Greetings. Welcome to the Bausch Health Fourth 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 will now turn the conference over to your host, Garen Sarafian, Investor Relations of Bausch. You may begin.

Good afternoon, and welcome to Bausch Health's Fourth Quarter 2024 Earnings Call Conference Call. Participating in today's call are Thomas Appio, Chief Executive Officer of Bausch Health; and JJ Charhon, 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 statement 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 our filings with the Canadian securities administrators for a list of some of the risk factors that 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 to 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, Wednesday, February 19, will focus on Bausch Health, excluding Bausch + Lomb. However, we will briefly comment on Bausch + Lomb's results announced this morning. We will refer year-over-year comparisons with the same period last year unless otherwise noted. With that, I'd like to turn the call over to our CEO, Tom Appio. Tom?

Thank you, Garen, and welcome to everyone joining our earnings call today. We closed out 2024 with a strong fourth quarter, executing on our strategic priorities and reinforcing our focus on patient-centered outcomes. Bausch Health continues to deliver, marking our seventh consecutive quarter of revenue and adjusted EBITDA growth. This performance is a testament to our strong operational execution, disciplined approach and relentless focus on value creation. We made tremendous progress as a company in 2024, as I could not be more proud of what the Bausch Health team accomplished and the momentum we have heading into 2025. While JJ will discuss our financial results in more detail, I will touch briefly on our performance, our progress driving our strategic priorities forward and key business highlights from the quarter. Starting with our strong fourth quarter and full year results. Revenues for Bausch Health, excluding Bausch + Lomb, increased 4% on a reported basis and 7% on an organic basis when compared to the fourth quarter of 2023, with strong organic growth in our Salix and Solta segments. Full year revenues for Bausch Health, excluding Bausch + Lomb, increased 5% on a reported basis and 6% on an organic basis. For Bausch Health, excluding Bausch + Lomb, adjusted EBITDA for the fourth quarter of 2024 increased by approximately 7% compared to the prior period. For the full year of 2024, all 4 segments delivered revenue and segment profit growth, demonstrating our ability to drive performance across our diverse businesses. Our success translated in strong cash flow from operations for the company in 2024. Bausch Health, excluding Bausch + Lomb, generated approximately $1.3 billion in adjusted operating cash flow for the full year. For Bausch Health, excluding Bausch + Lomb, revenue and organic growth were at the high end of our guidance…

Thank you, Tom. Before we review our results overall and at the segment level, I would like to share some highlights from the fourth quarter for Bausch Health, excluding Bausch + Lomb. Revenues for the year were $4.834 million with a year-over-year growth of 5% or $223 million. Adjusted EBITDA for the full year was $2.553 billion, growing 8% and demonstrating the continued operating leverage of our business model, thanks to tight expense management and positive business mix. Adjusted cash flow from operation in 2024 was $1.3 billion or a 85% growth year-over-year, which was exceptional. The primary drivers were, in addition to our operational performance, unusually low cash taxes and the timing of some of our outflows in Q4. Even when excluding these onetime benefits, adjusted cash flow from operations for the year was approximately $1 billion or about a 40% increase year-over-year. Let me now review our 2024 performance in more detail overall and by segment starting with our consolidated performance on Page 14. Revenue for the fourth quarter was $2.559 billion, up 6% on a reported basis and 9% on an organic basis versus the same quarter a year ago. Revenue for the full year was $9.625 billion, an increase of 10% on a reported basis and 8% on an organic basis. Adjusted gross margin for the fourth quarter was 72.4%, which was 80 basis points higher than the same period a year ago. For the full year, it was 71.9%, an increase of 90 basis points versus 2023. Adjusted operating expenses for the fourth quarter were $958 million, an increase of $67 million over the same period last year. For the full year, operating expenses were $3.812 billion or an increase of 12% year-over-year. Adjusted R&D expense for the quarter was $163 million, which was a…

Thank you, JJ, and thank you to the entire Bausch Health team for another strong year of growth and execution as we delivered on our commitments and our strategic priorities. As a reminder, we have placed specific emphasis on our people and culture, growing our business, encouraging innovation to drive R&D, operating with efficiency to capture marketplace demand, and unlocking the value of Bausch Health in the short and long term. Our results for 2024 provide us with a strong foundation for further success in 2025. We look forward to building on this momentum to drive growth across all business segments while serving patients and their health care providers. With that, we will now turn to questions. Operator, please open the line for Q&A.

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] First question comes from Les Sulewski with Truist Securities. Please proceed.

Good afternoon. Thank you for taking my questions. Could you provide the latest status update on the Norwich situation and your time lines around the FDA lawsuit? Do you foresee a possibility of an at-risk launch within, call it, the 18-month period? And if there were an at-risk launch to occur, what could be some of your response options? And I guess, secondarily, what are the potential adverse impacts on the time frames with the other tentative approvals? Thank you.

Thanks, Les, for the question. Yes, I can touch upon where the Norwich starts. So Norwich gained tentative approval. The FDA denied granting Norwich final approval and concluded that Teva has not forfeited their first filer status. So Norwich has sued the FDA regarding its conclusion and requested the FDA be forced to grant final approval of their ANDA. So both Teva and ourselves, Bausch Health, have intervened. So based on Norwich's tentative approval letter, we expect the FDA to defend its position on Teva's nonforfeiture, right? So I would just say in conclusion, we believe that the FDA is correct in its determination that Teva remains the first filer and has not forfeited. I'm not going to speculate on launching at risk at this time because we believe that the FDA is correct and Teva is -- continues with their rights of first to file. Next Question.

[Technical Difficulty] on the discontinuation of the Crohn disease study?

You were breaking up. We couldn't hear you come through. What was it?

I'm sorry, I'll repeat. On the amiselimod program, what's the reasoning on the discontinuation of the Crohn’s disease study?

Yes. So we didn't discontinue the study. We -- on the last call, I mentioned that we were evaluating it based on looking at the data, and we made the determination when we specifically look at Crohn's that this class of drug, even though there was some pluses and minuses of looking at it, we determined that it wasn't worth the investment with the SP1's performance in Crohn's of other drugs that have tried it in Crohn.

Got it. Just one more for me, and I'll hop back in the queue. Can you provide a little more color on the two recent deals in the international side on the cardiometabolic front? Thank you.

Sure. Yes. So as I said in my prepared remarks, I think that when you look at the International business, and I'm looking at it holistically globally, it's an underappreciated business. It's a branded generic business that is very durable, no LOEs. And so what we have put together, we have a team that is solely focused on building out our branded generic portfolios around the world. The two deals that I mentioned was in Latin America, and those are a variety of products. One of them was with MSN, which is a broad portfolio of branded generic products. As you know, our Latin America business is very successful in the branded generic space and building brands. And then a second one was looking at a single, triple combination therapy with commonly used hypertension medicines and which will be novel, and it will be proprietary in multiple strengths. So that is going to give us those two deals put together and that we're continuing to look at others of building out a franchise that can really power our growth in Latin America. Some of those deals also include other international locations as well. But the focus for the Latin America region will power our growth for the next years to come.

Up next is Doug Miehm with RBC Capital. Please proceed, Doug.

Yes. Thank you. A couple of questions. With respect to the 229 BC, the $700 million that you're contemplating funding with that and using a portion of the BLCO holdings, relative to the 38.5% that was put in for the $999 million previously, what sort of quantum of potential shareholdings of BLCO would be required under the $700 million. Would it be proportional? It probably wouldn't be, but maybe you can walk me through how much would have to be placed within that company?

Hi, Doug. This is JJ. First of all, just as a point of clarification, although the $1 billion against the number code that holds 38% of the shares, only 30% are really fully encumbered. About 8% can be sold or transferred to another entity. These 8% would be added to the remaining 50% that would be used as collateral to that credit facility.

Okay. Okay. And then on top of that, if you were to go ahead and explore accessing capital markets, this would be incremental in terms of the proportion of shares of Bausch + Lomb that will be pledged or not? Just trying to understand [indiscernible].

Yes. We're looking at different packages, so I'm not going to comment specifically on what we'll be looking at. But the packages we're looking at would be looking at replacing that credit facility, so we have more of a permanent structure in place to deal with our 2027 maturities and beyond.

Okay. Okay. Fine. Then if we go to your guidance, which was strong, on the top line, it was in line with what we're looking for and I think most other people, but a bottom line was better. But perhaps you can talk about the contribution we're at on a relative basis that you expect to come from Xifaxan given the strong growth we've seen in -- recently. When you look at guide, how much of that is associated with Xifaxan growth?

Yes. So we haven't provided any specifics in terms of quantification, but the two biggest contributors of our growth in 2025 will be indeed Salix with Xifaxan and Solta. I think the dynamics that you're seeing, particularly in the second half for Xifaxan, should be assumed as continue in 2025.

Okay. And then just to wrap up, can you update us on any potential settlements with the [indiscernible] or Granite Trust, where we stand there? That would be great. Thank you.

Yes, of course. On the Granite Trust, there is really no meaningful update to the guidance we provided in prior calls, which is that we do not expect any meaningful negative cash flow coming out of the settlement. We're still awaiting the final resolution and decisions from the IRS, and we are all hoping to get that pretty soon. On the legal settlement, it's really hard to speculate on any future negotiations. And so at this point in time, we've made progress, as you know, in 2024, and we look forward to 2025 in making some further progress.

[Operator Instructions] The next question is from Jason Gerberry with Bank of America. Please proceed.

Hi. Thanks for taking our question. This is [Chi] (ph) on for Jason. I would like to ask a follow-up on the earlier question on the new Norwich case. Is it your understanding that Norwich is not subject to 30-month stay and the only gating factor for the full approval from the FDA of the generic Xifaxan is around the 180-day exclusivity? And for that case, do you have a sense of the timing for next steps? Would you expect the trial to be scheduled in the coming couple of months? Thank so much.

Yes, I'll take that question. We believe the 30-month stay applies, and that's what the legal team is focused on and getting ready for. So that's where that stands. Next question.

Do you have a sense of the timing? I apologize if I may follow up. In the legal document, Norwich claimed the FDA has determined that Norwich is not subjected to a 30-month stay. Can you talk about that? Thank you.

Yes. What I'd say, we believe the 30-month stay still applies, and so that's the way we're proceeding. I really don't want to speculate right now on what the FDA or what you've said they said, but we believe and we are continuing to work on where that trial stands and that case stands, and we believe 30 months still applies.

The next question comes from Michael Freeman with Raymond James. Please proceed.

Hi, good evening, Tom, JJ and Garen. Congratulations on these earnings. A couple of questions for me. There have been plenty of government initiatives that may potentially affect your business going forward. So I wonder if you can comment on Xifaxan being included in the Medicare renegotiation list for 2027. And any sort of preparation for those negotiations and potential preparation for a -- potentially a material price reduction? And then if you could give a quick comment perhaps on the potential for a pharma-oriented international tariff and how that might affect maybe your supply chains or pricing going forward.

Yes, Michael, thanks. I'll take those questions. So yes, we were on the list. Of course, Xifaxan has had great success, we wound up on the list. What I would say is it's still early in the process, and we're going to be in the process of negotiating. Our focus right now is to prepare for that and go through the process with CMS and -- which will come into effect in 2027. And I just think it's too early to offer detailed commentary with that regard. But we continue to remain focused on demonstrating the value of Xifaxan, during which we're going to share the information on the value it delivers to patients, providers and the overall health care system. In terms of when you look at Xifaxan on the OHE indication, which is more than 70% of the business, the amount of cost savings regarding hospitalizations is -- it drives a big benefit. So we're closely monitoring the situation. We have a super fantastic team in the space of market access, and we're looking at all possibilities. In terms of the tariffs, I could say something and then maybe JJ wants to add. Again, it's still too early. There's a lot of discussions here on the tariffs of what it would mean for us, and we've been closely following it in terms of our supply chain and what impact it would mean. But I'll hand it over to JJ. Maybe he has a few further comments on that.

Yes. So in terms of our setup in our supply chain, of course, the fact that cost of goods sold is a relatively small proportion of revenue for a pharmaceutical company, the financial impact of those tariffs, let's assume the scenario that has been the most publicized, 25%, and that would be for a full year, the impact would be below $50 million in terms of cash flow for the company. So I wanted to give you some order of magnitude on how to think about it.

Excellent. That's very helpful. Now just a quick one. We had Dr. Sadeh join the team as the new CMO, and I noticed that there was a choice to not pursue the Crohn's opportunity. I wonder if there are some further changes in approach to your clinical development programs or some new ideas that Dr. Sadeh has brought to the team in his tenure so far.

Yes. I think it's a great question. Of course, we are so pleased to have Jonathan join us and discussing how to build our pipeline for the future. As you know, we have the RED-C program. In fact, today, downstairs, we're having advisory boards. We're really excited about the RED-C program and what that's going to mean for us and what it could mean for patients as, again, this is a prevention trial. So we're excited about that. We did mention that we did not -- we're not going to pursue looking at amiselimod in Crohn's. And Jonathan, just since he's joined in the last 2 months, we've been actively discussing what we're going to pursue, what we're going to develop and then from a business development standpoint, some of the assets that we could possibly look to bring into the portfolio. But we're excited to have Jonathan here, and we'll give more information as things progress on rebuilding and building up this pipeline.

Okay. Thank you, Tom.

The next question comes from Mike Nedelcovych with TD Cowen. Mike, Please proceed.

All right. Thanks for the questions. I have one and a follow-up. My first question relates to Xifaxan and the 2027 IRA price negotiation. Are you able to tell us what portion of sales are derived from the Medicare channel? And then ultimately, regardless of the discount that gets negotiated by CMS, do you anticipate that, that pricing will leak into the private insurance channel? That's my first question. And then my follow-up is actually a follow-up on a previous question related to your plan to access the capital markets possibly by pledging a portion of Bausch + Lomb shares. This is very helpful insight. But can you bracket this for us at all? Is there any level of quantification at all that you could provide? Thank you.

Yes. So Mike, I'll take the first one on the Xifaxan price negotiation. As you know, our Xifaxan business is in IBS-D and HE and it's blended. Again, what would be subjected to the IRA price negotiations, I can't give you what the percentage is that would be. As I said, we have been looking at this carefully for some time of what the different levers are that we will be able to look at as we go through the negotiation. So it's still early in the process. And again, as you know, this comes in January of 2027. So there's still a lot to be done and discussed here. And then as I said previously, already, Xifaxan on the HE indication is -- if you look at hospitalization costs and patients not being in hospital, there already is a very large savings into the health care system on Xifaxan. I'll hand the other question that you had over to JJ.

Yes. So no, I'm not going to comment specifically on the quantum of debt that we're looking at. We're looking at various options. The one thing I would just reinforce and highlight is that we've got $7 million of maturities between now and the end of 2027. You have, obviously, to take into consideration the cash on hand. The cash flow that we'll be generating between now and the end of 2027, as we indicated in our guidance, this is a business that certainly in the near term can generate $1 billion plus of cash flow per year. And so the objective here is really to deal with as much maturity as possible during that horizon.

Great. Thank you.

Okay. And our last question comes from Glen Santangelo with Jefferies. Please proceed.

Hi, guys. Thanks for taking my question. Tom, just two quick ones for me. I mean it seems pretty obvious why you maybe walked away from the BLCO sales process. And so in your prepared remarks, you seem like you're continuing to sort of actively explore different processes to maybe monetize this asset. But what might you do differently going forward versus what you did over the sort of past couple of years? And do you think 2025 could be in the cards to ultimately get a deal done? And then my follow-up to that is for JJ just on the follow-up question. When you think about trying to tackle these maturities and pledging some of the BLCO shares, does that in any way impact or say anything about the potential timing or ability to do a deal in the near term? Thanks.

Yes. This is JJ. I'm going to cover both questions. So as we said, obviously, the -- maximizing the value for shareholders of our BLCO equity stake is one of the primary value creation levers for us, and there are many ways you can go and achieve that. The goal is obviously to complete the separation between BLCO and BHC. But the monetization of that asset is going to play a key part in our journey over the next three years. And listen, there's no real time line associated with that. I think it's more a function of what makes sense for shareholders and whether the transactions that we're considering are accretive to BHC share value. So that's what I would say on that front. And then in terms of the financing that we're looking at raising, obviously, our BLCO equity stake is a big asset of the company, so we'll use partially or totally as collateral to some of the financing we may decide to raise, as we indicated in our prepared remarks. And it doesn't really impact, I think, the timing or the decision we'll be making on the BLCO, more what we will be doing with the proceeds as indicated by potential covenants or obligation associated with the debt we're raising.

Okay. Thank you.

I would now like to turn the call back over to management for any closing remarks.

Thank you all for joining us this afternoon and for your questions. We closed out another strong quarter of growth leading to a strong year, with consistent results across our broad portfolio of assets. I want, once again, to thank the entire Bausch Health team across the globe for their hard work and dedication and relentless drive to deliver the products patients need most to enrich their lives. Thank you for your time and your interest in the company, and we look forward to another strong year of execution and progress in 2025. Enjoy your evening. Thank you.

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