Anytime you see a pharmaceutical stock with a P/E ratio in the single digits, it can only mean one thing is about to happen to that company's revenues: The introduction of a superior competing product or impending generic drug launches. Sometimes, drug companies under these types of threats can actually make for great value investments if investors discount its shares too severely or overlook the potential of the rest of the company.
Despite attempts to diversify its revenues away from Wellbutrin, the drug accounted for nearly half of the 13% year-over-year growth in product revenues for Biovail, as its sales grew 13% to $123 million. Most of Biovail's other divisions posted moderate sales growth as well, because of pricing increases.
Solidly profitable, adjusted net income grew 28% to $133 million and $0.83 a share, but nearly a third of that growth was due to lower taxes and higher interest income. Operating margins were a healthy 52% excluding one-time expenses.
While shares of Biovail are trading at barely six times the midpoint of its expected earnings per share of $2.50-$2.60 because of worries over generic Wellbutrin XL hitting the market, the company does have some new products that will hopefully make up for future lost sales of the drug. Revenues from the pain reliever Ultram ER have finally started to pick up, growing to $18 million for the quarter after several snafus related to its launch in February. Going forward, Ultram is going to be where most of Biovail's revenue growth comes from, so it's important to see how sales of the drug ramp up over the coming quarters.
Despite its shaky past treatment of shareholders, Biovail gets bonus points for paying a solid annualized 3% dividend despite being such a small specialty pharma. These sorts of actions are just as important in the pharmaceutical sector and are the types of things that make shares of Biovail much more enticing, even with the threat of generic competition on nearly half of its revenues.
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