CASE04_Biovail - Accounting at Biovail INTRODUCTION...

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Accounting at 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 actions, he held a fiduciary duty to stakeholders at Biovail at the time that the deceptive reports were released to the public. As a result, the company will be, at least in part, responsible for the consequences of his actions. Melnyk's suspicious trading activity, failure to issue insider trading reports, inaccurate disclosure of holdings to the public, and understatement of personal ownership stake in the company are all acts contrary to public interest. These events, which are documented from December 2001 to October 2004, occurred during his tenure as CEO of Biovail. Although he personally settled against suspicious trade allegations, stepped down as executive chairman of the board, agreed to forego all other director/officer roles relating to Biovail subsidiaries, and has finally retired from the board altogether, Melnyk has once again been targeted by the SEC, along with 3 other Biovail executives, in connection with their investigations of fraudulent conduct, intentional concealment of missed earnings targets, and active steps to mislead investors and analysts. [It doesn't help Biovail's case that in 2007 Melnyk's net worth put him in the top 70 wealthiest people in Canada.] Accounting at Biovail - 1
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Accounting at Biovail The SEC's Statement of Allegations documents several reporting variations used by Biovail that misrepresented the company's financial results and interfered with investors' abilities to make decisions based on an accurate depiction of the company's
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This note was uploaded on 03/22/2011 for the course ACCT 3391 taught by Professor Turpin during the Spring '10 term at Troy.

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CASE04_Biovail - Accounting at Biovail INTRODUCTION...

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