Bausch Health Companies, Inc. (NYSE:BHC) Evercore ISI 3rd Annual HealthCONx Conference Call December 1, 2020 8:50 AM ET

Company Participants

Paul Herendeen – Executive Vice President & Chief Financial Officer

Arthur Shannon – Senior Vice President, Head of Investor Relations & Communications

Conference Call Participants

Umer Raffat – Evercore ISI

Umer Raffat

Thank you all for joining us. It’s a huge pleasure to have one of our most viewed presentations from our annual conference with Bausch Health. Pleasure to have Paul, Art, Allison and the rest of the team on. Before we — before I say anything, let me first turn it over to the company to kick things off, and we’ll jump right into it.

Paul Herendeen

Sure, good morning. It’s Paul Herendeen. I’ll be doing the majority of the speaking this morning. First of all, Umer, thank you for the invite. This is one of our favorite conferences of the year; we all just wish we were in Boston for about a million different reasons, but happy to do this on a virtual basis, and delighted. Why don’t we jump right into your questions because I know you’ve — you have a number, and I think they’re — I think that — that’s what everyone wants to hear.

Question-and-Answer Session

Q – Umer Raffat

Yes, no. Thank you, Paul. So Paul, I know it’s been a very active year for you guys. And before we dig into the nitty-gritty, let me — I sense for folk — folks that haven’t tracked it so closely; can you remind us, Paul, the genesis behind the decision to head towards a split? Those misperception out there that perhaps it was triggered because of COVID slow down and stuff. So could you just remind us what happened? When you were here last time, was it something you were already thinking about working on, for example?

Paul Herendeen

Yes, it’s a great question. And I’ve said this before, but it bears repeating is; if you want I’ll go on and spin it out, essentially every meeting that I — I should say every — 9 out of 10 meetings that I would attend with investors, people ask, why aren’t you spitting out about health — excuse me, B&L. And we’d say, well, there were some constraints to getting that done, etcetera, etcetera. And then when — we obviously were starting to work on that internally, and then determine that we wanted to disclose that to everybody so that everybody could follow on. I was a bit surprised by the reaction because I — you know, again, the first one — so let’s review why we’re even going down that route, that road.

We believe strongly that sitting here today, our equity trade is at a significant discount to what we see as the value of the various businesses, very attractive businesses that we own. And then, the easiest one to look at is comparable sale companies to B&L trade, very attractive multiples. One way of many to unlock that value we have for our current shareholders would be to stand up and spin-off that eye health business. And so as I said, back in August, we determined that was the appropriate time for us to let everyone know that we were starting down that road. And what we said then was that we complete — I think we said then, but maybe it’s clear now, that we will complete the internal work that would enable us to spin B&L as soon as possible. And that we would certainly complete that work during 2021; and that would include having the requisite audited financial statements, and having an eye health business that was built for purpose and capable standing on it’s own. So, like everybody, ever since we’ve announced it, but you didn’t tell us the timing.

Well, the reason we didn’t; it’s an extremely challenging question to answer because from a preparedness perspective we’ll be ready to spin in 2021. But by a factor of a lot, it’s not the only option we’re pursuing; the possible spin off B&L is only one path. So, there are broader range of alternatives for EE if we go down that road for executing a spin off B&L; I mean, I’ll spin them out because I think people — people tend to not focus on this, there are a variety of ways you can do it and everything in between. We could spin with the sales upto 40% of the equity of B&L and distribute the balance of the shares to our shareholders, or we could spin and deal with 20% sale of the equity of B&L and distribute it to our shareholders, or we could wait in at a later date, execute a spin when we’d sell no equity of B&L and just distribute the shares to B&C shareholders. But clearly, I mean, because of our leverage situation, the more equity of B&L that we would sell prior to distributing the balance of those shares to our shareholders, you’ll lose sooner as spin could be completed. And that would — in order for this to work, it is important, both the equity of B&L and BHC would need to trade well post-spin. So there is that factor of our leverage today and how you affect the spin and making sure that the two companies are capitalized and positioned in a way that they would be seen by the equity markets as attractive vehicle for investment.

I’ll shut up in a minute but I think this is a topic that everyone wants to hear about, so let me keep going. Once we used the B&L lot [ph], that would provide us with truly actionable alternatives to unlock value. And I said a minute ago, yes, there are many paths that we’re pursuing to deliver value, and I can assure you that’s a high priority for us every day. Not a surprise, and I think everyone knows this, but we retained two investment banks; Goldman Sachs and Morgan Stanley, they have to work with us to develop and evaluate the many paths to unlocking value. And not surprisingly, the announcement back in August that we were considering a spin off B&L. And then, that we have retained bankers; that generated an influx of interest in a number of our attractive businesses. And I think you should expect and everyone should expect that we are actively and aggressively working to convert interest from external parties into actionable alternatives.

I think — yes, the summary is, we’re going to follow the path that delivers value to our shareholders. And while I can’t tell you the specifics of exactly what path that is, or exactly when that’s going to occur, I’m going to tell you that I’m very confident that the steps that we’re going to take are going to unlock value to BHC shareholders. I’ll shut up there because that was…

Umer Raffat

So Paul, that’s — okay, I’m going to go by your thought process for a second now. It sounds like a certain percentage of your EBITDA might potentially be monetizable from a sale perspective. Is it fair to assume perhaps no more than $300 million worth of EBITDA gets monetized say about 10% or could it be more higher than that?

Paul Herendeen

Yes, I — we say all the time, and people don’t often take us at our word but I’m going to say it again, because I can tell you, we truly mean it. Any business we own is for sale, any business that we own, that’s a fact. When you’re levered like we are, that’s a fact; it’s for sale, and if it is a transaction to be done, we will pivot and execute that transaction if it’s one that we believe would deliver value to our shareholders. And as I said, I mean, with the announcement of the possible spin and the retention of bankers and submit the inbound interest in our attractive businesses, is — it’s there. And as I said, it’s our job to take interest and turn it into action, and we’re therefore able to do that. I’m confident that the path we go down will deliver value.

Umer Raffat

Got it. Paul, the other thing is, unless the sale price of some of these assets exceeds eight times EBITDA for non-B&L [ph], I’m talking on non-B&L businesses for a second now. Unless it exceeds eight times EBITDA, it’s not necessarily accretive to valuation because for point-in-time, they would actually end up being relevering, for example, some of the sales in the past, they were sort of relevering given where the leverage stood. But even outside of that, the way folks want to value the company going forward is, the eye care side of the business, probably 15 times plus on an EBITDA multiple, non-eye care market is valuing at about six to seven times in that range. Are you saying, if we go down the direction of sale, eye care or non-eye care, we could exceed those numbers that markets put out from a valuation perspective?

Paul Herendeen

Yes. I think that we have businesses within our portfolio that are much more valuable than the EV multiple at which we create today. I’ll give you two examples because it’s a great topic, and thanks for bringing it up. For example, we’ve got a — while I’ll call it little business, it’s becoming a bigger business called Solta; really, really remarkable performance from the management team there as my buddy, Tom Hart, that runs that business. He has done really great things with it, we supported him with investment in OpEx and CapEx and got his manufacturing squared way as our D-squared way [ph], and that business is just pumping. And I would submit that that business would trade for — could trade for in access of 15 multiple because it’s growing like a bad weed — it’s growing like a bad weed in a COVID environment. And it’s predominantly — in the Asia-Pac market, we had planned earlier this year in 2022 to complete an expansion into parts of Western Europe, where we really didn’t have a suitable presence. And we think that the opportunities for that business are spectacular. Now, if someone were to come to the table and were to offer a fair price for Solta, they didn’t want to own it, and I don’t think there is anybody else there that is looking at Solta and saying, that’s worth a couple of billion bucks; that’s one example.

A second example, and it’s one that’s kind of in the spotlight because as we look at standing up B&L as a standalone eye health business and as close to a pure play as we can make it; we are separating out that international — our ex-business from that eye health — from that eye health business. Now, there — those businesses — first of all, to describe it, it’s a — we are big in Eastern Europe, we’re big in North — in the Middle East, Northern Africa, we’re big in Latam [ph], it’s a decent size business in Canada; kind of a diversified, stable, slower growth than other businesses but very durable businesses that tend to trade for multiples, let’s call it 12 to 14 times. I don’t think anybody values that business at 12 to 14 times when they think about the parts of the business that would be in BHC, remain call at the point time where we might spin B&L. But those are just two examples of businesses that you say, eight times; I think we’ve got a lot of businesses that we created a whole lot more than eight times.

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Umer Raffat

Sure.

Paul Herendeen

And by the way, when we executed on this — sorry, let me just finish this and I’ll — I will shut up. Back in 2016-2017 when we were selling assets, I’ll get the number wrong [ph]. Do you remember the blended multiple at which we sold assets? I mean it was low double-digits. So it was both — it was delevering and we needed to do that back then. And, frankly — and we continue to be willing to do that provided we are able to strike the right deal. I will stop there.

Umer Raffat

Got it. Okay, that makes a lot of sense. Paul, should we feel reasonably comfortable knowing that some of these potential divestures could happen, let’s say by end of 1Q kind of timeframe or going to take longer?

Paul Herendeen

Yes, you know, — you just can’t predict the timing of events. I wish I could, I wish I could say, look, we have a program and we expect to complete it by blank date. But the facts are — it’s a dance [ph]. We — we have — if people are interested in our assets, it’s a question of us with painting fair value for those assets if we choose to divest. The beautiful thing for us right now is, is that we’ve — despite the fact that we’re as highly levered as we are, and we’ve done a darn good job with managing the liability side of our cap structure and we have the — I’ll call it the luxury of being able to just keep doing what we’re doing — like position all of our businesses for value creation — value creation of the future, increasing EBITDA, generate cash, reduce debt and just keep doing that. And so there is not a gun to our head that says, like — like it was pretty much in 2016-2017, that we can — that we have the ability to obtain reasonable good prices for assets if we were to sell. So we’re not — we’re not out there saying it’d be a fire sale, please — please, buy this asset but I think we own a lot of businesses and some of those businesses make sense for other parties don’t, and some of those parties may or may not get to the finish line and put something on the table that would cause us to transact.

How that plays out? As I said, I mean, this is — if you look at sitting in our chairs here at BHC now, there are so many possible outcomes here that it’s just impossible to predict which. But as I said, being an insider, I’m confident we own a lot of very valuable businesses. I’m confident that — you know, that we can continue to build value as BHC Hold Co. And I’m confident that went if — if situations present that are going to be valued generative to our equity holders that we can and will transact.

Umer Raffat

Got it. Paul, can you just give us a one-liner, like EBITDA margin profile for Solta and International RX?

Paul Herendeen

I think in the past I’m going to — I’m going to go from memory. I think I said the International RX business was a low 30% EBITDA type business because it’s broadly consistent with the entire — the entire segments the way we reported today. So it’s in the low 30% for that International RX business. I don’t think we report Solta anywhere but it — help me, it’s approaching a $200 million business with very attractive — I’ll just say, very attractive operating margins.

Umer Raffat

Okay. So, possibly over 50% then. Okay, sounds good. So, as we go past this then Paul, the — the other thing that was interesting was, there was an acceleration of the timing to this split of the business. Is there something that drove that or is that something you guys planned all along? You just wanted to be conservative with timing and initially threw out a 2022 number?

Paul Herendeen

I’m not sure what you’re referring to there, Umer. I mean, it — we’ve — as I said, and we’ve got to be ready to spin in 2021, and we’ve had a number of milestones along the way. I can tell you that there are worksheets that are ongoing that are — everybody here has a day job and a night job too because it’s plenty of work to tease apart these businesses. But we will be ready and so that becomes an actionable alternative in 2021, I don’t know that we’ve said we’re able or going to spin in 2021; I think that if we go down, it depends on that path, go back to that, please. I mean, if we did it with more equity full of B&L before we distribute chairs, then it can happen sooner. If you’re waiting to spin it out with no sale — no prior sale of B&L, that’s going take a whole lot longer. And everything in between is in place.

Umer Raffat

Sorry, what does that mean, Paul?

Paul Herendeen

Yes, I mean, that — that — yes, that last part; if you — one of the things we could do is, we could just keep doing what we’re doing. And naturally deleverage to the point where we could spin out B&L without having to issue equity to store, and just spin it out to all of our shareholders; that would take the longest because it takes — it would take us a while to deleverage to the point where that would leave BHC remain cold [ph] in a reasonably capitalized position; that would be the longest timelines. The shortest timeline is if you sell more equity earlier.

Umer Raffat

Shortest timeline equals more equity earlier; so that — the more equity earlier sounds like a split which whereby B&L gets spun out into a new-Co. and you guys dividend up a fair amount of cash, fair?

Paul Herendeen

Yes, that’s correct. That’s absolutely correct. I mean, think of it as — you go out, you’d sell some percentage of the equity, we have — before you stand it up, we lever it up, take a dividend, go sell some percentage of the equity and then ultimately distribute the balance of those shares to our BHC shareholders, the presumption has to be that that would be on a tax-friendly basis. Yes, that is — that’s A plan.

Umer Raffat

Got it. So when you say A plan, you mean, is it a plan or is that plan A?

Paul Herendeen

No, it’s a plan; one of many.

Umer Raffat

Okay. In my notes, I’m just going to call it plan A. Okay, fantastic. So, the next one is then, Paul — and by the way, when do you guys decide that whether you’re going to do the former or the latter in terms of whether spin or split?

Paul Herendeen

Yes, we — again, it’s — it’s really hard to say, difficult — difficult to say. It’s like, as it evolves, we’re just going to select whatever the best path is that we believe delivers value to share — to our BHC shareholders, shorter [ph] would be better than later, I believe. But the key is, we need to do this in a way that we believe that BHC shareholders are better off. And importantly, I’ll stress this again, in order for that to be the case, I think we all — I think everybody on this call believes that B&L stood up and properly capitalized with trade at a very attractive multiple, you can do your own comparisons of the comps out there, they are very attractive. Yes, just check that number [ph].

Umer Raffat

Got it. So do you guys get the feedback on B&L as a standalone? Let’s say it’s 15 times plus on EBITDA, then a plan becomes your plan A, fair enough?

Paul Herendeen

Yes, that’d be fair enough. But I mean, I think — but here is where — here is what you need to continue to and I know you do, you think about this probably as much as I do is — BHC, the remaining company, also needs to be positioned to deliver value in terms of being an attractive equity investment out there. And so, part of that is reflective of the leverage; we are very levered today, we’d like to be — you’d like to see that company be less levered. The other is, there are things that we have been doing and continue to do to build the attractiveness of those various pharma businesses; so that when we get to the point — if we get to the point of spinning to eye health in a diversified pharma business, that diversified pharma businesses is positioned for long-term value creation. We’re doing those things as required; so I mean it doesn’t take planning for a stand-up of B&L to force us to focus. We’ve been focused on building value at all of our businesses since the day Joe walked in the door, and I follow him.

Umer Raffat

Makes sense, makes sense, makes sense. And Paul, I know you’ve said definitively there will be no equity issuance outside of the auspices [ph] of the split itself; is that fair?

Paul Herendeen

Yes, that is fair. And I’d say it loud; no interest in issuing equity at these valuations. I started my discussion of why we thought about the spin, by talking about what we see as a disconnect between the way we valued the equity markets today versus the value that we see, as insiders admittedly, that we see in the — the — some of the parts — value of our company. Now, I know you can’t actually invest with some of the parts but from my perspective, there is a whole lot of value here that is not being recognized in our equity the way our equity trades today. So, not issuing equity at these levels, no.

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Umer Raffat

Got it, okay. Paul, what about the legal liabilities in this context because there is still some legal liabilities, and there is always questions what side they will go. But before we dig into them on where — how to think about legal liabilities; what side of the equation they will land in terms of split? Can you first remind us, what are the top legal cases we should have in mind?

Paul Herendeen

Yes, I mean, it’s — fortunately, that legal list has gotten a lot shorter. I’d say that, when I joined back in 2016, and when Chris — our General Counsel, Christina Ackerman, joined back in 2016; if you ask me it’s something that would keep me awake at night, it was thinking about managing that plate of legal liabilities. I used to talk about there was a kind of a handful of things, I was worried about the sale — like, securities litigation; they — the class action, that was resolved about the U.S. — the SEC investigation of CLX [ph]. I was worried about the solid antitrust action; believe it or not. I was worried about the Hourigan [ph] securities litigation, and of course, the — the biggest one was the U.S. legacy stock drop litigation and it’s companion — the Canadian stock drop cases. And I’d say that in — I know you started off by talking about the other spin and all; these are things that we needed to do before anything was achievable with respect to like, really building value. We needed to put those things in the rearview mirror, and I know it has frustrated some people; the magnitude of — for example, that the settlement on the U.S. stock drop case, internally, I could tell you, I was involved in that with Christina, as Joe was as well.

And we believe and continue to believe that it’s still isn’t approved by the courts — final court approval, but that settlement, which was $1.21 billion, was the right thing to do to put that in the rearview. But suddenly, of all of these things — all of those things I just mentioned, are settled, the ones that I walked in and said, here is a plate of continuing liabilities that needs to be — you need to ring fence this and deal with these liabilities in order to be able to move forward billed value; we’ve done that. Now, that doesn’t mean we don’t have any other cases, while I point you to the voluminous disclosure in our 10-K in our few around our various ongoing legal liabilities. But what I’d say is, now is that for a company of our scale and footprint, and the types of businesses that we’re in; the types of litigation that we are dealing with now is more — I hate to say, an ordinary course of business, as compared with staring at a stock drop case. And so today, we actually — I would say have the ability that if we’re standing up, the B&L and eye health business; well, normally what would happen there is that liability specifically associated with that eye health business would travel to that business, and all other liabilities would be BHC liabilities.

The good news is, that plate within BHC remain Co. is a pretty — I don’t want to call it normal course of business because we still have some hanging legacy stuff that you can read about in the K and the Q but very manageable from my perspective. So the standard would be your liabilities associated with eye health go with B&L, and everything else stays with us. But very important, I mean, Christina Ackerman and her team, of both, internal and external counsel, did a fabulous job over the last four plus years, you’re dealing with what was a pretty challenging hand that they were dealt.

Umer Raffat

So Paul, maybe it…

Paul Herendeen

Importantly, that was the hand we were dealt [ph].

Umer Raffat

Maybe just to reiterate, what are the top legal pending liabilities as we sit here today?

Paul Herendeen

Oh boy, I’d have to open up the other case. I just pointed the…

Umer Raffat

Which one gets more spin [ph] about, let us put it that way?

Paul Herendeen

I think the ones that I was talked about or have been put into the rear view.

Umer Raffat

Okay, got it. But for example, price fixing; there is a few that are still pending. I’m curious if you could give us a sense for — what are the ones that even come up or — and if that — if not, we can always come back to that later?

Paul Herendeen

I — let’s come back to it later because I don’t have the K in front of me.

Umer Raffat

How do you parse it up, though? What side of the business? I mean, theoretically, much of those could end up on the remain Co. because they may not necessarily apply to the B&L type of business. So how do you…

Paul Herendeen

That’s right. Yes, I mean as I said, I think that the ones that — the ones that had the potential to really move the needle have been quantified, and — you know, I am not quite put the rear view because we still need to get final court approval on that stock drop [ph] case, and put it in the review, but they’ve been quantified and put into the rear view and things that remain — again, I expect that we will have the same success in effectively managing those as BHC remain Co. as we have since our arrival here in 2016.

Umer Raffat

Okay. So it sounds like there is no definitive statements yet on where exactly till the cases will get put up. They probably relate to what business they originate from but probably more on the remain Co. than on the B&L new Co., correct?

Paul Herendeen

Yes. So again, the general rule of thumb is the liabilities associated with eye health will go to B&L. Everything else is BHC.

Umer Raffat

Okay. And the corporate veil can be pierced? Let’s say there is a problem at the remain Co., huge liability on the remain Co. Could that still leak the liability over to the eye health as well?

Paul Herendeen

I don’t know the specific answer for that, I’m not a lawyer. But I don’t know the specific answer. I have seen some cases recently, as I am sure you have as well where there were some liabilities that traveled back. But again, I think the key here is, there is nothing on our remaining plate that rises to anything close to the magnitude of the cases that we’ve put in the rear view, there is nothing close.

Umer Raffat

So that’s the key, theoretically yes. But in practice, there is nothing really that subsides it like that?

Paul Herendeen

Right. Again, I suspect they can’t grow to having a brain cramp on the name of the company, but there was one recently. But the key here is, we’ve done a very, very good job of managing that — continue the basket of contingent liabilities. And I would — I was saying earlier, to say it was a hand we were dealt [ph]; I mean, there is not things Joe and this management team did, we’re — this is clean up on IO3 [ph].

Umer Raffat

Got it. I’ll ask Art for a follow-up, maybe, if that’s okay, Art, on what that company was.

Arthur Shannon

Sure.

Umer Raffat

But Paul, the restrictive covenant as it relates to the split math; when we do the calculation on restrictive covenant, does that apply to the equity value or the enterprise value? I know it is somewhat of a technical question but it applies to how — what you — how you guys structure the financials?

Paul Herendeen

Yes. I think you are focusing on the restricted payments covenant. And they are — I know that — one, we generally don’t interpret the covenants for investors, but we do disclose and did disclose in our filings, the — in our — under our bond indenture, and we have a capacity of about $12.6 billion to make restricted payments. Now, the key here over is, is the gating factor for being able to complete a spin would be ability to complete it under the indentures. And what I would suggest to you is that we wouldn’t have started down this road if we didn’t believe we had that ability. We both, obviously believe we can do this with — under the restricted payments capacity that’s defined by our indentures, which we have disclosed. And we obviously think we — we don’t think, we know we can do this.

Umer Raffat

Got it. Paul, what side of the company do you have a stronger preference for?

Paul Herendeen

I love all my children. Both are very, very attractive businesses. However, you know, that I’m a leverage guy, and I’m — I’ve been in the spec pharma…

Umer Raffat

Are you going to get the tougher job?

Paul Herendeen

I just — I have an affinity for leverage, I guess. And for our — for the spec pharma business. But that’s not — that’s not say that they are not both attractive business, I think everyone agrees. I think we’ve said this earlier, B&L business, I think — when that stood up, it’s going to be a spectacular entity. I do believe that’s strong, I think everybody does. What I think that people are missing is the spectacular opportunity for value creation, within a diversified pharma platform post-spin. I just — I find that very attractive.

Umer Raffat

Got it.

Paul Herendeen

So — now that said, we have not announced and don’t plan to announce until Q1 what the management of these SPs [ph] will look like. But we’re truly working on that very hard, and I tell you that, as we think about the management teams of the two companies with a very deep bench of — the commercial people — the commercial people, like — it is kind of easy to know where they go, right, because they work in the E1 [ph] business or the other. You’re talking about executive management, and you’re talking about what I call the enabling functions. We’ve got a pretty deep bench here of very talented people, we’ll look inside — shortly hard inside, and we’ll look outside but that’s something that we will talk more about in Q1.

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Umer Raffat

Okay, got it. Okay. Paul, I’m going turn it over to some investor questions. But just before I do that, I do want to say, when we construct the numbers and the math around much of the split, I’ve personally gone with the 2019 actuals because 2020 was — had too many one-timers going on in there. But I know the 2019 numbers versus your 2022 guidance, there is a difference between them. So said simply, how do you see the confidence towards that? The initial guidance of $4 million to $4.3 billion on EBITDA in 2022; I think now it’s closer to $3.8 billion to $4.1 billion. Should we rather just stick to the 2019 EBITDA actuals for a lot of this math or would you recommend we think about the 2022 numbers more careful — more so just when doing all this math?

Paul Herendeen

Yes, it’s an interesting question. First of all, with respect to our — the CAGR guidance when we provided for both, revenue and adjusted EBITDA. Art, do you remember the slide number in our deck? It’s like, Slide 31. Slide 31 in our deck, we show it all — I think what you’re asking is, all we did there was adjust from what we — what was 2019 results and based on the changes in FX, let’s say, here is what that range means in today’s dollars. And that’s the ranges that you see now $9 billion to $9.5 billion at revenue, and $3.8 billion to $4.1 billion at adjusted ground numbers. At adjusted EBITDA, we — obviously we publish that, we continue to believe that that is — that’s where we’ll be in 2021. But it brings up — like, you asked a question around 2019 — sorry, 2022, my bad.

Umer Raffat

Well, I thought you just gave that guidance.

Paul Herendeen

No.

Umer Raffat

Got it. Let me just redirect it.

Paul Herendeen

2022; but — 2019 is a good starting place to think about kind of the relative contributions of the two different businesses of B&L and the diversified pharma company, because it’s not disturbed by COVID.

Umer Raffat

Got it.

Paul Herendeen

2020 is when we talk about our results, I think Q2 of this year; we really took a hit from COVID because of the nature of some of our businesses and the — in the geographic location of some of our businesses, and the recovery is very different depending on type of business, and depending on geography. But the encouraging thing for us is, that we really rebounded in Q3 relative to where — I call the depths of the COVID situation in Q2. And our expectation is that we will continue to clawback to where we were pre-COVID, which you could read as back to kind of 2019 levels, and then grow from there. So if you’re thinking about 2022, let’s just walk through it, you’ve got 2020 is — 2019 is pretty good year, 2020 I think — regrettably, we started the chart of the year, we were coming out of this chute [ph] really strong, and we got whacked with COVID. And so regulatory that COVID dip [ph] is certainly going to impact the results we put on the board. For 2020 we would expect strong growth in 2021 v/s 2020, and strong growth in 2022 v/s 2021.

Umer Raffat

Wouldn’t be linear?

Paul Herendeen

Let me just finish, and I’ll come back and answer any question you want. I mean, part of the things that people need to consider when you’re thinking about our growth trajectory, is that we are coming out of a period from — no heck, the — almost the entirety of my tenure here, where we’ve been dealing with a basket of LOE products that were just going to be a growth drag on our aggregate business in just — in a big way. Well, we are finally, finally getting to the tail-end of that impact. And as you look out into the future, there are not any of these — like clustering’s of massive amounts of LOE impact until you get to go to 2028. And so, we’ve got a lesser drag from LOEs, our B&L business pre-COVID had been firing on all cylinders. Our vision care business is going great guns, not just globally, but particularly in the U.S., we just launched our daily sight high [ph] lens which is going to be a real growth driver for that vision care business for years to come.

Our surgical business, we’re finding our legs there; we haven’t quite filled out that R&D portfolio as much as we would have liked, we — I think I — this is not a secret, but that RD covered was pretty bare when Joe and I joined and re-stocking that has been a challenge and it’s taken some time. But we are finding our feet there, that business is very well positioned. The consumer business, very well positioned on the backs of our global vitamins business, but as well as lumify and soon to be sons of lumify, and other brands as well; that was just firing on all cylinders. After RX, we are putting the load max LOE [ph] in the rear view; it’s still an impact for us in 2020 for sure. So it will be an impact on us in 2021 but that business is growing, and is going to grow. And so the point of the story is, and Salix by the way, will lap these — the challenges in 2020 from COVID. Also lap the comparisons that I talked about so much about gross to net and how that worked it’s way through in 2019. And we’re going to return to a solid growth mode on the backs of XIFAXAN, particularly in IBST, and truly as emerging as a real growth driver for us.

Solta, we talked about your Mederm [ph] is pointed — in pointing in the right direction as well. So we’re coming from place where we had some growth challenges or growth headwinds. And those growth headwinds have receded. We can grow, and we know how to grow these businesses from a commercial perspective and we’re going to go wrong. And so it’s not — it shouldn’t be a wild stretch for people to look at that CAGR guidance for revenue and adjusted EBITDA and say, this company can do this because there are other factors that have played and just say, well gee, they never grew that fast before.

Umer Raffat

Got it, okay. Paul, just before we wrap up, I do want to ask a couple of quick one-liners, if I may. I know we’re over our time now. One question from an investor is, when exactly is the spin off date? I think you kind of addressed it but if you could just remind exactly what you said. And then, the other one was from an investor; he had a few but maybe perhaps one of them is, if you could speak to the 2020 XIFAXAN overhang? How you’re thinking about that? And we’ll end right there.

Paul Herendeen

Okay. I mean, what respect to the spin, there is no date to state. As I said, we’ll be ready to rock and roll operationally in 2021, which means that to the extent that there is a transaction that we believe is the right transaction that will deliver value at that time to BHC shareholders, we will be ready to transact beginning in 2021. How it actually plays out is as I started off, there are a wide range of possible outcomes. So I’m not — there is no specific answer there. With respect to the 2025 XIFAXAN overhang; I’m not sure what you’re talking about there.

Umer Raffat

It’s just 2028, not the patent I think.

Paul Herendeen

I am sorry. I mean, via 2028. Yes, I mean, that that is rewarding. And we’re reliant on building a portfolio — a credible portfolio of R&D projects, within our Salix Group that will enable us to piece by piece, feel offset, the impending loss of exclusivity on XIFAXAN; we’ve got till 2028, we’ve got the AMS-BOD [ph]. We’ve got, from fax but it’s not really GI but we’ve got Rifampin for sickle cell which is an interesting project for us. We’ve got the project or where we’ve got the good readout on SSD [ph] 40 milligram, immediate release for OHE which gives us a pathway to potentially use that for other GI applications which we will pursue. So it is incumbent on us, double-quick to continue to flesh out that GI portfolio, and give us enough shots on goal that we will be able to overcome the date certain loss of exclusivity on XIFAXAN 550 out in 2028.

I am sorry. Last thing on that, because — actually, if you look at the progress we made in developing the Opto RX [ph] pipeline over the course of the last, call it 18 months. Yes, we had this IP or we added the Alumina. We added the project from my NOVIA. We’ve got no whole three; we went from nowhere — pretty much nowhere with a pipeline to having a pipeline in Opto RX [ph]. Now, we didn’t make as much progress we did — we did license AMS-BOD, and your doubt was good on the GI side. We did not make as much progress on the GI side, it is not because we weren’t trying. It is not, because we favored Opto RX, it’s because the nature of the transactions that presented were better in Opto RX than what we were able to get to the finish line with.

On the GI side, we are going to find ways to build that GI portfolio of R&D projects. It’s very important to say Alex, it’s very important to the value of Ramco.

Umer Raffat

Fantastic. Paul, Art and Allison, thank you so much for making time. This was extremely helpful, as always. I always enjoy our interaction, and then, hopefully next year, Paul, we’ll do it in person. Thank you, again.



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