Good day, and welcome to the Bausch Health First Quarter 2022 Earnings Conference Call. All participants will be in listen only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask question. [Operator Instructions] Please note today’s event is being recorded. I would now like to turn the conference over to Christina Chang [ph], Senior Vice President, Investor Relations. Please go ahead, ma'am.

Good morning. Welcome everyone to our first quarter 2022 earnings conference call. Participating in today’s call are the Chairman of Bausch Health and Bausch + Lomb’s CEO, Mr. Joe Papa; new CEO of Bausch Health, Mr. Thomas Appio; and the new Chief Financial Officer of Bausch Health, Mr. Tom Vadaketh. Before we begin, I'd like to remind you that our presentation today contains forward-looking 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 Administrator for a list of 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 not be considered along with, but not as alternative to, operating performance measures as prescribed by the GAAP. You will find reconciliations to our non-GAAP measures in our appendix of the presentation online. Finally, the financial guidance in this presentation is effective as of today only. We do not undertake any obligation to update guidance. I would like to take a moment to remind you that the first quarter results are the fully consolidated results of Bausch Health, covering the quarter ended March 31st, before the IPO of Bausch + Lomb, which is scheduled to close this morning, subject to customary closing conditions. Our discussion today will focus on Bausch Pharma and Solta and we will briefly comment on Bausch + Lomb's results disclosed in its IPO prospectus. Bausch + Lomb will file a separate 10-Q within 45 days after IPO pricing and will host a separate earnings call in conjunction with the filing. Please note that the results of the B&L segment presented here today will differ from the results presented in the stand-alone financial statements of Bausch + Lomb as those stand-alone state results include certain corporate and shared costs that are allocated to Bausch & Lomb, which are not included in our B&L segment results. With that, it is my pleasure to turn the call over to Joe.

Thank you, Christina, and thank you, everyone, for joining us today. With the initial public offering of Bausch + Lomb’s scheduled to close today, Bausch Health begins the journey towards the separation of its global pharmaceutical and eye health business, an important step that we expect will help unlock the value in each of our established franchises. Before I start, I would like to thank the 20,000 Bausch Health employees around the world for their ongoing contributions to simultaneously move forward with our strategic alternatives process, advance our R&D projects and drive business performance that helps to improve people's lives around the world. As part of our planned succession about Bausch Health management team, Tom Appio will lead the new Bausch Health into its next chapter as Chief Executive Officer. Tom's extensive experience in pharmaceuticals includes more than two decades at Schering-Plough and 12 years in Bausch Health, where the B&L International business delivered significant top line and bottom line growth under his leadership as President and Co-Head. Tom Vadaketh succeeds Sam Eldessouky as the new Chief Financial Officer of Bausch Health, with over 30 years of financial leadership experience in several industries and companies, both public and private, including Tyco, Procter & Gamble and Cambrex Corporation. Tom's experience in the successful spin-off of Tyco subsidiaries will guide the separation process. Sam began serving as the Chief Financial Officer, Bausch + Lomb today, May, 10. We are confident each organization will benefit from a dedicated focus on our respective verticals that will feel innovation to address significant unmet medical needs. On Page 6, let me provide a quick update on our strategic alternative process and the B&L IPO. We launched the initial public offering of 35 million shares of Bausch + Lomb last week equivalent to 10% of shares outstanding,…

Thank you, Joe, and congratulations on Bausch + Lomb’s IPO. It is a privilege to lead Bausch Health as it enters a new chapter. I look forward to working with our Chairman, Joe Papa; and our future Chairman, Bob Power, who will assume his role upon Bausch + Lomb’s full distribution and the rest of the Bausch Health management team. Before I speak about Bausch Health, let me say that our thoughts are with those affected by the Russia-Ukraine conflict. Each of our 76 employees based in Ukraine is safe and accounted for. We have dedicated resources to address the humanitarian crisis in the country through multiple channels, including collaborating with GlobalGiving, a non-profit organization for an employee donation program to support affected communities. Bausch Health is a global organization with an energized and talented team and a well-established platform for scientific innovation and proven success in the commercialization of health care products. We have a global organization with a presence in approximately 90 countries. We have a differentiated pharmaceutical portfolio across multiple high-growth therapeutic areas. We have a global medical aesthetics business in approximately 50 countries. We have strong cash flows supporting delevering and investment in pipeline opportunities. We have the ability to leverage global infrastructure to pursue a robust business development agenda. We have a seasoned leadership team with a track record of driving profitable growth. Our diverse portfolio spans more than 600 products across multiple therapeutic areas, including gastroenterology, hepatology, dermatology and neurology. Our team have built a strong foundation that positions the company for continued success. Our specialty sales force is instrumental in the success of our well-known established franchises led by XIFAXAN, which is recognized for its strong efficacy in treating IBS-D and hepatic encephalopathy, also known as HE. We continue to leverage our primary…

Thank you, Tom, and good morning. We appreciate everyone who has joined us on this call. Before I start, please note that my comments on revenue today will focus on organic revenue, which excludes the impact of foreign exchange, divestitures and discontinuations. Consolidated revenue for the first quarter was $1.9 billion with flat organic growth versus the prior year. First quarter revenues for Bausch Pharma and Solta were $1 billion, down 3% on an organic basis versus last year. This was driven by a low single-digit increase in average price, offset by lower volume. Q1 was a challenging environment with the Omicron resurgence impacting primary care and nursing home capacity in the US as well as the resulting COVID lockdowns in China. The geopolitical tensions have created ripple effects on an already tight supply chain, which continues to create an inflationary pressure on input costs. Navigating these challenges requires increased focus and agility as we safeguard the supply of our products. Let me provide more details on each of our segments. You can refer to Slide 9 for a summary of our sales results. Please note that starting this quarter we will report sales under our new reporting segments: Salix, International, Diversified Products, Solta Medical and Bausch + Lomb or B&L. Please see Slide 34 for a quick guide. Turning to Page 11. Salix revenues of $464 million were down 2% versus the first quarter last year, following a record high fourth quarter. The reduction was partially due to lower volumes related to the loss of exclusivity in certain products. The year-over-year decline was also related to the non-recurrence of favorable wholesaler inventory rebalancing in the first quarter of the prior year. We estimate that this impacted the year-on-year revenue comparison by approximately $50 million. XIFAXAN sales increased in the…

Thank you, Tom. It is great to have you on the Bausch Health team. Before I wrap up, I want to wish the Bausch + Lomb team tremendous success. Having worked with this team closely for 12 years, I am excited to see our talented team lead the independent Bausch + Lomb in its next chapter of growth and success. Looking forward, Bausch Health is moving with a sense of urgency to drive near-term growth while supporting our long-term strategic priorities on Slide 32, which I would like to elaborate more in detail. Firstly, we will drive growth through operational excellence across the enterprise. We continue to believe that Salix and International will be growth engines for our company. Our anchor brand of XIFAXAN is best positioned for incremental growth with increased investments intended to further raise awareness of the clinical unmet need in IBS-D and HE. We recognize the pressure on the US healthcare system to safeguard the standards of care for patients as hospitals and nursing home facilities navigate ongoing capacity and staffing challenges. XIFAXAN provides a clear health care solution for reducing rehospitalization patients with HE, reducing pressure on an already overburdened health care systems. Evidence of commercial excellence is seen in our ability to drive results with RELISTOR, TRULANCE and Jublia, where we have realized increases in market share with targeted market access wins and direct-to-consumer investments. We will leverage our international commercial scale by launching 45 different products across 50 markets within our International segment. We will increase focus on operational efficiencies through effective portfolio and life cycle management. We also see good potential to stabilize our cash-generating business of derm, neuro, generics and dentistry. In the second half of 2022, we believe our Solta business will see the recovery of procedures in Asia Pacific,…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today first question comes from Ken Cacciatore with Cowen & Company. Please go ahead/

Hi, thanks everyone. Congratulations as you continue to move forward. So my question is you do have upcoming potential lawsuits. You mentioned, Joe, at one point, the Opt-Out. Wondering about XIFAXAN if there is a loss, and we know you could appeal if there was one, would that in any way hinder the spin or hinder the covenants? And then also, just wondering, I know it's difficult for you to speak to, but there's clearly a discrepancy in how the two shares are trading. Obviously, Bausch still retains 90%. Can you just talk about why this discrepancy is there? Anything that you'd like to comment on what might be causing this? Thanks so much.

Ken, it's Joe Papa. I'll take that question. I mean, let me start with respect to the XIFAXAN case in the Norwich trial. As I said in my call, comments, I do believe that what we presented, the evidence it went in well, we remain more confident in the strength of our intellectual property today. I remind you there's 26 intellectual property patents. We remain more confident today than before the trial and therefore, the chance of a successful outcome. Number two, I want to add to that comment. In addition to that, we have seen that the FDA put through an additional product-specific guidance on XIFAXAN, specifically in August of 2021, that has an incremental requirement for approval of XIFAXAN. For both of those reasons, we feel very confident in our situation with the XIFAXAN intellectual property, our expectations as I've stated. I will answer the questions as this hinder the spin. Obviously, we do not expect that the IP loss will occur. But if it did occur, it would have to have an influence on the timing of the spin as we think through this. But once again, I just want to repeat one more time. We have a high degree of confidence based on our expectations of how the trial went. I did see some additional public comments on this that supported that we would prevail. But certainly, we'll wait and get the answer in August. But at this time, our expectation is we will win, we will be able to move forward with the spin. On the question of the share price discrepancies within Bausch Healthcare and Bausch + Lomb, I think the comment comes down to part of what you asked. I do think that there are some questions that people have raised specifically in…

Yes sir. Our next question comes from Chris Schott at JPMorgan. Please go ahead.

Hey guys, thanks for the question. Can you just elaborate a little bit more on the path forward to separate here? It seems like you need to monetize the remaining 10% of P&L IPO Solta and then you'd still need some ongoing cash flow from the core business, if I'm thinking about the math right. I guess just in light of the capital raises, et cetera, is there any time lines you can point us to in terms of when the company could be in a position to complete this process, I think it just would be helpful. I don't know if you can say much, but anything on that front would be helpful? And then tied to that in a follow-up, how do you think about an IPO of Solta versus revisiting a sale process for that asset. That seems like that could address your delevering process, but I just didn't know where -- are you kind of committed to this IPO process, or is there an opportunity to revisit a different alternative for that asset? Thanks so much.

Sure. Good question, Chris. Let's start with the path forward on the spin. I think as we laid out in the earnings deck, we look at -- there's a couple of things that have to happen in terms of us going forward with the full separation. The first thing is, obviously, it's going to be based on the performance of the B+L business and the performance of the Bausch Pharma business. I remind you that Tom Appio has talked about the very profitable cash generation of the Bausch Pharma business as well as the growth that we're expecting in the B+L business. So I think that clearly is probably the first issue. The second one, obviously, as the B+L business performs, Bausch Health will have the ability to monetize the remaining 10% of the B+L shares and utilize that to pay down debt. Obviously, that will also be beneficial. The third thing I would comment on is just the continued opportunity with the Solta business and what we can do with the Solta business in terms of the IPO of Solta. I take the point on the sale and probably I'll weave that in. All of our businesses, as we've always stated, we're a public company, all those businesses are available for us to make some decisions on what to do with it. But right now, we've be clear that the path of the IPO so seems to be the best path for us going forward. But I think it's going to be the combination of all three of those things. I probably can't make any specific comments on timing other than what we said before. We've got to get ourselves through the customary lockup periods that occur after the IPO. So we won't do anything before the customary lockup periods. And number two, we want to make sure that we have Bausch Pharma at the appropriate debt lever to 6.5 times to 6.7 times. So those would be the only other comments I can make on the specific timing question. But, obviously, we're going to continue to move expeditiously through this as quickly as we possibly can. Operator, next question please.

Yes, sir. Our next question today comes from Doug Miehm with RBC Capital Markets. Please go ahead.

Yeah. I just wanted to maybe delve into a bit more detail with respect to the change related to your inflation comment, COVID, foreign exchange. Is there a chance as we look out through the remainder of the year that we could see another change to your outlook for EBITDA, which is very important to you in terms of meeting all the requirements that you just mentioned for the distribution. And I'm just wondering, in those types of markets, you already indicated that Q2 is for Solta's likely going to be like Q1. But could this last through the remainder of the year and make it even worse?

Yes. It's Tom Vadaketh here, Doug. I'll take this question. Look, we have baked into our guidance, everything that we can see as of now. We can all see the COVID lockdowns in China, they've, in fact, expanded, as you know, and now Beijing is moving into a lockdown category. And so in our guidance, we've assumed that, that will lift off sometime in the second half. And that obviously impacts the Solta business, as you said. From an inflation point of view, again, we have baked in what we see. We had started to see inflationary factors really start at the end of 2021. We've taken mitigating actions, done some pricing We've also -- our supply chain folks have done a great job shoring up on contracts and locking in longer-term supply contracts to try and protect our bottom line. And we'll continue to do that to mitigate as much pressure as we can see. But right now, is there a risk that we could see more headwinds? Yes, of course, it's impossible to predict, but we think we've captured everything we can see right now in our outlook.

Okay. Great. And then I don't want to harp on this, but when you look at the 6.5% to 6.7% debt-to-EBITDA range that you're looking for to complete the distribution, our work had suggested that you might be able to get there by the end of the year. But now with the lower cash flow, you're expected to generate, my guess is you're going to have less of an ability to pay down debt between -- over the next five months, by year-end or so. And I'm just wondering, is it realistic to believe that the distribution could be made this year given the lower cash flows the company is going to generate, even if we consider the follow-on offering at B&L [ph] IPO and Solta IPO by year-end.

Sure. I'll take it, and Tom may want to add to it. But what I would say is that as we've obviously looked our way through this and we have -- we're thinking about the valuation of the B&L, the secondary 10%. We're thinking about what the Solta valuation is and what that opportunity is. And then, of course, we're looking at the cash generation of the Bausch Pharma business. I think all of those are factors we're working into it. Once again, I can't put a specific time on it at this point, but we do see ability to continue to pay down debt. We think the profitability of Bausch Pharma is, I think, Tom Vadaketh has mentioned, is very strong, and they will utilize that to pay down debt. So we do think there's all the pieces that are in place. We're just going to continue to execute on the business as we think about the go-forward situation. So I don't know if there's much more I can put a specific timing on it. But could the possibility be at the end of this year, early next year, yes, those are all certainly possibilities for us. I think earlier it would depend on Solta. Later also, we would have a dependent on Solta on what happens. But I think that timing is not out of the realm and possibly earlier depending on what happens with our cash generation and what happens with Solta. Tom, anything you'd add to it what I said.

I'd just reiterate the fundamentals of the business continue to be very strong. The pharma business has -- will have EBITDA margins in the mid-50s range. And our cash generation on an unlevered basis, free cash flow generation is at the 80% level. So I expect those to continue. We have a great team that's focused on making sure that those things continue to get delivered. But I agree with you, Joe, I think in terms of timing, I wouldn't dare put a date out there.

Yeah. What I would say is as I talked spoke in my spoke in remarks is that the business spins a lot of cash, and we're going to prioritize paying down debt and accelerating the performance. So as Joe pointed out and Tom pointed out, we're going to be focused on delivering the business growth and paying down debt and see where that gets us as we move to the second half of the year. But there is -- certainly, as we look what's going on between COVID and China, the lockdown, supply, of course, what's happening in Russia and Ukraine, these will all factor into it. But clearly focused on delivering the second half.

Thank you.

Operator, next question?

Yes sir. Our next question comes from Greg Fraser from Truist Securities. Please go ahead.

Thank you. Good morning. Just following up on the XIFAXAN patent case. You're clearly confident in your position, more confident than before. Can you comment on whether you've engaged in settlement discussions? Is settlement still a possibility? And do you have insight into whether or not it’s a generic candidate is compliant with the new bioequivalence guidelines? Thanks.

So good questions. We can't obviously talk about whether or not we are in settlement discussions. I think that what I'd simply say, from a holistic point of view on this is the question of, number one, as a company, we have 26 patents on the XIFAXAN information. And we -- as we think about it, now that, that's a really strong case and we know that. Number one, TEVA looked at that and made a decision to settle. The Sun company looked at it and made a decision to settle and Sandoz made a decision to settle. So we think all those reasons to suggest that is a strong intellectual property position. Number two, as I mentioned in my previous comment, we know that the FDA put some additional product-specific guidance out, I believe the date was August of 2021 was the date, and that requires some additional data on the bioequivalence of the product. I cannot speak directly to what it has or doesn't have. But I do know that there are differences in polymorph, and there's different absorption by polymorph. And, obviously, we have strong polymorph patents in addition to use patent. So I simply -- I'll just let Norwich make the comment specific on their product. But clearly, we believe that in addition to the intellectual property, there are some product specific guidelines that we think are the going to cause some questions for them and how they could potentially move forward. Those guidelines, of course, came out after their submission for their ANDA. So they'll have to make comments about what is specifically going on relative to their product. I can't make specific comments. But we feel good about what we said and I said in my prepared comments that we feel better today than what before the trial. So I think that's probably the best guess can give.

Greg, this is Tom. After the trial, we feel we have a strong case against Norwood. So we -- our position remains the same. So we're very confident.

Thank you.

Thank you. And our next question today comes from Gary Nachman with BMO Capital Markets. Please go ahead.

Hi, thanks. So again, on the Bausch Health, 6.5 times to 6.7 times leverage target to achieve that. What other levers might you have? Could B&L take on any more of the debt to effect the spin? Is that leverage target still less than 2.5 time you didn't mention that today? And any other divestitures that you think might happen in the near term to help generate cash flow? And then for Tom, talk about your flexibility for Bausch Health to do business development, if you carry leverage up at that level? And generally, how good you feel about the pipeline versus how much inorganic growth you might need for that business to really grow going forward? Thanks.

Okay, Gary. I'll take on the first part of the question. Tom can take the second. Relative to the 6.5 times to 6.7 times. I think I tried to answer the question of the company is we've got the opportunity for the business fundamentals. I think it's got to be first and foremost the answer for both the B&L business as well as the Bausch Pharma business. But specifically on Bausch Pharma, obviously, they've got some good opportunities. They're a very profitable business, generate a significant amount of cash. Number two on the question, could B&L take on more debt? I do want to be comment on that. We did take 2.9 times leverage, that is the leverage we took in light of the fact that we only went out with a 10% IPO. We made a decision to take being out to 2.9 times of debt leverage. So I just want to be specific on that. Tom, do you want to take the other part on the...?

So what I would say is that in terms of monetizing other assets, of course, we're a publicly held company, so we'll always look at ways to, if we can, to monetize assets that is good for shareholders. And of course, if we're able to do that, that then frees us up to do things with some of the cash. What I would say is from an R&D perspective, and a BD perspective, clearly, we have opportunities, as I spoke about of our pipeline right now in R&D. I was just out at our R&D facility in California. It's a really great energized team out there. We have a lot of good projects that we're working on. And then we have established an entire BD and strategy team, and that is looking at tuck-in type acquisitions that we can bring into the portfolio. As I said in my prepared remarks, we have teams in 90 countries around the world. So depending on where it is, especially if we take a look from a US perspective or an international perspective, looking at the things that we can bring into the portfolio that will fit nicely into the commercial presences that we have. Of course, it will be a focus and a balance, but clearly, always looking at that balance to pay down debt, but also put products into the pipeline, which we have, as I said in my remarks of what we're going to be able to launch in international and bringing in products that we can put there. We are also looking at how we can bring products into, again, our US business to really maximize the value of our commercial capabilities.

Operator, next question.

Absolutely. And our last question today comes from Jason Gerberry of Bank of America. Please go ahead.

Hi. Good morning, everyone. This is Sian [ph] for Jason. Thanks for taking our questions. Maybe just a couple of follow-ups on the XIFAXAN IP case. Do you have a sense of a view on what the timing of a potential ruling could be? Typically, I think a ruling could come six to eight months after the trial conclude. I think for me sitting under trial, I think there was expected to be a post-trial brief due sometime early June. So if you can comment about the timing, that would be great? And then maybe just a follow-up on Ken’s earlier question about how in a scenario, if you were to lose the IP case how it could affect the spin. If I understand the commentary correctly, if it does occur in that scenario, it might have had an impact on the timing of the spin and some other additional considerations. I'm curious what may have changed from last quarter. I think if I recall correctly that last quarter view is that XIFAXAN case would not impact – wouldn’t have any impact on the spend regardless of the outcome. So curious about commentary on there? Thanks.

Okay. So I'll take the first part of it on XIFAXAN. The Norwich decision, we're expecting a decision in early August. So we're hoping that that's the time frame that we can see, so we can move forward from this but right now, that's what we're looking at from a decision standpoint. And then I'll let Joe address your second part to the question

Sure. On the question of intellectual property, I've got to say it one more time to simply because I believe that we believe that we will prevail on that intellectual property. We have 26 patents. We have a strong case. We feel better about the case today than we did before the trial. So I want to say that right upfront. Number two, I want to be specific about the product-specific guidelines that are the -- FDA has put those draft guidelines out in August of 2021. Our view is that, that could have an impact on the potential approvability of the Norwich product. So I clearly think that another variable that has to be considered. Having said that, I will answer your question, if the XIFAXAN -- we were to lose the XIFAXAN case, which I do not expect, to say one more time, it could have an issue for us. In terms of exact timing, obviously, we would continue to look at that in light of how we are expecting our overall timing. But we will have more comments about something like that should it happen. Once again, we do not expect that outcome.

Thank you.

I think operator, you said that was the last question.

Yes, sir, that is correct.

Well, I'd like to conclude today's call. Thank you all for joining. As I said in my remarks, Bausch Health is moving forward with a sense of urgency to drive long-term growth with supporting our strategic imperatives to provide shareholder value. I'd like to -- as I said at the end was really we're going to reach out and endeavor to reach out to many of you in the coming months as a part of a comprehensive IR effort, really looking forward to having discussions about the Bausch Health business and what we can provide and do for patients and shareholders. Thank you.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.