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…

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…

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…

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…

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…

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?

Yes.

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.