July 28 (Bloomberg) -- Biovail Corp.'s founder, Eugene N. Melnyk, dropped his challenge to the board of directors' election and said he'll start a new drug company. Biovail, Canada's largest publicly traded drugmaker, fell the most in eight months in New York trading.

Melnyk, Biovail's biggest shareholder, acknowledged in a statement today that his backers didn't have enough support to change the outcome of the June 25 election, in which a company- backed slate of directors led by chairman Douglas Squires claimed victory. Melnyk won his court challenge to the election's legality and a new contest had been scheduled for Aug. 8.

Melnyk and Biovail's management campaigned since March over the future of the company. They proposed competing strategies to combat flagging sales of Biovail's two biggest-selling drugs, the antidepressant Wellbutrin XL and blood-pressure medicine Cardizem LA. Biovail will cut costs and focus on drugs for central nervous system disorders, including multiple sclerosis. Melnyk wanted to pursue hard-to-formulate generic medicines.

``We are not trying to find cure for multiple sclerosis,'' said Nelson Isabel, a Biovail vice president, said in a telephone interview today. ``But we're looking for drugs that treat symptoms of M.S.,'' which are likely to be reimbursed by insurers.

Melnyk, 49, who owns about 12 percent of Biovail and the Ottawa Senators National Hockey League team, will start a private drug company, he said in his statement today.

Biovail shares fell $1.18, or 11 percent, to $9.84 in New York Stock Exchange composite trading, the most since Nov. 20. They have declined 49 percent in the past 12 months.

`Best Interest'

Melnyk said it's in ``everyone's best interest -- particularly the shareholders of Biovail,'' to let the company's management move forward, according to his statement.

``Biovail has said that their new plan will return the company to greatness. As the company's largest shareholder, I hope they are right. It is time for excuses to stop and for them to perform,'' he said.

Investors assumed the company would prevail, said Maxime Paris, an analyst with CIBC World Markets in Montreal, who downgraded the company's shares to ``underperform'' last month.

``The company needs restructuring,'' Paris said in an interview today. ``But it will probably take a lot longer and be more expensive than what management is projecting.''

Ontario Superior Court of Justice ruled last month that Biovail's June annual meeting didn't have enough shareholders present for a legal vote on a new board. The court ordered the company to reschedule the vote.

Melnyk said the court ruling didn't change the share ownership date of record that determined eligibility for the rescheduled election.

``Largely as a result of this,'' he said he was dropping his challenge.

To contact the reporter on this story: Cristina Alesci in New York at calesci@bloomberg.net

Last Updated: July 28, 2008 18:33 EDT