Q1 2021 Bausch Health Companies Inc Earnings Call

Good morning, and welcome to the Bausch Health first quarter 2021 results call all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your <unk>.

All of the phone keypad.

After todays presentation, there will be and opportunity to ask question to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.

I would now like to turn the conference over to Arthur Shannon Senior Vice President head of Investor Relations and Global Communications at Bausch Health. Please go ahead.

Thank you drew that's quite impressive and good morning, everyone and welcome to our first quarter of 2021 and financial results Conference call participating on today's call are chairman and Chief Executive Officer, Mr. Joe Papa and Chief Financial Officer, Mr. Paul Herendeen, and addition to this live webcast a copy of today's slide presentation and a replay of this conference call will be available on our website.

Under the Investor Relations section before we begin we would like to remind you that our president presentation. Today contains forward looking information we would ask that you take a moment to read the following 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 two.

And two of the presentation and non-GAAP reconciliations can be found in the appendix of the presentation posted on the website finally, the financial guidance and this presentation is effective as of today only it is our policy to generally not update guidance until the following quarter and not to update or affirm guidance other than through broadly disseminated public disclosure with that it's my pleasure.

I'll turn the call over to Joe.

Thank you art and thank you everyone for joining us today I will briefly run through some of the first quarter highlights before turning the call over to Paul Herendeen, Our CFO to review the financial results in detail and discuss our 2021 guidance will then review the recovery of the businesses and.

And share our thoughts on driving growth and 2021 and beyond and provide an update on the previously announced plan to spin off Bausch and lomb before opening the line for questions.

Beginning with slide four in 2021, we have three areas of strategic focus for.

<unk> continued to execute on the business recovery from COVID-19 second unleashing growth drivers and third accelerating strategic alternatives to drive shareholder value with that as a background, let's move to slide six where we showed our progress and each of these individual areas.

Overall, our team has been able to adapt to the pandemic related challenges and despite a few pockets of the variability recovery is in progress across our business total company revenue was flat on an organic basis and reported revenue grew by 1% compared to last year, driven by the rebound and global vision.

And Kia Solta and international Rx business importantly, our businesses generated strong cash flow from operations of $443 million for and the first quarter. We are seeing strong performance, including market share gains and recovering from leading brands, including <unk> truly of ultra present vision and Linda.

Hi.

We also have made good progress advancing science during the quarter, which resulted in the recent announcement of the statistically significant favorable top line results from two phase III trials.

And with our focus on taking action to accelerate strategic alternative process, we repaid $200 million of debt and the first quarter using cash generated from operations and agreed to divest the moon for approximately $740 million. Finally, we have completed the accounting work to re segment, our business and I for variety of day revenue.

The breakdown for our five current segment and the chart on slide seven and the first quarter approximately 44 percentage of the total company revenue is generated by Bausch and lomb and about 56% from the remaining Bausch health care or what we refer to as Bausch and pharma <unk>.

To summarize we entered 2021 with strong momentum and our first quarter results demonstrate that the recovery is in progress our business is generating strong cash flows and our leading products are poised for growth and key markets. In addition, we are advancing science and clinical trial and taking actions to accelerate the <unk>.

Strategic alternatives process.

Before I turn the call over to Paul I wanted to express my sincere appreciation to Paul who is concluding his tenure as the Bausch health CFO on May 31 first for his leadership of the finance organization, but importantly for many contributions he made the the company over almost five years, he's been a great partner and they look for.

Forward continue work closely with him and his new role, especially adviser of the chairman and of course, we also want to welcome <unk> <unk> as our new CFO on behalf of the entire Bausch health team. Thank you Paul for the strategic focus your unwavering commitment and for playing an instrumental role and our after the turnaround and transform the company.

And we joined five years ago with that I'll turn it over to Paul is the cover the financial results in more detail and thank you Joe very nicely and it's been a privilege to be part of this team.

We've accomplished a lot together and I'm certainly looking forward to my new role and working to unlock the value of Bac for all of our shareholders. So let's let's go on the quarter before I discuss our performance and the quarter. It's worth spending a minute to highlight the changes we made to our segment reporting with the new segment structure, you now see our pure play eye health business.

This P&L and our global pharmaceutical business that I'll call Bausch pharma for now we will rebrand both farm and at some point and the future.

Within Bausch pharma and we now show a segment P&L for the international Pharma business. So this is the first time you get to look at the financial characteristics of the business that is diversified and every sense of the word generates attractive margins and has the ability to drive consistent growth of revenue profitability and cash flow over the long term to.

To help you with the changes to the segment reporting there are several slides and the appendix that map from the prior format to the current bond to the first quarter financial performance revenue was flat and Nonorganic basis with the Q1 of 2020, we're not yet fully recovered from the impacts of COVID-19, so getting back to flat versus what was a reasonably strong Q.

One last year is an important step along the way across our businesses. The recovery was and still is uneven.

And they've continued to be setbacks and various regions due to tightening of restrictions as COVID-19 players and receipts all and all we are well on the road to recovery and we're not all the way there yet if.

If you turn to slide seven the BNS segment was down 2% organically again, the theme as recovery relative to the last year of the global vision care business was up 13% organically with the U S up 4% and O U S up 19% over the two the growth and the U S is actually more impressive and it was as it was.

Half of a very strong quarter of year ago in the U S and fuse is a big factor with additional growth coming from bio two one day couric and ultra multifocal Toric interesting factoid. This was the second highest revenue quarter ever for our U S vision care business.

Outside the U S vision care revenues in Q1 of 2020 were significantly impacted by COVID-19, particularly and one of our more important markets China and.

In Q1 of 2021, all U S vision care revenue has rebounded nicely and were up 19% organically again against the soft quarter of year ago, the soft lens family and Ultra SBS were major contributors were not all the way back to pre COVID-19 levels for vision care outside the United States, We are close to returning to real growth.

Global surgical was plus 2% organically with the U S down, 1% and O U S up 3%.

In the U S. The year ago quarter was a decent quarter with only modest impact from COVID-19, so to be close to flat at minus 1% suggests we are close to recover.

Outside the United States, while our surgical business grew 3%, we're not as close to recovered as we're seeing and the United States. The Asia Pac region grew nicely off of the very soft quarter of year ago, but the recovery in western Europe in surgical is lagging glue.

Global consumer was down 2% organically up 1% and the U S and down 4% outside the United States, the 1% growth and the U S is better than it sounds as Youll recall the key in Q1 of 2020 that was a very strong quarter with a great deal of pantry loading ahead of COVID-19.

Oh, you asked for the year ago quarter was also quite strong and we were not able to repeat that in Q1 of 2021 as revenues in Canada and Eastern Europe remained soft due to social restrictions.

Finally for <unk>. The <unk> segment was off 20% organically reminder, the OXXO Rx business now includes the U S. Generic versions of our U S branded ophthalmic offerings and the decline.

And was driven by the performance in the U S, where eloise, including the resale of low to Max gel accounted for about a third of the U S decline. Another third of the U S decline was driven by the natural degradation of the sales of the generic versions of our U S branded opto products and the final one third came from decreased volumes within our branded portfolio.

So thats being all organic revenue and the quarter Salix revenue was up 1% from Q1 of 2020, mainly due to the <unk> and that was down 2% offset in part by 11% growth of true Lance and better realized net pricing for other assets and the portfolio. If you look at the <unk> ex trends for XI facts, and we're clearly moving and the right.

Direction, However, our records and a long term care setting a recovering slower than other parts of the market. The decreased number of patients and the long term care setting has impacted the market, including <unk> and volumes and especially for a while.

While we are confident the long term care business will rebound the.

Timing remains uncertain and will come as the sector rebuild confidence and patient safety the.

The International Rx business was up 4% organically, we generated very strong growth and the Latam region, especially in Mexico led by our brands IDEXX term and bad debt.

Egypt, and Russia also grew nicely versus Q1 of 2020. This growth was offset in part by general market weakness due to COVID-19, and Canada, Poland and Eastern Europe.

In the appendix you have your first opportunity to see of segment P&L for the international Rx business. So you can see the sorts of margins, we can generate and this business also if you look at the top 10 products for this segment you can see that there is not a lot of product concentration and the international pharma portfolio, the largest product IDEXX term accounted for only <unk>.

Percentage of the top 10 products.

Excuse me six percentage of total revenue and the top 10 products only 27% of segment revenue.

Although the ortho Dermatologic <unk> grew 5% organically the solta growth for training continues on plus 35% organic growth led by excellent performance and China and the United States and that was mainly from the <unk> platform. The medical Derm business was up 14% organically.

And at 14% seven 5% was due to lower LOE assets and the balance due to the declines across the rest of the portfolio. It's worth of note here a while back we put our colleagues Scott Hirsch and charge of the Ortho Derm segment and he set about a review of the medical Derm portion of the segment during the quarter, we took actions to reduce all.

Opex of the business as we were not seeing the level of promotional response, we're expecting from those investments that led to a full re look at the future of our med derm business and based on that work and work. The Theres still ongoing we are shifting the emphasis of our R&D investment within the Med Derm segment business excuse me.

We adjusted our expectations for operating expense and test intensity and accordingly, our longer term revenue outlook for this business.

And the result of all of that work was that in the quarter, we took a goodwill impairment charge for med derm.

We're going to reposition this business and a way that we believe will be value generative.

Our diversified segment revenues were down 2% organically, our neuro business was up 3% organically as strength and the government mail order volumes for branded Pepcid, Ativan and nicely and were quite strong and the quarter branded Pepcid and continued to benefit from the prior issues with zantac and in that was in the quarter within <unk>.

Well butyrin of blends and franchise, we saw a nice improvement and a realized net selling prices, but not enough to offset quarter over quarter volume declines our generics business was off 20% with the biggest back to being the natural erosion of volumes and net pricing as additional competitors enter the market for our generic products for example, migrant all.

All of <unk> Your service and Dyess debt offsetting some of those declines were new generic launches, including moving prep and ice of pro.

Recall that our generics unit helps us to capture the economic tail associated with our brands after they lose exclusivity and that the expected progression is a.

Gradual decline after launch.

Our generics unit does a great job of capturing value for us finally, dentistry posted 19% organic growth for the quarter. This business went through significant changes as its lead product a branded prescription product called the rest of and was formerly covered by managed care, but that coverage essentially went away the.

And the team converted the arrest and business over the way buy and Bill model and appropriately adjusted spending on promotional inputs.

After resetting the revenue base the business is growing at the top line and even more so at the operating line of great turnaround.

So that's revenue please turn to slide eight and I'll walk down the quarterly P&L, we covered revenue. So lets go right. The gross profit margin that was unfavorable by 250 basis points versus Q1, and 2020 about 45% of that movement was driven by COVID-19 factors, including write offs and negative manufacturing variances and other meaningful.

The factor was FX.

<unk> of our manufacturing inputs are denominated in euro sloppy Canadian dollars and other currencies, where FX was a tailwind for us at revenue relative to Q1 of 2020, it's a headwind and Cogs and in gross profit margin.

Finally, our mix drove a portion of the unfavorable movement as well.

Note that in our guidance, we have reduced our expectations for full year of 2021 gross margins from roughly 72% so roughly 71% within operating expenses on an adjusted basis SG&A costs were favorable by $53 million versus Q1 of 2020.

And I talked about this on the Q4 call. We're in the process of redeploying the promotional resources that are needed to get the company out of the COVID-19 hole and back to a solid growth mode that means filling vacancies and sales forces and supporting our sales efforts with promotional programs that would of been inefficient in the throes of COVID-19 but of demand.

To Billie effective and driving revenue growth and more normal market conditions.

The level of selling advertising and promotional expenses that you see and Q1 of 2021 results and us posting a strong operating margin, but it will not drive the sort of near term and longer term revenue growth that we expect from our portfolio of assets that said, we are reducing our expectations for SG&A for the full year of 2021 from roughly.

$2 6 billion to roughly $2 5 billion as some money is not spent in Q1 will end up the savings for the full year R&D was 10% favorable on the constant currency basis, but this was not by design. We would've spent more in Q1, if we could have done so effectively but projects are moving a bit slower than we'd like as we've shaped.

Off COVID-19, we still expect to spend roughly $525 million and R&D for the full year of 2021 net net we posted adjusted EBITDA of $852 million for the quarter up 2% on a constant currency basis from Q1 of 2020.

That's a nice 42% adjusted operating margin, but as I, just said not sustainable.

With the current configuration of our product portfolio, a solid near term target for adjusted operating margin is more like 40%.

In the appendix there of slides that show the P&L for the <unk> segment. The segment that represents the business that we plan to spin off you'll also have the segment P&L for the for components that will make up Bausch pharma, which you can use to assist you and getting a sense for the Q1 results for Bausch pharma. We have also included slides that show estimate.

Of the allocation of corporate G&A and R&D to the different businesses and finally, we provide splits of depreciation and share based comp and capital expenses between <unk> and both pharma and.

This information may be helpful. As you think about the profitability and cash generating characteristics of the two businesses.

If you look at the segment P&L.

And with P&l's.

And that will make up the bulk pharma you will see a business with strong gross profit margins and high EBITDA margins.

We believe that both P&L and Bausch farmer have the ability to grow revenue organically and the mid single digits for a number of years.

The next three slides slides 910, and 11 of our self explanatory, but I do want to take a moment to call out our strong cash generation and Q1 for $143 million of cash generated from operating activities on a GAAP basis and adjusted for the settlement of legacy legal liabilities and separation related costs and payments and the cash Gen.

<unk> was a strong 587 million I want to provide some balance here, we're talking about of discrete 90 day period. In this 90 day period, essentially everything that could go right from the cash generation perspective was in our favor.

We are on track to generate roughly $1 5 billion of adjusted cash from operations and 2021, Ian to prepay roughly $1 billion of debt from cash flow on slides 10, and 11, you will see that we repaid $200 million of debt during Q1 of 2021 and the after the quarter closed we announced the repayments of another 200 billion.

Of debt in May and June so we're off to a good start.

And upon the closing the Moon transaction, we would further reduce the quantum of our debt and reduce our leverage on the guidance. The headline is that we're reaffirming our prior guidance ranges for revenue and adjusted EBITDA I referenced a couple of the elements of our guidance during my remarks on the quarter.

For reducing expectation of gross profit margin from 72% to roughly 71%, we're reducing our expected SG&A expenses for roughly $2 6 billion to roughly $2 5 billion.

And we're keeping the expected adjusted cash generated from offset roughly $1 5 billion and we're continuing to target paying down debt by roughly $1 billion with cash generated from ops.

The adjusted tax rate for the year, we increased from roughly 7% and roughly 9% part of this increase is based on of shifting the mix of where we are generating pre tax income around the world with higher tax jurisdictions, making up a greater percentage of total pre tax that we had forecast another.

Another part of this increase is due to the steps, we're taking to reorganize our global operating model as we prepare for the separation into two companies as we continue with that process. Our estimates of the go forward tax rates for <unk> and <unk> pharma are coming into better focus and we currently forecast the tax rates on adjusted earnings for both pharma.

To be and the range of 10% to 12% and <unk> to be a few hundred basis points higher than that.

And that's it for me back to you Joe.

Thank you Paul let's begin with Bausch and Lomb on Slide 15 first we believe we have the most integrated eye health business with sales and surgical consumer <unk> envision here, we provide the revenue breakdown for the segments for businesses and the chart on the left while each of the businesses are of different stages.

And the recovery total segment organic revenue and the first quarter was near pre COVID-19 levels call. It a few highlights global vision care organic revenue grew 13% versus last year and the U S growth was driven by biotech and one day ultra as well as the infused launch International vision care revenue grew by 19% versus last year.

And our debt daily Si Hy lenses have now been launched and U S, Australia, Hong Kong, and Canada, and we just received approval in Taiwan.

And global consumer occupied and President and grew organically by 4% versus last year, and Lula and <unk> reported revenue grew by 28% compared to last year and we continue to see strong e-commerce growth up 35% versus last year and put it in context E. Commerce now accounts for 12 per.

<unk> of the Bausch and Lomb U S consumer business, which is up from just 2% and 2017 performance and global surgical was driven by international which grew organically, 3% and finally, although performance of global <unk> Rx was impacted by COVID-19 and the loss of exclusivity by Salt of <unk> grew by 18%.

Last year the <unk>.

Charts on slide 16 shows trends in key areas across the segment, all of which point to a recovery and progress for the Bausch and Lomb business.

Turning now to slide 17 for the update on Salix.

Although the <unk> faced headwinds and the first quarter revenue recovered to near pre COVID-19 levels down 1% compared to last year, starting with by fax and reported revenue decline of 2% versus last year was driven by lower prescription of the long term care channel, where the industry is seeing lower occupancy rate because of COVID-19 for the last few.

And as I also discussed.

Facts and Ibs D prescriptions I am happy to report that the latest Ibs D. <unk> are now up 14% and the trailing 10 week versus last year. So we are seeing some good recovery there compared to the first quarter of 'twenty Trulia and reported revenue grew by 11% and <unk> grew by 21.

Debt compared to a market growth rate of 3% truly it's commercial new Rx market share of nearly doubled since we acquired the product and March 2019 up from about five 7% to now at 11%.

We continued to grow share and increased patient access to true list of both commercial and part D. Even better and the next three months, we expect to add access to another 32 million commercial lives for Trulia.

The charts on slide 18 demonstrates the positive trends and the recovery, we see for key promoted products.

Moving to slide number 19.

The new International Rx segment grew organically by 4% compared to last year, driven by strong performance of Latin America. We've shown the strong track record of quarterly organic growth for this segment going back to the first quarter of 2019 and the chart on the top left this segment has a broad and diverse product portfolio and we've.

And the top three products for each region of the map.

Moving now to ortho Dermatologic on slide number 20, and this segment of our focus is on driving profitable growth as shown in the chart and the last the segments EBIT a margin has expanded from 36% from the first quarter of last year to 50% and the first quarter of 2021 organic.

<unk> recovered to pre pandemic levels and the segment grew organically by 5% versus last year, driven by strong demand and solta, which sort of organic revenue growth of 35% a few highlights to note for Solta and <unk>.

The organic revenue grew by 32% compared to the prior year quarter.

Turning now to slide number 21, we of this is the key growth drivers for our business in 2021 and beyond first our Si Hy daily lenses and the expected ramp up of and additional approvals global revenue Bausch and Lomb Si Hy dailies is expected to exceed $250 million and sales. Many of you have asked about our performance Japan.

The first country, we now estimate our share of the Japanese Si Hy dailies market is already approximately 7% and and the U S. We have data that shows and the spherical lenses. We're at about 13% market share next we anticipate a tailwind for 2021 and beyond from the back.

Of cataract surgeries that were delayed due to COVID-19 and 2020, we're expanding the sales force their mod franchise into Europe, and finally, given the momentum, which we headed into the year, we expect to see strong performance and recovery of our leading brands.

Both bausch and Lomb and Bausch and pharma have a number of near term catalysts and upcoming milestones and the R&D pipeline, which are outlined in slides 22, and 'twenty three let's start with by fax and sorry, let's start with Bausch and Lomb last month, we received the readout of phase three results for Nova three and investigational treatment for.

<unk> disease, where the 16 million adults and the United States have some form of dry eye disease with my bromine gland dysfunction as of known cause for a majority of these cases, the Gobi trial met both of its co primary endpoints and also met all secondary endpoints showing a statistically significant improvements and.

And both the signs and symptoms of dry eye disease, and as early as 15 days.

And <unk> as a potential first in class treatment option for millions of patients. The second phase III trial is ongoing and if the results are positive we expect to file with the FDA and 2022 also we expect to complete enrollment for the <unk> phase III trial, and the second half of 2022 and the start of phase III trial for.

And investigational treatment to help from first vision loss due to dry AMD.

Moving now to slide 23, and Biopharma, a few weeks ago, we announced a statistically significant top line results from the second phase III trial evaluating the IDP 126, gel, which is a combination retinoid antibacterial and anti biotic topical for acne if.

Through IDP 126 will be of first in class with this triple combination. The data also demonstrated the benefit for patients as early as two weeks and of greater than a 70% reduction and lesion counts. Following the results of the comparative bridging study, we hope to submit a new drug application for IDP 126, and the second half of <unk>.

'twenty two.

And slide 24, we have chartered the for novel Rifaximin formulations, we are working on so a week and see where we are and each of the development timeline. We're excited about the novel Rifaximin formulations and their commercial opportunities.

Moving now our third area of strategic focus accelerating strategic alternatives to drive shareholder value. If you turn to slide number 27, we are dedicated to expediting alternatives that we believe will unlock value for our shareholders and create two great companies. We have completed the new financial segmentation and are on.

<unk> track for all internal objectives necessary for the spin of being able to be achieved by the end of the third quarter of 2021.

And we are actively pursuing all opportunities to expedite leverage improvement and deliver shareholder value, including by increasing EBITDA and improving working capital efficiency all.

Also regarding the question of debt leverage we formally articulated the five five times leverage target for Bausch health and the roughly four times for Bausch and Lomb that was one path of many and we anticipate bausch farmer to be of very strong cash generator, and the expected joy and and attractive tax rate.

And has modest annual cap total expenditure requirements as such it will convert a great deal of its earnings to cash and carry a fair degree of leverage with the commitment to prioritize the use of free cash flow to reduce debt and show rapid improvement and leverage we are confident the bausch health will be able to handle.

Six 5% to six seven times net leverage and.

And the P&L side of the equation, we won't be and I'll start with leverage more consistent with its most relevant comparable peer companies as this will enable the market to value being now without the need to consider significant differences of capital structure.

On slide 28, we show the actions we have taken since August 2020 to expedite the spinoff such as continued debt paydown and over the last few quarters and the sale of the Moon that we announced in March and expect to close and the second quarter.

In addition, as Paul mentioned earlier, we have provided expected tax rate for Bausch and Lomb and Bausch pharma.

Both companies will remain domiciled in Canada, and we will continue to have corporate offices and Bridgewater New Jersey.

And we intend to apply to list Bausch and Lomb on the Toronto and New York stock exchanges as BHG is currently listed.

As promised on slide 29, we are pleased to announce the initial bausch and Lomb spin leadership decision and I'm pleased to note that Sam L. The stookey, who will serve as the Bausch and Lomb CFO and I will take the role as CEO of Bausch and lomb upon separation, Tim and I will be focused on building out a spin Kobe and our leadership team over.

The next several months, we remain committed to unlocking value across our two attractive businesses as soon as possible and today's announcement represents a step forward and that process. Looking ahead, our process remains on execution growth and positioning for these two strong but dissimilar.

Businesses for attractive growth and opportunities and the markets they serve.

With that operator, let's open up the line for questions.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

The first question comes from Ken Cacciatore with Cowen and company. Please go ahead.

Hey, Good morning, guys just had a question about the potential of the dual process here of analyzing different divisions for possible sale. Just wondering if you can give some commentary about how that's going the levels of interest.

And your desire to maybe affect sales and then also in terms of timing. If if there were to be a plural sales of different divisions. So it's something that you'd want to do simultaneous or is it something that you would announce.

Separately and then second question, we're often asked about <unk>.

Impairing your eye care business for the other eye care businesses that are out there can you just talk about some of the similarities and differences and maybe rationale of why you should be ascribed similar value of those franchises. Thanks. So much.

Okay.

Start with the potential of sales and timing.

And maybe recap of little bit of what we've done.

Since the since Paul and I have joined the company, we have divested up until the announcement of a new and moon $3 $8 billion of assets and now with the Amun and now over $4 5 billion of.

Of asset proceeds we've received there.

There are bad at about 11 times EBITDA multiple and what we've realized so we've absolutely been willing to explore all of the opportunities to divest assets to help increase shareholder value, while I can't comment and specifically as you can understand about any specific asset thats under consideration today, where I will one of.

<unk>, you and all of our investors that we take this process very serious and we are going to consider all of the alternatives to help us increase shareholder value and create value across all of our businesses. So currently we are I hope you understand we are going to look at all of the things that would be all.

Opportunities to create that shareholder value in the near term and long term and that's how we've been approaching this from really from from day day one.

Paul and I got here, but that is what we're going to do we will continue to do and make sure that we check all of the different possibilities for thinking about shareholder value creation and the SEC.

Second part of your question of the P&L comparisons of peers, we look across all of the different opportunities as I've said in my earnings comment.

Accepting that I'm biased, we have a belief that bausch and lomb is the most integrated eye health company and by that I mean that we have the businesses and the surgical side. We have the prescription we have the vision correction, we have the consumer by having the integrated platform. We think that's an important part of what.

It will help bausch and lomb to be very successful versus the peer company.

We always look at and you probably do more than we do of the EV.

Enterprise value divided by the EBITDA, we think we compare very favorably.

In terms of the opportunity to create economic value relative to where is the outcome today outcome and 2021 of its somewhere in the 2024 times or thereabout Cooper and the 22 plus the <unk> over 30. So we think those are the opportunities as the market gets a good indication.

Of comparing us.

For economic value versus other company multiples, we can compare very favorably and obviously the market will make that decision I can't I can't comment on that on the question by the final area, though one of the areas that we were thinking through as we did want to look at the relative.

The leverage of ourselves versus other companies and that was part of the decision that we've put in place.

Debt leverage for <unk> of less than two five times as we contemplate the future for the business. So we've been doing a lot of thinking about it and our view is that we can create a very valuable asset and bausch and lomb and one that importantly will.

Take care of patients by having integrated approach to IHOP.

I think I got all your questions Ken Yes, thanks, Thanks, Joe and congratulations Paul and on your tenure here.

Thanks, Ken.

Our next question.

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

Thanks, Good morning.

Solta is one of the businesses you can ultimately does that would you be committed to the medical derm business for the long haul and given some of the challenges there and how you said that youll be restructuring net.

And then on the consumer side, just talk about how you've been spending more and DTC for those types of products and take advantage of of the recovery coming out of it.

And how you think that all sort of play out for the rest of the year in terms of spending.

And I'm sure once again on the salt of question.

Im not going to come in and the individual asset for divestment I will simply say that we are very very pleased with the performance of the Solta aesthetics business. We all think look at the aesthetic business and see that growth and we think of large part of that growth is driven by what we referred to nowadays is the.

Zoom culture of people looking at themselves and high definition screens and saying they wanted to make sure they and improve the aesthetics of their face and also in many parts of the world where they have not been able to travel they are investing more and then they are self so clearly we think there is of <unk>.

Will trend on the continuation and growth of our sold the business.

And the question of I'm, not going to comment about the divestment side, but we do view that the medical derm is a business that because of what we've been able to do and what Scott Hirsch has been able to do for us and looking at the profitability growth dynamics, we can look at investing and the med derm business, especially.

And when we come up with compounds that we think can offer advantages for patients. The IDP 126 data is very very.

Favorable weather.

And its ability to reduce the overall number of lesions for for patients with acne and importantly, the quickness of our speed at which it provides debt relief. So it is something we will continue to look at divert to investing and certainly its something we will look for what I referred to and med derm is profitable growth for the.

Future.

On the yes, yes, sorry, Gary it's Paul I want all I want to weigh in on this as well I think that the net Durham business and I called it out of my prepared remarks.

We are repositioning that business.

And a different way than we were thinking about it and say 20 for even 12 months ago I think there is terrific opportunity there.

You can see even for what I talked about in terms of substantially reducing the opex intensity. What we have is a terrific position.

Number one number two we have the very solid R&D capability debt that we're in the process of of.

It's just a refocusing of what pivoting net debt activity to <unk>.

Different sorts of sorts of price, we think we have.

A great opportunity in med derm, but to be clear, it's quite different than what the way we were thinking about it.

Even 12 for 12 or 18 months 18 months ago.

So we're excited about the long from project prospects, there, but it's different.

The the numbers you quoted on the consumer and business R. R. R.

Our amazing we've been able to grow that consumer and business very.

<unk> of obviously the entire.

E Commerce business continues to grow we are continuing to look at the direct to consumer activities, but we feel that our products are patients are responding to our product very well.

The <unk> a great example of I've mentioned and the call its growth versus.

Last year as is very surprising and continues to show great growth. If you look at the trends and the data that we put forth and.

And the charts you can see the the <unk> data and and.

And how it's performed as well as the overall consumer business on and.

Page 16 of our chart you can see the U S Bausch and lomb.

Consumption change year over year dramatic increase and consumer increase versus what we saw a year ago and those trends continue. We also see what was happening with <unk> clearly recovery and progress. So we're going to continue to spend behind that business. We expect to see continued strong.

Tumor demand and.

And we will continue to move forward with that from the long term recovery point of view.

We believe that would it be one of the important growth factors that helped the BNS business truly have what we believe is going to be and integrated eye health business.

Operator next question. Please thank you.

Thank you. The next question comes from David Malone.

Alone with Piper Sandler. Please go ahead.

Thanks, So I understand the thought process surrounding the.

The aspirational leverage ratios for for each business, but I wanted to drill down on your thinking about the sustainability.

Ability of that six five times for the pharma business, and I guess, where and billing from this is where I'm going with this is do you see that business has.

As a growth business, given how things have transpired with the derm for instance, and other.

And also the what it looks like the maturation of the accident.

I guess the question here is.

Is that.

Is this the situation where over time those leverage ratios.

And could conceivably deteriorate at one point you had something called the significant seven and that didn't really materialize. So how do you think about that longer term.

And how should we be thinking about the cap structure of that business over time. Thanks.

Sure. So we've done a lot of thinking on this and I want to step back and that all make a couple of comments and Paul may want to add to it.

I remind you that the biopharma business as we're thinking about it.

The very high margin business. If you look at the pages that we put together for derm is a 50% margin of Salix was over 67%.

Diversified 70 per se. They are very high margin businesses first kind of a second comment is that we do expect the badge pharma business to have a and advantageous tax rate mid single digit growth very diversified and low capex. So from that point of view they will generate high.

The amount of cash and as we stated and the call.

The majority of that cash will be used for debt paydown and so I do think that as we.

<unk>, we do believe there is an opportunity for that business to be one of two great businesses in bausch and lomb being the other so we are looking at it from the point of view of what each business can appropriately carry for leverage well anything you wanted to add to that comment yes, I think the of the key isn't Joe hit on it is.

And we believe that the portfolio.

And as representative of pharma has the prospect to grow mid single digits the old over the over the near term and that business will delever.

And pretty quickly.

Yes.

Eastwood rephrase that call it at a at a good pace so.

In a relatively short period of time, I think you get more flexibility to be able to invest.

The gas back in the business and of course implicit in that is you are investing in R&D and if thats invested in productive R&D.

You will have the ability to demonstrate long term.

Long term growth prospects as well.

I am not.

I think <unk> been quite clear the cash flow characteristics of Bausch pharma it can handle.

The six 5% to six seven times net leverage.

I used to say way back in and one of my prior prior lives not all not all adjusted EBITDA is created equal when you add and excellent tax rate and when you also have.

Relatively modest capex, you've converted and awful lot of your earnings to cash and if you if you prioritize debt cash.

To improve your leverage.

And that certainly is a big helper, if you have the ability to grow.

That certainly is a big help her to getting net leverage statistics down and relatively short order.

Operator next question please.

Thank you. The next question comes from Gregg Gilbert with Truest. Please go ahead.

Good morning, first what are your thoughts on the management team for the pharma the remain co business and what variables will factor into that decision and timeline.

Secondly, you've been very clear that you are open to any action that will enhance shareholder value to your credit is the sale of P&L of realistic possibility versus the spin that you announced and lastly, Joe If you end up leading of pure play eye care company.

And once the market has the chance to evaluate what changes would you make to reinvestment rates and M&A strategy and urgency cost structure et cetera. It appears the successful spin of kind of the.

The to be more.

About sort of specific changes over time and not just multiple arbitrage. Thanks.

Sure Let me start with the leadership question that you asked for.

Just step back a bit the board made the decision going back last year to create two great companies. The pure play out of health company and a diversified pharma business as we've gone through the board has thought through the process and as the other spin and code the board evaluated how can we build debt Lee.

Leadership team of the spin co organization, while at the same time, ensuring that the Bausch health care team, which is already in existence continues to do very well and continues to move the business for the for.

First big issue that we have with the spin is that we've got to build the new team. So the board has asked.

Myself and Sam to build out the P&L spin co team and.

Get it ready for an IPO or separation of some time and.

After that October 2021 timeframe. So that's what we're going to do my expectations on the the Bausch pharma or the remaining Bausch health care team is that there is a process underway just like there wasn't a P&L.

Both internal and external candidates and the decisions will be made that in due course sometime in the next several months.

And I remind you that the <unk>.

Remaining Bausch health care team is in place we will obviously have to make some additional decisions there so of the total team, but the the.

Feeling was that we needed to make debt spin decision start building that bid team.

Very soon realizing that we wanted to be ready for a IPO separation sometime after that October 2021 day.

On the on the question of the BNS all versus sell versus spin.

The way I would phrase of.

And I'm, obviously, not going to be able to comment specifically on any cell process I've seen the obvious rumors as you have seen them.

Our view is we're going to take all of the steps required to.

Bausch and lomb as of.

Company that can be an IPO of <unk>.

Opportunity to do an IPO or the separate at some time after that October 2021 timeframe, we have of value in our mind for that business.

And if there are others that want to pay a price that is.

Equivalent to that value, we always going to do what we believe it's the right thing to do for our shareholders and evaluate that those types of offers but to me what I'll simply say is that we've got a pathway to take the business to spin off Bausch and lomb, we're going to continue to make progress on that pathway and.

As a board and a leadership team, we're always going to be open to other alternatives or pathways that can help create value for our shareholders.

And the Paul you went out and think that you'll keep going but I want to come back editor and the question of of.

What changes would we make to be and now in regard to investment M&A I think the first comment is first and foremost we think we've got a great business with Bausch and Lomb 165 year legacy of business. So we think it's a great business and one that we can continue.

Buildup of number one.

Number two we think by having the integrated eye health business.

<unk>.

But having the opportunity to have the surgical and the prescription the vision correction of the consumer that's going to put us in a very important position as we think about what are the megatrends driving the <unk> business, which we know are going to drive a significant.

Need for myopia and vision correction, we know the people over the age of 65 use eight times more eye health than people under the age of 65, that's going to continue to be for it we know that more and more practices, especially in the United States are being consolidated so having a place where we and.

Offer.

Integrated approach those practices is going to be important. So we think we'll be able to be.

And importantly <unk>.

<unk> for those group practices that are being formed so all of those I think are important but what else can be clearly one of the things that has limited our ability with bausch and lomb has been the leverage that is the part of the overall Bausch health company as that leverage comes down.

And we would look to the opportunity to grow organically to invest and the R&D and importantly look at bolting on assets that can help us for the overall organic growth rate. So I think those are all some of the changes we're thinking about some of the exciting things that we see and the future of Bausch and Lomb pausing and yeah.

I wanted to jump on that last point about.

Once you spin the eye health business out of it it's like.

Is it better and the answer is yes.

And it will start life is very well capitalized company with access to capital.

It will have the ability to allocate capital to areas that will strengthen net debt entities' competitive position and it will do so without competing for capital and.

With its brothers and sisters and.

On the pharma side, I think Joe myself sand the rest of the team here, we've done a pretty good job of of.

Allocating capitalize between different types of businesses and I think that over the last several years, what you've seen is we.

We rotated a little bit and we did what we needed to do in order to be able of for example, and improve the quality of the at Opto Rx pipeline over the last call. It call. It 24 months. If you go further back we took the steps that were necessary to ensure that we filled out the vision care portfolio with the daily Si Hy.

Aly side high wins those were hard decisions.

Back in the day, when when Youre, looking and saying I can do best here I can best there.

And the eye health business P&L set up again, starting life is well capitalized entity.

It will have the ability to take the best decisions.

To improve the competitive position for that entity and to ensure that that debt entity has the prospect to be able to.

Deliver.

And really solid solid and sustainable growth.

Thank you gentlemen.

Operator next question please.

Thank you for the next question comes from Biology Prasad with Barclays. Please go ahead.

Hi, good morning, and thanks for the questions. Joe just wanted to focus on the recent top line all for our military and get some sense of your expectations around this opportunity. So all we did the next part of call where our expert highlighted the the population of three times debt of what a restatement of the XI drives trading currently.

Which is already at $3 billion market.

So some color around the market potential and will be helpful. And secondly, the any of the large market opportunities around the eyecare similar to my volume and gland dysfunction of the same topic. So the product has been launched and euro but from what we see it seems to be non.

Tracking well commercially any thoughts around debt. Thanks.

Sure well first and foremost.

We are very very excited about the novo three data and the and the market potential and once again.

Others may not have had a chance to see the data, but the phase III endpoint data at both and corneal staining and ocular dryness.

Statistically very significant and the and the time point, we did both a the.

The 57 day and then also of 15 day look and we had statistically significant results in both 15 days and 57 day, we think that timing is a real important thing for patients who have dry eye.

The number two as you said, it's a big market and we know and the United States alone at 16 and $17 million.

Erika and to have this problem of dry eye disease.

By having a product that could potentially if we get a second phase III trial that confirms this data show that the the product works with that kind of speed and.

Does that kind of level of effectiveness and.

And the side effect profile very similar to the placebo.

That's a really exciting opportunity our view on what we did and the United States was to take it through the prescription pathway. So that we can make sure that we had the appropriate data and be able to share that data versus the.

Alternative product out there, we think is really exciting and most importantly, the data that shows the quick speed of action for this product relative to other products out there and the marketplace. So we're excited we'll see what happens with the second phase III trial, but we think it's very positive.

Happening.

The additional claims we will have though to be clear on the Rx side is going to help differentiate it from the product Thats currently.

Being utilized and Europe, because we have some very significant comparative all certainly timing of claims update that with time and claims.

And on the other questions.

I didn't mention it on the previous question, but I will say and addition to having the.

<unk> three data. We also are working with a partner that just file of re file the XI peer yesterday for.

For we think thats another good opportunity for us and.

And macular edema associated with uveitis uveitis causes I think up to about 30000, new cases of blindness and.

And the us so we think thats another good opportunity and importantly, we're also looking at a profit product for.

Dry.

AMD, so thats another opportunity for us and the final one and of course is what we're looking at for with INO via for Myopia and.

Those we think gives the overall bausch and lomb prescription business it really.

Good number of shots on goal for the future.

Thanks, John.

Let's take the next question please.

The next question.

Just one moment.

The next question comes from Boomer raw fit with Evercore. Please go ahead.

Hi, Thanks, so much for taking my question I have three quick ones, if I may perhaps first.

Paul Joe if you could give us a sense for what the leadership team looks like where your head of that for the remain co and I think that'd be very helpful.

Secondly on your <unk>, one which is perhaps one of the more important programs on the on the sales side I saw your new trials and mild to moderate patients.

And many of your S. One for you on competitors from Celgene and Bristol to arena et cetera, all of the companies don't necessarily think of mild as an opportunity for us when Pete one, but I also realize you've been in that market with the pre sales and I was just very curious what feedback you've heard from Salix folks on the possibility of sort of a pre sold plus the <unk> co formulation or something.

And along those lines and then finally.

Just a quick follow up on the last question on <unk> III.

Do you agree it's an artificial tier are you thinking of a bit more of the restasis of ours I draw and could you remind us what's the largest artificial tear rx product and the marketplace and the U S right now.

Okay.

Let me try to come and.

Taking the the order you gave me the Bausch pharma leadership.

What are we thinking about well with debt.

The Board's view on this is that we wanted to create two great companies of the pure play eye health business as well as the diversified pharma business of being called by the pharma until we rebrand.

Our view is that we're looking at internal and external candidates for that leadership position of the Bausch and pharma.

Our expectation is that processes is going to take another couple of months and we'll have some additional announcements and that in due course, but our view is that that's something that.

And we'll build on the existing Bausch health care team and other words.

Already have of Bausch health care team in place, we will build on that and as we're trying to select the two different business leadership, both in the Bausch and lomb side as well and the best pharma side.

On the second question you have relative to the S&P.

And correct, we did look at mild to moderate and how we're targeting this population. The team has looked at these patients and the needs of this patient and how the.

Where is this market going to be in the next five years 10 years and that is the reason we went after the mild to moderate population.

100% understand where the market is today, but we believe that this market is going to be targeted differently and five years and 10 years and we've put together a new team of of individuals that look at this from a portfolio of point of view of what the future will hold where we want to go with this opportunity and our view is based on the disc.

<unk>, we've had a number of key opinion leaders.

We should go after this amount of moderate opportunity.

It is going to be and important if we can show of the clinical trial results it will be and important.

Add to what's currently available and the armor.

The material for docs as they think about this population.

On the Novo of three we think much bigger than I think you've referred to it as artificial tears, we think much bigger than that.

We think this area of my boldly and gland dysfunction is a major contributor to dry eye disease and as such we of what we believe will be of first in class treatment for a pharmaceutical treatment of my <unk> gland dysfunction, and as I mentioned, that's a major cause of much of the dry eye disease.

And we do think it's a very significant patient population.

I would tell you that the data you've seen the data I'm sure. If you look at the both the the ability to help these patients having statistically significant results of both signs and symptoms and having that result, and.

As quick as 15 days and statistically significant we think offers a significant opportunity for patients. So obviously, we've got to confirm it with the second clinical trial, but if indeed that trial turns out anything close to this first one we do believe this is a very significant opportunity for patients to have dry eye disease for the future.

And so.

We'll stay tuned to see what the rest of the trial results are but clearly we think a significant opportunity.

Versus the products, great products like Restasis and <unk>.

Operator next question please.

Thank you the last question and for our last question. Please.

Thank you, Sir and debt will come from David Steinberg with Jefferies. Please go ahead.

Thanks, and I have two questions first just the third question of the line I know the three just because of the data is so intriguing.

So you've highlighted a number of times the <unk>.

So I assume you're contrasting it with.

Allergens Restasis, which.

Despite the.

Slow onset and stinging still.

Sales of about $1 billion and $5.

And so my question is given the this area has been a graveyard and so so many companies have tried to develop dry disease product and so many of the sales and there are only two of the market.

And with the first studies seemingly showing comparative onset versus the market leader and then the market leader going generic likely in the coming months of years.

How big of a product do you see this being at peak.

And when you include the U S and Europe, and do you view, mostly as monotherapy or would you see it being used in conjunction with some of the other leading per.

Alex like Zebra and then my second question.

Is that true Lance and you noted that since you acquired the product the market share doubled and and it's growing much faster than the market.

But I was just curious and the first quarter, 21% growth is good but last year and the first half of the year growth was over 50% and then the second half of the year of growth was 43, 44%. So I'm just curious is the 21% first quarter growth.

The one time drop off.

And if so what might have caused that and do you see growth accelerating throughout the year getting closer to the growth rates you showed on a quarterly basis last year. Thanks.

Sure.

Great Great question.

And to try and make sure I get all of the Novo three kind of meant that you asked for.

I'm not going to comment specifically, but how big of a product it could be but I do think it compares very favorably to other drugs that are out there currently being used for treating dry dry eye disease.

I think relative to both the.

I'll share more about the side effect profile, but it's a very clean profile, we share the timing advantages that we see in this and we showed at least initially the first phase III trial the.

And ability to show the both the signs and symptoms of dry eye disease specific to patients who have.

<unk> gland dysfunction.

We think that combination is a very winning combination and will help us to compare very favorably to.

I think drug and the category, which as you stated are.

Certainly the spaces over $1 billion I think <unk> of 500 plus million dollars range already. So these are big big opportunities and unfortunately, it's a it's a real problem for 15 million Americans and more and Kansas. So we look forward to getting that second trial and having the data to share with you in terms of the results for these patients.

And the question of monotherapy or with other products I think the answer is proud of what that could be it could be used for boat, especially because it works so quickly.

Some of these other drugs the increased tear production take.

Take a longer time and if we can work quickly have a relatively limited adverse event profile.

Similar to a a.

Placebo, we think thats going to be the opportunity to add to patients who may be on therapy, but not getting sufficient relief from existing products. So large product opportunity. Many Americans, who have this problem and we hope to be able to help if we get the same confirming clinical trial results on the question of true lands.

We're very pleased as I said, we've already double almost double the market share just two years from what we have had it when we grow at somewhere around 11% market share, it's outgrowing the market to be clear and.

And picking up share each and every quarter and then importantly, one of the comments I made you might have missed but I'll just repeat it is debt.

Based on the great work of Jeff partners and our team on the market access we have been able to pick up incremental lives.

We expect that access to.

Another 32 million commercial lives on top of what we already have so.

I think if you look at our slide number.

18, it shows a great trajectory for Trulia and if you look at that slide it really I think is very per.

<unk> flow in terms of what we're seeing and and where we think truly answers going so on balance we're really excited about it and we think we will continue to grow and I think thats. Another one of the questions people asked about the future of our Bausch and pharma business true and it's going to be of great contributor there as we think about the <unk>.

Future of the overall business.

So thank you. Thank you David for the question.

Operator that concludes our call today and want to thank everyone for joining us and have a great day everyone.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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