Great. Good afternoon, everyone. Welcome to the Bausch Health session. Thanks for joining us. Hope everybody had a nice lunch. I'm very pleased to welcome John Barresi, who's the interim CFO of Bausch Health. Before we start to pepper him with questions, I will turn it over to you, John, for some opening remarks.
Yeah. Thanks, Michael. Really happy to be here. It's good to be at the conference. As we get started, just as a reminder for everyone today, my remarks are going to focus on BHC excluding BLCO, as we typically do in our earnings presentations. As everybody knows, we just issued our earnings a couple of weeks ago. We were pleased with our financial performance as well as the progress on our GI and our aesthetics pipelines. We met or exceeded the financial guidance we issued at the beginning of 2023, including a meaningful step up in R&D spend that wasn't in our initial guidance but that we felt was an important allocation of capital to maintain the momentum in our pipeline.
In our largest segments, Salix, we saw strong underlying demand growth for Xifaxan as well as Trulance and Relistor, and we're continuing to invest behind this franchise in 2024. We had positive developments in our pipeline in the quarter with phase three trials for RED-C on track, positive topline data from our phase two amiselimod trial, and the approval of Thermage FLX and the TR-4 return pad by the NMPA in China as a medical device. We ended the year with over $1.5 billion in liquidity, and we guided to solid topline growth and bottomline growth for 2024, inclusive of another meaningful step up in R&D investment as we look to continue to advance our GI and our aesthetics pipelines. And so with that, I think we can get started.
Thanks, John. Well, pharmaceuticals is something of a departure from the sectors that you previously occupied and have spent much of your career. Have you learned anything about the industry during your time at Bausch Health so far that has surprised you?
I actually spent a good portion of the early part of my career when I was with one of the Big Four accounting firms in the pharmaceuticals and chemical space, and I had clients that spanned large branded and generic pharmaceutical space. The opportunity to come to Bausch Health in 2022 was actually a bit of a homecoming for me, and it's good to be back in the industry. For that reason, I wouldn't say there's anything that surprised me per se. It's a really interesting industry, and I will say it's very rewarding to know that the work we're doing is supporting patients and helping them in their journey for better healthcare.
What about Bausch Health specifically? Are there one or two positive or perhaps less positive things that you found versus what you had expected when you joined the company?
Yeah. It's a good question, and I'll reframe it a little bit into some key observations as opposed to kind of positive and negative. I think from a business standpoint, we generate meaningful operating cash flow. We have a number of assets across all of our segments that are very profitable that deliver good cash flow now and have the potential to deliver growth. And so that's always encouraging. I would say one of the things that is important for us as a company is capital allocation as well. It's important for every business. It's equally, if not more so important for us because, as we discuss every quarter, we are focused on managing our debt both from an overall leverage and a maturity standpoint. And so capital allocation is a super important part of what we do.
One of the other things I've been really pleased by is the fact that we have a motivated, really dedicated team across the organization that really is all in on positioning this business to grow over the long term.
Great. So you touched a little bit on this already, but how would you summarize the financial outlook for Bausch Health in this decade? What are the key drivers? What are potential stumbling blocks?
Yeah. We won't get into long-term projections in detail here, but I think it's fair to say that we are focused on growing the business for the long term with the assets that we have while also being thoughtful about business development opportunities over the next several years. The assets that we have anchoring in our GI and our aesthetics businesses from a growth standpoint with Xifaxan, our overall GI franchise, and then the Solta Medical business. Our international portfolio is a diverse portfolio geographically as well as product-wise. That helps that business deliver solid, consistent growth year over year, that diversity, and we expect that to continue over the long term. I've said in a number of sessions here, and I think I said it on the earnings call, the international business is one where execution is really important.
Finding newness as we're a branded generic business in our international markets is very important, and we focus on both of those things. There is no one single thing that drives growth in that business. It's a number of smaller things that add up to deliver consistent growth. Solta, we think, is a world-class durable aesthetics business. We're investing in the long term there. For example, in 2024, as we talked about at year-end, we're going to be investing in our U.S.. salesforce and expanding that salesforce, looking at our DTC and our consumer outreach programs and looking to return the US. and EMEA to solid growth more along the lines of what we've seen in China and APAC already. In our diversified segment, we have a number of well-known established brands and products.
There's a little bit of a contrast in the different parts of the diversified business when you think about positioning derm and dentistry for growth. Derm with the launch of CABTREO this year, dentistry with a focus on the ARESTIN franchise and investing in the sales team and the sales tools there while managing the neuro and the generics portfolios, which are very profitable, very cash-generative, and managing those to remain so over the long term in a very, very competitive environment.
Okay. If there are any questions in the audience, please raise your hand. I'll be happy to call on you and pose the question.
You mentioned CABTREO. How is the launch going? It's early days, but do you have any indicators?
Yeah. We launched CABTREO the last week of January is when it became available for patients and for healthcare providers to prescribe it. So it is very early days. I will say we've been encouraged by the early trends and are going to look to continue that momentum through the rest of the year.
Great. Do you anticipate any impact to Bausch Health's tax rate given global tax reform?
Yeah. We're guiding to a 15%-18% non-GAAP tax rate this year. That is inclusive of what we know about the inclusive framework, Pillar Two, etc., from a tax standpoint as we sit here today. We think that encompasses the impacts, but it's a constantly changing regulatory framework that we monitor carefully. So I think that 15%-18% is a good guidepost.
Great. Any questions in the audience? Okay.
You talked a little bit about Solta already. Where do you foresee the greatest growth for the aesthetics business, a particular product, a trend, a geography? What's most important?
I think there are two things to think about with Solta. So I'll talk geography first and then talk product. On the geographic side, we think that business is well-positioned for growth globally. APAC, including China, has been and will continue to be a key driver of that growth. It's one of the reasons that we're excited about the Thermage FLX approval from the NMPA that we received in January. But as I mentioned, we're also looking to both the U.S. and EMEA to post a strong double-digit revenue growth, albeit on a smaller base, but strong double-digit revenue growth in 2024. We put new leadership in place in key parts of that business, and we're making investments, particularly in the U.S., in 2024 by expanding our salesforce and looking to broaden the reach of our DTC campaigns.
We think there is untapped potential in all of these markets, and we'll look to balance the growth across them as we move forward. From a product standpoint, Thermage is the largest product in the portfolio. There are two generations of Thermage out there, Thermage FLX, which I've talked about, and then the older version, that's Thermage CPT. We're really pleased to have the approval in China for Thermage FLX and its return pad, the TR-4 return pad. We think approval as a medical device enables us to have premium positioning in the market and reinforces that perception with our consumers. As we've talked about, we monitor economic conditions. China is always something that people look at from an economic standpoint. We think the current premium positioning that we have helps us there, and we're just keeping an eye on the overall consumer development there.
Okay. You mentioned China. Can you describe Bausch's footprint across the business in China? What opportunities do you see? What risks do you see?
Yeah. And this is a little bit of a segue to that, right? Our China footprint is Solta right now, principally. Overwhelmingly, it is the Solta footprint in China, excluding Bausch + Lomb. And we continue to see the opportunity for growth, Thermage FLX being a catalyst for that. It's a relatively fragmented, competitive landscape, and so we think there is opportunity there to continue to grow the base. It is a business that is heavily weighted toward consumables from a revenue mix standpoint, and so the installed base becomes important for the long-term durability of the business, but it is a model that we've seen work well. And as I said, as a lot of companies are, we're monitoring the overall economic environment and how consumer sentiment looks, both particularly with the polarization of the consumer in China and our premium positioning.
Gotcha. And is there any updated thinking as regards Solta and whether to monetize it versus build the business further?
Yeah. In the middle of 2022, when we suspended the IPO Solta, we had said that our intention was to continue to grow Solta within the Bausch Health family, and that continues to be our intention, to continue to grow within Bausch Health.
Okay. Any major competitors to Solta that you see emerging or already in the field?
There are. As I said, it's a diverse, competitive landscape. There are other providers of aesthetic treatments out there, and the med spa landscape, depending on which market you're talking about, is also relatively fragmented. So that creates competition, but it also creates opportunity.
Yep. Any questions in the audience?
Cool. So, of course, without speculating on potential outcomes, can you just frame the range of possibilities as it regards the full separation of Bausch + Lomb? Maybe we can start with that.
Yeah. As we said on the earnings call, we're not going to try to lay out the potential timing or sequencing events around a potential full separation of BLCO. We continue to believe the full separation makes strategic sense, and we are always evaluating a number of factors related to that potential full separation, including some of the patent litigation with Norwich. But we're not going to speculate or lay out any detailed timelines or timeframes or gating factors.
Okay. I think it's fair to say that most of the folks in this room assume success in the Xifaxan patent case is a prerequisite to the full separation of Bausch + Lomb. And I know that you are not providing detailed comments, but is that overstating the case?
I think it is certainly a factor that we consider when we're looking at the full separation. As it relates specifically to the court ruling, we've said we're not going to speculate on what that ruling might be, and it's going to be very dependent on what the court rules, how we move forward from there.
Sure. Okay. The timing of that decision, I think you said on the call, is late this quarter, early next. Presumably, that's.
Yeah. That continues to be our expectation. There's been no change in the expectation of our timing.
Okay. Great. Well, let's move on to the pipeline. The RED-C trial would seem to be the company's most direct answer to Xifaxan's eventual loss of exclusivity. Can you help to characterize expectations for rifaximin SSD ? In broad strokes, what proportion of Xifaxan sales could that agent replace, assuming it was successful?
Yeah. We haven't quantified what we think the market opportunity is for RED-C publicly at this point. But what I will say is if you think about what RED-C is intended to do, which is to delay the first occurrence of an episode of HE relative to Xifaxan 550, which is designed to reduce the risk of a recurrence of HE, it's a reasonable assumption that there's a patient population out there that exceeds the patient population that currently is indicated for Xifaxan 550 for HE. And the second thing I would say is that RED-C is a global program, whereas Xifaxan 550 for HE is principally a U.S. indication right now.
And so, again, without getting into what proportion of the sales that this could, what the sales opportunity could be, I think I would say we expect the opportunity to be meaningful, or we wouldn't be putting the capital allocation behind it that we are with the R&D spend.
What proportion of Xifaxan sales is attributable to HE, roughly?
I'd say a little over half.
A little over half?
Yeah. A little over half.
Okay. Have you all done any kind of market research at this stage of the game to understand the unmet need, physician willingness to prescribe something that is essentially a prophylactic to patients that have a risk of HE but don't currently have it and, in this case, don't have past episodes? Have you done sort of the work around trying to understand, not necessarily telling us what the market opportunity is, but simply just what the level of unmet need is in the minds of physicians?
I'm not going to speak to any of the specific research that we've done on that point here today, but we've got a bit of road to cover before that product would launch. So I think what I'll just go back to is that we think there is a meaningful opportunity there.
Okay. One indicator of excitement among physicians is, of course, recruitment timelines for a trial like that. How has recruitment gone for RED-C thus far?
It is on track for the two global phase III trials, the first one completed before the end of the year. The second one is in process, and we expect to complete in the first half of 2024 from an enrollment standpoint, and that's in line with what our timeline would be. So I'd say it's on track.
Great. Great. Any questions in the audience? No? Okay. Let's talk about amiselimod. What assumptions about market performance are needed to justify a full phase II program and commercial operations and all of the stuff that goes around a potential commercial launch of a new drug into a new category? I ask in part because the S1P class is relatively new in ulcerative colitis, and I'm curious what you all think the performance of that drug class has been so far and what you anticipate it might be in the future.
Yeah. Again, setting aside the specific performance expectations, we think amiselimod has promise as a once-daily oral S1P with a strong safety and efficacy profile for the full spectrum of mild to severe UC. We have gotten questions about why our phase II program targeted mild to moderate UC, and part of that was to establish whether we thought it could be viable for mild UC, which is a little more difficult to address. We're pleased with the top-line results for that phase II study. We'll be presenting additional detail at upcoming medical conferences, and so we'll announce that as we have that information available. We also think there's potential for amiselimod in Crohn's disease, and part of our step-up in R&D for 2024 is to explore that possibility with a phase II program.
And so, again, without getting into what the market size could be for that, we wouldn't be investing behind it if we didn't think that opportunity across UC and potentially Crohn's could be meaningful.
Okay. And what are the current thoughts as to targeting mild UC in a phase III program? Has that decision been made, or is that still under review?
I think we'll move through that as we move into the phase III design process.
Okay. Okay. Yeah. It definitely caught our attention, the phase II program being mild to moderate. Seems like a potential differentiator from the class and a potential opportunity, but it wasn't clear how intentional that was. It sounds as though it was intentional, and you're essentially waiting to show us the data before you tell us your decision for a little bit of Crohn's.
I think that's correct. Yeah. I think that was intentional on our part in terms of the phase II design.
Yeah. Great. Okay. Out of curiosity, for mild UC patients, the standard of care, is this a progressive patient profile where ultimately they move to moderate and eventually severe, and they generally track toward biologics? Is that sort of the natural history of a mild UC patient, or is it?
Yeah. I don't know that I can answer that. I don't know that I'm able to answer that one effectively.
Okay. Yeah. No worries. Any questions from the audience?
Okay. Let's move to a topic that we get asked a lot about, you probably get asked a lot about, and many of your peers talk about quite a bit, which is AI. Is Bausch Health doing anything notable in that particular area?
Yeah. This is an area that we have invested in to drive growth, particularly in our Salix and our Xifaxan franchise. In 2023, we began implementing AI-enabled tools for our Salix salesforce to help them focus their efforts more effectively and more efficiently. We're maintaining the investment in those tools in 2024. We believe we're beginning to see the benefits of this when you look at the TRX growth trends along with our investments in DTC advertising in 2023 that, again, we are maintaining in 2024. But those AI-enabled tools for the salesforce are an area where we have invested in AI to drive growth.
Okay. Great. This is a question we've asked some of your CFO peers, and often this answer surprises us, actually. But curious your opinion of the following, which concerns you the most on a global scale? I'm going to give you three options, and you can choose a fourth one if you think I've missed one. So first is the ability to realize drug price increases, geopolitical instability, and intellectual property rights.
That's a good question. It's hard to pick one of those three. I think they're on everybody's kind of radar and everyone's watchlist if I think about them in order, right? Pricing and really the overall evolution of healthcare reform pricing is an area we monitor closely as all of our peers do. The impacts are different depending on the nature of the product and the history of the product. We factored our current thinking on the pricing regulations as they are out there into the guidance we issued a couple of weeks ago, and it's an area that we continue to watch. I'll skip geopolitical instability for a minute and go to IP. Protection is always top of mind for us as well, setting aside the Norwich matter. IP, I think, for any pharma company is important.
Challenges to IP are a part of the business, and so that's always an area that we focus on. Then I'd probably put geopolitical instability third on that list. If you think about the current conflicts out there today, our exposure to those parts of the world where those conflicts are occurring is not really significant to us. We monitor it. We monitor sanctions and make sure that we can do the right things to comply with sanctions where we have operations in the affected areas, but they're not significant to us from a revenue standpoint. So it's more about the knock-on effects of some of those things. We've seen it not necessarily in pharmaceuticals, but I've seen it in my past stops on supply chain disruption, currency movements, etc. So it's those secondary effects that I think are more relevant for us and for the industry overall.
Any questions? You mentioned that a lot goes into maintaining and growing a portfolio as diverse as Bausch Health and across as many geographies as you participate in. Can you elaborate on that a little bit more? What's different about Bausch Health's efforts commercially and globally that perhaps investors are not aware of?
I think there could be a very broad answer to that question, but I think as I think about it, we have a very diverse product portfolio that covers hundreds of products across a number of different geographies, and they span from branded to branded generic to generic, and they all require a different lens to think about whether it's promotion, commercialization, pricing, etc. So we need to make sure we have the right focus in the right places on those different dimensions across the different areas of business. It's a layer of complexity, but it also makes it a really interesting and exciting place to be.
Great. Can you speak to appetite or ability to do business development for Bausch Health BLCO?
Yeah. I think it goes back to capital allocation to tie it into kind of the earlier statement. Business development, particularly when you are in the branded generic space, becomes really important to be able to bring newness into the portfolio. Having said that, we have to be really choiceful about our capital allocation decisions across investing in the business as it is today, whether that's in selling and marketing, R&D, investing in business development, or focusing on the balance sheet. And so we are very, very thoughtful about those opportunities, but it is an important part of what we look at on an ongoing basis.
Okay. We talked about two of the important products in your pipeline. Is there anything else in the pipeline that perhaps doesn't get enough attention that you think it might deserve more?
I think there's two main pillars right now to our pipeline. There's the GI, which we spent a fair amount of time talking about here today, and then there's the aesthetics pipeline as well, where continuing to develop our existing product portfolio and obtain approvals for new markets, new market authorizations, enhancements to our existing products in that Solta and the aesthetic space is an important part of our R&D effort as well.
Okay. Great. Any final questions?
Yeah. Steve. Earlier, Mike was asking you about the S1P1 and GI disease, and understandably, you didn't want to talk about the competition. But the fact that you're pursuing it in light of the difficult performance your competitors have delivered suggests that you think the market is still promising. And I'm wondering, is that because you feel you have a better molecule, or do you feel the competitor approach to the market was not well advised?
Interesting question. I will come back to, I think we have a promising product in amiselimod as that once-daily oral S1P. I'm not going to comment on our competitors' efforts to commercialize their products.
Okay. But clearly, you think there's a big opportunity here. Which of your competitors think you're interested in?
I don't know that I would say it that way. I would say we think there's a meaningful opportunity for us.
Any other questions?
Okay. Well, we have just a couple of minutes left. What's perhaps the one thing that you would like people in this room to leave with still in their brains as it regards Bausch Health? It could be something we talked about already, or it could be something that we haven't talked about yet.
I think the important thing for folks to think about when you think about Bausch Health is that we do have a strong portfolio of assets that in 2023, we've been able to deliver growth on, that we are expecting to continue to deliver growth on in 2024, that is highly cash-generative, and that gives us the ability to continue to invest in the business for the long term while also managing our balance sheet. But I think it's that diversity of the portfolio and the fact that we've been able to deliver growth and are intending to continue to deliver growth that I would like everybody to leave here with a thought of.
Great. All right. Well, if there are no other questions from the audience, thank you, John, for your time, and appreciate it. Thanks, everyone.
Thank you, Michael. Really appreciate it.
Yep. Cheers.