Q2 2020 Bausch Health Companies Inc Earnings Call
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This time I would like to welcome everyone to the Bausch health company's second quarter 20 to one financial results conference call.
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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 Papa and Chief Financial Officer, Ms., both R&D and additions. 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 we ask that you take a moment to read the forward looking statement legend at the beginning of our presentation as it contains important information.
This presentation contains non-GAAP financial measures 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 only is our policy generally not update guidance until the following order and not to update or.
Guidance 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 Kobin recovery process and briefly cover the second quarter highlights here again, our CFO will then review the second quarter in more detail no update our 2020 guidance.
Who'd like hovering close priority, we have identified to drive I was just 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 fitness independent publicly traded company.
Well established two separate company you fully integrated pure play I held company built on the iconic Bausch and Lomb brand in a long history of innovation.
And in international diversified pharmaceutical company with leading physicians.
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 that's how they do a comedy position to deliver long term organic growth.
Over that time, we had divested approximately $4 billion noncore assets pay down over $8 billion a debt resolved nearly all of the significant legacy legal issues in management 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.
Herman how best to unlock value across our businesses and believe that separating into two highly focused and attractive Standalone company the way to accomplish that goal.
We've looked at the value of our peer I hope companies like Al Qaeda 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 it's been.
Process progresses with that.
Let's turn to slide five.
Overall, we have successfully manage our supply chain and continued to make the essential products that are needed by our customers in patients during cobi cobiz 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.
And United States recovery appears to be resi more quickly and are being now surgical vision care in up to our ECS business. In fact consumer business was less impacted by code than our other business units.
Being out Europe Asia recovery has been more gradual as consumers had been slower to return to normal habits. Despite reopening.
Another example code variability is Salix Saxon had a conceptual apathy <unk> prescription volume. So let's go would impact versus Thaksin 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 this side, but let me highlight a few key points overall organic revenue declined by 21% during the second quarter.
Even during this challenging time, many of our brands and products were able to grow and gain market share.
Starting with Ashleigh and organic revenue declined to 24% was driven by reduction elective surgery and reduced wearing contact lenses with cobot. However, several key launch products by exalted load them access had each had 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 satisfy organic revenue declined by 21% segment had an elderly drag of approximately 39 million during the second quarter. We saw strong trx growth and truly has enrolled store, 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 script declines have started to reverse as of June 2020.
Fourth appeared in the logics the closure of Dermatology office and stay at home orders resulted in an organic revenue declined 5% for this segment Oh, There My show ever group reported revenue by 12%.
[noise] Jublia heads 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 around so in the U.S. during the quarter.
With respect to do agree 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 you'll be related pad Oh vigorously defend our intellectual property a few additional highlights.
Christine Ackerman and her legal team recently, we saw two pending legacy legal matters. The Fccs investigation, the company's form relationship with cylinder certain of our company's legacy accounting practices and public disclosures. During the time period of 2014 2015 also we resolved the Canadian security 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.
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 who covers 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 work and that's cobot.
Please turn to slide eight Ur Cobot was the primary driver and subs in substantially reduced revenue across all of our business units overall organic revenue declined 21% all four segments declines led by BNL International down 24%, then Salix down 21, then diversified down 17, and finally worth odor with the smallest declined relative to Q.
Two of 2019, it was down 5%.
I Didnt Biennale International as expected global surgical suffered the greatest impact from Cowen as an honest central surgeries essentially stopped in many markets global surgical was down 48% overall, it was down 49% outside the United States and down 44% in the U.S.
We had expected that the O U S surgical markets will begin to improve as a second quarter played out and they did but in a slow pace. Meanwhile, in the U.S., we saw quite a deep yep and then he 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 and geography, so when 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 BAFTA why rexs in the U.S. and as we saw in 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 U S. 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.
<unk> expenses of Cobra 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 snap back in June looking ahead, while they were Kandahar plenty of headwinds in the U.S. vision care business, we carried a bit of momentum into Q3.
We'll see it 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 the Cps 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.
But you know 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 at Q1, so that took a little off the top about Q2 revenues.
Consumption basis, both Lula fight and preservation grew versus Q2, 2019, you owe us consumer business correlated with the softness we saw that Oh, U.S. vision care business, and I renew and Biotrue solutions, which are big parts of all U.S. consumer was quite a bit as they followed suit the 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 in 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 the this is for say facts now was down primarily due to the Cobra 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 Xifaxan Rx trajectory as had been improving as GE I offices reopened and our Salix sales teams are able to <unk> fleet more face to face calls covert took the top off a truly its has terrific growth trajectory and even still Rx is in Q2 2020 were up 50% versus Q2 of 2019, even with coal.
Hi, good 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. The Gainshare Eddie great clip in the competitive IDFC category.
Truly half 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 2019 going.
The other way the appraisal well 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 second was off 5% with medical burned down, 4% and sold to down 7%.
In mid drum volumes fell off dramatically as Durham offices were among the earliest to close down and slowest the ramp back up we did benefit in the quarter from dramatically improved gross to nets, the l. Adele 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 beauty and the planes 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 ice Pearl the fighting incentives even say pre.
Generics was off 11%, mainly due to the impact to covert 19, and dentistry was off 69% as dentist 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 or 2900 by some 230 basis points due to unfavorable variances triggered by coded related volume reductions. This is something that will persist throughout twentytwenty within operating expenses S. DNA were favorable by some 137 billion versus.
Q2, 2019, with a good chunk coming from selling advertising and promotion obviously in a shutdown situation. We held back when promotional programs with a few exceptions for high value initiatives that were opportunistic on our part.
Yes, selling advertising promotion were down 123 million part of that was reduced sales incentive comp.
And 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 Gionee 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.
EBITDA was down 258 million and here's a short hand way of how you could think about that reported revenue was down 488 million covert accounted for roughly 500 million a decline Luisa kinda 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.
18 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 chased 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 the very challenging quarter.
We have a bit of senior secure cat capacity to work with if needed, but if you turn to slide 12.
We don't have any debt maturities were 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 and 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.
We model 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 about.
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 are recovering 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 coven levels now as I said certain of the U.S. businesses, that's vision care surgical and not though Iraq.
Snapped back and eat in they would 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 cold recovery, and especially in Asia Pac in parts of Europe, I try to near the low into the range of my expectations. So net net the high end of our me 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 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 impacted relative to what we thought back in may and it appears it will take a bit longer to get back to pre covert levels. That's what takes the 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.
Old or grow share in segments that are currently depressed by cold so that when the coping impacts subside our franchises are positioned to return to the a pre coated 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, you. Some 300 billion dollar <unk> less than what we're planning back in February turning to slide 15, the guidance bridge, just two things to point out in this slide currency moves in our favor since May 100 billion at revenue and about 30 million that adjusted EBITDA second and for the avoidance of doubt the roughly 100 billion.
And all reduction in S. DNA in the guidance bridge relative to our May guidance.
Yeah, that's relative to our me guidance and then as I mentioned in total from beginning of year, we've reduced our full year expect yesterday 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 spend to be you know 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 ball.
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 journey 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 he's got a worldwide basis, but new fit are starting to come back after significant decline 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.
You mean during this period of disruption, we were able to grow market share for some lenses underwrite we show the gains in the Biotrue, One day lens family up 100 basis points versus last year and the daily disposable category and then the free goods 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 products to meet consumer needs such as ultra monthly lenses in China Ultra one day lenses in Canada, and Hong Kong and infuse daily sign highlighted in the United States.
On this slide 18, many you asked about infuse if uses the only silicone hydrogels daily disposable win with a next generation infused prevail technology and helps maintain okcular homeostasis and reduce the symptom of contact lens induced dryness.
For example, infuse lens maintain 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 charted who left shows to present change in total U.S. Bausch <unk> lomb consumption year to date on a year over year basis before during and right now as we emerged from cobot stay at home waters.
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 months up 112% in the last three months despite coded our I buy.
That is occupied impressive isn't grew 3% organically year to date compared to the prior year period compared to second quarter 2019, Liquefy revenues grew by 36%.
Finally on the chart in the bottom right shows the Bausch and Lomb gave us market share in key segments redness relievers, multi purpose solution and I vitamins compared to a year ago.
Turning now to global surgical on slide 20, a worldwide postponement insert let this surgical procedures persisted during the first part the second quarter, but.
We started to see signs of recovery in the second half or the second quarter.
On the lastly show the recovery of international surgery, where revenue has about 70% of the pre co good 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 the overall market decline of 53% Similarly, radnet procedures in the U.S.
Declined 32% in the second quarter, but 2020 versus 2019 compared to overall market decline of approximately 35%.
He invested torque, Iowa, which was launched in the U.S. just prior to lock down is also gaining market share. This is helping but you know increased Iowa market share in the U.S., which has improved to 11.1% versus 10.4% share a year ago, plus 70 basis points.
Turning now to global Opto Rs on slide 21 as expected the cobot related decline in surgeries also impacted global Opto Rx.
Trs It began to recover in mid April and we continue to drive momentum there promoted brands, but we clearly lag 2090 performance on a year over year basis by Solta total prescription volume was up 42% in the second quarter compared to the market, which was down 3%.
Well at an access and also had a stand up quarter here actually grew by 125% compared to the prior quarter in market into 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 knowing they may and still remain.
He is in process.
However is that that's an 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 characters 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%.
And then 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 derm saw declines prescriptions during the second quarter due to code related office closures run the United States the shift toward telemedicine savers, keeping patients on existing medications and the lastly show Trx is for U.S. promoted brands. The average weekly change of 20 to extend the pre.
<unk> period was driven by do agree on Jublia and actually portfolio cope with it you Overdrew Hollywood the acne portfolio starting in March Julia showed growth in all brands appear to be covering since approximately early may.
Despite cobot headwinds there might 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, we expect uncertainty around the pandemic to persist through the 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.
He 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 are stressed that.
Our ecommerce capabilities.
In conclusion I believe our team has done a great job resolving the legacy issues that company was facing we're now actively moving toward the next step of our transformation. We have a plan to manage Cobra 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 up the line for questions.
Thank you Sir the floor is now open for questions. If you do have a question. Please press star one on your telephone.
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Our first question comes from Chris Shaw with JP Morgan. Please go ahead.
Okay, great. Thanks, so much for the questions I just a couple of on the separation or said another potential of the separation something we've discussed in the past, but elaborate a 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 is I know that numbers aren't finalized, but how do you think about the magnitude of dis synergies from a separation is this something that's gonna be meaningful as when I look at the business. It seems like these do operate fairly independently and would suggest maybe there's not huge dis synergies, but just any color there with would be helpful. And then maybe just one final really quick.
Well I Miss is you remind us everything about your corporate expenses what percent of those go to BNL and what percent are associated with the pharma business. Thanks, So much.
Sure well I'll take the first one of the why now and maybe you could help on the Dissynergies and percentage of being on the corporate expense side.
So Chris Great question.
Why now so we've been working at this for four years or what we felt we had to do as we had to get ourselves into a position where we can divest the the non core assets about $4 billion pay down a lot of debt about 8 billion plus the pay down manage the portfolio that we had we would note.
We knew we were going to lose exclusivity and about a 1.4 billion dollar portfolio.
We had to get through all these legacy issues that that were part of what we faced as a company legal issues. The 15 entertain solve the Salix litigation the Allergan litigation the class action lawsuit, both the United States in Canada, or 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 products invested in Capex for these new launches like ultra tore we invested for daily Sai high capability. So a lot of activity had to have.
Happened before we could get ourselves into position to do that we now feel that we are in that position to do that and we reflected on 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 eight so each of them could make those types of judgment in 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 right time to start and you know the activities have been done by the board and the executive leadership team, but as you start to.
Pulled pull apart and separate Q businesses. It takes a lot more than.
20 people to do that you really start need to engage the organization and once you start do that you've got to be forthcoming you've got it share that information to be very transparent with investors, which is what we've always tried to do so that was the logica why announce it now realizing there's still a lot of work to to go forward in the future or maybe you can take that.
And part of the question about the dis synergies and the the being as a percent corporate expense side.
Yeah sure. Thanks, Joe in Chris Barry you, obviously very good questions.
First we're not providing a spot estimate of what the dis synergies 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 the vision care or excuse me the eye care business.
For the for the future, it's 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 build up infrastructures to support those businesses when when they are separated it 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 I can't give you a a number today, but I would submit submit to you that you know if you were going to look at if you wouldn't look at levels of DNA and and are in R&D for similar sorts of businesses you can come up with.
Pretty good day, a pretty good estimate of what we're fully fully loaded.
DNA and in R&D, particularly up would be because I was 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 2019 <unk>.
As a guide I believe it was circa $450 million of of corporate expenses, both R&D and Gionee, though that we're not allocated for what I would suggest is that you can relatively a in a relatively straightforward way go back to that 2019 information and make your assumptions about how that R&D might have swapped.
On to 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 had the fully loaded pianos would look like for the eye health business going forward.
Operator next question please.
And just a reminder, ladies and gentlemen, if he likes ask a question then star one on your telephone.
Well try to keep each question to one so that we can get turned to everyone.
Our next question is from Greg Gilbert.
Jamie 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 you're willing to provide today at least to level set expectations of how soon or not and this could actually happened and then within Remainco, if I could call. It that this international pharma.
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 [noise].
Sure.
Good question, Greg and they actually the question on the timing aspect it who 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 to precedent company transaction and usually it's somewhere in that.
You know you're going to have timeframe. It usually takes the somewhere around a year and a half of its going to take some time, there's a number 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 your question right now is the.
Looking at some of the precedent transactions.
The question of Remainco International prescription does it fit with other pieces what are the things that we do think isn't opportunity is that we're going to look at what we're doing with international pharma. Because this is very diverse but it does include products and in dermatology neurology 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 acquired true Lance and Bell, Canada tied we do try we did also acquired global rights to those products. So there are global opportunities for products like our gas for all the business I think you know.
Developing next generation for facts summit opportunities some of those opportunities. We also believe will be international opportunity. So I do think there's an international opportunity I won't dismissed the that that there are some parts of the international pharma that are going to be different than our current.
Failing.
Thanks.
[laughter].
And our net operating expertise.
Oh I'm sorry, our next question comes from Boomer Rafik with Evercore. Please go ahead.
Hi, Thanks, so much for taking my question Oh, primarily focused on.
The BNL separation as well, but before I do can I just clarify for every one Paul I think on slide four it says pro forma BNL Newco is 3.7 I believe that was switch it was 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 in a 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 work that something north of 60% operating margin.
I'm just trying to break out the operating profit drivers of this BNL business just to understand how we should think about valiant and because.
It's not inconceivable market might think of bills are separate or not and maybe you could speak to that thank you very much.
Well you want to take action.
I I doing over and please state your line here because I think the on slide four of the just the business to be spun out is just use the 3.7 billion I did not understand your question regarding.
The first part first party of course is right 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 within that global supply chain. There are assets that are produced there that ought be then sold by that I health business and the easiest example of think about.
That is we have a fairly meaningful portfolio of generic products to ophthalmic Rx products. So.
Revenues. It previously would have mapped to diversified and shown up in the generics line, which are ophthalmic products, which mapped to the eye health the eye health business. There are few other minor items that result in.
You are kind of the addition to the admission to the I die health and the subtraction from from BHP, but I would say that that is the primary.
The primary difference between those two things.
And the margin and Paul just yet.
No on.
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 Bill does distort 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.
We'll obviously be providing more information as we.
Yes.
Spinoff happen, but we're excited about what this means in terms of really unlocking, but we think is a great iconic room Bausch and lomb, Okay, let's take the next question.
Our next questioner at half the Larry with Wolfe Research. Please go ahead.
Hey, guys. Thanks, so much kind of similar to what.
Couple of assets or what do you have talked about thing 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, maybe lower the debt of this.
Thanks.
So I think it goes back to the why now I think there was a lot of things that we felt we need the clear currently.
Resolve as we're thinking about the direction of our company.
As I mentioned, we thank you.
No.
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's 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 a half.
Im frame.
But let's 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 results 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.
Sure it too.
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 is let's we'll announce it now we'll take the appropriate steps will work through all these questions and obviously go forward, but this is something thats 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 recall ITI, okay, well I'd actually like to follow on because I think a cost Ukraine.
Terrific framing.
Hi, kind of question I think the way, we're where we approached this is is that to preserve the maximum value for BHP shareholders through the separation process 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.
So is that both BNL NVH see will emerge from the spin process for the appropriate capital structures will allow each of them.
The financial strength and flexibility to drive future value in in an important consideration in executing that is time.
It would the passage of time helps as we continue to generate cash cash in d. and de lever.
I want to reinforce something that Joe touched on is it was why now is 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 this in.
Not the least among them was to resolve those out the legacy contingent liabilities that.
And our colleague Kristina Ackerman, our general counsel and her team have done a fab fantastic job.
Yes.
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 without without overhangs in order to be able to do you have to drive forward from there.
The other thing I do want to go stresses as well as as with respect with respect to the timing.
Ill say the same things, it's Joe, but I think it's important.
Also now things today is in is entirely consistent with the way Joe and I have approached financial reporting from the 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.
You 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 our of our.
Soon to be spun out or 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.
With 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.
So 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.
Yes, I think everybody will wish that we had more information specific information.
But work 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.
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 at least some qualitative commentary on the capital structure.
It would be would be helpful. As we navigate this period I guess my question here is.
Given that the eye care business has always been perceived as durable over a long term period doesn't have the major exposures.
Losses of 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, I'll start, but Paul please feel free to also at 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 do they need to be gather no. We do not believe that would be the case, let's separate him out let's put the.
Appropriate focus and investment behind each business and ensure that we can make each the 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 BNL business will compare very favorably with companies that are great companies like outcome 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 on.
It needed to be together, let's let's separate let's let both businesses go out be successful on their own and that's our approach do we absolutely recognize capital structure is an important question 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 about.
The progress we 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 managing the site faxon challenges to the patent.
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 facts and that will allow us to manage our way through this.
To ensure that once again the.
About health care business with the focus on international pharma Gastroenterology aesthetic dermatology neurology also be very successful. So I 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 there.
Is best for both business to optimize wanted if you want to add as well.
Yes, Hey, Joe you did that with that I thought that that was there was great, but I'd say that the the key thing David just excuse me is that each of those two businesses needs an appropriate capital structure idea I don't think we're certainly not going to guide to watch as a cap structure to spend go look like today and what does look like they were.
Many variables sitting here in.
He is sitting here on on August six two that to come into play and I think the time is.
Time is wonder is one of those variables there were number ways that we can proceed with this that can accelerate the time, while 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 bigger challenges I said.
Normally go in India in trying to answer a cash was the it's to preserve the maximum value for BHP shareholders should it through this process you got to consider and balance a lot of things and time as 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.
On this.
Major update so.
Paul 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 that the company had approximately 12.3 billion of basket buildup 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.
The sufficed to say that 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, a baskets and what goes where but clearly was a consideration in thinking about the prospective separation into an eye health company and to be Eightxeight.
Into BNL and be in 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 time, maybe for one more question. Please.
Yeah.
Thank you. Our next question comes from Ken Cacciatore 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.
Hi. This 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.
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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 can ensure it happened.
Obviously, there are things that will need to do there's a lot of work that we need to do but this is is totally within their control 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 is done.
But that was going to be that we had concerns about leaking information or anything along those lines. So we said, let's let's be transparent whats announced that recognize that it's going to take us a.
A year and a half or thereabouts terms of basing on precedent, we haven't given a specific timing for ourselves, but precedent goes it's about a year now.
Let's get that all up and running.
This is totally within the control of management. Therefore, we believe this will be 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 totally within management 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 beyond I may have like 30, 30 seconds I think you covered it but I'd like to double covered if I could can all as as it has been since we got here all alternatives around the table.
At all times.
Clearly any alternatives on table and importantly, taking this step does not for closing any of the options that might present themselves.
That could and could potentially accelerate our ability to deliver greater value to our shareholders. So.
This is a you used the word optionality. This is something that provides.
Additional options to us as we look forward, we're really excited about this.
We 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 for his comments, 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 healthcare to the next step by separating into two public independent companies. We're very excited by what that means in terms of unlocking.
Value 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 is doing additional questions that you 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 and have a great Oh.
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