Q1 2022 Bausch Health Companies Inc Earnings Call
Both expressed or implied in our forward looking statements and you should not place undue reliance on any forward looking statements.
Please refer to our SEC filings and filings with the Canadian Securities administrators for a list of factors that could cause our actual results to differ materially from our expectations.
We use non-GAAP financial measures to help investors understand our ongoing business performance.
non-GAAP financial measures may not be comparable to similarly titled measures used by other companies should not be considered along with.
But not as alternatives to operating performance measures as prescribed by the <unk>.
You will find reconciliations to non-GAAP measures in our appendix of the presentation online.
Finally, the financial guidance in this presentation is effective as of today only we do not undertake any obligation to update guidance.
I would like to take a moment to remind you that the first quarter results are to fully consolidated results of Bausch health covering the quarter ended March 31, before the IPO a portion alone which is scheduled to close this morning subject to customary closing conditions.
Our discussion today will focus on pharma and Solta and we will briefly comment on Boston loans results disclosed in its IPO prospectus.
Boston loan both filed a separate 10-Q within 45 days after IPO pricing and will host a separate earnings call in conjunction with the filing.
Please note that the results of the <unk> segment presented here today will differ from the results presented in the stand alone financial statements of Boston.
So standalone state results include certain corporate and shared costs that are allocated to Boston alone, which are not included in our <unk> segment results.
With that it is my pleasure to turn the call over to Joe.
Yeah.
Thank you Kristina and thank you everyone for joining us today with the initial public offering of Bausch and Lomb is scheduled to close today Bausch health begins the journey towards the separation of its global pharmaceutical and eye health business, an important step that we expect will help unlock the value in each of our established franchises.
Before I start I would like to thank the 20000 Bausch health employees around the world for their ongoing contributions to simultaneously move forward with our strategic alternatives process advanced.
Advanced our R&D projects and drive business performance that helps to improve people's lives around the world.
As part of our planned succession about health management team, Tom Appia will lead to new Bausch health into its next chapter as Chief Executive Officer, Tom has extensive experience in pharmaceuticals could more than two decades at Schering Plough and 12 years at Bausch health, where the international business delivered significant top.
Offline and Bottomline growth under his leadership as President and co head.
<unk> succeed <unk>, New Chief Financial Officer of Bausch health with over 30 years of financial leadership experience in several industries and companies, both public and private including Tycho, Procter and Gamble and <unk> Corporation.
<unk> experienced in the successful spinoff of Tyco subsidiaries will guide the separation process.
Sam began serving as the Chief financial Officer, Bausch and Lomb today may 10th.
We are confident each organization will benefit from a dedicated focus on our respective verticals that will fuel innovation to address significant unmet medical needs.
On page six let me provide a quick update on our strategic alternative process and the <unk> IPO.
We launched the initial public offering of 35 million shares a fashion line last week's equivalent to 10% of shares outstanding generating gross proceeds of approximately $630 million, which will go towards the repayment of Bausch health debt upon closing.
Given current market conditions, we decided to proceed with a smaller IPO offering than we originally intended.
At IPO closing Bausch health will own a 90% majority stake in Bausch <unk> Lomb.
Bausch health will have the flexibility to monetize approximately an additional 10% of bausch and lomb shares decreased debt and for the benefit of Bausch healthcare shareholders.
The remaining 80% will be distributed directly to Bausch health shareholders. Following the expiry of agreed upon lockups and the achievement of our target net leverage ratio of six 5% to six seven times subject to shareholder and regulatory approval as noted on page seven.
We remain patient with Solta and wait for better market conditions for its IPO Solta medical is a valuable asset that has the potential to grow in the double digits driven by healthy demand for aesthetic products and services.
Both the CEO , Scott Hirsch reporting to Tom <unk> going forward.
Before I turn it over to Tom I'd like to make three points.
First since resolving the legacy U S class action Securities Litigation in 2019, we have reached mutually agreeable settlements with a meaningful portion of the opt outs and F. 'twenty one matters remaining.
We disagree with reports in the media regarding the characterization of the potential risks and dispute the claims and the remaining individual opt out complaint. We believe we have viable defenses in each of these actions and will continue to vigorously defend ourselves with respect to the evaluation of the 'twenty one remaining opt out cases as publicized by the plaintiff.
We disagree with any suggestion that these cases have greater values and the class action and have taken a provision for these remaining opt out cases.
Second I'd like to comment on a few items that have been raised recently in the public and reiterate our confidence in position. We have previously stated one such item our various allegations made by the opt out plaintiffs in the Securities case, which we disagree with we've stated this before but I think it's important to reiterate.
Bausch health care is and will continue to be fully compliant regarding the debt covenants as we go through the strategic alternatives process with the IPO and spin off about <unk> the entire company.
Together with multiple legal advisers in the U S and Canada.
Accounting and valuation advisors and our banking advisers have done a tremendous amount of work over the past 18 months to get to this point when the final steps with the process. We are committed to bausch healthcare achieving the leverage target we set out with four with a six five to $6 seven before spinning off Bausch and lomb.
And with respect to the XI factory Norwich trial as you know we had our trial in March of 2022 are evident within well we remain more confident in the strength of our intellectual property today than before the trial and therefore in our chances of a successful outcome.
Finally, I want to comment on the BNS business and our recent road show activities over the past few weeks <unk> had a chance to meet with many investors and analysts to share to be in our story.
P&L fundamentals are strong and the business continues to show strong momentum with 5% organic growth in the first quarter of 2022, we continue to see the favorable impact of Megatrends that we expect to continue to drive the Bausch <unk> lomb business in the future as a final comment today, we are reaffirming our top line guidance guidance.
A 4% to 5% organic growth for the full year 2022 with that let me turn it over the floor to Tom.
Thank you, Joe and congratulations on Bausch and Lomb, So IPO it as a privilege to lead Bausch health enters a new chapter I look forward to working with our chairman, Joe Papa and our future Chairman, Bob power, who will assume his role upon baoshan loans full distributions and the rest of the Bausch health management team.
Before I speak about Bausch health, let me say that our thoughts are with those affected by the Russia, Ukraine conflict each of our 76 employees based in Ukraine is safe and accounted for we have dedicated resources to address the humanitarian crisis in the country through multiple channels, including collaborating with global giving.
Non profit organization for an employee donation program to support affected communities.
Bausch health is a global organization with an energized and talented team and a well established platform for scientific innovation and proven success in the commercialization of healthcare products, we have a global organization with a presence in approximately 90 countries we have a differ.
<unk> pharmaceutical portfolio across multiple high growth therapeutic areas, we have a global medical aesthetics business and approximately 50 countries. We have strong cash flows supporting delevering and investment in pipeline opportunities, we have the ability to leverage Global Inc.
Structure to pursue a robust.
Business development agenda, we have a seasoned leadership team with a track record of driving profitable growth.
Our deferred diverse portfolio spans more than 600 products across multiple therapeutic areas, including gastroenterology, hepatology dermatology and neurology.
Our team has built a strong foundation that positions the company for continued success.
Our specialty sales force is instrumental in the success of our well known established franchises led by <unk>, which is recognized for its strong efficacy in treating Ibs D and Empatic encephalopathy also known as AG we.
<unk> to leverage our primary care sales force to maximize opportunities for the products in our Gi franchise through better market access and commercial strategies, we have grown <unk> into 100 million plus brand.
We are laser focused on accelerating the growth of our existing pipeline and with our commercial platform. We are well positioned for business development and partnership opportunities, we are committed to making our products accessible to patients around the world our pricing strategies balances.
Yes.
Portability and the ability to invest in future medicines, we advocate for payers to expand access to our products and provide patient assistance wherever possible, we recognize different economic realities require the use of flexible approaches for market access and these efforts made it possible for more patients to <unk>.
Benefit from our drug therapies.
We have continued to strengthen our governance framework, we have separated the chairman and CEO roles. Our board consists of talented directors with valuable industry and functional experience I want to personally welcome Dr. Robert Mulligan currently a professor of genetics at Harvard Business School and a former.
<unk> of the Harvard Gene therapy initiative.
Under the guidance of our board, we will establish a strong framework for creating value for our stakeholders operating agility and continued commitment to the highest standards of ethics and integrity. Lastly, we are committed to building a culture of performance and accountability as going forward, we will focus on people.
Products and processes. Finally, let me briefly comment on Q1 performance first quarter organic growth was stable compared to the first quarter of last year with sales of $1 9 billion, despite incremental macro pressures and a challenging supply chain environment Q1 was also impacted.
The divestiture of our <unk> business in July of 2021.
Adjusted EBITDA for the quarter was $732 million down 13% versus Q1 last year on a constant currency basis, driven by higher investments in sales and marketing and R&D, which we believe will strengthen our business for the future.
The separation of Bausch and Lomb enables us to increase our ability to grow the pharmaceutical slash total businesses with focused commercial investments, while expanding our product pipeline with innovation I want to thank the team for all their hard work and dedication to get us to this point with that let me invite Tom <unk> to provide a.
<unk> financial update for Q1 and our outlook.
Thank you Tom and good morning, we appreciate everyone who has joined US on this call.
Before I start. Please note that my comments on revenue today, we will focus on organic revenue, which excludes the impact of foreign exchange divestitures and discontinuation.
Consolidated revenue for the first quarter was $1 9 billion.
With flat organic growth versus the prior year.
First quarter revenues were Bosch pharma in Solta were $1 billion down 3% on an organic basis versus last year.
This was driven by a low single digit increase in average price offset by lower volume.
Q1 was a challenging environment with the Omi crone resurgence impacting primary care and nursing home capacity in the U S as well as the resulting COVID-19 lockdowns in China.
Geopolitical tensions have created ripple effects on an older already tight supply chain, which continues to create an inflationary pressure on input costs. Navigating. These challenges requires increased focus and agility as we safeguard the supply of our products.
Let me provide more details on each of our segments you can refer to slide nine for a summary of our sales results.
Please note that starting this quarter, we will report sales under our new reporting segments, Salix International diversified products sold to medical.
Boston loan book P&L.
Please see slide 34 for a quick guide.
Turning to page 11.
Salix revenues of $464 million were down 2% versus the first quarter last year following a record high fourth quarter.
The reduction was partially due to lower volumes related to the loss of exclusivity in certain products the.
The year over year decline was also related to the non recurrence of favorable wholesaler inventory rebalancing in the first quarter.
The prior year, we estimate that this impact of the year on year revenue comparison by approximately $50 million.
So FX and sales increased in the low single digits and <unk> sales grew in the mid teens on healthy volumes.
Omicron surge in the U S slowed Trs growth and we are increasing our digital marketing investments behind so FX and to accelerate growth and continued market share gains.
You can see on page 12 that the key Salix brands continue to gain market share.
Turning to page 13.
International delivered first quarter revenues of $244 million and organic growth of 8%, which excludes the impact of the divestitures and discontinuation, primarily amun as well as FX headwinds.
The growth was driven by continued strength in Canada and EMEA.
As a reminder, our international business is a highly diverse business with a durable portfolio of over 500 products with no single product accounting for greater than 10% of segment sales and no risk from potential loss of exclusivity.
Turning to diversified products, which now includes the ortho derm business first quarter revenues of $249 million were down 16% versus last year.
Wellbutrin and our plans and combined reported a 14% increase in revenue driven by net realized pricing.
<unk> business was down 17% due to unfavorable comps arising from the Covid related demand last year four pepcid as event in my stolen.
Our generics business was down 24%, primarily due to new competition.
Our dermatology sales were down 13%, while dentistry was flat.
Lastly on page 14, Solta medical revenue was $72 million.
<unk> year over year due to the Covid lockdowns in China, which accounts for about a third of <unk> business and a shortfall of critical components in the first quarter.
We estimate these two factors impacted growth by about 17 percentage points in the first quarter.
We expect these factors to continue into the second quarter and are focused on resolving the microchip issue.
We expect Covid lockdown in China to abate as well as the year progresses.
Our revised guidance for the full year revenue now reflects the temporary impacts of growth.
Business is well positioned to grow at attractive rates and we will continue to focus on maximizing shareholder value.
Now, let me provide brief commentary on Boston loan as.
As a reminder, the first quarter is fully consolidated with <unk> results.
Turning to page 15, Boston loans revenues of $889 million were up 5% organically, which is in line with our 4% to 5% organic growth guidance for the full year 2020 to the.
The strong momentum heading into 2022 drove solid performance in the first quarter and enabled us to overcome softness due to COVID-19 related lockdowns in China and currency headwinds of $29 million for the quarter.
We continue to see Mega trends driving the durability of this business and expect this dynamic to support growth for many years to come.
Adjusted EBITDA was $170 million for the quarter, which includes approximately 9% of sales for R&D expense and reflects our commitment to continue to invest in the business and launch new products.
The growth in the quarter was led by the global surgical and vision care segments in the surgical segment, we saw strong demand for consumables and <unk> as the market works through the Covid related backlog and the number of procedures continues to increase.
In the vision care segment, which now includes contact lenses in consumer products, we are continuing to see growth momentum in the key franchises eye vitamins <unk> and <unk>.
The ramp up in daily Si Hy lens is adding to the growth.
During Q1 2022, we launched the daily Si Hy in 14 different markets in Europe in Malaysia, and we expect the global rollout to continue with another 10 countries. This year and the launch of the multifocal focal lenses later this year.
In the off to Rx business. We are excited about the recent launch of <unk> in late March.
We view this as a first step in the transformation of the portfolio.
We expect two additional products Novo <unk> III and the Lucentis Biosimilar to launch in 2023, which we view will be catalysts to accelerate growth.
Finally, vice Ulta, Trs <unk> were up over 40% and the international off to grew organically by 16% in the first quarter you will find a summary of our market share performance on page 17.
Turning to the consolidated P&L for the quarter Im going to focus my comments on non-GAAP results on page 19.
First quarter adjusted gross margin decreased 40 basis points compared to last year, driven by significant inflation in freight energy and other input costs driven by current market conditions, we began to experience inflationary pressures in late 2021, which have since been exasperated by the Russia, Ukraine price.
<unk> and the Lockdowns in China.
Adjusted operating expenses for the first quarter was $705 million.
An increase of 6% on a constant currency basis versus last year, driven by higher selling expenses to invest in the business and support product launches and R&D spending as we continue to invest in the business.
<unk> was up 14% on a constant currency basis and represented six 6% of product sales compared to five 5% last year as spending returns to pre COVID-19 levels in Boston long been Salix.
Adjusted EBITDA was $732 million for the quarter.
Down 14% versus last year, adjusted EBITDA margin was 38% compared to last year's 42% with half of this decline is driven by higher selling expenses and a third from higher R&D.
Now, let me discuss our balance sheet on pages 20, and 21, we used $63 million of cash from operations on a GAAP basis, which was impacted by legacy legal settlements.
After primarily after excluding these legal settlements adjusted cash flow from operations is $325 million.
Down from last year due to timing.
Of payments.
We ended the quarter with net debt of $23 4 billion for Bosch pharma after repaying $200 million of our senior secured term loans using cash on hand.
Turning to page 22, let me take a few moments to walk you through.
The changes to our capital structure as a result of the IPO and related transactions transactions since quarter end.
The Boston loan by IPO resulted in gross cash proceeds of $630 million before underwriting costs.
Concurrent with the IPO Boston loan also expects to close on its new debt issuance today, raising $2 5 billion of new term loans.
In addition, you will recall that BHG had raised $1 billion from a new secured bond offering in January 2022.
And our cash balance at the end of the quarter includes proceeds from this offering.
The net proceeds from the IPO and the debt raise plus the secured bond proceeds will reduce debt by $3 4 billion since quarter end, taking the debt for unconsolidated <unk> pharma from $23 4 billion at the end of Q1 2022 to approximately <unk> 20 billion.
As of today.
Finally in January 2022.
<unk> entered into a new credit facility with new term loans of $2 5 billion, which is also closing today.
As you see on page 23, with the expected closing of these transactions today, we have made significant progress in reducing our debt and we will have extended the maturity profile of our debt and our debt obligations through 2025 by approximately $6 billion.
Following these transactions transactions our debt is approximately 85% fixed and we currently do not have any maturities until 2025.
We will continue to optimize our capital structure, while retaining our flexibility to invest in the business.
It is important to note that post IPO portion lumpy cash flow will not be available to the rest of Bausch health.
Boston <unk> is required to remain a restricted subsidiary of Bausch health under its debt instruments until Bush health achieved the required leverage ratio under the bank facility and the fixed charge coverage ratio under the bonds.
And <unk>, then designates it Boston lump as unrestricted.
As a result of the lower proceeds in the IPO and less deleveraging than initially contemplated we're not yet able to unrestrict BMO.
However, although P&L is still a restricted subsidiary for the time being as of May 10. It is no longer a guarantor of Bosch farmers on consolidated debt.
We believe that P&L stay that stellar status as a restricted subsidiary will not have any material effect on its ability to operate or implement its business plan.
From a capital allocation standpoint for our combined <unk> pharma in Solta business deleveraging remains a priority for the use of cash we will also invest to grow the business organically and inorganically.
Given the high cash flow conversion rate of the business, we have the ability to improve our net leverage ratio by up to approximately <unk> 75 turns per year, while continuing to invest in R&D projects with the potential to deliver attractive returns.
Now, let me take a few moments to discuss our outlook for the year, which you can find on slide 26 in 2007.
We are reaffirming our outlook for organic growth for the total Bosch health business of 3% to 5% our revenue guidance on a consolidated basis in the range of eight to five to $8 4 billion.
And on and on an organic basis, we expect <unk> pharma to grow 2% to 3%.
<unk>, 4% to 5% and Solta, 2% to 5%.
Given that the P&L IPO is expected to close later today, we will provide limited guidance for the Boston loan segment.
And loan will provide such guidance moving forward when appropriate to do so after the closing of the IPO and in compliance with applicable law.
On a consolidated basis, we expect to generate an adjusted EBITDA of $3 225 to $3 $3 75 billion for 2022.
This assumes higher FX and ongoing COVID-19 impact as we have experienced in the first quarter of 2022 and post Ipos dis synergies now that <unk> has gone public.
Based on current rates, we anticipate total FX pressure of approximately $230 million over 2021, representing an incremental FX impact of approximately $135 million since our February guidance.
The impact of FX on full year EBIT adjusted EBITDA is $50 million.
Which is an incremental 20 million since our February guidance.
Our guidance assumes that the China Lockdowns last through the second quarter and that inflationary headwinds remain in the near term.
We expect the slow recovery in the health care capacity in the U S to dampen Trs growth near term and our commercial strategy. This year, we will execute new ways to support patient needs in this environment.
We expect full year gross margin of 71, 5% compared to 72% previously faced due to product mix and net inflation. We continue to look for ways to offset these pressures through operating efficiency, while keeping our products affordable and growing market access.
We continue to invest in the business and expect R&D and selling and marketing expenses to grow this year. After the significant pullback in spending last year.
Furthermore, we had previously estimated full year dis synergies of $150 million on a run rate basis. Following the IPO a portion alone we will begin to incorporate these costs into our non-GAAP results starting in the second quarter we.
We estimate dis synergies of $100 million for the balance of this year.
For interest expense on a consolidated basis, we expect $1 $48 billion full year due to the higher cost of debt, partially offset by savings from the paydown of debt.
Please note that this interest expense forecast includes interest expense from the new $2 5 billion of GNL term loans that are closing today.
Assuming no further capital markets of that transaction, we expect to generate $1 $55 billion from cash flow from operations.
Before I wrap up let me take a moment to update you on how our financial reporting will change as we move forward towards the spinoff of caution loan.
Going forward, we will consolidate the <unk> results and report a majority interest to reflect a 90% stake until we complete its distribution.
After the distribution, we expect to report Boston La <unk> as a discontinued operation.
Now, let me turn the floor back to Tom Mathew for concluding remarks.
Thank you Tom It is great to have you on the Bausch health team.
Before I wrap up I don't want to wished bausch and lomb team tremendous success, having worked with this team closely for 12 years I am excited to see our talented team lead the independent fashion along in its next chapter of growth and success.
Looking forward Bausch health is moving with a sense of urgency to drive near term growth, while supporting our long term strategic priorities on slide 32, which I would like to elaborate more in detail.
Firstly, we will drive growth through operational excellence across the enterprise, we continue to believe that Salix and international will be growth engines for our company.
Our anchor brand outside Faxing is best positioned for incremental growth with increased investments intended to further raise awareness of the clinical unmet need in Ibs D in AG.
We recognize the pressure on the U S health care system to safeguard the standards of care for patients as hospitals and nursing home facilities navigate ongoing capacity and staffing challenges.
<unk> provides a clear health care solution for reducing re hospitalization of patients with AEG, reducing pressure on an already overburdened health care system.
Evidence of commercial excellence as seen in our ability to drive results with Relistor true wind and Julia where we have realized increases in market share with targeted market access wins and direct to consumer investments.
We will leverage our international commercial scale by launching 45 different products across 50 markets within our international segment, we will increase focus on operational efficiencies through effective portfolio and lifecycle management. We also see good potential to stabilize our cash generating.
<unk> neuro and generics in dentistry.
In the second half of 2022, we believe our sponsor business, we'll see the recovery of procedures in Asia Pacific availability of inventory and continued market expansion in Europe .
Second we will identify and intensify our focus and operating rigor behind R&D and business development.
We know that building our pipeline through both effective R&D and strategic PD is crucial to the long term health of our company.
We have been investing in middle and late stage clinical trial development.
For unique and novel.
Novel, Rifaximin formulations to address Gi.
In sickle cell anemia, as you can see on slide 31.
Our clinical studies for IDP 120, and IDP 126 for patients with active met their primary and secondary endpoints and we are currently preparing the next steps for regulatory approval. We are also advancing our research <unk>.
For mild to moderate UC.
Third we will cultivate a high performance results oriented culture.
Already we are fueling the energy that comes for a renewed focus we are going to continue to create a sense of urgency ownership and accountability and really build a fit for purpose organization.
Finally, and fourth we will progress our strategic alternatives and deliver shareholder value.
This has been a key priority for Bausch health in the past and will continue to be a key priority going forward. We have an attractive cash flow profile, we will utilize cash generated from operations to improve leverage we have the flexibility to monetize an additional 10% remaining stake.
<unk> equity and launch Salter's IPO when the market conditions are right as we target a net leverage ratio of six five to six seven times as we previously committed.
As the past two years have reinforced ongoing engagement with all our stakeholders is critical to operating a business that is agile enough to keep pace with the world transforming at an unprecedented pace, we will be laser focused on these priorities as we build bausch health for the future.
Before we open up for questions I'd like to take a moment to highlight that we will endeavor to reach out to many of you in the coming months as part of a comprehensive IR effort for future program. Please visit our events page for more details for contact Christina Cheng, our new SVP of Investor.
Relations with that let me turn the floor to the operator for questions.
Thank you we will now begin the question and answer session.
Ask your question and with a historical norm Touchtone phone.
Is there a reason the speaker phone please pick up your handset before pressing that changes the majority of your question. Please press Star then two.
We also ask you please limit yourself to one question and a single follow up.
Today's first question comes from Ken Cacciatore with.
Cowen and company. Please go ahead.
Hi, Thanks, everyone. Congratulations as you continue to move forward. So my question is you do have upcoming potential lawsuits you mentioned, Joe one point, the opt out but wondering about the facts and if there is a loss and we know you could appeal. If there was one without in any way hinder the spin or hinder the.
Covenants and then also just wondering I know it's difficult for you to speak to but there is clearly a discrepancy in how the two shares are trading obviously.
Still retained 90% can you just talk about why this discrepancy is there anything that you'd like to comment on on what might be causing this thanks. So much.
Hi, Ken.
Joe Papa I'll take that question.
Let me start with respect to the satisfaction case in Norwich trial as I said in my call comments I do believe that what we presented the evidence when and where we remain more confident in the strength of our intellectual property today I'll remind you there's 2006 intellectual property patents.
We are confident today and before the trial and therefore, the chance of a successful outcome number two I want to add to that comment in addition to that.
We have seen that the FDA put through an additional product specific guidance onsite faction specifically in August of 2021 that.
It has an incremental requirement for approval of <unk> for both of those reasons, we feel very confident in our situation with dissatisfaction intellectual property our expectations as I've stated I will answer the question that hinders the spin obviously we.
We do not expect that the IP loss will occur, but if it did occur it would have to have an influence on the timing of the spin as we think through this but once again I just want to repeat one more time.
A high degree of confidence based on our expectations of how the trial.
It did see some additional public comments on this that supported that we would prevail, but certainly we'll wait and get the answer in August but at this time. Our expectation is we will when we will be able to move forward with the with the spin.
On the question of the share price discrepancies within Bausch healthcare.
<unk>.
The kind of comes down to part of what you asked I do think that there are some questions that people have raised specifically.
<unk>.
Some of the comments that I made in terms of how we're looking at and some of the opt out claims that occurred by the by opt outs.
They've made suggestion that there.
Potential claims against our more than the class action lawsuit, we do not see it that way at all we have taken reserves for this I.
I do think Thats, one point I do think and satisfaction with the other point and then the final point was there was a question that came up recently on the granite Trust once again on the Grant Trust, we feel very confident in our position with granite Trust and I think that that is the other question that was out there with all of these really in my mind I'm going to go back to the business fundamentals. We think there are strong.
<unk> fundamentals with Tom <unk> laid out and the pharma business.
<unk>.
I've said on the P&L business and go forward, we think to be Enel business is going to be driven by a number of megatrends that we think are going to continue to.
Push us forward with good opportunity for growth.
We said publicly we are reaffirming where we are on the guidance of being now for the 2022 timeframe. So all of those I think wrapped around and talk about why we see the upside.
Where we are today.
Operator next question please.
Yes, Sir our next question comes from Chris Shaw JP Morgan. Please go ahead.
Hey, guys. Thanks for the question can you just elaborate a little bit more on the path forward to separate here. It seems like you need to monetize the remaining 10% of P&L IPO Solta and then you'd still need some ongoing cash flow from our core business, if I'm thinking about the math right I guess just in light of just the capital raise.
Et cetera is there any timelines you can point us to in terms of when the company could be in a position to complete this process I think.
Just would be helpful. I don't know if I can say much but anything on that front would be helpful.
Then kind of tied to that in a follow up how do you think about an IPO IPO of solta versus revisiting a sales a sale process for that asset. It seems like that could address your de levering process, but just to know where are you kind of committed to this IPO process or is there an opportunity to kind of revisit the different alternatives for that asset.
Thanks, so much.
Sure Good question Chris.
Let's start with the path forward on the spin I think as we laid out in the earnings deck. We look at the there is a couple of things that have to happen in terms of us going forward with the full separation in the first thing is obviously is going to be based on the performance of the BNS business and the performance is about form of business I'll remind you it <unk> talked about the very.
Profitable cash generation of the Biopharma business as well as the growth that we're expecting the BNS business. So I think that clearly is probably the first issue.
The second one obviously as the BNS business performs.
<unk> health will have the ability to monetize.
The remaining 10% of the P&L shares and utilize that to pay down debt. Obviously that will also be beneficial. The third thing I would comment on is just the continued opportunity with the Solta business and what we can do with the solar business in terms of the IP.
IPO Salter.
Take the point on the sales probably are we that in.
All of our businesses as we've always stated our public company all of those businesses are available for us to make some decisions on what to do with it right now.
Cleared the path of the IPO, so seems to be the best path for us going forward.
But I think it's going to be the combination of all three of those things I, probably can't make any specific comments on timing other than what we said before we've got too.
Get ourselves through.
<unk>.
Customary lockup periods that occur after the IPO. So we won't do anything before the customary lockup periods and number two we want to make sure that we have bausch pharma at the appropriate debt level to six 5% to six seven times. So those would be the only other comment I can make on the specific timing question, but obviously, we're going to continue to move expeditiously through.
This as quickly we possibly can.
Operator next question please.
Our next question comes from Doug.
RBC capital markets. Please go ahead.
Yeah, I just wanted to.
And maybe delving into a bit more detail with respect to the.
Change related to.
Where are your inflation carload.
Covid.
Foreign exchange.
Is there a chance as we look out through the remainder of the year that we could see another change to work for.
EBITDA, which is very important to you in terms of meeting all the requirements just mentioned for the distribution.
But I'm just wondering in those types of markets.
We indicated that Q2 is for sort of what we're going to be like Q1, but.
This loss had been.
Remainder of the year and make it even worse.
Yes, it's.
Stone dedicated Doug I'll take it I'll take this question.
Look we have baked into our guidance everything that we can see as of now.
We can all see the Covid lockdowns in China. They have in fact expanded as you know and now Beijing is moving into a lockdown.
Category and so.
Our guidance, we've assumed that that will lift off sometime in the second half.
And that obviously impacts.
The Solta business as you said.
From an inflation point of view again, we have baked in what we see.
We had started to see inflationary factors really started the end of 2021.
We've taken mitigating actions done some pricing we've also.
Our supply chain folks have done a great job shoring up on contracts and locking in longer term supply contracts to try and protect our bottom line and in and we will continue to do that to mitigate as much pressure as we can see but right now.
Is there a risk that we could see more headwinds, yes of course, it's impossible to predict but we think we've captured everything we can see right now in our outlook.
Okay great.
I don't want to harp on this but when you look at the six 5% to six.
Seven.
EBITDA range that you're looking for to complete the distribution.
Sure.
Our work had suggested that you might be able to get there by the end of the year, but more with the <unk>.
Lower cash flow you are expected to generate more vessels.
<unk>.
<unk>.
Lots of Adobe to pay down debt between them over the next one launch by year end or so.
And I'm just wondering.
Is it realistic to.
To believe that the distribution could be made this year given <unk>.
Our cash flows the company is going to generate even if we consider.
Tom.
A follow on offering <unk>.
A sofa IPO by year end.
Sure I'll take it and Tom bet against you may want to add to it.
I'd say that as we've obviously looked our way through this.
We were thinking about the valuation of the P&L the secondary 10%, we're thinking about what this total evaluation is and what that opportunity is.
And then of course, we are.
Looking at the cash generation of the pharma business I think all of those are factors working into it once again I can't put a specific time on it at this point, but we do see.
Abilities to continue to pay down debt. We think the profitability is about farmers I think Tom Bakke as mentioned is very strong and they will utilize that to pay down debt. So we do think theres. All the pieces are in place. It's just going to be continued to execute on the business as we think about the go forward situations. So I don't know theres much more I can put a specific timing on.
It.
Could the possibility to be at the end of this year early next year, yes. Those are all certainly possibilities, whereas I think earlier, we depend on Solta. Later also would have it depends on.
On what happened, but I think that timing is not out of the realm and possibly earlier, depending on what happens with our cash generation and what happens with sulfur Tom anything you'd add to it but I'd just reiterate the fundamentals of the business continue to be very strong.
The pharma business.
We will have EBITDA margins in the mid <unk> range.
And.
Cash generation on an unlevered basis free cash flow generation is at the 80% level. So I expect those to continue we have a great team that's focused on making sure that those things continue to get delivered.
I agree with you Joe I think in terms of timing I wouldn't there.
For the data out there.
What I would say is.
As I talked spoke in my remarks is that.
The business spends a lot of cash and we're going to prioritize paying down debt.
And accelerating the performance so as Joe pointed out and Tom pointed out.
We're going to be focused on <unk>.
Delivering that.
The business growth and paying down debt and see where that gets us as we move to the second half of the year, but there is.
Certainly as we as we look what's going on between Covid in China Lockdowns supply of course.
Happening in Russia, and Ukraine is all factor into it but.
Clearly focused on delivering the second half.
Thank you.
Yes, Sir our next question comes from Greg Fraser.
<unk> Securities. Please go ahead.
Thank you good morning.
Just following up on the divesting that in case, you're clearly confident in your position more confident than before can you comment on whether you are engaged in settlement discussions settlement still a possibility.
Do you have insight into whether or nor witches generic candid is compliant with the new bioequivalence guidelines.
Sure.
So good question.
We can't obviously talk about whether or not where you are in settlement discussions I think that what I would simply say.
From a holistic point of view on this is a question of number one.
As a company we have 26 patents on facts.
Facts and information.
And we as we think about it.
That's a really strong case, and we know that number one teva looked at that and made a decision to settle the sun.
Company looked at it and made a decision to settle Sandoz made a decision to settle so we think all of those reasons suggest that is a strong intellectual property position number two.
As I mentioned in my previous comment we know that the FDA put some additional product specific guidance out.
And I believe the date was August of 2021 was the date.
And that requires some additional.
Data on that.
Bio equivalence of the product I cannot speak directly to what forge hazard doesn't have but I do know that there are differences in polymorph and theres different absorption by polymorph and obviously, we have strong polymorph patents and additional addition to use patents.
I simply I'll just wait.
Nor to make the comment specific on the product, but clearly we believe that in addition to the intellectual property. There were some product specific guidelines that we think are the.
When we did cause some questions for them and how they could potentially move forward. Those guidance of course came out after their submission for their anda. So they'll have to make comments about what is specifically going out going on relative to their product I can't make specific comments, but we feel good about what we said and I said in the.
My prepared comments that we feel better today than it was before the trial. So I think thats, probably the best test for a gift.
Yes, Greg this is Tom.
After the trial, we feel we have a strong case against Norwich. So we our position remains the same so we're very confident.
Thank you.
Thank you and our next question today comes from Gary Bachman with minimal help of horses.
Yeah.
Alright, Thanks, So again on the Bausch health $6, 5% to six seven times leverage target to achieve that what other levers might you have.
Could be enel take on any more of the debt to affect the spin.
Leverage targets still less than two five times you didn't mention that today.
And any other divestitures that you think might happen in the near term to help generate cash flow.
And then for Tom.
Talk about your flexibility for Bausch health to do business development. If you carry leverage up at that level and generally how good you feel about the pipeline versus how much inorganic growth you might need for that.
Really grow going forward. Thanks.
Okay Gary.
I'll take the first part of the commercial segment.
Relative to the six.
5% to six seven times I think.
To answer the question of the company is we've got the opportunity for the business fundamentals I think that's got to be first and foremost the answers for both the P&L business as well as the Bausch pharma business, but specifically on battery Sharma.
We've got some good opportunities are very profitable business generates significant amount of cash.
And then number two on our questions could be enel take on more debt I do want to be.
Comment on that we did take two nine times leverage that.
That is the leverage we took in light of the fact that we only went out with a 10% IPO, we made a decision to take that.
That would be announced that two nine time of debt leverage so I just want to be specific on that.
Tom you want to take the other part from yesterday.
Hey, Gary So what I would say is in terms of monetizing other assets of course, we're a publicly held company. So we'll always look at ways to if we can to monetize assets.
Is good for shareholders and of course, if we're able to do that that then frees us up.
To do things with some of the cash what I would say is from an R&D perspective.
And the BD perspective, clearly we have opportunities as I spoke about of our portfolio of our.
Line right now in R&D I was just out of our R&D facility in California is a really great energized team out there we have a lot of good projects that we're working on.
And then we have established an entire BD and strategy team.
And that is looking at tuck in type acquisitions that we can bring into the portfolio as I said in my prepared remarks.
We have teams in 90 countries around the world So depending on where it is especially if we if we take a look from a from a U S perspective, or an international perspective looking at things that we can bring into the portfolio that will fit nicely into the commercial presence is that we have.
Of course, it will be a focus and a balanced.
Clearly always looking at that balance to pay down debt, but also put products into the pipeline.
We have as I said in my remarks of what we're going to be able to launch an international and bringing in products that we can put there. We're also looking at how we can bring products into again are our U S business to really maximize the value of our commercial.
Capabilities.
Operator next question.
Absolutely our last question from Jason Gerber Bank of America. Please go ahead.
Hi, Good morning, everyone. This is chi on for Jason Thanks for taking our questions.
Maybe just a couple of follow ups on the <unk> IP case.
You have a sense of a view on sort of what the timing of a potential ruling could be.
Typically I think.
Ruling could come at six to eight months of the trial concluded I think for me sitting at a trial I think that was expected to be a post trial brief.
Some time early children. So it didn't comments up or the timing that would be great and then maybe just a follow up on Ken's earlier question about how in a scenario. If you were to reduce the case, how it could affect the spend if I understand your commentary correctly.
Soccer in that scenario and my has ever happened in pack on the timing of the Spanish Armada hesitation.
Additional considerations and curious what may have changed from last quarter.
If I recall correctly.
Last quarter view SaaS FX in case would not impact would have any impact on the span regardless of the outcome. So curious about the commentary on there. Thanks.
Okay I'll take the first part of it.
These it sounds like facts in the Norwich decision, we're expecting a decision in early August so we're hoping that.
That's the timeframe that we can see so we can move forward from this but that right now that's what we're looking at from a decision standpoint, and then I'll, let Joe address your second part to the question.
Sure.
The question of intellectual property I've got to say one more time, just simply because I.
I believe that we believe that we will prevail on that intellectual property. We have 26 patents. We have a strong case, we feel better about the case today than we did before for the trials. So I wanted to say that right up front number two I want to be specific about the product specific guidelines set or the FDA has put those draft guidelines out in August of 2021.
Our view is that that could have an impact on the potential approve ability of the product. So I clearly think that.
Another variable that has to be considered.
Having said that I will answer your question. If we were to lose the Fairfax, the case, which I do not expect to say one more time.
That could have an issue for us in terms of the timing. Obviously, we've continued continue to look at that in light of how we are expecting our overall timing, but we will have more comments about something like that should it happened. Once again, we do not expect that outcome.
Thank you I think.
I think operator, you said that was the last question.
Yes that is correct.
I would like to conclude today's call. Thank you all for joining as I said in my remarks, Bausch health is moving forward with a sense of urgency to drive long term growth with supporting.
Our strategic imperatives.
To provide shareholder value.
I would like to add.
As I said at the at the end was really we're going to reach out and endeavor to reach out to many of you in the coming months.
Part of our comprehensive IR effort really looking forward to having discussions about the bausch health business and what we can provide and do for patients and shareholders. Thank you.
Thank you Sir this is answer itself into all I want to thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.