Eugene Melnyk owns a hockey team.

So the question begs – why in the heck doesn’t the chairman and CEO of Biovail take a skate with the Ottawa Senators?

Maybe Melnyk’s boys of winter could teach their billionaire owner a thing or two about rolling with the punches when the going gets tough.

When Wall Street analyst David Maris of Banc of America Securities recently delivered a stiff hip (wallet) check to Biovail in the form of a scathing research report and sell recommendation on the drug maker, Melnyk carelessly slashed back with a high stick, threatening possible legal action against the kind of firm that helped make him a billionaire.

A lawsuit against a brokerage should really have the analysts tripping over each other to issue buy recommendations on Biovail (BVF-TSX).

Melnyk’s reaction was not so much unlike a hockey player taking a bonehead retaliation penalty that costs his team the game.

Shareholders (yes, apparently some people are still holding this stock) would no doubt prefer that Melnyk gets his house in order before he costs them their game.

Melnyk’s response to Maris’s report is not surprising, considering how research analysts have spoiled him and other CEOs rotten with mushy research reports. So when a hard-nosed analyst churned out a scathing report on a company that had already seen its stock pummelled by an earnings warning a few days earlier, Melnyk, whose reported 27 million Biovail shares were reduced in value by $440 million in a week, characterized the report as “irresponsible” and “outrageous.”

The same might one day be said of a company that paid Melnyk $79 million US in 2001, which was 46 per cent of its operating income that year. From an accounting perspective, this is hardly a model company – and shareholders have been getting the hint.

Stock in the Mississauga firm has plunged 30 per cent since the company said it lost between $15 million and $20 million US in third-quarter revenue when a truck carrying anti-depressants was in a multi-vehicle crash near Chicago that killed eight people.

Maris, who gave Biovail a $22 US target price in initiating coverage, $3 below its recent price, called the company’s accounting “aggressive beyond what we have observed at peer companies.” The analyst had three forensic accountants examine Biovail’s bookkeeping.

Ironically, Maris’s predecessor at Banc of America, Jerry Treppel, lost his job over a controversial sell report last year and is suing Biovail for $100 million US for defamation.

The recent firestorm has highlighted Biovail’s lousy earnings quality, negative free-cash flows since 1998, weak return on investment, high balance-sheet leverage, generous management options and loans and CEO, whose $42 million US in 2002 compensation makes his hockey players look like paupers.

Duncan Stewart, fund manager with Tera Capital Corp., wrote in the Globe and Mail that, even though he holds a Chartered Financial Accountant designation and covers health-care companies, he can’t figure out what Biovail’s “real” earnings are.

With all hell breaking loose and shareholders dumping the shares, Ross Healy, president of Strategic Analysis Corp., made Biovail his No. 1 pick on ROB-TV’s Market Call, recommending it as a short-term trade because he believed the stock was oversold.

But, if you’re playing this game, it would be wise to protect yourself by placing a stop-loss order to limit losses in the event of a further crash.

Personally, I would wait until the smoke clears or until Eugene Melnyk gets out of the penalty box.

* TAKING THE GLOVES OFF: Canada doesn’t have an Eliot Spitzer cracking the whip on brokerage houses and mutual fund managers, but we do have an outspoken critic of accounting standards and market regulations.

Al Rosen, a forensic accountant and partner at Accountability Research, came out swinging recently at the Independent’s Day research symposium.

“There are all kinds of people coming into this country. Why? Because it's a no-prosecution zone,” Rosen ranted.

After listing more than 20 cases of public fraud at Canadian companies in the past decade, Rosen challenged: “Now does anyone want to argue with me that we don't have Enrons and WorldComs in Canada? If so, say so now because I’d like to strangle you in front of a live audience.”



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