Q2 2023 Bausch Health Companies Inc Earnings Call
<unk> 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 will find reconciliations to our non-GAAP measures in the appendix of the slides that accompany this presentation, which are 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 Bausch health, excluding bathroom loan. However, we will briefly comment on <unk> results announced yesterday.
We will refer to year over year comparisons with the same period last year unless otherwise noted.
So the benefit of those who may be listening to the replay or archived webcast. This call was held and recorded on August <unk> 2023.
With that it is my pleasure to turn the call over to our CEO Thomas <unk> Tom.
Thank you John and welcome to those of you joining the call. This morning.
At Bausch health our team is focused on enriching lives through our relentless drive to create better health outcomes for our patients and physicians.
The BHG team is tirelessly dedicated to business performance delivering results and progressing key strategic objectives. This dedication was on full display this quarter with a number of highlights that we'll touch upon.
Turning to slide six.
We had a strong quarter.
With revenues for both Bausch health, excluding <unk> 113 billion up $106 million or 10% reported and 11% on an organic basis.
We received a favorable motion ruling and as the facts and litigation, which reinforces our continued investments in the Salix growth strategy we.
We executed an additional proactive balance sheet initiatives that further enhances our liquidity profile, we continue to take thoughtful steps as we evaluate the optimal implementation of a potential bausch and lomb distribution.
And we continued to progress our R&D pipeline.
Let me start by sharing some of our business performance highlights as shown on slide seven.
This quarter three out of four non b.
P&L business segment, Salix International and Solta medical posted double digit revenue growth.
Both on a reported and organic basis. The diversified segment saw a modest decline and improvement from the last few quarters, where we have seen double digit declines while neurology and generics remain challenging we are hopeful that the actions. The team has taken will help temper the pressure on these bids.
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Let's take each segment in turn.
Salix Q2 net sales for this segment were $557 million growing 11% in the quarter.
I am pleased to report that the investments we have made in this segment are beginning to pay off building on the plan. We laid out since I became CEO , we are continuing to increase our commercial investments to higher than historical levels in sales and marketing to drive profitable revenue growth.
In this segment.
Im pleased to share that we have made significant progress in our AI customer engagement initiative, we launched the new AI engine towards <unk> primary care field force team.
The AI engine will help our team to understand how to best address patient needs by engaging with the right positions at the right time.
This initiative is a key part of our strategy to improve customer engagement and drive growth.
We believe that AI has the potential to revolutionize the way, we interact with our customers and we are excited to be at the forefront of this transformation.
As part of our continued commitment to improve <unk>.
In Ibs D patient care, we expanded <unk> medical field team. The team is now fully trained and working to educate physicians and improve care for thousands of patients the.
The expanded MSL team Leverages insights from advanced analytic models to understand the largest patient care gaps and engage with physicians to force established treatment guidelines.
Finally, we have increased our investment in education efforts targeted to undiagnosed untreated consumers for both of our approved indications Ibs D and AG.
These activation campaigns are currently being deployed across a wide range of media channels, such as connected and addressable TV as well as many different digital and social media platforms.
We believe <unk> and other products in our GI portfolio, our effective options for health care providers that have not yet met their full potential to provide patients with the health care they need.
Turning to international revenues grew by 11% in the second quarter of 2023, both on a reported and organic basis led by strong performances in EMEA and Canada, while the quarters growth did benefit from a favorable comparison to the prior year. We are still pleased with our growth in the international business, which.
Was impacted in the corner by a voluntary recall of our Emirate epinephrine auto injector, which Tom will cover in more detail.
While voluntary in nature our decision.
Two action the recall was in our view the prudent and responsible decision to take.
Solta medical revenues increased by 54% on a reported and 60% on an organic basis.
<unk> strong growth in Asia Pacific region, which included the unfavorable impact related to limited activity in China in Q2 of last year due to Covid Lockdowns, while performance in other Asia Pacific markets was also very strong.
This quarter I had the pleasure to visit with our U S, China, and Hong Kong Solta teams and listened to what Theyre doing on working to continue to build our aesthetics franchise.
The teams are highly motivated and dedicated to deliver results and launch new products as we continue to build a world class global aesthetics business.
More than 70% of Solta revenues are generated from consumable sales represent an attractive and very durable business profile, where we see significant opportunity for long term growth. We are actively working to accelerate growth in our largest markets by expanding our sales teams in the U S.
And Europe and advance our pipeline of new product, new market authorizations, and new generation products.
Turning to diversify revenues decreased by 3% on a reported and organic basis in the quarter dermatology and dentistry had growth in Q2, which helped moderate the decline in neurology and the generics businesses.
As noted last quarter, our intention is to increase our marketing and advertising investments for our plans and in our neurology business and to expand our consumer awareness campaign for Julia in our dermatology business for the second quarter Dentistry revenues grew by 4% year over year driven by arresting.
Have restructured our sales force in this business and expanded our consumer awareness efforts for arrest and to drive growth.
I am pleased with our overall business performance in the second quarter, we are increasing our revenue guidance for Bausch health, excluding <unk> for this year and as always remain committed to delivering long term value for stakeholders.
In addition to the strong business performance, we had a number of other positive developments in the quarter.
Turning to slide eight.
We shared in May 2023, the positive news that the U S District Court of Delaware denied Norwich is Norwich.
<unk> pharmaceuticals motion to modify the court's final judgment and prevents the U S. FDA from granting final approval for Norwich, and therefore, as the facts and $5 50 milligrams before October 2nd 2029 <unk>.
You may recall that Norwich, followed this motion in order to attempt to get a skinny label approved before October of 2029, Norwich appealed. This decision Norge appeal is now consolidated with our appeal of the final judgment and validating the Ibs D in the polymorph patents.
We remain confident in our position and expect a decision on the consolidated appeals as early as Q1 2024.
Following the denial of <unk> motion to modify the final judgment the FDA granted tentative approval to Norwich is <unk> 550, <unk> confirmed that it remained barred from granting final approval until October 2029, Norwich cannot launch at <unk>.
<unk> until it received final approval from the FDA.
Norwich then sued the FDA in the United States District Court for the district of Columbia. This is a separate lawsuit in a different district court and the court issued the final judgment.
<unk> requested that the D. C District court direct the FDA to grant final approval of the and notwithstanding the Delaware Court's final judgment.
Arrangement, but we have since determined that the optimal way to implement the distribution made instead be through a tax free reduction of capital, which would provide additional flexibility to the company and fashion wrong.
We're continuing to evaluate the structure of any distribution and it's other related details and any distribution continues to be subject to the receipt of applicable shareholder and other required approvals.
We are working hard to progress our pipeline is shown on slide nine.
We remain excited about the Red Sea program for Us I fax and for the reduction of early decompensation and cirrhosis.
The global program is focused on developing novel novel formulations to address unmet medical need specifically the treatment is aimed at presenting the first occurrence of paddock encephalopathy Haa for patients with mild cirrhosis to global Phase III studies are currently underway.
Enrollment in these studies is progressing and we expect enrollment to be completed in both trials in Q1 of 2024.
We are currently planning to meet with the authorities in Japan later this year.
As I have noted these are global programs.
Four <unk> Ah new oral selective S. One <unk> receptor modulator that targets the treatment of mild to moderate ulcerative colitis. The phase two trial completed enrollment in July of this year.
In dermatology, we have an upcoming produced the date of October 20th 2023 for our NDA for IDP 126, if approved this will be a first in class treatment for the triple combination of acne Vulgaris and welcome addition to our established acne portfolio.
Our submission encountered was completed on may 30th of this year.
Our solta pipeline is active as well.
Our next generation Fraxel, a fractionated laser device for skin resurfacing remains on track for submission to the FDA later this year with the potential to launch in the first half of 2024. We are excited about the benefits offered by this product, including including its effectiveness in fine lines wrinkles.
Surface scarring pigmentation and age spots.
Are clear and brilliant touch program is also advancing with Europe , and Canada submissions plan for 2024 Asia Pacific for 2025 clear and brilliant touch is a fraction of that laser device for skin rejuvenation, our next generation Weser liposuction them, which uses ultrasound energy for us.
Fedex body Cantering is under development and planned for release in late 2024.
Lastly, we are developing several exciting features for <unk> to improve on what is already a leading product and non invasive skin tightening treatments.
Salter is well known for the broad portfolio of products that dresses dresses a range of aesthetic skin and body issues with continue improvements always in mind, our focus is on providing consumers with the aesthetics and therapeutic benefits based on cutting edge technology in our R&D team is hard at work on these innovate.
Of next generation enhancements.
As a leadership team, we remain committed to driving profitable growth through commercial excellence intensifying our focus on business development, expanding and progressing our pipeline and unlocking the value and potential of our company.
It's been an active and productive quarter for Bausch health and we are looking forward to building on the momentum across the board with that I will turn the call over to Tom <unk>, who provide further details on our second quarter performance Tom. Thanks.
Thanks.
Hello, everyone and thanks for joining us.
We closed the second quarter with consolidated revenues for Bausch health of $2.2 billion of Bill.
11% on an organic basis over the same quarter last year.
Second quarter revenues were bioshield, excluding piano, we're $1.1 billion up 11% on an organic basis, we saw growth in our Salix international insult of businesses, while we experienced a more modest decline in a diversified segment than in recent quarters.
Let's dive into the revenue performance for each segment and more details starting on slide 12 with Salix.
Second quarter, Salix revenues increased 11% on an organic and reported basis to $557 million driven by growth in our core products, including side effects and 550 Relistor Andrew lands.
As Tom mentioned, we're seeing our investments and Salix as commercial organization begin to pay off in the form of increased brand awareness demand.
Growth in Salix was led by side effects and.
Which grew 9% in the second quarter compared to the same quarter last year and overall demand grew 3% year over year <unk>.
In addition to demand generation efforts, we are benefiting from a rebound in the long term care channel.
With increases in occupancy levels.
While increasing still remained below pre pandemic levels.
We are also pleased with the second quarter sales performance of Relistor, and Trulance, which boasted year over year growth of 42% and 73% with total scripts growth of 20% and 14% respectively.
International revenues were $259 million during the quarter, an increase of 11% on undergoing a reported and organic basis compared to the prior year period led by strong growth in our promoted portfolio and Canada and key markets in EMEA.
In EMEA. The growth was also benefited from a prior year reduction in revenues of $11 million.
Related to a change in our estimates of future returns and one market.
In May Bocelli recalled Emirate epinephrine auto injectors for loss distributed between April 2022, and May 2023.
While there was limited revenue impact in the quarter from a cost perspective, we had write offs of finished goods and other other inventory.
As well as charges for outstanding purchase commitments together totaling $12 million in the quarter.
We are actively working to bring this important product back to market for our patients.
Soto medical revenues were $88 million during the second quarter, an increase of 60% on an organic basis over the prior year period.
Revenue growth was supported by a soft compare in the prior year quarter due to Covid related Lockdowns in China and Q2 2022.
Growth in other Asia Pacific markets with a strong 23% with overall growth for soldiers tempered by a decline in the U S in the quarter.
With several upcoming pipeline milestones.
Medical is primed for continued near and long term growth.
Diversified revenues were $228 million down 3% on a reported an organic basis in the second quarter due primarily to decreases in sales of neurology and generics.
Partially offset by an increase in sales in dermatology in dentistry.
We continue to see volume erosion for wellbutrin.
For our plans and positive demand growth was offset by a channel inventory drawdown.
Lastly, on Julia positive demand growth was offset by higher coupons and rebates.
Total sales for the segments increase sequentially June bought too gross to net pricing pressure in Q1 that did not carry over into this quarter.
With 70% of the segment's revenues coming from products that are passed their law dates we continue to manage the diversified business to optimize the revenue trajectory.
Maximize profitability in cash.
With some small targeted investments where there are growth opportunities for example for <unk> and dentistry and Julia in dermatology.
As shown on slide 13.
Bausch and Lomb revenues were $1 billion during the second quarter.
10% on a reported basis and 12% on an organic basis compared to the prior year.
With growth across all P&L segments.
For Bausch health, excluding P&L the adjusted gross margin for the second quarter was 79, 4% 140 basis points lower than last year.
The decrease was mainly driven by a change in product mix and the emirate recall changes charges in the international segment that I covered earlier.
On the Biennale site adjusted gross margin was flat compared with Q2 of 2022.
Consolidated adjusted operating expenses for the second quarter or $832 million, an increase of $80 million or 12% on a constant currency basis, driven by higher SG&A expenses, reflecting investments in sales and marketing and higher R&D for.
For Bausch health, excluding P&L operating expenses increased by approximately $34 million, while BNS reported an increase of $46 million in operating expenses.
Selling and marketing increased to abolish health, excluding P&L due to the investments we are making into salix salesforce or go to market channels and advertising and promotional activity.
The increase in consolidated consolidated adjusted G&A costs reflects the costs associated with standing up to public companies.
Oh, just to G&A for bar shells, excluding P&L was flat compared to the prior year.
Consolidated R&D expense for the quarter increased 23% compared to the prior year and.
And represented 7% of net sales compared with 6% for the prior year period for.
For both shelf, excluding P&L R&D expenses increased by approximately $19 million due primarily to the focus on our clinical programs and regulatory activities to support our mid and late stage product development and the Salix segment.
We have been successful and restructuring our approach with our third party clinical providers, which is accelerating activity and plan to spend in the Red Sea program.
Second quarter consolidated adjusted EBITDA was $727 million, an increase of $26 million or 4% on a reported basis and 7% on a constant currency basis.
Four vouch health, excluding P&L adjusted EBITDA was $568 million, an increase of 7% from last year.
Reflecting the factors previously described.
On a consolidated basis, the second quarter, adjusted EBITDA margin was 33.5% compared with 35.6% last year.
Justin EBITDA margin for Bob Shell, excluding P&L was 52% and for abortion law was 17.3%.
Turning to cash flow on a consolidated basis.
Volsce held generated $360 million in operating cash flow in the first six months.
The increase versus the prior year was due primarily to decreases in payments of accrued legal settlements related to the <unk> antitrust litigation.
The positive impact of insurance recoveries from prior legal settlements and changes in business performance.
As with recent quarters, we have also reclassified a portion of our cash interest payments to financing cash flows as a result of the accounting treatment for bonds issued as part of 2022 that exchange.
Justin cash flow from operations on a consolidated basis in the first half was $196 million for Bausch health, excluding vll the year to date adjusted cash flow from operations was $234 million from strong cash conversion in the first half which was in line with our expectations ajar.
Did cash flow includes adjustments for the payment of separation costs business transformation costs and insurance settlement proceeds and also includes payment of the full contractual interest.
Now, let's turn to our balance sheet.
We continue to Prioritise, the delevering of a balance sheet and in the second quarter of 2023, we reduce though that for bar shelf, excluding P&L by $181 million, including revolver payments repayments.
As shown on slide 18 and 19.
Total debt Phobos health, excluding Belshe alone at the end of the quarter was $16.3 billion, which consisted of $15 3 billion of restricted debt issued by Bausch health, excluding P&L and $1 billion of senior secured notes issued by the unrestricted subsidiary created in the third quarter of last year.
Excluding P&L that approximately 85% of our debt is fixed and approximately 70% of the companies that consolidated basis is fixed.
At the end of the quarter, we entered into a 600 million dollar accounts receivable facility with KKR, giving bell shelled access to an additional liquidity source for approximately five years with proceeds available for general corporate purposes.
We did not draw on the facility in the second quarter, but have subsequently drawn $350 million as of August 2nd.
With the closing of the accounts receivable facility inclusive of cash and cash equivalents and available capacity under our revolving credit facility. The company has liquidity in excess of $1 billion.
Looking ahead towards the second half of the year, we have updated our 2000 to a twenty-three guidance for bioshield, excluding P&L, which can be viewed on slide 21.
[noise] robust health, excluding P&L, we now expect revenues in the range of $4 $5 billion to $4.65 billion, an increase of $50 million on both low and high end of the range.
This change is primarily due to favourable movements in foreign exchange <unk>.
Leaving our view of organic growth of 2% to 5% unchanged.
In terms of first half in second half dynamics within Salix, we typically see a seasonal step up in sales in the second half, particularly in sight faxon, primarily due to wholesalers inventory dynamics as well as patient level of patterns related to insurance deductible activity.
We also expect to see continued positive impact from our investments in the Salix commercial organization.
For international.
Our revenue guidance assumes ongoing momentum with promoted brands and takes into consideration. The tailwinds, we expect to see as a result of competitors supply shortages.
These positives will be somewhat offset by the loss of MRA revenue due to the recall of that product as well as new generic entries driving volume declines.
For our diversified segment, we expect sales in the second half to increase sequentially from the first half with second half revenue relatively flat compared to the prior year driven by growth in Juba, they're arresting and of plans in offsetting declines in mature brands across neurology generics and Matala.
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We continue to expect gross margin to be in the 80% range in line with prior guidance.
Full year EBITDA for Bausch health, excluding P&L is still expected to be 232 $2.4 billion.
Are adjusted guidance reflects the acceleration of approximately $50 million in R&D spend from 2020 444 critical programs and we currently expect higher R&D investment in 2023, then contemplated when initially providing guidance for the year.
Address that EBITDA also includes the impact of the Emirate recall. These items are partially offset by the favorable impact of foreign exchange in cost savings.
On the expense side, we will continue to invest in sales and marketing activities to drive growth and our key brands Salix International and Solta Medical segment.
These expenditures include Salesforce expansion direct to consumer advertising and investments and Salesforce tools.
As Tom mentioned, we're starting to see the positive impacts from these initiatives on revenues, which we expect to continue through this year.
Moving below adjusted EBITDA, we continue to expect a full year effective non-GAAP tax rate to be approximately 15% we.
We expect our contractual interest costs to remain unchanged at approximately $1.3 billion.
Lastly, we continue to expect bar shelf, excluding P&L to generate approximately $625 million and adjusted operating cash flow.
We have generated less than half of this expected cash flows through the second quarter, which as I said earlier is in line with our expectations and adjusted operating cash flow will benefit from the higher second half adjusted EBITDA, we're expecting compared to the first half of the year.
I will now hand, the call back to Tom.
Thank you Tom.
In summary, although we still have much work to do I am pleased with the quarter business performance and the progress we have made.
Our strategic priority remain intact as you can see on slide twenty-three.
We have a clear purpose on enriching lives through our relentless drive to create better health outcomes for our patients and physicians.
We have made key focused investments and our sales teams marketing programs and R&D projects, which would drive furniture future growth.
We have progressed key strategic objectives.
Finally, and importantly, we have an all in team that is principled <unk>.
Creative <unk>.
Problem solvers and resolved focused.
On behalf of our entire bow shall team I. Thank you for your interest in in support of our company with that we will now take questions. Operator. Please open the line for Q&A.
Certainly.
At this time, we will be conducting a question and answer session.
Question. Please press star one on your telephone keypad.
Indicate your line is in your question Q.
You May pass.
A question from the queue.
Four participants using speaker equipment.
To pick up your handset before pressing the star keys.
One moment, while we poll for questions.
Yeah first question for today is coming from San Tangela with Jeffries.
Oh, yeah. Thanks for taking my question, Hey, Tom I think I'll ask the question on everyone's mind everyone's kind of curious about this tax free reduction of capital were wondering if you could maybe put a little bit of a finer point in terms of what you mean and and I and I and I guess why the pivot at this point because it seems like you had a plan and now it seems like you may be pivoting in them.
I'm kind of curious as to what changed.
Mmm Yeah, Glenn Good question, let me just take it from the top.
It's a good question, it's complicated but I would say is is when we look at it.
Of course.
Spin and the IPO was announced three years ago. It was a different management team at that point.
And really trying to as I took over as CEO in the team took over really looking at what was going to be the best way to do it. So basically when we looked at it we we believed.
That trying to find a way that could simplify the process to help manage.
Some of the risks identified and we believe that we can create some additional strategic flexibility for both companies if we're able to.
Work under reduction of capital.
Tommy file just add a couple of things of Glen just transactionally, what the difference so what this is.
Like like the term suggests it's a reduction in capital and in this case the reduction as the value of P&L.
And effectively the result of those be Enel share is being returned to the shareholders. So the end result is exactly the same.
In the sense that the Biennale shares of distributed.
As we intended before no.
No change there no change in the.
Tax efficiency et cetera, et cetera, what what we're really talking about is behind the scenes almost the bookkeeping changes lately, but.
But can I, just clarify that a little bit because I thought maybe the obvious move was to sell another eight or 9% of <unk>, but maintain that 80% threshold see you preserve the tax free nature of the spin are you talking about something different than that.
Still the same numbers so.
The plan right now is the same as to distribute 80% no change in that.
Okay, perfect and maybe just my my last question I'll hop is I'm kind of curious about 600 million dollar facility and what are the uses of those of that cash because it seems like you already have ample liquidity, you're generating some cash flow and now you are talking about.
Selling more of <unk>, which would raise.
Potentially more money or maybe you just kind of spinach.
Depending upon how you transactionally do it but I just wanted to make sure I understand what the use of that capital is because you didn't buyback very much debt in the quarter.
And I would have expected a little bit more so I'm just kind of curious as to use of those proceeds. Thanks.
Yeah, I mean look in the Grand scheme of things.
It's an efficient and cost effective source of capital for us.
It was available so we like it is the source of capital now for the next five years.
As I said in my prepared remarks as it happens the shortly after the end of the quarter, we did draw down about $350 million and pay down the revolvers. So that's one example, but it's essentially for general corporate purposes, we haven't earmarked for anything in particular, but it's available to do all the things that you just kind of listed including Omar et.
Cetera, we.
We will.
In addition to that as I said expect to generate more than $600 million in operating cash flow and.
That reduction in deleveraging continues to be our priority. So thanks for thanks very much appreciate the details.
Operator, our next question.
Your next question is coming from.
With bank of America.
Oh, Hey, guys.
It's for taking my question. So I just wanted to follow up on <unk> question, a little bit more just so you talked about Adam strategic flexibility I think in the PR pursuing strategic growth.
Via the remained co so.
Would.
Under the revised I guess distribution mechanism would remain coke Harry.
Less data or have a more favourable leverage ratio just kind of curious thinking about what that entity might look like on the other side and how much firepower accompany might have because we've long part of like remain color is a company that was carrying like north of six and a half turns elaborate.
And not a lot of leeway to deploy capital R for for M&A. Thanks.
Yes.
Go ahead.
I will start and maybe some will add add some comments.
Essentially there is no change in our plan right. So <unk>.
Company has put out that target of six five to $6 seven that remains the case and that we put that out as a kind of threshold too.
In order to complete the distribution.
From my perspective.
CFO the company, that's too high and I, we will continue to.
Pay the debt down and reduce it as we go forward.
This particular transaction that we're talking about a this change in structure that we are considering as.
Has no connection with those that targets.
Liquidity that we need to be at or anything like that.
Yeah, Jason at this time, let me just just.
Add to that the objective and the goal the transaction haven't changed we just when we looked at it. The key was was to see how we could simplify it and then really create as much flexibility strategically as possible for both companies.
Now and in the future.
Thanks.
Esqueda.
Yeah go ahead Jason.
To follow up on Pakistan Federal Circuit.
So is the court, we're hearing all the patent rulings or the court reviewing whether the injunction.
It should be in place.
I'm just wondering if you think about early 2024, what that outcome could look like and.
Yeah. So so as I said in my prepared remarks.
We are appealing.
<unk> on Ibs's D.
And on the polymorphous, which.
Norwich is appealing the motion on 660 emotion. So that's where it stands of course, the appeals or now together and we're expecting a call.
Court to rule in queue.
Q1 of 2024, we feel strongly.
On our position with our with our patents.
And we're going to vigorously defend it.
Thanks, guys. Thanks.
Next question.
Your next question is coming from.
At Evercore ISI.
Hi, guys. Thanks for taking my question, there's construction behind me. So please bear with me.
My question is.
Going into the Xifaxan.
District Court ruling this is enormous versus FDA.
What are you expecting and how does that change whatever plan you have now or whatever the updated plan is understand thank.
Thank you.
Thanks for the question.
When we look at the the.
The case that Norwich filed.
Against the FDA.
Again, we feel confident here, we have intervened as well.
So that's going to progress and again, we feel confident in where the FDA <unk>.
Physician is they are upholding the what the court ruled in Delaware. So therefore, we feel real confident that.
In that case, where.
We're in good shape.
Timeline again as the fall of.
Talk about a timeline, we're thinking of fall of 2023 two.
To hear the outcome of that.
Operator next question.
Your next question is coming from David and sell them with Piper Sandler.
Thanks, So looking longer term as you think about the debt maturities in 27 and 28.
And the <unk> for that.
Tax and this is the.
Based on the settlements are in place how are you.
Address that given the importance of Xifaxan.
To the.
The the P&L and just help us better understand the long term solvency of the companies in light of.
What you could be facing later in the decade. Thanks.
Yeah, I won't get into any specific <unk>.
Long term forecasting here on this call, but maybe just in generalities, we have a business that is highly cash generative this year as I said.
About $600 million, we're investing in growth, we're starting to see that momentum build.
And we expect to to see the business grow between now and.
And say 2728, including from side effects and including from Salix that will significantly increase the cash generation any revenue growth should drop right down to the bottom line.
And so we would expect to use.
Prioritize that Leverages. We have is a company has for the last five or six years and will continue to do that and so we think will knock a chunk out of that debt.
Between now and then David.
And then at that point, if there is any leftover we will have to refinance it of course at that time, what lenders are going to be looking at a forward looking leverage ratios and.
We we are investing in a bunch of these products in the pipeline as you.
As you heard from Tom and we would expect many of those to come to fruition and even though.
Yes, Xifaxan will go generic and 28, and we will see a drop in revenue it will be offset by.
Other products coming into play and growing and so obviously.
A very key question the management team and the board are focused on it.
And.
One of the things that we are working through.
David Let me just add to that with Tom said.
And clearly I talked about in my prepared remarks, the pipeline that's Y last quarter. This quarter continue to talk about the progress we're making.
And as you saw the investments that we're making an R&D and accelerating the Red Sea program and that is really an exciting program for us clearly we have accelerated now.
And making sure that we will have of course, if the data come through.
The product before we will lose fax.
<unk>, so and we're very very excited about it of course this is a huge patient population.
Much larger today than the current so I faxed in population so red Sea is on track.
It's accelerated.
This is a global program and so therefore, we will have the global rights. This will be our first global product at Vouch health.
And we're excited about it of course and <unk> the two face.
Phase two studies have completed enrollment and we are really excited as to get the data.
Is it come through probably at the end of the year beginning of next year.
Next question operator.
Your next question is coming from Douglass with RBC C N.
Yeah. Good morning, first question, just going back to the <unk>.
Change the tax free.
Production capital.
Be affected by moving the hold Cove from the parent.
Has the 38.7% in the billing and bonds to BLS names.
An example of what to take for something like that in addition to.
Distribution of the remainder of the shares.
51%.
Doug I don't know if I completely followed what you asked but but.
As I said I think maybe to the first question that there is no change in the end result.
Right in the sense that we will distribute the plan right now is to distribute 80% or more than 80% in order to preserve that.
<unk> are tax efficient nature of the spin.
It's been I don't know if I got the whole of your question I know will have some for follow up discussion. After this call happy to talk about it a little bit more.
And you have to go through that.
Second one Tom maybe just has to do with Red Sea, we noticed that.
You expect to complete an enrollment of those two phase III clinical trials in Q1 24, but when.
When do we expect the reader when do we expect the data in our hands.
Yes, so Doug Ah.
Yet we've completed enrollment and of course in order to get this product approved prior to Xifaxan going off patent we'd be looking to see read out of data.
Probably in late two.
2000, maybe late 2025 early 2026.
And then of course have to file so that would probably I would say probably somewhere in the 22006 range.
Okay, that's great thanks very much.
Next question.
Your next question is coming from Mike.
Covid at TD Cowan.
Thank you for the question I have to.
My first question regards does that vaccine litigation.
What you know now is there is it within the realm of possibilities.
Relatively soon advice vaccine litigation and IP in the year 2024.
The first question and then the second question relates to the Red Sea.
Know that it's a much bigger patient population, giving the hte lifetime risks.
Patients as well below 100 per cent do you have any sense, whether physicians are prepared to adopt prophylactic regimen, rather than simply administered by fax standpoint symptoms per cent.
Mike too too good questions.
On the Xifaxan litigation.
This appeal as I said in my prepared remarks in earlier answers to questions. We expect to have.
A decision in the first quarter.
It's a complicated appeal because we are.
We are appealing the ruling on Ibs's D.
And the polymorph.
Of course, there are.
Appealing the motion.
What I would say is is as it plays out.
We have submitted our briefs.
And we think we have a real good position on our IBSA patents and polymorph patents. So.
If it goes in our favor.
Clearly this will be.
It will be resolved.
Specifically on our appeal alright, so we'll have to see how it goes.
And but we're feeling confident about it.
Getting to the the next question on Red Sea again, we feel as you said in your question it and as I said previously it's a much larger patient population one of the things that we have talked about and that is one of the reasons why we've invested to accelerate the program we will have our.
Sales teams.
And and our medical teams will be working to really educate physicians on why prevention is the way to go for <unk>. If you take a look today.
The investments that we're making in xifaxan in as I talked about him I prepared remarked on the medical side still today, you see patients not getting treatment after the first.
<unk> and so clearly if you look at the Pharmacoeconomic data.
As to prevention versus having an episode or then multiple Ht episodes.
We believe from a payer perspective from a patient perspective.
Prevention is going to really be.
Something that people will want and be interested in if you look at some of the work that we're doing today.
On direct to consumer advertising today is to really educate not only patients.
But also LNG Kate the caregivers of what they go what goes what happens to them. If you have an episode not only to the patient to the caregiver. So we really think prevention is going to be something that will be.
Very much accepted but there will be a lot of education between our medical affairs team and our sales teams.
But it's a good question. Thank you next question operator.
There are no further questions in queue.
Okay. So with no further questions I would just say in summary, we had a solid Q2 performance and make good progress on key strategic objectives. We look forward. The second half of 2023 with the focus of profitable growth.
Driving performance advancing R&D, NBD and unlocking value.
Thank you for joining our call today.
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