Depression Hits Biovail

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After the almost 12% drop in its stock price yesterday, Biovail (NYSE: BVF) now trades at around eight times trailing-12-month EPS and sports a dividend yield of around 10%.

It's been a rough second half of the year for Biovail, as its stock price has fallen by more than 40%. The most recent drop was because the FDA decided to take six months to review data from its response to a July non-approvable letter for a reformulation of the company's depression medication, Wellbutrin. The company -- and apparently most investors -- was expecting a two-month delay.

Revenue from sales of Wellbutrin, which is marketed by GlaxoSmithKline (NYSE: GSK), dropped 57% year over year last quarter thanks to generic competition from Teva Pharmaceuticals (Nasdaq: TEVA) and Watson Pharmaceuticals (NYSE: WPI). While the version that Teva sells came under fire last month, it won't have much effect on sales of Biovail's Wellbutrin franchise, which will likely continue to fall, since another dose of the drug will face generic competition next year.

Superficially, Biovail may look like a steal, but there's obviously more to its valuation. The continuing drop in revenue of its most lucrative product means that its P/E will shoot up even without the share price changing, and that aforementioned dividend certainly isn't guaranteed. Even taking that into consideration, the drop yesterday -- which occurred because of the delay of at least four months in the planned launch of a product that will probably only have a modest effect on Wellbutrin sales -- seems a bit overblown. Investors who think Biovail can right the ship may have gotten a serious Black Friday discount a few days early.

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