Bausch Health Companies Inc.

Welcome to the Bausch Health Third 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 Sarathyan, Investor Relations at Bausch. You may begin.

Good afternoon, and welcome to Bausch Health's third quarter 2024 earnings conference call. Participating in today's call are Thomas Appio, Chief Executive Officer of Bausch Health, and JJ Charon, 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 pages 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 statement. Please refer to our SEC filings and our 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 as an alternative to, measures calculated in accordance with GAAP. You will find reconciliations to our non-GAAP measures in the appendix of the pages 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, Wednesday, October 30th, will focus on Bosch Health, excluding Bosch alum. However, we will briefly comment on Bosch alum's results announced this morning. 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, Garen.

and welcome to everyone joining our earnings call today. In the third quarter, we continue the momentum that we started in early 2023, executing against our strategic priorities while maintaining our focus on patient-centered outcomes. I am pleased to share that we delivered a sixth consecutive quarter of year-over-year growth in revenue and in adjusted EBITDA. While JJ will talk in more detail about our financial results, I will touch briefly on our performance. Revenues for Bausch Health, excluding Bausch & Lomb, increased 7% on a reported basis and 8% on an organic basis when compared to the third quarter of 2023, with organic growth in all segments. Adjusted EBITDA for Bausch Health, excluding Bausch & Lomb, increased by approximately 9%, compared to the prior year period. Therefore, we are raising Bausch Health's full year 2024 guidance, excluding Bausch and Long, across multiple matrix, including revenue, adjusted EBITDA, and adjusted operating cash flow. Moving on to page six, we had a strong quarter, underscoring the success of the strategic initiatives We not only delivered strong financial outcomes, but we made significant strides in meeting our 2024 objectives. Sustained growth remains one of our key strategic priorities, and we are pleased to continue to deliver in this area across segments and geographies. All segments delivered revenue growth on both reported and organic basis. Within our salix segment, Xifaxin had a strong performance with 7% growth over the third quarter of 2023, and we continue to see further opportunities for growth. This past Monday, I attended the annual conference held by the American College of Gastroenterology. A new abstract was presented based on results of two randomized Xifaxin trials, which concluded that Xifaxin monotherapy is more effective than lactulose monotherapy for reducing the risk of overt hepatic encephalopathy, OHE, recurrence, and all-cause mortality. These insights reinforce our commitment to ensuring that Xifaxan is prescribed for all patients that meet the criteria for treatment. Our broad portfolio in our international segment continues to deliver with 8% organic growth this quarter. For example, in Canada, we have seen broad and sustained growth trends, particularly in our promoted portfolio products, including Contrate, which competes in the chronic weight management market by reducing hunger cravings for adults and achieves strong double-digit growth. Regarding our diversified segment, the launch of Captrio has delivered to our expectations and we continue to see the benefits of our strategy to improve profitability of Welbutrin and Aplenzin even at lower script volumes. Solta delivered another strong quarter with 36% organic growth year over year with particular strength in South Korea and China. We are continuing to capitalize on Korea's growth momentum by investing in additional sales and marketing resources. We saw especially strong consumer demand in South Korea this year generated by our investment in direct consumer marketing. We also launched Clear and Brilliant Touch, which is a fractionated laser device for skin rejuvenation in the Philippines during the quarter. This is now our third new market outside the United States that clear and brilliant touch has entered this year, with additional new markets targeted for upcoming quarters. In addition to growth, another strategic priority is innovation, where our R&D efforts are well underway. Over the past several years, Bausch Health has been a leader in the liver space. Through our extensive work with multidisciplinary thought leaders, liver experts, and patients, we have learned as many as 4.5 million people are diagnosed with cirrhosis in the United States and many more worldwide. There are no therapies approved in cirrhotic patients to prevent the most serious form of the disease, decompensated cirrhosis. Hospitalizations due to this disease cost the healthcare system billions of dollars each year, with HE as one of the biggest drivers of hospitalizations. Our Red C program for our solid soluble dispersion, SSD, Rifaximin product continues as planned. The Red C program is studying a unique form of Rifaximin inclusive of different dosing and different delivery in a unique patient population, compensated cirrhosis. Both global studies are fully enrolled and progressing on track. We have begun building our internal commercial team that will prepare us to bring this important innovation to market if or when the product is approved. Let me remind you that this is a global opportunity for Bausch Health and may enable us to address an unmet need through a novel therapy to cirrhotic patients around the globe. So this is an exciting opportunity, and I will be providing updates on future calls. We also continue to promote operational innovation within our organization. You may recall that in the third quarter of last year, we discussed the launch of an AI-driven customer engagement initiative for Xifaxin to maximize sales effectiveness within our GI business, Salix. Since the launch over 12 months ago, we have transformed our approach to Salesforce planning for Zyfaxan through dynamic healthcare provider targeting and messaging. This AI-enabled customer insights engine is helping our representatives deliver the right message to the right healthcare provider at the right time to further accelerate Xifaxian growth. Our sales teams has embraced our AI engine with adoption rates maximizing our investment. Improved efficiency and operational execution is another strategic priority to ensure that the process behind other priorities growth innovation are sustainable. A core Bausch Health capability is our agile pharmaceutical manufacturing process and supply chain management. In the third quarter, we demonstrated this capability by opportunistically fulfilling short-term market supply needs with Cardizem in the United States and Wellbutrin in Canada. Of course, none of this can be achieved without our prioritization of the people who make up our organization. with a results-oriented culture of accountability. JJ and I have had the opportunity recently to visit with our talented and dedicated teams across the United States, Latin America, Europe, and the Asia-Pacific region, where there is a clear sense of excitement and opportunity for Bausch Health. This engagement allows us to reinforce our values and vision while fostering a culture of collaboration where employees, regardless of location, feel heard and connected. Most importantly, on-site visits allow me to better understand regional challenges and market-specific dynamics and provide a platform to align on our objectives and where I can help the teams to achieve our goals. We look forward to updating you on further progress towards our strategic priorities in the quarters to come. Now turning to updates on the litigation front. A trial date was set for September 4th in one of the remaining federal securities opt-out cases. However, prior to the commencement of the trial, the parties reached a mutually acceptable settlement, so the trial did not proceed. There are currently no other trial dates pending. Regarding Xifaxan, the Hatch Waxman's litigation continues against ANDA filings for generic Rifaximin 550-milligram tablets. We received three new paragraph 4 certifications against Rifaxin 550-milligram since we last provided an update, which is not unexpected. Notably, the patents we now assert and intend to assert against Rifaxin ANDAs are different from those adjudicated in earlier litigation. We will continue to vigorously defend our intellectual property. On the Granite Trust matter, we continue to expect the settlement with the IRS to be finalized in the coming months. While the process has taken longer than anticipated, we have not changed our expectation that the anticipated settlement outcome will not have a material impact on the company's overall financial results or cash flows. I want to touch on recent market speculation that has attracted some attention. As JJ will elaborate in his prepared remarks, we have levers for value creation. This quarter demonstrated our ability to continue generating value from our portfolio of assets as I touched on earlier. We have also consistently stated that the full separation of Bausch and Lomb continues to be a strategic priority. We continue to evaluate strategies with the objective of ensuring that any transaction results in two appropriately capitalized companies. This remains the same today. While we are unable to comment on any speculation, it is important to note that maximizing the value of our Bausch & Lomb ownership stake has been, is, and will remain a priority. Once again, Bausch Health's third quarter results reflect our continued execution on our growth strategies as we make targeted investments and expand the breadth of our patient solutions through advancing our pipeline and leveraging our commercial assets. And to further emphasize people as a strategic priority, I am very pleased to welcome our new Chief Financial Officer, J.J. Sharon, to the Bausch Health team. He is a seasoned executive who we are very excited to have on board, and we will now provide additional commentary on our financial results.

J.J.? ?

Thank you, Tom. I'm excited to be part of the Bausch Health leadership team and the journey that lies ahead for the company. Before we review our consolidated results and segment performance, let me share some additional headlines of our Q3 performance at Bausch Health, excluding Bausch & Lomb. As Tom noted, this is our sixth consecutive quarter of year-over-year growth for both revenue and adjusted EBITDA. Revenue growth in the quarter was 7% and adjusted EBITDA grew 9%, demonstrating continued operating leverage of our diversified portfolio of businesses. Even more importantly, we generated $343 million of adjusted cash flow from operations, which is a 75% increase versus the same period a year ago. This was well ahead of expectations. even when adjusted for the benefit associated with timing of certain outflows. Our strong performance over the last nine months has now translated into raising our full-year guidance for revenue, adjusted EBITDA, and adjusted operating cash flow. More specific on that a little bit later. Moving now to our consolidated non-GAAP financial results for the third quarter, which you will find on page nine. Revenue was $2,510,000,000, up 12% versus the prior year. Adjusted gross margin was 73.1%, 80 basis points higher than the same period a year ago. For Bausch Health, excluding Bausch & Lomb, adjusted gross margin for the third quarter was 82.5%, approximately 130 basis points higher when compared to the same period a year ago, thanks to favorable net pricing and, to a lesser extent, product and channel mix. At Bausch & Lomb, adjusted gross margin was 63% for the third quarter, compared to 61% for the third quarter of 2023. This improvement was driven primarily by product mix, including the impact of Zydra. Consolidated adjusted operating expenses for the third quarter were $983 million, an increase of $150 million from the same period last year. For Bausch Health, excluding Bausch & Lomb, adjusted operating expenses increased by $35 million compared to the third quarter of 2023. Bausch & Lomb reported an increase of $115 million in adjusted operating expenses due primarily to increased selling NANP driven by investment behind Zydra and Maibo. Consolidated adjusted R&D expense for the quarter was $146 million or 5.8% of revenue which was a decrease of 4% compared to Q3 of last year. For Bausch Health, excluding BNL, R&D expenses of $62 million were approximately $10 million lower than last year, third quarter, driven primarily by timing of planned spend. Third quarter consolidated adjusted EBITDA attributable to Bausch Health was $909 million lower an increase of $79 million or 10% as compared to the same quarter last year. Adjusted EBITDA for Bausch Health excluding Bausch & Lomb was $723 million, a 9% increase from the third quarter of 2023. Turning now to cash flow. On a consolidated basis, Bausch Health generated $405 million of operating cash flow and $503 million of adjusted operating cash flow in Q3. For Bausch Health, excluding Bausch & Lomb, adjusted operating cash flow was $343 million, up $148 million when compared to the third quarter of 2023. This exceptional performance reflects the strength of operating results across all of our segments. Moving now to our performance by segment, starting with our Salix business on page 11. Salix revenues in the third quarter were $642 million, an increase of $28 million or 5% growth year over year. Our three major brands, namely Xifaxon, Relistore, and Trulance, all grew at least 7%. Xifaxon continues to drive most of the salic salmon revenue, bolstered by strong growth in underlying demand for existing patients as well as new patients. Total scripts grew 3%. We knew script growth at 4%. Extended units grew 5%. and includes non-retail settings such as hospital and outpatient clinics, which saw double-digit growth. Although demand and net pricing dynamics were strong, Zyfax's revenue was partly impacted by a 15% reduction in wholesaler channel inventory compared to last year. Now moving to the international segment on page 12. Revenues were $291 million during the quarter, an increase of 6% on the report basis and 8% on an organic basis compared to the third quarter of last year. Canada, EMEA, and LATAM all saw organic growth during the quarter. In Latin America, our revenue was fueled by our private channel, which grew double-digit, particularly thanks to our local flagship brand, Bedoyecta. In Canada, our growth was balanced between our promoted brands such as Realtris and Countrave and some opportunistic volume of Wellbutrin. Now moving to page 13 to review our Solta medical segment, which had a terrific quarter in Q3. Revenues were $112 million during the third quarter, an increase of 35% on a reported basis. The Asia-Pacific region, which represents about 80% of Salter global revenue, continues to be the primary contributor of Salter's growth engine, with particularly strong performance in China, South Korea, and Taiwan. In China, the relaunch of Thermage FLX as a medical device during the second quarter is broadening our market relevance for new channels such as clinics and hospitals. Since then, our performance has exceeded expectations. In South Korea, our market coverage expansion has produced outstanding results. We are now on track for growing our Korean business by more than 80% in 2024 when compared to 2023. Turning our focus now to the performance of our diversified segments, which you will find on page 14. Revenues were $269 million during the third quarter, an increase of 4% on a reported basis and 7% on an organic basis compared to the same period a year ago. Growth in the quarter was driven by our neurology business, thanks primarily to Welbutrin and Aplenzine, which grew respectively 22% and 26%. Separately, like we did in Canada for Wellbutrin, our highly flexible manufacturing and supply chain capabilities allow us to take advantage of supply shortages of generic suppliers. In Q3, we recorded $20 million of cards-as-a-mortar we were not expecting. Finally, let me wrap up the performance by segment by summarizing the Bausch & Lund top-line results, which are on page 15. Revenues were $1.2 billion during the third quarter, up 19% on a reported basis and 10% on an organic basis compared to the same period last year. Important to note that growth was well balanced across all businesses and geographies. Turning now to our balance sheet. As Tom indicated earlier, we continue to prioritize liquidity management and evaluate alternatives to reduce our overall debt leverage while also focusing on our upcoming maturities obligation. As you will see on page 17, in the third quarter, we reduced our debt net of cash for Bausch Health, excluding Bausch & Lomb, by approximately $110 million, including of the impact of payments for legacy legal settlements of $216 million. On a year-to-date basis, our net debt reduction amounts to $555 million in principal value of 2025 and 2026 maturities, capturing approximately $25 million of discount. We also repaid $94 million towards mandatory term loan amortization and a portion under our AR facility. This rounds up our quarterly performance, which was excellent on many fronts. Let's now move to our full year guidance for Barsch Health excluding BNL, which you will find on page 19. As indicated earlier, the strength of our profit and cash flow performance over the first nine months of 2024 has allowed us to increase our full year guidance as follows. We now expect revenue to be in the range of $4,775,000 to $4,850,000 in line with our previous outlook. Separately, with just one quarter to go, we have narrowed the range of our revenue guidance by $75 million and increased the midpoint by approximately $40 million. Our organic growth guidance now stands between 4% and 6%. up 100 basis points when compared to our prior guidance. We are also increasing our guidance for adjusted gross margin to approximately 81%, up 100 basis points from our prior guidance. For adjusted EBITDA, we are increasing our guidance while also narrowing our range to between $2,425,000,000 and $2,475,000,000. an increase of $40 million at the midpoint. Finally, for adjusted cash flow from operations, we are increasing our guidance to a range between $975 million and $1,025,000,000, an increase of $200 million versus our prior guidance. The progress we have made in Q3 on several fronts illustrates well how we think about value creation framework as outlined on page 20. Our focus is divided equally among three vectors. First, increasing the value of Bosch Health operational assets, which include innovation as well as continuing to optimize the growth of our wide portfolio of brands across the globe. Second, evaluating all options for maximizing the value of BNL's equity stake for Bausch Health shareholders. And third, but not least, optimizing our capital structure, which includes reducing our debt leverage and extending our maturities. While it is our policy to not comment on any specific process or project not yet concluded, these three vectors of value creation represent our primary focus today, and will continue to be so in the foreseeable future. I will now hand it back to Tom for the wrap-up.

Thank you, JJ. Welcome on board. It is great to have you on the Bow Shelf team. I would like to finish where I started, which is our focus on strategic priorities, turning your attention to page 21. We are delivering against each of the strategic priorities we set forth at the beginning of this year. We are driving an action-now culture with a sense of urgency, accountability, and compliance, along with the strengthening of our talent and organizational capabilities. For the past six quarters, we have consistently grown the top and bottom lines. We are embracing innovation through R&D that we remain excited about, as well as the application of new technologies like AI to further enhance our capabilities and drive new efficiencies. We are executing with operational excellence, which allows us to be opportunistic in capturing marketplace demands others are not able to meet. We are keenly focused on all levers to drive value creation, both in the short and the long term. Of course, none of this could happen without having the right people and the right culture. This is very important to me. So I again want to thank the entire global Bausch Health team for their hard work and dedication in growing our company and continuing to deliver on our commitments. Our execution thus far in 2024 provides us with a strong foundation for continued momentum across our business. With that, we will now turn to questions. Operator, please open the line for Q&A.

Thank you. Ladies and gentlemen, the floor is now open for questions. If you would like to join the queue to ask a question at this time, please press star 1 on your telephone keypad. We do ask if listening on speakerphone today that you pick up your handset while asking your question to provide optimal sound quality. Once again, please press star 1 at this time on your keypad if you wish to join the queue to ask a question. Please hold a moment while we poll for questions. And the first question today is coming from Jason Gerberry from Bank of America. Jason, your line is live. Please go ahead.

Hey, this is Chi for Jason. Thanks for taking our questions. I guess the first one I want to touch on is affection. I'm curious, can you frame where things stand with the legal dispute process with Norwich? Have they made any efforts to get the 30 months they expedited? Or is it, and what's your understanding of what they would need to prevail in that effort? And you had mentioned that, you know, for the new enders that were, for Syphaxin, you're looking to assert new patterns against these new enders. Are these new patterns or existing patterns that you didn't assert in the prior litigation? And then I have to follow up after that. Thank you.

Thanks, Chi, for the question. I can take those for you. What I like to say, firstly, is the state of play is Norwich cannot launch a generic until 2029. So we take a look at the ongoing litigation. And clearly, as we talked about it in my prepared remarks, we had three new and the filings. In those new litigation, we have new IBSD patents, as you asked about. Those are new. And also, the other patents we're going to assert is polymorph patents, where we're not in the previous litigation. So as we look at it, it's difficult to speculate on the timing, but we intend to vigorously defend our Xifax and IP and, of course, believe that we have the 30-month stay.

Got it. And I understand that you are unable to comment any speculation, but we like to think hypothetical scenario. So I'm curious, if you were to hypothetically speaking divest Balco, how would it be taxed? Would it be under corporate tax rate?

Yeah, I don't want to speculate on that, but I'll give it to JJ to maybe add to that.

Yeah, so we don't speculate specifically on any process or project that I haven't concluded. The one thing that I would say is we carry a significant amount of NOLs basically at the Canadian level, so any large divestiture project, of our BLCO ownership would not be associated with significant tax leakage.

Got it. Thanks so much.

Operator, next question.

Certainly. Your next question is from Mike Nedelkovich from Cowen. Mike, your line is live. Please go ahead.

Thank you for the question. I'm curious, when we begin to contemplate a post-ZyFaxan world, likely in 2028, do you feel that you have what you need both in terms of the remaining business and the pipeline and the balance sheet to both address that LOE and continue to service the remaining debt, or do you feel that you need to make additional changes prior to 2028? Thank you.

Yeah, Mike, thanks for the question. You know, right now, as you saw in the performance, strong quarter, so really trying to... drive performance throughout this entire company, both with Zyfaxan and the other great products that we have. So as we work towards 2028, I talked about in my prepared remarks the great opportunity we have with Red Sea. This is a really interesting program that we're running and really excited about it. What I would say is, as we look at, as JJ said in his prepared remarks, the levers that we have to create value post-2028, and he can comment on that as we look past the LOE.

Yeah, so let me give you kind of an overview on how we're thinking about it. Obviously, there are a number of variables that we're working between now and the time Zyfaxon will lose its exclusivity. And we intend to continue to grow a number of our very strong assets and platforms, like our Diversify international segments, but also obviously Solta. That will determine kind of a level of EBITDA run rate that will indicate the quantum of net debts that we need to carry on balance sheet to have a fit for purpose capital structure. There is no doubt that our debt needs to come down. It will come down as a result of the very strong operating cash flow that we're continuing to generate between now and when Zyfaxon basically comes off patent. And we will have to think about capital allocation to really bring that net debt leverage to the right level.

Operator, next question.

Certainly. Your next question is coming from Les Salewski from Truist Securities. Les, your line is live. Please go ahead.

Good evening. Thank you for taking my questions. Congrats on the progress, guys. When we're starting to think about 2025, can you just walk us through some of the puts and takes for growth opportunities across each segment, whether it's pricing, dynamics, and script trends or market access across specifically international markets? And then a second follow-up on that is Tom and JJ, it appears you mentioned you've done a number of site visits. Can you highlight any specific takeaways that you maybe see a shift in strategy that you did not foresee prior to some of these visits? Thank you.

Thanks, Les. Thank you for the question. Let's just talk about the overall company in terms of the product portfolio that we have. So when we started thinking about 2025, we just, as I said, had gone around the world visiting the sites and, of course, talking to the team here in the United States. We think we have a really broad portfolio of assets that we can continue to grow. So firstly, on the Salix side, specifically Xifaxin, we see a lot of room for growth there. When we also look at just the acceleration that we have seen since this new management team took over, really starting to focus on investing behind Xifaxin, our DTC efforts in hepatic encephalopathy, if our AI engine has really, the team has done a wonderful job getting that engine in quickly, and then, of course, the field forces. executing against it and really following it, really exceeding our expectations. So we've seen an acceleration of the extended unit growth. So really pleased with that. We continue to believe that there is room to grow here. I've said on previous calls, if we just take a look at OHE, we're treating approximately 100,000 patients. There's 200,000 patients out there, so a lot of room for growth. When we look at IBSD, we're treating about 185,000 patients, 2.2 million patients in the United States, another area for growth. If we, you know, look at what the new-to-brand was, you know, in the quarter, new patient starts on Zyfax and therapy in the third quarter, 65,000 patients. So we are excited about where, you know, where we are and being able to drive further growth. On the international side, as I have spoken on many other calls, we have a really good business here. If you take a look at where we are in Europe, Latin America, and Canada, broad portfolio of products as we reported this quarter growing very nicely. We continue to focus to do business development in those respective geographies. The excitement is really building as, you know, the growth that we have and what we can bring in. Then Salta, as I've said also on previous calls, love the Salta business. You saw the growth that we've had this quarter and in previous quarters. Korea, outstanding performance in the quarter. China, outstanding performance in the quarter. As you know, we have had Thermage approved now in China, and we are working strategies there. to really drive value creation in China with our team. We have a new GM on board who will be leading that effort. So excited of what we can do in 2025. If I talk about, you know, when I made the trips around the world talking to the teams, we have great momentum. We have wonderful teams around the world who are excited to be at Bausch Health and to promise and deliver on our commitments. And a lot of energy, a lot of discussion of what we can do, a lot of discussion on business development of things that they're all working on. I'm not going to speculate on the various things that are going on around the world from a business development standpoint, but the team is focused on business development. We talk about our Salta franchise. The teams are very excited about what we have in China, what's going to come with our new fraxel, and our clear and brilliant touch. So we believe we have the assets, you know, for to continue to grow and have a really good 2025. What I would say is I talked about this earlier about Red Sea. We will continue to look for assets that we can bring into this portfolio around the world to create value. You never can have a pipeline full enough. We continue to look for assets that we can beef up our pipeline and continue to promise and deliver now and in the future. JJ, I'll hand it over to you. You were with me on these trips and went through all the budget reviews. Maybe you'd like to add something to it?

Yeah.

The two things that I would just further emphasize that I think you mentioned is that there is a significant runway still available for a number of our segments.

I would mention specifically Solta and the international segments. And we have some very strong and resilient brands. I think I certainly didn't appreciate the diversity of our portfolio and the diversification of our sales across those different segments, which I think bodes well for our growth plan moving forward.

I would also like to add, Les, when you look at the Solta franchise and the split between our capital business and our consumable business, that is a durable business that has room for growth. If you look at, compare us to our competitors, you know, that consumable franchise, being able to grow it, you mentioned about pricing, you know, having the ability to be flexible and to look for ways to grow our business. Of course, having that durable business on the consumable side really is an advantage for our sold franchise. Operator, next question.

Your next question is coming from Umar Rafat from Evercore ISI. Umar, your line is live. Please go ahead.

Hi, guys. Thanks for taking my question. I have three here, if I may. First, since Xifaxan generic entry could be so material to the company and its possibilities and its impact on the entirety of your cash flows, can you help us understand why wouldn't a summary judgment be granted in the Norwich and M. Neal cases? That's first. Because if it goes to full trial, that in and of itself could be a win from a timing perspective. Second, regarding any potential dividend to your equity holders, which is widespread market expectation, In a scenario, you do want to go forward with that for possible proceeds from BLCO. My question is, will you make that decision unilaterally, or will you look to establish consensus with your debt holders, your equity holders, as well as other stakeholders involved? And finally, I noticed you're still discussing phase three commitments for an ulcerative colitis trial for your S1P1, which is several years behind. And I'm curious, what learnings are you taking from Pfizer's S1P1 launch data in UC? Thank you.

Thank you for the question. I'll take the first part of the question regarding Xifax and Generic. As you know, the standard is not going to discuss litigation strategies. What I would say is there are new patents at stake here with Norwich and of course different patents with some of the other filings. We are vigorously going to defend our intellectual property, and the team is highly focused on that and working diligently on it. Regarding the potential of the dividend, I'll have JJ take that point of the question.

Hi, Omer. Nice meeting you. First of all, this is a hypothetical question, but I'll try to answer it the best way I can. Our priorities when it comes to dealing with liquidities and doing capital allocation is, first of all, to obviously meet our debt maturities and obligations. That's first and foremost. The second one is reinvestment into the business. And then if there's anything left, then there'll be a number of conversations around how we best deploy the capital remaining for increasing shareholder value. And there'll be a number of considerations. return to shareholders could be one of it. There might be other options that would be considered. And of course, you know, risk associated with those different strategies will be evaluated when compared to the benefits. But ultimately, it's to drive shareholder value.

Yeah, and Omer, I'll take the last part of the question on UC and Amasilamud. We believe When we look at the UC market and you see where it is today, growing at a KGAR of probably about 8%. By the time we can bring amicillin to market at the end of the decade, the market probably is around $12 billion. We believe we can take a share of that. Despite the availability of approved therapies, response to therapies today is variable and changes over time. If you look at the data that we had on our phase two, we like the data. As you know, the study was designed from mild to moderate. So we're really pleased with that data. And we are continuing, you know, we submitted the draft protocol on phase three to the FDA. We are working with the PMDA later in November to finalize that. and the team has put together a plan to move it forward into Phase 3. So we're excited about it. The data is good, and we think we can take a piece of a $12 billion market by the end of the decade. Operator, next question.

The next question is from David Amselem from Piper Sandler. David, your line is live. Please go ahead.

Thank you. I wanted to revisit an earlier question about the business in a post-Zifaxan world. Maybe I'll sort of come at it from a different angle, which is what is the extent to which you can address the cost side of the business once Zifaxan loses exclusivity, whether that is cuts to the sales infrastructure or savings on, say, R&D. But just in general, help us understand how you're thinking about the cost structure once Jeff Acton loses exclusivity in the 2028 time frame. Thank you.

Thanks, David, for the question. I'll start it off, and then JJ can add his thoughts as well. As you know, since I took over as the CEO, the idea that we have been putting and the culture we've been putting in this company is a fit for purpose model. So every day we are looking at the opportunities we have where we can reduce costs and where we can invest that back into the business. And I can give you a series of things that we have done over the last two years of taking that and investing it back into our franchises. As we start looking to the LOE on Xifaxin, I've already spoken about the Red Sea program and the excitement we have behind it and the unmet need there. And as we work this through, trying to get Red Sea approved prior to the LOE on Xifaxin will be the goal. As we look into the future, We will always be looking at a fit for purpose model and how we model that. Also, when you look at our businesses, the international business is not affected by LOEs and the investments that can be made there to grow. And we are fit for purpose there. If you look at the opportunities to grow with our Salta franchise, we have to continue to invest behind that. So when we look at the U.S. business and we look at what we generate out of our neurofranchise, it's a fit-for-purpose model today, and we continue to evaluate that. As I've said in my prepared remarks, looking for profitable scripts and growth, and we have made changes there. So overall, as we move and we'll see what business development opportunities, there are some really interesting things that we're looking at that can be brought into the franchise. As we are the liver experts in OHE, we have a great opportunity there, and there's some really nice assets. So all in all, we will be looking and continuing to be guided by the principle of fit-for-purpose model as we move to an LOE on Zyfaxan. JJ, you want to comment any further on that?

I think you've covered it. There are two separate decisions that need to be taken. The first one is what is the appropriate level of expenses associated with the business line that we are looking at, and then a reinvestment of savings that might be generated depending on the outlook that we're seeing for that other business or end franchise.

And, of course, there are a number of variables, which one of them being our R&D program and whether Red Sea will – turn into a profitable asset for us. All costs are variable. It's just a matter of looking at a long enough timeline. And we are managing this constantly. We're not waiting for Zyfaxon to come off patent. The productivity mindset is something that we apply to every business every day. And of course, before we take out capability in the business, We want to make sure that that capability is not useful elsewhere in our portfolio. Operator, next question.

Certainly. The next question is from Glenn Santangelo from Jefferies. Glenn, your line is live. Please go ahead.

Oh, yeah. Thanks for taking my question. Hey, Tom, I just want to make sure I'm clear in what you're saying with respect to the timing, with respect to Zypaxon. I mean, if we go back and we look at the Amniel and Norwich filings, You know, if we consider the 30-month stay, which you seem to be pretty convinced on, does that take us to 1Q27? And then, you know, if we assume, you know, you have some additional patents that you'd like to enforce or some type of an appeals process, I mean, is all this sort of pointing to your confidence in 1Q2028 with respect to Jackson? Do I have that timeline correct, at least in terms of what you're saying?

Glenn, sure. Thanks for the question. As I said on the previous question, the current state of play with Norwich, where it stands, what I would say is, remember, Teva still has first filer status. That's out there as well. I don't want to speculate on our strategies or what we think, but clearly we believe and we're going to vigorously defend our patents until January one of 2028. Uh, but you know, we, we have to, uh, as, as I said, you know, Teva is out there, uh, and that is still something, uh, that, uh, you know, we continue to, uh, to pursue. All right. Next question. And then maybe, yeah, sure. Sure. Glenn, go ahead.

Yeah. I just can maybe going to ask one, one question on the legal side. I mean, I, You know, obviously a lot of news floating around there on BLCO, and I fully appreciate you can't comment at all on that. But I just wanted to ask with respect to the co-op and maybe the fraudulent conveyance lawsuit, we don't really talk about that as much anymore. Would you sort of classify those situations as kind of dormant until maybe those stakeholders ultimately see if and when anything happens to BLCO?

Yeah, so what I would say is the cases are in discovery at the present time. So beyond that, I can't comment more than that.

Okay, thanks.

Next question.

The last question will come from Michael Freeman from Raymond James. Michael, your line is live. Please go ahead.

Hey, Tom and JJ, thanks for taking the question, and congrats on some good growth this quarter. You mentioned looking at a more specific indication for the Red Sea program, and I wonder if you could outline some of your rationale for selecting this specific population as a first AT prevention target for Red Sea and maybe describe how it will best situate you to sort of attack this indication in a quick and pretty potent way.

Sure, Mike. Thanks for the question. You know, when we looked at it and if you look at OHE and what we've been able to do with Zyfaxan, you know, the only treatment approved for OHE, you know, what we did is, you know, really look at how we could maximize the value of this great product, this great asset. Of course, you know, developing, you know, our new formulation, the SSD formulation, you know, and how that can work within the lumen. But if you look at, you know, 4.5 million people are diagnosed with cirrhosis in the United States with probably over 112 million worldwide. You know, so hospitalizations due to this disease, you know, cost the healthcare, you know, systems billions of dollars each year. So with that, with this great product, with, you know, how we can help patients here, And there's no therapy approved today to prevent, you know, cirrhosis patients from, you know, moving from compensated cirrhosis to the most serious, which is decompensation. So we believe we can help patients here, you know, and we also are able to help the healthcare systems as well. So if you look at, we have, this study is over a thousand patients globally, two studies. You know, we have a primary endpoint, and we have some very interesting secondary endpoints and believe that the secondary endpoints, when we take a look at it, time to all-cause hospitalization or time to first event of OHE that requires hospitalization, we believe we can really help patients here and also be able to create value you know, for, you know, health providers, you know, for hospitalization and the cost of what an OHE patient costs the system. So it is a real interesting program. As I said in my prepared remarks, I was just at the meeting in Philadelphia, a lot of excitement around it and discussions around as we proceed with the trial. So, I'm looking forward to bringing you and others updates in the future on this great program.

That's great. Thanks very much.

Yeah, sorry. Go ahead. Might you have another question?

Yeah, very quickly. I noticed that there were $96 million spent on acquisitions this quarter. I wonder if you could describe the content of these acquisitions.

Yeah, this is a BLCO. It has nothing to do with the BHC ex-BLCO. Got it. Thank you.

Okay, so with that, there's no further questions. I just would like to conclude the call. What I would like to say is we appreciate everyone joining the call this afternoon, and we thank you for your questions. You know, we had our sixth consecutive quarter of year-over-year growth with strong execution. that allowed us to raise our full year guidance. We are focused on our strategic priorities and delivering against our commitments, promising and delivering. We intend to build on this momentum to close the year, continuing to position our business for excellence. Look, I really look forward to keeping you up to date and thanking you for your interest in and support of our company. Have a good evening.

Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.