Biovail Case Essay

780 Words Jan 21st, 2015 4 Pages
Analysis of Maximum Potential Impact to Revenue from Trucking Accident

I have conducted an analysis of Biovail’s estimate that their 3rd quarter revenue would be impacted by $10 to $20 million due to the recent trucking accident. My conclusion is that Management has made serious mistakes in this estimate and it is not clear if this is due to incompetence or an intention to deceive investors. While my high level estimates show that a truck could hold upwards of $53.46 million worth of Wellbutrin® XL if completely full (and therefore the truck would only need to be ~19% full to contain $10 million worth) the bill of lading obtained by the state trooper clearly showed that the total weight of the freight on board was only 11,690 pounds.
…show more content…
In other words had the contract terms been FOB shipping revenue could have been recognized in Q3, however given it was FOB destination and the product could not have arrived until Q4 and in fact never arrived the revenue cannot be recognized by Biovail.

The timing of the large shipment (which Management has claimed is substantially larger than it is in reality) also leads to concerns that they may have been attempting to conduct channel stuffing to artificially inflate revenue figures.

Recommendation on Common Stock of Biovail

A number of fundamental factors and qualitative concerns are factored into my recommendation to investors on Biovail stock. On a fundamental basis profit margins are declining year over year (for both Q2 and 1H 2003 vs. 2002) due to higher research expenses, settlements and higher SG&A expenses. Sales growth is showing signs of slowing recently, interest expense and long term debt are increasing and earnings have turned negative. The fact that Biovail has high product concentration with one drug, Cardizem® CD representing 40% of product sales is also a fundamental concern.

On a qualitative basis I am concerned

Related Documents