EUR 850.00 For Business Accounts Only

Morningstar | Bausch Health's new name doesn't change the company's operating hurdles and high debt load.

Declining profits and the lack of major asset sales have led debt to become too problematic for Bausch Health (formerly called Valeant Pharmaceuticals), in our view. EBITDA continues to contract due to the firm's efforts to invest in new product launches combined with declining sales from higher customer rebates and new generic competition on several high-margin products. Performance has stabilized, but we see few favorable options on the horizon. Although Bausch can probably continue to produce enough cash in the medium term to service debt, we're not optimistic that new product launches and the development pipeline can offset other shrinking product categories over the long term, which leaves management with few alternatives to invest in new growth drivers for the business. Meanwhile, Bausch walks an extremely thin line on secured debt covenants, which could become problematic if product launches don't pan out, litigation costs spiral out of control, or asset sales don't receive sufficient multiples. Bausch's attempt to correct its missteps creates a highly uncertain outlook, and investors should remain very cautious, given the company’s transition to new management, financial distress from a high debt load, and investigations into business practices. Bausch's undisciplined use of debt and aggressive use of price increases and specialty pharmacies have tarnished the company’s image. Previously, we believed the company's acquisition strategy created value in the fragmented specialty pharma industry, where numerous players faced poor growth prospects from large patent expirations and lackluster pipelines. However, the company’s questionable relationship with specialty pharmacies and price increases have raised concerns about wrongdoing and weak internal controls.Some portions of Bausch--including its contact lenses, over-the-counter portfolio, and ophthalmology and gastrointestinal drugs--remain attractive. The legacy Bausch & Lomb assets, for example, should continue to grow and could theoretically fetch a decent sales price. These assets should offer some stability from weakness in other parts of the business, like the dermatology and neurological categories.