Greetings. Welcome to Bausch Health First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Mark Maico, Investor Relations. You may begin.

Thank you, Holly. Good morning, and welcome to Bausch Health's first quarter 2023 earnings conference call. This is Mark Maico, Investor Relations for Bausch Health. Participating in today's call are Thomas Appio, Chief Executive Officer of Bausch Health; and Tom Vadaketh, Chief Financial Officer. Before we begin, I'd like to remind you that our presentation today contains forward-looking information. We would ask you to take a moment to read the forward-looking statements at the beginning of the slides that accompany this presentation, as they contain important information. Our actual results may vary materially from those expressed or implied in our forward-looking statements, and you should not place undue reliance on any forward-looking statements. Please refer to our SEC filings and filings with the Canadian securities administrators for a list of some of the factors that could cause our actual results to differ materially from our expectations. We use non-GAAP financial measures to help investors understand our ongoing business performance. Non-GAAP financial measures may not be comparable to similarly titled measures used by other companies and should be considered along with, but not as an alternative to, measures calculated in accordance with GAAP. You will find reconciliations to our non-GAAP measures in the appendix of the slides that accompany this presentation which is available on Bausch Health's Investor Relations website. Finally, the financial guidance in this presentation is effective as of today only. We do not undertake any obligation to update guidance. Our discussion today will focus on Bausch Health, excluding B+L. However, we will briefly comment on Bausch + Lomb's results announced yesterday. We will refer to year-over-year comparisons with the same period last year, unless otherwise noted. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on May 4, 2023. With that, it is my pleasure to turn the call over to our CEO, Thomas Appio. Tom?

Thank you, Mark. And welcome to those of you joining the call this morning. It has been almost a year since I took over as CEO of Bausch Health. While our business faces challenges, we have some great franchises and we are continuing to balance the constraints of a tough balance sheet with the need to continue to invest and grow the business and the pipeline. With the IPO of Bausch + Lomb in May last year, we assembled a seasoned, resilient executive leadership team with a track record of hard work, dedication and accountability. While we have had some bumps in the road, we have accomplished a lot in the last year, and we are hopeful and realistic for the future of our company, powering up the potential and creating a great healthcare company. The team and I have been able to focus on improving the remaining Bausch Health businesses. Firstly, through operational excellence and focused investments in key businesses that have growth opportunities such as Salix, Solta, Dentistry and International business. Starting in the back half of 2022 and continuing this year, we are increasing our investments in sales, marketing and R&D to accelerate growth in Salix. I will touch more on this in a few minutes when we take a closer look at the performance of the business segments. Our International business consists of a branded generic business in the EMEA and Latin America and a branded business in Canada. Taking together, this business is a profitable and growing business. To maintain sustainable long-term growth, we have to continue to bring in new products into the portfolio, as we have done historically through business development and licensing deals, which in this space are not typically capital intensive. Our neurology, dermatology and generics business operate in a challenging…

Thanks, Tom. Hello, everyone, and thanks for joining us. My comments today will refer to organic growth and adjusted results. We closed the quarter with consolidated first quarter revenues for Bosch Health of $1.9 billion, up 4% on an organic basis over the same quarter last year. First quarter revenues for Bosch Health excluding B+L were $1 billion and flat on an organic basis, with growth in our Salix, International and Solta businesses. Let me discuss each segment in greater detail as shown on Slide 11. First quarter, Salix revenues increased 7% to $496 million. This increase was largely due to higher demand for XIFAXAN 550, TRULANCE and RELISTOR, coupled with relatively favorable changes in channel inventory this quarter for XIFAXAN 550 and TRULANCE in comparison with the channel inventory changes in the prior year. XIFAXAN revenue grew 7% in the quarter and overall demand grew 4%. In the first quarter, we continued to see an uptick in non-retail demand at institutions, such as hospitals and outpatient clinics, increasing our market share. We also saw a slight increase in demand from long-term care facilities, but we believe the shift in the HE patient journey post-COVID with patients going directly home from the hospital rather than to a long-term care or step-down facilities ongoing, and we are keeping a close eye on this trend. As Tom said, we have increased our investments in Salix during the quarter and we plan to invest further in the remainder of 2023. We are also pleased with the sales performance of RELISTOR and TRULANCE, which posted increases of 29% and 19%, driven by total script growth of 22% and 10% respectively in the first quarter versus the prior year. International revenues were $247 million, an increase of 5% on an organic basis during the first…

Thank you, Tom. In summary, we are building on the momentum from the second half of 2022, as we continue to focus on our core businesses, driving growth through operational excellence and our new high performance, results-oriented culture. We will make investments in key businesses that have growth opportunities such as Salix, Solta, Dentistry and the International business. We continue to invest in our R&D pipeline, including our global development programs for RED-C as well as the continued development of amiselimod. Our mid and late stage R&D pipeline is active and exciting. And we are looking forward to sharing more details. When I took over as CEO, I told you I wanted to create a fit-for-purpose company and we will continue on that journey, looking to simplify our business, invest wisely and grow profitably. We will also improve our capital structure and I've already made significant progresses in delevering the balance sheet. Together with this, gives us the ability to better focus and invest in our core business. I want to thank the global Bausch Health team for all their resilience and motivation, working each day to build our special company, driving performance through hard work and accountability, powering up our potential, elevating people's lives each and every day that use our great products. On behalf of the entire BHC team, I thank you all today for your interest in and support of Bausch Health. With that, we will now take questions. Operator, please open the line for Q&A.

Certainly. [Operator Instructions]. Your first question for today is coming from Glen Santangelo at Jefferies.

Yes. Thanks and good morning. Thanks for taking the question. Hey, Tom, I just want to follow-up on your comments regarding the separation of Bausch + Lomb. You seem to suggest it still makes sense. Could you maybe give us a sense what are the big hurdles that you need to climb over in order to be able to execute the spin? And in particular, there has been a lot of questions around the XIFAXAN litigation, if that's sort of a gating factor to ultimately get a solvency opinion, which will pave the way for the spin? So if you could just let us know like what pieces need to be in place, given that the leverage seems to already be in the acceptable range?

Sure, Glen. Thanks for the question. So as you know, we continue to evaluate potential options to maximize stakeholder value. Okay. So -- and as I said in my prepared remarks, we believe the separation of Bausch + Lomb makes strategic sense, and we remain focused on creating two strong companies. What I would say is, also we are evaluating all the relevant factors and considerations regarding the distribution as we assess the potential impacts of Norwich in terms of the XIFAXAN litigation. So what I would say is, there is many things to look at. We are looking at each and all the alternatives that we can, as we look at some of the things that need to come together for us. But what I would say is, I'll turn it over to Tom who is just kind of talk about what some of the things that we still need to do.

Yes. Thanks, Tom. Yes, I think I don't know if I have much to add. We have committed to creating two financially strong, viable companies. We continue to work on the balance sheet on the BHC side. Both management teams you heard yesterday from Brent and Sam and today you heard from Tom and I, we are focused on driving these businesses, improving performance, growing revenue. And we have not given a timeframe as you know, Glen, and that remains the case. We are not going to put a forecast out there. But at the right time, we will separate both teams and both boards, believe that the right thing to do is to separate. It will allow the two management teams to focus on kind of pure play companies. And so we will move towards that goal.

Okay. Maybe -- go ahead, Tom. Sorry.

Yes. We are continuing to carefully and thoughtfully evaluate all such strategies and we will proceed with evaluating these strategies in the best interest of all stakeholders.

Okay. Thanks. Tom, maybe if I could just ask a quick follow-up question. A lot of focus on the 1Q EBITDA sort of coming in a little bit lower-than-expected. And in your comments, you sort of mentioned that 1Q is typically weaker, because of the reset of the deductibles. If you look the past couple of years, right, EBITDA also stepped down in the second quarter. And so in your remarks, you seem to suggest that this should be the low point of the year. But sort of given your guidance, it looks like the ramp is pretty steep in the back half of the year, as a result of that. I'm just curious if there is anything else that I'm missing? Thanks.

Yes. We have reiterated our guidance, Glen, as you noted, and feel pretty good about it. Q1 is typically lower on the top-line. I'll mention a couple of things. Last year, we had a number of net pricing adjustments. So basically not the pricing that we were taking in the market, but net pricing adjustments in the gross-to-net area, that perhaps sort of exaggerates the year-on-year performance delta. And then in addition to that, we are making investments, as you noted, in the first quarter that we didn't have last year as we are lapping a quarter with pretty low investments. So we feel pretty good. We think these investments will drive the growth that we are expecting in quarters two through four. And yes, I don't want to give you specific guidance per quarter, but we obviously do expect an uplifting of performance in order to get back to revenue going up 2% to 5% and EBITDA growing 2% year-on-year.

Okay. Operator, next question.

Your next question for today is coming from Douglas Miehm at RBC Capital Markets.

Thank you. Tom, what I'd like to start off with is just XIFAXAN. After last year of flat prescriptions, we are starting to see some growth. And perhaps you can tell us what's working there? And if you think there is going to be an acceleration in the year-over-year growth that you are seeing or is it 2% growth figure, the one to use on the growth?

Okay, Doug. Thanks. So clearly, we are really happy about the performance of our Salix business and XIFAXAN growth. And as I said in my prepared remarks, 7% growth in the quarter, overall demand increase of 4%, increases in non-retail demand at institutions, growing hospitals and outpatient clinics. So really all good signs encouraging XIFAXAN script growth in all the channels. So this is really something that we have been looking at and following very, very closely. What I would say is, as I said and I had lengthily in my prepared remarks, of all the things that we are doing in the Salix franchise and XIFAXAN, we are investing in our in our field force, as I talked about artificial intelligence and the machine learning, we think we can really accelerate as we launch that project. I talked about the institutional sales increase, that is going to have a nice benefit for us. And clearly, the investments we are making in our medical affairs team, we think there is a large unmet need. XIFAXAN is a great product in two indications for IBS-D and HE and we think there is a great unmet need, and with the investments that we are making in our medical team to go out and talk to doctors and educate them on these diseases, will really provide great care to patients for the future. So we are really looking forward as we launch these programs. We started some of it in the back half of last year, and really the ramp up is that's why you see especially on the SG&A line, the investments that are going in there. So we really think that, we will have a really good opportunity to continue to grow this franchise and we are really excited about it.

Okay. Good. And just related to that, of course, I think I'm just curious, the timing of the court's decision as it relates to the skinny label. Do you have any better information on that? I know at one point you were thinking it could be back in Q4, and that obviously changed. But is everyone still thinking it could come this quarter or do you have some revised information?

As I said in my prepared remarks, we are still waiting a court's decision on the motion. And I don't have anything, no changes or updates at this time, other than what I had in my prepared remarks. Operator next question?

Your next question is coming from David Amsellem at Piper Sandler.

Thanks. So wanted to ask about longer-term picture and solvency. And that's I guess in context of a lot of maturities in the later part of the decade. And the fact that in generic competition for XIFAXAN in '28 and beyond. So I just wondered if you could frame on how you think about solvency and ultimately how you can get the capital structure to a more stable place? Thank you.

Yes. David. Let me take that. Tom Vadaketh here, David. Obviously, I'm sure you don't expect us to had long-term projections here. We would not talk about any year past this year. But I would just maybe comment on it in a couple of ways. One, Tom has reiterated today that when we are thinking about separating the companies, one of our focus areas is to create two strong financially viable companies. And hopefully -- and we would not separate unless we believe that, that was the case. So hopefully that speaks for itself. You have seen us in action for about a year on both sides with both companies. We have improved operating performance. We are making investments in growth that will go towards assuring the long-term viability of the company. And we have been fairly agile, I would say, in dealing with our balance sheet. We have reduced debt since the IPO for this company by $3.3 billion. And so we are going to continue to work on all of those fronts, and keep improving the prospects of this company. I mean that's why Tom and I are here and we are excited for the future.

If I may sneak in a follow-up, I guess maybe drilling down. I mean, how do you address debt pay when you have got $4.5 billion due in '27 and $5 billion due in '28 and your biggest selling drug is going to lose exclusivity?

Yes. I mean, I can't comment on details. Of course, the company is highly cash generative as we go forward. And then as you know and this applies to all companies, you don't expect to pay every single dollar of your debt down, you will at some point refinance. What we have to make sure is that our company has the right financial position at the time. And then also we look at the future prospects of the company. We look at the pipeline that we are investing heavily in and we are investing in future growth and that will all go into the mix, when the time comes to deal with those maturities.

Yes, David. Just to just add to that. That's why in my prepared remarks I went through the R&D pipeline. As I said, we are excited about it. We are looking forward to getting more data as things come through. But we have some really interesting projects ongoing in R&D that we are going to -- will help us for our long-term growth. Okay. Operator, next question.

Your next question for today is coming from Jason Gerberry at Bank of America.

Good morning, guys. This is Qi on for Jason. Thanks for taking our questions. So thank you for providing an update on the current litigation matters. You've discussed the Granite Trust. You have discussed the recently motions. I didn't hear anything about the recent proceedings in fraudulent transfer in New York -- in New Jersey, pardon me. Can you talk about what's the implications there in that case update? And how does that impact the timeline for company separation? And I follow-up after that. Thank you.

Okay, Qi. I'll take that question. So we are pleased that the significant portion of the claims were dismissed at this early stage. So that's firstly. Second, we remain confident in our position in this litigation with respect to the remaining allegations. Beyond this, we do not intend to comment on any ongoing litigation at this time. All right? At the end, we want to again reemphasize to two strong companies. That is our goal. You had a follow-up?

Yes, thanks. So I guess the second question is, what is your understanding of whether the fiduciary duty of the Board is governed by the U.S. or Canadian law? I'm curious if it is Canada, does it mean that the duty isn't clearly to shareholders like in the case in the U.S. and how does that factors into the separation process if at all? Thanks.

Okay. Let me see, just to take a look at it, let me see. What I'd say is, in terms of that, we cannot -- we will not provide legal advice on this call. So I can't really make any comments further to that. Okay. Operator next question.

We have reached the end of the question-and-answer session. And I will now turn the call over to Tom Appio for closing remarks.

Okay. Well, what I would say is, as I said, I am really pleased with the performance in the first quarter, and we are looking forward to powering up our potential and delivering long-term value for stakeholders. I would thank everybody for joining today, and we look forward to having future discussions on our company. So have a great day and we will talk to you soon. Thank you.

Thank you. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.