Earnings Call Transcript - BLCO Q2 2025

Operator, Operator

Good morning, and welcome to Bausch + Lomb's Second Quarter 2025 Earnings Call. Please note this event is being recorded. I would now like to turn the conference over to George Gadkowski, Vice President of Investor Relations and Business Insights. Please go ahead.

George Gadkowski, Vice President of Investor Relations and Business Insights

Thank you. Good morning, everyone, and welcome to our second quarter 2025 financial results conference call. Participating on today's call are Chairman and Chief Executive Officer, Mr. Brent Saunders; and Chief Financial Officer, Mr. Sam Eldessouky. In addition to this live webcast, a copy of today's slide presentation and a replay of this conference call will be available on our website under the Investor Relations section. Before we begin, I would like to remind you that our presentation today contains forward-looking information. We would ask that you take a moment to read the forward-looking legend at the beginning of our presentation as it contains important information. This presentation contains non-GAAP financial measures and ratios. For more information about these measures and ratios, please refer to Slide 1 of the presentation. Non-GAAP reconciliations can be found in the appendix to the presentation posted on our website. The financial guidance in this presentation is effective as of today only. It is our policy to generally not update guidance until the following quarter unless required by law and not to update or affirm guidance other than through broadly disseminated public disclosure. With that, it's my pleasure to turn the call over to Brent.

Brenton L. Saunders, CEO

Thank you, George, and thanks to everyone for joining us this morning. I'll start the call with an overview of our second quarter performance and how it aligns with the strategic roadmap we announced when I rejoined the company. Sam will unpack the financials and provide an update on the 2025 guidance, and I will close by highlighting standout products and services driving growth and future offerings with the potential to significantly improve the standard of care in eye health. Maintaining focus in the current environment is easy to talk about, but hard to do. I continue to be immensely proud of the way my colleagues have executed on our strategy despite facing unexpected challenges. Our constant currency revenue growth speaks to the breadth and depth of our portfolio and is driven by a mix of hero products and a steady stream of new introductions around the world. Our contact lens performance is worth highlighting as we've continued to outpace industry growth averages, thanks to strong execution from the entire team. There's no better example of selling excellence than the exponential growth in our comprehensive dry eye portfolio, which offers something for everyone. $1 billion is an important revenue milestone and a nice round number, but it will soon be in our rearview mirror as we continue to gain OTC and prescription market share. When it comes to operational excellence, look no further than our return to full production of our enVista intraocular lenses, which I'll speak to later. We continue to have an intense focus on innovation and our robust pipeline represents the future of the company. We're excited to showcase potential game changers at our November 13 Investor Day, where we'll cover our most promising candidates in each business from concept to commercialization. The look and feel of our roadmap slide has evolved since first being introduced more than 2 years ago. What hasn't changed is our commitment to methodically moving through each phase as indicated by incremental advances in our progress with each update. Parts of the first 2 phases are admittedly boring, but absolutely necessary as we stand on the precipice of Phase 3, accelerate growth. We've adopted the theme of our upcoming Investor Day for this update because the growth will largely be driven by what's next. Our commitment to stay the course for the first 2 phases has helped fortify our base business and develop the processes, platforms, and talent required to write the next chapter in Bausch + Lomb's storied history. enVista implants continue to increase as we rapidly resupply the market. Surgeons who loved these lenses before the voluntary recall have jumped right back in, and adoption rates among others, including new users, are very encouraging as we make a significant push to recapture our momentum. We recently hired a new Head of North American Surgical with more than 30 years of industry experience to help turbocharge that effort. Earlier this month, he attended the American-European Congress of Ophthalmic Surgery Summer session, and he was met with excitement for our return and appreciation for our ongoing focus on patient safety and customer trust. Earlier, I mentioned operational excellence, which has been a core component of our strategic roadmap. If faced with this recall 2 years ago, our return to market would have taken much longer. That speaks to how far we've come and the importance of resilient, talented operators who are obsessed with getting the small things right. I'd like to draw your attention to the fine print for some of these figures. Big picture, our 3% constant currency revenue growth in the quarter would be doubled if you excluded the enVista recall. The difference becomes even more pronounced in our Surgical segment. The fact that there was constant currency growth in the quarter is impressive on its own, but it would have been 15% absent the recall. Our Pharmaceutical segment performance also has an asterisk as underperformance in our U.S. generic business brought constant currency revenue growth in the quarter from what would have been 6% to minus 1%. While we're obviously disappointed with the generic results, we're confident there will be steady improvement in the second half of the year for U.S. generics, which has a new leader as of June. When it comes to our top-performing products in the second quarter, it's once again a story of launches and reinventions driving growth, which means our strategy is working. Nearly all the high-growth products shown here, which are spread out among our businesses, make the top 10 revenue list, that's staying power. I'll now turn it over to Sam. But before I do, it's important to recognize his team's work in revamping our capital structure and securing improved credit agreements. The favorable terms allow for more flexibility going forward, and it's important to take advantage of these opportunities.

Osama A. Eldessouky, CFO

Thank you, Brent, and good morning, everyone. Before we begin, please note that all of my comments today will be focused on growth expressed on a constant currency basis unless specifically indicated otherwise. Turning now to our financial results on Slide 8. Total company revenue for the quarter was $1.278 billion, which reflects year-over-year growth of 3%. We delivered a solid quarter led by the performance in consumer, contact lenses, and promoted pharma brands. Our Surgical segment grew by 1%, absorbing a $29 million impact from the enVista recall in Q2. Excluding the impact of the enVista recall, total company revenue grew by 6% in the quarter. As Brent noted, enVista implants continue to increase as we resupply the market, and we are making a significant push to recapture our momentum. For the second quarter, currency was a tailwind of approximately $21 million to revenue. As a reminder, in Q1, we experienced currency headwinds. On a year-to-date basis, currency has had a nominal impact on both revenue and adjusted EBITDA. Now let's discuss the results of each of our segments in more detail. Vision Care's second quarter revenue of $753 million increased by 6%, driven by growth in both consumer and contact lenses. The consumer business grew by 6% in Q2 as our key brands continue to perform well and consumption trends remained steady. Let me go over a few highlights. In the quarter, LUMIFY grew by 27% and generated $61 million of revenue. We continued our strong execution in the dry eye portfolio, which delivered $115 million of revenue in Q2, representing 19% growth. Our two key franchises, ARTELAC and Blink, once again contributed to the strong performance. ARTELAC grew by 34% and Blink grew by 13% in the quarter. As we mentioned in Q1, we anticipated retailer destocking of inventory to take place in Q2. The destocking impact mainly affected our eye vitamins, which declined by 8% in the quarter. It is important to note that consumption trends continue to remain steady and demand remains solid. Contact lenses revenue growth was 7%. Our contact lens business outpaced the market in 2024, and we continue to see strong performance in the first half of this year. In the quarter, we saw solid performance across our key brands. The Daily SiHy franchise was up 36% in Q2 and continues to be our fastest-growing brand. Our ULTRA monthly franchise grew by 8% and Biotrue was up 2% in the quarter. In Q2, our contact lens business saw broad-based growth and strong performance across our key markets. The U.S. was up 11%; EMEA was up 11%; LatAm grew by 25%; Japan grew 3%; and China was up 7%. Moving now to the Surgical segment. Second quarter revenue was $216 million, an increase of 1%. As I mentioned, this absorbs the impact of the enVista recall. Excluding the recall, Surgical segment growth in Q2 was 15%. Consumables, which represents approximately 56% of surgical revenue grew by 10%. The enVista recall impacted our implantables business and parts of the equipment portfolio. Implantables declined by 16% in the quarter and equipment declined by 2%. In the quarter, we made solid progress with the enVista return to market. As we progress through the year, we expect to continue to build on the performance. From a phasing perspective, we expect to continue to make progress in Q3 and further ramp up in Q4. Lastly, revenue in the Pharma segment was $309 million in Q2, which represents a decline of 1%. Our U.S. branded Rx business was up 8% in the quarter, mainly driven by the continued growth of MIEBO. MIEBO delivered $63 million of revenue in Q2. This represents sequential growth of 11% and a year-over-year growth of 50%. XIIDRA delivered $82 million of revenue in the quarter. We continue to see strong growth in XIIDRA volume with average weekly TRx up 12% on a year-over-year basis and 5% sequentially. MIEBO, XIIDRA, and our consumer brands have established us as a clear leader in dry eye. We have built a robust dry eye platform to address all patient needs throughout their care journey, which gives us the confidence that we will continue to drive growth and leverage the portfolio to drive innovation. Our International Pharma business was up 2% with strong performance across our markets in Europe. Our U.S. Generics business declined 29% in the quarter. As we have previously stated, we have taken a number of actions, which we expect will improve performance in the generics business in the second half of the year. Now let me walk through some of the key non-GAAP line items on Slide 9. Adjusted gross margin for the second quarter was 60.6%, which represents a 130 basis point decrease year-over-year. This was driven by the one-time impact of the enVista recall, product mix, and currency. In Q2, we invested $96 million in adjusted R&D, which represents an increase of approximately 12% over Q2 of 2024. Second quarter adjusted EBITDA, excluding acquired IPR&D was $192 million. This absorbs a one-time impact of $19 million from the enVista recall and $18 million impact from the decline in the U.S. Generics business. Adjusted cash flow from operations was $86 million in the quarter. Adjusted net interest expense for the quarter was $94 million, and adjusted EPS, excluding IPR&D, was $0.07 for the quarter. Finally, as part of our efforts to continue to optimize our capital structure, in June, we successfully executed a refinancing of $3.1 billion of our debt. The refinancing extended the majority of our maturities to 2031 and is expected to have a minimal impact on our interest expense. Now turning to our 2025 guidance on Slide 12. We are raising our full year revenue guidance from a range of $5 billion to $5.1 billion to a range of $5.05 billion to $5.15 billion. The updated revenue guidance represents constant currency growth of approximately 5% to 7%, up from 4.5% to 6.5%. This new guidance range continues to absorb approximately 100 basis points from the one-time impact of the enVista recall. Shifting to adjusted EBITDA, we are raising our adjusted EBITDA guidance from a range of $850 million to $900 million to a range of $860 million to $910 million. In terms of the other key assumptions underlying our guidance, we continue to expect adjusted gross margin to be approximately 61.5%. As a reminder, the adjusted gross margin absorbs an estimated one-time 50 basis points headwind from the enVista recall. For the full year, we continue to expect investments in R&D to be about 7.5% of revenue and interest expense to be approximately $375 million. We will continue to monitor the Fed's actions for the rest of the year. We continue to expect our adjusted tax rate to be approximately 15%, and full year CapEx to be approximately $280 million. In terms of phasing, for the remainder of the year, we expect the fourth quarter to be the highest. This is driven by the natural seasonality of our business, the ramp-up of enVista and the actions we're taking to improve performance in our U.S. Generics business as we progress through the remainder of the year. Consistent with our previous guidance, our current guidance excludes any potential one-time IPR&D charges that we may incur in 2025. Finally, let me briefly address tariffs. The tariff policy remains fluid, and we're continuing to monitor updates. Based on where the policy stands today and the actions we're taking, our updated guidance assumes we will be able to offset the impact of tariffs in 2025. Moving to Slide 13. Now let me provide some additional color on how to think about the updated revenue and adjusted EBITDA guidance in 2025. Our updated revenue guidance range of $5.05 billion to $5.15 billion reflects a $25 million raise driven by strong business performance and $25 million from currency tailwinds. The updated 2025 adjusted EBITDA guidance range of $860 million to $910 million includes approximately $10 million driven by business performance and our continued focus on disciplined cost management. To sum up, we had a solid quarter. The markets are healthy, and our business fundamentals remain strong. We are committed to our strategy to drive sustainable growth and margin expansion. And now I will turn the call back to Brent.

Brenton L. Saunders, CEO

Thanks, Sam. Let's focus on some of the more impressive second quarter performances and reasons to be so optimistic about the future of Bausch + Lomb. At the bottom of this slide, there's a simplified view of the dry eye journey for consumers and patients. No matter where they stop, whether it's an Amazon order or a visit to the pharmacy counter, we're there to meet them with solutions that have become among the favorites of eye care professionals. There are a few consumer options worth highlighting based on second quarter performance. Momentum for Blink eye drops continues with 13% reported revenue growth. ARTELAC performance was even more impressive at 39% reported revenue growth, and it continues to be our most global dry eye option with availability in more than 40 countries and plans to expand further. Those products and others shown here drove a 16% constant currency revenue growth for the dry eye portfolio. Expansion of the dry eye market shows no sign of slowing down, but there remains a gap in education and awareness. In fact, according to our updated state of the dry eye survey, 78% of sufferers wish they had more dry eye resources. We're doing our part to help fill that gap with our latest dry eye awareness month campaign, which encourages visits to knowyourdryeye.com and reinforces that there are a range of potential relief options available that may be appropriate depending on the cause, severity, and frequency of symptoms. The theme of this slide is stay the course. When we acquired XIIDRA in 2023, we made clear our intentions to nurture the brand back to health and remind eye care professionals of its benefits. Sticking to this playbook has resulted in 12% year-over-year prescription growth and renewed excitement for a medication that produces hundreds of millions of dollars in annual revenue. Our work to improve profitability is far from done, but we're starting to see the benefits. MIEBO continues to be a juggernaut with 111% year-over-year prescription growth. The playbook hasn't changed there either. Through extensive education and best-in-class field force, we've established MIEBO as the prescription solution for evaporative dry eye. Patient feedback continues to be overwhelmingly positive as made clear in the Phase IV data published earlier this year. Study participants reported rapid relief of symptoms and most commonly chose silky, smooth, and soothing to describe how the drop felt on administration. Effective direct-to-consumer campaigns continue to raise awareness of our flagship branded dry eye medications, rounding out a thoughtful all-encompassing approach that accounts for every possible touchpoint. The recent launches of preservative-free OTC options are a prime example of continuous brand reinvention and being responsive to evolving customer needs. LUMIFY preservative-free launched in May and brings the same fast-acting redness relief to those with sensitive eyes. While exponential growth has been a constant theme for LUMIFY, we're thinking well beyond the next few years. In fact, we recently settled patent disputes related to LUMIFY, enabling continued investment ahead of a date certain for generic launch. Introducing preservative-free options for Blink, now means there are six dry eye drops to choose from in addition to multiple contact lens, lubricating drops, and a once-a-day nutraceutical that's quickly becoming the most trusted among eye care professionals. Optionality matters for consumers looking for OTC relief, and the growing Blink family, a global brand, checks every box. While Daily SiHy was once again the clear standout with 36% constant currency revenue growth in the second quarter, it's important to note that all our key contact lens brands are growing. That includes ULTRA monthly contacts with 8% constant currency revenue growth, an impressive figure for a legacy brand bucking the trend of a gradual shift towards daily lenses. Our thoughtful approach to expanding our Daily SiHy portfolio hasn't changed with plans to introduce multifocal and toric options in several markets next year and realize the expected benefits of offering a full suite of lenses. Those benefits are clear in the U.S. with 40% constant currency revenue growth in the second quarter. In May, we received European approval for LuxLife, a full range of vision IOL, the latest example of our push into the high-margin premium market. The lens has an impressive clinical profile, and early feedback from surgeons mirrors our excitement about the latest addition to the Lux portfolio. Our staged rollout of premium offerings continues with the anticipated soft launch of enVista MV in Europe later this year and expected early 2027 U.S. launch for enVista Beyond. Our pipeline slides should be familiar to you by now, but I won't go too deep to avoid spoiling Investor Day. I'll remind you that we have multiple shots on goal in each of our businesses, and the focus is category disruption as opposed to modest improvement. Importantly, this isn't aspirational. We've initiated clinical studies for several of these products with others to follow soon. I look forward to seeing many of you in November where members of the R&D team and our commercial leaders will bring these products to life. Let's move to Q&A now.

Operator, Operator

And the first question today is coming from Matt Miksic from Barclays.

Matthew Stephan Miksic, Analyst

So congrats on the strong quarter here, particularly kind of on an underlying basis, taking out some of the puts and takes as you talked about. Brent, I wanted to ask first about you've made sort of a recommitment to the company here based on your original contract, and you talk often about the bright future that you see for a lot of the product lines and product launches that you've run through. Maybe just talk about in the midst of the recent uncertainty, what are some of the key highlights that sort of inform that decision to sort of recommit for a longer period of time? And I have one follow-up on guidance, if I could.

Brenton L. Saunders, CEO

Yes, absolutely, Matt. So let me take the first part, and thank you. Look, I'm really excited that I extended my contract to stay at Bausch + Lomb. And I'll tell you, I did it entirely because of my deep confidence in our team, our products, and the strength of our R&D pipeline. I think we have an amazing opportunity as we work through our roadmap here to truly transform our company in the next couple of years and really focus on accelerating sales growth, importantly, expanding margins, and then, of course, advancing our innovations to help us fulfill our mission to help people see better to live better. If you look at just the challenges we had in the first quarter, whether it be the recall or tariffs, and the resiliency in our ability of our teams to execute and overcome those challenges that were very unexpected and quite impactful and get back on track here in the second quarter, it just underscores my confidence in the team and our ability to really transform our company. And I guess, net-net, if you really step back and think about it, the way I really think about it, I really see the opportunity in front of this team right now is really too important and too exciting not to be a part of it. And I'm just incredibly excited for what we can do in the future here.

Matthew Stephan Miksic, Analyst

That's great to hear. Following the discussion of some challenges and initiatives that influence our guidance, there are a couple of points that many are already familiar with, particularly regarding the recall and the associated impact, as well as tariffs to some extent. Could you provide some insights on quantifying the impact of tariffs? Additionally, please share your strategy in pharmaceuticals. There is clear strong growth in XIIDRA prescriptions, with significant sequential growth, yet we see a slight decline year-over-year. What is the plan moving forward, and how do you anticipate this will unfold for the rest of the year? Furthermore, any details you can share on the tariff impact would be beneficial as everyone assesses the situation.

Brenton L. Saunders, CEO

Yes, if you don't mind, Matt, I'll address these in reverse order so Sam can assist with the tariff impact. In the pharmaceutical sector, let's begin with MIEBO, XIIDRA, and gross to net. Throughout last year and at the start of this year, we mentioned some challenges heading into 2025 that would reset the base, particularly for XIIDRA. These challenges included one-time managed care payments and the IRA, which we've detailed. Our primary focus this year has been to drive prescription and demand. We’ve seen this clearly in XIIDRA, which has achieved a 12% year-over-year increase in TRx and 5% sequentially. In MIEBO, the growth has been even stronger with a 50% year-over-year increase and 11% sequentially. This indicates a market expansion, and we now hold a leading position in the prescription space. Looking past 2025, our aim is to translate this growth into profitability on our P&L, and we anticipate seeing that starting in 2026 and 2027 as we emphasize both growth and profitability. We're in a good position, and while the gross to net challenges might seem like a setback, it’s crucial for the long-term strength of our franchise. We need to ensure that reimbursement and patient access are secured, and educate eye care professionals on the importance of treating both evaporative and inflammatory dry eye. 2025 is shaping up to be pivotal, and the team is performing well. With a bit of patience, I believe you'll begin to appreciate the potential of these franchises starting in 2026. I also want to note that our Generics sector has been disappointing, and we are actively working to address these issues. As mentioned earlier, we have a new leader for Generics, and we've seen a modest sequential improvement of about 2% from the first to the second quarter. While this is a step in the right direction, it’s not where we want to be. However, we are starting to see further improvements in early Q3, though there is still a lot of work ahead. We expect these issues to be resolved by the latter half of the year, ensuring it won’t be a hindrance as we go into 2026. Overall, Matt, I believe we are well positioned. I'm excited about our current progress and execution with our prescription brands, but we recognize there’s more to do and are focused on completing our objectives. Regarding guidance, I’ll hand it over to Sam. I am proud of how we navigated unexpected challenges in the first quarter, delivering a strong second quarter and positioning ourselves for continued momentum in the second half of the year.

Osama A. Eldessouky, CFO

Yes. And Matt, when you think about tariffs, the policy continues to be fluid and... So when you think about what we shared in our last earnings call, we estimated roughly about impact of 120 basis points. But at that point, that was based on the environment that we were reporting back in April. So a lot has changed since then. One, the policy has changed in different directions, and that helped us in a meaningful way in terms of having favorability in terms of what we think the potential impact for 2025. But also, our team has done a really great job in terms of navigating around the tariffs and taking steps and mitigating the impact where we see it. And that gives us the confidence to be able to reflect in our guidance and also be able to fully offset it within our guidance.

Brenton L. Saunders, CEO

If I could, Sam, I'd also say it's easy for us to say the team helped mitigate, but it was an immense amount of work. And I would just want to acknowledge the hard work that our team and our supply chain and commercial colleagues had to do to really be nimble and reinvent ourselves a little bit to deal with these tariffs.

Osama A. Eldessouky, CFO

So where we stand today, we estimate an impact of about 40 basis points for us in 2025. We will continue to monitor any developments this week and beyond. We are committed to addressing the challenges posed by tariffs and plan to work on mitigating that impact through 2025.

Brenton L. Saunders, CEO

To be clear, those 40 basis points are included in the guidance and will not be excluded from it. They are accounted for in the guidance that Sam just provided.

Operator, Operator

The next question is coming from Xuyang Li from Jefferies.

Xuyang Li, Analyst

I guess to start on the pharma side. I think previously, you talked about investing heavily in Miebo for the first couple of years, basically to prime the market and then that investment will taper off and profitability will increase. But I guess with a pretty big competitor coming into the market soon, I'm wondering if that impacts your plans on investments and profitability timing.

Brenton L. Saunders, CEO

Yes, that's a great question. While we're discussing TRYPTYR and Alcon, I'll ask Yehia, our Chief Medical Officer and Head of R&D, to weigh in on this as well. Our strategy remains unchanged. We've been aware of this product's development from the start, so it's not a surprise to us. It's crucial to understand the dry eye market in terms of competition. Two important points come to mind. When I was running Allergan during the Xiidra launch, I remember the intense discussions about the competition between Restasis and Xiidra. People thought it would be a definitive battle where one would dominate and the other would falter. In reality, the market was able to grow to support both products, and both Restasis and Xiidra experienced growth during that time. This happened because the prescription market is still underpenetrated, with a significant unmet need, as I noted earlier. There is ample opportunity to attract more patients for prescription treatments, which is a vital aspect of this market. Alcon is a respected company with strong connections in eye care, so we should never underestimate them. However, I want to highlight that we have a strong position in the market. Once you establish a foothold in dry eye treatment, it's quite challenging for competitors to navigate around it. When I was with Allergan and overseeing Restasis, we believed we had a strong position, but our current standing is even more solid. We are the only ones with a drug specifically for evaporative dry eye and a leading anti-inflammatory medication, both of which are critical to addressing the disease. Moreover, we have various OTC options available. Our capacity to collaborate with eye care providers and engage consumers and patients is unparalleled compared to our competitors. We have a strong portfolio and significant momentum. Yehia, could you provide some clinical insights on this?

Yehia Hashad, Chief Medical Officer

Yes. I think from a clinical perspective, we still believe Miebo is unique and it's the only approved treatment for evaporative dry eye. Let me just get a little bit back and describe from a dry eye perspective; when we look to the etiology of dry eye, there are two main categories. One is either the eye is tear deficient, meaning it doesn't secrete much tears. For that category, you need an increased tear production, which we have multiple options in the market. TRYPTYR is not the first one. RESTASIS increases tear production; Tyrvaya increases tear production. So, this is really now coming as a third to the market for increased tear production. But the bigger category of dry eye is really evaporative dry eye. And those are the patients who really have meibomian gland dysfunction that no matter how you increase the tear production, if you still have one of those causes, it will be like a leaking bucket syndrome. So, basically, you can increase the tear, but it evaporates immediately. This is where really the only treatment for these types of patients would be Miebo. So we still believe that it is unique from an etiological perspective. Apart from that, whether it's evaporative or decreased production, if the eye remains for a long period of time with dry eye, it will cause inflammatory dry eye. Unless you have a specific treatment for inflammation like Xiidra to address the inflammatory cytokines, you will not be able to treat the inflammatory component of the dry eye. The most important piece I would like to mention related to the clinical data is what matters for the patients are the symptoms of dry eye. This is where we differentiate clearly versus TRYPTYR. According to the Phase III data from TRYPTYR, actually, while 50% have an increased reproduction, is still on the symptom scale, they do not show improvement except at day 14. In fact, one of the pivotal studies failed the statistical significance, and the other one met, and they had to pool the data to amplify the effects of the product. This is a clear indication where the symptom and the patient outcome play an important role in the use of the treatment because Miebo still in each individual pivotal study has a significant and clinically meaningful effect on the symptoms reduction. The late study that we conducted as a Phase IV study shows that improvement in symptoms happens within a few minutes of the installation at day 1, day 3, day 14, and so on. So, we do believe that Miebo and Xiidra are totally differentiated. And again, needless to say, obviously, tolerability plays an important role in this market. With a product that could have 50% of burning and stinging after installation, I think from a patient outcome perspective, it could be challenging to use it for a long period of time. So that's why I still have a lot of confidence in our dry eye portfolio, and I still believe that we have very differentiated products existing on the market.

Xuyang Li, Analyst

That's a very comprehensive and helpful answer. I appreciate it. I guess switching gears a little bit to the contact lens market. Almost half of the market is reported so far, and it's coming in better than expected in the second half. We've definitely heard some comments last quarter about consumers buying less and channel inventory drawdowns. Can you provide us with an overview of what you're seeing in the contact lens market from a macro, consumer, and channel perspective?

Brenton L. Saunders, CEO

Yes, we still view it as healthy. While we've heard comments from some competitors, we don't share that perspective. A significant part of our positive outlook stems from the investments we've made over the past year in innovation and direct-to-consumer channels. In China, we established a fully integrated direct-to-consumer model, and in the U.S., we launched Opal, which is outperforming our expectations in terms of adoption and usage. Our performance tells a clear story; we anticipated strong results from our Daily SiHy and INFUSE ULTRA ONEday outside the U.S., and we achieved a 36% growth in that Daily segment. I'm particularly proud of our team's accomplishments, as Ultra monthly grew by 8% and Biotrue saw a 2% increase. We are focused on retaining existing customers while launching new products. The strong performance from our contact lens team is driving this growth. When both old and new products are achieving growth, it puts us in a robust position. Therefore, I remain very optimistic about the contact lens market, believing it will continue to thrive this year and in the future.

Operator, Operator

The next question will be from Larry Biegelsen from Wells Fargo.

Unidentified Analyst, Analyst

This is Lei calling in for Larry. Congratulations on a strong quarter. Sam, I know you haven't provided guidance for 2026 yet, but you shared insights about some challenges in 2025, such as the enVista recall, the relaunch, and U.S. generics, along with the investments in key portfolios. Could you discuss the possibility of the business growing by 6% to 8% next year, as you would in 2025 excluding the recall, especially considering the easier comparisons this year? Additionally, do you foresee a return to pre-recall EBITDA margins next year given the anticipated ramp-up? I have a follow-up question.

Brenton L. Saunders, CEO

Yes. So, I'll let obviously, Sam answer. But I think one piece of color I would say is I am very optimistic about 2026 and beyond. And as I mentioned in the first question from Matt, why I stated is, I think we have a massive opportunity at this company over the next couple of years. As I said, the key opportunities are really accelerating growth, strong improvement in margins, and then, of course, our pull-through of our innovation and R&D pipeline. In that context, let me turn it over to Sam to provide a more specific answer.

Osama A. Eldessouky, CFO

Yes, I share the same views as Brent. If we take a step back and consider how 2025 will play out in the first half versus the second half, our increased guidance reflects our confidence in the core business and the performance we're seeing in both the consumer segment and the lens business that Brent discussed. Additionally, we’re noticing improvement in the surgical sector, investor recall, and progress in the pharmaceutical and generics areas, which is encouraging. There’s still work to do, but it gives us a positive outlook for the full year 2025. This momentum supports our confidence as we look ahead. I won’t provide specific guidance for 2026 at this moment; we’ll delve deeper into guidance and long-term projections during our Investor Day on November 13. It's crucial to build on this momentum as we move into 2026, particularly in the first quarter, focusing on top-line growth and margin expansion. Regarding margins, typically, our second half is stronger due to seasonality, and this year is particularly noticeable due to the enVista recall and the progress in the generics segment. I anticipate that Q3 will have a similar performance to last year, which will place greater emphasis on Q4 as we look to exit strong into 2026.

Brenton L. Saunders, CEO

It's important to recognize that while we often discuss quarterly results, when I joined the company, I provided a roadmap and spent the last two years stabilizing and strengthening the organization. This included enhancing talent and focusing on customer needs. We're beginning to see the benefits of this effort reflected in the resilience we observed in the first quarter and the first half of the year. I believe our strategy will be evident in the second half of the year, but the real impact of our hard work will emerge in 2026, 2027, and beyond. We're looking forward to discussing this further with you in November, and we hope you, your team, and Larry will attend.

Unidentified Analyst, Analyst

That's very helpful. For my follow-up question, I have a couple of things regarding the pipeline. With Elios, it seems like the filing is still pending. Do you still anticipate approval by the end of the year? What are your thoughts on adoption once it launches? Additionally, it appears that the timeline may have been extended to 2027. Could you provide any insights on that?

Brenton L. Saunders, CEO

Yes. I'll let Yehia answer. I'll just say on Elios, obviously, we're super excited about the technology. I think the point we should just underscore here is having it approved in Europe and seeing the results clinically in Europe is quite encouraging for us. Obviously, a very different reimbursement environment than what the U.S. will be. Adoption will look entirely different. But clinically, you're seeing really great outcomes and great adoption in Europe. So that gives us a lot of confidence. But Yehia, you want to talk about approval and the file and then, of course, enVista Beyond as well?

Yehia Hashad, Chief Medical Officer

Yes, sure. So for Elios, I think as Brent mentioned, we are very confident in the technology. The results we have seen and are seeing from Europe are really very encouraging. Regarding the file, the strategy we took that we wanted to mitigate the risks once we submit the file and get a lot of questions about certain areas from the FDA. So we're trying to do upfront work that can save us the number of questions and cycles that could come. That's why we have actually put a little bit of time more in order to submit the file in the best shape. The other piece that we also decided to do upfront is that we are actually introducing another probe, which can work with the probe that we have in Europe. When we also launch the product, we don't have issues with regard to supply. So that's why we have an additional supplier that we have to validate and verify that. We're making huge progress. We do expect that we will submit this year. We do expect the approval could come in early second half next year.

Brenton L. Saunders, CEO

Yes. And look, I think it was a tough decision to rush it in or create a more robust file. Given the promise of this technology, we think we made the right choice of creating a more robust file and approving a second supplier because we think demand will be high. The last thing you want to do is launch a great product like this and not be able to supply. We've been in that position in the past, and I think a few months here will pay off handsomely for us in the future. You want to talk about enVista Beyond timeline?

Yehia Hashad, Chief Medical Officer

EnVista Beyond. Yes. So enVista Beyond, we were doing very well in terms of recruitment. However, with the recall, we were affected because some of the IOL measurements were part of the recalls' batches. We had to hold recruitment for 2 months. After that, we came back to the market; we're also back to recruitment. We have recruited approximately 32 patients since we are back. We expect still that we are trying to catch on the timelines, but we do expect maybe a couple of months of delayed launch based on the delay we had from the recall.

Operator, Operator

The next question will be from Joanne Wuensch from Citibank.

Joanne Karen Wuensch, Analyst

I appreciate the comments on the contact lens market health, but I'm curious if you can give us an update on how you're thinking about the product pipeline and what we may be able to look forward to in the coming years?

Brenton L. Saunders, CEO

Yes. Great question, and I'll ask Yehia again to talk a little bit about it. Obviously, this will be a key topic of the November event, Joanne. We don't want to front-run our own Investor Day here too much. The bottom line, and Yehia can provide a little more detail is I think our contact lens portfolio of R&D projects is probably the best it's ever been in the history of the company. The last 30 years, our R&D has been playing catch-up to the market. As part of our strategy, it was to now try to get into and lead the market. I think Yehia and the R&D team in contact lenses have cracked the code, and I'm immensely proud of the challenge we gave them a couple of years ago and where they are today. But do you want to talk a little bit more about that, Yehia?

Yehia Hashad, Chief Medical Officer

Yes. So definitely, the contact lens actually, we saw the opportunity in material innovation. It has been, for as always Brent said, like there's no innovation happening on the material side for so many years. This was one of the areas that we wanted to tackle. The bigger challenge for us is that we still wanted to produce it on our internal manufacturing capabilities without additional new lines of manufacturing and also to be considered one of the new segments if we can create a new segment in the contact lens area. This is when we started the biomimetic project about 2 years ago. We're making great progress on this project. In fact, our strategy, as I mentioned, is to do a lot of upfront work to save time on the back end. Luckily, we have done approximately 10 internal studies on the biomimetic lens, and the results are showing us great progress, giving us confidence every day. We expect still to go for an external clinical study, a large one that will be starting around October timeframe. This will be the first study, and you will hear more about the program and also the expected launch dates at the Investor Day.

Brenton L. Saunders, CEO

Yes. We're going to do a deep dive of this in November, Joanne.

Operator, Operator

The next question will be from Doug Miehm from RBC Capital Markets.

Douglas Miehm, Analyst

I think we've covered this to a significant extent, but you mentioned the gross to net ratio on Xiidra, which is well understood. Is there anything you’re doing regarding Miebo in terms of pricing to firmly establish this product in the market, especially considering the competition you’ve already pointed out?

Brenton L. Saunders, CEO

Yes. I mean, so we have invested immensely in Miebo, and coverage rates on Miebo are incredibly strong. In fact, I would say we're essentially at what would be considered full coverage. As you compare it last year when it was uncovered, obviously, to full coverage today, you're looking at a hit to gross to net to secure that coverage. That is where it will be. And so when you think about 74% commercial coverage and 71% Medicare coverage, that's a great place. We did that regardless of the launch of a competitive product because that's how you win in this market. But it also, in some ways, creates an uphill battle for any competitor because you know how this disease state works. The patient comes in, gets a prescription, goes to fill it at the pharmacy. If they don't have insurance coverage, they tend to abandon. Making sure when you have a chronic medicine that they don't abandon and stay on therapy because it's effective and tolerable and covered are really the key dynamics, and we are where we need to be. So there's really no further work to be done there. Now it's about driving more adoption and bringing more patients into the marketplace.

Douglas Miehm, Analyst

Okay. Perfect. And then just as a follow-up, with respect to the generics business, I know you're working on fixing this, but I imagine it does have an impact on the margins within the division. Can we think about the generics business as flat going forward? Or do you actually expect that you can gain share in that business? That would be unusual, but it would be great if you could do it.

Brenton L. Saunders, CEO

I'm quite experienced in the generics world, having run Activist for a few years, right, and selling it to Teva. But look, there are a couple of things in the generics business that you have to be quite nimble to be able to handle. What we saw over the last couple of years was a big competitor in the space, in the generic space go out, Akorn, and then, of course, return. When they're out, it's sort of a commodity-like business. So when supply is out, you have more robustness in the marketplace. When supply is broad, you have less robustness in the marketplace. That's how this business works. But there's also just fundamental execution and other things. I think we're solving those. Our secret weapon in the generics business is we make the generics in the United States for the United States in our state-of-the-art facility in Tampa, where we make most of our pharmaceutical products. We'll see what happens with tariffs from India. We'll see what happens in other places, but we are a high-quality, reliable supplier of generics, and that's an important part of the dimension there. Long way of saying it's an unpredictable market. We can do better than we've done in the first half of the year. We need to focus on what we can control, which is execution, high quality, and reliable supply. That's exactly what we're going to do to see improvement in the second half and beyond.

Osama A. Eldessouky, CFO

I think you covered it well, Brent. When you think about the generics business, it exactly does go through those cycles. For example, we don't talk much about it. Last year, we ended January was up about 10%, and it was going to benefit from the cycle of the secret weapon that Brent talked about in terms of our manufacturing in Tampa, but also having the competitor being out of the market. One of the things we will look for in this business is, in addition to the steps we're taking for execution, is to continue to be standing ready for capitalizing on those opportunities when they present themselves and get that market share and turn it into the growth rate that we saw last year.

Operator, Operator

And the final question today will be from Gary Nachman from Raymond James.

Gary Jay Nachman, Analyst

So first, regarding the enVista recovery after the recall, Brent, just provide some more detail on physician adoption and confidence in the product offering at this point? How quickly you were able to recapture that with the ECPs? I guess as far as the investor recall impact on any of your other products or franchises, you specifically mentioned equipment. Just clarify that and how you were able to resolve that and if you're anticipating any other impacts from the recall over the course of the year? And then I have a follow-up.

Brenton L. Saunders, CEO

Yes, sure. So look, when we voluntarily recalled the enVista product line, we did it because it was the right thing to do, and we always put patient safety first. The benefit from an unfortunate situation is also an opportunity, and that's about trust, right? Trust can be earned in every interaction with customers. It takes a long time to build a foundation of trust, and it can be destroyed very quickly. The way we handled it with the transparency and patient safety-first mentality, really gave us an opportunity to earn more trust in a marketplace like IOLs where surgeon relationships are paramount. When customers trust you, they give you their business. But when they really trust you, they give you their loyalty. When you look at where we stand in the context of the recall, I think we're in very good shape. It will take some time, right? We have shipped about 200,000 lenses, as we said in the prepared remarks. We still don't have full consignment ability in the marketplace. That will happen over the next few weeks as we continue to ramp up production. When you look at adoption, as I mentioned, the loyalist KOLs came right back in, and even though we don't always have every diopter or every lens, they're working with us to really drive implantation and see strong results. There are a group of surgeons that are starting to implant but haven't fully adopted because we can't provide full consignment yet. When we get to full consignment, it will be about bringing new implanters and new surgeons into the business. My sense of where we are today is that we will be fully back on track and recapture our momentum by the first quarter of next year. A work in progress throughout the year, but it will build sequentially and week-over-week, month-over-month. We’re seeing exactly what we want to see. I think this was as well handled as can be, but we still have a lot of work to do in the second half of the year to get to where we want to be, but we're absolutely on track. Does that answer your question?

Gary Jay Nachman, Analyst

Yes, that was perfect. Now, shifting to pharma, in the dry eye market, where have you been seeing the most growth in Miebo prescriptions? Is it primarily from new patients or from switches from other dry eye products, considering the unique evaporative nature of the product? Lastly, while I know you will provide more details at the R&D Day in November, how confident are you in the pharma pipeline? Do you believe there is a need to significantly enhance it through business development for long-term growth in that sector? You've mentioned generics, but I'm more interested in the innovative side.

Brenton L. Saunders, CEO

Yes, what we're seeing in the dry eye market, which is benefiting Miebo significantly, is an increase in new patients. This is due in part to our direct-to-consumer efforts and other strategies to grow the market, which are working effectively. I've always noted that I have a strong understanding of this market, which is very sensitive to promotions. The improvement can also be attributed to the favorable risk-benefit profile of Miebo. The medication works almost immediately, as highlighted by our recent Phase IV study, is consistent, and has virtually no adverse effects. Patients find it to be very tolerable, often describing it as silky and smooth in their eyes. This level of relief, combined with our excellent managed care coverage, creates a successful formula for dry eye treatment. A great product that provides instant relief, long-term tolerability, and affordability due to coverage is key. Miebo is definitely expanding the market. I believe the refill rate for Miebo is higher than that of other products in the category, indicating that patients truly value this therapy. I see a lot of growth potential for Miebo. We’ll discuss this further at the meeting in November, but I'm very optimistic about driving Miebo's growth, regardless of competitive pressures. I don’t foresee competition being a significant obstacle. Regarding our pipeline, Yehia can share more details. I’m very excited about our pharmaceutical pipeline, including our combination therapy for dry eye that will enter clinical trials this year and our innovative neuroprotective glaucoma product that will also begin clinical trials this year. Our pain product has already commenced its journey.

Yehia Hashad, Chief Medical Officer

Actually, we'll be starting recruiting next week.

Brenton L. Saunders, CEO

We'll start next week. These programs are going to be in clinical, and we'll be able to talk about that in November. We have a lot of other really important programs, whether it be through our collaborations with Citi or character and the like. Yehia, anything you want to chime in there?

Yehia Hashad, Chief Medical Officer

No, I think you addressed almost all points, Brent. But I just would like to mention the philosophy on the pharma pipeline in particular, because I think it's one of the areas that witnessed a lot of transformation in Bausch & Lomb. Just to give you an overall perspective on the strategy. What we are looking for is areas of high unmet medical need currently either not addressed by any treatment or addressed by treatments that could have the potential we get a better version of this treatment or best-in-class treatments. You mentioned the innovation part. I just would like to comment on the innovation part because for ocular pain, it's a new chemical entity. It's the first time that we use this indication is not existing before or so. If you look at the dry eye area, it's again, we are developing the first combination therapy in the prescription dry eye market that addresses inflammation and evaporative dry eye. Glaucoma, we really want to change the standard of care. Glaucoma is a neuropathy disease. We have been addressing glaucoma as an IOP lowering only but neglecting the neuropathy part that leads to vision loss. We are very much interested in these new segments. As Brent mentioned, this is the wave going into clinical trials this year. We also have a second wave coming up next year from Character Bio Collaboration and City Therapeutics that address bigger areas in the retina like geographic atrophy and precision medicine. You will hear a lot more about this at the Investor Day. It's one of the most innovative pipelines in pharma now existing in eye care.

Brenton L. Saunders, CEO

Anything else there, Gary?

Gary Jay Nachman, Analyst

Yes, that color was really helpful.

Brenton L. Saunders, CEO

Great. Well, let me just conclude by thanking everyone for joining. As I opened the call, I think the opportunity in front of us is extraordinary. I think you'll better understand why I have so much optimism for our future after you hear our more detailed thoughts around our strategy, our guidance, and our pipeline in November, which I encourage you all to participate in. Of course, we're always available to you if you have any questions. George, Sam, and I are happy to follow up as we always do with you. But thank you for joining us today, and we look forward to keeping you updated.

Operator, Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.