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Feb 20, 2019

Bausch Health walks tightrope between debt, acquisitions in 2019 forecast

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MONTREAL -- Bausch Health Companies Inc.'s management is striving to find a balance between debt reduction and "bolt-on" acquisitions as it emerges from the shadow of numerous lawsuits.

Since Joseph Papa became the company's CEO in 2016, it has shifted away from an aggressive acquisition strategy and focused on slashing debt, which fell below US$25 billion as of Dec. 31 after US$1 billion of reductions in 2018.

But for 2019, Papa said Bausch aims to ramp up investment in research and development by about 10 per cent while allocating US$1 billion toward debt reduction and acquisitions.

Bausch & Lomb, a subsidiary that generates more than half of the company's revenue, is positioned to capitalize on rising rates of myopia (nearsightedness) and other eye conditions, Papa said.

"Environmental factors like increased screen time with laptops, cellphones are responsible for the high rates of myopia we are seeing in Hong Kong and other parts of the world," he said.

But chief financial officer Paul Herendeen said on a conference call with investors that "we need to be incredibly judicious" in spending for business development."

"We don't have a big chequebook. We just don't, and that's the way it is until we can change it," Herendeen said.

Headquartered in Laval, Que., the former Valeant Pharmaceuticals has spent the past few years mired in investigations and lawsuits, including antitrust litigation and a fraud probe in California.

Those efforts have resulted in settlements or dismissals for about 60 cases as of the end of last year, with most of the legal issues now resolved, according to a spokeswoman.

For the full year, Bausch's net loss -- reported in U.S. dollars -- ballooned 42 per cent to $4.15 billion in 2018, versus $2.4 billion in 2017. Revenue fell to $8.38 billion and 2017 revenue of $8.72 billion

In line with some analysts' forecasts, the company predicted revenues of between $8.3 billion and $8.5 billion for 2019, partly on the strength of its seven major products, all launched in the last few years.

The so-called "significant seven," which include products that treat conditions ranging from glaucoma to constipation, raked in revenues of about $150 million last year, twice as much as in 2017. Bausch foresees another 100 per cent sales leap to $300 million this year.

"Though the guidance range is higher than we anticipated, we continue to see room for upward revisions," analyst Douglas Miehm wrote in an RBC Dominion Securities research note.

In its outlook for 2019, the company said it expects adjusted earnings before interest, taxes, depreciation and amortization in a range from $3.35 billion to $3.5 billion.

Despite organic growth across the company, Bausch saw revenue slide two per cent to $2.12 billion in the quarter ended Dec. 31, compared to $2.16 billion in the fourth quarter of 2017. The disconnect is due to divestitures and newly defunct businesses, Bausch said.

Bausch reported a loss of $344 million or 98 cents per share in its latest quarter compared with a profit a year ago. That compared with a profit of $513 million or $1.45 per share in the last three months of 2017.

On an adjusted basis, it earned $368 million for the quarter compared with an adjusted profit of $347 million a year earlier.

Bausch Health shares closed down five per cent at $31.61 on the Toronto Stock Exchange.