Bausch Health's decent quarter can't overcome headwind of ongoing patent dispute

Published Thu, Nov 2 202312:58 PM EDTUpdated Thu, Nov 2 20237:13 PM EDT

Bausch Health Companies (BHC) reported better-than-expected quarterly results Thursday. But they aren't enough to overcome the headwind of the company's ongoing patent legislation. Revenue for the three months ended Sept. 30 increased 9% (both reported and organic), to $2.24 billion, beating the Street's consensus estimate of $2.15 billion, according to LSEG. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $830 million, up 8% versus a year ago and ahead of the $808 billion consensus estimate. Good numbers, but they take a back seat to the legal battle over Bausch drug Xifaxan. This key drug — representing 80% of sales at BHC's Salix Pharmaceuticals unit — is used to treat irritable bowel syndrome with diarrhea (IBS-D) and overt hepatic encephalopathy (HE), which happens when a person's liver cannot filter toxins that build up and reach the brain. The drug is at the center of a patent dispute going back to 2020 with Norwich Pharmaceuticals, which is looking to bring a generic version to market. On the conference call with investors, management said it expects a decision on the cases, now consolidated, by the end of the first quarter of 2024 and remains "confident in our position." Separately, management highlighted the news released on Nov. 1, noting that Bausch Health did score a small victory in the ongoing matter as the D.C. District Court ruled against Norwich, in favor of Salix and the FDA, in their lawsuit against the FDA "to immediately grant Final Approval to Norwich's Abbreviated New Drug Application (ANDA) for XIFAXAN® (rifaximin) 550 mg." Another possible catalyst is the monetization of BCH's Bausch + Lomb (BLCO) stake. Management didn't provide any update on timing for when the remaining 88% of BLCO that Bausch Health owns will be sold off. The trust owns a very small BCH position, and the Xifaxan overhang prevents us from changing our 4-rating , which means we'll take no action until there's more information. Guidance Bausch revised its full-year sales and EBITDA outlook. On a companywide basis (which includes the B+L stake), management now expects sales to be in a range of $8.585 to $8.71 billion, up from $8.45 to $8.65 billion previously and ahead of the $8.51 billion estimate. The revision reflects better expectations for both the B+L stake and the business excluding B+L, the latter of which expects top line growth by 4% to 6% on an organic basis, up from the 2% to 5% range previously forecast. The EBITDA outlook, however, was less favorable. Management now expects companywide EBITDA in a range of $3.01 to $3.11 billion, versus an earlier range of $3.0 to $3.15 billion. Driving this revision was a $50 million haircut to the top of the BHC ex-B+L business, to a new range of $2.3 to $2.35 billion). That was only partially offset by a $10 million increase to the midpoint of the B+L stake, to a new range of $710 to $760 million. (Jim Cramer's Charitable Trust is long BHC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A worker demonstrates a Bausch vial filling machine during the International Pharmaceutical Expo (Interphex) in New York, U.S., on Tuesday, March 21, 2017. Interphex is a pharmaceutical, biotechnology, and medical device development and manufacturing event offering access to new business trends and strategies. Photographer: Timothy Fadek/Bloomberg via Getty Images

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Bausch Health Companies (BHC) reported better-than-expected quarterly results Thursday. But they aren't enough to overcome the headwind of the company's ongoing patent legislation.