Morningstar | Bausch Health Has New Name but Same Problems; Maintaining Fair Value Estimate
Bausch Health--following its name change from Valeant--reported second-quarter results mostly in line with our expectations. Management slightly raised its adjusted EBITDA range in addition to reducing its tax rate and capital spending outlook for the year. We plan to make a few adjustments to our model, including accounting for a new segment reporting structure, but we don’t anticipate a material shift to our fair value estimate or no-moat rating. Upcoming generic competition on a number of products and our tepid outlook for several recent and upcoming product launches keep us lukewarm on Valeant’s shares, especially with the persistent large debt burden.The legacy Bausch & Lomb ophthalmology and Salix gastrointestinal businesses remain the the company's key source of stability. These segments reported growth of 4% and 14% on an organic basis, respectively, which excludes a number of recent divestitures. Ophthalmology sales were led by vision care products followed by prescription drugs and consumer health products, while Xifaxan, which was up 26% from a year ago, was the key growth driver for the gastro business. Despite near-term generic competition on products like Lotemax, Uceris, and Apriso, we think the near-term outlook for these segments looks stable, including the expected fourth-quarter launch of a daily silicone hydrogel contact lens line. We plan to modestly raise our Salix business forecast based on this quarter’s results.
We still have concerns over management’s efforts to turnaround the dermatology business with recent and new launches, such as Siliq (launched in late 2017) and Duobrii for psoriasis. We imagine Duobrii can move beyond the complete response letter from the FDA received in June over pharmacokinetic data, but we’re skeptical of the product's differentiation and reimbursement potential. Additionally, headwinds from the company’s neuroscience and other assets will offset improving performance in other parts of the company.
Valeant Pharmaceuticals International is a pharmaceutical and medical device company that develops, manufactures, and markets a range of branded, generic and branded generic pharmaceuticals, over-the-counter (OTC) products, and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices). Co. has two operating and reportable segments: Developed Markets, which focuses in dermatology, neurology, gastrointestinal disorders, and eye health therapeutic; and Emerging Markets, which focuses primarily on branded generics, OTC products, and medical devices.
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