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

Hi all, and welcome to the session. My name is Arvind and I'm an associate with JPMorgan, and I'm excited today to welcome Bausch Health. With us today, we have Thomas Appio, CEO, and JJ Charhon, CFO; and Jonathan Sadeh, CMO. As a reminder on format, this will be a 20-minute presentation followed by 20 minutes of Q&A. So please hold any questions until the end queue.

Thank you, and welcome this afternoon to the session to talk about Bausch Health. So since becoming the -- I saw an opportunity to redefine bout Health future. So with the focus of the first thing I wanted to focus on was profitable growth both on the top line and the bottom line. The second thing was to improve the capital structure. So reduce debt and look at our maturity profile and give us some runway. Of course, as you all know, we refinanced $9.5 billion of debt in 2025. And lastly was to invest in our people, in our products and our processes. And as I take you through this presentation, you'll see what we've been able to accomplish in terms of building a team in terms of beginning to develop our portfolio of products for the future and clearly, our processes. But before I begin I'd like to note that today's presentation includes forward-looking statements, which are subject to risks and uncertainties. Actual results may differ materially. Please refer to our SEC filings for additional information. With that, let me get started with an overview of our business. Firstly, as you can see on this slide, on the left-hand side of the slide, these are all of our businesses that we operate in. We delivered $4.8 billion in revenue in 2024, $2.5 billion in adjusted EBITDA, and $1.3 million adjusted cash flow from operations. As you can see, a strong performance in 2024. And as we disclosed earlier this week, we're reiterating guidance that we provided in the third quarter of this year. If we take a look at our broad portfolio of products and geographies, we have strategic offices around the world that enable us to respond to market needs and to customer needs and they're strategically placed. We have 12 manufacturing sites given us robust production capacity and supply chain resilience. We have, as you can see, direct presence in 50 countries around the world. We have over 600 products globally and 7,000 dedicated employees. When we look at the history of Bausch Health, it goes back 65 years, as you can see from the founding of ICN. It's an ambitious wave of acquisitions over a decade, a year ago, expanded its reach and capabilities in terms of geographies and products. As we look to the future and we look to the end of this slide, we see the acquisitions of Direct, which Jonathan can talk about later during the Q&A, but we believe that this is going to be a valuable asset in our pipeline. We just acquired our distributor in China, which gives us direct reach into the China market and to the Chinese consumer. This is a major acquisition for us for our Solta franchise. With this, we will continue to look for business development opportunities that meet the needs of patients and fit within our therapeutic areas or adjacencies. As we look to our segments, we have 4 segments that we operate in. Salix is focused in GI and hepatology. We have deep expertise in this area. International, which we don't talk about that much, and I think is underappreciated, it's a diverse portfolio of branded generic products that continues to deliver and grow. Solta Medical is our global aesthetics franchise and diversified other -- the diversified segment includes neuroscience, which is a very interesting area, dermatology and dentistry. If you look to the segments, how they deliver meaningful value, Salix, our largest segment continues growing. Revenue grew 12% on a reported basis in the third quarter of 2025. Solta continues its strong growth throughout the world, especially in Asia Pacific. As you can see, all segments maintaining attractive profit margins. This highlights the company's balanced performance across its segments and the potential for continued success. We operate in a wide range of attractive markets. As you can see here on this slide, the GI hepatology franchise in the U.S. alone, there are over 4.5 million people diagnosed with liver disease. In neuroscience, makes up the largest therapeutic area within diversified, which competes in a $20 billion market in the United States and continuing to grow. Global Aesthetics over $20 billion market within which Solta competes in significant subcategories. International, Central Europe and Mexico are 2 of our strongest drivers. And we believe in the business development that we've done in those regions will continue to power our growth. Now as we turn towards looking at Salix, our leader in GI and hepatology. We are an established leader being the top 2 leading pharmaceutical company across the GI indications we address. Within hepatic encephalopathy, we are a clear leader with over 40% of current patients being treated with Xifaxan. We continue strong script growth in Q3, we grew Xifaxan total scripts 9%. And -- this is a testament to the deep expertise and the innovative mindset we are applying with our AI-driven engine to support our sales teams and drive growth in our mature franchise of 15 years. We continue to further innovate organically and through business development with 2 late-stage programs, which I will touch upon later in my presentation. Turning now to Solta. Solta is a leading medical aesthetics platform anchored by strength in the Asia Pacific region. We have a comprehensive set of offerings of energy-based devices, Thermage FLX, our largest generation radio frequency device for skin tightening. Fracs, FTX, our fractional laser used for skin resurfacing. Clear and brilliant toucher -- clear and brilliant touch that focuses on laser aesthetics for healthy skin and a care regime. And VAS, which is focused on body contouring. This is a portfolio of products that is globally based. South Korea is a sophisticated aesthetics market. Solta Medical in South Korea grew revenues at 30% CAGR from 2017 to 2024, and more than doubled its revenue in '23 to 24. In the same period, Solta grew at 40% CAGR in China, another large opportunity to grow, as I mentioned earlier with the Shibo acquisition. If we look here to Solta's above-market growth is due to innovation and execution, our premier competitive positioning reflects our long history of product innovation and continues to drive sales growth. Using our most recently reported trailing 12 months results versus 2020, we have doubled the Solta business with a 28% trailing 12-month growth rate, a remarkable achievement by the Solta team. Solta's innovation has yielded an award-winning portfolio that is positioned for growth. You see here on the slide, five -- we surpassed 5 million treatments in 2025. That is a monumental achievement. And you can clearly see this brand is loved around the world. Thermage FLX was formally designated as a medical device in China clearly, another showing -- of getting a product registered in this space was very difficult. Clearly, a great achievement, with Thermage recognized as device of the year as established Beauty organization in China. Other offerings include FTX and clear and Brillion has received similar accolades and that all go towards Solta's premier product positioning and underpins potential future growth. Now let's turn to our International business, a business that continues to perform. We have strength in Central Europe. We have a strong presence in Poland and an exceptional team. It has allowed us to introduce new products, product line extensions as a 17% market share in the dermatology segment. We are the #1 pharmaceutical company in Serbia across multiple therapeutic areas. In Mexico, which makes up the majority of Latin America business, we are #2 in dermatology. In Mexico and Colombia, our Beto Yeta products are in the #1 category of complex B brand. In fact, in Mexico and across Central America markets, Bausch Health, branded generic hold at least 1 top 3 positions across all therapeutic categories. We are now entering the cardiometabolic franchise. We believe this is a large market opportunity, 1 of the largest markets in Mexico that will power our growth for the future. And in Canada, we are the #1 dermatology company with strong brands, including Ryaltris, Cabrio and Jublia. Turning now to neuroscience. Bausch Health capabilities in neuroscience is often overlooked. Our neuroscience business within U.S. Pharma is the second largest contributor to Bausch Health sales in the United States. We have broad coverage, reaching 12,000 psychiatrists and PCPs in the U.S., representing 80% of the neuroscience business. We continue to build out our neuro structure now with dedicated service support teams for co-pay support, patient hub and field support teams. We have invested in our leadership team to drive business forward organically and through business development. We have a proven track record. The strength of our business has helped us achieve a track record of consistent quarterly revenue growth. As we reported in the third quarter, we have 10 consecutive quarters of growth on the top line and the bottom line. Important to note that the sales growth did not come at the expense of profit, and this was profitable growth. Earnings growth rates are consistently higher than sales growth. We focus on gaining operating leverage. So how is all this possible? It's possible by our team and our people. Our consistent execution is the result of an experienced management team with deep pharma and medical aesthetics experience. We are driven by the relentless drive to create better health outcomes for patients. Managed -- so as I said at the beginning, we disclosed earlier this week. We are reiterating guidance for our most recent earnings call now leaning towards the higher end of the range. Guidance reflects our strong operating momentum, disciplined execution and confidence in promising and delivering. There are several inflection points that are in the future. First is the readout of our 2 global Phase III trials for the Red Sea program, which I will touch upon in a moment. 2027 is when we expect the enhanced FLX offering which is internally developed and called 1x. And then later, in 2028, we anticipate readout of larsucastrol Phase III program that we are very excited about. To briefly touch upon our Red Sea program, Jonathan is here and can answer more questions on this. However, our Red Sea program is targeted for the prevention of empatic encephalopathy, OH. The program is centered on solid, soluble dispersion rifaximin complex, unique patented non-crystalline water-soluble form that enables delivery through the entire GI tract. This is a different product than our current XYfaximin. It is being studied in patients with cirrhosis prior to their first decompensation event from any form of liver disease. In the U.S., SSD patient population are at least 3x larger than the current OAG population. If successful, a very meaningful global opportunity to address an unmet need with this novel therapy for chronic patients today. What I would say is Xifaxan today is only a U.S. opportunity for us. This is a global opportunity for us. Phase III readouts from this global trial are expected early this year. Turning now to our recent acquisition of Lar Sucat. This is a late-stage modulator with FDA breakthrough therapy designation for severe alcohol-associated hepatitis, addresses a high unmet medical need in AH with no approved therapies and approximately 30% to 90-day mortality despite supportive care. Global opportunity with initial focus on the U.S. building on positive Phase II experience. This leverages Bausch Health existing hepatology frame trials, including development and commercialization capabilities. The Phase III program is advancing with protocol target initiated early this year. In conclusion, Bausch Health has a strong foundation. We operate in attractive segments. We have strong growth potential across multiple fronts. We have a strong and dedicated management team and have a clear focus to grow through excellence in execution and innovation. Thank you for your time today, and we'll now open it up for Q&A.

Thanks, Tom. As a first question, the continued growth of XIFAXAN is impressive. How are you thinking of XIFAXAN dynamics over the next couple of years?

Yes. As I said in my presentation, the team has done an outstanding job to grow this product in after 15 years and at the end of its life cycle. There is clearly still many patients that are suffering from OHA who are diagnosed, who are receiving treatment, but not the best treatment XIFAXAN. So as we continue to look at it until the product goes LOE, we will continue to invest behind it in terms of our AI engine, which we invested behind probably 2 years ago, we still believe there is continued growth in this franchise and that we can help patients.

Thank you. You also highlighted your international segment in the presentation. Could you talk about what the core growth drivers are for each of the businesses within that segment?

Yes. Our international business is a branded generic business and the teams that we have in these geographies of the world have focused on building these portfolios for the products that we have, looking at line extensions and of course, licensing in opportunities. But in these markets, once you build the brand and you continue to have a portfolio that meets the needs of the physician, they can continue to grow at mid- to single-digit growth rates. I think, as I said in my presentation, it's an underappreciated business. We don't talk about it that much, but it continues to deliver growth. We think as we invest behind our people, and our products and our processes, we can continue to grow this business in addition to really doing some successful business development, we have a blue ocean project that looks between Europe and Latin America for looking the products to bring into the portfolio that we can sell and promote. And we have been successful, as I mentioned, the cardiometabolic franchise. We are very excited about this as we move forward to the launch of these products. In Europe, in Central Europe, we have a probiotic franchise that we have just launched, which is very interesting as well. We continue to do extensive BD to bring products in. But this is a business that continue to generate mid-single-digit growth for us for the future.

Thank you. Your presentation also indicated double-digit growth in Solta going forward. Your biggest growth has come from China and South Korea so far. How do you expect that to change going forward?

Yes. So the Solta business, as you've heard me say on earnings calls, I love this business. It's a durable business. We have wonderful innovation. Jonathan actually can speak later or even after this to what we're working on, on innovation, a few things that what I think we can do is continue as we continue to grow. So number one, the franchise is built on a capital and a consumable basis. So we have -- as we look at it, we're able to place equipment and then we also have the consumable, which is really what drives a lot of the growth, getting more use of those machines and therefore, a very durable business for us as we move forward. When we look at Asia Pacific, we've had wonderful growth. The Korea team has done a wonderful job. If we look at China, the acquisition of our of our distributor is going to be really important to us as we leverage and be able to go to those customers directly and continue to drive more use of our equipment. The focus is our U.S. business, it is growing very nicely. As we reported in the third quarter, our European business is growing very nicely as well. One of the things we're focusing on, and Jonathan can talk to this is what we're doing from a medical perspective and having data to support claims. And this is a positive about Solta being part of a pharmaceutical health care company because we have the expertise to run trials. So between medical affairs and the development program and Jonathan wants to talk about that in more detail.

Sure. Yes. As JJ was saying, I think we see an unmet -- an area that we haven't tapped in terms of Solta in data generation. Other companies have not done a lot of work there and generate really weak data. We think that if we actually invest in generating really strong data about the efficacy, safety, tolerability of the products, we can actually really prove to the clinicians and patients how effective, safe and tolerable these devices are, which can drive acceptance of these drugs and our reputation, which is really, really important here and something that other companies don't have.

Great. We'll open it up to the audience to see if there are any questions. Please raise your hand. It's like no questions for now. It's a little bright. I'll continue with my questions then. Congrats on successfully executing your exchange offering late last month. As we understand it, the cash flow will take you in -- through 2027 and into early 2020 -- how are you thinking -- how are you thinking about changes to the capital structure moving forward?

Yes. I think J.J. can take that question. But I would say that before he speaks, is that the finance and legal team have done an outstanding job of refinancing $9.5 billion of debt this year, which has now given us a runway to continue to execute on our commercial strategy. So J.J.?

Yes. The refinancing really now provides the ability with the cash flow expected to be generated over the next couple of years, assuming we maintain exclusivity on XIFAXAN until the January 1, 2028, until the end of 2028, not early 2028. As we think about the capital structure, ultimately, the debt load has to come down. The capital structure needs to be fit for purpose for our portfolio post FX and LOE. And this is why expanded optionalities in terms of process and timing for getting to the final sale of the capital structure was really important. The way you should think about it is -- there's clearly, contribution of free cash flow between now and then to further reduce debt. But when you think about the impact of XIFAXAN coming off patent, there will need to be an influx of fund coming from either 1 of 3 sources, could be at or a new equity raise, which is unlikely to be the preferred scenario given where the share price is. It could be capturing some of the discount, although that has pretty much evaporated over the last 12 months or so. So the last really source that's most realistic is proceeds from asset sales. And -- we have a number of attractive assets, as Tom presented earlier today. But the most obvious candidate for monetization is our equity stake in B&L. So having basically 3 years to think about how to monetize that asset really has been strategic for us and really a key area of focus. And that's ultimately what will allow us to get the capital structure to where it needs to be given the portfolio we'll have starting in 2028.

Thank you. And how are you thinking about the kinds of deals you want to do going forward given your area of focus and the capital structure?

Yes. I think that when we look at the therapeutic areas that we compete in, they're very interesting. GI, hepatology, neuroscience, dermatology and aesthetics. So as we've been looking at, of course, the direct acquisition fit right into our strategy, and we think that is going to be a nice product that will bring into our portfolio. But when we look at BD, we're looking at those categories that we compete in, but we'll also look at adjacencies to see where we can leverage. One of the greatest assets that Bausch Health has today is our commercial engine. What -- our talented teams in all these therapeutic areas, you see the results that have been generated, so that -- the talented team that we have and then we need to get more assets into their hands. So as we look at it, our BD team continues to screen for assets. As you know what our capital structure looks like. So we have to be very selective in the products that we go after. But clearly, we need to bring more products in. And with JJ's refinancing of $9.5 billion of debt, that has given us the ability to have a runway. With owning 88% of B&L and probably a lot of you attended their Investor Day, we have a great asset there, and they have great assets and a really great management team. So we're really excited about what we can do going forward and how we can allocate capital accordingly in the future.

Great. Could you speak a little bit more about the core products that you're focused on that are driving growth that are beyond XIFAXAN?

Yes. So beyond XIFAXAN, of course, that is our largest product. But clearly, when we look at our neuroscience business, we have invested behind that. As I said in my presentation, still -- that is an area where we think is very interesting to continue to grow. We've built a team there. As we look at BD, this is 1 of our focuses. If you look at our dermatology business, although it has come down from what it used to be, given market conditions. However, if you look at the launch of Cabtrio, it's been very successful, that has helped -- have the diversified segment. We've returned continuing to focus on the dentistry business. We still think we are -- we have a product there that has no competition. So we'll continue to look at that. The international business continues to perform. And then lastly, our Solta franchise. It's been a wonderful performer for us, and we continue to believe that this is a very profitable area for us to continue to grow.

You spoke a bit about an AI-driven customer insights engine and its impact on XIFAXAN. Could you walk us through a little bit more of the detail there?

Yes. This was something we decided on just soon after I became the CEO really trying to look at -- again, where this product was in its life cycle and then seeing how many patients were still -- we're still not getting treatment with XIFAXAN, although have had an OHE event. So we -- again, when we looked at the data, we started to say what could we do differently to put this product back on growth. And 1 of the things was to look at our AI-driven engine and really making sure that we were going out to the right target with the right message and with the right frequency. And so when we looked at it, we built this engine that found a lot of areas where we could expand in and we could reach to. So it's been very successful. As you can see from the results, we are expanding that into other products within the portfolio of Bausch Health.

You spoke about the Red Sea program as a focus area. Could you talk a little bit more about how you see it as differentiated versus the competition and the upcoming -- and a little bit about the trial design for the upcoming readout?

Of course, I've spoken about the Red Sea program on many conference calls. Jonathan is here, and he can talk about the differences and why we see this as an opportunity. Of course, we need to have the positive data, but -- do you want to think?

Yes. So first of all, important to highlight that this is a very different drug from XIFAXAN, right? They have the same active ingredient in refraction but act as a very different drug. And so we see them as very different drugs. One works only XIFAXAN only the small intestines and is not soluble at all versus SSD, which is very water soluble and works throughout the GI tract and provides a very high concentration of the drug there. So we believe that it works that it would be much more effective and therefore, can prevent what is a much harder event to prevent primary prevention of the first OEG events. XIFAXAN prevents only the secondary events, SSD will prevent the first event. Now that's what we hope to show in this Red Sea trial that's about to read out. We completed the trial on time as expected. We're now cleaning the data to 2 global trials that are reading out and we look forward to seeing the data in the next few weeks.

Thank you very much. We'll see you again if there are any questions from the audience. If not, maybe I'll conclude with 1 additional question. What are your key focus areas going into the new year?

So the key focus areas continue to grow and continue to focus growth and execution with the portfolio that we have. So that's number one. Number two, as JJ and I speak about the capital allocation, is to looking with JJ and the business development team of what are the assets, along with Jonathan and the commercial team that we can bring in to Bausch Health to continue to fuel the growth for the future. I think, thirdly, looking at our development programs that we have in place, and I really -- I like Jonathan to just talk a little bit about Lorsucostrol because that's going to be a major program for us and along with some of our thoughts as being a platform for us. But clearly, we have to get these development programs through. And if you look between our pharmaceutical business and our aesthetics business, there's a lot of innovation going on there on the Solta side. So maybe Jonathan can touch upon that as well. So those will be the focuses and our strategic priorities will be still the same is focusing on growth and execution, delivering on our commitments you're looking at ways to unlock value and of course, develop our pipeline. Jonathan?

Yes. So you asked about what we're looking forward to this year. I think first on the innovation side, I think we talked about Red Sea that will be a really important readout for us in the next few weeks. But then Lauksterile is the asset we acquired a few months ago from direct. And that's going to really exciting drug. We're starting a Phase III trial now. We've got this trial up and running in record time within 3 months of signing the deal and Phase II is starting now and is going show an effect in patients with alcohol associated hepatitis. But as Tom was alluding to, we think this is actually a platform drug. It's an epigenetic modulator so it has an effect of reducing our preventing acute cell injury or 2 cell death in the setting of acute cell injury. So there's multiple other indications we think we can take this drug into and we plan to actually progress several of those this year, both alone and in combination. So there's a lot that we can do here on the innovation side and also lastly on execution. I think we have upgraded our game, and we're delivering more effective way as I was describing, we started a program in record time in 3 months from getting the drug to starting the Phase III program. We completed the Phase III program for Red Sea and ahead of schedule. So we want to just continue to do that, deliver on time with high quality.

That's great. If there are no other questions, I think that concludes the session. Thank you very much.

Thank you.