Greetings. Welcome to the Bausch Health Third Quarter 2024 Earnings Call. [Operator Instructions]. Please note this conference is being recorded. I would now like to turn the conference over to your host, Garen Sarafian, Investor Relations at Bausch. You may begin.

Good afternoon, and welcome to Bausch Third Quarter 2024 Earnings Conference Call. Participating in today's call are Thomas Appio, Chief Executive Officer of Bausch Health, and JJ Charhon, Chief Financial Officer. Before we begin, I'd like to remind you that our presentation today contains forward-looking information. We ask you to take a moment to read the forward-looking statements disclaimer at the beginning of the pages that accompany this presentation as it contains 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 our filings with the Canadian securities administrators for a list of some of the risk factors that could cause our actual results to differ materially from our expectations. We use non-GAAP financial measures to help investors understand our operating 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 pages that accompany this presentation which are 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, Wednesday, October 30, will focus on Bausch, Health excluding Bausch + Lomb. However, we will briefly comment on Bausch + Lomb's results announced this morning. We will refer to year-over-year comparisons with the same period last year, unless otherwise noted. With that, it is my pleasure to turn the call over to our CEO, Thomas Appio. Tom?

Thank you, Garen, and welcome to everyone joining our earnings call today. In the third quarter, we continued the momentum that we started in early 2023. And executing against our strategic priorities while maintaining our focus on patient-centered outcomes. I am pleased to share that we delivered a sixth consecutive quarter of year-over-year growth in revenue and in adjusted EBITDA. While JJ will talk in more detail about our financial results, I will touch briefly on our performance. Revenues for Bausch Health, excluding Bausch + Lomb, increased 7% on a reported basis and 8% on an organic basis when compared to the third quarter of 2023 and with organic growth in all segments. Adjusted EBITDA for Bausch Health, excluding Bausch + Lomb, increased by approximately 9% compared to the prior year period. Therefore, we are raising Bausch Health's full year 2024 guidance, excluding Bausch + Lomb across multiple metrics, including revenue, adjusted EBITDA and adjusted operating cash flow. Moving on to Page 6. We had a strong quarter underscoring the success of the strategic initiatives, we not only delivered strong financial outcomes, but we made significant strides in meeting our 2024 objectives. Sustained growth remains one of our key strategic priorities, and we are pleased to continue to deliver in this area across segments and geographies. All segments delivered revenue growth on both reported and organic basis. Within our Salix segment, XIFAXAN had a strong performance with 7% growth over the third quarter of 2023 and we continue to see further opportunities for growth. This past Monday, I attended the annual conference held by the American College of Gastroenterology A new abstract was presented based on the results of two randomized XIFAXAN trials, which concluded that XIFAXAN monotherapy is more effective than lactulose monotherapy for reducing the risk of avert…

Thank you, Tom. I'm excited to be part of the Bausch Health leadership team and the journey that lies ahead for the company. Before we review our consolidated results and segment performance, let me share some additional headlines of our Q3 performance at Bausch Health, excluding Bausch + Lomb. As Tom noted, this is our sixth consecutive quarter of year-over-year growth for both revenue and adjusted EBITDA. Revenue growth in the quarter was 7% and and adjusted EBITDA grew 9%, demonstrating continued operating leverage of our diversified portfolio of businesses. Even more importantly, we generated $343 million of adjusted cash flow from operations, which is a 75% increase versus the same period a year ago. This was well ahead of expectations even when adjusted for the benefit associated with timing of certain outflows. Our strong performance over the last 9 months has now translated into raising our full year guidance for revenue adjusted EBITDA and adjusted operating cash flow. More specific on that a little bit later. Moving now to our consolidated non-GAAP financial results for the third quarter, which you will find on Page 9. Revenue was $2.51 billion, up 12% versus the prior year. Adjusted gross margin was 73.1%, 80 basis points higher than the same period a year ago. For Bausch Health, excluding Bausch + Lomb, adjusted gross margin for the third quarter was 82.5%, approximately 130 basis points higher when compared to the same period a year ago, thanks to favorable net pricing and, to a lesser extent, product and channel mix. At Bausch + Lomb, adjusted gross margin was 63% for the third quarter compared to 61% for the third quarter of 2023. This improvement was driven primarily by product mix, including the impact of Xiidra. Consolidated adjusted operating expenses for the third quarter were…

Thank you, JJ. Welcome on board. It is great to have you on the Bausch team. I would like to finish where I started, which is our focus on strategic priorities, turning your attention to Page 21. We are delivering against each of the strategic priorities we set forth at the beginning of this year. We are driving an action now culture with a sense of urgency, accountability and compliance, along with the strengthening of our talent and organizational capabilities. For the past 6 quarters, we have consistently grown the top and bottom line. We are embracing innovation through R&D that we remain excited about as well as the application of new technologies like AI to further enhance our capabilities and drive new efficiencies. We are executing with operational excellence, which is – which allows us to be opportunistic in capturing marketplace demands others are not able to meet. And we are keenly focused on all levers to drive value creation, both in the short and the long term. Of course, none of this could happen without having the right people and the right culture. This is very important to me. So I again want to thank the entire global Bausch Health team for their hard work and dedication in growing our company and continuing to deliver on our commitments. Our execution thus far in 2024 provides us with a strong foundation for continued momentum across our business. With that, we will now turn to questions. Operator, please open the line for Q&A.

[Operator Instructions]. And the first question today is coming from Jason Gerberry from Bank of America Merrill Lynch. Please go ahead.

This is [indiscernible] on for Jason. I guess the first one, I want to touch on XIFAXAN. I'm curious, can you frame where things stand with the legal dispute process with Norwich. Have they made any efforts to get the 30 months they expedite, or is it -- and what's your understanding of what they would need to prevail in that effort. And you have mentioned that for the new ANDAs that we for XIFAXAN you're looking to a certain new patterns against these new ANDAs, are these new patents or existing patents that you didn't assert in the prior litigation? And then I have a follow-up after that.

Thanks, , for the question. I can take those for you. What I'd like to say firstly is the state of play is Norwich cannot launch generic until 2029. So we take a look at the ongoing litigation and Clearly, as we talked about it in my prepared remarks, we had 3 new ANDA filings. In those new litigation, we have new IBSD patents, as you asked about, those are new. And also the other patents we're going to assert is polymorph patents where we're not in the previous litigation. So as we look at it, it's difficult to speculate on the timing, but we intend to vigorously defend our XIFAXAN IP and, of course, believe that we have the 30-month stay.

Got it. And I understand that you are unable to comment any speculation, but we like you think hypothetical scenario. So I'm curious if you were to hypothetically speaking, divest, [indiscernible], how would it be taxed? Would it be under corporate tax rate?

Yes. I don't want to speculate on that, but I'll give it to J.J. to maybe add to that.

Yes. So we don’t speculate specifically on any process of projects that haven’t concluded. The one thing that I would say is we carry a significant amount of care basically at the Canadian level. So any large divestiture of our BLC ownership would not be associated with significant tax leakage.

Your next question is from Mike Kovich from Cowen.

I'm curious when we begin to contemplate a post XIFAXAN world likely in 2028, do you feel that you have what you need both in terms of the remaining business and the pipeline and the balance sheet to both address that LOE and continue to service the remaining debt? Or do you feel that you need to make additional changes prior to 2028?

Yes, Mike, thanks for the question. Right now, as you saw in the performance, strong quarter, so really trying to drive performance throughout this entire company both with XIFAXAN and the other great products that we have. So as we work towards 2028, I talked about in my prepared remarks, the great opportunity we have with Red Sea. This is a really interesting program that we're running and really excited about it. What I would say is, as we look at -- as JJ said in his prepared remarks, the levers that we have to create value post 2028, and he can comment on that. as we look past the LOE.

Yes. So let me give you kind of an overview on how we’re thinking about it. Obviously, there are a number of variables that we’re working between now and the time XIFAXAN will lose its exclusivity. And we intend to continue to grow a number of our very strong assets and platforms like our diversified international segments, but also obviously Solta. That will determine kind of a level of EBITDA run rate that will indicate the quantum of net debt that we need to carry on balance sheet to have a fit-for-purpose capital structure. There is no doubt that our debt needs to come down, will come down as a result of the very strong operating cash flow that we’re continuing to generate between now and when XIFAXAN basically comes off patent, and we will have to think about capital allocation to really bring that net debt leverage to the right level.

Your next question is coming from Les Sulewski from Truist Securities.

Congrats on the progress, guys. Just when we're starting to think about 2025, can you just walk us through some of the puts and takes for growth opportunities across each segment, whether it's pricing dynamics of script trends or market access across specifically international. And then second follow-up on that is Tom and J.J. it appears you mentioned you've done a number of site visits. Can you highlight any specific takeaways that you maybe see a shift in strategy that you did not foresee prior to some of these visits.

Thanks, Les. Thank you for the question. What -- let's just talk about the overall company in terms of the product portfolio that we have. So when we start thinking about 2025, we just, as I said, had gone around the world visiting the sites and, of course, talking to the team here in the United States. We think we have a really broad portfolio of assets that we can continue to grow. So firstly, on the Salix side, specifically XIFAXAN, we see a lot of room for growth there. When we also look at just the acceleration that we have seen since we since this new management team took over, really starting to focus on investing behind XIFAXAN, our DTC efforts in hepatic encephalopathy. If our AI engine has really -- the team has done a wonderful job getting that engine in quickly. And then, of course, the field force executing against it and really following it really exceeding our expectations. So we've seen an acceleration of the extended unit growth. So really pleased with that. We continue to believe that there is room to grow here. I've said on previous calls, if we just take a look at OHE, we're treating approximately 100,000 patients -- there's 200,000 patients out there. So a lot of room for growth. When we look at IBS-D, we're treating about 185,000 patients, 2.2 million patients in the United States. Another area for growth. If we look at what the new to brand was in the quarter, new patient starts on XIFAXAN therapy in the third quarter, 65,000 patients. So we are excited about where we are and being able to drive further growth. On the international side, as I have spoken on many other calls, we have a really good business here. If…

Yes. The two things that I would just further emphasize that I think you mentioned that is that there is a significant runway still available for a number of our segments. I would mention specifically Solta and the international segments. And we have some very strong and resilient brands. I think I certainly didn't appreciate the diversity of our portfolio and the diversification of our of our sales across those different segments, which I think bodes well for our growth plan moving forward.

I would also like to add, less when you look at the Solta franchise and the split between our capital business and our consumable business, that is a durable business that has room for growth. If you look at – compare us to our competitors, that consumable franchise, being able to grow it, you mentioned about pricing, having the ability to be flexible and to look for ways to grow our business, of course, having that durable business on the consumable side really is an advantage for our solar franchise.

Your next question is coming from Umer Raffat from Evercore ISI.

I have three here, if I may. First, since XIFAXAN generic entry could be so material to the company and its possibility and its impact on the entirety of your free cash flows. Can you help us understand why wouldn't a summary judgment be granted in the Norwich and MNO cases? That's first. Because if it goes to full trial, that in and of itself could be a win from a timing perspective. Second, regarding any potential dividend to your equity holders, which is widespread market expectation. In a scenario, you do want to go forward with that for possible proceeds from BLCO. My question is, will you make that decision unilaterally or will you look to establish consensus with your debt holders, your equity holders as well as other stakeholders involved? And finally, I noticed you're still discussing Phase III commitments for ulcerative colitis trial for your S1P1, which is several years behind. And I'm curious what learnings are you taking from Pfizer that's one people launch date in UC.

Thanks, Umer, for the question. I'll take the first part of the question regarding Xifaxan and generic. As you know, the standard not going to discuss litigation strategies. What I would say is there are new patents at stake here with Norwich and, of course, different patents with some of the other filings. So we are vigorously going to defend our intellectual property and the team is highly focused on that and working diligently on it. Regarding the potential of the dividend, I'll -- in terms of -- I'll have JJ tack that point of the question.

Umer, Nice meeting you. First of all, this is a hypothetical question, but I'll try to answer it the best way I can. Our priorities when it comes to dealing with liquidities and doing capital allocation is, first of all, to obviously meet our debt maturities and obligation. That's first and foremost. The second one is reinvestment into the business. And then if there's anything left, there'll be a number of conversations around how we best deploy the capital remaining for increasing shareholder value, and there will be a number of considerations. Return to shareholders could be one of it. There might be other options that would be considered. And of course, risk associated with those different strategies will be evaluated when compared to the benefit. But ultimately, it's to drive shareholder value.

Yes. And Umer, I’ll take the last part of the question on UC and amiselimod. We believe when we look at the UC market and you see where it is today, growing at a CAGR of probably about 8%. By the time we can bring amiselimod to market at the end of the decade. The market probably is around $12 billion. We believe we can take a share of that. Despite the availability of approved therapies, response to therapies today is variable and changes over time. If you look at the data that we had on our Phase II – we like the data. As you know, the study was designed from mild to moderate. So we’re really pleased with that data. And we are continuing – we submitted the draft protocol on Phase II to the FDA. We are working with the PMDA later in November to finalize that. And the team has put together a plan to move it forward into Phase III. So we’re excited about it. The data is good, and we think we can take a piece of a $12 billion market by the end of the decade.

The next question is from David Amsellem from Piper Sandler.

I wanted to revisit an earlier question about the business in a post fact in the world. Maybe I'll sort of come at it from a different angle, which is what is the extent to which you can address the cost side of the business once NIFA loses exclusivity whether that is -- cuts the sales infrastructure savings on, say, R&D. But just in general, help us understand how you're thinking about the cost structure once Xifaxan loses exclusivity in the 2028 time frame?

Thanks, David, for the question. I'll start it off and then J.J. can add his thoughts as well. As you know, since I took over as the CEO, the idea that we have been putting and the culture we've been putting in this company is a fit-for-purpose model. So every day, we are looking at the opportunities we have, where we can reduce costs and where we can invest that back into the business, and I can give you a series of things that we have done over the last 2 years of taking that and investing it back into our franchises. As we start looking to the LOE on XIFAXAN, I've already spoken about the Red Sea program and the excitement we have behind it and the unmet need there. And that -- as we work this through, trying to get Red Sea approved prior to the LOE on XIFAXAN will be the goal. As we look into the future, we will always be looking at a fit-for-purpose model and how we model that. The also, when you look at our businesses, the international business is not affected by LOEs and the investments that can be made there to grow. And we are fit for purpose there. If you look at the opportunities to grow with our salt franchise. We have to continue to invest behind that. So when we look at the U.S. business and when we look at what we generate out of our neuro franchise, it's a fit-for-purpose model today, and we continue to evaluate that. As I've said in my prepared remarks, looking for profitable scripts and growth, and we have made changes there. So overall, as we move and we'll see what business development opportunities, there are some really interesting things that we're looking at that can be brought into the franchise as a as we are the liver experts in OA, we have a great opportunity there, and there's some really nice assets. So all in all, we will be looking and continuing to be guided by the principle of fit-for-purpose model as we move to an LOE on XIFAXAN. J.J., do you want to comment any further on that?

I think you’ve covered it. There are two separate decisions. That need to be taken. The first one is what is the appropriate level of expenses associated with the business line that we are looking at. And then a reinvestment of savings that might be generated depending on the outlook that we’re seeing for that other business or end franchise. And of course, there are a number of variables, which one of them being our R&D program and whether Reds will turn into a profitable asset for us. All costs are variable. It’s just a matter of looking at a long enough time line, and we are managing this constantly. We’re not waiting for XIFAXAN to come off patent. The productivity mindset is something that we apply to every business, every day. And of course, before we take out capability in the business, we want to make sure that, that capability is not useful elsewhere in our portfolio.

The next question is from Glen Santangelo from Jefferies.

Tom, I just want to make sure I'm clear on what you're saying with respect to the timing with respect to XIFAXAN. I mean if we go back and we look at the Amneal and Norwich filings, if we consider the 30-month stay, which you seem to be pretty convinced on, does that take us to 1Q 27? And then if we assume you have some additional patents that you'd like to enforce or some type of an appeals process. I mean, is all the sort of pointing to your confidence in 1Q 2028 with respect to -- do I have that have that time line correct at least in terms of what you're saying?

Yes, Glenn, sure. Thanks for the question. As I said on the previous question, is the current state of play with Norwich, where it stands. What I would say is, remember, Teva still has the -- has the first filer status. So that's out there as well. And I don't want to speculate on our strategies of what we think. But clearly, we believe and we're going to vigorously defend our patents until January 1 of 2028. But we have to -- as I said, Teva is out there, and that is still something that we continue to pursue.

Yes. I just maybe going to ask one question on the legal side. I mean obviously, a lot of news floating around there on BLCO, and I fully appreciate you can't comment at all on that. But I just wanted to ask with respect to the co-op and maybe the fraudulent conveyance lawsuit. We don't really talk about that as much anymore. would you sort of classify those situations as kind of dormant until maybe those stakeholders ultimately see if and when anything happens to BLCO.

Yes. So what I would say is the cases are in discovery at the present time. So beyond that, I can’t comment more than that.

The last question will come from Michael Freeman from Raymond James.

Tom and JJ. Congrats on some good growth this quarter. You mentioned looking at a specific -- more specific indication for the Red Sea program. And I wonder if you could outline some of your rationale for selecting this specific population as a first AT prevention target for Red Sea and maybe describe how it will best situate you to sort of attack this indication in a quick and pretty potent way.

Sure, Mike. Thanks for the question. when we looked at it and if you look at OHE and what we've been able to do with XIFAXAN, the only treatment approved for -- what we did is really look at how we can maximize the value of this great product and great asset, of course, developing our new formulation, the SSD formulation and how that can work within the lumen. But if you look at 4.5 million people are diagnosed with cirrhosis in the United States, with probably over 112 million worldwide. So hospitalizations due to this disease cause the health care systems billions of dollars each year. So with that, with this great product with what -- how we can help patients here, and there's no therapy approved today to prevent cirrhosis patients from moving from compensated cirrhosis to the most serious, which is decompensation. So we believe we can help patients here. And we also are able to help the health care systems as well. So if you look at -- we have -- this study is over 1,000 patients globally, 2 studies. We have a primary endpoint, and we have some very interesting secondary end points and believe that the secondary endpoints when we take a look at it, time to all-cause hospitalization or talking to first event of OHE that requires hospitalization, we believe we can really help patients here and also be able to create value for health providers for hospitalization and the cost of nOH patient cost the system. So -- it is a real interesting program. As I said in my prepared remarks, I was just at the meeting in Philadelphia. A lot of excitement around it and discussions around as we proceed with the trial. So we're looking forward to bringing you and others updates in the future on this great program. With that -- Yes, sorry, go ahead, might you had another question?

Yes, very quickly. I noticed that there were $96 million spent on acquisitions this quarter. I wonder if you could describe the content of the acquisitions.

Yes. This is BLTO has nothing to do with the BHC. Okay. So with that, there's no further questions. I just would like to conclude the call. What I would like to say is we appreciate everyone joining the call this afternoon, and we thank you for your questions. We had our sixth consecutive quarter of year-over-year growth with strong execution that allowed us to raise our full year guidance. We are focused on our strategic priorities and delivering against our commitments promising and delivering. We intend to build on this momentum to close the year, continuing to position our business for excellence. Look, I really look forward to keeping you up to date and thanking you for your interest in and support of our company. Have a good evening.

Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.