Bausch Health Companies Inc.

Bausch Health Companies Inc. (TSX: BHC) is a Canada-based company that develops, manufactures, and markets a range of branded and generic pharmaceuticals, medical devices, and over-the-counter products. It primarily develops products in the therapeutic areas of eye health, gastroenterology, and dermatology. 

Key highlights

• Initiated the second of two Phase 3 studies for NOVO3: The company has initiated the second of two Phase 3 studies evaluating the investigational treatment NOV03 (perfluorohexyloctane) as a first-in-class investigational drug with a novel mechanism of action to treat the signs and symptoms of Dry Eye Disease (DED) associated with Meibomian gland dysfunction (MGD).

• Separation of the Bausch + Lomb Eye-Health Business: The Company intends to separate its eye-health business into an independent publicly traded entity. The Separation will establish two separate companies that include:
• A fully integrated eye-health company will consist of the Company’s Bausch + Lomb Global Vision Care, Global Surgical, Global Consumer and Global Ophthalmic Rx businesses.
• A diversified pharmaceutical company will include the Company’s Salix, International Rx, Solta, neurology and medical dermatology pharmaceutical businesses.

• Higher operational efficiency: The group is taking profit protection measures to manage and reduce operating expenses during the COVID-19 pandemic. As a result of this, the company reported an operating income of USD 460 million in Q3 2020, increased by more than 39% as against USD 329 million in Q3 2019.

Source: Company

• Reduced debt along with ample liquidity: The group reduced its debt by USD 100 million in Q3 2020, and USD 420 million during the first nine months of FY 2020, through its cash flows, which is commendable. At the end of the reported quarter, the company had a Cash and cash equivalents of USD 977 million and revolving credit facility of USD 1.22 billion providing ample liquidity to run the operations. Moreover, the company expects to generate approximately USD 1 billion of cash from operations in FY 2020.

Financial overview of Q3 2020

Source: Company

• In Q3 2020 the company reported total revenue of USD 2.13 billion, decreased by 3% as compared to USD 2.20 billion in the previous corresponding period. The decrease was primarily due to a low average realized pricing, lower volumes driven by social restrictions and other precautionary measures taken in response to the COVID-19 pandemic.

• The company reported an operating income of USD 460 million in Q3 2020, increased by more than 39% as against USD329 million in Q3 2019. The increase was primarily due to falling SG&A expenses, R&D expenses, and low amortization of intangible assets as the group is taking profit protection measures to manage and reduce operating expenses during the COVID-19 pandemic.

• In Q3 2020, the group posted net income of USD 71 million as against a net loss of USD 49 million in the previous corresponding period. The primary reason for a turnaround was the protection measures taken by the group to manage and reduce operating expenses. 

Revenue by segment and product category

Source: Company 

Risk associated with investment

The Covid-19 pandemic has adversely impacted the business of the company in a significant manner, and we believe that any continuation in the pandemic situation will impact the Company's business, financial condition, cash flows and results of operations. Other risks associated with the business include supply chain, third-party suppliers, project development timelines, employee base, liquidity, etc.

Valuation Methodology (Illustrative): EV to Sales

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

In Q3 2020 the company witnessed improved traction from the customers. It resulted in Revenue growth from Bauch +Lomb at 32% on Sequential basis, while the products under Salix Brand such as XIFAXAN and TRULANCE grew 21% and 29% on a sequential basis. Going forward, the company expects a revival in the sales volume, aided by strong brand positioning and an attractive product pipeline. Therefore, based on the above rationale and valuation, we have given a ‘Buy’ recommendation at the closing price of CAD 24.11 on November 30, 2020. We have considered Biogen Inc, Eli Lilly and Co, Horizon Therapeutics PLC, etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

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