Q4 2022 Bausch Health Companies Inc Earnings Call
Good morning, and welcome to Bausch Health's fourth quarter 2022 earnings conference call at.
At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation.
If you would like to enter the queue at any time, you May press star one.
Do you wish to exit the queue you May press star two.
Now my pleasure to turn the floor over to Judy Diclemente, Judy the floor is yours.
Thank you Tom Good morning, and welcome to <unk> fourth quarter 2022 earnings Conference call. This is Judy Diclemente Investor Relations SaaS health.
Participating in today's call are Thomas Chief.
Chief Executive Officer of SaaS health haven't come back yet.
<unk> financial officer.
Before we begin I'd like to remind you that our presentation today contains forward looking information.
I'd ask you to take a moment to read the forward looking statements at the beginning of the presentation.
Our actual results may vary materially from those expressed or implied in the 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-GAAP financial measures may not be comparable to similarly titled measures used by other companies and should be considered along with but not as an alternative to measures calculated in accordance with GAAP.
You'll find reconciliations to our non-GAAP measures in the appendix of this presentation, which is available on <unk> Investor Relations website.
Finally, the financial guidance in this presentation is effective as of today only we do not undertake any obligations to update guidance.
Our discussion today will focus on Bausch health, excluding P&L. However, we will briefly comment on the ocean loans results announced yesterday.
We will refer to year over year comparisons with the same period last year, unless otherwise noted for the benefit of those who may be listening to the replay or archived webcast. This call was held and recorded on February 23, 2023 with that it is my pleasure to turn the call over to our CEO Thomas <unk>.
Tom.
Thank you Jody and welcome to those of you joining the call today.
Nine months after our new management team took over Bausch health I am proud to report the progress we have made.
First we met guidance for the full year 2022, delivering the revenue of 4.3 dollars 6 billion and EBITDA of 2.32 billion for Bausch health, excluding P&L. However.
However, revenue and EBITA declined during 2022 and as I have said in prior calls my team and I are committed to delivering revenue and EBITDA growth as we go forward.
I am pleased with the momentum we saw in the fourth quarter with revenue for Bausch health, excluding P&L up 2% on an organic basis.
Driven by growth in our Salix Solta and international businesses.
We believe this encouraging topline performance provides a solid foundation for 2023.
Second we continue to make progress on our strategic alternatives, improving our balance sheet.
Debt principal net of unrestricted cash for Bausch health excluding.
Excluding <unk> has now been reduced by $3 2 billion since the IPO of vouchers loan in May of 2022.
We have also continued to work to resolve several legacy matters and we'll continuously vigorously defend our intellectual property.
Third given our momentum we are providing a solid 2023 outlook, which are confident will create long term value for stakeholders.
Let me now take you through some specifics.
Starting on slide seven I am pleased to report that we're making progress in the performance of our business segments.
One the Salix business had organic revenue growth of 4% in the fourth quarter with courage ing like faction script growth in all channels other than the long term care channel, which Tom <unk> will touch on later in this call.
Our targeted commercial strategies and initiatives to improve diagnosis and treatment of Gi and liver disease continue to drive results.
<unk> business has shown momentum after declining 2% organically in the first half of the year. It grew 4% in the second half of the year, resulting in a 1% growth for the full year.
Other key promoted brands also saw increased scripts led by double digit growth for Relistor and planned view.
Mid single digit growth for <unk>.
For International we continued to grow key markets, such as Poland, Mexico and Canada.
With existing brands and new products, the international business posted 2% organic growth in the quarter.
Resulting in a healthy 5% increase for the year on an organic basis.
In salt the medical sales grew organically by 20% in the quarter, resulting in 2% organic growth for the full year, our Asia Pacific business outside of China has been strong with consistent growth throughout the year our business in China continues to recover after the Covid lockdowns in the second quarter.
And posted strong growth in the fourth quarter.
In diversified.
Sales for the segment declined by 6% on an organic basis in the quarter and by 13% for the full year, while EBIT margins for the year remain stable relative to last year. The business has been impacted by generic competition and we are focused.
On stabilizing the business within the diversified segment, both our dermatology and dentistry business unit, so strong organic growth for the quarter Julia script growth increased by 23% for the quarter.
Turning to slide eight let me make a few comments about the progress we have made along the strategic alternative pathway that we started back in 2020 as you know we completed the IPO of Bausch and Lomb in May of 2022. Since then we have made progress in Delevering our.
Our balance sheet during the fourth quarter, we executed an additional open market repurchase which with previous open market repurchases, we made throughout the year and with the successful debt exchange. We closed in Q3 enabled us to reduce our net debt by three points.
2 billion. We are also further reduced our debt maturities in 2025 and 2026.
This has strengthened the company's financial position created stakeholder value and increased our flexibility to capitalize on opportunities as we move forward.
We continue to evaluate potential options to maximize stakeholder value the significant reduction in debt since the IPO has enabled us to achieve the financial matrix required under our debt documents to unrestricted bausch and lomb, which we did in the fourth quarter.
Furthermore, as it relates to bausch and lomb separation, our effective efforts to implement transactions to further strengthen our balance sheet have resulted in us achieving our own.
Six five to $6 seven X net leverage targets, excluding the $1 billion of nonrecourse debt held by the <unk> restricted subsidiary, which is collateralized by a portion of BNS shares.
We continue to believe the separation of Bausch and Lomb make strategic sense, we remain committed to creating two strong companies and therefore to ensuring the financial stability of both companies on a standalone basis. In addition, as previously discussed there remain a number of steps that need to be.
Completed to achieve full separation, including the receipt of shareholder and other necessary approvals. So we continually to thoughtfully evaluate all relevant factors related to the <unk> separation.
In the meantime, we remain focused on commercial performance and improving our operating results reinforcing a solid foundation for the future.
Lastly, we continue to make progress on several other matters.
With regard to the granite Trust. We are pleased to have had a productive engagement with the IRS. We applied for fast track mediation in January of this year, we reached a tentative settlement with the IRS to resolve the matter through the settlement is subject although the.
The settlement is subject to further review and approvals before it is finalized we do not expect the outcome will have a material impact on the company's full year results or cash flows our cash flow guidance for 2023 reflects the potential impact of this matter, let me make a few comments with respect to those <unk>.
Facts and litigation.
As we have previously disclosed on August 10th 2022, the court issued a decision in our dispute with Norwich, finding certain site fax and $5 50, and paddock encephalopathy AG patents valid and infringed and certain <unk> vaccine composition and <unk>.
The patent invalid as we have stated we disagree with certain portions of the court's decision and have filed an appeal.
However, I would like to point out that the courts current decision prevents Norwich and up from receiving final FDA approval until October of 2029.
Since the courts decision was issued Norwich has advised the court that has sought to remove the <unk> indication from it and and has filed a motion to modify the final judgment to permit the FDA to approve the NDA before 2029, we have opposed this motion and await a decision from the court.
Separately, the FDA issued an update to the XI facts and product specific guidance to remove the opportunity for generics received bio waivers and now requires in vivo bio equivalent studies for <unk> 550 generics.
On January 31, the U S patent and trademark office issued an additional U S patent that protects the effects and $5 50 product for the treatment of Ibs D and expires in February 2029.
<unk> is now Orange book listed for XI facts, and $5 50 product and further supports our XI facts and patent portfolio. We remain confident in the strength of those facts and patents. This is all we are prepared to say about this like facts in litigation at this time.
Before I turn the call over to Tom <unk> to discuss our fourth quarter 2022 results and 2023 guidance I'd like to share on a high level. Some of the key growth drivers, we see for 2023 across our business segments.
On slide nine starting with Salix, we are pleased with the momentum in the second half of 2022, and we believe there is significant opportunity to accelerate the growth of the facts and over the next few years.
The addressable market for both H E N Ibs D is large and die facts and has been endorsed by guidelines and recommended a standard of care for both indications.
There are still a large number of patients across AG and Ibs D are not receiving the treatment we.
We are significantly increasing our investment in direct to consumer advertising to activate consumers for both Ibs D and <unk>.
We are investing in new sales force capabilities to enhance effectiveness, leveraging artificial intelligence and machine learning.
We are expanding our sales force footprint in the instant ink situtions space to engage with new integrated delivery networks, we are executing a variety of new <unk>.
<unk> of sale pharmacy initiatives to improve both the provider and patient access experience. We will continue to work with payers to solidify its a fact and strong value proposition.
We also continue to invest in Rifaximin, we have several programs underway in our pipeline, including a global development program for Red Sea for the prevention of the first episode of a complication associated with cirrhosis, we have.
The global rights to this program, which address unmet needs in a global patient population that is much larger than <unk> current patient population for overt H E, which we only market in the U S to that enrollment in our phase III clinical trials.
For Red Sea program is on track. We are pleased also to receive orphan drug designation for Rifaximin sickle cell disease program and enrollments for the phase III clinical trial for this formulation are ongoing.
Finally in our Salix pipeline, we are progressing with our large phase two study for <unk> for patients suffering with authoritative colitis you see.
Turning to our international business in Canada, we are focusing our efforts in 2023 unprofitable growth in dermatology for acne atopic dermatitis psoriasis and Anna.
Co mycosis using direct promotion digital engagement as well as direct to consumer programs. We are leveraging our data management systems to enable more rapid insight generation and enhanced understanding of H C. P preferences in turn generating an expanded customized digital off.
<unk> to our customers in Europe , we aim to continue to drive strong growth through HCP education enhanced digital engagement as well as continuous training of our marketing and sales teams.
We have several new product launches across the international business, including re alturas for moderate to severe seasonal allergic rhinitis you cerus on.
<unk> foam for distill ulcerative colitis in Canada.
In Latin America, we are launching line extensions for <unk> and <unk> in Mexico, and we will driving our expansion into Central America with the launching of existing brands.
In Solta medical this is a strong durable business operating in very attractive markets with more than 70% of the revenue coming from consumables. We believe that this business has significant growth potential we will continue to invest in expanding our present presence.
In key markets, including.
Through broadening the reach of our direct to consumer campaigns in the U S. The geo expansion of their <unk> and the strengthening of our sales forces in Europe . We are encouraged by the lifting of the Covid Lockdowns in China, and we are cautiously optimistic about the recovery in the volume of treatment procedures to pre <unk>.
<unk> levels.
For diversified in our dermatology business. The FDA has accepted our new drug application for IDP 126, the first triple combination product for the treatment of acne Vulgaris, we presented findings for IDP 126 at the innovations in Dermatology conference in Las Vegas.
<unk> last November and received positive feedback we are finalizing our plans for the launch of this product as soon as we receive FDA approval.
In our neurology business, we will be investing in anti depressant implanted, including for patients diagnosed with seasonal effective disorder or sad.
And more broadly we're looking to manage our portfolio of non promoted products in this business in a more effective and efficient manner.
Finally in dentistry, we reinforced our commercial efforts on our core product arresting arrest and as an antibiotic use in the treatment of <unk>, Don Tightest, a condition suffered by large patient population. We saw the benefit of this strategy in 2022 with an acceleration in <unk>.
In the second half and expect to see this continue in 2023.
As you can see we have a number of exciting and encouraging programs underway. We are proud of the momentum that this team has built to date and we continue to make strategic investments to drive revenue growth and build out our R&D pipeline pipeline to ultimately bring products to <unk>.
Market that serve patient needs.
With that I will turn the call over to Tom <unk>, who will provide further details on our fourth quarter performance and an outlook for the remainder of the year Tom. Thanks.
Thanks, Tom Hello, everyone and thanks for joining US my comments today will refer to organic growth and adjusted results.
Start with slide 11.
We closed the quarter with consolidated fourth quarter revenues for <unk> of $2 2 billion.
Up 4% on an organic basis over the same quarter last year and up 2% for the full year.
Fourth quarter revenues for Bosch health, excluding <unk> were $1 $2 billion and up 2% on an organic basis with growth in our Salix Solta and international businesses.
Let me discuss each segment in greater detail as shown on slides 13 through 16.
Fourth quarter, Salix revenues increased 4% to $581 billion.
<unk> and a 1% increase for the year, a solid improvement from the 2% decline in the first half of the year.
Let me provide some more color on Salix for the full year, we saw a 5% increase in price, including the benefit of favorable gross to net deductions. This was partially offset by a 4% decline in volume driven by year over year over year decrease in wholesale and retail channel inventory.
Underlying demand for the year was up across all promoted products.
So FX and revenue grew 6% in the quarter and overall demand increased 3%, including an increase in non retail demand.
Institutions, including hospitals and outpatient clinics.
We have continued to see T. Rx volume in the long term care channel declined for the third year with no sign of improvement thus far.
There appears to have been a shift in the <unk> patient journey post COVID-19 with patients going directly home from the hospital rather than to a long term care or step down facility.
We think such patients probably continue to receive their refill prescriptions from the institutional location.
We are proud of the positive impact of FX and can have on patient health and as Tom touched upon earlier, we're excited about the opportunity to make it available to many more patients who need it and to adapt to the evolving patient journey.
We increased investments in Salix during 2022 and are planning significant investments in 2023.
We're also pleased with the sales performance of <unk>, Relistor and plan view, increasing 17% to 6% and 60% respectively. In Q4 of 2022 versus Q4 of 2021.
International revenues were $261 million, an increase of 2% on an organic basis during the fourth quarter and an increase of 5% for the full year.
For the full year, we saw growth in all three regions EMEA, Canada, and Latin America, driven by a combination of price and volume increases. We also saw double digit growth in a number of key brands.
Solta medical revenues of $99 million increased 20% on an organic basis in the fourth quarter and revenues for the full year were up 2%.
Revenue growth for the full year was significantly impacted by the Covid Lockdown in China earlier. This year, we saw a rebound in the second half with revenues growing 14% compared to an 11% decline in the first half mainly driven by Asia Pacific Excluding China.
The lifting of Covid Lockdowns in China appears to have had a positive impact on demand in other countries within the Asia Pacific region.
Diversified revenues were $256 million down.
6% on an organic basis in the fourth quarter and down 13% for the full year.
<unk> sales from neurology and generics were partially offset by strong sales performance from our dermatology in dentistry businesses for the quarter.
As arresting and Julia continue to perform well with sales growth in the quarter and for the full year.
Segment margins have remained stable despite the decrease in revenue.
You will note that in the quarter, we recorded an impairment of goodwill for our neurology business of $622 million.
As you know we have seen neurology revenues decline in 2022, continuing a trend we have seen in the last few years. In addition, we have analyzed the impact of current market conditions, including the potential impact of recent legislative changes on our long term pricing strategies for key products in the neurology portfolio.
No.
We expect pressure from new market entrants in this business as well as from generic launches across the neurology dermatology and generics businesses and have adjusted our long term view of the current portfolio.
Lastly, on slide 17, Boston loan revenues were $996 million.
Up 5% on an organic basis, this quarter and up 5% for the full year driven by organic growth across all P&L segments.
Turning to the P&L for the quarter on Slide 21, I will first refer to results on a consolidated basis and also provide some additional color for the performance of Bush health excluding P&L.
Fourth quarter consolidated adjusted gross margin was 73%.
120 basis points lower than in Q4 of 2021, driven by continued pressure from inflation along with for the P&L businesses pockets of limited supply availability that drove up costs and the incremental production costs related to its daily Si Hy lenses.
These headwinds were partially offset by long term supply agreements and cost controls.
We expect these inflationary pressures to continue next year.
Full year, adjusted gross margin was 79% or 70 basis points lower than the prior year.
At Bosch health, excluding BNS adjusted gross margin for the fourth quarter was approximately 85% 80 basis points lower versus Q4 of 2021 due to FX headwinds, which offset underlying gross margin expansion full.
Full year adjusted gross margin was also 86% a 50 basis point improvement versus the prior year.
Our long term contractual agreements provided some cost stability this year, despite increases in energy and distribution costs.
Consolidated adjusted operating expenses for the fourth quarter was $770 million in.
An increase of $33 million up 4% with higher R&D and G&A expenses.
BNS reported an increase of $8 million in operating expenses.
Consolidated R&D expense increased 21% and represented 6% of net sales compared with 5% in the fourth quarter of last year.
We continue to progress our clinical programs and regulatory activities to support our late stage product development activities, which Tom discussed earlier.
The increase in consolidated adjusted G&A costs reflects the impact of the separation and the cost to stand up two public companies. We are in the process of separating P&L and structure infrastructure from the rest of the company and have made significant progress reducing our transition service agreements this year.
Fourth quarter consolidated adjusted EBITDA attributable to <unk> health was $823 million.
A decrease of 9% and a decrease of 1% on a constant currency basis versus last year.
That has been recorded on the balance sheet is a premium.
Which will be reduced as interest payments are made contractual.
Contractual interest costs for the quarter based on principle balances was approximately $365 million in a consolidated basis and $320 million for Bush health, excluding P&L compared with approximately $340 million in a consolidated basis last year.
As you will recall being able to not have any stand alone that last year.
A few words about cash flow.
Excluding separation costs adjusted cash flow from operations on a consolidated basis in the fourth quarter was $507 million versus $279 million last year.
Which in large part reflects the favorable working capital impact of timing of certain payments, including interest in 2022 compared to 2021.
Full year adjusted cash flow from operations on a consolidated basis was $1.02 billion.
As Tom said earlier, we are pleased that revenues EBITDA and cash flow for 2022, but boche health. Excluding P&L came in around the mid point or higher of the guidance that we provided in our call in August of 2022.
Revenues for 2022 were $4 $36 billion and adjusted EBITDA was 2.32 billion a margin of 53.2% ajar.
Adjusted cash flow from operations with $637 million.
You'll note that our GAAP operating cash flow reflects the release of just over $1.5 billion from restricted cash as certain settlements of legacy legal matters for which we had placed funds in escrow became final and Unappealable.
Now, let's turn to our balance sheet on slide 22.
As Tom mentioned, we continued to make significant strides in deleveraging balance sheet. This quarter. We completed an open market repurchase program of our debt, which retired $446 million about that at a significant discount using $250 million of cash.
When compared when combined with our queue to open market repurchase program, we retired and aggregate $927 million of debt using $550 million of cash or.
Full year debt reduction was approximately $3.8 billion of principle balances on a consolidated basis for the full year.
And $3.2 billion since the Biennale IPO.
Furthermore, on a consolidated basis out debt maturing prior to 2027 has been reduced by $7.5 billion compared to the start of 2022.
As you can see on slide 24, total debt for Bosch health, excluding Bosch and long at year end was $16.6 billion, which consisted of $15 $6 billion of restricted debt issued by bus health excluding P&L.
And $1 billion of senior secured notes issued by the unrestricted subsidiary created in the third quarter.
Excluding P&L that approximately 85% of our debt is fixed and.
And 70% on a consolidated basis.
I will now discuss our guidance for 2023, which you can find on slides 26th and 27.
I'm going to only comment on our expectations for Bosh health, excluding P&L. Since you would have already heard on P&l's earnings call yesterday that they have not provided guidance for the full year. Therefore, we will not be providing consolidated guidance.
In 2023, we expect revenues of $4 for $5 billion to $4.6 billion growth of 2% to 5% on an organic basis, reflecting the momentum we started to see in the back half of 2022.
Four 2023, we now expect foreign exchange impact to be a slight tailwind and we expect based business performance growth of approximately $185 million.
Full year adjusted EBITDA for Bush held excluding P&L is expected to be 2.3% to $2.4 billion.
Let me spend a few minutes diving further into a margin expectations for bush held excluding P&L.
From a gross margin perspective, we continue to mitigate the impact of inflation on our cost of goods sold and we expect our gross margin to remain comparable to last year at approximately 80%.
Our EBITDA expectations also reflect increased investments in sales and marketing as well as a full year of the dissynergies from the separation from being out.
First investments, we continue to invest in sales and marketing activities to drive growth in our key brands and our Salix International and Solta medical segments, which Tom addressed earlier.
These investments include expanding our sales sales sales force the first DTC marketing campaign for an exciting campaigns as we launch products like <unk> and <unk> in Canada.
These investments will increase of sales and marketing spend as a percentage of sales by 1% to 1.5% of sales.
We expect to see the benefits of this spend in 2023 and into 2024.
Second Dissynergies.
As a result of the separation process weeks, we estimate that a full year of standup costs in 2023 has a $30 million incremental impact compared to 2022.
We're working hard to remain disciplined with G&A increases.
We also expect FX to be a minor minor tailwind to the bottom line at.
At the midpoint of our guidance, we expect based business performance to drive improvements of approximately 4% adjusted EBITDA of 2022.
A couple of points I want to make on quarterly praising the.
The first quarter of the year is typically been seasonally seasonally weaker than the subsequent three quarters and this business due to the impact of resetting health insurance deductibles in the in the United States.
Which impacts the patient out of pocket costs.
Additionally, while we don't give guidance by quarter, we do expect to have slower growth in Q1 and strong growth in quarters to through for when we anticipate the benefits from our sales and marketing investments will start to materialize.
Moving below EBITDA, a full year effective non-GAAP tax rate is expected to be 18%.
And interest expense reported in the P&L is expected to be approximately $1 billion.
Including the impact of the accounting treatment I covered last quarter, resulting from us September that exchange.
We expect our contractual interest cost to be approximately $1.3 billion.
Reduction over the approximately $1.4 billion, we paid in 2022.
With lower death balances offsetting the impact of rising interest rates.
Lastly, we expect Bush health, excluding P&L to generate approximately $625 million and adjusted operating cash flow.
I will now hand, the call back to Tom.
Thank you Tom.
In summary.
This new team has made progress this quarter and we remain laser focused on continuing to improve our financial performance and drive operational improvements.
We are committed to working with urgency and accountability built.
Building, a healthy foundation for growth.
Our team has full ownership of our priorities that I outlined last year when I became the CEO , we must deliver on each priorities to create stakeholder value one drive sales and editor growth to developing a high performance.
Results oriented culture, three insuring at teen focus and operating rigor behind R&D and business development.
And forth, creating value through a strategic alternatives.
We are encouraged by the momentum in the back half of 2022, and we remain committed to investing in substantial growth drivers to position us for a long term growth of both sales and EBITDA. This.
This includes continuing to drive top line growth of Salix International and Salt and key brand in the diversified Rx businesses, all while investing in R&D to expand our pipeline and open new regulatory path.
As we execute against these goals, we are focused on broadening patient outreach launching new products driving aware awareness of existing products through targeted TTC campaigns and expanding existing products into new markets.
At the same time, we aim to continue improving our balance sheet and to progress our clinical programs to bring high quality, new therapeutics to patients around the world.
As we stand up the new Bausch health, our focus continues to be unimproved and outcomes through innovation, we have a well established product portfolio within our core businesses as well as a pipeline that brings new solutions into the market.
I'd like to thank the team at Bausch health for all their hard work focus and dedication and driving performance and building a results oriented culture I look forward to what 2023 will bring.
With that we will now take questions operator, please open the line or Q&A.
Thank you the floor is now open for questions. If you would like to enter the queue. Please press star one on your telephone keypad at this time to enter the queue. We do ask is listening on speaker phone. This morning that you. Please pick up your handset while asking your question to provide optimal sound quality once again there'll be star one.
On your telephone keypad now if you would like to join the queue to ask a question. Please hold a moment, while we pull for questions.
And the first question. This morning is coming from Georgia European off from Cowen and company.
Of your line is live please go ahead.
Hi, Thank you so much for taking my question and congratulations on the purpose.
<unk> <unk> a couple of <unk> and if you can remind me about the timing of the of the appeal process and then secondly, as you discussed on the call the updated guidance from from the <unk> put up.
A few more regulatory hurdles, but maybe you can just put those into context in terms of specifically the new studies that are required is that just the pk's study that could be kind of like easily perform or is it.
Is it a little more info and then the final question on the Texans specifically.
Can you remind us.
If there are any tentative approvals for the 550 milligram dose.
Outside of Norwich, obviously.
Okay Georgie. Thanks for the question I'll take these one at a time in terms of your first question on the appeal process.
It takes between 12 and 18 months.
Again, what I said in.
My prepared remarks.
That would be 18 to 12 812 to 18 months post there.
The current motion decision that we're waiting for so that's the first answer to your question when it comes to the SDA issued.
In terms of the new guidance, the FDA issued an update to the.
Facts and product specific guidance.
To remove the opportunity for generics to received by a waivers now requires in vivo Byway equivalency studies for generic so.
What that entails again I can't comment on that.
Right now but.
Clearly that's another hurdle for the generics.
To have to get over Alright, and then.
The last thing is the tentative approval for 500 fifties.
Tara approved for 550 before.
Again, there's one tentative approval.
Before the new product specific.
Guidance skylights.
Next question.
Thank you. The next question is coming from Douglas Meme from RBC capital markets. Douglas. Your line is life. Please go ahead.
Thank you.
Two questions first one also has to do with satisfaction in relation to what you might be expecting as part of your guidance in terms of.
<unk> growth and then what type of price increases would you hope to increase on a net basis for the drug as well this year.
Yes, Hi, Doug It's Tom Vasquez look we as you know, we do not provide guidance at that level.
For the products and certainly don't.
Attempt to provide guidance split between pricing in volume you got a sense of what we realized last year.
On price I'd I'd say from my experience anyway that was a little bit on the high side.
But yes, we were going to continue we do expect to see growth, we're making significant investments in betting on betting a lot on the success of this business on this Alex businesses. So we expect to see growth and that's a big component and a driver of the overall company growth next year, but yeah I'm afraid I can't give you. The specific details you were looking for them.
No that's fine.
What I, what I would say to that also in my prepared remarks, I talked about the substantial investment.
Making.
In artificial intelligence.
This is clearly a big program for us.
And a real focus in 2023.
And then of course, our direct to consumer campaigns, both on the Ibs's side and on the side. So we're really excited about the increase investment in in 2022, we made additional investments that I saw when I came in as the CEO that we could.
Make early early on what we could do and a lot of those investments.
Coming on board in May we made those decisions quite quickly which put those in place. So we're going to see a lot of that to come to fruition.
The investments we made in 2022 in 2023, and then we've made a substantial increase investment in in in 2023. So we're really excited about the programs that we have.
To drive.
This business Xifaxan these two indications as.
As I said in my prepared remarks have a lot of room, a lot of room for growth.
Okay and then my follow up question, Tom just really has to do with maybe you could walk us through the puts and takes with respect to.
Adjusted EBITDA to your operating Cashflow numbers. So for example, we know that you have your.
Cash interest expense to be paid you have here I know you have your tax rate of 18%, but really I am thinking about the cash tax that'll be going out the door and then anything else that could impact the number to get to the 625 could you walk us.
<unk>.
Yeah, I'll I'll give that to Tom <unk> to walk you through that yeah, just just at a high level for last year and I can take a crack of 2022. So we did about $2.3 billion of of EBITDA.
After that we paid $1.3 billion of interest caused us a contractual interest cause as opposed to what's under P&L on the face of the piano.
And then the rest of it is just changes in.
Basically working capital partially in certain other payments that we had to make so about $400 million or so.
Those would be the big chunks and it's fairly.
Clean.
This is adjusted operating cash flows that does not include.
For example, the 151 $6 billion of separate of litigation costs that we settled out of restricted cash and so forth.
Oh, Tom I was asking about 2023 to get to the 625, yeah. So.
Again, the it would be similar mass Doug.
The we expect interest cost to be $100 million or so lower as I said in my prepared remarks.
And then it's going to be a case of.
What working capital.
Movements, we expect we had.
Pretty good Q4 2022.
With some save favorable working capital movements and that will work slightly against us as we go into 2023.
And the settlement with the I R S.
Yeah, that's all baked in.
As Tom said in his prepared remarks, that's baked into that 625 number.
If if it is a tentative settlement I will just remind users and it remains to be approved.
At various levels within the IRS. So once that's done we do not expect it to have really a material impact on the company's results whether it's the P&L.
All the cash flow.
Thank you.
Thank you. Your next question is coming from Glen San Tangelo from Jeffries Glenn.
Plan. Your line is lives. Please go ahead.
Thanks for taking my question and all the details common.
Tom and you're sure to prepared remarks, you made the statement to complete the spin you need shareholder approval and some other necessary steps and I was wondering if you could sort of elaborate on what those other necessary steps are and to that point there were two things in particular.
Hoping you could comment on it number one it sort of our understanding that in order to get the tax free ruling designation you need to solvency opinion on remain calm when I was wondering does that tech technically possible given the Xifaxan litigation fully appreciating your point of view on the patent portfolio strength and then.
Secondly, I was wondering if you can give us an update on the Investor litigation in New Jersey, and how that could potentially impact.
The timing of the spin because based on.
Our understanding the judge said that he's going to hear the case, but he ruled that the spin was not imminent and so the timing was postponed I was wondering if you just give us more details on all of that thanks.
Okay, Glenn that's there's a lot of questions to one taxpayer.
[laughter] that's okay, let me let.
Let me let.
Let me take a shot at all these questions you had your.
Firstly.
We remain committed to creating too strong companies.
And therefore to ensuring the financial stability of both companies on a standalone basis.
That's that's the goal that's what we are we are are focused on.
Cannot and I'm not going to comment on specific.
Specifics high level, we again, we need to create too strong companies here.
As we move forward they are still.
<unk> to be taken to to spend Anl. We've made great progress this year on those and we remain fully committed and we believe it's in the best interest of stakeholders.
To continue on with our strategic alternatives of what we have laid out.
Tom if you want to make any further comments.
Oh no. Okay. So what I would say is from the fraudulent conveyance in terms of the status. We have filed a motion to dismiss the plaintiffs claims we anticipate a decision the first half of 2023.
December the court denied the plainest motions for a preliminary injunction.
That's all I can information I can give you at this time.
Operator next question.
Certainly certainly your next question is coming from David and Felon from Piper Sandler David Your line is life. Please go ahead.
Hey, Thanks, So just had a couple on the underlying.
This is the form of business first.
I've asked this in the past, but but I think it bears asking.
Again.
How do you think about the various pieces.
Of the the business and and are there any segment that would.
It would make sense to divest.
That's number one number two as you think about.
<unk> your call alternatives.
And adding on assets and particularly in the context of the limited bag with <unk>.
What areas.
Makes sense for further advancement the term or G. I R or something else and then lastly longer term on the neurology diversified Uhm segment should we just think about that is essentially a melting ice cube.
Even beyond the pressure you decided you know for 2023 or do you think that's a business that you think essentially can stabilize down the road. Thank you.
Okay David.
Let me start at the top so.
When I look at our business and.
I think we have really some really great assets here as I.
When I look at the business globally.
In terms of what we have.
The assets to grow of course, I've already talked about in my prepared remarks in previous answers to previous question Salix is clearly a focused on a growth driver.
Clearly if you look at these two indications that can drive growth Ibs's D J.
And when we look at what.
Patient.
In terms of.
What how that drug works and then in terms of Vince Otology, what it means for our business of an Ht patient.
There's a lot there to continue to grow and what that is worth.
When I when I look at our international business as I talked about we have great.
Product portfolio branded generic steady growth high single digits were doing business development there of tuck in acquisitions.
Salter medical.
Love This business I think this business is it's terrible we have really a great opportunity to jail expand this business.
Especially.
In Europe and in Latin America.
We have.
Ah really.
Large franchise Solta medicals franchise in Asia Pacific as large even when we look at the business, excluding China, Okay 45 per cent of the business.
As in Asia Pacific X, China. So we have two real strong pillars, they're both on the Asia Pacific side, excluding China and of course, the business in China. So with the business momentum, we have there and along with what we have in and be able to do in Europe and Latin.
America and some of the things I talked about in my prepared remarks of direct to consumer in the U S and sold the business I'm I'm really excited about it.
When I take a look at the diversified portfolio theirs, you you've talked about what that business looks like there.
There is opportunities we are being very selective as we look at <unk> and what we can do there. So we have to be very selective given our.
R capital constraints, but there is opportunities to bring products in there. We do have IDP 126 that we're working on on the Derms space that you saw the growth of Julia.
It did.
Very well, we refocus the effort there are dentistry business, we have again the growth there and what we see of being able to do with that business and the neurology.
A business that we're managing.
For for cash we're looking at opportunities there are some interesting opportunities in neurology.
No I think neurology is a very interesting space to begin.
But we are being very selective we have screened a lot of candidates there but.
But again, we need we're very selective if I take a look overall is there anything were willing to diverse we're always open.
Two looking at divestitures, but it's got to be at the right price.
Because these are really valuable asset to us.
And we believe that we can continue to grow them. So if there is an opportunity to divest it would have to be.
At a multiple that really is is premium.
Next question.
Certainly the next question is coming from Jason Carberry from Bank of America. Jason Your line is life. Please go ahead.
Hey, Thanks for taking my questions first one for me just looking at your last 10-Q and it looked like Bash had about 12 billion in restricted payment basket. So you. After you do this b L. C. O distribution, you should have like more than $6 billion of RP residual there. So.
<unk> whatever remains it'd be 3 billion dollar market cap. So just wondering kind of post that's been what are the impediments if any to revisiting additional corporate spin offs that would obviously be in the best interest of your equity holders such as Sofa and then just.
Does that fax, an IP situation, just wondering like what who who has the next move is that the judge to lift the injunction. They're all part of the motion of Norwich or is it the FDA, making movement on the application of Norwich just wanted to get clarity on your understanding of who moves next year or harassment next.
Yeah.
I'll start off talking about it gets here on the RP basket et cetera.
I am not going to go into that on this call.
R documents are out that they're open.
They are available and certainly what we are looking at doing as part of a strategic pathway.
Tom has said everything we wanted to stay on this call with.
With the various things I think we have a busy.
Busy enough what plan right. There. So we're going beyond that is not not something.
But I'll hand, it over to Tom So further setbacks and part of your question, Yes, Jason I'll take the second part of your question. So right now we're waiting for the judge on emotion as I said.
Tales out in my prepared remarks that Norwich cannot come on until 2029. So of course, we're waiting for this motion from the judge also what I'd like to add is.
Norwich does not have approval that we're aware of so those are two points that I would like to to make.
Okay. Operator, I think we have time for one last question.
Certainly and the final question say will come from Gary Nachman from BMO.
Gary Your line is life. Please go ahead.
Okay. Great. Thanks. Good morning, So could you just review the leverage targets that you talked about achieving a six and a half to 6.7 times XP analysis.
More color on how you get there and how durable you think that is.
And also how you think about the balance of having the right spending level behind the key growth assets versus accelerating the EBITDA growth to lower the leverage further considering some of the uncertainty still with the facts and and then as you build out the facts and sales efforts are there any other ways that you can.
Potentially leverage that across the portfolio, maybe just give us a sense of it is that specific to the fax them or can can you leverage that more broadly <unk>.
Okay, Gary what I'll do is let me take your questions.
In terms of from a Xifaxan perspective, and investment perspective, then I'll hand, it over to Tom.
So firstly as I've stated, we are investing heavily behind Xifaxan as we think again, it's a wonderful drug and as I spoke about in my prepared remarks.
It's guidelines treatment so both from an IBSA perspective.
<unk> perspective, Weeble as I've also said, we strongly believe in our patents in our intellectual property and we as I've said also that.
Norwich cannot come on until 2029 at the present time, so the investments we're making here clearly will drive growth we are being laser focused on our spending I've talked about operational efficiencies throughout the organization. So a lot of the sun.
Some of the funding of these programs have come from savings in other areas.
So that is what's driving that again, we're really staying real focus tier of how we are looking at these investments and then to you're the second part of your question is is how we're going to leverage those in other areas and.
And clearly when we look at artificial intelligence the toolbox that we're putting together we can begin to use that in other areas and certainly in the Salix portfolio. What I would say also is is that when we look at the opportunities.
To invest in our business again, we have a narrow swim lane, that's why we against a laser focus we get a lot of opportunities to look at products that we could bring in but clearly they have to be they have to come in here at.
A good evaluation and so therefore, that's what we were always looking at from that perspective, you know and then.
If you look at overall.
Clearly.
We have opportunities to leverage the.
Portfolio.
In many different ways in east in and say like saw the.
Question over to Tom on the $6 seven that you had.
Yeah I'll just.
I won't go into the actual calculation, but just to reiterate what Tom said in his prepared remarks the.
We achieved.
That target it was our own internal target that we set for ourselves a six month five to $6 seven so we're in we achieve that target.
If we exclude.
The $1 billion of debt.
Unrestricted sub level.
We have not.
Disclosed in the past and not not disclosed today highway calculating that it's an internal management measure the intent behind it as Tom said is.
That we want to create too strong companies.
Two financially viable companies and you talked about your ability.
We we we want to make sure that when this is all said and done.
We have that.
So what Garry Lynch's add one thing could you talked about the spending balance you know in terms of if you look at our current R&D portfolio Red Sea is clearly.
Going to be we're very very excited about this program and therefore as we invest behind.
Xifaxan.
Again trading.
We talked about reduction of cirrhosis. This is the investments we're making today are as we lead it to read see infrared C. It's creating a great foundation so.
Okay, Alright, so I think we actually will have time for one more question. So we'll we'll take that and then we'll we'll wrap up the Q&A operator next question.
Certainly the next question is coming from <unk> from Evercore ISI over your line is life. Please go ahead.
Thanks for squeezing, Maine last minute I want to focus just on the very basics of the setup hair. Your cash from operations. This year is about 625, and I realize it's way down a little bit because normalized could be a little higher with the separation costs. But then we also knows that fax them by itself produces about six to 800 million, which is effectively the equivalent of <unk> cash flow. So.
[noise] scenario is that Fox is retained in full through early 28, that's about four to four and a half billion free cash flow versus about $16 billion. In that you guys have I guess, how are you thinking about the solvency in a realistic way in the absence of a big pipeline head and also even if the bills you'll spend happens within the secured that'd be able to pierce the corporate veil over to the bill to go with that.
Wow, that's a lot for this very last question [laughter].
[laughter] the.
The.
Let me you talk to <unk>.
<unk> and track your numbers. Unfortunately women. So maybe we'll take this offline, but $4 5 million billion dollars of free cash flow.
Ah Okay, Yes look again your.
Is the strategic pathway the issues that we are working through all the factors that we're considering summed up in your question and that's what Tom said, so as we consider all these things that that's when we'll decide whether we when how we will spin off.
<unk>.
So I can't go into the specifics of how I am thinking about solvency against those metrics, but we.
We expect the business to grow.
Cash flow should grow as we go forward.
But really that's that's all I would say.
And then the question of Obl's, you I can't remember why don't I call you back.
Okay No problem. Thank you so much guys yep.
Yeah.
Okay that wraps up our conference call today, I really I really appreciate everyone. Joining us today as you as you heard on the call there's a lot of.
A lot of momentum here that we're working on and the team is real focus too promising and delivering so thank you for joining us this morning.
Thank you everyone. This does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.