Greetings. Welcome to the Bausch Health Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, John O’Connor. You may begin. John O’Connor: Good morning, and welcome to Bausch Health's second quarter 2023 earnings conference call. This is John O’Connor, Senior Vice President, Investor Relations for Bausch Health. I recently joined the company a few weeks ago, and I’m looking forward to leading the Investor Relations effort here at Bausch Health. Participating in today's call with me are Thomas Appio, Chief Executive Officer of Bausch Health; and Tom Vadaketh, 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 at the beginning of the slides that accompany this presentation, as they contain 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 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 will focus on Bausch Health, excluding Bausch & Lomb. However, we will 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. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on August 3, 2023. With that, it is my pleasure to turn the call over to our CEO, Thomas Appio. Tom?

Thank you, John, and welcome to those of you joining the call this morning. At Bausch Health, our team is focused on enriching lives through our relentless drive to create better health outcomes for our patients and physicians. The BHC team is tirelessly dedicated to business performance, delivering results, and progressing key strategic objectives. This dedication was on full display this quarter, with a number of highlights that I will touch upon. Turning to Slide 6, we had a strong quarter with revenues for Bausch Health, excluding B+L, $1.13 billion, up $106 million or 10% reported and 11% on an organic basis. We received a favorable motion ruling in the Xifaxan litigation, which reinforces our continued investments in the Salix growth strategy. We executed an additional proactive balance sheet initiative that further enhances our liquidity profile. We continued to take thoughtful steps as we evaluate the optimal implementation of a potential Bausch & Lomb distribution, and we continued to progress our R&D pipeline. Let me start by sharing some of our business performance highlights as shown on Slide 7. This quarter, three out of four non B+L business segments, Salix International, and Solta Medical, posted double-digit revenue growth, both on a reported and organic basis. The Diversified segments were a modest decline, an improvement from the last few quarters where we have seen double-digit declines. While neurology and generics remain challenging, we are hopeful that the actions the team has taken will help temper the pressure on these businesses. Let's take each segment in turn. Salix. Q2 net sales for this segment were $557 million, growing 11% in the quarter. I am pleased to report that the investments we have made in this segment are beginning to pay off, building on the plan we laid out since I became CEO.…

Thanks, Tom. Hello, everyone, and thanks for joining us. We closed the second quarter with consolidated revenues for Bausch Health of $2.2 billion, up 11% on an organic basis over the same quarter last year. Second quarter revenues for Bausch Health, excluding B+L, were $1.1 billion, up 11% on an organic basis. We saw growth in our Salix, International, and Solta businesses, while we experienced a more modest decline in our Diversified segment than in recent quarters. Let's dive into the revenue performance for each segment in more detail, starting on Slide 12 with Salix. Second quarter Salix revenues increased 11% on an organic and reported basis to $557 million, driven by growth in our core products, including Xifaxan 550, Relistor, and Trulance. As Tom mentioned, we're seeing our investment in Salix's commercial organization begin to pay off in the form of increased brand awareness and demand. Growth in Salix was led by Xifaxan, which grew 9% in the second quarter compared to the same quarter last year, and overall demand grew 3% year-over-year. In addition to our demand generation efforts, we are benefiting from a rebound in the long-term care channel, with increases in occupancy levels that while increasing, still remain below pre-pandemic levels. We are also pleased with the second quarter sales performance of Relistor and Trulance, which posted year-over-year growth of 42% and 73%, with total scripts growth of 20% and 14%, respectively. International revenues were $259 million during the quarter, an increase of 11% on a reported and organic basis compared to the prior year period, led by strong growth in our promoted portfolio in Canada and key markets in EMEA. In EMEA, the growth was also benefited from a prior year reduction in revenues of $11 million related to a change in our estimates of…

Thank you, Tom. In summary, although we still have much work to do, I am pleased with the quarter business performance and the progress we have made. Our strategic priorities remain intact, as you can see on Slide 23. We have a clear purpose on enriching lives through our relentless drive to create better health outcomes for our patients and physicians. We have made key focused investments in our sales teams, marketing programs, and R&D projects, which will drive future growth. We have progressed key strategic objectives. Finally, and importantly, we have an all-in team that is principled, creative, problem solvers, and results-focused. On behalf of our 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

[Operator Instructions]. Your first question for today is coming from Glen Santangelo with Jefferies.

Thanks for taking my question. Hey, Tom, I think I'll ask a question that's kind of on everyone's mind. Everyone's kind of curious about this tax-free reduction of capital. We're wondering if you could maybe put a little bit of a finer point then in terms of what you mean, and I guess why the pivot at this point, because it seems like it had a plan, and now it seems like you may be pivoting and I'm kind of curious as to what changed.

Yes, Glen, good question. Let me just take it from the top. It's a good question. It's complicated. What I would say is, when we look at it, of course, the spin and the IPO was announced three years ago. It was a different management team at that point, and really trying to, as I took over as CEO and the team took over, really looking at what was going to be the best way to do it. So, basically, when we looked at it, we believed that trying to find a way that could simplify the process to help manage some of the risks identified. And we believe that we can create some additional strategic flexibilities for both companies if we're able to work under a reduction of capital.

Tom, if I'll just add a couple of things. So, Glen, just transactionally what the difference, so what this is, like the term suggests, it's a reduction in capital. And in this case, the reduction is the value of B+L, and effectively the result of those B+L shares being returned to the shareholders. So, that end result is exactly the same in the sense that the B+L shares are distributed as we intended before. No change there, no change in the tax efficiency, et cetera, et cetera. What we're really talking about is behind the scenes almost the bookkeeping changes slightly.

But Tom, can I just clarify that a little bit, because I thought maybe the obvious move was to sell another 8% or 9% of BLCO, but maintain that 80% threshold, so you preserve the tax-free nature of the spin. Are you talking about something different than that?

No. Still the same numbers, so they're still the same. The plan right now is the same, is to distribute 80%. No change in that.

Okay, perfect. And maybe just my last question then I'll hop is, I'm kind of curious about this $600 million facility and what are the uses of that cash? Because it seems like you already have ample liquidity. You're generating some cash flow, and now you're talking about selling more of BLCO, which would raise potentially more money, or maybe you're just going to spin it depending upon how you transactionally do it. But I just want to make sure I understand what the use of that capital is, because you didn't buy back very much debt in the quarter, and I would've expected a little bit more. So, I'm just kind of curious as to the use of those proceeds. Thanks.

Yes, I mean, look, in the grand scheme of things, it's an efficient and cost-effective source of capital for us. It was available, so we like it. It's a source of capital now for the next five years. As I said in my prepared remarks, as it happens, just shortly after the end of the quarter, we did draw down about $350 million and have paid down the revolver. So, that's one example, but it's essentially for general corporate purposes. We haven't earmarked it for anything in particular, but it's available to do all the things that you just kind of listed, including OMRs, et cetera. We will, in addition to that, as I said, expect to generate more than $600 million in operating cash flow and debt reduction and deleveraging continues to be our priority.

Yep, thanks very much. Appreciate the details. John O’Connor: Operator, next question.

Your next question is coming from Jason Gerberry with Bank of America.

Hey, guys, thanks for taking my question. So, just wanted to follow up on Glen's question a little bit more. So, you talked about added strategic flexibility I think in the PR, pursuing strategic growth via the RemainCo. So, under the revised, I guess, distribution mechanism, would RemainCo carry less debt or have a more favorable leverage ratio. Just kind of curious, thinking about what that entity might look like on the other side and how much firepower the company might have, because we've long thought of like RemainCo as a company that was carrying like north of 6.5 turns of leverage and not a lot of leeway to deploy capital for M&A. Thanks.

Go ahead, Tom.

I'll start, and maybe Tom will add some comments. Essentially there is no change in our plan, right? So, the company has put out that target of 6.5 to 6.7. that remains the case, and that we’ve put that out as a kind of threshold in order to complete the distribution. From my perspective as the CFO of the company, that's too high, and we will continue to pay that down, pay the debt down, and reduce it as we go forward. This particular transaction that we are talking about or this change in structure that we are considering, has no connection with those debt targets or the liquidity that we need to be at or anything like that.

Yes. Jason, this is Tom. Let me just add to that. The objectives and the goals of the transaction haven't changed. We just, when we looked at it, the key was to see how we could simplify it and then really create as much flexibility strategically as possible for both companies now and in the future. John O’Connor: Operator, next question. Yes, go ahead, Jason.

Well, I was just going to ask to follow-up on the Xifaxan federal circuit appeal. So, is the court reviewing all the patent rulings, or is the court reviewing whether the injunction should be in place still? Just kind of just wondering if we think about early 2024, what that outcome could look like and?

Yes, so as I said in my prepared remarks, we are appealing the patents on IBS-D and on the polymorphs, which Norwich is appealing the motion, the 60B motion. So, that's where it stands. Of course, the appeals are now together and we're expecting the court to rule in Q1 of 2024. We feel strongly on our position with our patents, and we're going to vigorously defend it.

Got it. Thanks, guys. John O’Connor: Thanks. Next question.

Your next question is coming from Umer Raffat at Evercore ISI.

Hi guys. Thanks for taking my question. There's construction behind me, so please bear with me. My question is, going into the Xifaxan district court ruling, this is a Norwich versus FDA. What are you expecting and how does that change whatever plan you have now or whatever the updated plan is on the spin? Thank you.

Thanks, Umer for the question. When we look at the case that Norwich filed against the FDA, again, we feel confident here. We have intervened as well. So, that's going to progress. And again, we feel confident in where - the FDA's position is they are upholding what the court ruled in Delaware. So, therefore we feel real confident that in that case, we're in good shape. Timeline, again, is the fall of - if we just talk about a timeline, we're thinking of fall of 2023 to hear the outcome of that. John O’Connor: Operator, next question.

Your next question is coming from David Amsellem with Piper Sandler.

Thanks. So, looking longer term, as you think about the debt maturities in 2027 and 2028 and the LOE for Xifaxan, this is - based on the settlements that are in place, how do you address that given the importance of Xifaxan to the P&L? And just help us better understand the long-term solvency of the companies in light of what you could be facing later in the decade. Thanks.

Yes, I won't get into any specific long-term forecasting here on this call, but maybe just in generalities, we have a business that's highly cash-generative. This year, as I said about $600 million. We're investing in growth. We're starting to see that momentum build, and we expect to see the business grow between now and say 2027 or 2028, including from Xifaxan and including from Salix. That will significantly increase the cash generation. Any revenue growth should drop right down to the bottom line. And so, we would expect to use or prioritize debt leverage as we have, as the company has for the last five or six years, and we'll continue to do that. And so, we think we'll knock a chunk out of that debt between now and then, David. And then at that point, if there is any debt left over, we will have to refinance it, of course. At that time, what lenders are going to be looking at are forward-looking leverage ratios, and we are investing in a bunch of these products in the pipeline as you heard from Tom, and we would expect many of those to come to fruition. And even though, yes, Xifaxan will go generic in 2028 and we will see a drop in revenue, it will be offset by other products coming into play and growing. And so, obviously it's a very key question. The management team and the board are focused on it and one of the things that we're working through.

Yes, David, let me just add to that, what Tom said. And clearly, I talked about in my prepared remarks the pipeline. That's why last quarter, this quarter continue to talk about the progress we're making. And as you saw, the investments that we're making in R&D and accelerating the RED-C program, and that is really an exciting program for us. Clearly, we have accelerated now and making sure that we will have, of course, if the data comes through, the product before we would lose Xifaxan. So, and we're very, very excited about it. Of course, this is a huge patient population, much larger today than the current Xifaxan population. So, RED-C is on track. It's accelerated. This is a global program. And so, therefore, we will have the global rights. This will be our first global product at Bausch Health, and we're excited about it. Of course, Amiselimod, the Phase 2 studies have completed enrollment, and we are really excited to get the data as it comes through probably at the end of the year, beginning of next year. John O’Connor: Next question, operator.

Your next question is coming from Douglas Miehm with RBC Capital Markets.

Yes. good morning. First question, just going back to the change, the tax-free reduction in capital. Could that be affected by moving the HoldCo from the parent that has the 38.7% in the billing and bonds to BLCO? Is that an example of what could occur or something like that, in addition to say the distribution of the remainder of the shares, the 50.1%?

Doug, I don’t know if I completely followed what you asked, but as I said, I think maybe to the first question, there is no change in the end result, right, in the sense that we will distribute - the plan right now is to distribute 80% or more than 80% in order to preserve the ta- free or tax-efficient nature of the spin. I don’t know if I got the whole of your question. I know we'll have some follow-up discussion after this call. Happy to talk about it a little bit more.

Yes, happy to go through that. Second one, Tom, maybe just has to do with RED-C. We know that you expect a complete enrollment of those two Phase 3 clinical trials in Q1 of 2024. But when do we expect the readout? When do we expect the data in our hands?

Yes. So, Doug, we've completed enrollment, and of course in order to get this product approved prior to Xifaxan going off patent, we'd be looking to see readout of data probably in late - maybe late 2025, early 2026. And then of course have to file. So, that would - I would say probably somewhere in the 2026 range.

Okay. That's great. Thanks very much. John O’Connor: Next question

Your next question is coming from Mike Nedelcovych at TD Cowen.

Thank you for the question. I have two. My first question regards the Xifaxan litigation. Given what you know now, is it within the realm of possibility that we get a complete resolution of Xifaxan litigation and IP in the year 2024? That's the first question. And then the second question relates to RED-C. I know that it's a much bigger patient population, but given that HE lifetime risk in cirrhotic patients is well below 100%, do you have any sense whether physicians are prepared to adopt a prophylactic regimen rather than simply administer Xifaxan once symptoms present? Thank you.

Yes. Mike, two good questions. On the Xifaxan litigation, this appeal, as I said in my prepared remarks and earlier answers to questions, we expect to have a decision in the first quarter. It's a complicated appeal because we're appealing the rulings on IBS-D and the polymorphs. And of course, they're appealing the motion. So, what I would say is, as it plays out, we have submitted our briefs, and we think we have a real good position on our IBS-D patents and polymorph patents. So, if it goes in our favor, clearly this will be resolved specifically on our appeal, all right? So, we'll have to see how it goes, but we're feeling confident about it. Getting to the next question on RED-C, again, we feel - as you said in your question, and as I said previously, it's a much larger patient population. One of the things that we have talked about, and that is one of the reasons why we've invested to accelerate the program, our sales teams and our medical teams will be working to really educate physicians on why prevention is the way to go for HE. If you take a look today, the investments that we're making in Xifaxan, as I talked about in my prepared remarks, on the medical side, still today, you see patients not getting treatment after the first HE episode. And so, clearly if you look at the pharmacoeconomic data as to prevention versus having an HE episode or then multiple HE episodes, we believe from a payer perspective, from a patient perspective, that prevention is going to really be something that people will want and be interested in. If you look at some of the work that we're doing today on direct-to-consumer advertising today is to really educate not only patients, but also educate the caregivers of what goes - what happens to them if you have an HE episode, not only to the patient, but to the caregiver. So, we really think prevention is going to be something that will be very much accepted. But there will be a lot of education between our medical affairs team and our sales teams. But it's a good question. Thank you. Next question, operator.

There are no further questions in queue.

Okay. So, with no further questions, I would just say, in summary, we had a solid Q2 performance and made good progress on key strategic objectives. We look forward to the second half of 2023, with the focus of profitable growth, driving performance, advancing R&D and BD, and unlocking value. Thank you for joining our call today.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.