Eugene Melnyk Expresses Profound Concerns With the Biovail - Valeant Merger

TORONTO, Sept. 27 /PRNewswire/ - Eugene Melnyk sent the following letter to the Boards and Management of Biovail Corporation and Valeant Pharmaceuticals International and to the United States Securities and Exchange Commission and the United States Department of Justice.

    September 25, 2010

    To:      Directors of the Board of Biovail; Directors of the Board of
             Valeant
    And To:  Bill Wells, CEO Biovail Corporation
    And To:  Mike Pearson, CEO Valeant Pharmaceuticals International
    And To:  United States Securities and Exchange Commission; United States
             Department of Justice

    Dear Sirs/Madames,

    As the founder of Biovail Corporation and following 15 years of devotion
    and hard work to build what once was Canada's largest publicly traded
    pharmaceutical company, I feel compelled to communicate to you my
    profound concerns about the impending acquisition of Valeant by Biovail.

    I hesitated in writing this letter - my intent is not to be the source of
    further acrimony with the current Board and management of Biovail.

    However, notwithstanding this hesitation I am compelled to register and
    explain my opposition to this acquisition - the destruction of a company
    that I founded and built with the goal of producing life-changing
    pharmaceuticals for millions of patients.

    1. Covering-Up Failed Commercial Strategies, Poor Execution and Results

    In my over 15 years of building Biovail Corporation from a company with
    no revenue to a company with thousands of employees, over $1 billion in
    revenue and a market capitalization of over $7.5 billion, I am especially
    proud to have personally overseen the development and commercialization
    of over 25 pharmaceutical products - including introducing new
    innovations such as time-released dosing that dramatically improved the
    health of millions of patients.

    In the last six years since the current Management and Directors at
    Biovail have run the company, they have failed to bring a single drug to
    market and implemented a failed strategy that I personally and very
    publically discouraged and one that Valeant will now abandon - confirming
    my previous fears that I communicated to the Board of Biovail.

    Now, the acquisition of Valeant is a well-constructed and purposely
    complicated front to mask the reality that the Biovail and Valeant
    business models are fundamentally broken.

    By entering into this strictly financially-driven transaction, the
    management of Biovail and Valeant can engineer their balance sheet and
    income statement and hide the fact that their strategy has not and will
    not be successful and that they will no longer be accountable for the
    misguided course upon which they embarked. Moreover, as far as I can see,
    Valeant, as the proposed combined company, has no viable path forward and
    seeks to obfuscate this fact by entering into a transaction that provides
    short term financial gain with long term pain for thousands of employees,
    shareholders and debt holders.

    2. A Bad Deal for American and Canadian Shareholders and Taxpayers

    I know all-too-well the tremendous burden being carried by so many
    Americans and Canadians who are out of work and suffering under the
    continued global economic depression. As a result of this merger, many
    hardworking families in the United States and Canada will face tremendous
    hardship due to Valeant's required layoffs.

    Equally as disturbing is the financial engineering of this transaction.
    The acquisition requires Valeant to borrow billions of dollars to
    artificially diminish the value of the company by paying an unprecedented
    dividend to shareholders. As a result, Biovail - just one third the size
    of Valeant - will falsely be made to appear as the larger 'acquirer'.

    Major banks - Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated and
    Jefferies & Company, Inc., some the beneficiaries of billions of tax
    dollars in American government bailouts - will now fund the billions of
    dollars required for Valeant to exit the US and lay off thousands of
    American and Canadian workers.

    These very banks, Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated
    and Jefferies & Company, Inc., provided "fairness opinions" for this
    deal, and are the parties that have a direct stake in the transaction and
    stand to earn substantial profits. This does not feel like the intended
    outcome of the goodwill of Americans in bailing out financial
    institutions that were themselves at the center of the economic meltdown.
    Sadly, some of the same conduct where short-term banking and management
    profits were put before the best interests of individual companies, their
    employees and the public is exactly what we are facing with this proposed
    merger.

    In this current environment of economic restraint and tighter corporate
    financial systems, how can government and federal regulators permit an
    American company to brazenly issue over a billion dollars in
    unprecedented dividends for the sole purpose of lowering its market
    capitalization so it can selfishly proceed with inheriting an off-shore
    corporate structure with no major commercial gain other than tax
    avoidance?

    3. Serious Commercial Conflicts with the Propriety and Legality of the
       Financial Structure of the Deal

    How can banks that provide fairness opinions of a deal with one hand lend
    billions with the other? Didn't they learn anything from recent history
    when they were on the precipice of financial ruin for this exact type of
    behaviour?

    Dedicated employees will lose their jobs because of a financial
    transaction that only benefits management. This same management will be
    certifying sensitive financial and compliance documentation as to the
    financial health and corporate standing of Biovail.

    4. Excessive Executive Payouts

    I recognize that I bear some responsibility for the state of Biovail
    today. I selected key leaders who are now running the company - including
    Douglas Squires as Chief Executive and, at the time as an Independent
    Director and Audit Committee member, Bill Wells. From the early days, I
    was deeply disappointed in these choices and should have done more at the
    time to correct my mistakes. I retired too early.

    Leading from those early days, these individuals appointed a Board of
    Directors of Biovail that is now among the most richly paid in the world.
    Compensation schemes have now been altered to include richer bonuses and
    'change of control' provisions that have now been activated under this
    deal, paying tens of millions of dollars to management. Even though the
    board of the company recognizes that the CEO is not entitled to a "change
    of control" payment, it has elected to turn a blind eye and make such
    payment. All for pharmaceutical executives who have not brought a single
    drug to market since the day they arrived at Biovail.

    This deal is designed to enrich the management of the company at the
    expense of taxpayers. Bill Wells, the CEO for just over two years, has
    rewarded himself through the Board - an amount almost equal to what
    Biovail spent on clinical research annually just a decade ago.

    In closing, I want to emphasize that while the short-term accretive
    nature of this deal and the demonstrated impact on the share prices will
    result in a positive shareholder vote on Monday, I firmly believe that
    after the bonuses are paid, taxes are funnelled away, executives scatter
    and business settles down, we will be left with the same disappointing
    reality we face today: a company without an executable pipeline of
    pharmaceuticals to develop, market and improve the lives of patients and
    the financial ability to honour the commitments the Management and Board
    are making.

    Sincerely,

    (signed)

    Eugene Melnyk

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