6-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934

May 21, 2003

Commission File Number 001-11145

BIOVAIL CORPORATION

(Translation of Registrant's name into English)

7150 Mississauga Road, Mississauga, Ontario, CANADA, L5N 8M5
(Address of principal executive office and zip code)

Registrant's telephone number, including area code: (905) 286-3000

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  ý                       Form 40-F  o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1).

Yes  o                       No  ý

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7).

Yes  o                       No  ý

Indicate by check mark whether by furnishing the information contained in this form the registrant is also hereby furnishing the information to the Commission pursuant to Rule 12g 3-2(b) under the Securities Exchange Act of 1934.

Yes  o                       No  ý

BIOVAIL CORPORATION

This Report of Foreign Private Issuer on Form 6-K is incorporated by reference into the registration statements on Form S-8 (Registration No. 333-92229) and on Form F-10 (Registration No. 333-14048) of Biovail Corporation.

INDEX

Exhibit	99.1 — 2002 Annual Report
	99.2 — Notice of Annual and Special Meeting of Shareholders — June 20, 2003
	99.3 — Management Information Circular
	99.4 — Proxy for the Annual and Special Meeting of Shareholders
	99.5 — 2002 Annual Report for Canadian Regulatory Purposes

SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BIOVAIL CORPORATION
Date: May 22, 2003	By:	/s/  JOHN R. MISZUK John R. Miszuk Vice President, Controller and Assistant Secretary

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BIOVAIL CORPORATION
INDEX
SIGNATURES

EX-99.1

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Biovail 2002 Annual Report
Making medicine easier to take

CORPORATE PROFILE

        Biovail Corporation is an international fully integrated pharmaceutical company specializing in the development, manufacture, sale and marketing of medications for the treatment of chronic medical conditions. Biovail has a number of proprietary drug delivery technologies that it applies to brand name drugs to produce enhanced versions.

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While Biovail continually explores all therapeutic areas, the company's main therapeutic areas are cardiovascular, central nervous system and pain management. Biovail currently markets more than 20 products in North America and a number of products throughout 55 other countries, both directly and through strategic marketing partnerships. Biovail's direct marketing efforts in North America are supported by an extensive U.S. and Canadian sales force of more than 650 sales professionals.



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Biovail maintains an active drug development pipeline and its proprietary technology platforms are currently being applied to more than 30 promising pharmaceutical products.



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Biovail Corporation, with more than 1,800 employees worldwide, trades on the New York Stock Exchange and the Toronto Stock Exchange under the symbol BVF.

Financial Highlights

	Years ended December 31
	2002		2001		2000
	(All dollar amounts expressed in thousands of U.S. dollars, except per share data)
Total revenue	$	788,025	$	583,263	$	309,170
Net income (loss)		87,795		87,448		(147,976	)
Net income excluding certain items1		284,076		202,853		123,987
Cash flows from operating activities		334,104		284,121		102,494
Diluted earnings (loss) per share	$	0.55	$	0.58	$	(1.16	)
Diluted earnings per share excluding certain items1	$	1.77	$	1.35	$	0.86
Total assets	$	1,833,804	$	1,331,483	$	1,107,267

¹ Certain items consist of write-down of assets, acquired research and development, other income, debt conversion premiums, extraordinary item and cumulative effect of change in accounting principle.

[CHART] [CHART] [CHART] [CHART]

Making medicine better

	Page
At-a-Glance	2
Letter to Shareholders	3
The Controlled-Release Drug Market	7
Cardiovascular	9
Central Nervous System (CNS)	12
Pain Management	13
Other Therapies	15
Product Portfolio	17
Management's Discussion and Analysis	19
Management Report, Auditors' Report	38
Consolidated Financial Statements and Notes	39
Eight-Year Financial Summary	85
Selected Quarterly Data	86
Board of Directors and Officers	87
Shareholder Information	ibc

Biovail — a better understanding

        IN 2002, BIOVAIL ACHIEVED RECORD REVENUES IN EXCESS OF $750 MILLION, SIGNIFICANTLY EXPANDED ITS U.S. SALES FORCE AND LAUNCHED A NUMBER OF NEW PRODUCTS INTO THE MARKET. WE ALSO COMPLETED DEVELOPMENT OF A NUMBER OF MAJOR NEW PRODUCTS. REGULATORY APPROVAL AND LAUNCH OF THESE EXCITING PRODUCTS IN 2003 WILL FURTHER FUEL OUR GROWTH IN SALES AND REVENUE.

Controlled-Release Drug Market

        Biovail Corporation is a world leader in the field of drug delivery technology. We apply our proprietary technologies to select drug compounds to produce enhanced products that offer significant clinical advances over existing products. These advantages include more consistent drug delivery, superior efficacy and lower incidence of side effects. Biovail's drug delivery technologies can be applied to improve existing products and to create new, superior innovative products in select therapeutic categories — Cardiovascular, Central Nervous System and Pain Management.

Cardiovascular

        Biovail develops, manufactures and markets advanced controlled-release medications for the treatment of diseases of the cardiovascular system. We have targeted the $13.5 billion antihypertensive and the $13 billion lipid lowering agent markets in particular. Our current cardiovascular portfolio includes some of the world's best selling medications, including Tiazac® and the Cardizem® line of diltiazem products. The recent addition of Cardizem LA and Teveten® HCT will further bolster this strong portfolio. A number of other cardiovascular products are currently under development.

[GRAPH][GRAPH]

Central Nervous System (CNS)

        The lead product in Biovail's current CNS portfolio is Wellbutrin XL, a once-daily version of a market leading antidepressant, co-developed in partnership with GlaxoSmithKline. This new product will compete in the $12 billion antidepressant market. Biovail has also partnered to develop a novel enhanced absorption formulation of Effexor, another leading antidepressant. Other highly successful antidepressants have also been identified and are currently in advanced development in the Biovail drug delivery pipeline.

Pain Management

        Through the application of proprietary drug delivery technologies, Biovail develops superior products for the treatment of pain. Our tramadol ER will be a leading once-daily formulation for the treatment of the signs and symptoms of osteoarthritis. Also under development is a FlashDose® formulation of sumatriptan, the market leading anti-migraine product. FlashDose delivery technology is also being applied to other pain products in the development pipeline.

Other Therapies

        Biovail's mandate is to identify, develop, manufacture and market once-daily controlled-release products using our delivery technologies in select additional therapeutic categories that fulfill our clinical and business criteria. We are currently developing, both independently and through strategic partnerships, a number of carefully selected controlled-release products that will provide distinct therapeutic and competitive advantages

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within their specific categories. In addition, we continue to investigate promising new opportunities in the international pharmaceutical community.

[GRAPH][GRAPH]

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BVF 2002 ANNUAL REPORT

Dear Fellow Shareholders:

        THE PAST YEAR HAS BEEN PERHAPS THE MOST EXCITING AND EXCEPTIONAL YEAR IN THE HISTORY OF BIOVAIL. IT WAS A YEAR MARKED NOT ONLY BY CONTINUED GROWTH IN BOTH SALES AND REVENUE, BUT ALSO BY A NUMBER OF SIGNIFICANT ACHIEVEMENTS AND MILESTONES THAT WILL POSITIVELY IMPACT BIOVAIL'S GROWTH AND PROSPERITY IN THE COMING YEAR AND THE FORESEEABLE FUTURE.

        During 2002 and the latter half of 2001, Biovail effectively completed its transition from a research and development and manufacturing based organization to a fully integrated international pharmaceutical company. This was achieved through a number of key strategic initiatives.

A NORTH AMERICAN SALES NETWORK

        One of the most significant strategic activities in 2002 was the continued expansion of our North American sales operation. Through aggressive recruitment and intensive training in our sales and marketing divisions in Canada and the United States, Biovail has been able to establish an extensive network of effective and motivated sales professionals across the continent. To date, Biovail has over 600 sales and marketing professionals in the U.S. and 100 in Canada.

        Biovail's sales presence in the United States was further bolstered in late 2002 through a strategic alliance with Reliant Pharmaceuticals. These additional 250 sales professionals are co-promoting a number of Biovail's key cardiovascular products, including Teveten HCT and Cardizem LA.

        The approval of Cardizem LA for the treatment of hypertension, received in the first quarter of 2003, marks a major milestone for Biovail. In addition to being the first Biovail-developed product launched by our own U.S. sales organization, Cardizem LA represents a clinical breakthrough. It is the first once-daily graded diltiazem product specifically formulated to provide maximum protection in the early morning hours when the risk of adverse cardiac events is highest. Cardizem LA is a significant entry into the $13.5 billion U.S. hypertension market.

NEW PRODUCTS

        New product development remains a priority. We continued to build our pipeline in 2002 through ongoing research and development activities as well as acquisitions and strategic partnerships.

        The acquisition of U.S. marketing rights to Teveten and Teveten HCT from Solvay Pharmaceuticals early in the year bolstered Biovail's cardiovascular portfolio. Teveten and Teveten HCT are medications for the treatment of hypertension and complement Biovail's cardiovascular product line. Through the promotion of Teveten, Biovail's sales force was able to establish relationships with key physicians throughout the United States. Teveten monthly prescriptions grew in excess of 90% in 2002 after re-launching the product in June 2002 and effectively supporting our sales efforts with a marketing and brand awareness campaign.

        Biovail's cardiovascular portfolio was further enhanced in May through the acquisition of U.S. rights to the leading antihypertensive medications, Vasotec® and Vaseretic®, from Merck & Company. Together, sales of Vasotec and Vaseretic in the United States in 2002 exceeded $95 million. Opportunities to further develop these well-respected products alone, or in combination therapy with Cardizem, will provide additional leverage to Biovail's cardiovascular sales force.

STRATEGIC PARTNERSHIPS

        Our agreement with the leading drug delivery company, Ethypharm, opens up a number of exciting new product opportunities. Under the terms of the agreement, we have acquired the rights to commercialize six promising Ethypharm products. These include a novel dosage format of '5 fluouracil', a modified release medication for the treatment of gliblastoma, an aggressive form of brain cancer. Phase III clinical trials of this

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product are expected to begin in 2004. Also included in the agreement are five other controlled-release products, including oral antivirals and treatments for pain.

        The Ethypharm agreement allows Biovail to take advantage of synergies between its own controlled-release technology platforms and those of Ethypharm to develop advanced products in a number of important therapeutic categories, and provides Biovail with a point of entry into the European research and development community for sourcing promising new chemical entities.

        In the first half of 2002, Biovail licensed the rights to manufacture and market a new once-daily formulation of metformin HCI for the treatment of Type II diabetes in North America. Currently undergoing Phase III clinical trials by its developer, DepoMed Inc., the new metformin GR utilizes an advanced gastro-retention (GR) delivery technology. On approval, anticipated in 2004, metformin GR will compete in the $2.2 billion metformin market — a market expected to grow significantly as an estimated 800,000 new cases of diabetes continue to be diagnosed in the U.S. each year.

        During 2002, our marketing partner, GlaxoSmithKline (GSK), filed a new drug application with the U.S. Food and Drug Administration for a once-daily version of bupropion, Wellbutrin XL. Biovail developed this once-daily formulation and licensed the marketing rights to GSK for promotion worldwide, with the exception of Canada. Through this agreement, Biovail will manufacture and supply Wellbutrin XL to GSK for a significant share of this product's sales. The launch of Wellbutrin XL is expected in the second half of 2003. GSK and Biovail anticipate that this once-daily version will offer more convenient dosing and significant clinical advantages over the twice-daily version — Wellbutrin SR — currently marketed by GSK, which had sales in excess of $1.5 billion in 2002.

        We also expanded our relationship with GSK by acquiring Canadian marketing rights to the antidepressant Wellbutrin SR and the smoking cessation product Zyban. The combined sales of these two products in Canada exceeded $30 million in 2002 and are expected to grow over the next five years. In addition, the agreement provides Biovail with an opportunity to market the highly promising once-daily Wellbutrin XL in Canada upon its approval. This will bolster our Canadian sales and marketing division's portfolio of products for the $450 million Canadian antidepressant market.

BUILDING THE PIPELINE

        On the research and development side, our drug delivery technology and product pipeline was considerably strengthened by the fourth quarter acquisition of the Pharma Pass companies. This acquisition provides Biovail with a new novel advanced drug delivery platform, Zero Order Release System (ZORS), as well as an oral colonic drug delivery technology. As part of this transaction, Biovail also acquires a number of New Drug Application (NDA) products currently under development. These include enhanced absorption formulations of fenofibrate (Tricor) for the treatment of high cholesterol and the antidepressant medication, venlafaxine (Effexor). Currently, brand name versions of these two drugs represent over $2 billion in annual sales. We anticipate that improvements in the absorption and delivery of these two compounds will enhance their efficacy and provide significant marketing opportunities for Biovail or a partner.

        Also as part of this agreement, Biovail acquires an immediate interest in a recently launched omeprazole product. This bio-equivalent version of the market leading ulcer medication Prilosec is the only formulation ruled not to infringe on the originator's patent.

DEFINING OUR STRATEGY

        Each of the initiatives mentioned above and milestones achieved during 2002 are in keeping with Biovail's stated strategy, which, in turn, outlines the mechanisms by which we will sustain our future growth in the short-, mid- and long-term.

        Biovail is committed to the ongoing development and commercialization of superior, enhanced drug delivery medications with strong market potential in the cardiovascular, central nervous system, pain management and niche therapeutic categories.

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        By applying drug delivery technologies, we strive to create better medications. This might mean medications that are easier or more convenient for patients to take, medications that work faster, drugs with a lower incidence of adverse side effects or medications that provide clinical advantages for patients. When we are successful in this process, we have created not just better medications but competitive advantages for Biovail.

        We intend to complement our internal development process through the addition of leading drug delivery technologies or promising products within our target therapeutic categories. We also aim to broaden our in-market portfolio of products and capitalize on well-established medications that have good brand equity and a solid existing prescription base. Our acquisition strategy seeks to capitalize on opportunities within the global pharmaceutical industry that fulfill our clinical and business criteria.

        Due to our fully integrated infrastructure, we have the option to market our products directly though our extensive sales and marketing divisions, Biovail Pharmaceuticals Inc. in the U.S. and Biovail Pharmaceuticals Canada, as well as through strategic marketing partnerships and licensing agreements with third party organizations such as GSK. In addition, we have the opportunity to sell select products in key world markets through marketing partners.

        To add to the flow of promising products in the mid and long terms, Biovail Ventures, our early stage business development group, continues to explore product and technology opportunities within the core areas of cardiovascular, CNS and pain management, as well as other therapeutic categories that exhibit significant market potential and offer synergies with Biovail's products and technology platforms. These include endocrine/metabolic disorders, gastrointestinal disorders, oncology, immune system disorders, antiviral medicine and geriatric medicine, among others.

        In 2002, we undertook a series of initiatives to ensure our company met or exceeded the corporate governance standards required in today's business environment. In fact, Biovail has long been a proponent of strict corporate governance and had initiated a number of standards before current regulations were invoked. Biovail is fully compliant with NYSE, TSX and SEC rules and regulations and the applicable provisions of the Sarbanes-Oxley Act of 2002 in the U.S., as well as the pending corresponding legislation in Canada. This includes CEO and CFO certification of financial information. Biovail has adopted a Charter for the Board of Directors and Executive Committee and a detailed Code of Business Conduct. In addition, Biovail has integrated a Manual of Corporate Governance that has been reviewed and approved by an independent law firm.

RECORD FINANCIAL RESULTS

        From a financial standpoint, 2002 was a record year for Biovail. Total revenues for the year ended December 31, 2002 were $788 million, reflecting an increase of $204.7 million or 35% over the previous year. Net income for 2002 was $87.8 million compared to net income of $87.4 million for 2001. Excluding certain items, net income for full year 2002 increased 40% to $284.1million versus full year 2001 net income of $202.9 million. Diluted earnings per share for full year 2002 were $0.55 versus full year 2001 diluted earnings per share of $0.58. Excluding certain items, full year 2002 diluted earnings per share increased 31% to $1.77 versus $1.35 diluted earnings per share for 2001.

AN EXCELLENT OUTLOOK

        The outlook for 2003 and beyond is excellent, as Biovail will continue to progress in a number of key areas. This year will see the launch of two of the most significant products in this company's history to date. The U.S. launch of Cardizem LA provides Biovail with a truly innovative, clinically supported product that could have a significant impact in the treatment of hypertension. Similarly, the introduction of the Biovail-GSK developed once-daily antidepressant Wellbutrin XL, expected in the second half of 2003, is highly anticipated. These are just two of the exciting products expected to be commercialized in 2003.

        The introduction of new products developed in-house or in-licensed from strategic partners will allow our U.S. and Canadian sales operations to further leverage an already strong portfolio and allow for continued sales growth.

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        These and other initiatives will be supported by a framework of controlled and strategic growth as Biovail pursues emerging opportunities in the pharmaceutical marketplace.

        Reflecting on the achievements of 2002, and looking ahead with anticipation to 2003, I would like to express my appreciation, on behalf of the Board, for the continuing dedication and hard work of Biovail's employees, and acknowledge the confidence and support of shareholders.

Eugene Melnyk (SIGNED)
Chairman of the Board
Chief Executive Officer

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THE CONTROLLED-RELEASE DRUG MARKET

Market size: $16 billion plus

Prof. Arnold Beckett, OBE
Millennium Pharmaceutical Scientist
World Congress of Pharmaceutical Sciences

"Controlled-release formulations are designed to optimize the supply of the drug to the sites in the body where it is needed. By scientifically controlling the rate and location of the drug's release you can limit unnecessary exposure in the body, reduce side effects and reduce the number of times per day it needs to be taken. The experience of Biovail and its supremacy in the design of controlled-release products puts Biovail in a unique position to develop effective products."

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The goal is to make medications better — easier to take, producing better results with fewer side effects.

        The goal is to make medications better — easier to take, producing better results with fewer side effects.

        To reach this goal, we apply controlled-release and other delivery technologies to existing medications. Expertise in these technologies is Biovail's heritage.

        As a pioneer in this $16 billion-plus field, we firmly established ourselves as an innovator and world leader.

        We apply our proprietary controlled-release technologies to brand name drugs to produce medications that provide more predictable and consistent delivery of the drug's active ingredient throughout the day. This, in turn, results in improved therapeutic efficacy and reduced side effects. Dosing schedules are reduced, enhancing compliance and improving overall clinical results, to the benefit of the patient, the clinician and the health system.

        We continue to build on this core expertise through ongoing R&D and strategic acquisitions. We currently develop advanced pharmaceutical products utilizing a number of proprietary patented drug delivery technology platforms, including: CEFORM™, Consurf, Enhanced Absorption, FlashDose and Shearform™. In addition, we have recently acquired new gastro-retentive, colonic delivery and enhanced absorption drug delivery technologies.

        Through appropriate application of these advanced technology platforms, alone or in combination, Biovail's scientists can improve the delivery, and ultimately the efficacy, of a vast range of existing or new drug compounds.

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CARDIOVASCULAR

	The Hypertension Market		The Cholesterol Lowering Agent Market
Market size	$	13.5 billion	$	13 billion
Annual growth		6%		13%
Total number of prescriptions		413 million		137 million
Annual growth		6%		11%

Dr. Joel M. Neutel
Assistant Clinical Professor of Medicine
University of California, Irvine, CA
Chief, Clinical Pharmacology and Hypertension
VA Medical Center, Long Beach, CA

"Diltiazem has an excellent dose-response curve and has been shown to provide more effective blood pressure control at higher doses. Because Cardizem LA provides a higher dose of diltiazem, but with excellent tolerability, we can take advantage of this benefit. Most importantly, Cardizem LA provides true 24 hour blood pressure control and is formulated to be especially effective during the early morning hours when the risk of adverse cardiovascular events is the greatest."

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Cardizem LA is specifically formulated to provide increased protection in the early morning hours

        Cardiovascular disease remains the number one cause of death in North America, claiming over one million lives each year — that's one in every three deaths.

        Recent estimates say that a staggering 68 million Americans have one or more forms of cardiovascular disease. Hypertension — or high blood pressure — alone affects 50 million adults, and the numbers continue to grow.

        Cardiovascular medicine is one of Biovail's primary areas of expertise. The latest addition to our strong portfolio is once-daily, graded release Cardizem LA, a novel new treatment for hypertension. Launched in the U.S. in April 2003, Cardizem LA is specifically formulated to provide increased protection in the early morning hours, when patients may be at the greatest risk of significant cardiac events, and smooth release over a full 24 hours.

        This new product joins Teveten HCT, a hypertension medication that incorporates a diuretic, which we launched in early 2003.

        Other key products under development include Vasotec XL, an enhanced formulation of this leading ACE inhibitor.

        We are also targeting the $13 billion cholesterol lowering agent market by focusing on improved drug delivery formulations of simvastatin EA and fenofibrate SB, leading products in the treatment of high cholesterol.

        The successful development of these and other products currently under investigation will further enhance Biovail's reputation as a world leader in the development and marketing of advanced drug delivery medications for the treatment of cardiovascular conditions.

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	The Depression Market
Size of market	$	12 billion
Annual growth		3%
Number of prescriptions		200 million
Annual growth		12%

        The human nervous system is incredibly complex and susceptible to a vast variety of medical disorders.

        Foremost is clinical depression. If not treated effectively, depression robs people of their health, their sense of self and even their ability to cope with daily life.

        The statistics are sobering. Experts believe that one in ten men and one in four women in the developed nations will suffer from depression. Visits to physicians for depression have increased steadily for the past six years and the World Health Organization predicts this condition will soon become "the world's greatest health burden."

        At Biovail, we have targeted depression as one of our core therapeutic areas. Through a strategic partnership with GlaxoSmithKline, we will commercialize Wellbutrin XL, an improved once-daily version of one of the world's best selling new generation antidepressants, which was developed by Biovail.

        Other highly successful agents, including venlafaxine with its double-digit sales growth, have been identified and are currently being developed in our enhanced drug delivery pipeline.

        We also continue to investigate and develop other CNS-specific products, including sleeping aids, anxiety medication, smoking cessation agents and anti-Parkinson's medications.

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CENTRAL NERVOUS SYSTEM (CNS)

We have developed Wellbutrin XL, an improved once-daily version of one of the world's best selling new generation antidepressants

Dr. Richard Weisler
Adjunct Professor, Department of Psychiatry
Duke University
University of North Carolina, Chapel Hill, NC

"What separates Wellbutrin from the other effective antidepressants is that it doesn't produce the levels of sedation, fatigue, weight gain or other side effects that these products do. Wellbutrin XL has an even better side effect profile. Any concerns that clinicians may have in prescribing multiple dose antidepressants due to fears that patients won't take more than one tablet a day will be more than addressed by once-daily Wellbutrin XL."

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PAIN MANAGEMENT

	The Pain Management Market		The Migraine Market
Size of market*	$	4.3 billion	$	1.8 billion
Annual growth		7%		7%
Number of prescriptions		160 million		13 million
Annual growth		7%		8%

*Moderate to moderately severe pain

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Our tramadol ER will be a leading once-daily formulation for the treatment of the signs and symptoms of osteoarthritis

Dr. Najib Babul
Chief Executive Officer
TheraQuest Biosciences, LLC
Member, Editorial Board
Journal of Pain & Palliative Care Pharmacotherapy

"Tramadol is a pharmacokinetically unique analgesic with dual methods of action that has gained wide acceptance from clinicians and patients. Once-daily tramadol will provide more consistent blood levels and reduced peak-to-trough fluctuations. For the patient, this means longer duration of action, more consistent pain control and reduced side effects. It will, quite simply, provide improved quality of life."

        An estimated 50 million people in North America alone suffer from chronic pain. Whether caused by illness or injury, pain can dramatically affect quality of life. It can restrict mobility and impair the ability to work and enjoy the simple everyday activities of life.

        Pain is the reason given for a quarter of all sick days taken each year, and the annual medical costs associated with treating pain are estimated to be more than $100 billion.

        At Biovail, one of our key targets is the development of new, more effective pain medications. Our tramadol ER will be the first once-daily formulation of one of the leading treatments for pain in osteoarthritis, back problems and other pain syndromes — a market that continues to expand as the North American population ages.

        Another expanding therapeutic category is migraine. We are currently applying our patented technology to the development of a FlashDose formulation of sumatriptan, a market leading anti-migraine product. In an area where fast, effective pain relief is the ultimate goal, the rapid dissolve action of FlashDose may offer a distinct competitive advantage.

        A FlashDose version of tramadol is also under development along with other products designed to alleviate the suffering and economic impact of pain.

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OTHER THERAPIES

        Other drug delivery technologies can be applied to a vast range of medications and can provide clinical benefits for millions of patients with a variety of medical conditions.

        In addition to our core therapeutic categories — Cardiovascular, CNS and Pain Management — we continue to investigate opportunities in other therapeutic areas.

        We thoroughly investigate all potential opportunities through the application of a stringent screening process. An opportunity must meet our demanding clinical and business criteria. The candidate drug or technology must provide synergies with our existing technologies and clinical expertise and demonstrate significant market potential.

        From a product perspective, Biovail's strategy is to develop or acquire branded pharmaceutical products that may be enhanced through the application of our drug delivery technologies. Through this process, we intend to develop products that provide a distinct therapeutic and competitive advantage within the specific category. We then have the option to develop the drug ourselves or engage in a strategic partnership. Promising examples include Biovail's collaboration on once-daily metformin XL for the management of Type II diabetes and controlled-release formulation enhancements of the successful antiviral medication acyclovir.

        Additional therapeutic categories we target include: endocrine/metabolic disorders, gastrointestinal disorders, oncology, immune system disorders, antiviral medicine and geriatric medicine.

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Promising examples include the development of once-daily metformin XL

Rolf Reininghaus
Senior Vice President
Corporate & Strategic Development
Biovail Corporation

"Having a strong drug development pipeline ensures Biovail will have a steady flow of new revenue producing products in the mid to long term. Identifying and acquiring promising compounds in other chronic therapeutic categories from emerging development stage companies is an excellent way to expand our pipeline. We focus on compounds that meet well-defined medical needs in carefully targeted niche market segments and which can be commercialized."

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BIOVAIL PRODUCT PORTFOLIO

MARKETED PRODUCTS

Product	Indication	Current Status
BRANDED (NDA)
Biovail Pharmaceuticals USA
Cardizem®	Hypertension/Angina	Commercialized
Cardizem® LA	Hypertension	Commercialized
Zovirax Ointment	Herpes	Commercialized
Wellbutrin SR4	Depression	Commercialized
Teveten®3	Hypertension	Commercialized
Teveten® HCT3	Hypertension	Commercialized
Cedax	Respiratory Infections	Commercialized
Rondec®	Respiratory/Allergy	Commercialized
Vasotec®/Vaseretic®	Hypertension, Congestive Heart Failure	Commercialized
Biovail Pharmaceuticals Canada
Cardizem®	Hypertension/Angina	Commercialized
Tiazac®1	Hypertension/Angina	Commercialized
Retavase™	Acute Myocardial Infarction	Commercialized
Celexa®2	Depression	Commercialized
Monocor®	Hypertension, Congestive Heart Failure	Commercialized
Wellbutrin® SR	Depression	Commercialized
Zyban®	Smoking Cessation	Commercialized
BIOEQUIVALENT (ANDA)
Trental	Peripheral Vascular Disease	Commercialized
Cardizem® CD	Hypertension/Angina	Commercialized
Voltaren XR	Arthritis	Commercialized
Adalat CC	Hypertension/Angina	Commercialized
Procardia XL	Hypertension/Angina	Commercialized

        ¹ Tiazac® is also promoted and distributed in the U.S. by licensee Forest Laboratories Inc.

        ² Co-promoted with H. Lundbeck A/S.

        ³ Acquired from Solvay Pharmaceuticals Marketing & Licensing AG in February 2002.

        ⁴ Co-promoted with GlaxoSmithKline in the U.S., January 1, 2002 to March 31, 2003.

        N.B. We have also developed 11 additional products that have been successfully commercialized by various licensees in numerous world markets.

        * Biovail also has numerous undisclosed pipeline products under development.

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PIPELINE PRODUCTS

Product	Indication	Current Status
BRANDED (NDA)
Bupropion XL	Depression, Smoking Cessation	Under Development
Metformin OD	Type II Diabetes	Under Development
Tramadol XL	Chronic Pain	Under Development
Acyclovir CR	Herpes	Under Development
Simvastatin EA	High Cholesterol	Under Development
Enalapril XL	Hypertension	Under Development
d-methylphenidate	Attention Deficit-Hyperactivity Disorder	Regulatory Review
Mismatched double-stranded RNA®	Chronic Fatigue Syndrome	Under Development
Putrescine®	Surgical Scars and Burns	Under Development
Zovirax Cream	Herpes	Approved
Fenofibrate	High Cholesterol	Under Development
Venlafaxine	Depression	Under Development
5 FU	Cancer	Under Development
FlashDose® Fluoxetine	Depression	Regulatory Review
FlashDose® Zolpidem	Sleeping Disorders	Regulatory Review
FlashDose® Paroxetine	Depression, Other	Regulatory Review
FlashDose® Sumatriptan	Migraine	Under Development
Bisopropol	Hypertension	Under Development
Isosorbide-5-mononitrate	Hypertension	Under Development
Pravastatin	High Cholesterol	Under Development
Simvastatin	High Cholesterol	Under Development
BIOEQUIVALENT (ANDA)
Dilacor XR	Hypertension/Angina	Regulatory Review
Verelan	Hypertension/Angina	Regulatory Review
Tegretol	Epilepsy	Regulatory Review
Procardia XL — 90mg	Hypertension/Angina	Regulatory Review

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In accordance with U.S. generally accepted accounting principles
(All dollar amounts expressed in U.S. dollars)

        The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") prepared in accordance with U.S. generally accepted accounting principles ("GAAP") should be read in conjunction with the audited consolidated financial statements and related notes thereto prepared in accordance with U.S. GAAP.

PROFILE

        We are a full-service pharmaceutical company, engaged in the formulation of pharmaceutical products utilizing advanced oral drug delivery technologies, clinical testing, registration, manufacturing, sale and promotion of pharmaceutical products targeting the cardiovascular (including Type II diabetes), central nervous system, pain management and niche therapeutic areas.

        Our primary business strategy is to support the commercialization of our product development pipeline by expanding our sales and marketing presence in the United States and Canada. We intend to complement our product pipeline by acquiring established pharmaceutical products, in-licensing products in early stages of development and entering into product development collaborations with third parties.

        We have research and development, clinical testing, manufacturing, sales and marketing operations in the United States, Canada, Barbados and Puerto Rico, and a research facility in Ireland.

OVERVIEW

        We continue to make significant progress in terms of product approvals. In February 2003, we received U.S. Food and Drug Administration ("FDA") approval for Cardizem® LA, a graded extended-release formulation of diltiazem hydrochloride ("HCl"), for the treatment of hypertension. We launched Cardizem® LA in April 2003 in collaboration with our co-promotion partner, Reliant Pharmaceuticals LLC ("Reliant"). Reliant brings additional experienced sales representatives to the marketing of Cardizem® LA, as well as our Zovirax, Teveten®, Cedax and Rondec® products. We also received FDA approval for Zovirax Cream in January 2003 and for Teveten® HCT in February 2003. During 2002, we received tentative FDA approval for a FlashDose® formulation of zolpidem for the treatment of insomnia. In the United States, zolpidem is sold under the brand name Ambien. In August 2002, GlaxoSmithKline plc ("GSK") filed a New Drug Application ("NDA") for our once-daily formulation of bupropion HCl for the treatment of depression. GSK has applied for the trade name Wellbutrin XL. In 2001, we licensed our once-daily formulation of bupropion HCl to GSK and have been collaborating with them to seek regulatory approval of Wellbutrin XL. When, and if, FDA approval is received, we will manufacture and supply Wellbutrin XL to GSK for a share of the revenue generated by future sales of the product.

        We also continue to pursue strategic business acquisitions and investments. During 2002, we extended our marketing agreement with GSK for Zovirax Ointment and Zovirax Cream from ten years to twenty years and we acquired the Canadian rights to GSK's Wellbutrin® SR and Zyban®, as well as the right to market our once-daily formulation of bupropion HCl under the Wellbutrin® XL trade name in Canada when, and if, regulatory approval is received. We also acquired the rights to Vasotec®, Vaseretic®, Teveten® and Teveten® HCT in the United States. We have begun development programs that will allow us to further exploit these brands. In December 2002, we acquired three private development companies — Pharma Pass LLC, Pharma Pass S.A. (collectively, "Pharma Pass") and Pharmaceutical Technologies Corporation ("Pharma Tech"). We believe that the products and technologies we acquired through these acquisitions will create substantial value for us in the future. During 2002, we made minority equity investments in Ethypharm S.A. ("Ethypharm") and DepoMed, Inc. ("DepoMed") and we obtained the rights to market a number of products under development by these companies.

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CHANGES IN ACCOUNTING PRINCIPLES

        We have adopted the Financial Accounting Standards Board's ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". Under SFAS No. 141, all business combinations occurring after June 30, 2001 are to be accounted for under the purchase method of accounting. Under SFAS No. 142, which we adopted effective January 1, 2002, goodwill and other intangible assets deemed to have indefinite lives will no longer be amortized, but will be subject to annual impairment tests. Intangible assets with finite lives will continue to be amortized over their estimated useful lives.

        Effective January 1, 2002, we identified those intangible assets that did not meet the criteria for recognition apart from goodwill, and assessed the useful lives of our remaining intangible assets. As a result, we reclassified the $5.7 million net carrying amount of workforce related intangible assets to goodwill, and determined that the useful lives of our remaining intangible assets were appropriate and consistent with those useful lives identified as at December 31, 2001. Our results for 2001 and 2000 included $6.7 million ($0.05 basic and diluted earnings per share) and $3.3 million ($0.02 basic and diluted earnings per share), respectively, of goodwill and workforce related amortization.

CRITICAL ACCOUNTING POLICIES

        We prepare our consolidated financial statements in accordance with U.S. GAAP, applied on a consistent basis. Our critical accounting policies relate to the use of estimates, the impact of product returns, recalls, rebates and chargebacks on revenue recognition, the recording of research and development expenses, the useful lives of intangible assets, the evaluation of goodwill, the hedge effectiveness of derivative financial instruments and the realizability of deferred tax assets.

        In preparing our consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We review our estimates to ensure that our estimates appropriately reflect changes in our business and new information as it becomes available. Actual results may materially differ from these estimates under different assumptions or conditions. Significant estimates we make include allowances for accounts receivable and inventories, reserves for product returns, recalls, rebates and chargebacks, the useful lives of long-lived assets, the expected cash flows used in evaluating long-lived assets and investments for impairment, the realizability of deferred tax assets and the allocation of the purchase price of acquired assets and businesses. A significant change in these estimates could have a material impact on our results of operations.

        We recognize product sales revenue when the product is shipped to the customer provided that we have not retained any significant risks of ownership or future obligations with respect to the product shipped. Revenue from product sales is recognized net of reserves for estimated product returns, recalls, rebates and chargebacks. These reserves are established in the same period in which the related product sales are recorded and are based on estimates of the proportion of product sales subject to return, recall, rebate or chargeback. A significant change in these estimates could have a material impact on our results of operations.

        We expense research and development costs in the period in which they are incurred. The costs of assets that are purchased from others for a particular research and development project, that have not reached technological feasibility and that have no alternative future use are expensed at the time of acquisition. We may pursue product or business acquisitions that could result in a charge for acquired research and development costs, which could have a material non-cash impact on our results of operations.

        Intangible assets acquired through business combinations are initially recognized at fair value based on an allocation of the purchase price. Intangible assets acquired other than through business combinations are initially recognized at fair value based on the consideration paid. Our intangible assets are stated at cost, less accumulated amortization generally computed using the straight-line method based on their estimated useful lives ranging from eight years to twenty years. Useful life is the period over which the intangible asset is expected

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to contribute directly or indirectly to our future cash flows. We determine the useful lives of intangible assets based on a number of factors such as legal, regulatory or contractual limitations, known technological advances, anticipated demand and the existence or absence of competition. A significant change in these factors may warrant a revision of the expected remaining useful life of an intangible asset resulting in accelerated amortization or an impairment charge, which could have a material impact on our results of operations.

        Goodwill represents the excess of the purchase price of acquired businesses over the fair value of the identifiable net assets acquired. We evaluate goodwill annually for impairment. An impairment of goodwill could have a material impact on our results of operations.

        We manage our exposure to interest rate risks through the use of derivative financial instruments. We do not utilize derivative financial instruments for trading or speculative purposes. On the dates we entered into the derivative contracts, we designated the derivative financial instruments as a hedge of the fair value of an identified portion of a recognized long-term obligation. For a derivative financial instrument that is designated and qualifies as a fair value hedge, the derivative financial instrument is marked-to-market with the gain or loss on the derivative financial instrument, and the respective offsetting loss or gain on the underlying hedged item, recognized in net income (loss). A discontinuance of fair value hedge accounting could have a material impact on our results of operations.

        We have recorded a valuation allowance on deferred tax assets primarily related to operating losses and tax credit carryforwards. We have assumed that these carryforwards are more likely than not to be unrealized based on estimated future taxable income and tax planning strategies in the related jurisdictions. The implementation of tax planning strategies or a change in the outlook for future taxable income in these jurisdictions could result in the recognition of some portion or all of these carryforwards, which could result in a material increase in our results of operations through the recovery of deferred income taxes.

ACQUISITIONS

        In December 2002, we acquired Pharma Pass for $178.7 million. Pharma Pass is a developer of advanced oral controlled-release technologies and formulations for pharmaceutical companies, including us, in the United States and Europe. On the completion of the development of our products, we had the right to manufacture and sell the products and Pharma Pass was entitled to royalties from the net sales of each product for a period of fifteen years from the date of launch of each product. Through this acquisition we extinguished any future milestone or royalty obligations that we may have had to Pharma Pass resulting from the approval and successful commercialization of any of the products under development, pursuant to the research and development agreements previously entered into between Pharma Pass and us. The acquisition of Pharma Pass resulted in a charge for acquired research and development of $107.2 million related to approximately twenty product development projects that were in various stages of completion but that had not yet received regulatory approval. We obtained interests in certain licensed products including Tricor (fenofibrate) and a participating interest in the gross profit on sales by a third party of a bioequivalent version of Prilosec (omeprazole). We also obtained Pharma Pass's Zero Order Release System, a drug delivery technology that controls the rate of release of a drug and/or significantly enhances the systemic absorption of a drug molecule, and its oral Colonic Delivery System, a drug delivery technology designed for the targeted release of medication into the lower intestine and upper colon.

        In December 2002, we acquired Pharma Tech for $22.6 million. Pharma Tech is a development-stage company engaged in the application of drug delivery technologies to the formulation and development of a portfolio of products. Pharma Tech contracted directly with third parties, including us, to conduct the contract research and development services. We provided contract research and advisory services consistent with the contractual relationships we had with other third parties. On the completion of the development of our products, we had the right to manufacture and sell the products and Pharma Tech was entitled to royalties from the net sales of each product for a period of ten years from the date of launch of each product. Through this acquisition we extinguished any future milestone or royalty obligations that we may have had to Pharma Tech resulting from the approval and successful commercialization of any of the products under development, pursuant to the research and development agreements previously entered into between Pharma Tech and us. We had options to acquire Pharma Tech's interest in the products or to acquire Pharma Tech. The acquisition of

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Pharma Tech resulted in a charge for acquired research and development of $17.5 million related to a number of product development projects that were in various stages of completion but that had not yet received FDA approval.

        In December 2002, we acquired from GSK the rights to Wellbutrin® SR and Zyban® in Canada, as well as the rights to market our once-daily formulation of bupropion HCl in Canada under the trade name Wellbutrin® XL when, and if, regulatory approval is received, for $72.0 million. Wellbutrin® SR is prescribed for the treatment of depression and Zyban® is administered for the treatment of nicotine addiction as an aid to smoking cessation.

        In May 2002, we acquired from Merck & Co., Inc. ("Merck") the rights to Vasotec® and Vaseretic® in the United States for $245.3 million. Vasotec® is a leading angiotensin converting enzyme inhibitor indicated for hypertension and symptomatic congestive heart failure and Vaseretic® is a fixed-dose combination of Vasotec® and a diuretic. We are developing a once-daily formulation of Vasotec® and a fixed-dose combination of Vasotec® with diltiazem HCl to capitalize on the value of the acquired brand name.

        In March 2002, we acquired from Solvay Pharmaceuticals Marketing & Licensing AG ("Solvay") the rights to Teveten® and Teveten® HCT in the United States for $94.3 million. Teveten® is an angiotensin-II receptor blocker for the treatment of hypertension and is indicated for use either alone or in conjunction with other antihypertensive medications and Teveten® HCT is a combination of Teveten® and a diuretic. We relaunched Teveten® in June 2002 and launched Teveten® HCT in February 2003 following receipt of FDA approval.

        Effective January 1, 2002, we acquired from GSK the exclusive distribution rights to Zovirax Ointment and Zovirax Cream in the United States for $133.4 million. Zovirax is an anti-viral topical product. Zovirax Ointment is indicated for the treatment of herpes and Zovirax Cream is indicated for the treatment of cold sores. In December 2002, we agreed to pay GSK $40 million to extend the term of the Zovirax agreement from ten years to twenty years. We also agreed to pay GSK an aggregate amount of $45 million, over four years beginning in 2004, to amend several terms of the original Zovirax distribution agreement. We received FDA approval for Zovirax Cream in January 2003 and we intend to launch the product in mid-2003.

        In December 2000, we completed the acquisition of Intelligent Polymers Limited ("Intelligent Polymers") for total consideration of $204.9 million. Intelligent Polymers was formed to fund the development of once-daily, controlled-release branded products for chronic disease states, such as anxiety, depression, pain management and diabetes. Prior to September 29, 2000, we were developing the products on behalf of Intelligent Polymers pursuant to a development and license agreement. The acquisition of Intelligent Polymers resulted in a charge for acquired research and development of $208.4 million. An NDA has been filed by GSK for one of the products under development (bupropion HCl), two other products (tramadol and metformin) are now in Phase III clinical trials, and the development of another product (buspirone) was discontinued in March 2003.

        In December 2000, we acquired the North American rights to Cardizem® from Aventis for total consideration of $409.5 million. Cardizem® is a leading calcium channel blocker prescribed for the treatment of hypertension and angina. We are capitalizing on the competitive advantage of the Cardizem® brand name by attaching it to our improved once-daily graded extended release formulation — Cardizem® LA.

        In October 2000, we acquired DJ Pharma, Inc. ("DJ Pharma"), a pharmaceutical sales and marketing company located in the United States, for total consideration of $165.1 million plus the assumption of $34.2million of debt. As a result of this acquisition, we obtained the rights to DJ Pharma's portfolio of products, as well as a trained workforce and infrastructure. The acquisition of DJ Pharma was significant to our strategy of becoming a fully integrated pharmaceutical company because, prior to the acquisition of DJ Pharma, we had no direct access to the United States market and were reliant on our marketing partners. The acquisition of DJ Pharma enhanced the value of our product pipeline through the ability to market directly to physicians, and provided an infrastructure on which we are building to meet the marketing needs of our increasing portfolio of products.

RESULTS OF OPERATIONS

        Total revenue was $788.0 million in 2002 compared to $583.3 million in 2001 and $309.2 million in 2000. Total revenue increased by 35% in 2002 compared to 2001 and by 89% in 2001 compared to 2000. Net income in

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2002 was $87.8 million, or diluted earnings per share of $0.55, compared to net income in 2001 of $87.4 million, or diluted earnings per share of $0.58, and a net loss in 2000 of $148.0 million, or a diluted loss per share of $1.16.

        We utilize a measure of net income and diluted earnings per share that excludes certain items. This measure is a non-GAAP measure that does not have a standardized meaning and, as such, is not necessarily comparable to similarly titled measures presented by other companies. We have consistently applied this measure when discussing earnings or earnings guidance. This measure is provided to assist our investors in assessing our operating performance. We understand that many of our investors prefer to analyze our results based on this measure, as it is consistent with industry practice. The items were excluded because they were considered to be of a non-operational nature in the applicable year. The excluded items are also disclosed to give investors the ability to further analyze our results. Investors should consider this non-GAAP measure in the context of our U.S. GAAP results. The following table reconciles, for each year indicated, our net income (loss) in accordance with U.S. GAAP with our net income excluding certain items, and displays our diluted earnings (loss) per share and diluted earnings per share excluding certain items.

	Years ended December 31
	2002			2001		2000
	(In 000s, except per share data)
Net income (loss)	$	87,795		$	87,448	$	(147,976	)
Add (deduct) certain items
Write-down of assets		31,944			80,482		—
Acquired research and development		167,745			—		208,424
Other income		(3,408	)		—		—
Debt conversion premiums		—			34,923		—
Extraordinary item		—			—		20,039
Cumulative effect of change in accounting principle		—			—		43,500
Net income excluding certain items	$	284,076		$	202,853	$	123,987
Diluted earnings (loss) per share	$	0.55		$	0.58	$	(1.16	)
Diluted earnings per share excluding certain items	$	1.77		$	1.35	$	0.86

        Net income excluding certain items was $284.1 million, $202.9 million and $124.0 million in 2002, 2001 and 2000, respectively. Diluted earnings per share excluding certain items were $1.77, $1.35 and $0.86 in 2002, 2001 and 2000, respectively. Net income excluding certain items and diluted earnings per share excluding certain items increased by 40% and 31%, respectively, for 2002 compared to 2001, and by 64% and 57%, respectively, for 2001 compared to 2000. For 2002, the items excluded consist of a write-down of assets of $31.9 million primarily related to the write off of the Adalat product rights and corresponding long-term obligation as a result of a settlement reached between the U.S. Federal Trade Commission ("FTC"), Elan Corporation, plc ("Elan") and us regarding the introduction of bioequivalent versions of Adalat CC, acquired research and development of $167.7 million arising from the acquisitions of Pharma Pass and Pharma Tech as well as from the termination of Pharma Tech's development of one of its products under development and any royalty obligation we may have had based on future sales of the product when, and if, approved by the FDA, and other income of $3.4 million related to the ineffective portion of the fair value hedge of a portion of our 7⁷/8% Senior Subordinated Notes due April 1, 2010 ("Notes"). For 2001, the items excluded consist of a write-down of assets of $80.5 million primarily related to the Keftab and Dura-Vent product rights and debt conversion premiums of $34.9 million related to the surrender and redemption of our 6.75% Convertible Subordinated Preferred Equivalent Debentures due March 31, 2025 ("Debentures"). For 2000, the items excluded consist of acquired research and development of $208.4 million arising from the acquisition of Intelligent Polymers, a premium of $20.0 million paid to extinguish our 10⁷/8% U.S. Dollar Senior Notes due November 15, 2005 ("Senior Notes") and a charge of $43.5 million for the cumulative effect of the adoption of the U.S. Securities and Exchange Commission's ("SEC") Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101").

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REVENUE

        Our revenue is derived from sales of pharmaceutical products, providing research and development services, and the co-promotion of pharmaceutical products, as well as from royalties and license fees. Product sales include sales of products developed and manufactured by us for distribution by our licensees and direct marketing to physicians in the United States and Canada of proprietary and in-licensed products. Research and development revenue relates to product development activity in collaboration with third parties and pharmaceutical contract research services. Fees for co-promotion services are earned on sales of co-promoted products developed by other companies. Royalties primarily arise on sales of the products we developed or acquired and from our interests in certain licensed products of Pharma Pass. License fees are derived from the license of our technologies or product rights.

        The following table displays, for each year indicated, the percentage of each source of revenue to total revenue, and the percentage change in the dollar amount of each source and the total as compared to the prior year. Revenue for 2001 and 2000 reflects the reclassification of co-promotion revenue from product sales to co-promotion, royalty and licensing to conform to the presentation adopted in 2002.

													Percentage Change
	Years Ended December 31
													2001 to 2002		2000 to 2001
	2002				2001				2000
	(In 000s)
Product sales	$	645,986	82	%	$	521,154	89	%	$	217,004	70	%	24	%	140	%
Research and development		28,425	4			14,596	3			66,834	22		95		(78	)
Co-promotion, royalty and licensing		113,614	14			47,513	8			25,332	8		139		88
	$	788,025	100	%	$	583,263	100	%	$	309,170	100	%	35		89

Product sales

        Product sales were $646.0 million in 2002 compared to $521.2 million in 2001 and $217.0 million in 2000. Product sales comprised 82% of total revenue in 2002 compared to 89% in 2001 and 70% in 2000. The following table displays the approximate percentage of each product category to total product sales.

Product Category	2002		2001		2000
Tiazac®	15	%	20	%	40	%
Cardizem®	25		35		—
Bioequivalent	30		30		40
All other	30		15		20
	100	%	100	%	100	%

        In August 2002, we received final approval by the FDA for our 90mg bioequivalent version of Adalat CC (once-daily nifedipine). Our marketing partner, Teva Pharmaceuticals USA, Inc., immediately launched this product in the United States.

        Product sales increased by 24% in 2002 compared to 2001 mainly due to the continuing strong performance of Tiazac® and Cardizem®, combined with the contribution from Zovirax Ointment, Teveten®, Vasotec®, Vaseretic® and our 90mg bioequivalent version of Adalat CC.

        Product sales increased by 140% in 2001 compared to 2000 mainly due to the additions of Cardizem® and DJPharma's product portfolio. Product sales growth also came from a higher contribution from bioequivalent products, reflecting the 2001 launch of our 30mg bioequivalent version of Procardia XL and the late 2000 launches of our 60mg bioequivalent versions of Procardia XL and Adalat CC.

        Our product sales and gross margins for 2002 and 2001 were adversely impacted by lost sales and costs associated with the voluntary recall of Keftab tablets, which was initiated by Eli Lilly & Company ("Lilly") in March 2001 because of undefined problems Lilly had with the product's stability. Lilly manufactured and

24

supplied the product to us for marketing in the United States. In March 2003, we successfully settled our legal action against Lilly regarding the recall of Keftab.

        We expect our product sales to increase in 2003 compared to 2002 due to the contribution from the products we acquired in 2002, the launches of Cardizem® LA, Teveten® HCT and Zovirax Cream during 2003 and the anticipated launch of Wellbutrin XL in the second half of 2003 when, and if, approved by the FDA.

Research and development

        Research and development activities generated revenue of $28.4 million in 2002 compared to $14.6 million in 2001 and $66.8 million in 2000. Research and development activities comprised 4% of total revenue in 2002 compared to 3% in 2001 and 22% in 2000.

        In the ordinary course of business we enter into research and development collaborations with third parties whereby we provide contract research, formulation development and other services to those third parties. We are typically compensated through a combination of fees for service, milestone payments, royalties from future sales of the products and/or co-promotion revenue.

        Research and development revenue increased by 95% in 2002 compared to 2001 mainly due to the inclusion of revenue associated with the development of Wellbutrin XL in collaboration with GSK. During 2002, we completed the development of Wellbutrin XL, resulting in GSK's filing of an NDA for the product in August 2002.

        Research and development revenue declined by 78% in 2001 compared to 2000, as we did not earn any revenue from Intelligent Polymers after September 29, 2000. We earned revenue of $52.9 million from Intelligent Polymers for the period ended September 29, 2000.

        In the years presented, our remaining research and development revenue was primarily generated from clinical research and laboratory testing services provided to external customers by our contract research operation.

        In 2003, we expect research and development revenue to decline compared to 2002 mainly due to the completion of the development of Wellbutrin XL.

Co-promotion, royalty and licensing

        Co-promotion, royalty and licensing activities generated revenue of $113.6 million, $47.5 million and $25.3 million in 2002, 2001 and 2000, respectively. Co-promotion, royalty and licensing revenue comprised 14% of total revenue in 2002 and 8% in both 2001 and 2000.

        Co-promotion, royalty and licensing revenue increased by 139% in 2002 compared to 2001 and by 88% in 2001 compared to 2000. In 2002, co-promotion revenue was related to the co-promotion of GSK's Wellbutrin SR in the United States and the co-promotion of H. Lundbeck A/S's Celexa in Canada. During 2002, we received four quarterly increments of $10 million each under the Wellbutrin SR co-promotion agreement with GSK. We earned the last quarterly increment of $10 million in the first quarter of 2003. The receipt of each of the quarterly increments was dependent on our performing prescribed detailing activity during each quarter and the amount was determined based on a percentage of net sales of Wellbutrin SR in the United States during each quarter. In 2001 and 2000, co-promotion revenue was related entirely to the co-promotion of Celexa.

        Royalty revenue increased in 2002 compared to 2001 due to the contribution from our interest in the gross profit on sales of a bioequivalent version of Prilosec. Royalty revenue increased in 2001 compared to 2000 due to higher Tiazac® sales by our marketing partner, Forest Laboratories Inc., and the inclusion of a royalty associated with sales of bioequivalent versions of Cardizem® by third parties.

        We expect the level of co-promotion, royalty and licensing revenue in 2003 to be higher than in 2002 due to the contribution from our interest in the gross profit on sales of a bioequivalent version of Prilosec, partly offset by the loss of revenue following the conclusion of our co-promotion of Wellbutrin SR in the United States.

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OPERATING EXPENSES

        The following table displays, for each year indicated, the percentage of each expense item to total revenue, and the percentage change in the dollar amount of each item and the total as compared to the prior year. Prior to 2001, we included amortization expense as a component of cost of goods sold, research and development expenses and selling, general and administrative expenses. In 2001, amortization increased substantially due to the additions made to intangible assets and acquisitions of businesses and consequently we decided to present amortization as an individual line item within operating expenses. Operating expenses for 2000 reflect the reclassification of amortization to conform to the presentation adopted in 2001.

													Percentage Change
	Years Ended December 31
													2001 to 2002		2000 to 2001
	2002				2001				2000
	(In 000s)
Cost of goods sold	$	164,706	21	%	$	125,995	21	%	$	67,980	22	%	31	%	85	%
Research and development		52,150	7			51,017	9			51,709	17		2		(1	)
Selling, general and administrative		165,697	21			110,100	19			51,857	17		50		112
Amortization		71,499	9			44,513	8			7,232	2		61		516
	$	454,052	58	%	$	331,625	57	%	$	178,778	58	%	37		85

Cost of goods sold and gross margins

        Cost of goods sold was $164.7 million in 2002 compared to $126.0 million in 2001 and $68.0 million in 2000. Cost of goods sold includes royalties on product sales payable to third party licensors that owned and/or developed the products. Costs of goods sold increased by 31% in 2002 compared to 2001 and by 85% in 2001 compared to 2000. The year over year increases in cost of goods sold were the result of increased sales volumes from new product launches and product acquisitions, and higher sales levels of certain existing products.

        Gross margins based on product sales were 75%, 76% and 69% in 2002, 2001 and 2000, respectively. Gross margins are impacted year to year by sales volumes, pricing, product mix, and manufacturing volumes. The gross margin in 2002 was affected by a lower proportion of higher margin Cardizem® sales in the overall product mix and the additions of Zovirax Ointment and Teveten® sales, which had lower margins relative to other of our products, offset by the inclusion of Vasotec® and Vaseretic® sales, which generated higher margins relative to other of our products. The increase in gross margin in 2001 compared to 2000 reflected the impact of the higher margin earned on Cardizem® relative to other of our products.

        We expect gross margins on product sales in 2003 to be comparable to 2002.

Research and development

        Research and development expenses were $52.2 million in 2002 compared to $51.0 million in 2001 and $51.7 million in 2000. As a percentage of total revenue, research and development costs declined to 7% in 2002 compared to 9% in 2001 and 17% in 2000.

        In the ordinary course of business, we enter into research and development collaborations with third parties to provide formulation and other services for our products under development. These collaborations target our therapeutic areas of focus — cardiovascular (including Type II diabetes), central nervous system, pain management and niche opportunities. These third party developers are typically compensated through a combination of fees for service, milestone payments and/or royalty payments from future sales of the products under development. The developers may utilize their own technology and, in other cases, we will allow access to our technology for the formulation and development of the products. In some cases, we have an ownership interest or an option to take an ownership position in the developer. In no case are we responsible for any of the developers' third party liabilities, nor have we guaranteed any debts, nor are we required under any circumstances to exercise any of our options.

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        Research and development expenses reflect direct spending on the development of branded and bioequivalent products utilizing advanced oral drug delivery technologies. We completed a Phase III clinical trial to support the submission of a supplemental NDA for an angina indication for Cardizem® LA. The results of this clinical trial were favourable and we expect to file the supplemental NDA for Cardizem® LA in mid-2003. In addition, we have completed, or are in the process of completing, a number of comparative Phase IV studies involving Cardizem® LA. We are developing a once-daily formulation of Vasotec® and we are also working on a fixed-dose combination of Vasotec® with diltiazem HCl. Two ongoing Phase III trials are progressing to support an NDA submission for our once-daily formulation of tramadol, for the signs and symptoms of osteoarthritis. We expect to file an NDA for tramadol in the second half of 2003. One Phase III clinical trial has been successfully completed on our once-daily formulation of metformin, for the treatment of Type II diabetes, through a collaborative effort with DepoMed, and a second Phase III clinical trial is in progress. We expect to file an NDA for metformin in the first half of 2004. We have evaluated the results of a Phase III clinical trial involving buspirone, for the treatment of depression, and have decided to discontinue the development of this product in light of the unsatisfactory results from this trial.

        A number of other research and development activities are ongoing, including feasibility studies, formulation development and optimization, formulation scale-up and clinical studies. We are also working on the development of enhanced formulations of a number of disclosed compounds (fenofibrate, simvastatin, paroxetine, venlafaxine, sumatriptan and acyclovir), as well as a number of undisclosed compounds.

        We expect research and development expenses to increase significantly in 2003 compared to 2002 due to an expected increase in clinical activity.

Selling, general and administrative

        Selling, general and administrative expenses were $165.7 million, $110.1 million and $51.9 million in 2002, 2001 and 2000, respectively. Selling, general and administrative expenses were 21% of total revenue in 2002 compared to 19% in 2001 and 17% in 2000.

        During 2002, our sales capability in the United States was significantly increased. Our U.S. sales organization more than doubled in size as we added sales and marketing management and regional and district sales management and hired over 200 sales representatives across the country. We devoted considerable attention and resources to increasing our sales force capabilities by adhering to specific selection criteria during the hiring process and by locating new sales representatives in territories with high prescribing physicians. In addition, in November 2002 we entered into a co-promotion agreement with Reliant. Reliant's sales force has experience detailing cardiovascular products across the United States, has established relationships with high prescribing physicians and will be working in tandem with our existing sales force. We benefited from this approach to building our sales organization when we relaunched Teveten® in June 2002. After promoting Teveten® for six months, in collaboration with Reliant for the final three months of 2002, we saw December prescriptions increase substantially over June prescription levels.

        Selling, general and administrative expenses increased by 50% in 2002 compared to 2001 mainly due to the expansion of our sales organization in the United States and the incremental sales and marketing costs associated with Zovirax Ointment and Teveten®, as well as costs associated with the co-promotion of Wellbutrin SR in the United States. We recorded Teveten® sales and marketing costs net of a related marketing allowance of $10 million paid by Solvay in 2002. In addition, we have expensed a portion of the costs associated with the development of the Cardizem® LA promotional program. In 2002, selling, general and administrative expenses also include fees payable to Reliant related to the co-promotion of Teveten® and Cedax during the fourth quarter of 2002.

        Selling, general and administrative expenses increased by 112% in 2001 compared to 2000, mainly due to the inclusion of our U.S. sales organization in our results for a full year. In addition, with the acquisition of Cardizem® the level of sales and marketing activity increased in both the United States and Canada.

        We expect selling, general and administrative expenses to increase as a percentage of total revenue in 2003 compared to 2002 due to the costs associated with the launches of Cardizem® LA, Teveten® HCT and Zovirax Cream during 2003.

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Amortization

        Amortization expense was $71.5 million, $44.5 million and $7.2 million in 2002, 2001 and 2000, respectively. Amortization expense was 9% of total revenue in 2002 compared to 8% in 2001 and 2% in 2000.

        The increase in amortization expense in 2002 compared to 2001 reflected the incremental amortization associated with the acquisitions of the rights to Zovirax, Teveten®, Vasotec® and Vaseretic®, and Wellbutrin® and Zyban® in Canada, as well as the amortization of our interest in the gross profit on sales of a bioequivalent version of Prilosec. In 2002, amortization expense was reduced by the elimination of goodwill and workforce related amortization as a result of the adoption of SFAS No. 142.

        The increase in amortization expense between 2001 and 2000 reflected the amortization of product rights and goodwill associated with the acquisition of DJ Pharma and the amortization of the Cardizem® brand name.

        We expect that amortization expense will increase in 2003 compared to 2002 due to a full year of amortization related to the intangible assets acquired during 2002.

Write-down of assets

        In 2002, we recorded a $31.9 million non-cash charge primarily related to the write-down of the following assets:

        As a result of a settlement reached with the FTC regarding the introduction of bioequivalent versions of Adalat CC, we agreed with Elan to terminate our agreements related to the licensing and supply of Elan's 30mg and 60mg bioequivalent versions of Adalat CC. The FTC consent order effectively nullifies our long-term obligation to make minimum license payments to Elan under the licensing and supply agreement for Elan's 30mg bioequivalent version of Adalat CC. We have been in negotiations to have Elan reacquire the rights to its bioequivalent versions of Adalat CC that had previously been sold to us. As there has been no meaningful progress in these negotiations, and as we are unable to ascertain the eventual outcome of these negotiations, in December 2002 we determined that we should write off the net book value of the Adalat product rights, net of the corresponding long-term obligation to Elan. We recorded a related non-cash charge of $22.4 million. We are considering whether or not to pursue litigation against Elan to obtain fair compensation for the loss of these products. Elan is required to continue to supply us with its 30mg bioequivalent version of Adalat CC until May 31, 2003.

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        In 2002, we also recorded other non-cash asset write-downs of $9.5 million, primarily related to an unrealized holding loss on our investment in DepoMed.

        In 2001, we recorded an $80.5 million non-cash charge related to the write-down of the following assets: At December 31, 2001, Lilly had not resolved the manufacturing problems associated with Keftab that arose in March 2001. The supply interruption had resulted in a deterioration of customer awareness of the product, which would have required substantial promotional efforts to restore if the product were to be re-launched. Due to these conditions that existed at December 31, 2001, we determined that the Keftab product right had been permanently impaired and should be written down to its estimated recoverable value of $10 million. We recorded a related non-cash charge of $54.6 million.

        We believed Lilly was responsible for manufacturing and supplying commercially acceptable products to us, as well as for the cost of the recall. In this regard, we commenced a legal action against Lilly in which we were seeking damages as a result of Lilly's voluntary recall of Keftab. In March 2003, we settled our legal action with, and received compensation from, Lilly for the recoverable value of the Keftab intangible asset, the cost of the Keftab inventory that was destroyed, the lost margin on sales of Keftab and the expenses incurred with respect to the Keftab recall. In the first quarter of 2003, we recorded an aggregate net recovery from the settlement of the Lilly action, together with the settlement of an unrelated action against Mylan Pharmaceuticals, Inc., of $24.8 million plus interest.

        In November 2000, the FDA requested a voluntary recall of products containing phenylpropanolamine ("PPA"). We immediately stopped shipments of our Dura-Vent products containing PPA and initiated a recall of these products from wholesalers and pharmacies. During 2001, we experienced supply interruptions resulting from manufacturing issues associated with our remaining Dura-Vent products that did not contain PPA. Dura-Vent is manufactured and supplied to us by a third party. These supply interruptions caused our revenues and gross margins for the remaining Dura-Vent products to significantly deteriorate. We evaluated the current and forecasted market share for the products and determined that the Dura-Vent product right had been permanently impaired and the remaining net book value should be written off. We recorded a related non-cash charge of $19.0 million.

        In 2001, we also recorded other non-cash asset write-downs of $6.9 million, primarily related to an intangible asset associated with the acquisition of Intelligent Polymers.

Acquired research and development

        In 2002, we incurred non-cash charges for acquired research and development of $107.2 million and $17.5 million arising from our acquisitions of Pharma Pass and Pharma Tech, respectively. Through each of these acquisitions, we acquired a portfolio of products that were in various stages of development, had not reached technological feasibility and had no alternative future use. The efforts required to develop the acquired research and development into commercially viable products include the completion of the development stages of the products, clinical-trial testing, regulatory approval and commercialization. The principal risks relating to the products in development are the outcomes of the formulation development, clinical studies and regulatory filings. Since pharmaceutical products cannot be marketed without regulatory approvals, we will not receive any benefits unless regulatory approval is obtained.

        We also incurred a non-cash charge for acquired research and development of $43.1 million related to the termination of the development by Pharma Tech of one of its products under development and any royalty obligation we may have had to Pharma Tech based on future sales of the product when, and if, approved by the FDA. We are continuing the development program for this product.

        In 2000, we incurred a non-cash charge for acquired research and development of $208.4 million arising from our acquisition of Intelligent Polymers.

OPERATING INCOME OR LOSS

        Operating income was $134.3 million in 2002 compared to operating income of $171.2 million in 2001 and an operating loss of $78.0 million in 2000. Operating income excluding write-down of assets and acquired research and development was $334.0 million in 2002 compared to $251.6 million in 2001 and $130.4 million in

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2000. Operating income excluding write-down of assets and acquired research and development increased by 33% in 2002 compared to 2001 and by 93% in 2001 compared to 2000. As a percentage of total revenue, operating income excluding write-down of assets and acquired research and development was 42% in 2002 compared to 43% in 2001 and 42% in 2000.

        The increase in operating income excluding write-down of assets and acquired research and development in 2002 compared to 2001 was mainly due to the additions of Zovirax, Teveten®, Vasotec®, Vaseretic® and our 90mg bioequivalent version of Adalat CC product sales. Also contributing to the increase was the inclusion of Wellbutrin SR co-promotion revenue and our interest in the gross profit on sales of a bioequivalent version of Prilosec, combined with a reduction in research and development expenses as a percentage of total revenue. Operating income excluding write-down of assets and acquired research and development in 2002 was reduced by an offsetting increase in cost of goods sold and sales and marketing costs, as well as expenses related to the expansion of our U.S. sales organization and incremental amortization expense related to additions to intangible assets.

        The increase in operating income excluding write-down of assets and acquired research and development in 2001 compared to 2000 was mainly due to the additions of Cardizem® and DJ Pharma's product portfolio. Operating income excluding write-down of assets and acquired research and development in 2001 was reduced by an offsetting increase in cost of goods sold and sales and marketing costs, as well as expenses related to the inclusion of our U.S. sales organization and incremental amortization expense related to new products.

NON-OPERATING ITEMS

Interest income and expense

        Interest income of $3.6 million, $2.7 million and $23.7 million in 2002, 2001 and 2000, respectively, was earned on our investment portfolio, which is comprised primarily of high-grade government and corporate securities. Higher interest income in 2000 reflected a larger average investment portfolio following our concurrent offering of common shares and Debentures in March 2000, and prior to our acquisitions of Intelligent Polymers, Cardizem® and DJ Pharma.

        Interest expense was $32.0 million, $36.2 million and $20.7 million in 2002, 2001 and 2000, respectively. In 2002, interest expense was primarily related to our Notes issued in March 2002. During 2002, we entered into interest rate swap contracts of aggregate $200 million notional amount, which are designated as a fair value hedge of one-half of our Notes. The contracts involve the receipt of fixed rate amounts in exchange for floating rate interest payments based on six-month London Interbank Offering Rate ("LIBOR") plus a spread. Net receipts or payments relating to the contracts are recorded as an adjustment to interest expense. Interest expense also included interest on advances under our credit facility and the amortization of the discounts on the Adalat and Vasotec® obligations. The non-cash amortization of these discounts amounted to $5.3 million.

        Prior to March 2000, interest expense was primarily related to our Senior Notes. In March 2000, we redeemed our Senior Notes using the proceeds from our concurrent offering of common shares and Debentures and, accordingly, interest expense from this time primarily related to our Debentures until their surrender and redemption during the second half of 2001. In addition, interest expense in 2001 reflected interest on advances under our credit facility and the amortization of the discounts on the Adalat and Cardizem® obligations. The non-cash amortization of these discounts amounted to $11.0 million.

Other income

        The change in the fair values of the interest rate swap contracts and the offsetting change in the fair value of the portion of our Notes being hedged are recognized in other income. The net gain recognized in 2002 related to the ineffective portion of the fair value hedge.

Debt conversion premiums

        In 2001, we recorded a debt conversion premium of $23.7 million on the surrender of $173.8 million aggregate principal amount of our outstanding Debentures. The premium represented the market value of the

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additional common shares issued in excess of the number of common shares that would have been issued under the terms of the conversion ratio provided for in the indenture governing our Debentures.

        We recorded an additional debt conversion premium of $11.2 million on the remaining $126.1 million aggregate principal amount of our outstanding Debentures that had been called for redemption in November 2001. The additional premium represented the aggregate amount of interest that would have been paid on our Debentures from the redemption date to March 31, 2003.

Provision for income taxes

        Our tax rate was affected by the relative profitability of our operations in various foreign tax jurisdictions. We recorded provisions for income taxes of $21.5 million, $15.3 million and $9.4 million in 2002, 2001 and 2000, respectively. The low effective tax rate was mainly due to a substantial portion of our income being derived from foreign subsidiaries with lower statutory tax rates than those that apply in Canada. In addition, our effective tax rate was affected by the low profitability of our operations in the United States due to the expansion of our sales organization in advance of the launch of Cardizem® LA and sales and marketing expenses related to products launched during 2002.

        Our future effective tax rate will depend on the relative profitability of our domestic and foreign operations, the statutory tax rates of the related tax jurisdictions, and the timing of the release, if any, of the valuation allowance. In 2003, we expect our effective tax rate to reflect the anticipated low profitability of our operations in the United States due to launch costs and sales and marketing activities related to products to be launched during 2003.

Extraordinary item

        In 2000, we paid total consideration of $141.0 million to repurchase our Senior Notes, of which $16.0 million was an inducement premium to the holders. We classified the premium paid and the unamortized deferred financing costs related to our Senior Notes as an extraordinary item.

Cumulative effect of change in accounting principle

        Effective January 1, 2000, we adopted SAB 101 and, accordingly, we changed our revenue recognition accounting policy for up-front research and development, product license and certain other fees. Historically, we recognized these fees as revenue when all the conditions to payment had been met and there were no further performance contingencies or conditions to our receipt of payment. These fees were not creditable against future payments. We now defer and amortize these fees over the terms of the related agreements. At January 1, 2000, the cumulative effect of the change in accounting principle on prior years resulted in a charge of $43.5 million. A corresponding amount was recorded in deferred revenue, of which $4.8 million, $6.3 million and $9.3 million was amortized to revenue in 2002, 2001 and 2000, respectively.

EBITDA

        EBITDA, defined as earnings before interest, taxes, depreciation and amortization, is a non-GAAP measure that does not have a standardized meaning and, as such, may not be comparable to similarly titled measures presented by other companies. We utilize a measure of EBITDA that excludes certain items. The items were excluded because they were considered to be of a non-operational nature in the applicable year. We disclose this measure of EBITDA because we understand that certain investors use it as an indicator of a company's ability to meet debt service and capital expenditure requirements. This measure should not be considered in isolation or as a substitute for operating income or loss, or as an indicator of our operating

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performance, or compared to cash flows from operating activities as a measure of liquidity. The following table displays the calculation of EBITDA and reconciles EBITDA with EBITDA excluding certain items.

Years ended December 31 (In 000s)	2002			2001		2000
Net income (loss)	$	87,795		$	87,448	$	(147,976	)
Net interest expense (income)		28,397			33,500		(2,955	)
Provision for income taxes		21,500			15,285		9,360
Depreciation and amortization		82,368			55,287		20,988
EBITDA		220,060			191,520		(120,583	)
Write-down of assets		31,944			80,482		—
Acquired research and development		167,745			—		208,424
Other income		(3,408	)		—		—
Debt conversion premiums		—			34,923		—
Extraordinary item		—			—		20,039
Cumulative effect of change in accounting principle		—			—		43,500
EBITDA excluding certain items	$	416,341		$	306,925	$	151,380

        EBITDA excluding certain items was $416.3 million, $306.9 million and $151.4 million in 2002, 2001 and 2000, respectively. As a percentage of total revenue, EBITDA excluding certain items was 53% in both 2002 and 2001 and 49% in 2000.

        We disclose the ratio of EBITDA excluding certain items compared to interest expense because we understand that certain investors use it as an indicator of a company's ability to meet debt service requirements. This ratio is not necessarily comparable to similarly titled measures presented by other companies. The ratio of EBITDA excluding certain items to interest expense was 13.0 times, 8.5 times and 7.3 times for 2002, 2001 and 2000, respectively.

LIQUIDITY AND CAPITAL RESOURCES

        At December 31, 2002, we had cash and cash equivalents of $56.1 million compared to $434.9 million at December 31, 2001. We also maintain a revolving term credit facility, which may be used for general corporate purposes, including acquisitions. In June 2001, our credit facility was successfully syndicated and was increased from $300 million to $400 million. In July 2002, our credit facility was further increased from $400 million to $600 million and in December 2002 we renewed our credit facility for an additional one-year period. All other material terms and conditions are unchanged. At December 31, 2002, we were in compliance with all financial and non-financial covenants associated with our credit facility.

        Borrowings under our credit facility may be by way of U.S. dollar, LIBOR or U.S. base rate advances or Canadian dollar prime rate or bankers' acceptance ("BA") advances or letters of credit. Interest is charged at the quoted bank rate plus a borrowing margin of 1.375% to 2% in the case of LIBOR and BA advances, and 0.375% to 1% in the case of base rate and prime rate advances, depending on our credit rating at the time of such borrowing. At December 31, 2002, our corporate credit ratings were BB+ with Standard & Poor's Rating Services ("S&P") and Ba3 with Moody's Investors Service. The effective rate of interest at December 31, 2002 was 3.74%. At December 31, 2002, we had advances of $110 million borrowed under our credit facility and we had a letter of credit with a balance of $93.2 million issued under our credit facility. The letter of credit secures the remaining semi-annual payments we are required to make under the Vasotec® and Vaseretic® agreement. At December 31, 2002, we had a remaining balance of $396.8 million available to borrow under our credit facility. At March 31, 2003, we have repaid $100 million of the advances borrowed under our credit facility.

        Cash provided by operating activities was $334.1 million, $284.1 million and $102.5 million in 2002, 2001 and 2000, respectively. Net income, after adjustments for items not involving cash, was $376.0 million, $262.8 million and $149.7 million in 2002, 2001 and 2000, respectively. Net changes in non-cash operating items used cash of $41.9 million and $47.2 million in 2002 and 2000, respectively, mainly due to increases in accounts receivable offset by increases in accounts payable and accrued liabilities. Net changes in non-cash operating

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items provided cash of $21.3 million in 2001, mainly due to increases in accrued liabilities and income taxes payable offset by an increase in inventories.

        Net cash used in investing activities was $792.5 million, $57.7 million and $582.3 million in 2002, 2001 and 2000, respectively. In 2002, we acquired the rights to Zovirax and Teveten® for $133.4 million and $94.3 million, respectively, and we paid initial instalments of $145.7 million to acquire Vasotec® and Vaseretic®, and $2.0 million to acquire Wellbutrin® and Zyban® in Canada. In 2001, we acquired other product rights for $27.4 million, offset by $15 million recovered as a reduction to the minimum license payments otherwise payable to Elan under the licensing and supply agreement for Elan's 30mg bioequivalent version of Adalat CC. In 2000, we acquired the remaining rights to the Dura-Vent, Keftab and Rondec® products, and other product rights for $27.8 million. Business acquisitions, net of cash acquired, totaled $240.6 million in 2002, comprising $178.7 million paid to acquire Pharma Pass, $43.1 million paid to terminate Pharma Tech's development of one of its products under development and any royalty obligation we may have had based on future sales of the product when, and if, approved by the FDA, and $18.8 million paid to acquire Pharma Tech. Business acquisitions, net of cash acquired, totaled $622.1 million in 2000, comprising $239.7 million for Cardizem®, $202.4 million for Intelligent Polymers, $162.8 million for DJ Pharma and $17.2 million of additional consideration paid for Fuisz Technologies Ltd. ("Fuisz"). In 2002, we acquired long-term investments of $85.1 million including equity investments in Ethypharm, DepoMed and Procyon Biopharma Inc. of $67.8 million, $13.7 million and $2.5 million, respectively. We acquired long-term investments of $0.9 million and $2.5 million in 2001 and 2000, respectively. Additions to property, plant and equipment were $61.4 million, $44.4 million and $15.8 million in 2002, 2001 and 2000, respectively, and were primarily related to the expansion of our manufacturing facilities. In 2002, we advanced $30 million to Reliant under a secured credit facility established by us and certain of Reliant's existing lenders. The net activity in short-term investments provided cash of $65.9 million in 2000. During 2000, as our short-term investments matured we converted them into cash equivalents with original maturities of 90 days or less. In 2000, we received proceeds of $20 million on the disposal of Clonmel Healthcare Limited, a subsidiary of Fuisz.

        Net cash provided by financing activities was $79.5 million, $83.6 million and $427.1 million in 2002, 2001 and 2000, respectively. Proceeds from the issue of common shares on the exercise of stock options and through our Employee Stock Purchase Plan were $19.6 million, $29.2 million and $14.3 million in 2002, 2001 and 2000, respectively. Net proceeds from our equity offerings in November 2001 and March 2000 were $560.0 million and $95.3 million, respectively. We repurchased common shares on the open market, under our stock repurchase programs, for $503.1 million and $120.0 million in 2002 and 2001, respectively. We received proceeds of $112.8 million, $29.1 million and $6.0 million on the exercise of warrants in 2002, 2001 and 2000, respectively, and we collected the remaining $2.3 million of the warrant subscription receivable in 2000. In 2001, we made loans in an aggregate amount of $10.0 million to certain executive officers under our Executive Stock Purchase Plan. In 2002, we received net proceeds of $384.3 million on the issue of our Notes. In 2002, we borrowed $110 million under our credit facility and paid $2.1 million of additional financing costs related to the increase in our credit facility from $400 million to $600 million. In 2001, we made repayments of $210 million under our credit facility and paid $1.3 million of additional financing costs related to the increase in our credit facility from $300 million to $400 million. In 2000, we borrowed $210 million from our credit facility and paid $3 million of arrangement fees. In 2002, we repaid $34.5 million of the Vasotec® obligation and $7.5 million of the Adalat obligation. In 2001, we repaid $193.4 million of other long-term obligations, including the $170 million Cardizem® obligation and $22.9 million of the Adalat obligation. In 2000, we repaid the debt assumed on the acquisition of DJ Pharma and other long-term obligations of $45.6 million. In 2000, we received net proceeds of $288.8 million from the issue of our Debentures and we repurchased our Senior Notes for $141.0 million.

        Overall, our cash and cash equivalents decreased by $378.8 million and $52.9 million in 2002 and 2000, respectively, and increased by $309.7 million in 2001.

        In 2002, non-cash investing and financing activities included a $99.6 million discounted obligation related to the acquisition of Vasotec® and Vaseretic®, an $80.7 million discounted obligation related to the amendments to the terms of the Zovirax distribution agreement, and a $70.0 million discounted obligation related to the acquisition of Wellbutrin® and Zyban® in Canada. In 2001, non-cash investing and financing activities included the issuance of common shares valued at $314.3 million on the surrender and redemption of our Debentures. In 2000, non-cash investing and financing activities included a $161.8 million discounted obligation related to the

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acquisition of Cardizem® and a $58.1 million discounted obligation related to the acquisition of the Adalat product rights.

Obligations and other matters

        At December 31, 2002, we had total long-term obligations of $747.4 million, including the current portion thereof, consisting of the carrying value of our Notes of $412.6 million, borrowings under our credit facility of $110 million, the Zovirax obligation of $80.7 million, the Wellbutrin® obligation of $70.0 million, the Vasotec® obligation of $67.9 million and deferred compensation of $6.2 million. At March 31, 2003, we have paid $40million of the Zovirax obligation to GSK.

        The following table summarizes our contractual obligations at December 31, 2002.

	Maturities by period
(In 000s)	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Long-term obligations	$	737,350	$	122,590	$	170,462	$	25,507	$	418,791
Operating lease obligations		22,475		6,667		10,655		4,046		1,107
Total contractual cash obligations	$	759,825	$	129,257	$	181,117	$	29,553	$	419,898

        In addition, we agreed to make milestone payments under certain research and development collaborations. These milestone payments are generally contingent on receiving regulatory approval for the products under development. We also agreed to make certain contingent payments to GSK for Zovirax in the event of the termination of the Wellbutrin XL development agreement by either GSK or us.

        In November 2001, we filed a $1.5 billion base shelf prospectus with the Canadian provincial securities commissions covering the potential sale of any combination of common shares, debt securities or warrants. On the same date, we filed a registration statement on Form F-10 covering those securities with the SEC under the multijurisdictional disclosure system. We may offer one or more of these types of securities in one or more offerings during the succeeding 25 months. One or more shareholders may also sell common shares pursuant to the base shelf prospectus. We will not receive any of the proceeds from any sale of common shares by the selling shareholders.

        In November 2001, we issued 12,500,000 common shares for gross proceeds of $587.5 million under our base shelf prospectus. In addition, the underwriters exercised in full an over-allotment option, which was granted in connection with the offering, to purchase an additional 1,875,000 of our common shares from Eugene Melnyk, Chairman of the Board and Chief Executive Officer, for $88.1 million. We did not receive any of the proceeds from the sale of the additional common shares by Mr. Melnyk.

        In March 2002, we issued $400 million aggregate principal amount of unsecured Notes under our base shelf prospectus. Interest on our Notes is payable semi-annually in arrears on April 1 and October 1 of each year. Our Notes were issued at a price of 99.27% of their aggregate principal amount for an effective yield, if held to maturity, of 8%. At December 31, 2002, our Notes had a BB– credit rating with S&P.

        At any time on or after April 1, 2006, we may redeem all or any of our Notes at prescribed prices, plus accrued and unpaid interest to the date of redemption. Before April 1, 2005, we may redeem up to 35% of the original principal amount of our Notes, with the net cash proceeds of certain sales of our common shares, at 107.875% of the principal amount plus accrued and unpaid interest to the date of redemption.

        We have a balance of $424.4 million available under our base shelf prospectus to offer at our discretion. Our base shelf prospectus will expire in December 2003.

        In February 2002, by resolution of the Board of Directors we implemented a stock repurchase program pursuant to which we were able to repurchase up to 5% of our issued and outstanding common shares. In May 2002, the Board of Directors increased the amount to 10% of our issued and outstanding common shares. We repurchased an aggregate of 12,872,300 common shares under this program, through open market transactions on the New York Stock Exchange and Toronto Stock Exchange, at an average purchase price of

34

$39.08 per share for total consideration of $503.1 million. The excess of the cost of the common shares acquired over the stated capital thereof, totaling $388.2 million, was charged to deficit. The program was terminated in July 2002.

        In April 2002, we acquired a 15% equity interest in Ethypharm and we have an option to purchase up to an additional 5% interest in Ethypharm. At April 30, 2003, we had not exercised our option. We also licensed the marketing rights to six products from Ethypharm for commercialization in the United States, Canada and Mexico. We are obligated to pay Ethypharm up to $61 million in milestone payments on the first regulatory approval of the products within the United States, Canada or Mexico, as well as royalties on the net sales of the products. We have also entered into a cross-license agreement with Ethypharm whereby we grant to each other non-exclusive licenses to use our CEFORM™ technology and Ethypharm's Flashtab technology, respectively, relating to the development of new rapid dissolve pharmaceutical products. At April 30, 2003, we had not made any milestone payments to Ethypharm.

        In July 2002, we acquired newly issued common shares (15% of the issued and outstanding common shares) of DepoMed and we have options to purchase up to an additional 5% interest in DepoMed. At April 30, 2003, we had not exercised any of our options. We also licensed from DepoMed the rights to manufacture and market a once-daily metformin product that is currently undergoing Phase III clinical trials.

        In November 2002, together with certain of Reliant's existing lenders, we established an $85 million secured credit facility in favour of Reliant. At December 31, 2002 and March 31, 2003, we had advanced $30 million to Reliant out of our total commitment to fund up to $40 million of the credit facility. The credit facility is available to Reliant for general corporate purposes. Interest is calculated daily on outstanding advances at U.S. prime rate plus a margin of 2%. Commencing March 31, 2005, the outstanding advances are repayable in instalments with the final instalment due on December 31, 2006.

        We believe we have adequate capital resources and sources of financing to support our ongoing operational and interest requirements and investment objectives, and to meet our obligations as they become due. We believe we will be able to raise additional capital, if necessary, to support our objectives; however, there can be no assurance that, if required, we would be able to raise such capital on favourable terms.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We are exposed to financial market risks, including changes in foreign currency exchange rates, interest rates on investments and debt obligations and equity market prices on long-term investments. We currently use derivative financial instruments to manage our exposure to interest rate risk. We use derivative financial instruments as a risk management tool and not for trading or speculative purposes.

        Inflation has not had a significant impact on our results of operations.

Foreign currency risk

        We operate internationally but a majority of our revenue and expense activities and capital expenditures are transacted in U.S. dollars. Our only other significant transactions are in Canadian dollars, and we do not believe we have a material exposure to foreign currency risk because of the relative stability of the Canadian dollar in relation to the U.S. dollar. A 10% change in foreign currency exchange rates would not have a material effect on our consolidated results of operations, financial position or cash flows.

Interest rate risk

        The primary objective of our investment policy is the protection of principal and, accordingly, we invest in high-grade government and corporate securities with varying maturities, but typically less than 90 days. External independent fund administrators manage our investments. As it is our intent and policy to hold these investments until maturity, we do not have a material exposure to interest rate risk.

        We are exposed to interest rate risk on borrowings under our credit facility. Our credit facility bears interest based on LIBOR, U.S. dollar base rate, Canadian dollar prime rate or Canadian dollar BA. At our option we may lock in a rate of interest for a period of up to one year.

35

        The imputed rates of interest used to discount our Zovirax, Vasotec® and Wellbutrin® long-term obligations are fixed and therefore not subject to interest rate risk.

        The fair value of our fixed rate Notes is affected by changes in interest rates. We manage this exposure to interest rate changes through the use of interest rate swap contracts, which are recorded at fair value in our consolidated balance sheets. In June 2002, we entered into three contracts of aggregate $200 million notional amount, which effectively modifies our exposure to interest rate fluctuations by converting one-half of our fixed rate Notes to floating rate. At December 31, 2002, the carrying value and marked-to-market value of the contracts was $18.6 million in our favour, which has been recorded in other assets, and the respective offsetting fair value adjustment to the carrying value of our Notes was $15.2 million, which has been recorded in long-term obligations.

        Based on our overall interest rate exposure at December 31, 2002, a 10% change in interest rates would not have a material effect on our consolidated results of operations, financial position or cash flows.

Investment risk

        We are exposed to investment risks on our cost method and available-for-sale investments in other companies. The fair values of our investments are subject to significant fluctuations due to stock market volatility and changes in general economic conditions. We regularly review the carrying values of our investments and record losses when events and circumstances indicate that there have been declines in their fair values. At December 31, 2002, we had cost method investments of $72.4 million and available-for-sale investments at fair value of $6.9 million. Based on the carrying values of our available-for-sale investments at December 31, 2002, adverse changes of 25% and 50% in equity market prices would result in a corresponding decline in the total fair value of these investments of approximately $2 million and $3.5 million, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

        In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". SFAS No. 145 requires any gain or loss on extinguishments of debt to be classified as income or loss from continuing operations, rather than as an extraordinary item. We adopted SFAS No. 145 effective January 1, 2003 and, accordingly, we will reclassify the extraordinary item resulting from the extinguishment of our Senior Notes in 2000 to other expense for all comparative figures presented. The adoption of SFAS No. 145 will have no impact on our net results of operations.

        In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. SFAS No. 146 also establishes that the liability should be measured initially at fair value. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. Effective January 1, 2003, we will account for any exit costs or disposal activities in accordance with SFAS No. 146.

        In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN No. 45 clarifies and expands on existing disclosure requirements for a guarantor regarding its obligations under certain guarantees it has issued. FIN No. 45 also requires that the guarantor must recognize a liability for the fair value of its obligations under certain guarantees. The disclosure requirements are effective for fiscal years ending after December 15, 2002. The initial recognition and measurement provisions apply on a prospective basis to guarantees issued after December 31, 2002. We have adopted the disclosure requirements of FIN No. 45 effective December 31, 2002, and will adopt the recognition and measurement provisions for guarantees issued after December 31, 2002.

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation — Transition and Disclosure". SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition to SFAS No. 123's fair value method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and Accounting

36

Principles Board Opinion ("APB") No. 28, "Interim Financial Reporting", to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS No. 148 is effective for fiscal years ending after December 15, 2002. We have elected to continue to use the intrinsic value based method under the provisions of APB No. 25, "Accounting for Stock Issued to Employees", and have adopted the required disclosures of SFAS No. 148 effective December 31, 2002.

FORWARD-LOOKING STATEMENTS

        To the extent any statements made or incorporated by reference in this MD&A contain information that is not historical, these statements are essentially forward-looking. As such, these statements are subject to risks and uncertainties, including the difficulty of predicting FDA and Canadian Therapeutic Products Programme approvals, acceptance and demand for new pharmaceutical products, the impact of competitive products and pricing, new product development and launch, reliance on key strategic alliances, availability of raw materials, production interruptions or supply delays at third party suppliers or at our own manufacturing facilities, the outcome of litigation, the regulatory environment, fluctuations in operating results and other risks detailed from time to time in our filings with the SEC, including the risks set forth in Item 3 of our Annual Report on Form 20-F for the fiscal year ended December 31, 2002, and securities commissions or other securities regulatory authorities in Canada.

37

MANAGEMENT REPORT

        The Company's management is responsible for preparing the accompanying consolidated financial statements in conformity with United States generally accepted accounting principles ("GAAP"). In preparing these consolidated financial statements, management selects appropriate accounting policies and uses its judgment and best estimates to report events and transactions as they occur. Management has determined such amounts on a reasonable basis in order to ensure that the consolidated financial statements are presented fairly, in all material respects. Financial data included throughout this Annual Report is prepared on a basis consistent with that of the consolidated financial statements.

        The consolidated financial statements and information in the MD&A necessarily include amounts based on informed judgments and estimates of the expected effects of current events and transactions with appropriate consideration to materiality. In addition, in preparing the financial information management must interpret the requirements described above, make determinations as to the relevancy of information to be included, and make estimates and assumptions that affect reported information. The MD&A also includes information regarding the estimated impact of current transactions and events, sources of liquidity and capital resources, operating trends, risks and uncertainties. Actual results in the future may differ materially from our present assessment of this information because future events and circumstances may not occur as expected.

        The Company maintains a system of internal accounting controls designed to provide reasonable assurance, at a reasonable cost, that assets are safeguarded and that transactions are executed and recorded in accordance with the Company's policies for doing business. This system is supported by written policies and procedures for key business activities; the hiring of qualified, competent staff; and by a continuous planning and monitoring program.

        Ernst & Young LLP has been engaged by the Company's shareholders to audit the consolidated financial statements. During the course of their audit, Ernst & Young LLP reviewed the Company's system of internal controls to the extent necessary to render their opinion on the consolidated financial statements.

        The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The Board carries out the responsibility principally through its Audit Committee. The members of the Audit Committee are outside Directors. The Committee considers, for review by the Board of Directors and approval by the shareholders, the engagement or reappointment of the external auditors. Ernst & Young LLP has full and free access to the Audit Committee.

        Management acknowledges its responsibility to provide financial information that is representative of the Company's operations, is consistent and reliable, and is relevant for the informed evaluation of the Company's activities.

        The Company's Chief Executive Officer and Chief Financial Officer will be certifying the Company's annual disclosure document filed with the U.S. Securities and Exchange Commission (Form 20-F) as required by the new Sarbanes-Oxley Act in the United States.

Eugene N. Melnyk (SIGNED)	Brian H. Crombie (SIGNED)
Chairman of the Board and Chief Executive Officer	Senior Vice President and Chief Financial Officer

38

AUDITORS' REPORT

        To the Shareholders of Biovail Corporation

        We have audited the consolidated balance sheets of Biovail Corporation as at December 31, 2002 and 2001 and the consolidated statements of income (loss), shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with Canadian and United States generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

        In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2002 and 2001 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2002 in accordance with United States generally accepted accounting principles.

        As discussed in note 2 to the consolidated financial statements, during 2002 the Company changed its method of accounting for goodwill and intangible assets.

        On April 9, 2003, we reported separately to the shareholders of Biovail Corporation on the consolidated financial statements for the same periods, prepared in accordance with Canadian generally accepted accounting principles.

Toronto, Canada,	Ernst &Young LLP (SIGNED)
April 9, 2003	Chartered Accountants

39

CONSOLIDATED BALANCE SHEETS
In accordance with U.S. generally accepted accounting principles

        (All dollar amounts expressed in thousands of U.S. dollars)

	As at December 31
	2002			2001
ASSETS
Current
Cash and cash equivalents	$	56,080		$	434,891
Accounts receivable		190,980			96,556
Inventories		53,047			38,506
Deposits and prepaid expenses		21,524			6,643
		321,631			576,596
Long-term investments		79,324			2,355
Property, plant and equipment, net		136,784			85,581
Goodwill, net		102,212			96,477
Intangible assets, net		1,080,503			556,360
Other assets, net		113,350			14,114
	$	1,833,804		$	1,331,483
LIABILITIES
Current
Accounts payable	$	71,641		$	31,811
Accrued liabilities		95,289			59,989
Income taxes payable		35,691			17,318
Deferred revenue		19,947			27,030
Current portion of long-term obligations		122,590			12,592
		345,158			148,740
Deferred revenue		18,200			23,100
Long-term obligations		624,760			33,569
		988,118			205,409
SHAREHOLDERS' EQUITY
Common shares, no par value, unlimited shares authorized, 158,120,144 and 157,496,407 issued and outstanding at December 31, 2002 and 2001, respectively		1,433,624			1,407,507
Stock options outstanding		4,856			5,067
Executive Stock Purchase Plan loans		(9,988	)		(9,988	)
Warrants outstanding		—			6,221
Deficit		(580,413	)		(280,004	)
Accumulated other comprehensive loss		(2,393	)		(2,729	)
		845,686			1,126,074
	$	1,833,804		$	1,331,483
Commitments and contingencies (notes 3, 20, 23, 24 and 25)

On behalf of the Board:

Eugene N. Melnyk (SIGNED)	Paul W. Haddy (SIGNED)
Chairman of the Board and Chief Executive Officer	Director

The accompanying notes are an integral part of the consolidated financial statements.

40

CONSOLIDATED STATEMENTS OF INCOME (LOSS)
In accordance with U.S. generally accepted accounting principles

        (All dollar amounts expressed in thousands of U.S. dollars, except per share data)

	Years ended December 31
	2002			2001			2000
REVENUE
Product sales	$	645,986		$	521,154		$	217,004
Research and development		28,425			14,596			66,834
Co-promotion, royalty and licensing		113,614			47,513			25,332
		788,025			583,263			309,170
EXPENSES
Cost of goods sold		164,706			125,995			67,980
Research and development		52,150			51,017			51,709
Selling, general and administrative		165,697			110,100			51,857
Amortization		71,499			44,513			7,232
Write-down of assets		31,944			80,482			—
Acquired research and development		167,745			—			208,424
		653,741			412,107			387,202
Operating income (loss)		134,284			171,156			(78,032	)
Interest income		3,608			2,742			23,693
Interest expense		(32,005	)		(36,242	)		(20,738	)
Other income		3,408			—			—
Debt conversion premiums		—			(34,923	)		—
Income (loss) before provision for income taxes		109,295			102,733			(75,077	)
Provision for income taxes		21,500			15,285			9,360
Income (loss) before extraordinary item and cumulative effect of change in accounting principle		87,795			87,448			(84,437	)
Extraordinary item		—			—			(20,039	)
Income (loss) before cumulative effect of change in accounting principle		87,795			87,448			(104,476	)
Cumulative effect of change in accounting principle		—			—			(43,500	)
Net income (loss)	$	87,795		$	87,448		$	(147,976	)
Basic earnings (loss) per share
Income (loss) before extraordinary item and cumulative effect of change in accounting principle	$	0.58		$	0.64		$	(0.66	)
Extraordinary item	$	—		$	—		$	(0.16	)
Cumulative effect of change in accounting principle	$	—		$	—		$	(0.34	)
Net income (loss)	$	0.58		$	0.64		$	(1.16	)
Diluted earnings (loss) per share
Income (loss) before extraordinary item and cumulative effect of change in accounting principle	$	0.55		$	0.58		$	(0.66	)
Extraordinary item	$	—		$	—		$	(0.16	)
Cumulative effect of change in accounting principle	$	—		$	—		$	(0.34	)
Net income (loss)	$	0.55		$	0.58		$	(1.16	)
Weighted average number of common shares outstanding (000s)
Basic		151,960			136,928			128,824
Diluted		160,463			150,690			143,512

The accompanying notes are an integral part of the consolidated financial statements.

41

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
In accordance with U.S. generally accepted accounting principles

        (All dollar amounts expressed in thousands of U.S. dollars)

		Common shares
						Stock options outstanding			Executive Stock Purchase Plan loans					Warrant subscription receivable						Accumulated other comprehensive income (loss)
		Shares (000s)	Amount								Warrants outstanding						Deficit						Total
Balance, January 1, 2000		124,392	$	363,579		$	10,383		$	—	$	8,244		$	(2,287	)	$	(113,843	)	$	1,260		$	267,336
Issued on the exercise of stock options		2,436		17,027			(3,302	)		—		—			—			—			—			13,725
Issued under Employee Stock Purchase Plan		5		150			—			—		—			—			—			—			150
Issued pursuant to equity offering		4,000		101,125			—			—		—			—			—			—			101,125
Issue costs		—		(5,782	)		—			—		—			—			—			—			(5,782	)
Issued on conversion of Convertible Subordinated Preferred Equivalent Debentures		—		15			—			—		—			—			—			—			15
Issued on exercise of warrants		601		6,342			—			—		(332	)		—			—			—			6,010
Issue of non-employee options		—		—			590			—		—			—			—			—			590
Fuisz Technologies Ltd.:
	Additional shares issued on acquisition	27		386			—			—		—			—			—			—			386
DJ Pharma, Inc.:
	Fair value of unvested options granted to employees on acquisition	—		—			7,480			—		—			—			—			—			7,480
	Unearned compensation relating to future service period at acquisition date	—		—			(5,721	)		—		—			—			—			—			(5,721	)
	Compensation cost for employee stock options	—		—			461			—		—			—			—			—			461
Collection of warrant subscription receivable		—		—			—			—		—			2,287			—			—			2,287
		131,461		482,842			9,891			—		7,912			—			(113,843	)		1,260			388,062
Net loss		—		—			—			—		—			—			(147,976	)		—			(147,976	)
Other comprehensive loss
Foreign currency translation adjustment		—		—			—			—		—			—			—			(1,735	)		(1,735	)
Unrealized holding loss on long-term investments		—		—			—			—		—			—			—			(893	)		(893	)
Other comprehensive loss		—		—			—			—		—			—			—			(2,628	)		(2,628	)
Comprehensive loss																								(150,604	)
Balance, December 31, 2000		131,461	$	482,842		$	9,891		$	—	$	7,912		$	—		$	(261,819	)	$	(1,368	)	$	237,458

42

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
In accordance with U.S. generally accepted accounting principles

        (All dollar amounts expressed in thousands of U.S. dollars)

	Common shares
						Stock options outstanding			Executive Stock Purchase Plan loans						Warrant subscription receivable					Accumulated other comprehensive income (loss)
	Shares (000s)		Amount									Warrants outstanding					Deficit						Total
Issued on the exercise of stock options	2,906		$	33,650		$	(4,826	)	$	—		$	—		$	—	$	—		$	—		$	28,824
Issued under Employee Stock Purchase Plan	6			280			—			—			—			—		—			—			280
Cancelled under stock repurchase program	(2,871	)		(14,354	)		—			—			—			—		(105,633	)		—			(119,987	)
Issued pursuant to equity offering	12,500			587,500			—			—			—			—		—			—			587,500
Issue costs	—			(27,454	)		—			—			—			—		—			—			(27,454	)
Issued on surrender and redemption of Convertible Subordinated Preferred Equivalent Debentures	10,433			314,259			—			—			—			—		—			—			314,259
Issued on exercise of warrants	3,061			30,784			—			—			(1,691	)		—		—			—			29,093
Cancellation of non-employee options	—			—			(735	)		—			—			—		—			—			(735	)
Compensation cost for employee stock options	—			—			737			—			—			—		—			—			737
Executive Stock Purchase Plan loans	—			—			—			(9,988	)		—			—		—			—			(9,988	)
	157,496			1,407,507			5,067			(9,988	)		6,221			—		(367,452	)		(1,368	)		1,039,987
Net income	—			—			—			—			—			—		87,448			—			87,448
Other comprehensive loss
Foreign currency translation adjustment	—			—			—			—			—			—		—			(2,254	)		(2,254	)
Unrealized holding loss on long-term investments	—			—			—			—			—			—		—			(72	)		(72	)
Reclassification adjustment for loss on long-term investment included in net income	—			—			—			—			—			—		—			965			965
Other comprehensive loss	—			—			—			—			—			—		—			(1,361	)		(1,361	)
Comprehensive income																								86,087
Balance, December 31, 2001	157,496			1,407,507			5,067			(9,988	)		6,221			—		(280,004	)		(2,729	)		1,126,074
Issued on the exercise of stock options	2,197			21,506			(2,210	)		—			—			—		—			—			19,296
Issued under Employee Stock Purchase Plan	17			463			—			—			—			—		—			—			463
Cancelled under stock repurchase program	(12,872	)		(114,896	)		—			—			—			—		(388,204	)		—			(503,100	)
Issued on exercise of warrants	11,282			119,044			—			—			(6,221	)		—		—			—			112,823
Compensation cost for employee stock options	—			—			1,999			—			—			—		—			—			1,999
	158,120			1,433,624			4,856			(9,988	)		—			—		(668,208	)		(2,729	)		757,555
Net income	—			—			—			—			—			—		87,795			—			87,795
Other comprehensive income
Foreign currency translation adjustment	—			—			—			—			—			—		—			336			336
Other comprehensive income	—			—			—			—			—			—		—			336			336
Comprehensive income																								88,131
Balance, December 31, 2002	158,120		$	1,433,624		$	4,856		$	(9,988	)	$	—		$	—	$	(580,413	)	$	(2,393	)	$	845,686

The accompanying notes are an integral part of the consolidated financial statements.

43

CONSOLIDATED STATEMENTS OF CASH FLOWS
In accordance with U.S. generally accepted accounting principles

        (All dollar amounts expressed in thousands of U.S. dollars)

	Years ended December 31
	2002			2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	87,795		$	87,448		$	(147,976	)
Add (deduct) items not involving cash
Depreciation and amortization		82,368			55,287			20,988
Amortization of deferred financing costs		2,267			1,580			538
Amortization of discounts on long-term obligations		5,329			10,999			—
Compensation cost for employee stock options		1,999			737			461
Write-down of assets		31,944			80,482			—
Acquired research and development		167,745			—			208,424
Debt conversion premiums, net of cash paid		—			23,574			—
Interest paid through the issuance of common shares		—			1,250			—
Extraordinary item		—			—			20,039
Cumulative effect of change in accounting principle		—			—			43,500
Other		(3,408	)		1,450			3,750
		376,039			262,807			149,724
Net change in non-cash operating items		(41,935	)		21,314			(47,230	)
Cash provided by operating activities		334,104			284,121			102,494
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of intangible assets		(375,385	)		(27,445	)		(27,752	)
Acquisitions of businesses, net of cash acquired		(240,581	)		—			(622,145	)
Acquisitions of long-term investments		(85,119	)		(866	)		(2,454	)
Additions to property, plant and equipment		(61,382	)		(44,436	)		(15,845	)
Increase in loan receivable		(30,000	)		—			—
Proceeds on reduction in intangible assets		—			15,000			—
Maturity of short-term investments, net		—			—			65,893
Proceeds from sale of assets held for disposal		—			—			20,000
Cash used in investing activities		(792,467	)		(57,747	)		(582,303	)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common shares, net of issue costs		19,615			589,150			109,604
Repurchase of common shares		(503,100	)		(119,987	)		—
Proceeds from exercise of warrants		112,823			29,093			6,010
Collection of warrant subscription receivable		—			—			2,287
Advance of Executive Stock Purchase Plan loans		—			(9,988	)		—
Issuance of Senior Subordinated Notes, net of financing costs		384,280			—			—
Advances (repayments) under revolving term credit facility, including financing costs		107,895			(211,300	)		207,000
Repayments of other long-term obligations		(41,980	)		(193,366	)		(45,602	)
Issuance of Convertible Subordinated Preferred Equivalent Debentures, net of financing costs		—			—			288,772
Repurchase of U.S. Dollar Senior Notes		—			—			(141,017	)
Cash provided by financing activities		79,533			83,602			427,054
Effect of exchange rate changes on cash and cash equivalents		19			(229	)		(187	)
Net increase (decrease) in cash and cash equivalents		(378,811	)		309,747			(52,942	)
Cash and cash equivalents, beginning of year		434,891			125,144			178,086
Cash and cash equivalents, end of year	$	56,080		$	434,891		$	125,144

The accompanying notes are an integral part of the consolidated financial statements.

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BIOVAIL CORPORATION

Notes to Consolidated Financial Statements
In accordance with U.S. generally accepted accounting principles
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

1.     GOVERNING STATUTE AND NATURE OF OPERATIONS

Biovail Corporation ("Biovail" or the "Company") is incorporated under the laws of the Province of Ontario, Canada. The Company is a full-service pharmaceutical company engaged in the formulation of pharmaceutical products utilizing advanced oral drug delivery technologies, clinical testing, registration, manufacturing, sale and promotion of pharmaceutical products targeting the cardiovascular (including Type II diabetes), central nervous system, pain management and niche therapeutic areas. The Company's common shares trade on the New York Stock Exchange ("NYSE") and the Toronto Stock Exchange ("TSX").

2.     SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The consolidated financial statements have been prepared by the Company in U.S. dollars and in accordance with U.S. generally accepted accounting principles ("GAAP"), applied on a consistent basis. Consolidated financial statements prepared in U.S. dollars and in accordance with Canadian GAAP are made available to all shareholders and filed with various regulatory authorities.

Principles of consolidation

The consolidated financial statements include the accounts of the Company and those of all its subsidiaries. All significant intercompany transactions and balances have been eliminated.

Use of estimates

In preparing the Company's consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates made by management include allowances for accounts receivable and inventories, reserves for product returns, recalls, rebates and chargebacks, the useful lives of long-lived assets, the expected cash flows used in evaluating long-lived assets and investments for impairment, the realizability of deferred tax assets and the allocation of the purchase price of acquired assets and businesses. Actual results could differ from these estimates.

Fair value of financial instruments

Fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties. The estimated fair values of cash equivalents, accounts receivable, accounts payable, accrued liabilities and income taxes payable approximate their carrying values due to the short maturity periods of these instruments. The fair values of long-term investments and long-term obligations are estimated based on quoted market prices, if available, or other valuation methods such as a present value technique. The fair values of derivative contracts are estimated based on the amount that would have been received or paid to settle the contracts.

Cash and cash equivalents

Cash and cash equivalents include highly liquid investments with original maturities of 90 days or less when purchased.

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Inventories

Inventories comprise raw materials, work in process and finished goods, which are valued at the lower of cost and market, on a first-in, first-out basis. The cost of raw materials and acquired finished goods inventories includes direct costs, less trade discounts. The cost of manufactured inventory includes the cost of raw materials, direct labour and attributable overheads.

Long-term investments

Long-term investments in other companies with readily determinable market values, where the Company does not have the ability to exercise significant influence, are accounted for as being available-for-sale. These investments are reported at fair value with temporary unrealized gains and losses on these investments included in accumulated other comprehensive loss in shareholders' equity. Unrealized losses on these investments that are considered to be other than temporary are recognized in net income (loss).

Long-term investments in other companies without readily determinable market values, where the Company does not have the ability to exercise significant influence, are accounted for under the cost method. Declines in the fair value of these investments below their cost basis that are considered to be other than temporary are recognized in net income (loss).

Property, plant and equipment

Property, plant and equipment are reported at cost, less accumulated depreciation. Cost includes interest costs attributable to major capital projects prior to the assets becoming available for productive use. Depreciation is computed using the straight-line method, commencing when the assets become available for productive use, based on the following estimated useful lives:

Buildings	25 years
Machinery and equipment	5-10 years
Other equipment	3-10 years
Leasehold improvements	Term of lease

Goodwill and intangible assets

Goodwill represents the excess of the purchase price of acquired businesses over the fair value of the identifiable net assets acquired. Intangible assets acquired through business combinations are initially recognized at fair value based on an allocation of the purchase price. Intangible assets acquired other than through business combinations are initially recognized at fair value based on the consideration paid.

The Company has adopted the Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". Under SFAS No. 141, all business combinations occurring after June 30, 2001 are to be accounted for under the purchase method of accounting. Under SFAS No. 142, which has been adopted effective January 1, 2002, goodwill and other intangible assets deemed to have indefinite lives are no longer amortized, but are subject to annual impairment tests. Intangible assets with finite lives continue to be amortized over their estimated useful lives.

Effective January 1, 2002, the Company identified those intangible assets that did not meet the criteria for recognition apart from goodwill, and assessed the useful lives of its remaining intangible assets. As a result,

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the Company reclassified the $5,722,000 net carrying amount of workforce related intangible assets to goodwill and determined that the useful lives of its remaining intangible assets were appropriate and consistent with those useful lives identified as at December 31, 2001. During 2002, the Company completed the transitional and annual evaluation of its goodwill and determined that none of its goodwill was impaired.

A reconciliation of reported net income (loss) and earnings (loss) per share, assuming SFAS No. 142 was applied retroactively, is as follows:

	2002		2001		2000
Net income (loss) as reported	$	87,795	$	87,448	$	(147,976	)
Goodwill amortization		—		5,583		2,850
Workforce amortization		—		1,071		421
Adjusted net income (loss)	$	87,795	$	94,102	$	(144,705	)
Basic earnings (loss) per share
Net income (loss) as reported	$	0.58	$	0.64	$	(1.16	)
Goodwill amortization	$	—	$	0.04	$	0.02
Workforce amortization	$	—	$	0.01	$	—
Adjusted net income (loss)	$	0.58	$	0.69	$	(1.14	)
Diluted earnings (loss) per share
Net income (loss) as reported	$	0.55	$	0.58	$	(1.16	)
Goodwill amortization	$	—	$	0.04	$	0.02
Workforce amortization	$	—	$	0.01	$	—
Adjusted net income (loss)	$	0.55	$	0.63	$	(1.14	)

Intangible assets are reported at cost, less accumulated amortization. Amortization is generally computed using the straight-line method based on the following estimated useful lives:

Brand names	20 years
Product rights	8-20 years
Core technology	15 years

The Company evaluates intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. This evaluation is performed by comparing the carrying amounts of the assets to the related estimated undiscounted future net cash flows. If the undiscounted future net cash flows are less than the carrying amount of the asset, then the carrying amount of the asset is written down to its fair value.

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Deferred financing costs

Deferred financing costs are reported at cost, less accumulated amortization. Amortization is computed using the straight-line method over the term of the following related obligations:

Revolving term credit facility	3 years
Senior Subordinated Notes	8 years
Convertible Subordinated Preferred Equivalent Debentures	25 years

Amortization expense related to deferred financing costs is included as a component of interest expense.

During 2001, in connection with the surrender and redemption of the Company's 6.75% Convertible Subordinated Preferred Equivalent Debentures due March 31, 2025 ("Debentures"), as described in note 16 — Debt Conversion Premiums, the related unamortized deferred financing costs were included in the valuation of the common shares issued.

Derivative financial instruments

The Company manages its exposure to interest rate risks through the use of derivative financial instruments that are designated as a fair value hedge of an identified portion of a recognized long-term obligation. The Company does not utilize derivative financial instruments for trading or speculative purposes. The Company accounts for derivative financial instruments as either assets or liabilities at fair value. For a derivative financial instrument that is designated and qualifies as a fair value hedge, the derivative financial instrument is marked-to-market with the gain or loss on the derivative financial instrument, and the respective offsetting loss or gain on the underlying hedged item, recognized in net income (loss). Net receipts or payments relating to the derivative financial instruments are recorded as an adjustment to interest expense.

Foreign currency translation

The financial statements of the Company's operations having a functional currency other than U.S. dollars are translated into U.S. dollars at the rate of exchange prevailing at the balance sheet date for asset and liability accounts and at the average rate of exchange for the reporting period for revenue and expense accounts. The cumulative foreign currency translation adjustment is reported as a component of accumulated other comprehensive loss in shareholders' equity. The net change in the cumulative foreign currency translation adjustment in the periods presented is primarily due to fluctuations in the exchange rates between the U.S. dollar and the Canadian dollar and the euro.

Foreign currency transaction gains and losses are included in selling, general and administrative expenses and are immaterial for all periods presented.

Revenue recognition

Effective January 1, 2000, the Company implemented the provisions of the U.S. Securities and Exchange Commission's Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements". Accordingly, the Company changed its method of accounting to that described below for up-front research and development, product license and certain other fees. The Company historically recognized these fees as revenue when all the conditions to payment had been met and there were no further performance contingencies or conditions to the Company's receipt of payment. These fees were not creditable against

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future payments. At January 1, 2000, the cumulative effect of the change in accounting principle on prior years resulted in a charge of $43,500,000, which was included in the net loss for 2000. A corresponding amount was recorded in deferred revenue, of which $4,800,000, $6,300,000 and $9,300,000 was amortized to revenue in 2002, 2001, and 2000, respectively.

Product sales — Product sales revenue is recognized when the product is shipped to the customer, provided that the Company has not retained any significant risks of ownership or future obligations with respect to the product shipped. Revenue from product sales is recognized net of reserves for estimated sales discounts and allowances, returns, recalls, rebates and chargebacks. Amounts received from customers as prepayments for products to be shipped in the future are reported as deferred revenue.

Research and development — Research and development revenue attributable to the performance of contract services is recognized as the services are performed, in accordance with the terms of the specific development contract. On long-term research and development collaborations, revenue is recognized relative to the total level of effort necessary to meet all regulatory and developmental requirements. Costs and related profit margin in excess of amounts billed are included in accounts receivable. Amounts billed in excess of costs and related profit margin are included in deferred revenue. Non-refundable, up-front fees for access to the Company's proprietary technology in connection with certain research and development collaborations are deferred and recognized as revenue on a straight-line basis over the term of the related collaboration.

Co-promotion — Co-promotion revenue is recognized when the co-promotion partner records sales of the co-promoted product and is based on a percentage of the co-promotion partner's net sales of the co-promoted product. Sales and marketing costs related to co-promotion revenue are included in selling, general and administrative expenses.

Royalty and licensing — Royalty revenue is recognized in accordance with the contractual agreements and when the Company has no future obligations pursuant to the royalty fee. Royalty revenue is recognized net of amounts payable to sublicensees where the Company is simply acting as an agent for the sublicensee. Licensing revenue is deferred and recognized on a straight-line basis over the license period.

Research and development

Research and development costs are expensed in the period in which they are incurred. The costs of assets that are purchased from others for a particular research and development project that have not reached technological feasibility and that have no alternative future use are expensed at the time of acquisition. The costs associated with research and development collaborations and with providing contract research services are included in research and development expenses and were $11,570,000, $7,596,000 and $41,522,000 in 2002, 2001 and 2000, respectively.

Advertising

Advertising costs related to new product launches are expensed on the first showing of the product. Deferred advertising costs of $8,866,000 are included in deposits and prepaid expenses at December 31, 2002. The Company had not deferred any advertising costs at December 31, 2001. Advertising costs expensed in 2002, 2001 and 2000 were $18,795,000, $3,957,000 and $3,434,000, respectively.

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Co-promotion fees

Co-promotion fees payable by the Company to its co-promotion partner are accrued based on a percentage of the net sales of the co-promoted products. Co-promotion fees are included in selling, general and administrative expenses.

Stock-based compensation

Under the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", companies can either measure the compensation cost of equity instruments issued under employee compensation plans using a fair value based method or can continue to recognize compensation cost using the intrinsic value based method under the provisions of Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees". However, if the provisions of APB No. 25 are applied, pro forma disclosure of net income (loss) and earnings (loss) per share must be presented in the financial statements as if the fair value method had been applied. For all periods presented, the Company recognized compensation costs under the provisions of APB No. 25 and has provided the expanded disclosure required by SFAS No. 123.

The following table illustrates the effect on net income (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based compensation.

	2002		2001		2000
Net income (loss) as reported	$	87,795	$	87,448	$	(147,976	)
Total stock-based compensation expense determined under fair value based method		14,254		12,216		16,680
Pro forma net income (loss)		73,541		75,232		(164,656	)
Basic earnings (loss) per share
As reported	$	0.58	$	0.64	$	(1.16	)
Pro forma	$	0.48	$	0.55	$	(1.28	)
Diluted earnings (loss) per share
As reported	$	0.55	$	0.58	$	(1.16	)
Pro forma	$	0.46	$	0.50	$	(1.28	)

The fair values of all stock options granted during 2002, 2001 and 2000 were estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	2002	2001	2000
Expected option life (years)	3.8	4.0	4.2
Volatility	46.8%	36.9%	41.1%
Risk-free interest rate	4.5%	5.2%	5.8%

The Black-Scholes model, used by the Company to calculate option values, as well as other currently accepted option valuation models, were developed to estimate the fair value of freely tradeable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require highly subjective assumptions, including future stock price volatility and

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expected time until exercise, which greatly affect the calculated values. Accordingly, management believes that these models do not necessarily provide a reliable single measure of the fair value of the Company's stock option awards.

Income taxes

Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the differences between the financial statement and income tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. A valuation allowance is provided for the portion of deferred tax assets that is more likely than not to be unrealized. Deferred tax assets and liabilities are measured using enacted tax rates and laws.

Earnings (loss) per share

Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding during the reporting period. Diluted earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding during the reporting period after giving effect to dilutive potential common shares. The dilutive effects of warrants and stock options are determined using the treasury stock method. The dilutive effects of convertible securities are determined using the if-converted method.

Comprehensive income (loss)

Comprehensive income (loss) comprises net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes foreign currency translation adjustments and unrealized holding gains and losses on available-for-sale investments. Accumulative other comprehensive loss is recorded as a component of shareholders' equity.

Recent accounting pronouncements

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". SFAS No. 145 requires any gain or loss on extinguishments of debt to be classified as income or loss from continuing operations, rather than as an extraordinary item. The Company will adopt SFAS No. 145 effective January 1, 2003. The extraordinary item resulting from the extinguishment of the 10⁷/8% U.S. Dollar Senior Notes due November 15, 2005 ("Senior Notes") in 2000 will be reclassified as other expense for all comparative figures presented. The adoption of SFAS No. 145 will have no impact on the Company's net results of operations.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. SFAS No. 146 also establishes that the liability should be measured initially at fair value. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. Effective January 1, 2003, the Company will account for any exit costs or disposal activities in accordance with SFAS No. 146.

In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN No. 45 clarifies and expands on existing disclosure requirements for a guarantor regarding its obligations under certain guarantees it has issued. FIN No. 45 also requires that the guarantor must

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recognize a liability for the fair value of its obligations under certain guarantees. The disclosure requirements are effective for fiscal years ending after December 15, 2002. The initial recognition and measurement provisions apply on a prospective basis to guarantees issued after December 31, 2002. The Company has adopted the disclosure requirements of FIN No. 45 effective December 31, 2002, and will adopt the recognition and measurement provisions for guarantees issued after December 31, 2002.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation — Transition and Disclosure". SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition to SFAS No. 123's fair value method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and APB No. 28, "Interim Financial Reporting", to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS No. 148 is effective for fiscal years ending after December 15, 2002. The Company has elected to continue to use the intrinsic value based method under the provisions of APB No. 25 and has adopted the required disclosures of SFAS No. 148 effective December 31, 2002.

3.     ACQUISITIONS

Acquisitions of intangible assets

During 2002, the Company acquired the rights to Wellbutrin® and Zyban® in Canada and Vasotec®, Vaseretic®, Teveten® and Zovirax in the United States. Total consideration was allocated based on the fair values on the respective dates of acquisition as follows:

	Wellbutrin® and Zyban®		Vasotec® and Vaseretic®		Teveten®		Zovirax		Total
Acquired assets
Prepaid expenses	$	2,609	$	—	$	—	$	—	$	2,609
Product rights		45,000		79,500		94,340		173,364		392,204
Trademarks		24,349		165,804		—		—		190,153
	$	71,958	$	245,304	$	94,340	$	173,364	$	584,966
Consideration
Cash paid, net of gross profit on acquired assets	$	1,997	$	145,684	$	94,340	$	133,364	$	375,385
Long-term obligations		69,961		99,620		—		40,000		209,581
	$	71,958	$	245,304	$	94,340	$	173,364	$	584,966

Wellbutrin® and Zyban®

On December 26, 2002, Biovail acquired from GlaxoSmithKline plc ("GSK") the Canadian rights to Wellbutrin® SR and Zyban®, as well as the rights to market Biovail's once-daily formulation of bupropion hydrochloride ("HCl") in Canada under the trade name Wellbutrin® XL when, and if, regulatory approval is received. Wellbutrin® SR is prescribed for the treatment of depression and Zyban® is administered for the treatment of nicotine addiction as an aid to smoking cessation. Both products are formulations of bupropion HCl. Biovail obtained the beneficial rights to Wellbutrin® and Zyban® effective December 1,

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2002 and will obtain full legal rights on March 2, 2004 following the completion of the payments described below.

GSK will continue to manufacture and supply Wellbutrin® SR and Zyban® for the period from December 31, 2002 to December 31, 2006. GSK will assist in qualifying a Biovail facility to achieve the transition of the manufacturing process. GSK will also continue to market Wellbutrin® SR and Zyban® in Canada for the period from December 1, 2002 to December 31, 2003 and, in consideration, Biovail will pay GSK a tiered royalty on the net sales of the products. Biovail will also pay GSK a royalty on the net sales of Wellbutrin® XL in Canada for twenty years from the date of commercial launch of the product.

The purchase price for Wellbutrin® and Zyban® comprised initial cash consideration of $1,997,000, including costs of acquisition, plus remaining payments of $72,072,000 payable in four quarterly instalments from June 1, 2003 to March 1, 2004. The remaining payments were present valued using an imputed interest rate comparable to Biovail's available borrowing rate at the date of the transaction. Accordingly, the present value of the remaining payments was determined to be $69,961,000.

Prepaid expenses will be amortized over the one-year period from January 1, 2003 during which GSK will market Wellbutrin® SR and Zyban® in Canada. The trademarks and product rights will be amortized over their estimated useful lives of twenty years and fifteen years, respectively. The estimated weighted average useful life of the acquired assets is approximately sixteen years.

Vasotec® and Vaseretic®

On May 10, 2002, Biovail acquired Vasotec® (enalapril) and Vaseretic® (enalapril with hydrochlorothiazide) from Merck & Co., Inc. ("Merck"), and also acquired the fixed-dose combination New Drug Application ("NDA") of enalapril in combination with diltiazem malate. The agreement calls for Merck to manufacture and supply Vasotec® and Vaseretic® and to temporarily provide distribution services. Biovail will make semi-annual payments to Merck over a five-year term for minimum product quantities and a minimum fixed royalty (regardless of the actual product supplied). Merck will also receive royalties on the future sales of any life cycle products developed and marketed in the United States.

Biovail also entered into a separate agreement with Merck to develop, license and supply a new dosage format of a Merck product under development as described in note 25 — Research and Development Collaborations.

The purchase price for Vasotec® and Vaseretic® comprised cash consideration, including costs of acquisition, of $155,634,000, less Merck's gross profit on the acquired assets from April 1, 2002 (the effective date of the transaction) to May 10, 2002 (the closing date of the transaction) of $9,950,000, plus the minimum fixed royalty payments required to be made by Biovail to Merck of $109,276,000. The minimum fixed royalty payments were present valued using an imputed interest rate comparable to Biovail's available borrowing rate at the date of the transaction. Accordingly, the present value of the minimum fixed royalty payments was determined to be $99,620,000.

The trademarks and product rights will be amortized over their estimated useful lives of twenty years and fifteen years, respectively. The estimated weighted average useful life of the acquired assets is approximately nineteen years.

A letter of credit was issued to Merck to secure the remaining semi-annual payments Biovail is required to make under the Vasotec® and Vaseretic® agreement. The letter of credit was issued under Biovail's revolving term credit facility (the "Credit Facility") and had a balance remaining of $93,170,000 as at

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December 31, 2002. The fees incurred to issue the letter of credit are amortized to interest expense over the related term of the letter of credit.

Teveten®

On March 18, 2002, Biovail acquired from Solvay Pharmaceuticals Marketing & Licensing AG ("Solvay") the rights to Teveten® (eprosartan mesylate) and Teveten® HCT (eprosartan mesylate and hydrochlorothiazide combination) in the United States. Teveten® is an angiotensin-II receptor blocker for the treatment of hypertension and is indicated for use either alone or in conjunction with other antihypertensive medications.

The purchase price for Teveten® comprised cash consideration of $94,340,000, including costs of acquisition. The product rights will be amortized over an estimated useful life of twenty years.

Solvay will manufacture and supply Teveten® and Teveten® HCT, and will assist in qualifying a Biovail facility to achieve the transition of the manufacturing process. Solvay will continue to manufacture and market Teveten® and Teveten® HCT in areas outside of the United States. Solvay will pay a marketing allowance to Biovail, of up to $20,000,000, to reimburse Biovail for the agreed on direct costs related to the re-launch and marketing of Teveten® and Teveten® HCT in the United States. During 2002, Biovail recorded $10,000,000 of the marketing allowance as a reimbursement of a portion of the agreed on direct costs associated with the re-launch of Teveten®. Biovail has formed a joint business development committee with Solvay to discuss future clinical and product development options that can enhance the performance or expand the utilization of Teveten®. Solvay has the option to acquire all potential future modifications and innovations developed by Biovail for Teveten® for worldwide markets excluding the United States.

Zovirax

Effective January 1, 2002, Biovail acquired from GSK the exclusive distribution rights for Zovirax (acyclovir) Ointment and, on approval by the U.S. Food and Drug Administration ("FDA"), Zovirax Cream in the United States. Zovirax is an anti-viral topical product. Zovirax Ointment is indicated for the treatment of herpes and Zovirax Cream is indicated for the treatment of cold sores.

The purchase price for Zovirax comprised cash consideration of $133,364,000, including costs of acquisition. The product rights were being amortized over an estimated useful life of ten years, based on the original term of the distribution agreement.

Biovail and GSK also entered into a development and co-promotion agreement for Biovail's once-daily formulation of bupropion HCl in the United States ("Wellbutrin XL") as described in note 24 — Co-Promotion Arrangements. In the event of the termination of the Wellbutrin XL development agreement by either party, Biovail would be required to pay GSK additional payments for the rights to the Zovirax products of $22,000,000 per year for calendar years 2002 through 2006, with an aggregative cumulative total of all additional rights payments not to exceed $99,000,000, and for calendar years 2007 through 2011, Biovail would be required to pay GSK additional payments based on a percentage of Biovail's gross sales of the Zovirax products during the immediately preceding calendar year. GSK will manufacture and supply Zovirax Ointment and, on FDA approval, Zovirax Cream to Biovail.

On December 23, 2002, Biovail and GSK agreed to a ten-year extension of the Zovirax distribution agreement. In consideration for the extension, Biovail will pay GSK $40,000,000 on or before March 31, 2003. The amount was added to the value of the unamortized Zovirax product rights and, subsequent to the

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date of amendment, the Zovirax product rights will be amortized over a revised estimated remaining useful life of nineteen years.

Adalat

On December 29, 2000, Biovail and Elan Corporation, plc ("Elan") agreed to certain amendments to the licensing and supply agreement for Elan's 30mg bioequivalent version of Adalat CC (as amended, the "Adalat Agreement"). Under the terms of the Adalat Agreement, Biovail was to pay Elan annual minimum license payments, exclusive of the direct manufacturing cost of the 30mg product purchased from Elan.

The minimum license payments were capitalized as a product right, with a corresponding long-term obligation to Elan. The value assigned to the product right and obligation was the present value of the minimum license payments based on an imputed interest rate comparable to Biovail's available borrowing rate as at the date of the transaction. Accordingly, the present value of the minimum license payments was determined to be $64,720,000. The product right was being amortized over its estimated useful life of fifteen years, which was the remaining initial term of the Adalat Agreement. Under the terms of the Adalat Agreement, Biovail was entitled to recover $15,000,000 in the form of a 50% reduction of the minimum license payments otherwise payable to Elan. During 2001, this amount was recorded as a reduction in intangible assets.

In October 2001, Biovail paid $12,750,000 to Elan to acquire the license to distribute Elan's 60mg bioequivalent version of Adalat CC.

In June 2002, Biovail, Elan and the U.S. Federal Trade Commission ("FTC") entered into a settlement related to bioequivalent versions of Adalat CC. Under the terms of the FTC's consent order, Biovail and Elan agreed to terminate their licensing and supply agreements such that Biovail and Elan will be responsible for the manufacturing and marketing of their own 30mg and 60mg products. Until May 31, 2003, the FTC settlement grants Biovail a guaranteed supply of the 30mg product from Elan during Biovail's transition to internal production.

In December 2002, the Company wrote off the net book value of the Adalat product rights as described in note 15 — Write-Down of Assets.

Acquisitions of businesses

During 2002, Biovail completed the acquisitions of Pharmaceutical Technologies Corporation ("Pharma Tech") and Pharma Pass LLC and Pharma Pass S.A. (collectively, "Pharma Pass"). These acquisitions were accounted for under the purchase method of accounting. Total consideration, including costs of acquisition, was allocated based on the estimated fair values on the respective dates of acquisition as follows:

	Pharma Tech			Pharma Pass		Total
Acquired assets
Acquired research and development	$	60,558		$	107,187	$	167,745
Product rights		5,000			63,800		68,800
Core technology		—			7,700		7,700
Current liabilities		(3,664	)		—		(3,664	)
Cash paid, net of cash acquired	$	61,894		$	178,687	$	240,581

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PHARMA TECH

Background

Pharma Tech is a development-stage company engaged in the application of drug delivery technologies to the formulation and development of a portfolio of products. Pharma Tech contracted directly with third parties, including Biovail, to conduct the contract research and development services. Biovail provided contract research and advisory services consistent with contractual relationships it had with other third parties. On the completion of the development of Biovail's products, Biovail had the right to manufacture and sell the products and Pharma Tech was entitled to royalties from the net sales of each product for a period of ten years from the date of launch of each product. Biovail had options to acquire PharmaTech's interest in the products or to acquire Pharma Tech.

Prior to the acquisition, Biovail earned revenue from providing advisory and contract research services to Pharma Tech of $2,844,000 and $2,189,000 in 2002 and 2001, respectively. The costs of providing these services to Pharma Tech were $2,053,000 and $1,679,000 in 2002 and 2001, respectively, and Biovail was also reimbursed amounts at cost of $2,509,000 and $1,395,000 in 2002 and 2001, respectively.

Description of acquisition

On December 17, 2002, Biovail paid $43,080,000 to Pharma Tech to terminate the development of one of the products under development and the associated royalties on future sales of the product when, and if, approved by the FDA. At the date of termination, the product had not reached technological feasibility, had no known alternative uses and had not yet been submitted for approval by the FDA. Accordingly, the termination payment was expensed as acquired research and development. Biovail is continuing the development program for this product.

On December 31, 2002, Biovail acquired 100% of the outstanding shares of Pharma Tech for $22,600,000, including costs of acquisition. Through the acquisition of Pharma Tech, Biovail extinguished any future milestone or royalty obligations that Biovail may have had to Pharma Tech resulting from the approval and successful commercialization of any of the products under development, pursuant to the research and development agreements previously entered into between Biovail and Pharma Tech. Pharma Tech has been included in Biovail's consolidated financial statements from the date of acquisition.

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The acquired assets of Pharma Tech were fair valued using an income approach. The discount rates used to present value the estimated cash flows related to each asset were determined based on the relative risk of achieving the assets' estimated cash flows and were in the range of 30% to 45%.

Acquired research and development

At the date of acquisition, Pharma Tech was involved in a number of product development projects that had not been submitted for approval by the FDA. An additional product development project has received an approvable letter from the FDA; however, significant technical issues require resolution before final approval will be granted. The products under development were in various stages of completion, had not reached technological feasibility and had no known alternative uses, and were considered to be acquired research and development. The efforts required to develop the acquired research and development into commercially viable products include the completion of the development stages of the products, clinical-trial testing, FDA approval and commercialization. The principal risks relating to the products in development are the outcomes of the formulation development, clinical studies and regulatory filings. Since pharmaceutical products cannot be marketed without regulatory approvals, Biovail will not receive any benefits unless regulatory approval is obtained.

Product rights

At the date of acquisition, Pharma Tech was involved with an additional product development project that had been submitted for approval by the FDA. The product has received an approvable letter from the FDA and Biovail believes that the remaining issues can be successfully resolved and that final approval will be granted. However, since pharmaceutical products cannot be marketed without regulatory approvals, Biovail will not receive any benefits unless regulatory approval is obtained. The product rights will be amortized over an estimated useful life of fifteen years.

Pro forma information (unaudited)

The following unaudited pro forma information presents a summary of the consolidated results of operations of Biovail and Pharma Tech as if the acquisition had occurred on January 1, 2001. Included in the consolidated results for 2001 is the write-off of acquired research and development. All transactions between Biovail and Pharma Tech have been eliminated.

	2002		2001
Total revenue	$	778,492	$	579,815
Net income		105,741		5,411
Basic earnings per share	$	0.70	$	0.04
Diluted earnings per share	$	0.66	$	0.04

These unaudited pro forma consolidated results have been prepared for comparative purposes only. They do not purport to be indicative of the results of operations which actually would have resulted had Pharma Tech been included in Biovail's consolidated financial statements from January 1, 2001. In addition, they do not purport to be indicative of future consolidated results of operations of Biovail.

PHARMA PASS

Background

Pharma Pass is a developer of advanced oral controlled-release technologies and formulations for pharmaceutical companies, including Biovail, in Europe and the United States. On the completion of the development of Biovail's products, Biovail had the right to manufacture and sell the products and Pharma Pass was entitled to royalties from the net sales of each product for a period of fifteen years from the date of launch of each product.

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Description of acquisition

On December 6, 2002, Biovail acquired 100% of the outstanding interests of Pharma Pass LLC and 100% of the outstanding shares of Pharma Pass S.A. for $178,687,000 including costs of acquisition. Through the acquisition of Pharma Pass, Biovail extinguished any future milestone or royalty obligations that Biovail may have had to Pharma Pass resulting from the approval and successful commercialization of any of the products under development, pursuant to the research and development agreements previously entered into between Biovail and Pharma Pass. Pharma Pass has been included in Biovail's consolidated financial statements from the date of acquisition.

The acquired assets of Pharma Pass were fair valued using an income approach. The discount rates used to present value the estimated cash flows related to each asset were determined based on the relative risk of achieving the assets' estimated cash flows and were generally in the range of 9% to 45%. The estimated weighted average useful life of the acquired assets is approximately four years.

Acquired research and development

At the date of acquisition, Pharma Pass was involved in approximately twenty product development projects for a number of pharmaceutical companies including Biovail. At the date of acquisition, a number of the products had been submitted for approval by the FDA. The remaining products are expected to be submitted for approval by the FDA, and/or other regulatory authorities, over approximately the next three years. The products under development were in various stages of completion, had not reached technological feasibility and had no known alternative uses, and were considered to be acquired research and development. The efforts required to develop the acquired research and development into commercially viable products include the completion of the development stages of the products, clinical-trial testing, regulatory approval and commercialization. The principal risks relating to the products in development are the outcomes of the formulation development, clinical studies and regulatory filings. Since pharmaceutical products cannot be marketed without regulatory approvals, the Company will not receive any benefits unless regulatory approval is obtained.

Product rights

Biovail obtained interests in certain licensed products including Tricor (fenofibrate) and a bioequivalent version of Prilosec (omeprazole). Biovail is entitled to royalties on sales of Tricor and a participating interest in the gross profit on sales of a bioequivalent version of Prilosec.

The interest in Tricor will be amortized over an estimated useful life of eight years. The interest in the gross profit on sales of a bioequivalent version of Prilosec will be amortized over its estimated useful life using a variable charge method to reflect the pattern in which the economic benefits of the asset are consumed. The estimated weighted average useful life for the product rights is approximately three years.

Core technology

Biovail obtained the patents related to Pharma Pass's Zero Order Release System ("ZORS"), a drug delivery technology that controls the rate of release of a drug and/or significantly enhances the systemic absorption of a drug molecule. Biovail believes the ZORS technology has application to products currently in formulation and to the future development of controlled-release products.

Biovail also obtained Pharma Pass's oral Colonic Delivery System ("CDS"), a drug delivery technology designed for the targeted release of medication into the lower intestine and upper colon. Biovail also has the option to continue the development of four products utilizing the CDS technology. Biovail will pay up to $10,000,000 in milestone fees subject to the successful completion of the development of the colonic products. Biovail will obtain ownership of the CDS patents following the net payment of $10,000,000 less the sum of the milestone fees paid.

The core technology will be amortized over an estimated useful life of fifteen years.

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Pro forma information (unaudited)

The following unaudited pro forma information presents a summary of the consolidated results of operations of Biovail and Pharma Pass as if the acquisition had occurred on January 1, 2001. Included in the consolidated results for 2001 is the write-off of acquired research and development. All transactions between Biovail and Pharma Pass have been eliminated.

	2002		2001
Total revenue	$	794,827	$	587,408
Net income (loss)		198,004		(19,672	)
Basic earnings (loss) per share	$	1.30	$	(0.14	)
Diluted earnings (loss) per share	$	1.23	$	(0.14	)

These unaudited pro forma consolidated results have been prepared for comparative purposes only. They do not purport to be indicative of the results of operations which actually would have resulted had Pharma Pass been included in Biovail's consolidated financial statements from January 1, 2001. In addition, they do not purport to be indicative of future consolidated results of operations of Biovail.

During 2000, the Company completed the acquisitions of Intelligent Polymers Limited ("Intelligent Polymers"), the Cardizem® product line ("Cardizem®") and DJ Pharma, Inc. ("DJ Pharma"). These acquisitions were accounted for under the purchase method of accounting. Total consideration, including costs of acquisition, was allocated based on estimated fair values on the respective dates of acquisition, as follows:

	Intelligent Polymers			Cardizem®		DJ Pharma			Total
Acquired research and development	$	208,424		$	—	$	—		$	208,424
Current assets		3,287			—		14,705			17,992
Equipment		—			—		672			672
Deferred compensation trust fund		—			—		8,268			8,268
Assembled workforce		—			—		5,200			5,200
Brand names and product rights		5,000			406,070		130,500			541,570
Goodwill		—			—		70,497			70,497
Current liabilities		(14,270	)		—		(22,844	)		(37,114	)
Deferred compensation obligation		—			—		(8,268	)		(8,268	)
Debt assumed		—			—		(34,169	)		(34,169	)
	$	202,441		$	406,070	$	164,561		$	773,072
Consideration
Cash paid, net of cash acquired	$	202,441		$	239,652	$	162,802		$	604,895
Issue of non-employee options		—			590		—			590
Fair value of options granted to employees		—			—		1,759			1,759
Accrued acquisition costs		—			4,000		—			4,000
Cardizem® obligation		—			161,828		—			161,828
	$	202,441		$	406,070	$	164,561		$	773,072

INTELLIGENT POLYMERS

Background

In July 1997, Intelligent Polymers, a Bermuda corporation, was formed primarily to develop once-daily, controlled-release branded versions of selected drugs whose chemical patents and/or exclusivity periods had or were about to expire and which were marketed only in immediate-release form or in controlled-release form requiring multiple daily dosing.

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In September 1997, the Company concluded a development and license agreement (the "Development Contract") and a services agreement with Intelligent Polymers, whereby the Company would develop the designated products on Intelligent Polymers' behalf.

In an initial public offering in October 1997, 3,737,500 units of Intelligent Polymers were sold to the public, resulting in net proceeds to Intelligent Polymers, after offering costs, of approximately $69,500,000. The proceeds of the offering were used by Intelligent Polymers to make payments to the Company under the Development Contract.

For the period ended September 29, 2000, payments received by the Company from Intelligent Polymers pursuant to the Development Contract were $55,200,000 and the cost of providing those services to Intelligent Polymers was $35,200,000.

The Company, as the holder of all of the issued and outstanding special shares of Intelligent Polymers, was entitled, at its sole discretion, to purchase all, but not less than all, of the outstanding common shares of Intelligent Polymers commencing on the closing date of the offering and ending on the earlier of September 30, 2002, or the 90th day after the date Intelligent Polymers provided the Company with quarterly financial statements showing cash or cash equivalents of less than $3,000,000. The purchase price calculated on a per share basis would have been as follows:

	Purchase price
Before October 1, 2000	$	39.06
On or after October 1, 2000 and on or before September 30, 2001		48.83
On or after October 1, 2001 and on or before September 30, 2002		61.04

Description of acquisition

On September 29, 2000, the Company sold all of its interest in and to the special shares of Intelligent Polymers to IPL Acquireco 2000 Ltd., a British Virgin Islands company ("IPL Acquireco"), in exchange for 12,000 non-voting common shares of IPL Acquireco, valued at $12,000. In addition, the Company invested $141,500,000 in non-voting Class A shares of IPL Acquireco. On the same date, IPL Acquireco, as holder of the special shares of Intelligent Polymers, consummated the purchase of all the issued and outstanding common shares of Intelligent Polymers and thereby Intelligent Polymers became a wholly-owned subsidiary of IPL Acquireco. As a result of IPL Acquireco's acquisition of Intelligent Polymers, certain provisions of the Development Contract were amended such that Intelligent Polymers took over the development of the designated products, including directly contracting with, and making payments to, third parties.

The Company, as holder of all of the non-voting common shares of IPL Acquireco, was entitled, at its sole discretion, to purchase all of the voting common shares of IPL Acquireco at any time prior to October 1, 2002. IPL Acquireco had 6,500,000 voting common shares issued and outstanding.

On December 29, 2000, the Company purchased all the voting common shares of IPL Acquireco for total consideration of $6,750,000. Contemporaneously with the acquisition of IPL Acquireco, the Company repaid the bank credit facility of Intelligent Polymers, which amounted to $56,616,000. Accordingly, the total consideration for the acquisition of IPL Acquireco, including the value of the Class A and special shares, was $204,878,000. The assets, liabilities and expenses of IPL Acquireco and Intelligent Polymers have been included in the Company's consolidated financial statements from December 29, 2000.

Acquired research and development

At the date of acquisition, the products under development were in various stages of completion, had not reached technological feasibility and had no known alternative uses, and were considered to be acquired research and development. The efforts required to develop the acquired research and development into commercially viable products include the completion of the development stages of the products, clinical-trial testing, FDA approval, and commercialization. The principal risks relating to the products in development are the outcomes of the formulation development, clinical studies and regulatory filings. At the date of acquisition, none of the products had been submitted for approval by the FDA. Since

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pharmaceutical products cannot be marketed without regulatory approvals, the Company will not receive any benefits unless regulatory approval is obtained.

Biovail is continuing the development programs for the various products previously being developed for Intelligent Polymers. At December 31, 2002, three of these developmental programs (tramadol, metformin and buspirone) were in Phase III clinical trials and an NDA has been filed by GSK with the FDA for another (bupropion HCI) as described in note 24 — Co-Promotion Arrangements.

Intangible asset

Intelligent Polymers had acquired as part of its development activities the rights to a cardiovascular product. This product right was included in the value of the net liabilities assumed of Intelligent Polymers. In 2001, the Company wrote off the net book value of the product right as described in note 15 — Write-Down of Assets.

CARDIZEM®

Description of acquisition

On December 28, 2000, the Company acquired the North American rights to Cardizem® from Aventis Pharmaceuticals, Inc. and its affiliates ("Aventis"). Cardizem® is a leading calcium channel blocker prescribed for the treatment of hypertension and angina. The Company acquired all of the intangible assets associated with the products including the patents, regulatory files, trademarks, manufacturing know-how, copyrights and other intellectual property. The Company obtained the beneficial rights to and the interest in Cardizem® effective December 31, 2000 and obtained full legal rights and title on December 31, 2001, following the completion of the payments described below.

The purchase price for Cardizem® was $409,500,000 in cash comprised of an initial payment of $239,500,000 and the balance of $170,000,000 payable equally over the four quarters of 2001. The remaining payments were present valued based on an imputed interest rate of approximately 8%, which was comparable to the Company's available borrowing rate as at the date of the transaction. Accordingly, the present value of the remaining payments was determined to be $161,828,000, resulting in a discount of $8,172,000. The total discounted purchase price was $406,070,000, including costs of acquisition of $4,742,000, and was allocated entirely to intangible assets. The intangible assets will be amortized over their estimated useful lives of twenty years.

Manufacturing and transitional services agreements

In connection with the acquisition, the Company entered into manufacturing and transitional services agreements with Aventis. The terms of these agreements are summarized as follows:

Aventis will manufacture and package, or cause another party to manufacture and package, Cardizem® for sale by the Company. The term of the agreement is from January 1, 2001 to December 31, 2003, with a right to extend the term at the Company's option, subject to certain conditions, if by the end of the term the Company is unable to successfully manufacture Cardizem® on its own behalf, or is unable to reach an agreement with a second source supplier. In addition to the manufacturing supply price, the Company agreed to pay additional amounts under the manufacturing agreement of $5,000,000, $3,000,000 and $2,000,000 on January 2, 2001, 2002 and 2003, respectively, which are not directly attributable to any specified manufacturing volume and are incremental to the existing fair value supply price per unit.

Aventis agreed to reimburse the Company the sum of $21,000,000 for transitional expenses incurred by the Company. During 2002 and 2001, the Company applied $4,331,000 and $11,275,000, respectively, of the sum to recompense the amounts paid under the manufacturing agreement, as described above, and the balance as a reimbursement of other incremental transitional costs incurred. The remaining $5,394,000 has been recorded in accrued liabilities and has been specifically allocated to the payment due January 2, 2003 under the manufacturing agreement and for other unconditional obligations assumed from Aventis at the time of the acquisition.

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DJ PHARMA (RENAMED BIOVAIL PHARMACEUTICALS, INC.)

Description of acquisition

On October 6, 2000, the Company acquired DJ Pharma for $165,127,000, including costs of acquisition of $868,000 and the fair value of unvested DJ Pharma employee stock options. The total fair value of the unvested options granted to employees of DJ Pharma was determined to be $7,480,000, of which $1,759,000 was allocated to the purchase price, and $5,721,000 was allocated to deferred compensation, based on the ratios of the past and future service periods divided by the total service period, respectively. The assets, liabilities, revenue and expenses of DJ Pharma have been included in the Company's consolidated financial statements from October 6, 2000.

DJ Pharma was organized to market and sell patented and branded generic prescription pharmaceutical products for the treatment of respiratory and allergy conditions, and for skin and soft tissue infections. DJ Pharma obtained the rights to certain products from Dura Pharmaceuticals, Inc. and one of its subsidiaries ("Dura"). The products obtained from Dura included a patented broad-spectrum antibiotic ("Keftab") used primarily for the treatment of respiratory and skin infections developed by Eli Lilly & Company ("Lilly"); a line of prescription cough, cold and allergy branded generic products ("Dura-Vent") developed by Dura; and a line of prescription cough, cold and allergy branded generic products ("Rondec®") developed by Abbot Laboratories. DJ Pharma also had the exclusive rights to sell and market Schering Corporation's ("Schering") antibiotic Cedax in the United States. Cedax is an antibiotic indicated for the treatment of chronic bronchitis, middle ear infection and tonsillitis.

DJ Pharma had an assembled workforce mainly involved in the sales and marketing of its products.

Assembled workforce

At the acquisition date, the Company obtained the services of approximately 300 DJ Pharma employees, consisting primarily of sales account managers and representatives. The assembled workforce was fair valued using a cost approach, and was estimated to have a useful life of six years.

Effective January 1, 2002, the Company reclassified the net book value of the assembled workforce to goodwill.

Product rights

At the acquisition date, DJ Pharma had various purchase, licensing and supply agreements covering branded products and product families such as Keftab, Dura-Vent, Rondec® and Cedax. These contracts provided the Company with a stream of identifiable benefits resulting from the sale of these products. Under the agreement with Dura, DJ Pharma obtained exclusive rights to Keftab, Dura-Vent and Rondec® through to December 31, 2002, in return for payment of certain license fees based on a percentage of net sales, subject to annual minimums and maximums (the "Dura Agreement"). At the expiration of the Dura Agreement, DJ Pharma was to obtain Dura's rights to Dura-Vent worldwide, and its rights to Rondec® and Keftab within the United States. Under the agreement with Schering, DJ Pharma obtained the co-exclusive right to market Cedax in the United States. At the termination of the agreement, all rights to the product revert to Schering. The products under the license agreements were valued using an income approach, based on the present value of the incremental revenue and corresponding cash flow that could be lost in the absence of these contracts. The discount rate used was an after-tax market-derived rate of 18%. The fair value of the Keftab, Dura-Vent and Rondec® products was determined to be $96,500,000, with estimated useful lives of twenty years. The fair value of the Cedax product was determined to be $34,000,000, with an estimated useful life of ten years, based on the remaining term of the Schering agreement.

On December 27, 2000, DJ Pharma and Dura agreed to amend certain provisions of the Dura Agreement, with the effect that the second closing date under the agreement was accelerated from December 31, 2002. Consequently, DJ Pharma obtained the ownership to the Dura-Vent and Rondec® product lines, including the trademarks, regulatory history, formulations, manufacturing know-how and marketing information, and the assignment of Dura's license rights to the Keftab product line, as of the amendment date. In consideration, DJ Pharma agreed to make the maximum remaining license payments under the Dura

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Agreement and to settle the promissory note payable and the product acquisition notes payable to Dura plus accrued interest to the amendment date. The remaining maximum license payments amounted to $19,800,000 and have been capitalized to product rights, and the settlement of the principal plus interest due under the notes amounted to $28,100,000.

In 2001, the Company recorded a write-down of the net book values of the Keftab and Dura-Vent product rights as described in note 15 — Write-Down of Assets.

Deferred compensation

DJ Pharma initiated an Executive Deferred Compensation Plan to provide certain employees with the opportunity to supplement their retirement income through the deferral of pre-tax income. The initial funding of the plan was through compensation deferrals by the plan participants. Those funds, totalling $8,268,000, were placed in trust and invested to purchase life insurance policies (recorded at the cash surrender value) in the names of each participant. The terms of the trust agreement state that the assets of the trust are available to satisfy the claims of general creditors of the company in the event of bankruptcy, thereby qualifying the trust as a rabbi trust for income tax purposes. The assets of the trust have been recorded in other assets with a corresponding amount recorded as a deferred compensation obligation in long-term obligations. Changes in the value of the assets held by the trust are recorded in net income (loss) each period, with a corresponding charge (or credit) to compensation expense, to reflect the fair value of the amount owed to the participants.

FUISZ TECHNOLOGIES LTD. (RENAMED BIOVAIL TECHNOLOGIES LTD.)

Biovail acquired Fuisz Technologies Ltd. ("Fuisz") on November 12, 1999. During 2000, Biovail paid $17,250,000 to settle a pre-acquisition contract of Fuisz. A $10,000,000 reserve for the settlement of the pre-acquisition contract was included in the determination of the net assets of Fuisz acquired. The settlement of the contract was a contingency that existed prior to the acquisition of Fuisz, and the amount of the reserve was based on the information available to Biovail at that time. Also during 2000, Biovail issued 27,000 additional common shares related to the acquisition of Fuisz with a fair value of $386,000. The excess of the cash settlement of the contract over the amount of the reserve and the issuance of the common shares resulted in an additional amount of $7,460,000 that was allocated to goodwill.

Effective January 4, 2000, Biovail entered into an agreement to sell all of the issued share capital of a subsidiary of Fuisz, Clonmel Healthcare Limited ("Clonmel"), a pharmaceutical and antibiotic manufacturer and distributor located in Ireland, for proceeds of $20,000,000. Biovail recognized no gain or loss on this transaction as Clonmel was included at its fair value in the determination of the net assets of Fuisz acquired.

4.     CASH AND CASH EQUIVALENTS

	2002		2001
Cash and bank certificates of deposit	$	39,111	$	235,038
Money market funds and corporate debt securities		16,969		70,729
Canadian and U.S. government securities		—		129,124
	$	56,080	$	434,891

The Company invests its excess cash in high quality (investment grade 'AA' or better) government and corporate debt securities.

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5.     ACCOUNTS RECEIVABLE

	2002		2001
Trade (net of allowance for doubtful accounts of $3,440,000 and $7,085,000 at December 31, 2002 and 2001, respectively)	$	141,308	$	86,325
Royalties		30,104		6,313
Other		19,568		3,918
	$	190,980	$	96,556

The Company performs ongoing credit evaluations of customers and generally does not require collateral. Allowances are maintained for potential credit losses. Four customers accounted for 53% of trade and royalties receivable at December 31, 2002, and three customers accounted for 51% of trade and royalties receivable at December 31, 2001. The Company believes that there is no unusual exposure associated with the collection of these receivables.

6.     INVENTORIES

	2002		2001
Raw materials	$	14,949	$	12,110
Work in process		11,901		5,818
Finished goods		26,197		20,578
	$	53,047	$	38,506

7.     LONG-TERM INVESTMENTS

	2002		2001
Ethypharm S.A.	$	67,802	$	—
DepoMed, Inc.		6,277		—
Other		5,245		2,355
	$	79,324	$	2,355

Ethypharm S.A.

On April 12, 2002, Biovail invested $67,802,000, including costs of acquisition, to acquire 9,794,118 common shares (15% of the issued and outstanding common shares) of Ethypharm S.A. ("Ethypharm"). In addition, Biovail obtained a three-year option to purchase up to 4,080,882 additional common shares of Ethypharm for $6.66 per share plus 10% per annum, compounded annually. To December 31, 2002, Biovail had not exercised its option. The investment in Ethypharm is being accounted for under the cost method.

Biovail also licensed the marketing rights to six products from Ethypharm as described in note 25 — Research and Development Collaborations.

DepoMed, Inc.

On July 9, 2002, Biovail invested $13,675,000, including costs of acquisition, to acquire 2,465,878 newly issued common shares (15% of the issued and outstanding common shares) of DepoMed, Inc. ("DepoMed"). In addition, Biovail obtained a one-year option to purchase up to 821,959 additional common shares of DepoMed for $5.125 per share, subject to a termination provision if DepoMed's common stock price exceeds $6.50 per share for 20 out of 30 consecutive trading days any time after November 6, 2002. Biovail also obtained a three-year option to purchase additional common shares of DepoMed, in an amount sufficient for Biovail to increase its investment up to 20% of DepoMed's issued

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and outstanding common shares (calculated following the exercise of the option), for $5.00 per share plus 20% per annum, compounded monthly. To December 31, 2002, Biovail had not exercised its options.

Biovail's initial investment was allocated between the value of common shares acquired of $12,344,000 and the value of the options to purchase additional common shares of $1,331,000. The investment in DepoMed has been classified as being available-for-sale. At December 31, 2002, the fair value of the common shares, based on the quoted market price, was $6,092,000 and the fair value of the options was $185,000. In 2002, Biovail recognized an other than temporary decline in the value of the investment of $7,398,000, as described in note 15 — Write-Down of Assets.

Biovail also licensed the rights to manufacture and market a once-daily metformin HCl product as described in note 25 — Research and Development Collaborations.

8.     PROPERTY, PLANT AND EQUIPMENT

	2002				2001
	Cost		Accumulated depreciation		Cost		Accumulated depreciation
Land	$	10,477	$	—	$	7,357	$	—
Buildings		59,341		6,959		27,154		5,116
Machinery and equipment		62,736		16,920		43,225		14,168
Other equipment and leasehold improvements		42,401		14,292		37,603		10,474
		174,955	$	38,171		115,339	$	29,758
Less accumulated depreciation		38,171				29,758
	$	136,784			$	85,581

At December 31, 2002 and 2001, the cost of property, plant and equipment included $54,365,000 and $24,701,000, respectively, of assets under construction, or awaiting FDA approval, and not available for productive use. Interest capitalized amounted to $513,000 and $1,089,000 in 2002 and 2001, respectively.

Depreciation expense amounted to $9,794,000, $9,386,000 and $8,096,000 in 2002, 2001 and 2000, respectively.

9.     INTANGIBLE ASSETS

	2002				2001
	Cost		Accumulated depreciation		Cost		Accumulated depreciation
Brand names	$	596,223	$	47,794	$	406,070	$	20,932
Product rights		571,105		55,531		175,296		19,342
Core technology		18,885		2,385		11,185		1,639
Workforce		—		—		7,241		1,519
		1,186,213	$	105,710		599,792	$	43,432
Less accumulated amortization		105,710				43,432
	$	1,080,503			$	556,360

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Amortization expense amounted to $72,574,000, $40,318,000 and $10,042,000 in 2002, 2001 and 2000, respectively. Estimated annual amortization expense, related to intangible assets recorded as at December 31, 2002, for each of the five succeeding years ending December 31 is as follows:

2003	$	100,000
2004		62,000
2005		62,000
2006		62,000
2007		62,000

Product rights have an estimated weighted average useful life of approximately sixteen years. Total intangible assets have an estimated weighted average useful life of approximately eighteen years.

10.   OTHER ASSETS

	2002		2001
Deferred financing costs	$	17,348	$	4,300
Less accumulated amortization		3,536		1,260
		13,812		3,040
Zovirax distribution agreement		40,656		—
Loan receivable		30,000		—
Interest rate swap contracts		18,647		—
Deferred compensation trust fund		5,681		6,520
Long-term receivable		4,554		4,554
	$	113,350	$	14,114

Amortization expense related to deferred financing costs amounted to $2,267,000, $1,580,000 and $538,000 in 2002, 2001 and 2000, respectively.

Zovirax distribution agreement

In consideration for several amendments to the original terms of the Zovirax distribution agreement effective October 1, 2002, Biovail will pay GSK $11,500,000 per year in four annual instalments on March 31 of each year beginning in 2004. If approval of Wellbutrin XL is not granted by the FDA by September 30, 2003, the original terms specified in the distribution agreement will once again become effective. If approval of Wellbutrin XL is not granted by the FDA by December 31, 2003, Biovail will be required to repay GSK an aggregate amount equal to the value derived from the amended terms for the period from October 1, 2002 to September 30, 2003.

The annual instalment payments were present valued using an imputed interest rate comparable to Biovail's available borrowing rate at the date of the transaction. Accordingly, the present value of the payments was determined to be $40,656,000, and the amount will be amortized over the period of benefit from the amended terms. The value derived from the amended terms for the period from October 1, 2002 to December 31, 2002 was recorded in deferred revenue at December 31, 2002 and will be amortized to revenue beginning when, and if, Wellbutrin XL is approved by the FDA.

Loan receivable

On November 13, 2002, in connection with a co-promotion agreement between Biovail and Reliant Pharmaceuticals, LLC ("Reliant"), as described in note 24 — Co-Promotion Arrangements, Biovail, together with certain of Reliant's existing lenders, established an $85,000,000 secured credit facility in

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favour of Reliant. Biovail has committed to fund up to $40,000,000 of the credit facility. The credit facility is available to Reliant, subject to certain financial and non-financial covenants, for general corporate purposes. The credit facility is secured by a first charge over certain property and assets of Reliant.

Interest is calculated daily on the outstanding advances at U.S. prime plus a margin of 2% and is payable in arrears on the first day of each calendar quarter. Prior to March 31, 2005, Reliant may elect to accrue but not make cash payments of interest. Such accrued interest will be added to the principal amount of the outstanding advances at March 31, 2005.

Reliant is entitled to prepay any or all of the outstanding advances at any time without penalty. Commencing March 31, 2005, Reliant is to begin repayment of the outstanding advances in eight equal quarterly instalments, with the final instalment due on December 31, 2006.

At December 31, 2002, Biovail had advanced $30,000,000 to Reliant under the credit facility.

Interest rate swap contracts

In June 2002, the Company entered into three interest rate swap contracts of aggregate $200,000,000 notional amount, which have been designated as a hedge of the 7⁷/8% Senior Subordinated Notes due April 1, 2010 ("Notes").

The interest rate swaps effectively modify the Company's exposure to interest rate fluctuations by converting the interest payable on one-half of the fixed rate Notes to a floating rate. These transactions involve the receipt of amounts based on a fixed rate of 7⁷/8% in exchange for floating rate interest payments, based on six-month London Interbank Offering Rate ("LIBOR") plus a spread of 2.69% to 2.99%, without an exchange of the underlying principal amount.

Due to a decline in the benchmark LIBOR rates, the marked-to-market value of the interest rate swaps at December 31, 2002 was an asset of $18,647,000 with a respective offsetting $15,239,000 fair value adjustment added to the carrying value of the Notes in long-term obligations. For the period ended December 31, 2002, the Company recognized a net gain of $3,408,000, as other income, related to the ineffective portion of the interest rate swaps.

11.   ACCRUED LIABILITIES

	2002		2001
Product returns, rebates and chargebacks	$	42,976	$	27,945
Employee costs		12,690		9,708
Interest		9,512		2
Inventory		7,974		1,638
Cardizem® transitional expenses		5,394		9,725
Other		16,743		10,971
	$	95,289	$	59,989

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12.   DEFERRED REVENUE

	2002		2001
Up-front research and development fees	$	13,000	$	33,289
Up-front licensing fees and other		21,559		14,022
Customer prepayments		3,588		2,819
		38,147		50,130
Less current portion		19,947		27,030
	$	18,200	$	23,100

At December 31, 2001, up-front research and development fees included $11,500,000 of fees received from GSK related to the development of Wellbutrin XL, as described in note 24 — Co-Promotion Arrangements, and $6,689,000 of fees received from Pharma Tech. During 2002, these fees were recognized in research and development revenue.

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13.   LONG-TERM OBLIGATIONS

	2002			2001
Senior Subordinated Notes	$	400,000		$	—
Unamortized discount		(2,646	)		—
Fair value adjustment		15,239			—
		412,593			—
Revolving term credit facility		110,000			—
Zovirax obligation		80,656			—
Wellbutrin® obligation		69,961			—
Vasotec® obligation		67,942			—
Adalat obligation		—			38,626
Deferred compensation		6,198			7,535
		747,350			46,161
Less current portion		122,590			12,592
	$	624,760		$	33,569

Interest expense on long-term obligations amounted to $28,564,000, $20,195,000 and $3,059,000 for the years ended December 31, 2002, 2001 and 2000, respectively. Interest expense in 2002 and 2001 included the amortization of the discounts on long-term obligations of $5,329,000 and $10,999,000, respectively.

Senior Subordinated Notes

Pursuant to a supplement to its base shelf prospectus dated March 25, 2002, the Company issued, under an indenture dated March 28, 2002, $400,000,000 aggregate principal amount of unsecured Notes. Interest on the Notes is payable semi-annually in arrears on April 1 and October 1 of each year. The Notes were issued at a price of 99.27% of their aggregate principal amount for an effective yield, if held to maturity, of 8%. Proceeds from the issue amounted to $384,280,000, net of discount and financing costs.

At any time on or after April 1, 2006, the Company may redeem all or any of the Notes at the following prices, plus accrued and unpaid interest to the date of redemption, if redeemed during the twelve months beginning Apri11 of the years indicated below:

Year	Percentage of principal amount
2006	103.938	%
2007	101.969
2008 and thereafter	100.000

Before April 1, 2005, the Company may redeem up to 35% of the original principal amount of the Notes, with the net cash proceeds of certain sales of the Company's common shares, at 107.875% of the principal amount plus accrued and unpaid interest to the date of redemption.

At December 31, 2002, the aggregate market value of the Notes, based on the quoted market price, was $402,000,000.

Revolving term Credit Facility

On December 27, 2000, the Company entered into a definitive agreement with The Bank of Nova Scotia (the "Bank") for a $300,000,000 Credit Facility. The Credit Facility was fully underwritten by the Bank in anticipation of syndication by the Bank to other financial institutions (collectively, the "Lenders"). Effective June 22, 2001, the Credit Facility was increased to $400,000,000 when the Bank and the Lenders committed to portions of the Credit Facility which, in aggregate, exceeded the original commitment. Effective July 25,

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2002, the Credit Facility was further increased to $600,000,000. The Credit Facility is revolving in nature for a term of 364 days and may be extended at the request of the Company and at the sole discretion of the Lenders for additional periods of up to 364 days. Such an extension was requested by the Company and agreed to by the Lenders for the 364-day period ending December 25, 2003. If the Lenders elect not to further extend the revolving period of the Credit Facility, the Company may elect to convert amounts then outstanding to a non-revolving facility with a final maturity date two years from the then current revolving period maturity date. In this event, advances shall be repaid by equal quarterly instalments through the term period. Accordingly, the Credit Facility has been classified as a long-term obligation.

Borrowings under the Credit Facility are secured by a charge over substantially all of the assets and undertakings, including intellectual property, of the Company. The credit agreement includes certain financial and non-financial covenants. The financial covenants require the Company to meet or exceed certain minimum thresholds for shareholders' equity and interest coverage, and not to exceed a maximum threshold in respect of the ratio of debt to earnings before interest, taxes, depreciation and amortization. Non-financial covenants include, but are not limited to, restrictions on investments and dispositions, as well as capital and debt restructuring activities, exceeding established thresholds. On a change in control, the holder of the Credit Facility has the right to require the Company to settle the entire Credit Facility, plus accrued and unpaid interest at the date of settlement.

Borrowings may be by way of U.S. dollar, LIBOR or U.S. base rate advances or Canadian dollar prime rate or bankers' acceptance ("BA") advances or letters of credit. Interest is charged at the Bank's quoted rate plus a borrowing margin of 1.375% to 2% in the case of LIBOR and BA advances, and 0.375% to 1% in the case of base rate and prime rate advances, depending on the Company's credit rating at the time of such borrowing. The effective rates of interest at December 31, 2002 and 2001 were 3.74% and 3.25%, respectively.

As at December 31, 2002, the Company had advances of $110,000,000 borrowed under the Credit Facility and a letter of credit of $93,170,000 issued under the Credit Facility. The Company had a remaining balance of $396,830,000 available to borrow under the Credit Facility.

Zovirax obligation

The obligation relates to the amendments to the Zovirax distribution agreement. The non-interest bearing obligation was discounted based on an imputed interest rate of 3.74%. The payment related to the extension of the Zovirax distribution agreement of $40,000,000 is due on or before March 31, 2003. The remaining payments are payable annually in four gross instalments of $11,500,000 on March 31 of each year, beginning in 2004.

Wellbutrin® obligation

The obligation relates to the acquisition of the Canadian rights to Wellbutrin® and Zyban®. The non-interest bearing obligation was discounted based on an imputed interest rate of 3.74%. The payments are payable quarterly beginning June 1, 2003 in the following gross annual amounts: 2003 — $53,562,000; and 2004 — $18,509,000.

Vasotec® obligation

The obligation reflects the minimum fixed royalty payments assumed on the acquisition of Vasotec® and Vaseretic®. The non-interest bearing obligation was discounted based on an imputed interest rate of 5.75%. The Company has made the first two payments of $17,240,000 each. The remaining payments are payable semi-annually, on April 1 and October 1 of each year, in the following gross annual amounts: 2003 — $25,782,000; 2004–$19,747,000; 2005 — $15,256,000; and 2006 — $14,011,000.

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Adalat obligation

The obligation reflected the minimum license payments payable under the Adalat Agreement. The non-interest bearing obligation was discounted based on an imputed interest rate of approximately 8%. In December 2002, the Company wrote off the remaining Adalat obligation as described in note 15 — Write-Down of Assets.

Maturities

Aggregate maturities of long-term obligations for the years ending December 31 are as follows:

2003	$122,590
2004	46,034
2005	124,428
2006	24,361
2007	11,146
Thereafter	418,791
	$747,350

14.   SHAREHOLDERS' EQUITY

Authorized and issued shares

Share offerings

In November 2001, the Company completed a share offering by issuing 12,500,000 common shares for gross proceeds of $587,500,000 less issue costs of $27,454,000.

In March 2000, concurrent with the offering of Debentures, the Company completed a share offering by issuing 4,000,000 common shares for gross proceeds of $101,125,000 less issue costs of $5,782,000.

Stock repurchase programs

In February 2002, by resolution of the Board of Directors, the Company implemented a common share repurchase program pursuant to which the Company was able to repurchase up to 5% of its issued and outstanding common shares. In May 2002, the Board of Directors increased the amount to 10% of the Company's issued and outstanding common shares. An aggregate of 12,872,300 common shares were repurchased under this program, through open market transactions on the NYSE and TSX, at an average purchase price of $39.08 per share, for total consideration of $503,100,000. The excess of the cost of the common shares acquired over the stated capital thereof, totalling $388,204,000, was charged to deficit. The program was terminated with no further common shares repurchased.

In September 2001, by resolution of the Board of Directors, the Company implemented a common share repurchase program pursuant to which the Company was able to repurchase up to $120,000,000 of its issued and outstanding common shares. In total, 2,871,200 common shares were repurchased under this program, through open market transactions on the NYSE, at an average purchase price of $41.79 per share, for total consideration of $119,987,000. The excess of the cost of the common shares acquired over the stated capital thereof, totalling $105,633,000, was charged to deficit.

Stock Option Plan

Under the Company's Stock Option Plan, as amended (the "Plan"), the Company may grant to directors, officers, employees, consultants and advisors, options to purchase common shares of the Company. The purpose of the Plan is to provide long-term incentives and rewards to the Company's directors, officers, employees, consultants and advisors. The aggregate number of shares reserved for issuance under the Plan,

71

taking into consideration stock splits, shall not exceed 28,000,000 common shares. The number of shares reserved for issuance to any one person under the Plan, together with shares which that person may acquire under any similar plan of the Company, may not exceed 5% of the total issued and outstanding common shares. Under the Plan, the Company designates the maximum number of shares that are subject to an option. The exercise price per share of an option is the closing market price at which the common shares are traded on the NYSE on the day prior to the date the option is granted, or if not so traded, the average between the closing bid and ask prices thereof as reported for that day.

The options' vesting terms vary based on the type of options. Management options granted prior to January 1, 1999 vest as to one-third each year commencing on the first anniversary of the grant and will expire on a date not later than five years from the date of the grant.

Options granted after January 1, 1999 vest as follows: executive options vest pursuant to the terms and conditions of the employment agreement; special options vest on the second anniversary date of the grant; management options vest as to one-fourth each year commencing on March 1 and expire not later than seven years from the date of the grant.

The following table summarizes the Company's stock option activity for the three years ended December 31, 2002:

	Options (000s)		Weighted average exercise price
Outstanding balance, December 31, 1999	10,447		$	10.81
Granted	2,345			27.06
Exercised	(2,436	)		5.79
Forfeited	(307	)		18.29
Outstanding balance, December 31, 2000	10,049			15.58
Granted	314			43.03
Exercised	(2,906	)		9.92
Forfeited	(1,204	)		17.69
Outstanding balance, December 31, 2001	6,253			18.53
Granted	2,068			36.84
Exercised	(2,197	)		8.71
Forfeited	(199	)		28.48
Outstanding balance, December 31, 2002	5,925		$	28.23
Weighted average fair value of stock options granted during the period			$	13.58

The following table summarizes information about options outstanding at December 31, 2002:

Range of exercise prices	Outstanding (000s)	Weighted average remaining contractual life (years)	Weighted average exercise price		Exercisable (000s)	Weighted average exercise price
$0.81 — $3.521	138	7.0	$	3.05	93	$	2.89
7.59 — 10.50	601	1.1		9.35	601		9.35
12.77 — 17.50	206	2.0		17.37	206		17.37
22.50 — 31.00	2,887	4.2		25.59	1,883		23.10
36.00 — 45.00	2,093	4.4		40.01	741		38.94
	5,925	4.0	$	28.23	3,524	$	23.22

¹ These options represent the converted DJ Pharma unvested employee stock options pursuant to the merger agreement as described in note 3 — Acquisitions.

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Employee Stock Purchase Plan

The Company's Employee Stock Purchase Plan ("EPP") was approved by the shareholders at the Special Shareholders' Meeting held on January 1, 1996 and was established in 1996. The purpose of the EPP is to provide a convenient method for full-time employees of the Company to participate in the share ownership of the Company or to increase their share ownership in the Company via payroll or contractual deduction. Directors, senior officers or insiders of the Company are not eligible to participate in the EPP. The aggregate number of shares reserved for issuance under the EPP, taking into consideration stock splits, shall not exceed 1,200,000 common shares. At the discretion of a committee of the Board of Directors that administers the EPP, the Company may issue directly from treasury or purchase shares in the market from time to time to satisfy the obligations under the EPP. A participant may authorize a payroll or contractual deduction up to a maximum of 10% of the base salary or remuneration to be received during any purchase period. The purchase price shall be 90% of the fair market value per share of stock on the date on which the eligible period ends.

Executive Stock Purchase Plan

In September 2001, the Board of Directors of the Company authorized the making of loans to certain of its executive officers in order to finance the acquisition of common shares of the Company on the open market pursuant to the Company's Executive Stock Purchase Plan ("ESPP"). During October 2001, the Company made loans in an aggregate amount of $9,988,000 to those certain executive officers under the ESPP. The loans are full recourse and are secured by the common shares purchased pursuant to the loans and bear interest at a rate equal to the Company's rate for borrowings. Interest is payable quarterly in arrears. Each loan is due on the earlier of: (a) September 30, 2003; (b) 30 days following the termination or cessation of the executive officer's employment with the Company; or (c) where the executive officer disposes of common shares of the Company with a value equal to, or greater than, the loan.

Warrants outstanding

In October 1997, Intelligent Polymers completed a public offering of 3,737,500 units. Each unit comprised one common share of Intelligent Polymers and one warrant to purchase four post-split common shares of the Company. On September 30, 1999, the units separated and Intelligent Polymers' common shares and the Company's warrants traded independently of each other. The warrants were exercisable at a per share price of $10.00 from October 1, 1999 until September 30, 2002.

During 2002, substantially all of the remaining outstanding warrants were exercised, resulting in the issue of 11,282,284 common shares, on the exercise of 2,820,571 warrants, for proceeds of $112,823,000. On September 30, 2002, any remaining warrants expired.

During 2001, the Company issued 27,600 common shares, on the exercise of 6,900 warrants, for proceeds of $276,000. In addition, the Company entered into privately negotiated agreements with certain holders of its outstanding warrants. These agreements provided for the exercise of 758,300 warrants to purchase 3,033,200 common shares. As an inducement to those certain warrant holders to exercise, the Company paid such warrant holders approximately $2 per warrant exercised. In aggregate, the Company received proceeds of $28,817,000 net of the inducement cost of $1,515,000.

During 2000, the Company issued 601,000 common shares, on the exercise of 150,250 warrants, for proceeds of $6,010,000.

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15.   WRITE-DOWN OF ASSETS

In 2002, the Company recorded a $31,944,000 non-cash charge related to the write-down of the following assets:

As a result of the settlement reached between Biovail, Elan and the FTC with respect to the introduction of bioequivalent versions of Adalat CC, the licensing and supply agreements between Biovail and Elan were terminated. The FTC consent order effectively nullifies Biovail's long-term obligation to make the minimum license payments to Elan under the Adalat Agreement. Biovail has been in negotiations to have Elan reacquire the rights to its bioequivalent versions of Adalat CC that had been sold to Biovail. As there has been no meaningful progress to these negotiations, and as Biovail is unable to ascertain the eventual outcome of these negotiations, in December 2002 Biovail determined that the net book value of the Adalat product rights of $55,787,000, net of the corresponding long-term obligation to Elan of $33,381,000, should be written off. The Company recorded a related non-cash charge of $22,406,000.

During 2002, the Company recorded unrealized holding losses on its investment in DepoMed and other investments of $7,398,000 and $676,000, respectively, and recorded other asset write-downs of $1,464,000.

In 2001, the Company recorded an $80,482,000 non-cash charge related to the write-down of the following assets:

On March 7, 2001, Lilly announced a voluntary recall of Keftab tablets due to problems with the product's stability. Lilly is under contract with the Company to manufacture and supply the product to the Company for marketing in the United States. At December 31, 2001, the product's manufacturing problems had yet to be resolved by Lilly. The supply interruption has resulted in a deterioration of customer awareness of the product, which would require substantial promotional efforts to restore when, and if, the product were to be re-launched. Due to these conditions that existed at December 31, 2001, the Company determined that the Keftab product right had been permanently impaired and the net book value should be written down to the estimated recoverable value of $10,000,000. The Company recorded a related non-cash charge of $54,565,000.

The Company believes Lilly is responsible for manufacturing and supplying acceptable products to Biovail, as well as for the cost of the recall. In this regard, the Company commenced a legal action against Lilly in which Biovail is seeking damages as a result of Lilly's voluntary recall of Keftab as described in note 23 — Legal Proceedings.

In November 2000, the FDA requested a voluntary recall of products containing phenylpropanolamine ("PPA"). The Company immediately stopped shipments of its Dura-Vent products containing PPA and initiated a recall of these products from wholesalers and pharmacies. During 2001, the Company experienced supply interruptions resulting from manufacturing issues associated with its remaining Dura-Vent products that did not contain PPA. Dura-Vent is manufactured and supplied to the Company by a third party. These supply interruptions have caused the Company's revenue and gross margin for the remaining Dura-Vent products to significantly deteriorate. The Company evaluated the current and forecasted market share for the products and determined that the Dura-Vent product right had been permanently impaired and the net book value should be written off. The Company recorded a related non-cash charge of $18,966,000.

During 2001, the Company determined that the intangible asset associated with the acquisition of Intelligent Polymers was no longer necessary to its development efforts and the net book value of the intangible asset should be written off. The Company recorded a related non-cash charge of $4,000,000.

During 2001, the Company recorded other asset write-downs and an unrealized holding loss on other investments of $2,951,000.

16.   DEBT CONVERSION PREMIUMS

The Company issued, under an indenture dated March 22, 2000, 6,000,000 Debentures for gross proceeds of $300,000,000. After deducting financing costs of $11,228,000, the net proceeds from the issue amounted

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to $288,772,000. At the holders' option, the Debentures were convertible at any time into common shares of the Company at $30.337 per common share.

During 2001, the Company entered into privately negotiated agreements with certain holders of the Debentures. These agreements provided for the issuance of 6,278,663 common shares to those certain Debenture holders on their surrender of $173,845,000 aggregate principal amount of outstanding Debentures. The Company recorded a debt conversion premium of $23,682,000, which represented the market value of the additional shares issued in excess of the number of shares that would have been issued under the terms of the conversion ratio provided for in the indenture governing the Debentures. The Company also recorded an increase to common shares of $192,623,000, which included the debt conversion premium combined with the carrying value of the Debentures on the date of surrender of $168,941,000. The carrying value of the Debentures comprised the aggregate principal amount of the Debentures plus accrued and unpaid interest to the date of surrender of $1,250,000, reduced by the proportionate unamortized deferred financing costs related to the Debentures of $6,154,000.

In October 2001, the Company announced its intention to exercise its option to redeem the remaining $126,140,000 aggregate principal amount of Debentures on November 27, 2001. Prior to the redemption date, substantially all of the remaining Debentures were converted into 4,154,564 common shares of the Company. The Company recorded a debt conversion premium of $11,241,000, which represented the aggregate amount of interest that would have been paid on the Debentures from the redemption date to March 31, 2003. The Company also recorded an increase to common shares of $121,636,000 comprising the aggregate principal amount of the remaining Debentures, reduced by $108,000 aggregate principal amount of Debentures redeemed for cash on the redemption date, and the proportionate unamortized deferred financing costs related to the Debentures of $4,396,000.

17.   INCOME TAXES

The components of the provision for income taxes are as follows:

	2002		2001		2000
Current
Domestic	$	1,250	$	3,670	$	800
Foreign		20,250		10,165		4,810
		21,500		13,835		5,610
Deferred
Domestic		—		—		—
Foreign		—		1,450		3,750
		—		1,450		3,750
	$	21,500	$	15,285	$	9,360

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The reported provision for income taxes differs from the expected amount calculated by applying the Company's Canadian statutory rate to income (loss) before provision for income taxes. The reasons for this difference and the related tax effects are as follows:

	2002			2001			2000
Income (loss) before provision for income taxes	$	109,295		$	102,733		$	(75,077	)
Expected Canadian statutory rate		39.42%			42.12%			44.39%
Expected provision for (recovery of) income taxes		43,084			43,271			(33,327	)
Non-deductible amounts
Amortization expense		26,130			14,600			1,265
Acquired research and development		66,125			—			92,519
Foreign tax rate differences		(126,862	)		(100,619	)		(58,379	)
Unrecognized income tax benefit of losses		9,347			24,524			5,922
Increase in valuation allowance		—			32,236			—
Other		3,676			1,273			1,360
	$	21,500		$	15,285		$	9,360

The Company has provided for foreign withholding taxes on the portion of undistributed earnings of foreign subsidiaries expected to be remitted.

Deferred income taxes have been provided on the following temporary differences:

	2002			2001
Deferred tax assets
Tax loss carryforwards	$	68,639		$	40,315
Scientific Research and Experimental Development pool		17,544			13,881
Investment tax credits		15,948			12,802
Deferred financing and share issue costs		15,573			19,602
Reserves		14,601			4,372
Plant, equipment and technology		4,819			4,547
Intangible assets		—			2,889
Other		3,378			4,062
Total deferred tax assets		140,502			102,470
Less valuation allowance		(116,521	)		(98,685	)
Net deferred tax assets		23,981			3,785
Deferred tax liabilities
Intangible assets		20,958			3,785
Other		3,023			—
Total deferred tax liabilities		23,981			3,785
Net deferred income taxes	$	—		$	—

The realization of deferred tax assets is dependent on the Company generating sufficient domestic and foreign taxable income in the years that the temporary differences become deductible. A valuation allowance has been provided for the portion of the deferred tax assets that the Company determined is more likely than not to be unrealized based on estimated future taxable income and tax planning strategies.

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During 2002 and 2001, the valuation allowance increased by $17,836,000 and $55,435,000, respectively. The increase in the valuation allowance is mainly related to accumulated tax losses and tax credit carryforwards.

At the date of acquisition of DJ Pharma, the Company recognized deferred tax liabilities of $33,903,000 and deferred tax assets of $1,011,000 for the tax consequences of differences between the assigned values and tax bases of DJ Pharma's acquired assets and liabilities, excluding goodwill. The Company also recognized the available tax benefit of previously existing U.S. federal tax loss carryforwards, through a $32,892,000 reduction in the valuation allowance, an amount equal to the net taxable temporary differences of DJ Pharma. During 2001 and 2000, the Company utilized $1,450,000 and $3,750,000, respectively, of pre-acquisition U.S. federal tax loss carryforwards of Fuisz to reduce taxes on income earned by DJ Pharma since the date of acquisition. The utilization of these loss carryforwards resulted in a corresponding reduction in the value of the Fuisz goodwill acquired.

At December 31, 2002, the Company has accumulated tax losses of approximately $32,500,000 available for federal purposes and approximately $48,900,000 available for provincial purposes in Canada, which expire from 2004 to 2009. The Company also has approximately $15,900,000 of unclaimed Canadian investment tax credits, which expire from 2003 to 2012. The losses and investment tax credits can be used to offset future years' taxable income.

In addition, the Company has pooled Scientific Research and Experimental Development expenditures amounting to approximately $58,200,000 available to offset against future years' taxable income from its Canadian operations, which may be carried forward indefinitely.

The Company has accumulated tax losses of approximately $147,900,000 for federal and state purposes in the United States, which expire from 2007 to 2022. The losses can be used to offset future years' taxable income. There may be limitations on the annual utilization of the U.S. net operating losses as a result of certain changes in ownership that have occurred.

18.   EXTRAORDINARY ITEM

In March 2000, the Company repurchased all of its outstanding Senior Notes at a redemption price of 112.820% of the principal amount, plus accrued interest. The aggregate consideration paid to repurchase the Senior Notes was $141,017,000. The $16,017,000 premium paid, together with the unamortized deferred financing costs related to the Senior Notes, were classified as an extraordinary item.

19.   EARNINGS (LOSS) PER SHARE

Earnings (loss) per share were computed as follows:

	2002		2001		2000
Net income (loss)	$	87,795	$	87,448	$	(147,976	)
Basic weighted average number of common shares outstanding (000s)		151,960		136,928		128,824
Dilutive effect of warrants and stock options (000s)		8,503		13,762		—
Adjusted weighted average number of common shares outstanding (000s)		160,463		150,690		128,824
Basic earnings (loss) per share	$	0.58	$	0.64	$	(1.16	)
Diluted earnings (loss) per share	$	0.55	$	0.58	$	(1.16	)

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For 2000, all warrants and stock options were excluded from the calculation of diluted loss per share because the effect would have been anti-dilutive. For all periods presented, the potential dilutive effect of warrants and stock options on the weighted average number of common shares outstanding was as follows:

	2002	2001	2000
Basic weighted average number of common shares outstanding (000s)	151,960	136,928	128,824
Dilutive effect of warrants (000s)	5,992	10,183	9,657
Dilutive effect of stock options (000s)	2,511	3,579	5,031
Diluted weighted average number of common shares outstanding (000s)	160,463	150,690	143,512

For 2001 and 2000, the Debentures were excluded from the calculation of diluted earnings (loss) per share because the effect would have been anti-dilutive.

20.   OPERATING LEASES

The Company enters into operating leases for certain facilities, vehicles and equipment. Lease payments were approximately $5,000,000, $5,200,000 and $4,800,000 in 2002, 2001 and 2000, respectively.

Future minimum annual lease payments under operating leases for the years ending December 31 are as follows:

2003	$	6,667
2004		5,820
2005		4,835
2006		2,700
2007		1,346
Thereafter		1,107

21.   CASH FLOW INFORMATION

Net change in non-cash operating items

	2002			2001			2000
Accounts receivable	$	(93,241	)	$	4,778		$	(35,950	)
Inventories		(14,643	)		(14,341	)		(3,886	)
Deposits and prepaid expenses		(12,265	)		(1,296	)		(1,673	)
Accounts payable		35,717			1,138			(5,432	)
Accrued liabilities		36,863			24,489			(9,840	)
Income taxes payable		17,618			10,649			3,779
Deferred revenue		(11,984	)		(4,103	)		5,772
	$	(41,935	)	$	21,314		$	(47,230	)

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Non-cash investing and financing activities

	2002			2001			2000
Long-term obligation related to the acquisition of Vasotec® and Vaseretic®	$	(99,620	)	$	—		$	—
Long-term obligation related to the amendments to the Zovirax distribution agreement		(80,656	)		—			—
Long-term obligation related to the acquisition of Wellbutrin® and Zyban®		(69,921	)		—			—
Issuance of common shares on the surrender and redemption of Debentures		—			(314,259	)		—
Long-term obligation related to the acquisition of Cardizem®		—			—			(161,828	)
Accrued acquisition costs related to Cardizem®		—			—			(4,000	)
Long-term obligation related to the Adalat Agreement		—			—			(58,090	)
	$	(250,197	)	$	(314,259	)	$	(223,918	)

Cash paid during the year

	2002		2001		2000
Interest paid	$	14,899	$	22,837	$	20,546
Income taxes paid		5,063		4,380		1,889
Debt conversion premium paid		—		11,241		—

22.   RELATED PARTY TRANSACTIONS

In June 2001, the Company acquired a corporate aircraft from an entity controlled by the Chairman of the Company's Board of Directors for cash consideration of $10,475,000. The exchange amount was established based on comparable market prices for the aircraft at the time of acquisition.

In March 2001, the Company loaned $600,000 to one of its executive officers. The loan is secured by a charge on the officer's personal residence. The loan does not bear interest until March 1, 2004 and thereafter bears interest at a rate equal to the Company's rate of borrowing. The loan is due on the earlier of termination of employment or March 31, 2008.

23.   LEGAL PROCEEDINGS

From time to time, the Company becomes involved in various legal proceedings, which it considers to be in the ordinary course of business. The vast majority of these proceedings involve intellectual property issues that often result in patent infringement suits brought by patent holders upon the filing of Abbreviated New Drug Applications ("ANDA"). The timing of these actions is mandated by statute and may result in a delay of FDA approval for such filed ANDAs until the final resolution of such actions or the expiry of 30 months, whichever occurs earlier. There are also ordinary course employment dismissal and related issues and other types of claims in which the Company routinely becomes involved but which individually and collectively are not material.

At different times in early 1998, the Company was sued in separate lawsuits by Bayer AG and Bayer Corporation (collectively "Bayer"), as well as by Pfizer Inc. ("Pfizer"), upon the filing by Biovail of separate ANDAs for generic versions of Procardia XL and Adalat CC. These actions make the usual, technical claims of infringement. Biovail is vigorously defending these suits and is aggressively pursuing motions for summary judgment. Biovail has denied the allegations and has pleaded affirmative defenses that the patents

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are invalid, have not been infringed and are unenforceable. Biovail believes that Bayer/Pfizer's claims are without merit.

On April 23, 1998, Biovail filed a four-count complaint against Bayer and Pfizer seeking a declaratory judgment that their patent is invalid, unenforceable, and not infringed by Biovail's filing of the ANDAs. Biovail has also asserted that Bayer and Pfizer have violated anti-trust laws and have interfered with Biovail's prospective economic advantage. Biovail's action has been stayed until the conclusion of the patent infringement suits.

In February 2001, Biovail commenced an action against Mylan Pharmaceuticals, Inc. ("Mylan") and Pfizer claiming damages resulting from an agreement between Mylan and Pfizer that had the effect of blocking the timely marketing of Biovail's generic version of Pfizer's 30mg Procardia XL. Biovail's action alleges that in entering into, and implementing, such agreement Mylan and Pfizer contravened various statutory provisions and common law obligations. Discovery is currently underway for this action; however, a timeline for a trial has not yet been established. While Biovail believes its action is meritorious, nevertheless, it is not possible, at this early stage, to determine the quantum of damages that may be the subject of an award.

Biovail commenced an action against Mylan with respect to Mylan's breach of contract relating to its supply of generic Verelan SR obligations to the Company. This legal proceeding was completed in January 2003. Biovail was successful in the action and was awarded judgment and interest.

The Company commenced an action against Lilly in which Biovail is seeking substantial damages as a result of Lilly's voluntary recall of Biovail's product Keftab. Lilly is under contract with Biovail to manufacture and supply the product to Biovail for marketing in the United States. Lilly had forced a recall of the product because it has been unable to supply a stable product. In March 2003, Biovail settled its action with Lilly and received compensation for lost margin on Keftab sales and expenses incurred with respect to the Keftab recall.

The net recovery from the settlement of the Mylan and Lilly actions was $24,755,000 plus interest.

In February 2002, a plaintiff commenced an action against Biovail Pharmaceuticals, Inc. ("BPI") alleging personal injuries arising from her use of Dura-Vent, a product containing PPA and formerly marketed by BPI. The Company believes that this claim is without merit and, in the event the case proceeds further, it will be vigorously defended. This case has been currently stayed.

Several consumer class action Complaints have been filed against the Company in which plaintiffs have alleged that the Company has improperly impeded the approval of a generic form of Tiazac®. The Company has filed an Answer denying any impropriety or illegality. The Company believes that the complaints are without merit and that the Company's actions were in accord with its rights as contained in the Hatch-Waxman Amendments and the law. Moreover, the Company's position is that none of its actions was responsible for the inability of that product to receive final marketing approval by the FDA since a generic version of Tiazac® did not receive FDA approval for a long period of time following the removal of all legal or regulatory impediments by the Company. Indeed, that product's failure to receive timely approval was due to its own scientific issues unrelated to any regulatory action taken by the Company. The Company will vigorously defend these actions. One such action has been voluntarily discontinued.

Several consumer class action suits have recently been commenced jointly against Biovail and Elan and against Teva Pharmaceuticals USA, Inc. ("Teva") relating to an agreement between a Biovail subsidiary and Elan for Biovail's in-licensing of Adalat CC products from Elan. The agreement in question has since been dissolved as a result of a settlement agreement with the FTC. Biovail will vigorously defend these suits in due course. Biovail believes these suits are without merit, since the delay in the marketing or out-licensing of the Adalat CC product was due to the Company's inability to manufacture the product pursuant to prescribed specifications and not because of any improper activity on its part.

RhoxalPharma Inc. ("RhoxalPharma") has filed an abbreviated new drug submission ("ANDS") in Canada, seeking approval of a generic version of Tiazac®. In an attempt to comply with the Patented Medicines

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(Notice of Compliance) Regulations, RhoxalPharma has alleged to Health Canada that Canadian Patent No. 2,111,085, of which Biovail is the exclusive licensee, would not be infringed by the sale in Canada of RhoxalPharma's generic version of Tiazac®. RhoxalPharma served a notice of that allegation on Biovail. In response to that notice, Biovail instituted proceedings in the Federal Court of Canada in March 2002 to prohibit the issue of a Notice of Compliance (which is needed before RhoxalPharma can market its product in Canada) to RhoxalPharma until the merits of RhoxalPharma's allegations can be determined by the Federal Court. Until those proceedings are concluded, or until the expiry of 24 months after March 2002, whichever is earlier, no Notice of Compliance will be issued to RhoxalPharma.

A Certificate of Non-Infringement was served by Torpharm, Inc. ("Torpharm") on Aventis in October 2001, in respect of its filed ANDA of a generic version of Cardizem® CD (120mg, 180mg and 300mg) with the FDA. The patents against which Torpharm certified were acquired by Biovail Laboratories Incorporated ("BLI") as part of BLI's acquisition of the Cardizem® family of products. BLI has determined that Torpharm's ANDA infringes BLI's patents and a legal suit has been commenced against Torpharm, the effect of which was to trigger the Hatch-Waxman provisions. As a result, the FDA is statutorily and automatically precluded from granting approval to Torpharm until the earlier of 30 months after the filing of the legal suit, a final court decision of non-infringement or patent invalidity or a court's decision to abbreviate the 30-month stay.

A Certificate of Non-Infringement was served by Torpharm on BLI in July 2002 in respect of Torpharm's filed ANDA for a generic version of Tiazac® as marketed in the United States. BLI has made a determination that Torpharm's formulation infringes BLI's Tiazac® patent and has therefore instituted a patent infringement suit against Torpharm, pursuant to the provisions of the Hatch-Waxman Act. As a result of BLI's suit, the FDA is statutorily and automatically precluded from granting approval to Torpharm until the earlier of 30 months after the filing of the legal suit, a final court order of non-infringement or patent invalidity, or a court decision to abbreviate the 30-month stay.

On November 22, 2002, the Company filed an action against Verum Pharmaceuticals Inc. ("Verum") and a number of its officers and employees seeking injunctive relief and damages to enjoin these Defendants from illegally and unfairly competing with Biovail in violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030, and Defendants' contractual, statutory and common law obligations. On February 14, 2003 the Court granted the Company's injunctive motion and ordered Defendants to cease their employment with Verum and further ordered Verum to cease its operations. The Company intends to pursue its action for damages against Verum and the personal defendants.

Glaxo Group Limited and the Company entered into a Rights Agreement, dated December 1, 2002, wherein the Company acquired the exclusive marketing rights to Zyban® and Wellbutrin® SR in Canada. Novopharm Limited ("Novopharm") has filed an ANDS in Canada, seeking approval of a generic version of Wellbutrin® SR. In an attempt to comply with the Patented Medicines (Notice of Compliance) Regulations, Novopharm has alleged to Health Canada that Canadian Patent Nos. 1,321,754, 2,142,320 and 2,168,364 are invalid and, alternatively, that they would not be infringed by the sale in Canada of Novopharm's generic version of Wellbutrin® SR. Novopharm served a Notice of Allegation on GlaxoSmithKline Inc. ("Glaxo") on February 18, 2003. The Company has the exclusive right to institute, and have carriage of, patent infringement proceedings and has determined that it will pursue a Notice of Application proceeding against Novopharm. Until the legal proceedings are concluded, or until the expiry of 24 months after March 31, 2003, the date of the Notice, whichever is earlier, no Notice of Compliance will be issued to Novopharm.

A Certificate of Non-Infringement was served by KV Pharmaceutical Company ("KV") on BLI in March 2003, in respect of KV's filed ANDA for a generic version of Tiazac® 420mg, exclusively, as marketed in the United States. The Company is currently assessing the Certificate to determine whether there is infringement. In the event the Company concludes that KV's formulation infringes the Company's patents, a patent infringement suit will be commenced pursuant to the provisions of the Hatch-Waxman Act.

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24.   CO-PROMOTION ARRANGEMENTS

In November 2002, Biovail and Reliant entered into an agreement to co-promote Biovail's Zovirax, Teveten®, Teveten® HCT, Rondec®, Cedax and, on approval by the FDA, Cardizem® LA products. Biovail and Reliant will detail the products to physicians in the United States during the period from October 1, 2002 to December 31, 2005. In addition, Biovail will spend a minimum prescribed amount on advertising and sales promotion of the products. In consideration of Reliant's co-promotion activities under the agreement, Biovail will pay Reliant a tiered co-promotion fee based on a percentage of the quarterly net sales of the portfolio of products covered by the agreement.

Commencing on June 30, 2003, each of Biovail and Reliant has the right to terminate the agreement for any reason. In the event that either party terminates the agreement, Biovail may elect to either pay Reliant a termination fee, as defined in the agreement, or continue to pay Reliant co-promotion fees on sales of the products through to December 31, 2008. In the event that Biovail elects to continue to pay Reliant co-promotion fees, Reliant may elect to terminate the payment of the co-promotion fees on the withdrawal from the market or sale of any of the products, in which case Biovail will pay Reliant the termination fee. The agreement expires on December 31, 2008.

In October 2001, Biovail and GSK entered into a development and co-promotion agreement for Wellbutrin XL. Under the terms of the agreement, Biovail has licensed Wellbutrin XL to GSK for sale and distribution on a worldwide basis, excluding Canada. Biovail and GSK will collaborate to direct regulatory and scientific development to seek regulatory approval of Wellbutrin XL. In August 2002, GSK filed an NDA for Wellbutrin XL with the FDA. When, and if, FDA approval is received, Biovail will manufacture and supply Wellbutrin XL to GSK for a share of the revenue generated by future sales of Wellbutrin XL. GSK and Biovail will co-promote Wellbutrin SR in the United States and Biovail will have the option to co-promote Wellbutrin XL in the United States when, and if, FDA approval is received.

In consideration for the activities undertaken by Biovail under the agreement, GSK committed to pay Biovail up to $61,500,000 in six quarterly increments. The first increment of $11,500,000, related to the development of Wellbutrin XL, was recorded in deferred revenue at December 31, 2001. During 2002, Biovail completed the development of Wellbutrin XL and recognized the first increment in research and development revenue. During 2002, Biovail received four of the remaining quarterly increments of $10,000,000 each for the co-promotion of Wellbutrin SR. The receipt of the last quarterly increment of up to $10,000,000 is dependent on Biovail performing prescribed detailing activity related to the co-promotion of Wellbutrin SR, and the amount will be determined based on a percentage of net sales of Wellbutrin SR in the United States during the first quarter of 2003.

Either Biovail or GSK may, at its option, terminate the agreement subject to certain conditions. On termination of the agreement, each party may retain any amounts paid to them, and shall pay to each other all amounts accrued which are then due. GSK will not be obligated to pay the last quarterly increment if the termination of the agreement becomes effective during the first quarter of 2003. All rights to Wellbutrin XL granted to GSK will revert to Biovail, and GSK will permit access to all regulatory data and information related to Wellbutrin and bupropion HCl, as appropriate, for the sole purpose of enabling Biovail to obtain regulatory approval for Wellbutrin XL.

25.   RESEARCH AND DEVELOPMENT COLLABORATIONS

In the ordinary course of business, the Company enters into research and development collaborations with third parties to provide formulation and other services for its products under development. These collaborations target the Company's therapeutic areas of focus — cardiovascular (including Type II diabetes), pain management, central nervous system and niche opportunities, and typically include formulation and product development services being rendered by the developer. The developer may utilize its own technology, and, in other cases, the Company will allow access to its technology for the formulation and development of the product(s). In some cases, the Company has an ownership interest or an option to take an ownership position in the developer. In no case is the Company responsible for any of the

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developers' third party liabilities, nor has the Company guaranteed any debts, nor is the Company required under any circumstances to exercise any of its options.

These third party developers are typically compensated on the basis of fees for service, milestone payments or royalty payments from the future sales of the products under development, or some combination of these bases. In addition, in the ordinary course of business, the Company may enter into research and development collaborations with third parties whereby the Company may provide contract research, formulation development and other services to those third parties. The Company is typically compensated on the basis of fees for service, milestone payments, royalties from future sales of the product(s) or co-promotion revenue, or some combination of these bases.

In July 2002, Biovail licensed from DepoMed the rights to manufacture and market a once-daily metformin HCl product that is currently undergoing Phase III clinical trials ("metformin GR"). The license confers to Biovail the right to market metformin GR in the United States and Canada. DepoMed will be responsible for completing the clinical development program in support of metformin GR and, subject to approval by the FDA, Biovail will pay to DepoMed a $25,000,000 milestone fee as well as royalties on the net sales of the product in the United States and Canada.

In May 2002, Biovail entered into an agreement with Merck to develop, license and supply a new dosage format of a Merck product under development. Utilizing CEFORM™ technology, Biovail and Merck will conduct the development program and, subject to approval by the FDA, Biovail will manufacture and supply this new dosage format to Merck for commercialization. Biovail is entitled to receive a milestone payment on regulatory approval of $250,000 as well as royalties on the net sales of the new dosage format.

In April 2002, Biovail licensed the marketing rights to six products from Ethypharm for commercialization in the United States, Canada and Mexico. Biovail is obligated to pay Ethypharm up to $61,000,000 in milestone payments on the first regulatory approval of the products within the United States, Canada or Mexico, as well as royalties on the net sales of the products. Biovail has also entered into a cross-license agreement with Ethypharm, whereby the two companies grant to each other non-exclusive licenses to use Biovail's CEFORM™ technology and Ethypharm's Flashtab technology, respectively, relating to the development of new rapid dissolve pharmaceutical products. To December 31, 2002, Biovail had made no milestone payments to Ethypharm.

In January 2002, the Company acquired the exclusive marketing rights to FIBROSTAT from Procyon Biopharma Inc ("Procyon"). FIBROSTAT is a topical therapeutic for scar management. The Company will pay aggregate fees of approximately $5,100,000 to Procyon for the development of FIBROSTAT, subject to the attainment of certain milestones. On approval and commercialization of FIBROSTAT in the United States, the Company will pay a licensing fee to Procyon of approximately $3,100,000, as well as royalties based on a percentage of net sales of FIBROSTAT. To December 31, 2002, Biovail had paid no fees to Procyon.

In December 1998, the Company entered into an agreement with H. Lundbeck A/S ("Lundbeck"), for the formulation, development, manufacture and supply of a novel, controlled-release formulation of the antidepressant citalopram. Under the terms of the agreement, Lundbeck paid the Company product development fees in an aggregate amount of $8,500,000, subject to certain milestones. In 2001, the Company completed the services with respect to the final milestone and received the remaining $2,000,000 product development fee from Lundbeck. The Company received a product development fee of $1,000,000 in 2000.

26.   SEGMENTED INFORMATION AND MAJOR CUSTOMERS

In 2002, the Company, after reviewing the way that management assesses performance and makes resource decisions, determined that it operates in one operating segment — the development and commercialization of pharmaceutical products. Substantially all of the operations of the Company are directly engaged in or support this operating segment. Other operations are not material and share many of the same economic

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and operating characteristics as pharmaceutical products. Therefore, they are included with pharmaceutical products for purposes of segment reporting.

Geographic information

	Revenue1						Long-lived assets2
	2002		2001		2000		2002		2001		2000
Canada	$	62,848	$	44,705	$	21,110	$	94,519	$	44,139	$	49,919
United States and Puerto Rico		713,615		528,722		226,559		271,122		231,763		298,345
Barbados and other Caribbean		9,533		3,448		53,224		1,039,868		475,381		496,853
Other countries		2,029		6,388		8,277		27,340		1,249		140
	$	788,025	$	583,263	$	309,170	$	1,432,849	$	752,532	$	845,257

¹ Revenue is attributed to countries based on the location of the customer.

² Consists of property, plant and equipment, goodwill, intangible and other assets, net of depreciation and amortization. Property, plant and equipment are attributed to countries based on their physical location, goodwill is attributed to countries based on the location of the related acquired business, and intangible and other assets are attributed to countries based on ownership rights.

Major customers

The following table identifies external customers accounting for 10% or more of the Company's total revenue:

	Percentage of total revenue
	2002		2001		2000
Customer A	12	%	16	%	30	%
Customer B	23		31		30
Customer C	11		9		5
Customer D	—		—		17

27.   COMPARATIVE FIGURES

Prior to 2002, the Company included co-promotion revenue as a component of product sales. In 2002, the Company reclassified co-promotion revenue from product sales to co-promotion, royalty and licensing. The reclassification of $15,984,000 and $7,992,000 of co-promotion revenue for 2001 and 2000, respectively, to conform to the presentation adopted in 2002, did not change total revenue as previously reported.

Prior to 2001, the Company included amortization expense as a component of cost of goods sold, research and development expenses, and selling, general and administrative expenses. In 2001, the Company decided to present amortization expense as an individual line item within operating expenses. The reclassification of $7,232,000 of amortization expense for 2000, to conform to the presentation adopted in 2001, did not change total operating expenses or net operating loss as previously reported.

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Eight-Year Financial Summary
(All dollar amounts expressed in thousands of U.S. dollars, except per share and share price data)

	2002			2001			2000			1999			1998(1)			1997(1)			1996(1)			1995(1)
OPERATING RESULTS
Revenue
Product sales	$	645,986		$	521,154		$	217,004		$	98,029		$	69,154		$	50,333		$	54,313		$	7,915
Research and development		28,425			14,596			66,834			48,232			30,891			18,809			4,374			4,333
Co-promotion, royalty and licensing		113,614			47,513			25,332			26,203			11,612			12,487			7,743			7,396
		788,025			583,263			309,170			172,464			111,657			81,629			66,430			19,644
Expenses
Cost of goods sold		164,706			125,995			67,980			35,027			28,542			16,420			21,717			2,705
Research and development		52,150			51,017			51,709			32,954			17,490			14,386			10,901			7,194
Selling, general and administrative		165,697			110,100			51,857			36,165			19,852			15,505			10,615			7,011
Amortization		71,499			44,513			7,232			2,789			470			204			211			181
Write-down of assets		31,944			80,482			—			—			—			—			—			—
Acquired research and development		167,745			—			208,424			105,689			—			—			—			—
		653,741			412,107			387,202			212,624			66,354			46,515			43,444			17,091
Operating income (loss)		134,284			171,156			(78,032	)		(40,160	)		45,303			35,114			22,986			2,553
Net income (loss)		87,795			87,448			(147,976	)		(109,978	)		41,577			32,822			22,664			5,870
Net income excluding certain items(2)		284,076			202,853			123,987			52,162			41,577			32,822			22,664			2,253
EBITDA excluding certain items(3)		416,341			306,925			151,380			73,716			50,177			38,271			24,953			3,791
Depreciation and amortization		82,368			55,287			20,988			8,187			4,829			3,157			1,967			1,238
Diluted per share data
Net income (loss)	$	0.55		$	0.58		$	(1.16	)	$	(1.07	)	$	0.38		$	0.31		$	0.21		$	0.06
Net income excluding certain items(2)		1.77			1.35			0.86			0.48			0.38			0.31			0.21			0.02
EBITDA excluding certain items(3)		2.59			2.04			1.05			0.68			0.46			0.36			0.23			0.04
Depreciation and amortization		0.51			0.37			0.15			0.08			0.04			0.03			0.02			0.01
Weighted average number of common shares outstanding (000s)		160,463			150,690			143,512			108,174			108,944			106,476			107,728			106,696
FINANCIAL POSITION
Cash and cash equivalents	$	56,080		$	434,891		$	125,144		$	178,086		$	78,279		$	8,275		$	4,526		$	24,323
Working capital		(23,527	)		427,856			(25,295	)		266,068			114,898			47,663			9,606			696
Total assets		1,833,804			1,331,483			1,107,267			467,179			198,616			93,739			58,606			60,867
Long-term obligations and Debentures		747,350			46,161			738,729			137,504			126,835			4,847			6,968			10,195
Shareholders' equity		845,686			1,126,074			237,458			267,336			49,888			75,458			36,943			14,592
Shareholders' equity excluding certain items(2)		1,587,858			1,671,965			667,944			425,859			46,271			71,841			33,326			10,975
COMMON SHARE PERFORMANCE
Market capitalization	$	4,176,000		$	8,859,000		$	5,106,000		$	2,915,000		$	940,000		$	1,041,000		$	652,000		$	652,000
Closing share price on New York Stock Exchange	$	26.41		$	56.25		$	38.84		$	23.44		$	9.45		$	9.77		$	6.41		$	6.44
Closing number of common shares issued and outstanding (000s)		158,120			157,496			131,461			124,392			99,444			106,644			101,708			101,308
CASH FLOWS
Operating activities	$	334,104		$	284,121		$	102,494		$	51,985		$	52,394		$	3,566		$	(5,622	)	$	31,146
Acquisitions of intangible assets		(375,385	)		(12,445	)		(27,752	)		(13,340	)		(19,000	)		—			—			—
Acquisitions of businesses, net of cash acquired		(240,581	)		—			(622,145	)		(43,720	)		—			—			—			(5,243	)
Additions to property, plant and equipment		(61,382	)		(44,436	)		(15,845	)		(7,759	)		(3,920	)		(2,664	)		(6,692	)		(2,642	)
Net issuance (repurchase) of common shares		(483,485	)		469,163			109,604			223,128			(68,212	)		4,464			197			702
Net issuance (repurchase/repayments) of long-term obligations and Debentures		450,195			(404,666	)		309,153			(75,212	)		117,705			(1,829	)		(3,177	)		(441	)
Net increase (decrease) in cash and cash equivalents		(378,811	)		309,747			(52,942	)		99,807			70,004			3,749			(19,797	)		21,504
RATIOS
EBITDA excluding certain items as a percentage of revenue(3)		52.8%			52.6%			49.0%			42.7%			44.9%			46.9%			37.6%			19.3%
Net income excluding certain items as a percentage of revenue(2)		36.0%			34.8%			40.1%			30.2%			37.2%			40.2%			34.1%			11.5%
Return on equity excluding certain items(2)		17.4%			17.3%			22.7%			22.1%			70.4%			62.4%			102.3%			24.1%
Ratio of EBITDA excluding certain items to interest expense(3)		13.0x			8.5x			7.3x			5.1x			21.3x			192.3x			42.2x			5.3x
Product sales growth		24.0%			140.2%			121.4%			41.8%			37.4%			(7.3	)%		586.2%			59.1%
Revenue growth		35.1%			88.7%			79.3%			54.5%			36.8%			22.9%			238.2%			18.6%
HEADCOUNT
Number of employees, end of year		1,857			1,425			1,200			701			489			377			315			250

(1)

Data has been derived from consolidated financial statements prepared in accordance with Canadian generally accepted accounting principles.

(2)

Certain items consist of write-down of assets, acquired research and development, other income, debt conversion premiums, extraordinary item, cumulative effect of change in accounting principle, equity loss and net gains.

(3)

Earnings before interest, taxes, depreciation and amortization, and excluding write-down of assets, acquired research and development, other income, debt conversion premiums, extraordinary item, cumulative effect of change in accounting principle, equity loss and net gains.

85

Selected Quarterly Data
(All dollar amounts expressed in thousands of U.S. dollars, except per share and share price data)

	Q1		Q2		Q3		Q4			Total
2002
Product sales	$	129,854	$	157,788	$	174,508	$	183,836		$	645,986
Revenue		155,253		185,131		208,944		238,697			788,025
Expenses		98,030		108,744		120,918		326,049			653,741
Operating income (loss)		57,223		76,387		88,026		(87,352	)		134,284
Net income (loss)		53,051		62,557		74,977		(102,790	)		87,795
Net income excluding certain items(1)		53,051		62,623		73,037		95,365			284,076
EBITDA excluding certain items(2)		72,327		93,308		107,755		142,951			416,341
Depreciation and amortization		15,104		16,921		18,360		31,983			82,368
Diluted per share data
Net income (loss)	$	0.32	$	0.39	$	0.49	$	(0.65	)	$	0.55
Net income excluding certain items(1)		0.32		0.39		0.47		0.60			1.77
EBITDA excluding certain items(2)		0.43		0.58		0.70		0.90			2.59
Depreciation and amortization		0.09		0.10		0.12		0.20			0.51
Weighted average number of common shares outstanding (000s)		166,493		161,423		154,016		158,099			160,463
Common share price(3)
High	$	56.40	$	52.05	$	30.63	$	35.22		$	56.40
Low		40.11		26.00		19.90		23.52			19.90
2001
Product sales	$	108,861	$	121,938	$	132,676	$	157,679		$	521,154
Revenue		119,227		133,504		152,190		178,342			583,263
Expenses		74,839		76,372		86,168		174,728			412,107
Operating income		44,388		57,132		66,022		3,614			171,156
Net income (loss)		29,166		44,103		33,101		(18,922	)		87,448
Net income excluding certain items(1)		29,166		44,103		55,832		73,752			202,853
EBITDA excluding certain items(2)		57,447		70,725		79,941		98,812			306,925
Depreciation and amortization		13,059		13,593		13,919		14,716			55,287
Diluted per share data
Net income (loss)	$	0.20	$	0.30	$	0.22	$	(0.13	)	$	0.58
Net income excluding certain items(1)		0.20		0.30		0.37		0.46			1.35
EBITDA excluding certain items(2)		0.39		0.48		0.52		0.62			2.04
Depreciation and amortization		0.09		0.09		0.09		0.09			0.37
Weighted average number of common shares outstanding (000s)		148,084		147,933		152,428		159,478			150,690
Common share price(3)
High	$	47.70	$	45.10	$	48.45	$	57.18		$	57.18
Low		29.03		29.10		37.70		44.46			29.03

(1)

Certain items consist of write-down of assets, acquired research and development, other income and debt conversion premiums.

(2)

Earnings before interest, taxes, depreciation and amortization, and excluding write-down of assets, acquired research and development, other income and debt conversion premiums.

(3)

High and low per share sales prices on the New York Stock Exchange.

86

Board of Directors and Officers

BOARD OF DIRECTORS

CORPORATE OFFICERS

Eugene N. Melnyk Chairman of the Board and Chief Executive Officer, Biovail Corporation Rolf K. Reininghaus Senior Vice President, Corporate and Strategic Development, Biovail Corporation Roger Rowan(1) President and Chief Operating Officer, Watt Carmichael Inc. Wilfred Bristow(2),(3) Vice President, Nesbitt Burns Inc. Paul W. Haddy(1) Chairman and Chief Executive Officer, London Life Bank & Trust Corporation Laurence E. Paul, M.D.(1),(2),(3) Managing Principal, Laurel Crown Capital, LLC Sheldon Plener(2),(3) Senior Partner, Cassels Brock & Blackwell LLP

Eugene N. Melnyk Chairman of the Board and Chief Executive Officer Brian H. Crombie Senior Vice President and Chief Financial Officer Kenneth C. Cancellara, Q.C. Senior Vice President, Chief Legal Officer and Corporate Secretary Rolf K. Reininghaus Senior Vice President, Corporate and Strategic Development Kenneth G. Howling Vice President, Finance John R. Miszuk Vice President, Controller & Assistant Secretary Kristine Peterson Senior Vice President, Commercial Operations Gregory J. Szpunar Senior Vice President, Research and Development and Chief Scientific Officer

(1)

Audit Committee

(2)

Nominating and Governance Committee

(3)

Compensation Committee

Corporate Governance

        In 2002, Biovail instituted a sweeping review of its corporate governance practices. While in the past Biovail had complied with all relevant regulatory regimes with respect to corporate governance, in light of certain changes to the regulatory framework, most particularly the implementation of the Sarbanes-Oxley Act in the United States, Biovail's Board of Directors believed it was in the best interest of the company and its shareholders to reassess and improve existing corporate governance policies.

        The result of this review was the implementation of new policies reflecting best practices with respect to all areas of corporate governance. In addition to the existing Audit Committee, whose mandate was refined, Biovail created a charter for the Board of Directors, a Nominating and Governance Committee, a Compensation Committee and an Executive Committee.

87

Shareholder Information

HEAD OFFICE	AUDITORS	HOW TO REACH US FOR MORE INFORMATION
Biovail Corporation 7150 Mississauga Road Mississauga, Ontario Canada L5N 8M5 MANUFACTURING FACILITIES Steinbach, Manitoba Carolina, Puerto Rico Dorado, Puerto Rico Chantilly, Virginia RESEARCH AND DEVELOPMENT FACILITIES Dublin, Ireland Toronto, Ontario Chantilly, Virginia SALES AND MARKETING OPERATIONS Biovail Pharmaceuticals Canada 7150 Mississauga Road Mississauga, Ontario Canada L5N 8M5 Biovail Pharmaceuticals Inc. 170 Southport Drive Morrisville, NC 27560	Ernst & Young LLP Chartered Accountants Toronto, Canada LEGAL COUNSEL Osler, Hoskin & Harcourt LLP Toronto, Ontario Cahill, Gordon & Reindel LLP New York, New York REGISTRARS AND TRANSFER AGENTS CIBC Mellon Trust Company Toronto, Canada Mellon Investor Services LLC New York, New York THE ANNUAL MEETING OF SHAREHOLDERS The annual meeting of shareholders will be held at 10:00 a.m. Friday, June 20, 2003 Toronto Stock Exchange Theatre 130 King Street West Toronto, Ontario M5X 1J2 STOCK EXCHANGE LISTINGS Toronto Stock Exchange New York Stock Exchange TRADING SYMBOLS: Common Shares: BVF SHARES OUTSTANDING AT DECEMBER 31, 2002 158,120,144	For additional copies of this report, the annual report on Form 20-F as filed with the United States Securities and Exchange Commission, quarterly reports or for further information, please contact Investor Relations. Mail Biovail Corporation 7150 Mississauga Road Mississauga, Ontario Canada L5N 8M5 Phone (905) 286-3000 Fax (905) 286-3050 E-mail ir@biovail.com Website www.biovail.com The following words and logos are trademarks of the Company and may be registered in Canada, the United States and certain other jurisdictions: Biovail, Cardizem®, Tiazac®, Teveten®, Vasotec®, Vaseretic®, CEFORM™, Shearform™, FlashDose®, Instatab™, SportSafe™, DrinkUp™ and Cardisense®

88

7150 Mississauga Road,
Mississauga, Ontario L5N 8M5
www.biovail.com

QuickLinks

CORPORATE PROFILE
BVF 2002 ANNUAL REPORT
THE CONTROLLED-RELEASE DRUG MARKET
Market size: $16 billion plus
Prof. Arnold Beckett, OBE Millennium Pharmaceutical Scientist World Congress of Pharmaceutical Sciences
The goal is to make medications better — easier to take, producing better results with fewer side effects.
CARDIOVASCULAR
Dr. Joel M. Neutel Assistant Clinical Professor of Medicine University of California, Irvine, CA Chief, Clinical Pharmacology and Hypertension VA Medical Center, Long Beach, CA
Cardizem LA is specifically formulated to provide increased protection in the early morning hours
CENTRAL NERVOUS SYSTEM (CNS)
We have developed Wellbutrin XL, an improved once-daily version of one of the world's best selling new generation antidepressants
Dr. Richard Weisler Adjunct Professor, Department of Psychiatry Duke University University of North Carolina, Chapel Hill, NC
PAIN MANAGEMENT
Our tramadol ER will be a leading once-daily formulation for the treatment of the signs and symptoms of osteoarthritis
Dr. Najib Babul Chief Executive Officer TheraQuest Biosciences, LLC Member, Editorial Board Journal of Pain & Palliative Care Pharmacotherapy
OTHER THERAPIES
Promising examples include the development of once-daily metformin XL
Rolf Reininghaus Senior Vice President Corporate & Strategic Development Biovail Corporation
BIOVAIL PRODUCT PORTFOLIO
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In accordance with U.S. generally accepted accounting principles (All dollar amounts expressed in U.S. dollars)
MANAGEMENT REPORT
AUDITORS' REPORT
CONSOLIDATED BALANCE SHEETS In accordance with U.S. generally accepted accounting principles
CONSOLIDATED STATEMENTS OF INCOME (LOSS) In accordance with U.S. generally accepted accounting principles
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY In accordance with U.S. generally accepted accounting principles
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY In accordance with U.S. generally accepted accounting principles
CONSOLIDATED STATEMENTS OF CASH FLOWS In accordance with U.S. generally accepted accounting principles
BIOVAIL CORPORATION Notes to Consolidated Financial Statements In accordance with U.S. generally accepted accounting principles (All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)
Eight-Year Financial Summary (All dollar amounts expressed in thousands of U.S. dollars, except per share and share price data)
Selected Quarterly Data (All dollar amounts expressed in thousands of U.S. dollars, except per share and share price data)
Board of Directors and Officers
Corporate Governance
Shareholder Information

EX-99.2

Exhibit 99.2

BIOVAIL CORPORATION
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

NOTICE IS HEREBY GIVEN that the annual and special meeting of shareholders of Biovail Corporation (the "Company") will be held at The Toronto Stock Exchange Theatre, Exchange Tower, 130 King Street West, Toronto, Ontario, on Friday, June 20^th, 2003 at 10:00 a.m. (Toronto time), for the following purposes:

1.

To receive the financial statements of the Company for the year ended December 31, 2002, and the report of the auditors thereon;

2.

To elect directors;

3.

To reappoint Ernst & Young LLP as auditors;

4.

To consider and, if deemed appropriate, adopt, with or without variation, a special resolution (the full text of which is reproduced as Schedule "A" to the accompanying Management Information Circular) authorizing the Company, should the directors so determine, to apply for a certificate of amendment under the Business Corporations Act (Ontario) to amend the articles of the Company to provide for the division, on a two-for-one basis, on a three-for-one basis, or three-for-two of its common shares, as described in the accompanying Management Information Circular attached hereto; and

5.

To transact such other business as may properly be brought before the meeting.

BY ORDER OF THE BOARD OF DIRECTORS

Kenneth C. Cancellara, Q.C.
Senior Vice President,
Chief Legal Officer
and Corporate Secretary
Mississauga, Ontario
May 15, 2002

SHAREHOLDERS UNABLE TO ATTEND THE MEETING ARE INVITED TO COMPLETE AND SIGN THE ENCLOSED FORM OF PROXY WHICH WILL BE USED AT THE MEETING IF RECEIVED ON OR BEFORE THE CLOSE OF BUSINESS (LOCAL TIME) ON THE BUSINESS DAY PRECEDING THE DAY OF THE MEETING OR ANY ADJOURNMENT THEREOF BY CIBC MELLON TRUST COMPANY PROXY DEPARTMENT, 200 QUEEN'S QUAY EAST, UNIT 6, TORONTO, ONTARIO, CANADA, M5A 4K9 (FACSIMILE (416) 368-2502) AT WHICH THE PROXY IS TO BE USED, OR DELIVERED TO THE CHAIRMAN OF THE MEETING ON THE DAY OF THE MEETING OR ANY ADJOURNMENT THEREOF PRIOR TO THE TIME OF VOTING.

EX-99.3

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MANAGEMENT INFORMATION CIRCULAR

Solicitation of Proxies

THIS MANAGEMENT INFORMATION CIRCULAR IS FURNISHED IN CONNECTION WITH THE SOLICITATION OF PROXIES BY AND ON BEHALF OF THE MANAGEMENT OF BIOVAIL CORPORATION (THE "COMPANY") FOR USE AT THE ANNUAL AND SPECIAL MEETING OF HOLDERS OF THE COMPANY'S COMMON SHARES (THE "SHAREHOLDERS") TO BE HELD AT 10:00 A.M. (TORONTO TIME), AT THE TORONTO STOCK EXCHANGE THEATRE, EXCHANGE TOWER, 130 KING STREET WEST, TORONTO, ONTARIO, CANADA, ON FRIDAY, JUNE 20, 2003, AND AT ANY AND ALL ADJOURNMENTS THEREOF (THE "MEETING"). It is expected that the solicitation will be primarily by mail, possibly supplemented by telephone or other personal contact by regular employees of the Company. None of these individuals will receive extra compensation for such efforts. The Company may also pay brokers, investment dealers or nominees holding common shares in their names or in the names of their principals for their reasonable expenses in sending solicitation material to their principals. The cost of the solicitation will be borne by the Company.

        No person is authorized to give any information or to make any representations other than those contained in this Management Information Circular and, if given or made, such information must not be relied upon as having been authorized.

        Except as otherwise indicated, information contained herein is given as at April 30, 2003 and except as otherwise indicated, all dollar amounts are expressed in U.S. dollars.

Appointment of Proxy

A SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON (WHO NEED NOT BE A SHAREHOLDER OF THE COMPANY) TO ATTEND, ACT AND VOTE FOR HIM OR HER AND ON HIS OR HER BEHALF AT THE MEETING OR ANY ADJOURNMENT(S) THEREOF, OTHER THAN THE PERSONS DESIGNATED IN THE ENCLOSED FORM OF PROXY, BY INSERTING SUCH PERSON'S NAME IN THE SPACE PROVIDED IN THE FORM OF PROXY AND BY DELETING THE NAMES THEREIN.

        All common shares of the Company (hereinafter referred to as "common shares" or "shares") represented by properly executed proxies in favour of management's representatives, will be voted or withheld from voting, or voted for or voted against any matter, in accordance with the instructions of the Shareholder on any ballot that may be called for at the Meeting. If a choice is specified in respect of any matter to be acted upon, the shares will be voted accordingly. IN THE ABSENCE OF SUCH DIRECTION, THE SHARES WILL BE VOTED FOR SUCH MATTER, ALL AS MORE PARTICULARLY DESCRIBED IN THIS MANAGEMENT INFORMATION CIRCULAR.

THE ENCLOSED FORM OF PROXY, WHEN PROPERLY EXECUTED, CONFERS DISCRETIONARY AUTHORITY WITH RESPECT TO ALL AMENDMENTS OR VARIATIONS TO MATTERS IDENTIFIED IN THE NOTICE OF MEETING OR OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING.

        The enclosed form of proxy must be dated and signed in writing or by electronic signature by the Shareholder or his/her attorney who is authorized by a document that is signed in writing or by electronic signature, or if the Shareholder is a company, by an officer or attorney thereof duly authorized. If the form of proxy is executed by an attorney, the authority of the attorney to act must accompany the form of proxy. The form of proxy must be received by the Company's Registrar and Transfer Agent, CIBC Mellon Trust Company, Proxy Department, 200 Queen's Quay East, Unit 6, Toronto, Ontario M5A 4K9 (facsimile (416) 368-2502) on or before the close of business on the business day preceding the day of the Meeting, or any adjournment thereof at which the proxy is to be used, or delivered to the Chairman of the Meeting on the day of the Meeting or any adjournment thereof prior to the time of voting.

Revocation of Proxies

        Pursuant to Section 110(4) of the Business Corporations Act, (Ontario) (the "OBCA"), any Shareholder giving a proxy may revoke a proxy (a) by depositing an instrument in writing executed by the Shareholder or by his/her attorney who is authorized, by a document that is signed in writing or by electronic signature, or if the Shareholder is a company, by an officer or attorney thereof duly authorized; (b) by transmitting, by facsimile or electronic means a revocation that is signed by electronic signature; and in the case of (a) or (b) such revocation is deposited with the Company, at 7150 Mississauga Road, Mississauga, Ontario L5N 8M5, or with the Company's Registrar and Transfer Agent, CIBC Mellon Trust Company, Proxy Department, 200 Queen's Quay East, Unit 6, Toronto, Ontario M5A 4K9 (facsimile (416) 368-2502) on or before the close of business of the last business day preceding the day of the Meeting, or any adjournment thereof, at which the proxy is to be used, or delivered to the Chairman of the Meeting on the day of the Meeting or any adjournment thereof prior to the time of voting; or (c) by any other manner permitted by law.

        All matters to be submitted to the Shareholders at the Meeting, unless otherwise stated herein, require a favourable majority of the votes cast by the holders of common shares of the Company at the Meeting for approval.

Interest of Certain Persons in Matters to be Acted Upon

        Except as set out herein and except insofar as they may be Shareholders, no director or officer of the Company or any proposed nominee of management of the Company for election as a director of the Company, nor any associate or affiliate of the foregoing persons, has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in matters to be acted upon at the Meeting.

COMMON SHARES AND PRINCIPAL HOLDERS THEREOF

        The holders of common shares of the Company will be entitled to vote at the Meeting on all matters. Pursuant to Section 100(2) of the OBCA, each Shareholder at the close of business on May 5, 2003 (the "Record Date") is entitled to one (1) vote for each such share held, except to the extent that such shares may have been transferred after the Record Date and the transferee produces properly endorsed share certificates or otherwise establishes that he/she owns the shares and demands, not later than ten (10) days before the Meeting, that the Company's Transfer Agent, CIBC Mellon Trust Company at 320 Bay Street, P.O. Box 1, Toronto, Ontario, M5H 4A6, include his/her name on the list of Shareholders. As at April 30, 2003, 158,308,203 common shares of the Company were issued and outstanding.

        To the knowledge of the directors and senior officers of the Company, at April 30, 2003, the following individual was the only person who beneficially owned, directly or indirectly, or exercised control or direction over common shares of the Company carrying more than ten percent of the voting rights attached to all common shares of the Company:

Name of Shareholder	Approximate Number of Common Shares Beneficially Owned, Directly or Indirectly, or over which Control or Direction is Exercised	Percentage of Outstanding Common Shares Represented
Eugene N. Melnyk	26,101,816	16.5%

PARTICULARS OF ITEMS TO BE ACTED UPON

1.     Election Of Directors

        The articles of the Company currently provide that the Board of Directors shall consist of a minimum of three (3) and a maximum of twenty (20). The number of directors proposed to be elected at the meeting is seven (7), all of whom are nominated and listed below. Each of the proposed nominees has held the principal occupation referred to in the table below for the preceding 5 years.

UNLESS A PROXY SPECIFIES THAT THE SHARES IT REPRESENTS ARE TO BE WITHHELD FROM VOTING IN THE ELECTION OF DIRECTORS, THE PROXYHOLDERS NAMED IN THE ACCOMPANYING FORM OF PROXY INTEND TO VOTE FOR THE ELECTION OF THE FOLLOWING NOMINEES, ALL OF WHOM ARE NOW DIRECTORS AND HAVE BEEN SINCE THE DATES INDICATED.

2

        Management does not contemplate that any nominee will be unable to serve as a director, but, if such an event should occur for any reason prior to the Meeting, the persons named in the enclosed form of proxy reserve the right to vote for another nominee in their discretion, unless authority to vote the proxy for the election of directors has been withheld. Each director elected will hold office until the next annual meeting of Shareholders or until his successor is duly elected, unless the office is earlier vacated in accordance with the by-laws of the Company.

        The following table and notes thereto state the names of all persons proposed to be nominated by management for election as a director, all offices with the Company currently held by them, their principal occupation or employment, the year in which they first became a director of the Company and the approximate number of common shares of the Company beneficially owned, directly or indirectly, or over which control or direction is exercised by each of them as at April 30, 2003:

NAME, ADDRESS	PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; POSITION WITH COMPANY	YEAR FIRST BECAME A DIRECTOR	NUMBER OF COMMON SHARES BENEFICIALLY OWNED, DIRECTLY OR INDIRECTLY, OR OVER WHICH CONTROL OR DIRECTION IS EXERCISED(1)(2)
Eugene N. Melnyk(3) Barbados, WI	Chairman of the Board of Directors of the Company, Chief Executive Officer	1994	26,101,816
Rolf K. Reininghaus Mississauga, Ontario	Senior Vice President, Corporate and Strategic Development, of the Company	1994	768,264
Wilfred G. Bristow(5)(6) Campbellville, Ontario	Vice-President, Nesbitt Burns Inc. (investment banking firm)	1994	25,000
Roger D. Rowan(4) Toronto, Ontario	President and Chief Operating Officer, Watt Carmichael Inc. (investment banking firm)	1997	1,190,403
Paul W. Haddy(4) Barbados, WI	Chairman and Chief Executive Officer, London Life Bank and Trust Company	2000	1,500
Laurence Paul, MD(4)(5)(6) Venice, CA USA	Managing Principal, Laurel Crown Capital, LLC (equity investment firm); Prior to 2001, Managing Director, Credit Suisse First Boston (investment banking firm)	2002	32,000
Sheldon Plener(5)(6) Toronto, Ontario	Senior Partner, Cassels Brock & Blackwell LLP (law firm)	2002	500

Notes:

(1)

Information with respect to the number of common shares beneficially owned, directly or indirectly, or over which control or direction is exercised, not being within the knowledge of the Company, has been provided by the respective nominees.

(2)

Those of the above-noted nominees who are currently directors hold options to purchase common shares of the Company as of April 30, 2003 as follows: Eugene N. Melnyk — 1,797,700; Rolf Reininghaus — 451,700; Wilfred Bristow — 40,000; Roger Rowan — 80,000; Paul Haddy — 40,000; Laurence E. Paul — 10,000; Sheldon Plener — 10,000; which common shares are not included in the above table.

(3)

See "Common Shares and Principal Holders Thereof".

(4)

Member of the Audit Committee.

(5)

Member of the Compensation Committee.

(6)

Member of the Nominating and Governance Committee.

3

2.     Appointment of Auditors

        The persons named in the form of proxy which accompanies this Management Information Circular intend to vote for the reappointment of Ernst & Young LLP, Chartered Accountants, as the auditors of the Company, to hold office until its successor is appointed and to authorize the directors of the Company to fix the remuneration of the auditors, unless the Shareholder has specified in the form of proxy that the shares represented by such form of proxy are to be withheld from voting in respect thereof. Ernst & Young LLP, Chartered Accountants, have been the auditors of the Company since July 22, 1999.

        The Audit Committee of the Board of Directors and the directors of the Company recommend that Ernst & Young LLP, Chartered Accountants, be reappointed as the auditors of the Company.

        The following table presents fees for professional audit services rendered by Ernst & Young LLP for the audit of the Company's annual financial statements for 2002, and fees billed for other services rendered by Ernst & Young LLP during the year ended 2002.

Audit fees, excluding other audit related service fees		$	709,000
Financial Information Systems Design and Implementation			Nil
All other fees
	Audit related services(1)	$	683,000
	Tax related services		220,000
	Other non-audit services		3,000
		$	906,000

Note:

(1)

Audit related services generally include fees for pension and statutory audits and business acquisitions and fees related to the preparation of prospectuses and registration statements.

        The Audit Committee believes that the foregoing expenditures are compatible with maintaining the independence of the Company's principal accountant.

3.     Stock Split

        At the Meeting, the Shareholders of the Company will be asked to pass, with or without variation, a special resolution in the form attached as Schedule "A" (the "Stock Split Resolution") authorizing the Company to file, should the Board of Directors so determine, articles of amendment (the "Articles of Amendment") to provide for the division of the Company's common shares, at the discretion of the Board of Directors, on a two-for-one, three-for-one or a three-for-two basis (the "Stock Split").

Effect of Stock Split

        The Stock Split Resolution, attached as Schedule "A" hereto, if passed by the Shareholder and implemented by the Board of Directors by the filing of Articles of Amendment, will result in each common share of the Company being divided into one and one half, two or three common shares, as determined by the Board of Directors, in its discretion.

Purpose of Stock Split and Board of Directors' Recommendation

        The Board of Directors of the Company wish to provide for flexibility to implement the Stock Split to enhance the marketability of the common shares and make the common shares more accessible to a wider range of investors. Accordingly, the Board of Directors recommends that Shareholders vote in favour of the Stock Split Resolution.

Stock Split Resolution

        The Shareholders of the Company will be asked to pass the Stock Split Resolution set out in Schedule "A". The Stock Split Resolution is a special resolution. As such, the affirmative vote of not less than two-thirds of the votes cast at the Meeting are required in order for it to be considered approved by the Shareholders.

4

THE PROXYHOLDERS NAMED IN THE ACCOMPANYING FORM OF PROXY INTEND TO VOTE FOR THE STOCK SPLIT RESOLUTION.

No Right of Dissent

        Shareholders voting against the Stock Split Resolution are not entitled to exercise any statutory rights of dissent or similar appraisal remedies that would require the Company to repurchase their common shares if the Stock Split Resolution is approved by Shareholders and implemented by the Company.

Implementation of the Stock Split

        The Stock Split Resolution, if approved, will authorize the Board of Directors, in its sole discretion, to implement one of the division ratios, but in no case shall the Stock Split be implemented after the date which is the earlier of 12 months from the passing of the special resolution and the next annual meeting of Shareholders of the Company.

        Notwithstanding that the Stock Split Resolution has been duly passed by the Shareholders of the Company, the Board of Directors may, in its discretion, decide not to implement the Stock Split and therefore not to file the Articles of Amendment. The implementation of the Stock Split may also be subject to the prior approval of The Toronto Stock Exchange (the "TSX") and the New York Stock Exchange (the "NYSE"), and the making of any other applicable corporate and regulatory filings.

        Upon a decision being made by the Board of Directors to file the Articles of Amendment and implement the Stock Split, a record date for the Stock Split (the "Stock Split Record Date") will be set by the Board of Directors and specified in the Articles of Amendment, and holders of record of common shares as at the close of business on the Stock Split Record Date will be entitled to receive a further certificate representing one half, one or two common shares, as determined in the Certificate of Amendment, for every common share held at the close of business on the Stock Split Record Date. The Board of Directors of the Company may, in its discretion and subject to the rules and policies of the TSX and the NYSE accelerate or delay such Stock Split Record Date to an earlier or later date.

Issued share certificates should be retained by the holders thereof and should not be sent to the Company or its transfer agent.

4.     Miscellaneous

        The management of the Company knows of no amendments, variations or other matters which are likely to be brought before the Meeting. HOWEVER, IF ANY AMENDMENTS, VARIATIONS, OR OTHER MATTERS OF WHICH THE MANAGEMENT IS NOT NOW AWARE ARE PROPERLY PRESENTED TO THE MEETING, IT IS THE INTENTION OF THE PERSONS NAMED IN THE ENCLOSED FORM OF PROXY TO VOTE SAID PROXIES IN ACCORDANCE WITH THEIR JUDGMENT ON SUCH MATTERS.

5

CORPORATE GOVERNANCE PRACTICES AND EXECUTIVE COMPENSATION

A.    Report on Corporate Governance

In 2002, the Company instituted a sweeping review of its corporate governance practices. While in the past the Company had complied with all relevant regulatory regimes with respect to corporate governance, in light of certain changes to the regulatory framework, most particularly the implementation of the Sarbanes-Oxley Act in the United States, the Board of Directors believed that it was in the best interests of the Company and its shareholders to reassess and improve existing corporate governance policies.

The result of this review was the implementation of new policies reflecting best practices with respect to all areas of corporate governance. In addition to the existing Audit Committee, whose mandate was refined, the Company created a Charter for the Board of Directors, a Nominating & Governance Committee, a Compensation Committee and an Executive Committee (composed of a core group of Senior Officers of the Company). Each of these items is more particularly described below. The Company has also provided its commentary to the Toronto Stock Exchange Corporate Governance Committee Guidelines which is attached hereto as Schedule B.

1.

Overview of the Company's Corporate Governance Best Practices

The Company has been and continues to be in full compliance with all applicable U.S. and Canadian laws and regulations with respect to corporate governance (Securities Act (Ontario), the OBCA, the Sarbanes-Oxley Act, the rules of the TSX, the NYSE and the United States Securities and Exchange Commission).

The Company has created a Manual of Corporate Governance that contains detailed corporate governance provisions for the Board of Directors, the Audit Committee, the Nominating & Governance Committee, the Compensation Committee and the Executive Committee.

The majority of the Company's Board is "independent" and there are regular meetings of the external Directors only, free of management and insiders, which are held by the newly appointed Independent Board Co-ordinator.

The Company has adopted a procedure to compel the flow and dissemination of material information "upward" to the Executive Committee who meet on a regular basis to review such information from all the Company's key disciplines. These regular meetings, together with the regular monthly management meetings and quarterly operational meetings, ensure that Senior Management is fully informed of all essential issues and strategies. A key by-product of this information flow is that the Chief Executive Officer and Chief Financial Officer certifications of public filings will be signed meaningfully such that shareholders will be comfortable that the Chairman and the entire Senior Management team will continually be aware of all material information concerning the Company.

2.

Charter of the Board of Directors

In 2002, the Company, through the Board of Directors, created a Charter for the Board. The Company's Board of Directors is responsible pursuant to its Charter and at law for the general supervision of the management of the business and has a duty to act in the best interests of the Company and its shareholders. The Board of Directors carries out its Charter directly and through its committees, consisting of an Audit Committee, Compensation Committee, and Nominating and Governance Committee.

(i)    Composition of the Board

The Company believes that a smaller Board is more cohesive and works more effectively than a larger Board. Moreover, the Company believes that a "substantial majority" of Directors should be independent of management, both in fact and appearance, as determined by the Board. Board independence depends not only on directors' individual relationships — personal, employment or business — but also on the Board's overall attitude toward management. To this end, all non-management Directors are independent.

6

(ii)   Responsibilities

Pursuant to the Board of Directors' Charter, the Board of Directors' responsibilities include, without limitation to its general mandate, the following specific responsibilities:

(a)

Appointing an "Independent Board Coordinator" who will be responsible for specific functions to ensure the independence of the Board of Directors and to ensure access of the independent Board members to Senior Management. Currently, Sheldon Plener is the Independent Board Coordinator;



(b)

The assignment to the various committees of Directors the general responsibility for developing the Company's approach to: (i) corporate governance issues; (ii) financial reporting and internal controls; and (iii) issues relating to compensation of officers and employees;



(c)

With the assistance of the Nominating and Corporate Governance Committee:



(1)

The continuing evaluation of the performance of the Chief Executive Officer, and management succession;



(2)

The assessment, at least annually, of the effectiveness of the Board of Directors as a whole, the Committees of the Board of Directors and the contribution of individual Directors;



(3)

Ensuring that an appropriate review selection process and new nominees to the Board of Directors is in place;



(4)

Ensuring that an appropriate orientation and education program for new recruits to the Board of Directors is in place; and



(5)

Approving securities compliance policies, including communications policies of the Company.



(d)

With the assistance of the Audit Committee:



(1)

Ensuring the integrity of the Company's internal controls and management information systems and ensuring the Company's ethical behavior and compliance with laws and regulations, audit and accounting principles and the Company's own governing documents;



(2)

Identification of the principal risks of the Company's business and ensuring that appropriate systems are in place to manage these risks; and



(3)

Reviewing and approving of significant operational and financial matters and the provision of direction to management on these matters.



(e)

With the assistance of the Compensation Committee and the CEO, the approval of the compensation of the Senior Management team;



(f)

The review of a strategic planning process, approval of key strategic plans that take into account business opportunities and business risks and monitoring performance against such plans; and



(g)

The review and approval of corporate objectives and goals applicable to the Company's Senior Management.



3.

Nominating & Governance Committee

In 2002, the Board of Directors created a Nominating & Governance Committee. Its mandate is to assist the Board by identifying individuals qualified to become Board members and members of Board committees, to recommend to the Board the director nominees and to recommend to the Board nominees for each committee of the Board. Moreover, the Nominating & Governance Committee leads the Board in its annual review of the Board's performance and monitors the Company's

7

corporate governance structure, develops and recommends to the Board a set of corporate governance guidelines and a Code of Business Conduct and Ethics applicable to the Company, and assists the Board in monitoring the compliance by the Company with its legal and regulatory requirements.

The Nominating & Governance Committee has three members (Sheldon Plener, Wilfred Bristow and Laurence Paul) who are assisted by two senior executives.

4.

Audit Committee

While the Company has always had an Audit Committee, during the recent review of corporate governance best practices, the mandate and role of the Company's Audit Committee was reassessed. In the Company's opinion, the Audit Committee's central role is to provide assistance to the Board of Directors in fulfilling its financial reporting and control responsibility to the shareholders and the investment community. In this respect, the Audit Committee's primary duties and responsibilities are to:

(a)

serve as an independent and objective party to monitor the Company's financial reporting process and internal control systems;



(b)

review and appraise the audit activities of the Company's independent auditors and the internal auditing function; and



(c)

provide open lines of communication among the independent auditors, financial and Senior Management, and the Board of Directors for financial reporting and control matters.

(i)    Composition of the Audit Committee

The Audit Committee has three Directors, Larry Paul, Roger Rowan and Paul Haddy (current chair). Each member of the Audit Committee is independent of management and free from any relationship that, in the opinion of the Board of Directors, would interfere with the exercise of his independent judgment as a member of the Audit Committee. According to the Charter of the Audit Committee, all members must have a working familiarity of basic finance and accounting practices, and at least one must have accounting or related financial management expertise (all of the Audit Committee members have financial management expertise).

(ii)   Other Responsibilities of the Audit Committee

Responsibilities of the Audit Committee also include:

(a)

making recommendations to the Board of Directors regarding the selection, independence, evaluation, fees and, if necessary, the replacement of the independent auditors;



(b)

meeting with the auditors and management of the Company to review the scope of the proposed audit for the current year, and the audit procedures to be used;



(c)

reviewing with management and the independent auditors, the Company's financial statements to ensure that:



(1)

management has reviewed the audited financial statements with the Audit Committee, including significant judgments affecting the financial statements;



(2)

the Audit Committee has received the assurance of both financial management and the independent auditors that the Company's financial statements are fairly presented in conformity with Generally Accepted Accounting Principles (GAAP) in all material respects;



(3)

the independent auditors and Senior Management review the adequacy and effectiveness of the financial and accounting controls of the Company.

8

(d)

Making inquiries of Senior Management and the independent auditors to identify significant business, political, financial and control risks and exposures and assess the steps management has taken to minimize such risk to the Company;



(e)

Ensuring that the disclosure of the process followed by the Board of Directors and its committees, in the oversight of the Company's management of principal business risks, is complete and fairly presented; and



(f)

Review and confirmation of compliance with the Company's policies on internal controls, conflicts of interests, foreign corrupt practice, and other key compliance issues.



5.

Executive Committee

In 2002, the Board of Directors created an Executive Committee of the Company. The Executive Committee is responsible for the provision of advice, counseling and decision-making with respect to key strategic decisions affecting and/or involving the Company and the Company's affairs. The Executive Committee provides guidance to the Board with respect to key issues affecting the Company. The Executive Committee is composed entirely of senior officers of the Company and its members are appointed by the Chairman and Chief Executive Officer of the Company. Currently, the members are Eugene Melnyk, Chairman and CEO, Kenneth Cancellara, Senior Vice President, Chief Legal Officer and Corporate Secretary, Brian Crombie, Senior Vice President, Chief Financial Officer, John Miszuk, Vice President, Controller and Assistant Secretary of the Company and Rolf Reininghaus, Senior Vice President Corporate and Strategic Development.

6.

Compensation Committee

In 2002, the Company created a Compensation Committee. The members of the Compensation Committee are appointed by the Board to discharge the Board's responsibilities with respect to (a) compensation of the Company's Executive Officers; (b) equity-based compensation plans, including, without limitation, stock option and restricted stock plans, in which officers or employees may participate; and (c) arrangements with Executive Officers relating to their employment relationships with the Company, including, without limitation, employment agreements, severance agreements, supplemental pension or savings arrangements, change in control agreements and restrictive covenants. The Compensation Committee generally has overall responsibility for approving and evaluating Executive Officer compensation plans, policies and programs of the Company as well as all equity-based compensation plans and policies.

(i)    Composition of the Compensation Committee

The Compensation Committee has three members (Laurence Paul, Wilfred Bristow and Sheldon Plener) who are assisted by two senior executives. Each of the members of the Compensation Committee is independent. The members of the Compensation Committee are appointed by the Board on the recommendation of the Nominating & Governance Committee.

(ii)   Responsibilities of the Compensation Committee

(a)

The Compensation Committee reviews and approves corporate goals and objectives relevant to CEO compensation, evaluates the CEO's performance in light of those goals and objectives and recommend to the Board the CEO's compensation level based on this evaluation. In determining the long-term incentive component of the CEO's compensation, the Compensation Committee may consider the Company's performance and relative shareholder return, the value of similar incentive awards to CEOs at comparable companies, the awards given to the CEO in past years and other factors that the Committee deems appropriate in connection with its review (see below under the caption "Compensation Philosophy");



(b)

The Compensation Committee interprets, implements, administers, reviews and approves all aspects of remuneration of the Company's Executive Officers and other key officers,

9

including their participation in incentive-compensation plans and equity-based compensation plans;

(c)

The Compensation Committee makes recommendations to the Board with respect to the compensation of non-employee Directors, including their participating in incentive-compensation plans and equity-based compensation plans;



(d)

The Compensation Committee develops and recommends to the Company's Shareholders (to the extent Shareholder approval is required by any applicable law or regulation) for their approval all stock ownership, stock option and other equity-based compensation plans of the Company, and all related policies and programs. In addition, the Compensation Committee recommends to the Board and to the Company's Shareholders (to the extent Shareholder approval is required by any applicable law or regulation) for their approval all equity-based compensation plans with respect to non-employee directors, and all related policies and programs; and



(e)

The Compensation Committee monitors compliance by the Company and any recipients of stock, stock options or other equity awards under the Company's equity-based compensation plans (such as any policy that requires officers or directors to own Company stock).

B.    Report on Executive Compensation

1.

Compensation of Named Executive Officers

The following table sets forth the compensation information for each of the last three fiscal years for the Chief Executive Officer and the four other most highly compensated executive officers of the Company who served as executive officers at the end of 2002 ("Named Executive Officers"). This information includes the U.S. dollar value of base salaries, annual incentive compensation payments, long-term incentive compensation payments and certain other compensation.

SUMMARY COMPENSATION TABLE

		Annual Compensation			Long-Term Compensation
					Awards
							Payments
				Other Annual Compen- sation(1) (U.S.$)		Restricted Shares or Restricted Share Units (U.S.$)
Name and Principal Position	Year	Salary (U.S.$)	Bonus (U.S.$)		Securities Under Options Granted(2) (#)		LTIP Payouts (U.S.$)(3)	All Other Compen- sation(1) (U.S.$)
Eugene N. Melnyk	2002	607,908			501,100		41,310,000
Chairman of the Board and	2001	552,644	—	—	—	—	78,570,000	—
Chief Executive Officer	2000	502,404	125,000	—	901,300	—	26,500,804	—
William S. Poole(6)(7)	2002	413,243	56,538		65,000
President, North American	2001	377,353			45,000	—	—	52,443
Pharmaceuticals	2000	—	—	—	—	—	—	—
Kenneth C. Cancellara(4)	2002	277,398	29,322		115,600		1,499,694
Senior Vice President,	2001	237,122	41,654	—	—	—	1,034,331	—
Chief Legal Officer	2000	200,079	—	—	45,300	—	2,799,684	—
and Corporate Secretary
Brian H. Crombie(4)(5)	2002	236,628	53,882		115,100
Senior Vice President and	2001	208,819	35,495	—	15,000	—	—	—
Chief Financial Officer	2000	130,812	33,345	—	120,000	—	—	—
Rolf K. Reininghaus(4)	2002	189,135	49,830		85,100
Senior Vice President	2001	143,604	91,185	—	—	—	—	—
	2000	152,548	120,317	—	33,300	—	8,245,858	—

Notes:

(1)

Perquisites and other personal benefits for Named Executive Officers did not exceed the lesser of Cdn$50,000 and/or 10% of the officer's annual salary and bonus for 2002. The "other" compensation paid to Mr. Poole related to relocation expenses.

10

(2)

All share and option amounts have been adjusted to give effect to the 2 for 1 stock split completed in October 2000. The options are all for the purchase of common shares of the Company and were granted under the Company's Stock Option Plan, as amended, established in 1993.

(3)

Relates to the value of options exercised pursuant to the Stock Option Plan.

(4)

Other than in respect of Mr. Melnyk, and Mr. Poole these amounts were paid in Canadian dollars and, for the purposes of this table, converted to U.S. dollars at the respective year end rates of exchange as follows: 2002 — .6339; 2001 — .6278; and 2000 — .6669.

(5)

Mr. Crombie joined the Company on May 1, 2000.

(6)

Mr. Poole joined the Company in January 15, 2001.

(7)

Effective May 6, 2003, Mr. Poole ceased to be President, North American Pharmaceuticals.

2.

Stock Options Granted to Named Executive Officers

The following tables provide information on those options granted and exercised during 2002 and held at the end of 2002 by the Named Executive Officers.

Options Granted in Last Fiscal Year

Name	Securities Under Option # (1)	% of Total Options Granted to Employees in Period	Exercise Price (U.S.$/Security)	Market Value of Securities Underlying Options on the Date of Grant (U.S.$/Security)	Expiration Date
Eugene N. Melnyk
(2)	300,000	14.5%	42.00	40.80	February 8, 2007
(3)	1,100	—	42.00	40.80	February 8, 2007
(4)	50,000	2.4%	31.00	30.75	June 14, 2007
(5)	150,000	7.3%	31.00	30.75	June 14, 2007
William S. Poole
(2)	30,000	1.5%	42.00	40.80	February 8, 2007
(4)	20,000	1.0%	31.00	30.75	June 14, 2007
(5)	15,000	0.7%	31.00	30.75	June 14, 2007
Kenneth C. Cancellara
(2)	50,000	2.4%	42.00	40.80	February 8, 2007
(3)	600	—	42.00	40.80	February 8, 2007
(4)	50,000	2.4%	31.00	30.75	June 14, 2007
(5)	15,000	0.7%	31.00	30.75	June 14, 2007
Brian H. Crombie
(2)	50,000	2.4%	42.00	40.80	February 8, 2007
(3)	100	—	42.00	40.80	February 8, 2007
(4)	50,000	2.4%	31.00	30.75	June 14, 2007
(5)	15,000	0.7%	31.00	30.75	June 14, 2007
Rolf K. Reininghaus
(2)	50,000	2.4%	42.00	40.80	February 8, 2007
(3)	100	—	42.00	40.80	February 8, 2007
(4)	20,000	1.0%	31.00	30.75	June 14, 2007
(5)	15,000	0.7%	31.00	30.75	June 14, 2007

Notes:

(1)

The options granted under the Company's Stock Option Plan, as amended, established in 1993. All options are for the purchase of common shares of the Company and are for a term of 5 years.

(2)

The options become exercisable as to a maximum of 25% on March 1^st of 2002, 2003, 2004 and 2005 respectively.

(3)

The options become exercisable as of December 31, 2003.

(4)

The options become exercisable as to a maximum of 25% on June 14^th of 2002, 2003, 2004 and 2005 respectively.

(5)

The options become exercisable as to a maximum of 25% on March 1^st of 2003, 2004, 2005 and 2006 respectively.

11

AGGREGATE OPTIONS EXERCISED IN LAST FISCAL YEAR AND OPTION VALUES

Name	Securities Acquired on Exercise	Aggregate Value Realized (U.S. $)	Unexercised Options at Fiscal Year-End Exercisable/ Unexercisable (#)	Value of Unexercised in-the-Money Options Fiscal Year-End Exercisable/ Unexercisable(1)(2) (U.S. $)
Eugene N. Melnyk	1,620,000	41,310,000	1,084,000 / 563,600	4,804,732 / —
William S. Poole	—	—	23,750 / 86,250	— / —
Kenneth C. Cancellara	80,000	1,499,694	169,000 / 113,100	473,892 / —
Brian H. Crombie	—	—	100,000 / 150,100	58,650 / 58,650
Rolf K. Reininghaus	—	—	284,000 / 82,600	2,442,310 / —

Notes:

(1)

Value of unexercised in-the-money options calculated using the closing price of common shares of the Company, on the NYSE on December 31, 2002 (U.S.$26.41), less the exercise price of in-the-money options.

(2)

All share and option amounts have been adjusted to give effect to the 2 for 1 stock split completed in October 2000. The options are all for the purchase of common shares of the Company and were granted under the Company's Stock Option Plan, as amended, established in 1993.

                Indebtedness of Directors, Executive Officers and Senior Officers

In March 2001, the Company authorized the making of a loan to an executive officer of the Company; the loan shall not bear interest until the first day of March 2004. Thereafter, the loan will bear interest equal to the Company's rate for borrowing. The loan is due on the earlier of termination of employment or March 31, 2008. The following table contains the particulars of outstanding indebtedness:

TABLE OF INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND
SENIOR OFFICERS OTHER THAN IN RESPECT OF SECURITIES PURCHASES

Name and Principal Position	Involvement of Issuer or Subsidiary	Largest Amount Outstanding during 2002 (U.S. $)	Amount Outstanding as at April 30, 2003 (U.S. $)	Security for Indebtedness
William S. Poole President, North American Pharmaceuticals	Lender	600,000	600,000	Promissory Note

3.

Executive Securities Purchase Program

In September 2001, the Company authorized the making of loans to certain of its executive officers, as named in the table set forth below, in order to finance the acquisition of common shares of the Company on the open market. These loans are full recourse and are secured by the common shares and bear interest at a rate that is equal to the Company's rate for borrowings. Interest is payable quarterly in arrears. Each loan is due on the earliest of: (a) September 30, 2003; (b) 30 days following termination or cessation of the executive officer's employment; or (c) when the executive officer disposes of common shares of the Company with a value equal to or greater than that of the loan.

The following table sets forth details of indebtedness to, or guaranteed or supported by, the Company or any of its subsidiaries, of each director, executive officer, senior officer, proposed nominee for election as a director of the Company and each associate of any such director, officer or proposed nominee, for the fiscal year ended December 31, 2002 in connection with a purchase of securities of the Company.

12

TABLE OF INDEBTEDNESS
UNDER EXECUTIVE SECURITIES PURCHASE PROGRAM

Name and Principal Position	Involvement of the Company	Largest Amount Outstanding During 2002 (U.S. $)	Amount Outstanding as at April 30, 2003 (U.S. $)	Financially Assisted Securities Purchased during 2001 (#)	Security for Indebtedness
Eugene N. Melnyk Chairman of the Board and Chief Executive Officer	Lender	2,034,433	2,005,432	44,020	44,020 (Common Shares)
Kenneth C. Cancellara Senior Vice President, General Counsel and Corporate Secretary	Lender	2,034,433	2,005,432	44,020	44,020 (Common Shares)
Brian H. Crombie Senior Vice President and Chief Financial Officer	Lender	2,034,433	2,005,432	44,020	44,020 (Common Shares)
Kenneth G. Howling Vice President, Finance	Lender	2,034,433	2,005,432	44,020	44,020 (Common Shares)
John R. Miszuk Vice President, Controller and Assistant Secretary	Lender	2,034,433	2,005,432	44,020	44,020 (Common Shares)

The aggregate indebtedness of these Directors, Executive Officers and Senior Officers as at April 30, 2003 is U.S. $10,627,160.

The indebtedness more particularly described above is "grandfathered" pursuant to the Sarbanes-Oxley Act.

4.

Employment Agreements

In 2002, the Compensation Committee undertook an extensive review of executive compensation. This process is more particularly described below under the caption "Compensation Philosophy". The following is an outline of the key material terms of the employment agreements for the Named Executive Officers.

Eugene N. Melnyk, as Chairman of the Board of the Company, pursuant to a Management Agreement, effective February 1, 1992, receives annual compensation for services in the amount of U.S. $641,951, which amount is subject to 10% annual increases during the term of the Management Agreement, and is reimbursed for business related expenses. The Management Agreement will continue automatically for renewal periods of one year unless terminated by either the Company or Mr. Melnyk upon prior written notice. Mr. Melnyk is not entitled to any termination payments upon expiry or any other termination of his employment contract.

William S. Poole, as President, North American Pharmaceuticals, pursuant to an Employment Agreement made as of January 12, 2001 received an annual salary of U.S. $400,000, subject to a cost of living adjustment and reimbursement of business expenses. The Employment Agreement had a term of two years, expiring in January 15, 2003 and was automatically renewable for a 1 year term thereafter. The contract was terminable by the Company upon six months' written notice and was terminable by Mr. Poole upon six months' prior notice. Effective May 6, 2003, the Company advised Mr. Poole that his contract would not be renewed and as such Mr. Poole ceased to be President, North American Pharmaceuticals. Mr. Poole was not entitled to any termination payment upon the expiry or other termination of his employment contract.

Kenneth C. Cancellara, as Senior Vice President, Chief Legal Officer and Corporate Secretary, pursuant to an Employment Agreement made as of March 1, 2003, receives an annual salary of US $400,000, subject to a cost of living adjustment, reimbursement of business expenses, an automobile allowance plus the right to receive up to 50% of annual salary as a performance based bonus. The

13

Employment Agreement has an indefinite term. Mr. Cancellara must provide the Company with 60 days prior written notice upon his intention to terminate the contract. Where Mr. Cancellara's contract is terminated other than for cause, he is entitled to 12 months severance in lieu of notice. Where the Company enters into a transaction the result of which is that there is a change in control of the Company, Mr. Cancellara is entitled to 24 months severance in lieu of notice and any options granted to Mr. Cancellara prior to such change of control vest immediately.

Brian H. Crombie, as Senior Vice President, Chief Financial Officer, pursuant to an Employment Agreement made as of March 1, 2003, receives an annual salary of US $400,000, subject to a cost of living adjustment, reimbursement of business expenses, an automobile allowance plus the right to receive up to 50% of annual salary as a performance based bonus. The Employment Agreement has an indefinite term. Mr. Crombie must provide the Company with 60 days prior written notice upon his intention to terminate the contract. Where Mr. Crombie's contract is terminated other than for cause, he is entitled to 12 months severance in lieu of notice. Where the Company enters into a transaction the result of which is that there is a change in control of the Company, Mr. Crombie is entitled to 24 months severance in lieu of notice and any options granted to Mr. Crombie prior to such change of control vest immediately.

Rolf Reinninghaus, as Senior Vice President and Director, pursuant to an Employment Agreement made as of March 1, 2003, receives an annual salary of US $400,000, subject to a cost of living adjustment, reimbursement of business expenses, an automobile allowance plus the right to receive up to 50% of annual salary as a performance based bonus. The Employment Agreement has an indefinite term. Mr. Reinninghaus must provide the Company with 60 days prior written notice upon his intention to terminate the contract. Where Mr. Reinninghaus's contract is terminated other than for cause, he is entitled to 12 months severance in lieu of notice. Where the Company enters into a transaction the result of which is that there is a change in control of the Company, Mr. Reinninghaus is entitled to 24 months severance in lieu of notice and any options granted to Mr. Reinninghaus prior to such change of control vest immediately.

5.

Compensation Philosophy and Chief Executive Officer Compensation

As stated above, the members of the Compensation Committee are appointed by the Board to discharge the Board's responsibilities relating to (1) compensation of the Company's Executive Officers, (2) equity-based compensation plans, including, without limitation, stock option and restricted stock plans, in which officers or employees may participate and (3) arrangements with Executive Officers relating to their employment relationships with the Company, including, without limitation, employment agreements, severance agreements, supplemental pension or savings arrangements, change in control agreements and restrictive covenants. The members of the Compensation Committee carry-out this mandate within the scope of the Company's philosophy with respect to executive compensation.

(i)    Compensation Philosophy

Biovail has a unique, entrepreneurial corporate culture driven by the pursuit of excellence that has its roots in the founding of the Company by Mr. Melnyk. In order to ensure that this culture continues and that the Company maintains its position as a class leader within the pharmaceutical industry, the Board of Directors, through the Compensation Committee, views compensation as a mechanism to continue this tradition of entrepreneurial excellence. Critical to this pursuit is the attraction, motivation and retention of individuals with exceptional executive skills and capabilities.

The Compensation Committee has three complementary goals when designing compensation policies and practices: (a) the alignment of the interests of executive officers with the interests of the Company's shareholders; (b) the linking of executive compensation to the overall performance of the Company; and (c) the attraction, motivation and retention of key executives.

14

Accordingly, the Company's executive compensation plan is comprised of three elements: (a) base salary; (b) annual incentives in the form of cash bonuses; and (c) long term incentives. While the Company does not have a target weighting for each component within this mix, it reviews and targets compensation provided to similar executives in similar companies.

The Compensation Committee recently undertook an extensive review of executive compensation within the pharmaceutical industry generally, within the Company's peer group within the pharmaceutical industry as well as within companies of a similar size (as measured by market capitalization) within both Canada and the United States. Following this review, the Compensation Committee prepared a report for the Board of Directors comparing the compensation of senior executives other comparable companies in closely related industries in the U.S. and Canada recommended to the Board certain compensation benchmarks.

(a)

Base Salaries

The Compensation Committee concluded that base salaries should be at levels substantially similar to the comparator group. On an individual basis, base salaries are established by taking into account individual performance and experience as compared to those individuals in the comparator group. In order to ensure the attraction, motivation and retention of key executives, base salaries are reviewed on an annual basis and are adjusted as the Compensation Committee deems appropriate.

(b)

Annual Incentives

All executives of the Company participate in the Management Incentive Compensation Program (the "MICP"). The MICP comprises two elements: (a) cash bonuses up to a prescribed percentage; and (b) the awarding of stock options. The second element, the granting of stock options will be discussed below under the caption "Long-Term Incentives".

All Named Executive Officers have the right to receive up to 50% of their base salary in the form of a cash bonus. Like the Long-Term Incentives discussed below, the eligibility of the Named Executive Officers to receive such Annual Incentives will be subject to two elements: (a) the Company's attainment of clearly stated strategic, operational and financial goals for the calendar year as set out in the annual strategic plan as presented and approved by the Board; and (b) the attainment by the Named Executive Officer (or other eligible participant in the MICP) of his or her own personal goals. The Company's strategic plan reflects predetermined corporate objectives combining clearly stated strategic, operational and financial objectives. The personal goals reflect predetermined personal objectives within the foregoing plan. These goals are set annually by the Compensation Committee and the Board.

(c)

Long-Term Incentives

The Company currently has two Long-Term Incentive programs: (a) the stock option component of the MICP; and (b) the Employee Stock Purchase Plan. The Company's objectives with respect to Long-Term Incentives are: (a) to align the interests of Senior Executives and employees with those of the Company's shareholders; (b) to reward individuals for their contribution to the success of the Company; and (c) to attract, motivate and retain key employees.

(1)

Stock Option Plan

Under the Company's Stock Option Plan, as amended, (the "Plan") established in 1993 and approved by the Shareholders at a special meeting held on March 28, 1994, the Company may grant to directors, officers, key employees, consultants and advisors, options to purchase common shares of the Company. The aggregate number of shares reserved for issuance under the Plan, taking into consideration previously completed stock splits, shall not exceed 28,000,000 common shares. The number of shares reserved for issuance to any one person under the Plan together with shares which that person may acquire under any similar plan of the Company may not exceed 5% of the total

15

issued and outstanding common shares. Under the Plan, the Company designates the maximum number of shares that are subject to an option. The exercise price per share of an option is the closing market price at which the shares are traded on the NYSE on the day prior to the date the option is granted, or if not so traded, the average between the closing bid and ask prices thereof as reported for that day. As at April 30, 2003, the Company has granted an aggregate of 6,825,433 options which are outstanding at exercise prices ranging from $0.81 to $45.00 per share. The options are exercisable on various dates up to October 6, 2010.

As was stated above with respect to Annual Incentives, a Named Executive Officer (or other eligible participant in the MICP) may be awarded options to purchase common shares of the Company based on the attainment of corporate and personal goals. The Company considers previous grants of options when considering the award of options to Named Executive Officers.

(2)

Employee Stock Purchase Plan

The Company's Employee Stock Purchase Plan ("EPP") was established in 1997 and approved by the shareholders at a special meeting held on January 1, 1996. The purpose of the EPP is to provide a convenient method for full-time employees of the Company to participate in share ownership of the Company or to increase their share ownership in the Company via payroll or contractual deduction. Directors, senior officers or insiders of the Company are not eligible to participate in the EPP. The aggregate number of shares reserved for issuance under the EPP taking into consideration previously completed stock splits shall not exceed 1,200,000 common shares. At the discretion of a committee of the Board of Directors that administers the EPP, the Company may issue shares directly from treasury or purchase shares in the market from time to time to satisfy the obligation under the EPP. A participant may authorize a payroll or contractual deduction up to a maximum of 10% of the base salary or remuneration to be received during any purchase period. The purchase price shall be 90% of the fair value per share of stock on the date on which the eligible period ends.

As of December 31, 2002, the Company had issued 51,358 shares pursuant to the EPP.

(ii)   Chief Executive Officer Compensation

The compensation package of the Chief Executive Officer is recommended by the Compensation Committee and approved by the Board of Directors. The Chief Executive Officer's compensation package consists of Base Salary, Annual Incentives and Long-Term Incentives as described above. As described under the caption "Compensation Philosophy", the Company targets a mid-level of compensation for each component as well as for total compensation with reference to the same comparator group of companies in closely related industries in the U.S. and Canada.

In establishing the Chief Executive Officer's base salary for a given year, the Compensation Committee takes into account Mr. Melnyk's contribution in terms of leadership in the management of the Company as well as the global scope and size of the Company's operations. The Company also considers the level of corporate performance achieved in the prior year as well as the expected level of performance for the current year in establishing the Chief Executive Officer's base salary for a given year.

Mr. Melnyk's compensation reflects his special position as the Company's founder and architect of the Company's unique, entrepreneurial culture. Based on the strong performance of the Company over the past several years as indicated by the performance graph set out below, the continued growth of its product portfolio and pipeline as well as the continued success of the Company's marketing operations, the Board of Directors believes that Mr. Melnyk has continued to achieve his goals as Chairman and Chief Executive Officer of the Company and as a result that his compensation is appropriate.

16

6.

Remuneration of Directors

The Company remunerates Directors who are not officers of Biovail for services to the board, committee participation and special assignments. Remuneration for each Director during 2002 (paid in U.S. Dollars) was as follows:

•	Annual Retainer — Board of Directors	$10,000
•	Annual Retainer — Board Committee	$3,000
•	Meeting Attendance Fee
	• $1,000 for attending in person each Board Meeting and or Committee Meeting
	• $500 for attending each Board Meeting and or Committee Meeting by telephone conference
	• $500 for attending a committee meeting held on the same day as a board meeting

A meeting fee is paid to each non-management director for meetings that the board of directors or one or more committee of the board of directors is requested or required to attend (such as executive meetings) that are not official meetings of the board of directors.

Directors are also reimbursed for travel and reasonable expenses incurred in connection with attending board meetings.

In 2002, the total remuneration and fees paid to Directors was $110,735. All remuneration and fees payable to Mr. Plener were paid directly to Cassells Brocks & Blackwell LLP.

In 2002 options were granted to directors follows:

Name	Options Granted (#) (1)	Exercise Price (U.S. $/Security)	Market Value of Securities Underlying Options on the Date of Grant (U.S. $/Security)	Expiration Date
Wilfred Bristow	10,000	31.00	27.55	June 26, 2007
Roger Rowan	10,000	31.00	27.55	June 26, 2007
Paul Haddy	10,000	31.00	27.55	June 26, 2007
Laurence Paul	10,000	31.00	27.55	June 26, 2007
Sheldon Plener	10,000	31.00	27.55	June 26, 2007

Notes:

(1)

The options become exerciseable as of June 1, 2003.

7.

Directors' and Officers' Liability Insurance

The Company maintained insurance during 2002 for the benefit of its directors and officers against certain liabilities incurred by them in their capacity as directors and officers of the Company or its subsidiaries in the aggregate amount of $50,000,000 for the period January 1, 2002 to March 25, 2002 and $75,000,000 for the period from March 26, 2002 to December 31, 2002. The policy governing such insurance is subject to standard exclusions and limitations. During the 2002 fiscal year the amount of premiums paid in respect of such insurance was $1,255,000.

It is anticipated that the amount of premium to be paid in respect of such insurance for the 2003 fiscal year will be approximately $3,750,000.

17

8.

Performance Graph

The following graph compares the yearly percentage change in the cumulative shareholder return on the Company's common shares compared to the cumulative total return of the S&P 500 Composite Stock Index and the S&D/TSX Composite Index for the period which commences on December 31, 1997 and ended on March 31, 2003.

COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG BIOVAIL CORPORATION,
S&P 500 INDEX AND S&P/TSX COMPOSITE

ASSUMES $100 INVESTED ON JAN. 1, 1998
ASSUMES DIVIDEND REINVESTED
PERIOD ENDING MARCH 31, 2003

As at December 31,	12/31/97	12/31/98	12/31/99	12/29/00	12/31/01	12/31/02	03/31/03
Biovail Corporation	100.00	96.80	240.00	397.72	576.00	270.44	408.27
S&P/TSX Composite Index	100.00	98.42	129.63	139.23	121.73	106.59	102.83
S&P 500 Index	100.00	128.58	155.64	141.46	124.65	97.10	94.05

18

APPROVAL OF BOARD OF DIRECTORS

        The undersigned hereby certifies that the contents of this Management Information Circular and the Notice of Meeting, and the sending of each to the Shareholders, directors and auditors of the Company, have been approved by the Board of Directors of the Company.

Dated at Toronto this 15th day of May, 2003
	BY ORDER OF THE BOARD OF DIRECTORS
	KENNETH C. CANCELLARA, Q.C.
	Senior Vice President, Chief Legal Officer and Corporate Secretary

        Non-registered shareholders who wish to be placed on the Company's supplemental mailing list for interim reports are also requested to complete, sign and return the enclosed request form to The CIBC Mellon Trust Company.

19

SCHEDULE "A"

Stock Split Resolution

BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:

1.

The issued common shares of the Company and the common shares reserved for issuance against options, warrants or other convertible or exchangeable securities outstanding at such time, be divided on the basis of one and one half, two or three common shares for each issued common share (the "Stock Split"), to be implemented as the Board of Directors may determine.

2.

The Board of Directors, in its sole discretion, is authorized to implement one of the division ratios set out in paragraph 1 above, but in no case shall the Stock Split be implemented after the date which is the earlier of 12 months from the passing of this special resolution and the next annual meeting of shareholders of the Company.

3.

Notwithstanding that this special resolution has been duly passed by the shareholders of the Company, the Board of Directors, in its discretion, may choose to not implement the Stock Split.

4.

Any director, officer, or other person duly authorized by the Company, be and is hereby authorized and directed to execute and deliver all such deeds, documents, instruments and assurances and to do all such acts and things as in his or her opinion may be necessary or desirable to give effect to this special resolution, and furthermore, any one director or officer is hereby authorized to file the Articles of Amendment to give effect to this special resolution.

A-1

SCHEDULE B

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

	TSX Corporate Governance Committee Guideline		Comments
1.	The Board of Directors should explicitly assume responsibility for stewardship of the Corporation.		The Board of Directors is elected annually to represent the interests of all shareholders. The mandate of the Board of Directors has been explicitly set out in its Charter which was adopted in 2002. Each item is more particularly described below.
	As part of the overall stewardship responsibility, the Board should assume responsibility specifically for:
	(i)	adoption of a strategic planning process	(i)	The adoption of a strategic planning process including the review of long-term corporate objectives and industry positioning. Substantial strategic planning sessions are a regular part of the Board schedule.
	(ii)	identification of principal risks and implementation of risk-managing systems	(ii)	The regular review of the Corporation's overall business risks and ensuring that appropriate systems are in place to address and manage such risks.
	(iii)	succession planning, including appointing, training and monitoring management	(iii)	Succession planning for all senior management positions and skills assessments of individuals identified to fill key roles.
	(iv)	communications policy	(iv)	Review and approval of the contents of all major disclosure documents including the Annual Report, the Annual Information Form, the Management Information Circular and all Prospectuses: and ensuring compliance with the Corporation's continuous disclosure obligations. The Corporation complies with the U.S. Securities and Exchange Commission's Regulation FD and follows fair disclosure practices for the benefit of its shareholders.
	(v)	the integrity of internal control and management information systems	(v)	The integrity of the Corporation's internal business controls and management information systems, which the Board, the Nominating & Governance Committee and the Audit Committee monitor and assess regularly. The Audit Committee meets with the Company's external auditors on a quarterly basis.

B-1

2.	Majority of directors should be "unrelated" (free from conflicting interest).	The Board of Directors has considered the relationship of each of its directors to the Corporation and has determined that a majority of the Board of Directors is composed of directors that are unrelated to the Corporation. The Board of Directors is comprised of seven Directors two of which are management and five of which are unrelated.
3.	Disclose for each director whether he or she is related, and how that conclusion was reached.	Messrs. Bristow, Haddy, Plener, Rowan and Paul have no material business relationship with the Corporation, other than their positions as directors, optionees and shareholders, and as a result, the Board of Directors has determined that each of Messrs. Bristow, Rowan, Haddy, Plener and Paul is an unrelated director. The Board of Directors has determined that Mr. Melnyk, as Chief Executive Officer and Mr. Reininghaus are not unrelated directors because they are members of the Corporation's management.
4.	Appoint a Committee composed of non-management directors, a majority of whom are unrelated directors, responsible for the appointment/assessment of directors.	The Board of Directors has created a Nominating & Governance Committee with responsibility for proposing nominees to the Board of Directors or assessing directors' performance of an ongoing basis. The Nominating & Governance Committee has three members all of whom are unrelated.
5.	Implement a process for assessing the effectiveness of the Board, its Committees and individual directors.	The Nominating and Governance Committee annually assess the effectiveness of the Board and the respective Committees of the Board.
6.	Provide orientation and education programs for new directors.	The Nominating and Governance Committee in collaboration with the Board ensure that new directors will be oriented to the business and affairs of the Corporation through discussions with management and other directors and by periodic presentations from senior management on major business, industry and competitive issues.
7.	Examination of the size of the Board and consideration with a view to determine the impact of the number upon effectiveness.	The Nominating and Governance Committee in collaboration with the Board annually review the size of the Board to determine whether or not changes to its existing structure are required.

B-2

8.	Review the adequacy and form of compensation of directors in light of risks and responsibilities.	The Compensation Committee is empowered by Board of Directors to annually consider and reevaluate the remuneration paid to directors.
9.	Committees should generally be composed of non-management directors, the majority of whom are unrelated.	The Board of Directors has established a Compensation Committee, and Nominating & Governance Committee and an Audit Committee the members of which are all unrelated directors.
10.	The Board should assume responsibility for or appoint a Committee responsible for approach to corporate governance issues. This committee would, among other things, be responsible for the response to the TSX Guidelines.	The Board of Directors has created a Nominating & Governance Committee with responsibility for reviewing corporate governance issues. This committee is responsible for ensuring compliance with all regulatory regimes.
11.	Develop position descriptions for the Board and for the CEO, involving the definition of limits for management's responsibilities.	All of the directors who joined the Board of Directors following the initial public offering have extensive business experience and directorship responsibilities on the boards of other public and private institutions. The Board of Directors has not developed position descriptions for itself or for the Chief Executive Officer because it believes that such individuals' respective responsibilities are well understood.
		The Board of Directors require management to obtain the Board of Directors' approval for all significant decisions, including major financings, acquisitions, dispositions, budgets, capital expenditures and executive appointments. The Board of Directors is aware of the Corporation's performance and events affecting the Corporation's business, including opportunities in the marketplace and adverse or positive developments through the processes that compel the upward flow of material information.
		The Board of Directors retains responsibility for any matter which has not been delegated to senior management or to a committee of directors.
	The Board should develop the corporate objectives which the CEO is responsible for meeting.	The Board of Directors approves specific financial and business strategies which the CEO is responsible for meeting.

B-3

12.	Establish appropriate procedures to enable the Board to function independently of management.	The Board of Directors has designated and Independent Board Coordinator who ensures that independent Board members meet on a regular basis and have access to management without the presence of insiders.
	An appropriate structure would be to (i) appoint a Chairman of the Board who is not a member of management with responsibility to ensure that the Board discharges its responsibilities or (ii) adopt alternate means such as assigning this responsibility to a committee of the board or to a director, sometimes referred to as the "lead director".
	Appropriate procedures may involve the Board meeting on a regular basis without management present or may involve expressly assigning responsibility for administering the Board's relationship to management to a committee of the Board.
13.	The Audit Committee should be composed only of outside directors.	The Audit Committee is comprised of only outside directors.
	The roles and responsibilities of the Audit Committee should be specifically defined so as to provide appropriate guidance to Audit Committee members as to their duties. The Audit Committee duties should include oversight responsibility for management reporting on internal control. While it is management's responsibility to design and implement an effective system of internal control, it is the responsibility of the Audit Committee to ensure that management has done so.	The Audit Committee has a well-defined mandate which is prescribed by its Charter. The Charter includes the review and approval of quarterly unaudited and annual audited financial statements with management and the Auditors prior to consideration by the Board of Directors; monitoring the integrity of the Corporation's management information systems and internal control procedures; reviewing the adequacy of the Corporation's processes for identifying and managing risk, including the management of risk with respect to environmental and health and safety matters and ensuring compliance with appropriate regulatory guidelines.
	The Audit Committee should have direct communication channels with the internal and the external auditors to discuss and review specific issues as appropriate.	The Audit Committee has direct communication channels with the Auditors to discuss and review specific issues as appropriate.
14.	Implement a system to enable individual directors to engage outside advisors, at the corporation's expense. The engagement of the outside advisor should be subject to the approval of an appropriate committee of the Board.	An individual director is entitled to engage an outside advisor at the expense of the Corporation in appropriate circumstances provided that such director has obtained the approval of the Chairman to do so.

B-4

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COMMON SHARES AND PRINCIPAL HOLDERS THEREOF
PARTICULARS OF ITEMS TO BE ACTED UPON
CORPORATE GOVERNANCE PRACTICES AND EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Options Granted in Last Fiscal Year
AGGREGATE OPTIONS EXERCISED IN LAST FISCAL YEAR AND OPTION VALUES
TABLE OF INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS OTHER THAN IN RESPECT OF SECURITIES PURCHASES
TABLE OF INDEBTEDNESS UNDER EXECUTIVE SECURITIES PURCHASE PROGRAM
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN AMONG BIOVAIL CORPORATION, S&P 500 INDEX AND S&P/TSX COMPOSITE
ASSUMES $100 INVESTED ON JAN. 1, 1998 ASSUMES DIVIDEND REINVESTED PERIOD ENDING MARCH 31, 2003
APPROVAL OF BOARD OF DIRECTORS
SCHEDULE "A"
SCHEDULE B STATEMENT OF CORPORATE GOVERNANCE PRACTICES

EX-99.4

Exhibit 99.4

BIOVAIL CORPORATION
PROXY FOR ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
SOLICITED ON BEHALF OF MANAGEMENT

The undersigned shareholder of Biovail Corporation hereby appoints Eugene Melnyk, Chairman of the Board of Directors, or failing him, Kenneth C. Cancellara, Senior Vice President Chief Legal Officer and Corporation Secretary, or failing him, John Miszuk, Vice President, Controller and Assistant Secretary, or failing him                                                       , as nominee of the undersigned with full power of substitution to attend and act for and on behalf of the undersigned at the Annual and Special Meeting of shareholders of the Company to be held on June 20, 2002 at 10:00 A.M. (Toronto time) at The Toronto Stock Exchange Theatre, Exchange Tower, 130 King Street West, Toronto, Ontario, Canada and at any adjournment(s) thereof and without limiting the general authority and power hereby given to such nominee, the shares represented by this proxy are specifically directed to be voted as indicated below.

1.	For the election of the following persons as directors of the Company, to hold office until the next annual meeting of shareholders or until their successors are elected.
	Eugene N. Melnyk, Rolf Reininghaus, Wilfred G. Bristow, Roger Rowan, Paul W. Haddy, Laurence Paul and Sheldon Plener
VOTE FOR    o
WITHHOLD VOTE    o
2.	For the re-appointment of Ernst & Young LLP, Chartered Accountants as the auditors of the Company, and the authorization of the directors to fix their remuneration.
VOTE FOR    o
WITHHOLD VOTE    o
3.	The Special Resolution approving the division of the common shares of the Company, the full text of which is set out as Schedule "A" to the Management Information Circular.
VOTE FOR    o
VOTE AGAINST    o
DATED this                            day of                            , 2003.
Number of Shares
Signature of Shareholder
Name of Shareholder (print)

(See Over)

This proxy will be voted as directed where a choice is specified. WHERE NO CHOICE IS SPECIFIED, THIS PROXY WILL CONFER DISCRETIONARY AUTHORITY AND WILL BE VOTED IN FAVOUR OF THE MATTERS REFERRED TO ON THE REVERSE SIDE HEREON. THIS PROXY ALSO CONFERS DISCRETIONARY AUTHORITY UPON THE NOMINEE TO VOTE IN RESPECT OF ANY AMENDMENT OR VARIATION TO MATTERS IDENTIFIED IN THE NOTICE OR ANY OTHER MATTER WHICH MAY PROPERLY COME BEFORE THE MEETING IN SUCH MANNER AS SUCH NOMINEE IN HIS JUDGMENT MAY DETERMINE.

A SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON TO ATTEND AND ACT FOR HIM OR HER AND ON HIS OR HER BEHALF AT THE MEETING OTHER THAN THE PERSONS DESIGNATED IN THIS FORM OF PROXY. SUCH RIGHT MAY BE EXERCISED BY FILLING THE NAME OF SUCH PERSON IN THE BLANK SPACE PROVIDED AND STRIKING OUT THE NAMES OF MANAGEMENT'S NOMINEES ABOVE.

A person appointed as nominee to represent a shareholder need not be a shareholder.

EX-99.5

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BIOVAIL CORPORATION
2002 ANNUAL REPORT
FOR CANADIAN REGULATORY PURPOSES

(Please see also Biovail Corporation's 2002 Annual Report containing
Consolidated Financial Statements and Management's Discussion and Analysis
prepared in accordance with U.S. generally accepted accounting principles.)

BIOVAIL CORPORATION
2002 ANNUAL REPORT
FOR CANADIAN REGULATORY PURPOSES

TABLE OF CONTENTS

	Page
Letter to Shareholders	1
Management's Discussion and Analysis	5
Management Report	25
Auditors' Report	26
Consolidated Financial Statements	27
Notes to Consolidated Financial Statements	32

        All dollar amounts in this report are in U.S. dollars unless otherwise stated.

        As used in this report, unless the context otherwise indicates, the terms "we", "us", "our" and similar terms, as well as references to "Biovail" or the "Company", mean Biovail Corporation together with its subsidiaries.

        The following words and logos are trademarks of the Company and may be registered in Canada, the United States and certain other jurisdictions: Biovail, Cardizem®, Tiazac®, Teveten®, Vasotec®, Vaseretic®, CEFORM™, Shearform™, FlashDose®, Instatab™, SportSafe™, DrinkUp™ and Cardisense®.

BIOVAIL CORPORATION

2002 ANNUAL REPORT
FOR CANADIAN REGULATORY PURPOSES

LETTER TO SHAREHOLDERS

Dear Fellow Shareholders:

        THE PAST YEAR HAS BEEN PERHAPS THE MOST EXCITING AND EXCEPTIONAL YEAR IN THE HISTORY OF BIOVAIL. IT WAS A YEAR MARKED NOT ONLY BY CONTINUED GROWTH IN BOTH SALES AND REVENUE, BUT ALSO BY A NUMBER OF SIGNIFICANT ACHIEVEMENTS AND MILESTONES THAT WILL POSITIVELY IMPACT BIOVAIL'S GROWTH AND PROSPERITY IN THE COMING YEAR AND THE FORESEEABLE FUTURE.

        During 2002 and the latter half of 2001, Biovail effectively completed its transition from a research and development and manufacturing based organization to a fully integrated international pharmaceutical company. This was achieved through a number of key strategic initiatives.

A NORTH AMERICAN SALES NETWORK

        One of the most significant strategic activities in 2002 was the continued expansion of our North American sales operation. Through aggressive recruitment and intensive training in our sales and marketing divisions in Canada and the United States, Biovail has been able to establish an extensive network of effective and motivated sales professionals across the continent. To date, Biovail has over 600 sales and marketing professionals in the U.S. and 100 in Canada.

        Biovail's sales presence in the United States was further bolstered in late 2002 through a strategic alliance with Reliant Pharmaceuticals. These additional 250 sales professionals are co-promoting a number of Biovail's key cardiovascular products, including Teveten HCT and Cardizem LA.

        The approval of Cardizem LA for the treatment of hypertension, received in the first quarter of 2003, marks a major milestone for Biovail. In addition to being the first Biovail-developed product launched by our own U.S. sales organization, Cardizem LA represents a clinical breakthrough. It is the first once-daily graded diltiazem product specifically formulated to provide maximum protection in the early morning hours when the risk of adverse cardiac events is highest. Cardizem LA is a significant entry into the $13.5 billion U.S. hypertension market.

NEW PRODUCTS

        New product development remains a priority. We continued to build our pipeline in 2002 through ongoing research and development activities as well as acquisitions and strategic partnerships.

        The acquisition of U.S. marketing rights to Teveten and Teveten HCT from Solvay Pharmaceuticals early in the year bolstered Biovail's cardiovascular portfolio. Teveten and Teveten HCT are medications for the treatment of hypertension and complement Biovail's cardiovascular product line. Through the promotion of Teveten, Biovail's sales force was able to establish relationships with key physicians throughout the United States. Teveten monthly prescriptions grew in excess of 90% in 2002 after re-launching the product in June 2002 and effectively supporting our sales efforts with a marketing and brand awareness campaign.

        Biovail's cardiovascular portfolio was further enhanced in May through the acquisition of U.S. rights to the leading antihypertensive medications, Vasotec® and Vaseretic, from Merck & Company. Together, sales of Vasotec and Vaseretic in the United States in 2002 exceeded $95 million. Opportunities to further develop these well-respected products alone, or in combination therapy with Cardizem, will provide additional leverage to Biovail's cardiovascular sales force.

1

STRATEGIC PARTNERSHIPS

        Our agreement with the leading drug delivery company, Ethypharm, opens up a number of exciting new product opportunities. Under the terms of the agreement, we have acquired the rights to commercialize six promising Ethypharm products. These include a novel dosage format of '5 fluouracil', a modified release medication for the treatment of gliblastoma, an aggressive form of brain cancer. Phase III clinical trials of this product are expected to begin in 2004. Also included in the agreement are five other controlled-release products, including oral antivirals and treatments for pain.

        The Ethypharm agreement allows Biovail to take advantage of synergies between its own controlled-release technology platforms and those of Ethypharm to develop advanced products in a number of important therapeutic categories, and provides Biovail with a point of entry into the European research and development community for sourcing promising new chemical entities.

        In the first half of 2002, Biovail licensed the rights to manufacture and market a new once-daily formulation of metformin HCl for the treatment of Type II diabetes in North America. Currently undergoing Phase III clinical trails by its developer, DepoMed Inc., the new metformin GR utilizes an advanced gastro-retention (GR) delivery technology. On approval, anticipated in 2004, metformin GR will compete in the $2.2 billion metformin market — a market expected to grow significantly as an estimated 800,000 new cases of diabetes continue to be diagnosed in the U.S. each year.

        During 2002, our marketing partner, GlaxoSmithKline (GSK), filed a new drug application with the U.S. Food and Drug Administration for a once-daily version of bupropion, Wellbutrin XL. Biovail developed this once-daily formulation and licensed the marketing rights to GSK for promotion worldwide, with the exception of Canada. Through this agreement, Biovail will manufacture and supply Wellbutrin XL to GSK for a significant share of this product's sales. The launch of Wellbutrin XL is expected in the second half of 2003. GSK and Biovail anticipate that this once-daily version will offer more convenient dosing and significant clinical advantages over the twice-daily version — Wellbutrin SR — currently marketed by GSK, which had sales in excess of $1.5 billion in 2002.

        We also expanded our relationship with GSK by acquiring Canadian marketing rights to the antidepressant Wellbutrin SR and the smoking cessation product Zyban. The combined sales of these two products in Canada exceeded $30 million in 2002 and are expected to grow over the next five years. In addition, the agreement provides Biovail with an opportunity to market the highly promising once-daily Wellbutrin XL in Canada upon its approval. This will bolster our Canadian sales and marketing division's portfolio of products for the $450 million Canadian antidepressant market.

BUILDING THE PIPELINE

        On the research and development side, our drug delivery technology and product pipeline was considerably strengthened by the fourth quarter acquisition of the Pharma Pass companies. This acquisition provides Biovail with a new novel advanced drug delivery platform, Zero Order Release System (ZORS), as well as an oral colonic drug delivery technology. As part of this transaction, Biovail also acquires a number of New Drug Application (NDA) products currently under development. These include enhanced absorption formulations of fenofibrate (Tricor) for the treatment of high cholesterol and the antidepressant medication, venlafaxine (Effexor). Currently, brand name versions of these two drugs represent over $2 billion in annual sales. We anticipate that improvements in the absorption and delivery of these two compounds will enhance their efficacy and provide significant marketing opportunities for Biovail or a partner.

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        Also as part of this agreement, Biovail acquires an immediate interest in a recently launched omeprazole product. This bio-equivalent version of the market leading ulcer medication Prilosec is the only formulation ruled not to infringe on the originator's patent.

DEFINING OUR STRATEGY

        Each of the initiatives mentioned above and milestones achieved during 2002 are in keeping with Biovail's stated strategy, which, in turn, outlines the mechanisms by which we will sustain our future growth in the short-, mid- and long-term.

        Biovail is committed to the ongoing development and commercialization of superior, enhanced drug delivery medications with strong market potential in the cardiovascular, central nervous system, pain management and niche therapeutic categories.

        By applying drug delivery technologies, we strive to create better medications. This might mean medications that are easier or more convenient for patients to take, medications that work faster, drugs with a lower incidence of adverse side effects or medications that provide clinical advantages for patients. When we are successful in this process, we have created not just better medications but competitive advantages for Biovail.

        We intend to complement our internal development process through the addition of leading drug delivery technologies or promising products within our target therapeutic categories. We also aim to broaden our in-market portfolio of products and capitalize on well-established medications that have good brand equity and a solid existing prescription base. Our acquisition strategy seeks to capitalize on opportunities within the global pharmaceutical industry that fulfill our clinical and business criteria.

        Due to our fully integrated infrastructure, we have the option to market our products directly though our extensive sales and marketing divisions, Biovail Pharmaceuticals Inc. in the U.S. and Biovail Pharmaceuticals Canada, as well as through strategic marketing partnerships and licensing agreements with third party organizations such as GSK. In addition, we have the opportunity to sell select products in key world markets through marketing partners.

        To add to the flow of promising products in the mid and long terms, Biovail Ventures, our early stage business development group, continues to explore product and technology opportunities within the core areas of cardiovascular, CNS and pain management, as well as other therapeutic categories that exhibit significant market potential and offer synergies with Biovail's products and technology platforms. These include endocrine/metabolic disorders, gastrointestinal disorders, oncology, immune system disorders, antiviral medicine and geriatric medicine, among others.

        In 2002, we undertook a series of initiatives to ensure our company met or exceeded the corporate governance standards required in today's business environment. In fact, Biovail has long been a proponent of strict corporate governance and had initiated a number of standards before current regulations were invoked. Biovail is fully compliant with NYSE, TSX and SEC rules and regulations and the applicable provisions of the Sarbanes-Oxley Act of 2002 in the U.S., as well as the pending corresponding legislation in Canada. This includes CEO and CFO certification of financial information. Biovail has adopted a Charter for the Board of Directors and Executive Committee and a detailed Code of Business Conduct. In addition, Biovail has integrated a Manual of Corporate Governance that has been reviewed and approved by an independent law firm.

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RECORD FINANCIAL RESULTS

        From a financial standpoint, 2002 was a record year for Biovail. Total revenues for the year ended December 31, 2002 were $788 million, reflecting an increase of $204.7 million or 35% over the previous year. Net income attributable to common shareholders for 2002 was $207.6 million compared to net income attributable to common shareholders of $85.6 million for 2001. Excluding certain items, net income attributable to common shareholders for full year 2002 increased 67% to $239.5 million versus full year 2001 net income attributable to common shareholders of $143.8 million. Diluted earnings per share for full year 2002 were $1.29 versus full year 2001 diluted earnings per share of $0.57. Excluding certain items, full year 2002 diluted earnings per share increased 57% to $1.49 versus $0.95 diluted earnings per share for 2001.

AN EXCELLENT OUTLOOK

        The outlook for 2003 and beyond is excellent, as Biovail will continue to progress in a number of key areas. This year will see the launch of two of the most significant products in this company's history to date. The U.S. launch of Cardizem LA provides Biovail with a truly innovative, clinically supported product that could have a significant impact in the treatment of hypertension. Similarly, the introduction of the Biovail-GSK developed once-daily antidepressant Wellbutrin XL, expected in the second half of 2003, is highly anticipated. These are just two of the exciting products expected to be commercialized in 2003.

        The introduction of new products developed in-house or in-licensed from strategic partners will allow our U.S. and Canadian sales operations to further leverage an already strong portfolio and allow for continued sales growth.

        These and other initiatives will be supported by a framework of controlled and strategic growth as Biovail pursues emerging opportunities in the pharmaceutical marketplace.

        Reflecting on the achievements of 2002, and looking ahead with anticipation to 2003, I would like to express my appreciation, on behalf of the Board, for the continuing dedication and hard work of Biovail's employees, and acknowledge the confidence and support of shareholders.

Eugene Melnyk
Chairman of the Board
Chief Executive Officer

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BIOVAIL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In accordance with Canadian generally accepted accounting principles
(All dollar amounts expressed in U.S. dollars)

        The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") prepared in accordance with Canadian generally accepted accounting principles ("GAAP") should be read in conjunction with the audited consolidated financial statements and related notes thereto prepared in accordance with Canadian GAAP.

PROFILE

        We are a full-service pharmaceutical company, engaged in the formulation of pharmaceutical products utilizing advanced oral drug delivery technologies, clinical testing, registration, manufacturing, sale and promotion of pharmaceutical products targeting the cardiovascular (including Type II diabetes), central nervous system, pain management and niche therapeutic areas.

        Our primary business strategy is to support the commercialization of our product development pipeline by expanding our sales and marketing presence in the United States and Canada. We intend to complement our product pipeline by acquiring established pharmaceutical products, in-licensing products in early stages of development and entering into product development collaborations with third parties.

        We have research and development, clinical testing, manufacturing, sales and marketing operations in the United States, Canada, Barbados and Puerto Rico, and a research facility in Ireland.

OVERVIEW

        We continue to make significant progress in terms of product approvals. In February 2003, we received U.S. Food and Drug Administration ("FDA") approval for Cardizem® LA, a graded extended-release formulation of diltiazem hydrochloride ("HCl"), for the treatment of hypertension. We launched Cardizem® LA in April 2003 in collaboration with our co-promotion partner, Reliant Pharmaceuticals LLC ("Reliant"). Reliant brings additional experienced sales representatives to the marketing of Cardizem® LA, as well as our Zovirax, Teveten®, Cedax and Rondec products. We also received FDA approval for Zovirax Cream in January 2003 and for Teveten® HCT in February 2003. During 2002, we received tentative FDA approval for a FlashDose® formulation of zolpidem for the treatment of insomnia. In the United States, zolpidem is sold under the brand name Ambien. In August 2002, GlaxoSmithKline plc ("GSK") filed a New Drug Application ("NDA") for our once-daily formulation of bupropion HCl, for the treatment of depression. GSK has applied for the trade name Wellbutrin XL. In 2001, we licensed our once-daily formulation of bupropion HCl to GSK and have been collaborating with them to seek regulatory approval of Wellbutrin XL. When, and if, FDA approval is received, we will manufacture and supply Wellbutrin XL to GSK for a share of the revenue generated by future sales of the product.

        We also continue to pursue strategic business acquisitions and investments. During 2002, we extended our marketing agreement with GSK for Zovirax Ointment and Zovirax Cream from ten years to twenty years and we acquired the Canadian rights to GSK's Wellbutrin® SR and Zyban®, as well as the right to market our once-daily formulation of bupropion HCl under the Wellbutrin® XL trade name in Canada when, and if, regulatory approval is received. We also acquired the rights to Vasotec®, Vaseretic®, Teveten® and Teveten® HCT in the United States. We have begun development programs that will allow us to further exploit these brands. In December 2002, we acquired three private development companies — Pharma Pass LLC, Pharma Pass S.A. (collectively, "Pharma Pass") and Pharmaceutical Technologies Corporation ("Pharma Tech"). We believe that the products and technologies we acquired through these acquisitions will create substantial value for us in the future. During 2002, we made minority equity investments in Ethypharm S.A. ("Ethypharm") and DepoMed, Inc. ("DepoMed") and we obtained the rights to market a number of products under development by these companies.

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CHANGES IN ACCOUNTING POLICIES

        We have adopted The Canadian Institute of Chartered Accountants' ("CICA") Handbook Section 1581, "Business Combinations", and CICA Handbook Section 3062, "Goodwill and Other Intangible Assets". Under CICA Handbook Section 1581, all business combinations occurring after June 30, 2001 are to be accounted for under the purchase method of accounting. Under CICA Handbook Section 3062, which we adopted effective January 1, 2002, goodwill and other intangible assets deemed to have indefinite lives will no longer be amortized, but will be subject to annual impairment tests. Intangible assets with finite lives will continue to be amortized over their estimated useful lives.

        Effective January 1, 2002, we identified those intangible assets that did not meet the criteria for recognition apart from goodwill, and assessed the useful lives of our remaining intangible assets. As a result, we reclassified the $5.7 million net carrying amount of workforce related intangible assets, together with the related future tax liability of $2.4 million, to goodwill and determined that the useful lives of our remaining intangible assets were appropriate and consistent with those useful lives identified as at December 31, 2001. Our results for 2001 and 2000 included $6.4 million ($0.04 basic and diluted earnings per share) and $2.3 million ($0.02 basic earnings per share and $0.01 diluted earnings per share), respectively, of goodwill and workforce related amortization, net of tax.

        Effective January 1, 2002, we adopted CICA Handbook Section 3870, "Stock-Based Compensation and Other Stock-Based Payments". CICA Handbook Section 3870 establishes standards for the recognition, measurement and disclosure of stock-based compensation, and other stock-based payments, and generally applies to awards granted on or after January 1, 2002. Under the provisions of CICA Handbook Section 3870, companies can either measure the compensation cost of equity instruments issued under employee compensation plans using a fair value-based method or can recognize compensation cost using another method, such as the intrinsic value-based method. However, if another method is applied, pro forma disclosure of net income and earnings per share must be presented in the financial statements as if the fair value-based method had been applied. All stock-based awards granted to non-employees must be accounted for at fair value. We recognize employee stock-based compensation costs under the intrinsic value-based method and we have provided pro forma disclosure of net income attributable to common shareholders and earnings per share as if the fair value-based method had been applied. The adoption of CICA Handbook Section 3870 as of January 1, 2002 did not have any impact on our results of operations, financial position or cash flows.

CRITICAL ACCOUNTING POLICIES

        We prepare our consolidated financial statements in accordance with Canadian GAAP, applied on a consistent basis. Our critical accounting policies relate to the use of estimates, the impact of product returns, recalls, rebates and chargebacks on revenue recognition, the recording of research and development expenses, the useful lives of intangible assets, the evaluation of goodwill, the hedge effectiveness of derivative financial instruments and the realizability of future tax assets.

        In preparing our consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We review our estimates to ensure that our estimates appropriately reflect changes in our business and new information as it becomes available. Actual results may materially differ from these estimates under different assumptions or conditions. Significant estimates we make include allowances for accounts receivable and inventories, reserves for product returns, recalls, rebates and chargebacks, the useful lives of long-lived assets,

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the expected cash flows used in evaluating long-lived assets and investments for impairment, the realizability of future tax assets and the allocation of the purchase price of acquired assets and businesses. A significant change in these estimates could have a material impact on our results of operations.

        We recognize product sales revenue when the product is shipped to the customer provided that we have not retained any significant risks of ownership or future obligations with respect to the product shipped. Revenue from product sales is recognized net of reserves for estimated product returns, recalls, rebates and chargebacks. These reserves are established in the same period in which the related product sales are recorded and are based on estimates of the proportion of product sales subject to return, recall, rebate or chargeback. A significant change in these estimates could have a material impact on our results of operations.

        We expense research costs in the period in which they are incurred and we expense development costs in the period in which they are incurred unless they meet the criteria for deferral. At December 31, 2002, we had not deferred any development costs. The costs of assets that are purchased from others for a particular research and development project, that have not reached technological feasibility and that have no alternative future use are deferred and amortized over their estimated useful lives ranging from five years to fifteen years. We may pursue product or business acquisitions that could result in the amortization of acquired research and development costs, which could have a material non-cash impact on our results of operations.

        Intangible assets acquired through business combinations are initially recognized at fair value based on an allocation of the purchase price. Intangible assets acquired other than through business combinations are initially recognized at fair value based on the consideration paid. Our intangible assets are stated at cost, less accumulated amortization generally computed using the straight-line method based on their estimated useful lives ranging from eight years to twenty years. Useful life is the period over which the intangible asset is expected to contribute directly or indirectly to our future cash flows. We determine the useful lives of intangible assets based on a number of factors such as legal, regulatory or contractual limitations, known technological advances, anticipated demand and the existence or absence of competition. A significant change in these factors may warrant a revision of the expected remaining useful life of an intangible asset resulting in accelerated amortization or an impairment charge, which could have a material impact on our results of operations.

        Goodwill represents the excess of the purchase price of acquired businesses over the fair value of the identifiable net assets acquired. We evaluate goodwill annually for impairment. An impairment of goodwill could have a material impact on our results of operations.

        We manage our exposure to interest rate risks through the use of derivative financial instruments. We do not utilize derivative financial instruments for trading or speculative purposes. On the dates we entered into the derivative contracts, we designated the derivative financial instruments as a hedge of an identified portion of a recognized long-term obligation. A discontinuance of hedge accounting could have a material impact on our results of operations.

        We have recorded a valuation allowance on future tax assets primarily related to operating losses and tax credit carryforwards. We have assumed that these carryforwards are more likely than not to be unrealized based on estimated future taxable income and tax planning strategies in the related jurisdictions. The implementation of tax planning strategies or a change in the outlook for future taxable income in these jurisdictions could result in the recognition of some portion or all of these carryforwards, which could result in a material increase in our results of operations through the recovery of future income taxes.

ACQUISITIONS

        In December 2002, we acquired Pharma Pass for $178.7 million. Pharma Pass is a developer of advanced oral controlled-release technologies and formulations for pharmaceutical companies, including us, in the

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United States and Europe. On the completion of the development of our products, we had the right to manufacture and sell the products and Pharma Pass was entitled to royalties from the net sales of each product for a period of fifteen years from the date of launch of each product. Through this acquisition we extinguished any future milestone or royalty obligations that we may have had to Pharma Pass resulting from the approval and successful commercialization of any of the products under development, pursuant to the research and development agreements previously entered into between Pharma Pass and us. The acquisition of Pharma Pass resulted in a deferral of acquired research and development costs of $107.2 million related to approximately twenty product development projects that were in various stages of completion but that had not yet received regulatory approval. We obtained interests in certain licensed products including Tricor (fenofibrate) and a participating interest in the gross profit on sales by a third party of a bioequivalent version of Prilosec (omeprazole). We also obtained Pharma Pass's Zero Order Release System, a drug delivery technology that controls the rate of release of a drug and/or significantly enhances the systemic absorption of a drug molecule, and its oral Colonic Delivery System, a drug delivery technology designed for the targeted release of medication into the lower intestine and upper colon.

        In December 2002, we acquired Pharma Tech for $22.6 million. Pharma Tech is a development-stage company engaged in the application of drug delivery technologies to the formulation and development of a portfolio of products. Pharma Tech contracted directly with third parties, including us, to conduct the contract research and development services. We provided contract research and advisory services consistent with the contractual relationships we had with other third parties. On the completion of the development of our products, we had the right to manufacture and sell the products and Pharma Tech was entitled to royalties from the net sales of each product for a period of ten years from the date of launch of each product. Through this acquisition we extinguished any future milestone or royalty obligations that we may have had to Pharma Tech resulting from the approval and successful commercialization of any of the products under development, pursuant to the research and development agreements previously entered into between Pharma Tech and us. We had options to acquire Pharma Tech's interest in the products or to acquire Pharma Tech. The acquisition of Pharma Tech resulted in a deferral of acquired research and development costs of $17.5 million related to a number of product development projects that were in various stages of completion but that had not yet received FDA approval. We also deferred acquired research and development costs of $43.1 million related to the termination of the development by Pharma Tech of one of its products under development and any royalty obligation we may have had to Pharma Tech based on future sales of the product when, and if, approved by the FDA. We are continuing the development program for this product.

        In December 2002, we acquired from GSK the rights to Wellbutrin® SR and Zyban® in Canada, as well as the rights to market our once-daily formulation of bupropion HCl in Canada under the trade name Wellbutrin® XL when, and if, regulatory approval is received, for $72.0 million. Wellbutrin® SR is prescribed for the treatment of depression and Zyban® is administered for the treatment of nicotine addiction as an aid to smoking cessation.

        In May 2002, we acquired from Merck & Co., Inc. ("Merck") the rights to Vasotec® and Vaseretic® in the United States for $245.3 million. Vasotec® is a leading angiotensin converting enzyme inhibitor indicated for hypertension and symptomatic congestive heart failure and Vaseretic® is a fixed-dose combination of Vasotec® and a diuretic. We are developing a once-daily formulation of Vasotec® and a fixed-dose combination of Vasotec® with diltiazem HCl to capitalize on the value of the acquired brand name.

        In March 2002, we acquired from Solvay Pharmaceuticals Marketing & Licensing AG ("Solvay") the rights to Teveten® and Teveten® HCT in the United States for $94.3 million. Teveten® is an angiotensin-II receptor blocker for the treatment of hypertension and is indicated for use either alone or in conjunction with other

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antihypertensive medications and Teveten® HCT is a combination of Teveten® and a diuretic. We relaunched Teveten® in June 2002 and launched Teveten® HCT in February 2003 following receipt of FDA approval.

        Effective January 1, 2002, we acquired from GSK the exclusive distribution rights to Zovirax Ointment and Zovirax Cream in the United States for $133.4 million. Zovirax is an anti-viral topical product. Zovirax Ointment is indicated for the treatment of herpes and Zovirax Cream is indicated for the treatment of cold sores. In December 2002, we agreed to pay GSK $40 million to extend the term of the Zovirax agreement from ten years to twenty years. We also agreed to pay GSK an aggregate amount of $45 million, over four years beginning in 2004, to amend several terms of the original Zovirax distribution agreement. We received FDA approval for Zovirax Cream in January 2003 and we intend to launch the product in mid-2003.

        In December 2000, we completed the acquisition of Intelligent Polymers Limited ("Intelligent Polymers") for total consideration of $204.9 million. Intelligent Polymers was formed to fund the development of once-daily, controlled-release branded products for chronic disease states, such as anxiety, depression, pain management and diabetes. Prior to September 29, 2000, we were developing the products on behalf of Intelligent Polymers pursuant to a development and license agreement. The acquisition of Intelligent Polymers resulted in a deferral of acquired research and development costs of $208.4 million. An NDA has been filed by GSK for one of the products under development (bupropion HCl), two other products (tramadol and metformin) are now in Phase III clinical trials, and the development of another product (buspirone) was discontinued in March 2003.

        In December 2000, we acquired the North American rights to Cardizem® from Aventis for total consideration of $409.5 million. Cardizem® is a leading calcium channel blocker prescribed for the treatment of hypertension and angina. We are capitalizing on the competitive advantage of the Cardizem® brand name by attaching it to our improved once-daily graded extended release formulation — Cardizem® LA.

        In October 2000, we acquired DJ Pharma, Inc. ("DJ Pharma"), a pharmaceutical sales and marketing company located in the United States, for total consideration of $165.1 million plus the assumption of $34.2 million of debt. As a result of this acquisition, we obtained the rights to DJ Pharma's portfolio of products, as well as a trained workforce and infrastructure. The acquisition of DJ Pharma was significant to our strategy of becoming a fully integrated pharmaceutical company because, prior to the acquisition of DJ Pharma, we had no direct access to the United States market and were reliant on our marketing partners. The acquisition of DJ Pharma enhanced the value of our product pipeline through the ability to market directly to physicians, and provided an infrastructure on which we are building to meet the marketing needs of our increasing portfolio of products.

RESULTS OF OPERATIONS

        Total revenue was $788.0 million in 2002 compared to $583.3 million in 2001 and $311.5 million in 2000. Total revenue increased by 35% in 2002 compared to 2001 and by 87% in 2001 compared to 2000. Net income attributable to common shareholders was $207.6 million, $85.6 million and $81.2 million in 2002, 2001 and 2000, respectively. Diluted earnings per share were $1.29 in 2002 and $0.57 in both 2001 and 2000.

        We utilize a measure of net income attributable to common shareholders and diluted earnings per share that excludes certain items. This measure is a non-GAAP measure that does not have a standardized meaning and, as such, is not necessarily comparable to similarly titled measures presented by other companies. This measure is provided to assist our investors in assessing our operating performance. We understand that many of our investors prefer to analyze our results based on this measure, as it is consistent with industry practice. The items were excluded because they were considered to be of a non-operational nature in the applicable year. The excluded items are also disclosed to give investors the ability to further analyze our results. Investors should consider this non-GAAP measure in the context of our Canadian GAAP results. The following table reconciles,

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for each year indicated, our net income attributable to common shareholders in accordance with Canadian GAAP with our net income attributable to common shareholders excluding certain items, and displays our diluted earnings per share and diluted earnings per share excluding certain items.

	Years ended December 31
(In 000s, except per share data)
	2002		2001		2000
Net income attributable to common shareholders	$	207,553	$	85,553	$	81,163
Add certain items
Write-down of assets, net of tax		31,944		48,246		—
Debt conversion premiums		—		10,001		—
Premium paid on early extinguishment of U.S. Dollar Senior Notes		—		—		20,039
Net income attributable to common shareholders excluding certain items	$	239,497	$	143,800	$	101,202
Diluted earnings per share	$	1.29	$	0.57	$	0.57
Diluted earnings per share excluding certain items	$	1.49	$	0.95	$	0.71

        Net income attributable to common shareholders excluding certain items was $239.5 million, $143.8 million and $101.2 million in 2002, 2001 and 2000, respectively. Diluted earnings per share excluding certain items were $1.49, $0.95 and $0.71 in 2002, 2001 and 2000, respectively. Net income attributable to common shareholders excluding certain items and diluted earnings per share excluding certain items increased by 67% and 57%, respectively, for 2002 compared to 2001, and by 42% and 34%, respectively, for 2001 compared to 2000. For 2002, the item excluded was a write-down of assets of $31.9 million primarily related to the write off of the Adalat product rights and corresponding long-term obligation as a result of a settlement reached between the U.S. Federal Trade Commission ("FTC"), Elan Corporation, plc ("Elan") and us regarding the introduction of bioequivalent versions of Adalat CC. For 2001, the items excluded consist of a write-down of assets of $48.2 million, net of tax of $32.2 million, primarily related to the Keftab and Dura-Vent product rights and debt conversion premiums of $10.0 million related to the surrender and redemption of our 6.75% Convertible Subordinated Preferred Equivalent Debentures due March 31, 2025 ("Debentures"). For 2000, the item excluded was a premium of $20.0 million paid to extinguish our 10⁷/8% U.S. Dollar Senior Notes due November 15, 2005 ("Senior Notes").

REVENUE

        Our revenue is derived from sales of pharmaceutical products, providing research and development services, and the co-promotion of pharmaceutical products, as well as from royalties and license fees. Product sales include sales of products developed and manufactured by us for distribution by our licensees and direct marketing to physicians in the United States and Canada of proprietary and in-licensed products. Research and development revenue relates to product development activity in collaboration with third parties and pharmaceutical contract research services. Fees for co-promotion services are earned on sales of co-promoted products developed by other companies. Royalties primarily arise on sales of the products we developed or acquired and from our interests in certain licensed products of Pharma Pass. License fees are derived from the license of our technologies or product rights.

        The following table displays, for each year indicated, the percentage of each source of revenue to total revenue, and the percentage change in the dollar amount of each source and the total as compared to the prior

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year. Revenue for 2001 and 2000 reflects the reclassification of co-promotion revenue from product sales to co-promotion, royalty and licensing to conform to the presentation adopted in 2002.

										Percentage Change
	Years ended December 31
(In 000s)										2001 to 2002		2000 to 2001
	2002			2001			2000
Product sales	645,986	82	%	521,154	89	%	217,004	70	%	24	%	140	%
Research and development	28,425	4		14,596	3		69,121	22		95		(79)
Co-promotion, royalty and licensing	113,614	14		47,513	8		25,332	8		139		88
	788,025	100	%	583,263	100	%	311,457	100	%	35		87

Product sales

        Product sales were $646.0 million in 2002 compared to $521.2 million in 2001 and $217.0 million in 2000. Product sales comprised 82% of total revenue in 2002 compared to 89% in 2001 and 70% in 2000. The following table displays the approximate percentage of each product category to total product sales.

Product category	2002		2001		2000
Tiazac®	15	%	20	%	40	%
Cardizem®	25		35		—
Bioequivalent	30		30		40
All other	30		15		20
	100	%	100	%	100	%

        In August 2002, we received final approval by the FDA for our 90mg bioequivalent version of Adalat CC (once-daily nifedipine). Our marketing partner, Teva Pharmaceuticals USA, Inc., immediately launched this product in the United States.

        Product sales increased by 24% in 2002 compared to 2001 mainly due to the continuing strong performance of Tiazac® and Cardizem®, combined with the contribution from Zovirax Ointment, Teveten®, Vasotec®, Vaseretic® and our 90mg bioequivalent version of Adalat CC.

        Product sales increased by 140% in 2001 compared to 2000 mainly due to the additions of Cardizem® and DJ Pharma's product portfolio. Product sales growth also came from a higher contribution from bioequivalent products, reflecting the 2001 launch of our 30mg bioequivalent version of Procardia XL and the late 2000 launches of our 60mg bioequivalent versions of Procardia XL and Adalat CC.

        Our product sales and gross margins for 2002 and 2001 were adversely impacted by lost sales and costs associated with the voluntary recall of Keftab tablets, which was initiated by Eli Lilly & Company ("Lilly") in March 2001 because of undefined problems Lilly had with the product's stability. Lilly manufactured and supplied the product to us for marketing in the United States. In March 2003, we successfully settled our legal action against Lilly regarding the recall of Keftab.

        We expect our product sales to increase in 2003 compared to 2002 due to the contribution from the products we acquired in 2002, the launches of Cardizem® LA, Teveten® HCT and Zovirax Cream during 2003 and the anticipated launch of Wellbutrin XL in the second half of 2003 when, and if, approved by the FDA.

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Research and development

        Research and development activities generated revenue of $28.4 million in 2002 compared to $14.6 million in 2001 and $69.1 million in 2000. Research and development activities comprised 4% of total revenue in 2002 compared to 3% in 2001 and 22% in 2000.

        In the ordinary course of business we enter into research and development collaborations with third parties whereby we provide contract research, formulation development and other services to those third parties. We are typically compensated through a combination of fees for service, milestone payments, royalties from future sales of the products and/or co-promotion revenue.

        Research and development revenue increased by 95% in 2002 compared to 2001 mainly due to the inclusion of revenue associated with the development of Wellbutrin XL in collaboration with GSK. During 2002, we completed the development of Wellbutrin XL, resulting in GSK's filing of an NDA for the product in August 2002.

        Research and development revenue declined by 78% in 2001 compared to 2000, as we did not earn any revenue from Intelligent Polymers after September 29, 2000. We earned revenue of $55.2 million from Intelligent Polymers for the period ended September 29, 2000.

        In the years presented, our remaining research and development revenue was primarily generated from clinical research and laboratory testing services provided to external customers by our contract research operation.

        In 2003, we expect research and development revenue to decline compared to 2002 mainly due to the completion of the development of Wellbutrin XL.

Co-promotion, royalty and licensing

        Co-promotion, royalty and licensing activities generated revenue of $113.6 million, $47.5 million and $25.3 million in 2002, 2001 and 2000, respectively. Co-promotion, royalty and licensing revenue comprised 14% of total revenue in 2002 and 8% in both 2001 and 2000.

        Co-promotion, royalty and licensing revenue increased by 139% in 2002 compared to 2001 and by 88% in 2001 compared to 2000. In 2002, co-promotion revenue was related to the co-promotion of GSK's Wellbutrin SR in the United States and the co-promotion of H. Lundbeck A/S' Celexa in Canada. During 2002, we received four quarterly increments of $10 million each under the Wellbutrin SR co-promotion agreement with GSK. We earned the last quarterly increment of $10 million in the first quarter of 2003. The receipt of each of the quarterly increments was dependent on our performing prescribed detailing activity during each quarter and the amount was determined based on a percentage of net sales of Wellbutrin SR in the United States during each quarter. In 2001 and 2000, co-promotion revenue was related entirely to the co-promotion of Celexa.

        Royalty revenue increased in 2002 compared to 2001 due to the contribution from our interest in the gross profit on sales of a bioequivalent version of Prilosec. Royalty revenue increased in 2001 compared to 2000 due to higher Tiazac® sales by our marketing partner, Forest Laboratories Inc., and the inclusion of a royalty associated with sales of bioequivalent versions of Cardizem® by third parties.

        We expect the level of co-promotion, royalty and licensing revenue in 2003 to be higher than in 2002 due to the contribution from our interest in the gross profit on sales of a bioequivalent version of Prilosec, partly offset by the loss of revenue following the conclusion of our co-promotion of Wellbutrin SR in the United States.

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OPERATING EXPENSES

        The following table displays, for each year indicated, the percentage of each expense item to total revenue, and the percentage change in the dollar amount of each item and the total as compared to the prior year. Prior to 2001, we included amortization expense as a component of cost of goods sold, research and development expenses and selling, general and administrative expenses. In 2001, amortization increased substantially due to the additions made to intangible assets and acquisitions of businesses and consequently we decided to present amortization as an individual line item within operating expenses. Operating expenses for 2000 reflect the reclassification of amortization to conform to the presentation adopted in 2001.

										Percentage Change
	Years ended December 31
(In 000s)										2001 to 2002		2000 to 2001
	2002			2001			2000
Cost of goods sold	164,706	21	%	125,995	21	%	67,980	22	%	31	%	85	%
Research and development	52,150	7		51,017	9		51,709	17		2		(1)
Selling, general and administrative	165,697	21		111,362	19		59,317	19		49		88
Amortization	125,849	16		98,097	17		16,228	5		28		504
	508,402	65	%	386,471	66	%	195,234	63	%	32		98

Cost of goods sold and gross margins

        Cost of goods sold was $164.7 million in 2002 compared to $126.0 million in 2001 and $68.0 million in 2000. Cost of goods sold includes royalties on product sales payable to third party licensors that owned and/or developed the products. Costs of goods sold increased by 31% in 2002 compared to 2001 and by 85% in 2001 compared to 2000. The year over year increases in cost of goods sold were the result of increased sales volumes from new product launches and product acquisitions, and higher sales levels of certain existing products.

        Gross margins based on product sales were 75%, 76% and 69% in 2002, 2001 and 2000, respectively. Gross margins are impacted year to year by sales volumes, pricing, product mix, and manufacturing volumes. The gross margin in 2002 was affected by a lower proportion of higher margin Cardizem® sales in the overall product mix and the additions of Zovirax Ointment and Teveten® sales, which had lower margins relative to other of our products, offset by the inclusion of Vasotec® and Vaseretic® sales, which generated higher margins relative to other of our products. The increase in gross margin in 2001 compared to 2000 reflected the impact of the higher margin earned on Cardizem® relative to other of our products.

        We expect gross margins on product sales in 2003 to be comparable to 2002.

Research and development

        Research and development expenses were $52.2 million in 2002 compared to $51.0 million in 2001 and $51.7 million in 2000. As a percentage of total revenue, research and development costs declined to 7% in 2002 compared to 9% in 2001 and 17% in 2000.

        In the ordinary course of business, we enter into research and development collaborations with third parties to provide formulation and other services for our products under development. These collaborations target our therapeutic areas of focus — cardiovascular (including Type II diabetes), central nervous system, pain management and niche opportunities. These third party developers are typically compensated through a combination of fees for service, milestone payments and/or royalty payments from future sales of the products under development. The developers may utilize their own technology and, in other cases, we will allow access to

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our technology for the formulation and development of the products. In some cases, we have an ownership interest or an option to take an ownership position in the developer. In no case are we responsible for any of the developers' third party liabilities, nor have we guaranteed any debts, nor are we required under any circumstances to exercise any of our options.

        Research and development expenses reflect direct spending on the development of branded and bioequivalent products utilizing advanced oral drug delivery technologies. We completed a Phase III clinical trial to support the submission of a supplemental NDA for an angina indication for Cardizem® LA. The results of this clinical trial were favourable and we expect to file the supplemental NDA for Cardizem® LA in mid-2003. In addition, we have completed, or are in the process of completing, a number of comparative Phase IV studies involving Cardizem® LA. We are developing a once-daily formulation of Vasotec® and we are also working on a fixed-dose combination of Vasotec® with diltiazem HCl. Two ongoing Phase III trials are progressing to support an NDA submission for our once-daily formulation of tramadol, for the signs and symptoms of osteoarthritis. We expect to file an NDA for tramadol in the second half of 2003. One Phase III clinical trial has been successfully completed on our once-daily formulation of metformin, for the treatment of Type II diabetes, through a collaborative effort with DepoMed, and a second Phase III clinical trial is in progress. We expect to file an NDA for metformin in the first half of 2004. We have evaluated the results of a Phase III clinical trial involving buspirone, for the treatment of depression, and have decided to discontinue the development of this product in light of the unsatisfactory results from this trial.

        A number of other research and development activities are ongoing, including feasibility studies, formulation development and optimization, formulation scale-up and clinical studies. We are also working on the development of enhanced formulations of a number of disclosed compounds (fenofibrate, simvastatin, paroxetine, venlafaxine, sumatriptan and acyclovir), as well as a number of undisclosed compounds.

        We expect research and development expenses to increase significantly in 2003 compared to 2002 due to an expected increase in clinical activity.

Selling, general and administrative

        Selling, general and administrative expenses were $165.7 million, $111.4 million and $59.3 million in 2002, 2001 and 2000, respectively. Selling, general and administrative expenses were 21% of total revenue in 2002 compared to 19% in both 2001 and 2000.

        During 2002, our sales capability in the United States was significantly increased. Our U.S. sales organization more than doubled in size as we added sales and marketing management and regional and district sales management and hired over 200 sales representatives across the country. We devoted considerable attention and resources to increasing our sales force capabilities by adhering to specific selection criteria during the hiring process and by locating new sales representatives in territories with high prescribing physicians. In addition, in November 2002 we entered into a co-promotion agreement with Reliant. Reliant's sales force has experience detailing cardiovascular products across the United States, has established relationships with high prescribing physicians and will be working in tandem with our existing sales force. We benefited from this approach to building our sales organization when we relaunched Teveten® in June 2002. After promoting Teveten® for six months, in collaboration with Reliant for the final three months of 2002, we saw December prescriptions increase substantially over June prescription levels.

        Selling, general and administrative expenses increased by 49% in 2002 compared to 2001 mainly due to the expansion of our sales organization in the United States and the incremental sales and marketing costs associated with Zovirax Ointment and Teveten®, as well as costs associated with the co-promotion of Wellbutrin SR in the United States. We recorded Teveten® sales and marketing costs net of a related marketing allowance

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of $10 million paid by Solvay in 2002. In addition, we have expensed a portion of the costs associated with the development of the Cardizem® LA promotional program. In 2002, selling, general and administrative expenses also include fees payable to Reliant related to the co-promotion of Teveten® and Cedax during the fourth quarter of 2002.

        Selling, general and administrative expenses increased by 88% in 2001 compared to 2000, mainly due to the inclusion of our U.S. sales organization in our results for a full year. In addition, with the acquisition of Cardizem® the level of sales and marketing activity increased in both the United States and Canada.

        We expect selling, general and administrative expenses to increase as a percentage of total revenue in 2003 compared to 2002 due to the costs associated with the launches of Cardizem® LA, Teveten® HCT and Zovirax Cream during 2003.

Amortization

        Amortization expense was $125.8 million, $98.1 million and $16.2 million in 2002, 2001 and 2000, respectively. Amortization expense was 16% of total revenue in 2002 compared to 17% in 2001 and 5% in 2000.

        The increase in amortization expense in 2002 compared to 2001 reflected the incremental amortization associated with the acquisitions of the rights to Zovirax, Teveten®, Vasotec® and Vaseretic®, and Wellbutrin® and Zyban® in Canada, as well as the amortization of our interest in the gross profit on sales of a bioequivalent version of Prilosec. In 2002, amortization expense was reduced by the elimination of goodwill and workforce related amortization as a result of the adoption of CICA Handbook Section 3062.

        The increase in amortization expense between 2001 and 2000 reflected the amortization of acquired research and development associated with the acquisition of Intelligent Polymers, the amortization of product rights and goodwill associated with the acquisition of DJ Pharma and the amortization of the Cardizem® brand name.

        We expect that amortization expense will increase in 2003 compared to 2002 due to a full year of amortization related to the intangible assets acquired during 2002.

Write-down of assets

        In 2002, we recorded a $31.9 million non-cash charge primarily related to the write-down of the following assets:

        As a result of a settlement reached with the FTC regarding the introduction of bioequivalent versions of Adalat CC, we agreed with Elan to terminate our agreements related to the licensing and supply of Elan's 30mg and 60mg bioequivalent versions of Adalat CC. The FTC consent order effectively nullifies our long-term obligation to make minimum license payments to Elan under the licensing and supply agreement for Elan's 30mg bioequivalent version of Adalat CC. We have been in negotiations to have Elan reacquire the rights to its bioequivalent versions of Adalat CC that had previously been sold to us. As there has been no meaningful progress in these negotiations, and as we are unable to ascertain the eventual outcome of these negotiations, in December 2002 we determined that we should write off the net book value of the Adalat product rights, net of the corresponding long-term obligation to Elan. We recorded a related non-cash charge of $22.4 million. We are considering whether or not to pursue litigation against Elan to obtain fair compensation for the loss of these products. Elan is required to continue to supply us with its 30mg bioequivalent version of Adalat CC until May 31, 2003.

        In 2002, we also recorded other non-cash asset write-downs of $9.5 million, primarily related to an unrealized holding loss on our investment in DepoMed.

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        In 2001, we recorded an $80.5 million non-cash charge related to the write-down of the following assets:

        At December 31, 2001, Lilly had not resolved the manufacturing problems associated with Keftab that arose in March 2001. The supply interruption had resulted in a deterioration of customer awareness of the product, which would have required substantial promotional efforts to restore if the product were to be relaunched. Due to these conditions that existed at December 31, 2001, we determined that the Keftab product right had been permanently impaired and should be written down to its estimated recoverable value of $10 million. We recorded a related non-cash charge of $54.6 million.

        We believed Lilly was responsible for manufacturing and supplying commercially acceptable products to us, as well as for the cost of the recall. In this regard, we commenced a legal action against Lilly in which we were seeking damages as a result of Lilly's voluntary recall of Keftab. In March 2003, we settled our legal action with, and received compensation from, Lilly for the recoverable value of the Keftab intangible asset, the cost of the Keftab inventory that was destroyed, the lost margin on sales of Keftab and the expenses incurred with respect to the Keftab recall. In the first quarter of 2003, we recorded an aggregate net recovery from the settlement of the Lilly action, together with the settlement of an unrelated action against Mylan Pharmaceuticals, Inc., of $24.8 million plus interest.

        In November 2000, the FDA requested a voluntary recall of products containing phenylpropanolamine ("PPA"). We immediately stopped shipments of our Dura-Vent products containing PPA and initiated a recall of these products from wholesalers and pharmacies. During 2001, we experienced supply interruptions resulting from manufacturing issues associated with our remaining Dura-Vent products that did not contain PPA. Dura-Vent is manufactured and supplied to us by a third party. These supply interruptions caused our revenues and gross margins for the remaining Dura-Vent products to significantly deteriorate. We evaluated the current and forecasted market share for the products and determined that the Dura-Vent product right had been permanently impaired and the remaining net book value should be written off. We recorded a related non-cash charge of $19.0 million.

        In 2001, we also recorded other non-cash asset write-downs of $6.9 million, primarily related to an intangible asset associated with the acquisition of Intelligent Polymers.

OPERATING INCOME

        Operating income was $247.7 million, $116.3 million and $116.2 million in 2002, 2001 and 2000, respectively. Operating income excluding write-down of assets was $279.6 million in 2002 and $196.8 million in 2001. Operating income excluding write-down of assets increased by 42% in 2002 compared to 2001 and by 69% in 2001 compared to 2000. As a percentage of total revenue, operating income excluding write-down of assets was 35% in 2002 compared to 34% in 2001 and 37% in 2000.

        The increase in operating income excluding write-down of assets in 2002 compared to 2001 was mainly due to the additions of Zovirax, Teveten®, Vasotec®, Vaseretic® and our 90mg bioequivalent version of Adalat CC product sales. Also contributing to the increase was the inclusion of Wellbutrin SR co-promotion revenue and our interest in the gross profit on sales of a bioequivalent version of Prilosec, combined with a reduction in research and development expenses as a percentage of total revenue. Operating income excluding write-down of assets was reduced by an offsetting increase in cost of goods sold and sales and marketing costs, as well as expenses related to the expansion of our U.S. sales organization and incremental amortization expense related to additions to intangible assets.

        The increase in operating income excluding write-down of assets in 2001 compared to 2000 was mainly due to the additions of Cardizem® and DJ Pharma's product portfolio. Operating income excluding write-down of assets in 2001 was reduced by an offsetting increase in cost of goods sold and sales and marketing costs, as well

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as expenses related to the inclusion of our U.S. sales organization and incremental amortization expense related to new products and acquired research and development.

NON-OPERATING ITEMS

Interest income and expense

        Interest income of $3.6 million, $2.7 million and $23.7 million in 2002, 2001 and 2000, respectively, was earned on our investment portfolio, which is comprised primarily of high-grade government and corporate securities. Higher interest income in 2000 reflected a larger average investment portfolio following our concurrent offering of common shares and Debentures in March 2000, and prior to our acquisitions of Intelligent Polymers, Cardizem® and DJ Pharma.

        Interest expense was $32.0 million, $21.1 million and $4.6 million in 2002, 2001 and 2000, respectively. In 2002, interest expense was primarily related to our 7⁷/8% Senior Subordinated Notes due April 1, 2010 ("Notes") issued in March 2002. During 2002, we entered into interest rate swap contracts of aggregate $200 million notional amount, which are designated as a hedge of one-half of our Notes. The contracts involve the receipt of fixed rate amounts in exchange for floating rate interest payments based on six-month London Interbank Offering Rate ("LIBOR") plus a spread. Net receipts or payments relating to the contracts are recorded as an adjustment to interest expense. Interest expense also included interest on advances under our credit facility and the amortization of the discounts on the Adalat and Vasotec® obligations. The non-cash amortization of these discounts amounted to $5.3 million.

        Prior to March 2000, interest expense was primarily related to our Senior Notes. In March 2000, we redeemed our Senior Notes using the proceeds from our concurrent offering of common shares and Debentures and, accordingly, interest expense from this time primarily related to our Debentures until their surrender and redemption during the second half of 2001. In 2001 and 2000, interest on our Debentures was deducted from net income to determine net income attributable to common shareholders. In addition, interest expense in 2001 reflected interest on advances under our credit facility and the amortization of the discounts on the Adalat and Cardizem® obligations. The non-cash amortization of these discounts amounted to $11.0 million.

Premium paid on early extinguishment of Senior Notes

        In 2000, we paid total consideration of $141.0 million to repurchase our Senior Notes, of which $16.0 million was an inducement premium to the holders. In addition, we wrote of the unamortized deferred financing costs related to our Senior Notes.

Provision for or recovery of income taxes

        Our tax rate was affected by the relative profitability of our operations in various foreign tax jurisdictions. We recorded provisions for current income taxes of $21.5 million, $13.8 million and $5.6 million in 2002, 2001 and 2000, respectively. The low effective tax rate was mainly due to a substantial portion of our income being derived from foreign subsidiaries with lower statutory tax rates than those that apply in Canada. In addition, our effective tax rate was affected by the low profitability of our operations in the United States due to the expansion of our sales organization in advance of the launch of Cardizem® LA and sales and marketing expenses related to products launched during 2002. We recorded recoveries of future income taxes of $9.8 million and $39.8 million in 2002 and 2001, respectively, and a provision for future income taxes of $0.2 million in 2000. The recoveries of future income taxes recorded in 2002 and 2001 related to the reversal of temporary differences and the write-down of assets in the United States.

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        Our future effective tax rate will depend on the relative profitability of our domestic and foreign operations, the statutory tax rates of the related tax jurisdictions, and the timing of the release, if any, of the valuation allowance. In 2003, we expect our effective tax rate to reflect the anticipated low profitability of our operations in the United States due to launch costs and sales and marketing activities related to products to be launched during 2003.

Interest on Debentures

        The value of our Debentures comprised a holder conversion option and interest and principal components. The interest and principal components were discounted at a rate of interest that would have approximated the rate applicable to non-convertible debt at the time our Debentures were issued, with the residual amount ascribed to the holder conversion option. The present value of the interest and principal components was being accreted to the face value of the payments over the three-year period preceding the first redemption date of March 31, 2003.

        Interest on our Debentures was comprised of interest expense of $14.9 million and $15.8 million in 2001 and 2000, respectively, and the accretion of the principal and interest components of $13.5 million and $12.5 million in 2001 and 2000, respectively.

Debt conversion premiums

        In 2001, we recorded a debt conversion premium of $23.7 million on the surrender of $173.8 million aggregate principal amount of our outstanding Debentures. The premium represented the market value of the additional common shares issued in excess of the number of common shares that would have been issued under the terms of the conversion ratio provided for in the indenture governing our Debentures. The premium was recorded as follows: the portion related to the interest and principal components of our Debentures as a $6.2 million deduction from net income for the determination of net income attributable to common shareholders and the portion related to the holder conversion option as a $17.5 million charge to retained earnings.

        We recorded an additional debt conversion premium of $11.2 million on the remaining $126.1 million aggregate face value of our outstanding Debentures that had been called for redemption in November 2001. The premium represented the aggregate amount of interest that would have been paid on our Debentures from the redemption date to March 31, 2003. The premium was recorded as follows: the portion related to the interest and principal components of our Debentures as a $3.8 million deduction from net income for the determination of net income attributable to common shareholders and the portion related to the holder conversion option as a $7.4 million charge to retained earnings.

EBITDA

        EBITDA, defined as earnings before interest, taxes, depreciation and amortization, is a non-GAAP measure that does not have a standardized meaning and, as such, may not be comparable to similarly titled measures presented by other companies. We utilize a measure of EBITDA that excludes certain items. The items were excluded because they were considered to be of a non-operational nature in the applicable year. We disclose this measure of EBITDA because we understand that certain investors use it as an indicator of a company's ability to meet debt service and capital expenditure requirements. This measure should not be considered in isolation or as a substitute for operating income, or as an indicator of our operating performance,

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or compared to cash flows from operating activities as a measure of liquidity. The following table displays the calculation of EBITDA and reconciles EBITDA with EBITDA excluding certain items.

	Years ended December 31
(In 000s)
	2002		2001			2000
Net income	$	207,553	$	123,990		$	109,453
Net interest expense (income)		28,397		18,318			(19,064	)
Provision for (recovery of) income taxes		11,729		(25,998	)		5,795
Depreciation and amortization		136,718		108,871			29,984
EBITDA		384,397		225,181			126,168
Write-down of assets		31,944		80,482			—
Premium paid on early extinguishment of U.S. Dollar Senior Notes		—		—			20,039
EBITDA excluding certain items	$	416,341	$	305,663		$	146,207

        EBITDA excluding certain items was $416.3 million, $305.7 million and $146.2 million in 2002, 2001 and 2000, respectively. As a percentage of total revenue, EBITDA excluding certain items was 53% in 2002, 52% in 2001 and 47% in 2000.

        We disclose the ratio of EBITDA excluding certain items compared to interest expense because we understand that certain investors use it as an indicator of a company's ability to meet debt service requirements. This ratio is not necessarily comparable to similarly titled measures presented by other companies. The ratio of EBITDA excluding certain items to interest expense was 13.0 times, 8.5 times and 7.2 times for 2002, 2001 and 2000, respectively.

LIQUIDITY AND CAPITAL RESOURCES

        At December 31, 2002, we had cash and cash equivalents of $56.1 million compared to $434.9 million at December 31, 2001. We also maintain a revolving term credit facility, which may be used for general corporate purposes, including acquisitions. In June 2001, our credit facility was successfully syndicated and was increased from $300 million to $400 million. In July 2002, our credit facility was further increased from $400 million to $600 million and in December 2002 we renewed our credit facility for an additional one-year period. All other material terms and conditions are unchanged. At December 31, 2002, we were in compliance with all financial and non-financial covenants associated with our credit facility.

        Borrowings under our credit facility may be by way of U.S. dollar, LIBOR or U.S. base rate advances or Canadian dollar prime rate or bankers' acceptance ("BA") advances or letters of credit. Interest is charged at the quoted bank rate plus a borrowing margin of 1.375% to 2% in the case of LIBOR and BA advances, and 0.375% to 1% in the case of base rate and prime rate advances, depending on our credit rating at the time of such borrowing. At December 31, 2002, our corporate credit ratings were BB+ with Standard & Poor's Rating Services ("S&P") and Ba3 with Moody's Investors Service. The effective rate of interest at December 31, 2002 was 3.74%. At December 31, 2002, we had advances of $110 million borrowed under our credit facility and we had a letter of credit with a balance of $93.2 million issued under our credit facility. The letter of credit secures the remaining semi-annual payments we are required to make under the Vasotec® and Vaseretic® agreement. At December 31, 2002, we had a remaining balance of $396.8 million available to borrow under our credit facility. At March 31, 2003, we have repaid $100 million of the advances borrowed under our credit facility.

        Cash provided by operating activities was $334.1 million, $309.1 million and $113.1 million in 2002, 2001 and 2000, respectively. Net income, after adjustments for items not involving cash, was $376.0 million,

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$287.8 million and $160.3 million in 2002, 2001 and 2000, respectively. Net changes in non-cash operating items used cash of $41.9 million and $47.2 million in 2002 and 2000, respectively, mainly due to increases in accounts receivable offset by increases in accounts payable and accrued liabilities. Net changes in non-cash operating items provided cash of $21.3 million in 2001, mainly due to increases in accrued liabilities and income taxes payable offset by an increase in inventories.

        Net cash used in investing activities was $792.5 million, $57.7 million and $574.8 million in 2002, 2001 and 2000, respectively. In 2002, we acquired the rights to Zovirax and Teveten® for $133.4 million and $94.3 million, respectively, and we paid initial instalments of $145.7 million to acquire Vasotec® and Vaseretic®, and $2.0 million to acquire Wellbutrin® and Zyban® in Canada. In 2001, we acquired other product rights for $27.4 million, offset by $15 million recovered as a reduction to the minimum license payments otherwise payable to Elan under the licensing and supply agreement for Elan's 30mg bioequivalent version of Adalat CC. In 2000, we acquired the remaining rights to the Dura-Vent, Keftab and Rondec products, and other product rights for $27.8 million. Business acquisitions, net of cash acquired, totaled $240.6 million in 2002, comprising $178.7 million paid to acquire Pharma Pass, $43.1 million paid to terminate Pharma Tech's development of one of its products under development and any royalty obligation we may have had based on future sales of the product when, and if, approved by the FDA, and $18.8 million paid to acquire Pharma Tech. Business acquisitions, net of cash acquired, totaled $614.7 million in 2000, comprising $239.7 million for Cardizem®, $202.4 million for Intelligent Polymers, $162.8 million for DJ Pharma and $9.8 million of additional consideration paid for Fuisz Technologies Ltd. ("Fuisz"). In 2002, we acquired long-term investments of $85.1 million including equity investments in Ethypharm, DepoMed and Procyon Biopharma Inc. of $67.8 million, $13.7 million and $2.5 million, respectively. We acquired long-term investments of $0.9 million and $2.5 million in 2001 and 2000, respectively. Additions to property, plant and equipment were $61.4 million, $44.4 million and $15.8 million in 2002, 2001 and 2000, respectively, and were primarily related to the expansion of our manufacturing facilities. In 2002, we advanced $30 million to Reliant under a secured credit facility established by us and certain of Reliant's existing lenders. The net activity in short-term investments provided cash of $65.9 million in 2000. During 2000, as our short-term investments matured we converted them into cash equivalents with original maturities of 90 days or less. In 2000, we received proceeds of $20 million on the disposal of Clonmel Healthcare Limited, a subsidiary of Fuisz.

        Net cash provided by financing activities was $79.5 million, $58.6 million and $409.0 million in 2002, 2001 and 2000, respectively. Proceeds from the issue of common shares on the exercise of stock options and through our Employee Stock Purchase Plan were $19.6 million, $29.2 million and $14.3 million in 2002, 2001 and 2000, respectively. Net proceeds from our equity offerings in November 2001 and March 2000 were $560.0 million and $95.3 million, respectively. We repurchased common shares on the open market, under our stock repurchase programs, for $503.1 million and $120.0 million in 2002 and 2001, respectively. We received proceeds of $112.8 million, $29.1 million and $6.0 million on the exercise of warrants in 2002, 2001 and 2000, respectively. In 2001, we made loans in an aggregate amount of $10.0 million to certain executive officers under our Executive Stock Purchase Plan. In 2002, we received net proceeds of $384.3 million on the issue of our Notes. In 2002, we borrowed $110 million under our credit facility and paid $2.1 million of additional financing costs related to the increase in our credit facility from $400 million to $600 million. In 2001, we made repayments of $210 million under our credit facility and paid $1.3 million of additional financing costs related to the increase in our credit facility from $300 million to $400 million. In 2000, we borrowed $210 million from our credit facility and paid $3 million of arrangement fees. In 2002, we repaid $34.5 million of the Vasotec® obligation and $7.5 million of the Adalat obligation. In 2001, we repaid $193.4 million of other long-term obligations, including the $170 million Cardizem® obligation and $22.9 million of the Adalat obligation. In 2000, we repaid the debt assumed on the acquisition of DJ Pharma and other long-term obligations of $45.6 million. In 2001 and 2000, we paid interest on our Debentures of $13.6 million and $15.8 million, respectively, and in 2001 we paid

20

$11.3 million to redeem our Debentures. In 2000, we received net proceeds of $288.8 million from the issue of our Debentures and we repurchased our Senior Notes for $141.0 million.

        Overall, our cash and cash equivalents decreased by $378.8 million and $52.9 million in 2002 and 2000, respectively, and increased by $309.7 million in 2001.

        In 2002, non-cash investing and financing activities included a $99.6 million discounted obligation related to the acquisition of Vasotec® and Vaseretic®, an $80.7 million discounted obligation related to the amendments to the terms of the Zovirax distribution agreement, and a $70.0 million discounted obligation related to the acquisition of Wellbutrin® and Zyban® in Canada. In 2001, non-cash investing and financing activities included the issuance of common shares valued at $316.0 million on the surrender and redemption of our Debentures. In 2000, non-cash investing and financing activities included a $161.8 million discounted obligation related to the acquisition of Cardizem® and a $58.1 million discounted obligation related to the acquisition of the Adalat product rights.

Obligations and other matters

        At December 31, 2002, we had total long-term obligations of $747.4 million, including the current portion thereof, consisting of the carrying value of our Notes of $412.6 million, borrowings under our credit facility of $110 million, the Zovirax obligation of $80.7 million, the Wellbutrin® obligation of $70.0 million, the Vasotec® obligation of $67.9 million and deferred compensation of $6.2 million. At March 31, 2003, we have paid $40 million of the Zovirax obligation to GSK.

        The following table summarizes our contractual obligations at December 31, 2002.

	Maturities by Period
(In 000s)	Total		Less Than 1 Year		1-3 Years		4-5 Years		After 5 Years
Long-term obligations	$	737,350	$	122,590	$	170,462	$	25,507	$	418,791
Operating lease obligations		22,475		6,667		10,655		4,046		1,107
Total contractual cash obligations	$	759,825	$	129,257	$	181,117	$	29,553	$	419,898

        In addition, we agreed to make milestone payments under certain research and development collaborations. These milestone payments are generally contingent on receiving regulatory approval for the products under development. We also agreed to make certain contingent payments to GSK for Zovirax in the event of the termination of the Wellbutrin XL development agreement by either GSK or us.

        In November 2001, we filed a $1.5 billion base shelf prospectus with the Canadian provincial securities commissions covering the potential sale of any combination of common shares, debt securities or warrants. On the same date, we filed a registration statement on Form F-10 covering those securities with the SEC under the multijurisdictional disclosure system. We may offer one or more of these types of securities in one or more offerings during the succeeding 25 months. One or more shareholders may also sell common shares pursuant to the base shelf prospectus. We will not receive any of the proceeds from any sale of common shares by the selling shareholders.

        In November 2001, we issued 12,500,000 common shares for gross proceeds of $587.5 million under our base shelf prospectus. In addition, the underwriters exercised in full an over-allotment option, which was granted in connection with the offering, to purchase an additional 1,875,000 of our common shares from Eugene Melnyk, Chairman of the Board and Chief Executive Officer, for $88.1 million. We did not receive any of the proceeds from the sale of the additional common shares by Mr. Melnyk.

21

        In March 2002, we issued $400 million aggregate principal amount of unsecured Notes under our base shelf prospectus. Interest on our Notes is payable semi-annually in arrears on April 1 and October 1 of each year. Our Notes were issued at a price of 99.27% of their aggregate principal amount for an effective yield, if held to maturity, of 8%. At December 31, 2002, our Notes had a BB- credit rating with S&P.

        At any time on or after April 1, 2006, we may redeem all or any of our Notes at prescribed prices, plus accrued and unpaid interest to the date of redemption. Before April 1, 2005, we may redeem up to 35% of the original principal amount of our Notes, with the net cash proceeds of certain sales of our common shares, at 107.875% of the principal amount plus accrued and unpaid interest to the date of redemption.

        We have a balance of $424.4 million available under our base shelf prospectus to offer at our discretion. Our base shelf prospectus will expire in December 2003.

        In February 2002, by resolution of the Board of Directors we implemented a stock repurchase program pursuant to which we were able to repurchase up to 5% of our issued and outstanding common shares. In May 2002, the Board of Directors increased the amount to 10% of our issued and outstanding common shares. We repurchased an aggregate of 12,872,300 common shares under this program, through open market transactions on the New York Stock Exchange and Toronto Stock Exchange, at an average purchase price of $39.08 per share for total consideration of $503.1 million. The excess of the cost of the common shares acquired over the stated capital thereof, totaling $388.2 million, was charged to deficit. The program was terminated in July 2002.

        In April 2002, we acquired a 15% equity interest in Ethypharm and we have an option to purchase up to an additional 5% interest in Ethypharm. At April 30, 2003, we had not exercised our option. We also licensed the marketing rights to six products from Ethypharm for commercialization in the United States, Canada and Mexico. We are obligated to pay Ethypharm up to $61 million in milestone payments on the first regulatory approval of the products within the United States, Canada or Mexico, as well as royalties on the net sales of the products. We have also entered into a cross-license agreement with Ethypharm whereby we grant to each other non-exclusive licenses to use our CEFORM™ technology and Ethypharm's Flashtab technology, respectively, relating to the development of new rapid dissolve pharmaceutical products. At April 30, 2003, we had not made any milestone payments to Ethypharm.

        In July 2002, we acquired newly issued common shares (15% of the issued and outstanding common shares) of DepoMed and we have options to purchase up to an additional 5% interest in DepoMed. At April 30, 2003, we had not exercised any of our options. We also licensed from DepoMed the rights to manufacture and market a once-daily metformin product that is currently undergoing Phase III clinical trials.

        In November 2002, together with certain of Reliant's existing lenders, we established an $85 million secured credit facility in favour of Reliant. At December 31, 2002 and March 31, 2003, we had advanced $30 million to Reliant out of our total commitment to fund up to $40 million of the credit facility. The credit facility is available to Reliant for general corporate purposes. Interest is calculated daily on outstanding advances at U.S. prime rate plus a margin of 2%. Commencing March 31, 2005, the outstanding advances are repayable in instalments with the final instalment due on December 31, 2006.

        We believe we have adequate capital resources and sources of financing to support our ongoing operational and interest requirements and investment objectives, and to meet our obligations as they become due. We believe we will be able to raise additional capital, if necessary, to support our objectives; however, there can be no assurance that, if required, we would be able to raise such capital on favourable terms.

22

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We are exposed to financial market risks, including changes in foreign currency exchange rates, interest rates on investments and debt obligations and equity market prices on long-term investments. We currently use derivative financial instruments to manage our exposure to interest rate risk. We use derivative financial instruments as a risk management tool and not for trading or speculative purposes.

        Inflation has not had a significant impact on our results of operations.

Foreign currency risk

        We operate internationally but a majority of our revenue and expense activities and capital expenditures are transacted in U.S. dollars. Our only other significant transactions are in Canadian dollars, and we do not believe we have a material exposure to foreign currency risk because of the relative stability of the Canadian dollar in relation to the U.S. dollar. A 10% change in foreign currency exchange rates would not have a material effect on our consolidated results of operations, financial position or cash flows.

Interest rate risk

        The primary objective of our investment policy is the protection of principal and, accordingly, we invest in high-grade government and corporate securities with varying maturities, but typically less than 90 days. External independent fund administrators manage our investments. As it is our intent and policy to hold these investments until maturity, we do not have a material exposure to interest rate risk.

        We are exposed to interest rate risk on borrowings under our credit facility. Our credit facility bears interest based on LIBOR, U.S. dollar base rate, Canadian dollar prime rate or Canadian dollar BA. At our option we may lock in a rate of interest for a period of up to one year.

        The imputed rates of interest used to discount our Zovirax, Vasotec® and Wellbutrin® long-term obligations are fixed and therefore not subject to interest rate risk.

        The fair value of our fixed rate Notes is affected by changes in interest rates. We manage this exposure to interest rate changes through the use of interest rate swap contracts. In June 2002, we entered into three contracts of aggregate $200 million notional amount, which effectively modifies our exposure to interest rate fluctuations by converting one-half of our fixed rate Notes to floating rate. At December 31, 2002, the marked-to-market value of the contracts was an unrecognized gain of $18.6 million in our favour.

        Based on our overall interest rate exposure at December 31, 2002, a 10% change in interest rates would not have a material effect on our consolidated results of operations, financial position or cash flows.

Investment risk

        We are exposed to investment risks on our investments in other companies. The fair values of our investments are subject to significant fluctuations due to stock market volatility and changes in general economic conditions. We regularly review the carrying values of our investments and record losses when events and circumstances indicate that there have been declines in their fair values. At December 31, 2002, we had investments without readily determinable market values of $72.4 million and investments with readily determinable market values at fair value of $6.9 million. Based on the carrying values of our investments with readily determinable market values at December 31, 2002, adverse changes of 25% and 50% in equity market prices would result in a corresponding decline in the total fair value of these investments of approximately $2 million and $3.5 million, respectively.

23

RECENT ACCOUNTING PRONOUNCEMENTS

        In December 2001, the CICA issued Accounting Guideline ("AcG") 13, "Hedging Relationships". AcG-13 establishes the criteria for identification, designation, documentation and effectiveness of hedging relationships, for the purpose of applying hedge accounting. AcG-13 does not specify hedge-accounting methods. AcG-13 is to be applied to hedging relationships in effect in fiscal years beginning on or after July 1, 2003. In June 2002, the Emerging Issues Committee ("EIC") issued EIC-128, "Accounting for Trading, Speculative or Non-Hedging Derivative Financial Instruments". EIC-128 establishes that a freestanding derivative financial instrument that gives rise to a financial asset or financial liability and is entered into for trading or speculative purposes, or that does not qualify for hedge accounting under AcG-13 should be recognized in the balance sheet and measured at fair value, with changes in fair value recognized in net income.

        In December 2002, the CICA issued Handbook Section 3063, "Impairment of Long-Lived Assets". CICA Handbook Section 3063 establishes standards for the recognition, measurement and disclosure of impairments of long-lived assets held for use. CICA Handbook Section 3063 is effective for fiscal years beginning on or after April 1, 2003. In December 2002, the CICA also issued Handbook Section 3475, "Disposal of Long-Lived Assets and Discontinued Operations". CICA Handbook Section 3475 establishes standards for the recognition, measurement, presentation and disclosure of the disposal of long-lived assets and also establishes the standards for the presentation and disclosure of discontinued operations. CICA Handbook Section 3475 is effective for disposal activities initiated on or after May 1, 2003.

        In February 2003, the CICA issued AcG-14, "Disclosures of Guarantees". AcG-14 establishes the disclosures to be made by a guarantor about its obligations under guarantees. AcG-14 is effective for fiscal years beginning on or after January 1, 2003.

FORWARD-LOOKING STATEMENTS

        To the extent any statements made or incorporated by reference in this MD&A contain information that is not historical, these statements are essentially forward-looking. As such, these statements are subject to risks and uncertainties, including the difficulty of predicting FDA and Canadian Therapeutic Products Programme approvals, acceptance and demand for new pharmaceutical products, the impact of competitive products and pricing, new product development and launch, reliance on key strategic alliances, availability of raw materials, production interruptions or supply delays at third party suppliers or at our own manufacturing facilities, the outcome of litigation, the regulatory environment, fluctuations in operating results and other risks detailed from time to time in our filings with the securities commissions or other securities regulatory authorities in Canada, including the risks set forth in Item 3 of our Annual Information Form for the fiscal year ended December 31, 2002, and the U.S. Securities and Exchange Commission.

24

BIOVAIL CORPORATION
2002 ANNUAL REPORT
FOR CANADIAN REGULATORY PURPOSES

MANAGEMENT REPORT

        The Company's management is responsible for preparing the accompanying consolidated financial statements in conformity with Canadian generally accepted accounting principles ("GAAP"). In preparing these consolidated financial statements, management selects appropriate accounting policies and uses its judgement and best estimates to report events and transactions as they occur. Management has determined such amounts on a reasonable basis in order to ensure that the consolidated financial statements are presented fairly, in all material respects. Financial data included throughout this Annual Report is prepared on a basis consistent with that of the consolidated financial statements.

        The consolidated financial statements and information contained in the Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") necessarily include amounts based on informed judgments and estimates of the expected effects of current events and transactions with appropriate considerations to materiality. In addition, in preparing the financial information management must interpret the requirements described above, make determinations as to the relevancy of information to be included, and make estimates and assumptions that affect reported information. The MD&A also includes information regarding the estimated impact of current transactions and events, sources of liquidity and capital resources, operating trends, risks and uncertainties. Actual results in the future may differ materially from our present assessment of this information because future events and circumstances may not occur as expected.

        The Company maintains a system of internal accounting controls designed to provide reasonable assurance, at a reasonable cost, that assets are safeguarded and that transactions are executed and recorded in accordance with the Company's policies for doing business. This system is supported by written policies and procedures for key business activities; the hiring of qualified, competent staff; and by a continuous planning and monitoring program.

        Ernst & Young LLP has been engaged by the Company's shareholders to audit the consolidated financial statements. During the course of their audit, Ernst & Young LLP reviewed the Company's system of internal controls to the extent necessary to render their opinion on the consolidated financial statements.

        The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The Board carries out the responsibility principally through its Audit Committee. The members of the Audit Committee are outside Directors. The Committee considers, for review by the Board of Directors and approval by the shareholders, the engagement or reappointment of the external auditors. Ernst & Young LLP has full and free access to the Audit Committee.

        Management acknowledges its responsibility to provide financial information that is representative of the Company's operations, is consistent and reliable, and is relevant for the informed evaluation of the Company's activities.

EUGENE N. MELNYK	BRIAN H. CROMBIE
Chairman of the Board and Chief Executive Officer	Senior Vice President and Chief Financial Officer

25

BIOVAIL CORPORATION
2002 ANNUAL REPORT
FOR CANADIAN REGULATORY PURPOSES

AUDITORS' REPORT

To the Shareholders of
Biovail Corporation

        We have audited the consolidated balance sheets of Biovail Corporation as at December 31, 2002 and 2001 and the consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with Canadian and United States generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

        In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2002 and 2001 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2002 in accordance with Canadian generally accepted accounting principles.

        On April 9, 2003, we reported separately to the shareholders of Biovail Corporation on the consolidated financial statements for the same periods, prepared in accordance with United States generally accepted accounting principles.

Chartered Accountants

Toronto, Canada,

April 9, 2003

26

BIOVAIL CORPORATION

CONSOLIDATED BALANCE SHEETS

In accordance with Canadian generally accepted accounting principles
(All dollar amounts expressed in thousands of U.S. dollars)

	As at December 31
	2002 $		2001 $
ASSETS
Current
Cash and cash equivalents (note 4)	56,080		434,891
Accounts receivable (note 5)	190,980		96,556
Inventories (note 6)	53,047		38,506
Deposits and prepaid expenses	21,524		6,643
	321,631		576,596
Long-term investments (note 7)	79,324		2,355
Property, plant and equipment, net (note 8)	136,784		85,581
Goodwill, net (note 2)	104,827		101,521
Intangible assets, net (notes 2 and 9)	1,500,397		862,859
Other assets, net (note 10)	94,703		14,114
	2,237,666		1,643,026
LIABILITIES
Current
Accounts payable	71,641		31,811
Accrued liabilities (note 11)	95,289		59,989
Income taxes payable	35,691		17,318
Deferred revenue (note 12)	19,947		27,030
Current portion of long-term obligations (note 13)	122,590		12,592
	345,158		148,740
Deferred revenue (note 12)	18,200		23,100
Future income taxes (notes 2 and 17)	—		12,200
Long-term obligations (note 13)	609,521		33,569
	972,879		217,609
SHAREHOLDERS' EQUITY
Common shares (note 14)	1,455,548		1,430,457
Stock options outstanding	4,206		3,391
Executive Stock Purchase Plan loans (note 14)	(9,988	)	(9,988	)
Warrants outstanding (note 14)	—		6,221
Deficit	(182,586	)	(1,935	)
Cumulative translation adjustment	(2,393	)	(2,729	)
	1,264,787		1,425,417
	2,237,666		1,643,026
Commitments and contingencies (notes 3, 20, 23, 24 and 25)

On behalf of the Board:

EUGENE N. MELNYK Chairman of the Board and Chief Executive Officer	PAUL W. HADDY Director

The accompanying notes are an integral part of the consolidated financial statements.

27

BIOVAIL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

In accordance with Canadian generally accepted accounting principles
(All dollar amounts expressed in thousands of U.S. dollars, except per share data)

	Years ended December 31
	2002 $			2001 $			2000 $
REVENUE
Product sales		645,986			521,154			217,004
Research and development		28,425			14,596			69,121
Co-promotion, royalty and licensing		113,614			47,513			25,332
		788,025			583,263			311,457
EXPENSES
Cost of goods sold		164,706			125,995			67,980
Research and development		52,150			51,017			51,709
Selling, general and administrative		165,697			111,362			59,317
Amortization		125,849			98,097			16,228
Write-down of assets (note 15)		31,944			80,482			—
		540,346			466,953			195,234
Operating income		247,679			116,310			116,223
Interest income		3,608			2,742			23,693
Interest expense (note 13)		(32,005	)		(21,060	)		(4,629	)
Premium paid on early extinguishment of U.S. Dollar Senior Notes (note 16)		—			—			(20,039	)
Income before provision for (recovery of) income taxes		219,282			97,992			115,248
Provision for (recovery of) income taxes (note 17)		11,729			(25,998	)		5,795
Net income		207,553			123,990			109,453
Interest on Convertible Subordinated Preferred Equivalent Debentures (note 18)		—			(28,436	)		(28,290	)
Debt conversion premiums (note 18)		—			(10,001	)		—
Net income attributable to common shareholders		207,553			85,553			81,163
Earnings per share(note 19)
Basic	$	1.37		$	0.62		$	0.63
Diluted	$	1.29		$	0.57		$	0.57
Weighted average number of common shares outstanding (000s) (note 19)
Basic		151,960			136,928			128,824
Diluted		160,463			150,690			143,512

The accompanying notes are an integral part of the consolidated financial statements.

28

BIOVAIL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

In accordance with Canadian generally accepted accounting principles
(All dollar amounts expressed in thousands of U.S. dollars)

					Common shares
			Convertible Subordinated Preferred Equivalent Debentures $		Shares (000s)	Amount $		Stock options outstanding $		Executive Stock Purchase Plan loans $	Warrants outstanding $		Retained earnings (deficit) $		Cumulative translation adjustment $		Total $
Balance, January 1, 2000			—		124,392	368,538		—		—	8,244		13,752		1,260		391,794
Change in accounting policy for income taxes (note 2)			—		—	—		—		—	—		(51,848	)	—		(51,848	)
Issued on the exercise of stock options (note 14)			—		2,436	13,725		—		—	—		—		—		13,725
Issued under Employee Stock Purchase Plan (note 14)			—		5	150		—		—	—		—		—		150
Issued pursuant to equity offering (note 14)			—		4,000	101,125		—		—	—		—		—		101,125
Issue costs (note 14)			—		—	(5,782	)	—		—	—		—		—		(5,782	)
Convertible Subordinated Preferred Equivalent Debentures (note 18)
		Issued pursuant to offering	300,000		—	—		—		—	—		—		—		300,000
		Financing costs	(11,228	)	—	—		—		—	—		—		—		(11,228	)
		Accretion of principal and interest components	28,290		—	—		—		—	—		(28,290	)	—		—
		Interest paid	(15,750	)	—	—		—		—	—		—		—		(15,750	)
		Conversion	(15	)	—	15		—		—	—		—		—		—
Issued on exercise of warrants (note 14)			—		601	6,342		—		—	(332	)	—		—		6,010
Issue of non-employee options			—		—	—		590		—	—		—		—		590
Fuisz Technologies Ltd. (note 3)
	Additional shares issued on acquisition		—		27	386		—		—	—		—		—		386
DJ Pharma, Inc. (note 3)
	Fair value of unvested options granted to employees on acquisition		—		—	—		7,480		—	—		—		—		7,480
	Unearned compensation relating to future service period at acquisition date		—		—	—		(5,721	)	—	—		—		—		(5,721	)
	Compensation cost for employee stock options		—		—	—		461		—	—		—		—		461
Net income			—		—	—		—		—	—		109,453		—		109,453
Foreign currency translation adjustment			—		—	—		—		—	—		—		(1,735	)	(1,735	)
Balance, December 31, 2000			301,297		131,461	484,499		2,810		—	7,912		43,067		(475	)	839,110

29

Issued on the exercise of stock options (note 14)		—		2,906		29,507		(683	)	—		—		—		—		28,824
Issued under Employee Stock Purchase Plan (note 14)		—		6		280		—		—		—		—		—		280
Cancelled under stock repurchase program (note 14)		—		(2,871	)	(14,354	)	—		—		—		(105,633	)	—		(119,987	)
Issued pursuant to equity offering (note 14)		—		12,500		587,500		—		—		—		—		—		587,500
Issue costs (note 14)		—		—		(27,454	)	—		—		—		—		—		(27,454	)
Convertible Subordinated Preferred Equivalent Debentures (note 18)
	Accretion of principal and interest components	28,436		—		—		—		—		—		(28,436	)	—		—
	Interest paid	(13,612	)	—		—		—		—		—		—		—		(13,612	)
	Issued on surrender and redemption	(316,013	)	10,433		339,695		—		—		—		(34,923	)	—		(11,241	)
	Redeemed for cash	(108	)	—		—		—		—		—		—		—		(108	)
Issued on exercise of warrants (note 14)		—		3,061		30,784		—		—		(1,691	)	—		—		29,093
Cancellation of non-employee options		—		—		—		(735	)	—		—		—		—		(735	)
Compensation cost for employee stock options		—		—		—		1,999		—		—		—		—		1,999
Executive Stock Purchase Plan loans (note 14)		—		—		—		—		(9,988	)	—		—		—		(9,988	)
Net income		—		—		—		—		—		—		123,990		—		123,990
Foreign currency translation adjustment		—		—		—		—		—		—		—		(2,254	)	(2,254	)
Balance, December 31, 2001		—		157,496		1,430,457		3,391		(9,988	)	6,221		(1,935	)	(2,729	)	1,425,417
Issued on the exercise of stock options (note 14)		—		2,197		20,480		(1,184	)	—		—		—		—		19,296
Issued under Employee Stock Purchase Plan (note 14)		—		17		463		—		—		—		—		—		463
Cancelled under stock repurchase program (note 14)		—		(12,872	)	(114,896	)	—		—		—		(388,204	)	—		(503,100	)
Issued on exercise of warrants (note 14)		—		11,282		119,044		—		—		(6,221	)	—		—		112,823
Compensation cost for employee stock options		—		—		—		1,999		—		—		—		—		1,999
Net income		—		—		—		—		—		—		207,553		—		207,553
Foreign currency translation adjustment		—		—		—		—		—		—		—		336		336
Balance, December 31, 2002		—		158,120		1,455,548		4,206		(9,988	)	—		(182,586	)	(2,393	)	1,264,787

The accompanying notes are an integral part of the consolidated financial statements.

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BIOVAIL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

In accordance with Canadian generally accepted accounting principles
(All dollar amounts expressed in thousands of U.S. dollars)

	Years ended December 31
	2002 $		2001 $		2000 $
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	207,553		123,990		109,453
Add (deduct) items not involving cash
Depreciation and amortization (notes 8 and 9)	136,718		108,871		29,984
Amortization of deferred financing costs (note 10)	2,267		1,260		179
Amortization of discounts on long-term obligations (note 13)	5,329		10,999		—
Compensation cost for employee stock options	1,999		1,999		461
Write-down of assets (note 15)	31,944		80,482		—
Future income taxes (note 17)	(9,771	)	(39,833	)	185
Premium paid on early extinguishment of U.S. Dollar Senior Notes (note 16)	—		—		20,039
	376,039		287,768		160,301
Net change in non-cash operating items (note 21)	(41,935	)	21,314		(47,230	)
Cash provided by operating activities	334,104		309,082		113,071
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of intangible assets (note 3)	(375,385	)	(27,445	)	(27,752	)
Acquisitions of businesses, net of cash acquired (note 3)	(240,581	)	—		(614,685	)
Acquisitions of long-term investments (note 7)	(85,119	)	(866	)	(2,454	)
Additions to property, plant and equipment	(61,382	)	(44,436	)	(15,845	)
Increase in loan receivable (note 10)	(30,000	)	—		—
Proceeds on reduction in intangible assets (note 3)	—		15,000		—
Maturity of short-term investments, net	—		—		65,893
Proceeds from sale of assets held for disposal (note 3)	—		—		20,000
Cash used in investing activities	(792,467	)	(57,747	)	(574,843	)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common shares, net of issue costs (note 14)	19,615		589,150		109,604
Repurchase of common shares (note 14)	(503,100	)	(119,987	)	—
Proceeds from exercise of warrants (note 14)	112,823		29,093		6,010
Advance of Executive Stock Purchase Plan loans (note 14)	—		(9,988	)	—
Issuance of Senior Subordinated Notes, net of financing costs (note 13)	384,280		—		—
Advances (repayments) under revolving term credit facility, including financing costs (note 13)	107,895		(211,300	)	207,000
Repayments of other long-term obligations (note 13)	(41,980	)	(193,366	)	(45,602	)
Interest paid on Convertible Subordinated Preferred Equivalent Debentures (note 18)	—		(13,612	)	(15,750	)
Payment on redemption of Convertible Subordinated Preferred Equivalent Debentures (note 18)	—		(11,349	)	—
Issuance of Convertible Subordinated Preferred Equivalent Debentures, net of financing costs (note 18)	—		—		288,772
Repurchase of U.S. Dollar Senior Notes (note 16)	—		—		(141,017	)
Cash provided by financing activities	79,533		58,641		409,017
Effect of exchange rate changes on cash and cash equivalents	19		(229	)	(187	)
Net increase (decrease) in cash and cash equivalents	(378,811	)	309,747		(52,942	)
Cash and cash equivalents, beginning of year	434,891		125,144		178,086
Cash and cash equivalents, end of year	56,080		434,891		125,144

The accompanying notes are an integral part of the consolidated financial statements.

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BIOVAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In accordance with Canadian generally accepted accounting principles
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

1.     GOVERNING STATUTE AND NATURE OF OPERATIONS

Biovail Corporation ("Biovail" or the "Company") is incorporated under the laws of the Province of Ontario, Canada. The Company is a full-service pharmaceutical company engaged in the formulation of pharmaceutical products utilizing advanced oral drug delivery technologies, clinical testing, registration, manufacturing, sale and promotion of pharmaceutical products targeting the cardiovascular (including Type II diabetes), central nervous system, pain management and niche therapeutic areas. The Company's common shares trade on the New York Stock Exchange ("NYSE") and the Toronto Stock Exchange ("TSX").

2.     SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The consolidated financial statements have been prepared by the Company in U.S. dollars and in accordance with Canadian generally accepted accounting principles ("GAAP"), applied on a consistent basis. Consolidated financial statements prepared in U.S. dollars and in accordance with U.S. GAAP are made available to all shareholders and filed with various regulatory authorities.

Principles of consolidation

The consolidated financial statements include the accounts of the Company and those of all its subsidiaries. All significant intercompany transactions and balances have been eliminated.

Use of estimates

In preparing the Company's consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates made by management include allowances for accounts receivable and inventories, reserves for product returns, recalls, rebates and chargebacks, the useful lives of long-lived assets, the expected cash flows used in evaluating long-lived assets and investments for impairment, the realizability of future tax assets and the allocation of the purchase price of acquired assets and businesses. Actual results could differ from these estimates.

Fair value of financial instruments

Fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties. The estimated fair values of cash equivalents, accounts receivable, accounts payable, accrued liabilities and income taxes payable approximate their carrying values due to the short maturity periods of these instruments. The fair values of long-term investments and long-term obligations are estimated based on quoted market prices, if available, or other valuation methods such as a present value technique. The fair values of derivative contracts are estimated based on the amount that would have been received or paid to settle the contracts.

Cash and cash equivalents

Cash and cash equivalents include highly liquid investments with original maturities of 90 days or less when purchased.

Inventories

Inventories comprise raw materials, work in process and finished goods, which are valued at the lower of cost and market, on a first-in, first-out basis. The cost of raw materials and acquired finished goods inventories includes direct costs, less trade discounts. The cost of manufactured inventory includes the cost of raw materials, direct labour and attributable overheads.

Long-term investments

Long-term investments in other companies, where the Company does not have the ability to exercise significant influence, are accounted for under the cost method. Declines in the fair value of these investments below their cost basis that are considered to be other than temporary are recognized in net income.

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Property, plant and equipment

Property, plant and equipment are reported at cost, less accumulated depreciation. Cost includes interest costs attributable to major capital projects prior to the assets becoming available for productive use. Depreciation is computed using the straight-line method, commencing when the assets become available for productive use, based on the following estimated useful lives:

Buildings	25 years
Machinery and equipment	5-10 years
Other equipment	3-10 years
Leasehold improvements	Term of lease

Goodwill and intangible assets

Goodwill represents the excess of the purchase price of acquired businesses over the fair value of the identifiable net assets acquired. Intangible assets acquired through business combinations are initially recognized at fair value based on an allocation of the purchase price. Intangible assets acquired other than through business combinations are initially recognized at fair value based on the consideration paid.

The Company has adopted The Canadian Institute of Chartered Accountants' ("CICA") Handbook Section 1581, "Business Combinations", and CICA Handbook Section 3062, "Goodwill and Other Intangible Assets" on a prospective basis. Under CICA Handbook Section 1581, all business combinations occurring after June 30, 2001 are to be accounted for under the purchase method of accounting. Under CICA Handbook Section 3062, which has been adopted effective January 1, 2002, goodwill and other intangible assets deemed to have indefinite lives are no longer amortized, but are subject to annual impairment tests. Intangible assets with finite lives continue to be amortized over their estimated useful lives.

Effective January 1, 2002, the Company identified those intangible assets that did not meet the criteria for recognition apart from goodwill, and assessed the useful lives of its remaining intangible assets. As a result, the Company reclassified the $5,722,000 net carrying amount of workforce related intangible assets, together with the related future tax liability of $2,429,000, to goodwill and determined that the useful lives of its remaining intangible assets were appropriate and consistent with those useful lives identified as at December 31, 2001. During 2002, the Company completed the transitional and annual evaluation of its goodwill and determined that none of its goodwill was impaired.

A reconciliation of reported net income attributable to common shareholders and earnings per share, assuming CICA Handbook Section 3062 was applied retroactively, is as follows:

	2002 $	2001 $	2000 $
Net income attributable to common shareholders as reported	207,553	85,553	81,163
Goodwill amortization	—	5,816	2,058
Workforce amortization, net of tax	—	612	247
Adjusted net income attributable to common shareholders	207,553	91,981	83,468
Basic earnings per share
Net income attributable to common shareholders as reported	1.37	0.62	0.63
Goodwill amortization	—	0.04	0.02
Workforce amortization, net of tax	—	—	—
Adjusted net income attributable to common shareholders	1.37	0.66	0.65
Diluted earnings per share
Net income attributable to common shareholders as reported	1.29	0.57	0.57
Goodwill amortization	—	0.04	0.01
Workforce amortization, net of tax	—	—	—
Adjusted net income attributable to common shareholders	1.29	0.61	0.58

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Intangible assets are reported at cost, less accumulated amortization. Amortization is generally computed using the straight-line method based on the following estimated useful lives:

Brand names	20 years
Product rights	8-20 years
Acquired research and development	5-15 years
Core technology	15 years

The Company evaluates intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. This evaluation is performed by comparing the carrying amounts of the assets to the related estimated undiscounted future net cash flows. If the undiscounted future net cash flows are less than the carrying amount of the asset, then the carrying amount of the asset is written down to its fair value.

Deferred financing costs

Deferred financing costs are reported at cost, less accumulated amortization. Amortization is computed using the straight-line method over the term of the following related obligations:

Revolving term credit facility	3 years
Senior Subordinated Notes	8 years

Amortization expense related to deferred financing costs is included as a component of interest expense.

Derivative financial instruments

The Company manages its exposure to interest rate risks through the use of derivative financial instruments that are designated as a hedge of an identified portion of a recognized long-term obligation. The Company does not utilize derivative financial instruments for trading or speculative purposes. Net receipts or payments relating to the derivative financial instruments are recorded as an adjustment to interest expense. Unrealized gains or losses resulting from changes in the marked-to-market values of the derivative financial instruments are not recognized.

Foreign currency translation

The financial statements of the Company's operations having a functional currency other than U.S. dollars are translated into U.S. dollars at the rate of exchange prevailing at the balance sheet date for asset and liability accounts and at the average rate of exchange for the reporting period for revenue and expense accounts. The cumulative foreign currency translation adjustment is reported as a component of shareholders' equity. The net change in the cumulative foreign currency translation adjustment in the periods presented is primarily due to fluctuations in the exchange rates between the U.S. dollar and the Canadian dollar and the euro.

Foreign currency transaction gains and losses are included in selling, general and administrative expenses and are immaterial for all periods presented.

Revenue recognition

In 2000, the Company implemented the provisions of the U.S. Securities and Exchange Commission's Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements", retroactively to January 1, 1998. These policies are generally accepted under both U.S. and Canadian GAAP. Accordingly, the Company changed its method of accounting to that described below for up-front research and development, product license and certain other fees. The Company historically recognized these fees as revenue when all the conditions to payment had been met and there were no further performance contingencies or conditions to the Company's receipt of payment. These fees were not creditable against future payments. At January 1, 2000, the cumulative effect of the change in accounting policy on prior years of $43,500,000 was recorded in deferred revenue, of which $4,800,000, $6,300,000 and $9,300,000 was amortized to revenue in 2002, 2001, and 2000, respectively.

Product sales — Product sales revenue is recognized when the product is shipped to the customer, provided that the Company has not retained any significant risks of ownership or future obligations with respect to the product shipped. Revenue from product sales is

34

recognized net of reserves for estimated sales discounts and allowances, returns, recalls, rebates and chargebacks. Amounts received from customers as prepayments for products to be shipped in the future are reported as deferred revenue.

Research and development — Research and development revenue attributable to the performance of contract services is recognized as the services are performed, in accordance with the terms of the specific development contract. On long-term research and development collaborations, revenue is recognized relative to the total level of effort necessary to meet all regulatory and developmental requirements. Costs and related profit margin in excess of amounts billed are included in accounts receivable. Amounts billed in excess of costs and related profit margin are included in deferred revenue. Non-refundable, up-front fees for access to the Company's proprietary technology in connection with certain research and development collaborations are deferred and recognized as revenue on a straight-line basis over the term of the related collaboration.

Co-promotion — Co-promotion revenue is recognized when the co-promotion partner records sales of the co-promoted product and is based on a percentage of the co-promotion partner's net sales of the co-promoted product. Sales and marketing costs related to co-promotion revenue are included in selling, general and administrative expenses.

Royalty and licensing — Royalty revenue is recognized in accordance with the contractual agreements and when the Company has no future obligations pursuant to the royalty fee. Royalty revenue is recognized net of amounts payable to sublicensees where the Company is simply acting as an agent for the sublicensee. Licensing revenue is deferred and recognized on a straight-line basis over the license period.

Research and development

Research costs are expensed in the period in which they are incurred and development costs are expensed in the period in which they are incurred unless they meet the criteria for deferral. The Company had not deferred any development costs at December 31, 2002 and 2001. The costs of assets that are purchased from others for a particular research and development project that have not reached technological feasibility and that have no alternative future use are deferred and amortized over their estimated useful lives. The costs associated with research and development collaborations and with providing contract research services are included in research and development expenses and were $11,570,000, $7,596,000 and $41,522,000 in 2002, 2001 and 2000, respectively.

Advertising

Advertising costs related to new product launches are expensed on the first showing of the product. Deferred advertising costs of $8,866,000 are included in deposits and prepaid expenses at December 31, 2002. The Company had not deferred any advertising costs at December 31, 2001. Advertising costs expensed in 2002, 2001 and 2000 were $18,795,000, $3,957,000 and $3,434,000, respectively.

Co-promotion fees

Co-promotion fees payable by the Company to its co-promotion partner are accrued based on a percentage of the net sales of the co-promoted products. Co-promotion fees are included in selling, general and administrative expenses.

Stock-based compensation

Effective January 1, 2002, the Company adopted CICA Handbook Section 3870, "Stock-Based Compensation and Other Stock-Based Payments". CICA Handbook Section 3870 establishes standards for the recognition, measurement and disclosure of stock-based compensation, and other stock-based payments, and generally applies to awards granted on or after January 1, 2002. Under the provisions of CICA Handbook Section 3870, companies can either measure the compensation cost of equity instruments issued under employee compensation plans using a fair value-based method or can recognize compensation cost using another method, such as the intrinsic value-based method. However, if another method is applied, pro forma disclosure of net income and earnings per share must be presented in the financial statements as if the fair value-based method had been applied. All stock-based awards granted to non-employees must be accounted for at fair value. The Company recognizes employee stock-based compensation costs under the intrinsic value-based method, and has provided pro forma disclosure of net income attributable to common shareholders and earnings per share as if the fair value-based method had been applied. The adoption of CICA Handbook Section 3870 as of January 1, 2002 did not have any impact on the Company's financial position and results of operations.

35

Income taxes

Effective January 1, 2000, the Company adopted the recommendations of CICA Handbook Section 3465, "Income Taxes". Accordingly, income taxes are accounted for under the liability method. Future tax assets and liabilities are recognized for the differences between the financial statement and income tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. A valuation allowance is provided for the portion of future tax assets that is more likely than not to be unrealized. Future tax assets and liabilities are measured using substantively enacted tax rates and laws expected to apply when the assets are expected to be realized or the liabilities are expected to be settled.

Previously, income taxes were accounted for under the deferral method based on differences in the timing of reporting income and expenses in the financial statements and tax returns. At January 1, 2000, the cumulative effect of this change in accounting policy on prior years resulted in a charge of $51,848,000 to retained earnings, a decrease in goodwill of $32,892,000, and a net increase in future income tax liability of $18,956,000. The adjustment was primarily the result of the 1999 acquisition of Fuisz Technologies Ltd. ("Fuisz") and the recognition of the tax consequences of the differences between the assigned values and tax bases of the acquired assets and liabilities and the recognition of the tax benefit of the available loss carryforwards.

Earnings per share

Basic earnings per share are computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share are computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding during the reporting period after giving effect to dilutive potential common shares. The dilutive effects of warrants and stock options are determined using the treasury stock method. The dilutive effects of convertible securities are determined using the if-converted method.

3.     ACQUISITIONS

Acquisitions of intangible assets

During 2002, the Company acquired the rights to Wellbutrin® and Zyban® in Canada and Vasotec®, Vaseretic®, Teveten® and Zovirax in the United States. Total consideration was allocated based on the fair values on the respective dates of acquisition as follows:

	Wellbutrin® and Zyban® $	Vasotec® and Vaseretic® $	Teveten® $	Zovirax $	Total $
Acquired assets
Prepaid expenses	2,609	—	—	—	2,609
Product rights	45,000	79,500	94,340	173,364	392,204
Trademarks	24,349	165,804	—	—	190,153
	71,958	245,304	94,340	173,364	584,966
Consideration
Cash paid, net of gross profit on acquired assets	1,997	145,684	94,340	133,364	375,385
Long-term obligations	69,961	99,620	—	40,000	209,581
	71,958	245,304	94,340	173,364	584,966

Wellbutrin® and Zyban®

On December 26, 2002, Biovail acquired from GlaxoSmithKline plc ("GSK") the Canadian rights to Wellbutrin® SR and Zyban®, as well as the rights to market Biovail's once-daily formulation of bupropion hydrochloride ("HCl") in Canada under the trade name Wellbutrin® XL when, and if, regulatory approval is received. Wellbutrin® SR is prescribed for the treatment of depression and Zyban® is administered for the treatment of nicotine addiction as an aid to smoking cessation. Both products are formulations of bupropion HCl. Biovail obtained the beneficial rights to Wellbutrin® and Zyban® effective December 1, 2002 and will obtain full legal rights on March 2, 2004 following the completion of the payments described below.

36

GSK will continue to manufacture and supply Wellbutrin® SR and Zyban® for the period from December 31, 2002 to December 31, 2006. GSK will assist in qualifying a Biovail facility to achieve the transition of the manufacturing process. GSK will also continue to market Wellbutrin® SR and Zyban® in Canada for the period from December 1, 2002 to December 31, 2003 and, in consideration, Biovail will pay GSK a tiered royalty on the net sales of the products. Biovail will also pay GSK a royalty on the net sales of Wellbutrin® XL in Canada for twenty years from the date of commercial launch of the product.

The purchase price for Wellbutrin® and Zyban® comprised initial cash consideration of $1,997,000, including costs of acquisition, plus remaining payments of $72,072,000 payable in four quarterly instalments from June 1, 2003 to March 1, 2004. The remaining payments were present valued using an imputed interest rate comparable to Biovail's available borrowing rate at the date of the transaction. Accordingly, the present value of the remaining payments was determined to be $69,961,000.

Prepaid expenses will be amortized over the one-year period from January 1, 2003 during which GSK will market Wellbutrin® SR and Zyban® in Canada. The trademarks and product rights will be amortized over their estimated useful lives of twenty years and fifteen years, respectively.

Vasotec® and Vaseretic®

On May 10, 2002, Biovail acquired Vasotec® (enalapril) and Vaseretic® (enalapril with hydrochlorothiazide) from Merck & Co., Inc. ("Merck"), and also acquired the fixed-dose combination New Drug Application ("NDA") of enalapril in combination with diltiazem malate. The agreement calls for Merck to manufacture and supply Vasotec® and Vaseretic® and to temporarily provide distribution services. Biovail will make semi-annual payments to Merck over a five-year term for minimum product quantities and a minimum fixed royalty (regardless of the actual product supplied). Merck will also receive royalties on the future sales of any life cycle products developed and marketed in the United States.

Biovail also entered into a separate agreement with Merck to develop, license and supply a new dosage format of a Merck product under development as described in note 25 — Research and Development Collaborations.

The purchase price for Vasotec® and Vaseretic® comprised cash consideration, including costs of acquisition, of $155,634,000, less Merck's gross profit on the acquired assets from April 1, 2002 (the effective date of the transaction) to May 10, 2002 (the closing date of the transaction) of $9,950,000, plus the minimum fixed royalty payments required to be made by Biovail to Merck of $109,276,000. The minimum fixed royalty payments were present valued using an imputed interest rate comparable to Biovail's available borrowing rate at the date of the transaction. Accordingly, the present value of the minimum fixed royalty payments was determined to be $99,620,000.

The trademarks and product rights will be amortized over their estimated useful lives of twenty years and fifteen years, respectively.

A letter of credit was issued to Merck to secure the remaining semi-annual payments Biovail is required to make under the Vasotec® and Vaseretic® agreement. The letter of credit was issued under Biovail's revolving term credit facility (the "Credit Facility") and had a balance remaining of $93,170,000 as at December 31, 2002. The fees incurred to issue the letter of credit are amortized to interest expense over the related term of the letter of credit.

Teveten®

On March 18, 2002, Biovail acquired from Solvay Pharmaceuticals Marketing & Licensing AG ("Solvay") the rights to Teveten® (eprosartan mesylate) and Teveten® HCT (eprosartan mesylate and hydrochlorothiazide combination) in the United States. Teveten® is an angiotensin-II receptor blocker for the treatment of hypertension and is indicated for use either alone or in conjunction with other antihypertensive medications.

The purchase price for Teveten® comprised cash consideration of $94,340,000, including costs of acquisition. The product rights will be amortized over an estimated useful life of twenty years.

Solvay will manufacture and supply Teveten® and Teveten® HCT, and will assist in qualifying a Biovail facility to achieve the transition of the manufacturing process. Solvay will continue to manufacture and market Teveten® and Teveten® HCT in areas outside of the United States. Solvay will pay a marketing allowance to Biovail, of up to $20,000,000, to reimburse Biovail for the agreed on direct costs related to the re-launch and marketing of Teveten® and Teveten® HCT in the United States. During 2002, Biovail recorded $10,000,000 of the marketing allowance as a reimbursement of a portion of the agreed on direct costs associated with the re-launch of Teveten®. Biovail has formed a joint business development committee with Solvay to discuss future clinical and product development options that can enhance the performance or expand the utilization of Teveten®. Solvay has the option to acquire all potential future modifications and innovations developed by Biovail for Teveten® for worldwide markets excluding the United States.

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Zovirax

Effective January 1, 2002, Biovail acquired from GSK the exclusive distribution rights for Zovirax (acyclovir) Ointment and, on approval by the U.S. Food and Drug Administration ("FDA"), Zovirax Cream in the United States. Zovirax is an anti-viral topical product. Zovirax Ointment is indicated for the treatment of herpes and Zovirax Cream is indicated for the treatment of cold sores.

The purchase price for Zovirax comprised cash consideration of $133,364,000, including costs of acquisition. The product rights were being amortized over an estimated useful life of ten years, based on the original term of the distribution agreement.

Biovail and GSK also entered into a development and co-promotion agreement for Biovail's once-daily formulation of bupropion HCl in the United States ("Wellbutrin XL") as described in note 24 — Co-Promotion Arrangements. In the event of the termination of the Wellbutrin XL development agreement by either party, Biovail would be required to pay GSK additional payments for the rights to the Zovirax products of $22,000,000 per year for calendar years 2002 through 2006, with an aggregative cumulative total of all additional rights payments not to exceed $99,000,000, and for calendar years 2007 through 2011, Biovail would be required to pay GSK additional payments based on a percentage of Biovail's gross sales of the Zovirax products during the immediately preceding calendar year. GSK will manufacture and supply Zovirax Ointment and, on FDA approval, Zovirax Cream to Biovail.

On December 23, 2002, Biovail and GSK agreed to a ten-year extension of the Zovirax distribution agreement. In consideration for the extension, Biovail will pay GSK $40,000,000 on or before March 31, 2003. The amount was added to the value of the unamortized Zovirax product rights and, subsequent to the date of amendment, the Zovirax product rights will be amortized over a revised estimated remaining useful life of nineteen years.

Adalat

On December 29, 2000, Biovail and Elan Corporation, plc ("Elan") agreed to certain amendments to the licensing and supply agreement for Elan's 30mg bioequivalent version of Adalat CC (as amended, the "Adalat Agreement"). Under the terms of the Adalat Agreement, Biovail was to pay Elan annual minimum license payments, exclusive of the direct manufacturing cost of the 30mg product purchased from Elan.

The minimum license payments were capitalized as a product right, with a corresponding long-term obligation to Elan. The value assigned to the product right and obligation was the present value of the minimum license payments based on an imputed interest rate comparable to Biovail's available borrowing rate as at the date of the transaction. Accordingly, the present value of the minimum license payments was determined to be $64,720,000. The product right was being amortized over its estimated useful life of fifteen years, which was the remaining initial term of the Adalat Agreement. Under the terms of the Adalat Agreement, Biovail was entitled to recover $15,000,000 in the form of a 50% reduction of the minimum license payments otherwise payable to Elan. During 2001, this amount was recorded as a reduction in intangible assets.

In October 2001, Biovail paid $12,750,000 to Elan to acquire the license to distribute Elan's 60mg bioequivalent version of Adalat CC.

In June 2002, Biovail, Elan and the U.S. Federal Trade Commission ("FTC") entered into a settlement related to bioequivalent versions of Adalat CC. Under the terms of the FTC's consent order, Biovail and Elan agreed to terminate their licensing and supply agreements such that Biovail and Elan will be responsible for the manufacturing and marketing of their own 30mg and 60mg products. Until May 31, 2003, the FTC settlement grants Biovail a guaranteed supply of the 30mg product from Elan during Biovail's transition to internal production.

In December 2002, the Company wrote off the net book value of the Adalat product rights as described in note 15 — Write-Down of Assets.

Acquisitions of businesses

During 2002, Biovail completed the acquisitions of Pharmaceutical Technologies Corporation ("Pharma Tech") and Pharma Pass LLC and Pharma Pass S.A. (collectively, "Pharma Pass"). These acquisitions were accounted for under the purchase method of accounting.

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Total consideration, including costs of acquisition, was allocated based on the estimated fair values on the respective dates of acquisition as follows:

	Pharma Tech $		Pharma Pass $	Total $
Acquired assets
Product rights	5,000		63,800	68,800
Acquired research and development	60,558		107,187	167,745
Core technology	—		7,700	7,700
Current liabilities	(3,664	)	—	(3,664	)
Cash paid, net of cash acquired	61,894		178,687	240,581

Pharma Tech

Background

Pharma Tech is a development-stage company engaged in the application of drug delivery technologies to the formulation and development of a portfolio of products. Pharma Tech contracted directly with third parties, including Biovail, to conduct the contract research and development services. Biovail provided contract research and advisory services consistent with contractual relationships it had with other third parties. On the completion of the development of Biovail's products, Biovail had the right to manufacture and sell the products and Pharma Tech was entitled to royalties from the net sales of each product for a period of ten years from the date of launch of each product. Biovail had options to acquire Pharma Tech's interest in the products or to acquire Pharma Tech.

Prior to the acquisition, Biovail earned revenue from providing advisory and contract research services to Pharma Tech of $2,844,000 and $2,189,000 in 2002 and 2001, respectively. The costs of providing these services to Pharma Tech were $2,053,000 and $1,679,000 in 2002 and 2001, respectively, and Biovail was also reimbursed amounts at cost of $2,509,000 and $1,395,000 in 2002 and 2001, respectively.

Description of acquisition

On December 17, 2002, Biovail paid $43,080,000 to Pharma Tech to terminate the development of one of the products under development and the associated royalties on future sales of the product when, and if, approved by the FDA. At the date of termination, the product had not reached technological feasibility, had no known alternative uses and had not yet been submitted for approval by the FDA. Accordingly, the termination payment was capitalized as acquired research and development and will be amortized over its estimated useful life of five years. Biovail is continuing the development program for this product.

On December 31, 2002, Biovail acquired 100% of the outstanding shares of Pharma Tech for $22,600,000, including costs of acquisition. Through the acquisition of Pharma Tech, Biovail extinguished any future milestone or royalty obligations that Biovail may have had to Pharma Tech resulting from the approval and successful commercialization of any of the products under development, pursuant to the research and development agreements previously entered into between Biovail and Pharma Tech. Pharma Tech has been included in Biovail's consolidated financial statements from the date of acquisition.

The acquired assets of Pharma Tech were fair valued using an income approach. The discount rates used to present value the estimated cash flows related to each asset were determined based on the relative risk of achieving the assets' estimated cash flows and were in the range of 30% to 45%.

Acquired research and development

At the date of acquisition, Pharma Tech was involved in a number of product development projects that had not been submitted for approval by the FDA. An additional product development project has received an approvable letter from the FDA; however, significant technical issues require resolution before final approval will be granted. The products under development were in various stages of completion, had not reached technological feasibility and had no known alternative uses, and were considered to be acquired research and development. The efforts required to develop the acquired research and development into commercially viable products include the completion of the development stages of the products, clinical-trial testing, FDA approval and commercialization. The principal risks relating to the products in development are the outcomes of the formulation development, clinical studies and regulatory filings. Since

39

pharmaceutical products cannot be marketed without regulatory approvals, Biovail will not receive any benefits unless regulatory approval is obtained. The acquired research and development will be amortized over an estimated useful life of five years.

Product rights

At the date of acquisition, Pharma Tech was involved with an additional product development project that had been submitted for approval by the FDA. The product has received an approvable letter from the FDA and Biovail believes that the remaining issues can be successfully resolved and that final approval will be granted. However, since pharmaceutical products cannot be marketed without regulatory approvals, Biovail will not receive any benefits unless regulatory approval is obtained. The product rights will be amortized over an estimated useful life of fifteen years.

Pro forma information (unaudited)

The following unaudited pro forma information presents a summary of the consolidated results of operations of Biovail and Pharma Tech as if the acquisition had occurred on January 1, 2001. All transactions between Biovail and Pharma Tech have been eliminated.

	2002 $	2001 $
Total revenue	778,492	579,815
Net income attributable to common shareholders	152,829	51,962
Basic earnings per share	1.01	0.38
Diluted earnings per share	0.95	0.34

These unaudited pro forma consolidated results have been prepared for comparative purposes only. They do not purport to be indicative of the results of operations which actually would have resulted had Pharma Tech been included in Biovail's consolidated financial statements from January 1, 2001. In addition, they do not purport to be indicative of future consolidated results of operations of Biovail.

Pharma Pass

Background

Pharma Pass is a developer of advanced oral controlled-release technologies and formulations for pharmaceutical companies, including Biovail, in Europe and the United States. On the completion of the development of Biovail's products, Biovail had the right to manufacture and sell the products and Pharma Pass was entitled to royalties from the net sales of each product for a period of fifteen years from the date of launch of each product.

Description of acquisition

On December 6, 2002, Biovail acquired 100% of the outstanding interests of Pharma Pass LLC and 100% of the outstanding shares of Pharma Pass S.A. for $178,687,000 including costs of acquisition. Through the acquisition of Pharma Pass, Biovail extinguished any future milestone or royalty obligations that Biovail may have had to Pharma Pass resulting from the approval and successful commercialization of any of the products under development, pursuant to the research and development agreements previously entered into between Biovail and Pharma Pass. Pharma Pass has been included in Biovail's consolidated financial statements from the date of acquisition.

The acquired assets of Pharma Pass were fair valued using an income approach. The discount rates used to present value the estimated cash flows related to each asset were determined based on the relative risk of achieving the assets' estimated cash flows and were generally in the range of 9% to 45%.

Acquired research and development

At the date of acquisition, Pharma Pass was involved in approximately twenty product development projects for a number of pharmaceutical companies including Biovail. At the date of acquisition, a number of the products had been submitted for approval by the FDA. The remaining products are expected to be submitted for approval by the FDA, and/or other regulatory authorities, over approximately the next three years. The products under development were in various stages of completion, had not reached

40

technological feasibility and had no known alternative uses, and were considered to be acquired research and development. The efforts required to develop the acquired research and development into commercially viable products include the completion of the development stages of the products, clinical-trial testing, regulatory approval and commercialization. The principal risks relating to the products in development are the outcomes of the formulation development, clinical studies and regulatory filings. Since pharmaceutical products cannot be marketed without regulatory approvals, the Company will not receive any benefits unless regulatory approval is obtained. The acquired research and development will be amortized over an estimated useful life of five years.

Product rights

Biovail obtained interests in certain licensed products including Tricor (fenofibrate) and a bioequivalent version of Prilosec (omeprazole). Biovail is entitled to royalties on sales of Tricor and a participating interest in the gross profit on sales of a bioequivalent version of Prilosec.

The interest in Tricor will be amortized over an estimated useful life of eight years. The interest in the gross profit on sales of a bioequivalent version of Prilosec will be amortized over its estimated useful life using a variable charge method to reflect the pattern in which the economic benefits of the asset are consumed.

Core technology

Biovail obtained the patents related to Pharma Pass's Zero Order Release System ("ZORS"), a drug delivery technology that controls the rate of release of a drug and/or significantly enhances the systemic absorption of a drug molecule. Biovail believes the ZORS technology has application to products currently in formulation and to the future development of controlled-release products.

Biovail also obtained Pharma Pass's oral Colonic Delivery System ("CDS"), a drug delivery technology designed for the targeted release of medication into the lower intestine and upper colon. Biovail also has the option to continue the development of four products utilizing the CDS technology. Biovail will pay up to $10,000,000 in milestone fees subject to the successful completion of the development of the colonic products. Biovail will obtain ownership of the CDS patents following the net payment of $10,000,000 less the sum of the milestone fees paid.

The core technology will be amortized over an estimated useful life of fifteen years.

Pro forma information (unaudited)

The following unaudited pro forma information presents a summary of the consolidated results of operations of Biovail and Pharma Pass as if the acquisition had occurred on January 1, 2001. All transactions between Biovail and Pharma Pass have been eliminated.

	2002 $	2001 $
Total revenue	794,827	587,408
Net income attributable to common shareholders	190,138	64,183
Basic earnings per share	1.25	0.47
Diluted earnings per share	1.18	0.43

These unaudited pro forma consolidated results have been prepared for comparative purposes only. They do not purport to be indicative of the results of operations which actually would have resulted had Pharma Pass been included in Biovail's consolidated financial statements from January 1, 2001. In addition, they do not purport to be indicative of future consolidated results of operations of Biovail.

During 2000, the Company completed the acquisitions of Intelligent Polymers Limited ("Intelligent Polymers"), the Cardizem® product line ("Cardizem®") and DJ Pharma, Inc. ("DJ Pharma"). These acquisitions were accounted for under the purchase method of

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accounting. Total consideration, including costs of acquisition, was allocated based on estimated fair values on the respective dates of acquisition, as follows:

	Intelligent Polymers $		Cardizem® $	DJ Pharma $		Total $
Current assets	3,287		—	14,705		17,992
Equipment	—		—	672		672
Deferred compensation trust fund	—		—	8,268		8,268
Assembled workforce	—		—	5,200		5,200
Brand names and product rights	5,000		406,070	130,500		541,570
Acquired research and development	208,424		—	—		208,424
Goodwill	—		—	70,497		70,497
Current liabilities	(14,270	)	—	(22,844	)	(37,114	)
Deferred compensation obligation	—		—	(8,268	)	(8,268	)
Debt assumed	—		—	(34,169	)	(34,169	)
	202,441		406,070	164,561		773,072
Consideration
Cash paid, net of cash acquired	202,441		239,652	162,802		604,895
Issue of non-employee options	—		590	—		590
Fair value of options granted to employees	—		—	1,759		1,759
Accrued acquisition costs	—		4,000	—		4,000
Cardizem® obligation	—		161,828	—		161,828
	202,441		406,070	164,561		773,072

Intelligent Polymers

Background

In July 1997, Intelligent Polymers, a Bermuda corporation, was formed primarily to develop once-daily, controlled-release branded versions of selected drugs whose chemical patents and/or exclusivity periods had or were about to expire and which were marketed only in immediate-release form or in controlled-release form requiring multiple daily dosing.

In September 1997, the Company concluded a development and license agreement (the "Development Contract") and a services agreement with Intelligent Polymers, whereby the Company would develop the designated products on Intelligent Polymers' behalf.

In an initial public offering in October 1997, 3,737,500 units of Intelligent Polymers were sold to the public, resulting in net proceeds to Intelligent Polymers, after offering costs, of approximately $69,500,000. The proceeds of the offering were used by Intelligent Polymers to make payments to the Company under the Development Contract.

For the period ended September 29, 2000, payments received by the Company from Intelligent Polymers pursuant to the Development Contract were $55,200,000 and the cost of providing those services to Intelligent Polymers was $35,200,000.

The Company, as the holder of all of the issued and outstanding special shares of Intelligent Polymers, was entitled, at its sole discretion, to purchase all, but not less than all, of the outstanding common shares of Intelligent Polymers commencing on the closing date of the offering and ending on the earlier of September 30, 2002, or the 90^th day after the date Intelligent Polymers provided the

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Company with quarterly financial statements showing cash or cash equivalents of less than $3,000,000. The purchase price calculated on a per share basis would have been as follows:

	Purchase price $
Before October 1, 2000	39.06
On or after October 1, 2000 and on or before September 30, 2001	48.83
On or after October 1, 2001 and on or before September 30, 2002	61.04

Description of acquisition

On September 29, 2000, the Company sold all of its interest in and to the special shares of Intelligent Polymers to IPL Acquireco 2000 Ltd., a British Virgin Islands company ("IPL Acquireco"), in exchange for 12,000 non-voting common shares of IPL Acquireco, valued at $12,000. In addition, the Company invested $141,500,000 in non-voting Class A shares of IPL Acquireco. On the same date, IPL Acquireco, as holder of the special shares of Intelligent Polymers, consummated the purchase of all the issued and outstanding common shares of Intelligent Polymers and thereby Intelligent Polymers became a wholly-owned subsidiary of IPL Acquireco. As a result of IPL Acquireco's acquisition of Intelligent Polymers, certain provisions of the Development Contract were amended such that Intelligent Polymers took over the development of the designated products, including directly contracting with, and making payments to, third parties.

The Company, as holder of all of the non-voting common shares of IPL Acquireco, was entitled, at its sole discretion, to purchase all of the voting common shares of IPL Acquireco at any time prior to October 1, 2002. IPL Acquireco had 6,500,000 voting common shares issued and outstanding.

On December 29, 2000, the Company purchased all the voting common shares of IPL Acquireco for total consideration of $6,750,000. Contemporaneously with the acquisition of IPL Acquireco, the Company repaid the bank credit facility of Intelligent Polymers, which amounted to $56,616,000. Accordingly, the total consideration for the acquisition of IPL Acquireco, including the value of the Class A and special shares, was $204,878,000. The assets, liabilities and expenses of IPL Acquireco and Intelligent Polymers have been included in the Company's consolidated financial statements from December 29, 2000.

Acquired research and development

At the date of acquisition, the products under development were in various stages of completion, had not reached technological feasibility and had no known alternative uses, and were considered to be acquired research and development. The efforts required to develop the acquired research and development into commercially viable products include the completion of the development stages of the products, clinical-trial testing, FDA approval, and commercialization. The principal risks relating to the products in development are the outcomes of the formulation development, clinical studies and regulatory filings. At the date of acquisition, none of the products had been submitted for approval by the FDA. Since pharmaceutical products cannot be marketed without regulatory approvals, the Company will not receive any benefits unless regulatory approval is obtained. The acquired research and development is being amortized over an estimated useful life of five years.

Biovail is continuing the development programs for the various products previously being developed for Intelligent Polymers. At December 31, 2002, three of these developmental programs (tramadol, metformin and buspirone) were in Phase III clinical trials and an NDA has been filed by GSK for another (bupropion HCl) as described in note 24 — Co-Promotion Arrangements.

Intangible asset

Intelligent Polymers had acquired as part of its development activities the rights to a cardiovascular product. This product right was included in the value of the net liabilities assumed of Intelligent Polymers. In 2001, the Company wrote off the net book value of the product right as described in note 15 — Write-Down of Assets.

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Cardizem®

Description of acquisition

On December 28, 2000, the Company acquired the North American rights to Cardizem® from Aventis Pharmaceuticals, Inc. and its affiliates ("Aventis"). Cardizem® is a leading calcium channel blocker prescribed for the treatment of hypertension and angina. The Company acquired all of the intangible assets associated with the products including the patents, regulatory files, trademarks, manufacturing know-how, copyrights and other intellectual property. The Company obtained the beneficial rights to and the interest in Cardizem® effective December 31, 2000 and obtained full legal rights and title on December 31, 2001, following the completion of the payments described below.

The purchase price for Cardizem® was $409,500,000 in cash comprised of an initial payment of $239,500,000 and the balance of $170,000,000 payable equally over the four quarters of 2001. The remaining payments were present valued based on an imputed interest rate of approximately 8%, which was comparable to the Company's available borrowing rate as at the date of the transaction. Accordingly, the present value of the remaining payments was determined to be $161,828,000, resulting in a discount of $8,172,000. The total discounted purchase price was $406,070,000, including costs of acquisition of $4,742,000, and was allocated entirely to intangible assets. The intangible assets will be amortized over their estimated useful lives of twenty years.

Manufacturing and transitional services agreements

In connection with the acquisition, the Company entered into manufacturing and transitional services agreements with Aventis. The terms of these agreements are summarized as follows:

Aventis will manufacture and package, or cause another party to manufacture and package, Cardizem® for sale by the Company. The term of the agreement is from January 1, 2001 to December 31, 2003, with a right to extend the term at the Company's option, subject to certain conditions, if by the end of the term the Company is unable to successfully manufacture Cardizem® on its own behalf, or is unable to reach an agreement with a second source supplier. In addition to the manufacturing supply price, the Company agreed to pay additional amounts under the manufacturing agreement of $5,000,000, $3,000,000 and $2,000,000 on January 2, 2001, 2002 and 2003, respectively, which are not directly attributable to any specified manufacturing volume and are incremental to the existing fair value supply price per unit.

Aventis agreed to reimburse the Company the sum of $21,000,000 for transitional expenses incurred by the Company. During 2002 and 2001, the Company applied $4,331,000 and $11,275,000, respectively, of the sum to recompense the amounts paid under the manufacturing agreement, as described above, and the balance as a reimbursement of other incremental transitional costs incurred. The remaining $5,394,000 has been recorded in accrued liabilities and has been specifically allocated to the payment due January 2, 2003 under the manufacturing agreement and for other unconditional obligations assumed from Aventis at the time of the acquisition.

DJ Pharma (renamed Biovail Pharmaceuticals, Inc.)

Description of acquisition

On October 6, 2000, the Company acquired DJ Pharma for $165,127,000, including costs of acquisition of $868,000 and the fair value of unvested DJ Pharma employee stock options. The total fair value of the unvested options granted to employees of DJ Pharma was determined to be $7,480,000, of which $1,759,000 was allocated to the purchase price, and $5,721,000 was allocated to deferred compensation, based on the ratios of the past and future service periods divided by the total service period, respectively. The assets, liabilities, revenue and expenses of DJ Pharma have been included in the Company's consolidated financial statements from October 6, 2000.

DJ Pharma was organized to market and sell patented and branded generic prescription pharmaceutical products for the treatment of respiratory and allergy conditions, and for skin and soft tissue infections. DJ Pharma obtained the rights to certain products from Dura Pharmaceuticals, Inc. and one of its subsidiaries ("Dura"). The products obtained from Dura included a patented broad-spectrum antibiotic ("Keftab") used primarily for the treatment of respiratory and skin infections developed by Eli Lilly & Company ("Lilly"); a line of prescription cough, cold and allergy branded generic products ("Dura-Vent") developed by Dura; and a line of prescription cough, cold and allergy branded generic products ("Rondec") developed by Abbot Laboratories. DJ Pharma also had the exclusive rights to sell and market Schering Corporation's ("Schering") antibiotic Cedax in the United States. Cedax is an antibiotic indicated for the treatment of chronic bronchitis, middle ear infection and tonsillitis.

DJ Pharma had an assembled workforce mainly involved in the sales and marketing of its products.

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Assembled workforce

At the acquisition date, the Company obtained the services of approximately 300 DJ Pharma employees, consisting primarily of sales account managers and representatives. The assembled workforce was fair valued using a cost approach, and was estimated to have a useful life of six years.

Effective January 1, 2002, the Company reclassified the net book value of the assembled workforce to goodwill.

Product rights

At the acquisition date, DJ Pharma had various purchase, licensing and supply agreements covering branded products and product families such as Keftab, Dura-Vent, Rondec and Cedax. These contracts provided the Company with a stream of identifiable benefits resulting from the sale of these products. Under the agreement with Dura, DJ Pharma obtained exclusive rights to Keftab, Dura-Vent and Rondec through to December 31, 2002, in return for payment of certain license fees based on a percentage of net sales, subject to annual minimums and maximums (the "Dura Agreement"). At the expiration of the Dura Agreement, DJ Pharma was to obtain Dura's rights to Dura-Vent worldwide, and its rights to Rondec and Keftab within the United States. Under the agreement with Schering, DJ Pharma obtained the co-exclusive right to market Cedax in the United States. At the termination of the agreement, all rights to the product revert to Schering. The products under the license agreements were valued using an income approach, based on the present value of the incremental revenue and corresponding cash flow that could be lost in the absence of these contracts. The discount rate used was an after-tax market-derived rate of 18%. The fair value of the Keftab, Dura-Vent and Rondec products was determined to be $96,500,000, with estimated useful lives of twenty years. The fair value of the Cedax product was determined to be $34,000,000, with an estimated useful life of ten years, based on the remaining term of the Schering agreement.

On December 27, 2000, DJ Pharma and Dura agreed to amend certain provisions of the Dura Agreement, with the effect that the second closing date under the agreement was accelerated from December 31, 2002. Consequently, DJ Pharma obtained the ownership to the Dura-Vent and Rondec product lines, including the trademarks, regulatory history, formulations, manufacturing know-how and marketing information, and the assignment of Dura's license rights to the Keftab product line, as of the amendment date. In consideration, DJ Pharma agreed to make the maximum remaining license payments under the Dura Agreement and to settle the promissory note payable and the product acquisition notes payable to Dura plus accrued interest to the amendment date. The remaining maximum license payments amounted to $19,800,000 and have been capitalized to product rights, and the settlement of the principal plus interest due under the notes amounted to $28,100,000.

In 2001, the Company recorded a write-down of the net book values of the Keftab and Dura-Vent product rights as described in note 15 — Write-Down of Assets.

Deferred compensation

DJ Pharma initiated an Executive Deferred Compensation Plan to provide certain employees with the opportunity to supplement their retirement income through the deferral of pre-tax income. The initial funding of the plan was through compensation deferrals by the plan participants. Those funds, totaling $8,268,000, were placed in trust and invested to purchase life insurance policies (recorded at the cash surrender value) in the names of each participant. The terms of the trust agreement state that the assets of the trust are available to satisfy the claims of general creditors of the company in the event of bankruptcy, thereby qualifying the trust as a rabbi trust for U.S. income tax purposes. The assets of the trust have been recorded in other assets with a corresponding amount recorded as a deferred compensation obligation in long-term obligations. Changes in the value of the assets held by the trust are recorded in net income each period, with a corresponding charge (or credit) to compensation expense, to reflect the fair value of the amount owed to the participants.

Future income taxes

At the acquisition date, the Company recognized a net future income tax liability of $32,892,000 for the tax consequences of differences between the assigned values and tax bases of DJ Pharma's acquired assets and liabilities, excluding goodwill.

Fuisz (renamed Biovail Technologies Ltd.)

Biovail acquired Fuisz on November 12, 1999. During 2000, Biovail paid $17,250,000 to settle a pre-acquisition contract of Fuisz. A $10,000,000 reserve for the settlement of the pre-acquisition contract was included in the determination of the net assets of Fuisz acquired. The settlement of the contract was a contingency that existed prior to the acquisition of Fuisz, and the amount of the reserve

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was based on the information available to Biovail at that time. Also during 2000, Biovail issued 27,000 additional common shares related to the acquisition of Fuisz with a fair value of $386,000. The excess of the cash settlement of the contract over the amount of the reserve and the issuance of the common shares resulted in a charge of $7,460,000 to net income in 2000.

Effective January 4, 2000, Biovail entered into an agreement to sell all of the issued share capital of a subsidiary of Fuisz, Clonmel Healthcare Limited ("Clonmel"), a pharmaceutical and antibiotic manufacturer and distributor located in Ireland, for proceeds of $20,000,000. Biovail recognized no gain or loss on this transaction as Clonmel was included at its fair value in the determination of the net assets of Fuisz acquired.

Effective January 1, 2000, on the adoption of CICA Handbook Section 3465, the Company recognized a net future tax liability of $57,656,000 for the tax consequences of differences between the assigned values and tax bases of Fuisz's acquired assets and liabilities, excluding goodwill, as at the acquisition date. In addition, the Company recognized tax benefits of $32,892,000 for available Fuisz U.S. tax loss carryforwards as at the acquisition date, resulting in a corresponding reduction in the value of Fuisz goodwill.

4.     CASH AND CASH EQUIVALENTS

	2002 $	2001 $
Cash and bank certificates of deposit	39,111	235,038
Money market funds and corporate debt securities	16,969	70,729
Canadian and U.S. government securities	—	129,124
	56,080	434,891

The Company invests its excess cash in high quality (investment grade 'AA' or better) government and corporate debt securities.

5.     ACCOUNTS RECEIVABLE

	2002 $	2001 $
Trade (net of allowance for doubtful accounts of $3,440,000 and $7,085,000 at December 31, 2002 and 2001, respectively)	141,308	86,325
Royalties	30,104	6,313
Other	19,568	3,918
	190,980	96,556

The Company performs ongoing credit evaluations of customers and generally does not require collateral. Allowances are maintained for potential credit losses. Four customers accounted for 53% of trade and royalties receivable at December 31, 2002, and three customers accounted for 51% of trade and royalties receivable at December 31, 2001. The Company believes that there is no unusual exposure associated with the collection of these receivables.

6.     INVENTORIES

	2002 $	2001 $
Raw materials	14,949	12,110
Work in process	11,901	5,818
Finished goods	26,197	20,578
	53,047	38,506

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7.     LONG-TERM INVESTMENTS

	2002 $	2001 $
Ethypharm S.A.	67,802	—
DepoMed, Inc.	6,277	—
Other	5,245	2,355
	79,324	2,355

Ethypharm S.A.

On April 12, 2002, Biovail invested $67,802,000, including costs of acquisition, to acquire 9,794,118 common shares (15% of the issued and outstanding common shares) of Ethypharm S.A. ("Ethypharm"). In addition, Biovail obtained a three-year option to purchase up to 4,080,882 additional common shares of Ethypharm for $6.66 per share plus 10% per annum, compounded annually. To December 31, 2002, Biovail had not exercised its option.

Biovail also licensed the marketing rights to six products from Ethypharm as described in note 25 — Research and Development Collaborations.

DepoMed, Inc.

On July 9, 2002, Biovail invested $13,675,000, including costs of acquisition, to acquire 2,465,878 newly issued common shares (15% of the issued and outstanding common shares) of DepoMed, Inc. ("DepoMed"). In addition, Biovail obtained a one-year option to purchase up to 821,959 additional common shares of DepoMed for $5.125 per share, subject to a termination provision if DepoMed's common stock price exceeds $6.50 per share for 20 out of 30 consecutive trading days any time after November 6, 2002. Biovail also obtained a three-year option to purchase additional common shares of DepoMed, in an amount sufficient for Biovail to increase its investment up to 20% of DepoMed's issued and outstanding common shares (calculated following the exercise of the option), for $5.00 per share plus 20% per annum, compounded monthly. To December 31, 2002, Biovail had not exercised its options.

Biovail's initial investment was allocated between the value of common shares acquired of $12,344,000 and the value of the options to purchase additional common shares of $1,331,000. At December 31, 2002, the fair value of the common shares, based on the quoted market price, was $6,092,000 and the fair value of the options was $185,000. In 2002, Biovail recognized an other than temporary decline in the value of the investment of $7,398,000, as described in note 15 — Write-Down of Assets.

Biovail also licensed the rights to manufacture and market a once-daily metformin HCl product as described in note 25 — Research and Development Collaborations.

8.     PROPERTY, PLANT AND EQUIPMENT

	2002		2001
	Cost $	Accumulated depreciation $	Cost $	Accumulated depreciation $
Land	10,477	—	7,357	—
Buildings	59,341	6,959	27,154	5,116
Machinery and equipment	62,736	16,920	43,225	14,168
Other equipment and leasehold improvements	42,401	14,292	37,603	10,474
	174,955	38,171	115,339	29,758
Less accumulated depreciation	38,171		29,758
	136,784		85,581

At December 31, 2002 and 2001, the cost of property, plant and equipment included $54,365,000 and $24,701,000, respectively, of assets under construction, or awaiting FDA approval, and not available for productive use. Interest capitalized amounted to $513,000 and $1,089,000 in 2002 and 2001, respectively.

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Depreciation expense amounted to $9,794,000, $9,386,000 and $8,096,000 in 2002, 2001 and 2000, respectively.

9.     INTANGIBLE ASSETS

	2002		2001
	Cost $	Accumulated amortization $	Cost $	Accumulated amortization $
Brand names	596,223	47,794	406,070	20,932
Product rights	596,105	61,156	200,296	22,467
Acquired research and development	513,639	113,120	345,894	61,270
Core technology	18,885	2,385	11,185	1,639
Workforce	—	—	7,241	1,519
	1,724,852	224,455	970,686	107,827
Less accumulated amortization	224,455		107,827
	1,500,397		862,859

Amortization expense amounted to $126,924,000, $93,669,000 and $19,830,000 in 2002, 2001 and 2000, respectively.

10.   OTHER ASSETS

	2002 $	2001 $
Deferred financing costs	17,348	4,300
Less accumulated amortization	3,536	1,260
	13,812	3,040
Zovirax distribution agreement	40,656	—
Loan receivable	30,000	—
Deferred compensation trust fund	5,681	6,520
Long-term receivable	4,554	4,554
	94,703	14,114

Amortization expense related to deferred financing costs amounted to $2,267,000, $1,260,000 and $179,000 in 2002, 2001 and 2000, respectively.

Zovirax distribution agreement

In consideration for several amendments to the original terms of the Zovirax distribution agreement effective October 1, 2002, Biovail will pay GSK $11,500,000 per year in four annual instalments on March 31 of each year beginning in 2004. If approval of Wellbutrin XL is not granted by the FDA by September 30, 2003, the original terms specified in the distribution agreement will once again become effective. If approval of Wellbutrin XL is not granted by the FDA by December 31, 2003, Biovail will be required to repay GSK an aggregate amount equal to the value derived from the amended terms for the period from October 1, 2002 to September 30, 2003.

The annual instalment payments were present valued using an imputed interest rate comparable to Biovail's available borrowing rate at the date of the transaction. Accordingly, the present value of the payments was determined to be $40,656,000, and the amount will be amortized over the period of benefit from the amended terms. The value derived from the amended terms for the period from October 1, 2002 to December 31, 2002 was recorded in deferred revenue at December 31, 2002 and will be amortized to revenue beginning when, and if, Wellbutrin XL is approved by the FDA.

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Loan receivable

On November 13, 2002, in connection with a co-promotion agreement between Biovail and Reliant Pharmaceuticals, LLC ("Reliant"), as described in note 24 — Co-Promotion Arrangements, Biovail, together with certain of Reliant's existing lenders, established an $85,000,000 secured credit facility in favour of Reliant. Biovail has committed to fund up to $40,000,000 of the credit facility. The credit facility is available to Reliant, subject to certain financial and non-financial covenants, for general corporate purposes. The credit facility is secured by a first charge over certain property and assets of Reliant.

Interest is calculated daily on the outstanding advances at U.S. prime plus a margin of 2% and is payable in arrears on the first day of each calendar quarter. Prior to March 31, 2005, Reliant may elect to accrue but not make cash payments of interest. Such accrued interest will be added to the principal amount of the outstanding advances at March 31, 2005.

Reliant is entitled to prepay any or all of the outstanding advances at any time without penalty. Commencing March 31, 2005, Reliant is to begin repayment of the outstanding advances in eight equal quarterly instalments, with the final instalment due on December 31, 2006.

At December 31, 2002, Biovail had advanced $30,000,000 to Reliant under the credit facility.

11.   ACCRUED LIABILITIES

	2002 $	2001 $
Product returns, rebates and chargebacks	42,976	27,945
Employee costs	12,690	9,708
Interest	9,512	2
Inventory	7,974	1,638
Cardizem® transitional expenses	5,394	9,725
Other	16,743	10,971
	95,289	59,989

12.   DEFERRED REVENUE

	2002 $	2001 $
Up-front research and development fees	13,000	33,289
Up-front licensing fees and other	21,559	14,022
Customer prepayments	3,588	2,819
	38,147	50,130
Less current portion	19,947	27,030
	18,200	23,100

At December 31, 2001, up-front research and development fees included $11,500,000 of fees received from GSK related to the development of Wellbutrin XL, as described in note 24 — Co-Promotion Arrangements, and $6,689,000 of fees received from Pharma Tech. During 2002, these fees were recognized in research and development revenue.

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13.   LONG-TERM OBLIGATIONS

	2002 $		2001 $
Senior Subordinated Notes	400,000		—
Unamortized discount	(2,646	)	—
	397,354		—
Revolving term credit facility	110,000		—
Zovirax obligation	80,656		—
Wellbutrin® obligation	69,961		—
Vasotec® obligation	67,942		—
Adalat obligation	—		38,626
Deferred compensation	6,198		7,535
	732,111		46,161
Less current portion	122,590		12,592
	609,521		33,569

Interest expense on long-term obligations amounted to $28,564,000, $20,195,000 and $3,059,000 for the years ended December 31, 2002, 2001 and 2000, respectively. Interest expense in 2002 and 2001 included the amortization of the discounts on long-term obligations of $5,329,000 and $10,999,000, respectively.

Senior Subordinated Notes

Pursuant to a supplement to its base shelf prospectus dated March 25, 2002, the Company issued, under an indenture dated March 28, 2002, $400,000,000 aggregate principal amount of unsecured 7⁷/8% Senior Subordinated Notes due April 1, 2010 ("Notes"). Interest on the Notes is payable semi-annually in arrears on April 1 and October 1 of each year. The Notes were issued at a price of 99.27% of their aggregate principal amount for an effective yield, if held to maturity, of 8%. Proceeds from the issue amounted to $384,280,000, net of discount and financing costs.

At any time on or after April 1, 2006, the Company may redeem all or any of the Notes at the following prices, plus accrued and unpaid interest to the date of redemption, if redeemed during the twelve months beginning April 1 of the years indicated below:

	Percentage of principal amount
2006	103.938%
2007	101.969%
2008 and thereafter	100.000%

Before April 1, 2005, the Company may redeem up to 35% of the original principal amount of the Notes, with the net cash proceeds of certain sales of the Company's common shares, at 107.875% of the principal amount plus accrued and unpaid interest to the date of redemption.

In June 2002, the Company entered into three interest rate swap contracts of aggregate $200,000,000 notional amount, which have been designated as a hedge of the Notes. The interest rate swaps effectively modify the Company's exposure to interest rate fluctuations by converting the interest payable on one-half of the fixed rate Notes to a floating rate. These transactions involve the receipt of amounts based on a fixed rate of 7⁷/8% in exchange for floating rate interest payments, based on six-month London Interbank Offering Rate ("LIBOR") plus a spread of 2.69% to 2.99%, without an exchange of the underlying principal amount. Due to a decline in the benchmark LIBOR rates, the marked-to-market value of the interest rate swaps at December 31, 2002 was an unrecognized gain of $18,647,000.

At December 31, 2002, the aggregate market value of the Notes, based on the quoted market price, was $402,000,000.

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Revolving term credit facility

On December 27, 2000, the Company entered into a definitive agreement with The Bank of Nova Scotia (the "Bank") for a $300,000,000 Credit Facility. The Credit Facility was fully underwritten by the Bank in anticipation of syndication by the Bank to other financial institutions (collectively, the "Lenders"). Effective June 22, 2001, the Credit Facility was increased to $400,000,000 when the Bank and the Lenders committed to portions of the Credit Facility which, in aggregate, exceeded the original commitment. Effective July 25, 2002, the Credit Facility was further increased to $600,000,000. The Credit Facility is revolving in nature for a term of 364 days and may be extended at the request of the Company and at the sole discretion of the Lenders for additional periods of up to 364 days. Such an extension was requested by the Company and agreed to by the Lenders for the 364-day period ending December 25, 2003. If the Lenders elect not to further extend the revolving period of the Credit Facility, the Company may elect to convert amounts then outstanding to a non-revolving facility with a final maturity date two years from the then current revolving period maturity date. In this event, advances shall be repaid by equal quarterly instalments through the term period. Accordingly, the Credit Facility has been classified as a long-term obligation.

Borrowings under the Credit Facility are secured by a charge over substantially all of the assets and undertakings, including intellectual property, of the Company. The credit agreement includes certain financial and non-financial covenants. The financial covenants require the Company to meet or exceed certain minimum thresholds for shareholders' equity and interest coverage, and not to exceed a maximum threshold in respect of the ratio of debt to earnings before interest, taxes, depreciation and amortization. Non-financial covenants include, but are not limited to, restrictions on investments and dispositions, as well as capital and debt restructuring activities, exceeding established thresholds. On a change in control, the holder of the Credit Facility has the right to require the Company to settle the entire Credit Facility, plus accrued and unpaid interest at the date of settlement.

Borrowings may be by way of U.S. dollar, LIBOR or U.S. base rate advances or Canadian dollar prime rate or bankers' acceptance ("BA") advances or letters of credit. Interest is charged at the Bank's quoted rate plus a borrowing margin of 1.375% to 2% in the case of LIBOR and BA advances, and 0.375% to 1% in the case of base rate and prime rate advances, depending on the Company's credit rating at the time of such borrowing. The effective rates of interest at December 31, 2002 and 2001 were 3.74% and 3.25%, respectively.

As at December 31, 2002, the Company had advances of $110,000,000 borrowed under the Credit Facility and a letter of credit of $93,170,000 issued under the Credit Facility. The Company had a remaining balance of $396,830,000 available to borrow under the Credit Facility.

Zovirax obligation

The obligation relates to the amendments to the Zovirax distribution agreement. The non-interest bearing obligation was discounted based on an imputed interest rate of 3.74%. The payment related to the extension of the Zovirax distribution agreement of $40,000,000 is due on or before March 31, 2003. The remaining payments are payable annually in four gross instalments of $11,500,000 on March 31 of each year, beginning in 2004.

Wellbutrin® obligation

The obligation relates to the acquisition of the Canadian rights to Wellbutrin® and Zyban®. The non-interest bearing obligation was discounted based on an imputed interest rate of 3.74%. The payments are payable quarterly in Canadian dollars beginning June 1, 2003 in the following gross annual U.S. dollar amounts: 2003 — $53,562,000; and 2004 — $18,509,000.

Vasotec® obligation

The obligation reflects the minimum fixed royalty payments assumed on the acquisition of Vasotec® and Vaseretic®. The non-interest bearing obligation was discounted based on an imputed interest rate of 5.75%. The Company has made the first two payments of $17,240,000 each. The remaining payments are payable semi-annually, on April 1 and October 1 of each year, in the following gross annual amounts: 2003 — $25,782,000; 2004 — $19,747,000; 2005 — $15,256,000; and 2006 — $14,011,000.

Adalat obligation

The obligation reflected the minimum license payments payable under the Adalat Agreement. The non-interest bearing obligation was discounted based on an imputed interest rate of approximately 8%. In December 2002, the Company wrote off the remaining Adalat obligation as described in note 15 — Write-Down of Assets.

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Maturities

Aggregate maturities of long-term obligations for the years ending December 31 are as follows:

	$
2003	122,590
2004	46,034
2005	124,428
2006	24,361
2007	11,146
Thereafter	403,552
	732,111

14.   SHAREHOLDERS' EQUITY

Authorized and issued shares

The authorized capital of the Company consists of an unlimited number of common shares without par value. The Company had 158,120,144 and 157,496,407 issued and outstanding common shares at December 31, 2002 and 2001, respectively.

Share offerings

In November 2001, the Company completed a share offering by issuing 12,500,000 common shares for gross proceeds of $587,500,000 less issue costs of $27,454,000.

In March 2000, concurrent with the offering of 6.75% Convertible Subordinated Preferred Equivalent Debentures due March 31, 2025 ("Debentures"), the Company completed a share offering by issuing 4,000,000 common shares for gross proceeds of $101,125,000 less issue costs of $5,782,000.

Stock repurchase programs

In February 2002, by resolution of the Board of Directors, the Company implemented a common share repurchase program pursuant to which the Company was able to repurchase up to 5% of its issued and outstanding common shares. In May 2002, the Board of Directors increased the amount to 10% of the Company's issued and outstanding common shares. An aggregate of 12,872,300 common shares were repurchased under this program, through open market transactions on the NYSE and TSX, at an average purchase price of $39.08 per share, for total consideration of $503,100,000. The excess of the cost of the common shares acquired over the stated capital thereof, totalling $388,204,000, was charged to deficit. The program was terminated with no further common shares repurchased.

In September 2001, by resolution of the Board of Directors, the Company implemented a common share repurchase program pursuant to which the Company was able to repurchase up to $120,000,000 of its issued and outstanding common shares. In total, 2,871,200 common shares were repurchased under this program, through open market transactions on the NYSE, at an average purchase price of $41.79 per share, for total consideration of $119,987,000. The excess of the cost of the common shares acquired over the stated capital thereof, totalling $105,633,000, was charged to retained earnings.

Stock Option Plan

Under the Company's Stock Option Plan, as amended (the "Plan"), the Company may grant to directors, officers, employees, consultants and advisors options to purchase common shares of the Company. The purpose of the Plan is to provide long-term incentives and rewards to the Company's directors, officers, employees, consultants and advisors. The aggregate number of shares reserved for issuance under the Plan, taking into consideration stock splits, shall not exceed 28,000,000 common shares. The number of shares reserved for issuance to any one person under the Plan, together with shares which that person may acquire under any similar plan of the Company, may not exceed 5% of the total issued and outstanding common shares. Under the Plan, the Company designates the maximum number of shares that are subject to an option. The exercise price per share of an option is the closing market price at which the common shares are traded on the NYSE on the day prior to the date the option is granted, or if not so traded, the average between the closing bid and ask prices thereof as reported for that day.

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The options' vesting terms vary based on the type of options. Management options granted prior to January 1, 1999 vest as to one-third each year commencing on the first anniversary of the grant and will expire on a date not later than five years from the date of the grant.

Options granted after January 1, 1999 vest as follows: executive options vest pursuant to the terms and conditions of the employment agreement; special options vest on the second anniversary date of the grant; management options vest as to one-fourth each year commencing on March 1^st and expire not later than seven years from the date of the grant.

The following table summarizes the Company's stock option activity for the three years ended December 31, 2002:

	Options (000s)		Weighted average exercise price $
Outstanding balance, December 31, 1999	10,447		10.81
Granted	2,345		27.06
Exercised	(2,436	)	5.79
Forfeited	(307	)	18.29
Outstanding balance, December 31, 2000	10,049		15.58
Granted	314		43.03
Exercised	(2,906	)	9.92
Forfeited	(1,204	)	17.69
Outstanding balance, December 31, 2001	6,253		18.53
Granted	2,068		36.84
Exercised	(2,197	)	8.71
Forfeited	(199	)	28.48
Outstanding balance, December 31, 2002	5,925		28.23
Weighted average fair value of stock options granted during the period			13.58

The following table summarizes information about options outstanding at December 31, 2002:

Range of exercise prices $	Outstanding (000s)	Weighted average remaining contractual life (years)	Weighted average exercise price $	Exercisable (000s)	Weighted average exercise price $
0.81 — 3.52(i)	138	7.0	3.05	93	2.89
7.59 — 10.50	601	1.1	9.35	601	9.35
12.77 — 17.50	206	2.0	17.37	206	17.37
22.50 — 31.00	2,887	4.2	25.59	1,883	23.10
36.00 — 45.00	2,093	4.4	40.01	741	38.94
	5,925	4.0	28.23	3,524	23.22

(i)

These options represent the converted DJ Pharma unvested employee stock options pursuant to the merger agreement as described in note 3 — Acquisitions.

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The Company recognizes employee stock-based compensation costs under the intrinsic value-based method. The following table presents the Company's pro forma net income attributable to common shareholders and earnings per share as if the fair value-based method had been applied to all stock options granted.

	2002 $	2001 $	2000 $
Net income attributable to common shareholders as reported	207,553	85,553	81,163
Total stock-based compensation expense determined under fair value-based method	14,254	12,216	16,680
Pro forma net income attributable to common shareholders	193,299	73,337	64,483
Basic earnings per share
As reported	1.37	0.62	0.63
Pro forma	1.27	0.54	0.50
Diluted earnings per share
As reported	1.29	0.57	0.57
Pro forma	1.20	0.49	0.45

The fair values of all stock options granted during 2002, 2001 and 2000 were estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	2002		2001		2000
Expected option life (years)	3.8		4.0		4.2
Volatility	46.8	%	36.9	%	41.1	%
Risk-free interest rate	4.5	%	5.2	%	5.8	%

The Black-Scholes model, used by the Company to calculate option values, as well as other currently accepted option valuation models, were developed to estimate the fair value of freely tradeable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require highly subjective assumptions, including future stock price volatility and expected time until exercise, which greatly affect the calculated values. Accordingly, management believes that these models do not necessarily provide a reliable single measure of the fair value of the Company's stock option awards.

Employee Stock Purchase Plan

The Company's Employee Stock Purchase Plan ("EPP") was approved by the shareholders at the Special Shareholders' Meeting held on January 1, 1996 and was established in 1996. The purpose of the EPP is to provide a convenient method for full-time employees of the Company to participate in the share ownership of the Company or to increase their share ownership in the Company via payroll or contractual deduction. Directors, senior officers or insiders of the Company are not eligible to participate in the EPP. The aggregate number of shares reserved for issuance under the EPP, taking into consideration stock splits, shall not exceed 1,200,000 common shares. At the discretion of a committee of the Board of Directors that administers the EPP, the Company may issue directly from treasury or purchase shares in the market from time to time to satisfy the obligations under the EPP. A participant may authorize a payroll or contractual deduction up to a maximum of 10% of the base salary or remuneration to be received during any purchase period. The purchase price shall be 90% of the fair market value per share of stock on the date on which the eligible period ends.

Executive Stock Purchase Plan

In September 2001, the Board of Directors of the Company authorized the making of loans to certain of its executive officers in order to finance the acquisition of common shares of the Company on the open market pursuant to the Company's Executive Stock Purchase Plan ("ESPP"). During October 2001, the Company made loans in an aggregate amount of $9,988,000 to those certain executive officers under the ESPP. The loans are full recourse and are secured by the common shares purchased pursuant to the loans and bear interest at a rate equal to the Company's rate for borrowings. Interest is payable quarterly in arrears. Each loan is due on the earlier of: (a) September 30, 2003; (b) 30 days following the termination or cessation of the executive officer's employment with the Company; or (c) where the executive officer disposes of common shares of the Company with a value equal to, or greater than, the loan.

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Warrants outstanding

In October 1997, Intelligent Polymers completed a public offering of 3,737,500 units. Each unit comprised one common share of Intelligent Polymers and one warrant to purchase four post-split common shares of the Company. On September 30, 1999, the units separated and Intelligent Polymers' common shares and the Company's warrants traded independently of each other. The warrants were exercisable at a per share price of $10.00 from October 1, 1999 until September 30, 2002.

During 2002, substantially all of the remaining outstanding warrants were exercised, resulting in the issue of 11,282,284 common shares, on the exercise of 2,820,571 warrants, for proceeds of $112,823,000. On September 30, 2002, any remaining warrants expired.

During 2001, the Company issued 27,600 common shares, on the exercise of 6,900 warrants, for proceeds of $276,000. In addition, the Company entered into privately negotiated agreements with certain holders of its outstanding warrants. These agreements provided for the exercise of 758,300 warrants to purchase 3,033,200 common shares. As an inducement to those certain warrant holders to exercise, the Company paid such warrant holders approximately $2 per warrant exercised. In aggregate, the Company received proceeds of $28,817,000 net of the inducement cost of $1,515,000.

During 2000, the Company issued 601,000 common shares, on the exercise of 150,250 warrants, for proceeds of $6,010,000.

15.   WRITE-DOWN OF ASSETS

In 2002, the Company recorded a $31,944,000 non-cash charge related to the write-down of the following assets:

As a result of the settlement reached between Biovail, Elan and the FTC with respect to the introduction of bioequivalent versions of Adalat CC, the licensing and supply agreements between Biovail and Elan were terminated. The FTC consent order effectively nullifies Biovail's long-term obligation to make the minimum license payments to Elan under the Adalat Agreement. Biovail has been in negotiations to have Elan reacquire the rights to its bioequivalent versions of Adalat CC that had been sold to Biovail. As there has been no meaningful progress to these negotiations, and as Biovail is unable to ascertain the eventual outcome of these negotiations, in December 2002 Biovail determined that the net book value of the Adalat product rights of $55,787,000, net of the corresponding long-term obligation to Elan of $33,381,000, should be written off. The Company recorded a related non-cash charge of $22,406,000.

During 2002, the Company recorded unrealized holding losses on its investment in DepoMed and other investments of $7,398,000 and $676,000, respectively, and recorded other asset write-downs of $1,464,000.

In 2001, the Company recorded an $80,482,000 non-cash charge related to the write-down of the following assets:

On March 7, 2001, Lilly announced a voluntary recall of Keftab tablets due to problems with the product's stability. Lilly is under contract with the Company to manufacture and supply the product to the Company for marketing in the United States. At December 31, 2001, the product's manufacturing problems had yet to be resolved by Lilly. The supply interruption has resulted in a deterioration of customer awareness of the product, which would require substantial promotional efforts to restore when, and if, the product were to be re-launched. Due to these conditions that existed at December 31, 2001, the Company determined that the Keftab product right had been permanently impaired and the net book value should be written down to the estimated recoverable value of $10,000,000. The Company recorded a related non-cash charge of $54,565,000.

The Company believes Lilly is responsible for manufacturing and supplying acceptable products to Biovail, as well as for the cost of the recall. In this regard, the Company commenced a legal action against Lilly in which Biovail is seeking damages as a result of Lilly's voluntary recall of Keftab as described in note 23 — Legal Proceedings.

In November 2000, the FDA requested a voluntary recall of products containing phenylpropanolamine ("PPA"). The Company immediately stopped shipments of its Dura-Vent products containing PPA and initiated a recall of these products from wholesalers and pharmacies. During 2001, the Company experienced supply interruptions resulting from manufacturing issues associated with its remaining Dura-Vent products that did not contain PPA. Dura-Vent is manufactured and supplied to the Company by a third party. These supply interruptions have caused the Company's revenue and gross margin for the remaining Dura-Vent products to significantly deteriorate. The Company evaluated the current and forecasted market share for the products and determined that the Dura-Vent product right had been permanently impaired and the net book value should be written off. The Company recorded a related non-cash charge of $18,966,000.

During 2001, the Company determined that the intangible asset associated with the acquisition of Intelligent Polymers was no longer necessary to its development efforts and the net book value of the intangible asset should be written off. The Company recorded a related non-cash charge of $4,000,000.

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During 2001, the Company recorded other asset write-downs and an unrealized holding loss on other investments of $2,951,000.

16.   PREMIUM PAID ON EARLY EXTINGUISHMENT OF U.S. DOLLAR SENIOR NOTES

In March 2000, the Company repurchased all of its outstanding 10⁷/8% U.S. Dollar Senior Notes due November 15, 2005 ("Senior Notes") at a redemption price of 112.820% of the principal amount, plus accrued interest. The aggregate consideration paid to repurchase the Senior Notes was $141,017,000. The $16,017,000 premium paid, together with the unamortized deferred financing costs related to the Senior Notes, were classified as premium paid on early extinguishment of U.S. Dollar Senior Notes.

17.   INCOME TAXES

The components of the provision for (recovery of) income taxes are as follows:

	2002 $		2001 $		2000 $
Current
Domestic	1,250		3,670		800
Foreign	20,250		10,165		4,810
	21,500		13,835		5,610
Future
Domestic	—		—		—
Foreign	(9,771	)	(39,833	)	185
	(9,771	)	(39,833	)	185
	11,729		(25,998	)	5,795

The reported provision for (recovery of) income taxes differs from the expected amount calculated by applying the Company's Canadian statutory rate to income before provision for (recovery of) income taxes. The reasons for this difference and the related tax effects are as follows:

	2002 $		2001 $		2000 $
Income before provision for (recovery of) income taxes	219,282		97,992		115,248
Expected Canadian statutory rate	39.42%		42.12%		44.39%
Expected provision for income taxes	86,441		41,274		51,159
Non-deductible amount
Amortization expense	43,942		33,309		914
Foreign tax rate differences	(133,068	)	(102,386	)	(58,615	)
Unrecognized income tax benefit of losses	10,738		—		10,977
Other	3,676		1,805		1,360
	11,729		(25,998	)	5,795

The Company has provided for foreign withholding taxes on the portion of undistributed earnings of foreign subsidiaries expected to be remitted.

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Future income taxes have been provided on the following temporary differences:

	2002 $		2001 $
Future tax assets
Tax loss carryforwards	68,639		40,315
Scientific Research and Experimental Development pool	17,544		13,881
Investment tax credits	15,948		12,802
Deferred financing and share issue costs	15,573		19,602
Reserves	14,601		4,372
Plant, equipment and technology	4,819		4,547
Intangible assets	—		2,889
Other	3,378		4,062
Total future tax assets	140,502		102,470
Less valuation allowance	(75,255	)	(59,999	)
Net future tax assets	65,247		42,471
Future tax liabilities
Intangible assets	63,250		54,671
Other	1,997		—
Total future tax liabilities	65,247		54,671
Net future income taxes	—		12,200

Effective January 1, 2000, on the adoption of CICA Handbook Section 3062, the Company reclassified $2,429,000 of future tax liabilities to goodwill.

The realization of future tax assets is dependent on the Company generating sufficient domestic and foreign taxable income in the years that the temporary differences become deductible. A valuation allowance has been provided for the portion of the future tax assets that the Company determined is more likely than not to be unrealized based on estimated future taxable income and tax planning strategies. During 2002 and 2001, the valuation allowance increased by $15,256,000 and $16,749,000, respectively. The increase in the valuation allowance is mainly related to accumulated tax losses and tax credit carryforwards.

At December 31, 2002, the Company has accumulated tax losses for federal and provincial purposes in Canada, and for federal and state purposes in the United States. The Company also has unclaimed Canadian investment tax credits. The losses and investment tax credits can be used to offset future years' taxable income and federal tax, respectively. There may be limitations on the annual

57

utilization of the U.S. net operating losses as a result of certain changes in ownership that have occurred. The tax losses and investment tax credits expire as follows:

	Tax losses
	Canada
	Federal $	Provincial $	United States $	Investment tax credits $
2003	—	—	—	400
2004	—	2,600	—	500
2005	—	7,600	—	1,100
2006	500	2,800	—	1,100
2007	—	—	4,300	1,400
2008	23,200	27,100	6,100	3,000
2009	8,800	8,800	6,700	400
2010	—	—	3,100	2,600
2011	—	—	16,400	2,600
2012	—	—	15,500	2,800
2018	—	—	22,100	—
2019	—	—	13,500	—
2020	—	—	100	—
2021	—	—	41,600	—
2022	—	—	18,500	—
	32,500	48,900	147,900	15,900

In addition, the Company has pooled Scientific Research and Experimental Development expenditures amounting to approximately $58,200,000 available to offset against future years' taxable income from its Canadian operations, which may be carried forward indefinitely.

18.   DEBT CONVERSION PREMIUMS

The Company issued, under an indenture dated March 22, 2000, 6,000,000 Debentures for gross proceeds of $300,000,000. After deducting financing costs of $11,228,000, the net proceeds from the issue amounted to $288,772,000. At the holders' option, the Debentures were convertible at any time into common shares of the Company at $30.337 per common share. The value of the Debentures comprised the holder conversion option and the interest and principal components. The value ascribed to the option component was determined using the residual method after calculating the amount attributable to the interest and principal components, which were discounted at a rate of interest that would have approximated the rate applicable to non-convertible debt at the time the Debentures were issued. The present value of the interest and principal components amounted to $256,494,000, resulting in a value of $43,506,000 being ascribed to the holder conversion option. The present value of the interest and principal components was being accreted to the face value of the payments over the three-year period preceding the first redemption date on March 31, 2003, and was included in the determination of net income attributable to common shareholders. The value of the principal component was net of financing costs.

During 2001, the Company entered into privately negotiated agreements with certain holders of the Debentures. These agreements provided for the issuance of 6,278,663 common shares to those certain Debenture holders upon their surrender of $173,845,000 aggregate face value of outstanding Debentures. The Company recorded the market value of the additional shares issued in excess of the number of shares that would have been issued under the terms of the conversion ratio provided for in the Indenture as follows: the portion related to the interest and principal components of the Debentures as a $6,200,000 deduction from net income for the determination of net income attributable to common shareholders; and the portion related to the holder conversion option as a $17,482,000 charge to retained earnings. The Company recorded an increase to common shares of $206,076,000, which included the deduction from net income and the charge to retained earnings combined with the carrying value of the Debentures on the date of surrender of $182,394,000. The carrying value of the Debentures comprised the holder conversion option and the interest and principal components of the Debentures of $187,651,000 and the unpaid accrued interest to the date of surrender of $1,250,000, reduced by the proportionate financing costs of $6,507,000.

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In October 2001, the Company announced its intention to exercise its option to redeem the remaining $126,140,000 aggregate face value of Debentures on November 27, 2001. Prior to the redemption date, substantially all of the remaining Debentures were converted into 4,154,564 common shares of the Company. The Company recorded the aggregate amount of interest that would have been paid on the Debentures from the redemption date to March 31, 2003 of $11,241,000 as follows: the portion related to the interest and principal components of the Debentures as a $3,801,000 deduction from net income for the determination of net income attributable to common shareholders; and the portion related to the holder conversion option as a $7,440,000 charge to retained earnings. The Company recorded an increase to common shares of $133,619,000, which represented the carrying value of the Debentures converted prior to the redemption date. The carrying value of the Debentures comprised the holder conversion option and the interest and principal components of the Debentures of $138,340,000, reduced by the proportionate financing costs of $4,721,000. Debentures of $108,000 aggregate face value were redeemed for cash on the redemption date.

Interest on the Debentures comprised interest expense of $14,862,000 and $15,750,000 in 2001 and 2000, respectively, and the accretion of the principal and interest components of $13,574,000 and $12,540,000 in 2001 and 2000, respectively.

19.   EARNINGS PER SHARE

Earnings per share were computed as follows:

	2002		2001		2000
Net income attributable to common shareholders	$	207,553	$	85,553	$	81,163
Basic weighted average number of common shares outstanding (000s)		151,960		136,928		128,824
Dilutive effect of warrants (000s)		5,992		10,183		9,657
Dilutive effect of stock options (000s)		2,511		3,579		5,031
Diluted weighted average number of common shares outstanding (000s)		160,463		150,690		143,512
Basic earnings per share	$	1.37	$	0.62	$	0.63
Diluted earnings per share	$	1.29	$	0.57	$	0.57

For 2001 and 2000, the Debentures were excluded from the calculation of diluted earnings per share because the effect would have been anti-dilutive.

20.   OPERATING LEASES

The Company enters into operating leases for certain facilities, vehicles and equipment. Lease payments were approximately $5,000,000, $5,200,000 and $4,800,000 in 2002, 2001 and 2000, respectively.

Future minimum annual lease payments under operating leases for the years ending December 31 are as follows:

	$
2003	6,667
2004	5,820
2005	4,835
2006	2,700
2007	1,346
Thereafter	1,107

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21.   CASH FLOW INFORMATION

Net change in non-cash operating items

	2002 $		2001 $		2000 $
Accounts receivable	(93,241	)	4,778		(35,950	)
Inventories	(14,643	)	(14,341	)	(3,886	)
Deposits and prepaid expenses	(12,265	)	(1,296	)	(1,673	)
Accounts payable	35,717		1,138		(5,432	)
Accrued liabilities	36,863		24,489		(9,840	)
Income taxes payable	17,618		10,649		3,779
Deferred revenue	(11,984	)	(4,103	)	5,772
	(41,935	)	21,314		(47,230	)

Non-cash investing and financing activities

	2002 $		2001 $		2000 $
Long-term obligation related to the acquisition of Vasotec® and Vaseretic®	(99,620	)	—		—
Long-term obligation related to the amendments to the Zovirax distribution agreement	(80,656	)	—		—
Long-term obligation related to the acquisition of Wellbutrin® and Zyban®	(69,921	)	—		—
Issuance of common shares on the surrender and redemption of Debentures	—		(316,013	)	—
Long-term obligation related to the acquisition of Cardizem®	—		—		(161,828	)
Accrued acquisition costs related to Cardizem®	—		—		(4,000	)
Long-term obligation related to the Adalat Agreement	—		—		(58,090	)
	(250,197	)	(316,013	)	(223,918	)

Cash paid during the year

	2002 $	2001 $	2000 $
Interest paid	14,899	22,837	20,546
Income taxes paid	5,063	4,380	1,889
Debt conversion premium paid	—	11,241	—

22.   RELATED PARTY TRANSACTIONS

In June 2001, the Company acquired a corporate aircraft from an entity controlled by the Chairman of the Company's Board of Directors for cash consideration of $10,475,000. The exchange amount was established based on comparable market prices for the aircraft at the time of acquisition.

In March 2001, the Company loaned $600,000 to one of its executive officers. The loan is secured by a charge on the officer's personal residence. The loan does not bear interest until March 1, 2004 and thereafter bears interest at a rate equal to the Company's rate of borrowing. The loan is due on the earlier of termination of employment or March 31, 2008.

23.   LEGAL PROCEEDINGS

From time to time, the Company becomes involved in various legal proceedings, which it considers to be in the ordinary course of business. The vast majority of these proceedings involve intellectual property issues that often result in patent infringement suits brought by patent holders upon the filing of Abbreviated New Drug Applications ("ANDA"). The timing of these actions is mandated by statute and may result in a delay of FDA approval for such filed ANDAs until the final resolution of such actions or the expiry of 30 months, whichever occurs earlier. There are also ordinary course employment dismissal and related issues and other types of claims in which the Company routinely becomes involved but which individually and collectively are not material.

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At different times in early 1998, the Company was sued in separate lawsuits by Bayer AG and Bayer Corporation (collectively "Bayer"), as well as by Pfizer Inc. ("Pfizer"), upon the filing by Biovail of separate ANDAs for generic versions of Procardia XL and Adalat CC. These actions make the usual, technical claims of infringement. Biovail is vigorously defending these suits and is aggressively pursuing motions for summary judgment. Biovail has denied the allegations and has pleaded affirmative defenses that the patents are invalid, have not been infringed and are unenforceable. Biovail believes that Bayer/Pfizer's claims are without merit.

On April 23, 1998, Biovail filed a four-count complaint against Bayer and Pfizer seeking a declaratory judgment that their patent is invalid, unenforceable, and not infringed by Biovail's filing of the ANDAs. Biovail has also asserted that Bayer and Pfizer have violated anti-trust laws and have interfered with Biovail's prospective economic advantage. Biovail's action has been stayed until the conclusion of the patent infringement suits.

In February 2001, Biovail commenced an action against Mylan Pharmaceuticals, Inc. ("Mylan") and Pfizer claiming damages resulting from an agreement between Mylan and Pfizer that had the effect of blocking the timely marketing of Biovail's generic version of Pfizer's 30 mg Procardia XL. Biovail's action alleges that in entering into, and implementing, such agreement Mylan and Pfizer contravened various statutory provisions and common law obligations. Discovery is currently underway for this action; however, a timeline for a trial has not yet been established. While Biovail believes its action is meritorious, nevertheless, it is not possible, at this early stage, to determine the quantum of damages that may be the subject of an award.

Biovail commenced an action against Mylan with respect to Mylan's breach of contract relating to its supply of generic Verelan SR obligations to the Company. This legal proceeding was completed in January 2003. Biovail was successful in the action and was awarded judgment and interest.

The Company commenced an action against Lilly in which Biovail is seeking substantial damages as a result of Lilly's voluntary recall of Biovail's product Keftab. Lilly is under contract with Biovail to manufacture and supply the product to Biovail for marketing in the United States. Lilly had forced a recall of the product because it has been unable to supply a stable product. In March 2003, Biovail settled its action with Lilly and received compensation for lost margin on Keftab sales and expenses incurred with respect to the Keftab recall.

The net recovery from the settlement of the Mylan and Lilly actions was $24,755,000 plus interest.

In February 2002, a plaintiff commenced an action against Biovail Pharmaceuticals, Inc. ("BPI") alleging personal injuries arising from her use of Dura-Vent, a product containing PPA and formerly marketed by BPI. The Company believes that this claim is without merit and, in the event the case proceeds further, it will be vigorously defended. This case has been currently stayed.

Several consumer class action Complaints have been filed against the Company in which plaintiffs have alleged that the Company has improperly impeded the approval of a generic form of Tiazac®. The Company has filed an Answer denying any impropriety or illegality. The Company believes that the complaints are without merit and that the Company's actions were in accord with its rights as contained in the Hatch-Waxman Amendments and the law. Moreover, the Company's position is that none of its actions was responsible for the inability of that product to receive final marketing approval by the FDA since a generic version of Tiazac® did not receive FDA approval for a long period of time following the removal of all legal or regulatory impediments by the Company. Indeed, that product's failure to receive timely approval was due to its own scientific issues unrelated to any regulatory action taken by the Company. The Company will vigorously defend these actions. One such action has been voluntarily discontinued.

Several consumer class action suits have recently been commenced jointly against Biovail and Elan and against Teva Pharmaceuticals USA, Inc. ("Teva") relating to an agreement between a Biovail subsidiary and Elan for Biovail's in-licensing of Adalat CC products from Elan. The agreement in question has since been dissolved as a result of a settlement agreement with the FTC. Biovail will vigorously defend these suits in due course. Biovail believes these suits are without merit, since the delay in the marketing or out-licensing of the Adalat CC product was due to the Company's inability to manufacture the product pursuant to prescribed specifications and not because of any improper activity on its part.

RhoxalPharma Inc. ("RhoxalPharma") has filed an abbreviated new drug submission ("ANDS") in Canada, seeking approval of a generic version of Tiazac®. In an attempt to comply with the Patented Medicines (Notice of Compliance) Regulations, RhoxalPharma has alleged to Health Canada that Canadian Patent No. 2,111,085, of which Biovail is the exclusive licensee, would not be infringed by the sale in Canada of RhoxalPharma's generic version of Tiazac®. RhoxalPharma served a notice of that allegation on Biovail. In response to that notice, Biovail instituted proceedings in the Federal Court of Canada in March 2002 to prohibit the issue of a Notice of Compliance (which is needed before RhoxalPharma can market its product in Canada) to RhoxalPharma until the merits of RhoxalPharma's allegations can be determined by the Federal Court. Until those proceedings are concluded, or until the expiry of 24 months after March 2002, whichever is earlier, no Notice of Compliance will be issued to RhoxalPharma.

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A Certificate of Non-Infringement was served by Torpharm, Inc. ("Torpharm") on Aventis in October 2001, in respect of its filed ANDA of a generic version of Cardizem® CD (120 mg, 180 mg and 300 mg) with the FDA. The patents against which Torpharm certified were acquired by Biovail Laboratories Incorporated ("BLI") as part of BLI's acquisition of the Cardizem® family of products. BLI has determined that Torpharm's ANDA infringes BLI's patents and a legal suit has been commenced against Torpharm, the effect of which was to trigger the Hatch-Waxman provisions. As a result, the FDA is statutorily and automatically precluded from granting approval to Torpharm until the earlier of 30 months after the filing of the legal suit, a final court decision of non-infringement or patent invalidity or a court's decision to abbreviate the 30-month stay.

A Certificate of Non-Infringement was served by Torpharm on BLI in July 2002 in respect of Torpharm's filed ANDA for a generic version of Tiazac® as marketed in the United States. BLI has made a determination that Torpharm's formulation infringes BLI's Tiazac® patent and has therefore instituted a patent infringement suit against Torpharm, pursuant to the provisions of the Hatch-Waxman Act. As a result of BLI's suit, the FDA is statutorily and automatically precluded from granting approval to Torpharm until the earlier of 30 months after the filing of the legal suit, a final court order of non-infringement or patent invalidity, or a court decision to abbreviate the 30-month stay.

On November 22, 2002, the Company filed an action against Verum Pharmaceuticals Inc. ("Verum") and a number of its officers and employees seeking injunctive relief and damages to enjoin these Defendants from illegally and unfairly competing with Biovail in violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030, and Defendants' contractual, statutory and common law obligations. On February 14, 2003 the Court granted the Company's injunctive motion and ordered Defendants to cease their employment with Verum and further ordered Verum to cease its operations. The Company intends to pursue its action for damages against Verum and the personal defendants.

Glaxo Group Limited and the Company entered into a Rights Agreement, dated December 1, 2002, wherein the Company acquired the exclusive marketing rights to Zyban® and Wellbutrin® SR in Canada. Novopharm Limited ("Novopharm") has filed an ANDS in Canada, seeking approval of a generic version of Wellbutrin® SR. In an attempt to comply with the Patented Medicines (Notice of Compliance) Regulations, Novopharm has alleged to Health Canada that Canadian Patent Nos. 1,321,754, 2,142,320 and 2,168,364 are invalid and, alternatively, that they would not be infringed by the sale in Canada of Novopharm's generic version of Wellbutrin® SR. Novopharm served a Notice of Allegation on GlaxoSmithKline Inc. ("Glaxo") on February 18, 2003. The Company has the exclusive right to institute, and have carriage of, patent infringement proceedings and has determined that it will pursue a Notice of Application proceeding against Novopharm. Until the legal proceedings are concluded, or until the expiry of 24 months after March 31, 2003, the date of the Notice, whichever is earlier, no Notice of Compliance will be issued to Novopharm.

A Certificate of Non-Infringement was served by KV Pharmaceutical Company ("KV") on BLI in March 2003, in respect of KV's filed ANDA for a generic version of Tiazac® 420 mg, exclusively, as marketed in the United States. The Company is currently assessing the Certificate to determine whether there is infringement. In the event the Company concludes that KV's formulation infringes the Company's patents, a patent infringement suit will be commenced pursuant to the provisions of the Hatch-Waxman Act.

24.   CO-PROMOTION ARRANGEMENTS

In November 2002, Biovail and Reliant entered into an agreement to co-promote Biovail's Zovirax, Teveten®, Teveten® HCT, Rondec, Cedax and, on approval by the FDA, Cardizem® LA products. Biovail and Reliant will detail the products to physicians in the United States during the period from October 1, 2002 to December 31, 2005. In addition, Biovail will spend a minimum prescribed amount on advertising and sales promotion of the products. In consideration of Reliant's co-promotion activities under the agreement, Biovail will pay Reliant a tiered co-promotion fee based on a percentage of the quarterly net sales of the portfolio of products covered by the agreement.

Commencing on June 30, 2003, each of Biovail and Reliant has the right to terminate the agreement for any reason. In the event that either party terminates the agreement, Biovail may elect to either pay Reliant a termination fee, as defined in the agreement, or continue to pay Reliant co-promotion fees on sales of the products through to December 31, 2008. In the event that Biovail elects to continue to pay Reliant co-promotion fees, Reliant may elect to terminate the payment of the co-promotion fees on the withdrawal from the market or sale of any of the products, in which case Biovail will pay Reliant the termination fee. The agreement expires on December 31, 2008.

In October 2001, Biovail and GSK entered into a development and co-promotion agreement for Wellbutrin XL. Under the terms of the agreement, Biovail has licensed Wellbutrin XL to GSK for sale and distribution on a worldwide basis, excluding Canada. Biovail and GSK will collaborate to direct regulatory and scientific development to seek regulatory approval of Wellbutrin XL. In August 2002, GSK filed an NDA for Wellbutrin XL with the FDA. When, and if, FDA approval is received, Biovail will manufacture and supply Wellbutrin XL to GSK for a share of the revenue generated by future sales of Wellbutrin XL. GSK and Biovail will co-promote

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Wellbutrin SR in the United States and Biovail will have the option to co-promote Wellbutrin XL in the United States when, and if, FDA approval is received.

In consideration for the activities undertaken by Biovail under the agreement, GSK committed to pay Biovail up to $61,500,000 in six quarterly increments. The first increment of $11,500,000, related to the development of Wellbutrin XL, was recorded in deferred revenue at December 31, 2001. During 2002, Biovail completed the development of Wellbutrin XL and recognized the first increment in research and development revenue. During 2002, Biovail received four of the remaining quarterly increments, of $10,000,000 each, for the co-promotion of Wellbutrin SR. The receipt of the last quarterly increment of up to $10,000,000 is dependent on Biovail performing prescribed detailing activity related to the co-promotion of Wellbutrin SR, and the amount will be determined based on a percentage of net sales of Wellbutrin SR in the United States during the first quarter of 2003.

Either Biovail or GSK may, at its option, terminate the agreement subject to certain conditions. On termination of the agreement, each party may retain any amounts paid to them, and shall pay to each other all amounts accrued which are then due. GSK will not be obligated to pay the last quarterly increment if the termination of the agreement becomes effective during the first quarter of 2003. All rights to Wellbutrin XL granted to GSK will revert to Biovail, and GSK will permit access to all regulatory data and information related to Wellbutrin and bupropion HCl, as appropriate, for the sole purpose of enabling Biovail to obtain regulatory approval for Wellbutrin XL.

25.   RESEARCH AND DEVELOPMENT COLLABORATIONS

In the ordinary course of business, the Company enters into research and development collaborations with third parties to provide formulation and other services for its products under development. These collaborations target the Company's therapeutic areas of focus — cardiovascular (including Type II diabetes), pain management, central nervous system and niche opportunities, and typically include formulation and product development services being rendered by the developer. The developer may utilize its own technology, and, in other cases, the Company will allow access to its technology for the formulation and development of the product(s). In some cases, the Company has an ownership interest or an option to take an ownership position in the developer. In no case is the Company responsible for any of the developers' third party liabilities, nor has the Company guaranteed any debts, nor is the Company required under any circumstances to exercise any of its options.

These third party developers are typically compensated on the basis of fees for service, milestone payments or royalty payments from the future sales of the products under development, or some combination of these bases. In addition, in the ordinary course of business, the Company may enter into research and development collaborations with third parties whereby the Company may provide contract research, formulation development and other services to those third parties. The Company is typically compensated on the basis of fees for service, milestone payments, royalties from future sales of the product(s) or co-promotion revenue, or some combination of these bases.

In July 2002, Biovail licensed from DepoMed the rights to manufacture and market a once-daily metformin HCl product that is currently undergoing Phase III clinical trials ("metformin GR"). The license confers to Biovail the right to market metformin GR in the United States and Canada. DepoMed will be responsible for completing the clinical development program in support of metformin GR and, subject to approval by the FDA, Biovail will pay to DepoMed a $25,000,000 milestone fee, as well as royalties on the net sales of the product in the United States and Canada.

In May 2002, Biovail entered into an agreement with Merck to develop, license and supply a new dosage format of a Merck product under development. Utilizing CEFORM™ technology, Biovail and Merck will conduct the development program and, subject to approval by the FDA, Biovail will manufacture and supply this new dosage format to Merck for commercialization. Biovail is entitled to receive a milestone payment on regulatory approval of $250,000, as well as royalties on the net sales of the new dosage format.

In April 2002, Biovail licensed the marketing rights to six products from Ethypharm for commercialization in the United States, Canada and Mexico. Biovail is obligated to pay Ethypharm up to $61,000,000 in milestone payments on the first regulatory approval of the products within the United States, Canada or Mexico, as well as royalties on the net sales of the products. Biovail has also entered into a cross-license agreement with Ethypharm, whereby the two companies grant to each other non-exclusive licenses to use Biovail's CEFORM™ technology and Ethypharm's Flashtab technology, respectively, relating to the development of new rapid dissolve pharmaceutical products. To December 31, 2002, Biovail had made no milestone payments to Ethypharm.

In January 2002, the Company acquired the exclusive marketing rights to FIBROSTAT from Procyon Biopharma Inc ("Procyon"). FIBROSTAT is a topical therapeutic for scar management. The Company will pay aggregate fees of approximately $5,100,000 to Procyon for the development of FIBROSTAT, subject to the attainment of certain milestones. On approval and commercialization of

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FIBROSTAT in the United States, the Company will pay a licensing fee to Procyon of approximately $3,100,000, as well as royalties based on a percentage of net sales of FIBROSTAT. To December 31, 2002, Biovail had paid no fees to Procyon.

In December 1998, the Company entered into an agreement with H. Lundbeck A/S ("Lundbeck"), for the formulation, development, manufacture and supply of a novel, controlled-release formulation of the anti-depressant citalopram. Under the terms of the agreement, Lundbeck paid the Company product development fees in an aggregate amount of $8,500,000, subject to certain milestones. In 2001, the Company completed the services in respect to the final milestone and received the remaining $2,000,000 product development fee from Lundbeck. The Company received a product development fee of $1,000,000 in 2000.

26.   SEGMENTED INFORMATION AND MAJOR CUSTOMERS

In 2002, the Company, after reviewing the way that management assesses performance and makes resource decisions, determined that it operates in one operating segment — the development and commercialization of pharmaceutical products. Substantially all of the operations of the Company are directly engaged in or support this operating segment. Other operations are not material and share many of the same economic and operating characteristics as pharmaceutical products. Therefore, they are included with pharmaceutical products for purposes of segment reporting.

Geographic information

	Revenue(i)			Long-lived assets(ii)
	2002 $	2001 $	2000 $	2002 $	2001 $	2000 $
Canada	62,848	44,705	21,110	75,872	44,139	39,050
United States and Puerto Rico	713,615	528,722	226,559	382,457	354,692	429,222
Barbados and other Caribbean	9,533	3,448	55,511	1,351,042	663,995	729,652
Other countries	2,029	6,388	8,277	27,340	1,249	140
	788,025	583,263	311,457	1,836,711	1,064,075	1,198,064

(i)

Revenue is attributed to countries based on the location of the customer.



(ii)

Consists of property, plant and equipment, goodwill, intangible and other assets, net of depreciation and amortization. Property, plant and equipment are attributed to countries based on their physical location, goodwill is attributed to countries based on the location of the related acquired business, and intangible and other assets are attributed to countries based on ownership rights.

Major customers

The following table identifies external customers accounting for 10% or more of the Company's total revenue:

	Percentage of total revenue
	2002 %	2001 %	2000 %
Customer A	12	16	30
Customer B	23	31	30
Customer C	11	9	5
Customer D	—	—	18

27.   COMPARATIVE FIGURES

Prior to 2002, the Company included co-promotion revenue as a component of product sales. In 2002, the Company reclassified co-promotion revenue from product sales to co-promotion, royalty and licensing. The reclassification of $15,984,000 and $7,992,000 of co-promotion revenue for 2001 and 2000, respectively, to conform to the presentation adopted in 2002, did not change total revenue as previously reported.

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Prior to 2001, the Company included amortization expense as a component of cost of goods sold, research and development expenses, and selling, general and administrative expenses. In 2001, the Company decided to present amortization expense as an individual line item within operating expenses. The reclassification of $16,228,000 of amortization expense for 2000, to conform to the presentation adopted in 2001, did not change total operating expenses or net operating loss as previously reported.

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QuickLinks

BIOVAIL CORPORATION 2002 ANNUAL REPORT FOR CANADIAN REGULATORY PURPOSES TABLE OF CONTENTS
BIOVAIL CORPORATION 2002 ANNUAL REPORT FOR CANADIAN REGULATORY PURPOSES LETTER TO SHAREHOLDERS
BIOVAIL CORPORATION 2002 ANNUAL REPORT FOR CANADIAN REGULATORY PURPOSES MANAGEMENT REPORT
BIOVAIL CORPORATION 2002 ANNUAL REPORT FOR CANADIAN REGULATORY PURPOSES
AUDITORS' REPORT
BIOVAIL CORPORATION CONSOLIDATED BALANCE SHEETS In accordance with Canadian generally accepted accounting principles (All dollar amounts expressed in thousands of U.S. dollars)
BIOVAIL CORPORATION CONSOLIDATED STATEMENTS OF INCOME In accordance with Canadian generally accepted accounting principles (All dollar amounts expressed in thousands of U.S. dollars, except per share data)
BIOVAIL CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY In accordance with Canadian generally accepted accounting principles (All dollar amounts expressed in thousands of U.S. dollars)
BIOVAIL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS In accordance with Canadian generally accepted accounting principles (All dollar amounts expressed in thousands of U.S. dollars)