Bausch Health Companies Inc is a company whose mission is to improve people's lives with its health care products. The company develops, manufactures and markets a range of pharmaceutical, medical device and over-the-counter products, in the therapeutic areas of eye health, gastroenterology and dermatology. It is delivering on its commitments as it builds a company dedicated to advancing global health.

Preliminary update on the third-quarter 2020 financial results

• Bausch Health expects third-quarter 2020 revenue to be greater than US$2.1 billion, which would be a sequential increase of approximately 28% compared to the second quarter of 2020. The Company expects third-quarter 2020 reported revenue to decline approximately 3% on an annual basis.

• Additionally, based on the pace of recovery of its various businesses observed in the third quarter of 2020 and assuming its businesses continue to rebound from the impact of the COVID-19 pandemic, The group expects its full-year 2020 revenue and Adjusted EBITDA (non-GAAP) to be around the midpoint of its current guidance ranges of US$7.80 – US$8.00 billion for revenue and US$3.15 - US$3.30 billion for 2020 Adjusted EBITDA (non-GAAP)

• The company will release the financial results for the third quarter of 2020 on Nov. 3, 2020 

Second-Quarter 2020 Financial Results 

For the Second-Quarter 2020 company’s total Revenue reported were US$1.664 billion, as compared to US$2.152 billion in the second quarter of 2019, a decrease of US$484 million, or 23%. Revenue was negatively impacted by approximately US$484 million in the second quarter of 2020 primarily due to the impact of the COVID-19 pandemic. Net loss was US$326 million for the second quarter of 2020, as compared to a net loss of US$171 million for the second quarter of 2019, an unfavorable change of US$155 million. The change was primarily driven by decreased operating results, partially offset by an increase in benefit from income taxes and a decrease in interest expense.

Segmental Revenue Analysis

Source: Company 

• Bauch + Lomb/ International: Revenue declined by 24% on Y-o-Y basis. Mainly this decline was due to COVID impacts driven by reductions in elective surgeries and reduced consumption of contact lenses. 

• Salix: Revenue declined by 21%, due to COVID impacts driven by a decline in IBS-D NBRx with primary care physician office closures and retail channel destocking. 

• Ortho Dermatologics: Revenue declined by 5% due to COVID impacts driven by the closure of dermatology offices and stay-at-home orders. 

Debt Management

• Repaid debt by approximately US$100 million in the second quarter of 2020 for a total of approximately US$320 million in the first half of 2020 with cash generated from operations
• Refinanced US$1.25 billion of 2022 Senior Secured Notes and prepaid US$250 million of mandatory 2022 term loan amortization using net proceeds from newly issued US$1.5 billion of 6.25% 2029 Senior Unsecured Notes and cash generated from operations
• Bausch Health has no debt maturities or mandatory amortization payments until 2023.

Risk

Any extension in restrictive measures or further outbreak of coronavirus might result in facility shutdown and supply chain disruptions and could hamper the group’s financial performance. The Company has a strong offering, and due to the premium pricing, a section of the product portfolio might witness a tepid demand due to lower consumer spending.

Price Performance

Source: Refinitiv (Thomson Reuters)

Valuation Methodology (Illustrative): Price to Earnings

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation

The group launched its first Extended Depth of Focus intraocular lens (IOL), LuxSmart, and a new monofocal IOL, LuxGood, in Europe. The group entered into an exclusive licensing agreement with STADA Arzneimittel AG and its development partner, Xbrane Biopharma AB, to develop and commercialize a biosimilar candidate to Lucentis (ranibizumab) in the US and Canada. The company has received several approvals which would contribute to the overall product offerings in the foreseeable future. We have valued the stock using P/E based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Gilead Sciences Inc, Biogen Inc and Bristol-Myers Squibb Co etc. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 22.94 on October 9, 2020.

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