Bausch Health Companies Inc.

Bausch Health Companies Inc. (TSX: BHC) offers diversified health care products and engaged into developing, manufacturing and distribution of a range of pharmaceutical, medical device and over-the-counter products, majorly in the therapeutic areas of eye health, gastroenterology and dermatology.

On August 11, 2020, the Company confirmed that it had received approval from Health Canada for the sale of BAUSCH + LOMB ULTRA^® ONE DAY daily disposable silicone hydrogel contact lenses. The above product is designed to provide added comfort to the eyes.

Q2FY20 Financial Highlights: BHC announced its quarterly results wherein the Company posted revenue of USD 1,664 million as compared to USD 2,152 million in the previous corresponding quarter. The decline was majorly attributed to a significant decline from Bausch + Lomb/International and Salix segments on account of COVID 19 pandemic. Total expenses stood lower at USD 1,691 million, as compared to USD 1,895 million in Q2FY19, due to lower cost of goods sold, selling, general and administrative and amortization of intangible assets while a considerable increase in other expense remained a drag. The Company’s net loss, during the quarter, widened to USD 325 million, as compared to USD 170 million in the previous corresponding period (pcp). During the quarter the Company received 510(k) clearance from the U.S. Food and Drug Administration for BAUSCH + LOMB INFUSE™ daily disposable silicone hydrogel (SiHy daily) contact lenses.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: 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.

Valuation Methodology: EV to Sales Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The Stock of BHC corrected `40% so far this year owing to volatility in the equity market scenario on account of COVID 19 pandemic. The company is financially strong, and the recent downturn did not hurt the capital management of the company, which is impressive. The company has repaid ~USD 100 million of debt from its cash flows. Further, to ensure proper liquidity, the company refinanced USD 1.25 billion of secured notes. The company does not have a debt maturity payment until 2023. 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. Further, innovative product launches would drive the performance of the company in the near to medium term. We have valued the stock using the EV/Sales based relative valuation approach and arrived at a target price, which suggests a double-digit upside potential (in % terms). For the said purpose, we have considered peers like Mylan NV, Biogen Inc and Jazz Pharmaceuticals PLC etc. Hence, considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 23.14 on August 14, 2020.

BHC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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