Bausch Health Companies Inc. Q4 FY2025 Earnings Call

Greetings, and welcome to the Bausch Health Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Garen Sarafian, Vice President of Investor Relations. Garen, please go ahead.

Good afternoon, and welcome to Bausch Health's Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Garen Sarafian, Vice President of Investor Relations. Participating in today's call are Thomas Appio, Chief Executive Officer; JJ Charhon, Chief Financial Officer; and Jonathan Sadeh, Chief Medical Officer and Head of Research and Development. Before we begin, I would like to remind you that today's presentation contains forward-looking information. Please take a moment to review the forward-looking statements disclaimer at the beginning of the slides accompanying this presentation as it contains important information. Actual results may differ materially from those expressed or implied in these forward-looking statements, and you should not place undue reliance on them. Please also refer to our SEC filings and our filings with the Canadian Securities Administrators for a discussion of certain risk factors that could cause actual results to differ materially from expectations. We use non-GAAP financial measures to help investors better understand our operating performance. These non-GAAP measures may not be comparable to similarly titled measures used by other companies and should be considered in addition to and not as a substitute for measures calculated in accordance with GAAP. Reconciliations to our non-GAAP measures are included in the appendix of the slides accompanying 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, February 18, 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 will turn the call over to our CEO, Tom Appio.

Thank you, Garen, and welcome to everyone joining our earnings call today. Our year concluded with an impressive 11th consecutive quarter of growth in both revenue and adjusted EBITDA, reflecting our organization's consistent performance. This success is powered by our global team's unwavering commercial focus and operational excellence as full-year results exceeded our guidance on all key metrics. The fourth quarter gave us an opportunity to reflect on the progress we have made over the past year. Our commercial performance has remained strong across the markets we serve. Our capital structure has improved significantly. Our operating model has continued to deliver efficiencies, all of which has given us the ability to proactively pursue business development to enhance our long-term outlook. As we begin 2026, our strategic priorities remain firm and our approach consistent. We continue to prioritize initiatives that yield the highest value across our organization. Our global footprint and 2025 performance give us confidence for future growth. While JJ will walk through the financials in more detail, I would like to take a few minutes to highlight our fourth-quarter performance. In the fourth quarter, Bausch Health, excluding Bausch + Lomb, increased revenue by 9% on a reported basis and 5% on an organic basis when compared to the fourth quarter of 2024. Salix, in particular, demonstrated resilient demand, excluding Medicaid, supported by solid volume in remaining channels and continued execution across promotional, access and digital capabilities. Adjusted EBITDA for Bausch Health, excluding Bausch + Lomb, increased by approximately 9% compared to the prior year period and ahead of implied guidance for the quarter. The business continued to operate efficiently as teams managed spending thoughtfully while sustaining the investment needed to support growth. On December 1, 2025, we acquired Shibo, a full-service aesthetics distribution platform in China, strengthening our direct commercial presence in this key market. This strategic transaction provides us with access to one of the largest global aesthetics markets and enhances our ability to serve providers directly. Our cash generation remained healthy, allowing us to achieve another year of over $1 billion in adjusted operating cash flow while also reducing our net debt by several hundred million dollars. Lastly, we further improved our debt maturity profile by approximately $1.7 billion through a debt exchange in late December 2025. This transaction further strengthened our balance sheet and provided additional flexibility as we evaluate opportunities to unlock value across the portfolio. For the full year, Bausch Health, excluding Bausch + Lomb, delivered year-over-year growth of 7% on a reported basis and 6% on an organic basis. This reflects broad-based performance across the enterprise. We achieved double-digit adjusted EBITDA growth, excluding Bausch + Lomb for full year 2025, ahead of expectations. Excluding the third quarter charge related to acquired in-process research and development would yield an even higher adjusted EBITDA growth rate for the year. Salix and Solta delivered double-digit top-line growth of 11% and 18%, respectively. Three of our four segments grew revenue this year and three improved profitability, highlighting the diversification of the portfolio and the contributions generated from multiple areas of the business. At the product level, performance during the year remained healthy across multiple important areas. Xifaxan revenue grew 11% for the year, reflecting the continued impact of our commercial team's efforts. Thermage revenue grew a robust 19%, anchored in Asia Pacific and other products such as Ryaltris and CABTREO also grew very well. These outcomes reflect consistent demand, strong field activity and targeted investments throughout the year. Overall, 2025 represented another year of excellent execution, leading to results above guidance. Let me take a moment to provide a brief update on RED-C. We are disappointed by the outcome we announced in January that while safe and well-tolerated, neither Phase III trial met its primary endpoint. We are currently reviewing the full dataset to determine potential new development opportunities. Reflecting on the overall performance, we closed 2025 with strong results. Our team advanced our strategic priorities, strengthened the company's operational position and executed with excellence. I appreciate the unwavering commitment our teams worldwide have shown over the course of the year. Together, we remain focused and committed to delivering results for shareholders. I will now hand it over to JJ to walk you through the detailed financial results.

Thank you, Tom. Let's start with our consolidated non-GAAP financial performance for the fourth quarter, which you will find on Page 11. Revenue was $2.796 billion, up 9% on a reported basis compared to the same quarter a year ago. Adjusted gross margin was 71.6%, which was 80 basis points lower than the same period a year ago. Adjusted operating expenses were $1.33 billion, an increase of $75 million year-over-year. Adjusted R&D expenses were $161 million, which was a $2 million decrease when compared to the fourth quarter of 2024. Adjusted EBITDA was $1.52 billion in the fourth quarter, an increase of 13% year-over-year. Finally, adjusted operating cash flow was $515 million. Moving now to the fourth quarter of Bausch Health performance, excluding Bausch + Lomb, starting on Page 15. As Tom indicated, we had another strong operational performance across all metrics in Q4. Revenue for the fourth quarter was $1.391 billion, up 9% on a reported basis. Adjusted EBITDA for the fourth quarter was $773 million, a 9% increase from the fourth quarter of 2024. Adjusted operating cash flow for the fourth quarter was $362 million, down $205 million year-over-year, primarily due to the change in timing of our cash interest payments following the refinancing we executed on April 8, 2025. Our strong cash flow generation in Q4 allowed us to reduce our net debt by approximately $320 million, which was much better than originally anticipated. Turning now to our fourth-quarter performance by segment, starting with Salix on Page 17. Salix revenues in the fourth quarter were $693 million, which was an impressive 9% increase year-over-year on a reported basis. This strong performance in Q4 was ahead of expectations. While we had anticipated the continuation of our double-digit script growth across all existing channels, we also benefited from some higher-than-planned residual volume from several state Medicaid customers. We do not expect this to be a material revenue driver moving forward. Now moving to the International segment, which you will find on Page 18. Revenues were $306 million, an increase of 10% on a reported basis and 2% on an organic basis compared to the same period a year ago. While the performance was strong overall, the results by geography were mixed. EMEA and LatAm grew double digits on a reported basis, while Canada contracted 6%. Congratulations to the EMEA team for achieving its 12th consecutive quarter of organic revenue growth, which is very impressive. Also worth noting is our performance in LatAm, which returned to growth with a 22% increase in revenue on a reported basis and still 11% on an organic basis. What's more, growth was balanced across most of our core brands this quarter. Finally, Canada's revenue contraction was due to a reduction in Wellbutrin volume, which faced more generic competition in this quarter compared to the same quarter one year ago. This was partially offset by the double-digit growth of our promoted products portfolio led by CABTREO and Ryaltris. Now let's review the performance of our Solta Medical segment, which you will find on Page 19. Revenues were $137 million, a slight decrease of 1% on a reported basis and flat on an organic basis compared to the same period last year. Solta's solid operational performance was negatively impacted by the transition of our full-service distributor in China. Excluding this onetime impact, we estimate that Solta revenues would have been up mid-single digits in the fourth quarter. Separately, special mention goes to our team in South Korea, which continues to perform exceptionally well. Reported revenue in that market was up 40% this quarter, making South Korea our largest revenue-generating geography for Solta in 2025. Turning now our focus to the quarterly performance of our diversified segment, which you will find on Page 20. Revenues were $255 million, an increase of 12% on a reported basis, mostly due to the improved net pricing in the quarter. Finally, let me wrap up the segment discussion for the fourth quarter by commenting briefly on Bausch + Lomb results, which you will find on Page 21. Revenues were $1.405 billion, up 10% on a reported basis compared to the same period last year. Bausch + Lomb's strong revenue performance in Q4 was led by its pharmaceuticals business, which had an impressive 16% growth year-over-year on a reported basis, while its other two businesses, Vision Care and Surgical, each grew 8%. Now let's end the review of the fourth quarter by highlighting improvements we have made to our capital structure. There were three major highlights for the quarter. First, we repaid our $300 million accounts receivable facility and in the process, lowered our average cost of debt. We also completed a $1.7 billion secured debt exchange, which allowed us to push out maturities for four years and capture $80 million of debt discounts. Finally, we generated $362 million of adjusted operating cash flow and reduced our net debt by more than $300 million quarter-over-quarter. The strengthening of our balance sheet caps a great quarter performance across all metrics. Now before I cover our guidance for 2026, let me provide a quick wrap-up of our outstanding full-year performance and the progress we've made in the last 12 months. We grew revenue 7% and adjusted EBITDA 10%, demonstrating our continued commitment to driving profitable growth and increasing operating leverage. While we recognize that some of 2025 growth was a result of nonrecurring drivers, the underlying operating growth would still be high single digits year-over-year. More importantly, it is worth acknowledging that all these outstanding operational results came without the benefit of any major acquisitions and solely through the optimization of the same portfolio we've had for the last four years. Finally, we significantly improved our debt maturity profile by executing two large refinancing transactions, totaling together $9.6 billion and leaving now less than $700 million of maturities obligation until the end of 2027. This is an incredible turnaround when thinking about where we stood just 12 months ago. That being said, a lot more work lies ahead, but our view is that 2025 marked an inflection point in our operational and financial trajectory. Now let me provide you with our 2026 financial guidance for Bausch Health, excluding Bausch + Lomb, which you will find on Page 25. For 2026, we expect revenues to be between $5.25 billion and $5.4 billion. The midpoint of that range would translate into a 3% increase year-over-year. Adjusted EBITDA is expected to be between $2.875 billion and $2.950 billion, representing a 4% increase year-over-year at the midpoint. Finally, we expect adjusted operating cash flow to be between $1.2 billion and $1.275 billion. The midpoint of that range would translate to a 4% increase year-over-year. Please note that the guidance for 2026 is at current FX rates. Let me also add that from a phasing perspective, we anticipate a stronger growth rate in the first half of 2026, given the temporary nature of some of the benefits we recorded in the second half of 2025. With that context, and before I hand it over to Tom, let me review our key financial priorities and how they will be pursued in the coming year. First, increasing the value of Bausch Health's operational assets through innovation, optimizing the growth of our portfolio of brands across the globe as well as pursuing opportunities to further expand our portfolio of assets through business development. There is no major change versus what we set out last year, making 2026 an extension of what we accomplished in 2025. Second, evaluating all options for unlocking value for all stakeholders, including maximizing the value of our Bausch Health and Bausch + Lomb assets. Our improved debt maturity profile now gives us the ability to use value maximization for shareholders as our primary guide for future asset monetization decisions. And third, continue to optimize our capital structure. Now that we have completed the largest refinancing transaction in our history, the approach will be more opportunistic while maintaining maximum flexibility for funding any future investment in Bausch Health. In short, we expect 2026 to be another opportunity to make good progress against some of our key finance priorities with a more balanced approach between tactical improvement and strategic value creation.

Thank you, JJ. I would like to now shift from the financials to how we are positioning the company for success in 2026. I would like to highlight a few of our segments and businesses today to illustrate the breadth of our underlying portfolio and the many opportunities we see ahead. Salix is an industry leader in gastroenterology and hepatology. For over 35 years, we have built our company position by establishing long-standing relationships with health care providers, institutions and patients. Xifaxan, Relistor and Trulance are trusted sets of brands that anchor our leadership position. Our focus on education, on patient access and ongoing physician engagement reinforces our standing as one of the top GI pharmaceutical companies in the United States. In 2026, we will continue our momentum with Salix in commercial and Medicare segments. We continue to leverage our customer insights platform to find new patient starts and accelerate starting treatment in all GI conditions that we treat, including OHE, IBS-D, IBS-C and OIC. Using AI enables us to do this in a way that is faster, smarter and more efficient. In 2026, we will leverage our data-driven approach to reach patients through direct-to-consumer advertising and to reach health care providers through improved targeting. This is a franchise we expect will continue to perform. Innovation remains central to the Salix segment. Larsucosterol, our Phase III program for alcohol-associated hepatitis or AH represents an important potential advancement. AH remains an area of substantial unmet need, and we are committed to advancing this program to deliver meaningful therapeutic options for patients. Following the quarter end, we began enrolling patients in the Phase III study, marking a key step forward for this program. Turning to Solta. Solta is a leading medical aesthetics platform and offers a comprehensive set of energy-based devices within the global aesthetics market. Our technologies address a broad range of clinical applications, enabling us to serve diverse provider segments and consumer needs while strengthening our competitive position across key markets. Solta's above-market performance reflects a long history of product innovation and strong commercial platform. We continue to invest thoughtfully to drive long-term growth and capture the significant opportunities ahead by investing in our people, strengthening our management structure, developing our team members and attracting top talent to support the next phase of growth; investing in scale. As mentioned earlier, we completed the acquisition of Shibo's aesthetics business in December, bringing distribution, sales and marketing capabilities fully in-house for Solta China. This enhances our reach, deepens provider and consumer engagement and increases utilization. We expect China to reclaim the #1 geography for Solta in 2026, investing in innovation, expanding our R&D organization and building new medical and clinical affairs capabilities to accelerate product development and generate robust clinical evidence investing in manufacturing capacity, ensuring we can meet rising global demand while maintaining quality and operational excellence. Based on the momentum we have seen to date and the opportunities we anticipate in this market, we believe that Solta is well positioned to continue delivering double-digit growth in 2026, supported by strong fundamentals. Let me now turn to our International segment, which is often underappreciated yet continues to perform well, and we expect will remain an important contributor to the company in 2026. The segment includes several diverse markets, each with a robust commercial model and well-established brands. Within our EMEA market, we expect Central Europe to maintain its solid position, supported by established presence in Poland with an excellent team. This presence will allow us to introduce new products and product line extensions. We plan to continue leveraging our position as the #1 pharmaceutical company in Serbia across multiple therapeutic areas. In Mexico, the largest component of our Latin American business, we are ranked as the #2 dermatology company. In both Mexico and Colombia, our BEDOYECTA products are ranked as the #1 complex B brand. Across Mexico and Central America, our Bausch Health branded generics hold at least one top three position across the therapeutic categories. We have now entered the cardiometabolic market in Latin America, which represents a large and growing opportunity for Bausch Health. Our infrastructure, brand recognition and commercial reach position us well to compete effectively in the cardiometabolic category. We expect Mexico to continue to return to growth in 2026, including drivers BEDOYECTA and our newly launched cardiometabolic franchise. In Canada, we are ranked as the #1 dermatology company supported by strong brands, including CABTREO and JUBLIA that continue to perform well and solidify our presence in the market. Together with our promoted products, we expect promoted products to continue to grow in double digits in 2026. With the results we have seen and the opportunities across our global footprint, we expect our International segment to deliver growth in 2026, supported by durable underlying fundamentals. Our five strategic pillars will continue to guide Bausch Health in 2026. These pillars, people, growth, innovation, efficiency, and unlocking value provide structure and clarity to our decision-making. They drive alignment of our teams on the actions required to deliver sustainable results. These priorities shape our daily operations, reinforcing accountability, ownership, execution, and a focus on progress. We remain committed to commercial, operational and R&D excellence, along with the proactive pursuit of business development initiatives that expand our portfolio and enhance our long-term outlook. We finished 2025 on a high note with exceptional full-year results, reflecting significant progress across our strategic priorities. I want to extend my sincere gratitude to the Bausch Health team worldwide. These achievements are a direct result of your passion, intelligence, and unwavering dedication. We are entering 2026 with confidence the company has a strong team and a diversified portfolio with multiple paths to growth and innovation. With that, we can open the line for Q&A.

Our first question today is coming from Umer Raffat from Evercore ISI.

This is JP in for Umer. Congrats on the quarter. I have one question. Post RED-C readout, what is your updated decision framework for the separation? How are you thinking about gating items and debt repayments? Can you please illustrate?

Yes. Thanks for the question. I think that the way I would say it is there's no change. We're, of course, disappointed in the results from RED-C. But we continue to focus on repaying debt and reinvesting in our business, whether promoting existing products, developing new products or engaging, as I said in my prepared remarks, engaging in business development activities, which is one of the things we are accelerating now that we have significantly changed our capital structure with the refinancing.

Following up on the BD.

Yes. Sure.

Yes. Can you please give some more color about your business development plans?

Sure. To begin with, the acquisition of DURECT was not only aimed at addressing alcohol-associated hepatitis but also for its platform potential. We've been actively screening various assets in our therapeutic areas to identify potential acquisitions that can complement our exceptional commercial team. Our commercial excellence in selling and marketing is one of the company's greatest strengths, and we're keen on integrating different assets into those teams. Additionally, as I mentioned earlier, we view Solta as a valuable brand with significant innovation, and we're exploring acquisition opportunities to enhance our portfolio. Now, I'll hand it over to Jonathan to discuss the direct acquisition and its platform potential.

Yes, definitely. Larsucosterol was an excellent acquisition for us. To remind you, it's an epigenetic modulator that prevents cell death in response to acute cell injury. DURECT did an impressive job demonstrating the drug's efficacy in the context of acute cell injury and alcohol-associated hepatitis. This is the primary indication for which we have begun Phase III trials, and we have strong confidence in the data from Phase II. As Tom mentioned, we view this as a platform. Given the strong effect observed in alcohol-associated hepatitis, we believe—backed by some preclinical and clinical data from DURECT—that we could see efficacy in other types of acute cell injury as well. We are currently reviewing these additional potential indications and aim to prioritize some of them very soon.

Next question today is coming from Les Sulewski from Truist Securities.

I have two and then a follow-up maybe to Jonathan. So, first on Solta, can you just share some puts and takes around the Shibo integration? Specifically, how much of the guided revenue and EBITDA growth is driven by the accounting step-up versus the volume growth of Thermage? And could you provide the expected margin accretion from the shift once the channel is fully operational? Second, on the diversified segment, should we expect generics of Aplenzin and BRYHALI launching this year? And if so, what's a fair erosion step down to model? And how are you thinking about plugging these revenue gaps?

Okay. Les, I'll take the first part of the question regarding Solta. So we closed the acquisition on December 1, 2025, and things are going very well with a very smooth transition. The teams in China, both from the Solta side and the Shibo side have done a wonderful job working to integrate the two companies. I was there in the middle of December, spoke to the entire team. The Shibo team is extremely excited to be part of Solta. It has been a long-standing relationship that we've had with Shibo. So it is going very well. In terms of your question regarding the accounting, I will pass that to JJ.

Les, there are two major impacts in the quarter. The first one is we purposely decided not to sell additional volume in November. So November, obviously, was kind of a blank for Solta in China. Conversely, we started selling directly to the market in December. So that provided kind of a partial offset. And then on top of that, due to purchase accounting, we basically had to step up on some of the volume that was sold to our customers in December. Net-net, it's about a $10 million to $15 million hit from an EBITDA perspective in the quarter.

Do you want to take the revenue gap on the Aplenzin LOE?

Yes. Aplenzin, the way I would model it is kind of a standard erosion curve, we are expecting a number of competitors to come immediately after we lose exclusivity on Aplenzin, which is in June of this year. And so I would not expect any unusual behavior there.

Les, you had a follow-up?

Yes. For Jonathan, perhaps on Larsucosterol, can you share some color around the Phase III study design? What effect size are you powering for? And what control mortality rate would you assume? And, I guess, what's the delta in survival do you think that's sufficient for filing?

Yes, it's a great question. So, first of all, in terms of the design of the study, we've started the study now in record time, three months after we acquired the drug from DURECT. It will be a U.S.-only study. It will include about 350 patients randomized between drug and placebo, and the primary endpoint is 90-day transplant-free survival. We've had discussions with regulators, with the FDA about this and feel very confident about it. It's somewhat fairly similar to the design of the Phase II trial that DURECT ran. We've just made some design improvements, and we think the trial will be a bit more efficient than was run in Phase II. Now to your question about the effect size, I think we've followed the Phase II results, and we're data-driven and following what was seen in Phase II. DURECT saw over a 50% reduction in 90-day mortality. We believe that if we can replicate that, that would be an amazing result. To remind you, there's actually no therapies approved right now, no therapies available really for this patient population. So we think this would be a huge advancement in the management of these patients and will be really very important for us and for patients out there. Does that answer your question?

Yes, very helpful.

Next question today is coming from Michael Freeman from Raymond James.

My first is on Xifaxan. I wonder if it is fair to think that 2026 will be a peak year for Xifaxan sales given we have some renegotiated rates under Medicare for 2027. And if that holds true, what are your plans to accelerate sales during 2026 and mitigate the impact of the renegotiated rates under Medicare in 2027?

Yes, Michael, thanks for the question. As you know, since I became the CEO, my focus has been on Xifaxan and driving growth. And that was the one thing that drove the decision to have our AI engine built. We think we have a best-in-class engine here which has really helped our field forces be very efficient in terms of who they're speaking to and how frequently they're speaking and what they're actually delivering in the messages of what the HCP wants. So the focus here has been continuing to accelerate. As you saw, we continue to grow Xifaxan already on the market for over 20 years. We still delivered a 10% net sales growth in Q4. So, as we look to 2026, we will continue to stay focused on driving execution in the channels where we compete. So we feel confident in being able to continue to grow in those channels. There's still a lot of unmet need for patients to be treated for OHE. As I've said on previous calls, right now, we're probably still only treating 40% to 50% of diagnosed patients. So there's still a good amount of space there to continue to grow before the product goes LOE. I want to — maybe JJ wants to add something to that?

Yes. Michael, a couple of things just to highlight. While we'll continue to grow the business in the channels we're currently selling Xifaxan, which exclude the Medicaid and to a certain extent, the 340B channel. On a reported basis, 2025 might be the peak year for Xifaxan just because we had some one-time benefits in the year that will not repeat in 2026. I think we've clarified that in the prepared remarks. So I'll mention a couple of elements. First, at the end of the third quarter, we had to adjust our gross-to-net percentage to reflect the fact that we had exited Medicaid. So that was kind of a good guy in the third quarter. In the fourth quarter, we still had some residual volume from Medicaid states that were not discounted by definition because we had exited programs. So that provided also another benefit. And then conversely, if you look at 2026, there will need to be an adjustment of our gross-to-net accrual in the fourth quarter of 2026 to reflect the fact that the new CMS rebate will become effective on the 1st of January 2027. So a lot of accounting pluses and minuses, but I think you're thinking about it the right way, which is operationally in the channels we currently serve, we'll continue to grow our Xifaxan revenue in '26.

Okay. And now a follow-up. I guess, thinking another way about the timing and your framework for thinking about the full separation of Bausch + Lomb. What are you hoping to see develop within that business before it's appropriate to pursue the full separation?

Yes, Michael, I think when we look at it, right, as we talked about in the prepared remarks, the refinancing provided great flexibility for us. So it was a significant achievement this year. And I don't know if you had a chance to listen to Bausch + Lomb's call this morning. So, I think, I look at it this way. We believe in the Bausch + Lomb plan, the growth story, the margin expansion story, and the selling and operational excellence. They have a robust pipeline. They have a robust product portfolio today. And then if you had listened to Investor Day, you would have heard their growth pipeline. So we really believe in that pipeline. And then lastly, they have a great team as well, and they had a great quarter, and we are really excited about the future of Bausch + Lomb considering we own 88% of it. So we're just looking now for the market to reflect the value in Bausch + Lomb. JJ, do you have any further comments?

No, the only thing I would just clarify or add is that the refinancing based on our projections allows us to pretty much deal with the maturities until the end of 2028, assuming we maintain exclusivity on Xifaxan until the 1st of January 2028. So that flexibility allows us to really be patient and to wait for the share price of B&L to reflect the improved execution and the financials that have been shared with investors late last year during Investor Day. So that's point number one. Point number two is in light of what I think we've discussed last year, the separation per se will have to be in the form of really selling our B&L equity stake. There's been, I think, in the past, some chatter around some distribution of B&L shares, but I think the highest probability outcome will be in the form of selling down our equity stake.

Next question is coming from Glen Santangelo from Barclays.

Tom, I think everybody just generally accepts the fact that the near-term results continue to look fantastic. But sort of based on our incoming call volume, it seems like everybody just wants to talk about the EBITDA impact in '27 coming from the IRA and the pricing changes and then again in sort of 2028 with the LOE. And I seem to remember, I thought you gave us some guidance in the past about how '27 EBITDA may shape up relative to '25. And I couldn't remember specifically, but I don't know if there's anything you can give us to give us a better sense of the EBITDA trajectory just sort of given those two events that are kind of coming up.

Glen, thanks for the question. And yes, the results, we're really pleased with the 2025 results. I'm going to hand it over to JJ because on previous calls, he's discussed this.

Glen, what we've said in prior calls, actually more specifically in Q3 is that the average of 2026 and 2027 would be fairly similar to the EBITDA that we deliver in 2025. And despite the overperformance that we've had in 2025 and the very strong fourth quarter, I can reiterate that guidance. Now obviously, given that we've provided guidance for 2026, you can figure it out exactly how we're thinking about 2027 in light of that guidance. But yes, there are obviously partial offsets to that higher CMS discount that provide us to soften, I would say, the relative drop that you can see, but we've got other growth platforms that we continue to work on, starting with Solta and some of the other segments. So I think that will help you rationalize the implied number for 2027.

All right. Maybe if I could just ask one quick follow-up on the cap structure. Obviously, you made a lot of good progress here. And Tom, I don't want to put words in your mouth, but it sounds like you believe that you're at a place where you can start doing business development currently, and you've done that this quarter. But just to sort of follow up on JJ's comments, you now believe the plan will ultimately be to sell Bausch + Lomb as opposed to do the spin. Does this — would the sale have to be an all-in-one shot? Or could it theoretically you sell different pieces of the company or different percentages of the company down as need be to handle the upcoming maturities, which seemingly are not until 2028 anyway? So it seems like you have some time. So I just wanted to really try to understand the strategy of how you may approach Bausch + Lomb just sort of given you have a little bit of time on your side versus maybe near-term business development priorities.

Thanks, Glenn. So when it comes to business development, of course, doing the refinancing, the finance team and the legal team did an outstanding job. This is just incredible what we've been able to do and to give us runway. And so with that runway, we're able to now really focus on BD, as you saw with the direct acquisition that we did in the third quarter, the Shibo acquisition in the fourth quarter and looking at our capital allocation and where we can create the best value. And there are a lot of assets out there that we continue to screen and look for the right fit for Bausch Health. As I said in a previous question, one of the greatest assets we have is our commercial team and our commercial capabilities worldwide. So that is going to be the focus going forward, of course, all driven by being able to do the refinancing. I'll hand it off to JJ to add more to your question.

Yes. So when it comes to the monetization of our B&L equity stake, really all options are on the table. I think what will guide our monetization decisions, as we said in our prepared remarks, is really shareholder value creation. The flexibility that we've got and the extended runway that we've created through the refinancing of $9.6 billion of our debt last year now allows us to be more patient and evaluate all possible options to monetize our equity stake while at the same time creating shareholder value. So that's the way we think about it.

And I think, Glen, as we look at the performance for 2025, the focus is going to be getting more products into the hands of our commercial team. So it's going to be a focus now continuing to look for assets to bring into the portfolio, not only that are possibly already on the market, but the fact of what we can do from a development perspective in R&D.

Next question today is coming from Jason Gerberry from Bank of America.

This is Chi on for Jason. One and another follow-up. So the first one is, you mentioned there were some higher-than-planned residual volume from several state Medicaid. Can you quantify the impact to 4Q? And was that impact segment across portfolio? If not, which product benefits the most from this onetime dynamic? And my follow-up is on the scope of BD. How large of a BD are you willing to consider based on your current capital structure?

Yes, Chi, thanks for the question. I'll take your second question first, and then I'll hand it off to JJ. We're looking at all types. As you know, we are constrained in terms of the capital structure that we have and what we can spend. But there is — as we look at it, we look at our portfolio and how do we maximize it? And are there assets that we could bring in at a certain value? Are there other assets that some others could be interested in? So we keep a very open approach to the type of deals we can do and the size of the deal we can do. And so that's the framework that we're using today. I'll hand it over to JJ on your question on the residual volume on Xifaxan.

Yes. Most of that volume is really associated with Xifaxan in the fourth quarter and that really happened in October, November. It was less than $50 million in terms of revenue.

We have reached the end of our question-and-answer session. I'd like to turn the floor back over to Tom Appio, CEO, for closing remarks.

Well, thank you all for joining us today for your questions. We closed out another solid quarter and a year of meaningful growth, supported by results across a broad portfolio. Our progress in 2025 reinforces the foundation we are carrying into 2026 and positions us to deliver another year of strong execution and continued progress. I thank you again for the time and the interest you have in our company, and enjoy the rest of your evening.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.