Bausch + Lomb Corporation

Good morning and welcome to the Baoshan Lam's first quarter 2022 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. 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 Alice and Ryan. Please go ahead.

Thank you. Good morning, everyone, and welcome to our first quarter 2022 financial results conference call. Participating on today's call are Chairman and Chief Executive Officer, Mr. Joe Papa, and Chief Financial Officer, Mr. Sam Eldosuki. 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. Finally, 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 to not update or affirm guidance other than through broadly disseminated public disclosure. With that, it is my pleasure to turn the call over to Joe.

Thank you, Allison, and thank you, everyone, for joining us today on the Bausch & Lomb First Earnings Clause of Publicly Traded Companies. I will begin with some comments about our vision for Bausch & Lomb now that the IPO has been completed and briefly discuss the first quarter highlights. Tim Eldesuki, our CFO, will then review the first quarter financial results in detail and discuss our 2022 guidance. Finally, I will conclude by discussing our product pipeline and upcoming catalyst before opening the line for questions. Before I get started, let me answer the question. If we provided the first quarter B&L results on May 10th as part of Bausch Health, what is the objective for today's call? Simply stated, we want to provide greater clarity on B&L performance, our vision for B&L's future growth, and provide a forum to answer your questions. So let's begin with slide four. With a nearly 170-year history as a leading eye health brand, Bausch & Lomb has always stood at the forefront of cutting-edge scientific and technological optical advancement, and today we are more focused than ever on developing and offering new treatments to meet unmet eye health needs. Specifically, Bausch & Lomb is the most integrated eye care company operating today, the fastest-growing global contact suppliers in 2021, the company with the highest brand awareness in eye care, and a global leader in consumer health, outpacing U.S. market growth by approximately 1.7 times since 2018. B&L also has critical mass. With a commercial presence in approximately 100 countries, over 80% of the world's population has access to Bausch & Lomb products. Turning to slide five, we have outlined three key areas of strategic focus for this important point in Bausch & Lomb's development. One, accelerate growth in large addressable markets. Two, invest in categories that are growing faster than the overall eye health market, and three, expands into new product categories. As we look to the future as a publicly traded company, we see attractive opportunities for a pure play eye health company. We believe the company is well positioned for growth in large, durable markets driven by new product and favorable megatrends or tailwinds, such as the increasing prevalence of myopia and diabetes, an aging population, and a growing middle class that are expected to continue driving demand for high-health products. In addition, we have the potential for margin expansion over the long term based on new product and supply chain efficiencies. Finally, as a publicly traded company, we expect to have balance sheet flexibility to expand investment in the business and additional strategic bolt-on product opportunities. With respect to the spinoff process, the initial public offering was completed last month, an important first step toward the spinoff of Bausch & Lomb. The spinoff is expected to be completed following the expiry of agreed-upon lockups and the achievement of Bausch Health's target net leverage ratios, subject to shareholder and necessary approvals and other conditions. While the final date for completion of the spinoff has not yet been terminated, The spinoff is expected to occur by the distribution of approximately 80% of the remaining B&L shares to Bausch Healthcare shareholders. Separate from the spinoff process, Bausch Health has the flexibility to monetize an additional approximately 8.7% of Bausch & Lomb shares subject to market conditions and the expiry of agreed-upon lockups. Moving now to the first quarter highlights on slide six. First quarter, organic revenue growth of 5% was driven by our two largest segments, vision care and surgical, which grew organically by 4% and 13%, respectively, despite macro headwinds. Looking at the first quarter through the lens of our key areas of focus, consumer eye care had an approximately 33% U.S. market share in the first quarter, demonstrating continued momentum in eye vitamins and Lumify. Our daily CyHi lens market share doubled And we expect annual U.S. market growth of approximately 10% in this category from 2019 to 2030. Finally, we launched Zypere in the first quarter, entering into a new product category with the first and only product to use the suprachoroidal space of the eye for patients with macular edema associated with uveitis. These impressive achievements are due to the sustained effort and dedication of the approximately 12,500 Bausch & Lomb employees around the world whose hard work and ongoing contributions enabled us to execute on our key areas of focus and navigate external headwinds in the first quarter, while completing an important milestone on the road to becoming an independent, publicly traded company. With that, I will turn the call over to Sam to cover the financial results in more detail.

Thank you, Joe. I'm happy to be here on our first earnings call as a publicly traded company to discuss our first quarter results. Before we go into the details, I would remind listeners that when we talk about organic revenue growth, we mean on a constant currency basis and adjusted to remove the impact of divestitures and discontinuations. Also, as a reminder, we now report our financial results in three segments, vision care, surgical, and atomic pharmaceuticals. Turning now to our results on slide seven, our first quarter results continue to demonstrate the durability of our business and the benefits of an integrated iHealth platform. Our focus on commercial execution and investment continues to lead to strong demand across our key franchises, which is reflected in the total company revenue of $889 million for the first quarter, up 1% on a reported basis and up 5% organically. Strong momentum heading into 2022 enabled us to overcome two primary headwinds at the start of the year. First, unfavorable foreign currency exchange impacts of approximately 29 million in the first quarter. And second, headwinds of roughly 10 million from COVID-related lockdowns in China. Excluding the impact of China lockdown, organic revenue grew by 6% for the quarter. Overall, we believe the business is well positioned to benefit from market dynamics. In the near term, we expect growth to be driven by the ongoing recovery in surgical, continued growth in vision care led by daily-side high market penetration, and launches in additional countries, and our market leadership position in consumer eye health. And over the longer term, we expect growth to benefit from favorable mega trends in the market, and new product launches in the Optomic business. Now I'll go into more detail on each of our segments. Revenue for the VisionCare segment, which includes contact lenses and consumer products, grew organically by 4% in the first quarter, driven by 7% reported and 8% organic growth in iVitamins, and 35% reported organic growth in Lumify. Both products are the market share leaders in their categories. 41% reported an organic growth in DailySight high lenses, which we have now launched in 24 countries, and 19% reported a 22% organic growth in the buy-through solutions franchise, which includes the iHydration Boost and multi-purpose solution. To leverage the brand platform, the iHydration Boost was launched in 2021, and earlier this month, we launched the buy-through hydration plus multi-purpose solution in the U.S., Our goals for the remainder of the year are, one, to expand the market leadership position of our iVitamin products and Lumify. Two, to continue the global rollout of the DLSI High lenses. And three, to launch the DLSI High multifocal lenses. Moving on to our surgical segment. First quarter revenue grew by 13% organically. the segment has had sustained positive momentum as the market continues working through the COVID-related backlog of elective surgeries. Growth was mainly driven by increased demand for implantables, including our Invista IOL franchise, consumables in the cataract and retina procedures, and by the entry of the LuxSmart IOL into the premium IOL category in international markets. Finally, The atomic farmer's circle segment first quarter revenue of $155 million reflected a decline of 3% on an organic basis. We're pleased to see the strong performance in the international offshore business, which represents approximately 43% of the segment. Organic revenue in international markets grew by 16% compared to the prior year quarter, mainly driven by strong performance in Europe and Asia. This growth was offset by 14% organic revenue decline in the U.S. While we continue to see TRX growth in our key promoter brands, including Visalta TRX growth of 44% in the quarter, the portfolio was impacted by the tail end of LOE products and high rebates due to generic competition. We continue to transform the Atomic Pharmaceuticals portfolio following the impact of Delormax LOE. At the end of March, we were pleased to have launched Zypyr. We see this launch as a key first step on the path to transforming the portfolio, followed by Novo 3, which we expect to launch in 2023. We believe the new product launches will provide the opto segment with a stronger foundation to drive growth in the course and years ahead, and will allow us to leverage the scale and investment we have made in the commercial organizations. Turning now to slide eight, with strong business fundamentals, in Q1 2022, we continued our long-term strategy by investing behind our product launches and supporting our R&D pipeline, notwithstanding the impact of macro market conditions. Our adjusted EBITDA in the first quarter was $170 million. Our total adjusted gross margin for the quarter was approximately 61%. which is 130 basis points lower than Q1 2021, largely driven by product mix and macro headwinds, including inflation pressure, higher commodity prices driven by the Russian war in Ukraine, and supply chain challenges. Higher SG&E spend in Q1 can be attributed mainly to increased investment in our product launches, including the daily high lenses, and the return to more normalized level of spend. to continue the momentum seen during the recovery from COVID and position us for market share gains. R&D spend in the quarter versus first quarter 2021 increased to roughly 9% of sales. This increase is mainly due to the timing of projects to accelerate our ability to execute in our R&D pipeline. We will expect full-year R&D spend in the range of 7% of revenue. Finally, foreign exchange and COVID lockdowns in China resulted in headwinds of roughly 15 million to Q1 adjusted EBITDA. Moving on to slide 10. Cash flow from operations of 3 million in the first quarter was negatively impacted by the timing of settlement of certain intercompany balances between Bausch & Lomb and Bausch Health. We do not anticipate that these timing factors will have a significant impact on cash flows from operation in future quarters. In the quarter, Capacity was approximately $42 million, which includes investment in our lens manufacturing facilities. And subsequent to Q1 2022, and in conjunction with the IPO, we launched and closed on a credit agreement for $2.5 billion. Our goal is for the debt to be investment-grade rated at the time of the spinoff and continue to invest in the business and further enhance our flexibility to operate going forward. Now turning to our guidance on slides 12 and 13. Our revenue guidance for 2022 is a range of $3.75 billion to $3.8 billion, representing between 4% and 5% organic revenue growth, while absorbing the impact of China lockdown. We estimate foreign exchange headwinds to be approximately $160 million for the full year. We expect the headwinds from China, COVID, policies, and lockdowns that we saw in Q1 to continue to have an impact in Q2, and we expect that it will normalize into the second half of 2022. Our adjusted EBITDA guidance for 2022 is a range of $740 million to $780 million. This represents approximately 5% base performance growth over full-year 2021 performance adjusted EBITDA, with discharges and excluding the impact of currency Our adjusted EBITDA guidance also includes approximately 100 basis points of inflation pressure. We estimate foreign currency exchange headwinds to be approximately $30 million for the full year. Interest expense is expected to be approximately $150 million on an annual basis. Adjusted tax rate expected to be approximately 12%. And we expect full year adjusted free cash flow to be approximately 50% of adjusted EBITDA. This guidance is consistent with the overall guidance provided by the Bausch Health in their earnings call on May 10. In summary, we're pleased with our momentum in Q1 as we continue to recover from the global impacts of COVID-19 and navigate various macroeconomic factors. We believe the results reflect the flexibility and resilience of our business and portfolio. Across our segments, we're in a strong financial position to execute on our current strategy and continue to find ways to enhance the integrated voucher loan. Now back to you, Joe.

Thank you, Sam. I will now discuss our product pipeline and the upcoming catalyst that we expect to drive our business results. beginning with Lumify on slide 15. Here we have illustrated an example of the power of our fully integrated eye care platform to successfully launch, promote, and drive the performance of our products. In the case of Lumify, we began with a highly differentiated product. After launching it in May of 2018, Lumify became a $100 million brand in 2021. Today, it is the number one registered reliever category in the U.S. with approximately 46% market share and the number one physician-recommended brand. Our team was able to drive education and awareness for the product by collaborating with eye care professionals while driving awareness with a strong television, public relations, and social media presence. These efforts, along with a 97% customer satisfaction rate, helped to drive patient demand, which we were able to meet through our ongoing partnerships with retailers like Walmart and CVS and through e-commerce channels. We expect to take a similar approach an integrated similar approach to launching our next wave of new products, including NOVA3, our dry eye disease product. Turning now to slide 16 for an illustration of how we're able to address an unmet market need with our daily disposable silicone hydrogel lenses. In response to patient concerns about contact lens dryness, in August 2020, we launched infused daily CyEye lenses into the fastest growing contact lens category. Infused is the first and only daily CyEye lens with a next-generation material infused with ProBalance technology to help minimize symptoms of contact lens dryness. The lens is doing exceptionally well with patients who experience contact lens dryness. In fact, 94% of patients surveyed agreed that infused contact lens do not feel dry and that they can comfortably wear infused lenses all day long. Moving to the Zypera on slide 17. Zypera is the first and only therapy available in the U.S. that utilizes the suprachoroidal space to treat patients suffering from macular edema associated with uveitis, which is the leading cause of vision loss in people with uveitis. FDA approval of Zypera was based on results from a pivotal Phase III trial of 160 patients with a best-corrected visual acuity, or BCVA, primary endpoint. As you can see from the chart on the right, the primary FFP endpoint was the proportion of patients in whom BCVA had improved by at least 15 letters from baseline after 24 weeks of follow-up. We are particularly excited about the innovative microinjector, which offers unique access to the back of the eye and enables targeted delivery and compartmentalization of the medications. Moving on to slide 18, I want to spend a minute on the market opportunity for an investigation of a new class of dry eye therapy. NOVO3 is a potential first-in-class treatment for dry eye disease associated with meibomian gland dysfunction. Consistent, statistically significant efficacy, safety, and tolerability has now been demonstrated in two Phase III trials. The charts on slide 18 show the efficacy endpoints for the second phase 3 trial. Importantly, all primary and secondary endpoints were achieved, including statistically significant changes from baseline as early as day 15. We are ecstatic with the results of these two phase 3 studies and believe that NOVA 3 has the potential to be a major future growth driver for our business. We anticipate and are working towards filing an NDA for NOVA 3 in the coming weeks. On slide 19, we present some of the near-term pipeline opportunities for the surgical segment. First, our InVista Premium IOL and LUX Premium IOL expansions offer new opportunities in a $1.4 billion market that is growing at a 7% compound annual growth rate. We're also working on a 3D microscope that is expected to launch later this year and will integrate with our Eye Intelligence Clinical Decision Support software. Finally, The Teneo eczema laser for refractive surgery is expected to be the first significant LASIK innovation in the U.S. in more than a decade. The Teneo laser has been well received and is widely adopted in more than 50 markets around the world as one of the more versatile lasers available with a compact footprint. Slide 20 captures the next generation of surgical innovation, including a new market opportunity with the Femto laser, which fully integrates into the cataract workflow for operating room efficiency, the LASIK flap laser, which complements Teneo for refractive surgery, and the 22X combined cataract retina platform with redefined fluidics, efficient advanced lens removal technology, and integration with our eye intelligence software. To summarize, on slide 21, we have illustrated the eye health ecosystem, which Bausch & Lomb operates in the power of an integrated platform that uniquely positions Bausch & Lomb to serve eye care needs. Bausch & Lomb has the highest brand awareness of any eye care company. Bausch & Lomb has long-standing relationships with eye health professionals as well as key retailers and e-commerce channels that reach a broad consumer base. B&L is a fully integrated eye health company that offers a comprehensive portfolio of more than 400 products to meet significant patient and consumer needs, spanning everything from contact lenses, lens and eye care products, ophthalmic pharmaceuticals, over-the-counter products, and ophthalmic surgical devices and instruments. B&L serves our patients and consumers throughout all phases of their lives, developing and offering new treatments to meet unmet eye health needs and, importantly, help people see better to live better.

With that, operator, let's open up the line for questions. We will now begin the question and answer session.

To ask a question, you may press star then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Finally, please limit yourself to one question per turn. At this time, we will pause momentarily to assemble our roster. The first question comes from Ken Cacciatore with Cowan & Company. Ken, please go ahead.

Yeah, thanks so much. Thanks for all the fundamental discussion. I'm actually going to save my one question for a non-fundamental. Joe, lots of questions still coming in on the 90% holdings that BHC has of BLCO. And I know it's easier to understand the likely path forward. And as a facts and patent win, it's less clear to everyone what the options are for BHC in a loss. So not sure that You'll be able to discuss it, but can you talk about that 90%? I know you've broken it out. There's some that could be sold in the near term and 80% still remaining. Can you talk about the potential ramifications in the event of a fax and launch as you could best describe them for folks? Thanks so much.

Okay. Thank you, Ken, for the question. Let me just maybe back up a little bit and get towards the actual question that you're getting to. Number one, as we think about this, the path forward for us is clear. We've always stated that our strategy would utilize 20% of the Bausch and Lomb value to pay down the debt of Bausch Health. We've done now the initial 10 plus percent for the IPO. The remaining actually will turn out to be 8.7% will be monetized by Bausch. Bausch Health to reduce their debt. They have the flexibility to do that. As to the question on the zysoxin issue, let me say one more thing. The remaining 80%, as I said, will be utilized and will go directly to the shareholders of Bausch Health, just to be clear on the remaining 80%. That direct spin of that 80% will go to the shareholders of Bausch Health. That's how that will play out. On the question of Sifaxin, I have to first and foremost say we continue to expect to win. We have intellectual property of 20 plus patents. Our legal team felt more confident at the end of the trial versus at the start of the trial. So all of that continues to be something that we have looked at, managed our way through that. One of the outside advisors of that we've utilized has looked through all this and everyone, you know, from a legal point of view has reviewed it. In fact, IPD, an independent company that was attending at the trial, looked at it and expects that we will prevail. As to your question, though, on this Sifoxan Norwich loss, let me get to that. As any company would, you'd expect, we always evaluate multiple scenarios for the business for planning purposes. And we have done that, but I have to say we continue to expect to win, and I'll probably leave it at that and not speculate any further on that comment. Obviously, that's something that Bausch Health will need to continue to look at in terms of process, but we do expect to win.

Thank you. The next question is coming from Craig Bijoux with Bank of America.

Craig, your line is live. Please go ahead.

great good morning guys thank you for taking the questions and congrats on getting the IPO done I wanted to ask about top-line guidance so obviously five percent organic growth in the q1 your full year guidance of four to five suggests you know slight slowdown so just wanted to ask is that simply conservatism is it China is there something else that we should be thinking about and then I you know, how should we think about the quarterly cadence of that guidance and, you know, from a segment perspective, should we think about growth of each of the segments similar to what we saw in Q1?

Sam?

Craig, good morning, and I'll take this question. So the way I would think about it is our guidance from a 45% is all referred to as a balanced guidance. We factor in what we have been seeing so far in Q1 from China. We saw the lockdown in China did have an impact on us. We broke it about $10 million. The impact continues with us in Q2, still early in the second quarter. We didn't yet complete second quarter. The good news is right now we understand that the Chinese government have opened up the market. Things are coming back to normal, still not 100%. But we'll have to see how the month of June plays out, but we had the month of April and May shutdown. Our guidance of 45% anticipate what we've seen in the month of April and May as well from shutdown in China. When you step back and you think about just our phasing in general, we tend to be more revenue on the second half than the first half of the year that's in general so when you think about the cadence of our phasing you would expect that we will ramp up with more into q3 q4 from a phasing point of view than what you've seen in q1 and q2 uh from us that's a normal basis you just have to factor in the anomaly of china which we again we've seen in q1 and q2

I think the only thing I'd add to Sam's comment is just to put a little bit more perspective on that back-to-school contact lens business is something that we see in that third quarter, fourth quarter. That's part of what we see in some of the commentary that Sam was making on how we're looking at the seasonality of our business. There is some third quarter, fourth quarter pickup as kids go back to school and they get their contact lenses, but that's probably the only thing I'd add. I mean, everything else is agreements. Operator, next question, please.

Certainly. The next question is from Larry Bigelson with Wells Fargo. Larry, your line is live. Please go ahead.

Good morning. Thanks for taking the question. So I'll ask just one big picture question. Just at a high level, Joe and Sam, how are you thinking about Bausch's organic growth and margins beyond 2022? Joe, up front, you said one of the goals of this call was to talk about growth, long-term growth. for the company. The guidance implies an EBITDA margin of about 20% this year. How are you thinking about the pathway back to, I think, you know, your EBITDA margin in 2019 was about 24%. Thanks for taking the question.

I'll start, Sam, and then you can add to it. First and foremost, I think the important point I want to make is on a strategic question of what we're planning to do. Number one, we plan to continue the momentum in our current portfolio. Last 2021, Bausch & Lomb finished with the fastest growing contact lens business. We grew at about 18% in 2021 as an example. So try to continue that momentum with all of our products in our portfolio is our first strategic direction. Number two, as we've said publicly, we plan to invest in categories in iHealth that are growing faster than the overall iHealth business. The good news for us is that we're going to have a chance to launch new products as the daily SciHi lenses. We've now launched in about 24 countries. We have more coming on board every quarter. And then we expect also to launch the multifocal product daily SciHi. And these daily SciHi lenses will also add to both on the revenue side and the growth side on the margin. And I'll get to that in just a second. But As we go into these faster-growing categories like daily side highs, which we believe will grow certainly more than double-digit, we're going into the premium IOLs. We've launched our LuxSmart outside the U.S. We have some additional Invista IOLs, premium IOLs coming forth, and also looking at the opportunity to enter the dry eye market. All of these new products in the faster-growing categories will help us to expand on these margins and the growth as what we are planning. And then finally, we're going into some brand new categories for us. We're going to enter into the digital surgical ecosystem. We're looking at biosimilar, some brand new categories for us. We just launched Zypyr, the first and only product available in the U.S. that utilizes the superchoroidal injection therapy, allowing us to help patients who have macular edema associated with uveitis. So All of those new products are going to be helping us to drive the overall growth. And then importantly, with new products come opportunity for margin enhancement. A simple example, as patients progress from the opportunity with a going from the monthly lens to the daily lens to a daily side high lens, that's a higher price point for patients, which in the long term allow us to achieve better margins. And then also, on that margin question. As we get more experience, we know that our yield on the daily side will get stronger all the time. Usually when you first come out with a product at a facility on a line, you'll get about a 60% yield in the first year. That'll gradually go to 70, 80% yield, and then up to 90 plus percent yield as you get more experience with it. That also helps to contribute to the margin. The margin story will be driven by these new products. The margin story will be driven as we get more experience with the Sci-Hi daily lens as we're launching it and at the higher price point. That will all help to contribute to the overall margin story and help us to get to the levels that we were at in the past. Sam, anything you want to add specifically?

Yeah, if I can just add a few things to what Joe said and Again, the launches is a very critical part in terms of how we think about where we are today and where we're heading into the future because I think there's a number of critical launches across all three segments that are going to be very important for us as we move forward from growth on the top line as well as from a margin contribution. So you see it in the vision care, surgical, and with the ophthalmology, having Zypeas coming out this year and Novo3 coming out next year. Also, the base business in itself is in a very durable standing right now. I think we have a number of our key brands are performing very well. We highlight some of them in the prepared remarks, such as the vitamins, the Lumify. We've seen also the international opto business, which is showing organic growth of roughly 16%. So we have very good fundamental elements of the business. How we think about the cost structure as we go forward here is we had in 2022, it's a year where we stepped up our investment to position ourselves for the launches and to support the growth that we're seeing in our existing portfolio and also stepped it up for the standalone company to operate, to allow B&L to operate as a standalone company. As we go forward beyond 2022, We don't need that step change in our cost structure as we move forward. So what that means is that that sends us to a leverage from a cost structure that we have the infrastructure that's built right now that will be able to be scaled both on the commercial front as well as the overall company. And that all will help us in terms of achieving our margin expansion as we go forward.

Thank you. Operator, next question, please.

Certainly. Your next question is coming from Yann Soneja from Guggenheim Partners. Yann, your line is live. Please go ahead.

Hi, guys. Thank you for taking my question. Can you just touch a little bit on the market opportunity for Nova 3? What sort of infrastructure build will it require? How big is the market? Obviously, there is a relevant comp there. I was just trying to understand your strategy there. And then also if you can provide a little bit of color on Lucente's past similar with the update there. Thanks.

Sure. So let me start on the Novo 3 dry eye market. It's a very large market. Specifically, the gross sales numbers are in the order of magnitude of $3 billion. Obviously, if you go down to net, it's somewhere probably closer to $2 billion, but a very large market, first comment. Importantly, it's 17 million Americans, and it continues to grow at around the double-digit level, so large market growing rather significantly. Number two, the opportunity we see here is that we look at our clinical data, and I'm delighted to say that we have statistically significant improvement in the signs and symptoms of dry eye disease associated with meibomian gland dysfunction, and we've shown that at as early as day 15. So for us, that's a significant, we think, opportunity to help a number of patients if we are approved by the FDA, help a significant number of patients with their dry eye disease. And importantly, as we think about what that means is the current products out in the category can take sometimes up to three months to six months to work. So if you've got a product that can help patients as early as day 15, we think that makes it a very exciting opportunity to help a significant number of patients and realize the revenue opportunities from that. So we're excited about the size of the market, large, 3 billion gross sales, 2 billion approximately on a net basis. We look at what's happening with the current players out there and our ability to show the quick relief of the signs and symptoms of dry eye disease. We're excited about it. Good news for us is that Bausch & Lomb has a very large capabilities footprint to sell this product in the United States. We've got capabilities, already a team in place. Bausch & Lomb has one of the largest portfolio around the world of the capabilities in the pharmaceutical business and that we think is what's important for how we will approach this category. The other thing that I think I have to say that we think differentiates Bausch & Lomb is by us having an integrated footprint in all of the businesses so that we have a capability in consumer business, a capability in the contact lens business, a capability in the surgical business, as well as our pharma business. We think that integrated footprint is very important for us as a platform to help us to be successful with new products and we've seen it. We've seen real life examples of that as we launched our Lumify product as an example. On the question, second part of your question was Lucentis by a similar update. We are continuing to work on that. We have announced that there is a question that is, the FDA has asked us about the submission. Our partner, X-Brain, who's working on this has been asked the question relative to some of the information that the FDA is seeking. We are going to take the FDA comments on that, work with the FDA to revise our filing, and we'll be back with more specifics in terms of filing on that product exactly when we'll get that product filed and move forward with the opportunity. But clearly, the biosimilar opportunity is very large in the United States. It's a six plus billion dollar product category in the United States. And Lucentis is not. Lucentis is about a third of that. But it's a big opportunity for us and look forward to bring forward a biosimilar and have more to comment about that in the near future.

Thank you. Thank you.

As a reminder, ladies and gentlemen, if you'd like to join the queue at any time, you can still press star 1 on your telephone keypad. to enter the queue. Once again, that's star one to enter the queue to ask a question. And your next question is coming from Robbie Marcus with J.P. Morgan. Robbie, your line is live. Please go ahead.

Yeah, thanks for taking the question. Congrats on your first quarter. Wanted to just follow up on, I think it was the first question about the spin from Bausch. You know, what are the plans if the parent company isn't able or the Bausch company isn't able to deleverage? How do you plan to address the capital structure going forward and what are the contingency plans? Thanks.

All right. Let me take that one, see if I can get at anything. Number one, we have specifically laid out the plans for how we will do this. As we've said publicly, our plans will be that as we think through the Bausch Health, and I want to keep most of our comments today to Bausch and Lomb to be clear, but as we think about Bausch Health, Bausch Health has stated and agreed that we will do a full separation or spin at the time that Bausch Health gets to a leverage profile of 6.5 to 6.7 times. And once we get to that point, we'll do that. As we think about that question, there's going to be a couple different variables that we have to consider in that question. The first, obviously, is the performance of Bausch Health. As Bausch Health continues to improve their performance, that will be an opportunity to pay down more debt. It also will be the performance of the B&L business, of course. As B&L continues to perform, we'll have an opportunity to improve our capabilities, and that will also, when Bausch Health monetizes the remaining 8.7%. That obviously would be another way to delever. And then finally, there's the value of the Solta business that also will be a consideration for Bausch Health as they think about this delevering. So clearly, we have all the plans in place to make that happen. As to what could happen there, I really don't want to speculate on what would happen if they don't delever. We do think that we have a plan in place to do that. Of course, as all companies do, we have multiple different scenarios that we'll look at from a business planning point of view, but we absolutely expect that we're going to be able to move forward to de-lever the Bausch Health business as we've stated publicly.

Great. Thanks a lot.

Thank you. Next question, please.

Certainly. The next question is coming from Joanne from Citi. Joanne, your line is live. Please go ahead.

Thank you. Good morning, and also congrats on your first call. I want to spend a little bit of time on the contact lens market. We tend to divide between unit growth as well as reported revenue growth or even organic revenue growth, any way you want to look at it. But specifically, how much of your growth is coming from sort of the cannibalization of older lenses versus new fits? And can you just pull this apart in the U.S. geography as well as anything outside the United States you can point to? Thank you.

Sure. Let me start on that question. You know, first and foremost, I think what we've been looking at is, in terms of our growth, looking at U.S. versus O.U.S., we've had a chance to show the U.S. share of our business growing from somewhere, let's call it, 9% up to the latest data was somewhere around 14.5%. So we've been able to show some very significant growth in our U.S., predominantly behind the growth of the newer products, both our BioTrue Ultra and then now, importantly, our infused product, the Daily Sci-Hi product. So that's probably, I think, the first thing I'd talk about in terms of the overall growth is our performance, especially in the U.S., where we've seen some very significant growth in our contact lens business. Probably the second thing I would talk about in terms of cannibalization, this really comes into the question of what we're looking at from the launch of our daily Sci-Hi, our infused product. Remarkably, our cannibalization of our existing product has been lower than we've expected. What we've actually picked up on the infused product is we've picked up share from our competitors as well as brand-new patient starts have come to our infused product. So we've been very happy with what we've seen from a cannibalization. It's been lower than we've expected. A large percentage, you would imagine, has come from the other daily SI-HI lenses. Importantly, what we believe that the problem out there, the current daily SI-HIs prior to the launch of our infused or ultra one-day, we call it outside the U.S., The issue has been the existing products still have a problem causing contact lens dryness. One of the things that we were able to do with our product by putting Osmo Protectants and electrolytes and moisturizers into the formulation is we get very high response from patients in terms of the ability to wear their products all day long. We think that's an important part of how we will be successful with the launch of our Infuse or Ultra One Day, we call it outside the United States. So I think I've got most of the questions there in terms of contact lens market growth. We clearly see the daily side business growing dramatically. Where we launched Infuse in the United States, for example, we have the best data in the U.S. We know that where we have the fit sets, we have about a 14% market share. So obviously that's very positive for us as we think about a product category in the United States that's going from like $1 billion up to about a $3 billion category by 2030. So we're excited about what it means and where we'll pick up business. There will be some cannibalization for older brands, but the majority of it so far has come from competitive products and new patient starts is probably the best answer to your question.

And Joanne, just to add to what Joe said, We did include certain information on the products in our earnings deck, but you'll see that the buy-through grew in the quarter roughly up to 8% organically, and the ultra grew about 4% organically, notwithstanding the softness that we've seen in the China lockdown.

Thank you.

Thank you. Your next question is coming from Pito Chickering from Deutsche Bank. Pito, your line is live. Please go ahead.

Hey, good morning, guys. Thanks for taking my questions. Back in December and January of this year, you were able to increase prices to help offset the inflationary pressures. Can you quantify for us what percentage of your portfolio you were able to increase those prices for, and if those increases had any negative impact on demand? And also, if inflation continues going forward, are you still confident that you can keep on passing through these price increases to consumers without impacting demand? Thanks so much.

Great question. Let's start with historical. You're 100% correct. In that January timeframe, we did take pricing. We took pricing on our prescription pharmaceutical product portfolio. That was in the ballpark mid-single digits. Now, I want to be clear that when you take pricing, let's just use 5% as an example. If you take a 5% pricing, you're not going to realize a 5% pricing. You're going to have to offset that with some additional growth to net reductions, et cetera. So we did take pricing on our prescription business, yes. In addition, we took pricing on our consumer business. And in that case, we took on the consumer business the action in January, but we did not see the actual realized pricing there until really in the March timing. We have to give retailers approximately two to three months of time to build that into their process. So That did not really occur until March, but we have seen that. In both the pricing aspects of what we saw on both the consumer as well as on the prescription side, we did not see any diminution of the demand for either of those categories. So we are continuing to be able to pass on that price. On the other area, on the vision contact lens business, we did also take pricing there. ballpark in that mid-single-digit areas where we took pricing, and that did occur in that January timeframe. Now, as to the question on go forward, we do think that inflation is real. It's something we are going to look to take additional pricing. We have not seen a really different demand from the prices we've taken in the past. We will continue to look at this. It's something that we do believe is part of our need to look at this from an inflationary pressure that we're facing. Beyond the pricing aspect, though, I want to be very clear, and as we're thinking about the future, we're thinking about it not just simply on a price as the actual selling price, but we're all looking at other things like discounts and other rebates in terms of how we can take a look at the challenge we face from an inflationary pressure. We've also, as a go-forward, instituted what we refer to as Project Core, Project CORE stands for Cost Optimization Revenue Enhancement. That's a program that we're looking at through our entire, all the different P&L aspects of like manufacturing everywhere we can do to reduce obsolescence, to improve yield, to try to move forward with additional response to the inflationary pressure now to get ahead of this rather than to be responding to it. We want to continue to get ahead of this because we do see inflationary pressures and everything from the resins we purchased for the polymers, energy, obviously, and shipping. So we're trying to get ahead of that, and we think Project Core is going to help us get ahead of that as we think through this going forward. Do you have anything you want to add to what I said? Thank you, operator. Next question, please.

Certainly. The next question is coming from Cecilia Furlong with Morgan Stanley. Cecilia, your line is live. Please go ahead.

Great. Good morning, and thank you for taking the questions. I wanted to ask specifically on the capital equipment front what you're seeing globally in terms of just demand for capital, especially in this environment, how you contemplated that in your 22 outlook. And then also on Zype here, just would love to hear a bit more about the initial days of launch as well as how you're thinking about that product to the balance of this year in terms of growth. Thank you.

Sure. Let me start on the capital class. One of the things I want to refer you to on slide number 27 of our presentation is we did show all of the top 10 products we have as a company, and one of them specifically was the surgical equipment. And that shows that versus a year ago, the capital demand has been, I'll call it, flat. There absolutely was increased demand for consumables. It was up 13%, and also the implantables up 4.5%. So we did see increased demand for our overall surgical business, as we stated, but the actual capital demand has slowed down a little bit. It's not surprising to us. It's part of what we had expected. We do see that that will improve as we work our way through some of the issues that we're currently seeing in the marketplace, but we did see the growth clearly in the consumables and the implantable side of the business. As it would relate to Zypere, what we're really excited about is the response rate. We showed the response rate in our information, very clear response rate for patients when you use Zypere. The specific data is on page 17 of our presentation. but the best corrected visual acuity has increased dramatically. You can see that we had 46.9% improvement versus the control group only had a 15.6%. So that is the reason why we're getting very favorable feedback from the initial launch of the product. Now, to be clear, I want to be absolutely clear that this is a product that requires additional training and to how to inject into the suprachoroidal space. So that's going to take some time. But that's clearly one of the things that we're thinking about in terms of this overall UVI, this U.S. market being a $400 million opportunity. The actual macular edema is somewhat less than that, about a third of that, or 25% of that. But we clearly think that this is an opportunity because of our response that we've gotten from training of the physicians who've seen a very good reception as they've used this product. So stay tuned for that. More to happen, especially as we get additional reimbursement with the product. But we're excited about the initial launch. And most importantly, we're excited about how this is really helping patients by utilizing the suprachoroidal space. And we think the suprachoroidal space may be a platform for additional products in the future that we hope to have more to say about that in the future. Thank you for your question. Operator, next question, please.

Certainly. The next question is coming from Amit Hazan with Goldman Sachs. Amit, your line is live. Please go ahead.

Hi, thanks. This is Phil on for Amit. Thanks for taking the question. I thought I'd ask a broader picture question as well. Balance sheet, very strong, strong pre-cash flow generation. Maybe just touch on capital allocation priorities for the company and then to some of the prior questions. I'm interested if burdening Bausch and Lomb with additional debt as a potentiality in the future, depending on how things play out at the parent company to help the other.

Thanks for taking the question. Thanks, Amir.

It's a good question. I'll start with the capital allocation. I'll just focus on sort of where we are and what we also have done in the last couple of years. I think in the past number of years, Invested roughly about $2 billion in the B&L business since 2018. About half of that came into R&D investments. About $700 billion of that $2 billion was about in capital investment. And that was very important for us to invest in our platform to be able to enable us to see what we are seeing today in terms of launches and the products that we're able to bring to the market. And as we go forward, I think we'll continue to have the same level of investment in our business between the R&D of about 7% Of sales, when we think about capex, we're thinking about $200 to $225 million. We've built pretty good capacity to allow us to support our launches and what we need for the next number of years. And right now, we're turning our attention to ensure that we are building for the future, for allowing for additional growth as we go forward with the spend that we're doing. So I think that you'll find that investment on our platform is going to be a key priority for us. We also did talk about the opportunity for us as we now on a standalone basis will be able to deploy some of our cash and our balance sheet towards the acquisitions, mainly on the bolt-on type of acquisitions. And they're going to be very strategic as we think about where we are within the marketplace, where we can leverage our infrastructure, commercial infrastructure, and we can scale it even further. than what we have now by putting in some of those products or acquisitions into our portfolio. From a debt on BNL, we raised about $2.5 billion as part of the IPO. It's important to step back and just reflect in terms of that capital structure that we deployed within BNL. I think we focused on what we wanted and how we wanted BNL to be structured from a sufficient capital structure going forward, ensuring that we will be able to get to an investment grade rating as we do the spinoff. So that all plays in our thinking in terms of how we thought about that capital structure. and how we thought about where we are to serve the leverage and where we are from a balance sheet. And I think we're going to be able to continue to focus on the investment grade as we move forward for B&L. It's an important factor for us.

If I could just add a little bit to what Sam said, because I agree with everything he said, is that as we're thinking about this, we see the iHealth being an excellent market opportunity. It's got strong tailwinds, whether you're thinking about you know, patients over the age of 65 using 10 times more eye health than people under the age of 65, as an example, and we know that the population is going to increase. We know that there's a myopia epidemic out there that it's moved from 20% of the population with myopia to 40% on its way to 50% of the population. So we know about diabetes. All those reasons we think are suggesting it's a good time to invest in a business in eye health, whether it's the organic side that we've referenced in the prior part of the conversation or to the inorganic side. We think the markets are going to grow 4% to 5%. We think we can go at or above market growth rates. And then on top of that, we have this opportunity now with these new products, as well as investing in business development, M&A opportunities to bolt on additional assets on this capital allocation question. So we think that's a chance to grow organically at or above market growth rate, and then bolt on inorganic growth opportunities. We have not had the chance to do that in the past because of some of the debt issues that Bausch Health, the total parent company, had. We think this is a great opportunity for the future. Orders of magnitude, I don't want you to think we're doing billion-dollar transactions, multi-billion-dollar transactions, but we do think there are opportunities there to do some additional bolt-ons for us, specifically in the areas of we do think are two areas we're interested to bolt on some additional assets in the surgical space. and also in the ophthalmology prescription spaces from a capital allocation point of view. Those would be the areas that we are interested in thinking about going forward. Robert, I think we have time for maybe one more question, please.

Certainly. Your final question is coming from Zach Weiner from Jefferies. Zach, your line is live. Please go ahead.

Hey, thanks for taking the question. I just wanted to hit on the 14% market share that you guys talked about in regions that you had fit sets. Just any color on expanding that fit set more broadly across the U.S. and where ultimately do you think that you can get that share?

Yeah, it's an absolutely great question. I want to be specific that the data I shared on that 14%, it was specific to the U.S. data in terms of where we have fit sets in the U.S. We have been able to get a 14% share of our infused product. So that just may be one clarity. But do we believe there's an opportunity to continue to expand there? The answer is absolutely yes. Look to us as we've now increased our capacity for making contact lenses on the SciHi daily lens. As we do that, we'll have opportunities to introduce additional fit sets or samples across the broad category of the United States, but also how we're looking at this market opportunity globally. As I said, at the end of 2020, we had launched in approximately five markets. Now we're up to about 24 markets in terms of the launch of our CyHi daily lens. So look to us to continue to move forward with the opportunities to grow market share and fuse. Importantly, though, maybe just make one important comment. We think the United States, the CyHi daily market is going to grow from about $1.1 billion last year to somewhere closer to $3 billion by 2030, 2031. We also think the international portion of it is going to grow from about $1.5 billion to about $3.7 billion. So you're looking at a market on the daily Sihai lenses growing from, you know, call it $2.5 billion to something close to $6 billion globally. So that's why we're excited about this ability to come forward with a contact lens, our infuse that we believe delivers on some of the challenges in the current Sihai daily portfolio of products that are available, predominantly for Sihai. addressing this area of contact lens dryness because of our formulation. And certainly the patient feedback has been outstanding based on the patients that we've had a chance to show it to. So clearly taking a look at, as we expand our capacity, we absolutely go out with more fit sets and more opportunity for the future with our infused products. So thank you very much for the question. That concludes our presentation and Q&A today. Thank you very much for joining. We look forward to getting back and talking to you in the near future. Have a great day, everyone.

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