BAUSCH HEALTH : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

INTRODUCTION

Unless the context otherwise indicates, as used in this "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the terms "we,"
"us," "our," "the Company," and similar terms refer to Bausch Health Companies
Inc. and its subsidiaries. This "Management's Discussion and Analysis of
Financial Condition and Results of Operations" has been updated through May 4,
2021 and should be read in conjunction with the unaudited interim Consolidated
Financial Statements and the related notes included elsewhere in this Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2021 (this "Form
10-Q"). The matters discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contain certain forward-looking
statements within the meaning of Section 27A of The Securities Act of 1933, as
amended, and Section 21E of The Securities Exchange Act of 1934, as amended, and
that may be forward-looking information within the meaning defined under
applicable Canadian securities laws (collectively, "Forward-Looking
Statements"). See "Forward-Looking Statements" at the end of this discussion.
Our accompanying unaudited interim Consolidated Financial Statements as of
March 31, 2021 and for the three months ended March 31, 2021 and 2020 have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("U.S. GAAP") and the rules and regulations of the
United States Securities and Exchange Commission (the "SEC") for interim
financial statements, and should be read in conjunction with our Consolidated
Financial Statements for the year ended December 31, 2020, which were included
in our Annual Report on Form 10-K filed on February 24, 2021. In our opinion,
the unaudited interim Consolidated Financial Statements reflect all adjustments,
consisting of normal and recurring adjustments, necessary for a fair statement
of the financial condition, results of operations and cash flows for the periods
indicated. Additional company information is available on SEDAR at www.sedar.com
and on the SEC website at www.sec.gov. All currency amounts are expressed in
U.S. dollars, unless otherwise noted.
OVERVIEW
We are a global company whose mission is to improve people's lives with our
health care products. We develop, manufacture and market, primarily in the
therapeutic areas of eye-health, gastroenterology ("GI") and dermatology, a
broad range of: (i) branded pharmaceuticals, (ii) generic and branded generic
pharmaceuticals, (iii) over-the-counter ("OTC") products and (iv) medical
devices (contact lenses, intraocular lenses, ophthalmic surgical equipment and
aesthetics devices), which are marketed directly or indirectly in approximately
100 countries.
Core Businesses
Our strategy is to focus our business on core therapeutic classes that offer
attractive growth opportunities. Within our chosen therapeutic classes, we
prioritize durable products which we believe have the potential for strong
operating margins and evidence of growth opportunities. We believe this strategy
has reduced complexity in our operations and maximizes the value of our: (i)
eye-health, (ii) GI and (iii) dermatology businesses, which collectively now
represent a substantial portion of our revenues. We have found and continue to
believe there is significant opportunity in these businesses and we believe our
existing portfolio, commercial footprint and pipeline of product development
projects position us to successfully compete in these markets and provide us
with the greatest opportunity to build value for our shareholders. We identify
these businesses as "core", meaning that we believe we are best positioned to
grow and develop them.
Reportable Segments and Strategies
As discussed further below, on August 6, 2020, the Company announced that it
intends to separate its eye-health business into an independent publicly traded
entity from the remainder of Bausch Health Companies Inc. (the "Separation"). In
connection with the planned Separation of its eye-health business into an
independent publicly traded entity from the remainder of Bausch Health Companies
Inc., the Company has begun managing its operations in a manner consistent with
the organizational structure of the two separate entities as proposed by the
Separation. As a result, during the first quarter of 2021, the Company's Chief
Executive Officer ("CEO"), who is the Company's Chief Operating Decision Maker,
commenced managing the business differently through changes in its operating and
reportable segments, which necessitated a realignment of the Company's
historical segment structure. This realignment is consistent with how the
Company's CEO currently: (i) assesses operating performance on a regular basis,
(ii) makes resource allocation decisions and (iii) designates responsibilities
of his direct reports. Pursuant to these changes, effective in the first quarter
of 2021, the Company operates in the following reportable segments: (i) Bausch +
Lomb, (ii) Salix, (iii) International Rx, (iv) Ortho Dermatologics and (v)
Diversified Products. In addition, as part of this realignment of segment
structure, certain products historically included in certain segments are now
included in their new respective segments based on the organizational structure
of the two separate entities as proposed by the Separation. Prior period
presentation of segment revenues and segment profits has been recast to conform
to the current segment reporting structure.
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The Bausch + Lomb segment - consists of our Global Bausch + Lomb eye-health
business which includes our Global Vision Care, Global Surgical, Global Consumer
and Global Ophthalmology Rx products, which in aggregate accounted for
approximately 44%, 42% and 44% of our Company's revenues for the three months
ended March 31, 2021 and the years 2020 and 2019, respectively. Our Bausch +
Lomb business is a fully-integrated eye-health business, which we believe is
critical to maintaining and developing our position in the global eye-health
market. As a fully integrated eye-health business with a legacy over 165 years,
Bausch + Lomb has an established line of contact lenses, intraocular lenses and
other medical devices, surgical systems and devices, vitamin and mineral
supplements, lens care products, prescription eye-medications and other consumer
products that positions us to compete in all areas of the eye-health market.
As part of our global Bausch + Lomb business strategy, we continually look for
key trends in the eye-health market to meet changing consumer/patient needs and
identify areas for investment and growth. For instance, one of these trends is
the increasing rate of myopia, and importantly, myopia as a potential risk
factor for glaucoma, macular degeneration and retinal detachment. We continue to
see increased demand for new eye-health products that address conditions brought
on by factors, such as increased screen time, lack of outdoor activities and
academic pressures, as well as conditions brought on by an aging population for
example, as more and more baby-boomers in the U.S. are reaching the age of 65.
To supplement our well-established Bausch + Lomb product lines, we continue to
identify new products tailored to address these key trends, which we develop
internally with our own research and development ("R&D") team to generate
organic growth. Recent product launches include Biotrue® ONEday daily disposable
contact lenses, the next generation of Bausch + Lomb ULTRA® contact lenses, SiHy
Daily contact lenses (branded as AQUALOX™ ONE DAY in Japan, Bausch + Lomb
INFUSE™ SiHy Daily Disposable in the U.S. and Bausch + Lomb Ultra® ONE DAY in
Australia, Hong Kong and Canada), Lumify® (an eye redness treatment), Vyzulta®
(a pressure lowering eye drop for patients with angle glaucoma or ocular
hypertension), Ocuvite® Eye Performance (vitamins to protect the eye from
stressors such as sunlight and blue light emitted from digital devices), and
SimplifEYE™ (preloaded intraocular lens injector platform for enVista
interocular lens).
We also license selective molecules or technology in leveraging our own R&D
expertise through development, as well as seek out external product development
opportunities. Examples of this include the acquired global exclusive license
for a myopia control contact lens design developed by BHVI, which we plan to
pair with our leading contact lens technologies to develop potential contact
lens treatments designed to slow the progression of myopia in children, and the
acquired exclusive licenses for the commercialization and development in the
U.S. and Canada of: (i) a microdose formulation of atropine ophthalmic solution,
which is being investigated for the reduction of pediatric myopia progression in
children ages 3-12; (ii) Xipere™ which, if approved by the U.S. Food and Drug
Administration ("FDA"), will be the first treatment for patients suffering from
macular edema associated with uveitis; and (iii) NOV03, an investigational drug
with a novel mechanism of action to treat Dry Eye Disease ("DED") associated
with Meibomian gland dysfunction ("MGD"). We also acquired the U.S. rights to
EM-100, which was recently launched as Alaway® Preservative-Free and is the
first OTC preservative-free formulation eye drop for the temporary relief of
itchy eyes due to pollen, ragweed, grass, animal hair and dander in adults and
children 3 years of age and older. Recently, we entered into an agreement which
provides the Company an option to acquire all ophthalmology assets of Allegro
Ophthalmics, LLC ("Allegro"), including risuteganib (Luminate®), an
investigational compound in retina, which is believed to simultaneously act on
the angiogenic, inflammatory and mitochondrial metabolic pathways implicated in
diseases such as intermediate dry Age-related Macular Degeneration ("AMD"). A
U.S. Phase 2a study with risuteganib in intermediate dry AMD met its primary
endpoint of vision recovery and Phase 3 testing is in the planning stages. We
believe investments in these investigational treatments, if approved by the FDA,
will complement, and help build upon, our strong portfolio of integrated
eye-health products.
The Salix segment - consists of sales in the U.S. of GI products, which in
aggregate accounted for approximately 23%, 24% and 23% of our Company's revenues
for the three months ended March 31, 2021 and the years 2020 and 2019,
respectively. The Salix segment includes our Xifaxan® product which accounted
for approximately 18%, 18% and 17% of our Company's revenues for the three
months ended March 31, 2021 and the years 2020 and 2019, respectively.
We have been making investments in our Salix business since 2017, including: (i)
hiring 200 trained and experienced sales force representatives to expand the
commercial field force for Xifaxan®, (ii) increasing the focus on the
development of next generation formulations of our Salix intellectual property
to address new indications, (iii) completing the strategic acquisition of
certain assets of Synergy Pharmaceuticals Inc. ("Synergy"), which included the
Trulance® product, and (iv) increasing the number of sales force representatives
for Trulance®. In addition, we have entered into licensing agreements for
investigational products, which, once developed and if approved by the FDA, will
be new treatments for certain GI and liver diseases and we anticipate will
contribute to the future growth. Each of these opportunities potentially
provides us with the ability to expand our GI portfolio and allows us to
leverage our existing GI sales force, supply channel and distribution channel.
The International Rx segment - consists of sales, other than sales of our Bausch
+ Lomb and Solta products, in Canada, Europe, Asia, Australia, Latin America,
Africa and the Middle East of branded pharmaceutical products, branded generic
pharmaceutical products and OTC products, which in aggregate accounted for
approximately 15%, 15% and 13% of our
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Company's revenues for the three months ended March 31, 2021 and the years 2020
and 2019, respectively. Principal products within our International Rx segment
include Bisocard®, Thrombo ASS®, Contrave® / Mysimba®, Jublia®, Ivexterm® and
Espaven®.
The Ortho Dermatologics segment - consists of: (i) sales in the U.S. of Ortho
Dermatologics (dermatological products) and (ii) global sales of Solta
dermatological devices. Revenues from the Ortho Dermatologics segment accounted
for approximately 7%, 7% and 7% of our Company's revenues for the three months
ended March 31, 2021 and the years 2020 and 2019, respectively.
The Ortho Dermatologics business is our medical dermatology business dedicated
to the treatment of a range of therapeutic areas, including psoriasis, actinic
keratosis, acne, atopic dermatitis, onychomycosis and other dermatoses. As part
of our business strategy for the Ortho Dermatologics business, we have made
significant investments to build out our psoriasis, atopic dermatitis and acne
product portfolios, which are the markets within dermatology where we see the
greatest opportunities, with a focus on topical gel and lotion products over
injectable biologics. We continue to support the use of injectable biologics;
however, we believe some patients prefer topical products as an alternative to
injectable biologics. Further, as topical products can, in many cases, defer the
use of injectable biologics that often come with associated risk/benefit
profiles, a topical product is usually readily adopted by payors, is less
expensive and can be more cost-effective than injectable biologics. Therefore,
we believe topical products represent alternative treatments for physicians,
payors and patients, and as the preferred choice of treatment, have the
potential to drive greater volumes, generate better margins and potentially be a
key contributing factor of our Ortho Dermatologics business.
Our Solta business is dedicated to the development of innovative treatment
technologies that provide proven and effective medical aesthetic and therapeutic
benefits to consumers. Global Solta revenues were $72 million, $51 million,
$253 million and $194 million for the three months ended March 31, 2021 and 2020
and the years 2020 and 2019, respectively. The increase in revenue is primarily
attributable to Next Generation Thermage FLX®, a fourth-generation non-invasive
treatment option using a radiofrequency platform designed to optimize key
functional characteristics and improve patient outcomes. During 2018 and 2019,
Next Generation Thermage FLX® was launched in Hong Kong, Japan, Korea, Taiwan,
Philippines, Singapore, Indonesia, Malaysia, China, Thailand, Vietnam, and
Australia as part of our Solta medical aesthetic devices portfolio. These
launches have been successful as Next Generation Thermage FLX® revenues were
$39 million, $26 million, $142 million and $77 million for the three months
ended March 31, 2021 and 2020 and the years 2020 and 2019, respectively. We
expect additional launches of Next Generation Thermage FLX® in Europe in the
near term, paced by country-specific regulatory registrations.
The Diversified Products segment - consists of sales in the U.S. of: (i)
pharmaceutical products in the areas of neurology and certain other therapeutic
classes, such as Wellbutrin®, Aplenzin®, Cuprimine®, Ativan® and Migranal®, (ii)
generic products, such as Uceris® authorized generic ("AG"), Elidel® AG,
Migranal® AG and Diastat® AG, and (iii) dentistry products, such as Arestin® and
NeutraSal®. Revenues from our Diversified Products segment accounted for
approximately 11%, 12% and 13% of our Company's revenues for the three months
ended March 31, 2021 and the years 2020 and 2019, respectively. The Company
utilizes the Diversified Products segment to extend the long-term cash flows
from a number of assets that are expected to decline over time due to the loss
of exclusivity, by launching and selling authorized generic versions of certain
branded assets.
For a comprehensive discussion of our business, business strategy, products and
other business matters, see Item 1. "Business" included in our Annual Report on
Form 10-K for the year ended December 31, 2020, filed with the SEC and the
Canadian Securities Administrators ("CSA") on February 24, 2021.
Our Focus on Value
In 2016, we retained a new executive team which implemented a multi-year plan
designed to transform and bring out value in our Company. The multi-year plan
increased our focus on, among other factors, our: product portfolio,
infrastructure, geographic footprint, capital structure and risk management.
Since that time, we have been executing and continue to execute on our
commitments to transform the Company and generate value. Under the multi-year
plan we have taken the following actions, among others:
•divested non-core assets in order to narrow the Company's activities to our
core businesses where we believe we have an existing and sustainable competitive
edge and the ability to generate operational efficiencies. To date, we received
approximately $3,500 million in net proceeds from these divestitures. In
addition, as discussed below, on March 31, 2021, the Company announced that it
and certain of its affiliates had entered into a definitive agreement to sell
all of its equity interests in Amoun Pharmaceutical Company S.A.E ("Amoun") for
total gross consideration of approximately $740 million, subject to certain
adjustments (the "Amoun Sale");
•made strategic investments in our core businesses in order to support recent
revenue growth and prepare for additional growth opportunities we plan to
capitalize on for our core businesses;
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•made measurable progress in improving our capital structure as we have repaid
over $8,800 million in debt obligations (net of additional borrowings, amounts
refinanced and excluding the $1,210 million financing of the U.S. Securities
Litigation settlement discussed below) during the period January 1, 2016 through
the date of this filing, using the proceeds from the divestiture of non-core
assets, cash generated from our operations and improved working capital
management. Further, upon the closing of the Amoun Sale (which is subject to
certain customary closing conditions), we expect to use the net proceeds of the
Amoun Sale to pay down certain debt obligations thereby further deleveraging the
Company; and
•resolved many of the Company's legacy litigation matters originating back to
2015 and prior, including the most significant legacy legal matter, the U.S.
Securities Litigation settlement discussed below, significantly reducing related
possible disruptions and other uncertainties to our operations.
We believe that these and other positive actions we have taken to transform our
Company, have properly focused our operations and improved our capital
structure, and we also believe that, as a result of such actions, we are now
presented with an opportunity to unlock additional value across our portfolio of
assets by creating two highly attractive but dissimilar businesses.
Separation of the Bausch + Lomb Eye-Health Business
On August 6, 2020, we announced that we intend to separate our eye-health
business into an independent publicly traded entity ("Bausch + Lomb") from the
remainder of Bausch Health Companies Inc. The Separation will establish two
separate companies that include:
•a fully integrated, pure play eye-health company built on the iconic Bausch +
Lomb brand and long history of innovation; and
•a diversified pharmaceutical company with leading positions in
gastroenterology, aesthetics/dermatology, neurology and international
pharmaceuticals.
The Bausch + Lomb entity will consist of the Company's Bausch + Lomb Global
Vision Care, Global Surgical, Global Consumer and Global Ophthalmology Rx
businesses. The remaining pharmaceutical entity will comprise a diversified
portfolio of our leading durable brands across the Salix, International Rx,
Solta, neurology and medical dermatology businesses. We believe the Separation
will unlock value across the two post-separation entities and create two highly
attractive but dissimilar businesses.
As separate entities, management believes that each company will be better
positioned to individually focus on its core businesses to drive additional
growth, more effectively allocate capital and best manage its respective capital
needs. Further, the Separation allows us and the market to compare the operating
results of each entity with other "pure play" peer companies. Although
management believes the Separation will bring out additional value, there can be
no assurance that it will be successful in doing so.
We continue to make progress toward the internal objectives necessary for the
Separation and have been actively addressing the internal organizational design
and structure of the new entity. We are actively addressing the structure and
pro forma capitalizations of the two entities post-separation and have announced
certain key leadership positions of the Bausch + Lomb entity. Based on our
assessment, we believe that, by the end of the third quarter of 2021, we will be
able to address the organizational matters and regulatory requirements needed to
operate the businesses separately and put the Bausch + Lomb entity in a position
to become an independent publicly traded company. Management is also considering
the form of the Separation and exploring a number of alternative capitalization
structures in order to properly capitalize the entities post-separation.
Although a public offering of a portion of the Bausch + Lomb business is among
the alternate capital structures being considered, this Form 10-Q does not
constitute an offer of any securities of Bausch + Lomb for sale. There are
considerations, approvals and conditions that will determine the ultimate timing
and structure of this transaction, including regulatory approvals, final
approval by our board of directors, any shareholder vote requirements that may
be applicable, compliance with U.S. and Canadian securities laws and stock
exchange rules, receipt of any applicable opinions and/or rulings with respect
to the Canadian and U.S. federal income tax treatment of such transaction and
determination of the pro forma capitalizations of the two entities. The failure
to satisfy all of the required conditions could delay the completion of this
transaction for a significant period of time or prevent it from occurring at
all. While we anticipate that we will be able to complete the internal
organizational design and structure of the Bausch + Lomb entity by the end of
the third quarter of 2021, we will need to complete a number of additional steps
that will depend on the ultimate structure of the transaction (in addition to
obtaining the regulatory approvals and satisfying the conditions described
above) before we can complete the Separation. As a result, there can be no
assurance as to the timing of the completion of the Separation or its terms, and
the information in this Form 10-Q relating to the Separation is preliminary and
may change as the transaction progresses and any such change may be material.
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See Item 1A. "Risk Factors - Risk Relating to the Separation" of our Annual
Report on Form 10-K for the year ended December 31, 2020, filed with the SEC and
the CSA on February 24, 2021 for additional risks relating to the Separation.
Divest Assets to Improve Our Capital Structure and Simplify Our Business
In order to better focus on our core businesses, we continue to evaluate
opportunities to simplify our operations and improve our capital structure,
including dispositions of various assets. For example, on March 31, 2021 we
announced the Amoun Sale. Amoun manufactures, markets and distributes branded
generics of human and animal health products. The transaction, which is expected
to close in the first half of 2021, remains subject to certain customary closing
conditions, including receipt of applicable regulatory approvals. The Amoun
business was part of the International Rx segment (formerly included within the
Bausch + Lomb/International segment). Revenues associated with Amoun were $247
million, $220 million and $183 million for the years 2020, 2019 and 2018,
respectively. For the twelve months ended March 31, 2021, Amoun's operating
income was $51 million, depreciation, amortization and asset impairments were
$28 million and Adjusted EBITDA contribution (non-GAAP) per our debt covenant
calculations was $79 million. We anticipate using the net proceeds from the
Amoun Sale to pay down certain debt obligations.
We are actively considering further dispositions of various assets in line with
this strategy. While we anticipate that any future divestiture activities will
be on non-core assets, consistent with our duties to our shareholders and other
stakeholders, we will consider dispositions in core areas that we believe
represent attractive opportunities for the Company. See Note 4, "ACQUISITION,
LICENSING AGREEMENTS AND ASSETS HELD FOR SALE" to our unaudited interim
Consolidated Financial Statements for additional information.
Impacts of COVID-19 Pandemic
In December 2019, a novel strain of the coronavirus disease, COVID-19, was
identified in Wuhan, China. Since then, COVID-19 has spread to other parts of
the world, including the United States, Canada and Europe, and was declared a
global pandemic by the World Health Organization (the "WHO") on March 11, 2020.
As a global health care company, now more than ever, we remain focused on our
mission of helping to improve people's lives with our health care products.
The unprecedented nature of the COVID-19 pandemic has adversely impacted the
global economy. The COVID-19 pandemic and the rapidly evolving reactions of
governments, private sector participants and the public in an effort to contain
the spread of the COVID-19 virus and/or address its impacts have intensified and
have had significant direct and indirect effects on businesses and commerce.
This includes, but is not limited to, disruption to supply chains, employee base
and transactional activity, facilities closures and production suspensions. The
COVID-19 pandemic has also significantly increased demand for certain goods and
services, such as pandemic-related medical services and supplies, alongside
decreased demand for others, such as retail, hospitality, elective medical
procedures and travel.
As the global economic landscape changes, there is a wide range of possible
outcomes regarding the nature and timing of events related to the COVID-19
pandemic, each of which are highly dependent on variables that are difficult to
predict. Developments, including the ultimate geographic spread and duration of
the pandemic, the extent and duration of a resurgence, if any, new information
concerning the severity of the COVID-19 virus and variant strains thereof, the
effectiveness and intensity of measures to contain the COVID-19 virus, the
availability and effectiveness of vaccines for the COVID-19 virus and the
economic impact of the pandemic and the reactions to it, could have a
significant adverse effect on our business, development programs, financial
condition, cash flows and results of operations. The extent of these
developments and the related impacts are highly uncertain and many are outside
the Company's control.
To date, the Company has been able to continue its operations with limited
disruptions in supply and manufacturing. Although it is difficult to predict the
broad macroeconomic effects that the COVID-19 pandemic will have on industries
or individual companies, the Company has assessed the possible effects and
outcomes of the pandemic on, among other things, its supply chain, customers and
distributors, discounts and rebates, employee base, product sustainability,
research and development efforts, product pipeline and consumer demand. As a
result of our assessment, we immediately initiated profit protection measures to
manage and reduce operating expenses and preserve cash during the COVID-19
pandemic. We have also taken actions to manage the level of our investment in
support of certain existing products, anticipated launches and the expansion of
our sales footprint in Europe. Postponing these investments may impact the
extent and timing in achieving our longer-term forecasts for certain business
units, however, we believe these actions will not have a material impact on the
underlying value of the related businesses or their associated assets.
We are and will continue to closely monitor the impacts of the COVID-19 pandemic
and related responses from governments and private sector participants on the
Company, our customers, supply chain, third-party suppliers, project development
timelines, costs, revenue, margins, liquidity and financial condition and our
planned actions and responses to this pandemic.
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We believe we have responded quickly to the human and commercial challenges
brought on by the COVID-19 pandemic and that our early actions have, so far,
enabled us to keep our employees safe and our supply lines largely intact and we
believe these actions have laid the foundation for us to work our way through
the uncertainties to come. Importantly, we believe that the steps we took over
the last several years to manage our capital structure place us in a strong
position to maintain sufficient liquidity to continue operations through an
extended pandemic and we believe that our businesses will not see their
long-term value diminished by this unprecedented situation.
Our Employees
Our employees' health, safety, and wellness are important to us. With the
COVID-19 outbreak, a focus in 2020 was protecting the health and safety of our
employees and their families. We broadened our existing remote work policies to
enable our global employees to work from home wherever possible. In
circumstances where remote work was not possible (such as at our manufacturing
and distribution facilities), we implemented safety measures to ensure we
prevented the spread of COVID-19 in the workplace, such as mandatory face
coverings, social distancing, hand hygiene, plexiglass barriers, limited
face-to-face meetings and other procedures as prescribed by global public health
organizations, such as the WHO and U.S. Centers for Disease Control and
Prevention. We also provided resources for our employees specifically in
response to COVID-19, including launching a website - Collaborating in the New
Normal - to help our employees encourage each other, lead with empathy and adapt
as we navigate these unprecedented times.
Our Supply Chain and Manufacturing Facilities
Our objective is to maintain the uninterrupted availability of our products to
meet the needs of patients, consumers and our customers. Business continuity
plans and site-level biosecurity procedures are in place to ensure the
well-being of our employees while we work to maintain the integrity of our
supply chain. We have been successful in keeping our manufacturing facilities
operational, although, due to shelter-in-place orders, our facilities in Milan
and China were forced to temporarily close in March and April of 2020. These
facilities were closed for only a short period of time and were immediately and
continually operational once the shelter-in-place orders in the respective
geographies were lifted.
As of the date of this filing, we have not experienced any disruption in our
supply chain that would have a material impact on our results or operations. Our
global supply chain team worked diligently to stay ahead of the challenges
presented by the COVID-19 pandemic once it appeared in Asia. Although we have
put in place procedures to mitigate the risks associated with closures and
disruptions at our manufacturing facilities, the COVID-19 pandemic has had an
impact on our inventory levels and the manner in which we manage our
inventories. From time to time during 2020, our inventory levels were higher
than usual as a result of: (i) lower demand across multiple business units due
to COVID-19 pandemic related matters, (ii) securing additional quantities of
active pharmaceutical ingredients ("API") for our Xifaxan® products from our
suppliers in Italy in contemplation of potential supply disruptions in that
region, (iii) securing additional quantities of API for our Trulance® products
which have longer procurement times and higher costs and (iv) the acquisition of
additional quantities of certain products that were at the lower end of their
optimal levels at December 31, 2019. During our third and fourth quarters of
2020, we continued to manage our inventory levels and effectively reduced our
inventory levels to be relatively in line with our pre-pandemic inventory levels
as of December 31, 2020 and March 31, 2021.
We have dual sources of API and intermediates for many of our products, the
availability of which has not had, and at this time we do not expect will have,
a material impact on our supply chain. With respect to our largest product,
Xifaxan®, as of April 30, 2021, we have four months' supply of Xifaxan® finished
goods on hand and enough API to manufacture another seven months' supply of
Xifaxan® finished goods. We also have open orders for API for Xifaxan® that we
currently expect will arrive on schedule. However, if we were to experience a
lack of availability of API for Xifaxan®, such disruption to our supply chain
could have a significant adverse effect on our business, financial condition and
results of operations.
We continue to monitor the impacts of the COVID-19 pandemic and take the actions
appropriate to regulate our inventories at levels in line with the current
supply and demand for our products. These actions have been effective at meeting
our objectives, and presuming there continues to be increased availability of
effective vaccines and any resurgence of the COVID-19 virus and variant strains
thereof do not have a material adverse impact on efforts to contain the COVID-19
virus, we believe we can maintain our inventories at their pre-pandemic levels
during 2021. We will continue to monitor our inventories and continue to take
the appropriate actions and make the necessary adjustments to maintain the
uninterrupted availability of our products to meet the needs of patients,
consumers and our customers.
Our Product Pipeline
Our leadership team actively manages the Company's product pipeline to identify
what we believe are innovative and realizable projects aligned with our core
businesses that are expected to provide incremental and sustainable revenues and
growth. During the COVID-19 pandemic, our R&D team remains focused on meeting
these objectives in a timely manner; however, there are significant events and
circumstances regarding the COVID-19 pandemic that may materially affect our R&D
team's ability to do so, many of which are beyond the Company's control.
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Due to the challenges of the COVID-19 pandemic, most notably those attributable
to "stay at home" and travel restrictions, certain of our R&D activities were
forced to pause in 2020. Clinical trials that started prior to governmental
shutdowns remained enrolled and existing patients have progressed, while new
patient enrollments were paused as most trial sites were not able to accept new
patients. However, during our third quarter of 2020, we saw the pace of new
patient enrollments increase, and, although certain of our projects are moving
slower than we would like due to the impacts of the COVID-19 pandemic, through
the date of this filing we have not had to make changes to our development
timelines that would have a material impact on our current or future operating
results.
We continue to monitor the timing and completion of our ongoing and anticipated
clinical trial programs. As of the date of this filing, the delays in our
clinical trials have not had a material impact on our operating results;
however, a resurgence of the virus significant enough to necessitate reenacting
certain social restrictions could result in unanticipated delays in our ability
to conduct new patient enrollments. Other possible COVID-19 pandemic and
resurgence related challenges include, but are not limited to, facility
closures, delays by third-party service providers, deferrals of doctor visits,
postponement of elective medical procedures and surgeries and changes in
prioritization by the FDA and other regulatory authorities. Delays, if any,
caused by the COVID-19 pandemic and a possible resurgence of the virus such as
these and others will likely adversely affect the timely approval, launch and
commercialization and the commercial success of our products, particularly those
in early stage clinical trials, which could have a material adverse effect on
our future operating results.
Our Liquidity
Our primary sources of liquidity are our cash and cash equivalents, cash
collected from customers, funds as available from our revolving credit facility
of $1,225 million due in June 2023 (the "2023 Revolving Credit Facility"),
issuances of long-term debt and issuances of equity and equity-linked
securities. We believe these sources will be sufficient to meet our current
liquidity needs for at least twelve months from the date of issuance of this
Form 10-Q. Further, for the three months ended March 31, 2021 and the years 2020
and 2019, we generated positive cash from operations of $443 million,
$1,111 million and $1,501 million, respectively. Should our operating results
during the COVID-19 pandemic materially suffer in comparison to our 2020 and
2019 operating results, we believe we would continue to generate sufficient cash
flows from operations to meet our obligations in the ordinary course of
business.
We have no debt maturities or mandatory amortization payments until 2024.
Additionally, we have no outstanding borrowings, $101 million of issued and
outstanding letters of credit and remaining availability of $1,124 million under
our 2023 Revolving Credit Facility. In the event of a future, unexpected need
for near-term liquidity, our 2023 Revolving Credit Facility would be a source of
funding for us. After reviewing the terms of our Restated Credit Agreement and
considering a broad range of possible outcomes of the COVID-19 pandemic, we
expect that we will have access to capital under our 2023 Revolving Credit
Facility across a broad range of scenarios in the event it is required.
See Note 10, "FINANCING ARRANGEMENTS" to our unaudited interim Consolidated
Financial Statements and "Management's Discussion and Analysis - Liquidity and
Capital Resources: Long-term Debt" for additional discussion of these matters.
Our Operating Results
While we continue to take actions to mitigate the impact of the COVID-19
pandemic on daily operations, the global response to the pandemic has and is
expected to impact our operating results until the impacts of the pandemic
subside, the timing of which is uncertain and may be dependent upon, among other
matters, the availability and effectiveness of vaccines for the COVID-19 virus.
The changing dynamics of the pandemic, related responses from governments and
private sector participants and the precautionary measures taken by our
customers and the health care patients and consumers we serve, are expected to
impact the timing and amount of our revenues.
During the pandemic, the public has been advised to engage in certain "social
restrictions" such as: (i) remaining at home or shelter-in-place, (ii) limiting
social interaction, (iii) closing non-essential businesses and (iv) postponing
certain surgical and elective medical procedures in order to prioritize/conserve
available health care resources. During the three months ended March 31, 2020,
these factors negatively impacted, most notably, the revenues of the Company's
Vision Care and Surgical businesses in Asia where the COVID-19 pandemic
originated. Beginning in March 2020, and throughout most of the second quarter
of 2020, the Company experienced steeper declines in these revenues and the
revenues of other businesses as social restrictions expanded worldwide,
particularly in the U.S. and Europe. Social restrictions negatively impacted the
Company's revenues for contact lenses, intraocular lenses, medical devices,
surgical systems and certain pre- and post-operative eye-medications of its
Ophtho Rx business, medical aesthetics and therapeutic products of its Global
Solta business, and certain branded pharmaceutical products of its Salix, Ortho
Dermatologics and Dentistry businesses, as the offices of many health care
providers were closed and certain surgeries and elective medical procedures were
deferred.
Our 2020 revenues were most negatively impacted during our second quarter by the
social restrictions and other precautionary measures taken in response to the
COVID-19 pandemic. However, as governments began lifting social
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restrictions, allowing offices of certain health care providers to reopen and
certain surgeries and elective medical procedures to proceed, the negative trend
in the revenues of certain businesses began to level off and stabilize prior to
our third quarter of 2020. Presuming there continues to be increased
availability of effective vaccines and any further resurgence of the COVID-19
virus and variant strains thereof do not have a material adverse impact on
efforts to contain the COVID-19 virus, the Company anticipates an ongoing,
gradual global recovery from the significant macroeconomic and health care
impacts of the pandemic that occurred during the first half of 2020 and
anticipates that its revenues will likely return to pre-pandemic levels in 2021.
However, the rates of recovery for each business will vary by geography and will
be dependent upon, among other things, the availability and effectiveness of
vaccines for the COVID-19 virus, government responses, rates of economic
recovery, precautionary measures taken by patients and customers, the rate at
which remaining social restrictions are lifted and once lifted, the presumption
that social restrictions will not be materially reenacted in the event of a
resurgence of the virus or variant strains thereof and other actions taken in
response to the COVID-19 pandemic.
In the U.S., the recovery in our GI, medical dermatology, surgical, vision care,
ophthalmology and dentistry businesses continues to progress, as offices of
certain health care providers have reopened and certain surgeries and elective
medical procedures proceed, while our U.S. consumer and Solta aesthetics
businesses had been less impacted by the COVID-19 pandemic. The recovery of our
businesses in China seems to be further along than the rest of our businesses in
Asia, as the revenues of certain of our businesses in China have returned to
their pre-pandemic levels. Although certain social restrictions were lifted in
Europe during the summer, recovery in this region has been more gradual, as
consumers were slower to return to their pre-pandemic habits. Further, various
geographies reinstituted lockdowns or partial lockdowns as needed in response to
resurgence of the original COVID-19 virus and as variant strains were
identified. For instance, parts of Europe, such as England, Germany, France and
Ireland, and parts of Canada returned to lockdowns of various lengths and
enacted or are still considering enacting other social restrictions. Entering
2021, the daily average number of new COVID-19 cases in the U.S. was in decline
and the vaccination rates in the U.S. accelerated leading to the lifting of
certain government and social restrictions. However, variant strains of the
virus have been identified in the U.S. and a portion of the country's residents
have demonstrated reluctance to get vaccinated. Further, for various logistical,
regulatory, economical, governmental and/or other availability factors, certain
geographies outside the U.S. have limited access to effective vaccines allowing
the spread of the original virus and variant strains thereof to develop. These
factors are challenges to achieving herd immunity in the U.S. and globally and
could lead to a resurgence and new lockdowns or other social restrictions
globally.
As we monitor the direction and pace of the recovery in each business and
geography, we are also continually monitoring the effectiveness of the profit
protection measures we initiated to manage and reduce our operating expenses and
preserve cash during the COVID-19 pandemic. These profit protection measures
have been successful in expanding the profit margins in many of our businesses
as referenced in the discussion of our operating results below. As the pace of
recovery in each geography accelerates, we expect to allocate more resources to
selling and other promotional activities to drive our return to sustainable
revenue and profit growth. Therefore, if the recovery continues, we expect our
operating expenses to increase in support of our existing products, product
launches and products in development and expect to see our operating expenses in
2021 exceed our operating expenses in 2020 as a result.
We believe our diverse portfolio of durable products and strong brands has
served us well through the COVID-19 pandemic and we continue to be
well-positioned to grow market share and return to growth as the world recovers.
However, this situation remains very fluid and we continue to monitor the
availability and effectiveness of vaccines and any resurgence of the COVID-19
virus and variant strains thereof on our operations, businesses and primary
goals. Given these circumstances, we continue to focus on: (i) revising our
go-to-market and sales force strategies to address the changing business
dynamics created by the COVID-19 pandemic, (ii) building out our e-commerce
presence to enable us to reach customers in new ways, (iii) investing in our key
promoted brands and product launches to increase market share, (iv) optimizing
our cost structure and (v) looking for key trends in the market to meet changing
consumer/patient needs and identify areas for investment and growth. We believe
focusing on these priorities will best enable us to effectively manage the
changing business dynamics created by the COVID-19 pandemic, best prepare us for
a possible resurgence of the virus and any variant strains thereof and return us
to growth once the impacts of the COVID-19 pandemic substantially subside.
The changes in our segment revenues and segment profits, including the impacts
of COVID-19 pandemic related matters for the three months ended March 31, 2021,
are discussed in further detail in the respective subsequent section " -
Reportable Segment Revenues and Profits".
The Company continually updates its near term forecasts for the changing facts
and circumstances regarding the COVID-19 pandemic. As more fully discussed in
Note 8, "INTANGIBLE ASSETS AND GOODWILL" to our unaudited interim Consolidated
Financial Statements, the changes in the amounts and timing of these revenues as
presented in the latest forecasts include a range of potential outcomes and,
with the exception of the Ortho Dermatologics reporting unit as discussed below,
are not substantial enough to materially adversely affect the recoverability of
any of the associated reporting units' assets and are not material enough to
indicate that the fair values of those reporting units are more likely than not
below their respective carrying values. During the three months ended March 31,
2021, the Company revised its long-term forecasts
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for the Ortho Dermatologics reporting unit, and as a result, the Company
recognized a goodwill impairment of $469 million. See Note 8, "INTANGIBLE ASSETS
AND GOODWILL" to our unaudited interim Consolidated Financial Statements for
additional information.
For a further discussion of these and other COVID-19 related risks, see Item 1A.
"Risk Factors- Risk Relating to COVID-19" of our Annual Report on Form 10-K for
the year ended December 31, 2020, filed with the SEC and the CSA on February 24,
2021.
Focus on Core Businesses
In order to continue to focus on our core businesses we have: (i) directed
capital allocation to drive growth within our core businesses, (ii) made
measurable progress in effectively managing our capital structure, (iii)
increased our efforts to improve patient access and (iv) continued to invest in
sustainable growth drivers to position us for long-term growth.
Direct Capital Allocation to Drive Growth Within Our Core Businesses
Our capital allocation is driven by our long-term growth strategies. We have
been aggressively allocating resources to promote our core businesses globally
through: (i) strategic acquisitions, (ii) R&D investment, (iii) strategic
licensing agreements and (iv) strategic investments in our infrastructure. The
outcome of this process allows us to better drive value in our product portfolio
and generate operational efficiencies.
Strategic Acquisitions
We remain very selective when considering any acquisition and pursue only those
opportunities that we believe align well with our current organization and
strategic plan. We sometimes refer to these opportunities as "bolt on"
acquisitions. In being selective, we seek to enter into only those acquisitions
that provide us with significant synergies with our existing business, thereby
minimizing risks to our core businesses and providing long-term growth
opportunities. Recently, we have entered into transactions that although not
immediately impactful to our operating results, are expected to be accretive to
our bottom line in future years and contribute to our long-term growth
strategies.
In September 2020, we entered into an agreement which provides the Company an
option to acquire all ophthalmology assets of Allegro (the "Option"), a
privately held biopharmaceutical company focused on the development of therapies
that regulate integrin functions for the treatment of ocular diseases. Among the
assets to be acquired, if the Option is exercised, is the worldwide rights to
risuteganib (Luminate®), Allegro's lead investigational compound in retina,
which is believed to simultaneously act on the angiogenic, inflammatory and
mitochondrial metabolic pathways implicated in diseases such as intermediate dry
AMD. A U.S. Phase 2a study with risuteganib in intermediate dry AMD met its
primary endpoint of vision recovery and Phase 3 testing is in the planning
stages. We believe the addition of the ophthalmic assets of Allegro would
significantly enhance our comprehensive portfolio of products for AMD and if
approved, risuteganib may be the first treatment indicated to help reverse
vision loss due to dry AMD and address a significant unmet medical need
affecting millions of people globally.
In March 2019, we completed the acquisition of certain assets of Synergy whereby
we acquired the worldwide rights to the Trulance® (plecanatide) product, a
once-daily tablet for adults with chronic idiopathic constipation, or CIC, and
irritable bowel syndrome with constipation, or IBS-C. We believe that the
Trulance® product complements our existing Salix products and allows us to
effectively leverage our existing GI sales force. In order to drive growth of
the Trulance® product, we have increased the number of sales force
representatives for the Trulance® product. This has been successful as Trulance®
revenues were $21 million and $19 million for the three months ended March 31,
2021 and 2020, respectively.
In February 2019, we acquired the U.S. rights to EM-100 (an investigational
preservative-free formulation eye drop) from Eton Pharmaceuticals, Inc. On
September 25, 2020, the Company announced that the FDA had approved Alaway®
Preservative Free (ketotifen fumarate) ophthalmic solution, 0.035%,
antihistamine eye drops (EM-100) as the first OTC preservative-free formulation
eye drop approved to temporarily relieve itchy eyes due to pollen, ragweed,
grass, animal hair and dander. Alaway® Preservative Free was launched in
February 2021 and is expected to complement our broad range of Bausch + Lomb
integrated eye-health products.
We are considering further acquisition opportunities within our core therapeutic
areas, some of which could be material in size.
R&D Investment
We continuously search for new product opportunities through internal
development and strategic licensing agreements, that if successful, will allow
us to leverage our commercial footprint, particularly our sales force, and
supplement our existing product portfolio and address specific unmet needs in
the market.
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Our internal R&D organization focuses on the development of products through
clinical trials. As of December 31, 2020, approximately 1,300 dedicated R&D and
quality assurance employees in 23 R&D facilities were involved in our R&D
efforts internally.
We have approximately 200 projects in our global pipeline. Certain core internal
R&D projects that have received a significant portion of our R&D investment in
current and prior periods are listed below. However, due to the challenges of
the COVID-19 pandemic, most notably those attributable to "stay at home" and
travel restrictions, certain of our R&D activities were forced to pause in 2020.
Clinical trials that started prior to governmental shutdowns remained enrolled
and existing patients have progressed, while new patient enrollments were paused
as most trial sites were not able to accept new patients. However, during our
third quarter of 2020, we saw the pace of new patient enrollments increase, and,
although certain of our projects are moving slower than we would like due to the
impacts of the COVID-19 pandemic, through the date of this filing we have not
had to make changes to our development timelines that would have a material
impact on our current or future operating results.
We continue to monitor the timing and completion of our ongoing and anticipated
clinical trial programs. As of the date of this filing, the delays in our
clinical trials have not had a material impact on our operating results;
however, a resurgence of the virus significant enough to necessitate reenacting
certain social restrictions could result in unanticipated delays in our ability
to conduct new patient enrollments. Other possible COVID-19 pandemic and
resurgence related challenges include, but are not limited to, facility
closures, delays by third-party service providers, deferrals of doctor visits,
postponement of elective medical procedures and surgeries and changes in
prioritization by the FDA and other regulatory authorities. Delays, if any,
caused by the COVID-19 pandemic and a possible resurgence of the virus such as
these and others will likely adversely affect the timely approval, launch and
commercialization and the commercial success of our products, particularly those
in early stage clinical trials. As a result, our estimates regarding the timing
and success of our R&D efforts (some of which are set out below), including as
it relates to study initiation, enrollment and completion, availability of study
results, regulatory submissions, regulatory approvals and commercial launches,
may change.
Bausch + Lomb
•SiHy Daily - A silicone hydrogel daily disposable contact lens designed to
provide clear vision throughout the day. In September 2018, we launched SiHy
Daily in Japan under the branded name AQUALOX™ ONE DAY.  In August 2020, we
launched SiHy Daily in the U.S. under the branded name Bausch + Lomb INFUSE™
SiHy Daily Disposable contact lens. In the fourth quarter of 2020, SiHy Daily
was launched in Australia, Hong Kong and Canada under the branded name Bausch +
Lomb Ultra® ONE DAY. SiHy Daily has also received regulatory approval for New
Zealand, South Korea, Singapore and Malaysia, where it will be branded as Bausch
+ Lomb Ultra® ONE DAY.
•Lumify® (brimonidine tartrate ophthalmic solution, 0.025%) - An OTC eye drop
developed as an ocular redness reliever. We launched this product in the U.S. in
May 2018. Currently, we have several line extensions under development and
expect Phase 3 clinical studies to commence in 2021.
•Biotrue® ONEday for Astigmatism - A daily disposable contact lens for
astigmatic patients. The Biotrue® ONEday contact lens incorporates Surface
Active Technology™ to provide a dehydration barrier.  The Biotrue® ONEday for
Astigmatism also includes evolved peri-ballast geometry to deliver stability and
comfort for the astigmatic patient. We launched this product in December 2016
and launched an extended power range and further extended power ranges in each
of the years 2017 through 2020.
•New Ophthalmic Viscosurgical Device ("OVD") product - A formulation to protect
corneal endothelium during phacoemulsification process during a cataract surgery
and to help chamber maintenance and lubrication during interocular lens
delivery. In January 2020, we commenced an FDA clinical study for the cohesive
OVD product which has now achieved its enrollment target, despite
COVID-19-related slowdowns, and we expect results in the fourth quarter of 2021.
In addition, in March 2021, we received Premarket Approval from the FDA for the
dispersive OVD product.
•enVista® Trifocal intraocular lens - An innovative lens design. We initiated an
investigative device exemption study for this product in May 2018 and initiated
the last phase of this three-phase study in the fourth quarter of 2020.
•SimplifEYE™ preloaded intraocular lens injector platform for enVista
interocular lens - We have received approvals from the European Union and Canada
and received FDA clearance for the injector and launched this platform in
October 2020.
•Extended depth of focus intraocular lens - Currently under development,
however, the timing and completion of which has been delayed due to COVID-19
pandemic related matters. Once development is completed and if approved, we
anticipate that this product could be launched in the first half of 2022.
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•Bausch + Lomb ULTRA® monthly silicone hydrogel lens - Specifically designed to
address the lifestyle and vision needs of patients with MoistureSeal® technology
which maintains 95% of contact lens moisture for a full 16 hours. In the second
quarter of 2020, Bausch + Lomb ULTRA® received a seven day extended wear
indication approval from the European Union and received regulatory approval
from the National Medical Products Administration in China.
•Bausch + Lomb ULTRA® Multifocal for Astigmatism contact lens - The first and
only multifocal toric lens available as a standard offering in the eye care
professional's fit set. The new monthly silicone hydrogel lens, which was
specifically designed to address the lifestyle and vision needs of patients with
both astigmatism and presbyopia, combines the Company's unique 3-Zone
Progressive™ multifocal design with the stability of its OpticAlign® toric with
MoistureSeal® technology to provide eye care professionals and their patients an
advanced contact lens technology that offers the convenience of same-day fitting
during the initial lens exam. Bausch + Lomb ULTRA® Multifocal for Astigmatism
was launched in June 2019 and received European Union regulatory approval in the
second quarter of 2020.
•Renu® Advanced Multi-Purpose Solution ("MPS") - Contains a triple disinfectant
system that kills 99.9% of germs, and has a dual surfactant system that provides
up to 20 hours of moisture. Renu® Advanced MPS is FDA cleared with indications
for use to condition, clean, remove protein, disinfectant, rinse and store soft
contact lenses including those composed of silicone hydrogels. Renu® Advanced
MPS has gained regulatory approvals in Korea, India, Mexico, Indonesia,
Malaysia, Singapore and, during the second quarter of 2020, the European Union.
•Custom soft contact lens (Ultra Buttons) - A latheable silicone hydrogel button
for custom soft specialty lenses including; Sphere, Toric, Multifocal, Toric
Multifocal and irregular corneas. This project has been placed on hold as we
reprioritize other projects in our pipeline.
•Zen™ Multifocal Scleral Lens for presbyopia - In January 2019, we launched this
product exclusively available with Zenlens™ and Zen™ RC scleral lenses and will
allow eye care professionals to fit presbyopic patients with regular and
irregular corneas and those with ocular surface disease, such as dry eye. The
Zen™ Multifocal Scleral Lens incorporates decentered optics, enabling the near
power to be positioned over the visual axis.
•Tangible® Hydra-PEG® - A high-water polymer coating that is bonded to the
surface of a contact lens and designed to address contact lens discomfort and
dry eye. We launched this product in March 2019. Tangible® Hydra-PEG® coating
technology in combination with our Boston® materials and Zenlens™ family of
scleral lenses will help eye care professionals provide a better lens wearing
experience for their patients with challenging vision needs.
Gastrointestinal
•Rifaximin - Top line results from a Phase 2 study for the treatment of overt
hepatic encephalopathy with a new formulation (SSD IR) of rifaximin showed a
treatment benefit. Patients receiving 40 mg twice daily showed a statistically
significant separation from placebo. The top line results from this Phase 2
study will help inform further research on potential new indications for
rifaximin; this will include the commencement of a Phase 3 study (RED-C) in 2021
to seek an indication for the prevention of the first episode of Hepatic
Encephalopathy. A separate new formulation is planned to be studied for the
treatment of sickle cell anemia which rifaximin recently received orphan drug
designation for and for which clinical trials are expected to commence in 2021.
•Rifaximin - Commencement of a Phase 2 study to evaluate rifaximin for the
treatment of small intestinal bacterial overgrowth, or "SIBO", remains pending
results from a new formulation study expected to be available in the first half
of 2021. Development of a fit for purpose Patient Reported Outcomes tool for
SIBO is continuing in 2021.
•Rifaximin - We have entered into an agreement with Cedars Sinai Medical Center
to evaluate a new formulation of rifaximin for the treatment of IBS-D. Two
preclinical studies have been completed. A Proof of Concept study that was
paused due to COVID-19 pandemic related factors has recommenced.
•Rifaximin - Our partner Alfasigma S.p.A. ("Alfasigma") was previously planning
a Phase 2/3 study for the treatment of post-operative Crohn's disease using a
novel rifaximin extended release formulation. However, poor enrollment rates in
similar trials and clinical requirements imposed by the FDA were deemed too
challenging to the potential success of the program and as a result the program
has been terminated.
•Envive™ - In October 2020, we launched, on a limited basis, a probiotic
supplement we developed to address gastrointestinal disturbances. In April 2021,
we expanded the launch to additional territories in the U.S.
•Amiselimod (S1P modulator) - We are preparing to initiate a Phase 2 study in
the first half of 2021 to evaluate Amiselimod (S1P modulator) for the treatment
of mild to moderate ulcerative colitis.
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Dermatology

•Arazlo® (tazarotene) Lotion, 0.045% (formerly Internal Development Project
("IDP")-123) - In June 2020, we launched this acne product containing lower
concentration of tazarotene in a lotion form to help reduce irritation while
maintaining efficacy.
•IDP-120 - An acne product with a fixed combination of mutually incompatible
ingredients: benzoyl peroxide and tretinoin. Phase 3 clinical studies have been
completed and met the primary endpoints. We are currently evaluating next steps
for this project.
•IDP-126 - An acne product with a fixed combination of benzoyl peroxide,
clindamycin phosphate and adapalene. Phase 3 clinical studies initiated in
December 2019 were paused due to COVID-19 pandemic related factors, but resumed
in June 2020. The first Phase 3 study has been completed, and the second Phase 3
study showed statistically significant topline results. We anticipate filing a
NDA in the second half of 2022.
•Clear + Brilliant® Touch - Next generation Clear + Brilliant® laser that is
designed to deliver a customized and more comprehensive treatment protocol by
providing patients of all ages and skin types the benefits of two wavelengths.
This product was launched in the U.S. in March 2021.
Strategic Licensing Agreements
To supplement our internal R&D initiatives and to build-out and refresh our
product portfolio, we also search for opportunities to augment our pipeline
through arrangements that allow us to gain access to unique products and
investigational treatments, by strategically aligning ourselves with other
innovative product solutions.
In the normal course of business, the Company will enter into select licensing
and collaborative agreements for the commercialization and/or development of
unique products primarily in the U.S. and Canada. These products are sometimes
investigational treatments in early stage development that target unique
conditions. The ultimate outcome, including whether the product will be: (i)
fully developed, (ii) approved by the FDA, (iii) covered by third-party payors
or (iv) profitable for distribution is highly uncertain. Under certain
agreements, the Company may be required to make payments contingent upon the
achievement of specific developmental, regulatory, or commercial milestones.
In October 2020, we announced that we had entered into two exclusive license
agreements which present us with unique developmental opportunities to address
the unmet need of treatment for myopia in children. The first of these two
licensing agreements is with Eyenovia, Inc. for the development and
commercialization in the United States and Canada of an investigational
microdose formulation of atropine ophthalmic solution, which is being
investigated for the reduction of pediatric myopia progression, also known as
nearsightedness, in children ages 3-12. We expect to complete enrollment for a
Phase 3 study during the second half of 2022. If approved by the FDA, we believe
this investigational product could potentially change the treatment paradigm for
the reduction of myopia progression in children. The second is an exclusive
global licensing agreement with BHVI for a myopia control contact lens design
developed by BHVI. The Company plans to pair BHVI's novel contact lens design
with our leading contact lens technologies to develop potential contact lens
treatments designed to slow the progression of myopia in children.
In December 2019, we announced that we had acquired an exclusive license from
Novaliq GmbH for the commercialization and development in the U.S. and Canada of
the investigational treatment NOV03 (perfluorohexyloctane), a first-in-class
investigational drug with a novel mechanism of action to treat DED associated
with MGD. In an Open Label Safety study, NOV03 has achieved its enrollment
target. In April 2021, we announced statistically significant topline data from
the first of two Phase 3 studies and anticipate the readout of topline results
from the second Phase 3 study during the second half of 2021 and anticipate
filing an NDA in 2022. If approved by the FDA, we believe the addition of this
investigational treatment for DED will help build upon our strong portfolio of
integrated eye-health products.
In October 2019, we acquired an exclusive license from Clearside Biomedical,
Inc. ("Clearside") for the commercialization and development of Xipere™
(triamcinolone acetonide suprachoroidal injectable suspension) in the U.S. and
Canada. Xipere™ is a proprietary suspension of the corticosteroid triamcinolone
acetonide formulated for suprachoroidal administration via Clearside's
proprietary SCS Microinjector™ that is being investigated as a targeted
treatment of macular edema associated with uveitis. In May 2021, Clearside
resubmitted the NDA for Xipere™ to the FDA.
In April 2019, we entered into two licensing agreements which present us with
unique developmental opportunities to address unmet needs of individuals
suffering with certain GI and liver diseases. The first of these two licensing
agreements is with the University of California for certain intellectual
property relating to an investigational compound targeting the pituitary
adenylate cyclase receptor 1 in non-alcoholic fatty liver disease ("NAFLD"),
nonalcoholic steatohepatitis ("NASH") and other GI and liver diseases. The
second is an exclusive licensing agreement with Mitsubishi Tanabe Pharma
Corporation to develop and commercialize MT-1303 (amiselimod), a late-stage oral
compound that targets the sphingosine 1-phosphate
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receptor that plays a role in autoimmune diseases, such as inflammatory bowel
disease and ulcerative colitis. We have completed a thorough QTC study, which
evaluated the cardiac safety profile of the compound. Topline results were
positive and we expect to initiate a Phase 2 study in the first half of 2021.
Strategic Investments in our Infrastructure
In support of our core businesses, we have and continue to make strategic
investments in our infrastructure, the most significant of which are at our
Waterford facility in Ireland, our Rochester facility in New York and our
Lynchburg facility in Virginia.
To meet the forecasted demand for our Biotrue® ONEday lenses, in July 2017, we
placed into service a $175 million multi-year strategic expansion project of the
Waterford facility. The emphasis of the expansion project was to: (i) develop
new technology to manufacture, automatically inspect and package contact lenses,
(ii) bring that technology to full validation and (iii) increase the size of the
Waterford facility.
To address the expected global demand for our Bausch + Lomb ULTRA® contact lens,
in December 2017, we completed a multi-year, $200 million strategic upgrade to
our Rochester facility. The upgrade increased production capacity in support of
our Bausch + Lomb Ultra® and SiHy Daily AQUALOX™ product lines and better
supports the production of other well-established contact lenses, such as our
PureVision®, PureVision®2 (SVS, Toric, and Multifocal), SofLens® 38 and
SilSoft®.
To address the expected global demand for our SiHy Daily disposable contact
lenses, in November 2018, we initiated $300 million of additional expansion
projects to add multiple production lines to our Rochester and Waterford
facilities. SiHy Daily disposable contact lenses were launched in the U.S. in
September 2020.
To further help us meet the anticipated demand of our contact lenses, in 2020,
we initiated an expansion of the Company's Lynchburg distribution center. The
new facility is expected to create new jobs over the next five years and expand
the overall site to 190,000 square feet, which will provide distribution
capabilities for medical devices, primarily contact lens products, and be the
main point of distribution for these products in the U.S.
We believe the investments in our Waterford, Rochester and Lynchburg facilities
and related expansion of labor forces further demonstrates the growth potential
we see in our Bausch + Lomb products and our eye-health business.
Effectively Managing Our Capital Structure
We continue to effectively manage our capital structure by: (i) reducing our
debt through repayments, (ii) extending the maturities of debt through
refinancing and (iii) improving our credit ratings.
Debt Repayments - Excluding the impact of the $1,210 million financing of the
U.S. Securities Litigation settlement discussed below, we have repaid (net of
additional borrowings) over $8,800 million of long-term debt during the period
January 1, 2016 through the date of this filing using the net cash proceeds from
divestitures of non-core assets, cash generated from operations and cash
generated from tighter working capital management. This includes approximately
$200 million of repayments during the three months ended March 31, 2021 with
cash on hand and cash generated from operations.
2020 Refinancing Transactions - In May and December 2020, we accessed the credit
markets and completed a series of transactions, whereby we extended $3,250
million in aggregate maturities of certain debt obligations due to mature in
2022 and 2023 out to 2029 through 2031 and $250 million in aggregate
amortization payments due in 2022 out to 2029. In addition to extending $3,500
million in payments due in 2022 and 2023 to 2029 through 2031, the refinancing
transactions replaced secured debt of $1,500 million with unsecured debt. This
provides us with more secured debt capacity under our Restated Credit Agreement
and existing indentures if the market for unsecured debt in the future is less
favorable. Further, by replacing $1,500 million of secured debt with unsecured
debt we now have additional room under the debt maintenance covenant of our 2023
Revolving Credit Facility that requires us to maintain a first lien net leverage
ratio of not greater than 4.00 to 1.00. The refinancing transactions also repaid
in full €1,500 million of debt denominated in euros, thereby reducing our
exposure to fluctuations in the value of the euro.
See Note 10, "FINANCING ARRANGEMENTS" to our unaudited interim Consolidated
Financial Statements for the details of our debt portfolio as of March 31, 2021
and December 31, 2020.
The debt repayments and refinancing transactions outlined above have allowed us
to: (i) improve our credit ratings, (ii) extend maturities of certain debt
obligations due in 2022 and 2023 out to the years 2029 through 2031, (iii)
satisfy all debt mandatory amortization payments and maturities until 2024 and
(iv) reduce our exposure to fluctuations in the value of the euro.
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Our prepayment of debt and refinancing transactions over the last four years
translate into lower repayments of principal over the next four years, which, in
turn, we believe will permit more cash flows to be directed toward developing
our core assets, identifying new product opportunities and repaying additional
debt amounts. The mandatory scheduled principal repayments of our debt
obligations as of March 31, 2021, were as follows:
(in millions)
      2021                2022           2023            2024             2025              2026             2027             2028             2029             2030             2031             Total
$      -                $   -          $   -          $ 2,091          $ 

10,632 $ 1,500 $ 2,250 $ 2,012 $ 3,250

$ 1,250 $ 1,000 $ 23,985

In addition, as a result of the changes in our debt portfolio, approximately 80%
of our debt is fixed rate debt as of March 31, 2021, as compared to
approximately 60% as of January 1, 2016. The weighted average stated interest
rate of the Company's outstanding debt as of March 31, 2021 was 6.00% as
compared to 6.02% as of December 31, 2020.
We continue to monitor our capital structure and to evaluate other opportunities
to simplify our business and improve our capital structure, giving us the
ability to better focus on our core businesses. While we anticipate focusing any
future divestiture activities on non-core assets, consistent with our duties to
our shareholders and other stakeholders, we will consider dispositions in core
areas that we believe represent attractive opportunities for the Company. Also,
the Company regularly evaluates market conditions, its liquidity profile and
various financing alternatives for opportunities to enhance its capital
structure. If the Company determines that conditions are favorable, the Company
may refinance or repurchase existing debt or issue additional debt, equity or
equity-linked securities.
See Note 10, "FINANCING ARRANGEMENTS" to our unaudited interim Consolidated
Financial Statements and "Management's Discussion and Analysis - Liquidity and
Capital Resources: Long-term Debt" for additional discussion of these matters.
Cash requirements for future debt repayments including interest can be found in
"Management's Discussion and Analysis - Off-Balance Sheet Arrangements and
Contractual Obligations."
Improve Patient Access
Improving patient access to our products, as well as making them more
affordable, is a key element of our business strategy.
Patient Access and Pricing Committee - In 2016, we formed the Patient Access and
Pricing Committee which is responsible for setting, changing and monitoring the
pricing of our products and evaluating contract arrangements that determine the
placement of our products on drug formularies. The Patient Access and Pricing
Committee considers new to market product pricing, price changes and their
impact across channels on patient accessibility and affordability. The Patient
Access and Pricing Committee remains committed to limiting the average annual
price increase for our branded prescription pharmaceutical products to no
greater than single digits and has reaffirmed this commitment for 2021. These
pricing changes and programs could affect the average realized pricing for our
products and may have a significant impact on our company revenue and profit.
Bausch Health Assistance Program - We are committed to supporting patients who
have lost employment health benefits due to the COVID-19 pandemic, and because
it is important to continue prescribed treatments, we are proud to offer certain
of our prescription medicines through our Bausch Health Assistance Program. In
the face of the COVID-19 pandemic, some people have financial obstacles that
keep them from obtaining and continuing their prescribed treatments. The purpose
of the Bausch Health Assistance Program is to provide eligible unemployed
patients in the U.S., who have lost their health insurance due to the COVID-19
pandemic, with certain of our prescription products where their financial
circumstances or insurance status would otherwise interfere with their ability
to access such product. If approved, patients receive their Bausch Health
Companies Inc. prescription product(s) at no cost to them for up to one year,
and may be able to reapply to the program annually if they continue to meet
eligibility requirements and have a valid prescription.
Cash-pay Prescription Program - In February 2019, we launched Dermatology.com, a
cash-pay product acquisition program offering certain branded Ortho
Dermatologics products directly to patients. In March 2020, the name
Dermatology.com was removed as the cash-pay product program name, with the name
Dermatology.com limited to only online usage, including future digital
teledermatology and e-commerce offerings. The cash-pay program is designed to
address the affordability and availability of certain branded dermatology
products, when insurers and pharmacy benefit managers are no longer offering
those branded prescription pharmaceutical products under their designated
pharmacy benefit offerings.
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Walgreens Fulfillment Arrangements - In the beginning of 2016, we launched a
brand fulfillment arrangement with Walgreen Co. ("Walgreens"). Under the terms
of the brand fulfillment arrangement, as amended in July 2019, we made certain
dermatology and ophthalmology products available to eligible patients through
patient access and co-pay assistance programs at Walgreens U.S. retail pharmacy
locations, as well as participating independent retail pharmacies. Our products
available under this fulfillment agreement include certain Ortho Dermatologics
products, including our Duobrii®, Bryhali®, Arazlo®, Jublia®, Luzu®, Retin-A
Micro® Gel and Onexton® and select branded prescription pharmaceutical products
included in our cash-pay prescription program, and certain ophthalmology
products, including our Vyzulta®, Besivance®, Lotemax®, Alrex®, Prolensa®,
Bepreve® and Zylet® products.
Invest in Sustainable Growth Drivers to Position us for Long-Term Growth
We are constantly challenged by the changing dynamics of our industry to
innovate and bring new products to market. We have divested certain businesses
where we saw limited growth opportunities, so that we can be more aggressive in
redirecting our R&D spend and other corporate investments to innovate within our
core businesses where we believe we can be most profitable and where we aim to
be an industry leader.
We believe that we have a well-established product portfolio that is diversified
within our core businesses and provides a sustainable revenue stream to fund our
operations. However, our future success is also dependent upon our ability to
continually refresh our pipeline, to provide a rotation of product launches that
meet new and changing demands and replace other products that have lost
momentum. We believe we have a robust pipeline that not only provides for the
next generation of our existing products, but is also poised to bring new
products to market.
Invest in our Eye-Health Business - As part of our global Bausch + Lomb business
strategy, we continually look for key trends in the eye-health market to meet
changing consumer/patient needs and identify areas for investment to extend our
market share through new launches and effective pricing.
For instance, there is an increasing rate of myopia, and importantly, myopia as
a potential risk factor for glaucoma, macular degeneration and retinal
detachment. We continue to see increased demand for new eye-health products that
address conditions brought on by factors such as increased screen time, lack of
outdoor activities and academic pressures, as well as conditions brought on by
an aging population (for example, as more and more baby-boomers in the U.S. are
reaching the age of 65). To extend our market share in eye-health, we
continually seek to identify new products tailored to address these key trends
for development internally with our own R&D team to generate organic growth.
Recent product launches include Biotrue® ONEday daily disposable contact lenses,
the next generation of Bausch + Lomb ULTRA® contact lenses, SiHy Daily contact
lenses (branded as AQUALOX™ ONE DAY in Japan, Bausch + Lomb INFUSE™ SiHy Daily
Disposable in the U.S. and Bausch + Lomb Ultra® ONE DAY in Australia, Hong Kong
and Canada), Lumify® (an eye redness treatment), Vyzulta® (a pressure lowering
eye drop for patients with angle glaucoma or ocular hypertension), Ocuvite® Eye
Performance (vitamins to protect the eye from stressors such as sunlight and
blue light emitted from digital devices) and SimplifEYE™ (preloaded intraocular
lens injector platform for enVista interocular lens).
We also license selective molecules or technology in leveraging our own R&D
expertise through development, as well as seek out external product development
opportunities. As previously discussed, we acquired a global exclusive license
for a myopia control contact lens design developed by BHVI, which we plan to
pair with our leading contact lens technologies to develop potential contact
lens treatments designed to slow the progression of myopia in children, and
exclusive licenses for the commercialization and development in the U.S. and
Canada of: a microdose formulation of atropine ophthalmic solution, which is
being investigated for the reduction of pediatric myopia progression in children
ages 3-12; Xipere™ which, if approved by the FDA, will be the first treatment
for patients suffering from macular edema associated with uveitis; and NOV03, an
investigational drug with a novel mechanism of action to treat DED associated
with MGD. We also acquired the U.S. rights to EM-100, which was launched as
Alaway® Preservative-Free and is the first OTC preservative-free formulation eye
drop for the temporary relief of itchy eyes due to pollen, ragweed, grass,
animal hair, and dander in adults and children 3 years of age and older.
Recently, we entered into an agreement which provides the Company an option to
acquire all ophthalmology assets of Allegro, including risuteganib (Luminate®),
an investigational compound in retina, which is believed to simultaneously act
on the angiogenic, inflammatory and mitochondrial metabolic pathways implicated
in diseases such as intermediate dry AMD. A U.S. Phase 2a study with risuteganib
in intermediate dry AMD met its primary endpoint of vision recovery and Phase 3
testing is in the planning stages. We believe investments in these
investigational treatments, if approved by the FDA, will complement, and help
build upon, our strong portfolio of integrated eye-health products.
As previously discussed, we have also made strategic investments in our
infrastructure, the most significant of which are at our Waterford facility in
Ireland to meet the forecasted demand for our Biotrue® ONEday lenses, our
Rochester facility in New York to address the expected global demand for our
Bausch + Lomb ULTRA® contact lens and our Lynchburg facility in Virginia to be
our main point of distribution for medical devices in the U.S. During late 2018,
we began investing in additional expansion projects at the Waterford and
Rochester facilities in order to address the expected global demand for
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our SiHy Daily disposable contact lenses, which we launched in the U.S. in
August 2020, under the branded name Bausch + Lomb INFUSE™ SiHy Daily Disposable
contact lens.
We believe our recent product launches, licensing arrangements and the
investments in our Waterford, Rochester and Lynchburg facilities demonstrate the
growth potential we see in our Bausch + Lomb products and our eye-health
business and that these investments will position us to further extend our
market share in the eye-health market.
Leveraging our Salix Infrastructure - We strongly believe in our GI product
portfolio and we have implemented initiatives, including increasing our
marketing presence and identifying additional opportunities outside our existing
GI portfolio, to further capitalize on the value of the infrastructure we built
around these products to extend our market share.
In the first quarter of 2017, we hired approximately 250 trained and experienced
sales force representatives and managers to create, bolster and sustain deep
relationships with primary care physicians ("PCP"). With approximately 70% of
IBS-D patients initially presenting symptoms to a PCP, we continue to believe
that the dedicated PCP sales force is better positioned to reach more patients
in need of IBS-D treatment.
This initiative provided us with positive results, as we experienced consistent
growth in demand for our GI products throughout 2017 through 2020, which was
evident by our growth in Salix revenues of 22% when comparing 2020 to 2017.
These results encouraged us to seek out ways to bring out further value through
leveraging our existing sales force and, in the later portion of 2018 and in
2019, we identified and executed on certain opportunities which we describe
below.
Strategic Acquisition - As previously discussed, in March 2019, we completed the
acquisition of certain assets of Synergy, whereby we acquired the worldwide
rights to the Trulance® product, a once-daily tablet for adults with chronic
idiopathic constipation, or CIC and irritable bowel syndrome with constipation,
or IBS-C. We believe that the Trulance® product complements our existing Salix
products and allows us to effectively leverage our existing GI sales force.
Licensing Arrangements - As previously discussed, in April 2019, we entered into
two licensing agreements. The first is for certain intellectual property
relating to an investigational compound targeting the pituitary adenylate
cyclase receptor 1 in NAFLD, NASH and other GI and liver diseases. The second is
to develop and commercialize MT-1303 (amiselimod), a late-stage oral compound
that targets the sphingosine 1-phosphate receptor that plays a role in
autoimmune diseases, such as inflammatory bowel disease and ulcerative colitis.
These licenses present unique developmental opportunities to address unmet needs
of individuals suffering with certain GI and liver diseases and if developed and
approved by the FDA, will allow us to further utilize our existing sales force
and infrastructure to extend our market share in the future and create value.
Investment in Next Generation Formulations - Revenues from our Xifaxan® product
increased approximately 2%, 22% and 22% in 2020, 2019 and 2018, respectively. In
order to extend growth in Xifaxan®, we continue to directly invest in next
generation formulations of Xifaxan® and rifaximin, the principal semi-synthetic
antibiotic used in our Xifaxan® product. In addition to one R&D program in
progress, we have three other R&D programs planned for next generation
formulations of Xifaxan® (rifaximin) which address new indications.
We believe that the acquisition and licensing opportunities discussed above will
be accretive to our business by providing us access to products and
investigational compounds that are a natural pairing to our Xifaxan® business,
allowing us to effectively leverage our existing infrastructure and sales force.
We believe these opportunities, coupled with our investment in next generation
formulations, will allow our GI franchise to continue to further extend market
share.
Reposition the Ortho Dermatologics Business to Generate Additional Value - In
2018, we realigned our Solta aesthetics business and combined it with our
medical dermatology business, creating a complete dermatology portfolio. We
continue to make investments in our Solta portfolio and anticipate building out
our Solta sales force, particularly in Europe, to address the growing demand.
Our Ortho Dermatologics business continues to work towards improving the
treatment options for medical dermatology patients needing topical acne and
psoriasis products. We are exploring additional strategic e-commerce and
partnership expansion opportunities which can enable increased accessibility for
patients and we continue to invest in our on-market products and evaluate
various opportunities for our key pipeline products.
In support of the complete dermatology portfolio, we have taken and are taking a
number of actions that we believe will help our efforts to stabilize our
dermatology business. These actions include: (i) building on our legacy brands
to improve and meet today's physician relevance and customer service, (ii)
appointing new leadership, (iii) making key investments in our core medical
device and dermatological products portfolios, (iv) optimizing our go to market
strategy by building on our relationships with prescribers of our products to
balance our sales portfolio with the business' profitability, (v) refocusing our
operational and promotional resources and (vi) improving patient access to our
Ortho Dermatologics products through our cash-pay prescription program
previously discussed.
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During the three months ended March 31, 2021, it became apparent that recent
Ortho Dermatologics product launches were not going to achieve their forecasted
trajectories that were expected once the offices of health care professionals
could reopen as social restrictions associated with the COVID-19 pandemic began
to ease in the U.S. In addition, insurance coverage pressures within the U.S.
continued to persist limiting patient access to topical acne and psoriasis
products. In light of these developments, during the first quarter of 2021 the
Company began taking steps to: (i) redirect its R&D spend to eliminate projects
it has identified as high cost and high risk, (ii) redirect a portion of its
marketing and product development outside the U.S. to geographies where there is
better patient access and (iii) reduce its cost structure to be more
competitive.
Investment in Our Core Dermatology Portfolio - We have made significant
investments to build out our aesthetics, psoriasis and acne product portfolios,
which are the markets within dermatology where we see the greatest opportunities
to extend our market share.
Aesthetics - In 2017, we launched our Next Generation Thermage FLX® product in
the U.S., a fourth-generation non-invasive treatment option using a
radiofrequency platform designed to optimize key functional characteristics and
improve patient outcomes. During 2018 and 2019, Next Generation Thermage FLX®
was launched in Hong Kong, Japan, Korea, Taiwan, Philippines, Singapore,
Indonesia, Malaysia, China, Thailand, Vietnam, and Australia as part of our
Solta medical aesthetic devices portfolio. These launches have been successful
as Next Generation Thermage FLX® revenues were $39 million, $26 million,
$142 million and $77 million for the three months ended March 31, 2021 and 2020
and the years 2020 and 2019, respectively. We expect additional launches of Next
Generation Thermage FLX® in Europe in the near term, paced by country-specific
regulatory registrations.
Psoriasis - In response to the increasing number of reported cases of psoriasis
in the U.S., we launched Duobrii® in June 2019 and launched Bryhali® in November
2018, which align well with our topical portfolio of psoriasis treatments.
Although, we continue to support a diverse portfolio of topical and injectable
biologics, in order to provide a diverse choice of psoriasis treatments to
doctors and patients; we believe some patients prefer topical products as an
alternative to injectable biologics.
Acne - In support of our established acne product portfolio, we have developed
and launched several products, which includes Arazlo® (tazarotene) Lotion
(launched in June 2020), Altreno® (launched in the U.S. in October 2018), the
first lotion (rather than a gel or cream) product containing tretinoin for the
treatment of acne, and Retin-A Micro® 0.06% (launched in January 2018). We also
have a unique acne project in our pipeline that, if approved by the FDA, we
believe will further innovate and advance the treatment of acne.
Business Trends
In addition to the actions previously outlined, the events described below have
affected and may affect our business trends. The matters discussed in this
section contain Forward-Looking Statements. Please see "Forward-Looking
Statements" for additional information.
U.S. Tax Reform
On April 7, 2021, U.S. President Joseph Biden proposed changes to the U.S. tax
system. The Proposals under discussion include changes to the U.S. corporate tax
system that would increase U.S. corporate tax rates, impose a corporate minimum
book tax and double the tax rate on and make other tax changes to Global
Intangible Low Tax Income earned by foreign subsidiaries. While it is expected
that a tax reform bill will be introduced in the House of Representatives in the
near term, many aspects of the current proposals are unclear or undeveloped. We
are unable to predict which, if any, U.S. tax reform proposals will be enacted
into law, and what effects any enacted legislation might have on our liability
for U.S. corporate tax. However, it is possible that the enactment of changes in
the U.S. corporate tax system could have a material adverse effect on our
liability for U.S. corporate tax and our consolidated effective tax rate.
Health Care Reform
The U.S. federal and state governments continue to propose and pass legislation
designed to regulate the health care industry. In March 2010, the Patient
Protection and Affordable Care Act (the "ACA") was enacted in the U.S. The ACA
contains several provisions that impact our business, including: (i) an increase
in the minimum Medicaid rebate to states participating in the Medicaid program,
(ii) the extension of the Medicaid rebates to Managed Care Organizations that
dispense drugs to Medicaid beneficiaries, (iii) the expansion of the 340(B)
Public Health Services drug pricing program, which provides outpatient drugs at
reduced rates, to include additional hospitals, clinics and health care centers
and (iv) a fee payable to the federal government based on our
prior-calendar-year share relative to other companies of branded prescription
drug sales to specified government programs.
In addition, in 2013, federal subsidies began to be phased in for brand-name
prescription drugs filled in the Medicare Part D coverage gap. The ACA also
included provisions designed to increase the number of Americans covered by
health
                                       54
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insurance. In 2014, the ACA's private health insurance exchanges began to
operate. The ACA also allows states to expand Medicaid coverage with most of the
expansion's cost paid for by the federal government.
For 2020 and 2019, we incurred costs of $21 million and $20 million,
respectively, related to the annual fee assessed on prescription drug
manufacturers and importers that sell branded prescription drugs to specified
U.S. government programs (e.g., Medicare and Medicaid). For 2020 and 2019, we
also incurred costs of $131 million and $137 million, respectively, on Medicare
Part D utilization incurred by beneficiaries whose prescription drug costs cause
them to be subject to the Medicare Part D coverage gap (i.e., the "donut hole").
The financial impact of the ACA will be affected by certain additional
developments over the next few years, including pending implementation guidance
and certain health care reform proposals. Additionally, policy efforts designed
specifically to reduce patient out-of-pocket costs for medicines could result in
new mandatory rebates and discounts or other pricing restrictions. Also, it is
possible, as discussed further below, that legislation will be passed by
Congress repealing the ACA in whole or in part. Adoption of legislation at the
federal or state level could materially affect demand for, or pricing of, our
products.
In 2018, we faced uncertainties due to federal legislative and administrative
efforts to repeal, substantially modify or invalidate some or all of the
provisions of the ACA. However, we believe there is low likelihood of repeal of
the ACA, given the recent failure of the Senate's multiple attempts to repeal
various combinations of ACA provisions and the recent change in administration.
There is no assurance that any replacement or administrative modifications of
the ACA will not adversely affect our business and financial results,
particularly if the replacing legislation reduces incentives for
employer-sponsored insurance coverage, and we cannot predict how future federal
or state legislative or administrative changes relating to the reform will
affect our business.
In 2019, the U.S. Health and Human Services Administration announced a
preliminary plan to allow for the importation of certain lower-cost drugs from
Canada. The preliminary plan excludes insulin, biological drugs, controlled
substances and intravenous drugs. The preliminary plan relies on individual
states to develop proposals for safe importation of those drugs from Canada and
submit those proposals to the federal government for approval. Although the
preliminary plan has some support from the prior administration, at this time,
studies to evaluate the related costs and benefits, evaluate the reasonableness
of the logistics, and measure the public reaction of such a plan have not been
performed. While we do not believe this will have a significant impact on our
future cash flows, we cannot provide assurance as to the ultimate context,
timing, effect or impact of such a plan.
In 2019, the Government of Canada (Health Canada) published in the Canadian
Gazette the new pricing regulation for patented drugs. These regulations will
become effective on July 1, 2021. The new regulations will change the mechanics
of establishing the pricing for products submitted for approval after August 21,
2019; they will also require full transparency of discounts agreed with
provincial bodies; and finally, will change the number and composition of
reference countries used to determine if a drug's price is excessive. While we
do not believe this will have a significant impact on our future cash flows, as
additional facts materialize, we cannot provide assurance as to the ultimate
content, timing, effect or impact of such regulations.
In July 2020, former U.S. President Donald Trump signed four Executive Orders
related to drug pricing, including orders addressing: (i) Part D rebate reform,
(ii) the provision of deeply discounted insulin and/or an EpiPen to patients of
Federally Qualified Health Centers, (iii) drug importation from Canada and (iv)
most favored nation pricing for Medicare. In November 2020, former U.S.
President Donald Trump announced the Most Favored Nation Model for Medicare Part
B Payment which was to be implemented by the Centers for Medicare & Medicaid
Services Innovation Center on January 1, 2021; however, it has not been
implemented, as it is currently being challenged in court. It is also uncertain
whether the Biden administration intends to reverse these measures or adopt
similar policy initiatives. However, U.S. President Joseph Biden and several
members of the current U.S. Congress have indicated that lowering drug prices is
a legislative and political priority, and some have introduced proposals that
seek to address drug pricing. We are currently reviewing those Executive Orders
and the Most Favored Nation Model, the impact of which is uncertain at this
time.
In addition, as part of a series of drug pricing-related rules issued by the
Trump Administration, in December 2020, the Center for Medicare & Medicaid
Services issued a Final Rule that makes significant modifications to the
Medicaid Drug Rebate Program regulations in several areas, including with
respect to the definition of key terms "line extension" and "new formulation"
and best price (BP) reporting relating to certain value-based purchasing (VBP)
arrangements (which take effect on January 1, 2022) and the price reporting
treatment of manufacturer-sponsored patient benefit programs (which take effect
on January 1, 2023). We are currently reviewing the Final Rule, the impact of
which is uncertain at this time.
Other legislative efforts relating to drug pricing have been enacted and others
have been proposed at the U.S. federal and state levels. For instance, certain
states have enacted legislation related to prescription drug pricing
transparency. Several states have passed importation legislation and Florida is
working with the U.S. government to implement an importation
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program from Canada. We also anticipate that Congress, state legislatures and
third-party payors may continue to review and assess alternative health care
delivery and payment systems and may in the future propose and adopt legislation
or policy changes or implementations affecting additional fundamental changes in
the health care delivery system. We continually review newly enacted and
proposed U.S. federal and state legislation, as well as proposed rulemaking and
guidance published by the Department of Health and Human Services and the FDA;
however, at this time, it is unclear the effect these matters may have on our
businesses.
Generic Competition and Loss of Exclusivity
Certain of our products face the expiration of their patent or regulatory
exclusivity in 2021 or in later years, following which we anticipate generic
competition of these products. In addition, in certain cases, as a result of
negotiated settlements of some of our patent infringement proceedings against
generic competitors, we have granted licenses to such generic companies, which
will permit them to enter the market with their generic products prior to the
expiration of our applicable patent or regulatory exclusivity. Finally, for
certain of our products that lost patent or regulatory exclusivity in prior
years, we anticipate that generic competitors may launch in 2021 or in later
years. Following a loss of exclusivity ("LOE") of and/or generic competition for
a product, we would anticipate that product sales for such product would
decrease significantly shortly following the LOE or entry of a generic
competitor. Where we have the rights, we may elect to launch an authorized
generic of such product (either ourselves or through a third-party) prior to,
upon or following generic entry, which may mitigate the anticipated decrease in
product sales; however, even with launch of an authorized generic, the decline
in product sales of such product would still be expected to be significant, and
the effect on our future revenues could be material.
A number of our products already face generic competition. Prior to and during
2021, in the U.S., these products include, among others, Ammonul®, Apriso®,
Benzaclin®, Bupap®, Cuprimine®, Demser®, Edecrin®, Elidel®, Glumetza®, Istalol®,
Isuprel®, Locoid® Lotion, Lotemax® Gel, Lotemax® Suspension, Mephyton®,
Migranal®, MoviPrep®, Nitropress®, Solodyn®, Syprine®, Timoptic® in Ocudose®,
Uceris® Tablet, Virazole®, Wellbutrin XL®, Xenazine®, Zegerid® and Zovirax®
cream. In Canada, these products include, among others, Glumetza®,
Wellbutrin® XL and Zovirax® ointment.
2020 LOE Branded Products - Branded products that began facing generic
competition in the U.S. during 2020 include, Migranal®, MoviPrep® and certain
other products. In aggregate, these products accounted for less than 1% of our
total revenues in 2020. While certain of these products have already begun
experiencing an adverse impact on volume and/or pricing as a result of the entry
into the market of generic competition, we are unable to predict the complete
magnitude or timing of this impact.
2021 LOE Branded Products - Branded products that began facing generic
competition in the U.S. during 2021 included Lotemax® Gel. This product
accounted for less than 1% of our total revenues in 2020. We believe the entry
into the market of generic competition generally would have an adverse impact on
the volume and/or pricing of the affected products, however we are unable to
predict the magnitude or timing of this impact.
2021 through 2025 LOE Branded Products - Based on current patent expiration
dates, settlement agreements and/or competitive information, we have identified
branded products that we believe could begin facing potential LOE and/or generic
competition in the U.S. during the years 2021 through 2025. These products and
year of expected LOE include, but are not limited to, Clindagel® (2021),
Noritate® (2021), Targretin® Gel (2022), Xerese® (2022) and certain other
products that are subject to settlement agreements which could impact their
exclusivity during the years 2021 through 2025. In aggregate, these products
accounted for 2% of our total revenues in 2020. These dates may change based on,
among other things, successful challenge to our patents, settlement of existing
or future patent litigation and at-risk generic launches. We believe the entry
into the market of generic competition generally would have an adverse impact on
the volume and/or pricing of the affected products, however we are unable to
predict the magnitude or timing of this impact.
2021 OTC Product Patent Expiry - PreserVision® AREDS and PreserVision® AREDS 2
are OTC eye vitamin formulas for those with moderate-to-advanced age-related
macular degeneration. PreserVision® products accounted for 3% of our total
revenues in 2020. The PreserVision® U.S. formulation patent expired in March
2021, but a patent covering methods of using the formulation remains in force
until 2026. While the Company cannot predict the magnitude or timing of the
impact from its patent expiry, this is an OTC product and thus, the impact is
not expected to be as significant as the LOE of a branded pharmaceutical
product.
In addition, for a number of our products (including Plenvu®, Xifaxan® 550mg,
Bryhali®, Duobrii®, Trulance® and Jublia® in the U.S.), we have commenced (or
anticipate commencing) and have (or may have) ongoing infringement proceedings
against potential generic competitors in the U.S. and Canada. If we are not
successful in these proceedings, we may face increased generic competition for
these products.
Bryhali® Lotion, 0.01% (Glenmark) - In December 2019, the Company announced that
it had reached an agreement to
resolve the outstanding intellectual property litigation with Glenmark Pharmaceuticals, Ltd.
("Glenmark"). Under the terms of the agreement, the Company will grant Glenmark
a non-exclusive license to its intellectual property relating to Bryhali® in
                                       56
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the U.S. and, beginning in 2026 (or earlier under certain circumstances),
Glenmark will have the option to market a royalty-free generic version of
Bryhali® Lotion, should it receive approval from the FDA. The parties have
agreed to dismiss all litigation related to Bryhali® Lotion, and all
intellectual property protecting Bryhali® Lotion remains intact.
Bryhali® Lotion, 0.01% (Perrigo) - On March 20, 2020, the Company received a
Notice of Paragraph IV Certification from Perrigo Israel Pharmaceuticals, Ltd.
("Perrigo"), in which Perrigo asserted that certain U.S. patents, each of which
is listed in the FDA's Orange Book for Bryhali® (halobetasol propionate) lotion,
0.01% are either invalid, unenforceable and/or will not be infringed by the
commercial manufacture, use or sale of Perrigo's generic halobetasol propionate
lotion, for which an Abbreviated New Drug Application ("ANDA") has been filed by
Perrigo.  On May 1, 2020, the Company filed suit against Perrigo pursuant to the
Hatch-Waxman Act, alleging infringement by Perrigo of one or more claims of the
Bryhali® Patents, thereby triggering a 30-month stay of the approval of the
Perrigo ANDA for halobetasol propionate lotion. On September 3, 2020, this
action was consolidated with the action between the Company and Perrigo
described below, regarding Perrigo's ANDA for generic Duobrii® (halobetasol
propionate and tazarotine) lotion. The Company remains confident in the strength
of the Bryhali® patents and intends to vigorously pursue this matter and defend
its intellectual property.
Duobrii® Lotion (Perrigo) - On July 23, 2020, the Company received a Notice of
Paragraph IV Certification from Perrigo, in which Perrigo asserted that certain
U.S. patents, each of which is listed in the FDA's Orange Book for Duobrii®
(halobetasol propionate and tazarotine) lotion, are either invalid,
unenforceable and/or will not be infringed by the commercial manufacture, use or
sale of Perrigo's generic lotion, for which an ANDA has been filed by Perrigo.
On August 28, 2020, the Company filed suit against Perrigo pursuant to the
Hatch-Waxman Act, alleging infringement by Perrigo of one or more claims of the
Duobrii® Patents, thereby triggering a 30-month stay of the approval of the
Perrigo ANDA. On September 3, 2020, this action was consolidated with the action
between the Company and Perrigo described above, regarding Perrigo's ANDA for
generic Bryhali® (halobetasol propionate) lotion. We remain confident in the
strength of the Duobrii® patents and will vigorously defend our intellectual
property.
Xifaxan® 550mg Patent Litigation (Actavis) - On March 23, 2016, the Company
initiated litigation against Actavis Laboratories FL, Inc.'s ("Actavis"), which
alleged infringement by Actavis of one or more claims of each of the Xifaxan®
patents. On September 12, 2018, we announced that we had reached an agreement
with Actavis that resolved the existing litigation and eliminated the pending
challenges to our intellectual property protecting Xifaxan® (rifaximin) 550 mg
tablets. As part of the agreement, the parties agreed to dismiss all litigation
related to Xifaxan® (rifaximin), Actavis acknowledged the validity of the
licensed patents for Xifaxan® (rifaximin) 550 mg tablets and all intellectual
property protecting Xifaxan® (rifaximin) 550 mg tablets will remain intact and
enforceable until expiry in 2029. The agreement also grants Actavis a
non-exclusive license to the intellectual property relating to Xifaxan®
(rifaximin) 550 mg tablets in the United States beginning January 1, 2028 (or
earlier under certain circumstances). The Company will not make any financial
payments or other transfers of value as part of the agreement. In addition,
under the terms of the agreement, beginning January 1, 2028 (or earlier under
certain circumstances), Actavis will have the option to: (1) market a
royalty-free generic version of Xifaxan® tablets, 550 mg, should it receive
approval from the FDA on its ANDA, or (2) market an authorized generic version
of Xifaxan® tablets, 550 mg, in which case, we will receive a share of the
economics from Actavis on its sales of such an authorized generic. Actavis will
be able to commence such marketing earlier if another generic rifaximin product
is granted approval and such other generic rifaximin product begins to be sold
or distributed before January 1, 2028.
Xifaxan® 550mg Patent Litigation (Sandoz) - In October 2019, the Company
announced that it and its licensor, Alfasigma had commenced litigation against
Sandoz Inc. ("Sandoz"), a Novartis division, alleging patent infringement of 14
patents by Sandoz's filing of its ANDA for Xifaxan® (rifaximin) 550 mg tablets.
On May 6, 2020, the Company announced that an agreement had been reached with
Sandoz that resolved this litigation. Under the terms of the agreement, the
parties agreed to dismiss all litigation related to Xifaxan® (rifaximin), Sandoz
acknowledged the validity of the licensed patents for Xifaxan® (rifaximin) 550
mg tablets and all intellectual property protecting Xifaxan® (rifaximin) 550 mg
tablets will remain intact and enforceable until expiry in October 2029. The
agreement also grants Sandoz a non-exclusive license to the intellectual
property relating to Xifaxan® (rifaximin) 550 mg tablets in the United States
beginning January 1, 2028 (or earlier under certain circumstances). Under the
terms of the agreement, beginning January 1, 2028 (or earlier under certain
circumstances), Sandoz will have the right to market a royalty-free generic
version of Xifaxan® (rifaximin) 550 mg tablets, should it receive approval from
the FDA on its ANDA. Sandoz will be able to commence such marketing earlier if
another generic rifaximin product is granted approval and such other generic
rifaximin product begins to be sold or distributed in the U.S. before January 1,
2028. The Company did not make any financial payments or other transfers of
value as part of this agreement with Sandoz.
Xifaxan® 550mg Patent Litigation (Norwich) - On March 26, 2020, the Company and
its licensor Alfasigma filed suit against Norwich Pharmaceuticals Inc.
("Norwich"), alleging infringement by Norwich of one or more claims of the 23
Xifaxan® patents by Norwich's filing of its ANDA for Xifaxan® (rifaximin) 550 mg
tablets. On November 13, 2020, an additional three patents alleged to be
infringed by Norwich were added to the suit. Xifaxan® 550mg is protected by 26
patents covering the composition of matter and the use of Xifaxan® listed in the
FDA's Approved Drug Products with
                                       57
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Therapeutic Equivalence Evaluations, or the Orange Book. The Company remains
confident in the strength of the Xifaxan® patents and will continue to
vigorously pursue this matter and defend its intellectual property.
Xifaxan® 200mg and 550mg Patent Litigation (Sun) - In April 2019, the Company
and its licensor, Alfasigma, commenced litigation against Sun Pharmaceutical
Industries Ltd. ("Sun"), alleging patent infringement by Sun's filing of its
ANDA for Xifaxan® (rifaximin) 200 mg tablets. This suit had been filed following
receipt of a Notice of Paragraph IV Certification from Sun, in which Sun
asserted that the U.S. patents listed in the FDA's Orange Book for the Company's
Xifaxan® tablets, 200 mg, were either invalid, unenforceable and/or would not be
infringed by the commercial manufacture, use or sale of Sun's generic rifaximin
tablets, 200 mg. Subsequently, on August 10, 2020, the Company received an
additional Notice of Paragraph IV Certification from Sun, in which Sun asserted
that the U.S. patents listed in the FDA's Orange Book for the Company's Xifaxan®
tablets, 550 mg, were either invalid, unenforceable and/or would not be
infringed by the commercial manufacture, use or sale of Sun's generic rifaximin
tablets, 550 mg, for which an ANDA had been filed by Sun. On September 22, 2020,
the Company announced that an agreement had been reached with Sun that resolved
the outstanding intellectual property disputes with Sun regarding Xifaxan®
(rifaximin) 200 mg and 550 mg tablets. Under the terms of the agreement, the
parties agreed to dismiss all litigation related to Xifaxan® (rifaximin) and all
intellectual property protecting Xifaxan® (rifaximin) 200 mg and 550 mg tablets
will remain intact and enforceable until expiry in July and October 2029,
respectively. The agreement also grants Sun a non-exclusive license to the
intellectual property relating to Xifaxan® (rifaximin) 200 mg and 550 mg tablets
in the U.S. beginning January 1, 2028 (or earlier under certain circumstances).
Under the terms of the agreement, beginning January 1, 2028 (or earlier under
certain circumstances), Sun will have the right to market royalty-free generic
versions of Xifaxan® (rifaximin) 200 mg and 550 mg tablets, should it receive
approval from the FDA on its ANDAs. Sun will be able to commence such marketing
earlier if another generic rifaximin product is granted approval and such other
generic rifaximin product begins to be sold or distributed in the U.S. before
January 1, 2028.
Relistor® Tablets Patent Litigation (Actavis) - On December 6, 2016, the Company
initiated litigation against Actavis, which alleged infringement by Actavis of
one or more claims of U.S. Patent No. 8,524,276 (the "'276 Patent"), which
protects the formulation of RELISTOR® tablets. Actavis had challenged the
validity of such patent and alleged non-infringement by its generic version of
such product. In July 2019, we announced that the U.S. District Court of New
Jersey had upheld the validity of and determined that Actavis infringed the '276
Patent, expiring in March 2031. Actavis appealed this decision to the U.S. Court
of Appeals for the Federal Circuit. In March 2021, the Company and Actavis
reached a settlement agreement and the appeal was dismissed.
Trulance® 3mg Tablets Patent Litigation (MSN and Mylan) - In March 2021, the
Company received Notices of Paragraph IV Certification from MSN Laboratories
Private Ltd. ("MSN") and Mylan Pharmaceuticals Inc., ("Mylan") in which MSN and
Mylan asserted that certain U.S. patents, each of which is listed in the FDA's
Orange Book for Trulance® (plecanatide) 3mg tablets, are either invalid,
unenforceable and/or will not be infringed by the commercial manufacture, use or
sale of their generic plecanatide tablets, for which each of MSN and Mylan had
filed an ANDA. In April 2021, the Company filed suit against MSN and Mylan,
alleging infringement of one or more claims of the patents listed for Trulance®
in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations, or
the Orange Book. The Company remains confident in the strength of the Trulance®
patents and will continue to vigorously pursue this matter and defend its
intellectual property.
Generic Competition to Uceris® - In July 2018, a generic competitor launched a
product which will directly compete with our Uceris® Tablet product. As
disclosed in our prior filings, the Company initiated various infringement
proceedings against this generic competitor. The Court construed the claims of
the asserted patents on August 2, 2019 and, on October 24, 2019, the Company
agreed to a judgment that the asserted patents did not cover the generic tablets
under the Court's claim construction, while reserving its right to appeal the
claim construction. On November 22, 2019, the Company filed a Notice of Appeal
with respect to the claim construction in the Court of Appeals for the Federal
Circuit. On December 18, 2020, the Court of Appeals for the Federal Circuit
affirmed the District Court's claim construction. The ultimate impact of this
generic competitor on our future revenues cannot be predicted; however, Uceris®
Tablet revenues for the three months ended March 31, 2021 and 2020 were
approximately $2 million and $3 million, respectively, and for the years 2020,
2019 and 2018 were approximately $15 million, $20 million and $84 million,
respectively.
Generic Competition to Jublia® - On June 6, 2018, the U.S. Patent and Trial
Appeal Board ("PTAB") completed its inter partes review for an Orange
Book-listed patent covering Jublia® (U.S. Patent No 7,214,506 (the "'506
Patent")) and issued a written determination invalidating such patent.  On March
13, 2020, the Court of Appeals for the Federal Circuit reversed this decision
and remanded the matter back to the PTAB for further proceedings.  As a result
of a settlement, a joint motion to terminate the proceedings was filed on
November 12, 2020 and, on January 8, 2021, the PTAB granted this motion. The
'506 Patent, therefore, remains valid and enforceable and expires in 2026.
Jublia® revenues for the three months ended March 31, 2021 and 2020 were
approximately $24 million and $30 million, respectively, and for the full years
2020, 2019 and 2018 were approximately $111 million, $110 million and $89
million, respectively. Jublia® is covered by fourteen
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additional Orange Book-listed patents owned by the Company or its licensor,
which expire in the years 2028 through 2035. In August and September 2018, we
received notices of the filing of a number of ANDAs with paragraph IV
certification, and have timely filed patent infringement suits against these
ANDA filers, and, in addition, we have also commenced certain patent
infringement proceedings in Canada against three separate defendants. All cases
in Canada regarding Jublia have been settled.
See Note 18, "LEGAL PROCEEDINGS" to our unaudited interim Consolidated Financial
Statements elsewhere in this Form 10-Q, as well as Note 21, "LEGAL PROCEEDINGS"
of our Annual Report on Form 10-K for the year ended December 31, 2020, filed
with the SEC and the CSA on February 24, 2021 for further details regarding
certain infringement proceedings.
The risks of generic competition are a fact of the health care industry and are
not specific to our operations or product portfolio. These risks are not
avoidable, but we believe they are manageable. To manage these risks, our
leadership team continually evaluates the impact that generic competition may
have on future profitability and operations. In addition to aggressively
defending the Company's patents and other intellectual property, our leadership
team makes operational and investment decisions regarding these products and
businesses at risk, not the least of which are decisions regarding our pipeline.
Our leadership team actively manages the Company's pipeline in order to identify
innovative and realizable projects aligned with our core businesses that are
expected to provide incremental and sustainable revenues and growth into the
future. We believe that our current pipeline is strong enough to meet these
objectives and provide future sources of revenues, in our core businesses,
sufficient enough to sustain our growth and corporate health as other products
in our established portfolio face generic competition and lose momentum.
We believe that we have a well-established product portfolio that is diversified
within our core businesses. We also believe that we have a robust pipeline that
not only provides for the next generation of our existing products, but also
brings new solutions into the market.
See Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended
December 31, 2020, filed with the SEC and the CSA on February 24, 2021 for
additional information on our competition risks.
Regulatory Matters
In the normal course of business, our products, devices and facilities are the
subject of ongoing oversight and review by regulatory and governmental agencies,
including general, for cause and pre-approval inspections by the relevant
competent authorities where we have business operations. Through the date of
this filing, all of our global operations and facilities have the relevant
operational good manufacturing practices certificates and all Company products
and operating sites are in good compliance standing with all relevant notified
bodies and global health authorities. Further, all sites under FDA jurisdiction
are rated as either No Action Indicated (where there was no Form 483
observation) or Voluntary Action Indicated ("VAI") (where there was a Form 483
with one or more observations). In the case of VAI inspection outcomes, the FDA
has accepted our responses to the issues cited, which will be verified when the
agency makes its next inspection of those specific facilities. A Form 483 is
issued at the end of each inspection when FDA investigators have observed any
condition that in their judgment may constitute violations of current good
manufacturing practices.
FINANCIAL PERFORMANCE HIGHLIGHTS
The following table provides selected unaudited financial information for the
three months ended March 31, 2021 and 2020:
                                                                    Three 

Months Ended March

31,

(in millions, except per share data)                                                  2021             2020            Change
Revenues                                                                           $ 2,027          $ 2,012          $    15
Operating (loss) income                                                            $  (221)         $   248          $  (469)
Loss before income taxes                                                           $  (591)         $  (178)         $  (413)
Net loss attributable to Bausch Health Companies Inc.

$ (610) $ (152) $ (458) Basic and diluted loss per share attributable to Bausch Health Companies Inc.

$ (1.71) $ (0.43) $ (1.28)

Financial Performance
Summary of the Three Months Ended March 31, 2021 Compared to the Three Months
Ended March 31, 2020
Revenue for the three months ended March 31, 2021 and 2020 was $2,027 million
and $2,012 million, respectively, an increase of $15 million, or 1%. The
increase was due to: (i) the favorable effect of foreign currencies, primarily
in Europe and Asia, and (ii) an increase in net realized pricing. The increase
was partially offset by: (i) lower volumes driven by: (a) social
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restrictions and other precautionary measures taken in response to the COVID-19
pandemic, as previously discussed, and (b) the impact of the loss of exclusivity
of certain products, and (ii) the impact of divestitures and discontinuations.
Operating loss for the three months ended March 31, 2021 was $221 million and
Operating income for the three months ended March 31, 2020 was $248 million
which represents a decrease in our operating results of $469 million and
reflects, among other factors:
•a decrease in contribution (Product sales revenue less Cost of goods sold,
excluding amortization and impairments of intangible assets) of $42 million
primarily due to a decrease in volumes, as previously discussed;
•a decrease in Selling, general and administrative expenses ("SG&A") of $27
million primarily attributable to profit protection measures taken to manage and
reduce operating expenses during the COVID-19 pandemic, as previously discussed;
•a decrease in R&D of $10 million primarily attributable to: (i) the impacts of
the COVID-19 pandemic, (ii) year over year phasing, as we completed certain
projects and (iii) rebalancing our portfolio within the Ortho Dermatologics
business;
•a decrease in Amortization of intangible assets of $79 million primarily
attributable to fully amortized intangible assets no longer being amortized in
2021;
•an increase in Goodwill impairments of $469 million related to the impairment
to the goodwill of the Ortho Dermatologics reporting unit during the three
months ended March 31, 2021;
•an increase in Asset impairments, including loss on assets held for sale of
$134 million, primarily attributable to: (i) higher impairments to certain
products and (ii) additional losses during the three months ended March 31, 2021
related to assets classified as held for sale; and
•a favorable net change in Other (income) expense, net of $66 million, primarily
attributable to: (i) a decrease in Litigation and other matters, (ii) a net gain
on sale of assets during the three months ended March 31, 2021 and (iii) the
favorable change in Acquisition-related contingent consideration.
Operating loss for the three months ended March 31, 2021 was $221 million and
Operating income for the three months ended March 31, 2020 was $248 million and
included non-cash charges for Depreciation and amortization of intangible assets
of $403 million and $481 million, Goodwill impairments of $469 million and $0,
Asset impairments, including loss on assets held for sale of $148 million and
$14 million and Share-based compensation of $31 million and $27 million,
respectively.
Loss before income taxes for the three months ended March 31, 2021 and 2020 was
$591 million and $178 million, respectively, an increase of $413 million. The
increase in our Loss before income taxes is primarily attributable to the
decrease in our operating results of $469 million, as previously discussed,
partially offset by: (i) a decrease in Interest expense of $28 million, (ii) a
decrease in Loss on extinguishment from debt of $19 million and (iii) a
favorable net change in Foreign exchange and other of $14 million.
Net loss attributable to Bausch Health Companies Inc. for the three months ended
March 31, 2021 and 2020 was $610 million and $152 million, respectively, a
decrease in our results of $458 million. The decrease in our results was
primarily due to: (i) the increase in our Loss before income taxes of $413
million, as previously discussed, and (ii) an unfavorable change in our
(Provision for) benefit from income taxes of $42 million.
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RESULTS OF OPERATIONS
Our unaudited operating results for the three months ended March 31, 2021 and
2020 were as follows:
                                                                     Three Months Ended March
                                                                                31,
(in millions)                                                                          2021             2020           Change
Revenues
Product sales                                                                       $ 2,003          $ 1,986          $   17
Other revenues                                                                           24               26              (2)
                                                                                      2,027            2,012              15
Expenses

Cost of goods sold (excluding amortization and impairments of intangible assets)

                                                                      564              505              59
Cost of other revenues                                                                   10               14              (4)
Selling, general and administrative                                                     606              633             (27)
Research and development                                                                112              122             (10)
Amortization of intangible assets                                                       357              436             (79)
Goodwill impairments                                                                    469                -             469
Asset impairments, including loss on assets held for sale                               148               14             134
Restructuring, integration and separation costs                                          12                4               8
Other (income) expense, net                                                             (30)              36             (66)
                                                                                      2,248            1,764             484
Operating (loss) income                                                                (221)             248            (469)
Interest income                                                                           2                7              (5)
Interest expense                                                                       (368)            (396)             28
Loss on extinguishment of debt                                                           (5)             (24)             19
Foreign exchange and other                                                                1              (13)             14
Loss before (provision for) benefit from income taxes                                  (591)            (178)           (413)
(Provision for) benefit from income taxes                                               (16)              26             (42)
Net loss                                                                               (607)            (152)           (455)
Net income attributable to noncontrolling interest                                       (3)               -              (3)
Net loss attributable to Bausch Health Companies Inc.

$ (610) $ (152) $ (458)

Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31,
2020
Revenues
The Company's revenues are primarily generated from product sales, principally
in the therapeutic areas of eye-health, GI and dermatology, that consist of: (i)
branded pharmaceuticals, (ii) generic and branded generic pharmaceuticals, (iii)
OTC products and (iv) medical devices (contact lenses, intraocular lenses,
ophthalmic surgical equipment and aesthetics devices). Other revenues include
alliance and service revenue from the licensing and co-promotion of products and
contract service revenue primarily in the areas of dermatology and topical
medication.
Our revenues were $2,027 million and $2,012 million for the three months ended
March 31, 2021 and 2020, respectively, an increase of $15 million, or 1%. The
increase was primarily driven by: (i) the favorable effect of foreign currencies
of $33 million, primarily in Europe and Asia and (ii) an increase in net
realized pricing of $10 million primarily in our Salix segment. The increase was
partially offset by: (i) lower volumes of $18 million primarily in our Salix,
Bausch + Lomb and Diversified segments and (ii) the impact of divestitures and
discontinuations of $10 million. The decrease in volumes of our Salix and Bausch
+ Lomb segments was primarily due to social restrictions and other precautionary
measures taken in response to the COVID-19 pandemic, as previously discussed.
The decrease in volumes of our Diversified segment was primarily due to the
impact of the loss of exclusivity of certain products.
Our 2020 revenues were most negatively impacted during our second quarter by the
social restrictions and other precautionary measures taken in response to the
COVID-19 pandemic. However, as governments began lifting social restrictions,
allowing offices of certain health care providers to reopen and certain
surgeries and elective medical procedures to proceed, the negative trend in the
revenues of certain businesses began to level off and stabilize prior to our
third quarter of 2020. Our revenues for the three months ended March 31, 2021
and 2020 were $2,027 million and $2,012 million, respectively. This increase of
$15 million in revenue represents a continuously improving trend over the
decreases in our year-over-year revenues for the three-month periods ended June
30, 2020, September 30, 2020 and December 31, 2020 of 23%, 3% and less than 1%,
respectively, and suggests that a recovery is underway. Presuming there
continues to be increased availability of effective vaccines and any resurgence
of the COVID-19 virus and variant strains thereof do not have a material
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adverse impact on efforts to contain the COVID-19 virus, the Company anticipates
an ongoing, gradual global recovery from the significant macroeconomic and
health care impacts of the pandemic that occurred during the first half of 2020
and anticipates that its revenues will likely return to pre-pandemic levels in
2021. However, the rates of recovery for each business will vary by geography
and will be dependent upon, among other things, the availability and
effectiveness of vaccines for the COVID-19 virus, government responses, rates of
economic recovery, precautionary measures taken by patients and customers, the
rate at which remaining social restrictions are lifted and once lifted, the
presumption that social restrictions will not be materially reenacted in the
event of a resurgence of the virus and other actions taken in response to the
COVID-19 pandemic.
The changes in our segment revenues and segment profits, including the impacts
of COVID-19 pandemic related matters for the three months ended March 31, 2021,
are discussed in further detail in the respective subsequent section " -
Reportable Segment Revenues and Profits".
Cash Discounts and Allowances, Chargebacks and Distribution Fees
As is customary in the pharmaceutical industry, gross product sales are subject
to a variety of deductions in arriving at net product sales. Provisions for
these deductions are recognized concurrently with the recognition of gross
product sales. These provisions include cash discounts and allowances,
chargebacks, and distribution fees, which are paid or credited to direct
customers, as well as rebates and returns, which can be paid or credited to
direct and indirect customers. As more fully discussed in Note 3, "REVENUE
RECOGNITION" to our unaudited interim Consolidated Financial Statements, the
Company continually monitors the provisions for these deductions and evaluates
the estimates used as additional information becomes available. Price
appreciation credits are generated when we increase a product's wholesaler
acquisition cost ("WAC") under our contracts with certain wholesalers. Under
such contracts, we are entitled to credits from such wholesalers for the impact
of that WAC increase on inventory on hand at the wholesalers. In wholesaler
contracts, such credits are offset against the total distribution service fees
we pay on all of our products to each such wholesaler. In addition, some payor
contracts require discounting if a price increase or series of price increases
in a contract period exceeds a negotiated threshold. Provision balances relating
to amounts payable to direct customers are netted against trade receivables and
balances relating to indirect customers are included in accrued liabilities.
We actively manage these offerings, focusing on the incremental costs of our
patient assistance programs, the level of discounting to non-retail accounts and
identifying opportunities to minimize product returns. We also concentrate on
managing our relationships with our payors and wholesalers, reviewing the ranges
of our offerings and being disciplined as to the amount and type of incentives
we negotiate. Provisions recorded to reduce gross product sales to net product
sales and revenues for the three months ended March 31, 2021 and 2020 were as
follows:
                                                                            

Three Months Ended March 31,

                                                                        2021                                      2020
(in millions)                                               Amount                 Pct.               Amount              Pct.
Gross product sales                                    $       3,303                 100.0  %       $ 3,323                 100.0  %
Provisions to reduce gross product sales to net
product sales
Discounts and allowances                                         147                   4.5  %           156                   4.7  %
Returns                                                           34                   1.0  %            42                   1.3  %
Rebates                                                          602                  18.2  %           602                  18.0  %
Chargebacks                                                      462                  14.0  %           484                  14.6  %
Distribution fees                                                 55                   1.7  %            53                   1.6  %
Total provisions                                               1,300                  39.4  %         1,337                  40.2  %
Net product sales                                              2,003                  60.6  %         1,986                  59.8  %
Other revenues                                                    24                                     26
Revenues                                               $       2,027                                $ 2,012


Cash discounts and allowances, returns, rebates, chargebacks and distribution
fees as a percentage of gross product sales were 39.4% and 40.2% for the three
months ended March 31, 2021 and 2020, respectively, a decrease of 0.8 percentage
points and includes:
•discounts and allowances as a percentage of gross product sales was lower
primarily due to lower gross product sales and lower discount rates for certain
generic products, such as Migranal® AG, Apriso® AG, Elidel® AG and Uceris® AG;
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•returns as a percentage of gross product sales was lower primarily due to lower
returns of Retin-A Micro® .08%, Onexton® and Metronidazole® AG, partially offset
by adjustments in 2020 to the return reserves to reflect actual return
experience for Isuprel® and Nitropress®, which lost their exclusivity;
•rebates as a percentage of gross product sales were higher primarily due to:
(i) an increase in gross product sales of certain branded products with higher
rebate rates such as Jublia®, Onexton® and Trulance® and (ii) an increase in
rebates due to the launch of Arazlo® (June 2020) and was partially offset by
lower gross product sales and lower rebate rates for branded products such as
Duobrii®, Siliq® and Apriso®;
•chargebacks as a percentage of gross product sales were lower primarily due to
the impact of lower gross product sales of: (i) certain generic products, such
as Glumetza® AG and Ofloxacin and (ii) certain branded products, such as
Wellbutrin® and Xifaxan®. The lower chargebacks as a percentage of gross product
sales were partially offset by higher chargeback rates for Glumetza® SLX and
(ii) higher chargeback rates for certain generics such as Targretin®, Syprine®
AG and Apriso® AG; and
•distribution service fees as a percentage of gross product sales were higher
primarily due to: (i) the impact of higher distribution service fee rates for
our Xifaxan® products and (ii) distribution service fees associated with the
launch of Arazlo® (June 2020) and were partially offset by lower distribution
fees associated with our Solodyn® and Wellbutrin® products. Price appreciation
credits are offset against the distribution service fees we pay wholesalers and
were $1 million and $4 million for the three months ended March 31, 2021 and
2020.
Expenses
Cost of Goods Sold (excluding amortization and impairments of intangible assets)
Cost of goods sold primarily includes: manufacturing and packaging; the cost of
products we purchase from third parties; royalty payments we make to third
parties; depreciation of manufacturing facilities and equipment; and lower of
cost or market adjustments to inventories. Cost of goods sold excludes the
amortization and impairments of intangible assets.
Cost of goods sold was $564 million and $505 million for the three months ended
March 31, 2021 and 2020, respectively, an increase of $59 million, or 12%. The
increase was primarily driven by: (i) a decrease in volumes, (ii) the impact of
foreign currencies, (iii) changes in product mix and (iv) higher manufacturing
variances primarily due to the impacts of the COVID-19 pandemic, and was
partially offset by lower volumes as previously discussed.
Cost of goods sold as a percentage of product sales revenue was 28.2% and 25.4%
for the three months ended March 31, 2021 and 2020, respectively, an increase of
2.8 percentage points. Costs of goods sold as a percentage of Product sales
revenue was unfavorably impacted as a result of: (i) changes in product mix, due
to lower revenues of high margin businesses and (ii) higher manufacturing
variances primarily due to the impacts of the COVID-19 pandemic. These factors
were partially offset by higher net realized selling prices.
Selling, General and Administrative Expenses
SG&A expenses primarily include: employee compensation associated with sales and
marketing, finance, legal, information technology, human resources and other
administrative functions; certain outside legal fees and consultancy costs;
product promotion expenses; overhead and occupancy costs; depreciation of
corporate facilities and equipment; and other general and administrative costs.
Also included in SG&A expenses for the three months ended March 31, 2021 are
Separation-related costs. The Company has incurred, and will incur,
Separation-related costs which are incremental costs indirectly related to the
Separation. Separation-related costs include, but are not limited to: (i) IT
infrastructure and software licensing costs, (ii) rebranding costs and (iii)
costs associated with facility relocation and/or modification.
SG&A expenses were $606 million and $633 million for the three months ended
March 31, 2021 and 2020, respectively, a decrease of $27 million, or 4%. The
decrease was primarily attributable to profit protection measures taken to
manage and reduce operating expenses during the COVID-19 pandemic, as previously
discussed, and resulted in decreases in: (i) selling expenses and (ii)
advertising and promotion expenses. The decrease was partially offset by: (i)
the impact of foreign currencies and (ii) Separation-related costs during the
three months ended March 31, 2021 of $20 million.
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Research and Development Expenses
Included in Research and development are costs related to our product
development and quality assurance programs. Expenses related to product
development include: employee compensation costs; overhead and occupancy costs;
depreciation of research and development facilities and equipment; clinical
trial costs; clinical manufacturing and scale-up costs; and other third-party
development costs. Quality assurance are the costs incurred to meet evolving
customer and regulatory standards and include: employee compensation costs;
overhead and occupancy costs; amortization of software; and other third-party
costs.
R&D expenses were $112 million and $122 million for the three months ended March
31, 2021 and 2020, respectively, a decrease of $10 million, or 8%. The decrease
was primarily attributable to: (i) the impacts of the COVID-19 pandemic, (ii)
year over year phasing, as we completed certain projects and (iii) rebalancing
our portfolio within the Ortho Dermatologics business. R&D expenses as a
percentage of Product sales were approximately 6% and 6% for both the three
months ended March 31, 2021 and 2020, respectively.
As previously discussed, primarily during our second quarter of 2020, certain of
our R&D activities were limited and others, including new patient enrollments in
clinical trials, were temporarily paused as most trial sites were not able to
accept new patients due to government-mandated shutdowns. However, during our
third quarter of 2020, many of these trial sites began to reopen and we saw the
pace of new patient enrollments increase, although at this time certain of our
projects are moving slower than we would like due to the impacts of the COVID-19
pandemic. As of the date of this filing, we have not had to make material
changes to our development timelines and the pause in our clinical trials have
not had a material impact on our operating results; however, a resurgence of the
virus could result in unanticipated delays in our ability to conduct new patient
enrollments and create other delays which could have a significant adverse
effect on our future operating results.
Amortization of Intangible Assets
Intangible assets with finite lives are amortized using the straight-line method
over their estimated useful lives, generally 2 to 20 years. Management
continually assesses the useful lives related to the Company's long-lived assets
to reflect the most current assumptions.
Amortization of intangible assets was $357 million and $436 million for the
three months ended March 31, 2021 and 2020, respectively, a decrease of $79
million. The decrease was primarily attributable to fully amortized intangible
assets no longer being amortized in 2021.
See Note 8, "INTANGIBLE ASSETS AND GOODWILL" to our unaudited interim
Consolidated Financial Statements regarding further details related to the
Amortization of intangible assets.
Goodwill Impairments
Goodwill is not amortized but is tested for impairment at least annually on
October 1st at the reporting unit level. A reporting unit is the same as, or one
level below, an operating segment. The Company performs its annual impairment
test by first assessing qualitative factors. Where the qualitative assessment
suggests that it is more likely than not that the fair value of a reporting unit
is less than its carrying amount, a quantitative fair value test is performed
for that reporting unit.
Goodwill impairments were $469 million and $0 for the three months ended March
31, 2021 and 2020, respectively, an increase of $469 million. During the three
months ended March 31, 2021, it became apparent that recent Ortho Dermatologics
product launches were not going to achieve their forecasted trajectories that
were expected once the offices of health care professionals could reopen as
social restrictions associated with the COVID-19 pandemic began to ease in the
U.S. In addition, insurance coverage pressures within the U.S. continued to
persist limiting patient access to topical acne and psoriasis products. In light
of these developments, during the first quarter of 2021 the Company began taking
steps to: (i) redirect its R&D spend to eliminate projects it has identified as
high cost and high risk, (ii) redirect a portion of its marketing and product
development outside the U.S. to geographies where there is better patient access
and (iii) reduce its cost structure to be more competitive. As result, during
the three months ended March 31, 2021, the Company revised its long-term
forecasts for the Ortho Dermatologics reporting unit. Management believes that
these events are indicators that there is less headroom as of March 31, 2021 as
compared to the headroom calculated on the date goodwill was last tested for
impairment (October 1, 2020). Therefore, a quantitative fair value test for the
Ortho Dermatologics reporting unit was performed. The quantitative fair value
test utilized the Company's most recent cash flow projections as revised in the
first quarter of 2021 to reflect the business changes previously discussed,
including a range of potential outcomes, along with a long-term growth rate of
1.0% and a range of discount rates between 9.0% and 10.0%. Based on the
quantitative fair value test, the carrying value of the Ortho Dermatologics
reporting unit exceeded its fair value at March 31, 2021, and the Company
recognized a goodwill impairment of $469 million.
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See Note 8, "INTANGIBLE ASSETS AND GOODWILL" to our unaudited interim
Consolidated Financial Statements regarding further details related to our
goodwill impairment analysis.
Asset impairments, including loss on assets held for sale
Long-lived assets with finite lives are tested for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable. Impairment charges associated with these assets are included in
Asset impairments in the Consolidated Statement of Operations. The Company
continues to monitor the recoverability of its finite-lived intangible assets
and tests the intangible assets for impairment if indicators of impairment are
present.
Asset impairments, including loss on assets held for sale were $148 million and
$14 million for the three months ended March 31, 2021 and 2020, respectively, an
increase of $134 million. Asset impairments, including loss on assets held for
sale for the three months ended March 31, 2021 were $148 million and include:
(i) impairments of $71 million due to decreases in forecasted sales of a certain
product line in the Ortho Dermatologics business, (ii) an adjustment of
$68 million to the loss of assets held for sale in connection with the Amoun
Sale and (iii) impairments of $9 million, in aggregate, related to the
discontinuance of certain product lines. Asset impairments, including loss on
assets held for sale for the three months ended March 31, 2020 were due to
decreases in forecasted sales of a certain product line.
See Note 8, "INTANGIBLE ASSETS AND GOODWILL" to our unaudited interim
Consolidated Financial Statements regarding further details related to our
intangible assets.
Restructuring, Integration and Separation Costs
Restructuring, integration and separation costs were $12 million and $4 million
for the three months ended March 31, 2021 and 2020, respectively, an increase of
$8 million.
Restructuring and integration costs
The Company evaluates opportunities to improve its operating results and
implements cost savings programs to streamline its operations and
eliminate redundant processes and expenses. Restructuring and integration costs
are expenses associated with the implementation of these cost savings programs
and include expenses associated with: (i) reducing headcount, (ii) eliminating
real estate costs associated with unused or under-utilized facilities and (iii)
implementing contribution margin improvement and other cost reduction
initiatives.
Restructuring and integration costs were $3 million and $4 million and included:
(i) $2 million and $3 million of facility closure costs and (ii) $1 million and
$1 million of severance costs for the three months ended March 31, 2021 and
2020, respectively. The Company continues to evaluate opportunities to
streamline its operations and identify additional cost savings globally.
Although a specific plan does not exist at this time, the Company may identify
and take additional exit and cost-rationalization restructuring actions in the
future, the costs of which could be material.
Separation costs
The Company has incurred, and will incur, costs associated with activities to
effectuate the Separation. These activities include: (i) separating the
eye-health business from the remainder of the Company and (ii) registering the
eye-health business as an independent publicly traded entity. Separation costs
are incremental costs directly related to the Separation and include, but are
not limited to: (i) legal, audit and advisory fees, (ii) employee hiring,
relocation and travel costs and (iii) costs associated with establishing a new
board of directors and audit committee. Separation costs were $9 million and $0
for the three months ended March 31, 2021 and 2020, respectively. The Company
continues to make progress toward internal objectives necessary for the
Separation and the extent and timing of future charges for these costs cannot be
reasonably estimated at this time and could be material.
See Note 5, "RESTRUCTURING, INTEGRATION AND SEPARATION COSTS" to our unaudited
interim Consolidated Financial Statements for further details regarding these
actions.
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Other (Income) Expense, Net
Other (income) expense, net for the three months ended March 31, 2021 and 2020
consists of the following:
                                                                  Three Months Ended
                                                                       March 31,
   (in millions)                                                    2021              2020
   Litigation and other matters                             $        -               $ 23
   Acquisition-related contingent consideration                     (9)                13
   Acquired in-process research and development costs                2                  1
   Net gain on sale of assets                                      (23)                (1)
                                                            $      (30)              $ 36


During the three months ended March 31, 2021, Net gain on sale of assets
includes $25 million related to the achievement of a milestone related to a
certain product.
Non-Operating Income and Expense
Interest Expense
Interest expense primarily consists of interest payments due, amortization of
debt premiums, discounts and deferred issuance costs on indebtedness under our
credit facilities and notes and the amortization of amounts excluded from the
assessment of hedge effectiveness over the term of the Company's cross-currency
swaps.
Interest expense was $368 million and $396 million, and included non-cash
amortization and write-offs of debt premiums, discounts and deferred issuance
costs of $13 million and $15 million, for the three months ended March 31, 2021
and 2020, respectively. Interest expense for the three months ended March 31,
2021 decreased $28 million, or 7%, as compared to the three months ended March
31, 2020, primarily due to lower outstanding principal balances. The weighted
average stated rate of interest as of March 31, 2021 and 2020 was 6.00% and
6.01%, respectively.
Foreign Exchange and Other
Foreign exchange and other primarily includes: (i) translation gains/losses on
intercompany loans and third-party liabilities and (ii) the gain/loss due to
foreign currency exchange contracts. Foreign exchange and other was a gain of
$1 million and a loss of $13 million for the three months ended March 31, 2021
and 2020, respectively, a favorable net change of $14 million.
Income Taxes
Provision for income taxes was $16 million for the three months ended March 31,
2021 as compared to a Benefit from income taxes was $26 million for the three
months ended March 31, 2020, an unfavorable change of $42 million.
Our effective income tax rate for the three months ended March 31, 2021 differs
from the statutory Canadian income tax rate primarily due to: (i) the tax
benefit generated from our annualized mix of earnings by jurisdiction, (ii) the
recording of valuation allowance on entities for which no tax benefit of losses
is expected and (iii) the discrete treatment of certain tax matters, primarily
related to: (a) potential and recognized withholding taxes on intercompany
dividends, (b) adjustments for book to income tax return provisions, (c) tax
deduction for stock compensation and (d) changes in uncertain tax positions.
Our effective income tax rate for the three months ended March 31, 2020 differs
from the statutory Canadian income tax rate primarily due to: (i) the recording
of valuation allowance on entities for which no tax benefit of losses is
expected, (ii) the tax benefit generated from our annualized mix of earnings by
jurisdiction and (iii) the discrete treatment of certain tax matters, primarily
related to: (a) tax law changes, (b) adjustments for book to income tax return
provisions and (c) changes in uncertain tax positions.
See Note 16, "INCOME TAXES" to our unaudited interim Consolidated Financial
Statements for further details.
Reportable Segment Revenues and Profits
In connection with the planned Separation of its eye-health business into an
independent publicly traded entity from the remainder of Bausch Health Companies
Inc., the Company has begun managing its operations in a manner consistent with
the organizational structure of the two separate entities as proposed by the
Separation. As a result, during the first quarter of 2021, the Company's CEO,
who is the Company's Chief Operating Decision Maker, commenced managing the
business differently through changes in its operating and reportable segments,
which necessitated a realignment of the Company's historical segment structure.
This realignment is consistent with how the Company's CEO currently: (i)
assesses operating
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performance on a regular basis, (ii) makes resource allocation decisions and
(iii) designates responsibilities of his direct reports. Pursuant to these
changes, effective in the first quarter of 2021, the Company operates in the
following reportable segments: (i) Bausch + Lomb, (ii) Salix, (iii)
International Rx, (iv) Ortho Dermatologics and (v) Diversified Products. In
addition, as part of this realignment of segment structure, certain products
historically included in certain segments are now included in their new
respective segments based on the organizational structure of the two separate
entities as proposed by the Separation. Prior period presentation of segment
revenues and segment profits has been recast to conform to the current segment
reporting structure.
The following is a brief description of the Company's segments:
•The Bausch + Lomb segment consists of global sales of Bausch + Lomb Vision
Care, Consumer, Surgical and Ophthalmology Rx products.
•The Salix segment consists of sales in the U.S. of GI products.
•The International Rx segment consists of sales, with the exception of sales of
Bausch + Lomb and Solta products, outside the U.S. and Puerto Rico of branded
pharmaceutical products, branded generic pharmaceutical products and OTC
products.
•The Ortho Dermatologics segment consists of: (i) sales in the U.S. of Ortho
Dermatologics (dermatological) products and (ii) global sales of Solta medical
aesthetic devices.
•The Diversified Products segment consists of sales in the U.S. of: (i)
pharmaceutical products in the areas of neurology and certain other therapeutic
classes, (ii) generic products and (iii) dentistry products.
Segment profit is based on operating income after the elimination of
intercompany transactions. Certain costs, such as Amortization of intangible
assets, Asset impairments, Acquired in-process research and development costs,
Restructuring, integration and separation costs and Other (income) expense, net,
are not included in the measure of segment profit, as management excludes these
items in assessing segment financial performance. See Note 19, "SEGMENT
INFORMATION" to our unaudited interim Consolidated Financial Statements for a
reconciliation of segment profit to Income (loss) before income taxes.
The following table presents segment revenues, segment revenues as a percentage
of total revenues, and the period-over-period changes in segment revenues for
the three months ended March 31, 2021 and 2020. The following table also
presents segment profits, segment profits as a percentage of segment revenues
and the period-over-period changes in segment profits for the three months ended
March 31, 2021 and 2020.
                                                                            

Three Months Ended March 31,

                                                             2021                                   2020                             Change
(in millions)                                      Amount                Pct.             Amount            Pct.            Amount            Pct.
Segment Revenues
Bausch + Lomb                                $      881                     44  %       $   875                43  %       $    6                1  %
Salix                                               472                     23  %           477                24  %           (5)              (1) %
International Rx                                    306                     15  %           291                14  %           15                5  %
Ortho Dermatologics                                 141                      7  %           131                 7  %           10                8  %
Diversified Products                                227                     11  %           238                12  %          (11)              (5) %
Total revenues                               $    2,027                    100  %       $ 2,012               100  %       $   15                1  %

Segment Profits / Segment Profit
Margins
Bausch + Lomb                                $      239                     27  %       $   263                30  %       $  (24)              (9) %
Salix                                               327                     69  %           319                67  %            8                3  %
International Rx                                    109                     36  %            98                34  %           11               11  %
Ortho Dermatologics                                  70                     50  %            47                36  %           23               49  %
Diversified Products                                171                     75  %           167                70  %            4                2  %
Total segment profits                        $      916                     45  %       $   894                44  %       $   22                2  %


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Organic Revenues and Organic Growth Rates (non-GAAP)
Organic growth, a non-GAAP metric, is defined as a change on a
period-over-period basis in revenues on a constant currency basis (if
applicable) excluding the impact of recent acquisitions, divestitures and
discontinuations. Organic revenue growth (non-GAAP) is growth in GAAP Revenue
(its most directly comparable GAAP financial measure), adjusted for certain
items, of businesses that have been owned for one or more years. Organic revenue
(non-GAAP) is impacted by changes in product volumes and price. The price
component is made up of two key drivers: (i) changes in product gross selling
price and (ii) changes in sales deductions. The Company uses organic revenue
(non-GAAP) and organic revenue growth (non-GAAP) to assess performance of its
reportable segments, and the Company in total, without the impact of foreign
currency exchange fluctuations and recent acquisitions, divestitures and product
discontinuations. The Company believes that such measures are useful to
investors as they provide a supplemental period-to-period comparison.
Organic revenue growth (non-GAAP) reflects adjustments for: (i) the impact of
period-over-period changes in foreign currency exchange rates on revenues and
(ii) the revenues associated with acquisitions, divestitures and
discontinuations of businesses divested and/or discontinued. These adjustments
are determined as follows:
Foreign currency exchange rates: Although changes in foreign currency exchange
rates are part of our business, they are not within management's control.
Changes in foreign currency exchange rates, however, can mask positive or
negative trends in the underlying business performance. The impact for changes
in foreign currency exchange rates is determined as the difference in the
current period reported revenues at their current period currency exchange rates
and the current period reported revenues revalued using the monthly average
currency exchange rates during the comparable prior period.
Acquisitions, divestitures and discontinuations: In order to present
period-over-period organic revenues (non-GAAP) on a comparable basis, revenues
associated with acquisitions, divestitures and discontinuations are adjusted to
include only revenues from those businesses and assets owned during both
periods. Accordingly, organic revenue growth (non-GAAP) excludes from the
current period, all revenues attributable to each acquisition for twelve months
subsequent to the day of acquisition, as there are no revenues from those
businesses and assets included in the comparable prior period. Organic revenue
growth (non-GAAP) excludes from the prior period (but not the current period),
all revenues attributable to each divestiture and discontinuance during the
twelve months prior to the day of divestiture or discontinuance, as there are no
revenues from those businesses and assets included in the comparable current
period. There were no acquisitions during the twelve month period ended March
31, 2021.
The following table presents a reconciliation of GAAP revenues to organic
revenues (non-GAAP) and the period-over-period changes in organic revenue
(Non-GAAP) for the three months ended March 31, 2021 and 2020 by segment.
                                                   Three Months Ended March 31, 2021                                       Three Months Ended March 31, 2020
                                                                                                                                                                                             Change in
                                         Revenue                                                             Revenue                                                                      Organic Revenue
                                            as                Changes in          Organic Revenue               as                 Divestitures and           Organic Revenue
(in millions)                            Reported           Exchange Rates           (Non-GAAP)              Reported              Discontinuations              (Non-GAAP)            Amount           Pct.
Bausch + Lomb                        $         881          $        (26)         $         855          $         875          $                 (2)         $         873          $   (18)             (2) %
Salix                                          472                     -                    472                    477                             -                    477               (5)             (1) %
International Rx                               306                    (4)                   302                    291                            (1)                   290               12               4  %
Ortho Dermatologics                            141                    (3)                   138                    131                             -                    131                7               5  %
Diversified Products                           227                     -                    227                    238                            (7)                   231               (4)             (2) %
Total                                $       2,027          $        (33)         $       1,994          $       2,012          $                (10)         $       2,002          $    (8)              -  %


Bausch + Lomb Segment:
Bausch + Lomb Segment Revenue
The Bausch + Lomb segment has a diversified product line with no single product
group representing 10% or more of its product sales. The Bausch + Lomb segment
revenue was $881 million and $875 million for the three months ended March 31,
2021 and 2020, respectively, an increase of $6 million, or 1%. The increase was
primarily attributable to the favorable effect of foreign currencies of $26
million, primarily in Europe and Asia and was partially offset by: (i) a
decrease in volumes of $13 million, (ii) a decrease in net realized pricing of
$5 million and (iii) the impact of divestitures and discontinuations of $2
million, related to several products. The decrease in volumes was primarily
attributable to decreases in our: (i) Ophthalmology business primarily in the
U.S., in part due to the impact of generic competition as certain products, such
as Lotemax® Gel, lost exclusivity, and Europe and (ii) Consumer business
primarily in Europe and Canada, partially offset by increases in our Vision Care
business primarily in China which was more negatively impacted by the COVID-19
pandemic during the three months ended March 31, 2020 than other geographies.
During 2020, the volumes of our Bausch + Lomb segment were most negatively
impacted by the COVID-19 pandemic during our second quarter. During 2020, the
postponement of certain surgical and elective medical procedures related to the
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COVID-19 pandemic, and associated declines in pre- and post-operative
prescriptions, negatively impacted the volumes of our Ophthalmology and Surgical
businesses while the reduction in the consumption of contact lenses worldwide
due to limited social interactions and in some regions government recommended
use of frames, negatively impacted the volumes of our Vision Care business.
During our first quarter of 2020, certain customers engaged in "pantry-loading",
which, positively impacted the volumes of our Consumer business during that
quarter but negatively impacted the volumes of our Consumer business for our
second quarter of 2020. However, as governments began lifting social
restrictions, the negative trend in the revenues of these businesses began to
level off and stabilize prior to our third quarter and continued into our fourth
quarter of 2020 and first quarter of 2021. Although we experienced COVID-19
pandemic related declines in year-over-year revenues in certain geographies in
2021, total Bausch + Lomb segment revenues for the three months ended March 31,
2021 increased 1% when compared to the three months ended March 31, 2020, which
suggests that a recovery is underway. Presuming the increased availability of
effective vaccines and any resurgence of the COVID-19 virus and variant strains
thereof or reenactment of social restrictions are not significant, we anticipate
that our revenues will likely return to pre-pandemic levels in 2021.
Bausch + Lomb Segment Profit
The Bausch + Lomb segment profit for three months ended March 31, 2021 and 2020
was $239 million and $263 million, respectively, a decrease of $24 million, or
9%. The decrease was primarily driven by a decrease in gross profit attributable
to: (i) lower volumes of our products which carry higher margins, (ii) higher
manufacturing variances primarily due to the impacts of the COVID-19 pandemic
and (iii) a decrease in net realized pricing, partially offset by: (i) decreases
in SG&A expenses primarily attributable to profit protection measures taken to
manage and reduce operating expenses during the COVID-19 pandemic, as previously
discussed, and (ii) the favorable effect of foreign currencies.
Salix Segment:
Salix Segment Revenue
The Salix segment includes the Xifaxan® product line, which accounted for 78%
and 79% of the Salix segment product sales and 18% and 19% of the Company's
product sales for the three months ended March 31, 2021 and 2020, respectively.
No other single product group represents 10% or more of the Salix segment
product sales. Salix segment revenue for the three months ended March 31, 2021
and 2020 was $472 million and $477 million, respectively, a decrease of $5
million, or 1%. The decrease is primarily driven by a decrease in volumes of $24
million partially offset by an increase in net realized pricing of $19 million.
The decrease in volumes was primarily due to the impacts of social restrictions
and other precautionary measures taken in response to the COVID-19 pandemic, as
previously discussed. The increase in net realized pricing was primarily
attributable to higher net realized pricing for Xifaxan®.
During 2020, certain branded pharmaceutical products within our Salix segment
were negatively impacted by social restrictions and other precautionary measures
taken in response to the COVID-19 pandemic, as previously discussed. Although we
experienced COVID-19 pandemic related declines in year-over-year revenues in
certain products during 2021, the decrease in Salix segment revenues for the
three months ended March 31, 2021 of 1% when compared to the three months ended
March 31, 2020 is not material. Presuming the increased availability of
effective vaccines and any resurgence of the COVID-19 virus and variant strains
thereof or reenactment of social restrictions are not significant, we anticipate
that our revenues will likely return to pre-pandemic levels in 2021.
Salix Segment Profit
The Salix segment profit for the three months ended March 31, 2021 and 2020 was
$327 million and $319 million, respectively, an increase of $8 million, or 3%.
The increase was primarily driven by decreases in SG&A expenses primarily
attributable to profit protection measures taken to manage and reduce operating
expenses during the COVID-19 pandemic, as previously discussed and was partially
offset by the decrease in revenue, as previously discussed.
International Rx Segment:
International Rx Segment Revenue
The International Rx segment has a diversified product line with no single
product group representing 10% or more of its product sales. The International
Rx segment revenue was $306 million and $291 million for the three months ended
March 31, 2021 and 2020, respectively, an increase of $15 million, or 5%. The
increase was primarily attributable to: (i) an increase in volumes of $9
million, (ii) the favorable effect of foreign currencies of $4 million,
primarily in Europe and Asia, and (iii) an increase in net realized pricing of
$3 million. The increase in volumes is primarily due to increased volumes in
Mexico of Ivermectin®, due to its off label use as a treatment for COVID-19, and
Bedoyecta®. The increase in volumes was partially offset by lower volumes in
Canada primarily due to: (i) the impacts of the COVID-19 pandemic, as previously
discussed, and
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(ii) the impact of the loss of exclusivity for certain products, primarily
Glumetza®. These decreases were partially offset by the impact of divestitures
and discontinuations of $1 million.
The volumes of our International Rx segment were negatively impacted, by social
restrictions and other precautionary measures taken in response to the COVID-19
pandemic, as previously discussed, during our second quarter of 2020. However,
as governments began lifting social restrictions, the negative trend in the
revenues of our International Rx products began to level off and stabilize prior
to our third quarter of 2020 and continued in the fourth quarter of 2020.
Although we experienced COVID-19 pandemic related declines in year-over-year
revenues in certain geographies during 2021, total International Rx segment
revenues for the three months ended March 31, 2021 increased 5% when compared to
the three months ended March 31, 2020, which suggests that a recovery is
underway. Presuming the increased availability of effective vaccines and any
resurgence of the COVID-19 virus and variant strains thereof or reenactment of
social restrictions are not significant, we anticipate that our revenues will
likely return to pre-pandemic levels in 2021.
International Rx Segment Profit
The International Rx segment profit for the three months ended March 31, 2021
and 2020 was $109 million and $98 million, respectively, an increase of $11
million, or 11%. The increase was primarily driven by: (i) decreases in SG&A
expenses primarily attributable to profit protection measures taken to manage
and reduce operating expenses during the COVID-19 pandemic, as previously
discussed and (ii) an increase in revenue, as previously discussed, partially
offset by higher manufacturing variances primarily due to the impacts of the
COVID-19 pandemic.
Ortho Dermatologics Segment:
Ortho Dermatologics Segment Revenue
The Ortho Dermatologics segment includes the Thermage® and Jublia® product
lines, which accounted for approximately 40% and 10% of the Ortho Dermatologics
segment revenues for the three months ended March 31, 2021, respectively. No
other single product group represents 10% or more of the Ortho Dermatologics
segment revenues. The Ortho Dermatologics segment revenue for the three months
ended March 31, 2021 and 2020 was $141 million and $131 million, respectively,
an increase of $10 million, or 8%. The increase is a result of: (i) an increase
in volume of $19 million and (ii) the favorable effect of foreign currencies of
$3 million. The increases were partially offset by a decrease in net realized
pricing of $12 million, as a result of higher sales deductions in our medical
dermatology products. The increase in volume is primarily due to increased
demand of Thermage FLX® partially offset by: (i) the impact of generic
competition as certain products, such as Elidel® and Clindagel®, lost
exclusivity and (ii) the impacts of social restrictions and other precautionary
measures taken in response to the COVID-19 pandemic, as previously discussed.
Ortho Dermatologics Segment Profit
The Ortho Dermatologics segment profit for the three months ended March 31, 2021
and 2020 was $70 million and $47 million, respectively, an increase of $23
million, or 49%. The increase was primarily driven by: (i) decreases in SG&A
expenses primarily attributable to profit protection measures taken to manage
and reduce operating expenses during the COVID-19 pandemic, as previously
discussed, (ii) an increase in revenue, as previously discussed, and (iii) a
decrease in R&D expenses.
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Diversified Products Segment:
Diversified Products Segment Revenue
The following table displays the Diversified Products segment revenue by product
and product revenues as a percentage of segment revenue for the three months
ended March 31, 2021 and 2020.
                                                                            

Three Months Ended March 31,

                                                    2021                                 2020                               Change
(in millions)                             Amount              Pct.             Amount             Pct.             Amount             Pct.
Wellbutrin® Franchise                  $      53                 23  %       $    58                 24  %       $    (5)                (9) %
Aplenzin®                                     26                 11  %            26                 11  %             -                  -  %
Arestin®                                      23                 10  %            19                  8  %             4                 21  %
Ativan® Franchise                             18                  8  %             8                  3  %            10                125  %
Pepcid®                                       12                  5  %             3                  1  %             9                300  %
Mysoline®                                     11                  5  %             5                  2  %             6                120  %
Librax® Franchise                             10                  4  %             6                  3  %             4                 67  %
Diastat® Franchise                             6                  3  %            11                  5  %            (5)               (45) %
Xenazine® Franchise                            6                  3  %             8                  3  %            (2)               (25) %
Cardizem® Franchise                            4                  2  %             5                  2  %            (1)               (20) %
Other product revenues                        57                 26  %            85                 36  %           (28)               (33) %
Other revenues                                 1                  -  %             4                  2  %            (3)               (75) %
Total Diversified Products
revenues                               $     227                100  %       $   238                100  %       $   (11)                (5) %


The Diversified Products segment revenue for the three months ended March 31,
2021 and 2020 was $227 million and $238 million, respectively, a decrease of $11
million, or 5%. The decrease was primarily driven by: (i) a decrease in volume
of $9 million and (ii) the impact of divestitures and discontinuations of $7
million, partially offset by an increase in net realized pricing of $5 million,
primarily in our Neurology and Other business. The decrease in volume was
primarily attributable to the impact of generic competition as certain products,
such as Migranal®, Isuprel®, Demser® and Syprine®, lost exclusivity in our
Neurology and Other business, partially offset by: (i) an increase in volumes of
our Dentistry business and (ii) the short-term benefit to our sales of Pepcid®
as a result of a recall of a competitor's product.
Diversified Products Segment Profit
The Diversified Products segment profit for three months ended March 31, 2021
and 2020 was $171 million and $167 million, respectively, an increase of $4
million, or 2%. The increase was primarily driven by decreases in SG&A expenses
primarily attributable to profit protection measures taken to manage and reduce
operating expenses during the COVID-19 pandemic, as previously discussed
partially offset by the decrease in revenue, as previously discussed.
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LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
                                                                              Three Months Ended March 31,
(in millions)                                                            2021               2020            Change
Net loss                                                            $      

(607) $ (152) $ (455) Adjustments to reconcile net loss to net cash provided by operating activities

                                                        910              541              369

Cash provided by operating activities before changes in operating assets and liabilities

                                            303              389              (86)
Changes in operating assets and liabilities                                 140             (128)             268
Net cash provided by operating activities                                   443              261              182
Net cash used in investing activities                                       (56)             (40)             (16)
Net cash used in financing activities                                      (243)          (1,521)           1,278
Effect of exchange rate on cash and cash equivalents                        (13)             (21)               8

Net increase (decrease) in cash, cash equivalents, restricted cash and cash held for sale

                                                 131           (1,321)           1,452

Cash, cash equivalents and restricted cash, beginning of period

                                                                    1,816            3,244           (1,428)

Cash, cash equivalents, restricted cash and cash and cash equivalents held for sale, end of period

                            $     

1,947 $ 1,923 $ 24

Operating Activities
Net cash provided by operating activities was $443 million and $261 million for
the three months ended March 31, 2021 and 2020, respectively, an increase of
$182 million. The increase was attributable to Changes in operating assets and
liabilities partially offset by the decrease in Cash provided by operating
activities before changes in operating assets and liabilities.
Cash provided by operating activities before changes in operating assets and
liabilities for the three months ended March 31, 2021 and 2020 was $303 million
and $389 million, respectively, a decrease in cash of $86 million. The decrease
is primarily attributable to: (i) $115 million of higher payments of accrued
legal settlements during the three months ended March 31, 2021 as compared to
the three months ended March 31, 2020 and (ii) $26 million in payments for
Separation costs and Separation-related costs during the three months ended
March 31, 2021, partially offset by the impact of the profit protection measures
taken to manage and reduce operating expenses during the COVID-19 pandemic, as
previously discussed.
Changes in operating assets and liabilities resulted in a net increase in cash
of $140 million for the three months ended March 31, 2021 and a net decrease in
cash of $128 million for the three months ended March 31, 2020 representing a
net increase in cash of $268 million. During the three months ended March 31,
2021, Changes in operating assets and liabilities was positively impacted by:
(i) the timing of other payments in the ordinary course of business of
$84 million, (ii) the collection of trade receivables of $60 million and (iii)
an increase in accrued interest due to timing of payments of $31 million and was
partially offset by an increase in inventories of $35 million. During the three
months ended March 31, 2020, Changes in operating assets and liabilities was
negatively impacted by: (i) the timing of other payments in the ordinary course
of business of $180 million and (ii) an increase in inventories of $94 million
and was partially offset by: (i) an increase in accrued interest due to timing
of payments of $77 million and (ii) the collection of trade receivables of
$69 million.
Investing Activities
Net cash used in investing activities was $56 million for the three months ended
March 31, 2021 and was primarily driven by Purchases of property, plant and
equipment of $66 million partially offset by Interest settlements from
cross-currency swaps of $11 million.
Net cash used in investing activities was $40 million for the three months ended
March 31, 2020 and was primarily driven by Purchases of property, plant and
equipment of $72 million and was partially offset by Proceeds from sale of
assets and businesses, net of costs to sell of $21 million primarily related to
the receipt of a milestone payment associated with a prior divestiture and
Interest settlements from cross-currency swaps of $11 million.
Financing Activities
Net cash used in financing activities was $243 million for the three months
ended March 31, 2021 and was primarily driven by the prepayment of $200 million
of 7.00% Senior Secured Notes due 2024 using cash on hand and cash generated
from operations during 2021.
Net cash used in financing activities was $1,521 million for the three months
ended March 31, 2020 and was primarily driven by the repayments of debt of
$1,459 million which consisted of: (i) $1,240 million of May 2023 Unsecured
Notes,
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which was previously financed as part of the December 2019 Financing and
Refinancing Transactions, which were completed in January 2020, (ii) $100
million of 5.50% Senior Unsecured Notes due March 2023, (iii) $103 million of
our June 2025 Term Loan B Facility (as defined below) and (iv) the repurchase
and retirement of outstanding senior unsecured notes with an aggregate par value
of $17 million in the open market, for an aggregate cost of $16 million.
Issuance of long-term debt, net of discounts of $3 million primarily represents
the payment of fees and expenses associated with the December 2019 Financing and
Refinancing Transactions.
See Note 10, "FINANCING ARRANGEMENTS" to our unaudited interim Consolidated
Financial Statements for additional information regarding the financing
activities described above.
Liquidity and Debt
Future Sources of Liquidity
Our primary sources of liquidity are our cash and cash equivalents, cash
collected from customers, funds as available from our revolving credit facility,
issuances of long-term debt and issuances of equity and equity-linked
securities. We believe these sources will be sufficient to meet our current
liquidity needs for at least the twelve months following the issuance of this
Form 10-Q.
The Company regularly evaluates market conditions, its liquidity profile, and
various financing alternatives for opportunities to enhance its capital
structure. If opportunities are favorable, the Company may refinance or
repurchase existing debt or issue equity or equity-linked securities. We believe
our existing cash and cash generated from operations will be sufficient to
service our debt obligations through 2023.
Long-term Debt
Long-term debt, net of unamortized premiums, discounts and issuance costs was
$23,738 million and $23,925 million as of March 31, 2021 and December 31, 2020,
respectively. Aggregate contractual principal amounts due under our debt
obligations were $23,985 million and $24,185 million as of March 31, 2021 and
December 31, 2020, respectively, a decrease of $200 million during the three
months ended March 31, 2021. The decrease was primarily driven by net debt
repayments previously discussed under "Cash Flows - Financing Activities".
Our prepayment and refinancings of debt over the last four years translate into
lower repayments of principal over the next four years, which, in turn, we
believe will permit more cash flows to be directed toward developing our core
assets, identifying new product opportunities and repaying additional debt
amounts. The mandatory scheduled principal repayments of our debt obligations as
of March 31, 2021, were as follows:
(in millions)
      2021                2022           2023            2024             2025              2026             2027             2028             2029             2030             2031             Total
$      -                $   -          $   -          $ 2,091          $ 

10,632 $ 1,500 $ 2,250 $ 2,012 $ 3,250

$ 1,250 $ 1,000 $ 23,985

See Note 10, "FINANCING ARRANGEMENTS" to our unaudited interim Consolidated
Financial Statements and "Management's Discussion and Analysis - Liquidity and
Capital Resources: Long-term Debt" for further details.
Senior Secured Credit Facilities
On June 1, 2018, the Company and certain of its subsidiaries as guarantors
entered into the "Senior Secured Credit Facilities" under the Company's Fourth
Amended and Restated Credit and Guaranty Agreement, as amended by the First
Incremental Amendment to the Restated Credit Agreement, dated as of November 27,
2018, and as further amended (the "Restated Credit Agreement") with a syndicate
of financial institutions and investors as lenders. The Restated Credit
Agreement provides for a revolving credit facility of $1,225 million, which
matures on the earlier of June 1, 2023 and the date that is 91 calendar days
prior to the scheduled maturity of indebtedness for borrowed money of the
Company and Bausch Health Americas, Inc. ("BHA") in an aggregate principal
amount in excess of $1,000 million (the "2023 Revolving Credit Facility") and
term loan facilities of original principal amounts of $4,565 million and $1,500
million, maturing in June 2025 (the "June 2025 Term Loan B Facility") and
November 2025 (the "November 2025 Term Loan B Facility"), respectively. Both the
Company and BHA are borrowers under the 2023 Revolving Credit Facility,
borrowings under which may be made in U.S. dollars, Canadian dollars or euros.
Current Description of Senior Secured Credit Facilities
Borrowings under the Senior Secured Credit Facilities in U.S. dollars bear
interest at a rate per annum equal to, at the Company's option, either: (i) a
base rate determined by reference to the highest of: (a) the prime rate (as
defined in the Restated Credit Agreement), (b) the federal funds effective rate
plus 1/2 of 1.00% or (c) the eurocurrency rate (as defined in
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the Restated Credit Agreement) for a period of one month plus 1.00% (or if such
eurocurrency rate shall not be ascertainable, 1.00%) or (ii) a eurocurrency rate
determined by reference to the costs of funds for U.S. dollar deposits for the
interest period relevant to such borrowing adjusted for certain additional costs
(provided however, that the eurocurrency rate shall at no time be less than
0.00% per annum), in each case plus an applicable margin.
Borrowings under the 2023 Revolving Credit Facility in euros bear interest at a
eurocurrency rate determined by reference to the costs of funds for euro
deposits for the interest period relevant to such borrowing (provided however,
that the eurocurrency rate shall at no time be less than 0.00% per annum), plus
an applicable margin.
Borrowings under the 2023 Revolving Credit Facility in Canadian dollars bear
interest at a rate per annum equal to, at the Company's option, either: (i) a
prime rate determined by reference to the higher of: (a) the rate of interest
last quoted by The Wall Street Journal as the "Canadian Prime Rate" or, if The
Wall Street Journal ceases to quote such rate, the highest per annum interest
rate published by the Bank of Canada as its prime rate and (b) the 1 month BA
rate (as defined below) calculated daily plus 1.00% (provided however, that the
prime rate shall at no time be less than 0.00%) or (ii) the bankers' acceptance
rate for Canadian dollar deposits in the Toronto interbank market (the "BA
rate") for the interest period relevant to such borrowing (provided however,
that the BA rate shall at no time be less than 0.00% per annum), in each case
plus an applicable margin.
Subject to certain exceptions and customary baskets set forth in the Restated
Credit Agreement, the Company is required to make mandatory prepayments of the
loans under the Senior Secured Credit Facilities under certain circumstances,
including from: (i) 100% of the net cash proceeds of insurance and condemnation
proceeds for property or asset losses (subject to reinvestment rights and net
proceeds threshold), (ii) 100% of the net cash proceeds from the incurrence of
debt (other than permitted debt as described in the Restated Credit Agreement),
(iii) 50% of Excess Cash Flow (as defined in the Restated Credit Agreement)
subject to decrease based on leverage ratios and subject to a threshold amount
and (iv) 100% of net cash proceeds from asset sales (subject to reinvestment
rights). These mandatory prepayments may be used to satisfy future amortization.
The applicable interest rate margins for the June 2025 Term Loan B Facility and
the November 2025 Term Loan B Facility are 2.00% and 1.75%, respectively, with
respect to base rate and prime rate borrowings and 3.00% and 2.75%,
respectively, with respect to eurocurrency rate and BA rate borrowings.
As of March 31, 2021, the stated rates of interest on the Company's borrowings
under the June 2025 Term Loan B Facility and the November 2025 Term Loan B
Facility were 3.11% and 2.86% per annum, respectively.
The amortization rate for both the June 2025 Term Loan B Facility and the
November 2025 Term Loan B Facility is 5.00% per annum. The Company may direct
that prepayments be applied to such amortization payments in order of maturity.
As of March 31, 2021, the aggregate remaining mandatory quarterly amortization
payments for the Senior Secured Credit Facilities were $405 million through
November 1, 2025.
The applicable interest rate margins for borrowings under the 2023 Revolving
Credit Facility are 1.50%-2.00% with respect to base rate or prime rate
borrowings and 2.50%-3.00% with respect to eurocurrency rate or BA rate
borrowings.  As of March 31, 2021, the stated rate of interest on the 2023
Revolving Credit Facility was 3.11% per annum. As of March 31, 2021, the Company
had no outstanding borrowings, $101 million of issued and outstanding letters of
credit and remaining availability of $1,124 million under its 2023 Revolving
Credit Facility. In addition, the Company is required to pay commitment fees of
0.25%-0.50% per annum with respect to the unutilized commitments under the 2023
Revolving Credit Facility, payable quarterly in arrears. The Company also is
required to pay: (i) letter of credit fees on the maximum amount available to be
drawn under all outstanding letters of credit in an amount equal to the
applicable margin on eurocurrency rate borrowings under the 2023 Revolving
Credit Facility on a per annum basis, payable quarterly in arrears, (ii)
customary fronting fees for the issuance of letters of credit and (iii)
agency fees.
The Restated Credit Agreement permits the incurrence of incremental credit
facility borrowings up to the greater of $1,000 million and 28.5% of
Consolidated Adjusted EBITDA (as defined in the Restated Credit Agreement),
subject to customary terms and conditions, as well as the incurrence of
additional incremental credit facility borrowings subject to a secured leverage
ratio of not greater than 3.50:1.00, and, in the case of unsecured debt, a total
leverage ratio of not greater than 6.50:1.00 or an interest coverage ratio of
not less than 2.00:1.00.
Senior Secured Notes
The Senior Secured Notes are guaranteed by each of the Company's subsidiaries
that is a guarantor under the Restated Credit Agreement and existing Senior
Unsecured Notes (together, the "Note Guarantors"). The Senior Secured Notes and
the guarantees related thereto are senior obligations and are secured, subject
to permitted liens and certain other exceptions, by the same first priority
liens that secure the Company's obligations under the Restated Credit Agreement
under the terms of the indentures governing the Senior Secured Notes.
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The Senior Secured Notes and the guarantees rank equally in right of repayment
with all of the Company's and Note Guarantors' respective existing and future
unsubordinated indebtedness and senior to the Company's and Note Guarantors'
respective future subordinated indebtedness. The Senior Secured Notes and the
guarantees related thereto are effectively pari passu with the Company's and the
Note Guarantors' respective existing and future indebtedness secured by a first
priority lien on the collateral securing the Senior Secured Notes and
effectively senior to the Company's and the Note Guarantors' respective existing
and future indebtedness that is unsecured, including the existing Senior
Unsecured Notes, or that is secured by junior liens, in each case to the extent
of the value of the collateral. In addition, the Senior Secured Notes are
structurally subordinated to: (i) all liabilities of any of the Company's
subsidiaries that do not guarantee the Senior Secured Notes and (ii) any of the
Company's debt that is secured by assets that are not collateral.
Upon the occurrence of a change in control (as defined in the indentures
governing the Senior Secured Notes), unless the Company has exercised its right
to redeem all of the notes of a series, holders of the Senior Secured Notes may
require the Company to repurchase such holder's notes, in whole or in part, at a
purchase price equal to 101% of the principal amount thereof plus accrued and
unpaid interest.
The aggregate principal amount of our Senior Secured Notes as of March 31, 2021
and December 31, 2020 was $4,050 million and $4,250 million, respectively, a
decrease of $200 million representing the prepayment of $200 million 7.00%
Senior Secured Notes due 2024 using cash on hand and cash generated from
operations during 2021.
Senior Unsecured Notes
The Senior Unsecured Notes issued by the Company are the Company's senior
unsecured obligations and are jointly and severally guaranteed on a senior
unsecured basis by each of its subsidiaries that is a guarantor under the Senior
Secured Credit Facilities. The Senior Unsecured Notes issued by BHA are senior
unsecured obligations of BHA and are jointly and severally guaranteed on a
senior unsecured basis by the Company and each of its subsidiaries (other than
BHA) that is a guarantor under the Senior Secured Credit Facilities. Future
subsidiaries of the Company and BHA, if any, may be required to guarantee the
Senior Unsecured Notes. On a non-consolidated basis, the non-guarantor
subsidiaries had total assets of $2,484 million and total liabilities of $1,911
million as of March 31, 2021, and revenues of $411 million and operating loss of
$30 million for the three months ended March 31, 2021.
If the Company experiences a change in control, the Company may be required to
make an offer to repurchase each series of Senior Unsecured Notes, in whole or
in part, at a purchase price equal to 101% of the aggregate principal amount of
the Senior Unsecured Notes repurchased, plus accrued and unpaid interest.
The aggregate principal amount of our Senior Unsecured Notes as of March 31,
2021 and December 31, 2020 was $15,500 million.
Covenant Compliance
Any inability to comply with the covenants under the terms of our Restated
Credit Agreement, Senior Secured Notes indentures or Senior Unsecured Notes
indentures could lead to a default or an event of default for which we may need
to seek relief from our lenders and noteholders in order to waive the associated
default or event of default and avoid a potential acceleration of the related
indebtedness or cross-default or cross-acceleration to other debt. There can be
no assurance that we would be able to obtain such relief on commercially
reasonable terms or otherwise and we may be required to incur significant
additional costs. In addition, the lenders under our Restated Credit Agreement,
holders of our Senior Secured Notes and holders of our Senior Unsecured Notes
may impose additional operating and financial restrictions on us as a condition
to granting any such waiver.
Since 2017 through the date of this filing, the Company completed several
actions which included using cash flows from operations to repay debt and
refinancing debt with near-term maturities. These actions have reduced the
Company's debt balance and positively affected the Company's ability to comply
with the financial maintenance covenant. As of March 31, 2021, the Company was
in compliance with its financial maintenance covenant related to its outstanding
debt. The Company, based on its current forecast as adjusted for the potential
impacts of the COVID-19 pandemic, expects to remain in compliance with the
financial maintenance covenant and meet its debt service obligations for at
least the twelve months following the date of issuance of this Form 10-Q.
The Company continues to take steps to improve its operating results to ensure
continual compliance with its financial maintenance covenant and take other
actions to reduce its debt levels to align with the Company's long-term
strategy. The Company may consider taking other actions, including divesting
other businesses, refinancing debt and issuing equity or equity-linked
securities as deemed appropriate, to provide additional coverage in complying
with the financial maintenance covenant and meeting its debt service
obligations.
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On August 6, 2020, we announced that we intend to separate our eye-health
business into an independent publicly traded entity ("Bausch + Lomb") from the
remainder of Bausch Health Companies Inc. We continue to make progress toward
the internal objectives necessary for the Separation and have been actively
addressing the internal organizational design and structure of the new entity.
We are actively addressing the structure and pro forma capitalizations of the
two entities post-separation and have announced certain key leadership positions
of the Bausch + Lomb entity. Based on our assessment, we believe that, by the
end of the third quarter of 2021, we will be able to address the organizational
matters and regulatory requirements needed to operate the businesses separately
and put the Bausch + Lomb entity in a position to become an independent publicly
traded company. Management is also considering the form of the Separation and
exploring a number of alternative capitalization structures in order to properly
capitalize the entities post-separation. Although a public offering of a portion
of the Bausch + Lomb business is among the alternate capital structures being
considered, this Form 10-Q does not constitute an offer of any securities of
Bausch + Lomb for sale.
Weighted Average Interest Rate
The weighted average stated rate of interest of the Company's outstanding debt
as of March 31, 2021 and December 31, 2020 was 6.00% and 6.02%, respectively.
See Note 10, "FINANCING ARRANGEMENTS" to our unaudited interim Consolidated
Financial Statements for further details.
Credit Ratings
As of May 4, 2021, the credit ratings and outlook from Moody's, Standard &
Poor's and Fitch for certain outstanding obligations of the Company were as
follows:
      Rating Agency                  Corporate Rating                Senior Secured Rating               Senior Unsecured Rating                 Outlook
        Moody's                             B2                                Ba2                                   B3                            Stable
    Standard & Poor's                       B+                                 BB                                   B                             Stable
          Fitch                             B                                  BB                                   B                             Stable


Any downgrade in our corporate credit ratings or other credit ratings may
increase our cost of borrowing and may negatively impact our ability to raise
additional debt capital.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
We have no off-balance sheet arrangements that have a material current effect or
that are reasonably likely to have a material effect on our results of
operations, financial condition, capital expenditures, liquidity, or capital
resources.
A substantial portion of our cash requirements for the remainder of 2021 are for
debt service. Our other future cash requirements relate to working capital,
capital expenditures, business development transactions (contingent
consideration), restructuring, integration and separation costs, benefit
obligations and litigation settlements. In addition, we may use cash to enter
into licensing arrangements and/or to make strategic acquisitions. We are
considering further acquisition opportunities within our core therapeutic areas,
some of which could be sizable.
In addition to our working capital requirements, as of March 31, 2021, we expect
our primary cash requirements during the remainder of 2021 to include:
•Debt repayments-As a result of prepayments and a series of refinancing
transactions we have reduced and extended the maturities of a substantial
portion of our long-term debt and have no debt maturities or mandatory
amortization payments due until 2024. We expect to make interest payments of
approximately $1,088 million during the remainder of 2021. In addition, in April
and May 2021, we announced we will redeem $200 million aggregate principal
amount of our 7.00% Senior Secured Notes due 2024 using cash on hand and cash
generated from operations, in May and June 2021. We may also elect to make
additional principal payments under certain circumstances. Further, in the
ordinary course of business, we may borrow and repay amounts under our 2023
Revolving Credit Facility to meet business needs;
•IT Infrastructure Investment-We expect to make payments of approximately
$45 million for licensing, maintenance and capitalizable costs associated with
our IT infrastructure improvement projects during the remainder of 2021;
•Capital expenditures-We expect to make payments of approximately $200 million
for property, plant and equipment during the remainder of 2021;
•Contingent consideration payments-We expect to make contingent consideration
and other development/approval/sales-based milestone payments of approximately
$155 million during the remainder of 2021;
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•Restructuring and integration payments-We expect to make payments of $5 million
during the remainder of 2021 for employee separation costs and lease termination
obligations associated with restructuring and integration actions we have taken
through March 31, 2021;
•Benefit obligations-We expect to make aggregate payments under our pension and
postretirement obligations of $11 million during the remainder of 2021; and
•U.S. Securities Litigation Settlement-As more fully discussed in Note 18,
"LEGAL PROCEEDINGS" to our unaudited interim Consolidated Financial Statements,
we announced that we had agreed to resolve the U.S. Securities Litigation for
$1,210 million. Final court approval of this settlement was granted in January
2021. Subject to two objectors' appeals of the Court's final approval order, the
settlement resolves and discharges all claims against the Company in the class
action. As part of the settlement, the Company and the other settling defendants
admitted no liability as to the claims against it and deny all allegations of
wrongdoing. This settlement resolves the most significant of the Company's
remaining legacy legal matters and eliminates a material uncertainty regarding
our Company. As of March 31, 2021, Restricted cash includes $1,210 million of
payments into an escrow fund under the terms of a settlement agreement regarding
the U.S. Securities Litigation.
Costs of Separation
As previously discussed, with the goal of unlocking additional Company value, on
August 6, 2020, the Company announced that it intends to separate its eye-health
business into an independent publicly traded entity. The Company has incurred,
and will incur, costs associated with activities to effectuate the Separation.
These activities include: (i) separating the eye-health business from the
remainder of the Company and (ii) registering the eye-health business as an
independent publicly traded entity. Separation costs are incremental costs
directly related to the Separation and include, but are not limited to: (i)
legal, audit and advisory fees, (ii) employee hiring, relocation and travel
costs and (iii) costs associated with establishing a new board of directors and
audit committee. The Company has also incurred, and will incur,
Separation-related costs which are incremental costs indirectly related to the
Separation. Separation-related costs include, but are not limited to: (i) IT
infrastructure and software licensing costs, (ii) rebranding costs and (iii)
costs associated with facility relocation and/or modification. As of the date of
this filing, we have begun executing on our plan for the Separation and future
payments for Separation costs and Separation-related costs cannot be reasonably
estimated at this time and could be material.
Proceeds From and Uses Of Sale of Business
In order to better focus on our core businesses, we continue to evaluate
opportunities to simplify our operations and improve our capital structure,
including dispositions of various assets. For example, on March 31, 2021, we
announced that the Company and certain of its affiliates had entered into a
definitive agreement to sell all of its equity interests in the Amoun business
for total gross consideration of approximately $740 million. The Amoun Sale is
expected to close in the first half of 2021, subject to customary closing
conditions, and we anticipate using the net proceeds from the Amoun Sale to pay
down certain debt obligations to further deleverage the Company.
Future Cost Savings Programs
We continue to evaluate opportunities to improve our operating results and may
initiate additional cost savings programs to streamline our operations and
eliminate redundant processes and expenses. These cost savings programs may
include, but are not limited to: (i) reducing headcount, (ii) eliminating real
estate costs associated with unused or under-utilized facilities and (iii)
implementing contribution margin improvement and other cost reduction
initiatives. The expenses associated with the implementation of these cost
savings programs could be material and may impact our cash flows.
Option to Acquire All Ophthalmology Assets of Allegro
As previously discussed, on September 21, 2020, we announced that we entered
into an agreement to acquire an option to purchase all ophthalmology assets of
Allegro. Aggregate payments under the Option are up to $50 million and include
an upfront payment of $10 million and a second payment of $40 million should
Allegro raise additional funding. During 2020, we made and expensed the upfront
payment of $10 million as Acquired in-process research and development. If the
Option is exercised, additional payments to acquire all of the ophthalmology
assets of Allegro will be due over time.
Future Litigation Payments
In addition to the U.S. Securities Litigation discussed above, in the ordinary
course of business, the Company is involved in litigation, claims, government
inquiries, investigations, charges and proceedings. See Note 18, "LEGAL
PROCEEDINGS" to our unaudited interim Consolidated Financial Statements for
further details of these matters. Our ability to successfully defend the Company
against pending and future litigation may impact future cash flows.
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Future Licensing Payments
In the ordinary course of business, the Company may enter into select licensing
and collaborative agreements for the commercialization and/or development of
unique products primarily in the U.S. and Canada. In connection with these
agreements, the Company may pay an upfront fee to secure the agreement. See Note
4, "ACQUISITION, LICENSING AGREEMENTS AND ASSETS HELD FOR SALE" to our unaudited
interim Consolidated Financial Statements. Payments associated with the upfront
fee for these agreements cannot be reasonably estimated at this time and could
be material.
Unrecognized Tax Benefits
As of March 31, 2021, the Company had unrecognized tax benefits totaling $1,042
million, of which, $203 million is expected to be realized during the remainder
of 2021, however a reliable estimate of the period in which the remaining
uncertain tax positions will be payable, if ever, cannot be made.
There have been no other material changes to the contractual obligations
disclosed in Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Off-Balance Sheet Arrangements and
Contractual Obligations" included in our Annual Report on Form 10-K for the year
ended December 31, 2020, filed with the SEC and the CSA on February 24, 2021.
OUTSTANDING SHARE DATA
Our common shares trade on the New York Stock Exchange and the Toronto Stock
Exchange under the symbol "BHC".
At April 29, 2021, we had 358,395,632 issued and outstanding common shares. In
addition, as of April 29, 2021, we had outstanding 9,396,980 stock options and
5,638,209 time-based restricted share units that each represent the right of a
holder to receive one of the Company's common shares, and 2,207,728
performance-based restricted share units that represent the right of a holder to
receive a number of the Company's common shares up to a specified maximum. A
maximum of 3,786,963 common shares could be issued upon vesting of the
performance-based restricted share units outstanding.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Critical accounting policies and estimates are those policies and estimates that
are most important and material to the preparation of our Consolidated Financial
Statements, and which require management's most subjective and complex judgment
due to the need to select policies from among alternatives available, and to
make estimates about matters that are inherently uncertain. Management has
reassessed the critical accounting policies and estimates as disclosed in Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Critical Accounting Policies and Estimates" included in our Annual
Report on Form 10-K for the year ended December 31, 2020, filed with the SEC and
the CSA on February 24, 2021, and determined that there were no significant
changes in our critical accounting policies and estimates during the three
months ended March 31, 2021, except for: (i) estimates and assumptions regarding
the nature, timing and extent that the COVID-19 pandemic had on the Company's
operations and cash flows as discussed in Note 2, "SIGNIFICANT ACCOUNTING
POLICIES" to our unaudited interim Consolidated Financial Statements, (ii) the
impact of the current year segment realignment had on the Company's allocation
of goodwill as discussed in Note 8, "INTANGIBLE ASSETS AND GOODWILL" to our
unaudited interim Consolidated Financial Statements, (iii) the estimates
associated with the fair value of Ortho Dermatologics reporting unit in testing
goodwill for impairment as discussed in Note 8, "INTANGIBLE ASSETS AND GOODWILL"
to our unaudited interim Consolidated Financial Statements, (iv) the impact that
the COVID-19 pandemic has on the Company's assessment of goodwill as discussed
in Note 8, "INTANGIBLE ASSETS AND GOODWILL" to our unaudited interim
Consolidated Financial Statements and (v) recently adopted accounting guidance
as discussed in Note 2, "SIGNIFICANT ACCOUNTING POLICIES" to our unaudited
interim Consolidated Financial Statements.
NEW ACCOUNTING STANDARDS
Adoption of New Accounting Guidance
Information regarding recently issued accounting guidance is contained in Note
2, "SIGNIFICANT ACCOUNTING POLICIES" of notes to our unaudited interim
Consolidated Financial Statements.
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FORWARD-LOOKING STATEMENTS
Caution regarding forward-looking information and statements and "Safe-Harbor"
statements under the U.S. Private Securities Litigation Reform Act of 1995 and
applicable Canadian securities laws:
To the extent any statements made in this Form 10-Q contain information that is
not historical, these statements are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and may be
forward-looking information within the meaning defined under applicable Canadian
securities laws (collectively, "forward-looking statements").
These forward-looking statements relate to, among other things: our business
strategy, business plans and prospects and forecasts and changes thereto;
product pipeline, prospective products and product approvals, product
development and future performance and results of current and anticipated
products; anticipated revenues for our products; expected R&D and marketing
spend; our expected primary cash and working capital requirements for 2021 and
beyond; the Company's plans for continued improvement in operational efficiency
and the anticipated impact of such plans; our liquidity and our ability to
satisfy our debt maturities as they become due; our ability to reduce debt
levels; our ability to meet the financial and other covenants contained in our
Fourth Amended and Restated Credit and Guaranty Agreement (the "Restated Credit
Agreement"), and senior notes indentures; the impact of our distribution,
fulfillment and other third-party arrangements; proposed pricing actions;
exposure to foreign currency exchange rate changes and interest rate changes;
the outcome of contingencies, such as litigation, subpoenas, investigations,
reviews, audits and regulatory proceedings; the anticipated impact of the
adoption of new accounting standards; general market conditions; our
expectations regarding our financial performance, including revenues, expenses,
gross margins and income taxes; our impairment assessments, including the
assumptions used therein and the results thereof; the anticipated impact of the
evolving COVID-19 pandemic and related responses from governments and private
sector participants on the Company, its supply chain, third-party suppliers,
project development timelines, costs, revenue, margins, liquidity and financial
condition, the anticipated timing, speed and magnitude of recovery from these
COVID-19 pandemic related impacts and the Company's planned actions and
responses to this pandemic; and the Company's plan to separate its eye-health
business, including the structure and timing of completing such separation
transaction.
Forward-looking statements can generally be identified by the use of words such
as "believe", "anticipate", "expect", "intend", "estimate", "plan", "continue",
"will", "may", "could", "would", "should", "target", "potential", "opportunity",
"designed", "create", "predict", "project", "forecast", "seek", "strive",
"ongoing" or "increase" and variations or other similar expressions. In
addition, any statements that refer to expectations, intentions, projections or
other characterizations of future events or circumstances are forward-looking
statements. These forward-looking statements may not be appropriate for other
purposes. Although we have previously indicated certain of these statements set
out herein, all of the statements in this Form 10-Q that contain forward-looking
statements are qualified by these cautionary statements. These statements are
based upon the current expectations and beliefs of management. Although we
believe that the expectations reflected in such forward-looking statements are
reasonable, such statements involve risks and uncertainties, and undue reliance
should not be placed on such statements. Certain material factors or assumptions
are applied in making such forward-looking statements, including, but not
limited to, factors and assumptions regarding the items previously outlined,
those factors, risks and uncertainties outlined below and the assumption that
none of these factors, risks and uncertainties will cause actual results or
events to differ materially from those described in such forward-looking
statements. Actual results may differ materially from those expressed or implied
in such statements. Important factors, risks and uncertainties that could cause
actual results to differ materially from these expectations include, among other
things, the following:
•the risks and uncertainties caused by or relating to the evolving COVID-19
pandemic, the fear of that pandemic, the availability and effectiveness of
vaccines for COVID-19, the rapidly evolving reaction of governments, private
sector participants and the public to that pandemic, and the potential effects
and economic impact of the pandemic and the reaction to it, the severity,
duration and future impact of which are highly uncertain and cannot be
predicted, and which may have a significant adverse impact on the Company,
including but not limited to its supply chain, third-party suppliers, project
development timelines, employee base, liquidity, stock price, financial
condition and costs (which may increase) and revenue and margins (both of which
may decrease);
•with respect to the proposed separation of the Company's eye-health business,
the risks and uncertainties include, but are not limited to, the expected
benefits and costs of the separation transaction, the expected timing of
completion of the separation transaction and its terms, the Company's ability to
complete the separation transaction considering the various conditions to the
completion of the separation transaction (some of which are outside the
Company's control, including conditions related to regulatory matters and a
possible shareholder vote, if applicable), that market or other conditions are
no longer favorable to completing the transaction, that any shareholder, stock
exchange, regulatory or other approval (if required) is not obtained on the
terms or timelines anticipated or at all, business disruption during the
pendency of or following the separation transaction, diversion of management
time on separation transaction-related issues, retention of existing management
team members, the reaction of customers and
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other parties to the separation transaction, the qualification of the separation
transaction as a tax-free transaction for Canadian and/or U.S. federal income
tax purposes (including whether or not an advance ruling from either or both of
the Canada Revenue Agency and the Internal Revenue Service will be sought or
obtained), potential dissynergy costs resulting from the separation transaction,
the impact of the separation transaction on relationships with customers,
suppliers, employees and other business counterparties, general economic
conditions, conditions in the markets the Company is engaged in, behavior of
customers, suppliers and competitors, technological developments, as well as
legal and regulatory rules affecting the Company's business;
•the expense, timing and outcome of legal and governmental proceedings,
investigations and information requests relating to, among other matters, our
past distribution, marketing, pricing, disclosure and accounting practices
(including with respect to our former relationship with Philidor Rx Services,
LLC ("Philidor")), including a number of pending non-class securities
litigations (including certain pending opt-out actions in the U.S. related to
the previously settled securities class action (which remains subject to two
objectors' appeals of the Court's final approval order) and certain opt-out
actions in Canada relating to the recently settled class action in Canada) and
purported class actions under the federal RICO statute and other claims,
investigations or proceedings that may be initiated or that may be asserted;
•potential additional litigation and regulatory investigations (and any costs,
expenses, use of resources, diversion of management time and efforts, liability
and damages that may result therefrom), negative publicity and reputational harm
on our Company, products and business that may result from the past and ongoing
public scrutiny of our past distribution, marketing, pricing, disclosure and
accounting practices and from our former relationship with Philidor;
•the past and ongoing scrutiny of our legacy business practices, including with
respect to pricing, and any pricing controls or price adjustments that may be
sought or imposed on our products as a result thereof;
•pricing decisions that we have implemented, or may in the future elect to
implement, such as the Patient Access and Pricing Committee's commitment that
the average annual price increase for our branded prescription pharmaceutical
products will be set at no greater than single digits, or any future pricing
actions we may take following review by our Patient Access and Pricing Committee
(which is responsible for the pricing of our drugs);
•legislative or policy efforts, including those that may be introduced and
passed by the U.S. Congress, designed to reduce patient out-of-pocket costs for
medicines, which could result in new mandatory rebates and discounts or other
pricing restrictions, controls or regulations (including mandatory price
reductions);
•ongoing oversight and review of our products and facilities by regulatory and
governmental agencies, including periodic audits by the U.S. Food and Drug
Administration (the "FDA") and equivalent agencies outside of the U.S. and the
results thereof;
•actions by the FDA or other regulatory authorities with respect to our products
or facilities;
•our substantial debt (and potential additional future indebtedness) and current
and future debt service obligations, our ability to reduce our outstanding debt
levels and the resulting impact on our financial condition, cash flows and
results of operations;
•our ability to meet the financial and other covenants contained in our Restated
Credit Agreement, senior notes indentures, 2023 Revolving Credit Facility and
other current or future debt agreements and the limitations, restrictions and
prohibitions such covenants impose or may impose on the way we conduct our
business, including prohibitions on incurring additional debt if certain
financial covenants are not met, limitations on the amount of additional
obligations we are able to incur pursuant to other covenants, our ability to
draw under our 2023 Revolving Credit Facility and restrictions on our ability to
make certain investments and other restricted payments;
•any default under the terms of our senior notes indentures or Restated Credit
Agreement and our ability, if any, to cure or obtain waivers of such default;
•any downgrade by rating agencies in our credit ratings, which may impact, among
other things, our ability to raise debt and the cost of capital for additional
debt issuances;
•any reductions in, or changes in the assumptions used in, our forecasts for
fiscal year 2021 or beyond, including as a result of the impacts of the COVID-19
pandemic on our business and operations, which could lead to, among other
things: (i) a failure to meet the financial and/or other covenants contained in
our Restated Credit Agreement and/or senior notes indentures and/or (ii)
impairment in the goodwill associated with certain of our reporting units or
impairment charges related to certain of our products or other intangible
assets, which impairments could be material;
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•changes in the assumptions used in connection with our impairment analyses or
assessments, which would lead to a change in such impairment analyses and
assessments and which could result in an impairment in the goodwill associated
with any of our reporting units or impairment charges related to certain of our
products or other intangible assets;
•the uncertainties associated with the acquisition and launch of new products,
including, but not limited to, our ability to provide the time, resources,
expertise and funds required for the commercial launch of new products, the
acceptance and demand for new pharmaceutical products, and the impact of
competitive products and pricing, which could lead to material impairment
charges;
•our ability or inability to extend the profitable life of our products,
including through line extensions and other life-cycle programs;
•our ability to retain, motivate and recruit executives and other key employees;
•our ability to implement effective succession planning for our executives and
key employees;
•factors impacting our ability to stabilize and reposition our Ortho
Dermatologics business to generate additional value, including the success of
recently launched products, expected geographic expansion in our Solta business
(including with respect to Next Generation Thermage FLX®) and the approval of
pipeline products (and the timing of such approvals);
•factors impacting our ability to achieve anticipated revenues for our products,
including changes in anticipated marketing spend on such products and launch of
competing products;
•the challenges and difficulties associated with managing a large complex
business, which has, in the past, grown rapidly;
•our ability to compete against companies that are larger and have greater
financial, technical and human resources than we do, as well as other
competitive factors, such as technological advances achieved, patents obtained
and new products introduced by our competitors;
•our ability to effectively operate and grow our businesses in light of the
challenges that the Company has faced and market conditions, including with
respect to its substantial debt, pending investigations and legal proceedings,
scrutiny of our past pricing and other practices, limitations on the way we
conduct business imposed by the covenants contained in our Restated Credit
Agreement, senior notes indentures and the agreements governing our other
indebtedness, and the impacts of the COVID-19 pandemic;
•the extent to which our products are reimbursed by government authorities,
pharmacy benefit managers ("PBMs") and other third-party payors; the impact our
distribution, pricing and other practices may have on the decisions of such
government authorities, PBMs and other third-party payors to reimburse our
products; and the impact of obtaining or maintaining such reimbursement on the
price and sales of our products;
•the inclusion of our products on formularies or our ability to achieve
favorable formulary status, as well as the impact on the price and sales of our
products in connection therewith;
•the consolidation of wholesalers, retail drug chains and other customer groups
and the impact of such industry consolidation on our business;
•our eligibility for benefits under tax treaties and the continued availability
of low effective tax rates for the business profits of certain of our
subsidiaries;
•the actions of our third-party partners or service providers of research,
development, manufacturing, marketing, distribution or other services, including
their compliance with applicable laws and contracts, which actions may be beyond
our control or influence, and the impact of such actions on our Company,
including the impact to the Company of our former relationship with Philidor and
any alleged legal or contractual non-compliance by Philidor;
•the risks associated with the international scope of our operations, including
our presence in emerging markets and the challenges we face when entering and
operating in new and different geographic markets (including the challenges
created by new and different regulatory regimes in such countries and the need
to comply with applicable anti-bribery and economic sanctions laws and
regulations);
•adverse global economic conditions and credit markets and foreign currency
exchange uncertainty and volatility in certain of the countries in which we
do business;
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•the impact of the United States-Mexico-Canada Agreement ("USMCA") and any
potential changes to other trade agreements;
•the impact of Brexit and the post-Brexit trade deal between the European Union
and the United Kingdom;
•the trade conflict between the United States and China;
•our ability to obtain, maintain and license sufficient intellectual property
rights over our products and enforce and defend against challenges to such
intellectual property (such as in connection with the filing by Norwich
Pharmaceuticals Inc. ("Norwich") of its Abbreviated New Drug Application
("ANDA") for Xifaxan® (rifaximin) 550 mg tablets and the Company's related
lawsuit filed against Norwich in connection therewith);
•the introduction of generic, biosimilar or other competitors of our branded
products and other products, including the introduction of products that compete
against our products that do not have patent or data exclusivity rights;
•our ability to identify, finance, acquire, close and integrate acquisition
targets successfully and on a timely basis and the difficulties, challenges,
time and resources associated with the integration of acquired companies,
businesses and products;
•any divestitures of our assets or businesses and our ability to successfully
complete any such divestitures on commercially reasonable terms and on a timely
basis, or at all, and the impact of any such divestitures on our Company,
including the reduction in the size or scope of our business or market share,
loss of revenue, any loss on sale, including any resultant impairments of
goodwill or other assets, or any adverse tax consequences suffered as a result
of any such divestitures;
•the expense, timing and outcome of pending or future legal and governmental
proceedings, arbitrations, investigations, subpoenas, tax and other regulatory
audits, examinations, reviews and regulatory proceedings against us or relating
to us and settlements thereof;
•our ability to negotiate the terms of or obtain court approval for the
settlement of certain legal and regulatory proceedings;
•our ability to obtain components, raw materials or finished products supplied
by third parties (some of which may be single-sourced) and other manufacturing
and related supply difficulties, interruptions and delays;
•the disruption of delivery of our products and the routine flow of manufactured
goods;
•economic factors over which the Company has no control, including changes in
inflation, interest rates, foreign currency rates, and the potential effect of
such factors on revenues, expenses and resulting margins;
•interest rate risks associated with our floating rate debt borrowings;
•our ability to effectively distribute our products and the effectiveness and
success of our distribution arrangements;
•our ability to effectively promote our own products and those of our
co-promotion partners;
•the success of our fulfillment arrangements with Walgreens, including market
acceptance of, or market reaction to, such arrangements (including by customers,
doctors, patients, PBMs, third-party payors and governmental agencies), and the
continued compliance of such arrangements with applicable laws;
•our ability to secure and maintain third-party research, development,
manufacturing, licensing, marketing or distribution arrangements;
•the risk that our products could cause, or be alleged to cause, personal injury
and adverse effects, leading to potential lawsuits, product liability claims and
damages and/or recalls or withdrawals of products from the market;
•the mandatory or voluntary recall or withdrawal of our products from the market
and the costs associated therewith;
•the availability of, and our ability to obtain and maintain, adequate insurance
coverage and/or our ability to cover or insure against the total amount of the
claims and liabilities we face, whether through third-party insurance or
self-insurance;
•the difficulty in predicting the expense, timing and outcome within our legal
and regulatory environment, including with respect to approvals by the FDA,
Health Canada and similar agencies in other countries, legal and regulatory
proceedings and settlements thereof, the protection afforded by our patents and
other intellectual and proprietary
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property, successful generic challenges to our products and infringement or
alleged infringement of the intellectual property of others;
•the results of continuing safety and efficacy studies by industry and
government agencies;
•the success of preclinical and clinical trials for our drug development
pipeline or delays in clinical trials that adversely impact the timely
commercialization of our pipeline products, as well as other factors impacting
the commercial success of our products, which could lead to material impairment
charges;
•the results of management reviews of our research and development portfolio
(including following the receipt of clinical results or feedback from the FDA or
other regulatory authorities), which could result in terminations of specific
projects which, in turn, could lead to material impairment charges;
•the seasonality of sales of certain of our products;
•declines in the pricing and sales volume of certain of our products that are
distributed or marketed by third parties, over which we have no or limited
control;
•compliance by the Company or our third-party partners and service providers
(over whom we may have limited influence), or the failure of our Company or
these third parties to comply, with health care "fraud and abuse" laws and other
extensive regulation of our marketing, promotional and business practices
(including with respect to pricing), worldwide anti-bribery laws (including the
U.S. Foreign Corrupt Practices Act and the Canadian Corruption of Foreign Public
Officials Act), worldwide economic sanctions and/or export laws, worldwide
environmental laws and regulation and privacy and security regulations;
•the impacts of the Patient Protection and Affordable Care Act, as amended by
the Health Care and Education Reconciliation Act of 2010 (the "Health Care
Reform Act") and potential amendment thereof and other legislative and
regulatory health care reforms in the countries in which we operate, including
with respect to recent government inquiries on pricing;
•the impact of any changes in or reforms to the legislation, laws, rules,
regulation and guidance that apply to the Company and its businesses and
products or the enactment of any new or proposed legislation, laws, rules,
regulations or guidance that will impact or apply to the Company or its
businesses or products;
•the impact of changes in federal laws and policy that may be undertaken
following the change in the U.S. administration;
•illegal distribution or sale of counterfeit versions of our products;
•interruptions, breakdowns or breaches in our information technology systems;
and
•risks in Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year
ended December 31, 2020, filed on February 24, 2021, risks in Item 1A. "Risk
Factors" of Part II of this Form 10-Q and risks detailed from time to time in
our other filings with the SEC and the Canadian Securities Administrators
(the "CSA"), as well as our ability to anticipate and manage the risks
associated with the foregoing.
Additional information about these factors and about the material factors or
assumptions underlying such forward-looking statements may be found in our
Annual Report on Form 10-K for the year ended December 31, 2020, filed on
February 24, 2021, under Item 1A. "Risk Factors" and in the Company's other
filings with the SEC and the CSA. When relying on our forward-looking statements
to make decisions with respect to the Company, investors and others should
carefully consider the foregoing factors and other uncertainties and potential
events. These forward-looking statements speak only as of the date made. We
undertake no obligation to update or revise any of these forward-looking
statements to reflect events or circumstances after the date of this Form 10-Q
or to reflect actual outcomes, except as required by law. We caution that, as it
is not possible to predict or identify all relevant factors that may impact
forward-looking statements, the foregoing list of important factors that may
affect future results is not exhaustive and should not be considered a complete
statement of all potential risks and uncertainties.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Other than as indicated below under "- Interest Rate Risk", and under 1A. "Risk
Factors" of Part II of this Form 10-Q, there have been no material changes to
our exposures to market risks as disclosed in Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Quantitative and
Qualitative Disclosures About Market Risks" included in our Annual Report on
Form 10-K for the year ended December 31, 2020, filed with the SEC and the CSA
on February 24, 2021.
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Interest Rate Risk
As of March 31, 2021, we had $19,562 million and $4,423 million principal amount
of issued fixed rate debt and variable rate debt, respectively. The estimated
fair value of our issued fixed rate debt as of March 31, 2021 was
$20,467 million. If interest rates were to increase by 100 basis-points, the
fair value of our issued fixed rate debt would decrease by approximately
$458 million. If interest rates were to decrease by 100 basis-points, the fair
value of our issued fixed rate debt would increase by approximately
$371 million. We are subject to interest rate risk on our variable rate debt as
changes in interest rates could adversely affect earnings and cash flows. A 100
basis-points increase in interest rates would have an annualized pre-tax effect
of approximately $44 million in our Consolidated Statements of Operations and
Cash Flows, based on current outstanding borrowings and effective interest rates
on our variable rate debt. While our variable-rate debt may impact earnings and
cash flows as interest rates change, it is not subject to changes in fair value.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer ("CEO")
and Chief Financial Officer ("CFO"), has evaluated the effectiveness of our
disclosure controls and procedures as of March 31, 2021. Based on this
evaluation, our CEO and CFO concluded that our disclosure controls and
procedures were effective as of March 31, 2021.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal controls over financial
reporting that occurred during the three months ended March 31, 2021 that have
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.
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