Bausch Health Companies Inc. (BHC) CEO Joe Papa Presents at Barclays Global Healthcare Conference (Transcript)

Bausch Health Companies Inc. (NYSE:BHC) Barclays Global Healthcare Conference March 9, 2021 2:25 PM ET

Company Participants

Joe Papa - Chairman & Chief Executive Officer

Conference Call Participants

Balaji Prasad - Barclays

Balaji Prasad

Good afternoon. I'm sorry, we were on mute. My name is Balaji Prasad. I lead spec pharma coverage for Barclays. And thank you for dialing into the Barclays Global Healthcare Conference. So continuing the specialty pharma track of the conference, I'm pleased to introduce the management of Bausch with us today. So we have Joe Papa, Chairman and CEO. And Joe, thank you for taking time to speak to us. Could I introduce or could I ask you to make some opening comments and then we could get into a fireside?

Joe Papa

Balaji, thank you very much. Great pleasure to be here. And I certainly welcome the chance -- to have a chance to talk more about some of the excitement -- opportunities at Bausch Healthcare. We reported two weeks ago about our overall business. And I would say, clearly, the messages on that was that recovery is in progress, the business recovery is in progress.

Number two, I'd say, we entered 2021 with good momentum. And maybe some of the specifics on that is clearly, we were able to exceed our latest forecast on revenue. We had really strong cash flow. EBITDA was -- in fact in the fourth quarter EBITDA was ahead of a year ago. So feel very good about those opportunities.

We also managed our OpEx during the time period versus a year ago, because of some of the challenges that we saw with COVID. But importantly, one of the things we did we think very well was we increased our market share of several of the key brands. For example VYZULTA was up 40 basis points; XIFAXAN up 80 basis; TRULANCE was up 170 basis points versus a year ago. So I think we did what somebody should do during a downturn in terms of increasing market share.

Beyond that though, we look at 2021 with what we think are some real catalysts and tailwinds. So, for example, a very simple but important example is we know annually in the United States there's about four million cataract surgeries. It's about 22 million to 23 million around the world. And during 2020, because of COVID 650,000 were delayed only about 3.4 million done. So as we think about 2021, we have the tailwind behind us relative to those patients that did not get their cataract surgery in 2020.

And then importantly, there's a queue waiting for, what we believe, will be 2021 and beyond. So we think those are all great examples of things that allow us to have a recovery and progress and importantly, have strong momentum as we enter 2021.

There's one other question that we've got a lot since we reported our earnings. And that was a question about talk to us about the durability and sustainability of the remaining company and what does that pipeline look like?

And so, since August, we've been talking a lot about what we plan to do with B&L and how we believe the spin of B&L will unlock shareholder value. And I think the investors have a much better appreciation of B&L and the peer company multiples that are out there.

But we did always have the question about, talk about the remaining business, talk about the Salix pipeline and what does that mean in terms of the durability, sustainability of our business? I know that was one of your questions in fact.

So what we did today is, this morning we published on our website and released in a press release, the information on what we are doing to build up the pipeline of the remaining company, specifically focused on Salix, because that's been one of the big questions. And we're really proud of what we've accomplished.

Number one, we've put together for rifaximin, what we would refer to as, novel formulations. Formulations that have a different PK/PD, or pharmacokinetic/pharmacodynamic profile, that will allow us to dose the product at a significantly lower dose per day.

Maybe just to put it in relative perspective, if -- with XIFAXAN IBS-D you take 1,500 milligrams a day, we believe we can now deliver benefits for patients at less than 150 milligrams per day. So it's an order of magnitude reduction in our new formulations.

Beyond that, we also talked today about the new indications that we are pursuing. We're pursuing the area of reduction in the cirrhosis complications. We're pursuing sickle cell disease. We're pursuing the SIBO, small intestinal bacterial overgrowth, which are all new indications we think will be really good for patients, in terms of making sure that we give patients a product that has a lower effective dose, new indications and candidly for our company, come with new intellectual property that will extend significantly beyond the 2030 date.

So that, we think, is an exciting part of what we shared today. We think that these opportunities open up the rifaximin molecule to things like sickle cell disease where we have seen on pilot data some significant reductions and the need for an injectable opioid for sickle cell patients, reduction of the vaso-occlusive crisis in sickle cell, really exciting things from our point of view. Also, we talked about in the information release today, the ability for us to utilize amiselimod an S1P modulator that has great efficacy based on the comparative drugs like in ozanimod.

So we shared that type of information. We also talked about other growth drivers. For example, we know TRULANCE today it's at about $100 million run rate. We believe the future of TRULANCE is multiples of that $100 million run rate. Knowing that, the market leader is a $1 billion product, we think we can clearly pick up some significant share in the area of TRULANCE.

So, another exciting opportunity for us for growth in the remaining company. Also, we know that in the International Pharma business, it's done very well. We highlighted that in its latest quarterly results, where we had very strong results for our International Pharma diversified business. We think that's also another growth driver. And I clearly highlighted during the quarter, the opportunity with Solta, our esthetic business and where that's going relative to strong, strong performance by Thermage, as well as we've now launched a new laser clear and brilliant.

So we think, we've got a number of growth drivers that will help people understand more about our remaining business led of course by the Salix business, but also with contributions from our esthetic dermatology business, and also our International Pharma business. So we're excited about what we see there. Thank you for the questions that you put forth, so we can try to talk through. I know you asked about the Salix pipeline in the past. So we want to make sure we've got that question out, so we can have this conversation with all of our investors.

Question-and-Answer Session

Q - Balaji Prasad

Thank you for that overview, Joe. As – and also my thanks also to the team for putting up the slides, and I'll probably want to kick start there. So – but clearly, your work has been demonstrated in the way the stock has moved this year up, we have 70%, and hopefully more to come. So, picking up on the pipeline part of it, as I said, clearly this was something that investors wanted to know what is it that we're investing in the pipeline especially in the RemainCo. And it was even more relevant from the – from your ability to execute on it and also show a path to deliver it, right?

So on rifaximin, you highlighted four novel formulations and you have – this is something the potential of rifaximin a pipeline that we have spoken on in the past. Can you maybe take us through the rationale of these formulations each one of those? And the market opportunity behind this, and how this is likely to play out to about?

Joe Papa

Sure. Happy to do that. Let me –

Balaji Prasad

Yeah.

Joe Papa

No, please. So, I know the fact…

Balaji Prasad

I'm saying is there a problem with this? I let – go ahead, Joe please.

Joe Papa

Okay. On rifaximin, we really think there's some really good opportunities. So first of all, the novel formulation, whenever you can bring the dose of a product that's delivered to patients down from as a scale somewhere around 1,500 milligrams a day down to a dose of somewhere in less than 150 milligrams and sometimes significantly less than that we think that's good for patients. Good that they're get less exposure, but still get the benefit of the product. So that's clearly, the first thing we've been able to do from a pharmacokinetic pharmacodynamic point of view in terms of the formulation.

But the other important question was where can we take rifaximin to ensure that we're helping more patients? So the easy example hepatic encephalopathy. Today, I'm going to use round numbers just to make my math easy here on the call. If rifaximin is over $1.5 billion – so if rifaximin is over $1.5 billion and ballpark 60% of that is in hepatic encephalopathy that's $900 million of approximate revenue in that category.

Now that's only for those patients who've had a hepatic encephalopathy event and we're preventing a secondary event. And which show – the data that we have for rehospitalization that shows somewhere in the range of a 50% improvement in reduction of rehospitalization. But that's really good. But what we did and this is really important. The next thing we showed is, let's get these patients who have overt hepatic encephalopathy when they have the problem – and get that patient earlier, so that we're preventing it or shortening the duration of the need to have the overt hepatic encephalopathy. And we showed with our SSD formulation we could do that. Then we came forward to the FDA and had a conversation with them, let us take this one step further and let's get those patients who have cirrhosis, let's get them even earlier so they don't have to experience their first hepatic encephalopathy event will help treat the complications of cirrhosis, so easy math, there's about 100,000 to 200,000 patients that get a hepatic encephalopathy event that we want to stop the secondary incidents.

If I go to reduction of cirrhosis symptoms, they're closer to 600,000 patients that have that situation annually. So if I can help those patients, that gives us an even bigger market opportunity to help patients, help them from ever having to have that first hepatic encephalopathy event as an example.

Now we have to prove that in clinical trials. But the great news is the FDA just recently based on the work we did with the overt hepatic encephalopathy or acute situation, gave give us the ability to go right to a Phase 3 trial without any additional work based on all the good work we have done with the molecule. So – and take some – the size of the opportunity from ballpark 100,000 to 200,000 up to let's call it a 600,000 cirrhosis disease prevalence. So clearly a much bigger opportunity and an opportunity to help patients earlier as a simple example of one of the formulations that we have underway.

Another example sickle cell disease. Unfortunately a very devastating disease in those that have it and we believe that we have an oral formulation that when used chronically could decrease the amount of vaso-occlusive crisis and also the amount of injectable opioids required. And it's an oral product.

And I compare it with some of the other products that are out in the marketplace that are injectables or – so we think we've got a very important innovation for patients. We put it in a new formulation, a much lower dose formulation, which once again we think is great for patients. And potentially, if we could demonstrate the efficacy that we expected and what we saw in the pilot trials, we think we've got a really good combination for those patients.

And I remind you, while there's not a lot of patients that have sickle cell disease, the cost of therapy for these patients based on current products is over $100,000 per patient a year. So we think that's a good opportunity for us to show a significant advantage for the patient and importantly both of these formulations will come with it some significant intellectual property that extends beyond 2030. So it gives you, as you asked the question I think more durability and sustainability of that pipeline.

Balaji Prasad

Joe, thank you very much for that overview. And clearly, it looks like there's a lot to play for here. And if I just take the first indication itself in hepatic encephalopathy and cirrhosis reduction – prevention, so you're looking at market size which is more than four times your current market that you're catering to. So if you consider Phase 3 starting this year, can you take us through a bit of how the trial is likely to look like? Primary endpoint you're looking at? And what would be an eventual time line towards filing an approval for this indication?

Joe Papa

Yes. What we put forth today and the work that we put out there in terms of the filing is we put an approximate approval. And I want to give the exact date, I don't want to give the wrong date. We said the approximate – for the RED-C, we'd have an approval – an NDA approval expected sometime in 2027.

Now, obviously, if we can accelerate that time table, we will certainly seek to do that. But we think that's a doable program based on – we know the design, we talked to the FDA. We know we need a 72-week design. So we've worked through it. But I think once again the real benefit we have based on what we've done is we've gotten the concurrence of the FDA to help us think through what's required to show efficacy with this indication. And obviously, we now have to do the trial to see what happens but we think we're on a good path there for trying to help these patients with reduction in their cirrhosis complications.

Balaji Prasad

Great. And as I untangle these four new non-formulations, most of them with potential filings and approvals between 2025 to 2028. Is that a realistic target that by 2027, I have XIFAXAN current indications doing around $2 billion by 2027. So these are the main indications could positively be having these cells, which could be larger than this $2 billion. Is that a realistic expectation then?

Joe Papa

Well, I certainly, think there is an opportunity. We have to be successful with the clinical trials. We have to get the Phase 3 results that we'd like. But we do think there are significant opportunities here in a sickle cell disease in a SIBO, small intestinal bacterial overgrowth in this question of reduction in cirrhosis complications.

So there are significant opportunities -- market opportunities that we can help a lot of patients, and then obviously, generate some significant revenue for the company. And that's really one of the things that has been an outlier question that we've received. We knew we had this all underway. We wanted to find the forum and we thought given the fact that you had asked these questions the last week say, let's bring this forth now so people can have a better appreciation.

I think people are starting to appreciate the B&L value opportunity much better than they did, let's say, in August when we first announced it, but now we felt it would also be important to pivot to help the investor understand what we're also doing with the remaining business. I think some parts of the remaining business like Solta are probably a given. They see the performance, but we wanted to also make sure people understood the durability and sustainability of our Salix portfolio as well.

Balaji Prasad

Wonderful. Let us shift to the S1P receptor modulator amiselimod as you initiate a Phase 2 trial in 1H 2021 and look at evaluating for mild to moderate ulcerative colitis. Are you considering expanding this for other indications be it MS psoriasis diabetes? And also can you take us through the implications of what a clean QT/QTc profile -- cardiac profile means for this drug?

Joe Papa

Yes. We knew this category the S1P modulator with a new oral formulation was going to be very, very powerful if indeed we can show that we did not have some of the cardiac symptoms or problems that have been shown with previous products that were S1P modulators. And we did a thorough QT/QTc study and we demonstrated a clean profile. We've now presented that information. And we think that's an important -- was an important hurdle to get ourselves through. And indeed we've done that. So that was probably number one.

Number two, I would say that, we obviously keep track of what's going on in the category and we've seen the success of ozanimod and what they are doing. And we think that we have a molecule here that has every bit as good if not better efficacy on the lymphocyte reduction that is ozanimod. And we believe that if we can demonstrate that in the Phase 2, Phase 3 trials that we can show this value creation for this product and what it would mean for patients.

But to your question of could we take in other indications? I think right now we're focused on really making our case that where we can develop this specifically, we're going to take it into this mild to moderate indication and see where it takes us for ulcerative colitis specifically. If we demonstrate the efficacy, we think we can and we get additional Phase 2 data I think there are other opportunities that we can explore, but right now we're continuing to focus on this ulcerative colitis opportunity.

Balaji Prasad

Okay. Thanks Joe. Maybe then I want to spend the remaining time on the spin -- upcoming spin setup. As we look forward to May, when you're reporting next a couple of things, I think one of the things which you get from investors, what [Technical Difficulty] around this? So can you expect historical numbers, partially numbers going back the last two years maybe for both RemainCo and eye care business and just get more clarity there on the numbers to evaluate the business quickly?

Joe Papa

Yes. What we stated on that -- it's an absolute right question. What we've stated is that as we are rolling out our 2021 first quarter, we will start reporting the business in the first quarter that result that's due in May -- early May. We'll start reporting that under the new alignment of the B&L spin and then the remaining business is how we will report it.

So -- but in addition to that reporting, we will project backward, I believe, we'll have 2018, 2019 and 2020 information in addition to -- historical information in addition to what we will present for the quarter that we're reporting on.

So, yes, we'll take care of that. We understand the need for that. Obviously, especially with last year being COVID, it was something we felt would be important to have some historical data as well. We will do that. We'll have it first available for us when we do our quarterly presentation on/or about that first week of May.

Balaji Prasad

Great. And one of the questions that I asked you during the earnings call recently was if you would consider raising equity at -- kind of considering the stock had done very well? And if there was a level that -- this was a level that you would consider? You said no. So what is the level at which you would consider raising equity?

Joe Papa

Yeah. So I think the right way to answer that question is that, we believe the best way to unlock shareholder value is to spin B&L. And once we spin off B&L, we think that that will create the most value for our shareholders. So we're very focused on doing that first and foremost.

Now the question that you're appropriately asking is how do we get there because while we have stated the ability to be ready to do a spin after the third quarter of 2021 we'll have finished all those target objectives there is still a question of leverage. And the way we're looking at leverage is and our debt leverage specifically is that we're number one, we feel that as we pay -- certainly as we grow EBITDA, we will pay down debt. In terms of using that cash to pay down debt, and obviously as EBITDA grows leverage comes down.

Number two, we said, we're going to take some working capital out of the business where we try to be more efficient with working capital. And as we do that that will free up some cash to pay down debt.

Number three, we said, as we do the separation of B&L, we are looking at the potential to spin B&L through an IPO. If we spin off x percent of B&L through the IPO that will also generate cash that we could help lower the total quantum of debt at the two companies both the spin as well as the remaining company. So those are all things that are clearly under consideration. We also have some asset divestitures that we've talked about pursuing. You may have seen in our latest 10-K, we did put one specific asset as an asset held-for-sale. So it tells you that we're making some progress there. But I probably -- once again I want to repeat as far as raising equity with Bausch Healthcare we're not in the -- we don't believe that's the right thing to do. We believe there's significant value creation with our Bausch Healthcare stock. So that's something we are not pursuing at this time. We believe the better way is to go as I said spin B&L and take all the appropriate actions that I mentioned just before this to ensure that we get both the B&L and the remaining business both at an appropriate market capitalization for their capital structure.

Balaji Prasad

Thank you, Joe. And on that part about divestitures and your 10-K is maybe you've noticed that Egypt offers is classified is held-for-sale. So can we extrapolate that to mean and extend that to the broader business and think that Amoun is a potential investment candidate currently?

Joe Papa

So I'm not going to make a specific comment to any individual business. I'm not going to discount the way you phrased the question, but I think right now it's best I say that there are some assets that we've had significant inbound interest in and as such we are taking the appropriate actions. Once again I'm not trying to get the perfect deal to sell any of our assets, but just a deal that we think will help us to expedite the spin is the way I'm looking at it right now in terms of how we can get the best results.

Balaji Prasad

Understood, Joe. Maybe in the interest of time one question on the cash flow side. You have $1.2 billion coming up for payment probably through the stock drop case. And is this going to be paid pre spin? And if it's post-spin how will the -- how will this be assigned between the -- RemainCo?

Joe Papa

So we've already put the -- maybe a little bit background just for everybody is that we had a stock drop litigation. We settled that stock drop litigation for $1.2 billion. We have already taken that value of that cash. We've inserted into an escrow account and that is awaiting the judge's final decision on the allocation of that cash to the respective parties. But that's already been taken care of. That's behind us as a so-called risk. And we still have a couple of opt outs that we have to work our way through but that particular $1.2 billion has been fully funded. It's sitting in escrow just awaiting the judge's final decision on allocation. So we're in good shape with that.

Balaji Prasad

Got it. A final question maybe on the business side of Bausch & Lomb, so you guided to again global sales of SiHy Daily to around the $0.25 billion. So how should we expect this to play out -- by when could you reach that? And what should we be looking at for incremental evidence of this goal being achieved?

Joe Papa

Sure. So we're very bullish on the SiHy Daily, just based on the response we've seen. We've now launched in five countries. We launched it in Japan, the US, Hong Kong, Canada and Australia. So we're seeing very good results. Japan has actually had the longest they're doing over $1 million a month right now. So very pleased with what we're seeing in that particular market. In the United States, we've got a lot of data that we're looking at right now that is telling us that we're getting a great response. SiHy Daily products are by far and away the largest -- I'm sorry, the largest opportunity for growth, let's say it that way. Today, in the United States, you're about $1 billion market. We expect in the next 10 years of the growth to be about a $3 billion market. So an incremental $2 billion than in just the next ballpark 10 years. So significant growth for the category.

Our belief is that we can exceed $250 million of sales in the category of SiHy Daily, because we believe we have a -- what we think this time is a unique positioning. If you talk to patients that wear SiHy Daily lenses they love them. They think they're great. However, they still feel they have the problem that at the end of the day, the contact lens is dry, it causes that dryness related to contact lenses. One of the things we -- as we were doing our work in trying to make sure we can have a product that is meeting the needs of patients, we determined that we can pair up the great optics we have at Bausch & Lomb with the great comfort we have in the fit and indeed pair that with an osmoprotectant and an electrolyte in a solution that is part of the offering and what we are finding based on the initial feedback we're getting in the United States is number one, 94% of the patients say that the infused product helps them with contact lens dryness. So that's great to hear.

And they're also saying that they can wear it all day and they have -- still have very strong optics and clarity of vision at the end of the day, which is all we think great news in terms of the opportunity. We think that it's like any other product that we've launched in the space in order to hit the peak sales it's going to be four or five years. It's not going to be the first year to be clear. It takes four or five years to roll out -- as you roll out the spherical lens then go to the toric lens multifocal lens. So we still have some work to do here, but we are very enthusiastic based on what we're seeing from patients and hearing from patients. And we know that to date about three-quarters of the patients that we're getting for the infused product are coming from other competitive products.

So clearly, there's a need here based on what we're hearing from our patients what -- based on what we're hearing from the physicians. There is a clear opportunity for us to help patients see better, feel better with their contact lens and have less contact lens dryness. So we'll see what happens, but we think it's a three, four, five year type of event and we'll hit those types of sales numbers based on -- hopefully exceeding those numbers as well.

Balaji Prasad

Great. Joe, thank you very much for all the color. I think that will be a good spot to leave this conversation. And I wish you a productive conference. So thank you again for your time.

Joe Papa

Thank you very much for the chance to have a chat. Hopefully, maybe we'll be doing this next year in Miami rather than virtual.

Balaji Prasad

Absolutely. I hope you all are leaving for now. Thank you, bye.

Joe Papa

Thank you.