READY TO RUMBLE

Eugene Melnyk won’t leave Biovail without putting up a fight

COLIN CAMPBELL June 30 2008

READY TO RUMBLE

Eugene Melnyk won’t leave Biovail without putting up a fight

COLIN CAMPBELL June 30 2008

READY TO RUMBLE

Eugene Melnyk won’t leave Biovail without putting up a fight

COLIN CAMPBELL

When shareholders gather later this month to decide the fate of the struggling Canadian pharmaceutical company Biovail Corp., they’ll have two choices: the yellow proxy or the blue proxy. In the yellow corner sits Biovail’s largest share-

holder, Eugene Melnyk, who is looking to salvage his damaged legacy and leave his mark on the company he founded but left last year amid allegations of securities violations. In the blue corner sit current chairman Douglas Squires and CEO William Wells, desperate to prove they can breathe life into the company’s plummeting stock price and lead it into a new Melnyk-free era. And leading up to the main event onjune 25—when shareholders will vote for either Melnyk’s slate of dissident nominees or the team put forth by Squires et al.—they’ve been doing what all combatants do before a bout: talk trash.

“Eugene Melnyk is the problem Biovail is trying to solve—not the answer,” said the heads of Biovail in a letter to shareholders earlier this month. “The Biovail nominees bring more expertise, more independence, and better corporate governance experience to the board than the Melnyk nominees.”

On the website Melnyk has set up to promote his proxy fight, betterbiovail.com, he quickly fired back: “The conspiracy theories

being espoused by the incumbent board and management team are extreme,” he wrote. ‘They say I’m obsessed with coming back. I think they’re obsessed with using me as a human shield to deflect their own failures and inadequacies.”

The spitting match has been steadily escalating since February, when Melnyk penned a letter to the Biovail board stating he had ‘lost confidence in management.” The stock price, now at around $10, has been in steady

decline since 2003, when it was worth about $67. In the past year alone, it has declined almost 50 per cent. Melnyk said he was considering taking over the company, selling his shares or moving to replace the directors. By May, the Melnyk uprising had become Biovail’s main focus. In a letter to shareholders, the company eagerly pointed out that litigation from Melnyk’s tenure had cost it $230 million and warned that a vote for yellow

could spell “a return to a Melnyk-influenced company and all that entails.” It sent a 12page letter to shareholders this month, complete with graphs showing the share price under Melnyk, the money spent on litigation, and even charts, split into two columns with the headings, “Eugene Melnyk says,” and on the other side, “The facts are.”

There is no question Biovail has struggled to right itself since Melnyk stepped down. The open question is whether Melnyk’s considerable personal baggage will prevent him from wresting control from the very people he helped put in place a few years ago. Melnyk is facing U.S. accounting fraud charges and Biovail recently paid $10 million to settle its troubles with U.S. regulators. Melnyk’s nominee for CEO, Bruce Brydon, would be his “puppet,” argues Biovail. Brydon, who was Biovail’s CEO during its impressive growth period from 1995 to 2001, laughs at the allegation. “I generally enjoy a hell of a good life. What would motivate me to leave that, only to have Eugene Melnyk’s hand up the back of my shirt,” he says from a hotel in Virginia, where he’s rallying shareholder support. “It doesn’t compute.”

The two sides have radically different visions for the company. The current team wants to pursue the risky development of central nervous system drugs, say the dissidents. “If you vote blue, you’re voting for the end of this business,” says Brydon. The dissidents are focusing on an equally risky product known as “bio-similars,” as well as refocusing on hard-to-make generics, argues the current leadership. “They don’t seem to recognize that the marketplace has changed,” says CEO Wells. “They seem to think that what worked in the 1990s is going to work in 2010.” “There are pluses and minuses on both sides,” says Claude Camiré, a senior health care analyst with Paradigm Capital. “It’s going to be very close.”

And the stakes could hardly be higher. For Melnyk, who also owns the Ottawa Senators hockey club, a win could be a first step toward re-establishing himself as an important figure in Canadian business, and rebuilding a personal fortune that has been decimated by Biovail’s struggles. A loss could be the blow that sends him to the mat for good. M

‘I THINK THEY’RE OBSESSED WITH USING ME AS A HUMAN SHIELD TO DEFLECT THEIR OWN FAILURES’