Biovail (BVF) is up over 5% in pre-market, as the third quarter results came in better than expected. The company also raised its guidance for 2006 – EPS in a range of $2.50-2.60 and cash flow from operations of nearly $3.00 per share. Even at pre-market prices, this represents forward P/E ratio of under 7. And almost 25% of its market value is in cash. If you strip out this cash, the stock is trading at slightly over 4 times operating cash flow. Undoubtedly, if the numbers can hold up, this is a bargain. But management qualified these estimates by saying that the number assumes that they get no new generic competition and that their existing products continue on their present track.
That, as I’ve written about before, is the key question. For the first nine months, Wellbutrin XL revenues were up almost 40% and accounted for 72% of the company's year-over-year product revenue growth. In all likelihood, this key product, which holds a nearly 60% share of new prescriptions in its market and represents 41% of the company's product revenues, will have generic competition come on line that could seriously impair this position going forward. If not later this year, early next year seems increasingly likely. The conservative investor would factor a precipitate drop in Wellbutrin XL revenues into future cash flow and EPS calculations. How much is unclear, but when generic competition came online for Wellbutrin SR in Canada, prescription volume dropped 32%.
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