Bausch Health Companies Inc.

first quarter 2024 earnings call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. Please note, this conference is being recorded. I would now like to turn the conference over to your host, Garen Serafian, Investor Relations at Bausch. You may begin.

Good morning, and welcome to Bausch Health's first quarter 2024 earnings conference call. Participating in today's call are Thomas Appio, Chief Executive Officer of Bausch House, and John Barresi, Interim Chief Financial Officer. Before we begin, I'd like to remind you that our presentation today contains forward-looking information. We ask you to take a moment to read the forward-looking statements disclaimer at the beginning of the slides that accompany this presentation, as it contains 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 risk 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, Thursday, May 2nd, will focus on Bausch House, 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. With that, it is my pleasure to turn the call over to our CEO, Thomas Appio. Tom?

Thank you, and welcome to those of you joining the call this morning. We started 2024 on strong footing, building on the momentum we have established last year while maintaining our focus on operational excellence and our patient-centered mentality. We delivered another quarter of growth, making our fourth consecutive quarter of year-over-year growth in both revenue and adjusted EBITDA. For the first quarter of 2024, revenues for Bausch Health, excluding B&L, were $1.05 billion, up 41 million or 4% on a reported basis and 5% on an organic basis. All segments delivered revenue growth on both a reported and organic basis when compared to the first quarter of 2023, led by Solta with 23% organic growth. Adjusted EBITDA for Bausch Health excluding BNL was 504 million an increase of approximately 9% compared to the prior year. We also continue to make progress on our key R&D initiatives during the quarter in line with our established timing goals. First, for amicillomat, in April, we met with the FDA for an end of phase two meeting and a phase three planning meeting for mild to severe ulcerative colitis, UC. In addition, We were also pleased for Amicillimod to have been accepted for a podium presentation at Digestive Week on May 19th. Second, we completed enrollment for our second global phase three trial for Red Sea in late April, which is slightly ahead of our goal of completion by the end of the first half of 2024. And third, we are pursuing approval of CAB TRIO for Canada and anticipate this could occur in the second half of the year. Overall, we continue to feel good about the progress we have made on our R&D pipeline and are progressing according to the timelines we shared in February. Turning to our litigation with Norwich, on April 11th, 2024, the US Court of Appeals for the Federal Circuit affirmed the US District Court of Delaware's August 10th 2022 judgment and also the May 17th, 2023 decision that had denied Norwich Pharmaceuticals' motion for modification of the court's final order. We are pleased that the Federal Circuit maintained the judgment preventing the approval of Norwich's ANDA for Zyfaxan until October 2029. On April 5th, 2024, we filed a patent lawsuit against Amniel Pharmaceuticals following the receipt of a notice of paragraph four certification stating that Amniel had submitted an ANDA to the FDA seeking approval to market a generic version of Zyfaxan. This action formally initiates the litigation process under the Hatch-Waxman Act and triggers a 30-month stay of any potential FDA approval for amniosanda. As a leader in gastroenterology health, we continue to vigorously defend our intellectual property and are committed to advocating for the safety of patients who have benefited from continued access to Xifaxan. We look forward to continuing to serve our patients as every patient deserves better health outcomes and the chance to make the most of life. On the Granite Trust matter, we continue to expect the settlement with the IRS to be finalized in the coming months. As we have previously indicated, the anticipated outcome of the settlement does not have material impact on the company's results or cash flows. We continue to focus on our balance sheet and liquidity and ended the first quarter with approximately $1.5 billion of liquidity. In Q1, we repaid over $300 million of debt, including the $250 million of bonds with 2025 and 2026 maturities, as noted on our year-end call. Turning now to the potential full separation of Bausch and Lomb. The full separation of Bausch and Lomb continues to be a strategic priority. We continue to evaluate strategies regarding the potential full separation. with the objective of ensuring that any transaction results in two appropriately capitalized companies. The outcome at the Court of Appeals in the Norwich matter represents a significant milestone toward the full separation of B and L. Any decision regarding if and when a separation occurs or its structure will be based on and subject to an assessment of all relevant factors and circumstances. Any potential separation will also be subject to shareholder and other applicable approvals. Turning now to an overview of our segment performance for the quarter starting on slide eight. Salix revenue grew slightly year over year with reported growth of 1% and organic growth of 2%. driven by Xifaxin and Relastor offset by net pricing pressure for Trulance and certain non-promoted products. During the quarter, we continue to see an increase in demand for our key products, Xifaxin, Relastor, Trulance, with TRX growth of 3%, 3%, and 9%, respectively. Overall, Zyfaxion revenues grew 8% over the first quarter of last year, reinforcing our strategy of continuing to make investments primarily in AI-enabled sales tools, DTC advertising, which we expect will drive further growth in this important franchise this year. Turning to international, we saw solid year-over-year revenue growth during the first quarter. with reported growth of 7% and organic growth of 2%. Organic growth was led by Canada, where we saw strong performance from Contrave in the quarter. We have begun investing in DTC marketing for this product to build on this momentum. We were also pleased to receive our first public health plan listing for Euceris aerosol foam in Canada. Across the segment, We are also focused on driving long-term growth through investment in our promoted products and ongoing business development efforts. In Solta Medical, revenues increased by 21% on a reported and 23% on organic basis, led by Asia Pacific. Importantly, we are pleased to see the US return to growth, posting 14% year-over-year growth in revenue. We remain highly focused on maintaining momentum in Asia with Thermage FLX now approved as a medical device in China and on driving growth in the U.S. and EMEA markets where we believe there is meaningful opportunity. In Diversified, we delivered a solid quarter with 3% reported and 6% organic growth over the prior year. This was led by dermatology business. As we discussed on our year-end call, CAB TRIO launched in the U.S. in late January and early script volume has been encouraging. We expect the new product to be a more significant contributor to the dermatology business over the remainder of the year. Neurology revenues grew slightly as we continue to capitalize on opportunities in the market created by competitor supply constraints. While we did see volume declines in Wellbutrin and Aplenzin as expected, improved net pricing led to higher sales of these products, reinforcing our strategy in managing script profitability. This growth was offset by continued pressures on our generics business and a slight decline in our dentistry business, where we expect our investments will lead to consistent growth through the remainder of 2024. Overall, we continue to focus on managing this mature portfolio of products for profitability and cash generation in a challenging competitive and pricing environment while looking for opportunities to make targeted investments where appropriate. Turning to the latest developments in our R&D pipeline on slide nine, starting with our GI pipeline. As you will recall, in December, we announced positive top line results from our phase two study evaluating Amicillimod, an S1P antagonist for the treatment of UC. We held a phase three planning meeting with the FDA in April and expect to meet with the international authorities including in EMEA and Japan later this year. In the meantime, we are pleased that Amicillimod has been selected for a podium presentation on May 19th. at Digestive Disease Week's annual conference, one of the largest and most prestigious events for gastroenterology professionals. We continue to move forward with planning for a phase two program for Crohn's disease and expect to initiate that by the end of the year. Turning to our Red Sea program with Rifaximin for reduction of early decompensation and cirrhosis, our global program focused on assessing the efficacy of our Rifaximin SSD formulation versus placebo to delay the occurrence of hepatic encephalopathy-related hospitalizations. Both Global Phase III trials for this program are underway. Enrollment for the first trial, as previously mentioned, completed in December 2023, and the enrollment for the second trial completed in April of 2024. which was ahead of our goal for the first half of 2024. Together, these studies are expected to include over 1,000 patients across North America, Europe, and Asia Pacific. Turning now to our aesthetics pipeline, we are pleased to have Thermage FLX and the TR4 return pad available to customers in China as of the second quarter, following the approval by the National Medical Products Administration in January 2024. We plan to file an FDA submission for our next generation Fraxel NQ2, a fractionated laser device for skin resurfacing, and anticipate approval could be received in the second half of this year. Finally, Our program for clear and brilliant touch of fractionated laser device for skin rejuvenation continues to advance. We have received approvals in Australia and New Zealand this year, representing our first approvals outside of the United States and remain on track for regulatory submissions in 2024 in Europe, Canada, and other Asia Pacific markets. We feel good about the progress we are making on these key R&D initiatives, and we remain focused on our pipeline of new market authorization and next generation products as we continue to grow this global, durable portfolio of aesthetics products. As a leadership team, we are committed to driving growth by leveraging our existing assets, making targeted investments, and executing with commercial excellence while continuing to progress our pipeline, all with a patient-centered mentality. With that, I will turn the call over to John Barresi, who will provide further details on the first quarter performance.

John? Thanks, Tom. Hello, everyone, and thanks for joining us. We closed the first quarter with consolidated revenues for Bausch Health of $2.15 billion, up 11% on a reported basis and 8% on an organic basis over the same quarter last year. First quarter revenues for Bausch Health, excluding B&L, were $1.05 billion, up 4% on a reported basis and 5% on an organic basis over the same quarter last year, with strong growth in CELTA and low to mid single digit reported in organic growth in our other segments. turning to segment revenue performance starting on slide 12 with Salix. First quarter Salix revenues increased $3 million on a reported basis to $499 million driven by TRX growth in our key products including Xifax and 550, Relastor and Trulance. Revenues grew $12 million in an organic basis reflecting the impact of divestitures and discontinuations of certain non-promoted products. Xifaxin continued to represent over 80% of sale segment revenues this quarter and saw strong growth in underlying demand. Xifaxin revenues in Q1 increased 8% compared to the prior year period. Retail prescriptions grew 3% in Q1 versus the prior year. We saw another quarter of solid growth in TRX for IBSD and the long-term care channel for HE. Extended units grew 4%. which included double-digit growth in non-retail units attributable to outpatient clinics. Relastor delivered 10% growth over the prior year period with solid TRX growth of 3% and a benefit from favorable net pricing relative to Q1 of the prior year. Trulance revenues declined 7% year-over-year as solid TRX growth of 9% compared to Q1 of last year was offset by net pricing pressure. We also continued to experience meaningful net pricing pressure in our non-promoted portfolio in this segment. International revenues were $265 million during the quarter, an increase of 7% on a reported basis and 2% on an organic basis compared to the prior year period. Organic growth was led by Canada. While LATAM and EMEA were flat on an organic basis, LATAM was impacted by the timing of government purchases with private channel sales showing growth While in EMEA, growth in key promoted products was offset by the effects of competition on certain of our non-promoted products. Delta medical revenues were $88 million during the first quarter, an increase of 21% on a reported basis and 23% on an organic basis over the prior year period. Delta's growth was led by China and South Korea, and to a lesser degree, the remainder of Asia Pacific. Importantly, the U.S. returned to growth this quarter, with a 14% increase in revenues over the prior year, and we are continuing to invest in our sales force and related tools to drive sustainable growth in this key market. Diversified revenues were $202 million during the first quarter, an increase of 3% on a reported basis and 6% on an organic basis compared to the prior year period. In dermatology, revenue grew by 16% on a reported basis and 25% on an organic basis in the quarter over the prior year period, as we continue to focus on returning this business to consistent growth. Growth in the quarter benefit from favorable net pricing comparisons quarter over quarter, which we expect will moderate for the remainder of the year, while volumes for our non-promoted products continue to be pressured. As Tom noted, we are pleased with the early response in the market to Cabtrio since its late January launch and expect it to become a more meaningful driver of growth in our dermatology business as the year progresses. Neurology revenues grew slightly, posting a 1% increase year-over-year as we continued to benefit from competitor supply disruptions, although not at the same levels that we saw in Q4 of 2023. While Buterin and Applenzin revenues grew despite lower volumes as we continue to execute our strategies to improve overall profitability in this business. While dentistry revenues declined modestly in the quarter compared to Q1 of last year, we continue to invest in this durable business for the long term, and expect the investments we are making in the sales team and related tools to return this business to growth through the remainder of 2024. As shown on slide 16, Bausch and Loeb revenues were $1.1 billion during the first quarter, up 18% on a reported basis and 11% on an organic basis compared to the prior year, with growth across all Bausch and Loeb segments, key product franchises, and geographies. turning to the first quarter P&L on slides 18 and 19. First quarter consolidated adjusted gross margin was 71.2%, 110 basis points higher compared with the prior year. For Boush Health excluding B&L, adjusted gross margin for the first quarter was 79.5%, approximately 20 basis points higher than last year's first quarter. At B&L, adjusted gross margin was 63.2% for Q1 of 24, compared to 60.0% for Q1 of 2023, driven primarily by product mix, including the impact of Zydra. Consolidated adjusted operating expenses for the first quarter were $916 million, an increase of $82 million. For Bausch Health, excluding B&L, adjusted operating expenses decreased by approximately $16 million compared to the first quarter of 2023. Higher A&P driven by investments in the dermatology and dentistry businesses and R&D were offset by lower G&A expenses as we continue to focus on cost management. We expect A&P increases to moderate over the course of the year as we begin to annualize our investments in selling and marketing for Salix. B&L reported an increase in $98 million in adjusted operating expenses due primarily to increased selling in A&P, driven by the addition of Zydra and product launches, including Mibo. Consolidated adjusted R&D expense for the quarter was $150 million, an increase of 5% compared to the prior year and represented 7% of product sales compared with 7.4% for the prior year period. For Bausch Health excluding B&L, R&D expenses of $69 million increased by approximately $2 million for the first quarter as compared to the same quarter last year. This increase is in line with our expectations as we continue to invest in our GI anesthetics pipeline. First quarter consolidated adjusted EBITDA attributable to Bausch Health was $665 million, an increase of $77 million or 13%. Adjusted EBITDA for Bausch Health excluding B&L was $504 million for the quarter, a 9% increase from $462 million in the first quarter of 2023. Turning to cash flow. On a consolidated basis, Bausch Health generated $211 million of operating cash flow and $181 million of adjusted operating cash flow in the first quarter. For Bausch Health excluding B&L, adjusted operating cash flow was $133 million for the first quarter, compared to adjusted operating cash flow of $94 million for the first quarter of 2023, with the changes primarily reflecting improved business performance. As we've discussed in prior quarters, as a result of the accounting treatment for the senior notes issued as part of our 2022 debt exchange, A portion of our cash interest payments are classified as financing cash flows. Adjusted cash flow includes payments of the full contractual interest as well as adjustments for the payment of separation costs, business transformation costs, and litigation and other matters net of insurance proceeds. Now let's turn to our balance sheet on slide 19. We continue to prioritize liquidity management and the de-levering of our balance sheet. In the first quarter, we reduced our debt for Bausch Health excluding B&L by $307 million, while debt net of cash decreased by $110 million. We continue to evaluate alternatives to reduce our overall leverage while also focusing on our maturity profile. As we discussed on the year-end earnings call, in January 2024, we retired $250 million in principal value of 2025 and 2026 maturities through open market repurchases capturing approximately $12 million of discount in the process. We also repaid $56 million of additional debt consisting of mandatory term loan amortization and repaying a portion of our AR facility. At the end of the first quarter, Bausch Health, excluding B&L, had $325 million outstanding under our AR facility and had no outstanding borrowings and approximately $950 million of availability under our revolving credit facility. As shown on slides 20 and 21, total debt for Bausch Health excluding Bausch and Loeb at the end of the quarter was $16.1 billion, which consisted of approximately $14.8 billion of restricted debt issued by Bausch Health excluding B&L and approximately $1.3 billion of unrestricted debt, which includes the $1 billion of senior secured notes issued by the unrestricted subsidiary created in the third quarter of 2022 and the $325 million drawn under our AR facility. 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. We ended the quarter with approximately $1.5 billion of liquidity, which includes approximately $431 million of cash and $950 million of availability under our revolving credit facility. We are focused on strengthening our balance sheet including evaluating and utilizing as appropriate various tools and strategies based on the provisions of our existing debt agreements, along with our existing liquidity, to manage both our maturity profile and our overall leverage. Turning to guidance, we are maintaining our guidance for the full year 2024. For Bausch Health, excluding B&L, we continue to expect revenue of $4.7 to $4.85 billion, with organic growth of 2% to 5%, along with adjusted EBITDA of $2.36 billion to $2.46 billion and adjusted operating cash flow in a range of approximately $775 to $825 million. I'll now hand the call back to Tom.

Thank you, John. We continue to build on our strong global portfolio of businesses and remain highly focused on delivering against the objectives we laid out last quarter, including driving a results-oriented culture of accountability, delivering on our revenue, adjusted EBITDA, and adjusted operating cash flow commitments, executing with operational excellence and cost-focused mindset across the enterprise, intensifying our focus and operating rigor behind R&D and business development, and continuing to evaluate strategic alternatives achieving the full separation of B&L remained a priority. These priorities help support our ambition of being a globally integrated healthcare company trusted and valued by patients, healthcare providers, employees, and investors as we relentlessly drive to deliver better health outcomes. I would also once again like to extend my thanks to the entire Bausch Health team for their hard work. They have worked tirelessly and are all in to position our business for the long term. Every patient deserves better health and the chance to make the most of life. This drives us on with urgency and efficiency to deliver the products patients need most to enrich their lives. On behalf of the 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.

Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star one on your phone. Your first question is coming from Glenn Santangelo from Jefferies. Your line is live. Oh, yes.

Yeah, thanks for taking my question. Hey, Tom, just a couple quick ones from me. You know, you reiterated a number of times, you know, that you remain committed to the full separation, and you highlighted sort of the Norwich decision as being a significant milestone. What other milestones or major milestones might exist? And then as you think about, you know, the strategies for a full separation, is it, in your mind, is the tax-free spin still the way to go, or are there other strategies that you might be evaluating? And then maybe I just had a quick follow-up on the balance sheet.

Okay, Glenn. Thanks for the question. You know, clearly, of course, you know, the Norwich Appeal decision is an important milestone. So, you know, we are really, you know, happy about that and, you know, really pleased with the outcome. But as you know, you know, there's multi-factors here, you know, that we need to consider. So, as we take a look at it, you know, you know, really the timing of the potential distribution. You know, the most fundamental point is making sure that we have two appropriately capitalized companies. So as we look at it, you know, as you know, there's moving parts, you know, when it comes to our balance sheet, when it comes to, you know, other things in terms of, you know, litigation or what have you. So really kind of thoughtfully going through it and progressing through what needs to be done. What I would say is when we look at it, making sure when we take a look at the full separation, it is a priority for us, as you can see, on our priorities for 2024. it is a key priority to the full separation of B&L. And, you know, basically, as we've talked about before, you know, making sure, again, we're totally in line with appropriately capitalized two companies.

And, Tom, maybe just to follow up on that point on the balance sheet, you know, when you think about the leverage on RemainCo, we've gotten a lot of pushback from investors you know, highlighting the leverage related to, you know, the remain composed to spend. How do you think about, you know, what the appropriate leverage ratio might be? I mean, you haven't sort of commented in a while on any of those leverage targets, but it seems you remain committed towards, you know, using various tools and strategies, as you put it, to kind of maybe work that debt level down. So any sort of thoughts on how we should think about that through the balance of the year?

Yeah, look, you know, Glenn, what I'll do is let me just take the first point of that and then I'll give it to John. But, you know, overall, as you saw this quarter and the last four consecutive quarters, my focus, one of my key focuses, you know, really driving growth, driving performance. Of course, that always helps us be able to continue to retire debt. So, you know, we have a really healthy business Globally, and as you saw the results for this quarter, both in the U.S. and internationally, the business is growing and growing broadly. You saw the performance of Salta. We really feel really great about the performance and the return to the performance in the U.S. of growth. So we have a really – the business is healthy and it's doing well. Diverse portfolio of products. And then clearly we're executing on our R&D pipeline and investing appropriately. So as we look at all those things, we're positioning ourselves as we look at our balance sheet and what we can do. I'll hand it over to John to speak specifically on the balance sheet.

Hey, Glenn. It's John. Thanks for the question. Yeah, to the point of how do we think about a leveraged target, I think it comes back to what Tom said a minute ago, right? Fundamentally, we're focused on to appropriately capitalized companies. And I think there's no one binary point measure for that. It's really about balancing our leverage with our maturity profile. And as we've said, we're very focused on managing both of those effectively. We have a lot of tools at our disposal. As Tom said, we're focused on growing the business, and it's a very cash generative business. You know, we're guiding to 775 to 825 million of adjusted operating cash flow this year. We have a really broad, diverse footprint, both product-wise and geographically, and we think there's value in that. We're working on the pipeline, as you heard in Tom's referred remarks earlier, and we'll use all of the tools that we have available, whether that's to do open market repurchases. We've done debt exchanges in the past. We've done asset sales in the past. We have the BLCO stake of approximately 8% at our disposal and $1.5 billion of liquidity. It doesn't directly answer your question of a point target, but those are all the things we think about as we think about managing both the maturity profile and leverage.

Okay, thanks for all the details.

Thank you. Your next question is coming from Michael Nedeljkovic from TD Cohen. Your line is live.

Great. Thank you for the question. As has been noted, I think this is the first time, at least in the recent past, that management has explicitly connected the outlook for Xifaxan to the likelihood of completing the full separation of Bausch and Loeb. So that begs the question of when Xifaxan's outlook will be secure. If we just consider the amnial challenge and take the 30-month stay at face value, that would mean persistent uncertainty until almost 2027, which puts us right at the doorstep of full generic competition for Xifaxan. So I'm wondering how will it be possible to complete the Bausch and Lomb separation under those circumstances?

Yeah, Michael, thanks for the question. You know, I'm glad you asked it because, you know, I've seen a lot of, you know, things going back and forth, you know, in the press regarding amnio. So firstly, I just want to make sure we're clear is that Zyfaxan is a huge product. Everybody looks at it. They're interested in it. The performance is great, and, you know, it continues to perform and grow. You saw the quarter where we wound up with, you know, highest TRXs on record, all-time high. So it's doing well, and it's growing, and the investments we're making behind it. So, you know, paragraph fours, you know, the amnial issue was not – unexpected. You know, what I think the most important thing here is, is number one, is that the patents, you know, at issue here, you know, are not the same that were in, you know, on the Norwich case. So there's new patents. So this is, you know, and we have a legal team, you know, I am really in a great position to have such an outstanding legal team who is looking at it and working on it really, really hard. So, you know, the Abneal issue, as we look at it, you know, many patents there to consider as we work it through. So I cannot speculate, you know, again, on, you know, what the strategy will be. But clearly, it wasn't that it was a surprise, and we have a team that's working on it. So I don't really see that you know, as we move forward as a situation that we're going to continue, you know, again, we'll probably see, we could see others, but the timeframe that it has, you know, we're going to work it real hard.

May I ask a follow-up? Sure. Are you preparing for Norwich to file a new ANDA just for the IBS syndication? You suggested you may see others just now. And is there anything in your settlements with the other generics companies that would prevent them from doing the same thing?

Yeah, so right now, as you know, we just got the ruling, the affirmation of the denial of the motion. Norwich is off the market until October of 2029. This is a large milestone for us. I can't speculate what Norwich will do, you know, in the coming weeks or months. What I would say is we feel, you know, we have a great legal team who's looking at it and monitoring it, and we'll see how it works out.

Great. Thank you. Thank you. Your next question is coming from Douglas Meem from RBC Capital Markets. Your line is live.

Thank you. First question, just in the past, the companies discussed whether or not in its approach to the distribution or the separation, you would comment on whether it potentially would be a return of capital or butterfly. Is there anything that you can update us on as to the potential approach that the company may take in the event they do pursue the separation?

Yeah, Doug, thanks for the question. Yes, we have talked about that in the past. At this point, no decision has been made. What I would say is we still are focused on making sure it's deemed tax-free to shareholders. So continuing to keep all options open and evaluating it as we progress.

Okay. And then a second thing, just maybe you could give an update on the stock drop situation. I know you've been trying to resolve that, but we are getting close to a court date, I believe, on part of that. And then finally, I know this is really not that important or material, but why is the IRS situation taking so long relative to when you thought you may be able to resolve that? Thank you.

Yeah, Doug, the IRS, of course, is moving slow. I'll ask John to take that, and then I'll come back to your question on the opt-outs.

Hey, Doug, yeah, I think we'd love to have the settlement official behind us as well. We're working that with the IRS as expeditiously as we can. It's a really complicated situation. matter as we've disclosed in the past, and we currently still expect that the settlement will not have a material impact on our results or on our cash flows. It's a matter of getting through the process, I think, at this point.

Yeah, and then I'll just take the first part of your question regarding the opt-outs. We've consistently knew that at some point we're going to have a trial date. The team, again, as I pointed out earlier, the legal team has been working on this. As you know, we settled the class. We've also settled 16 out of 37 opt-out actions have either been settled or dismissed. The total remaining opt-out actions are pending or 21. What I would say is we have had... you know, success on summary judgment on some of the claims have been narrowed, you know, and we'll continue to work on it. And, you know, we have what I would say is a strong litigation team, very focused on this, and we'll see how it progresses as we move to, you know, closer to a trial date.

Okay, thank you.

Thank you. Your next question is coming Core. Your line is live.

Hi, guys. Thanks so much for taking my question. Maybe a couple here, if I may. First, is there any regulatory body, US or XUS, or a creditor that needs clarity on Zyfax within the 24 months post-separation? Is that an important gating factor for potential investors? That's point number one. And number two, for some of your debt liabilities coming up in 25 or so, what are the plans? Are you intending to go down a very aggressive path. And then finally, do you envision any possible scenario where the spin has to be held off completely to take care of the amount of debt as well as the Zyfax situation? Thank you very much.

Yeah, Omar, thanks for the question. Right now, let me just give the debt issue to John. Maybe he can comment on that.

Yeah, Umar, I think, you know, we're certainly focused on our 25, 26, all of our 30s really in our leverage are 25 and 26. I'll go back to what I said in one of the earlier questions, right? We have a number of tools at our disposal. We have 1.5 billion of liquidity. We have the ability to generate significant cash flow, you know, in a very cash generative business. And we have the broad portfolio that we have with a number of valuable assets, including you know, the stake of BLCO that we can distribute, you know, while staying above that tax-free distribution threshold. And so, we're looking at all of those as ways to manage our maturities. Beyond that, I won't, you know, comment on any specific things that we may do other than to say we've done a combination of all of these things in the past, OMRs, debt exchanges, asset sales, and we'll continue to look at all of those levers.

Yeah, and, Omar, I'll take the first point of your question. You know, I'm not aware of any specific, you know, Xifax and, you know, regulatory body, you know, in the U.S. or ex-U.S. What I would say is that I've said many times is really making sure we have two appropriately, you know, capitalized companies. You know, and to the last part of your question is, you know, our priority is the full separation of B&L. As we work through it, as I said earlier on my prepared remarks into earlier questions, really there's a progression as we work it through, and we'll keep everyone updated as we work it. But I really appreciate the question. Thank you.

Thank you. Your next question is coming from Chi Fong from Bank of America. Your line is live.

Hey, good morning. This is Chi for Jason Gerber at BFA. Thanks for taking our questions. I guess on the first one, now that you've secured the Norwich ruling, has the company been in discussion with claimants in the fraudulent conveyance matter about a potential settlement? And I have a couple of follow-ups after this.

Yeah, Chief, you know, basically, and I can't comment, you know, on, you know, have we been in discussions? You know, can't really discuss that at this time. But, you know, again, we're always open to, you know, discussions and, you know, looking at the options. You had a follow-up question?

Yeah, a couple of follow-up. One on, the first one is on SG&A. So, we look at 1Q, the spend ratio looks a little high in the mid-30s. I'm wondering if there's any 1Q seasonality to drive the ratio higher than usual, or if not, how do you see that SG&A spend ratio evolving in the coming years?

Yeah, Chi, are you looking consolidated?

Yeah, consolidated.

Yeah, so I think BLCO spoke a little bit to this yesterday as well. There has been a significant A&P investment on the BLCO side supporting both Zydra and some of their product launches like Mibo, and that is on a consolidated basis I think the biggest driver there.

Okay, got it. And my last one is on the pipeline. On MSL, were there any surprising points of feedback from the end of Phase II meeting? And as you come off this FDA meeting, understood that you still have discussions with international agencies, but do you have any early thoughts on your Phase III strategy as you look to capture the entire spectrum of mild to moderate UC? And then I think you have mentioned that you're still considering a Phase II trial in Crohn's. I'm curious, did the recent phase three trial of phase three failure of osanamide in Crohn's alter your thinking about continuing investment in Crohn's there?

Thanks. Yeah, Chief, thank you for the question on the business and the pipeline. I really appreciate that. As you know, we're really focused on the pipeline, Red Sea, as we had mentioned. fully enrolled these two trials and really are really interested in, you know, getting them completed. When we look at Amicillimod, you know, we are really happy that we were accepted, you know, on the podium at DDW, which is coming up later this month and presenting the, you know, our data as, you know, in our press release, you know, we were really pleased with the data that we had on our phase two, very large. phase two trial. You know, our strategy here is, you know, the meeting with the FDA, it went well, and, you know, we're progressing on this. We, you know, from a UC perspective, when we look at it, we see this market very large, and we think we have a product that can compete here very nicely. So, you know, really, by the time we're ready to launch, we're probably looking between, you know, a market of, you know, seven to eight billion. really a great growth driver for us in the back half of the decade. Looking at the phase three trial, hoping to get that up and running later this year or the beginning of 2025. On Crohn's, again, as you know, this is a real large market. We would really love to be participating here. We think we have, you know, based on our data, what we've seen, you know, out of the UC trial, that we, you know, we're going to run, you know, a phase two, plan a phase two, you know, moderate to severe in CD. And again, you know, over $19 billion market. And we think we have a drug that can compete. Now, of course, yes, you mentioned that, you know, the failures of S1Ps in Crohn's, but, you know, when we look at this trial in phase two and how we're going to structure it, we think we can, you know, have some success. Thank you for the question. I really appreciate the question on the pipeline.

Thank you. Your next question is coming from David Amselem from Piper Sandler. Your line is live.

Hey, thanks. So just a couple of questions. Long-term focus questions. In terms of your Rifaximin business, how are you thinking about erosion of the franchise once you do see generic competition materialize? And I guess what I'm trying to get at is what are your expectations surrounding the next generation Rifaximin products as a means of cushioning some of the impact of generic competition. So that's number one. And then number two, and I know you alluded to it on the prior question, but on Emma Salamad, do you have a sense, based on your own market research, how you're thinking about the sales potential here in the context of an increasingly crowded market with other agents that have novel mechanisms such as the T01As How do you think about sales potential for Amazon to the extent that you commercialize it? Thanks.

David, firstly, again, thanks for the question on the pipeline. I'm really glad the questions are on the pipeline and on business today. Red C, as I look at this program, when I took over as CEO, one of the things I worked with our head of R&D is to really accelerate this trial. Clearly, you mentioned with the Xifax and going off patent, how do we fill that gap? When we look at where we're going to get to and the timing of launch for Red C, You know, we're progressing it, and we're really trying to execute with excellence to get there, you know, prior to Xifax and going off patent. You know, and also I'd like to point out here, we have, this is a global program. We have global rights. This is a new formulation. So this really opens us up, you know, as you know, Salix, you know, long history, you know, in the U.S. in gastroenterology and liver, you know, now this really gives us a platform globally with Red Sea. If we just kind of put some numbers around it, just when we look at the, just in the U.S. alone, again, this is a prevention, this is, you know, going towards prevention, so the pool is much larger that we can look to in the U.S., So if you just say, you know, the cirrhotic patients in the U.S. today, you know, around 800,000. And then if you take out the patients that have HE today, given that it's prevention, now you're at about 650, 600K. And if you look at Xifaxin today, you have 100, so you have over 150 patients 1,000 in HE, you know, we're treating only 25% of that. So you look at the pool that we have of patients on a prevention, and then that's just in the U.S. If you then model that out, you know, to international markets and building a GI liver portfolio, you know, in the international space, as we talked about, our international business is we have really great platforms around the world Um, and, uh, you know, I see a great opportunity here, uh, you know, as we, of course you need the data. Um, but, uh, it's, uh, it's really, uh, exciting what we're, you know, on the red sea. When we take a look at your, your second question is, uh, I, as I talked about, you know, I'm a civil mod, uh, I'm, I'm really excited about it as well. Uh, you know, looking forward to, you know, getting into our phase, you know, three, uh, phase three program. And again, the R&D team, real focus, because we know we're losing Difaxin. So where can we close these gaps? One of them is with Red Sea. Another, you know, can be with Amicillimod. What I would say also is, you know, our BD team. You know, I think one of the things that we have done over the last two years, we have built a really strong BD team. And so, therefore, we are looking, you know, to be able to find some assets that we can bring in to slot into our businesses in the United States and in international that can close the gap as well. So this is a real priority for us. That's why you see it, you know, in our priorities of how to, you know, really accelerate the pipeline, but also from a BD perspective. We have screened a number of assets, and we have to be, you know, we have to be really... pedantic about it to make sure that we bring in the right asset and making sure from, you know, does it fit? What is the cost? And also remember, you know, one of our, you know, our pillars is making sure that, you know, quality, you know, the quality of the product. So as we do diligence, you know, we're making sure that the products that we can bring into this company are high quality and, you know, continue to build a great pharmaceutical company. But thank you for the question. Really appreciate it.

Thank you. Your next question is coming from Lezik Saluski from Truist Securities. Your line is live.

Good morning. Thank you for taking my questions. I actually do have a couple of follow-ups on the pipeline. So on your RETC program with enrollment on both trials now complete, can you handicap a timeline for for top line results and would you disclose data from one study or both together? And is there a possibility you would release preliminary data? And then secondarily, on Captrio, is there any initial feedback from prescribers regarding the trends that you've seen and how sizable ultimately is this market within the category and also your plans for launching it into Canada once approved? And then third, on Thermage, what is the market strategy or go-to-market strategy in China, and how big is the opportunity there for you in that product launch? Thank you.

Les, thanks for the question. So I'll take the first one, you know, on Red Sea. Again, trying to make sure that, you know, we have Red Sea, you know, prior to the loss of Sifaxin would be key. You know, right now, you know, hoping, you know, we get data, you know, in, you know, late 2025, early 2026. And we'll see, you know, again, making sure that that trial is on track and can deliver. And then, of course, you know, being able to file it and get it registered, not only in the U.S., but around the world. That's where I see the timeframe really comes down to making sure that, again, going back to the previous question on filling our gap and knowing Zyfaxan is going to be going generic in 2028. Captrio, we're excited about it. We love the product. The R&D team has done a wonderful job here. We think it's You know, a great product for acne. The team is really all in and focused on driving this. If I just look at the script growth, you know, it's ahead of our goal that we had set. You know, again, a crowded space, but, you know, really this is a great product. And the feedback, you know, from our customers and patients has been really strong. What I would say also is it's in the early stages. We launched it and then we actually launched it ahead of having samples, so we're really excited now that we have the samples coming on. We also have the DTC campaign that will happen coming up in the next few months. This is really a focus for our DERM business, and the R&D team has done an outstanding job here of bringing a great product to the market for patients. Thermage FLX in China, again, I am real excited. As you know, I lived in China for many years, so know this market extremely well, think we have an outstanding opportunity. As you saw, the performance of our business This quarter was outstanding, led by China, led by Asia Pacific as well. We are looking at our strategies on Thermage. I would say we just had the launch meeting last week, and it went extremely well. Our strategy here is, again, if you look at the opportunities in China today, and you hear a lot about the economics of China, you know, in terms of post-COVID, you know, you hear a lot about the property market, but, you know, if you look at the patients that we target, and you look at the, you know, even though in China the COVID had an impact, but there was also a lot of savings that took place, so there weren't traveling, weren't doing many things, so We see that our patient population has the opportunity and the economics to use our products. And what you see also in China, you see that non-invasive treatments are very, very popular. Solta has a great name in China. We have a great brand. So now having it approved by the NMPA as the first RF device to be approved, We think we have a great opportunity. We're building our team. In fact, I'm going to be in China in the next couple of weeks to talk to the team, make sure we have the strategies in place, and then executing those strategies accordingly. But I lived there for many years, so I'm really confident we are going to have a real successful business in China. And I'm piggybacking on it. We already do, but we're just going to grow more on that. Thank you for the question.

Thank you. We've reached the end of the question and answer session. I'll now hand the conference back to Chief Executive Officer Thomas Appio for closing remarks. Please go ahead.

Yeah, what I would just try to say to everyone on the call, I really appreciate everyone's questions today. you know, really making sure that we're looking at the performance of our business and what the pipeline is and what the future can be. So I really thank everyone for joining today. As I said many times, we had a solid Q1, fourth consecutive quarter of growth. I really want to build on this momentum In Q2, I would also say is the team here at Bausch Health is all in. We know what we need to do and really making sure we execute with excellence. So making sure you saw the priorities, what our priorities are, delivering our commitments and continuing to position this company for the future. And lastly, I'd like to say is we look forward to keeping you all updated, and really thank you for your interest in and the support of our company. Really appreciate it, and have a great day.

Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.