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Weighing Biovail's Claims

A new analysis suggests a highway accident last fall was far less costly than the company publicly stated.

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It has faded from the headlines, but controversy still dogs the Oct. 1 traffic accident involving a



delivery truck and its shipment of antidepressants. New information obtained by

suggests the Canadian drugmaker overestimated the value of that cargo.

These are not the first questions raised about Biovail's truck accident and probably not the last: The company is scheduled to present at the JP Morgan Healthcare conference at 4:30 p.m. PST Wednesday, and attendees are likely to press for more information about the incident.

To recall, Biovail claims that lost revenue from the accident was in the range of $10 million to $20 million, forcing the company to issue a profit warning for the third quarter. But a

investigation suggests the value of the cargo to Biovail was in the range of only $2 million to $4 million.

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To this day, Biovail has not made public any documentation related to the truck, its cargo of Wellbutrin XL pills, or the accident that would substantiate its claim of a $10 million to $20 million revenue loss. (The

Securities and Exchange Commission

is investigating Biovail's accounting and financial reporting practices, covering the fiscal year 2002 and quarterly periods through the third quarter of 2003. Among the documents requested by the SEC are "all invoices, all bills of lading and packing slips

and all documents related to shipments of goods," according to the SEC letter sent to Biovail, made available by the company on its Web site.)'s

$2 million to $4 million revenue estimate was based on information included in the investigative report of the accident, conducted by the Illinois State Police (the accident happened outside Chicago). The police report provides the weight of the Wellbutrin XL shipment. Using this shipment weight, combined with other publicly known information, it's possible to calculate a rough value of the Wellbutrin XL pills on the truck at the time of the accident. It should be noted that some assumptions had to be made in these calculations, but in all instances, efforts were made to favor Biovail.

Asked to comment on's

calculations, detailed on the next page, Biovail issued a statement: "Your information and calculations are wrong. We have no further comment."

Return to the Accident Scene

On Sept. 30, the last day of Biovail's third quarter, a truck carrying a shipment of Wellbutrin XL left the drugmaker's manufacturing facility in Steinbach, Manitoba, en route to a



facility in the U.S.

Biovail makes Wellbutrin XL for GlaxoSmithKline, the U.K.-based pharmaceutical giant. Biovail's Wellbutrin XL revenue comes from royalty payments made by Glaxo, based on a percentage of net end-user sales.

On Oct. 1, around 4 p.m. EST, the Biovail truck was one of five vehicles involved in a fatal traffic accident on I-90, outside Chicago. Although only minimally involved in the accident, the Biovail truck was damaged, a gaping hole torn in the rear of its cargo trailer. As a result, Biovail couldn't deliver the Wellbutrin XL pills, forcing the drugmaker to return the cargo to its manufacturing facility for reinspection.

On Oct. 3, Biovail issued its third-quarter revenue and profit warning, which it blamed on the truck accident. "Revenue associated with this shipment is in the range of $10 million to $20 million," the company said at the time.

On a subsequent conference call to discuss the earnings miss, Biovail CFO Brian Crombie said the $10 million to $20 million revenue shortfall for Biovail equated to about $50 million to $60 million in end-user sales of the drug.

The accident was investigated by the Illinois State Police District 15, which issued its report on Nov. 4. The Traffic Crash Reconstruction Report, crash number 15-03-8014R, was obtained by

. Handwritten inspection reports on each of the five vehicles involved in the accident are included in the overall report. Vehicle inspection report No. 1352399, conducted by Illinois State Trooper Francesca Sciuto, involves the Biovail delivery truck.

According to Trooper Sciuto's report, this vehicle, a 1997 Ford tractor trailer, was being operated by Penner International on behalf of the shipper, Biovail. The report describes the trailer's contents as having a total weight of 11,690 pounds -- all of it Wellbutrin XL, as the truck had no other cargo.

Based on the shipment's weight, one can ascertain the number of pills in the shipment. Knowing this figure, it's possible to calculate the dollar value of end-user sales for GlaxoSmithKline -- and most important, the royalty revenue to be recorded by Biovail.


estimates that there were just over 5 million pills on the Biovail truck when it was involved in the accident, which equates to gross end-user sales of $14 million. That's far less than the $50 million to $60 million guided to by Biovail executives on their conference call.

Our estimate of Biovail royalty revenue generated from these end-user sales: $2.1 million.

What follows is a breakdown of how those figures were derived.

The Formula

According to Trooper Sciuto's report, the total weight of the shipment involved in the accident came from two payloads of Wellbutrin XL of 3,300 pounds and 8,360 pounds, respectively. Biovail has acknowledged that the shipment contained Wellbutrin pills packaged in both bulk form and finished, or retail, bottles. Giving the company the benefit of the doubt, let's assume there were 3,330 pounds of pills in finished retail containers, with the remaining 8,360 pounds in bulk containers.

Finished or retail bottles of Wellbutrin XL are shipped to pharmacies in 30-pill bottles weighing 39 grams, according to a pharmacist who weighed the package for

. This equates to 1.3 grams per pill, including the weight of the packaging.

Because the weight of packaging would be less of a factor for the bulk product, let's assume each pill weighed 1 gram, and that the larger of the two loads -- 8,360 pounds -- was in bulk pills. The lighter-weight pill and the larger weight of this load both favor Biovail in terms of calculating the value of the load.

With this information, it is possible to determine the value of the Wellbutrin XL on Biovail's truck. First convert pounds to kilograms:

Finished or retail containers

: Total weight of 3,330 pounds divided by 2.205 kilograms per pound equals 1,510 kilograms of Wellbutrin XL.

The per-pill weight of 1 gram is equal to 0.001 kilogram.

1,510 kg divided by 0.001 kg/pill equals 1,510,00 pills.

Bulk containers:

Total weight of 8,360 pounds divided by 2.205 kg/lb equals 3,791 kg of Wellbutrin XL.

3,791 kg divided by 0.001 kg/pill equals 3,791,383 pills.

Total Wellbutrin XL on the truck:

5,301,383 pills


The wholesale acquisition cost for Wellbutrin XL is about $2.83 per pill, according to company guidance as widely used by sell-side analysts, which means gross end-user sales (i.e., money collected from wholesalers) from this shipment equals $15,002,913.

But GlaxoSmithKline offers discounts, coupons and free samples to wholesalers to encourage stocking of Wellbutrin XL. This "gross to net discount" ranges from 30% to 35%, according to Biovail. Assuming a "gross to net discount" of 32.5%, the net end-user sales base for Biovail's royalty revenue is $10,126,966.

Biovail also has stated that its royalty rate on net end-user sales ranges in the low- to mid-20% range. For this analysis, we assumed the royalty rate is 22.5%, which equates to Biovail revenue on the truck of $2,278,567.

An alternative analysis, making assumptions even more favorable to Biovail, reached similar conclusions -- that the company overstated the value of the shipment involved in the accident.

The alternative calculation assumes the entire cargo was in bulk form and that each pill weighed only 0.6 grams; the wholesale acquisition cost was raised to $2.85 per pill; the gross to net discount was lowered to 30% and Biovail's royalty rate was raised to 24%.

Using the same formula as above, this analysis yielded an estimate of 8.8 million Wellbutrin XL pills on the truck, equal to end-user sales of $25.1 million and Biovail royalty revenue of $4.2 million.

On Tuesday, Biovail shares rose 5 cents, or 0.2%, to $22.69. That's about 56% below the stock's 52-week high, reached prior to the truck accident that's still very much in question.

Adam Feuerstein writes regularly for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send

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