Q2 2020 Bausch Health Companies Inc Earnings Call
[music].
Please standby without to begin.
Good morning, My name is Christie and I'll be your conference operator today at this time I would like to welcome everyone to the Bausch Health Company second quarter 20 to one financial results Conference call.
All lines have been placed in the listen only mode and the flows will be open for your questions. Following the presentation.
You should require assistance throughout the company inside saw zero to reach a life operator.
First time, it doesn't my pleasure to kind of flip over to your host Mr. Shannon you may begin your conference.
Thank you Christine good morning, everyone and welcome to our second quarter 2020 financial results conference call participating on today's call, our chairman and Chief Executive Officer, Mr., Joe, Bob and Chief Financial Officer, Ms., both R&D and it does this live webcast a copy of today's slide presentation. 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 certain forward looking information.
So 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 for more information about these measures. Please refer to slide to the presentation non-GAAP reconciliations can be found in the appendix to the presentation posted on the website finally, the financial guidance its presentations as effective as of today owner is our policies are generally not update guidance until the following border and not to update or something.
Other than through broadly disseminated public disclosure with that it's my pleasure to turn the call over to jump.
Thank you are and thank you for joining us today I'm going to begin today's call by sharing our current perspective on the coverage recovery process and briefly cover the second quarter highlights Paul Herendeen. Our CFO will then review the second quarter in more detail no update our 2020 guidance I will conclude by covering the cost priority.
We have identified to drive about help future before opening the lines for questions but.
Before I address these topics I'd like to comment on this morning's announcement that we have decided spin off our eye health business as independent publicly traded company.
In off well established two separate company if fully integrated pure play I held company built on the iconic Bausch and Lomb brand and the long history of innovation.
And in international diversified pharmaceutical company with leading positions in Gastroenterology, dermatology, statics, neurology and an international pharma business.
Four years ago, we initiated a multi year plan first to stabilize and then to transform ourselves into a company positioned to deliver long term organic growth over that time, we had divested approximately $4 billion of noncore assets.
Hey down over $8 billion, a debt resolved nearly all of the significant legacy legal issues and manage the loss of exclusivity and a 1.4 billion dollar product portfolio.
While also investing in research and development new product launches in core franchises with attractive growth opportunities.
Our board and management, having working over the last 12 months determine how best to unlock value across our businesses and believed that separating into two highly focused and attractive Standalone company the way to Congress that goal.
We've looked at the value of our peer eye health companies like Al Qaeda in Cooper, and believe that Bausch and Lomb would compare very favorably when investors have an opportunity to make a judgment about the relative value, but the standalone business.
We also believe that now is the right time to begin the separation process, which requires us to complete several steps before spin off can occur.
Because this process in the very early stages. There are many details that have not yet been determined such as leadership capital structure and the anticipated financial impact our goal is to be in position to execute the spinoff as soon as practical once all the necessary conditions have been satisfied we look forward to providing updated information and additional detail at the spin.
<unk> process progresses with that.
Let's turn to slide five.
Overall, we have successfully manage our supply chain and continue to make the essential products that are needed by our customers and patients during cobot Kogan had impacted each of our businesses, but the amount varies by business and geography. For example, we are seeing variability by geography in the speed of magnitude of the recovery process.
In United States recovery appears to be addressing more quickly and are being now surgical vision care in up to our ECS business and in fact consumer business was less impacted by codes in our other business units.
Being out Europe Asia recovery has been more gradual as consumers have been slower to return to normal habits. Despite reopening.
Another example, coated variability as sale excite faxon kind of concept philosophy Reece prescription volume so let's go with impact versus toxin prescriptions for IBSD. Given these conditions, we will continue to focus on investing in our key promoted brands to increase market share optimize our cost structure.
Sure and invest in new technologies like ecommerce.
Turning to slide six a lot of data on the side, but let me highlight a few key points overall organic revenue declined by 21% during the second quarter, but.
Even during this challenging time, many of our brands and products were able to grow and gain market share.
Starting with Bausch and Lomb inorganic revenue declined to 24% was driven by reduction elective surgery and reduced wearing contact lenses with covance. However, several key launch products by Delta in lot of access have each has strong rx growth.
42, and 125% respectively compared to last year.
Most importantly, we continue to receive new product approvals 510 clearance for infuse our site had daily lives in the U.S. occurred and also an approved for Bausch and Lomb Ultra in China.
Moving to Salix, while organic revenue declined by 21% the segment had an elderly drag of approximately 39 million during the second quarter. We saw strong trx growth from truly answer and Relistor, which are up 50% and 6%.
Respectively compared to second quarter 2019.
And so I suppose impact this quarter by cold related office closures, but scrip declines have started to reverse as of June 2020.
Arthrocare logics, the closer dermatology office and stay at home orders resulted in an organic revenue declined 5% for this segment Oh, they're macho ever group reported revenue by 12%.
[noise] Jublia hats, trx growth of 7% compared to last year and received an expanded indication to treat patients as young as six years old. We also launched arouse though in the U.S. during the quarter.
With respect to do ovary, we did receive notice on July 23rd that Andy a has been filed we have Orange book listed patents for two ovary covering our product until 2036, we remain confident in the strength of dual be related pad and will vigorously defend our intellectual property a few additional highlights.
Sina Ackerman and or legal team recently saw two pending legacy legal matters. The Fccs investigation, the company's form relationship with cylinder and certain of our company's legacy accounting practices and public disclosures. During the time period of 2014 2015 also we resolve the Canadian Securities Class Action litigation.
One which is subject to court approval.
Despite cobot headwinds, we paid approximately $100 million a debt in the second quarter using cash generated from operations. The second quarter highlights demonstrate that we have a global diverse portfolio of durable products and strong brands that are well positioned to grow market share and returned to growth as the world we covered.
From the pandemic with that I'll turn it over to fall.
Thanks, Joe The story, a Q2 2020 versus Q2 2019 comes down to one word and that scope and.
Please turn to slide eight cobot was the primary driver and subs in substantially reduce revenue across all of our business units overall organic revenue declined 21%. All four segments declined led by BNL International down, 24%, then Salix down 21 than diversified down 17, and finally worth odor with a small decline relative to Q.
Two of 29 team it was down 5%.
Didnt Biennale International as expected global surgical suffered the greatest impact from covered as an honest central surgeries essentially stopped in many markets global surgical was down 48% overall, it was down 49% outside the United States It down 44% in the U.S.
We had expected that the all U.S. surgical markets will begin to improve as a second quarter played out and they did but at a slow pace. Meanwhile, in the U.S., we saw quite a deep dip and then a pronounced recovery with U.S. surgical revenue in the month of June down only 10% versus June of 2019, I'll talk a bit more about the pace of recovery of various bill.
Mrs in geographies, where I get to guidance Opto Rx was down 42% not surprising due to the weighting of the products. In this business that are used pre and post ice surgery, 60% of Opto Rx is in the U.S. and as we saw the surgical business. The U.S. part of the Opto Rx were recovered nicely off of the floors that we saw in April.
Global vision care on an organic basis was down 37% down 43% in the U.S. and 34% O us outside the U.S., we had thought that vision care would show more life as social restrictions were east. However, in the Asia Pacific region, which represents just less than 50% of our global vision care business. They have been some risk.
Surgeons as of Cold and the governments there have been quick to re implement significant restrictions, albeit on a local level.
More importantly, we are seeing that consumers in Asia Pac and to some extent in Europe remain reluctant to go out to retail stores are staying home more and not wearing their contact lenses while at home.
Another overlay is that many of these economies are under pressure and consumers are constraining spending so all that U.S. vision care. That's all U.S.U.S. vision care fell to a very low level in April and then snapped back in June looking ahead, while they were and or plenty of headwinds in the U.S. vision care business, we carried a bit of momentum into Q3.
We'll see too with the buzz surrounding the launch of our daily Silicon Hydrogel lenses, that's infuse and by our by eye care professionals acceptance of virtual engagement with BHP sales reps, we're pretty proud of this we were early in the process of finding ways to remain engaged with dcps during the depths of the pandemic and we believe that those efforts strengthened our U.S.
I don't care teams relationships, whether you see piece.
Female consumer was down 11% on organic basis down 15% outside the United States and only down 4% in the U.S. in the U.S., we did see some pantry loading in Q1, so that took a little off the top about Q2 revenues.
Consumption basis, both Lou will fight and preservation grew versus Q2 of 2019, you owe us consumer business correlated with the softness we saw that Oh, U.S. vision care business, and our renew and Biotrue solutions, which are big parts of all U.S. consumer was quite a bit as they followed this lower utilization of context I just spoke of.
Finally international pharma as expected this was more resilient the other parts of our company and was air quotes only down 7% on a constant currency basis, even within that there was high variability as we had screens in Latin America Africa, Middle East, but that was offset by weakness in Canada, Western Europe and Eastern Europe.
Moving on Salix was down 21%.
Saxon was down 12% as volume declines overwhelmed the impact of improved net realized pricing.
He was down primarily due to this is for say facts now was down primarily due to the cobot 19 pandemic, including we add but also included reduce channel inventories relative to the prior year quarter at the retail level, so I'm not the wholesale level.
In in recent weeks facts and Rx trajectory as had been improving as GE I offices reopened in our Salix sales teams are able to <unk> fleet more face to face calls covert took the top off of crew and has terrific growth trajectory at even still are axis. In Q2, 2020 were up 50% versus Q2 in 2019, even with co.
David truly answer is emerging as a great story like for us.
This was an opportunistic acquisition orchestrated by our call. These Scott Hirsch and then our Salix team is leveraging our strong position in the G.I. space to gain share at a great clip in the competitive IDFC category.
Truly EPS year over year revenue was flat as we had to take a resource for additional rebates in conjunction with some recent managed care wins were true Lance, but the improved access should position clearance to continue and impressive growth trajectory a few other items of note and Salix all the good side relative to a revenue was up 8% versus Q2 of 29 team going.
The other way the appraisal Ela, we was a major grow track. It was down 33 million versus Q2 of 19, and Glumetza was down 25 million or about 60% on a huge volume uptick, but very very low realized net pricing I think we foreshadowed that pretty well for you.
The ortho Derm segment was off 5% with medical turned down 4% and sold to down 7%.
In mid Durham volumes fell off dramatically as Durham offices were among the earliest to close down and slowest to ramp back up we did benefit in the quarter from dramatically improved gross to nets for Ellendale and Saliq.
While sold it was down 7% the surmise Catholics platform continued to deliver growth, although the pace of growth was clearly slowed by cobot.
Finally, our diversified segment was down 17% the neuro business was off 13% kidney and there was continued solid performance of well Buchanan and uplands and which together account for about 55% of Nooros revenues.
We expect to these brands to be recently and the cold World and they were with well between growing 7% and the plans and plus 10%.
The rest of the neural stories around Elouise, that's Cooper mean, I suppose Elba fighting Xenazine insight creep.
Generics was off 11%, mainly due the impact to covert 19, and dentistry was off 69% as dentist's office were among the first to close.
So total revenues down 21% organically, we realized a small increase in net pricing relative to Q2 2019 and that was offset by the dramatic volume declines driven by Cove. It.
Turning to slide nine and I'll walk down the personnel gross margin was unfavorable to Q2 2019 by some 230 basis points due to unfavorable variances triggered by coal good related volume reductions. This is something that will persist throughout twentytwenty within operating expenses S. DNA were favorable by some 137 million versus.
Q2, 2019, with a good chunk coming from selling advertising and promotion obviously in a shutdown situation. We held back on promotional programs with a few exceptions for high value initiatives that were opportunistic on our part.
Selling advertising promotion was down 123 million part of that was reduced sales incentive comp.
Distribution costs, both of which are down based on lower revenues. We also saw lower t. any with fewer sales reps actually in the field DNA was down modestly versus Q2 of 2019 due to a lesser outside services and R&D was down 9 million due to lower project spend as some clinical activities were forced to pause so adjusted EPS.
I thought was down 258 million and he has a short hand way of how you could think about that reported revenue was down 488 million cobot accounted for roughly 500 million a decline elouise accounted for another 78 million in FX. Another 27 million. So buried in there we had some underlying growth of our non Ela, we assets of some hundred seven.
He million, but it was just obscured.
Gross margin as I said declined 2030 basis points. So gross profit declined some 350 million due to the revenue decline in another 40 million due to the decline in gross margin.
The favorable opex variance of 137 million offset a bit of the reduced <unk> gross profit, but adjusted EBITDA as I said was down 258 million versus Q2, 2019 turn to slide 10, the cash flow summary in the quarter, we generated 200 million of cash from operations Importantly, we remain on track to generate roughly 1 billion of cash.
Operations in 2020 turn to slide 11, the balance sheet summary, we changed presentation here to split out secured and unsecured debt. The takeaway here is that we continue to enjoy excellent liquidity our revolver was undrawn at the quarter close and as you saw the prior slide we generated cash from operating activities in a very challenging quarter.
We have a bit of senior secured cat capacity to work with if needed, but if you turn to slide 12.
We don't have any debt maturities war mandatory amortization until 2023. So we don't really have any pressing needs on the financing for right now.
A few other factories of note, 80% of our debt is fixed rate in our average cost of borrowing is 5.95% now I know that rounds to six I, but it is pretty remarkable for a company as levered as we are.
Onto the guidance slide on slide 14.
Before I get into the changes I think it's worth a minute to talk about how we set guidance back in may.
Oh, we modeled scenarios by type of revenue and by geography, including ranges of assumptions around the time of easing of social restrictions and then the shape of the recovery of our various revenue streams those scenarios point to a wide range of outcomes 90 days later the pace. The recovery has generally trended to the lower part of the range of our expectations from back.
In may interestingly, the pace in certain of our U.S. businesses has been on the stronger side.
In however, two regions in particular Asia Pac and Western Europe, while recovering our recovery more slowly our thesis back in May was that the markets and saw the earliest onset of coal would would be the first to begin to recover and move back towards pretty cobot levels now as I said certain of the U.S. businesses, that's a vision care surgical an IPO irex.
Snapped back and eat in they would been end up in the upper end of our forecasted range is back in May Salix. Meanwhile, is tracking closer to the midpoint of our prior expectations being bay outside the U.S. the shape of the code recovery and especially in Asia Pac and parts of Europe, I try to near the low into the range of my expectations. So net net the higher.
If I may guidance range revenue is no longer in play and we now expect our full year revenue to be in the lower half of the guidance range that we communicated back in May specifically the revised ranges between 7.8 billion, an 8 billion. Similarly reduce that we reduced the top end of our guidance for adjusted EBITDA with a new range being between 3.15.
<unk> billion in 3.30 billion.
We continue to believe that Q2 will be the quarter most impacted by cold it relative to what we thought back in May.
We now believe that Q3 in Q4 will be more impact relative to what we thought Bakken Meg and it appears it will take a bit longer to get back to pre covert levels. That's what takes a top off of our revenue and adjusted EBITDA guidance ranges importantly, and as you'll hear a joe's remarks in each of our businesses. We believe we can continue to her.
Hold or grow share in segments that are currently depressed by cold so that when the cold and impact subside our franchises our position to return to the a pre kobin levels and then to grow from there.
I mentioned in the discussion a Q2 results our gross margin was down due to covert driven impacts.
On manufacturing variances that situation is expected to persist through the balance of the year and we've adjusted our guidance for gross margin down for roughly 73% to roughly 72%.
A quick worried about operating expenses, we've taken steps to reduce operating expenses to both protect operating profit and to preserve cash that's right, where we work our way through the situation at this point arrest DNA guidance is some 300 million dollar <unk> less than what we're planning back in February turn to slide 15, the guidance Bridge Jeff.
Two things to point out in the slide currency moves in our favor since May 100 billion at revenue and about 30 million net adjusted EBITDA second and for the avoidance of doubt the roughly 100 billion dollar reduction in S. DNA in the guidance bridge relative to our May guidance.
Yeah, that's relative to our May guides and then as I mentioned in total for beginning in the year, we've reduced our full year expected s. una by some $300 million.
One last thing I'm really excited to talk about our intention to split into two businesses. Yeah, we'll be busy laying the groundwork to facilitate the spin a BNL and I look forward to our discussions regarding the exciting prospects for both companies lots more details on that to follow a that's it for me back to you Joe.
Thank you Paul.
In a world of Cobot uncertainty our overall about health response is straightforward focused on key brand new product launches grow market share and manage opex to optimize EBITDA during the bashing on global vision here on slide 17, once again, a lot of data, but a few people in their pandemic reduced consumption of contact.
And just got a worldwide basis, but new fits our started to come back after significant declines due to office closures in the second quarter. The chart. The bottom left shows average weekly change in field consumption in the United States are being out recovery is in process to be clear the recovery in Europe and Asia is proceeding more slowly.
Even during that period of disruption, we were able to grow market share for some lenses underwrite we show the gains for the Biotrue, One day lens family up 100 basis points versus last year and the daily disposable category and then the free good replacement category. The ultra family grew market share by 130.
Basis points and finally.
Despite cobot, where obtaining product approval and launch in great new product to meet consumer needs such as ultra monthly lenses in China Ultra one day lenses in Canada, and Hong Kong and Infuse daily sign Highlands is in the United States.
On this slide 18, many you ask about infuse.
If uses the only silicone hydrogels daily disposable land within next generation Infuse Pro Bell technology and helps maintain outdoor homeostasis and reduce the symptoms of contact lens induced dryness.
For example, infuse lens maintained 96% of moisture for a full 16 hours, which is more than the leading so I had daily disposables available today and has the lowest modulus, which is associated with a comfortable lens experience.
Turning now to global consumer on Slide 19, a few highlights global consumer behavior was impacted by the response to covert 19. The chart in the left shows the percent change in total U.S. Bausch and lomb consumption year to date on a year over year basis before during and right now as we emerged from cobot stay at home orders.
The second key development, we are accelerating our E commerce event and seeing results on the top right ecommerce grew year over year by 80% over the last 12 month up 99% over the last six month up 112% in the last three months.
Despite coded our I vitamins activating preservation grew 3% organically year to date compared to the prior year period compared to the second quarter 2019, Liquefy revenues grew by 36% and finally on the chart in the bottom right shows the best lump gave us market share in key segments redness relievers.
Multipurpose solution and I vitamins compared to a year ago.
Turning now to global search on slide 20, a worldwide postponement and let the surgical procedures persisted during the first part the second quarter, but.
We started to see signs of recovery in the second half for the second quarter.
On the lastly show the recovery of international surgery for revenue has about 70% of the pre koby levels and as a comparison the U.S. we began to see substantial recovery. During the latter half of April may and the number of the largely procedures as reach approximately 95% or pre pandemic levels.
Second code is clearly impacted the surgical market, but we are maintaining or growing market share U.S. BNL cataract procedures in the second quarter 2020, slightly outperformed the covert impact market refining 51% versus the prior year period versus an overall market decline of 53% Similarly retina procedures in the U.S.
Declined 32% in the second quarter, but 2020 versus 2019 compared to overall market decline of approximately 35%.
The invested torque, Iowa, which was launched in the U.S. just prior to lock down is also gaining market share. This is helping BNL increased Iowa market share in the U.S., which has improved to 11.1% versus 10.4% year, a year ago, plus 70 basis points.
Turning now to global Opto Rx on slide 21 as expected the cobot related decline in surgeries also impacted global Opto Rx.
Trx It began to recover in mid April and we continue to drive momentum in our promoted brands, but we clearly lag 29 key performance on a year over year basis by sold the total prescription volume was up 42% in the second quarter compared to the market, which was down 3%.
Let them access and also had a stand up quarter here actually grew by 125% compared to the prior quarter in market in ship share increased by 198 basis points.
Turning now to sale, it's on slide number 22, once again go but it's clearly impacting the market, we are maintaining or growing our market share overall satisfaction average weekly keryxs grew by 5% in quarter. One in decline on average by 7% from the end of March through July recovery has begun though in late may and still remain.
And in profit.
However side fasten Trx volume was down 8.8% in the second quarter 2020 versus 2019 compared over a market decline of 9.2%. During the same period. We've also provided year over year data for sure Linzess prescription data average.
Averaging weekly Trx growth of 46% during the first quarter. Two is weekly keryxs grew to 52% during the second quarter.
Truly to our Trx volume was up 50% the second quarter of 2020 versus 2019 compared to overall market growth of approximately 6%.
My name Relistor prescription volume grew 6% in the second quarter of 2020 versus 2019 compared over a market decline of minus 5% and Relistor oral prescriptions grew by 12% in the second quarter.
Moving now to Orthobiologics on slide number 23 medical Durn saw declines prescriptions during the second quarter due to co related office closures run the United States the shift port telemedicine savers, keeping patients on existing medications and the lack of show Trx is for US promoted brands. The average weekly change a 20 troops that the pre.
Coated period was driven by dual relaunch jublia is acting portfolio cope with it you will read through holiday in the act the portfolio starting in March Giulia showed growth in all brands appeared to be covering since approximately early may.
Despite cobot headwinds there much revenue grew by 12% recoveries is still in process.
Finally to wrap up on slide number 20 for our business.
Were impacted by cobot year to date, and we expect uncertainty around the pandemic to persist through their recovery period. However, we are focusing on positioning our business for growth in 2021, and beyond driven by Mega trends such as globalization in the world aging populations that should increase demand for our products second we're investing in.
Promoted brands, where we have demonstrated that we can gain market share even under challenging conditions.
Third we are improving operational efficiency through what we've heard internally as project core to optimize our cost structure and enable us to generate strong cash flow. Finally, we recognize that E. Commerce will continue to be an important sales channel for customers, who prefer the ease and convenience of online shopping and we're strengthened.
Our ecommerce capabilities.
In conclusion I believe our team has done a great job resolving the legacy issues that company was facing and we're now actively moving toward the next step of our transformation. We have a plan to manage cobot related uncertainty Lee we believe that both the spin off the bausch and lomb will provide even more opportunities for both business.
With that operator, let's open the line for questions.
Thank you that's why is well open for question. If you do have a question.
Oh, one on your telephone.
And if you're using it speakerphone. Please pick up your hands that provide the best sound quality.
Ladies and gentlemen, well have a question. Please press star one telephones.
Our first question comes from Chris Shaw with JP Morgan. Please go ahead.
Great. Thanks, so much for the questions just a couple on the separation Ah. So another potential part of the separation something we've discussed in the past, but elaborate little bit more in terms of why now in terms of the decision with what are you comfortable to kind of move forward with this at this point.
My second question on this if I know the numbers are finalized, but how do you think about the magnitude of dis synergies from a separation is this something that's gonna be meaningful as noted the business. It seems like these do operate fairly independently and would suggest maybe it's not huge dissynergies, but just any color there which would be helpful. And then maybe just one final really cool.
Going on this is you remind us as we think that your corporate expenses what percent of those go to being now and what percent are especially with the pharma business. Thanks. So much.
Sure well I'll take the first one of the why now and maybe you can help on the dis synergies and percentage of being on the the corporate expense side.
So Chris Great question up why now so we've been working at this for four years.
What we felt we had to do as we had to get ourselves into a position where we could divest the the non core assets about $4 billion pay down a lot of debt about 8 billion plus a pay down manage the portfolio that we had we know we knew we were going to lose exclusivity at about a 1.4 billion dollar port.
Well.
We had to get through all these legacy issues that that were part of what we faced as a company legal issues. The 15 entertained solve the Salix litigation the Allergan litigation to class action lawsuit, both the United States in Canada, the the FCC filled or accounting.
Great News is those are now behind US. We also though new that we had to get both businesses in a position for growth and what we did as we invest behind R&D for new product invested in Capex for the new launches like ultra tore we invested for daily side high capability. So a lot of activity had to have.
Happened before we get ourselves into position to do that we now feel that we are in that position and do that and we reflected in our portfolio. We said that we find ourselves with a portfolio of products that are somewhat an artifact of history that were put together.
Through a number of acquisitions and we said, what's the best way to get these.
Portfolio of businesses to a place where we could grow these businesses organically over the long term and we felt that by putting them in separating them up so each of them could make those types of judgment and decisions and focus with the right long term decisions and that's really the.
Simplicity of the timing question, there's a lot work to do to be clear and.
We'll keep the market updated but we felt now just right time to start and they activities have been done by the board and the executive leadership team, but as you start to.
Pulled pull apart and separate two businesses it takes a lot more than.
20 people to do that you really start to engage the organization and once you start to that you've got to be forthcoming you've got to share that information be very transparent with investors, which is what we've always tried to do so that was the logic of why announced that now realizing there's still a lot of work to to go forward in the future or maybe if you take that.
Second part of question about the dis synergies and the being as a percent corporate expense side.
Yeah sure, Thanks, Joe and Chris very obviously very good questions.
First we're not providing a spot estimate of what the dissynergies would be in the separation the companies and while you point out that they do look like they operate relatively autonomously.
You know in reality, you got to take a look at what what we're defining as to be as division cure or excuse me the eye care business for the for the future reach our global vision care Global consumer global surgical and global Opto currently those businesses share a fair amount of infrastructure with our international pharma business.
And so there will clearly be some dis synergies associated with I'm, having to build up at this yeah, yeah buildup infrastructure support those businesses when when they are separated of course there at all there also be the expenses associated with standing up all of the enabling functions.
That will be necessary in order for in order for the eye health business to stand to stand on its own. So can't give you a a number today, but I would submit submit to you that you know if you would or look at.
If you were to look at levels of DNA and and are in R&D for similar sorts of businesses you can come up with a pretty good day, a pretty good estimate of what we're fully fully loaded.
DNA and R&D, particularly up would be because those are the ones, where you're going to see the dis synergies.
With respect to court corporate expenses I mean, similarly, you'll get to the same same answer you look at you go back a few used 29 team.
As a guide I believe there was circa $450 million of of corporate expenses, both R&D and DNA, though that we're not allocate of what I would suggest is that you can.
Relatively relatively straightforward way go back to that 29 team information and make your assumptions about how that R&D might have swapped onto what we're defining as the eye health business to go forward again to be Crystal clear, it's not the segment and in fact, there's actually some additional some additional products.
That would be moved from our from other other businesses into that business. So it's not as is straightforward process as you might imagine as we start to refine these things we will certainly.
Be helping you to think about whats so what that add the fully loaded pianos would look like for the eye health business going forward.
Operator next question please.
Just a reminder, ladies and gentlemen, like that that's awesome and star one on your part.
I will try to each question to one so that we can get taken every line.
Our next question it sounds like Gilbert Capitated. Please go ahead.
[noise], Thanks, gentlemen, good to see it taken some action here I was hoping you could walk us through the mechanics of how and when you can affect the separation and as much details here willing to provide today at least to level set expectations of how soon or an option. This can actually happen and then within Remainco, if I could call. It that this international pharma.
Fit with the remaining pieces I know each piece is a little bit different but that one is distinctively internationally compared to the other pieces. Thank you.
Sure.
Good question, Greg on the action. The question on the timing aspect, we are working through that timeline, but the best way I can answer it right now without giving any specifics relative exactly our timeline I think we looked at all at a precedent company transaction and usually it's somewhere in that.
You know you're gonna have timeframe. It usually takes the somewhere around a year and a half of its going to take some time, there's a number of issues to work through to obviously ensure that it's a tax efficient structure to ensure that.
The organizational design is correct. So we've outlined a lot of the steps that have to go into this in terms of a timeline I don't want to put a specific timeline right now as we go through it but I do think that.
The best way for Us to answer the question right now is the.
Looking at some of that precedent transactions on the question of Remainco International prescription does it fit with the other piece of what are the things that we do think is an opportunity is that we're going to look at what we're doing with international pharma, because there's a very diverse but it does include products and dermatology there.
Robert G. and Gastroenterology, we've looked at that portfolio. So we do think there's opportunities to for example, globalize our Salix business as you know when we acquire true Lance and Bell, Canada tied we did a trial. We did also acquired global rights to those products.
Alex Gastroenterology business, our med direct.
Business as well so we'll work our way through that try to make the right decisions to once again focused on driving long term shareholder value for our shareholders.
Thanks.
Our next February next question.
I'm sorry, our next question comes from LMR Rasuk with Evercore. Please go ahead.
Hi, Thanks, so much for taking my questions I will primarily focus on.
The BNL separation as well, but before I do can I just clarify for every one Paul I think on slide four itself pro forma BNL Newco is 3.7, I believe that was switches supposed to be around 4.9 billion I just wanted to confirm that but my question is so thinking of this BNL new cool.
As a 5 billion business. The one thing that does catch our eye is it was supposed to have a billion too.
Eight perhaps not after business the international Rx.
And I noticed you guys are adding an additional 140 million or so on top of that after some changes today. My question is is it fair to assume that the international segment works at something North of 60% property margin I'm, just trying to break out the operating profit drivers of this BNL business just to understand how we should think about.
Allianz and because it's not inconceivable market might think of those are separate or not and maybe you could speak to that thank you very much.
Well you want to take action.
I I do in humor and please state stay in line here because I think the on slide four there just the business to be spun out is the skews. The 3.7 billion I did not understand your question regarding the first part first party question, sorry, I apologize for that but let me let me address your source the.
What else we are what else is in there. There are parts of for example, if youre going to stand up your eye health business and you put together a global supply chain <unk> within medical the supply chain. There are assets that are produced there that ought be then sold by that I health business and the easiest example to think about.
That is we have a.
Fairly meaningful portfolio of generic products to ophthalmic Rx products. So.
Revenue that previously would have mapped to diversified and showing up in the generics line, which are ophthalmic products, which mapped to the eye health the eye health business. There. There are few other minor items that result in you're kind of the addition to the addition to the I die health and the subtraction.
From from be a cheap, but I would say that that is the primary are the primary difference between those two things.
Yeah.
And the margin Paul just yet.
No.
On the margin I'm I'm going to point back to something I said it was probably 18 months ago were so I'd have to go back to see exactly what call. It was on.
But when people are trying to tease out like what what is thinking about international our international former as it was part of the BNL International segment people, often ask will be or does it distorts. The segment. How do you how should we think about in what I said was if you use the EBIT a contribution margin of the.
Aggregate BNL International segment with international pharma in there that blended margin was approximately the same as the margin that you would've seen if you could tease out international pharma I think that gives you what you need.
You see what I'm, saying.
Okay.
Thank you Paul for that.
Well, obviously be providing more information as we.
Right yes.
Spinoff habit, but we're excited about what this means in terms of really unlocking well. We think is a great iconic room Bausch and lomb number let's take the next question.
Our next question I pass the line with Wolfe Research. Please go ahead.
Hey, guys. Thanks, so much in kind of similar to what.
People have asked before when you talked about putting up I care. It always seems like the timing wasn't right given the current debt structure, what change internally with your thinking and was there any external shareholder pressure and would you consider having to spin off occurred two to two to three years down the line and potentially out there doing an equity linked transactions may be lower the depth of its been up.
Thanks.
So I think it goes back to the why now I think there's a lot of things that we felt we need to clear currently.
Resolved as we're thinking about the direction of our company, we as I mentioned, we expect leaving out.
We felt that we had a number of issues to resolve before we can make this move we've now resolved those issues are resolved those legacy legal issues and we feel now the time to start do I, absolutely understand it's going to take some time as I said before looking at precedent transactions I think it's somewhere in that year and Uh huh.
Half timeframe.
But let let's start now we'll we'll continue to work through some of those other questions like our capital structure.
To ensure that we launched this with the.
Best result for for both businesses.
As you know we're going to continue to worked very diligently to pay down debt and that's an important part of it as we grow EBITDA with our total businesses, so except that Theres still some things we're working our way through but as you can imagine as you start to go down this path in order to.
Unlock this value we needed to open this up to a lot more people in our company. We wanted to maintain obviously transparency with market. Therefore, our view as lets well announce it now we'll take the appropriate steps will work through all these questions and obviously go forward, but this is something that's been ongoing for as I mentioned about.
12 month to our board and and the management team have been working on this question that how best to unlock value for our shareholders and we feel now tied to announce it we still have some additional work due to be clear, but we're looking forward to unlock the value of the BNL franchise for the future.
Joe I agree with all of that well I'd actually like to follow on because I think a cost you framed it it's a terrific framing.
Hi, kind of question I think that the way, we're where we approached this is is that to preserve the maximum value for BHP shareholders through the separation process. It requires that we consider balance solve for a number of variables, including those that are based on our current leverage and in to be clear our goal.
Oh is the both BNL NVH see will emerge from the spin process with appropriate capital structures will allow each of them.
The financial strength and flexibility to drive future value and in an important consideration in executing that is time.
You know it with the passage of time helps as we continue to generate cash cash in D.N. de lever.
I want to reinforce something that Joe touched on is it was why now it's like it was very important that we solve and resolve.
Many many legacy issues prior to being.
Able to kind of analysis and move forward with isn't in.
Not the least among them was to resolve those out the legacy contingent liabilities that yelled at our colleague at Christina Ackerman, Our general counsel and her team have done a fab fantastic job of.
Settling those things out so that we can put those in the review because that enables us to think about separating into into the two companies where both will be.
Well positioned and in every way without without overhangs in order to be able to gear to drive forward from there.
The other thing I do want it to go stresses as well as as with respect with respect to the timing.
Yes, saying the same things, it's Joe, but it but I think it's important.
Also now things today using is entirely consistent with the way Joe and I have approached financial reporting from a time, we got here, which was to be as transparent as possible. So that you external parties can follow along and decide whether whether we are doing the right things. This was equally important for us too.
Announced today because in order for us to to proceed with this process and to have it be successful we will need the full support of our of our.
Soon to be spot outdoor BNL colleagues as well as all of our all of our BHP colleagues to get this done.
Prior to prior to this announcement there was a very small group of folks within our company that we're focused on this activity and we took it as far as we could.
Without without disrupting our businesses being meaning they are making this announcement today is the day that we say this is what we're going to do we strongly believe it's the right thing.
Yes, the right thing for our for our shareholders. It's the right thing for each of those two companies. So that each can be positioned to maximize the value of their competitive positions and so we're really we're really excited about this.
Yeah, I think everybody will wish that we had more information specific information.
Worked with US here, we will be providing it in that same transparent manner as we work through this process and what we get to the end I think what you're going to see is two very attractive companies standing on their own with great prospects.
Operator, let's take the next question.
Thank you. Our next question comes from David Amsellem with Piper Salmon. Please go ahead.
Thanks, So I know that you haven't provided specifics on the capital structure, but but I do think that.
Some qualitative commentary on the capital structure would be would be helpful. As we navigate this period I guess my question. Here is you know given that the eye care business has always been perceived as durable over a long term period doesn't have a major exposures to losses.
Exclusivity is it fair to say that.
Thats going to be a business.
That business is going to shoulder more of the debt than the remaining pharmaceutical business.
Which.
Does it had some durability question marks, albeit nothing is diyers, what we saw the last few years I guess just from a sort of white space perspective can you just help us.
In terms of how your how you're thinking about it and again I know these early days, but I think it would be helpful to at least you know address it in some way thanks.
Yes, Brian I'll start report please feel free to open but your comment that I think the important point that we're thinking about this is let's figure out how best to unlock the business that came together as a artifact of history, you know do they need to together no. We do not believe that will be the case, let's separate them out but quickly.
The appropriate focus and investment behind each business and ensure that we can make each these business successful do we absolutely have to work our way through that capital structure question that Paul mentioned on previous question. The answer is absolutely yes.
But our view is that over the long term. This is the right thing to do for.
Our investors, we think the BNS business will compare very favorably with companies that are great companies like ALC on like Cooper, We think those comparisons will be important if people measure the future success of this business. So that was the overriding principle, we didnt feel that these businesses as we reflected.
Got it needed to be together, let's let's separate a blizzard both businesses go out be successful on their own and that's our approach do we absolutely recognize capital structure is an important question. The answer yes, we're going to deal with that in a very efficient manner, but the only thing I will point out David I know you follow very closely is that we do feel very good.
The progress Weve also made on the loss of exclusivity products. We've worked our way through that the majority of those are behind us and now the we feel we've done a very good job in managing the site faxon challenges to the pattern.
You, probably recall that weve settled both with Teva, the world's largest generic company and arguably the third largest companies sandoz.
In terms of a 2028 day. So we do think we've got that the longevity of the that by factors that will allow us to manage our way through this and to ensure that once again the.
About health care business with a focus on international pharma Gastroenterology aesthetic dermatology neurology also be very successful. So I, probably don't want to make any more specific comments about how to allocate that et cetera, but I do think we will manage that in a way that is best for both business the op.
Well I wonder if you want to add as well.
Okay No Joe you did that with that I thought that was that was there was great, but I'd say that the the key thing David just [noise] excuse me is that each of those two businesses needs an appropriate capital structure I I don't think we're certainly not going to guide to watch as the cap structure to spend going look like today and what does look like.
There are too many variables sitting here in.
He is sitting here on the on August six two you'll get to come into play and I think the time is.
Kind is wonder is one of those variables there were number ways that we can proceed with this that can accelerate the time.
Well I'm on the topic of time, I'd say that the mechanical things associated with gearing up and laying the foundation to separate the two companies is something that we can and will go very fast with the evening the bigger challenge as I said, a moment ago Internet in trying to answer a cash was the it's to preserve the maximum value for.
BHP shareholder she was through this process, you've got to consider and balance a lot of things and time is one of them.
Operator next question please.
Thank you. Our next question comes from David Risinger with Morgan Stanley. Please go ahead.
Yes, thanks, very much and congrats on a on a this a major update so.
Oh I was just.
Hoping to ask a question on debt covenants. So.
What are the debt covenants currently indicate in terms of maximum value that can be exited.
I had read an FCC document.
That had indicated I guess it was the 10-Q.
From March or that the company had approximately 12.3 billion of basket build up capacity. So I'm, hoping that you can put that into context and just provide some more color on how you plan to overcome the debt covenant issues. Thank you.
Yes. Thanks. Thanks, David This is a question we're sure surely going to get for many of our folks on the leverage finance side.
You know sufficed to say that you know where we're announcing that we're going forward with this be because there is a path.
Under all of our existing agreements in order to be able us to conclude this transaction not going to get into the specifics of calculation of baskets and what goes where but clearly was a consideration in thinking about the prospective separation into an eye health company and to be H.C.
Into being Allenby and B H C.
Well, we've done we've done the math, we've done our homework and it is absolutely something that we can do and I'll just leave it at that.
Operator, we have talked maybe one more question. Please.
Thank you. Our next question comes from can Corporately with Cowen and company. Please go ahead.
Hi, Thanks, guys. Good morning, just my one question is it seems to be a lot easier just sell this legacy business. So just wondering.
How is this process that you are undergoing to basket in separate and tease out operationally does it make it easier to sell is that part of the Optionality ahead of to the end stage of a spin and can you just give us any color. If that was proceed and just simply you weren't able to do and so this is the right appropriate next step. Thank you.
So I, probably best way I can answer that question I think is the board and management looked at all the alternatives and as we evaluate all the alternatives. We believe that this approach is the best way to move forward. It is within our control. It is something that week advantage, we could it.
Sure. It happen, obviously things that will need to do there's a lot of work that we need to do but this is is totally within that could throw of the of the team is moving this forward as I said earlier in the call.
We we knew that as we wanted to be very transparent with the market we need to involve more people in our company to get this done but that was going to be that yes. We had concerns about leaking information or anything along those lines a weaker let's let's be transparent whats announced that recognize.
Hi, Theres going to take us a year and a half or thereabouts terms of basing on precedent, we haven't given a specific timing for ourselves, but precedent does it's about a year now.
Let's get that all up and running up this is totally within the control of management. Therefore, we believe this will be that the best way to proceed.
Obviously as we arrive we've always said, we will consider all alternatives to drive shareholder value for this company. We believe this is the correct way as we sit here today total advanced control if other things occur we're always going to make sure. We do the right thing for our shareholders so to be clear.
Thank you everyone for joining us today.
Well did you want to make any other comments on that.
Yeah, yeah, you'd be out I may have like 30, 30 seconds I think you covered it but I'd I'd like to double covered if I could can all as as it has been since we got here all alternatives are on the table.
At all times, you know you know clearly any alternatives on table and importantly, taking this step does not for close any of the options that that might present themselves.
That could end could pokey potentially accelerate our ability to deliver a greater value to our shareholders. So.
This is as you know you used the word optionality. This is something that provides.
Additional options to us as we look forward down we're really excited about this.
As I said earlier or this is the work. This is the right thing. This is the right thing to do and we're committed.
Thank you Bob who is going to let me just try to conclude as I mentioned earlier in prepared remarks, we think is a very exciting day, it's an opportunity to take about health care to the next step by separating into two public independent companies. We're very excited about what that means in terms of unlocking the value.
Are you in that Bausch and lomb iconic brand and look forward to sharing with you more information as we move forward, but thank you for joining us and we look forward to its doing additional questions. They may have the future have a great day everyone.
And that does conclude today's conference call. We appreciate your incumbent you may disconnect. Your lines at this time I have a great Oh.
Oh.
Oh.
Oh.
Oh.