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

Looking forward to this conversation. Really excited to have Bausch management join us at this venue after a while. I think last time we did it was with Paul Herendeen. And Paul used to say this is his favorite conference of the year. Now I want to give it a caveat. Paul loves Boston, and this conference used to be in Boston. So excited to have you guys join us. And I'll let you kick things off. Maybe I think in this case, some prepared remarks might be very helpful.

Yes. We haven't been, I think, visible to equity investors. The focus has been a lot on lenders. So I thought it might be helpful to just reintroduce the company a little bit. We're a global diversified pharmaceutical and medical devices company. We serve over 70-plus markets. Technically, we were founded in 1959, but the current configuration really has been in its existence since 2015, mostly as a result of some very large acquisition, Salix Pharmaceutical, Bausch + Lomb, Solta Medical to name a few, that have been mostly or primarily financed through debt. And you'll hear in a little bit why this is relevant to the story. We operate in 5 different segments, if you include Bausch + Lomb. Excluding Bausch + Lomb, we are really present in U.S. pharmaceutical through the Salix business and our diversified portfolio, which is another segment. We have also an International segment, which is made of platforms in Europe, Latin America and Canada. In Europe, it's mostly Eastern European markets. In Latin America, it's a strong presence in Mexico and Colombia. And then last but not least, we have our Solta Medical business, which is a cosmetic device company, very successful, has been a huge pillar of our growth over the last couple of years, and we'll talk a little bit more about that, I hope. We recently acquired a distributor in China, which just illustrates the commitment to that platform. And really, our strategy is broken out into 3 main pillars. The first one is to continue to grow our 4 operating segments with really a lot of focus on our GI franchise, our International segment and our Solta Medical business. The second pillar is maximize really the value of our equity stake in B&L for BHC shareholders. And then the last one is make our capital structure fit for purpose for having maximum operational and financial flexibility in the future, which means having the right quantum of debt, of course, that is consistent with our portfolio moving forward, but also have the adequate maturity profile so that we've got the appropriate flexibility for investing behind our growth platforms and also maximize the value of our B&L equity stake. A couple of notes of our recent investments and area of focus. First of all, on the pipeline. We have in our GI franchise, 2 major assets, RED-C, which is targeted at the prevention of OHE events. And then we have larsucosterol, which came with the direct acquisition we announced earlier this year, which is targeted at alcohol-associated hepatitis. It's a really severe condition that currently doesn't have any treatment. We are excited about that asset we just acquired. So that's been an area of focus. I know we'll talk a little bit more around RED-C, and then we'll continue to perform really well across all of our franchises. We've just delivered 11 consecutive quarter of top line and bottom line growth across our portfolio, which speaks to the consistency and I think the operational focus, both on top and bottom line and cash flow generation that the management team has been displaying. And so with that, let's just open it for questions.

Okay. Great. Well, thank you for that. Maybe just before we get into product-specific questions, I think there was an announcement yesterday, which market was very focused on, which was your Solta business.

Yes.

This was a business I recall, at one point, you guys were looking to split out. At another point, it was looking like China was going through a tough time. But now with you guys doubling down, it looks like it's reinforcing confidence. So could you remind us what's going on there? And maybe just lay that out for us.

So China, first of all, about our Solta Medical business is heavily indexed to the Asian markets. About 80% of their revenue is really in the Asia Pac region. The 2 main contributors are China and South Korea, which really have been the primary contributor to our growth over the last few quarters. China, well, like South Korea, like many of the Asian markets continue to be perceived by us as really underpenetrated compared to Western market standards. So one key aspects of being able to take advantage of that underpenetration is having better direct control of the channel, the coverage, the ability to gather additional consumer insights and, of course, execute our own demand generation. So that is why having a more direct control of our commercial infrastructure in China was really a strategic imperative for us.

Excellent. Okay. So I'm going to turn quickly to Xifaxan, if that's okay, JP?

Yes. Of course.

So on Xifaxan, obviously, a very important driver of your sort of profitability, but also there's a follow-on formulation with a new indication, an important Phase III trial that's due. Can we maybe start there? What is your expectation? Do you have to hit both the trials on the SSD or even one trial could form the basis of an FDA approval?

So the 2 trials really are combined in terms of the results. And the readout will happen...

So the p-value is calculated off of 2 trials combined?

Yes. They will be combined. They will be considered as one.

Isn't that unusual?

Well, it's -- I think the discussion we had with the FDA is that we should consider the results of 2 together.

Okay. Okay. But I want to be clear. And I think Garen and I had an e-mail exchange on this as well. There was one trial that had a primary completion earlier, but that's not read out yet. Correct?

None of it -- none of the database have been formally locked. And so the data will be unblinded formally early next year.

So you're unblinding both at the same time?

Yes.

Okay.

Data unblinding next year. So this is not a December event. This is certainly a January...

Well, it's early next year. We haven't provided any update.

Got it. Okay. So then as it relates to...

Just to clarify. So we decide to lock the databases together and release the data from each study together, but we want both results in hand to better form the full picture of the program. So that's why I said basically the 2 programs were looked at...

Okay. So it's 2 trials separately, but the...

Yes, the data is looked at together.

The data will be out. Okay. Okay. Okay. That makes a lot more sense. Okay. That's very helpful. And then as it relates to sort of the endpoint, time to first hepatic encephalopathy, which could be medical intervention, hospitalization or ER or clinic or death. Is that considered very clinically meaningful by the commercial team?

Yes, yes. Not only for the clinical team, but the commercial team, as you know, those events are very expensive and to be able to prevent or delay those events is having a meaningful on the health care cost. So we believe that if we hit the primary endpoint, this will facilitate a really conservative conversation with the payers.

Right. JJ, and I'm sure you've seen various international jurisdictions. If the end point is on hospitalizations, could the criteria for hospitalization look different in the European side versus a U.S. site? And could that introduce variability? Or does that get balanced because you have placebo on both sides, too?

I know there's been -- there will be some follow-up conversations around what we mean by hospitalization with the FDA. So I think while we submit or prepare for the NDA submission, there will be a clarification around how we define those events and then interpret the data accordingly.

Got it. JP, any other questions?

Yes. In practice, when people -- for patient selection, when the doctor has to say, "Hey, you should be on this preventive." On the clinical trials, you're doing after an ascite event that is control. So is that the criteria like you already have ascites and then, therefore, you're going to be on this preventive or doctors see any mild HE and then they start the preventive?

No, it's a medical intervention, which, again, around hospitalization, ER visit and so on or death. That would be another variation of the endpoint that would be looked at between the control arm and the ones that are on the drug.

Fantastic. Okay. And I guess one last thing. From a physician perspective, is there a pent-up interest in using Xifaxan a new formulation earlier in line, treatment line?

The only indication that Xifaxan is approved for or actually 2 indications besides IBS-D is really once the patient has had an OHE event. So it's hard for us to comment on any other off-table use that could or would not happen in the marketplace. I think the focus of the commercial organization has been to really speak to the label.

Speak to the label. Okay. Got it. Excellent. Maybe let's transition then to the base business. Obviously, Xifaxan is an important driver of the base business. Can you speak to sort of the -- where we are from a genericization perspective? And what's the timing of that looking like?

Yes. So let me try to clarify a little bit the whole landscape and how we think about the various, I would say, arm of the decision tree. I'll start with the answer, which is that management believe that the base case is loss of exclusivity on the 1st of January 2028. The linchpin of that whole assumption is Teva's ability to retain first filer status until that date, which is currently being challenged by Norwich. Norwich, as you know, has sued the FDA arguing that Teva basically surrendered their first filer status. That lawsuit was ruled in our favor in the First DC District Court on April 17 earlier this year and which appealed, which with all arguments to be heard on December 11. So that's the linchpin, which means that if the first filer status is maintained for Teva, the other litigation that might be pending on the second wave of ANDA really are subordinated to that decision. Should the appeals court decide in the favor of Norwich, the -- then we would need to seek clarification from the FDA as to whether Norwich still needs to comply through their second ANDA on the 30-month stay. That hasn't been clarified. We believe that it applies, but that's something would have to be clarified for Norwich to then decide what's their appropriate course of action. Norwich was not the first filer. Amneal was on the second wave of the so-called skinny ANDAs, and that litigation is pending.

And remind us again, what's the difference in filing between the first versus second wave?

So the first wave had both set of indications, OHE and IBS-D and the skinny ANDAs really have only IBS-D.

Got it. But the formulations are identical or so you think?

Yes, but there are a different set of patterns. It's important to note also that since the second wave started, we've asserted a different patents for IBS-D than the one that were ruled on during the first Norwich litigation. And as I said, that litigation...

So if Teva remains first to file on sort of broader Xifaxan, does that prevent Amneal from launching as a first of file on an [ HD ] as well?

Yes, it does.

Got it. JP, any questions on those...

Another aspect in this litigation is a new set of patents, right? The new patents you file, is that a factor in this defense?

As I said, I think it comes only into play when the first filer status has been removed from Teva. Then you have to go to the second wave of litigation associated with the skinny ANDAs, and that's where we're asserting different patents than the one asserted during the first wave of litigation. So as I said, for investors, equity and lenders, really, it all comes down to first filer status. We had talked about this quite a bit in the past and really had encouraged investors to look at the arguments that were made by the FDA, by Teva and ourselves as part of the first trial with the D.C. District Court to make their own opinion about the strength of the FDA's position and implicitly of our position accordingly.

Got it. But on the hearing coming up, if the first wave and the second wave arguments are both done on the same day, I guess, how do the -- how does that -- what's the judge doing on the second wave?

They are -- that's my understanding is that they are linking the way of only the event, the first filer status is...

Oh, I see. So they'll rule on the first to file. If not, then they can look at the other stuff. And is there -- like from your perspective, is there anything Bausch could do to preserve Teva's first-to-file status for sure? Like, for example, could Bausch make Teva into an authorized generic to effectively lock in Teva's first to file?

Yes. We haven't commented on that. Obviously, for Teva to launch, they would either have to enter into an agreement with us on authorized generics or they would have to launch their own drug and they have an ANDA in process that's currently been reviewed by the FDA.

Okay. Okay. Maybe -- and there are certain topics we're going to steer clear from for this conversation. So I'm not going down those. But I guess, from your perspective, beyond Xifaxan, what are some of the key products you are very focused on and you're seeing early -- good early feedback on as well?

We have a very diversified set of products across our business. So I'll go franchise by franchise. So in Salix beyond Xiifaxans, we have Trulance and Relistor. Trulance is addressing IBS-C and Relistor is addressing opioid-induced constipation, or OIC. Those are strong performance we have continued to invest in and, obviously, not at the same size of Xifaxan, but just illustrates the strength of our GI franchise that we want to continue to leverage through our existing portfolio, but also through the pipeline we're developing. In urology, Wellbutrin continues to perform very well for us, quite incredible. The resilience of that franchise despite the fact that the product lost exclusivity a long time ago, but it's an area -- it's a product that continues to be valued by our practitioners quite a bit. And then in dermatology, we launched CABTREO in the U.S., which was held as the second most successful launch in the U.S. in 2024, continues to perform ahead of expectations. Obviously, much lower level of sales, but we believe that the product has got a lot of runway. Internationally, we are continuing to drive our portfolio of mostly branded generics. We're launching a cardiometabolic franchise in Mexico that will be another pillar to our portfolio there and our strong presence, particularly in the private channel in Mexico. And then Solta is an area of focus. We continue to increase the ability of our Thermage FLX franchise across many markets. And then there's a whole pipeline of innovation we aimed at continuing to be at the leading edge in that space. We are extremely proud of our performance over the last couple of years, particularly inroads in China and South Korea.

Excellent. So maybe in the last minute or so, JJ, from your perspective, what are your top 3 priorities over the next 12 months?

So as I said before, along the 3 strategic imperatives or pillars that I mentioned, for our core business, it continued to execute and maximize the value of our current portfolio that includes, obviously, Xifaxan. We pride ourselves on really what I would call ambidextrous management where we drive the top line, but we drive disproportionately the bottom line in our free cash flow generation. Free cash flow generation is really the lifeblood of this company, and it's an important areas of focus in the short term, but also in the medium term. The second piece is continue to look at opportunities to beef up our pipeline. I think innovation has to be an area of focus, I think, as evidenced by the acquisition of Direct. And we continue to look at ways to leverage our commercial capabilities, particularly in GI, neurology and any other franchise where we believe there would be some synergies. And then the capital structure is really important for us. We closed the $7.9 billion refinancing in April and maintaining a capital structure with a maturity profile that really is conducive to full optionality operationally and financially in the way we are thinking about maximizing value for shareholders and will continue to be an area of focus.

Outstanding. JP, did we miss anything on your end? Anything on the audience? All right. Fantastic. Well, good luck into the readouts. I think you really care. And good luck into the court trial as well. Thank you so much.

Thank you, Umer.

Thank you.

Thank you.