Bausch Health investors are left in a holding pattern as 2 major overhangs remain unresolved

Published Thu, May 2 20242:34 PM EDT

Bausch Health Companies on Tuesday morning reported first-quarter top- and bottom-line misses — putting embattled shares under pressure. Revenue for the three months ended in March increased 11% (about 8% organically) to $2.15 billion, a hair short of the Street estimate of $2.16 billion, according to LSEG. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $665 million was up 13% over last year but missed the $710 billion consensus estimate. BHC YTD mountain Bausch Health YTD Bottom line Along with quarterly results, Bausch Health reaffirmed forward guidance. But investors in the stock — the Club among them — care more about two unresolved issues: Xifaxan litigation over generics and the monetization of the firm's almost 88.5% stake in eyecare leader Bausch + Lomb , which started trading as a public company in May 2022. When it comes to drug companies, there are usually one or two key drugs that drive the story. Take Club standout Eli Lilly for example. It's a phenomenal company with a ton of drugs on the market. However, when it comes to the stock, the focus is on Lilly's GLP-1s treatments — Mounjaro for type-2 diabetes and Zepbound for weight loss — which are expected to drive sales and earnings growth. For BHC, that drug is Xifaxan. It's used to treat irritable bowel syndrome with diarrhea (IBS-D) and overt hepatic encephalopathy (HE) — an inability to filter toxins from the liver that build up and reach the brain. While not necessarily expected to see a massive increase in adoption in the future like Lilly's GLP-1s, Xifaxan currently accounts for 41% of Bausch Health sales, excluding B+L. The prospect of losing exclusivity on a drug responsible for that great of a share of sales is incredibly worrisome for investors, especially given the debt load on BHC's balance sheet. That brings us to the future monetization of the B+L stake, a key milestone that will help alleviate some of that crushing debt. It comes as no surprise that much of the post-earnings conference call was focused on these intertwined issues. Here is where things stand. Despite a recent favorable appeals court decision putting off Norwich Pharmaceuticals' application for a Xifaxan until October 2029, Bausch Health filed a lawsuit in April against Amneal Pharmaceuticals, which also wants to make a Xifaxan generic. The BHC filing means that there is now a 30-month stay in place before any potential generic approvals by the Food and Drug Administration. While BHC management remains committed to separating B+L and forming two adequately capitalized companies, the Amneal litigation has investors in search of the next milestone/catalyst that gets us closer to B+L monetization. We opted to trim our BHC position in February, to manage the downside risk. Going forward, we will look for further updates on the Amneal situation and any possible response from Norwich. We're maintaining our 4 rating as we consider our next steps. Guidance Management reaffirmed their full-year outlook for fiscal 2024. On a companywide basis, including the B+L stake, management expects sales between $9.3 billion to $9.55 billion. That's ahead of the $9.37 billion estimate at the midpoint. Breaking that down: $4.7 billion to $4.85 billion are attributable to Bausch Health (implying 2% to 5% organic growth), with $4.6 billion to $4.7 billion attributable to Bausch + Lomb. Adjusted EBITDA is expected to fall in a range of $3.2 billion to $3.35 billion — with $2.36 billion to $2.46 billion coming from Bausch Health and the remaining $840 million to $890 coming from the company's stake in B+L. The overall guide is better than the Street estimate of $3.22 billion at the midpoint. (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.

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Bausch Health Companies on Tuesday morning reported first-quarter top- and bottom-line misses — putting embattled shares under pressure.