Bausch + Lomb Corporation (BLCO) Earnings Call Transcript & Summary

Welcome, everyone. I'm Robbie Marcus, the med-tech analyst at JPMorgan. Really happy to introduce Brent Saunders, the CEO of Bausch + Lomb for our next presentation. We'll do a bit of slides and then some Q&A. Brent?

Thank you, and good morning. So thanks for joining us today. It's good to be back at the JPMorgan Healthcare Conference. This is my 17th year attending this conference, and I probably have not been more excited to provide an update over that period of time. So let me run through some slides, and we'll leave plenty of time for Q&A. I'll have our Head of R&D and Chief Medical Officer, Yehia and our CFO, Sam, join when Robbie will come back up and ask questions. So let's see next -- I got this. The most interesting slide. We'll skip through this. So this slide was meant to ground everyone in who we are now. We've built an iconic brand with rich history, but we've largely reinvented the company in the past few years. We have built an unmatched platform that covers every aspect of eye health and have carved out market leadership positions in critical areas like dry eye. But our reinvention goes beyond the products we offer. We fundamentally have changed how we source, make and sell, which has resulted in significant and consistent revenue growth. But what I'm really excited to share is how innovation is once again core to who we are and positions us for success in the near and long term. [indiscernible] revenue growth can sometimes open you up to criticism if we're relying on one or a handful of products or have benefited from overperformance in a certain region of the world. We don't have that problem. Our holistic strength has been on display every quarter this past year. Each of our reporting segments has delivered solid growth and continued momentum with no signs of slowing down. That growth is spread around the globe, helping insulate us from events or market conditions that have an outsized impact on others. If you're in this room, these stats are probably familiar to you. Let's take a quick refresher on the opportunity that exists in eye health. There is significant unmet needs today, and those needs will rise exponentially in the future. While there are many contributing factors, 2 drivers stand out: an aging population and people, children, in particular, spending more and more time staring at screens. Those needs translate to solid market dynamics with mid-single-digit growth projected for the foreseeable future. That anticipated growth is spread across the entire eye health spectrum which obviously bodes well for a company like ours with proven holistic strength. Something else I'm fond of highlighting every quarter is our road map to accelerate growth which are introduced after rejoining the company nearly 2 years ago. Does our road map have any kind of wow factor, no, and that really is the point. Slow and steady wins the race when it comes to fundamentally changing how we operate and execute. We're making progress against the goals we've set and our results so far back that up. It's important to bear in mind that this isn't a road map to general success. It is a road map to being the best eye health company in the world. Here is a reminder of the 3 pillars of our strategy that underpin that road map. We promised 2024 would be one of the busiest launch years in our company's history, and we delivered. We introduced products that will be significant contributors for years to come. Operational excellence is an [indiscernible] term, and we're okay with that. You don't realize margin expansion without optimizing your network. As mentioned in my opening, I'm particularly excited to talk about innovation. Approximately 60 R&D projects are in our pipeline, but it's what we are developing that will accelerate our position as an innovation-driven company. Let's talk about our growth drivers in 2024, and we'll start by highlighting our industry-leading position in dry eye. The focus continues to be on Miebo and Xiidra performance and rightfully so. But it's important to note they're part of a global dry eye portfolio that is approaching $1 billion in revenue. While our pharma products will continue to play an important role in the growth of that platform we're offering solutions at every turn in the category that continues to rapidly expand. These include OTC products like Blink, line of eye drops and even [ Scalpro ], a diagnostic tool surgeons rely on. Now it's time to highlight Miebo and Xiidra. The proof is in the pudding for both. Nothing I say will paint a better picture than the charts on this slide, which are based on the most recent TRx data. As a reminder, our Q4 earnings last February, we had projected Miebo to contribute approximately $95 million of revenue in 2024. At our Q3 earnings in November, we raised that range to $165 million to $170 million. For Xiidra, year-over-year TRx growth has been consistent and encouraging, which means our patience is being rewarded. Both medications are being bolstered by significant investment in compelling direct-to-consumer campaigns and a combined sales force whose relationships deepen each day. Moving to our Vision Care business. As of the third quarter, we are the market leader in yearly lens growth at 11% on a constant currency basis, something we haven't been able to say for a long time. Much of that can be attributed to the performance of our daily SiHy lenses, and there's a long runway. We project double-digit daily SiHy category growth over the next few years as we continue to launch multifocal and toric options in new geographies. Helping fuel that growth is an investment we made in digital capabilities, including in China direct-to-consumer program and the launch of Opal, our U.S. digital e-commerce platform just this October. You're familiar with our category-leading consumer products, but the thing is you don't remain a category leader by resting on your laurels. Well, it sometimes seems like there's no end to insight to LUMIFY growth, we're injecting new life into that franchise with a preservative-free option expected to launch this month and the next-gen LUMIFY LUXE is currently in development, and we'll have more to say about that in a bit. We're also working on a new formulation for PreserVision to address the significant growth opportunity in dry AMD. In fact, there are nearly 23 million dry AMD sufferers who don't currently use this product. Building on the successful collaboration dating back to 1995, we're once again working with the National Eye Institute to develop our AREDS 3 offering. Our IOL portfolio is another demonstration of follow-through. We started the transition to higher-margin premium products with the most recent examples being our October launch of enVista Envy in the United States. Most of you know that ophthalmic surgeons are incredibly particular about the products they use and the feedback can go a long way towards determining success or failure. While anecdotes don't necessarily translate to market growth, early feedback on our new offerings has been overwhelmingly positive, and we're not done yet. We plan to launch LuxLife brand in Europe this year, and we have 12 out of 13 sites actively recruiting patients for enVista BEYOND are an extended depth of focus IOL with an expected launch in the United States in 2026. This is perhaps my favorite slide as it really drives home how much our pipeline has evolved in just a few years. While our pipeline prior to 2023 included important products, some of which I just mentioned, it was largely centered around Miebo. Perhaps my biggest priority upon rejoining the company was to complete an overhaul of our R&D organization, including hiring many top talent. That helped us -- lead us to where we are today with a pipeline that positions us to lead the market, not follow it. Let's take a look at some of the potential game changers across the business. In December, we announced the acquisition of Elios as a prime example of investing in smart innovative technologies that enable eye care professionals to better address the evolving needs of their patients. MIGS is an exciting new area for Bausch + Lomb that contemplates both our surgical portfolio and our VYZULTA franchise. There are 2 key differentiators here. The product is better. The excimer laser doesn't leave behind an implant and recovery time is faster. The acquisition will also help us promote combined treatment as the standard of care for the 20% of cataract patients with glaucoma or ocular hypertension. In the contact lens space, we have strong internal capabilities, an impressive optical engineering heritage. As pointed out earlier, today, daily SiHy is our fastest-growing lens category, but we're also focused on what's next. Our in-house engineers are advancing contact lens materials that have the potential to disrupt the daily disposable market. Without giving away too many details, this would be a first of its kind biomimetic lens that really optimizes oxygen permeability and could be manufactured very efficiently. Earlier, I mentioned not resting on our laurels. And that's certainly the case in pharma despite the resounding success of Miebo. We've transformed the pharma pipeline to potentially drive a number of firsts. We're developing the first dual action therapeutic to address both evaporative and inflammatory dry eye disease, the first product to treat chronic ocular surface pain and the first product in glaucoma to lower intraocular pressure and improve visual acuity. We're also developing multiple best-in-class opportunities in intermediate AMD and geographic atrophy. My presentation has clearly had an emphasis on what's next, and that's what this chart illustrates. The continued success and growth trajectory of our current offerings allows us to significantly invest in the future. The pipeline products I highlighted and a few others we're excited about are captured here and represent the next cycle of innovation from Bausch + Lomb. In the absence of 2025 guidance, which we'll provide in the normal course in February, I'll leave you with our key priorities. Our strategy is working and therefore remains unchanged. We'll continue to deliver revenue at or above market by focusing on operational and selling excellence. And as made clear in this presentation, we'll continue to build a pipeline that will be the envy of the industry with an eye towards sustainable, profitable growth for years to come. Robbie, let's do some Q&A. Thank you all.

Great. A lot to talk about. I have to ask, I probably can anticipate the answer I'm going to get here, but there's been a lot of news reports about a potential sale of Bausch + Lomb over the past few months in publications. Any comments you can provide on that?

Can you expand? I don't know what you're [ doing]. Yes. Look, so we are always looking in conjunction with the Board at BHC for ways to effectuate separation. Both companies and both boards view that as a very high priority action. And we'll see how it plays out, but we are committed to looking for multiple shots on goal to complete a separation.

Maybe to add to that, in conjunction, it was over the weekend, I think they all got announced or Friday, if I remember, there were a number of small deals that were disclosed. So maybe we could start with those and how those fit into Bausch + Lomb and any of them going to contribute revenues in '25?

Yes. So really with very few exceptions, very few of them will contribute revenue in '25. Elios has some sales in Europe. It's an improved product in Europe, but we don't expect approval until the end of the year in the United States or earlier if things go well with the agency. But that's the current planning cycle. But each one was designed to really bolster our innovation and happy to talk about anyone, specifically, if you like, Yehia is here and certainly can give some scientific rationale.

Yes, just maybe because there was, I think, 3, if I'm not mistaken, it'd be helpful just to give a quick overview of what they are in the importance?

Yes. So actually, the way we looked at these type of deals is that we looked at, first, our internal capabilities, and we built a pipeline based on this. This includes the [indiscernible] [indiscernible] the Miebo, Xiidra combination and the chronic ocular surface pain. These -- both of them were available for us. And also, we have the capabilities to develop them further. The other areas of high unmet medical needs, we realize that it exists in the glaucoma area and also in retina. There is a huge potential for retina especially geographic atrophy because we know that there are existing therapeutics that has been approved, but there are still huge unmet medical needs, namely in areas of visual improvement or functional improvement in these patients or second, based also on some of the better safety profile for some of the products. And this is what we have been focusing on with regard building the retina pipeline. And we -- one of the announcements that you hear is City Therapeutics, which is a small interference RNA. We looked at this from the perspective that small interference RNA is a platform that can get us into many products. The second, it has been already used in indications other than ocular indications. We know there are plenty of siRNA products have been approved, and there's a lot ample amount of data available on their safety. And the third is that really the ocular pharmacology is a great way because it has lack of immunogenicity. We can actually control the dose extremely on it. So City Therapeutic for us was a potential that we would like to go further in this direction. Another one we announced, I think, this morning as well was the Whitecap. And Whitecap, we have 2 assets, one asset is in the area of glaucoma, and they have Phase II data. So they already conducted Phase II data. And the Phase II data, they showed actually that there are improvements lowering intraocular pressure, but what was exciting for us that they demonstrated improvement in the low luminance visual acuity and on microperimetry for both doses, the higher and the lower dose of that. So this was an interesting part that we can get it from Phase II directly to Phase III and approval. And the other asset was in geographic atrophy, but still preclinical. So these opportunities for us considering addressing areas that is not being addressed so far. And the second is for us as well, we have the capability to develop it and move it forward. And the third, it's actually link between things that in clinical as well as in the preclinical stage so we can have a pipeline of products over the coming 5 to 10 years.

Great. Maybe just to stick with M&A here while we're talking about it. You've done a larger deal with Xiidra. You've done the deals you just discussed also on the pharma side. I guess the question is, how do you think about M&A as it relates to the different business segments that you have. Is there a focus where area and also on size. Now with the leverage still coming down from the Xiidra deal, how do you feel about your capacity for anything larger than a small deal at this point?

Yes. So maybe Sam and I will answer this. But all the deals we announced are relatively small, hence, no need the materiality standard didn't even reach the disclosure threshold. But look, when you think about our business as consumer, we can develop internally. Contact lens and Vision Care, we can develop internally. So they don't really need external deals. And then in pharma and surgical, we have a mix of capabilities. And so we supplement and add to those through M&A. So we're -- I think we have a really balanced approach to make sure all parts of our business in a holistic way have the right depth of pipeline and the right level of future growth. And it's really just a very balancing act between opportunities and need. But Sam, do you want to touch on leverage?

Yes, absolutely. And cash has been one of the areas that we've been focused on, Robbie. We ended September with roughly about $231 million of adjusted cash from operations. I think this has been one of the focus that we -- the North Star for us is remains the same, which is really putting in strength into the balance sheet. You'll see those transactions, as Brent said, we finance them through cash on hand pretty much most of them. So that was really the driver here for us that we're going to continue to drive the cash and drive that leverage down.

You had a slide on 2025 goals. And one of them was to grow at or above market rate, you do participate in a number of different markets. So how do you think about the market growth for Bausch + Lomb?

Yes. So we tend to hold each of our businesses accountable to growing faster than the market, in other words, take market share. We've done that very successfully with the numbers reported through the third quarter. The fourth quarter, the momentum has continued. I will report that in February. But we expect to see a lot of the same in 2025.

If I throw out something like 4, 5 for the company is that in the ballpark for total growth.

4 to 5, I think we're probably a tick higher.

And the overall market is running around 5%. So...

So we have ambitions higher than that.

I mean for underlying weighted average market growth.

Yes, I thought that's right. Yes. Yes. Fair Robbie. I thought you meant for us.

Right, and you do better.

Yes.

Sam, as we think about some of the puts and takes down the P&L, and again, we'll wait for February call for exact details. As I look at your P&L, currency is one that stands out and interest is one that stands out. Any early thoughts as to how we should be thinking about those 2 line items?

Yes. It may be worthwhile to take actually a step back and just reflect on couple of things of how we actually positioned the company in 2024 because we were very deliberate with how we actually take in a number of steps in '24 as we started the year. And that was really driving the top line growth. And we saw that throughout '24, we delivered 20% constant currency growth, 10% organic. The other part of it, we also focus on how we can drive margin expansion as we go forward. And we said that we're going to drive sustainable margin expansion. We saw that every quarter throughout '24. We didn't report Q4 yet, but as you saw Q1, 2, 3, we had a margin expansion every quarter on a sequential basis. So that -- it's very important to step back, Robbie, and just reflect on that because that's really the foundation of how you actually -- we think about '25. And it's really driving the top line growth durable as well growth as well as driving the margin expansion. A couple of things I will highlight. You highlighted the currency. Currency has been -- we saw, especially after the election towards the end of the year, we saw currency move with putting a little bit of pressure. So for example, just in the last number of weeks in Q4 we saw roughly about $4 million on EBITDA coming out from pressure in terms of currency, that's against our expectation. I expect that will continue with us as we go into 2025. We guided '25 -- '24 guidance was roughly about $75 million of currency headwind, top line. We said on the bottom line, it's roughly anywhere between $10 million to $15 million. I think as we reflect on '25 right now, we expect that probably -- again, I don't want to speculate on currency. But if we use the rates today and nothing changes, and we give earnings today, there will probably be something close to $100 million on the top, about $20 million on EBITDA in terms of currency. So I think those we'll watch currency, and we'll see how it plays out post-election and with the new passes, but we'll see how that plays out. The other 2 parts that it's important to point out, you asked about tax, we have a very efficient tax structure. So we've been running roughly around that 15%. I expect that will continue with us into 2025. And then the one other item that we highlight for '25 is the anomaly of -- or onetime impact of the IRA, which we talked about throughout '24 that is coming towards us, and we do expect that's going to be -- we'll be ready for in '25. We -- again, we estimate that roughly to be about $25 million impact for us in 2025 as a onetime.

And that's mostly on Xiidra?

Mostly on Xiidra, it will impact other elements of the pharma portfolio, but most on Xiidra, correct.

Maybe just the other one on interest. The market's now assuming fewer rate cuts than we were before. You're in the midst of paying down debt. So how do we think about the balance there?

Yes. So the way I think about it, we started our average interest expense roughly about $8.25 or so in the beginning. Right now, as we end the year, I expect that to be just under 8% on average cost of debt. As I think about next year, I think that should be, again, assuming a future curve with whatever we know today about the Fed actions, that should be in the range of anywhere between 7.25% to 7.5%. So we're seeing a steady decline in our interest expense as we go into 2025, which helps the EPS growth as we expect into 2025.

Maybe we shift to some of the products. I would say Miebo has been the standout in 2024 on the launch, beat pretty much every quarter, I think, during the year, you put up some really positive trends even for fourth quarter, they are in scripts. Where do you see that product positioning in the market? It has a really fast mechanism of action, which I think patients and doctors love. So clearly, a strong first year, but how do you position that within the portfolio? You also have Xiidra as well and your view for that moving forward?

Yes. So what's interesting when we launched Miebo, we really had to carve out or create a new market within dry eye. Dry eye had predominantly been treated as an inflammatory condition with the cyclosporin and Xiidra alternatives. And Miebo really created the first opportunity for our team to build an evaporative dry eye market within the dry eye marketplace. And I think they've done that quite well. And now when you go out and you talk to ophthalmologists or eye care professionals, they really understand that the dual mechanism and really the paradigm of the disease. And so I think we have -- we're only, what, 5 quarters into the launch. Right? We still have a lot of work to do to build the market. But it's very encouraging to see what's happening, not just -- even with our commercial organization, but as medical affairs, the literature, the training, the workshops we do with ECPs, it's really starting to stick in the vernacular and the treatment paradigm. And so a lot of momentum and excited about that. So I think Miebo has a long runway and it's -- the other thing I would say about dry eye is most ECPs outside of some dry eye specialists look for the easy button. And Miebo really is the easy button. And the efficacy safety profile is really compelling, as you said, really early onset of action and patients like it. And so as we've sorted out managed care and made that part easier, clinically, it's a really easy prescription for doctors to write.

Obviously, you have Xiidra in the portfolio. So how do you balance the 2 of them? Are they complementary to each other?

They're very complementary to each other. I think in fairness, and my team is here, I hope you would agree with me, but I don't think we would have had the success with Miebo without Xiidra. And I think being able to talk holistically with an ECP about inflammatory evaporative having a full treatment paradigm being able to leverage both medicines and medical affairs presentations and educational sessions and talking about the different modalities of this disease and the 2 treatment options really synergistically works together. And so they really do support one another. And that's why I think the combination that we're now working on is really a game changer because ultimately, if you talk to ECPs, they want to treat both the inflammatory and the evaporative and first, they have to figure out will managed care pay for both right? That's one hurdle. The second is will patients comply with multiple drop therapy because that's the only way to do it today. And so again, going back to that simple button is let's give them one really hard to formulate together, by the way, very complex, very difficult science problem, but putting these together and giving patients what they really want, which is a one-drop solution that holistically treats the condition.