Specialty pharmaceutical company

Biovail

(BVF)

said Canadian regulators, who have been investigating the company, are specifically interested in certain accounting and disclosure matters in 2003, as well as several issues related to the trading in its shares.

Separately, the Mississauga, Ontario, drugmaker said earnings fell just short of analysts' expectations for the latest quarter.

The Ontario Securities Commission is trying to determine whether Biovail improperly recognized revenue for accounting purposes in relation to its interim financial statements for each of the four quarters in 2003. The OSC is also examining whether the company provided a misleading disclosure in an October 2003 press release regarding a projected revenue shortfall.

As for the trading probe, regulators want to know if insiders of Biovail complied with reporting requirements, and if people in a "special relationship" with the company may have traded its shares using undisclosed material information.

In March, the

Securities and Exchange Commission

opened a formal investigation in the U.S. related to a November 2003 informal inquiry into historical financials, including the company's accounting and financial disclosures. Biovail said it's cooperating with both the OSC and the SEC.

Biovail's shares dropped 77 cents, or 5.2%, to $14.01 in afternoon trading on the

New York Stock Exchange

.

In addition to the regulatory update, the company said first-quarter earnings missed estimates. But Biovail added that its restructuring plans and the divestiture of a money-losing blood pressure-drug franchise will produce immediate profitability. Net income for the quarter fell to $11.1 million, or 7 cents a share, from $21.1 million, or 13 cents a share, in the year-ago quarter.

The company reported total revenue of $175.3 million, compared with $186.6 million for the first quarter of 2004. Analysts were looking for a profit of 8 cents a share and revenue of $168.1 million.

Biovail said product revenue dropped 8%, to $161.2 million for the first quarter. The company saw an anticipated decline in Wellbutrin XL revenue after a reduction in safety stock levels at its marketing partner

GlaxoSmithKline

(GSK) - Get Report

. Generic products revenue also declined.

On Tuesday, Biovail announced it will divest its Teveten and Teveten HCT products and enter into a supply agreement for its Cardizem LA drug with

Kos Pharmaceuticals

(KOSP)

in the U.S. and Puerto Rico. The transaction with Kos allowed the company to raise its earnings forecast for the full year to $1.70 to $1.75 from the previous range of $1.50 to $1.60. The outlook excludes charges.

However, as a result of the deal, Biovail lowered its 2005 revenue guidance to a range of $860 million to $930 million, from $925 million to $1 billion, to reflect the sale of the products. As a part of its restructuring, Biovail plans to cut about 23% of its workforce, including about 200 employees that may be hired by Kos.

"Despite considerable market-share gains for Cardizem LA and the Teveten product lines achieved through the efforts of our primary-care sales organization, these products alone could not justify the financial investment we were making -- both in terms of infrastructure and in terms of advertising and promotion," said Dr. Douglas Squires, Biovail Chief Executive Officer on Tuesday.