Biovail Shares Fall on News of Spin-Off
Wednesday November 16, 6:11 pm ET
Biovail Shares Fall Despite Analysts' OK of Drug Maker's Move to Spin-Off Pharmaceuticals Unit
NEW YORK (AP) -- Shares of Biovail Corp. tumbled Wednesday despite analysts' general approval of the Canadian drug maker's move to spin off its off-patent pharmaceuticals business, as one analyst noted the move increases the company's vulnerability to generic competition.
Separately, Canada's Globe and Mail newspaper reported on its Web site that according to sources, Biovail executive chairman Eugene Melnyk has ended talks with at least one private equity investor to take the company private in a transaction that would have cost more than $3 billion. Disagreements over financing terms were cited in the report.
Biovail shares fell $1.60, or 6 percent, to close at $24.91 on the New York Stock Exchange. Shares have risen from a 52-week low of $13.74 in April to a recent 52-week high of $27.28.
Banc of America analyst David Maris, who rates Biovail as "Neutral," left his 2006 earnings per share estimate unchanged, at $2.36, but noted that earnings per share could take a hit in 2006 if a generic version of the company's antidepressant Wellbutrin XL gets approved by midyear.
While Maris did not adjust his figures for the spinoff, he noted that the move only increases Biovail's dependence on Wellbutrin XL.
Maris said Wellbutrin XL will account for about 70 percent of Biovail's 2006 earnings per share. If a generic version prevails, then the analyst expects 2006 earnings per share to fall to $1.68.
Analysts surveyed by Thomson Financial, on average, expected 2006 earnings per share of $2.09 on revenue of $932.2 million.
On Tuesday, the company said it would spin off virtually all of its off-patent drugs in 2006, including high blood pressure drug Cardizem CD, to form an independent company known as Crystaal Pharmaceuticals Corp. Off-patent drugs bring in about $137 million in annual sales for Biovail.
Both Hari Sambasivam, an analyst from Merrill Lynch, and Marc Goodman, a Morgan Stanley analyst, raised their target prices for Biovail on the spinoff news. Sambasivam raised his target price to $32 from $28, and Goodman upped his to $35 from $33. Given less revenue from the spinoff, Sambasivam lowered his 2006 earnings per share estimate to $1.78 from $1.95, and Goodman decreased his to $2.25 from $2.33. Sambasivam rates Biovail a "Buy," and Goodman rates company shares as "Overweight."
In a research note, Goodman said he believes the market will attribute more value to the off-patent drugs as a standalone portfolio, and predicts that the deal unlocks about $3 of value for Biovail shareholders.
BMO Nesbitt Christine Charette analyst, who rates the stock as "Market Perform," called the spinoff neutral to the company, maintaining her $28 price target, and lowered her 2006 earnings per share estimate to $1.77 from $2.06.
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