Q2 2022 Bausch Health Companies Inc Earnings Call
Good morning, and welcome to the Bausch Health second quarter 2022 earnings conference 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 telephone keypad. After today's presentation, there will be an 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 Christina Cheng Senior Vice President Investor Relations. Please go ahead.
Thanks, Andrew Good morning, and welcome to our second quarter from 22 earnings Conference call.
Dissipating in today's call are Thomas J, <unk>, Chief Executive Officer of Bausch Health, and Tom <unk>, Chief Financial Officer of Bausch Health.
Before we begin I'd like to remind you that our presentation today contains forward looking information.
Like to ask you to take a moment to read the forward looking statements at the beginning of the slides that accompany this presentation. They contain important information our actual results may vary materially from these 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 some of the 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.
non-GAAP financial measures may not be comparable to similarly, titled measures used by other companies and should be considered along with but not as alternatives to operating performance measures calculated in accordance to GAAP.
You will find reconciliations to our non-GAAP measures in the appendix of the slides that accompany this presentation available on <unk> Investor Relations website.
Finally, the financial guidance in this presentation is effective as of today only we do not undertake any obligation to update guidance.
Our discussion today will focus on dash pharma in Solta. However, we will briefly comment on be announced results beginning this quarter when discussing consolidated Bausch Health companies Inc. Results will include a discussion of results attributable to Bausch Health companies, Inc, which exclude a portion of fashion launch results attributable to that.
Proximately 11, 3% ownership interest in Boston loan not owned by Bausch Health.
Please refer to Bausch and Lomb separate 10-Q and earnings release last week for more details on dash launch results.
With that it is my pleasure to turn the call over to our CEO Thomas J <unk> Tom.
Thank you Christina and welcome to those of you joining the call today, we had a number of syndicate significant developments during the quarter that we'd like to cover.
Let's start by giving you three things that I hope you will take away from this call as you can see on slide six.
First we will vigorously defend our intellectual property and is a facts and patent litigation.
Second we are committed to creating value improving our balance sheet and advancing our strategic alternatives as we work through patent litigation.
Third while we are re basing our expectations for the year, our new leadership team is focused on driving performance has taken a series of actions to improve results.
Before I get started it is my pleasure to welcome John Paulson is a jammer the board of Bausch health I want to thank Joe Papa for his contributions during his many years as the chairman and CEO of Bausch health.
Let me start with the patent litigation.
The U S District court of Delaware indicated that they would find certain U S patents protecting that uses a fax and 550 milligram tablets with a reduction in risk of AG re occurrence to be valid and infringed.
The court also indicated that they would find U S patents protecting the composition and use of the vaccine for treating Ibs D invalid.
Let me take a few minutes to lay out the state of play.
One we strongly disagree with the court's anticipated decision and intend to vigorously appeal. The outcome. We expect the appeal process to take 12 to 18 months.
Two no.
<unk>, which doesn't have a tentative full FDA approval for generic with facts.
Three Norwich is pending abbreviated new drug application or <unk> applies to both indications Ibs D and E. G. The court's decision prevents existing and approval until our <unk> patents expire in 2029, and therefore a gym.
Derek version cannot be launched well they could attempt to carve out the AG indication from their existing and N seek modification of the injunction they cannot launch a generic rifaximin product until they secure full FDA approval.
For the F. D. A has stated its plans to update product specific guidance for Rifaximin to include in vivo bio equivalent requirements in humans differences in the composition between the generic equivalent and die facts and could raise serious risks 80 patients in.
Clothing, hepatic coma or death, the required clinical studies to requires safety and efficacy efficacy could take a number of years five we have the only approved product for AG and there are many patients depending on this drug.
<unk> unique properties cut the risk of OAG reoccurring and 80 related re hospitalization by half it reduces the risk of another OE O H E episode by 58% compared to placebo.
Six we will aggressively defend our intellectual property related to AG until the patent expires in 2029.
As you can see there are number of hurdles protecting our market exclusivity. Our teams will continue to be focused on providing this important drug for patients and their families.
Moving on to the next topic, we remain committed to creating value by advancing the strategic alternative process and improving our balance sheet.
First earlier in the second quarter, we suspended our plans to IPO solta medical due to the challenging market conditions and other factors.
Salter is a leading player in the fast growing medical aesthetics market and is an important franchise for Bausch health. We are very excited about its significant market and geographic potential as solta enters its next phase of growth. It will continue to leverage the scale and the Cape.
Abilities.
Our global Bausch health team.
Second we continue to believe that spinning off Bausch and lomb makes strategic sense and remain committed to doing so as soon as we are able to satisfy all applicable conditions as previously disclosed disclosed we are evaluating all relevant factors and considered.
<unk> regarding the distribution as we assess the potential impacts of the Norwich site Faxon patent litigation.
Third we are committed to improving our balance sheet. This quarter, we executed an open market repurchase of our long term paper, which retired 481 million at a significant discount. In addition earlier in the second quarter, we extended our maturity profile with <unk>.
Significantly boost the debt maturities through 2025.
Finally, since taking over on May 10.
Our leadership team has taken a series of actions to accelerate performance.
We created a flatter and more focused organization that is closer to our core businesses, we reevaluated our operational strategy and began implementing new initiatives focus on driving near term returns with a greater sense of urgency ownership and accountability.
With that I will turn the call over to Comdata Cat, who will provide further details on our second quarter performance and our outlook for the remainder of the year comp.
Hello, everyone and thanks for joining US my remarks today will largely focus on bush pharma in Solta as business results.
As you can see on slide eight second quarter revenues for both pharma and sold a $1 billion down 5% on an organic basis versus the second quarter of last year.
On slide 10, Salix revenues of $501 million improved sequentially versus Q1, 2022 but were down 3% versus the second quarter last year.
The year over year decline was largely driven by unfavorable changes in volume, including the effect of changes in primarily retail channel inventory of approximately $21 million.
The FX and revenue was up 1% with retail T. Rx is remaining essentially flat in the second quarter and the first half of the year.
We continue to observe a softer demand for AG in the long term care channel as the industry continues to face post COVID-19 staffing constraints and occupancy rates remain approximately 9% below 2019 levels.
International delivered second quarter revenues of $233 million and organic revenue growth of 2% versus the second quarter of last year, driven by solid performance, particularly in Canada and Latin America.
This was offset by a provision for expected future product returns of $11 million in the middle East mainly hand sanitizer product.
Excluding the impact of this return provision organic revenue growth for the second quarter was 7%.
Diversified products revenue was $235 million down 11% on an organic basis compared to the second quarter of last year, primarily due to declines in neurology and dermatology.
Our neurology business was down 15%, primarily due to lower demand for well butyrin and COVID-19 related demand for certain products in the prior year.
Julia revenues were up 13% and year to date T. Rx demand is up 25% as the brand continues to benefit from our marketing investments.
Our legacy products and loss of exclusivity drove the decline in dermatology.
Solta medical revenue was $57 million down 22% largely due to the continued COVID-19 lockdowns in China, which accounted for about a third of soldiers business in 2021.
The Asia business, excluding China posted double digit volume growth, while demand was stable in the U S.
Lastly, on Slide 11, Boston Lam reported revenues were $941 million up 6% organically compared to the second quarter of 2021.
Organic growth in vision care, and surgical were partially offset by lower sales in ophthalmic pharmaceuticals.
Turning to the consolidated P&L for the quarter I'm going to focus my comments on non-GAAP results that you can see on slide 14.
Second quarter consolidated adjusted gross margin was 77% 20 basis points lower compared to the second quarter last year, driven by inflation and shipping costs and partially offset by lower inventory write offs in the P&L segment.
Bosch pharma plus soldiers adjusted gross margin was approximately 81%.
Up approximately 170 basis points versus the prior year.
Consolidated adjusted operating expenses for the second quarter was $752 million, an increase of 1% with higher R&D and marketing offset by lower selling and G&A expenses.
R&D was up 10% and represented six 5% of net sales compared to five 5% in the second quarter last year.
Partly driven by a normalization of spending levels following the pandemic.
Consolidated adjusted EBITDA attributable to Bausch health was $701 million for the second quarter, a decrease of 15% versus the second quarter last year due to lower revenues the.
The divestment of our Moon and investments in sales marketing and R&D.
Adjusted EBITDA attributable to Bausch health includes a reduction of $14 million to reflect the portion of <unk> adjusted EBITDA that is attributable to minority shareholders.
On a consolidated basis adjusted EBITDA margin was 35, 6% down 300, and saved 70 basis points compared to last years 39, 3%.
As a reminder, adjusted EBITDA margin for combined Bosch pharma in Solta, approximates, 50% and for Bausch and Lomb approximates 20%.
For the segments that comprise Bosch pharma and Solta segment profit was a was approximately $581 million a decrease of approximately $93 million versus last year due to revenue decline there.
Due to revenue decline, the Amun divestiture and foreign exchange impacts excluding legacy legal settlements separation costs and cash provided by our moon adjust.
Adjusted cash flow from operations was $179 million versus $425 million last year due to operating activities and working capital.
Now, let me discuss our balance sheet on slide 15.
We ended the quarter with consolidated net debt of $21 $4 billion down from $22.1 billion of net debt as of March 31st as repayments of debts using cash on hand, and the P&L IPO proceeds were partially offset by a revolver draw of 425 million.
Moving onto slide 16, excluding bausch and Lomb gross debt for the remaining company was $19 $6 billion and net debt was $19 $3 billion.
We accelerated deleveraging by executing an open market repurchase program. This quarter retiring $481 million about 2028 to 2031 bonds at a significant discount to using $300 million of cash.
Approximately 75% of our consolidated debt is fixed today.
85%, excluding Boston Lam depth, and we have no maturities until 2025 as you can see on slide 16, we will continue to evaluate available options to reduce debt and extend our debt maturities.
I'll now discuss our outlook for the remainder of 2022, which you can find on slides 18 and 19.
Given the uncertainties in the overall operating environment and our detailed assessment by business. We are re basing our 2022 expectations.
Our outlook assumes a sequential improvement in the back half of the year, driven by sales and marketing investments and seasonal restocking.
We expect consolidated full year revenues in the range of 8.05 to $8 to $2 billion.
And organic growth of flat to up 2%.
Organic revenues are expected to be flat to down 3% over the last year at Bosch pharma in Solta and up 4% to 5% at Boston Lam.
On a consolidated basis, we expect to generate consolidated adjusted EBITDA of 3.0 to $2 billion to $3.12 billion for the full year.
As it pertains to Bosch pharma in Solta. This outlook assumes adjusted gross margin of 80% and R&D expense of $225 million.
You'll find our assumptions on slide 19, we expect $1 $4 billion of interest expense and will generate approximately $600 million and adjusted cash flow from operations. This year.
I'll now hand, the call back to Tom Mathew for concluding remarks.
Thank you Tom.
The second quarter was a transitional quarter for Bausch health with disruptions and distractions from leadership changes the IPO of P&L and the suspension of the Solta IPO.
Having become the CEO mid quarter, I and our new executive management team are excited with the opportunities ahead and urgently want to return the company to growth.
Turning to slide 21, we have four priorities.
One sales and EBITA growth too.
To focus and operating rigor.
Three developing a high performance culture, and four creating value through strategic alternatives I want to focus on the first objective today.
Let me discuss several immediate actions, we have taken to drive our revenue and EBITDA for each of our business segments in the near term.
Despite the headwinds we are facing we are adapting to the current environment and moving with great urgency first let me start with Salix on slide 22.
I met with our national sales team, they are dedicated and energized and fully committed to our patients.
Over the last 90 days, we as a management team have analyzed the market and believe there is significant unmet patient need in both Ibs D and E G.
We believe we have white space to grow.
We are activating patient and caregivers targeted omnichannel strategies that will establish <unk> vaccine as a treatment of choice, we are increasing patient access and adherence with specific interventions along the G. I patient journey I want.
To emphasize that we will continue to makes a fax and available and affordable to the doctors and patients depend on it.
Second International we have a strong team and our international business and they truly understand how commercial execution drives growth. We will continue to expand our branded generic product line into new geographies, we continue to focus on key market.
Such as Poland, Mexico, Canada.
Mexico is benefiting from the growth of our core franchises of that objective and cadre and our digital channel strategies. Furthermore, our expansion in Latin America is driving growth throughout the region.
We expect our engagement strategy will further enable us to win more customers key markets. We are launching 66 products.
<unk> 16 countries in the next three years as we enter new markets and increase investment in high growth countries.
Third solve the medical we believe Solta medical is a high growth business with a significant runway for international expansion, we continue to make the necessary investments to drive growth.
And we are seeing signs of pent up demand in developed markets such as the U S and South Korea.
We are excited that our strong salt the team is part of the Bausch Health organization, and we will continue to support them with our scale and global capabilities.
Lastly, diversified products I want to highlight two products Julia and asset in our dermatology portfolio with nine years of exclusivity had revenue increase of 13% this quarter compared to the second quarter last year, we launched a new brand.
Campaign in major U S cities in July during the height of the summer season and early results are promising. We also continued to invest in growing scripts and market share of arresting for periodontal disease, our leading product in dentistry under a strong new business leader.
Yeah.
Going forward, we will continue to balance our growth opportunities with ways to maximize the cash contribution of our more mature businesses in the diversified product segment.
In conclusion.
We will vigorously defend our intellectual property and address patient needs with XI Faxing, Let me state again, Norwich does not have either tentative or full FDA approval for a generic rifaximin product.
We are focused on creating value through driving growth profitability and improving our balance sheet.
We are a resilient team.
Highly motivated working with a sense of urgency and ownership and we have already taken a series of actions to improve our performance.
With that we'll now take any questions you have Andrew Please open the line for Q&A.
Thank you 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 were using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you'd like to withdraw. Your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Ken Cacciatore with Cowen and company. Please go ahead.
Well thanks team, but my question is around this patent situation. So I'm just trying to understand some technical parts of this if Norwich wins on appeal given there were multiple patents that were settled upon by all the other settlements does this has any bearing on other settlements, meaning an appeal if Norwich a.
Festival is there any trigger of exclusivity or does Norwich have to secure its own approval to trigger exclusivity.
Obviously, you understand all those settlements and we don't and we're trying to understand if Norwich could reach an agreement there is a tentative approval out there that they could apply this win to that other tentative or is there something in the settlements that would preclude.
Such an agreement so anything that you can help us with about.
This situation in terms of triggering exclusivity or implications on the other settlements.
In absence of Norwich approval again wharf Norwich triggers that we have to wait for Norwich approval and then also just a little bit more conversation on cash yield how you're trying to maximize that I know there was a lot of prepared remarks, but like to hear contextually. How are we going to be driving actual cash year to get out this debt. Thanks, so much.
Okay can you had a lot of there's a lot in there of questions, but let me just try to to come.
Cover off on.
The questions regarding the court's findings.
If reiterated in the final order remember this we have not got the final order yet.
Not accelerate other settled parties until the FDA approval of Norwich, and and our launch of XI facts and generic by Norwich.
Now appears to be the first to file, but we can't speak to whether Teva has maintained or forfeited or is likely to forfeit their first to file status.
I would say is also is as you know.
Norwich does not have FDA approval. So they cannot launch so the FDA has stated that they plan to make a major revision as I stated in my my prepared remarks are to the Rifaximin product specific guidance to add in in an in vivo bio equivalency study so that as I said in my prepared remarks could take two.
Hi.
If Norwich secures FDA approval before an appeal decision they can potentially launch.
Subject to tethers exclusivity rights as a first filer, however that would involve launching at risk and if if we win an appeal they would be liable for significant monetary damages.
And then lastly.
What I would say is again, it's a very complicated multifactorial situation, but absent Norwich as removal of the <unk> indication and the data from there there and the courts judgment in joins Norwich is pending andi.
Until the expiration of the <unk> patent so that that is.
He is a very important point.
Clearly a lot of the safety data that is in there.
It was part of <unk>, so being able to do that and carve it out as a.
<unk> is a difficult difficult task. So we intend again to what I said in my prepared remarks is to vigorously oppose any attempt by Norwich to remove the <unk> safety data as you know <unk> was the first indication.
We know one of the first indications we got approval for not the first but ahead of Ibs D.
And so therefore, you know the safety data from the <unk>.
It will be very very difficult so I'll.
I'll just now turn it over to Tom Chris on your question regarding the cash yield.
Thanks, Tom.
Can you you asked about cash yield and.
Go back to a portion of my prepared remarks, I talked about our expectation now that we would generate about $600 million cash flow from operations for the year.
We have always thought about the business capable of generating say $800 million to $900 million the delta the delta between that and the 600 is essentially the lowering of our expectations on the P&L. So our EBITDA versus what we thought going into the year, we've taken down with.
New rebased guidance, and and and and so you know that's flowing through to cash. So that's the explanation of why it's only 600 versus what we've said before.
Now in terms of just the business and what are the levers we have.
You know my first you know I've been here six months and the CFO or for a few weeks since may the business continues to be highly cash generative and when I look at it on the receivables front.
We really have no issues in the pharma business on payables, we have we do see Lumpiness, that's no different from any other company and in the first half, we probably had more than our fair share of outflows from payables, but we think that will even out as we look at the full year.
And the team and I know, it's my team in finance that really holds the strength to a lot of the cash flow yield and we are focused and we will continue to be focused.
Through the year to your point it is very very critical for us.
That we maximize cash yield for the obvious reasons, two or two to continue to delever.
Yes.
Andrew next question.
The next question comes from Annabel <unk> with Stifel. Please go ahead.
Hi, Thanks for taking my question I actually have.
Number here so.
First on Salix, where you're making an effort to really drive them.
Is it geography I mean.
With satisfaction that has always been a strategical for awhile theres always been white space and I guess im not understanding what you're getting different with that program.
Program that you expect is going to drive significantly more revenues.
And then with.
I just you know.
You, obviously postponed a spin off and it looks like it.
It's a good part of the business.
That could be a significant.
Revenue generator for Bausch health. So is there any plan to just.
Not just postponed that cancel it altogether and keep it as part of Bausch health and really take advantage of that.
That revenue contribution that has pretty meaningful longevity.
Would you be able to consummate the P&L spend without considering larger.
Divestments and reduction of bad debt.
Those are my two questions.
Okay Annabel, let me, let me address the Salix question first okay.
Since may we were really taking a hard look at this C and.
We believe there are large opportunities in both Ibs D NTT indications.
Indications for some facts and if youll take a look at it the incidence of Ibs D is increasing not only.
Demographic perspective, but also due to the direct and indirect impacts of Covid.
The health authorities belief is not really become.
<unk> in nature, So I think that if you if you look at the research okay.
If you look at the facts and specifically just offers significant relief from abdominal pain and diarrhea and has an excellent safety profile.
And then when we take a look at AG.
<unk>, if you look at how many patients.
They are out there are there are having a G episodes theres still a lot there that we can do and grow if you look at the size of that pool.
And the other thing is is when we.
Specifically look at a J as you know in the majority of our sales are in AG.
Clearly.
When you look at what happened with Covid and our long term care there.
There is things that we can do to make sure that those patients who maybe are not going into long term care, but are going home that the caregiver really understands what to look for what I would say also is that you have.
I asked about some of the things that we've done specifically.
In in terms of the tactics that we took in the early days since taking over is really using data to identify patients.
And.
P C P points of contact.
Reinvesting in.
In DTC marketing after a period of low investment as you know, we we did have many years ago investments.
In DTC and bringing that back now and then when you look at working closely.
With doctors to re enforce the adherence and support staff with training in terms of prior authorization you know one of the things that we've seen.
Clearly.
When you look at.
The turnover.
Doctors offices, and what they will need to do to make sure that the drug is filled in terms of getting the prior authorization. So there's been a lot of turnover in the doctor's offices along with.
With Covid, we've had had some turnover within our field force and you know over the last.
Year is six months, we have filled 100 sales rep positions, so and with all of those.
Tactics to address the strategy of where we believe we can grow with.
We've put those in place, but theres still a lot more work to do where we're identifying.
Over the next in the next quarter or other things that we believe will help drive the growth of Ibs D.
Any change let me just talk to Solta salt is a business I know.
Very well.
I used to run the Solta business as part of when it was part of international actually sold reported to me even for the U S.
Given.
Ours to go.
As things were as the company was changing I took over that entire salt business. I think it's an excellent business I think there's again a lot of white space to grow this business.
Clearly it has been impacted by Covid specify specifically.
In China.
And the growth opportunities that we had in Europe and in Latin America, but we can excel.
Except reaccelerate those and.
When if you take a look at China, we're starting to see a recovery.
As we as we work it through I think it fits.
It's a business can generate a lot of growth for us.
And we think it still has a.
A lot of opportunity to grow.
There.
A lot of work going on in our R&D team on innovation, there and we believe significant potential exist to create value for shareholders and you know right now the priority is to grow it and to keep our options open.
Andrew next question.
The next question comes from Gary Nachman with BMO. Please go ahead.
Hi, good morning Hugh.
You mentioned the expected timing on the appeal process at the facts and decision is 12 to 18 months.
That uncertainty how is it possible to move forward with the full P&L then how could that actually work I'm curious if there are any.
Restrictions or limitations on that front.
And is there a certain timeframe by which the BNS then has to be distributed to shareholders.
And are you still sticking with the target leverage ratio for remain co I saw the six five to six seven times still highlighted on slide 21.
No if you've changed your thoughts on that.
Okay, Gary Let me, let me just start from the bottom and work up.
So you know what I would say is yes, we are sticking to our or the targets that we had a $6 seven to $6 five.
And I'll work it back no there's no required timeline.
And then let me just get to the first point of your question is again, which I stated in my prepared remarks, we continue to believe that spinning off bausch and lomb make strategic sense and remain committed to doing so as we are able to satisfy all applicable conditions as previously disclosed we are as I said before.
Sure you know, we're reevaluating all relevant factors and considerations regarding the distribution.
As we assess the potential impacts of the Norwich. They fax in patent litigation. We don't you know one of the things I'd like to point out here is we don't have a norwich ruling yet or reason for this decision.
We were hoping we were going to see that.
In the early part of the month, but we did not and so now we expect to receive it probably in mid August and once we were able to see it see the ruling and the decisions will be able to continue to look and assess the potential impacts. Okay. So that's that would be where I would.
Where we are alright, Andrew yeah, it sounds good.
Got it.
No go ahead.
Yeah, but how active have you been.
Looking at divestitures, whether it's filter or other assets to try and get to that $6 five to six seven times.
Average target and are you being more aggressive now given the facts and uncertainty.
You know what I would tell you is we're always open to looking at divestitures, but they have to be at at really good prices.
And really show the value of the businesses that we have so you know we're always openly looking but it's got to be a price that.
It really reflects the value of that business.
No.
What it may be.
And no I would say we are.
But it would have to be at a really good valuation.
Okay, Andrew for the question.
The next question comes from David and some of them with Piper Sandler. Please go ahead.
Okay.
Hey, guys describes it on for David. Thank you so much for taking my questions just a few from us.
So if we assume the worst case scenario here, which is a generic market formation for life accident earlier from 2028.
I mean, what's next for Bausch and more so what I'm wondering is how it is you know a potential law wafers that facts and shape your thinking for the road ahead.
What did you divest some of your established brands international brands to their peers.
And then I've got a few follow ups.
Yeah. So let me David let me just take a.
Is this way I mean again, what I was what I said in my prepared remarks, we're going to vigorously defend.
Our patents on <unk>. So that's the priority right now.
As I already had laid out there is multiple multiple steps.
That need to be taken in action.
In terms of what.
But it's going where this is all going to land what I would say is is that if you look at our businesses today.
If you look at our international business growing strong I mentioned, we're going to launch 66, new products, we're continuing to fuel that pipeline. If you take a look what I talked about on sulfur I think there's great opportunities.
To build that business. If you look at that you know that along with the awareness that exist going.
Clearly that will be a growth driver.
We have we did not touch them in this call.
Listen.
The prepared remarks, what I talked about operating vigor and what we have our pipeline in terms of what we're looking at in Red Sea and the new novel.
The formulations foresight faxon.
We really believe in those programs and there are some very interesting things there that we're doing of course, we are recruiting patients into those studies.
So really when I.
When we look at it.
We're looking at again defending our patent okay. So we're not looking.
We are preparing various strategies for that but clearly as we move forward.
And then we could do bolt type of bolt on.
Acquisitions that makes sense for our business. So what I would say is less.
Lastly, the point, where you talked about to deliver and then in the near and long term R&D in late stage.
Clearly.
This is a priority for us is to continue to build our innovation pipeline I think that one of the things that clear.
Clearly now with.
The IPO of being now the focused effort that we can have from an R&D perspective, and innovation whether that be.
In Red sea or sickle cell.
Or other things that we're working on with say facts and along with the innovation that we will be able to have from a static standpoint theres. Some other things there to look quite interesting.
Yes.
Okay. Andrew next question.
The next question comes from Gary or excuse me, Greg Fraser with <unk> Securities. Please go ahead.
Great. Thanks for taking the questions on the revised bioequivalence guidance. It is expected to come out how much insight you have into what the new guidance will require FDA provided any specifics I was thinking beyond the inclusion of an in vivo study.
And just my second question is on the Grantor Trust situation do you have any visibility into when you might receive formal communication from the IRS and is there anything that you can do to kind of move that process along towards resolution. Thanks. So much.
Okay, Greg Greg I'll take the first point and then I'll hand, it off to Tom to talk about granite Trust.
The U S. FDA has indicated in a public statement last year that they will add an in vivo bio equivalent study requirement.
For facts and then.
Into the product specific guidance.
The rifaximin product.
Product specific guidance previously permitted generics to avoid.
In the Vo Bioequivalence study the new requirement once published would create an additional test generic must perform too to get bioequivalence and safety of the generic product.
Right now we don't know.
When we would be speculating on what the FDA is going to require.
In terms of in that well.
With bioequivalence would mean in vivo.
Clearly there could be multiple things there of what the outcomes would need to be.
But you know I can't speculate, but clearly that we do our team has.
Thoughts of what it would be but what I would say is we don't speculate on that.
In terms of what the requirement of being we are waiting to see.
What the published guidelines will be.
With that I'll hand, it over to Tom to talk about granite trusts.
Yeah, Gregg on the granite trust in terms of visibility, we actually nothing much has changed since the last time, we had the this update.
We continue to remain confident in our position and we're waiting for the process with the IRS to.
To run run through its course.
We have contact obviously with all the local IRS office. The one that has been doing the audit and that raised this issue and are ready if the process would would speed up but we really rely and have to depend on the IRS and and their process.
Basically there's not much we can do from the outside to to rush it alone.
Andrew next question.
The next question comes from Jason Gregory with Bank of America. Please go ahead.
Hi, Good morning. This is chi on for Jason Thanks for taking our questions I.
I wanted to follow up on consideration for doing the distribution set up what are the gating factors those sensitivities.
On the leverage ratio how much leeway do you have between a 6.567 times leverage ratio and a $7 six that will restrict P&L.
I'm just curious I know you can't give guidance right now, but if that scenario you could actually do the distribution.
Its highest seven six or in any sort of interim media ratio between $6 seven and the $7 six from.
From a timing perspective is 2023 truly off the table and how comfortable are you with that client timeline in 2023, and I guess, you've already profile a lot of comments on China understood or their recent update but curious if you have any updated thoughts on any strategic options you could do with Tulsa to help facilitate that.
Distribution. Thank you.
Well, let me take a stab at that somebody gets here Jason.
So so in terms of the the ratios and our commitments. So the the the seven six that you referred to is something that's defined in our covenants.
And we will we will have to achieve that but as you know the company has committed and we have recommitted. It today that we have that we will.
Not spend until we achieve the $6 five to $6 seven times, that's what we feel is the leverage.
Needed for the remaining company to continue to operate and perform.
Efficiently and in the way that we want and so we remain committed to that in terms of a 2023 timing I know that was communicated.
<unk>.
The.
The.
As Tom said.
We are working towards achieving those ratios and all of the conditions that we need to meet in order to do that in addition to those ratios and obviously the.
Vaccine.
Litigation matter, we will have an impact and will where we'll continue to evaluate the distribution.
As we work.
That matter.
Strategic options for Solta I think Tom.
<unk> two is our focus we have suspended the IPO. We're focused on operating the business. We think it's a very exciting business has lots of potential.
And lots of potential for growth and so that's what we're focused on.
Yeah.
And also as Tom said with every business.
There was a question earlier about looking at other divestitures were a public company and as a company said before in a in a sense everything is up for sale.
At the right valuation and so we would consider it but I think at the moment, we believe that the best place for soldiers in the family and and for Us to run it.
Yes, Chuck I would like to add to that.
Talking about salt.
Priority right now and the focus is.
That business returned to growth in and accelerate the growth and clearly.
With the expansion that we can do in Europe .
There's a lot there that we can do to continue to create value I think also as part of Bausch health companies as Tom put it in the Bausch health family They will.
Fit from our global structure, we have a global structure to support this business.
Clearly.
If you look at the structure, especially when it comes to <unk>.
R&D effort we.
Have an ability to create innovation, there and continue to focus on building.
Great products and bring them to market.
Andrew next question.
Okay.
Andrew.
Excuse me the last question will be from Omar Rahmat from Evercore. Please go ahead.
Guys. Thanks for taking my question I have three here if I may perhaps first.
Hmm.
Tom I think many of your shareholders have asked if there were ever a point in time, we're going forward with the spin is no longer in the best interest of shareholders of your shareholders. How would you approach that decision again being C of the remain co and out of the entirety of the second one is when do you guys plan on designating bausch and lomb as unrestricted.
<unk> and more importantly can you also speak to the mechanics of how an unrestricted subsidiary could be restricted again and then finally on the Salix business I saw the year over year sales were down $16 million and the segment profit for Salix was down 15 million should I think of that as the incremental margin on any future sales reduction. Thank you.
Yes, Omar thanks for the question.
Let's just hit the first one at the beginning again, we continue to believe that the spinoff of Bausch and lomb make strategic sense and remain committed to doing so.
We are evaluating all of the relevant factors and considerations regarding the distribution and you know again, we'll have to as we as I've said before we're going to continue to assess the potential impacts of Norwich.
Once we get the written.
The written decision you know again I have when I look at it.
Just have to make sure I have the responsibility to commit to continue to make sure the distribution.
Makes sense in light of the litigation issues that we have and will continue to evaluate it.
As we as we move through this process.
What I would say, it's all going to pass it over to Tom regarding unrestricted as being now and he can address that issue for you.
Yeah, Omar Hi, it's Tom vertical.
The.
The criteria for unrestricted as you know is meeting the seven six times.
Leverage as well as the 222 to one of fixed cost coverage ratio so at that point.
We would unrestricted P&L from my perspective, ostensibly there's really no difference in a really them and they already have you would've heard on their call. They have the freedom to operate right now that can make investments.
Acquisitions, there's really no restriction.
At the moment so for me at least.
From restricted to unrestricted is a little bit academic from a spend perspective, what the company's target leverage ratio is is the six five to six seven times and so that's the.
That's the criteria that we are following.
In terms of your third question can an unrestricted sub be restricted again, we haven't really considered that so I don't want to speak to that I'm not myself.
Totally clear on what the technical side of that is but we have no plans to do that at the moment.
And then finally I think your last question was on Salix and Salix.
Flow through it's a it's a very.
A very profitable business as you know.
And gross margins.
Pretty high I'm not sure we've disclosed them before but they are they are pretty high and so you don't quite get a one for one flow.
Through but it's close basically when there's a very significant revenue reduction.
Okay, operator, Andrew I think we can take one last question.
Yes.
Yes, Sir we have Sahil <unk> from RBC. Please go ahead.
Hi, This is sahil for dark meat and thank you for taking our questions. My first question is on just stipulation agreement and keys, a Norwich decides to go with the Skinny label that is to exclude the <unk> patent.
What happens to the stipulation agreement or the remaining 19 patents, which were not addressed at the March spring strike two they come into play.
Can those be dedicated again and my second question is that it's one tentative approval out there.
Are you aware if that company has done in vivo bioequivalence study or.
Or will they be required to do so once FDA publishes the final guidelines.
Thank you.
Okay.
Okay. So let me try to.
Go from the first one and.
In terms of the impact on the stipulation agreement with the Skinny label. So I think that you know.
We believe.
Again, we don't know again, what the ruling is with Norwich and.
Expect to receive that in August .
So we'll have to see what that's going to be.
But what I would say is is that when we look at it.
The case has been heard on the seven patents.
<unk> four is a facts and in this case the stipulation agreement okay.
Would not apply if Norwich modifies and to exclude the <unk> indication. So it's norwich chooses to modify its and to exclude the <unk> indication or <unk> safety data, we would of course, a way all options for asserting the remaining <unk> and <unk>.
And so.
It's a we know again still a multiple things moving there as we look at it and again waiting the final report's decision. So we can take a look at it.
And really seeing where we're going to be but there is still a lot to learn from when we get the written opinion.
And.
The last with your last question was a tentative.
Approval.
Could you just repeat that of what you were saying.
Oh, yes, so that is one tentative approval out there for Rifaximin I was I wanted to know if you are with that.
The company, which caused the tentative approval has done.
We've a bio equivalent study.
Will they be suppose to do that once FDA publishes the final guidelines.
Yeah, We don't know and you really can't speculate on that.
Okay.
Okay. Thank you, okay and that will conclude the Q&A.
Thank you. This concludes our question and answer session and today's Bausch Health second quarter 2022 earnings Conference call. Thank you for attending today's presentation. You may now disconnect.
Yeah.
Yeah.
Okay.
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Okay.
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