Bausch Health Companies Inc. (NYSE:BHC) Q1 2024 Earnings Call Transcript May 2, 2024
Bausch Health Companies Inc. misses on earnings expectations. Reported EPS is $0.59 EPS, expectations were $0.75. Bausch Health Companies Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings. Welcome to the Bausch Health first quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I would now like to turn the conference over to your host, Garen Sarafian, Investor Relations at Bausch. You may begin.
Garen Sarafian: Good morning, and welcome to Bausch Health’s first quarter 2024 earnings conference call. Participating in today’s call are Thomas Appio, Chief Executive Officer of Bausch Health, and John Barresi, Interim Chief Financial Officer. Before we begin, I’d like to remind you that our presentation today contains forward-looking information. We ask you to take a moment to read the forward-looking statements disclaimer at the beginning of the Slides that accompany this presentation, as it contains important information. Our actual results may vary materially from those expressed or implied in our forward-looking statements, and you should not place undue reliance on any forward-looking statements. Please refer to our SEC filings and filings with the Canadian securities administrators for a list of some of the risk factors that could cause our actual results to differ materially from our expectations.
We use non-GAAP financial measures to help investors understand our ongoing business performance. Non-GAAP financial measures may not be comparable to similarly titled measures used by other companies, and should be considered along with, but not as an alternative to, measures calculated in accordance with GAAP. You will find reconciliations to our non-GAAP measures in the appendix of the Slides that accompany this presentation, which are available on Bausch Health’s Investor Relations website. Finally, the financial guidance in this presentation is effective as of today only. We do not undertake any obligation to update guidance. Our discussion today, Thursday, May 2, will focus on Bausch Health, excluding Bausch + Lomb. However, we’ll briefly comment on Bausch + Lomb’s results announced yesterday.
We will refer to year-over-year comparisons with the same period last year, unless otherwise noted. With that, it is my pleasure to turn the call over to our CEO, Thomas Appio. Tom?
Thomas Appio: Thank you, and welcome to those of you joining the call this morning. We started 2024 on strong footing, building on the momentum we have established last year, while maintaining our focus on operational excellence and our patient-centered mentality. We delivered another quarter of growth, making our fourth consecutive quarter of year-over-year growth in both revenue and adjusted EBITDA. For the first quarter of 2024, revenues for Bausch Health, excluding B+L, were $1.05 billion, up $41 million or 4% on a reported basis, and 5% on an organic basis. All segments delivered revenue growth on both a reported and organic basis when compared to the first quarter of 2023, led by Solta with 23% organic growth. Adjusted EBITDA for Bausch Health excluding B+L was $504 million, an increase of approximately 9% compared to the prior year.
We also continued to make progress on our key R&D initiatives during the quarter, in line with our established timing goals. First, for Amiselimod, in April we met with the FDA for an end of Phase 2 meeting and a Phase 3 planning meeting for mild to severe ulcerative colitis, UC. In addition, we were also pleased for Amiselimod to have been accepted for a podium presentation at Digestive Week on May 19th. Second, we completed enrollment for our second global Phase 3 trial for RED-C in late April, which is slightly ahead of our goal of completion by the end of the first half of 2024. And third, we are pursuing approval CABTREO for Canada and anticipate this could occur in the second half of the year. Overall, we continue to feel good about the progress we have made on our R&D pipeline, and are progressing according to the timelines we shared in February.
Turning to our litigation with Norwich. On April 11th, 2024, the US Court of Appeals for the Federal Circuit, affirmed the US District Court of Delaware’s August 10th, 2022 judgment, and also the May 17th, 2023 decision that had denied Norwich Pharmaceuticals’ motion for modification of the court’s final order. We are pleased that the Federal Circuit maintained the judgment preventing the approval of Norwich’s ANDA for Xifaxan until October 2029. On April 5th, 2024, we filed a patent lawsuit against Amneal Pharmaceuticals following the receipt of a notice of Paragraph IV certification stating that Amneal had submitted an ANDA to the FDA seeking approval to market a generic version of Xifaxan. This action formally initiates the litigation process under the Hatch-Waxman Act, and triggers a 30-month stay of any potential FDA approval for Amneal’s ANDA.
As a leader in gastroenterology health, we continue to vigorously defend our intellectual property and are committed to advocating for the safety of patients who have benefited from continued access to Xifaxan. We look forward to continuing to serve our patients, as every patient deserves better health outcomes and the chance to make the most of life. On the Granite Trust matter, we continue to expect the settlement with the IRS to be finalized in the coming months. As we have previously indicated, the anticipated outcome of the settlement does not have material impact on the company’s results or cash flows. We continue to focus on our balance sheet and liquidity, and ended the first quarter with approximately $1.5 billion of liquidity. In Q1, we repaid over $300 million of debt, including the $250 million of bonds with 2025 and 2026 maturities, as noted on our year-end call.
Turning now to the potential full separation of Bausch+Lomb. The full separation of Bausch+Lomb continues to be a strategic priority. We continue to evaluate strategies regarding the potential full separation, with the objective of ensuring that any transaction result in two appropriately-capitalized companies. The outcome at the court of appeals in the Norwich matter represents a significant milestone toward the full separation of B+L. Any decision regarding if and when a separation occurs, or its structure, will be based on, and subject to, an assessment of all relevant factors and circumstances. Any potential separation will also be subject to shareholder and other applicable approvals. Turning now to an overview of our segment performance for the quarter, starting on Slide 8.
Salix revenue grew slightly year-over-year, with reported growth of 1% and organic growth of 2%, driven by Xifaxan and Relistor, offset by net pricing pressure for Trulance and certain non-promoted products. During the quarter, we continued to see an increase in demand for our key products, Xifaxan, Relistor, Trulance, with TRx growth of 3%, 3%, and 9%, respectively. Overall, Xifaxan revenues grew 8% over the first quarter of last year, reinforcing our strategy of continuing to make investments primarily in AI-enabled sales tools, DTC advertising, which we expect will drive further growth in this important franchise this year. Turning to international, we saw solid year-over-year revenue growth during the first quarter, with reported growth of 7% and organic growth of 2%.
Organic growth was led by Canada, where we saw strong performance from Contrave in the quarter. We have begun investing in DTC marketing for this product to build on this momentum. We were also pleased to receive our first public health plan listing for UCERIS aerosol foam in Canada. Across the segment, we are also focused on driving long-term growth through investments in our promoted products and ongoing business development efforts. In Solta Medical, revenues increased by 21% on a reported and 23% on organic basis, led by Asia Pacific. Importantly, we are pleased to see the US return to growth, posting 14% year-over-year growth in revenue. We remain highly focused on maintaining momentum in Asia, with Thermage FLX now approved as a medical device in China, and on driving growth in the US and EMEA markets, where we believe there is meaningful opportunity.
In diversified, we delivered a solid quarter, with 3% reported and 6% organic growth over the prior year. This was led by dermatology business. As we discussed on our year-end call, CABTREO, launched in the US in late January, and early script volume has been encouraging. We expect the new product to be a more significant contributor to the dermatology business over the remainder of the year. Neurology revenues grew slightly, as we continue to capitalize on opportunities in the market created by competitor supply constraints. While we did see volume declines in Wellbutrin and Aplenzin as expected, improved net pricing led to higher sales of these products, reinforcing our strategy in managing script profitability. This growth was offset by continued pressures on our generics business and a slight decline in our dentistry business, where we expect our investments will lead to consistent growth through the remainder of 2024.
Overall, we continue to focus on managing this mature portfolio of products for profitability and cash generation in a challenging competitive and pricing environment, while looking for opportunities to make targeted investments where appropriate. Turning to the latest developments in our R&D pipeline on Slide 9, starting with our GI pipeline. As you will recall, in December, we announced positive top-line results from our Phase 2 study evaluating Amiselimod, an S1P antagonist for the treatment of UC. We held a Phase 3 planning meeting with the FDA in April, and expect to meet with the international authorities, including in EMEA and Japan later this year. In the meantime, we are pleased that Amiselimod has been selected for a podium presentation on May 19th at Digestive Disease Week’s annual conference, one of the largest and most prestigious events for gastroenterology professionals.
We continue to move forward with planning for a Phase 2 program for Crohn’s disease, and expect to initiate that by the end of the year. Turning to our RED-C program with rifaximin for reduction of early decompensation in cirrhosis, our global program focused on assessing the efficacy of our Rifaximin SSD formulation versus placebo to delay the occurrence of hepatic and encephalopathy-related hospitalizations. Both global Phase 3 trials for this program are underway. Enrollment for the first trial, as previously mentioned, completed in December 2023, and the enrollment for the second trial completed in April of 2024, which was ahead of our goal for the first half of 2024. Together, these studies are expected to include over 1,000 patients across North America, Europe, and Asia Pacific.
Turning now to our aesthetics pipeline. We are pleased to have Thermage FLX and the TR-4 return pad available to customers in China as of the second quarter, following the approval by the National Medical Products Administration in January 2024. We plan to file an FDA submission for our next-generation Fraxel in Q2, a fractionated laser device for skin resurfacing, and anticipate approval could be received in the second half of this year. Finally, our program for Clear + Brilliant Touch, a fraction of the laser device for skin rejuvenation, continues to advance. We have received approvals in Australia and New Zealand this year, representing our first approvals outside of the United States, and remain on track for regulatory submissions in 2024 in Europe, Canada, and other Asia Pacific markets.
We feel good about the progress we are making on these key R&D initiatives, and we remain focused on our pipeline of new market authorization and next-generation products as we continue to grow this global durable portfolio of aesthetics products. As a leadership team, we are committed to driving growth by leveraging our existing assets, making targeted investments, and executing with commercial excellence, while continuing to progress our pipeline, all with a patient-centered mentality. With that, I will turn the call over to John Barresi, who will provide further details on the first quarter performance. John?
John Barresi: Thanks, Tom. Hello, everyone, and thanks for joining us. We closed the first quarter with consolidated revenues for Bausch Health of $2.15 billion, up 11% on a reported basis, and 8% on an organic basis over the same quarter last year. First quarter revenues for Bausch Health, excluding B+L, were $1.05 billion, up 4% on a reported basis, and 5% on an organic basis over the same quarter last year, with strong growth in Solta and low to mid-single digit reported in organic growth in our other segments. Turning to segment revenue performance, starting on Slide 12 with Salix. First quarter Salix revenues increased $3 million on a reported basis to $499 million, driven by TRx growth in our key products, including Xifaxan 550, Relistor, and Trulance.
Revenues grew $12 million on an organic basis, reflecting the impact of divestitures and discontinuations of certain non-promoted products. Xifaxan continued to represent over 80% of Salix segment revenues this quarter, and saw strong growth in underlying demand. Xifaxan revenues in Q1 increased 8% compared to the prior year period. Retail prescriptions grew 3% in Q1 versus the prior year. We saw another quarter of solid growth in TRx for IBSD, and the long-term care channel for HE. Extended units grew 4%, which included double-digit growth in non-retail units attributable to outpatient clinics. Relistor delivered 10% growth over the prior year period, with solid TRx growth of 3%, and a benefit from favorable net pricing relative to Q1 of the prior year.
Trulance revenues declined 7% year-over-year as solid TRx growth of 9% compared to Q1 of last year, was offset by net pricing pressure. We also continued to experience net pricing pressure in our non-promoted portfolio in this segment. International revenues were $265 million during the quarter, an increase of 7% on a reported basis, and 2% on an organic basis compared to the prior year period. Organic growth was led by Canada. While LATAM and EMEA were flat on an organic basis, LATAM was impacted by the timing of government purchases, with private channel sales showing growth, while in EMEA, growth in key promoted products was offset by the effects of competition on certain of our non-promoted products. Solta Medical revenues were $88 million during the first quarter, an increase of 21% on a reported basis, and 23% on an organic basis over the prior year period.
Solta’s growth was led by China and South Korea, and to a lesser degree the remainder of Asia Pacific. Importantly, the US returned to growth this quarter, with a 14% increase in revenues over the prior year, and we are continuing to invest in our sales force and related tools to drive sustainable growth in this key market. Diversified revenues were $202 million during the first quarter, an increase of 3% on a reported basis, and 6% on an organic basis compared to the prior year period. In dermatology, revenue grew by 16% on a reported basis and 25% on an organic basis in the quarter over the prior year period, as we continued to focus on returning this business to consistent growth. Growth in the quarter benefited from favorable net pricing comparisons quarter-over-quarter, which we expect will moderate for the remainder of the year, while volumes for our non-promoted products continue to be pressured.
As Tom noted, we are pleased with the early response in the market to CABTREO since its late January launch, and expect it to become a more meaningful driver of growth in our dermatology business as the year progresses. Neurology revenues grew slightly, posting a 1% increase year-over-year, as we continued to benefit from competitor supply disruptions, although not at the same levels that we saw in Q4 of 2023. Wellbutrin and Aplenzin revenues grew despite lower volumes as we continued to execute our strategies to improve overall profitability in this business. While dentistry revenues declined modestly in the quarter compared to Q1 of last year, we continued to invest in this durable business for the long term, and expect the investments we are making in the sales and related tools to return this business to growth through the remainder of 2024.
As shown on Slide 16, Bausch+Lomb revenues were $1.1 billion during the first quarter, 18% on a reported basis, and 11% on an organic basis compared to the prior year, with growth across all Bausch+Lomb segments, key product franchises, and geographies. Turning to the first quarter P&L on Slides 18 and 19. First quarter consolidated adjusted gross margin was 71.2%, 110 basis points higher compared with the prior year. For Bausch Health, excluding B+L, adjusted gross margin for the first quarter was 79.5%, approximately 20 basis points higher than last year’s first quarter. At B+L, adjusted gross margin was 63.2% for Q1 of 2024, compared to 60.0% for Q1 of 2023, driven primarily by product mix, including the impact of Xiidra. Consolidated adjusted operating expenses for the first quarter were $916 million, an increase of $82 million.
For Bausch Health, excluding B+L, adjusted operating expenses decreased by approximately $16 million compared to the first quarter of 2023. Higher A&P, driven by investments in the dermatology and dentistry businesses and R&D, were offset by lower G&A expenses as we continue to focus on cost management. We expect A&P increases to moderate over the course of the year as we begin to annualize our investments in selling and marketing for Salix. B+L reported an increase in $98 million in adjusted operating expenses due primarily to increase selling in A&P, driven by the addition of Xiidra and product launches, including Miebo. Consolidated adjusted R&D expense for the quarter was $150 million, an increase of 5% compared to the prior year, and represented 7% of product sales compared with 7.4% for the prior year period.
For Bausch Health, excluding B+L, R&D expenses of $69 million increased by approximately $2 million for the first quarter as compared to the same quarter last year. This increase is in line with our expectations as we continue to invest in our GI anesthetics pipeline. First quarter consolidated adjusted EBITDA attributable to Bausch Health was $665 million, an increase of $77 million, or 13%. Adjusted EBITDA for Bausch Health, excluding B+L, was $504 million for the quarter, a 9% increase from $462 million in the first quarter of 2023. Turning to cash flow. On a consolidated basis, Bausch Health generated $211 million of operating cash flow and $181 million of adjusted operating cash flow in the first quarter. For Bausch Health, excluding B+L, adjusted operating cash flow was $133 million for the first quarter compared to adjusted operating cash flow of $94 million for the first quarter of 2023, with the changes primarily reflecting improved business performance.
As we’ve discussed in prior quarters, as a result of the accounting treatment for the senior notes issued as part of our 2022 debt exchange, a portion of our cash interest payments are classified as financing cash flows. Adjusted cash flow includes payments of the full contractual interest, as well as adjustments for the payment of separation costs, business transformation costs, and litigation, and other matters, net of insurance proceeds. Now, let’s turn to our balance sheet on Slide 19. We continue to prioritize liquidity management and the de-levering of our balance sheet. In the first quarter, we reduced our debt for Bausch Health, excluding B+L, by $307 million, while debt net of cash decreased by $110 million. We continue to evaluate alternatives to reduce our overall leverage, while also focusing on our maturity profile.
As we discussed on the year-end earnings call, in January 2024, we retired $250 million in principal value of 2025 and 2026 maturities through open market repurchases, capturing approximately $12 million of discount in the process. We also repaid $56 million of additional debt, consisting of mandatory term loan amortization and repaying a portion of our AR facility. At the end of the first quarter, Bausch Health, excluding B+L, had $325 million outstanding under our AR facility, and had no outstanding borrowings and approximately $950 million of availability under our revolving credit facility. As shown on Slides 20 and 21, total debt for Bausch Health, excluding Bausch+Lomb at the end of the quarter was $16.1 billion, which consisted of approximately $14.8 billion of restricted debt issued by Bausch Health, excluding B+L, and approximately $1.3 billion of unrestricted debt, which includes the $1 billion of senior secured notes issued by the unrestricted subsidiary created in the third quarter of 2022, and the $325 million drawn under our AR facility.
Excluding B+L debt, approximately 85% of our debt, and approximately 70% of the company’s debt on a consolidated basis is fixed. We ended the quarter with approximately $1.5 billion of liquidity, which includes approximately $431 million of cash and $950 million of availability under our revolving credit facility. We are focused on strengthening our balance sheet, including evaluating and utilizing as appropriate various tools and strategies based on the provisions of our existing debt agreements, along with our existing liquidity to manage both our maturity profile and our overall leverage. Turning to guidance, we are maintaining our guidance for the full year 2024. For Bausch Health, excluding B+L, we continue to expect revenue of $4.7 billion to $4.85 billion, with organic growth of 2% to 5%, along with adjusted EBITDA of $2.36 billion to $2.46 billion, and adjusted operating cash flow in a range of approximately $775 billion to $825 million.
I’ll now hand the call back to Tom.
Thomas Appio: Thank you, John. We continue to build on our strong global portfolio of businesses, and remain highly focused on delivering against the objectives we laid out last quarter, including, driving a result-oriented culture of accountability, delivering on our revenue, adjusted EBITDA, and adjusted operating cash flow commitments, executing with operational excellence and cost-focused mindset across the enterprise, intensifying our focus and operating rigor behind R&D and business development, and continuing to evaluate strategic alternatives. Achieving the full separation of B+L remains a priority. These priorities help support our ambition of being a globally integrated healthcare company, trusted and valued by patients, healthcare providers, employees, and investors, as we relentlessly drive to deliver better health outcomes.
I would also, once again, like to extend my thanks to the entire Bausch Health team for their hard work. They have worked tirelessly and are all in to position our business for the long-term. Every patient deserves better health and the chance to make the most of life. This drives us on with urgency and efficiency to deliver the products patients need most to enrich their lives. On behalf of the entire Bausch Health team, I thank you for your interest in and support of our company. With that, we will now take questions. Operator, please open the line for Q&A.
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