UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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x☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the Quarterly Period Ended | September 30, 20172022 |
| OR |
o☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
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Commission File Number: 001-14956
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.Bausch Health Companies Inc.
(Exact name of registrant as specified in its charter)
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British Columbia | , | Canada
| 98-0448205 |
(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)
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2150 St. Elzéar Blvd. West, Laval, Québec, Canada H7L 4A8
(Address of Principal Executive Offices) (Zip Code)
(514) 744-6792
(Registrant’s telephone number, including area code)
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| 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 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.
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| 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
☐ |
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. ☐
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☒
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 — 348,591,928361,868,131 shares outstanding as of November 2, 2017.October 28, 2022.
VALEANT PHARMACEUTICALS INTERNATIONAL,BAUSCH HEALTH COMPANIES INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20172022
INDEX
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| Part I. | Financial Information | |
| Item 1. | | |
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| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
Part II. | Other Information | |
| Item 1. | | |
| Item 1A. | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
| Item 5. | | |
| Item 6. | | |
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VALEANT PHARMACEUTICALS INTERNATIONAL,BAUSCH HEALTH COMPANIES INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20172022
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, 20172022 (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, references to “€” are to euros and references to CAD“CAD” are to Canadian dollars. Unless otherwise indicated, the statistical and financial data contained in this Form 10-Q are presented as of September 30, 2017.2022.
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:
To the extent any statements made in thisThis Form 10-Q contain information that is not historical, these statements arecontains 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 underof applicable Canadian securities legislationlaws (collectively, “forward-looking statements”).
These forward-looking statements relate to, among other things: our business strategy, business plans and prospects, forecasts and changes thereto, product pipeline, prospective products or product approvals, product development and distribution plans,, as described in more detail under the timingheading “Forward-Looking Statements” in Item 2 of product launches, the timingPart I of development activities, anticipated or future research and development expenditures, future performance or results of current and anticipated products, our liquidity and our ability to satisfy our debt maturities as they become due, our ability to reduce debt levels, our anticipated cash requirements, the impact of our distribution, fulfillment and other third party arrangements, proposed pricing actions, the anticipated timing of completion of our pending divestitures, anticipated use of proceeds for certain of our divestitures, exposure to foreign currency exchange rate changes and interest rate changes, the outcome of contingencies, such as litigation, subpoenas, investigations, reviews, audits and regulatory proceedings, general market conditions, our expectations regarding our financial performance, including revenues, expenses, gross margins and income taxes, our ability to meet the financial and other covenants contained in our Third Amended and Restated Credit and Guaranty Agreement, as amended (the "Credit Agreement") and senior note indentures, potential cost savings programs we may initiate and the impact of such programs, 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”, “increase”, or “upside” 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 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 forward-looking statements, including, but not limited to, factors and assumptions regarding the items outlined above. Actual results may differ materially from those expressed or implied in such statements. Important factors 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 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, 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 received 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)
and Canada 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 recent public scrutiny of our 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;
the current scrutiny of our 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) 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 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 under 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 statements or other filings and any default under the terms of our senior notes indentures or 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 2017 or beyond, which could lead to, among other things, (i) a failure to meet the financial and/or other covenants contained in our 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 and 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-downs of goodwill, 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 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;
our ability to implement effective succession planning for our executives and key employees;
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 pricing, distribution and other practices, reputational harm and limitations on the way we conduct business imposed by the covenants in our 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, PBMs and other third 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) may have on the decisions of such government authorities, PBMs and other third 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;
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;
the actions of our third 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 the countries in which we do business (such as the current or recent instability in Brazil, Russia, Ukraine, Argentina, Egypt, certain other countries in Africa and the Middle East, the devaluation of the Egyptian pound, and the adverse economic impact and related uncertainty caused by the United Kingdom's decision to leave the European Union (Brexit));
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 to 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 the 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 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;
the expense, timing and outcome of pending or future legal and governmental proceedings, arbitrations, investigations, subpoenas, tax and other regulatory audits, reviews and regulatory proceedings against us or relating to us and settlements thereof;
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 secure and maintain third party research, development, manufacturing, 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 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), 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 healthcare 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 new administration and Congress, including the effect that such changes will have on fiscal and tax policies, the potential repeal 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, filed on March 1, 2017, 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.
10-Q. Additional information about these factors and about the material factors or assumptions underlying such forward-looking statements may be found in (i) our Annual Report on Form 10-K for the year ended December 31, 2016,2021, filed on March 1, 2017,February 23, 2022, under Item 1A. “Risk Factors”; (ii) under Item 1A. Risk Factors in Part II of this Form 10-Q; and (iii) in the Company’s other filings with the SECU.S. Securities and CSA.Exchange Commission (the “SEC”) and the Canadian Securities Administrators (the “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 |
| September 30,
2022 | | December 31,
2021 |
| Assets | | | | Assets | | | |
| Current assets: | | | | Current assets: | |
| Cash and cash equivalents | $ | 964 |
| | $ | 542 |
| Cash and cash equivalents | $ | 486 | | | $ | 582 | |
| Restricted cash | 928 |
| | — |
| |
| Restricted cash and other settlement deposits | | Restricted cash and other settlement deposits | 11 | | | 1,537 | |
| Trade receivables, net | 2,229 |
| | 2,517 |
| Trade receivables, net | 1,739 | | | 1,775 | |
| Inventories, net | 1,071 |
| | 1,061 |
| Inventories, net | 1,056 | | | 993 | |
| Current assets held for sale | 16 |
| | 261 |
| |
| Prepaid expenses and other current assets | 736 |
| | 696 |
| Prepaid expenses and other current assets | 718 | | | 720 | |
| Total current assets | 5,944 |
| | 5,077 |
| Total current assets | 4,010 | | | 5,607 | |
| Property, plant and equipment, net | 1,398 |
| | 1,312 |
| Property, plant and equipment, net | 1,507 | | | 1,598 | |
| Intangible assets, net | 16,023 |
| | 18,884 |
| Intangible assets, net | 6,024 | | | 6,948 | |
| Goodwill | 15,573 |
| | 15,794 |
| Goodwill | 12,044 | | | 12,457 | |
| Deferred tax assets, net | 166 |
| | 146 |
| Deferred tax assets, net | 2,372 | | | 2,252 | |
| Non-current assets held for sale | 718 |
| | 2,132 |
| |
| Other non-current assets | 152 |
| | 184 |
| Other non-current assets | 341 | | | 340 | |
| Total assets | $ | 39,974 |
| | $ | 43,529 |
| Total assets | $ | 26,298 | | | $ | 29,202 | |
| Liabilities | | | | Liabilities | | | |
| Current liabilities: | | | | Current liabilities: | |
| Accounts payable | $ | 407 |
| | $ | 324 |
| Accounts payable | $ | 486 | | | $ | 407 | |
| Accrued and other current liabilities | 3,396 |
| | 3,227 |
| Accrued and other current liabilities | 2,934 | | | 4,791 | |
| Current liabilities held for sale | — |
| | 57 |
| |
| Current portion of long-term debt and other | 925 |
| | 1 |
| |
| Current portion of long-term debt | | Current portion of long-term debt | 411 | | | — | |
| Total current liabilities | 4,728 |
| | 3,609 |
| Total current liabilities | 3,831 | | | 5,198 | |
| Acquisition-related contingent consideration | 345 |
| | 840 |
| Acquisition-related contingent consideration | 189 | | | 202 | |
| Non-current portion of long-term debt | 26,216 |
| | 29,845 |
| Non-current portion of long-term debt | 20,804 | | | 22,654 | |
| Pension and other benefit liabilities | 198 |
| | 195 |
| |
| Liabilities for uncertain tax positions | 265 |
| | 184 |
| |
| Deferred tax liabilities, net | 2,237 |
| | 5,434 |
| Deferred tax liabilities, net | 422 | | | 529 | |
| Non-current liabilities held for sale | 461 |
| | 57 |
| |
| Other non-current liabilities | 102 |
| | 107 |
| Other non-current liabilities | 619 | | | 653 | |
| Total liabilities | 34,552 |
| | 40,271 |
| Total liabilities | 25,865 | | | 29,236 | |
| Commitments and contingencies (Note 18) |
|
| |
|
| |
| 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 |
| |
Commitments and contingencies (Note 18) | | Commitments and contingencies (Note 18) | | | |
| Equity (Deficit) | | Equity (Deficit) | |
| Common shares, no par value, unlimited shares authorized, 361,781,292 and 359,405,748 issued and outstanding at September 30, 2022 and December 31, 2021, respectively | | Common shares, no par value, unlimited shares authorized, 361,781,292 and 359,405,748 issued and outstanding at September 30, 2022 and December 31, 2021, respectively | 10,387 | | | 10,317 | |
| Additional paid-in capital | 368 |
| | 351 |
| Additional paid-in capital | 129 | | | 462 | |
| Accumulated deficit | (3,239 | ) | | (5,129 | ) | Accumulated deficit | (8,776) | | | (8,961) | |
| Accumulated other comprehensive loss | (1,888 | ) | | (2,108 | ) | Accumulated other comprehensive loss | (2,265) | | | (1,924) | |
| Total Valeant Pharmaceuticals International, Inc. shareholders’ equity | 5,327 |
| | 3,152 |
| |
| Total Bausch Health Companies Inc. shareholders’ deficit | | Total Bausch Health Companies Inc. shareholders’ deficit | (525) | | | (106) | |
| Noncontrolling interest | 95 |
| | 106 |
| Noncontrolling interest | 958 | | | 72 | |
| Total equity | 5,422 |
| | 3,258 |
| |
| Total liabilities and equity | $ | 39,974 |
| | $ | 43,529 |
| |
| Total equity (deficit) | | Total equity (deficit) | 433 | | | (34) | |
| Total liabilities and equity (deficit) | | Total liabilities and equity (deficit) | $ | 26,298 | | | $ | 29,202 | |
The accompanying notes are an integral part of these consolidated financial statements.
VALEANT PHARMACEUTICALS INTERNATIONAL,1
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, | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2022 | | 2021 | | 2022 | | 2021 |
| Revenues | | | | | | | | Revenues | | | | | | | |
| Product sales | $ | 2,186 |
| | $ | 2,443 |
| | $ | 6,462 |
| | $ | 7,168 |
| Product sales | $ | 2,026 | | | $ | 2,088 | | | $ | 5,871 | | | $ | 6,167 | |
| Other revenues | 33 |
| | 36 |
| | 99 |
| | 103 |
| Other revenues | 20 | | | 23 | | | 60 | | | 71 | |
| 2,219 |
| | 2,479 |
| | 6,561 |
| | 7,271 |
| | 2,046 | | | 2,111 | | | 5,931 | | | 6,238 | |
| Expenses | | | | | | | | Expenses | | | | | | | |
| Cost of goods sold (excluding amortization and impairments of intangible assets) | 650 |
| | 649 |
| | 1,869 |
| | 1,917 |
| Cost of goods sold (excluding amortization and impairments of intangible assets) | 578 | | | 574 | | | 1,691 | | | 1,742 | |
| Cost of other revenues | 9 |
| | 9 |
| | 32 |
| | 29 |
| Cost of other revenues | 6 | | | 8 | | | 21 | | | 26 | |
| Selling, general and administrative | 623 |
| | 661 |
| | 1,943 |
| | 2,145 |
| Selling, general and administrative | 661 | | | 653 | | | 1,959 | | | 1,944 | |
| Research and development | 81 |
| | 101 |
| | 271 |
| | 328 |
| Research and development | 133 | | | 121 | | | 387 | | | 348 | |
| Amortization of intangible assets | 657 |
| | 664 |
| | 1,915 |
| | 2,015 |
| Amortization of intangible assets | 290 | | | 338 | | | 902 | | | 1,055 | |
| Goodwill impairments | 312 |
| | 1,049 |
| | 312 |
| | 1,049 |
| Goodwill impairments | 119 | | | — | | | 202 | | | 469 | |
| 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 | ) | |
| Asset impairments, including loss on assets held for sale | | Asset impairments, including loss on assets held for sale | 1 | | | 18 | | | 15 | | | 213 | |
| Restructuring, integration, separation and IPO costs | | Restructuring, integration, separation and IPO costs | 10 | | | 8 | | | 58 | | | 29 | |
| Other expense (income), net | | Other expense (income), net | 4 | | | (183) | | | 6 | | | 329 | |
| | 2,181 |
| | 3,342 |
| | 6,137 |
| | 7,987 |
| |
| Operating income (loss) | 38 |
| | (863 | ) | | 424 |
| | (716 | ) | |
| | | 1,802 | | | 1,537 | | | 5,241 | | | 6,155 | |
| Operating income | | Operating income | 244 | | | 574 | | | 690 | | | 83 | |
| Interest income | 3 |
| | 3 |
| | 9 |
| | 6 |
| Interest income | 3 | | | 2 | | | 8 | | | 6 | |
| Interest expense | (459 | ) | | (470 | ) | | (1,392 | ) | | (1,369 | ) | Interest expense | (385) | | | (351) | | | (1,157) | | | (1,083) | |
| Loss on extinguishment of debt | (1 | ) | | — |
| | (65 | ) | | — |
| |
| Gain (loss) on extinguishment of debt | | Gain (loss) on extinguishment of debt | 570 | | | (12) | | | 683 | | | (62) | |
| Foreign exchange and other | 19 |
| | (2 | ) | | 87 |
| | 4 |
| Foreign exchange and other | 7 | | | 3 | | | 4 | | | 11 | |
| Loss before recovery of income taxes | (400 | ) | | (1,332 | ) | | (937 | ) | | (2,075 | ) | |
| Recovery of income taxes | (1,700 | ) | | (113 | ) | | (2,829 | ) | | (179 | ) | |
| Income (loss) before income taxes | | Income (loss) before income taxes | 439 | | | 216 | | | 228 | | | (1,045) | |
| (Provision for) benefit from income taxes | | (Provision for) benefit from income taxes | (36) | | | (25) | | | (30) | | | 36 | |
| Net income (loss) | 1,300 |
| | (1,219 | ) | | 1,892 |
|
| (1,896 | ) | Net income (loss) | 403 | | | 191 | | | 198 | | | (1,009) | |
| 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.: | | | | | | | | |
| Net income attributable to noncontrolling interest | | Net income attributable to noncontrolling interest | (4) | | | (3) | | | (13) | | | (8) | |
| Net income (loss) attributable to Bausch Health Companies Inc. | | Net income (loss) attributable to Bausch Health Companies Inc. | $ | 399 | | | $ | 188 | | | $ | 185 | | | $ | (1,017) | |
| | Earnings (loss) per share attributable to Bausch Health Companies Inc. | | Earnings (loss) per share attributable to Bausch Health Companies Inc. | |
| Basic | $ | 3.71 |
| | $ | (3.49 | ) | | $ | 5.40 |
| | $ | (5.47 | ) | Basic | $ | 1.10 | | | $ | 0.52 | | | $ | 0.51 | | | $ | (2.84) | |
| | Diluted | $ | 3.69 |
| | $ | (3.49 | ) | | $ | 5.38 |
| | $ | (5.47 | ) | Diluted | $ | 1.10 | | | $ | 0.52 | | | $ | 0.51 | | | $ | (2.84) | |
| | | | | | | | | |
| Weighted-average common shares | | | | | | | | Weighted-average common shares | |
| Basic | 350.4 |
| | 349.5 |
| | 350.1 |
| | 346.5 |
| Basic | 362.5 | | | 359.6 | | | 361.8 | | | 358.5 | |
| Diluted | 352.3 |
| | 349.5 |
| | 351.4 |
| | 346.5 |
| Diluted | 363.4 | | | 364.0 | | | 363.7 | | | 358.5 | |
|
The accompanying notes are an integral part of these consolidated financial statements.
VALEANT PHARMACEUTICALS INTERNATIONAL,2
BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(Unaudited)
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2022 | | 2021 | | 2022 | | 2021 |
| Net income (loss) | $ | 1,300 |
| | $ | (1,219 | ) | | $ | 1,892 |
| | $ | (1,896 | ) | Net income (loss) | $ | 403 | | | $ | 191 | | | $ | 198 | | | $ | (1,009) | |
| Other comprehensive income (loss) | | | | | | | | |
| Other comprehensive loss | | Other comprehensive loss | | | | | | | |
| Foreign currency translation adjustment | 81 |
| | (4 | ) | | 227 |
| | (37 | ) | Foreign currency translation adjustment | (243) | | | (80) | | | (465) | | | (128) | |
| Pension and postretirement benefit plan adjustments, net of income taxes | (3 | ) | | (1 | ) | | (4 | ) | | (2 | ) | Pension and postretirement benefit plan adjustments, net of income taxes | (1) | | | (1) | | | 6 | | | (1) | |
| Other comprehensive income (loss) | 78 |
| | (5 | ) | | 223 |
| | (39 | ) | |
| Other comprehensive loss | | Other comprehensive loss | (244) | | | (81) | | | (459) | | | (129) | |
| Comprehensive income (loss) | 1,378 |
| | (1,224 | ) | | 2,115 |
| | (1,935 | ) | Comprehensive income (loss) | 159 | | | 110 | | | (261) | | | (1,138) | |
| 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 | ) | |
| Comprehensive income attributable to noncontrolling interest | | Comprehensive income attributable to noncontrolling interest | (23) | | | (3) | | | (32) | | | (9) | |
| Comprehensive income (loss) attributable to Bausch Health Companies Inc. | | Comprehensive income (loss) attributable to Bausch Health Companies Inc. | $ | 136 | | | $ | 107 | | | $ | (293) | | | $ | (1,147) | |
The accompanying notes are an integral part of these consolidated financial statements.
VALEANT PHARMACEUTICALS INTERNATIONAL,3
BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSSHAREHOLDERS’ EQUITY (DEFICIT)
(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 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Bausch Health Companies Inc. Shareholders’ Equity (Deficit) | | | | |
| | | Common Shares | | Additional
Paid-In
Capital | | Accumulated
Deficit | | Accumulated
Other
Comprehensive
Loss | | Bausch Health
Companies Inc.
Shareholders’
Deficit | | Non-
controlling
Interest | | Total
Equity
(Deficit) |
| | Shares | | Amount | | | | |
| | Three Months Ended September 30, 2022 |
| Balances, July 1, 2022 | | 361.6 | | | $ | 10,380 | | | $ | 104 | | | $ | (9,175) | | | $ | (2,002) | | | $ | (693) | | | $ | 946 | | | $ | 253 | |
| | | | | | | | | | | | | | | | |
| Common shares issued under share-based compensation plans | | 0.2 | | | 7 | | | (7) | | | — | | | — | | | — | | | — | | | — | |
| Share-based compensation | | — | | | — | | | 33 | | | — | | | — | | | 33 | | | — | | | 33 | |
| Employee withholding taxes related to share-based awards | | — | | | — | | | (1) | | | — | | | — | | | (1) | | | — | | | (1) | |
| | | | | | | | | | | | | | | | |
| Noncontrolling interest distributions | | — | | | — | | | — | | | — | | | — | | | — | | | (11) | | | (11) | |
| | | | | | | | | | | | | | | | |
| Net income | | — | | | — | | | — | | | 399 | | | — | | | 399 | | | 4 | | | 403 | |
| Other comprehensive (loss) income | | — | | | — | | | — | | | — | | | (263) | | | (263) | | | 19 | | | (244) | |
| Balances, September 30, 2022 | | 361.8 | | | $ | 10,387 | | | $ | 129 | | | $ | (8,776) | | | $ | (2,265) | | | $ | (525) | | | $ | 958 | | | $ | 433 | |
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2021 |
| Balances, July 1, 2021 | | 358.7 | | | $ | 10,300 | | | $ | 413 | | | $ | (9,218) | | | $ | (2,182) | | | $ | (687) | | | $ | 76 | | | $ | (611) | |
| Common shares issued under share-based compensation plans | | 0.5 | | | 12 | | | (6) | | | — | | | — | | | 6 | | | — | | | 6 | |
| Share-based compensation | | — | | | — | | | 33 | | | — | | | — | | | 33 | | | — | | | 33 | |
| Employee withholding taxes related to share-based awards | | — | | | — | | | (3) | | | — | | | — | | | (3) | | | — | | | (3) | |
| Release of foreign currency translation losses upon disposal of assets held for sale | | — | | | — | | | — | | | — | | | 340 | | | 340 | | | — | | | 340 | |
| Noncontrolling interest distributions | | — | | | — | | | — | | | — | | | — | | | — | | | (10) | | | (10) | |
| Net income | | — | | | — | | | — | | | 188 | | | — | | | 188 | | | 3 | | | 191 | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | (81) | | | (81) | | | — | | | (81) | |
| Balances, September 30, 2021 | | 359.2 | | | $ | 10,312 | | | $ | 437 | | | $ | (9,030) | | | $ | (1,923) | | | $ | (204) | | | $ | 69 | | | $ | (135) | |
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2022 |
| Balances, January 1, 2022 | | 359.4 | | | $ | 10,317 | | | $ | 462 | | | $ | (8,961) | | | $ | (1,924) | | | $ | (106) | | | $ | 72 | | | $ | (34) | |
| Proceeds from B+L initial public offering, net of costs (Note 2) | | — | | | — | | | (327) | | | | | 137 | | | (190) | | | 865 | | | 675 | |
| Common shares issued under share-based compensation plans | | 2.4 | | | 70 | | | (67) | | | — | | | — | | | 3 | | | — | | | 3 | |
| Share-based compensation | | — | | | — | | | 91 | | | — | | | — | | | 91 | | | — | | | 91 | |
| Employee withholding taxes related to share-based awards | | — | | | — | | | (30) | | | — | | | — | | | (30) | | | — | | | (30) | |
| Noncontrolling interest distributions | | — | | | — | | | — | | | — | | | — | | | — | | | (11) | | | (11) | |
| Net income | | — | | | — | | | — | | | 185 | | | — | | | 185 | | | 13 | | | 198 | |
| Other comprehensive (loss) income | | — | | | — | | | — | | | — | | | (478) | | | (478) | | | 19 | | | (459) | |
| Balances, September 30, 2022 | | 361.8 | | | $ | 10,387 | | | $ | 129 | | | $ | (8,776) | | | $ | (2,265) | | | $ | (525) | | | $ | 958 | | | $ | 433 | |
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 |
| Balances, January 1, 2021 | | 355.4 | | | $ | 10,227 | | | $ | 454 | | | $ | (8,013) | | | $ | (2,133) | | | $ | 535 | | | $ | 70 | | | $ | 605 | |
| Common shares issued under share-based compensation plans | | 3.8 | | | 85 | | | (64) | | | — | | | — | | | 21 | | | — | | | 21 | |
| Share-based compensation | | — | | | — | | | 95 | | | — | | | — | | | 95 | | | — | | | 95 | |
| Employee withholding taxes related to share-based awards | | — | | | — | | | (48) | | | — | | | — | | | (48) | | | — | | | (48) | |
| Release of foreign currency translation losses upon disposal of assets held for sale | | — | | | — | | | — | | | — | | | 340 | | | 340 | | | | | 340 | |
| Noncontrolling interest distributions | | — | | | — | | | — | | | — | | | — | | | — | | | (10) | | | (10) | |
| Net (loss) income | | — | | | — | | | — | | | (1,017) | | | — | | | (1,017) | | | 8 | | | (1,009) | |
| Other comprehensive (loss) income | | — | | | — | | | — | | | — | | | (130) | | | (130) | | | 1 | | | (129) | |
| Balances, September 30, 2021 | | 359.2 | | | $ | 10,312 | | | $ | 437 | | | $ | (9,030) | | | $ | (1,923) | | | $ | (204) | | | $ | 69 | | | $ | (135) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
VALEANT PHARMACEUTICALS INTERNATIONAL,4
BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
| | | | | | | | | | | |
| Nine Months Ended
September 30, |
| 2022 | | 2021 |
| Cash Flows From Operating Activities | | | |
| Net income (loss) | $ | 198 | | | $ | (1,009) | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
| Depreciation and amortization of intangible assets | 1,034 | | | 1,189 | |
| Amortization and write-off of debt premiums, discounts and issuance costs | 86 | | | 42 | |
| Asset impairments, including loss on assets held for sale | 15 | | | 213 | |
| Goodwill impairments | 202 | | | 469 | |
| Acquisition-related contingent consideration | 2 | | | 8 | |
| Allowances for losses on trade receivable and inventories | 36 | | | 51 | |
| Deferred income taxes | (195) | | | (137) | |
| Net gain on sale of assets | (3) | | | (2) | |
| Adjustments to accrued legal settlements | 7 | | | 534 | |
| Payments of accrued legal settlements | (1,572) | | | (144) | |
| Share-based compensation | 91 | | | 95 | |
| Foreign exchange (gain) loss | (1) | | | 8 | |
| Gain excluded from hedge effectiveness | (3) | | | (17) | |
| (Gain) loss on extinguishment of debt | (683) | | | 62 | |
| Third party fees paid in connection with the Exchange Offer | (31) | | | — | |
| Payments of contingent consideration adjustments, including accretion | (1) | | | (16) | |
| Other | (11) | | | (33) | |
| Changes in operating assets and liabilities: | | | |
| Trade receivables | (26) | | | (177) | |
| Inventories | (194) | | | (62) | |
| Prepaid expenses and other current assets | (32) | | | 37 | |
| Accounts payable, accrued and other liabilities | (122) | | | 291 | |
| Net cash (used in) provided by operating activities | (1,203) | | | 1,402 | |
| Cash Flows From Investing Activities | | | |
| Purchases of property, plant and equipment | (152) | | | (191) | |
| Payments for intangible and other assets | (20) | | | (9) | |
| Purchases of marketable securities | (15) | | | (14) | |
| Proceeds from sale of marketable securities | 20 | | | 11 | |
| Proceeds from sale of assets and businesses, net of costs to sell | — | | | 669 | |
| Interest settlements from cross-currency swaps | — | | | 23 | |
| Net cash (used in) provided by investing activities | (167) | | | 489 | |
| Cash Flows From Financing Activities | | | |
| Issuance of long-term debt, net of discounts | 6,481 | | | 1,576 | |
| Repayments of long-term debt | (7,224) | | | (3,200) | |
| | | |
| | | |
| Proceeds from B+L initial public offering, net of costs | 675 | | | — | |
| Payments of employee withholding taxes related to share-based awards | (30) | | | (48) | |
| Payments of acquisition-related contingent consideration | (19) | | | (77) | |
| Payments of financing costs | (71) | | | (48) | |
| Other | (10) | | | 9 | |
| Net cash used in financing activities | (198) | | | (1,788) | |
| Effect of exchange rate changes on cash, cash equivalents and other | (54) | | | (15) | |
| Net (decrease) increase in cash, cash equivalents, restricted cash and other settlement deposits | (1,622) | | | 88 | |
| Cash, cash equivalents, restricted cash and other settlement deposits, beginning of period | 2,119 | | | 1,816 | |
| Cash, cash equivalents, restricted cash and other settlement deposits, end of period | $ | 497 | | | $ | 1,904 | |
| Cash and cash equivalents | $ | 486 | | | $ | 690 | |
| Restricted cash and other settlement deposits | 11 | | | 1,214 | |
| | | |
| Cash, cash equivalents, restricted cash and other settlement deposits, end of period | $ | 497 | | | $ | 1,904 | |
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,1.DESCRIPTION OF BUSINESS
Bausch Health Companies Inc. (the “Company” or “Bausch Health”) 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 gastroenterology (“GI”) and dermatology, a broad range of branded, generic and branded generic pharmaceuticals, over-the-counter (“OTC”) products and medical aesthetic devices and, through its approximately 89% ownership of Bausch + Lomb Corporation (“Bausch + Lomb”), branded, and branded generic pharmaceuticals, OTC products and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices) whichequipment) in the therapeutic area of eye health. The Company’s products are marketed directly or indirectly in overapproximately 100 countries.
| |
2. | SIGNIFICANT ACCOUNTING POLICIES |
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 StatesU.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, 2016,2021, filed with the U.S.U.S Securities and Exchange Commission (the “SEC”) and the Canadian Securities Administrators (the “CSA”). on February 23, 2022. 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, 2016.2021. The unaudited consolidated financial statementsConsolidated Financial Statements reflect all normal and recurring adjustments necessary for a fair presentationstatement 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.
Separation of the Bausch + Lomb Eye Health Business
On August 6, 2020, the Company announced its intentions to separate its eye health business into an independent publicly traded entity from the remainder of Bausch Health (the “B+L Separation”). In January 2022, the Company completed the internal organizational design and structure of the new eye health entity, Bausch + Lomb, as previously announced. The registration statement related to the initial public offering (“IPO”) of Bausch + Lomb (the “B+L IPO”) was declared effective on May 5, 2022, and Bausch + Lomb’s common stock began trading on the New York Stock Exchange and the Toronto Stock Exchange, in each case under the ticker symbol “BLCO” on May 6, 2022. Prior to the effectiveness of the registration statement, Bausch + Lomb was an indirect wholly-owned subsidiary of the Company. On May 10, 2022, a wholly owned subsidiary of the Company (the “Selling Shareholder”) sold 35,000,000 common shares of Bausch + Lomb, at an offering price of $18.00 per share, pursuant to the B+L IPO. In addition, the Selling Shareholder granted the underwriters an option for a period of 30 days from the date of the B+L IPO to purchase up to an additional 5,250,000 common shares to cover over-allotments at the IPO price less underwriting commissions. On May 31, 2022, the underwriters partially exercised the over-allotment option granted by the Selling Shareholder and, on June 1, 2022, the Selling Shareholder sold an additional 4,550,357 common shares of Bausch + Lomb at an offering price of $18.00 per share (less applicable underwriting discount). The remainder of the over-allotment option granted to the underwriters expired.
Upon the closing of the B+L IPO and after giving effect to the partial exercise of the over-allotment option, Bausch Health indirectly holds 310,449,643 Bausch + Lomb common shares, which represent approximately 89% of Bausch + Lomb’s outstanding common shares. The aggregate net proceeds from the B+L IPO and the partial exercise of the over-allotment option by the underwriters, after deducting underwriting commissions were approximately $675 million. The Company continues to believe that completing the B+L Separation makes strategic sense. The completion of the B+L Separation is subject to the achievement of targeted debt leverage ratios and the receipt of applicable shareholder and other necessary approvals. The Company continues to evaluate all factors and considerations related to completing the B+L Separation, including the effect of the Norwich Legal Decision (see“Xifaxan® Paragraph IV Proceedings” of Note 18, “LEGAL PROCEEDINGS”) on the B+L Separation.
The B+L IPO established two separate companies that include: (i) a diversified pharmaceutical company which includes the Company’s Salix, International (formerly International Rx), Diversified (dentistry, neurology, medical dermatology and generics pharmaceutical) products, and Solta aesthetic medical device businesses and (ii) a fully integrated eye health company which consists of the Bausch + Lomb Vision Care, Surgical and Ophthalmic Pharmaceuticals businesses. Other
than the effects of the B+L IPO described above, these unaudited Consolidated Financial Statements do not include any adjustments to give effect to the B+L Separation.
Impacts of COVID-19 Pandemic
The unprecedented nature of the COVID-19 pandemic has had, and continues to have, an adverse impact on the global economy. The COVID-19 pandemic and the reactions of governments, private sector participants and the public in an effort to contain the spread of the COVID-19 virus and/or address its impacts have had significant direct and indirect effects on businesses and commerce. This includes, but is not limited to, disruption to supply chains, employee base and transactional activity, facilities closures and production suspensions.
The extent to which these events may continue to impact the Company’s business, financial condition, cash flows and results of operations, in particular, will depend on future developments which are highly uncertain and many of which are outside the Company’s control. Such developments include the availability and effectiveness of vaccines for the COVID-19 virus, the ultimate geographic spread and duration of the pandemic, COVID-19 vaccine immunization rates, the extent and duration of a resurgence of the COVID-19 virus and variant strains thereof, such as the delta and omicron variants, new information concerning the severity of the COVID-19 virus, the effectiveness and intensity of measures to contain the COVID-19 virus and the economic impact of the pandemic and the reactions to it. Such developments, among others, depending on their nature, duration and intensity, could have a significant adverse effect on the Company’s business, financial condition, cash flows and results of operations.
To date, the Company has been able to continue its operations with limited disruptions in supply and manufacturing. Although it is difficult to predict the broad macroeconomic effects that the COVID-19 pandemic will have on industries or individual companies, the Company has assessed the possible effects and outcomes of the pandemic on, among other things, its supply chain, customers and distributors, discounts and rebates, employee base, product sustainability, research and development efforts, product pipeline and consumer demand and currently believes that its estimates are reasonable.
Initial Public Offering of Solta Medical Business
On August 3, 2021, the Company announced its intentions to conduct an IPO of its aesthetic medical device business, Solta Medical (formerly Global Solta) (the “Solta IPO”). In January 2022, the Company completed the internal organizational design and structure of the new Solta Medical entity, Solta Medical Corporation (“Solta” or “Solta Medical”). On June 16, 2022, as a result of challenging market conditions and other factors, the Company announced it was suspending its plans for the Solta IPO. Solta will remain part of Bausch Health, as the Company plans to revisit alternate paths for its Solta medical aesthetic devices business.
Use of Estimates
In preparing the unaudited consolidated financial statements,Consolidated Financial Statements, management is required to make estimates and assumptions. This includes estimates and assumptions regarding the nature, timing and extent of the impacts that the COVID-19 pandemic will have on its operations and cash flows. The estimates and assumptions used by the Company 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.estimates and the differences could be material.
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.
Reclassifications
Certain 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 impairmentsChanges in the single line Asset impairments. Charges for asset impairments were originally reportedReportable Segments
Commencing 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 from2022, the Company's operations in Canada, previously includedCompany operates in the Branded Rx segment in prior periods, are now includedfollowing reportable segments: (i) Salix, (ii) International (formerly International Rx), (iii) Solta Medical, (iv) Diversified Products and (v) Bausch + Lomb. Prior to the first quarter of 2022, the Company operated in the following reportable segments: (i) Salix, (ii) International Rx, (iii) Ortho
Dermatologics, (iv) Diversified Products and (v) Bausch + Lomb/International segment.Lomb. 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"“SEGMENT INFORMATION” for additional information.
Adoption of New Accounting Guidance
In October 2016, the Financial Accounting Standards Board (the “FASB”) amended the guidance as to how a reporting entity that is the single decision maker of a variable interest entity (“VIE”) should treat indirect interests3.REVENUE RECOGNITION
The Company’s revenues are primarily generated from product sales, principally in the entity held through relatedtherapeutic areas of GI, dermatology and eye health, 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 aesthetic medical 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 that are under common control with the reporting entity when determining whether itand 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 flowsmaterial. See Note 19, “SEGMENT INFORMATION” for the prior period presented.
Recently Issued Accounting Standards, Not Adopted asdisaggregation 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, including the accounting for certain revenue-related costs, as well as enhanced disclosure requirements. The new guidance requires entities to disclose both quantitative and qualitative information that enables users of financial statements to understanddepicts how the nature, amount, timing and uncertainty of revenue and cash flows arising from contractsare 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 reversal in the amount of the cumulative revenue recognized will not occur in a 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 are paid to direct customers, as well as rebates and returns, which can be paid to direct and indirect customers. In March 2016, the FASB issued an amendmentReturns provision balances and volume discounts 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 ordirect customers are included in Accrued and other current liabilities. All other provisions related to direct customers are included in Trade receivables, net, basis. In April 2016, the FASB issued an amendmentwhile provision balances related to clarify guidance on identifying performance obligationsindirect customers are included in Accrued 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. other current liabilities.
The Company continuescontinually monitors its variable consideration provisions and evaluates the estimates used as additional information becomes available. Adjustments will be made to make progress on its project plan for adopting this guidance, which includes a detailed assessment programthese provisions periodically to reflect new facts 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 areacircumstances that may result in a significant adoption impact. The Company will continue to monitor the revenue transactions in the fourth quarterindicate that historical experience may not be indicative of 2017 to finalize the adoption assessment.current and/or future results. 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 recognizing the assets and liabilities that arise from lease transactions. Current off-balance sheet leasing activities will be required to be reflectedmake subjective judgments based primarily on balance sheets so that investorsits evaluation of current market conditions 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, the new guidance addresses two types of leases: finance leases and operating leases. Finance leases will be accounted for in substantially the same manner as capital leases are accounted for under current U.S. GAAP. Operating leases will be accounted for (both in the income statement and statement of cash flows) in a manner consistent with operating leases under existing U.S. GAAP. However, as it relatestrade inventory levels related to the balance sheet, lessees will recognize lease liabilities based upon the present value of remaining lease payments and corresponding lease assets for operating leases with limited exception. The new guidance will also require lessees and lessors to provide additional qualitative and quantitative disclosures to help financial statement users assess the amount, timing, and uncertainty of cash flows arising from leases.Company’s products. These disclosures are intended to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an organization’s leasing activities. The new guidance is effective for annual reporting periods beginning after December 15, 2018. Early application is permitted. The Company is evaluating the impact of adoption of this guidance on its financial position, results of operations and disclosures.
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, the FASB issued guidance which adds or clarifies 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). The guidance is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on cash flows.
In October 2016, the FASB issued guidance which removes the prohibition against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. 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 believes 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 evaluatejudgments include the potential impact of the COVID-19 pandemic on, among other things, unemployment and related changes in customer health insurance levels, customer behaviors during the COVID-19 pandemic and government stimulus bills that focus on ensuring availability and access to lifesaving drugs during a public health crisis. This evaluation may result in an increase or decrease in the experience rate that is applied to current and future sales, or require an adjustment related to past sales, or both. If the trend in actual amounts of variable consideration varies from the Company’s prior estimates, the Company adjusts these estimates when such trend is believed to be sustainable. At that time, the Company would record the necessary adjustments which would affect net product revenue and earnings reported in the current period. The Company applies this guidance when adopted, which couldmethod consistently for contracts with similar characteristics.
Over the last several years, the Company has increased its focus on maximizing operational efficiencies and continues to take actions to reduce product returns, including, but not limited to: (i) monitoring and reducing customer inventory levels, (ii) instituting disciplined pricing policies and (iii) improving contracting. These actions have a significant impact on its financial position, resultshad the effect of operations,improving the sales return experience, primarily related to branded and disclosures, particularlygeneric products. Sales return provisions for the nine months ended September 30, 2022 and 2021 were $84 million and $94 million, respectively, and include reductions in respectvariable consideration for sales return provisions related to past sales of approximately $21 million and $28 million for the three months ended September 30, 2022 and 2021, respectively.
The following tables present the activity and ending balances of the Salix reporting unitCompany’s variable consideration provisions for the nine months ended September 30, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2022 |
| (in millions) | | Discounts
and
Allowances | | Returns | | Rebates | | Chargebacks | | Distribution
Fees | | Total |
| Reserve balances, January 1, 2022 | | $ | 222 | | | $ | 482 | | | $ | 944 | | | $ | 170 | | | $ | 45 | | | $ | 1,863 | |
| Current period provisions | | 427 | | | 84 | | | 1,911 | | | 1,558 | | | 165 | | | 4,145 | |
| Payments and credits | | (452) | | | (145) | | | (1,847) | | | (1,532) | | | (88) | | | (4,064) | |
| Reserve balances, September 30, 2022 | | $ | 197 | | | $ | 421 | | | $ | 1,008 | | | $ | 196 | | | $ | 122 | | | $ | 1,944 | |
Included in which its carrying value exceeded its fair valueRebates in the table above are cooperative advertising credits due to customers of approximately $43 million and $36 million as of September 30, 2022 and January 1, 2022, respectively, which are reflected as a reduction of Trade receivables, net in the date of the annual goodwill impairment test in 2016. See Note 8, "INTANGIBLE ASSETS AND GOODWILL".
In May 2017, the FASB issued guidance identifying the terms or conditions of share-based payment awards 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.
Consolidated Balance Sheets. There were no business combinationsprice appreciation credits during the nine months ended September 30, 2017 and one business combination2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 |
| (in millions) | | Discounts
and
Allowances | | Returns | | Rebates | | Chargebacks | | Distribution
Fees | | Total |
| Reserve balances, January 1, 2021 | | $ | 190 | | | $ | 575 | | | $ | 779 | | | $ | 184 | | | $ | 85 | | | $ | 1,813 | |
| Current period provisions | | 472 | | | 94 | | | 1,842 | | | 1,487 | | | 167 | | | 4,062 | |
| Payments and credits | | (448) | | | (167) | | | (1,619) | | | (1,524) | | | (166) | | | (3,924) | |
| Reserve balances, September 30, 2021 | | $ | 214 | | | $ | 502 | | | $ | 1,002 | | | $ | 147 | | | $ | 86 | | | $ | 1,951 | |
Included in 2016 that was 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 inflammation in ocular surgery patients. EyeGate will be responsible for the continued development of this product candidateRebates in the U.S. for the treatmenttable above are cooperative advertising credits due to customers of post-operative painapproximately $38 million and inflammation in ocular surgery patients,$32 million as of September 30, 2021 and all associated costs. The Company has the right to further develop the productJanuary 1, 2021, respectively. Included as a reduction of Distribution fees in the field outsidetable above are price appreciation credits of the U.S. at its cost. In connection with the licensing agreement, the Company paid an initial license fee of $4approximately $1 million during the threenine months ended March 31, 2017September 30, 2021.
Contract Assets and Contract Liabilities
There are no contract assets for any period presented. Contract liabilities consist of deferred revenue, the balance of which is obligatednot material to makeany period presented.
Allowance for Credit Losses
An allowance is maintained for potential credit losses. The Company estimates the current expected credit loss on its receivables based on various factors, including historical credit loss experience, customer credit worthiness, value of collateral (if any), and any relevant current and reasonably supportable future payments of (i) upeconomic factors. Additionally, the Company generally estimates the expected credit loss on a pool basis when customers are deemed to $34 million uponhave similar risk characteristics. Trade receivable balances are written off against the achievementallowance when it is deemed probable that the trade receivable will not be collected. Trade receivables, net are stated net of certain developmentsales provisions 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.
allowance for credit losses. 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 interestsactivity in the CeraVe®, AcneFree™ and AMBI® skincare brandsallowance 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 heldcredit losses 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,trade receivables for the nine months ended September 30, 2017.2022 and 2021 is as follows.
Dendreon Pharmaceuticals LLC | | | | | | | | | | | |
| (in millions) | 2022 | | 2021 |
| Balance, beginning of period | $ | 35 | | | $ | 39 | |
| Provision for expected credit losses | (2) | | | (1) | |
| Write-offs charged against the allowance | — | | | (3) | |
| Recoveries of amounts previously written off | 4 | | | 2 | |
| Foreign exchange and other | (3) | | | — | |
| Balance, end of period | $ | 34 | | | $ | 37 | |
4.LICENSING AGREEMENTS AND DIVESTITURE
Licensing Agreements
In the normal course of business, the Company may enter into select licensing and collaborative agreements for the commercialization and/or development of unique products. These products are sometimes investigational treatments in early
stage development that target unique conditions. The ultimate outcome, including whether the product will be: (i) fully developed, (ii) approved by regulatory agencies, (iii) covered by third-party payors or (iv) profitable for distribution, is highly uncertain. The commitment periods under these agreements vary and include customary termination provisions. Expenses arising from commitments, if any, to fund the development and testing of these products and their promotion are recognized as incurred. Royalties due are recognized when earned and milestone payments are accrued when each milestone has been achieved and payment is probable and can be reasonably estimated.
Divestiture of Amoun Pharmaceutical Company S.A.E. (“Amoun”)
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 DecemberMarch 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, 2017,2021, the Company announced that it and certain of its affiliates had entered into a definitive agreement to sell all of its Obagi Medical Products, Inc. (“Obagi”) businessequity interests in Amoun for $190total gross consideration of approximately $740 million in cash (the “Obagi Sale”)(including the assignment to the purchasing entity of an intercompany loan granted by the Company to Amoun), subject to certain adjustments (the “Amoun Sale”). The Amoun Sale closed on July 26, 2021. As part of the Amoun Sale, cash generated by Amoun during the period from the locked-box date of January 1, 2021 through closing was for the benefit of the purchasing entity, subject to working capital provisions. Obagi is a global specialty skin care pharmaceutical business with products focused on premature skin aging, skin damage, hyperpigmentation, acneduring such period. Amoun manufactures, markets and sun damage which are primarily available through dermatologists, plastic surgeonsdistributes branded generics of human and other skin care professionals.animal health products. The ObagiAmoun business was part of the U.S. Diversified ProductsInternational segment (previously included within the former Bausch + Lomb/International Rx segment) and was reclassified as held for sale as of MarchDecember 31, 2017. The2020. As a result of meeting the criteria for held for sale classification, the carrying value of the ObagiAmoun business including associated goodwill, was adjusted to its estimated fair value, less costs to sell, and the Company recognized an impairment loss of $103$88 million was recognized in Asset impairments during the nine months ended September 30, 2017. Obagi net2021, included within Asset impairments, including loss on assets included in held for sale asin the Consolidated Statements 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.Operations. In connection with completing 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 SproutAmoun Sale, the Company will issuerecognized an additional loss of $26 million during the buyer a five-year $25three months ended September 30, 2021, included within Other (income) expense, net in the Combined Statements of Operations. Revenues associated with Amoun were $20 million loan for initial operating expenses. Addyi®, a once-daily, non-hormonal tablet approvedand $157 million for the treatment of acquired, generalized hypoactive sexual desire disorder in premenopausal women, is the only approvedthree 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 2016,2021, 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.5.RESTRUCTURING, INTEGRATION, SEPARATION AND IPO COSTS
Other Restructuring and Integration-RelatedIntegration 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 additionalimplement cost savings programs to streamline its operations and eliminate redundant processes and expenses. TheRestructuring and integration costs are 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 liability associated with restructuring and integration costs as of September 30, 2022 was $13 million.
The Company incurred $28 million and $9 million of restructuring and integration costs and made payments of $37 million and $13 million during the nine months ended September 30, 2022 and 2021, respectively.
Separation Costs, Separation-related Costs, IPO Costs and IPO-related Costs
The Company has incurred, and expects to continue to incur costs associated with activities relating to the B+L Separation. The Company also incurred costs associated with activities relating to the Solta IPO, which was suspended in June 2022. These B+L Separation and Solta IPO activities include: (i) separating the Bausch + Lomb and Solta Medical businesses from the remainder of the Company, (ii) completing the B+L IPO and preparing for the suspended Solta IPO and (iii) the actions necessary for Bausch + Lomb to become an independent publicly traded entity. Separation and IPO costs are incremental costs directly related to the ongoing B+L Separation and the suspended Solta IPO and include, but are not limited to: (i) legal, audit and advisory fees, (ii) talent acquisition costs and (iii) costs associated with establishing a new board of directors and related board committees for the Bausch + Lomb and Solta Medical entities. Included in Restructuring, integration, separation and IPO costs for the nine months ended September 30, 2022 and 2021 are separation and IPO costs of $30 million and $20 million, respectively.
The Company has also incurred, and expects to continue to incur with respect to the B+L Separation, separation-related and IPO-related costs which are incremental costs indirectly related to the B+L Separation and the suspended Solta IPO including, but are not limited to: (i) IT infrastructure and software licensing costs, (ii) rebranding costs and (iii) costs associated with facility relocation and/or modification. Included in Selling, general and administrative for the nine months ended September 30, 2022 and 2021 are separation-related and IPO-related costs of $84 million and $91 million, respectively.
The extent and timing of future charges of these costs to complete the B+L Separation cannot be reasonably estimated at this time and could be material.
| |
6. | FAIR VALUE MEASUREMENTS |
10
6.FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS
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 | | | September 30, 2022 | | December 31, 2021 |
| (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) | (in millions) | | Carrying
Value | | Level 1 | | Level 2 | | Level 3 | | Carrying
Value | | Level 1 | | Level 2 | | Level 3 |
| Assets: | | | | | | | | | | | | | | | | | Assets: | | | | | | | | | | | | | | | | |
| Cash equivalents | | $ | 481 |
| | $ | 450 |
| | $ | 31 |
| | $ | — |
| | $ | 242 |
| | $ | 179 |
| | $ | 63 |
| | $ | — |
| Cash equivalents | | $ | 24 | | | $ | 13 | | | $ | 11 | | | $ | — | | | $ | 76 | | | $ | 58 | | | $ | 18 | | | $ | — | |
| Restricted cash | | $ | 928 |
| | $ | 928 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
| Other non-current assets | | $ | 77 |
| | $ | 77 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
| Restricted cash and other settlement deposits | | Restricted cash and other settlement deposits | | $ | 11 | | | $ | 11 | | | $ | — | | | $ | — | | | $ | 1,537 | | | $ | 1,537 | | | $ | — | | | $ | — | |
| Foreign currency exchange contracts | | Foreign currency exchange contracts | | $ | 3 | | | $ | — | | | $ | 3 | | | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | | | $ | — | |
| Cross-currency swaps | | Cross-currency swaps | | $ | 14 | | | $ | — | | | $ | 14 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Liabilities: | | | | | | |
| | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | |
| Acquisition-related contingent consideration | | $ | (390 | ) | | $ | — |
| | $ | — |
| | $ | (390 | ) | | $ | (892 | ) | | $ | — |
| | $ | — |
| | $ | (892 | ) | Acquisition-related contingent consideration | | $ | 224 | | | $ | — | | | $ | — | | | $ | 224 | | | $ | 241 | | | $ | — | | | $ | — | | | $ | 241 | |
| Foreign currency exchange contracts | | Foreign currency exchange contracts | | $ | 6 | | | $ | — | | | $ | 6 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
|
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. Cash, cash equivalents and restricted cash and other settlements as presented in the Consolidated Balance Sheet as of September 30, 2022 includes $297 million of cash, cash equivalents and restricted cash held by legal entities of Bausch + Lomb. Cash held by Bausch + Lomb legal entities and any future cash from the operations, investing and financing activities of Bausch + Lomb, is expected to be retained by Bausch + Lomb entities and are generally not available to support the operations, investing and financing activities of other legal entities, including Bausch Health unless paid as a dividend which would be determined by the Board of Directors of Bausch + Lomb and paid pro rata to Bausch + Lomb’s shareholders.
As of December 31, 2021, Restricted cash includes $923and other settlement deposits included $1,210 million of proceeds from the iNova Sale. Underpayments into an escrow fund under the terms of the Third AmendedSecurities Class Action Settlement (as defined in Note 18, “LEGAL PROCEEDINGS”), which was subject to one objector’s appeal of the final court approval of the agreement. The period to file a petition for an appeal with the U.S. Supreme Court expired on August 10, 2022 and Restated Creditthe objector did not file such a petition. The expiration of this deadline means the Securities Class Action Settlement has become “final”, as no more appeals can be filed. As a result, the Company's rights to the funds in escrow were extinguished 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 ofreduced Restricted cash reflectedand other settlement deposits with a corresponding reduction to liabilities for legal settlements, included in Accrued and other current liabilities on the Company's Consolidated Balance Sheets, by $1,210 million in the balance sheet are cash balances.
Other non-current assets includes restricted cashthree months ended September 30, 2022. See “U.S. Securities Litigation - Opt -Out Litigation” of $77 million deposited with a bank as collateral to secure a bank guaranteeNote 18, “LEGAL PROCEEDINGS” 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.additional details.
There were no transfers betweeninto or out of Level 1, Level 2,3 assets or Level 3liabilities during the nine months ended September 30, 2017.2022.
Cross-currency Swaps
AssetsDuring the third quarter of 2022, Bausch + Lomb entered into cross-currency swaps, with aggregate notional amounts of $1,000 million, to mitigate fluctuation in the value of a portion of its euro-denominated net investment in its consolidated financial statements from fluctuation in exchange rates. The euro-denominated net investment being hedged is Bausch + Lomb’s investment in certain Bausch + Lomb euro-denominated subsidiaries.
The accounting for changes in the fair value of a derivative instrument depends on whether the instrument has been designated and Liabilities Measuredqualifies as part of a hedging relationship and on the type of hedging relationship. For derivative instruments designated and qualifying as hedging instruments, the hedging instrument must be designated, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of the foreign currency exposure of a net investment in a foreign operation. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in the Consolidated Statements of Operations during the current period.
Bausch + Lomb’s cross-currency swaps qualify for and have been designated as a hedge of the foreign currency exposure of a net investment in a foreign operation and are remeasured at Fair Valueeach reporting date to reflect changes in their fair values. The fair value is determined via a mark-to-market analysis, using observable (Level 2) inputs. These inputs may include: (i) the foreign currency exchange spot rate between the euro and U.S. dollar, (ii) the interest rate yield curves in the euro and U.S. dollar and (iii) the credit risk rating for each applicable counterparty. The net change in fair value of cross-currency swaps is reported as a gain or loss in the Consolidated Statements of Comprehensive Income (Loss) as part of Foreign currency translation adjustment to the extent they are effective, and remain in Accumulative Comprehensive Income until either the sale or complete, or substantially complete, liquidation of the subsidiary. No portion of the cross-currency swaps were ineffective for the periods presented. Bausch + Lomb uses the spot method of assessing hedge effectiveness. Bausch + Lomb has elected to amortize amounts excluded from the assessment of effectiveness over the term of its cross-currency swaps as Interest expense in the Consolidated Statements of Operations.
The assets and liabilities associated with Bausch + Lomb’s cross-currency swaps as included in the Consolidated Balance Sheet as of September 30, 2022 are as follows:
| | | | | | | | |
| (in millions) | | |
| Other non-current assets | | $ | 11 | |
| Prepaid expenses and other current assets | | $ | 3 | |
| Net fair value | | $ | 14 | |
During 2019, the Company entered into cross-currency swaps, with aggregate notional amounts of $1,250 million, to mitigate fluctuation in the value of a portion of its euro-denominated net investment in its Consolidated Financial Statements from fluctuation in exchange rates. The euro-denominated net investment being hedged was the Company’s investment in certain euro-denominated subsidiaries. The Company unwound these cross-currency swaps during November 2021. As a result, there were no assets or liabilities related to the cross-currency swaps included in the Consolidated Balance Sheets as of December 31, 2021.
The following table presents the effect of hedging instruments on the Consolidated Statements of Comprehensive Income (Loss) and the Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | Nine Months Ended
September 30, |
| (in millions) | | 2022 | | 2021 | 2022 | | 2021 |
| Gain recognized in Other comprehensive loss | | $ | 11 | | | $ | 28 | | $ | 11 | | | $ | 57 | |
| Gain excluded from assessment of hedge effectiveness | | $ | 3 | | | $ | 6 | | $ | 3 | | | $ | 17 | |
| Location of gain of excluded component | | Interest Expense | Interest Expense |
Interest settlement of the 2022 cross-currency swaps occurs in January and July each year, with the first settlement in January 2023. Future settlements of the 2022 cross-currency swaps will be reported as investing activities in the Consolidated Statements of Cash Flows.
During the nine months ended September 30, 2022 and 2021, the Company received $0 and $23 million, respectively, in interest settlements which are reported as investing activities in the Consolidated Statements of Cash Flows.
Foreign Currency Exchange Contracts
As of September 30, 2022, the Company's outstanding foreign currency exchange contracts had an aggregate notional amount of $394 million.
The Company’s foreign currency exchange contracts are remeasured at each reporting date to reflect changes in their fair values determined using forward rates, which are observable market inputs, multiplied by the notional amount. The Company’s foreign currency exchange contracts are economically hedging the foreign exchange exposure on certain of the Company’s intercompany balances. These contracts have not been designated as an accounting hedge, and therefore the net change in their fair value is reported as a Recurring Basis Using Significant Unobservable Inputs (Level 3)gain or loss in the Consolidated Statements of Operations as part of Foreign exchange and other. Settlements of the Company’s foreign currency exchange contracts are reported as a gain or loss in the Consolidated Statements of Operations as part of Foreign exchange and other and reported as operating activities in the Consolidated Statements of Cash Flows.
The assets and liabilities associated with the Company’s foreign exchange contracts as included in the Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 are as follows:
| | | | | | | | | | | |
| (in millions) | September 30,
2022 | | December 31,
2021 |
| Accrued and other current liabilities | $ | (6) | | | $ | — | |
| Prepaid expenses and other current assets | $ | 3 | | | $ | 1 | |
| Net fair value | $ | (3) | | | $ | 1 | |
The following table presents the effect of the Company’s foreign exchange contracts on the Consolidated Statements of Operations and the Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Gain (loss) related to changes in fair value | $ | 7 | | | $ | 2 | | | $ | (3) | | | $ | 7 | |
| Loss related to settlements | $ | (18) | | | $ | (5) | | | $ | (21) | | | $ | (14) | |
Acquisition-related Contingent Consideration Obligations
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 and (iii) the risk-adjusted discount rate used to present value the probability-weighted cash flows; and (iv) volatility of projected performance (Monte Carlo Simulation).flows. Significant increases (decreases)or decreases in any of those inputs in isolation could result in a significantly higher or lower (higher) fair value measurement. At September 30, 2022, the fair value measurements of acquisition-related contingent consideration were determined using risk-adjusted discount rates ranging from 6% to 18%, and a weighted average risk-adjusted discount rate of 7%. The weighted average risk-adjusted discount rate was calculated by weighting each contract’s relative fair value at September 30, 2022.
The following table presents a reconciliation of contingent consideration obligations measured on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2017:2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| (in millions) | | 2022 | | 2021 |
| Balance, beginning of period | | | | $ | 241 | | | | | $ | 328 | |
| Adjustments to Acquisition-related contingent consideration: | | | | | | | | |
| Accretion for the time value of money | | $ | 12 | | | | | $ | 12 | | | |
| Fair value adjustments due to changes in estimates of other future payments | | (10) | | | | | (4) | | | |
| Acquisition-related contingent consideration | | | | 2 | | | | | 8 | |
| Payments/Settlements | | | | (19) | | | | | (93) | |
| Foreign currency translation adjustment included in other comprehensive loss | | | | — | | | | | 1 | |
| | | | | | | | |
| Balance, end of period | | | | 224 | | | | | 244 | |
| Current portion included in Accrued and other current liabilities | | | | 35 | | | | | 37 | |
| Non-current portion | | | | $ | 189 | | | | | $ | 207 | |
|
| | | | | | | | |
| (in millions) | | | | |
| Balance, January 1, 2017 | | | | $ | 892 |
|
| Adjustments to Acquisition-related contingent consideration: | | | | |
| Accretion for the time value of money | | $ | 48 |
| | |
| 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 | ) | | |
| Acquisition-related contingent consideration | | | | (297 | ) |
| Reclassified to liabilities held for sale | | | | (168 | ) |
| Payments | | | | (37 | ) |
| Balance, September 30, 2017 | | | | 390 |
|
| Current portion | | | | 45 |
|
| Non-current portion | | | | $ | 345 |
|
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, 20172022 and December 31, 2016,2021 was $26,476$13,450 million and $26,297$22,689 million, respectively, and was estimated using the quoted market prices for the same or similar debt issuances (Level 2).
The components of inventories,7.INVENTORIES
Inventories, net of allowances for obsolescence were as follows:consist of:
| | | | | | | | | | | | | | |
| (in millions) | | September 30,
2022 | | December 31,
2021 |
| Raw materials | | $ | 302 | | | $ | 279 | |
| Work in process | | 120 | | | 112 | |
| Finished goods | | 634 | | | 602 | |
| | $ | 1,056 | | | $ | 993 | |
8.INTANGIBLE ASSETS AND GOODWILL
|
| | | | | | | | |
| (in millions) | | September 30,
2017 |
| December 31,
2016 |
| Raw materials | | $ | 281 |
| | $ | 256 |
|
| Work in process | | 140 |
| | 125 |
|
| Finished goods | | 650 |
| | 680 |
|
| | | $ | 1,071 |
| | $ | 1,061 |
|
| |
8. | INTANGIBLE ASSETS AND GOODWILL |
Intangible Assets
The major components of intangible assets were as follows:consist of:
| | | | | September 30, 2017 | | December 31, 2016 | | | September 30, 2022 | | December 31, 2021 |
| (in millions) | | Gross Carrying Amount | | Accumulated Amortization, Including Impairments | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization, Including Impairments | | Net Carrying Amount | (in millions) | | Gross
Carrying
Amount | | Accumulated
Amortization
and
Impairments | | Net
Carrying
Amount | | Gross
Carrying
Amount | | Accumulated
Amortization
and
Impairments | | Net
Carrying
Amount |
| Finite-lived intangible assets: | | | | | | | | | | | | | Finite-lived intangible assets: | | | | | | | | | | | | |
| Product brands | | $ | 20,768 |
| | $ | (8,512 | ) | | $ | 12,256 |
| | $ | 20,725 |
| | $ | (6,883 | ) | | $ | 13,842 |
| Product brands | | $ | 20,748 | | | $ | (16,902) | | | $ | 3,846 | | | $ | 20,842 | | | $ | (16,169) | | | $ | 4,673 | |
| Corporate brands | | 934 |
| | (161 | ) | | 773 |
| | 999 |
| | (146 | ) | | 853 |
| Corporate brands | | 892 | | | (520) | | | 372 | | | 902 | | | (473) | | | 429 | |
| Product rights/patents | | 3,273 |
| | (2,290 | ) | | 983 |
| | 4,240 |
| | (2,118 | ) | | 2,122 |
| Product rights/patents | | 3,305 | | | (3,197) | | | 108 | | | 3,321 | | | (3,174) | | | 147 | |
| Partner relationships | | 172 |
| | (154 | ) | | 18 |
| | 152 |
| | (128 | ) | | 24 |
| Partner relationships | | 135 | | | (135) | | | — | | | 158 | | | (158) | | | — | |
| Technology and other | | 212 |
| | (143 | ) | | 69 |
| | 252 |
| | (160 | ) | | 92 |
| Technology and other | | 191 | | | (191) | | | — | | | 207 | | | (206) | | | 1 | |
| Total finite-lived intangible assets | | 25,359 |
| | (11,260 | ) | | 14,099 |
| | 26,368 |
| | (9,435 | ) | | 16,933 |
| Total finite-lived intangible assets | | 25,271 | | | (20,945) | | | 4,326 | | | 25,430 | | | (20,180) | | | 5,250 | |
| Acquired IPR&D not in service | | 226 |
| | — |
| | 226 |
| | 253 |
| | — |
| | 253 |
| |
| B&L Trademark | | 1,698 |
| | — |
| | 1,698 |
| | 1,698 |
| | — |
| | 1,698 |
| |
| Bausch + Lomb Trademark | | Bausch + Lomb Trademark | | 1,698 | | | — | | | 1,698 | | | 1,698 | | | — | | | 1,698 | |
| | | $ | 27,283 |
| | $ | (11,260 | ) | | $ | 16,023 |
| | $ | 28,319 |
| | $ | (9,435 | ) | | $ | 18,884 |
| | $ | 26,969 | | | $ | (20,945) | | | $ | 6,024 | | | $ | 27,128 | | | $ | (20,180) | | | $ | 6,948 | |
|
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 statementConsolidated Statement of operations.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, including loss on assets held for sale, for the nine months ended September 30, 20172022 were $15 million and include: (i) an impairment of $352 million related to the Sprout business classified as held for sale, (ii) impairments of $115 million to other assets classified as held for sale, (iii) impairments of $86$10 million, in aggregate, due 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 in forecasted sales for otherof certain product lines and (v)(ii) impairments of $3$5 million, in aggregate, related to acquired IPR&D.the discontinuance of certain product lines.
Xifaxan® intangible assets included in the unaudited Consolidated Balance Sheets had a carrying value of $2,828 million and an estimated remaining useful life of 63 months as of September 30, 2022. On August 10, 2022, a court held, that among other findings, that certain U.S. patents protecting the composition and use of Xifaxan® for treating inflammatory bowel syndrome with diarrhea (“IBS-D”) were invalid (the “Norwich Legal Decision”). On August 16, 2022, the Company appealed the Norwich Legal Decision and intends to vigorously defend its Xifaxan® intellectual property. See “Xifaxan® Paragraph IV Proceedings” of Note 18, “LEGAL PROCEEDINGS” for details of this litigation matter and the Company’s response.
Xifaxan® revenues were $1,216 million and $1,194 million for the nine months ended September 30, 2022 and 2021, respectively. As the ultimate outcome of the Norwich Legal Decision and other potential future related developments, including a competitor’s ability to launch a successful generic version to Xifaxan®, could impact the timing and extent of future revenues and cash flows associated with Xifaxan®, the Company determined that the ruling in the Norwich Legal Decision constituted an event requiring assessment of the Xifaxan® intangible assets for potential impairment. The impairmentsCompany performed this assessment using a probability-weighted undiscounted cash flow analysis, with a base case representing the Company’s most recent cash flow projections as revised in the third quarter of 2022, as well as different scenarios representing a range of different outcomes which address, among other things, the timing of when a competitor or competitors will be able to assets reclassified as held for sale were measured as the differencesuccessfully launch a generic version to Xifaxan®, if they are able to launch one at all. This assessment resulted in no impairment 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 to finite-livedXifaxan® intangible assets were measured as the difference 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 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 the2022. The Company is unable to execute its strategies, it may be necessary to record an impairment charge equalalso determined that no change to the difference between the fair value and carrying valueremaining useful lives of the Uceris® Tablet relatedits Xifaxan® intangible assets. Asassets was required as of September 30, 2017,2022.
It is possible that the carryingNorwich Legal Decision and other potential future developments: (i) may adversely impact the estimated future cash flows associated with these products, which could result in an impairment of the value of Uceris® Tablet relatedthese intangible assets was $619 million.in one or more future periods and (ii) may result in shortened useful lives of the Xifaxan® intangible assets, which would increase amortization expense in future periods. Any such impairment or shortening of the useful lives of Xifaxan® could be material to the results of operations of the Company in the period or periods in which they were to occur.
Asset impairments, including loss on assets held for sale, for the nine months ended September 30, 2021 were $213 million and include: (i) $105 million, in aggregate, due to decreases in forecasted sales of certain product lines, (ii) an adjustment of $88 million due to the loss on assets held for sale in connection with the Amoun Sale and (iii) impairments of $20 million, in aggregate, related to the discontinuance of certain product lines.
Estimated amortization expense of finite-lived intangible assets for the remainder of 20172022 and each of the five succeeding years ending December 31 and thereafter is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Remainder of 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter | | Total | |
| Amortization | | $ | 274 | | | $ | 1,018 | | | $ | 897 | | | $ | 792 | | | $ | 664 | | | $ | 627 | | | $ | 54 | | | $ | 4,326 | | |
|
| | | | |
| (in millions) | | |
| October through December 2017 | | $ | 584 |
|
| 2018 | | 2,275 |
|
| 2019 | | 2,059 |
|
| 2020 | | 1,966 |
|
| 2021 | | 1,781 |
|
| 2022 | | 1,641 |
|
| Thereafter | | 3,793 |
|
| Total | | $ | 14,099 |
|
Goodwill
The changes in the carrying amounts of goodwill during the nine months ended September 30, 20172022 and the year ended December 31, 20162021 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 | | Bausch + Lomb | | Salix | | International | | Ortho Dermatologics | | Solta Medical | | Diversified Products | | Total |
| Balance, January 1, 2021 | | $ | 5,704 | | | $ | — | | | $ | 3,159 | | | $ | — | | | $ | 1,267 | | | $ | — | | | $ | 2,914 | | | $ | 13,044 | |
| Realignment of segment goodwill | | (5,704) | | | 5,395 | | | — | | | 887 | | | — | | | — | | | (578) | | | — | |
| Impairment | | — | | | — | | | — | | | — | | | (469) | | | — | | | — | | | (469) | |
| Foreign exchange and other | | — | | | (77) | | | — | | | (62) | | | — | | | — | | | 21 | | | (118) | |
| Balance, December 31, 2021 | | — | | | 5,318 | | | 3,159 | | | 825 | | | 798 | | | — | | | 2,357 | | | 12,457 | |
| Realignment of segment goodwill | | — | | | — | | | — | | | — | | | (798) | | | 115 | | | 683 | | | — | |
| Impairments | | — | | | — | | | — | | | — | | | — | | | — | | | (202) | | | (202) | |
| Foreign exchange and other | | — | | | (164) | | | — | | | (99) | | | — | | | — | | | 52 | | | (211) | |
| Balance, September 30, 2022 | | $ | — | | | $ | 5,154 | | | $ | 3,159 | | | $ | 726 | | | $ | — | | | $ | 115 | | | $ | 2,890 | | | $ | 12,044 | |
Goodwill is not amortized but is tested for impairment at least annually on October 1st at the reporting unit level. A reporting unit is the same as, or one level below, an operating segment. The Company performs its annual impairment test by first assessing qualitative factors. Where the qualitative assessment suggests that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative fair value test is performed for that reporting unit (Step 1).
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 valuesvalue of alla reporting unitsunit 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 quantitative fair value test is performed utilizing long-term growth rates and discount rates applied to the estimated cash flows 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 perpetuityin-perpetuity growth assumption and discount factor to determine the reporting unit'sunit’s terminal value.
The Company forecastsTo forecast a reporting unit’s cash flows for each of its reporting units andthe Company takes into consideration economic conditions and trends, estimated future operating results, management'smanagement’s and a market participant'sparticipant’s view of growth rates and product lives, and anticipates future economic conditions. Revenue growth rates inherent in these forecasts wereare 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'sCompany’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.future and such change could be material.
2016
Prior to the change in operating segments in the third quarter of 2016, 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 test 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.
First Quarter 2021 - Realignment of Segment StructureSegments
Commencing in the thirdfirst quarter of 2016,2021, the Company operatesbegan operating in three operatingthe following reportable segments: (i) Bausch + Lomb/Lomb, (ii) Salix, (iii) International, (ii) Branded Rx(iv) Ortho Dermatologics and (iii) U.S.(v) Diversified Products. This 2016 segment structure realignment resulted in theThe Bausch + Lomb/InternationalLomb segment consistingconsisted of the following reporting units:the: (i) U.S. Bausch + Lomb and (ii) International; the Branded RxInternational Bausch + Lomb reporting units. The Salix segment consistingconsisted of the followingSalix reporting units:unit. The International segment consisted of the International (formerly International Rx) reporting unit. The Ortho Dermatologics segment consisted of the: (i) Salix,Ortho Dermatologics and (ii) Dermatology, (iii) Canada and (iv) Branded Rx Other; and the U.S.Global Solta reporting units. The Diversified Products segment consistingconsisted of the following reporting units:the: (i) Neurology and otherOther, (ii) Generics and (ii) Generics. (iii) Dentistry reporting units. This realignment in segment structure resulted in a change in the Company’s former International reporting unit, which was divided between the International Bausch + Lomb reporting unit and International reporting unit. In addition, as part of the realignment of segment structure, certain products historically included in the Generics reporting unit were included in the U.S. Bausch + Lomb reporting unit.
As a result of these changes,this realignment, goodwill was reassigned to each of the aforementioned reporting units using a relative fair value approach. Goodwill previously reported in the former U.S.International reporting unit after adjustment of impairment as described below, was reassigned usingto the International Bausch + Lomb and International reporting units, and a relative fair value approach,portion of goodwill previously reported in the former Generics reporting unit was reassigned to the U.S. Bausch + Lomb Salix, Dermatology, Branded Rx Other, Neurologyreporting unit.
Immediately prior to the change in reporting units, the Company performed a qualitative fair value assessment for its former: (i) International and other, and(ii) Generics reporting units. Similarly, goodwill previously reportedBased on the qualitative fair value assessment performed, management
believed that it was more likely than not that the carrying values of its former: (i) International and (ii) Generics reporting units were less than their respective fair values and therefore, concluded a quantitative assessment was not required.
Immediately following the change in reporting units, as a result of the change in composition of the net assets for its: (i) International Bausch + Lomb, (ii) International and (iii) Generics reporting units, the Company performed a quantitative fair value test. The quantitative fair value test utilized a range of long-term growth rates of 1.0% to 3.0% and a range of discount rates between 11.0% and 12.25%, in estimation of the fair value of the reporting units. After completing the testing, the fair value of each of these reporting units exceeded its carrying value by more than 40%, and, therefore, there was no impairment to goodwill. In addition, as the U.S. Bausch + Lomb reporting unit had a change in composition of its net assets related to certain products historically included in the former Canada and AustraliaGenerics reporting unit now being included in the U.S. Bausch + Lomb reporting unit, the Company performed a qualitative assessment of this reporting unit. Based on the qualitative fair value assessment performed, management believed that it was more likely than not that the carrying value of its current U.S. Bausch + Lomb reporting unit was less than its fair value and therefore, concluded a quantitative assessment was not required.
2021 Interim Goodwill Impairment Testing
During the interim periods of 2021, with the exception of the Ortho Dermatologics reporting unit, no events occurred, or circumstances changed that would indicate that the fair value of any other reporting unit might be below its carrying value and therefore, no impairments were recorded.
During the three months ended March 31, 2021, management identified launches of certain Ortho Dermatologics products which were not going to achieve their trajectories as forecasted once the social restrictions associated with the COVID-19 pandemic began to ease in the U.S. and offices of health care professionals could reopen. In addition, insurance coverage pressures within the U.S. continued to persist limiting patient access to topical acne and psoriasis products. In light of these developments, during the first quarter of 2021, the Company began taking steps to: (i) redirect its R&D spend to eliminate projects it had identified as high cost and high risk, (ii) redirect a portion of its marketing and product development outside the U.S. to geographies where there is better patient access and (iii) reduce its cost structure to be more competitive. As a result, during the three months ended March 31, 2021, the Company revised its long-term forecasts for the Ortho Dermatologics reporting unit. Management believed that these events were indicators that there was less headroom as of March 31, 2021 as compared to the headroom calculated on the date goodwill was last tested for impairment (October 1, 2020). Therefore, a quantitative fair value test for the Ortho Dermatologics reporting unit was performed. The quantitative fair value test utilized the Company’s most recent cash flow projections as revised in the first quarter of 2021 to reflect the business changes previously discussed, including a range of potential outcomes, along with a long-term growth rate of 1.0% and a range of discount rates between 9.0% and 10.0%. Based on the quantitative fair value test, the carrying value of the Ortho Dermatologics reporting unit exceeded its fair value at March 31, 2021, and the Company recognized a goodwill impairment of $469 million.
Second Quarter 2021 - Realignment of Bausch + Lomb Reporting Units
Commencing in the second quarter of 2021, the Company changed the way it reviews the financial information of its Bausch + Lomb segment. Beginning in the second quarter of 2021, management no longer reviews the financial information of its Bausch + Lomb segment on a geographic basis, but instead reviews this financial information on a business line basis. This change created a change in the reporting units of the Bausch + Lomb segment. After the change, under its business line view, the Bausch + Lomb segment consisted of the global: (i) Vision Care / Consumer Products, (ii) Ophthalmic Pharmaceuticals and (iii) Surgical reporting units. Prior to the second quarter of 2021, under the geographic view, the Bausch + Lomb segment consisted of the former: (i) U.S. Bausch + Lomb and (ii) International Bausch + Lomb reporting units. As a result of the realignment, goodwill was reassigned to each of the Canada and the Internationalaforementioned reporting units using a relative fair value approach. Goodwill previously reportedThe change in the remaining formerBausch + Lomb reporting units was reassigned todid not impact the International reporting unit.reported revenues and segment profits of the Bausch + Lomb segment for any prior periods.
In the third quarter of 2016, goodwill impairment testing was performed under the former reporting unit structure immediatelyImmediately prior to the change and under the currentin its Bausch + Lomb reporting unit structure immediately subsequent to the change. Using the forecast and assumptions at the time,units, the Company estimatedperformed a qualitative fair value assessment for its former reporting units. Based on the qualitative fair value assessment, management believed that it was more likely than not that the carrying values of its former: (i) U.S. Bausch + Lomb and (ii) International Bausch + Lomb reporting units were less than their respective fair values and, therefore, concluded a quantitative assessment was not required.
As a result of the change in composition of net assets, the Company performed a quantitative fair value test of its new: (i) Vision Care / Consumer Products, (ii) Ophthalmic Pharmaceuticals and (iii) Surgical reporting units immediately following the change in the Bausch + Lomb segment. The quantitative fair value test utilized long-term growth rates of 2.0% and 3.0% and a range of discount rates between 7.0% and 10.0%, in estimation of the fair value of the reporting units. After completing the testing, the fair value of each of these 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 unitunits exceeded its carrying value by more than 15%45%, except for the former U.S. reporting unit whose carrying value exceeded its fair value by 2%. As a result, the Company proceededand, therefore, there was no impairment 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 isgoodwill.
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. 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. 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 Salix reporting unit had a carrying value of $14,066 million, an estimated 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 each reporting unit to its fair value as of August 31, 2016, the date of testing. The fair value of each reporting unit 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 5%.
2021 Annual Goodwill Impairment Test
The Company conducted its annual goodwill impairment test as of October 1, 20162021 by first assessing qualitative factors. Based on its qualitative assessment as of October 1, 2021, management believed that, with the exception of the Ortho Dermatologics reporting unit, it was more likely than not that the carrying amounts of its reporting units were less than their respective fair values and determinedtherefore concluded that a quantitative fair value test for those reporting units was not required.
As part of its qualitative assessment of the Ortho Dermatologics reporting unit as of October 1, 2021, the Company considered, among other matters, the limited headroom as a result of the impairment to the goodwill of the Ortho Dermatologics reporting unit when last tested (March 31, 2021) and macroeconomic factors such as higher than expected inflation for many commodities, volatility in many of the equity markets and pressures on market interest rates. The Company believed that these facts and circumstances may suggest that it was more likely than not that the fair value of the Ortho Dermatologics reporting unit was less than its carrying amount, and therefore a quantitative fair value test was performed for the reporting unit.
The Company performed a quantitative fair value test for the Ortho Dermatologics reporting unit as of October 1, 2021, utilizing a long-term growth rate of 1.0% and a discount rate of 9.0%, in estimation of the fair value of this reporting unit. Based on the quantitative fair value test, the fair value of the Ortho Dermatologics reporting unit was approximately 10% greater than its carrying value and as a result there was no impairment to the goodwill of the reporting unit.
First Quarter 2022 - Realignment of Segments
Commencing in the first quarter of 2022, the Company began operating in the following reportable segments: (i) Salix, (ii) International, (iii) Diversified Products, (iv) Solta Medical and (v) Bausch + Lomb. The Salix segment consists of the Salix reporting unit. The International segment consists of the International reporting unit. The Diversified Products segment consists of the: (i) Neurology and Other, (ii) Generics, (iii) Ortho Dermatologics and (iv) Dentistry reporting units. The Solta Medical segment consists of the Solta reporting unit. The Bausch + Lomb segment consists of the: (i) Vision Care (formerly Vision Care / Consumer Products), (ii) Ophthalmic Pharmaceuticals and (iii) Surgical reporting units. As such, the new segment structure does not impact the Company’s reporting units but realigns the two reporting units of the former Ortho Dermatologics segment whereby the Ortho Dermatologics reporting unit is now part of the current Diversified Products segment and the Solta reporting unit is now its own operating and reportable segment, and therefore management concluded that a quantitative fair value test was not required. See Note 19, “SEGMENT INFORMATION” for additional information.
March 31, 2022 Interim Assessment of Goodwill
During the three months ended March 31, 2022, macroeconomic factors had impacted interest rates and the U.S. inflation rate was higher than previously expected. Given the limited headroom of the Ortho Dermatologics reporting unit as calculated on October 1, 2021, the Company believed that these facts and circumstances suggested the fair value of the Ortho Dermatologics reporting unit could be less than its carrying amount, and therefore a quantitative fair value test was performed for the reporting unit.
The quantitative fair value test utilized the Company’s most recent cash flow projections as revised in the first quarter of 2022 and utilized a long-term growth rate of 1% and a discount rate of 9%. The discount rate contemplated changes in the current macroeconomic conditions noting certain inputs such as the risk free rate increased over the three months ended March 31, 2022, and was offset by decreases in other reporting unit specific risks during the same period. Based on the quantitative fair value test, the fair value of the Ortho Dermatologics reporting unit was less than 2% greater than its carrying value and as a result there was no impairment to the goodwill of the reporting unit.
June 30, 2022 Interim Assessment of Goodwill
Ortho Dermatologics
During the three months ended June 30, 2022, increases in interest rates and, to a lesser extent, higher than expected inflation in the U.S. and other macroeconomic factors impacted key assumptions used to value the Ortho Dermatologics reporting unit at March 31, 2022 (the last time goodwill of the Ortho Dermatologics reporting unit was tested). Given the limited headroom of the Ortho Dermatologics reporting unit as calculated on March 31, 2022, the Company believed that these facts and circumstances suggested the fair value of the Ortho Dermatologics reporting unit could be less than its carrying amount, and therefore a quantitative fair value test was performed for the reporting unit.
The quantitative fair value test utilized the Company’s most recent cash flow projections as revised in the second quarter of 2022 which reflected current market conditions and current trends in business performance. The Company’s latest discounted cash flow model for the Ortho Dermatologics reporting unit included a range of potential outcomes for, among other matters, macroeconomic factors such as higher than expected inflation for many commodities, volatility in many of the equity markets and pressures on market interest rates. The quantitative fair value test utilized a long-term growth rate of 1% and a discount
rate of 10%. The discount rate had increased 1% since the assessment performed at March 31, 2022, as a result of changes in macroeconomic conditions, including an increase in the risk free rate during the three months ended June 30, 2022. Based on the quantitative fair value test, the carrying value of the SalixOrtho Dermatologics reporting unit exceeded its fair value at June 30, 2022, and as a result, the Company proceeded to perform step two of therecognized a goodwill impairment testof $83 million.
Bausch + Lomb Reporting Units
During the period May 6, 2022 (the time Bausch + Lomb’s stock began trading publicly) through June 30, 2022, equity and bond markets were negatively impacted by various macroeconomic and geopolitical factors including, but not limited to: rising inflation rates in the U.S. and abroad, uncertainties created by the Russia/Ukraine conflict, interest rate volatility, COVID-19 related lockdowns and supply issues. The decline in the equity markets negatively impacted the market price for Bausch + Lomb’s common stock which at June 30, 2022 was trading below its IPO offering price. The Company believed that these facts and circumstances suggest the Salix reporting unit. After completing step two of the impairment testing, the Company determined that the carryingfair value of the unit's goodwill did not exceed its impliedthree reporting units of the Bausch + Lomb segment could be less than their respective carrying amounts. Therefore, separate quantitative fair value tests were performed for the Vision Care, Surgical and therefore, no impairment was identified to the goodwillOphthalmic reporting units of the Salix reporting unit. AsBausch + Lomb segment.
The quantitative fair value tests utilized Bausch + Lomb’s most recent cash flow projections for each 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 oneand utilized long-term growth rates of 2% and 3% and discount rates of 9.0% and 11.5%. After completing the goodwill impairment test astesting, the estimated fair value of each of these reporting units exceeded their respective carrying values by more than 25%, and, therefore, there was no impairment to goodwill.
During the interim periods of 2022, with the exception of the Ortho Dermatologics reporting unit exceeded its carrying value atand the datereporting units of testing and, therefore, impairment to goodwill was $0. The Company determined thatthe Bausch + Lomb segment, 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 a reporting unit may be below its carrying amount, except for the Salix 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, the date of testing. The fair value of each reporting unit 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.
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 maymight be below its carrying value exceptand therefore, no impairment to those reporting units was recorded.
September 30, 2022 Interim Assessment of Goodwill
Ortho Dermatologics
During the third quarter of 2022, the Company continued to monitor the market conditions impacting the Ortho Dermatologics reporting unit. Continued increases in interest rates and, to a lesser extent, higher than expected inflation in the U.S. and other macroeconomic factors impacted key assumptions used to value the Ortho Dermatologics reporting unit at June 30, 2022 (the last time goodwill of the Ortho Dermatologics reporting unit was tested). Based on the impairment of goodwill recognized in the second quarter of 2022 for the Ortho Dermatologics reporting unit, the reporting unit had no headroom as calculated on June 30, 2022, and as such, the Company believed that these facts and circumstances suggested the fair value of the Ortho Dermatologics reporting unit could be less than its carrying amount, and therefore a quantitative fair value test was performed for the reporting unit.
The quantitative fair value test utilized the Company’s most recent cash flow projections which reflect current market conditions and current trends in business performance. The Company’s latest discounted cash flow model for the Ortho Dermatologics reporting unit includes a range of potential outcomes for, among other matters, volatility in many of the equity markets and pressures on market interest rates and macroeconomic factors such as changes in inflation for many commodities. The quantitative fair value test utilized a long-term growth rate of 1% and the discount rate increased from 10.0% at June 30, 2022 to 10.5% at September 30, 2022, which reflects the increases in market interest rates. Based on the quantitative fair value test, the carrying value of the Ortho Dermatologics reporting unit exceeded its fair value at September 30, 2022, and the Company recognized a goodwill impairment of $119 million for the three months ended September 30, 2022.
Salix
On August 10, 2022, the Norwich Legal Decision was issued that held, among other matters, that certain U.S. Patents protecting the composition and use of Xifaxan® for treating IBS-D were invalid. On August 16, 2022, the Company appealed the Norwich Legal Decision and intends to vigorously defend its Xifaxan® intellectual property. See “Xifaxan® Paragraph IV Proceedings” of Note 18, “LEGAL PROCEEDINGS” for details of this litigation matter and the Company’s response.
Xifaxan® revenues represent approximately 80% of the Salix reporting unit.unit’s revenue. The ultimate outcome of the Norwich Legal Decision and other potential future related developments, including a competitor’s ability to launch a successful generic version to Xifaxan®, could impact the timing and extent of future revenues and cash flows associated with Xifaxan®. As such, the factsCompany believes that the uncertainty of the possible outcomes of the Norwich Legal Decision and circumstances had not materially changed since the October 1, 2016 impairmentpotential impact on Xifaxan® revenues are indicators that the Salix reporting unit’s fair value could be less than its carrying amount, and therefore a quantitative fair value test management concluded thatwas performed for the reporting unit.
The Company performed its quantitative fair value test using a probability-weighted discounted cash flow analysis, with a base case representing the Company’s most recent cash flow projections as revised in the third quarter of 2022, as well as different scenarios representing a range of different outcomes which address, among other things, the range of possible outcomes of the Norwich Legal Decision and the timing of when a competitor or competitors could be able to successfully launch a generic version of Xifaxan®, if they are able to launch one at all. The forecasted cash flows under each set of outcomes were discounted utilizing a long-term growth rate of 2.5% and discount rates of 9.75% and 10.0%. The Company assigned a probability weighting to each scenario reflecting its best estimate of likelihood of the outcome resulting in each scenario, and calculated a weighted average of the valuations derived from the discounted cash flows under each scenario using this probability weighting.
As of September 30, 2022, the carrying value of the Salix reporting unit continues to be in excess ofwas less than its fair value. Therefore, duringvalue as determined by the three months ended March 31, 2017, June 30, 2017Company’s probability-weighted discount valuation model and therefore no impairment was recorded as of September 30, 2017,2022. However, as the Company’s probability-weighted discount valuation includes certain scenarios under which the Company performed qualitative assessmentsdoes not retain market exclusivity for Xifaxan® through January 2028, these probability-weighted fair values of the Salix reporting unit goodwill to determine if testing was warranted.exceeded its carrying value by less than 5%.
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 unitIt 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 believespossible that the carryingNorwich Legal Decision and other potential future developments may adversely impact the estimated fair value of the Salix segment in one or more future periods. Any such impairment could be material to the Company’s results of operations in the period in which it were to occur.
Other Reporting Units
No other events occurred or circumstances changed during the period of October 1, 2021 (the last time goodwill was tested for all other reporting units) through September 30, 2022 that would indicate that the fair value of any reporting unit, goodwill does not exceed its implied fair valueother than the Ortho Dermatologics and that testing the Salix reporting unitunits and the reporting units of the Bausch + Lomb segment, might be below its carrying value.
Accumulated 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.through September 30, 2022 were $4,382 million.
| |
9. | ACCRUED AND OTHER CURRENT LIABILITIES |
9.ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other current liabilities were as follows:consist of:
| | | | | | | | | | | | | | |
| (in millions) | | September 30,
2022 | | December 31,
2021 |
| Legal matters and related fees | | $ | 323 | | | $ | 1,890 | |
| Product rebates | | 965 | | | 908 | |
| Product returns | | 421 | | | 482 | |
| Interest | | 208 | | | 328 | |
| Employee compensation and benefit costs | | 279 | | | 336 | |
| Income taxes payable | | 66 | | | 98 | |
| Other | | 672 | | | 749 | |
| | $ | 2,934 | | | $ | 4,791 | |
|
| | | | | | | | |
| (in millions) | | September 30, 2017 | | December 31, 2016 |
| Product rebates | | $ | 1,039 |
| | $ | 897 |
|
| Product returns | | 815 |
| | 708 |
|
| Interest | | 385 |
| | 337 |
|
| Employee compensation and benefit costs | | 258 |
| | 198 |
|
| Income taxes payable | | 163 |
| | 213 |
|
| Legal liabilities assumed in the Salix Acquisition | | 52 |
| | 281 |
|
| Other | | 684 |
| | 593 |
|
| | | $ | 3,396 |
| | $ | 3,227 |
|
10.FINANCING ARRANGEMENTS
| |
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 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2022 | | December 31, 2021 |
| (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: | | | | | | | | | | |
| 2018 Restated Credit Agreement | | | | | | | | | | |
| 2023 Revolving Credit Facility | | June 2023 | | $ | — | | | $ | — | | | $ | 285 | | | $ | 285 | |
| June 2025 Term Loan B Facility | | June 2025 | | — | | | — | | | 2,829 | | | 2,772 | |
| November 2025 Term Loan B Facility | | November 2025 | | — | | | — | | | 994 | | | 984 | |
| 2022 Amended Credit Agreement | | | | | | | | | | |
| 2027 Revolving Credit Facility | | February 2027 | | 450 | | | 450 | | | — | | | — | |
| February 2027 Term Loan B Facility | | February 2027 | | 2,469 | | | 2,419 | | | — | | | — | |
| B+L Credit Facilities | | | | | | | | | | |
| B+L Revolving Credit Facility | | May 2027 | | — | | | — | | | — | | | — | |
| B+L Term Facility | | May 2027 | | 2,494 | | | 2,442 | | | — | | | — | |
| Senior Secured Notes: | | | | | | | | | | |
| 5.50% Secured Notes | | November 2025 | | 1,750 | | | 1,741 | | | 1,750 | | | 1,739 | |
| 6.125% Secured Notes | | February 2027 | | 1,000 | | | 986 | | | — | | | — | |
| 5.75% Secured Notes | | August 2027 | | 500 | | | 496 | | | 500 | | | 495 | |
| 4.875% Secured Notes | | June 2028 | | 1,600 | | | 1,582 | | | 1,600 | | | 1,580 | |
| 11.00% First Lien Secured Notes | | September 2028 | | 1,774 | | | 2,826 | | | — | | | — | |
| 14.00% Second Lien Secured Notes | | October 2030 | | 352 | | | 711 | | | — | | | — | |
| 9.00% Intermediate Holdco Secured Notes | | January 2028 | | 999 | | | 1,423 | | | — | | | — | |
| Senior Unsecured Notes: | | | | | | | | | | |
| 6.125% | | April 2025 | | — | | | — | | | 2,650 | | | 2,640 | |
| 9.00% | | December 2025 | | 959 | | | 950 | | | 1,500 | | | 1,482 | |
| 9.25% | | April 2026 | | 748 | | | 743 | | | 1,500 | | | 1,489 | |
| 8.50% | | January 2027 | | 651 | | | 652 | | | 1,750 | | | 1,754 | |
| 7.00% | | January 2028 | | 208 | | | 207 | | | 750 | | | 743 | |
| 5.00% | | January 2028 | | 466 | | | 462 | | | 1,250 | | | 1,238 | |
| 6.25% | | February 2029 | | 866 | | | 857 | | | 1,500 | | | 1,483 | |
| 5.00% | | February 2029 | | 463 | | | 459 | | | 1,000 | | | 990 | |
| 7.25% | | May 2029 | | 372 | | | 369 | | | 750 | | | 742 | |
| 5.25% | | January 2030 | | 869 | | | 861 | | | 1,250 | | | 1,237 | |
| 5.25% | | February 2031 | | 572 | | | 567 | | | 1,000 | | | 989 | |
| Other | | Various | | 12 | | | 12 | | | 12 | | | 12 | |
| Total long-term debt | | | | $ | 19,574 | | | 21,215 | | | $ | 22,870 | | | 22,654 | |
| Less: Current portion of long-term debt | | | | 411 | | | | | — | |
| Non-current portion of long-term debt | | | | | | $ | 20,804 | | | | | $ | 22,654 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Covenant Compliance
The Senior Secured Credit Facilities (as defined below), the B+L Credit Facilities (as defined below) and the indentures governing the Company’s Senior Secured Notes (as defined and described in the table above), the 9.00% Intermediate Holdco Secured Notes (as defined below) and Senior Unsecured Notes (as defined and described in the table above) 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 Revolving Credit Facility also contains specified financial maintenance covenants (consisting of a secured 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, amending financial maintenance covenants, extending a
significant portion of the Revolving Credit Facility, and refinancing debt with near 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. As of September 30, 2017,2022, the amount available for restricted payments under the “builder basket” in the Company’s most restrictive indentures (as defined by those indentures) was approximately $12,000 million (although such availability is subject to the Company’s compliance with a 2.00:1.00 fixed charge coverage ratio). The 2027 Revolving Credit Facility (as defined below) also contains a financial maintenance covenant that, requires the Company to maintain a first lien net leverage ratio of not greater than 4.00:1.00. The financial maintenance covenant may be waived or amended without the consent of the term loan facility lenders and contains a customary term loan facility standstill.
As of September 30, 2022, 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 seek 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,long-term strategy, including divesting other businesses, and refinancing debt and issuing equity or equity-linked securities as deemed appropriate, to provide additional coverageappropriate.
Exchange Offer
On September 30, 2022, the Company closed a series of transactions whereby it exchanged (the “Exchange Offer”) validly tendered senior unsecured notes with an aggregate outstanding principal balance of $5,594 million as set forth in complyingthe table below (collectively, the “Existing Unsecured Senior Notes”) for $3,125 million in aggregate principal balance of newly issued secured notes, a reduction of outstanding principal of $2,469 million.
The secured notes issued in the Exchange Offer consist of: (i) $1,774 million in aggregate principal amount of new 11.00% First Lien Secured Notes due 2028 (the “11.00% First Lien Secured Notes”) issued by the Company, (ii) $352 million in aggregate principal amount of new 14.00% Second Lien Secured Notes due 2030 (the “14.00% Second Lien Secured Notes” and, together with the financial maintenance11.00% First Lien Secured Notes, the “New BHC Secured Notes”) issued by the Company and (iii) $999 million in aggregate principal amount of new 9.00% Senior Secured Notes due 2028 (the “9.00% Intermediate Holdco Secured Notes” and, together with the New BHC Secured Notes, the “New Secured Notes”) issued by 1375209 B.C. Ltd. (“Intermediate Holdco”), an existing indirect wholly-owned unrestricted subsidiary of the Company that holds 38.6% of the issued and outstanding common shares of Bausch + Lomb.
The aggregate principal amounts of the Existing Unsecured Senior Notes that were validly tendered and accepted by the Company in the Exchange Offer are set forth below:
| | | | | | | | | | |
| (in millions) | | | | |
| 9.00% Senior Notes due 2025 | | $ | 541 | | | |
| 9.25% Senior Notes due 2026 | | 752 | | | |
| 8.50% Senior Notes due 2027 | | 1,099 | | | |
| 7.00% Senior Notes due 2028 | | 540 | | | |
| 5.00% Senior Notes due 2028 | | 710 | | | |
| 7.25% Senior Notes due 2029 | | 373 | | | |
| 6.25% Senior Notes due 2029 | | 540 | | | |
| 5.00% Senior Notes due 2029 | | 371 | | | |
| 5.25% Senior Notes due 2030 | | 332 | | | |
| 5.25% Senior Notes due 2031 | | 336 | | | |
| Total | | $ | 5,594 | | | |
In connection with the Exchange Offer and following receipt of the requisite number of consents from noteholders, the Company and the applicable notes trustee, executed supplemental indentures to amend each of the indentures governing the 9.25% Senior Notes due 2026, 8.50% Senior Notes due 2027, 5.00% Senior Notes due 2028, 7.00% Senior Notes due 2028 and 7.25% Senior Notes due 2029, which amendments eliminate substantially all of the restrictive covenants as well as certain events of default and meeting itsrelated provisions applicable to such series of notes.
The Company performed an assessment of the Exchange Offer and determined that it met the criteria to be accounted for as a troubled debt service obligations.restructuring under Accounting Standards Codification 470-60. For each series of the Existing Unsecured
Senior Notes exchanged, the undiscounted cash flows associated with the New Secured Notes issued were compared to the carrying value of the Existing Unsecured Senior Notes exchanged for such New Secured Notes and the applicable exchange was accounted for as follows: (i) to the extent the undiscounted cash flows of the New Secured Notes in question were lower than the carrying value of the applicable Existing Unsecured Senior Notes exchanged, the carrying value of the applicable New Secured Notes was established at the total of these undiscounted cash flows, with a gain recorded for the remaining difference between this value and the carrying value of the applicable Existing Senior Unsecured Notes (as such, no interest expense will be recorded for the applicable New Secured Notes prospectively) and (ii) to the extent the undiscounted cash flows of the New Secured Notes in question exceeded the carrying value of the applicable Existing Unsecured Senior Notes exchanged, the carrying value of the applicable New Secured Notes was established at the carrying value of the applicable Existing Senior Unsecured Notes, and the Company established new effective interest rates based on the carrying value of the applicable Existing Unsecured Senior Notes prior to the Exchange Offer.
The difference between the principal amount of the New Secured Notes and their carrying value as calculated above has been recorded as a premium and is included in long-term debt on the Company’s Consolidated Balance Sheet, which will be reduced as the Company makes stated interest payments on the New Secured Notes.
For the three months ended September 30, 2022, the Company recorded a gain of $570 million, net of third party fees of $25 million, in connection with the Exchange Offer. As of September 30, 2022, the premium recorded on the New Secured Notes was $1,835 million, which will be reduced as stated interest payments are made on the New Secured Notes. Further details of the New Secured Notes are discussed below.
Senior Secured Credit Facilities
Senior Secured Credit Facilities under the 2018 Restated Credit Agreement
On February 13, 2012,June 1, 2018, the Company and certain of its subsidiaries as guarantors entered into the “Senior Secured Credit Facilities” under the Company’s Fourth Amended and Restated Credit and Guaranty Agreement, as amended by the First Incremental Amendment to the Restated Credit Agreement, dated as of November 27, 2018 (the “2018 Restated Credit Agreement”) with a syndicate of financial institutions and investors as lenders. As of January 1, 2016,Prior to the 2022 Amended Credit Agreement (as defined below), the 2018 Restated Credit Agreement provided for: (i)for a $1,500 million Revolving Credit Facility maturing on April 20, 2018, 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 of term loans maturing during the years 2016 through 2022.
On 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-K (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 F Tranche B Term Loan Facility of $3,060 million (the “Series F-3 Tranche B Term Loan”), (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 6.75% Senior Unsecured Notes due August 2018 (the “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 (collectively, the “March 2017 Refinancing Transactions”).
Amendments to the covenants made as part of Amendment No. 14 include: (i) removed the financial maintenance covenants with respect to the Series F Tranche B Term Loan Facility, (ii) reduced the interest coverage ratio maintenance covenant to 1.50:1.00 with respect to the Revolving Credit Facility beginning in the quarter ending March 31, 2017 through the quarter ending March 31, 2019 (stepping 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. 14 was accounted for as a modification of debt to the extent the Refinanced Debt was replaced with the incremental Series F-3 Tranche B Term Loan issued to the same creditor and an extinguishment of debt to the extent the Refinanced Debt was replaced with Series F-3 Tranche B Term Loan issued to a different creditor. The Refinanced Debt replaced with the proceeds of the newly issued senior secured notes was accounted for as an extinguishment of debt. For amounts accounted for as an extinguishment of debt, the Company incurred a Loss on extinguishment of debt of $27 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). Payments made to the lenders of $38 million associated with the issuance of the new Series F-3 Tranche B Term Loan were capitalized and are being amortized as interest expense over the remaining term of the Series F Tranche B Term Loan Facility. Third party expenses of $3 million associated with the modification of debt were expensed as incurred and included in Interest expense.
On March 28, 2017, the Company entered into Amendment No. 15 to the Credit Agreement (“Amendment No. 15”) which provided for the extension of the maturity date of $1,190 million of revolving credit commitments under the Revolving Credit Facility from April 20, 2018 tofacility of $1,225 million, maturing on the earlier of (i) April 20, 2020June 1, 2023 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 of the Company and Bausch Health Americas, Inc. (“BHA”) in an aggregate principal amount in excess of $750 million. Unless otherwise terminated prior thereto,$1,000 million (the “2023 Revolving Credit Facility”) and term loan facilities of original principal amounts of $4,565 million and $1,500 million, maturing in June 2025 (the “June 2025 Term Loan B Facility”) and November 2025 (the “November 2025 Term Loan B Facility”), respectively.
Senior Secured Credit Facilities under the remaining $3102022 Amended Credit Agreement
On May 10, 2022, the Company and certain of its subsidiaries as guarantors entered into a Second Amendment (the “Second Amendment”) to the Fourth Amended and Restated Credit and Guaranty Agreement (as amended by the Second Amendment, the “2022 Amended Credit Agreement”). The 2022 Amended Credit Agreement provides for a new term loan facility with an aggregate principal amount of $2,500 million of(the “2027 Term Loan B Facility”) maturing on February 1, 2027 and a new revolving credit commitmentsfacility of $975 million (the “2027 Revolving Credit Facility”) that will mature on the earlier of February 1, 2027 and the date that is 91 calendar days prior to the scheduled maturity of indebtedness for borrowed money of the Company and BHA in an aggregate principal amount in excess of $1,000 million. Borrowings under the 2027 Revolving Credit Facility will continuecan be made in U.S. dollars, Canadian dollars or Euros. After giving effect to mature on April 20, 2018.the Second 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, 20202023 Revolving Credit Facility, June 2025 Term Loan B Facility and November 2025 Term Loan B Facility were refinanced (such refinancing, the fees paid to lenders providing additional commitments were recognized as additional debt issuance costs and are being amortized over the remaining term“Credit Agreement Refinancing”), along with certain of the Revolving Credit Facility. Amendment No. 15 was accounted for in part as an extinguishment of debt and the Company incurred a Loss on extinguishment of debt of $1 million representing the unamortized debt issuance costs associated with the commitments canceled by lenders in the amendment.
In April 2017,Company’s existing senior notes, 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,borrowings under the 2027 Term Loan B Facility, the B+L IPO and the B+L Debt Financing (as defined below) and available cash on hand. As of September 30, 2022, the Company repaid $811had drawn $450 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 its2027 Revolving Credit Facility.
Borrowings under the Senior Secured Credit Facilities2027 Term Loan B Facility bear interest at a rate per annum equal to, at the Company'sCompany’s option, from timeeither: (a) a forward-looking term rate determined by reference to time, either (i)the financing rate for borrowing U.S. dollars overnight collateralized by U.S. Treasury securities (“term SOFR rate”) for the interest period relevant to such borrowingor (b) a base rate determined by reference to the higher of (a)highest of: (i) the prime rate (as defined in the 2022 Amended Credit Agreement) and (b), (ii) the federal funds effective rate plus 1/2 of 1%1.00% and (iii) the term SOFR rate for a period of one month plus 1.00% (or if such rate shall not be ascertainable, 1.50%) (provided, however that the term SOFR rate with respect to the 2027 Term Loan B Facility shall at no time be less than 0.50% per annum), in each case, plus an applicable margin.
Borrowings under the 2027 Revolving Credit Facility in: (i) U.S. dollars bear interest at a rate per annum equal to, at the Company’s option, either: (a) the term SOFR rate (subject to a floor of 0.00% per annum) or (b) a U.S. dollar base rate, (ii) Canadian dollars bear interest at a LIBOrate per annum equal to, at the Company’s option, either: (a) a Canadian dollar offer rate or
(b) a Canadian dollar prime and (iii) euros bear interest at a rate per annum equal to a term benchmark rate determined by reference to the costscost of funds for U.S. dollareuro deposits (“EURIBOR”) for the interest period relevant to such borrowing adjusted for certain additional costs,(subject to a floor of 0.00% per annum), in each case, plus an applicable margin. These applicable marginsTerm SOFR rate loans are subject to increase or decrease quarterly based on the secured leverage ratio beginning with the quarter ended June 30, 2017. Based on its calculation of the Company’s secured leverage ratio, management does not anticipate any such increase or decrease to the current applicable margins for the next applicable period.a credit spread adjustment ranging from 0.10%-0.25%.
The applicable interest rate marginsmargin for borrowings under the 2027 Term Loan B Facility is 5.25% for term SOFR rate loans and 4.25% for U.S. dollar base rate loans. The applicable interest rate margin for borrowings under the 2027 Revolving Credit Facility are 2.75% with respectranges from 4.75% to 5.25% for term SOFR rate loans, BA rate loans and EURIBOR loans and3.75% to 4.25% for U.S. dollar base rate borrowingsloans and 3.75% with respect to LIBOCanadian prime rate borrowings. As of September 30, 2017, the stated rate of interest on the Revolving Credit Facility was 4.99% per annum. loans.
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 2027 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 LIBOterm SOFR rate borrowings under the 2027 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.
Subject to certain exceptions and customary baskets set forth in the 2022 Amended 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 thresholds), (ii) 100% of the net cash proceeds from the incurrence of debt (other than permitted debt as described in the 2022 Amended Credit Agreement), (iii) 50% of Excess Cash Flow (as defined in the 2022 Amended Credit Agreement) subject to decrease based on leverage ratios and subject to a threshold amount and (iv) 100% of net cash proceeds from asset sales (subject to reinvestment rights and net proceeds thresholds). These mandatory prepayments may be used to satisfy future amortization.
The amortization rate for the 2027 Term Loan B Facility is 5.00% per annum, or $125 million, payable in quarterly installments beginning on September 30, 2022. The Company may direct that prepayments be applied to such amortization payments in order of maturity. As of September 30, 2022, the remaining mandatory quarterly amortization payments for the 2027 Term Loan B Facility were $531 million through December 2026.
The 2022 Amended Credit Agreement permits the incurrence of incremental credit facility borrowings up to the greater of $1,000 million and 40% of Consolidated Adjusted EBITDA (non-GAAP) (as defined in the 2022 Amended Credit Agreement), subject to customary terms and conditions, as well as the incurrence of additional incremental credit facility borrowings subject to, in the case of secured debt, a secured leverage ratio of not greater than 3.50:1.00, and, in the case of unsecured debt, either a total leverage ratio of not greater than 6.50:1.00 or an interest coverage ratio of not less than 2.00:1.00.
The 2022 Amended Credit Agreement provides that Bausch + Lomb shall initially be a “restricted” subsidiary subject to the terms of the 2022 Amended Credit Agreement covenants, but does not require Bausch + Lomb to guarantee the obligations under the 2022 Amended Credit Agreement. The 2022 Amended Credit Agreement permits the Company to designate Bausch + Lomb as an “unrestricted” subsidiary under the 2022 Amended Credit Agreement and no longer subject to the terms of the covenants thereunder provided that no event of default is continuing or will result from such designation and the total leverage ratio of Remainco (as defined in the 2022 Amended Credit Agreement) will not be greater than 7.60:1.00 on a pro forma basis. The Credit Agreement Refinancing contains provisions designed to facilitate the B+L Separation.
Senior Secured Credit Facilities under the B+L Credit Agreement
On May 10, 2022, Bausch + Lomb entered into a credit agreement (the “B+L Credit Agreement”, and the credit facilities thereunder, the “B+L Credit Facilities”) providing for a term loan of $2,500 million with a five-year term to maturity (the “B+L Term Facility”) and a five-year revolving credit facility of $500 million (the “B+L Revolving Credit Facility” and such financing, the “B+L Debt Financing”). The B+L Credit Facilities are secured by substantially all of the assets of Bausch + Lomb and its material, wholly-owned Canadian, U.S., Dutch and Irish subsidiaries, subject to certain exceptions. The term loan is denominated in U.S. dollars, and borrowings under the revolving credit facility will be made available in U.S. dollars, euros, pounds sterling and Canadian dollars. As of September 30, 2022, the principal amount outstanding under the B+L Term Facility was $2,494 million and $2,442 million net of issuance costs. The B+L Revolving Credit Facility remained undrawn.
The B+L Revolving Credit Facility is a source of funding for Bausch + Lomb and its subsidiaries only. Absent the payment of a dividend, which would be determined by the Board of Directors of Bausch + Lomb and paid pro rata to Bausch + Lomb’s shareholders, proceeds from the B+L Revolving Credit Facility are not available to fund the operations, investing and financing activities of Bausch Health.
Borrowings under the B+L Revolving Credit Facility in: (i) U.S. dollars bear interest at a rate per annum equal to, at Bausch + Lomb’s option, either: (a) a term Secured Overnight Financing Rate (“SOFR”)-based rate or (b) a U.S. dollar base rate, (ii) Canadian dollars bear interest at a rate per annum equal to, at Bausch + Lomb’s option, either: (a) a Canadian Dollar Offered Rate (“CDOR”) or (b) a Canadian dollar prime rate, (iii) euros bear interest at a rate per annum equal to EURIBOR and (iv) pounds sterling bear interest at a rate per annum equal to Sterling Overnight Index Average (“SONIA”) (provided, however, that the term SOFR-based rate, CDOR, EURIBOR and SONIA shall be no less than 0.00% per annum at any time and the U.S. dollar base rate and the Canadian dollar prime rate shall be no less than 1.00% per annum at any time), in each case, plus an applicable margin. Term SOFR-based loans are subject to a credit spread adjustment of 0.10%.
The applicable interest rate margins for borrowings under the B+L Revolving Credit Facility are: (i) between 0.75% to 1.75% with respect to U.S. dollar base rate or Canadian dollar prime rate borrowings and between 1.75% to 2.75% with respect to SOFR, EURIBOR, SONIA or CDOR borrowings based on Bausch + Lomb’s total net leverage ratio and (ii) after: (x) Bausch + Lomb’s senior unsecured non-credit-enhanced long term indebtedness for borrowed money receives an investment grade rating from at least two of S&P, Moody’s and Fitch and (y) the B+L Term Facility has been repaid in full in cash (the “IG Trigger”), between 0.015% to 0.475% with respect to U.S. dollar base rate or Canadian dollar prime rate borrowings and between 1.015% to 1.475% with respect to SOFR, EURIBOR, SONIA or CDOR borrowings based on Bausch + Lomb’s debt rating. In addition, Bausch + Lomb is required to pay commitment fees of 0.25% per annum in respect of the unutilized commitments under the B+L Revolving Credit Facility, payable quarterly in arrears until the IG Trigger and a facility fee between 0.110% to 0.275% of the total revolving commitments, whether used or unused, based on Bausch + Lomb’s debt rating and payable quarterly in arrears. Bausch + Lomb is also required to pay 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 SOFR borrowings under the B+L Revolving Credit Facility on a per annum basis, payable quarterly in arrears, as well as customary fronting fees for the issuance of letters of credit and agency fees.
TheBorrowings under the B+L Term Facility bear interest at a rate per annum equal to, at Bausch + Lomb’s option, either (i) a term SOFR-based rate, plus an applicable interest rate margins for the Series F Tranche B Term Loan Facility are 3.75% with respect tomargin of 3.25% or (ii) a U.S. dollar base rate, borrowingsplus an applicable margin of 2.25% (provided, however, that the term SOFR-based rate shall be no less than 0.50% per annum at any time and 4.75% with respect to LIBOthe U.S. dollar base rate borrowings,shall not be lower than 1.50% per annum at any time). Term SOFR-based loans are subject to a 0.75% LIBOcredit spread adjustment of 0.10%. The stated rate floor.of interest under the Term Facility at September 30, 2022 was 6.10% per annum.
Subject to certain exceptions and customary baskets set forth in the B+L Credit Agreement, Bausch + Lomb is required to make mandatory prepayments of the loans under the B+L Term Facility 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, decrease based on leverage ratios and net proceeds threshold), (ii) 100% of the net cash proceeds from the incurrence of debt (other than permitted debt as described in the B+L Credit Agreement), (iii) 50% of Excess Cash Flow (as defined in the B+L Credit Agreement) subject to decrease based on leverage ratios and subject to a threshold amount and (iv) 100% of net cash proceeds from asset sales (subject to reinvestment rights, decrease based on leverage ratios and net proceeds threshold). These mandatory prepayments may be used to satisfy future amortization.
The amortization rate for the B+L Term Facility is 1.00% per annum, or $25 million, payable in quarterly installments. Bausch + Lomb may direct that prepayments be applied to such amortization payments in order of maturity. As of September 30, 2017,2022, the stated rate of interest onremaining mandatory quarterly amortization payments for the Company’s borrowings underB+L Term Facility were $113 million through March 2027, with the Series F Tranche B Term Loan Facility was 5.99% per annum.remaining term loan balance being due in May 2027.
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 2022 Amended Credit Agreement and existing Senior Unsecured Notes (together, the “Note Guarantors”). In connection with the closing of the B+L IPO, the redemption of the Company’s 6.125% Senior Unsecured Notes due 2025 (the “April 2025 Unsecured Notes” and the related indenture, the “April 2025 Unsecured Notes Indenture”) (as discussed below) and the related release in respect of the 2018 Restated Credit Agreement, the guarantees and related security provided by Bausch + Lomb and its subsidiaries in respect of the existing senior notes of the Company and BHA were released.
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 2022 Amended 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.
4.875% Senior Secured Notes due 2028 - June 2021 Refinancing Transactions
On June 8, 2021, the Company issued $1,600 million aggregate principal amount of 4.875% Senior Secured Notes due June 2028 (the “June 2028 Secured Notes”) in a private placement. The proceeds and cash on hand were used to: (i) repurchase a portion and redeem the remainder of $1,600 million of 7.00% Senior Secured Notes due 2024 (the “March 2024 Secured Notes”), representing the remaining outstanding principal balance of the March 2024 Secured Notes and (ii) pay all fees and expenses associated with these transactions (collectively, the “June 2021 Refinancing Transactions”). The June 2021 Refinancing Transactions were accounted for as an extinguishment of debt and the Company incurred a loss on extinguishment of debt of $38 million representing the difference between the amount paid to settle the extinguished debt and the extinguished debt’s carrying value. Interest on the June 2028 Secured Notes is payable semi-annually in arrears on each June 1 and December 1.
The June 2028 Secured Notes are redeemable at the option of the Company, in whole or in part, at any time on or after June 1, 2024, at the redemption prices set forth in the June 2028 Secured Notes indenture. The Company may redeem some or all of the June 2028 Secured Notes prior to June 1, 2024 at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the date of the redemption plus a “make-whole” premium. In addition, at any time prior to June 1, 2024, the Company may redeem up to 40% of the aggregate principal amount of the June 2028 Secured Notes using the net proceeds of certain equity offerings at the redemption price set forth in the June 2028 Secured Notes indenture.
6.125% Senior Secured Notes due 2027 - February 2022 Financing
On February 10, 2022, the Company issued $1,000 million aggregate principal amount of 6.125% Senior Secured Notes due February 2027 (the “February 2027 Secured Notes”). The proceeds from the February 2027 Secured Notes, along with proceeds from the B+L IPO, the 2027 Term Loans and the B+L Debt Financing and cash on hand, were used to redeem the April 2025 Unsecured Notes and the Credit Agreement Refinancing as discussed below. The February 2027 Secured Notes accrue interest at a rate of 6.125% per year, payable semi-annually in arrears on each February and August.
The February 2027 Secured Notes are redeemable at the option of the Company, in whole or in part, at any time on or after February 2024, at the redemption prices set forth in the indenture. The Company may redeem some or all of the February 2027 Secured Notes prior to February 2024 at a price equal to 100% of the principal amount thereof plus a “make-whole” premium. Prior to February 2024, the Company may redeem up to 40% of the aggregate principal amount of the February 2027 Secured Notes using the proceeds of certain equity offerings at the redemption price set forth in the indenture.
New BHC Secured Notes
The 11.00% First Lien Secured Notes mature on September 30, 2028, and accrue interest at 11.00% per year, payable semi-annually in arrears on each March 30 and September 30. The 11.00% First Lien Secured Notes are redeemable, in whole or in part, at any time at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the date of redemption plus a “make-whole” premium as described in the 11.00% First Lien Secured Notes indenture.
The 14.00% Second Lien Secured Notes mature on October 15, 2030, and accrue interest at 14.00% per year, payable semi-annually in arrears on each April 15 and October 15. The 14.00% Second Lien Secured Notes will be redeemable, in whole or in part, at any time on or after October 15, 2025 at the applicable redemption prices set forth in the 14.00% Second Lien Secured Notes indenture. In addition, some or all of the 14.00% Second Lien Secured Notes may be redeemed prior to October 15, 2025 at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the date of redemption plus a “make-whole” premium as described in the 14.00% Second Lien Secured Notes indenture. At any time prior to October 15, 2025, up to 40% of the aggregate principal amount of the 14.00% Second Lien Secured Notes may be redeemed with the net proceeds of certain equity offerings at the redemption price set forth in the 14.00% Second Lien Secured Notes indenture.
9.00% Intermediate Holdco Senior Secured Notes
The 9.00% Intermediate Holdco Secured Notes mature on January 30, 2028, and accrue interest at 9.00% per year, payable semi-annually in arrears on each January 30 and July 30. The 9.00% Intermediate Holdco Secured Notes are redeemable at the option of Intermediate Holdco, in whole or in part, at any time, at the redemption prices set forth in the 9.00% Intermediate Holdco Secured Notes indenture.
The 9.00% Intermediate Holdco Secured Notes are general senior secured obligations of Intermediate Holdco and secured by first priority liens (subject to permitted liens and certain other exceptions) on substantially all of the assets of Intermediate Holdco, which as of September 30, 2022 were comprised of 38.6% of the issued and outstanding common shares of Bausch + Lomb Corporation. The 9.00% Intermediate Holdco Secured Notes and Intermediate Holdco’s other obligations under the indenture governing such notes are not obligations or responsibilities of, or guaranteed by, the Company, Bausch + Lomb or any of their respective affiliates or subsidiaries (other than the issuer Intermediate Holdco). The sole recourse of the holders of the 9.00% Intermediate Holdco Secured Notes under the 9.00% Intermediate Holdco Secured Notes and the indenture governing such notes is limited to Intermediate Holdco and its assets.
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 Secured2022 Amended Credit Facilities.Agreement. 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 Secured2022 Amended Credit Facilities.Agreement. Future subsidiaries of the Company and Valeant,BHA, if any, may be required to guarantee certain of the Senior Unsecured Notes. In connection with the closing of the B+L IPO, the discharge of the April 2025 Unsecured Notes Indenture and the related release in respect of the 2018 Restated Credit Agreement, the guarantees and related security provided by Bausch + Lomb and its subsidiaries in respect of the existing senior notes of the Company and BHA were released.
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 partRedemption of April 2025 Unsecured Notes
On January 18, 2022, the Company issued conditional notices of redemption to redeem: (i) all of the March 2017April 2025 Unsecured Notes conditioned upon the completion of the Credit Agreement Refinancing Transactions, the Company completed a tender offer to repurchase $1,100and (ii) $370 million in aggregate principal amount of the August 2018Company’s outstanding 9.00% Senior Unsecured Notes due 2025 (the “December 2025 Unsecured Notes”) conditioned upon the receipt of aggregate proceeds of at least $7,000 million from: (a) the B+L IPO, (b) the B+L Debt Financing, (c) the Credit Agreement Refinancing and (d) the issuance of the February 2027 Secured Notes.
In connection with the closing of the B+L IPO, the conditions of the redemption of its April 2025 Unsecured Notes were satisfied and the Company discharged the April 2025 Unsecured Notes Indenture using: (i) the net proceeds from the issuance of the February 2027 Secured Notes, (ii) the net proceeds from the B+L IPO, (iii) the net proceeds from the borrowings under the B+L Debt Financing and (iv) cash on hand. On May 10, 2022, the Company caused sufficient funds for total considerationthe redemption in full of approximately $1,132 million plus accruedits April 2025 Unsecured Notes at a redemption price of 101.021% of the principal amount then outstanding to be irrevocably deposited with the Bank of New York Mellon, N.A., as trustee under the April 2025 Unsecured Notes Indenture, and unpaid interest through March 20, 2017. Lossthe April 2025 Unsecured Notes Indenture was discharged. The April 2025 Unsecured Notes were redeemed on May 16, 2022. The redemption was accounted for as an extinguishment of debt duringdebt.
On May 10, 2022, the three months ended March 31, 2017 associatedCompany notified the Trustee and holders of its outstanding December 2025 Unsecured Notes that the conditions to its previously announced redemption would not be satisfied, and the conditional redemption was cancelled.
In connection with the repurchaseclosing of the August 2018 SeniorB+L IPO, the discharge of the April 2025 Unsecured Notes was $36 million representing the difference between the amount paid to settle the debtIndenture and the debt’s carrying value.
On August 15, 2017,related release in respect of the 2018 Restated Credit Agreement as described above, the guarantees and related security provided by Bausch + Lomb and its subsidiaries in respect of the existing senior notes of 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.BHA were released.
Weighted Average Stated Rate of Interest
The weighted average stated rate of interest for the Company’s outstanding debt obligations as of September 30, 20172022 and December 31, 20162021 was 6.09%7.24% and 5.75%5.88%, respectively. Due to the accounting treatment for the New Secured Notes, interest expense in the Company’s financial statements in future periods will not be representative of the weighted average stated rate of interest.
Gain (Loss) on Extinguishment of Debt
In September 2022, the Company completed the Exchange Offer and recorded a net gain of $570 million as described above.
In June 2022, the Company repurchased and retired certain outstanding Senior Unsecured Notes with an aggregate par value of $481 million in the open market, for an aggregate cost of $300 million. In connection with these repurchases, the Company recognized a gain of $176 million on extinguishment of debt which represents the differences between the amounts paid to settle the extinguished debt and its carrying value.
In connection with (i) the repayment of the June 2025 Term Loan B Facility, November 2025 Term Loan B Facility and 2023 Revolving Credit Facility and (ii) the redemption of April 2025 Unsecured Notes, the Company incurred a loss on extinguishment of debt of $63 million representing the difference between the amount paid to settle the extinguished debt and the extinguished debt’s carrying value.
Maturities
MaturitiesThe Company may, from time to time, purchase outstanding debt for cash in open market purchases or privately negotiated transactions. Such repurchases or exchanges, if any, will depend on prevailing market conditions, future liquidity requirements, contractual restrictions and mandatory amortization paymentsother factors.
Maturities of debt obligations for the period October through December 2017,remainder of 2022, the five succeeding years ending December 31 and thereafter are as follows:
| | | | | |
| (in millions) | |
| Remainder of 2022 | $ | 38 | |
| 2023 | 150 | |
| 2024 | 150 | |
| 2025 | 2,859 | |
| 2026 | 898 | |
| 2027 | 6,926 | |
| Thereafter | 8,553 | |
| Total debt obligations | 19,574 | |
| Unamortized premiums, discounts and issuance costs | 1,641 | |
| Total long-term debt and other | $ | 21,215 | |
11.PENSION AND POSTRETIREMENT EMPLOYEE BENEFIT PLANS
|
| | | |
| (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 |
|
During the nine months ended September 30, 2017, the Company made aggregate repayments of long-term debt of $9,249 million, which consisted of (i) $7,199 million of repayments of term loans under its Senior Secured Credit Facilities, (ii) $1,600 million of repurchased August 2018 Senior Unsecured Notes, and (iii) $450 million of 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 Notes 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, 20172022 and 2016:2021 consists of:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefit Plans | | Postretirement
Benefit
Plan |
| U.S. Plan | | Non-U.S. Plans | |
| (in millions) | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| Service cost | | $ | 1 | | | $ | — | | | $ | 3 | | | $ | 3 | | | $ | — | | | $ | — | |
| Interest cost | | 3 | | | 3 | | | 3 | | | 3 | | | 1 | | | — | |
| Expected return on plan assets | | (7) | | | (8) | | | (4) | | | (4) | | | — | | | — | |
| Amortization of prior service credit and other | | — | | | — | | | (1) | | | (1) | | | (2) | | | (2) | |
| Amortization of net loss | | — | | | — | | | 1 | | | 1 | | | — | | | — | |
| Net periodic (benefit) cost | | $ | (3) | | | $ | (5) | | | $ | 2 | | | $ | 2 | | | $ | (1) | | | $ | (2) | |
12.SHARE-BASED COMPENSATION
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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.
| |
12. | SHARE-BASED COMPENSATION |
In May 2014, the shareholders approved the Company’sBausch Health’s 2014 Omnibus Incentive Plan (the “2014 Plan”) which replaced the Company’sBausch Health’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 iswas 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. The 2014 Plan was amended and restated effective April 30, 2018 and April 28, 2020 to, among other things, increase the number of common shares authorized for issuance under the 2014 Plan.
Effective June 21, 2022, Bausch Health further amended and restated the 2014 Plan, as subsequently amended and restated (the “Amended and Restated 2014 Plan”). Such amendment and restatement increased the number of common shares authorized for issuance under the Amended and Restated 2014 Plan by an additional 11,500,000 common shares, among other things.
Approximately 7,205,00018,328,000 common shares were available for future grants under the Amended and Restated 2014 Plan as of September 30, 2017.2022. 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 introducedBausch Health has a new long-term incentive program with the objective to re-alignof aligning 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 thatthat: (i) vest upon achievement of certain share price appreciation conditions that are based on total shareholder return (“TSR”) and awards that, (ii) vest upon attainment of certain performance targets that are based on the Company’s return on tangible capital (“ROTC”). and (iii) vest fully or partially upon attainment of certain goals that are linked to the B+L Separation.
The fair valueIn order to retain and incentivize certain members of the ROTCCompany’s senior leadership team, on September 5, 2022, the Talent and Compensation Committee of the Board of Directors approved a retention program for certain executive officers and other members of leadership. Under the retention program, certain executive officers and other members of leadership were granted a one-time award of restricted stock units (the “Retention RSU Grant”) under the Amended and Restated 2014 Plan. The Retention RSU Grants will generally vest in 1/3 installments on each of the first three anniversaries of the grant date based on continuous employment with Bausch Health.
Bausch + Lomb Long-Term Incentive Plan
Prior to May 5, 2022, Bausch + Lomb participated in Bausch Health’s long-term incentive program. Effective May 5, 2022, Bausch + Lomb established the Bausch + Lomb Corporation 2022 Omnibus Incentive Plan (the “B+L Plan”). A total of 28,000,000 common shares of Bausch + Lomb are authorized under the B+L Plan. The B+L Plan provides for the grant of various types of awards including RSUs, stock appreciation rights, stock options, performance-based awards and cash awards. Under the Plan, the exercise price of awards, if any, is set on the grant date and may not be less than the fair market value per share on that date. Generally, stock options have a term of ten years and a three-year vesting period, subject to limited exceptions.
On May 5, 2022, in connection with the B+L IPO, Bausch + Lomb granted certain awards to certain eligible recipients (the “IPO Founder Grants”). Eligible recipients are individuals employed by Bausch + Lomb or employed by an affiliate of Bausch + Lomb. Approximately 3,900,000 IPO Founder Grants were issued to Bausch + Lomb executive officers and were awarded 50% in the form of stock options and 50% in the form of RSUs. Additionally, Bausch + Lomb granted approximately 5,700,000 stock options and RSUs is estimatedto non-executive eligible recipients, of which approximately 4,300,000 were B+L IPO Founder Grants. The IPO Founder options have a three-year graded vesting period and the IPO Founder RSUs vest 50% in the second year and 50% in the third year after the grant. With the exception of the separation agreement and retention program, as discussed below, vesting of the IPO Founder Grants are linked to the completion of the B+L Separation and expense recognition will begin near the time of the B+L Separation.
On July 19, 2022, Bausch + Lomb entered into a separation agreement in connection with the departure of its Chief Executive Officer (“CEO”). Under the terms of the separation agreement, the CEO’s IPO Founder Grants in the form of RSUs will vest upon his termination of service date (pro rated based on his period of service relative to the original three-year vesting period associated with such grants), but the shares received upon settlement will remain fully restricted and nontransferable until the earliest to occur of the distribution date, a change in control, the date the Board determines that Bausch Health will no longer pursue a distribution, and the two-year anniversary of the CEO’s termination of service date. Under the terms of the separation agreement, the CEO’s IPO Founder Grants in the form of stock options will vest and become exercisable (pro-rated based on his period of service relative to the original three-year vesting period associated with such grants) upon the earliest to occur of the distribution date, a change in control, the date the Board determines that Bausch Health will no longer
pursue a distribution, and the two-year anniversary of the CEO’s termination of service date and remain exercisable for two years following this date.
During the third quarter of 2022, the Talent and Compensation Committee of the Bausch + Lomb Board of Directors approved a retention program that includes Bausch + Lomb’s named executive officers (other than the CEO) and certain other employees. This program provides the Executive Officers (other than the CEO), among other benefits, pro-rata vesting of the IPO Founder Grants previously issued to these named executives, subject to certain restrictions, in the event of an involuntary termination of employment by Bausch + Lomb without “cause” or the executive’s resignation for “good reason”, in each case through the one-year anniversary of Bausch + Lomb’s appointment of the successor to the CEO (pro-rated based on the trading priceperiod of service relative to the original three-year vesting period associated with such grants). Additionally, these named executive officers (other than the CEO) and certain other employees were granted a one-time award of approximately 850,000 RSUs under the retention program pursuant to Bausch + Lomb’s 2022 Omnibus Incentive Plan. The retention grant will generally vest in 1/3 installments on each of the Company’sfirst three anniversaries of the grant date based on continuous employment with Bausch + Lomb.
Approximately 17,500,000 Bausch + Lomb common shares onwere available for future grants as of September 30, 2022 under 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 expectedB+L Plan. Bausch + Lomb uses reserved and unissued common shares to vest. If the ROTC performance-based RSUs do not ultimately vest due to the ROTC targets not being met, nosatisfy its obligations under its share-based 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.plans.
The following table summarizes the components and classification of the Company's share-based compensation expenseexpenses related to stock options and RSUs for the three and nine months ended September 30, 20172022 and 2016:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Stock options | | $ | 3 | | | $ | 4 | | | $ | 10 | | | $ | 11 | |
| RSUs | | 30 | | | 29 | | | 81 | | | 84 | |
| | $ | 33 | | | $ | 33 | | | $ | 91 | | | $ | 95 | |
| | | | | | | | |
| Research and development expenses | | $ | 3 | | | $ | 2 | | | $ | 9 | | | $ | 7 | |
| Selling, general and administrative expenses | | 30 | | | 31 | | | 82 | | | 88 | |
| | $ | 33 | | | $ | 33 | | | $ | 91 | | | $ | 95 | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, |
| Nine Months Ended
September 30, |
| (in millions) | 2017 |
| 2016 |
| 2017 |
| 2016 |
| Stock options | $ | 4 |
| | $ | 4 |
| | $ | 14 |
| | $ | 11 |
|
| RSUs | 15 |
| | 33 |
| | 56 |
| | 123 |
|
| | $ | 19 |
| | $ | 37 |
| | $ | 70 |
| | $ | 134 |
|
| | | | | | | | |
| Research and development expenses | $ | 2 |
| | $ | 2 |
| | $ | 6 |
| | $ | 5 |
|
| Selling, general and administrative expenses | 17 |
| | 35 |
| | 64 |
| | 129 |
|
| | $ | 19 |
| | $ | 37 |
| | $ | 70 |
| | $ | 134 |
|
DuringShare-based awards granted for the nine months ended September 30, 20172022 and 2016, the Company granted approximately 1,545,000 stock options with a weighted-average exercise price of $14.28 per option and approximately 2,414,000 stock options with a weighted-average exercise price of $26.04 per option, respectively. The weighted-average fair values of all stock options granted to employees during the nine months ended September 30, 2017 and 2016 were $5.97 and $14.76, respectively.2021 consist of:
During the nine months ended September 30, 2017 and 2016, the Company granted approximately3,557,000time-based RSUs with a weighted-average grant date fair value of $11.78per RSU and approximately 1,675,000 time-based RSUs with a weighted-average grant date fair value of $30.94 per RSU, respectively.
During the nine months ended September 30, 2017, the Company granted approximately416,000performance-based RSUs, consisting of approximately 208,000 units of TSR performance-based RSUs with an average grant date fair value of $16.34 per RSU and approximately 208,000 units of ROTC performance-based RSUs with a weighted-average grant date fair value of $15.76per RSU. During the nine months ended September 30, 2016, the Company granted approximately 1,401,000 performance-based RSUs with a weighted-average grant date 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 met at the defined dates, provided continuing employment through those dates. Under the termination provisions of his employment agreement, upon termination 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 RSU 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. | | | | | | | | | | | |
| 2022 | | 2021 |
| Bausch Health Share-Based Awards | | | |
| Stock options | | | |
| Granted | 2,570,000 | | | 1,497,000 | |
| Weighted-average exercise price | $ | 23.95 | | | $ | 32.44 | |
| Weighted-average grant date fair value | $ | 6.60 | | | $ | 11.11 | |
| Time-based RSUs | | | |
| Granted | 6,151,000 | | | 3,119,000 | |
| Weighted-average grant date fair value | $ | 11.76 | | | $ | 31.93 | |
| TSR performance-based RSUs | | | |
| Granted | — | | | 400,000 | |
| Weighted-average grant date fair value | $ | — | | | $ | 56.04 | |
| ROTC performance-based RSUs | | | |
| Granted | 369,000 | | | 413,000 | |
| Weighted-average grant date fair value | $ | 9.40 | | | $ | 31.72 | |
| B+L Separation performance-based RSUs | | | |
| Granted | — | | | 222,000 | |
| Weighted-average grant date fair value | $ | — | | | $ | 28.49 | |
| Bausch+ Lomb Share-Based Awards | | | |
| Stock options | | | |
| Granted | 6,455,000 | | | — | |
| Weighted-average exercise price | $ | 18.00 | | | $ | — | |
| Weighted-average grant date fair value | $ | 4.55 | | | $ | — | |
| Time-based RSUs | | | |
| Granted | 4,205,000 | | | — | |
| Weighted-average grant date fair value | $ | 17.22 | | | $ | — | |
As of September 30, 2017,2022, the remaining unrecognized compensation expenseexpenses related to all outstanding non-vested stock options, time-based RSUs and performance-based RSUs amounted to $129$152 million, which will be amortized over a weighted-average period of 2.111.77 years.
| |
13. | ACCUMULATED OTHER COMPREHENSIVE LOSS |
The componentsAs of accumulatedSeptember 30, 2022, the remaining unrecognized compensation expenses related to all outstanding non-vested stock options, time-based RSUs and performance-based RSUs under the B+L Plan amounted to $72 million, which will be amortized over a weighted-average period of 1.64 years.
13.ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss were as follows:consists of:
|
| | | | | | | | |
| (in millions) | | September 30,
2017 | | December 31,
2016 |
| Foreign currency translation adjustments | | $ | (1,850 | ) | | $ | (2,074 | ) |
| Pension and postretirement benefit plan adjustments, net of tax | | (38 | ) | | (34 | ) |
| | | $ | (1,888 | ) | | $ | (2,108 | ) |
| | | | | | | | | | | | | | |
| (in millions) | | September 30,
2022 | | December 31,
2021 |
| Foreign currency translation adjustment | | $ | (2,252) | | | $ | (1,905) | |
| | | | |
| Pension and postretirement benefit plan adjustments, net of income taxes | | (13) | | | (19) | |
| | $ | (2,265) | | | $ | (1,924) | |
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.
As a result of the change in the Company’s ownership interest in Bausch + Lomb, the carrying amount of accumulated other comprehensive income was adjusted to reflect the change in the ownership interest in Bausch + Lomb through a corresponding credit of $137 million to equity attributable to the Company. | |
14. | RESEARCH AND DEVELOPMENT |
14.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, |
| (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Product related research and development | | $ | 125 | | | $ | 114 | | | $ | 366 | | | $ | 328 | |
| Quality assurance | | 8 | | | 7 | | | 21 | | | 20 | |
| | $ | 133 | | | $ | 121 | | | $ | 387 | | | $ | 348 | |
15.OTHER EXPENSE (INCOME), NET
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | | 2017 | | 2016 | | 2017 | | 2016 |
| Product related research and development | | $ | 73 |
| | $ | 91 |
| | $ | 245 |
| | $ | 301 |
|
| Quality assurance | | 8 |
| | 10 |
| | 26 |
| | 27 |
|
| | | $ | 81 |
| | $ | 101 |
| | $ | 271 |
| | $ | 328 |
|
| |
15. | OTHER (INCOME) EXPENSE, NET |
Other expense (income) expense,, net consists of:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Litigation and other matters | | $ | — | | | $ | (212) | | | $ | 7 | | | $ | 320 | |
| Acquisition-related contingent consideration | | 4 | | | 8 | | | 2 | | | 8 | |
| (Gain) loss on sale of assets, net | | — | | | 21 | | | (3) | | | (2) | |
| Acquired in-process research and development costs | | — | | | — | | | 1 | | | 3 | |
| Other, Net | | — | | | — | | | (1) | | | — | |
| | $ | 4 | | | $ | (183) | | | $ | 6 | | | $ | 329 | |
(Gain) loss on sale of assets, net 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, |
| (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 by2021, includes $25 million to reflect working capital adjustmentsrelated to the initial sales priceachievement of a milestone related to a certain product and a $26 million loss upon completion of the Amoun Sale during the three months ended September 30, 2017. See Note 4, "DIVESTITURES" for details related to the Gain on the Dendreon Sale.2021.
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.
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 the Company'sa company’s 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 the Company's annual effectiveCompany’s 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'sCompany’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, during the three months ended December 31, 2016, the Company began a series of internal restructuring transactions that were completed during the three months ended September 30, 2017 and resulted in a total tax benefit of $1,397 million and $2,626 millionProvision for income taxes for the three months and nine months ended September 30, 2017, respectively.
Recovery2022 was $30 million and included: (i) $42 million of income taxes duringtax expense for the threeCompany’s ordinary income for the nine months ended September 30, 20172022 and (ii) $9 million of net income tax benefit for discrete items, which includes: (a) $37 million of net income tax benefit recognized for changes in uncertain tax positions, (b) a $22 million tax provision associated with filing certain tax returns and (c) a $5 million tax provision associated with stock compensation.
Benefit from income taxes for the nine months ended September 30, 2021 was $1,700$36 million and primarily included: (i) $1,397 million of tax benefit from internal restructuring efforts, (ii) $179$34 million of income tax benefit for the Company'sCompany’s ordinary loss during the three months ended September 30, 2017, and (iii) a $108 million tax benefit related to an intangible impairment during 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 duringfor the nine months ended September 30, 2017 was $2,8292021 and (ii) $2 million and included: (i) $334of net income tax provision for discrete items, which includes: (a) a $54 million of net income tax benefit associated with certain legal settlements, (b) a $46 million tax provision related to potential and recognized withholding tax on intercompany dividends, (c) an $11 million tax provision recognized for the Company's ordinary loss during the nine months ended September 30, 2017, (ii) $2,626 million ofchanges in uncertain 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, (iii) a tax charge of $224 million resulting from the Company’s
divestitures during the nine months ended September 30, 2017, and (iv) a $108provisions, (d) an $8 million tax benefit related to an intangible impairment duringa deduction for stock compensation and (e) a $3 million tax provision associated with the three months ended September 30, 2017.filing of certain tax returns.
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. The valuation allowance against deferred tax assets was $2,225$1,931 million and $1,857$2,222 million as of September 30, 20172022 and December 31, 2016,2021, respectively. The increasedecrease was primarily due to continuedthe utilization of net operating losses against debt
forgiveness income in Canada.Canada associated with the Exchange Offer. The Company will continue to assess the need for a valuation allowance on a go-forwardan ongoing basis.
On October 8, 2021, the Organisation for Economic Co-operation and Development (“OECD”)/G20 inclusive framework on Base Erosion and Profit Shifting (the “Inclusive Framework”) published a statement updating and finalizing the key components of a two-pillar plan on global tax reform originally agreed on July 1, 2021, and a timetable for implementation by 2023. The timetable for implementation has since been extended to 2024. The Inclusive Framework plan has now been agreed to by 141 OECD members, including several countries which did not agree to the initial plan. Under pillar one, taxing rights over multinational businesses with global turnover above €20 billion and a profit margin above 10% will generally be re-allocated to market jurisdictions. Under pillar two, the Inclusive Framework has agreed on a global minimum corporate tax rate of 15% for companies with revenue above €750 million, calculated on a country-by-country basis. On October 30, 2021, the G20 formally endorsed the new global minimum corporate tax rate rules. The Inclusive Framework agreement must now be implemented by the OECD Members who have agreed to the plan, effective in 2023. On December 20, 2021, the OECD published model rules to implement the pillar two rules, which are generally consistent with agreements reached by the Inclusive Framework in October 2021. Some further guidance on the plan and rules has been published, with additional guidance expected to be published in 2023. The Company will continue to monitor the implementation of the Inclusive Framework agreement by the countries in which it operates. While the Company is unable to predict when and how the Inclusive Framework agreement will be enacted into law in these countries, it is possible that the implementation of the Inclusive Framework agreement, including the global minimum corporate tax rate could have a material effect on the Company’s liability for corporate taxes and the Company’s consolidated effective tax rate.
On August 16, 2022, President Biden signed the Inflation Reduction Act into law, which includes implementation of a new alternative minimum tax, an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives, among other provisions. The corporate alternative minimum tax (“CAMT”) imposes a minimum tax on the adjusted financial statement income (“AFSI”) for “applicable corporations” with average annual AFSI over a three-year period in excess of $1 billion. A corporation that is a member of a foreign-parented multinational group, as defined, must include the AFSI (with certain modifications) of all members of the group in applying the $1 billion test, but would only be subject to CAMT if the three-year average AFSI of its U.S. members, US trades or business of foreign group members that are not subsidiaries of U.S. members, and foreign subsidiaries of U.S. members exceeds $100 million. The Company currently does not believe this will have a significant impact on its tax benefit forresults, but will continue to evaluate the ninelaw and its provisions.
As detailed in Note 10, “FINANCING ARRANGEMENTS”, during the three months ended September 30, 2016 was $179 million,2022, the Company undertook a restructuring of its third-party debt resulting in extinguishment of debt income in the US and included: (i) $179 million related to the expectedCanada for 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.purposes.
As of September 30, 20172022 and December 31, 2016,2021, the Company had $500$937 million and $423$927 million, respectively, of unrecognized tax benefits, which included $44$45 million and $39$41 million respectively, relating toof interest and penalties.penalties, respectively. Of the total unrecognized tax benefits as of September 30, 2017, $2572022, $164 million would reduce the Company’s effective tax rate, if recognized. The Company anticipatesbelieves that an immaterialit is reasonably possible that the total amount of unrecognized tax benefits may be resolved withinat September 30, 2022 could decrease by approximately $13 million in the next 12 months.months as a result of the resolution of certain tax audits and other events.
The Company continues to be under examination by the Canada Revenue Agency (“CRA”).Agency. The Company’s position as of September 30, 2022 with regard to proposed audit adjustments has not changed as of September 30, 2017 and the total proposed adjustment continueswas updated to reflect an updated assessment received for 2015 which would primarily result in a loss of tax attributes whichthat are subject to a full valuation allowance.
In 2017, the Company undertook an internal restructuring in the form of what is commonly known as a Granite Trust transaction, which resulted in a recorded capital loss (the “2017 capital loss”). In the U.S., the 2014 tax year remains open to the extent of the portion of the 2017 capital loss carried back to that year. The Internal Revenue Service (“IRS”) is continuing its examination of the Company’s U.S. consolidated federal incomeannual tax filings for 2015 and 2016 and the Company’s short period tax return for the 2013period ended September 8, 2017, which was filed as a result of the Company’s internal restructuring efforts during 2017. In 2021, the Company received a notice of proposed adjustment from the IRS that would disallow the 2017 capital loss. The Company intends to contest any proposed tax deficiency through the IRS administrative appeals process, and 2014if necessary, appropriate litigation. If the Company were ultimately unsuccessful in defending its position, and all or a substantial portion of the 2017 capital loss deduction were disallowed, the Company estimates, in a worst-case scenario, that it could be liable for additional income taxes (excluding penalties and interest) of up to $2,100 million, which could have an adverse effect on the Company’s financial condition and results of operations. The Company intends to vigorously defend its position, including through appropriate litigation, if necessary, and ultimately believes it will sustain its deduction of the 2017 capital loss, and, accordingly, no income tax years continues to be under examination byprovision has been recorded. The Company has been accepted into the Internal Revenue Service. IRS's fast track mediation program and mediation meetings are scheduled for early 2023.
The Company'sCompany’s U.S. affiliates remain under examination for various state tax audits in the U.S. for years 2002 to 2015.2015 through 2021.
The Company’s subsidiaries in AustraliaGermany are under audit byfor tax years 2014 through 2016. At this time, the Company does not expect that proposed adjustments, if any, would be material to the Company’s Consolidated Financial Statements.
The Company settled its audit with the Australian TaxTaxation 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 in this matter vigorously. To this end the Company has filed a holding objection against 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.no material adjustments.
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.
Company’s Consolidated Financial Statements.
| |
17. | EARNINGS (LOSS) PER SHARE |
17.EARNINGS (LOSS) PER SHARE
Earnings (loss) per share attributable to Valeant Pharmaceuticals International,Bausch Health Companies Inc. forwere calculated as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions, except per share amounts) | 2022 | | 2021 | | 2022 | | 2021 |
| Net income (loss) attributable to Bausch Health Companies Inc. | $ | 399 | | | $ | 188 | | | $ | 185 | | | $ | (1,017) | |
| Basic weighted-average common shares outstanding | 362.5 | | | 359.6 | | | 361.8 | | | 358.5 | |
| Diluted effect of stock options and RSUs | 0.9 | | | 4.4 | | | 1.9 | | | — | |
| Diluted weighted-average common shares outstanding | $ | 363.4 | | | $ | 364.0 | | | $ | 363.7 | | | $ | 358.5 | |
| Earnings (loss) per share attributable to Bausch Health Companies Inc. | | | | | | | |
| Basic | $ | 1.10 | | | $ | 0.52 | | | $ | 0.51 | | | $ | (2.84) | |
| Diluted | $ | 1.10 | | | $ | 0.52 | | | $ | 0.51 | | | $ | (2.84) | |
| | | | | | | |
During 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 | ) |
During the three months and nine months ended September 30, 2016,2021, 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, 2017,2022, time-based RSUs, performance-based RSUs and stock options time-based RSUs and performance-based RSUs to purchase approximately 7,601,00016,008,000 and 15,392,000 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 8,300,000method. During the three and nine months ended September 30, 2021, time-based RSUs, performance-based RSUs and stock options to purchase approximately 3,103,000 and 3,453,000 common shares, respectively, were not included in boththe computation of diluted earnings per share because the corresponding periodseffect would have been anti-dilutive under the treasury stock method. During the three and nine months ended September 30, 2022 and 2021, an additional 156,000 performance-based RSUs were not included in the computation of 2016.diluted earnings per share as the required performance conditions had not been met.
18.LEGAL PROCEEDINGS
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.in Note 20, “LEGAL PROCEEDINGS,” to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC and the CSA on February 23, 2022. Except as described below, there have been no material updates or developments with respect to any such proceedings or actions during the nine months ended September 30, 2022.
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, 2017,2022, the Company's consolidated balance sheetCompany’s Consolidated Balance Sheets includes accrued current loss contingencies of $133 million and non-current loss contingencies of $20$323 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 fromAs referenced above, during the U.S. Department of Justice Civil Divisionthree months ended September 30, 2022, there have been no material updates or developments with respect to certain other proceedings or actions as described under “Governmental and Regulatory Inquiries”inNote 20, “LEGAL PROCEEDINGS,” to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC and the CSA on February 23, 2022. These matters include:
Investigation by 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 - re OraPharma
In October 2015,August 2019, the Company received a subpoena from the U.S. Attorney'sAttorney’s Office for the District of Massachusetts (Department of Justice), requesting materials including documents concerning the sales, marketing, coverage and in June 2016, the Company received a follow up subpoena. The materials requested, pursuant to the subpoenasreimbursement of Arestin®, including related support services, 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 byother matters. In October 2022, the Company and the Company’s pricingDepartment of its products. The Company is cooperating with this investigation. The Company cannot predictJustice reached an agreement in principle to resolve the outcome or the duration of this investigation or any other legal proceedings or any enforcement actions or other remedies that may be imposed onas to the Company arising outfor an immaterial settlement payment plus payment of this investigation.
Investigationapplicable interest and other related costs. Any final resolution would be subject to certain material contingencies, including, without limitation, the parties negotiating mutually satisfactory civil settlement documents and final approvals by the U.S. Attorney's Office forDepartment of Justice and 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 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,Company. While 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 cooperatingreached an agreement in principle 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.
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 there can be no assurance 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. The Company has not received any notice of investigation from the AMF, and the Company cannot predict whether any investigationsettlement will be commenced byagreed to and finalized, nor the AMF or, if commenced, whether any enforcement action against the Company would result fromtiming of 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. The Company and B&L Inc. have responded to the State 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 Office of the California Insurance Commissioner an administrative subpoena to produce books, records and documents. On September 1, 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. and 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.potential resolution.
Securities and OtherRICO Class Actions and Related Matters
Allergan Shareholder Class ActionsU.S. Securities Litigation - Opt-Out Litigation
On December 16, 2014, Anthony Basile, an alleged shareholder of Allergan filed a lawsuit on behalf of a putative class of Allergan shareholders against2019, the Company Valeant, AGMS, Pershing Square, PS Management, GP, LLC, PS Fund 1 and William A. Ackmanannounced that it had agreed to settle, subject to final court approval, the consolidated securities class action filed 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 InNew Jersey (In re Valeant Pharmaceuticals International, Inc. Securities Litigation, Case 3:15-cv-07658- MAS-LHG, currently pending inNo. 15-cv-07658) (the “Securities Class Action Settlement”). On January 31, 2021, the United States District Court issued an order granting final approval of this settlement. On February 4, 2021, Timber Hill LLC (“Timber Hill”) filed a notice of appeal of the Court’s final approval order, which overruled its objections to the allocation of settlement proceeds as between common stock and options. On March 1, 2021, Cathy Lochridge filed a notice of appeal of the Court’s final approval order, which overruled her objections as to the attorneys’ fees awarded to class counsel. On October 14, 2021, Timber Hill dismissed its appeal of the final approval order. On December 20, 2021, the Third Circuit denied Lochridge’s appeal. On January 3, 2022, Lochridge filed a petition for rehearing of the Districtappeal en banc. On May 12, 2022, the Third Circuit denied Lochridge’s petition for rehearing en banc. The deadline for Lochridge to file a petition for a writ of New Jersey (the “U.S. Class Action”), (iii) certain enumerated individual actions and/or (iv) certain enumerated actions in Canada, or (c)certiorari with the Valeant business. In addition, each party covenants notU.S. Supreme Court was August 10, 2022 and no petition was filed. As such, the deadline for further appeals has passed and the settlement has become final pursuant to sue the other partiesstipulation of settlement. The matter is now concluded with respect to anythe Company and all 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, lendershave been resolved and securities underwriters (in their capacitiesdischarged 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 withCompany and its terms.current/former officers and directors.
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.
Philidor Rx Services, LLC (“Philidor”). On May 31, 2016, the Courtcourt entered an order consolidating the four actions under the caption In re Valeant Pharmaceuticals International, Inc. Securities Litigation, Case No. 3:15-cv-07658,15-cv-07658. On December 16, 2019, the Company, the current or former officers and appointingdirectors, ValueAct, and the underwriters announced that they agreed to resolve the securities action for $1,210 million, subject to final court approval. This settlement received final approval from the court on January 31, 2021 and resolved and discharged all claims against the Company in the class action. As part of the settlement, the Company and the other settling defendants admitted no liability as to the claims against it and deny all allegations of wrongdoing. The settlement was subject to appeal of the final court approval (as such appeal is further described above). In order to qualify for a lead plaintiffsettlement payment all persons and lead plaintiff’s counsel. entities that purchased or otherwise acquired the Company securities during the class period must have submitted a proof of claim and release form by May 6, 2020. The settlement payments have been paid into an escrow account in accordance with the payment schedule outlined in
the settlement agreement. The Company's rights to the funds previously paid into the escrow account have been extinguished in accordance with the settlement agreement.
On June 24, 2016, the lead plaintiff6, 2018, a putative class action was 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,U.S. District Court for the consolidated complaintDistrict of New Jersey against the Company and certain current or former officers and directors. This action, captioned Timber Hill LLC, v. Valeant Pharmaceuticals International, Inc., et al., (Case No. 18-cv-10246), asserts securities fraud 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 call options or sold put options on the Company’s equity securities and senior notes incommon stock during the United States betweenperiod January 4, 2013 and March 15, 2016, including all those who purchasedthrough August 11, 2016. On June 11, 2018, this action was consolidated with In re Valeant Pharmaceuticals International, Inc. Securities Litigation, (Case No. 15-cv-07658). On January 14, 2019, 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 movedfiled a motion to dismiss the consolidatedTimber Hill complaint. Briefing on the Company'sthat motion was completed on JanuaryFebruary 13, 2017.2019. On April 28, 2017,August 15, 2019, the Court dismissed certain claims arising outdenied the motion to dismiss the Timber Hill action, holding that this complaint was a legal nullity as a result of the Company's private placement offerings and otherwise denied the motions to dismiss. Defendants' answers to the consolidated complaint were filed on June 12, 2017.11, 2018 consolidation order.
In addition to the consolidated putative class action, fifteenthirty-seven 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 and 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.directors. 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 Entitywere captioned previously in the Company’s Annual Report on Form 10-K 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 Systemthe year ended December 31, 2021, filed on February 23, 2022. Sixteen of Mississippi v. Valeant Pharmaceuticals International Inc., et al., (Case No. 3:17-cv-07625) (“Mississippi”), and The Boeing Company Employee Retirement Plans Master Trustthe thirty-seven opt-out actions have been dismissed; and the Boeing Company Employee Savings Plans Master Trust v. Valeant Pharmaceuticals International Inc., et al., (Case No. 3:17-cv-07636) (“Boeing”). total number of remaining opt-out actions pending in the District of New Jersey is twenty-one actions.
These individual shareholder actions assert claims under Sections 10(b), 18, and 20(a) of the Exchange Act. Certain of these individual actions assert additional claims, including claims under Section 18 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 Valeant stock, options, and/or debt at various times between January 4, 2013 and August 10, 2016. Plaintiffs in the Lord Abbett, Boeing, and Mississippi cases additionally assert claims under the New Jersey Racketeer Influenced and Corrupt Organizations Act. These claims are based on alleged purchases of Company stock, options, and/or debt at various times between January 3, 2013 and August 10, 2016. The allegations in the complaints are similar to those made by plaintiffs in the putative class action.
Motions to dismiss were filed in many of these individual actions and the Court has dismissed state law claims including New Jersey Racketeer Influenced and Corrupt Organizations Act, common law fraud, and negligent misrepresentation claims in certain cases. On January 7, 2019, the Court entered a stipulation of voluntary dismissal in the Senzar Healthcare Master Fund LP v. Valeant Pharmaceuticals International, Inc. (Case No. 18-cv-02286) opt-out action, closing the case. On September 10, 2019, the Court granted defendants’ motion to dismiss all claims in the Bahaa Aly v. Valeant Pharmaceuticals International, Inc. (“Aly”) (Case No. 18-cv-17393) opt-out action. On October 9, 2019, the Aly Plaintiffs filed a notice of appeal to the United States Court of Appeals for the Third Circuit. On June 16, 2021, the Court of Appeals granted plaintiffs’ appeal in the Aly action. This action has been remanded to the District Court. On June 19, 2020, the Court entered stipulations of voluntary dismissal in the Catalyst, Mississippi, Connecticut and Delaware actions. On July 13, 2020, the Court entered a stipulation of voluntary dismissal in the NYCERS action. On December 30, 2020, the Court entered a stipulation of voluntary dismissal in the BlueMountain action. On February 18, 2021, and March 10, 2021, the Court entered stipulations of voluntary dismissal in the T. Rowe, BloombergSen, Principal Funds, Pentwater, Lord Abbett, Equity Trustees and UC Regents actions. On April 30, 2021, the Court entered a stipulation of voluntary dismissal in the Florida SBA action. On July 20, 2021, the Court entered a stipulation of voluntary dismissal in the Janus Aspen action amendedaction.
Discovery in the complaint on April 28, 2017. Defendantsopt-out actions has concluded. Motions for summary judgment were filed motions for partial dismissal in ten individual actions on June 16, 2017. Briefing of those motions was completed on August 25, 2017.
On October 19, 2017, the Court entered an order requesting briefs from the parties regarding whether 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 discovery1, 2022. Trial dates have not been set in securities actions pending completionany 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.opt-out actions.
The Company believesdisputes the claims against it in the remaining individual opt-out 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. The Company is also aware of two additional putative class actions that were filed with the applicable court but which have not been served on the Company and the factual allegations made in these actions are substantially similar to those outlined herein. These 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 Novemberwere captioned previously in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed on February 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). 2022.
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 business and prospects, relating to drug pricing,same matters described in the Company’s policies and accounting practices, the Company’s useU.S. Securities Litigation description above.
Each 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 asserts claims under the Quebec Civil Code, alleging the Company breached its duty of care under the civil standard of liability contemplated by the Code.
The Company is aware of two additionalthese 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) (filed December 2, 2015); and (ii) Sukenaga v Valeant et al. (CV-15-540567-00CP) (Ontario Superior Court) (filed November 16, 2015), 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.
The Company expects that certain of these actions will be consolidated or stayed prior to proceeding to motions for leave and certification and that no moreother than one action will proceed in any jurisdiction. In particular, on June 10, 2016, the Ontario 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'Brien 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.
Quebec Superior Court, was discontinued. In the Catucci action, motions for leave under the Quebec Securities Act and for authorization as a class proceeding were heard the week of April 24, 2017, with the motion judge reserving her decision. Prior to that hearing, 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 claims in respect of Valeant securities purchased in the United States. Onon August 29, 2017, the judge released her reasons for judgment grantinggranted the plaintiffs leave to proceed with their claims under the Quebec
Securities Act and authorizingauthorized the class proceeding. On October 12, 2017, Valeant and the other defendants filed applications for leave to appeal from certain aspects of the decision authorizing the class proceeding. The applications for leave to appeal are scheduled to be heard November 22, 2017. On October 26, 2017, the plaintiffs issued their Judicial Application Originating Class Proceedings.
After a hearing on November 11, 2019, the court approved a settlement in the Catucci action between the class members and the Company’s auditors and the action was dismissed as against them.
On August 4, 2020, the Company entered into a settlement agreement with the plaintiffs in Catucci, on behalf of the class, pursuant to which it agreed to resolve the Catucci action for the amount of CAD 94,000,000 plus payment of an additional amount to cover notice and settlement administration costs and disbursements. As part of the settlement, the Company and the other defendants admitted no liability as to the claims against it and deny all allegations of wrongdoing. Court approval of the settlement was granted after a hearing on November 16, 2020. The Catucci action has now been dismissed against the Company, its current and former directors and officers, its underwriters and its insurers.
In addition to the class proceedings described above, on April 12, 2018, the Company was served with an application for leave filed in the Quebec Superior Court of Justice to pursue an action under the Quebec Securities Act against the Company and certain current or former officers and directors. 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 action. On June 18, 2018, the same BlackRock entities filed an originating application (Court File No. 500-17-103749-183) against the same defendants asserting claims under the Quebec Civil Code in respect of the 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, the California State Teachers’ Retirement System (“CalSTRS”), served the Company with an application in the Quebec Superior Court of Justice for leave to pursue an action under the Quebec Securities Act against the Company, certain current or former officers and directors of the Company 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 proceeding are similar to those made by the plaintiffs in the Catucci class action and in the BlackRock opt-out proceedings. On that same date, CalSTRS 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.
On February 3, 2020, the Quebec Superior Court granted the applications of CalSTRS and BlackRock for leave to pursue their respective actions asserting claims under the Quebec Securities Act. On June 16, 2020, the Quebec Court of Appeal granted the defendants leave to appeal that decision. The appeal was heard on September 29, 2021 and, by judgment dated October 29, 2021, the appeals were dismissed.
On October 8 and 9, 2020, respectively, CalSTRS amended its proceedings to, among other things, include a new alleged misrepresentation concerning the accounting treatment of “price appreciation credits” in respect of Glumetza® during the period covered by the claims. A hearing was held on February 17, 2021 with respect to whether CalSTRS would be permitted to file the proposed amended proceedings.On June 9, 2021, the Quebec Superior Court granted the Company’s application to strike the new allegations from its Quebec Securities Act claim, but permitted the amendments to its claim under the Quebec Civil Code. On December 8, 2021, CalSTRS delivered its amended pleadings.
On March 17, 2021, four additional opt-outs from the Catucci class issued a Statement of Claim in the Ontario Superior Court of Justice. That proceeding is captioned The Bank of Korea et al. v. Valeant Pharmaceuticals International Inc. et al. (Court File No. 21-006589666-0000). In addition, these plaintiffs also served and filed a motion for leave to pursue claims under the Ontario Securities Act. The allegations in this proceeding are similar to those made by the plaintiffs in the Catucci class action and the plaintiffs in the opt-out actions described above.
The Company believes that it has viable defenses in each of these actions. In each case, the Company intends to defend itself vigorously.
Other Securities and RICO Class Actions and Related Matters
As referenced above, during the three months ended September 30, 2022, there have been no material updates or developments with respect to certain other proceedings or actions as described under “Securities and RICO Class Actions and Related Matters” in Note 20, “LEGAL PROCEEDINGS,” to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC and the CSA on February 23, 2022. Such matters include:
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 (these actions were subsequently consolidated), 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 Valeant brandedCompany-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). 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, 2016.2015. 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 regardingregarding: (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. On August 4, 2021, the Company executed a stipulation of settlement for this action and, on August 17, 2021, the Court preliminarily approved the settlement. On December 6, 2021 the Special Master overseeing this litigation issued a report and recommendation recommending final approval of the settlement, and on February 22, 2022 the settlement was approved by the district court. The time to appeal the district court’s final approval order expired on March 24, 2022, and the settlement has resolved and discharged all claims against the Company in this action.
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.; Case No. 3:18-CV-00493). In the lawsuit, the Company seeks coverage for: (i) 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. (the “Allergan Securities Litigation”) (under the 2013-2014 coverage period) and (ii) costs incurred and to be incurred in connection with the securities class actions and opt-out cases described in this section and the SEC Investigation and certain of the other investigations described under “Complete or Inactive Matters” in Note 20, “LEGAL PROCEEDINGS,” to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC and the CSA on February 24, 2021 and under “Governmental and Regulatory Inquiries” and “Complete or Inactive Matters” in Note 21, “LEGAL PROCEEDINGS,” to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC and the CSA on February 19, 2020 (under the 2015-2016 coverage period).
On July 20, 2021, the Company entered into settlement agreements with the insurers in the 2015-2016 coverage period in which the Company agreed to resolve its claims for insurance coverage in connection with the U.S. Securities Litigation and the Canadian Securities Litigation and related opt-out litigation and related investigations matters described above. On that same day, the Company entered into settlement agreements with two of its insurers in the 2013-2014 coverage period in which the Company agreed to resolve its claims against those two insurers only for insurance coverage in connection with the Allergan Securities Litigation. As a result of all of the settlement agreements entered into with the insurers on July 20, 2021, the Company has received an aggregate sum of $213 million. The Company’s insurance claims with respect to the Allergan Securities Litigation against the remaining insurers in the 2013-2014 coverage period remain pending.
Hound Partners Lawsuit
In October 2018, Hound Partners Offshore Fund, LP, Hound Partners Long Master, LP and Hound Partners Concentrated Master, LP, filed a lawsuit against the Company in the Superior Court of New Jersey Law Division/Mercer County that asserts claims for common law fraud, negligent misrepresentation, and violations of the New Jersey Racketeer Influenced and Corrupt Organizations Act. The Company moveddisputes the claims and intends to vigorously defend this matter.
Antitrust
Glumetza Antitrust Litigation
Between August 2019 and July 2020, eight (8) putative antitrust class actions and four (4) non-class complaints naming the Company, Salix Pharmaceuticals, Ltd., Salix Pharmaceuticals, Inc. and Santarus, Inc. (for purposes of this subsection, collectively, the “Company”), among other defendants, were filed or transferred to the Northern District of California. Three (3) of the class actions were filed by plaintiffs seeking to represent a class of direct purchasers. The purported classes of direct purchasers filed a consolidated first amended complaint and a motion for class certification in April 2020. The court certified a direct purchaser class in August 2020. The putative class action complaints filed by end payer purchasers have all been voluntarily dismissed. Three (3) of the non-class complaints were filed by direct purchasers. The fourth non-class complaint, asserting claims based on both direct and indirect purchases, was filed by an insurer plaintiff in July 2020 and subsequently amended in September 2020. In December 2020, the court denied the Company’s motion to dismiss as to the insurer plaintiff’s direct claims but dismissed the insurer plaintiff’s indirect claims. On February 2, 2021, the insurer plaintiff’s motion for leave to amend its complaint was denied.
These actions were consolidated and coordinated in In re Glumetza Antitrust Litigation, Case No. 3:19-cv-05822-WHA (the “In re Glumetza Antitrust Litigation”). The lawsuits alleged that a 2012 settlement of a patent litigation regarding Glumetza® delayed generic entry in exchange for an agreement not to launch an authorized generic of Glumetza® or grant any other company a license to do so. The complaints alleged that the settlement agreement resulted in higher prices for Glumetza® and its generic equivalent both prior to and after generic entry. Both the class and non-class plaintiffs sought damages under federal antitrust laws for claims based on direct purchases.
On February 8, 2021, the insurer plaintiff filed an action asserting its indirect (state law) claims in the Superior Court of Alameda County, California against the Company and others (the “State Court Action”) (discussed in further detail below, see Glumetza State-Law Insurer Litigations).
On July 26, 2021, the Company reached an agreement in principle and, thereafter, on September 14, 2021, executed a final settlement agreement to resolve the class plaintiffs’ claims for $300 million, subject to court approval. On August 1, 2021, the Company also reached an agreement in principle to resolve the non-class direct purchaser plaintiffs’ claims, described above, for additional consideration. A final settlement agreement with the non-class direct purchaser plaintiffs was executed on August 6, 2021. As part of the settlements, the Company admitted no liability as to the claims against it and denied all allegations of wrongdoing. On September 20, 2021, the insurer plaintiff voluntarily dismissed its claims in the consolidated complaint on February 13, 2017. Briefingfederal action. By stipulation, the insurer plaintiff has asserted its direct opt-out claims in the State Court Action, resulting in the consolidation of all of its opt-out claims in the State Court Action.
On September 22, 2021, the court granted preliminary approval of the motion was completed on May 17, 2017.class settlement agreement and vacated the October 2021 trial date and all other pre-trial deadlines in the consolidated actions. On March 14, 2017,February 3, 2022, the court granted final approval of the class settlement and ordered dismissal of the class plaintiffs’ claims. The deadline to appeal the final approval of the class settlement has now passed, and the settlements have resolved and discharged all asserted class and direct purchaser non-class claims against the Company in the In re Glumetza Antitrust Litigation.
Generic Pricing Antitrust Litigation
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 paragraph, collectively, the “Company”), are defendants in multidistrict antitrust litigation (“MDL”) 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 lawsuits seek damages under federal and state antitrust laws, state consumer protection and unjust enrichment laws and allege 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. The lawsuits, which have been brought as putative class actions by direct purchasers, end payers, and indirect resellers, and as direct actions by direct purchasers, end payers, insurers, States, and various Counties, Cities, and Towns, have been consolidated into the MDL. There are also additional, separate complaints which have been consolidated in the same MDL that do not name the Company or any of its subsidiaries as a defendant. There are cases pending in the Court of Common Pleas of Philadelphia County against the Company and other defendants related to the multidistrict litigation, but no complaint has been filed in the cases. The cases have been placed in deferred status. The Company disputes the claims against it and continues to defend itself vigorously.
Additionally, Bausch Health Companies Inc. and certain U.S. and Canadian subsidiaries (for the purposes of this paragraph, collectively the “Company”) have been named as defendants in a motionproposed class proceeding entitled Kathryn Eaton v. Teva Canada Limited, et al. in the Federal Court in Toronto, Ontario, Canada (Court File No. T-607-20). The plaintiff seeks to stay the RICOcertify a proposed class action on behalf of persons in Canada who purchased generic drugs in the private sector, alleging that
the Company and other defendants violated the Competition Act by conspiring to allocate the market, fix prices, and maintain the supply of generic drugs, and seeking damages under federal law. The proposed class action contains similar allegations to the In re: Generic Pharmaceuticals Pricing Antitrust Litigation pending in the resolutionUnited States Court for the Eastern District of criminal proceedings against Andrew Davenport and Gary Tanner.Pennsylvania. The Company did not opposedisputes 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.
The Company believes these claims are without meritagainst it and intends to defend itself vigorously.
AntitrustThese lawsuits cover products of both Bausch + Lomb and the Company’s businesses. It is anticipated that Bausch + Lomb and the Company will split the fees and expenses associated with defending these claims, as well as any potential damages or other liabilities awarded in or otherwise arising from these claims, in the manner set forth in the Master Separation Agreement between Bausch Health and Bausch + Lomb.
Solodyn®Glumetza State-Law Insurer Litigations
On February 8, 2021, the insurer plaintiff from the federal In re Glumetza Antitrust Class Actions
BeginningLitigation, Case No. 3:19-cv-05822- WHA (N.D. Cal.) (the “In re Glumetza Antitrust Litigation”) (discussed in July 2013, a number of civil antitrust class action suits were filed against Medicis Pharmaceutical Corporationfurther detail above), Humana Inc. (“Medicis”Humana”), Valeant Pharmaceuticals International, Inc. (“VPII”)filed an action asserting its indirect (state law) claims in the Superior Court of Alameda County, California against the Company and various manufacturersothers (the “State Court Action”). The State Court Action alleges that a 2012 settlement of a patent litigation regarding Glumetza® delayed generic formsentry in exchange for an agreement not to launch an authorized generic of SolodynGlumetza®, allegingor grant any other company a license to do so. The State Court Action alleges that the defendants engagedsettlement agreement resulted in an anticompetitive schemehigher prices for Glumetza® and its generic equivalent both prior to exclude competitionand after generic entry. On September 20, 2021, the parties stipulated that Humana’s direct opt-out claims 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,
punitive and/or other damages, including attorneys’ fees. By order dated February 25, 2014, the Judicial Panel for MultidistrictIn re Glumetza Antitrust Litigation (‘‘JPML’’) centralized the suits, discussed above, were deemed asserted in the District of Massachusetts, underState Court Action.
Defendants’ demurrer in 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 complaintState Court Action was heard on September 12, 2014,22, 2021. On November 29, 2021, 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 butcourt denied the motion to dismiss with respect to claims brought under Sherman Act, Section 1in part and other state laws. VPII was dismissed from the case, but the litigation continues against Medicis and the generic manufacturersgranted it in part as to certain state law claims, with leave to amend. Humana did not amend the remaining claims. A subsequent effortcomplaint. Defendants’ answers were filed on February 3, 2022. Trial is scheduled to re-plead claims under Sherman Act, Section 2 was deniedbegin on September 20, 2016.August 25, 2023.
On March 26, 2015,April 5, 2022, Health Care Service Corporation filed an action with similar substantive allegations and similar indirect (state law) claims in the Superior Court of Alameda County, California against the Company and others. Defendants’ answers were filed on April 6, 2015, while theJune 17, 2022. On October 4, 2022, Defendants filed a motion to dismiss the classconsolidate this 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 suits inState Court Action.
The Company disputes the District of Massachusetts. Following 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.
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 alleged 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 defendants 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 suits in the Middle District of Florida, 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. After the Class Plaintiffs filed a corrected consolidated class action complaint on December 16, 2015, the defendants jointly moved to dismiss those complaints. On June 16, 2016, the Court granted the Defendants' motion to dismiss with respect to claims brought under 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. The Company intends to vigorously defend all of these actions.matters.
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®Xifaxan® 550mg, Bryhali®, Relistor®Duobrii®, Apriso®Trulance®,Lumify®, Uceris®Relistor® Injection, Arazlo®, Carac®Nuvessa® and Cardizem®Colazal® in the United States and Wellbutrin® XL and Glumetza®Jublia® in Canada, or other similar suits. These matters are proceeding in
Xifaxan® Paragraph IV Proceedings
On February 17, 2020, the ordinary course.
In addition, on or about February 16, 2016, the Company and Alfasigma S.p.A. (“Alfasigma”) received a Notice of Paragraph IV Certification dated February 11, 2016, from Actavis Laboratories FL,Norwich Pharmaceuticals Inc. (“Actavis”Norwich”), in which ActavisNorwich asserted that the following U.S. patents each of which
is listed in the FDA’s Orange Book for Salix Pharmaceuticals, Inc.’s (“Salix Inc.”) Xifaxan®the Company’s Xifaxan® tablets, 550 mg, are either invalid, unenforceable and/or will not be infringed by the commercial manufacture, use or sale of Actavis’Norwich’s 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”)Norwich. The Company, through its subsidiaries Salix Pharmaceuticals, Inc. and U.S. Patent No. 7,935,799 (the “‘799 patent”) (collectively, the “Xifaxan® Patents”). Salix Inc.Bausch Health Ireland Limited, holds the NDANew Drug Application for Xifaxan®Xifaxan® and its affiliate, Salix Pharmaceuticals, Ltd. (“Salix Ltd.”), is the ownerowns or exclusively licenses (from Alfasigma) these patents. On March 26, 2020, certain of the ‘569 patent, the ‘573 patent, the ‘017 patent, the ‘252 patentCompany’s subsidiaries 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”)Alfasigma filed suit against ActavisNorwich in the U.S. District Court for the District of Delaware (Case No. 1:16-cv-00188),20-cv-00430) pursuant to the Hatch-Waxman Act, alleging infringement by ActavisNorwich of one or more claims of each of the Xifaxan®Xifaxan® Patents, thereby triggering a 30-month stay of the approval of Actavis’Norwich’s ANDA for rifaximin tablets, 550 mg. On May 24, 2016, Actavis filed its answerXifaxan® is protected by 26 patents covering the composition of matter and the use of Xifaxan® listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, or the Orange Book. Trial in this matter. On June 14, 2016,matter was held in March 2022. The court issued the Plaintiffs filed an amended complaint adding US patent 9,271,968 (the “‘968 patent”) to this suit. Alfa Wassermann isNorwich Legal Decision on August 10, 2022, finding that the ownerU.S. Patents protecting the use 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®Xifaxan® (rifaximin) 550 mg tablets. This action is stayed through April 30, 2018tablets for the reduction in risk of hepatic encephalopathy (“HE”) recurrence valid 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 agreedinfringed and the U.S. Patents protecting the composition, and use of Xifaxan® for treating IBS-D invalid. The Company appealed the Norwich Legal Decision to the U.S. Court ordered that Actavis' 30-month regulatory stay shall be extended fromof Appeals for the
Federal Circuit on August 12, 2018 until no earlier than February 12, 2019 and potentially longer if the litigation stay lasts for more than six months.16, 2022. The Company remains confident in the strength of the Xifaxan® PatentsXifaxan® patents and believes it will prevail in this matter should it move forward. The Company also continuesintends to believe the allegations raised in Actavis’ notice are without merit and willvigorously defend its intellectual property vigorously.property.
Duobrii® Paragraph IV Proceedings
On July 23, 2020, the Company received a Notice of Paragraph IV Certification from Perrigo Israel Pharmaceuticals, Ltd. (now Padagis LLC) (“Padagis”), in which Padagis asserted that certain U.S. patents, each of which is listed in the FDA’s Orange Book for Duobrii® (halobetasol propionate and tazarotene) lotion, are either invalid, unenforceable and/or will not be infringed by the commercial manufacture, use or sale of Padagis’ generic lotion, for which an ANDA has been filed by Padagis. On August 28, 2020, the Company filed suit against Padagis pursuant to the Hatch-Waxman Act, alleging infringement by Padagis of one or more claims of the Duobrii® Patents, thereby triggering a 30-month stay of the approval of the Padagis ANDA. On September 3, 2020, this action was consolidated with the action between the Company and Padagis described below, regarding Padagis’ ANDA for generic Bryhali® (halobetasol propionate) lotion. A three-day trial commenced on October 4, 2022.
In June 2022, the Company received a Notice of Paragraph IV Certification from Taro Pharmaceuticals Inc. (“Taro”), in which Taro asserted that certain U.S. patents, each of which is listed in the FDA’s Orange Book for Duobrii® (halobetasol propionate and tazarotene) lotion, are either invalid, unenforceable and/or will not be infringed by the commercial manufacture, use, sale, offer for sale, or importation of Taro’s generic lotion, for which an ANDA has been filed by Taro. On July 21, 2022, the Company filed suit against Taro pursuant to the Hatch-Waxman Act, alleging infringement by Taro of one or more claims of the Duobrii® Patents and triggering a 30-month stay of the approval of the Taro ANDA.
The Company remains confident in the strength of the Duobrii® patents and intends to vigorously defend its intellectual property.
Bryhali® Paragraph IV Proceedings
On March 20, 2020, the Company received a Notice of Paragraph IV Certification from Padagis, in which Padagis asserted that certain U.S. patents, each of which is listed in the FDA’s Orange Book for Bryhali® (halobetasol propionate) lotion, 0.01% are either invalid, unenforceable and/or will not be infringed by the commercial manufacture, use or sale of Padagis’ generic halobetasol propionate lotion, for which an ANDA has been filed by Padagis. On May 1, 2020, the Company filed suit against Padagis pursuant to the Hatch-Waxman Act, alleging infringement by Padagis of one or more claims of the Bryhali® patents, thereby triggering a 30-month stay of the approval of the Padagis ANDA for halobetasol propionate lotion. On September 3, 2020, this action was consolidated with the action between the Company and Padagis described above, regarding Padagis’ ANDA for generic Duobrii® (halobetasol propionate and tazarotene) lotion. A three-day trial commenced on October 4, 2022. The Company remains confident in the strength of the Bryhali® patents and intends to vigorously pursue this matter and defend its intellectual property.
Trulance® Paragraph IV Proceedings
In April 2021, the Company commenced litigation against MSN Laboratories Private Ltd. (“MSN”) and Mylan Pharmaceuticals Inc., (“Mylan”) alleging patent infringement by MSN’s and Mylan’s filing of their ANDA for generic Trulance® (plecanatide) 3mg tablets. This suit had been filed following receipt of a Notice of Paragraph IV Certification from each of MSN and Mylan, in which they had each asserted that the U.S. patents listed in the FDA’s Orange Book for the Company’s Trulance® tablets, 3 mg, were either invalid, unenforceable and/or would not be infringed by the commercial manufacture, use or sale of their respective generic plecanatide tablets, 3 mg. The filing of these suits triggered a 30-month stay of the approval of the MSN and Mylan ANDAs for plecanatide tablets. The Company remains confident in the strength of the Trulance® patents and intends to vigorously pursue this matter and defend its intellectual property.
PreserVision® AREDS Patent Litigation
PreserVision® AREDS and PreserVision® AREDS 2 are over the counter eye vitamin formulas for those with moderate-to-advanced age-related degeneration (“AMD”). The PreserVision® U.S. formulation patent expired in March 2021, but a patent covering methods of using the formulation remains in force into 2026. Bausch & Lomb Incorporated (“B&L Inc.”) has filed patent infringement proceedings against 19 named defendants in 16 proceedings, claiming infringement of these patents and, in certain circumstances, related unfair competition and false advertising causes of action. Twelve of these proceedings were subsequently settled; two resulted in a default. As of the date of this filing, there are two ongoing actions: (1) Bausch & Lomb Inc. & PF Consumer Healthcare 1 LLC v. ZeaVision LLC, C.A. No. 6:20-cv-06452-CJS (W.D.N.Y.); and (2) Bausch & Lomb Inc. & PF Consumer Healthcare 1 LLC v. SBH Holdings LLC, C.A. No. 20-cv-01463-VAC-CJB (D. Del.). Bausch + Lomb remains confident in the strength of these patents and B&L Inc. intends to continue to vigorously pursue these matters and defend its intellectual property.
Patent Litigation against Certain Ocuvite and PreserVision
On June 22, 2021, ZeaVision, LLC (“ZeaVision”) filed a complaint for patent infringement against certain of the Ocuvite® and PreserVision® products in the Eastern District of Missouri (Case No. 4:21-cv-00739-RWS). On June 29, 2021, ZeaVision amended its complaint to assert a second patent against certain of the Ocuvite® and PreserVision® products. On November 16, 2021, ZeaVision filed an additional complaint for patent infringement to assert a third patent against certain of the PreserVision® products (Case No. 4:21-cv-01352-RWS). On March 1, 2022, the cases were consolidated. On March 10, 2022, the court granted Bausch + Lomb’s motion to stay all proceedings pending inter partes review. On July 1, 2022, ZeaVision filed a motion to partially lift the stay to allow Case No. 4:21-cv-01352-RWS to proceed, and this motion was denied. The Company disputes the claims and intends to vigorously defend this matter.
Lumify® Paragraph IV Proceedings
On August 16, 2021, B&L Inc. received a Notice of Paragraph IV Certification from Slayback Pharma LLC (“Slayback”), in which Slayback asserted that certain U.S. patents, each of which is listed in the FDA’s Orange Book for Lumify® (brimonidine tartrate solution) drops (the “Lumify Patents”), are either invalid, unenforceable and/or will not be infringed by the commercial manufacture, use or sale of Slayback’s generic drops, for which an ANDA has been filed by Slayback. B&L Inc., through its affiliate Bausch + Lomb Ireland Limited, exclusively licenses the Lumify Patents from Eye Therapies, LLC (“Eye Therapies”). On September 10, 2021, B&L Inc., Bausch + Lomb Ireland Limited and Eye Therapies filed suit against Slayback pursuant to the Hatch-Waxman Act, alleging infringement by Slayback of one or more claims of the Lumify Patents, thereby triggering a 30-month stay of the approval of the Slayback ANDA.
On January 20, 2022, B&L Inc. received a Notice of Paragraph IV Certification from Lupin Ltd. (“Lupin”), in which Lupin asserted that certain U.S. patents, each of which is listed in the FDA’s Orange Book for Lumify® (brimonidine tartrate solution) drops (the “Lumify Patents”), are either invalid, unenforceable and/or will not be infringed by the commercial manufacture, use or sale of Lupin’s generic brimonidine tartrate solution, for which its ANDA No. 216716 has been filed by Lupin. On February 2, 2022, B&L Inc., Bausch + Lomb Ireland Limited and Eye Therapies filed suit against Lupin pursuant to the Hatch-Waxman Act, alleging patent infringement by Lupin of one or more claims of the Lumify Patents, thereby triggering a 30-month stay of the approval of the Lupin ANDA.
B&L Inc. remains confident in the strength of the Lumify® related patents and B&L Inc. intends to vigorously defend its intellectual property.
Inter Partes Review Proceedings at the U.S. Patent and Trademark Office
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.
Following Acrux DDS’s IPR petition, the U.S. Patent and Trial Appeal Board (“PTAB”), in May 2017, instituted inter partes review for an Orange Book-listed patent covering Jublia® (U.S. Patent No. 7,214,506 (the “‘506 Patent”)) and, on June 6, 2018, issued a written determination invalidating such patent. An appeal of this decision was filed on August 7, 2018. On March 13, 2020, the Court of Appeals for the Federal Circuit reversed this decision and remanded the matter back to the PTAB for further proceedings. As a result of a settlement, a joint motion to terminate the proceedings was filed on November 12, 2020 and, on January 8, 2021, the PTAB granted this motion. The ‘506 Patent, therefore, remains valid and enforceable and expires in 2026. Jublia® is covered by sixteen Orange Book-listed patents owned by the Company or its licensor, which expire in the years 2028 through 2035. In August and September 2018, the Company received notices of the filing of a number of ANDAs with paragraph IV certification, and has timely filed patent infringement suits against these ANDA filers, and, in addition, the Company has also commenced certain patent infringement proceedings in Canada against four separate defendants. All cases in U.S. regarding Jublia® have been settled. In Canada, two lawsuits remain pending against Apotex Inc.
Mylan and MSN have filed IPR petitions for certain U.S. patents listed in the FDA Orange Book for Trulance® (plecanatide). On March 21, 2022, Mylan filed a petition for IPR of U.S. Patent No. 7,041,786. On June 10, 2022, Mylan filed petitions for IPR of U.S. Patent Nos. 9,610,321, 9,616,097, 9,919,024 and 9,925,231. On October 12, 2022, MSN filed a petition for IPR of U.S. Patent No. 7,041,786. The Company remains confident in the strength of these patents and intends to vigorously defend its intellectual property.
Product Liability
Shower to Shower® Products Liability Litigation
TheSince 2016, the Company has been named in over one hundreda number of product liability lawsuits involving the Shower to Shower® body powder product acquired in September 2012 from Johnson & Johnson. TheJohnson; due to dismissals, twenty-six (26) of such product liability suits currently remain pending. In three cases pending in the Atlantic County, New Jersey Multi-County Litigation, agreed stipulations of dismissal have been entered by the Court, thus dismissing the Company has been successful in obtaining a numberfrom those cases. Potential liability (including its attorneys’ fees and costs) arising out of dismissals asthese remaining suits is subject to full indemnification obligations of Johnson & Johnson owed to the Company and/orand its subsidiary, Valeant Pharmaceuticals North America LLC (“VPNA”), in someaffiliates, and legal fees and costs will be paid by Johnson & Johnson. Twenty-five (25) of these cases. The Company continues to seek dismissals in these cases and to pursue agreements fromlawsuits filed by individual plaintiffs to not oppose the Company’s motions for summary judgment.
These lawsuits include one case 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. The Company and VPNA 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, the plaintiff agreed to a dismissal of all claims against the Company and VPNA without prejudice, and neither the Company nor VPNA have been named in any further lawsuits in the MDL.
These lawsuits also include a number of matters filed in the Superior Court of Delaware allegingallege that the use of Shower to Shower® caused the plaintiffs to develop ovarian cancer, mesothelioma or breast cancer. The Company has been voluntarily dismissed from nearly all of these cases, and only claims against VPNA remain. These lawsuits also include allegations against Johnson & Johnson, directed primarily to its marketing of and warnings for the Shower to Shower product prior to the Company’s acquisition of the product in September 2012. The allegations in these cases specifically directed to VPNA include failure to warn, design defect, manufacturing defect, negligence, gross negligence, breach of express and implied warranties, civil conspiracy concert in action, negligent misrepresentation, wrongful death, andloss of consortium and/or punitive damages. Plaintiffs seekThe damages sought include compensatory damages, including medical expenses, lost wages or earning capacity, loss of consortium and/or 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, treble damages, and attorneys’ fees.
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 Delaware, the New Jersey Superior Courts, the District Court of Louisiana, the Supreme Court of New York (Niagara County), the District Court of Oklahoma City, the Tennessee Chancery Court (Hamilton County) and the South Carolina Court of Common Pleas (Richland County)) 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 some of these cases or the plaintiffs have not opposed summary judgment. 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 seek compensatory damages for loss of services, economic loss, pain and suffering, and, in some cases, lost wages or earning capacity and loss of consortium, in addition to punitive damages, interest, litigation costs, and attorneys’ fees.
Finally, 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 class actions allege the use of thisthe product increases certain health risks. In the Quebec matter, the plaintiff seeks to certify a proposed class action on behalf of persons in Québec who have used Johnson’s Baby Powderrisks (British Columbia) 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.manner (Quebec). 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 potential liability (including its attorneys’ fees and costs) arising out the Shower to Shower lawsuits filed against the Company is subject to certain indemnification obligations of Johnson & Johnson owed to the Company. The Company has provided Johnson & Johnson with notice that the lawsuits filed against the Company relating to Shower to Shower are, in whole or in part, subject to indemnification by Johnson & Johnson.
General Civil Actions
Afexa Class Action
On March 9, 2012, a Notice of Civil Claim was filed in the Supreme Court of British Columbia which seeks 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 asserts that Afexa and the Company made false representations respecting 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 Plaintiff 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’s claim for failure to state a cause of action. In response, the Plaintiff proposed further amendments to its claim. The hearing on the motion to strike and the Plaintiff’s amended claim was held on February 4, 2015. The Court allowed certain 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 in17, 2020, the British Columbia Court of Appeal appealing the decisioncourt issued a judgment declining 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 andcertify a decision is pending. The Company denies 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 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 both Johnson & Johnson, the Company and VPNA 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 allegationsclass as to the Company or VPNA. The Company intendsShower to defend itself vigorouslyShower®, and at this time no appeal of that judgment has been filed. On December 16, 2021, theplaintiff in thisthe British Columbia class action whichfiled a Second Amended Notice of Civil Claim and Applicationfor Certification, removing the Company believes will also fall, in whole or in part, withinas a defendant; as a result, the indemnification obligations of British Columbia class action is concludedas to the Company.
Johnson & Johnson, owedthrough one or more subsidiaries, has purported 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 contracthave completed a Texas divisional merger with respect to certain termsany talc liabilities at Johnson & Johnson Consumer, Inc. (“JJCI”). LTL Management, LLC (“LTL”), the resulting entity 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 agreementdivisional merger, assumed JJCI’s talc liabilities 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.
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 projectthereafter filed 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 acquisition 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”)Chapter 11 bankruptcy protection in the United States DistrictBankruptcy 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.)) relatingNorth Carolina. Pursuant to court orders entered in November 2021, 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 MPIcase was transferred 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.
Salix SEC Investigation
In the fourth quarter of 2014, the SEC commenced a formal investigation into possible securities law violations by Salix relating to disclosures by Salix of inventory amounts in the distribution channel 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 claims relating to the Company’s former relationship with Philidor or Philidor’s business practices, including claims that Philidor or its affiliated pharmacies improperly billed third parties or that the Company is liable, directly or indirectly, for such practices. The Company is cooperating with all existing governmental investigations related to Philidor and is vigorously defending the putative class action litigations. 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 or the Company anticipates that no further material activity will take place with respect thereto.
Salix Securities Litigation
Beginning on November 7, 2014, three putative class action lawsuits were filed by shareholders 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 in 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 under 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 (the “Bankruptcy Court”), and substantially all cases related to Johnson & Johnson’s talc liability were stayed for a period of sixty (60) days pursuant to a preliminary injunction. Notwithstanding the divisional merger and LTL’s bankruptcy case, the Company and its affiliates continue to have indemnification claims and rights against Valeant Pharmaceuticals International, Inc.Johnson & Johnson and Valeant Pharmaceuticals Luxembourg S.à r.l. (together, “Valeant”) relatingLTL pursuant 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 settlementindemnification agreement entered into between JJCI and its affiliates and the parties agree that the settlement is not an admission by any party thereto of any fact allegedCompany and its affiliates, which indemnification agreement remains in the litigation, and reflects
a reasonable compromise in the best interest of the parties.effect. As a consequence ofresult, it is the settlement, the litigation was dismissed,Company’s current expectation that it will not incur any material impairments with prejudice, on November 6, 2017, and Valeant made a one-time, lump-sum payment of $13 millionrespect to Depomed. In addition, under the terms of the settlement agreement, Depomed and PDL will release Valeant from any and allits indemnification 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 auditdivisional merger or the bankruptcy. In December 2021, certain talc claimants filed motions to dismiss the bankruptcy case. Shortly thereafter, LTL filed a motion in the Bankruptcy Court to extend the 60-day preliminary injunction. On February 25, 2022, the Bankruptcy Court entered orders denying the motions to dismiss and extending the preliminary injunction staying substantially all cases subject to the indemnification agreement related to Johnson & Johnson’s talc liability through at least June 29, 2022. The order denying the motions to dismiss and the order extending the preliminary injunction are subject to appeal and the bankruptcy court certified their appeals directly to the United States Court of Appeals for the Third Circuit. On May 11, 2022, the Third Circuit granted authorization for the parties to proceed with their direct appeals. Oral argument before the Third Circuit was held on September 19, 2022, and a decision is pending. Further, pursuant to a court order dated March 18, 2022, the Bankruptcy Court directed certain talc claimants and LTL to mediate the issues related to the case in the hopes of achieving a global resolution. The Bankruptcy Court has also ordered separate mediation with respect to certain consumer protection claims against LTL by various state attorneys general. The Bankruptcy Court extended LTL’s exclusive period to file a chapter 11 plan until November 17, 2022, and the talc claimants filed a motion to terminate LTL’s exclusivity. The parties have since consensually agreed to extend LTL’s exclusive period to December 13, 2022. On July 26, 2022, the Bankruptcy Court held a hearing to consider alternative paths to case resolution, and on July 28, 2022, authorized an abbreviated estimation process designed to determine the extent of LTL’s aggregate liability. Additionally, the Bankruptcy Court appointed an independent expert who will issue a report forecasting and estimating the volume and value of claims. The Bankruptcy Court has scheduled November 16, 2022 for a status update on the expert report and to discuss scheduling further formal mediation sessions.
On July 28, 2022, the Bankruptcy Court also ruled that it would leave in place the stay and injunction enjoining talc product liability cases from proceeding until at least the completion of the estimation process. To the extent that any cases proceed
during the pendency of the bankruptcy case, it is the Company’s expectation that Johnson & Johnson, in accordance with the indemnification agreement, will continue to vigorously defend the Company in each of the remaining actions.
General Civil Actions
U.S. Securities Litigation - New Jersey Declaratory Judgment Lawsuit
On March 24, 2022, the Company and Bausch + Lomb were named in a declaratory judgment action in the Superior Court of New Jersey, Somerset County, Chancery Division, brought by certain individual investors in the Company’s common shares and debt securities who are also maintaining individual securities fraud claims against the Company and certain current or former officers and directors as part of the U.S. Securities Litigation. This newly filed action seeks a declaratory judgment that the transfer of the Company assets to Bausch + Lomb would constitute a voidable transfer under New Jersey’s Uniform Voidable Transactions Act and that Bausch + Lomb would become liable for damages awarded against the Company in the individual opt-out actions. The declaratory judgment action alleges that a transfer of assets from the Company to Bausch + Lomb would leave the Company with inadequate financial resources to satisfy these plaintiffs’ alleged securities fraud damages in the underlying individual opt-out actions. None of the plaintiffs in this declaratory judgment action have obtained a judgment against the Company in the underlying individual opt-out actions and the Company disputes the claims against it in those underlying actions. The underlying individual opt-out actions assert claims under Sections 10(b) and 20(a) of the Exchange Act, and certain actions assert claims under Section 18 of the Exchange Act. The allegations in those underlying individual opt out actions are made against the Company and several of its former officers and directors only and relate to, among other things, allegedly false and misleading statements made during the 2013-2016 time period by the Company and/or failures to disclose information about the Company’s business and prospects including relating to drug pricing and the use of specialty pharmacies. On March 31, 2022, the Company and Bausch + Lomb removed the action to the U.S. District Court for the District of New Jersey. As a result, the New Jersey Superior Court action is closed and the case is now pending in the District of New Jersey (Case No. 22-cv-01823). On April 29, 2022, Plaintiffs filed a motion to remand. That motion is fully briefed and pending. Other proceedings are in abeyance pending resolution of Plaintiffs’ remand motion. Both the Company and Bausch + Lomb dispute the claims in this declaratory judgment action and intend to vigorously defend this matter.
California Proposition 65 Related Matter
On June 19, 2019, plaintiffs filed a proposed class action in California state court against Bausch Health US and Johnson & Johnson (Gutierrez, et al. v. Johnson & Johnson, et al., Case No. 37-2019-00025810-CU-NP-CTL), asserting claims for purported violations of the California Consumer Legal Remedies Act, False Advertising Law and Unfair Competition Law in connection with their sale of talcum powder products that the plaintiffs allege violated Proposition 65 and/or the litigation.California Safe Cosmetics Act. This lawsuit was served on Bausch Health US in June 2019 and was subsequently removed to the United States District Court for the Southern District of California, where it is currently pending. Plaintiffs seek damages, disgorgement of profits, injunctive relief, and reimbursement/restitution. Bausch Health US filed a motion to dismiss Plaintiffs’ claims, which was granted in April 2020 without prejudice. In May 2020, Plaintiffs filed an amended complaint and in June 2020, filed a motion for leave to amend the complaint further, which was granted. In August 2020, Plaintiffs filed the Fifth Amended Complaint. On January 22, 2021, the Court granted the motion to dismiss with prejudice. On February 19, 2021, Plaintiffs filed a Notice of Appeal with the Ninth Circuit Court of Appeals. On July 1, 2021, Appellants (Plaintiffs) filed their opening brief; Appellees’ response briefs were filed on October 8, 2021. This matter was stayed by the Ninth Circuit on December 7, 2021, due to the preliminary injunction entered by the Bankruptcy Court in the LTL bankruptcy proceeding. This stay included Appellants’ reply brief deadline, which was previously due to be filed on or before December 2, 2021. On March 9, 2022, the Ninth Circuit issued an order extending the stay through July 29, 2022. On July 29, 2022, Johnson & Johnson filed a status report in the Gutierrez appeal, outlining the developments since the last status report and the imposition of the current stay. Johnson & Johnson noted that following a July 26, 2022, hearing, the Bankruptcy Court left the preliminary injunction in place, and accordingly, asked the Ninth Circuit if Johnson & Johnson could have until December 19, 2022, to provide the next status report while the stay remains in place in this action. They also indicated they will inform the court if the status of the bankruptcy stay changes.
The Company and Bausch Health US dispute the claims against them and intend to defend this lawsuit vigorously. New Mexico Attorney General Consumer Protection Action
The Company and Bausch Health US were named in an action brought by State of New Mexico ex rel. Hector H. Balderas, Attorney General of New Mexico, in the County of Santa Fe New Mexico First Judicial District Court (New Mexico ex rel. Balderas v. Johnson & Johnson, et al., Civil Action No. D-101-CV-2020-00013, filed on January 2, 2020), alleging consumer protection claims against Johnson & Johnson and Johnson & Johnson Consumer, Inc., the Company and Bausch Health US related to Shower to Shower® and its alleged causal link to mesothelioma and other cancers. In April 2020, Bausch Health US filed a motion to dismiss, which in September 2020, the Court granted in part as to the New Mexico Medicaid Fraud Act and New Mexico Fraud Against Taxpayers Act claims and denied as to all other claims. The State of New Mexico brings claims
against all defendants under the New Mexico Unfair Practices Act and other common law and equitable causes of action, alleging defendants engaged in wrongful marketing, sale and promotion of talcum powder products. The lawsuit seeks to recover the cost of the talcum powder products as well as the cost of treating asbestos-related cancers allegedly caused by those products. Bausch Health US filed its answer on November 16, 2020. On December 30, 2020 Johnson & Johnson filed a Motion for Partial Judgment on the Pleadings and on January 4, 2021, Bausch Health US filed a joinder to that motion, which was denied on March 8, 2021. Trial is scheduled to begin on May 30, 2023.
On July 14, 2022, LTL filed an adversary proceeding in the Bankruptcy Court (Case No. 21-30589, Adv. Pro. No. 22-01231) against the State of New Mexico ex rel. Hector H. Balderas, Attorney General, and a motion seeking an injunction barring the State of New Mexico from continuing to prosecute the action while the bankruptcy case is pending. A hearing was held on September 14, 2022, and on October 4, 2022, the Bankruptcy Court entered an order granting the injunction and noting it would be revisited during the December 2022 omnibus hearing.
The Company and Bausch Health US dispute the claims against them and intend to defend this lawsuit vigorously.
Other General Civil Actions
As referenced above, during the three months ended September 30, 2022, there have been no material updates or developments with respect to certain proceedings or actions as described under “General Civil Actions” in Note 20, “LEGAL PROCEEDINGS,” to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC and the CSA on February 24, 2021. These matters include:
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, asserting 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. Bausch Health Americas has asserted counterclaims against Doctors Allergy. Bausch Health Americas filed a motion seeking an order granting Bausch Health Americas summary judgment on its counterclaims against Plaintiff and dismissing Plaintiff’s claims against it. The motion was fully briefed as of May 2021. The Court held a hearing on the motion on January 25, 2022. The motion remains pending. Bausch Health Americas disputes the claims against it and intends to continue to defend itself vigorously.
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, asserting claims for breach of contract and declaratory relief. On November 19, 2021, Logan amended her complaint to add a claim for breach of the implied covenant of good faith and fair dealing. 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. On June 20, 2019, the Court entered an order staying the claim for declaratory relief pending the final resolution of the breach of contract claim. Trial is scheduled to commence on April 10, 2023.
The Company disputes the claims against it in each of these matters and intends to vigorously defend the matters.
19.SEGMENT INFORMATION
Reportable Segments
DuringIn connection with the thirdCompany’s previously announced plan to separate its Solta business into an independent publicly traded entity from the remainder of Bausch Health Companies Inc., the Company had begun managing its operations in a manner which was consistent with the organizational structure of the two separate entities as proposed by the Solta IPO. As a result, during the first quarter of 2016,2022, 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 wasthese changes, effective in the thirdfirst quarter of 2016,2022, the Company operates in three operating andthe following reportable segments: (i) Salix, (ii) International (formerly International Rx), (iii) Solta Medical, (iv) Diversified Products and (v) Bausch + Lomb/International, (ii) Branded RxLomb. The new segment structure does not impact the Company’s reporting units but realigns the two reporting units of the former Ortho Dermatologics segment whereby its medical dermatology reporting unit (Ortho Dermatologics) is now part of the current Diversified Products segment and (iii) U.S. Diversified Products. Effective for the first quarterSolta reporting unit is now the sole reporting unit 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/Internationalnew Solta Medical segment. Prior period presentationspresentation of segment revenues and segment profits and segment assets havehas been recast to conform to the current segment reporting structure.
On June 16, 2022, the Company announced it was suspending plans for the Solta IPO; however, the Company is continuing to manage and operate the business in its current reportable segment structure. See Note 2, “SIGNIFICANT ACCOUNTING POLICIES” for additional information.
The following is a brief description of the Company’s segments:
•The Bausch + Lomb/InternationalSalix segmentconsists of: (i)of sales in the U.S. of pharmaceutical products, OTC productsGI products. Sales of the Xifaxan® product line represented approximately 80% of the Salix segment’s revenues for each of the three and medical device products, primarily comprisednine month periods ended September 30, 2022.
•The International segment consists of sales, with the exception of sales of Bausch + Lomb products with a focus onand Solta aesthetic medical devices, outside the Vision Care, Surgical, ConsumerU.S. and Ophthalmology Rx products and (ii) sales in Canada, Europe, Asia, Australia and New Zealand, Latin America, Africa and the Middle EastPuerto Rico of branded pharmaceutical products, branded generic pharmaceutical products and OTC products, medical device products, and Bausch + Lomb products.
•The Branded RxSolta Medical segmentconsists of global 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 health products. As a result of the Dendreon Sale completed on June 28, 2017, the Company exited the oncology business.
Solta aesthetic medical devices.•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 business and the Obagi business and (ii) generic products, (iii) Ortho Dermatologics (dermatological) products and (iv) dentistry products.
•The Bausch + Lomb segment consists of global sales of Bausch + Lomb Vision Care, Surgical and Ophthalmic Pharmaceuticals products.
Segment profit is based on operating income after the elimination of intercompany transactions.transactions, including between Bausch + Lomb and other segments. Certain costs, such as amortizationAmortization of intangible assets, assetAsset impairments, in-process researchGoodwill impairments, Restructuring, integration, separation and development costs, restructuring and integration costs, acquisition-related contingent considerationIPO costs and otherOther (income) expense, 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 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Revenues: | | | | | | | |
| Salix | $ | 544 | | | $ | 527 | | | $ | 1,509 | | | $ | 1,515 | |
| International | 250 | | | 271 | | | 727 | | | 890 | |
| Solta Medical | 72 | | | 74 | | | 201 | | | 219 | |
| Diversified Products | 238 | | | 290 | | | 722 | | | 850 | |
| Bausch + Lomb | 942 | | | 949 | | | 2,772 | | | 2,764 | |
| $ | 2,046 | | | $ | 2,111 | | | $ | 5,931 | | | $ | 6,238 | |
| Segment profits: | | | | | | | |
| Salix | $ | 391 | | | $ | 377 | | | $ | 1,067 | | | $ | 1,074 | |
| International | 85 | | | 92 | | | 242 | | | 304 | |
| Solta Medical | 33 | | | 40 | | | 88 | | | 120 | |
| Diversified Products | 151 | | | 185 | | | 450 | | | 547 | |
| Bausch + Lomb | 226 | | | 247 | | | 640 | | | 699 | |
| 886 | | | 941 | | | 2,487 | | | 2,744 | |
| Corporate | (218) | | | (186) | | | (614) | | | (566) | |
| Amortization of intangible assets | (290) | | | (338) | | | (902) | | | (1,055) | |
| Goodwill impairments | (119) | | | — | | | (202) | | | (469) | |
| Asset impairments, including loss on assets held for sale | (1) | | | (18) | | | (15) | | | (213) | |
| Restructuring, integration, separation and IPO costs | (10) | | | (8) | | | (58) | | | (29) | |
| Other income (expense), net | (4) | | | 183 | | | (6) | | | (329) | |
| Operating income | 244 | | | 574 | | | 690 | | | 83 | |
| Interest income | 3 | | | 2 | | | 8 | | | 6 | |
| Interest expense | (385) | | | (351) | | | (1,157) | | | (1,083) | |
| Gain (loss) on extinguishment of debt | 570 | | | (12) | | | 683 | | | (62) | |
| Foreign exchange and other | 7 | | | 3 | | | 4 | | | 11 | |
| Income (loss) before income taxes | $ | 439 | | | $ | 216 | | | $ | 228 | | | $ | (1,045) | |
Revenues by Segment and Product Category
Revenues by segment and product category were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Salix | | International | | Solta Medical | | Diversified Products | | Bausch + Lomb | | Total |
| Three Months Ended September 30, 2022 |
| Pharmaceuticals | $ | 543 | | | $ | 72 | | | $ | — | | | $ | 206 | | | $ | 121 | | | $ | 942 | |
| Devices | — | | | — | | | 72 | | | — | | | 390 | | | 462 | |
| OTC | — | | | 38 | | | — | | | 2 | | | 362 | | | 402 | |
| Branded and Other Generics | — | | | 131 | | | — | | | 24 | | | 65 | | | 220 | |
| Other revenues | 1 | | | 9 | | | — | | | 6 | | | 4 | | | 20 | |
| $ | 544 | | | $ | 250 | | | $ | 72 | | | $ | 238 | | | $ | 942 | | | $ | 2,046 | |
| | | | | | | | | | | |
| Three Months Ended September 30, 2021 |
| Pharmaceuticals | $ | 525 | | | $ | 61 | | | $ | — | | | $ | 234 | | | $ | 121 | | | $ | 941 | |
| Devices | — | | | — | | | 74 | | | — | | | 395 | | | 469 | |
| OTC | — | | | 41 | | | — | | | 3 | | | 365 | | | 409 | |
| Branded and Other Generics | — | | | 161 | | | — | | | 47 | | | 61 | | | 269 | |
| Other revenues | 2 | | | 8 | | | — | | | 6 | | | 7 | | | 23 | |
| $ | 527 | | | $ | 271 | | | $ | 74 | | | $ | 290 | | | $ | 949 | | | $ | 2,111 | |
| | | | | | | | | | | |
| Nine Months Ended September 30, 2022 |
| Pharmaceuticals | $ | 1,508 | | | $ | 206 | | | $ | — | | | $ | 608 | | | $ | 348 | | | $ | 2,670 | |
| Devices | — | | | — | | | 201 | | | — | | | 1,168 | | | 1,369 | |
| OTC | — | | | 111 | | | — | | | 5 | | | 1,061 | | | 1,177 | |
| Branded and Other Generics | — | | | 386 | | | — | | | 91 | | | 178 | | | 655 | |
| Other revenues | 1 | | | 24 | | | | | 18 | | | 17 | | | 60 | |
| $ | 1,509 | | | $ | 727 | | | $ | 201 | | | $ | 722 | | | $ | 2,772 | | | $ | 5,931 | |
| | | | | | | | | | | |
| Nine Months Ended September 30, 2021 |
| Pharmaceuticals | $ | 1,509 | | | $ | 187 | | | $ | — | | | $ | 699 | | | $ | 380 | | | $ | 2,775 | |
| Devices | — | | | — | | | 219 | | | — | | | 1,174 | | | 1,393 | |
| OTC | — | | | 98 | | | — | | | 7 | | | 1,010 | | | 1,115 | |
| Branded and Other Generics | — | | | 579 | | | — | | | 125 | | | 180 | | | 884 | |
| Other revenues | 6 | | | 26 | | | — | | | 19 | | | 20 | | | 71 | |
| $ | 1,515 | | | $ | 890 | | | $ | 219 | | | $ | 850 | | | $ | 2,764 | | | $ | 6,238 | |
The top ten products for the three and nine months ended September 30, 20172022 and 20162021 represented 48% and 45% of total revenues for the nine months ended September 30, 2022 and 2021, respectively.
Geographic Information
Revenues are attributed to a geographic region based on the location of the customer and were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2022 | | 2021 | | 2022 | | 2021 |
| U.S. and Puerto Rico | $ | 1,219 | | | $ | 1,251 | | | $ | 3,524 | | | $ | 3,629 | |
| China | 116 | | | 121 | | | 293 | | | 350 | |
| Canada | 92 | | | 84 | | | 258 | | | 247 | |
| Poland | 65 | | | 70 | | | 204 | | | 203 | |
| Mexico | 70 | | | 66 | | | 200 | | | 191 | |
| France | 44 | | | 50 | | | 159 | | | 160 | |
| Japan | 47 | | | 57 | | | 148 | | | 172 | |
| Germany | 55 | | | 64 | | | 112 | | | 116 | |
| United Kingdom | 22 | | | 19 | | | 85 | | | 83 | |
| Russia | 42 | | | 36 | | | 122 | | | 106 | |
| Spain | 17 | | | 20 | | | 61 | | | 62 | |
| Italy | 17 | | | 20 | | | 60 | | | 58 | |
| South Korea | 19 | | | 18 | | | 58 | | | 58 | |
| Other | 221 | | | 235 | | | 647 | | | 803 | |
| $ | 2,046 | | | $ | 2,111 | | | $ | 5,931 | | | $ | 6,238 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| Revenues: | | | | | | | |
| Bausch + Lomb/International | $ | 1,254 |
| | $ | 1,243 |
| | $ | 3,645 |
| | $ | 3,666 |
|
| Branded Rx | 633 |
| | 766 |
| | 1,873 |
| | 2,084 |
|
| U.S. Diversified Products | 332 |
| | 470 |
| | 1,043 |
| | 1,521 |
|
| | $ | 2,219 |
| | $ | 2,479 |
| | $ | 6,561 |
| | $ | 7,271 |
|
| | | | | | | | |
| Segment profits: | | | | | | | |
| Bausch + Lomb/International | $ | 387 |
| | $ | 381 |
| | $ | 1,097 |
| | $ | 1,072 |
|
| Branded Rx | 357 |
| | 484 |
| | 1,024 |
| | 1,078 |
|
| U.S. Diversified Products | 238 |
| | 379 |
| | 757 |
| | 1,227 |
|
| | 982 |
| | 1,244 |
| | 2,878 |
| | 3,377 |
|
| Corporate | (126 | ) | | (185 | ) | | (432 | ) | | (525 | ) |
| 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 |
|
| 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 | ) |
Segment AssetsMajor Customers
Total assets by segmentCustomers that accounted for 10% or more of total revenues were as follows:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
| AmerisourceBergen Corporation | 16% | | 18% |
| McKesson Corporation (including McKesson Specialty) | 13% | | 16% |
| Cardinal Health, Inc. | 11% | | 12% |
|
| | | | | | | |
| (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 |
|
Debt Repayments
On October 5, 2017, using 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 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 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 value
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.
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,” “Bausch Health,” and similar terms refer to Valeant Pharmaceuticals International,Bausch Health Companies Inc. and its subsidiaries.subsidiaries, taken together. This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” has been updated through November 7, 2017 and should be read in conjunction with the unaudited interim Consolidated Financial Statements and the related notes (the “Financial Statements”) included elsewhere in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 20172022 (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 19951933, 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 underof applicable Canadian securities legislationlaws (collectively “Forward-Looking Statements”). See “Forward-Looking Statements” at the end of this discussion.Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Our accompanying unaudited interim Consolidated Financial Statements as of September 30, 20172022 and for the three and nine months ended September 30, 20172022 and 20162021 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, 2016,2021, 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 23, 2022. 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. Certain defined terms used herein have the meaning ascribed to them in the Financial Statements.
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 gastroenterology (“GI”) and marketsdermatology, and eye health, 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 approximately 100 countries. We are diverse not only in our sources of revenue from our broad drug and medical device portfolio, but also among the therapeutic classes and geographies we serve.
We generated revenues of $6,561 million and $7,271 million for the nine months ended September 30, 2017 and 2016, respectively. Our portfolio of products falls into threefive operating and reportable segments: (i) Salix, (ii) International (formerly International Rx), (iii) Solta Medical, (iv) Diversified Products and (v) Bausch + Lomb/International, (ii) Branded Rx and (iii) U.S. Diversified Products.Lomb. These segments are discussed in detail in Note 19, “SEGMENT INFORMATION” to our unaudited Consolidated Financial Statements. The following is a brief description of the Company’s segments:
•The Bausch + Lomb/InternationalSalix segmentconsists of: (i)of sales in the U.S. of pharmaceutical products, OTC productsGI products. Sales of the Xifaxan® product line represented 80% of the Salix segment’s revenues for each of the three and medical device products, primarily comprisednine month periods ended September 30, 2022.
•The International segment consists of sales, with the exception of sales of Bausch + Lomb products with a focus onand Solta aesthetic medical devices, outside the Vision Care, Surgical, ConsumerU.S. and Ophthalmology Rx products and (ii) sales in Canada, Europe, Asia, Australia and New Zealand, Latin America, Africa and the Middle EastPuerto Rico of branded pharmaceutical products, branded generic pharmaceutical products and OTC products, medical device products, and Bausch + Lomb products.
•The Branded RxSolta Medical segmentconsists of global 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.
Solta aesthetic medical devices.•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(ii) generic products, (iii) Ortho Dermatologics (dermatological) products and (iv) dentistry products.
•The Bausch + Lomb segment consists of global sales of Bausch + Lomb Vision Care, Surgical and Ophthalmic Pharmaceuticals products.
During the first quarter of 2022, the Company changed its segment structure. The new segment structure resulted in a change to the Company’s former Ortho Dermatologics segment whereby its medical dermatology business (Ortho Dermatologics) is now managed by the Chief Operating Decision Maker (“CODM”) as part of the Diversified Products segment and the Solta Medical business is now managed by the CODM as its own operating and reportable segment. Prior period presentation of segment revenues and segment profits has been recast to conform to the current reporting structure.
Our Focus on Value
In 2016, we implemented a multi-year plan designed to transform and bring out value in our Company. The multi-year plan increased our focus on, among other factors, our: product portfolio, infrastructure, geographic footprint, capital structure and risk management.Since that time, we have been executing and continue to execute on our commitments to transform the Company and generate value. As discussed below, under the multi-year plan, we have taken actions that among other things included: (i) divesting non-core assets, (ii) making strategic investments in our core businesses and (iii) making measurable progress in improving our capital structure. These measures gave us operating flexibility and put us in a strong position to unlock the additional value to be found in our specific businesses. We believe that these and other actions we have taken to transform our Company, have helped to focus our operations, and improve our capital structure. These positive actions also presented us with an opportunity to unlock potential value across our portfolio of assets by separating our pharmaceutical and eye health businesses. Although management believes the B+L Separation (as defined below) will bring out additional value, there can be no assurance that it will be successful in doing so.
Separation of the Bausch + Lomb Eye Health Business
On August 6, 2020, we announced our plan to separate our eye health business consisting of our Bausch + Lomb Global Vision Care (formerly Vision Care/Consumer Health), Global Surgical and Global Ophthalmic Pharmaceuticals businesses into an independent publicly traded entity, Bausch + Lomb Corporation (“Bausch + Lomb”) from the remainder of Bausch Health Companies Inc. (the “B+L Separation”). During May 2022, a wholly owned subsidiary of the Company (the “Selling Shareholder”) sold shares of Bausch + Lomb pursuant to the initial public offering (“IPO”) of Bausch + Lomb (the “B+L IPO”). The underwriters partially exercised the over-allotment option granted by the Selling Shareholder.
The Company indirectly holds 310,449,643 common shares of Bausch + Lomb, which represents approximately 89% of Bausch + Lomb’s outstanding common shares. We continue to believe that completing the B+L Separation makes strategic sense. The completion of the B+L Separation is subject to the achievement of targeted debt leverage ratios and the receipt of applicable shareholder and other necessary approvals. We continue to evaluate all factors and considerations related to the B+L Separation, including the effect of the Norwich Legal Decision (see “Xifaxan® Paragraph IV Proceedings” of Note 18, “LEGAL PROCEEDINGS” to our unaudited interim Consolidated Financial Statements) on the B+L Separation.
The B+L Separation, if consummated, will result in two separate, independent companies:
•Bausch Pharma - a diversified pharmaceutical company with leading positions in gastroenterology, hepatology, dermatology, neurology and international pharmaceuticals, and aesthetic medical devices. The remaining pharmaceutical entity will comprise a diversified portfolio of our leading durable brands across the Salix, International, dentistry, neurology, medical dermatology and generics, and aesthetic medical devices businesses; and
•Bausch + Lomb - a fully integrated, “pure play” eye health company built on the iconic Bausch + Lomb brand and long history of innovation.
We believe the B+L Separation has created two highly attractive but dissimilar businesses. As independent entities, management believes that each company will be better positioned to individually focus on its core businesses to drive additional growth, more effectively allocate capital and better manage its respective capital needs. Further, the B+L Separation will allow us and the market to compare the operating results of each entity with other “pure play” peer companies. Although management believes the B+L Separation will unlock value, there can be no assurance that it will be successful in doing so.
At the time of our announcement of the B+L Separation, we emphasized that it is important that the post-separation entities be well capitalized, with appropriate leverage and with access to additional capital, if and when needed, to provide each entity with the ability to independently allocate capital to areas that will strengthen their own competitive positions in their respective lines of business and position each entity for sustainable growth. Therefore, we see the Obagi businessappropriate capitalization and (ii) generic products.
leverage of these businesses post-separation as a key to maximizing value across our portfolio of assets and, as such, it is a primary objective of our plan of separation.We are focused on core geographiesbelieve the B+L Separation, if consummated, provides us with an attractive opportunity for liquidity to support the appropriate capitalization and leverage of the Bausch + Lomb entity and the therapeutic classes discussed aboveremainder of Bausch Health, which havewe refer to as “Bausch Pharma” and which will assume a new name upon completion of the potential for strong operating marginsB+L Separation. Management will continue to thoughtfully evaluate all factors in connection with the B+L Separation. For additional details on the B+L Separation, see “Separation of the Bausch + Lomb Eye Health Business” in Note 2, “SIGNIFICANT ACCOUNTING POLICIES” to our unaudited interim Consolidated Financial Statements.
See Item 1A. “Risk Factors — Risk Relating to the B+L Separation and offer growth opportunities.
For a comprehensive discussionthe Solta IPO” 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, 2016,2021, filed with the SEC and the CSA on March 1, 2017.February 23, 2022, for additional risks relating to the B+L Separation.
Focus on Core Businesses
HistoryTo position ourselves to unlock the value we see in our individual businesses, we have sought to right-size our portfolio of assets and provide financial flexibility. In line with this focus on our core businesses, we have: (i) made measurable progress in effectively managing our capital structure, (ii) directed capital allocation to drive growth within these core businesses, (iii) divested assets to improve our capital structure and simplify our business, (iv) resolved certain of the Company's legacy litigation matters originating back to 2015 and prior, (v) increased our efforts to improve patient access and (vi) continued to invest in sustainable growth drivers to position us for long-term growth.
FollowingWe believe that these and other actions we have taken to transform our Company, have helped focus our operations, unlocked value across our product portfolios, improved our capital structure and mitigated certain risks associated with legacy litigation matters. We believe that these measures, along with our continued commitment to improving people’s lives through our health products, help position us to unlock potential value across our portfolio of assets by separating our eye health and pharmaceutical businesses. Although management believes the B+L Separation will unlock additional value, there can be no assurance that it will be successful in doing so.
Effectively Managing Our Capital Structure
In connection with the B+L Separation, we have emphasized that it is important that the post-separation entities be well capitalized, with appropriate leverage and access to additional capital, if and when needed, to provide each entity with the ability to independently allocate capital to areas that will strengthen their own competitive positions in their respective lines of business and position each entity for sustainable growth. Therefore, we see the appropriate capitalization and leverage of these entities post-separation as a key to bringing out the maximum value across our portfolio of assets and, as such, it is a primary objective of our plan of separation.
Managing Our Capital Structure 2016 through 2021
In 2016, our executive team committed to improving our Company’s (then named Biovail Corporation) acquisitioncapital structure and, since that time, we have been executing and continue to execute on that commitment. As a result of Valeant Pharmaceuticals International (“Valeant”)a series of debt repayments and transactions since making that commitment, the Company positioned itself to execute on September 28, 2010 (the “Merger”)the B+L IPO, while at the same time progressing toward providing the appropriate capitalization and leverage of the Company to effect the B+L Separation.
Excluding the impact of the $1,210 million financing of the Securities Class Action Settlement (as defined in Note 18, “LEGAL PROCEEDINGS” in the accompanying unaudited interim Consolidated Financial Statements), we supplementedrepaid (net of additional borrowings) approximately $10,000 million of long-term debt during the period January 1, 2016 through December 31, 2021 using the net cash proceeds from divestitures of non-core assets, cash on hand and cash from operations, including from our internal researchfocus on working capital management. See “U.S. Securities Litigation - Opt -Out Litigation” of Note 18, “LEGAL PROCEEDINGS” for additional details.
Managing Our Capital Structure in 2022
During 2022, we continue to effectively manage our capital structure by: (i) executing on our plan for the B+L Separation, including using the net proceeds from the B+L IPO which closed on May 10, 2022, to make repayments of debt, (ii) reducing our debt through open market repurchases, (iii) extending the maturities of debt through refinancing and development (“R&D”(iv) completing an exchange offer which reduced the outstanding principal balance of our debt by $2,469 million by exchanging $5,594 million of aggregate principal value of existing unsecured senior notes (the “Existing Unsecured Senior Notes”) effortsfor newly issued secured notes with strategic acquisitionsan aggregate principal balance of $3,125 million (the “Exchange Offer”). As a result of these actions, described in additional detail below, during the nine months ended September 30, 2022, we have reduced the aggregate principal amount of our debt obligations by approximately $3,300 million as follows:
The B+L IPO, 2022 Notes Issuance and Credit Agreement Refinancing - In connection with the B+L IPO, we completed a series of transactions in support of our commitment to expandimprove our portfolio offeringsliquidity, reduce our leverage and geographic footprint. In 2013, we acquired better capitalize the two business entities post-separation. These transactions included:
•On February 10, 2022, the Company issued (the “2022 Notes Issuance”) $1,000 million aggregate principal amount of 6.125% Senior Secured Notesdue February 2027 (the “February 2027 Secured Notes”).
•On May 10, 2022:
•The B+L IPO closed, with aggregate net proceeds (including from the partial exercise of the over-allotment option by the underwriters), after deducting underwriting commissions, of approximately $675 million.
•The Company entered into the 2022 Amended Credit Agreement as defined and discussed in further detail below, under “— Liquidity and Capital Resources — Liquidity and Debt — Long-term Debt”. The 2022 Amended Credit Agreement consists of new term loans of $2,500 million and a revolving credit facility of $975 million.
•Bausch &+ Lomb Holdings Incorporated (“entered into the B+L Credit Agreement, as defined and discussed in further detail below under “— Liquidity and Capital Resources — Liquidity and Debt — Long-term Debt”. The B+L Credit Agreement provides for a five-year term loan facility in an initial principal amount of $2,500 million and also provides for a five-year revolving credit facility of $500 million.
The net proceeds from these transactions, along with cash on hand, allowed us to: (i) repay certain amounts outstanding under our then existing June 2025 Term Loan B&L” Facility and November 2025 Term Loan B Facility (each as defined and discussed in further detail below under “— Liquidity and Capital Resources — Liquidity and Debt — Long-term Debt”), (ii) replace our existing revolving credit facility which was due to mature in 2023, with revolving credit facilities that mature in 2027, (iii) redeem in full all of our then outstanding 6.125% Senior Unsecured Notes due 2025 (the “April 2025 Unsecured Notes”) and (iv) replace our then remaining amounts outstanding under our June 2025 Term Loan B Facility and November 2025 Term Loan B Facility with term loan facilities that expire in 2027.
Early Extinguishment of Debt - During June 2022, through a global eye health companyseries of transactions we repurchased and retired, outstanding senior unsecured notes with an aggregate par value of $481 million in the open market for approximately $300 million using: (i) the net proceeds from the partial exercise of the over-allotment option in the B+L IPO by the underwriters, after deducting underwriting commissions, (ii) amounts available under our revolving credit facility and (iii) cash on hand. As a result of these transactions, we recognized a gain on the extinguishment of debt of approximately $176 million, net of write-offs of debt premiums, discounts and deferred issuance costs, representing the differences between the amounts paid to retire the senior unsecured notes and their carrying value.
Exchange Offer - As discussed in further detail below under “— Liquidity and Capital Resources — Liquidity and Debt — Long-term Debt”, we made the strategic decision based on the fair value of our Senior Unsecured Notes to undertake the Exchange Offer in September 2022. We exchanged certain validly tendered existing senior unsecured notes, with an aggregate outstanding principal balance of approximately $5,594 million with maturities of 2025 through 2031 for newly issued senior secured notes, with an aggregate principal balance of approximately $3,125 million with maturities of 2028 and 2030. After fees and expenses, the Exchange Offer reduced the principal balances of our outstanding debt obligations by $2,469 million and extended the maturities of approximately $2,400 million of principal balances coming due during the years 2025 through 2027 to the years 2028 and 2030. We also recorded a net gain of $570 million as the future undiscounted cash flows of certain New Secured Notes were less than the net carrying value of the Existing Unsecured Senior Notes which were exchanged.
As a result of: (i) the 2022 Notes Issuance and Credit Agreement Refinancing (as defined below under “—Senior Secured Credit Facilities under the 2022 Amended Credit Agreement”), (ii) the early extinguishment of debt, (iii) the Exchange Offer and (iv) other debt repayments (net of additional borrowings under our Revolving Credit Facility) we reduced the principal balances of our contractual debt obligations in 2022 by approximately $3,300 million. The contractual principal amount of our debt obligations as of September 30, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | | | | |
| (in millions) | | September 30, 2022 | | December 31, 2021 |
| Revolving Credit Facility | | $ | 450 | | | $ | 285 | |
| Term Loan Facilities | | 2,469 | | | 3,823 | |
| B+L Term Loan Facility | | 2,494 | | | — | |
| Senior Secured Notes | | 7,975 | | | 3,850 | |
| Senior Unsecured Notes | | 6,174 | | | 14,900 | |
| Other | | 12 | | | 12 | |
| Total long-term debt and other | | 19,574 | | | 22,870 | |
| Unamortized premiums, discounts and issuance costs | | 1,641 | | | (216) | |
| Total long-term debt and other, net of premiums, discounts and issuance costs | | $ | 21,215 | | | $ | 22,654 | |
These transactions also had the effect of reducing our cash debt service requirements over the next five years thereby providing us with additional flexibility as it relates to liquidity to operate. Prior to these transactions, our aggregate principal contractual debt repayment requirements through the year 2026 were approximately $5,425 million. As a result of these transactions, as of September 30, 2022, we have reduced our estimated debt service requirements of principal and interest over the 12 months period ending September 30, 2023 by approximately $65 million and reduced our aggregate principal contractual debt repayment requirements through the year 2026 to approximately $4,100 million. Maturities of our principal balances of debt obligations as of September 30, 2022 and December 31, 2021, were as follows:
| | | | | | | | | | | | | | |
| (in millions) | | September 30, 2022 | | December 31, 2021 |
| Remainder of 2022 | | $ | 38 | | | $ | — | |
| 2023 | | 150 | | | 285 | |
| 2024 | | 150 | | | — | |
| 2025 | | 2,859 | | | 9,723 | |
| 2026 | | 898 | | | 1,500 | |
| 2027 | | 6,926 | | | 2,250 | |
| 2028 - 2031 | | 8,553 | | | 9,112 | |
| Total debt obligations | | $ | 19,574 | | | $ | 22,870 | |
The following table presents the contractual principal and interest payments of the New Secured Notes. Contractual interest payments will be allocated to the reduction of the recorded premium and interest expense as presented below. Additionally, the amount of interest which reduces the premium will be reported as a Financing activity in the Consolidated Statement of Cash Flows.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Remainder of 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter | | Total |
| Principal Payments: | | | | | | | | | | | | | | | | |
| 11.00% First Lien Secured Notes | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,774 | | | $ | 1,774 | |
| 14.00% Second Lien Secured Notes | | — | | | — | | | — | | | — | | | — | | | — | | | 352 | | | 352 | |
| 9.00% Intermediate Holdco Secured Notes | | — | | | — | | | — | | | — | | | — | | | — | | | 999 | | | 999 | |
| | — | | | — | | | — | | | — | | | — | | | — | | | 3,125 | | | 3,125 | |
| Interest Payments: | | | | | | | | | | | | | | | | |
| 11.00% First Lien Secured Notes | | — | | | 195 | | 195 | | 195 | | 195 | | 195 | | 196 | | 1,171 | |
| 14.00% Second Lien Secured Notes | | — | | | 52 | | 49 | | 49 | | 49 | | 49 | | 148 | | 396 | |
| 9.00% Intermediate Holdco Secured Notes | | — | | | 75 | | | 90 | | | 90 | | | 90 | | | 90 | | | 45 | | | 480 | |
| | — | | | 322 | | | 334 | | | 334 | | | 334 | | | 334 | | | 389 | | | 2,047 | |
| | $ | — | | | $ | 322 | | | $ | 334 | | | $ | 334 | | | $ | 334 | | | $ | 334 | | | $ | 3,514 | | | $ | 5,172 | |
| Interest payments recorded as: | | | | | | | | | | | | | | | | |
| Interest expense | | $ | — | | | $ | 43 | | | $ | 38 | | | $ | 36 | | | $ | 34 | | | $ | 32 | | | $ | 29 | | | $ | 212 | |
| Premium reduction | | — | | | 279 | | | 296 | | | 298 | | | 300 | | | 302 | | | 360 | | | 1,835 | |
| | $ | — | | | $ | 322 | | | $ | 334 | | | $ | 334 | | | $ | 334 | | | $ | 334 | | | $ | 389 | | | $ | 2,047 | |
We believe these transactions improve our overall capitalization and leverage.
See Note 10, “FINANCING ARRANGEMENTS” to our unaudited interim Consolidated Financial Statements and “Liquidity and Capital Resources: Long-term Debt” below for additional discussion of these matters. Cash requirements for future debt repayments including interest can be found in “Management’s Discussion and Analysis - Off-Balance Sheet Arrangements and Contractual Obligations.”
Continue to Manage our Capital Structure
We continue to monitor our capital structure and to evaluate other opportunities to simplify our business and improve our capital structure, to give us the ability to better focus on our core businesses and prepare us for post-separation. 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, repurchase or exchange existing debt or issue additional debt, equity or equity-linked securities.
Direct Capital Allocation to Drive Growth Within Our Core Businesses
Our capital allocation is driven by our long-term growth strategies. We have made strategic investments in our core businesses in order to support recent revenue growth and prepare for additional growth opportunities which we plan to capitalize on for our core businesses. We have been aggressively allocating resources to our core businesses globally through: (i) R&D investment, (ii) strategic licensing agreements and (iii) strategic investments in our infrastructure. We believe that the outcome of this process will allow us to better drive value in our product portfolio and generate operational efficiencies.
R&D Investment
We search for new product opportunities through internal development and strategic licensing agreements, that, if successful, will allow us to leverage our commercial footprint, particularly our sales force, and supplement our existing product portfolio and address specific unmet needs in the market.
Our internal R&D organization focuses on developing, manufacturingthe development of products through clinical trials. As of December 31, 2021, approximately 1,300 dedicated R&D and marketing eye health products, including contact lenses,quality assurance employees in 25 R&D facilities were involved in our R&D efforts internally.
As of September 30, 2022, we had approximately 160 projects in our global pipeline. Certain core internal R&D projects that have received a significant portion of our R&D investment in current and prior periods are listed below.
Gastrointestinal
•Rifaximin - Top line results from a Phase 2 study for the treatment of overt hepatic encephalopathy with a new formulation (SSD IR) of rifaximin showed a treatment benefit. Patients receiving 40 mg twice daily showed a statistically significant separation from placebo. The top line results from this Phase 2 study and other clinical data of SSD in cirrhotic patients will help inform further research on potential new indications for rifaximin. A Phase 3 study has commenced (RED-C) with patients actively enrolling for the prevention of the first episode of Overt Hepatic Encephalopathy.
•Rifaximin - Rifaximin recently received orphan drug designation for sickle cell disease. A phase 2 study with novel dosage formulation is currently enrolling patients for the treatment of sickle cell disease.
•Rifaximin - Development of a fit for purpose Patient Reported Outcomes tool for small intestinal bacterial overgrowth, or “SIBO”, is continuing in 2022.
•Rifaximin - We have entered into an agreement with Cedars Sinai Medical Center to evaluate a new formulation of rifaximin for the treatment of IBS-D. Two preclinical studies have been completed. A Clinical Proof of Concept study that was paused due to COVID-19 pandemic related factors, has recommenced and is fully enrolled. Based on recent FDA comments dated February 10, 2022, the program was being assessed and related timelines reviewed and upon further review of the applicable timelines, the Company expects to terminate this program.
•Envive™ - In October 2020, we launched, on a limited basis, a probiotic supplement that was developed to address gastrointestinal disturbances. In April 2021, we expanded the launch to additional territories in the U.S.
•Amiselimod (S1P modulator) - We commenced a Phase 2 study during the first half of 2021 to evaluate Amiselimod (S1P modulator) for the treatment of mild to moderate ulcerative colitis.
Dermatology
•Arazlo® (tazarotene) Lotion, 0.045% - In June 2020, we launched this acne product containing lower concentration of tazarotene in a lotion form to help reduce irritation while maintaining efficacy.
•Internal Development Project (“IDP”) 120 - An acne product with a fixed combination of mutually incompatible ingredients: benzoyl peroxide and tretinoin. Phase 3 clinical studies have been completed and met the primary endpoints. We are currently evaluating next steps for this project.
•IDP-126 - An acne product with a fixed combination of benzoyl peroxide, clindamycin phosphate and adapalene. Phase 3 clinical studies initiated in December 2019 were paused due to COVID-19 pandemic related factors, but resumed in June 2020. Both Phase 3 studies have been completed and have met their primary endpoints. A comparative bridging safety and efficacy study was delayed until 2021 due to COVID-19. The bridging study has completed enrollment in July 2022. We anticipate filing a New Drug Application (“NDA”) in the fourth quarter of 2022.
Solta Medical
•Clear + Brilliant®Touch - Next generation Clear + Brilliant® laser that is designed to deliver a customized and more comprehensive treatment protocol by providing patients of all ages and skin types the benefits of two wavelengths. This product was launched in the U.S. in March 2021.
Bausch + Lomb
•SiHy Daily - A silicone hydrogel daily disposable contact lens care solutions, ophthalmic pharmaceuticals and ophthalmic surgical products.designed to provide clear vision throughout the day. In 2015,September 2018, we acquired Salix Pharmaceuticals, Ltd. (“Salix”) (the “Salix Acquisition”), a specialty pharmaceutical company dedicated to developing and commercializing prescription drugs and medical devices usedlaunched SiHy Daily in treatment of a variety of GI disorders with a portfolio of over 20 marketed products, including Xifaxan®, Uceris®, Apriso®, Glumetza®, and Relistor®.Japan under the branded name AQUALOX™ ONE DAY. In 2015,August 2020, 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, on February 15, 2017, we received approval fromlaunched SiHy Daily in the U.S. Foodunder the branded name Bausch + Lomb INFUSE® SiHy Daily Disposable contact lens. In the fourth quarter of 2020, SiHy Daily was launched in Australia, Hong Kong and Drug Administration (“FDA”Canada under the branded name Bausch + Lomb Ultra® ONE DAY. SiHy Daily has also received regulatory approval in China, New Zealand, Japan, South Korea, Europe, Singapore and Malaysia, where it will be branded as Bausch + Lomb Ultra® ONE DAY, and in the second quarter of 2021, we launched SiHy Daily in South Korea and Singapore as Bausch + Lomb Ultra® ONE DAY.
•LUMIFY® (brimonidine tartrate ophthalmic solution, 0.025%). On July 27, 2017, we - An OTC eye drop developed as an ocular redness reliever. We launched this product in the U.S. (marketed as Siliq™in May 2018 and in Canada in June 2022. Currently, we have several new line formulations under development. The first Phase 3 study in support of these line extensions has initiated. Additional studies have commenced during October 2022.
•New Ophthalmic Viscosurgical Device (“OVD”) product - A formulation to protect corneal endothelium during phacoemulsification process during a cataract surgery and to help chamber maintenance and lubrication during IOL delivery. A clinical study report was completed for the cohesive OVD product (StableVisc™) during the second quarter of 2022. FDA approval is expected in the U.S.). We believefourth quarter of 2022 and launch is expected in the investmentsfirst quarter of 2023. In addition, in March 2021, we have madereceived Premarket Approval from the FDA for Clearvisc™ dispersive OVD, which we launched in B&L, Salix, brodalumabthe U.S. in June 2021.
•Bausch + Lomb is expanding its portfolio of premium IOLs built on the enVista® platform with Monofocal Plus, EDOF and other acquisitions,Trifocal optical designs for presbyopia correction. Bausch + Lomb expects that they will be commercialized together with a new preloaded inserter with two options: non-Toric, as well as our ongoing investmentsToric for astigmatism patients. Bausch + Lomb anticipates launching Monofocal Plus, Trifocal and EDOF optical designs for presbyopia in the U.S. in 2023, 2024 and 2025/2026, respectively.
•Renu® Advanced Multi-Purpose Solution (“MPS”) - Contains a triple disinfectant system that kills 99.9% of germs tested, 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, disinfect, rinse and store soft contact lenses including those composed of silicone hydrogels. Prior to 2022, Renu® Advanced MPS was launched in India, Mexico, Korea, Turkey and Greece and gained regulatory approvals in Indonesia, Malaysia, Singapore, the European Union, Belarus and China. In 2022, Renu® Advanced MPS was launched in Taiwan, Czech Republic, Israel, Poland, Slovakia, China, Argentina, Columbia, Ecuador and Peru. We anticipate launches in Slovenia, other parts of Europe and the Nordic regions.
Strategic Licensing Agreements
To supplement our internal R&D efforts, are helpinginitiatives and to build-out and refresh our product portfolio, we also search for opportunities to augment our pipeline through arrangements that allow us to capitalizegain access to unique products and investigational treatments, by strategically aligning ourselves with other innovative product solutions.
In the normal course of business, the Company will enter into select licensing and collaborative agreements for the commercialization and/or development of unique products. These products are sometimes investigational treatments in early stage development that target unique conditions. The ultimate outcome, including whether the product will be: (i) fully developed, (ii) approved by the FDA or other regulators, (iii) covered by third-party payors or (iv) profitable for distribution, is highly uncertain. Under certain agreements, the Company may be required to make payments contingent upon the achievement of specific developmental, regulatory, or commercial milestones.
In October 2019, we acquired an exclusive license from Clearside Biomedical, Inc. (“Clearside”) for the commercialization and development of Xipere® (triamcinolone acetonide suprachoroidal injectable suspension) in the U.S. and Canada. Xipere® is a proprietary suspension of the corticosteroid triamcinolone acetonide formulated for suprachoroidal administration via Clearside’s proprietary SCS Microinjector®. In October 2021, the FDA approved Xipere® for suprachoroidal use for the treatment of macular edema associated with uveitis. We launched Xipere® in the U.S. in the first quarter of 2022.
In April 2019, we entered into 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 have completed a thorough QTC study, which evaluated the cardiac safety profile of the compound. Topline results were positive and we commenced a Phase 2 study in the first half of 2021.
Divest Assets to Improve Our Capital Structure and Simplify Our Business
In order to better focus on theour core geographies and therapeutic classes that have the potential for strong operating margins and offer attractive growth opportunities. While business development through acquisitions maybusinesses, we continue to be a component ofevaluate opportunities to simplify our long-term strategy, we have made minimal acquisitions since 2015operations and expect the volume and size of acquisitionsimprove our capital structure, including divesting non-core assets in order 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.
Key Initiatives
Prior to 2016, we had completed a series of mergers and acquisitions which were key tonarrow the Company’s previous strategy for growth.
The Company has transitioned away from a focus on acquisitions, has taken stepsactivities to stabilize its business and has begun placing greater emphasis on a select number of internal R&D projects. The Company’s key initiatives include: (i) concentrating our focus on core businesses where we believe we have an existing and sustainable competitive edge (ii) identifying opportunitiesand the ability to improvegenerate operational efficienciesefficiencies. To date, we received approximately $4,100 million in net proceeds from these divestitures, which includes the sale of Amoun Pharmaceutical Company S.A.E. (“Amoun”) discussed below.
On July 26, 2021, we completed the sale of Amoun for total gross consideration of approximately $740 million, subject to certain adjustments (the “Amoun Sale”). Amoun manufactures, markets and reviewing our internal allocationdistributes branded generics of capitalhuman and (iii) strengtheninganimal health products. The Amoun business was part of the Company’s balance sheet and capital structure.
In 2017, we have continued to execute on these key initiatives. We have better defined our core businesses, shifted our operations toward those core businesses and made measurable progress in strengthening our balance sheet.
Focus on Core Businesses - We believe that there is significant opportunity inInternational segment (previously included within the eye health and branded prescription pharmaceutical businesses. Our existing portfolio, commercial footprint and pipeline of product development projects are expected 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) and dermatology. We also view our global eye health business, within ourformer Bausch + Lomb/International segment,segment). Revenues associated with Amoun were $157 million for the period of January 1, 2021 through July 26, 2021. On July 30, 2021 and August 3, 2021, the Company made aggregate payments of $600 million, to repay $469 million of its June 2025 Term Loan B Facility and $131 million of its November 2025 Term Loan B Facility (each as core. Althoughdefined below), using the business unitsproceeds from the Amoun Sale and cash on hand.
We will continue to consider further dispositions of various assets in line with this strategy. While we anticipate that fall outsideany future divestiture activities will be on non-core assets, we will consider dispositions in core areas that we believe represent attractive opportunities for the Company. See Note 4, “LICENSING AGREEMENTS AND DIVESTITURE” to our definitionunaudited interim Consolidated Financial Statements for additional information.
Resolved Legacy Legal Matters
In 2020 and 2021, we resolved certain of “core” assets may be solid, the focusCompany's legacy legal matters originating back to 2015 and prior, including settling the U.S. Securities Litigation (see “U.S. Securities Litigation - Opt -Out Litigation” of their product pipelinesNote 18, “LEGAL PROCEEDINGS”). The Securities Class Action Settlement resolves the most significant of the Company's remaining legacy legal matters and geographic footprint are not fully aligned witheliminates a material uncertainty regarding the focusCompany.
Improve Patient Access
Improving patient access to our products, as well as making them more affordable, is a key element of our core business strategy.
Patient Access and they are, therefore, at a disadvantage when competing against our core activities for resources and capital within the Company.
Internal Capital Allocation and Operating EfficienciesPricing Committee - 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 leadership and the enhanced focus on core assets have enabled the Company to recruit and retain stronger talent for its 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.
Our Patient Access and Pricing Committee and New Pricing Actions - In May 2016, we formed the Patient Access and Pricing Committeeis responsible for setting, changing and monitoring the pricing of our Branded Rxproducts and other pharmaceutical products. Following this committee's recommendation, we implemented an enhanced rebate program to all hospitals inevaluating contract arrangements that determine the U.S. to reduce the priceplacement of our Nitropress®products on drug formularies. The Patient Access and Isuprel® products. In OctoberPricing Committee considers new to market product pricing, price changes and their impact across channels on patient accessibility and affordability. Since its inception in 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 with the Patient Access and Pricing Committee's commitment thathas limited the average annual price increase for our branded prescription pharmaceutical products will be set at no greater thanto 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 pricing of our dermatology and ophthalmology products, after taking into account the impact of rebates and other adjustments, decreased by greater than 10% on average. On April 21, 2017, the Company announced that, following the evaluation and approval of the Patient Access and Pricing Committee, it had decided 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 thesedigits. Future pricing changes and programs could affect the average realized pricing for our products and may have a significant impact on our revenue trends.
revenues and profits.The rankingBausch Health Patient Assistance Program - In the face of the COVID-19 pandemic, some people have financial obstacles that keep them from obtaining and continuing their prescribed treatments. We are committed to supporting patients who have lost employment health benefits due to the COVID-19 pandemic, and because it is essential that our patients continue their prescribed treatments, we are proud to offer certain of our business units duringprescription medicines through our Bausch Health Patient Assistance Program. The purpose of the Bausch Health Patient Assistance Program is to provide eligible unemployed patients in the U.S., who meet stated qualifications and have lost their health insurance due to the COVID-19 pandemic, with certain of our prescription products where their financial circumstances or insurance status would otherwise interfere with their ability to access such products. If approved, patients receive their Bausch Health prescription product(s) at no cost to them for up to one year, and may be able to reapply to the program annually if they continue to meet eligibility requirements and have a valid prescription.
Cash-pay Prescription Program - In February 2019, we launched Dermatology.com, a cash-pay product acquisition program offering certain branded Ortho Dermatologics products directly to patients. In March 2020, the name Dermatology.com was removed as the cash-pay product program name, with the name Dermatology.com limited to only online usage, including future digital teledermatology and e-commerce offerings. The cash-pay program is designed to address the affordability and availability of certain branded dermatology products, when insurers and pharmacy benefit
managers are no longer offering those branded prescription pharmaceutical products under their designated pharmacy benefit offerings.
Walgreens Fulfillment Arrangements - In the beginning of 2016, changedwe launched a brand fulfillment arrangement with Walgreen Co. (“Walgreens”). Under the terms of the brand fulfillment arrangement, as amended in July 2019, we made certain dermatology and ophthalmology products available to eligible patients through patient access and co-pay assistance programs at Walgreens U.S. retail pharmacy locations, as well as participating independent retail pharmacies.
Invest in Sustainable Growth Drivers to Position us for Long-Term Growth
We are constantly challenged by the changing dynamics of our viewindustry to innovate and bring new products to market. We have divested certain businesses where we saw limited growth opportunities, so that 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 how capital should be allocated acrossproduct 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 activities. Our first step wasexisting products, but is also poised to review each business unit, considerbring new products to market.
Leveraging our Salix Infrastructure - We strongly believe in our GI product portfolio and assess the appropriate levels of operating expense,we have implemented initiatives, including increasing our marketing presence and identifying additional opportunities outside our existing GI portfolio, to eliminate non-productive costs. As a result of that review, we identified several hundred million dollars of cost savings opportunities.
To position the Company to drivefurther capitalize on the value of the infrastructure we have built around these products to extend our core assets, we made a number of leadership changes and took steps to increase our promotional efforts, particularly in GI, and increase our commitment to research and development.market share.
GI Initiatives - The GI unit initiated 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”) and Relistor® tablets for opioid induced constipation (“OIC”). 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 PCPs.primary care physicians (“PCP”). With approximately 70 percent70% of IBS-D patients initially presenting with symptoms to a PCP, we continue to believe that the dedicated PCP sales force will beis well positioned to reach more patients in need of IBS-D treatment. The investment
Our sales force has been successful in these additional sales resources, including an increasedelivering consistent growth in associated promotional costs, is expected to be in 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 investment indemand for our GI unit reducedproducts, demonstrated by our operating resultsgrowth in Salix revenues of 32% when comparing 2021 to 2017. We continue to seek ways to bring out further value through leveraging our existing sales force including the fourth quarter of 2016 and the first quarter of 2017 and we have begun experiencing incremental revenue for Xifaxan®. following opportunities:
Trulance® Acquisition - 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.
R&D Investments - Our R&D organization focuses on the development of products through clinical trials and consists of approximately 1,000 dedicated R&D and quality assurance employees in 18 R&D facilities. Currently, we have over 100 R&D projects 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% over our R&D expenditures in 2015, as 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 asMarch 2019, we completed the R&D investment in SiliqTM and other newly launched products requiring investment inacquisition of certain assets of Synergy Pharmaceuticals Inc. (“Synergy”), whereby we acquired the prior year, removed projects related to divested businesses and rebalanced our portfolio to better align with our long-term plans.
Core assets that have received a significant portion of our R&D investment are:
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.
Dermatology - IDP-118 is 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. 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 September 5, 2017, we announced that we had submitted a New Drug Application (“NDA”) for IDP-118worldwide rights to the FDA which included data from two successful Phase 3 clinical trials. On November 2, 2017, we announcedTrulance® product, a once-daily tablet for adults with chronic idiopathic constipation, or CIC and irritable bowel syndrome with constipation, or IBS-C. We believe that the FDA had accepted the NDA for review,Trulance® product complements our existing Salix products and set a Prescription Drug User Fee Act (“PDUFA”) action date of June 18, 2018.
Dermatology - IDP-122 is a novel psoriasis product, for which we expectallows us 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 efficacy currently in Phase 3 testing.
Dermatology - IDP-120 - is an acne product with a fixed combination of mutually incompatible ingredients; benzoyl peroxide and tretinoin. We plan to begin Phase 3 testing of this 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”) 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 ateffectively leverage 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 approval 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 FDA 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.
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 - On April 6, 2017, we announced that our Stellaris Elite™ Vision Enhancement System received 510(k) clearance from the FDA. 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.
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• | Eye Health - Biotrue® ONEday for Astigmatism is a daily disposable contact lens for astigmatic patients. The Biotrue® ONEday lenses incorporates Surface Active TechnologyTM to provide a dehydration barrier. The 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 complete extended power range in 2017.
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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 emulsification process during a cataract surgery and to help chamber maintenance and lubrication during intraocular lens delivery. We expect to initiate an investigative device exemption (“IDE”) study in 2017.
Dermatology - Next Generation Thermage® is a fourth-generation non-invasive treatment option using a radiofrequency platform designed to optimize key functional characteristics, expand clinical indication set and improve patient outcomes. On September 22, 2017, we received 510(k) clearance from the FDA and expect to launch this product in 2017.
Gastrointestinal - NER1006 (provisionally named Plenvu®) is a novel, lower-volume polyethylene glycol-based bowel preparation that has been developed to help provide complete bowel cleansing, with an additional focus on the ascending colon. In June 2017, we announced that the FDA accepted for review the NDA for NER1006 and we expect an FDA decision in 2018. NER1006 was licensed by Norgine B.V. to Salix in August 2016.
Eye Health - 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.
Strengthening the Balance Sheet/Capital Structure - We have made measurable progress in reducing our debt level, improving our capital structure and generating additional liquidity for our operations. Using our cash flows from operations and the net cash proceeds fromexisting GI sales of certain non-core assets, during the period January 1, 2016 through the date of this filing, we repaid (net of additional borrowings) over $5,200 million of long-term debt, which includes over $900 million of repayments made after September 30, 2017 using the net proceeds from a divestiture as discussed below and cash on hand. In addition, in March 2017 and October 2017, we accessed the credit markets and completed a series of transactions to improve our capital structure, whereby we extended the 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
force. In order to better focus on our business objectives,drive growth of the Trulance® product, we have divested certain businesses and assets and identified othersincreased the number of sales force representatives for potential divestiture, which, in each case,the Trulance® product. We believe this has been successful as Trulance® revenues 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$77 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$74 million for the nine months ended September 30, 20172022 and $246 million2021, respectively.
Licensing Arrangement - As previously discussed, in April 2019, we entered into a licensing agreement to develop and $252 million forcommercialize MT-1303 (amiselimod), a late-stage oral compound that targets the years 2016sphingosine 1-phosphate receptor that plays a role in autoimmune diseases, such as inflammatory bowel disease and 2015, respectively. Withulcerative colitis. This license presents a unique developmental opportunity to address unmet needs of individuals suffering with certain GI and liver diseases and, if developed and approval is obtained from the iNova Sale completed, we have less exposureFDA, will allow us to the over-the-counterfurther utilize our existing sales force and prescription medicines marketsinfrastructure to extend our market share in the geographies noted above, which are not core tofuture and create value.
Investment in Next Generation Formulations - Revenues from our business objectives. However, we will continue to maintain a footprintXifaxan® product line increased approximately 11%, 2% and 22% 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 Sale2021, 2020 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 and2019, respectively. For the nine months ended September 30, 2022 and 2021, Xifaxan® product revenues were $1,216 million and $1,194 million, respectively, an increase of $22 million or 2%. In order to extend growth in Xifaxan®, we continue to directly invest in next generation formulations of Xifaxan® and rifaximin, the principal semi-synthetic antibiotic used in our Xifaxan® product.
We believe that the acquisition and licensing opportunities discussed above will be accretive to our business by providing us access to products and investigational compounds that are a natural pairing to our Xifaxan® business, allowing us to effectively leverage our existing infrastructure and sales force. We believe these opportunities, coupled with our investment in next generation formulations, will allow our GI franchise to continue to further extend market share.
Investment in Our Solta Aesthetic Medical Device Business - Next generation Thermage FLX®, a fourth-generation non-invasive treatment option using a radio frequency platform designed to optimize key functional characteristics and improve patient outcomes, has been on sale since 2017 in the U.S., Hong Kong, Japan, Korea, Taiwan, Philippines,
Singapore, Indonesia, Malaysia, China, Thailand, Vietnam, Australia and various parts of Europe as part of our Solta aesthetic medical devices portfolio. We plan to continue to expand into other regions, paced by country-specific regulatory registrations. Next generation Thermage FLX® revenues were $154 million and $142 million for the years 2021 and 2020, respectively. Consistent with our business strategy to continually update and improve our technology, in 2021, we launched, in the U.S., our next generation Clear + Brilliant®Touch system which is designed to deliver a customized and more comprehensive treatment protocol by providing patients of all ages and skin types the benefits of two wavelengths. The launch of our next generation Clear + Brilliant®Touch system in the U.S. is expected to serve as a foundation for future launches in Asia and Europe.
Reposition the Ortho Dermatologics Business to Generate Additional Value - Our Ortho Dermatologics business continues to work towards improving the treatment options for medical dermatology patients needing topical acne and psoriasis products. We continue to explore additional strategic e-commerce and partnership expansion opportunities which can enable increased accessibility for patients and we continue to invest in our on-market products and evaluate various opportunities for our key medical dermatology pipeline products.
In support of the complete dermatology portfolio, we continue to take a number of actions that we believe will help our efforts to stabilize our dermatology business. These actions include: (i) building on our legacy brands to improve and meet today’s physician relevance and customer service, (ii) making key investments in our core medical device and dermatological products portfolios, (iii) optimizing our go to market strategy by building on our relationships with prescribers of our products to balance our sales portfolio with the business’ profitability, (iv) refocusing our operational and promotional resources and (v) improving patient access to our Ortho Dermatologics products through our cash-pay prescription program previously discussed. In addition, we made significant investments to build out our psoriasis and acne portfolios as follows:
Psoriasis - In response to the increasing number of reported cases of psoriasis in the U.S., we launched Duobrii® in June 2019 and launched Bryhali® in November 2018, which align well with our topical portfolio of psoriasis treatments. Although we continue to support a diverse portfolio of topical and injectable biologics, in order to provide a diverse choice of psoriasis treatments to doctors and patients, we believe some patients prefer topical products as an alternative to injectable biologics.
Acne - In support of our established acne product portfolio, we have divesteddeveloped and launched several products, which include Arazlo® (tazarotene) Lotion (launched in the U.S. in June 2020), Altreno® (launched in the U.S. in October 2018), the first lotion (rather than a gel or cream) product containing tretinoin for the treatment of acne, and Retin-A Micro® 0.06% (launched in the U.S. in January 2018). As previously discussed, we also have a unique acne project in our pipeline (IDP-126) that, if approved by the FDA, we believe will further innovate and advance the treatment of acne.
Invest in our Bausch + Lomb Business - As a fully integrated eye health business with a legacy of over 165 years, Bausch + Lomb has an established line of contact lenses, intraocular lenses and other businessesmedical devices, surgical systems and assets not aligneddevices, 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 to extend our market share through new launches and effective pricing.
For instance, there is an increasing rate of myopia, and importantly, myopia is a potential risk factor for glaucoma, macular degeneration and retinal detachment. 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 extend our market share in eye health, we continually seek to identify new products tailored to address these key trends for development internally with our coreown 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 (branded as AQUALOX™ ONE DAY in Japan, Bausch + Lomb INFUSE® SiHy Daily Disposable in the U.S. and Bausch + Lomb Ultra® ONE DAY in Australia, Hong Kong, Canada and South Korea and Singapore), Lumify® (an eye redness treatment), Vyzulta® (a pressure lowering eye drop for patients with angle glaucoma or ocular hypertension), Ocuvite® Eye Performance (vitamins to protect the eye from stressors such as sunlight and blue light emitted from digital devices) and SimplifEYE® (preloaded intraocular lens injector platform for enVista intraocular lens).
We also license selective molecules or technology in leveraging our own R&D expertise through development, as well as seek out external product development opportunities. As previously discussed, we acquired a global exclusive license for a myopia control contact lens design developed by BHVI, which we plan to pair with our leading contact lens technologies to develop potential contact lens treatments designed to slow the progression of myopia in children, and exclusive licenses for the commercialization and development in the U.S. and Canada of: (i) a microdose formulation of atropine ophthalmic solution, which is being investigated for the reduction of pediatric myopia progression in children ages 3-12; (ii) Xipere®
which was approved by the FDA in October 2021 and launched in the first quarter of 2022, and is the first treatment available in the U.S. that utilizes the suprachoroidal space to treat patients suffering from macular edema associated with uveitis; and (iii) NOV03, an investigational drug with a novel mechanism of action to treat DED associated with MGD which has demonstrated statistically significant topline data in two Phase 3 studies. We also acquired the U.S. rights to EM-100, which was launched in February 2021 as Alaway® Preservative-Free and is the first OTC preservative-free formulation eye drop for the temporary relief of itchy eyes due to pollen, ragweed, grass, animal hair, and dander in adults and children 3 years of age and older. We believe investments in these investigational treatments, if approved by the FDA, will complement, and help build upon our strong portfolio of integrated eye health products.
As previously discussed, we have also made strategic investments in our infrastructure, the most significant of which were at our Waterford facility in Ireland to meet the forecasted demand for our Biotrue® ONEday lenses, our Rochester facility in New York to address the expected global demand for our Bausch + Lomb ULTRA® contact lens and our Lynchburg facility in Virginia to be our main point of distribution for medical devices in the U.S. During late 2018, we began investing in additional expansion projects at the Waterford and Rochester facilities in order to address the expected global demand for our SiHy Daily disposable contact lenses, which we launched in Japan in September 2018, under the branded name AQUALOX™ ONE DAY, in the U.S. in August 2020, under the branded name Bausch + Lomb INFUSE® SiHy Daily Disposable contact lens, and in Australia, Hong Kong and Canada in the fourth quarter of 2020 and in South Korea and Singapore in the second quarter of 2021, under the branded name Bausch + Lomb Ultra® ONE DAY.
We believe our recent product launches, licensing arrangements and the investments in our Waterford, Rochester and Lynchburg facilities demonstrate the growth potential we see in our Bausch + Lomb products and our eye health business objectives, which, when takenand that these investments will position us to further extend our market share 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.eye health market.
Business Trends
In July 2017, we entered into a definitive agreementaddition to sellthe actions previously outlined, the events described below have affected and may affect our Obagi business trends. The matters discussed in this section contain forward-looking statements. Please see “Forward-Looking Statements” at the end of Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for $190 million in cash (the “Obagi Sale”), subjectadditional information.
Russia-Ukraine War
In February 2022, Russia invaded Ukraine. As military activity and sanctions against Russia, Belarus and specific areas of Ukraine have continued, the war has increasingly affected economic and global financial markets and exacerbated ongoing economic challenges, including issues such as rising inflation and global supply-chain disruption.
Our revenues attributable 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 millionRussia for the nine months ended September 30, 20172022 and $712021 were $122 million and $91$106 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 coreOur revenues attributable 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 exchangeUkraine 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 $6,3122022 and 2021 were $7 million which was dueand $9 million, respectively. Our revenues attributable to mature in 2018 through 2020, (ii) extended $1,190 million of commitments under our revolving credit facility, originally set to expire in April 2018, out to April 2020 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 requirementsBelarus for principal debt payments through 2020 by more than $7,200 million as of September 30, 2017 as 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, 2017.2022 and 2021 were $6 million in each period. As the geopolitical situation in Eastern Europe continues to intensify, political events and sanctions are continually changing, and we continue to assess the impact that the Russia-Ukraine war has had and will have on our businesses. These impacts may include but are not limited to: (i) interruptions or stoppage of production, (ii) damage or loss of inventories, (iii) supply-chain and product distribution disruptions in Eastern Europe, (iv) volatility in commodity prices and currencies, (v) disruption in banking systems and capital markets, (vi) reductions in sales and earnings of business in affected areas, (vii) increased costs and (viii) cyberattacks.
To date, these challenges have not yet had a material impact on our operations; however, we anticipate that the ongoing conflict in this region and the sanctions and other actions by the global community in response will continue to hinder our ability to conduct business with customers and vendors in this region. For example, we expect to experience further disruption and delays in the supply of our products to our customers in Russia, Belarus and Ukraine. We may also experience further decreased demand for our products in these countries as a result of the conflict and invasion. In addition, usingwe expect to experience difficulties in collecting receivables from such customers. If we continue to be hampered in our ability to conduct business with new or existing customers and vendors in this region, our business, and operations, including our revenues, profitability and cash flows, could be adversely impacted. Furthermore, if the sanctions and other retaliatory measures imposed by the global community change, we may be required to cease or suspend our operations in the region or, should the conflict worsen, we may voluntarily elect to do so. We cannot provide assurance that current sanctions or potential future changes in these sanctions or other measures will not have a material impact on hand, we repurchased $500 millionour operations in Russia, Belarus and Ukraine. The disruption to or suspension of our 6.75% Senior Unsecured Notes due August 2018 (the “August 2018 Senior Unsecured Notes”)business and operations in Russia, Belarus and Ukraine may have a material adverse impact on our business, financial condition, cash flows and results of operations. We will continue to monitor the impacts of the Russia-Ukraine war on macroeconomic conditions and continually assess the effect these matters may have on our businesses.
Impacts of COVID-19 Pandemic
The unprecedented nature of the COVID-19 pandemic has had, and continues to have, an adverse impact on the global economy. The COVID-19 pandemic and the reactions of governments, private sector participants and the public in an effort to contain the spread of the COVID-19 virus and/or address its impacts have had significant direct and indirect effects on businesses and commerce. This includes, but is not limited to, disruption to supply chains, employee base and transactional activity, facilities closures and production suspensions. Our revenues were most negatively impacted during our second quarter of 2020 by certain social restrictions and other precautionary measures taken in response to the COVID-19 pandemic. However, as governments began lifting social restrictions, allowing offices of certain health care providers to reopen and certain surgeries and elective medical procedures to proceed, the negative trend in the revenues of certain businesses began to level off and stabilize prior to our third quarter of 2020. After the launch of effective vaccines in December 2020, infection rates began to decline, signaling the beginning of a recovery from the COVID-19 pandemic.
Our revenues gradually returned to pre-pandemic levels for many of our businesses and geographies throughout 2021. However, in some regions, including China (as further described below), made scheduled principal payments underwe continue to experience negative impacts of the COVID-19 pandemic on our Series F Tranche B Term Loan Facilitybusiness in those regions. The rates of $86 millionrecovery for each business will vary by geography and paid downwill be dependent upon, among other things, the availability and effectiveness of vaccines for the COVID-19 virus and variant and subvariant strains thereof, government responses, rates of economic recovery, precautionary measures taken by patients and customers, the rate at which remaining social restrictions are lifted and, once lifted, the presumption that social restrictions will not be materially reenacted in the event of a resurgence of the virus or variant and subvariant strains thereof and other actions taken in response to the COVID-19 pandemic.
The outbreak of the omicron variant in China in 2022 resulted in government enforced lockdowns and other social restrictions, which impacted our revolving loans by $200 million duringability to conduct business as usual in certain regions in China, particularly Shanghai. The lockdowns in China have impacted the demand for certain products, particularly our consumer, vision care and Solta products, as shelter in place orders limit the demand and need for the use of contact lenses and related products as well as for aesthetic medical treatments. Our revenues in China for the nine months ended September 30, 2017.
Refinancing - On March 21, 2017, we completed2022 and 2021 were $293 million and $350 million, respectively, a seriesdecrease of transactions that provided us with additional borrowings, which we used$57 million and, in part, reflects the impact of the surge of the omicron variant in China. Additionally, government enforced lockdowns have caused certain businesses to (i) repay $4,962 million of debt, representing all outstanding amountssuspend operations, creating distribution and other logistic issues for the distribution 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 obligationsproducts and the related fees and expenses were obtained through (i)sourcing for a comprehensive amendment and refinancinglimited number 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 aforementioned repayments and refinancing has had an impact on our debt portfolio. The table below summarizes our debt portfolio as of September 30, 2017 and December 31, 2016.
|
| | | | | | | | | | | | | | | | | | |
| | | | | 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 |
|
The weighted average stated interest rate of the Company's outstanding debt as of September 30, 2017 and December 31, 2016 was 6.09% and 5.75%, respectively.
The aforementioned 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, 2017 compared with December 31, 2016 were as follows:
|
| | | | | | | | |
| (in millions) | | September 30, 2017 | | December 31, 2016 |
| October through December 2017 | | $ | 923 |
| | $ | — |
|
| 2018 | | 2 |
| | 3,738 |
|
| 2019 | | — |
| | 2,122 |
|
| 2020 | | 5,365 |
| | 7,723 |
|
| 2021 | | 3,175 |
| | 3,215 |
|
| 2022 | | 6,677 |
| | 4,281 |
|
| Thereafter | | 11,284 |
| | 9,090 |
|
| Gross maturities | | $ | 27,426 |
| | $ | 30,169 |
|
In addition, subsequent to September 30, 2017, we took 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 $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. These repayments satisfy $923 million of maturities due for the period October through December 2017 and $125 million of maturities due in the year 2022 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 throughraw materials. Through the date of this filing, we have dealt with these issues in China with only a minimal impact on our manufacturing and distribution processes. However, as the impacts of global reaction to the COVID-19 pandemic remains a fluid situation, we continue to monitor the impacts on our businesses of the COVID-19 virus and variant and subvariant strains thereof in order to timely address new issues if and when they arise.
For a further discussion of these and other COVID-19 related risks, see Item 1A. “Risk Factors — Risk Relating to COVID-19” of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC and the refinancings we completedCSA on February 23, 2022.
Inflation Reduction Act
On August 16, 2022, President Biden signed the Inflation Reduction Act into law, which includes implementation of a new alternative minimum tax, an excise tax on stock buybacks and significant tax incentives for energy and climate initiatives, among other provisions. The corporate alternative minimum tax (“CAMT”) imposes a minimum tax on the adjusted financial statement income (“AFSI”) for “applicable corporations” with average annual AFSI over a three-year period in March 2017excess of $1 billion. A corporation that is a member of a foreign-parented multinational group, as defined, must include the AFSI (with certain modifications) of all members of the group in applying the $1 billion test, but would only be subject to CAMT if the three-year average AFSI of its U.S. members, US trades or business of foreign group members that are not subsidiaries of U.S. members, and October 2017foreign subsidiaries of U.S. members exceeds $100 million. We currently do not believe this will have eliminated any further mandatory principal long-term debt repayments until March 2020, providing us with additional liquidity and greater flexibility to executea significant impact on our business plans.
See Note 10, "FINANCING ARRANGEMENTS" to our unaudited Consolidated Financial Statements and “Management's Discussion and Analysis - Liquidity and Capital Resources: Long-term Debt” for further details.
Wetax results, but will continue to evaluate other opportunities to simplify our businessthe law and strengthen our balance sheet. While we intend to focus our divestiture activitiesits provisions.
Global Minimum Corporate Tax Rate
On October 8, 2021, the Organisation for Economic Co-operation and Development (“OECD”)/G20 inclusive framework on non-core assets, consistent with our duties to our shareholdersBase Erosion and other stakeholders, we will consider dispositions in core areas that we believe are inProfit Shifting (the “Inclusive Framework”) published a statement updating and finalizing the best interest of the Company as well. Also, 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 or issue additional debt securities.
Other Business Matters
In addition to the matters outlined above, the following events have affected and are expected to affect our business trends:
Walgreens Fulfillment Arrangements
At 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®, Luzu®, Solodyn®, Retin-A Micro® Gel 0.08%, Onexton® and Acanya® Gel, certain of our ophthalmology products, including Besivance®, Lotemax®, Alrex®, Prolensa®, Bepreve®, and Zylet®. The Company continues to explore options to modify or enhance the Walgreens arrangement to improve the distribution and sales of our products.
Stabilizing the Dermatology Business
We continue our efforts to stabilize our Dermatology business. Since January 2017, we have taken a number of actions which we believe will help stabilize the business, including recruiting a new experienced leadership team, adjusting the size of the sales force and organizing that sales force around roughly 150 territories, as we work to rebuild relationships with prescribers of our products. In July 2017, we rebranded our dermatology business as Ortho Dermatologics, dedicated to helping patients in the treatmentkey components of a range 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 delivertwo-pillar plan on an innovative pipeline. Inglobal tax reform originally agreed on July 2017, Ortho Dermatologics 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. To make this drug affordable and accessible to the broader market, on April 21, 2017, the Company announced that, following the evaluation 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 over 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 tazarotene for the topical 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 to a four-week or less duration 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 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.
Rochester, New York Facility
On November 3, 2016, we were issued a Warning Letter by the FDA identifying violations 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 time 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. 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, we announced that we had received a CRL 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 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 approval 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,1, 2021, and a Voluntary Action Indicated inspection classificationtimetable for implementation by 2023. The timetable for implementation has since been issuedextended to 2024. The Inclusive Framework plan has now been agreed to by 141 OECD members, including several countries which did not agree to the initial plan. Under pillar one, a portion of the residual profits of multinational businesses with global turnover above €20 billion and a profit margin above 10% will be allocated to market countries where such allocated profits would be taxed. Under pillar two, the Inclusive Framework has agreed on a global minimum corporate tax rate of 15% for companies with revenue above €750 million, calculated on a country-by-country basis. On October 30, 2021, the G20 formally endorsed the new global minimum
corporate tax rate rules. The Inclusive Framework agreement must now be implemented by the FDA for this facility.OECD Members who have agreed to the plan, effective in 2024. On November 2, 2017,December 20, 2021, the OECD published model rules to implement the pillar two rules, which are generally consistent with the agreement reached by the Inclusive Framework in October 2021. Some further guidance on the plan and the related rules has been published, with additional guidance expected to be published in 2023. We will continue to monitor the implementation of the Inclusive Framework agreement by the countries in which we announcedoperate. While we are unable to predict when and how the Inclusive Framework agreement will be enacted into law in these countries, and it is possible that the FDA approved the NDA for Vyzulta™. We expect to launch Vyzulta™ in 2017.
Following the resolution 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 standing with the FDA. With these confirmations, we have eliminated manufacturing uncertainties related to our current and upcoming regulatory submissions 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 caseimplementation of the VAI inspection outcome,Inclusive Framework agreement, including the FDA has acceptedglobal minimum corporate tax rate could have a material effect on 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.)liability for corporate taxes and our consolidated effective tax rate.
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)2013, 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 healthcare 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, includes a two-year moratorium on the medical device excise tax. Thus, 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 on January 1, 2016, and ending on December 31, 2017.coverage gap. The ACA also included provisions designed to increase the number of Americans covered by health insurance. In 2014, the ACA'sACA’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, 20152021 and 2014,2020, we incurred costs of $36 million, $28$13 million and $9$21 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, 20152021 and 2014,2020, we also incurred costs of $128 million, $104$94 million and $43$131 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 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 healthcare 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 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.provisions and the change in the U.S. Presidential administration. 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.
In 2019, the U.S. Department of Health and Human Services announced a preliminary plan to allow for the importation of certain lower-cost drugs from Canada. The preliminary plan excludes insulin, biological drugs, controlled substances and intravenous drugs. The preliminary plan relies on individual states to develop proposals for safe importation of those drugs from Canada and submit those proposals to the federal government for approval. Although the preliminary plan has some support from the prior administration, at this time, studies to evaluate the related costs and benefits, evaluate the reasonableness of the logistics, and measure the public reaction of such a plan have not been performed. While we do not believe this will have a significant impact on our future cash flows, we cannot provide assurance as to the effect or impact of such a plan.
In 2019, the Government of Canada (Health Canada) published in the Canada Gazette the new pricing regulation for patented drugs. These regulations were scheduled to become effective on July 1, 2021, but have been delayed until July 1, 2022. The new regulations will, among other things, change the mechanics of establishing the pricing for products submitted for approval after August 21, 2019 and the number and composition of reference countries used to determine if a drug’s price is excessive. While we do not believe this will have a significant impact on our future cash flows, as additional facts materialize, we cannot provide assurance as to the ultimate content, timing, effect or impact of such regulations.
In July 2020, former U.S. President Donald Trump signed four Executive Orders related to drug pricing, including orders addressing: (i) Part D rebate reform, (ii) the provision of deeply discounted insulin and/or an EpiPen to patients of Federally Qualified Health Centers, (iii) drug importation from Canada and (iv) most favored nation pricing for Medicare. In November 2020, former U.S. President Donald Trump announced the Most Favored Nation Model for Medicare Part B Payment which was to be implemented by the Centers for Medicare & Medicaid Services Innovation on January 1, 2021; however, it has not been implemented, as it is currently being challenged in court. It is also uncertain whether the Biden administration intends to reverse these measures or adopt similar policy initiatives.
In December 2020, as part of a series of drug pricing-related rules issued by the Trump Administration, the Center for Medicare & Medicaid Services issued a Final Rule that makes significant modifications to the Medicaid Drug Rebate Program regulations in several areas, including with respect to the definition of key terms “line extension” and “new formulation” and best price reporting relating to certain value-based purchasing arrangements (which took effect on January 1, 2022) and the price reporting treatment of manufacturer-sponsored patient benefit programs (which take effect on January 1, 2023).
In March 2021, the U.S. Congress enacted the American Rescue Plan Act of 2021. One of the provisions included within the American Rescue Plan Act of 2021 eliminated the Maximum Rebate Amount for Single Source drugs and Innovator Multiple Source drugs in the Medicaid Drug Rebate Program. We are currently reviewing this legislation, the impact of which is uncertain at this time.
Adoption of legislation at the federal or state level could materially affect demand for, or pricing of, our products. Additionally, U.S. President Joseph Biden and several members of the current U.S. Congress have indicated that lowering drug prices is a legislative and political priority. Other legislative efforts relating to drug pricing have been proposedenacted and consideredothers have been proposed at the U.S. federal and state level.levels. For instance, certain states have enacted legislation related to prescription drug pricing transparency. Several states have passed importation legislation and Florida is working with the U.S. government to implement an importation program from Canada. 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. We continually review newly enacted and proposed U.S. federal and state legislation, as well as proposed rulemaking and guidance published by the Department of Health and Human Services and the FDA; however, at this time, it is unclear the effect these matters may have on our businesses.
Generic 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, certainCertain of our products face the expiration of their patent or regulatory exclusivity in 20172022 or in later years, following which we anticipate generic competition of these products. Furthermore,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 or an authorized generic prior to the expiration of our applicable patent.patent or regulatory exclusivity. Finally, for certain of our products that lost patent or regulatory exclusivity in prior years, we anticipate that generic competitors may launch in 20172022 or in later years. Following a loss of exclusivity (“LOE”) of and/or generic competition for a product, we would anticipate that product sales fromfor such product would decrease significantly shortly following such loss of exclusivitythe LOE or the entry of a generic competitor. Where we have the rights, we may elect to launch an authorized generic (“AG”) of such product (either ourselves or through a third party)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.
A number of our products already face generic competition. Prior to and during 2021, in the U.S., these products include, among others, Ammonul®, Apriso®, Benzaclin®, Bepreve®, Bupap®, Cuprimine®, Demser®, Edecrin®, Elidel®, Glumetza®, Istalol®, Isuprel®, Locoid® Lotion, Lotemax® Gel, Lotemax® Suspension, Mephyton®, Migranal®, MoviPrep®, Nitropress®, Solodyn®, Syprine®, Timoptic® in Ocudose®, Uceris® Tablet, Virazole®, Wellbutrin XL®, Xenazine®,Zegerid® and Zovirax® cream. In Canada, these products include, among others, Glumetza®, Wellbutrin® XL and Zovirax® ointment.
2021 LOE Branded Products - Branded products that began facing generic competition in the U.S. during 2021 included Lotemax® Gel, Bepreve®, Clindagel® and certain other products. These products accounted for less than 1% of our total revenues in 2020. We believe the entry into the market of generic competition generally would have an adverse impact on the volume and/or pricing of the affected products, however we are unable to predict the magnitude or timing of this impact.
2022 through 2026 LOE Branded Products - Based on current patent expiration dates, settlement agreements and/or competitive information, we have identified branded products that we believe that our productscould begin facing a potential loss of exclusivityLOE and/or generic competition in the fiveU.S. during the years 2022 through 2026. These products and year period from 2017of expected LOE include, but are not limited to, and including 2021 include, among others, the following key products in the U.S.: in 2017, Istalol®Noritate® (2022), Lotemax® Suspension, Mephyton®Targretin® Gel (2022), 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 Xerese® (2022)and certain other products that are subject to settlement agreements which incould impact their exclusivity during the years 2022 through 2026. In aggregate, represented 7% and 7% of our U.S. and Puerto Rico revenuesthese products accounted 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 Ricototal 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.2021. 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. We believe the entry into the market of generic competition generally would have an adverse impact on the volume and/or pricing of the affected products, however we are unable to predict the magnitude or timing of this impact.
In addition, for a number of our products (including Apriso®Xifaxan® 200mg and 550mg, Bryhali®, Carac®Duobrii®, Cardizem®Trulance®, Onexton®, Uceris®, Relistor® Lumify® and Xifaxan®Relistor® Injection in the U.S. and Wellbutrin® XL and Glumetza®Jublia® in Canada), we have commenced (or anticipate commencing) and have (or may have) ongoing 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 Xifaxan® 550mg Patent Litigation (Norwich) - Patent Litigation/Paragraph IV Matters” to our unaudited Consolidated Financial Statements,On March 26, 2020, the Company initiated litigationand its licensor, Alfasigma, filed suit against Norwich Pharmaceuticals Inc. (“Norwich”), 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 ActavisNorwich of one or more claims of eachthe 23 Xifaxan® patents by Norwich’s filing 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'its ANDA for its generic version of Xifaxan®Xifaxan® (rifaximin) 550 mg tablets. The legal actionOn November 13, 2020, an additional three patents alleged to be infringed by Norwich were added to the suit. Xifaxan® 550mg is stayed through April 30, 2018 and Actavis has not yet taken any steps to liftprotected by 26 patents covering the stay. All scheduled litigation activities, including the January 2018 trial date, have been indefinitely removed from the Court docket.
Further, the parties agreecomposition of matter and the Court ordereduse of Xifaxan® listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, or the Orange Book. Trial in this matter was held in March 2022. The court issued a final judgment on August 10, 2022 finding that Actavis' 30-month regulatory stay shall be extended from August 12, 2018 until no earlier than February 12, 2019the U.S. Patents protecting the use of Xifaxan® (rifaximin)550 mg tablets for the reduction in risk of hepatic encephalopathy (“HE”) recurrence valid and could be longer ifinfringed and the litigation stay lastsU.S. Patents protecting the composition, and use of Xifaxan® for more than six months.
Althoughtreating IBS-D invalid (the “Norwich Legal Decision”). The Company appealed the ultimate outcome of these proceedings is unknown, in part dueNorwich Legal Decision to the extensionU.S. Court of the 30-month regulatory stay of Actavis’ ANDA and the agreement to stay outstanding litigationAppeals for the extended periods discussed above, theFederal Circuit on August 16, 2022. The Company remains confident in the strength of its Xifaxan®the Xifaxan® patents and believes it will prevail in this matter should it move forward. The Company also continuesintends to believe the allegations raised in Actavis’ notice are without merit and willvigorously defend its intellectual property vigorously.property.
See Item 1A. “Risk Factors” includedNote 18, “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, 2016,2021, filed with the SEC and the CSA on March 1, 2017 February 23, 2022 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 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.
See Item 1A “Risk Factors” ofour Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC and the CSA on February 23, 2022,for additional information on our competition risks.
SELECTED FINANCIAL INFORMATIONRegulatory 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 relevant competent authorities where we have business operations. In August 2022, we received a non-compliant rating from Health Canada related to our pharmaceutical manufacturing facility in Laval, Quebec. This rating was received without any restrictive conditions on plant operations so the production of important treatments for Canadians and for export continues without interruption.
Through the date of this filing, all of our global operations and facilities have the relevant operational good manufacturing practices certificates and all Company products and operating sites are in good compliance standing with all relevant notified bodies and global health authorities. Further, all sites under FDA jurisdiction are rated as either No Action Indicated (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 VAI inspection outcomes, the FDA has accepted our responses to the issues cited, which will be verified when the agency makes its next inspection of those specific facilities.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions, except per share data) | | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
| Revenues | | $ | 2,219 |
| | $ | 2,479 |
| | $ | (260 | ) | | $ | 6,561 |
| | $ | 7,271 |
| | $ | (710 | ) |
| Operating income (loss) | | $ | 38 |
| | $ | (863 | ) | | $ | 901 |
| | $ | 424 |
| | $ | (716 | ) | | $ | 1,140 |
|
| 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.: | | | | | | | | | | | | |
| Basic | | $ | 3.71 |
| | $ | (3.49 | ) | | $ | 7.20 |
| | $ | 5.40 |
| | $ | (5.47 | ) | | $ | 10.87 |
|
| Diluted | | $ | 3.69 |
| | $ | (3.49 | ) | | $ | 7.18 |
| | $ | 5.38 |
| | $ | (5.47 | ) | | $ | 10.85 |
|
FINANCIAL PERFORMANCE HIGHLIGHTS
The following table provides selected unaudited financial information for the three and nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions, except per share data) | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
| Revenues | $ | 2,046 | | | $ | 2,111 | | | $ | (65) | | | $ | 5,931 | | | $ | 6,238 | | | $ | (307) | |
| Operating income | $ | 244 | | | $ | 574 | | | $ | (330) | | | $ | 690 | | | $ | 83 | | | $ | 607 | |
| Income (loss) before income taxes | $ | 439 | | | $ | 216 | | | $ | 223 | | | $ | 228 | | | $ | (1,045) | | | $ | 1,273 | |
| Net income (loss) attributable to Bausch Health Companies Inc. | $ | 399 | | | $ | 188 | | | $ | 211 | | | $ | 185 | | | $ | (1,017) | | | $ | 1,202 | |
| Basic | $ | 1.10 | | | $ | 0.52 | | | $ | 0.58 | | | $ | 0.51 | | | $ | (2.84) | | | $ | 3.35 | |
| Diluted | $ | 1.10 | | | $ | 0.52 | | | $ | 0.58 | | | $ | 0.51 | | | $ | (2.84) | | | $ | 3.35 | |
Financial Performance
Summary of the Three Months Ended September 30, 20172022 Compared to the Three Months Ended September 30, 20162021
RevenueRevenues for the three months ended September 30, 20172022 and 2016 was $2,2192021 were $2,046 million and $2,479$2,111 million, respectively, a decrease of $260$65 million, or 10%3%. The decrease was primarily due to: (i) the unfavorable impact of foreign currencies, primarily in Europe and Asia, (ii) the impact of our divestiture related to Amoun on July 26, 2021, (iii) a decline in revenues in our Diversified Products segment partially offset by: (a) growth in revenue in Salix segment driven by lowerimproved net pricing and (b) an increase in net 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. The decreases were partially offset by increased volumesnet pricing in our Bausch + Lomb /and International segment. The changes in our segment revenues and segment profits are discussed in detail in the section titled “Reportable Segment Revenues and Profits”.segments.
Operating income for the three months ended September 30, 20172022 and 2021 was $38$244 million as compared to the Operating loss for the three months ended September 30, 2016and $574 million, respectively, a decrease in our operating results of $863$330 million 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, 2016and reflects, among other factors:
•a decrease in contribution (Product sales revenue less Cost of goods sold, excluding amortization and impairments of intangible assets) of $258 million. The decrease is$66 million primarily driven by:due to: (i) the decrease in product sales of our existing business (excluding the effects of foreign currenciesrevenues as previously discussed and divestitures and discontinuances) and includes decreases(ii) higher manufacturing variances, driven by inflationary pressures related to certain manufacturing costs;
•an increase in contribution from lower volumes, (ii) the impact of divestitures and discontinuances and (iii) higher third-party royalty costs;
a decrease in Selling,selling, general and administrative (“SG&A”) expenses of $38$8 million primarily attributable to: (i) retention costs for key employees in 2016to higher selling expenses related to freight and (ii) the impact of 2017 divestitures. These decreases wereadministrative expenses partially offset by higher professional fees;the favorable impact of foreign currencies;
a decrease•an increase in ResearchR&D expenses of $12 million primarily attributable to lower R&D spend in 2021, as certain R&D activities and development of $20 million dueclinical trials which were suspended in response to the timing of costs on projectsCOVID-19 pandemic in development;2020 and did not normalize until later in 2021;
•a decrease in Amortization of intangible assets of $7$48 million which is reflective of impairmentsprimarily attributable to fully amortized intangible assets no longer being amortized in 2016 and divestitures and discontinuances of product lines as the Company focuses on its core assets;2022;
a decrease•an increase in Goodwill impairments of $737 million. In 2016, we recognized Goodwill impairments of $1,049$119 million in connection with the realignment of our segment structure that took placeas during the three months ended September 30, 2016. In 2017,2022, we recognized Goodwilla $119 million impairment to the goodwill of the Ortho Dermatologics reporting unit;
•a decrease in Asset impairments, including loss on assets held for sale of $312$17 million in connection with aprimarily attributable to higher impairments to certain products during the three months September 30, 2021; and
•an unfavorable change in a reporting unit that took placeOther expense (income), net of $187 million, primarily attributable to higher adjustments related to the insurance recoveries related to certain litigation matters partially offset by the loss on the completion of the Amoun sale during the three months ended September 30, 2017;
2021.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 million during the three months ended September 30, 2017 primarily due to the Gain on the iNova Sale of $306 million and a working capital adjustment related to the Gain on the Dendreon Sale of $25 million.
Operating income for the three months ended September 30, 2017 of $382022 and 2021 was $244 million and Operating loss for the three months ended September 30, 2016 of $863$574 million, includesand included non-cash charges for Depreciation and amortization of intangible assets of $698$335 million and $708$382 million, Goodwill impairments of $119 million and $0, Asset impairments, including loss on assets held for sale, of $406$1 million and $148$18 million and Share-based compensation of $19$33 million and $37$33 million, respectively.
Our LossIncome before recovery of income taxes for the three months ended September 30, 20172022 and 20162021 was $400$439 million and $1,332$216 million, respectively, a decreasean increase of $932$223 million. The decreaseincrease in our LossIncome before recovery of income taxes is primarily attributable to:to the favorable change in Gain (loss) on extinguishment of debt of $582 million driven by the impact of the
Exchange Offer partially offset by: (i) the increasedecrease in Operating incomeour operating results of $901$330 million, as previously discussed, above,and (ii) a favorable net change in Foreign exchange and other of $21 million, and (iii) a decreasean increase in Interest expense of $11 million as a result of lower principal amounts of outstanding debt partially offset by higher interest rates during the three months ended September 30, 2017.$34 million.
Net income attributable to Valeant Pharmaceuticals International, Inc.Bausch Health for the three months ended September 30, 20172022 and 2021 was $1,301$399 million and Net loss attributable to Valeant Pharmaceuticals International, Inc. for the three months ended September 30, 2016 was $1,218$188 million, respectively, an increase in our results of $2,519$211 million. The increase in Net income attributable to Valeant Pharmaceuticals International, Inc.our results was primarily due to (i) the increase in Recovery ofour Income before income taxes of $1,587$223 million, and (ii) the decreaseas previously discussed, partially offset by an unfavorable change 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.$11 million.
Summary of the Nine Months Ended September 30, 20172022 Compared to the Nine Months Ended September 30, 20162021
RevenueRevenues for the nine months ended September 30, 20172022 and 2016 was $6,5612021 were $5,931 million and $7,271$6,238 million, respectively, a decrease of $710$307 million, or 10%5%. The decrease was primarily drivendue to: (i) the unfavorable impact of foreign currencies, (ii) the impact of our divestiture of Amoun on July 26, 2021 and (iii) a decrease in volumes primarily attributable to our Diversified Products and Salix segments partially offset by the declinean increase 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 productsBausch + Lomb 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.International segments. These decreases were partially offset by increased volumesan increase in net realized pricing, primarily in our Salix, Bausch + Lomb /and 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”.segments.
Operating income for the nine months ended September 30, 20172022 and 2021 was $424$690 million as compared to the Operating loss for the nine months ended September 30, 2016 of $716and $83 million, respectively, an increase in our operating results 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$607 million and reflects, among other factors:
•a decrease in contribution of $658 million. The decrease is$245 million primarily driven bydue to: (i) the decrease in product salesrevenues as previously discussed and (ii) higher manufacturing variances, driven by inflationary pressures related to certain manufacturing costs;
•an increase in SG&A of our existing business$15 million primarily attributable to: (i) higher advertising and includes decreases in contribution from:promotion expenses, (ii) higher freight and administrative expenses and (iii) higher compensation expenses partially offset by: (i) lower volumesthe favorable impact of foreign currencies and (ii) the impact of divestitures and discontinuances;our divestiture of Amoun on July 26, 2021;
a decrease•an increase in SG&A expensesR&D of $202$39 million primarily attributable to (i) a net decreaselower R&D spend in advertising2021, as certain R&D activities and promotional expenses, (ii) higher severance and other benefitsclinical trials which were suspended 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 dueresponse to the timing of costs on projectsCOVID-19 pandemic in development;2020 and did not normalize until later in 2021;
•a decrease in Amortization of intangible assets of $100$153 million which is reflective of impairmentsprimarily attributable to fully amortized intangible assets no longer being amortized in 2016 and divestitures and discontinuances of product lines as the Company focuses on its core assets;2022;
•a decrease in Goodwill impairments of $737 million. In 2016,$267 million as we recognized Goodwill impairments of $1,049 million in connectionassociated 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 aOrtho Dermatologics reporting unit that took place during the three months ended September 30, 2017;
an increase in Asset impairments of $235$202 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$469 million for the nine months ended September 30, 20172022 and 2021, respectively;
•a decrease in Asset impairments, including loss on assets held for sale of $198 million, primarily attributable to adjustments to the loss on assets held for sale in connection with the Amoun Sale during 2021;
•an increase in Restructuring, integration, separation and IPO costs of $29 million primarily attributable to an increase in separation costs and IPO costs associated with the B+L Separation, the B+L IPO completed on May 10, 2022 and the Solta IPO which includes:was suspended in June 2022; and
•a favorable change in Other expense (income), net of $323 million primarily attributable to: (i) to higher adjustments related to the Gain on the Skincare Salesettlements 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 amountscertain litigation matters during the nine months ended September 30, 2017 were partially offset by: (i) accruals for Litigation and other matters of $112 million2021 and (ii) the net loss fromon the salecompletion of other assets of $25 million.the Amoun Sale during the three months ended September 30, 2021, partially offset by insurance recoveries related to certain litigation matters during the three months ended September 30, 2021.
Operating income for the nine months ended September 30, 2017 of $4242022 and 2021 was $690 million and Operating loss for the nine months ended September 30, 2016 of $716$83 million, includesrespectively, and included non-cash charges for Depreciation and amortization of intangible assets of $2,039$1,034 million and $2,159$1,189 million, Asset impairments, including loss on assets held for sale of $629$15 million and $394$213 million, Goodwill impairments of $202 million and $469 million and Share-based compensation of $70$91 million and $134$95 million, respectively.
Our LossIncome before recovery of income taxes for the nine months ended September 30, 2017 and 20162022 was $937$228 million and $2,075as compared to Loss before income taxes of $1,045 million respectively, a decreasefor the nine months ended September 30, 2021, an increase in our results of $1,138$1,273 million. The decreaseincrease in our Loss before recovery of income taxesresults is primarily attributable toto: (i) the favorable change in Gain (loss) on extinguishment of debt of $745 million primarily driven by the Exchange Offer and (ii) the increase in Operating incomeour operating results of $1,140$607 million, as previously discussed, abovepartially offset by: (i) an increase in Interest expense of $74 million and (ii) a favorablethe unfavorable net change in Foreign exchange and other of $83 million. These changes in Loss before recovery of income taxes were partially offset by the Loss on extinguishment of debt of $65 million and an increase of Interest expense of $23$7 million.
Net income attributable to Valeant Pharmaceuticals International, Inc.Bausch Health for the nine months ended September 30, 20172022 was $1,891$185 million as compared to Net loss attributable to Valeant Pharmaceuticals International, Inc.Bausch Health of $1,017 million for the nine months ended September 30, 2016 of $1,894 million,2021, an increase in our results of $3,785$1,202 million. The increase in Net income attributable to Valeant Pharmaceuticals International, Inc.our results was primarily due to (i) the increase in the Recovery of our Income before
income taxes of $2,650$1,273 million, primarily associated with discrete items occurring duringas previously discussed, partially offset by the nine months ended September 30, 2017 and (ii) the decreaseunfavorable change in Loss before recovery ofour provision for income taxes of $1,138 million described above. See Note 16, "INCOME TAXES" to our unaudited Consolidated Financial Statements for further details.
$66 million.
RESULTS OF OPERATIONS
Our unaudited operating results for the three and nine months ended September 30, 20172022 and 20162021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
| Revenues | | | | | | | | | | | |
| Product sales | $ | 2,026 | | | $ | 2,088 | | | $ | (62) | | | $ | 5,871 | | | $ | 6,167 | | | $ | (296) | |
| Other revenues | 20 | | | 23 | | | (3) | | | 60 | | | 71 | | | (11) | |
| 2,046 | | | 2,111 | | | (65) | | | 5,931 | | | 6,238 | | | (307) | |
| Expenses | | | | | | | | | | | |
| Cost of goods sold (excluding amortization and impairments of intangible assets) | 578 | | | 574 | | | 4 | | | 1,691 | | | 1,742 | | | (51) | |
| Cost of other revenues | 6 | | | 8 | | | (2) | | | 21 | | | 26 | | | (5) | |
| Selling, general and administrative | 661 | | | 653 | | | 8 | | | 1,959 | | | 1,944 | | | 15 | |
| Research and development | 133 | | | 121 | | | 12 | | | 387 | | | 348 | | | 39 | |
| Amortization of intangible assets | 290 | | | 338 | | | (48) | | | 902 | | | 1,055 | | | (153) | |
| Goodwill impairments | 119 | | | — | | | 119 | | | 202 | | | 469 | | | (267) | |
| Asset impairments, including loss on assets held for sale | 1 | | | 18 | | | (17) | | | 15 | | | 213 | | | (198) | |
| Restructuring, integration, separation and IPO costs | 10 | | | 8 | | | 2 | | | 58 | | | 29 | | | 29 | |
| Other expense, net | 4 | | | (183) | | | 187 | | | 6 | | | 329 | | | (323) | |
| 1,802 | | | 1,537 | | | 265 | | | 5,241 | | | 6,155 | | | (914) | |
| Operating income | 244 | | | 574 | | | (330) | | | 690 | | | 83 | | | 607 | |
| Interest income | 3 | | | 2 | | | 1 | | | 8 | | | 6 | | | 2 | |
| Interest expense | (385) | | | (351) | | | (34) | | | (1,157) | | | (1,083) | | | (74) | |
| Gain (loss) on extinguishment of debt | 570 | | | (12) | | | 582 | | | 683 | | | (62) | | | 745 | |
| Foreign exchange and other | 7 | | | 3 | | | 4 | | | 4 | | | 11 | | | (7) | |
| Income (loss) before income taxes | 439 | | | 216 | | | 223 | | | 228 | | | (1,045) | | | 1,273 | |
| (Provision for) benefit from income taxes | (36) | | | (25) | | | (11) | | | (30) | | | 36 | | | (66) | |
| Net income (loss) | 403 | | | 191 | | | 212 | | | 198 | | | (1,009) | | | 1,207 | |
| Net income attributable to noncontrolling interest | (4) | | | (3) | | | (1) | | | (13) | | | (8) | | | (5) | |
| Net income (loss) attributable to Bausch Health Companies Inc. | $ | 399 | | | $ | 188 | | | $ | 211 | | | $ | 185 | | | $ | (1,017) | | | $ | 1,202 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
| Revenues | | | | | | | | | | | |
| Product sales | $ | 2,186 |
| | $ | 2,443 |
| | $ | (257 | ) | | $ | 6,462 |
| | $ | 7,168 |
| | $ | (706 | ) |
| Other revenues | 33 |
| | 36 |
| | (3 | ) | | 99 |
| | 103 |
| | (4 | ) |
| | 2,219 |
| | 2,479 |
| | (260 | ) | | 6,561 |
| | 7,271 |
| | (710 | ) |
| Expenses | | | | | | | | | | | |
| Cost of goods sold (excluding amortization and impairments of intangible assets) | 650 |
| | 649 |
| | 1 |
| | 1,869 |
| | 1,917 |
| | (48 | ) |
| Cost of other revenues | 9 |
| | 9 |
| | — |
| | 32 |
| | 29 |
| | 3 |
|
| Selling, general and administrative | 623 |
| | 661 |
| | (38 | ) | | 1,943 |
| | 2,145 |
| | (202 | ) |
| Research and development | 81 |
| | 101 |
| | (20 | ) | | 271 |
| | 328 |
| | (57 | ) |
| Amortization of intangible assets | 657 |
| | 664 |
| | (7 | ) | | 1,915 |
| | 2,015 |
| | (100 | ) |
| Goodwill impairments | 312 |
| | 1,049 |
| | (737 | ) | | 312 |
| | 1,049 |
| | (737 | ) |
| Asset impairments | 406 |
| | 148 |
| | 258 |
| | 629 |
| | 394 |
| | 235 |
|
| Restructuring and integration costs | 6 |
| | 20 |
| | (14 | ) | | 42 |
| | 78 |
| | (36 | ) |
| Acquired in-process research and development costs | — |
| | 31 |
| | (31 | ) | | 5 |
| | 34 |
| | (29 | ) |
| Acquisition-related contingent consideration | (238 | ) | | 9 |
| | (247 | ) | | (297 | ) | | 18 |
| | (315 | ) |
| Other (income) expense, net | (325 | ) | | 1 |
| | (326 | ) | | (584 | ) | | (20 | ) | | (564 | ) |
| | 2,181 |
| | 3,342 |
| | (1,161 | ) | | 6,137 |
| | 7,987 |
| | (1,850 | ) |
| Operating income (loss) | 38 |
| | (863 | ) | | 901 |
| | 424 |
| | (716 | ) | | 1,140 |
|
| Interest income | 3 |
| | 3 |
| | — |
| | 9 |
| | 6 |
| | 3 |
|
| Interest expense | (459 | ) | | (470 | ) | | 11 |
| | (1,392 | ) | | (1,369 | ) | | (23 | ) |
| Loss on extinguishment of debt | (1 | ) | | — |
| | (1 | ) | | (65 | ) | | — |
| | (65 | ) |
| Foreign exchange and other | 19 |
| | (2 | ) | | 21 |
| | 87 |
| | 4 |
| | 83 |
|
| 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 |
|
Three Months Ended September 30, 20172022 Compared to the Three Months Ended September 30, 20162021
Revenues
Our primary sources ofThe Company’s revenues are primarily generated from product sales, principally in the saletherapeutic areas ofpharmaceutical products, GI, dermatology and eye health, 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 aesthetic medical 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 $2,219revenues were $2,046 million and $2,479$2,111 million for the three months ended September 30, 20172022 and 2016,2021, respectively, a decrease of $260$65 million, or 10%3%. The decrease was due to: (i) the unfavorable impact of foreign currencies of $82 million, primarily driven by: (i)in Europe and Asia, (ii) the impact of divestitures and discontinuations of $141$26 million, (ii) the net declineprimarily attributable to our divestiture of Amoun on July 26, 2021 and (iii) a decrease in volumes from our existing business (excluding foreign currency and divestitures and discontinuations) of $122$5 million primarily due to decreased volumesdecreases in our U.S. Diversified segment as a result of the loss of exclusivity for a number of productsProducts and in our Branded Rx segment as a result of challenging market dynamics, particularly in dermatology,Salix segments, partially offset by increasedincreases in volumes in our Bausch + Lomb /and International segment, driven by the U.S. Bausch + Lomb Consumer, international and U.S. Bausch + Lomb Vision Care businesses and (iii) the unfavorable impact of foreign currencies of $15 million primarily attributable to the Egyptian pound.segments. These decreases were partially offset by the netan increase in averagenet realized pricing of $22$48 million, driven byprimarily in our Branded RxSalix and Bausch + Lomb / International segments.
OurThe changes in our segment revenues and segment profits for the three months ended September 30, 2017 and 20162022, are discussed in further detail in the respective subsequent section titled “ -— 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. As more fully discussed in Note 3, “REVENUE RECOGNITION” to our unaudited interim Consolidated Financial Statements, the Company continually monitors the provisions for these deductions and evaluates the estimates used as additional information becomes available. 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, 20172022 and 20162021 were as follows:
| | | | | Three Months Ended September 30, | | Three Months Ended September 30, |
| | | 2017 | | 2016 | | 2022 | | 2021 |
| (in millions) | | Amount | | Pct. | | Amount | | Pct. | (in millions) | | Amount | | Pct. | | Amount | | Pct. |
| Gross product sales | | $ | 3,777 |
| | 100 | % | | $ | 4,088 |
| | 100 | % | Gross product sales | | $ | 3,460 | | | 100.0 | % | | $ | 3,437 | | | 100.0 | % |
| Provisions to reduce gross product sales to net product sales | | | | | | | | | Provisions to reduce gross product sales to net product sales | | | | | | | | |
| Discounts and allowances | | 214 |
| | 6 | % | | 193 |
| | 5 | % | Discounts and allowances | | 149 | | | 4.3 | % | | 166 | | | 4.8 | % |
| Returns | | 104 |
| | 3 | % | | 100 |
| | 2 | % | Returns | | 24 | | | 0.7 | % | | 17 | | | 0.5 | % |
| Rebates | | 656 |
| | 17 | % | | 684 |
| | 17 | % | Rebates | | 676 | | | 19.5 | % | | 615 | | | 17.9 | % |
| Chargebacks | | 546 |
| | 14 | % | | 562 |
| | 14 | % | Chargebacks | | 528 | | | 15.3 | % | | 494 | | | 14.4 | % |
| Distribution fees | | 71 |
| | 2 | % | | 106 |
| | 2 | % | Distribution fees | | 57 | | | 1.6 | % | | 57 | | | 1.6 | % |
| Total provisions | | 1,591 |
| | 42 | % | | 1,645 |
| | 40 | % | Total provisions | | 1,434 | | | 41.4 | % | | 1,349 | | | 39.2 | % |
| Net product sales | | 2,186 |
| | 58 | % | | 2,443 |
| | 60 | % | Net product sales | | 2,026 | | | 58.6 | % | | 2,088 | | | 60.8 | % |
| Other revenues | | 33 |
| | | | 36 |
| | | Other revenues | | 20 | | | | | 23 | | | |
| Revenues | | $ | 2,219 |
| | | | $ | 2,479 |
| | | Revenues | | $ | 2,046 | | | $ | 2,111 | | |
Cash discounts and allowances, returns, rebates, chargebacks and distribution fees as a percentage of gross product sales were 42%41.4% and 40%39.2% for the three months ended September 30, 20172022 and 2016,2021, respectively, an increase of 22.2 percentage points. The increase was primarily driven by:points and includes:
an increase in •discounts and allowances as a percentage of gross product sales were lower primarily associated with the generic release of Glumetza® Authorized Generic (“AG”)driven by higher discounts in 2021 for Glumetza® AG partially offset by lowerby: (i) higher gross sales for Xifaxan® and (ii) the impact of Zegerid® AG due to generic competition.higher gross product sales and discount rates for certain generics;
an increase in •returns were higher, however as a percentage of gross product sales attributableremain below 1% primarily due to certain drugs facing generic competition.the Company’s continued focus on maximizing operational efficiencies and actions to reduce product returns, including, but not limited to: (i) monitoring and reducing customer inventory levels, (ii) instituting disciplined pricing policies and (iii) improving contracting. These actions have had the effect of improving the sales return experience;
•rebates as a percentage of gross product sales was unchangedwere higher primarily due to an increase in gross product sales and higher rebate rates for certain branded products such as increased sales of products that carry higher contractual rebatesXifaxan®, Jublia®, Trulance® 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 wereAplenzin®, partially offset by a decrease in rebateslower gross product sales and lower rebate rates for Solodyn®, Jublia®, Carac®certain branded products such as Retin-A® Microsphere .06% and Glumetza® as generic competition caused a decline in volume year over year;Retin-A® Microsphere .08% and Diastat® due to lower gross sales;
•chargebacks as a percentage of gross product sales was unchanged aswere higher chargebacks resulting fromprimarily due to higher year over yeargross product sales ofand chargeback rates for 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®,Glumetza® SLX and Mysoline®, (ii) lower year over year sales of Zegerid® AGcertain generic products such as Ofloxacin, Dorzolamide and Nitropress® and other drugsNifediac due to generic competitionincreased gross product sales 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 resultthe impact of corrective actions taken by the Company,increased generic competition on pricing. These increases were partially offset by: (i) lower gross sales of certain generic products such as Apriso® AG and its continued pricing discipline during 2016, the previous(ii) lower gross product sales and lower chargeback rates whichfor certain branded products such as Xifaxan 200® and our neurology products Mysoline® and Atavin®; and
•distribution service fees as a percentage of gross product sales were substantial,unchanged. Price appreciation credits are offset against distribution service fees when due to wholesalers. There were no longer effective during 2017.
price appreciation credits for the three months ended September 30, 2022 and 2021.
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 typically vary between periods as a result of product mix, volume, royalties, changes in foreign currency and inflation. Cost of goods sold excludes the amortization and impairments of intangible assets.
Cost of goods sold was $650$578 million and $649$574 million for the three months ended September 30, 20172022 and 2016,2021, respectively, an increase of $1$4 million, or less than 1%. The increase was primarily driven by higher third-party royalty costs on certain drugs and was partially offset by: (i) the impact of the divestiture of Amoun on July 26, 2021, (ii) the decrease in costs attributable to the net decrease in sales volumes from existing businesses, (ii) the impact of divestiturespreviously discussed and discontinuations, (iii) the favorable impact of foreign currencies and (iv) the reclassification ofcurrencies. These increases were partially offset by higher manufacturing variances, driven by inflationary pressures related to certain maintenancemanufacturing costs.
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 September 30, 2017 were approximately $10 million. No adjustments were made to prior periods as the impact was not material.
Cost of goods sold as a percentage of product sales revenue was 30%were 28.5% and 27%27.5% for the three months ended September 30, 20172022 and 2016,2021, respectively, an increase of 31.0 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. Cost of goods sold as a greater percentage of ourproduct sales revenue is attributable towas unfavorably impacted by higher manufacturing variances as previously discussed, partially offset by the Bausch + Lomb/International segment, which generally has lower gross margins than the balance of the Company's products portfolio. Our segment revenues and segment profits are discussedincrease in detail in the subsequent section titled “Reportable Segment Revenues and Profits”.net realized pricing, as previously discussed.
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. The Company has also incurred, and expects to continue to incur with respect to the B+L Separation, separation-related and IPO-related costs which are incremental costs indirectly related to the B+L Separation and the suspended Solta IPO including, but are not limited to: (i) IT infrastructure and software licensing costs, (ii) rebranding costs and (iii) costs associated with facility relocation and/or modification.
SG&A expenses were $623$661 million and $661$653 million for the three months ended September 30, 20172022 and 2016,2021, respectively, a decreasean increase of $38$8 million, or 6%1%. The decreaseincrease was primarily driven by: (i) a net decrease in compensation expense as we incurredattributable to higher personnel costs in 2016 resulting from changes in our senior management teamselling expenses related to freight and employee retention costs, (ii) the impact of divestitures, and (iii) a net decrease in third-party consulting fees. These decreases wereadministrative expenses 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.favorable impact of foreign currencies
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$133 million and $101$121 million for the three months ended September 30, 20172022 and 2016,2021, respectively, a decreasean increase of $20$12 million, or 20%10%. 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 sales were approximately 7% and attaining regulatory approval6% 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 that2022 and 2021, respectively. The increase was primarily attributable to: (i) lower R&D spend in 2021, as certain R&D activities and clinical trials which were suspended in response to the FDA had acceptedCOVID-19 pandemic in 2020 and did not normalize until later in 2021, as discussed below, and (ii) higher spend on certain Solta and Bausch + Lomb projects.
In 2020, due to the NDA for IDP-118 for review,COVID-19 pandemic, certain of our R&D activities were limited and setothers, including new patient enrollments in clinical trials, were temporarily paused, as most trial sites were not able to accept new patients due to
government-mandated shutdowns. During our third quarter of 2020, many of these trial sites began to reopen. During 2021, the pace of new patient enrollments and the increase in these activities and related R&D spend gradually increased until they approached a PDUFA actionnormalized spend rate toward the end of 2021. As of the date of June 18, 2018.
this filing, we have not had to make material changes to our development timelines and the pause in our clinical trials has not had a material impact on our operating results; however, a resurgence of COVID-19 could result in unanticipated delays in our ability to conduct new patient enrollments and create other delays which could have a significant adverse effect on our future operating results.
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. Management continually assesses the useful lives related to the Company’s long-lived assets to reflect the most current assumptions.
Amortization of intangible assets was $657$290 million and $664$338 million for the three months ended September 30, 20172022 and 2016,2021, respectively, a decrease of $7 million, or 1%.$48 million. The decrease in amortization is reflective of impairmentswas primarily attributable to fully amortized intangible assets no longer being amortized 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 compared2022.
See Note 8, “INTANGIBLE ASSETS AND GOODWILL” to 2016.our unaudited interim Consolidated Financial Statements for further details related to our intangible assets.
Goodwill Impairments
Goodwill is not amortized but is tested for impairment at least annually on October 1st at the reporting unit level. A reporting unit is the same as, or one level below, an operating segment. The Company performs its annual impairment test by first assessing qualitative factors. Where the qualitative assessment suggests that it is more likely than not that the fair value of a reporting unit refers to the priceis less than its carrying amount, a quantitative fair value test is performed for 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.unit.
Goodwill impairments were $312$119 million and $1,049 million$0 for the three months ended September 30, 20172022 and 2016, respectively.2021, respectively, an increase of $119 million.
Ortho Dermatologics
During the three months endedthird quarter of 2022, we continued to monitor the market conditions impacting the Ortho Dermatologics reporting unit. As a result of an impairment to the goodwill of the Ortho Dermatologics reporting unit recognized in second quarter of 2022, the reporting unit had no headroom as calculated on June 30, 2022. We considered the increases in interest rates, higher than expected inflation in the U.S. and other macroeconomic factors which would impact the key assumptions used to value the Ortho Dermatologics reporting unit at June 30, 2022 (the last time goodwill of the Ortho Dermatologics reporting unit was tested). We believed these facts and circumstances suggest the fair value of the Ortho Dermatologics reporting unit could be less than its carrying amount, and therefore a quantitative fair value test was performed for the reporting unit.
The quantitative fair value test utilized the Company’s most recent cash flow projections as revised in the third quarter of 2022 which reflect current market conditions and current trends in business performance. The Company updated revenue assumptions for a certain product and other products reaching LOE and updated its assumptions regarding selling, advertising and promotion investments. The Company also increased the discount rate used in the valuation of the reporting unit from 10.0% utilized in the June 30, 2022 testing to 10.5% utilized in the September 30, 2017,2022 testing which reflects the Sprout business was classified as held for sale. Asincreases in market interest rates. The Company has not changed its long-term growth rate assumption of 1%. Based on the Sprout business represented only a portion of a Branded Rx reporting unit, we assessed the remaining reporting unit for impairment and determinedquantitative fair value test, the carrying value of the remainingOrtho Dermatologics reporting unit exceeded its fair value. After completing step two of the impairment testing,value at September 30, 2022, and we determined and recordedrecognized a goodwill impairment charge of $312$119 million.
Salix
On August 10, 2022, the Norwich Legal Decision was issued, that held, among other matters, that certain U.S. Patents protecting the composition and use of Xifaxan® for treating IBS-D were invalid. On August 16, 2022, the Company appealed this decision and intends to vigorously defend its Xifaxan® intellectual property. See “Xifaxan® Paragraph IV Proceedings” of Note 18, “LEGAL PROCEEDINGS” for details of this litigation matter and the Company’s response.
Xifaxan® revenues were $1,216 million duringand $1,194 million for the threenine months ended September 30, 2017.
Commencing in2022 and 2021, respectively, representing approximately 80% of the three months ended September 30, 2016,revenues of the Salix reporting unit. The ultimate outcome of the Norwich Legal Decision and other potential future related developments, including a competitor’s ability to launch a successful generic version to Xifaxan®, could impact the timing and extent of future revenues and cash flows associated with Xifaxan®. As such, the Company operates in three operating segments: (i) Bausch + Lomb/International, (ii) Branded Rx and (iii) U.S. Diversified Products. The realignmentbelieves that the uncertainty of the segment structure resulted in changes inpossible outcomes of the Norwich Legal Decision and the potential impact on Xifaxan® revenues are indicators that the Salix reporting unit’s fair value could be less than its carrying amount, and therefore a quantitative fair value test was performed for the reporting unit.
The Company performed its quantitative fair value test using a probability-weighted discounted cash flow analysis, with a base case representing the Company’s reporting units. Inmost recent cash flow projections as revised in the third quarter of 2016, goodwill impairment testing was performed under2022, as well as different scenarios representing a range of different outcomes which address, among other things, 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 valuerange 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 twopossible outcomes of the goodwill impairment test forNorwich Legal Decision and the former U.S. reporting unittiming of when a competitor or competitors could be able to successfully launch a generic version of Xifaxan®, if they are able to launch one at all. The forecasted cash flows under each set of outcomes were discounted utilizing a long-term growth rate of 2.5% and determined that the carrying valuediscount rates of 9.75% and 10.00%. The Company assigned a probability weighting to each scenario reflecting its best estimate of likelihood of the unit's goodwill exceeded its implied fair value, which resultedoutcome resulting in an initial goodwill impairment chargeeach scenario, and calculated a weighted average of $838 million in the three months endedvaluations derived from the discounted cash flows under each scenario using this probability weighting.
As of September 30, 2016.
Under the current reporting unit structure,2022, the carrying value of the Salix reporting unit exceededwas less than its fair value as updates todetermined by the unit's forecast resulted in a lower estimated fair value forCompany’s probability-weighted discount valuation model and therefore no impairment was recorded as of September 30, 2022. However, as the business. As a result,Company’s probability-weighted discount valuation includes scenarios under which the Company proceeded to perform step twodoes not retain market exclusivity for Xifaxan® through January 2028, these probability-weighted fair values of the goodwill impairment test for the Salix reporting unit and determinedexceeded its carrying value by less than 5%.
It is possible that the carryingNorwich Legal Decision and other potential future developments may adversely impact the estimated fair value of the unit's goodwill exceeded its implied fair value,Salix segment in one or more future periods. Any such impairment could be material to the Company’s results of operations in the period in which resulted in an initial goodwill impairment charge of $211 million init were to occur.
Other Reporting Units
No other events occurred or circumstances changed during the three months ended September 30, 2016.2022 that would indicate that the fair value of any reporting unit, other than the Ortho Dermatologics and Salix reporting units, might be below its carrying value.
See Note 8, “INTANGIBLE ASSETS AND GOODWILL” to our unaudited interim Consolidated Financial Statements for further details related to our goodwill.
Asset Impairments, Including Loss on Assets Held for Sale
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, including loss on assets held for sale were $406$1 million and $148$18 million for the three months ended September 30, 20172022 and 2016,2021, respectively, an increasea decrease of $258$17 million. We continue to critically evaluate our businesses and product portfolios and as a result identifiedAsset impairments, including loss on assets that are not aligned with our core objectives. Asset impairmentsheld for sale for the three months ended September 30, 2017 included: (i) an impairment charge2022 of $352$1 million was related to the Sprout, (ii) impairment charges of $47 million reflecting decreases in forecasted sales for other product lines and (iii) impairment charges of $6 million, related to certain product/patent assets associated with the discontinuance of a specific product lines not aligned with the focus of the Company's core business. product.
Asset impairments, including loss on assets held for sale for the three months ended September 30, 2016 included:2021 of $18 million include: (i) an impairment chargeimpairments of $88$9 million recognized upon classificationdue to decreases in forecasted sales of assets associated with a number of small businesses as held for salecertain product line in our Diversified Products segment and (ii) an impairment chargeimpairments of $25$9 million, in aggregate, related to IBSChek™ (U.S. Diversified Products segment), resulting from a declinethe discontinuance of certain product lines.
Xifaxan® intangible assets included in sales trends. See Note 8, "INTANGIBLE ASSETS AND GOODWILL" to ourthe unaudited Consolidated Financial Statements regardingBalance Sheets have a carrying value of $2,828 million and an estimated remaining useful life of 63 months as of September 30, 2022. The Company determined that the asset impairmentsNorwich Legal Decision constituted an event requiring assessment of ourthe Xifaxan® intangible assets.
In connection with an ongoing litigation matter between the Company andassets for potential generic competitors to the branded drug Uceris® Tablet, theimpairment. The Company performed anthis assessment using the same probability-weighted undiscounted cash flow analysis it used in assessing the goodwill of the Salix reporting unit for impairment testdiscussed above. This assessment resulted in no impairment 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 relatedXifaxan® 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 the2022. The Company is unable to execute its strategies, it may be necessary to record an impairment charge equalalso determined
that no change to the difference between the fair value and carrying valueremaining useful lives of the Uceris® Tablet relatedits Xifaxan® intangible assets. Asassets was required as of September 30, 2017,2022.
It is possible that the carryingNorwich Legal Decision and other potential future related developments: (i) may adversely impact the estimated future cash flows associated with these products, which could result in an impairment of the value of Uceris® Tablet relatedthese intangible assets was $619 million.in one or more future periods and (ii) may result in shortened useful lives of the Xifaxan® intangible assets, which would increase amortization expense in future periods.
See Note 8, “INTANGIBLE ASSETS AND GOODWILL” to our unaudited interim Consolidated Financial Statements for further details related to our intangible assets.
Restructuring, Integration, Separation and IntegrationIPO Costs
Restructuring, integration, separation and integrationIPO costs were $6$10 million and $20$8 million for the three months ended September 30, 20172022 and 2016,2021, respectively, a decreasean increase of $14$2 million. We have substantially completed
Restructuring and Integration Costs
The Company evaluates opportunities to improve its operating results and implement cost savings programs to streamline its operations and eliminate redundant processes and expenses. Restructuring and integration costs are expenses associated with the implementation of these cost savings programs and include 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.
Restructuring and integration ofcosts were $3 million for the businesses acquired prior to 2016.three months ended September 30, 2022 and 2021, in each period. 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.
Separation and IPO Costs
The Company has incurred, and expects to continue to incur costs associated with activities relating to the B+L Separation. The Company also incurred costs associated with activities relating to the Solta IPO, which was suspended in June 2022. These B+L Separation and Solta IPO activities include: (i) separating the Bausch + Lomb and Solta Medical businesses from the remainder of the Company, (ii) completing the B+L IPO and preparing for the suspended Solta IPO and (iii) the actions necessary for Bausch + Lomb to become an independent publicly traded entity. Separation and IPO costs are incremental costs directly related to the ongoing B+L Separation and the suspended Solta IPO and include, but are not limited to: (i) legal, audit and advisory fees, (ii) talent acquisition costs and (iii) costs associated with establishing a new board of directors and related board committees for the Bausch + Lomb and Solta Medical entities. Separation and IPO costs were $7 million and $5 million for the three months ended September 30, 2022 and 2021, respectively. The extent and timing of future charges of these costs to complete the B+L Separation cannot be reasonably estimated at this time and could be material.
See Note 5, "RESTRUCTURING“RESTRUCTURING, INTEGRATION, SEPARATION AND INTEGRATION COSTS"IPO 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 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 statements of 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 aOther expense, net gain of $238 million for the three months ended September 30, 2017 and included a fair value adjustment of $259 million reflecting a decrease in forecasted sales for the Addyi® product which impacted the expected future royalty payments. The net gain was partially offset by accretion for the time value of money of $13 million and other net fair value adjustments of $8 million. Acquisition-related contingent consideration was a net expense of $9 million for the three months ended September 30, 2016, and included accretion for the time value of money of $23 million offset by net fair value adjustments of $14 million.
Other (Income) Expense, Net
Other (income) expense, net for the three months ended September 30, 20172022 and 20162021 consists of the following:
| | | | | | | | | | | | | | |
| | Three Months Ended
September 30, |
| (in millions) | | 2022 | | 2021 |
| Litigation and other matters | | $ | — | | | $ | (212) | |
| Acquisition-related contingent consideration | | 4 | | | 8 | |
| (Gain) loss on sale of assets, net | | — | | | 21 | |
| | | | |
| | | | |
| | $ | 4 | | | $ | (183) | |
|
| | | | | | | | |
| | | 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 |
|
DuringLitigation and other matters for the three months ended September 30, 2017,2021, included insurance recoveries of $213 million related to a certain litigation. Loss on sale of assets for the initially reported Gain onthree months ended September 30, 2021, included a loss of $26 million upon completion of the DendreonAmoun Sale was increased by $25 million to reflect a working capital adjustment to the initial sales price. Seeas discussed in Note 4, "DIVESTITURES"“LICENSING AGREEMENTS AND DIVESTITURE” to our unaudited interim Consolidated Financial Statements for details related to the Gain on the Dendreon Sale.Statements.
Non-Operating Income and Expense
Interest Expense
Interest expense primarily consists of interest payments due, amortization of debt premiums, discounts and deferred issuance costs on indebtedness under our credit facilities and notes and, during 2021, the amortization of deferred financing costs and debt discounts. We regularly evaluate market conditions,amounts excluded from the assessment of hedge effectiveness over the term of the Company’s cross-currency swaps. In November 2021, we entered into a transaction to unwind our liquidity profile, and various financing alternatives for opportunities to enhance our capital structure. If market conditions are favorable, we may refinance existing debt.
cross-currency swaps. In July 2022, Bausch +Lomb entered into new cross-currency swaps with aggregate notional amounts of $1,000 million.
Interest expense was $459$385 million and $470$351 million, and included non-cash amortization and write-offs of debt premiums, discounts and deferred issuance costs of $22 million and $17 million, for the three months ended September 30, 20172022 and 2016, respectively, a decrease of $112021, respectively. Interest expense for the three months ended September 30, 2022 increased $34 million, or 2%. Interest10%, as compared to the three months ended September 30, 2021, primarily attributable to the higher interest rates partially offset by the impact of lower outstanding debt balances. The weighted average stated rate of interest as of September 30, 2022 and 2021 was 7.24% and 5.91%, respectively. The increase in the weighted average stated rate of interest of 133 bps is primarily attributable to the New Secured Notes. Due to the accounting treatment for the New Secured Notes, interest expense includes non-cash amortizationin the Company’s financial statements in future periods will not be representative of the weighted average stated rate of interest.
See Note 10, “FINANCING ARRANGEMENTS” to our unaudited interim Consolidated Financial Statements and write-offsthe section titled “— Liquidity and Capital Resources — Liquidity and Debt — Long-term Debt” for further details.
Gain (Loss) on Extinguishment of Debt
Gain (loss) on extinguishment of debt discountsrepresents the differences between the amounts paid to settle extinguished debts and the carrying value of the related extinguished debt. The gain on extinguishment of debt issuance costs of $34 million and $33was $570 million for the three months ended September 30, 2017 and 2016, respectively. The decrease in interest expense2022 was primarily driven by lower principal amounts of outstanding debt duringattributable to the three months ended September 30, 2017, partially offset by higher interest rates primarily resulting from the March 2017 debt refinancing. The weighted average stated rates of interestExchange Offer, as of September 30, 2017 and 2016 were 6.09% and 5.71%, respectively.
Loss on Extinguishment of Debt
Losscompared to a loss on extinguishment of debt of $1$12 million for the three months ended September 30, 2017 was incurred2021. The Exchange Offer is discussed in connectionfurther detail under “— Liquidity and Capital Resources — Liquidity and Debt — Long-term Debt” below.
The Company continues to take steps to seek to improve its operating results to ensure continual compliance with its financial maintenance covenants and take other actions to reduce its debt levels to align with the August 2017 repurchaseCompany’s long-term strategy. The Company may consider taking other actions, including divesting other businesses, refinancing debt and issuing equity or equity-linked securities including secondary offerings of $500the common shares of Bausch + Lomb, as deemed appropriate, to provide additional coverage in complying with the financial maintenance covenant and meeting its debt service obligations.
The loss on extinguishment of debt of $12 million offor the three months ended September 30, 2021 is primarily associated with debt repayments made during the three months ended September 30, 2021 and represents the differences between the amounts paid to settle the extinguished debt and its carrying value.
See Note 10, “FINANCING ARRANGEMENTS” to our August 2018 Senior Unsecured Notes.unaudited interim Consolidated Financial Statements for further details.
Foreign Exchange and Other
Foreign exchange and other primarily includes: (i) translation gains/losses on intercompany loans and third-party liabilities and (ii) the gain/loss due to foreign currency exchange contracts. Foreign exchange and other was a gain of $19$7 million and $3 million for the three months ended September 30, 2017 as compared to2022 and 2021, respectively, a lossfavorable net change of $2$4 million.
Income Taxes
Provision for income taxes was $36 million and $25 million for the three months ended September 30, 2016,2022 and 2021, respectively, a favorable netunfavorable change of $21 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 of income taxes was $1,700 million and $113 million for the three months ended September 30, 2017 and 2016, respectively, an increase of $1,587$11 million.
Our effective income tax rate for the three months ended September 30, 20172022 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 benefitprovision generated from our annualized mix of earnings by jurisdiction, and (iii) the discrete treatment of: (a) $1,397 million of tax benefit from internal restructuring efforts and (b) a $108 million 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)(iii) the accrualdiscrete treatment of interest oncertain tax matters, primarily related to: (a) changes in uncertain tax positions.positions, (b) adjustments for book to income tax return provisions and (c) changes to the tax deduction for stock compensation.
Our effective income tax rate for the three months ended September 30, 2021 differs from the statutory Canadian income tax rate primarily due to: (i) the tax benefit generated from our annualized mix of earnings by jurisdiction, (ii) the recording of valuation allowance on entities for which no tax benefit of losses is expected and (iii) the discrete treatment of
certain tax matters, primarily related to: (a) changes in uncertain tax positions, (b) adjustments for book to income tax return provisions and (c) tax deduction for stock compensation.
See Note 16, “INCOME TAXES” to our unaudited interim Consolidated Financial Statements for further details.
Reportable Segment Revenues and Profits
During the third quarter of 2016, our Chief Executive Officer, 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. Pursuant to this change, which was effective in the third quarter of 2016, we have three operating and reportable segments: (i) Bausch + Lomb/International, (ii) Branded Rx and (iii) U.S. 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/International 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 ourthe Company’s segments:
•The Bausch + Lomb/InternationalSalix segmentconsists of: (i)of sales in the U.S. of pharmaceutical products, OTC productsGI products. Sales of the Xifaxan® product line represented approximately 80% of the Salix segment’s revenues for the three and medical device products, primarily comprisednine months ended September 30, 2022, in each period.
•The International segment consists of sales, with the exception of sales of Bausch + Lomb products with a focus onand Solta aesthetic medical devices, outside the Vision Care, Surgical, ConsumerU.S. and Ophthalmology Rx products and (ii) sales in Canada, Europe, Asia, Australia and New Zealand, Latin America, Africa and the Middle EastPuerto Rico of branded pharmaceutical products, branded generic pharmaceutical products and OTC products, medical device products, and Bausch + Lomb products.
•The Branded RxSolta Medical segmentconsists of global 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 health products. As a result of the Dendreon Sale completed on June 28, 2017, the Company exited the oncology business.
Solta aesthetic medical devices.•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 business and the Obagi business and (ii) generic products, (iii) Ortho Dermatologics (dermatological) products and (iv) dentistry products.
•The Bausch + Lomb segment consists of global sales of Bausch + Lomb Vision Care, Surgical and Ophthalmic Pharmaceuticals products.
Segment profit is based on operating income after the elimination of intercompany transactions, (including transactions with any consolidated variable interest entities).including between Bausch + Lomb and other segments. Certain costs, such as amortization and impairmentsAmortization of intangible assets, goodwill impairment, certain R&D expenses not specific to our active portfolio, acquired in-process researchAsset impairments, Goodwill impairments, Restructuring, integration, separation and development costs, restructuring, integration and acquisition-relatedIPO costs and otherOther (income) expense, 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, "SEGMENT INFORMATION"“SEGMENT INFORMATION” to our unaudited interim Consolidated Financial Statements for a reconciliation of segment profit to LossIncome (loss) before recovery of income taxes.
The following table presents segment revenues, segment revenues as a percentage of total revenues, and the year over yearperiod-over-period changes in segment revenues for the three months ended September 30, 20172022 and 2016.2021. The following table also presents segment profits, segment profits as a percentage of segment revenues and the year over yearperiod-over-period changes in segment profits for the three months ended September 30, 20172022 and 2016.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2022 | | 2021 | | Change |
| (in millions) | | Amount | | Pct. | | Amount | | Pct. | | Amount | | Pct. |
| Segment Revenues | | | | | | | | | | | | |
| Salix | | $ | 544 | | | 27 | % | | $ | 527 | | | 24 | % | | $ | 17 | | | 3 | % |
| International | | 250 | | | 12 | % | | 271 | | | 13 | % | | (21) | | | (8) | % |
| Solta Medical | | 72 | | | 4 | % | | 74 | | | 4 | % | | (2) | | | (3) | % |
| Diversified Products | | 238 | | | 12 | % | | 290 | | | 14 | % | | (52) | | | (18) | % |
| Bausch + Lomb | | 942 | | | 45 | % | | 949 | | | 45 | % | | (7) | | | (1) | % |
| Total revenues | | $ | 2,046 | | | 100 | % | | $ | 2,111 | | | 100 | % | | $ | (65) | | | (3) | % |
| | | | | | | | | | | | |
| Segment Profits / Segment Profit Margins | | | | | | | | | | | | |
| Salix | | $ | 391 | | | 72 | % | | $ | 377 | | | 72 | % | | $ | 14 | | | 4 | % |
| International | | 85 | | | 34 | % | | 92 | | | 34 | % | | (7) | | | (8) | % |
| Solta Medical | | 33 | | | 46 | % | | 40 | | | 54 | % | | (7) | | | (18) | % |
| Diversified Products | | 151 | | | 63 | % | | 185 | | | 64 | % | | (34) | | | (18) | % |
| Bausch + Lomb | | 226 | | | 24 | % | | 247 | | | 26 | % | | (21) | | | (9) | % |
| Total segment profits | | $ | 886 | | | 43 | % | | $ | 941 | | | 45 | % | | $ | (55) | | | (6) | % |
Organic Revenues and Organic Growth Rates (non-GAAP)
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, |
| | | 2017 | | 2016 | | Change |
| (in millions) | | Amount | | Pct. | | Amount | | Pct. | | Amount | | Pct. |
| Segment Revenues | | | | | | | | | | | | |
| Bausch + Lomb/International | | $ | 1,254 |
| | 56 | % | | $ | 1,243 |
| | 50 | % | | $ | 11 |
| | 1 | % |
| Branded Rx | | 633 |
| | 29 | % | | 766 |
| | 31 | % | | (133 | ) | | (17 | )% |
| U.S. Diversified Products | | 332 |
| | 15 | % | | 470 |
| | 19 | % | | (138 | ) | | (29 | )% |
| Total revenues | | $ | 2,219 |
| | 100 | % | | $ | 2,479 |
| | 100 | % | | $ | (260 | ) | | (10 | )% |
| | | | | | | | | | | | | |
| Segment Profits / Segment Profit Margins | | | | | | | | | | | | |
| Bausch + Lomb/International | | $ | 387 |
| | 31 | % | | $ | 381 |
| | 31 | % | | $ | 6 |
| | 2 | % |
| Branded Rx | | 357 |
| | 56 | % | | 484 |
| | 63 | % | | (127 | ) | | (26 | )% |
| U.S. Diversified Products | | 238 |
| | 72 | % | | 379 |
| | 81 | % | | (141 | ) | | (37 | )% |
| Total segment profits | | $ | 982 |
| | 44 | % | | $ | 1,244 |
| | 50 | % | | $ | (262 | ) | | (21 | )% |
Organic revenue and organic revenue change are non-GAAP measures. Non-GAAP measures are not standardized measures under the financial reporting framework used to prepare the Company’s financial statements and might not be comparable to similar financial measures disclosed by other issuers.
Bausch + Lomb/Organic revenue (non-GAAP) and change in organic revenue (non-GAAP), are defined as GAAP Revenue and change in GAAP revenue (the most directly comparable GAAP financial measures), adjusted for changes in foreign currency exchange rates (if applicable) and excluding the impact of recent acquisitions, divestitures and discontinuations, as defined below. Organic revenue (non-GAAP) is impacted by changes in product volumes and price. The price component is made up of two key drivers: (i) changes in product gross selling price and (ii) changes in sales deductions. The Company uses organic revenue (non-GAAP) and change in organic revenue (non-GAAP) to assess performance of its reportable segments, and the Company in total. The Company believes that providing these measures is useful to investors as they provide a supplemental period-to-period comparison.
The adjustments to GAAP Revenue and changes in GAAP revenue to determine organic revenue (non-GAAP) and changes in organic revenue (non-GAAP) are 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 business. The impact of 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 revenue (non-GAAP) growth/change 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 and organic growth/change exclude from the current period, 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 and change in organic revenue exclude from the prior 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. There were no acquisitions during the twelve month period ended September 30, 2022.
The following table presents a reconciliation of GAAP revenues to organic revenues (non-GAAP) and the period-over-period changes in organic revenue (non-GAAP) for the three months ended September 30, 2022 and 2021 by segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, 2022 | | Three Months Ended September 30, 2021 | | Change in
Organic Revenue (Non-GAAP) |
| | Revenue
as
Reported | | Changes in Exchange Rates | | Organic Revenue (Non-GAAP) | | Revenue
as
Reported | | Divestitures
and Discontinuations | | Organic Revenue (Non-GAAP) | |
| (in millions) | | Amount | | Pct. |
| Salix | | $ | 544 | | | $ | — | | | $ | 544 | | | $ | 527 | | | $ | — | | | $ | 527 | | | $ | 17 | | | 3 | % |
| International | | 250 | | | 22 | | | 272 | | | 271 | | | (23) | | | 248 | | | 24 | | | 10 | % |
| Solta Medical | | 72 | | | 5 | | | 77 | | | 74 | | | — | | | 74 | | | 3 | | | 4 | % |
| Diversified Products | | 238 | | | — | | | 238 | | | 290 | | | (2) | | | 288 | | | (50) | | | (17) | % |
| Bausch + Lomb | | 942 | | | 55 | | | 997 | | | 949 | | | (1) | | | 948 | | | 49 | | | 5 | % |
| Total | | $ | 2,046 | | | $ | 82 | | | $ | 2,128 | | | $ | 2,111 | | | $ | (26) | | | $ | 2,085 | | | $ | 43 | | | 2 | % |
Salix Segment:
Salix Segment Revenue
The Salix segment includes our Xifaxan® product line. Revenues from our Xifaxan® product line accounted for approximately 80% of the Salix segment revenues for the three months ended September 30, 2022 and 2021, in each period. No other single product group represents 10% or more of the Salix segment product sales. Salix segment revenue for the three months ended September 30, 2022 and 2021 was $544 million and $527 million, respectively, an increase of $17 million, or 3%. The increase is primarily driven by an increase in net realized pricing of $29 million, primarily driven by Xifaxan®, partially offset by a decrease in volumes of $12 million primarily attributable to unfavorable inventory balancing of Xifaxan® by certain wholesalers.
Salix Segment Profit
The Salix segment profit for the three months ended September 30, 2022 and 2021 was $391 million and $377 million, respectively, an increase of $14 million, or 4%. The increase was primarily driven by an increase in contribution primarily attributable to the increase in revenues, as previously discussed.
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$250 million and $1,243$271 million for the three months ended September 30, 20172022 and 2016,2021, respectively, an increasea decrease of $11$21 million, or 1%8%. The increasedecrease was primarily driven by:
an increase in product sales volume from our existing business (excluding foreign currency and divestitures and discontinuations) of $58 million. The increase in volume was driven by the U.S. Bausch + Lomb Consumer, international and U.S. Bausch + Lomb Vision Care businesses; and
an increase in average realized pricing of $20 million, primarily in Egypt.
These factors were partially offset by:
attributable to: (i) the impact of other divestitures and discontinuations of $51 million;$23 million, primarily attributable to our divestiture of Amoun on July 26, 2021 and
(ii) the unfavorable impact of foreign currencies of $15$22 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 Egyptian
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 wasEurope. These decreases were partially offset by the favorable impactincreases in: (i) volumes of foreign currencies in Eastern Europe.$16 million and (ii) net realized pricing of $8 million.
Bausch + Lomb/International Segment Profit
The Bausch + Lomb/International segment profit for three months ended September 30, 2017 and 2016 was $387 million and $381 million, respectively, an increase of $6 million, or 2%. The increase was primarily driven by:
an increase in contribution as a result of the increases in volume and average realized pricing as discussed above; and
a decrease in operating expenses (excluding amortization and impairments of intangible assets) of $6 million primarily in advertising and promotion as a result of the Skincare Sale and other divestitures and discontinuances.
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 Rx Segment:
Branded Rx Segment Revenue
The Branded Rx segment has a diversified product line which includes Xifaxan®. This product accounted for 46% and 36% of the Branded Rx segment product sales and 13% and 11% of the Company's product sales for the three months ended September 30, 20172022 and 2016, respectively.2021 was $85 million and $92 million, respectively, a decrease of $7 million, or 8%. The decrease was primarily attributable to: (i) our divestiture of Amoun on July 26, 2021 and (ii) lower contribution primarily attributable to the unfavorable impact of foreign currencies and by higher manufacturing variances, driven by inflationary pressures related to certain manufacturing costs.
Solta Medical Segment:
Solta Medical Segment Revenue
The Solta Medical segment includes the Thermage® product line, which accounted for approximately 81% of the Solta segment revenues for the three months ended September 30, 2022. No other single product group represents 10% or more of the Branded RxSolta segment product sales.revenues. The Branded RxSolta Medical segment revenue for the three months ended September 30, 20172022 and 20162021 was $633$72 million and $766$74 million, respectively, a decrease of $133$2 million, or 17%3%. The decrease was primarily driven by:
a decrease in volume from our existing business of $88 million primarily driven by: (i)attributable to 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) generic competition as certain products lost exclusivity, such as our Zegerid® product in our GI business and our Targetin®, Carac®, and Ziana® products in our dermatology business unit; and
theunfavorable impact of the Dendreon Sale and other divestitures and discontinuationsforeign currencies of $86 million.
These factors were$5 million partially offset by the increase in pricing of $45 million primarily driven by: (i) increased wholesale selling prices and (ii) lower discounts within the GI business in 2017 when compared to 2016. As discussed above in “Cash Discounts and Allowances, Chargebacks and Distribution Fees,”as 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 an increase in averagenet realized pricing and were partially offset by higher managed care rebates, particularly in the dermatology business and, to a lesser extent, the GI business.of $3 million.
Branded RxSolta Medical Segment Profit
The Branded RxSolta Medical segment profit for the three months ended September 30, 20172022 and 20162021 was $357$33 million and $484$40 million, respectively, a decrease of $127$7 million, or 26%18%. The decrease was primarily driven by:
aattributable to: (i) the decrease in contribution from the impact of: (i) the Dendreon Sale and other divestitures and discontinuations of $77 million, (ii) lower volume partially offsetprimarily driven by higher average realized pricing in our existing business, and (iii) higher third-party royaltymanufacturing variances, driven by inflationary pressures related to certain manufacturing costs, on certain drugs; and
(ii) an increase in operating expensesR&D and (iii) the unfavorable impact 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.foreign currencies.
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, 20172022 and 2016.2021 was $238 million and $290 million, respectively, a decrease of $52 million, or 18%. The decrease was primarily driven by: (i) a decrease in volume of $34 million, primarily attributable to our Neurology and Generics businesses and (ii) a decrease in net realized pricing of $16 million, primarily in our Generics business.
|
| | | | | | | | | | | | | | | | | | | | | |
| | | 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 | )% |
The U.S. Diversified Products segment revenueprofit for the three months ended September 30, 20172022 and 20162021 was $332$151 million and $470$185 million, respectively, a decrease of $138$34 million, or 29%18%. 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 existingattributable to the net decrease in revenues, as previously discussed, partially offset by lower general and administrative expenses.
Bausch + Lomb Segment:
Bausch + Lomb Segment Revenue
The Bausch + Lomb segment has a diversified product line with no single product group representing 10% or more of its product sales. The Bausch + Lomb segment revenue was $942 million and $949 million for the three months ended September 30, 2022 and 2021, respectively, a decrease of $7 million, or 1%. The decrease was attributable to (i) the unfavorable impact of foreign currencies across the Bausch + Lomb international businesses of $55 million primarily in Europe and Asia and (ii) the impact of divestitures and discontinuations of $1 million, related to the discontinuation of certain products. These decreases were partially offset by increases in: (i) volumes of $25 million and (ii) net realized pricing of $24 million primarily within the Vision Care business. The increase in volume was due to: (i) new launches within the international contact lens business, (ii) increased demand of consumables and IOLs within the Surgical business and (iii) increased demand and new launches within the Ophthalmic Pharmaceuticals business.
Bausch + Lomb Segment Profit
The Bausch + Lomb segment profit for the three months ended September 30, 2022 and 2021 was $226 million and $247 million, respectively, a decrease of $21 million, or 9%. The decrease was primarily attributable to: (i) a decrease in contribution primarily driven by: (a) the decrease in revenues as a resultpreviously discussed and (b) higher manufacturing variances, driven by inflationary pressures and higher manufacturing efficiency ramp-up costs of lower volumesDaily SiHy lenses and average realized pricing.(ii) higher R&D expense.
Nine Months Ended September 30, 20172022 Compared to the Nine Months Ended September 30, 20162021
Revenues
Our revenue was $6,561$5,931 million and $7,271$6,238 million for the nine months ended September 30, 20172022 and 2016,2021, respectively, a decrease of $710$307 million, or 10%5%. The decrease was primarily driven by:due to: (i) the decline in product sales from our existing business (excludingunfavorable impact of foreign currency and divestitures and discontinuations)currencies of $359$186 million primarily due to lower volumes in our U.S. Diversified segment as a result of the loss of exclusivity for a number of productsEurope 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,Asia, (ii) the impact of divestitures and discontinuations of $237$172 million, and (iii) the unfavorable impact of foreign currencies of $110 million which is primarily attributable to the Egyptian pound.our divestiture of Amoun on July 26, 2021 and (iii) a decrease in volumes of $79 million primarily in our Diversified, Salix and Solta segments partially offset by an increase in volumes in our Bausch + Lomb and International segments. These decreases were partially offset by an increase in net realized pricing of $130 million.
OurThe changes in our segment revenues and segment profits for the nine months ended September 30, 2017 and 20162022, are discussed in further detail in the respective 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, 20172022 and 20162021 were as follows:
| | | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2017 | | 2016 | | 2022 | | 2021 |
| (in millions) | | Amount | | Pct. | | Amount | | Pct. | (in millions) | | Amount | | Pct. | | Amount | | Pct. |
| Gross product sales | | $ | 11,085 |
| | 100 | % | | $ | 11,992 |
| | 100 | % | Gross product sales | | $ | 10,015 | | | 100.0 | % | | $ | 10,229 | | | 100.0 | % |
| Provisions to reduce gross product sales to net product sales | | | | | | | | | Provisions to reduce gross product sales to net product sales | | | | | | | | |
| Discounts and allowances | | 613 |
| | 6 | % | | 561 |
| | 5 | % | Discounts and allowances | | 427 | | | 4.3 | % | | 472 | | | 4.6 | % |
| Returns | | 326 |
| | 3 | % | | 343 |
| | 3 | % | Returns | | 84 | | | 0.8 | % | | 94 | | | 0.9 | % |
| Rebates | | 1,894 |
| | 17 | % | | 1,880 |
| | 15 | % | Rebates | | 1,912 | | | 19.1 | % | | 1,842 | | | 18.0 | % |
| Chargebacks | | 1,568 |
| | 14 | % | | 1,708 |
| | 14 | % | Chargebacks | | 1,556 | | | 15.5 | % | | 1,487 | | | 14.6 | % |
| Distribution fees | | 222 |
| | 2 | % | | 332 |
| | 3 | % | Distribution fees | | 165 | | | 1.6 | % | | 167 | | | 1.6 | % |
| Total provisions | | 4,623 |
| | 42 | % | | 4,824 |
| | 40 | % | Total provisions | | 4,144 | | | 41.4 | % | | 4,062 | | | 39.7 | % |
| Net product sales | | 6,462 |
| | 58 | % | | 7,168 |
| | 60 | % | Net product sales | | 5,871 | | | 58.6 | % | | 6,167 | | | 60.3 | % |
| Other revenues | | 99 |
| | | | 103 |
| | | Other revenues | | 60 | | | | | 71 | | | |
| Revenues | | $ | 6,561 |
| | | | $ | 7,271 |
| | | Revenues | | $ | 5,931 | | | $ | 6,238 | | |
Cash discounts and allowances, returns, rebates, chargebacks and distribution fees as a percentage of gross product sales were 42%41.4% and 40%39.7% for the nine months ended September 30, 20172022 and 2016,2021, respectively, an increase of 21.7 percentage point. The increase was primarily driven by:points and includes:
an increase in •discounts and allowances as a percentage of gross product sales were lower primarily associated withdue to lower gross product sales for certain generic products, such as Glumetza® AG, Timoptic® AG, Apriso® AG and Migranal® AG;
•returns as a percentage of gross product sales were lower primarily due to: (i) the generic releaseresult of Glumetza® AGthe Company’s improving return experience and (ii) the favorable year over year impact due to the recall of certain Bausch + Lomb consumer products as a result of a quality issue at a third-party supplier during the three months ended June 30, 2021, as discussed below. Over the last several years, the Company has increased its focus on maximizing operational efficiencies and continues to take actions to reduce product returns, including, but not limited to: (i) monitoring and reducing customer inventory levels, (ii) instituting disciplined pricing policies and (iii) improving contracting. These actions have had the effect of improving the sales return experience primarily for certain of our branded products such as Xifaxan®,Trulance® and Relistor®. These factors driving our lower return experience were partially offset by charges in our International segment of approximately $11 million during the three months ended June 30, 2022, to reflect a change in estimated future returns in one market, driven by lower salesestimated demand following the easing of Zegerid® AG due to generic competition;local COVID-19 lockdown restrictions and a change of distributors;
•rebates as a percentage of gross product sales waswere higher as increased sales of products that carry higher contractual rebates and co-pay assistance programs, includingprimarily due the impact of an increase in gross price increases where customers receive incremental rebates based on contractual price increase limitations. The comparisons were impacted primarilyproduct sales of certain branded products with higher rebate rates, such as Jublia®, Aplenzin®, Arazlo® and Trulance®, partially offset by higher provisionslower gross product sales and lower rebate rates for rebatescertain branded products such as Wellbutrin®, Retin-A® Microsphere .06% and Retin-A® Microsphere .08% 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;product Glumetza® AG;
•chargebacks as a percentage of gross product sales was unchangedwere higher primarily due to higher chargeback rates for certain products such as higher chargebacks resulting from higher year over yearGlumetza® SLX, Ofloxacin and Xifaxan®, partially offset by lower chargeback rates and gross product sales offor certain generic drugsproducts such as Glumetza®Glumetza® AG and Targretin®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®, Mysoline® and Mysoline®, (ii) lower year over year sales of Zegerid® AGAtivan®; 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.were unchanged. Price appreciation credits were $10 million$0 and $3$1 million for the nine months ended September 30, 20172022 and 2016,2021, respectively.
Expenses
Cost of Goods Sold (excluding amortization and impairments of intangible assets)
Cost of goods sold was $1,869$1,691 million and $1,917$1,742 million for the nine months ended September 30, 20172022 and 2016,2021, respectively, a decrease of $48$51 million, or 3%. The decrease was primarily driven by: (i) costs attributable tothe impact of the divestiture of Amoun on July 26, 2021, (ii) the net decrease in sales volumes, from existing businesses, (ii)as previously discussed, and (iii) the favorable impact of foreign currencies, (iii) lower amortization of acquisition accounting adjustments related to inventories and (iv) the impact of divestitures and discontinuations.currencies. These decreases were partially offset by higher manufacturing variances, driven by inflationary pressures related to certain manufacturing costs, partially offset by the impact of manufacturing variances incurred in 2021 related to a quality issue at a third-party royalty costs on certain drugs.supplier, as discussed below.
BeginningIn 2021, Bausch + Lomb Incorporated (“B&L Inc.”) was notified by a third-party supplier of sterilization services for its lens care solution bottles and caps at its Milan, Italy facility, of inconsistencies in the threesterilization data versus certificates of conformance previously submitted to B&L Inc. by that supplier. Based on B&L Inc.’s internal Health and Safety Analysis, it was determined that this issue did not affect the safety or performance of any of its products and was limited to a specific number of lots for certain Consumer products within our Bausch + Lomb segment. However, out of an abundance of caution and working with the appropriate notified body and responsible health authorities, B&L Inc. has contained and/or recalled down to the consumer level the limited number of affected lots of products resulting in $8 million of manufacturing variances and $6 million of returns during the nine months ended JuneSeptember 30, 2017, we classified certain maintenance costs as costs2021. Further, although B&L Inc.’s Greenville, South Carolina facility increased production to support some of salesthe demand in the near term, due to the limited availability of qualified materials, production at the Milan facility could not keep up with demand which in previous periods were included in R&D expenses. The costs incurrednegatively impacted sales for the threeaffected products in this region during the nine months ended June 30, 2017 and September 30, 2017 were approximately $14 million, in aggregate. No adjustments were made2021. During the third quarter of 2021, B&L Inc. had removed this supplier from its Approved Supplier List and qualified another sterilization supplier, who, along with an existing secondary supplier, will provide bottle sterilization, thereby allowing the Milan facility to prior periods based on materiality.return to full production capacity.
Cost of goods sold as a percentage of product sales revenue was 29%28.8% and 27%28.2% for the nine months ended September 30, 20172022 and 2016,2021, respectively, an increase of 20.6 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 costspoints. Costs of goods sold as a percentage of productProduct sales revenue werewas unfavorably impacted by higher manufacturing variances as previously discussed, partially offset by acquisition accounting adjustments related to inventories expensedthe increase 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”.net realized pricing, as previously discussed.
Selling, General and Administrative Expenses
SG&A expenses were $1,943$1,959 million and $2,145$1,944 million for the nine months ended September 30, 20172022 and 2016,2021, respectively, a decreasean increase of $202$15 million, or 9%1%. The decreaseincrease was primarily drivenattributable to higher selling expenses related to freight and administrative expenses partially offset by: (i) a net decrease in advertising and promotional expenses, primarily driven by decreases in (a) direct to consumer advertising in support of our Jublia®, Xifaxan®, Bausch + Lomb ULTRA® contact lenses and other branded products and (b) expenses with businesses sold, (ii) 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, (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)our divestiture of Amoun on July 26, 2021 and (ii) 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.currencies.
Research and Development
R&D expenses were $271$387 million and $328$348 million for the nine months ended September 30, 20172022 and 2016,2021, respectively, a decreasean increase of $57$39 million, or 17%11%. R&D expenses as a percentage of Product sales were approximately 7% and 6% for the nine months ended September 30, 2022 and 2021, respectively. The decreaseincrease was primarily due to: (i) the timingresult of costs on the projectslower R&D spend in development and is not representative of our current product developmentearly 2021 as certain R&D activities and (ii) $14 million of certain maintenance costs classified as cost of salesclinical trials which were suspended 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 dedicatedresponse to the dermatology businessCOVID-19 pandemic in 2020 and included expenses for: (i) testing and attaining regulatory approval for Siliq™ (brodalumab), which received FDA approval on February 15, 2017 and was launcheddid not normalize until later in the U.S. on July 27, 20172021, as previously discussed, and (ii) the developmenthigher spend on certain Solta 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.Bausch + Lomb projects.
Amortization of Intangible Assets
Amortization of intangible assets was $1,915$902 million and $2,015$1,055 million for the nine months ended September 30, 20172022 and 2016,2021, respectively, a decrease of $100$153 million, or 5%15%. The decrease in amortization is reflective of impairmentswas primarily attributable to fully amortized intangible assets no longer being amortized 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 compared2022.
See Note 8, “INTANGIBLE ASSETS AND GOODWILL” to 2016.our unaudited interim Consolidated Financial Statements for further details related to our intangible assets.
Goodwill Impairments
Goodwill impairments were $312 million and $1,049$202 million for the nine months ended September 30, 20172022, related to our Ortho Dermatologics unit as previously discussed, and 2016, respectively.
Duringfor the threenine months ended September 30, 2017,2021 were $469 million.
2022
Ortho Dermatologics
During the Sprout business was classified as held for sale. Assecond quarter of 2022, increases in interest rates and, to a lesser extent, higher than expected inflation in the Sprout business represented only a portion of a Branded RxU.S. and other macroeconomic factors impacted key assumptions used to value the Ortho Dermatologics reporting unit we assessedat March 31, 2022 (the last time goodwill of the remainingOrtho Dermatologics reporting unit was tested). Given the limited headroom of the Ortho Dermatologics reporting unit as calculated on March 31, 2022, we believed that these facts and circumstances suggested the fair value of the Ortho Dermatologics reporting unit could be less than its carrying amount, and therefore a quantitative fair value test was performed for impairment and determinedthe reporting unit. Based on the quantitative fair value test, the carrying value of the remainingOrtho Dermatologics reporting unit exceeded its fair value. After completing step two of the impairment testing,value at June 30, 2022, and we determined and recordedrecognized a goodwill impairment charge of $312 million$83 million.
As previously discussed, 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 under2022 we continued to monitor the former reporting unit structure immediately prior tomarket conditions impacting 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.Ortho Dermatologics reporting unit and determined that facts and circumstances suggest the fair value of the Ortho Dermatologics reporting unit could be less than its carrying amount, and therefore a quantitative fair value test was performed for the reporting unit. Based on the quantitative fair value test, the carrying value of the unit's goodwillOrtho Dermatologics reporting unit exceeded its implied fair value which resulted in an initialat September 30, 2022, and we recognized a goodwill impairment charge of $838 million in$119 million.
Salix
As previously discussed, the three months endedultimate outcome of the Norwich Legal Decision (see “Xifaxan® Paragraph IV Proceedings” of Note 18, “LEGAL PROCEEDINGS” for details of this litigation matter and the Company’s response) and other potential future developments, including a competitor’s ability to launch a successful generic version to Xifaxan®, could impact the timing and extent of future revenues and cash flows associated with Xifaxan®. As such, the Company believes that the uncertainty of the possible outcomes of the Norwich Legal Decision and the potential impact on Xifaxan® revenues are indicators that the Salix reporting unit’s fair value could be less than its carrying amount, and therefore a quantitative fair value test was performed for the reporting unit. As of September 30, 2016.
Under the current reporting unit structure,2022, the carrying value of the Salix reporting unit exceededwas less than its fair value as updates todetermined by the unit's forecast resulted in a lower estimated fair value forCompany’s probability-weighted discount valuation model and therefore no impairment was recorded. However, as the business. As a result,Company’s probability-weighted discount valuation includes scenarios under which the Company proceeded to perform step twodoes not retain market exclusivity for Xifaxan® through January 2028, these probability-weighted fair values of the goodwill impairment test for the Salix reporting unit exceeded its carrying value by less than 5%.
It is possible that the Norwich Legal Decision and determinedother potential future developments may adversely impact the estimated fair value of the Salix segment in one or more future periods. Any such impairment could be material to the Company’s results of operations in the period in which it were to occur.
2021
During the three months ended March 31, 2021, management identified launches of certain Ortho Dermatologics products which were not going to achieve their trajectories as forecasted once the social restrictions associated with the COVID-19 pandemic began to ease in the U.S. and offices of health care professionals could reopen. In addition, insurance coverage pressures within the U.S. continued to persist limiting patient access to topical acne and psoriasis products. In light of these developments, during the first quarter of 2021, the Company began taking steps to: (i) redirect its R&D spend to eliminate projects it had identified as high cost and high risk, (ii) redirect a portion of its marketing and product development outside the U.S. to geographies where there is better patient access and (iii) reduce its cost structure to be more competitive. As a result, during the three months ended March 31, 2021, the Company revised its long-term forecasts for the Ortho Dermatologics reporting unit. Management believed that these events were indicators that there is less headroom as of March 31, 2021 as compared to the headroom calculated on the date goodwill was last tested for impairment (October 1, 2020). Therefore, a quantitative fair value test for the Ortho Dermatologics reporting unit was performed. The quantitative fair value
test utilized the Company's most recent cash flow projections as revised in the first quarter of 2021 to reflect the business changes previously discussed, including a range of potential outcomes, along with a long-term growth rate of 1.0% and a range of discount rates between 9.0% and 10.0%. Based on the quantitative fair value test, the carrying value of the unit's goodwillOrtho Dermatologics reporting unit exceeded its implied fair value which resulted in an initialat March 31, 2021, and the Company recognized a goodwill impairment charge of $211 million in the three months ended September 30, 2016.$469 million.
See Note 8, “INTANGIBLE ASSETS AND GOODWILL” to our unaudited interim Consolidated Financial Statements for further details related to our goodwill.
Asset Impairments, Including Loss on Assets Held for Sale
Asset impairments, including loss on assets held for sale were $629$15 million and $394$213 million for the nine months ended September 30, 20172022 and 2016,2021, respectively, an increasea decrease of $235$198 million. We continue to critically evaluate our businesses and product portfolios and as a result identifiedAsset impairments, including loss on assets that are not aligned with our core objectives. Asset impairmentsheld for sale for the nine months ended September 30, 20172022 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$10 million, in aggregate, due 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 otherof certain product lines and (v) impairment charges(ii) impairments of $3$5 million, in aggregate, related to acquired IPR&D.the discontinuance of certain product lines. Asset impairments, including loss on assets held for sale for the nine months ended September 30, 2016 includes:2021 include: (i) an impairment chargeimpairments of $199$105 million, associated with the Ruconest® business,in aggregate, due to decreases in forecasted sales of certain product lines, (ii) an impairment chargeadjustments of $88 million recognized upon classification ofto the loss on assets associated with a number of small businesses as held for sale in connection with the Amoun Sale and (iii) an impairment chargeimpairments of $25$20 million, in aggregate, related to IBSChek™ (U.S. Diversified Products segment), resulting from a decline in sales trends. the discontinuance of certain product lines.
See Note 8, "INTANGIBLE“INTANGIBLE ASSETS AND GOODWILL"GOODWILL” to our unaudited interim Consolidated Financial Statements regarding the asset impairments offor further details related to our intangible assets.
Restructuring, Integration, Separation and IPO Costs
Restructuring, integration, separation and IPO costs were $58 million and $29 million for the nine months ended September 30, 2022 and 2021, respectively, an increase of $29 million.
Restructuring and Integration Costs
Restructuring and integration costs were $42$28 million and $78$9 million for the nine months ended September 30, 20172022 and 2016,2021, respectively, a decreasean increase of $36$19 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.
Separation and IPO Costs
Separation and IPO costs were $30 million and $20 million for the nine months ended September 30, 2022 and 2021, respectively. The extent and timing of future charges of these costs to complete the B+L Separation cannot be reasonably estimated at this time and could be material.
See Note 5, "RESTRUCTURING“RESTRUCTURING, INTEGRATION, SEPARATION AND INTEGRATION COSTS"IPO COSTS” to our unaudited interim 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 (Income), Net
Other expense (income) expense,, net for the nine months ended September 30, 20172022 and 20162021 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 | ) |
| | | | | | | | | | | | | | |
| | Nine Months Ended
September 30, |
| (in millions) | | 2022 | | 2021 |
| Litigation and other matters | | $ | 7 | | | $ | 320 | |
| Acquisition-related contingent consideration | | 2 | | | 8 | |
| Gain on sale of assets, net | | (3) | | | (2) | |
| Acquired in-process research and development costs | | 1 | | | 3 | |
| Other, Net | | (1) | | | — | |
| | $ | 6 | | | $ | 329 | |
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, 2016,2021, included in Litigation and other matters is a favorable adjustment of $39 million made to certain legal accrualscharges for adjustments related to the investigation into Salix's pre-acquisition sales and promotional practicesGlumetza Antitrust Litigation, partially offset by insurance recoveries of $213 million related to certain litigation matters. See Note 18, “LEGAL PROCEEDINGS” to our unaudited interim Consolidated Financial Statements for the Xifaxan®, Relistor® and Apriso® products and settled during the three months ended June 30, 2016.further details.
Non-Operating Income and Expense
Interest Expense
Interest expense was $1,392$1,157 million and $1,369$1,083 million and included non-cash amortization and write-offs of debt premiums, discounts and deferred issuance costs of $86 million and $42 million for the nine months ended September 30, 20172022 and 2016, respectively, an increase of $232021, respectively. Interest expense increased $74 million, or 2%. Interest7%, primarily due to higher interest rates partially offset by lower outstanding principal balances. The weighted average stated rate of interest as of September 30, 2022 and 2021 was 7.24% and 5.91%, respectively. The increase in the weighted average stated rate of interest of 133 bps is primarily attributable to the New Secured Notes. Due to the accounting treatment for the New Secured Notes, interest expense includes non-cash amortization and write-offsin the Company’s financial statements in future periods will not be representative of the weighted average stated rate of interest.
Gain (Loss) on Extinguishment of Debt
The gain on extinguishment of debt discounts and debt issuance costs of $100 million and $89was $683 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 amendments2022 as compared 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
Lossa loss on extinguishment of debt was $65of $62 million for the nine months ended September 30, 2017. In March 2017, we completed a series2021.
The gain on extinguishment of transactions which allowed us to refinance a portiondebt for the nine months ended September 30, 2022 includes: (i) the gain associated with the Exchange Offer of our debt arrangements$570 million and in August 2017, we repurchased(ii) the remaining $500gains associated with the early retirement of certain senior unsecured notes of $176 million discussed below, partially offset by $63 million of our August 2018 Senior Unsecured Notes. Losses representinglosses associated with the refinancing and modification to certain debt obligations completed in connection with the B+L IPO, as discussed in further detail below, under “— Liquidity and Capital Resources — Liquidity and Debt” and represents the differences between the amounts paid to settle the extinguished debtsdebt and theits carrying value.
During June 2022, through a series of transactions we repurchased and retired, outstanding senior unsecured notes with an aggregate par value of $481 million in the open market for approximately $300 million using: (i) the net proceeds from the partial exercise of the over-allotment option in the B+L IPO by the underwriters, after deducting underwriting commissions, (ii) amounts available under our revolving credit facility and (iii) cash on hand. The senior unsecured notes retired had maturities of January 2028 through February 2031 and had a weighted average interest rate of approximately 5.35%. As a result of these transactions, we recognized a gain on the extinguishment of debt of approximately $176 million, net of write offs of debt premiums, discounts and deferred issuance costs, representing the differences between the amounts paid to retire the senior unsecured notes and their carrying value.
The loss on extinguishment of debt of $62 million for the nine months ended September 30, 2021 is primarily associated with refinancing transactions during the nine months ended September 30, 2021 and represents the differences between the amounts paid to settle the extinguished debts (the debts' stated principal net of unamortized debt discount and debt issuance costs) were recognized. its carrying value.
See Note 10, "FINANCING ARRANGEMENTS"“FINANCING ARRANGEMENTS” to our unaudited interim Consolidated Financial Statements for further details.
Foreign Exchange and Other
Foreign exchange and other was a net gain of $87$4 million and $4$11 million for the nine months ended September 30, 20172022 and 2016,2021, respectively, a favorablean unfavorable net change of $83 million. Foreign exchange gains/losses include$7 million primarily due to: (i) translation gains/losses on intercompany loans primarily on euro-denominated intercompany loans.and third-party liabilities and (ii) the gain/loss due to foreign currency exchange contracts.
Income Taxes
Recovery ofProvision for income taxes was $2,829$30 million and $179as compared to a Benefit from income taxes of $36 million for the nine months ended September 30, 20172022 and 2016,2021, respectively, an increaseunfavorable change of $2,650$66 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, 20162022 differs from the statutory Canadian income tax rate primarily due to: (i) the tax expenseprovision 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)(iii) the accrualdiscrete treatment of interest oncertain tax matters, primarily related to: (a) a net income tax benefit associated with certain legal settlements, (b) changes in uncertain tax positions.positions, (c) tax provision related to potential and recognized withholding tax on intercompany dividends, (d) adjustments to book to income tax provisions and (e) adjustments to the tax deduction for stock compensation.
Our effective income tax rate for the nine months ended September 30, 2021 differs from the statutory Canadian income tax rate primarily due to: (i) the tax benefit generated from our annualized mix of earnings by jurisdiction, (ii) the recording of valuation allowance on entities for which no tax benefit of losses is expected and (iii) the discrete treatment of certain tax matters, primarily related to: (a) net income tax benefit associated with certain legal settlements, (b) tax provision
related to potential and recognized withholding tax on intercompany dividends, (c) changes in uncertain tax positions, (d) adjustments for book to income tax return provisions and (e) a tax deduction for stock compensation.
See Note 16, “INCOME TAXES” to our unaudited interim Consolidated Financial Statements for further details.
Reportable Segment Revenues and Profits
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 nine months ended September 30, 20172022 and 2016.2021. 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 nine months ended September 30, 20172022 and 2016.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2022 | | 2021 | | Change |
| (in millions) | | Amount | | Pct. | | Amount | | Pct. | | Amount | | Pct. |
| Segment Revenues | | | | | | | | | | | | |
| Salix | | $ | 1,509 | | | 25 | % | | $ | 1,515 | | | 24 | % | | $ | (6) | | | < 1% |
| International | | 727 | | | 12 | % | | 890 | | | 14 | % | | (163) | | | (18) | % |
| Solta Medical | | 201 | | | 3 | % | | 219 | | | 4 | % | | (18) | | | (8) | % |
| Diversified Products | | 722 | | | 13 | % | | 850 | | | 14 | % | | (128) | | | (15) | % |
| Bausch + Lomb | | 2,772 | | | 47 | % | | 2,764 | | | 44 | % | | 8 | | | <1% |
| Total revenues | | $ | 5,931 | | | 100 | % | | $ | 6,238 | | | 100 | % | | $ | (307) | | | (5) | % |
| | | | | | | | | | | | |
| Segment Profits / Segment Profit Margins | | | | | | | | | | | | |
| Salix | | $ | 1,067 | | | 71 | % | | $ | 1,074 | | | 71 | % | | $ | (7) | | | < 1% |
| International | | 242 | | | 33 | % | | 304 | | | 34 | % | | (62) | | | (20) | % |
| Solta Medical | | 88 | | | 44 | % | | 120 | | | 55 | % | | (32) | | | (27) | % |
| Diversified Products | | 450 | | | 62 | % | | 547 | | | 64 | % | | (97) | | | (18) | % |
| Bausch + Lomb | | 640 | | | 23 | % | | 699 | | | 25 | % | | (59) | | | (8) | % |
| Total segment profits | | $ | 2,487 | | | 42 | % | | $ | 2,744 | | | 44 | % | | $ | (257) | | | (9) | % |
The following table presents organic revenue (non-GAAP) and the year-over-year changes in organic revenue (non-GAAP) for the nine months ended September 30, 2022 and 2021 by segment. Organic revenues (non-GAAP) and organic growth (non-GAAP) rates are defined in the previous section titled “Reportable Segment Revenues and Profits”.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, 2022 | | Nine Months Ended September 30, 2021 | | Change in
Organic Revenue (Non-GAAP) |
| | Revenue
as
Reported | | Changes in Exchange Rates | | Organic Revenue (Non-GAAP) | | Revenue
as
Reported | | Divestitures
and Discontinuations | | Organic Revenue (Non-GAAP) | |
| (in millions) | | Amount | | Pct. |
| Salix | | $ | 1,509 | | | $ | — | | | $ | 1,509 | | | $ | 1,515 | | | $ | — | | | $ | 1,515 | | | $ | (6) | | | — | % |
| International | | 727 | | | 49 | | | 776 | | | 890 | | | (163) | | | 727 | | | 49 | | | 7 | % |
| Solta Medical | | 201 | | | 7 | | | 208 | | | 219 | | | — | | | 219 | | | (11) | | | (5) | % |
| Diversified Products | | 722 | | | — | | | 722 | | | 850 | | | (2) | | | 848 | | | (126) | | | (15) | % |
| Bausch + Lomb | | 2,772 | | | 130 | | | 2,902 | | | 2,764 | | | (7) | | | 2,757 | | | 145 | | | 5 | % |
| Total | | $ | 5,931 | | | $ | 186 | | | $ | 6,117 | | | $ | 6,238 | | | $ | (172) | | | $ | 6,066 | | | $ | 51 | | | 1 | % |
Salix Segment:
Salix Segment Revenue
The Salix segment includes the Xifaxan® product line. Revenues from our Xifaxan® product line accounted for approximately 80% of the Salix segment revenues for the nine months ended September 30, 2022 and 2021, in each period. No other single product group represents 10% or more of the Salix segment product sales. The Salix segment revenue for the nine months ended September 30, 2022 and 2021 was $1,509 million and $1,515 million, respectively, a decrease of $6 million, or < 1%. The decrease was primarily driven by decreases in volume of $85 million, primarily attributable to: (i) unfavorable inventory balancing of Xifaxan® by certain wholesalers and (ii) the impact of generic competition as certain
|
| | | | | | | | | | | | | | | | | | | | | |
| | | 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 | )% |
products, such as Apriso® which lost exclusivity, partially offset by an increase in net realized pricing of $79 million, primarily attributable to our Xifaxan® product line.
Bausch + Lomb/Salix Segment Profit
The Salix segment profit for the nine months ended September 30, 2022 and 2021 was $1,067 million and $1,074 million, respectively, a decrease of $7 million, or < 1%. The decrease was primarily driven by: (i) a decrease in contribution primarily attributable to the net decrease in revenues, as previously discussed, and (ii) higher selling, advertising and promotion expenses primarily associated with Xifaxan®, partially offset by lower litigation costs.
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$727 million and $3,666$890 million for the nine months ended September 30, 20172022 and 2016,2021, respectively, a decrease of $21$163 million, or less than 1%18%. The decrease was primarily driven by:
attributable to: (i) the impact of the Skincare Sale and other divestitures and discontinuations of $123 million;$163 million, primarily attributable to our divestiture of Amoun on July 26, 2021 and
(ii) the unfavorable impact of foreign currencies of $110$49 million, which includes the unfavorable impact from the Egyptian pound of $125 million.
primarily in Europe. These factorsdecreases were partially offset by:
(i) an increase in product sales volume from our existing business (excluding foreign currencynet realized pricing of $24 million and divestitures and discontinuations)(ii) an increase in volumes of $114$25 million. The increase in volumevolumes is primarily attributable to Europe and was primarilypartially offset by charges for approximately $13 million of returns in connection with a change in certain distribution agreements representing a change in estimated future returns in one market, driven by lower estimated demand following the U.S. Bausch + Lomb Consumer and international businesses and, toeasing of local COVID-19 lockdown restrictions as well as a lesser extent, the U.S. Bausch + Lomb Vision Care and Surgical businesses; andchange of distributors.
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, 20172022 and 2016, respectively.2021 was $242 million and $304 million, respectively, a decrease of $62 million, or 20%. The decrease was primarily driven by the decrease in contribution primarily attributable to: (i) our divestiture of Amoun on July 26, 2021, (ii) the unfavorable impact of foreign currencies and (iii) higher manufacturing variances, driven by inflationary pressures related to certain manufacturing costs.
Solta Medical Segment:
Solta Medical Segment Revenue
The Solta Medical segment includes the Thermage® product line, which accounted for approximately 76% of the Solta segment revenues for the nine months ended September 30, 2022. No other single product group represents 10% or more of the Branded RxSolta segment product sales.revenues. The Branded RxSolta Medical segment revenue for the nine months ended September 30, 20172022 and 20162021 was $1,873$201 million and $2,084$219 million, respectively, a decrease of $211$18 million, or 10%8%. The decrease was primarily driven by:
attributable to: (i) a decrease in volume from our existing businessvolumes of $212$24 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® product in our GI business and our Carac®, Targetin® and Ziana® products in our dermatology business; and
the decrease fromby the impact of the Dendreon SaleCOVID-19 pandemic related shutdowns in China and other divestitures and discontinuations(ii) the unfavorable impact of $106 million.
These factors wereforeign currencies of $7 million, partially offset by the increase in pricing of $111 million primarily driven by: (i) increased wholesale selling prices and (ii) lower discounts within the GI business in 2017 when compared to 2016. As discussed above in “Cash Discounts and Allowances, Chargebacks and Distribution Fees,”as 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 an increase in averagenet realized pricing and were partially offset by higher managed care rebates particularly in the dermatology business and to a lesser extent the GI business.of $13 million.
Branded RxSolta Medical Segment Profit
The Branded RxSolta Medical segment profit for the nine months ended September 30, 20172022 and 20162021 was $1,024$88 million and $1,078$120 million, respectively, a decrease of $54$32 million, or 5%27%. The decrease wasis attributable to lower contribution primarily driven by:by an increase in R&D and the unfavorable impact of foreign currencies.
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 Sale 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, 20172022 and 2016.2021 was $722 million and $850 million, respectively, a decrease of $128 million, or 15%. The decrease was primarily driven by: (i) a decrease in net realized pricing of $18 million and (ii) a decrease in volumes of $108 million. The decrease in volumes was primarily attributable to our Neurology and Generics businesses, including: (i) decreases in several products attributable to the non-recurring pandemic related government mail order programs in 2021 and (ii) the impacts of more generic competitors.
|
| | | | | | | | | | | | | | | | | | | | | |
| | | 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 Products segment revenueprofit for the nine months ended September 30, 20172022 and 20162021 was $1,043$450 million and $1,521$547 million, respectively, a decrease of $478$97 million, or 31%. The decrease was primarily driven by the decrease in volume of $330 million and the decrease in average realized pricing of $139 million. The decrease in volumes and average realized pricing is primarily driven 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%18% and was primarily driven by the decrease in contribution from our existingrevenues, as previously discussed.
Bausch + Lomb Segment:
Bausch + Lomb Segment Revenue
The Bausch + Lomb segment revenue was $2,772 million and $2,764 million for the nine months ended September 30, 2022 and 2021, respectively, an increase of $8 million, or < 1%. The increase was primarily attributable to: (i) an increase in volumes across each of the Bausch + Lomb businesses of $113 million and (ii) an increase in net realized pricing of $32 million. The increase in volumes was primarily driven by: (i) the consumer eye care business, driven by: (a) increased demand for Lumify®, Biotrue® and PreserVision® and (b) the non-recurrence of a third-party supplier quality issue on the prior year revenues of certain consumer eye care products, as previously discussed, (ii) increased demand of consumables and intraocular lenses within the Surgical business and (iii) increased demand and new launches within the Ophthalmic Pharmaceuticals business. These increases in volumes were partially offset by the impact of the COVID-19 pandemic during the first half of the year on the contact lens business in China. The increases in revenue were partially offset by: (i) the unfavorable impact of foreign currencies across all international businesses of $130 million, primarily in Europe and Asia and (ii) the impact of divestitures and discontinuations of $7 million, related to the discontinuation of certain products.
Bausch + Lomb Segment Profit
The Bausch + Lomb segment profit for the nine months ended September 30, 2022 and 2021 was $640 million and $699 million, respectively, a resultdecrease of lower volumes$59 million, or 8%. The decrease was primarily driven by: (i) higher selling expenses, primarily due to freight and average realized pricing.
(ii) higher manufacturing variances, driven by inflationary pressures and higher manufacturing efficiency ramp-up costs of Daily SiHy lenses and, partially offset by the non-recurrence of prior year charges related to a quality issue at a third-party supplier, as previously discussed. These decreases were partially offset by the increase in revenues, as previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
|
| | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, |
| | | 2017 | | 2016 | | Change |
| (in millions) | | Amount | | Amount | | Amount | | Pct. |
| 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 | )% |
| Changes in operating assets and liabilities | | 670 |
| | (49 | ) | | 719 |
| | (1,467 | )% |
| Net cash provided by operating activities | | 1,712 |
| | 1,575 |
| | 137 |
| | 9 | % |
| Net cash provided by (used in) investing activities | | 2,797 |
| | (131 | ) | | 2,928 |
| | (2,235 | )% |
| Net cash used in financing activities | | (3,121 | ) | | (1,388 | ) | | (1,733 | ) | | 125 | % |
| Effect of exchange rate on cash and cash equivalents | | 39 |
| | 6 |
| | 33 |
| | 550 | % |
| Net increase in cash and cash equivalents | | 1,427 |
| | 62 |
| | 1,365 |
| | 2,202 | % |
| Cash, cash equivalents and restricted cash, beginning of period | | 542 |
| | 597 |
| | (55 | ) | | (9 | )% |
| Cash, cash equivalents and restricted cash, end of period | | $ | 1,969 |
| | $ | 659 |
| | $ | 1,310 |
| | 199 | % |
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| (in millions) | | 2022 | | 2021 | | Change |
| Net income (loss) | | $ | 198 | | | $ | (1,009) | | | $ | 1,207 | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities | | (1,027) | | | 2,322 | | | (3,349) | |
| Cash (used in) provided by operating activities before changes in operating assets and liabilities | | (829) | | | 1,313 | | | (2,142) | |
| Changes in operating assets and liabilities | | (374) | | | 89 | | | (463) | |
| Net cash (used in) provided by operating activities | | (1,203) | | | 1,402 | | | (2,605) | |
| Net cash (used in) provided by investing activities | | (167) | | | 489 | | | (656) | |
| Net cash used in financing activities | | (198) | | | (1,788) | | | 1,590 | |
| Effect of exchange rate changes on cash, cash equivalents and other | | (54) | | | (15) | | | (39) | |
| Net (decrease) increase in cash, cash equivalents, restricted cash and other settlement deposits | | (1,622) | | | 88 | | | (1,710) | |
| Cash, cash equivalents, restricted cash and other settlement deposits, beginning of period | | 2,119 | | | 1,816 | | | 303 | |
| Cash, cash equivalents, restricted cash and other settlement deposits, end of period | | $ | 497 | | | $ | 1,904 | | | $ | (1,407) | |
Operating Activities
Net cash provided byused in operating activities was $1,712 million and $1,575$1,203 million for the nine months ended September 30, 2017 and 2016, respectively, an increase2022, as compared to net cash provided by operating activities of $137$1,402 million or 9%.for the nine months ended September 30, 2021, a decrease of $2,605 million. The increase is primarilydecrease was attributable toto: (i) the decrease in Cash provided by operating activities before changes in our operating assets and liabilities partially offset by theand (ii) Changes in operating assets and liabilities.
Cash used in operating activities before changes in operating assets and liabilities was $829 million for the nine months ended September 30, 2022 as compared to cash provided by operating activities before changes in operating assets and liabilities of $1,313 million for the nine months ended September 30, 2021, a decrease of $2,142 million. The decrease is primarily attributable to: (i) payments of accrued legal settlements related to the Securities Class Action Settlement, the Glumetza Antitrust Litigation and a RICO class action matter paid during 2022, (ii) changes in business performance, (iii) the impact of our operating results discussed above.divestiture of Amoun on July 26, 2021 and (iv) an increase in payments for separation-related costs and IPO-related costs in 2022 as compared to 2021.
As of December 31, 2021, Restricted cash and other settlement deposits included $1,210 million of payments into an escrow fund under the terms of Securities Class Action Settlement, which was subject to one objector’s appeal of the final court approval of the agreement. The period to file a petition for an appeal with the U.S. Supreme Court expired on August 10, 2022 and the objector did not file such a petition. The expiration of this deadline means the Securities Class Action Settlement has become “final”, as no more appeals can be filed. As a result, the Company’s rights in the funds previously paid into the escrow account were extinguished in accordance with the terms of the Securities Class Action Settlement.
Changes in our operating assets and liabilities resulted in a net increasedecrease in cash of $670$374 million for the nine months ended September 30, 20172022, as compared to thea net decrease in cashincrease of $49$89 million for the nine months ended September 30, 2016, an increase2021, a decrease of $719$463 million. ForDuring the nine months ended September 30, 2017, the change2022, Changes in our operating assets and liabilities was primarily driven by the collectionwere negatively impacted by: (i) an increase in inventories of trade receivables, primarily attributable to our fulfillment agreement with Walgreens in resolution of certain 2016 billing issues and the impact of$194 million, (ii) the timing of other payments and receipts in the ordinary course of business. The changesbusiness of $154 million, driven in our operating assets and liabilities were partially offsetpart by $150 million of payments (net of insurance proceeds) in resolutionthe impact of the Salix securities class action litigation. Forinterest payments made on September 30, 2022 associated with the notes tendered in the Exchange Offer and (iii) increases in trade receivables of $26 million. During the nine months ended September 30, 2016, the change2021, Changes in our operating assets and liabilities was primarily driven by the reduction in prepaid expenses and other current assets and was partially offset by increases in our inventories and the impact ofpositively impacted by: (i) the timing of other payments and receipts in the ordinary course of business. See Note 18, "LEGAL PROCEEDINGS"business of $314 million and (ii) an increase in accrued interest due to our unaudited interim Consolidated Financial Statements for further details regarding the Salix securities litigation matter.timing of payments of $14 million and was partially offset by: (i) an increase in trade receivables of $177 million and (ii) an increase in inventories of $62 million.
Investing Activities
Net cash used in investing activities was $167 million for the nine months ended September 30, 2022 and was primarily driven by Purchases of property, plant and equipment of $152 million.
Net cash provided by investing activities was $2,797$489 million for the nine months ended September 30, 20172021 and was primarily driven by thepartial: (i) Proceeds from sale of assets and businesses, net proceeds from sales of non-core assetscosts to sell of $3,063$669 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 million for the nine months ended September 30, 2016 and included a reduction in cash dueprimarily attributable to the deconsolidationAmoun sale and (ii) Interest settlements from cross-currency swaps of a former subsidiary of $30$23 million and payments for businesses previously acquired of $19 million. Other uses of cashpartially offset by investing activities for the nine months ended September 30, 2017 and 2016 included payments for purchasesPurchases of property, plant and equipment of $118 million and $181 million and acquisitions of intangible assets and other assets previously acquired of $146 million and $48 million, respectively.$191 million.
Financing Activities
Net cash used in financing activities was $3,121$198 million for the nine months ended September 30, 20172022 and was primarily driven by: (i) the issuance of long-term debt, net of discounts, of $6,481 million related to the February 2027 Secured Notes, 2027 Term Loan B Facility, draws on the 2027 Revolving Credit Facility and the B+L Term Loan Facility and (ii) net proceeds from the B+L IPO of $675 million, partially offset by the repayment of long-term debt of $7,224 million related to: (i) the repayment of the outstanding balance under our 2023 Revolving Credit Facility, (ii) the repayment of the outstanding balance of our 6.125% Senior Unsecured Notes, (iii) the repayment of the outstanding balances under our 2025 Term Loan B Facilities and (iv) the repurchase and retirement of certain outstanding senior unsecured notes in the open market with an aggregate par value of $481 million for approximately $300 million.
Net cash used in financing activities was $1,788 million for the nine months ended September 30, 2021 and was primarily driven by the net reduction in our debt portfolio. Net cash used in financing activities includes: (i) repayments of term loans under our Senior Secured Credit Facilitiesdebt of $7,199$3,200 million (ii) repayments of principal amounts due under our Senior Unsecured Notes ofwhich consisted of: (i) $1,600 million, (iii) 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 as part of the 2021 Refinancing Transactions and (iii) $1,235(ii) the aggregate prepayments of $1,600 million using cash on hand, cash generated from operations and the net proceeds from the Amoun Sale. Issuance of long-term debt, net of discounts of $1,576 million primarily includes the proceeds of $1,580 million from the issuance of $1,250$1,600 million in principal amount of 6.5%4.875% 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 repayments under our Senior Secured Credit Facilities of $1,547 million, (ii) payments of deferred consideration of $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 aggregate amount of $96 million, (iv) payments of contingent considerations associated with acquisitions in 2015 and prior of $94 million and (v) other payments of deferred consideration of $17 million. These uses of cash in 2016 were partially offset by net borrowings on our revolving credit facility of $850 million. June 2028.
See Note 10, "FINANCING ARRANGEMENTS"“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 at least the next twelve months.
On September 29, 2017, we completedmonths following the saleissuance 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.Form 10-Q.
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, repurchase or repurchaseexchange existing debt. We believe our existingdebt or issue equity or equity-linked securities.
Cash, cash equivalents and restricted cash and cash generated from operations will be sufficient to service our debt obligationsother settlements as presented in the years 2017 through 2019.Consolidated Balance Sheet as of September 30, 2022 includes $297 million of cash, cash equivalents and restricted cash held by legal entities of Bausch +
Lomb. Cash held by Bausch + Lomb legal entities and any future cash from the operations, investing and financing activities of Bausch + Lomb, is expected to be retained by Bausch + Lomb entities and are generally not available to support the operations, investing and financing activities of other legal entities, including Bausch Health unless paid as a dividend which would be determined by the Board of Directors of Bausch + Lomb and paid pro rata to Bausch + Lomb’s shareholders.
Long-term Debt
Long-term debt, net of unamortized premiums, discounts and financeissuance costs was $27,141$21,215 million and $29,846$22,654 million as of September 30, 20172022 and December 31, 2016,2021, respectively. Aggregate contractual principal amounts due under our debt obligations were $27,426$19,574 million and $30,169$22,870 million as of September 30, 20172022 and December 31, 2016,2021, respectively, a decrease of $2,743$3,296 million.
On September 30, 2022, we closed the Exchange Offer, pursuant to which existing unsecured senior notes as set forth in the table below (collectively, the “Existing Unsecured Senior Notes”) with an aggregate outstanding principal balance of $5,594 million were exchanged for $3,125 million in aggregate principal balance of New Secured Notes (as defined below). The Exchange Offer reduced our then aggregate outstanding principal debt balance by $2,469 million. In accordance with U.S. GAAP, we recognized a portion of this reduction as a gain of $570 million, net of third-party fees and the write-off of the unamortized debt discounts and issuance costs related to the Existing Unsecured Senior Notes. In accordance with U.S. GAAP, we were required to record the balance of the reduction in our debt balance, $1,835 million, as a premium on the New Secured Notes. This premium will be reduced as we make interest payments on the New Secured Notes in the amounts as presented in the previously provided table under the caption “Exchange Offer”. Due to the accounting treatment for the New Secured Notes, interest expense in the Company’s financial statements in future periods will not be representative of their stated rates of interest.
See Note 10, “FINANCING ARRANGEMENTS” to our unaudited interim Consolidated Financial Statements for further details on the accounting for the Exchange Offer.
The secured notes issued in the Exchange Offer consist of: (i) $1,774 million in aggregate principal amount of new 11.00% First Lien Secured Notes due 2028 (the “11.00% First Lien Secured Notes”) issued by the Company, (ii) $352 million in aggregate principal amount of new 14.00% Second Lien Secured Notes due 2030 (the “14.00% Second Lien Secured Notes”, and, together with the 11.00% First Lien Secured Notes, the “New BHC Secured Notes”) issued by the Company and (iii) $999 million in aggregate principal amount of new 9.00% Senior Secured Notes due 2028 (the “9.00% Intermediate Holdco Secured Notes”, and, together with the New BHC Secured Notes, the “New Secured Notes”) issued by 1375209 B.C. Ltd. (“Intermediate Holdco”), an existing wholly-owned unrestricted subsidiary of the Company that holds 38.6% of the issued and outstanding common shares of Bausch + Lomb.
The aggregate principal amounts of the Existing Unsecured Senior Notes that were validly tendered and accepted by the Company in the Exchange Offer are set forth below:
| | | | | | | | | | | | | | |
| (in millions) | | Total Aggregate Principal Amount Validly Tendered | | Percentage of Outstanding Existing Notes Validly Tendered |
| 9.00% Senior Notes due 2025 | | $ | 541 | | | 36 | % |
| 9.25% Senior Notes due 2026 | | 752 | | | 50 | % |
| 8.50% Senior Notes due 2027 | | 1,099 | | | 63 | % |
| 7.00% Senior Notes due 2028 | | 540 | | | 72 | % |
| 5.00% Senior Notes due 2028 | | 710 | | | 60 | % |
| 7.25% Senior Notes due 2029 | | 373 | | | 50 | % |
| 6.25% Senior Notes due 2029 | | 540 | | | 38 | % |
| 5.00% Senior Notes due 2029 | | 371 | | | 44 | % |
| 5.25% Senior Notes due 2030 | | 332 | | | 28 | % |
| 5.25% Senior Notes due 2031 | | 336 | | | 37 | % |
| Total | | $ | 5,594 | | | |
The Exchange Offer reduced the principal balances of our outstanding debt obligations by $2,469 million. The Exchange Offer also had the effect of extending the maturities of approximately $2,400 million of aggregate principal balances of senior notes coming due during the years 2025 through 2027 out to the years 2028 and 2030. Additionally, we have reduced our estimated debt service requirements of principal and interest over the 12 months ending September 30, 2023 by approximately $65 million.
In addition to the Exchange Offer, we made debt repayments and completed refinancing transactions during the nine months ended September 30, 2017.
In 2017, we completed a series of transactions which improved our leverage,2022 that 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 2018 through 2020, (ii) extended $1,190 million of commitments under our revolving credit facility, originally set to expire in April 2018, out to April 2020 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 million as of September 30, 2017 as 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 refinancingextended certain maturities 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 ourremaining debt obligations for the remainder of 2017, for each year through 2022as previously discussed under “— Liquidity 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 |
| October through December 2017 | | $ | 923 |
|
| $ | — |
|
| 2018 | | 2 |
|
| 3,738 |
|
| 2019 | | — |
|
| 2,122 |
|
| 2020 | | 5,365 |
|
| 7,723 |
|
| 2021 | | 3,175 |
|
| 3,215 |
|
| 2022 | | 6,677 |
|
| 4,281 |
|
| Thereafter | | 11,284 |
|
| 9,090 |
|
| Gross maturities | | $ | 27,426 |
|
| $ | 30,169 |
|
In addition, subsequent to September 30, 2017, we took 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 $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. These repayments satisfy $923 million of maturities due for the period October through December 2017 and $125 million of maturities due in the year 2022 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.Capital Resources — Cash Flows — Financing Activities”.
Senior Secured Credit Facilities
Senior Secured Credit Facilities under the 2018 Restated Credit Agreement
On February 13, 2012,June 1, 2018, the Company and certain of its subsidiaries as guarantors entered into the Third“Senior Secured Credit Facilities” under the Company’s Fourth Amended and Restated Credit and Guaranty Agreement, (asas amended amended and restated, supplemented or otherwise modified from timeby the First Incremental Amendment to time, the “CreditRestated Credit Agreement, dated as of November 27, 2018 (the “2018 Restated Credit Agreement”) with a syndicate of financial institutions and investors as lenders. As of September 30, 2017,Prior to the 2022 Amended Credit Agreement (as defined below), the 2018 Restated Credit Agreement provided for: (i)for a $1,500 million revolving credit facility through April 20, 2018 and thereafter $1,190of $1,225 million, revolving credit facility through April 2020, including a sublimit for the issuance of standby and commercial letters of credit and a sublimit for swing line loans (the “Revolving Credit Facility”) and (ii) a Series F Tranche B Term Loan Facility which matures April 2022.
On March 21, 2017, 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 Loan 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 cashmaturing 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 our Revolving Credit Facility and (iv) pay related fees and expenses (collectively, the “March 2017 Refinancing Transactions”).
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 consent 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, 2020June 1, 2023 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 of the Company and Bausch Health Americas, Inc. (“BHA”) in an aggregate principal amount in excess of $750 million. Unless otherwise terminated prior thereto,$1,000 million (the “2023 Revolving Credit Facility”) and term loan facilities of original principal amounts of $4,565 million and $1,500 million, maturing in June 2025 (the “June 2025 Term Loan B Facility”) and November 2025 (the “November 2025 Term Loan B Facility”), respectively.
Senior Secured Credit Facilities under the remaining $3102022 Amended Credit Agreement
On May 10, 2022, the Company and certain of its subsidiaries as guarantors entered into a Second Amendment (the “Second Amendment”) to the Fourth Amended and Restated Credit and Guaranty Agreement (as amended by the Second Amendment, the “2022 Amended Credit Agreement”). The 2022 Amended Credit Agreement provides for a new term loan facility with an aggregate principal amount of $2,500 million of(the “2027 Term Loan B Facility”) maturing on February 1, 2027 and a new revolving credit commitmentsfacility of $975 million (the “2027 Revolving Credit Facility”) that will mature on the earlier of February 1, 2027 and the date that is 91 calendar days prior to the scheduled maturity of indebtedness for borrowed money of the Company and BHA in an aggregate principal amount in excess of $1,000 million. Borrowings under the 2027 Revolving Credit Facility will continuecan be made in U.S. dollars, Canadian dollars or Euros. After giving effect to mature on April 20, 2018.
In April 2017, using the remaining proceeds fromSecond Amendment, 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 B2023 Revolving Credit Facility, June 2025 Term Loan Facility. On July 3, 2017,B Facility and November 2025 Term Loan B Facility were refinanced (such refinancing, the “Credit Agreement Refinancing”), along with certain of the Company’s existing senior notes, using the net proceeds from the Dendreon Sale,borrowings under the 2027 Term Loan B Facility, the B+L IPO and the B+L Debt Financing (as defined below) and available cash on hand. As of September 30, 2022, the Company repaid $811had drawn $450 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 its2027 Revolving Credit Facility.
Borrowings under the Senior Secured Credit Facilities2027 Term Loan B Facility bear interest at a rate per annum equal to, at the Company'sCompany’s option, from timeeither: (a) a forward-looking term rate determined by reference to time, either (i)the financing rate for borrowing U.S. dollars overnight collateralized by U.S. Treasury securities (“term SOFR rate”) for the interest period relevant to such borrowingor (b) a base rate determined by reference to the higher of (a)highest of: (i) the prime rate (as defined in the 2022 Amended Credit Agreement) and (b), (ii) the federal funds effective rate plus 1/2 of 1%1.00% and (iii) the term SOFR rate for a period of one month plus 1.00% (or if such rate shall not be ascertainable, 1.50%) (provided, however that the term SOFR rate with respect to the 2027 Term Loan B Facility shall at no time be less than 0.50% per annum), in each case, plus an applicable margin.
Borrowings under the 2027 Revolving Credit Facility in: (i) U.S. dollars bear interest at a rate per annum equal to, at the Company’s option, either: (a) the term SOFR rate (subject to a floor of 0.00% per annum) or (b) a U.S. dollar base rate, (ii) Canadian dollars bear interest at a LIBOrate per annum equal to, at the Company’s option, either: (a) a Canadian dollar offer rate or (b) a Canadian dollar prime and (iii) euros bear interest at a rate per annum equal to a term benchmark rate determined by reference to the costscost of funds for U.S. dollareuro deposits (“EURIBOR”) for the interest period relevant to such borrowing adjusted for certain additional costs,(subject to a floor of 0.00% per annum), in each case, plus an applicable margin. These applicable marginsTerm SOFR rate loans are subject to increase or decrease quarterly based ona credit spread adjustment ranging from 0.10%-0.25%.The applicable interest rate margin for borrowings under the secured leverage ratio beginning with the quarter ended June 30, 2017. Based on its calculation of the Company’s secured leverage ratio, management does not anticipate any such increase or decrease to the current applicable margins2027 Term Loan B Facility is 5.25% for the next applicable period.
term SOFR rate loans and 4.25% for U.S. dollar base rate loans. The applicable interest rate marginsmargin for borrowings under the 2027 Revolving Credit Facility are 2.75% with respectranges from 4.75% to 5.25% for term SOFR rate loans, BA rate loans and EURIBOR loans and 3.75% to 4.25% for U.S. dollar base rate borrowingsloans and 3.75% with respect to LIBOCanadian prime rate borrowings. As of September 30, 2017, the stated rate of interest on the Revolving Credit Facility was 4.99% per annum. loans.
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 2027 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 LIBOterm SOFR rate borrowings under the 2027 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.
Subject to certain exceptions and customary baskets set forth in the 2022 Amended 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 thresholds), (ii) 100% of the net cash proceeds from the incurrence of debt (other than permitted debt as described in the 2022 Amended Credit Agreement), (iii) 50% of Excess Cash Flow (as defined in the 2022 Amended Credit Agreement) subject to decrease based on leverage ratios and subject to a threshold amount and (iv) 100% of net cash proceeds from asset sales (subject to reinvestment rights and net proceeds thresholds). These mandatory prepayments may be used to satisfy future amortization.
The amortization rate for the 2027 Term Loan B Facility is 5.00% per annum, or $125 million, payable in quarterly installments beginning on September 30, 2022. The Company may direct that prepayments be applied to such amortization payments in order of maturity. As of September 30, 2017, we had $4252022, the remaining mandatory quarterly amortization payments for the 2027 Term Loan B Facility were $531 million through December 2026.
The 2022 Amended Credit Agreement permits the incurrence of outstandingincremental credit facility borrowings $94up to the greater of $1,000 million and 40% of issuedConsolidated Adjusted EBITDA (non-GAAP) (as defined in the 2022 Amended Credit Agreement), subject to customary terms and outstanding lettersconditions, as well as the incurrence of additional incremental credit facility borrowings subject to, in the case of secured debt, a secured leverage ratio of not greater than 3.50:1.00, and, remaining availabilityin the case of $981unsecured debt, either a total leverage ratio of not greater than 6.50:1.00 or an interest coverage ratio of not less than 2.00:1.00.
The 2022 Amended Credit Agreement provides that Bausch + Lomb shall initially be a “restricted” subsidiary subject to the terms of the 2022 Amended Credit Agreement covenants, but does not require Bausch + Lomb to guarantee the obligations under the 2022 Amended Credit Agreement. The 2022 Amended Credit Agreement permits the Company to designate Bausch + Lomb as an “unrestricted” subsidiary under the 2022 Amended Credit Agreement and no longer subject to the terms of the covenants thereunder provided that no event of default is continuing or will result from such designation and the total leverage ratio of Remainco (as defined in the 2022 Amended Credit Agreement) will not be greater than 7.60:1.00 on a pro forma basis. The Credit Agreement Refinancing contains provisions designed to facilitate the B+L Separation.
Senior Secured Credit Facilities under the B+L Credit Agreement
On May 10, 2022, Bausch + Lomb entered into a credit agreement (the “B+L Credit Agreement”, and the credit facilities thereunder, the “B+L Credit Facilities”) providing for a term loan of $2,500 million under ourwith a five-year term to maturity (the “B+L Term Facility”) and a five-year revolving credit facility of $500 million (the “B+L Revolving Credit Facility. OfFacility” and such financing, the $94 million issued and outstanding letters of credit, a $50 million letter of credit was issued as part“B+L Debt Financing”). The B+L Credit Facilities are secured by substantially all of the collateralassets of Bausch + Lomb and its material, wholly-owned Canadian, U.S., Dutch and Irish subsidiaries, subject to securecertain exceptions. The term loan is denominated in U.S. dollars, and borrowings under the revolving credit facility will be made available in U.S. dollars, euros, pounds sterling and Canadian dollars. As of September 30, 2022, the principal amount outstanding under the B+L Term Facility was $2,494 million and $2,442 million net of issuance costs. The B+L Revolving Credit Facility remained undrawn.
Borrowings under the B+L Revolving Credit Facility in: (i) U.S. dollars bear interest at a bank guarantee forrate per annum equal to, at Bausch + Lomb’s option, either: (a) a term Secured Overnight Financing Rate (“SOFR”)-based rate or (b) a U.S. dollar base rate, (ii) Canadian dollars bear interest at a rate per annum equal to, at Bausch + Lomb's option, either: (a) Canadian Dollar Offered Rate (“CDOR”) or (b) a Canadian dollar prime rate, (iii) euros bear interest at a rate per annum equal to EURIBOR and (iv) pounds sterling bear interest at a rate per annum equal to Sterling Overnight Index Average (“SONIA”) (provided, however, that the benefitterm SOFR-based rate, CDOR, EURIBOR and SONIA shall be no less than 0.00% per annum at any time and the U.S. dollar base rate and the Canadian dollar prime rate shall be no less than 1.00% per annum at any time), in each case, plus an applicable margin. Term SOFR-based loans are subject to a credit spread adjustment 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.0.10%.
The applicable interest rate margins for borrowings under the Series F Tranche B Term LoanB+L Revolving Credit Facility are 3.75%are: (i) between 0.75% to 1.75% with respect to U.S. dollar base rate or Canadian dollar prime rate borrowings and 4.75%between 1.75% to 2.75% with respect to LIBOterm SOFR, EURIBOR, SONIA or CDOR borrowings based on Bausch + Lomb’s total net leverage ratio and (ii) after: (x) Bausch + Lomb’s senior unsecured non-credit-enhanced long term indebtedness for borrowed money receives an investment grade rating from at least two of S&P, Moody’s and Fitch and (y) the B+L Term Facility has been repaid in full in cash (the “IG Trigger”), between 0.015% to 0.475% with respect to U.S. dollar base rate or Canadian dollar prime rate borrowings and between 1.015% to 1.475% with respect to SOFR, EURIBOR, SONIA or CDOR borrowings based on
Bausch + Lomb’s debt rating. In addition, Bausch + Lomb is required to pay commitment fees of 0.25% per annum in respect of the unutilized commitments under the B+L Revolving Credit Facility, payable quarterly in arrears until the IG Trigger and a facility fee between 0.110% to 0.275% of the total revolving commitments, whether used or unused, based on Bausch + Lomb’s debt rating and payable quarterly in arrears. Bausch + Lomb is also required to pay 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 SOFR borrowings under the B+L Revolving Credit Facility on a per annum basis, payable quarterly in arrears, as well as customary fronting fees for the issuance of letters of credit and agency fees.
Borrowings under the B+L Term Facility bear interest at a rate per annum equal to, at Bausch + Lomb’s option, either (i) a term SOFR-based rate plus an applicable margin of 3.25% or (ii) a US dollar base rate plus an applicable margin of 2.25% (provided, however, that the term SOFR-based rate shall be no less than 0.50% per annum at any time and the U.S. dollar base rate shall not be lower than 1.50% per annum at any time). Term SOFR-based loans are subject to a 0.75% LIBOcredit spread adjustment of 0.10%.
Subject to certain exceptions and customary baskets set forth in the B+L Credit Agreement, Bausch + Lomb is required to make mandatory prepayments of the loans under the B+L Term Facility 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, decrease based on leverage ratios and net proceeds threshold), (ii) 100% of the net cash proceeds from the incurrence of debt (other than permitted debt as described in the B+L Credit Agreement), (iii) 50% of Excess Cash Flow (as defined in the B+L Credit Agreement) subject to decrease based on leverage ratios and subject to a threshold amount and (iv) 100% of net cash proceeds from asset sales (subject to reinvestment rights, decrease based on leverage ratios and net proceeds threshold). These mandatory prepayments may be used to satisfy future amortization.
The amortization rate floor. As offor the B+L Term Facility is 1.00% per annum and the first installment is payable on September 30, 2017,2022. Bausch + Lomb may direct that prepayments be applied to such amortization payments in order of maturity. Provided, however, that the statedterm SOFR-based rate shall be no less than 0.50% per annum at any time and the U.S. dollar base rate shall not be lower than 1.50% per annum at any time. Term SOFR-based loans are subject to a credit spread adjustment of interest on the Company’s borrowings under the Series F Tranche B Term Loan Facility was 5.99% per annum.0.10%.
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(as defined 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 obligationNote 10, “FINANCING ARRANGEMENTS” 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 Notesour unaudited interim Consolidated Financial Statements) 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 theAmended 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 2022 Amended 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.
New BHC Secured Notes
The 11.00% First Lien Secured Notes mature on September 30, 2028, and accrue interest at 11.00% per year, payable semi-annually in arrears on each March 30 and September 30. The 11.00% First Lien Secured Notes are redeemable, in whole or in part, at any time at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but not including the date of redemption plus a “make-whole” premium as described in the 11.00% First Lien Secured Notes indenture.
The 14.00% Second Lien Secured Notes mature on October 15, 2030, and accrue interest at 14.00% per year, payable semi-annually in arrears on each April 15 and October 15. The 14.00% Second Lien Secured Notes will be redeemable, in
whole or in part, at any time on or after October 15, 2025 at the applicable redemption prices set forth in the 14.00% Second Lien Secured Notes indenture. In addition, some or all of the 14.00% Second Lien Secured Notes may be redeemed prior to October 15, 2025 at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the date of redemption plus a “make-whole” premium as described in the 14.00% Second Lien Secured Notes indenture. At any time prior to October 15, 2025, up to 40% of the aggregate principal amount of the 14.00% Second Lien Secured Notes may be redeemed with the net proceeds of certain equity offerings at the redemption price set forth in the 14.00% Second Lien Secured Notes indenture.
9.00% Intermediate Holdco Secured Notes
The 9.00% Intermediate Holdco Secured Notes mature on January 30, 2028, and accrue interest at 9.00% per year, payable semi-annually in arrears on each January 30 and July 30. The 9.00% Intermediate Holdco Secured Notes are redeemable at the option of Intermediate Holdco, in whole or in part, at any time, at the redemption prices set forth in the 9.00% Intermediate Holdco Secured Notes indenture.
The 9.00% Intermediate Holdco Secured Notes are general senior secured obligations of Intermediate Holdco and secured by first priority liens (subject to permitted liens and certain other exceptions) on substantially all of the assets of Intermediate Holdco, which as of September 30, 2022 were comprised of 38.6% of the issued and outstanding common shares of Bausch + Lomb Corporation. The 9.00% Intermediate Holdco Secured Notes and Intermediate Holdco’s other obligations under the indenture governing such notes are not obligations or responsibilities of, or guaranteed by, the Company, Bausch + Lomb or any of their respective affiliates or subsidiaries (other than the issuer Intermediate Holdco). The sole recourse of the holders of the 9.00% Intermediate Holdco Secured Notes under the 9.00% Intermediate Holdco Secured Notes and the indenture governing such notes is limited to Intermediate Holdco and its assets.
The aggregate principal amount of our Senior Secured Notes and 9.00% Intermediate Holdco Secured Notes as of September 30, 2022 and December 31, 2021 was $7,975 million and $3,850 million, respectively, an increase of $4,125 million. The increase is attributable to: (i) the issuance of the New BHC Secured Notes and the issuance of the 9.00% Intermediate Holdco Secured Notes in connection with the Exchange Offer as previously discussed and (ii) the issuance of the February 2027 Secured Notes as previously discussed.
Senior Unsecured Notes
The Senior Unsecured Notes (as defined in Note 10, “FINANCING ARRANGEMENTS” to our unaudited interim Consolidated Financial Statements) 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 Secured2022 Amended Credit Facilities.Agreement. 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 Secured2022 Amended Credit Facilities.Agreement. Future subsidiaries of the Company and Valeant,BHA, if any, may be required to guarantee the Senior Unsecured Notes. In connection with the closing of the B+L IPO, the discharge of the April 2025 Unsecured Notes Indenture and the related release under the 2022 Amended Credit Agreement described above, the guarantees and related security provided by Bausch + Lomb and its subsidiaries in respect of the existing senior notes of the Company and BHA were released. On a non-consolidated basis, the non-guarantor subsidiaries had total assets of $2,857$12,266 million and total liabilities of $1,283$5,338 million as of September 30, 2017,2022, and revenues of $1,217$3,044 million and operating lossincome of $196$50 million for the nine months ended September 30, 2017.2022.
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 the March 2017 Refinancing Transactions, the Company completed a tender offer to repurchase $1,100 million inThe aggregate principal amount of the August 2018our Senior Unsecured Notes for total considerationas of approximately $1,132September 30, 2022 and December 31, 2021 was $6,175 million plus accrued and unpaid interest through March 20, 2017. Loss on extinguishment$14,900 million, respectively, a decrease of debt during the three months ended March 31, 2017 associated$8,725 million, attributable to: (i) Existing Unsecured Notes of $5,594 million validly tendered and accepted in connection with the Exchange Offer, (ii) the redemption in full of $2,650 million of April 2025 Unsecured Notes and (iii) the repurchase and retirement of the August 2018certain outstanding Senior Unsecured Notes was $36in the open market with an aggregate par value of approximately $481 million representingfor $300 million.
Availability Under Revolving Credit Facilities
As of 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 $500date of this filing, November 3, 2022, there were $510 million of outstanding August 2018 Senior Unsecured Notes using cash on hand, plus accruedborrowings, $35 million of issued and unpaid interest. Loss on extinguishmentoutstanding letters of debt duringcredit and approximately $430 million of remaining availability under the three months ended September 30, 2017 associated with the repurchase2027 Revolving Credit Facility.
As of the August 2018 Senior Unsecured Notes was $1date of this filing, November 3, 2022, there were no outstanding borrowings, $9 million representingof issued and outstanding letters of credit and $491 million remaining availability under the difference betweenB+L Revolving Credit Facility. Absent the amount
payment of a dividend, which would be determined by the Board of Directors of Bausch + Lomb and paid pro rata to settleBausch + Lomb’s shareholders, proceeds from the debtB+L Revolving Credit Facility are not available to fund the operations, investing and the debt’s carrying value.
As partfinancing activities of the October 2017 Refinancing Transactions, 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.Bausch Health.
Covenant Compliance
Any inability to comply with the financial maintenance and other covenants under the terms of our 2022 Amended Credit Agreement, B+L 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 2022 Amended Credit Agreement and B+L 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, 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, 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 its financial maintenance covenants. As of September 30, 2017,2022, the Company was in compliance with allits financial maintenance covenantscovenant related to its outstanding debt. The Company, based on its current forecast, expects to remain in compliance with the financial maintenance covenant and meet its debt service obligations for at least the next twelve months fromfollowing the date of issuance of this Form 10-Q and the amendments executed, expects to remain in compliance with these financial maintenance covenants and meet its debt service obligations over that same period.10-Q.
The Company continues to take steps to seek 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 termlong-term strategy. The Company may consider taking other actions, including divesting other businesses, and refinancing debt and issuing equity or equity-linked securities including secondary offerings of the common shares of Bausch + Lomb, 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 accounting for the Exchange Offer results in the New Secured Notes being carried at a premium relative to their principal amount and will result in no interest expense to be recorded in our financial statements for a significant portion of the New Secured Notes. Therefore, interest expense recorded in our consolidated financial statements will differ significantly from the contractual interest rates of the New Secured Notes. The weighted average interest rate of our debt as reported in our financial statements and the weighted average stated interest rate was 5.67% and 7.24%, respectively, as of September 30, 2022.
The weighted average stated rate of interest of the Company’s outstanding debt as of December 31, 2021 was 5.88%. The increase in the weighted average stated rate of interest of 136 bps is due to the issuance of the New Secured Notes in connection with the Exchange Offer.
See Note 10, “FINANCING ARRANGEMENTS” to our unaudited interim Consolidated Financial Statements for further details.
Focus on Capitalization of the Post-separation Entities
In connection with the B+L Separation, we have emphasized that it is important that the post-separation entities be well-capitalized, with appropriate leverage and with access to additional capital, if and when needed, to provide each entity with the ability to independently allocate capital to areas that will strengthen their own competitive positions in their respective lines of business and position each entity for sustainable growth. Therefore, we see the appropriate capitalization and leverage of these businesses post-separation as a key to bringing out the maximum value across our portfolio of assets and it continues to be a primary objective of our plan of separation.
Credit Ratings
As of November 7, 2017,3, 2022, the credit ratings and outlook ratings from Moody's andMoody’s, Standard & Poor'sPoor’s (“S&P’s”) and Fitch for certain of our outstanding obligations areof the Company were as follows:
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| | Bausch Health Companies Inc. | | Bausch + Lomb Corporation |
| Rating Agency | | Corporate Rating | | Senior Secured Rating | | Senior Unsecured Rating | | Outlook | | Corporate Rating | | Senior Secured Rating | | Outlook |
| Moody’s | | B3Caa2 | | Ba3Caa1 | | Caa1Ca | | Negative | | | | B1 | | Negative |
| Standard & Poor’s | | BCCC+ | | BB-B- | | B-CCC | | Stable | | CCC+ | | CCC+ | | Positive |
| Fitch | | CCC | | B | | CC | | No Outlook | | B- | | BB- | | Rating Watch Evolving |
Bausch Health Companies Inc. - On September 30, 2022, Moody’s downgraded all ratings to: a corporate rating of Caa2, a senior secured rating of Caa1 and a senior unsecured rating of Ca. On October 4, 2022, S&P lowered its senior secured rating to B-. On October 6, 2022, Fitch downgraded all ratings to: a corporate rating of CCC, a senior secured rating of B and a senior unsecured rating of CC. These downgrades were a result of the Exchange Offer (see Note 10, “FINANCING ARRANGEMENTS” to our unaudited interim Consolidated Financial Statements).
Bausch + Lomb Corporation - Bausch + Lomb is a restricted subsidiary under the 2022 Amended Credit Agreement and related indentures and will remain a restricted subsidiary until Bausch Health designates Bausch + Lomb as “unrestricted”, which is expected to occur at or prior to the distribution anticipated under the proposed B+L Separation. We expect Bausch + Lomb’s credit ratings could be capped to those of the Company, until we designate Bausch + Lomb as “unrestricted”.
In October 2022, S&P changed its outlook assigned to Bausch + Lomb from developing to positive. In October 2022, Fitch lowered its rating two notches to a B- corporate rating as well as lowered the senior secured rating two notches to BB-. These downgrades were made simultaneously with the downgrades to the credit ratings of Bausch Health, Bausch + Lomb’s parent company.
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
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.
A substantial portion of our cash requirements for the remainder of 20172022 are for debt service. Our other future cash requirements relate to working capital, capital expenditures, business development transactions (contingent consideration), restructuring, integration and integration,separation costs, 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 2015acquisitions. We regularly consider licensing and expect the volume and sizeacquisition opportunities within our core therapeutic areas, some of acquisitions towhich could be low for the foreseeable future.sizable.
In addition to our working capital requirements, as of September 30, 2017,2022, we expect our primary cash requirements for the remainder of 2017 to be as follows:
Debt service—We expect to make contractual debt service payments of principal and interest of $1,360 million during the remainder of 2017, which includes2022 to include:
•Debt repayments—Based on our debt portfolio as of November 3, 2022, we anticipate making mandatory amortization payments of approximately $38 million and interest payments of approximately $284 million during the $923 million principal repayment usingperiod October 1, 2022 through December 31, 2022. As discussed below, we have and in the Restricted cash from the iNova Sale. Wefuture may also 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 additional amounts under our Revolving Credit Facility to meet business needs;
credit facilities using cash on hand, cash from operations and cash provided from the sale of common stock and additional debt financings in connection with the B+L Separation;Capital expenditures•IT Infrastructure Investment—We expect to make payments of approximately $60$11 million for licensing, maintenance and capitalizable costs associated with our IT infrastructure improvement projects during the period October 1, 2022 through December 31, 2022;
•Capital expenditures—We expect to make payments of approximately $120 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;
period October 1, 2022 through December 31, 2022;
•Contingent consideration payments—We expect to make contingent consideration and other development/approval/sales-based milestone payments of $13approximately $12 million during the remainder of 2017;period October 1, 2022 through December 31, 2022;
•Restructuring and integration payments—We expect to make payments of $24$3 million during the remainder of 2017period October 1, 2022 through December 31, 2022 for employee separation costs and lease termination obligations associated with restructuring and integration actions we have taken through September 30, 2017;2022; and
•Benefit obligations—We expect to make aggregate payments under our pension and postretirement obligations of $5 million during the period October 1, 2022 through December 31, 2022.
Future Costs of B+L Separation
The Company has incurred costs associated with activities to complete the B+L Separation and the suspended Solta IPO and will continue to incur costs associated with the B+L Separation. These activities include the costs of: (i) separating Bausch + Lomb and the Solta Medical businesses from the remainder of 2017. the Company and (ii) registering Bausch + Lomb as an independent publicly traded entity. Separation and IPO costs are incremental costs directly related to the B+L Separation and Solta IPO and include, but are not limited to: (i) legal, audit and advisory fees, (ii) talent acquisition costs and (iii) costs associated with establishing new boards of directors and related board committees for Bausch + Lomb. The Company has also incurred, and will incur, separation-related and IPO-related costs which are incremental costs indirectly related to the B+L Separation. These costs include, but are not limited to: (i) IT infrastructure and software licensing costs, (ii) rebranding costs and (iii) costs associated with facility relocation and/or modification. The extent and timing of future charges for these costs cannot be reasonably estimated at this time and could be material.
Litigation Payments
In the ordinary course of business, the Company is involved in litigation, claims, government inquiries, investigations, charges and proceedings. During 2022, we made $1,572 million in payments of accrued legal settlements including payments related to the Securities Class Action Settlement, the Glumetza Antitrust Litigation and a RICO class action matter. As of September 30, 2022, the Company’s Consolidated Balance Sheet includes accrued loss contingencies of $323 million related to matters which are both probable and reasonably estimable, however, a reliable estimate of the period in which the remaining loss contingencies will be payable, if ever, cannot be made. Our ability to successfully defend the Company against pending and future litigation may impact future cash flows.
See Note 11, "PENSION AND POSTRETIREMENT EMPLOYEE BENEFIT PLANS"18, “LEGAL PROCEEDINGS” to our unaudited interim Consolidated Financial Statements for further details of our benefit obligations.
details.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.Future Cost Savings Programs
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.
Future Licensing Payments
In the ordinary course of business, the Company is involvedmay enter into select licensing and collaborative agreements for the commercialization and/or development of unique products primarily in litigation, claims, government inquiries, investigations, chargesthe U.S. and proceedings.Canada. In connection with these agreements, the Company may pay an upfront fee to secure the agreement. See Note 18, "LEGAL PROCEEDINGS"4, “LICENSING AGREEMENTS AND DIVESTITURE” to our unaudited interim Consolidated Financial Statements. Our ability to successfully defendPayments associated with the Company against pendingupfront fee for these agreements cannot be reasonably estimated at this time and future litigation may impact cash flows.could be material.
Unrecognized Tax Benefits 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, asAs of September 30, 2017:2022, the Company had unrecognized tax benefits totaling $937 million, of which, $13 million is expected to be realized during the remainder of 2022, however a reliable estimate of the period in which the remaining uncertain tax positions will be payable, if ever, cannot be made.
Future Repurchases of Debt |
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| (in millions) | | Total | | Remainder of 2017 | | 2018 | | 2019 and 2020 | | 2021 and 2022 | | Thereafter |
| Long-term debt obligations, including interest | | $ | 35,785 |
| | $ | 1,360 |
| | $ | 1,637 |
| | $ | 8,605 |
| | $ | 12,024 |
| | $ | 12,159 |
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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, 2016,2021, filed with the SEC and the CSA on March 1, 2017.February 23, 2022.
OUTSTANDING SHARE DATA
Our common shares trade on the New York Stock Exchange and the Toronto Stock Exchange under the symbol “VRX”“BHC”.
At November 2, 2017,October 28, 2022, we had 348,591,928361,868,131 issued and outstanding common shares. In addition, as of November 2, 2017,October 28, 2022, we had outstanding 4,609,46010,742,236 stock options and 4,843,1029,032,437 time-based RSUsrestricted share units that each represent the right of a holder to receive one of the Company’s common shares, and 2,255,5031,473,152 performance-based RSUsrestricted share units that represent the right of a holder to receive a number of the Company'sCompany’s common shares up to a specified maximum. A maximum of 4,321,0891,103,782 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 and estimates 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, 2016,2021, filed with the SEC and the CSA on March 1, 2017February 23, 2022, and determined that there were no significant changes in our critical accounting policies in nine months ended September 30, 2017 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 ourand 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, 20172022, except for: (i) estimates and assumptions regarding the nature, timing and extent that would indicatethe COVID-19 pandemic had on the Company’s operations and cash flows as discussed in Note 2, “SIGNIFICANT ACCOUNTING POLICIES” to our unaudited interim Consolidated Financial Statements, (ii) the impact that the current year segment and reporting unit realignments had on the Company’s allocation of goodwill, (iii) the assumptions utilized in the assessment of our Xifaxan® intangible assets and Salix goodwill for impairment, particularly those related to the range of possible outcomes of the Norwich Legal Decision and related developments, the potential timing of one or more generic versions of Xifaxan®being approved and introduced to the U.S. market, and the related estimated probability of each outcome, as discussed in Note 8, “INTANGIBLE ASSETS AND GOODWILL” to our unaudited interim Consolidated Financial Statements and (iv) the estimates associated with the fair value of any otherOrtho Dermatologics 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 chargesas discussed in the future.
Further, in January 2017, the 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“INTANGIBLE ASSETS AND GOODWILL"GOODWILL” to our unaudited interim consolidated financial statements for further details on goodwill impairment testing.Consolidated Financial Statements.
NEW ACCOUNTING STANDARDS
Adoption of New Accounting GuidanceNone.
Information regarding recently issued accounting guidance is contained in Note 2, "SIGNIFICANT ACCOUNTING POLICIES" of notes to the unaudited 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, expected launches of new products, 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,products; anticipated revenues for our products; expected research and development (“R&D”) and marketing spend; our expected primary cash and working capital requirements for this fiscal year 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,levels; our anticipated cash requirements,ability to comply with the financial and other covenants contained in the 2022 Amended Credit Agreement and senior notes indentures; the ability of our subsidiary, Bausch + Lomb, to comply with the financial and other covenants contained in the B+L Credit Agreement; 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, our ability to meet the financial and other covenants contained in our Third Amended and Restated Credit and Guaranty Agreement, as amended (the "Credit Agreement") and senior note indentures, potential cost savings programs we may initiate and the impact of such programs, andtaxes; our impairment assessments, including the assumptions used therein and the results thereof.thereof; the anticipated impact of the evolving COVID-19 pandemic and related responses from governments and private sector participants on the Company, its supply chain, third-party suppliers, project development timelines, costs, revenues, margins, liquidity and financial condition, the anticipated
timing, speed and magnitude of recovery from these COVID-19 pandemic related impacts and the Company’s planned actions and responses to this pandemic; the anticipated impact from the ongoing conflict between Russia and Ukraine; and the Company’s plan to separate its eye health business, including the structure and timing of completing such separation transaction.
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”, “strive”, “ongoing”, “increase”,“decrease” 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 indicated above certain of these statements set out herein, allAll 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 risks and uncertainties caused by or relating to the evolving COVID-19 pandemic, the fear of that pandemic, the availability and effectiveness of vaccines for COVID-19 (including with respect to current or future variants and subvariants), COVID-19 vaccine immunization rates, the emergence of variant and subvariant strains of COVID-19, the resurgence of the COVID-19 virus and variant and subvariant strains thereof (including, but not limited to, the recent resurgence of COVID-19 cases) and any resulting reinstitution of lockdowns and other restrictions, the evolving reaction of governments, private sector participants and the public to that pandemic, and the potential effects and economic impact of the pandemic and the reaction to it, the severity, duration and future impact of which are highly uncertain and cannot be predicted, and which may have a significant adverse impact on the Company, including, but not limited to, its supply chain, third-party suppliers, project development timelines, employee base, liquidity, stock price, financial condition, costs (which may increase) and revenue and margins (both of which may decrease);
•the challenges the Company faces as a result of the closing of the B+L IPO, including the transitional services being provided by and to Bausch + Lomb, any potential, actual or perceived conflict of interest of some of our directors and officers because of their equity ownership in Bausch + Lomb and/or because they also serve as directors or officers of Bausch + Lomb and our ability to timely consolidate the financial results of the Bausch + Lomb business;
•with respect to the Company's proposed B+L Separation, the risks and uncertainties include, but are not limited to, the expected benefits and costs of the B+L Separation, the expected timing of completion of the B+L Separation and its terms, the Company’s ability to complete the B+L Separation considering the various conditions to the completion of the B+L Separation (some of which are outside the Company’s control, including conditions related to regulatory matters and applicable shareholder and stock exchange approvals), that market or other conditions are no longer favorable to completing the B+L Separation, that the previously announced planned Solta IPO has been suspended, that the Norwich Legal Decision (see “Xifaxan® Paragraph IV Proceedings” of Note 18, “LEGAL PROCEEDINGS” to our unaudited interim Consolidated Financial Statements) may affect the timing of, or our ability to complete the B+L Separation, that applicable shareholder, stock exchange, regulatory or other approvals are not obtained on the terms or timelines anticipated or at all, business disruption during the pendency of, or following, the B+L Separation, diversion of management time on separation transaction-related issues, retention of existing management team members, the reaction of customers and other parties to the separation transaction, the qualification of the separation transaction as a tax-free transaction for Canadian and/or U.S. federal income tax purposes (including whether or not an advance ruling from the Canada Revenue Agency and/or the Internal Revenue Service will be sought or obtained), the ability of the Company and the separated entity to satisfy the conditions required to maintain the tax-free status of the B+L Separation (some of which are beyond their control), limitations on the Company’s ability to sell a portion of the Company’s interest in Bausch + Lomb in order to maintain the tax-free status of the B+L Separation (including due to dilution from B+L’s issuance of share-based compensation awards), other potential tax or other liabilities that may arise as a result of the B+L Separation, the potential dissynergy costs resulting from the B+L Separation, the impact of the B+L Separation on relationships with customers, suppliers, employees and other business counterparties, general economic conditions, conditions in the markets the Company is engaged in, behavior of customers, suppliers and competitors, technological developments, as well as legal and regulatory rules affecting the Company’s business. In particular, the Company can offer no
assurance that any B+L Separation will occur at all, or that any such transaction will occur on the timelines anticipated by the Company;
•ongoing litigation and potential additional litigation, claims, challenges and/or regulatory investigations challenging or otherwise relating to the B+L IPO and the B+L Separation and the costs, expenses, use of resources, diversion of management time and efforts, liability and damages that may result therefrom;
•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"(“Philidor”)), including pending investigations by the U.S. Attorney's Office for the District of Massachusetts, 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 received 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 putativenon-class securities litigations (including certain pending opt-out actions in the U.S. related to the previously settled securities class action litigations in the U.S. (including relatedand certain opt-out actions includingin Canada relating to the recently filed securities and RICO
claims by Lord Abbett) and Canada and purportedpreviously settled class actions under the federal RICO statuteaction in Canada), certain pending lawsuits 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, investigationsPhilidor;
•the past and liabilities we may face as a result of any alleged wrongdoing by Philidor and/or its management and/or employees;
the currentongoing 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) 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 thathistoric practice of limiting the average annual price increase for our branded prescription pharmaceutical products will be set at no greater thanto 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 this fiscal year or beyond 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 equivalent agencies outside of the U.S. and the results thereof;
any default under•actions by the termsFDA or other regulatory authorities with respect to our products or facilities;
•compliance with the legal and regulatory requirements of our senior notes indentures or Credit Agreement and our ability, if any, to cure or obtain waivers of such default;marketed products;
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 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 meetcomply with the financial and other covenants contained in our senior notes indentures, the 2027 Revolving Credit Facility, the 2022 Amended Credit Agreement, indenturesthe B+L Credit Agreement and other current or future credit and/or debt agreements, including the ability of Bausch + Lomb to comply with its covenants and obligations under the limitations,B+L Credit Agreement, 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 debtobligations we are able to incur where not prohibited,pursuant to other covenants, our ability to draw under our 2027 Revolving Credit Facility, Bausch + Lomb’s ability to draw down under the revolving credit facility under the B+L Credit Agreement and restrictions on our ability to make certain investments and other restricted payments;
•any furtherdefault under the terms of our senior notes indentures or the 2022 Amended Credit Agreement (and other current or future credit and/or debt agreements) and our ability, if any, to cure or obtain waivers of such default;
•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 this fiscal year 2017 or beyond, including as a result of the impacts of the COVID-19 pandemic on our business and operations, which could lead to, among other things,things: (i) a failure to meet the financial and/or other covenants contained in ourthe 2022 Amended Credit Agreement, senior notes indentures and/or indentures,the B+L Credit Agreement (and other current or future credit and/or debt agreements) 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 and 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-downs of goodwill, 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),assets and businesses, including, but not limited to, our ability to provide the time, resources, expertise and costsfunds 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 directors, 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 stabilize and reposition our Ortho Dermatologics business to generate additional value, including the success of recently launched products and the approval of pipeline products (and the timing of such approvals);
•factors impacting our ability to achieve anticipated revenues for our products, including changes in anticipated marketing spend on such products and launch of competing products;
•factors impacting our ability to achieve anticipated market acceptance for our products, including acceptance of the pricing, effectiveness of promotional efforts, reputation of our 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,has faced and market conditions, 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 contained in our 2022 Amended Credit Agreement, the B+L Credit Agreement, our senior notes indentures and the agreements governing our other indebtedness;indebtedness, and the impacts of the COVID-19 pandemic;
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) 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; and the launch and implementation of any new pharma-care or dental-care program or related spending by the Canadian federal government;
•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 ability to maintain strong relationships with physicians and other healthcare professionals;
•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 subsidiaries;
•the impact on such mattersimplementation of the proposals published by the OrganizationOrganisation for Economic Co-operation and Development ("OECD") respecting base erosionInclusive Framework on Base Erosion and profit shifting ("BEPS") and variousProfit Shifting, including the global minimum corporate tax reform proposals being consideredrate, by the countries in which we operate;
•the U.S.;outcome of any audits by taxation authorities, which outcomes may differ from the estimates and assumptions that we may use in determining our consolidated tax provisions and accruals;
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;
•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;Company;
•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, including rates of inflation, and credit markets and foreign currency exchange uncertainty and volatility in certain of the countries in which we do business (such as business;
•the currenttrade conflict between the U.S. and China;
•the impact of the ongoing conflict between Russia and Ukraine and the export controls, sanctions and other restrictive actions that have been or recent instability in Brazil, Russia, Ukraine, Argentina, Egypt, certainmay be imposed by the U.S., Canada and other countries against governmental and other entities in AfricaRussia, Belarus and parts of Ukraine;
•the Middle East, the devaluationimpact of the Egyptian pound,United States-Mexico-Canada Agreement (“USMCA”) and the adverse economic impact and related uncertainty caused by the United Kingdom's decisionany potential changes to leave the European Union (Brexit));other trade agreements;
•our ability to obtain, maintain and license sufficient intellectual property rights over our products and enforce and defend against challenges to such intellectual property;property (such as in connection with the filing by Norwich Pharmaceuticals Inc. (“Norwich”) of its Abbreviated New Drug Application (“ANDA”) for Xifaxan® (rifaximin) 550 mg tablets and the Company’s related lawsuit filed against Norwich in connection therewith) and the impact of the Norwich Legal Decision on, among other things, our business results, financial results, and the B+L Separation;
•our ability to successfully appeal the decision of the U.S. District Court for the District of Delaware in the Company’s lawsuit against Norwich in connection with Norwich’s ANDA and challenge Norwich’s ability to achieve a modified ANDA that avoids the August 10, 2022 final judgement by the District Court and omits the Xifaxan® hepatic encephalopathy (“HE”) indication and HE safety data;
•the fact that a substantial amount of our revenues are derived from the Xifaxan® product line, and that we may be materially impacted by the entry of a generic rifaximin product earlier than January 2028, including the risk of a competitor launching a generic rifaximin at risk prior to a final unappealable decision;
•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 productsproducts;
•any divestitures of our assets or businesses and our ability to achievesuccessfully complete any such divestitures on commercially reasonable terms and on a timely basis, or at all, and the anticipated benefits and synergies fromimpact of any such acquisitions and integrations,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 impairments of goodwill or other assets, or any adverse tax consequences suffered 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;any such divestitures;
•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 impactarrangements;
•our ability to effectively promote our own products and those of our co-promotion partners;
•the success of our fulfillment arrangements with Walgreens;Walgreen Co., including market acceptance of, or market reaction to, such arrangements (including by customers, doctors, patients, PBMs, third-party payors and governmental agencies), and the continued compliance of such arrangements with applicable laws;
•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;
•our indemnity agreements, which may result in an obligation to indemnify or reimburse the relevant counterparty, which amounts may be material;
•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, European Medicines Agency 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;
•uncertainties around the successful improvement and modification of our existing products and development of new products, which may require significant expenditures and efforts;
•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 partythird-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 businessbusinesses 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 that may be undertaken under consideration by the new administration and Congress, including the effect that such changes will have on fiscal and tax policies, the potential repeal 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);current administration;
•illegal distribution or sale of counterfeit versions of our products;
•any plans for the Company's aesthetic medical business;
•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, 2016,2021, filed on March 1, 2017, February 23, 2022, risks under Item 1A. “Risk Factors” of Part II of this Form 10-Q and risks detailed from time to time in our other filings with the SECU.S. Securities and Exchange Commission (“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, 2016,2021, filed on March 1, 2017,February 23, 2022, under Item 1A. “Risk Factors”, under Item 1A. “Risk Factors” of Part II of this Form 10-Q and in the Company’s other filings with the SEC and the 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” and “— Inflation 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, 2016,2021, filed with the SEC and the CSA on March 1, 2017.February 23, 2022.
Interest Rate Risk
As of September 30, 2017,2022, we had $19,429$14,161 million and $6,225$5,413 million in outstanding aggregate 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.respectively. The estimated fair value of our issued fixed rate debt as of September 30, 2017, including the debt denominated in euros,2022 was $20,150$8,798 million. If interest rates were to increase by 100 basis-points, the fair value of our long-termissued fixed rate debt would decrease by approximately $740$313 million. If interest rates were to decrease by 100 basis-points, the fair value of our long-termissued fixed rate debt would increase by approximately $636$329 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-pointsbasis-point increase in interest rates based on 3-month LIBOR, would have an annualized pre-tax effect of approximately $62$54 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.
We are subject to price control restrictions on our pharmaceutical products in a number of countries in which we operate. As a result, our ability to raise prices in a timely fashion in anticipation of inflation may be limited in some markets.
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, 2017.2022. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2017.2022.
Changes in Internal Control Over Financial Reporting
There were no changes in ourthe Company’s internal controls over financial reporting that occurred during the ninethree months ended September 30, 20172022 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, "LEGAL PROCEEDINGS"“LEGAL PROCEEDINGS” of notes to the unaudited interim Consolidated Financial Statements included elsewhere in this Form 10-Q.
Item 1A. Risk Factors
ThereExcept as set forth below, there have been no material changes to the risk factors as disclosed in Item 1A1A. “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2016,2021, filed with the SEC and the CSA on February 23, 2022. The following additional and amended and restatedrisk factors set forth additional and/or amended risks affecting the Company from those originally presented in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021:
As a result of the current conflict between Russia and Ukraine, including the recent invasion of Ukraine by Russia, the current and any future responses by the global community to such conflict and any counter responses by the Russian government or other entities or individuals, and the potential expansion of the conflict to other countries, we have begun to experience and may continue to experience an adverse impact on our business and operations in this region, as well as on our business and operations generally, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares to decline.
On February 24, 2022, Russia launched a military invasion of Ukraine. The ongoing military conflict between Ukraine and Russia has provoked strong reactions from the United States, the UK, the EU, Canada and various other countries around the world, including the imposition of export controls and broad financial and economic sanctions against Russia, Belarus and specific areas of Ukraine. Additional sanctions or other measures may be imposed by the global community, and counteractive measures may be taken by the Russian government, other entities in Russia or governments or other entities outside of Russia.
For the full year ended December 31, 2021 and the nine months ended September 30, 2022, we derived approximately 2% of our revenues from sales of our products in Russia, less than 1% of our revenues from sales of our products in Ukraine and less than 1% of our revenues from sales of our products in Belarus. As of the date of this filing, the conflict between Ukraine and Russia has begun to impact our business in the region, and we are continuously monitoring developments to assess any potential future impact that may arise. Given the nature of our products, we do not believe that the current sanctions and other measures imposed by the United States and other countries preclude us from conducting business in the region. However, we anticipate that the ongoing conflict in this region and the sanctions and other actions by the global community in response may continue to hinder our ability to conduct business with customers and vendors in this region. For example, we have experienced and may in the future experience disruption and delays in the supply of our products to our customers in Russia, Belarus and Ukraine. We have experienced and may in the future also experience decreased demand for our products in these countries as a result of the conflict and invasion. In addition, we may experience difficulties in collecting receivables from such customers. If we are hampered in our ability to conduct business with new or existing customers and vendors in this region, our business, and operations, including our revenues, profitability and cash flows, could be adversely impacted. Furthermore, if the sanctions and other retaliatory measures imposed by the global community change, we may be required to cease or suspend our operations in the region or, should the conflict worsen, we may voluntarily elect to do so. We cannot provide assurance that current sanctions or potential future changes in these sanctions or other measures will not have a material impact on our operations in Russia, Belarus and Ukraine. The disruption to, or suspension of, our business and operations in Russia, Belarus and Ukraine would adversely impact our business, financial condition, cash flows and results of operations in this region which may, in turn, materially adversely impact our overall business, financial condition, cash flows and results of operations, which impact could be material, and could cause the market value of our common shares to decline. Finally, we are also subject to risks if exchange controls were to be imposed that would limit the repatriation of profits from our operations in Russia. While we do not rely on profits or dividends from our Russian operations to fund our debt repayment or other business activities generally, as our operations from Russia primarily involve the sale of products purchased from our affiliates located outside of Russia, any exchange controls that would limit the purchase of or payment for products or goods from outside of Russia may have an adverse impact on our operations in Russia or the way we conduct business in Russia.
While the precise effects of the ongoing military conflict and sanctions on the Russian and global economies remain uncertain, they have already resulted in significant volatility in financial markets and depreciation of the Russian ruble and the Ukrainian hryvnia against the U.S. dollar, as well as in an increase in energy and commodity prices globally. Should the conflict continue or escalate, there may be various economic and security consequences including, but not limited to, supply shortages of different kinds, further increases in prices of commodities, including piped gas, oil and agricultural goods, reduced consumer purchasing power, significant disruptions in logistics infrastructure, telecommunications services and risks
relating to the unavailability of information technology systems and infrastructure. The resulting impacts to the global economy, financial markets, inflation, interest rates and unemployment, among others, could adversely impact economic and financial conditions, and may disrupt the global economy’s ongoing recovery following the COVID-19 pandemic. Other potential consequences include, but are not limited to, growth in the number of popular uprisings in the region, increased political discontent, especially in the regions most affected by the conflict or economic sanctions, increase in cyberterrorism activities and attacks, displacement of persons to regions close to the areas of conflict and an increase in the number of refugees fleeing across Europe, among other unforeseen social and humanitarian effects.
In addition, as a result of the ongoing conflict between Russia and Ukraine, we may experience other risks, difficulties and challenges in the way we conduct our business and operations generally. For example, there may be an increased risk of cybersecurity attacks due to the current conflict between Russia and Ukraine, including cyber security attacks perpetrated by Russia or others at its direction in response to economic sanctions and other actions taken against Russia as a result of its invasion of Ukraine. Any increase in such attacks on us or our third-party providers or other systems could adversely affect our network systems or other operations. In order to address the risks associated with cybersecurity attacks from the region (including state-sponsored cybersecurity attacks), we have taken action to consolidate network traffic from Russia and Belarus through a single point, which is designed to allow us to more closely inspect that traffic. In addition, if required, this consolidation provides a single point to quickly and efficiently disconnect the region from our corporate network. At this time, to the best of our knowledge, we do not believe we have experienced any cyberattacks that are related to the conflict between Russia and Ukraine. Although we have taken steps to enhance our protections against such attacks, we may not be able to address these cybersecurity threats proactively or implement adequate preventative measures and there can be no assurance that we will promptly detect and address any such disruption or security breach, if at all. In addition, as a result of the risk of collectability of receivables from our customers in Russia, Belarus and Ukraine, we may be required to adjust our accounting practices relating to revenue recognition in this region, with the result that we may not be able to recognize revenue from these customers until collected. We may also suffer reputational harm as a result of our continued operations in Russia, which may adversely impact our sales and other businesses in other countries. Finally, we have one global clinical trial involving Russia, Ukraine and Belarus with patients enrolled. We continue to support the existing patients, but have no plans to enroll new patients at this time. Plans for any additional trials involving Russia, Ukraine and Belarus have been postponed.
A protracted conflict between Ukraine and Russia, any escalation of that conflict, and the financial and economic sanctions and import and/or export controls imposed on Russia by the U.S., the UK, the EU, Canada and others, and the above-mentioned adverse effect on our operations (both in this region and generally) and on the wider global economy and market conditions could, in turn, have a material adverse impact on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
The B+L Separation is subject to challenge and could be subject to further challenges in the future, any of which could delay or prevent the consummation of such transactions or cause them to occur on worse terms than we currently expect.
The B+L Separation, including a distribution of all or a portion of our remaining equity interest in Bausch + Lomb to our shareholders, is subject to challenge, which could delay or prevent the consummation of such transactions or cause them to occur on worse terms than we currently expect. For example, in March 1, 2017.2022, the Company and Bausch + Lomb were named in a declaratory judgment action in the Superior Court of New Jersey, Somerset County, Chancery Division (which was subsequently removed to the U.S. District Court for the District of New Jersey), brought by certain individual investors in the Company’s common shares and debt securities who are also maintaining individual securities fraud claims against the Company and certain of its current or former officers and directors. This newly filed action seeks a declaratory judgment that the transfer of assets from the Company to Bausch + Lomb would constitute a voidable transfer under New Jersey’s Uniform Voidable Transactions Act and that Bausch + Lomb would become liable for damages awarded against the Company in the individual opt-out actions. In addition, the Company could, in the future, face additional legal proceedings and investigations and inquiries by governmental agencies relating to these or similar matters. For more information regarding legal proceedings, see Note 18, “LEGAL PROCEEDINGS” to our unaudited interim Consolidated Financial Statements elsewhere in this Form 10-Q.
We are unable to predict the outcome of any such proceedings, investigations and inquiries, but we may incur significant costs and diversion of management attention as a result of these matters, regardless of the outcome. Some or all of these proceedings, investigations and inquiries may lead to damages, settlement payments, fines, penalties, consent orders or other administrative sanctions against us. Furthermore, publicity surrounding these proceedings, investigations and inquiries or any enforcement action as a result thereof, even if ultimately resolved favorably for us could result in additional investigations and legal proceedings. As a result, these proceedings, investigations and inquiries could have a material adverse effect on our reputation, business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
We recently announced that we are suspending our plan to pursue an IPO of our Solta Medical device aesthetics business. Accordingly, the Solta IPO will not be completed in accordance with the previously-anticipated timeline, and may not be completed at all, and if resumed will involve significant time, expense, and distraction, any of which could disrupt or have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
On August 3, 2021, we announced that we intended to pursue an IPO of Solta Medical. The proposed Solta IPO would establish Solta Medical as a separate publicly traded company that consists of our medical aesthetics business. On June 16, 2022, as a result of challenging market conditions and other factors, we announced that we were suspending our plans for the Solta IPO, and that we will revisit alternative paths for Solta in the future. Such suspension could delay the completion of the Solta IPO for a significant period of time or prevent it from occurring at all.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table contains information about our purchasesThere were no sales of equity securities by the Company during the three-month periodthree months ended September 30, 2017:2022.
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| 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 |
| | — |
| | $ | — |
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__________________
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(1) | Represents 126 purchased (subsequently canceled) under the employee stock purchase program.
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(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
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4.1 | Indenture, dated as of October 17, 2017,September 30, 2022, by and among Valeant Pharmaceuticals International,Bausch Health Companies Inc., the 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, 2017,4, 2022, which is incorporated by reference herein.herein. |
| Indenture, dated as of September 30, 2022, by and among Bausch Health Companies Inc., the guarantors party thereto, The Bank of New York Mellon, as trustee, and the notes collateral agents party thereto, originally filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on October 4, 2022, which is incorporated by reference herein. |
| Indenture, dated as of September 30, 2022, by and among 1375209 B.C. Ltd., The Bank of New York Mellon, as trustee, and The Bank of New York Mellon, as notes collateral agent, originally filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on October 4, 2022, which is incorporated by reference herein. |
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*101.INS101.INS* | Inline XBRL Instance Document |
*101.SCH101.SCH* | Inline XBRL Taxonomy Extension Schema Document |
*101.CAL101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
*101.LAB101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document |
*101.PRE101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
*101.DEF101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith.
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.
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| Valeant Pharmaceuticals International,Bausch Health Companies Inc.
(Registrant) |
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| Date: | November 7, 20173, 2022 | /s/ JOSEPH C. PAPATHOMAS J. APPIO |
| Joseph C. Papa
| Thomas J. Appio
Chief Executive Officer
(Principal Executive Officer and Chairman of the Board)Officer) |
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Date: November 7, 2017 | /s/ PAUL S. HERENDEEN |
| Paul S. Herendeen
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer) |
INDEX TO EXHIBITS
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Exhibit
Number
| Exhibit Description |
4.1Date: | Indenture, dated as of October 17, 2017, by and among Valeant Pharmaceuticals International, Inc., the 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, which is incorporated by reference herein.November 3, 2022 | /s/ TOM VADAKETH |
| | Tom Vadaketh
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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*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 DocumentOfficer) |
* Filed herewith.