Biovail Corporation

1. The price per pill that the retailer pays the wholesaler is $2.83, as given by the case.
   The price per pill that the wholesaler pays the distributor is $2.10, due to the 35% wholesaler margin shown below:

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The price that the distributor pays is $0.42, which is due to the 400% mark-up for the distributor.
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One can arrive at the necessary number of truckloads necessary to deliver $10M in product by doing the following: First, calculate how many pills are required to cover $10M in product is worth by dividing $10M by the distributor price per pill. Biovail is selling each pill to the distributor at $0.42. Then, calculate the volume $10M worth of pills would occupy in the interior dimensions provided in the case. The final fraction on a truckload turns out to be 19% of one truckload, as illustrated below (with the total volume per pill equating to 0.5cm3 per pill and 1cm3 per pill packing space):

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1. With the shipping point FOB contract structure, revenue is recognized at the time when the product leaves the company’s site. However, under the destination FOB contract structure, revenue should be recognized upon arrival to the customer.

1. The shipping point FOB method will have no impact on Biovail’s projected revenue. Biovail would book revenue in Q3, and all losses should be incurred by the distributor. In contrast, the destination point FOB method would have an impact on Biovail’s stated revenue since the revenue cannot be booked in Q3, due to the accident. Biovail would then incur the losses associated with costs generated from the accident, that would be booked in Q4.

1. There is no concern about the Biovail’s treatment of the analyst who covers the stock. With Biovail’s stock downgrades resulting in substantial declines in their stock value, the company has strong incentives to combat the merit of these ratings, to increase their shareholder value. Biovail’s statements made against Treppel were in the interest of self-preservation, opposed to a personal attack.

With that in mind, and by working under the assumption that continuing a career as a stock analyst is preferred, there should be no issues with covering Biovail for several reasons. First, though Biovail’s actions led to the investigation of another analyst, there is no reason to believe that an ethical analyst should fear the repercussions of an investigation. In Treppel’s case, he counter-sued Biovail and its executives, though, the verdict has yet to be determined during the writing of the case. Upon giving a negative rating of a company, an analyst should expect his or her opinion to be strongly challenged. Further, while Biovail uses aggressive accounting techniques that may make it challenging for analysts to be definitive in their ratings, it is relatively common for companies, such as Coca Cola and CleanOne Communications, to engage in aggressive accounting. Lastly, with the aggressive accounting techniques used by Biovail, such as channel stuffing, and with the company’s misaligned reports, analysts covering this company can learn how best to spot inconsistencies in the many other corporate reports using similar methods.