dropped sharply Friday after the company said a series of setbacks would cause third-quarter revenue and earnings to fall well below the Toronto-based drug company's previous guidance.
The stock sank 17.7%, or $6.67, to close at $31.10 after falling as low as $30.80. Two investment banking firms cut their ratings -- Morgan Stanley dropped its rating to underweight from equal weight, and CIBC World Markets changed its view to sector perform from sector outperform.
Biovail, whose stock was halted until just after noon, said Friday that its revenue for the quarter ended Sept. 30 would be in the range of $215 million to $235 million, compared with previous guidance of $260 million to $300 million. The company said the quarter's earnings per share would be 35 cents to 40 cents, rather than 58 cents to 68 cents.
Biovail cited three reasons for its revised estimates: a traffic accident involving a company's truck filled with a new antidepressant, strong discounting by a distributor of a Biovail generic ulcer drug, and late shipments due to ordering backlogs for a company heart drug.
"Biovail Corporation drops a three-prong bomb," said Elliot Wilbur, of CIBC World Markets, in research report issued Friday after the company held a telephone conference for analysts.
Wilbur said Biovail remains an "exciting story," but he added that "near-term operational uncertainty has eroded our confidence in the stock's ability to outperform" its peers in the specialty pharmaceutical category -- companies that combine generic drugs, improved-drug delivery techniques and branded products.
"This disclosure obviously adds to the crisis of confidence in management," said Wilbur, who owns shares in the stock and whose company has had an investment banking relationship with Biovail.
Marc Goodman of Morgan Stanley was equally blunt. "We believe the base business is deteriorating worse than we thought, and that earnings estimates have to come down significantly," he said Friday in a report to clients.
Noting that Biovail made no comment about projections for 2004, Goodman said the Wall Street consensus for earnings per share had been $2.77. "We believe that number will have to come down significantly," he said. "We are lowering our estimate to $2.15 and we have little confidence in that number."
Goodman doesn't own shares; his firm has had an investment banking relationship with Biovail.
Biovail had been a source of good investment news recently, especially when the Food and Drug Administration approved Wellbutrin XL, a revised form of GlaxoSmithKline's antidepressant. The Biovail version is taken once a day instead of twice a day -- improving patient compliance -- and it has fewer side effects than traditional Wellbutrin. The key selling points are reduced risk of weight gain and reduced risk of sexual side-effects.
Wellbutrin XL was the drug involved in the traffic accident. A truck that departed from a Biovail plant in the Canadian province of Manitoba was involved in a multivehicle accident near Chicago on Oct. 1. The truck was carrying $10 million to $20 million worth of the drug.
"While this product may still be salable in the future, it must first be returned for inspection" in Manitoba, the company said in a prepared statement.