Q3 2019 Earnings Call

Good day and welcome to the Bausch <unk> third quarter 2019 earnings Conference call. All participants will be in listen only mode should you need assistance. Please secondly, comfort specialist pressing the star key followed by zero after todays.

Presentation, there will be an opportunity to ask questions to ask your question. You May Press Star then one on your telephone keypad to withdraw your question. Please press Star then to.

Please note. This event is being recorded I would now like to turn the conference over to Art Shannon Senior Vice President.

Head of Investor Relations and corporate Communications. Please go ahead.

Thank you Andrew Good morning, everyone and welcome to our third quarter 2019 financial results conference call participating on today's call, our chairman and Chief Executive Officer, Joe Papa and Chief Financial Officer. Paul parents. In addition to this live webcast a copy of today's slide presentation that a replay of this conference call will be available on our website under the Investor Relations section.

Before we begin we'd like to remind you that our presentation. Today contains forward looking information we would ask that you take a moment to read the forward looking statement legend at the beginning of our presentation as it contains important information.

This presentation contains non-GAAP financial measures more information about these measures. Please refer to slide two of the presentation non-GAAP reconciliations can be found in the appendix to the presentation posted on our website.

Finally, the financial guidance in this presentation as effective as of today only it is our policy to generally not update guidance until the following quarter and not to update or affirmed guidance other than through broadly disseminated public disclosure with that it's my pleasure to turn the call over to Joe.

Thank you art and thank you everyone for joining us today I'll begin with the third quarter highlights before turning the call over to Paul Herendeen, Our CFO to review the financial results in detail and update our 2019 guidance will then review the segment highlights and open the line for questions beginning with slide four.

We had another strong quarter sustained performance demonstrates that our team. It's continued to gain traction with our plan to pivot to offset total company organic revenue grew by 4% compared to third quarter of 2018 and represented the seven consecutive quarter of total company organic.

Revenue growth being now is leading our turnaround with a 12 consecutive quarter of organic revenue growth key drivers, where a strong bloom if I watch strong international prescription results and the performance of our global vision care business.

Alex reported more than $500 million in total quarterly revenue driven by site Saxenda, 24% growth.

Additionally, we generated $550 million a cash from operations increased R&D investment by 15% during the third quarter as of September Thirtyth, we have utilized approximately $900 million to repay approximately $700 million of debt and approximately 200 million.

To complete the acquisition of Trulia and enter into a license agreement for Amazon Dot in October we acquired rights to Sipe here I'll talk more about that later moving over to the right slide for our new product are also producing results that they're much brand is now a top 10 Bausch health franchise.

Following the successful launch of Thermark, Lx, and the Asia Pacific region, well Mfive generate $21 million your revenue in the third quarter and has achieved a weekly market share of approximately 43%.

Truly has generated $37 million of revenue since our synergy acquisition and continues to track to full year guidance of $55 million you ovaries off to a strong start at four months post launch with weekly Trx tracking right around the 2300 level. Thanks to a great team effort. They continued engagement of over 21000.

An invoice about how we have delivered another strong quarter, we remain focused on launching new products, improving operation and delivering on the commitment we outlined at the beginning of the year with that I'll turn it over to ball yeah. Thanks, Joe and I'll start with a quick walk down the Q3, P. now which is on slide five first some housekeeping when we talk about organic.

Growth you mean on a constant currency basis, and adjusted to remove the impact of acquisitions and divestitures. So topline topline organic revenue growth of 4% in the quarter as Joe said, the seventh consecutive quarter of organic revenue growth.

Pretty good considering we absorb the growth drag of 85 million from Ela, we assets versus Q3 of 2018.

Revenue in our BNL International segment grew 5% organically in the quarter four of the five sub segments within BNL posted growth led by the global consumer business up 7% organically in large part on the continued ramp Lomitapide followed by our international Rx business up 7% organically on strength in Canada, Russia, and the Middle East.

Next our global vision care business was up 10% in the U.S. and 4% outside the United States plus 6% overall on strengthen our bio true one day lens family, our ultra monthly silicon hydrogel lenses and the ramp a bottle locks our daily Silicon hydrogel lenses in Japan now.

Global surgical was up 5% organically on strength for must legacy lead system and related consumable and finally to wrap up the BNL segment from a revenue perspective global Opto Rx declined 6% organically, mainly due to the greater erosion of my branded Lotemax business in the U.S., including revenue loss to our own.

Authorized generic of low to of Lotemax suspension that shows up in our generics business in our diversified segment. So overall, a solid quarter for the BNL International segment.

Salix delivered another terrific quarter up 18% organically, which excludes the $14 million to Lance revenue in the quarter, Let's start again was I facts and as Joe said up 24% versus Q3 of 2018, but I want to break down the components of that 24% as it is important in how you think about growth rates for.

Like backs and in Q4 and into 2020, so the 24% growth versus Q3, 2018 came up 8% from volume, meaning more units sold 6% from the net impact of the price increase that we took decisive action back in January and the balance of the plus 10% came.

As a result of successful initiatives that we implemented as part of our project core to improve gross to nets was I faxon.

Reminder, core stands for cost optimization and revenue enhancement. This clearly falls into the revenue enhancement category.

From a growth perspective, roughly half the project core driven growth in satisfaction in 2019 is durable and we'll continue on in futures I fashion result, so think of as a step function increase in realized net selling prices was I faxon, while the other half is more transitory very real value driven by reductions.

In process gross to net items in 2019 results, but not repeating in 2020 I'll repeat what I've said in a number of public forum forms when thinking about Isight batson's growth prospects in 2020 growth will be driven by a combination of volume, which is selling more units and perhaps a couple hundred basis points.

Net selling price increase if we raised the gross selling price so important safety tip, while I would and you should expect type action to deliver net sales growth at an attractive rate in 2020 versus 19 that growth will not be at the levels Youre seeing in 2019.

While I'm on the subject I mentioned on our Q2 calls that we expected about one more quarter. That's this quarter of strong performance from Blue matter before that brand sees more pronounced losses of revenue due to an accelerated shipped in channel mix, resulting in substantial deterioration in net selling prices. So as you think about glumetza the Q.

For run rate for the brand maybe half of what we've seen and they first three quarters of 2019.

On more positive notes Relistor and Plainview deliver trx growth in the quarter end truly answer accounted for 14 million of revenue and remains on track to deliver the 55 million a revenue we guided to for 2019.

And you also Durham segment total segment revenue was down 16% organically as growth in Solta could not overcome declines in our medical derm business Global Soto delivered organic growth of 62% on continued strong demand for our Thermonics felt like systems, which in turn feeds demand for the consumable Lx.

Yes.

So there has been delivering robust growth mainly in Asia Pac and as we look ahead to 2020, we will be allocating more resources to Tom heart and his team to enable solta to pursue similar opportunities in other regions, particularly western Europe .

Our medical Derm business was down 47 million versus Q3 of 2018 militated by the 43 million impact of Elouise for El Adele.

Irix solid dine in a con yes.

The bulk of the impact of the Elouise for medical Durham, now reflected in our quarter results I want to call out at our medical Derm business will be Rebased in Q4, 2019 at roughly $85 million to $90 million of net sales per quarter and be poised to return to growth with a portfolio of promoted brands, including do ovary re Holly.

Saliq, all three no and Jublia.

Plus tail brands, including Targretin Retin, a micro ela deal on Exton cleansing gel and others.

Finally, our diversified segment declined 5% organically considering that aloe, yes, it's worth approximately 900 basis point drag versus Q3 in 2018, that's a pretty good quarter for bar Purcell and her team I want to call out a few highlights our view property on franchise in the neuro business, including Wellbutrin XL.

And plans and grew 12% versus Q3 at 2018 as a result targeted in effective promotion in collaboration with our market access team led by Bob spur.

Our generics unit has been the beneficiary of the Elouise of many of our branded products launching and selling authorized generic versions of those brands generic revenues were up 7% versus Q3 of 2018 now I've said this before about here comes again, we manage the diversified group to maximize the long term cash flows from a basket of assets that are.

Expected to decline overtime, our objective is to slow that decline and thereby maximize the cash flow in our team is doing a great job they're.

Down at the gross margin line, where the growth excuse me blended gross margin of 73.6 was that in the quarter, we were plus 80 basis points versus Q3 at 2018.

Our core initiatives within the supply chain drove the majority of the 50 basis point positive variance in the BNL International segment and roughly half the 350 basis point improvement in Salix.

Mix improved gross margins and Salix decreased gross margins. The ortho Durham segment was sold to making up a greater percentage of total sales and decreased gross margin then diversified with generics made up a greater percentage of segment revenues.

Note that we're guiding to rough a roughly 73% gross margin for the full year 2019, our year to date gross margin was 73.2%.

Selling advertising and promotion expenses increased by 32 million compared with Q3 at 2018 unfavorable by 7% reported an 8% constant currency.

Half of that unfavorable movement came from BNL International in was due to our deploying additional promotional resources to drive revenue growth, mainly in the global vision care and the international surgical businesses that 13 million increase in selling in advertising and promotion Salix was mainly due to the addition of roughly 100 sales territories.

Associated with the acquisition to truly.

Companywide DNA spending was up 5%, mainly due to increased investment building out our infrastructure.

Our investment in R&D increased 16 million compared with Q3 of 2018 as we continue the process a building the R&D organization and adding to our portfolio of development projects to enable us to sustain long term organic growth for our businesses.

Our adjusted EBITDA of 942 million in the quarter was up 3% on a reported and 2% on a constant currency basis compared with Q3 at 2018 good quarter.

Slide 6789 show additional details for the segments.

Not going to dwell on them as I've covered the main items of note on each so turn to slide 10 cash flow summary.

In the quarter, we generated 515 million of cash from operating activities the amount while down slightly from the amount in the prior year quarter keeps us well in line to deliver between 1.5 and 1.6 billion of cash from operations in 2019.

Year to date, our cash provided by operating activities is up 85 million from the prior year.

If you flip to slide 11, the balance sheet summary, during the quarter, we repaid 303 million of our term loan debt and paid 150 million to reduce our revolving credit borrowings to zero at September Thirtyth of 2019 year to date to September Thirtyth, we've repaid $631 million of long term debt and reduced revolving credit borrower.

By 75 million.

I want to note that we could have repaid more long term debt year to date, but elected to allocate roughly 200 million a cash flow to what we view as high value business development activity, mainly in this case the acquisition a true Lance.

On to slide 12, and our revised guidance today, we raised and tightened our full year 2019 guidance for revenue increasing the low end of the range by 75 million in the top end by 25 million. The new range is 8.475 billion to 8.6 to 5 billion. The midpoint of our current revenue guidance is up 50 million from Iraq.

This guidance on the midpoint in the on August guidance as you'll see on the guidance bridge on slide 13, the raises in part driven by 40 million Inc. increasing revenue.

Vacations for Ela, we assets with the most significant change moving the anticipated Elouise date for Prieto to one 820, and 20 million increase in revenue for our base business offset in part by unfavorable movements in FX since August which reduces our forecast by about 10 million Bucks.

We also raised and tightened our guidance for adjusted EBITDA to 3.5 to 3.6 billion. The midpoint of our current guidance is up 50 million farmer August guidance.

35 million came of that came from our greater revenue expectations for the yellow, we assets 5 million from FX, plus thats plus $5 million from that from FX minus 25 million for the higher than expected investment in R&D and plus 35 million from a combination of.

The increase base business revenue improved gross margins and other items last thing before I turn it back to Joe I think it's worth looking back at how we now expect to end 2019 compare with our guidance from back in February at the midpoint of our initial guidance range, we expected revenue of 8.4 billion or 29.

Team midpoint of our current guidance revenue was 8.55 billion, so plus 150 million.

85 million or the increase in revenue comes from roughly 60 million more expected revenue from the yellow we assets $55 million from the acquisition to truly ads and offset by 30 million of unfavorable movements in FX. So that explains the first 85. The remaining 65 million increase comes from both better performing.

And our base businesses and better gross to nets, and some businesses driven by project core than we originally forecast.

Appointed a story is that our original guidance for revenue on a constant currency basis. Excluding the date uncertain elouise was quite tight to how we expect to end up 29 team. We're proud of the degree to which we've improved our forecast accuracy at back to you Joe.

Thank you Paul let's go through some of the highlights in our BNL International segment. The important takeaway from slide number 14. This segment delivered 12 consecutive quarter of organic growth up 5% versus last year as you can see on the chart.

Turning now to slide 15, global vision care had a great quarter up 6% organically driven by the performance across Biotrue, one a day up 22% and ultra up 25% as well as the ACO Aucs launch.

We launched the ultra multi focal lenses for astigmatism in the U.S. in mid June these lenses offer consumers seamless transition between distances from near to far in between and as survive patients using ultra multi focal lenses, 92% agree that they are comfortable throughout the day and.

Four out of five patients surveyed preferred bausch and lomb ultra multifocals over their previous method of vision correction.

On slide 16, lower Fi continues to outpace expectation, having achieved a weekly market share of approximately 43% as you can see from the chart on the right third quarter reported revenue of $21 million grew by 91% compared to the second quarter Mummify is not a number one I care you PC shipments.

States and the number one physician recommended product in the redness reliever category.

Commerce continues to be important channel for our global consumer products as a third quarter Amazon data demonstrate with 65% growth compared to the third quarter 2018.

Turning now to slide 17 for an update on Salix organic revenue grew by 18% compared with the third quarter 2018, and revenue exceeded 500 million for the second consecutive quarter driven by the Trx drifted xifaxan as well as other promoted brands, including Relistor in Plenti since our sales acquisition in 2000.

15 revenues are tracking greater than 12% as we've shown in the chart on the left since 2017, we've been making investments in sales to drive this growth including.

Hiring 200 primary care sales reps to expand the commercial field force birthday faxon, increasing the focus on next generation surfactant formulations, acquiring trulia and they'll cana tight earlier this year and entered into.

Into license agreements to develop and commercialize novel compounds to treat G.I. conditions.

Turning now to slide 18, we've shown the overall quarterly trend since we've added the primary care team at the beginning of 2017 in the chart on the left with respect to IBSD, specifically trx grew by 14% compared to the prior year quarter in today, so facts and accounts, though for left.

10% of the IBSD prescriptions. So we believe there is a great opportunity to help more IBSD patients.

Moving onto a truly it's on the right truly has has generated reported revenue of $37 million since the acquisition and remains on track towards full year guidance of $55 million Trx grew by 25% compared to the prior year quarter and by 10% versus the second quarter sequentially.

Since the Trulia acquisition, the first quarter 2019, our team has done a great job improving the market access position for greater than 37 million lives. We've also increased reach and frequency of truly has that promotion to healthcare providers by more than 90%.

Overall, we're pleased with truly as progress in the IB FC category and as we focus on reestablishing Momenta procurement, we prioritized our sales portfolio and as a result, we mutually agree U.S. world that to terminate our arrangement co promote Lisa Mira effective September thirtyth.

Moving on to Orthoflo Derm on slide 19, while we reported coal segment organic revenue decline in the third quarter. The performance of global Solta, our aesthetics business has been outstanding.

62% organically compared to the prior year quarter, driven by the strong launch of Thermark FX in the Asia Pacific region. We've shown the quarterly growth chart on the right. Additional highlights include a strong due over the launch which I'll talk about in the next slide sleek trx growth of 65% compared to the third quarter.

2018, we Holly script also grew nicely up 20% from second quarter, and we expanded our dermatology cash pay prescription program dermatology dot com to more than 9000, Walgreens us retail pharmacies, which offer patients convenient access to our product at a predictable price.

Finally, we continue to move new treatments through our pipeline, we filed an end da for Raz low and acne treatment and have a PDUFA date of December 22nd.

On the slide 20 since the June launch you agree Trx is are tracking above the plan strong adoption by doctors patients in managed care is driving weekly trx growth.

The chart on the left shows weekly Trx as compared to other dermatology launches and as you can see from the data. The do ovary lots has been very strong in its first four months on the market tracking right around 2300 weekly Trx is while the early launch has been supported by our couponing strategies managed care is recognizing fuel breeze potential and do over.

As quickly gaining commercial access.

With the addition of do over to the Cvs Caremark Formula at the beginning of November we're now at approximately 57% commercial access as you can see in the chart on the right. We continue to believe there is enormous opportunity for do over it based on early data I remain very optimistic about do ovaries potential to improve the lives of patients with the right.

Yes.

As we've shown on slide 21 revenue of $525 million from new products accounted for approximately 10% of our core business revenue year to date as compared to only 2% in 2017, we expect this number to continue growing as we launch new products.

On slide 22 at the current run rate 2019 revenue from our significant seven product is up 65% versus last year and tracking at approximate $265 million down from our previous estimate of approximately $300 million, even though do ovary scripts have been better than expected the expected approval and launch was delayed.

We have been couponing to support the long term through over the opportunity as you started the launch of faction IBSD early couponing as an effective way to initiate patient trial as patients adopt do overall, we expect couponing to fade and the realized selling price to improve we continue to expect significant seven annualized peak total.

Revenues of over 1 billion by the end of 2022.

Turning now to slide 23, we show the progress of our late stage new product pipeline in each of our three core business segments and I health. We have a lot of pipeline activity first we are expecting to alongside daily lenses in the United States in late 2020.

We're working on line extensions for Luma Fi with further clinical studies planned for 2020.

Our surgical business also had a number of late stage pipeline products, including new Optum out.

This go surgical device in the Investor Trifocal intraocular lenses.

Last month, we announced an exclusive license for the commercialization as I have here in the USA and Canada, XY peers being developed as a treatment for maxillary DEMA associated uveitis and if approved by the FDA Zap here would be the first treatment for this condition, we expect the NDA to be resubmitted. The first quarter of 2020 believed that FDA will reach.

View it within six months of re submission.

Moving on to fix we're expecting a readout for the cardiovascular Holter study, we haven't celmod around year end. In addition, we are developing a number of new formulations indications for foxman that Weve listed on the slide interim analysis for the over adequate floppy study is expected in the first quarter of 2020.

The north are derived I mentioned, the NDA submission for Razzle earlier, and we have a strong pipeline of other acne and atopic dermatitis.

Hi, guys treatments in phase III.

To wrap up on slide 24, we continue to grow our existing business and invest in future growth drivers, we have a durable business approximately 60%, which is not exposed to U.S. branded prescription pricing. The third quarter was our seventh consecutive quarter of total company organic growth led by.

BNL International is failing and we expect a strong growth outlook for the next three years.

We're continuing to invest and sustainable growth drivers, we are increasing R&D investment and continued delivered new products, while also pursuing value creating acquisition partnerships in licensing opportunities.

And we've leveraged our investment for this I facts in primary care Salesforce to now also promote trulia. Finally, we have consistently improving our balance sheet, having reduced debt as of September thirtyth by $8.5 billion. Since the first quarter of 2015, we have also saw.

Successfully manage the maturity profile of our outstanding debt and produced strong cash flow from operations.

For these reasons, we believe that our third quarter results demonstrate that bausch out is well positioned for long term growth with that operator, let's open the lines for questions.

We will now begin the question and answer session to ask a question you've made press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then to at this time, we will pause momentarily.

To assemble our roster. The first question comes from Chris Schott of JP Morgan. Please go ahead.

Great Congrats on a quarter and thanks for the questions I guess my first one was on dual brief can you just talk a little bit more about how we should be thinking about gross to net dynamics for this product in the near term. So how long will this couponing strategy continue.

And any color in terms of where you see gross to net stabilizing longer term as we try to translate this very healthy volume trend, we're seeing what that means from a revenue perspective.

Second question was on gross margin upside we've seen that throughout 2019.

Our color in terms of what's driving that and how sustainable the upside is especially trying to get to is it's a 73% a good number going forward does that go up or down or just any any kind of pushes and pulls or should be thinking about that going forward. Thanks. So much.

Okay, great. Thank you for the question I'll start with two ovary, yes, we're really excited about what we see for the launch of do over in both the acceptance by by physicians patients and really how we're really make a difference in the lives of patients relative to the question, yes. Our couponing strategy is such that we want to encourage the.

Opportunity for patients to given a trial, but if you look if you look at what we've been able to do on our slide and looking at the overall market access acceptance.

When we are talking last quarter.

The acceptance or I'm, sorry, I should say that market access was about 30% coverage event by September it moved up to 38 now it's up to 43 and right now we're at the beginning of never read about 57% commercial covered we think thats going to be a big help to us as improving the gross to net summation question or comment I would.

Stays that I would say that we expect to be more of a steady state gross to net somewhere around 12 months as we at that point approach.

What we think will be approximately 70, 75% market access covered but it takes about 12 months I believe as a general comment for products and the pharmaceutical industry, but it always depends on market access coverage.

The second question I think you have is relative to gross margin poetry take that one yeah sure. Yes, first I'm not going to guide to gross margin percentage for.

For 2020 by just let's comment on how we done in in 2019, because I think it's pretty impressive.

It's really it's really a combination of three things one is project core which has now that I talked about quite a bit already.

Dennis Ashley and on our supply chain team have been engaged with us and supply chain efficiency initiatives. Since 2000, 2016 and boy are we getting results there and it is helping for sure.

You will drive our aggregate gross margin percentage in the right direction. The second thing is mix, we do have a mix of businesses those businesses have different have different margins and so that certainly comes into play I actually called out my prepared remarks, where mix was a helper and mix was I was working against us.

In our in our Q3 s results and so that plays a big role in how you forecast into 2020 and beyond in the last piece I want to mention is the wildcard of FX.

We are a global company, we have manufacturing facilities around the world we produce in.

In in currencies, and then often will sell those those products in other markets, where we are where the.

Are they are denominated in a different currency, that's a bit of a wildcard.

I know you saw that we our year to date, 73.2% and we're guiding to circa 73 for for this year. It bounces around a little bit I mean, I'm not going to guide you for next year I, just say we've made great progress during the fundamental things right that we're supposed to do to keep that percentage as high as it can be.

The mix and FX are very big factors.

Thanks, Operator next question.

The next question comes from Boomer runoff of Evercore. Please go ahead.

Hi, Thanks, so much for taking my questions. Joe There is that a lot of commentary on the street.

On setting to all re expectations, possibly as high as $2 billion, plus and I noticed your slide 20 today and the deck is also doing some of those same non apples to apples comparison in my opinion comparing to Aubrey versus novel Biologics like Dupi. So my questions are number one a Joe are you comfortable with setting expectations at those.

That's a numbers.

And to if you take the jewelry Trx this quarter, which is 24000 and you multiplied by a net price of even $500 you get to something like.

$10 million in sales now granted there's a lot of free drug, but that should still at least be $5 million in sales or so.

The fact that it was less than 4 million Im just curious how much free drug is in those trx therapy, Brooklyn comparing versus Dupi.

Then finally, just curious why true lance declined quarter over quarter and it sounds like based on your guidance for Q might also not be much higher than the twoq levels. Thank you.

Okay. So first I'm not going to make any comment specifically on the long term guidance of do ovary, specifically to numbers other than say, we're really excited by what we're seeing because for the very first time, we ever product that you can treat patients who have summarize topically and you can treat them to clearance, whereas previously.

You had a limited duration of treatment. So we think it's really exciting what we see obviously the prescription. The first four months, we think have been very strong in terms of of growth rate. We clearly just wanted to look at some of the other products that had been dermatology specific and compared the uptake of our product versus that were.

Not trying to put numbers out specifically for the future and say, we think it's going to be important part of our our future.

From college business and help us with it the turnaround of the dermatology business on the on the question of the gross to net we absolutely acknowledged initial first.

Nine month, 12 months will be a lower gross to net.

Then what we would normally see and what we'll see at at the.

Caught steady state, but the reality is it really depends a lot on how success. We are gaining commercial access we think the uptake in commercial access market access has been very good and we'll look to continue to do that going forward. So that's really all I can say on the on the do ovary side.

Relative to were not can put a specific number out in the plan for future on the question of true Lance.

Yes. Thank you last quarter to revenue was higher that was if you recall we've acquired the product.

The out of a bankruptcy situation and there was some stocking in the quarter too.

If you look at really that measure of growth prescriptions for true Lance quarter three versus quarter Q was up 10%. So we clearly think thats one important metric.

There was some noise on the on the stocking side and then of course as you think about quarter three this year versus quarter. Three 2018, we were up 25%. So every metric we look at what drew that gives us a lot of optimism for the future and certainly in line with what we said with our full year guidance on the 55 million. So pleased with Julianne and especially now that we've moved from.

100 reps promoting it the 200 reps now up to 500 reps. We think there is a great opportunity as we brought together that's I facts and a truly is I'd be asked opportunity to have what we believe is a best in class product in IBSD with by fact that and we believe a best in class label with the true its product for IBSD along way to go in terms of.

The performance there, but we think it's a great opportunity for us.

Operator next question. The next question comes from a cash to worry of Wolfe Research. Please go ahead.

Hey, thanks, so much so consensus has the germs segment kind of growing at a steady clap. If you include Solta you go from like around 560 to close to 900 by 2025 can you give us a sense of how you expect this segment to grow internally and would it be fair to say that consensus isn't really modeling uptake for your IBP pipe.

Fine products. So I'd be 121, 23, 126, which one of these products are you guys kind of internally most bullish about and.

And why and then a bit maybe on is that Saxon and the patent case, what is your you've talked about your willingness potentially to settle with Novartis. How do you feel their case is different at all with Teva and with that in mind would we would it be unreasonable to expect a settlement or anything sooner than the 2000.

28 that Tibet settled for previously thanks.

Okay. You asked quite a few questions there are going to try to get them, all but if I Miss any please to remind me.

First started dermatology, we're really excited about our dermatology business as most evidenced by my comments relative to do agree. We think do over is a game changer relative to the ability to treat these patients topically.

Which is what most psoriasis patients are looking for is to treat their product treat topically. We also believe it's a game changer because of the ability for for patients to delay the need for biologic and then as you know that we did a study that for every patient that you delay the need for bilateral use of bio.

Logic, you save a planned significant amount of dollars I. My recollection is for the plan with a million lives. It's something in the order of $3 million to $5 million of savings for that plan on annual basis, a clearly that that is.

The first comment in terms of the overall do over in Europe .

To make any comments about the outlook for specifically for our commentary other than say that we do believe the dermatology business has significant upside from where we are today, we had to work our way through the Elouise. We believe most that is behind US as Paul mentioned now as we look we have the growth opportunity, especially with dual brew Holly saliq.

In the category on the question of other products.

Certainly on the one.

Hi, DP 120.

Thats a.

A dual product for acne 123 is the raz load that we also talked about for that we filed and have a December PDUFA date. So clearly that's something that we think also could be an exciting opportunity for us once again in ethane and then 126 is a triple combination we have so.

Lot of good opportunities for us for the future, we think thats whats going to build our dermatology business going forward.

During the last question you had was on Surfaxin IP.

We think we have a very strong position, we did filed suit against Sandoz on September Thirtyth, we believe that the 22 patents that we were originally had now was supplemented with one additional patent that we announced we now 23 patents. We believe we have a very strong position there is important comment.

Sorry on.

Celesio property, we know that the polymorph patent are very important to us in the FDA come out with guidance on how one would need to be.

As shown to be bio equivalent we think that the differences in the absorption of the polymorph is a very important consideration and one that gives us based on our information a very strong position to defend it and we see nothing in the Sandoz filing that would give us reason to move off of that 2020.

Eight days, so we feel very good about it and obviously, we'll continue to to try to work through within those but feel very strong, but our 2028 days.

I think I've got a mall operator next question. Please.

The next question comes from Gregg Gilbert of Suntrust. Please go ahead.

Thanks, gentlemen, first Paul I know you're not in the move to give a lot of specifics about 2020, but hoping you could just at least highlight some of the pushes and pulls US you see them and 20 and as part of that more of a qualitative question about just.

Maybe a little bit quantitative how much flexibility the expect to have next year.

To consider extra curricular activities and BD.

As you continue to emphasize deleveraging sort of 2020 versus how it has felt and 19 and previously and then secondly on Xifaxan, there's a competitive launch coming and travelers diarrhea, I know, it's a tiny.

Revenue contributor for Xifaxan, but Joe maybe you could talk about whether you're seeing or expect to see any.

Signs in the contracting environment that that is relevant even though it's not a head to head.

Sort of comparison to where the business lies thanks.

Well I think personal yes, yes sure out as thanks. Thanks, a question Scott, Greg Let me start.

I don't want to provide guidance for 2020, but there are some things that you should be able to take away from our commentary earlier today that help you start thinking about.

How at least how we view 2000, 2020 ml star with the BNL International segment.

We are continuing to deliver solid kind of mid single digit organic revenue growth in that BNL International segment, and we talked in the past how this business over time is kind of a mid to maybe even a little better than mid single digit performer or could expect to be that is the majority of our revenue so as you're thinking.

About it that piece, there's there's one growth driver, yes, second I called out.

Xifaxan, obviously, our largest individual asset and was pretty clear I mean, you can come up with your own volume expectation.

Growth of our volume in fact on for 2020 V 19, and we said we'd get a couple of hundred basis points of we think of a pickup in price. There. So you got your largest franchise, which are expected to grow at an attractive rate into two into 2020, the 19 I called out the Durham realized we read.

Based on here in Q4, Yeah, we expect the medical darn part of our business to return to a two a growth profile. That's on the strength of the products that we've launched and are launching in the medical derm business part of that Ortho Durham segments. Solta has been growing very very strong growth here in in 19.

In the 18 now do I expected to grow at that same same rate going forward that that will be hard to achieve but I expect it to be kind of a strong strong grower. So there's a majority of our business, which you'd expect could be growing into.

Into into 2020 versus 19.

The flip side.

The things that could be.

Headwinds to headwinds for us there I called out Glumetza will metro was that was has been a great product for us, but as we had called out I want to say we started talking about at the end of Q1 given people a heads up keep an eye on and it's been it's been really it's been really good for us.

But as that the as Ed volume shifts.

Shifts into what I'll call far less profitable channels for us.

That is going to be a year over year decline earn it and it's a kind of a material mdna mdna item.

The the other thing I call out as we will and when we provide our guidance for 2020, we'll of course update RL OE schedule.

The next Ellen we have significance is something that I did speak about.

In talking about guidance, which is a pre so we've moved that out to one age 20.

Yes that comes January Onest, it's different than if it comes.

June 29, so those are the things I'd be looking at when thinking about 2020 from a revenue perspective, the 19 I hope that help.

And on the facts in the competitive launch in Trevors diarrhea, we take every competitor very seriously having said that the the rest of my son product was approved approximately one year ago.

Date, we really haven't seen anything.

Consequence, there yet the only point I would ask add to that is that for us. The Travis diarrhea is less than 2% of our trx. So a very small portion of our business and.

For the most part managed care does it usually cover that so I think it would be somewhat difficult to get too much contracting with that.

Tick or indication, but we will obviously take it series and see what happens in the marketplace relative to the travelers diary indication, Greg I'm, sorry, It's Paul again, I realize I.

Skipped over your question regarding our flexibility to allocate to free cash flow for business development.

Element opportunities.

This year I mean, I think early in the year, we are fortunate to be able to acquire the assets of of synergy and again get the truly its asked and drop it into Salix business.

As I want to say, we do that deal 100 out of 100 times that was circa $190 million and I wish we could do one of those every quarter, but but those sorts of transactions are not always not always available as we look add to 2020 beyond that we will continue to prioritize the use of our free cash flow.

To reduce our debt I think we have reduced the quantum of our debt and we are improving our leverage but we continue to be very highly levered company and one that needs to add needs to work to bring our capital structure to something that is more more reasonable for our company is comprised of the.

Assets that were comprised of so we'll prioritize that now that said if there are opportunities out there that fit dead center on top of our our core areas of focus that would be eyecare, GPI and medical derm.

And we would certainly consider those things and you should expect us to.

We'll try to find Trent five trying to find opportunities, where we can deploy capital in business development opportunities that would be value generative.

Operator next question. Please next question comes from David Amsellem of Piper Jaffray. Please go ahead.

Thanks, just a couple so first on do Aubrey I wanted to come back to the the topic of access.

At 50 plus 57%.

Covered commercial lives. So I wanted to get a sense of how much of that is hassle free or maybe.

Another way of asking the question is.

What do the steps rules look like.

In terms of the covered.

Second our one and then on untrue Lance.

I don't know if you're willing to cover. This you can you just talk about how this would envision.

The state.

Gross to net for that product it seems like you.

You made some gains on on contracting and reducing stitching. So how does that affect you guys said.

It is safe and it looks like longer term and then lastly, real quick on volcanic side, you have anything new to say about that and where you may go into.

The development on them that asset thanks.

Hey, I'm going to try to get all of them, but.

Let me start with do agree the question of what do the step through his look like for access I think we've been very fortunate as I said we.

Continued to improve our access with two ovary moving from as I said, we're on this call.

Last quarter was 30% now we're up to 57% a majority of that has improved.

Specifically in the unrestricted for do agree we expect to have about 44% unrestricted and about 30% has them. Prior prior often step through but you can see the majority of the 57 is specific really an unrestricted access which we think makes a lot of sense because as I said before if the first.

Time of patient could use a topical and treat to clearance versus what previously was limited on duration and and because of the ability for us potentially delay the need for biologic on the second part of the question truly is how do we envision the steady say the product going forward I think when we acquired at we made the comment.

But what we were trying to accomplish and I think we stated that comment first thing. We said we have to improve reach and frequency as I mean, it made a comment in the call we improve reach frequency by about 90% additional promotion behind our.

Facts and primary care effort as well as what we Havent gastroenterologist since we acquired it so clearly doing reach frequency on the second part of what we said we needed to improve the market access position and we've done that what specifically we've done is improved the availability of this product for about 37.

Million lives and by improving it either we got additional formulary additions or we made it easier to use the product more moving more towards the unrestricted side of the equation. So those are the things we've done.

With Trulia and.

As we sit here today, our overall truly is.

Availability unrestricted and restricted is about 80%. So we've made some really good progress there on the third question you had with Doe Cata tide, we are continuing to evaluate ocana tight we do think it has some significant opportunity for us relative to us doing some additional preclinical work with the molecule.

At the very lease we clearly think it has.

The lifecycle for us relative to improving on truly hands, but we're going to look at other gastroenterology indications as well as I said through preclinical models I think I've got all your questions David.

Operator next question.

The next question comes from Gary Nachman of BMO capital markets. Please go ahead.

Hi, Good morning, first and BNL on the contact lens market just talk about how you've been able to gain share, particularly in the U.S. and when will the daily side high be ready to launch in the U.S. and how much share could that potentially take.

How will it be different differentiated in the market.

And then as vice Ulta still a major focus for the BNL team is Medicare where it needs to be and when should we see this product accelerate and then Joe on the cash pay model for legacy Durham products.

Have those products gain traction yet and how much should the expansion help in Walgreens that you talked about thank you.

Okay, you got a lot there I'm going to try to get them all.

Terms, it but if I Miss uneven please remind me on the contact lens.

I really has been the new innovation that we brought out the new ultra biotrue. The ultra multifocals torque that's been really the primary way because I mentioned to you Biotrue is up 22% ultra was up 25% quarter versus a year ago. So it really shows I think great performance by the team.

Most certainly want to also recognized the team Joe Gordon and his team at Thats done an outstanding job John fares as they've taken over this responsibility and then young on our international side has done a great job water on our business. So a lot of good efforts by the team is really focusing on our new innovation.

And the opportunities for people to have better optics more comfort and the ability to have access to new innovations such as our multi focal for stigmatism on the question of the site High Daily We said, it's a second half of 2020.

To date in the United States, the us OSI high percentage of market is about.

12, 13% of market, but it is growing significantly and we believe we have an opportunity once again to bring some innovation in this marketplace within a new side high that we think is going to be very.

Desirable for patients relative to the current existing side high products out in the market, which will help us with the growth of that product.

Hi, Solta is it still focused the answer is absolutely yes, if you look at our performance the performance.

The third quarter 2019.

Was up 140% versus the third quarter of 2018. So I think you can clearly tell by that.

The team is doing a good job with it and continuing to move that product forward for us as a company.

Last comment was that dermatology dot com, how much where the cash pay prohm help us we've been working very diligently bill Humphries and his team has been working very diligently to ensure that as we got greater access what we felt the problems that we could solve with dermatology comp dot com is to make sure that the dock.

Stirs get the brand with a predictable access.

They get the the product that they want in the formulation. They want and then of course are patients that the patients have access at a point in a network that means that theyre going to get the product. The doctor wanted they're going to get the result of the doctors expecting in the formulation that theyre expecting at a very.

Predictable price points. So that's what we expect is going to help us.

Having an additional 9300.

So stores from Walgreens only makes it the model work even better.

I think I got all your questions. Operator next question. The next question comes from Louise Chen of cancer. Please go ahead.

Hi, Thanks for taking my questions first question I had for you if you could comment more on the gross to nets for third COVID-19, and then second question I wanted to ask me was as you move through this group.

In 2019, and 2020, how do you plan to make sure to sales and EBITDA growth you forecasted advocate here over the next couple of years and then last question I have is just how should we think about R&D spend as we enter 2020 and beyond thank you.

If you take that first the growth of 19, but yes sure a and at the gross to net is a it's kind of.

Ill call it a complicated thing.

Yes, but if you look gave you the gross that pickup that we observed in the quarter and frankly have observed year to date has been a theme for us over the last couple of years and that's not something they just kind of happened in a vacuum.

It's been the result of a lot of management focus we implemented some improved processes and made I'll use product returns as an example, if I might I think it's and it's worth spending a second on this year to date through September the amount of product returns that we actually process were $77 million less.

Then we had in the same period in the prior year, that's a 30% reduction so for the avoidance of doubt process return results in a credit against the accounts receivable, meaning we're talking about quarter hard cash here. So I'll repeat 77 million favorable year to date versus that versus 2018. So then why did play.

Yes returns go down so much it's it's because of beginning back in the latter part of 16 and continue even as we speak.

Weve more actively monitor and manage the channel inventories of our products and what we're talking about here is mainly our branded Rx businesses. I think you're you were talking about in the US now Salix neuro derm and Opto Rx, we tightened up our policies. We successfully challenge channel partners that may have been gaming us in the past we've worked or channels.

Stories down which is in in of itself helpful and significantly we change our pricing policies such as a large and frequent price increases are not part of our business model. So we're working our way through the situation. We started with and we've made great progress and Thats really resulted in measurable declines and the level of the process right.

Turns that you saw beginning in say 2018, and you're going to see this well you've seen it already in our 10-K in our 10-Q you look at the revenue recognition footnote you can find information there, but as weve developed sufficient data to support an assumption that our future trends be less than we previously estimate.

In the crude we change both the amount by which we reduced gross sales for returns during that period end, we true up the returns accrual to reflect the lower amount of returns that we now expect the process against previously sold product. So that first part that reduction in in in.

Yes, the deduction amount continues on it as an increased the average selling price for impacted products I'd call that a little bit when I talked about setbacks and then the true up the accrual that the helper to revenue in the current period, but does not replete repeat and as such.

Comes a little bit more of a challenging when comparing this period from from here forward. So I'll stop there I'll say, it's not just returns by the way it's I'd say.

A whole host of things I mean, we had rebates, it's how we manage our co pay assistance cards and the overall trend of our gross to nets has been getting better. Some from 17 to 18 now year to date to 19, and Thats something thats been a real helper for us so far and I think as we go forward what it is.

Felton higher realized average net selling prices for those branded Rx products that was sort of a long walk, but I hope it helps.

The second part of question Louise is about I think our three year growth rates and CAGR is and what we're thinking about their first form of I'll remind everyone that we're looking at revenue CAGR of 4% to 6% on the three year basis and on EBITDA of 5% to 8% CAGR. So that's the mindset we have.

Relative to how we will do it I mean I think it comes down to just first is looked at what we've done and then importantly move forward. If you look at what we've done.

The being down the and the Salix business together.

On very well for us they now account for about 77% of our business. So clearly.

That's 70% of our business, it's clearly a large part of our business, but by definition. The dirt business has not been there yet we now think that we have the derm business at a point, where with the success of a dual relaunch pretty highly launch continuing to grow steadily and then launching these new products we.

I think that turnaround is also going to help us with the future growth driver. So yes, yes, it's been.

So far fueled by the Salix and being now, but we do think that derm business.

He is also now as Paul mentioned in his comments at a point, where you can significantly contribute to our growth.

So that part is clearly the derm business import the second part of his as new products across all of our business that on the slide we showed on page 21, new products in fiscal year 17 accounted for about 2% of our sales today, that's up to be about 10% of our revenue. So clearly that the second part new products.

We expect to see that to continue to accelerate as we launched these opportunities and then the final thing I'll just pick up on were Paul said, it's all about that project core in terms of making us more efficient and Thats a cost optimization revenue enhancement project that has yielded very good returns for us and we expect to that continues.

Going into the future and that helps us both on the on the revenue side, but also on the EBITDA site. So those are the primary ways that we're going to work through that the final comment you have was about R&D spend.

We did make significant investments in research and development in 2017, 18, 19, I would look as we go forward I'm not going to guide to it but certainly we think we will continue to invest in R&D at slightly above our revenue growth rates as we think about the future where we are going with the product.

That concludes my comments there operator, I think as time for one last question. Please and that question will come from David Risinger of Morgan Stanley . Please go ahead.

Thanks very much.

So.

Three questions. Please the first is are there any formulary positioning changes of notes for January for results or saliq that could help their sales potential.

Second.

Consensus isn't quite at the $1 billion level for the significant seven by the end of 2022 are there any products using consensus may be underappreciating besides jewelry.

And then third.

Could you talk a little bit more on a bigger picture level about.

Aesthetics.

Market digital opportunities it seems like consumers are increasingly receptive to.

You know purchasing products online and paying up for higher value products and the seems like it could fit with your.

Also during our direct to consumer initiative, but it's still not quite clear to me.

Whether.

You are really there yet in terms of maximizing that.

Central for your Derm business.

Thanks, so much.

Okay, a lot of good questions, maybe I'll try to take them one at a time here by salt and Saliq relative formulary positions and where are we today and how weve continued to improve on that we're very pleased with the success. We've had with vice Ulta results are right now is up to about 74%.

Access commercial access and about somewhere around 30% on the on the part D side. We we know we're going to continue to work on that I don't have anything specific to say about January contract, but.

I can simply say that our market access team has been doing a great job for all of our products and we will continue to look to renegotiate some of the physicians, we have with vital to both on the commercial side and on the part D covered side on the question of Saliq Saliq is also right around 78%.

On commercial coverage.

Less so on on part D, but it's much less of a part D marketplace. So.

Lee has put us at 70% covered we will continue to look to get better coverage there, but we think we've got pretty close to what we're looking for.

In terms of what's going on on the question second part. Your question was on significant seven we do think there are some significant upside we mentioned do ovary clearly is one of the products that we think.

As a very significant opportunity for us beyond that the other products. We think are performing better than people expect is luma fine relish store and we clearly think decide high daily is a good opportunities to those would be the ones that I want to comment specifically on any consensus model, but ones that we feel have a good.

The opportunity for the future.

Fedex market opportunity.

Clearly are what we're doing there is exactly what we commented before about dermatology dot com and the result of business as we put those two business together.

We think we've got the right prescriptions for the future some patients, especially with the treatment of acne are just looking to get a a.

Cash pay option, where the cash pay option is not that much different than what they panic. Okay. So that's clearly one side on the aesthetic business I think the results of Solta and Tom Heart and what he has done there to speak for themselves being 62% clearly.

They have done just outstanding job and our expectations is that we have a great opportunity for the future because yes is doing really well in Asia, Yes is doing well here in United States, but theres, a European opportunity that as Paul mentioned, we're investing in for the future. So we feel very good about the opportunities, we see with aesthetics and specifically both on the.

The Solta side, but also what we're doing on cash pay as we solve problems for patients that are looking for predictable access and a predictable price point, we think our cash pay model will do exactly that.

Operator that concludes what we wanted to cover today I. Thank everyone for joining us and look forward to having more conversation in the future. Thank you have a great to everyone.

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