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

Okay. Great. I think we're live now. Good morning, everyone. My name is Young Li, one of the medtech analysts here at Jefferies. Welcome to our conference. Very excited to start today with Bausch + Lomb. We have the CFO, Sam Eldessouky, with us doing a session of Q&A. Sam, welcome.

Thank you, Young, and good morning, everyone. Good to be here.

All right. Great. I guess to start off, maybe a little bit higher level, wanted to get a little bit of recap about what happened in Q1 in the vision market now that pretty much everyone's reported and if you can talk a little bit about where Bausch + Lomb fits in the vision space.

Perfect. And maybe I'll start with the latter part of your question and just think about how B&L fits in the bigger picture of the eye care market, and then I will reflect on the Q1. So we've had a good presence across the entire spectrum of eye health, and we view that as one of our key strengths. Since Brent joined, we've been transforming the business. We focused on our performance, and we've seen that performance throughout 2024. We also saw it in our Q1 results. We built our leadership position in dry eye with the launch of Miebo as well as the acquisition of Xiidra and also complementary with the OTC portfolio around dry eye, and that's really been something we've been really building up our leadership position. Also, we built a comprehensive IOL portfolio in our surgical business. And we've seen the great results of the surgical business did in Q1 was about 11% growth. And our consumer business, which is quite durable, we watch the consumption data, and that trends to continue to be steady for us as well as our -- last part of I'll touch on is the contact lens business, which has been really gaining market share. And we've seen that growth in the Daily SiHy -- really nice growth in the last quarter at 42%. 2024 was a unique year for us. It was the year we had the highest number of launches in the history of the company, which really plays into the performance and the level of innovation that we introduced to the market and really sets us up for the next stage of what kind of innovation will come next. And also, we focused on our pipeline, and we built a pretty significant pipeline across all businesses. One of the key things that we were very deliberate about in our innovation in the pipeline is that we focused on the pipeline to be across all different businesses, also really focusing on lining up launches as we think about multiple launches in the future, both in near, mid- and long term. So that's really a very good position for us where we are. We have a lot to say about the pipeline. We're actually going to be hosting an investor -- R&D Investor Day. That will be in the fall, will be November 13. So mark your calendar for that one, Young. Hope to see you there. In terms of now Q1, we were very pleased with our performance in Q1. We reported overall 5% growth. So we're growing at or above market. When you think about and step back and reflect on the different parts of the business, our lens business grew at 5% constant currency growth. That was really led by broad-based growth both in the U.S. and outside of the U.S. We saw Daily SiHy growing with the momentum that we've seen in '24 continuing in Q1 with about 42% growth. And the frequent replacement portfolio also grew. So really pleased with what we've seen in the lens business. On the consumer side, the consumption data continued to be very positive, and the trend continued to be positive, and we saw that growing at 5% constant currency. And the surgical business really outperformed the market with 11% growth, which really gives us the confidence and the view as we return back with the enVista in the market that this portfolio will have a really good runway ahead of it in terms of a growth perspective. And then the pharma business grew at 1%. Our key brands -- promoter brands, Xiidra and Miebo, both showed growth on their volume and TRxs. We've seen really a sequential growth in Xiidra -- sorry, in Miebo, and we've seen a growth in the TRxs in Xiidra was 14%. When you think about where we are right now as we reflect even just carrying that thread into the second quarter, we've seen the TRxs in both of -- Xiidra and Miebo growing nicely. So on average, on a sequential basis, Miebo's second quarter right now to date is roughly about 25,000 average TRxs per week. That's versus 20,000 of Q1. And we've seen Xiidra is roughly about 23,000, that's versus 20,000 of last year. So we're seeing that growth continue for us in the second quarter. So overall, we're really pleased with Q1. We're seeing that performance continue so far in the second quarter, and we're really happy with what we've seen.

Okay. Great. That's a really helpful overview. I guess to follow up, your portfolio has been reshaped to be a lot more competitive recently, especially given all the new launches. Can you maybe double-click on the market dynamics a little bit? We saw the results from Alcon and Cooper, both of them lowered their outlook for the vision space they play in. What are you seeing with the consumer right now? And sort of what's your outlook on the overall vision market that you play in?

Yes. The overall market, we believe, is durable market dynamics. We've seen markets traditionally growing at mid-single digits. We've anchored our thinking and our plans around that mid-single digits. And we've seen that historical trend continues to play exactly as we've outlined before. From a consumer perspective, again, the -- we saw the data in Q1. We've seen now so far in Q2, the consumption there tend to be steady. So that's really something very encouraging to see from that perspective. And from a lens perspective, we've been gaining really market share. We've seen that gain in the market share, both in the U.S. and international in Q1, and that's something we're going to expect to continue as we go forward into second quarter.

All right. Great. Very helpful. Maybe focusing on some of the product segments. So enVista, you had to do a recall, but then the issue got resolved relatively quickly in about a month. Now it's back in market. I guess can you maybe just talk a little bit about the early feedback you've been getting so far? I mean some of the surgeons we spoke to, they will probably want to see some results before diving back in. You sort of built some of that into your guidance as well. So just wanted to hear a little bit about your latest thoughts on the enVista franchise.

Yes, sure. And really, when you reflect back on the situation, we made the right decision putting the -- both the quality and the safety of the product first and exercise that recall. Also, the way we handle the situation between being transparent, very proactive earned us a lot of trust within the surgeon communities. So many of the surgeons are looking forward to enVista coming back into the market and really eager to support the franchise coming back. There have been thousands of lenses implanted in the last few weeks, which proves that our decision to go back into the market was the right decision. And as we thought about the KOL in terms of how the adoption curve, we always said there's an adoption curve, how we think about the adoption curve, we thought of the KOLs are pretty much implanting the lenses. There is part of the surgeon community are eager to start planting, and they will expect that in the near future here. And there will be a group -- a smaller group of surgeons that will wait for a few months to be able to get to the level of satisfactory in terms of implants, and we expect that in a few months that they will be joining as well. When you think our -- our focus right now continue to be ramping up our production in the second quarter and building up on the success that we've seen in the last few weeks with the thousands of implants, building up that ramp-up curve into Q3 and into Q4 and coming back fully to the market by the end of the year. So it's early in the process. But so far, we're exceeding our internal expectation, and we'll continue to monitor, and we'll have more to say as we report the second quarter.

All right. Great. Maybe double-clicking on that a little bit, just the U.S. premium IOL market dynamics. There's been some competitor trialing going back to middle of last year. We saw RxSight's results as well as Alcon's results. It seems like OUS is doing better than U.S., but maybe if you can talk a little bit about what you're seeing in the U.S. premium IOL market.

Yes. I know some of our competitors have reported softness in the surgical market, especially in the premium IOL. So we haven't seen softness in our portfolio. And I'll just refer back to what we saw in the first quarter prior to initiating the recall, the voluntary recall. We saw the premium IOL portfolio for us to grow significantly. So that was coming off of also a significant growth in 2024. So we haven't seen that softness in our portfolio. There are many IOLs -- new entries in the IOLs, especially the premium IOLs in the market, and we were one of them. And again, that's really given us the confidence that once we start going through the adoption curve for the enVista, we expect that we'll see the growth and return back to pre-recall by the end of the year.

Great. I guess maybe shifting gears to sort of the hottest and most dynamic topic, tariffs. Once again, another change. Not going to recap everything, but I do want to hear about your latest thoughts on what's going on with the pause, if it's impacting the business or customers racing to get some orders and products ahead of the next update.

Yes. So as we talked about in -- discussed in Q1, the situation of the tariff policy continues to be dynamic and fluid. And we saw that play out exactly as we outlined in Q1. After the Q1 earnings call, we saw more developments with the U.S. and China governments reaching a pause and a change in the race of tariffs that it took place. That change was very welcome from our side that really had a meaningful impact in reducing our exposure of tariffs that we outlined in our first quarter earnings call. So based on where the policy stands today, we do expect to fully offset the tariffs in 2025. That's something that -- it's very important to talk about and just highlight because time tend to be -- plays in our favor. As we outlined in Q1, we have multiple levers that we're pulling both long term and short term. And some of them are permanent in nature in terms of actually how we will offset any impacts from the tariffs that we see in '25 and in '26. So really, with the pause right now with the U.S.-China and the lower tariffs, that's really a very favorable impact for us in terms of -- able to offset the impact in 2025.

Okay. Great. Very helpful. Interesting. So I guess the 120 bps impact to EBITDA, it wasn't in the guidance, but now you can fully offset it for the year is the latest update.

That's correct. And one of the reasons why we initiated [indiscernible] in the guidance was due to the nature of the dynamic situation, we did really provide all the pieces, but we stopped short of changing the guidance knowing that things will continue to be fluid and proven to be the right decision. And it's really now -- it's good that we had additional time, and we're able to offset it.

All right. Maybe sticking with policy, just on most favored nation status and pricing on your pharma business, how impactful is that to your dry eye franchise? And what do you think about the overall impact?

Yes. Based on what we know today, our exposure is limited. Our pharma sales, especially the promoter brands, mainly in the U.S., so Miebo is -- for us is sold only in the U.S. Xiidra, majority of the sales is in the U.S. So it's not really much of an exposure for us as we stand here today.

Great. And then maybe shifting over to the dry eye portfolio. You've built a strong business with the Xiidra acquisition, and then the Miebo launch is going really well, continues to grow sequentially. I guess there's some Xiidra gross-to-net impacts in 1Q and from the IRA. Can you maybe talk a little bit about impacts for the rest of the year?

Sure. And maybe I'll start with Miebo, and then I'll shift to Xiidra. So Miebo has proven to be still into its launch trajectory and launch phase, and that's proven by what we've seen in Q1 sequential to Q4. So we still saw growth in Q1 sequential to Q4 of 2024, which is very unique because of the seasonality of the portfolio. So that's really very encouraging. We've seen that growth continues with us so far in the second quarter. As I mentioned, like when you look at the average weekly TRxs, it's roughly about 25,000 TRxs. That's compared to about 20,000 in Q1. So that's really very promising and given us sort of the confidence that we're still on the trajectory that we outlined for Miebo and the launch trajectory that we have seen. On Xiidra, it's been playing exactly as we anticipated. So we've signaled throughout 2024 the impact of the gross-to-net as well as the Inflation Act -- Inflation Reduction Act in 2025 for us. And we said that the volumes will be growing. We'll see some headwind in the -- on the gross-to-net. And that's been playing exactly as we expected in Q1, and it's playing exactly as we are seeing for the rest of the year. So, so far, in the second quarter, TRxs for Xiidra is roughly about 23,000 average weekly TRxs. That's versus 20,000 same period last year. So you're seeing the volume continues to grow. The gross-to-net will be a headwind. We were also very clear on the fact that we see the headwind of the gross-to-net more of, I'll call it, a transition type of headwind in 2025. That's not recurring with us as we go forward in 2026. That sets a new base that will be growing off in 2026.

All right. Great. And then sticking to that subject, one of your competitors, Alcon, they got a dry eye drug approved recently. Wanted to hear your early thoughts on how their product stacks up versus your portfolio, the differentiation and mechanism of action and if it helps expand the dry eye market, or do you think it'll take share?

Yes. I'll probably focus on our portfolio. And when you think about just the overall dry eye market, dry eye disease market is a large market. And one of the key things that we've done as part of our transformation of the business for the last couple of years is build our leadership position in the dry eye disease. And we're seeing that benefit of having both Miebo and Xiidra. They address inflammation as well as they address evaporative dry eye. So we have the leverage of addressing 2 of the key drivers of the dry eye disease here. We also have seen the leverage that we're able to scale both on the investments between Miebo and Xiidra supporting our leadership position and building one of our largest sales forces in the U.S. promoting the drugs. We -- Miebo is, again, is in a launch phase that we've been very successful in securing access, and we've been very good with granting access with -- for Miebo. And more importantly, we'll -- recently launched our DTC campaign, which has been proven to be very effective, and we're seeing that volume grow pretty nicely. So all in all here, Young, when I think about our portfolio, we're -- we are in a leader position. We are having a pretty good 2 brands that we'll continue to promote and invest in. And as we think about just dry eye in general, to your question, the market is large. There's a lot of opportunity for this market to continue to grow. And we've proven that as more drugs come into the market, the market actually does not shrink, the market actually grows. So I think that's something will be playing in our favor as we go forward.

All right. Very helpful. And then I guess one of the updates on the last call was there are some pressures in the U.S. generics business. There was -- you think you called out increased competition and lower inventory in the retail channel. Can you maybe just high level sort of recap what happened there in a little bit more detail. And then you're putting some initiatives in to resolve the issue, how long would that take to show up? What are you doing to try to fix it?

Yes. And what we saw in Q1 in our generics portfolio, the key element we saw competition come in earlier than what we anticipated. So -- and that's why we did not change our full year guidance for the business, excluding the recall, given the fact that we've already factored in our thinking for the full year. When you think about the generics business, what we said is the competition came in earlier, so that did have, I'll call it, a time impact for us when we saw the impact in the business, which was in Q1. In terms of return to growth in that business, we've taken a number of actions. What we will expect is it's -- probably we'll see many of the actions we're taking will start playing into the second half of the year. So we probably will see that business will continue to steady sort of progress forward, and we'll see the return to, I'll call it, the level that we expect by the second half of this year.

All right. Great. And then maybe wanted to talk about the pipeline a little bit. I think at the beginning of the year, you updated us on -- well, there's a lot of pipeline programs in basically all your businesses. Maybe just to start high level, can you highlight the products sort of you're most excited about or that's going to come out a little bit sooner to help with growth and margin progression?

I'm excited about the entire portfolio, to be honest. But when you really -- and there's a lot to say about the pipeline, that's why we're looking forward to the R&D and Investor Day in November 13 because I think that will give us the opportunity to be able to speak more and share more with everyone about -- share our excitement about what we see in the pipeline. But as you said, it's really -- we were very deliberate of how we built the pipeline. We really focus on building the pipeline across all businesses. We also focus on sequencing the timing of how we think about the pipeline to allow for multiple launches as we go forward in both near, mid- and long term. So I think that was key things that we thought about as we were building the pipeline. There's -- maybe I'll touch on a few of them in different business here, Young. So maybe I'll start with the lens business with the biomimetic lens. That's something we're very excited about. It's a novel material. It's innovation, and we'll be going -- we'll have more to say about it as we go into clinical studies, which is expected in the second half of this year. But it really -- could be something that will be really very innovational from the aspect of the material and what we will be able to introduce from a lens perspective. So that's something that's really exciting. One of the elements that we're very excited about also on that lens is the fact that it is going to be utilizing existing capacity that we have already in our existing lines, which means that we are not going to have to upfront cash or CapEx to be able to build up capacity for it. And that's very important because it changes the dynamics of what a launch would look like for that type of product with how the margins will play out because you're not really upfronting new lines, you're not upfronting the cost upfront. So you're seeing the benefit of the margins much sooner than a traditional lens launch, which is, again, something really excites us about them. On the surgical, there's been a number of innovation and pipeline we've done through the IOL, but we -- our most recent acquisition, Elios, something I'm very excited about. It's a next-generation MIGS. We expect the approval by the end of this year and launch in early 2026. So that's something we'll be looking forward for as well. And then on the consumer side, we continue to leverage the iconic brands that we have between the vitamins and PreserVision, LUMIFY, the Blink franchise. And we continue to combine science and innovation in producing new products within that portfolio. We just put out a release actually this morning regarding expansion within our Blink franchise. So you will see that continue with our consumer business. And then the last is pharma, which, really, there's a lot of excitement. And many products we can talk about in pharma, but I'll highlight a few of them. There's the dual action on the dry eye, which is the Xiidra-Miebo combination, that's something we're very excited about, and that's going to be going in trial -- clinical trial soon. There's also the ocular pain health, which is really something we are very excited about as well, and that will be going into a study very soon. So there's more -- we'll have more to say on the pipeline as we go forward with our R&D and Investor Day, but there's a lot to be excited about.

Okay. Yes. I'm looking forward to that, for sure. I guess 2 you didn't really address, I was kind of hard about, adjustable IOLs and myopia management. What do you think about the market currently? And any high-level thoughts about your pipeline product?

Yes, sure. In the myopia management, we're going through our study right now. We expect to read out in the probably Q1, Q2 next year, so early part of first half of next year. And then we're going to be evaluating sort of how we will approach it country by country on a go-forward basis. When we think about the adjustable IOLs, it's still early. There's a couple of things that we have working on, but it's still early at this point.

Okay. Maybe if you can talk a little bit about capital allocation goals. And the company has been quite acquisitive, but sort of where are you now on your thoughts on M&A versus deleveraging?

Yes. So our focus on capital allocation really have not changed. It's still the direction of the North Star stays -- remains the same. Our focus is deleveraging and then investing in support of the business for growth and investing behind the innovation. And when you take a step back and you look at sort of all our strategy and the actions we've taken in the last couple of years, it's been really driving around those 3 elements really and focus mainly on the driving of the business growth as well as the innovation from a capital allocation. From an M&A perspective, there's always room for inorganic or M&A as part of our strategy and our thinking. We really focus on it really in 2 simple way or a simple way to think about it is, one, does it make strategic sense or fit for us either in our pipeline or in our existing portfolio, and then does it make a financial sense? So that will continue to be our gating or sort of -- or levers that we will measure any acquisition against.

All right. Great. So I guess we went over a lot of topics, but to maybe kick it back to you for sort of the rest of the year, can you maybe highlight some of the puts and takes you're thinking of and you want investors to sort of focus on for the rest of the year?

Yes. So when you think about our guidance for 2025, excluding the recall, which we quantified in Q1, so if you take the recall out, we were expecting to grow between 5.5% to 7.5% on a constant currency basis. So that's really encouraging with the market that is growing at mid-single digits. So we're seeing sort of -- we expect that business to perform well. When I -- maybe I'll take each of our business discretely and just talk through each one of them. So when you think about the lens business, will be the key for us to continue to drive the growth, especially in our Daily SiHy, which we've seen -- it was the fastest growing. Our lens business was the fastest growing in 2024, and we saw that performance continue in terms of growth in Q1. So that's something we're excited about to continue to fuel the growth within Daily SiHy. Surgical did a -- had a fantastic Q1 with 11%. We do expect the thousands of lenses that we implanted in the last few weeks build on that success and continue to ramp up our return to the market with enVista, and we'll see that play out for the rest of the year. And pharma driving the TRx growth both on the branded side, both Miebo and Xiidra, and see that continue for us into the trajectory of the next couple of quarters. On the consumer, the consumption has been really steady. So we've seen a steady consumption on the consumer business. We do expect a bit of destocking we saw in Q3 of last year. We expect that to happen. We did talk about it in Q1, but that's already factored in our guidance. So that will be covered with what we have out there already. And we'll continue to obviously watch macro market conditions.

All right. Great. We expect daily updates as the truth to come out. All right. I think that's all the time we have. Thank you so much for your time, everyone.