UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|
| |
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2017March 31, 2019 |
| OR |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission File Number: 001-14956
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.Bausch Health Companies Inc.
(Exact name of registrant as specified in its charter)
|
| |
British Columbia, Canada
(State or other jurisdiction of
incorporation or organization) | 98-0448205
(I.R.S. Employer Identification No.) |
2150 St. Elzéar Blvd. West, Laval, Québec
(Address of principal executive offices) | H7L 4A8
(Zip Code) |
(514) 744-6792
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
| | | | | | | | | |
| Large accelerated filer | x | Accelerated filer | o | Non-accelerated filer
(Do not check if a smaller
reporting company) | o | Smaller reporting company | o | Emerging growth company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
|
| | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Shares, No Par Value | BHC | New York Stock Exchange, Toronto Stock Exchange |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common shares, no par value — 348,591,928351,883,887 shares outstanding as of NovemberMay 2, 2017.2019.
VALEANT PHARMACEUTICALS INTERNATIONAL,BAUSCH HEALTH COMPANIES INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017MARCH 31, 2019
INDEX
|
| | |
| Part I. | Financial Information | |
| Item 1. | | |
| | | |
| | | |
| | | |
| | |
| | | |
| | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
Part II. | Other Information | |
| Item 1. | | |
| Item 1A. | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
| Item 5. | | |
| Item 6. | | |
| |
VALEANT PHARMACEUTICALS INTERNATIONAL,BAUSCH HEALTH COMPANIES INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017MARCH 31, 2019
Introductory Note
Except where the context otherwise requires, all references in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017March 31, 2019 (this “Form 10-Q”) to the “Company”, “we”, “us”, “our” or similar words or phrases are to Valeant Pharmaceuticals International,Bausch Health Companies Inc. and its subsidiaries, taken together. In this Form 10-Q, references to “$” or “USD” are to United States (“U.S.”) dollars and references to “€” are to euros and references to CAD are to Canadian dollars.euros. Unless otherwise indicated, the statistical and financial data contained in this Form 10-Q are presented as of September 30, 2017.March 31, 2019.
Forward-Looking Statements
Caution regarding forward-looking information and statements and “Safe-Harbor” statements under the U.S. Private Securities Litigation Reform Act of 1995:1995 and applicable Canadian securities laws:
To the extent any statements made in this Form 10-Q contain information that is not historical, these statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and may be forward-looking information within the meaning defined under applicable Canadian securities legislationlaws (collectively, “forward-looking statements”).
These forward-looking statements relate to, among other things: our business strategy, business plans and prospects and forecasts and changes thereto,thereto; product pipeline, prospective products orand product approvals, product development and distribution plans, the timing of product launches, the timing of development activities, anticipated or future research and development expenditures, future performance orand results of current and anticipated products; anticipated revenues for our products, including the Significant Seven; anticipated growth in our Ortho Dermatologics business; expected research and development ("R&D") and marketing spend, including in connection with the promotion of the Significant Seven; our expected primary cash and working capital requirements for 2019 and beyond; the Company's plans for continued improvement in operational efficiency and the anticipated impact of such plans; our liquidity and our ability to satisfy our debt maturities as they become due,due; our ability to reduce debt levels, our anticipated cash requirements,levels; the impact of our distribution, fulfillment and other third party arrangements,third-party arrangements; proposed pricing actions, the anticipated timing of completion of our pending divestitures, anticipated use of proceeds for certain of our divestitures,actions; exposure to foreign currency exchange rate changes and interest rate changes,changes; the outcome of contingencies, such as litigation, subpoenas, investigations, reviews, audits and regulatory proceedings,proceedings; the anticipated impact of the adoption of new accounting standards; general market conditions,conditions; our expectations regarding our financial performance, including revenues, expenses, gross margins and income taxes,taxes; our ability to meet the financial and other covenants contained in our ThirdFourth Amended and Restated Credit and Guaranty Agreement as amended (the "Credit"Restated Credit Agreement"), and senior note indentures, potential cost savings programs we may initiate and the impact of such programs,indentures; and our impairment assessments, including the assumptions used therein and the results thereof.
Forward-looking statements can generally be identified by the use of words such as “believe”, “anticipate”, “expect”, “intend”, “estimate”, “plan”, “continue”, “will”, “may”, “could”, “would”, “should”, “target”, “potential”, “opportunity”, “tentative”, “positioning”, “designed”, “create”, “predict”, “project”, “forecast”, “seek”, “ongoing”“strive”, “increase”,“ongoing” or “upside”“increase” and variations or other similar expressions. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements may not be appropriate for other purposes. Although we have previously indicated above certain of these statements set out herein, all of the statements in this Form 10-Q that contain forward-looking statements are qualified by these cautionary statements. These statements are based upon the current expectations and beliefs of management. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making such forward-looking statements, including, but not limited to, factors and assumptions regarding the items previously outlined, above.those factors, risks and uncertainties outlined below and the assumption that none of these factors, risks and uncertainties will cause actual results or events to differ materially from those described in such forward-looking statements. Actual results may differ materially from those expressed or implied in such statements. Important factors, risks and uncertainties that could cause actual results to differ materially from these expectations include, among other things, the following:
the expense, timing and outcome of legal and governmental proceedings, investigations and information requests relating to, among other matters, our past distribution, marketing, pricing, disclosure and accounting practices (including with respect to our former relationship with Philidor Rx Services, LLC ("Philidor")), including pending investigations by the U.S. Attorney's Office for the District of Massachusetts and the U.S. Attorney's Office for the Southern District of New York, and the State of North Carolina Department of Justice, the pending investigations by the U.S. Securities and Exchange Commission (the “SEC”) of the Company, the request for documents and information receivedinvestigation order issued by the Company from the Autorité des marchés financiers (the “AMF”) (the Company’s principal securities regulator in Canada), the pending investigation by the California Department of Insurance, a number of pending putative securities class action litigations in the U.S. (including related opt-out actions, including the recently filed securities and RICO claims by Lord Abbett)
related opt-out actions) and Canada (including related opt-out actions) and purported class actions under the federal RICO statute and other claims, investigations or proceedings that may be initiated or that may be asserted;
the impact of the changes in and reorganizations to our business structure, including changes to our operating and reportable segments;
the effectiveness of the measures implemented to remediate the material weaknesses in our internal control over financial reporting that were identified by the Company, our deficient control environment and the contributing factors leading to the misstatement of our previously issued results and the impact such measures may have on the Company and our businesses;
potential additional litigation and regulatory investigations (and any costs, expenses, use of resources, diversion of management time and efforts, liability and damages that may result therefrom), negative publicity and reputational harm on our Company, products and business that may result from the recentpast and ongoing public scrutiny of our past distribution, marketing, pricing, disclosure and accounting practices and from our former relationship with Philidor, including any claims, proceedings, investigations and liabilities we may face as a result of any alleged wrongdoing by Philidor and/or its management and/or employees;Philidor;
the currentpast and ongoing scrutiny of our legacy business practices, including with respect to pricing (including the investigations by the U.S. Attorney's Offices for the District of Massachusetts and the Southern District of New York, and the State of North Carolina Department of Justice)York), and any pricing controls or price adjustments that may be sought or imposed on our products as a result thereof;
pricing decisions that we have implemented, or may in the future elect to implement, whether as a result of recent scrutiny or otherwise, such as the decision of the Company to take no further price increases on our Nitropress® and Isuprel® products and to implement an enhanced rebate program for such products, our decision on the price of our Siliq™ product, the Patient Access and Pricing Committee’s commitment that the average annual price increase for our branded prescription pharmaceutical products will be set at no greater than single digits, and below the 5-year weighted average of the increases within the branded biopharmaceutical industry or any future pricing actions we may take following review by our Patient Access and Pricing Committee (which is responsible for the pricing of our drugs);
legislative or policy efforts, including those that may be introduced and passed by the U.S. Congress, designed to reduce patient out-of-pocket costs for medicines, which could result in new mandatory rebates and discounts or other pricing restrictions, controls or regulations (including mandatory price reductions);
ongoing oversight and review of our products and facilities by regulatory and governmental agencies, including periodic audits by the U.S. Food and Drug Administration (the "FDA") and the results thereof;
any default underactions by the terms of our senior notes indentures or Credit Agreement and our ability, if any, to cure or obtain waivers of such default;
any delay in the filing of any future financial statementsFDA or other filings and any default under the terms ofregulatory authorities with respect to our senior notes indenturesproducts or Credit Agreement as a result of such delays;facilities;
our substantial debt (and potential additional future indebtedness) and current and future debt service obligations, our ability to reduce our outstanding debt levels in accordance with our stated intention and the resulting impact on our financial condition, cash flows and results of operations;
our ability to meet the financial and other covenants contained in our Restated Credit Agreement, indentures and other current or future debt agreements and the limitations, restrictions and prohibitions such covenants impose or may impose on the way we conduct our business, including prohibitions on incurring additional debt if certain financial covenants are not met, limitations on the amount of additional debt we are able to incur where not prohibited, and restrictions on our ability to make certain investments and other restricted payments;
any furtherdefault under the terms of our senior notes indentures or Restated Credit Agreement and our ability, if any, to cure or obtain waivers of such default;
any delay in the filing of any future financial statements or other filings and any default under the terms of our senior notes indentures or Restated Credit Agreement as a result of such delays;
any downgrade by rating agencies in our credit ratings, which may impact, among other things, our ability to raise debt and the cost of capital for additional debt issuances;
any reductions in, or changes in the assumptions used in, our forecasts for fiscal year 20172019 or beyond, which could lead to, among other things,things: (i) a failure to meet the financial and/or other covenants contained in our Restated Credit Agreement and/or indentures and/or (ii) impairment in the goodwill associated with certain of our reporting units (including our Salix reporting unit) or impairment charges related to certain of our products or other intangible assets, which impairments could be material;
changes in the assumptions used in connection with our impairment analyses or assessments, which would lead to a change in such impairment analyses and assessments and which could result in an impairment in the goodwill associated with any of our reporting units or impairment charges related to certain of our products or other intangible assets;
the pending andany additional divestitures of certain of our assets or businesses and our ability to successfully complete any such divestitures on commercially reasonable terms and on a timely basis, or at all, and the impact of any such pending or future divestitures on our Company, including the reduction in the size or scope of our business or market share, loss of revenue, any loss on sale, including any resultant write-downsimpairments of goodwill or other assets, or any adverse tax consequences suffered as a result of any such divestitures;
our shift in focus to much lower business development activity through acquisitions for the foreseeable future as we focus on reducing our outstanding debt levels and as a result of the restrictions imposed by our Credit Agreement that restrict us from, among other things, making acquisitions over an aggregate threshold (subject to certain exceptions) and from incurring debt to finance such acquisitions, until we achieve a specified leverage ratio;
the uncertainties associated with the acquisition and launch of new products, (such as our Siliq™ product), including, but not limited to, our ability to provide the time, resources, expertise and costs required for the commercial launch of new products, the acceptance and
demand for new pharmaceutical products, and the impact of competitive products and pricing, which could lead to material impairment charges;
our ability or inability to extend the profitable life of our products, including through line extensions and other life-cycle programs;
our ability to retain, motivate and recruit executives and other key employees, including subsequent to retention payments being paid out and as a result of the reputational challenges we face and may continue to face;employees;
our ability to implement effective succession planning for our executives and key employees;
factors impacting our ability to achieve anticipated growth in our Ortho Dermatologics business, including the approval of pending and pipeline products (and the timing of such approvals), the ability to successfully implement and operate our new cash-pay prescription program for certain of our Ortho Dermatologics branded products and the ability of such program to achieve the anticipated goals respecting patient access and fulfillment, expected geographic expansion, changes in estimates on market potential for dermatology products and continued investment in and success of our sales force;
factors impacting our ability to achieve anticipated revenues for our Significant Seven products, including changes in anticipated marketing spend on such products and launch of competing products;
the challenges and difficulties associated with managing a large complex business, which has, in the past, grown rapidly;
our ability to compete against companies that are larger and have greater financial, technical and human resources than we do, as well as other competitive factors, such as technological advances achieved, patents obtained and new products introduced by our competitors;
our ability to effectively operate, stabilize and grow our businesses in light of the challenges that the Company currently faces, including with respect to its substantial debt, pending investigations and legal proceedings, scrutiny of our past pricing, distribution and other practices, reputational harm and limitations on the way we conduct business imposed by the covenants in our Restated Credit Agreement, indentures and the agreements governing our other indebtedness;
the success of our fulfillment arrangements with Walgreen Co. ("Walgreens"), including market acceptance of, or market reaction to, such arrangements (including by customers, doctors, patients, pharmacy benefit managers ("PBMs"), third party payors and governmental agencies), the continued compliance of such arrangements with applicable laws, and our ability to successfully negotiate any improvements to our arrangements with Walgreens;
the extent to which our products are reimbursed by government authorities, PBMspharmacy benefit managers ("PBMs") and other third partythird-party payors; the impact our distribution, pricing and other practices (including as it relates to our former relationship with Philidor, any alleged wrongdoing by Philidor and our current relationship with Walgreens)Walgreen Co. ("Walgreens")) may have on the decisions of such government authorities, PBMs and other third partythird-party payors to reimburse our products; and the impact of obtaining or maintaining such reimbursement on the price and sales of our products;
the inclusion of our products on formularies or our ability to achieve favorable formulary status, as well as the impact on the price and sales of our products in connection therewith;
the consolidation of wholesalers, retail drug chains and other customer groups and the impact of such industry consolidation on our business;
our eligibility for benefits under tax treaties and the continued availability of low effective tax rates for the business profits of certain of our subsidiaries, including the impact on such matters of the proposals published by the Organization for Economic Co-operation and Development ("OECD") respecting base erosion and profit shifting ("BEPS") and various corporate tax reform proposals being considered in the U.S.;
our recent shift in business strategy as we are seeking to sell a variety of assets, some of which may be material and/or transformative;subsidiaries;
the actions of our third partythird-party partners or service providers of research, development, manufacturing, marketing, distribution or other services, including their compliance with applicable laws and contracts, which actions may be beyond our control or influence, and the impact of such actions on our Company, including the impact to the Company of our former relationship with Philidor and any alleged legal or contractual non-compliance by Philidor;
the risks associated with the international scope of our operations, including our presence in emerging markets and the challenges we face when entering and operating in new and different geographic markets (including the challenges created by new and different regulatory regimes in such countries and the need to comply with applicable anti-bribery and economic sanctions laws and regulations);
adverse global economic conditions and credit markets and foreign currency exchange uncertainty and volatility in certain of the countries in which we do business (such as business;
the current or recent instability in Brazil, Russia, Ukraine, Argentina, Egypt, certain other countries in Africa and the Middle East, the devaluationimpact of the Egyptian pound,recently signed United States-Mexico-Canada Agreement (“USMCA”) and any potential changes to other trade agreements;
the adverse economicfinal outcome and impact and related uncertainty caused byof Brexit negotiations;
the trade conflict between the United Kingdom's decision to leave the European Union (Brexit));States and China;
our ability to obtain, maintain and license sufficient intellectual property rights over our products and enforce and defend against challenges to such intellectual property;
the introduction of generic, biosimilar or other competitors of our branded products and other products, including the introduction of products that compete against our products that do not have patent or data exclusivity rights;
if permitted under our Credit Agreement, and to the extent we elect to resume business development activities through acquisitions, our ability to identify, finance, acquire, close and integrate acquisition targets successfully and on a timely basis;
factors relating tobasis and the acquisition and integration of the companies, businesses and products that have been acquired by the Company and that may in the future be acquired by the Company (if permitted under our Credit Agreement and to the extent we elect to resume business development activities through acquisitions), such as thedifficulties, challenges, time and resources required to integrate such companies, businesses and products, the difficulties associated with such integrations (including potential disruptions in sales activities and potential challenges with information technology systems integrations), the difficulties and challenges associated with entering into new business areas and new geographic markets, the difficulties, challenges and costs associated with managing and integrating new facilities, equipment and other assets, the risks associated with the integration of acquired companies, businesses and products and our ability to achieve the anticipated benefits and synergies from such acquisitions and integrations, including as a result of cost-rationalization and integration initiatives. Factors impacting the achievement of anticipated benefits and synergies may include greater than expected operating costs, the difficulty in eliminating certain duplicative costs, facilities and functions, and the outcome of many operational and strategic decisions;products;
the expense, timing and outcome of pending or future legal and governmental proceedings, arbitrations, investigations, subpoenas, tax and other regulatory audits, examinations, reviews and regulatory proceedings against us or relating to us and settlements thereof;
our ability to negotiate the terms of or obtain court approval for the settlement of certain legal and regulatory proceedings;
our ability to obtain components, raw materials or finished products supplied by third parties (some of which may be single-sourced) and other manufacturing and related supply difficulties, interruptions and delays;
the disruption of delivery of our products and the routine flow of manufactured goods;
economic factors over which the Company has no control, including changes in inflation, interest rates, foreign currency rates, and the potential effect of such factors on revenues, expenses and resulting margins;
interest rate risks associated with our floating rate debt borrowings;
our ability to effectively distribute our products and the effectiveness and success of our distribution arrangements, including the impact of our arrangements with Walgreens;
| |
| • | our ability to effectively promote our own products and those of our co-promotion partners, such as Doptelet® (Dova Pharmaceuticals, Inc.) and LucemyraTM (US WorldMeds, LLC); |
the success of our fulfillment arrangements with Walgreens, including market acceptance of, or market reaction to, such arrangements (including by customers, doctors, patients, PBMs, third-party payors and governmental agencies), the continued compliance of such arrangements with applicable laws, and our ability to successfully negotiate any improvements to our arrangements with Walgreens;
our ability to secure and maintain third partythird-party research, development, manufacturing, licensing, marketing or distribution arrangements;
the risk that our products could cause, or be alleged to cause, personal injury and adverse effects, leading to potential lawsuits, product liability claims and damages and/or recalls or withdrawals of products from the market;
the mandatory or voluntary recall or withdrawal of our products from the market and the costs associated therewith;
the availability of, and our ability to obtain and maintain, adequate insurance coverage and/or our ability to cover or insure against the total amount of the claims and liabilities we face, whether through third partythird-party insurance or self-insurance;
the difficulty in predicting the expense, timing and outcome within our legal and regulatory environment, including with respect to approvals by the FDA, Health Canada and similar agencies in other countries, legal and regulatory proceedings
and settlements thereof, the protection afforded by our patents and other intellectual and proprietary property, successful generic challenges to our products and infringement or alleged infringement of the intellectual property of others;
the results of continuing safety and efficacy studies by industry and government agencies;
the success of preclinical and clinical trials for our drug development pipeline or delays in clinical trials that adversely impact the timely commercialization of our pipeline products, as well as other factors impacting the commercial success of our products, (such as our Siliq™ product), which could lead to material impairment charges;
the results of management reviews of our research and development portfolio (including following the receipt of clinical results or feedback from the FDA or other regulatory authorities), which could result in terminations of specific projects which, in turn, could lead to material impairment charges;
the seasonality of sales of certain of our products;
declines in the pricing and sales volume of certain of our products that are distributed or marketed by third parties, over which we have no or limited control;
compliance by the Company or our third party partners and service providers (over whom we may have limited influence), or the failure of our Company or these third parties to comply, with health care “fraud and abuse” laws and other extensive regulation of our marketing, promotional and business practices (including with respect to pricing), worldwide anti-bribery laws (including the U.S. Foreign Corrupt Practices Act and the Canadian Corruption of Foreign Public Officials Act), worldwide economic sanctions and/or export laws, worldwide environmental laws and regulation and privacy and security regulations;
the impacts of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Health Care Reform Act”) and potential repeal or amendment thereof and other legislative and regulatory healthcarehealth care reforms in the countries in which we operate, including with respect to recent government inquiries on pricing;
the impact of any changes in or reforms to the legislation, laws, rules, regulation and guidance that apply to the Company and its business and products or the enactment of any new or proposed legislation, laws, rules, regulations or guidance that will impact or apply to the Company or its businesses or products;
the impact of changes in federal laws and policy under consideration by the newTrump administration and Congress, including the effect that such changes will have on fiscal and tax policies, the potential repealrevision of all or portions of the Health Care Reform Act, international trade agreements and policies and policy efforts designed to reduce patient out-of-pocket costs for medicines (which could result in new mandatory rebates and discounts or other pricing restrictions);
illegal distribution or sale of counterfeit versions of our products;
interruptions, breakdowns or breaches in our information technology systems; and
risks in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016,2018, filed on March 1, 2017,February 20, 2019, and risks detailed from time to time in our other filings with the SEC and the Canadian Securities Administrators (the “CSA”), as well as our ability to anticipate and manage the risks associated with the foregoing.
Additional information about these factors and about the material factors or assumptions underlying such forward-looking statements may be found in our Annual Report on Form 10-K for the year ended December 31, 2016,2018, filed on March 1, 2017,February 20, 2019, under Item 1A. “Risk Factors” and in the Company’s other filings with the SEC and CSA. When relying on our forward-looking statements to make decisions with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. These forward-looking statements speak only as of the date made. We undertake no obligation to update or revise any of these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect actual outcomes, except as required by law. We caution that, as it is not possible to predict or identify all relevant factors that may impact forward-looking statements, the foregoing list of important factors that may affect future results is not exhaustive and should not be considered a complete statement of all potential risks and uncertainties.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
VALEANT PHARMACEUTICALS INTERNATIONAL,BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share amounts)
(Unaudited)
| | | | September 30,
2017 | | December 31,
2016 | March 31,
2019 | | December 31,
2018 |
| Assets | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | $ | 964 |
| | $ | 542 |
| $ | 782 |
| | $ | 721 |
|
| Restricted cash | 928 |
| | — |
| 2 |
| | 2 |
|
| Trade receivables, net | 2,229 |
| | 2,517 |
| 1,786 |
| | 1,865 |
|
| Inventories, net | 1,071 |
| | 1,061 |
| 1,012 |
| | 934 |
|
| Current assets held for sale | 16 |
| | 261 |
| |
| Prepaid expenses and other current assets | 736 |
| | 696 |
| 693 |
| | 689 |
|
| Total current assets | 5,944 |
| | 5,077 |
| 4,275 |
| | 4,211 |
|
| Property, plant and equipment, net | 1,398 |
| | 1,312 |
| 1,341 |
| | 1,353 |
|
| Intangible assets, net | 16,023 |
| | 18,884 |
| 11,683 |
| | 12,001 |
|
| Goodwill | 15,573 |
| | 15,794 |
| 13,121 |
| | 13,142 |
|
| Deferred tax assets, net | 166 |
| | 146 |
| 1,754 |
| | 1,676 |
|
| Non-current assets held for sale | 718 |
| | 2,132 |
| |
| Other non-current assets | 152 |
| | 184 |
| 377 |
| | 109 |
|
| Total assets | $ | 39,974 |
| | $ | 43,529 |
| $ | 32,551 |
| | $ | 32,492 |
|
| Liabilities | | | | | | |
| Current liabilities: | | | | | | |
| Accounts payable | $ | 407 |
| | $ | 324 |
| $ | 429 |
| | $ | 411 |
|
| Accrued and other current liabilities | 3,396 |
| | 3,227 |
| 3,255 |
| | 3,197 |
|
| Current liabilities held for sale | — |
| | 57 |
| |
| Current portion of long-term debt and other | 925 |
| | 1 |
| 257 |
| | 228 |
|
| Total current liabilities | 4,728 |
| | 3,609 |
| 3,941 |
| | 3,836 |
|
| Acquisition-related contingent consideration | 345 |
| | 840 |
| 264 |
| | 298 |
|
| Non-current portion of long-term debt | 26,216 |
| | 29,845 |
| 23,924 |
| | 24,077 |
|
| Pension and other benefit liabilities | 198 |
| | 195 |
| |
| Liabilities for uncertain tax positions | 265 |
| | 184 |
| |
| Deferred tax liabilities, net | 2,237 |
| | 5,434 |
| 880 |
| | 885 |
|
| Non-current liabilities held for sale | 461 |
| | 57 |
| |
| Other non-current liabilities | 102 |
| | 107 |
| 763 |
| | 581 |
|
| Total liabilities | 34,552 |
| | 40,271 |
| 29,772 |
| | 29,677 |
|
| Commitments and contingencies (Note 18) |
|
| |
|
| |
| Commitments and contingencies (Note 19) | |
|
| |
|
|
| Equity | | | | | | |
| Common shares, no par value, unlimited shares authorized, 348,582,556 and 347,821,606 issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 10,086 |
| | 10,038 |
| |
| Common shares, no par value, unlimited shares authorized, 351,873,984 and 349,871,102 issued and outstanding at March 31, 2019 and December 31, 2018, respectively | | 10,151 |
| | 10,121 |
|
| Additional paid-in capital | 368 |
| | 351 |
| 374 |
| | 413 |
|
| Accumulated deficit | (3,239 | ) | | (5,129 | ) | (5,716 | ) | | (5,664 | ) |
| Accumulated other comprehensive loss | (1,888 | ) | | (2,108 | ) | (2,116 | ) | | (2,137 | ) |
| Total Valeant Pharmaceuticals International, Inc. shareholders’ equity | 5,327 |
| | 3,152 |
| |
| Total Bausch Health Companies Inc. shareholders’ equity | | 2,693 |
| | 2,733 |
|
| Noncontrolling interest | 95 |
| | 106 |
| 86 |
| | 82 |
|
| Total equity | 5,422 |
| | 3,258 |
| 2,779 |
| | 2,815 |
|
| Total liabilities and equity | $ | 39,974 |
| | $ | 43,529 |
| $ | 32,551 |
| | $ | 32,492 |
|
The accompanying notes are an integral part of these consolidated financial statements.
VALEANT PHARMACEUTICALS INTERNATIONAL,BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Revenues | | | | | | | |
| Product sales | $ | 2,186 |
| | $ | 2,443 |
| | $ | 6,462 |
| | $ | 7,168 |
|
| Other revenues | 33 |
| | 36 |
| | 99 |
| | 103 |
|
| 2,219 |
| | 2,479 |
| | 6,561 |
| | 7,271 |
|
| Expenses | | | | | | | |
| Cost of goods sold (excluding amortization and impairments of intangible assets) | 650 |
| | 649 |
| | 1,869 |
| | 1,917 |
|
| Cost of other revenues | 9 |
| | 9 |
| | 32 |
| | 29 |
|
| Selling, general and administrative | 623 |
| | 661 |
| | 1,943 |
| | 2,145 |
|
| Research and development | 81 |
| | 101 |
| | 271 |
| | 328 |
|
| Amortization of intangible assets | 657 |
| | 664 |
| | 1,915 |
| | 2,015 |
|
| Goodwill impairments | 312 |
| | 1,049 |
| | 312 |
| | 1,049 |
|
| Asset impairments | 406 |
| | 148 |
| | 629 |
| | 394 |
|
| Restructuring and integration costs | 6 |
| | 20 |
| | 42 |
| | 78 |
|
| Acquired in-process research and development costs | — |
| | 31 |
| | 5 |
| | 34 |
|
| Acquisition-related contingent consideration | (238 | ) | | 9 |
| | (297 | ) | | 18 |
|
| Other (income) expense, net | (325 | ) | | 1 |
| | (584 | ) | | (20 | ) |
| | 2,181 |
| | 3,342 |
| | 6,137 |
| | 7,987 |
|
| Operating income (loss) | 38 |
| | (863 | ) | | 424 |
| | (716 | ) |
| Interest income | 3 |
| | 3 |
| | 9 |
| | 6 |
|
| Interest expense | (459 | ) | | (470 | ) | | (1,392 | ) | | (1,369 | ) |
| Loss on extinguishment of debt | (1 | ) | | — |
| | (65 | ) | | — |
|
| Foreign exchange and other | 19 |
| | (2 | ) | | 87 |
| | 4 |
|
| Loss before recovery of income taxes | (400 | ) | | (1,332 | ) | | (937 | ) | | (2,075 | ) |
| Recovery of income taxes | (1,700 | ) | | (113 | ) | | (2,829 | ) | | (179 | ) |
| Net income (loss) | 1,300 |
| | (1,219 | ) | | 1,892 |
|
| (1,896 | ) |
| Less: Net (loss) income attributable to noncontrolling interest | (1 | ) | | (1 | ) | | 1 |
| | (2 | ) |
| Net income (loss) attributable to Valeant Pharmaceuticals International, Inc. | $ | 1,301 |
| | $ | (1,218 | ) | | $ | 1,891 |
| | $ | (1,894 | ) |
| Earnings (loss) per share attributable to Valeant Pharmaceuticals International, Inc.: | | | | | | | |
| Basic | $ | 3.71 |
| | $ | (3.49 | ) | | $ | 5.40 |
| | $ | (5.47 | ) |
| Diluted | $ | 3.69 |
| | $ | (3.49 | ) | | $ | 5.38 |
| | $ | (5.47 | ) |
| | | | | | | | |
| Weighted-average common shares | | | | | | | |
| Basic | 350.4 |
| | 349.5 |
| | 350.1 |
| | 346.5 |
|
| Diluted | 352.3 |
| | 349.5 |
| | 351.4 |
| | 346.5 |
|
The accompanying notes are an integral part of these consolidated financial statements.
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Net income (loss) | $ | 1,300 |
| | $ | (1,219 | ) | | $ | 1,892 |
| | $ | (1,896 | ) |
| Other comprehensive income (loss) | | | | | | | |
| Foreign currency translation adjustment | 81 |
| | (4 | ) | | 227 |
| | (37 | ) |
| Pension and postretirement benefit plan adjustments, net of income taxes | (3 | ) | | (1 | ) | | (4 | ) | | (2 | ) |
| Other comprehensive income (loss) | 78 |
| | (5 | ) | | 223 |
| | (39 | ) |
| Comprehensive income (loss) | 1,378 |
| | (1,224 | ) | | 2,115 |
| | (1,935 | ) |
| Less: Comprehensive loss attributable to noncontrolling interest | (1 | ) | | — |
| | (3 | ) | | (3 | ) |
| Comprehensive income (loss) attributable to Valeant Pharmaceuticals International, Inc. | $ | 1,379 |
| | $ | (1,224 | ) | | $ | 2,118 |
| | $ | (1,932 | ) |
|
| | | | | | | |
| | Three Months Ended
March 31, |
| | 2019 | | 2018 |
| Revenues | | | |
| Product sales | $ | 1,989 |
| | $ | 1,965 |
|
| Other revenues | 27 |
| | 30 |
|
| 2,016 |
| | 1,995 |
|
| Expenses | | | |
| Cost of goods sold (excluding amortization and impairments of intangible assets) | 524 |
| | 560 |
|
| Cost of other revenues | 13 |
| | 13 |
|
| Selling, general and administrative | 587 |
| | 591 |
|
| Research and development | 117 |
| | 92 |
|
| Amortization of intangible assets | 489 |
| | 743 |
|
| Goodwill impairments | — |
| | 2,213 |
|
| Asset impairments | 3 |
| | 44 |
|
| Restructuring and integration costs | 20 |
| | 6 |
|
| Acquired in-process research and development costs | 1 |
| | 1 |
|
| Acquisition-related contingent consideration | (21 | ) | | 2 |
|
| Other (income) expense, net | (4 | ) | | 11 |
|
| | 1,729 |
| | 4,276 |
|
| Operating income (loss) | 287 |
| | (2,281 | ) |
| Interest income | 4 |
| | 3 |
|
| Interest expense | (406 | ) | | (416 | ) |
| Loss on extinguishment of debt | (7 | ) | | (27 | ) |
| Foreign exchange and other | — |
| | 27 |
|
| Loss before benefit from income taxes | (122 | ) | | (2,694 | ) |
| Benefit from income taxes | 74 |
| | 115 |
|
| Net loss | (48 | ) |
| (2,579 | ) |
| Net income attributable to noncontrolling interest | (4 | ) | | (2 | ) |
| Net loss attributable to Bausch Health Companies Inc. | $ | (52 | ) | | $ | (2,581 | ) |
| | | | |
| Loss per share attributable to Bausch Health Companies Inc.: | | | |
| Basic | $ | (0.15 | ) | | $ | (7.36 | ) |
| Diluted | $ | (0.15 | ) | | $ | (7.36 | ) |
| | | | |
| Weighted-average common shares | | | |
| Basic | 351.3 |
| | 350.7 |
|
| Diluted | 351.3 |
| | 350.7 |
|
The accompanying notes are an integral part of these consolidated financial statements.
VALEANT PHARMACEUTICALS INTERNATIONAL,BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSCOMPREHENSIVE LOSS
(in millions)
(Unaudited)
|
| | | | | | | |
| | Nine Months Ended
September 30, |
| | 2017 | | 2016 |
| Cash Flows From Operating Activities | | | |
| Net income (loss) | $ | 1,892 |
| | $ | (1,896 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
| Depreciation and amortization of intangible assets | 2,039 |
| | 2,159 |
|
| Amortization and write-off of debt discounts and debt issuance costs | 100 |
| | 89 |
|
| Asset impairments | 629 |
| | 394 |
|
| Acquisition accounting adjustment on inventory sold | — |
| | 38 |
|
| Gain on disposals of assets and businesses, net | (695 | ) | | (11 | ) |
| Acquisition-related contingent consideration | (297 | ) | | 18 |
|
| Allowances for losses on trade receivable and inventories | 71 |
| | 96 |
|
| Deferred income taxes | (2,985 | ) | | (310 | ) |
| Additions (reductions) to accrued legal settlements | 112 |
| | (32 | ) |
| Insurance proceeds for legal settlement | 60 |
| | — |
|
| Payments of accrued legal settlements | (221 | ) | | (68 | ) |
| Goodwill impairment | 312 |
| | 1,049 |
|
| Loss on deconsolidation | — |
| | 18 |
|
| Share-based compensation | 70 |
| | 134 |
|
| Foreign exchange gain | (83 | ) | | (15 | ) |
| Loss on extinguishment of debt | 65 |
| | — |
|
| Payment of contingent consideration adjustments, including accretion | (3 | ) | | (27 | ) |
| Other | (24 | ) | | (12 | ) |
| Changes in operating assets and liabilities: | | | |
| Trade receivables | 338 |
| | (31 | ) |
| Inventories | 1 |
| | (166 | ) |
| Prepaid expenses and other current assets | 32 |
| | 118 |
|
| Accounts payable, accrued and other liabilities | 299 |
| | 30 |
|
| Net cash provided by operating activities | 1,712 |
| | 1,575 |
|
| | | | |
| Cash Flows From Investing Activities | | | |
| Acquisition of businesses, net of cash acquired | — |
| | (19 | ) |
| Acquisition of intangible assets and other assets | (146 | ) | | (48 | ) |
| Purchases of property, plant and equipment | (118 | ) | | (181 | ) |
| Reduction of cash due to deconsolidation | — |
| | (30 | ) |
| Purchases of marketable securities | (4 | ) | | (1 | ) |
| Proceeds from sale of marketable securities | 2 |
| | 17 |
|
| Proceeds from sale of assets and businesses, net of costs to sell | 3,063 |
| | 131 |
|
| Net cash provided by (used in) investing activities | 2,797 |
| | (131 | ) |
| | | | |
| Cash Flows From Financing Activities | | | |
| Issuance of long-term debt, net of discount | 6,231 |
| | 1,220 |
|
| Repayments of long-term debt | (9,249 | ) | | (1,917 | ) |
| Borrowings of short-term debt | — |
| | 3 |
|
| Repayments of short-term debt | (8 | ) | | (3 | ) |
| Proceeds from exercise of stock options | — |
| | 33 |
|
| Payment of employee withholding tax upon vesting of share-based awards | (4 | ) | | (9 | ) |
| Payments of contingent consideration | (34 | ) | | (94 | ) |
| Payments of deferred consideration | — |
| | (517 | ) |
| Payments of financing costs | (39 | ) | | (96 | ) |
| Other | (18 | ) | | (8 | ) |
| Net cash used in financing activities | (3,121 | ) | | (1,388 | ) |
| Effect of exchange rate changes on cash and cash equivalents | 39 |
| | 6 |
|
| Net increase in cash and cash equivalents and restricted cash | 1,427 |
| | 62 |
|
| Cash and cash equivalents and restricted cash, beginning of period | 542 |
| | 597 |
|
| Cash and cash equivalents and restricted cash, end of period | $ | 1,969 |
| | $ | 659 |
|
| | | | |
| Cash and cash equivalents, end of period | $ | 964 |
| | $ | 659 |
|
| Restricted cash, end of period | 928 |
| | — |
|
| Restricted cash included in Other non-current assets, end of period | 77 |
| | — |
|
| Cash and cash equivalents and restricted cash, end of period | $ | 1,969 |
| | $ | 659 |
|
|
| | | | | | | |
| | Three Months Ended
March 31, |
| | 2019 | | 2018 |
| Net loss | $ | (48 | ) | | $ | (2,579 | ) |
| Other comprehensive income | | | |
| Foreign currency translation adjustment | 21 |
| | 46 |
|
| Pension and postretirement benefit plan adjustments, net of income taxes | — |
| | — |
|
| Other comprehensive income | 21 |
| | 46 |
|
| Comprehensive loss | (27 | ) | | (2,533 | ) |
| Comprehensive income attributable to noncontrolling interest | (4 | ) | | (4 | ) |
| Comprehensive loss attributable to Bausch Health Companies Inc. | $ | (31 | ) | | $ | (2,537 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
VALEANT PHARMACEUTICALS INTERNATIONAL,BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Bausch Health Companies Inc. Shareholders' Equity | | | | |
| | | Common Shares | | | | | | Accumulated Other Comprehensive Loss | | Bausch Health Companies Inc. Shareholders' Equity | | | | |
| | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated Deficit | | Noncontrolling Interest | | Total Equity |
| | | | | | | | | | | | | | | | | |
| Balance, January 1, 2019 | | 349.9 |
| | $ | 10,121 |
| | $ | 413 |
| | $ | (5,664 | ) | | $ | (2,137 | ) | | $ | 2,733 |
| | $ | 82 |
| | $ | 2,815 |
|
| Common shares issued under share-based compensation plans | | 2.0 |
| | 30 |
| | (29 | ) | | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
| Share-based compensation | | — |
| | — |
| | 24 |
| | — |
| | — |
| | 24 |
| | — |
| | 24 |
|
| Employee withholding taxes related to share-based awards | | — |
| | — |
| | (34 | ) | | — |
| | — |
| | (34 | ) | | — |
| | (34 | ) |
| Net (loss) income | | — |
| | — |
| | — |
| | (52 | ) | | — |
| | (52 | ) | | 4 |
| | (48 | ) |
| Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | 21 |
| | 21 |
| | — |
| | 21 |
|
| Balance, March 31, 2019 | | 351.9 |
| | $ | 10,151 |
| | $ | 374 |
| | $ | (5,716 | ) | | $ | (2,116 | ) | | $ | 2,693 |
| | $ | 86 |
| | $ | 2,779 |
|
| | | | | | | | | | | | | | | | | |
| Balance, January 1, 2018 | | 348.7 |
| | $ | 10,090 |
| | $ | 380 |
| | $ | (2,725 | ) | | $ | (1,896 | ) | | $ | 5,849 |
| | $ | 95 |
| | $ | 5,944 |
|
| Effect of application of new accounting standard: Income taxes | | — |
| | — |
| | — |
| | 1,209 |
| | — |
| | 1,209 |
| | — |
| | 1,209 |
|
| Common shares issued under share-based compensation plans | | 0.5 |
| | 13 |
| | (13 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Share-based compensation | | — |
| | — |
| | 21 |
| | — |
| | — |
| | 21 |
| | — |
| | 21 |
|
| Employee withholding taxes related to share-based awards | | — |
| | — |
| | (6 | ) | | — |
| | — |
| | (6 | ) | | — |
| | (6 | ) |
| Net (loss) income | | — |
| | — |
| | — |
| | (2,581 | ) | | — |
| | (2,581 | ) | | 2 |
| | (2,579 | ) |
| Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | 44 |
| | 44 |
| | 2 |
| | 46 |
|
| Balance, March 31, 2018 | | 349.2 |
| | $ | 10,103 |
| | $ | 382 |
| | $ | (4,097 | ) | | $ | (1,852 | ) | | $ | 4,536 |
| | $ | 99 |
| | $ | 4,635 |
|
The accompanying notes are an integral part of these consolidated financial statements.
BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
|
| | | | | | | |
| | Three Months Ended
March 31, |
| | 2019 | | 2018 |
| Cash Flows From Operating Activities | | | |
| Net loss | $ | (48 | ) | | $ | (2,579 | ) |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
| Depreciation and amortization of intangible assets | 532 |
| | 786 |
|
| Amortization and write-off of debt premiums, discounts and issuance costs | 17 |
| | 23 |
|
| Asset impairments | 3 |
| | 44 |
|
| Acquisition-related contingent consideration | (21 | ) | | 2 |
|
| Allowances for losses on trade receivable and inventories | 13 |
| | 17 |
|
| Deferred income taxes | (116 | ) | | (152 | ) |
| Gain on sale of assets | (10 | ) | | — |
|
| Additions to accrued legal settlements | 2 |
| | 11 |
|
| Payments of accrued legal settlements | (1 | ) | | (170 | ) |
| Goodwill impairments | — |
| | 2,213 |
|
| Share-based compensation | 24 |
| | 21 |
|
| Foreign exchange gain | — |
| | (25 | ) |
| Loss on extinguishment of debt | 7 |
| | 27 |
|
| Other | 9 |
| | (3 | ) |
| Changes in operating assets and liabilities: | | | |
| Trade receivables | 89 |
| | 204 |
|
| Inventories | (68 | ) | | — |
|
| Prepaid expenses and other current assets | (15 | ) | | (70 | ) |
| Accounts payable, accrued and other liabilities | (4 | ) | | 89 |
|
| Net cash provided by operating activities | 413 |
| | 438 |
|
| | | | |
| Cash Flows From Investing Activities | | | |
| Acquisition of businesses, net of cash acquired | (180 | ) | | 5 |
|
| Payments for intangible and other assets | — |
| | (14 | ) |
| Purchases of property, plant and equipment | (47 | ) | | (33 | ) |
| Purchases of marketable securities | (2 | ) | | — |
|
| Proceeds from sale of marketable securities | 1 |
| | 2 |
|
| Proceeds from sale of assets and businesses, net of costs to sell | 25 |
| | (8 | ) |
| Net cash used in investing activities | (203 | ) | | (48 | ) |
| | | | |
| Cash Flows From Financing Activities | | | |
| Net proceeds from the issuances of long-term debt | 1,514 |
| | 1,481 |
|
| Repayments of long-term debt | (1,621 | ) | | (1,731 | ) |
| Repayments of short-term debt | — |
| | (1 | ) |
| Payments of employee withholding taxes related to share-based awards | (34 | ) | | (5 | ) |
| Payments of acquisition-related contingent consideration | (9 | ) | | (11 | ) |
| Debt extinguishment costs | (1 | ) | | (20 | ) |
| Other | 1 |
| | (1 | ) |
| Net cash used in financing activities | (150 | ) | | (288 | ) |
| Effect of exchange rate changes on cash and cash equivalents | 1 |
| | 10 |
|
| Net increase in cash and cash equivalents and restricted cash | 61 |
| | 112 |
|
| Cash and cash equivalents and restricted cash, beginning of period | 723 |
| | 797 |
|
| Cash and cash equivalents and restricted cash, end of period | $ | 784 |
| | $ | 909 |
|
| | | | |
| Cash and cash equivalents | $ | 782 |
| | $ | 909 |
|
| Restricted cash, current | 2 |
| | — |
|
| Cash and cash equivalents and restricted cash, end of period | $ | 784 |
| | $ | 909 |
|
The accompanying notes are an integral part of these consolidated financial statements.
BAUSCH HEALTH COMPANIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| |
| 1. | DESCRIPTION OF BUSINESS |
Valeant Pharmaceuticals International,Bausch Health Companies Inc. (the “Company”) is a multinational, specialty pharmaceutical and medical device company continued under the laws of the Province of British Columbia, that develops, manufactures, and markets, primarily in the therapeutic areas of eye-health, gastroenterology ("GI") and dermatology, a broad range ofof: (i) branded pharmaceuticals, (ii) generic and branded generic pharmaceuticals, (iii) over-the-counter (“OTC”) products and (iv) medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment and aesthetics devices), which are marketed directly or indirectly in over 10090 countries.
| |
| 2. | SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation and Use of Estimates
The accompanying unaudited consolidated financial statementsConsolidated Financial Statements have been prepared by the Company in United States (“U.S.”) dollars and in accordance with United StatesU.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting, which do not conform in all respects to the requirements of U.S. GAAP for annual financial statements. Accordingly, these notes to the unaudited consolidated financial statementsConsolidated Financial Statements should be read in conjunction with the audited consolidated financial statementsConsolidated Financial Statements prepared in accordance with U.S. GAAP that are contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2018, filed with the U.S. Securities and Exchange Commission (the “SEC”)SEC and the Canadian Securities Administrators (the “CSA”).on February 20, 2019. The unaudited consolidated financial statementsConsolidated Financial Statements have been prepared using accounting policies that are consistent with the policies used in preparing the Company’s audited consolidated financial statementsConsolidated Financial Statements for the year ended December 31, 2016.2018, except for the new accounting guidance adopted during the period. The unaudited consolidated financial statementsConsolidated Financial Statements reflect all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position and results of operations for the interim periods. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.
In preparing the unaudited consolidated financial statements,Consolidated Financial Statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements,Consolidated Financial Statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.
On an ongoing basis, management reviews its estimates to ensure that these estimates appropriately reflect changes in the Company’s business and new information as it becomes available. If historical experience and other factors used by management to make these estimates do not reasonably reflect future activity, the Company’s results of operations and financial position could be materially impacted.
Principles of Consolidation
The unaudited consolidated financial statementsConsolidated Financial Statements include the accounts of the Company and those of its subsidiaries.subsidiaries and any variable interest entities for which the Company is the primary beneficiary. All significant intercompany transactions and balances have been eliminated.
Revisions to the Three Months Ended March 31, 2018
As originally disclosed in the financial statements for the quarterly period ended June 30, 2018, the Company identified an understatement of the Benefit from income taxes for the three months ended March 31, 2018 of $112 million due to an error in the forecasted effective tax rate. The revision decreased the Net loss and Net loss attributable to Bausch Health Companies Inc. by $112 million, or $0.32 per basic and diluted share, and affects Net loss and Deferred income taxes presented on the Consolidated Statement of Cash Flows by $112 million, with no net impact to total Net cash provided by operating activities. The Company also identified an understatement of the foreign currency translation adjustment as presented in the Consolidated Statement of Comprehensive Loss for the three months ended March 31, 2018 which did not impact the Net loss and Net loss attributable to Bausch Health Companies Inc. reported for the same period. Based on its evaluation, the Company concluded that these misstatements were not material to its Consolidated Balance Sheet and Consolidated Statements of Operations, Comprehensive Loss, Equity and Cash Flows as of and for the three months ended March 31, 2018 or related disclosures. The March 31, 2018 financial information has been revised to correct these misstatements. There was no impact to the March 31, 2019 reported amounts.
The following table presents the effect of the revisions on the Company’s Consolidated Balance Sheet as of March 31, 2018:
|
| | | | | | | | | | | |
| (in millions) | As Previously Reported | | Adjustment | | As Revised |
| Deferred tax liabilities, net | $ | 1,139 |
| | $ | (112 | ) | | $ | 1,027 |
|
| Total liabilities | 31,275 |
| | (112 | ) | | 31,163 |
|
| Accumulated deficit | (4,209 | ) | | 112 |
| | (4,097 | ) |
| Total Bausch Health Companies Inc. shareholders' equity | 4,424 |
| | 112 |
| | 4,536 |
|
| Total equity | 4,523 |
| | 112 |
| | 4,635 |
|
The following table presents the effect of the revisions on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2018:
|
| | | | | | | | | | | |
| (in millions, except per share amounts) | As Previously Reported | | Adjustment | | As Revised |
| Consolidated Statement of Operations | | | | | |
| Benefit from income taxes | $ | (3 | ) | | $ | (112 | ) | | $ | (115 | ) |
| Net loss | (2,691 | ) | | 112 |
| | (2,579 | ) |
| Net loss attributable to Bausch Health Companies Inc. | (2,693 | ) | | 112 |
| | (2,581 | ) |
| Basic and diluted loss per share attributable to Bausch Health Companies Inc. | (7.68 | ) | | 0.32 |
| | (7.36 | ) |
| Consolidated Statement of Comprehensive Loss | | | | | |
| Foreign currency translation adjustment | (46 | ) | | 92 |
| | 46 |
|
| Other comprehensive (loss) income | (46 | ) | | 92 |
| | 46 |
|
| Comprehensive loss | (2,737 | ) | | 204 |
| | (2,533 | ) |
| Comprehensive loss (income) attributable to noncontrolling interest | 2 |
| | (6 | ) | | (4 | ) |
| Comprehensive loss attributable to Bausch Health Companies Inc. | (2,735 | ) | | 198 |
| | (2,537 | ) |
Reclassifications
Changes in Reportable Segments
In the second quarter of 2018, the Company began operating in the following operating segments: (i) Bausch + Lomb/International, (ii) Salix, (iii) Ortho Dermatologics and (iv) Diversified Products. Prior to the second quarter of 2018, the Company operated in the following operating segments: (i) Bausch + Lomb/International, (ii) Branded Rx and (iii) U.S. Diversified Products. The Bausch + Lomb/International segment consists of the: (i) U.S. Bausch + Lomb and (ii) International reporting units. The Salix segment consists of the Salix reporting unit (originally part of the former Branded Rx segment). The Ortho Dermatologics segment consists of the: (i) Ortho Dermatologics (originally part of the former Branded Rx segment) and (ii) Global Solta (originally part of the former Branded Rx segment) reporting units. The Diversified Products segment consists of the: (i) Neurology and Other (originally part of the former U.S. Diversified Product segment), (ii) Generics (originally part of the former U.S. Diversified Product segment) and (iii) Dentistry (originally part of the former Branded Rx segment) reporting units. Prior period presentations of segment revenues and segment profits have been recast to conform to the current segment reporting structure. See Note 20, "SEGMENT INFORMATION" for additional information.
Certain other reclassifications have been made to prior year amounts to conform to the current year presentation.
To enhance the comparability of its asset impairments, the Company has made reclassifications to the consolidated statement of operations for the three and nine months ended September 30, 2016 to include all asset impairments in the single line Asset impairments. Charges for asset impairments were originally reported in multiple lines within the consolidated statements of operations for the three and nine months ended September 30, 2016; Amortization and impairments of finite-lived intangible assets and Acquired in-process research and development impairments and other charges. The effects of the reclassifications on the statements of operations for the periods presented are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2016 | | Nine Months Ended September 30, 2016 |
| (in millions) | As Initially Reported | | Reclassification | | As Reclassified | | As Initially Reported | | Reclassification | | As Reclassified |
| Amortization of intangible assets | $ | 807 |
| | $ | (143 | ) | | $ | 664 |
| | $ | 2,389 |
| | $ | (374 | ) | | $ | 2,015 |
|
| Asset impairments | — |
| | 148 |
| | 148 |
| | — |
| | 394 |
| | 394 |
|
| Acquired in-process research and development costs | 36 |
| | (5 | ) | | 31 |
| | 54 |
| | (20 | ) | | 34 |
|
| | $ | 843 |
| | $ | — |
| | $ | 843 |
| | $ | 2,443 |
| | $ | — |
| | $ | 2,443 |
|
During the third quarter of 2016, the Company changed its reportable segments to: (i) Bausch + Lomb/International, (ii) Branded Rx and (iii) U.S. Diversified Products. Effective for the first quarter of 2017, revenues and profits from the Company's operations in Canada, previously included in the Branded Rx segment in prior periods, are now included in the Bausch + Lomb/International segment. Prior period presentations of segment revenues, segment profits and segment assets have been recast to conform to the current segment reporting structure. See Note 19, "SEGMENT INFORMATION" for additional information.
Adoption of New Accounting Guidance
In OctoberFebruary 2016, the Financial Accounting Standards Board (the “FASB”("FASB") amended the guidance as to howissued a reporting entity that is the single decision maker of a variable interest entity (“VIE”) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The amended guidance was effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted this amended guidance as of January 1, 2017 which did not have a material impact on the presentation of the Company's results of operations, cash flows or financial position.
In November 2016, the FASB issued guidance which requires entities to include restricted cash in cash and cash equivalent balances on the statement of cash flows and disclose a reconciliation between the balances on the statement of cash flows and the balance sheet. The guidance is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. The Company early adopted this guidance during the interim period ended June 30, 2017 on a retrospective basis. The impact of the change was not material to the Company’s cash flows for the prior period presented.
Recently Issued Accounting Standards, Not Adopted as of September 30, 2017
In May 2014, the FASB issued guidance on recognizing revenue from contracts with customers. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the revenue model to contracts within its scope, an entity will: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. In addition to these provisions, the new standard provides implementation guidance on several other topics, includingrevising the accounting for certain revenue-related costs, as well as enhanced disclosure requirements. The new guidance requires entitiesleases to disclose both quantitative and qualitative information that enables users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In March 2016, the FASB issued an amendment to clarify the implementation guidance around considerations whether an entity is a principal or an agent, impacting whether an entity reports revenue on a gross or net basis. In April 2016, the FASB issued an amendment to clarify guidance on identifying performance obligations and the implementation guidance on licensing. The guidance is effective for annual reporting periods beginning after December 15, 2017. Early application is permitted but not before the annual reporting period, including adoption in an interim period, beginning January 1, 2017. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance. The Company continues to make progress on its project plan for adopting this guidance, which includes a detailed assessment program and a training program for its personnel. Pursuant to the project plan, the Company conducted a high level impact assessment and has substantially completed an in-depth evaluation of the adoption impact, which involved the review of selected revenue arrangements. Based on the assessment completed to date, the Company did not identify any area that may result in a significant adoption impact. The Company will continue to monitor the revenue transactions in the fourth quarter of 2017 to finalize the adoption assessment. The Company is also in the process of assessing the impact to its existing controls and disclosure. The Company preliminarily concluded that it will adopt the new guidance using the modified approach, under which the new guidance will be adopted retrospectively
with the cumulative effect of initial application of the guidance recognized on the date of initial application (which is January 1, 2018).
In February 2016, the FASB issued guidance on leases. This guidance will increase transparency and comparability among organizations that lease buildings, equipment and other assets by recognizingrequiring the recognition of lease assets and lease liabilities that arise from lease transactions. Current off-balance sheet leasing activities will be required to be reflected on the balance sheets so that investors and other users of financial statements can more readily and accurately understand the rights and obligations associated with these transactions. Consistent with the current lease standard,sheet. Under the new guidance addresses two typesstandard, all leases are classified as either a finance lease or an operating lease. The classification is determined based on whether substantive control has been transferred to the lessee and its determination will govern the pattern of leases: finance leases and operating leases.lease cost recognition. Finance leases will beare accounted for in substantially the same manner as capital leases under the former U.S. GAAP standard. Operating leases are
accounted for under current U.S. GAAP. Operating leases will be accounted for (both in the income statementstatements of operations and statementstatements of cash flows)flows in a manner substantially consistent with operating leases under existingthe former U.S. GAAP.GAAP standard. However, as it relates to the balance sheet, lessees will recognizeare, with limited exception, required to record a right-of-use asset and a corresponding lease liabilities based uponliability, equal to the present value of remainingthe lease payments and correspondingfor each operating lease. Lessees are not required to recognize a right-of-use asset or lease assetsliability for operatingshort-term leases, with limited exception.but instead recognizes lease payments as an expense on a straight-line basis over the lease term. The new guidance willstandard also requirerequires lessees and lessors to provide additional qualitative and quantitative disclosures to help financial statement users assess the amount,amounts, timing and uncertainty of cash flows arising from leases. These disclosures are intended to supplement
The Company adopted the amounts recordednew standard effective January 1, 2019, using the modified retrospective approach. Upon adoption, the Company elected the available practical expedients, including: (i) the package of practical expedients as defined in the financial statements soaccounting guidance, which among other things, allowed the carry forward of historical lease classifications, (ii) the election to use hindsight in determining the lease terms for all leases, (iii) the transition method, which does not require the restatement of prior periods, (iv) the election to aggregate lease components with non-lease components and account for these payments as a single lease component and (v) the short-term lease exemption, which does not require recognition on the balance sheet for leases with an initial term of 12 months or less. The Company has updated its systems, processes and controls to track, record and account for its lease portfolio, including implementation of a third-party software tool to assist in complying with the new standard. Upon adoption of the new standard, the Company recognized a right-of-use asset and a corresponding lease liability of $302 million. In addition, approximately $20 million of restructuring liabilities associated with facility closures and deferred rents, included in Other non-current liabilities as of December 31, 2018 were reclassified to reduce right-of-use assets. The adoption of the standard did not have a material impact on the Consolidated Statements of Operations, Comprehensive Loss, Equity and Cash Flows for any of the periods presented. See Note 12, "LEASES" for additional details and application of this standard.
In August 2018, the FASB issued guidance aligning the requirements for capitalizing implementation costs incurred in a hosting arrangement that users can understand more aboutis a service contract with the nature of an organization’s leasing activities.requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new guidance is effective for annual reporting periods beginning after December 15, 2018. Early application is2019, and interim periods within those fiscal years with early adoption permitted. The Company is evaluating the impact of adoption ofhas early-adopted this guidance on its financial position, resultsprospectively for all implementation costs incurred after January 1, 2019.
Recently Issued Accounting Standards, Not Adopted as of operations and disclosures.March 31, 2019
In June 2016, the FASB issued guidance on the impairment of financial instruments requiring an impairment model based on expected losses rather than incurred losses. Under this guidance, an entity recognizes as an allowance its estimate of expected credit losses. The guidance is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods within those annual periods. The Company is evaluating the impact of adoption of this guidance on its financial position, results of operations and cash flows.
In August 2016,2018, the FASB issued guidance which adds or clarifiesmodifying the classification of certain cash receipts and payments in the statement of cash flows (including debt repayment or debt extinguishment costs, contingent consideration payment after a business combination, and distributions received from equity method investees).disclosure requirements for fair value measurement. The guidance is effective for annual periods beginning after December 15, 2017,2019. The Company is permitted to early-adopt any removed or modified disclosures upon issuance of this update and interim periods within those annual periods. Earlydelay adoption of the additional disclosures until the effective date. The Company is permitted. Theevaluating the impact of adoption of this guidance is not expected to have a material impact on cash flows.its disclosures.
In October 2016,August 2018, the FASB issued guidance which removesmodifying the prohibition against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assetsdisclosure requirements for employers that sponsor defined benefit pension or other than inventory.postretirement plans. The guidance is effective for annual periods beginningending after December 15, 2017, and interim periods within those annual periods. Early2020, with early adoption is permitted. The Company believesis evaluating the impact of adoption will result in a material increase in deferred tax assets and equity and continues to evaluate the impact of these increases on its financial position, results of operations, cash flows and disclosures.
In January 2017, the FASB issued guidance which clarifies the definition of a business with the objective of assisting with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The Company will apply the new definition to future transactions when adopted.
In January 2017, the FASB issued guidance which simplifies the subsequent measurement of goodwill by eliminating the “Step 2” from the goodwill impairment test. The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. The guidance is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. The Company will continue to evaluate the potential impact of this guidance when adopted,on its disclosures.
The Company’s revenues are primarily generated from product sales, primarily in the therapeutic areas of eye-health, GI and dermatology, that consist of: (i) branded pharmaceuticals, (ii) generic and branded generic pharmaceuticals, (iii) OTC products and (iv) medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment and aesthetics devices). Other revenues include alliance and service revenue from the licensing and co-promotion of products and contract service revenue primarily in the areas of dermatology and topical medication. Contract service revenue is derived primarily from contract manufacturing for third parties and is not material. See Note 20, "SEGMENT INFORMATION" for the disaggregation of revenue which could havedepicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by the economic factors of each category of customer contracts.
Product Sales Provisions
As is customary in the pharmaceutical industry, gross product sales are subject to a variety of deductions in arriving at reported net product sales. The transaction price for product sales is typically adjusted for variable consideration, which may be in the form of cash discounts, allowances, returns, rebates, chargebacks and distribution fees paid to customers. Provisions for variable consideration are established to reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant impact on its financial position, results of operations, and disclosures, particularlyreversal in respectthe amount of the Salix reporting unitcumulative revenue recognized will not occur in the future period.
Provisions for these deductions are recorded concurrently with the recognition of gross product sales revenue and include cash discounts and allowances, chargebacks, and distribution fees, which its carrying value exceeded its fair valueare paid to direct customers, as well as rebates and returns, which can be paid to direct and indirect customers. Returns provision balances and volume discounts to direct customers are included in Accrued and other current liabilities. All other provisions related to direct customers are included in Trade receivables, net, while provision balances related to indirect customers are included in Accrued and other current liabilities.
The following tables present the activity and ending balances of the Company’s variable consideration provisions for the three months ended March 31, 2019 and 2018.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, 2019 |
| (in millions) | | Discounts and Allowances | | Returns | | Rebates | | Chargebacks | | Distribution Fees | | Total |
| Reserve balances, January 1, 2019 | | $ | 175 |
| | $ | 813 |
| | $ | 1,024 |
| | $ | 209 |
| | $ | 163 |
| | $ | 2,384 |
|
| Acquisition of Synergy | | — |
| | 3 |
| | 12 |
| | — |
| | 1 |
| | 16 |
|
| Current period provisions | | 204 |
| | 33 |
| | 533 |
| | 443 |
| | 48 |
| | 1,261 |
|
| Payments and credits | | (210 | ) | | (55 | ) | | (568 | ) | | (497 | ) | | (85 | ) | | (1,415 | ) |
| Reserve balances, March 31, 2019 | | $ | 169 |
| | $ | 794 |
| | $ | 1,001 |
| | $ | 155 |
| | $ | 127 |
| | $ | 2,246 |
|
Included in Rebates in the table above are cooperative advertising credits due to customers of approximately $27 million and $26 million as of March 31, 2019 and January 1, 2019, respectively, which are reflected as a reduction of Trade receivables, net in the dateConsolidated Balance Sheets. There were no price appreciation credits for the three months ended March 31, 2019.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, 2018 |
| (in millions) | | Discounts and Allowances | | Returns | | Rebates | | Chargebacks | | Distribution Fees | | Total |
| Reserve balances, January 1, 2018 | | $ | 167 |
| | $ | 863 |
| | $ | 1,094 |
| | $ | 274 |
| | $ | 148 |
| | $ | 2,546 |
|
| Current period provisions | | 184 |
| | 88 |
| | 635 |
| | 477 |
| | 48 |
| | 1,432 |
|
| Payments and credits | | (199 | ) | | (75 | ) | | (620 | ) | | (474 | ) | | (81 | ) | | (1,449 | ) |
| Reserve balances, March 31, 2018 | | $ | 152 |
| | $ | 876 |
| | $ | 1,109 |
| | $ | 277 |
| | $ | 115 |
| | $ | 2,529 |
|
Included as a reduction of current period provisions for Distribution Fees in the annual goodwill impairment test in 2016. See Note 8, "INTANGIBLE ASSETS AND GOODWILL".table above are price appreciation credits of $15 million for the three months ended March 31, 2018.
In May 2017,Contract Assets and Contract Liabilities
There are no contract assets for any period presented. Contract liabilities consist of deferred revenue, the FASB issued guidance identifying the terms or conditionsbalance of share-based payment awardswhich is not material to which an entity would be required to apply modification accounting. The guidance is effective for annual periods beginning after December 15, 2017. The Company has not modified any outstanding awards, and therefore, does not have modification accounting. The adoption of this guidance will not impact its financial position, results of operations, cash flows and disclosures.period presented.
| |
3.4. | ACQUISITIONSACQUISITION |
ThereSynergy Pharmaceuticals Inc.
On March 6, 2019, the Company acquired certain assets of Synergy Pharmaceuticals Inc. ("Synergy") for a cash purchase price of approximately $180 million and the assumption of certain assumed liabilities, pursuant to the terms approved by the U.S. Bankruptcy Court for the Southern District of New York on March 1, 2019. Among the assets acquired are the worldwide rights to the Trulance® (plecanatide) product, a once-daily tablet for adults with chronic idiopathic constipation and irritable bowel syndrome with constipation. This acquisition is expected to result in additional revenues and costs savings associated with business synergies.
Assets Acquired and Liabilities Assumed
The acquisition of certain assets of Synergy has been accounted for as a business combination under the acquisition method of accounting since: (i) substantially all of the fair value of the assets acquired is not concentrated in a single identifiable asset or group of similar identifiable assets and (ii) sufficient inputs and processes were acquired to contribute to the creation of outputs. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed related to the acquisition of certain assets of Synergy as of the acquisition date:
|
| | | |
| (in millions) | |
| Accounts receivable | $ | 7 |
|
| Inventories | 24 |
|
| Prepaid expenses and other current assets | 5 |
|
| Product brand intangible assets (7 years) | 159 |
|
| Accounts payable | (1 | ) |
| Accrued expenses | (17 | ) |
| Total identifiable net assets | 177 |
|
| Goodwill | 3 |
|
| Total fair value of consideration transferred | $ | 180 |
|
Due to the timing of the acquisition, the following are provisional and are subject to change:
amounts for intangible assets, property and equipment, inventories, receivables and other working capital adjustments pending finalization of the valuation;
amounts for income tax assets and liabilities, pending finalization of estimates and assumptions in respect of certain tax aspects of the transaction; and
amount of goodwill pending the completion of the valuation of the assets acquired and liabilities assumed.
The Company will finalize these amounts no business combinationslater than one year from the acquisition date, once it obtains the information necessary to complete the measurement process. Any changes resulting from facts and circumstances that existed as of the acquisition date may result in adjustments to the provisional amounts recognized at the acquisition date which will impact the reported results in the period those adjustments are identified. These adjustments, if any, could be material.
Goodwill associated with the acquisition of certain assets of Synergy is not deductible for income tax purposes.
Revenue and Operating Results
Revenues associated with the acquired assets of Synergy during the nineperiod March 6, 2019 through March 31, 2019 were $6 million. Operating results associated with the acquired assets of Synergy during the period March 6, 2019 through March 31, 2019 and pro-forma revenues and operating results for the three months ended September 30, 2017March 31, 2019 and one business combination in 2016 that was2018 were not material. The measurement period for all acquisitions has closed.
Licensing Agreement
On February 21, 2017, EyeGate Pharmaceuticals, Inc. (“EyeGate”) granted a subsidiary of the Company the exclusive worldwide licensing rights to manufacture and sell the EyeGate® II Delivery System and EGP-437 combination product candidate for the treatment of post-operative pain and inflammationIncluded in ocular surgery patients. EyeGate will be responsible for the continued development of this product candidate in the U.S. for the treatment of post-operative pain and inflammation in ocular surgery patients, and all associated costs. The Company has the right to further develop the product in the field outside of the U.S. at its cost. In connection with the licensing agreement, the Company paid an initial license fee of $4 millionOther (income) expense, net during the three months ended March 31, 2017 and is obligated2019 are acquisition-related costs of $8 million directly related to make future payments of (i) up to $34 million upon the achievementacquisition of certain developmentassets of Synergy, which includes expenditures for advisory, legal, valuation, accounting and regulatory milestones, (ii) up to $65 million upon the achievement of certain sales-based milestones and (iii) royalties. Based on early stage of development of the asset, and lack of acquired significant inputs, the Company concluded this was an asset acquisition.other similar services.
The Company has divested certain businesses and assets and has identified others for potential divestiture, which, in each case, was not aligned with its core business objectives.
CeraVe®, AcneFree™ and AMBI® skincare brands
On March 3, 2017, the Company completed the sale of its interests in the CeraVe®, AcneFree™ and AMBI® skincare brands for $1,300 million in cash (the “Skincare Sale”). The CeraVe®, AcneFree™ and AMBI® skincare business was part of the Bausch + Lomb/International segment and was reclassified as held for sale as of December 31, 2016. Included in Other (income) expense, net is the Gain on the Skincare Sale of $316 million, as adjusted, for the nine months ended September 30, 2017.
Dendreon Pharmaceuticals LLC
On June 28, 2017, the Company completed the sale of all outstanding equity interests in Dendreon Pharmaceuticals LLC (formerly Dendreon Pharmaceuticals, Inc.) (“Dendreon”) for an initial sales price of $820 million in cash (the “Dendreon Sale”), subject to certain working capital provisions. Dendreon was part of the Branded Rx segment and was reclassified as held for sale as of December 31, 2016. During the three months ended June 30, 2017, the Company initially reported a Gain on the Dendreon Sale of $73 million. During the three months ended September 30, 2017, a working capital adjustment was provided and the sales price was adjusted to $845 million. Accordingly, the initially reported Gain on the Dendreon Sale has been adjusted to $98 million and is included in Other (income) expense, net for the nine months ended September 30, 2017.
iNova Pharmaceuticals
On September 29, 2017, the Company completed the sale of its Australian-based iNova Pharmaceuticals (“iNova”) business for $938 million in cash (the “iNova Sale”), as adjusted, subject to certain working capital provisions. iNova markets a diversified portfolio of weight management, pain management, cardiology and cough and cold prescription and over-the-counter products in more than 15 countries, with leading market positions in Australia and South Africa, as well as an established platform in Asia. The Company will continue to operate in these geographies through the Bausch + Lomb franchise. The iNova business was part of the Bausch + Lomb/International segment and was reclassified as held for sale as of December 31, 2016. Included in Other (income) expense, net is a $306 million gain on sale related to this transaction.
ASSETS AND LIABILITIES HELD FOR SALE
Obagi Medical Products, Inc.
On July 17, 2017, the Company announced that certain of its affiliates had entered into a definitive agreement to sell its Obagi Medical Products, Inc. (“Obagi”) business for $190 million in cash (the “Obagi Sale”), subject to certain working capital provisions. Obagi is a global specialty skin care pharmaceutical business with products focused on premature skin aging, skin damage, hyperpigmentation, acne and sun damage which are primarily available through dermatologists, plastic surgeons and other skin care professionals. The Obagi business was part of the U.S. Diversified Products segment and was reclassified as held for sale as of March 31, 2017. The carrying value of the Obagi business, including associated goodwill, was adjusted to its estimated fair value less costs to sell and an impairment of $103 million was recognized in Asset impairments during the nine months ended September 30, 2017. Obagi net assets included in held for sale as of September 30, 2017 are $187 million. The Obagi Sale is expected to close in 2017, subject to customary closing conditions.
Sprout Pharmaceuticals, Inc.
On November 6, 2017, the Company announced it had entered into a definitive agreement to sell Sprout Pharmaceuticals, Inc. (“Sprout”) to a buyer affiliated with certain former shareholders of Sprout (the “Sprout Sale”), in exchange for a 6% royalty on global sales of Addyi® (flibanserin 100 mg) beginning May 2019. In connection with the completion of the Sprout Sale, the terms of the October 2015 merger agreement relating to the Company's acquisition of Sprout will be amended to terminate the Company's ongoing obligation to make future royalty payments associated with the Addyi® product, as well as certain related provisions (including the obligation to make certain marketing and other expenditures). In connection with the completion of the Sprout Sale, the current litigation against the Company, initiated on behalf of the former shareholders of Sprout, which disputes the Company's compliance with certain contractual terms of that same merger agreement with respect to the use of certain diligent efforts to develop and commercialize the Addyi® product (including a disputed contractual term with respect to the spend of no less than $200 million in certain expenditures), will be dismissed with prejudice. Upon completion of the Sprout Sale, the Company will issue the buyer a five-year $25 million loan for initial operating expenses. Addyi®, a once-daily, non-hormonal tablet approved for the treatment of acquired, generalized hypoactive sexual desire disorder in premenopausal women, is the only approved and commercialized product of Sprout. The Sprout Sale is expected to close in 2017, subject to certain closing conditions, including the approval of the requisite portion of the former shareholders of Sprout to the amendments to the original merger agreement. The Company classified the assets and liabilities of the Sprout business as held for sale at September 30, 2017 and were previously included in the Branded Rx segment. The carrying value of the Sprout business, including associated goodwill, was adjusted to its estimated fair value less costs to sell and a $352 million impairment was recognized in Asset impairments at September 30, 2017. The net assets of Sprout classified as held for sale as of September 30, 2017 are $71 million.
At September 30, 2017, included in assets and liabilities held for sale are the assets and liabilities of Obagi, Sprout, and other smaller businesses. At December 31, 2016, included in assets and liabilities held for sale are a number of small businesses formerly included in the Bausch + Lomb/International segment.
Assets held for sale were as follows:
|
| | | | | | | | |
| (in millions) | | September 30,
2017 | | December 31,
2016 |
| Current assets held for sale: | | | | |
| Cash | | $ | — |
| | $ | 1 |
|
| Trade receivables | | — |
| | 86 |
|
| Inventories | | 14 |
| | 147 |
|
| Other | | 2 |
| | 27 |
|
| Current assets held for sale | | $ | 16 |
| | $ | 261 |
|
| | | | | |
| Non-current assets held for sale: | | | | |
| Intangible assets, net | | $ | 717 |
| | $ | 680 |
|
| Goodwill | | — |
| | 1,355 |
|
| Other | | 1 |
| | 97 |
|
| Non-current assets held for sale | | $ | 718 |
| | $ | 2,132 |
|
Liabilities held for sale as of September 30, 2017 of $461 million consists of non-current deferred tax liabilities of $293 million and the non-current contingent consideration of $168 million. Current and Non-current liabilities held for sale as of December 31, 2016 of $57 million and $57 million, respectively, consists of deferred tax liabilities and other liabilities.
| |
| 5. | RESTRUCTURING AND INTEGRATION COSTS |
On April 1, 2015, the Company acquired Salix Pharmaceuticals, Ltd. (“Salix”), pursuant to an Agreement and Plan of Merger dated February 20, 2015, as amended on March 16, 2015 (the “Salix Merger Agreement”), with Salix surviving as a wholly owned subsidiary of Valeant Pharmaceuticals International (“Valeant”), a subsidiary of the Company (the “Salix Acquisition”).
In connection with the Salix Acquisition and other acquisitions, the Company implemented cost-rationalization and integration initiatives to capture operating synergies and generate cost savings. These measures included: (i) workforce reductions company-wide and other organizational changes, (ii) closing of duplicative facilities and other site rationalization actions company-wide, including research and development facilities, sales offices and corporate facilities, (iii) leveraging research and development spend and (iv) procurement savings.
Salix Acquisition-Related Cost-Rationalization and Integration Initiatives
Cost-rationalization and integration initiatives relating to the Salix Acquisition were substantially completed by mid-2016. Total costs incurred primarily include: employee termination costs payable to approximately 475 employees of the Company and Salix who have been terminated as a result of the Salix Acquisition; costs to consolidate or close facilities and relocate employees; and contract termination and lease cancellation costs. Since the acquisition date, total costs of $273 million have been incurred through September 30, 2017, including: (i) $153 million of integration expenses, (ii) $105 million of restructuring expenses and (iii) $15 million of acquisition-related costs.
Salix Integration Costs
Salix integration costs were $0 and $17 million, and payments were $1 million and $21 million for the nine months ended September 30, 2017 and 2016, respectively. The remaining liability associated with these activities as of September 30, 2017 was $6 million.
Salix Restructuring Costs
Salix restructuring costs incurred were $6 million and $7 million, and payments were $13 million and $29 million for the nine months ended September 30, 2017 and 2016, respectively. The remaining liability associated with these activities as of September 30, 2017 was $2 million.
Other Restructuring and Integration-Related Costs (Excluding Salix)
During the nine months ended September 30, 2017, in addition to the Salix restructuring and integration costs, the Company incurred $36 million of other restructuring and integration-related costs. These costs included: (i) $17 million of integration consulting, transition service, and other costs, (ii) $11 million of facility closure costs and (iii) $8 million of severance costs. The Company made payments of $58 million for the nine months ended September 30, 2017 (in addition to the payments related to Salix). The remaining liability associated with these activities as of September 30, 2017 was $32 million.
During the nine months ended September 30, 2016, in addition to the Salix restructuring and integration costs, the Company incurred $54 million of other restructuring and integration-related costs. These costs included: (i) $37 million of integration consulting, duplicate labor, transition service, and other costs, (ii) $8 million of facility closure costs, (iii) $8 million of severance costs and (iv) $1 million of other costs. These costs primarily related to restructuring and integration costs for other smaller acquisitions. The Company made payments of $52 million for the nine months ended September 30, 2016 (in addition to the payments related to Salix).
The Company continues to evaluateevaluates opportunities to improve its operating results and may initiate additionalimplements cost savings programs to streamline its operations and eliminate redundant processes and expenses. The expenses associated with the implementation of these cost savings programs could be material and may include but are not limited to, expenses associated with: (i) reducing headcount, (ii) eliminating real estate costs associated with unused or under-utilized facilities and (iii) implementing contribution margin improvement and other cost reduction initiatives. The remaining liability associated with restructuring and integration costs as of March 31, 2019 was $31 million.
During the three months ended March 31, 2019, the Company incurred $20 million of restructuring and integration costs. These costs included: (i) $10 million of severance costs associated with Synergy, which were not essential to complete, close and report the acquisition, (ii) $6 million of other severance costs and (iii) $4 million of facility closure costs. The Company made payments of $16 million for the three months ended March 31, 2019.
During the three months ended March 31, 2018, the Company incurred $6 million of restructuring and integration costs. These costs included: (i) $4 million of severance costs and (ii) $2 million of facility closure costs. The Company made payments of $6 million for the three months ended March 31, 2018.
| |
| 6. | FAIR VALUE MEASUREMENTS |
Fair value measurements are estimated based on valuation techniques and inputs categorized as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities;
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 — Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using discounted cash flow methodologies, pricing models, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following fair value hierarchy table presents the components and classification of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016:basis.
| | | | | September 30, 2017 | | December 31, 2016 | | March 31, 2019 | | December 31, 2018 |
| (in millions) | | Carrying Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Carrying Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Carrying Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Carrying Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash equivalents | | $ | 481 |
| | $ | 450 |
| | $ | 31 |
| | $ | — |
| | $ | 242 |
| | $ | 179 |
| | $ | 63 |
| | $ | — |
| | $ | 263 |
| | $ | 235 |
| | $ | 28 |
| | $ | — |
| | $ | 197 |
| | $ | 166 |
| | $ | 31 |
| | $ | — |
|
| Restricted cash | | $ | 928 |
| | $ | 928 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2 |
| | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | 2 |
| | $ | 2 |
| | $ | — |
| | $ | — |
|
| Other non-current assets | | $ | 77 |
| | $ | 77 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
| Liabilities: | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Acquisition-related contingent consideration | | $ | (390 | ) | | $ | — |
| | $ | — |
| | $ | (390 | ) | | $ | (892 | ) | | $ | — |
| | $ | — |
| | $ | (892 | ) | | $ | 309 |
| | $ | — |
| | $ | — |
| | $ | 309 |
| | $ | 339 |
| | $ | — |
| | $ | — |
| | $ | 339 |
|
Cash equivalents includeconsist of highly liquid investments, primarily money market funds, with an original maturitymaturities of three months or less at acquisition, primarily including money market funds,when purchased, and are reflected in the balance sheetConsolidated Balance Sheets at carrying value, which approximates fair value due to their short-term nature.
Restricted cash includes $923 million of proceeds from the iNova Sale. Under the terms of the Third Amended and Restated Credit and Guaranty Agreement (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), the Company is required to use the net proceeds of asset sales above a certain threshold to repay its debt obligations. On October 5, 2017, the Company used this restricted cash to repay a portion of its Series F Tranche B Term Loan Facility. The carrying value of Restricted cash reflected in the balance sheet are cash balances.
Other non-current assets includes restricted cash of $77 million deposited with a bank as collateral to secure a bank guarantee for the benefit of the Australian Government in connection with the notice of assessment received on August 8, 2017 from the Australian Taxation Office, as discussed in Note 16, "INCOME TAXES". The Company disagrees with the assessment and continues to believe that its tax positions are appropriate and supported by the facts, circumstances and applicable laws. The Company intends to defend its tax position in this matter vigorously. The carrying value of the restricted cash reported within Other non-current assets reflected in the balance sheet are cash balances.
There were no transfers between Level 1, Level 2 or Level 3 during the ninethree months ended September 30, 2017.March 31, 2019.
Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
The fair value measurement of contingent consideration obligations arising from business combinations is determined via a probability-weighted discounted cash flow analysis or Monte Carlo Simulation, using unobservable (Level 3) inputs. These inputs may include: (i) the estimated amount and timing of projected cash flows;flows, (ii) the probability of the achievement of the factor(s) on which the contingency is based;based, (iii) the risk-adjusted discount rate used to present value the probability-weighted cash flows;flows and (iv) volatility of projected performance (Monte Carlo Simulation). Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. At March 31, 2019, the fair value measurements of acquisition-related contingent consideration were determined using risk-adjusted discount rates ranging from 5% to 25%.
The following table presents a reconciliation of contingent consideration obligations measured on a recurring basis using significant unobservable inputs (Level 3) for the ninethree months ended September 30, 2017:March 31, 2019 and 2018:
| | | (in millions) | | | | | | 2019 | | 2018 |
| Balance, January 1, 2017 | | | | $ | 892 |
| |
| Balance, beginning of period | | | | | $ | 339 |
| | | | $ | 387 |
|
| Adjustments to Acquisition-related contingent consideration: | | | | | | | | | | | | |
| Accretion for the time value of money | | $ | 48 |
| | | | $ | 6 |
| | | | $ | 6 |
| | |
| Fair value adjustments to the expected future royalty payments for Addyi® | | (312 | ) | | | |
| Fair value adjustments due to changes in estimates of other future payments | | (33 | ) | | | | (27 | ) | | | | (4 | ) | | |
| Acquisition-related contingent consideration | | | | (297 | ) | | | | (21 | ) | | | | 2 |
|
| Reclassified to liabilities held for sale | | | | (168 | ) | |
| Foreign currency translation adjustment included in other comprehensive loss | | | | | — |
| | | | 1 |
|
| Payments | | | | (37 | ) | | | | (9 | ) | | | | (12 | ) |
| Balance, September 30, 2017 | | | | 390 |
| |
| Current portion | | | | 45 |
| |
| Balance, end of period | | | | | 309 |
| | | | 378 |
|
| Current portion included in Accrued and other current liabilities | | | | | 45 |
| | | | 58 |
|
| Non-current portion | | | | $ | 345 |
| | | | $ | 264 |
| | | | $ | 320 |
|
During the nine months ended September 30, 2017 and prior to identifying the Sprout business as held for sale, the Company recorded fair value adjustments to contingent consideration to reflect management's revised estimates of the future sales of Addyi®.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The following fair value hierarchy table presents the assets measured at fair value on a non-recurring basis:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| (in millions) | | Carrying Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Carrying Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Assets: | | | | | | | | | | | | | | | | |
| Non-current assets held for sale | | $ | 706 |
| | $ | — |
| | $ | — |
| | $ | 706 |
| | $ | 38 |
| | $ | — |
| | $ | — |
| | $ | 38 |
|
Non-current assets held for sale of $718 million included in the consolidated balance sheet as of September 30, 2017, includes held for sale assets of $706 million which were remeasured to estimated fair values less costs to sell. The Company recognized impairment charges of $456 million, in the aggregate, in Asset impairments for the nine months ended September 30, 2017 in the consolidated statement of operations. The estimated fair values of these assets less costs to sell were determined using a discounted cash flow analysis which utilized Level 3 unobservable inputs. The remaining balance of Non-current assets held for sale as of September 30, 2017 reflect the historical carrying value of those assets which do not exceed fair value less costs to sell.
Long-term Debt
The fair value of long-term debt as of September 30, 2017March 31, 2019 and December 31, 2016,2018 was $26,476$25,003 million and $26,297$23,357 million, respectively, and was estimated using the quoted market prices for the same or similar debt issuances (Level 2).
The components of inventories,Inventories, net of allowances for obsolescence were as follows:consist of:
| | | (in millions) | | September 30,
2017 |
| December 31,
2016 | | March 31,
2019 |
| December 31,
2018 |
| Raw materials | | $ | 281 |
| | $ | 256 |
| | $ | 291 |
| | $ | 275 |
|
| Work in process | | 140 |
| | 125 |
| | 136 |
| | 95 |
|
| Finished goods | | 650 |
| | 680 |
| | 585 |
| | 564 |
|
| | | $ | 1,071 |
| | $ | 1,061 |
| | $ | 1,012 |
| | $ | 934 |
|
| |
| 8. | INTANGIBLE ASSETS AND GOODWILL |
Intangible Assets
The major components of intangible assets were as follows:consist of:
| | | | | September 30, 2017 | | December 31, 2016 | | March 31, 2019 | | December 31, 2018 |
| (in millions) | | Gross Carrying Amount | | Accumulated Amortization, Including Impairments | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization, Including Impairments | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization and Impairments | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization and Impairments | | Net Carrying Amount |
| Finite-lived intangible assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Product brands | | $ | 20,768 |
| | $ | (8,512 | ) | | $ | 12,256 |
| | $ | 20,725 |
| | $ | (6,883 | ) | | $ | 13,842 |
| | $ | 21,066 |
| | $ | (12,376 | ) | | $ | 8,690 |
| | $ | 20,891 |
| | $ | (11,958 | ) | | $ | 8,933 |
|
| Corporate brands | | 934 |
| | (161 | ) | | 773 |
| | 999 |
| | (146 | ) | | 853 |
| | 927 |
| | (281 | ) | | 646 |
| | 926 |
| | (263 | ) | | 663 |
|
| Product rights/patents | | 3,273 |
| | (2,290 | ) | | 983 |
| | 4,240 |
| | (2,118 | ) | | 2,122 |
| | 3,293 |
| | (2,713 | ) | | 580 |
| | 3,292 |
| | (2,658 | ) | | 634 |
|
| Partner relationships | | 172 |
| | (154 | ) | | 18 |
| | 152 |
| | (128 | ) | | 24 |
| | 165 |
| | (163 | ) | | 2 |
| | 168 |
| | (166 | ) | | 2 |
|
| Technology and other | | 212 |
| | (143 | ) | | 69 |
| | 252 |
| | (160 | ) | | 92 |
| | 208 |
| | (177 | ) | | 31 |
| | 208 |
| | (173 | ) | | 35 |
|
| Total finite-lived intangible assets | | 25,359 |
| | (11,260 | ) | | 14,099 |
| | 26,368 |
| | (9,435 | ) | | 16,933 |
| | 25,659 |
| | (15,710 | ) | | 9,949 |
| | 25,485 |
| | (15,218 | ) | | 10,267 |
|
| Acquired IPR&D not in service | | 226 |
| | — |
| | 226 |
| | 253 |
| | — |
| | 253 |
| | 36 |
| | — |
| | 36 |
| | 36 |
| | — |
| | 36 |
|
| B&L Trademark | | 1,698 |
| | — |
| | 1,698 |
| | 1,698 |
| | — |
| | 1,698 |
| |
| Bausch + Lomb Trademark | | | 1,698 |
| | — |
| | 1,698 |
| | 1,698 |
| | — |
| | 1,698 |
|
| | | $ | 27,283 |
| | $ | (11,260 | ) | | $ | 16,023 |
| | $ | 28,319 |
| | $ | (9,435 | ) | | $ | 18,884 |
| | $ | 27,393 |
| | $ | (15,710 | ) | | $ | 11,683 |
| | $ | 27,219 |
| | $ | (15,218 | ) | | $ | 12,001 |
|
Long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Impairment charges associated with these assets are included in Asset impairments in the consolidated statement of operations. The Company continues to monitor the recoverability of its finite-lived intangible assets and tests the intangible assets for impairment if indicators of impairment are present.
Asset impairments for the ninethree months ended September 30, 2017 include: (i) an impairment of $352March 31, 2019 were $3 million relateddue to the Sprout business classified as helddiscontinuance of a specific product line not aligned with the focus of the Company's core businesses.
Asset impairments for sale,the three months ended March 31, 2018 include impairments of: (i) $34 million reflecting decreases in forecasted sales for a certain product line due to generic competition, (ii) impairments of $115 million to other assets classified as held for sale, (iii) impairments of $86$6 million, in aggregate, related to certain product/patent assets associated with the discontinuance of specific product lines not aligned with the focus of the Company's core business, (iv) impairments of $73 million reflecting decreases inbusinesses and revisions to forecasted sales for other product lines, and (v) impairments of $3(iii) $4 million related to acquired IPR&D. The impairments to assets reclassifiedbeing classified as held for sale were measuredsale.
Periodically, the Company’s products face the expiration of their patent or regulatory exclusivity. The Company anticipates that product sales for such product would decrease shortly following a loss of exclusivity, due to the possible entry of a generic competitor. Where the Company has the rights, it may elect to launch an authorized generic of such product (either as the differenceCompany’s own branded generic or through a third-party). This may occur prior to, upon or following generic entry, which may mitigate the anticipated decrease in product sales; however, even with launch of an authorized generic, the decline in product sales of such product could still be significant, and the effect on future revenues could be material.
Management continually assesses the useful lives related to the Company's long-lived assets to reflect the most current assumptions. In review of the carrying value of these assets as compared to the estimated fair values of these assets less costs to sell determined using a discounted cash flow analysis which utilized Level 3 unobservable inputs. The other impairments and adjustments toCompany’s finite-lived intangible assets, were measured asmanagement revised the differenceestimated useful lives of certain intangible assets in 2018.
Effective September 12, 2018, the Company changed the estimated useful life of its Xifaxan®-related intangible assets due to the positive impact of the historical carrying value of these finite-lived assets as compared to the estimated fair value as determined using a discounted cash flow analysis using Level 3 unobservable inputs.
In connection with an ongoing litigation matteragreement between the Company and potential generic competitorsActavis resolving the intellectual property litigation regarding Xifaxan® tablets, 550 mg. As discussed in further detail in Note 20, "LEGAL PROCEEDINGS" to the branded drug Uceris® Tablet,Company's Annual Consolidated Financial Statements contained in its Annual Report on Form 10-K for the Company performedyear ended December 31, 2018, the parties have agreed to dismiss all litigation related to Xifaxan® tablets, 550 mg and all intellectual property protecting Xifaxan® will remain intact and enforceable. As a result, the useful life of the Xifaxan®-related intangible assets was extended from 2024 to January 1, 2028. As this change in the estimated useful life is a change in an impairment testaccounting estimate, amortization expense is impacted prospectively. The change in the estimated useful life of its Uceris® Tablet relatedthe Xifaxan®-related intangible assets.assets resulted in a decrease to the Net loss attributable to Bausch Health Companies Inc. of $118 million, and a decrease to the Basic and Diluted Loss per share attributable to Bausch Health Companies Inc. of $0.34 for the three months ended March 31, 2019. As of March 31, 2019, the undiscounted expected cash flows from the Uceris® Tablet exceed thenet carrying value of the Uceris® Tablet related intangible assets, no impairment exists as of September 30, 2017. However, if market conditions or legal outcomes differ from the Company’s assumptions, or if the Company is unable to execute its strategies, it may be necessary to record an impairment charge equal to the difference between the fair value and carrying value of the Uceris® Tablet related intangible assets. As of September 30, 2017, the carrying value of Uceris® Tablet relatedXifaxan®-related intangible assets was $619$4,713 million.
Estimated amortization expense of finite-lived intangible assets for the remainder of 20172019 and each of the five succeeding years ending December 31 and thereafter is as follows:
| | | (in millions) | | | | |
| October through December 2017 | | $ | 584 |
| |
| 2018 | | 2,275 |
| |
| 2019 | | 2,059 |
| |
| April through December 2019 | | | $ | 1,410 |
|
| 2020 | | 1,966 |
| | 1,639 |
|
| 2021 | | 1,781 |
| | 1,389 |
|
| 2022 | | 1,641 |
| | 1,237 |
|
| 2023 | | | 1,088 |
|
| 2024 | | | 954 |
|
| Thereafter | | 3,793 |
| | 2,232 |
|
| Total | | $ | 14,099 |
| | $ | 9,949 |
|
Goodwill
The changes in the carrying amounts of goodwill during the ninethree months ended September 30, 2017March 31, 2019 and the year ended December 31, 20162018 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Developed Markets | | Emerging Markets | | Bausch + Lomb/ International | | Branded Rx | | U.S. Diversified Products | | Total |
| Balance, January 1, 2016 | | $ | 16,141 |
| | $ | 2,412 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 18,553 |
|
| Acquisitions | | 1 |
| | — |
| | — |
| | — |
| | — |
| | 1 |
|
| Divestiture of a portfolio of neurology medical device products | | (36 | ) | | — |
| | — |
| | — |
| | — |
| | (36 | ) |
| Goodwill related to Ruconest® reclassified to assets held for sale | | (37 | ) | | — |
| | — |
| | — |
| | — |
| | (37 | ) |
| Foreign exchange and other | | 47 |
| | (12 | ) | | — |
| | — |
| | — |
| | 35 |
|
| Impairment to goodwill of the former U.S. reporting unit | | (905 | ) | | — |
| | — |
| | — |
| | — |
| | (905 | ) |
| Realignment of segment goodwill | | (15,211 | ) | | (2,400 | ) | | 6,708 |
| | 7,873 |
| | 3,030 |
| | — |
|
| Impairment to goodwill of the Salix reporting unit | | — |
| | — |
| | — |
| | (172 | ) | | — |
| | (172 | ) |
| Divestitures | | — |
| | — |
| | (5 | ) | | — |
| | — |
| | (5 | ) |
| Goodwill reclassified to assets held for sale | | — |
| | — |
| | (947 | ) | | (431 | ) | | — |
| | (1,378 | ) |
| Foreign exchange and other | | — |
| | — |
| | (257 | ) | | (5 | ) | | — |
| | (262 | ) |
| Balance, December 31, 2016 | | — |
| | — |
| | 5,499 |
| | 7,265 |
| | 3,030 |
| | 15,794 |
|
| Realignment of segment goodwill | | — |
| | — |
| | 264 |
| | (264 | ) | | — |
| | — |
|
| Balance, January 1, 2017 | | — |
| | — |
| | 5,763 |
| | 7,001 |
| | 3,030 |
| | 15,794 |
|
| Goodwill reclassified to assets held for sale | | — |
| | — |
| | (31 | ) | | (63 | ) | | (76 | ) | | (170 | ) |
| Impairment | | — |
| | — |
| | — |
| | (312 | ) | | — |
| | (312 | ) |
| Foreign exchange and other | | — |
| | — |
| | 262 |
| | (1 | ) | | — |
| | 261 |
|
| Balance, September 30, 2017 | | $ | — |
| | $ | — |
| | $ | 5,994 |
| | $ | 6,625 |
| | $ | 2,954 |
| | $ | 15,573 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Bausch + Lomb/ International | | Branded Rx | | U.S. Diversified Products | | Salix | | Ortho Dermatologics | | Diversified Products | | Total |
| Balance, January 1, 2018 | | $ | 6,016 |
| | $ | 6,631 |
| | $ | 2,946 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 15,593 |
|
| Impairment of the Salix and Ortho Dermatologics reporting units | | — |
| | (2,213 | ) | | — |
| | — |
| | — |
| | — |
| | (2,213 | ) |
| Realignment of Global Solta reporting unit goodwill | | (82 | ) | | 115 |
| | (33 | ) | | — |
| | — |
| | — |
| | — |
|
| Goodwill reclassified to assets held for sale and subsequently disposed | | (2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) |
| Realignment of segment goodwill | | — |
| | (4,533 | ) | | (2,913 | ) | | 3,156 |
| | 1,267 |
| | 3,023 |
| | — |
|
| Impairment of the Dentistry reporting unit | | — |
| | — |
| | — |
| | — |
| | — |
| | (109 | ) | | (109 | ) |
| Foreign exchange and other | | (127 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (127 | ) |
| Balance, December 31, 2018 | | 5,805 |
| | — |
| | — |
| | 3,156 |
| | 1,267 |
| | 2,914 |
| | 13,142 |
|
| Acquisition of certain assets of Synergy | | — |
| | — |
| | — |
| | 3 |
| | — |
| | — |
| | 3 |
|
| Foreign exchange and other | | (24 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (24 | ) |
| Balance, March 31, 2019 | | $ | 5,781 |
| | $ | — |
| | $ | — |
| | $ | 3,159 |
| | $ | 1,267 |
| | $ | 2,914 |
| | $ | 13,121 |
|
Goodwill is not amortized but is tested for impairment at least annually at the reporting unit level. A reporting unit is the same as, or one level below, an operating segment. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants. The Company estimates the fair values of all reporting units using a discounted cash flow model which utilizes Level 3 unobservable inputs.
The discounted cash flow model relies on assumptions regarding revenue growth rates, gross profit, projected working capital needs, selling, general and administrative expenses, research and development expenses, capital expenditures, income tax rates, discount rates and terminal growth rates. To estimate fair value, the Company discounts the expectedforecasted cash flows of each reporting unit. The discount rate the Company uses represents the estimated weighted average cost of capital, which reflects
the overall level of inherent risk involved in its reporting unit operations and the rate of return a market participant would expect to earn. The Company performed its annual impairment test as of October 1, 2018, utilizing long-term growth rates for its reporting units ranging from 1.0% to 3.0% and discount rates applied to the estimated cash flows ranging from 7.5% to 14.0% in estimation of fair value. To estimate cash flows beyond the final year of its model, the Company estimates a terminal value by applying an in perpetuity growth assumption and discount factor to determine the reporting unit's terminal value.
The Company forecasts cash flows for each of its reporting unitsunit and takes into consideration economic conditions and trends, estimated future operating results, management's and a market participant's view of growth rates and product lives, and
anticipates future economic conditions. Revenue growth rates inherent in these forecasts were based on input from internal and external market research that compare factors such as growth in global economies, recent industry trends and product life-cycles. Macroeconomic factors such as changes in economies, changes in the competitive landscape including the unexpected loss of exclusivity to the Company's product portfolio, changes in government legislation, product life-cycles, industry consolidations and other changes beyond the Company’s control could have a positive or negative impact on achieving its targets. Accordingly, if market conditions deteriorate, or if the Company is unable to execute its strategies, it may be necessary to record impairment charges in the future.
20162018
PriorAdoption of New Accounting Guidance for Goodwill Impairment Testing
In January 2017, the FASB issued guidance which simplifies the subsequent measurement of goodwill by eliminating “Step 2” from the goodwill impairment test. Instead, goodwill impairment is measured as the amount by which a reporting unit's carrying value exceeds its fair value. The Company elected to adopt this guidance effective January 1, 2018.
Upon adopting the change in operating segments in the third quarter of 2016,new guidance, the Company operated in two operating and reportable segments: Developed Markets and Emerging Markets. The Developed Markets segment consisted of four geographic reporting units: (i) U.S., (ii) Canada and Australia, (iii) Western Europe and (iv) Japan. The Emerging Markets segment consisted of three geographic reporting units: (i) Central and Eastern Europe, Middle East and Africa, (ii) Latin America and (iii) Asia.
March 31, 2016
Given challenges facing the Company, particularly in its dermatology and gastrointestinal businesses, management performed a review of its then-current forecast under the direction of the new Chief Executive Officer (“CEO”). As a result of that review, management lowered its forecast which resulted in a triggering event requiring the Company to testtested goodwill for impairment as of March 31, 2016. Although management lowered its forecast, which lowered the estimated fair values of certain business units, including the former U.S. reporting unit, the step one testing determined there was no impairment of goodwill as the estimated fair value of each reporting unit exceeded its carrying value. In order to evaluate the sensitivity of its fair value calculations on the goodwill impairment test, the Company applied a hypothetical 15% decrease in the fair value of each reporting unit as of March 31, 2016. For each reporting unit, this hypothetical 15% decrease in fair value would not have triggered additional impairment testing as the hypothetical fair value exceeded the carrying value of the respective reporting unit.
Realignment of Segment Structure
Commencing in the third quarter of 2016, the Company operates in three operating segments: (i) Bausch + Lomb/International, (ii) Branded Rx and (iii) U.S. Diversified Products. This 2016 segment structure realignment resulted in the Bausch + Lomb/International segment consisting of the following reporting units: (i) U.S. Bausch + Lomb and (ii) International; the Branded Rx segment consisting of the following reporting units: (i) Salix, (ii) Dermatology, (iii) Canada and (iv) Branded Rx Other; and the U.S. Diversified Products segment consisting of the following reporting units: (i) Neurology and other and (ii) Generics. As a result of these changes, goodwill was reassigned to each of the aforementioned reporting units using a relative fair value approach. Goodwill previously reported in the former U.S. reporting unit, after adjustment of impairment as described below, was reassigned, using a relative fair value approach, to the U.S. Bausch + Lomb, Salix, Dermatology, Branded Rx Other, Neurology and other, and Generics reporting units. Similarly, goodwill previously reported in the former Canada and Australia reporting unit was reassigned to the Canada and the International reporting units using a relative fair value approach. Goodwill previously reported in the remaining former reporting units was reassigned to the International reporting unit.
In the third quarter of 2016, goodwill impairment testing was performed under the former reporting unit structure immediately prior to the change and under the current reporting unit structure immediately subsequent to the change. Using the forecast and assumptions at the time, the Company estimated the fair value of each reporting unit using a discounted cash flow analysis. As a result of its test, the Company determined that goodwill associated with the former U.S. reporting unit and the goodwill associated with the Salix reporting unit under the current reporting unit structure were impaired. Consequently, in the aggregate, goodwill impairment charges of $1,077 million were recognized as follows:
Under the former reporting unit structure, the fair value of each reporting unit exceeded its carrying value by more than 15%, except for the former U.S. reporting unit whose carrying value exceeded its fair value by 2%. As a result, the Company proceeded to perform step two of the goodwill impairment test for the former U.S. reporting unit and determined that the carrying value of the unit's goodwill exceeded its implied fair value. However, as the estimate of fair value is
complex and requires significant amounts of time and judgment, the Company could not complete step two of the testing prior to the release of its financial statements for the period ended September 30, 2016. Under these circumstances, accounting guidance requires that a company recognize an estimated impairment charge if management determines that it is probable that an impairment loss has occurred and such impairment can be reasonably estimated. Using its best estimate, the Company recorded an initial goodwill impairment charge of $838 million as of September 30, 2016. In the fourth quarter of 2016, step two testing was completed and the Company concluded that the excess of the carrying value of the former U.S. reporting unit's unadjusted goodwill over its implied value as of September 30, 2016 was $905 million and recognized an incremental goodwill impairment charge of $67 million for the fourth quarter of 2016. The goodwill impairment was primarily driven by changes to the Company's forecasted performance which resulted in a lower fair value of the U.S. businesses, mainly the Salix business.
Under the current reporting unit structure, the carrying value of the Salix reporting unit exceeded its fair value, as updates to the unit's forecast resulted in a lower estimated fair value for the business.value. As a result of the adoption of new accounting guidance, the Company proceeded to perform step tworecognized a goodwill impairment of $1,970 million associated with the Salix reporting unit.
As of October 1, 2017, the date of the 2017 annual goodwill impairment test, the fair value of the Ortho Dermatologics reporting unit exceeded its carrying value. However, at January 1, 2018 unforeseen changes in the business dynamics of the Ortho Dermatologics reporting unit, such as: (i) changes in the dermatology sector, (ii) increased pricing pressures from third-party payors, (iii) additional risks to the exclusivity of certain products and (iv) an expected longer launch cycle for a new product, were factors that negatively impacted the reporting unit's operating results beyond management's expectations as of October 1, 2017, when the Company performed its 2017 annual goodwill impairment test. In response to these adverse business indicators, as of January 1, 2018 the Company reduced its near and long term financial projections for the Ortho Dermatologics reporting unit. As a result of the reductions in the near and long term financial projections, the carrying value of the Ortho Dermatologics reporting unit exceeded its fair value at January 1, 2018 and the Company recognized a goodwill impairment of $243 million.
As of January 1, 2018, with the exception of the Salix reporting unit and determined that the carrying value of the unit's goodwill exceeded its implied fair value. However, the Company could not complete step two of the testing prior to the release of its financial statements for the period ended September 30, 2016. Using its best estimate, the Company recorded an initial goodwill impairment charge of $211 million as of September 30, 2016. In the fourth quarter of 2016, step two testing was completed and the Company concluded that the excess of the carrying value of the Salix reporting unit's unadjusted goodwill over its implied value as of September 30, 2016 was $172 million and recognized a credit to the initial goodwill impairment charge of $39 million for the fourth quarter of 2016. As of the date of testing, after all adjustments, the SalixOrtho Dermatologics reporting unit, had a carrying value of $14,066 million, an estimatedthe fair value of $10,409 million and goodwill with a carrying value of $5,128 million.
In order to evaluate the sensitivity of its fair value calculations on the goodwill impairment test, the Company compared the carrying value of eachall reporting unit to its fair value as of August 31, 2016, the date of testing. The fair value of each reporting unitunits exceeded itstheir respective carrying value by more than 15%.
2018 Realignment of Solta Business
Effective March 1, 2018, revenues and profits from the U.S. Solta business included in the former U.S. Diversified Products segment in prior periods and revenues and profits from the international Solta business included in the Bausch + Lomb/International segment in prior periods, are reported in the new Global Solta reporting unit, which, at that time, was a part of the former Branded Rx segment. As a result of this change, $115 million of goodwill was reallocated to the new Global Solta reporting unit and the Company assessed the impact on the fair values of each of the reporting units affected. After considering, among other matters: (i) the limited period of time between last impairment test (January 1, 2018) and the realignment (March 1, 2018), except for(ii) the results of the last impairment test and (iii) the amount of goodwill reallocated to the new Global Solta reporting unit, the Company did not identify any indicators of impairment at the time of the realignment.
2018 Realignment of Segment Structure
In the second quarter of 2018, the Company began operating in the following reportable segments: (i) Bausch + Lomb/International segment, (ii) Salix segment, (iii) Ortho Dermatologics segment and (iv) Diversified Products segment. The Bausch + Lomb/International segment consists of the: (i) U.S. Bausch + Lomb and (ii) International reporting units. The Salix segment consists of the Salix reporting unitunit. The Ortho Dermatologics segment consists of the: (i) Ortho Dermatologics and (ii) Global Solta reporting units. The Diversified Products segment consists of the: (i) Neurology and Other, (ii) Generics and (iii) Dentistry reporting units. There was no triggering event which would require the Company to test goodwill for impairment as discussed above and the U.S. Branded Rx reporting unit. Asa result of the date of testing, goodwillsecond quarter realignment of the U.S. Branded Rxsegment structure as it did not result in a change in the reporting unit was $897 million and the estimated fair value of the unit exceeded its carrying value by approximately 5%.units.
2018 Annual Goodwill Impairment Test
The Company conducted its annual goodwill impairment test as of October 1, 20162018 and determined that the carrying value of the SalixDentistry reporting unit exceeded its fair value and, as a result, the Company proceeded to perform step two of therecognized a goodwill impairment testof $109 million for the SalixDentistry reporting unit, representing the full amount of goodwill for the reporting unit. After completing step two ofChanging market conditions such as: (i) an increasing competitive environment and (ii) increasing pricing pressures negatively impacted the impairment testing, thereporting unit's operating results. The Company determined that the carrying value of the unit's goodwill did not exceed its implied fair valueis taking steps to address these changing market and therefore, no impairment was identified to the goodwill of the Salix reporting unit. As of the date of testing, the Salix reporting unit had a carrying value of $14,087 million, an estimated fair value of $10,319 million and goodwill with a carrying value of $5,128 million. business conditions.
The Company's remaining reporting units passed step one of the goodwill impairment test as the estimated fair value of each reporting unit exceeded its carrying value at the date of testing and, therefore, there was no impairment to goodwill was $0. The Company determined that no events occurred or circumstances changed during the period of October 1, 2016 through December 31, 2016 that would indicate that the fair value of afor any reporting unit may be below its carrying amount, except forother than the SalixDentistry reporting unit. During the period of October 1, 2016 through December 31, 2016, there were no changes in the facts and circumstances which would suggest that goodwill of the Salix reporting unit was further impaired.
In order to evaluate the sensitivity of its fair value calculations on the goodwill impairment test, the Company compared the carrying value of each reporting unit to its fair value as of October 1, 2016,2018, the date of testing. TheAs of October 1, 2018, the fair value of each reporting unit with associated goodwill exceeded its carrying value by more than 15%, except for the Salix reporting unit, as discussed above and the U.S. Branded Rx reporting unit. As of the date of testing, goodwill of the U.S. Branded Rx reporting unit was $897 million and the estimated fair value of the unit exceeded its carrying value by approximately 8%.
2017
As detailed in Note 2, "SIGNIFICANT ACCOUNTING POLICIES", the revenues and profits from the Company's operations in Canada were reclassified. In connection with this change, the prior-period presentation of segment goodwill has been recast to conform to the current reporting structure, of which $264 million of goodwill as of December 31, 2016 was reclassified from the Branded Rx segment to the Bausch + Lomb/International segment. No facts or circumstances were identified in connection with this change in alignment that would suggest an impairment exists.
As detailed in Note 4, "DIVESTITURES", as of September 30, 2017 the Sprout business was classified as held for sale. As the Sprout business represented only a portion of a Branded Rx reporting unit, the Company assessed the remaining reporting unit for impairment and determined the carrying value of the remaining reporting unit exceeded its fair value. After completing step two of the impairment testing, the Company determined and recorded a goodwill impairment charge of $312 million during the three months ended September 30, 2017. Together with the $1,077 million impairment charges from 2016, accumulated goodwill impairment charges to date are $1,389 million.2019 Interim Goodwill Impairment Assessment
No additional events occurred or circumstances changed during the nine months ended September 30, 2017period October 1, 2018 (the date goodwill was last tested for impairment) through March 31, 2019 that would indicate that the fair value of any other reporting unit maymight be below its carrying value, except forvalue. Based on the Salix reporting unit. As the facts and circumstances had not materially changed sinceresults of the October 1, 20162018 annual goodwill impairment test, management concluded thatthe Company continues to perform qualitative interim assessments of the carrying value and fair value of the SalixOrtho Dermatologics reporting unit continues to be in excess of its fair value. Therefore, during the three months ended March 31, 2017, June 30, 2017 and September 30, 2017, the Company performed qualitative assessments of the Salix reporting unit goodwillon a quarterly basis to determine if impairment testing wasof goodwill will be warranted.
As part of itsthe qualitative assessments,assessment as of March 31, 2019, management compared the reporting unit’s operating results to its original forecasts. Although Salix reporting unit revenue during the three months ended March 31, 2017, June 30, 2017 and September 30, 2017 declined as compared to the three months ended December 31, 2016, each decrease was within management's expectations. Further, the latest forecast for the Salix reporting unit is not materially different than the forecast used in management's October 1, 2016 testing andto test the difference in the forecasts would not change the conclusiongoodwill of the Company’s goodwill impairment testingOrtho Dermatologics reporting unit as of October 1, 2016. As part of these qualitative assessments, the Company also considered the sensitivity of its conclusions as they relate to changes in the estimates and assumptions used in the latest forecast available for each period.2018. Based on itsthe qualitative assessments,assessment, management believesbelieved that the carrying value of the SalixOrtho Dermatologics reporting unit goodwill doesdid not exceed its implied fair value and, that testing the Salix reporting unit goodwill for impairmenttherefore, concluded a quantitative assessment was not required based on the current facts and circumstances.at March 31, 2019.
If market conditions deteriorate, or if the Company is unable to execute its strategies, it may be necessary to record impairment charges in the future.future and those charges can be material.
Accumulated goodwill impairment charges through March 31, 2019 were $3,711 million.
| |
| 9. | ACCRUED AND OTHER CURRENT LIABILITIES |
Accrued and other current liabilities were as follows:consist of:
| | | (in millions) | | September 30, 2017 | | December 31, 2016 | | March 31,
2019 | | December 31, 2018 |
| Product rebates | | $ | 1,039 |
| | $ | 897 |
| | $ | 974 |
| | $ | 998 |
|
| Product returns | | 815 |
| | 708 |
| | 794 |
| | 813 |
|
| Interest | | 385 |
| | 337 |
| | 387 |
| | 273 |
|
| Employee compensation and benefit costs | | 258 |
| | 198 |
| | 238 |
| | 301 |
|
| Income taxes payable | | 163 |
| | 213 |
| | 167 |
| | 167 |
|
| Legal liabilities assumed in the Salix Acquisition | | 52 |
| | 281 |
| |
| Other | | 684 |
| | 593 |
| | 695 |
| | 645 |
|
| | | $ | 3,396 |
| | $ | 3,227 |
| | $ | 3,255 |
| | $ | 3,197 |
|
| |
| 10. | FINANCING ARRANGEMENTS |
Principal amounts of debt obligations and principal amounts of debt obligations net of premiums, discounts and issuance costs consistsconsist of the following:
|
| | | | | | | | | | | | | | | | | | |
|
|
|
| September 30, 2017 |
| December 31, 2016 |
| (in millions) |
| Maturity |
| Principal Amount |
| Net of Discounts and Issuance Costs |
| Principal Amount |
| Net of Discounts and Issuance Costs |
| Senior Secured Credit Facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revolving Credit Facility |
| April 2018 |
| $ | — |
|
| $ | — |
|
| $ | 875 |
|
| $ | 875 |
|
| Revolving Credit Facility |
| April 2020 |
| 425 |
|
| 425 |
|
| — |
|
| — |
|
| Series A-3 Tranche A Term Loan Facility |
| October 2018 |
| — |
|
| — |
|
| 1,032 |
|
| 1,016 |
|
| Series A-4 Tranche A Term Loan Facility |
| April 2020 |
| — |
|
| — |
|
| 668 |
|
| 658 |
|
| Series D-2 Tranche B Term Loan Facility |
| February 2019 |
| — |
|
| — |
|
| 1,068 |
|
| 1,048 |
|
| Series C-2 Tranche B Term Loan Facility |
| December 2019 |
| — |
|
| — |
|
| 823 |
|
| 805 |
|
| Series E-1 Tranche B Term Loan Facility |
| August 2020 |
| — |
|
| — |
|
| 2,456 |
|
| 2,429 |
|
| Series F Tranche B Term Loan Facility |
| April 2022 |
| 5,800 |
|
| 5,685 |
|
| 3,892 |
|
| 3,815 |
|
| Senior Secured Notes: |
|
|
|
|
|
|
|
|
|
|
| 6.50% Secured Notes |
| March 2022 |
| 1,250 |
|
| 1,235 |
|
| — |
|
| — |
|
| 7.00% Secured Notes |
| March 2024 |
| 2,000 |
|
| 1,975 |
|
| — |
|
| — |
|
| Senior Unsecured Notes: |
| |
|
|
|
|
|
|
|
|
| 6.75% |
| August 2018 |
| — |
|
| — |
|
| 1,600 |
|
| 1,593 |
|
| 5.375% |
| March 2020 |
| 2,000 |
|
| 1,988 |
|
| 2,000 |
|
| 1,985 |
|
| 7.00% |
| October 2020 |
| 690 |
|
| 689 |
|
| 690 |
|
| 689 |
|
| 6.375% |
| October 2020 |
| 2,250 |
|
| 2,235 |
|
| 2,250 |
|
| 2,231 |
|
| 7.50% |
| July 2021 |
| 1,625 |
|
| 1,615 |
|
| 1,625 |
|
| 1,613 |
|
| 6.75% |
| August 2021 |
| 650 |
|
| 647 |
|
| 650 |
|
| 647 |
|
| 5.625% |
| December 2021 |
| 900 |
|
| 895 |
|
| 900 |
|
| 894 |
|
| 7.25% |
| July 2022 |
| 550 |
|
| 544 |
|
| 550 |
|
| 543 |
|
| 5.50% |
| March 2023 |
| 1,000 |
|
| 993 |
|
| 1,000 |
|
| 992 |
|
| 5.875% |
| May 2023 |
| 3,250 |
|
| 3,223 |
|
| 3,250 |
|
| 3,220 |
|
| 4.50% euro-denominated debt |
| May 2023 |
| 1,772 |
|
| 1,757 |
|
| 1,578 |
|
| 1,563 |
|
| 6.125% |
| April 2025 |
| 3,250 |
|
| 3,221 |
|
| 3,250 |
|
| 3,218 |
|
| Other |
| Various |
| 14 |
|
| 14 |
|
| 12 |
|
| 12 |
|
| Total long-term debt |
| |
| $ | 27,426 |
|
| 27,141 |
|
| $ | 30,169 |
|
| 29,846 |
|
| Less: Current portion of long-term debt and other | | |
| 925 |
|
|
|
|
| 1 |
|
| Non-current portion of long-term debt |
| | | | | $ | 26,216 |
|
|
|
|
| $ | 29,845 |
|
|
| | | | | | | | | | | | | | | | | | |
|
|
|
| March 31, 2019 |
| December 31, 2018 |
| (in millions) |
| Maturity |
| Principal Amount |
| Net of Premiums, Discounts and Issuance Costs |
| Principal Amount |
| Net of Premiums, Discounts and Issuance Costs |
| Senior Secured Credit Facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2023 Revolving Credit Facility |
| June 2023 |
| $ | — |
|
| $ | — |
|
| $ | 75 |
|
| $ | 75 |
|
| June 2025 Term Loan B Facility | | June 2025 | | 4,222 |
| | 4,104 |
| | 4,394 |
| | 4,269 |
|
| November 2025 Term Loan B Facility | | November 2025 | | 1,425 |
| | 1,402 |
| | 1,481 |
| | 1,456 |
|
| Senior Secured Notes: |
|
|
|
|
|
|
|
|
|
|
| 6.50% Secured Notes |
| March 2022 |
| 1,250 |
|
| 1,239 |
|
| 1,250 |
|
| 1,239 |
|
| 7.00% Secured Notes |
| March 2024 |
| 2,000 |
|
| 1,980 |
|
| 2,000 |
|
| 1,979 |
|
| 5.50% Secured Notes | | November 2025 | | 1,750 |
| | 1,731 |
| | 1,750 |
| | 1,730 |
|
| 5.75% Secured Notes | | August 2027 | | 500 |
| | 493 |
| | — |
| | — |
|
| Senior Unsecured Notes: |
| |
|
|
|
|
|
|
|
|
| 5.625% |
| December 2021 |
| 182 |
|
| 181 |
|
| 700 |
|
| 697 |
|
| 5.50% |
| March 2023 |
| 784 |
|
| 780 |
|
| 1,000 |
|
| 995 |
|
| 5.875% |
| May 2023 |
| 2,666 |
|
| 2,650 |
|
| 3,250 |
|
| 3,229 |
|
| 4.50% euro-denominated debt |
| May 2023 |
| 1,683 |
|
| 1,673 |
|
| 1,720 |
|
| 1,709 |
|
| 6.125% |
| April 2025 |
| 3,250 |
|
| 3,227 |
|
| 3,250 |
|
| 3,226 |
|
| 9.00% | | December 2025 | | 1,500 |
| | 1,470 |
| | 1,500 |
| | 1,469 |
|
| 9.25% | | April 2026 | | 1,500 |
| | 1,482 |
| | 1,500 |
| | 1,482 |
|
| 8.50% | | January 2027 | | 1,750 |
| | 1,757 |
| | 750 |
| | 738 |
|
| Other |
| Various |
| 12 |
|
| 12 |
|
| 12 |
|
| 12 |
|
| Total long-term debt and other |
| |
| $ | 24,474 |
|
| 24,181 |
|
| $ | 24,632 |
|
| 24,305 |
|
| Less: Current portion of long-term debt and other |
| |
| 257 |
|
|
|
|
| 228 |
|
| Non-current portion of long-term debt |
| |
|
|
| $ | 23,924 |
|
|
|
|
| $ | 24,077 |
|
Covenant Compliance
The Senior Secured Credit Facilities (as defined below) and the indentures governing the Company’s Senior Secured Notes and Senior Unsecured Notes contain customary affirmative and negative covenants and specified events of default. These affirmative and negative covenants include, among other things, and subject to certain qualifications and exceptions, covenants that restrict the Company’s ability and the ability of its subsidiaries to: incur or guarantee additional indebtedness; create or permit liens on assets; pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; make certain investments and other restricted payments; engage in mergers, acquisitions, consolidations and amalgamations; transfer and sell certain assets; and engage in transactions with affiliates. The 2023 Revolving Credit Facility also contains specifieda financial maintenance covenants (consisting ofcovenant that requires the Company to maintain a securedfirst lien net leverage ratio and an interest coverage ratio).
During the nine months ended September 30, 2017, the Company completed several actions which included using the proceeds from divestitures and cash flows from operations to repay debt, amendingof not greater than 4.00:1.00. The financial maintenance covenants, extending a
significant portioncovenant may be waived or amended without the consent of the Revolving Credit Facility,term loan facility lenders and refinancing debt with nearcontains a customary term maturities. These actions, described below, have reduced the Company’s debt balance and positively affected the Company’s ability to comply with its financial maintenance covenants. loan facility standstill.
As of September 30, 2017,March 31, 2019, the Company was in compliance with allits financial maintenance covenantscovenant related to its outstanding debt.debt obligations. The Company, based on its current forecast for the next twelve months from the date of issuance of these financial statements, and the amendments executed, expects to remain in compliance with theseits financial maintenance covenantscovenant and meet its debt service obligations over that same period.
The Company continues to take steps to improve its operating results to ensure continual compliance with its financial maintenance covenantscovenant and may take other actions to reduce its debt levels to align with the Company’s long term strategy. The Company may consider taking other actions,strategy, including divesting other businesses, and refinancing debt and issuing equity or equity-linked securities as deemed appropriate, to provide additional coverage in complying with the financial maintenance covenants and meeting its debt service obligations.appropriate.
Senior Secured Credit Facilities
On February 13, 2012, the Company and certain of its subsidiaries as guarantors entered into the “Senior Secured Credit Facilities” under the Company’s Third Amended and Restated Credit and Guaranty Agreement, as amended (the “Third Amended Credit Agreement”) with a syndicate of financial institutions and investors, as lenders. As of January 1, 2016,2018, the Third Amended Credit Agreement, as amended, provided for: (i) a $1,500 million Revolving Credit Facility maturing on April 20, 2018 (the "2018 Revolving Credit Facility"), which included a sublimit for the issuance of standby and commercial letters of credit and a sublimit for swing line loans and (ii) a series$4,150 million of tranche B term loans maturing during the years 2016 through 2022.
Onon April 11, 2016, the Company entered into Amendment No. 12 and Waiver to the Credit Agreement (“Amendment No. 12”), which addressed the Company's delay in delivering its Annual Report for the year ended December 31, 2015 on Form 10-K1, 2022 (the “2015 Annual Report”). Amendment No. 12 extended the deadlines to deliver the Company’s 2015 Annual Report and its Quarterly Report for the period ended March 31, 2016 on Form 10-Q (such requirements, the “Financial Reporting Requirements”) and waived, among other things, any cross-default under the Credit Agreement to the Company’s other indebtedness as a result of the delays. These Financial Reporting Requirements were subsequently satisfied as extended. In addition to these waivers, Amendment No. 12 (i) modified certain financial maintenance covenants, (ii) amended certain financial definitions and (iii) imposed a number of restrictions on the Company and its subsidiaries’ ability to incur additional debt, make additional acquisitions, make investments, distribute capital and make other capital allocations until such time that the Financial Reporting Requirements were satisfied and the Company attains specific leverage ratios. Amendment No. 12 also increased each of the applicable interest rate margins under the Credit Agreement by 1.00% until delivery of the Company's financial statements for the quarter ending June 30, 2017. Thereafter, the interest rate applicable to the loans will be determined on the basis of a pricing grid tied to the Company's secured leverage ratio. Amendment No. 12 was accounted for as a debt modification, and as a result, payments to the lenders were recognized as additional debt discounts and were being amortized over the remaining term of each term loan.
On August 23, 2016, the Company entered into Amendment No. 13 to the Credit Agreement (“Amendment No. 13”) which (i) reduced the minimum interest coverage maintenance covenant under the Credit Agreement, (ii) permitted the issuance of secured notes with shorter maturities and the incurrence of other indebtedness, in each case to repay term loans under the Credit Agreement and (iii) provided additional flexibility to sell assets, provided the proceeds of such asset sales are used to prepay loans under the Credit Agreement. Amendment No. 13 also increased each of the applicable interest rate margins under the Credit Agreement by 0.50% until delivery of the Company’s financial statements for the quarter ending June 30, 2017. Thereafter, the interest rate applicable to the loans will be determined on the basis of a pricing grid tied to the Company's secured leverage ratio. Amendment No. 13 was accounted for as a debt modification, and as a result, payments to the lenders were recognized as additional debt discounts and were being amortized over the remaining term of each term loan.
On March 3, 2017, the Company used proceeds from the Skincare Sale to repay $1,086 million of outstanding debt under its Senior Secured Credit Facilities.
On March 21, 2017, the Company entered into Amendment No. 14 to the Credit Agreement (“Amendment No. 14”) which (i) provided additional financing from an incremental term loan under the Company's Series"Series F Tranche B Term Loan Facility").
On June 1, 2018, the Company entered into a Restatement Agreement in respect of a Fourth Amended and Restated Credit and Guaranty Agreement (the “Restated Credit Agreement”). The Restated Credit Agreement amended and restated in full the Third Amended Credit Agreement. The Restated Credit Agreement replaced the 2020 Revolving Credit Facility with a revolving credit facility of $3,060$1,225 million (the “Series F-3 Tranche B Term Loan”), (ii) amended the financial covenants contained in the"2023 Revolving Credit Agreement, (iii) increased the amortization rate forFacility") and replaced the Series F Tranche B Term Loan Facility from 0.25% per quarter (1% per annum) to 1.25% per quarter (5% per annum),principal amount outstanding of $3,315 million with quarterly payments starting March 31, 2017, (iv) amended certain financial definitions, including the definition of Consolidated Adjusted EBITDA, and (v) provided additional ability for the Company to, among other things, incur indebtedness and liens, consummate acquisitions and make other investments, including relaxing certain limitations imposed by prior amendments. The proceeds from the additional financing, combined with the proceeds from the issuance of the Senior Secured Notes described below and cash on hand, were used to (i) repay all outstanding
balances under the Company’s Series A-3 Tranche A Term Loan Facility, Series A-4 Tranche A Term Loan Facility, Series D-2a seven year Tranche B Term Loan Facility Series C-2 Tranche Bof $4,565 million (the “June 2025 Term Loan B Facility”) borrowed by the Company’s subsidiary, Bausch Health Americas, Inc. ("BHA") (formerly Valeant Pharmaceuticals International).
The 2023 Revolving Credit Facility matures on the earlier of June 1, 2023 and Series E-1 Tranche B Term Loanthe date that is 91 calendar days prior to the scheduled maturity of indebtedness for borrowed money of the Company or BHA in an aggregate principal amount in excess of $1,000 million. Both the Company and BHA are borrowers with respect to the 2023 Revolving Credit Facility. Borrowings under the 2023 Revolving Credit Facility (collectivelymay be made in U.S. dollars, Canadian dollars or euros.
On June 1, 2018, the “Refinanced Debt”Company issued an irrevocable notice of redemption for the remaining outstanding principal amounts of: (i) $691 million of 5.375% Senior Unsecured Notes due 2020 (the "March 2020 Unsecured Notes"), (ii) repurchase $1,100$578 million in principal amount of 6.75% Senior Unsecured Notes due August 2018 (the “August 20182021(the "August 2021 Unsecured Notes"), (iii) $550 million of 7.25% Senior Unsecured Notes due 2022 (the “July 2022 Unsecured Notes”), (iii) repay $350 and (iv) $146 million of amounts outstanding under6.375% Senior Unsecured Notes due 2020 (the “6.375% October 2020 Unsecured Notes” and together with the Company's Revolving CreditMarch 2020 Unsecured Notes, August 2021 Unsecured Notes and July 2022 Unsecured Notes the “June 2018 Unsecured Refinanced Debt”). On June 1, 2018, using the remaining net proceeds from the June 2025 Term Loan B Facility, the net proceeds from the issuance of $750 million in aggregate principal amount of 8.50% Senior Unsecured Notes due 2027 (the "January 2027 Unsecured Notes") by BHA and (iv) pay related fees and expenses (collectively,cash on hand, the “March 2017 Refinancing Transactions”).
Amendments toCompany prepaid the covenants made as part of Amendment No. 14 include: (i) removed the financial maintenance covenants with respect to theremaining Series F Tranche B Term Loan Facility (ii) reducedand redeemed the interest coverage ratio maintenance covenant to 1.50:1.00 with respect toJune 2018 Unsecured Refinanced Debt at its aggregate redemption price and the Revolvingindentures governing the June 2018 Unsecured Refinanced Debt were discharged (collectively, the “June 2018 Refinancing Transactions”).
The Restated Credit Facility beginning in the quarter ending March 31, 2017 through the quarter ending March 31, 2019 (stepping up to 1.75:1.00 thereafter) and (iii) increased the secured leverage ratio maintenance covenant to 3.00:1.00 with respect to the Revolving Credit Facility beginning in the quarter ending March 31, 2017 through the quarter ending March 31, 2019 (stepping down to 2.75:1.00 thereafter). These financial maintenance covenants apply only with respect to the Revolving Credit Facility and can be waived or amended without the consent of the term loan lenders under the Credit Agreement.
Modifications to Consolidated Adjusted EBITDA from Amendment No. 14 included, among other things: (i) modifications to permit the Company to add back extraordinary, unusual or non-recurring expenses or charges (including certain costs of, and payments of, litigation expenses, actual or prospective legal settlements, fines, judgments or orders, subject to a cap of $500 million in any twelve month period, of which no more than $250 million may pertain to any costs, payments, expenses, settlements, fines, judgments or orders, in each case, arising out of any actual or potential claim, investigation, litigation or other proceeding that the Company did not publicly disclose on or prior to the effectiveness of Amendment No. 14, and subject to other customary limitations), and (ii) modifications to allow the Company to add back expenses, charges or losses actually reimbursed or for which the Company reasonably expects to be reimbursed by third parties within 365 days, subject to customary limitations.
Amendment No. 14Agreement was accounted for as a modification of debt, to the extent the June 2018 Unsecured Refinanced Debt was replaced with the incremental Series F-3 Tranche B Term Loannewly issued debt to the same creditor, and as an extinguishment of debt toif: (i) the extent theJune 2018 Unsecured Refinanced Debt was replaced with Series F-3 Tranche B Term Loannewly issued debt to a different creditor. The Refinanced Debt replaced with the proceedscreditor, (ii) a portion of the newly issued senior secured notesunamortized deferred financing fees was allocated to debt that was paid down or (iii) the borrowing capacity declined when issuing a new revolving credit facility. The following was accounted for as an extinguishment of debt.debt: (i) the difference between the amounts paid to redeem the June 2018 Unsecured Refinanced Debt and the June 2018 Unsecured Refinanced Debt’s carrying value, (ii) the replacement of the Series F Tranche B Term Loan with the June 2025 Term Loan B Facility to the extent any unamortized deferred financing fees were associated with the portion of the Series F Tranche B Term Loan that was paid down and (iii) the replacement of the 2020 Revolving Credit Facility with the 2023 Revolving Credit Facility to the extent any unamortized deferred financing fees were associated with the decline in borrowing capacity. For amounts accounted for as an extinguishment of debt, the Company incurred a Lossloss on extinguishment of debt of $27$48 million. Payments made to the lenders and a portion of payments made to third parties of $74 million associated with the June 2018 Refinancing Transactions were capitalized and are being amortized as interest expense over the remaining terms of the debt, ranging from 2023 through 2027. Third-party expenses of $4 million associated with the modification of debt were expensed as incurred and included in Interest expense.
On November 27, 2018, the Company entered into the First Incremental Amendment to the Restated Credit Agreement, which provided an additional seven year Tranche B Term Loan Facility of $1,500 million (the "November 2025 Term Loan B Facility") and used the net proceeds, and cash on hand, to repay $1,483 million of 7.50% Senior Unsecured Notes due July 2021 (the “July 2021 Unsecured Notes”) in a tender offer (the "November 2018 Refinancing Transactions"). On December 27, 2018, the Company redeemed, using cash on hand, the remaining outstanding principal amount of $17 million of the July 2021 Unsecured Notes.
The repayment of the July 2021 Unsecured Notes was accounted for as an extinguishment of debt and the Company incurred a loss on extinguishment of debt of $43 million representing the difference between the amount paid to settle the extinguished debt and the extinguished debt’s carrying value (the stated principal amount net of unamortized discount and debt issuance costs).value. Payments made to the lenders and other third parties of $38$25 million associated with the issuance of the new Series F-3 TrancheNovember 2025 Term Loan B Term LoanFacility were capitalized and are being amortized as interest expense over the remaining term of the Series F Tranche BNovember 2025 Term Loan B Facility. Third party expenses
As of $3 million associated with the modification of debt were expensed as incurred and included in Interest expense.
On March 28, 2017,31, 2019, the Company entered into Amendment No. 15 to the Credit Agreement (“Amendment No. 15”) which provided for the extension of the maturity date of $1,190had no outstanding borrowings, $170 million of revolvingissued and outstanding letters of credit commitmentsand remaining availability of $1,055 million under the Revolving Credit Facility from April 20, 2018 to the earlier of (i) April 20, 2020 and (ii) the date that is 91 calendar days prior to the scheduled maturity of any series or tranche of term loans under the Credit Agreement, certain Senior Secured Notes or Senior Unsecured Notes and any other indebtedness for borrowed money in excess of $750 million. Unless otherwise terminated prior thereto, the remaining $310 million of revolving credit commitments under the Revolving Credit Facility will continue to mature on April 20, 2018. Amendment No. 15 was accounted for in part as a debt modification, whereby the fees paid to lenders agreeing to extend their commitment through April 20, 2020 and the fees paid to lenders providing additional commitments were recognized as additional debt issuance costs and are being amortized over the remaining term of theits 2023 Revolving Credit Facility. Amendment No. 15 was accounted for in part as an extinguishment of debtDuring April and May 2019, the Company incurred a Loss on extinguishmenthad drawn net borrowings of debt of $1$175 million representing the unamortized debt issuance costs associated with the commitments canceled by lenders in the amendment.
In April 2017, using the remaining proceeds from the Skincare Sale and the proceeds from the divestiture of a manufacturing facility in Brazil, the Company repaid $220 million of its Series F Tranche B Term Loan Facility. On July 3, 2017, using the net proceeds from the Dendreon Sale, the Company repaid $811 million of its Series F Tranche B Term Loan Facility. On September 29, 2017, using cash on hand, the Company repaid $100 million of amounts outstanding under its 2023 Revolving Credit Facility.
Current Description of Senior Secured Credit Facilities
Borrowings under the Senior Secured Credit Facilities in U.S. dollars bear interest at a rate per annum equal to, at the Company's option, from time to time, eithereither: (i) a base rate determined by reference to the higher ofof: (a) the prime rate (as defined in the Restated Credit Agreement) and, (b) the federal funds effective rate plus 1/2 of 1%1.00% or (c) the eurocurrency rate (as defined in the Restated Credit Agreement) for a period of one month plus 1.00% (or if such eurocurrency rate shall not be ascertainable, 1.00%) or (ii) a LIBOeurocurrency rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs (provided however, that the eurocurrency rate shall at no time be less than zero), in each case plus an applicable margin. These
Borrowings under the 2023 Revolving Credit Facility in euros bear interest at a eurocurrency rate determined by reference to the costs of funds for euro deposits for the interest period relevant to such borrowing (provided however, that the eurocurrency rate shall at no time be less than 0.00% per annum), plus an applicable margins aremargin.
Borrowings under the 2023 Revolving Credit Facility in Canadian dollars bear interest at a rate per annum equal to, at the Company's option, either: (i) a prime rate determined by reference to the higher of: (a) the rate of interest last quoted by The Wall Street Journal as the “Canadian Prime Rate” or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Bank of Canada as its prime rate and (b) the 1 month BA rate (as defined below) calculated daily plus 1.00% (provided however, that the prime rate shall at no time be less than 0.00%) or (ii) the bankers’ acceptance rate for Canadian dollar deposits in the Toronto interbank market (the “BA rate”) for the interest period relevant to such borrowing (provided however, that the BA rate shall at no time be less than 0.00% per annum), in each case plus an applicable margin.
Subject to certain exceptions and customary baskets set forth in the Restated Credit Agreement, the Company is required to make mandatory prepayments of the loans under the Senior Secured Credit Facilities under certain circumstances, including from: (i) 100% of the net cash proceeds of insurance and condemnation proceeds for property or asset losses (subject to reinvestment rights and net proceeds threshold), (ii) 100% of the net cash proceeds from the incurrence of debt (other than permitted debt as described in the Restated Credit Agreement), (iii) 50% of Excess Cash Flow (as defined in the Restated Credit Agreement) subject to increase or decrease quarterly based on the secured leverage ratio beginning with the quarter ended June 30, 2017. Based on its calculationratios and subject to a threshold amount and (iv) 100% of the Company’s secured leverage ratio, management does not anticipate any such increase or decreasenet cash proceeds from asset sales (subject to the currentreinvestment rights). These mandatory prepayments may be used to satisfy future amortization.
The applicable interest rate margins for the next applicable period.June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility are 2.00% and 1.75%, respectively, with respect to base rate and prime rate borrowings and 3.00% and 2.75%, respectively, with respect to eurocurrency rate and BA rate borrowings. As of March 31, 2019, the stated rates of interest on the Company’s borrowings under the June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility were 5.48% and 5.23% per annum, respectively.
The amortization rate for both the June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility is 5.00% per annum. The Company may direct that prepayments be applied to such amortization payments in order of maturity. As of March 31, 2019, the remaining mandatory quarterly amortization payments for the Senior Secured Credit Facilities were $1,630 million through November 1, 2025.
The applicable interest rate margins for borrowings under the 2023 Revolving Credit Facility are 2.75%1.50%-2.00% with respect to base rate or prime rate borrowings and 3.75%2.50%-3.00% with respect to LIBOeurocurrency rate or BA rate borrowings. As of September 30, 2017,March 31, 2019, the stated rate of interest on the 2023 Revolving Credit Facility was 4.99%5.48% per annum. In addition, the Company is required to pay commitment fees of 0.50%0.25%-0.50% per annum inwith respect to the unutilized commitments not utilized,under the 2023 Revolving Credit Facility, payable quarterly in arrears. The Company also is required to pay: (i) letter of credit fees on the
maximum amount available to be drawn under all outstanding letters of credit in an amount equal to the applicable margin on LIBOeurocurrency rate borrowings under the 2023 Revolving Credit Facility on a per annum basis, payable quarterly in arrears, (ii) customary fronting fees for the issuance of letters of credit and (iii) agency fees.
The applicable interest rate margins forRestated Credit Agreement permits the Series F Tranche B Term Loan Facility are 3.75% with respectincurrence of incremental credit facility borrowings up to base rate borrowingsthe greater of $1,000 million and 4.75% with respect28.5% of Consolidated Adjusted EBITDA (as defined in the Restated Credit Agreement), subject to LIBO ratecustomary terms and conditions, as well as the incurrence of additional incremental credit facility borrowings subject to a 0.75% LIBO rate floor. Assecured leverage ratio of September 30, 2017, the stated rate of interest on the Company’s borrowings under the Series F Tranche B Term Loan Facility was 5.99% per annum.not greater than 3.50:1.00.
Senior Secured Notes
March 2017 Refinancing Transactions
As part of the March 2017 Refinancing Transactions, the Company issued $1,250 million aggregate principal amount of 6.50% senior secured notes due March 15, 2022 (the “March 2022 Senior Secured Notes”) and $2,000 million aggregate principal amount of 7.00% senior secured notes due March 15, 2024 (the “March 2024 Senior Secured Notes”), in a private placement, the proceeds of which, when combined with the proceeds from the Series F-3 Tranche B Term Loan and cash on hand, were used to (i) repay the Refinanced Debt, (ii) repurchase $1,100 million in principal amount of August 2018 Senior Unsecured Notes, (iii) repay $350 million of amounts outstanding under the Company's Revolving Credit Facility and (iv) pay related fees and expenses. Interest on these notes is payable semi-annually in arrears on each March 15 and September 15.
The Senior Secured Notes are guaranteed by each of the Company’s subsidiaries that is a guarantor under the Restated Credit Agreement and existing Senior Unsecured Notes (together, the “Note Guarantors”). The Senior Secured Notes and the guarantees related thereto are senior obligations and are secured, subject to permitted liens and certain other exceptions, by the same first priority liens that secure the Company’s obligations under the Restated Credit Agreement under the terms of the indentureindentures governing the Senior Secured Notes.
The Senior Secured Notes and the guarantees rank equally in right of paymentrepayment with all of the Company’s and Note Guarantors’ respective existing and future unsubordinated indebtedness and senior to the Company’s and Note Guarantors’ respective future subordinated indebtedness. The Senior Secured Notes and the guarantees related thereto are effectively pari passu with the Company’s and the Note Guarantors’ respective existing and future indebtedness secured by a first priority lien on the collateral securing the Senior Secured Notes and effectively senior to the Company’s and the Note Guarantors’ respective existing and future indebtedness that is unsecured, including the existing Senior Unsecured Notes, or that is secured by junior liens, in each case to the extent of the value of the collateral. In addition, the Senior Secured Notes are structurally subordinated toto: (i) all liabilities of any of the Company’s subsidiaries that do not guarantee the Senior Secured Notes and (ii) any of the Company’s debt that is secured by assets that are not collateral.
The March 2022 Senior Secured Notes are redeemable at the option of the Company, in whole or in part, at any time on or after March 15, 2019, at the redemption prices set forth in the indenture. The Company may redeem some or all of the March 2022 Senior Secured Notes prior to March 15, 2019 at a price equal to 100% of the principal amount thereof plus a “make-whole” premium. Prior to March 15, 2019, the Company may redeem up to 40% of the aggregate principal amount of the March 2022 Senior Secured Notes using the proceeds of certain equity offerings at the redemption price set forth in the indenture.
The March 2024 Senior Secured Notes are redeemable at the option of the Company, in whole or in part, at any time on or after March 15, 2020, at the redemption prices set forth in the indenture. The Company may redeem some or all of the March
2024 Senior Secured Notes prior to March 15, 2020 at a price equal to 100% of the principal amount thereof plus a “make-whole” premium. Prior to March 15, 2020, the Company may redeem up to 40% of the aggregate principal amount of the March 2024 Senior Secured Notes using the proceeds of certain equity offerings at the redemption price set forth in the indenture.
Upon the occurrence of a change in control (as defined in the indentures governing the Senior Secured Notes), unless the Company has exercised its right to redeem all of the notes of a series, as described above, holders of the Senior Secured Notes may require the Company to repurchase such holder’s notes, in whole or in part, at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest.
5.75% Senior Secured Notes due 2027 - March 2019 Refinancing Transactions
On March 8, 2019 BHA and the Company issued: (i) $1,000 million aggregate principal amount of January 2027 Unsecured Notes and (ii) $500 million aggregate principal amount of 5.75% Senior Secured Notes due August 2027 (the "August 2027 Secured Notes"), respectively, in a private placement, a portion of the net proceeds of which, and cash on hand, were used to: (i) repurchase $584 million of 5.875% Senior Unsecured Notes due 2023 (the "May 2023 Unsecured Notes"), (ii) repurchase $518 million of 5.625% Senior Unsecured Notes due 2021 (the “December 2021 Unsecured Notes”), (iii) repurchase $216 million of 5.50% Senior Unsecured Notes due 2023 (the "March 2023 Unsecured Notes”) and (iv) pay all fees and expenses associated with these transactions (collectively, the “March 2019 Refinancing Transactions”). During April 2019, the Company redeemed $182 million of the December 2021 Unsecured Notes, representing the remaining outstanding principal balance of the December 2021 Unsecured Notes and completing the refinancing of $1,500 million of debt in connection with the March 2019 Refinancing Transactions. The March 2019 Refinancing Transactions were accounted for as an extinguishment of debt and the Company incurred a loss on extinguishment of debt of $7 million representing the difference between the amount paid to settle the extinguished debt and the extinguished debt’s carrying value. Interest on the August 2027 Secured Notes is payable semi-annually in arrears on each February 15 and August 15.
The August 2027 Secured Notes are redeemable at the option of the Company, in whole or in part, at any time on or after August 15, 2022, at the redemption prices set forth in the indenture. The Company may redeem some or all of the August 2027 Secured Notes prior to August 15, 2022 at a price equal to 100% of the principal amount thereof plus a “make-whole” premium. Prior to August 15, 2022, the Company may redeem up to 40% of the aggregate principal amount of the August 2027 Secured Notes using the proceeds of certain equity offerings at the redemption price set forth in the indenture.
Senior Unsecured Notes
The Senior Unsecured Notes issued by the Company are the Company’s senior unsecured obligations and are jointly and severally guaranteed on a senior unsecured basis by each of its subsidiaries that is a guarantor under the Senior Secured Credit
Facilities. The Senior Unsecured Notes issued by the Company’s subsidiary ValeantBHA are senior unsecured obligations of ValeantBHA and are jointly and severally guaranteed on a senior unsecured basis by the Company and each of its subsidiaries (other than Valeant)BHA) that is a guarantor under the Senior Secured Credit Facilities. Future subsidiaries of the Company and Valeant,BHA, if any, may be required to guarantee the Senior Unsecured Notes.
If the Company experiences a change in control, the Company may be required to make an offer to repurchase each series of Senior Unsecured Notes, in whole or in part, at a purchase price equal to 101% of the aggregate principal amount of the Senior Unsecured Notes repurchased, plus accrued and unpaid interest.
As part of the9.25% Senior Unsecured Notes due 2026 - March 20172018 Refinancing Transactions the Company completed a tender offer to repurchase $1,100
On March 26, 2018, BHA issued $1,500 million in aggregate principal amount of the August 20189.25% Senior Unsecured Notes due 2026 (the “April 2026 Unsecured Notes”) in a private placement, the net proceeds of which, and cash on hand, were used to repurchase $1,500 million in aggregate principal amount of unsecured notes, which consisted of: (i) $1,017 million in principal amount of the March 2020 Unsecured Notes, (ii) $411 million in principal amount of the 6.375% October 2020 Unsecured Notes and (iii) $72 million in principal amount of the August 2021 Unsecured Notes. All fees and expenses associated with these transactions were paid with cash on hand (collectively, the “March 2018 Refinancing Transactions”). The March 2018 Refinancing Transactions were accounted for total considerationas an extinguishment of approximately $1,132 million plus accrueddebt and unpaid interest through March 20, 2017. Lossthe Company incurred a loss on extinguishment of debt during the three months ended March 31, 2017 associated with the repurchase of the August 2018 Senior Unsecured Notes was $36$26 million representing the difference between the amount paid to settle the extinguished debt and the extinguished debt’s carrying value. The April 2026 Unsecured Notes accrue interest at the rate of 9.25% per year, payable semi-annually in arrears on each of April 1 and October 1.
On August 15, 2017, the Company repurchased the remaining $500 million of outstanding August 20188.50% Senior Unsecured Notes usingdue 2027 - June 2018 Refinancing Transactions and March 2019 Refinancing Transactions
As part of the June 2018 Refinancing Transactions, BHA issued $750 million in aggregate principal amount of January 2027 Unsecured Notes in a private placement, the proceeds of which, when combined with the remaining net proceeds from the June 2025 Term Loan B Facility and cash on hand, plus accruedwere deposited with The Bank of New York Mellon Trust Company, N.A., as trustee under the indentures governing the June 2018 Unsecured Refinanced Debt, to redeem the June 2018 Unsecured Refinanced Debt at its aggregate redemption price and unpaid interest. Lossthe indentures governing the June 2018 Unsecured Refinanced Debt were discharged. The January 2027 Unsecured Notes accrue interest at the rate of 8.50% per year, payable semi-annually in arrears on extinguishmenteach of debt during the three months ended September 30, 2017 associated with the repurchaseJanuary 31 and July 31.
As part of the August 2018March 2019 Refinancing Transactions described above, BHA issued $1,000 million aggregate principal amount of 8.50% Senior Unsecured Notes was $1 million representingdue January 2027. These are additional notes and form part of the difference between the amount paid to settle the debt and the debt’s carrying value.same series as BHA’s existing January 2027 Unsecured Notes.
Weighted Average Stated Rate of Interest
The weighted average stated rate of interest for the Company's outstanding debt obligations as of September 30, 2017March 31, 2019 and December 31, 20162018 was 6.09%6.38% and 5.75%6.23%, respectively.
Maturities and Mandatory Payments
Maturities and mandatory amortization payments of debt obligations for the period OctoberApril through December 2017,2019, the five succeeding years ending December 31 and thereafter are as follows:
|
| | | |
| (in millions) | |
| October through December 2017 | $ | 923 |
|
| 2018 | 2 |
|
| 2019 | — |
|
| 2020 | 5,365 |
|
| 2021 | 3,175 |
|
| 2022 | 6,677 |
|
| Thereafter | 11,284 |
|
| Total gross maturities | 27,426 |
|
| Unamortized discounts | (285 | ) |
| Total long-term debt | $ | 27,141 |
|
|
| | | |
| (in millions) | |
| April through December 2019 | $ | 182 |
|
| 2020 | 303 |
|
| 2021 | 303 |
|
| 2022 | 1,553 |
|
| 2023 | 5,436 |
|
| 2024 | 2,303 |
|
| Thereafter | 14,394 |
|
| Total debt obligations | 24,474 |
|
| Unamortized premiums, discounts and issuance costs | (293 | ) |
| Total long-term debt and other | $ | 24,181 |
|
During April and May 2019, the nine months ended September 30, 2017, the Company made aggregate repayments of long-term debt of $9,249 million, which consisted ofCompany: (i) $7,199redeemed $182 million of repaymentsthe December 2021 Unsecured Notes, representing the remaining outstanding principal balance of term loans under its Senior Secured Credit Facilities, (ii) $1,600 million of repurchased August 2018 Seniorthe December 2021 Unsecured Notes and (iii) $450completing the refinancing of $1,500 million of debt in connection with the March 2019 Refinancing Transactions and (ii) had drawn net borrowings of $175 million under its 2023 Revolving Credit Facility amounts outstanding. During the nine months ended September 30, 2017, the Company incurred $6,310 million of long-term debt, consisting of $3,060 million of Series F-3 Tranche B Term Loan and $3,250 million of Senior Secured Notes.
On October 5, 2017, using the net proceeds from the iNova Sale, the Company repaid $923 million of its Series F Tranche B Term Loan Facility. This repayment satisfied the $923 million due during the period October through December 2017 in the table above. On October 17, 2017, the Company issued $1,000 million aggregate principal amount of 5.50% senior secured notes due November 1, 2025 (the “5.50% 2025 Notes”), in a private placement, the proceeds of which were used to (i) repurchase $569 million in principal amount of 6.375% senior notes due 2020 (the “6.375% 2020 Notes”) and (ii) repurchase $431 million in principal amount of 7.00% senior notes due 2020 (the “7.00% 2020 Notes”) (collectively the “2020 Notes”). The related fees and expenses were paid using cash on hand. The repayments of the 2020 Notes and issuance of the 5.50% 2025 NotesThese transactions are not reflected in the table above. On November 2, 2017, using cash on hand, the Company repaid $125 million of its Series F Tranche B Term Loan Facility, satisfying an equivalent amount due in the year 2022 reflected in the table above. See Note 20, "SUBSEQUENT EVENTS" for additional details regarding the private placement of the 5.50% 2025 Notes and repurchase of the 2020 Notes.
| |
| 11. | PENSION AND POSTRETIREMENT EMPLOYEE BENEFIT PLANS |
The Company sponsors defined benefit plans and a participatory defined benefit postretirement medical and life insurance plan, which covers certain U.S. employees and employees in certain other countries. The following table provides the components of netNet periodic (benefit) cost for the Company’s defined benefit pension plans and postretirement benefit plan for the three and nine months ended September 30, 2017March 31, 2019 and 2016:2018 consists of:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefit Plans | | Postretirement Benefit Plan |
| | U.S. Plan | | Non-U.S. Plans | |
| | | Three Months Ended September 30, |
| (in millions) | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Service cost | | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
|
| Interest cost | | 2 |
| | 2 |
| | 1 |
| | 1 |
| | 1 |
| | — |
|
| Expected return on plan assets | | (4 | ) | | (3 | ) | | (2 | ) | | (2 | ) | | — |
| | — |
|
| Amortization of prior service credit | | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) |
| Amortization of net loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net periodic (benefit) cost | | $ | (1 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
|
| | | | | | | | | | | | | |
| | | Pension Benefit Plans | | Postretirement Benefit Plan |
| | U.S. Plan | | Non-U.S. Plans | |
| | | Nine Months Ended September 30, |
| (in millions) | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Service cost | | $ | 2 |
| | $ | 2 |
| | $ | 2 |
| | $ | 2 |
| | $ | — |
| | $ | 1 |
|
| Interest cost | | 6 |
| | 6 |
| | 3 |
| | 4 |
| | 2 |
| | 1 |
|
| Expected return on plan assets | | (10 | ) | | (10 | ) | | (4 | ) | | (5 | ) | | — |
| | — |
|
| Amortization of prior service credit | | — |
| | — |
| | (1 | ) | | — |
| | (2 | ) | | (2 | ) |
| Amortization of net loss | | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
|
| Net periodic (benefit) cost | | $ | (2 | ) | | $ | (2 | ) | | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
During the nine months ended September 30, 2017, the Company contributed $5 million, $5 million, and $2 million to the U.S. pension benefit plans, the non-U.S. pension benefit plans, and the postretirement benefit plan, respectively. The Company expects to contribute $5 million, $6 million, and $6 million in 2017 to the U.S. pension benefit plans, the non-U.S. pension benefit plans, and the postretirement benefit plan, respectively, inclusive of amounts contributed during the nine months ended September 30, 2017. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefit Plans | | Postretirement
Benefit
Plan |
| | U.S. Plan | | Non-U.S. Plans | |
| | | Three Months Ended March 31, |
| (in millions) | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| Service cost | | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
| Interest cost | | 2 |
| | 2 |
| | 1 |
| | 1 |
| | — |
| | — |
|
| Expected return on plan assets | | (3 | ) | | (4 | ) | | (1 | ) | | (1 | ) | | — |
| | — |
|
| Net periodic (benefit) cost | | $ | (1 | ) | | $ | (2 | ) | | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
The Company leases certain facilities, vehicles and equipment principally under multi-year agreements generally having a lease term of one to twenty years, some of which include termination options and options to extend the lease term from one to five years or on a month-to-month basis. The Company includes options that are reasonably certain to be exercised as part of the lease term. The Company may negotiate termination clauses in anticipation of changes in market conditions but generally, these termination options are not exercised. Certain lease agreements also include variable payments that are dependent on usage or may vary month-to-month such as insurance, taxes and maintenance costs. None of the Company's lease agreements contain material residual value guarantees or material restrictive covenants.
As discussed in Note 2, "SIGNIFICANT ACCOUNTING POLICIES" under the new standard for accounting for leases, which the Company adopted effective January 1, 2019, the Company is required to record a right-of-use asset and corresponding lease liability, equal to the present value of the lease payments at the commencement date of each lease. For all asset classes, in determining future lease payments, the Company has elected to aggregate lease components, such as payments for rent,
taxes and insurance costs with non-lease components such as maintenance costs, and account for these payments as a single lease component. In limited circumstances, when the information necessary to determine the rate implicit in a lease is available, the present value of the lease payments is determined using the rate implicit in that lease. If the information necessary to determine the rate implicit in a lease is not available, the Company uses its incremental borrowing rate at the commencement of the lease, which represents the rate of interest that the Company would incur to borrow on a collateralized basis over a similar term.
All leases must be classified as either an operating lease or finance lease. The classification is determined based on whether substantive control has been transferred to the lessee. The classification governs the pattern of lease expense recognition. For leases classified as operating leases, total lease expense over the term of the lease is equal to the undiscounted payments due in accordance with the lease arrangement. Fixed lease expense is recognized periodically on a straight-line basis over the term of each lease and includes: (i) imputed interest during the period on the lease liability determined using the effective interest rate method plus (ii) amortization of the right-of-use asset for that period. Amortization of the right-of-use asset during the period is calculated as the difference between the straight-line expense and the imputed interest on the lease liability for that period. Variable lease expense is recognized when the achievement of the specific target is considered probable. As of March 31, 2019, the Company's finance leases were not material.
Right-of-use assets and lease liabilities associated with the Company's operating leases are included in the Consolidated Balance Sheet as of March 31, 2019 as follows:
|
| | | |
| (in millions) | |
| Right-of-use assets included in: | |
| Other non-current assets | $ | 274 |
|
| Lease liabilities included in: | |
| Accrued and other current liabilities | $ | 55 |
|
| Other non-current liabilities | 238 |
|
| Total lease liabilities | $ | 293 |
|
Short-term lease costs and sub-lease income for the three months ended March 31, 2019 were not material. Lease expense for the three months ended March 31, 2019 includes:
|
| | | |
| (in millions) | |
| Operating lease costs | $ | 16 |
|
| Variable operating lease costs | $ | 4 |
|
Other information related to operating leases for the three months ended March 31, 2019 are as follows:
|
| | | |
| (dollars in millions) | |
| Cash paid from operating cash flows for amounts included in the measurement of lease liabilities | $ | 20 |
|
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 7 |
|
| Weighted-average remaining lease term | 8.6 years |
|
| Weighted-average discount rate | 6.2 | % |
Right-of-use assets obtained in exchange for new operating lease liabilities during the three months ended March 31, 2019 of $7 million in the table above, does not include $282 million of right-of-use assets recognized upon adoption of the new standard for accounting for leases on January 1, 2019. See Note 2, "SIGNIFICANT ACCOUNTING POLICIES" for further detail regarding the impact of adoption.
As of March 31, 2019, future payments under noncancelable operating leases for the remainder of 2019, each of the five succeeding years ending December 31 and thereafter are as follows:
|
| | | |
| (in millions) | |
| Remainder of 2019 | $ | 54 |
|
| 2020 | 57 |
|
| 2021 | 42 |
|
| 2022 | 36 |
|
| 2023 | 32 |
|
| 2024 | 27 |
|
| Thereafter | 138 |
|
| Total | 386 |
|
| Less: Imputed interest | 93 |
|
| Present value of remaining lease payments | 293 |
|
| Less: Current portion | 55 |
|
| Non-current portion | $ | 238 |
|
Upon adopting the new lease guidance, the Company elected the modified retrospective approach without revising prior periods. Accordingly, the Company is providing the following table of future payments under noncancelable operating leases as of December 31, 2018, for each of the five succeeding years ending December 31 and thereafter as previously disclosed under prior accounting guidance:
|
| | | |
| (in millions) | |
| 2019 | $ | 78 |
|
| 2020 | 60 |
|
| 2021 | 44 |
|
| 2022 | 39 |
|
| 2023 | 32 |
|
| Thereafter | 166 |
|
| Total | $ | 419 |
|
| |
| 13. | SHARE-BASED COMPENSATION |
In May 2014, the shareholders approved the Company’s 2014 Omnibus Incentive Plan (the “2014 Plan”) which replaced the Company’s 2011 Omnibus Incentive Plan (the “2011 Plan”) for future equity awards granted by the Company. The Company transferred the common shares available under the 2011 Plan to the 2014 Plan. The maximum number of common shares that may be issued to participants under the 2014 Plan is equal to 18,000,000 common shares, plus the number of common shares under the 2011 Plan reserved but unissued and not underlying outstanding awards and the number of common shares becoming available for reuse after awards are terminated, forfeited, cancelled, exchanged or surrendered under the 2011 Plan and the Company’s 2007 Equity Compensation Plan. The Company registered in the aggregate, 20,000,000 common shares of common stock for issuance under the 2014 Plan.
Effective April 30, 2018, the Company amended and restated the 2014 Plan (the “Amended and Restated 2014 Plan”). The Amended and Restated 2014 Plan includes the following amendments: (i) the number of common shares authorized for issuance under the Amended and Restated 2014 Plan has been increased by an additional 11,900,000 common shares, as approved by the requisite number of shareholders at the Company’s annual general meeting held on April 30, 2018, (ii) introduction of a $750,000 aggregate fair market value limit on awards (in either equity, cash or other compensation) that can be granted in any calendar year to a participant who is a non-employee director, (iii) housekeeping changes to address recent changes to Section 162(m) of the Internal Revenue Code, (iv) awards are expressly subject to the Company’s clawback policy and (v) awards not assumed or substituted in connection with a Change of Control (as defined in the Amended and Restated 2014 Plan) will only vest on a pro rata basis.
Approximately 7,205,0009,691,000 common shares were available for future grants as of September 30, 2017.March 31, 2019. The Company uses reserved and unissued common shares to satisfy its obligations under its share-based compensation plans.
During the three months ended March 31, 2017, the Company introduced a new long-term incentive program with the objective to re-align the share-based awards granted to senior management with the Company’s focus on improving its tangible capital usage and allocation while maintaining focus on improving total shareholder return over the long-term. The share-based awards granted under this long-term incentive program consist of time-based stock options, time-based restricted share units (“RSUs”) and performance-based RSUs. Performance-based RSUs are comprised of awards that vest upon achievement of certain share price appreciation conditions that are based on total shareholder return (“TSR”) and awards that vest upon attainment of certain performance targets that are based on the Company’s return on tangible capital (“ROTC”).
The fair value of the ROTC performance-based RSUs is estimated based on the trading price of the Company’s common shares on the date of grant. Expense recognized for the ROTC performance-based RSUs in each reporting period reflects the Company’s latest estimate of the number of ROTC performance-based RSUs that are expected to vest. If the ROTC performance-based RSUs do not ultimately vest due to the ROTC targets not being met, no compensation expense is recognized and any previously recognized compensation expense is reversed.
The accounting policy with respect to time-based stock options, time-based RSUs and TSR performance-based RSUs is described in the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
The following table summarizes the components and classification of share-based compensation expense related to stock options and RSUs for the three and nine months ended September 30, 2017March 31, 2019 and 2016:2018:
| | | | Three Months Ended
September 30, |
| Nine Months Ended
September 30, | Three Months Ended
March 31, |
| (in millions) | 2017 |
| 2016 |
| 2017 |
| 2016 | 2019 |
| 2018 |
| Stock options | $ | 4 |
| | $ | 4 |
| | $ | 14 |
| | $ | 11 |
| $ | 6 |
| | $ | 5 |
|
| RSUs | 15 |
| | 33 |
| | 56 |
| | 123 |
| 18 |
| | 16 |
|
| | $ | 19 |
| | $ | 37 |
| | $ | 70 |
| | $ | 134 |
| $ | 24 |
| | $ | 21 |
|
| | | | | | | | | | | |
| Research and development expenses | $ | 2 |
| | $ | 2 |
| | $ | 6 |
| | $ | 5 |
| $ | 2 |
| | $ | 2 |
|
| Selling, general and administrative expenses | 17 |
| | 35 |
| | 64 |
| | 129 |
| 22 |
| | 19 |
|
| | $ | 19 |
| | $ | 37 |
| | $ | 70 |
| | $ | 134 |
| $ | 24 |
| | $ | 21 |
|
During the ninethree months ended September 30, 2017March 31, 2019 and 2016,2018, the Company granted approximately 1,545,0001,684,000 stock options with a weighted-average exercise price of $14.28$23.16 per option and approximately 2,414,0002,065,000 stock options with a weighted-average exercise price of $26.04$15.32 per option, respectively. The weighted-average fair values of all stock options granted to employees during the ninethree months ended September 30, 2017March 31, 2019 and 20162018 were $5.97$8.47 and $14.76,$7.82, respectively.
During the ninethree months ended September 30, 2017March 31, 2019 and 2016,2018, the Company granted approximately 3,557,0002,401,000 time-based RSUs with a weighted-average grant date fair value of $11.78$24.05 per RSU and approximately 1,675,0002,449,000 time-based RSUs with a weighted-average grant date fair value of $30.94$16.75 per RSU, respectively.
During the ninethree months ended September 30, 2017,March 31, 2019 and 2018, the Company granted approximately 416,000959,000and 877,000 performance-based RSUs, consisting of approximately 208,000454,000 and 469,000 units of TSR performance-based RSUs with an average grant date fair value of $16.34$34.53 and $29.35 per RSU and approximately 208,000505,000 and 408,000 units of ROTC performance-based RSUs with a weighted-average grant date fair value of $15.76$25.03 and $18.80 per RSU. DuringRSU, respectively.
The granted stock options, time-based RSUs and performance-based RSUs includes long-term incentive awards granted to the nineCompany’s Chief Executive Officer ("CEO") during the three months ended September 30,March 31, 2018, which had an aggregate value of $10 million. In connection with his award, approximately 933,000 performance-based RSUs received by the CEO upon his hire in 2016 were cancelled, and the shares underlying those performance-based RSUs were permanently retired and are not available for future grants under the Amended and Restated 2014 Plan. The CEO's long-term incentive award was accounted for as an award modification whereby the Company granted approximately 1,401,000 performance-based RSUscontinues to recognize the unamortized compensation associated with a weighted-average grant datethe original award plus the incremental fair value of $37.33 per RSU.
In March 2016, the Company announced that its Board of Directors had initiated a search to identify a candidate for a new CEO to succeed the Company's then current CEO, who would continue to serve in that role until his replacement was appointed. On May 2, 2016, the Company's new CEO assumed the role, succeeding the Company's former CEO. Pursuant to the terms of his employment agreement dated January 2015, the former CEO was entitled to certain share-based awards and payments upon termination. Under his January 2015 employment agreement, the former CEO received performance-based RSUs that vest when certain market conditions (namely total shareholder return) are metaward measured at the defined dates, provided continuing employment through those dates. Underdate of grant, over the termination provisions of his employment agreement, upon terminationvesting period of the former CEO, the defined dates for meeting the market conditions of the performance-based RSUs were eliminated and, as a result, vesting was based solely on the attainment of the applicable level of total shareholder return through the date of
termination and the resulting number of common shares, if any, to be awarded to the former CEO was determined on a pro-rata basis for service provided under the original performance period, with credit given for an additional year of service. As the total shareholder return at the time of the former CEO’s termination did not meet the performance threshold, no common shares were issued and no value was ultimately received by the former CEO pursuant to this performance-based RSUnew award. However, an incremental share-based compensation expense of $28 million was recognized during the six months ended June 30, 2016, which represents the additional year of service credit consistent with the grant date fair value calculated using a Monte Carlo Simulation Model in the first quarter of 2015, notwithstanding the fact that no value was ultimately received by the former CEO. In addition to the acceleration of his performance-based RSUs, the former CEO was also entitled to a cash severance payment of $9 million and a pro-rata annual cash bonus of approximately $2 million pursuant to his employment agreement. The cash severance payments, the pro-rata cash bonus and the associated payroll taxes were also recognized as expense in the first quarter of 2016.
As of September 30, 2017,March 31, 2019, the remaining unrecognized compensation expense related to all outstanding non-vested stock options, time-based RSUs and performance-based RSUs amounted to $129$162 million, which will be amortized over a weighted-average period of 2.112.28 years.
| |
13.14. | ACCUMULATED OTHER COMPREHENSIVE LOSS |
The components of accumulatedAccumulated other comprehensive loss were as follows:consists of:
| | | (in millions) | | September 30,
2017 | | December 31,
2016 | | March 31,
2019 | | December 31,
2018 |
| Foreign currency translation adjustments | | $ | (1,850 | ) | | $ | (2,074 | ) | | $ | (2,090 | ) | | $ | (2,111 | ) |
| Pension and postretirement benefit plan adjustments, net of tax | | (38 | ) | | (34 | ) | | (26 | ) | | (26 | ) |
| | | $ | (1,888 | ) | | $ | (2,108 | ) | | $ | (2,116 | ) | | $ | (2,137 | ) |
Income taxes are not provided for foreign currency translation adjustments arising on the translation of the Company’s operations having a functional currency other than the U.S. dollar, except to the extent of translation adjustments related to the Company’s retained earnings for foreign jurisdictions in which the Company is not considered to be permanently reinvested.
| |
14.15. | RESEARCH AND DEVELOPMENT |
Included in Research and development are costs related to product development and quality assurance programs. Quality assurance are the costs incurred to meet evolving customer and regulatory standards. Research and development costs are as follows:consist of:
| | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
March 31, |
| (in millions) | | 2017 | | 2016 | | 2017 | | 2016 | | 2019 | | 2018 |
| Product related research and development | | $ | 73 |
| | $ | 91 |
| | $ | 245 |
| | $ | 301 |
| | $ | 107 |
| | $ | 83 |
|
| Quality assurance | | 8 |
| | 10 |
| | 26 |
| | 27 |
| | 10 |
| | 9 |
|
| | | $ | 81 |
| | $ | 101 |
| | $ | 271 |
| | $ | 328 |
| | $ | 117 |
| | $ | 92 |
|
| |
15.16. | OTHER (INCOME) EXPENSE, NET |
Other (income) expense, net for the three and nine months ended September 30, 2017 and 2016 were as follows:consists of:
|
| | | | | | | | | | | | | | | | |
|
| Three Months Ended
September 30, |
| Nine Months Ended
September 30, |
| (in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| Gain on the iNova Sale (Note 4) | | $ | (306 | ) | | $ | — |
| | $ | (306 | ) | | $ | — |
|
| Gain on the Skincare Sale (Note 4) |
| 3 |
|
| — |
|
| (316 | ) |
| — |
|
| Gain on the Dendreon Sale (Note 4) |
| (25 | ) |
| — |
|
| (98 | ) |
| — |
|
| Net loss (gain) on other sales of assets |
| — |
|
| — |
|
| 25 |
|
| (9 | ) |
| Deconsolidation of Philidor |
| — |
|
| — |
|
| — |
|
| 19 |
|
| Litigation and other matters |
| 3 |
|
| 1 |
|
| 112 |
|
| (32 | ) |
| Other, net |
| — |
|
| — |
|
| (1 | ) |
| 2 |
|
| |
| $ | (325 | ) |
| $ | 1 |
|
| $ | (584 | ) |
| $ | (20 | ) |
During the three months ended September 30, 2017, the initially reported Gain on the Dendreon Sale was increased by $25 million to reflect working capital adjustments to the initial sales price during the three months ended September 30, 2017. See Note 4, "DIVESTITURES" for details related to the Gain on the Dendreon Sale.
Litigation and other matters includes amounts provided for certain matters discussed in Note 18, "LEGAL PROCEEDINGS". During the nine months ended September 30, 2016, included in Litigation and other matters is a favorable adjustment of $39 million for the settlement related to the investigation into Salix's pre-acquisition sales and promotional practices for the Xifaxan®, Relistor® and Apriso® products during the three months ended June 30, 2016. |
| | | | | | | | |
|
| Three Months Ended
March 31, |
| (in millions) |
| 2019 |
| 2018 |
| Net gain on sale of assets | | $ | (10 | ) | | $ | — |
|
| Acquisition-related costs | | 8 |
| | — |
|
| Litigation and other matters |
| 2 |
|
| 11 |
|
| Other, net |
| (4 | ) |
| — |
|
| |
| $ | (4 | ) |
| $ | 11 |
|
For interim financial statement purposes, U.S. GAAP income tax expense/benefit related to ordinary income is determined by applying an estimated annual effective income tax rate against a company's ordinary income, subject to certain limitations on the Company's ordinary income.benefit of losses. Income tax expense/benefit related to items not characterized as ordinary income is recognized as a discrete item when incurred. The estimation of the Company's annual effective income tax rateprovision requires the use of management forecasts and other estimates, a projection of jurisdictional taxable income and losses, application of statutory income tax rates, and an evaluation of valuation allowances. The Company's estimated annual effective income tax rate may be revised, if necessary, in each interim period during the year.period.
To facilitate divestitures, streamline operations, simplify its legal entity structure, and due to a decrease in its market value, duringBenefit from income taxes for the three months ended DecemberMarch 31, 2016, the Company began a series2019 was $74 million and included: (i) $51 million of internal restructuring transactions that were completed during the three months ended September 30, 2017 and resulted in a totalnet income tax benefit of $1,397 million and $2,626 million for the three months and nine months ended September 30, 2017, respectively.
Recovery of income taxes during the three months ended September 30, 2017 was $1,700 million and primarily included: (i) $1,397discrete items, which includes: (a) $32 million of tax benefit recognized upon a ruling from internal restructuring efforts,the Polish tax authorities confirming the deductibility of royalty payments by an affiliate, (b) a $15 million tax benefits associated with the filing of certain tax returns and (c) $4 million of tax benefits related to other changes in uncertain tax positions and (ii) $179$23 million of income tax benefit for the Company's ordinary loss during the three months ended September 30, 2017, and (iii) a $108 million tax benefit related to an intangible impairment duringMarch 31, 2019.
Benefit from income taxes for the three months ended September 30, 2017. In the three months ended September 30, 2017, the impact of the internal restructuring transactions included: (i) the Company's top U.S. subsidiary (Biovail Americas Corp.) (“BAC”) recognizing a net tax benefit of $472 million on the capital loss resulting from its liquidation during the three months ended September 30, 2017, offset by the reversal of BAC’s previously recorded outside basis difference in its subsidiary; and (ii) the Company recording a deferred tax benefit of $925 million during the three months ended September 30, 2017 as a result of utilizing BAC’s capital loss to offset capital gains from the Company’s U.S. divestitures and restructurings incurred between 2014 and 2017. These gains were previously offset by the Company’s NOL’s.
Recovery of income taxes during the nine months ended September 30, 2017March 31, 2018 was $2,829$115 million and included: (i) $334$119 million of income tax benefit for the Company's ordinary loss duringfor the ninethree months ended September 30, 2017,March 31, 2018 and (ii) $2,626$4 million of net income tax expense for discrete items, which includes: (a) $3 million of tax benefit fromcharges related to internal restructuring efforts, consisting of the reversal ofrestructurings and (b) a $1,947 million deferred tax liability for previously recorded outside basis differences and a $679 million increase in deferred tax assets for NOL’s available after the carryback of a capital loss and utilization against current year income, (iii) a tax charge of $224 million resulting from the Company’s
divestitures during the nine months ended September 30, 2017, and (iv) a $108$2 million tax benefit related to an intangible impairment during the three months ended September 30, 2017.changes in uncertain tax positions.
The Company records a valuation allowance against its deferred tax assets to reduce the net carrying value to an amount that it believes is more likely than not to be realized. When the Company establishes or reduces the valuation allowance against its deferred tax assets, the provision for income taxes will increase or decrease, respectively, in the period such determination is made.made except that, as a result of the 2018 adoption of guidance regarding intra-entity transfers, any change in valuation allowance surrounding the adoption of the intra-entity transfer resulting from this adoption was recorded within equity. The valuation allowance against deferred tax assets was $2,225$2,997 million and $1,857$2,913 million as of September 30, 2017March 31, 2019 and December 31, 2016,2018, respectively. The increase was primarily due to continued losses in Canada. The Company will continue to assess the need for a valuation allowance on a go-forward basis.
The income tax benefit for the nine months ended September 30, 2016 was $179 million, and included: (i) $179 million related to the expected tax benefit in tax jurisdictions outside of Canada and (ii) an income tax provision of an immaterial amount related to Canadian income taxes. During the nine months ended September 30, 2016, the Company’s effective tax rate was different from the Company’s statutory Canadian tax rate due to tax expense generated from the Company’s annualized mix of earnings by jurisdiction, the discrete treatment of an adjustment to the accrual established for legal expenses and a significant impairment of an intangible asset, a tax benefit of $32 million on return to provision adjustments associated with the Company's U.S. tax return, the recording of valuation allowances on entities for which no tax benefit of losses is expected and a benefit for the release of uncertain tax positions based upon statute lapses and audit settlements.
As of September 30, 2017March 31, 2019 and December 31, 2016,2018, the Company had $500$613 million and $423$654 million of unrecognized tax benefits, which included $44$43 million and $39$42 million respectively, relating toof interest and penalties.penalties, respectively. Of the total unrecognized tax benefits as of September 30, 2017, $257March 31, 2019, $306 million would reduce the Company’s effective tax rate, if recognized. The Company anticipates that an immaterial amount of unrecognized tax benefits may be resolved within the next 12 months.months will not be material.
The Company continues to be under examination by the Canada Revenue Agency (“CRA”).Agency. The Company’s position as of March 31, 2019 with regard to proposed audit adjustments has not changed as of September 30, 2017 and the total proposed adjustment continuesadjustments continue to result primarily in a loss of tax attributes whichthat are subject to a full valuation allowance.
The Internal Revenue Service completed its examinations of the Company’s U.S. consolidated federal income tax returnreturns for the years 2013 and 20142014. There were no material adjustments to the Company's taxable income as a result of these examinations. The Company has filed tax years continuesreturns which used a capital loss generated in 2017 to be underoffset capital gains generated in 2014. As these tax returns were filed subsequent to the commencement of the examination by the Internal Revenue Service. Service, the Company’s 2014 tax year cannot be closed commensurate with the examination’s conclusion. Additionally, the Internal Revenue Service has selected for examination the Company's annual tax filings for 2015 and 2016 and the Company's short period tax return for the period ended September 8, 2017, which was filed as a result of the Company's internal restructuring efforts during 2017. At this time, the Company does not expect that proposed adjustments, if any, for these periods would be material to the Company's consolidated financial statements.
The Company's U.S. affiliates remain under examination for various state tax audits in the U.S. for years 20022012 through 2017.
The Company’s subsidiaries in Germany are under audit for tax years 2013 through 2017. At this time, the Company does not expect that proposed adjustments, if any, would be material to 2015.the Company's consolidated financial statements.
The Company’s subsidiaries in Australia are under audit by the Australian Tax Office for various years beginning in 2010. On August 8, 2017, the Australian Taxation Office issued a notice of assessment for the tax years 2011 through 2017 in the aggregate amount of $117 million, which includes penalties and interest. The Company disagrees with the assessment and continues to believe that its tax positions are appropriate and supported by the facts, circumstances and applicable laws. The Company intends to defend its tax position inAt this matter vigorously. To this endtime, the Company has filed a holding objection againstdoes not expect that proposed adjustments, if any, would be material to the assessment by the Australian Taxation Office and intends to file an objection in December of 2017. Additionally, the Company secured a bank guarantee to cover any potential cash outlays regarding this assessment.Company's consolidated financial statements.
Certain affiliates of the Company in regions outside of Canada, the U.S., Germany and Australia are currently under examination by relevant taxing authorities, and all necessary accruals have been recorded, including uncertain tax benefits. At this time, the Company does not expect that proposed adjustments, if any, would be material to the Company's consolidated financial statements.
| |
17.18. | EARNINGS (LOSS)LOSS PER SHARE |
Earnings (loss)Loss per share attributable to Valeant Pharmaceuticals International,Bausch Health Companies Inc. for the three and nine months ended September 30, 2017 and 2016 were calculated as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions, except per share amounts) | 2017 | | 2016 | | 2017 | | 2016 |
| Net income (loss) attributable to Valeant Pharmaceuticals International, Inc. | $ | 1,301 |
| | $ | (1,218 | ) | | $ | 1,891 |
| | $ | (1,894 | ) |
| | | | | | | | |
| Basic weighted-average number of common shares outstanding | 350.4 |
| | 349.5 |
| | 350.1 |
| | 346.5 |
|
| Diluted effect of stock options, RSUs and other | 1.9 |
| | — |
| | 1.3 |
| | — |
|
| Diluted weighted-average number of common shares outstanding | 352.3 |
| | 349.5 |
| | 351.4 |
| | 346.5 |
|
| | | | | | | | |
| Earnings (loss) per share attributable to Valeant Pharmaceuticals International, Inc.: | | | | | | | |
| Basic | $ | 3.71 |
| | $ | (3.49 | ) | | $ | 5.40 |
| | $ | (5.47 | ) |
| Diluted | $ | 3.69 |
| | $ | (3.49 | ) | | $ | 5.38 |
| | $ | (5.47 | ) |
|
| | | | | | | |
| | Three Months Ended
March 31, |
| (in millions, except per share amounts) | 2019 | | 2018 |
| Net loss attributable to Bausch Health Companies Inc. | $ | (52 | ) | | $ | (2,581 | ) |
| | | | |
| Basic weighted-average common shares outstanding | 351.3 |
| | 350.7 |
|
| Diluted effect of stock options and RSUs | — |
| | — |
|
| Diluted weighted-average common shares outstanding | 351.3 |
| | 350.7 |
|
| | | | |
| Loss per share attributable to Bausch Health Companies Inc.: | | | |
| Basic | $ | (0.15 | ) | | $ | (7.36 | ) |
| Diluted | $ | (0.15 | ) | | $ | (7.36 | ) |
During the three months ended March 31, 2019 and nine months ended September 30, 2016,2018, all potential common shares issuable for stock options and RSUs were excluded from the calculation of diluted loss per share, as the effect of including them would have been anti-dilutive. The dilutive effect of potential common shares issuable for stock options and RSUs on the weighted-average number of common shares outstanding would have been as follows:
|
| | | | | |
| (in millions) | Three months ended September 30, 2016 | | Nine months ended September 30, 2016 |
| Basic weighted-average number of common shares outstanding | 349.5 |
| | 346.5 |
|
| Diluted effect of stock options, RSUs and other | 0.8 |
| | 3.4 |
|
| Diluted weighted-average number of common shares outstanding | 350.3 |
| | 349.9 |
|
During the three and nine months ended September 30, 2017,March 31, 2019 and 2018, time-based RSUs, performance-based RSUs and stock options time-based RSUs and performance-based RSUs to purchase approximately 7,601,0005,370,000 and 4,830,000 common shares, of the Company, for both periods,respectively, were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive under the treasury stock method, compared with 8,300,000 common shares in both of the corresponding periods of 2016.method.
From time to time, the Company becomes involved in various legal and administrative proceedings, which include product liability, intellectual property, commercial, tax, antitrust, governmental and regulatory investigations, related private litigation and ordinary course employment-related issues. From time to time, the Company also initiates actions or files counterclaims. The Company could be subject to counterclaims or other suits in response to actions it may initiate. The Company believes that the prosecution of these actions and counterclaims is important to preserve and protect the Company, its reputation and its assets. Certain of these proceedings and actions are described below.
On a quarterly basis, the Company evaluates developments in legal proceedings, potential settlements and other matters that could increase or decrease the amount of the liability accrued. As of September 30, 2017,March 31, 2019, the Company's consolidated balance sheetConsolidated Balance Sheet includes accrued current loss contingencies of $133 million and non-current loss contingencies of $20$12 million related to matters which are both probable and reasonably estimable. For all other matters, unless otherwise indicated, the Company cannot reasonably predict the outcome of these legal proceedings, nor can it estimate the amount of loss, or range of loss, if any, that may result from these proceedings. An adverse outcome in certain of these proceedings could have a material adverse effect on the Company’s business, financial condition and results of operations, and could cause the market value of its common shares and/or debt securities to decline.
Governmental and Regulatory Inquiries
Letter from the U.S. Department of Justice Civil Division and the U.S. Attorney’s Office for the Eastern District of Pennsylvania
The Company has received a letter dated September 10, 2015 from the U.S. Department of Justice Civil Division and the U.S. Attorney’s Office for the Eastern District of Pennsylvania stating that they are investigating potential violations of the False Claims Act arising out of Biovail Pharmaceuticals, Inc.'s treatment of certain service fees under agreements with wholesalers when calculating and reporting Average Manufacturer Prices in connection with the Medicaid Drug Rebate Program. The letter requests that the Company voluntarily produce documents and information relating to the investigation. The Company produced certain documents and clarifying information in response to the government’s request and is cooperating with the government’s investigation. The Company cannot predict the outcome or the duration of this investigation or any other legal proceedings or any enforcement actions or other remedies that may be imposed on the Company arising out of these investigations.
On October 12, 2017, a qui tam complaint asserting claims under the federal and certain state False Claims Acts was unsealed in the Eastern District of Pennsylvania, after the United States and the states on whose behalf claims were asserted declined to intervene in the case. The complaint names Biovail Pharmaceuticals and three other pharmaceutical manufacturers as defendants. The complaint alleges that Biovail Pharmaceuticals and other manufacturers failed to accurately account for service fees in its calculation of Average Manufacturer Prices reported to the federal government, and as a result underpaid Medicaid rebates.
Investigation by the U.S. Attorney's Office for the District of Massachusetts
In October 2015, the Company received a subpoena from the U.S. Attorney's Office for the District of Massachusetts, and, in June 2016, the Company received a follow upfollow-up subpoena. The materials requested, pursuant to the subpoenas and follow-up requests, include documents and witness interviews with respect to the Company’s patient assistance programs and contributions to patient assistance organizations that provide financial assistance to Medicare patients taking products sold by the Company, and the Company’s pricing of its products. The Company is cooperating with this investigation. The Company cannot predict the outcome or the duration of this investigation or any other legal proceedings or any enforcement actions or other remedies that may be imposed on the Company arising out of this investigation.
Investigation by the U.S. Attorney's Office for the Southern District of New York
In October 2015, the Company received a subpoena from the U.S. Attorney's Office for the Southern District of New York. The materials requested, pursuant to the subpoena and follow-up requests, include documents and witness interviews with respect to the Company’s patient assistance programs; its former relationship with Philidor Rx Services, LLC ("Philidor") and other pharmacies; the Company’s accounting treatment for sales by specialty pharmacies; information provided to the Centers for Medicare and Medicaid Services; the Company’s pricing (including discounts and rebates), marketing and distribution of its products; the Company’s compliance program; and employee compensation. The Company is cooperating with this investigation. The Company cannot predict the outcome or the duration of this investigation or any other legal proceedings or any enforcement actions or other remedies that may be imposed on the Company arising out of this investigation.
SEC Investigation
Beginning in November 2015, the Company has received from the staff of the Los Angeles Regional Office of the SEC subpoenas for documents, as well as various document, testimony and interview requests, related to its investigation of the Company, including requests concerning the Company's former relationship with Philidor, its accounting practices and policies, its public disclosures and other matters. The Company is cooperating with the SEC in this matter. The Company cannot predict the outcome or the duration of the SEC investigation or any other legal proceedings or any enforcement actions or other remedies that may be imposed on the Company arising out of the SEC investigation.
AMF Investigation by the State of North Carolina Department of Justice
In the beginning of March 2016, the Company received an investigative demand from the State of North Carolina Department of Justice. The materials requested relate to the Company's Nitropress®, Isuprel® and Cuprimine® products, including documents relating to the production, marketing, distribution, sale and pricing of, and patient assistance programs covering, such products, as well as issues relating to the Company's pricing decisions for certain of its other products. The Company is cooperating with this investigation. The Company cannot predict the outcome or the duration of this investigation or any other
legal proceedings or any enforcement actions or other remedies that may be imposed on the Company arising out of this investigation.
Request for Information from the AMF
On April 12, 2016, the Company received a request letter from the Autorité des marchés financiers (the “AMF”) requesting documents concerning the work of the Company’s ad hoc committee of independent directors (the “Ad Hoc Committee”) (established to review certain allegations regarding the Company’s former relationship with Philidor and related matters), the Company’s former relationship with Philidor, the Company's accounting practices and policies and other matters. The Company is cooperating with the AMF in this matter. TheIn July 2018, the Company has not received any notice of investigation fromwas advised by the AMF andthat it had issued a formal investigation order in respect of the Company on February 2, 2018. The Company cannot predict whether any investigation will be commenced by the AMF or, if commenced, whether any enforcement action against the Company wouldwill result from any such investigation.
Investigation by the California Department of Insurance
On or about September 16, 2016, the Company received an investigative subpoena from the California Department of Insurance. The materials requested include documents concerning the Company’s former relationship with Philidor and certain California-based pharmacies, the marketing and distribution of its products in California, the billing of insurers for its products being used by California residents, and other matters. The Company is cooperating with this investigation. The Company cannot predict the outcome or the duration of this investigation or any other legal proceedings or any enforcement actions or other remedies that may be imposed on the Company arising out of this investigation.
Investigation by the State of Texas
On May 27, 2014, the State of Texas served Bausch & Lomb Incorporated (“("B&L Inc.”") with a Civil Investigative Demand concerning various price reporting matters relating to the State's Medicaid program and the amounts the State paid in reimbursement for B&L products for the period from 1995 to the date of the Civil Investigative Demand. The Company and B&L Inc. have cooperated fully with the State's investigation and have produced all of the documents requested by the State. In April 2016, the State sent B&L Inc. a demand letter claiming damages in the amount of $20 million. The Company and B&L Inc. have evaluated the letter and disagree with the allegations and methodologies set forth in the letter. TheIn June 2016, the Company and B&L Inc. have responded to the State. In July 2018, the State responded to the Company's June 2016 letter and are awaiting further response from the State.
California Department of Insurance Investigation
On May 4, 2016, B&L International, Inc. (“B&L International”) received from the Officeindicated that it disagreed with certain of the California Insurance Commissioner an administrative subpoenaCompany’s positions and would send a response to produce books, records and documents. On September 1,the Company's June 2016 a revised and corrected subpoena, issued to B&L Inc., was received naming that entity in place of B&L International and seeking additional books records and documents. The requested books, records and documents are being requested in connection with an investigation by the California Department of Insurance and relate to, among other things, consulting agreements and financial arrangements between Bausch & Lomb Holdings Incorporated and its subsidiaries (“B&L”) and healthcare professionals in California, the provision of ocular equipment, including the Victus® femtosecond laser platform, by B&L to healthcare professionals in California and prescribing data for prescriptions written by healthcare professionals in California for certain of B&L’s products, including the Crystalens®, Lotemax®, Besivance® and Prolensa®. B&L Inc. andletter, which the Company are cooperating with the investigation. The Company cannot predict the outcome or the duration of this investigation or any other legal proceedings or any enforcement actions or other remedies that may be imposed on the Company arising out of this investigation.has not yet received.
Securities and OtherRICO Class Actions and Related Matters
Allergan Shareholder Class Actions
On December 16, 2014, Anthony Basile, an alleged shareholder of Allergan filed a lawsuit on behalf of a putative class of Allergan shareholders against the Company, Valeant, AGMS, Pershing Square, PS Management, GP, LLC, PS Fund 1 and William A. Ackman in the U.S. District Court for the Central District of California (Basile v. Valeant Pharmaceuticals International, Inc., et al., Case No. 14-cv-02004-DOC). On June 26, 2015, lead plaintiffs the State Teachers Retirement System of Ohio, the Iowa Public Employees Retirement System and Patrick T. Johnson filed an amended complaint against the Company, Valeant, J. Michael Pearson, Pershing Square, PS Management, GP, LLC, PS Fund 1 and William A. Ackman. The amended complaint alleges claims on behalf of a putative class of sellers of Allergan securities between February 25, 2014 and April 21, 2014, against all defendants contending that various purchases of Allergan securities by PS Fund were made
while in possession of material, non-public information concerning a potential tender offer by the Company for Allergan stock, and asserting violations of Section 14(e) of the Exchange Act and rules promulgated by the SEC thereunder and Section 20A of the Exchange Act. The amended complaint also alleges violations of Section 20(a) of the Exchange Act against Pershing Square, various Pershing Square affiliates, William A. Ackman and J. Michael Pearson. The amended complaint seeks, among other relief, money damages, equitable relief, and attorneys’ fees and costs. On August 7, 2015, the defendants moved to dismiss the amended complaint in its entirety, and, on November 9, 2015, the Court denied that motion. On March 15, 2017, the Court entered an order certifying a plaintiff class comprised of persons who sold Allergan common stock contemporaneously with purchases of Allergan common stock made or caused by defendants during the period February 25, 2014 through April 21, 2014. On March 28, 2017, defendants filed a motion with the U.S. Court of Appeals for the Ninth Circuit requesting permission to appeal from the class certification order and on June 12, 2017, the Ninth Circuit denied that request. On July 10, 2017, the plaintiffs moved for partial summary judgment, and the defendants cross-moved for summary judgment. Those motions remain pending. Trial has been scheduled to start on January 30, 2018 in this matter. The Company intends to vigorously defend these matters.
On June 28, 2017, Timber Hill LLC, a Connecticut limited liability company that allegedly traded in Allergan derivative instruments, filed a lawsuit on behalf of a putative class of derivative traders against the Company, Valeant, AGMS, Michael Pearson, Pershing Square, PS Management, GP, LLC, PS Fund 1 and William A. Ackman in the U.S. District Court for the Central District of California (Timber Hill LLC v. Pershing Square Capital Management, L.P., et al., Case No. 17-cv-04776-DOC). The complaint alleges claims on behalf of a putative class of investors who sold Allergan call options, purchased Allergan put options and/or sold Allergan equity forward contracts between February 25, 2014 and April 21, 2014, against all defendants contending that various purchases of Allergan securities by PS Fund were made while in possession of material, non-public information concerning a potential tender offer by the Company for Allergan stock, and asserting violations of Section 14(e) of the Exchange Act and rules promulgated by the SEC thereunder and Section 20A of the Exchange Act. The complaint also alleges violations of Section 20(a) of the Exchange Act against Pershing Square, various Pershing Square affiliates, William A. Ackman and Michael Pearson. The complaint seeks, among other relief, money damages, equitable relief, and attorneys’ fees and costs. On July 25, 2017, the Court decided not to consolidate this lawsuit with the Basile action described above. Trial has been scheduled for October 2018 in this matter.
On February 10, 2017, the Company, Valeant (together, the “Valeant Co Parties”) and J. Michael Pearson (together with the Valeant Co Parties, the “Valeant Parties”) and Pershing Square Capital Management, L.P., Pershing Square Holdings, Ltd., Pershing Square International, Ltd., Pershing Square, L.P., Pershing Square II, L.P., PS Management GP, LLC, PS Fund 1, LLC, Pershing Square GP, LLC (together, “Pershing Square”), and William A. Ackman (“Ackman” and, together with Pershing Square, the “Pershing Square Parties”) entered into a litigation management agreement (the “Litigation Management Agreement”), pursuant to which the parties agreed to certain provisions with respect to the management of this litigation, including all cases currently consolidated with the Basile action described above and any opt-out litigation or individual actions brought by members of the putative class in the consolidated Basile action asserting the same or similar allegations or claims (collectively, the “Allergan Litigation”), including the following:
In respect of any settlement relating to the Allergan Litigation that receives the mutual consent of both the Valeant Parties and the Pershing Square Parties, the payments in connection with such settlement will be paid 60% by the Valeant Co Parties and 40% by the Pershing Square Parties. The agreement does not provide for any allocation of costs in a settlement that is not consented to by both parties;
The first $10 million in legal fees and litigation expenses incurred by the Valeant Parties and the Pershing Square Parties after the date of the Litigation Management Agreement in connection with the Allergan Litigation will be paid 50% by the Valeant Co Parties and 50% by the Pershing Square Parties; and
The Litigation Management Agreement had an original termination date of November 1, 2017 if a stipulation of settlement with regards to the current consolidated Basile action has not been executed by that date. The parties agreed to extend the Litigation Management Agreement on October 30, 2017 by two months, to December 31, 2017.
In addition to the agreements set out above with respect to the Allergan Litigation, the Litigation Management Agreement includes an undertaking by the Pershing Square Parties to forbear from commencing any action or actions that arise out of, or relate to, the claims alleged or facts asserted in the Allergan Litigation or to the purchase or acquisition of, or transactions with respect to, the Company’s securities against any of the Valeant Parties from February 3, 2017 until the date that is thirty days after the termination of the Litigation Management Agreement. Any statute of limitations applicable to such actions or tolled claims is suspended during this period. If the Litigation Management Agreement is terminated pursuant to its terms, the parties will meet and discuss whether any tolled claims should be submitted to confidential arbitration or mediation.
Furthermore, in connection with the entrance into the Litigation Management Agreement, on February 10, 2017, the Valeant Parties and the Pershing Square Parties entered into a mutual release of claims (the “Mutual Release”). The Mutual Release will go into effect upon the later of satisfaction of the payment obligations that each party would have in connection with any settlement of the current consolidated Basile action pursuant to the Litigation Management Agreement described above and the date of entry of final judgment, and will not occur if the Litigation Management Agreement is terminated. If the Mutual Release becomes effective, each party will release the other parties and their respective attorneys, accountants, financial advisors, lenders and securities underwriters (in their capacities as such and to the extent they provide a mutual release) from any and all claims relating to or arising out of (a) any purchase of any security of Valeant, (b) any one or more of the claims asserted in and/or the facts alleged in (i) the Allergan Litigation, (ii) a putative class action on behalf of purchasers of Valeant securities captioned In re Valeant Pharmaceuticals International Inc. Securities Litigation, Case 3:15-cv-07658- MAS-LHG, currently pending in the United States District Court for the District of New Jersey (the “U.S. Class Action”), (iii) certain enumerated individual actions and/or (iv) certain enumerated actions in Canada, or (c) the Valeant business. In addition, each party covenants not to sue the other parties with respect to any claims covered by the Mutual Release upon the effectiveness of the Mutual Release. Each party also covenants not to sue the other parties’ attorneys, accountants, financial advisors, lenders and securities underwriters (in their capacities as such) with respect to any of the claims covered by the Mutual Release from the date of the signing of the Mutual Release, except to the extent that (i) a claim has been asserted against such party by any such attorney, accountant, financial advisor, lender and/or securities underwriter or (ii) the Litigation Management Agreement has been terminated in accordance with its terms.
Valeant U.S. Securities Litigation
FromIn October 22, 2015 to October 30, 2015, four putative securities class actions were filed in the U.S. District Court for the District of New Jersey against the Company and certain current or former officers and directors. Those four actions, captioned Potter v. Valeant Pharmaceuticals International, Inc. et al. (Case No. 15-cv-7658), Chen v. Valeant Pharmaceuticals International, Inc. et al. (Case No. 15-cv-7679), Yang v. Valeant Pharmaceuticals International, Inc. et al. (Case No. 15-cv-7746), and Fein v. Valeant Pharmaceuticals International, Inc. et al. (Case No. 15-cv-7809), all asserted securities fraud claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) on behalf of putative classes of persons who purchased or otherwise acquired the Company’s stock during various time periods between February 28, 2014 and October 21, 2015. The allegations relaterelated to, among other things, allegedly false and misleading statements and/or failures to disclose information about the Company’s business and prospects, including relating to drug pricing, the Company’s use of specialty pharmacies, and the Company’s relationship with Philidor.
On May 31, 2016, the Court entered an order consolidating the four actions under the caption In re Valeant Pharmaceuticals International, Inc. Securities Litigation, Case No. 3:15-cv-07658, and appointing a lead plaintiff and lead plaintiff’s counsel.15-cv-07658. On June 24, 2016, the lead plaintiff filed a consolidated complaint naming additional defendants and asserting additional claims based on allegations of false and misleading statements and/or omissions similar to those in the initial complaints. Specifically, the consolidated complaint asserts claims under Sections 10(b) and 20(a) of the Exchange Act against the Company, and certain current or former officers and directors, as well as claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the “Securities Act”) against the Company, certain current or former officers and directors, and certain other parties. The lead plaintiff seeks to bring these claims on behalf of a putative class of persons who purchased the Company’s equity securities and senior notes in the United States between January 4, 2013 and March 15, 2016, including all those who purchased the Company’s securities in the United States in the Company’s debt and stock offerings between July 2013 to March 2015. On September 13, 2016,
the Company and the other defendants moved to dismiss the consolidated complaint. Briefing on the Company's motion was completed on January 13, 2017. On April 28, 2017, the Court dismissed certain claims arising out of the Company's private placement offerings and otherwise denied the motions to dismiss. Defendants' answersOn September 20, 2018, lead plaintiff filed an amended complaint, adding claims against ValueAct Capital Management L.P. and affiliated entities. On October 31, 2018, ValueAct filed a motion to dismiss and the parties then agreed that the action was stayed pursuant to the consolidated complaint were filed onPrivate Securities Litigation Reform Act.
On June 12, 2017.
In addition to the consolidated6, 2018, a putative class action fifteen groups of individual investors in the Company’s stock and debt securities at this point have chosen to opt out of the consolidated putative class action andwas filed securities actions in the U.S. District Court for the District of New Jersey against the Company and certain current or former officers and directors and other such proceedings may be initiated or asserted as this is not uncommon in such matters. These actions are captioned: T. Rowe Price Growth Stock Fund, Inc. v. Valeant Pharmaceuticals International, Inc. (Case No. 16-cv-5034); Equity Trustees Limited as Responsible Entity for T. Rowe Price Global Equity Fund v. Valeant Pharmaceuticals International Inc. (Case No. 16-cv-6127); Principal Funds, Inc. v. Valeant Pharmaceuticals International, Inc. (Case No. 16-cv-6128); BloombergSen Partners Fund LP v. Valeant Pharmaceuticals International, Inc. (Case No. 16-cv-7212); Discovery Global Citizens Master Fund, Ltd. v. Valeant Pharmaceuticals International, Inc. (Case No. 16-cv-7321); MSD Torchlight Partners, L.P. v. Valeant
Pharmaceuticals International, Inc. (Case No. 16-cv-7324); BlueMountain Foinaven Master Fund, L.P. v. Valeant Pharmaceuticals International, Inc. (Case No. 16-cv-7328); Incline Global Master LP v. Valeant Pharmaceuticals International, Inc. (Case No. 16-cv-7494); VALIC Company I v. Valeant Pharmaceuticals International, Inc. (Case No. 16-cv-7496); Janus Aspen Series v. Valeant Pharmaceuticals International, Inc. (Case No. 16-cv-7497) (“Janus Aspen”); Okumus Opportunistic Value Fund, LTD v. Valeant Pharmaceuticals International, Inc., et al. (Case No. 17-cv-06513) (“Okumus”); Lord Abbett Investment Trust- Lord Abbett Short Duration Income Fund, et al., v. Valeant Pharmaceuticals International, Inc., et al. (Case No. 17-cv-6365) (“Lord Abbett”); Pentwater Equity Opportunities Master Fund LTD v. Valeant Pharmaceuticals International, Inc., et al. (Case No. 17-cv-07552) (“Pentwater”), Public Employees’ Retirement System of Mississippidirectors. This action, captioned Timber Hill LLC, v. Valeant Pharmaceuticals International, Inc., et al., (Case No. 3:17-cv-07625)2:18-cv-10246) (“Mississippi”Timber Hill”), asserts securities fraud claims under Sections 10(b) and The Boeing Company Employee Retirement Plans Master Trust and20(a) of the Boeing Company Employee Savings Plans Master Trust v.Exchange Act on behalf of a putative class of persons who purchased call options or sold put options on the Company’s common stock during the period January 4, 2013 through August 11, 2016. On June 11, 2018, this action was consolidated with In re Valeant Pharmaceuticals International, Inc., et al., Securities Litigation, (Case No. 3:17-cv-07636) (“Boeing”)15-cv-07658). On January 14, 2019, the defendants filed a motion to dismiss the Timber Hill complaint. Briefing on that motion was completed on February 13, 2019.
In addition to the consolidated putative class action, as previously reported in the Company’s Form 10-K, thirty-one groups of individual investors in the Company’s stock and debt securities have chosen to opt out of the consolidated putative class action and filed securities actions pending in the U.S. District Court for the District of New Jersey against the Company and certain current or former officers and directors. These individual shareholder actions assert claims under Sections 10(b), 18, and 20(a) of the Exchange Act, Sections 11, 12(a)(2), and 15 of the Securities Act, common law fraud, and negligent misrepresentation under state law, based on alleged purchases of ValeantCompany stock, options, and/or debt at various times between January 4,3, 2013 and August 10, 2016. Plaintiffs in the Lord Abbett, Boeing, and Mississippi casesSome plaintiffs additionally assert claims under the New Jersey Racketeer Influenced and Corrupt Organizations Act. The allegations in the complaints are similar to those made by plaintiffs in the putative class action.
Plaintiffs Motions to dismiss have been filed in many of these individual actions. To date, the Janus Aspen action amended the complaint on April 28, 2017. Defendants filed motions for partial dismissalCourt has dismissed state law claims including New Jersey Racketeer Influenced and Corrupt Organizations Act, common law fraud, and negligent misrepresentation claims in ten individual actions on June 16, 2017. Briefing of those motions was completed on August 25, 2017.
certain cases. On October 19, 2017,January 7, 2019, the Court entered an order requesting briefs froma stipulation of voluntary dismissal in the parties regarding whetherSenzar Healthcare Master Fund LP v. Valeant Pharmaceuticals International, Inc. (Case No. 18-cv-02286) opt-out action, closing the Court should stay the putative securities class action and the fifteen individual securities law actions until after the resolution of criminal proceedings against Andrew Davenport and Gary Tanner. The Court's order immediately stayed all deadlines, briefing schedules, and discovery in securities actions pending completion of the briefing and the Court’s decision. The Court directed the parties to file briefs either supporting or opposing the stay, with such briefs to be concluded by November 8, 2017.case.
The Company believes the individual complaints and the consolidated putative class action are without merit and intends to defend itself vigorously.
Canadian Securities Class ActionsLitigation
In 2015, six putative class actions were filed and served against the Company and certain current or former officers and directors in Canada in the provinces of British Columbia, Ontario and Quebec. TheseQuebec, as previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2018, filed on February 20, 2019.
The actions are captioned: (a) Alladina v. Valeant, et al. (Case No. S-1594B6) (Supreme Court of British Columbia) (filed November 17, 2015); (b) Kowalyshyn v. Valeant, et al. (CV-15-540593-00CP) (Ontario Superior Court) (filed November 16, 2015); (c) Kowalyshyn et al. v. Valeant, et al. (CV-15-541082-00CP (Ontario Superior Court) (filed November 23, 2015); (d) O’Brien v. Valeant et al. (CV-15-543678-00CP) (Ontario Superior Court) (filed December 30, 2015); (e) Catucci v. Valeant, et al. (Court File No. 540-17-011743159) (Quebec Superior Court) (filed October 26, 2015); and (f) Rousseau-Godbout v. Valeant, et al. (Court File No. 500-06-000770-152) (Quebec Superior Court) (filed October 27, 2015). The Alladina, Kowalyshyn, O’Brien, Catucci and Rousseau-Godbout actions also name, among others, certain current or former directors and officers of the Company. The Rosseau-Godbout action was subsequently stayed by the Quebec Superior Court by consent order.
Each of the five remaining actions allegesgenerally allege violations of Canadian provincial securities legislation on behalf of putative classes of persons who purchased or otherwise acquired securities of the Company for periods commencing as early as January 1, 2013 and ending as late as November 16, 2015. The alleged violations relate to among other things, alleged misrepresentations and/or failures to disclose material information about the Company’s businesssame matters described in the U.S. Securities Litigation description above.
The Rosseau-Godbout action was stayed by the Quebec Superior Court by consent order. The Kowalyshyn action has been consolidated with the O’Brien action and prospects, relating to drug pricing,that consolidated action is stayed in favor of the Company’s policies and accounting practices,Catucci action. In the Company’s use of specialty pharmacies and, in particular, the Company’s relationship with Philidor. The Alladina, Kowalyshyn and O’Brien actions also assert common law claims for negligent misrepresentation, and the Alladina claim additionally asserts common law negligence, conspiracy, and claims under the British Columbia Business Corporations Act, including the statutory oppression remedies in that legislation. The Catucci action, assertson August 29, 2017, the judge granted the plaintiffs leave to proceed with their claims under the Quebec Civil Code, allegingSecurities Act and authorized the Company breached its dutyclass proceeding. On October 26, 2017, the plaintiffs issued their Judicial Application Originating Class Proceedings. A timetable for certain pre-trial procedural matters in the action has been set and the notice of care undercertification has been disseminated to class members. Among other things, the civil standardtimetable established a deadline of liability contemplated byJune 19, 2018 for class members to exercise their right to opt-out of the Code.class.
The Company is aware of two additional putative class actions that have been filed with the applicable court but which have not yet been served on the Company. These actions are captioned: (i) Okeley v. Valeant, et al. (Case No. S-159991) (Supreme Court of British Columbia) (filedCompany, as previously reported in the Company's Annual Report on Form 10-K for the year ended December 2, 2015); and (ii) Sukenaga v Valeant et al. (CV-15-540567-00CP) (Ontario Superior Court) (filed November 16, 2015),31, 2018, filed on February 20, 2019, and the factual allegations made in these actions are substantially similar to those outlined above. The Company has been advised that the plaintiffs in these actions do not intend to pursue the actions.
TheIn addition to the class proceedings described above, on April 12, 2018, the Company expects that certain of these actions will be consolidated or stayed prior to proceeding to motionswas served with an application for leave and certification and that no more than one action will proceedfiled in any jurisdiction. In particular, on June 10, 2016, the OntarioQuebec Superior Court of Justice rendered its decision on carriage motions (motions held to determine who will have carriage of the class action) heard on April 8, 2016, provisionally staying the O'Brienpursue an action in favor of the Kowalyshyn action. On September 15, 2016, in response to an arrangement between the plaintiffs in the Kowalyshyn action and the O’Brien action, the court ordered both that the Kowalyshyn action be consolidated with the O’Brien action and that the consolidated action be stayed in favor of the Catucci action pending either the further order of the Ontario court or the determination of the motion for leave in the Catucci action.
In the Catucci action, motions for leave under the Quebec Securities Act against the Company and
certain current or former officers and for authorization as adirectors. This proceeding is captioned BlackRock Asset Management Canada Limited et al. v. Valeant, et al. (Court File No. 500-11-054155-185). The allegations in the proceeding are similar to those made by plaintiffs in the Catucci class proceeding wereaction. That application has been scheduled to be heard on May 14, 2019. On June 18, 2018, the week of April 24, 2017, withsame BlackRock entities filed an originating application (Court File No. 500-17-103749-183) against the motion judge reserving her decision. Prior to that hearing,same defendants asserting claims under the parties resolved applications by the defendants concerning jurisdiction and class composition, with the plaintiffs agreeing to revise the definition of the proposed class to exclude claimsQuebec Civil Code in respect of Valeant securities purchasedthe same alleged misrepresentations.
The Company is aware that certain other members of the Catucci class exercised their opt-out rights prior to the June 19, 2018 deadline. On February 15, 2019, one of the entities which exercised its opt-out rights served the Company with an application in the United States. On August 29, 2017, the judge released her reasonsQuebec Superior Court of Justice for judgment granting the plaintiffs leave to proceed with their claimspursue an action under the Quebec Securities Act against the Company, certain current or former officers and authorizing the class proceeding. On October 12, 2017, Valeant and the other defendants filed applications for leave to appeal from certain aspectsdirectors of the decision authorizingCompany and its auditor. That proceeding is captioned California State Teachers’ Retirement System v. Bausch Health Companies Inc. et al. (Court File No. 500-11-055722-181). The allegations in the class proceeding. The applications for leaveproceeding are similar to appeal are scheduled to be heard November 22, 2017. On October 26, 2017,those made by the plaintiffs issued their Judicial Application Originating Class Proceedings.in the Catucci class action and in the BlackRock opt-out proceedings. On that same date, California State Teachers’ Retirement System also served the Company with proceedings (Court File No. 500-17-106044-186) against the same defendants asserting claims under the Quebec Civil Code in respect of the same alleged misrepresentations.
The Company believes that it has viable defenses in each of these actions. In each case, the Company intends to defend itself vigorously.
Insurance Coverage Lawsuit
On December 7, 2017, the Company filed a lawsuit against its insurance companies that issued insurance policies covering claims made against the Company, its subsidiaries, and its directors and officers during two distinct policy periods, (i) 2013-14 and (ii) 2015-16. The lawsuit is currently pending in the United States District Court for the District of New Jersey (Valeant Pharmaceuticals International, Inc., et al. v. AIG Insurance Company of Canada, et al.; 3:18-CV-00493). In the lawsuit, the Company seeks coverage for (1) the costs of defending and resolving claims brought by former shareholders and debtholders of Allergan, Inc. in In re Allergan, Inc. Proxy Violation Securities Litigation and Timber Hill LLC, individually and on behalf of all others similarly situated v. Pershing Square Capital Management, L.P., et al. (under the 2013-2014 coverage period), and (2) costs incurred and to be incurred in connection with the securities class actions and opt-out cases described in this section and certain of the investigations described above (under the 2015-2016 coverage period).
RICO Class Actions
Between May 27, 2016 and September 16, 2016, three virtually identical actions were filed in the U.S. District Court for the District of New Jersey against the Company and various third parties,third-parties, alleging claims under the federal Racketeer Influenced Corrupt Organizations Act (“RICO”) on behalf of a putative class of certain third partythird-party payors that paid claims submitted by Philidor for certain ValeantCompany branded drugs between January 2, 2013 and November 9, 2015 (Airconditioning and Refrigeration Industry Health and Welfare Trust Fund et al. v. Valeant Pharmaceuticals International. Inc. et al., No. 3:16-cv-03087, Plumbers Local Union No. 1 Welfare Fund v. Valeant Pharmaceuticals International Inc. et al., No. 3:16-cv-3885 and N.Y. Hotel Trades Council et al v. Valeant Pharmaceuticals International. Inc. et al., No. 3:16-cv-05663).2015. On November 30, 2016, the Court entered an order consolidating the three actions under the caption In re Valeant Pharmaceuticals International, Inc. Third-Party Payor Litigation, No. 3:16-cv-03087. A consolidated class action complaint was filed on December 14, 2016. The consolidated complaint alleges, among other things, that the Defendantsdefendants committed predicate acts of mail and wire fraud by submitting or causing to be submitted prescription reimbursement requests that misstated or omitted facts regarding (1) the identity and licensing status of the dispensing pharmacy; (2) the resubmission of previously denied claims; (3) patient co-pay waivers; (4) the availability of generic alternatives; and (5) the insured’s consent to renew the prescription. The complaint further alleges that these acts constitute a pattern of racketeering or a racketeering conspiracy in violation of the RICO statute and caused plaintiffs and the putative class unspecified damages, which may be trebled under the RICO statute. The Company moved to dismiss the consolidated complaint on February 13, 2017. Briefing of the motion was completed on May 17, 2017. On March 14, 2017, other defendants filed a motion to stay the RICO class action pending the resolution of criminal proceedings against Andrew Davenport and Gary Tanner. The Company did not oppose the motion to stay. On August 9, 2017, the Court granted the motion to stay and entered an order staying all proceedings in the case and accordingly terminating other pending motions. On April 12, 2019, the court lifted the stay. The plaintiffs have indicated that they will file an amended complaint.
The Company believes these claims are without merit and intends to defend itself vigorously.
AntitrustHound Partners Lawsuit
Solodyn® Antitrust Class Actions
BeginningOn October 19, 2018, Hound Partners Offshore Fund, LP, Hound Partners Long Master, LP, and Hound Partners Concentrated Master, LP, filed a lawsuit against the Company in July 2013, a numberthe Superior Court of civil antitrust classNew Jersey Law Division/Mercer County. This action suits were filed against Medicis Pharmaceutical Corporation (“Medicis”)is captioned Hound Partners Offshore Fund, LP et al., v. Valeant Pharmaceuticals International, Inc. (“VPII”) and various manufacturers of generic forms of Solodyn®, alleging that the defendants engaged in an anticompetitive scheme to exclude competition from the market for minocycline hydrochloride extended release tablets, a prescription drug for the treatment of acne marketed by Medicis under the brand name, Solodyn®. The plaintiffs in such suits alleged violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, and of various state antitrust and consumer protection laws, and further alleged that the defendants have been unjustly enriched through their alleged conduct. The plaintiffs sought declaratory and injunctive relief and, where applicable, treble, multiple,et al. (No. MER-
punitive and/or other damages, including attorneys’ fees. By order dated February 25, 2014,L-002185-18). This suit asserts claims for common law fraud, negligent misrepresentation, and violations of the Judicial Panel for Multidistrict Litigation (‘‘JPML’’) centralized the suitsNew Jersey Racketeer Influenced and Corrupt Organizations Act. The factual allegations made in this complaint are similar to those made in the District of Massachusetts, under the caption In re Solodyn (Minocycline Hydrochloride) Antitrust Litigation, Case No. 1:14-md-02503-DJC, before U.S. District Judge Denise Casper. After the Direct Purchaser Class Plaintiffs and the End-Payor Class Plaintiffs each filed a consolidated amended class action complaint on September 12, 2014, the defendants jointly moved to dismiss those complaints. On August 14, 2015, the Court granted the Defendants' motion to dismiss with respect to claims brought under Sherman Act, Section 2 and various state laws but denied the motion to dismiss with respect to claims brought under Sherman Act, Section 1 and other state laws. VPII was dismissed from the case, but the litigation continues against Medicis and the generic manufacturers as to the remaining claims. A subsequent effort to re-plead claims under Sherman Act, Section 2 was denied on September 20, 2016.
New Jersey Hound Partners action. On March 26, 2015,29, 2019, the Company, certain individual defendants, and on April 6, 2015, whilePlaintiffs submitted a consent order to stay further proceedings pending the motion to dismiss the class action complaints was pending, two additional non-class action complaints were filed against Medicis by certain retail pharmacy and grocery chains ("Individual Plaintiffs") making similar allegations and seeking similar relief to that sought by Direct Purchaser Class Plaintiffs. Those suits have been centralized with the class action suitscompletion of discovery in the District of Massachusetts. Followingfederal opt-out case Hound Partners Offshore Funds, LP et al. v. Valeant Pharmaceuticals International, Inc. The Company disputes the Court's August 14, 2015 decision on the motion to dismiss, the Individual Plaintiffs each filed amended complaints on October 1, 2015,claims and Medicis answered on December 7, 2015. A third non-class action was filed by another retail pharmacy against Medicis on January 26, 2016, and Medicis answered on March 28, 2016.
Plaintiffs have reached a settlement with two of three generic manufacturer defendants, and, on April 14, 2017, the Court granted the Direct Purchaser Plaintiffs' and End-Payor Plaintiffs' motions for preliminary approval of those settlements. For the remaining parties, fact discovery and expert discovery have closed. The Court granted Direct Purchaser Plaintiffs' and End-Payor Plaintiffs' motions for class certification for the purposes of damages, but denied End-Payor Plaintiffs' motion for class certification for the purposes of injunctive and declaratory relief. Defendants have petitioned to appeal the certification of the End-Payor Class. Plaintiffs and defendants have each filed motions for summary judgment. The summary judgment motions are pending and trial is set for March 12, 2018. The Company intends to vigorously defend all of these actions.this matter.
Antitrust
Contact Lens Antitrust Class Actions
Beginning in March 2015, a number of civil antitrust class action suits were filed by purchasers of contact lenses against B&L Inc., three other contact lens manufacturers, and a contact lens distributor, alleging that the defendants engaged in an anticompetitive scheme to eliminate price competition on certain contact lens lines through the use of unilateral pricing policies. The plaintiffs in such suits allegedpolicies, and alleging violations of Section 1 of the Sherman Act, 15 U.S.C. § 1, and of various state antitrust and consumer protection laws, and further alleged that the defendantslaws. These cases have been unjustly enriched through their alleged conduct. The plaintiffs sought declaratory and injunctive relief and, where applicable, treble, punitive and/or other damages, including attorneys’ fees. By order dated June 8, 2015, the JPML centralized the suitsconsolidated in the Middle District of Florida by the Judicial Panel for Multidistrict Litigation, under the caption In re Disposable Contact Lens Antitrust Litigation, Case No. 3:15-md-02626-HES-JRK, before U.S. District Judge Harvey E. Schlesinger. After15-md-02626-HES-JRK. On August 20, 2018, defendants filed motions for summary judgment. On December 4, 2018, the Class Plaintiffs filed a corrected consolidated class action complaint onCourt certified six classes, four of which relate to B&L Inc. On December 16, 2015,18, 2018, the defendants jointly movedfiled petitions seeking leave from the Eleventh Circuit Court of Appeals to dismiss those complaints.file an immediate appeal of the class certification order, one of which has been denied. On June 16, 2016,February 20, 2019, the Court grantedremoved the Defendants' motion to dismiss with respect to claims brought undercase from the Maryland Consumer Protection Act, but denied the motion to dismiss with respect to claims brought under Sherman Act, Section 1 and other state laws. The actions are currently in discovery. On March 3, 2017, the Class Plaintiffs filed their motion for class certification. On June 15, 2017, defendants filed a motion to oppose the plaintiffs' class certification motion, as well as motions to exclude plaintiffs' expert reports. Defendants likewise have requested an evidentiary hearing on the motions.trial calendar. The Company intendscontinues to vigorously defend allthis matter.
Generic Pricing Antitrust Class Action
As of these actions.June 2018, the Company's subsidiaries, Oceanside Pharmaceuticals, Inc. (“Oceanside”), Bausch Health US, LLC (formerly Valeant Pharmaceuticals North America LLC) (“Bausch Health US”), and Bausch Health Americas, Inc. (formerly Valeant Pharmaceuticals International) (“Bausch Health Americas”) (for the purposes of this subsection, collectively, the “Company”), were added as defendants in putative class action multidistrict antitrust litigation entitled In re: Generic Pharmaceuticals Pricing Antitrust Litigation, pending in the United States District Court for the Eastern District of Pennsylvania (MDL 2724, 16-MD-2724). The lawsuit to which the Company was added was filed by direct purchaser plaintiffs and seeks damages under federal antitrust laws, alleging that the Company’s subsidiaries entered into a conspiracy to fix, stabilize, and raise prices, rig bids and engage in market and customer allocation for generic pharmaceuticals. Specific claims against the Company’s subsidiaries relate to generic pricing of the Company’s metronidazole vaginal product as part of an alleged overarching conspiracy among generic drug manufacturers. As of December 2018, three direct purchaser plaintiffs that had opted out of the putative class filed an amended complaint in the MDL that added Oceanside, Bausch Health US and Bausch Health Americas, alleging similar claims as the direct purchaser plaintiffs’ putative class action complaint. Separate complaints by other plaintiffs which had been consolidated in the same multidistrict litigation do not name the Company or any of its subsidiaries as a defendant. The Company has filed motions to dismiss. Discovery against the Company’s subsidiaries has commenced. The Company continues to vigorously defend this matter.
Intellectual Property
Patent Litigation/Paragraph IV Matters
TheFrom time to time, the Company (and/or certain of its affiliates) is also party to certain patent infringement proceedings in the United States and Canada, including as arising from claims filed by the Company (or that the Company anticipates filing within the required time periods) in connection with Notices of Paragraph IV Certification (in the United States) and Notices of Allegation (in Canada) received from third partythird-party generic manufacturers respecting their pending applications for generic versions of certain products sold by or on behalf of the Company, including Onexton®Relistor®, Relistor®Apriso®, Apriso®Uceris®, Uceris®Xifaxan® 200mg, Plenvu®, Carac® Glumetza® and Cardizem® Jublia® in the United States, and Wellbutrin® XL and Glumetza® in Canada, or other similar suits. These matters are proceeding in the ordinary course.
In addition, patents covering the Company's branded pharmaceutical products may be challenged in proceedings other than court proceedings, including inter partes review ("IPR") at the U.S. Patent & Trademark Office. The proceedings operate under different standards from district court proceedings, and are often completed within 18 months of institution. IPR challenges have been brought against patents covering the Company's branded pharmaceutical products. For example, following Acrux DDS’s IPR petition, the U.S. Patent and Trial Appeal Board, in May 2017, instituted inter partes review for an Orange Book-listed patent covering Jublia® and, on or about February 16, 2016,June 6, 2018, issued a written determination invalidating such patent. An appeal of this decision was filed on August 7, 2018. Jublia® continues to be covered by seven other Orange Book-listed patents owned by the Company, received a Notice of Paragraph IV Certification dated February 11, 2016, from Actavis Laboratories FL, Inc. (“Actavis”),which expire in which Actavis asserted that the following U.S. patents, each of whichyears 2028 through 2034.
is listed in the FDA’s Orange Book for Salix Pharmaceuticals, Inc.’s (“Salix Inc.”) Xifaxan® tablets, 550 mg, are either invalid, unenforceable and/or will not be infringed by the commercial manufacture, use or sale of Actavis’ generic rifaximin tablets, 550 mg, for which an Abbreviated New Drug Application (“ANDA”) has been filed by Actavis: U.S. Patent No. 8,309,569 (the “‘569 patent”), U.S. Patent No. 8,642,573 (the “‘573 patent”), U.S. Patent No. 8,829,017 (the “‘017 patent”), U.S. Patent No. 8,946,252 (the “‘252 patent”), U.S. Patent No. 8,969,398 (the “‘398 patent”), U.S. Patent No. 7,045,620 (the “‘620 patent”), U.S. Patent No. 7,612,199 (the “‘199 patent”), U.S. Patent No. 7,902,206 (the “‘206 patent”), U.S. Patent No. 7,906,542 (the “‘542 patent”), U.S. Patent No. 7,915,275 (the “‘275 patent”), U.S. Patent No. 8,158,644 (the “‘644 patent”), U.S. Patent No. 8,158,781 (the “‘781 patent”), U.S. Patent No. 8,193,196 (the “‘196 patent”), U.S. Patent No. 8,518,949 (the “‘949 patent”), U.S. Patent No. 8,741,904 (the “‘904 patent”), U.S. Patent No. 8,835,452 (the “‘452 patent”), U.S. Patent No. 8,853,231 (the “‘231 patent”), U.S. Patent No. 6,861,053 (the “‘053 patent”), U.S. Patent No. 7,452,857 (the “‘857 patent”), U.S. Patent No. 7,605,240 (the “‘240 patent”), U.S. Patent No. 7,718,608 (the “‘608 patent”) and U.S. Patent No. 7,935,799 (the “‘799 patent”) (collectively, the “Xifaxan® Patents”). Salix Inc. holds the NDA for Xifaxan® and its affiliate, Salix Pharmaceuticals, Ltd. (“Salix Ltd.”), is the owner of the ‘569 patent, the ‘573 patent, the ‘017 patent, the ‘252 patent and the ‘398 patent. Alfa Wassermann S.p.A. (“Alfa Wassermann”) is the owner of the ‘620 patent, the ‘199 patent, the ‘206 patent, the ‘542 patent, the ‘275 patent, the ‘644 patent, the ‘781 patent, the ‘196 patent, the ‘949 patent, the ‘904 patent, the ‘452 patent and the ‘231 patent, each of which has been exclusively licensed to Salix Inc. and its affiliate, Valeant Pharmaceuticals Luxembourg S.à r.l. (“Valeant Luxembourg”) to market Xifaxan® tablets, 550 mg. Cedars-Sinai Medical Center (“Cedars-Sinai”) is the owner of the ‘053 patent, the ‘857 patent, the ‘240 patent, the ‘608 patent and the ‘799 patent, each of which has been exclusively licensed to Salix Inc. and its affiliate, Valeant Luxembourg, to market Xifaxan® tablets, 550 mg. On March 23, 2016, Salix Inc. and its affiliates, Salix Ltd. and Valeant Luxembourg, Alfa Wassermann and Cedars-Sinai (the “Plaintiffs”) filed suit against Actavis in the U.S. District Court for the District of Delaware (Case No. 1:16-cv-00188), pursuant to the Hatch-Waxman Act, alleging infringement by Actavis of one or more claims of each of the Xifaxan® Patents, thereby triggering a 30-month stay of the approval of Actavis’ ANDA for rifaximin tablets, 550 mg. On May 24, 2016, Actavis filed its answer in this matter. On June 14, 2016, the Plaintiffs filed an amended complaint adding US patent 9,271,968 (the “‘968 patent”) to this suit. Alfa Wassermann is the owner of the ‘968 patent, which has been exclusively licensed to Salix Inc. and its affiliate, Valeant Luxembourg to market Xifaxan® tablets, 550 mg. On December 6, 2016, the Plaintiffs filed an amended complaint adding US patent 9,421,195 (the “‘195 patent”) to this suit. Salix is the owner of the ‘195 patent. A seven-day trial was scheduled to commence on January 29, 2018, but has been indefinitely removed.
On May 17, 2017, the Company and Actavis announced that, at Actavis' request, the parties had agreed to stay this litigation and extend the 30-month stay regarding Actavis’ ANDA for its generic version of Xifaxan® (rifaximin) 550 mg tablets. This action is stayed through April 30, 2018 and Actavis has not yet taken any steps to lift the stay. All scheduled litigation activities, including the January 2018 trial date, have been indefinitely removed from the Court docket. Further, the parties agreed and the Court ordered that Actavis' 30-month regulatory stay shall be extended from August 12, 2018 until no earlier than February 12, 2019 and potentially longer if the litigation stay lasts for more than six months. The Company remains confident in the strength of the Xifaxan® Patents and believes it will prevail in this matter should it move forward. The Company also continues to believe the allegations raised in Actavis’ notice are without merit and will defend its intellectual property vigorously.
Product Liability
Shower to Shower Products Liability Litigation
The Company has been named in over one hundred and sixty-five lawsuits involving the Shower to Shower body powder product acquired in September 2012 from Johnson & Johnson. The Company has been successful in obtaining a number of dismissals as to the Company and/or its subsidiary, Valeant Pharmaceuticals North America LLC (“VPNA”), in some of these cases. The Company continues to seek dismissals in these cases and to pursue agreements from plaintiffs to not oppose the Company’s motions for summary judgment.
These lawsuits include one casethree cases originally filed on December 30, 2016 in the In re Johnson & Johnson Talcum Powder Litigation, Multidistrict Litigation 2738, pending in the United States District Court for the District of New Jersey.Jersey, and one case that was filed in the District of Puerto Rico and subsequently transferred to the MDL. The Company and VPNABausch Health US were first named in a lawsuit filed directly into the MDL alleging that the use of the Shower to Shower product caused the plaintiff to develop ovarian cancer. On March 24, 2017, theThe plaintiff agreed to a dismissal of all claims against the Company and VPNABausch Health US without prejudice, and neither theprejudice. The Company nor VPNA havehas subsequently been named in any further lawsuitsone additional lawsuit, originally filed in the MDL.District of Puerto Rico and subsequently transferred into the MDL, but has not been served in that case. The Company was also named in two additional lawsuits filed directly into the MDL that have also not yet been served.
These lawsuits also include a number of matters filed in the Superior Court of Delaware and five cases filed in the Superior Court of New Jersey alleging that the use of Shower to Shower caused the plaintiffs to develop ovarian cancer. The Company has been voluntarily dismissed from nearly all of these cases, and onlywith claims against VPNA remain. These lawsuits also include allegations against Johnson & Johnson, directed primarily to its marketing ofBausch Health US only remaining in one case pending in New Jersey and warnings for the Shower to Shower product prior to the Company’s acquisitionone case pending in Delaware. Four of the productfive cases in September 2012.the Superior Court of New Jersey were voluntarily dismissed as to Bausch Health US as well. The allegations in thesethe remaining two cases specifically directed to VPNABausch Health US include failure to warn, design defect, negligence, gross negligence, breach of express and implied warranties, civil conspiracy concert in action, negligent misrepresentation, wrongful death, and punitive damages. Plaintiffs seek compensatory damages including medical expenses, pain and suffering, mental anguish anxiety and discomfort, physical impairment, lossOne hundred twenty-two of enjoymentthe Delaware actions were voluntarily dismissed without prejudice in January 2019, but, pursuant to a stipulation among the parties, were to be refiled in either the MDL or in coordinated proceedings in Atlantic County, New Jersey Superior Court, depending on the state of life. Plaintiffs also seek pre- and post-judgment interest, exemplary and punitive damages, treble damages, and attorneys’ fees.residence of each plaintiff. As of the date of this Form 10-Q, these re-filings have not yet occurred.
TheseIn addition, these lawsuits also include a number of cases filed in certain state courts in the United States (including the California Superior Courts, the Superior Courts of California, Delaware theand New Jersey Superior Courts,Jersey); the District Court of Louisiana,Louisiana; the Supreme Court of New York (Niagara County),; the District Court of Oklahoma City, the Tennessee Chancery Court (Hamilton County) andOklahoma; the South Carolina Court of Common Pleas (Richland County)); and the District Court of Nueces County, Texas (transferred to the asbestos MDL docket in the District Court of Harris County, Texas for pre-trial purposes) alleging use of Shower to Shower and other products resulted in the plaintiffs developing mesothelioma. The Company has been successful in obtaining voluntarily dismissals in somemost of these cases or the plaintiffs have not opposed summary judgment. Presently, four cases remain pending in the Superior Court of New Jersey. The allegations in these cases generally include design defect, manufacturing defect, failure to warn, negligence, and punitive damages, and in some cases breach of express and implied warranties, misrepresentation, and loss of consortium. The plaintiffs seekdamages sought by the various Plaintiffs include compensatory damages, for loss of services, economic loss, pain and suffering, and, in some cases,including medical expenses, lost wages or earning capacity, and loss of consortium, inconsortium. In addition, toPlaintiffs seek compensation for pain and suffering, mental anguish anxiety and discomfort, physical impairment and loss of enjoyment of life. Plaintiffs also seek pre- and post-judgment interest, exemplary and punitive damages, interest, litigation costs, and attorneys’ fees.
Finally,On February 11, 2019, seven plaintiffs filed a pre-suit notice letter with the California Attorney General notifying the Attorney General’s office of their intent to file suit after 60 days against the Company and certain of its subsidiaries, alleging they committed violations of the California Safe Drinking Water and Toxic Enforcement Act of 1986 (Proposition 65) by manufacturing and distributing Shower to Shower that they allege contained chemical compounds known to cause cancer. That notice letter was served on the Company on February 22, 2019. By statute, a private lawsuit may not be filed until at least 60 days have passed following service of this pre-suit notice letter.
On April 15, 2019, one plaintiff filed a pre-suit notice letter with the California Attorney General notifying the Attorney General’s office of their intent to file suit after 60 days against the Company and certain of its subsidiaries, alleging they committed violations of the California Safe Drinking Water and Toxic Enforcement Act of 1986 (Proposition 65) by manufacturing and distributing Shower to Shower that they allege contained silica, arsenic, lead and chromium (hexavalent compounds), which they allege are known to cause cancer and/or reproductive toxicity. That notice letter was served on the Company on April 18, 2019. By statute, a private lawsuit may not be filed until at least 60 days have passed following service of this pre-suit notice letter.
Additionally, two proposed class actions have been filed in Canada against the Company and various Johnson & Johnson entities (one in the Supreme Court of British Columbia and one in the Superior Court of Quebec). The Company also acquired the rights to the Shower to Shower product in Canada from Johnson & Johnson in September 2012. In the British Columbia matter, the plaintiff seeks to certify a proposed class action on behalf of persons in British Columbia and Canada who have purchased or used Johnson & Johnson’s Baby Powder or Shower to Shower, including their estates, executors and personal representatives, and is alleging that the use of this product increases certain health risks. In the Quebec matter, the plaintiff seekssought to certify a proposed class action on behalf of persons in QuébecQuebec who have used Johnson & Johnson’s Baby Powder or Shower to Shower, as well as their family members, assigns and heirs, and is alleging negligence in failing to properly test, failing to warn of health risks, and failing to remove the products from the market in a timely manner. A certification (also known as authorization) hearing was held in the Quebec matter and the Court certified (or as stated under Quebec law, authorized) the bringing of a class action by a representative plaintiff on behalf of people in Quebec who have used Johnson & Johnson's Baby Powder and/or Shower to Shower in their perineal area and have been diagnosed with ovarian cancer and/or family members, assigns and heirs. The plaintiffs in these actions are seeking awards of general, special, compensatory and punitive damages. The likelihood of the authorization or certification of these claims as class actions cannot be assessed at this time.
The Company intends to defend itself vigorously in each of the remaining actions that are not voluntarily dismissed or subject to a grant of summary judgment. The Company believes that its potentialPotential liability (including its attorneys’ fees and costs) arising out of the covered Shower to Shower lawsuits filed against the Company is subject to certain indemnification obligations of Johnson & Johnson owed to the Company.Company, and legal fees and costs have been and will continue to be reimbursed by Johnson & Johnson. The Company has providedand Johnson & Johnson with noticereached an agreement on April 17, 2019, regarding the scope of the indemnification relating to the majority of the Shower to Shower matters (the “Covered Matters”) and the Company has dismissed the demand for arbitration that the lawsuitsCompany filed against Johnson & Johnson to assert its rights to indemnification. Johnson & Johnson will fully indemnify the Company relatingin the Covered Matters, which include (i) personal injury and products liability actions arising from alleged exposure to Shower to Shower are, in whole® prior to March 2020, and (ii) consumer fraud, consumer protection, false advertising or in part, subjectother regulatory actions arising out of the manufacture, use, or sale of Shower to indemnification by Johnson & Johnson.Shower® up to and including September 9, 2012. The Company does not believe that the Covered Matters will have a material impact on the Company’s financial results going forward.
General Civil Actions
Mississippi Attorney General Consumer Protection Action
The Company and Bausch Health US are named in an action brought by James Hood, Attorney General of Mississippi, in the Chancery Court of the First Judicial District of Hinds County, Mississippi (Hood ex rel. State of Mississippi, Civil Action No. G2014-1207013, filed on August 22, 2014), alleging consumer protection claims against Johnson & Johnson and Johnson Consumer Companies, Inc., the Company and Bausch Health US related to the Shower to Shower body powder product and its alleged causal link to ovarian cancer. As indicated above, the Company acquired the Shower to Shower body powder product in September 2012 from Johnson & Johnson. The State seeks compensatory damages, punitive damages, injunctive relief requiring warnings for talc-containing products, removal from the market of products that fail to warn, and to prevent the continued violation of the Mississippi Consumer Protection Act (“MCPA”). The State also seeks disgorgement of profits from the sale of the product and civil penalties. In October 2017, plaintiffs dismissed certain claims under the MCPA related to advertising/marketing that did not appear on the label and/or packaging of Shower to Shower. The State has not made specific allegations as to the Company or Bausch Health US. The Company intends to defend itself vigorously in this action. Johnson & Johnson will fully indemnify the Company in this case with respect to liabilities arising out of the manufacture, use, or sale of Shower to Shower® prior to the Company's acquisition of the product.
Doctors Allergy Formula Lawsuit
In April 2018, Doctors Allergy Formula, LLC (“Doctors Allergy”), filed a lawsuit against Bausch Health Americas in the Supreme Court of the State of New York, County of New York, Index No. 651597/2018. Doctors Allergy asserts breach of contract and related claims under a 2015 Asset Purchase Agreement, which purports to include milestone payments that Doctors Allergy alleges should have been paid by Bausch Health Americas. Doctors Allergy claims its damages are not less than $23 million. On June 14, 2018, Bausch Health Americas filed a motion to dismiss the complaint in part and a motion to strike. Oral argument on this motion was held on November 13, 2018. Discovery is proceeding. Bausch Health Americas disputes the claims and intends to vigorously defend this matter.
Litigation with Former Salix CEO
On January 28, 2019, former Salix Ltd. CEO and director Carolyn Logan filed a lawsuit in the Delaware Court of Chancery, Case No. 2019-0059, asserting claims for breach of contract and declaratory relief. The lawsuit arises out of the contractual termination of approximately $30 million in unvested equity awards following the determination by the Salix Ltd. Board of Directors that Logan intentionally engaged in wrongdoing that resulted, or would reasonably be expected to result, in material harm to Salix Ltd., or to the business or reputation of Salix Ltd. Logan seeks the restoration of the unvested equity awards and a declaration regarding certain rights related to indemnification. The Company disputes the claims and intends to vigorously defend the matter.
Completed or Inactive Matters
The following matters have concluded, have settled, are the subject of an agreement to settle or have otherwise been closed since January 1, 2019, have been inactive from the Company’s perspective for several quarters or the Company anticipates that no further material activity will take place with respect thereto. Due to the closure, settlement, inactivity or change in status of the matters referenced below, these matters will no longer appear in the Company's next public reports and disclosures, unless required. With respect to inactive matters, to the extent material activity takes place in subsequent quarters with respect thereto, the Company will provide updates as required or as deemed appropriate.
Settlement of Horizon Blue Cross Blue Shield of New Jersey Lawsuit
On July 26, 2018, Horizon Blue Cross Blue Shield of New Jersey ("Horizon") filed a lawsuit against the Company in the Superior Court of New Jersey Law Division/Essex County. This action was captioned Horizon Blue Cross Blue Shield of New Jersey v. Valeant Pharmaceuticals International Inc., et. al., (No. ESX-L-005234-18). This suit asserted a claim under the New Jersey Insurance Fraud Prevention Act, N.J.S.A. 17:33A-1 to -30, as well as claims for common law fraud and negligent misrepresentation. In its complaint, Horizon alleged that the Company and other defendants submitted and caused Horizon to pay fraudulent insurance claims. On October 5, 2018, the Company filed a motion to dismiss the claims against it. While that motion was pending, plaintiff and the Company entered into a confidential settlement agreement, pursuant to which the Company was dismissed from the action on January 8, 2019.
Afexa Class Action
On March 9, 2012, a Notice of Civil Claim was filed in the Supreme Court of British Columbia which seekssought an order certifying a proposed class proceeding against the Company and a predecessor, Afexa Life Sciences Inc. ("Afexa") (Case No. NEW-S-S-140954). The proposed claim assertsasserted that Afexa and the Company made false representations respecting Cold-FX®Cold-FX® to residents of British Columbia who purchased the product during the applicable period and that the proposed class has suffered damages as a result. On November 8, 2013, the Plaintiffplaintiff served an amended notice of civil claim which sought to re-characterize the representation claims and broaden them from what was originally claimed. On December 8, 2014, the Company filed a motion to strike certain elements of the Plaintiff’splaintiff’s claim for failure to state a cause of action. In response, the Plaintiffplaintiff proposed further amendments to its claim. The hearing on the motion to strike and the Plaintiff’splaintiff’s amended claim was held on February 4, 2015. The Court allowed certain additional subsequent amendments, while it struck others. The hearing to certify the class was held on April 4-8, 2016 and, on November 16, 2016, the Court issued a decision dismissing the plaintiff’s application for certification of this action as a class proceeding. On December 15, 2016, the plaintiff filed a notice of appeal in the British Columbia Court of Appeal appealing the decision to dismiss the application for certification. The plaintiff filed its appeal factum on March 15, 2017 and the Company filed its appeal factum on April 19, 2017. The appeal hearing was held on September 19, 2017 and, a decision is pending. The Company denieson April 30, 2018, the allegations being made and is continuing to vigorously defend this matter.
Mississippi Attorney General Consumer Protection Action
The Company and VPNA are named in an action brought by James Hood, Attorney General of Mississippi, in the ChanceryBritish Columbia Court of Appeal dismissed the First Judicial District of Hinds County, Mississippi (Hood ex rel. State of Mississippi, Civil Action No. G2014-1207013,appeal. On June 29, 2018, the plaintiff filed on August 22, 2014), alleging consumer protection claims against both Johnson & Johnson, the Company and VPNA relatedleave to appeal to the Shower to Shower body powder product and its alleged causal link to ovarian cancer. As indicated above, the Company acquired the Shower to Shower body powder product in September 2012 from Johnson & Johnson. The State seeks compensatory damages, punitive damages, injunctive relief requiring warnings for talc-containing products, removal from the marketSupreme Court of products that fail to warn, and to prevent the continued violation of the Mississippi Consumer Protection Act (“MCPA”). The State also seeks disgorgement of profits from the sale of the product and civil penalties. In October 2017, Plaintiffs dismissed certain claims under the MCPA related to advertising/marketing that did not appear on the label and/or packaging of Shower to Shower. The State has not made specific allegations as to the Company or VPNA. The Company intends to defend itself vigorouslyCanada in this action, whichmatter and, on February 7, 2019, the Company believes will also fall, in whole or in part, withinSupreme Court of Canada dismissed the indemnification obligations of Johnson & Johnson owedapplication for leave to the Company, as indicated above.
Uceris® Arbitration
On or about December 5, 2016, Cosmo Technologies Ltd. and Cosmo Technologies III Ltd. (collectively, “Cosmo”), the licensor of certain intellectual property rights in, and supplier of, the Company’s Uceris® extended release tablets, commenced arbitration against certain affiliates of the Company, Santarus Inc. (“Santarus”) and Valeant Pharmaceuticals Ireland (“Valeant Ireland”), under the Rules of Arbitration of the International Chamber of Commerce (No. 22453/GR, Cosmo Technologies Ltd. et al. v. Santarus, Inc. et al.). In the arbitration, Cosmo is alleging breach of contractappeal with respect to certain terms of the license agreement, including the obligations on Santarus to use certain commercially reasonable efforts to promote the Uceris® extended release tablets. Cosmo is seeking a declaration that both the license agreement and a supply agreement with Valeant Ireland have been terminated, plus audit and attorney fees. Santarus and Valeant Ireland submitted their Answer in the arbitration on January 10, 2017 denying each of Cosmo’s allegations and making certain counterclaims. A hearing on liability issues was conducted from October 5 to 8, 2017. No ruling has yet issued. The Company is vigorously defending this matter.costs.
Arbitration with Alfa Wasserman
On or about July 21, 2016, Alfa Wasserman S.p.A. (“Alfa Wasserman”) commenced arbitration against the Company and its subsidiary, Salix Pharmaceuticals, Inc. (“Salix Inc.”) under the Rules of Arbitration of the International Chamber of Commerce (No. 22132/GR, Alfa Wasserman S.p.A. v. Salix Pharmaceuticals, Inc. et al.), pursuant to the terms of the Amended and Restated License Agreement between Alfa Wasserman and Salix Inc. (the “ARLA”). In the arbitration, Alfa Wasserman has made certain allegations respecting a development project for a formulation of the rifaximin compound (not the Xifaxan® product) that is being conducted under the terms of the ARLA, including allegations that Salix Inc. has failed to use the required efforts with respect to this development and that the Company’s acquisitionSettlement of Salix resulted in a change of control under the ARLA, which entitled Alfa Wasserman to assume control of this development. Alfa Wasserman is seeking, among other things, a declaration that the provisions of the ARLA relating to the development product and the rights relating to the rifaximin formulation being developed have been terminated and such development and rights shall be returned to Alfa Wasserman, an order requiring the Company and Salix Inc. to pay for the costs of such development (in an amount of at least $80 million), and alleged damages in the amount of approximately $285 million plus arbitration costs and attorney fees. The Company and Salix Inc. have submitted their initial response to the request for arbitration and a three-member arbitration tribunal was selected. The Company is vigorously defending this matter.
The Company’s Xifaxan® products (and Salix Inc.'s rights thereto under the ARLA) are not the subject of any of the allegations or relief sought in this arbitration.
Mimetogen Litigation
In November 2014, B&L Inc. filed a lawsuit against Mimetogen Pharmaceuticals Inc. (“MPI”) in the United States District Court for the Western District of New York (Bausch & Lomb Incorporated v. Mimetogen Pharmaceuticals Inc., Case No. 6:14-06640 (FPG-JWF) (W.D.N.Y.)) relating to the Development Collaboration and Exclusive Option Agreement between B&L Inc. and MPI dated July 17, 2013 (the “MIM-D3 Agreement”) for MIM-D3, a compound created by MPI to treat dry eye syndrome. In particular, B&L Inc. sought a declaratory judgment that the Initial Phase III Trial regarding the safety and efficacy of MIM-D3 conducted pursuant to the MIM-D3 Agreement was “Not Successful” as defined in the MIM-D3 Agreement and, as a result, B&L Inc. had no further obligation to MPI when B&L Inc. elected not to exercise or extend its option to obtain an exclusive license to the MIM-D3 Technology to develop and commercialize certain products pursuant to
the MIM-D3 Agreement before the end of the applicable option period. MPI filed a counterclaim against B&L Inc., in which it contended that the result of the clinical trial did not meet the definition of “Not Successful” under the MIM-D3 Agreement and that, as a result, a $20 million termination fee was due by B&L Inc. to MPI under the terms of the MIM-D3 Agreement and that B&L Inc. had breached the MIM-D3 Agreement by failing to pay this termination fee. MPI also contended that B&L Inc. acted intentionally and consequently was entitled to additional damages. MPI also brought certain third-party claims against the Company, alleging that the Company intentionally interfered with the MIM-D3 Agreement with the intent to harm MPI. MPI also asserted a claim against the Company for unfair and deceptive acts under Massachusetts law, and sought recovery of the $20 million fee, as well as additional damages related to this claimed delay and injury to the value of its developmental product. On March 12, 2015, the Company moved to dismiss all of the claims against the Company and the claims for extra-contractual damages. In May 2016, the Court dismissed all claims against the Company, other than the claim for tortious interference, and declined to dismiss the claims against B&L Inc. and the Company for extra-contractual damages. On August 19, 2016, MPI filed a motion for summary judgment on its contract claim against B&L Inc. On September 22, 2016, B&L Inc. responded to MPI’s motion for summary judgment, and, along with the Company, filed a cross-motion for judgment in their favor, dismissing the contract claims against B&L Inc., as well as the remaining third-party claim against the Company for tortious interference. On June 30, 2017, the Court issued a Decision and Order granting MPI’s motion for partial summary judgment, awarding MPI the amount of $20 million (based on a finding that the termination fee was due based on the outcome of the clinical trial) and denying the cross-motion for summary judgment filed by B&L Inc. and the Company. The Decision and Order is not yet appealable and the Company believes that that the Decision and Order cannot be enforced, as it is a partial summary judgment and not yet a final order of the Court. B&L Inc. and the Company intend to appeal this decision at the soonest possible time and will continue to vigorously defend the remainder of the suit. Discovery is proceeding as to the remaining claims.
Salix Legal Proceedings
The Salix legal proceeding matter set out below, as well as each of those Salix matters described under the sub-heading “Completed Matters” below, were commenced prior to the Company’s acquisition of Salix. The estimated fair values of the potential losses regarding these matters, along with other matters, are included as part of contingent liabilities assumed in the Salix Acquisition and updated regularly as needed.
SalixLtd. SEC Investigation
In the fourth quarter of 2014, the SEC commenced a formal investigation into possiblealleged securities law violations by Salix relatingLtd. The investigation related to certain disclosures made prior to the Salix Acquisition by Salix of inventory amounts in the distribution channelLtd. and related issues in press releases, on analyst calls and in Salix’s various SEC filings, as well as related accounting issues. In April 2017, the SEC staff indicated that it had substantially completed its investigation and will be making recommendations to the Commission in the near future. Salix continues to cooperate with the SEC staff. The Company cannot predict the outcome of the SEC investigation or any other legal proceedings or any enforcement actions or other remedies that may be imposed on Salix or the Company arising out of the SEC investigation.
Philidor Matters
As mentioned above in this section, the Company is involved in certain investigations, disputes and other proceedings related to the Company’s now terminated relationship with Philidor. These include the putative class action litigation in the U.S. and Canada, the purported class actions under the federal RICO statute and the investigations by certain offices of the Department of Justice, the SEC and the California Department of Insurance and the request for documents and other information received from the AMF. There can be no assurances that governmental agencies or other third parties will not commence additional investigations or assert claimsthen-chief financial officer relating to the Company’s former relationshipamounts of Salix Ltd. drugs held in inventory by certain wholesaler customers. The Company cooperated with Philidor or Philidor’s business practices, including claims that Philidor or its affiliated pharmacies improperly billed third parties or thatthe SEC's investigation. On September 28, 2018, the Company is liable, directly or indirectly, for such practices. The Company is cooperatingreached a settlement of the relevant charges with all existing governmental investigations related to Philidor and is vigorously defending the putative class action litigations.SEC. Under the terms of the settlement, Salix Ltd. neither admitted nor denied the SEC’s allegations. No assurance can be given regarding the ultimate outcome of any present or future proceedings relating to Philidor.
Completed Matters
The following matters have concluded, settled or otherwise been closed ormonetary penalty against the Company anticipates that no further material activity will take place with respect thereto.
or Salix Securities Litigation
Beginning on November 7, 2014, three putative class action lawsuits were filedLtd. was assessed by shareholdersthe terms of Salix, each of which generally alleges that Salix and certain of its former officers and directors violated federal securities laws in connection with Salix’s disclosures regarding certain products, including with respect to disclosures concerning historic wholesaler inventory levels, business prospects and demand, reserves and internal controls. Two of these actions were filed inthe settlement. On April 4, 2019, the U.S. District Court for the Southern District of New York and are captioned: Woburn Retirement System v. Salix Pharmaceuticals, Ltd., et al. (Case No: 1:14-CV-08925 (KMW)), and Bruyn v. Salix Pharmaceuticals, Ltd., et al. (Case No. 1:14-CV-09226 (KMW)). These two actions have been consolidated underrendered its final judgment approving the caption In re Salix Pharmaceuticals, Ltd. (Case No. 14-CV-8925 (KMW)). Defendants’ Motions to Dismiss were fully briefed as of August 3, 2015. The Court denied the Motions to Dismiss in an order dated March 31, 2016 for the reasons stated in an opinion dated April 22, 2016. Defendants’ Answers to the operative Complaint were filed on May 31, 2016. On October 10, 2016, Plaintiffs’ filed a motion for class certification. A third action was filed in the U.S. District Court for the Eastern District of North Carolina under the caption Grignon v. Salix Pharmaceuticals, Ltd. et al. (Case No. 5:14-cv-00804-D), but was subsequently voluntarily dismissed. On February 8, 2017, the parties reached an agreement in principle to settle the consolidated action, pursuant to which Salix will make a payment of $210 million and, on April 5, 2017, the court granted preliminary approval of the settlement. A hearing to grant final approval of the settlement was heard on July 28, 2017 and the settlement was approved by the Court. The settlement amount has been fully accrued for in the Company’s consolidated financial statements as of December 31, 2016 and a payment of $210 million was made in the second quarter of 2017 (in total, the Company received $60 million of insurance refund proceeds related to this matter). Included in Other expense (income) in the statement of loss for 2016 is a $90 million charge in the fourth quarter for this matter.
U.S. Department of Justice Investigation
On September 15, 2015, Bausch & Lomb International, Inc. received a subpoena from the Criminal Division of the U.S. Department of Justice regarding agreements and payments between B&L and medical professionals related to its surgical products Crystalens® IOL and Victus® femtosecond laser platform. The government indicated that the subpoena was issued in connection with a criminal investigation into possible violations of Federal health care laws. B&L International produced certain documents in response to the subpoena and cooperated with the investigation. The underlying qui tam action relating to this investigation was dismissed without prejudice on June 19, 2017 and the Department of Justice has both declined to intervene, as well as, declined to further prosecute this matter.
Sprout Litigation
On or about November 2, 2016, the Company and Valeant were named as defendants in a lawsuit filed by the shareholder representative of the former shareholders of Sprout in the Court of Chancery of the State of Delaware (C.A. No. 12868). The plaintiff in this action alleged, among other things, breach of contract with respect to certain terms of the merger agreement relating to the Company's acquisition of Sprout, including a disputed contractual term respecting the use of certain diligent efforts to develop and commercialize the Addyi® product (including a disputed contractual term respecting the spend of no less than $200 million in certain expenditures). The plaintiff in this action sought unspecified compensatory and other damages and attorneys’ fees, as well as an order requiring Valeant to perform its obligations under the merger agreement. On December 27, 2016, the Company and Valeant filed (i) an answer directed to the claim for breach of contract and (ii) a partial motion to dismiss the other claims. The Court held a hearing on the partial motion to dismiss on March 10, 2017, and the Court subsequently granted that motion in part, dismissing plaintiff’s intentional misrepresentation and declaratory judgment claims in their entirety and narrowing plaintiff’s implied covenant claim. On November 6, 2017, the Company announced that it had entered into a definitive agreement to sell Sprout. In connection with the closing of the Sprout Sale, this action will be dismissed with prejudice. The Company expects to close the Sprout Sale in 2017.
Depomed/PDL Litigation
On September 7, 2017, Depomed, Inc. (“Depomed”) and PDL BioPharma, Inc. (“PDL”) commenced litigation by the filing of a complaint in the United States District Court for the District of New Jersey, against Valeant Pharmaceuticals International, Inc. and Valeant Pharmaceuticals Luxembourg S.à r.l. (together, “Valeant”) relating to alleged underpayment of royalties in breach of a certain commercialization agreement by and between Depomed and Santarus, Inc. (a predecessor company of the Company) dated as of August 22, 2011, as amended, based on, inter alia, the findings in an audit report prepared by KPMG LLP. Valeant disputed the claims alleged in Depomed’s complaint. On October 27, 2017, PDL, Depomed and Valeant entered into a settlement agreement that resolved all matters addressed in the lawsuit filed. Under the terms of the settlement agreement, the parties agree that the settlement is not an admission by any party thereto of any fact alleged in the litigation, and reflects
a reasonable compromise in the best interest of the parties. As a consequence of the settlement, the litigation was dismissed, with prejudice, on November 6, 2017, and Valeant made a one-time, lump-sum payment of $13 million to Depomed. In addition, under the terms of the settlement agreement, Depomed and PDL will release Valeant from any and all claims against it arising out of the royalty audit that was performed, Valeant’s obligation to pay royalties during the relevant audit period, and/or the litigation, and Valeant will release Depomed and PDL from any and all claims against them as a result of the audit and/or the litigation.
| |
19.20. | SEGMENT INFORMATION |
Reportable Segments
DuringIn 2018, the thirdCompany began reallocating capital and resources among its businesses. As a result, during the second quarter of 2016,2018, the Company’s CEO, who is the Company’s Chief Operating Decision Maker, commenced managing the business differently through changes in and reorganizations to the Company’s business structure, including changes to its operating and reportable segments, which necessitated a realignment of the Company's historical segment structure. This realignment is consistent with how the Company’s CEO currently: (i) assesses operating performance on a regular basis, (ii) makes resource allocation decisions and (iii) designates responsibilities of his direct reports. Pursuant to this change, which was effectivethese changes, in the thirdsecond quarter of 2016,2018, the Company operatesbegan operating in three operating andthe following reportable segments: (i) Bausch + Lomb/International segment, (ii) Branded RxSalix segment, (iii) Ortho Dermatologics segment and (iii) U.S.(iv) Diversified Products. Effective for the first quarter of 2017, revenues and profits from the Company's operations in Canada, included in the Branded Rx segment in prior periods, are included in the Bausch + Lomb/InternationalProducts segment. Prior period presentations of segment revenues segment profits and segment assetsprofits have been recast to conform to the current segment reporting structure. See Note 2, "SIGNIFICANT ACCOUNTING POLICIES" for additional information regarding changes to the Company's reportable segments.
The following is a brief description of the Company’s segments:
The Bausch + Lomb/International segment consists of: (i) sales in the U.S. of pharmaceutical products, OTC products and medical device products, primarily comprised of Bausch + Lomb products, with a focus on the Vision Care, Surgical, Consumer and Ophthalmology Rx products and (ii) with the exception of sales of Solta products, sales in Canada, Europe, Asia, Australia, and New Zealand, Latin America, Africa and the Middle East of branded pharmaceutical products, branded generic pharmaceutical products, OTC products, medical device products and Bausch + Lomb products.
The Branded RxSalix segment consists of sales in the U.S. of: (i) Salix products (gastrointestinal products), (ii) Ortho Dermatologics (dermatological products) and (iii) oncology (or Dendreon), dentistry and women’s healthof GI products. As a result of the Dendreon Sale completed on June 28, 2017, the Company exited the oncology business.
The Ortho Dermatologics segment consists of: (i) sales in the U.S. of Ortho Dermatologics (dermatological) products and (ii) global sales of Solta medical aesthetic devices.
The Diversified Products segment consists of sales in the U.S. of: (i) pharmaceutical products, OTC products and medical device products in the areas of neurology and certain other therapeutic classes, including aesthetics which includes the Solta business and the Obagi business and (ii) generic products and (iii) dentistry products.
Effective in the first quarter of 2019, one product historically included in the reported results of the Ortho Dermatologics business unit in the Ortho Dermatologics segment is now included in the reported results of the Generics business unit in the Diversified Products segment and another product historically included in the reported results of the Ortho Dermatologics business unit in the Ortho Dermatologics segment is now included in the reported results of the Dentistry business unit in the Diversified Products segment as management believes the products better align with the new respective business units. These changes in product alignment are not material. Prior period presentations of business unit and segment revenues and profits have been conformed to current segment and business unit reporting structures.
Segment profit is based on operating income after the elimination of intercompany transactions. Certain costs, such as amortizationAmortization of intangible assets, assetAsset impairments, in-processIn-process research and development costs, restructuringRestructuring and integration costs, acquisition-relatedAcquisition-related contingent consideration costs and other (income) expenseOther income, net, are not included in the measure of segment profit, as management excludes these items in assessing segment financial performance.
Corporate includes the finance, treasury, certain research and development programs, tax and legal operations of the Company’s businesses and maintains and/or incurs certain assets, liabilities, expenses, gains and losses related to the overall management of the Company, which are not allocated to the other business segments. In addition,assessing segment performance and managing operations, management does not review segment assets. Furthermore, a portion of share-based compensation is considered a corporate cost, since the amount of such expense depends on Company-widecompany-wide performance rather than the operating performance of any single segment.
Prior period segment financial information has been recast to conform to current segment presentation.
Segment Revenues and Profits
Segment revenues and profits for the three and nine months ended September 30, 2017 and 2016 were as follows:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| (in millions) | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 |
| Revenues: | | | | | | | | | | |
| Bausch + Lomb/International | $ | 1,254 |
| | $ | 1,243 |
| | $ | 3,645 |
| | $ | 3,666 |
| $ | 1,118 |
| | $ | 1,103 |
|
| Branded Rx | 633 |
| | 766 |
| | 1,873 |
| | 2,084 |
| |
| U.S. Diversified Products | 332 |
| | 470 |
| | 1,043 |
| | 1,521 |
| |
| Salix | | 445 |
| | 422 |
|
| Ortho Dermatologics | | 138 |
| | 140 |
|
| Diversified Products | | 315 |
| | 330 |
|
| | $ | 2,219 |
| | $ | 2,479 |
| | $ | 6,561 |
| | $ | 7,271 |
| $ | 2,016 |
| | $ | 1,995 |
|
| | | | | | | | | | | |
| Segment profits: | | | | | | | | | | |
| Bausch + Lomb/International | $ | 387 |
| | $ | 381 |
| | $ | 1,097 |
| | $ | 1,072 |
| $ | 319 |
| | $ | 297 |
|
| Branded Rx | 357 |
| | 484 |
| | 1,024 |
| | 1,078 |
| |
| U.S. Diversified Products | 238 |
| | 379 |
| | 757 |
| | 1,227 |
| |
| Salix | | 288 |
| | 272 |
|
| Ortho Dermatologics | | 57 |
| | 44 |
|
| Diversified Products | | 236 |
| | 240 |
|
| | 982 |
| | 1,244 |
| | 2,878 |
| | 3,377 |
| 900 |
| | 853 |
|
| Corporate | (126 | ) | | (185 | ) | | (432 | ) | | (525 | ) | (125 | ) | | (114 | ) |
| Amortization of intangible assets | (657 | ) | | (664 | ) | | (1,915 | ) | | (2,015 | ) | (489 | ) | | (743 | ) |
| Goodwill impairments | (312 | ) | | (1,049 | ) | | (312 | ) | | (1,049 | ) | — |
| | (2,213 | ) |
| Asset impairments | (406 | ) | | (148 | ) | | (629 | ) | | (394 | ) | (3 | ) | | (44 | ) |
| Restructuring and integration costs | (6 | ) | | (20 | ) | | (42 | ) | | (78 | ) | (20 | ) | | (6 | ) |
| Acquired in-process research and development costs | — |
| | (31 | ) | | (5 | ) | | (34 | ) | (1 | ) | | (1 | ) |
| Acquisition-related contingent consideration | 238 |
| | (9 | ) | | 297 |
| | (18 | ) | 21 |
| | (2 | ) |
| Other income (expense), net | 325 |
| | (1 | ) | | 584 |
| | 20 |
| 4 |
| | (11 | ) |
| Operating income (loss) | 38 |
| | (863 | ) | | 424 |
| | (716 | ) | 287 |
| | (2,281 | ) |
| Interest income | 3 |
| | 3 |
| | 9 |
| | 6 |
| 4 |
| | 3 |
|
| Interest expense | (459 | ) | | (470 | ) | | (1,392 | ) | | (1,369 | ) | (406 | ) | | (416 | ) |
| Loss on extinguishment of debt | (1 | ) | | — |
| | (65 | ) | | — |
| (7 | ) | | (27 | ) |
| Foreign exchange and other | 19 |
| | (2 | ) | | 87 |
| | 4 |
| — |
| | 27 |
|
| Loss before recovery of income taxes | $ | (400 | ) | | $ | (1,332 | ) | | $ | (937 | ) | | $ | (2,075 | ) | |
| Loss before benefit from income taxes | | $ | (122 | ) | | $ | (2,694 | ) |
Revenues by Segment Assetsand Product Category
Total assetsRevenues by segment and product category were as follows:
|
| | | | | | | |
| (in millions) | September 30,
2017 | | December 31,
2016 |
| Assets: | | | |
| Bausch + Lomb/International | $ | 15,608 |
| | $ | 16,201 |
|
| Branded Rx | 18,455 |
| | 21,143 |
|
| U.S. Diversified Products | 5,172 |
| | 5,820 |
|
| | 39,235 |
| | 43,164 |
|
| Corporate | 739 |
| | 365 |
|
| Total assets | $ | 39,974 |
| | $ | 43,529 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2019 | | Three Months Ended March 31, 2018 |
| (in millions) | Bausch + Lomb/ International | | Salix | | Ortho Dermatologics | | Diversified Products | | Total | | Bausch + Lomb/ International | | Salix | | Ortho Dermatologics | | Diversified Products |
| Total |
| Pharmaceuticals | $ | 217 |
| | $ | 445 |
| | $ | 95 |
| | $ | 211 |
| | $ | 968 |
| | $ | 203 |
| | $ | 422 |
| | $ | 105 |
| | $ | 236 |
| | $ | 966 |
|
| Devices | 366 |
| | — |
| | 38 |
| | — |
| | 404 |
| | 363 |
| | — |
| | 29 |
| | — |
| | 392 |
|
| OTC | 324 |
| | — |
| | — |
| | — |
| | 324 |
| | 326 |
| | — |
| | — |
| | — |
| | 326 |
|
| Branded and Other Generics | 191 |
| | — |
| | — |
| | 102 |
| | 293 |
| | 191 |
| | — |
| | — |
| | 90 |
| | 281 |
|
| Other revenues | 20 |
| | — |
| | 5 |
| | 2 |
| | 27 |
| | 20 |
| | — |
| | 6 |
| | 4 |
| | 30 |
|
| | $ | 1,118 |
| | $ | 445 |
| | $ | 138 |
| | $ | 315 |
| | $ | 2,016 |
| | $ | 1,103 |
| | $ | 422 |
| | $ | 140 |
| | $ | 330 |
| | $ | 1,995 |
|
Debt RepaymentsThe top ten products for the three months ended March 31, 2019 and 2018 represented 36% and 35% of total revenues for the three months ended March 31, 2019 and 2018, respectively.
On October 5, 2017, usingGeographic Information
Revenues are attributed to a geographic region based on the Restricted cash received from the iNova Sale completed on September 29, 2017, the Company repaid $923 million of its Series F Tranche B Term Loan Facility. On November 2, 2017, using cash on hand, the Company repaid $125 million of its Series F Tranche B Term Loan Facility.
Senior Secured Note Offering
On October 17, 2017, the Company issued $1,000 million aggregate principal amountlocation of the 5.50% 2025 Notes, in a private placement, the proceedscustomer were as follows:
|
| | | | | | | |
| | Three Months Ended March 31, |
| (in millions) | 2019 | | 2018 |
| U.S. and Puerto Rico | $ | 1,200 |
| | $ | 1,176 |
|
| China | 89 |
| | 84 |
|
| Canada | 79 |
| | 77 |
|
| Poland | 58 |
| | 63 |
|
| Japan | 55 |
| | 51 |
|
| France | 53 |
| | 55 |
|
| Egypt | 53 |
| | 45 |
|
| Germany | 45 |
| | 50 |
|
| Mexico | 44 |
| | 43 |
|
| Russia | 36 |
| | 28 |
|
| United Kingdom | 28 |
| | 27 |
|
| Italy | 22 |
| | 22 |
|
| Spain | 21 |
| | 21 |
|
| Other | 233 |
| | 253 |
|
| | $ | 2,016 |
| | $ | 1,995 |
|
Major Customers
Customers that accounted for 10% or more of whichtotal revenues were used to (i) repurchase $569 million in principal amount of the 6.375% 2020 Notes and (ii) repurchase $431 million in principal amount of the 7.00% 2020 Notes. The related fees and expenses were paid using cash on hand. Interest on these notes is payable semi-annually in arrears on each May 1 and November 1.
The 5.50% 2025 Notes are guaranteed by each of the Company’s subsidiaries that is a guarantor under the Credit Agreement and existing Senior Unsecured Notes (together, the “Note Guarantors”). The Senior Secured Notes and the guarantees related thereto are senior obligations and are secured, subject to permitted liens and certain other exceptions, by the same first priority liens that secure the Company’s obligations under the Credit Agreement under the terms of the indenture governing the Senior Secured Notes.
The5.50% 2025 Notes and the guarantees rank equally in right of payment with all of the Company’s and Note Guarantors’ respective existing and future unsubordinated indebtedness and senior to the Company’s and Note Guarantors’ respective future subordinated indebtedness. The Senior Secured Notes and the guarantees related thereto are effectively pari passu with the Company’s and the Note Guarantors’ respective existing and future indebtedness secured by a first priority lien on the collateral securing the Senior Secured Notes and effectively senior to the Company’s and the Note Guarantors’ respective existing and future indebtedness that is unsecured, including the existing Senior Unsecured Notes, or that is secured by junior liens, in each case to the extent of the value of the collateral. In addition, the Senior Secured Notes are structurally subordinated to (i) all liabilities of any of the Company’s subsidiaries that do not guarantee the Senior Secured Notes and (ii) any of the Company’s debt that is secured by assets that are not collateral.
The 5.50% 2025 Notes are redeemable at the option of the Company, in whole or in part, at any time on or after November 1, 2020, at the redemption prices set forth in the indenture. The Company may redeem some or all of the 5.50% 2025 Notes prior to November 1, 2020 at a price equal to 100% of the principal amount thereof plus a “make-whole” premium. Prior to November 1, 2020, the Company may redeem up to 40% of the aggregate principal amount of the 5.50% 2025 Notes using the proceeds of certain equity offerings at the redemption price set forth in the indenture.
Upon the occurrence of a change in control (as defined in the indentures governing the Senior Secured Notes), unless the Company has exercised its right to redeem all of the notes of a series as described above, holders of the Senior Secured Notes may require the Company to repurchase such holder’s notes, in whole or in part, at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest.
Sprout Sale
On November 6, 2017, the Company announced it had entered into a definitive agreement to sell Sprout to a buyer affiliated with certain former shareholders of Sprout, in exchange for a 6% royalty on global sales of Addyi® beginning May 2019. In connection with the completion of the Sprout Sale, the terms of the October 2015 merger agreement relating to the Company's acquisition of Sprout will be amended to terminate the Company's ongoing obligation to make future royalty payments associated with the Addyi® product, as well as certain related provisions (including the obligation to make certain marketing and other expenditures). In connection with the completion of the Sprout Sale, the current litigation against the Company, initiated on behalf of the former shareholders of Sprout, which disputes the Company's compliance with certain contractual terms of that same merger agreement with respect to the use of certain diligent efforts to develop and commercialize the Addyi® product (including a disputed contractual term with respect the spend of no less than $200 million in certain expenditures), will be dismissed with prejudice. Upon completion of the Sprout Sale, the Company will issue the buyer a five-year $25 million loan for initial operating expenses. The Sprout Sale is subject to certain closing conditions, including the approval of the requisite portion of the former shareholders of Sprout to the amendments to the original merger agreement.
Royalties due to the Company from the future sales of the Addyi® product will be contingent upon future events. As the Company has previously elected a policy to record such contingent proceeds only when the contingency is realizable, no valuefollows:
will be ascribed to the Company's right to receive those future royalties in determining the Company's gain or loss on the Sprout Sale. The Sprout Sale is expected to close in 2017, at which time the Company will recognize a loss equal to the carrying value of the net assets of Sprout at the date of closing, plus any necessary provisions regarding the five-year $25 million loan executed as part of the Sprout Sale agreement. As of September 30, 2017, net assets of the Sprout business were $71 million and were included in assets and liabilities held for sale. |
| | | |
| | Three Months Ended March 31, |
| | 2019 | | 2018 |
| McKesson Corporation (including McKesson Specialty) | 17% | | 18% |
| AmerisourceBergen Corporation | 16% | | 18% |
| Cardinal Health, Inc. | 14% | | 11% |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
Unless the context otherwise indicates, as used in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the terms “we,” “us,” “our,” “the Company,” and similar terms refer to Valeant Pharmaceuticals International,Bausch Health Companies Inc. and its subsidiaries. This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” has been updated through November 7, 2017May 6, 2019 and should be read in conjunction with the unaudited interim Consolidated Financial Statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017March 31, 2019 (this “Form 10-Q”). The matters discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contain certain forward-looking statements within the meaning of the PrivateSection 27A of The Securities Litigation Reform Act of 19951993, as amended, and Section 21E of The Securities Exchange Act of 1934, as amended, and that may be forward-looking information within the meaning defined under applicable Canadian securities legislationlaws (collectively, “Forward-Looking Statements”). See “Forward-Looking Statements” at the end of this discussion.
Our accompanying unaudited interim Consolidated Financial Statements as of September 30, 2017March 31, 2019 and for the three and nine months ended September 30, 2017March 31, 2019 and 20162018 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for interim financial statements, and should be read in conjunction with our Consolidated Financial Statements and other financial information for the year ended December 31, 2016,2018, which were included in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 1, 2017.February 20, 2019. In our opinion, the unaudited interim Consolidated Financial Statements reflect all adjustments, consisting of normal and recurring adjustments, necessary for a fair statement of the financial condition, results of operations and cash flows for the periods indicated. Additional company information is available on SEDAR at www.sedar.com and on the SEC website at www.sec.gov. All currency amounts are expressed in U.S. dollars, unless otherwise noted.
OVERVIEW
Valeant Pharmaceuticals International, Inc.We are a global company whose mission is a multinational, specialty pharmaceuticalto improve people’s lives with our health care products. We develop, manufacture and medical device company that develops, manufactures,market, primarily in the therapeutic areas of eye-health, gastroenterology ("GI") and marketsdermatology, a broad range ofof: (i) branded pharmaceuticals, (ii) generic and branded generic pharmaceuticals, (iii) over-the-counter (“OTC”) products and (iv) medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment and aesthetics devices),.
Business Strategy
Core Businesses
Our strategy is to focus our business on core therapeutic classes that offer attractive growth opportunities. Within our chosen therapeutic classes, we prioritize durable products which are marketed directly or indirectly in approximately 100 countries.we believe have the potential for strong operating margins and evidence of growth opportunities. We are diverse not onlybelieve this strategy has reduced complexity in our sourcesoperations and maximized the value of revenue fromour: (i) eye-health, (ii) GI and (iii) dermatology businesses which collectively now represent approximately 70% of our broad drugrevenues. We have found and medical devicecontinue to believe there is significant opportunity in these businesses and we believe that our existing portfolio, but also amongcommercial footprint and pipeline of product development projects position us to successfully compete in these markets and provide us with the therapeutic classesgreatest opportunity to build value for our shareholders. We identify these businesses as “core”, meaning that we believe we are best positioned to grow and geographies we serve.develop them.
We generated revenues of $6,561 millionReportable Segments and $7,271 million for the nine months ended September 30, 2017 and 2016, respectively. Strategies
Our portfolio of products falls into threefour operating and reportable segments: (i) Bausch + Lomb/International, (ii) Branded RxSalix, (iii) Ortho Dermatologics and (iii) U.S.(iv) Diversified Products.
The Bausch + Lomb/International segment - consists of: (i) sales in the U.S. of pharmaceutical products, OTC products and medical device products, primarily comprised ofour Global Bausch + Lomb products, with a focus on theeye-health business and our International Rx business. Our Global Bausch + Lomb eye-health business includes our Vision Care, Surgical, Consumer and Ophthalmology Rx products, which in aggregate accounted for approximately 43%, 41% and (ii)37% of our Company's revenues for 2018, 2017 and 2016, respectively. Our International Rx business, with the exception of our Solta products, includes sales in Canada, Europe, Asia, Australia, and New Zealand, Latin America, Africa and the Middle East of branded pharmaceutical products, branded generic pharmaceutical products, OTC products and medical device products, andproducts.
Our Bausch + Lomb products.business is a fully-integrated eye-health business, which we believe is critical to maintaining our position in the global eye-health market. As a fully-integrated eye-health business with a 165-year legacy, Bausch + Lomb has
an established line of contact lenses, intraocular lenses and other medical devices, surgical systems and devices, vitamin and mineral supplements, lens care products, prescription eye-medications and other consumer products that positions us to compete in all areas of the eye-health market.
As part of our Global Bausch + Lomb business strategy, we continually look for key trends in the eye-health market to meet changing consumer/patient needs and identify areas for investment and growth. We continue to see increased demand for new eye-health products that address conditions brought on by factors such as increased screen time, lack of outdoor activities and academic pressures, as well as conditions brought on by an aging population for example, as more and more baby-boomers in the U.S. are reaching the age of 65. To supplement our well-established Bausch + Lomb product lines, we continue to identify for development new products tailored to address these key trends, which we develop internally with our own research and development (“R&D”) team to generate organic growth. Recent product launches include Biotrue® ONEday daily disposable contact lenses, the next generation of Bausch + Lomb ULTRA® contact lenses, SiHy Daily contact lenses, Lumify® (an eye redness treatment) and Vyzulta® (a pressure lowering eye drop for patients with angle glaucoma or ocular hypertension).
The Branded RxSalix segment - consists of sales in the U.S. of gastrointestinal or GI products and includes Xifaxan® which accounted for approximately 14%, 11% and 10% of our total revenues for 2018, 2017 and 2016, respectively.
As part of our acquisition of Salix Pharmaceutical, Ltd. in April 2015 (the "Salix Acquisition"), we acquired the intellectual property to a number of products that have provided us with year-over-year revenue growth, particularly the intellectual properties behind Xifaxan® for irritable bowel syndrome with diarrhea (“IBS-D”) and Relistor® for opioid induced constipation (“OIC”). Revenues from our Xifaxan® and Relistor® products increased approximately 22% and 37%, respectively, in 2018 when compared to 2017 and increased 11% and 30%, respectively, for the three months ended March 31, 2019 when compared to the three months ended March 31, 2018. We attribute these increases, in part, to our January 2017 sales force expansion program described later in the discussion of our transformation.
Our Salix business strategy includes building upon our Xifaxan® and Relistor® business models. Specifically, we have identified and continue to look for opportunities to capitalize on the sales force and infrastructure we have built around our Xifaxan® and Relistor® products. Part of that strategy is to gain access to new products through innovation, co-promotion and acquisition. We have been executing on these strategies in the second half of 2018 and during 2019, as we: (i) have entered into strategic co-promotion relationships with pharmaceutical companies with new GI products, (ii) are in the process of developing next generation formulations of our Salix intellectual properties to address new indications, (iii) have completed a strategic acquisition and (iv) have entered into a licensing agreement for investigational products, which, once developed and if approved by the U.S. Food and Drug Administration (the "FDA"), will be new treatments for certain GI and liver diseases. Each of these opportunities potentially provides us with the ability to expand our GI portfolio and allows us to leverage our existing GI sales force, supply channel and distribution channel.
The Ortho Dermatologics segment - consists of: (i) sales in the U.S. of Ortho Dermatologics (dermatological products) and (ii) global sales of Solta medical dermatological devices.
As part of our business strategy for the Ortho Dermatologics segment, we have made significant investments to build out our psoriasis and acne product portfolios, which are the markets within dermatology where we see the greatest opportunities, with a focus on topical gel and lotion products over injectable biologics. We continue to support and develop injectable biologics; however, we believe some patients prefer topical products as an alternative to injectable biologics. Further, as topical products can, in many cases, defer the use of injectable biologics that often come with associated risk/benefit profiles, a topical product is usually more readily adopted by payors, is less expensive and can be more cost-effective than injectable biologics. Therefore, we believe topical products represent alternative treatments for physicians, payors and patients, and as the preferred choice of treatment, have the potential to drive greater volumes, generate better margins and will ultimately be a key contributing factor of our Ortho Dermatologics business.
As we later discuss, in addition to our established and in-development product lines, we also look to gain access to other dermatology products through strategic licensing agreements. We believe this allows us to leverage our experienced dermatology sales leadership team and our recently expanded Ortho Dermatologics sales force to drive growth in our Ortho Dermatologics business.
The Diversified Products segment - consists of sales in the U.S. of: (i) Salix products (gastrointestinal (“GI”) products), (ii) Ortho Dermatologics (dermatological products) and (iii) oncology (or Dendreon (as defined below)), dentistry and women’s health products. As a result of the Dendreon Sale (as defined below) completed on June 28, 2017, the Company exited the oncology business.
The U.S. Diversified Products segment consists of sales in the U.S. of: (i) pharmaceutical products, OTC products and medical device products in the areas of neurology and certain other therapeutic classes, including aesthetics which includes the Solta businesssuch as Wellbutrin XL®, Cuprimine® and the Obagi business andMigranal®, (ii) generic products.products, such as Diastat®, Uceris® and Zegerid® and (iii) dentistry products, such as Arestin® and NeutraSal®.
Significant Seven
We have focused our R&D to advance development programs that we believe will drive growth in our core businesses, while creating efficiencies in our R&D efforts and expenses. These programs include products we have recently launched, or expect to launch in the near future, which we have dubbed our "Significant Seven". These Significant Seven products are: (i) Bryhali™ (Ortho Dermatologics), (ii) Duobrii™ (Ortho Dermatologics), (iii) Lumify® (Bausch + Lomb), (iv) Relistor® (Salix), (v) SiHy Daily (Bausch + Lomb), (vi) Siliq™ (Ortho Dermatologics) and (vii) Vyzulta® (Bausch + Lomb). As outlined later in this discussion, although revenues associated with our Significant Seven products are focused on core geographies andcurrently not material, we believe the therapeutic classes discussed above which have the potentialprospects for strong operating margins and offer growth opportunities.this group are substantial.
For a comprehensive discussion of our business, business strategy, products and other business matters, see Item 1. “Business” included in our Annual Report on Form 10-K for the year ended December 31, 2016,2018, filed with the SEC and the Canadian Securities Administrators on March 1, 2017.
History
Following the Company’s (then named Biovail Corporation) acquisition of Valeant Pharmaceuticals International (“Valeant”) on September 28, 2010 (the “Merger”), we supplemented our internal research and development (“R&D”) efforts with strategic acquisitions to expand our portfolio offerings and geographic footprint. In 2013, we acquired Bausch & Lomb Holdings Incorporated (“B&L”), a global eye health company that focuses on developing, manufacturing and marketing eye health products, including contact lenses, contact lens care solutions, ophthalmic pharmaceuticals and ophthalmic surgical products. In 2015, we acquired Salix Pharmaceuticals, Ltd. (“Salix”) (the “Salix Acquisition”), a specialty pharmaceutical company dedicated to developing and commercializing prescription drugs and medical devices used in treatment of a variety of GI disorders with a portfolio of over 20 marketed products, including Xifaxan®, Uceris®, Apriso®, Glumetza®, and Relistor®. In 2015, we acquired the exclusive licensing rights to develop and commercialize brodalumab, an IL-17 receptor monoclonal antibody for patients with moderate-to-severe plaque psoriasis for which, following internal development work,SEDAR on February 15, 2017, we received approval from the U.S. Food and Drug Administration (“FDA”). On July 27, 2017, we launched this product in the U.S. (marketed as Siliq™ in the U.S.). We believe the investments we have made in B&L, Salix, brodalumab and other acquisitions, as well as our ongoing investments in our internal R&D efforts, are helping us to capitalize on the core geographies and therapeutic classes that have the potential for strong operating margins and offer attractive growth opportunities. While business development through acquisitions may continue to be a component of our long-term strategy, we have made minimal acquisitions since 2015 and expect the volume and size of acquisitions to be low in the foreseeable future.
Business Strategy
Our strategy is to focus our business on core geographies and therapeutic classes that offer attractive growth opportunities. Within our chosen therapeutic classes and geographies, we prioritize durable products which have the potential for strong operating margins and evidence of growth opportunities. The growth of our business is further augmented through our lower risk, output-focused R&D model, which allows us to advance certain development programs to drive future commercial growth, while creating efficiencies in our R&D efforts.20, 2019.
Key InitiativesOur Transformation
PriorIn response to changing business dynamics within our Company, we recognized the need to change our focus in order to build a world-class health care organization. In 2016, we had completedretained a series of mergersnew executive team which immediately implemented a multi-year plan to stabilize, turnaround and acquisitionstransform the Company. As we continue to work through our plan to build a world-class health care organization, the Company has made changes to its leadership, product focus, infrastructure, geographic footprint and capital structure.
In 2016, the new executive team: (i) identified and retained a new leadership team, (ii) enhanced the Company's focus on core assets, which were keyenabled the Company to recruit and retain stronger talent for its sales initiatives and (iii) realigned the Company’s previous strategy for growth.
The Company has transitioned away from a focus on acquisitions, has taken stepsoperations to stabilize its businessimprove transparency and has begun placing greater emphasisoperational efficiency and better support the Company's sales force. Once in place, the new leadership team began executing on a select number of internal R&D projects. The Company’s key initiatives include: (i) concentratingmulti-year plan and delivering on commitments to narrow the Company's activities to our focus on core businesses where we believe we have an existing and sustainable competitive edge (ii) identifyingand to identify opportunities to improve operational efficiencies and reviewing our internal allocation of capital and (iii) strengthening the Company’s balance sheet and capital structure.
InThroughout 2017 we have continuedand 2018, the Company executed and continues to execute on these key initiatives.its commitments. We havebelieve that during this time we have: (i) better defined our core businesses, shifted our operations toward those core businesses and(ii) made measurable progress in strengtheningimproving our balance sheet.capital structure and (iii) been aggressively addressing and resolving certain legacy legal matters to eliminate disruptions to our operations.
Focus on Core Businesses - We believe that there is significant opportunity in the eye health and branded prescription pharmaceutical businesses. Our existing portfolio, commercial footprint and pipeline of product development projects are expected
Once we committed to position us to compete and be successful in these markets. As a result, we believe these businesses provide us with the greatest opportunity to build value for our stakeholders. In order to focus our efforts, in 2016, we performed a review of our portfolio of assets to identify those areas where we believe we have, and can maintain, a competitive advantage and we continue to define and shape our business around these assets. We identify these areas as “core”, meaning that we are best positioned to grow and develop them. By narrowing our focus, we have the opportunity to reduce complexity in our business and maximize the value of our core businesses. We describe our core areas by business and by geography. Within our Branded Rx segment, our core businesses, include GI (or Salix)we began analyzing the strategic alternatives for business units and dermatology. We also view our global eye health business, within our Bausch + Lomb/International segment, as core. Although the business unitsassets that fall outside our definition of “core”. In order to focus on our objectives, we began divesting businesses and assets, may be solid, the focus of their product pipelines and geographic footprint arewhich were not fully aligned with the focus of our core business objectives. This not only allowed us to better focus our internal resources on our eye-health, GI and they are, therefore, atdermatology businesses, but also provided us with significant sources of capital, which we used to reduce our debt and improve our capital structure.
As a disadvantage when competing againstresult of the focus on our core activities for resources and capital within the Company.
Internal Capital Allocation and Operating Efficiencies - In support of the key initiatives outlined above, in 2016, a new leadership team was recruited and many of the executive roles were realigned or expanded to drive value in our product portfolio and generate operational efficiencies. Beginning in the latter half of 2016, the leadership team began to address a number of issues affecting performance and other operational matters. These operational matters included:
Sales Force Stabilization - We believe that new leadershipbusinesses and the enhanced focus ondivestitures of businesses not aligned with our core assets have enabled the Company to recruitbusiness objectives, and retain stronger talent for itsreduced sales initiatives. We continue to focus on stabilizing our sales forces, which, in turn, will allow us to deliver more consistent and concise messages in the marketplace.
Patient Access and Pricing Committee and New Pricing Actions - In May 2016, we formed the Patient Access and Pricing Committee responsible for setting, changing and monitoring the pricing of our Branded Rx and other pharmaceutical products. Following this committee's recommendation, we implemented an enhanced rebate program to all hospitals in the U.S. to reduce the price of our Nitropress® and Isuprel® products. In October 2016, the Patient Access and Pricing Committee approved 2% to 9% increases to our gross selling price (wholesale acquisition cost or “WAC”) for products in our neurology, GI and urology portfolios. The changes are aligned withDiversified Products segment due to the Patient Access and Pricing Committee's commitment that the average annual price increase for our prescription pharmaceutical products will be set at noloss of exclusivity, a greater than single digits and below the 5-year weighted average of the increases within the branded biopharmaceutical industry. In addition, in 2016, no pricing increases were taken on our dermatology and ophthalmology products and, in 2016, net pricingportion of our dermatologyrevenues are now driven by our core businesses. During the years 2018, 2017 and ophthalmology products, after taking into account the impact2016, our Bausch + Lomb (eye-health), Salix (GI) and Ortho Dermatologics (dermatology) businesses collectively represented approximately 71%, 67% and 63% of rebates and other adjustments, decreased by greater than 10% on average. On April 21, 2017, the Company announced that, following the evaluation and approvalour total revenues, respectively. The year-over-year increase in this percentage demonstrates our convictions in these businesses.
Allocation of the Patient Access and Pricing Committee, it had decidedCapital to list Siliq™ (brodalumab) injection at $3,500 per month, which represented the lowest-priced injectable biologic psoriasis treatment based on total annual costs on the market at the time of the announcement. In the future, we expect that the Patient Access and Pricing Committee will implement or recommend additional price changes and/or new programs to enhance patient access to our drugs and that these pricing changes and programs could affect the average realized pricing for our products and may have a significant impact on our revenue trends.
Drive GrowthThe ranking of our business units during 2016 changed our view ofas to how to allocate capital should be allocated across our activities. Our first stepIn support of our core activities, our leadership team aggressively reallocated resources to: (i) promote our core businesses, (ii) make strategic investments in our infrastructure and (iii) direct R&D to our eye-health, GI and dermatology businesses to drive growth organically. The outcome of this process allows us to better drive value in our product portfolio and generate operational efficiencies.
Continued Investment in Emerging Markets - In October 2018, we acquired the 40% minority interests of Medpharma Pharmaceutical and Chemical Industries LLC ("Medpharma") for $18 million, thereby completing the planned acquisition of this joint venture. Medpharma formulates, manufactures and distributes certain branded generic pharmaceuticals and non-patented generic pharmaceuticals for the Company and third parties. In 2014, we entered into the Medpharma joint venture to provide the Company with a presence in the United Arab Emirates ("UAE"). The completion of this acquisition provides us
with full control over the business activities of Medpharma and allows us to wholly benefit from the allocation of additional Company resources and the growth, if any, in the UAE and the surrounding region.
Strategic Investments in our Infrastructure - In support of our core businesses, we have and continue to make strategic investments in our infrastructure, the most significant of which are at our Waterford facility in Ireland, our Rochester facility in New York, and our Greenville facility in South Carolina.
To meet the forecasted demand for our Biotrue® ONEday lenses, in July 2017, we placed into service a $175 million multi-year strategic expansion project of the Waterford facility. The emphasis of the expansion project was to: (i) develop new technology to review each business unit, considermanufacture, automatically inspect and assesspackage contact lenses, (ii) bring that technology to full validation and (iii) increase the appropriate levelssize of operating expense, and to eliminate non-productive costs.the Waterford facility. As a result of that review, we identified several hundred million dollars of cost savings opportunities.
To position the Company to drive the valueincreased production capacity and in support of our core assets,eye-health business, we madeadded approximately 300 production employees since the project’s inception, bringing total headcount to approximately 1,350 employees, and succeeded in increasing production, which in 2017 was over 30% higher than it was in 2015 at the facility. We continue to invest in this facility, spending approximately $5 million during 2018 and budgeting an additional $16 million through June 2020.
In order to address the expected global demand for our Bausch + Lomb ULTRA® contact lens, in December 2017, we completed a numbermulti-year, $200 million strategic upgrade to our Rochester facility. The upgrade increased production capacity in support of leadership changesour Bausch + Lomb Ultra® and took stepsSiHy Daily AQUALOXTM product lines and better supports the production of other well-established contact lenses, such as our PureVision®, PureVision®2 (SVS, Toric, and Multifocal), SofLens® 38 and SilSoft®. In connection with the increased production capacity, we added approximately 120 production employees since the project’s inception, bringing total headcount to increaseapproximately 1,000 employees and continue to make investments to enhance our promotional efforts, particularlyproduction technologies and capacity at the facility. These enhancements to our production technologies and capacity led, in GI,part, to the validation of SiHy Daily production at the Rochester facility and the successful launch of SiHy Daily AQUALOXTM lenses in Japan in September 2018.
Additionally, in November 2018, we announced strategic expansion projects that will add multiple production lines to our Waterford and Rochester facilities in order to support our strategic investments in eye-health and meet the anticipated global demand for our SiHy Daily contact lenses, one of our Significant Seven products. These expansion projects are expected to be completed in 2022 and increase our commitmentcombined headcount at these sites by more than 200 employees.
To support the growth of our Biotrue® lens care product lines, in May 2018, we placed into service a new production line in our Bausch + Lomb Greenville, South Carolina manufacturing facility, where we produce a substantial portion of our lens care product lines. The new production line has been validated to researchproduce contact-lens solutions for our Biotrue®, Renu® and development.
Sensitive EyesGI Initiatives® - The GI unit initiatedbrands and replaces one of the facility’s original 1983 production lines that had limitations in product configurations. Planned and in development for more than two years, the new production line cost $25 million, has a significant sales force expansion program in December 2016 to reach potential primary care physician (“PCP”) prescribers of Xifaxan® for irritable bowel syndrome with diarrhea (“IBS-D”)capacity ranging between 40 million and Relistor® tablets for opioid induced constipation (“OIC”). In the first quarter of 2017, we hired approximately 250 trained50 million bottles annually and experienced sales force representatives and managers to create, bolster and sustain deep relationships with PCPs. With approximately 70 percent of IBS-D patients initially presenting with symptoms to a PCP, we believe that the dedicated PCP sales force will be positioned to reach more patients in need of IBS-D treatment. The investment in these additional sales resources, including an increase in associated promotional costs, is expected to be ingenerate additional sustainable operational efficiencies through 2019.
We believe the range of $50 million to $60 million, as we believe this spend is needed to allow us to capitalize on the full potential of Xifaxan®. The costs of this investmentinvestments in our GI unit reducedWaterford, Rochester and Greenville facilities and related expansion of labor forces further demonstrates the growth potential we see in our operating results in the fourth quarter of 2016Bausch + Lomb products and the first quarter of 2017 and we have begun experiencing incremental revenue for Xifaxan®. In addition, we have expanded our dedicated pain sales representatives to strengthen our position in the OIC market, and established a nurse educator team to educate clinical staff within top institutions.eye-health business.
Direct R&D InvestmentsInvestment to our Bausch + Lomb, GI and Dermatology Businesses to Drive Growth - - Our R&D organization focuses on the development of products through clinical trials and consiststrials. As of December 31, 2018, approximately 1,0001,200 dedicated R&D and quality assurance employees in 1823 R&D facilities. Currently, we have over 100 R&D projectsfacilities were involved in the pipeline and we have launched or expect to launch and/or relaunch over 120 products during 2017.
In 2016, we increased our R&D expenditures by 26% overefforts.
As part of our R&D expenditures in 2015, asturnaround, we began the transition away from the Company's previous growth by acquisition strategy and moved toward our organic growth supported by investment in R&D strategy. Although R&D expenses for the nine months ended September 30, 2017 were $271 million and were lower when compared to R&D expenses for the nine months ended September 30, 2016 of $328 million, as a percentage of revenues R&D expenses remain between 4% and 5% in 2017 and 2016 and demonstrates our consistent commitment to our investment in R&D strategy. The decrease in dollars spent is attributable to the year over year phasing as we completed the R&D investment in SiliqTM and other newly launched products requiring investment in the prior year, removed projects related to divested businesses and rebalanced our portfolio to better align with our long-term plans.plans and focus on core businesses. Our investment in R&D reflects our commitment to drive organic growth through internal development of new products, a pillar of our new strategy. We have approximately 250 projects in our global pipeline and anticipate submitting over 125 of those projects for regulatory approval in 2019 and 2020.
Core assets that have received a significant portion of our R&D investment are:in current and prior periods are listed below.
Dermatology - In April 2019, the FDA approved Duobrii™, the first and only topical lotion that contains a unique combination of halobetasol propionate and tazarotene for the treatment of moderate-to-severe plaque psoriasis in adults. Halobetasol propionate and tazarotene are each approved to treat plaque psoriasis when used separately, but are limited in duration of use. Halobetasol propionate may be used for up to two weeks and tazarotene may be limited due to irritation. However, the combination of these ingredients in Duobrii™, with a dual mechanism of action, allows for expanded duration of use, with reduced adverse events. We expect to launch Duobrii™ in June 2019.
Dermatology - Bryhali™ is a novel product that contains a unique, lower concentration of halobetasol propionate for the treatment of moderate-to-severe psoriasis which is FDA approved for 8 weeks of use. The FDA has previously approved halobetasol propionate to treat plaque psoriasis, but limited in duration of use. We launched Bryhali™ in November 2018.
Dermatology - Internal Development Project ("IDP") 133 is a project to expand the indication for Bryhali™ (halobetasol propionate lotion 0.01%) from plaque psoriasis to corticosteroid responsive dermatoses. A Phase 3 study is planned to start in the second half of 2019.
Dermatology - IDP-131 is a new chemical entity, KP-470, for the topical treatment of psoriasis. On February 27, 2018, we announced that we entered into an exclusive license agreement with Kaken Pharmaceutical Co., Ltd. to develop and commercialize the compound. Early proof of concept studies are planned for 2019. If approved by the FDA, KP-470 could represent a novel drug with an alternative mechanism of action in the topical treatment of psoriasis.
| |
| • | Bausch + Lomb - Bausch + Lomb ULTRA® for Astigmatism is a monthly planned replacement contact lens for astigmatic patients. The Bausch + Lomb ULTRA® for Astigmatism lens was developed using the proprietary MoistureSeal® technology. In addition, the Bausch + Lomb ULTRA® for Astigmatism lens integrates an OpticAlign® design engineered for lens stability and to promote a successful wearing experience for the astigmatic patient. In 2017, we launched this product and the extended power range for this product. In 2018, we launched the Bausch + Lomb ULTRA® for Astigmatism -2.75 cylinder expanded SKU range. |
Dermatology - On July 27, 2017, we launched Siliq™ in the U.S. Siliq™ is an IL-17 receptor blocker monoclonal antibody biologic for treatment of moderate-to-severe plaque psoriasis, which we estimate to be an over $5,000 million market in the U.S. The FDA approved the Biologics License Application (“BLA”) for Siliq™ injection for subcutaneous
use for the treatment of moderate-to-severe plaque psoriasis in adult patients who are candidates for systemic therapy or phototherapy and have failed to respond or have lost response to other systemic therapies. Siliq™ has a Black Box Warning for the risks in patients with a history of suicidal thoughts or behavior and was approved with a Risk Evaluation and Mitigation Strategy involving a one-time enrollment for physicians and one-time informed consent for patients.
| |
| • | Bausch + Lomb - SiHy Daily AQUALOXTM is a silicone hydrogel daily disposable contact lens designed to provide clear vision throughout the day. Product validation was completed in June 2018 and SiHy Daily AQUALOXTM was launched in Japan in September 2018. |
Dermatology - IDP-118IDP-126 is the first and only topical lotion that containsan acne product with a uniquefixed combination of halobetasol propionatebenzoyl peroxide, clindamycin phosphate and tazaroteneadapalene, currently in Phase 2 testing.
| |
| • | Bausch + Lomb - Lumify® (brimonidine tartrate ophthalmic solution, 0.025%) is an OTC eye drop developed as an ocular redness reliever. Lumify® was approved by the FDA in December 2017 and launched in May 2018. |
Gastrointestinal - We have initiated a Phase 2 study for the treatment of moderate-to-severe plaque psoriasisovert hepatic encephalopathy with a new formulation of rifaximin, which we acquired as part of the Salix Acquisition.
| |
| • | Gastrointestinal - We plan to initiate a Phase 2 study evaluating Xifaxan® 550mg tablets for the treatment of small intestinal bacterial overgrowth or SIBO. The study is targeted to start in the second half of 2019. |
Gastrointestinal - We plan to initiate a Phase 2/3 study for the treatment of postoperative Crohns disease using a novel rifaximin extended release formulation. The study is scheduled to start in adults. Halobetasol propionatethe second half of 2019.
| |
| • | Gastrointestinal - We plan to initiate a Phase 2 study evaluating Xifaxan® 550mg tablets for the prevention of complications of decompensation cirrhosis. The study is scheduled to start in the first half of 2019. |
Dermatology - On August 23, 2018, the FDA approved Altreno™ (tretinoin 0.05%) lotion, indicated for the topical treatment of acne vulgaris in patients 9 years of age and tazarotene are eacholder. Altreno™ is the first tretinoin formulation in a lotion, approved to treat plaque psoriasis when used separately, but are limitedfor patients 9 years of age and older. We launched Altreno™ in duration of use. Halobetasol propionate may be used for up to two weeks and tazarotene may be limited due to irritation. Based on existing data from clinical studies, the U.S. in October 2018.
Dermatology - IDP-120 is an acne product with a fixed combination of these ingredients in IDP-118 with a dual mechanism of action, potentially allows for expanded duration of use, with reduced adverse events. On September 5, 2017, we announced that we had submitted a New Drug Application (“NDA”) for IDP-118 to the FDA which included data from two successfulmutually incompatible ingredients; benzoyl peroxide and tretinoin. Phase 3 clinical trials. On November 2, 2017, we announced that the FDA had accepted the NDA for review, and set a Prescription Drug User Fee Act (“PDUFA”) action date of June 18, 2018.
studies are ongoing.Dermatology -IDP-122 is a novel psoriasis product, for which we expect to file an NDA in 2017.
Dermatology - IDP-121 is a novel acne product for which we expect to file an NDA in 2017.
Dermatology - IDP-123 is an acne product containing lower concentration of tazarotene in a lotion form to help reduce irritation while keeping efficacymaintaining efficacy. We submitted a New Drug Application (“NDA”) with the FDA on February 22, 2019.
Dermatology - IDP-124 is a topical lotion product designed to treat moderate to severe atopic dermatitis, with pimecrolimus, currently in Phase 3 testing.
Dermatology - IDP-120 - IDP-135 is an acne product with a fixed combination of mutually incompatible ingredients; benzoyl peroxide and tretinoin. We plan to begin Phase 3 testing of thistopical retinoid product in the first half of 2018.
Dermatology - IDP-126 - is an acne product with a fixed combination of benzoyl peroxide, clindamycin phosphate and adapalene currently in Phase 2 testing.
Gastrointestinal - A new formulation of rifaximin, which we acquired as part of the Salix Acquisition, is scheduled to begin Phase 2b/3 testing in 2017.
Eye Health - Luminesse™ (provisional name) (brimonidine tartrate ophthalmic solution, 0.025%) is being developed as an ocular redness reliever. On February 27, 2017, we filed the NDA for Luminesse™ with the FDA. In May 2017, we announced that the FDA had accepted the NDA for review, and set a PDUFA action date of December 27, 2017.
Eye Health - Vyzulta™ (latanoprostene bunod ophthalmic solution, 0.024%) is an intraocular pressure lowering single-agent eye drop dosed once daily for patients with open angle glaucoma or ocular hypertension. In September 2015, we announced that the FDA had accepted for review the NDA for this product and set a PDUFA action date of July 21, 2016. On July 22, 2016, we announced that we had received a Complete Response Letter (“CRL”)development. We are seeking guidance from the FDA regarding the NDA for this product. On February 24, 2017, we refiled the NDA and, on August 7, 2017, we received another CRL from the FDA regarding the NDA for this product. The concerns raised by the FDA in both CRLs pertain to the findings of Current Good Manufacturing Practices ("GMP") inspections at our manufacturing facility in Tampa, Florida, where certain deficiencies were identified by the FDA. However, neither CRL identified any efficacy or safety concerns with respect todevelop this product or additional clinical trials neededfor OTC use for the approvaltreatment of the NDA. On August 16, 2017, we announced that the FDA confirmed that all issues related to the Current Good Manufacturing Practice inspection at the Tampa, Florida facility are being satisfactorily resolved, and a Voluntary Action Indicated inspection classification has since been issued by the FDAacne. The guidance meeting is targeted for this facility. Then on November 2, 2017, we announced that the FDA approved the NDA for Vyzulta™. We expect to launch Vyzulta™ in 2017.2019.
| |
| • | Gastrointestinal - On September 11, 2018, we announced the launch of Plenvu® in the U.S. We license Plenvu® from Norgine B.V. Plenvu® is a novel, lower-volume polyethylene glycol-based bowel preparation developed to help provide complete bowel cleansing, with an additional focus on the ascending colon. |
Eye Health - Vitesse™ is a novel technology using ultrasonic energy for vitreous removal with reduced surgical trauma. On April 26, 2017, Vitesse™ received 510(k) clearance from the FDA. We expect to launch this product in 2017.
Dermatology - Traser™ is an energy-based platform device with significant versatility and power capabilities to address various dermatological conditions, including vascular and pigmented lesions. Product launch is currently planned for the second half of 2019.
Eye Health - We expect to file a Premarket Approval application with the FDA in 2017 for 7-day extended wear for our Bausch + Lomb ULTRA® monthly planned replacement contact lenses.
Eye Health- OnIn April 6, 2017, we announced thatlaunched our Stellaris Elite™ Vision Enhancement System received 510(k) clearance from the FDA.System. The Stellaris Elite™ Vision Enhancement System is our next generation phacoemulsification
cataract platform, which offers new innovations, as well as the opportunity to add upgrades and enhancements every one to two years. Stellaris Elite™ is the first phacoemulsification platform on the market to offer Adaptive Fluidics™, which combines aspiration control with predictive infusion management to create a responsive and controlled surgical environment for efficient cataract lens removal. Stellaris Elite™ was launched in April 2017.
| |
| • | Eye HealthBausch + Lomb - Vitesse® is a hypersonic vitrectomy system for the removal of the vitreous humor gel that fills the eye cavity to provide better access to the retina and allows for a variety of repairs, including the removal of scar tissue, laser repair of retinal detachments and treatment of macular holes. Available exclusively on the Stellaris Elite™ system, Vitesse® liquefies tissue in a highly-localized zone at the edge of the port to increase the level of surgical control and precision to vitrectomies. We launched this product on a limited basis in October 2017.
|
| |
| • | Dermatology - Biotrue®Next Generation Thermage FLX® is a fourth-generation non-invasive treatment option using a radiofrequency platform designed to optimize key functional characteristics and improve patient outcomes. On September 22, 2017, we received 510(k) clearance from the FDA and launched this product in the United States. During 2018 and 2019, Next Generation Thermage FLX® was launched in Hong Kong, Japan, Korea, Taiwan, Philippines, Singapore, Indonesia, Malaysia, China, Thailand, Vietnam, and Australia as part of our Solta medical aesthetic devices portfolio. During 2019, we expect additional worldwide launches of the Next Generation Thermage FLX® in Asia, Canada and Europe, paced by country-specific regulatory registrations. |
| |
| • | Bausch + Lomb - On May 1, 2018, we received Premarket Approval from the FDA for, and subsequently launched, 7-day extended wear for our Bausch + Lomb ULTRA® monthly planned replacement contact lenses. |
| |
| • | Bausch + Lomb - Biotrue® ONEday for Astigmatism is a daily disposable contact lens for astigmatic patients. The Biotrue®Biotrue® ONEday lenses incorporatesincorporate Surface Active TechnologyTM to provide a dehydration barrier. The Biotrue®Biotrue® ONEday for Astigmatism also includes evolved peri-ballast geometry to deliver stability and comfort for the astigmatic patient. We launched this product in December 2016 and launched the completean extended power range in 2017. During 2018, we launched a further extended power range for this product. |
Eye Health - Bausch + Lomb ULTRA® for Astigmatism is a monthly planned replacement contact lens for astigmatic patients. The Bausch + Lomb ULTRA® for Astigmatism lens was developed using the proprietary MoistureSeal® technology. In addition, the Bausch + Lomb ULTRA® for Astigmatism lens integrates a OpticAlign™ design engineered for lens stability and to promote a successful wearing experience for the astigmatic patient. We launched this product and the extended power range for this product in 2017.
Eye Health - Bausch + Lomb ULTRA® for Presbyopia is a monthly planned replacement contact lens for presbyopic patients. The Bausch + Lomb ULTRA® for Presbyopia lens was developed using the proprietary MoistureSeal® technology. In addition, the Bausch + Lomb ULTRA® for Presbyopia lens integrates a 3 zone progressive design for near, intermediate and distance vision. We will continue to launch expanded parameters of this product throughout 2017.
Eye Health - Bausch + Lomb ScleralFil™ solution is a novel contact lens care solution that makes use of a preservative free buffered saline solution for use with the insertion of scleral lenses. This contact lens care solution was launched in 2017.
Eye Health - Bausch + Lomb Renu® Advanced Formula multi-purpose solution is a novel soft and silicone hydrogel contact lenses solution that makes use of three disinfectants and two moisture agents. This contact lens multipurpose care solution was launched in May 2017.
Eye Health - On February 21, 2017, EyeGate Pharmaceuticals, Inc. granted the Company the exclusive licensing rights to manufacture and sell its EyeGate® II Delivery System and EGP-437 combination product candidate worldwide for the treatment of post-operative pain and inflammation in ocular surgery patients. EyeGate Pharmaceuticals, Inc. will be responsible for the continued development of this product candidate in this field in the U.S. and all associated costs. The Company has the right to further develop the product in this field outside of the U.S., at its cost. In July 2017, EyeGate Pharmaceuticals, Inc. enrolled its first patient in a new Phase IIB clinical study for cataract surgery.
Eye Health - We are developing a new Ophthalmic Viscosurgical Device product, with a formulation to protect corneal endothelium during Phaco emulsificationphacoemulsification process during a cataract surgery and to help chamber maintenance and lubrication during intraocularinterocular lens delivery. We expect to initiateIn April 2018, we initiated an investigative device exemption (“IDE”) study for this product and completed enrollment in 2017.
December 2018.Dermatology - Next Generation Thermage®Traser™ is a fourth-generation non-invasive treatment option using a radiofrequencyan energy-based platform designeddevice with significant versatility and power capabilities to optimize key functional characteristics, expand clinical indication setaddress various dermatological conditions, including vascular and improve patient outcomes. On September 22, 2017, we received 510(k) clearance from the FDA and expectpigmented lesions. We are planning to launch this product in 2017.the second half of 2022 as part of our Solta business.
Gastrointestinal | |
| • | Bausch + Lomb - Lotemax® SM (loteprednol etabonate ophthalmic gel) 0.38% is a new formulation for the treatment of post-operative inflammation and pain following ocular surgery. Lotemax® SM is the lowest concentrated loteprednol ophthalmic corticosteroid indicated for the treatment of post-operative inflammation and pain following ocular surgery in the U.S. Lotemax® SM was approved by the FDA in February 2019 and launched in April 2019. |
| |
| • | Bausch + Lomb - enVista® Trifocal intraocular lens is an innovative lens design. We have initiated an IDE study for this product in May 2018 and completed patient enrollment for a Phase 1 study in December 2018. |
| |
| • | Bausch + Lomb - enVista® Toric intraocular lens received FDA approval in June 2018 and was launched in July 2018. |
Bausch + Lomb - NER1006 (provisionally named Plenvu®) isWe are developing a novel, lower-volume polyethylene glycol-based bowel preparation that has been developedpreloaded intraocular lens injector platform for enVista interocular lens. The Premarket Approval application was submitted to help provide complete bowel cleansing, with an additional focus on the ascending colon. In June 2017, we announced that the FDA accepted for reviewin July 2018 and the NDA for NER1006 and we expect an FDA decisionCE Mark notification was submitted in 2018. NER1006 was licensed by Norgine B.V. to SalixEurope in August 2016.February 2019.
Eye Health | |
| • | Bausch + Lomb - An ULTRA® Multifocal for Astigmatism lens combining the benefits of our ULTRA® for Presbyopia design with our ULTRA® for Astigmatism OpticAlign™ design engineered for lens stability for presbyopic/astigmatic patients. We received FDA approval for this product in November 2018. - Loteprednol Gel 0.38% is a new formulation for the treatment of post-operative ocular inflammation and pain with lower drug concentration and less frequent dosing and has completed Phase III testing. Eye Health - enVista® Trifocal intraocular lens is an innovative lens design, for which we expect to initiate an IDE study in 2017.
Our investment in R&D reflects our commitment to drive organic growth through internal development of new products, a pillar of our new strategy.
|
| |
| • | Bausch + Lomb - Renu® Advanced Multi-Purpose Solution (“MPS”) contains a triple disinfectant system that kills 99.9% of germs, and has a dual surfactant system that provides up to 20 hours of moisture. Renu Advanced MPS is FDA cleared with indications for use to condition, clean, remove protein, disinfectant, rinse and store soft contact lenses including those composed of silicone hydrogels. Renu Advanced MPS has gained regulatory approvals in Korea, India, Mexico, Indonesia, Malaysia and Singapore. |
StrengtheningBausch + Lomb - Custom soft contact lens (Ultra buttons) is a latheable silicone hydrogel button for custom soft specialty lenses including; Sphere, Toric, Multifocal, Toric Multifocal and irregular corneas. If approved by the Balance Sheet/FDA, we may launch as early as the first half of 2020.
Bausch + Lomb - Zen™ Multifocal Scleral Lens for presbyopia exclusively available with Zenlens™ and Zen™ RC scleral lenses and will allow eye care professionals to fit presbyopic patients with irregular and regular corneas and those with ocular surface disease, such as dry eye. The Zen™ multifocal Scleral Lens incorporates decentered optics, enabling the near power to be positioned over the visual axis. We launched this product in January 2019.
| |
| • | Bausch + Lomb - Tangible® Hydra-PEG® is a high-water polymer coating that is bonded to the surface of a contact lens and designed to address contact lens discomfort and dry eye. Tangible® Hydra-PEG® coating technology in combination with our Boston® materials and Zenlens™ family of scleral lenses will help eye care professionals provide a better lens wearing experience for their patients with challenging vision needs. We launched this product in March 2019. |
Improve Capital Structure -
We have made measurable progress in reducing our debt level, improving our capital structure by: (i) reducing our debt through repayments and generating additional liquidity for our operations.(ii) extending the maturities of debt through refinancing. Using our cash flows from operations and the net cash proceeds from salesdivestitures of certain non-core assets, during the period January 1, 2016cash generated from operations and cash generated from tighter working capital management, through the date of this filing, we repaid (net of additional borrowings) over $5,200$7,000 million of long-term debt since the beginning of 2016, in the aggregate. Further, as a result of the refinancing and debt repayments outlined below, as of the date of this filing, we have eliminated all mandatory scheduled principal repayments of our debt obligations for the remainder of 2019 and mandatory scheduled principal repayments through 2021 are less than $610 million.
Divestitures - During 2017, we divested businesses and assets not aligned with our core business objectives, which simplified our operating model and generated over $3,200 million of net cash proceeds that we used to improve our capital structure, the most significant of which were the divestitures of the Company's interests in the CeraVe®, AcneFree™ and AMBI® skincare brands (March 3, 2017), the iNova Pharmaceuticals business (September 29, 2017), the Company's equity interest in Dendreon Pharmaceuticals LLC (June 28, 2017) and the Obagi Medical Products, Inc. business (November 9, 2017).
Debt Repayments - During the years 2016 through 2018, we repaid (net of additional borrowings) over $6,800 million of long-term debt using the net cash proceeds from divestitures of non-core assets, cash generated from operations and cash generated from tighter working capital management. During the three months ended March 31, 2019, using cash on hand we repaid $303 million of long-term debt which includes over $900included: (i) $172 million of repayments made after September 30, our seven year Tranche B Term Loan Facility maturing in June 2025 (the “June 2025 Term Loan B Facility”), (ii) $75 million of our 2023 Revolving Credit Facility (as defined below) and (iii) $56 million of our seven year Tranche B Term Loan Facility maturing in November 2025 (the "November 2025 Term Loan B Facility").
2017 using the net proceeds from a divestiture as discussed belowRefinancing Transactions - In March, October, November and cash on hand. In addition, in March 2017 and OctoberDecember of 2017, we accessed the credit markets and completed a series of transactions, to improve our capital structure, whereby we extended theapproximately $9,500 million in aggregate maturities of certain debt obligations originally scheduled to mature in the years 2018 through 2020 out to the year 2021 and beyond. Our repayments through the date of this filing, and the refinancings we completed in March 2017 and October 2017 have eliminated any further mandatory principal long-term debt repayments until March 2020, providing us with additional liquidity and greater flexibility to execute our business plans. Our reduced debt levels and improved debt portfolio will translate to lower payments of principal over the next three years, which, in turn, should free up cash flows to be directed toward developing our core assets and repaying additional debt amounts.
Divestitures
In order to better focus on our business objectives, we have divested certain businesses and assets and identified others for potential divestiture, which, in each case, were not aligned with our core business objectives.
In March 2017, we completed the sale of the CeraVe®, AcneFree™ and AMBI® skincare brands to a global beauty company for $1,300 million in cash (the “Skincare Sale”). Aggregate annual revenue associated with these skincare brands was less than $200 million.
In June 2017, we completed the sale of our equity interests in Dendreon Pharmaceuticals LLC (formerly Dendreon Pharmaceuticals, Inc.) (“Dendreon”), for $845 million (as adjusted for working capital provisions through September 30, 2017) in cash (the “Dendreon Sale”). Dendreon’s only commercialized product, Provenge®, is an autologous cellular immunotherapy (vaccine) for prostate cancer treatment approved by the FDA in April 2010. Revenues from Provenge® were $303 million and $250 million for the years 2016 and 2015, respectively. With this sale completed, we have exited the oncology business, which is not core to our business objectives.
In September 2017, we completed the sale of our Australian-based iNova Pharmaceuticals (“iNova”) business for $938 million in cash (the “iNova Sale”), subject to certain working capital provisions. iNova markets a diversified portfolio of weight management, pain management, cardiology and cough and cold prescription and over-the-counter products in more than 15 countries, with leading market positions in Australia and South Africa, as well as an established platform in Asia. iNova revenues were $196 million for the nine months ended September 30, 2017 and $246 million and $252 million for the years 2016 and 2015, respectively. With the iNova Sale completed, we have less exposure to the over-the-counter and prescription medicines markets in the geographies noted above, which are not core to our business objectives. However, we will continue to maintain a footprint in these geographies through our core Bausch + Lomb franchise. On October 5, 2017, using the net proceeds from the iNova Sale, we repaid $923 million of our Series F Tranche B Term Loan Facility.
As the completed Skincare Sale, Dendreon Sale and iNova Sale transactions represented positive returns on our investments, we took the opportunity to monetize these non-core assets to help strengthen our balance sheet today, as opposed to making capital investments into the development and marketing of these brands over an extended period of time. During 2016 and the nine months ended September 30, 2017, we have divested other businesses and assets not aligned with our core business objectives, which, when taken in total with the completed Skincare Sale, Dendreon Sale and iNova Sale transactions, has generated over $3,200 million of net asset sale proceeds through September 30, 2017 and have simplified our operating model and strengthened our balance sheet.
In July 2017, we entered into a definitive agreement to sell our Obagi business for $190 million in cash (the “Obagi Sale”), subject to certain working capital provisions. Obagi is a specialty skin care pharmaceutical business with products focused on premature skin aging, skin damage, hyperpigmentation, acne and sun damage which are primarily available through dermatologists, plastic surgeons, and other skin care professionals. Obagi revenues were $60 million for the nine months ended September 30, 2017 and $71 million and $91 million for the years 2016 and 2015, respectively. As the nature and profit margins of the Obagi product lines do not align with our U.S. Diversified Products segment and differ from our dermatology portfolio within our Branded Rx segment, Obagi was not core to our business objectives. We expect this transaction to close in 2017, subject to customary closing conditions. We expect to use the proceeds from this transaction to pay advisory and legal fees associated with this transaction and related income taxes and other taxes associated with this transaction, if any. We will use the balance of the proceeds from this transaction and other divestitures of assets, if any, to repay principal amounts of our Series F Tranche B Term Loan Facility.
On November 6, 2017, we announced we had entered into a definitive agreement to sell Sprout Pharmaceuticals, Inc. (“Sprout”) to a buyer affiliated with certain former shareholders of Sprout (the “Sprout Sale”), in exchange for a 6% royalty on global sales of Addyi® (flibanserin 100 mg) beginning May 2019. In connection with the completion of the Sprout Sale, the terms of the October 2015 merger agreement relating to the Company's acquisition of Sprout will be amended to terminate our ongoing obligation to make future royalty payments associated with the Addyi® product, as well as certain related provisions (including the obligation to make certain marketing and other expenditures). In connection with the completion of the Sprout Sale, the current litigation against the Company, initiated on behalf of the former shareholders of Sprout, which disputes the Company's compliance with certain contractual terms of that same merger agreement with respect to the use of certain diligent efforts to develop and commercialize the Addyi® product (including a disputed contractual term with respect to the spend of no less than $200 million in certain expenditures), will be dismissed with prejudice. Upon completion of the Sprout Sale, the Company will issue the buyer a five-year $25 million loan for initial operating expenses. Addyi®, a once-daily, non-hormonal tablet approved for the treatment of acquired, generalized hypoactive sexual desire disorder in premenopausal women, is the only approved and commercialized product of Sprout and does not align with the balance of our Branded Rx segment. The Sprout Sale, expected to be completed in 2017, presents us with the opportunity to divest ourselves of a business not core to our business objectives and allows us to resolve an ongoing legal matter which was requiring significant capital and business resources.
Reducing and Refinancing our Debt
In 2017, we completed a series of transactions which improved our leverage, reduced our annual debt maintenance and extended the maturities of a significant portion of our debt. Through the sale of certain non-core assets and using cash on hand, we repaid $2,937 million of debt principal during the nine months ended September 30, 2017. In addition, by accessing the credit markets, we (i) refinanced $6,312 million which was due to mature in April 2018 through 2020, (ii)April 2022, out to March 2022 through December 2025. As part of these transactions we also extended $1,190 million of commitments under our revolving credit facility, originally set to expire in April 2018, out to April 2020.
2018 Refinancing Transactions - In March, June and November 2018, we accessed the credit markets and completed a series of transactions, whereby we extended approximately $8,300 million in aggregate maturities of certain debt obligations due to mature in March 2020 and (iii)through July 2022, out to June 2025 through January 2027. As part of these transactions we obtained less stringent loan financial maintenance covenants under our Senior Secured Credit Facilities that included the removal of the financial maintenance covenants from our term loans. As a result, the financial maintenance covenants apply only with respect toand extended commitments under our revolving loans and can be waived or amended without the consent of the term loan lenders under the Credit Agreement. These transactions and debt payments have had the effect of lowering our cash requirements for principal debt payments through 2020credit facility by more than $7,200three years by replacing our then-existing revolving credit facility, set to expire in April 2020 with a revolving credit facility of $1,225 million as of September 30, 2017 as compared with those as of December 31, 2016.due in June 2023 (the “2023 Revolving Credit Facility”).
Debt repayments 2019 Refinancing Transactions - We usedIn 2019, we accessed the proceeds from the sale of non-core assets, including the Skincare Salecredit markets and Dendreon Sale, to pay-down $2,151 million of debt under our Senior Secured Credit Facilities during the nine months ended September 30, 2017. In addition, using cash on hand, we repurchased $500 million of our 6.75% Senior Unsecured Notes due August 2018 (the “August 2018 Senior Unsecured Notes”), made scheduled principal payments under our Series F Tranche B Term Loan Facility of $86 million and paid down our revolving loans by $200 million during the nine months ended September 30, 2017.
Refinancing - On March 21, 2017, we completed a series of transactions, that provided us with additional borrowings, whichwhereby we usedextended approximately $1,500 million in aggregate maturities of certain debt obligations due to mature in December 2021 through May 2023, out to January 2027 through August 2027. On March 8, 2019 we issued: (i) repay $4,962$1,000 million aggregate principal
amount of debt, representing all outstanding amounts of our senior secured (a) Series A-3 Tranche A Term Loan Facility originally due October 2018, (b) Series A-4 Tranche A Term Loan Facility originally due April 2020, (c) Series D-2 Tranche B Term Loan Facility originally due February 2019, (d) Series C-2 Tranche B Term Loan Facility originally due December 2019 and (e) Series E-1 Tranche B Term Loan Facility originally due August 2020, (ii) repay $250 million of revolving loans and (iii) repurchase, at a purchase price of 103%, $1,100 million of August 20188.50% Senior Unsecured Notes.
The sources of funds for the repaymentsNotes due January 2027 and repurchase of the aforementioned debt obligations and the related fees and expenses were obtained through (i) a comprehensive amendment and refinancing of our Credit Agreement, which, among other matters provided for incremental term loans under our Series F Tranche B Term Loan Facility of $3,060 million maturing April 2022 (the “Series F-3 Tranche B Term Loan”), (ii) issuance of $1,250$500 million aggregate principal amount of 6.50%5.75% Senior Secured Notes due March 15, 2022, (iii) issuanceAugust 2027 (the "August 2027 Secured Notes") in a private placement. The unsecured notes form part of $2,000 million aggregate principal amountthe same series as our existing 8.50% senior notes due January 2027 (the "January 2027 Unsecured Notes"). A portion of 7.00% Seniorthe net proceeds of the January 2027 Unsecured Notes and the August 2027 Secured Notes and cash on hand were used to: (i) repurchase $584 million of 5.875% Senior Unsecured Notes due March 15, 2024,2023 (the "May 2023 Unsecured Notes"), (ii) repurchase $518 million of 5.625% Senior Unsecured Notes due 2021 (the “December 2021 Unsecured Notes”), (iii) repurchase $216 million of 5.50% Senior Unsecured Notes due 2023 (the "March 2023 Unsecured Notes") and (iv) pay all fees and expenses associated with these transactions (collectively, the use“March 2019 Refinancing Transactions”). During April 2019, the Company redeemed $182 million of cash on hand.the December 2021 Unsecured Notes, representing the remaining outstanding principal balance of the December 2021 Unsecured Notes and completing the refinancing of $1,500 million of debt in connection with the March 2019 Refinancing Transactions.
As a result of prepayments and a series of refinancing transactions through March 31, 2019, we have extended the maturities of a substantial portion of our long-term debt, providing us with additional liquidity and greater flexibility to execute our business plans. The aforementioned repayments and refinancing has had an impact ontables below summarize our debt portfolio. The table below summarizes ouroutstanding debt portfolio and maturities as of September 30, 2017 andMarch 31, 2019 as compared to December 31, 2016.2018.
|
| | | | | | | | | | | | | | | | | | |
| | | | | September 30, 2017 | | December 31, 2016 |
| (in millions) | | Maturity | | Principal Amount | | Net of Discounts and Issuance Costs | | Principal Amount | | Net of Discounts and Issuance Costs |
| Senior Secured Credit Facilities: | | | | | | | | | | |
| Revolving Credit Facility | | April 2018 | | $ | — |
| | $ | — |
| | $ | 875 |
| | $ | 875 |
|
| Revolving Credit Facility | | April 2020 | | 425 |
| | 425 |
| | — |
| | — |
|
| Series A-3 Tranche A Term Loan Facility | | October 2018 | | — |
| | — |
| | 1,032 |
| | 1,016 |
|
| Series A-4 Tranche A Term Loan Facility | | April 2020 | | — |
| | — |
| | 668 |
| | 658 |
|
| Series D-2 Tranche B Term Loan Facility | | February 2019 | | — |
| | — |
| | 1,068 |
| | 1,048 |
|
| Series C-2 Tranche B Term Loan Facility | | December 2019 | | — |
| | — |
| | 823 |
| | 805 |
|
| Series E-1 Tranche B Term Loan Facility | | August 2020 | | — |
| | — |
| | 2,456 |
| | 2,429 |
|
| Series F Tranche B Term Loan Facility | | April 2022 | | 5,800 |
| | 5,685 |
| | 3,892 |
| | 3,815 |
|
| Senior Secured Notes: | | | | | | | | | | |
| 6.50% Secured Notes | | March 2022 | | 1,250 |
| | 1,235 |
| | — |
| | — |
|
| 7.00% Secured Notes | | March 2024 | | 2,000 |
| | 1,975 |
| | — |
| | — |
|
| Senior Unsecured Notes: | | | | | | | | | | |
| 6.75% | | August 2018 | | — |
| | — |
| | 1,600 |
| | 1,593 |
|
| All other Senior Unsecured Notes | | March 2020 through April 2025 | | 17,937 |
| | 17,807 |
| | 17,743 |
| | 17,595 |
|
| Other | | Various | | 14 |
| | 14 |
| | 12 |
| | 12 |
|
| Total long-term debt | | | | $ | 27,426 |
| | $ | 27,141 |
| | $ | 30,169 |
| | $ | 29,846 |
|
|
| | | | | | | | | | | | | | | | | | |
| | | | | March 31, 2019 | | December 31, 2018 |
| (in millions) | | Maturity | | Principal Amount | | Net of Premiums, Discounts and Issuance Costs | | Principal Amount | | Net of Premiums, Discounts and Issuance Costs |
| Senior Secured Credit Facilities: | | | | | | | | | | |
| 2023 Revolving Credit Facility | | June 2023 | | $ | — |
| | $ | — |
| | $ | 75 |
| | $ | 75 |
|
| June 2025 Term Loan B Facility | | June 2025 | | 4,222 |
| | 4,104 |
| | 4,394 |
| | 4,269 |
|
| November 2025 Term Loan B Facility | | November 2025 | | 1,425 |
| | 1,402 |
| | 1,481 |
| | 1,456 |
|
| Senior Secured Notes: | | | | | | | | | | |
| 5.75% Secured Notes | | August 2027 | | 500 |
| | 493 |
| | — |
| | — |
|
| All other Senior Secured Notes | | March 2022 through November 2025 | | 5,000 |
| | 4,950 |
| | 5,000 |
| | 4,948 |
|
| Senior Unsecured Notes: | | | | | | | | | | |
| 5.625% | | December 2021 | | 182 |
| | 181 |
| | 700 |
| | 697 |
|
| 5.50% | | March 2023 | | 784 |
| | 780 |
| | 1,000 |
| | 995 |
|
| 5.875% | | May 2023 | | 2,666 |
| | 2,650 |
| | 3,250 |
| | 3,229 |
|
| 8.50% | | January 2027 | | 1,750 |
| | 1,757 |
| | 750 |
| | 738 |
|
| All other Senior Unsecured Notes | | May 2023 through April 2026 | | 7,933 |
| | 7,852 |
| | 7,970 |
| | 7,886 |
|
| Other | | Various | | 12 |
| | 12 |
| | 12 |
| | 12 |
|
| Total long-term debt and other | | | | $ | 24,474 |
| | $ | 24,181 |
| | $ | 24,632 |
| | $ | 24,305 |
|
The weighted average stated interest rate of the Company's outstanding debt as of September 30, 2017March 31, 2019 and December 31, 2016
2018 was 6.09%6.38% and 5.75%6.23%, respectively.
The aforementionedscheduled principal repayments refinancing and other changes in our debt portfolio completed prior to September 30, 2017 have lowered our cash requirements for principal debt repayment over the next five years. The scheduled maturities and mandatory amortization payments of our debt obligations for the remainder of 2017, annually for the five years ending December 31, 2022 and thereafter for our debt portfolio as of September 30, 2017March 31, 2019 compared with December 31, 20162018 were as follows:
| | | (in millions) | | September 30, 2017 | | December 31, 2016 | | March 31, 2019 | | December 31, 2018 |
| October through December 2017 | | $ | 923 |
| | $ | — |
| |
| 2018 | | 2 |
| | 3,738 |
| |
| 2019 | | — |
| | 2,122 |
| | $ | 182 |
| | $ | 228 |
|
| 2020 | | 5,365 |
| | 7,723 |
| | 303 |
| | 303 |
|
| 2021 | | 3,175 |
| | 3,215 |
| | 303 |
| | 1,003 |
|
| 2022 | | 6,677 |
| | 4,281 |
| | 1,553 |
| | 1,553 |
|
| 2023 | | | 5,436 |
| | 6,348 |
|
| 2024 | | | 2,303 |
| | 2,303 |
|
| Thereafter | | 11,284 |
| | 9,090 |
| | 14,394 |
| | 12,894 |
|
| Gross maturities | | $ | 27,426 |
| | $ | 30,169 |
| | $ | 24,474 |
| | $ | 24,632 |
|
In addition, subsequent to September 30, 2017, we took
During April and May 2019, the following additional actions to reduce our debt and extend the maturity of another portion of our debt beyond 2021.
Subsequent debt repayments - On October 5, 2017, using the net proceeds from the iNova Sale, we repaid $923Company: (i) redeemed $182 million of our Series F Tranche B Term Loan Facility. On November 2, 2017, using cash on hand, the Company repaid $125December 2021 Unsecured Notes, representing the remaining outstanding principal balance of the December 2021 Unsecured Notes and completing the refinancing of $1,500 million of debt in connection with the March 2019 Refinancing Transactions, as discussed above and (ii) had drawn net borrowings of $175 million under its Series F Tranche B Term Loan Facility. These repayments satisfy $923 million of maturities due2023 Revolving Credit Facility, primarily used for the period October through December 2017 and $125 millionpayment of maturitiesinterest due in the year 2022April 2019 and other short-term capital needs. These transactions are not reflected in the table above.
Subsequent refinancing - On October 17, 2017, we issued $1,000 million aggregate principal amount of 5.50% senior secured notes due November 1, 2025 (the “5.50% 2025 Notes”), in a private placement, the proceeds of which were used to repurchase (i) $569 million in principal amount of our 6.375% senior notes due 2020 (the “6.375% 2020 Notes”) and (ii) $431 million in principal amount of our 7.00% senior notes due 2020 (the “7.00% 2020 Notes”) (collectively the “2020 Notes”) (collectively, the “October 2017 Refinancing Transactions”). The related fees and expenses were paid using cash on hand. The refinancing had the effect of extending principal payments of $1,000 million due in the year 2020 in the table above out to the year 2025.
Our repayments through the date of this filing, and the refinancings we completed in March 2017 and October 2017 have eliminated any further mandatory principal long-term debt repayments until March 2020, providing us with additional liquidity and greater flexibility to execute our business plans.
See Note 10, "FINANCING ARRANGEMENTS" to our unaudited interim Consolidated Financial Statements and “Management's Discussion and Analysis - Liquidity and Capital Resources: Long-term Debt” for further details.
Address Legacy Legal Matters
The Company was burdened with addressing certain ongoing legal matters, some of which were inherited as part of the acquisitions we completed in 2015 and prior. In order to better focus on our core activities and simplify our operations, we have been vigorously addressing many of these matters, and, during 2018 through the date of this filing, we achieved dismissals and other positive outcomes in approximately 80 litigations, disputes and investigations, as we continue to evaluate other opportunitiesactively address others. This included: (i) a win in the Cosmo (Uceris®) arbitration, (ii) a partial win in the Relistor® (injectable) Abbreviated New Drug Application (“ANDA”) case on validity in the Company's favor protecting the product to simplify our business and strengthen our balance sheet. While we intendat least April 2024, (iii) a settlement resolving the Solodyn® antitrust litigations, (iv) a settlement with the California Department of Insurance to focus our divestiture activities on non-core assets, consistent with our dutiesresolve the matter relating to our shareholdersterminated relationship with Philidor, (v) a settlement in the Mimetogen litigation, (vi) a settlement in the Allergan litigation, (vii) a settlement in the Xifaxan® patent litigation, (viii) a settlement with the SEC relating to the Salix investigation of 2014 with no monetary penalty against the Company or Salix, (ix) certain settlements in the Jublia patent litigations and (x) a settlement in the arbitration with Alfasigma S.p.A.
These matters and other stakeholders, we will consider dispositionssignificant matters are discussed in core areasfurther detail in Note 19, "LEGAL PROCEEDINGS" to our unaudited interim Consolidated Financial Statements presented elsewhere in this Form 10-Q and Note 20, "LEGAL PROCEEDINGS" to our audited Consolidated Financial Statements for the year ended December 31, 2018, which were included in our Annual Report on Form 10-K filed on February 20, 2019.
Address Regulatory Matters
In the normal course of business, our products, devices and facilities are the subject of ongoing oversight and review, by regulatory and governmental agencies, including general, for cause and pre-approval inspections by the FDA. In 2016, FDA inspections of our Rochester, New York and Tampa, Florida facilities resulted in observations that we believeneeded to address as we disclosed in previous filings. As we disclosed in previous filings, in 2017, we resolved these matters with the FDA. Following the resolution of these matters and the completion of U.S. FDA inspections of our other facilities going back to February 2017, all of our facilities were in good compliance standing with the FDA.
In August 2018, the FDA conducted its annual inspection of the Tampa, Florida facility. The FDA inspection resulted in an Official Action Indicated (“OAI”) of the current good manufacturing practice (“CGMP”) of our Tampa, Florida facility. The findings of this inspection did not impact our ability to manufacture and deliver products to the U.S. and approved foreign markets. Following the inspection, we provided the FDA with a comprehensive response which was accepted by the FDA. The FDA completed a verification of actions promised in our responses which was closed successfully without any observation. We received confirmation from the FDA, by letter dated March 20, 2019, that the OAI compliance status of the Tampa, Florida facility was reverted to No Action Indicated (“NAI”) and the facility is considered to be in an acceptable state of compliance with regard to CGMP.
As of the date of this filing, all of our facilities are rated as either NAI (where there was no Form 483 observation) or Voluntary Action Indicated (“VAI”) (where there was a Form 483 with one or more observations). In the case of the VAI inspection outcome, the FDA has accepted our responses to the issues cited in the best interestForm 483, which will be verified when the agency makes its next inspection of those specific facilities. (A Form 483 is issued at the Companyend of each inspection when FDA investigators have observed any condition that in their judgment may constitute violations of CGMP.)
Patient Access and Pricing Committee and New Pricing Actions
Improving patient access to our products, as well. Also,well as making them more affordable, is an important element of our turnaround. In May 2016, we formed the Company regularly evaluates market conditions, its liquidity profile,Patient Access and various financing alternativesPricing Committee responsible for opportunitiessetting, changing and monitoring the pricing of our products to ensure launch prices and price changes are assessed and implemented across channels with a focus on patient accessibility and affordability while maintaining profitability. Since that time, the Patient Access and Pricing Committee has been committed to limiting the average annual price increase for our branded prescription pharmaceutical products to no greater than single digits and reaffirmed this commitment for 2019. We expect that the Patient Access and Pricing Committee will continue to implement or recommend additional price changes and/or new programs in-line with this commitment to enhance its capital structure. If opportunities are favorable,patient access to our drugs. These pricing changes and programs could affect the Companyaverage realized pricing for our products and may refinance or repurchase existing debt or issue additional debt securities.
Other Business Matters
In addition to the matters outlined above, the following events have affected and are expected to affecta significant impact on our business trends:revenue trends.
Walgreens Fulfillment Arrangements
AtIn the beginning of 2016, we launched a brand fulfillment arrangement with Walgreen Co. ("Walgreens") and extended these programs to additional participating independent retail pharmacies. Under the terms of the brand fulfillment arrangement, we made available certain of our products to eligible patients through a patient access and co-pay program available at Walgreens U.S. retail pharmacy locations, as well as participating independent retail pharmacies. The program under this 20-year agreement initially covers certain of our dermatology products, including Jublia®Jublia®, Luzu®Luzu®, Solodyn®Solodyn®, Retin-A Micro®Micro® Gel 0.08% and 0.06%, Onexton®Onexton® and Acanya®Acanya® Gel, certain of our ophthalmology products, including Besivance®Vyzulta®, Lotemax®Besivance®, Alrex®Lotemax®, Prolensa®Alrex®, Bepreve®Prolensa®, Bepreve®and Zylet®Zylet®. The Company continues to explore options to modify or enhance the Walgreens arrangement to improve the distribution and sales of our products.
With our business objectives set and our leadership team in place, we have begun to build on the Dermatology Businessmomentum created and have begun our pivot in the direction these changes have taken us as follows.
Increase the Focus of our Pipeline
We continueare constantly challenged by the dynamics of our industry to innovate and bring new products to market. Now that we have divested certain businesses where we saw limited growth opportunities, we can be more aggressive in redirecting our R&D spend and other corporate investments to innovate within our core businesses where we believe we can be most profitable and where we aim to be an industry leader.
We believe that we have a well-established product portfolio that is diversified within our core businesses and provides a sustainable revenue stream to fund our operations. However, our future success is also dependent upon our ability to continually refresh our pipeline, to provide a rotation of product launches that meet new and changing demands and replace other products that have lost momentum. We believe we have a robust pipeline that not only provides for the next generation of our existing products, but is also poised to bring new products to market.
During 2018, we launched and/or relaunched innovative products across multiple countries that contributed to organic growth in most of our core businesses and we currently have approximately 250 R&D projects in our global pipeline. In addition to these projects, we have recently launched, or expect to launch in the near future, products we have dubbed our "Significant Seven". These Significant Seven products are: (i) Bryhali™ (Ortho Dermatologics), (ii) Duobrii™ (Ortho Dermatologics), (iii) Lumify® (Bausch + Lomb), (iv) Relistor® (Salix), (v) SiHy Daily (Bausch + Lomb), (vi) Siliq™ (Ortho Dermatologics) and (vii) Vyzulta® (Bausch + Lomb). Revenues for our Significant Seven were greater than $150 million in 2018 and approximately $75 million in 2017; however, we believe the prospects for this group of products to be substantial and anticipate devoting significant marketing efforts to stabilizetoward their promotion. We believe that the strength of these launches and the impact of these products on their respective markets will demonstrate the effectiveness of our Dermatology business. Since January 2017,pipeline and R&D strategies and inspire further innovation in our businesses.
Leveraging our Salix Infrastructure
As we strongly believe in our Xifaxan® and Relistor® business models, as part of our transformation, we have taken initiatives to further capitalize on the value of the infrastructure we built around these products.
In the first quarter of 2017, we hired approximately 250 trained and experienced sales force representatives and managers to create, bolster and sustain deep relationships with primary care physicians (“PCP”). With approximately 70% of IBS-D patients initially presenting symptoms to a PCP, we believe that the dedicated PCP sales force is better positioned to reach more patients in need of IBS-D treatment.
This initiative provided us with positive results, as we experienced consistent growth in demand for these products throughout 2017 and 2018. Revenues from our Xifaxan® and Relistor® products increased approximately 22% and 37%, respectively, in 2018 when compared to 2017. These results encouraged us to seek out ways to bring out further value through leveraging our existing
sales force and in the later portion of 2018 and in 2019 we have identified and executed on certain opportunities which we describe below.
For instance, in order to continue to generate growth in these products, we continue to directly invest in next generation formulations of Xifaxan® and rifaximin, the principal semi-synthetic antibiotic used in our Xifaxan® product. In addition to one R&D program in progress, we have three other R&D programs planned to start in 2019 for next generation formulations of Xifaxan® and rifaximin which address new indications.
In addition to driving growth through internal R&D development, we seek to align ourselves with new external product development opportunities as well. As recently as this April, we entered into two licensing agreements which present us with unique developmental opportunities to address unmet needs of individuals suffering with certain GI and liver diseases. The first of these two licensing agreements is with the University of California for certain intellectual property relating to an investigational compound targeting the pituitary adenylate cyclase receptor 1 in non-alcoholic fatty liver disease (“NAFLD”), nonalcoholic steatohepatitis (“NASH”) and other GI and liver diseases. We believe this compound, once fully developed, could address certain unmet medical needs in the treatment of NAFLD and NASH. The second, is an exclusive licensing agreement with Mitsubishi Tanabe Pharma Corporation to develop and commercialize MT-1303 (amiselimod), a late-stage oral compound that targets the sphingosine 1-phosphate receptor that plays a role in autoimmune diseases, such as inflammatory bowel disease and ulcerative colitis. We plan to initiate development of MT-1303 in ulcerative colitis.
In addition to product development opportunities, we strive to access innovative and established GI products outside our existing Salix business that allow us to leverage our existing GI sales force, supply channel and distribution channel to bring about growth through co-promotion and acquisition. For instance, in the second half of 2018, we entered into agreements with Dova Pharmaceuticals, Inc. to co-promote Doptelet®, a new treatment of thrombocytopenia in adult patients with chronic liver disease, and with US WorldMeds, LLC to co-promote Lucemyra™, a non-opioid medication for the mitigation of withdrawal symptoms to facilitate abrupt discontinuation of opioids. We also completed the acquisition of certain assets of Synergy Pharmaceuticals Inc. (“Synergy”) in March 2019, whereby we acquired certain assets of Synergy including its worldwide rights to the Trulance® (plecanatide) product, a once-daily tablet for adults with chronic idiopathic constipation and irritable bowel syndrome with constipation.
We continue to see growth in our Xifaxan® and Relistor® products as a result of the continued focus of our sales force on PCPs. Revenues from our Xifaxan® and Relistor® franchises increased approximately 11% and 30%, respectively, for the three months ended March 31, 2019 when compared to the three months ended March 31, 2018. We therefore believe that the co-promotion and acquisition opportunities, as previously discussed, will be accretive to our business during our transformation by providing us access to products that are a natural pairing to either our Xifaxan® or Relistor® businesses, allowing us to effectively leverage our existing infrastructure and generate growth.
Refocus the Ortho Dermatologics Business
In support of our Ortho Dermatologics business and the opportunities we see for growth in this business, we continue to allocate resources and make additional investments in this business to recruit and retain talent and focus on our core dermatology portfolio of products.
During 2017, we began the turnaround of our dermatology business by taking a number of actions which we believe will help our efforts to stabilize theour dermatology business, includingwhich included: (i) rebranding our dermatology business, (ii) recruiting a new experienced leadership team, (iii) making significant investment in the dermatology pipeline, (iv) adjusting the size of the dermatology sales force and organizing(v) reorganizing that sales force around roughly 150 territories, as we work to rebuild relationships with prescribers of our products.
Recruit and Retain Talent - In July 2017, we rebrandedidentified and retained a proven leadership team of experienced dermatology sales professionals and marketers. In January 2018, the leadership team, encouraged by the success of our dermatology business asGI sales force expansion program, increased our Ortho Dermatologics dedicatedsales force by more than 25% in support of our growth initiatives for our Ortho Dermatologics business. We believe the additional sales force is vital to helping patientsmeet the demand we expect from our recently launched products and those we expect to launch in the treatmentnear term, pending FDA approval. We continue to monitor our pipeline for other near term launches that we believe will create opportunity needs in our other core businesses requiring us to make additional investment to retain people for additional leadership and sales force roles.
Investment in Core Dermatology Portfolio - We have made significant investments to build out our psoriasis and acne product portfolios, which are the markets within dermatology where we see the greatest opportunities.
Psoriasis - As the number of a rangereported cases of therapeutic areas including actinic keratosis, acne, atopic dermatitis, psoriasis cold sores, athlete's foot, nail fungus and other dermatoses. The Ortho Dermatologics portfolio includes several leading acne, anti-fungal and anti-infective products. The name change to Ortho Dermatologics is part of a larger rebranding initiative for the dermatology business.
The rebranding efforts also include a renewed commitment to deliver on an innovative pipeline. In July 2017, Ortho Dermatologics launched Siliq™ in the U.S. Siliq™has increased, we believe there is an IL-17 receptor blocker monoclonal antibody biologic for treatment of moderate-to-severe plaque psoriasis, which we estimatea need to be an over $5,000 millionmake further investments in this market in the U.S. To make this drug affordableorder to maximize our opportunity and accessiblesupplement our current psoriasis product portfolio. We have filed NDAs for several new topical psoriasis products, launched Bryhali™ in November 2018 and expect to the broader market,launch
DuobriiTM in June 2019. We expect that Bryhali™ and DuobriiTM will line up well with our existing topical portfolio of psoriasis treatments and, supplemented by our injectable biologic products, such as SiliqTM launched in July 2017, will provide a diverse choice of psoriasis treatments to doctors and patients. In addition, on April 21, 2017, the CompanyFebruary 27, 2018, we announced that following the evaluationwe entered into an exclusive license agreement with Kaken Pharmaceutical Co., Ltd. to develop and approval of the Patient Access and Pricing Committee, it had decided to list Siliq™ injection at $3,500 per month, which represented the lowest-priced injectable biologic psoriasis treatment based on total annual cost on the market at the time of the announcement. On October 12, 2017, Ortho Dermatologics announced results from the Phase 3 long-term extension study, which demonstrated that Siliq™ injection provided sustained high levels of skin clearance in patients with moderate-to-severe psoriasis overcommercialize products containing a period greater than two years. Additionally, a sub-analysis group of patients who received any dose of brodalumab in the induction phase and Siliq™ during the maintenance and long-term extension phases demonstrated similar response rates.
Further, on September 5, 2017, Ortho Dermatologics filed a NDA for IDP-118 after the successful completion of its Phase 3 trials. IDP-118 is a fixed combination product of halobetasol propionate and tazarotenenew chemical entity, KP-470, for the topical treatment of moderate-to-severe plaquepsoriasis. Early proof of concept studies are planned for 2019. If approved by the FDA, KP-470 could represent a novel drug with an alternative mechanism of action in the topical treatment of psoriasis.
Acne - In support of our established acne product portfolio, we have developed several products, which include Retin-A Micro® 0.06% (launched in January 2018) and AltrenoTM (launched in the U.S. October 2018), the first lotion (rather than a gel or cream) product containing tretinoin for the treatment of acne. Revenues for the three months ended March 31, 2019 were approximately $7 million and $1 million for Retin-A Micro® 0.06% and AltrenoTM, respectively. In addition to Retin-A Micro® 0.06% and AltrenoTM, we have three other unique acne projects in earlier stages of development that, if approved by the FDA, we believe will further innovate and advance the treatment of acne.
Improved Patient Access to Ortho Dermatologics Products - In February 2019, we launched a cash-pay prescription program to make certain Ortho Dermatologics branded products available directly to patients with a valid prescription, regardless of their insurance status and without prior authorizations needed. The program is specifically designed to provide patients with direct access to a range of proven treatment options for certain disease states that typically encounter insurance coverage hassles and high prescription costs including acne, actinic keratosis, superficial basal cell carcinoma, barrier repair (e.g. eczema treatments), wounds and corticosteroid-responsive diseases such as rashes, psoriasis and atopic dermatitis.
Through the cash-pay prescription program, all patients, regardless of their insurance status, will be able to purchase medicines at prices ranging from $50 to $115 per prescription. By doing so, the program will provide branded options that offer proven medicines with straightforward access. It will include certain Ortho Dermatologics’ brands, such as Retin-A® (tretinoin) cream, as well as novel products, such as AltrenoTM (tretinoin) Lotion, 0.05%. All products included in adults. Halobetasol propionatethe cash-pay prescription program will be eligible for Flexible Spending Accounts or Health Saving Accounts and tazarotenewill continue to be supported by the Company's Patient Assistance Program, which offers free medication for patients who meet income and other eligibility criteria. We plan to include approximately 20 Ortho Dermatologics products in the cash-pay patient program by the end of 2020, including some investigational therapies that will be added to the program as soon as, and if, they are each approved by the FDA.
Bolstered by the new product opportunities we are creating in our psoriasis and acne product lines, our experienced dermatology sales leadership team, our increased sales force and the cash-pay prescription program, we believe we have set the groundwork for the potential to treat plaque psoriasis whenachieve growth in our Ortho Dermatologics business over the next five years.
Continue to Manage Our Capital Structure
As previously outlined, we completed a series of transactions that reduced our debt levels, extended our debt maturities and improved our capital structure, providing us with additional liquidity and greater flexibility to execute our business plans. As a result of prepayments and a series of refinancing transactions, we have extended the maturities of a substantial portion of our long-term debt and, as a result, as of the date of this filing, scheduled principal repayments of our debt obligations through 2021 are less than $610 million. Our reduced debt levels and improved debt portfolio will translate to lower repayments of principal over the next five years, which, in turn, will permit more cash flows to be directed toward developing our core assets and repay additional debt amounts. In addition, as a result of the changes in our debt portfolio, approximately 75% of our debt is fixed rate debt as of March 31, 2019, as compared to approximately 65% as of January 1, 2017.
We continue to monitor our capital structure and to evaluate other opportunities to simplify our business and improve our capital structure giving us the ability to better focus on our core businesses. While we anticipate focusing any future divestiture activities on non-core assets, consistent with our duties to our shareholders and other stakeholders, we will consider dispositions in core areas that we believe represent attractive opportunities for the Company. Also, the Company regularly evaluates market conditions, its liquidity profile and various financing alternatives for opportunities to enhance its capital structure. If the Company determines that conditions are favorable, the Company may refinance or repurchase existing debt or issue additional debt, equity or equity-linked securities.
Managing Generic Competition and Loss of Exclusivity
Certain of our products face the expiration of their patent or regulatory exclusivity in 2019 or in later years, following which we anticipate generic competition of these products. In addition, in certain cases, as a result of negotiated settlements of some of our patent infringement proceedings against generic competitors, we have granted licenses to such generic companies, which will permit them to enter the market with their generic products prior to the expiration of our applicable patent or regulatory exclusivity. Finally, for certain of our products that lost patent or regulatory exclusivity in prior years, we anticipate that generic competitors
used separately,may launch in 2019 or in later years. Following a loss of exclusivity of and/or generic competition for a product, we would anticipate that product sales for such product would decrease significantly shortly following the loss of exclusivity or entry of a generic competitor. Where we have the rights, we may elect to launch an authorized generic of such product (either ourselves or through a third party) prior to, upon or following generic entry, which may mitigate the anticipated decrease in product sales; however, even with launch of an authorized generic, the decline in product sales of such product would still be expected to be significant, and the effect on our future revenues could be material.
A number of our products already face generic competition. Prior to and during 2019, in the U.S., these products include, among others, Ammonul®, Benzaclin®, Bupap®, Edecrin®, Elidel®, Glumetza®, Istalol®, Isuprel®, Locoid® Lotion, Mephyton®, Nitropress®, Solodyn®, Syprine®, Virazole®, Uceris® Tablet, Wellbutrin XL®, Xenazine®,Zegerid® and Zovirax® cream. In Canada, these products include, among others, Glumetza®, Sublinox® and Wellbutrin® XL.
Based on current patent expiration dates, settlement agreements and/or competitive information, we believe our key products facing potential loss of exclusivity and/or generic competition in the U.S. during the years 2019 through 2023 include, but are not limited to, Apriso®, Clindagel®, Cuprimine®, Lotemax® Gel, Lotemax® Suspension, Migranal®, Noritate®, Onexton®, PreserVision®, Prolensa®, Solodyn®, Targretin® Gel, Xerese®, Zovirax® cream and certain other products subject to settlement agreements. Aggregate revenues from key products that we believe will face potential loss of exclusivity and/or generic competition in the U.S. during: (i) 2019 represented 9% and 8%; (ii) 2020 represented 1% and 1%; (iii) 2021 represented 4% and 4%; (iv) 2022 represented less than 1% and 1%; and (v) 2023 represented 2% and 2% of our aggregate U.S., Mexico and Puerto Rico revenues for 2018 and 2017, respectively. These dates may change based on, among other things, successful challenge to our patents, settlement of existing or future patent litigation and at-risk generic launches.
In addition, for a four-week or less durationnumber of use. Based on existing data from clinical studies, the combination of these ingredients in IDP-118 with a dual mechanism of action, potentially allows for expanded duration of use, with reduced adverse events. On November 2, 2017, we announced that the FDA had accepted the NDA for IDP-118 for review, and set a PDUFA action date of June 18, 2018.
Regulatory Compliance of Bausch + Lomb Facilities
In the normal course of business, our products devices(including Apriso®, Uceris®, Relistor®, Plenvu®, Xifaxan® 200mg, Plenvu®, Glumetza® and facilitiesJublia® in the U.S.), we have commenced (or anticipate commencing) infringement proceedings against potential generic competitors in the U.S. and Canada. If we are not successful in these proceedings, we may face increased generic competition for these products.
Xifaxan® 500mg Patent Litigation - On March 23, 2016, the subjectCompany initiated litigation against Actavis, which alleged infringement by Actavis of ongoing oversight and review, by regulatory and governmental agencies, including general, for cause and pre-approval inspections by the FDA.
Rochester, New York Facility
On November 3, 2016, we were issued a Warning Letter by the FDA identifying violationsone or more claims of GMP, for two device products acquired from other companies and currently managed at our Rochester, New York facility. The acquired products did not fully meet design control requirements and had not been completely resolved at the timeeach of the inspection. The FDA did not identify any issue with the manufacturing or quality controls of either the drugs or the B&L devices manufactured by us at the Rochester facility. Nevertheless, we are committed to the quality of any product or device distributed by us and welcome these inspections as an opportunity to demonstrate that commitment and improve on the current processes. The Company immediately issued a formal Warning Letter Response and began rigorously addressing the identified matters. In May 2017, the NY FDA District Office performed a Warning Letter Response Verification inspection to assess the effectiveness of the corrective actions we had taken. The three day inspection resulted in no observations and the FDA has since removed the Official Action Indicated status.Xifaxan® patents. On June 13, 2017, the FDA posted on its official compliance status website that the November 3, 2016 Warning Letter was successfully closed.
Separately, the FDA completed a drug inspection at our Rochester facility in March 2017. Shortly after, we received notice from the FDA NY District Office that two observations identified had been adequately addressed. The inspection focused on the testing and laboratory controls of our drug stability program. The notice identified no observations by the FDA investigators during their inspection and confers a compliant status for the Rochester facility's drug testing and quality operations.
Tampa, Florida Facility
In September 2015, we announced that the FDA had accepted for review the NDA for Vyzulta™ and set a PDUFA action date of July 21, 2016. On July 22, 2016,12, 2018, we announced that we had receivedreached an agreement with Actavis that resolved the existing litigation and eliminated the pending challenges to our intellectual property protecting Xifaxan® (rifaximin) 550 mg tablets. As part of the agreement, the parties agreed to dismiss all litigation related to Xifaxan® (rifaximin), Actavis acknowledged the validity of the licensed patents for Xifaxan® (rifaximin) 550 mg tablets and all intellectual property protecting Xifaxan® (rifaximin) 550 mg tablets will remain intact and enforceable until expiry in 2029. The agreement also grants Actavis a CRLnon-exclusive license to the intellectual property relating to Xifaxan® (rifaximin) 550 mg tablets in the United States beginning January 1, 2028 (or earlier under certain circumstances). The Company will not make any financial payments or other transfers of value as part of the agreement. In addition, under the terms of the agreement, beginning January 1, 2028 (or earlier under certain circumstances), Actavis will have the option to: (1) market a royalty-free generic version of Xifaxan® tablets, 550 mg, should it receive approval from the FDA regardingon its ANDA, or (2) market an authorized generic version of Xifaxan® tablets, 550 mg, in which case, we will receive a share of the NDAeconomics from Actavis on its sales of such an authorized generic. Actavis will be able to commence such marketing earlier if another generic rifaximin product is granted approval and such other generic rifaximin product begins to be sold or distributed before January 1, 2028.
Generic Competition to Uceris® - In July 2018, a generic competitor launched a product which will directly compete with our Uceris® Tablet product. As disclosed in our prior filings, the Company initiated various infringement proceedings against this and other generic competitors. The Company continues to believe that its Uceris® Tablet-related patents are enforceable and is proceeding in the ongoing litigation between the Company and the generic competitor; however, the ultimate outcome of the matter is not predictable. The ultimate impact of this generic competitor on our future revenues cannot be predicted; however, Uceris® Tablet revenues for the three months ended March 31, 2019 and 2018 were approximately $8 million and $34 million, respectively, and for the full years 2018 and 2017 were approximately $84 million and $134 million, respectively.
Generic Competition to Jublia® - On June 6, 2018, the U.S. Patent and Trial Appeal Board completed its inter partes review for an Orange Book-listed patent covering Jublia® and issued a written determination invalidating such patent. Although the Company is not aware of any imminent launches of a generic competitor to Jublia®, the ultimate impact of this product. On February 24,decision on our future revenues cannot be predicted. Jublia® revenues for the three months ended March 31, 2019 and 2018 were approximately $20 million and $17 million, respectively, and for the full years 2018 and 2017 we refiledwere approximately $89 million and $96 million, respectively. The Company continues to believe that the NDAJublia®-related patent is valid and enforceable and, on August 7, 2017,2018, an appeal of this decision was filed. The ultimate outcome of this matter is not predictable. Jublia® continues to be covered by seven remaining Orange Book-listed patents owned by the Company, which expire in the years 2028 through 2034. In August and September 2018, we received another CRL from the FDA regarding the NDA for this product. The concerns raised by the FDA in both CRLs pertain to the findings of Current Good Manufacturing Practices inspections at our manufacturing facility in Tampa, Florida where certain deficiencies were identified by the FDA. However, neither CRL identified any efficacy or safety concerns with respect to this product or additional clinical trials needed for the approvalnotices of the NDA. On August 16, 2017, we announced that the FDA confirmed that all issues related to the Current Good Manufacturing Practice inspection at the Tampa, Florida facility are being satisfactorily resolved, andfiling of a Voluntary Action Indicated inspection classification has since been issued by the FDA for this facility. On November 2, 2017, we announced that the FDA approved the NDA for Vyzulta™. We expect to launch Vyzulta™ in 2017.
Following the resolutionnumber of these matters and the completion of U.S. FDA inspections of our other facilities going back to February 2017, all Valeant and Bausch + Lomb facilities are currently in good compliance standingANDAs with the FDA. With these confirmations, we have eliminated manufacturing uncertainties related to our current and upcoming regulatory submissionsparagraph IV certification, and have cleared the way for new product approvals and the continued shipment of our products to countries outside the U.S.
All Valeant and Bausch + Lomb facilities are now rated either as No Action Indicated (or NAI, where there was no Form 483 observation) or Voluntary Action Indicated (or VAI, where there was a Form 483 with one or more observations). In the case of the VAI inspection outcome, the FDA has accepted our responses to the issues cited in the Form 483, which will be verified when the agency makes its next inspection of those specific facilities. (A Form 483 is issued at the end of each inspection when FDA investigators have observed any condition that in their judgment may constitute violations of Current Good Manufacturing Practices.)timely filed patent infringement suits against these ANDA filers.
See Note 19, "LEGAL PROCEEDINGS" to our unaudited interim Consolidated Financial Statements elsewhere in this Form 10-Q, as well as Note 20, "LEGAL PROCEEDINGS" ofour Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC and the Canadian Securities Administrators on SEDAR on February 20, 2019 for further details regarding certain infringement proceedings.
The risks of generic competition are a fact of the health care industry and are not specific to our operations or product portfolio. These risks are not avoidable, but we believe they are manageable. To manage these risks, our leadership team continually evaluates the impact that generic competition may have on future profitability and operations. In addition to aggressively defending the Company's patents and other intellectual property, our leadership team makes operational and investment decisions regarding these products and businesses at risk, not the least of which are decisions regarding our pipeline. Our leadership team actively manages the Company's pipeline in order to identify what we believe are the proper projects to pursue. Innovative and realizable projects aligned with our core businesses that are expected to provide incremental and sustainable revenues and growth into the future. We believe that our current pipeline is strong enough to meet these objectives and provide future sources of revenues, in our core businesses, sufficient enough to sustain our growth and corporate health as other products in our established portfolio face generic competition and lose momentum.
We believe that we have a well-established product portfolio that is diversified within our core businesses. We also believe that we have a robust pipeline that not only provides for the next generation of our existing products, but also brings new solutions into the market. Revenues for our Significant Seven were greater than $150 million in 2018 and approximately $75 million in 2017, as several of these products have only recently been launched and others are yet to be launched. However, we believe the potential revenues for our Significant Seven to be substantial.
See Item 1A “Risk Factors” ofour Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC and the Canadian Securities Administrators on SEDAR on February 20, 2019for additional information on our competition risks.
Business Trends
In addition to the acquisition and divestiture actions previously outlined, the following events have affected and are expected to affect our business trends:
U.S. HealthcareHealth Care Reform
The U.S. federal and state governments continue to propose and pass legislation designed to regulate the healthcarehealth care industry. In March 2010, the Patient Protection and Affordable Care Act (the “ACA”) was enacted in the U.S. The ACA contains several provisions that impact our business, including: (i) an increase in the minimum Medicaid rebate to states participating in the Medicaid program;program, (ii) the extension of the Medicaid rebates to Managed Care Organizations that dispense drugs to Medicaid beneficiaries;beneficiaries, (iii) the expansion of the 340(B) Public Health Services drug pricing program, which provides outpatient drugs at reduced rates, to include additional hospitals, clinics and healthcare centers;health care centers and (iv) a fee payable to the federal government based on our prior-calendar-year share relative to other companies of branded prescription drug sales to specified government programs.
In addition, to the above, in 2013: (i) federal subsidies began to be phased in for brand-name prescription drugs filled in the Medicare Part D cover gap and (ii) the law requires the medical device industry to subsidize healthcarehealth care reform in the form of a 2.3% excise tax on U.S. sales of most medical devices. However, the Consolidated Appropriations Act, 2016 (Pub. L. 114-113), signed into law on December 18, 2015, includesincluded a two-year moratorium on the medical device excise tax. Thus,On January 22, 2018, with the passage of continuing appropriations through February 8, 2018 (HR 195), the moratorium on the medical device excise tax does not apply to the sale of a taxable medical device by the manufacturer, producer, or importer of the device during the period beginning onwas further extended until January 1, 2016, and ending on December 31, 2017.2020. The ACA also included provisions designed to increase the number of Americans covered by health insurance. In 2014, the ACA's private health insurance exchanges began to operate along with the mandate on individuals to purchase health insurance.operate. The ACA also allows states to expand Medicaid coverage with most of the expansion’s cost paid for by the federal government.
For 2016, 20152018 and 2014,2017, we incurred costs of $36 million $28 million and $9$48 million, respectively, related to the annual fee assessed on prescription drug manufacturers and importers that sell branded prescription drugs to specified U.S. government programs (e.g., Medicare and Medicaid). For 2016, 20152018 and 2014,2017, we also incurred costs of $128 million, $104$90 million and $43$106 million, respectively, on Medicare Part D utilization incurred by beneficiaries whose prescription drug costs cause them to be subject to the Medicare Part D coverage gap (i.e., the “donut hole”). The increase in Medicare Part D coverage gap liability is mainly due to Xifaxan®. Under the legislation which provides for a two-year moratorium on the medical device excise tax beginning January 1, 2016 as discussed above, the Company incurred medical device excise taxes for 2016, 2015 and 2014 of $0, $5 million and $6 million, respectively.
On July 28, 2014, the U.S. Internal Revenue Service issued final regulations related to the branded pharmaceutical drug annual fee pursuant to the ACA. Under the final regulations, an entity’s obligation to pay the annual fee is triggered by qualifying sales in the current year, rather than the liability being triggered upon the first qualifying sale of the following year. We adopted this guidance in the third quarter of 2014, and it did not have a material impact on our financial position or results of operations.
The financial impact of the ACA will be affected by certain additional developments over the next few years, including pending implementation guidance and certain healthcarehealth care reform proposals. Additionally, policy efforts designed specifically to
reduce patient out-of-pocket costs for medicines could result in new mandatory rebates and discounts or other pricing restrictions. Also, it is possible, as discussed further below, that under the current administration, legislation will be passed by the Republican-controlled Congress repealing the ACA in whole or in part. Adoption of legislation at the federal or state level could materially affect demand for, or pricing of, our products.
In 2017,2018, we facefaced uncertainties due to federal legislative and administrative efforts to repeal, substantially modify or invalidate some or all of the provisions of the ACA. However, we believe there is low likelihood of repeal of the ACA, given the recent failure of the Senate’s multiple attempts to repeal various combinations of ACA provisions. There is no assurance that any replacement or administrative modifications of the ACA will not adversely affect our business and financial results, particularly if the replacing legislation reduces incentives for employer-sponsored insurance coverage, and we cannot predict how future federal or state legislative or administrative changes relating to the reform will affect our business.
Other legislative efforts relating to drug pricing have been proposed and considered at the U.S. federal and state level. We also anticipate that Congress, state legislatures and third-party payors may continue to review and assess alternative healthcarehealth care delivery and payment systems and may in the future propose and adopt legislation or policy changes or implementations affecting additional fundamental changes in the healthcarehealth care delivery system.
Competition and Loss of Exclusivity
We face increased competition from manufacturers of generic pharmaceutical products when patents covering certain of our currently marketed products expire or are successfully challenged or when the regulatory exclusivity for our products expires or is otherwise lost. Generic versions are generally priced significantly lower than branded versions, and, where available, may be required to be utilized before or in preference to the branded version under third party reimbursement programs, or substituted
by pharmacies. Accordingly, when a branded product loses its market exclusivity, it normally faces intense price competition from generic forms of the product. To successfully compete for business with managed care and pharmacy benefits management organizations, we must often demonstrate that our products offer not only medical benefits, but also cost advantages as compared with other forms of care.
A number of our products already face generic competition. In the U.S., these products include, among others, Ammonul®, Atralin®, Carac®, Edecrin®, Glumetza®, Isuprel®, Nitropress®, certain strengths of Retin-A Micro®, certain strengths of Solodyn®, Targetin® capsules, Tasmar®, Vanos®, Virazole®, Wellbutrin XL®, Xenazine®, Zegerid®, Ziana® and Zovirax® ointment. In Canada, these products include, among others, Aldara®, Glumetza®, Sublinox® and Wellbutrin XL®. In addition, certain of our products face the expiration of their patent or regulatory exclusivity in 2017 or in later years, following which we anticipate generic competition of these products. Furthermore, in certain cases, as a result of negotiated settlements of some of our patent infringement proceedings against generic competitors, we have granted licenses to such generic companies, which will permit them to enter the market with their generic products or an authorized generic prior to the expiration of our applicable patent. Finally, for certain of our products that lost patent or regulatory exclusivity in prior years, we anticipate that generic competitors may launch in 2017 or in later years. Following a loss of exclusivity of and/or generic competition for a product, we anticipate that product sales from such product would decrease significantly shortly following such loss of exclusivity or the entry of a generic competitor. Where we have the rights, we may elect to launch an authorized generic of such product (either ourselves or through a third party) prior to, upon or following generic entry, which may mitigate the anticipated decrease in product sales; however, even with the launch of an authorized generic, the decline in product sales of such product would still be expected to be significant and the effect on our future revenues could be material.
Based on patent expiration dates, settlement agreements and/or competitive information, we believe that our products facing a potential loss of exclusivity and/or generic competition in the five year period from 2017 to and including 2021 include, among others, the following key products in the U.S.: in 2017, Istalol®, Lotemax® Suspension, Mephyton®, and Syprine®, which in aggregate represented 4% and 3% of our U.S. and Puerto Rico revenues for the nine months ended September 30, 2017 and the year 2016, respectively; in 2018, Cuprimine®, Elidel®, Lotemax® Gel, Zovirax® cream and certain products subject to settlement agreements, which in aggregate represented 7% and 7% of our U.S. and Puerto Rico revenues for the nine months ended September 30, 2017 and the year 2016, respectively; in 2019, certain products subject to settlement agreements, which in aggregate represented 2% and 2% of our U.S. and Puerto Rico revenues for the nine months ended September 30, 2017 and the year 2016, respectively; in 2020, Clindagel®, Luzu®, and Migranal® which represented 0% and 1% of our U.S. and Puerto Rico revenues for the nine months ended September 30, 2017 and the year 2016, respectively; and, in 2021, Preservision® and certain products subject to settlement agreements, which represented 3% and 3% of our U.S. and Puerto Rico revenue for the nine months ended September 30, 2017 and the year 2016, respectively. These dates may change based on, among other things, successful challenge to our patents, settlement of existing or future patent litigation and at-risk generic launches.
In addition, for a number of our products (including Apriso®, Carac®, Cardizem®, Onexton®, Uceris®, Relistor® and Xifaxan® in the U.S. and Wellbutrin® XL and Glumetza® in Canada), we have commenced infringement proceedings against potential generic competitors in the U.S. and Canada. If we are not successful in these proceedings, we may face increased generic competition for these products. See Note 18, "LEGAL PROCEEDINGS" to our unaudited Consolidated Financial Statements for further details regarding certain infringement proceedings.
Regulatory Stay for Generic Version of Xifaxan® Extended
As fully discussed in Note 18, “LEGAL PROCEEDINGS - Patent Litigation/Paragraph IV Matters” to our unaudited Consolidated Financial Statements, the Company initiated litigation alleging infringement by Actavis Laboratories FL, Inc. (“Actavis”) which filed an Abbreviated New Drug Application (“ANDA”) for a generic version of the Company’s Xifaxan® (rifaximin) tablets, 550 mg.
In February 2016, the Company received a Notice of Paragraph IV Certification Actavis, in which Actavis asserted that certain U.S. patents, owned or licensed by certain subsidiaries of the Company for Xifaxan® tablets, 550 mg, are either invalid, unenforceable and/or will not be infringed by the commercial manufacture, use or sale of Actavis’ generic version of Xifaxan® (rifaximin) tablets, 550 mg, for which it filed an ANDA. On March 23, 2016, the Company initiated litigation against Actavis alleging infringement by Actavis of one or more claims of each of the Xifaxan® patents, thereby triggering a 30-month stay of the approval of Actavis’ ANDA. A seven-day trial was scheduled to commence on January 29, 2018.
However, on May 17, 2017, the Company and Actavis announced that at Actavis' request, the parties agreed to stay outstanding litigation and extend the 30-month stay regarding Actavis' ANDA for its generic version of Xifaxan® (rifaximin) 550 mg tablets. The legal action is stayed through April 30, 2018 and Actavis has not yet taken any steps to lift the stay. All scheduled litigation activities, including the January 2018 trial date, have been indefinitely removed from the Court docket.
Further, the parties agree and the Court ordered that Actavis' 30-month regulatory stay shall be extended from August 12, 2018 until no earlier than February 12, 2019 and could be longer if the litigation stay lasts for more than six months.
Although the ultimate outcome of these proceedings is unknown, in part due to the extension of the 30-month regulatory stay of Actavis’ ANDA and the agreement to stay outstanding litigation for the extended periods discussed above, the Company remains confident in the strength of its Xifaxan® patents and believes it will prevail in this matter should it move forward. The Company also continues to believe the allegations raised in Actavis’ notice are without merit and will defend its intellectual property vigorously.
See Item 1A. “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC and the CSA on March 1, 2017 for additional information on our competition risks.
SELECTED FINANCIAL INFORMATION
Organic Revenues and Organic Growth Rates
Organic growth, a non-GAAP metric, is defined as a change on a period-over-period basis in revenues on a constant currency basis (if applicable) excluding the impact of recent acquisitions, divestitures and discontinuations. Organic revenue growth is growth in GAAP Revenue (its most directly comparable GAAP financial measure), adjusted for certain items, of businesses that have been owned for one or more years. The Company uses organic revenue and organic revenue growth to assess performance of its reportable segments, and the Company in total, without the impact of foreign currency exchange fluctuations and recent acquisitions, divestitures and product discontinuations. The Company believes that such measures are useful to investors as they provide a supplemental period-to-period comparison.
Organic revenue growth reflects adjustments for: (i) the impact of period-over-period changes in foreign currency exchange rates on revenues and (ii) the revenues associated with acquisitions, divestitures and discontinuations of businesses divested and/or discontinued. These adjustments are determined as follows:
Foreign currency exchange rates: Although changes in foreign currency exchange rates are part of our business, they are not within management’s control. Changes in foreign currency exchange rates, however, can mask positive or negative trends in the underlying business performance. The impact for changes in foreign currency exchange rates is determined as the difference in the current period reported revenues at their current period currency exchange rates and the current period reported revenues revalued using the monthly average currency exchange rates during the comparable prior period.
Acquisitions, divestitures and discontinuations: In order to present period-over-period organic revenues (non-GAAP) on a comparable basis, revenues associated with acquisitions, divestitures and discontinuations are adjusted to include only revenues from those businesses and assets owned during both periods. Accordingly, organic revenue (non-GAAP) growth excludes from the current period, all revenues attributable to each acquisition for twelve months subsequent to the day of acquisition, as there are no revenues from those businesses and assets included in the comparable prior period. Organic revenue (non-GAAP) growth excludes from the prior period (but not the current period), all revenues attributable to each divestiture and discontinuance during the twelve months prior to the day of divestiture or discontinuance, as there are no revenues from those businesses and assets included in the comparable current period.
Please refer to the tables of organic revenues (non-GAAP) and organic revenue growth rates presented in the subsequent section titled “Reportable Segment Revenues and Profits” for a reconciliation of GAAP revenues to organic revenues (non-GAAP).
Revisions to the Three Months Ended March 31, 2018
As originally disclosed in the financial statements for the quarterly period ended June 30, 2018, the Company identified an understatement of the Benefit from income taxes for the three months ended March 31, 2018 of $112 million due to an error in the forecasted effective tax rate. The revision decreased the Net loss and Net loss attributable to Bausch Health Companies Inc. by $112 million, or $0.32 per basic and diluted share, and affects Net loss and Deferred income taxes presented on the Consolidated Statement of Cash Flows by $112 million, with no net impact to total Net cash provided by operating activities. The Company also identified an understatement of the foreign currency translation adjustment as presented in the Consolidated Statement of Comprehensive Loss for the three months ended March 31, 2018 which did not impact the Net loss and Net loss attributable to Bausch Health Companies Inc. reported for the same period. Based on its evaluation, the Company concluded
that these misstatements were not material to its Consolidated Balance Sheet and Consolidated Statements of Operations, Comprehensive Loss, Equity and Cash Flows as of and for the three months ended March 31, 2018 or related disclosures. The March 31, 2018 financial information has been revised to correct these misstatements. There was no impact to the March 31, 2019 reported amounts.
See Note 2, "SIGNIFICANT ACCOUNTING POLICIES" to our unaudited interim Consolidated Financial Statements for further details.
The following table provides selected unaudited financial information for the three months ended March 31, 2019 and 2018:
| | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended March 31, |
| (in millions, except per share data) | | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change | | 2019 | | 2018 | | Change |
| Revenues | | $ | 2,219 |
| | $ | 2,479 |
| | $ | (260 | ) | | $ | 6,561 |
| | $ | 7,271 |
| | $ | (710 | ) | | $ | 2,016 |
| | $ | 1,995 |
| | $ | 21 |
|
| Operating income (loss) | | $ | 38 |
| | $ | (863 | ) | | $ | 901 |
| | $ | 424 |
| | $ | (716 | ) | | $ | 1,140 |
| | $ | 287 |
| | $ | (2,281 | ) | | $ | 2,568 |
|
| Loss before recovery of income taxes | | $ | (400 | ) | | $ | (1,332 | ) | | $ | 932 |
| | $ | (937 | ) | | $ | (2,075 | ) | | $ | 1,138 |
| |
| Net income (loss) attributable to Valeant Pharmaceuticals International, Inc. | | $ | 1,301 |
| | $ | (1,218 | ) | | $ | 2,519 |
| | $ | 1,891 |
| | $ | (1,894 | ) | | $ | 3,785 |
| |
| Earnings (loss) per share attributable to Valeant Pharmaceuticals International, Inc.: | | | | | | | | | | | | | |
| Loss before benefit from income taxes | | | $ | (122 | ) | | $ | (2,694 | ) | | $ | 2,572 |
|
| Net loss attributable to Bausch Health Companies Inc. | | | $ | (52 | ) | | $ | (2,581 | ) | | $ | 2,529 |
|
| Loss per share attributable to Bausch Health Companies Inc.: | | | | | | | |
| Basic | | $ | 3.71 |
| | $ | (3.49 | ) | | $ | 7.20 |
| | $ | 5.40 |
| | $ | (5.47 | ) | | $ | 10.87 |
| | $ | (0.15 | ) | | $ | (7.36 | ) | | $ | 7.21 |
|
| Diluted | | $ | 3.69 |
| | $ | (3.49 | ) | | $ | 7.18 |
| | $ | 5.38 |
| | $ | (5.47 | ) | | $ | 10.85 |
| | $ | (0.15 | ) | | $ | (7.36 | ) | | $ | 7.21 |
|
Financial Performance
Summary of the Three Months Ended September 30, 2017March 31, 2019 Compared to the Three Months Ended September 30, 2016March 31, 2018
Revenue for the three months ended September 30, 2017March 31, 2019 and 20162018 was $2,219$2,016 million and $2,479$1,995 million, respectively, a decreasean increase of $260$21 million, or 10%1%. The decreaseincrease was primarily driven byby: (i) higher gross selling prices, (ii) higher net volumes, (iii) lower volumessales deductions and (iv) the impact of the acquisition of certain assets of Synergy. The increase in net pricing was primarily in our U.S. Diversified segment as a result of the loss of exclusivity for a number of productsSalix and Ortho Dermatologics segments. The increase in net volumes was driven by our Branded Rx segment as a result of challenging market dynamics, particularlyBausch + Lomb/International segment. These increases in dermatology. Revenues were also negatively affected by divestitures and discontinuations and foreign currencies. The decreasesRevenue were partially offset by increased volumesby: (i) the unfavorable effect of foreign currencies, primarily in our Bausch + Lomb / International segment.Europe and Asia and (ii) the impact of divestitures and discontinuations. The changes in our segment revenues and segment profits are discussed in further detail in the subsequent section titled “Reportable Segment Revenues and Profits”.
Operating income for the three months ended September 30, 2017March 31, 2019 was $38$287 million, as compared to the Operating loss for the three months ended September 30, 2016March 31, 2018 of $863$2,281 million, respectively, an increase of $901 million. Our Operating income (loss) for the three months ended September 30, 2017 compared to the three months ended September 30, 2016$2,568 million and reflects, among other factors:
a decreasean increase in contribution (Product sales revenue less Cost of goods sold, excluding amortization and impairments of intangible assets) of $258 million. The decrease is$60 million primarily driven by:due to: (i) higher gross selling prices and lower sales deductions, (ii) an increase in net volumes and (iii) better inventory management, partially offset by the decrease in product sales of our existing business (excluding the effectsunfavorable effect of foreign currencies and divestitures and discontinuances) and includes decreases in contribution from lower volumes, (ii) the impact of divestitures and discontinuances and (iii) higher third-party royalty costs;currencies;
a decrease in Selling, general and administrative expenses (“SG&A”) of $4 million primarily due to: (i) the favorable impact of foreign currencies, (ii) lower costs related to professional services and (iii) lower compensation expense. The decrease was partially offset by: (i) higher advertising and promotion expenses, (ii) costs in 2019 attributable to our IT infrastructure improvement projects and (iii) the impact of $38the acquisition of certain assets of Synergy;
an increase in R&D of $25 million;
| |
| • | a decrease in Amortization of intangible assets of $254 million primarily due to: (i) the impact of the change in the estimated useful life of the Xifaxan® related intangible assets made in September 2018 to reflect management's changes in assumptions and (ii) lower amortization as a result of impairments to intangible assets in prior periods; |
a decrease in Goodwill impairments of $2,213 million, as a result of impairments in 2018 to the goodwill of our: (i) Salix reporting unit upon adopting the new guidance for goodwill impairment accounting at January 1, 2018 and (ii) Ortho Dermatologics reporting unit due to unforeseen changes in business dynamics during the three months ended March 31, 2018;
a decrease in Asset impairments of $41 million, primarily related to the decrease in forecasted sales during the three months ended March 31, 2018 for a certain product line facing generic competition; and
a favorable change in Other (income) expense, net of $15 million primarily attributable to: (i) retention costs for key employees in 2016 and (ii) the impactNet gain on sale of 2017 divestitures. These decreases were partially offset by higher professional fees;
a decrease in Research and development of $20 million due to the timing of costs on projects in development;
a decrease in Amortization of intangible assets of $7 million which is reflective of impairments to intangible assets in 2016 and divestitures and discontinuances of product lines as the Company focuses on its core assets;
a decrease in Goodwill impairments of $737 million. In 2016, we recognized Goodwill impairments of $1,049 million in connection with the realignment of our segment structure that took place during the three months ended September 30, 2016. In 2017, we recognized Goodwill impairments of $312 million in connection with a change in a reporting unit that took place during the three months ended September 30, 2017;
an increase in Asset impairments of $258 million primarily related to the Sprout business classified as held for sale;
a decrease in Acquisition-related contingent consideration of $247 million primarily due to a fair value adjustment of $259 million reflecting a decrease in forecasted sales for the Addyi® product which impacted the expected future royalty payments; and
Other income of $325$10 million during the three months ended September 30, 2017 primarily due to the Gain on the iNova Sale of $306 millionMarch 31, 2019 and (ii) a working capital adjustment related to the Gain on the Dendreon Sale of $25 million.decrease in Litigation and other matters, partially offset by acquisition-related costs incurred in 2019.
Operating income for the three months ended September 30, 2017 of $38March 31, 2019 was $287 million and Operating loss for the three months ended September 30, 2016 of $863March 31, 2018 was $2,281 million, includesand include non-cash charges for Depreciation and amortization of intangible assets of $698$532 million and $708$786 million, Goodwill impairments of $0 and $2,213 million, Asset impairments of $406$3 million and $148$44 million and Share-based compensation of $19$24 million and $37$21 million for the three months ended March 31, 2019 and 2018, respectively.
Our Loss before recovery ofbenefit from income taxes for the three months ended September 30, 2017March 31, 2019 and 20162018 was $400$122 million and $1,332$2,694 million, respectively, a decrease of $932$2,572 million. The decrease in our Loss before recovery ofbenefit from income taxes is primarily attributable to: (i) the increase in Operating incomeour operating results of $901$2,568 million, as previously discussed, above, (ii) a favorable net changedecrease in Foreign exchange and otherLoss on extinguishment of $21debt of $20 million and (iii) a decrease in Interest expense of $11$10 million as a result of lower principal amounts of outstanding debt partially offset by the effect of higher interest rates during the three months ended September 30, 2017.
Net income attributable to Valeant Pharmaceuticals International, Inc. for the three months ended September 30, 2017 was $1,301 million and Net loss attributable to Valeant Pharmaceuticals International, Inc. for the three months ended September 30, 2016 was $1,218 million, an increase of $2,519 million. The increase in Net income attributable to Valeant Pharmaceuticals International, Inc. was primarily due to (i) the increase in Recovery of income taxes of $1,587 million and (ii) the decrease in Loss before recovery of income taxes of $932 million discussed above. See Note 16, "INCOME TAXES" to our unaudited Consolidated Financial Statements for further details.
Summary of the Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016
Revenue for the nine months ended September 30, 2017 and 2016 was $6,561 million and $7,271 million, respectively, a decrease of $710 million, or 10%. The decrease was primarily driven by the decline in product sales from our existing business (excluding foreign currency and divestitures and discontinuations) primarily due to lower volumes in our U.S. Diversified segment as a result of the loss of exclusivity for a number of products and in our Branded Rx segment as a result of challenging market dynamics, particularly in dermatology. Revenues were also negatively affected by divestitures and discontinuations and foreign currencies. These decreases were partially offset by increased volumes in our Bausch + Lomb / International segment, primarily driven by the U.S. Bausch + Lomb Consumer and international businesses and increased international pricing in our Bausch + Lomb / International segment. The changes in our segment revenues and segment profits are discussed in detail in the section titled “Reportable Segment Revenues and Profits”.
Operating income for the nine months ended September 30, 2017 was $424 million as compared to the Operating loss for the nine months ended September 30, 2016 of $716 million, an increase of $1,140 million. Our Operating income (loss) for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 reflects, among other factors:
a decrease in contribution of $658 million. The decrease is primarily driven by the decrease in product sales of our existing business and includes decreases in contribution from: (i) lower volumes and (ii) the impact of divestitures and discontinuances;
a decrease in SG&A expenses of $202 million primarily attributable to (i) a net decrease in advertising and promotional expenses, (ii) higher severance and other benefits in 2016 associated with exiting executives and on-boarding a new executive team and other key employees, (iii) termination benefits associated with our former Chief Executive Officer in 2016, and (iv) the impact of divestitures. These factors were partially offset by an increase in professional fees;
a decrease in Research and development of $57 million due to the timing of costs on projects in development;
a decrease in Amortization of intangible assets of $100 million which is reflective of impairments to intangible assets in 2016 and divestitures and discontinuances of product lines as the Company focuses on its core assets;
a decrease in Goodwill impairments of $737 million. In 2016, we recognized Goodwill impairments of $1,049 million in connection with the realignment of our segment structure that took place during the three months ended September 30, 2016. In 2017, we recognized Goodwill impairments of $312 million in connection with a change in a reporting unit that took place during the three months ended September 30, 2017;
an increase in Asset impairments of $235 million primarily related to the Sprout business classified as held for sale;
a decrease in Restructuring and integration costs of $36 million as the integration of acquisitions in 2015 and prior is substantially complete;
a decrease in Acquisition-related contingent consideration of $315 million primarily due to a fair value adjustment of $312 million reflecting a decrease in forecasted sales for the Addyi® product which impacted the expected future royalty payments; and
Other income, net of $584 million for the nine months ended September 30, 2017 which includes: (i) the Gain on the Skincare Sale of $316 million, (ii) the Gain on the iNova Sale of $306 million, and (iii) the Gain on the Dendreon Sale of $98 million, as adjusted. These other income amounts during the nine months ended September 30, 2017 were partially offset by: (i) accruals for Litigation and other matters of $112 million and (ii) the net loss from the sale of other assets of $25 million.
Operating income for the nine months ended September 30, 2017 of $424 million and Operating loss for the nine months ended September 30, 2016 of $716 million includes non-cash charges for Depreciation and amortization of intangible assets of $2,039 million and $2,159 million, Asset impairments of $629 million and $394 million and Share-based compensation of $70 million and $134 million, respectively.
Our Loss before recovery of income taxes for the nine months ended September 30, 2017 and 2016 was $937 million and $2,075 million, respectively, a decrease of $1,138 million.March 31, 2019. The decrease in our Loss before recovery ofbenefit from income taxes is primarily attributable to (i)was partially offset by the increase in Operating income of $1,140 million discussed above and (ii) a favorable net change in Foreign exchange and other of $83$27 million. These changes
Net loss attributable to Bausch Health Companies Inc. for the three months ended March 31, 2019 and 2018 was $52 million and $2,581 million, respectively, an increase in our reported results of $2,529 million. The increase in our results was primarily due to the decrease in our Loss before recovery ofbenefit from income taxes wereof $2,572 million, as previously discussed, partially offset by the Loss on extinguishment of debt of $65 million and an increase of Interest expense of $23 million.
Net income attributable to Valeant Pharmaceuticals International, Inc. for the nine months ended September 30, 2017 was $1,891 million as compared to Net loss attributable to Valeant Pharmaceuticals International, Inc. for the nine months ended September 30, 2016 of $1,894 million, an increase of $3,785 million. The increasedecrease in Net income attributable to Valeant Pharmaceuticals International, Inc. was primarily due to (i) the increase in the Recovery ofBenefit from income taxes of $2,650 million primarily associated with discrete items occurring during the nine months ended September 30, 2017 and (ii) the decrease in Loss before recovery of income taxes of $1,138 million described above. See Note 16, "INCOME TAXES" to our unaudited Consolidated Financial Statements for further details.$41 million.
RESULTS OF OPERATIONS
Our unaudited operating results for the three and nine months ended September 30, 2017March 31, 2019 and 20162018 were as follows:
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | Three Months Ended March 31, |
| (in millions) | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change | 2019 | | 2018 | | Change |
| Revenues | | | | | | | | | | | | | | | | |
| Product sales | $ | 2,186 |
| | $ | 2,443 |
| | $ | (257 | ) | | $ | 6,462 |
| | $ | 7,168 |
| | $ | (706 | ) | $ | 1,989 |
| | $ | 1,965 |
| | $ | 24 |
|
| Other revenues | 33 |
| | 36 |
| | (3 | ) | | 99 |
| | 103 |
| | (4 | ) | 27 |
| | 30 |
| | (3 | ) |
| | 2,219 |
| | 2,479 |
| | (260 | ) | | 6,561 |
| | 7,271 |
| | (710 | ) | 2,016 |
| | 1,995 |
| | 21 |
|
| Expenses | | | | | | | | | | | | | | | | |
| Cost of goods sold (excluding amortization and impairments of intangible assets) | 650 |
| | 649 |
| | 1 |
| | 1,869 |
| | 1,917 |
| | (48 | ) | 524 |
| | 560 |
| | (36 | ) |
| Cost of other revenues | 9 |
| | 9 |
| | — |
| | 32 |
| | 29 |
| | 3 |
| 13 |
| | 13 |
| | — |
|
| Selling, general and administrative | 623 |
| | 661 |
| | (38 | ) | | 1,943 |
| | 2,145 |
| | (202 | ) | 587 |
| | 591 |
| | (4 | ) |
| Research and development | 81 |
| | 101 |
| | (20 | ) | | 271 |
| | 328 |
| | (57 | ) | 117 |
| | 92 |
| | 25 |
|
| Amortization of intangible assets | 657 |
| | 664 |
| | (7 | ) | | 1,915 |
| | 2,015 |
| | (100 | ) | 489 |
| | 743 |
| | (254 | ) |
| Goodwill impairments | 312 |
| | 1,049 |
| | (737 | ) | | 312 |
| | 1,049 |
| | (737 | ) | — |
| | 2,213 |
| | (2,213 | ) |
| Asset impairments | 406 |
| | 148 |
| | 258 |
| | 629 |
| | 394 |
| | 235 |
| 3 |
| | 44 |
| | (41 | ) |
| Restructuring and integration costs | 6 |
| | 20 |
| | (14 | ) | | 42 |
| | 78 |
| | (36 | ) | 20 |
| | 6 |
| | 14 |
|
| Acquired in-process research and development costs | — |
| | 31 |
| | (31 | ) | | 5 |
| | 34 |
| | (29 | ) | 1 |
| | 1 |
| | — |
|
| Acquisition-related contingent consideration | (238 | ) | | 9 |
| | (247 | ) | | (297 | ) | | 18 |
| | (315 | ) | (21 | ) | | 2 |
| | (23 | ) |
| Other (income) expense, net | (325 | ) | | 1 |
| | (326 | ) | | (584 | ) | | (20 | ) | | (564 | ) | (4 | ) | | 11 |
| | (15 | ) |
| | 2,181 |
| | 3,342 |
| | (1,161 | ) | | 6,137 |
| | 7,987 |
| | (1,850 | ) | 1,729 |
| | 4,276 |
| | (2,547 | ) |
| Operating income (loss) | 38 |
| | (863 | ) | | 901 |
| | 424 |
| | (716 | ) | | 1,140 |
| 287 |
| | (2,281 | ) | | 2,568 |
|
| Interest income | 3 |
| | 3 |
| | — |
| | 9 |
| | 6 |
| | 3 |
| 4 |
| | 3 |
| | 1 |
|
| Interest expense | (459 | ) | | (470 | ) | | 11 |
| | (1,392 | ) | | (1,369 | ) | | (23 | ) | (406 | ) | | (416 | ) | | 10 |
|
| Loss on extinguishment of debt | (1 | ) | | — |
| | (1 | ) | | (65 | ) | | — |
| | (65 | ) | (7 | ) | | (27 | ) | | 20 |
|
| Foreign exchange and other | 19 |
| | (2 | ) | | 21 |
| | 87 |
| | 4 |
| | 83 |
| — |
| | 27 |
| | (27 | ) |
| Loss before recovery of income taxes | (400 | ) | | (1,332 | ) | | 932 |
| | (937 | ) | | (2,075 | ) | | 1,138 |
| |
| Recovery of income taxes | (1,700 | ) | | (113 | ) | | (1,587 | ) | | (2,829 | ) | | (179 | ) | | (2,650 | ) | |
| Net income (loss) | 1,300 |
| | (1,219 | ) | | 2,519 |
| | 1,892 |
| | (1,896 | ) | | 3,788 |
| |
| Less: Net (loss) income attributable to noncontrolling interest | (1 | ) | | (1 | ) | | — |
| | 1 |
| | (2 | ) | | 3 |
| |
| Net income (loss) attributable to Valeant Pharmaceuticals International, Inc. | $ | 1,301 |
| | $ | (1,218 | ) | | $ | 2,519 |
| | $ | 1,891 |
| | $ | (1,894 | ) | | $ | 3,785 |
| |
| Loss before benefit from income taxes | | (122 | ) | | (2,694 | ) | | 2,572 |
|
| Benefit from income taxes | | 74 |
| | 115 |
| | (41 | ) |
| Net loss | | (48 | ) | | (2,579 | ) | | 2,531 |
|
| Net income attributable to noncontrolling interest | | (4 | ) | | (2 | ) | | (2 | ) |
| Net loss attributable to Bausch Health Companies Inc. | | $ | (52 | ) | | $ | (2,581 | ) | | $ | 2,529 |
|
Three Months Ended September 30, 2017March 31, 2019 Compared to the Three Months Ended September 30, 2016March 31, 2018
Revenues
Our primary sources ofThe Company’s revenues are primarily generated from product sales, primarily in the saletherapeutic areas ofpharmaceutical products, eye-health, GI and dermatology, that consist of: (i) branded pharmaceuticals, (ii) generic and branded generic pharmaceuticals, (iii) OTC products and (iv) medical devices. devices (contact lenses, intraocular lenses, ophthalmic surgical equipment and aesthetics devices). Other revenues include alliance and service revenue from the licensing and co-promotion of products and contract service revenue primarily in the areas of dermatology and topical medication.
Our revenue was $2,219$2,016 million and $2,479$1,995 million for the three months ended September 30, 2017March 31, 2019 and 2016,2018, respectively, a decreasean increase of $260$21 million, or 10%1%. The decreaseincrease was primarily driven by: (i) higher gross selling prices of $49 million, (ii) higher net volumes of $37 million, (iii) lower sales deductions of $9 million and (iv) the incremental product sales of our Trulance® product, which we added to our portfolio in March 2019 as part of the acquisition of certain assets of Synergy of $6 million. The increase in net pricing was primarily in our Salix and Ortho Dermatologics segments. The increase in net volumes was driven by our Bausch + Lomb/International segment. The increases in our revenues were partially offset by: (i) the unfavorable effect of foreign currencies, primarily in Europe and Asia, of $59 million, (ii) the impact of divestitures and discontinuations of $141$18 million (ii) the net decline in volumes from our existing business (excluding foreign currency and divestitures and discontinuations) of $122 million primarily due to decreased volumes in our U.S. Diversified segment as a result of the loss of exclusivity for a number of products and in our Branded Rx segment as a result of challenging market dynamics, particularly in dermatology, partially offset by increased volumes in our Bausch + Lomb / International segment, driven by the U.S. Bausch + Lomb Consumer, international and U.S. Bausch + Lomb Vision Care businesses and (iii) the unfavorable impactdecrease in other revenues of foreign currencies of $15 million primarily attributable to the Egyptian pound. These decreases were partially offset by the net increase in average realized pricing of $22 million driven by our Branded Rx and Bausch + Lomb / International segments.$3 million.
Our segment revenues and segment profits for the three months ended September 30, 2017March 31, 2019 and 20162018 are discussed in further detail in the subsequent section titled “ - Reportable“Reportable Segment Revenues and Profits”.
Cash Discounts and Allowances, Chargebacks and Distribution Fees
As is customary in the pharmaceutical industry, gross product sales are subject to a variety of deductions in arriving at net product sales. Provisions for these deductions are recognized concurrentconcurrently with the recognition of gross product sales. These provisions include cash discounts and allowances, chargebacks, and distribution fees, which are paid or credited to direct customers, as well as rebates and returns, which can be paid or credited to direct and indirect customers. Price appreciation credits are generated when we increase a product’s wholesaler acquisition cost (“WAC”) under our contracts with certain wholesalers. Under such contracts, we are entitled to credits from such wholesalers for the impact of that WAC increase on inventory on hand at the wholesalers. SuchIn wholesaler contracts such credits are offset against the total distribution service fees we pay on all of our products to each such wholesaler. Net product sales on these credits are recognized on the date that the wholesaler is notifiedIn addition, some payor contracts require discounting if a price increase or series of the price increase.increases in a contract period exceeds a negotiated threshold. Provision balances relating to amounts payable to direct customers are netted against trade receivables and balances relating to indirect customers are included in accrued liabilities.
We actively manage these offerings, focusing on the incremental costs of our patient assistance programs, the level of discounting to non-retail accounts and identifying opportunities to minimize product returns. We also concentrate on managing our relationships with our payors and wholesalers, reviewing the ranges of our offerings and being disciplined as to the amount and type of incentives we negotiate. Provisions recorded to reduce gross product sales to net product sales and revenues for the three months ended September 30, 2017March 31, 2019 and 20162018 were as follows:
| | | | | Three Months Ended September 30, | | Three Months Ended March 31, |
| | | 2017 | | 2016 | | 2019 | | 2018 |
| (in millions) | | Amount | | Pct. | | Amount | | Pct. | | Amount | | Pct. | | Amount | | Pct. |
| Gross product sales | | $ | 3,777 |
| | 100 | % | | $ | 4,088 |
| | 100 | % | | $ | 3,250 |
| | 100.0 | % | | $ | 3,397 |
| | 100.0 | % |
| Provisions to reduce gross product sales to net product sales | | | | | | | | | | | | | | | | |
| Discounts and allowances | | 214 |
| | 6 | % | | 193 |
| | 5 | % | | 204 |
| | 6.3 | % | | 184 |
| | 5.4 | % |
| Returns | | 104 |
| | 3 | % | | 100 |
| | 2 | % | | 33 |
| | 1.0 | % | | 88 |
| | 2.6 | % |
| Rebates | | 656 |
| | 17 | % | | 684 |
| | 17 | % | | 533 |
| | 16.4 | % | | 635 |
| | 18.7 | % |
| Chargebacks | | 546 |
| | 14 | % | | 562 |
| | 14 | % | | 443 |
| | 13.6 | % | | 477 |
| | 14.1 | % |
| Distribution fees | | 71 |
| | 2 | % | | 106 |
| | 2 | % | | 48 |
| | 1.5 | % | | 48 |
| | 1.4 | % |
| Total provisions | | 1,591 |
| | 42 | % | | 1,645 |
| | 40 | % | | 1,261 |
| | 38.8 | % | | 1,432 |
| | 42.2 | % |
| Net product sales | | 2,186 |
| | 58 | % | | 2,443 |
| | 60 | % | | 1,989 |
| | 61.2 | % | | 1,965 |
| | 57.8 | % |
| Other revenues | | 33 |
| | | | 36 |
| | | | 27 |
| | | | 30 |
| | |
| Revenues | | $ | 2,219 |
| | | | $ | 2,479 |
| | | | $ | 2,016 |
| | | | $ | 1,995 |
| | |
Cash discounts and allowances, returns, rebates, chargebacks and distribution fees as a percentage of gross product sales were 42%38.8% and 40%42.2% for the three months ended September 30, 2017March 31, 2019 and 2016, respectively, an increase of 2 percentage points. The increase was primarily driven by:
an increase2018, respectively. Changes in cash discounts and allowances, as a percentage of product sales, primarily associated with the generic release of Glumetza® Authorized Generic (“AG”) partially offset by lower sales of Zegerid® AG due to generic competition.
an increase in returns, as a percentage of product sales attributable to certain drugs facing generic competition.
rebates, as a percentage of product sales was unchanged as increased sales of products that carry higher contractual rebateschargebacks and co-pay assistance programs, including the impact of gross price increases where customers receive incremental rebates based on contractual price increase limitations. The comparisons were impacted primarily by higher provisions for rebates and the co-pay assistance programs for launch products and other promoted products. These increases were offset by a decrease in rebates for Solodyn®, Jublia®, Carac® and Glumetza® as generic competition caused a decline in volume year over year; and
chargebacksdistribution fees as a percentage of gross product sales was unchanged as higher chargebacks resulting from higher year over year sales of certain generic drugs such as Glumetza® AG and Targretin® AG and certain branded drugs such as Nifedical®, and Xifaxan®. These increases were offset by decreases associated with: (i) lower utilization by the U.S. government of certain products such as Minocin®, Ativan®, and Mysoline®, (ii) lower year over year sales of Zegerid® AG and Nitropress® and other drugs due to generic competition and Provenge®, which was divested with the Dendreon Sale and (iii) better contract pricing as a result of the Company's pricing discipline. During much of 2016, the Company was subject to higher chargeback rates as a result of its 2015 pricing strategies. As a result of corrective actions taken by the Company, and its continued pricing discipline during 2016, the previous chargeback rates, which were substantial, are no longer effective during 2017.primarily driven by:
| |
| • | discounts and allowances as a percentage of gross product sales was higher primarily due to the sales mix of our generics business. Increased gross product sales of higher discounted products such as Glumetza® AG, and to a lesser extent Tobramycin® AG and Migranal® AG, drove the increase despite the year-over-year decrease in the discount rate for Glumetza® AG. These increases were partially offset by the impact of lower sales of other higher discounted generics, such as Xenazine® AG and Targretin® AG; |
| |
| • | returns as a percentage of gross product sales was lower primarily due to: (i) lower return rates for products, such as Glumetza® SLX, Mephyton® and Xifaxan® and (ii) lower sales of Isuprel®; |
| |
| • | rebates as a percentage of gross product sales were lower primarily due to decreases in volumes for certain products which carry higher rebate rates such as Solodyn®, Retin-A Micro® 0.06%, Elidel® and Jublia®. The decreases in year-over-year volumes were due in part to generic competition. These decreases were partially offset by increases in rebates for: (i) sales of our Trulance® product, which we added to our portfolio in March 2019 as part of the acquisition of certain assets of Synergy and (ii) increased sales of products that carry higher contractual rebates and co-pay assistance programs, including the impact of incremental rebates from contractual price increase limitations for promoted products, such as Xifaxan®, Apriso®, Glumetza® AG and Prolensa®; |
| |
| • | chargebacks as a percentage of gross product sales were lower primarily due to lower sales of certain branded products, such as Isuprel® and Nifediac and certain generic products, such as Zegerid® AG, and were partially offset by higher sales of Glumetza® AG, Xifaxan® and Glumetza® SLX; and |
| |
| • | distribution service fees as a percentage of gross product sales were higher due to: (i) higher sales of Xifaxan®, Apriso®, Ativan® and other branded products and (ii) sales of our Trulance® product, which we added to our portfolio in March 2019 as part of the acquisition of certain assets of Synergy. These increases were partially offset by lower distribution fees due to lower sales of Isuprel®, Solodyn® and Mephyton®. Price appreciation credits are offset against the distribution service fees we pay wholesalers and were $0 and $15 million during the three months ended March 31, 2019 and 2018, respectively. |
Expenses
Cost of Goods Sold (excluding amortization and impairments of intangible assets)
Cost of goods sold primarily includes: manufacturing and packaging; the cost of products we purchase from third parties; royalty payments we make to third parties; depreciation of manufacturing facilities and equipment; and lower of cost or market adjustments to inventories. Cost of goods sold excludes the amortization and impairments of intangible assets.
Cost of goods sold was $650$524 million and $649$560 million for the three months ended September 30, 2017March 31, 2019 and 2016,2018, respectively, an increasea decrease of $1$36 million, or less than 1%6%. The increasedecrease was primarily driven by higher third-party royalty costs on certain drugs and was partially offset by: (i) the decrease in costs attributable to the net decrease in sales volumes from existing businesses,favorable impact of foreign currencies, (ii) better inventory management, (iii) the impact of divestitures and discontinuations (iii) the favorable impact of foreign currencies and (iv) lower third-party royalty costs, partially offset by the reclassification of certain maintenance costs.
Beginning in the three months ended June 30, 2017, we classified certain maintenance costs asincremental costs of sales of our Trulance® product, which we added to our portfolio in previous periods were included in R&D expenses. The costs incurred forMarch 2019 as part of the three months ended September 30, 2017 were approximately $10 million. No adjustments were made to prior periods as the impact was not material.acquisition of certain assets of Synergy.
Cost of goods sold as a percentage of product sales revenue was 30%26.3% and 27%28.5% for the three months ended September 30, 2017March 31, 2019 and 2016,2018, respectively, an increasea decrease of 32.2 percentage points and was primarily driven by an unfavorable change in our product mix and higher third-party royalty costs on certain drugs. In 2017,points. Costs of goods sold as a greater percentage of our revenue is attributable towas favorably impacted as a result of: (i) higher gross selling prices, (ii) the Bausch + Lomb/International segment, which generally hasimpact of divestitures and discontinuations and (iii) lower gross margins than the balance of the Company's products portfolio. Our segment revenues and segment profits are discussed in detail in the subsequent section titled “Reportable Segment Revenues and Profits”.sales deductions.
Selling, General and Administrative Expenses
SG&A expenses primarily include: employee compensation associated with sales and marketing, finance, legal, information technology, human resources and other administrative functions; certain outside legal fees and consultancy costs; product promotion expenses; overhead and occupancy costs; depreciation of corporate facilities and equipment; and other general and administrative costs.
SG&A expenses were $623$587 million and $661$591 million for the three months ended September 30, 2017March 31, 2019 and 2016,2018, respectively, a decrease of $38$4 million, or 6%1%. The decrease was primarily driven by: (i) a net decrease in compensation expense as we incurred higher personnel costs in 2016 resulting from changes in our senior management team and employee retention costs, (ii) the favorable impact of divestitures,foreign currencies, (ii) lower
costs related to professional services and (iii) a net decrease in third-party consulting fees. Theselower compensation expense. The decreases were partially offset by an increaseby: (i) higher advertising and promotion expenses and (ii) costs in professional fees incurred in connection with:(i) legal and governmental proceedings, investigations and information requests relating2019 attributable to among other matters, our distribution, marketing, pricing, disclosure and accounting practices, (ii) the execution on our key initiatives and (iii) other ongoing corporate and business matters.IT infrastructure improvement projects.
Research and Development Expenses
Included in Research and development are costs related to our product development and quality assurance programs. Expenses related to product development include: employee compensation costs; overhead and occupancy costs; depreciation of research and development facilities and equipment; clinical trial costs; clinical manufacturing and scale-up costs; and other third partythird-party development costs. Quality assurance are the costs incurred to meet evolving customer and regulatory standards and include: employee compensation costs; overhead and occupancy costs; amortization of software; and other third partythird-party costs.
R&D expenses were $81$117 million and $101$92 million for the three months ended September 30, 2017March 31, 2019 and 2016,2018, respectively, a decreasean increase of $20$25 million, or 20%27%. The decrease was primarily due to: (i) the timing of costs on the projects in development and is not representative of our current product development activities and (ii) $10 million of certain maintenance costs classified as cost of sales in 2017 that in previous periods were included in R&D expenses as discussed above.
The decrease in the current quarter represents costs associated with: (i) lower spend due to the Dendreon Sale in June 2017, (ii) lower spend as compared to the 2016 testinga percentage of Product revenue were approximately 6% and attaining regulatory approval5% for Siliq™ (brodalumab), which received FDA approval on February 15, 2017 and was launched in the U.S. on July 27, 2017 and (iii) the development and testing of our IDP-118 (a treatment of moderate-to-severe plaque psoriasis) which is at the end of its development cycle, during the three months ended September 30, 2017. On November 2, 2017, we announced that the FDA had accepted the NDA for IDP-118 for review,March 31, 2019 and set a PDUFA action date2018, respectively, an increase of June 18, 2018.
1 percentage point.
Amortization of Intangible Assets
Intangible assets with finite lives are amortized using the straight-line method over their estimated useful lives, generally 2 to 20 years.
Amortization of intangible assets was $657$489 million and $664$743 million for the three months ended September 30, 2017March 31, 2019 and 2016,2018, respectively, a decrease of $7 million, or 1%.$254 million. The decrease was primarily due to: (i) the impact of the change in the estimated useful life of the Xifaxan® related intangible assets made in September 2018 to reflect management's changes in assumptions and (ii) lower amortization is reflectiveas a result of impairments to intangible assets in 2016 and divestitures and discontinuancesprior periods. Management continually assesses the useful lives related to the Company's long-lived assets to reflect the most current assumptions.
See Note 8, "INTANGIBLE ASSETS AND GOODWILL" to our unaudited interim Consolidated Financial Statements regarding further details related to the Amortization of product lines as the Company focuses on its core assets, resulting in less straight-line amortization in 2017 compared to 2016.intangible assets.
Goodwill Impairments
Goodwill is not amortized but is tested for impairment at least annually at the reporting unit level. A reporting unit is the same as, or one level below, an operating segment. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants. The Company estimates the fair values of all reporting units using a discounted cash flow model which utilizes Level 3 unobservable inputs.
Goodwill impairments were $312 million$0 and $1,049$2,213 million for the three months ended September 30, 2017March 31, 2019 and 2016,2018, respectively.
During the three months ended September 30,In January 2017, the Sprout business was classifiedFinancial Accounting Standards Board issued guidance which simplifies the subsequent measurement of goodwill by eliminating “Step 2” from the goodwill impairment test. Instead, goodwill impairment is measured as held for sale. As the Sprout business represented onlyamount by which a portion of a Branded Rx reporting unit, we assessedunit's carrying value exceeds its fair value. The Company elected to adopt this guidance effective January 1, 2018.
Upon adopting the remaining reporting unitnew guidance, the Company tested goodwill for impairment and determined the carrying value of the remaining reporting unit exceeded its fair value. After completing step two of the impairment testing, we determined and recorded a goodwill impairment charge of $312 million during the three months ended September 30, 2017.
Commencing in the three months ended September 30, 2016, the Company operates in three operating segments: (i) Bausch + Lomb/International, (ii) Branded Rx and (iii) U.S. Diversified Products. The realignment of the segment structure resulted in changes in the Company’s reporting units. In the third quarter of 2016, goodwill impairment testing was performed under the former reporting unit structure immediately prior to the change and under the current reporting unit structure immediately subsequent to the change.
Under the former reporting unit structure, the fair value of each reporting unit exceeded its carrying value by more than15%, except for the former U.S. reporting unit whose carrying value exceeded its fair value by 2%. As a result, the Company proceeded to perform step two of the goodwill impairment test for the former U.S. reporting unit and determined that the carrying value of the unit's goodwill exceeded its implied fair value, which resulted in an initial goodwill impairment charge of $838 million in the three months ended September 30, 2016.
Under the current reporting unit structure, the carrying value of the Salix reporting unit exceeded its fair value, as updates to the unit's forecast resulted in a lower estimated fair value for the business.value. As a result of the adoption of new accounting guidance, the Company proceeded to perform step tworecognized a goodwill impairment of $1,970 million associated with the Salix reporting unit.
As of October 1, 2017, the date of the 2017 annual goodwill impairment test, the fair value of the Ortho Dermatologics reporting unit exceeded its carrying value. However, at January 1, 2018 unforeseen changes in the business dynamics of the Ortho Dermatologics reporting unit, such as: (i) changes in the dermatology sector, (ii) increased pricing pressures from third-party payors, (iii) additional risks to the exclusivity of certain products and (iv) an expected longer launch cycle for a new product, were factors that negatively impacted the reporting unit's operating results beyond management's expectations as of October 1, 2017, when the Company performed its 2017 annual goodwill impairment test. In response to these adverse business indicators, as of January 1, 2018 the Company reduced its near and long term financial projections for the SalixOrtho Dermatologics reporting unitunit. As a result of the reductions in the near and determined thatlong term financial projections, the carrying value of the unit's goodwillOrtho Dermatologics reporting unit exceeded its implied fair value which resulted in an initialat January 1, 2018 and the Company recognized a goodwill impairment charge of $211 million in$243 million.
No events occurred or circumstances changed during the three months ended September 30, 2016.period October 1, 2018 (the date goodwill was last tested for impairment) through March 31, 2019 that would indicate that the fair value of any reporting unit might be below its carrying value.
See Note 8, "INTANGIBLE ASSETS AND GOODWILL" to our unaudited interim Consolidated Financial Statements regarding further details related to our goodwill.
Asset Impairments
Long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The Company continues to monitor the recoverability of its finite-lived intangible assets and tests the intangible assets for impairment if indicators of impairment are present.
Asset impairments were $406$3 million and $148$44 million for the three months ended September 30, 2017March 31, 2019 and 2016,2018, respectively, an increasea decrease of $258$41 million. We continue to critically evaluate our businesses and product portfolios and as a result identified assets that are not aligned with our core objectives. Asset impairments for the three months ended September 30, 2017 included:March 31, 2018 include impairments of: (i) an impairment charge of $352 million related to the Sprout, (ii) impairment charges of $47$34 million reflecting decreases in forecasted sales for othera certain product lines and (iii) impairment charges ofline due to generic competition, (ii) $6 million, in aggregate, related to certain product/patent assets associated with the discontinuance of specific product lines not aligned with the focus of the Company's core business. Asset impairments for the three months ended September 30, 2016 included: (i) an impairment charge of $88businesses and revisions to forecasted sales and (iii) $4 million recognized upon classification ofrelated to assets associated with a number of small businessesbeing classified as held for sale and (ii) an impairment charge of $25 million related to IBSChek™ (U.S. Diversified Products segment), resulting from a decline in sales trends. sale.
See Note 8, "INTANGIBLE ASSETS AND GOODWILL" to our unaudited interim Consolidated Financial Statements regarding the asset impairments offurther details related to our intangible assets.
In connection with an ongoing litigation matter between the Company and potential generic competitors to the branded drug Uceris® Tablet, the Company performed an impairment test of its Uceris® Tablet related intangible assets. As the undiscounted expected cash flows from the Uceris® Tablet exceed the carrying value of the Uceris® Tablet related intangible assets, no impairment exists as of September 30, 2017. However, if market conditions or legal outcomes differ from the Company’s assumptions, or if the Company is unable to execute its strategies, it may be necessary to record an impairment charge equal to the difference between the fair value and carrying value of the Uceris® Tablet related intangible assets. As of September 30, 2017, the carrying value of Uceris® Tablet related intangible assets was $619 million.
Restructuring and Integration Costs
Restructuring and integration costs were $6$20 million and $20$6 million for the three months ended September 30, 2017March 31, 2019 and 2016,2018, respectively, a decreasean increase of $14 million. The increase primarily relates to $10 million of severance costs associated with Synergy, which were not essential to complete, close and report the acquisition. We have substantially completed the integration of the businesses acquired prior to 2016. The Company continues to evaluate opportunities to streamline its operations and identify additional cost savings globally. Although a specific plan does not exist at this time, the Company may identify and take additional exit and cost-rationalization restructuring actions in the future, the costs of which could be material.
See Note 5, "RESTRUCTURING AND INTEGRATION COSTS" to our unaudited interim Consolidated Financial Statements for further details regarding these actions.
Acquisition-Related Contingent Consideration
Acquisition-related contingent consideration primarily consists of potential milestone payments and royalty obligations associated with businesses and assets we acquired in the past. These obligations are recorded in the consolidated balance sheetConsolidated Balance Sheet at their estimated fair values at the acquisition date, in accordance with the acquisition method of accounting. The fair value of the acquisition-related contingent consideration is remeasured each reporting period, with changes in fair value recorded in the consolidated statementsConsolidated Statements of operations.Operations. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in fair value measurement accounting.
Acquisition-related contingent consideration was a net gain of $238$21 million for the three months ended September 30, 2017March 31, 2019 and included anet fair value adjustmentadjustments of $259$27 million, reflecting a decrease in forecasted sales for the Addyi® product which impacted the expectedincluded adjustments to future royalty payments. The net gain waspayments, partially offset by accretion for the time value of money of $13 million and other net fair value adjustments of $8$6 million. Acquisition-related contingent consideration was a net expenseloss of $9$2 million for the three months ended September 30, 2016,March 31, 2018, and included accretion for the time value of money of $23$6 million, partially offset by net fair value adjustments of $14$4 million.
Other (Income) Expense, Net
Other (income) expense, net for the three months ended September 30, 2017March 31, 2019 and 20162018 consists of the following:
|
| | | | | | | | |
| | | Three Months Ended September 30, |
| (in millions) | | 2017 | | 2016 |
| Gain on the iNova Sale | | $ | (306 | ) | | $ | — |
|
| Gain on the Skincare Sale | | 3 |
| | — |
|
| Gain on the Dendreon Sale | | (25 | ) | | — |
|
| Litigation and other matters | | 3 |
| | 1 |
|
| | | $ | (325 | ) | | $ | 1 |
|
During the three months ended September 30, 2017, the initially reported Gain on the Dendreon Sale was increased by $25 million to reflect a working capital adjustment to the initial sales price. See Note 4, "DIVESTITURES" to our unaudited Consolidated Financial Statements for details related to the Gain on the Dendreon Sale. |
| | | | | | | | |
| | | Three Months Ended
March 31, |
| (in millions) | | 2019 | | 2018 |
| Net gain on sale of assets | | $ | (10 | ) | | $ | — |
|
| Acquisition-related costs | | 8 |
| | — |
|
| Litigation and other matters | | 2 |
| | 11 |
|
| Other, net | | (4 | ) | | — |
|
| | | $ | (4 | ) | | $ | 11 |
|
Non-Operating Income and Expense
Interest Expense
Interest expense primarily consists of interest payments due and amortization of debt discounts and deferred financing costs on indebtedness under our credit facilities and notes and the amortization of deferred financing costs and debt discounts. We regularly evaluate market conditions, our liquidity profile, and various financing alternatives for opportunities to enhance our capital structure. If market conditions are favorable, we may refinance existing debt.
notes.
Interest expense was $459$406 million and $470$416 million, for the three months ended September 30, 2017 and 2016, respectively, a decrease of $11 million, or 2%. Interest expense includesincluded non-cash amortization and write-offs of debt discounts and debt issuancedeferred financing costs of $34$17 million and $33$23 million, for the three months ended September 30, 2017March 31, 2019 and 2016,2018, respectively. The decrease in interestInterest expense wasfor the three months ended March 31, 2019 decreased $10 million, or 2%, as compared to the three months ended March 31, 2018, primarily driven bydue to lower principal amounts of outstanding debt during the three months ended September 30, 2017, partially offset by higher interest rates primarily resulting from the March 2017 debt refinancing.long-term debt. The weighted average stated rates of interest as of September 30, 2017March 31, 2019 and 20162018 were 6.09%6.38% and 5.71%6.32%, respectively.
Loss on Extinguishment of Debt
Loss on extinguishment of debt represents the differences between the amounts paid to settle extinguished debts and the carrying value of $1the related extinguished debt. Loss on extinguishment of debt was $7 million and $27 million for the three months ended September 30, 2017 was incurred in connectionMarch 31, 2019 and 2018, respectively, and is associated with the August 2017 repurchasea series of $500 milliontransactions which allowed us to refinance portions of our August 2018 Senior Unsecured Notes.debt arrangements.
See Note 10, "FINANCING ARRANGEMENTS" to our unaudited interim Consolidated Financial Statements for further details.
Foreign Exchange and Other
Foreign exchange and other was $0 and a gain of $19$27 million for the three months ended September 30, 2017 as compared to a loss of $2 million for the three months ended September 30, 2016, a favorableMarch 31, 2019 and 2018, respectively, an unfavorable net change of $21$27 million. Foreign exchange gains/losses include translation gains/losses on intercompany loans, primarily on euro-denominated intercompany loans.
Income Taxes
For interim financial statement purposes, U.S. GAAP income tax expense/benefit related to ordinary income is determined by applying an estimated annual effective income tax rate against our ordinary income. Income tax expense/benefit related to items not characterized as ordinary income is recognized as a discrete item when incurred. The estimation of our annual effective income tax rate requires the use of management forecasts and other estimates, a projection of jurisdictional taxable income and losses, application of statutory income tax rates, and an evaluation of valuation allowances. Our estimated annual effective income tax rate may be revised, if necessary, in each interim period during the fiscal year.
Recovery ofBenefit from income taxes was $1,700$74 million and $113$115 million for the three months ended September 30, 2017March 31, 2019 and 2016,2018, respectively, an increasea decrease of $1,587$41 million.
Our effective income tax rate for the three months ended March 31, 2019 differs from the statutory Canadian income tax rate primarily due to: (i) the recording of valuation allowance on entities for which no tax benefit of losses is expected, (ii) the tax benefit generated from our annualized mix of earnings by jurisdiction and (iii) the discrete treatment of certain tax matters, primarily related to: (a) the net tax benefit related to uncertain tax positions and (b) adjustments for book to income tax return provisions.
Our effective income tax rate for the three months ended September 30, 2017March 31, 2018 differs from the statutory Canadian income tax rate primarily due to: (i) the recording of valuation allowance on entities for which no tax benefit of losses is expected, (ii) the tax benefit generated from our annualized mix of earnings by jurisdiction and (iii) the discrete treatment of: (a) $1,397 millionthe tax consequences of tax benefit from internal restructuring efforts and (b) a $108 millionthe net tax benefit related to an intangible impairment during the three months ended September 30, 2017.
Our effective income tax rate for the three months ended September 30, 2016 differs from the statutory Canadian income tax rate primarily due to: (i) tax expense generated from our annualized mix of earnings by jurisdiction, (ii) the discrete treatment of: (a) an adjustment to the accrual established for legal expenses and (b) a tax benefit for the deduction of a significant impairment of an intangible asset, (iii) the recording of valuation allowance on entities for which no tax benefit of losses is expected and (iv) the accrual of interest on uncertain tax positions.
See Note 17, "INCOME TAXES" to our unaudited interim Consolidated Financial Statements for further details.
Reportable Segment Revenues and Profits
DuringIn 2018, the thirdCompany began reallocating capital and resources among its businesses. As a result, during the second quarter of 2016, our Chief Executive Officer,2018, the Company’s CEO, who is the Company’s Chief Operating Decision Maker, commenced managing the business differently through changes in and reorganizations to the Company’s business structure, including changes to its operating and reportable segments, which necessitated a realignment of the Company’sCompany's historical segment structure. This realignment is consistent with how the Company’s CEO currently: (i) assesses operating performance on a regular basis, (ii) makes resource allocation decisions and (iii) designates responsibilities of his direct reports. Pursuant to this change, which was effectivethese changes, in the thirdsecond quarter of 2016, we have three2018, the Company began operating andin the following reportable segments: (i) Bausch + Lomb/International segment, (ii) Branded RxSalix segment, (iii) Ortho Dermatologics segment and (iii) U.S.(iv) Diversified Products. Further, effective for the first quarter of 2017, revenues and profits from the Company's operations in Canada, included in the Branded Rx segment in prior periods, are included in the Bausch + Lomb/InternationalProducts segment. Prior period presentations of segment revenues and segment profits have been recast to conform to the current segment reporting structure.
The following is a brief description of our segments:
The Bausch + Lomb/International segment consists of: (i) sales in the U.S. of pharmaceutical products, OTC products and medical device products, primarily comprised of Bausch + Lomb products, with a focus on the Vision Care, Surgical, Consumer and Ophthalmology Rx products and (ii) with the exception of sales of Solta products, sales in Canada, Europe, Asia, Australia, and New Zealand, Latin America, Africa and the Middle East of branded pharmaceutical products, branded generic pharmaceutical products, OTC products, medical device products and Bausch + Lomb products.
The Branded RxSalix segment consists of sales in the U.S. of: (i) Salix products (GI products), (ii) Ortho Dermatologics (dermatological products) and (iii) oncology (or Dendreon), dentistry and women’s healthof GI products. As a result of the Dendreon Sale completed on June 28, 2017, the Company exited the oncology business.
The Ortho Dermatologics segment consists of: (i) sales in the U.S. of Ortho Dermatologics (dermatological) products and (ii) global sales of Solta medical aesthetic devices.
The Diversified Products segment consists of sales in the U.S. of: (i) pharmaceutical products, OTC products and medical device products in the areas of neurology and certain other therapeutic classes, including aesthetics which includes the Solta business and the Obagi business and (ii) generic products and (iii) dentistry products.
Effective in the first quarter of 2019, one product historically included in the reported results of the Ortho Dermatologics business unit in the Ortho Dermatologics segment is now included in the reported results of the Generics business unit in the Diversified Products segment and another product historically included in the reported results of the Ortho Dermatologics business unit in the Ortho Dermatologics segment is now included in the reported results of the Dentistry business unit in the Diversified Products segment as management believes the products better align with the new respective business units. These changes in product alignment are not material. Prior period presentations of business unit and segment revenues and profits have been conformed to current segment and business unit reporting structures.
Segment profit is based on operating income after the elimination of intercompany transactions (including transactions with any consolidated variable interest entities).transactions. Certain costs, such as amortization and impairmentsAmortization of intangible assets, goodwill impairment, certain R&D expenses not specific to our active portfolio, acquired in-processAsset impairments, In-process research and development costs, restructuring,Restructuring and integration and acquisition-relatedcosts, Acquisition-related contingent consideration costs and other (income) expense,Other income, net, are not included in the measure of segment profit, as management excludes these items in assessing segment financial performance. In addition, a portion of share-based compensation, representing the difference between actual and budgeted expense, is not allocated to segments. See Note 19,20, "SEGMENT INFORMATION" to our unaudited interim Consolidated Financial Statements for a reconciliation of segment profit to Loss before recovery ofbenefit from income taxes.
The following table presents segment revenues, segment revenues as a percentage of total revenues, and the year over yearyear-over-year changes in segment revenues for the three months ended September 30, 2017March 31, 2019 and 2016.2018. The following table also presents segment profits, segment profits as a percentage of segment revenues and the year over yearyear-over-year changes in segment profits for the three months ended September 30, 2017March 31, 2019 and 2016.2018.
| | | | | Three Months Ended September 30, | | Three Months Ended March 31, |
| | | 2017 | | 2016 | | Change | | 2019 | | 2018 | | Change |
| (in millions) | | Amount | | Pct. | | Amount | | Pct. | | Amount | | Pct. | | Amount | | Pct. | | Amount | | Pct. | | Amount | | Pct. |
| Segment Revenues | | | | | | | | | | | | | | | | | | | | | | | | |
| Bausch + Lomb/International | | $ | 1,254 |
| | 56 | % | | $ | 1,243 |
| | 50 | % | | $ | 11 |
| | 1 | % | | $ | 1,118 |
| | 55 | % | | $ | 1,103 |
| | 55 | % | | $ | 15 |
| | 1 | % |
| Branded Rx | | 633 |
| | 29 | % | | 766 |
| | 31 | % | | (133 | ) | | (17 | )% | |
| U.S. Diversified Products | | 332 |
| | 15 | % | | 470 |
| | 19 | % | | (138 | ) | | (29 | )% | |
| Salix | | | 445 |
| | 22 | % | | 422 |
| | 21 | % | | 23 |
| | 5 | % |
| Ortho Dermatologics | | | 138 |
| | 7 | % | | 140 |
| | 7 | % | | (2 | ) | | (1 | )% |
| Diversified Products | | | 315 |
| | 16 | % | | 330 |
| | 17 | % | | (15 | ) | | (5 | )% |
| Total revenues | | $ | 2,219 |
| | 100 | % | | $ | 2,479 |
| | 100 | % | | $ | (260 | ) | | (10 | )% | | $ | 2,016 |
| | 100 | % | | $ | 1,995 |
| | 100 | % | | $ | 21 |
| | 1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Segment Profits / Segment Profit Margins | | | | | | | | | | | | | | | | | | | | | | | | |
| Bausch + Lomb/International | | $ | 387 |
| | 31 | % | | $ | 381 |
| | 31 | % | | $ | 6 |
| | 2 | % | | $ | 319 |
| | 29 | % | | $ | 297 |
| | 27 | % | | $ | 22 |
| | 7 | % |
| Branded Rx | | 357 |
| | 56 | % | | 484 |
| | 63 | % | | (127 | ) | | (26 | )% | |
| U.S. Diversified Products | | 238 |
| | 72 | % | | 379 |
| | 81 | % | | (141 | ) | | (37 | )% | |
| Salix | | | 288 |
| | 65 | % | | 272 |
| | 64 | % | | 16 |
| | 6 | % |
| Ortho Dermatologics | | | 57 |
| | 41 | % | | 44 |
| | 31 | % | | 13 |
| | 30 | % |
| Diversified Products | | | 236 |
| | 75 | % | | 240 |
| | 73 | % | | (4 | ) | | (2 | )% |
| Total segment profits | | $ | 982 |
| | 44 | % | | $ | 1,244 |
| | 50 | % | | $ | (262 | ) | | (21 | )% | | $ | 900 |
| | 45 | % | | $ | 853 |
| | 43 | % | | $ | 47 |
| | 6 | % |
The following table presents organic revenue (Non-GAAP) and the year-over-year changes in organic revenue for the three months ended March 31, 2019 and 2018 by segment. Organic revenues and organic growth rates are defined in the previous section titled “Selected Financial Information”.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, 2019 | | Three Months Ended March 31, 2018 | | Change in Organic Revenue |
| | | Revenue as Reported | | Changes in Exchange Rates | | Acquisition | | Organic Revenue (Non-GAAP) | | Revenue as Reported | | Divestitures and Discontinuations | | Organic Revenue (Non-GAAP) | |
| (in millions) | | Amount | | Pct. |
| Bausch + Lomb/International | | $ | 1,118 |
| | $ | 58 |
| | $ | — |
| | $ | 1,176 |
| | $ | 1,103 |
| | $ | (14 | ) | | $ | 1,089 |
| | $ | 87 |
| | 8 | % |
| Salix | | 445 |
| | — |
| | (6 | ) | | 439 |
| | 422 |
| | (3 | ) | | 419 |
| | 20 |
| | 5 | % |
| Ortho Dermatologics | | 138 |
| | 1 |
| | — |
| | 139 |
| | 140 |
| | — |
| | 140 |
| | (1 | ) | | (1 | )% |
| Diversified Products | | 315 |
| | — |
| | — |
| | 315 |
| | 330 |
| | (1 | ) | | 329 |
| | (14 | ) | | (4 | )% |
| Total | | $ | 2,016 |
| | $ | 59 |
| | $ | (6 | ) | | $ | 2,069 |
| | $ | 1,995 |
| | $ | (18 | ) | | $ | 1,977 |
| | $ | 92 |
| | 5 | % |
Bausch + Lomb/International Segment:
Bausch + Lomb/International Segment Revenue
The Bausch + Lomb/International segment has a diversified product line with no single product group representing 10% or more of its segment product sales. The Bausch + Lomb/International segment revenue was $1,254$1,118 million and $1,243$1,103 million for the three months ended September 30, 2017March 31, 2019 and 2016,2018, respectively, an increase of $11$15 million, or 1%. The increase was primarily driven by:
attributable to: (i) an increase in product sales volume fromacross all of our existingglobal eye-health businesses of $61 million, primarily in our Global Vision Care business (excluding foreign currency and divestitures and discontinuations) of $58 million. TheGlobal Consumer business, (ii) an increase in volume was driven by the U.S. Bausch + Lomb Consumer, internationalof our International Rx business products of $18 million, primarily in Canada, Egypt and U.S. Bausch + Lomb Vision Care businesses; and
Russia, (iii) an increase in average realized pricing of $20$7 million primarily driven by our Global Ophtho Rx business and (iv) an increase in Egypt.
These factors wereother revenues of $1 million. The increase in volume in our Global Vision Care business is primarily attributable to our Biotrue® ONEday and Ultra® product lines in the U.S. The increase in volume in our Global Consumer business is primarily attributable to the launch of Lumify® (May 2018) and sales of Preservision®. The increase in average realized pricing in our Global Ophtho Rx business is primarily attributable to Lotemax®, Vyzulta® and Prolensa®. The increase was partially offset by:
(i) the unfavorable effect of foreign currencies of $58 million primarily attributable to our revenues in Europe and Asia and (ii) the impact of other divestitures and discontinuations of $51 million;$14 million, primarily related to the divestiture and
the unfavorable impact discontinuance of foreign currencies of $15 million, which includes the unfavorable impact from the Egyptian pound of $40 million. In November 2016, as a result of the Egyptian government’s decision to float the Egyptianseveral products within our International Rx business.
pound and un-peg it to the U.S. Dollar, the Egyptian pound was significantly devalued. Our exposure to the Egyptian pound is primarily with respect to revenue generated from the Amoun business we acquired in October 2015, which represented approximately 2% of our total revenues and approximately 3% of our Bausch + Lomb/International segment revenues for the nine months ended September 30, 2017. Further strengthening of the U.S. dollar and/or the devaluation of other countries' currencies could have a negative impact on our reported international revenue. Revenue outside the U.S. and Puerto Rico was approximately 40% of our total 2017 revenues. The impact of the Egyptian pound was partially offset by the favorable impact of foreign currencies in Eastern Europe.
Bausch + Lomb/International Segment Profit
The Bausch + Lomb/International segment profit for three months ended September 30, 2017March 31, 2019 and 20162018 was $387$319 million and $381$297 million, respectively, an increase of $6$22 million, or 2%7%. The increase was primarily driven by:
by an increase in contribution as a result ofof: (i) the increasesincrease in volume and average realized pricing as previously discussed, above;(ii) better inventory management and
a decrease in operating expenses (excluding amortization and impairments of intangible assets) of $6 million primarily in (iii) lower costs related to professional fees. The increase was partially offset by: (i) higher advertising and promotion as a resultexpenses primarily due to the launch of the Skincare SaleLumify® and other divestitures and discontinuances.(ii) higher R&D expenses.
These factors were partially offset by:
the decrease in contribution from other divestitures and discontinuations of $33 million; and
the unfavorable impact of foreign currencies on the existing business of $3 million, primarily the Egyptian pound.
Branded RxSalix Segment:
Branded RxSalix Segment Revenue
The Branded RxSalix segment has a diversifiedincludes the Xifaxan® product line, which includes Xifaxan®. This product accounted for 46%69% and 36%65% of the Branded RxSalix segment product sales and 13%15% and 11%14% of the Company's product sales for the three months ended September 30, 2017March 31, 2019 and 2016,2018, respectively. No other single product group represents 10% or more of the Branded RxSalix segment product sales. The Branded RxSalix segment revenue for the three months ended September 30, 2017March 31, 2019 and 20162018 was $633$445 million and $766$422 million, respectively, an increase of $23 million, or 5%. The increase includes: (i) an increase in average realized pricing of $25 million primarily attributable to higher gross selling prices for Xifaxan® and (ii) the impact of the acquisition of certain assets of Synergy of $6 million. The increase was partially offset by: (i) a decrease in volume of $5 million primarily attributable to the loss of exclusivity of certain products, such as Uceris®, partially offset by increases in volume for Xifaxan® and Glumetza® SLX and (ii) the impact of divestitures and discontinuations of $3 million.
Salix Segment Profit
The Salix segment profit for the three months ended March 31, 2019 and 2018 was $288 million and $272 million, respectively, an increase of $16 million, or 6%. The increase was primarily driven by a net increase in contribution as a result of the increases in average realized pricing, partially offset by the net decrease in volume, as previously discussed.
Ortho Dermatologics Segment:
Ortho Dermatologics Segment Revenue
The Ortho Dermatologics segment revenue for the three months ended March 31, 2019 and 2018 was $138 million and $140 million, respectively a decrease of $133$2 million, or 17%1%. The decrease was primarily driven by:
includes: (i) a decrease in volume from our existing business of $88$19 million, (ii) a decrease in other revenues of $2 million and (iii) the unfavorable effect of foreign currencies of $1 million. The decrease in volume is primarily driven by:due to: (i) the dermatology business, most notably with our Jublia® and Solodyn® products which have experienced lower volumes since the change in our fulfillment model and (ii)impact of generic competition as certain products lost exclusivity, such as our Zegerid® product in our GI businessincluding Solodyn® and our Targetin®Elidel® and (ii) decreased demand for Onexton®, Carac®, Jublia® and Ziana® products in our dermatology business unit; and
the impact of the Dendreon Sale and other divestitures and discontinuations of $86 million.
TargretinThese factors were®, partially offset by the increase in pricingimpact on volume from increased demand of $45 million primarily driven by: (i) increased wholesale selling pricesSiliqTM and (ii) lower discounts within the GI business in 2017 when compared to 2016. As discussed above in “Thermage FLXCash Discounts and Allowances, Chargebacks and Distribution Fees,®”as a result of corrective actions taken. The decrease was partially offset by the Company and its continued pricing discipline during 2016, chargeback rates within the GI business are lower in 2017 when compared to 2016. This resulted in an increase in average realized pricing of $20 million as a result of lower sales deductions primarily attributable to Onexton®, Retin-A Micro® 0.06%, Retin-A Micro® 0.08% and were partially offset by higher managed care rebates, particularly in the dermatology business and, to a lesser extent, the GI business.Solodyn®.
Branded RxOrtho Dermatologics Segment Profit
The Branded RxOrtho Dermatologics segment profit for the three months ended September 30, 2017March 31, 2019 and 20162018 was $357$57 million and $484$44 million, respectively, a decreasean increase of $127$13 million, or 26%30%. The decreaseincrease was primarily driven by:
by a decrease in contribution from the impact of: (i) the Dendreon Sale and other divestitures and discontinuations of $77 million, (ii) lower volume partially offset by higher average realized pricing in our existing business, and (iii) higher third-party royalty costs on certain drugs; and
an increase in operating expenses of $8 million primarily related to an increase in legal fees associated with certain intellectual property matters and the sales field force expansion in GI.professional fees.
U.S. Diversified Products Segment:
U.S. Diversified Products Segment Revenue
The following table displays the U.S. Diversified Products segment revenue by product and product revenues as a percentage of segment revenue for the three months ended September 30, 2017March 31, 2019 and 2016.2018.
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, |
| | | 2017 | | 2016 | | Change |
| (in millions) | | Amount | | Pct. | | Amount | | Pct. | | Amount | | Pct. |
| Wellbutrin® | | $ | 61 |
| | 18 | % | | $ | 65 |
| | 14 | % | | $ | (4 | ) | | (6 | )% |
| Xenazine US® | | 28 |
| | 8 | % | | 35 |
| | 7 | % | | (7 | ) | | (20 | )% |
| Isuprel® | | 23 |
| | 7 | % | | 30 |
| | 6 | % | | (7 | ) | | (23 | )% |
| Cuprimine® | | 20 |
| | 6 | % | | 29 |
| | 6 | % | | (9 | ) | | (31 | )% |
| Syprine® | | 18 |
| | 5 | % | | 26 |
| | 6 | % | | (8 | ) | | (31 | )% |
| Mephyton® | | 14 |
| | 4 | % | | 15 |
| | 3 | % | | (1 | ) | | (7 | )% |
| Migranal® AG | | 14 |
| | 4 | % | | 15 |
| | 3 | % | | (1 | ) | | (7 | )% |
| Ativan® | | 13 |
| | 4 | % | | 13 |
| | 3 | % | | — |
| | — | % |
| Glumetza® AG | | 9 |
| | 3 | % | | — |
| | — | % | | 9 |
| | — | % |
| Obagi Nu-Derm® | | 8 |
| | 2 | % | | 8 |
| | 2 | % | | — |
| | — | % |
| Other product revenues | | 119 |
| | 36 | % | | 229 |
| | 49 | % | | (110 | ) | | (48 | )% |
| Other revenues | | 5 |
| | 2 | % | | 5 |
| | 1 | % | | — |
| | — | % |
| Total U.S. Diversified revenues | | $ | 332 |
| | 100 | % | | $ | 470 |
| | 100 | % | | $ | (138 | ) | | (29 | )% |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | 2019 | | 2018 | | Change |
| (in millions) | | Amount | | Pct. | | Amount | | Pct. | | Amount | | Pct. |
Wellbutrin® Franchise | | $ | 58 |
| | 18 | % | | $ | 62 |
| | 19 | % | | $ | (4 | ) | | (6 | )% |
Cuprimine® | | 25 |
| | 8 | % | | 16 |
| | 5 | % | | 9 |
| | 56 | % |
Arestin® | | 21 |
| | 7 | % | | 24 |
| | 7 | % | | (3 | ) | | (13 | )% |
Aplenzin® | | 16 |
| | 5 | % | | 12 |
| | 4 | % | | 4 |
| | 33 | % |
Ativan® | | 15 |
| | 5 | % | | 13 |
| | 4 | % | | 2 |
| | 15 | % |
Migranal® Franchise | | 12 |
| | 4 | % | | 11 |
| | 3 | % | | 1 |
| | 9 | % |
Syprine® | | 9 |
| | 3 | % | | 18 |
| | 5 | % | | (9 | ) | | (50 | )% |
| Latanoprost | | 8 |
| | 2 | % | | 4 |
| | 1 | % | | 4 |
| | 100 | % |
| Tobramycin/Dexamethasone | | 7 |
| | 2 | % | | 5 |
| | 2 | % | | 2 |
| | 40 | % |
Mephyton® Franchise | | 7 |
| | 2 | % | | 14 |
| | 4 | % | | (7 | ) | | (50 | )% |
| Other product revenues | | 135 |
| | 43 | % | | 147 |
| | 45 | % | | (12 | ) | | (8 | )% |
| Other revenues | | 2 |
| | 1 | % | | 4 |
| | 1 | % | | (2 | ) | | (50 | )% |
| Total Diversified Products revenues | | $ | 315 |
| | 100 | % | | $ | 330 |
| | 100 | % | | $ | (15 | ) | | (5 | )% |
The U.S. Diversified Products segment revenue for the three months ended September 30, 2017March 31, 2019 and 20162018 was $332$315 million and $470$330 million, respectively, a decrease of $138$15 million, or 29%. The decrease was driven by decreases in volume of $92 million and average realized pricing of $43 million, primarily attributable to generic competition to certain products, including Nitropress®, Cuprimine®, Xenazine®, Syprine®, Isuprel®, Virazole®, and Wellbutrin® in our neurology business unit and the Zegerid® AG in our generics business unit.
U.S. Diversified Products Segment Profit
The U.S. Diversified segment profit for three months ended September 30, 2017 and 2016 was $238 million and $379 million, respectively, a decrease of $141 million, or 37% and was primarily driven by the decrease in contribution from our existing business as a result of lower volumes and average realized pricing.
Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016
Revenues
Our revenue was $6,561 million and $7,271 million for the nine months ended September 30, 2017 and 2016, respectively, a decrease of $710 million, or 10%. The decrease was primarily driven by: (i) the decline in product sales from our existing business (excluding foreign currency and divestitures and discontinuations) of $359 million primarily due to lower volumes in our U.S. Diversified segment as a result of the loss of exclusivity for a number of products and in our Branded Rx segment as a result of challenging market dynamics, particularly in dermatology, partially offset by increased international pricing in our Bausch + Lomb / International segment and increased volumes in our Bausch + Lomb / International segment, primarily driven by the U.S. Bausch + Lomb Consumer and international businesses, (ii) the impact of divestitures and discontinuations of $237 million and (iii) the unfavorable impact of foreign currencies of $110 million which is primarily attributable to the Egyptian pound.
Our segment revenues and segment profits for the nine months ended September 30, 2017 and 2016 are discussed in detail in the subsequent section titled “ - Reportable Segment Revenues and Profits”.
Cash Discounts and Allowances, Chargebacks and Distribution Fees
Provisions recorded to reduce gross product sales to net product sales and revenues for the nine months ended September 30, 2017 and 2016 were as follows:
|
| | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, |
| | | 2017 | | 2016 |
| (in millions) | | Amount | | Pct. | | Amount | | Pct. |
| Gross product sales | | $ | 11,085 |
| | 100 | % | | $ | 11,992 |
| | 100 | % |
| Provisions to reduce gross product sales to net product sales | | | | | | | | |
| Discounts and allowances | | 613 |
| | 6 | % | | 561 |
| | 5 | % |
| Returns | | 326 |
| | 3 | % | | 343 |
| | 3 | % |
| Rebates | | 1,894 |
| | 17 | % | | 1,880 |
| | 15 | % |
| Chargebacks | | 1,568 |
| | 14 | % | | 1,708 |
| | 14 | % |
| Distribution fees | | 222 |
| | 2 | % | | 332 |
| | 3 | % |
| Total provisions | | 4,623 |
| | 42 | % | | 4,824 |
| | 40 | % |
| Net product sales | | 6,462 |
| | 58 | % | | 7,168 |
| | 60 | % |
| Other revenues | | 99 |
| | | | 103 |
| | |
| Revenues | | $ | 6,561 |
| | | | $ | 7,271 |
| | |
Cash discounts and allowances, returns, rebates, chargebacks and distribution fees as a percentage of gross product sales were 42% and 40% for the nine months ended September 30, 2017 and 2016, respectively, an increase of 2 percentage point. The increase was primarily driven by:
an increase in discounts and allowances as a percentage of product sales primarily associated with the generic release of Glumetza® AG partially offset by lower sales of Zegerid® AG due to generic competition;
rebates as a percentage of product sales was higher as increased sales of products that carry higher contractual rebates and co-pay assistance programs, including the impact of gross price increases where customers receive incremental rebates based on contractual price increase limitations. The comparisons were impacted primarily by higher provisions for rebates and the co-pay assistance programs for launch products and other promoted products. These increases were offset by decreases in rebates for Solodyn®, Jublia®, Glumetza®, Ziana® and other products as generic competition caused a decline in volume year over year;
chargebacks as a percentage of gross product sales was unchanged as higher chargebacks resulting from higher year over year sales of certain generic drugs such as Glumetza® AG and Targretin® AG and certain branded drugs such as Nifedical® and Xifaxan®. These increases were offset by decreases associated with: (i) lower utilization by the U.S. government of certain products such as Minocin®, Ativan®, and Mysoline®, (ii) lower year over year sales of Zegerid® AG and Nitropress® and other drugs due to generic competition and Provenge® which was divested with the Dendreon Sale and (iii) better contract pricing as a result of the Company's pricing discipline. During much of 2016, the Company was subject to higher chargeback rates as a result of its 2015 pricing strategies. As a result of corrective actions taken by the Company, and its continued pricing discipline during 2016, the previous chargeback rates, which were substantial, are no longer effective during 2017; and
a decrease in distribution service fees as a percentage of gross product sales due in part to higher offsetting price appreciation credits and better contract terms with our distributors. Price appreciation credits offset against the total distribution service fees we pay on all of our products to each wholesaler. Price appreciation credits were $10 million and $3 million for the nine months ended September 30, 2017 and 2016, respectively.
Expenses
Cost of Goods Sold (excluding amortization and impairments of intangible assets)
Cost of goods sold was $1,869 million and $1,917 million for the nine months ended September 30, 2017 and 2016, respectively, a decrease of $48 million, or 3%. The decrease was primarily driven by: (i) costs attributable to the net decrease in sales volumes from existing businesses, (ii) the favorable impact of foreign currencies, (iii) lower amortization of acquisition accounting adjustments related to inventories and (iv) the impact of divestitures and discontinuations. These decreases were partially offset by higher third-party royalty costs on certain drugs.
Beginning in the three months ended June 30, 2017, we classified certain maintenance costs as costs of sales which in previous periods were included in R&D expenses. The costs incurred for the three months ended June 30, 2017 and September 30, 2017 were approximately $14 million, in aggregate. No adjustments were made to prior periods based on materiality.
Cost of goods sold as a percentage of product sales revenue was 29% and 27% for the nine months ended September 30, 2017 and 2016, respectively, an increase of 2 percentage points and was primarily driven by an unfavorable change in our product mix. In 2017, a greater percentage of our revenue is attributable to the Bausch + Lomb/International segment, which generally has lower gross margins than the balance of the Company's products portfolio, including products with higher third-party royalty rates, in part due to the loss of exclusivity previously discussed with respect to certain higher gross margin products. These increases in costs of goods sold as a percentage of product sales revenue were partially offset by acquisition accounting adjustments related to inventories expensed in 2016 of $38 million. Our segment revenues and segment profits are discussed in detail in the subsequent section titled “Reportable Segment Revenues and Profits”.
Selling, General and Administrative Expenses
SG&A expenses were $1,943 million and $2,145 million for the nine months ended September 30, 2017 and 2016, respectively, a decrease of $202 million, or 9%5%. The decrease was primarily driven by: (i) a net decrease in advertising and promotional expenses, primarily driven by decreases in (a) direct to consumer advertising in supportvolume of our Jublia®, Xifaxan®, Bausch + Lomb ULTRA® contact lenses and other branded products and (b) expenses with businesses sold,$18 million, (ii) a net decrease in compensation expense as we incurred higher personnel costs in 2016 resulting from changes in our senior management teamother revenues of $2 million and employee retention costs, (iii) termination benefits associated with our former Chief Executive Officer in 2016 consisting of (a) the pro-rata vesting of performance-based restricted stock units (“RSUs”) (no shares were issued on vesting of these performance-based RSUs because the associated market-based performance condition was not attained), (b) a cash severance payment and (c) a pro-rata annual cash bonus, (iv) the impact of divestitures (v) the favorable impact of foreign currencies and (vi) a net decrease in third-party consulting fees. These factors were partially offset by an increase in professional fees incurred in connection with: (i) legal and governmental proceedings, investigations and information requests relating to, among other matters, our distribution, marketing, pricing, disclosure and accounting practices, (ii) the execution on our key initiatives and (iii) other ongoing corporate and business matters.
Research and Development
R&D expenses were $271 million and $328 million for the nine months ended September 30, 2017 and 2016, respectively, a decrease of $57 million, or 17%. The decrease was primarily due to: (i) the timing of costs on the projects in development and is not representative of our current product development activities and (ii) $14 million of certain maintenance costs classified as cost of sales in 2017 that in previous periods were included in R&D expenses as discussed above.
The decrease represents lower costs associated with projects at the end or near the end of their development cycles. A significant portion of our 2016 R&D expense was dedicated to the dermatology business and included expenses for: (i) testing and attaining regulatory approval for Siliq™ (brodalumab), which received FDA approval on February 15, 2017 and was launched in the U.S. on July 27, 2017 and (ii) the development and testing of our IDP-118 (a treatment of moderate-to-severe plaque psoriasis), which is at the end of its development cycle. On November 2, 2017, we announced that the FDA had accepted the NDA for IDP-118 for review, and set a PDUFA action date of June 18, 2018.
Amortization of Intangible Assets
Amortization of intangible assets was $1,915 million and $2,015 million for the nine months ended September 30, 2017 and 2016, respectively, a decrease of $100 million, or 5%. The decrease in amortization is reflective of impairments to intangible assets in 2016 and divestitures and discontinuances of product lines as the Company focuses on its core assets, resulting in less straight-line amortization in 2017 compared to 2016.
Goodwill Impairments
Goodwill impairments were $312 million and $1,049 million for the nine months ended September 30, 2017 and 2016, respectively.
During the three months ended September 30, 2017, the Sprout business was classified as held for sale. As the Sprout business represented only a portion of a Branded Rx reporting unit, we assessed the remaining reporting unit for impairment and determined the carrying value of the remaining reporting unit exceeded its fair value. After completing step two of the impairment testing, we determined and recorded a goodwill impairment charge of $312 million during the three months ended September 30, 2017.
Commencing in the three months ended September 30, 2016, the Company operates in three operating segments: (i) Bausch + Lomb/International, (ii) Branded Rx and (iii) U.S. Diversified Products. The realignment of the segment structure resulted in changes in the Company’s reporting units. In the third quarter of 2016, goodwill impairment testing was performed under the former reporting unit structure immediately prior to the change and under the current reporting unit structure immediately subsequent to the change.
Under the former reporting unit structure, the fair value of each reporting unit exceeded its carrying value by more than15%, except for the former U.S. reporting unit whose carrying value exceeded its fair value by 2%. As a result, the Company proceeded to perform step two of the goodwill impairment test for the former U.S. reporting unit and determined that the carrying value of the unit's goodwill exceeded its implied fair value, which resulted in an initial goodwill impairment charge of $838 million in the three months ended September 30, 2016.
Under the current reporting unit structure, the carrying value of the Salix reporting unit exceeded its fair value, as updates to the unit's forecast resulted in a lower estimated fair value for the business. As a result, the Company proceeded to perform step two of the goodwill impairment test for the Salix reporting unit and determined that the carrying value of the unit's goodwill exceeded its implied fair value, which resulted in an initial goodwill impairment charge of $211 million in the three months ended September 30, 2016.
Asset Impairments
Asset impairments were $629 million and $394 million for the nine months ended September 30, 2017 and 2016, respectively, an increase of $235 million. We continue to critically evaluate our businesses and product portfolios and as a result identified assets that are not aligned with our core objectives. Asset impairments for the nine months ended September 30, 2017 includes: (i) an impairment charge of $352 million related to the Sprout business, (ii) impairment charges of $115 million to other assets classified as held for sale, (iii) impairments of $86 million, in aggregate, to certain product/patent assets associated with the discontinuance of specific product lines not aligned with the focus of the Company's core business, (iv) impairment charges of $73 million reflecting decreases in forecasted sales for other product lines and (v) impairment charges of $3 million related to acquired IPR&D. Asset impairments for the nine months ended September 30, 2016 includes: (i) an impairment charge of $199 million associated with the Ruconest® business, (ii) an impairment charge of $88 million recognized upon classification of assets associated with a number of small businesses as held for sale and (iii) an impairment charge of $25 million related to IBSChek™ (U.S. Diversified Products segment), resulting from a decline in sales trends. See Note 8, "INTANGIBLE ASSETS AND GOODWILL" to our unaudited Consolidated Financial Statements regarding the asset impairments of our intangible assets.
Restructuring and Integration Costs
Restructuring and integration costs were $42 million and $78 million for the nine months ended September 30, 2017 and 2016, respectively, a decrease of $36 million. We have substantially completed the integration of the businesses acquired prior to 2016. The Company continues to evaluate opportunities to streamline its operations and identify additional cost savings globally. Although a specific plan does not exist at this time, the Company may identify and take additional exit and cost-rationalization restructuring actions in the future, the costs of which could be material. See Note 5, "RESTRUCTURING AND INTEGRATION COSTS" to our unaudited Consolidated Financial Statements for further details regarding these actions.
Acquisition-Related Contingent Consideration
Acquisition-related contingent consideration was a net gain of $297 million for the nine months ended September 30, 2017, which included: (i) a fair value adjustment of $312 million reflecting a decrease in forecasted sales for the Addyi® product which impacted the expected future payments and (ii) net fair value adjustments of $33 million. These gains were partially offset by accretion for the time value of money of $48 million. Acquisition-related contingent consideration was a net expense of $18 million for the nine months ended September 30, 2016, which included accretion for the time value of money of $71 million offset by net fair value adjustments of $53 million.
Other (Income) Expense, Net
Other (income) expense, net for the nine months ended September 30, 2017 and 2016 consists of the following:
|
| | | | | | | | |
| | | Nine Months Ended September 30, |
| (in millions) | | 2017 | | 2016 |
| Gain on the iNova Sale | | $ | (306 | ) | | $ | — |
|
| Gain on the Skincare Sale | | (316 | ) | | — |
|
| Gain on the Dendreon Sale | | (98 | ) | | — |
|
| Net loss (gain) on other sales of assets | | 25 |
| | (9 | ) |
| Deconsolidation of Philidor | | — |
| | 19 |
|
| Litigation and other matters | | 112 |
| | (32 | ) |
| Other, net | | (1 | ) | | 2 |
|
| | | $ | (584 | ) | | $ | (20 | ) |
Litigation and other matters includes amounts provided for certain matters discussed in Note 18, "LEGAL PROCEEDINGS" to our unaudited Consolidated Financial Statements. During the nine months ended September 30, 2016, included in Litigation and other matters is a favorable adjustment of $39 million made to certain legal accruals related to the investigation into Salix's pre-acquisition sales and promotional practices for the Xifaxan®, Relistor® and Apriso® products and settled during the three months ended June 30, 2016.
Non-Operating Income and Expense
Interest Expense
Interest expense was $1,392 million and $1,369 million for the nine months ended September 30, 2017 and 2016, respectively, an increase of $23 million, or 2%. Interest expense includes non-cash amortization and write-offs of debt discounts and debt issuance costs of $100 million and $89 million for the nine months ended September 30, 2017 and 2016, respectively. The increase in interest expense was primarily driven by higher interest rates resulting from the March 2017 debt refinancing and amendments to our Credit Agreement, partially offset by lower principal amounts of outstanding debt during the nine months ended September 30, 2017. The weighted average stated rates of interest as of September 30, 2017 and 2016 were 6.09% and 5.71%, respectively.
Loss on Extinguishment of Debt
Loss on extinguishment of debt was $65 million for the nine months ended September 30, 2017. In March 2017, we completed a series of transactions which allowed us to refinance a portion of our debt arrangements and in August 2017, we repurchased the remaining $500 million of our August 2018 Senior Unsecured Notes. Losses representing the differences between the amounts paid to settle the extinguished debts and the carrying value of the extinguished debts (the debts' stated principal net of unamortized debt discount and debt issuance costs) were recognized. See Note 10, "FINANCING ARRANGEMENTS" to our unaudited Consolidated Financial Statements for further details.
Foreign Exchange and Other
Foreign exchange and other was a net gain of $87 million and $4 million for the nine months ended September 30, 2017 and 2016, respectively, a favorable net change of $83 million. Foreign exchange gains/losses include translation gains/losses on intercompany loans, primarily on euro-denominated intercompany loans.
Income Taxes
Recovery of income taxes was $2,829 million and $179 million for the nine months ended September 30, 2017 and 2016, respectively, an increase of $2,650 million.
Our effective income tax rate for the nine months ended September 30, 2017 differs from the statutory Canadian income tax rate primarily due to: (i) the recording of valuation allowance on entities for which no tax benefit of losses is expected, (ii) the tax benefit generated from our annualized mix of earnings by jurisdiction and (iii) the discrete treatment of (a) a $2,626 million tax benefit from internal restructuring efforts, consisting of the reversal of a $1,947 million deferred tax liability for previously recorded outside basis differences and a $679 million increase in deferred tax assets for NOL’s available after the
carryback of a capital loss and utilization against current year income, (b) a tax charge of $224 million resulting from our divestitures during the nine months ended September 30, 2017, and (c) a $108 million tax benefit related to an intangible impairment during the nine months ended September 30, 2017.
Our effective income tax rate for the nine months ended September 30, 2016 differs from the statutory Canadian income tax rate primarily due to: (i) the tax expense generated from our annualized mix of earnings by jurisdiction, (ii) the discrete treatment of: (a) an adjustment to the accrual established for legal expenses and (b) a tax benefit for the deduction of a significant impairment of an intangible asset, (iii) the recording of valuation allowance on entities for which no tax benefit of losses is expected and (iv) the accrual of interest on uncertain tax positions.
Reportable Segment Revenues and Profits
The following table presents segment revenues, segment revenues as a percentage of total revenues, and the year over year changes in segment revenues for the nine months ended September 30, 2017 and 2016. The following table also presents segment profits, segment profits as a percentage of segment revenues and the year over year changes in segment profits for the nine months ended September 30, 2017 and 2016.
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, |
| | | 2017 | | 2016 | | Change |
| (in millions) | | Amount | | Pct. | | Amount | | Pct. | | Amount | | Pct. |
| Segment Revenues | | | | | | | | | | | | |
| Bausch + Lomb/International | | $ | 3,645 |
| | 55 | % | | $ | 3,666 |
| | 50 | % | | $ | (21 | ) | | (1 | )% |
| Branded Rx | | 1,873 |
| | 29 | % | | 2,084 |
| | 29 | % | | (211 | ) | | (10 | )% |
| U.S. Diversified Products | | 1,043 |
| | 16 | % | | 1,521 |
| | 21 | % | | (478 | ) | | (31 | )% |
| Total revenues | | $ | 6,561 |
| | 100 | % | | $ | 7,271 |
| | 100 | % | | $ | (710 | ) | | (10 | )% |
| | | | | | | | | | | | | |
| Segment Profits / Segment Profit Margins | | | | | | | | | | | | |
| Bausch + Lomb/International | | $ | 1,097 |
| | 30 | % | | $ | 1,072 |
| | 29 | % | | $ | 25 |
| | 2 | % |
| Branded Rx | | 1,024 |
| | 55 | % | | 1,078 |
| | 52 | % | | (54 | ) | | (5 | )% |
| U.S. Diversified Products | | 757 |
| | 73 | % | | 1,227 |
| | 81 | % | | (470 | ) | | (38 | )% |
| Total segment profits | | $ | 2,878 |
| | 44 | % | | $ | 3,377 |
| | 46 | % | | $ | (499 | ) | | (15 | )% |
Bausch + Lomb/International Segment:
Bausch + Lomb/International Segment Revenue
The Bausch + Lomb/International segment has a diversified product line with no single product group representing 10% or more of its segment product sales. The Bausch + Lomb/International segment revenue was $3,645 million and $3,666 million for the nine months ended September 30, 2017 and 2016, respectively, a decrease of $21 million, or less than 1%. The decrease was primarily driven by:
the impact of the Skincare Sale and other divestitures and discontinuations of $123 million; and
the unfavorable impact of foreign currencies of $110 million which includes the unfavorable impact from the Egyptian pound of $125 million.
These factors were partially offset by:
an increase in product sales volume from our existing business (excluding foreign currency and divestitures and discontinuations) of $114$1 million. The increasedecrease in volume was primarily driven by the U.S. Bausch + Lomb Consumer and international businesses and,attributable to a lesser extent, the U.S. Bausch + Lomb Vision Care and Surgical businesses; and
an increase in average realized pricing of $97 million, primarily in Egypt.
Bausch + Lomb/International Segment Profit
The Bausch + Lomb/International segment profit for nine months ended September 30, 2017 and 2016 was $1,097 million and $1,072 million, respectively, an increase of $25 million, or 2%. The increase was primarily driven by:
an increase in contribution as a result of increases in volume and average realized pricing as discussed above; and
a decrease in operating expenses (excluding amortization and impairments of intangible assets) of $32 million primarily in advertising and promotion, including expenses eliminated as a result of the Skincare Sale and other divestitures and discontinuances.
These factors were partially offset by:
the decrease in contribution from the impact of the Skincare Sale and other divestitures and discontinuations of $80 million; and
the unfavorable impact of foreign currencies on the existing business, primarily due to the Egyptian pound of $38 million.
Branded Rx Segment:
Branded Rx Segment Revenue
The Branded Rx segment has a diversified product line which includes Xifaxan®. This product accounted for 38% and 33% of the Branded Rx segment product sales and 11% and 10% of the Company's product sales for the nine months ended September 30, 2017 and 2016, respectively. No other single product group represents 10% or more of the Branded Rx segment product sales. The Branded Rx segment revenue for the nine months ended September 30, 2017 and 2016 was $1,873 million and $2,084 million, respectively, a decrease of $211 million, or 10%. The decrease was primarily driven by:
a decrease in volume from our existing business of $212 million primarily driven by: (i) the dermatology business, most notably with our Jublia® product, and to a lesser extent our Solodyn® product, which have experienced lower volumes since the change in our fulfillment model, (ii) lower demand within the GI business most notably with our Uceris® products attributable to (a) competition and (b) the increase in high deductible medical plans, and (iii) generic competition as certain products lost exclusivity, such as our Zegerid® productincluding Isuprel®, Mephyton®, Syprine® and Xenazine®. These decreases in our GI business and our Carac®, Targetin® and Ziana® products in our dermatology business; and
the decrease from the impact of the Dendreon Sale and other divestitures and discontinuations of $106 million.
These factorsvolume were partially offset by increased volumes in our Generics business, primarily due to the increase in pricinglaunches of $111 million primarily driven by: (i) increased wholesale selling pricesElidel® AG (December 2018) and (ii) lower discounts within the GI business in 2017 when compared to 2016. As discussed above in “UcerisCash Discounts and Allowances, Chargebacks and Distribution Fees,® ”asAG (July 2018). The decrease was partially offset by a result of corrective actions taken by the Company, and its continued pricing discipline during 2016, chargeback rates within the GI business are lower in 2017 when compared to 2016. This resulted in annet increase in average realized pricing of $6 million, primarily related to our Neurology and wereOther business, partially offset by higher managed care rebates particularlya decrease in the dermatology business and to a lesser extent the GIpricing in our Generics business.
Branded RxDiversified Products Segment Profit
The Branded RxDiversified Products segment profit for the ninethree months ended September 30, 2017March 31, 2019 and 20162018 was $1,024$236 million and $1,078$240 million, respectively, a decrease of $54$4 million, or 5%. The decrease was primarily driven by:
a decrease in contribution from the impact of: (i) lower volume partially offset by higher average realized pricing in our existing business, (ii) the Dendreon Sale2% and other divestitures and discontinuations of $83 million and (iii) higher third-party royalty costs on certain drugs.
These factors were partially offset by:
a decrease in operating expenses of $104 million primarily related to lower advertising and promotional expenses; and
acquisition accounting adjustments related to inventories expensed in 2016 of $33 million.
U.S. Diversified Products Segment:
U.S. Diversified Products Segment Revenue
The following table displays the U.S. Diversified Products segment revenue by product and product revenues as a percentage of segment revenue for the nine months ended September 30, 2017 and 2016.
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, |
| | | 2017 | | 2016 | | Change |
| (in millions) | | Amount | | Pct. | | Amount | | Pct. | | Amount | | Pct. |
| Wellbutrin® | | $ | 168 |
| | 16 | % | | $ | 212 |
| | 14 | % | | $ | (44 | ) | | (21 | )% |
| Isuprel® | | 95 |
| | 9 | % | | 136 |
| | 9 | % | | (41 | ) | | (30 | )% |
| Xenazine US® | | 90 |
| | 9 | % | | 124 |
| | 8 | % | | (34 | ) | | (27 | )% |
| Syprine® | | 65 |
| | 6 | % | | 68 |
| | 4 | % | | (3 | ) | | (4 | )% |
| Cuprimine® | | 59 |
| | 6 | % | | 82 |
| | 5 | % | | (23 | ) | | (28 | )% |
| Ativan® | | 46 |
| | 4 | % | | 35 |
| | 2 | % | | 11 |
| | 31 | % |
| Mephyton® | | 41 |
| | 4 | % | | 45 |
| | 3 | % | | (4 | ) | | (9 | )% |
| Migranal® AG | | 40 |
| | 4 | % | | 40 |
| | 3 | % | | — |
| | — | % |
| Glumetza® AG | | 28 |
| | 3 | % | | — |
| | — | % | | 28 |
| | — | % |
| Obagi Nu-Derm® | | 23 |
| | 2 | % | | 21 |
| | 1 | % | | 2 |
| | 10 | % |
| Other product revenues | | 375 |
| | 36 | % | | 743 |
| | 49 | % | | (368 | ) | | (50 | )% |
| Other revenues | | 13 |
| | 1 | % | | 15 |
| | 1 | % | | (2 | ) | | (13 | )% |
| Total U.S. Diversified revenues | | $ | 1,043 |
| | 100 | % | | $ | 1,521 |
| | 100 | % | | $ | (478 | ) | | (31 | )% |
The U.S. Diversified segment revenue for the nine months ended September 30, 2017 and 2016 was $1,043 million and $1,521 million, respectively, a decrease of $478 million, or 31%. The decrease was primarily driven by the decrease in volume, of $330 millionas previously discussed and the decrease in average realized pricing of $139 million. The decrease in volumes and average realized pricing is primarily drivenpartially offset by generic competition to certain products, such as Nitropress®, Wellbutrin®, Isuprel®, Xenazine®, and Cuprimine® in our neurology business unit and the Zegerid® AG in our generics business unit.
U.S. Diversified Products Segment Profit
The U.S. Diversified segment profit for nine months ended September 30, 2017 and 2016 was $757 million and $1,227 million, respectively, a decrease of $470 million, or 38% and was primarily driven by the decrease in contribution from our existing business as a result of lower volumes and average realized pricing.third-party royalty costs.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
| | | | | Nine Months Ended September 30, | | | | | | | |
| | | 2017 | | 2016 | | Change | | Three Months Ended March 31, |
| (in millions) | | Amount | | Amount | | Amount | | Pct. | | 2019 | | 2018 | | Change |
| Net income (loss) | | $ | 1,892 |
| | $ | (1,896 | ) | | $ | 3,788 |
| | (200 | )% | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities | | (850 | ) | | 3,520 |
| | (4,370 | ) | | (124 | )% | |
| Net loss | | | $ | (48 | ) | | $ | (2,579 | ) | | $ | 2,531 |
|
| Adjustments to reconcile net loss to net cash provided by operating activities | | | 459 |
| | 2,794 |
| | (2,335 | ) |
| Changes in operating assets and liabilities | | 670 |
| | (49 | ) | | 719 |
| | (1,467 | )% | | 2 |
| | 223 |
| | (221 | ) |
| Net cash provided by operating activities | | 1,712 |
| | 1,575 |
| | 137 |
| | 9 | % | | 413 |
| | 438 |
| | (25 | ) |
| Net cash provided by (used in) investing activities | | 2,797 |
| | (131 | ) | | 2,928 |
| | (2,235 | )% | |
| Net cash used in investing activities | | | (203 | ) | | (48 | ) | | (155 | ) |
| Net cash used in financing activities | | (3,121 | ) | | (1,388 | ) | | (1,733 | ) | | 125 | % | | (150 | ) | | (288 | ) | | 138 |
|
| Effect of exchange rate on cash and cash equivalents | | 39 |
| | 6 |
| | 33 |
| | 550 | % | | 1 |
| | 10 |
| | (9 | ) |
| Net increase in cash and cash equivalents | | 1,427 |
| | 62 |
| | 1,365 |
| | 2,202 | % | |
| Net increase in cash, cash equivalents and restricted cash | | | 61 |
| | 112 |
| | (51 | ) |
| Cash, cash equivalents and restricted cash, beginning of period | | 542 |
| | 597 |
| | (55 | ) | | (9 | )% | | 723 |
| | 797 |
| | (74 | ) |
| Cash, cash equivalents and restricted cash, end of period | | $ | 1,969 |
| | $ | 659 |
| | $ | 1,310 |
| | 199 | % | | $ | 784 |
| | $ | 909 |
| | $ | (125 | ) |
Operating Activities
Net cash provided by operating activities was $1,712$413 million and $1,575$438 million for the ninethree months ended September 30, 2017March 31, 2019 and 2016,2018, respectively, an increasea decrease of $137 million, or 9%.$25 million. The increasedecrease is primarily attributable to changes in our operating assets and liabilities partially offset by the changes in our operating results discussed above.liabilities.
Changes in our operating assets and liabilities resulted in a net increase in cash of $670$2 million for the ninethree months ended September 30, 2017March 31, 2019, as compared to the net decreaseincrease in cash of $49$223 million for the ninethree months ended September 30, 2016, an increaseMarch 31, 2018, a decrease of $719$221 million. For the ninethree months ended September 30, 2017,March 31, 2019, the change in our operating assets and liabilities was primarily drivennegatively impacted by: (i) the build-up of inventory of $68 million and (ii) the timing of other payments in the ordinary course of business, offset by the collection of trade receivables primarily attributable to our fulfillment agreement with Walgreens in resolution of certain 2016 billing issues and the impact of the timing of payments and receipts in the ordinary course of business. The changes in our operating assets and liabilities were partially offset by $150 million of payments (net of insurance proceeds) in resolution of the Salix securities class action litigation.$89 million. For the ninethree months ended September 30, 2016,March 31, 2018, the change in our operating assets and liabilities was primarily drivenpositively impacted by the reduction in prepaid expensescollection of trade receivables of $204 million, offset by payments, totaling $170 million, related to the settlements of the Solodyn Antitrust Class Actions, Allergan Shareholder Class Actions and other current assets and was partially offset by increases in our inventories and the impact of the timing of payments and receipts in the ordinary course of business. See Note 18, "LEGAL PROCEEDINGS" to our unaudited interim Consolidated Financial Statements for further details regarding the Salix securities litigation matter.matters.
Investing Activities
Net cash provided by investing activities was $2,797 million for the nine months ended September 30, 2017 and was primarily driven by the net proceeds from sales of non-core assets of $3,063 million, which includes the Skincare Sale, the Dendreon Sale and the iNova Sale. See Note 4, "DIVESTITURES" to our unaudited Consolidated Financial Statements for further details. Net cash used in investing activities was $131$203 million for the ninethree months ended September 30, 2016March 31, 2019 and included a reduction inwas driven by the acquisition of businesses, net of cash dueacquired of $180 million, related to the deconsolidationacquisition of certain assets of Synergy, and purchases of property, plant and equipment of $47 million, partially offset by proceeds from sale of assets and businesses, net of costs to sell of $25 million, primarily related to the receipt of a former subsidiary of $30 million and payments for businesses previously acquired of $19 million. Other uses ofmilestone payment associated with a prior year divestiture.
Net cash byused in investing activities was $48 million for the ninethree months ended September 30, 2017March 31, 2018 and 2016 includedwas driven by payments for purchases of property, plant and equipment of $118 million and $181$33 million and acquisitions of intangible assets and other assets previously acquired of $146 million and $48 million, respectively.$14 million.
Financing Activities
Net cash used in financing activities was $3,121$150 million for the ninethree months ended September 30, 2017March 31, 2019 and was primarily driven by the net reduction in our debt portfolio. Net cash used in financing activities includes:Repayments of debt for the three months ended March 31, 2019 were $1,621 million and consisted of: (i) repayments of principal amounts due under our Senior Notes of $1,318 million, (ii) repayments of term loans under our Senior Secured Credit Facilities of $7,199$228 million and (iii) repayments of our revolving credit facility of $75 million. Net proceeds from the issuances of long-term debt for the three months ended March 31, 2019 was $1,514 million and included the net proceeds of: (i) $1,021 million from the issuance of $1,000 million in principal amount of January 2027 Unsecured Notes and (ii) $494 million from the issuance of $500 million in principal amount of August 2027 Secured Notes. Net proceeds from the issuances of long-term debt is reduced by $1 million for issuance costs paid in 2019 associated with long-term debt issued in previous years. Debt extinguishment costs paid for the refinancing of certain debt was $1 million.
Net cash used in financing activities was $288 million for the three months ended March 31, 2018 and was primarily driven by the net reduction in our debt portfolio. Repayments of debt for the three months ended March 31, 2018 were
$1,731 million and consisted of: (i) repayments of principal amounts due under our Senior Unsecured Notes of $1,600$1,525 million (iii)and (ii) repayments of amounts borrowed on our revolving credit facility of $450 million, and (iv) payments for costs associated with the refinancing of certain debt on March 21, 2017 of $39 million. These payments were funded with the net proceeds from the sales of non-core assets, including the Skincare Sale, Dendreon Sale, cash on hand and $6,231 million of net proceeds from the issuance of long-term debt, which included: (i) $3,022 million from incremental Series F-3 Tranche B Term Loan of $3,060 million obtained in the March 21, 2017 refinancing, (ii) $1,974 million from the issuance of $2,000 million of 7.00% Senior Secured Notes due 2024 and (iii) $1,235 million from the issuance of $1,250 million of 6.5% Senior Secured
Notes due 2022. Net cash used in financing activities was $1,388 million for the nine months ended September 30, 2016 and included: (i) term loan repaymentsloans under our Senior Secured Credit Facilities of $1,547$206 million. Net proceeds from the issuances of long-term debt for the three months ended March 31, 2018 was $1,481 million (ii) paymentsand included the net proceeds from the issuance of deferred consideration of $500$1,500 million in connection with the acquisition of Sprout in 2015, (iii) payments of financing costs associated with Amendment No. 12 and Waiver to the Credit Agreement in April 2016 and Amendment 13 to the Credit Agreement in August 2016 for an aggregateprincipal amount of $96 million, (iv) payments9.25% Senior Unsecured Notes due April 2026 (the “April 2026 Unsecured Notes”). Debt extinguishment costs paid for the refinancing of contingent considerations associated with acquisitions in 2015 and prior of $94 million and (v) other payments of deferred consideration of $17certain debt was $20 million. These uses of cash in 2016 were partially offset by net borrowings on our revolving credit facility of $850 million.
See Note 10, "FINANCING ARRANGEMENTS" to our unaudited interim Consolidated Financial Statements for additional information regarding the financing activities described above.
Liquidity and Debt
Future Sources of Liquidity
Our primary sources of liquidity are our cash and cash equivalents, cash collected from customers, funds as available from our revolving credit facility, issuances of long-term debt and issuances of equity and equity-linked securities. We believe these sources will be sufficient to meet our current liquidity needs for the next twelve months.
On September 29, 2017, we completed the sale of our iNova business for $938 million in cash. On October 5, 2017, using the net proceeds from the iNova Sale, we repaid $923 million of our Series F Tranche B Term Loan Facility. On July 17, 2017, we entered into a definitive agreement to sell our Obagi business for $190 million in cash. The Obagi Sale is expected to close in 2017, subject to customary closing conditions. We expect to use the proceeds from this transaction to pay advisory and legal fees associated with this transaction and related income taxes and other taxes associated with this transaction, if any. We will use the balance of the proceeds from this transaction and other divestitures of assets, if any, to repay principal amounts of our Series F Tranche B Term Loan Facility.
The Company regularly evaluates market conditions, its liquidity profile, and various financing alternatives for opportunities to enhance its capital structure. If opportunities are favorable, the Company may refinance or repurchase existing debt.debt or issue equity or equity-linked securities. We believe our existing cash and cash generated from operations will be sufficient to service our debt obligations in the years 2017 through 2019.2019 and 2020.
Long-term Debt
Long-term debt, net of unamortized premiums, discounts and financeissuance costs was $27,141$24,181 million and $29,846$24,305 million as of September 30, 2017March 31, 2019 and December 31, 2016,2018, respectively. Aggregate contractual principal amounts due under our debt obligations were $27,426$24,474 million and $30,169$24,632 million as of September 30, 2017March 31, 2019 and December 31, 2016,2018, respectively, a decrease of $2,743$158 million during the ninethree months ended September 30, 2017.March 31, 2019.
In 2017, we completed a series of transactions which improved our leverage, reduced our annual debt maintenance and extendedDebt repayments - During the maturities of a significant portion of our debt. Through the sale of certain non-core assets, andthree months ended March 31, 2019, using cash on hand we repaid $2,937$303 million of long-term debt which included: (i) $172 million of the June 2025 Term Loan B Facility, (ii) $75 million of our 2023 Revolving Credit Facility and (iii) $56 million of the November 2025 Term Loan B Facility.
Refinancing - On March 8, 2019, we issued: (i) $1,000 million aggregate principal amount of January 2027 Unsecured Notes and (ii) $500 million aggregate principal amount of August 2027 Secured Notes in a private placement. A portion of the net proceeds of the January 2027 Unsecured Notes and August 2027 Secured Notes were used to: (i) repurchase $584 million of May 2023 Unsecured Notes, (ii) repurchase $518 million of December 2021 Unsecured Notes, (iii) repurchase $216 million of March 2023 Unsecured Notes and (iv) pay all fees and expenses associated with these transactions. During April 2019, the Company redeemed $182 million of the December 2021 Unsecured Notes, representing the remaining outstanding principal balance of the December 2021 Unsecured Notes and completing the refinancing of $1,500 million of debt principal duringin connection with the nine months ended September 30, 2017. In addition, by accessing the credit markets, we (i) refinanced $6,312 million which was due to mature in 2018March 2019 Refinancing Transactions.
Maturities and mandatory payments of our debt obligations through 2020, (ii) extended $1,190 million of commitments under our revolving credit facility, originally set to expire in April 2018, out to April 2020December 31, 2024 and (iii) obtained less stringent loan financial maintenance covenants under our Senior Secured Credit Facilities, that included the removal of the financial maintenance covenants from our term loans. As a result, the financial maintenance covenants apply only with respect to our revolving loans and can be waived or amended without the consent of the term loan lenders under the Credit Agreement. These transactions and debt payments have had the effect of lowering our cash requirements for principal debt payments through 2020 by more than $7,200 millionthereafter, as of September 30, 2017 asMarch 31, 2019 compared with those as of December 31, 2016.
Debt repayments - We used the proceeds from the sale of non-core assets, including the Skincare Sale and Dendreon Sale, to pay-down $2,151 million of debt under our Senior Secured Credit Facilities during the nine months ended September 30, 2017. In addition, using cash on hand, we repurchased $500 million of our August 2018 Senior Unsecured Notes, made scheduled principal payments under our Series F Tranche B Term Loan Facility of $86 million and paid down our revolving loans by $200 million during the nine months ended September 30, 2017.
Refinancing - On March 21, 2017, we completed a series of transactions that provided us with additional borrowings, which we used to (i) repay $4,962 million of debt, representing all outstanding amounts of our senior secured (a) Series A-3 Tranche A Term Loan Facility originally due October 2018, (b) Series A-4 Tranche A Term Loan Facility originally due April 2020, (c) Series D-2 Tranche B Term Loan Facility originally due February 2019, (d) Series C-2 Tranche B Term Loan Facility originally due December 2019 and (e) Series E-1 Tranche B Term Loan Facility originally due August 2020, (ii) repay $250
million of revolving loans and (iii) repurchase at a purchase price of 103%, $1,100 million of August 2018 Senior Unsecured Notes.
The sources of funds for the repayments and repurchase of the aforementioned debt obligations and the related fees and expenses were obtained through (i) a comprehensive amendment and refinancing of our Credit Agreement, which, among other matters provided for incremental term loans under our Series F Tranche B Term Loan Facility of $3,060 million maturing April 2022 (the “Series F-3 Tranche B Term Loan”), (ii) issuance of $1,250 million aggregate principal amount of 6.50% Senior Secured Notes due March 15, 2022, (iii) issuance of $2,000 million aggregate principal amount of 7.00% Senior Secured Notes due March 15, 2024, and (iv) the use of cash on hand.
The repayments, refinancing and other changes in our debt portfolio have lowered our cash requirements for principal debt repayment over the next five years. The scheduled maturities and mandatory amortization payments of our debt obligations for the remainder of 2017, for each year through 2022 and thereafter for our debt portfolio as of September 30, 2017 compared to December 31, 2016 were as follows:
| | | (in millions) | | September 30,
2017 |
| December 31,
2016 | | March 31,
2019 |
| December 31,
2018 |
| October through December 2017 | | $ | 923 |
|
| $ | — |
| |
| 2018 | | 2 |
|
| 3,738 |
| |
| 2019 | | — |
|
| 2,122 |
| | $ | 182 |
|
| $ | 228 |
|
| 2020 | | 5,365 |
|
| 7,723 |
| | 303 |
|
| 303 |
|
| 2021 | | 3,175 |
|
| 3,215 |
| | 303 |
|
| 1,003 |
|
| 2022 | | 6,677 |
|
| 4,281 |
| | 1,553 |
|
| 1,553 |
|
| 2023 | | | 5,436 |
|
| 6,348 |
|
| 2024 | | | 2,303 |
|
| 2,303 |
|
| Thereafter | | 11,284 |
|
| 9,090 |
| | 14,394 |
|
| 12,894 |
|
| Gross maturities | | $ | 27,426 |
|
| $ | 30,169 |
| | $ | 24,474 |
|
| $ | 24,632 |
|
In addition, subsequent to September 30, 2017, we took additional actions to reduce our debtDuring April and extendMay 2019, the maturity of another portion of our debt beyond 2021.
Subsequent debt repayments - On October 5, 2017, using the net proceeds from the iNova Sale, we repaid $923Company: (i) redeemed $182 million of our Series F Tranche B Term Loan Facility. On November 2, 2017, using cash on hand, the Company repaid $125December 2021 Unsecured Notes, representing the remaining outstanding principal balance of the December 2021 Unsecured Notes and completing the refinancing of $1,500 million of debt in connection with the March 2019 Refinancing Transactions and (ii) had drawn net
borrowings of $175 million under its Series F Tranche B Term Loan Facility. These repayments satisfy $923 million of maturities due2023 Revolving Credit Facility, primarily used for the period October through December 2017 and $125 millionpayment of maturitiesinterest due in the year 2022April 2019 and other short-term capital needs. These transactions are not reflected in the table above.
Subsequent refinancing - On October 17, 2017, we issued $1,000 million aggregate principal amount of the 5.50% 2025 Notes, in a private placement, the proceeds of which were used to (i) repurchase $569 million in principal amount of our 6.375% 2020 Notes and (ii) repurchase $431 million in principal amount of our 7.00% 2020 Notes. The related fees and expenses were paid using cash on hand. Interest on these notes is payable semi-annually in arrears on each May 1 and November 1. The refinancing had the effect of extending principal payments of $1,000 million due in the year 2020 in the table above out to the year 2025.
Our repayments through the date of this filing, and the refinancings we completed in March 2017 and October 2017 have eliminated any further mandatory principal long-term debt repayments until March 2020, providing us with additional liquidity and greater flexibility to execute our business plans.
See Note 10, "FINANCING ARRANGEMENTS" to our unaudited Consolidated Financial Statements for further details.
The weighted average stated rate of interest of the Company's outstanding debt as of September 30, 2017 and December 31, 2016 was 6.09% and 5.75%, respectively.
Senior Secured Credit Facilities
On February 13, 2012, the Company and certain of its subsidiaries as guarantors entered into the “Senior Secured Credit Facilities” under the Company’s Third Amended and Restated Credit and Guaranty Agreement, (asas amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit(the “Third Amended Credit Agreement”) with a syndicate of financial institutions and investors, as lenders.
On June 1, 2018, the Company entered into a Restatement Agreement in respect of a Fourth Amended and Restated Credit and Guaranty Agreement (the “Restated Credit Agreement”).
On November 27, 2018, the Company entered into the First Incremental Amendment to the Restated Credit Agreement which provided the November 2025 Term Loan B Facility of $1,500 million.
As of September 30, 2017,March 31, 2019, the Credit Agreement provided for: (i) a $1,500Company had no outstanding borrowings, $170 million revolving credit facility through April 20, 2018of issued and thereafter $1,190 million revolving credit facility through April 2020, including a sublimit for the issuance of standby and commercialoutstanding letters of credit and a sublimit for swing line loans (the “Revolvingremaining availability of $1,055 million under its 2023 Revolving Credit Facility”)Facility. As discussed above, during April and (ii) a Series F Tranche B Term Loan Facility which matures April 2022.
On March 21, 2017,May 2019, the Company entered into Amendment No. 14 to the Credit Agreement (“Amendment No. 14”) which (i) provided additional financing from the incremental Series F-3 Tranche B Term Loanhad net borrowings of $175 million under the Series F Tranche B Term Loan Facility of $3,060 million, (ii) amended the financial covenants contained in the Credit Agreement, (iii) increased the amortization rate for the Series F Tranche B Term Loan Facility from 0.25% per quarter (1% per annum) to 1.25% per quarter (5% per annum), with quarterly payments starting March 31, 2017, (iv) amended certain financial definitions, including the definition of Consolidated Adjusted EBITDA and (v) provided additional ability for the Company to, among other things, incur indebtedness and liens, consummate acquisitions and make other investments, including relaxing certain limitations imposed by prior amendments. The proceeds from the additional financing, combined with the proceeds from the issuance of the Senior Secured Notes described below and cash on hand were used to (i) repay all outstanding balances under the Company’s Series A-3 Tranche A Term Loan Facility, Series A-4 Tranche A Term Loan Facility, Series D-2 Tranche B Term Loan Facility, Series C-2 Tranche B Term Loan Facility, and Series E-1 Tranche B Term Loan Facility (collectively the “Refinanced Debt”), (ii) repurchase $1,100 million in principal amount of August 2018 Senior Unsecured Notes, (iii) repay $350 million of amounts outstanding under ourits 2023 Revolving Credit Facility and (iv) pay related fees and expenses (collectively, the “March 2017 Refinancing Transactions”).Facility.
Amendments to the covenants included: (i) removing the financial maintenance covenants with respect to the Series F Tranche B Term Loan Facility, (ii) reducing the interest coverage ratio maintenance covenant to 1.50:1.00 with respect to the Revolving Credit Facility through the quarter ending March 31, 2019 (stepping up to 1.75:1.00 thereafter) and (iii) increasing the secured leverage ratio maintenance covenant to 3.00:1.00 with respect to the Revolving Credit Facility through the quarter ending March 31, 2019 (stepping down to 2.75:1.00 thereafter). These financial maintenance covenants will apply only with respect to the Revolving Credit Facility and can be waived or amended without the consentCurrent Description of the term loan lenders under the Credit Agreement. Details regarding the financial maintenance covenants in our Senior Secured Credit Facilities can be found in our Credit Agreement and amendments thereto, which are incorporated by reference as exhibits to this Form 10-Q.
Modifications to Consolidated Adjusted EBITDA from Amendment No. 14 included, among other things: (i) modifications to permit the Company to add back extraordinary, unusual or non-recurring expenses or charges (including certain costs of, and payments of, litigation expenses, actual or prospective legal settlements, fines, judgments or orders, subject to a cap of $500 million in any twelve month period, of which no more than $250 million may pertain to any costs, payments, expenses, settlements, fines, judgments or orders, in each case, arising out of any actual or potential claim, investigation, litigation or other proceeding that the Company did not publicly disclosed on or prior to the effectiveness of the March 2017 amendment, and subject to other customary limitations) and (ii) modifications to allow the Company to add back expenses, charges or losses actually reimbursed or for which the Company reasonably expects to be reimbursed by third parties within 365 days, subject to customary limitations.
On March 28, 2017, the Company entered into Amendment No. 15 to the Credit Agreement (“Amendment No. 15”) which provides for the extension of the maturity date of $1,190 million of revolving credit commitments under the Revolving Credit Facility from April 20, 2018 to the earlier of (i) April 20, 2020 and (ii) the date that is 91 calendar days prior to the scheduled maturity of any series or tranche of term loans under the Credit Agreement, certain Senior Secured Notes or Senior Unsecured Notes and any other indebtedness for borrowed money in excess of $750 million. Unless otherwise terminated prior thereto, the remaining $310 million of revolving credit commitments under the Revolving Credit Facility will continue to mature on April 20, 2018.
In April 2017, using the remaining proceeds from the Skincare Sale and the proceeds from the divestiture of a manufacturing facility in Brazil, the Company repaid $220 million of its Series F Tranche B Term Loan Facility. On July 3, 2017, using the net proceeds from the Dendreon Sale, the Company repaid $811 million of its Series F Tranche B Term Loan Facility. On September 29, 2017, using cash on hand, the Company repaid $100 million of amounts outstanding under its Revolving Credit Facility.
Borrowings under the Senior Secured Credit Facilities in U.S. dollars bear interest at a rate per annum equal to, at the Company's option, from time to time, eithereither: (i) a base rate determined by reference to the higher ofof: (a) the prime rate (as defined in the Restated Credit Agreement) and, (b) the federal funds effective rate plus 1/2 of 1%1.00% or (c) the eurocurrency rate (as defined in the Restated Credit Agreement) for a period of one month plus 1.00% (or if such eurocurrency rate shall not be ascertainable, 1.00%) or (ii) a LIBOeurocurrency rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs (provided however, that the eurocurrency rate shall at no time be less than zero), in each case plus an applicable margin. These
Borrowings under the 2023 Revolving Credit Facility in euros bear interest at a eurocurrency rate determined by reference to the costs of funds for euro deposits for the interest period relevant to such borrowing (provided however, that the eurocurrency rate shall at no time be less than 0.00% per annum), plus an applicable margins aremargin.
Borrowings under the 2023 Revolving Credit Facility in Canadian dollars bear interest at a rate per annum equal to, at the Company's option, either: (i) a prime rate determined by reference to the higher of: (a) the rate of interest last quoted by The Wall Street Journal as the “Canadian Prime Rate” or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Bank of Canada as its prime rate and (b) the 1 month BA rate (as defined below) calculated daily plus 1.00% (provided however, that the prime rate shall at no time be less than 0.00%) or (ii) the bankers’ acceptance rate for Canadian dollar deposits in the Toronto interbank market (the “BA rate”) for the interest period relevant to such borrowing (provided however, that the BA rate shall at no time be less than 0.00% per annum), in each case plus an applicable margin.
Subject to certain exceptions and customary baskets set forth in the Restated Credit Agreement, the Company is required to make mandatory prepayments of the loans under the Senior Secured Credit Facilities under certain circumstances, including from: (i) 100% of the net cash proceeds of insurance and condemnation proceeds for property or asset losses (subject to reinvestment rights and net proceeds threshold), (ii) 100% of the net cash proceeds from the incurrence of debt (other than permitted debt as described in the Restated Credit Agreement), (iii) 50% of Excess Cash Flow (as defined in the Restated Credit Agreement) subject to increase or decrease quarterly based on the secured leverage ratio beginning with the quarter ended June 30, 2017. Based on its calculationratios and subject to a threshold amount and (iv) 100% of the Company’s secured leverage ratio, management does not anticipate any such increase or decreasenet cash proceeds from asset sales (subject to the currentreinvestment rights). These mandatory prepayments may be used to satisfy future amortization.
The applicable interest rate margins for the next applicable period.June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility are 2.00% and 1.75%, respectively, with respect to base rate and prime rate borrowings and 3.00% and 2.75%, respectively, with respect to eurocurrency rate and BA rate borrowings.
As of March 31, 2019, the stated rates of interest on the Company’s borrowings under the June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility were 5.48% and 5.23% per annum, respectively.
The amortization rate for both the June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility is 5.00% per annum. The Company may direct that prepayments be applied to such amortization payments in order of maturity.
As of March 31, 2019, the aggregate remaining mandatory quarterly amortization payments for the Senior Secured Credit Facilities were $1,630 million through November 1, 2025.
The applicable interest rate margins for borrowings under the 2023 Revolving Credit Facility are 2.75%1.50%-2.00% with respect to base rate or prime rate borrowings and 3.75%2.50%-3.00% with respect to LIBOeurocurrency rate or BA rate borrowings. As of September 30, 2017,March 31, 2019, the stated rate of interest on the 2023 Revolving Credit Facility was 4.99%5.48% per annum. In addition, we arethe Company is required to pay commitment fees of 0.50%0.25%-0.50% per annum inwith respect to the unutilized commitments not utilized,under the 2023 Revolving Credit Facility, payable quarterly in arrears. The Company also is required to pay: (i) letter of credit fees on the maximum amount available to be drawn under all outstanding letters of credit in an amount equal to the applicable margin on LIBOeurocurrency rate borrowings under the 2023 Revolving Credit Facility on a per annum basis, payable quarterly in arrears, (ii) customary fronting fees for the issuance
of letters of credit and (iii) agency fees. As of September 30, 2017, we had $425 million of outstanding borrowings, $94 million of issued and outstanding letters of credit, and remaining availability of $981 million under our Revolving Credit Facility. Of the $94 million issued and outstanding letters of credit, a $50 million letter of credit was issued as part of the collateral to secure a bank guarantee for the benefit of the Australian Government in connection with the notice of assessment received on August 8, 2017 from the Australian Taxation Office. See Note 16, "INCOME TAXES" to our unaudited interim Consolidated Financial Statements for further details.
The applicable interest rate margins forRestated Credit Agreement permits the Series F Tranche B Term Loan Facility are 3.75% with respectincurrence of incremental credit facility borrowings up to base rate borrowingsthe greater of $1,000 million and 4.75% with respect28.5% of Consolidated Adjusted EBITDA (as defined in the Restated Credit Agreement), subject to LIBO ratecustomary terms and conditions, as well as the incurrence of additional incremental credit facility borrowings subject to a 0.75% LIBO rate floor. Assecured leverage ratio of September 30, 2017, the stated rate of interest on the Company’s borrowings under the Series F Tranche B Term Loan Facility was 5.99% per annum.not greater than 3.50:1.00.
Senior Secured Notes
March 2017 Refinancing Transactions - In connection with the March 2017 Refinancing Transactions, the Company issued $1,250 million aggregate principal amount of 6.50% senior secured notes due March 15, 2022 (the “March 2022 Senior Secured Notes”) and $2,000 million aggregate principal amount of 7.00% senior secured notes due March 15, 2024 (the “March 2024 Senior Secured Notes” and, together with the March 2022 Notes, the “Senior Secured Notes”), in a private placement, the proceeds of which when combined with the proceeds from the Series F-3 Tranche B Term Loan and cash on hand were used to (i) repay the Refinanced Debt, (ii) repurchase $1,100 million in principal amount of August 2018 Senior Unsecured Notes, (iii) repay $350 million of amounts outstanding under our Revolving Credit Facility and (iv) pay related fees and expenses. Interest on these notes is payable semi-annually in arrears on each March 15 and September 15.
The Senior Secured Notes were issued in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended. We are not obligated under any registration rights agreement or other obligation to register the Senior Secured Notes for resale or to exchange the notes for notes registered under the Securities Act of 1933, as amended, or the securities laws of any other jurisdiction.
The Senior Secured Notes are guaranteed by each of the Company’s subsidiaries that is a guarantor under the Credit Agreement and existing Senior Unsecured Notes (together, the “Note Guarantors”). The notes and the guarantees related thereto are senior obligations and are secured, subject to permitted liens and certain other exceptions, by the same first priority liens that secure the Company’s obligations under the Credit Agreement under the terms of the indenture governing the Senior Secured Notes.
The Senior Secured Notes and the guarantees related thereto rank equally in right of payment with all of the Company’s and Note Guarantors’ respective existing and future unsubordinated indebtedness and senior to the Company’s and Note Guarantors’ respective future subordinated indebtedness. The notes and the guarantees are effectively pari passu with the Company’s and the Note Guarantors’ respective existing and future indebtedness secured by a first priority lien on the collateral securing the notes and effectively senior to the Company’s and the Note Guarantors’ respective existing and future indebtedness that is unsecured, including the existing Senior Unsecured Notes, or that is secured by junior liens, in each case to the extent of the value of the collateral. In addition, the notes are structurally subordinated to (i) all liabilities of any of the Company’s subsidiaries that do not guarantee the notes and (ii) any of the Company’s debt that is secured by assets that are not collateral.
The March 2022 Notes are redeemable at the option of the Company, in whole or in part, at any time on or after March 15, 2019, at the redemption prices set forth in the indenture. The Company may redeem some or all of the March 2022 Notes prior to March 15, 2019 at a price equal to 100% of the principal amount thereof plus a “make-whole” premium. Prior to March 15, 2019, the Company may redeem up to 40% of the aggregate principal amount of the March 2022 Notes using the proceeds of certain equity offerings at the redemption price set forth in the indenture.
The March 2024 Notes are redeemable at the option of the Company, in whole or in part, at any time on or after March 15, 2020, at the redemption prices set forth in the indenture. The Company may redeem some or all of the March 2024 Notes prior to March 15, 2020 at a price equal to 100% of the principal amount thereof plus a “make-whole” premium. Prior to March 15, 2020, the Company may redeem up to 40% of the aggregate principal amount of the March 2024 Notes using the proceeds of certain equity offerings at the redemption price set forth in the indenture.
Upon the occurrence of a change in control (as defined in the indentures governing the Senior Secured Notes), unless the Company has exercised its right to redeem all of the notes of a series as described above, holders of the Senior Secured Notes may require the Company to repurchase such holder’s notes, in whole or in part, at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest.
October 2017 Refinancing Transactions - On October 17, 2017, the Company issued $1,000 million aggregate principal amount of the 5.50% 2025 Notes, in a private placement, the proceeds of which were used to (i) repurchase $569 million in principal amount of the 6.375% 2020 Notes and (ii) repurchase $431 million in principal amount of the 7.00% 2020 Notes. The related fees and expenses were paid using cash on hand. Interest on these notes is payable semi-annually in arrears on each May 1 and November 1.
The 5.50% 2025 Notes are guaranteed by each of the Company’s subsidiaries that is a guarantor under theRestated Credit Agreement and existing Senior Unsecured Notes (together, the “Note Guarantors”). The Senior Secured Notes and the guarantees related thereto are senior obligations and are secured, subject to permitted liens and certain other exceptions, by the same first priority liens that secure the Company’s obligations under the Restated Credit Agreement under the terms of the indentureindentures governing the Senior Secured Notes.
The 5.50% 2025Senior Secured Notes and the guarantees rank equally in right of paymentrepayment with all of the Company’s and Note Guarantors’ respective existing and future unsubordinated indebtedness and senior to the Company’s and Note Guarantors’ respective future subordinated indebtedness. The Senior Secured Notes and the guarantees related thereto are effectively pari passu with the Company’s and the Note Guarantors’ respective existing and future indebtedness secured by a first priority lien on the collateral securing the Senior Secured Notes and effectively senior to the Company’s and the Note Guarantors’ respective existing and future indebtedness that is unsecured, including the existing Senior Unsecured Notes, or that is secured by junior liens, in each case to the extent of the value of the collateral. In addition, the Senior Secured Notes are structurally subordinated toto: (i) all liabilities of any of the Company’s subsidiaries that do not guarantee the Senior Secured Notes and (ii) any of the Company’s debt that is secured by assets that are not collateral.
The 5.50% 2025 Notes are redeemable at the option of the Company, in whole or in part, at any time on or after November 1, 2020, at the redemption prices set forth in the indenture. The Company may redeem some or all of the 5.50% 2025 Notes prior to November 1, 2020 at a price equal to 100% of the principal amount thereof plus a “make-whole” premium. Prior to November 1, 2020, the Company may redeem up to 40% of the aggregate principal amount of the 5.50% 2025 Notes using the proceeds of certain equity offerings at the redemption price set forth in the indenture.
Upon the occurrence of a change in control (as defined in the indentures governing the Senior Secured Notes), unless the Company has exercised its right to redeem all of the notes of a series, as described above, holders of the Senior Secured Notes may require the Company to repurchase such holder’s notes, in whole or in part, at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest.
5.75% Senior Secured Notes due 2027 - March 2019 Refinancing Transactions
On March 8, 2019 we issued: (i) $1,000 million aggregate principal amount of January 2027 Unsecured Notes and (ii) $500 million aggregate principal amount of August 2027 Secured Notes, respectively, in a private placement, a portion of the net proceeds of which, and cash on hand, were used to: (i) repurchase $584 million of May 2023 Unsecured Notes, (ii) repurchase $518 million of December 2021 Unsecured Notes, (iii) repurchase $216 million of March 2023 Unsecured Notes and (iv) pay all fees and expenses associated with these transactions (collectively, the “March 2019 Refinancing Transactions”). During April 2019, the Company redeemed $182 million of the December 2021 Unsecured Notes, representing the remaining outstanding principal balance of the December 2021 Unsecured Notes and completing the refinancing of $1,500 million of debt in connection with the March 2019 Refinancing Transactions. Interest on the August 2027 Secured Notes is payable semi-annually in arrears on each February 15 and August 15.
The August 2027 Secured Notes are redeemable at the option of the Company, in whole or in part, at any time on or after August 15, 2022, at the redemption prices set forth in the indenture. We may redeem some or all of the August 2027 Secured Notes prior to August 15, 2022 at a price equal to 100% of the principal amount thereof plus a “make-whole” premium. Prior to August 15, 2022, we may redeem up to 40% of the aggregate principal amount of the August 2027 Secured Notes using the proceeds of certain equity offerings at the redemption price set forth in the indenture.
Senior Unsecured Notes
The Senior Unsecured Notes issued by the Company are the Company’s senior unsecured obligations and are jointly and severally guaranteed on a senior unsecured basis by each of its subsidiaries that is a guarantor under the Senior Secured Credit Facilities. The Senior Unsecured Notes issued by the Company’s subsidiary, ValeantBHA are senior unsecured obligations of ValeantBHA and are jointly and severally guaranteed on a senior unsecured basis by the Company and each of its subsidiaries (other than Valeant)BHA) that is a guarantor under the Senior Secured Credit Facilities. Future subsidiaries of the Company and Valeant,BHA, if any, may be required to guarantee the Senior Unsecured Notes. On a non-consolidated basis, the non-guarantor subsidiaries had total assets of $2,857$2,849 million and total liabilities of $1,283$1,182 million as of September 30, 2017,March 31, 2019, and revenues of $1,217$365 million and operating lossincome of $196$37 million for the ninethree months ended September 30, 2017.March 31, 2019.
If the Company experiences a change in control, the Company may be required to make an offer to repurchase each series of Senior Unsecured Notes, in whole or in part, at a purchase price equal to 101% of the aggregate principal amount of the Senior Unsecured Notes repurchased, plus accrued and unpaid interest.
8.50% Senior Unsecured Notes due 2027 - March 2019 Refinancing Transactions
As part of the March 20172019 Refinancing Transactions the Company completed a tender offer to repurchase $1,100described above, BHA issued $1,000 million in aggregate principal amount of the August 20188.50% Senior Unsecured Notes for total consideration of approximately $1,132 million plus accrueddue January 2027. These are additional notes and unpaid interest through March 20, 2017. Loss on extinguishment of debt during the three months ended March 31, 2017 associated with the repurchase of the August 2018 Senior Unsecured Notes was $36 million representing the difference between the amount paid to settle the debt and the debt’s carrying value.
On August 15, 2017, the Company repurchased the remaining $500 million of outstanding August 2018 Senior Unsecured Notes using cash on hand, plus accrued and unpaid interest. Loss on extinguishment of debt during the three months ended September 30, 2017 associated with the repurchase of the August 2018 Senior Unsecured Notes was $1 million representing the difference between the amount paid to settle the debt and the debt’s carrying value.
Asform part of the October 2017 Refinancing Transactions,same series as the Company completed a tender offer to repurchase $1,000 million in aggregate principal amount of the 2020 Notes for total consideration of approximately $1,000 million plus accrued and unpaid interest through October 17, 2017.Company's existing January 2027 Unsecured Notes.
Covenant Compliance
Any inability to comply with the financial maintenance and other covenantscovenant under the terms of our Restated Credit Agreement, Senior Secured Notes indentures or Senior Unsecured Notes indentures could lead to a default or an event of default for which we may need to seek relief from our lenders and noteholders in order to waive the associated default or event of default and avoid a potential acceleration of the related indebtedness or cross-default or cross-acceleration to other debt. There can be no assurance that we would be able to obtain such relief on commercially reasonable terms or otherwise and we may be required to incur significant additional costs. In addition, the lenders under our Restated Credit Agreement, holders of our Senior Secured Notes and holders of our Senior Unsecured Notes may impose additional operating and financial restrictions on us as a condition to granting any such waiver.
As outlined above, duringDuring 2017, 2018 and through the ninethree months ended September 30, 2017,March 31, 2019, the Company completed several actions which included using the proceeds from divestitures and cash flows from operations to repay debt amending financial maintenance covenants, extending a significant portion of the Revolving Credit Facility, and refinancing debt with near term maturities. These actions have reduced the Company’s debt balance and positively affected the Company’s ability to comply with itsthe financial maintenance covenants.covenant. As of September 30, 2017,March 31, 2019, the Company was in compliance with allits financial maintenance covenantscovenant related to its outstanding debt. The Company, based on its current forecast for the next twelve months from the date of issuance of this Form 10-Q, and the amendments executed, expects to remain in compliance with thesethe financial maintenance covenantscovenant and meet its debt service obligations over that same period.
The Company continues to take steps to improve its operating results to ensure continual compliance with its financial maintenance covenantscovenant and take other actions to reduce its debt levels to align with the Company’s long term strategy. The Company may consider taking other actions, including divesting other businesses, and refinancing debt and issuing equity or equity-linked securities as deemed appropriate, to provide additional coverage in complying with the financial maintenance covenantscovenant and meeting its debt service obligations.
Weighted Average Interest Rate
The weighted average stated rate of interest of the Company's outstanding debt as of March 31, 2019 and December 31, 2018 was 6.38% and 6.23%, respectively.
See Note 10, "FINANCING ARRANGEMENTS" to our unaudited interim Consolidated Financial Statements for further details.
Credit Ratings
In May 2019, Fitch upgraded our credit ratings and maintained our outlook as Stable. As of November 7, 2017,May 6, 2019, the credit ratings and outlook ratings from Moody's, and Standard & Poor's and Fitch for certain of our outstanding obligations areof the Company were as follows:
|
| | | | | | | | |
| Rating Agency | | Corporate Rating | | Senior Secured Rating | | Senior Unsecured Rating | | Outlook |
| Moody’s | | B2 | | Ba2 | | B3 | | Ba3 | | Caa1 | | NegativeStable |
| Standard & Poor’s | | B | | BB- | | B- | | Stable |
| Fitch | | B | | BB | | B | | Stable |
Any downgrade in our corporate credit ratings or other credit ratings may increase our cost of borrowing and may negatively impact our ability to raise additional debt capital.
Future Cash Requirements
A substantial portion of our cash requirements for the remainder of 20172019 are for debt service. Our other future cash requirements relate to working capital, capital expenditures, business development transactions (contingent consideration), restructuring and integration, benefit obligations and litigation settlements and benefit obligations.settlements. In addition, we may use cash to enter into licensing arrangements and/or to make strategic acquisitions, although we have made minimal acquisitions since 2015 and expect the volume and size of acquisitions to be low for the foreseeable future.acquisitions.
In addition to our working capital requirements, as of September 30, 2017,March 31, 2019, we expect our primary cash requirements forduring the remainder of 20172019 to be as follows:
Debt service—We expect to make contractual debt service payments of principal and interest payments of $1,360approximately $1,439 million during the remainder of 2017, which includes2019. As a result of prepayments and a series of refinancing transactions we have extended the $923 millionmaturities of a substantial portion of our long-term debt, and as a result, as of the date of this filing, scheduled principal repayment using the Restricted cash from the iNova Sale.repayments of our debt obligations through 2021 are less than $610 million. We may elect to make additional principal payments under certain circumstances. The expected contractual debt service payments of principal and interest are exclusive of: (i) the $125 million repayment of our Series F Tranche B Term Loan Facility on November 2, 2017 and (ii) repayments we may make under our Revolving Credit Facility. InFurther, in the ordinary course of business, we may borrow and repay amounts under our 2023 Revolving Credit Facility to meet business needs;
Capital expenditures—We expect to make payments of approximately $60$225 million for property, plant and equipment during the remainder of 2017, of which there is $52 million in committed amounts as of September 30, 2017;2019;
Contingent consideration payments—We expect to make contingent consideration and other approval/sales-based milestone payments of $13approximately $32 million during the remainder of 2017;2019;
Restructuring and integration payments—We expect to make payments of $24$17 million during the remainder of 20172019 for employee separation costs and lease termination obligations associated with restructuring and integration actions we have taken through September 30, 2017;March 31, 2019; and
Benefit obligations—We expect to make payments under our pension and postretirement obligations of $5$11 million during the remainder of 2017. See Note 11, "PENSION AND POSTRETIREMENT EMPLOYEE BENEFIT PLANS" to our unaudited interim Consolidated Financial Statements for further details of our benefit obligations.2019.
Restricted cash as of September 30, 2017 includes the net proceeds from the iNova Sale used on October 5, 2017 to repay $923 million of our Series F Tranche B Term Loan Facility. On November 2, 2017, using cash on hand, the Company repaid $125 million of its Series F Tranche B Term Loan Facility.
Other non-current assets as of September 30, 2017 includes restricted cash of $77 million deposited with a bank as collateral to secure a bank guarantee for the benefit of the Australian Government in connection with the notice of assessment received on August 8, 2017 from the Australian Taxation Office. The Company disagrees with the assessment and continues to believe that its tax positions are appropriate and supported by the facts, circumstances and applicable laws. The Company intends to defend its tax position in this matter vigorously. See Note 16, "INCOME TAXES" to our unaudited interim Consolidated Financial Statements for further details of our benefit obligations.
Our repayments through the date of this filing, and the refinancings we completed in March 2017 and October 2017 have eliminated any further mandatory principal long-term debt repayments until March 2020, providing us with additional liquidity and greater flexibility to execute our business plans.
We continue to evaluate opportunities to improve our operating results and may initiate additional cost savings programs to streamline our operations and eliminate redundant processes and expenses. These cost savings programs may include, but are not limited to: (i) reducing headcount, (ii) eliminating real estate costs associated with unused or under-utilized facilities and (iii) implementing contribution margin improvement and other cost reduction initiatives. The expenses associated with the implementation of these cost savings programs could be material and may impact our cash flows.
In the ordinary course of business, the Company is involved in litigation, claims, government inquiries, investigations, charges and proceedings. See Note 18,19, "LEGAL PROCEEDINGS" to our unaudited interim Consolidated Financial Statements. Our ability to successfully defend the Company against pending and future litigation may impact future cash flows.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
We have no off-balance sheet arrangements that have a material current effect or that are reasonably likely to have a material effect on our results of operations, financial condition, capital expenditures, liquidity, or capital resources. The following table summarizes our contractual obligations related to our long-term debt, including interest, as of September 30, 2017:March 31, 2019:
| | | (in millions) | | Total | | Remainder of 2017 | | 2018 | | 2019 and 2020 | | 2021 and 2022 | | Thereafter | | Total | | Remainder of 2019 | | 2020 | | 2021 and 2022 | | 2023 and 2024 | | Thereafter |
| Long-term debt obligations, including interest | | $ | 35,785 |
| | $ | 1,360 |
| | $ | 1,637 |
| | $ | 8,605 |
| | $ | 12,024 |
| | $ | 12,159 |
| | $ | 33,709 |
| | $ | 1,439 |
| | $ | 1,840 |
| | $ | 4,831 |
| | $ | 10,077 |
| | $ | 15,522 |
|
There have been no other material changes to the contractual obligations disclosed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Off-Balance Sheet Arrangements and Contractual Obligations” included in our Annual Report on Form 10-K for the year ended December 31, 2016,2018, filed with the SEC on March 1, 2017.February 20, 2019.
OUTSTANDING SHARE DATA
Our common shares trade on the New York Stock Exchange and the Toronto Stock Exchange under the symbol “VRX”“BHC”.
At NovemberMay 2, 2017,2019, we had 348,591,928351,883,887 issued and outstanding common shares. In addition, as of NovemberMay 2, 2017,2019, we had outstanding 4,609,4607,428,273 stock options and 4,843,1026,142,505 time-based RSUsrestricted share units that each represent the right of a holder to receive one of the Company’s common shares, and 2,255,5032,394,968 performance-based RSUsrestricted share units that represent the right of a holder to receive a number of the Company's common shares up to a specified maximum. A maximum of 4,321,0894,708,314 common shares could be issued upon vesting of the performance-based RSUsrestricted share units outstanding.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Critical accounting policies and estimates are those policies and estimates that are most important and material to the preparation of our Consolidated Financial Statements, and which require management’s most subjective and complex judgment due to the need to select policies from among alternatives available, and to make estimates about matters that are inherently uncertain. Management has reassessed the critical accounting policies as disclosed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” included in our Annual Report on Form 10-K for the year ended December 31, 2016,2018, filed with the SEC on March 1, 2017February 20, 2019, and determined that there were no significant changes in our critical accounting policies in ninethe three months ended September 30, 2017March 31, 2019, except for recently adopted accounting guidance as discussed in Note 2, "SIGNIFICANT ACCOUNTING POLICIES" to our unaudited consolidated financial statements. Further, there were no significant changes in our estimates associated with those policies except for those pertaining to determining the implied fair value of the Salix reporting unit goodwill at September 30, 2017.
Goodwill Impairment Testing
The Company conducted its annual goodwill impairment test as of October 1, 2016 and determined that the carrying value of the Salix reporting unit exceeded its fair value and, as a result, the Company proceeded to perform step two of the goodwill impairment test for the Salix reporting unit. After completing step two of the impairment testing, the Company determined that the carrying value of the unit's goodwill did not exceed its implied fair value and, therefore, no impairment was identified to the goodwill of the Salix reporting unit. As of the date of testing the Salix reporting unit had a carrying value of $14,087 million, an estimated fair value of $10,319 million and goodwill with a carrying value of $5,128 million. The Company's remaining reporting units passed step one of the goodwill impairment test as of October 1, 2016 as the estimated fair value of each reporting unit exceeded its carrying value at the date of testing and, therefore, impairment to goodwill was $0.
As detailed in Note 4, "DIVESTITURES" to our unaudited consolidated financial statements, as of September 30, 2017 the Sprout business was classified as held for sale. As the Sprout business represented only a portion of a Branded Rx reporting unit, the Company assessed the remaining reporting unit for impairment and determined the carrying value of the remaining reporting unit exceeded its fair value. After completing step two of the impairment testing, the Company determined and recorded a goodwill impairment charge of $312 million during the three months ended September 30, 2017.
No additional events occurred or circumstances changed during the nine months ended September 30, 2017 that would indicate that the fair value of any other reporting unit may be below its carrying value, except for the Salix reporting unit. As the facts and circumstances had not materially changed since the October 1, 2016 impairment test, management concluded that the carrying value of the Salix reporting unit continues to be in excess of its fair value. Therefore, during the three months ended March 31, 2017, June 30, 2017 and September 30, 2017, the Company performed qualitative assessments of the Salix reporting unit goodwill to determine if testing was warranted.
As part of its qualitative assessments, management compared the reporting unit’s operating results to its original forecasts. Although Salix reporting unit revenue during the three months ended March 31, 2017, June 30, 2017 and September 30, 2017 declined as compared to the three months ended December 31, 2016, each decrease was within management's expectations. Further, the latest forecast for the Salix reporting unit is not materially different than the forecast used in management's October 1, 2016 testing and the difference in the forecasts would not change the conclusion of the Company’s goodwill impairment testing as of October 1, 2016. As part of these qualitative assessments, the Company also considered the sensitivity of its conclusions as they relate to changes in the estimates and assumptions used in the latest forecast available for each period. Based on its qualitative assessments, management believes that the carrying value of the Salix reporting unit goodwill does not exceed its implied fair value and that testing the Salix reporting unit goodwill for impairment was not required based on the current facts and circumstances.
If market conditions deteriorate, or if the Company is unable to execute its strategies, it may be necessary to record impairment charges in the future.
Further, in January 2017, theinterim Consolidated Financial Accounting Standards Board (the “FASB”) issued guidance which simplifies the subsequent measurement of goodwill by eliminating the “Step 2” from the goodwill impairment test. The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. The guidance is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. The Company will continue to evaluate the potential impact of this guidance when adopted, which could have a significant impact on its financial position, results of operations, and disclosures, particularly in respect of the Salix reporting unit in which its carrying value exceeded its fair value as of the date of the annual goodwill impairment test in 2016.
See Note 8, "INTANGIBLE ASSETS AND GOODWILL" to our unaudited interim consolidated financial statements for further details on goodwill impairment testing.Statements.
NEW ACCOUNTING STANDARDS
Adoption of New Accounting Guidance
Information regarding recently issued accounting guidance is contained in Note 2, "SIGNIFICANT ACCOUNTING POLICIES" of notes to the unaudited interim Consolidated Financial Statements.
FORWARD-LOOKING STATEMENTS
Caution regarding forward-looking information and statements and “Safe-Harbor” statements under the U.S. Private Securities Litigation Reform Act of 1995:1995 and applicable Canadian securities laws:
To the extent any statements made in this Form 10-Q contain information that is not historical, these statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and may be forward-looking information within the meaning defined under applicable Canadian securities legislationlaws (collectively, “forward-looking statements”).
These forward-looking statements relate to, among other things: our business strategy, business plans and prospects and forecasts and changes thereto,thereto; product pipeline, prospective products orand product approvals, product development and distribution plans, the timing of product launches, the timing of development activities, anticipated or future research and development expenditures, future performance orand results of current and anticipated products; anticipated revenues for our products, including the Significant Seven; anticipated growth in our Ortho Dermatologics business; expected R&D and marketing spend, including in connection with the promotion of the Significant Seven; our expected primary cash and working capital requirements for 2019 and beyond; the Company's plans for continued improvement in operational efficiency and the anticipated impact of such plans; our liquidity and our ability to satisfy our debt maturities as they become due,due; our ability to reduce debt levels, our anticipated cash requirements,levels; the impact of our distribution, fulfillment and other third party arrangements,third-party arrangements; proposed pricing actions, the anticipated timing of completion of our pending divestitures, anticipated use of proceeds for certain of our divestitures,actions; exposure to foreign currency exchange rate changes and interest rate changes,changes; the outcome of contingencies, such as litigation, subpoenas, investigations, reviews, audits and regulatory proceedings,proceedings; the anticipated impact of the adoption of new accounting standards; general market conditions,conditions; our expectations regarding our financial performance, including revenues, expenses, gross margins and income taxes,taxes; our ability to meet the financial and other covenants contained in our ThirdFourth Amended and Restated Credit and Guaranty Agreement as amended (the "Credit"Restated Credit Agreement"), and senior note indentures, potential cost savings programs we may initiate and the impact of such programs,indentures; and our impairment assessments, including the assumptions used therein and the results thereof.
Forward-looking statements can generally be identified by the use of words such as “believe”, “anticipate”, “expect”, “intend”, “estimate”, “plan”, “continue”, “will”, “may”, “could”, “would”, “should”, “target”, “potential”, “opportunity”, “tentative”, “positioning”, “designed”, “create”, “predict”, “project”, “forecast”, “seek”, “ongoing”“strive”, “increase”,“ongoing” or “upside”“increase” and variations or other similar expressions. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements may not be appropriate for other purposes. Although we have previously indicated above certain of these statements set out herein, all of the statements in this Form 10-Q that contain forward-looking statements are qualified by these cautionary statements. These statements are based upon the current expectations and beliefs of management. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making such forward-looking statements, including, but not limited to, factors and assumptions regarding the items previously outlined, above.those factors, risks and uncertainties outlined below and the assumption that none of these factors, risks and uncertainties will cause actual results or events to differ materially from those described in such forward-looking statements. Actual results may differ materially from those expressed or implied in such statements. Important factors, risks and uncertainties that could cause actual results to differ materially from these expectations include, among other things, the following:
the expense, timing and outcome of legal and governmental proceedings, investigations and information requests relating to, among other matters, our past distribution, marketing, pricing, disclosure and accounting practices (including with respect to our former relationship with Philidor Rx Services, LLC ("Philidor")), including pending investigations by the U.S. Attorney's Office for the District of Massachusetts and the U.S. Attorney's Office for the Southern District of New York, and the State of North Carolina Department of Justice, the pending investigations by the U.S. Securities and Exchange Commission (the “SEC”) of the Company, the request for documents and information receivedinvestigation order issued by the Company from the Autorité des marchés financiers (the “AMF”) (the Company’s principal securities regulator in Canada), the pending investigation by the California Department of Insurance, a number of pending putative securities class action litigations in the U.S. (including related opt-out actions, including the recently filed securitiesactions) and RICO
claims by Lord Abbett) and Canada (including related opt-out actions) and purported class actions under the federal RICO statute and other claims, investigations or proceedings that may be initiated or that may be asserted;
the impact of the changes in and reorganizations to our business structure, including changes to our operating and reportable segments;
the effectiveness of the measures implemented to remediate the material weaknesses in our internal control over financial reporting that were identified by the Company, our deficient control environment and the contributing factors leading to the misstatement of our previously issued results and the impact such measures may have on the Company and our businesses;
potential additional litigation and regulatory investigations (and any costs, expenses, use of resources, diversion of management time and efforts, liability and damages that may result therefrom), negative publicity and reputational harm on our Company, products and business that may result from the recentpast and ongoing public scrutiny of our past distribution, marketing, pricing, disclosure and accounting practices and from our former relationship with Philidor, including any claims, proceedings, investigations and liabilities we may face as a result of any alleged wrongdoing by Philidor and/or its management and/or employees;Philidor;
the currentpast and ongoing scrutiny of our legacy business practices, including with respect to pricing (including the investigations by the U.S. Attorney's Offices for the District of Massachusetts and the Southern District of New York, and the State of North Carolina Department of Justice)York), and any pricing controls or price adjustments that may be sought or imposed on our products as a result thereof;
pricing decisions that we have implemented, or may in the future elect to implement, whether as a result of recent scrutiny or otherwise, such as the decision of the Company to take no further price increases on our Nitropress® and Isuprel® products and to implement an enhanced rebate program for such products, our decision on the price of our Siliq™ product, the Patient Access and Pricing Committee’s commitment that the average annual price increase for our branded prescription pharmaceutical products will be set at no greater than single digits, and below the 5-year weighted average of the increases within the branded biopharmaceutical industry or any future pricing actions we may take following review by our Patient Access and Pricing Committee (which is responsible for the pricing of our drugs);
legislative or policy efforts, including those that may be introduced and passed by the U.S. Congress, designed to reduce patient out-of-pocket costs for medicines, which could result in new mandatory rebates and discounts or other pricing restrictions, controls or regulations (including mandatory price reductions);
ongoing oversight and review of our products and facilities by regulatory and governmental agencies, including periodic audits by the FDAU.S. Food and Drug Administration (the "FDA") and the results thereof;
actions by the FDA or other regulatory authorities with respect to our products or facilities;
our substantial debt (and potential additional future indebtedness) and current and future debt service obligations, our ability to reduce our outstanding debt levels and the resulting impact on our financial condition, cash flows and results of operations;
our ability to meet the financial and other covenants contained in our Restated Credit Agreement, indentures and other current or future debt agreements and the limitations, restrictions and prohibitions such covenants impose or may impose on the way we conduct our business, including prohibitions on incurring additional debt if certain financial covenants are not met, limitations on the amount of additional debt we are able to incur where not prohibited, and restrictions on our ability to make certain investments and other restricted payments;
any default under the terms of our senior notes indentures or Restated Credit Agreement and our ability, if any, to cure or obtain waivers of such default;
any delay in the filing of any future financial statements or other filings and any default under the terms of our senior notes indentures or Restated Credit Agreement as a result of such delays;
our substantial debt (and potential additional future indebtedness) and current and future debt service obligations, our ability to reduce our outstanding debt levels in accordance with our stated intention and the resulting impact on our financial condition, cash flows and results of operations;
our ability to meet the financial and other covenants contained in our Credit Agreement, indentures and other current or future debt agreements and the limitations, restrictions and prohibitions such covenants impose or may impose on the way we conduct our business, prohibitions on incurring additional debt if certain financial covenants are not met, limitations on the amount of additional debt we are able to incur where not prohibited, and restrictions on our ability to make certain investments and other restricted payments;
any further downgrade by rating agencies in our credit ratings, which may impact, among other things, our ability to raise debt and the cost of capital for additional debt issuances;
any reductions in, or changes in the assumptions used in, our forecasts for fiscal year 20172019 or beyond, which could lead to, among other things,things: (i) a failure to meet the financial and/or other covenants contained in our Restated Credit Agreement and/or indentures and/or (ii) impairment in the goodwill associated with certain of our reporting units (including our
Salix reporting unit) or impairment charges related to certain of our products or other intangible assets, which impairments could be material;
changes in the assumptions used in connection with our impairment analyses or assessments, which would lead to a change in such impairment analyses and assessments and which could result in an impairment in the goodwill associated with any of our reporting units or impairment charges related to certain of our products or other intangible assets;
the pending andany additional divestitures of certain of our assets or businesses and our ability to successfully complete any such divestitures on commercially reasonable terms and on a timely basis, or at all, and the impact of any such pending or future divestitures on our Company, including the reduction in the size or scope of our business or market share, loss of revenue, any loss on sale, including any resultant write-downsimpairments of goodwill or other assets, or any adverse tax consequences suffered as a result of any such divestitures;
our shift in focus to much lower business development activity through acquisitions for the foreseeable future as we focus on reducing our outstanding debt levels and as a result of the restrictions imposed by our Credit Agreement that restrict us from, among other things, making acquisitions over an aggregate threshold (subject to certain exceptions) and from incurring debt to finance such acquisitions, until we achieve a specified leverage ratio;
the uncertainties associated with the acquisition and launch of new products, (such as our Siliq™ product), including, but not limited to, our ability to provide the time, resources, expertise and costs required for the commercial launch of new products, the acceptance and demand for new pharmaceutical products, and the impact of competitive products and pricing, which could lead to material impairment charges;
our ability or inability to extend the profitable life of our products, including through line extensions and other life-cycle programs;
our ability to retain, motivate and recruit executives and other key employees, including subsequent to retention payments being paid out and as a result of the reputational challenges we face and may continue to face;employees;
our ability to implement effective succession planning for our executives and key employees;
factors impacting our ability to achieve anticipated growth in our Ortho Dermatologics business, including the approval of pending and pipeline products (and the timing of such approvals), the ability to successfully implement and operate our new cash-pay prescription program for certain of our Ortho Dermatologics branded products and the ability of such program to achieve the anticipated goals respecting patient access and fulfillment, expected geographic expansion, changes in estimates on market potential for dermatology products and continued investment in and success of our sales force;
factors impacting our ability to achieve anticipated revenues for our Significant Seven products, including changes in anticipated marketing spend on such products and launch of competing products;
the challenges and difficulties associated with managing a large complex business, which has, in the past, grown rapidly;
our ability to compete against companies that are larger and have greater financial, technical and human resources than we do, as well as other competitive factors, such as technological advances achieved, patents obtained and new products introduced by our competitors;
our ability to effectively operate, stabilize and grow our businesses in light of the challenges that the Company currently faces, including with respect to its substantial debt, pending investigations and legal proceedings, scrutiny of our past pricing, distribution and other practices, reputational harm and limitations on the way we conduct business imposed by the covenants in our Restated Credit Agreement, indentures and the agreements governing our other indebtedness;
the success of our fulfillment arrangements with Walgreen Co. ("Walgreens"), including market acceptance of, or market reaction to, such arrangements (including by customers, doctors, patients, pharmacy benefit managers ("PBMs"), third party payors and governmental agencies), the continued compliance of such arrangements with applicable laws, and our ability to successfully negotiate any improvements to our arrangements with Walgreens;
the extent to which our products are reimbursed by government authorities, PBMspharmacy benefit managers ("PBMs") and other third partythird-party payors; the impact our distribution, pricing and other practices (including as it relates to our former relationship with Philidor, any alleged wrongdoing by Philidor and our current relationship with Walgreens)Walgreen Co. ("Walgreens")) may have on the decisions of such government authorities, PBMs and other third partythird-party payors to reimburse our products; and the impact of obtaining or maintaining such reimbursement on the price and sales of our products;
the inclusion of our products on formularies or our ability to achieve favorable formulary status, as well as the impact on the price and sales of our products in connection therewith;
the consolidation of wholesalers, retail drug chains and other customer groups and the impact of such industry consolidation on our business;
our eligibility for benefits under tax treaties and the continued availability of low effective tax rates for the business profits of certain of our subsidiaries, including the impact on such matters of the proposals published by the Organization for Economic Co-operation and Development ("OECD") respecting base erosion and profit shifting ("BEPS") and various corporate tax reform proposals being considered in the U.S.;
our recent shift in business strategy as we are seeking to sell a variety of assets, some of which may be material and/or transformative;
subsidiaries;
the actions of our third partythird-party partners or service providers of research, development, manufacturing, marketing, distribution or other services, including their compliance with applicable laws and contracts, which actions may be beyond our control or influence, and the impact of such actions on our Company, including the impact to the Company of our former relationship with Philidor and any alleged legal or contractual non-compliance by Philidor;
the risks associated with the international scope of our operations, including our presence in emerging markets and the challenges we face when entering and operating in new and different geographic markets (including the challenges created by new and different regulatory regimes in such countries and the need to comply with applicable anti-bribery and economic sanctions laws and regulations);
adverse global economic conditions and credit markets and foreign currency exchange uncertainty and volatility in certain of the countries in which we do business (such as business;
the current or recent instability in Brazil, Russia, Ukraine, Argentina, Egypt, certain other countries in Africa and the Middle East, the devaluationimpact of the Egyptian pound,recently signed United States-Mexico-Canada Agreement (“USMCA”) and any potential changes to other trade agreements;
the adverse economicfinal outcome and impact and related uncertainty caused byof Brexit negotiations;
the trade conflict between the United Kingdom's decision to leave the European Union (Brexit));States and China;
our ability to obtain, maintain and license sufficient intellectual property rights over our products and enforce and defend against challenges to such intellectual property;
the introduction of generic, biosimilar or other competitors of our branded products and other products, including the introduction of products that compete against our products that do not have patent or data exclusivity rights;
if permitted under our Credit Agreement, and to the extent we elect to resume business development activities through acquisitions, our ability to identify, finance, acquire, close and integrate acquisition targets successfully and on a timely basis;
factors relating tobasis and the acquisition and integration of the companies, businesses and products that have been acquired by the Company and that may in the future be acquired by the Company (if permitted under our Credit Agreement and to the extent we elect to resume business development activities through acquisitions), such as thedifficulties, challenges, time and resources required to integrate such companies, businesses and products, the difficulties associated with such integrations (including potential disruptions in sales activities and potential challenges with information technology systems integrations), the difficulties and challenges associated with entering into new business areas and new geographic markets, the difficulties, challenges and costs associated with managing and integrating new facilities, equipment and other assets, the risks associated with the integration of acquired companies, businesses and products and our ability to achieve the anticipated benefits and synergies from such acquisitions and integrations, including as a result of cost-rationalization and integration initiatives. Factors impacting the achievement of anticipated benefits and synergies may include greater than expected operating costs, the difficulty in eliminating certain duplicative costs, facilities and functions, and the outcome of many operational and strategic decisions;products;
the expense, timing and outcome of pending or future legal and governmental proceedings, arbitrations, investigations, subpoenas, tax and other regulatory audits, examinations, reviews and regulatory proceedings against us or relating to us and settlements thereof;
our ability to negotiate the terms of or obtain court approval for the settlement of certain legal and regulatory proceedings;
our ability to obtain components, raw materials or finished products supplied by third parties (some of which may be single-sourced) and other manufacturing and related supply difficulties, interruptions and delays;
the disruption of delivery of our products and the routine flow of manufactured goods;
economic factors over which the Company has no control, including changes in inflation, interest rates, foreign currency rates, and the potential effect of such factors on revenues, expenses and resulting margins;
interest rate risks associated with our floating rate debt borrowings;
our ability to effectively distribute our products and the effectiveness and success of our distribution arrangements, including the impact of our arrangements with Walgreens;
| |
| • | our ability to effectively promote our own products and those of our co-promotion partners, such as Doptelet® (Dova Pharmaceuticals, Inc.) and LucemyraTM (US WorldMeds, LLC); |
the success of our fulfillment arrangements with Walgreens, including market acceptance of, or market reaction to, such arrangements (including by customers, doctors, patients, PBMs, third-party payors and governmental agencies),
the continued compliance of such arrangements with applicable laws, and our ability to successfully negotiate any improvements to our arrangements with Walgreens;
our ability to secure and maintain third partythird-party research, development, manufacturing, licensing, marketing or distribution arrangements;
the risk that our products could cause, or be alleged to cause, personal injury and adverse effects, leading to potential lawsuits, product liability claims and damages and/or recalls or withdrawals of products from the market;
the mandatory or voluntary recall or withdrawal of our products from the market and the costs associated therewith;
the availability of, and our ability to obtain and maintain, adequate insurance coverage and/or our ability to cover or insure against the total amount of the claims and liabilities we face, whether through third partythird-party insurance or self-insurance;
the difficulty in predicting the expense, timing and outcome within our legal and regulatory environment, including with respect to approvals by the FDA, Health Canada and similar agencies in other countries, legal and regulatory proceedings and settlements thereof, the protection afforded by our patents and other intellectual and proprietary property, successful generic challenges to our products and infringement or alleged infringement of the intellectual property of others;
the results of continuing safety and efficacy studies by industry and government agencies;
the success of preclinical and clinical trials for our drug development pipeline or delays in clinical trials that adversely impact the timely commercialization of our pipeline products, as well as other factors impacting the commercial success of our products, (such as our Siliq™ product), which could lead to material impairment charges;
the results of management reviews of our research and development portfolio (including following the receipt of clinical results or feedback from the FDA or other regulatory authorities), which could result in terminations of specific projects which, in turn, could lead to material impairment charges;
the seasonality of sales of certain of our products;
declines in the pricing and sales volume of certain of our products that are distributed or marketed by third parties, over which we have no or limited control;
compliance by the Company or our third party partners and service providers (over whom we may have limited influence), or the failure of our Company or these third parties to comply, with health care “fraud and abuse” laws and other extensive regulation of our marketing, promotional and business practices (including with respect to pricing), worldwide anti-bribery laws (including the U.S. Foreign Corrupt Practices Act and the Canadian Corruption of Foreign Public Officials Act), worldwide economic sanctions and/or export laws, worldwide environmental laws and regulation and privacy and security regulations;
the impacts of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Health Care Reform Act”) and potential repeal or amendment thereof and other legislative and regulatory healthcarehealth care reforms in the countries in which we operate, including with respect to recent government inquiries on pricing;
the impact of any changes in or reforms to the legislation, laws, rules, regulation and guidance that apply to the Company and its business and products or the enactment of any new or proposed legislation, laws, rules, regulations or guidance that will impact or apply to the Company or its businesses or products;
the impact of changes in federal laws and policy under consideration by the newTrump administration and Congress, including the effect that such changes will have on fiscal and tax policies, the potential repealrevision of all or portions of the Health Care Reform Act, international trade agreements and policies and policy efforts designed to reduce patient out-of-pocket costs for medicines (which could result in new mandatory rebates and discounts or other pricing restrictions);
illegal distribution or sale of counterfeit versions of our products;
interruptions, breakdowns or breaches in our information technology systems; and
risks in Item 1A. "”Risk“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016,2018, filed on March 1, 2017,February 20, 2019, and risks detailed from time to time in our other filings with the SEC and the Canadian Securities Administrators (the “CSA”), as well as our ability to anticipate and manage the risks associated with the foregoing.
Additional information about these factors and about the material factors or assumptions underlying such forward-looking statements may be found in our Annual Report on Form 10-K for the year ended December 31, 2016,2018, filed on March 1, 2017,February 20, 2019, under Item 1A. “Risk Factors” and in the Company’s other filings with the SEC and CSA. When relying on our forward-looking statements to make decisions with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. These forward-looking statements speak only as of the date made. We undertake no obligation to update or revise any of these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect actual outcomes, except as required by law. We caution that, as it is not possible to predict or identify
all relevant factors that may impact forward-looking statements, the foregoing list of important factors that may affect future results is not exhaustive and should not be considered a complete statement of all potential risks and uncertainties.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Other than as indicated below under “— Interest Rate Risk”, there have been no material changes to our exposures to market risks as disclosed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Quantitative and Qualitative Disclosures About Market Risks” included in our Annual Report on Form 10-K for the year ended December 31, 2016,2018, filed with the SEC on March 1, 2017.February 20, 2019.
Interest Rate Risk
As of September 30, 2017,March 31, 2019, we had $19,429$17,143 million and $6,225$5,648 million principal amount of issued fixed rate debt and variable rate debt, respectively, that requires U.S. dollar repayment, as well as €1,500 million principal amount of issued fixed rate debt that requires repayment in euros. The estimated fair value of our issued fixed rate debt as of September 30, 2017,March 31, 2019, including the debt denominated in euros, was $20,150$19,398 million. If interest rates were to increase by 100 basis-points, the estimated fair value of our long-termissued fixed rate debt as of March 31, 2019 would decrease by approximately $740$589 million. If interest rates were to decrease by 100 basis-points, the estimated fair value of our long-termissued fixed rate debt as of March 31, 2019 would increase by approximately $636$436 million. We are subject to interest rate risk on our variable rate debt as changes in interest rates could adversely affect earnings and cash flows. A 100 basis-points increase in interest rates, based on 3-month LIBOR, would have an annualized pre-tax effect of approximately $62$56 million in our consolidated statementsConsolidated Statements of operationsOperations and cash flows,Cash Flows, based on current outstanding borrowings and effective interest rates on our variable rate debt. For the tranches in our credit facility that have a LIBOR floor, an increase in interest rates would only impact interest expense on those term loans to the extent LIBOR exceeds the floor. While our variable-rate debt may impact earnings and cash flows as interest rates change, it is not subject to changes in fair value.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2017.March 31, 2019. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2017.March 31, 2019.
Changes in Internal Control Over Financial Reporting
ThereThe Company has implemented certain internal controls in connection with the new lease accounting standard adopted effective January 1, 2019, as discussed in Note 2, "SIGNIFICANT ACCOUNTING POLICIES" to our unaudited interim Consolidated Financial Statements. Other than the above-noted change, there were no changes in ourthe Company's internal controls over financial reporting that occurred during the ninethree months ended September 30, 2017March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For information concerning legal proceedings, reference is made to Note 18,19, "LEGAL PROCEEDINGS" of notes to the unaudited interim Consolidated Financial Statements included elsewhere in this Form 10-Q.
Item 1A. Risk Factors
There have been no material changes to the risk factors as disclosed in Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2016,2018, filed with the SEC on March 1, 2017.February 20, 2019.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table contains information about ourThere were no purchases of equity securities by the Company during the three-month periodthree months ended September 30, 2017:March 31, 2019.
|
| | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased(1)(2) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans | | Maximum Number (Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans(2) |
| July 1, 2017 to July 31, 2017 | | — |
| | $ | — |
| | — |
| | $ | — |
|
| August 1, 2017 to August 31, 2017 | | — |
| | $ | — |
| | — |
| | $ | — |
|
| September 1, 2017 to September 30, 2017 | | 126 |
| | $ | 14.43 |
| | — |
| | $ | — |
|
__________________
| |
(1) | Represents 126 purchased (subsequently canceled) under the employee stock purchase program.
|
| |
(2) | The Company currently has no active securities repurchase plan. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
|
| |
| Indenture, dated as of October 17, 2017,March 8, 2019, by and among Valeant Pharmaceuticals International,Bausch Health Companies Inc., the other guarantors party thereto, The Bank of New York Mellon, as trustee and the notes collateral agents party thereto, originally filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 17, 2017,March 8, 2019, which is incorporated by reference herein. |
| |
| |
| |
| |
| |
| |
| |
| *101.INS | XBRL Instance Document |
| *101.SCH | XBRL Taxonomy Extension Schema Document |
| *101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| *101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| *101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| *101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
* Filed herewith.
† Management contract or compensation plan or arrangement.
| |
| †† | One or more exhibits or schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. We undertake to furnish supplementally a copy of any omitted exhibit or schedule to the SEC upon request. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| |
| | Valeant Pharmaceuticals International,Bausch Health Companies Inc.
(Registrant)
|
| | |
Date: November 7, 2017May 6, 2019 | /s/ JOSEPH C. PAPA |
| | Joseph C. Papa
Chief Executive Officer
(Principal Executive Officer and Chairman of the Board) |
| | |
| | |
Date: November 7, 2017May 6, 2019 | /s/ PAUL S. HERENDEEN |
| | Paul S. Herendeen
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer) |
INDEX TO EXHIBITS
|
| |
Exhibit Number | Exhibit Description |
| Indenture, dated as of October 17, 2017,March 8, 2019, by and among Valeant Pharmaceuticals International,Bausch Health Companies Inc., the other guarantors party thereto, The Bank of New York Mellon, as trustee and the notes collateral agents party thereto, originally filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 17, 2017,March 8, 2019, which is incorporated by reference herein. |
| |
| |
| |
| |
| |
| |
| |
| *101.INS | XBRL Instance Document |
| *101.SCH | XBRL Taxonomy Extension Schema Document |
| *101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| *101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| *101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| *101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
* Filed herewith.
† Management contract or compensation plan or arrangement.
| |
| †† | One or more exhibits or schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. We undertake to furnish supplementally a copy of any omitted exhibit or schedule to the SEC upon request. |