Q4 2019 Earnings Call
[music].
Okay and welcome to the boss fourth quarter and full year 2019 financial results Conference call.
It's supposed to be any listen only mode should you need assistance. Please take nine conference specialist by pressing star to be followed by zero.
After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then too. Please note. This event is being recorded I would now like turn the conference over to Arthur Shannon Senior Vice President Investor Relations.
Communications. Please go ahead.
Thank you Alicia good morning, everyone and welcome to our fourth quarter and full year 2019 financial results conference call participating on today's call, our chairman and Chief Executive Officer, It's Joe Papa and Chief Financial Officer Mr., Paul R&D. In addition to this live webcast a copy of today's slide presentation and 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 a presentation. Today contains forward looking information. We went after you take a moment to read the forward looking statement legend at the beginning of my presentation. I think it contains important information. This presentation contains non-GAAP financial measures for more information about these measures. Please refer to slide two of the presentation non-GAAP.
Conciliations 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 bad it's my pleasure to turn the call over to Joe Bob.
Thank you art and thanks, everyone on the phone for joining US today, let's quickly review the topics. We will cover today I'll begin with a brief summary of our 2019 company highlights before turning the call over to Paul Herendeen, Our CFO, Paul will take us through the fourth quarter.
Full year financial results and provide our 2020 guidance I'll then review the segment highlights in catalyst before opening the line for questions.
Getting on slide four in 2019, our theme was pivot to offset or focus on driving organic growth in our core businesses. We have now deliberate eight consecutive quarters of organic growth. In 2019 was our first full year of reported revenue growth since 2015 bout health through or.
Generally by 4% in 2019 reported revenues were up 3% our largest segment BNL international delivered its third consecutive year of mid single digit organic revenue growth Salix reported full year revenue of more than $2 billion. The first time ever we generated.
1.5 billion of cash from operations, we increased R&D investment by 14% compared to 2018, and we used approximately $1.1 billion of cash pay down roughly $900 million of debt and fund approximately $250 million a bolt on acquisitions or.
License in products pivoting to often also include launching new products in driving their growth and our new products continue to grow first following the launch of Thermonics FX in Asia Pacific. That's there my franchise saw a 73% organic revenue growth compared to.
2018, this exceptional growth rate made that their March one of the Bausch health top 10 franchises in 2019, Luma five achieved a weekly market share of approximately 43% in 2019 is number one physician recommended product in the redness reliever category.
Affiliates Trx this grew by 31% year over year, and we have improved the market access position for approximately 35 million lives since we acquired the product in the first quarter 2019.
You will agree has been another standout weekly Trx is grew by 25% in the third to the fourth quarter 2019, and we have now achieved 63% commercial access.
Overall, the entire Bausch health team of 22000 employees delivered on our promise to pivot to offense in 2019 and demonstrated the durability of our business, which we grew both organically and through strategic bolt on acquisitions, great effort by the entire bombshell theme well, it's going to walk you through the fourth quarter and fee.
Full year results in more detail, so with that I'll turn it over to fall.
Thanks, Joe a lot to cover I'll try to go fast good quarter and a good year a little different approach this quarter I'm going to start with slide five a summary of the changes in revenue by segment in major business unit for both Q4 and a full year 2019, I will then walk down the top level PNM for the quarter and provide some observations about the full year before turning to our guidance.
2020 quick reminder, when we talk about organic growth that means excluding the impact of changes in FX rates the impact of divested in discontinued businesses in the prior year periods and the impact of acquired businesses. Okay slide five in the quarter, we posted 4% organic revenue growth versus Q4, 2018 recall that last year, we took steps to read.
Yes, our channel inventories held at wholesalers and that that had the effect of reducing Q4 18 revenue by an estimated $76 million. So that's a tailwind for us this quarter, excluding the impact of the inventory contraction, we still posted top level organic revenue growth of plus 1% there were lot of moving parts, but a lot of good stuff with any.
Each of our segments, let's start with Salix as it was the largest contributor organic revenue growth in the quarter up 17% organically on continued strong performance from Xifaxan up 29% relish store up 29% and Plainview also contributed growth we lost exclusivity for a presale in the quarter and that combined with the continued drag.
Our generic erosion of you cerus offset some of the growth while not a factor in organic growth truly on sales totaled 18 million them a quarter and fill trx is were up 69% versus Q4 of 18, a strong quarter from Salix to wrap up a great year, posting 13% organic revenue growth for the full year versus.
2018, despite elouise.
BNL International segment revenue was up 3% organically in the quarter led by global consumer plus 7% organically on strengthened lumen fly in the us and our global contact lens solution brands renew and Biotrue multipurpose global surgical was plus 5% organically in the quarter on strength in consumables for the back of the.
In Investor iOS Global vision care was plus 4% organically in the quarter on strength in ultra monthly silicon hydrogel lenses, our Alco locks daily Sai high lenses in Japan, and Biotrue. One day lenses are international pharma business was essentially flat versus Q4 of 18, while global off though Rx declined.
2% organically as growth of by Solta and pro LENSAR will more than offset by the decline of the low to match brand family due to generic erosion.
For the full year BNL International grew 5% organically consistent with our belief that this diverse and durable segment can deliver mid single digit growth over time.
All five of the BNL International business units.
Posted organic revenue growth for the year led by global consumer up 6% organically on strength alumina buying the us and arrive vitamins globally, followed by global vision care up 7% organically with contributions from our Biotrue One day lenses monthly ultra lenses in OCC locks daily side high lenses in Japan.
Our international Pharma business was up 5% organically on strengthen Russia, Egypt in Canada.
Global Opto Rx was up 2% organically. Unlike in the quarter for the full year growth of buys Ulta pro lenses in a portfolio of our international ophthalmic brands overcame yellow we drag from low to Max you also Dermatologic segment declined 1% organically in Q4 of 19 versus 18 spectacular growth in our glow.
Ballistics business, Solta, which was up 42% Neely overcame the 18% decline in medical dermatology in the sold the business. The surmised platform is now solidly in the top 10 products for the entire company and was a significant contributed a companywide growth.
Well, we've played a big role in the quarterly decline in medical Derm, mainly Ella's Ellen's of Irish Creme the balance of promoted products in the medical in medical Durham, including do ovary Jublia.
Saliq every Holly all grew versus Q4 2018, it's pretty much the same story for the ortho Derm segment for the full year strong growth from global Solta, plus 45% organically for the year more than offset by the decline in medical dermatology for the full year medical Derm was our business most impacted by Elouise a minus 100.
$21 million grow drag versus 2018 on the plus side Julio was one of the top 15 contributors to companywide revenue growth in 2019 versus 18 as the impact of Elouise moderates in this segment Jublia together with our brands and growth phase that's dual brisa Lee can be Holly form the core of our medical.
In portfolio in the basis for an expected return to growth in this business in 2020.
Finally, the diversified segment, which declined 5% organically in the quarter as Elouise, where a $29 million drag on the neuro business. Our generics business grew 3% organically in the quarter with authorized generic versions of our branded products had lost exclusivity, mainly you Cyrus a pre so low to Max and Ellendale, providing the bulk of that growth.
For the full year diversified declined 5% organically as 11% growth of our generics business offset some of the $116 million Ela, we grow drag at our neuro business total company revenue for the year grew 4% organically with 2% coming from improved realized net selling prices and 2% from increased volume.
Flip to slide six the personnel summary for the quarter, our gross margin in the quarter was 71.4% down about 20 basis points versus Q4, 2018, mainly due to higher inventory write offs in Q4 19 relative to the prior year quarter note that for the full year, our gross margin was 72.7% favorable by 80.
Points versus 2018 with mix, a big driver, particularly impacted the growth of Xively Jackson, but also from improvements associated with our project core activities. Our final guidance for the full year for our gross margin was roughly 73% selling effort and advertising.
Expenses in the quarter were up and or unfavorable on a constant currency basis by 6% versus Q4 2018 due to the addition of truly answer the Salix portfolio.
Hiring NP costs in vision care to support new launches and an international farmer for product launches, particularly in Canada in Russia.
Adjusted DNA expenses on a constant currency basis were 8% unfavorable in the quarter compared to Q4 of 18.
Due to increased cost of business development initiatives and higher ongoing IP costs as we continue to work to improve our global operating systems.
I want to point out that in Q4 20 819, adjusted DNA run rate is that it's above what I would expect on average the quarterly run rate to be in 2020. The go forward adjusted gene a run rate is likely between the 163 million. We saw in Q4, and a 140 million average over the first three quarters a 29.
And team.
R&D was down in the quarter, a favorable like 5% on a constant currency basis.
I would not read much into that as just how the timing of expenses fell in both periods for the full year R&D was up 15% on a constant currency basis to 471 million slightly below our final 2019 guidance for R&D of $480 million again, just the timing of how expenses fell as you'll see when I get to 2020 guidance.
We intend to commit more capital to R&D activities adjusted EBITDA in the quarter was 898 million up 5% from the year ago quarter on a constant currency basis, a solid quarter that enable us to post adjusted EBITDA of 3.571 billion for the full year, which was plus 4% on a constant currency basis.
From 2018, and just below the top end of our final guidance range for 2019.
Turning to slide seven I think it's we're taking a look back at how we didnt 2019 relative to the midpoint of our original 2019 guidance, which was $8.4 billion of revenue and $3.4 billion to $5 billion adjusted EBITDA.
Our actual 2019 revenue was up was $201 million above the midpoint of original guidance with a favorable result, a function of four things the acquisition to truly it's added 55 million revenue from Ela, We assets was plus 53 million our base business was favorable by $115 million and offsetting the good guys changes in.
FX rates reduced revenue by some $22 million adjusted EBITDA was 146 million above the midpoint of our original guidance FX had no impact truly has had no impact the better Ela. We revenues added 36 million of profit the better based performance as 71 million of profit while investment.
And in R&D NSG in a spending will both a bit above our original view the biggest single factor in the improved adjusted EBITDA was our gross margin coming in 120 basis points better than initially forecast, which accounted for roughly $100 million of lift point of the story is that as the year played out we had some good fortune with yellow.
We assets, but the lions share of the better results came from our commercial units driving improved performance in our base businesses from our project core activities to improve gross to nets and from our relentless efforts to improve efficiency in our supply chain.
Good year turn to slide eight the cash flow summary, our net cash provided by operating activities. In 2019 came in at 1.501 billion. The low end of our expected range as we increased inventories of certain key products and.
To ensure in our uninterrupted supply note that at year end, we had $3.244 billion of cash on hand.
As we completed an offering of 2.5 billion of unsecured notes in late December in had not yet applied those proceeds to the payment of the U.S Securities litigation, that's $1.21 billion and the prepayment of other debt totaling 1.24 billion net of those amounts and related fees are working cash at year end was roughly $750 million.
Similarly on slide nine to cash and debt on our balance sheet at year end or inflated due to the timing of the $2.5 billion debt raise and the use of those net proceeds I think a bit like this pro forma for the deployment of those funds our net debt at year end would have been roughly 24.2 billion.
Selling the US Securities case set us back in our progress, reducing the quantum of our debt and improving our leverage ratios, but it was absolutely the right thing to do to quantify in steadily significant overhang uncertainty a quick aside just last week, we began the process I'm, calling another 100 million principal amount of bonds, we incurred intend to continue to see.
Systematically grind our debt down.
One last thing on the balance sheet during the quarter, we accrued for the settlement of the use stock drop case other related cases, and ongoing leaded legacy litigation and investigations. The total accrual was for 1.39 billion is and is included in GAAP other income and expenses in our BNL for the avoids the Dow.
We exclude this expense from the computation of adjusted EBITDA and adjusted net income finally in onto the money slides for me starting with slide 10, showing our guidance for 2020, our revenue guidance for 2020 is a range of 8.65 to 8.85 billion and that represents a range of growth of plus 1% the plus 3%.
At current FX rates, our adjusted EBITDA guidance as a range of 3.5 to 3.65 billion, representing a range of growth of minus 2% to plus 2% at current FX rates I want to cover the other elements of our guidance on this slide before talking about how to think about those revenue and profit growth rates for 2020.
Adjusted GE SG in a expenses were 2.5 billion in 2019, and we're guiding to approximately 2.6 billion for 2020, roughly 100 million or 4% increase is higher than it may be as we look ahead to 2021 in 2022 in our 2020 plan, we rationalized opex across several.
But we also allocate to incremental selling advertising and promotional resources to some units to support launch and products and launch phases, including daily saw high lenses loom of five to ovary information.
In DNA, we're continuing to build out our global IP organization in infrastructure in that comes at a cost increasing our adjusted DNA in 2020 versus 2019.
As we move forward into 2021 in 2022, we should be able do hold the growth of SGN a below that of revenue growth.
We're guiding to roughly 500 million in R&D for 2020 up roughly 30 million from 29 team. If you go back to 2017, our investment in R&D totaled 361 million over the last few years, we've built up the R&D organization and infrastructure to support an increased volume of products to sustain each of our core businesses that.
That includes reducing the investment intensity in some areas, while increasing commitments to other areas, where we had been under invested over it over a number of years and Thats specifically G.I.
BNL surgical and opto Rx, while a 6% increase in R&D reduces our near term earnings and earnings growth. It's the right thing to do to enhance our prospects to deliver long term organic growth.
For interest expense, we're guiding to 1.55 billion down from 1.6 billion. Despite the addition of $1.21 billion of debt to fund the settlement of the U.S. Securities Class action, our tax rate on adjusted earnings was 7.8% in 2019, we expect that rate to be about the same roughly 8% in 2020 towards the bottom of the page.
Note that we're guiding to capital expenditures in 2020 of roughly 300 million in the past I've said that our steady state capex might be roughly 160 to 175 million per year ended the uptick in 2019 was mainly due to investments in connection with the daily Silicon Hydrogel lands initiative, and our Buildout of our global ITC.
Adams.
Overtime, we've determined that under investment, particularly in our supply chain over the last number of years necessity necessitate increased investment in 2020 and beyond its our current view that after roughly 300 million of investment in 2020, we will likely see capex requirements decrease in 2021 and again in 2022.
Our steady state a few years out maybe closer to 225 million of Capex per year.
Continued consideration milestones and license agreements totaled 58 million in 2019, and we're guiding to roughly 100 million in 2020, the increases related to a forecast sales milestone on relistor and payments related to the recently acquired rights design appear and Novo three.
Finally restructuring and other in 2019. These items totaled 52 million in 2020, we're guiding to $75 million point out that this item represents our estimate of restructuring cost some systems integration and settlement a legal cases and investigations turning to slide 11. The bridge from 2019 actual results for 2020 guidance.
First focus on yellow, we impact we're forecasting a $275 million of growth drag from the basket available we assets in 2020.
The good news here is that we are finally finally close to putting the impact of the large bucket of elouise behind us in 27 versus 16. The growth drag was 486 million in 18 versus 17. It was 289 million in 19 versus 18 that was $360 million.
Over the last three years, our revenue growth was tramples by more than 1.1 billion of level. We drag in 2020, we expect a drag to moderate to $275 million and here's a good part thats based on us realizing revenues on the LNG basket of 237 million in 2020, and while that amount will decline into 2021.
Versus 2020, the drag will be substantially reduced we did not add any new elouise to the basket and 2020 and looking out over the period from 21 to 23, we expect the impact of future Ela, we assets to be quite manageable the.
The based performance or plus 100, excuse me $415 million is impacting a negative ways by a few things that I called out on our last call and a few others worth noting first there is the nonrecurring portion of the improvements in gross to nets that we saw in 2019 and especially in Q3 that are a headwind to 2020 growth.
Next the trajectory of the is the trajectory of Glumetza Glumetza had been a strong performance through the first three quarters of 2019 before as we for warned.
It dropped almost in half in Q4 and is now expected to trend downward from there in future quarters next and one I had not previously called out for you.
We had terrific performance in our generics business in 2019 with major contributions from the authorized generic versions of you Cyrus in Ellendale as more generic versions of these products have launch we will see significant declines in revenue for our agee's in 2020 think of the Jesus stretching the tale of brands that lose exclusivity is good.
But its leading.
One other bit of color the based performance could have been better but our guidance includes an estimate of a meaningful headwind for on our Asiapac region, especially China associated with the Corona virus situation. Our revenue guidance includes a roughly $50 million Corona virus impact that's an estimate and we'll see how this plays out over 2020.
Obviously this in packed in our adjusted EBITDA guidance as well.
So these items are part of the reason why the revenue growth in 2020 implied by guidance is only in the range of 1% to 3% at current FX rates.
Turning to EBITDA bridge at the bottom of the page the currency Ela, we in R&D impacts are self explanatory.
Within the base performance, we're absorbing the roughly 100 million or 4% increase in SGN, eight and a corona virus.
Impact on our revenue expectations impacts our adjusted EBITDA as well all these items together our drivers of the adjusted EBITDAR growth rates implied by our guidance ranges being below that of our revenue growth rate. That's it for me that few Joe.
Thank you Paul on Slide 12, there's a lot of information, but the important method to highlight is we have now delivered three consecutive years of mid single digit organic revenue growth for BNL International BNL International was up 6% in 2017 up 4% in 2018.
And up 5% in 2019.
Turning to slide 13 global vision here has been a strong performer and I want to highlight two products that have been key drivers of the growth in this business Biotrue, one day and ultra contact lenses. We showed five year reported revenue for each and the charge from the bottom of slide 13 on the left from 2015 through through.
Thousand 19, Biotrue, one day lenses had a 22% compound annual growth rate in inorganic revenue grew by 23% in 2019 on the right Ultra lenses had a 32% CAGR over the past five years in grew organically by 24% in 2019, we've called out.
The significant milestones that drove incremental growth, including the launches of lenses for Stigmatism presbyopia and extended wear this strong performance underscores the durability of these products and the strength of the Bausch and Lomb Brent.
We are seeing increased market share and us vision care. This business gained 1.6 share points to 11% unit share for the month of December 2019 versus a 9.4% share in December 2018, finally, we plan to launch our daily silicone Hydrogels.
Lenses in the US later this year silicone hydrogel lenses are one of the fastest growing segments of the content market.
Turning to slide 14 for an update on global consumer I want to highlight two franchises first our top selling I vitamin portfolio in the U.S occupy in press vision grew organically by 4% in 2019 and had a CAGR of about 7% from 2015 to 2019 and second.
Luma five the number one physician recommended product in the registry lever category had sales of 63 million in 2019 and achieved a weekly market share of approximately 43%.
On slide 15, we highlighted at vistas performance at our global surgical business did Vista family of inter Aclara lenses are iOS are clear artificial lenses that ice surgeons used to replace the person's natural lenses when it becomes too cloudy due to a cataract and Vista grew organically by 36% to.
2019.
The chart Loulo provides existed reported revenue for the past five years, which grew at a 22% CAGR.
We also launched in Vista Toric in 2019, which was shown on the bottom right.
Looking ahead to 2020 catalyst, we expect to launch of extended debt the focus into OCC year OLED platform in 2020 with the introduction of this platform will be entering the premium iOS will segment outside the U.S and finally, we expect to launch a pre loaded Iowa objector platform for Vista iOS.
In the second quarter of 2020.
Moving now to slide 16, before we go through the key highlights for says I want to address two updates first after reviewing our JCI portfolio in light of market opportunities, we decided to increase promotional focused on site faxon in trulia and of discontinued promoting GAAP to laugh and new Samira.
Also.
We recently received notice that Norwich Pharmaceuticals have filed an anda for facts from in 550 milligram tablets Alpha Sigma about health will file suit against Norwich, alleging patent infringement and will trigger a 30 months day of approval. We remain confident in the strength of the 23 patents covering surfaxin and we will cut.
Can you to vigorously defend our intellectual property.
The chart in the right shows I faxes trx growth over the past nine quarters. As you can see Trx is grew by 7% from 2007 in 2018 invite 8% from 2018 to 2019 for IBSD, specifically Keryxs grew by 15% in 2019 compared.
18.
Moving now to Relistor Trx as grew by 6% in 2019 and beginning in 2020, we recently improved relistor oral market access position for more than 50 million lives.
Finally truest.
Trx is grew by greater than 30% in 2019 and since the acquisition we've improved the market access position for approximately 35 million lives. We are seeing progress in the IBSD branded market were truly new Rx market share grew by from 3.9% to 6.4% in two.
2019.
On slide 17, Arthur Dermatological, our first you over Trx as were up 25% in the fourth quarter compared to the third quarter and we're very pleased with this launch as we show is a chart of the bottom left within two quarters of launch jewelry is capturing approximately 40% of new patients who were started on a first.
Fine branded topical or oral psoriasis product when you look at do ovary against these three competitors listed we believe it gives a perspective on the opportunity for delivery and the potential savings that could result from delaying the need to start patients on a biologic.
Also I'm delighted to say that do over is now at 63% commercial access for the United States.
And we gain as we gain incremental coverage, we expect to reduce couponing support and expect gross to nets will improve overtime importantly average selling price increase from the third quarter and we ended the year with a higher ASP, we are clearly moving in the right direction.
We are very enthusiastic about the opportunity for do ovary, primarily because for the first time, we can offer psoriasis patients a topical product with a high potency corticosteroid vacant treat to clearance rather than being limited to a certain duration of time.
Moving now to sleep Trx is grew by 100% in 2019 compared to the prior year and we achieved 57% commercial access.
We Holly Trx as were up 60% in the second half of 2019 compared to the first half reality now has 71% commercial access we believe access rates of 60% to 70% demonstrate that managed care recognizes the value in the efficacy of our psoriasis products and helping to improve patient lives.
On the right, we hired a new cash pay model for our prescription dermatology products in United States that is now available online at dermatology Dotcom telemedicine and E. Commerce are available on the platform as of yesterday iconic products such as written nave will be available on dermatology dotcom as well as new product.
Like our Trina the platform was launch with the portfolio 15 product and we plan to expand the number of cash pay products overtime. We believe that dermatology dotcom has the potential to meet patient needs. It helped grow our dermatology business.
Turning to slide 18, our statics business Global Sota grew organically by 42% in the fourth quarter 2019 versus the fourth quarter 2018, and 45 set in the full year driven by the global expansion of Thermopatch FLS. The March is a noninvasive radio frequency therapy that can address the.
Signs of aging skid, you can see that trend in the chart on the left with a 46% CAGR from 2017.
Looking ahead to 2020 beyond we expect to see continued global expansion for Thermark FX, including geographic expansion in the EU.
On slide 19, you'd see we have a good number of late stage development programs in each of our core business segments.
<unk> increased R&D investment 2019 versus 2018 and allocated a greater percentage of our R&D budget devotion lemon sales on a full year basis.
Launching new products will drive our future growth and we are pleased to have active late stage pipeline innovative new programs with potential expand our eye health GE in dermatology portfolio.
I've talked about some of the programs long way, but I want to highlight a couple of them in more detail.
Before we turn to slide 20 at the beginning of 2018, we identified the significant seven as key drivers of future growth and the seven products group collectively by 68% in 2019.
While we are pleased with that growth limiting ourselves to seven products and excluding growth products like Biotrue Ultra preservation and Vista, Iowa their matched up lenses to Lance as I've Faxon Doesnt give a complete picture of the expected drivers of our future revenue growth accordingly.
We will continue to report revenue for our top 10 products for each business and overall for about health, but would no longer report combined revenue for the significant seven let's turn to slide 20 for additional detail are promising late stage programs and G III health.
MSL Mott is a late stage oral carpet.
That targets the S. One fee receptor, which plays an important role in auto mean diseases, such as inflammatory bowel disease.
Approximately 1.6 million Americans currently suffer from IBT as many of 70000, new patients are diagnosed in US annually, we entered into an exclusive licensing agreement with MRD Vichy to develop and commercialize them Celmod in April 2019 in January 20, we completed FDA approved cardiovascular clinical trial protocol.
That compared MSR, mark to placebo and Moxifloxacin. The primary endpoint demonstrated that MSL Mont had no effect on Qt interval prolongation and no other secondary safety signals were identified.
We expect to initiate a multi arm randomized placebo controlled phase two study in 2020 in ulcerative colitis for themselves.
On slide 21, we highlight novo three which we recently licensed in for the US in Canada No with three is a non aqueous eyedrop for the treatment of dry eyes to drift in dry market represents a great opportunity was 6.8% of us adult population projected to have diagnosed dry eye disease and prevalence will.
Increase with age.
If approved no with three will be the first new prescription treatment for dry eye disease was mechanism action that is different from currently available products. A phase two study has already been completed which showed significant in clinically meaningful improvements in both signs and symptoms of dry eye disease Theres a phase three study underway and we expect initial.
A second phase three study later this year.
To wrap up on slide 22, we have provided an overview of the 2020 vision for three core businesses, which includes both a look back and what has driven performance at a look ahead to what is coming into focus for 2021st fashion lump. We expect mid single digit growth to continue for 2020 based on price.
Five years of organic revenue growth for ultra Biotrue inoculate impressive vision and new products like Luma Fi advise ulta.
Looking ahead, we see significant opportunities in the saw high launch in the US any you and the rest of world the ramp of our Invista iOS platform and the expected launch of extended depth of focus for the Iwill platform.
Next in Salix, while absorbing the headwinds from a presale estimates in 2020 are guy business will be based on two years of high single Trx growth for Sai Faxon increased market share for truly us.
Double digit growth driven by market access for our Relistor oral business.
In 2020, we are planning to look forward to also glenview ramp up continue developing new formulations in indications for Rifaximin and pipeline expansions, including don't Cana type in EMEA settlement.
Third Arthur Dermatologic, we expect this business to return to growth in 2020 based on a 73% organic revenue growth for their Mod franchise weekly do you do over Trx growth and increased commercial access driving improved gross to nets and the continued ramp of launch products, including Saliq reality in a trina.
Looking ahead head, we see opportunity and building out the cash pay model with more products telemedicine and ecommerce and the launch of arousal up finally, we continue to expect to deliver on our three year CAGR is on a constant currency basis and for the midpoint of 2019 guidance, we expect revenue to grow at 46% CAGR and adjusted EBITDA.
To grow at 5% to 8% CAGR.
With that operator, let's open up the line for questions.
I will now begin the question and answer session. You ask a question you May Press Star then one on your Touchtone phone. If you are using speakerphone. Please pick up your handset before pressing keys to withdraw your question. Please press Star then too.
I will pause momentarily to assemble roster.
So first question today comes from Terence Flynn of Goldman Sachs. Please go ahead.
Great. Thanks for taking the questions maybe two for me just wondering at a high level, what's embedded in your 2020 guidance for net pricing across the portfolio. How that compares to 2019 and then on site high launch in Japan was wondering any details you can share on market share and then how we should think about pricing and.
Additionally, as you approach the U.S. launch thank you.
Okay, Let me start on our pricing net pricing our expectation is that we'll have somewhere in that.
[music] percent range of approximately that's very consistent with what we saw in our 2019 information.
Net pricing was approximately 2% expected to be something comparable to that now there will be some variation between at product and product be but on balance there on terms that aside high market share gains in Japan. We're pleased with our initial launch in Japan. There was some issues that we had to deal with as we launched a new price.
Rick but on balance we're pleased with what we've seen in terms of that launch.
And as Paul said in previous quarters, our importantly, as we look as it Japan market. We believe the Sai high market as a percentage of Japan is about 15% and is growing by about 31%. So.
So I have market that is so we think it's an important contributor to growth and will be an important contributor for long time and also as we launch here in the US later this year.
This is a little smaller percentage of total market in the us it's less than I think 13%, but we also see it growing quickly. So we're we're excited about what that means for us.
And if anything about pricing yet on the site high daily, but I think you can take it that will be competitive with the other products out in the marketplace in the U.S Sai daily business.
Next question operator.
That's why we take our next question as a reminder, we ask that you. Please limit yourself to one question. If you have additional questions you may react to the question Q. The next question comes from David Amsellem Piper Sandler. Please go ahead.
Thanks, I wanted to focus on Xifaxan, then looking at the to the retail data.
It has been January looks like the the growth trajectory of prescription is a little more muted.
Compared to to 2019, so I'm wondering if there is any indication that the franchises maturing.
In any way and how should we think about.
The trajectory on volumes for for both ideas and AG as we move more into 2020. Thanks.
Sure I'll start with that what we always see some normal variation in the the early year, especially as you patients have the donut hole questions a different reimbursement challenges at the start the year.
So we don't see anything specifically happening there that is unusual relative to what we've seen in the path I think as you think about trajectory I mean, if you one of the comments I made.
Was talking about Surfaxin specifically.
Relative to IBSD I remind you that with his ideas d.
We are growing I think it was mid mid double digit somewhere around 15% and importantly, we believe the opportunity there is still very significant for us with five factor.
I remember that the IBSD category. For example has about nine I'm, sorry about $12 million anti spasmodic prescriptions and as we've looked at that.
Were less than let's call it 10% of that business. Therefore, we believe we've got a great product for IBSD patients, where with a episodic treat me and potentially get these patients to just move off of these products like the anti spasmodic like a bundled lifecycle and and actually go.
Really.
Long term relief for use of Xifaxan. So we're going to continue to promote that area and we continue to expect to see that growth.
Going on into the future to be clear.
Operator next question.
Your next question comes from Ken Kesey, tore Cowen and company.
Good morning, and congratulations on all the progress I know from time to time, you're asked about splitting or selling some of the businesses, but I was wondering as you get more credit for your performance in the underlying value of of all the entity and everything that you're doing your equity is clearly responding. So just wanted to know strategically how do you view your equity.
Just something that you would think about using to de leverage is it something you're thinking about in terms of maybe larger acquisitions just wanted to get your thoughts on that thank you.
Yes. Thanks, Thanks, a question Ken it's Paul.
Yes, as our equity has responded in kind opens the door to potentially using that using that equity in some way I'd say that for now I mean, we have a great deal runway to continue to run our businesses and using equity to reduce our leverage.
For HSBC based on a quantum of our of our debt in what it would take in order to make a meaningful change probably not the not the path. We go down now using equity in the context of a have a value generative transaction, obviously would have to be right transaction and something we we're incredibly excited about.
What we are we we would indeed.
Considered consider that.
I want to touch on because.
It's interesting we havent heard the question as often about.
Splitting the company up over over the last I'd say several months as the stock has performed.
Better, but I think when you look longer term the trended overall trend in financial markets is for.
Now for our preference on the part of investors for for pure plays and we own a.
Bunch of great businesses that are today, together and I think that.
They are stronger we are stronger with those businesses together today in light of our in light of our capital structure, but as we look down the road someday down the road there may be opportunities to pursue more pure plays with respect to one or more of our of our businesses, but that's just something thats down the road.
Thank you.
Operator next question please.
Next question comes from.
Evercore.
Hi.
My question.
Two if I may one for you Joe maybe both here Joe Hogan.
So clearly characterize the political dsones on the EBITDA growth of 5% to 8%.
But in light of the guidance for this year and in light also raising investigate and whether the base business is truly a growth business in the first place I'm curious do you feel strongly that the 5% to 8% CAGR is achievable, especially this year tracks at the midpoint of the guidance.
And secondly, I was curious about the S&P one press release, you guys put out in January.
Not only because I could still levels on the trial online anywhere.
Here's where it was actually gone and but also.
It seemed to me that the issue with the drug was cardiovascular adverse events and not exactly a few key signal. So I was curious.
Key study of the permanent per load. So thank you so much.
Okay.
So I'll start on the on the first part of the.
Question of what we're thinking about pivots, often and guidance, but I'm going to also turn it over to fall Who's Who's worked his way through that and then I'll comment on the the S&P module. It. So the simple answer to your question on the CAGR is are we consummate the answer is yes. We continue to look at that revenue guidance of 4% to 6% growth and then the.
5% to 8% on the EBITDA as something that is achievable and I'm going to let Paul comment more about that specifically.
But simply answer is yes, and point to make some specific comments and I'll come back on the Selma Yeah sure I mean in thanks, a question because we have Walmart because we do get this question a fair amount.
Joe said in his remarks of that's refresh what we met what we said flat four to six and five to eight it was off the midpoint of our original 2019 guidance.
At constant currency, if you adjust that you could come up with a range of targets for 2022 in order to meet that CAGR in the range of say nine circa $9.4 billion to $9.95 billion at revenue, Yes, 3.9 to.
4.29 for adjusted EBITDA, Yes, we continue to believe that we can and will produce.
Revenue and adjusted EBITDA was in in that range when Thats, our that's our current belief obviously not a a.
A forecast or a bit of guidance that we take lightly it is fully supported by our bottoms up long term view of what we think we can do with each of our businesses I want to point out because people lose sight of this has said it was off the midpoint of 2019 guidance I spent some time in my prepared remarks talking about how we did in.
2019 relative to that are written data original midpoint, we did better so that helped US along the road I think deeper or it's going to look at our revenue.
Forecast revenue off of our guidance range of one plus one to plus 3% and adjusted EBITDA minus two to plus 2% say Gee you are not on track to say first of all we had we've said this a million times, it's not linear and we're focused on where do we need to be in 2022 in order to be able to achieve those targets that we set for ourselves and.
We remain confident that we can it we can achieve those targets. The good news is we had a great 2019.
The bad news is part of that was yes through Halloween low Elouise that continued on we're delighted to have our earned the the profit and to have generated the cash from those eloise.
But that goes away and so if that's a bit of a growth track for us in 2020 net net we are on track.
On the second part of your question number on the S&P modulator MSL model.
The trial that we did was an EBITDA approved protocol that we had gone it had the FDA approved the further qual.
We had that in place we wanted to solve that question or answer that question. So that we were assured that there there was no qt prolongation issue as you know other cat products. In this category have had that problem and we wanted to make sure that that was not going to happen with this product we had belief that it wasn't but we fit.
We wanted to finish the definitive trial for MSR Mark to get to that answer. So that is the reason we did it there was no request or anything that was just we had asked.
Has that as part of the information that we acquired.
When we received the product for Mitsubishi on Amazon Oman. So I think that is is that part of the question on the on the rest of it we will publish this this trial.
It has not been published yet, but it will be published and presented a poster session.
Not too distant future.
Thanks that was the other part of the questions.
Okay. Operator next question. Please next question comes from Greg Gilbert of Suntrust.
Thank you, it's Greg Fraser on for Gregg Gilbert onsite backs and can you comment on payer coverage for the IBX indication, whether there's any room for improvement there and can you also please comment on your initiatives to drive higher growth for the HKG indication. Thank you.
Sure.
We have very strong coverage for Surfaxin overall, it's 98.7%.
He is a little bit stronger, but at that level. It's.
It's essentially universal coverage I mean, we've got very strong coverage on buybacks.
There is some variation from plan a to plan b, but we're very pleased with that on the question of H E.
Our view is that we're going to continue to try to improve the compliance and adherence to the product. We have great data that says that if a patient stays compliant with Xifaxan you can reduce re hospitalization for Patrick and set philosophy, and if we're able to do that.
Obviously, we save the healthcare system tremendous amount of dollars. So that's our plan and our focus and we continue to go out and share that data out with plans. So that they can help lower the cost our fundamental belief, though is that as healthcare plans.
And there's mergers where the medical and the pharmaceuticals come together, we believe we're going have even more traction on that as we look at the opportunity to not only lower the total cost of of the patients from the point of view, both the drug cost and the cost of Rehospitalization et cetera. So that's our plan and.
So we've been working on it we think it's going to be important for patients going into the future with about a couple opposite.
You may recall from our previous comments, our even looking at trying to get through some of these patients before the actual hepatic encephalopathy by going after some clinical trial evidence that we see in patients who have cirrhosis. So a lot more work to state they tend to that for the future.
Next question operator.
Next question comes from Jason Gerberry Bank of America.
Good morning, Thanks for taking my questions.
So a quick question on facts and I think previously in September you communicated around around a 10% to 12% range of growth.
With minimal contribution from project core just wanted to confirm if thats still the fundamental outlook and then just on the significant seven is the change in disclosure more or less pay this isn't.
Indicative of our broader pipeline value or is there a diminished outlook as it pertains to the billion dollar target in 2022. Thanks.
But if you take the first part of that yes, yes. It on the first part I think what we what we said was we kind of continue to believe that.
Facts and would that in 2020 versus 2019 that the weighed best way to forecast that would be to dead think about trx is.
And growth and use as a proxy for unit growth and I think we continue to believe that that can be in the high single digits and to that you need to add a couple of hundred basis points of net price increase and the reason that's only a couple hundred basis points is that.
Non reoccurring part of the revenue that we saw in 29 team related to that the nondurable part of the improvements in gross to nets.
Some of it is reflected in absolutely improved net selling in price and instead selling price increases that we've realized a 19, but some of it is it just goes way becomes kind of a growth headwind. So net net I think we pretty much said high single digits rare.
Units and couple of hundred basis points of growth so circa 10%.
On the second part question on significant seven the way we looked at as it goes if you go back historically in 2018 early 2018, we identified seven products that we felt were the key growth drivers for us and as we thought about that.
We had great success. This year it was up 68% achieved $269 million.
We expect to see it continued to grow to be clear going forward, but what we felt is that that's going to leave out some really important growth drivers like by faxon like Trulia like surmised like Biotrue Ultra preservation and Vista Uplands, and and we really came up with a group of not seven but actually I could be fair Faisal closure.
To 15 products that are clear drivers for our future now we're not going to comment specifically about those but my point was that there are some big opportunities. Therefore for the future relative to where we saw the future of this business and specifically you get a product like by facts with our large product growing.
Double digits. It really is a meaningful contributor and you can't leave that out of the equation measure as you're thinking about the future for our business. So that was really the issue was no concerns about our expectations for the future on that one.
Your next question.
The next question comes from Chris.
P. Morgan. Please go ahead.
Great. Thanks, very much maybe first question was being on for Paul and just following up with the potential for a split and some of those comments you made investor appetite for pure plays you mentioned, that's a trend to think about down the road, but just maybe a little more color and what you'd need to see to enable a split is this simply just a matter of getting leverage to a low.
Our level or is there something fundamentally we need to think about in the businesses before you would consider maybe separating out into individual kind of units as compared to the portfolio you have today.
My second question would just a quick one on on the second.
Saxon filer, just any color about this filer relative to Sandoz since you think about the sensor that franchise over time, thanks very much.
Yes, Chris Thanks for the question I'll Alt, obviously take take the first one.
Yes leverage I would say our level of leverage today is a.
Makes it would make it challenging to put to pursue.
Yes, something where we spin out one of our one of our entities or whatever it's not impossible, but it would make it ace very fairly significant challenge.
That is the primary the primary thing that we sit there and say it becomes more clear for us bandwidth. The passage of time and again I don't think I'm, saying anything here, that's the hits our bare ground groundbreaking pure plays a thing I mean people love people up pure play we get it we owned businesses.
Is that are very attractive in very attractive in their own right as we're sitting here today and for the near term that we continue to believe that we are.
Based on our cap structure stronger together and and we'll have we'll continue to evaluate opportunities for.
Providing that pure play as we go forward.
On on the second part of your question news by Faxing Filer.
I mentioned in my comments that company is Norwich.
My understanding although we don't have all the information yet is they filed specifically on both the IBSD in a cheap.
Our belief is that we have 23 patents.
So when we initially settled with the largest generic company Teva, we had 22 band we have now supplemented that with another patents. We have 23000. So we feel very strong about our intellectual property position relative to this filing and we don't see anything specifically different from this from what they filed.
Versus what Teva files.
So we continue to believe we've got a strong intellectual property position that no. Other no other specifics a differences that weve observed operator I have time for one more question. Please.
Last question comes from a cost to Laurie Fluff research.
Hey, guys. Thanks, so much so look if we take into account that $275 million Lowi impact.
The roughly 160 million kind of inventory true up with accrual benefit you hadn't Twain 19 that we might not necessarily carryover. It looks like you need over 500 million and new product sales year over year to kind of hit the midpoint of your guidance on reps can you walk us through where that growth is coming from I'm, assuming maybe like a 100.
$50 million is on that faxon, but what's the contribution on a significant seven what's the contribution on thermonics cetera, et cetera at any color would be really appreciate it and then just a bit on the cash flow at there was a bit of dip in Q4, I'd love a bit more color on what happen and then how we should think about it in 2020, it looks like your 2020 cash flow.
So from operations is 1.5 billion, which is a bit lower than what I had expected. So if there's any color on that we'd really appreciate it. Thanks.
Okay, I'm going to start, but Paul you were going to there's quite a few questions you're going have to take pieces here.
I think the fundamental first question is where can we grow and how can we grow in 2020 and beyond and what I would simply go back to is that as we look at our business. We think the overall BNL international business is going to grow that mid single digit rate I think your characterization as I've faxon growing ballpark.
10% I think Thats a fair characterization.
Solta. Thank you saw the growth that we've experienced with Solta and 20, Nineteena, we clearly think thats a great opportunity and then finally area phase the derm returning to growth.
As a really important message if you think about our business.
BNL business, the Salix business have been important to us, but we've had a headwind with dermatology as that dermatology growth, especially with some of the new program new products like do over a plus.
The derm dot com from talking to Dot com contribution to our business. We think are all going to be important parts of that growth for the for the future and obviously it we got less less elouise versus we had in the path, but what do you want to add to that portion we're talking about cash flow with well short I mean I actually the.
You want to talk about the kind of the growth Where's it going to come from first is I think you stated a number of on the kind of an inventory issue that was we are well above what it really was in 2019. The 18 the aggregate amount that it was kind of a onetime or if you will have us taking those wholesale inventories down with 76.
And all this big number in the quarter couple of hundred basis points of a volume grow volume growth that was based on that.
Relative basically what was a relative expansion. Although was we are not not expansion at all.
And for the year. It yes. It was also baked into our year versus 2018, but.
Not as big a factor on a total revenue base of 8.8 point $6 billion.
If you look at the bridge on slide 11 of our presentation at $415 million of increase in coming off from what we call based performance is obviously net of any pipeline things that they would have come up so that bridge shows yes, I think how we will get too.
Yeah.
In the aggregate at a companywide basis, how we'll get to two within our revenue guidance, yet with respect to cash flow I mean, our sport with 29 team because as I said on my prepared remarks, we were at 1.501 billion. So just just at the low end of our our guidance range and can be super clear that is score.
Cash generated from operations and Thats on a GAAP basis.
The primary difference between us it being 1.5 and being one point.
Five five a 1.6 was that we did that the ended the year have more inventory than we had mid perhaps been thinking about when we started the year and that was based on specific decisions that we took to increase inventories of both finished goods to innovate KPI for key products to ensure that we add consistency of supply.
Ply.
You'll get our balance sheet later this year, you'll see the increase in our inventory at the end of the year in in that would that was a.
It was the primary driver looking ahead to 2020.
The we have all the Factoids that you essentially need to predict makeup come up with a forecast for cash from ops guys arent adjusted EBITDA from from the guidance range, you've got our our interest expense you got restructuring and other you've got reached hit milestones in license agreements you have a pretty good idea what are our tax.
As will be based on our guidance there in the one wildcard is working capital we will grow and 2020 2019, and accordingly that that growth. If you assume where we're currently at the right level of adjusted working capital, which I would comment on in a minute.
That you would add some working capital so you'll do that math and you're going to come out somewhere near 1.5.
Thats the way the math works out I mean, the pieces that you can't see or can't forecast as well as we can is the interaction or the impact of yellow accruals and other and other things that that are very difficult to forecast, but I think the went to 1.5 will be consistent the main interesting. If you look as you look at the history in Htwo.
During 2018 it was 1.501.
In two and 29.
19, it was 1.501.
And we're guiding to a 1.5 in up in in 2020 now that's it's what we expect today could be more net but we are we'll just have to wait and see how that how that year plays out.
On my last comment on Red Jay said about inventory and working capital I want to do provide additional tax year overtime, we are going to drive our inventory balance down.
We have we made some progress and we've now taken some strategic steps that have moved us in the opposite direction longer term, we will be able to unlock cash from our balance sheet by better managing our inventory balances. It's we're not seeing it in 2019 and essentially tell.
So we're not going to see in them in a significant way in that 2020 stop there.
Okay. Let me just thank everyone for joining us and we will see as soon as we will be on the road for the next few months of the various healthcare conference. Thank everyone joining have a great day ever.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.