Good day, and welcome to the Bausch Health Fourth Quarter and Full Year 2019 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Arthur Shannon, Senior Vice President, Investor Relations and Global Communications. Please go ahead.

Thank you, Alicia. Good morning, everyone, and welcome to our fourth quarter and full-year 2019 financial results conference call. Participating on today's call are Chairman and Chief Executive Officer Mr. Joe Papa and Chief Financial Officer Mr. Paul Herendeen. 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'd 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 2 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 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 Papa.

Thank you, Art, and thanks everyone on the phone for joining us today. Let's quickly review the topics we will cover today. I'll begin with a brief summary of our 2019 Company highlights before turning the call over to Paul Herendeen, our CFO. Paul will take us through the fourth quarter and full-year financial results and provide our 2020 guidance. I'll then review the segment highlights and catalysts before opening the line for questions. Beginning on Slide 4, in 2019, our theme was pivot to offense or focus on driving organic growth in our core businesses. We have now delivered eight consecutive quarters of organic growth and 2019 was our first full year of reported revenue growth since 2015. Bausch Health grew organically by 4% in 2019 and reported revenues were up 3%. Our largest segment, B&L International delivered its third consecutive year of mid-single-digit organic revenue growth. Salix reported full-year revenue of more than $2 billion for the first time ever. We generated $1.5 billion of cash from operations. We increased R&D investment by 14% compared to 2018 and we used approximately $1.1 billion of cash to pay down roughly $900 million of debt and fund approximately $250 million of bolt-on acquisitions or licensing products. Pivoting to offense also include launching new products and driving their growth and our new products continue to grow. First, following the launch of THERMAGE FLX in Asia Pacific, the THERMAGE franchise saw 73% organic revenue growth compared to 2018. This exceptional growth rate made the THERMAGE one of the Bausch Health's Top 10 franchises in 2019. LUMIFY achieved a weekly market share of approximately 43% in 2019, is the Number 1 physician-recommended product in the redness reliever category. TRULANCE TRxs grew by 31% year-over-year and we have improved the market access position for approximately 35 million lives since we acquired the product in the first quarter of 2019. DUOBRII has been another standout. Weekly TRxs grew by 25% from the third quarter to the fourth quarter of 2019 and we have now achieved 63% commercial access. Overall, the entire Bausch Health team of 22,000 employees delivered on our promise to pivot to offense in 2019 and demonstrated the durability of our business, which we grew both organically and through strategic bolt-on acquisitions, great effort by the entire Bausch Health team. Paul's going to walk you through the fourth quarter and full-year results in more detail. So with that, I'll turn it over to Paul.

Thanks, Joe, a lot to cover. I'll try to go fast. Good quarter and a good year, a little different approach this quarter. I'm going to start with Slide 5, a summary of the changes in revenue by segment and major business units for both Q4 and the full-year 2019. I'll then walk down the top level P&L for the quarter and provide some observations about the full year before turning to our guidance for 2020. Quick reminder, when we talk about organic growth that means excluding the impact of changes in FX rates, the impact of divested and discontinued businesses in the prior-year periods and the impact of acquired businesses. Okay, Slide 5. In the quarter, we posted 4% organic revenue growth versus Q4 of 2018. Recall that last year we took steps to reduce our channel inventories held at wholesalers and that that had the effect of reducing Q4 '18 revenue by an estimated $76 million. So, that's a tailwind for us this quarter. Excluding the impact of the inventory contraction, we still posted top level organic revenue growth of plus 1%. There were a lot of moving parts, but a lot of good stuff within each of our segments. Let's start with Salix as it was the largest contributor of organic revenue growth in the quarter, up 17% organically on continued strong performance from XIFAXAN, up 29%. RELISTOR up 29% and PLENVU also contributed growth. We lost exclusivity for APRISO in the quarter and that combined with the continued generic erosion of UCERIS offset some of the growth. While not a factor in organic growth, TRULANCE sales totaled $18 million in the quarter and Salix TRxs were up 69% versus Q4 of '18, a strong quarter from Salix to wrap up a great year, posting 13% organic…

Thank you, Paul. On Slide 12, there is a lot of information, but the important message to highlight is we have now delivered three consecutive years of mid-single-digit organic revenue growth for B&L International. B&L International was up 6% in 2017, up 4% in 2018, and up 5% in 2019. Turning to Slide 13, Global Vision Care has been a strong performer and I want to highlight two products that have been key drivers of the growth in this business, Biotrue ONEday and ULTRA contact lenses. We've shown five-year reported revenue for each in the charts on the bottom of Slide 13. On the left, from 2015 to 2019, Biotrue ONEday lenses had a 22% compound annual growth rate and in organic revenue grew by 23% in 2019. On the right, our ULTRA lenses had a 32% CAGR over the past five years and grew organically by 24% in 2019. We've called out the significant milestones that drove incremental growth, including the launches of lenses for astigmatism, presbyopia, and extended wear. This strong performance underscores the durability of these products and the strength of the Bausch & Lomb brand. We are seeing increased market share in U.S. Vision Care. This business gained 1.6 share points to 11% unit share for the month of December 2019 versus a 9.4% share in December 2018. Finally, we plan to launch our daily silicone hydrogel lenses in the U.S. later this year. Silicone hydrogel lenses are one of the fastest growing segments of the content -- of its market. Turning to Slide 14 for an update on Global Consumer, I want to highlight two franchises. First, our top-selling eye vitamin portfolio in the U.S. Ocuvite and PreserVision grew organically by 4% in 2019 and had a CAGR of about 7% from 2015 to 2019.…

[Operator Instructions] The first question today comes from Terence Flynn of Goldman Sachs. Please go ahead.

Maybe two for me. Just wondering at a high level, what's embedded in your 2020 guidance for net pricing across the portfolio, how that compares to 2019? And then on SiHy, the launch in Japan, I was wondering, any details you can share on market share and then how we should think about pricing and positioning as you approach the U.S. launch?

Okay. Let me start on our pricing -- net pricing. Our expectation is that we'll have somewhere in that 2% range approximately. That's very consistent with what we saw in our 2019 information. Net pricing was approximately 2%. We expect it to be something comparable to that. Now, there will be some variation between product A and product B, but on balance there. In terms of the SiHy market share gains in Japan, we're pleased with our initial launch in Japan. There were some issues that we had to deal with as we launched a new product, but on balance, we are pleased with what we've seen in terms of that launch and as Paul said in previous quarters are -- importantly as we look at the Japan market, we believe the SiHy market as a percentage of Japan is about 15% and is growing by about 31%, so -- the SiHy market that is. So, we think it's an important contributor to growth and will be an important contributor for a long time and also as we launch here in the U.S. later this year. The U.S. is a little smaller percentage of total market in the U.S. It's less than I think 13%, but we also see it growing quickly. So, we're excited about what that means for us. We probably aren't going to say anything about pricing yet on the SiHy Daily, but I think you could take it that we'll be competitive with the other products out in the marketplace in the U.S. SiHy Daily business. Next question, operator?

[Operator Instructions] The next question comes from David Amsellem of Piper Sandler. Please go ahead.

I wanted to focus on XIFAXAN and looking at the IQVIA retail data in January, it looks like the growth trajectory of prescriptions is a little more muted compared to 2019. So, I'm wondering if there's any indication that the franchise is maturing in any way and how should we think about the trajectory of volumes for both IBS and AG as we move more into 2020. Thanks.

Sure. I'll start with that one. We always see some normal variation in the early year, especially as patients have the donut hole questions and different reimbursement challenges as we start the year. So, we don't see anything specifically happening there that is unusual relative to what we've seen in the past. I think as you think about trajectory, I mean, if you -- one of the comments I made was talking about XIFAXAN specifically relative to IBS-D. I remind you that within IBS-D, we were growing, I think, it was mid double digits, somewhere around 15%. And importantly, we believe the opportunity there is still very significant for us with XIFAXAN. I remember that the IBS-D category, for example, has about 9 million -- I'm sorry, has about 12 million antispasmodic prescriptions and as we've looked at that, we're less than, let's call it, 10% of that business. Therefore, we believe we've got a great product for IBS-D patients where with the episodic treatment, you can potentially get these patients to just move off of these products like the antispasmodics like BENTYL dicyclomine and actually get relief from -- long-term relief from use of XIFAXAN. And so, we're going to continue to promote that area and we continue to expect to see that growth going on into the future to be clear. Operator, next question?

Your next question comes from Ken Cacciatore of Cowen & Company.

I know from time to time you're asked about splitting or selling some of the businesses, but I was wondering as you get more credit for your performance in the underlying value of all the entity and everything that you're doing, your equity is clearly responding. So, just wanted to know strategically how you view your equity. Is it something that you would think about using to deleverage? Is it something you're thinking about in terms of maybe larger acquisitions? Just wanted to get your thoughts on that?

Yes. Thanks for the question, Ken. It's Paul. Yes, our equity has responded. It kind of opens the door to potentially using that equity in some way. I'd say that for now, I mean, we have a great deal of runway to continue to run our businesses and using equity to reduce our leverage just based on a quantum of our debt and what it would take in order to make a meaningful change, probably not the path we go down. Now using equity in the context of a value-generative transaction, obviously, would have to be the right transaction and something we were incredibly excited about, but we would indeed consider that. I want to touch on, because it's interesting. We haven't heard the question as often about splitting the Company up over the last, I'd say, several months as the stock has performed better. But I think when you look longer term, the trend in -- the overall trend in financial markets is for a preference on the part of investors for pure plays and we own a bunch of great businesses that are today together and I think that they are stronger -- we are stronger with those businesses together today in light of our capital structure, but as we look down the road someday, down the road, there may be opportunities to pursue more pure plays with respect to one or more of our businesses, but that's just something that's down the road.

The next question comes from Umer Raffat of Evercore.

I have two if I may, one for you, Joe, maybe both for you Joe, Okay. Joe, clearly characterized the pivot to be offense and the EBITDA growth of 5% to 8%, but in light of the guidance for this year and in light of our raging investor debate on whether the base business is truly a growth business in the first place, I'm curious, do you feel strongly that the 5% to 8% CAGR is achievable, especially, this year tracks at the midpoint of the guidance. And secondly, I was very curious about the S1P1 press release you guys put out in January, not only because I could still never find the trial online anywhere. So, I was curious where it was actually done and -- but also, it seemed to me that the issue with the drug was cardiovascular adverse events and not exactly a QT signal. So, I was curious that FDA asked to do a QT study as a clearing event for larger trials? Thank you so much.

Okay. So, I'll start on the first part of the question of what we're thinking -- pivot to offense and guidance, but I am going to also turn it over to Paul who has worked his way through that. And then, I'll comment on the S1P modulator. So the simple answer to your question on the CAGRs, are we confident, the answer is yes. We continue to look at that revenue guidance of 4% to 6% growth and then the 5% to 8% on the EBITDA as something that is achievable and I'm going to let Paul comment more about that specifically. But the simple answer is yes, and Paul, do you want to make some specific comments, and I'll come back on the amiselimod.

Yes, sure. I mean and thanks for the question, because we -- Umer, because we do get this question a fair amount. Joe said in his remarks. So that's a refresh of what we meant when we said 4% to 6% and 5% to 8%, it was off the midpoint of our original 2019 guidance at constant currency. If you adjust that, you could come up with a range of targets for 2022 in order to meet that CAGR in the range of say $9 billion -- circa $9.4 billion to $9.95 billion at revenue, $3.9 billion to $4.29 billion for adjusted EBITDA. Yes, we continue to believe that we can and will produce revenue and adjusted EBITDAs in that range. I mean, that's our current belief. Obviously, not a forecast or a bit of guidance that we take lightly. It is fully supported by our bottoms up long-term view of what we think we can do with each of our businesses. I want to point out because people lose sight of this. As I said it was off the midpoint of 2019 guidance. I spent some time in my prepared remarks talking about how we did in 2019 relative to that original midpoint. We did better. So, that helps us along the road. I think people are going to look at our revenue forecast, revenue off of our guidance range of plus 1% to plus 3% and adjusted EBITDA of minus 2% to plus 2%, say, gee, you're not on track to say -- first of all, we've said this a million times. It's not linear and we are focused on where we need to be in 2022 in order to be able to achieve those targets that we set for ourselves and we remain confident that we can achieve those targets. The good news is, we had a great 2019. The bad news is part of that was through LOEs that continued on. We're delighted to have earned the profit and have generated the cash from those LOEs, but that goes away. And so, it has a bit of a growth track for us in 2020. Net-net, we are on track.

On the second part of your question, Umer, on the S1P modulator amiselimod, the trial that we did was an FDA-approved protocol that we had gone and had the FDA approve the protocol. So, we had that in place. We wanted to solve that question or answer that question so that we were assured that there was no Q2 elongation issue. As you know, the cat products in this category have had that problem and we wanted to make sure that that was not going to happen with this product. We had a belief that it wasn't, but we finished -- we wanted to finish the definitive trial for amiselimod to get to that answer. So, that is the reason we did it. There was no request or anything. It was just, we had asked and had that as part of the information that we acquired when we received the product from Mitsubishi on amiselimod. So, I think that answers that part of the question. On the rest of it, we will publish this trial. It has not been published yet, but it will be published and presented in a poster session in the not too distant future. And I think that was the other part of the question. Okay. Operator, next question please.

The next question comes from Gregg Gilbert of SunTrust.

Thank you. It's Greg Fraser on for Gregg Gilbert. On XIFAXAN, can you comment on payer coverage for the IBS indication and whether there is any room for improvement there? And can you also please comment on your initiatives to drive higher growth for the HE indication? Thank you.

Sure. We have very strong coverage for XIFAXAN. Overall, it's 98.7%. HE is a little bit stronger, but at that level, it's essentially universal coverage. I mean, we've got very strong coverage on XIFAXAN. There is some variation from plan A to plan B, but we're very pleased with that. On the question of HE, our view is that, we are going to continue to try to improve the compliance and adherence to the product. We have great data that says that if a patient stays compliant with XIFAXAN, you can reduce rehospitalization for hepatic encephalopathy and if we're able to do that, obviously we could save the healthcare system tremendous amount of dollars. So that's our plan and our focus and we continue to go out and share that data with plan so that they can help lower the cost. Our fundamental belief though is that as healthcare plans and there's mergers where the medical and the pharmaceutical comes together, we believe we're going to have even more traction of that as we look at the opportunity to not only lower the total cost of the patient from the point of view of both the drug cost and the cost of rehospitalization, etc. So, that's our plan and that's how we've been working on it. We think it's going to be important for patients going into the future with hepatic encephalopathy, and that -- you may recall from our previous comments, we're even looking at trying to get to some of these patients before the actual hepatic encephalopathy by going after some clinical trial evidence that we see in patients who have psoriasis. So, a lot more work. So, stay tuned to that for the future. Next question, operator.

The next question comes from Jason Gerberry of Bank of America.

So, quick question on XIFAXAN, I think previously in September, you communicated around a 10% to 12% range of growth with minimal contribution from Project CORE. I just wanted to confirm if that's still the fundamental outlook. And then just on the Significant Seven, is the change in disclosure more or less, hey, this is indicative of our broader pipeline value or is there a diminished outlook as it pertains to the $1 billion target end of 2022? Thanks.

Paul, why don't you take the first part of that?

Yes. Yes, on the first part of that, I think, what we said was, we kind of continue to believe that XIFAXAN would in 2020 versus 2019 that the way -- the best way to forecast that would be to think about TRxs growth and use that as a proxy for unit growth and I think we continue to believe that that can be in the high single digits. And to that, you need to add a couple of hundred basis points of net price increase and the reason it's only a couple hundred basis points is that non-recurring part of the revenue that we saw in 2019 related to the non-durable part of the improvements in gross to nets, some of it is reflected in absolutely improved net selling and step selling price increases that we've realized in '19. But some of it is, it just goes away and becomes kind of a growth headwind. So, net net, I think we pretty much said high single digits units and a couple of hundred basis points of growth. So, circa 10%.

On the second part of your question on Significant Seven, the way we look that is, if you go back historically, in 2018, early 2018, we identified seven products that we felt were the key growth drivers for us and as we thought about that, we had great success. This year, it was up 68%, achieved $269 million and expectd to see it continue to grow, to be clear going forward. But what we felt is that, that's going to leave out some really important growth drivers, like XIFAXAN, like TRULANCE, like Thermage, like Biotrue, ULTRA, PreserVision, enVista, APLENZIN and we really came up with a group of not seven, but actually I could be fair, say, so closer to 15 products that are clear drivers for our future. Now, we're not going to comment specifically about those, but my point was that, there are some big opportunities there for for the future relative to where we saw the future of this business and specifically you get a product like XIFAXAN, our largest product growing double digits, really is a meaningful contributor and you can't leave that out of the equation as you're thinking about the future for our business. So, that was really the issue. It was -- no concerns about our expectations for the future on that one. Chris Schott? Next question?

The next question comes from Chris Schott of JPMorgan. Please go ahead.

Maybe, first question was -- maybe one for Paul, and just following up with the potential for a split and some of those comments you made investor appetite for pure plays. You mentioned that's a trend to think about down the road, but just maybe a little more color on what you'd need to see to enable a split. Is this simply just a matter of getting leverage to a lower level or is there something fundamentally we need to think about in the businesses before you would consider maybe separating out into individual kind of units as compared to the portfolio you have today. My second question, which is a quick one on the second XIFAXAN filer. Just any color about this filer relative to Sandoz as you think about the defense of that franchise over time? Thanks very much.

Yes, Chris. Thanks for the question. I'll, obviously take the first one. Yes, leverage -- I would say, our level of leverage today is a -- makes it -- would make it challenging to pursue something where we spin out one of our entities or whatever. It's not impossible, but it would make it a fairly significant challenge. That is the primary thing that we'd sit there and say, it becomes more clear for us with the passage of time. And yes, I don't think I'm saying anything here that's groundbreaking. Pure play is a thing. I mean people pure play. We get it. We own businesses that are very attractive and very attractive in their own right, as we're sitting here today, and for the near term and we continue to believe that we are based on our cap structure stronger together and we'll continue to evaluate opportunities for providing that pure play as we go forward.

On the second part of your question, the new XIFAXAN filer, as I mentioned in my comments, that company is Norwich. My understanding, although we don't have all the information yet, is they filed specifically on both the IBS-D and HE. Our belief is that we have 23 patents. So, when we initially settled with the largest generic company Teva, we had 22 patents. We have now supplemented that with another patent. So, we have 23 patents. So, we feel very strong about our intellectual property position, relative to this filing and we don't see anything specifically different from this -- from what they filed versus what Teva filed. So, we continue to believe we've got a strong intellectual property position. So, no other specifics or any differences that we've observed. Operator, I have time for one more question, please.

The last question comes from Akash Tewari of Wolfe Research.

So, look, if we take into account the $275 million LOE impact, the roughly $160 million kind of inventory true-up accrual benefit you had in 2019 that might not necessarily carry over. It looks like you need over $500 million in new product sales year-over-year to kind of hit the midpoint of your guidance on reps. Can you walk us through where that growth is coming from? I'm assuming maybe like a $150 million is on XIFAXAN, but what's the contribution on the Significant Seven? What's the contribution on THERMAGE etc., etc, any color would be really appreciated? And then, just a bit on the cash flow, there was a bit of dip in Q4. I'd love a bit more color on what happened and then how we should think about it in 2020. It looks like your 2020 cash flow from operations is $1.5 billion, which is a bit lower than what I had expected. So, if there is any color on that, we'd really appreciate it. Thanks.

Okay. I'm going to start, but Paul, we're going to -- there is a quite a few questions. We're going to have to take pieces here. I think the fundamental first question is, where can we grow and how can we grow in 2020 and beyond and what I would simply go back to is that, as we look at our business, we think the overall B&L International business is going to grow at that mid-single-digit rate. I think your characterization of XIFAXAN growing ballpark 10%. I think that's a fair characterization. Solta, I think, you saw the growth that we experienced with Solta in 2019. We clearly think that that's a great opportunity. And then, the final area I'd say is the derm returning to growth is a really important message. If you think about our business, the B&L business, the Salix business have been important to us, but we've had a headwind with dermatology as that dermatology grows, especially, with some of the new programs -- new products like DUOBRII plus the derm.com -- dermatology.com contribution to our business, we think, are all going to be important parts of that growth for the future and obviously we got less LOEs versus we had in the past, but, Paul, anything you want to add to that portion or talk a little bit about cash flow with it.

Well, sure. I mean, I actually -- I do want to talk about the kind of the growth and where is it going to come from. First is, I think you stated a number of -- on the kind of an inventory issue that was we are well above what it really was. In 2019 V '18, the aggregate amount that it was kind of an one-timer if you will, of us taking those wholesale inventories down, was $76 million. Big number in the quarter, a couple of hundred basis points of volume growth that was based on that relative -- basically what was a relative expansion, although was -- we are not in expansion at all. And for the year, yes, it was also baked into our year versus 2018, but not as big a factor on a total revenue base of $8.6 billion odd. If you look at the bridge on Slide 11 of our presentation, that $415 million of increase coming off from what we call base performance is obviously net of any pipeline things that that would have come up. So, that bridge shows you, I think, how we will get to -- in the aggregate at a companywide basis, how we'll get to within our revenue guidance. With respect to cash flow, I mean, I don't want to start with 2019 because as I said on my prepared remarks, we were at $1.501 billion. So just at the low end of our guidance range and to be super clear, that is for cash generated from operations and that's on a GAAP basis. The primary difference between us -- it being $1.5 billion and being $1.55 billion or $1.6 billion was that we did at the end of the year have more inventory than we had…

Stop there. Okay. Let me just thank everyone for joining us and we'll see you soon as we will be on the road for the next few months at the various healthcare conference. Thank you everyone for joining. Have a great day, everyone.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.