Greetings. Welcome to the Bausch Health First Quarter 2024 Earnings Call. [Operator Instructions]. 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.

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 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. With that, it is my pleasure to turn the call over to our CEO, Thomas Appio. Tom?

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 continue 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 II meeting and a Phase III 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 III 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 of 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 time lines we shared in February. Turning to our litigation with Norwich. On…

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 an 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 IBS-D and the long-term care channel for HE. Extended units grew 4%, which included double-digit growth in nonretail 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 meaningful net pricing pressure in our non-promoted portfolio in this segment. International revenues were $265 million during the quarter, an increase of 7% on…

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 results-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 remained a priority. These priorities helped support our ambition of being a globally integrated health care company trusted and valued by patients, health care 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 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 is coming from Glen Santangelo from Jefferies.

Tom, just a couple of quick ones for me. You reiterated a number of times that you remain committed to the full separation and you highlighted sort of the Norwich decision as being a significant milestone. What are the milestones or major milestones might exist? And then as you think about the strategies for a full separation, is it in your mind? Is the tax-free spin still the way to go? Or the -- or are there other strategies that you might be evaluating? And then maybe I just had a quick follow-up on the balance sheet.

Okay, Glen. Thanks for the question. Clearly, of course, the Norwich appeal decision is an important milestone. So we are really happy about that and really pleased with the outcome. But as you know, there's multi-factors here that we need to consider. So as we take a look at it, really the timing of the potential distribution, the most fundamental point is making sure that we have to appropriately capitalized companies. So as we look at it, as you know, there's moving parts when it comes to our balance sheet, when it comes to other things in terms of litigation or what have you. So really kind of thoughtfully going through it and progressing through what needs to be done. What I would say is when we look at it, making sure when we take a look at the full separation, it is a priority for us. As you can see on our priorities for 2024, it is a key priority to the full separation of B&L. And basically, as we've talked about before, making sure, again, we're totally in line with appropriately capitalized two companies.

And Tom, maybe just to follow up on that point on the balance sheet. When you think about the leverage on RemainCo, we've gotten a lot of pushback from investors highlighting the leverage related to the RemainCo post the spin. How do you think about what the appropriate leverage ratio might be? I mean, you haven't sort of commented in a while on any of those leverage targets, but it seems you remain committed towards using various tools and strategies as you put it to kind of maybe work that debt level down. So any sort of thoughts on how we should think about that through the balance of the year?

Yes. Look, Glen, what I'll do is let me just take the first point of that, and then I'll give it to John. But overall, as you saw this quarter in the last 4 consecutive quarters, my focus -- one of my key focus is really driving growth, driving performance. Of course, that always helps us be able to continue to retire debt. So we have a really healthy business globally. And as you saw the results for this quarter, both in the U.S. and internationally, the business is growing and growing broadly. You saw the performance of Solta, we really feel really great about the performance and the return to the performance in the U.S. of growth. So we have a really -- the business is healthy and is doing well. Diverse portfolio of products. And then clearly, we're executing on our R&D pipeline and investing appropriately. So as we look at all those things, we're positioning ourselves as we look at our balance sheet and what we can do. I'll hand it over to John to speak specifically on the balance sheet.

Glen, it's John. Thanks for the question. Yes, to the point of how do we think about a leverage target, I think it comes back to what Tom said a minute ago, right? Fundamentally, we're focused on two appropriately capitalized companies. And I think that's -- there's no one binary point measure for that. It's really about balancing our leverage with our maturity profile. And as we've said, we're very focused on managing both of those effectively. We have a lot of tools at our disposal. As Tom said, we're focused on growing the business in a very cash-generative business. We're guiding to $775 million to $825 million of adjusted operating cash flow this year. We have a really broad diverse footprint, both product-wise and geographically, and we think there's value in that. We're working on the pipeline, as you heard and Tom's prepared remarks earlier. And we'll use all of the tools that we have available, whether that's to do open market repurchases, we've done debt exchanges in the past. We've done asset sales in the past. We have the BLCO stake of approximately 8% at our disposal and $1.5 billion of liquidity. So it doesn't directly answer your question of a point target, but those are all the things we think about as we think about managing both the maturity profile and leverage.

Your next question is coming from Michael Nedelcovych from TD Cowen.

Great. Thank you for the question. As has been noted, I think this is the first time, at least in the recent past that management has explicitly connected that look for Xifaxan to the likelihood of completing the full separation of Bausch + Lomb. So that begs the question of when Xifaxan's outlook will be secure, if we just consider the Amneal challenge and take the 30-month stay at face value, that would mean persistent uncertainty until almost 2027 which puts us right at the doorstep of full generic competition for Xifaxan. So I'm wondering how will it be possible to complete the Bausch + Lomb separation under those circumstances?

Yes, Michael, thanks for the question. It's -- I'm glad you asked it because I've seen a lot of things going back and forth in the press regarding Amneal. So firstly, I just want to make sure we're clear is that Xifaxan is a huge product. Everybody looks at it. They're interested in it, the performance is great, and it continues to perform and grow. You saw the quarter where we round up with highest TRxs on record, all-time high. So it's doing well, and it's growing and the investments we're making behind it. So Paragraph IVs, the Amneal issue was not unexpected. What I think the most important thing here is, number one, is that the patents issue here are not the same. That were in -- on the Norwich case. So there's new patents. So this is -- and we have a legal team. I am really in a great position to have such an outstanding legal team who is looking at it and working on it really, really hard. So the Amneal issue as we look at it, many patents there to consider as we work it through. So I cannot speculate again on what the strategy will be. But clearly, it wasn't that it was a surprise, and we have a team that's working on it. So I don't really see that as we move forward as situation that we're going to continue. Again, we'll probably see -- we could see others, but the time frame that it has, we're going to work it real hard.

May I ask a follow-up?

Sure.

Are you preparing for Norwich to file a new ANDA just for the IBS indication, you suggested you may see others just now. And is there anything in the settlement with the other generics companies that would prevent them from doing the same thing?

Yes. So right now, as you know, we just got the ruling, the affirmation of the denial of the motion, Norwich is off the market until October of 2029. This is a large milestone for us. I can't speculate what Norwich will do in the coming weeks or months. What I would say is, we feel we have a great legal team who's looking at it and monitoring it, and we'll see how it works out.

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

First question, just in the past, the company has discussed whether or not in its approach to the distribution or the separation you would comment on whether it potentially would be a return of capital or butterfly. Is there anything that you can update us on as to the potential approach that the company may take in the event you do pursue the separation?

Yes, Doug, thanks for the question. Yes, we have talked about that in the past. But at this point, no decision has been made. What I would say is we still are focused on making sure it's deemed a tax-free to shareholders. So continuing to keep all options open and evaluating it as we progress.

Okay. And then second thing, just maybe you could give an update on the stock drop situation. I know you've been trying to resolve that, but we are getting close to a court date, I believe, on part of that? And then finally, I know this is really not that important or material. But why is the IRS situation taking so long relative to when you thought you may be able to resolve that?

Doug, the IRS, of course, is moving slow. I'll ask John to take that, and then I'll come back to your question on the opt out.

Doug, yes, I think we'd love to have the settlement official and behind us as well. We're working that with the IRS as expeditiously as we can. It's a really complicated matter as we've disclosed in the past, and we currently still expect that the settlement will not have a material impact on our results or on our cash flows. It's a matter of getting through the process, I think, at this point.

Yes. And then I'll just take the second -- the first part of your question regarding the opt out. We've consistently knew that at some point, we're going to have a trial date. The team, again, as I pointed out earlier, the legal team has been working on this. As you know, we settled the class. We had -- we've also settled 16 out of 37 opt-out actions have either been settled or dismissed. The total remaining opt-out actions pending are 21. What I would say is we have had success on summary judgment on some of the claims have been narrowed. And we'll continue to work on it. And we have, what I would say, is a strong litigation team very focused on this, and we'll see how it progresses as we move closer to a trial date.

Your next question is coming from Umer Raffat from Evercore.

Maybe a couple here, if I may. First, is there any regulatory body, U.S. or ex U.S. or a creditor that needs clarity on Xifaxan within the 24 months post separation. Is that an important gating factor for potential investors? That's point number one. And number two, for some of your debt liabilities coming up in '25 or so what are the plans? Are you intending to go down very aggressive path? And then finally, do you envision any possible scenario where the spin has to be held off completely to take care of the amount of debt as well as the Xifaxan situation.

Yes, Umer. Thanks for the question -- the questions. Right now, let me just give the debt issue to John, maybe he can comment on that.

Yes, Umer, I think we're certainly focused on our '25, '26, all of our maturities really in our leverage or '25 and '26. I'll go back to what I said in one of the earlier questions, right? We have a number of tools at our disposal. We have $1.5 billion of liquidity. We have the ability to generate significant cash flow in a very cash-generative business and we have the broad portfolio that we have with a number of valuable assets, including the stake of BLCO that we can distribute while staying above that tax-free distribution threshold. And so we're looking at all of those as ways to manage our maturities. Beyond that, I won't comment on any specific things that we may do other than to say we've done a combination of all of these things in the past, OMRs, debt exchanges, asset sales, and we'll continue to look at all of those levers.

Yes. And Umer, I'll take the first point of your question. I'm not aware of any specific Xifaxan regulatory body in the U.S. or ex U.S. What I would say is that I've said many times is really making sure we have two appropriately capitalized companies. And to the last part of your question is our priority is the full separation of B&L. So as we work through it, as I said earlier, some -- on my prepared remarks and into earlier questions is really, there's a progression as we work it through and we'll keep everyone updated as we work it. But I really appreciate the question. Thank you.

Your next question is coming from Chi Fong from Bank of America.

This is Chi on for Jason Gerberry at BFA. I guess on the first one, now that you secured the Norwich ruling, has the company been in discussion with claimants in the fraudulent conveyance manner about a potential settlement? And I have a couple of follow-ups after this.

Yes. Chi, basically, I can't comment on what have we been in discussions. I can't really discuss that at this time. But again, we're always open to discussions and looking at the options. You had a follow-up question?

Yes. A couple of follow-ups. One on -- the first one is on SG&A. So as we look at 1Q, the spend ratio looks a little high in the mid 30s. I'm wondering if there's any 1Q seasonality to drive the ratio higher than usual? Or if not, how do you see that SG&A spend ratio evolving in the coming years?

Yes. Chi, are you looking consolidated?

Yes, consolidated.

Yes. So I think BLCO spoke a little bit to this yesterday as well. There has been a significant A&P investment on the BLCO side supporting both Xiidra and some of their product launches like Miebo. And that is on a consolidated basis, I think the biggest driver there.

Okay. Got it. And my last one is on the pipeline. On Amiselimod, were there any surprising points of feedback from the end of Phase II meeting? And as you come up with this FDA meeting, I understood that you still have discussions with international agencies. But do you have any early thoughts on your Phase III strategy as you look to capture the entire spectrum of mild to moderate UC. And then I think you have to mention that you're still considering a Phase II trial in Crohn's. I'm curious if the recent Phase III trial of -- Phase III [indiscernible] Crohn's, also you're thinking about continue investment in Crohn's there?

Yes, Chi, thank you for the question on the business and the pipeline. I really appreciate that. As you know, really focused on the pipeline RED-C as we had fully enrolled these two trials and are really interested in getting them completed. When we look at Amiselimod, we are really happy that we were accepted on the podium at DDW, which is coming up later this month and presenting our data. As you know in our press release, we were really pleased with the data that we had on our Phase II, very large Phase II trial. Our strategy here is the meeting with the FDA. It went well, and we're progressing on this. We -- from a UC perspective, when we look at it, we see this market very large, and we think we have a product that can compete here very nicely. So really, by the time we're ready to launch, we're probably looking between a market of $7 billion to $8 billion. So really a great growth driver for us in the back half of the decade. Looking at the Phase III trial, hoping to get that up and running later this year or the beginning of 2025. On Crohn's, again, as you know, this is a real large market. We would really love to be participating here. We think we have, based on our data, what we've seen out of the UC trial, that we're going to run a Phase II -- plan a Phase II moderate to severe in CD. And again, over $19 billion market and we think we have a drug that can compete. Now of course, yes, you mentioned that the failures of S1Ps in Crohn's, but when we look at this trial in Phase II and how we're going to structure it, we think we can have some success. Thank you for the question. I really appreciate the question on the pipeline.

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

So just a couple of questions. Long-term focused questions. In terms of your rifaximin business, how are you thinking about erosion of the franchise once you do see generic competition materialize. And I guess what I'm trying to get at is what are your expectations surrounding the next-generation rifaximin product as a means of cushioning some of the impact of generic competition. So that's number one. And then number two, I know you alluded to it on the prior question, but on Amiselimod, do you have a sense based on your own market research, how you're thinking about the sales potential here in the context of an increasingly crowded market with other agents that have novel mechanisms such as the TL1A? How do you think about sales potential for Amiselimod to the extent that you commercialize it?

David. So firstly, again, thanks for the question on the pipeline. I'm really glad that the questions are on the pipeline and on the business today. RED-C, I just -- as I look at this program, when I took over as CEO, one of the things I worked with our Head of R&D is to really accelerate this trial. Clearly, you mentioned with the Xifaxan going off patent, how do we fill that gap. When we look at where we're going to get to and the timing of launch for RED-C, we're progressing it and we're really trying to execute with excellence to get there prior to Xifaxan going off patent. And also, I'd like to point out here, we have -- this is a global program. We have global rights. This is a new formulation. So, this really opens us up, as you know, Salix, long history in the U.S. in gastroenterology and liver. Now, this really gives us a platform globally with RED-C. We just kind of put some numbers around it, just when we look at the -- just in the U.S. alone. Again, this is a prevention. This is going towards prevention. So the pool is much larger that we can look to in the U.S. So if you just say the cirrhotic patients in the U.S. today were around 800,000. And then if you take out the patients that have [indiscernible] today, given that it's prevention, now you're at about 650,000 and 600,000. And if you look at Xifaxan today, you have 100 -- and so you have over 150,000 [indiscernible], we're treating only 25% of that. So if you look at the pool that we have to of patients on a prevention. And then that's just in the U.S. If you then model that…

Your next question is coming from Leszek Sulewski from Truist Securities.

I actually do have a couple of follow-ups on the pipeline. So on your RED-C program with enrollment on both trials now complete, can you handicap the time line for top line results? And what would you disclose data from one study or both together? And is there a possibility you would release preliminary data? And then secondarily, on CABTREO, is there any initial feedback from prescribers regarding the trends that you're seeing? And how sizable ultimately is this market within the category and also your plans for launching into Canada once approved. And then third, on Thermage, what is the market strategy to -- or go-to-market strategy in China? And how big is the opportunity there for you in that product launch?

Thanks for the question. So I'll take the first one on RED-C. Again, trying to make sure that we have RED-C prior to the loss of Xifaxan would be key. Right now, hoping we get data in late 2025, early '26, and we'll see, again, making sure that, that trial is on track and can deliver and then, of course, being able to file it and get it registered not only in the U.S. but around the world. So -- that's where I see the time frame really comes down to making sure that, again, going back to the previous question on filling our gap and knowing Xifaxan is going generic in 2028. CABTREO, we're excited about it. We love the product. The R&D team has done a wonderful job here. We think it's a great product for acne. The team is really all in and focus on driving this. If I just look at the script growth, it's ahead our goal that we had set. Again, a crowded space, but really this is a great product. And the feedback from our customers and patients has been really strong. What I would say also is it's in the early stages. We launched it. And then we actually launched it ahead of having samples. So we're really excited now that we have the samples coming on. We also have the DTC campaign that will happen coming up in the next few months. So this is really a focus for our derm business and the R&D team has done an outstanding job here of bringing a great product to the market for patients. Thermage FLX in China, again, I am really excited. As you know, I lived in China for many years. So I know this market extremely well. I think we…

We've reached the end of the question and answer session. I'll now hand the conference back to Chief Executive Officer, Thomas Appio, for closing remarks. Please go ahead.

Yes. What I would just try to say is, to everyone on the call, I really appreciate everyone's questions today, and really making sure that we're looking at the performance of our business and what the pipeline is and what the future can be. So I really thank everyone for joining today. As I said many times, we had a solid Q1 fourth consecutive quarter of growth. I really want to build on this momentum in Q2. I would also say is the team here at Bausch Health is all in. We know what we need to do and really making sure we execute with excellence. So making sure you saw the priorities, what our priorities are, delivering our commitments and continuing to position this company for the future. And what I -- lastly, I'd like to say is we look forward to keeping you all updated and really thank you for your interest and the support of our company. Really appreciate it, and have a great day.

Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.