Welcome to the Bausch Health First Quarter 2025 Earnings Call. Please note that this conference is being recorded. I will now hand it over to our host, Garen Sarafian from Investor Relations at Bausch. You may proceed.

Good afternoon, and welcome to Bausch Health's Second Quarter 2025 Earnings Conference Call. Participating in today's call are Thomas Appio, Chief Executive Officer of Bausch Health; and JJ Charhon, Chief Financial Officer. Before we begin, I would like to remind you that our presentation today contains forward-looking information. We ask you to take a moment to read the forward-looking statements disclaimer at the beginning of the pages that accompany this presentation as it contains important information. Our actual results may vary materially from those expressed or implied in our forward-looking statements, and you should not place undue reliance on any forward-looking statements. Please refer to our SEC filings and our filings with the Canadian Securities Administrators for a list of some of the risk factors that could cause our actual results to differ materially from our expectations. We use non-GAAP financial measures to help investors understand our operating performance. Non-GAAP financial measures may not be comparable to similarly titled measures used by other companies and should be considered along with, but not as an alternative to, measures calculated in accordance with GAAP. You will find reconciliations of our historic non-GAAP measures in the appendix of the pages that accompany this presentation, which are available on Bausch Health's Investor Relations website. Finally, the financial guidance in this presentation is effective as of today only. We do not undertake any obligation to update guidance. Our discussion today, Wednesday, July 30, will focus on Bausch Health, excluding Bausch + Lomb. However, we will briefly comment on Bausch + Lomb's results announced this morning. We will refer to year-over-year comparisons with the same period last year, unless otherwise noted. With that, I would like to turn the call over to our CEO, Tom Appio. Tom?

Thank you, Garen, and welcome to everyone joining our earnings call today. In the second quarter, Bausch Health, excluding Bausch + Lomb, continued to perform strongly, delivering our ninth consecutive quarter of revenue and adjusted EBITDA growth. I am proud of the great work by our team, especially as we navigate a more uncertain macro environment. Let me take a moment to share a few highlights from the quarter. We delivered year-over-year revenue growth of 5% on both a reported and organic basis, leading to 10% adjusted EBITDA growth for Bausch Health, excluding Bausch + Lomb, driven by double-digit revenue growth in Salix, Solta, EMEA, and Canada. We continued to resolve legacy matters in the quarter. We announced after the quarter that we entered into an agreement to acquire DURECT Corporation, which, if all closing conditions are satisfied and the acquisition closes, will enable Bausch Health to use its hepatology expertise to develop DURECT's main treatment for alcohol hepatitis. Therefore, we are reaffirming our full year 2025 guidance for revenue, adjusted EBITDA, and adjusted cash flow from operations. The second quarter was another strong quarter of performance where we made progress against our strategic priorities. First is unlocking value. As a reminder, we completed a $7.9 billion debt refinancing on April 8, which extends our maturities with options for additional proceeds in the future. We remain active in our efforts to improve our capital structure and are currently evaluating opportunities to take advantage of strong market conditions to address selected upcoming maturities. Just this past week, we announced actions to reduce debt maturing in 2026 and pay down our accounts receivable facility to reduce high interest debt and improve our capital structure. Unlocking value is a key focus, and we are evaluating every option to maximize returns for our stakeholders. Next is growth. The second quarter was an excellent quarter of growth for Bausch Health. We achieved 5% top line revenue growth, then leveraged it to 10% bottom line adjusted EBITDA growth with 9 consecutive quarters of year-over-year top line and adjusted EBITDA growth for Bausch Health, excluding Bausch + Lomb. The diversity of our core businesses across segments and geographies demonstrate both our resilience and momentum. Revenue for our Salix and Solta segments as well as EMEA and Canada regions within International grew double digits. Segment profits for Solta and Salix also grew double digits. The second quarter was our sixth consecutive quarter of top line organic growth in our Salix business, where our segment profit increased 21%. Salix grew by 12% on both a reported and organic basis versus the prior year period, driven by Xifaxan's 10% growth in the quarter. Growth came across both indications, overt hepatic encephalopathy (OHE) and IBS-D, and multiple channel segments, retail and non-retail. 67,000 new patient starts were initiated in the second quarter, up 8% versus the prior year. Growth was driven by increased OHE media investment as well as the sales force focusing on driving new patient starts as we continue to innovate using our customer insight engine. Given the incredibly high success rate and adherence that we have seen with this AI-based platform, we are beginning to leverage these capabilities for Relistor to further support sales initiatives. Solta's strong double-digit growth driven by South Korea repeated this quarter. And while growth in China temporarily softened due to tariff-related headwinds in April and May, we remain confident in our ability to grow in these core markets. We also had another quarter of growth in Canada, the United States, and EMEA. In June 2025, we started shipments of our Next Generation Fraxel after U.S. launch in this past April. These are positive indicators that point to Solta's growth opportunities beyond the Asia Pacific region, and we continue to invest behind additional growth opportunities in this business. Within the International segment, our EMEA business sustained its ongoing trend of organic growth with 6% in the second quarter, marking the region's 10th consecutive quarter of organic growth. It is a broad footprint and diversified portfolio with no single drug accounting for double-digit share of net revenue, minimizing the concentration risk and reinforcing the appeal of this business. In Canada, our team is executing against our plans for each promoted product offering alongside the many growth initiatives we have in place across the portfolio, yielding solid results. CABTREO's launch in Canada has been successful as we continue to broaden patient access with the goal to position CABTREO as a leading acne treatment in Canada. Ryaltris, another promoted product, has gained steady traction since its 2023 launch in the Canadian market. Now turning to innovation. We continue to focus on advancing opportunities for pipeline expansion. We are making progress internally as we assess partnerships and licensing opportunities that can offer a reasonable probability of success on multiple fronts. In EMEA, we announced a strategic partnership this June with YUN NV, a recognized leader in microbiome skin care solutions. This collaboration has the potential to reshape the skin care landscape, starting with the expected launch of YUN's probiotic-based products for acne-prone skin to the Polish market later this year. Leveraging our broad footprint and seasoned sales force, this partnership will focus on bringing new probiotherapy solutions utilizing good bacteria for a variety of indications, including acne, fungus, atopic eczema, and baby skin care. These microbiome skin care solutions use live probiotics to help restore the skin's natural microbiome balance offering a modern, science-driven approach to managing acne-prone skin. As we shared last quarter, we launched our cardiometabolic brands in Latin America in June, which, in addition to our current portfolio line, now includes 2 new brands. As a reminder, the cardiometabolic market is one of the fastest-growing therapy areas in the Mexican pharmaceutical market, and we are excited to be able to participate in such a high-growth area. Now turning to our internal product pipeline. We remain on track with our 2 global Phase III studies for RED-C, our amorphous solid soluble dispersion, SSD rifaximin complex, and we expect to see initial data readouts by early 2026. As a reminder, this program is centered on a solid soluble dispersion rifaximin complex in a unique, patented non-crystalline water-soluble form that enables delivery throughout the entire gastrointestinal tract. Amorphous SSD rifaximin is being studied in patients with cirrhosis prior to their first decompensation event from any form of liver disease. This product, if approved, has the potential to offer this patient population a therapy to slow disease progression and provide a meaningful clinical benefit. We look forward to sharing further updates in early 2026. A successful outcome may position us to address a significant unmet need in hepatology and to bring a novel therapy to cirrhotic patients on a global scale. I want to touch on our recently announced definitive agreement to acquire DURECT Corporation. The agreement remains subject to the satisfaction of certain conditions, including a majority of the outstanding shares of DURECT being tendered in the tender offer that we intend to commence shortly. Through this proposed acquisition, we intend to advance the development and commercialization of DURECT's lead pipeline candidate, larsucosterol, an FDA breakthrough therapy designation asset targeting alcohol hepatitis (AH). There is currently no Food and Drug Administration or European Medicine Agency approved treatment for AH, and novel therapeutic strategies are needed to improve patient survival. Assuming all conditions are met, including the successful completion of the tender offer, we anticipate closing the deal in the third quarter of 2025. As such, we are limited in what we can share at this time. I look forward to sharing more information regarding this transaction following the closing. I want to thank our business development team who has worked incredibly hard on this transaction. We are committed to intensifying our focus and rigor behind R&D and business development. This announcement demonstrates our commitment to hepatology and finding new ways to address unmet medical needs. Lastly, turning to legal matters. Year-to-date, we have settled 9 more opt-out cases. Of the 37 cases, there are now 11 remaining. We continue to vigorously defend the remaining claims. Regarding the Granite Trust matter, I am very pleased to announce that near the end of the second quarter, we received communication from the Internal Revenue Service that the case has officially concluded. Consistent with the view we have communicated on prior calls, there will not be any negative cash flow as a result. In summary, it was another strong quarter. I remain confident in our ability to execute on our strategic priorities focused on delivering tangible results. We strive for operational excellence throughout our company, which will maximize long-term shareholder value. With that, I will pass it over to JJ to discuss the financial results in more detail. JJ?

Thank you, Tom. Let's first review quickly our consolidated performance in more detail, starting with our non-GAAP financial results for the second quarter, which you will find starting on Page 13. Revenue was $2.53 billion, up 5% on a reported basis and 4% on an organic basis compared to the same period a year ago. Adjusted gross margin was 70.6%, 30 basis points lower year-over-year. Adjusted operating expenses were $1.16 billion, an increase of $61 million compared to the same period last year. Adjusted EBITDA was $871 million, an increase of $45 million or 5% year-over-year. Finally, adjusted operating cash flow was $442 million. Moving now to the performance of Bausch Health, excluding Bausch + Lomb for the second quarter, starting on Page 15. Q2 was undoubtedly another quarter of strong performance. Nine quarters in a row of growth for revenue and adjusted EBITDA is outstanding, particularly when acknowledging that this was realized on an organic basis without any material business development or acquisition in the last 3 years. Revenue was $1.252 billion, up 5% when compared to the second quarter of 2024. Adjusted EBITDA was $676 million, up 10%, demonstrating the continued commitment to driving operating leverage through positive segment mix and tight cost management. Adjusted operating cash flow of $355 million was up 34% versus the second quarter of 2024 due to our double-digit adjusted EBITDA growth, combined with the favorable timing of cash interest payments. On cash taxes, as we stated repeatedly during our prior quarter earnings calls, the conclusion of the Granite Trust matter would not be associated with any negative outflow in the future. I am happy to confirm that there were none in the first half of 2025. Moving now to our second quarter performance by segment, starting with Salix on Page 16. Salix revenues were $627 million, an increase of $69 million or 12% compared to the same period last year. Our strong performance was primarily due to favorable net pricing across our 3 major brands, namely Xifaxan, Relistor, and Trulance. Separately, Xifaxan had another strong volume performance with retail scripts up 6% and new scripts up 7%. Extended units also grew 7% and include non-retail settings such as hospitals and outpatient clinics, which grew double digits. Revenues for the International segments were $278 million, an increase of 1% compared to the second quarter of last year. The revenue in the second quarter was driven by double-digit growth in Canada and EMEA, partially offset by softness in LATAM. Canada top line growth was once again driven by our promoted products portfolio, which grew 12%. EMEA achieved an impressive milestone of 10 consecutive quarters of organic growth across the region, led by its top 3 markets: Poland, Serbia, and Russia. Finally, LATAM's softer performance was a result of the ongoing macroeconomic challenges in the region as well as some partial channel destocking. Now moving to Page 18 for a review of our Solta Medical segment. Revenues were $128 million, an increase of 25% on a reported basis and 26% on an organic basis compared to the same period last year. Solta's performance continues to be fueled primarily by South Korea and to a lesser extent, this quarter, China. South Korea once again outperformed expectations, resulting in 115% organic revenue growth year-over-year. China grew more moderately at 4% this quarter, mostly due to channel inventory reduction. The timing of our shipments from our plant in Bothell, Washington to China was managed to minimize the impact of tariffs on U.S. imports in April and May. Finally, special mention goes to our double-digit growth of Solta in the U.S. and Canada following our increased promotional efforts in these 2 regions. Turn now our focus to our diversified segment, which you will find on Page 19. Revenues were $219 million, a decrease of 13% compared to the same period a year ago. The decrease of our revenue was driven by both the neurology and dermatology businesses, which had benefits in 2024 from one-time pricing adjustments and unexpected demand for Cardizem from the Department of Defense due to generic supplier stockouts. After adjusting for these nonrecurring elements, our diversified segment was ahead of expectation, thanks to strong Wellbutrin performance and outstanding Rx growth for CABTREO. Finally, Bausch + Lomb's revenue was $1.3 billion, up 5% on a reported basis and 3% on an organic basis compared to the same period last year. Now turning our focus to our balance sheet, starting on Page 22. Our strong operational cash flow generation was largely offset by outflows associated with the $7.9 billion refinancing we closed on April 8. This resulted in our net debt remaining flat during the quarter. While gross debt stands approximately at $16.1 billion, our cash on hand at the end of Q2 has now increased to almost $1.5 billion. This is allowing us to actively reduce the negative carry associated with our cash on hand without jeopardizing our financial flexibility for the future. As we announced earlier this week, about $900 million of available liquidity will be used in the coming weeks to repay some of our most expensive debt, namely our 9.25% 2026 notes and our accounts receivables facility. This will still leave us with almost $600 million of cash on hand for general business purposes, including reinvestment in the business, business development-related payments, and working capital needs. Separately, given the current strength of the financial markets, we will be exploring options to push out some of our 2028 maturities either through our April 2025 financing agreements or other means. Let me now move to our full year guidance before wrapping up with our strategic priorities for the back half of the year, which you will find on Page 24. We are reaffirming our full year 2025 guidance for Bausch Health, excluding Bausch + Lomb, which remains as follows: Revenue is expected to be between $4.95 billion and $5.1 billion. The midpoint of that range translates to a 4% increase year-over-year. Our adjusted EBITDA outlook is also unchanged and is still expected to be between $2.625 billion and $2.725 billion. The midpoint of that range would represent a 5% increase versus 2024. Adjusted operating cash flow is still expected to be between $825 million and $875 million. In summary, we had an outstanding first 6 months and remain on track for achieving our full year objectives. Our strategic priorities remain the same. First, increasing the value of Bausch Health operational assets through innovation, optimizing the growth of our portfolio of brands across the globe as well as pursuing opportunities to build further our portfolio of assets through business development. Second, evaluating all options for unlocking value for stakeholders, including maximizing the value of our Bausch Health and Bausch + Lomb assets. And third, continuing to optimize our capital structure. As we indicated earlier, we have already identified specific opportunities to reduce the net cost of capital of our debt over the next couple of months. I will now hand the call back to Tom for the wrap-up.

Thank you, JJ. Before we turn it over for questions, I want to thank the entire Bausch Health Global team for their hard work and dedication, helping us to deliver another strong quarter, building our momentum through the first half of 2025 and positioning us well to continue executing against our strategic priorities for the remainder of the year. We remain confident in the growth opportunities ahead of us and our ability to deliver value for our stakeholders. With that, we will now turn to questions. Operator, please open the line for Q&A.

Our first question comes from Jason Gerberry with Bank of America.

I wanted to follow up on the comments regarding capital deployment. I didn’t hear anything about buybacks, but I remember you mentioned that share repurchases might be in consideration for the first quarter. Is that still something you’re thinking about? Also, regarding the direct-to-consumer efforts with Xifaxan, could you confirm whether this mainly pertains to the IBS side? My understanding was that the growth outlook is stronger on the IBS side, while the HE market share seems to have plateaued. Could you clarify the outlook on the direct-to-consumer front?

Sure. Okay. So I think we'll take the question on the share repurchase first. I'll hand that to JJ.

Yes. So our capital allocation strategy remains the same. The first is to really delever the business. Second is to reinvest in the business. And then if there's any surplus return capital to shareholders in different forms and the share buyback could be one of those forms. We did mention that as a possibility last quarter just because the stock price was so depressed. And therefore, when there are exceptional circumstances, there's always, I think, the obligation to review the priority list and see if there's any opportunity to do a program limited in size. Since then, a number of things have changed. We've decided to reinvest in the business as evidenced by the DURECT deal that we've just announced. And therefore, while we continue to evaluate the possibility it has gone back to the back burner.

Yes, I will address the second part of your question regarding Salix and Xifaxan. The investment we are making is in OHE, DTC. Previously, we had DTC campaigns for IBS-D, but our current focus is on growing OHE. We have experienced broad growth in both indications, but our main investment is in OHE. Looking at the quarter, we have achieved 10% growth, with a solid volume increase of 6% and a slight price increase of 3%. The TRx growth for the quarter is 6%, with nonretail up 18% and total extended units at 7%, resulting in an 8% growth in new to brand and 67,000 new patient starts. Our OHE business is performing well. Additionally, our customer insight engine is now achieving 90% adherence. Our ongoing focus is to invest in our field force and the tools they utilize, as well as our DTC investments.

Your next question comes from Umer Raffat with Evercore ISI.

A couple of questions on the rifaximin franchise, if I may. First, the SSD trials, I wanted to confirm that lactulose background therapy is in fact allowed? And secondly, I also wanted to confirm the population you're using is, in fact, inadequate responders to lactulose in the primary prevention setting. And then finally, have you guys considered or debated internally the possibility of a Xifaxan OTC?

Thanks, Umer for your question about rifaximin. When we look at our goals, this is a prevention trial. I want to set the context for the size of the opportunity. In the U.S., 4.5 million patients are affected by chronic liver disease and/or cirrhosis, with 2.5 million being adults with cirrhosis. Currently, if we consider Xifaxan, we're focusing on a patient population of about 650,000. On the SSD side, there are 1.9 million patients. This presents a significant opportunity for us to grow our franchise. Regarding your second question about Xifaxan being available over the counter, that is a good question; however, we haven't really considered it at this time. As for your inquiry about the combination with lactulose, I will need to follow up with you on how that was implemented in the trial involving lactulose, and our team can provide more information after this call.

Your next question comes from Doug Miehm with RBC Capital Markets.

My question is about Xifaxan; could you share any insights regarding potential IRA headwinds in 2027? Also, could you address the discrepancy between revenue growth and prescription growth for Relistor and Trulance?

Thanks, Doug, for the question. Yes, we can -- I'll touch upon the first one in terms of the facts and details and the IRA. As you know, Xifaxan was selected for the negotiation, and those negotiations are ongoing. Right now, it's scheduled to conclude in October of 2025. And CMS is expected to announce the final price by November of 2025. As we're going through the process, multiple meetings. We have an outstanding market access team monitoring the situation. Right now, we have the next meeting set for the coming months, and we'll see how the negotiation goes. But clearly, as we look at it, we're working hard on it and presenting our case. As we always said, Xifaxan today has huge savings in the burden on government payers, especially in a hospital setting. So we think that it continues to reduce hospitalization costs and creates a large savings for the healthcare system today. The discrepancy between revenue and the prescription growth for Relistor and Trulance. We -- on the Relistor side, we now have a new leader in place, and we're continuing to look for ways to grow that franchise. We have grown in the second quarter, and we're really seeing some really nice trends there. And then on the Trulance side, the product continues to perform. As we look at it, the challenge on Trulance side is always from a gross-to-net standpoint. JJ, do you want to add anything to that?

Yes, for the 3 brands, we've got some favorability on gross to net with some accruals that were released in the quarter. So that really explains the large discrepancy between the revenue performance of Trulance and Relistor and the script or the volume behavior in the quarter.

Well, yes, I did want to just ask on DURECT. Is there any additional information you can provide on that? It looks like an interesting acquisition, given that you may be the only approved product if the results work out and you get approval, of course. Is there anything you want to add to the opportunity there?

Yes, it's a very interesting opportunity and we're very pleased. As you know, we intend to start the tender offer shortly, so I'm limited in what I can say. However, if we successfully close the acquisition, I look forward to sharing more details about the rationale and the underlying science behind it. We've already discussed the potential related to Xifaxan, hepatology, and opportunities in addressing this patient population. We are a hepatology company with strong expertise in both research and development and commercial aspects. I'm eager to provide more information on the science once the deal is finalized.

Your next question comes from Mike Nedelcovych with TD Cowen.

I have two. My first is on the DURECT asset. It looks like larsucosterol all missed its primary survival endpoint in Phase IIb. So there was a positive trend. So what gives you the confidence that data will improve rather than worsen in a larger Phase III trial? And on a related note, the press release suggests that only 1 Phase III trial will be required. Am I understanding that correctly? And then my second question relates to rifaximin SSD. Although not approved for primary prevention, there are some studies that suggest Xifaxan could be effective in that setting. And so far, it's not totally clear that rifaximin SSD offers any differentiation. So it would seem the risk of off-label generic rifaximin use for primary prevention might be relatively high. So my question, given this possibility, is whether you've considered running a head-to-head trial between the 2 formulations?

Yes, Mike, thank you for your question. Regarding DURECT, as I mentioned earlier, I have limitations on what I can discuss at this moment. You are correct about the trial they conducted, but it had a very slight miss on the primary endpoint. Our R&D team is well-versed in hepatology, and we believe this is an intriguing asset for us. I look forward to sharing the scientific details about it in the future. Currently, we are confident in running one Phase III trial. Regarding your second question, the SSD formula is significantly different. The dosage and its effects in the gut are also distinct. We believe this new formula is the right choice for prevention, and we do not plan to conduct any head-to-head trials at this time.

And the last question will come from Umer Raffat with Evercore ISI.

I just wanted to touch base again on some of the IRA points you made. I know your negotiations are ongoing, but just to level set and prepare the Street, would you agree that some of the price points we saw for the 2026 drugs, which were anywhere between 40% and 80% and generally about a 60% cut median is probably the ZIP code we're talking as Xifaxan makes progress through this or would you rather point us to some of the emerging feedback that the ongoing negotiations are more and HHS as being much more aggressive than previously. I just want to make sure we're all prepared for this.

Yes, Umer. Thank you for your follow-up question. I will address it briefly regarding the negotiation, and then I will pass it to JJ. In these negotiations, we did not think we should have been included initially. However, we were. As we proceed with this negotiation and communicate with CMS about our stance and the savings we have already provided to the healthcare system, our team is exploring various strategies to reach a conclusion without resorting to the discounts we may need to offer. We are considering all available options and examining every possibility to minimize the impact. JJ?

Umer, this is JJ. So the way you're looking at it is accurate, but relies on a big assumption as to how the drug is classified, whether it's a long-term monopoly or a short-term monopoly, then the regulations will drive a certain level of percentage, minimum and maximum that will be applied to really the gross revenue. So you have to look at the size of the business that goes through basically Medicare Part D, how the drug is going to be classified. As we said repeatedly, those discussions are ongoing. And then as Tom alluded to, once you have an understanding of the baseline, then there are a number of strategies we can deploy to offset the potential impact associated with the increase in the rebate level. So once all those variables settle, we'll be in a better position to really communicate to the market what's going to be the one-time impact in 2027.

And we have reached the end of the question-and-answer session. I will now turn the call over to Tom Appio for closing remarks.

Thank you for all joining the call today and for your continued interest and support of the company. We remain committed to executing against our strategic priorities and focused on unlocking value, driving sustainable growth, and advancing innovation across our portfolio. We appreciate your ongoing engagement and look forward to sharing further updates on the progress in the quarters ahead. Thank you, and have a good evening.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.