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Bausch Health sheds Valeant's legacy by building an R&D future


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Bausch Health sheds Valeant's legacy by building an R&D future

SNL ImageBausch Health CEO Joseph Papa
Source: Bausch Health

Joseph Papa took the helm of Valeant Pharmaceuticals — newly renamed Bausch Health Cos. Inc. — in May 2016 when the company's stock was midway through a plummet that would see a drop from $260 per share in 2015 to under $9 less than two years later.

"When I joined, we had some of what I refer to as legacy issues," Papa told S&P Global Market Intelligence in an interview. "And if I take legacy issue number one, it was being $32 billion in debt."

Bausch is showing signs of a turnaround by shedding old acquisitions and building a future in research and development. The company's stock is climbing again — reaching $25 per share in October 2018. The company's market value now exceeds $8.5 billion.

Legacy issue number one

Valeant's fall began in late summer 2015 as lawmakers began questioning the company's drug pricing strategy. Prices for the company's products began to rise rapidly under CEO Michael Pearson, and later gained public attention when then-presidential candidate Hillary Clinton specifically called out Valeant. Prices for the company's products such as Cuprimine, which treats an inherited disorder called Wilson disease, more than quadrupled.

The company's ties to mail-order pharmacy Philidor Rx Services LLC also came under scrutiny, and over $30 billion in debt caused its stock to nosedive, according to reports from The New York Times.

Pearson was known to seek acquisitions, subsequently cutting R&D budgets and hiking prices. Toward the end of his reign, a failed hostile takeover of Botox maker Allergan PLC in 2014 illustrated the lengths that Valeant would go in its buy-and-slash strategy.

SNL Image

Valeant outgoing CEO Michael Pearson, former chief financial officer Howard Schiller and billionaire investor William Ackman are sworn in April 27, 2016, on Capitol Hill in Washington, D.C., before testifying before a Senate Special Committee on Aging hearing on drastic price hikes by Valeant.

Source: Associated Press

The failed takeover resulted in a $290 million fine for Valeant, as well as activist investor William Ackman's Pershing Square Capital Management LP, of which Valeant paid $96.3 million.

When Papa stepped into the role, Valeant needed an overhaul, both in leadership and drug pricing policies. Mostly, the company needed to regain investors' confidence that it would not repeat the sins of the past.

"We've basically changed out the entire leadership team at this company," Papa said. "If you think about where we were in 2015, there's a new CEO, new CFO, new general counsel, new head of quality, new business unit leaders, a brand new board of directors."

The staff changes encompass a specific strategy for drug pricing, as well. Upon entering the company, Papa created a committee that would oversee and vote on drug launch prices and increases, with a statement that any increase would be in the single digits or below the average of the prior five years.

"We're taking a very proactive position that clearly differs from the past," Papa said, "but we think it's absolutely the right way for us to think about pharmaceuticals in terms of patient access and pricing."

Defining the portfolio

Two-and-a-half years after Pearson testified before Congress on the drug pricing issue, Papa has led Bausch Health to reduce its debt by $7 billion, selling off assets and focusing on a core line of products in three well-defined areas.

"It was absolutely mandatory for us to make some decisions to divest some assets," Papa said. "What we've really worked on is trying to define the portfolio that we want for the future, and we've identified the areas of eye care, gastroenterology and dermatology."

Bausch & Lomb, the eye care unit known for contact lenses and related products, is the company's largest, and the one from which the Bausch Health name was drawn when the time came to shed the Valeant name and its associations. The name change became official in 2018.

Other subsidiaries include gastroenterology unit Salix, and Ortho Dermatologics.

In the past few years, Bausch has sold units that did not fit into those categories. This included prostate cancer vaccine maker Dendreon, which was dealt to China's Sanpower Group Co., Ltd. for $819.9 million in January 2017; three skincare brands to L'Oreal for $1.3 billion also in January 2017; Australian prescription and over-the-counter business iNova Pharmaceuticals for $930 million in June 2017; and women's health unit Sprout Pharmaceuticals in November 2017 for an undisclosed amount.

For now, Papa says, the divesting period is over.

"We're comfortable with what we have today," Papa said. "We don't feel compelled to divest, but if something comes along offering $120 million that we valued at $100 million, we would probably have to listen just because of our situation with the total quantum debt."

SNL Image

'New products, new products, new products'

Now Papa insists Bausch is all "new products, new products, new products," particularly in its dermatology arm, which has struggled to keep up with the more successful Bausch & Lomb and Salix, both of which drive growth for the company.

"R&D is the best return on investment for any pharmaceutical or healthcare company, bar none," Papa said. "In dermatology, the real answer for us is to bring out new innovative products in the area of psoriasis."

The latest success on that front is the early October tentative approval from the U.S. Food and Drug Administration for Bryhali, a plaque psoriasis lotion, pending the expiration of exclusivity for a related product. The drug is one of seven — dubbed the "Significant Seven" — that Bausch considers key to its growth.

The company expects those seven drugs, including the already launched plaque psoriasis injectable Siliq, to collectively pull in revenues of more than $1 billion per year over the next five years. Another of the seven is a lotion treatment for plaque psoriasis called Duobrii. The treatment hit a snag in June when the FDA rejected it due to its pharmacokinetics, or the way a drug moves in the body. Bausch resubmitted its application in August and expects a decision in early 2019.

Among the legacy products Bausch Health still values is its irritable bowel syndrome drug Xifaxan, which in mid-September locked up market exclusivity until 2028. Xifaxan's future sales were threatened by a potential generic from Teva Pharmaceutical Industries Ltd.'s Actavis Laboratories. The challenge was eventually settled, providing Bausch 10 years of exclusivity and time to expand the drug's uses, but Teva will be allowed to enter the market one year before the patent expires in 2029.

"The Teva settlement ... speaks to the validity of our intellectual property," Papa said. "We felt it was worth giving up that year of exclusivity to get the added benefit of certainty and also give us a chance to continue to invest in Xifaxan with the addition of new indications."