EUR 850.00 For Business Accounts Only

Morningstar | Bausch Health’s 3Q Benefits From Accounting Adjustments, but Performance on Track

Following Bausch Health’s third-quarter results, we expect the company to slightly outperform our year-end forecast, but we don’t anticipate a material change to our fair value estimate or no-moat rating. For the year-end, a lack of generic competition and slightly improved performance on a handful of products is offset by management’s efforts to reduce inventory levels in the channel. On a net basis, our 2018 EBITDA estimate of $3.34 billion still falls within management’s increased outlook for between $3.3 billion to $3.45 billion for the year. Management also continues to make slow progress reducing financial, which remains near 7 times net debt to EBITDA at the end of the quarter.

Even though a number of product categories exceeded our expectations, a large portion of this quarter’s gains--both on the top line and for gross margin expansion--came from non-recurring reserve reductions for several products as the company reduces channel inventory, alters copay card programs, and receives fewer returns. Therefore, this quarter’s reported growth, especially for many products in the dermatology segment, is not indicative of the future run rate for these assets. However, the growth outlook has improved and generic launches have not occurred as early as expected for a few products. While we also applaud management’s efforts to bolster the pipeline, we still remain skeptical of the peak sales potential for several of these products. While some products may exceed our expectations, such as the recent Lumify launch for eye redness, many of Bausch's ophthalmology and dermatology products are entering crowded competitive markets with questionable benefit. Additionally, likely generic competition on Lotemax, Cuprimine, Apriso, and Elidel--which combined compose about 6% of sales--over the next 12 months should pressure results.