Bausch Health Companies Inc (NYSE:BHC) Q1 2020 Earnings Conference Call May 7, 2020 8:00 AM ET
Arthur Shannon - Investor Relations
Joe Papa - Chairman and Chief Executive Officer
Paul Herendeen - Chief Financial Officer
Conference Call Participants
Ken Cacciatore - Cowen & Company
David Amsellem - Piper Sandler
Annabel Samimy - Stifel
Gregg Gilbert - SunTrust
Umer Raffat - Evercore
Akash Tewari - Wolfe Research
Good morning and welcome to the Bausch Health First Quarter 2020 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Arthur Shannon. Please go ahead.
Thank you, Grant. Good morning, everyone and welcome to our first quarter 2020 financial results conference call. Participating on today’s call are Chairman and Chief Executive Officer, Mr. Joe Papa and Chief Financial Officer, Mr. Paul Herendeen. In addition to this live webcast, a copy of today’s slide presentation and a replay of this conference call will be available on our website under the Investor Relations section.
Before we begin, we would like to remind you that our presentation today contains forward-looking information. We would ask that you take a moment to read the forward-looking statement legend at the beginning of our presentation as it contains important information. This presentation contains non-GAAP financial measures. For more information about these measures, please refer to Slide 2 of the presentation. Non-GAAP reconciliations can be found in the appendix to the presentation posted on our website. Finally, the financial guidance in this presentation is effective as of today only. It is our policy to generally not update guidance until the following quarter and not to update or affirm guidance other than through broadly disseminated public disclosure.
With that, it’s my pleasure to turn the call over to Joe.
Thank you, Art and thank you everyone for joining us today. I am going to begin today’s call with some comments on our response to COVID-19 and briefly summarize the first quarter. Paul Herendeen, our CFO will then review the first quarter in more detail and update our 2020 guidance. I will conclude with some closing remarks before opening the line for questions.
Beginning with Slide 5, as you started to see the impact of COVID-19 and the unprecedented market disruption it was creating, our first priority was to make sure that our people were safe. We took appropriate measures to protect their supply chains, ability to meet customer demand. We reached out to help our customers. We minimized this disruption to our R&D projects and we protect our financial stability. Our team did a great job of implementing business continuity plans across 100 countries and enabled us to remain focused on supporting our customers and healthcare patients globally. In fact, we have over 10,000 colleagues on the supply chain frontline who have been and continue to work hard to make sure that Bausch Health Products remain available for the patients and consumers to rely on them, a big thank you to all of our supply chain employees that enable us to continue meeting customer demand.
Importantly, to-date, we have not seen any material COVID-19 related supply disruptions. We have access to multiple sources of API and intermediates many of our products at this time the availability of API and intermediate to many of products at this time the availability of API and intermediate had not had, is not expected to have a material impact on our supply chain.
With respect to our largest product, XIFAXAN, we have 5 month supply on hand and enough active ingredient manufacture, another 5 month supply of finished goods. We have also been able to minimize construction of our commercial capabilities and R&D efforts. We have been supporting healthcare professionals virtually where in-person interactions are suspended and we are working with health authorities and investigators to protect our clinical trial participants and personnel. Also, we believe the steps we took over the last several years to manage our capital structure, have placed us in a strong position to weather this storm from a liquidity perspective. We have no amortization payments for debt maturities until 2022 and we have an undrawn revolving credit facility. To sum up, we have taken actions to keep our colleagues safe, our supply lines intact and delay the foundation of our company work through the COVID-19 uncertainties. With these measures in place, our goal was to fulfill our mission of improving people’s lives with our healthcare products.
On Slide 6, we have outlined the actions we have taken. First and foremost, we are working to advance science to find solutions for COVID-19. We have initiated clinical trial programs in Canada, evaluating investigational use of nebulized antiviral Virazole in combination with standard of care therapy to treat hospitalized adult patients with respiratory distress. And the Salix team is working to initiate trials to evaluate XIFAXAN in combination with established therapies to potentially address the symptoms of gastrointestinal distress in pulmonary compromise associated with COVID-19.
Second, Bausch Health is actively donating medicine and healthcare products to assist in the global fight against COVID-19, including Chloroquine, azithromycin, eyedrops daily contact lenses and nebulized Virazole. We will remain focused on doing our part to help end this unprecedented global health pandemic, and providing resources to support global healthcare system, frontline healthcare workers and the patients in their care. I am extremely proud of the job that our team has done in facing these challenges and making sure that our business continues to operate during this period with minimal disruption. I thank the entire Bausch Health team for their continued focus and dedication over this critical period.
Moving now to Slide 7, I want to address the estimated impact that COVID-19 has had on our first quarter results. Paul will cover this in more detail, but at a high level, we estimate that COVID-19 adversely impacted first quarter revenue by roughly $35 million or approximately 2%. This includes a positive impact of $30 million from pantry loading, including a global consumer and U.S. vision here as customers stocked up on supplies in advance of the shutdown and was offset by a negative COVID-19 impact to revenue of approximately $65 million. This postponement of elective medical procedures, as directed by public health authorities, affected our Global Solta, a surgical business unit as well as our ophthalmology Rx business, where pre- and post-operative prescriptions decline. Our international Vision Care business was impacted by retail store closures by decline in contact lens wear due to decreased social interactions. Finally, medical office closures in the U.S. resulted in prescription declines in late March, which affected our Derm and Dentistry business unit.
With these points in mind, let’s briefly review the first quarter results on Slide 8. While total company result was flat compared to the prior year, there were a number of first quarter highlights to note. Our largest segment, Bausch + Lomb/International delivered its 14th consecutive quarter of overall organic revenue growth despite headwinds from COVID-19. Sales reported mid single-digit organic growth despite approximately $40 million of LOE, loss of exclusivity headwind, primarily from APRISO. XIFAXAN’s TRxs grew by approximately 6% and retail extended units saw approximately 6.5% growth versus the first quarter of 2019. TRULANCE generated $19 million of revenue in the first quarter and TRxs grew by 52% compared to the prior year quarter. RELISTOR revenue increased by 19% as a result of growth in the oral formulation and new market access formulary wins.
We are also able to repay approximately $220 million of debt during the quarter using cash generated from operations. On the right, we have called out some notable key developments. First, after we settled with Teva early in 2018, earlier this week, we resolved the outstanding XIFAXAN IP litigation with SANDOZ. Under the terms of the agreement, all intellectual property protecting XIFAXAN remains intact and we preserve market exclusivity until 2028.
We also had some commercial access improvements due to new formulary wins, VYZULTA and LOTEMAX SM increased Part D access to 45% and 55% respectively. On the R&D front, we have completed the key study for amiselimod, which evaluated the cardiac safety profile. Top line results are positive and we expect to initiate a Phase 2 study in the second half of 2020. The rifaximin study for Overt Hepatic Encephalopathy was also reported favorable top line results, great news that will help inform further research on our next generation indications and formulations. Finally, despite COVID-19 related headwinds, we expect that our planned 2020 launches will remain on track, including the launch of SiHy Daily lenses in the U.S. which we are preparing for in the second half of 2020. Overall, we believe these first quarter highlights demonstrate that we have built a sustainable and durable business that is well positioned to weather the uncertainties created by COVID-19.
With that, I will turn it over to Paul.
Thanks, Joe. We were off to a great start to the year and then COVID-19 threw us into a world of uncertainty. About the balance of 2020 and about the potentially lasting impacts of the virus on the way we promote our products in 2021 and beyond. Sitting here today, it’s unclear what the new normal might look like, but I am confident that with our portfolio of durable brands, we will adapt and prosper.
I will start with Slide 10 showing our revenue by business. Reported revenue was roughly flat versus Q1 of 2019. FX was a 90 basis point headwind. So constant currency, we grew 1%. Organically, we are flat as the synergy acquisition closed during Q1 of 2019. Both Salix and B&L International posted organic growth. The bulk of the COVID-19 impacts on our Q1 results were in the Asia-Pac region. However, social restrictions in the U.S. beginning in March became an immediate headwind for certain of our U.S. businesses as well. The B&L International segment was plus 2% on an organic basis. COVID-19 negatively impacted our Vision Care, surgical and Ophtho Rx businesses, while consumer and international pharma saw some pantry loading to increased revenue in the quarter. As consumers in the U.S. and other regions observed how social restrictions played out in Asia, they took steps to ensure that they stocked up on products they want to have on hand through a lockdown period.
BNL Global Vision Care was down 3% organically. This was a tale of two environments. Nearly, half of our global lens business is in the Asia-Pac region and it was devastated by COVID-19. China was down some 66% versus Q1 2019 organically. Overall, Vision Care outside the U.S. was down 16%. The U.S. was another story. The U.S. Vision Care business was up 24 % versus Q1 of 2019. The ultra-monthly silicone hydrogel brand family was up 49% in the U.S. aided by the mid-March – excuse me mid-2019 launch of a multifocal toric.
Biotrue ONEday lenses continued to deliver impressive growth plus 23% in the U.S. versus Q1 2019. The read-through here is that as we gear up for the launch of the daily silicone hydrogel lenses in the U.S., which is still on track for 2H 2020, you are seeing that our Vision Care business, led by John Ferris has in place a high-performing team capable of driving attractive growth in a very competitive category. B&L Consumer was up 12% organically, outside the United States plus 4% and plus 24 % in the U.S. We benefited from consumers’ pantry loading during the quarter. In the U.S., LUMIFY sales in the quarter were up $9 million or 91% versus Q1 of 2019 and LUMIFY was not one of the brands with significant pantry loading.
Preservation sales in the U.S. were up 26% from Q1 2019 driven by impactful DTC campaign and successful promotional activities with Costco. Biotrue Multi-Purpose Solution was plus 32% in the U.S. versus Q1 of 2019. My takeaway from the pantry loading is that consumers intend to stick with their B&L Consumer products. They loaded up ahead of sheltering at home and I expect that many found and will find ways to continue to purchase our consumer products whether that’s on trips to the pharmacy via home delivery or internet fulfillment. Some brands will be more resilient than others, but overall, there are reasons for optimism for our global consumer portfolio through this situation.
B&L Surgical was down 6% organically. Outside the U.S., we are down 8% organically and soft in many markets, but particularly China, where surgical revenues were down more than 40%. In the U.S., we are actually doing quite well until March and ended up down 2% organically. Global Ophtho Rx was down 16% organically, down 10% organically outside the U.S. and down 18% in the U.S. Outside the United States, the COVID impact in China was a big factor. In the U.S. which accounts for roughly 60% of global Ophtho Rx revenues, two of our major products are most often used pre and post eye surgery, that’s LOTEMAX and PROLENSA. Those grants saw rapid declines in TRxs in March as surgeries began to be postponed continued erosion from the LOE of LOTEMAX suspension was a big factor versus the prior year quarter as well.
On the plus side, prior to the COVID impact being felt in the U.S., VYZULTA had been showing improved momentum in TRxs, sales reached $13 million in the quarter, plus 56% versus Q1 of 2019. And that was with only about 30% Med D coverage. Beginning July 1, our Med D coverage for VYZULTA will step up to roughly 45%. So things are looking up for VYZULTA. International pharma was plus 9% or plus $24 million organically versus Q1 of 2019. Canada, Poland and other Eastern European countries delivered the growth. I want you to note that our international pharma businesses are mainly in Eastern Europe, the Middle East, Canada and Latin America. Our international pharma businesses in Asia-Pac and Western Europe are much smaller. There was very little COVID impact on international pharma during Q1 and we are expecting these units to be relatively resilient.
On to Salix, Salix was up $32 million or 7% on a reported basis. The major growth for XIFAXAN, plus $69 million or 23% and TRULANCE which was acquired in March of 2019, which was up $13 million quarter-over-quarter. LOEs, including APRISO and UCERIS were a growth drag in this segment, $40 million and Glumetza declined as expected by $17 million or roughly 45%. Of the 23% growth to XIFAXAN, 6% came from increased net selling prices relative to Q1 of last year. That’s the impact of the price increase that we took in January offset by associated increases and rebates. The17% increase in XIFAXAN volume came roughly half, from increase in consumption and half from an increase in wholesale and retail channel inventories relative to Q1 of 2019. There was no plan to increase channel inventories. This was just a normal fluctuation from quarter-to-quarter.
TRULANCE TRx growth was driven by increased promotional effort as well as improved managed care coverage. A quick shout out to the Salix team led by Nicola Kayel and Josh Coyle. Our key brands in the GI space rely on the addition of new patients to sustain and grow prescriptions. Roughly half of XIFAXAN Rxs are for the acute indication of IBS-D and TRULANCE is in a clear growth phase, so both rely on adding new patients to the fund. XIFAXAN and TRULANCE Rxs have been fairly durable through the last 8 weeks and that speaks to the pre-COVID success of our Salix team building awareness and support for our brands amongst physicians. Through the first 4 weeks of April, XIFAXAN TRxs remain at roughly 90% and TRULANCE better than 95% of pre-COVID levels.
The Ophtho and Derm segment was down $5 million or 4% on a reported basis. Medical derm was down $18 million or 18%, half of that coming from price and half from volume. We had strong growth of JUBLIA and modest growth from DUOBRII, but those are more than offset by a decline in royalty income from Carac and a number of other products. The onset of COVID-19 in the U.S. had a rapid and dramatic impact on our portfolio of med derm products. Global Solta grew 37% organically versus Q1 of 2019 pretty good, but Solta was up much more than that early in the quarter before COVID-19 took the wind out of Solta sales. Note that some 60% of global Solta revenues are from the Asia-Pacific region.
Finally, the Diversified segment, that was down $27 million or 9%, neuro was down $24 million versus the first quarter last year, LOEs accounted for $31 million decline and that was partially offset by Wellbutrin and Aplenzin that together grew 14% versus Q1 of 2019. Our U.S. generics business was flat with Q1 last year and dentistry was down roughly 16%. The onset of COVID in the U.S. also had a rapid and dramatic impact on our dentistry business. So, that’s the revenue story of the quarter.
So, let’s move to Slide 11 to cover the rest of the P&L. Our gross margin improved some 80 basis points from Q1 of 2019. Most of this improvement can be traced to the Salix segment, where gross margins increased over Q1 2019 by 330 basis points as we paid lesser royalties on Glumetza and APRISO due to lower sales and a royalty on XIFAXAN that sales expired in Q3 of 2019. Selling, advertising and promotional expenses were unfavorable $7 million or roughly 3% on a constant currency basis due to the addition of sales resources in connection with the synergy acquisition and higher selling costs in the U.S. Vision Care group that supported the excellent growth that, that team is delivering. G&A expenses were $35 million unfavorable to Q1 of 2019 mainly due to increased IT and legal costs. Note that, as I said in the past, our G&A run-rate is something like $150 million per quarter, so we are right around that level and the prior year quarter was at a low level and less reflective of our go forward run-rate. R&D was up $5 million as we continue to build out our R&D organization to support a broader plate of development projects.
So quick summary, revenue was down $4 million, 80 basis points better gross margin gets you to plus 13% at the gross profit line, OpEx rose $47 million mainly due to an unfavorable comp for G&A and that gets you to minus $34 million declined at the adjusted EBITDA and down $38 million and adjusted EBITDA versus Q1 of 2019. Couple of things below the operating line, net interest expense was favorable by $13 million. Going the other way, our income tax rate on adjusted pre-tax earnings increased from 6.3% to 10.4%. Relative to the expected 8% rate, that reduced adjusted net income by roughly $8 million. I will point out that our quarterly tax rate can be quite volatile in normal times and in a world we are forecasting the balance of 2020 is more challenging than normal even more so. We continue to believe that the tax rate on adjusted earnings will be 8% for the full year 2020.
Turn to Slide 12 in the quarter we generated $261 million of cash from operations that's down $152 million compared with Q1 of 2019 the biggest factor was an increase in working capital primarily due to the COVID related delays in collections from accounts mainly in Asia Pacific the results that were shifting the timing of cash interest payments to grow our refinancing activity and finally we made a licensing payment in the quarter for an agreement we executed in Q4 last year.
Turn to Slide 13, this shows the progression of our debt balance over the last four quarters the settlement of the U.S. securities litigation funded with unsecured debt raise in December last year set us back on reducing the quantum of our debt and improving our leverage ratio however, it was the right thing to do and we'll get right back to prioritizing the use of available cash to reduce our debt I reported back on the February call that the December 31, 2019, net debt balance was inflated by the timing of the December debt raise and the use of those proceeds on our December 31, ‘19 net debt pro forma for the deployment of those funds was roughly $24.2 billion on the same basis our pro forma balance at March 31 the net debt balance is roughly $24 billion about $200 million lower than the pro forma net debt at year end.
Turn to Slide 14, Slide 14 is a slide that we had relegated the appendix but in light of the importance of liquidity in a COVID world I want to speak to where we are sitting here today we have over $1 billion available under our revolving credit facility and no debt coming due this year or in 2021. Our next debt maturity is in the first quarter of 2022 importantly all of our debt coming due in 2022 is of a secure nature that's an important distinction as a senior secured debt markets are a more predictably available source of capital the risks associated with refinancing the 2022 maturities with secured debt are lower than if those maturities were unsecured.
Let’s shift gears and cover guidance for the full year 2020 while COVID-19 had a modest impact on our Q1 results our expectations of the impact for the full year are meaningful. We are a diversified healthcare company we have different businesses and operate in many geographies around the world each of our businesses will be impacted to different degrees as COVID-19 plays out in addition the time until the COVID impact bottoms out in the shape of the recovery curves will be different in each and every one of the markets where we do business.
On Slide 16, we group our businesses into four buckets from those businesses that we believe will be least impacted to those that we think will be most impacted by COVID-19. Bear in mind that, the B&L International segment that represents roughly 56% of our total revenue in 2019 operates in more than 100 countries and that the mixes of revenue within each of those countries are very different, for example, in Asia-Pac more than 40% of the region’s revenues come from Vision Care in North America. Vision Care is only 5% of total revenues. The progression of COVID-19 in each and every country will be different depending on the nature and effectiveness of local steps taken to control the spread of the virus within the U.S. the recovery is unlikely to be uniform across all regions as a little long winded there but I think it's important when you think about the range of outcomes for us in 2020.
Flip to Slide 17, where we list our major assumptions with respect to COVID-19 to start with broad assumptions. First, we are assuming that the health authorities will use the learnings from the initial outbreak and recovery to be far better prepared to deal with a potential resurgence of the virus in the fall. We assume that in the event of fall resurgence. We will not see significant social restrictions put in place by local authorities. Second, we are assuming that global economies will recover as the COVID-19 situation resolves over the balance of 2020. With respect to our business impact and recovery assumptions, we see the greatest impact on our businesses during Q2 due to the shelter-in-place directives, closing of retail outlets, healthcare providers closing offices, and postponement elective surgeries. We expect the recovery to begin in the latter part of Q2 and continue into Q3 and Q4 we expect that all of our businesses have the ability to return to pre COVID levels some perhaps as early as late 2020, but most certainly in 2021, several of our business units will recover more slowly, particularly B&L Surgical, our medical dermatology business and our dentistry business.
On Slide 18, we show our revised guidance for 2020 the uncertainty around the depth of the COVID impacts and the shape of the recovery curves for each of our businesses presented challenges for us for sure. We developed multiple scenarios based on various assumptions regarding the impacts of COVID-19 on our businesses. Based on our review, the range of outcomes and therefore our guidance ranges are wider than normal. I want to point out that FX rates have been very volatile since we provided guidance back in February and reduced our revenue expectations for 2020 by some $160 million and adjusted EBITDA by $70 million. Four currencies account for the bulk of that change, the euro, the Russian ruble, the Canadian dollar and the Mexican peso. Our revised guidance ranges are for revenue of $7.8 billion to $8.2 billion and adjusted EBITDA of $3.15 billion to $3.35 billion. We are now expecting SG&A to be down roughly $200 million on a reported basis, with about $25 million of that decrease due to FX. So in light of the reduced revenue expectations for 2020, we took steps to reduce our full year 2020 SG&A by roughly $175 million on a constant currency basis.
Finally, with reduced revenue and profit expectations, we have reduced our guidance with cash generated from operating activities to roughly $1 billion. With liquidity, a topic that is top of mind, I want to state emphatically that we are in excellent shape. Even at the low end of our revised guidance ranges, we are still strongly cash flow positive. We remain in comfortable compliance with the terms of our debt agreements with substantial covenant cushions. We have a $1.225 billion revolving credit facility, under which we have ready access to more than $1 billion and we have no scheduled debt payments until the first quarter of 2020 – excuse me 2022.
Before we turn to the 2020 guidance bridge, please note we are revising our revenue and adjusted EBITDA guidance out to 2022. The way we have expressed this in the past was a little awkward and possibly confusing. What we said was that off of the midpoint of the original 2019 guidance at constant currency, we expect the CAGR on revenue and adjusted EBITDA to be in the range of 4% to 6% for revenue and 5% to 8% for adjusted EBITDA. For clarity, our starting points for that guidance, was $8.4 million for revenue and $3.425 billion for adjusted EBITDA. Adjusted to today’s FX rates, those amounts would be $8.23 billion and $3.355 billion respectively.
Slide 19 shows the 2022 ranges defined by the CAGRs in dollars at current FX rates, which I hope will be less confusing. As part of our detailed review of the depth and duration of the impact of COVID-19 for each of our business units, we took steps to protect our near-term profit and cash flow by pairing back, eliminating or deferring some near-term investments, for example, DTC for DUOBRII, the planned expansion of our sales footprints in Europe for both B&L and for Solta, and other programs and that was to ensure that we do our best to protect earnings and remain solidly cash flow positive through the COVID dip and recovery. The deferral of these investments comes at a cost of our longer term outlook for various of our business units.
Today, we are revising our CAGR guidance using the same starting points to 3% to 5% for revenue and 4% to7% for adjusted EBITDA. Please see Slide 19 for the 2022-dollar ranges at current FX rates. COVID-19 was not the only factor in our revised outlook for 2022. We continually review and update our longer range forecast for all of our business units and it was a combination of both changes in outlook and the impacts of COVID-19 that caused us to revise our CAGR guidance. Absent the longer term impacts of COVID-19, we would have maintained our prior CAGR ranges.
Turn to Slide 20 for the guidance bridge. At the midpoint of our range, we are reducing our 2020 revenue expectation by $560 million on a constant currency basis, almost entirely due to the impact of COVID-19. You also see that we expect to offset some of that lost gross profit through reductions of SG&A and a modest decrease in our expected R&D spend.
With that, let me turn it back to you, Joe.
Thank you, Paul. Well, our revised 2020 guidance largely reflects the impact of COVID-19 on our business, I want to emphasize that it’s based on a set of assumptions. There is still uncertainty around COVID-19 and its impact. However, we believe Bausch Health is well-positioned to return to growth when we can move beyond the impact of COVID-19.
Turning now to Slide 22, we highlight the durable brands in each of our business units beginning with Bausch & Lomb, our largest segment represents 56% of total revenue. The brands include products like Lumify eyedrops, PreserVision vitamins, contact lens items such as Bausch & Lomb Biotrue Oneday Surgical devices like the IenVista Intraocular Lens and the Solaris Elite system, all great brands. In our Salix segment, which represents 23% of our revenue XIFAXAN Trulance and RELISTOR are key durable brands. And our Dermatology business represents 7% of our sales we have great brands including Jublia, DUOBRII and Thermage FLX, so great brands there.
Turning to Slide 23 we have outlined a few clinical milestones to watch in 2020 first we expect approval and U.S. launch of the SiHy Daily lenses we have received 5-K,10-K filing acceptance from the FDA and the expected launch is on track for the second half of 2020. Next is the rifaximin soluble solid dispersion which we call SSD immediate release formulation. We received positive top line results from a Phase 2 study at the end of March. According to the results using rifaximin SSD in combination with standard of care therapy what's statistically significantly superior to the placebo plus standard care therapy in overt hepatic encephalopathy.
We are excited about these results which will help us decide and further result in further research for new potential indications. We expect the first application will be in sickle cell anemia, with clinical trials starting to commence later this year or sometime in 2021 we have also have a number of additional rifaximin studies evaluating new formulations for treating other GI conditions including Post Operative Crohn's disease SIBO and the complications of cirrhosis finally positive topline results from amiselimod QT study demonstrated amiselimod has no effect on QT interval prolongation which has been associated with other molecules in this class no other significant secondary safety signals were identified and we expect to initiate a Phase 2 study in the second half of 2020.
Before I begin my concluding remarks, I want to briefly address the impact of COVID-19 on our R&D organization the R&D slide in the appendix on Page 26 right, the snapshot of our late stage pipeline the status of each program while new patient enrollment in clinical trials has been temporarily paused due to the impact of COVID-19 we continue to work with our investigator sites to follow up with subjects that were already enrolled in various trials prior to shut down as per the study protocol we plan to resume new patient enrollment in clinical trials once restrictions on COVID-19 have been listed and look forward to getting our clinical trials back on track.
Finally on Slide 24, as Paul mentioned, the COVID-19 pandemic and its impacts triggered revisions to our long term outlook we now expect a 3-year CAGR from the mid point of our 2019 guidance of 3% to 5% revenue growth and 4% to 7% adjusted EBITDA growth over the period from 2019 to 2022 on a constant currency basis. While the impact of COVID-19 are numerous we believe Bausch Health has a global diversified business model that is durable. We have broad and diverse product portfolio with approximately 1,400 products in a broad array of therapeutic areas. We launch more than 15 of these products in 2019 and we anticipate additional launch over the next several months. These products will help drive durable growth over the long-term. We also have a very diverse mix of prescription over the counter and device revenue and we will also benefit from Bausch Health global footprint our products are sold in approximately 100 countries and everyday around the world more than 150 million people use a Bausch Health products to conclude when our business facing unprecedented disruption earlier this year we took a number of steps to mitigate the impact due to these actions the durability of our business model we are confident that our business will remain well positioned for growth over the long term.
With that operator, let’s open the lines for questions.
We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Ken Cacciatore with Cowen & Co. Please go ahead.
Hi, good morning guys. Thanks for the question. Just had a couple. First, thanks for the detail on the 2022 thoughts. Paul, I was wondering when I look at our model versus your expectations, you are nicely higher than us. So, I was wondering do you include any pipeline in that analysis and as you look at the consensus models, can you talk about the delta where you all maybe different and why do you think that is? And then also as an organization, you obviously as you mentioned during over 100 countries, can you talk about just green shoots you are seeing in some of these areas that help inform your guidance in the U.S. I know that XIFAXAN seems to be just ticking up a little bit. So, you can talk about where we were and maybe what we are seeing real time now in terms of the impact on COVID? Thank you.
Well, why don’t you take the first part of that question and talk about the commentary on the pipeline in the 2022 and then as we get to the countries, I will take over in that on the XIFAXAN, so why don’t you start first on that guidance question?
Sure. Thanks Joe and Ken, thanks for the question. I mean, the – looking out when we do our long-range forecast so we are taking into consideration those new products that we expect to introduce that come out of our development pipeline is say not all of those are going to be off the blockbuster nature, but it’s a steady stream of new products that come out of our development pipeline that are included in that 2022 and ‘23 and ‘24 as we continue to forecast out our business. I’d point out that a good chunk of what you are seeing in the – call it the next 3 years, so 2021, well, ‘20 is going to be an interesting year, but ‘21, ‘22 is the continued ramps of the products that we have very recently introduced and you heard me speak about in my prepared remarks about my excitement around the upcoming launch of the Daily SiHy in light of the great job there. Our U.S. team is doing the marketing there. The portfolio that they have now, that’s clearly a part of it and so are a lot of the other products that we have within our portfolio today, but there was a steady stream of products being added that help to contribute to that 2022 number that goes into that CAGR.
I will take the second part as the – I think Ken, you are asking questions about what’s happening in the rest of the world and as you walk around the world what we are seeing? I mean, if you think about what’s happened here, we clearly the United States know that the visit to the dermatologists to the eye care doctors or gastroenterologists are down somewhere in the 40% to 75%. So, clearly, that’s what we saw, as you said about green shoots, we are staring to see some things happen. So, for example in Europe, our expectation is that we will see Europe starting to open up in June. We think Germany is already starting to open up now in May, China, we are in the field. Activities are back up and running in China. So, that gives you some sense of what we are seeing from a global perspective. Our expectation on the surgical side is that there is a backlog in the cataract surgery as an example. We are not going to work through all of that in 2020, but some portions of that will work through in quarter three and quarter four as we see that absorb it. In other places like our dental business that’s a little different. If you didn’t go in and get your teeth clean, you will go into the future, but there is going to be some loss in that business. And I think that’s how Paul tried to portray that as we thought about what was happening there. And that’s the kind of thing that we are seeing. XIFAXAN, we feel really good about XIFAXAN. Yes, there are some short-term issues, but hepatic encephalopathy is holding up very strong, same comment with our TRULANCE business, notwithstanding all the noise out there, but COVID – the TRULANCE business is up 50% plus, outstanding performance there with TRULANCE. So, we are looking at these things and finding the opportunity. The RELISTOR products continue to grow. XIFAXAN is going to continue to grow. We are looking for those kind of things for the future. The only other comment I would add to what Paul said on the side ideally, because that is our – one of our key product launches. We know that the SiHy market is about 15% of the global market and it’s growing at 30% plus. So, that’s why we are excited about what we think the opportunity to launch that, silicone hydrogel product here in the United Stated, we have launched in Japan and then take it around the world. Operator, next question.
Our next question will come from David Amsellem with Piper Sandler. Please go ahead.
Thanks. Just a couple. So first on the lens business I know you cited reduced lens wear but I wanted to get your sense over the long term regarding whether we could see something of a new normal in terms of reduced lens usage due to more social distancing or just more vigilant behavior if you will so is this something that you're planning for over the long term that's number one and then number two you had planned to convert some of your Derm assets to cash pay with dermatology.com I was wondering if you could if you could talk about how COVID is impacting your plans there is that something that you're considering broadening overtime or incorporating more into telemedicine if you will and help us understand your strategic thinking given the realities of the pandemic regarding this cash pay model? Thanks.
Sure. I'll try to make sure I get all of those questions first starting on the lens contact lens usage we actually expect this to actually bounce back to what I would say would be what we have seen before continued growth in our lens care business continued movement towards the daily contact lens continued movement to SiHY Daily so all those trends that we've seen I think we'll come back is there some question about the reduced social interaction yes that is true however not withstanding that if you think about it for a second certainly only thing people can see behind the mask is the eyes so in fact I mean I know that sounds silly but the reality is we're seeing incredible uptake in what we refer to our cosmetic lens are colored lenses glass that we have in some of our geographies around the world so there is some expectation that the contact lens business will continue to return on the question of derm.com and how we're managing that do I think COVID is going to impact our plans to convert more products to cash pay I do think that there will be some movement in that right if you think about what's happening the data I looked at is a telemedicine is that in one particular plan it was less than 1% of the doctor visits prior to 2020 for telemedicine the most recent data that's out there is that telemedicine is now counting for approximately 15% so you're seeing an absolute transition for telemedicine we believe our dermatology.com will fit in very well with that because of what we are doing for the dermatologists so we are looking to continue to see that kind of growth that kind of opportunity for what we're planning on with our derm.com and telemedicine and how the cash pay fits in with that our belief once again is that this model will allow physicians to get the formulation they want have a predictable price there won't be any prior authorization and patients won’t be upset with that they were promised a price of action there is completely different price that when they went to the pharmacy counter so for those reasons we do think there's a good opportunity with our dermatology.com in the telemedicine world. Operator next question?
Our next question will come from Annabel Samimy with Stifel. Please go ahead.
Hi thanks for taking my question. Want to talk to you about the guidance assumptions I guess each of the different regions of the world are different in need to assume that it runs its course, and you are not going to see social restrictions eased and the second wave of this but there is very different experiences across the globe versus the U.S. so how'd you contemplated that in your guidance and is that in the loan your guidance and what might that end up doing from a liquidity perspective is there any scenario where you would have to draw on that revolver? Thank you.
Well, I'll start on some of this. And then clearly, though, you should also come back in terms of the guidance assumptions I think what we tried to do is as we thought about this we are fortunate we have a significant business in China and Asia we utilized the information and the knowledge that we gained from the earlier activities in Asia to help us think about what was going to happen with our business going forward and as I mentioned before as we are starting to see China now recovered they started a little earlier so we are starting we are learning from that but to be clear we develop not just a scenario here the one that we presented we developed I think it was four different scenarios with different time points and different returns and trying to anticipate that there could be multiple things that could happen here. So we have built in the four different scenarios and we came up with what we have referred to as I would say the most likely scenario. And Paul and his team have just done a great job in thinking through the multiple parts of this, the pushes and the pulls relative to when the business would comeback, how we would operate going forward in the future. We don’t have a crystal ball, but we do clearly want to make sure that we have looked at all the contingency and I will just say before I turn to Paul that the work that Paul and the Treasury team have done over the last 3 years have put us in a much stronger position to weather the storm here of COVID-19 and clearly be ready regardless of why it goes. But Paul, why don’t you want to take share you thoughts too?
Yes. Thanks, Joe and thanks for the question and good morning, Annabel. Interesting is we do have so many businesses in the so many markets that we are able to take learnings from other markets. With the fellow, Tom Appio, who is the – who runs our B&L business outside the United State has been just a wealth of information about how this is played out, because it started in Asia and there were some things and we were hopeful that some of that data about how this plays out would be directly relevant to how we would play out in other markets, but the reality is each market is different. That’s why I went through that discussion. And so that’s what leads us to just having such a wide range of possible scenarios and including taking into effect a much more protracted period to the end of the dip as well as protracted periods as we work our way out of this environment. Now, what I called out, I want to – I think it’s an important point is we looked at how we thought 2020 would play out in the light of that revenue reduction, we reduced our OpEx mainly selling and advertising and promotion by circa $175 million on a constant currency basis. I can assure you that we have scenarios within our company that if things trend below lines we would take additional actions in order to protect our profit and to protect our cash flow, it was a very involved process or led by my right hand man, Sam Eldessouky, who develops all these things so that we can prepare and be ready depending on how this situation plays out, because nobody knows we have a great deal of uncertainty, but we are prepared if it plays out in a less favorable way. We are ready to roll. If we start to recover more rapidly, we have done our level best to ensure that we have our resources as one of my favorite phrases, tanned, rested and ready to get back to work and to start driving us back towards our pre-COVID levels.
Now, your second question was around liquidity and first of all, I said it in my remarks this – we are in a terrific position even in a downside scenario, we are strongly cash flow positive from operations. And I said this, I think we tried to articulate this in our 8-K early on in this process in 2019, our cash from operations was circa $1.5 billion we generated and you have to remember that after covering a very FD cash interest load, so after all that cash interest, we generated $1.5 billion. This right now based on our range of guidance we are saying circa $1 billion of cash generated from operations in 2020 under some scenarios that are down, that are clearly down. We can self-fund – absolutely we can self-fund. Secondarily, we have our revolver available to us, you ask the question, would we borrow on that revolver? Yes, we will borrow on that revolver in the same way as we have borrowed on the revolver in the past, which is to fund short-term requirements. At the end of the quarter, there were no borrowings outstanding under revolver. Will there be borrowings during the year? Sure of a short-term nature, because our cash flows do not come in on a linear basis across the course of the year, but we are in a very good position liquidity wise. I can’t emphasize enough. I am very pleased that we are able to accomplish to everything we are able to accomplish with respect to our debt capital over the last call it almost 3 years now such that our first real maturities are of any substance allowed in 2022 those are secured nature those are easier not nothing's easy but those are easier to finance to refinance and we feel like we're in very good shape to ride this out you are seeing in our 2020 guidance. What we believe is the range of outcomes in 2020 and we're prepared whether it's towards the lower end of that range or the upper end of that range we're prepared either way to manage through it and without blinking.
Great, thank you. Operator next question?
Our next question will come from Gregg Gilbert with SunTrust. Please go ahead.
Thanks. Good morning. I wanted to go back to the second half launches you're expecting and I wanted to make sure I understood whether that was a bet on things returning to normal versus you plan to launch regardless it's just a function of how you would launch and with what tactics and then on the biosimilar deal you did I'm curious and I'm sorry if you already covered this I don't think you did but can you talk about. The expense of that program over time and any associated timelines and whether highly is in your sites as well? Thanks.
Sure I will take the first part of this and the second start a deal. First of all on the second half of 2020 are we expecting a return to what I would refer to as the new normally yes we are ready to spend it in the second half of 2020 it's not going to be like flipping a light switch it's going to be a gradual or already as I mentioned before seeing some activities in China opening up now we have seen Germany we expect in May Europe we expect in June United States is going to be variable by states some of the states as you know are already opening up already some of them we've already had conversations we're doing a lot of virtual meetings with our docs now and we expect that some of they are opening up their practices and looking forward to get it back into the surgical suites so we're going to see it happen over time it's not going to be like a light switch it's going to be a gradual and working at multiple geographies multiple states as we do that forecast on the specific questions about the launch though for this ideal it is our expectation as we mentioned we've already had acceptance to file for the 5K 10 K. it is our expectation that we will launch that in the latter half of 2020 we believe that markets will return and will be there would be ability to get that product launched it's not going to be once again an immediate quarterly across all doctors it is going to be as they open up we are going to have the product available we have the product available will give them the fit sets appropriate to launch and make sure that we move forward with those launch activities so we do think that that's an exciting product exciting opportunity and as I mentioned they are very fast growing part of the market and one that but we think we can participate in with what we think is a great product it’s already as you know launched in Japan so we've got the experience with the manufacturing site and will continue to move forward. That’s clearly the biggest part. On the STRATA deal, minimal expense to us over time, STRATA has the program already under way what STRATA was looking for I think is they had the expertise for the manufacturing side in the biosimilar side we had the expertise I'm calling on these doctors we do not we do not have access to a product like this we felt this opportunity would be a perfect opportunity for us to partner with STRATA and give them a win give us a win getting up to the North American doctors with this product so we think it's exciting we are looking forward to partnering with percent with biosimilar opportunity and we will work for towards that but minimal other than the upfront expense and then some milestone payments as we get closer to launch is very minimal R&D expense for us. Operator next question please?
Our next question will come from Umer Raffat with Evercore. Please go ahead.
Thanks for taking my questions. Paul I am very confused about something today which is I recall we discussed specifically the implied 2022 revenues and implied 2022 EBITDA which was off of the growth CAGRs you had laid out but the growth CAGRs were being applied on the midpoint of 2019 guidance today I'm noticing not only are the growth CAGRs down there no longer being applied on the midpoint of 2019 guidance instead they're being applied on an FX adjusted version of the 2019 guidance and I'm just trying to understand why that is and why not maybe just give clean growth numbers implied is it around 3% on the low end on EBITDA growth CAGR if we still work off of the original numbers which was midpoint of 2019 guidance.
Paul, why don't you take that question?
Yes, sure. I mean as it just clearly directed at me. The guidance where we provided it was always meant to be constant currency that’s why we talk about organic we can't control currency we operate in many markets around the world and that's why we talk about organic that's why we talk about constant currency while we laid it out it was meant to be at constant currency all we did was indeed take the midpoint of that 2019 guidance bring it to the FX today which by the way anybody who is kind of follow along at home you could follow all of our quarters and all every time we talk about FX and total up the cumulative impact of assets and that's what it is and that's what we can go off that's how we measure ourselves is constant currency and so I am only trying to express it now on that slide 19 in a way that people can at least say based on currency today that's the range of outcomes to hold ourselves to say we would put a longer term CAGR range and say and we will take currency I don't think that's reasonable.
Thank you very much.
Operator we have time maybe one last question please.
Our last question will come from Akash Tewari with Wolfe Research. Please go ahead.
Thank you so much. So there seems to be a disconnect between how much the midpoint of adjusted EBITDA came down versus how much cash flow from operations declined 300 versus 500 can you explain what's going on there and I know there's a lot of moving parts but given the change in long term guidance and the stock drop payout we're getting to you getting under 5x leverage it seems like it's more like a late 2024 2025 event is that a fair take or do you have more operating leverage here then we are really appreciating? Thank you.
Paul, why don't you take that question, and then I'll comment as you finish?
Yes sure. I mean I will start with we've got a very broad range of outcomes here for both revenue and for adjusted EBITDA. We’ve selected a point estimate of roughly $1 billion of operating cash flow to cover to cover the range the rationale is I even call it out in with respect to cash flow generated in the first quarter COVID impacts are not solely on operating results COVID impacts are also on classic adjusted working capital type accounts where I called out in the Asia Pacific region we've had to extend payment terms to a number of our customers in order to help them work through this crisis. As I say, we're not being foolish about it but it’s absolutely stretching the time that it takes for us to convert revenue to cash secondarily management of inventories during this time period is also a challenge if you are hoping for and planning for a more rapid recovery you maintain inventories on hand to provide a high service level and that could across a variety a range of outcomes end up being a classic work use of cash for our gross of adjusted working capital flip side of it is that we like everyone else are doing our best to ensure that on the payable side we do what we can do to help offset some of that but the reality is that we while we work our way through this the normal ratios that you might look at with respect to adjusted working capital and how to think about that is they have that push pull of cash generation. Don't apply until we get back to a more normal state the range of outcomes is pretty broad I did not want to put a broad range of forecasts for cash generated from operations on the table we put circa $1 billion as a good solid spot for you to take a look at for the balance of the year. I'm sorry, not for the balance, but for the full year. I'm sorry, the second part of the question Akash?
It was the question of leverage.
Right. So 5x leverage it seems like a late 2024 2025 event now is that a fair take or am I missing something?
Well I would just say be a basic factoids one week we certainly push that the timing of our getting below 5x out when we settled the U.S. Securities litigation and added $1.1 billion to be essentially to our debt load. Secondarily, as you take – if you go with my forecast as articulated during guidance today, from $1.5 billion of cash from operations down to $1 billion, that cash is not deployed to reduce debt. So yes, I mean, there is a knock-on effect that will push this out and also that the knock-on effects in the longer term of the recovery, long-term recovery from COVID certainly pushed that out. I am not going to peg a date when we would expect it to reduce below 5x.
Thanks so much. Best of luck.
Maybe the only thing I would add to what Paul has said is that we recognized when I got here 3.5, 4 years ago that we had too much leverage and we are working very diligently to reduce debt. We did make some decisions though to invest in the business, invest behind XIFAXAN and with the primary care we did make decisions to invest and acquire a product like TRULANCE, all those business decisions we think have been the right decisions and we do them all the time, because we are building the decisions for the long-term. Having said that, that we are absolutely laser-focused on this concept of driving shareholder value and as you know, we have done before we have divested approximately $3.8 billion of asset proceeds in the past and we will continue to look at things that will drive down this leverage and will improve the overall share price performance of our company. That’s everything from asset divestitures that’s looking at spin-offs of our business as we do not believe we are getting the appropriate some of the parts for our company, but we are going to look at all the things that will drive long-term shareholder value for our company and you can expect as the management team that we are focused on that in terms of driving the shareholder value and urgently looking at the things that we can do to try to help increase shareholder value.
Thank you everyone for joining us today. I am going to conclude this Q&A, but appreciate your attention to our company and please let us know if there are additional questions. Happy to try to answer those questions as we go forward. Thank you everyone for joining us. Have a great day.
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.