Biovail

Table of Contents

INTRODUCTION 1

ISSUES 1

QUANTITATIVE ANALYSIS 3

QUALITATIVE ANALYSIS 4

(i). Revenue Recognition Analysis 4

(ii). Strength and Weaknesses of Biovail 5

RECOMMENDATIONS 6

CONCLUSION 8

INTRODUCTION

Biovail corporation was one of Canada’s largest publicly traded pharmaceutical companies. Biovail is a specialty pharmaceutical company engaged in the formulation, clinical testing, registration, manufacture and commercialization of pharmaceutical products, utilizing advanced drug-delivery technologies. The company currently has over 20 distinct, proprietary drug-delivery technologies and has access to other technologies through licensing agreements with development partners. In September 2010, the stockholders of Biovail Corporation and Valeant Pharmaceuticals International voted in favour of combining the two companies to become one under the Valeant name. The new combined company is known as Valeant Pharmaceuticals International, Inc. and its shares are traded on both the New York Stock Exchange and the Toronto Stock Exchange.

In the case, on September 30, 2003, a truck of Biovail carrying a shipment to Biovail’s Distributor, was involved in a multi-vehicle traffic accident near Chicago. David Maris found that Biovail intentionally and falsely attributed nearly half of its failure to meet its third quarter 2003 earnings guidance to a truck accident. Biovail intentionally misstated both the effect of the accident on Biovail’s third quarter earnings as well as the value of the product involved in the truck accident. In fact, the accident had no effect on third quarter earnings. Besides, Biovail applied FOB shipping point in recognizing its revenue. This is not complied with US GAAP which required revenue must be earned and realized or realizable in order for it to be recognized.

ISSUES

A few days after a truck accident, Biovail Corporation had released guidance for the quarter ended September 30, 2003, indicating that revenue...