Bausch Health Companies Inc. (BHC) Earnings Call Transcript & Summary

Okay. Thanks, everyone. My name is Frank Jarman, and we're going to go ahead and kick off our fireside chat with Bausch Health Companies. I'm our high-yield health care analyst, and I'm very pleased to have with me 2 speakers from Bausch: Paul Herendeen, the Chief Financial Officer of the company; as well as Will Woodfield, who's the treasurer of the company. So Paul and Will, thanks very much for joining us today.

Yes. Great, Frank. And we're both delighted to be here. I dare say we'd rather be in California, but we appreciate the ability to do this conference virtually.

Gee, good point, good point. So thanks. So I'll go ahead and kick it off with a few questions about the current business environment. We have about 25 or 30 minutes or so. And maybe just to level set for the audience, I'd love for you to just provide a quick overview on some of your core service lines and see if you could speak to some of the trends you've seen recently just amid some of the broader macro volatility. I think more specifically, if you could touch on when you saw some of these segments really hit a trough and what you've seen the recovery look like since that trough.

Sure. And I could spend all 30 minutes on that, but I'll try to keep it brief, so we get to all your other questions as well. I mean let me start with the U.S.-branded pharma businesses because, obviously, very important to us, but also, you have this great data. You get weekly Rx data. And being a student of data, I kind of looked and said, "What was that last week before we really were impacted by COVID?" And you can see the various depths of how we declined and then whether we were on a trajectory back. Let's start with Salix because the GI business is certainly very important to us, particularly XIFAXAN, our largest product. I mean I'd say towards the middle of March, we had our last undisturbed week, and then we started to see an impact kind of early April. And I think we reached the nadir, if you will, for the XIFAXAN franchise anyway sometime latter part of April. And since that time, we started to crawl out of that depression. I think broadly, extended units for XIFAXAN, we're off circa 10% from where we were in the last undisturbed week before COVID-19, and today, we're trending upwards. We're still down circa 8% or so from where we were before COVID impacted XIFAXAN, but we are trending in the right direction. I'm a great student of doing things in a time series. And I think if you run a time series, you can look at it and you can see and feel the recovery there. Our other significant product in the GI space is TRULANCE. And interestingly, TRULANCE is -- was really, I would call it, almost in launch phase because we deployed a lot of promotional resources against it in the latter part of 2019. And it was doing really, really well. I mean Q1, we were plus 50% in TRxs relative to Q1 of 2019, and it didn't really fall off all that much after the impact of social restrictions in the U.S. here. We were only down circa 5% from the weeks before the impact of COVID. And I know it's only one data point, but the most recent week, we're actually up like 1 point from where we started before we went into the COVID situation. So I think net-net, when we talked about on our Q1 call that this would be a reasonably resilient franchise in GI, I think that's proving to be correct. And it's encouraging because a lot of those Rxs are new to brand and new Rxs. And those are hard to get, and I think we can talk about that a little bit later. The dermatology business has not recovered and was hit much more significantly. I think the derm offices were among the first to close, and they're being slower to ramp back up. And I think we saw -- at the depth, some of our brands were down as much as 50% over the course of a handful of weeks. And they continue to be down 30%, 40%, and you can all look at the time series. The one asset that held up pretty nicely was SILIQ. SILIQ continues to be used. And actually, we're at a level that's above the pre-COVID weekly Rxs with SILIQ, and it held up quite well through the process. The other is JUBLIA. JUBLIA has been a great story for us since we repositioned it, and it has held up quite well. But DUOBRII, BRYHALI, ALTRENO have been a little bit more impacted. In our Ophthal Rx business, which is also a branded Rx business, we were very impacted as a lot of the surgeries, eye surgeries, were delayed, postponed. And a lot of these drugs are used often in pre and post surgery, and that'd be like Lotemax, et cetera. And those assets were off as much as 50% or, in the case of like Besivance and PROLENSA, 70%, 80% and kind of think of that in line with the dramatic falloff in surgical procedures. And the great news here is, we've recovered the sort of 75% to 80% of pre-COVID weekly Rx levels with those brands. And separately, VYZULTA, which is not tied to surgeries, held up nicely and is kind of even with where it started. And so pretty good news there. I'll spend 2 seconds on our neuro portfolio, which we expected to be not that impacted, was not that impacted and is broadly level with where we were. Flipping to B&L, and I'm trying to be real fast here, I want to call it out, and you should segregate it into 2 regions, call it the -- yes, the U.S. business and the OUS business because how they're performing coming through the COVID situation is quite different. Let me start with the U.S. business. Our vision care business in the U.S., and we can measure this on a week-to-week basis by consumption, it was almost -- if you -- if I could show you a chart graphically, you look at the first part of the year, we were growing very nicely in the U.S. with our vision care business. But as soon as the COVID situation hit, we saw some pantry loading in the early part of March and into the middle part of March, and then boom, it dropped off very dramatically, and we saw consumption of our goods, as was pull-through of our vision care products, at retail was off dramatically for a handful of weeks. That's the bad news. The good news is, if you looked at that chart, the recovery is well underway. And I think in the most recent week, and it's -- I don't want to read too much into 1 week's worth of data. The most recent weeks, we were off roughly 10% versus the prior year. We had been down as much as 50% on a weekly basis versus the prior year, again, in terms of consumption. So if you looked at the trend and how we're doing, that business in the U.S. is recovering nicely. The surgery -- surgical business in the U.S. is also recovering nicely. It was hit very precipitously as the procedures were essentially delayed or postponed, and so you saw that fall off very dramatically. We have the opportunity to get a statistic from our Stelara/SILIQ platform, the eyeTELLIGENCE portion of that, which tells us the number of surgeries that are taking place out in the field. And great news to report. I think 2 weeks ago, we put up a slide for everyone that said that we are back to about 85% of the pre-COVID impact surgery level. Well, that data in the very most recent week in the U.S. was at 95%, and that is obviously very encouraging. And I think that what you see in the ophthal -- the recovery of the Ophthal Rx brands, Lotemax, et cetera, it mirrors that as in the U.S., we seem to be recovering nicely on the surgical side. Last but not least, the consumer business. Similarly, we were doing great in the U.S. through the first, call it, 3 months. A lot of pantry loading in our U.S. -- our consumer products in the first several weeks of March, and then it fell off, but it didn't fall off that much, not nearly the same as what we saw with respect to vision care. And it is encouraging that it is now kind of oscillating around where maybe we're down 3%, 4%, 5%, 6% on a weekly basis, looking at consumption of our consumer products as we're sitting here and feel like we're moving in the right direction. Of course, those products are sold at retail, and as more retail outlets are open, that should be an assist to us and as people kind of return to normal activities. Now I want to talk about B&L OUS because it's quite a different story. Our vision care business is very important for us in the Asia Pac region. And while they had an earlier onset of COVID-19, I would say that the recovery is not nearly as pronounced as what we -- what I just talked about with respect to the U.S. And people ask the question all the time: why is that? I would point out that there are very significant differences in -- cultural differences here in the U.S., and I think that you see that as individual states relaxed their social restrictions, you saw people return towards something that looks like normal. And I say, in some cases, you might argue they return too much towards normal, not wearing masks and pretending that COVID is not a thing. COVID is a thing. And -- but in the U.S., you see a return towards normal. In the Asia Pac region, particularly, for example, in China, even though they are more advanced in terms of the time from peak to recovery, recovery against the disease, the level of economic activity is not rebounding as quickly as it is here in the United States. So U.S., you heard the way I described our lens business, our consumer business, our surgical business, you could describe those as semi-V-shaped recoveries, looking like rapid recoveries. If I were to characterize it in Asia Pac, it is more of a U shape. It's still -- it's coming, but it's coming much slower. People are not returning to their normal levels of activities. They're all wearing masks, they're staying home if they don't need to go out, et cetera. And that is the case with the OUS vision care business. Surgical is also impacted in the same way and frankly, the consumer products because people are not going out into a retail setting like they would normally. I'm going to shut up there because otherwise, I'll use the entire 30 minutes.

No. Thank you very much. That's really helpful color, and I appreciate your comments there. Maybe just to follow up a little bit in terms of how to think about your customers and their ability to obtain prescriptions in a post-COVID world. Just thinking about your segments, have patients been able to obtain prescriptions for their medications or contacts, for example, via telemedicine or potentially without an in-person evaluation? Or how has that been impacted?

Yes. Let me just talk about it first with respect to our -- not the lenses but think about it in the pharma spaces because I think it's instructive because you got to think about, as you correctly pointed out, is this a new patient, is this a brand-new patient, et cetera. What -- a couple of things that I referenced early on when I talked about the durability of the XIFAXAN franchise and this real -- really positive durability of TRULANCE in this environment. What's remarkable about that is both of those brands very much rely on you putting new patients into the funnel. Let me explain what that means. I mean think about XIFAXAN. The HE patients, that's kind of an installed base. They're there. They -- you would expect them to continue on. You expect that to be very durable. But a patient with IBS-D, that's more of an acute situation. And what was very encouraging was that patients who had an attack found a way to get to their physician, and when they got to their physician, I would characterize it as muscle memory brought on by excellent performance by our Salix promotional teams. The docs were willing and able to prescribe XIFAXAN for IBS-D because they're familiar with the product, they know it works, they know it's safe and they were willing to go ahead and continue to prescribe that even in the -- even in a situation where they may not have seen the patient face to face. That was super encouraging. Similarly -- a similar situation for TRULANCE, where it was less durable for us, was, as I pointed out, was in the mid-derm space where a patient, for example, with acne or like may not have been willing to go to a doc's office and that doc may not have been willing to write over the phone. So it really is different by segment. I point out that the incidence of telehealth billings by physicians was substantially higher during -- and is substantially higher during this COVID situation than it had been before. For a couple of individual plans we talked to, they -- prior to this thing, they had less than 1% of their visits were telehealth. And now we're seeing that up to 15% of visits are by telehealth. And that number may rise and that may stabilize and may stay like that as a permanent thing from here forward. So I think patients are finding ways to get to their doc, and docs are finding ways to continue to address patients' conditions through prescribing. I think with respect to contact lenses, a new start is hard because I think it relies on fit and that has certainly impacted that. But patients that had their -- have contact lenses and wanted to continue, they did continue on. I think I actually referenced in the U.S. that we had pantry loading of lenses prior to the implementation of social restrictions, and that was because people intended to continue to wear their contact lenses. And in the U.S., they did. I'll stop there.

Okay. Great. That's helpful. And I guess just maybe shifting over to thinking about your sales force a little bit. You've talked about how 70% of your reps are now calling into docs as part of the selling process. Are there any takeaways from how you've shifted the model a little bit? And as you think about sales calls going forward, how does that impact your profitability to the extent that it's done more via phone, for example, versus in-person visits?

I -- it is a terrific question for -- and I'll put that in the category of a terrific question for the intermediate term because today, sitting here today, we continue to be configured and committed to the type of model that is based on face-to-face detail. That's our goal. We hope that we continue to get back there. However, this -- as I love to say, this COVID thing has been something of a forced experiment where when your reps couldn't go out and be face to face, they found other ways to reach out and maintain a point of contact with their target audience of physicians and were successful. I mean I just used this as an example in answer to one of the prior questions, the importance of new-to-brand prescribing for a couple of our GI products, and we were able to get it. And part of that was muscle memory. Part of that was certainly the fact that we had sales reps who were reaching out as best they could to remind physicians and to present and promote our brands through alternative means, mainly through phone calls and the like. The forced experiment says we were successful with that, and we should think about, as we go forward, how successful that model is and might you, in the future, adjust your promotional inputs to reflect what you learned through the COVID situation. Sitting here today, we haven't made any determinations, but it's certainly something we're thinking about. And I said in one of our earlier one-on-one meetings I'd encourage everybody -- just like anybody that's in not just the health care businesses but any business that relied on like face-to-face contact, it's interesting that you may well see a change in the model that will be based more on sort of teledetailing or something like that.

Got it. Got it. Great. Maybe just shifting gears a little bit and talking a little bit about some of the product portfolio and some of your launch opportunities. You've said that you plan to launch your daily silicone hydrogel contacts in the U.S. later this year. And I'd just be curious, can you -- I'd be curious how a coronavirus has sort of impacted your thoughts around the timing of that launch. And I guess secondly, how are you thinking about the market size there and your ability to capture share? And this has come up before, but I just want to revisit the concept around -- what your thoughts are around potential product cannibalization and what that does to the broader opportunity set there.

Sure. And a great, great question. So we're really excited about the upcoming launch of INFUSE in the U.S. And the reason we're excited about it is the daily silicone hydrogel lens part of the vision care market has been the fastest-growing part of that market for the last several years not just in the U.S. but globally, and we've not been represented there until we launched our daily ULTRA in the Asia Pac region a little over a year ago, and now we're gearing up for launch here in the United States. So we're excited to get into that part of the Global Vision Care business because we hadn't previously been fully represented there. Couple of factoids around that, my -- going from memory here. I believe that market in 2019 was somewhere just a little bit north of an $800 million market and had been growing over 20% per annum, like 23% per annum. That's 5x the growth of the nonsilicone hydrogel dailies, an interesting factoid. We are anticipating that, that segment could reach a couple of billion of dollars of retail sales over, call it, the next 10 years. I mean that's a good long time. But suffice it to say that the daily silicone hydrogel lens portion of the market will be a growth driver for vision care for the next decade. And now with the fortunate ability to launch our INFUSE product, we will be a participant in that space. And so pretty exciting there. You asked a question about cannibalization. I mean interesting. Right now, in -- across the globe, we're actually doing very well with our Biotrue ONEday brand family. It's been growing very rapidly in the U.S. and growing internationally as well. That Biotrue franchise, we would expect to continue to be able to grow. We have some older legacy brands, which, as we ramp up with INFUSE, we may cannibalize that. But we believe that the growth of INFUSE and the growth of our daily silicone hydrogel lenses, when we get to launch them in Western Europe perhaps in another 6 months or so, will more than offset -- way more than offset any cannibalization that we might see of our existing franchise. I know I get the question a lot on this. They say you're going to be fourth to market here. Do you really think that you can go out and obtain share in the U.S. because you're fourth to market? And I just wanted to say a couple of things even though you didn't ask me on that, is, one, Bausch + Lomb, we know how to make lenses that are -- that have terrific optics, great comfort and fit. And with INFUSE, we think we have an asset that has important points of difference that will enable us to promote successfully against other brands that are out there in the market. So we feel great about the product itself. But I also want to reiterate what I said on the Q1 call, is we have -- in the U.S., we have a team that is promoting our vision care products. We are very proud of what they've been able to do with a portfolio that did not include an asset, meaning a daily silicone hydrogel lens, in the fastest-growing segment of the market. We were, no doubt about it, no doubt in my mind, gaining share in the United States without a daily silicone hydrogel lens. I feel real good about our opportunity to continue to gain share with a daily silicone hydrogel lens. I'll stop there.

Great. And then just a follow-up on some comments you made about DUOBRII earlier. I'd just love to get an update more so on kind of what your longer-term expectations are for DUOBRII. And as you think about how the product has evolved, maybe setting the coronavirus impact aside for a moment, how are you thinking about the longer time frame with regards to ending couponing? And do you expect -- how do you expect the prescription growth trends to evolve over time?

Sure. I mean let me start with the easy one with respect to the couponing. I mean we're -- our commercial access has continued to increase, and we said that it's a kind of the dance of as your commercial access increases, you can reduce and tweak your use of coupons. And in that way, the franchise of Rxs that you -- or the level of Rxs you've been able to achieve, you are able to realize a higher average net selling price on those. And I think that we are continuing along that line where the commercial access has gotten better and our use of coupons has absolutely declined. You said try to divorce from COVID-19 and the impact of that. So I'll tell you what, we are very frustrated because of the timing, of course, of the COVID-19 situation because we were geared up to substantially increase the promotional activities around DUOBRII to reaccelerate the growth trajectory of the brand. And for obvious reasons, as I talked about earlier, the derm offices closed down. It was very dramatically impacted. We obviously did pull back on deployment of those additional promotional resources, and that is going to have an effect on the longer-term trajectory of the brand. The thing that I said is frustrating about that is we absolutely have a brand here that is unique. It has positioning. It's been well accepted by docs. Docs use it in the right situations. And our challenge was not to get docs to like the product and use it, our challenge was to get them to use it in all of the situations where it should be used. And we think that we were going to get over that hump through additional promotional resources and get back to a strong growth trajectory. For now, that is a bit on hold. We're still very excited about the long-term prospects for DUOBRII because of its positioning. It's a great value proposition for managed care where if you get a patient that can use the product and not drop into the bucket of the more expensive biologics, then that's a good thing. The duration of use, the safety profile and how it performs in the real world, we're excited about it. We've got to get through COVID-19 to get back to a trajectory that's going to be exciting to all of us. I think I'll stop there.

Okay. Excellent. We've got about 1 or 2 minutes left, so I wanted to ask one question from the audience. Someone was asking, "What would you estimate physician visit volume for dermatology to be right now versus pre COVID?"

Yes. This would be a guess, and I do it based on how the Rxs have come back. I would guess it's 50% and trending upward. But that -- again, I hate to guess, but I do that based on looking at the TRx performance week to week to week.

Right. And then just one last one. When will LUMIFY be available in the EU or Germany?

I do not know the answer to that question off the top of my head. I'm sorry.

Okay. That's all right. With that, we are out of time. So Paul, thank you very, very much for joining us today. Thanks so much for your insights on the business and the operating environment. And I think with that, we'll go ahead and wrap it up and move it on to the next panel.

Great. Thanks very much, Frank. Thanks for having us.

All right. Bye-bye, everyone.