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spk05: Greetings. Welcome to the Bausch Health second quarter 2024 earnings call. At this time, all participants are in 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.
spk00: Good morning, and welcome to Bausch Health's Second Quarter 2024 Earnings Conference Call. Participating in today's call are Thomas Appio, Chief Executive Officer of Bausch Health, 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 operating 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 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. do not undertake any obligation to update guidance. Our discussion today, Thursday, August 1st, will focus on Bausch-Hoff, excluding Bausch and Lomb. However, we will briefly comment on Bausch and 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?
spk09: Thank you. and welcome to those of you joining the call this morning. I am pleased with the continued positive momentum we saw in the second quarter following our strong start to the year, positioning us well to continue to drive growth and execute against our strategic priorities in the back half of the year, all while focused on patient-centered outcomes. The second quarter marked our fifth consecutive quarter of year-over-year growth in both revenue and adjusted EBITDA. For the second quarter of 2024, revenues for Bausch Health, excluding BNL, were $1.19 billion, up 55 million or 5% on a reported basis and 6% on an organic basis when compared to the second quarter of 2023, with organic growth in all of our segments led by Zyfaxan with 10% organic growth year over year and Solta with 19% organic growth led by Asia Pacific where our business approximately doubled in South Korea with China and Taiwan each posting high teens organic growth. Adjusted EBITDA for Bausch Health excluding BNL was $614 million an increase of approximately 8% compared to the prior year. John will provide additional commentary on the financial results later in the call. I want to touch on other key developments during the quarter. As we previewed during last quarter's earnings call, in May we presented data related to our Phase II trial for amicillimod for mild to moderate ulcerative colitis at Digestive Disease Week's annual conference. I attended this conference and I had the opportunity to meet with a number of key opinion leaders and other industry participants in the gastroenterology space. I came away from these discussions with a clear sense that our efforts are reinforcing our strong positioning in this area with healthcare providers. At the European Association for the Study of the Liver Conference in June, we presented data comparing Rifaximin monotherapy to Lactulose monotherapy in preventing overt hepatic encephalopathy recurrence in cirrhosis patients with a history of OHE, which suggests Rifaximin monotherapy has the potential to be a viable treatment option for OHE recurrent risk reduction in the appropriate patient population. Also in June, I had the opportunity to meet with our CELTA China team, including our newly appointed China Vice President and General Manager, for this important and high growth market in our new offices in Shanghai. While there, I had the opportunity to review the Thermage FLX launch. I left impressed by the commitment and enthusiasm of the team and with the excitement about the opportunities for Solta in the Asia Pacific markets. I also want to take a moment to highlight important changes to our executive leadership team. Amy Lennar has joined the company as Executive Vice President, U.S. Pharma, with the responsibility for the leadership of the salix, neurology, and generics businesses, as well as market access and commercial operations. Amy brings more than 20 years of experience in the pharmaceutical industry, most recently with Galderma, as well as AbbVie and Allergan. We also recently announced that our search for Chief Financial Officer has concluded and that JJ Charjon will join us in mid-August. JJ has extensive experience leading financial organizations in the healthcare technology and service industries. I also want to thank John Barresi for all his hard work and dedication as interim CFO in addition to his other responsibilities. He will resume his role as Senior Vice President and Chief Accounting Officer and remain a valued member of the financial leadership team. The additions of Amy and JJ will bring valuable perspective and expertise to the company, and I'm looking forward to closely partnering with them and with our teams to drive our transformation into a globally integrated and innovative healthcare company trusted and valued by patients, healthcare providers, employees, and investors. Speaking of innovation, I will now turn to our R&D pipeline. We continue to make progress on our key R&D initiatives during the quarter and are tracking in line with our previously established timing goals. Starting with our GI pipeline, for Amicillimod, in June we submitted our draft protocol for our phase three clinical trial for patients with moderate to severe UC to the FDA and plan to meet with authorities in EMEA in the second half of the year. We also continue to move forward with evaluating phase two program for Crohn's disease. Our two global phase three studies for our Red C program with rifaximin for reduction of early decompensation and cirrhosis are in the treatment phase. These studies are focused on assessing the efficacy of our Rifaximin SSD formulation versus placebo to delay the occurrence of hepatic encephalopathy-related hospitalization. Top-line results for these studies, which together include over 1,000 patients across North America, Europe, and Asia Pacific, are expected by early 2026. In our dermatology business, we are pleased with the initial response to our U.S. launch of Captreo, with further marketing efforts planned for this product in the back half of the year. We also anticipate that Captreo will be approved in Canada in the second half of the year. Turning now to our aesthetics pipeline. As we have discussed, Thermage FLX and the TR4 return pad have launched in China as a medical device. Early results are consistent with our expectation and the product has been well received in the market. In Q2, we also filed an FDA submission for our next generation Fraxel, a fractionated laser device for skin resurfacing and continue to expect approval could be received in the second half of this year. Finally, our program for Clear and Brilliant Touch, a fractionated laser device for skin rejuvenation continues to advance. We have received approvals in Australia, New Zealand, and the Philippines this year, representing our first approvals outside of the United States and our plan for regulatory submission in 2024 for Europe, Asia Pacific, and Canadian markets remained on track. Overall, we feel good about the initiatives the team is driving forward related to new market authorizations and next generation products as we continue to grow this global durable portfolio of aesthetics products. Moving to developments with respect to Xifaxan litigation. Regarding Norwich's first ANDA for Xifaxan 550, as you will recall, on April 11th, 2024, the US Court of Appeals for the Federal Circuit affirmed the decision of the US District Court for the District of Delaware. Subsequently, both we and Norwich petitioned the court for a rehearing or a hearing en banc, and both petitions were denied by the court. This ANDA remains barred from approval by the FDA until October, 2029. During the second quarter, we initiated lawsuits in the U.S. District Court for the District of New Jersey regarding Norwich's amended ANDA and Abneal's ANDA directed to Xifaxin 550 milligram for IBSD. 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. We also continue to prepare for the first trial and the remaining shareholder opt-out cases. which is currently scheduled to commence on September 3rd. 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 currently anticipated outcome of these settlements does not have a material impact on the company's results or cash flows. We remain focused on our balance sheet and liquidity, ending the second quarter with approximately $1.5 billion of liquidity. In Q2, we repaid over $360 million of debt, including repurchasing approximately $305 million of bonds with 2025 maturities. 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. 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 circumstance. Any potential separation will also be subject to shareholder and other applicable approvals. 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 Baresi, who will provide further details on our second quarter performance. John?
spk10: Thanks, Tom. Hello, everyone, and thanks for joining us. We ended the second quarter with consolidated revenues for Bausch Health of $2.4 billion, of 11% on a reported basis and 8% on an organic basis over the second quarter last year. Second quarter revenues for Bausch Health excluding B&L were $1.19 billion, up 5% on a reported basis and 6% on an organic basis over the same quarter last year, led by Solta and, as Tom noted, Xifax and performance within Salix. Speaking of Salix, let's now turn to segment revenue performance starting on slide 12. Second quarter Salix revenues increased $1 million on a reported basis to $558 million, driven by 10% growth year-over-year in Xifaxin revenue. Relastor, Trulance, and the non-promoted portfolio within this segment experienced declines in the quarter. Revenues grew $6 million, or 1% on an organic basis, which reflects the impact of divestitures and discontinuations of certain non-promoted products. Difaxin continued to represent the majority of sale segment revenues during the quarter and saw strong growth in underlying demand. Difaxin revenues in Q2 increased 10% compared to the prior year period. While retail prescription growth was 1% in Q2 versus the prior year, extended units grew 4%, a continuation of the trend we have seen of strong growth in non-retail units, including hospitals and outpatient clinics. Wellestor declined 9% over the prior year period, due to lower net pricing relative to Q2 of the prior year and softer demand, with TRXs declining by 3%. Trulance TRX growth was 5%. However, revenues declined approximately 50% year over year, due in large part to net pricing pressure. It's important to note that Q2 this year for Trulance is also compared to a very strong second quarter in 2023, which saw revenues increase 73% on script growth of 14%. We also continued to experience meaningful pressure on both pricing and volumes in our non-promoted portfolio in this segment. International revenues were $276 million during the quarter, an increase of 7% on a reported basis and 6% on an organic basis compared to the prior year period. All three regions posted both reported and organic growth, led by double-digit organic growth in Canada and mid-single-digit growth in Latin America. In Canada, growth was led by our promoted portfolio, including Realtris, Contrave, and Jublia. CILTA medical revenues were $102 million during the second quarter, an increase of 16% on a reported basis and 19% on an organic basis over the prior year period. CILTA's growth was led by APAC, most notably South Korea, followed by China. Thermage FLX launched in the second quarter. As Tom noted, early results are in line with our expectations, and we continue to be encouraged about the potential for this product line. We did see a softening of performance in the U.S. While revenue grew sequentially relative to Q1 of 2024, it declined by 4% year over year. We continue to build and transform the leadership team, as well as invest in the sales team and tools to enable this market to deliver sustained growth going forward. Diversified revenues were $251 million during the second quarter, an increase of 10% on a reported basis and 12% on an organic basis compared to the prior year period, reflecting the impact of divestitures and discontinuations of certain non-promoted products. In dermatology, revenue grew by 21% on a reported basis and 25% on an organic basis in the quarter compared to the prior year period as we continue to focus on returning this business to consistent growth. Growth in the quarter benefited from favorable net pricing comparisons year over year, which we do not expect will be sustained over the remainder of the year, while volumes for our non-promoted products continue to be pressured. Captrio launched in January and has performed in line with our expectations. We are continuing to invest in marketing for this key product in the second half of the year, which we expect will enable it to become a more meaningful driver of growth in our dermatology business as the year progresses. Neurology saw low double-digit revenue growth, posting an 11% increase year-over-year as we continued to benefit from competitor supply disruptions. This segment also benefited from favorable net pricing comparisons year-over-year, while Buterin and Applenzen revenues grew despite lower volumes as we continued to execute our strategy to manage scripts for overall profitability. Revenue for the generics business declined 11% on a reported and 4% on an organic basis, This business continues to operate in a highly competitive space, and while we have seen some areas of growth, including products such as USARIS-AG, the net pricing pressures in this business are meaningful, and we continue to evaluate this portfolio to optimize our margins and profitability. The industry revenues were flat year over year. However, we continue to expect this business to grow for the full year. As shown on slide 16, Bausch and Loeb revenues were $1.2 billion during the second quarter, up 17% on a reported basis and 10% on an organic basis compared to the prior year period, with growth across all Bausch and Loeb businesses, key product franchises, and geographies. Turning to the second quarter P&L on slides 17 and 18, second quarter consolidated adjusted gross margin was 70.9%, 80 basis points higher compared with the prior year. For Bausch Health excluding B&L, adjusted gross margin for the second quarter was 79.9%, approximately 40 basis points higher than last year's second quarter. At B&L, adjusted gross margin was 62.1% of Q2 of 2024 compared to 59.7% for Q2 23, driven primarily by product mix including the impact of Zydra. Consolidated adjusted operating expenses for the second quarter were $955 million, an increase of $123 million. For Bausch Health excluding B&L, adjusted operating expenses increased by approximately $6 million compared to the second quarter of 2023. Higher A&P, driven by investments in SALTA and dermatology for the launch of CabTrio, offset by lower G&A expenses as we continue to focus on cost management. We expect A&P increases to continue to moderate over the course of the year as we continue to annualize our investments in selling and marketing for Xifaxin. B&L reported an increase of $117 million in adjusted operating expenses due primarily to increased selling in A&P driven by investment behind Zydra and Mibo. Consolidated adjusted R&D expense for the quarter was $156 million, black compared to the prior year, and represented 6.6% of product sales compared with 7.3% for the prior year period. For Bausch Health excluding B&L, R&D expenses of $72 million were largely in line with the same quarter last year as we begin to annualize the step-up in investment from 2023. Second quarter consolidated adjusted EBITDA attributable to Bausch Health was $798 million, an increase of $71 million or 10% as compared to the same quarter last year. Adjusted EBITDA for Bausch Health excluding B&L was $614 million, an increase of 8% from $568 million in the second quarter of 2023. Turning to cash flow. On a consolidated basis, Bausch Health generated $380 million of operating cash flow and $287 million of adjusted operating cash flow in the second quarter. For Bausch Health excluding B&L, Adjusted operating cash flow was $264 million for the second quarter compared to adjusted operating cash flow of $140 million for the second quarter of 2023, with the changes primarily reflecting improved business performance, timing of cash flows related to income taxes, and more favorable working capital movements in 2024 relative to 2023. 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 delevering of our balance sheet. In the second quarter, we reduced our debt for Bausch Health excluding B&L by approximately $360 million, while debt net of cash decreased by approximately $250 million. We continue to evaluate alternatives to reduce our overall leverage while also focusing on our maturity profile. In the second quarter, we repurchased an additional $305 million in principal value of our 9% unsecured bonds maturing in 2025, in addition to the $250 million in principal value of 2025 and 2026 maturities repurchased in Q1. Year to date, we've retired approximately $555 million in principal value of 2025 and 2026 maturities, capturing approximately $25 million of discount in the process. We also repaid $57 million of additional debt this quarter, consisting of mandatory term loan amortization and repaying a portion of the amount outstanding under our AR facility. At the end of the second quarter, Bausch Health, excluding B&L, had $300 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 $15.7 billion which consisted of approximately $14.4 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 $300 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 $320 million of cash and $950 million of availability under our revolving credit facility, as well as the undrawn availability under our AR facility. We are focused on strengthening our balance sheet, including evaluating and utilizing as appropriate various tools and strategies along with our existing liquidity to manage both our maturity profile and our overall leverage. Turning to guidance, we are maintaining our guidance for Vouch Health, excluding B&L. For the full year 2024, we continue to expect revenue of $4.7 billion to $4.85 billion and adjusted EBITDA of $2.36 billion to $2.46 billion, as well as adjusted operating cash flow in a range of approximately $775 to $825 million. I'll now hand the call back to Tom.
spk09: Thank you, John. I am proud of the progress we have made this quarter, driving consistent growth, maintaining disciplined capital allocation, continuing to progress our pipeline, and growing our footprint in our existing business areas, all while improving our operational effectiveness and remaining focused on cost management. Our performance thus far in 2024 provides us with momentum for the second half of the year as we continue to focus on delivering against our 2024 priorities, driving a results-oriented culture of accountability, delivering on our revenue, adjusted EBITDA, and adjusted operating cash flow commitments. Executing with operational excellence and a cost-focused mindset across the enterprise. Intensifying our focus and operating rigor behind R&D and business development. And continuing to evaluate strategic alternatives. As we have said, achieving the full separation of B&L remains 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 want to thank the entire global Bausch Health team for their hard work and dedication to growing our company and delivering on our commitment. ultimately driving better health outcomes for patients globally. I look forward to working with the entire team, including our new executive leadership team members, to drive our transformation into a globally integrated and innovative healthcare company. 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.
spk05: Thank you. 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, please, while we poll for questions. And the first question today is coming from Glenn Santangelo from Jefferies. Glenn, your line is live.
spk03: Yeah, good morning. Thanks for taking my question. Hey, Tom, obviously a lot of focus on the balance sheet and leverage here. And as you're obviously aware, about a week ago there was a media report suggesting that the company was having some negotiations with the co-op. And the company obviously subsequently put out a press release suggesting that some of those media reports were not true. Can you comment on whether you're having any dialogue with the co-op at this point? Because it's not exactly clear to us what rights they have and what would force a negotiation at this point. And then I just had a follow-up.
spk09: Thanks, Glenn. Thanks for the question. Appreciate it. So let's just take it like two answers to your question. So firstly, you know, It's our general policy not to comment on discussions with particular stakeholders. However, given the circumstances last week, I think it's important, again, I can't control what rumors are out there in the marketplace, but I want to reiterate that in our press release last week, that we issued that said, you know, Bausch Health is not considering bankruptcy or insolvency proceedings of any kind. So we are not. And that's a full stop there. So unfortunately, these things get published. But, you know, again, it's rumor. And, you know, as I've said many times, we just continue to work to grow this company and to generate results. And as you saw in the quarter, we had really great performance with Faxon growing by 10, Zolta growing by 19, International growing by six, and Diversified growing by 12. So it was a really great quarter for us on performance, and really that's where the team's focused.
spk03: Awesome. Maybe if I could just ask one quick follow-up. I mean, you also commented a full separation of Bausch and Lomb remains a strategic priority. And I think in your prepared more, she said, you know, the focus is on having two appropriately capitalized companies. And that's kind of, you know, a generalized term. And so I think what people are really trying to understand is, you know, what do you think is an appropriate amount of leverage for Bausch Health or RemainCo? And And you said that, you know, any separation would require a shareholder and other applicable approvals. What exactly are those other applicable approvals? Thanks. And I'll stop there.
spk09: Yeah. So, Glenn, you know, clearly as you, you know, you see in our strategic priorities, you know, the separation continues to be a strategic priority and we're diligently working towards that. You know, clearly, you know, As we look at it, you look at the performance of our company, of Bausch & Lomb, again, both companies are performing well, and it makes strategic sense on this separation. What I would say is, you know, a broad framework, you know, overall on the separation, you know, there's a lot, you know, multifactorial of what we need to work on. We need strong operational excellence, and we need, you know, effective debt management. and working through some of those and looking forward to updating you and others as we move forward on it.
spk10: And Glenn, it's John. Maybe I'll just address your question on appropriately capitalized. And this is consistent with what we said, I think, for the past few quarters. There's not a bright line that we're going to put out at this point. I think it really is a blend of leverage and maturity profile. you know, we continue to think about how those two balance, but there's no bright line on that.
spk03: Okay, thanks for the comments.
spk05: Thank you. The next question is coming from Mike Nedeljkovic from TD County. Mike, your line is live.
spk04: Thank you for the question. I have two. My first relates to the separation from voucher loan. Please tell me if this is a bad assumption, but it seems that every day that passes, full separation becomes less and less likely. So my question is, what is plan B? Can you articulate an alternative vision for the consolidated company should you arrive at the decision that separation is not feasible? And my second question relates to Inicelamod. It seems as though you're pursuing a phase three IBD program that, of course, would be expensive, and Inicelamod would be third to market in its class. So at a high level, can you tell us what commercial assumptions you're making to justify the cost of the phase three program? Thank you.
spk09: Thanks, Mike. I appreciate the question. As I've said before, the separation continues to be a strategic priority, and we're diligently working towards that goal. That's all I'm going to say at this time. We continue to work on things that will get us to a full separation of B&L. Regarding your question on Amicillimod, we plan to accelerate the Amicillimod program into Phase III, you know, in UC. If you take a look at the data, you know, we were at mild to moderate. You know, now we're going to look at the study that we're going to propose in, you know, moderate to severe. So that would, you know, think about the data probably is even going to be better than we had from mild to moderate. We think there is a real unmet need here. It's a large competitive market with however the response to treatment today is variable. So we're going to continue to pursue this. We like our data and we think that we have a real path forward here to help patients.
spk05: Next question. Thank you. The next question is coming from Jason Garbery from Bank of America. Jason, your line is live.
spk08: Hey, guys. Sorry to beat a dead horse, but I just wanted to come back to the topic on the capitalization target. Is it a fair, high-level synopsis to say, given negotiations with the co-op, that leverage left for remain co-ops is a moving target and sort of critical is pushing out the 2027, 2028 maturities if something's going to get done there? And then secondly, just the Xifax and Scripps this quarter flat on a year-on-year basis. Wondering how you think about whether it's the appropriate stage of the life cycle to optimize this business for cash flow versus step-up investment to drive growth. Thanks.
spk09: Yeah, Jason. Thanks for the question. I'll take the second part of your question first on Xifax and Scripps. If you take a look at where we are with Xifax, and you've mentioned the script growth, one of the things that I'm focusing on here is the NBRX growth. And if I take a look at the NBRX growth, it looks really good in terms over the last four or five quarters now, the new starts on the drug that is in its later life cycle, it looks very promising. And the data there. When you really look at it, there is a lot of untreated patients out there today. You know, if we just take a look from the data that we see, you know, we see that we're treating probably half the patient population in OHE at the present time. So I think there's, you know, a lot of runway here to continue to grow Zyfaxan. So, you know, a couple of things that we've done, you know, last year since I became CEO was, number one, to launch our AI engine. And that engine, It has been launched now for 12 months, and it consistently, you know, continually refines the panel of where we're going to, you know, making sure that the HCPs, that we're going to the right HCPs and also delivering the right message. So, you know, there's a lot of opportunity here to continue to grow it. If you take a look also, one of the things that we've put in place is our DTC campaign. Historically, in the past, we haven't done DTC. in the HE segment, and now we have Bellamy Young, who's our spokesperson on OHE, and clearly we're seeing traction there. And then lastly is really looking at the treatment and really the disease state of IBSD and OHE. And in this case, we have put a medical affairs team in place that is actively going out there educating physicians on IBSD and HE on the disease. And as I said at the beginning, we see that we're only treating probably half the patient population in OHE today, and still there's a lot that we can still treat in IBSD. So we think the investment behind Xifaxin today and where we can take this brand, we have a lot we can still do. When going back to the first part of your question regarding the debt and the leverage, I'll just hand that over to John. He can maybe give you some more specifics.
spk10: Yeah, Jason, and just to the first part of your question, I think Tom said it a few minutes ago, but we don't comment on any discussions and haven't said that we are negotiating with anyone at this point in time. So I just want to reiterate that point from Tom's earlier comment. But to your question of leverage for RemainCo, as we've talked about consistently, right, we are looking to balance leverage and maturity profile. If you look at slide 21 in the earnings deck that we published this morning, you'll see we do have a meaningful amount of 27 and 28 maturities. And so, yes, that is part of what we look at when we think about how to manage the balance sheet.
spk08: Tom, can I ask a quick follow-up?
spk00: Sure.
spk08: Just on these effects and dynamics, right, good NBRX but flat TRX, how do you reconcile that? Is that, you know, we look at like half the business historically has been IBS. That's maybe more of an acute use indication. Is there just a replacement dynamic with these NBRXs that are just having a hard time keeping up to drive overall TRX growth? Like how would you kind of explain the different moving pieces of this business and the TRX dynamics?
spk09: Yeah, I think that, you know, when you look at it, if you look at the MBRX, eventually down the road, they will turn into, you know, TRXs. You know, what we are seeing, the dynamic in the market is this shift, you know, to non-retail. And then also, you know, so where those scripts are going from an MBRX perspective, you know, we're trying to see where they are. But they will... They will eventually become a TRX. But if you look at the non-retail, it's really up. And then if you look at the extended units, when we look at this business, it's up 4%. So when you look at just TRXs, it's sometimes difficult to see where they're going. But based on the data that we have and how we're tracking it, we are confident that we're going to get growth. and clearly the NBRX is the first stage. Thanks.
spk05: Thank you. The next question will come from Umair Rafat from Evercore ISI. Umair, your line is live.
spk02: Hi, guys. Thanks for taking my question. I'll focus on two as well. First, on your RED-C trial for the new formulation, my understanding is it's to prevent a first encephalopathy episode rather than recurrent. Isn't that an indication that would be used off-label with the generic Zyfaxan anyways? Can you speak to that? And secondly, and perhaps more importantly, I've been listening in on the call, and I guess I'm just as confused as I was when the call started. So let me just lay it out here. Cash flows, guidance for the company is $800 million midpoint for the year. Salix segment will do operating profit about $1.5 billion, based on your disclosures, of which Zyfaxan is by far the most important. So said differently, Zyfaxon exceeds the total cash flows of the company. So in that backdrop and considering Zyfaxon generic is definitely happening either in a year or in three years, what aggressive action are you considering? I know you mentioned separation is a priority and I guess I'm just trying to understand what is the priority? Is a BLCO equity raise? Could that help somewhat? We're just trying to understand what the path could be and I feel like for public investors, there's no clear understanding of what direction we're going in spite of a very leveraged situation, and we're now kind of like four or five years in to talk about the separation at this point.
spk09: Yeah, Omar, thanks for the question. I'll take the Red Sea question first, and then I'll hand the, speaking about the debt, to John. When we take a look at Red Sea, yes, you're correct, it is for OAT prevention. So if we take a look at what we, and you talked about the generic Rifaximin, but of course this is a new formulation. This is Rifaximin solid, you know, with, you know, 40 milligram tablets, you know, being studied, you know, in the delay of Empatic Encephalopathy. So when we look at it, clearly this is two times, three times the size of the market that we have, you know, today with the current Rifaximin. With our different formulation and what we've studied, we do not think that the generic is going to be used for prevention. We think there's a long runway here to really move into the prevention space rather than the treatment space. What I would say is also when you look at this new formulation, it will have better water solubility, so that should be able to penetrate the small intestine lumen, so that will really help us. And also, lastly, remember, Red Sea is a global program where our current 550 program is just a U.S. product, so we believe that, of course, when we get the data, that this could be a really great opportunity to transform our company and grow. What I'll do now is to turn it over to John to just highlight, you know, to talk about some of the questions you had in the second part.
spk10: Yeah, thanks for the question, Umar. Without getting into a full walk in the answer here, I'll call out a couple of things to your point, I think. The cash flow metric, you know, this year, of course, is after interest, so it's, you know, levered free cash flow or levered property and cash flow, and which is why it's important to continue to manage the balance sheet and continue to focus on reducing our debt. At the same time, we remain focused on growing the business. There is a meaningful part of our business that is not Xifax and including businesses like Salta, and we're focused on growing those and we're focused on advancing the pipeline as we just talked about with Red Sea. And so as we think about the longer term, those three elements are critical to you know, how we move forward and, you know, for the long term.
spk09: Operator, next question.
spk05: Thank you. The next question will be from Lezek Salewski from Truist Securities. Lezek, your line is live.
spk01: Good morning. Thank you for taking my questions. First, can you comment on any timelines on the rulings we should be aware of ahead of the amended and lawsuit versus Norwich and the latest and the filing from M. Neal? Second, on Relistor, what's driving some of the weakness? Is there any pressure on the ultimate script trends that impact this product ultimately? And then third, you know, it does not sound like you've been in discussions with the coop, but can you comment if there has been any indications that some of the lenders will be putting the pressure on the separation to be put on hold? Thank you.
spk09: Okay, I can take those. question. So thanks for the question. So really, regarding Norwich, okay, as it currently stands now, the FDA cannot approve Norwich's ANDA until 2029. Our expectation date of a generic entry still remains at January 1, 2028, and the date reflected, you know, in the settlements with, you know, the other filers. You know, since, you know, since the original Norwich decision, you know, I just would like to make sure we emphasize that, you know, there's new IBSD patents. And so, when, as we move on and look between the Norwiches and Amniel, there is different patents, you know, in dispute here. So, and also, just would like to say, you know, Teva, you know, as we are aware, Teva continues to be and, you know, remain the first filer on these AFACs and 550. So, you know, that's, you know, really what I'd say here. And again, we're continuing to vigorously defend our intellectual property here. So, you know, still working, a lot of work still to be done, but, you know, we're going to defend it. On the second part of your question on driving the relist or weakness in the TRX pressure, you know, it really comes down to, you know, some of the payer looking at what the payers were and what coverage we had, and the other thing and the pressure there along with some growth to nets. We still believe we have an opportunity with this product, but as we look at it, that's where that pressure came in the second quarter. Lastly, on the co-op, as John already said, we're not – our general policy is not to comment on discussions, you know, with particular stakeholders at this time. So, anything else, John, you want to add? No, I think that covers it. Okay, operator, next question.
spk05: Next question is coming from David Amselem from Piper Sandler. David, your line is live.
spk06: Thanks. So, I'm just going to keep coming back to the question on solvency and policy what is the path forward or the priority, as Umar put it. So you have, I believe, $9 billion worth of maturities coming up around the same timeframe that Xifaxan loses exclusivity. So I guess I'll just ask it straight up. Given the importance of Xifaxan, how do you stay solvent? That's number one. And then related to that, you're talking about the R&D pipeline. I get that regarding Anna Salamon, Red Sea, et cetera, et cetera. Is there anything else you can do in terms of bringing in assets, particularly in the context of your financial constraints? Maybe give us some sense of what you can do there to bolster the R&D. Thanks. Sure.
spk09: Thanks for the question. So let me take the last part first. I mean, I highlight the R&D programs that are ongoing. And, you know, of course, we talk about Red Sea. I think that this is our first-up opportunity, clearly really wanting to make sure we get those studies completed and get the drug launched before we lose exclusivity on Zyfaxan. on January 1 of 2028. As I said before, it's a global program. We have global opportunities, so that's one area where that can really drive performance and build us a bridge, you know, certainly to the future. The second thing is that there's many ongoing business discussions. As you know, we have an international business that is a branded generic business, and that's a an area of the company that we can do BD at relatively inexpensive prices. There is ongoing discussions. We're working on a project now in Latin America that will show us growth for the next years to come if we're able to close that. So there's various things on the international side that we're doing to build up the portfolio. I want to mention Solta. Solta is a great business for us. As I mentioned in my prepared remarks, I was just in China. We just hired a new VP there to lead our transformation in China now that FLX is approved. As a medical device, we see a long runway there to growth and to the strategies we're going to put in place. If you take a look then what we need to do around the world. I mentioned that our business in Korea has doubled, and so we still see a real runway there to continuing to grow, invest behind that business. I did talk about some of the R&D capabilities there as well. We're excited about what we have. Plus, there's also some BD that's going on to see what other options out there to bring into the portfolio. I would think from an R&D perspective, a BD perspective, you know, we're really trying to execute with, you know, and really being laser focused on what we invest in given our cash situation. You know, when we take a look at the, going back to your questions on solvency, I just would like to just, before I hand it over to John to take you through specifically, the performance of this company over the last five quarters, growing revenue, growing EBITDA. If you take a look, Zyfaxan, 10%, Solta, 19%, International, 6%, Diversified, 12%. The team is working hard to grow this business and position this company for the future. And then I'll just hand it over to John to talk specifically about some of the points you raised on solvency and the debt maturities. Yeah, thanks, David, for the question.
spk10: I think, you know, I'll keep coming back to a few things here, right? If we think in the near term, we've, you know, consistently discussed our ability to generate cash, the liquidity we have right here as we sit here at the end of the quarter, $1.5 billion. We do have flexibility to monetize a portion of the BLCO stake that we still own and maintain, you know, the tax-efficient status of any separation, about 8 percent-ish of BLCO. And if you look beyond those near-term tools, we have, as Tom said, a diverse product and a diverse geographic footprint. We have the active R&D pipeline. We've demonstrated, you know, a track record of growth over the past five quarters. And those are all tools that we can use to do things like continue to repurchase and retire debt, which then, you know, allows us to save on interest, et cetera, and becomes a bit of a nice circle there. look at asset sales and other types of transactions we've been able to do in the past. We look at all those tools when we think about the leverage profile beyond the near-term debt. Operator, next question.
spk05: Thank you. The next question will be from Michael Freeman from Raymond James. Michael, your line is live.
spk07: Hey, good morning, Tom, John, Garen. Maybe hopping on to the last question relating to Solta. I wonder if you could... maybe get a bit more granular on the reception of Thermage FLX in China since its January approval. And given the growth we're seeing in Solta and solid prospects globally, how are you thinking about a reconsideration potentially of an IPO as we've let time pass over the last couple of years?
spk09: Yeah, thanks, Michael, for the question. Clearly, as I've said on many calls, I love this business. It is a durable business, and really the focus since I've become CEO is to really make sure we are growing this business in all geographies. If you look at it today, China is still a very large opportunity for us. As we got FLX approved, in China along with the return pad. That's why we hired a new vice president to run this business. She has extensive experience in the beauty space, and we are really excited about what we can do in China. I was there a couple weeks ago, and some of the things, you know, the team that we're going to build, we're continuing to add resources. We just opened our flagship office in China. The team is highly motivated to really grow this business. What I would say is, if you look, the opportunities in China are great. I have a lot of experience, of course, having lived in China for 13 years, so I'm excited about what we can accomplish there and power the growth. When I look at the rest of the world, if you look at Asia Pacific, our career business will double this year. The growth in the quarter was 111%. If you look at what the teams in Taiwan are doing, growing at 18%. We are focusing also on executing with excellence in Europe. Some of the European countries are really starting to grow and some of the work that's been done there over the last year to get those on track. You know, Solta was under-invested in Europe. I see that as an opportunity. DOC grew 17% in the quarter. France grew 9%. Italy grew 12%. Let's pivot to the U.S. A lot of work still to be done there. We believe that what we've done there, we've brought in a new leader of our U.S. business. I'm seeing some really good things that he's putting in place and the team that we're building. Clearly, the investments behind expanding our sales team and really making sure that we're growing both our capital and our consumable business. Overall, when I look at this business, it's durable, and it really is outside the payer landscape. This is why I love it. If you take a look, our organic growth of Thermage in the quarter was 24%, Fraxel was 3%, Clear and Brilliant was 7%. And if you then take a look between capital and consumables, it's about 75-25 on consumable versus capital. So again, durable. And to your last question, the last part of your question, I think this is a valuable asset to Bausch Health. And my plan is to continue to invest and grow this business globally. Operator, next question.
spk05: Thank you. There were no other questions in queue at this time. I would now like to hand the call back to Tom Appio for closing remarks.
spk09: Thank you. What I'd say is really appreciate everyone joining the call today and for your questions. We tried to, in the prepared remarks, really cover what we've accomplished in this quarter and what we're working on. Clearly, the business, the growth in the quarter is really good, and fifth consecutive quarter of growth in both revenue and EBITDA. What I would say is I really want to thank the global Bausch Health team for their hard work and dedication of driving this company forward and delivering results. What I would say is look forward to keeping everyone updated, and thank you for your interest in and support of our company. Have a good day.
spk05: Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
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