Greetings! Welcome to the Bausch Health Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I would now like to turn the conference over to your host, Garen Sarafian, Investor Relations at Bausch. You may begin.

Good morning, and welcome to Bausch Health second 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 this slide that accompanies 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 operating 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, August 1, will focus on Bausch Health, excluding Bausch + Lomb. However, we’ll briefly comment on Bausch + Lomb’s results announced yesterday. We will refer to year-over-year comparisons with the same period last year, unless otherwise noted. With that, it is my pleasure to turn the call over to our CEO, Thomas Appio. Tom.

Thank you, and welcome to those of you joining the call this morning. I am pleased with the continued positive momentum we saw in the second quarter following our strong start to the year, positioning us well to continue to drive growth and execute against our strategic priorities in the back half of the year, all while focused on patient-centered outcomes. The second quarter marked our 5th consecutive quarter of year-over-year growth in both revenue and adjusted EBITDA. For the second quarter of 2024, revenues for Bausch Health, excluding B+L, were $1.19 billion, up $55 million, or 5% on a reported basis and 6% on an organic basis when compared to the second quarter of 2023, with organic growth in all of our segments, led by Xifaxan, with 10% organic growth year-over-year; and Solta, with 19% organic growth led by Asia Pacific, where our business approximately doubled in South Korea, with China and Taiwan each posting high-teens organic growth. Adjusted EBITDA for Bausch Health excluding B+L was $614 million, an increase of approximately 8% compared to the prior year. John will provide additional commentary on the financial results later in the call. I want to touch on other key developments during the quarter. As we previewed during last quarter's earnings call, in May we presented data related to our Phase 2 trial for Amiselimod for mild to moderate ulcerative colitis at Digestive Disease Week's Annual Conference. I attended this conference and I had the opportunity to meet with a number of key opinion leaders and other industry participants in the gastroenterology space. I came away from these discussions with a clear sense that our efforts are reinforcing our strong positioning in this area with healthcare providers. At the European Association for the Study of the Liver Conference in June, we…

Thanks, Tom. Hello, everyone, and thanks for joining us. We ended the second quarter with consolidated revenues for Bausch Health of $2.4 billion, up 11% on a reported basis, and 8% on an organic basis over the second quarter last year. Second quarter revenues for Bausch Health, excluding B+L, were $1.19 billion, up 5% on a reported basis, and 6% on an organic basis over the same quarter last year, led by Solta and as Tom noted, Xifaxan performance within Salix. Speaking of Salix, let's now turn to segment revenue performance, starting on Slide 12. Second quarter Salix revenues increased $1 million on a reported basis to $558 million driven by 10% growth year-over-year in Xifaxan revenue. Relistor, Trulance, and the non-promoted portfolio within this segment experienced declines in the quarter. Revenues grew $6 million or 1% on an organic basis, which reflects the impact of divestitures and discontinuations of certain non-promoted products. Xifaxan continued to represent the majority of Salix segment revenues during the quarter and saw strong growth in underlying demand. Xifaxan revenues in Q2 increased 10% compared to the prior year period. While retail prescription growth was 1% in Q2 versus the prior year, extended units grew 4%, a continuation of the trend we have seen of strong growth in non-retail units, including hospitals and outpatient clinics. Relistor declined 9% over the prior year period due to lower net pricing relative to Q2 of the prior year and softer demand, with TRx as declining by 3%. Trulance, TRx growth was 5%, however, revenues declined approximately 50% year-over-year due in large part to net pricing pressure. It's important to note that Q2 this year for Trulance is also compared to a very strong second quarter in 2023, which saw revenues increase 73% on script growth of 14%. We…

Thank you, John. I am proud of the progress we have made this quarter, driving consistent growth, maintaining disciplined capital allocation, continuing to progress our pipeline and growing our footprint in our existing business areas. All while improving our operational effectiveness and remaining focused on cost management. Our performance thus far in 2024 provides us with momentum for the second half of the year as we continue to focus on delivering against our 2024 priorities, driving a results-oriented culture of accountability. Delivering on our revenue, adjusted EBITDA and adjusted operating cash flow commitments. Executing with operational excellence and a cost focused mindset across the enterprise. Intensifying our focus and operating rigor behind R&D and business development. And continuing to evaluate strategic alternatives, as we have said, achieving the full separation of B+L remains a priority. These priorities help 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 want to thank the entire global Bausch Health team for their hard work and dedication to growing our company and delivering on our commitments, ultimately driving better health outcomes for patients globally. I look forward to working with the entire team, including our new executive leadership team members, to drive our transformation into a globally integrated and innovative health care company. 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.

Thank you. [Operator Instructions]. The first question today is coming from Glen Santangelo from Jefferies. Glen, your line is live.

Good morning. Thanks for taking my question. Hey Tom, obviously a lot of focus on the balance sheet and leverage here. As you are obviously aware, about a week ago there was a media report suggesting that the company was having some negotiations with the co-op, and the company obviously subsequently put out a press release suggesting that some of those media reports were not true. Can you comment on whether you're having any dialogue with the co-op at this point? Because it's not exactly clear to us what rights they have and what would force a negotiation at this point. Then I just had a follow-up.

Thanks Glen. Thanks for the question. Appreciate it. So let's just take it as like two answers to your question. So firstly, it's our general policy not to comment on discussions with particular stakeholders. However, given the circumstances last week, I think it's important. Again, I can't control what rumors are out there in the marketplace, but I want to reiterate that in our press release last week that we issued, that said Bausch Health is not considering bankruptcy or insolvency proceedings of any kind. So we are not, and that's a full stop there. So unfortunately, these things get published. But again, it's rumor, and as I've said many times, we just continue to work, to grow this company and to generate results, and you saw in the quarter, we had really great performance with Xifaxan growing by 10%, Solta growing by 19%, International growing by 6%, and Diversified growing by 12%. So it was a really great quarter for us on performance, and really, that's where the team's focused.

Awesome. Maybe if I could just ask one quick follow-up. I mean, you also commented a full separation of Bausch + Lomb remains a strategic priority. I think in your prepared remarks, you said that the focus is on having two appropriately capitalized companies, and that's kind of a generalized term. So I think what people are really trying to understand is, what do you think is an appropriate amount of leverage for Bausch Health or RemainCo? And you said that, any separation would require a shareholder and other applicable approvals. What exactly are those other applicable approvals? Thanks. And I'll stop there.

Yeah. So Glen, clearly as you see in our strategic priorities, the separation continues to be a strategic priority, and we're diligently working towards that. Clearly, as we look at it, you look at the performance of our company, of Bausch + Lomb, again, both companies are performing well, and it makes strategic sense on this separation. What I would say is, a broad framework, overall on the separation. There's a lot – it's multi-factorial of what we need to work on. We need strong operational excellence, and we need effective debt management, and working through some of those, and looking forward to updating you and others as we move forward on it.

And Glen, it's John. Maybe I'll just address your question on appropriately capitalized. This is consistent with what we said, I think, for the past few quarters. There's not a bright line that we're going to put out at this point. I think it really is a blend of leverage and maturity profile and we continue to think about how those two balance, but there's no bright line on that.

Okay. Thanks for the comments.

Thank you. The next question is coming from Mike Nedelcovych from TD Cowen. Mike, your line is live.

Thank you for the question. I have two. My first relates to the separation from Bausch + Lomb. Please tell me if this is a bad assumption, but it seems that every day that passes, full separation becomes less and less likely. So, my question is what is plan B? Can you articulate an alternative vision for the consolidated company should you arrive at the decision that separation is not feasible? And my second question relates to Amiselimod. It seems as though you are pursuing a Phase 3 IBD program. That of course would be expensive, and Amiselimod would be third to market in its class. So at a high level, can you tell us what commercial assumptions you are making to justify the cost of the Phase 3 program? Thank you.

Thanks Mike, and I appreciate the question. As I've said before, the separation continues to be a strategic priority, and we're diligently working towards that goal. That's all I'm going to say at this time. We continue to work on things that will get us to a full separation of B+L. Regarding your question on Amiselimod, we plan to accelerate the Amiselimod program into Phase 3 in UC. If you take a look at the data, we were at mild to moderate. Now we're going to look at the study that we're going to propose in moderate to severe. So that would, think about the data probably is even going to be better than we had from mild to moderate. We think there is a real unmet need here. It's a large competitive market with however the response to treatment today is variable. So we're going to continue to pursue this. We like our data, and we think that we have a real path forward here to help patients. Next question.

Thank you. The next question is coming from Jason Gerberry from Bank of America. Jason, your line is live.

Okay, guys. Sorry to beat a dead horse, but just wanted to come back to the topic on the capitalization target. Is it a fair high level like synopsis to say, given negotiations with the co-op that leverage left for RemainCo is a moving target and sort of critical is pushing out the 2027, 2028 maturities if something's going to get done there? Then secondly, just Xifaxan scripts this quarter are flat on a year-on-year basis. Wondering how you think about whether it's the appropriate stage of the life cycle to optimize this business for cash flow versus step-up investment to drive growth? Thanks.

Yeah Jason, thanks for the question. I'll take the second part of your question first on Xifaxan. If you take a look at where we are with Xifaxan, and you mentioned the script growth, one of the things that I'm focusing on here is the NBRx growth. And if I take a look at the NBRx growth, it looks really good in terms of the last four or five quarters now. The new starts on the drug that is in its later life cycle, it looks very promising, and the data there. When you really look at it, there is a lot of untreated patients out there today. If we just take a look from the data that we see, we see that we're treating probably half the patient population in OHE at the present time. So, I think there's a lot of runway here to continue to grow Xifaxan. A couple of things that we've done last year since I became CEO was, number one, to launch our AI engine. And that engine has been launched now for 12 months, and it consistently continually refines the panel of where we're going to, making sure that the HCPs, that we're going to the right HCPs and also delivering the right message. So, there's a lot of opportunity here to continue to grow it. If you take a look also, one of the things that we've put in place is our DTC campaign. Historically, in the past, we haven't done DTC in the AG segment. And now we have Bellamy Young, who's our spokesperson on OHE, and clearly we're seeing traction there. Then lastly is really looking at the treatment and really the disease state of IBSD and OHE. In this case, we have put a medical affairs team in place that is actively going out there educating physicians on IBSD and OHE on the disease. As I said at the beginning, we see that we're only treating probably half the patient population in OHE today, and still there's a lot that we can still treat in IBSD. So we think the investment behind Xifaxan today and where we can take this brand, we have a lot we can still do. When going back to the first part of your question regarding the debt and the leverage, I'll just hand that over to John. He can maybe give you some more specifics.

Yeah Jason. Just to the first part of your question, I think Tom said it a few minutes ago, but we don't comment on any discussions and haven't said that we are negotiating with anyone at this point in time, so I just want to reiterate that point from Tom's earlier comment. But to your question of leverage for RemainCo, as we've talked about consistently right, we are looking to balance leverage and maturity profile. If you look at Slide 21 in the earnings deck that we published this morning, you'll see we do have a meaningful amount of ‘27 and ‘28 maturities. So yes, that is part of what we look at when we think about how to manage the balance sheet.

Got it. Tom, can I ask a quick follow-up?

Sure.

Just on the Xifaxan dynamics, right, good NBRx, but flat TRx. How do you reconcile that? Is that – we look at like half the business historically has been IBS. That's maybe more of an acute use indication. Is there just a replacement dynamic with these NBRx’s that are just having a hard time keeping up to drive overall TRx growth? Like how would you kind of explain the different moving pieces of this business and the TRx dynamic?

Yeah, I think that when you look at it, if you look at the NBRx, eventually down the road, they will turn into TRx’s. What we are seeing, the dynamic in the market is this shift to non-retail. Then also, so where those scripts are going from an NBRx perspective, we're trying to see where they are, but they will eventually become a TRx. But if you look at the non-retail, it's really up, and then if you look at the extended units. That way when we look at this business, it's up 4%. So when you look at just TRx’s, it's sometimes difficult to see where they are going. But based on the data that we have and how we're tracking it, we are confident that we're going to get growth and clearly the NBRx is the first stage.

Thanks.

Operator, next question.

Thank you. The next question will come from Umer Raffat from Evercore ISI. Umer, your line is live.

Hi guys. Thanks for taking my question. I'll focus on two as well. First, on your RED-C trial for the new formulation, my understanding is it's to prevent a first encephalopathy episode rather than recurrence. Isn't that an indication that would be used off-label with a generic Xifaxan anyways? Can you speak to that? And secondly, and perhaps more importantly, I've been listening in on the call and I guess I'm just as confused as I was when the call started, so let me just lay it out here. Cash flows guidance for the company is $800 million midpoint for the year. Salix segment will do operating profit about $1.5 billion based on your disclosures, of which Xifaxan is by far the most important. So said differently, Xifaxan exceeds the total cash flows of the company. So in that backdrop and considering Xifaxan generic is definitely happening either in a year or in three years, what aggressive action are you considering? I know you mentioned separation is a priority and I guess I'm just trying to understand what is the priority? Is a BLCO equity raise? Could that help somewhat? We're just trying to understand what the path could be. And I feel like for public investors, there's no clear understanding of what direction we're going, in spite of a very leveraged situation, and we're now kind of like four or five years in to talk about the separation at this point.

Yeah Omer, thanks for the question. I'll take the RED-C question first and then I'll hand the speaking about the debt to John. When we take a look at RED-C, yes, you're correct, it is for OAT prevention. So if we take a look at what we – and you talked about the generic Rifaximin, but of course, this is a new formulation. This is Rifaximin solid with 40 milligram tablets being studied in the delay of hepatic encephalopathy. So, when we look at it, clearly this is 2x, 3x the size of the market that we have today with the current Rifaximin. So with our different formulation and what we've studied, we do not think that the generic is going to be used for prevention. We think there's a long runway here to really move into the prevention space rather than the treatment space. What I would say is, also when you look at this new formulation, it will have better water solubility. So that should be able to penetrate the small intestine lumen, so that will really help us. And also lastly, remember RED-C is a global program where our current 550 program is just a U.S. product. So we believe that of course when we get the data that this could be a really great opportunity to transform our company and grow. What I'll do now is to turn it over to John, to just highlight, to talk about some of the questions you had in the second part.

Yeah. Thanks for the question, Umer. Without getting into a full walk in the answer here, I'll call out a couple of things to your point. I think the cash flow metric this year of course is after interest. So it's levered free cash flow or levered proper in-cash flow, and which is why it's important to continue to manage the balance sheet and continue to focus on reducing our debt. At the same time, we remain focused on growing the business. There is a meaningful part of our business that is not Xifaxan, including businesses like Solta, and we're focused on growing those, and we're focused on advancing the pipeline as we just talked about with RED-C. And so as we think about the longer term, those three elements are critical to how we move forward for the long term.

Operator, next question.

Thank you. The next question will be from Leszek Sulewski from Truist Securities. Leszek, your line is live.

Good morning. Thank you for taking my questions. First, can you comment on any timelines on the rulings we should be aware of ahead of the amended and lawsuit versus Norwich and the latest and the filing from Amneal? Second, on Relistor, what's driving some of the weakness? Is there any pressure on the ulterage [ph] script trends that impact this product ultimately? And then third, it does not sound like you've been in discussions with the co-op, but can you comment if there has been any indication that some of the lenders will be putting the pressure under separation to be put on hold? Thank you.

Okay, I can take those questions. So, thanks for the question. So really, regarding Norwich, okay, as it currently stands now, the FDA cannot approve Norwich's ANDA until 2029. Our expectation date of a generic entry still remains at January 1, 2028, and the date reflected in the settlements with the other filers. Since the original Norwich decision, I just would like to make sure we emphasize that there's new IBSD patents. And so as we move on and look between the Norwich's ANDA and Amneal, there is different patents in dispute here. And also, I just would like to say, Teva, as we are aware, Teva continues to be and remain the first filer on the Xifaxan 550. So that's really what I'd say here. And again, we're continuing to vigorously defend our intellectual property here, so still working. A lot of work still to be done, but we're going to defend it. On the second part of your question, on driving the Relistor weakness and the TRx pressure, it really comes down to some of the payer, looking at what the payers were and what coverage we had. And the other thing, and the pressure there, along with some gross to nets, we still believe we have an opportunity with this product. But as we look at it, that's where that pressure came in the second quarter. Lastly, on the co-op, as John already said, our general policy is not to comment on discussions with particular stakeholders at this time. Anything else, John, you want to add?

No, I think that covers it.

Okay, operator, next question.

Next question is coming from David Amsellem from Piper Sandler. David, your line is live.

Thanks. So I'm just going to keep coming back to the question on solvency and what is the path forward or the priority, as Umer put it. So you have, I believe, $9 billion worth of maturities coming up around the same time frame that Xifaxan loses exclusivity. So I guess, I'll just ask it straight up. Given the importance of Xifaxan, how do you stay solvent? That's number one. And then related to that, you're talking about the R&D pipeline, I get that regarding Amiselimod, RED-C, etc., etc. Is there anything else you can do in terms of bringing in assets, particularly in the context of your financial constraints? Maybe give us some sense of what you can do there to bolster the R&D. Thanks.

Sure. Thanks for the question. So let me take the last part first. I mean, I highlight the R&D programs that are ongoing, and of course we talk about RED-C. I think that this is our first-up opportunity. Clearly, really wanting to make sure we get those studies completed and get the drug launched before we lose exclusivity on Xifaxan on January 1, 2028. As I said before, it's a global program. We have global opportunities. So that's one area where that can really drive performance and build us a bridge certainly to the future. The second thing is, is that there's many ongoing business discussions. As you know, we have an international business that is a branded generic business, and that's an area of the company that we can do BD at relatively inexpensive prices. There is ongoing discussions. We're working on a project now in Latin America that will show us growth for the next years to come, if we're able to close that. So there's various things on the international side that we're doing to build up the portfolio. I want to mention Solta. Solta is a great business for us. As I mentioned in my prepared remarks, I was just in China. We just hired a new VP there to lead our transformation in China, now that FLX is approved. As a medical device, we see a long runway there to growth and to the strategies we're going to put in place. If you take a look then at what we need to do around the world, I mentioned that our business in Korea has doubled, and so we still see a real runway there to continuing to grow and invest behind that business. I did talk about some of the R&D capabilities there as well. We're excited about what we have. Plus there's also some BD that's going on to see what other options are out there to bring into the portfolio. So, I would think from an R&D perspective, a BD perspective, we're really trying to execute and really being laser focused on what we invest in given our cash situation. When we take a look at going back to your questions on solvency, I just would like to just – before I hand it over to John to take you through specifically the performance of this company over the last five quarters, growing revenue, growing EBITDA. If you take a look, Xifaxan 10%, Solta 19%, International 6%, Diversified 12%. The team is working hard to grow this business and position this company for the future. Then I'll just hand it over to John to talk specifically about some of the points you raised on solvency and the debt maturities.

Yes, thanks David for the question. I'll keep coming back to a few things here, right. If we think in the near term, we've consistently discussed our ability to generate cash. The liquidity we have right here as we sit here at the end of the quarter, $1.5 billion. We do have flexibility to monetize a portion of the BLCO stake that we still own and maintain the tax efficient status of any separation, about 8%-ish of BLCO. If you look beyond those near term tools, we have as Tom said, a diverse product and a diverse geographic footprint. We have the active R&D pipeline. We've demonstrated a track record of growth over the past five quarters. Those are all tools that we can use to do things like continue to repurchase and retire debt, which then allows us to save on interest, etc., and becomes a bit of a nice circle there, look at asset sales and other types of transactions we've been able to do in the past. We look at all those tools when we think about the leverage profile beyond the near term debt.

Operator, next question.

Thank you. The next question will be from Michael Freeman from Raymond James. Michael, your line is live.

Hey, good morning, Tom, John, Garen. Maybe helping us with the last question relating to Solta, I wonder if you could maybe get a bit more granular on the reception of Thermage FLX in China since its January approval. Given the growth we're seeing in Solta and like solid prospects globally, would it – how are you thinking about a reconsideration potentially of an IPO since – as we've let time pass over the last couple of years?

Thanks Michael for the question. Clearly, as I've said on many calls, I love this business. It is a durable business, and really the focus since I've become CEO is to really make sure we are growing this business in all geography. If you look at it today, China is still a very large opportunity for us as we got FLX approved in China along with the return pad. That's why we hired a new Vice President to run this business. She has extensive experience in the beauty space, and we are really excited about what we can do in China. I was there a couple of weeks ago, and some of the things, the team that we're going to build, we're continuing to add resources. We just opened our flagship office in China. The team is highly motivated to really grow this business. What I would say is, if you look, the opportunities in China are great. I have a lot of experience, of course, having lived in China for 13 years, so I'm excited about what we can accomplish there and power the growth. When I look at the rest of the world, if you look at Asia Pacific, our career business will double this year. The growth in the quarter was 111%. If you look at what the teams in Taiwan are doing, growing at 18%. We are focusing also on executing with excellence in Europe. Some of the European countries are really starting to grow, and some of the work that's been done there over the last year to get those on track. Solta was underinvested in Europe. I see that as an opportunity. DACH grew 17% in the quarter. France grew 9%. Italy grew 12%. Let's pivot to the U.S. A lot of work still to be done there. We believe that what we've done there, we've brought in a new leader of our U.S. business. I'm seeing some really good things that he's putting in place and the team that we're building. Clearly, the investments behind expanding our sales team and really making sure that we're growing both, our capital and our consumable business. Overall, when I look at this business, it's durable, and it really is outside the payer landscape. This is why I love it. If you take a look, our organic growth or thermage in the quarter was 24%, Fraxel was 3%, Clear + Brilliant was 7%. If you then take a look between capital and consumables, it's about 75/25 on consumable versus capital, so again durable. To your last question, the last part of your question, I think this is a valuable asset to Bausch Health. My plan is to continue to invest and grow this business globally. Operator, next question.

Thank you. There are no other questions in queue at this time. I would now like to hand the call back to Tom Appio for closing remarks.

Thank you. What I'd say is I really appreciate everyone joining the call today and for your questions. We tried to, in the prepared remarks, really cover what we've accomplished in this quarter and what we're working on. Clearly, the business, the growth in the quarter is really good, and fifth consecutive quarter of growth in both revenue and EBITDA. What I would say is, I really want to thank the global Bausch Health team for their hard work and dedication of driving this company forward and delivering results. What I would say is, I look forward to keeping everyone updated and thank you for your interest in and support of our company. Have a good day.

Thank you. This does conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation.