When a company drops nearly 12% in one day, it's usually pretty easy to see what ticked off investors, but it isn't so clear for Biovail
Biovail gets royalties from depression drug Wellbutrin XL, which it helped develop, but it decided to buy the U.S. rights to the drug from marketing partner GlaxoSmithKline
Biovail thinks the drug can add $125 million a year in additional cash flow next year. If it can bring in that much cash for a while, the investment looks like a good deal. Biovail could pay off the initial investment in about four years and then the rest is bonus.
But it's far from that simple. Wellbutrin XL already has generic competition. Reports of Teva Pharmaceuticals'
In order to pay for the acquisition and fund further research of its pipeline, the company also slashed its dividend from $1.50 per year to $0.36. Investors knew that the previous double-digit yield wasn't going to last forever, but they were probably hoping the company would use the cash for something with a little more gusto.
Biovail has been derailed ever since the accident with a truck full of Wellbutrin XL and the resulting SEC investigation a few years ago. Buying the U.S. rights to the drug isn't likely to get the company back on track.
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