Toronto-based pharmaceutical company Biovail (NYSE:BVF) reported strong Q4 earnings and full-year results earlier today. Q4 revenues rose 7% on a year-over-year basis, and sales of the company's cash crop, Wellbutrin XL, grew by 8% over the same time period. Other positive developments for shareholders include a recent 200% increase in the company's annual dividend, and management's reiteration of its 2007 guidance, which includes EPS of $1.70 to $1.80 on $800 million to $850 million in revenues.

Biovail's FY 2007 should prove to be quite challenging for the drugmaker, however. In December, the FDA approved the first generic version of Wellbutrin XL, which is presently being marketed by a privately held company based in Irvine, Calif. While it's still early to predict the precise impact of this approval, it should be noted that Wellbutrin accounted for 44% of Biovail's total product revenues in its FY 2005, and this figure grew to 50% in FY 2006.

Shareholders are hoping that recent developments in the company's R&D pipeline and the remainder of Biovail's portfolio can fend off any adverse effects that generic drugs in the U.S. might have on the company's bottom line. In recent months, the company has pushed an anti-inflammatory into phase 3 studies and submitted a New Drug Application to the FDA for an antidepressant.

With respect to its existing drugs, the company experienced a 22% increase in the sales of its generics line in Q4 2006 versus Q4 2005. Over the same time frame, sales of Zovirax grew by 12%. And while Wellbutrin XL faces stiff competition in the U.S. from competing products such as Eli Lilly's (NYSE:LLY) Cymbalta, Pfizer's (NYSE:PFE) Zoloft, Wyeth's (NYSE:WYE) Effexor, Forest Laboratories' (NYSE:FRX) Lexapro, and now generic forms of Wellbutrin XL, the company has received welcome news abroad. Biovail marketing partner GlaxoSmithKline (NYSE:GSK) announced in mid-January that it had received a marketing license for Wellbutrin XL in the Netherlands, and up to 21 other European countries could see the product by April.

Biovail is currently trading 36% below the 52-week high it reached late last March. Given the challenges that Wellbutrin XL will face in the coming months, clearly FY 2007 will be a critical year for the company. I think the company's ability to successfully mitigate the effects of generic competition, and the continued positive developments in its portfolio, could allow this stock to persevere in the right direction.

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Fool contributor Billy Fisher does not own shares of any of the companies mentioned. The Fool has a disclosure policy.