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spk01: Greetings. Welcome to the Bosch Health second quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, John O'Connor. You may begin.
spk04: Good morning, and welcome to Bausch Health's second quarter 2023 earnings conference call. This is John O'Connor, Senior Vice President, Investor Relations for Bausch Health. I recently joined the company a few weeks ago, and I am looking forward to leading the investor relations effort here at Bausch Health. Participating in today's call with me are Tom Appio, Chief Executive Officer of Bausch Health, and Tom Batiketh, Chief Financial Officer. Before we begin, I'd like to remind you that our presentation today contains forward-looking information. We ask that you take a moment to read the forward-looking statements at the beginning of the slides that accompany this presentation, as they contain important information. Our actual results may vary materially from those expressed or implied in our forward-looking statements, and you should not place undue reliance on any forward-looking statements. Please refer to our SEC filings and filings with the Canadian Securities Administrators for a list of some of the factors that could cause our actual results to differ materially from our expectations. We use non-GAAP financial measures to help investors understand our ongoing business performance. Non-GAAP financial measures may not be comparable to similarly titled measures used by other companies and should be considered along with, but not as an alternative to, measures calculated in accordance with GAAP. You will find reconciliations to our non-GAAP measures in the appendix of the slides that accompany this presentation, which are available on Bausch Health's Investor Relations website. Finally, the financial guidance in this presentation is effective as of today only. We do not undertake any obligation to update guidance. Our discussion today will focus on Bausch Health, excluding Bausch & Lomb. However, we will briefly comment on Bausch & Lomb's results announced yesterday. We will refer to year-over-year comparisons with the same period last year, unless otherwise noted. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on August 3rd, 2023. With that, it is my pleasure to turn the call over to our CEO, Thomas Appio. Tom?
spk06: Thank you, John, and welcome to those of you joining the call this morning. At Foush Health, our team is focused on enriching lives and through our relentless drive to create better health outcomes for our patients and physicians. The BHC team is tirelessly dedicated to business performance, delivering results, and progressing key strategic objectives. This dedication was on full display this quarter with a number of highlights that I will touch upon. Turning to slide six, we had a strong quarter with revenues for Bausch Health, excluding B&L, $1.13 billion, up $106 million, or 10% reported and 11% on an organic basis. We received a favorable motion ruling in the Xifaxan litigation, which reinforces our continued investments in the Salix growth strategy. We executed an additional proactive balance sheet initiative that further enhances our liquidity profile. We continue to take thoughtful steps as we evaluate the optimal implementation of a potential Bausch and Long distribution. And we continued to progress our R&D pipeline. Let me start by sharing some of our business performance highlights as shown on slide seven. This quarter, Three out of four non-BNL business segments, Salix, International, and Salta Medical, posted double-digit revenue growth, both on a reported and organic basis. The diversified segments saw a modest decline, an improvement from the last few quarters where we have seen double-digit declines. While neurology and generics remain challenging, we are hopeful that that the actions the team has taken will help temper the pressure on these businesses. Let's take each segment in turn. Salix, Q2 net sales for this segment were 557 million, growing 11% in the quarter. I am pleased to report that the investments we have made in this segment are beginning to pay off. Building on the plan we laid out since I became CEO, We are continuing to increase our commercial investments to higher than historical levels in sales and marketing to drive profitable revenue growth in this segment. I am pleased to share that we have made significant progress in our AI customer engagement initiative. We launched the new AI engine towards Zyfaxan Primary Care Fuel Force Team. The AI engine will help our team to understand how to best address patient needs by engaging with the right physicians at the right time. This initiative is a key part of our strategy to improve customer engagement and drive growth. We believe that AI has the potential to revolutionize the way we interact with our customers, and we are excited to be at the forefront of this transformation. As part of our continued commitment to improve HE, and IBSD patient care, we expanded Xifaxin medical field team. The team is now fully trained and working to educate physicians and improve care for thousands of patients. The expanded MSL team leverages insights from advanced analytic models to understand the largest patient care gaps and engage with physicians to reinforce established treatment guidelines. Finally, We have increased our investment in education efforts targeted to undiagnosed, untreated consumers for both of our approved indications, IBSD and HE. These activation campaigns are currently being deployed across a wide range of media channels, such as connected and addressable TV, as well as many different digital and social media platforms. We believe Xifaxin and other products in our GI portfolio are effective options for healthcare providers that have not yet met their full potential to provide patients with the healthcare they need. Turning to international, revenues grew by 11% in the second quarter of 2023, both on a reported and organic basis led by strong performances in EMEA and Canada. While the quarter's growth did benefit from a favorable comparison to the prior year, we are still pleased with our growth in the international business, which was impacted in the corner by a voluntary recall of our Emirate epi-ephirin auto-injector, which Tom V will cover in more detail. While voluntary in nature, our decision to action the recall was, in our view, the prudent and responsible decision to take. Salta Medical, revenues increased by 54% on a reported and 60% on an organic basis, reflecting strong growth in Asia Pacific region, which included the unfavorable impact related to limited activity in China in Q2 of last year due to COVID lockdowns, while performance in other Asia Pacific markets was also very strong. This quarter, I had the pleasure to visit with our U.S., China, and Hong Kong Solta teams and listen to what they're doing on working to continue to build our aesthetics franchise. The teams are highly motivated and dedicated to deliver results and launch new products as we continue to build a world-class global aesthetics business. More than 70% of SALTA revenues are generated from consumable sales, represent an attractive and very durable business profile where we see significant opportunity for long-term growth. We are actively working to accelerate growth in our largest markets by expanding our sales teams in the US and Europe and advance our pipeline of new market authorizations and new generation products. Turning to diversify. Revenues decreased by 3% on a reported and organic basis in the quarter. Dermatology and dentistry had growth in Q2, which helped moderate the decline in neurology and the generics businesses. As noted last quarter, our intention is to increase our marketing and advertising investments for aplentin in our neurology business and to expand our consumer awareness campaign for Jublia in our dermatology business. For the second quarter, Dentistry revenues grew by 4% year over year, driven by Arrestin. We have restructured our sales force in this business and expanded our consumer awareness efforts for Arrestin to drive growth. I am pleased with our overall business performance in the second quarter. We are increasing our revenue guidance for Bausch Health, excluding B&O for this year, and as always, remain committed to delivering long-term value for stakeholders. In addition to the strong business performance, we had a number of other positive developments in the quarter, turning to slide eight. We shared in May 2023 the positive news that the U.S. District Court of Delaware denied Norwich Pharmaceuticals' motion to modify the court's final judgment and prevent the U.S. FDA from granting final approval for Norwich's andorforzifaxin 550 milligrams before October 2, 2029. You may recall that Norwich filed this motion in order to attempt to get a skinny label approved before October of 2029. Norwich appealed this decision. Norwich appeal is now consolidated with our appeal of the final judgment invalidating the IBSD and the polymorph patents. We remain confident in our position and expect a decision on the consolidated appeals as early as Q1 2024. Following the denial of Norwich's motion to modify the final judgment, the FDA granted tentative approval to Norwich's ANDA for Xifaxin 550, but confirmed that it remains barred from granting final approval until October 2, 2029. Norwich cannot launch its ANDA product until it receives final approval from the FDA. Norwich then sued the FDA in the United States District Court for the District of Columbia. This is a separate lawsuit in a different district court than the court that issued the final judgment. Norwich requested that the DC District Court direct the FDA to grant final approval of the ANDA notwithstanding the Delaware Court's final judgment. The FDA opposed Norwich's action, and we have intervened in this lawsuit. This matter is currently being briefed, and we expect a decision in the fall. We are fully committed to vigorously defending our intellectual property and providing healthcare providers and patients with the safe and effective treatment options that Zyfaxan represents. We continued to be successful in proactively addressing our balance sheet entering into a $600 million non-recourse financing facility with KKR, collateralized by accounts receivable, providing us an additional source of liquidity. We continued to make progress on our efforts to complete the potential distribution of Bausch & Lomb and continue to believe that completing the separation of Bausch & Lomb makes strategic sense. As we continue to evaluate all relevant factors related to any distribution, we are exploring options for optimizing the structure if and when a distribution is completed. Our initial intent was to effectuate a potential distribution by way of plan or arrangement, but we have since determined that the optimal way to implement the distribution may instead be through a tax-free reduction of capital which would provide additional flexibility to the company and Bausch and Lomb. We're continuing to evaluate the structure of any distribution and its other related details, and any distribution continues to be subject to the receipt of applicable shareholder and other required approvals. We are working hard to progress our pipeline, as shown on slide nine. We remain excited about the Red Sea program for Xifaxan for the reduction of early decompensation in cirrhosis. The global program is focused on developing novel formulations to address unmet medical needs. Specifically, the treatment is aimed at presenting the first occurrence of hepatic encephalopathy, HE, for patients with mild cirrhosis. Two global phase three studies are currently underway. Enrollment in these studies is progressing, and we expect enrollment to be completed in both trials in Q1 of 2024. To date, we have completed scientific advisory meetings with the Medicines Evaluation Board in the Netherlands and Health Canada and have received positive feedback on the program from the National Medical Products Administration in China. We are currently planning to meet with the authorities in Japan later this year. As I have noted, these are global programs. For amicillimod, a new oral selective S1P receptor modulator that targets the treatment of mild to moderate ulcerative colitis. The phase two trial completed enrollment in July of this year. In dermatology, we have an upcoming PDUFA date of October 20th, 2023 for our NDA for IDP126. If approved, this will be a first-in-class treatment for the triple combination of acne vulgaris and welcome addition to our established acne portfolio. Our submission in Canada was completed on May 30th of this year. Our SOLTA pipeline is active as well. Our next generation Fraxel, a fractionated laser device for skin resurfacing, remains on track for submission to the FDA later this year with the potential to launch in the first half of 2024. We are excited about the benefits offered by this product, including its effectiveness in fine-lined wrinkles, surface scarring, pigmentation, and age spots. Our Clear and Brilliant Touch program is also advancing. With Europe and Canada submissions planned for 2024, Asia Pacific for 2025, Clear and Brilliant Touch is a fractionated laser device for skin rejuvenation. Our next generation VASER Liposystem, which uses ultrasound energy for aesthetics body contouring, is under development and planned for release in late 2024. Lastly, we are developing several exciting features for Thermage FLX to improve on what is already a leading product in non-invasive skin tightening treatments. Solta is well known for the broad portfolio of products that addresses a range of aesthetic skin and body issues. With continued improvements always in mind, our focus is on providing consumers with aesthetics and therapeutic benefits based on cutting edge technology and our R&D team is hard at work on these innovative next-generation enhancements. As a leadership team, we remain committed to driving profitable growth through commercial excellence, intensifying our focus on business development, expanding and progressing our pipeline, and unlocking the value and potential of our companies. It's been an active and productive quarter for Bausch Health, and we are looking forward to building on the momentum across the board. With that, I will turn the call over to Tom Vatiket, who will provide further details on our second quarter performance. Tom?
spk05: Thanks, Tom. Hello, everyone, and thanks for joining us. We closed the second quarter with consolidated revenues for Bausch Health of $2.2 billion. up 11 percent on an organic basis over the same quarter last year. Second quarter revenues for Bausch Health excluding BNL were $1.1 billion, up 11 percent on an organic basis. We saw growth in our Salix, International, and Salta businesses, while we experienced a more modest decline in our diversified segment than in recent quarters. Let's dive into the revenue performance for each segment in more detail, starting on slide 12 with Salix. Second quarter Salix revenues increased 11% on an organic and reported basis to $557 million, driven by growth in our core products, including Syfaxon 550, Relistor, and Trulance. As Tom mentioned, we're seeing our investments in Salix's commercial organization begin to pay off in the form of increased brand awareness and demand. Growth in Salix was led by Syfaxon, which grew 9% in the second quarter compared to the same quarter last year, and overall demand grew 3% year over year. In addition to our demand generation efforts, we are benefiting from a rebound in the long-term care channel with increases in occupancy levels that, while increasing, still remain below pre-pandemic levels. We are also pleased with the second quarter sales performance of Relastor and Trulance, which posted year-over-year growth of 42% and 73%, with total Scripps growth of 20% and 14%, respectively. International revenues were $259 million during the quarter, an increase of 11% on a reported and organic basis compared to the prior year period, led by strong growth in our promoted portfolio in Canada and key markets in EMEA. In EMEA, the growth was also benefited from a prior year reduction in revenues of $11 million, related to a change in our estimates of future returns in one market. In May, Bausch Health recalled Emirate epinephrine autoinjectors for lots distributed between April 2022 and May 2023. While there was limited revenue impact in the quarter, From a cost perspective, we had write-offs of finished goods and other inventory, as well as charges for outstanding purchase commitments, together totaling $12 million in the quarter. We are actively working to bring this important product back to market for our patients. Solta medical revenues were $88 million during the second quarter, an increase of 60% on an organic basis over the prior year period. Revenue growth was supported by a soft compare in the prior year quarter due to COVID-related lockdowns in China in Q2 2022. Growth in other Asia-Pacific markets was a strong 23%, with overall growth for Solta tempered by a decline in the U.S. in the quarter. With several upcoming pipeline milestones, Solta Medical is primed for continued near and long-term growth. Diversified revenues were $228 million, down 3% on a reported and organic basis in the second quarter, due primarily to decreases in sales across neurology and generics, partially offset by an increase in sales in dermatology and dentistry. We continue to see volume erosion for Welbutrin. For Aplenzin, positive demand growth was offset by a channel inventory drawdown. Lastly, on Jublia, positive demand growth was offset by higher coupons and rebates. Total sales for the segments increased sequentially, due in part to gross-to-net pricing pressure in Q1 that did not carry over into this quarter. With 70 percent of the segment's revenues coming from products that are past their LOE dates, we continue to manage the diversified business to optimize the revenue trajectory and maximize profitability and cash. with some small targeted investments where there are growth opportunities, for example, for Arrestin in dentistry and Jublia in dermatology. As shown on slide 13, Bausch and Lomb revenues were $1 billion during the second quarter, up 10 percent on a reported basis and 12 percent on an organic basis compared to the prior year, with growth across all B and L segments. Turning to the second quarter P&L on slide 16, second quarter consolidated adjusted gross margin was 70.1%, 60 basis points lower compared with the prior year. For Bausch Health, excluding P&L, the adjusted gross margin for the second quarter was 79.4%, 140 basis points lower than last year. The decrease was mainly driven by a change in product mix and the MRID recall changes charges in the international segment that I covered earlier. On the B&L side, adjusted gross margin was flat compared with Q2 of 2022. Consolidated adjusted operating expenses for the second quarter were $832 million, an increase of $80 million, or 12 percent, on a constant currency basis, driven by higher SG&A expenses reflecting investments in sales and marketing and higher R&D. For Bausch Health, excluding B&L, operating expenses increased by approximately $34 million, while B&L reported an increase of $46 million in operating expenses. Selling and marketing increased for Bausch Health, excluding B&L, due to the investments we are making in the Salix sales force, our go-to-market channels, and advertising and promotional activity. The increase in consolidated adjusted G&A costs reflects the costs associated with standing up two public companies. Adjusted G&A for Bausch Health excluding B&L was flat compared to the prior year. Consolidated R&D expense for the quarter increased 23% compared to the prior year and represented 7% of net sales compared with 6% for the prior year period. For Bausch Health excluding B&L, R&D expenses increased by approximately $19 million due primarily to the focus on our clinical programs and regulatory activities to support our mid- and late-stage product development in the Salix segment. We have been successful in restructuring our approach with our third-party clinical providers, which is accelerating activity and planned spend in the Red Sea program. Second quarter consolidated adjusted EBITDA was $727 million, an increase of 26 million or 4% on a reported basis and 7% on a constant currency basis. For Bausch Health excluding BNL, adjusted EBITDA was $568 million, an increase of 7% from last year, reflecting the factors previously described. On a consolidated basis, the second quarter adjusted EBITDA margin was 33.5 percent, compared with 35.6 percent last year. Adjusted EBITDA margin for Bausch Health, excluding BNL, was 50.2 percent, and for Bausch & Lomb was 17.3 percent. Turning to cash flow, on a consolidated basis, Bausch Health generated $360 million in operating cash flow in the first six months. The increase versus the prior year was due primarily to decreases in payments of accrued legal settlements related to the Glometza antitrust litigation, the positive impact of insurance recoveries from prior legal settlements, and changes in business performance. As with recent quarters, we have also reclassified a portion of our cash interest payments to financing cash flows. as a result of the accounting treatment for bonds issued as part of our 2022 debt exchange. Adjusted cash flow from operations on a consolidated basis in the first half was $196 million. For Bausch Health, excluding BNL, the year-to-date adjusted cash flow from operations was $234 million from strong cash conversion in the first half, which was in line with our expectations. Adjusted cash flow includes adjustments for the payment of separation costs, business transformation costs, and insurance settlement proceeds, and also includes payment of the full contractual interest. Now let's turn to our balance sheet. We continue to prioritize the delevering of our balance sheet, and in the second quarter of 2023, we reduced our debt for Bausch Health, excluding B&L, by $181 million, including revolver repayments. As shown on slides 18 and 19, total debt for Bausch Health, excluding Bausch & Lomb, at the end of the quarter was $16.3 billion, which consisted of $15.3 billion of restricted debt issued by Bausch Health, excluding BNL, and $1 billion of senior secured notes issued by the unrestricted subsidiary created in the third quarter of last year. Excluding B&L debt, approximately 85% of our debt is fixed, and approximately 70% of the company's debt on a consolidated basis is fixed. At the end of the quarter, we entered into a $600 million accounts receivable facility with KKR, giving Bausch Health access to an additional liquidity source for approximately five years, with proceeds available for general corporate purposes. We did not draw on the facility in the second quarter, but have subsequently drawn $350 million as of August 2nd. With the closing of the accounts receivable facility, inclusive of cash and cash equivalents, and available capacity under our revolving credit facility, the company has liquidity in excess of $1 billion. Looking ahead towards the second half of the year, we have updated our 2022-23 guidance for Bausch Health excluding BNL, which can be viewed on slide 21. For Bausch Health excluding BNL, we now expect revenues in the range of $4.5 to $4.65 billion, an increase of $50 million in both the low and high end of the range. This change is primarily due to favorable movements in foreign exchange leaving our view of organic growth of 2% to 5% unchanged. In terms of first half and second half dynamics, within Salix, we typically see a seasonal step up in sales in the second half, particularly in Syphaxin, primarily due to wholesaler inventory dynamics, as well as patient level patterns related to insurance deductible activity. We also expect to see continued positive impact from our investments in the Salix commercial organization. For international, our revenue guidance assumes ongoing momentum with promoted brands and takes into consideration the tailwinds we expect to see as a result of competitor supply shortages. These positives will be somewhat offset by the loss of Emirate revenue due to the recall of that product, as well as new generic entries driving volume declines. For our diversified segment, we expect sales in the second half to increase sequentially from the first half. with second-half revenue relatively flat compared to the prior year, driven by growth in Jublia, Orestin, and Oplensin, offsetting declines in mature brands across neurology, generics, and dermatology. We continue to expect gross margin to be in the 80% range, in line with prior guidance. Full-year EBITDA for Bausch Health excluding BNL is still expected to be $2.3 to $2.4 billion. Our adjusted guidance reflects the acceleration of approximately 50 million in R&D spend from 2024 for critical programs, and we currently expect higher R&D investment in 2023 than contemplated when initially providing guidance for the year. Adjusted EBITDA also includes the impact of the emirate recall. These items are partially offset by the favorable impact of foreign exchange and cost savings. On the expense side, we will continue to invest in sales and marketing activities to drive growth in our key brands in our Salix, International, and Salter medical segment. These expenditures include sales force expansion, direct to consumer advertising, and investments in sales force tools. As Tom mentioned, we're starting to see the positive impacts from these initiatives on revenues, which we expect to continue through this year. Moving below adjusted EBITDA, we continue to expect our full-year effective non-GAAP tax rate to be approximately 15%. We expect our contractual interest costs to remain unchanged at approximately $1.3 billion. Lastly, we continue to expect Bauschelt, excluding BNL, to generate approximately $625 million in adjusted operating cash flow. We have generated less than half of this expected cash flow through the second quarter, which, as I said earlier, is in line with our expectations, and adjusted operating cash flow will benefit from the higher second half adjusted EBITDA we're expecting compared to the first half of the year. As I said earlier, adjusted cash flow includes adjustments for the payment of separation costs, the payment of the full contractual interest, and also includes impact of cash tax payments, inclusive of the tentative Granite Trust settlement, which we expect to be finalized with the IRS in the coming months. I'll now hand the call back to Tom.
spk06: Thank you, Tom. In summary, although we still have much work to do, I am pleased with the quarter business performance and the progress we have made. Our strategic priorities remain intact, as you can see on slide 23. We have a clear purpose on enriching lives through our relentless drive to create better health outcomes for our patients and physicians. We have made key focused investments in our sales teams, marketing programs, and R&D projects, which will drive future growth. We have progressed. key strategic objectives. Finally, and importantly, we have an all-in team that is principled, creative, problem solvers, and results focused. On behalf of our entire Bausch Health team, I thank you for your interest in and support of our company. With that, we will now take questions. Operator, please open the line for Q&A.
spk01: Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Your first question for today is coming from Glenn Santangelo with Jefferies.
spk07: Oh, yeah, thanks for taking my question. Hey, Tom, I think I'll ask a question that's kind of on everyone's mind. Everyone's kind of curious about this tax-free reduction of capital. We're wondering if you could maybe put a little bit of a finer point in terms of what you mean, and I guess why the pivot at this point, because it seems like you had a plan, and now it seems like you may be pivoting, and I'm kind of curious as to what changed.
spk06: Yeah, Glenn, good question. Let me just take it from the top. It's a good question. It's complicated. What I would say is when we look at it, of course, the spin and the IPO was announced three years ago. It was a different management team at that point. And really trying to, as I took over as CEO and the team took over, really looking at what was going to be the best way to do it. So basically, when we looked at it, we believed that trying to find a way that could simplify the process to help manage some of the risks identified. And we believe that we can create some additional strategic flexibilities for both companies if we're able to work under a reduction of capital.
spk05: Tom, if I'll just add a couple of things. So, Glenn, just transactionally, what the difference, so what this is, is like the term suggests, it's a reduction in capital. And in this case, the reduction is the value of BNL and effectively the result of those BNL shares being returned to the shareholders. So, the end result is exactly the same. in the sense that the B&L shares are distributed as we intended before, no change there, no change in the tax efficiency, et cetera, et cetera. What we're really talking about is behind the scenes almost. The bookkeeping changes slightly.
spk07: But, Tom, can I just clarify that a little bit? Because I thought maybe the obvious move was to sell another 8% or 9% of BLCO, but maintain that 80% threshold so you preserve the tax-free nature of the spin. Are you talking about something different than that?
spk05: No, still the same numbers. So it's still the same. The plan right now is the same, is to distribute 80%. No change in that.
spk07: Okay, perfect. And maybe just my last question, then I'll hop, is I'm kind of curious about this $600 million facility, and what are the uses of that cash? Because it seems like you already have ample liquidity. You're generating some cash flow, and now you're talking about selling more of BLCO, which would raise potentially more money, or maybe you're just going to spin it, depending upon how you transactionally do it. But I just want to make sure I understand that. what the use of that capital is because, you know, you didn't buy back very much debt in the quarter, and I would have expected a little bit more. So I'm just kind of curious as to the use of those proceeds. Thanks.
spk05: Yeah, I mean, look, in the grand scheme of things, it's an efficient and cost-effective source of capital for us. It was available, you know, so we like it. It's a source of capital now for the next five years. As I said in my prepared remarks, as it happens just shortly after the end of the quarter, we did draw down about $350 million and have paid down the revolvers. So that's one example. But it's essentially for general corporate purposes. We haven't earmarked it for anything in particular. But it's available to do all the things that you just kind of listed, including OMRs, et cetera. We will, in addition to that, as I said, expect to generate more than $600 million in operating cash flow and debt reduction and deleveraging continues to be our priority.
spk07: Thanks very much. Appreciate the details.
spk06: Operator, next question.
spk01: Your next question is coming from Jason Gerberry with Bank of America.
spk09: Hey, guys. Thanks for taking my question. So I just wanted to follow up on Glenn's question a little bit more. So you talked about added strategic flexibility, I think, in the PR area. pursuing strategic growth, uh, uh, via the remain co. So would under the revised, I guess, distribution mechanism would remain co carry, uh, less debt or, or have a more favorable leverage ratio. Just kind of curious thinking about what that entity might look like on the other side and how much firepower, um, the company might have, because we've long thought of like remain co as a company that was carrying like north of six and a half turns of leverage. and not a lot of leeway to deploy capital for M&A. Thanks.
spk05: Go ahead, Tom. I'll start, and maybe Tom will add some comments. Essentially, there is no change in our plan, right? So the company has put out that target of 6.5 to 6.7. That remains the case, and we put that out as a kind of threshold to, in order to complete the distribution. From my perspective, as the CFO of the company, that's too high, and we will continue to pay the debt down and reduce it as we go forward. This particular transaction that we're talking about, this change in structure that we are considering, has no connection with those debt targets or the liquidity that we need to be at or anything like that.
spk06: Yeah, Jason, this is Tom. Let me just add to that. You know, the objectives and the goals of the transaction haven't changed. We just, you know, when we looked at it, the key was to see, you know, how we could simplify it and then really create as much flexibility strategically as possible for both companies now and in the future. Thanks.
spk09: I'll put in the next question.
spk06: Yeah, go ahead, Jason.
spk09: Well, I was just gonna have to follow up on the Zyfax and federal circuit appeal. Um, so is the court reviewing, you know, all the patent rulings or, or is the court reviewing whether the injunction, uh, uh, should be in place still just kind of just wondering if you think about, uh, early 2024, what that outcome could look like and.
spk06: Yeah. So, so as I said, in my prepared remarks, uh, you know, we are appealing the patents on IBSD and on the polymorphs, which Norwich is appealing the motion on the 6DB motion. So that's where it stands. Of course, the appeals are now together and we're expecting the court to rule in Q1 of 2024. We feel strongly on our position with our patents. and we're going to vigorously defend it.
spk09: Got it. Thanks, guys.
spk06: Thanks. Next question.
spk01: Your next question is coming from Umar Rafat at Evercore ISI.
spk03: Hi, guys. Thanks for taking my question. There's construction behind me, so please bear with me. My question is, going into the Xifaxan district court ruling, this is a Norwich versus FDA, what are you expecting and how does that change whatever plan you have now or whatever the updated plan is on the spend. Thank you.
spk06: Thanks, Umar, for the question. You know, when we look at the case that Norwich filed, you know, against the FDA, again, we feel confident here. We have intervened as well. So, you know, that's going to progress. And, you know, again, we feel confident in where, you know, the FDA... position is they are upholding, you know, what the court ruled in Delaware. So therefore, you know, we feel real confident that, you know, in that case we're in good shape. Timeline, you know, again, is the fall of, you know, if we just talk about a timeline, we're thinking of fall of 2023 to, you know, hear the outcome of that. Operator, next question.
spk01: Your next question is coming from David M. Sellem with Piper Sandler.
spk02: Thanks. So looking longer term, as you think about the debt maturities in 27 and 28 and the LOE for Zyfaxan, this is based on the settlements that are in place. How do you address that given the importance of Zyfaxan? to the P&L and just help us better understand the long-term solvency of the companies in light of what you could be facing later in the decade. Thanks.
spk05: Yeah, I won't get into any specific long-term forecasting here on this call, but maybe just in generalities. We have a business that's highly cash generative. This year, as I said, about $600 million. We're investing in growth. We're starting to see that momentum build, and we expect to see the business grow between now and, say, 27 or 28, including from Syfax and including from Salix. That will significantly increase the cash generation. Any revenue growth should drop right down to the bottom line. And so we would expect to use or prioritize debt leverage as we have, as the company has for the last five or six years, and we'll continue to do that. And so we think we'll knock a chunk out of that debt between now and then, David. And then at that point, if there is any debt left over, we will have to refinance it, of course. At that time, what lenders are going to be looking at are forward-looking leverage ratios. And we're investing in a bunch of these products in the pipeline, as you heard from Tom, and we would expect many of those to come to fruition. And even though, yes, Cyfaxan will go generic in 28 and we will see a drop in revenue, it will be offset by other products coming into play and growing. Obviously, it's a very key question. The management team and the board are focused on it, and one of the things that we're working through.
spk06: David, let me just add to that what Tom said, and clearly I talked about in my prepared remarks the pipeline. That's why last quarter, this quarter, I continue to talk about the progress we're making. And as you saw, the investments that we're making in R&D and accelerating the Red Sea program, and that is really an exciting program for us. Clearly, we have accelerated it now and making sure that we will have, of course, if the data comes through, the product before we would lose Xifaxin. And we're very, very excited about it. Of course, this is a huge patient population, you know, much larger today than the current Syphaxin population. So, Red Sea is on track. It's accelerated. This is a global program, and so, therefore, we will have the global rights. This will be our first global product at Bausch Health, and we're excited about it. Of course, Amicillimod, you know, the two phase, the phase two studies have completed enrollment, and we are really excited as to get the data. as it comes through, you know, probably at the end of the year, beginning of next year. Next question, operator.
spk01: Your next question is coming from Douglas Meem with RBC-CM.
spk08: Yeah, good morning. First question, just going back to the change, the tax-free reduction in capital, could that be affected by moving the holdco from the parent that has the 38.7% in the billing and bonds to the LCO. Is that an example of what could occur or something like that, in addition to, say, the distribution of the remainder of the shares, the 50.1%?
spk05: Doug, I don't know if I completely followed what you asked, but... As I said, I think maybe to the first question, there is no change in the end result, right, in the sense that we will distribute, the plan right now is to distribute 80% or more than 80% in order to preserve the tax-free or tax-efficient nature of the spin. I don't know if I got the whole of your question. I know we'll have some follow-up discussion after this call. Happy to talk about it a little bit more.
spk08: Yeah, I'm happy to go through that. The second one, Tom, maybe just has to do with Red Sea. We know that you expect a complete enrollment of those two Phase III clinical trials in Q1 of 2024, but when do we expect the readout? When do we expect the data in our hands?
spk06: Yes. You know, we've completed enrollment, and, of course, in order to get this product approved prior to the FACTS and going off patent, you know, we'd be looking to see readout of data probably in late 2020, you know, maybe late 2025, early 2026, and then, of course, have to file. So I would say probably somewhere in the 2026 range. Okay.
spk08: That's great. Thanks very much.
spk01: Next question. Your next question is coming from Mike Nettelkovich at TD Cowen.
spk10: Thank you for the question. I have two. My first question regards the Zoloft vaccine litigation. Given what you know now, Is there, is it within the realm of possibility that we get a complete resolution of vaccine litigation and IP in the year 2024? That's the first question. And then the second question relates to Red C. I know that it's a much bigger patient population, but given that HE lifetime risk in sciatic patients is well below 100%, Do you have any sense whether physicians are prepared to adopt a prophylactic regimen rather than simply administer Xifaxan once symptoms present? Thank you.
spk06: Yeah, Mike, two good questions. You know, on the Xifaxan litigation, you know, this appeal, as I said in my prepared remarks and earlier answers to questions, you know, we expect to have, you know, a decision in the first quarter. You know, It's a complicated appeal because we are appealing the rulings on IBSD and the polymorphs, and of course they're appealing the motion. So what I would say is, as it plays out, we have submitted our briefs and we think we have a real good position on our IBSD patents and polymorph patents. If it goes in our favor, clearly it will be resolved specifically on our appeal. So we'll have to see how it goes, but we're feeling confident about it. Getting to the next question on Red C, again, we feel, as you said in your question, and as I said previously, it's a much larger patient population. One of the things that we have talked about And that is one of the reasons why we've invested to accelerate the program. We will have, you know, our sales teams, you know, and our medical teams will be working to really educate physicians on why prevention is the way to go for HE. You know, if you take a look today, you know, the investments that we're making in Xifax and in, as I talked about in my prepared remarks on, you know, the medical side, still today you see patients not getting treatment after the first HE episode. And so clearly if you look at the pharmacoeconomic data as to prevention versus having an HE episode or then multiple HE episodes, you know, we believe from a payer perspective, from a patient perspective, that prevention is going to really be something that people will want and be interested in. If you look at some of the work that we're doing today, you know, on direct-to-consumer advertising today is to really educate not only patients but also educate the caregivers of what they go, what goes, what happens to them if you have an HE episode, not only to the patient but to the caregiver. So we really think prevention is going to be something that will be very much accepted, but there will be a lot of education between our medical affairs team and our sales teams. But it's a good question, thank you. Next question, operator.
spk01: There are no further questions in queue.
spk06: Okay, so with no further questions, I would just say, you know, in summary, We had a solid Q2 performance and made good progress on key strategic objectives. We look forward to the second half of 2023 with the focus of profitable growth, thriving performance, advancing R&D and BD, and unlocking value. Thank you for joining our call today.
spk01: This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.
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