...11 INTRODUCTION Biovail Corporation was one of the Canada’s largest pharmaceutical publicly traded companies which expert in the development and large scale of manufacturing of pharmaceutical products. Biovail Company engaged activities on enhance formulate of the existing drugs, clinical testing, manufacture and commercial pharmaceutical products and utilized advanced drug delivery technologies. This company had listed on the Toronto and New York Stock Exchange (NYSE). In the case, on September 30, 2003 there was a truck carrying a shipment of Wellbutrin® XL from Biovail’s manufacturing facility in Manitabo to Biovail’s Distributor, North Carolina was involved in a multi-vehicle traffic accident near Chicago. The company announced that the loss of the quarterly earnings which target by $260 million is because of the truck accident happened that contributed a significant unfavourable variance where the company estimated that revenue of the truck that involved in accident was in the range of $10 million to $20 million. There are several issues that addressed in this case which included accounting policy based on the revenue recognition; how Biovail Corporation should account the sales based on two different “Freight On Board” (FOB) point which are FOB Shipping point and FOB Destination point, and ethic of earning management where Biovail is suspected might significantly overestimate the value of the product that involved in the truck accident due to Biovail fail to meet its...
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...Biovail Corporation Case Study 1. The truck’s trailer dimensions are: 17m x 4.5m x 2.5m. To convert the trailer dimensions to centimeters to compare the volume of the boxes to the volume of the trailer: 1 meter = 100 centimeters 17m= 1,700 centimeters 4.5m = 450 centimeters 2.5m = 250 centimeters So the dimensions of the truck in centimeters are: 1,700 x 450 x 250, the volume of which is 191,250,000 cm3 1.5x = 191,250,000 x =127,500,000 In order to carry $10 million of product, only 1 truck is needed. 2. In its most recent filing with the U.S. Securities Exchange Commisions, Biovail recognized revenue when the product was shipped to the consumer (FOB shipping point), meaning the buyer is responsible for the product when it leaves the premises at Biovail. If it recognizes revenue this way, then sales would be recognized net of reserves for estimated product returns, recalls, rebates, and/or chargebacks. If, instead, Biovail recognized revenue under “FOB destination”, then Biovail would be responsible for the product until it’s in the buyer’s possession. It would clear up who would be responsible for loading and unloading costs. Biovail, should recognize revenue under FOB destination to avoid issues of misplaced product. 3. If Biovail recognized the revenue from the sale at the moment the product left Biovail's facility, then the truck accident would not have impacted the company’s third quarter financial results. According...
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...Wellbutrin® XL on board would have to be less than $7.41 million. This indicates that Management’s estimate of the lost revenue is overstated by at least $2.59 million to $12.59 million or 35% to 170% and likely much more than those figures would suggest. Furthermore for the losses to even reach these high estimates, one would have to assume the product was a complete loss which is highly unlikely that such an accident would ruin the entire shipment of drugs. Given that Management indicated that the manufacturing cost of the shipment had been fully insured the economic loss (if any) to Biovail would be significantly mitigated adding to my concerns about the inflated negative guidance. This smacks of a convenient excuse for explaining missing revenue guidance. Issues Regarding Revenue Recognition at Biovail Under US GAAP this revenue should not have been recognized by Biovail because delivery did...
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...Other than having fraud conducting of revenue recognition, Biovail Corporation also has overestimated the amount of Wellbutrin XL on the truck. The company estimated that revenue associated with this shipment was in the range of $10 million and $20 million and confirmed that the manufacturing cost value of this shipment had been fully insured. The trooper estimated that the truck was about one-quarter full. After the investigation done, the analyst stated if there had been $20 million worth of Wellbutrin XL pills on the truck, it would have been full or nearly full. In addition, Biovail Corporation also has expired of Legacy product patents. The Legacy product portfolio included the well-known brands Cardizem CD, Ativan, Vasotec, Vaseretic and Isordil. These products were not actively promoted by Biovail and represented non-core assets for which patent protection had expired. However, sales of Cardizem CD have represented 40% of product sales at Biovail. Biovail Corporation also having problem in report the revenue because it based on channel stuffing. Channel stuffing is the action sends the distributor more product than they are able to sell in order to increase earning. Distributors hold the excessive amount of product. The conflict of the self-interest is the one of the issue that will be arise as the CEO of the company has the share in Biovail Corporation. Recommendation Have the code of ethics. Biovail Corporation should have the code of ethics in it management...
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...Case Review: Rohm and Haas 11/4/2010 Background 2 1983: $2B worldwide sale from 4 segments Kathon microbiocide products: $25M Polymers, resins, and monomers Industrial chemicals Plastics Fluid Process chemicals Specialty chemicals Kathon 886 MW Thayer School of Engineering Agricultural chemicals Petroleum chemicals Kathon MWX 11/4/2010 Background 3 Metalworking fluid: 60 million gallons in the US Biocides kill microorganisms in metalworking fluids Product name Treatment capacity Market potential Sale Volume Actual sale during 1st five month Thayer School of Engineering K 886 MW K MWX 1,000 gal 50-100 gal reservoirs $18M $20M $5.4M (1983) $0.2M (target in 1984) $2.1M $12,000!!! 11/4/2010 Optimistic Prospects for MWX 4 Great market potential ($38M) Maintenance biocides likely to gain market share Several advantages: • Easy to use • No maintenance • Safe • Higher effectiveness • Large customer surplus Thayer School of Engineering 11/4/2010 ... But it doesn‘t sell! 5 Lack of need recognition for biocides Lack of brand awareness among end consumers Lack of MWX awareness Lack of awareness of the benefits of MWX Lack of incentives for distributors to sell MWX Thayer School of Engineering 11/4/2010 End-User EVC of Kathon MWX 6 Compare costs incurred by end-user who does and does not use Kathon MWX Not Using MWX Using MWX Fluid Concentrate Purchase $ $ Fluid Disposal $ $ Risk of Fluid Disposal % % EVC ...
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...Table of Contents 1.0 Abstract 2 2.0 Introduction 2 3.0 Questions and answer 4 4.0 Recommendations 14 5.0 References 15 1.0 Abstract Biovail Corporation, a large pharmaceutical company and had applied advanced drug-delivery technologies to improve the clinical effectiveness of medicines. It is recently had its stock downgraded by a well-known pharmaceutical analyst and a number of other analysts were also scrutinizing the company. The outcome was not favorable, as Biovail's acquisition methods were labeled as unethical and their accounting practices were questioned. An investor with the company must decide if she will continue to invest in a company that has been identified with low ethical standards. 2.0 Introduction Biovail Corporation was one of Canada’s largest publicly traded pharmaceutical companies. Its products commercialized both directly in Canada and through strategic partners (internationally). The company was very expert in the development and large scale of manufacturing of pharmaceutical products. Besides that, Biovail’s stock had listed on both the Toronto and New York stock exchanges. Biovail filed annual reports to the U.S. SEC and prepared financial statements in accordance with both U.S. and Canadian generally accepted accounting principles (GAAP). Biovail Company engaged activities on enhance formulate of the existing drugs, clinical testing, manufacture and commercial pharmaceutical products and utilized advanced drug delivery...
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...4011 APRIL 7, 2009 CRAIG CHAPMAN Biovail Corporation: Revenue Recognition and FOB Sales Accounting Background Late on October 9, 2003, David Maris, an analyst at Banc of America Securities (BAS), was trying to interpret the shocking events of the previous few days and finish the write-up of his first report on the Canadian pharmaceutical firm, Biovail Corporation. Maris didn’t like what he saw at the company, but he never liked writing “Sell” recommendations. In any event, he wanted to make sure he was giving the best advice to his investment clients. Biovail Corporation was one of Canada's largest publicly traded pharmaceutical companies.1 For many years, Biovail had applied advanced drug-delivery technologies to improve the clinical effectiveness of medicines. The company commercialized its products, both directly (in Canada) and through strategic partners (internationally). Historically, its main therapeutic areas of focus had been central nervous system disorders, pain management, and cardiovascular disease. Biovail's core competency was its expertise in the development and large-scale manufacturing of pharmaceutical products. It leveraged this expertise by focusing on (1) enhanced formulations of existing drugs, (2) combination products that incorporated two or more different therapeutic classes of drugs, and (3) difficult-to-manufacture generic pharmaceuticals. In the United States, Biovail distributed a number of pharmaceutical products. These included Zovirax®...
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...challenges confronting Biovail are intensifying as regulatory agencies release formal allegations of misconduct against four corporate executives and as outstanding lawsuits, widespread scrutiny, and a history of questionable accounting practices are unavoidably coming to a head. Responsible for overcoming its damaged reputation and for moving the company forward, it is imperative that management at Biovail resolve three immediate issues. 1. Establishing a worst-case scenario, what is the known liability that Biovail has incurred for deceiving its investors? 2. What does a comparative financial analysis of Biovail, Abbot Labs, and Cephalon reveal about Biovail's strategic weaknesses? 3. What principles of governance can be employed to assure investors that Biovail's past misconduct will not recur in the future? FINANCIAL ANALYSIS Liability for Fraudulent Reporting and Communications to Investors In all likelihood, a class action lawsuit against the company for aggressive and misleading accounting practices (which have had a material impact on shareholder returns) is forthcoming. Biovail must be prepared to accept responsibility for the damage experienced by investors as a result of its former actions and misrepresentations. Even though (as of February 2008) Melnyk no longer holds any affiliated role with Biovail, and although he alone is responsible for his personal actions, he held a fiduciary duty to stakeholders at Biovail at the time that the...
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...UNIVERSITI UTARA MALAYSIA COLLEGE OF BUSINESS FIRST SEMESTER SESSION 2013/2014 BKAL3063 INTEGRATED CASE STUDY GROUP F (2) CASE 3: BIOVAIL CORPORATION - REVENUE RECOGNITION AND FOB SALES ACCOUNTING PREPARED FOR: AMIN BIN ALI PREPARED BY: GAN PEI WEN 205401 SARA LEE HWEI MEI 206998 THEH JIA HUI 207133 JUMAIAH BINTI YASIN 207827 AISHA ANUAR 207919 DATE OF SUBMISSION: 21st OCTOBER 2013 TABLE OF CONTENTS INTRODUCTION 1 ISSUES 1 QUANTITATIVE ANALYSIS 2 QUESTION 1 2 QUALITATIVE ANALYSIS 3 QUESTION 2 3 QUESTION 3 4 QUESTION 4 5 RECOMMENDATION 6 CONCLUSION 6 REFERENCE 7 INTRODUCTION Biovail Corporation is one of the largest Canadian pharmaceutical companies, public traded on the New York Stock Exchange. The company’s products are commercialized and distributed locally (in Canada) and internationally through strategic partners. Biovail applies advanced technology on drug delivery, focusing on several main therapeutic areas such as central nervous system disorder, pain management, and cardiovascular disease. Biovail utilizes its expertise in development and large scale manufacturing, by focusing on enhanced formulations of existing drugs, combination products which use different drug classes, and difficult-to-manufacture generic pharmaceuticals. David Maris is an analyst at Banc of America Securities (BAS), assigned to cover on Biovail’s stocks. Maris did not like what he saw at the company, but neither did he like giving...
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...Weaknesses of Biovail 3 RECOMMENDATIONS 4 CONCLUSION 5 INTRODUCTION Biovail corporation was one of Canada’s largest publicly traded pharmaceutical companies. Biovail is a specialty pharmaceutical company engaged in the formulation, clinical testing, registration, manufacture and commercialization of pharmaceutical products, utilizing advanced drug-delivery technologies. The company currently has over 20 distinct, proprietary drug-delivery technologies and has access to other technologies through licensing agreements with development partners. In September 2010, the stockholders of Biovail Corporation and Valeant Pharmaceuticals International voted in favour of combining the two companies to become one under the Valeant name. The new combined company is known as Valeant Pharmaceuticals International, Inc. and its shares are traded on both the New York Stock Exchange and the Toronto Stock Exchange. In the case, on September 30, 2003, a truck of Biovail carrying a shipment to Biovail’s Distributor, was involved in a multi-vehicle traffic accident near Chicago. David Maris found that Biovail intentionally and falsely attributed nearly half of its failure to meet its third quarter 2003 earnings guidance to a truck accident. Biovail intentionally misstated both the effect of the accident on Biovail’s third quarter earnings as well as the value of the product involved in the truck accident. In fact, the accident had no effect on third quarter earnings. Besides, Biovail applied FOB...
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...4011 APRIL 7, 2009 CRAIG CHAPMAN Biovail Corporation: Revenue Recognition and FOB Sales Accounting Background Late on October 9, 2003, David Maris, an analyst at Banc of America Securities (BAS), was trying to interpret the shocking events of the previous few days and finish the write-up of his first report on the Canadian pharmaceutical firm, Biovail Corporation. Maris didn’t like what he saw at the company, but he never liked writing “Sell” recommendations. In any event, he wanted to make sure he was giving the best advice to his investment clients. Biovail Corporation was one of Canada's largest publicly traded pharmaceutical companies.1 For many years, Biovail had applied advanced drug-delivery technologies to improve the clinical effectiveness of medicines. The company commercialized its products, both directly (in Canada) and through strategic partners (internationally). Historically, its main therapeutic areas of focus had been central nervous system disorders, pain management, and cardiovascular disease. Biovail's core competency was its expertise in the development and large-scale manufacturing of pharmaceutical products. It leveraged this expertise by focusing on (1) enhanced formulations of existing drugs, (2) combination products that incorporated two or more different therapeutic classes of drugs, and (3) difficult-to-manufacture generic pharmaceuticals. In the United States, Biovail distributed a number of pharmaceutical products. These included ...
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...4011 APRIL 7, 2009 CRAIG CHAPMAN Biovail Corporation: Revenue Recognition and FOB Sales Accounting Background Late on October 9, 2003, David Maris, an analyst at Banc of America Securities (BAS), was trying to interpret the shocking events of the previous few days and finish the write-up of his first report on the Canadian pharmaceutical firm, Biovail Corporation. Maris didn’t like what he saw at the company, but he never liked writing “Sell” recommendations. In any event, he wanted to make sure he was giving the best advice to his investment clients. Biovail Corporation was one of Canada's largest publicly traded pharmaceutical companies.1 For many years, Biovail had applied advanced drug-delivery technologies to improve the clinical effectiveness of medicines. The company commercialized its products, both directly (in Canada) and through strategic partners (internationally). Historically, its main therapeutic areas of focus had been central nervous system disorders, pain management, and cardiovascular disease. Biovail's core competency was its expertise in the development and large-scale manufacturing of pharmaceutical products. It leveraged this expertise by focusing on (1) enhanced formulations of existing drugs, (2) combination products that incorporated two or more different therapeutic classes of drugs, and (3) difficult-to-manufacture generic pharmaceuticals. In the United States, Biovail distributed a number of pharmaceutical products. These included ...
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...at Accounting Biovail INTRODUCTION Operating within a complex and highly competitive pharmaceutical industry, the challenges confronting Biovail are intensifying as regulatory agencies release formal allegations of misconduct against four corporate executives and as outstanding lawsuits, widespread scrutiny, and a history of questionable accounting practices are unavoidably coming to a head. Responsible for overcoming its damaged reputation and for moving the company forward, it is imperative that management at Biovail resolve three immediate issues. 1. Establishing a worst-case scenario, what is the known liability that Biovail has incurred for deceiving its investors? 2. What does a comparative financial analysis of Biovail, Abbot Labs, and Cephalon reveal about Biovail's strategic weaknesses? 3. What principles of governance can be employed to assure investors that Biovail's past misconduct will not recur in the future? FINANCIAL ANALYSIS Liability for Fraudulent Reporting and Communications to Investors In all likelihood, a class action lawsuit against the company for aggressive and misleading accounting practices (which have had a material impact on shareholder returns) is forthcoming. Biovail must be prepared to accept responsibility for the damage experienced by investors as a result of its former actions and misrepresentations. Even though (as of February 2008) Melnyk no longer holds any affiliated role with Biovail, and although he alone is responsible for his personal...
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...Biovail Case Assignment Questions: 1. How many truckloads of product are actually required to carry $10 million of product? Show your calculations. Given: a. 1 Wellbutrin XL tablet is estimated to be 1.5 cm3 (this includes the packing space) b. 1 18-wheeler trailer’s dimensions are: 17m x 4.5m x 2.5m Since the tablet and the trailer are using different units of measurements we need to convert the trailer dimensions to centimeters before we can calculate the volumes. a. To convert meters into centimeters the ratio is: 1meter = 100 centimeters 17m= 1,700 centimeters 4.5m = 450 centimeters 2.5m = 250 centimeters To calculate volume b. Volume of a rectangular prism = a x b x c Volume= 1,700 x 450 x 250 Volume = 191,250,000 cm3 c. To find out how many Wellbutrin XL tablets fit into a trailer 1.5x=191,250,000 X=127,500,000 d. How much revenue does Biovail get from a single pill ? 400% 35% $2.83 Biovail → Distributor → Wholesaler → Retailer 0.52 ← 2.10 / 400% ← 2.83/1.35%=2.10 127,500,000 x 0.52= $6,630,000 One truck can definately carry $10 million worth of Wellbutrin XL tablet product. 2. How should the company recognize revenue based upon the two possible FOB contract structures mentioned in the case? Since Biovail’s stock is publically owned it needs to file its financial statements with the SEC. The SEC requires that it abide by GAAP...
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...1. a) What is the manufacturer revenue per pill? (Please see attached calculation file) Biovail Distributor Wholesaler Retailer Retailer Wholesaler Distributor Cost = $2.83 Margin = (Price – Cost)/Price Margin = 0.35, Price = $2.83 Cost = Price(1 – Margin) Cost = $1.84 Markup = (Price – Cost)/Cost Markup = 4, Prices = $.184 Cost = Price/(1 + Markup) Cost = (1.84)/5 = $0.37 Biovail = $0.3679 revenue per pill = $0.37 revenue per pill (rounded) • How many pills equate to $10m in revenue? $10m = X * $0.37 X = 27,027,027.03 = Rounded up 27,027,028 pills equate to $10m in revenue • What is the volume of $10m worth of pills? Per Pill = 1.5 cm3 $10m worth of Pills converted to cm3 27,027,028 Pills = 40,540,542 cm3 1 Liter = 1000 cm3 40,540,542 / 1000 = 40,540.54 Liters 1 Gallon = 3.7854 Liters 40,540.54 Liters / 3.7854 Liters = 10,709.71 Gallons 64 Gallons = 1 Drum 10,709.71 Gallons / 64 Gallons = 167.34 Drums The volume of $10m worth of pills is 167.34 Drums • How many truckloads are required to carry $10 million worth of pills? One 18-wheeler Truck = (17m (100) * 4.5m (100) * 2.5m (100)) = 191,250,000 cm3 Truckload(s) to carry $10m worth of pills = 40,540,542 cm3 / 191,250,000 cm3 = 0.211977 = 21.1977% One truckload is more than enough to carry $10 million worth of pills, approximately 21.1977% of a truckload or roughly one fifth of the truck equates to $10 Million worth of pills. 2. How should the company...
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