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spk10: Good morning and welcome to the Bausch Health first quarter 2021 results call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Arthur Shannon, Senior Vice President, Head of Investor Relations and Global Communications at Bausch Health. Please go ahead.
spk05: Thank you, Drew. That's quite impressive. Good morning, everyone, and welcome to our first quarter 2021 financial results conference call. Participating on today's call are Chairman and Chief Executive Officer, Mr. Joe Papa, and Chief Financial Officer, Mr. Paul Haranian. In addition to this live webcast, a copy of today's slide presentation and a replay of this conference call will be available on our website under the Investor Relations section. Before we begin, we would like to remind you that our presentation today contains forward-looking information. We would ask that you take a moment to read the forward-looking statement legend at the beginning of our presentation as it contains important information. This presentation contains non-GAAP financial measures. For more information about these measures, please refer to slide two of the presentation. Non-GAAP reconciliations can be found in the appendix to the presentation posted on our website. Filing the financial guidance in this presentation is effective as of today only. It is our policy to generally not update guidance until the following quarter and not to update or affirm guidance other than through broadly disseminated public disclosure. With that, it's my pleasure to turn the call over to Joe.
spk02: Thank you, Art, and thank you, everyone, for joining us. Today, I will briefly run through some of the first quarter highlights before turning the call over to Paul Herendien, our CFO, to review the financial results in detail and discuss our 2021 guidance. We'll then review the recovery of the businesses and share our thoughts on driving growth in 2021 and beyond and provide an update on the previously announced plan to spin off Bausch & Lomb before opening the line for questions. Beginning with slide four, in 2021, we have three areas of strategic focus. First, continuing to execute on the business recovery from COVID. Second, unleashing growth drivers. And third, accelerating strategic alternatives to drive shareholder value. With that as a background, let's move to slide six, where we've shown our progress in each of these individual areas. Overall, our team has been able to adapt to the pandemic-related challenges, and despite a few pockets of variability, recovery is in progress across our business. Total company revenue was flat on an organic basis, and reported revenue grew by 1% compared to last year, driven by the rebound in Global Vision Care, Solta, and International RX Business. Importantly, our businesses generated strong cash flow from operations of $443 million in the first quarter. We are seeing strong performance, including market share gains and recovering from leading brands, including Thermage, Trulius, Ultra, Preservision, and Lumify. We also have made good progress advancing science during the quarter, which resulted in the recent announcement of statistically significant, favorable top-line results from two Phase III trials, And with our focus on taking action to accelerate strategic alternative process, we repaid $200 million of debt in the first quarter using cash generated from operations and agreed to divest the moon for approximately $740 million. Finally, we have completed the accounting work to resegment our business and have provided a revenue breakdown for our five current segments in the chart on slide seven. In the first quarter, approximately 44% of the total company revenue was generated by Bausch & Lomb and about 56% from the remaining Bausch Healthcare or what we refer to as Bausch Pharma. To summarize, we entered 2021 with strong momentum and our first quarter results demonstrate that the recovery is in progress. Our business is generating strong cash flows and our leading products are poised for growth in key markets. In addition, we are advancing science in clinical trials and taking actions to accelerate the strategic alternative process. Before I turn the call over to Paul, I want to express my sincere appreciation to Paul, who is concluding his tenure as the Bausch Health CFO on May 31st. First, for his leadership of the finance organization, but importantly, for many contributions he made to the company over almost five years. He's been a great partner, and I look forward to continue working closely with him in his new role as Special Advisor to the Chairman, and of course, we also want to welcome Sam Eldosuke as our new CFO. On behalf of the entire Bausch Health team, thank you, Paul, for your strategic focus, your unwavering commitment, and for playing an instrumental role in our effort to turn around and transformed the company we joined five years ago. With that, I'll turn it over to Paul to cover the financial results in more detail.
spk09: Yeah, thank you, Joe. That's very nice. It's been a privilege to be part of this team. We've accomplished a lot together, and I'm certainly looking forward to my new role and working to unlock the value of BHC for all of our shareholders. So let's go on the quarter. Before I discuss our performance in the quarter, it's worth spending a minute to highlight the changes we've made to our segment reporting. With the new segment structure, you now see our pure play eye health business, B&L, and our global pharmaceutical business that I'll call Bausch Pharma for now. We will rebrand Bausch Pharma at some point in the future. Within Bausch Pharma, we now show a segment P&L for the international pharma business. So this is the first time you get a look at the financial characteristics of a business that is diversified in every sense of the word. generates attractive margins, and has the ability to drive consistent growth of revenue, profitability, and cash flow over the long term. To help you with the changes to the segment reporting, there are several slides in the appendix that map from the prior format to the current. On to the first quarter financial performance. Revenue was flat on an organic basis with Q1 of 2020. We're not yet fully recovered from the impacts of COVID, so getting back to flat versus what was a reasonably strong Q1 last year is an important step along the way. Across our businesses, the recovery was and still is uneven. There continue to be setbacks in various regions due to tightening of restrictions as COVID flares and recedes. All in all, we are well on the road to recovery, but we're not all the way there yet. If you turn to slide seven, the B&L segment was down 2% organically. Again, the theme is recovery. Relative to last year, the global vision care business was up 13% organically, with the U.S. up 4% and OUS up 19%. Of the two, the growth in the U.S. is actually more impressive, as it was off of a very strong quarter a year ago. In the U.S., infused was a big factor, with additional growth coming from BioTrue one-day toric and ultra-multifocal toric. Interesting factoid, this was the second highest revenue quarter ever for our U.S. vision care business. Outside the U.S., vision care revenues in Q1 of 2020 were significantly impacted by COVID, particularly in one of our more important markets, China. In Q1 of 2021, OUS vision care revenues rebounded nicely and were up 19% organically, again, against the soft quarter a year ago. The soft lens family and ultra SVS were major contributors. We're not all the way back to pre-COVID levels for vision care outside the United States, but we're close to returning to real growth. Global surgical was plus 2% organically, with the U.S. down 1% and OUS up 3%. In the U.S., the year-ago quarter was a decent quarter with only modest impact from COVID. So to be close to flat at minus 1% suggests we are close to recovered. Outside the United States, while our surgical business grew 3%, we're not as close to recovered as we're seeing in the United States. The Asia-Pac region grew nicely off of a very soft quarter a year ago, but the recovery in Western Europe in surgical is lagging. Global consumer was down 2% organically, up 1% in the U.S., and down 4% outside the United States. The 1% growth in the U.S. is better than it sounds. As you'll recall, in Q1 of 2020, that was a very strong quarter with a great deal of pantry loading ahead of COVID. OUS, the year-ago quarter, was also quite strong, and we were not able to repeat that in Q1 of 2021, as revenues in Canada and Eastern Europe remained soft due to social restrictions. Finally, for B&L, the OptoRx segment was off 20% organically. Reminder, the OptoRx business now includes the U.S. generic versions of our U.S. branded ophthalmic offerings. The decline was driven by the performance in the U.S. where LOEs, including the recent LOE of Lodomax Gel, accounted for about a third of the U.S. decline. Another third of the U.S. decline was driven by the natural degradation of the sales of the generic versions of our U.S. branded Opto products. And the final one-third came from decreased volumes within our branded portfolio. So that's B&L organic revenue in the quarter. Salix revenue was off 1% from Q1 of 2020, mainly due to Xifaxin that was down 2%, offset in part by 11% growth of Trulance and better realized net pricing for other assets in the portfolio. If you look at the TRX trends for Xifaxin, we're clearly moving in the right direction. However, RXs in a long-term care setting are recovering slower than other parts of the market. The decreased number of patients in the long-term care setting has impacted this market, including our Xifaxin volumes, and especially for HE. While we're confident the long-term care business will rebound, the timing remains uncertain and will come as the sector rebuilds confidence in patient safety. The international Rx business was up 4% organically. We generated very strong growth in the Latham region, especially in Mexico, led by our brands Ivexterm and Betty Ecta. Egypt and Russia also grew nicely versus Q1 of 2020. This growth was offset in part by general market weakness due to COVID in Canada, Poland, and Eastern Europe. In the appendix, you have your first opportunity to see a segment P&L for the international RX business. So you can see the sorts of margins we can generate in this business. Also, if you look at the top 10 products for this segment, you can see that there's not a lot of product concentration in the international pharma portfolio. The largest product, Ivex Derm, counted for only 6% of the top 10 products, excuse me, 6% of total revenue, and the top 10 products only 27% of segment revenue. Orthodermatologic grew 5% organically. The Solta growth train continues on, plus 35% organic growth led by excellent performance in China and the United States, and that was mainly from the Thermage FLX platform. The medical derm business was off 14% organically. Of that 14%, 7.5% was due to LOE assets and the balance due to declines across the rest of the portfolio. It's worth a note here. A while back, we put our colleague Scott Hirsch in charge of the orthoderm segment, and he said about our review of the medical derm portion of the segment. During the quarter, we took actions to reduce op-ex in the business as we were not seeing the level of promotional response we were expecting from those investments. That led to a full relook at the future of our MedDerm business, and based on that work, and work that is still ongoing, we are shifting the emphasis of our R&D investment within the MedDerm segment, business, excuse me. We adjusted our expectations for operating expense intensity, and accordingly, our longer-term revenue outlook for this business. The result of all that work was that in the quarter, we took a goodwill impairment charge for MedDerm. We're going to reposition this business in a way that we believe will be value generative. Our diversified segment revenues were down 2% organically. Our neuro business was up 3% organically as strength in government mail order volumes for branded Pepsid, Ativan, and Mycelene were quite strong in the quarter. Branded Pepsid continued to benefit from the prior issues with Zantac, and that was in the quarter. Within our Wellbutrin of Plenzen franchise, we saw a nice improvement in our realized net selling prices, but not enough to offset quarter-over-quarter volume declines. Our generics business was off 20%, with the biggest factor being the natural erosion of volumes and net pricing as additional competitors enter the market for our generic products. For example, Migranol, Aprizo, Euceris, and Diastat. Offsetting some of those declines were new generic launches, including MoviePrep and IsoPrep. Recall that our generics unit helps us to capture the economic tail associated with our brands after they lose exclusivity and that the expected progression is a gradual decline after launch. Our generics unit does a great job of capturing value for us. Finally, dentistry posted 19% organic growth in the quarter. This business went through significant changes as its lead product, a branded prescription product called Arrestin, was formerly covered by managed care, but that coverage essentially went away. The team converted the arrest in business over to a buy and bill model and appropriately adjusted spending on promotional inputs. After resetting the revenue base, the business is growing at the top line and even more so at the operating line, a great turnaround. So that's revenue. Please turn to slide eight, and I'll walk down the quarterly P&L. We covered revenue, so let's go right to growth profit margin. That was unfavorable by 250 basis points versus Q1 of 2020. About 45% of that movement was driven by COVID factors, including write-offs and negative manufacturing variances. Another meaningful factor was FX. Many of our manufacturing inputs are denominated in Euro, Zloty, Canadian Dolls, and other currencies. Where FX was a tailwind for us at revenue relative to Q1 of 2020, it's a headwind in COGS and in gross profit margin. Finally, our mix drove a portion of the unfavorable movement as well. Note that in our guidance, we have reduced our expectations for full year 2021 gross margins from roughly 72% to roughly 71%. Within operating expenses, on an adjusted basis, SG&A costs were favorable by $53 million versus Q1 of 2020. I talked about this on the Q4 call. We're in the process of redeploying the promotional resources that are needed to get the company out of the COVID hole and back to a solid growth mode. That means filling vacancies in sales forces and supporting our sales efforts with promotional programs that would have been inefficient in the throes of COVID, but are demonstrably effective in driving revenue growth in more normal market conditions. So the level of selling, advertising, and promotion expense that you see in Q1 of 2021 results in us posting a strong operating margin, but it will not drive the sort of near-term and longer-term revenue growth that we expect from our portfolio of assets. That said, we are reducing our expectations for SG&A for the full year 2021 from roughly $2.6 billion to roughly $2.5 billion, as some monies not spent in Q1 will end up as savings for the full year. R&D was 10% favorable on a constant currency basis, but this was not by design. We would have spent more in Q1 if we could have done so effectively, but projects are moving a bit slower than we'd like as we shake off COVID. We still expect to spend roughly 525 million in R&D for the full year of 2021. Net-net, we posted adjusted EBITDA of 852 million for the quarter, up 2% on a constant currency basis from Q1 of 2020. That's a nice 42% adjusted operating margin, but as I just said, not sustainable. With the current configuration of our product portfolio, a solid near-term target for adjusted operating margin is more like 40%. In the appendix, there are slides that show the P&L for the B&L segment, the segment that represents the business that we plan to spin on. You also have the segment P&Ls for the four components that will make up Bausch Farmer, which you can use to assist you in getting a sense for the Q1 results for Bausch Farmer. We have also included slides that show estimates of the allocation of corporate G&A and R&D to the different businesses. And finally, we provide splits of depreciation, share-based comp, and capital expenses between B&L and Bausch Farmer. This information may be helpful as you think about the profitability and cash-generating characteristics of the two businesses. If you look at the segment P&Ls, that will make up Bausch Farmer, you will see a business with strong gross profit margins and high EBITDA margins. We believe that both B&L and Bausch Farmer have the ability to grow revenue organically in the mid-single digits for a number of years. The next three slides, slides 9, 10, and 11, are self-explanatory, but I do want to take a moment to call out our strong cash generation in Q1. $443 million of cash generated from operating activities on a GAAP basis, and adjusted for the settlement of legacy legal liabilities and separation-related costs and payments, the cash generated was a strong $587 million. I want to provide some balance here. We're talking about a discrete 90-day period. In this 90-day period, essentially everything that could go right from a cash generation perspective was in our favor. We are on track to generate roughly $1.5 billion of adjusted cash from operations in 2021 and to prepay roughly $1 billion of debt from cash flow. On slides 10 and 11, you'll see that we repaid $200 million of debt during Q1 of 2021 and that after the quarter closed, we announced the repayments of another $200 million of debt in May and June. So we're off to a good start. And upon the closing of the moon transaction, we would further reduce the quantum of our debt and reduce our leverage. On to guidance. The headline is that we're reaffirming our prior guidance ranges for revenue and adjusted EBITDA. I referenced a couple of the elements of our guidance during my remarks on the quarter. We're reducing expectation of gross profit margin from 72% to roughly 71%. We're reducing our expected SG&A expenses from roughly $2.6 billion to roughly $2.5 billion. We're keeping the expected adjusted cash generated from ops at roughly $1.5 billion, and we're continuing to target paying down debt by roughly $1 billion with cash generated from ops. The adjusted tax rate for the year, we increased from roughly 7% to roughly 9%. Part of this increase is based on a shift in the mix of where we are generating pre-tax income around the world with higher tax jurisdictions, making up a greater percentage of total pre-tax than we had forecast. Another part of this increase is due to the steps we're taking to reorganize our global operating model as we prepare for the separation into two companies. As we continue with that process, our estimates of the go-forward tax rates for B&L and Bausch Pharma are coming into better focus. We currently forecast the tax rates on adjusted earnings for Bausch Pharma to be in the range of 10% to 12%, and B&L to be a few hundred basis points higher than that. That's it for me. Back to you, Joe.
spk02: Thank you, Paul. Let's begin with Bausch & Lomb on slide 15. First, we believe we have the most integrated eye health business with sales in surgical, consumer, OptoRx, and VisionGear. We provide the revenue breakdown for the segments for businesses in the chart on the left. While each of the businesses are in different stages of recovery, total segment organic revenue in the first quarter was near pre-COVID level. I'll call out a few highlights. Global vision care organic revenue grew 13% versus last year. In the U.S., growth was driven by BioTrue One Day Ultra, as well as the Infuse launch. International vision care revenue grew by 19% versus last year. And our daily sci-hi lenses have now been launched in U.S., Australia, Hong Kong, and Canada, and we just received approval in Taiwan. In global consumer, Occupyte and Prezavision grew organically by 4% versus last year, and Lumify reported revenue grew by 28% compared to last year. And we continue to see strong e-commerce growth of 35% versus last year. To put it in context, e-commerce now accounts for 12% of the Bausch & Lomb U.S. consumer business, which is up from just 2% in 2017. Performance in global surgical was driven by international, which grew organically 3%. And finally, although performance in global OptoRx was impacted by COVID and loss of exclusivity, by Zolta TRX has grew by 18% versus last year. The charts on slide 16 show trends in key areas across this segment, all of which point to a recovery in progress for the Bausch & Lomb business. Turning now to slide 17 for an update on Salix. Although sales faced headwinds in the first quarter, revenue recovered near pre-COVID levels down 1% compared to last year. Starting with Sifaxan, reported revenue decline of 2% versus last year was driven by Lower prescriptions in the long-term care channel where the industry is seeing lower occupancy rates because of COVID. The last few quarters, I also discussed the Xifax and IBSD prescriptions. I am happy to report that the latest IBSD TRXs are now up 14% in the trailing 10 weeks versus last year. So we are seeing some good recovery there. Compared to the first quarter of 2020, Truliant's reported revenue grew by 11%, and TRX's grew by 21%, compared to a market growth rate of 3%. Truliant's commercial Newark's market share has nearly doubled since we acquired the product in March 2019, up from about 5.7% to now at 11%. We continue to grow, share, and increase patient access to Trulance in both commercial and Part D. Even better, in the next three months, we expect to add access to another 32 million commercial lives for Trulance. These charts on slide 18 demonstrate the positive trends in the recovery we see for key promoted products. Moving to slide number 19. Our new international RX segment grew organically by 4% compared to last year, driven by strong performance in Latin America. We've shown the strong track record of quarterly organic growth for this segment, going back to the first quarter of 2019 in the chart on the top left. This segment has a broad and diverse product portfolio, and we've listed the top three products for each region on the map. Moving now to Orthodermalogics on slide number 20. In this segment, our focus is on driving profitable growth. As shown in the chart on the left, the segment's EBITDA margin has expanded from 36% in the first quarter of last year to 50% in the first quarter of 2021. Organic revenue recovered to pre-pandemic levels, and the segment grew organically by 5% versus last year, driven by strong demand in SOLTA, which saw organic revenue growth of 35%. A few highlights to note for Solta, their MAJ organic revenue grew by 32% compared to the prior year quarter. Turning now to slide number 21, we have listed the key growth drivers for our business in 2021 and beyond. First, our SIHI daily lenses. With an expected ramp-up of an additional approval of global revenue for Bausch & Lomb, SIHI dailies is expected to exceed $250 million in sales. Many of you have asked about our performance in Japan, the first country we now estimate our share of the Japanese Sihai daily market is already approximately 7%. And in the U.S., we have data that shows in the spherical lenses we're at about 13% market share. Next, we anticipated tailwind. for 2021 and beyond from the backup of cataract surgeries that were delayed due to COVID in 2020. We're expanding the Salesforce Thermage franchise into Europe. And finally, given the momentum which we headed into the year, we expect to see strong performance and recovery of our leading brands. Both Bausch & Lomb and Bausch Pharma have a number of near-term catalysts and upcoming milestones in the R&D pipeline, which are outlined in slides 22 and 23. Let's start with Cyfaxon. I'm sorry, let's start with Baoxin Lang. Last month, we received a readout of phase three results for NOVA3, an investigational treatment for dry eye disease. More than 16 million adults in the United States have some form of dry eye disease with meibomian gland dysfunction as a known cause for a majority of these cases. The GOBI trial met both of its co-primary endpoints and also met all the secondary endpoints showing statistically significant improvements in both the signs and symptoms of dry eye disease in as early as 15 days. NOVA III is a potential first-in-class treatment option for millions of patients. The second Phase III trial is ongoing, and if the results are positive, we expect to file with the FDA in 2022. Also, we expect to complete enrollment for the Inovia Phase III trial in the second half of 2022 and to start a Phase III trial for an investigational treatment to help reverse vision loss due to dry AMD. Moving now to slide 23 in Bouch Pharma, A few weeks ago, we announced a statistically significant top-line result from the second phase three trial, the IDP-126 gel, which is a combination of retinoid, antibacterial, and antibiotic topical for acne. If approved, IDP-126 would be a first in class with this triple combination. The data also demonstrated a benefit for patients as early as two weeks and a greater than a 70% reduction in lesion counts. Following the results of the comparative bridging study, we hope to submit a new drug application for IDP-126 in the second half of 2022. On slide 24, we have charted the four novel rifaximin formulations we are working on so we can see where we are in each of the development timeline. We are excited about these novel rifaximin formulations and their commercial opportunities. Moving now to our third area of strategic focus, accelerating strategic alternatives to drive shareholder value. If you turn to slide number 27, we are dedicated to expediting alternatives that we believe will unlock value for our shareholders and create two great companies. We have completed the new financial segmentation and are on track for all internal objectives necessary for the spin of B&L to be achieved by the end of the third quarter of 2021. And we are actively pursuing all opportunities to expedite leverage improvement and deliver shareholder value, including by increasing EBITDA and improving working capital efficiency. Also, regarding the question of debt leverage, we formally articulated the 5.5 times leverage target for Bausch Health and then roughly four times for Bausch & Lomb. That was one path of many. We anticipate Bausch Pharma to be a very strong cash generator as expected to enjoy an attractive tax rate and has modest annual capital expenditure requirements. As such, it will convert a great deal of its earnings to cash and carry a fair degree of leverage. With a commitment to prioritize the use of free cash flow to reduce debt and show rapid improvement in leverage, we are confident that Bausch Health will be able to handle 6.5 to 6.7 times net leverage. On the BNL side of the equation, we want BNL to start with leverage more consistent with its most relevant, comparable peer companies, as this will enable the market to value BNL without the need to consider significant differences in capital structure. On slide 28, we show the actions we have taken since August 2020 to expedite the spinoff, such as continued debt paydown over the last two quarters and the sale of the moon that we announced in March, and expect to close in the second quarter. In addition, as Paul mentioned earlier, we have provided expected tax rates for Bausch & Lomb and Bausch Pharma. Both companies will remain domiciled in Canada, and we will continue to have corporate offices in Bridgewater, New Jersey. we intend to apply to list Bausch & Lomb on the Toronto and New York stock exchanges as BHC is currently listed. As promised on slide 29, we are pleased to announce the initial Bausch & Lomb spin leadership decisions I'm pleased to announce that Sam Eldestuki will serve as the Bausch & Lomb CFO, and I will take the role as CEO of Bausch & Lomb upon separation. Sam and I will focus on building out a spin code B&L leadership team over the next several months. We remain committed to unlocking value across our two attractive businesses as soon as possible. And today's announcement represents a step forward in that process. Looking ahead, our process will remain on execution, growth, and positioning these two strong but dissimilar businesses for attractive growth and opportunities in the markets they serve. With that, let's open up the line for questions.
spk10: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Ken Cacciatore with Cohen and Company. Please go ahead.
spk07: Hey, good morning, guys. Just had a question about the potential of a dual process here of analyzing different divisions for possible sale. Just wondering if you can give some commentary about how that's going, levels of interest, your desire to maybe affect sales. And then also in terms of timing, if there were to be a plural sales of different divisions, is it something that you'd want to do simultaneously? or is it something that you would announce separately? And then second question, we're often asked about comparing your eye care business to the other eye care businesses that are out there. Can you just talk about some of the similarities and differences and maybe rationale why you should be ascribed similar value to those franchises? Thanks so much.
spk02: Okay. Let's start with the potential sales and timing. Just to maybe clarify, recap a little bit of what we've done. Since Paul and I have joined the company, we have divested up till the announcement of a new moon, $3.8 billion of assets. And now with the moon, it's now over $4.5 billion of asset proceeds we've received. They're about at about 11 times EBITDA multiple and what we've realized. So we've absolutely been willing to explore all the opportunities to divest assets to help increase shareholder value well i can't comment specifically as you can understand about any specific asset that's under consideration today what i will want to reassure you and all of our investors that we we take this process very serious and we're going to consider all the alternatives to help us increase shareholder value and create value across all of our businesses so clearly we are I hope you understand we are going to look at all the things that would be opportunities to create that shareholder value in the near term and long term. And that's how we've been approaching this from really from day one since Paul and I got here. But that is what we're going to do. We'll continue to do and make sure that we check all the different possibilities for thinking about shareholder value creation. On the second part of your question, the B&L comparisons of peers, we look across all the different opportunities. As I've said in my earnings comments, accepting that I'm biased, we have a belief that Bausch & Lomb is the most integrated eye health company. And by that, I mean that we have the businesses and the surgical side. We have the prescription. We have the vision correction. We have the consumer. By having that integrated platform, we think that's an important part of what will help Bausch & Lomb to be very successful versus the pure company. We always look at, and you probably do more than we do, the EVA. Enterprise value divided by the EBITDA. We think we compare very favorably in terms of, you know, the opportunity to create economic value relative to, you know, where is Alcon today? Alcon in 2021 is somewhere in the 20, 24 times or thereabouts. Cooper in the 22 plus. ZEISS is over 30. So we think those are opportunities as the market gets a good indication of comparing us for economic value versus other company multiples. We can compare very favorably, and obviously the market will make that decision. I can't comment on that. On the question, final area, though, one of the areas that we were thinking through is we did want to look at the relative leverage of ourselves versus other companies. And that was part of the decision that we put in place a debt leverage for BNL of less than 2.5 times as we contemplate the future for the business. So we've been doing a lot of thinking about it. And our view is that we can create a very valuable asset in Bausch & Lomb and one that importantly will take care of patients by having integrated approach to eye health. I think I got all your questions, Ken.
spk07: Yeah. Thanks, Joe. And congratulations, Paul, on your tenure here.
spk02: Thanks, Ken. Our next question.
spk10: The next question comes from Gary Nachman with BMO Capital Markets. Please go ahead.
spk04: Thanks. Good morning. If Solta is one of the businesses you can ultimately divest, would you be committed to the medical derm business for the long haul? given some of the challenges there and how you said that you'll be restructuring it. And then on the consumer side, just talk about how you've been spending more on DTC for those types of products to take advantage of the recovery coming out of it and how you think that'll sort of play out for the rest of the year in terms of spending. Thanks.
spk02: Sure. Once again, on the Solta question, I'm not going to comment on individual asset for divestment. I will simply say that we are very, very pleased with the performance of the Solta aesthetic business. We all, you know, think, look at the aesthetic business and see that growth. And we think a large part of that growth is driven by what we refer to nowadays as the Zoom culture of people looking at themselves in high definition, screens and saying they want to make sure they can improve the aesthetics of their face. And also in many parts of the world where they have not been able to travel, they're investing more in themselves. So clearly we think there's a real trend on the continuation and growth of our soul to business. On the question of, I'm not going to comment about the divestment side, but we do view that the medical derm is a business that because of what we've been able to do and what Scott Hirsch has been able to do for us in looking at the profitable growth dynamics, we can look at investing in the med derm business, especially when we come up with compounds that we think can offer advantages for patients. The IDP-126 data is very, very important. favorable when it looks at its ability to reduce the overall number of lesions for patients with acne, and importantly, the quickness or speed at which it provides that relief. So it is something we'll continue to look at to invest in, and certainly something we will look for what I refer to in Medderm as profitable growth for the future.
spk09: Yeah, sorry, Gary, it's Paul. I want to weigh in on this as well. I think that the MedDerm business, and I called it out in my prepared remarks, you know, we are repositioning that business, you know, in a different way than we were thinking about it, say, you know, 24, even 12 months ago. I think there is terrific opportunity there. You know, you can see even what I talked about in terms of substantially reducing the OpEx intensity. What we have is a terrific position, number one. Number two, we have the very solid R&D capability that we're in the process of, I should say, refocusing or pivoting that activity to different sorts of products. We think we have a great opportunity in MedDerm, but to be clear, it's quite different than the way we were thinking about it you know, even 12 or 18 months ago. So we're excited about the long-term prospects there, but it's different.
spk02: The numbers you've quoted on the consumer business are, you know, are amazing. We've been able to grow that consumer business very dramatically. Obviously, the entire industry, E-commerce business continues to grow. We are continuing to look at the direct-to-consumer activities. But we feel that our products, our patients are responding to our products very well. You know, Lumify is a great example of, I mentioned in the call, its growth versus last year is very surprising and continues to show great growth. If you look at the trends and the data that we put forth in the charts, You can see the Lumify data and how it's performed, as well as the overall consumer business on page 16 of our chart. You can see the U.S. Bausch & Lomb consumption change year over year, dramatic increase in consumer activity. increase versus what we saw a year ago, and those trends continue. We also see what was happening with Lumify, clearly, recovery in progress. So, we're going to continue to spend behind that business. We expect to see continued strong consumer demand, and we'll continue to move forward with that from a long-term recovery point of view. We believe that's going to be one of the important growth factors that helps the B&L business to truly have what we believe is going to be an integrated iHealth business. Operator, next question, please. Thank you.
spk10: Thank you. The next question comes from David Amsalam with Piper Sandler. Please go ahead.
spk06: Thanks. So I understand the thought process surrounding the the aspirational leverage ratios for each business. But I wanted to drill down on your thinking about the sustainability of that six and a half times for the pharma business. And I guess where I'm going with this is you see that business as a growth business given how things have transpired with DERM, for instance, and other and also what looks like the maturation of Xifaxin. I guess the question here is, you know, is this a situation where over time those leverage ratios could conceivably deteriorate? At one point you had something called the significant seven that didn't really materialize. So how do you think about that longer term and how should we be you know, thinking about, you know, the cap structure of that business over time. Thanks.
spk02: Sure. So we've done a lot of thinking on this, and I want to step back, and then I'll make a couple comments, and Paul may want to add to it. But I remind you that the Bouch Pharma business, as we're thinking about it, has very high margin business. If you look at the pages that we put together for, you know, Durham is a 50% margin. Salix was over 60-something percent. Diversified, 70%. They're very high margin businesses, first comment. Second comment is that we do expect the Bausch Pharma business to have a an advantageous tax rate, mid single digit growth, very diversified and low cap act. So from that point of view, they will generate high amount of cash. And as we stated in the call, a majority of that cash will be used for debt pay down. So I do think that as we contemplate this, we do believe there is an opportunity for that business to be, you know, one of two great businesses and Bausch & Lombi being the other. We are looking at it from the point of view of what each business can appropriately carry for leverage. Paul, I think you wanted to add to that comment.
spk09: Yeah, I think the key is, and Joe hit on it, is we believe that the portfolio that is representative of Bausch Pharma has the prospect to grow mid-single digits over the near term, and that business will delever pretty quickly. Let me rephrase that. Call it at a good pace so that in a relatively short period of time, I think you get more flexibility to be able to invest back in your business. And, of course, implicit in that is you're investing in R&D, and if that's invested in productive R&D, you will have the ability to demonstrate long-term long-term growth prospects as well. You know, I think I've been quite clear, the cash flow characteristics of Bausch Pharma, it can handle, you know, 6.5 to 6.7 times net leverage. You know, I used to say way back in one of my prior lives, not all adjusted EBITDA is created equal. When you have an excellent tax rate and when you also have relatively modest CapEx, you convert an awful lot of your earnings to cash. And if you prioritize that cash to improve your leverage, that certainly is a big helper. If you have the ability to grow, that certainly is a big helper to getting that leverage statistic down in relatively short order.
spk02: Operator, next question, please.
spk10: Thank you. The next question comes from Greg Gilbert with Truist. Please go ahead.
spk01: Good morning. First, what are your thoughts on the management team for the pharma, the Remainco business, and what variables will factor into that decision and timeline? Secondly, you've been very clear that you're open to any action that will enhance shareholder value to your credit. Is the sale of B&L a realistic possibility versus the spin that you announced? And lastly, Joe, if you end up leading a pure play eye care company, once the market has a chance to value it, what changes would you make to reinvestment rates, M&A strategy and urgency, cost structure, et cetera? It appears that successful spins have tended to be more about sort of specific changes over time and not just multiple arbitrage. Thanks.
spk02: Sure. Let me start with the leadership question that you asked first. Just step back a bit. The board made a decision going back last year to create two great companies, the PurePlay iHealth company and a diversified pharma business. As we've gone through this, the board has thought through the process. And as with other spin codes, the board evaluated the You know, how can we build that leadership team of the SPIN co-organization while at the same time ensuring that the Bausch Healthcare team, which is already in existence, continues to do very well and continues to move the business forward? The first big issue that we have with the SPIN is that we've got to build a new team. So the board has asked myself and Sam, to build out the B&L SPINCO team and get it ready for an IPO or separation sometime after that October 2021 timeframe. So that's what we're going to do. My expectations on the The Bausch Pharma or the remaining Bausch Healthcare team is that there is a process underway, just like there was with B&L, both internal and external candidates, and the decisions will be made in that in due course sometime in the next several months. But I remind you that the So, the remaining Voush healthcare team is in place. We'll obviously have to make some additional decisions there, though, with the total team. But the feeling was that we needed to make that spin decision, start building that spin team very soon, realizing that we wanted to be ready for an IPO separation sometime after that October 2021 date. versus sell versus spin. I guess the way I phrase it is that I'm obviously not gonna be able to comment specifically on any sell process. I've seen the obvious rumors as you have seen them. Our view is we're gonna take all the steps required to set up Bausch & Lomb as a company that can be an IPO opportunity to do an IPO or to separate it sometime after that October 2021 timeframe. we have a value in our mind for that business. But if there are others that want to pay a price that is equivalent to that value, we're always going to do what we believe is the right thing to do for our shareholders and evaluate those types of offers. But to me, what I'll simply say is that we've got a pathway to take this business to spin off Bausch & Lomb. We're going to continue to make progress on that pathway. And as a board and a leadership team, we're always going to be open to other alternatives or pathways that can help create value for our shareholders. Paul, you want to add anything to that? No, you keep going, but I want to come back after. On the question of what changes would we make to B&L in regards to investment M&A, I think the first comment is, first and foremost, we think we've got a great business with Bausch & Lomb, 165-year legacy of business. So we think it's a great business and one that we can continue to build on, number one. Number two, we think by having the integrated iHealth business, By having the opportunity to have the surgical, the prescription, the vision correction, the consumer, that's going to put us in a very important position as we think about what are the megatrends driving the eye health business, which we know are going to drive a significant increase. need for myopia or eye vision correction. We know that people over the age of 65 use eight times more eye health than people under the age of 65, so that's going to continue to be important. We know that more and more practices, especially in the United States, are being consolidated, so having a place where we can offer eye integrated approach to those practices is going to be important. So we think we'll be able to be an important supplier for those group practices that are being formed. So all of those, I think, are important. But what else is to me? Clearly, one of the things that has limited our ability with Bausch & Lomb has been the leverage that it's been part of the overall Bausch Health Company, as that leverage comes down, we would look to the opportunity to grow organically, to invest in the R&D, and importantly, look at bolting on assets that can help us with the overall organic growth rate. So I think those are all some of the changes we're thinking about and some of the exciting things that we see in the future of Bausch & Lomb.
spk09: Paul, I think you want to? Yeah, I want to jump on that last point about, you know, once you spin the iHealth business out, it's like, well, is it better? And the answer is yes. You know, it'll start life as a very well-capitalized company with access to capital. It will have the ability to allocate capital to areas that will strengthen that entity's competitive position, and it will do so without competing for capital with its brothers and sisters on the pharma side. I think that Joe, myself, you know, Sam, the rest of the team here, we've done a pretty good job of, you know, allocating capital as between different types of businesses. And I think that over the last several years, what you've seen is, you know, we rotated a little bit and we did what we needed to do in order to be able to, for example, improve the quality of that OptoRx pipeline. over the last, call it, you know, call it 24 months. If you go further back, you know, we took the steps that were necessary to ensure that we filled out the vision cap portfolio with a daily CyHi lens. Those were hard decisions, you know, back in the day when you're looking and saying, I can invest here or I can invest there. Having the iHealth business B&L set up, again, starting life as a well-capitalized entity, it will have the ability to take the best decisions to improve the competitive position for that entity and to ensure that that entity has the prospect to be able to, you know, deliver, you know, really solid, solid and sustainable growth.
spk01: Thank you, gentlemen.
spk02: Operator, next question, please.
spk10: Thank you. The next question comes from Balaji Prasad with Barclays. Please go ahead.
spk00: All right, good morning, and thanks for the questions. Joe, I just want to focus on the recent top line of NOAA III and get some sense of your expectations around this opportunity. So we did an expert call where our expert highlighted that the population is three times that of what Restasis or Zydra is trading currently, which is already a $3 billion market. So some color around the market potential would be helpful. And secondly, if there are any other large market opportunities around eye care, similar to my woman gland dysfunction. On the same topic, so the product has been launched in Europe, but from what we see, it seems to be not tracking well commercially. Any thoughts around that? Thanks.
spk02: Sure. Well, first and foremost, we are very, very excited about the NOVO3 data and the marker potential. And once again, others may not have had a chance to see the data, but the Phase III endpoint data, both in corneal staining and ocular dryness, is phenomenal. statistically very significant in the time points. We did both the 57-day and then also a 15-day look, and we had statistically significant results in both 15 days and 57 days. We think that timing is a real important thing for patients who have dry eye. Number two, as you said, it's a big market. We know in the United States alone it's 16, 17 million Americans who have this problem of dry eye disease. By having a product that could potentially, if we get a second phase three trial that confirms this data, show that the product works with that kind of speed and has that kind of level of effectiveness and a the side effect profile very similar to the placebo, we think that's a really exciting opportunity. Our view on what we did in the United States was to take it through the prescription pathway so that we can make sure that we had the appropriate data and be able to share that data versus the alternative products out there. We think it's really exciting. And most importantly, the data that shows the quick speed of action for this product relative to other products out there in the marketplace. So we're excited. We'll see what happens with that second phase three trial, but we think it's very positive happening. We think the additional claims we will have though, to be clear on the RX side, is going to help differentiate it from the product that's currently being utilized in Europe because we have some very significant comparative, well, certainly timing claims. I'll say it that way, timing claims. On the other questions, I didn't mention it on the previous question, but I will say, in addition to having the Novo3 data, we also are working with a partner that just filed or refiled Zypyr yesterday. We think that's another good opportunity for us in macular edema associated with uveitis. Uveitis causes, I think, up to about 30,000 new cases of blindness. in the U.S. So we think that's another good opportunity. And importantly, we're also looking at a product for dry AMD. So that's another opportunity for us. And the final one, of course, is what we're looking at with Inovia for myopia. And those, we think, give the overall Bausch & Lomb prescription business a really good number of shots on goal for the future. Thanks, Joe. Great. Let's take the next question, please.
spk10: The next question, just one moment. The next question comes from Umar Ruffet with Evercore. Please go ahead.
spk03: Hi. Thanks so much for taking my question. I have three quick ones, if I may. Perhaps first, Paul, Joe, if you could give us a sense for what the leadership team looks like, where your head is at for the Romain Co. I think that would be very helpful. On your S1P1, which is perhaps one of the more important programs on the salic side, I saw your new trials in mild to moderate patients. And many of your S1P1 competitors from Celgene Bristol to Arena, et cetera, all the companies don't necessarily think of mild as an opportunity for S1P1. But I also realize you've been in that market with the presos. I was just very curious what feedback you heard from Salix folks on the possibility of sort of a preso plus S1P fund co-formulation or something along those lines. And then finally, just a quick follow-up on the last question on Novo 3. Do you agree it's an artificial tier or are you thinking of it more as a Restasis or Zydra? And could you remind us, what's the largest artificial tier RX product in the marketplace in the U.S. right now?
spk02: Okay. Okay. Let me try to comment and take them in the order you gave them to me. Bausch Pharma leadership, what are we thinking about? Well, as I said, the board's view on this is that we want to create two great companies, the pure play eye health business as well as the diversified pharma business being called Bausch Pharma until we rebrand. What our view is is that we're looking at internal and external candidates for that leadership position of the Bausch Pharma. Our expectation is that process is going to take another couple months, and we'll have some additional announcements in that in due course. But our view is that that's something that will build on the existing Bausch Healthcare team. In other words, we already have a Bausch Healthcare team in place. We'll build on that as we're trying to select the two different business leaderships, both in the Bausch and Lomb side as well as in the Bausch Pharma side. On the second question you have relative to the S1P, you're correct. We did look at mild to moderate and how we're targeting this population. The team has looked at these patients and the needs in this patient and where is this market going to be in the next five years, 10 years? And that is the reason we went after the mild to moderate population. I 100% understand where the market is today, but we believe that this market is going to be targeted differently in five years and 10 years. And we put together a new team of individuals that look at this from a portfolio point of view of what the future will hold, where we want to go with this opportunity. Our view is based on the discussions we've had with a number of key opinion leaders is that we should go after this mild to moderate opportunity. We think it is going to be an important, if we can show the clinical trial results, it will be an important additive to what's currently available in the armamentarium for docs as they think about this population. On the NOVA03, we think much bigger than I think you refer to it as artificial tears. We think much bigger than that. We think this area of meibomian gland dysfunction is a major contributor to dry eye disease. And as such, we have what we believe will be a first in class treatment for pharmaceutical treatment of meibomian gland dysfunction. And as I mentioned, That's a major cause of much of the dry eye disease. So, we do think it's a very significant patient population. I will tell you that the data, you've seen the data, I'm sure, if you look at both the ability to help these patients having statistically significant results in both signs and symptoms, and having that result in as quick as 15 days, statistically significant, we think offers a significant opportunity for patients. So, obviously, we've got to confirm it with the second clinical trial. But if indeed that trial turns out anything close to this first one, we do believe this is a very significant opportunity for patients who have dry eye disease for the future. So, we'll stay tuned to see what the rest of the trial results are. But clearly, we think a significant opportunity versus the products, great products like Restasis and Zydra. Operator, take the next question, please.
spk10: Thank you.
spk02: The last question. Time for our last question, please.
spk10: Thank you, sir. And that will come from David Steinberg with Jefferies. Please go ahead.
spk08: Thanks. I have two questions. First, just the third question in the line on NOVA3, just because the data was so intriguing. Joe, you've highlighted a number of times the onset, so I assume you're contrasting it with, um, allergans or stasis, which, um, despite, uh, you know, slow onset and stinging still, I think our peak sales about a billion and a half dollars. Um, and so, uh, my question is, uh, given that this area has been a graveyard and so, so many companies have tried to develop dry disease products and so many have failed and there are only two on the market. and with the first study seemingly showing comparative onset versus the market leader, and then the market leader going generic likely in the coming months or years, how big a product do you see this being at peak when you include the U.S. in Europe? And do you view it mostly as monotherapy, or would you see it being used in conjunction with some of the other leading products like Zydra? And then my second question is on Trulance. And You noted that since you acquired the product, the market share has doubled, and it's growing much faster than the market. But I'm just curious, in the first quarter, 21% growth is good, but last year in the first half of the year, growth was over 50%, and then the second half of the year, growth was 43%, 44%. So I'm just curious, is the 21% first quarter growth sort of a one-time drop-off? And if so, what might have caused that? And do you see growth accelerating throughout the year, getting closer to growth rates you showed on a quarterly basis last year? Thanks.
spk02: Great, great question. I'm going to try to make sure I get all the NOVO3 comments that you have. First and foremost, I'm not going to comment specifically about how big a product it could be, but I do think it compares very favorably to other drugs that are out there currently being used for treating dry eye disease. I think relative to both the, you know, we'll share more about the side effect profile, but it's a very clean profile. We shared the timing advantages that we at least see in this, and we showed at least initially in the first phase three trial, the ability to show both the signs and symptoms of dry eye disease specific to patients who have meibomian gland dysfunction. We think that combination is a very winning combination and will help us to compare very favorably to any type of drug in the category, which, as you stated, are, you know, certainly risk cases over a billion dollars, and anxiety is up to that $500-plus million range already. So these are big drugs, big opportunities, and unfortunately, it's a real problem for $16 million. Americans and more in Kansas. So we look forward to getting that second trial and having the data to share it with you in terms of the results for these patients. On the question of monotherapy or with other products, I think the answer is probably that. It could be used for both, especially because it works so quickly. Some of these other drugs that increase tear production take a longer time. And if we can work quickly, have a relatively limited adverse event profile, or similar to a placebo, we think that's gonna be an opportunity to add to patients who may be on therapy but not getting sufficient relief from existing products. So large product opportunity, many Americans who have this problem, we hope to be able to help if we get the same confirming clinical trial results. On the question of Trulance, we're very pleased. As I said, we've already doubled, almost doubled the market share in just two years from what we have. Had it when we grow. It's somewhere around 11% market share. It's outgrowing the market, to be clear, and picking up share each and every quarter. And then importantly, one of the comments I made, you might have missed, but I'll just repeat it, is that based on the great work of Jeff Hartness and our team on the market access, we've been able to pick up incremental lives that we expect to have access to another 32 million commercial lives. on top of what we already have. So I think if you look at our slide number, I think it's 18, it shows a great trajectory for Trulance. If you look at that slide, it really, I think, is very powerful in terms of, you know, what we're seeing and where we think Trulance is going. So on balance, we're really excited about it, and we think it will continue to grow. And I think that's another one of the questions people asked about the future. of our Bausch Pharma business, Truance is going to be a great contributor there as we think about the future of this overall business. So, thank you, David, for the question. Operator, that concludes our call today. I want to thank everyone for joining us, and have a great day, everyone.
spk10: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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