The 10 Facts 60 Minutes Left Out, Gradient Responds to CBS News Segment

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Gradient Analytics, Inc. responds to CBS’ 60 Minutes segment.

Gradient Analytics, Inc. released the following statement tonight concerning CBS’ 60 Minutes segment: “Tonight 60 Minutes allowed Biovail to air publicly its false and unproven allegations against Gradient Analytics. The 60 Minutes segment was flat wrong in many respects. In typical fashion, 60 Minutes glossed over or failed to report facts that complicated its simplistic format -- facts that would have altered the viewing public’s understanding of the nature and importance of independent research on publicly-traded companies.

“Gradient has been forced to defend practices both legal and appropriate because former customer or sales representatives have since their departure been incorrectly led to believe that our practices were wrong and have intentionally mischaracterized them. It is unfortunate that the former employees are being subjected to intense pressure from the investigators and attorneys representing the Biovail/Overstock.com group. However, they do not possess the knowledge or the acumen to judge the skill level of analysts and the content of reports.

“The analysts (current and former) are the ones who did the work. To a person, these analysts adamantly deny that any report was anything other than their independent analytical work. Gradient did not collude with asset managers or journalists to drive down security prices nor did Gradient accept “ghost written” reports. Anyone who says so is simply wrong.”

Below are just some of the facts 60 Minutes didn’t have time for:

1. Gradient’s analysis about Biovail was well established by March 11, 2003, with the publication of Gradient’s first critical report, almost four months before the alleged “hatchet job” was published on June 20, 2003, and almost ten months before the alleged “improper” meeting with SAC’s Tim McCarthy.

2. Gradient isn’t alone in its critical analysis of Biovail’s business practices. During a time when Wall Street analysts were extremely hesitant to express negative opinions, at least 12 other research analysts, not associated with Gradient, issued negative reports during 2003. Biovail’s announcements of underperformance drove the negative reports, not Gradient’s reports.

3. Biovail’s stock went up, not down, after Gradient released its initial and most substantive, detailed reports. Biovail's stock went up 43% between Gradient’s first listing of the company on its Watch List on December 18, 2002 and its first negative report in March 2003. By the second detailed report in June 2003, the stock had jumped 75%, disproving the illogical allegation that the reports forced share prices down. The stock continued to rise for two consecutive weeks.

4. Biovail’s stock began to fall when the Wall Street Journal reported unethical marketing practices by Biovail, when Biovail started reporting disappointing earnings, when Biovail announced it was under investigation by the SEC in the United States and Canada and when a competitor received tentative approval for a drug.

5. Gradient did not and does not “widely disseminate” its reports. When Gradient released the most substantive and detailed Biovail reports, only about 33 clients subscribed to its service. Gradient did not engage in a campaign to disseminate its Biovail reports to journalists or to any other analysts beyond its limited set of subscribers.

6. Gradient’s reports contained analysis drawn from publicly available facts and it is simply unreasonable to postulate that the reports themselves constituted private information. That is, it is simply unreasonable for anyone to have expected that the Gradient reports would move stock prices; hence, the timing of their release to subscribers is not relevant. Even so, Gradient never "held back" reports for the purpose of allowing customers to take market positions.

7. None of the former Gradient employees ever complained about the practices they now allege are “improper.” According to the New York Times (3/2/06), “None of the four quit over their concerns about SAC's influence over the firm: three were fired and the fourth…left for another job….”(after also being let go)

8. Gradient analysts, both former and current, have said they experienced harrassment and intimidation by Biovail, which hired private investigators to contact Gradient analysts. The private investigators threatened them with statements like “your career will be over” if they refused to listen to them and ultimately sign the affidavits they had drafted against Gradient. Gradient analysts have said the private investigators often refused to leave the front door of theirs homes when requested to do so and returned numerous times for further harassment. They also said the private investigators contacted them in the parking lot of Gradient offices and called them on their cell phones while working in the Gradient offices.

9. Gradient's reports about Biovail's questionable accounting practices and business operations were substantively accurate and on-point. No third-party objective source has cast any doubt on their validity. In fact, the New York Times (3/26/06) quoted an academic who agreed with the essence of Gradient’s analysis:

“An independent accountant, with no current ties to any of the parties involved, confirmed that 2003 was an unusually tough year for Biovail, both from operational and accounting standpoints.

‘Heading into 2003, repeated product losses indicate that many of the drugs the company had purchased were not finding their hoped-for market,’ said Charles W. Mulford, a professor of accounting at the Georgia Institute of Technology. ‘Such problems were manifesting as slowing revenue growth, declining operating profit, negative free cash flow and rising debt levels. I think that there were definite reasons to be concerned.’”

10. Biovail’s attack against Gradient comes on the heels of an SEC investigation into Biovail’s accounting and financial disclosure practices, as as well as an Ontario Securities Commission investigation involves trading and disclosure issues related to trading of Biovail common shares in accounts owned directly or indirectly by Biovail founder Eugene Melnyk. A New York Times article on March 26, 2006, included information about these two investigations.

Gradient Analytics Inc.

Founded in October 1996, Gradient Analytics, Inc. is an independent research publisher providing both analyst-written research work through its Earnings Quality Analytics and Equity Incentive Analytics services, and quantitative stock ratings for institutional clients through its Gradient Factor Suite. Gradient has developed models, expert systems and analytical tools for asset managers and investment advisors with many related products being distributed exclusively via strategic partners and alliances such as Thomson Financial. Gradient is also the creator of the highly acclaimed MSN/CNBC Money's StockScouter rating system for individual investors.

Contact: Karen Hinton

Hinton Communications

1215 19th Street, NW

Washington, DC 20036

703.798.3109 (tel)

480.275.3554 (fax)

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