that there was no such backorder, and stated that from late 2002 through October 2003 wholesalers were stocked with several months supply of Cardizem CD's most popular strengths :
360mg, 240mg, and 180mg .
128 . Biovail's second quarter earnings release and conference call were false fo r another reason . Biovail used the same accounting trick to inflate earnings in the second quarter of 2003 that it had used in the first quarter . In its Form 6-K filed with the SEC on August 29,
2003, and signed by Miszuk, the Company reported a loss of one penny . The loss was due to an expense of $84 .2 million for acquired R&D . Because one-time expenses are usually not meaningful for valuation purposes on an ongoing basis, Wall Street analysts and investors prefer to back-out these charges and analyze earnings per share as if these expenses had not occurred .
Accordingly, it is common for companies to present earnings in their press release on a GAAP basis (here a loss of $0.01), and on a non-GAAP basis, which, for Biovail's second quarter, translated into earnings of $0 .52 per share . Biovail touted this number by including it as one of three bullet points heading its earnings press release : "Diluted EPS excluding charges increased
33% to $0 .52 for second quarter 2003 . "
129 . Biovail did not disclose, however, that it had artificially boosted earnings b y
$0 .02 per share by failing to recognize a loss due to exchange rate fluctuations in violation of
GAAP, just as it had for the first qua rter . Accordingly, on May 14, 2004 , the Company was forced to amend its previously filed August 29, 2003 6-K for the three months ended June 30,
2003 . The amended 6-K restated earnings as follows :
RESTATEMENT AND RECLASSIFICATION OF
COMPARATIVE FIGURE S
During the course of the preparation of its annual consolidated
financial statements , the Company determined that it had applied
an inappropriate exchange rate to a Canadian dollar denominate d
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long-term obligation . In December 2002, the Company acquired the rights, through a subsidiary whose functional currency is the
U .S dollar, to Wellhutrin(R) SR and Zyhan in Canada from
GlaxoSmithKline plc ("GSK") in a transaction denominated in
Canadian dollars . At the date of acquisition, the Company recorded the acquired assets and the related long-term obligation in U .S .
dollars at the exchange rate existing at that date . However, in the previously issued interim financial statements for 2003, the
Company did not adjust the Wellbutrin(R) obligation to reflect changes in the exchange rate except for payments made on that obligation when a foreign exchange loss ($2,673,000 for both the three months and six months ended June 30, 2003) was recorded on those transactions . U .S . generally accepted accounting principles ("GAAP") require monetary balances denominated in a currency other than an entity's functional currency be translated to reflect the exchange rates in existence at each balance sheet date .
Consequently, the translation of the Wellbutrin(R) obligation, using the exchange rates existing at March 31, 2003 and June 30,
2003, had the following impact on the Company's previously reported results of operations for the three months and six months ended June 30, 2003 :
Three Months Six Months
Ended Ended
June 30, 2003 June 30, 200 3
Net income (loss) as previously reported $ (1,012) $ 61,979
Foreign exchange adjustments (3,928) (9,320 )
Net income (loss) as restated $ (4,940) $ 52,65 9
Basic earnings (loss) per shar e
As previously reported
As restated
Diluted earnings (loss) per shar e
As previously reported
As restated
$ (0 .01)
$ (0 .03)
$ (0 .01)
$ (0 .03)
$ 0 .3 9
$ 0 .3 3
$ 0 .3 9
$ 0 .3 3
130 . The Form 6-K filed on August 29, 2003, was also false and misleading becaus e
Melnyk and Crombie falsely certified that the financial statements reported in the 6-K were no t false and misleading.
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G .
The Fraud Is Partially Revealed, But Defendants Continued to Lie to Investor s
1 .
On October 3, 2003, Biovail Announced That It Had Missed Its Third
Quarter Estimates, But Lied About the Reasons to Hide the Fact that
Revenue from Cardizem LA Had Been Disastrou s
131 . On October 3, 2003, Biovail unexpectedly issued a press release and convened a conference call to announce that it had significantly missed third quarter earnings . This information surprised investors and Wall Street analysts. Melnyk and Crombie participated in the call . Crombie told investors, "[o]ur previous guidance for revenue for Q3, 2003, should therefore be reduced by approximately $45 million, resulting in new guidance for Q3 for total revenue of between $215 million and $250 million." This guidance was down from the February
7 guidance of $260 to $300 million . Earnings per share would be reduced by 23 cents, from 58-
68 cents to 35-45 cents . In response, Biovail's stock plunged 18% - from $37 .77 per share to
$31 .10 per share, on abnormally heavy volume .
132 . Melnyk and Crombie blamed three unexpected events for Biovail's failure t o meet its published guidance . First, there was a vehicular accident in the outskirts of Chicago that compromised the delivery of a shipment of Wellhutrin XT, that Defendants claimed was worth approximately $15 to $20 million . On September 30, 2003, just hours before the end of the quarter, a truck loaded with Wellbutrin XL pallets for delivery to GSK had left the Company's
Steinbach Manufacturing Facility in Canada . The next day, on October 1, a multi-car pile up occurred just outside Chicago, in which eight people lost their lives . The truck was involved in the accident, although it was not part of the main collision . In the October 3 conference call,
Crombie claimed that ,
The unfortunate incident described by Eugene [Melnyk] a moment ago, will have a material negative effect on Biovail's third quarter revenue and earnings .
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As a result of this accident, Biovail currently estimates that its total third quarter revenues from Weilbutrin XL will now be below $10 million . It is not yet known whether or not the prndnct involved in the accident will be salvageable . This product must be sent back to our manufacturing facility for careful inspection to determine if the product still meets all applicable manufacturing specifications and is completely safe for future sales .
Our Wellbutrin XL supply agreement gives Glaxo the right to return product that does not meet required manufacturing specifications as approved by the Food and Drug Administration .
As it is unknown at this point whether or not the product involved in the accident still meets all applicable manufacturing specifications, Biovail will not be recording any revenue associated with this shipment in Q3 .
133 . Second, Melnyk attributed the shortfall to the same problem experienced in th e second quarter 2003 with the backorder of Cardizem CD . He estimated that the impact o n revenues in the third quarter 2003 would be $10 to $15 million . In this regard, Crombie added ,
. . . . at the end of the second quarter, we announced that we had a backorder position on Cardizem CD in excess of $20 million .
This was caused by numerous factors . We have been very conscious of trade inventory levels and we have come to the conclusion that where the smaller brand, such as Cardizern CD to insure that we don't have backorders and that we meet demand, a larger amount of trade inventory is required .
We also had frankly expected an increase in the months of inventory due to expected cannibalization from Cardizem LA .
Based on our source of prescription tracking, Cardizem LA is gaining most of its prescriptions not from switching from
Cardizem CD, but from new patients being prescribed calcium channel blockers . . . .
During the third quarter 2003, Biovail has been working diligently with Aventis, the supplier of brand Cardizem CD to alleviate the backorder position . Considerable progress has been made during this quarter, with additional shipments from Aventis, alleviating almost half of the backorder position as of June 30th ; however, some additional shipments, which had been anticipated prior to
September 30th, actually arrived immediately following quarter
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end . As a result, these additional shipments will not be included in our third quarter 2000 revenue, 2003 revenue as hoped for, but will favorably impact fourth quarter 2003 revenue .
In addition, because of the strong sales of Cardizem 360, the backorder position of Cardizem CD has grown again, back up to almost $20 million .
134 . Third, Melnylc claimed that Biovail had recently been informed that its economi c interest in the sale of Prilosec had been negatively affected by certain retroactive price reductions
granted by the distri butor and beyond Biovail ' s control .
135 . Crombie summarized the impact on third quarter revenue as follows :
The impacts of the items discussed today will have the following impacts on Q3 revenue . First, the impact of Wellbutrin loss due to the accident is in the range of $15 to $20 million . Second, the impact of lost royalty revenue due to Prilosec is in the range of $20 million . Third, the impact of Cardizem CD revenue is in the range of $10 to $15 million . . . .
The net income impact from the above is in the range of $35 to S45 million or new EPS guidance 23 cents less than previous guidance
for a new total full diluted EPS guidance for Q3 of 2003 of between 35 and 45 cents .
136 . The press release, issued on the same day of the conference call, and listing
Howling as a contact, stated as follows :
Biovail Provides Guidance on 2003 Third Quarter Result s
IURUNIO--(BUSINESS WIRE)--Oct . 3, 2003--Biovail Corporation
(NYSE:BVF)(TSX :BVF) announced today that while it has not completed a final compilation and analysis of its 2003 third quarter, preliminary results indicate that revenues will be below previously issued guidance and will be in the range of $215 million to $235 million and earnings per share of $0 .35 to $0 .45 for the three months ended September 30, 2003 . Contributing significantly to this unfavorable variance was the loss of revenue and income associated with a significant in-transit shipment loss of Wellbutrin XL as a result of a traffic accident .
After leaving Biovail's Steinbach, Manitoba manufacturing facility on September 30,
2003, a truck carrying a material shipment of Welibutrin XL was involved in a multivehicle traffic accident at approximately 4 p .m . eastern standard time October 1, 2003 near Chicago, Illinois . While this product may still be salable in the future, it must first be returned for inspection to Biovail's manufacturing facility in Manitoba to ensure it is still within acceptable specifications . Revenue associated with this shipment is in the range of S10 to $20 million. The manufacturing cost value of this shipment was fully insured .
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As a result of numerous recent inquiries, Biovail also cornments on two additional items associated with third quarter income .
Biuveil has an euuriuiiiic interest in the gross profits derived from the sales of a generic version of omeprazole . The distributor of this generic omeprazole product has announced that it will provide significant price reductions on a retroactive basis to wholesalers . This distributor has also indicated that it will be lowering its financial guidance for this product given lower pricing and for competitive reasons, Biovail's second half 2003 financial guidance assumed that additional competition for generic omeprazole would seriously erode the financial benefit to the Company's interest in the gross profits of this product . However, since Biovail shares in a percentage of the gross profit of this product, significant credits issued by the distributor during the third quarter 2003 could have a negative effect on Biovail's participating interest of up to
$15 million in net income . As well, it can be anticipated that there could be a fourth quarter 2003 negative income impact of $15 to $20 million .
During the third quarter 2003, Biovail was working with Aventis, the supplier of branded Cardizem CD product, to alleviate a back order position that existed at the end of June 2003. Considerable progress was made in this regard during the third quarter 2003 and additional shipments from Aventis were received in Q3 however, further shipments, which had been anticipated prior to September 30, 2003 arrived immediately following quarter-end . As a result, these additional shipments will not be included in third quarter 2003 revenue as expected but will favorably impact fourth quarter 2003 revenue . During third quarter 2003, approximately half of the June 30,
2003 back order position was alleviated however, due to continued strong sales of
Cardizem CD 360 mg and new orders for this dosage strength, backorders have increased to approximately $18 million as at September 30, 2003 . We will continue to work with Aventis to rectify this situation expeditiously .
137 . The press release issued on October 3, 2003 was prepared and disseminated wit h the participation of the Individual Defendants and constituted the collective work of th e
Individual Defendants in light of their direct involvement in the daily business of the Company.
138 . The first two reasons Biovail propounded for its earnings disappointments wer e deliberate falsehoods . Neither the trucking accident nor the Cardizem CD backorder ha d anything to do with Biovail's failure to meet its projections, which was rather due to Biovail' s inability to sell Cardizem LA . Cardizem LA sales in that third quarter plummeted to $6 .2
million from $21 .6 million in the second quarter. But because Cardizem LA was the flagship product and Biovail had been hiding its significant problems with Cardizem LA throughout the
Class Period, the Company shifted the blame for the earnings miss to Cardizem CD and th e trucking accident . It then masked the dismal revenues of Cardizem LA by reporting thos e revenues together with revenues from Zovirax and Teveten products, which, combined, totale d
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$60 .1 million . Biovail did not break out Cardizem LA's quarterly revenue in the third quarter until May 14, 2004, when it filed its 2003 20-F with the SEC .
(a) Biovail's Claim that Part of the Earnings Shortfall in the Third
Quarter of 2003 Was Due to the Wellbutrin XL Trucking Accident was Untru e
139 . Immediately after Biovail announced the Wellbutrin XL truck accident, there wa s considerable controversy in the Wall Street analyst community concerning whether the truck actually carried $15 to $20 million of Wellbutrin XL, as Crombie had stated during the conference call, or even the $10 million lower figure listed in the Biovail press release . Some analysts and reporters suspected that Biovail had inflated the amount of product in the truck to hide the fact that its third quarter earnings had been disastrous . Others stood by the Company's version of events .
140 Bane of America Securities analyst David Mar's ("Mar's") published a research note on October 8, 2003, raising questions about Biovail's disclosures relating to the truck accident . According to Maris, his investigation suggested that the Company had significantly overestimated the amount of Wellbutrin XL on the truck . If there had been $20 million worth o f
Wellbutrin XL pills on that truck, it would have been full, or nearly full, said Maris . But evidence suggested that the truck was at least half-empty . Melnyk publicly denied Maris's suggestion that there was not $15 to $20 million of Wellbutrin XL on the truck, calling it
"outrageous and irresponsible," according to a Dow Jones wire service story that day . A subsequent statement issued by the Company also that day said that the truck was carrying between $10 million and $20 million in Wellbutrin XL and that it believed that about 60% of the cargo was still saleable . The price of Biovail stock dropped to $25 .20 per share on October 8,
2003 from its closing price of $29 .05 the day before . Investors lost more than $550 million in market value .
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141 . J .P . Morgan's analyst Corey Davis accepted Biovail's public representations that the Wellbutrin XL truck accident had reduced third quarter earnings by $15 to $20 million .
Davis therefore told investors that the truck accident was an unfortunate one-time event that did not affect his valuation of the stock and continued to rate the stock "overweight ." In an October
6, 2003 research report, he stated, "two of the three reasons for the Q3 shortfall (Wellbutrin XL shipping accident and Cardizem CD production at Aventis) are coming from simple shifts of Q3 revenue into Q4 ." Davis therefore concluded that "the single biggest reason [Wellbutrin XL] to own this stock remains intact . "
142 . First hand accounts of the accident, however, confirm that the amount of
Wellbutrin XL on the truck was nowhere close to the $15 to $20 million alleged by th e
Company. According to Illinois State Trooper Francesca Sciuto ("Trooper Sciuto"), badge #
2291, who was the first trooper on the scene, Penner International operated the 1998 Ford tractor trailer involved in the accident on behalf of Biovail . Sciuto stated that according to her personal notes, which reflected information obtained directly from the bill of lading, she recorded only eight pallets of product and the total weight of the shipment as 11,690 pounds - all of it
Wellbutrin XL, as the truck had no other cargo . She estimated that the truck was about a quarter full and that even 25 pallets would not have filled up a tractor-trailer of the size involved in the accident . Moreover, the product had not been damaged and no product had been spilled on the floor of the truck . Based on the shipment's weight and an estimate of the number of pills in the shipment, it was impossible for the truck to have contained more than $5 million worth of revenue .
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(b) Biovail's Claim that Part of the Earnings Shortfall in the Third
Quarter of 2003 Was Due to a Backorder of Cardizem CD was
Materially Untru e
143 . In the October 3, 2003 conference call, Melnyk again blamed the third quarte r revenue shortfall, in part, on Aventis's inability to fill a $20 million backorder for Cardizem CD .
As described above, the Company had falsely claimed on July 29, 2003 that there was a $2 0 million backorder of Cardizem CD .
144 . Analysts once again prodded Melnyk, who again reassured them that the revenu e would be made up by the end of 2003 . Corey Davis, from J .P . Morgan, asked, "I'm still a littl e bit unclear on Cardizem CD and whether or not this is going to be, like, an ongoing productio n problem with Aventis ." Melnyk then responded as follows :
No, let me address that because it's - Aventis actually only manufactures this product twice a year . They manufacture it for
Biovail and they manufacture it for their Australian subsidiaries and New Zealand subsidiaries . They were doing - completing a production run this last quarter for their Australian subsidiary and we were, you know, lucky enough to be able to get some of that into Biovail . They're now doing another major production run this quarter, which is ongoing right now, and some of that was just literally received yesterday and we expect to have this all cleared up by the end of the year .
145 . These statements were false and misleading for the same reason simila r
representations were false in July 29, 2003 . The Company would later admit that no backorder existed and, according to Witness 1, during this period, wholesalers were stocked with months o f supply of Cardizem CD, including the 360mg dose .
2 .
October 30, 2003 Earnings Release and Conference Cal l
146 . On October 30, 2003, Biovail issued its earnings release for the third quarter o f
2003 . Biovail announced total revenues for the quarter of $215 .3 million, just barely skirting th e lower edge of its new, lowered guidance issued less than a month earlier . Shockingly, despite
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the fact that less than a month earlier, and after the quarter had ended, Biovail had projected earnings per share of $0 .35 to $0 .45, Biovail now announced that it had only earned $0 .08 per share ($0 .22 per share excluding certain charges), or $13 million . Even these figures, Biovail would eventually disclose, were misleading because they included a one-time gain of $8 .5
million.
147 . The press release issued on October 30, 2003 was prepared and disseminated with the participation of the Individual Defendants and constituted the collective work of the individual Defendants in light of their direct involvement in the daily business of the Company .
148 . That same day, Biovail held a conference call with analysts to discuss thir d quarter results . Defendants Melnyk, Howling, and Crombie participated in the call . In light of the Company's abysmal performance, Melnyk made a new pledge to investors : "Let me underscore that we listened to comments on the level of our disclosure, the complexities of past transactions and the apparent lack of transparency in our reporting and we are addressing each of these concerns, and, as a start, we are altering the way we describe operations and performance . "
149 . Despite Melnyk's new commitment to transparency in reporting, however,
Biovail continued to obscure its true results . It masked the disastrous sales of Cardizem LA by lumping together the sales of Teveten products, Zovirax products, and Cardizem LA into a new category denominated Core Products, subsequently renamed Promoted Products . Biovai l reported sales of Core Products for the third quarter of $60 .1 million. This was the first time the
Company reported numbers in this manner . The Company knew that if it broke out the sales by product, analysts and investors would immediately realize that the launch of Cardizem LA had been a complete failure . Unbeknownst to the public, the $60 .1 million included $47 .1 million in sales of Zovirax products, which the prior quarter had represented only $18 .0 million . In th e
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fourth quarter 2003, after the Zovirax channel had been fully stuffed, sales of Zovirax plummeted to $117 million, a 75% drop . Biovail did not disclnse the sales breakdown of th e
Core Product category by quarter, until it filed its 2003 20-F with the SEC on May 14, 2004 .
150 . Former Biovail employees con fi rmed that the Company stuffed the channel with
Zovirax in the third quarter of 2003 . At the time, Zovii ax consisted of two products : an ointment, which was a product that had been on the market for a number of years, and a new cream-based formulation . According to Confidential Witness 4, a former product manager who worked at the Company from February 2001 through February 2004, Biovail 's usual practic e was to have its Finance division - Crombie and Scott Langille, later replaced by Miszuk -
communicate sales targets to the marketing directors in October 2002 for the following year.
151 . Witness 4 held two jobs in North Carolina while employed at Biovail . His first job, which lasted for about 18 months, was being a product manager for the Company' s antibiotic drugs, Cedax and Keftab . He reported to a director of marketing (Tim Slone), who i n turn reported to the Vice President of Marketing (Ken McBain) . Slone and McBain were bot h based in Raleigh, North Carolina . Witness 4's duties involved gathering sales data on th e
antibiotics, interacting with Biovail ' s adve rt ising agency, forecasting sales, and directing the messaging to the field sales force . Witness 4 was subsequently brought in to help with the
PLACE program .
152 . His second job was being a sales manager in Virginia and North Carolina, wit h nine sales representatives reporting to him . Witness 4 reported to a regional director of sales , who in turn reported to the national director of sales -- Mike Goolsby . The national director o f
sales reported to Matt Heck .
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153 . Witness 4 recalls that in the middle of 2003, Biovail Finance contacted the marketing directors and instructed them to drastically increase their sales of Zovirax ointment .
Witness 4 explained that "there was a lot of angst that we were going to miss the [third] quarter .
We had made the numbers every other quarter, but people felt we might miss this one ." As a
result , Witness 4 said, "Zovirax was stuffed like you wouldn't believe ." Witness 4 explained that the marketing directors believed that Biovail Finance had changed its instructions wit h respect to sales of Zovirax ointment in order to meet quarterly projections .
154 . According to Witness 4, Slone objected to the new instructions because he kne w that such sales of Zovirax ointment in the third quarter would result in a drop in fourth quarter
the third quarter of 2003, despite the fact that sales of Zovirax ointment had been steadil y declining . Witness 4 was aware of Slone's objections because he used to work with Slone to sel l other products, and he and Slone were in constant communication during this period .
155 . As a result of these efforts, by the end of the third quarter of 2003, wholesalers had twice the amount of inventory of Zovirax ointment than they had stocked in the third quarte r of 2002, despite the fact that prescriptions of Zovirax ointment declined 7% from the prior year period . Witness 4 estimated that by the end of the third quarter 2003, wholesalers were stocke d with $40 million worth of Zovirax ointment . By overselling Zovirax ointment in the thir d quarter of 2003 and lumping the Zovirax sales in with Cardizem LA sales, Biovail attempted to mask Cardizem LA's poor performance . In fact, as the Company would later reveal in Ma y
2004, Cardizem LA sales had plummeted to $6 .2 million.
156 . During the October 30, 2003 conference call, Melnyk also continued to mislea d investors about the supposed "backlog" of Cardizem CD . One analyst asked :
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Analyst : Second question, can you provide any further input as to the Aventis Cardizem CD backlog on 360 milligram strength ?
Melnyk : To answer you question on .the 360 Cardizem CD, we are still in a backlog situation on that product but as of literally yesterday we were assured that all of that should be fulfilled literally within the next week to two weeks . We expect that by the end of the year we will be fully out of any kind of backorder situation . . . .
157 . These statements were false and misleading for the same reason simila r
representations were false in July 29, 2003 and on October 3, 2003 . The Company would later admit that no backorder existed and, according to Witness 1, during this period, wholesaler s were stocked with up months of supply of Cardizem CD, including the 360 mg dose .
158 . Biovail also misleadingly reported revenues of generic products of $20 .4 million, in a desperate attempt to mask the magnitude of the earnings shortfall in the third quarter 2003 .
Significantly, Biovail failed to disclose that the $20 .4 million included a one-time credit from its generic distributor, Teva, of $8 .5 million . Revenues had actually dipped to about $12 million , but Biovail did not disclose this until November 28, 2003, when it filed form 6-K with the SE C with its financial results for the third quarter 2003 .
159 . During the call, Crombie made projections for the fourth quarter 2003, which h e knew Biovail could not realistically meet . He stated, "we expect product revenue [in the fourt h quarter 2003] to be in the range of $225 to $250 million . . . . Total revenue should be about $2 5 million greater . . . Our resulting EPS is therefore projected to be in the range in Q4 of 25 to 4 0 cents ." Crombie had actual knowledge, however, that these projections were false an d misleading because of the dramatically poor performance of Cardizem LA, the fictiona l
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backorder of Cardizem CD, and the fact that reported generic sales included a one-time credit of
$8 .5 million .
160 . Finally, in addition to the multiple false excuses that Biovail and Melnyk provided for missing third quarter 2003 earnings, Melnyk blatantly lied to the public about other related topics, including his pledge of Biovail stock . Melnyk had pledged stock he owned in
Biovail as collateral against two outstanding personal lines of credit totaling $72 million . The lines of credit were granted by two different banks for $55 million and $17 million .
Accordingly, a significant drop in the price of the stock would have required Melnyk to meet a margin call by posting additional collateral . To avoid a margin call, Melnyk needed the price of the stock to remain high . Melnyk therefore knew that if Biovail missed earnings the price of the stock would collapse and that he would be forced to meet a margin call . Indeed, that is exactly what happened when on October 3, 2003 l3iovail announced that it would miss third quarter earnings by 23 cents per share . The stock price plummeted from $37 to $31 per share in one da y and over the course of the next six weeks dropped further to approximately $20 per share .
161 . Because Melnyk knew that knowledge of the pledged shares would raise concerns among analysts, Melnyk did not disclose it and lied about it . On the third quarter earnings conference call on October 30, 2003, Banc of America analyst David Maris asked Melnyk if he had pledged any shares to collateralize personal loans . Melnyk, unequivocally, said no .
Maxis : Eugene, have you or any entity that you're affiliated with sold any stock or entered into any agreement
such as lo an s where the stock is pledged, like
collars or de ri vative structures, where they are not
easily available by U .S . investors ?
Melnyk : No David, it is actually not - I don't know how that is germane to the earnings call, but to answer your question, the answer is no .
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162 . Melnyk' s p ri or fi lings with the SEC had failed to disclose the personal lines o f credit and the fact that they had been collateralized with his shares of Biovail . Not until ten days after the conference call, on November 10, 2003, did Melnyk file a form 13D with the SE C disclosing the two lines of credit and the pledged shares .
3 .
U .S . and Canadian Authorities Commenced Investigations as a Result of
Biovail 's Third Quarter Earnings Disclosures -- the Company Lied About the Existence of th e Canadian Investigation
163 . On November 20, 2003, the SEC commenced an informal inquiry into Biovail .
The SEC wrote a letter that day to Mark Thompson, Associate General Counsel of the Company, which informed Biovail of the inquiry and requested that it preserve documents relating to 2002 and 2003 . The SEC specifically requested that Biovail preserve bills of lading and packing slips, documents related to the shipment of goods, and all other documents concerning the preparatio n of Biovail's financial statements during that period . The Company announced that it was th e subject of an SEC inquiry in a press release the evening of November 20 . The next day, on
November 21, the stock price dropped from $23 .22 to $18 .89 per share, down almost 20% .
Investors lost over $600 million in market value . To this day, the investigation continues and it s results have not been made public .
164 . Biovail also became the subject of an investigation by the Ontario Securitie s
Commission (the "OSC") in November 2003 . The Company, however, did not disclose it and it s spokesman, Howling, even lied about its existence . When reporters from the National Post, a leading Canadian newspaper, interviewed him, they specifically asked whether the OSC wa s conducting an investigation . Howling responded flatly: "No, there is no formal investigation ."
In response, on February 20, 2004, the National Post reported that Howling "dismissed talk of a n
Ontario Securities Commission probe of the company by saying no such investigation i s underway."
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165 . The false denial prodded the OSC to make a public statement on February 20,
2004, revealing that it had, indeed, begun a probe into suspicious trading activity in Biovail stock . Michael Watson, director of the regulator's enforcement branch of the OSC, commented :
"We don't normally reveal the fact that we have an investigation ongoing . . . but we were concerned that the article this morning [in which Howling denied its existence] had the potential to create a misunderstanding among investors as to what the facts were ." Watson also explained,
"the company is aware of our concerns about trading in the shares of Biovail - enforcement staff has had ongoing discussions with the company since November 2003 . "
166 . Howling's lie, on top of the Company's recently revealed falsehoods, prompted scathing reactions from commentators . As Steve Maich wrote in the National Financial Post on
February 21, 2004 :
Our Biovail Corp . disclosure decoder device has failed us again .
On Thursday, Biovail spokesman Ken Howling told the Financial
Post that, contrary to rumors swirling through the market, there was no change in the company's dealings with regulators . In response to a blunt question on whether the Ontario Securities
Commission is conducting an investigation of Biovail, Mr .
Howling responded : "No, there is no formal investigation . "
But a scant 24 hours after Howling uttered his reassurances, the
OSC announced that it is "investigating suspicious trading activity, as well as conducting a full review of disclosure records, at Biovail
Corp ." It seems the investigation has been on since November .
Can both of these statements be true? They can, if you speak
Biovailese .
Who can forget the company's quarterly conference call last
October, when Banc of America analyst David Maris asked
Melnyk if he had monetized his shares in the company . Mr .
Melnyk said no .
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Ten days later, Melnyk announced he pledged much of his Biovail stake as collateral on US$72-million in loans .
Again, it was a language problem.
But that wasn't the only misunderstanding surrounding the company's earnings .
The company benefited from US$12 .5-million in product returns and marketing credits, which it claimed as revenue . Another unusual US$8 .5-million reimbursement reduced its costs, thus padding earnings .
167 . Duncan Stewart, technology portfolio manager of Tera Capital, similarly commented, "over and over there is an ongoing pattern of non-transparency with the company ."
H.
The Fraud is Completely Revealed : Biovail's Announcement of Its Fiscal 2003
Results
168 . On March 3, 2004, in a press release and an analyst conference call, Biovai l announced 2003 fourth quarter and full year financial results that once again fell dramaticall y short of even the projected guidance issued just months before, on October 30, 2003 . Produc t revenues for the fourth quarter were $168 .3 million, or 25% to 33% less than the October 30 ,
2003 projected range of $225 to $250 million . Promoted Product sales revenue for the fourt h
$60 .1 million sold in the third quarter, as a result of a reduction in Zovirax sales from $47 . 1 million in the third quarter to $11 .7 million in the fourth . Biovail had stuffed the channel with
Zovirax in the third quarter and essentially "stolen" sales from the fourth quarter . The Company never disclosed the amount of Zovirax sales until May 14, 2004, when it filed its 2003 20-F with the SEC . Cardizem LA sales of $20 .0 million in the fourth quarter were also weak given that in the third quarter they had fallen to $6 .2 million, and that fourth quarter sales were still below second quarter sales of $21 .6 million .
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169 . For the full year 2003, total revenues of S823 .7 million were also disastrously low, missing the low end of the February 7 Press Release projected guidance of $950 million by more than $125 million . Total product revenues of $633 million in 2003 were lower than in
2002, when they reached $646 million. In large part, the lower-than-expected sales of Cardizem
LA contributed to Biovail's meager results . Cardizem LA annual sales of $47 .7 million were dismal in comparison with Melnyk's projection of $90-$100 million. Remarkably, throughout the entire Class Period, Biovail never disclosed that Cardizem LA sales were failing to meet expectations .
170 . The March 3, 2004 press release also included additional shocking revelations .
First, the actual lost revenue from the Wellbutrin XL truck accident was not $15 to $20 million but, rather, only $5 million -just as earlier observers predicted and could be estimated based on
Trooper Sciuto's account . The press release stated, "[a]fter a subsequent review of all of the facts, the actual revenue loss from the accident was determined to be $5 .0 million . "
171 . Second, the $20 million Cardizem CD backorder had disappeared . Amazingly, not only did Biovail fail to even mention that it had not obtained the $20 million in revenues from the Cardizem CD backorder, but, more importantly, it announced that it had increased its provisions for wholesalers to return previously-sold Cardizem CD stock by $20 million . The
Company explained that, "[t]he increase in the provision for returns is due to greater physicia n acceptance of the benefits of Cardizem LA versus Cardizem CD and an anticipation of greater conversion by Cardizem LA of Cardizem CD ." The disappearance of the $20 million
"backorder" coupled with Biovail's new expectation that it would lose $20 million in revenues to product returns of Cardizem CD effectively meant that Biovail had lost $40 million in revenue that analysts and investors had expected to see .
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172 . Third, the financial results for the first three quarters of 2003 would have to b e restated to reflect Biovail's failure to properly rook a loss under GAAP Significantly, firs t quarter earnings per share were really S0 .36, not $0 .39 as previously reported . Since analysts had expected Biovail to earn $0 .38 per share that quarter, the restatement meant that Biovail' s results had come in below analysts' expectations for the first quarter 2003 .
173 . On March 3, 2004, Biovail also held its fourth quarter and full year 200 3 conference call . Melnyk and Crombie participated . Analysts were incredulous that the no w
famous $20 million backorder had simply vanished . Eliot Wilbur, from CIBC World Markets , asked, "So with respect to Cardizem CD do we have a backorder situation on any strengths, o r has that been fully resolved?" Melnyk had to admit, "No . We don't have a backorder situation . "
174 . Biovail's admission on March 3, 2004 that the Cardizem CD $20 millio n backorder did not exist and that the truck involved in the traffic accident was carrying only $ 5 million worth of Wellbutrin XL, coupled with the announcement of the restatement, caused th e stock price to fall . The day prior to the announcement, March 2, 2004, the stock closed at $20 .7 7 per share . The next day, after the March 3, 2004 disclosure, the stock price dropped to $18 .60 .
More than $345 million in market value had been wiped out .
175 . On May 14, 2004, Biovail filed with the SEC Form 20-F, which included it s audited financial results pursuant to GAAP for 2003 . The 20-F finally disclosed the break dow n in product sales by quarter, as follows :
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2003 (in millions )
Category
-----------------
200 2 Q 1
------------
Q 2
--------
Q 3 Q 4 Full-Year
------------------------- -
Promoted Product s
Cardizem ( R) LA
Teveten(R)
$--
11 .7
$--
11 .3
$21 .6
2 .1
$6 .2
$ 20 .0
6 .8
2 .1
$47 . 7
22 . 2
Zovirax ( R) 96 .5
25 .6
18 .0
47 .1
11 .7
102 . 4
---------------------- -
108 .2
----- ------- -------- ------- ----------- -
36 .9
41 .7
60 .1
33 .8
172 . 4
BPC
Wellbutrin XL(TM)
Core Products
32 .6
--
19 .0
--
19 .7
8 .1
23 .1
8 .2
23 .4
48 . 7 u . 2
64 . 9
---------------- ------ ----- ------- -------- -- ---------- ---- -
140 .8
55 .9
69 .4
91 .4
105 .9
322 . 6
Legacy
Generics
323 .6
40 .6
181 .5
30 .5
63 .6
24 .7
68 .2
20 .4
36 .4
25 .9
208 . 9
101 . 5
---------------- ------ ----- ------- -
Tota l $646 . 0 $126 . 9 $157 . 7
-------- ------- ----------- -
$180 . 0 $168 . 3 $632 . 9
------------------------------------------------------------ -
(Emphasis supplied) .
176 . For the first time, it was evident that Cardizem LA sales had struggled, especiall y in the third quarter, and that Biovail tried to disguise its problems with Cardizem LA by stuffing the channel with Zovirax . Zovirax sales of $47 .1 million in the third quarter, represented 78% of
Core Products sales in that quarter (now renamed Promoted Product), while Cardizem LA sales were only 10% . Biovail did not disclose that at the time it announced third quarter earnings, or at any time prior to May 14, 2004 . The subsequent drop in the fourth quarter in Zovirax sales from $47 .1 million to $11 .7 million is also clear evidence that Biovail sought to stuff the channe l in the third quarter to make-up for the revenue shortfall from Cardizem LA . Additionally, subsequent data released by analysts showed that in the fourth quarter of 2003, prescriptions o f
Zovirax ointment dropped from prescriptions in the prior year .
Sciente r
177 . The facts set forth herein raise a strong inference that each Defendant acted wit h scienter . Melnyk, Crombie, Miszuk and Howling had (i) actual knowledge that statements the y
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made, or were responsible for making, were false, and (ii) motive and opportunity. In addition,
(iii) there is circumstantial evidence raising a strong inference of scienter .
1 .
Defendants Had Actual Knowledge of the Fraud And Flat -Out Lie d
178 . As set forth in detail above, Defendants had actual knowledge of the fraud and that the 2003 projections issued on February 7, 2003 were unreasonable and unattainable especially the Cardizem Family of Products projection of $140-S200 million in revenues .
Melnyk, Miszuk and Crombie attended meetings in which Biovail's team responsible for the launch and sales of Cardizem LA specifically told them that revenues of Cardizem LA in 2003 would be, at most, $50 million . Ultimately, Cardizem LA 2003 revenues were $47 .7 million .
Nevertheless, and without any basis, Melnyk, Miszuk and Crombie used projections for
Cardizem LA revenues of $90-$100 million for 2003 . The Biovail employees directly responsible for selling Cardizem LA team, including Witness 1, Slone and others, told these
Defendants that their projections were "obscene," "outlandish," and "beyond what [Biovail] could in any realistic terms do ." Despite being so informed, Melnyk, Miszuk and Crombie purposefully disregarded Witness 1's and Slone's warnings in order to satisfy Wall Street's earnings expectations .
179 . The Company's financial projections also had no reasonable basis because, as former employees explained (including Witnesses I and 2), these projections did not reflect
Biovail's true view of future product sales . Rather, Melnyk and the Finance Department set sales targets based on the dollar figures needed to achieve Wall Street's earning expectations, and then the Finance Department communicated those targets to Biovail's marketing directors .
180 . Melnyk, Miszuk, Crombie and Howling also had actual knowledge that Biovail had severe problems manufacturing Cardizem LA in the beginning of 2003 and that, as a result, the Company did not have sufficient product to stock the channel to conduct a successful launch .
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According to Witnesses 2, 3 and 5, independently confirmed that senior product managers were told at the March 15, 2003 Cardi7em LA launch meeting that there was not sufficient product available, but that Biovail would go ahead with the launch on April 2, 2003 anyway. These managers were also told not to disclose the manufacturing problems and lack of availability of the drug to lower level sales representatives .
181 . Melnyk, Crombie, Miszuk and Howling also repeatedly flat-out lied in connection with the Company's earnings and financial position, and knew at the time they made the statements that they were lying . On October 30, 2003, Melnyk falsely hid the tact that he had pledged Biovail shares as collateral for personal lines of credit in the amount of $72 million when he was specifically asked in a conference call with analysts and denied it . Only ten days later, on November 10, 2003, he filed a form 13D with the SEC admitting that he had pledged shares of Biovail to obtain certain loans as of August 2003 . Melnyk, Crombie, Miszuk and
Howling also lied about the supposed Cardizem CD backorder of $20 million in the second and third quarters of 2003 . At the end of both quarters, they claimed that revenue would have been
$20 million higher had the manufacturer of Cardizem CD, Aventis, supplied Diovail with the product . They insisted that there was strong demand for Cardizem CD and that Biovail had backorders of approximately $20 million, which would materialize the subsequent quarter .
Remarkably, in fourth quarter 2003 earnings conference call on March 3, 2004, Melnyk simply admitted that the backorder did not exist .
182 . The Wellbutrin XL trucking accident is another example of a blatant lie . Melnyk and Crombie claimed in the October 3, 2003 conference call that Biovail had lost revenues of about $15-$20 million . Five months later, the Company admitted that the amount of lost revenue was only $5 million . Yet, Melnyk and Crombie knew or had access to the necessary informatio n
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on October 3 to know exactly how much product was in the truck : Biovail loaded the truck, had the hill of lading, and all other documentation relating to the shipment . Moreover, Melnyk an d
Crombie chose to inform themselves about the amount of product in the truck as of October 3 to be able to assure the market that the lost product was worth $15-$20 million . Subsequently, on
October 8, they caused the Company to issue a statement re-iterating the accuracy of thei r
October 3 statements . Finally, the excuse set forth in their March 3, 2004 press release fo r erroneously estimating the amount of Wellbutrin XL in the truck is preposterous . On March 3 ,
2004, the Company' s press release said,
In calculating the high end of the estimate range, Biovail also took into consideration the variables that analysts were generally using in their models to estimate the Wellbutrin XL revenues, which included typically higher pricing, higher percentage supply prices and did not reflect the typical gross to net deductions . This analysis with analyst estimates was completed to better explain why revenue in third quarter 2003 would he less than previously expected by analysts .
This is nonsense . If the Company had in fact been taking into account analysts assumptions, it could have simply said so on October 3, 2003 . Instead, in its press release and conference call i t told the public, in no uncertain terms, that the Company's revenues would decrease by $15 t o
$20 million as a result of the trucking accident .
183 . Howling lied about the OSC investigation into suspicious trading activity i n
Biovail stock prior to the Company's earnings announcements on October 3, 2003 and Octobe r
30, 2003 . Howling specifically told the press on February 20, 2004 that there was no OS C investigation . That same day, the OSC, in response to the blatant lie and in light of Howling' s false denial, issued an extraordinary statement confirming that it was investigating suspiciou s trades of Biovail stock .
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2 .
Defendants Had Motive and Opportunity to Commit Frau d
184 . The Individual Defendants had significant pecuniary interests in the price of the stock and therefore had motive to artificially inflate its price .
(a) Melny k
(i) Melnyk Had Lines of Credit Collateralized With Biovail Stock
185 . During the Class Period, Melnyk had Biovail shares that were pledged a s collateral against two outstanding personal lines of credit totaling $72 million . Accordingly, a significant drop in the price of the stock would require Melnyk to meet a margin call by posting additional collateral . To avoid a margin call, Melnyk needed the price of the stock to remain high . Melnyk therefore knew that if Biovail missed earnings, Biovail's stock price would collapse and that he would be forced to meet a margin call . This is exactly what happened . On
October 3, 2003 Biovail announced that it would miss third quarter earnings by 23 cents per share and the stock price plummeted from $37 to $31 per share in one day . Over the course of the next six weeks Biovail's stock price dropped to approximately $20 per share .
(ii) Sales of Stock
186 . Additional evidence of scienter includes Melnyk's significant sales of 3 .12
million shares of Biovail stock during the Class Period . On August 6, 7 and 8, 2003, Melnyk sold 100,000 shares each day and pocketed $11 .43 million on total sales of 300,000 shares, at an average price of $38 .10 . Two months later, Biovail's stock price would plummet below $25 per share . On December 9, 2003, Melnyk sold another 2 .7 million shares in a private transaction at
$18 per share for $48 .6 million . Then, on January 13 and 14, 2004, Melnyk again sold a significant number of shares, 120,000, at an average price of $23 .67 per share, for proceeds of
$2 .84 million. In total, Melnyk sold shares worth $62 .87 million during the Class Period, profiting handsomely from the inflated stock price at the expense of unsuspecting stockholders .
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(b) Crombie, Miszuk and Howlin g
187 . Crombie, Miszuk and Howling also had pecuniary interests in Biovail stock and an incentive to artificially inflate its price . Specifically, in September 2001, they had borrowed money from the Company to purchase shares of Biovail . If the stock price declined below the price at which they had originally purchased the stock, they would each take a loss and be forced to repay the loan with personal funds because the sale of the stock would no longer cover the principal of the loan . As of April 30, 2003, Crombie, Miszuk and Howling had each borrowed approximately $2 .034 million to purchase 44,020 shares each . They therefore had a substantial interest in making sure that the price of the stock remained above the average purchase price of approximately $46 .00 per share .
188 . For Crombie, Miszuk and Howling, this $2 .034 million loan represented a significant asset . Between 2001 and 2003, Crombie's total compensation including salary and bonus was approximately $243,000, $291,000, and $614,000 respectively . Miszuk's and
Howling's salaries and bonuses were even lower than Crombie's since they were not disclosed in the Company annual filings with the SEC, which must disclose the total compensation of the five highest paid employees . Based on the compensation of the lowest remunerated employee disclosed in the 2003 20-F, Miszuk's and Howling's total compensation could not have exceeded
$472,000 in 2003, $238,000 in 2002, and $234,000 in 2001 .
189 . Because the stock price collapsed from almost $40 per share at the end o f
September 2003 to about $20 per share in late November, Crombie, Miszuk and Howling faced serious difficulties to repay the loans . They each owned 44,020 shares, which at $20 per share were worth approximately $880,400 . To repay their $2 .034 million loan, each defendant would therefore have had to pay over $1 .1 million out of his own pocket . As of November 28, 2003, according to the Company's 6-K filed that day, Crombie, Miszuk and Howling were "finalizin g
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arrangements to repay" the loans, which had been due since September 30, 2003 . Ultimately , they were unable to repay the loan on their own and had to he hailed out by Melnyk . Biovail' s
2003 20-F disclosed that Melnyk had to give them personal loans so that they could satisfy their
obligations to the Company .
Al December 31, 2003, four executive officers [including
Crombie, Miszuk and Howling] were indebted to the Company in the aggregate amount of $7,990,000 in connection with the ESPP
[Executive Stock Purchase Plan] loans . To facilitate repayment of these loans, on December 31, 2003, Mr . Melnyk, Chairman of the
Board and Chief Executive Officer of Biovai1, in his individual capacity, made loans to these executives in an amount equal to the amount of their indebtedness to the Company and the ESPP loans from the Company were repaid . These executives pledged to Mr .
Melnyk, as collateral for their loans, an aggregate of 176,080 shares of the Company and their interest in the proceeds from
200,000 options to acquire shares of the Company having a strike price of $31 .00 per share . The loan arrangements provide that there will be no recourse to these executives in addition to the collateral pledged by them, except in certain instances-
3 .
Circumstantial Evidence Raising a Strong Inference of Sciente r
190 . There is also overwhelming circumstantial evidence raising a strong inference o f scienter that Melnyk and the other Individual Defendants knew that, (i) the projections o f
Cardizem LA were unreasonable and unattainable, (ii) Cardizem LA was experiencing sever e
manufactu ring problems in early 2003, and (iii) Biovail could not meet Wall Street' s expectations in connection with Cardizem LA .
191 . Repeatedly, the Company and the Individual Defendants took actions and mad e
announced it missed third quarter earnings on October 3, 2003, it failed to disclose that sales o f
Cardizem LA fell fr om $21_6 million to $6 .2 million between the second and third quarters o f
2003 . Instead, the Company blamed the shortfall on a trucking accident (which ultimately ha d considerable less impact than initially announced) and on a $20 million backorder of Cardize m
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CD that did not exist . Biovail did not disclose sales of Cardizem LA for 2003, on a quarterly basis, until May 14, 2004, when it filed with the SEC its 2003 20-F . Only then did the public first learn that in the third quarter 2003 Biovail's Cardizem LA sales were $6 .2 million .
192 . In addition, when the Company announced third quarter earnings on October 30,
2003, it misleadingly grouped sales of Cardizcm LA with Zovirax and Tcvctcn as Core Products, to give the impression that sales of Cardizem LA were higher than they actually were . This was the first time that Biovail grouped revenues of these three products together . As a result, investors did know that of the $60 .1 million in reported revenues from Core Products in the third quarter, only $6 .2 million came from Cardizem LA, while $47 .1 million were derived from
Zovirax .
1
193 . The $47 .1 million in revenues from Zovirax is additional circumstantial evidence that Biovail purposefully hid Cardizem LA sales in the third quarter 2003 from investors .
Zovirax sales the prior quarter, the second quarter 2003, were less than half, $18 .0 million .
Zovirax sales in the subsequent quarter, the fourth quarter 2003, were only $11 .7 million . The dramatically higher revenue of $47 .1 million in the third quarter strongly suggests that Biovail stuffed the channel, and that it did that so that it could report Zovirax sales together wit h
Cardizem LA, and hide the dismal performance of the latter .
194 . Additional circumstantial evidence of scienter includes the PLACE program .
Former employees of the Company said that the program was a smoke - screen designed to hide
the fact that Biovail did not have sufficient Cardizem LA product available for a full blown launch . PLACE allowed the Company to ration the product and to sell it through a mail-order
pharmacy at first, before. it was to be distributed to the retail channel . The Company's
desc ri ption of the PLACE program was also misleading . Until late July 2003, when
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investigative articles by The Wall Street Journal and Barron 's reported that PLACE paid doctors up to 51,500 to prescribe Cardizem LA, the Company described PLACE as a clinical experience program . But the Company's former employees revealed that PLACE was regarded as nothing more than monetary incentive program for doctors to prescribe Cardizem LA . Indeed, as soon as
PLACE was terminated, Cardizem LA revenues plummeted in the third quarter 2003 .
195 . Against this backdrop of repeated false and misleading statements regarding th e performance of Cardizem LA, is Wall Street's intense focus on the launch of Cardizem LA and the importance of this drug for Biovail's stock price . Biovail's emphasis in the spring and summer of 2003 on telling investors that the launch was "successful" further suggests that the
Company and the Individual Defendants were keenly aware that a high stock price was directly dependent on the Cardizem LA story . All of these facts, taken together, provide a strong inference of scienter.
VI .
DEFENDANTS FALSE AND MISLEADING STATEMENTS
ISSUED DURING THE CLASS PERIO D
196 . On February 7, 2003, the inception of the Class Period, Biovail issued the
February 7 Press Release, reproduced in ¶ 48, supra .
197 . Biovail and the Individual Defendants had actual knowledge, at the time, that the statements made by them and contained in Biovail's February 7 Press Release were each materially false and misleading for the following reasons, among others :
(a) Biovail had no reasonable basis to project revenue growth and EPS growth of 30% and revenue for its Cardizem Family of products (CD, SR and LA) of $140 to $200 million for 2003 .
(i) Manufacturing of Cardizem LA had encountered severe problems, which were not disclosed, and Biovail did not have sufficient quantities of the drug to conduct a successful launch . At the
March 2003 sales meeting in Florida, managers were told that
Biovail did not have sufficient quantities of Cardizem LA but that the launch would proceed as planned anyway;
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(ii) Biovail failed to properly disclose that it could not generate revenues from sales of Cardiz.em T,A absent payments to physicians to prescribe the drug ;
(iii) Biovail had high level of inventories of Cardizem CD in the channel as of December 31, 2002, and could not have reasonably projected that Cardizem CD would significantly contribute to 2003 earnings ; an d
(iv) Biovail knew that Cardizem CD sales would be cannibalized by
Cardizem LA and, except for the 360 mg dosage, Cardizem CD was a genericized product .
(b) The cautionary language identifying the press release as a forward-looking statement and identifying important risks and uncertainties was not meaningful because : (i) it did not refer directly to any specific statement ;
(ii) it was not sufficiently specific and indiscriminately listed any possible risk in general terms ; and (iii) Defendants had actual knowledge of specific facts that invalidated the projections and had caused, and would necessarily cause, Biovail not to meet its projections, including the facts that the Company had severe problems manufacturing Cardizem LA and that Biovail could not generate revenues from sales of Cardizem LA absent payments to physicians to prescribe the drug .
198 . On February 7, 2003, Biovail issued another press release which announced tha t the FDA had approved Cardizem LA and that the commercial launch of the product wa s
scheduled for April 2, 2003, reproduced in ¶ 44, supra .
199 . Biovail and the Individual Defendants had actual knowledge, at the time, that th e
statements made by them, and contained in Biovail's February 7, 2003 press release announcin g the FDA approval of Cardizem LA, were each materially false and misleading because, among other things, the Company had severe problems manufacturing Cardizem LA which woul d severely impact Cardizem LA's launch and the revenues derived therefrom, and that Biovai l could not generate revenues from sales of Cardizem LA absent payments to physicians t o prescribe the drug .
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200. On March 4, 2003, Biovail conducted its fourth quarter and full year 200 2 earnings conference call . In response to the question, "I also wanted to know with respect t o
Tiazac, given your ramping up [of] Cardizem LA here, are you running into any manufacturin g
With respect to the manufacturing, we are - we have just recently completed the expansion of our Steinbach plant . We added more than enough capacity to meet the needs of the GSK for Wellbutrin .
We continue to manufacture in Puerto Rico, where most of our
Tiazac and LA manufacturing is taking place . I think we're well positioned .
[Question :] So there won't be competing resources between Tiazac
samples and LA samples ?
[Crombie :] We're fine . We - in the last 12 months, we're upgrading, and as you know, we acquired the Dorado, Puerto Rico facility, which is from Johnson & Johnson . That's a substantial facility . We have just, as I said, we have had a significant expansion of our Steinbach facilities . That's more than enough in the next several years of Wellbutrin production . We're good shape here .
201 . Crombie had actual knowledge, at the time, that the statements he made in th e
March 4, 2003 confcrcncc call were materially misleading because he failed to disclose that
Cardizem LA had encountered significant manufacturing problems, sufficient quantities of th e drug were not available to conduct a successful launch, and Biovail could not sell its projecte d revenues of Cardizem LA without making payments to doctors .
202 . The March 4, 2003 conference call was preceded with the following cautionar y
To the extent any statements made during this conference call contain information that is not historical, these statements are essentially forward-looking and are subject to risks and uncertainties, including difficulty of predicting FDA approvals, acceptance and demand for new pharmaceutical products, the impact of competitive products and pricing, new produc t
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development and launch, reliance on key strategic alliances, availability of raw materials and finished products, third parties, the regulatory environment, fluctuation in operating results and other risks detailed from time to time in the company's filings with the Securities and Exchange Commission .
The cautionary language identifying certain statements as forward-looking statements and identifying important risks and uncertainties was not meaningful because : (i) it did not refer directly to any specific statement ; (ii) it was not sufficiently specific and indiscriminately liste d any possible risk in general terms ; and (iii) Defendants had actual knowledge of specific fact s that invalidated the projections and had caused, and would necessarily cause, Biovail not to mee t its projections, including the facts that the Company had severe problems manufacturin g
Cardizem LA and that Biovail could not generate revenues from sales of Cardizem LA absen t payments to physicians to prescribe the drug .
203_ On April 29, 2003, Biovail issued a press release announcing first quarter 200 3 earnings . The press release reported net income of $63 .0 million and diluted earnings per shar e of $0 .39, and stated, in relevant part, "Biovail Corporation today announced record financia l results for the three month period ended March 31, 2003 and first uioiith performance o f
Cardizem LA, which is in excess of 20,000 prescriptions ." Melnyk was also quoted, as follows :
The successful relaunch of Teveten, the launch of Teveten HCT and the performance of Cardizem LA since its launch earlier this month demonstrates the effectiveness of our sales and marketing and product launch capabilities .
.
.
.
. Operationally, our management team has been strengthened, our pipeline programs are on track including the expected launch of Wellbutrin XL in the second half of 2003 and we continue to explore numerous opportunities . These and other activities give us confidence that we will meet or exceed our objective of 30% earnings per share growth for 2003 .
The April 29, 2003 press release also contained the following cautionary language regarding forward-looking statements,
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"Safe Harbor" statement under the Private Securities Litigation Reform
Act of 1995 . To the extent any statements made in this release contain information that is not historical, these statements are essentially forward looking and are subject to risks and uncertainties, including the difficulty of predicting FDA approvals, acceptance and demand for new pharmaceutical products, the impact of competitive products and pricing, new product development and launch, reliance on key strategic alliances, availability of raw materials, the regulatory environment, fluctuations in operating results and other risks detailed from time to time in the company's filings with the Securities and Exchange Commission .
204 . Biovail and the Individual Defendants had actual knowledge, at the time, that the
April 29, 2003 earn ings press release was false and misleading for the following reasons, amon g others :
(a) The launch of Cardizem LA was not successful because it had encountered significant manufacturing problems, sufficient quantities of the drug were not available for wide distribution, and sales to patients outside the PLACE program were not strong .
(b) Biovail failed to properly disclose that it could not generate revenues from sales of Cardizem LA absent payments to physicians to prescribe the drug .
(c) Biovail had no reasonable basis to reiterate that earnings per share would grow by 30% in 2003 because ,
(1) revenues of Cardizem LA were in jeopardy for the reasons set forth in subparagraphs (a) and (b) above ;
(ii) Inventory levels of Cardizem CD in the channel remained high and
Biovail could not have reasonably projected that Cardizem CD would significantly contribute to 2003 earnings ;
(iii) Biovail knew that Cardizem CD sales would be cannibalized by
LA and, except for the 360mg dosage, it was a genericized product ;
(iv) revenues for the first quarter had only increased 23% and diluted earnings per share 22% . Biovail was already behind schedule to achieve its target of 30% revenue and diluted EPS growth by the end of the year ; an d
(d) Net income and earnings per share were artificially inflated by $5 .4
million and $0 .03 per share, respectively, because Biovail failed to
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properly account for the loss resulting from a foreign exchange adjustment, as required under GAAP .
(e) The cautionary language identifying the press release as a forward-looking statement and identifying important risks and uncertainties was not meaningful because : (i) it did not refer directly to any specific statement ;
(ii) it was not sufficiently specific and indiscriminately listed any possible risk in general terms ; and (iii) Defendants had actual knowledge of specific facts that invalidated the projections and had caused, and would necessarily cause, Biovail not to meet its projections, including the facts that the Company had severe problems manufacturing Cardizem LA and that Biovail could not generate revenues from sales of Cardizem LA absent payments to physicians to prescribe the drug .
205 . On April 29, 2UU3, Biovail issued a separate press release in connection with the launch of Cardizem LA, which stated, in relevant part, as follows :
Biovail Reports Positive Cardizem LA Launch Result s
TORONTO--(BUSINESS WIRE)--April 29, 2003--
Cardizem LA Prescriptions Exceed . 20,000
Retail Pharmacy Stocking Reaches 80 %
Managed Care Negotiations Cover 90% of U .S .
Live s
Biovail Corporation (NYSE :BVF)(TSX :BVF) reported today on the progress of
Cardizem(R)LA (diltiazem HCI), the recently launched once-daily controlled release medication for the treatment of hypertension . Cardizcm(R)LA providea true 24 hour blood pressure coverage and delivers optimal levels of medication in the early morning when patients may be at greater risk of an adverse cardiac event . Launched
April 2, 2003, over 20,000 prescriptions have been written for Cardizem(R)LA, more than 45,000 pharmacies -- over 80% of the chain and independent pharmacies in the
U .S . -- now have Cardizem(R)LA in stock and Biovail is in active negotiations with 16 of the largest managed care organizations that collectively represent more than 90% of total lives covered in the U .S .
Biovail is currently executing its planned multi-phased approach to the launch of
Cardizem(R)LA . A clinical experience program entitled P .L .A .C .E . (Proving LA through Clinical Experience) is being conducted as a means of introducing the unique attributes of Cardizem(R)LA to patients through targeted physicians . To ensure these prescriptions are filled prior to the completion of the retail stocking program, the prescriptions written during Phase I were filled through select mail order pharmacies .
These mail order organizations do not report to IMS or NDC data tracking systems .
As a result, there are 20,000 prescriptions filled over and above the total that appears in the Ih1S or NDC prescription summary data .
Phase II of the Cardizem(R)LA launch plan began today and a high level retail stocking campaign has been initiated . Product supply has been shipped to over
45,000 pharmacies . Phase 11 also involves sales force detailing of an expanded target group of doctors . In this phase, all prescriptions will be filled through the usual retail and mail order channels that report to IMS and NDC .
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"Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995 .
To the extent any statements made in this release contain information that is not historical, these statements are essentially forward looking and are subject to risks and uncertainties, including the difficulty of predicting FDA approvals, acceptance and demand for new pharmaceutical products, the impact of competitive products and pricing, new product development and launch, reliance on key strategic alliances, availability of raw materials, the regulatory environment, fluctuations in operating results and other risks detailed from time to time in the company's filings with the
Securities and Exchange Commission .
CONTACT : Biovail Corporatio n
Ken Howling, 905/286-300 0
SOURCE : Biovail Corporatio n
206 . Biovail and the Individual Defendants had actual knowledge, at the time, that th e
April 29, 2003 press release relating to the Cardizem LA launch was materially false an d
misleading for the following reasons, among others :
(a) The launch of Cardizem LA was not successful because it had encountered significant manufacturing problems and sufficient quantities of the drug were not available for wide distribution .
(b) Biovail failed to properly disclose that it could not generate revenues from sales of Cardizem LA absent payments to physicians to prescribe the drug .
(c) The cautionary language identifying the press release as a forward-looking statement and identifying important risks and uncertainties was not meaningful because the cautionary language : (i) did not refer directly to any specific statement; (ii) was not sufficiently specific and indiscriminately listed any possible risk in general terms ; and (iii)
Defendants had actual knowledge of specific facts that invalidated the projections and had caused, and would necessarily cause, Biovail not to meet its projections, including the facts that the Company had severe problems manufacturing Cardizem LA and that Biovail could not generate revenues from sales of Cardizem LA absent payments to physicians to prescribe the drug .
207 . On April 29, 2003, Biovail held its first quarter earnings conference call . Melnyk stated that,
We're now only four weeks post-launch [of Cardizem LA] and we are extremely pleased with the success we have had in this short period of time . We surpassed our own expectations with respect to
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scrip numbers and getting positive feedback from physicians . Both of these bode well for the future of this product. We've been tracking Cardizem LA against a post launch data from Tiazac, and the early results clearly indicate that this product has hit the market with even greater force and momentum than Tiazac . We have achieved a level of performance we initially didn't expect to achieve until at least June . While these are still very early days, this result is encouraging .
Later in the call, in response to a question from an analyst, he added ,
Our manufactu ri ng capacity was virtually dedicated to Cardizem
LA . We had in excess of 23,000 prescriptions written for the LA
during the launch peri od . And that's in four weeks to put that in
perspective , the total launch is 2,700 sc ri ps and Tiazac which is basically our benchmark was around 1,300 versus 23,000 . So the
demand was, you know , pretty dramatic .
Melnyk also reiterated 2003 guidance based on sales of Cardizem LA and Wellbutrin XL , stating, "I think there's no change in our guidance . There's in fact we're reiterating our guidanc e for the year as far as FPS is concerned . You're going to see it coming out of product sales o f mainly Wellbutrin and from Cardizem LA . "
208 . In the same conference call, Howling stated ,
Diluted earnings per share for first quarter 2003 was 39 cents versus diluted earnings per share of 32 cents for first quarter 2002, reflecting an increase of 22% .
Furthermore, inventory levels in the distribution channel for branded Tiazac are also reduced given the utilization rate for this product being lower now due to the introduction of a generic version of Tiazac . This strategic initiative was undertaken to aid in the stocking campaign of Cardizem LA . . . . The results of this strategy are already evident and in approximately four weeks we have achieved retail stocking for Cardizem LA of over 40,000 retail pharmacy outlets reflecting coverage of 80% .
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209 . Melnyk and Howling had actual knowledge, at the time, that the statements the y made in the April 29, 2003 conference call were materially false and misleading for th e following reasons, among others :
(a) The launch of Cardizem LA was not successful because it had
encountered significant manufacturing problems, sufficient quantities of
the drug were not available for wide dist ri bution, and sales to patients
outside the PLACE program were not strong .
(b) Biovail failed to properly disclose that it could not generate revenues from sales of Cardizem LA absent payments to physicians to prescribe the drug .
(c) Biovail had no reasonable basis to reiterate that earnings per share would grow by 30% in 2003 because ,
(i) revenues of Cardizem LA were in jeopardy for the reasons set forth in subparagraphs (a) and (b) above ;
(ii) Inventory levels of Cardizem CD in the channel remained high and
Biovail could not have reasonably projected that Cardizem CD would significantly contribute to 2003 earnings;
(iii) Biovail knew that Cardizem CD sales would be cannibalized by
LA and, except for the 360mg dosage, it was a genericized product ;
(v) revenues for the first quarter had only increased 23% and diluted earnings per share 22% . Biovail was already behind schedule to achieve its target of 30% revenue and diluted EPS growth by the end of the year ; and
(d) Diluted earnings per share were artificially inflated by $0 .03 per share because Biovail failed to properly account for the loss resulting from a foreign exchange adjustment, as required under GAAP .
210 . The April 29, 2003 conference call was preceded with the following cautionar y language, as stated by the operator :
To the extent any statements made duri ng this conference call
contain information that is not histo ri cal, these statements are
essentially forward- looking statements and are subject to ri sks and
uncertainties, including difficulty of predicting FDA approval, acceptance and demand for new pharmaceutical products, the
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impact of competitive products and pricing, new product development at launch, reliance on key strategic alliances, availability of raw materials and finished products, third parties, the regulatory environment, fluctuations and other risks detailed from time to time in the company's filings, with the Securities and
Exchange Commission .
The cautionary language identifying the press release as a forward-looking statement an d identifying important risks and uncertainties was not meaningful because the cautionar y language : (i) did not refer directly to any specific statement ; (ii) was not sufficiently specific and indiscriminately listed any possible risk in general terms ; and (iii) Defendants had actual knowledge of specific facts that invalidated the projections and had caused, and would necessarily cause, Biovail not to meet its projections, including the facts that the Company ha d
severe problems manufacturing Cardizem LA and that Biovail could not generate revenues fro m sales of Cardizem LA absent payments to physicians to prescribe the drug .
211 . On May 7, 2003, Biovail issued the following press release :
Biovail's Cardizern LA Obtains Favorable Formulary Coverage ; Access to over
74 Million Managed Care Live s
TORONTO--(6USINESS WlRE)--May 7, 2003--Rinvai! Corporation (NYSE:RVF)
(TSX :BVF) announced today that it has achieved favorable formulary coverage for recently launched Cardizem(R) LA, a graded once-daily controlled release medication for the treatment of hypertension . Biovail has signed agreements giving Cardizem(R)
LA a favorable formulary position with a number of Pharmacy Benefits Managers
(PBMs) and Managed Care Organizations (MCOs) providing prescription healthcare services for about 74 million individuals in the United States .
"This is an excellent position for Cardizem(R) LA to be in four weeks post-launch," commented Eugene Melnyk, Chairman and Chief Executive Officer, Biovail
Corporation . "The unique clinical profile of Cardizem(R) LA and the compelling economic proposition it offers makes this medication a good choice for physicians, their patients, and the managed care industry . The favorable formulary coverage
Cardizem(R) I A has achieved to date will offer an additional opportunity for physicians to continue to choose Cardizem(R) LA for their patients . "
For further information, please contact Ken Howling at 905-286-3000 or send inquiries to it@biovail .com .
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"Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995 .
To the extent any statements made in this release contain information that is not historical, these statements are essentially forward looking and are subject to risks aw a icertdii ties, including the difficulty of prcdieting FDA approvals, acceptance and demand for new pharmaceutical products, the impact of competitive products and pricing, new product development and launch, reliance on key strategic alliances, availability of raw materials, the regulatory environment, fluctuations in operating results and other risks detailed from time to time in the company's filings with the
Securities and Exchange Commission .
212 . Biovail and the Individual Defendants had actual knowledge, at the time, that th e
statements made in the May 7, 2003 press release were mate ri ally false and misleading for th e following reasons, among others :
(a) The launch of Cardizem LA was not successful because it had encountered significant manufacturing problems, sufficient quantities of the drug were not available for wide distribution, and sales to patients outside the PLACE program were not strong .
(b) Biovail failed to properly disclose that it could not generate revenues from sales of Cardizem LA absent payments to physicians to prescribe the drug .
(c) The cautionary language identifying the press release as a forward-looking statement and identifying important risks and uncertainties was not meaningful because the cautionary language : (i) did not refer directly to any specific statement ; (ii) was not sufficiently specific and indiscriminately listed any possible risk in general terms ; and (iii)
Defendants had actual knowledge of specific facts that invalidated the projections and had caused, and would necessarily cause, Biovail not to meet its projections, including the facts that the Company had severe problems manufacturing Cardizem LA and that Biovail could not generate revenues from sales of Cardizem LA absent payments to physicians to prescribe the drug .
213 . On May 30, 2003, Biovail filed Fonn 6-K with the SEC for the three month s ended March 31, 2003 . Miszuk signed the Form 6-K . The Company reported $63 .0 million in net income and 50 .39 diluted earnings per share . Melnyk and Crombie each signed th e certification required by the Sarbanes-Oxley Act of 2002 in Form 6-K, which explicitl y represented that the financial statements reported in the 6-K were not false and misleading . Th e
Form 6-K, including the certifications, was false and misleading and was known to be materiall y false and misleading at the time, or was recklessly disregarded thereby, because its financia l
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statements were not reported in compliance with GAAP . Specifically, Biovail applied an inappropriate exchange rate to a Canadian dollar denominated long-term obligation and failed to properly book the loss incurred due to the exchange rate fluctuation . The foreign exchange loss was $5 .4 million, resulting in lower net income and earnings per share than originally reported , which were $57 .6 million and $0 .36 per share . On May 14, 2004, Biovail filed an amende d
Form 6-K for this period restating net income and earnings per share .
214. On July 29, 2003, Biovail issued a press release announcing second qua rt er 200 3 earnings, stating that ,
Biovail reconfirms previously issued EPS guidance - -
Biovail Corporation announced today record financial results for the three month and six month periods ending June 30, 2003 . . . .
Contributing to these favorable results was the launch of Cardizem
LA in April 2003, contributions from Wellbutrin XL, which received an Approvable Letter in June 2003, growth from
Canadian product sales and the benefit from an economic interest in the gross profits from the sales of a generic version of Prilosec .
Second quarter 2003 net loss of $1 .0 million and diluted loss per share of $0 .01 compared to net income of $62 .6 million and diluted earnings per share of $0 .39 for second quarter 2002 .
Excluding acquired research and development, second quarter
2003 net income of $83 .2 million and diluted earnings per share of
$0 .52 both grew 33% versus comparable 2002 results of $62 .5
million and $0 .39 per share . First half 2003 net income of $62 .0
million and diluted earnings per share of $0 .39 compared to net income of $115 .6 million and diluted earnings per share of $0 .70
for the 2002 first half.
Product sales were favorably impacted in the second quarter and first half of 2003 by Canadian product sales revenues, the launch of Cardizem LA and by revenues related to the upcoming launch of Wellbutrin XL . . . . supply constraints related to branded
Cardizem CD, which is manufactured by Aventis Pharmaceuticals ,
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resulted in a backorder situation of approximately $20 million .
Biovail is working with Aventis to rectify this .
Product sales revenues for second quarter 2003 of $157 .7
compared to $157 .8 million for second quarter 2002 . First half
2003 product sales revenue of $284 .6 million compared to first half 2002 product sales revenue of $287 .6 million . Product sales were favorably impacted in the second qua rt er and first half of
2003 by Canadian product sales revenues , the launch of Cardizem
LA and by revenues related to the upcoming launch of Wellbutrin
XL. Generic product sales to Teva Pharmaceuticals were less than expected during the second quarter and are tracking well below underlying prescription trends for the primary products in this portfolio . Biovail is working with Teva Pharmaceuticals to better understand this inconsistency and resolve the situation expeditiously .
"Safe Harbor" statement under the Private Securities Litigation
Reform Act of 1995 .
To the extent any statements made in this release contain information that is not historical, these statements are essentially forward looking and are subject to risks and uncertainties, including the difficulty of predicting FDA approvals, acceptance and demand for new pharmaceutical products, the impact of competitive products and pricing, new product development and launch, reliance on key strategic alliances, availability of raw materials, the regulatory environment, fluctuations in operating results and other risks detailed from time to time in the company's filings with the Securities and Exchange Commission .
Melnyk is quoted in the press release , stating ,
The dramatic increase in market share for Biovail's Cardizem franchise from 7% to over 11% in the 16 weeks since the launch of
Cardizem LA has surpassed our expectations .
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215 . Biovail and the Individual Defendants had actual knowledge, at the time, that the
Tilly 29, 2003 press release was materially false and misleading for the following reasons, amon g others :
(a) The launch of Cardizem LA had not been successful because it had encountered significant manufacturing problems, sufficient quantities of the drug were not available for wide distribution, and sales to patients outside the PLACE program were not strong .
(b) Biovail failed to properly disclose that it could not generate revenues from sales of Cardizem LA absent payments to physicians to prescribe the drug, and that as a result of the conclusion of the PLACE program there had been a dramatic drop in the number of patients continuing to buy
Cardizem LA .
(c) Biovail had no reasonable basis to reiterate that earnings per share would grow by 30% in 2003 because,
(i) revenues of Cardizem LA were in jeopardy for the reasons set forth in subparagraphs (a) and (b) above ;
(ii) inventory levels of Cardizem CD in the channel remained high and
Biovail could not have reasonably projected that Cardizem CD would significantly contribute to 2003 earnings ;
(iii) the $20 million backorder of Cardizem CD was false ; and
(iv) revenues for the first and second quarter had only increased 23% and 17%, respectively. Biovail was already behind schedule to achieve its target of 30% revenue and diluted EPS growth by the end of the year .
(d) The $20 million backorder of Cardizem CD was false .
(e) Net income and earnings per share were artificially inflated by $3 .9
million and $0.02 per share, respectively, because Biovail failed to properly account for the loss resulting from a foreign exchange adjustment, as required under GAAP .
(f) The cautionary language identifying the press release as a forward-looking statement and identifying important risks and uncertainties was not meaningful because the cautionary language : (i) did not refer directly to any specific statement; (ii) was not sufficiently specific and indiscriminately listed any possible risk in general terms ; and (iii )
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Defendants had actual knowledge of specific facts that invalidated the projections and had caused, and would necessarily cause, Biovail not to meet its projections, including the facts that the Company had severe problems manufacturing Cardizem LA, Biovail could not generate revenues from sales of Cardizem LA absent payments to physicians to prescribe the drug, and that as a result of the conclusion, of the PLACE program there had been a dramatic drop in the number of patients continuing to buy Cardizem LA .
216 . On July 29, 2003, Biovail held its second quarter earnings conference call .
Melnyk stated that,
Second quarter 2003 net income was $83 million excluding the impact of acquired research and development programs reflecting an increase of 33% over the same quarter last year .
Diluted earnings per share excluding acquired R&D was 52 cents .
Melnyk also reiterated 2003 guidance based on sales of Cardizem LA and Wellbutrin XL, stating, "I think there's no change in our guidance . There's in fact we're reiterating our guidanc e for the year as far as EPS is concerned . You're going to see it coming from our product sales o f mainly Wellbutrin and from Cardizem LA . "
217 . In the same conference call, Howling stated ,
We currently have a backorder position on Cardizem CD of approximately $20 million and are working with Aventis who supplies this product to us to rectify the situation .
[W]e feel it is prudent to reduce our generic controlled release product sales and total product sales guidance for the balance of the year by $20 to $30 million . We are also upwardly revising the low end of previously issued royalty and co-promote revenue financial guidance by $20 million as our economic interest and the gross profits associated with the sales of a generic version of
Prilosec to continue to exceed our expectations . These two changes leave total revenue guidance unchanged-
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218, Melnyk and Howling had actual knowledge, at the time, that statements the y made in the July 29, 2003 conference call were materially false and misleading for the followin g reasons, among others :
(a) The launch of Cardizem LA had not been successful because it had encountered significant manufacturing problems, sufficient quantities of the drug were not available for wide distribution, and sales to patients outside the PLACE program were not strong .
(b) Biovail failed to properly disclose that it could not generate revenues from sales of Cardizem LA absent payments to physicians to prescribe the drug and that as a result of the conclusion of the PLACE program there had been a dramatic drop in the number of patients continuing to buy
Cardizem LA .
(c) Biovail had no reasonable basis to reiterate that earnings per share would grow by 30% in 2003 because ,
(i) revenues of Cardizem LA were in jeopardy for the reasons set forth in subparagraphs (a) and (b) above ;
(ii) inventory levels of Cardizem CD in the channel remained high and
Biovail could not have reasonably projected that Cardizem CD would significantly contribute to 2003 earnings ;
(iii) the $20 million backorder of Cardizem CD was false ; and
(iv) revenues for the first and second quarter had only increased 23% and 17%, respectively. Biovail was already behind schedule to achieve its target of 30% revenue and diluted EPS growth by the end of the year .
(d) Net income and earnings per share were artificially inflated by $3 .9
million and $0 .02 per share, respectively, because Biovail failed to properly account for the loss resulting from a foreign exchange adjustment, as required under GAAP .
219_ The July 29, 2003 conference call was preceded with the following cautionar y language, as stated by the operator :
To the extent any statements made during this conference call contain information that is not historical, these statements are essentially forward-looking and subject to risks and uncertainties ,
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including difficulty of predicting FDA approvals, acceptance and demand for new pharmaceutical products, the impact of competitive products and pricing, new product development and launch, reliance on key strategic alliances, availability of raw materials and finished products, third parties, the regulatory environment fluctuations in operating results and other risks detailed from time to time in the company's filings with the
Securities and Exchange Commission .
The cautionary language identifying the press release as a forward-looking statement and identifying important risks and uncertainties was not meaningful because the cautionary language : (i) did not refer directly to any specific statement ; (ii) was not sufficiently specific an d indiscriminately listed any possible risk in general terms ; and (iii) Defendants had actual knowledge of specific facts that invalidated the projections and had caused, and would necessarily cause, Biovail not to meet its projections, including the facts that the Company ha d severe problems manufacturing Cardizem LA, that Biovail could not generate revenues from sales of Cardizem LA absent payments to physicians to prescribe the drug, and that as a result of the conclusion of the PLACE program there had been a dramatic drop in the number of patients continuing to buy Cardizem LA .
220 . On August 29, 2003, Biovail filed Form 6-K with the SEC for the three month s ended June 30, 2003 . Miszuk signed the Form 6-K . The Company reported a $1 .0 million net loss and $0 .01 diluted losses per share . Melnyk and Crombie each signed the certifications required by the Sarbanes-Oxley Act of 2002 in Form 6-K, which explicitly represented that the financial statements reported in the 6-K were not false and misleading . The Form 6-K, includin g
the ce rt ifications , was false and misleading and was known to be materially false and misleading
at the time , or was recklessly disregarded thereby, because its financial statements were not
repo rt ed in compliance with GAAP . Specifically, Biovail applied an inappropriate exchange rate to a Canadian dollar denominated long-term obligation and failed to properly book the los s
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incurred due to the exchange rate fluctuation . The foreign exchange loss was $3 .9 million, resulting in a higher net loss and loss per share than originally reported, which were $49 million and $0 .03, respectively. On May 14, 2004, Biovail filed an amended Form 6-K for this period restating net loss and losses per share .
221 . On October 3, 2003, Biovail held a conference cull in which it announced that th e
Company would miss earn ings expectations for the third quarter. Melnyk stated that ,
Late yesterday afternoon we became aware that a truck carrying a significant shipment of Wellbutrin XL from Biovail's Steinbach
Manufacturing Facility to GSK had been involved in a fatal, multivehicle accident just outside Chicago . This was a tragic accident in which eight people lost their lives and another 16 were injured .
.
. . This accident will have a negative financial impact on
Biovail's third quarter revenues .
Crombie stated that,
The unfortunate incident described by Eugene a moment ago, will have a material negative effect on Biovail's third quarter revenue and earnings .
As a result of this accident, Biovail currently estimates that its total
third quarter revenues from Wellbutri n XL will now be below $10 million . It is not yet known whether or not the product involved in
the accident will be salvageable . This product must be sent back to
our manufacturi ng facility for careful inspection to determine if the
product still meets all applicable manufactu ri ng specifications and is completely safe for future sales .
Our Wellbutrin XL supply agreement gives Glaxo the right to return product that does not meet required manufacturing specifications as approved by the Food and Drug Administration .
As it is unknown at this point whether or not the product involved in the accident still meets all applicable manufacturing specifications, Biovail will not be recording any revenue associated with this shipment in Q3 .
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. . . . at the end of the second quarter, we announced that we had a backorder position on Cardizem CD in excess of $20 million .
This was caused by numerous factors . We have been very conscious of trade inventory levels and we have come to the conclusion that where the smaller brand, such as Cardizem CD to insure that we don't have backorders and that we meet demand, a larger amount of trade inventory is required .
We also had frankly expected an increase in the months of inventory due to expected cannibalization from Cardizem LA .
Based on our source of prescription tracking, Cardizern LA is gaining most of its prescriptions not from switching from
Cardizem CD, but from new patients being prescribed calcium channel blockers . . . .
During the third quarter 2003, Biovail has been working diligently with Aventis, the supplier of brand Cardizem CD to alleviate the backorder position . Considerable progress has been made during this quarter, with additional shipments from Aventis, alleviating almost half of the backorder position as of June 30th ; however, some additional shipments, which had been anticipated prior to
September 30th, actually arrived immediately following quarter end . As a result, these additional shipments will not be included in our third quarter 2000 revenue, 2003 revenue as hoped for, but will favorably impact fourth quarter 2003 revenue .
In addition, because of the strong sales of Cardizem 360, the backorder position of Cardizem CD has grown again, back up to almost $20 million .
The impacts of the items discussed today will have the following impacts on Q3 revenue . First, the impact of Wellbutrin loss due to the accident is in the range of $15 to $20 million . Second, the impact of lost royalty revenue due to Prilosec is in the range of $20 million . Third, the impact of Cardizem CD revenue is in the range of $10 to $15 million . . . .
The net income impact from the above is in the range of $35 to $45 million or new EPS guidance 23 cents less than previous guidance for a new total full diluted EPS guidance for Q3 of 2003 of between 35 and 45 cents .
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Later in the call, in response to a question from an analyst, Melnyk added, "I think that th e guidance that we've given in the past is in the 25% to 30% range, and I think, you know, th e
25% range is realistic . "
222 . Melnyk and Crombie had actual knowledge, at the time, that the statements the y made in the October 3, 2003 conference call were materially false and misleading for th e following reasons, among others :
(a) Biovail had missed earn ings, in large part , because of lower sales of
Cardizem LA, which dropped from $21 .6 million in the second quart er to
$6 .2 million in the third quarter of 2003 .
(b) The amount of lost revenue from the Wellbutrin XL traffic accident was
$5 million, not $15 to $20 million .
(c) The $20 million backorder of Cardizem CD did not exist .
(d) Melnyk had no reasonable basis to state that earnings per share would grow by 25% in 2003 because ,
(i) revenues of Cardizem LA were materially below projected annual
sales by the end of the third quarter ;
(ii) the $20 million backorder of Cardizem CD was false ; an d
(iii) revenues for the first and second quarter had only increased 23% and 17%, respectively . Biovail was already behind schedule to achieve its target of 30% revenue and diluted EPS growth by the end of the year .
223 . The October 3, 2003 conference call was preceded with the following cautionar y
language, as stated by the operator :
To the extent any statements made during this conference call contain information that is not historical, these statements are essentially forward-looking and subject to risks and uncertainties, including difficulty of predicting FDA approvals, acceptance and demand for new pharmaceutical products, the impact of competitive products and pricing, new product development and launch, reliance on key strategic alliances, availability of raw materials and finished products, third parties, the regulator y
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environment fluctuations in operating results and other risks detailed from time to time in the company's filings with the
Securities and Exchange Commission .
The cautionary language identifying the press release as a forward-looking statement and identifying important risks and uncertainties was not meaningful because the cautionary language : (i) did not refer directly to any specific statement ; (ii) was not sufficiently specific an d indiscriminately listed any possible risk in general terms ; and (iii) Defendants had actual knowledge of specific facts that invalidated the projections and had caused, and would necessarily cause, Biovail not to meet its projections, including the facts that the $20 million
Cardizem CD backorder did not exist, sales of Cardizem LA had dropped from $21 .6 million in the second quarter to $6 .2 million in the third quarter of 2003, and Biovail had stuffed the channel with Zovirax in the third quarter 2003 and could reasonable expect Zovirax sales to dramatically fall in the fourth quarter .
224 . On October 3, 2003, Biovail issued the following press release :
Biovail Provides Guidance on 2003 Third Quarter Results
TORONTO--(BUSINESS WIRE)--Oct . 3, 2003--Biuveil Corporation
(NYSE :BVF)(TSX:BVF) announced today that while it has not completed a final compilation and analysis of its 2003 third quarter, preliminary results indicate that revenues will be below previously issued guidance and will be in the range of $215 million to $235 million and earnings per share of S0 .35 to $0 .45 for the three months ended September 30, 2003 . Contributing significantly to this unfavorable variance was the loss of revenue and income associated with a significant in-transit shipment loss of Welibutrin XL as a result of a traffic accident .
After leaving Biovail's Steinbach, Manitoba manufacturing facility on September 30,
2003, a truck carrying a material shipment of Wellbutrin XL was involved in a multivehicle traffic accident at approximately 4 p .m . eastern standard time October 1, 2003 near Chicago, Illinois . While this product may still be salable in the future, it must first be returned for inspection to Biovail's manufacturing facility in Manitoba to ensure it is still within acceptable specifications . Revenue associated with this shipment is in the range of $10 to S20 million . The manufacturing cost value of this shipment was fully insured .
As a result of numerous recent inquiries, Biovail also comments on two additional items associated with third quartet income .
Biovail has an economic interest in the gross profits derived from the sales of a generic version of omeprazole . The distributor of this generic omeprazole product has announced that it will provide significant price reductions on a retroactive basis t o
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wholesalers . This distributor has also indicated that it will be lowering its financial guidance for this product given lower pricing and for competitive reasons . Biovail's second half 2003 financial guidance assumed that additional competition for generic emepraznle would seriously erode the financial benefit to the Company's interest in the gross profits of this product . However, since Biovail shares in a percentage of the gross profit of this product, significant credits issued by the distributor during the, third quarter 2003 could have a negative effect on Biovail's participating interest of up to
$15 million in net income. As well, it can be anticipated that there could be a fourth quarter 2003 negative income impact of $15 to $20 million .
During the third quarter 2003, Biovail was working with Aventis, the supplier of branded Cardizem GD product, to alleviate a back order position that existed at Ure end of June 2003 . Considerable progress was made in this regard during the third quarter 2003 and additional shipments from Aventis were received in Q3 however, further shipments, which had been anticipated prior to September 30, 2003 arrived immediately following quarter-end . As a result, these additional shipments will not be included in third quarter 2003 revenue as expected but will favorably impact fourth quarter 2003 revenue . During third quarter 2003, approximately half of the June 30,
2003 back order position was alleviated however, due to continued strong sales of
Cardizem CD 360 mg arid new orders for ttris dusaye strength, backorders have increased to approximately $18 million as at September 30, 2003 . We will continue to work with Aventis to rectify this situation expeditiously .
Biovail management it will host a conference call and webcast on Friday, October 3rd,
2003 at 10:30 a.m . EST for company executives to discuss 2003 third quarter earnings guidance . Following the discussion, Biovail executives will address inquiries from investment analysts .
A live webcast of this call will be available through the Investor Relations section of the Biovail web site, www .biovail .com . Alternatively, please dial 1-800-884-5695
(North America .) ur 1-617-766-2960 fur Internatiuial callers, with pasacode
29341981, to access the conference call . A replay of the conference call will be available until 7 :00 p .m . EST on Friday, October 10th, 2003 by dialing 1-888-286-
8010 (North America) or 1-617-801-6888 for International callers, using access code,
45094403 .
Biovail Corporation is an international full-service pharmaceutical company, engaged in the formulation, clinical testing, registration, manufacture, sale and promotion of pharmaceutical products utilizing advanced drug delivery technologies .
For further information, please contact Ken Howling at 905-286-3000 or send inquiries to it©biovail .com .
225 . Biovail and the Individual Defendants had actual knowledge, at the time, that th e
October 3, 2003 press release was false and misleading for the following reasons, among others:
(a) Biovail had missed earnings, in large part, because of lower sales of
Cardizem LA, which dropped from $21 .6 million in the second quarter to
$6 .2 million in the third quarter of 2003 ;
(b) The amount of lost revenue from the Wellbutrin XL traffic accident was
$5 million, not $15 to $20 million; and
(c) The $20 million backorder of Cardizem CD did not exist .
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226 . On October 30, 2003, Biovail issued a press release announcing third quarte r
2003 earnings, stating that ,
Total revenues increased 14% for the nine month 2003 period versus the comparable 2002 period --
Total revenues for the three months ended September 30, 2003 increased 3% to $215 .3 million versus the prior year comparable period . . . . Third quarter 2003 revenue growth was favorably impacted by a 3% increase in Product Sales revenue versus the prior year comparable period primarily due to Biovail's launch of
Cardizem LA, Teveten HCT and Zovirax Cream as well as the approval and recent commercialization of Wellbutrin XL in the
U .S . marketplace .
In accordance with U .S . GAAP, third quarter 2003 net income was
$13 .0 million and diluted earn ings per share of $0 .08 compared to
net income was [sic] $75 . 0 million and diluted earn ings per share
of 50 .49 for third quart er 2002 . In accordance with U .S . GAAP for
the nine month peri od ended September 30, 2003, net income was
$75 .0 million and diluted earnings per share was $0.47 compared
to net income of $190 .6 million and ea rnings per share of $1 .18 for the nine-month period ended September 30, 2002 .
Excluding certain items, third quarter 2003 net income of $34 .6
million and diluted earnings per share of $0 .22 both declined by
53% versus third quarter 2002 net income and earnings per share of $73 .0 million and $0 .47 per share excluding the expense related to the ineffective portion of interest rate swaps . Excluding certain items, net income of $180 .7 million and diluted earnings per share of $1 .13 for the nine months ended September 30, 2003 decreased
4% and 3% respectively compared to net income of $188 .7 million and earnings per share of $1 .17 for the comparable 2002 periods excluding the ineffective portion of interest rate swaps and a writedown of assets related to a decline in the value of the Company's investment in Hemispherx Biopharma Inc .
A late third quarter 2003 shipment of Wellbutrin XL involved in an accident outside of Chicago was returned to Biovail's facility on
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October 8, 2003 for inspection . No revenue was recognized from this shipment in Q3 2003 . The shipment included both bulk and filly packaged material . All hulk tablets, which are packaged in plastic drums, were salvaged and have already been shipped to
GSK. A small portion of the packaged goods (less than 1,000 bottles) was effected [sic] in the accident and could not be reshipped .
Product sales increased 3% for the third quarter to $180 .0 million and I% to $464 .6 million for the nine months ended September 30,
2003 . Core Product sales revenue was $60 .1 million or 33% of total Product Sales revenue for third quarter 2003 versus $18 .1
million or 10% of total Product Sales revenue for the comparable
2002 period . The increase in Core Product sales revenue reflects the launch of Cardizem LA, Teveten HCT and Zovirax Cream during 2003 .
Wellbutrin XL product sales revenue was $8 .2 million for third
quarter 2003 and $16 .3 million for the nine months ended
September 30, 2003 . Biovail receives a percentage of Glaxo's net
sales as revenue for supplying trade supplies of Wellbutrin XL
Biovail also is paid for bulk sample product that is produces and
supplies [sic ] to Glaxo . Samples are sold at a contractually agreed
price at approximately Biovail ' s manufacturing cost .
[Sales of generic products in the third quarter were $20 .4 million] .
227 . Biovail and the Individual Defendants had actual knowledge that the statement s made in the October 30, 2003 press release were materially false and misleading for th e following reasons, among others :
(a) Biovail had missed earnings, in large part, because of lower sales of
Cardizem LA, which dropped from $21 .6 million in the second quarter to
$6 .2 million in the third quarter of 2003 .
(b) The amount of lost revenue from the Wellbutrin XL traffic accident was
$5 million, not $15 to $20 million .
(c) The $20 million backorder of Cardizem CD did not exist .
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(d) Biovail obfuscated the fact that sales of Cardizem LA were $6 .2 million by including Cardizem LA within Core Product sales of $60 .1 million, which also included $47 .1 million of undisclosed Zovirax revenues . And ,
(f) Reported sales of generic products of $20 .4 million in the quarter included an undisclosed one-time credit of $8 .5 million.
228 . On October 30, 2003, Biovail held a conference call in which it announced thir d quarter 2003 earnings and fourth quarter projections . Crombie stated that,
We expect product revenue [in the fourth quarter 2003] to be in the range of $225 to $250 million . . . . Total revenue should be about
$25 million greater . . . . Our resulting EPS is therefore projected to be in the range in Q4 of 25 to 40 cents .
229 . During the October 30, 2003 conference call, Melnyk responded to specifi c questions from research analysts as follow :
Analyst : Second question, can you provide any further input as to the Aventis Cardizem CD backlog on 360 milligram strength?
Melnyk : To answer your question on the 360 Cardizem CD, we are still in a backlog situation on that product but as of literally yesterday we were assured that all of that should be fulfilled literally within the next week to two weeks . We expect that by the end of the year we will be fully out of any kind of backorder situation . . . .
Analyst : Eugene , have you or any entity that you're affiliated with sold any stock or entered into any agreement such as loans where the stock is pledged, like
collars or de rivative structures , where they are not
easily available by U .S . shareholders ?
Melnyk : No [ ], it is actually not - I don't know how that is germane to the earnings call, but to answer your question, the answer is no .
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230 . Melnyk and Crombie had actual knowledge that the statements they made in th e
October 30, 2003 conference call were materially false and misleading for the following reasons , among others :
(a) Biovail had missed earnings, in large part, because of lower sales of
Cardizem LA, which dropped from $21 .6 million in the second quarter to
$ 6 .2 million in the third quarter of 2003 .
(b) The $20 million backorder of Cardizem CD did not exist .
(c) Biovail obfuscated the fact that sales of Cardizem LA were $6 .2 million by including Cardizem LA within Core Product sales of $60 .1 million, which also included $47 .1 million of Zovirax revenues.
(d) Melnyk had pledged shares of Biovail stock to collateralize two personal lines of credit totaling $72 million .
(f) sales of generic products in the third quarter had fallen dramatically more than publicly disclosed because revenues of $20 .4 million included an undisclosed one-time credit of $8 .5 million .
(g) Crombie had no reasonable basis to project product revenues of $225 to
$250 million for the fourth quarter 2004 because, among other things ,
(i) revenues of Cardizem LA had been dramatically lower than expected in the third quarter and demand was already soft ;
(ii) the $20 million backorder of Cardizem CD was false and Biovail would not incur an additional $20 million in revenue in the fourth quarter ;
(iii) Biovail had stuffed the channel with $47 .1 million of Zovirax ; and
(iv) sales of generic products in the third quarter had fallen dramatically more than publicly disclosed because revenues of
$20 .4 million included an undisclosed one-time credit of $8 .5
million .
231 . The October 30, 2003 conference call was preceded with the following cautionar y language, as stated by the operator :
To the extent any statements made in this release contain information that is not historical, these statements are forward-
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looking within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended . We have based these forward-Innking statements on our current expectations and projections about future events . Our actual results could differ, materially from those discussed in or implied by these forward-looking statements .
Forward-looking statements are identified by words such as believe, anticipate, expect, intend, plan, will, and other similar expressions . In addition, any staterneuts that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements .
Forward-looking states include but are not necessarily limited to risks and uncertainties including the difficulty of predicting FDA approvals, acceptance and demand for new pharmaceutical products, the impact of competitive products and pricing, new product development and launch, reliance on key strategic alliances, availability of raw materials and finished products, third parties, the regulatory environment, fluctuation in operating results and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission .
232 . The cautionary language identifying the press release as a forward-lookin g statement and identifying important risks and uncertainties was not meaningful because the cautionary language : (i) did not refer directly to any specific statement; (ii) was not sufficiently specific and indiscriminately listed any possible risk in general terms ; and (iii) Defendants had actual knowledge of specific facts that invalidated the projections and had caused, and woul d necessarily cause, Biovail not to meet its projections, including the facts that the $20 million
Cardizem CD backorder did not exist, sales of Cardizem LA had dropped from $2 1 . 6 million in the second quarter to $6 .2 million in the third quarter of 2003, and Biovail had stuffed the channel with Zovirax in the third quarter 2003 and could reasonable expect Zovirax sales to dramatically fall in the fourth quarter .
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VII .
CLAIMS FOR RELIEF
COUNT ONE
For Violations of Section 10(b) of the Exchange Act and Rule IOb-5 Promulgated Thereunde r
233 . Lead Plaintiffs repeat and reallege each and every allegation contained above as if fully set forth herein .
234 . Throughout the Class Period, the Defendants, directly and indirectly, by the use of means and instrumentalities of interstate commerce, the United States mails and a national securities exchange, employed a device, scheme and artifice to defraud, made untrue statements of material fact and omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, and engaged in acts, practices and a course of business which operated as a fraud and deceit upon
Lead Plaintiffs and the members of the Class .
235 . The Company and the Individual Defendants, as the most senior officers of
Biovail during the Class Period, are liable as direct participants in all of the wrongs complained of herein . Through their positions of control and authority, the Individual Defendants were in a position to and did control all of the Company's false and misleading statements and omissions, including the contents of all of its public filings and press releases as more particularly set forth above . In addition, the false and misleading statements made in the Company's publishe d documents (including its press releases and publicly issued financial statements) constitute
"group published information," which the Individual Defendants were responsible for creating .
The Individual Defendants had direct involvement in the daily business of the Company and participated in the preparation and dissemination of the Company's "group publishe d
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documents ." The Company is liable for each of the statements of the Individual Defendant s through the principles of respondeat superior .
236 . As detailed above, the Defendants had actual knowledge of the misrepresentations and omissions of material facts set forth herein, or acted with reckless disregard for the truth in that they failed to ascertain and to disclose such facts, even though such facts were available to them . Such material misrepresentations and/or omissions were made knowingly or recklessly and for the purpose and effect of concealing Biovail's operating condition and future business prospects from the investing public and supporting the artificially inflated price of its securities .
237 . Lead Plaintiffs and the other members of the Class relied upon the Defendants ' statements and upon the integrity of the market in purchasing shares of Biovail common stock a t artificially inflated prices .
238 . In bringing these claims , Lead Plaintiffs and the members of the Class are entitle d
relevant to this Complaint, the market for Biovail common stock was an efficient market for th e following reason, among others :
(a) Biovail common stock traded on the New York Stock Exchange an d
Toronto Stock Exchange, highly efficient markets. The average weekly trading volume throughout the Class Period was 10 .5 million shares ;
(b) As a regulated issuer, Riovail filed periodic public reports with the SEC ;
(c) Biovail common stock was followed by numerous securities analyst s employed by major brokerage firms, such as J .P . Morgan, Credit Suisse First Boston, Morgan
Stanley, Salomon Smith Barney, and Merrill Lynch, among others, who wrote reports that wer e
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distributed to the sales force and certain customers of their respective brokerage firms . Each o f these reports was publicly available and entered the public marketplace ;
(d) Biovail regularly issued press releases, which were carried by national and international news wires . Each of these releases was publicly available and entered into th e public marketplace ; and
(e) The market price of Biovail common stock reflected the effect of new s disseminated in the market .
239 . As a direct and proximate cause of the wrongful conduct described herein, Lea d
Plaintiffs and the other members of the Class suffered damages in connection with thei r purchases of Biovail common stock . Had Lead Plaintiffs and the other members of the Clas s known of the material adverse information not disclosed by the Defendants, or been aware of th e truth behind the Defendants' material misstatements, they would not have purchased Biovai l stock at artificially inflated prices .
240 . This claim was brought within two years after the discovery of the fraud an d within five years of the making of the statements alleged herein to be materially false and misleading.
241 . By virtue of the foregoing, the Defendants violated Section 10(b) of the Exchange
Act and Rule I Ob-5 promulgated thereunder and are liable to Lead Plaintiffs and the members o f the Class, each of whom has been damaged as a result of such violations .
COUNT TW O
For Violations of Section 20(a) of the Exchange Ac t
242 . Plaintiff repeats and realleges each and every allegation contained above as i f fully set forth herein .
- 111 -

243 . Throughout the Class Period, the Individual Defendants, by virtue of their positions, stock ownership and/or specific acts described above, were controlling persons within the meaning of Section 20(a) of the Exchange Act.
244 . The Individual Defendants had the power to, and did, directly and indirectly , exercise control over Biovail, including the content and dissemination of statements which the
Lead Plaintiffs allege are false and misleading . The Individual Defendants were each provided with and had access to reports, filings, press releases and other statements alleged to b e misleading prior to and/or shortly after they were issued and had the ability to prevent the issuance or correct the statements . The Individual Defendants had direct and supervisory involvement in the day-to-day operations of the Company and induced Biovail to engage in th e acts constituting violations of the federal securities laws, as set forth in Count One above .
245 . Individual Defendant Melnyk exercised control over the Company through hi s positions as Chief Executive Officer and Chairman of the Board of Directors, and through his ownership during the Class Period of approximately 14 .5% of all outstanding shares of Biovail stock . Additionally, as alleged above, Melnyk had the power to control the Company's financial targets, public statements, and strategies for marketing its products, and exercised such control throughout the Class Period, both, by directing that various strategies be adopted and by directly disseminating false information to the market or causing such information to be disseminated through press releases and analyst conference calls . Finally, Melnyk exercised control over
Biovail's financial reporting through his management responsibilities and his certification of the
Company's fraudulent financial statements .
246 . Individual Defendant Crombic exercised control over the Company through his positions as Chief Financial Officer and Senior Vice President . He controlled the contents o f
- 112 -

Biovail's public financial statements and exercised further influence through his certification of those statements- Additionally, as alleged above, Crombie had the power to control the
Company's financial targets and public statements about those targets, and he exercised such control throughout the Class Period by directing that certain targets be adopted and personally making and participating in various statements about the Company's performance, both, through press releases and analyst conference calls .
247 . Individual Defendant Miszuk exercised control over the Company through hi s positions as Vice President, Controller and Assistant Secretary of Biovail . Additionally, Miszuk exercised control over Biovail's financial reporting by signing Biovail's false financial statements . As alleged above, Miszuk also had the power to control the Company's financial targets and public statements about those targets, and he exercised such control throughout the
Class Period by directing that certain targets be adopted and by participating in the dissemination of false information to the market .
248 . Individual Defendant Howling exercised control over the Company through hi s position as Vice President of Finance . By virtue of this position, Howling had the power to control and did control Biovail's financial reporting and financial policies . Additionally, as alleged above, Howling had the power to control and did control Biovail's public statements about its condition through his involvement in the preparation of press releases, his participation in analyst conference calls, and his direct statements to the media.
-113-

PRAYER FOR RELIE F
WHEREFORE, Lead Plaintiffs pray for judgment as follows :
A . Determining this action to be a proper class action pursuant to Rule 23 of the
Federal Rules of Civil Procedure;
B . Awarding Lead Plaintiffs and members of the Class compensatory damages ;
C . Awarding Lead Plaintiffs and members of the Class pre judgment interest an d post judgment interest, as well as their reasonable attorneys' fees, expert witness fees, and costs ;
D . Awarding extraordinary, equitable and/or injunctive relief as permitted by law , equity and the applicable federal statutory provisions, pursuant to Rules 64 and 65 of the Federal
Rules of Civil Procedure, and any appropriate state law remedies, to assure that the Class has a n effective remedy ; and
E . Awarding such other relief as this Court may deem just and proper .
JURY TRIAL DEMANDE D
Lead Plaintiffs hereby demand a trial by jury .
Dated : June 18, 2004
LITOWITZ BERGER
SCHULMAN LLP
B .'aniel L . Berger (DD-7748)
J . Erik Sandstedt (JS-9148)
Javier Bleichmar (JB-0435)
1285 Avenue of the Americas
New York, New York 10019
Tel : 212-554-140 0
Fax : 212-554-144 4
Co-Lead Counsel and Counsel for Co-Lead
Plaintiff Ontario Teachers 'Pension Plan
Board
By : Sanford P . Dumain (SD-8712)
Ann M . Lipton (AL-3010 )
One Pennsylvania Plaza
New York, New York 10119
Tel : 212-594-530 0
Fax : 212-868-122 9
Co-Lead Counsel and Counsel for Co-Lead
Plaintiff Local 282 Welfare Trust Fun d
- 114 -

CE1 TIF1CAT1O N
Michael Padfield. Legal Counsel, Investments of the Ontario Teachers' Pension Plan
Board ("Ontario Teachers") declares, as to the claims asserted under the federal securities laws, that :
1 . He has reviewed the complaint and authorized its filing .
2 . Ontari o Teachers did not purchase the securities that are the subject of this action
at the direction of its counsel, Be rn stein Litowitz Berger & Grossmann LLP, or to participate in this private action .
3 . Ontario Teachers is willing to serve as a Lead Plaintiff and class representative on behalf of the Class, including providing testimony at deposition and trial, if necessary.
4 . Ontario Teachers ' transactions in the securities of Biovail Corp. that are the
subject of these actions are in the chart attached hereto .
5 . Ontario Teachers is currently serving as Lead Plaintiff only in the following
actions filed during the 3W- year period preceding the date on which this certification is signed :
In re Cable & Wireless plc Securities Litigatio n
6 . Ontario Teachers initially sought to se rve as a representative party for a class in the following actions filed under the federal securities law during the three years preceding the date of this Certification but was not appointed in favor of other investors with fW mor e significant losses :
In re AOL Time Warner Inc . Securities Litigation
In re Tenet Healthcare Corp . Securities Litigation
In re Federal I-tome Loan Mortgage Corp . Securities Litigation
7 . Ontario Teachers has sought to serve as a representative party on behalf of a class in the following actions filed during the three years preceding the date of this Certification :
8 . Ontario Teach era will not acccpt any payment for sei ving as a representative part y on behalf of the class beyond its pro rata share of any recovery, except such reasonable costs and expanses (including lost wages) relating to the representation of the class as ordered or approved by the court .
I declare under penalty of perjury that the foregoing is true and correct to the best of my knowledge . Exerayted this JZI~'day of June 2004 .
ficha adfie l
Legal Counsel, Investment s
Ontario Teachers' Pension Plan Board

Ontario Teachers' Pension Plan Board Transactieais in tovatl Corporation
Sell
Sell sell
Sell
Sell
Sell
Sell
Sell
Sell
Sell sell
Transaction
Daft
Balance ns of217103 :
Buy
Buy
2t2712003
2/2812003
Sell
Sell
Sell
Sell
Sell
Sell
Sell
34/2003
3/4/2003
5/4/2003
'/5/2003
3/5/2093
Sell
Sell
Sell
Sell
Sell
3/6/2003
3/6/2003
3/712003
3/7/2003
3/7/2003
PI 0/2003
S°11
Sell
3/11/2003
3/12/2003
3/13/2003
Sell
Sell
Sell
Buy
3/13/2003
3/26/2003
3/31/2003 t"112003
412(2003
4/212003
4/712003
417/2003
Sell
Sd
Sell
Sell
4/22(2003
4/29/2003
4/0/2003
5/9/2003
5/9/2003
5129/2003
6119!2003
6119/2003
611912003
6123/2903
61252003
Amount Price (USDl'`
/,672,404
-33,400
-19,840
- ; 3,500
-14,553
-16,600
-121,600
204
-15,000
-1,100
-30,000
-1,200
-50!)00
-160,000
-25,000
-48000
-2,0120
-10,000
-35,000
-I )Dm
-53,000
-10,000
-33,780
50,000
50,000
-93,000
-41,400
26,000
-20,800
-5,200
-21,500
-2,600
-26,200
-2,10(1
-8,700
-26,200
$37 .129 9
5362,54 7
$37 .2812
$37 .718 2
54CJ .873 2
$39 .9729
540 .204 1
542 .3454
542 .211 5
$42 .9424
543 .151 7
542 .085 1
$39.3195
535 .975 5
540.981 5
540 .9129
547 .4530
$46 .9105
545 .628 0
545 .0998
545 .3763
$48-9968
$35 .1554
537,1260
$35 .227 7
$35 .227 7
$35 .754 2
$37 .776 7
537 .99)3
$37 .751 5
$37 .794 7
538 .4574
538 .4574
538 .821 2
$3 8 .1104
•Sha es were parchised on both the Toronro and 'm York exchanges . Where applicable, prices were cmrerted to US using the conversion rate on the date of the trantavtion.

Ontario TeachesR' Pennien Plan Board Transaetisns in Biovail Corporation
Puy
Buy
Buy
Buy
Buy
Buy
Buy
Sell
Sell
Buy
Sell
Sell
Ruy
Buy
Sell
Sell
Buy
Buy
Transactio n
Sell
Sell
Buy
Buy
Sell
Buy
Sell
Sell
Buy
Sell sell
Buy
Buy
Date
6+26.2003
V112003
8/4/2003
613/2 00 3
8%14!2003
913/2003
9/30/2003
10/1/2003
10/6/2003
101612003 t 0'612603
10'812003
10,18/2033
!018/2003
106/2003
1019/202 3
10/9/2003
10/10/2403
10/15/2003
10122/2003
111412003
11/4/2003
1/7/2009
816/2044
1116/2004
1/16/2004
1/1612004
1(20112044
1121,7004
012312004
3/3/2004
Arsoune Price (US I
-25,000 $48372 7
-26,100 $38 .2447
26,100 538 250 0
27,000
-67,000
$38 .3898
$40 .5365
339 .9338
42,100
-9t,000
-20,000
45,000
-20,000
S37_ 1 6"-4
$37.3854
$28 .7197
$29.3155
-20,000
: 3,000
150,000
529.3155
125 .4105
5 25 .098 2
$25.098 2 50,000
150,009
142,680
$26.4965
48,400
211,000
58,000
50,004
-6%)00
-2',000
20,000
-200,000
-35200
50000
150000
-64500
-100000
145,950
50D) 00
$26.92 7
$26 .496 1
$27 .093 (
5 28.713 3
527-9722
$32.2042
8 32.2042
5 22.761 5
524 .2223
524 .413 8
532 .430 0
5 32.450 0
$25 .492 6
525.814 5
$25.440 0
518.392 7
''Shares vtkre purchased on both de Toronto and New York eThanges . Where a?plicable, prices were cars•ertea to US using the ocnversion We on the date of the transaction
.

PLAINT'S CERTiCATION
PURSUANT TO FEDERAL SECXTRX'17B_S_X A VM
The Trustees of the Local 282 Welfare Trust Fund declares the following as to the claims asserted, or to be asserted, under the federal securities laws :
1 . My name is
4
M lc.
Lc
L.
2 . I have reviewed the Biovail Corporation complaint prepared by Milberg Weiss Bershad & Schulman
LLP, whom I designate with Friedman & Wolf as counsel for the Local 282 Welfare Trust Fund in this action for all purposes .
3 . As a Trustee and Fiduciary of the Local 282 Welfare Trust Fund, I have been duly authorized by the
Local 282 Welfare Trust Fund to commence litigation against Biovail Corporation and the other defendants.
4, The Local 282 Welfare Trust Fund did not acquire Biovail Corporation at the direction of plaintiff's counsel or in order to participate in any private action under the federal securities laws .
5 . The Local 282 Welfare Trust Fund is willing to sew as a lead plaintiff either individually or as part of a group. A lead plaintiff is a representative party who acts an behalf of other class members in directing the action, and whose duties may include testifying at deposition and trial .
6 . The Local 282 Welfare Trust Fund will not accept any payment for serving as a representative party beyond its pro rata share of any recovery, except reasonable costs and expenses, such as lost wages and travel expenses, directly related to the class representation, as ordered or approved by the court pursuant to law.
7. The Local 282 Welfare Trust Fund has not sought to serve or served as a representative party for a class in an action under the federal securities laws within the past three years ,
8 . The Local 282 Welfare Trust Fund understands that this is not a claim form, and that its ability to share in any recovery as a member of the class is unaffected by its decision to serve as a representative party .
9 . Since February 7, 2003, the Local 2$2 Welfare Trust fund has made the following transactions in Biovail
Corporation and will provide records of those transactions upon request :
N . of S13ares v 1 ell
See attached Schedule A bate Price Per S' =
Please use a nd attach additional pages if necessary .
I declare under penalty of perjury that the foregoing is true and correc t
Executed this / day of __N -12004 LOCAL 282 WELFARE TRUST FUND
B signature

PLAE W'S CERTrfICAVON
PURSUANT TO FEDERAL SECUBMS LAWS
The Trustees of the Local 282 Welfare Trust Fund declares the following as to the claims asserted or to be asserted, ceder the federal securities laws:
1 . My name is A0 a
2 . I have reviewed the Biovail Corporation complaint p re pared by Milberg Weiss Bershad & Schulman
LLP, whom I designate with Friedman & Wolf as counsel for the Local 282 Welfare Bust Fund in this action £oz al l purpusc .
3 . As a Trustee and Fiduciary of the Local 282 Welfare Trust Fund, I have hccn t1uly a„thr . ed by the
Local 282 Welfare Trust Fund to commence litigation against Biovail Corporation and the other defendants.
4. The Local 282 Welfare Trust Fund did not acquire Biovail Corporation at the di rection of plaintiffs
Counsel or in owlet to paxtiaip5to in any private action under the fedEra1 scot it a taws .
5 . The Local 282 Welfare Trust Fund is willing to serve as a lead plaintiff either individually or as part of a group . A lead plaintiff is a representative party who acts an behalf of other class members in directing the action, and whose duties may irncludc testifying at deposition and trial .
~ . The Local 282 Welfare Trust Fund will not accept any payment for serving as a representative party beyond its pro rata share ofany recovery, except reasonable costs and expenses, such as lost wages and travel expenses, directly related to the class representation, as ordered or approved by the court pursuant to law.
7 . The Local Z82 Welfare Trust Fund has not sought to serve or served as a representative party fo r a class in an action under the federal securities laws within the past three years.
The Local 2.82 Welfare Trust Fund understands that this is not a claim form, and that its ability to share in any recovery as a member of the class is unaffected by its decision to serve as a rcpresentativc party .
9 . Since February 7,200-1, the Local 282 Welfare Trust Fund has made the following transactions in Biovail
Corporation and will provide records of those transactions upon request
No . of SIMIPS 1~uv/Soil
See attached Schedule A ate ?rice Per Share
Please use and attach additional psgcs if necessary .
I declare under penalty of perjury that the foregoing is true and correct
Executed this t S ' clay of w.
. , 2004 LOCAL 282 WELFARE TRUST FUN D
By
: r ~ ~tl<``°
Si lure

Schedule A
Local 282 Welfare Trust Fund
Biovail Corporatio n
PURCHASES :
Company Date Shares
Biovail Corporation 02/21/2003 - SD 2,600 .0000
Biovail Corporation 02/24/2003 - SD 3,000 .0000
Biovail Corporation 02/25/2003 - SD 2,200 .0000
Biovail Corporation 03/05/2003 - SD
Biovail Corporation 06/11/2003 - SD
1,400 .0000
1,000 .0000
SALES-
Biovail Corporation 09/23/2003 - SD
Biovail Corporation 10/14/2003 - SD
Biovail Corporation 10/27/2003 - SD
1,200 .0000
1,100 .0000
7,900 .0000
Price
33 .0 1
33 .6900
34 .8300
37 .0766
50 .7500
41 .3942
25 .6625
27 .4500

The City of Dearhom Heights Act 345 Pension System (`Plaintiff'), by Michael E. Moco,
Esq ., attorney-in-fact, hereby certifies that the following is true and correct to the best of his knowledge, information and belief:
1 . Plaintiff has reviewed the complaint and authorized its filing
2 . Plaintiff did not purchase the securities that are the subject of this action at the direction of its counsel or to participate in this private action .
3 . Plaintiff is willing to serve as a representative party on behalf of a class, including providing testimony at deposition and trial, if necessary .
4 . The Plaintiff's transactions in the securities of Biovail Corp . that are the subject of tb.is-action-are as follows :
Date Transaction Shares mar ar Dorn
5/27/03
5130/03
6/26/03
6/30/03
Buy
Buy
Buy
Buy
500
500
1,100
200
$47 .342 1
$46 .0 1
549 .085 6
$48 .47 6
5 . Plaintiff is currently serving as Lead Plaintiff only in the following actions filed during the 3-year period preceding the date on which this certification is signed :
Vans Inc . -• C .D . Cal. - Case No . 04-CV-0043 1
6 . Plaintiff initially sought to serve as a representative party for a class in the following actions filed under the federal securities law during the three years preceding the date of this .Certification but was not appointed in favor of other investors with more significant losses :
Motorola - Southern District of New York -- Case No . 02-ClV-10209 .
Lexzxaark - E .D . Kentucky - Case No . 01-485-JMH .
Polaroid - Southern. District of New York - Case No . 03 CV 7499 ;
District of Massachusetts - Case No . 03 CV 1188 4
1
Doc4 : 1.42595 vern : 13077 :1546

7. Plaintiff will not accept any peymani lot serv ing ee a mprc5cnUalve party nn hehatf of the class beyond its pro tats share of any recover , except such re ssonablc coots and
expenses (including lost wages) relating to the representation of the class e. ordc rod or ap+mvesi by r1 cotut .
I declared under the penalty of pcrjtuy that the for€going is true and corroct to the best of
my knowindge . Executed this 18 ' of June, 2004.
The City of D born Hei Act 345 nsion Sysicm
Ano rn ey-In-Foe Michael Moeo
VanOverbeke , Michaud & Timmony, P .C .
.
..
. Door: j a2fo9 vcD i 'nn, i}id

CERTIFICATION
{L k/ I ~%~ ,
claims asserted under the federal securities laws, that:
("Plaintiff) declares as to the
Plaintiff has reviewed the complaint and authorized its filing .
2 . Plaintiff did not purchase the securities that are the subject of this action at the direction of its counsel or to participate in this private action .
3 . Plaintiff is willing to serve as a class representative on behalf of the Class, including providing testimony at deposition and trial, if necessary .
4 . The Plaintiffs transactions in the securities of Biovail Corp . that are the subject of
this action are in the chart attached hereto .
5 . Plaintiff is currently serving as Lead Plaintiff only in the following actions filed during the 3-year period preceding the date on which this certification is signed :
6. Plaintiff initially sought to serve as a representative party for a class in the following actions filed under the federal securities law during the three years preceding the date of this Certification but was not appointed in favor of other investors with far more significant losses:
7 . Plaintiff has sought to serve as a representative party on behalf of a class in the following actions filed during the three years preceding the date of this Certification :
8 . Plaintiff will not accept any payment for serving as a representative party on behalf of the class beyond its pro rata share of any recovery, except such reasonable costs and expenses (including lost wages) relating to the representation of the class as ordered or approved by the court-
I declare under penalty of perjury that the foregoing is true and correct to the bet nfmy
ki juwledge. Executed this /5- day of June 2004 .
86022y2

CERTIFICATION FORM ATTACHMENT
DR . WILLIAM A . EMERY
TRANSACTIONS FOR BIOVAIL CORPORATIO N
TRANSACTION
(Buy OR SELL)
PURCHASE (TSX)
PURCHASE (TSX)
TRADE DATE No . OF SHARES PRICE PER SHARE
10/16/2003 200 $38 .40 (CANADIAN)
10/30/2003 300 $27 .50 (CANADIAN)
W :\DATA\WPDATA\CASES\BIOVAIL\CERT ATTACHMENT .DOC

CEBx1FCC A11o1 J OF NAMED PLAINTIFF
FVI Iwg 'O fF1~EItAL SBC11DRU.AW S
Vera A . Hays ('Plaintiff') declares as to the claims asserted under the federal sccurttics Laws,
That :
1, Plaintiff. has reviewed the complaint and authorized its filing ,
2 . Plaintiff did nor purchase the securities that are the subject of this action at the direction of its counsel or to participate in this private action .
3, Piainti is willing to se rve as a class representative on behalf of the Class, including
providing testimony at deposition and trial, if n ocessa y _
-4 . Plaintiffs transactions in the securi ties of Biovail Corp . that are the subject of thi ,
actions are as follows :
Purchased 100 shares B VF on 5113/03 @ 541 .3 S/sh.
Sold 100 shares BVF on 2/24/04 @$19 .52J
5 . Plaintiff is currently serving as Lead Plaintiff only in the following actions filed during the 3-year period preceding the date on which this certification is signe d
6 . Plaintiff initially sought to serve as a representative part for a class in the following actions filed under the federal securities law during the three years preceding the- date of this
Certification but was not appointed in favor of other investors with far more significant ., losses'.
7 . Plaintiff has sought to serve as a representative party on behalf of a class in the
Following actions filed during the three years preceding the date of this Cerrification :
8, Plaintiff will not accept any payment for serving as a represemative parry oubehalfuf the class beyond its pro rata share of any recovery, except such reasonable costs and expenses
(including lost wages) relating to the representation of the class as ordered or approved by the court .
I declare under penury of perjury that the forcgcrng is vue and correct to the best of .toy
knowledge,
Fier uted thir/. " ay of June, 2004 xl~/
Plaia~t.ifC

CERTIFICATION OF NAMED PLAINTIFF
PURSUANT TO FEDERAL SECURITIES I .AV1I
Robert Atkinson ("Plaintiff') declares as to th e claims asserted under the federal securities laws; that :
Plaintiff has reviewed the complaint and authorized its filing .
2 . Plaintiff did not purchase the securities that are the subject of this action at the direction of its counsel or to participate in this private action .
3, Plaintiff is willing to serve as a class representative on behalf of the Class, including providing testimony at deposition and trial, if necessary .
4 . Plaintiff's transactions in the securities of Biovail Corp . that are the subject of this action are as follows :
Purchased 200 shares BVF :TSE on 5/12/03 C 57 .23/sh .
Sold 14 shares BVF :TSE on 6/10/03 @ 65,22/sb
5 . Plaintiff is currently serving as Lead Plaintiff only in the following actions fi led during the 3-year period preceding the date on which this certification is signed :
6 . Plaintiff initially sought to serve as a representative part for a class in the following actions filed under the federal securities law during the three years preceding the date of this
Certification but was not appointed in favor of other investors with far more significant losses :
7, Plaintiff has sou ght to serve as a representative party on behalf of a class in the following actions filed during the three years preceding the date of this Certi fication :
8 . Plaintiff will not accept any payment for serving as a representative party on behalf of the class beyond its pro rata share of any recovery, except such reasonable costs and expenses
(including lost wages) relating to the representation of the class as ordered or approved by the court , my knowledge .
I declare under penalty of perjury that the foregoing is true and correct to the best o f
Executed this rte? day of June, 2004
Plaint

CERTIFICATION
S . D . Gokhale ("Plaintiff') declares as to the claims asserted under the federal securities laws, that .
Plaintiff has reviewed the complaint and authorized its filing .
2 . Plaintiff did not purchase the securities that are the subject of this action at the direction of its counsel or to participate in this private action .
3 . Plaintiff is willing to serve as a class representative on behalf of the Class, including providing testimony at deposition and trial, if necessary .
4 . The Plaintiff's transactions in the securities of Biovail Corp . that are the subject of this action are in the chart attached hereto .
5 . Plaintiff is currently serving as Lead Plaintiff in no actions filed during the
3-year period preceding the date of this Certification .
6 . Plaintiff has not sought to serve as a representative party for a class in actions (other than the current action) filed under the federal securities law during the three years preceding the date of this Certification .
7 . Plaintiff will not accept payment for serving as a representative party on behalf of the class beyond its pro rata share of any recovery, except such reasonable costs and expenses (including lost wages) relating to the representation of the class as ordered or approved by the court .
I declare under penalty of perjury that the foregoing is true and correct to the best of my knowledge . Executed this day of June 2004 .
S . D . Gokhale

Name : S . D . Gokhal e
ATTACHMENT TO CERTIFICATIO N
(please complete only one trade per line)
Date o f
# of Shares Purchased (P) / Sold (S) Price Per Share Purchase/Sale
50 (P) $38 .35 08/07/03
50 (S) 22 .35 02/09/04

0
1
1
0
CERTIFICATION OF NAMED PLAINTIFF
PURSUANT TO FEDERAL, SECURITIES LAW$
Mohammed Sobhan, ("Plaintiff') declares as to the claims asserted under the securities laws, that :
]. . Plaintiff has reviewed the complaint and authorized its filing .
2 . Plaintiff did not pwchase the securities that are the subject of this action at the direction of its counsel or in order to participate in this private action .
3 . Plaintiff is willing to serve as a class representative on behalf of the Class, including providing testimony at deposition and trial, if necessary.
4 . Plaintiffs transactions in the securities of Biovail Corp . That arc the subject of this action arc attached hereto .
5 . Plaintiff is currently serv ing as Lead Plaintiff only in the following actions filed during the three year period preceding the date on which this Certification is signed : nlo-/ (
6 . Plaintiff initially sought to serv e as a representative party for a class in the following actions filed under the federal securi ties laws during the three years preceding the date of this Certification but was not appointed in favor of other investors with far more significant losses : Watic-
7 . Plaintiff has sought to serve as a representative party on behalf of :a class in the
following actions during the three years preceding the date of this Certification : '/ w C-
8 . Plaintiff Will not accept any payment for serving as a representative party on behalf of the Class beyond itr pro r to SI]are [)f
Any
TPE ovary, except such reason .ble torts an d expenses (including lost wages) directly relating to the representation of the Class as ordered or approved by the Court .
I declare under penalty ofperjury that the foregoing i~ true correct to thc b of my knowledge . Executed this / day of June, 2004 .
, ~
Sobhan

Datc
10
SCHEDULE A
Pvrcbnses in Biovail Corporatio n
Number Of Sbares Purcbased Price Per Shar e
9 . y !
'f a a r
0
0
0 p
Date
Sales in Biovail Corporation
Number Of Sb2res r,
?
oo
C>
Price Pet Shar e c 3 . 9 (