UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the Quarterly Period Ended | March 31, 20202021 |
| OR |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
| | |
Commission File Number: 001-14956
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) | (I.R.S. Employer Identification No.) |
2150 St. Elzéar Blvd. West,, Laval,, Québec,, CanadaH7L 4A8
(Address of Principal Executive Offices) (Zip Code)
(514) (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 every Interactive Data File required to be submitted 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 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 | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
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 ☐ No ☒
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 — 354,727,444358,395,632 shares outstanding as of April 30, 2020.29, 2021.
BAUSCH HEALTH COMPANIES INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 20202021
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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BAUSCH HEALTH COMPANIES INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 20202021
Introductory Note
Except where the context otherwise requires, all references in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 20202021 (this “Form 10-Q”) to the “Company”, “we”, “us”, “our” or similar words or phrases are to Bausch Health Companies Inc. and its subsidiaries, taken together. In this Form 10-Q, references to “$” are to United States (“U.S.”) dollars and references to “€” are to euros. Unless otherwise indicated, the statistical and financial data contained in this Form 10-Q are presented as of March 31, 2020.2021.
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 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 laws (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; product pipeline, prospective products and product approvals, product development and future performance and results of current and anticipated products; anticipated revenues for our products; anticipated growth in our Ortho Dermatologics business; expected research and development ("R&D") and marketing spend; our expected primary cash and working capital requirements for 20202021 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; our ability to reduce debt levels; our ability to meet the financial and other covenants contained in our Fourth Amended and Restated Credit and Guaranty Agreement (the "Restated Credit Agreement"), and senior notes indentures; the impact of our distribution, fulfillment and other third-party arrangements; proposed pricing actions; 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; the anticipated impact of the adoption of new accounting standards; general market conditions; our expectations regarding our financial performance, including revenues, expenses, gross margins and income taxes; our impairment assessments, including the assumptions used therein and the results thereof; and 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, revenue, 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.pandemic; 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”, “designed”, “create”, “predict”, “project”, “forecast”, “seek”, “strive”, “ongoing” or “increase” and variations or other similar expressions. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements may not be appropriate for other purposes. Although we have previously indicated certain of these statements set out herein, all of the statements in this Form 10-Q that contain forward-looking statements are qualified by these cautionary statements. These statements are based upon the current expectations and beliefs of management. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making such forward-looking statements, including, but not limited to, factors and assumptions regarding the items previously outlined, 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, the rapidly 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 and costs (which may increase) and revenue and margins (both of which may decrease);
•with respect to the proposed separation of the Company’s eye-health business, the risks and uncertainties include, but are not limited to, the expected benefits and costs of the separation transaction, the expected timing of completion of the separation transaction and its terms, the Company’s ability to complete the separation transaction considering the various conditions to the completion of the separation transaction (some of which are outside the Company’s control, including conditions related to regulatory matters and a possible shareholder vote, if applicable), that market or other conditions are no longer favorable to completing the transaction, that any shareholder, stock exchange, regulatory or other approval (if required) is not obtained on the terms or timelines anticipated or at all, business disruption during the pendency of or following the separation transaction, 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 either or both of the Canada Revenue Agency and the Internal Revenue Service will be sought or obtained), potential dissynergy costs resulting from the separation transaction, the impact of the separation transaction 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;
•the expense, timing and outcome of legal and governmental proceedings, investigations and information requests relating to, among other matters, our past distribution, marketing, pricing, disclosure and accounting practices (including with respect to our former relationship with Philidor Rx Services, LLC ("Philidor")), including pending investigations by the U.S. Attorney's Office for the District of Massachusetts and the U.S. Attorney's Office for the Southern District of New York, the pending investigations by the U.S. Securities and Exchange Commission (the “SEC”) of the Company, the investigation order issued by the Company from the Autorité des marchés financiers (the “AMF”) (the Company’s principal securities regulator in Canada), a number of pending non-class securities litigations (including certain pending opt-out actions in the U.S. (relatedrelated to the recentlypreviously settled securities class action (which is subject to final court approval, and remains subject to two objectors' appeals of the riskCourt's final approval order) and uncertainty thatcertain opt-out actions in Canada relating to the U.S. District Court for the District of New Jersey may not approve the $1,210 million settlement agreement)) and the pendingrecently settled class action litigation in Canada and related opt-out actions)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;
•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 past and ongoing public scrutiny of our past distribution, marketing, pricing, disclosure and accounting practices and from our former relationship with Philidor;
•the past and ongoing scrutiny of our legacy business practices, including with respect to pricing, (including the investigations by the U.S. Attorney's Offices for the District of Massachusetts and the Southern District of New York), and 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, such as the Patient Access and Pricing Committee’s commitment that the average annual price increase for our branded prescription pharmaceutical products will be set at no greater than single digits, 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 equivalent agencies outside of the U.S. and the results thereof;
•actions by the FDA or other regulatory authorities with respect to our products or facilities;
•our substantial debt (and potential additional future indebtedness) and current and future debt service obligations, our ability to reduce our outstanding debt levels and the resulting impact on our financial condition, cash flows and results of operations;
•our ability to meet the financial and other covenants contained in our Restated Credit Agreement, senior notes indentures, 2023 Revolving Credit Facility (as defined below) and other current or future debt agreements and the limitations, restrictions and prohibitions such covenants impose or may impose on the way we conduct our business, including prohibitions on incurring additional debt if certain financial covenants are not met, limitations on the amount of additional obligations we are able to incur pursuant to other covenants, our ability to draw under our
2023 Revolving Credit Facility and restrictions on our ability to make certain investments and other restricted payments;
•any default under the terms of our senior notes indentures or Restated Credit Agreement and our ability, if any, to cure or obtain waivers of such default;
any delay in the filing of any future financial statements or other filings and any default under the terms of our senior notes indentures or Restated Credit Agreement as a result of such delays;
•any downgrade by rating agencies in our credit ratings, which may impact, among other things, our ability to raise debt and the cost of capital for additional debt issuances;
•any reductions in, or changes in the assumptions used in, our forecasts for fiscal year 20202021 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: (i) a failure to meet the financial and/or other covenants contained in our Restated Credit Agreement and/or senior notes indentures
and/or (ii) impairment in the goodwill associated with certain of our reporting units 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;
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•the uncertainties associated with the acquisition and launch of new products, including, but not limited to, our ability to provide the time, resources, expertise and funds 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; • | the uncertainties associated with the acquisition and launch of new products (such as our recently launched Bryhali®, Duobrii® and Ocuvite® Eye Performance products), 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;
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our ability or inability to extend the profitable life of our products, including through line extensions and other life-cycle programs;
•our ability to retain, motivate and recruit executives and other key employees;
•our ability to implement effective succession planning for our executives and key employees;
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•factors impacting our ability to stabilize and reposition our Ortho Dermatologics business to generate additional value, including the success of recently launched products, expected geographic expansion in our Solta business (including with respect to Next Generation Thermage FLX®) and the approval of pipeline products (and the timing of such approvals); • | factors impacting our ability to achieve anticipated growth in our Ortho Dermatologics business, including the success of recently launched products (such as Bryhali® andDuobrii®), the ability to successfully implement and operate our new cash-pay prescription program for certain of our Ortho Dermatologics branded products, and the ability of such program to achieve the anticipated goals respecting patient access and fulfillment, the approval of pending and pipeline products (and the timing of such approvals), expected geographic expansion, changes in estimates on market potential for dermatology products and continued investment in and success of our sales force;
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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;
•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 and grow our businesses in light of the challenges that the Company has faced and market conditions, including with respect to its substantial debt, pending investigations and legal proceedings, scrutiny of our past pricing and other practices, limitations on the way we conduct business imposed by the covenants contained in our Restated Credit Agreement, senior notes indentures and the agreements governing our other indebtedness, and the impacts of the COVID-19 pandemic;
•the extent to which our products are reimbursed by government authorities, pharmacy benefit managers ("PBMs") and other third-party payors; the impact our distribution, pricing and other practices (including as it relates to our current relationship with Walgreen Co. ("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;
•the consolidation of wholesalers, retail drug chains and other customer groups and the impact of such industry consolidation on our business;
•our eligibility for benefits under tax treaties and the continued availability of low effective tax rates for the business profits of certain of our subsidiaries;
•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 certain of the countries in which we do business;
•the impact of the United States-Mexico-Canada Agreement (“USMCA”) and any potential changes to other trade agreements;
•the final outcome and impact of Brexit negotiations;and the post-Brexit trade deal between the European Union and the United Kingdom;
•the trade conflict between the United States and China;
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• | •our ability to obtain, maintain and license sufficient intellectual property rights over our products and enforce and defend against challenges to such intellectual property (such as in connection with the recent 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); •® (rifaximin) 550 mg tablets and the Company’s related lawsuit filed against Norwich in connection therewith); |
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;
•our ability to identify, finance, acquire, close and integrate acquisition targets successfully and on a timely basis and the difficulties, challenges, time and resources associated with the integration of acquired companies, businesses and products;
•any additional divestitures 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 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 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 impact of our arrangements with Walgreens;arrangements;
•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. ("Walgreens"), 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;
the acceptance and success of our new cash-pay prescription program for certain of our Ortho Dermatologics branded products;
•our ability to secure and maintain third-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-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, which could lead to material impairment charges;
•the results of management reviews of our research and development portfolio (including following the receipt of clinical results or feedback from the FDA or other regulatory authorities), which could result in terminations of specific projects which, in turn, could lead to material impairment charges;
•the seasonality of sales of certain of our products;
•declines in the pricing and sales volume of certain of our products that are distributed or marketed by third parties, over which we have no or limited control;
•compliance by the Company or our third-party partners and service providers (over whom we may have limited influence), or the failure of our Company or these third parties to comply, with health care “fraud and abuse” laws and other extensive regulation of our marketing, promotional and business practices (including with respect to pricing), worldwide anti-bribery laws (including the U.S. Foreign Corrupt Practices Act and the Canadian Corruption of Foreign Public Officials Act), worldwide economic sanctions and/or export laws, worldwide environmental laws and regulation and privacy and security regulations;
•the impacts of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Health Care Reform Act”) and potential amendment thereof and other legislative and regulatory health 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 under consideration bythat may be undertaken following the Trump administration and Congress, includingchange in the effect that such changes will have on fiscal and tax policies, the potential revision 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);U.S. administration;
•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, 2019,2020, filed on February 19, 2020,24, 2021, risks underin 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 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, 2019,2020, filed on February 19, 2020,24, 2021, under Item 1A. “Risk Factors”, under 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.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share amounts)
(Unaudited)
| | | | March 31,
2020 | | December 31,
2019 | | March 31,
2021 | | December 31,
2020 |
| Assets | | | | Assets | | | |
| Current assets: | | | | Current assets: | |
| Cash and cash equivalents | $ | 912 |
| | $ | 3,243 |
| Cash and cash equivalents | $ | 679 | | | $ | 605 | |
| Restricted cash | 1,011 |
| | 1 |
| Restricted cash | 1,214 | | | 1,211 | |
| Trade receivables, net | 1,712 |
| | 1,839 |
| Trade receivables, net | 1,499 | | | 1,577 | |
| Inventories, net | 1,124 |
| | 1,107 |
| Inventories, net | 1,076 | | | 1,094 | |
| Prepaid expenses and other current assets | 745 |
| | 779 |
| Prepaid expenses and other current assets | 924 | | | 855 | |
| Total current assets | 5,504 |
| | 6,969 |
| Total current assets | 5,392 | | | 5,342 | |
| Property, plant and equipment, net | 1,450 |
| | 1,466 |
| Property, plant and equipment, net | 1,556 | | | 1,567 | |
| Intangible assets, net | 9,726 |
| | 10,201 |
| Intangible assets, net | 7,997 | | | 8,445 | |
| Goodwill | 13,034 |
| | 13,126 |
| Goodwill | 12,485 | | | 13,044 | |
| Deferred tax assets, net | 1,740 |
| | 1,690 |
| Deferred tax assets, net | 2,150 | | | 2,137 | |
| Other non-current assets | 411 |
| | 411 |
| Other non-current assets | 617 | | | 664 | |
| Total assets | $ | 31,865 |
| | $ | 33,863 |
| Total assets | $ | 30,197 | | | $ | 31,199 | |
| Liabilities | | | | Liabilities | | | |
| Current liabilities: | | | | Current liabilities: | |
| Accounts payable | $ | 444 |
| | $ | 503 |
| Accounts payable | $ | 342 | | | $ | 337 | |
| Accrued and other current liabilities | 4,438 |
| | 4,511 |
| Accrued and other current liabilities | 4,556 | | | 4,576 | |
| Current portion of long-term debt and other | 4 |
| | 1,234 |
| |
| Total current liabilities | 4,886 |
| | 6,248 |
| Total current liabilities | 4,898 | | | 4,913 | |
| Acquisition-related contingent consideration | 268 |
| | 262 |
| Acquisition-related contingent consideration | 202 | | | 216 | |
| Non-current portion of long-term debt | 24,424 |
| | 24,661 |
| Non-current portion of long-term debt | 23,738 | | | 23,925 | |
| Deferred tax liabilities, net | 690 |
| | 705 |
| Deferred tax liabilities, net | 520 | | | 528 | |
| Other non-current liabilities | 807 |
| | 851 |
| Other non-current liabilities | 963 | | | 1,012 | |
| Total liabilities | 31,075 |
| | 32,727 |
| Total liabilities | 30,321 | | | 30,594 | |
| Commitments and contingencies (Note 19) |
|
| |
|
| |
| Equity | | | | |
| Common shares, no par value, unlimited shares authorized, 354,579,990 and 352,562,636 issued and outstanding at March 31, 2020 and December 31, 2019, respectively | 10,209 |
| | 10,172 |
| |
Commitments and contingencies (Note 18) | | Commitments and contingencies (Note 18) | 0 | | 0 |
| (Deficit) Equity | | (Deficit) Equity | |
| Common shares, no par value, unlimited shares authorized, 358,104,438 and 355,422,347 issued and outstanding at March 31, 2021 and December 31, 2020, respectively | | Common shares, no par value, unlimited shares authorized, 358,104,438 and 355,422,347 issued and outstanding at March 31, 2021 and December 31, 2020, respectively | 10,289 | | | 10,227 | |
| Additional paid-in capital | 396 |
| | 429 |
| Additional paid-in capital | 393 | | | 454 | |
| Accumulated deficit | (7,605 | ) | | (7,452 | ) | Accumulated deficit | (8,623) | | | (8,013) | |
| Accumulated other comprehensive loss | (2,281 | ) | | (2,086 | ) | Accumulated other comprehensive loss | (2,256) | | | (2,133) | |
| Total Bausch Health Companies Inc. shareholders’ equity | 719 |
| | 1,063 |
| |
| Total Bausch Health Companies Inc. shareholders’ (deficit) equity | | Total Bausch Health Companies Inc. shareholders’ (deficit) equity | (197) | | | 535 | |
| Noncontrolling interest | 71 |
| | 73 |
| Noncontrolling interest | 73 | | | 70 | |
| Total equity | 790 |
| | 1,136 |
| |
| Total liabilities and equity | $ | 31,865 |
| | $ | 33,863 |
| |
| Total (deficit) equity | | Total (deficit) equity | (124) | | | 605 | |
| Total liabilities and (deficit) equity | | Total liabilities and (deficit) equity | $ | 30,197 | | | $ | 31,199 | |
The accompanying notes are an integral part of these consolidated financial statements.
BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(Unaudited)
| | | | Three Months Ended
March 31, | | | | Three Months Ended
March 31, |
| | 2020 | | 2019 | | | | 2021 | | 2020 |
| Revenues | | | | Revenues | | | | | |
| Product sales | $ | 1,986 |
| | $ | 1,989 |
| Product sales | | | $ | 2,003 | | | $ | 1,986 | |
| Other revenues | 26 |
| | 27 |
| Other revenues | | | 24 | | | 26 | |
| 2,012 |
| | 2,016 |
| | | | 2,027 | | | 2,012 | |
| Expenses | | | | Expenses | | | | | |
| Cost of goods sold (excluding amortization and impairments of intangible assets) | 505 |
| | 524 |
| Cost of goods sold (excluding amortization and impairments of intangible assets) | | | 564 | | | 505 | |
| Cost of other revenues | 14 |
| | 13 |
| Cost of other revenues | | | 10 | | | 14 | |
| Selling, general and administrative | 633 |
| | 587 |
| Selling, general and administrative | | | 606 | | | 633 | |
| Research and development | 122 |
| | 117 |
| Research and development | | | 112 | | | 122 | |
| Amortization of intangible assets | 436 |
| | 489 |
| Amortization of intangible assets | | | 357 | | | 436 | |
| Asset impairments | 14 |
| | 3 |
| |
| Restructuring and integration costs | 4 |
| | 20 |
| |
| Acquisition-related contingent consideration | 13 |
| | (21 | ) | |
| Other expense (income), net | 23 |
| | (3 | ) | |
| Goodwill impairments | | Goodwill impairments | | | 469 | | | 0 | |
| Asset impairments, including loss on assets held for sale | | Asset impairments, including loss on assets held for sale | | | 148 | | | 14 | |
| Restructuring, integration and separation costs | | Restructuring, integration and separation costs | | | 12 | | | 4 | |
| Other (income) expense, net | | Other (income) expense, net | | | (30) | | | 36 | |
| | 1,764 |
| | 1,729 |
| | | | 2,248 | | | 1,764 | |
| Operating income | 248 |
| | 287 |
| |
| Operating (loss) income | | Operating (loss) income | | | (221) | | | 248 | |
| Interest income | 7 |
| | 4 |
| Interest income | | | 2 | | | 7 | |
| Interest expense | (396 | ) | | (406 | ) | Interest expense | | | (368) | | | (396) | |
| Loss on extinguishment of debt | (24 | ) | | (7 | ) | Loss on extinguishment of debt | | | (5) | | | (24) | |
| Foreign exchange and other | (13 | ) | | — |
| Foreign exchange and other | | | 1 | | | (13) | |
| Loss before benefit from income taxes | (178 | ) | | (122 | ) | |
| Benefit from income taxes | 26 |
| | 74 |
| |
| Loss before (provision for) benefit from income taxes | | Loss before (provision for) benefit from income taxes | | | (591) | | | (178) | |
| (Provision for) benefit from income taxes | | (Provision for) benefit from income taxes | | | (16) | | | 26 | |
| Net loss | (152 | ) | | (48 | ) | Net loss | | | (607) | | | (152) | |
| Net income attributable to noncontrolling interest | — |
| | (4 | ) | Net income attributable to noncontrolling interest | | | (3) | | | 0 | |
| Net loss attributable to Bausch Health Companies Inc. | $ | (152 | ) | | $ | (52 | ) | Net loss attributable to Bausch Health Companies Inc. | | | $ | (610) | | | $ | (152) | |
| | | | | | | | | | |
| Basic and diluted loss per share attributable to Bausch Health Companies Inc. | $ | (0.43 | ) | | $ | (0.15 | ) | Basic and diluted loss per share attributable to Bausch Health Companies Inc. | | | $ | (1.71) | | | $ | (0.43) | |
| | | | | | | | | | |
| Basic and diluted weighted-average common shares | 353.4 |
| | 351.3 |
| Basic and diluted weighted-average common shares | | | 356.8 | | | 353.4 | |
The accompanying notes are an integral part of these consolidated financial statements.
BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in millions)
(Unaudited)
| | | | Three Months Ended
March 31, | | | | Three Months Ended
March 31, |
| | 2020 | | 2019 | | | | 2021 | | 2020 |
| Net loss | $ | (152 | ) | | $ | (48 | ) | Net loss | | | $ | (607) | | | $ | (152) | |
| Other comprehensive (loss) income | | | | |
| Other comprehensive loss | | Other comprehensive loss | | | | | |
| Foreign currency translation adjustment | (192 | ) | | 21 |
| Foreign currency translation adjustment | | | (124) | | | (192) | |
| Pension and postretirement benefit plan adjustments, net of income taxes | (5 | ) | | — |
| Pension and postretirement benefit plan adjustments, net of income taxes | | | 1 | | | (5) | |
| Other comprehensive (loss) income | (197 | ) | | 21 |
| |
| Other comprehensive loss | | Other comprehensive loss | | | (123) | | | (197) | |
| Comprehensive loss | (349 | ) | | (27 | ) | Comprehensive loss | | | (730) | | | (349) | |
| Comprehensive loss (income) attributable to noncontrolling interest | 2 |
| | (4 | ) | |
| Comprehensive (income) loss attributable to noncontrolling interest | | Comprehensive (income) loss attributable to noncontrolling interest | | | (3) | | | 2 | |
| Comprehensive loss attributable to Bausch Health Companies Inc. | $ | (347 | ) | | $ | (31 | ) | Comprehensive loss attributable to Bausch Health Companies Inc. | | | $ | (733) | | | $ | (347) | |
The accompanying notes are an integral part of these consolidated financial statements.
BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY
(in millions)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | Bausch Health Companies Inc. Shareholders' (Deficit) Equity | | | | |
| | | Bausch Health Companies Inc. Shareholders' Equity | | | | | | | Common Shares | | | | | | Accumulated
Other
Comprehensive
Loss | | Bausch Health
Companies Inc.
Shareholders'
(Deficit) Equity | | | |
| | | Common Shares | | | | | | Accumulated Other Comprehensive Loss | | Bausch Health Companies Inc. Shareholders' Equity | | | | | | | Shares | | Amount | | Additional
Paid-In
Capital | | Accumulated
Deficit | | Noncontrolling
Interest | | Total
(Deficit)
Equity |
| | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated Deficit | | Noncontrolling Interest | | Total Equity | |
| | | | | | Three Months Ended March 31, 2021 |
| Balances, January 1, 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 | | Common shares issued under share-based compensation plans | | 2.7 | | | 62 | | | (51) | | | — | | | — | | | 11 | | | — | | | 11 | |
| Share-based compensation | | Share-based compensation | | — | | | — | | | 31 | | | — | | | — | | | 31 | | | — | | | 31 | |
| Employee withholding taxes related to share-based awards | | Employee withholding taxes related to share-based awards | | — | | | — | | | (41) | | | — | | | — | | | (41) | | | — | | | (41) | |
| Net (loss) income | | Net (loss) income | | — | | | — | | | — | | | (610) | | | — | | | (610) | | | 3 | | | (607) | |
| Other comprehensive loss | | Other comprehensive loss | | — | | | — | | | — | | | — | | | (123) | | | (123) | | | — | | | (123) | |
| Balances, March 31, 2021 | | Balances, March 31, 2021 | | 358.1 | | | $ | 10,289 | | | $ | 393 | | | $ | (8,623) | | | $ | (2,256) | | | $ | (197) | | | $ | 73 | | | $ | (124) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, 2020 | | Three Months Ended March 31, 2020 |
| Balances, January 1, 2020 | | 352.6 |
| | $ | 10,172 |
| | $ | 429 |
| | $ | (7,452 | ) | | $ | (2,086 | ) | | $ | 1,063 |
| | $ | 73 |
| | $ | 1,136 |
| Balances, January 1, 2020 | | 352.6 | | | $ | 10,172 | | | $ | 429 | | | $ | (7,452) | | | $ | (2,086) | | | $ | 1,063 | | | $ | 73 | | | $ | 1,136 | |
| Effect of application of new accounting standard: financial instruments - credit losses | | — |
| | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) | | — |
| | (1 | ) | Effect of application of new accounting standard: financial instruments - credit losses | | — | | | — | | | — | | | (1) | | | — | | | (1) | | | — | | | (1) | |
| Common shares issued under share-based compensation plans | | 2.0 |
| | 37 |
| | (36 | ) | | — |
| | — |
| | 1 |
| | — |
| | 1 |
| Common shares issued under share-based compensation plans | | 2.0 | | | 37 | | | (36) | | | — | | | — | | | 1 | | | — | | | 1 | |
| Share-based compensation | | — |
| | — |
| | 27 |
| | — |
| | — |
| | 27 |
| | — |
| | 27 |
| Share-based compensation | | — | | | — | | | 27 | | | — | | | — | | | 27 | | | — | | | 27 | |
| Employee withholding taxes related to share-based awards | | — |
| | — |
| | (24 | ) | | — |
| | — |
| | (24 | ) | | — |
| | (24 | ) | Employee withholding taxes related to share-based awards | | — | | | — | | | (24) | | | — | | | — | | | (24) | | | — | | | (24) | |
| Net loss | | — |
| | — |
| | — |
| | (152 | ) | | — |
| | (152 | ) | | — |
| | (152 | ) | Net loss | | — | | | — | | | — | | | (152) | | | — | | | (152) | | | — | | | (152) | |
| Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | (195 | ) | | (195 | ) | | (2 | ) | | (197 | ) | Other comprehensive loss | | — | | | — | | | — | | | — | | | (195) | | | (195) | | | (2) | | | (197) | |
| Balances, March 31, 2020 | | 354.6 |
| | $ | 10,209 |
| | $ | 396 |
| | $ | (7,605 | ) | | $ | (2,281 | ) | | $ | 719 |
| | $ | 71 |
| | $ | 790 |
| Balances, March 31, 2020 | | 354.6 | | | $ | 10,209 | | | $ | 396 | | | $ | (7,605) | | | $ | (2,281) | | | $ | 719 | | | $ | 71 | | | $ | 790 | |
| | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, 2019 | |
| Balances, January 1, 2019 | | 349.9 |
| | $ | 10,121 |
| | $ | 413 |
| | $ | (5,664 | ) | | $ | (2,137 | ) | | $ | 2,733 |
| | $ | 82 |
| | $ | 2,815 |
| |
| Common shares issued under share-based compensation plans | | 2.0 |
| | 30 |
| | (29 | ) | | — |
| | — |
| | 1 |
| | — |
| | 1 |
| |
| Share-based compensation | | — |
| | — |
| | 24 |
| | — |
| | — |
| | 24 |
| | — |
| | 24 |
| |
| Employee withholding taxes related to share-based awards | | — |
| | — |
| | (34 | ) | | — |
| | — |
| | (34 | ) | | — |
| | (34 | ) | |
| Net (loss) income | | — |
| | — |
| | — |
| | (52 | ) | | — |
| | (52 | ) | | 4 |
| | (48 | ) | |
| Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | 21 |
| | 21 |
| | — |
| | 21 |
| |
| Balances, March 31, 2019 | | 351.9 |
| | $ | 10,151 |
| | $ | 374 |
| | $ | (5,716 | ) | | $ | (2,116 | ) | | $ | 2,693 |
| | $ | 86 |
| | $ | 2,779 |
| |
|
The accompanying notes are an integral part of these consolidated financial statements.
BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
| | | | Three Months Ended
March 31, | | Three Months Ended
March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| Cash Flows From Operating Activities | | | | Cash Flows From Operating Activities | | | |
| Net loss | $ | (152 | ) | | $ | (48 | ) | Net loss | $ | (607) | | | $ | (152) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | Adjustments to reconcile net loss to net cash provided by operating activities: | |
| Depreciation and amortization of intangible assets | 481 |
| | 532 |
| Depreciation and amortization of intangible assets | 403 | | | 481 | |
| Amortization and write-off of debt premiums, discounts and issuance costs | 15 |
| | 17 |
| Amortization and write-off of debt premiums, discounts and issuance costs | 13 | | | 15 | |
| Asset impairments | 14 |
| | 3 |
| |
| Asset impairments, including loss on assets held for sale | | Asset impairments, including loss on assets held for sale | 148 | | | 14 | |
| Goodwill impairments | | Goodwill impairments | 469 | | | 0 | |
| Acquisition-related contingent consideration | 13 |
| | (21 | ) | Acquisition-related contingent consideration | (9) | | | 13 | |
| Allowances for losses on trade receivable and inventories | 15 |
| | 13 |
| Allowances for losses on trade receivable and inventories | 17 | | | 15 | |
| Deferred income taxes | (70 | ) | | (116 | ) | Deferred income taxes | (14) | | | (70) | |
| Gain on sale of assets | (1 | ) | | (10 | ) | |
| Net gain on sale of assets | | Net gain on sale of assets | (23) | | | (1) | |
| Additions to accrued legal settlements | 23 |
| | 2 |
| Additions to accrued legal settlements | 0 | | | 23 | |
| Payments of accrued legal settlements | (3 | ) | | (1 | ) | Payments of accrued legal settlements | (118) | | | (3) | |
| Share-based compensation | 27 |
| | 24 |
| Share-based compensation | 31 | | | 27 | |
| Foreign exchange loss | 16 |
| | — |
| Foreign exchange loss | 12 | | | 16 | |
| Interest expense on cross-currency swaps | (6 | ) | | — |
| |
| Gain excluded from hedge effectiveness | | Gain excluded from hedge effectiveness | (6) | | | (6) | |
| Loss on extinguishment of debt | 24 |
| | 7 |
| Loss on extinguishment of debt | 5 | | | 24 | |
| Other | (7 | ) | | 9 |
| Other | (18) | | | (7) | |
| Changes in operating assets and liabilities: | | | | Changes in operating assets and liabilities: | |
| Trade receivables | 69 |
| | 89 |
| Trade receivables | 60 | | | 69 | |
| Inventories | (94 | ) | | (68 | ) | Inventories | (35) | | | (94) | |
| Prepaid expenses and other current assets | (18 | ) | | (15 | ) | Prepaid expenses and other current assets | 0 | | | (18) | |
| Accounts payable, accrued and other liabilities | (85 | ) | | (4 | ) | Accounts payable, accrued and other liabilities | 115 | | | (85) | |
| Net cash provided by operating activities | 261 |
| | 413 |
| Net cash provided by operating activities | 443 | | | 261 | |
| | | | | |
| Cash Flows From Investing Activities | | | | Cash Flows From Investing Activities | | | |
| Acquisition of businesses, net of cash acquired | — |
| | (180 | ) | |
| Purchases of property, plant and equipment | (72 | ) | | (47 | ) | Purchases of property, plant and equipment | (66) | | | (72) | |
| Payments for intangible and other assets | | Payments for intangible and other assets | (2) | | | 0 | |
| Purchases of marketable securities | (2 | ) | | (2 | ) | Purchases of marketable securities | (5) | | | (2) | |
| Proceeds from sale of marketable securities | 2 |
| | 1 |
| Proceeds from sale of marketable securities | 2 | | | 2 | |
| Proceeds from sale of assets and businesses, net of costs to sell | 21 |
| | 25 |
| Proceeds from sale of assets and businesses, net of costs to sell | 4 | | | 21 | |
| Interest settlements from cross-currency swaps | 11 |
| | — |
| Interest settlements from cross-currency swaps | 11 | | | 11 | |
| Net cash used in investing activities | (40 | ) | | (203 | ) | Net cash used in investing activities | (56) | | | (40) | |
| | | | | |
| Cash Flows From Financing Activities | | | | Cash Flows From Financing Activities | | | |
| Issuance of long-term debt, net of discounts | (3 | ) | | 1,514 |
| Issuance of long-term debt, net of discounts | (3) | | | (3) | |
| Repayments of long-term debt | (1,459 | ) | | (1,621 | ) | Repayments of long-term debt | (200) | | | (1,459) | |
| Payments of employee withholding taxes related to share-based awards | (24 | ) | | (34 | ) | Payments of employee withholding taxes related to share-based awards | (41) | | | (24) | |
| Payments of acquisition-related contingent consideration | (17 | ) | | (9 | ) | Payments of acquisition-related contingent consideration | (6) | | | (17) | |
| Payments of financing costs | (18 | ) | | (1 | ) | Payments of financing costs | (4) | | | (18) | |
| Other | — |
| | 1 |
| Other | 11 | | | 0 | |
| Net cash used in financing activities | (1,521 | ) | | (150 | ) | Net cash used in financing activities | (243) | | | (1,521) | |
| Effect of exchange rate changes on cash and cash equivalents | (21 | ) | | 1 |
| Effect of exchange rate changes on cash and cash equivalents | (13) | | | (21) | |
| Net (decrease) increase in cash and cash equivalents and restricted cash | (1,321 | ) | | 61 |
| |
| Cash and cash equivalents and restricted cash, beginning of period | 3,244 |
| | 723 |
| |
| Cash and cash equivalents and restricted cash, end of period | $ | 1,923 |
| | $ | 784 |
| |
| | | | | |
| Net increase (decrease) in cash, cash equivalents, restricted cash and cash and cash equivalents held for sale | | Net increase (decrease) in cash, cash equivalents, restricted cash and cash and cash equivalents held for sale | 131 | | | (1,321) | |
| Cash, cash equivalents and restricted cash, beginning of period | | Cash, cash equivalents and restricted cash, beginning of period | 1,816 | | | 3,244 | |
| Cash, cash equivalents, restricted cash and cash and cash equivalents held for sale, end of period | | Cash, cash equivalents, restricted cash and cash and cash equivalents held for sale, end of period | $ | 1,947 | | | $ | 1,923 | |
| Cash and cash equivalents | $ | 912 |
| | $ | 782 |
| Cash and cash equivalents | $ | 679 | | | $ | 912 | |
| Restricted cash, current | 1,011 |
| | 2 |
| Restricted cash, current | 1,214 | | | 1,011 | |
| Cash and cash equivalents and restricted cash, end of period | $ | 1,923 |
| | $ | 784 |
| |
| Cash and cash equivalents, held for sale | | Cash and cash equivalents, held for sale | 54 | | | 0 | |
| Cash, cash equivalents, restricted cash and cash and cash equivalents held for sale, end of period | | Cash, cash equivalents, restricted cash and cash and cash equivalents held for sale, end of period | $ | 1,947 | | | $ | 1,923 | |
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 |
1.DESCRIPTION OF BUSINESS
Bausch Health Companies Inc. (the “Company” or "Bausch Health") is a multinational, specialty pharmaceutical and medical device company that develops, manufactures and markets, primarily in the therapeutic areas of eye-health, gastroenterology ("GI") and dermatology, a broad range of branded, generic and branded generic pharmaceuticals, over-the-counter (“OTC”) products and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment and aesthetics devices) which are marketed directly or indirectly in approximately 100 countries.
| |
2. | SIGNIFICANT ACCOUNTING POLICIES |
2.SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Use of Estimates
The accompanying unaudited Consolidated Financial Statements have been prepared by the Company in U.S. dollars and in accordance with U.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 Statements should be read in conjunction with the audited Consolidated 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, 2019,2020, filed with the U.S. Securities and Exchange Commission (the “SEC”) and the Canadian Securities Administrators on February 19, 2020.24, 2021. The unaudited Consolidated Financial Statements have been prepared using accounting policies that are consistent with the policies used in preparing the Company’s audited Consolidated Financial Statements for the year ended December 31, 2019,2020, except for the new accounting guidance adopted during the period. The unaudited Consolidated Financial Statements reflect all normal and recurring adjustments necessary for a fair statement 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 that it intends to separate its eye-health business into an independent publicly traded entity from the remainder of Bausch Health Companies Inc. (the “Separation”). The Separation will establish two separate companies that include: (i) a fully integrated eye-health company which will consist of the Company’s Bausch + Lomb Global Vision Care, Global Surgical, Global Consumer and Global Ophthalmology Rx businesses and (ii) a diversified pharmaceutical company which will include the Company’s Salix, International Rx, Solta, neurology and medical dermatology pharmaceutical businesses. The anticipated Separation is subject to regulatory approvals and certain conditions, including final approval by the Company’s Board of Directors and any shareholder vote requirements that may be applicable. These unaudited Consolidated Financial Statements do not include any adjustments to give effect to the Separation.
As of the date of the issuance of these financial statements, the Company continues to make progress toward internal objectives necessary for the Separation and has been actively addressing the internal organizational design and structure of the new entity which it anticipates having completed by the end of its third quarter of 2021. Management is also exploring various capitalization structures and the form of the Separation transaction in order to properly capitalize both entities post-separation.
Impacts of COVID-19 Pandemic
The unprecedented nature of the COVID-19 pandemic has adversely impacted the global economy. The COVID-19 pandemic and the rapidly evolving reactionreactions 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 intensified and have had significant direct and indirect effects on businesses and commerce generally, includingcommerce. This includes, but is not limited to, disruption to supply chains, employee base and transactional activity, facilities closures and production suspensions, andsuspensions. The COVID-19 pandemic has also significantly increased demand for certain goods and services, such as certain pandemic-related medical services and supplies, alongside decreased demand for others, such as elective surgery, retail, hospitality, elective medical procedures and travel.
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, the extent and duration of a resurgence of the COVID-19 virus and variant strains thereof, new information which may emerge concerning the severity of the COVID-19 virus, the effectiveness and intensity of measures to contain the COVID-19 virus and/or address its impacts, 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 viruspandemic 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.
Use of Estimates
In preparing the unaudited 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, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these 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 Statements include the accounts of the Company and those of its subsidiaries and any variable interest entities for which the Company is the primary beneficiary. All intercompany transactions and balances have been eliminated.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
Changes in Reportable Segments
Commencing in the first quarter of 2021, the Company operates in the following reportable segments: (i) Bausch + Lomb, (ii) Salix, (iii) International Rx, (iv) Ortho Dermatologics and (v) Diversified Products. Prior to the first quarter of 2021, the Company operated in the following reportable segments: (i) Bausch + Lomb/International, (ii) Salix, (iii) Ortho Dermatologics and (iv) Diversified Products. Prior period presentations have been recast to conform to the current segment reporting structure. See Note 19, "SEGMENT INFORMATION" for additional information.
Adoption of New Accounting Guidance
In June 2016,December 2019, the Financial Accounting Standards Board (“FASB”("FASB") issued guidance onthat simplifies the impairmentaccounting for income taxes by eliminating certain exceptions to the guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of financial instruments requiring an impairment model based on expected losses rather than incurred losses. Under thisdeferred tax liabilities for outside basis differences. The new guidance an entity recognizes as an allowance its estimatealso simplifies aspects of expected credit losses.the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance was effective for the Company beginning January 1, 2020 and was applied using a modified retrospective approach through a cumulative-effect adjustment to accumulated deficit, which resulted in an increase to accumulated deficit of less than $1 million.2021. The application of this guidance did not have a material effect on the Company's results of operations and cash flows. 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 collaterals (if any), and any relevant current and reasonably supportable future economic factors. Additionally, the Company generally estimates the expected credit loss on a pool basis when customers are deemed to have similar risk characteristics.
In August 2018, the FASB issued guidance modifying the disclosure requirements for fair value measurement. The guidance was effective for the Company beginning January 1, 2020. The application of this guidance did not have a material effect on the Company's disclosures.
In March 2020, the FASB issued guidance providing optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or a reference rate that is expected to be discontinued as a result of reference rate reform. Optional expedients are provided for contract modification accounting within the areas of receivables, debt, leases, derivatives and hedging. The optional amendments are effective for all entities as of March 12, 2020, through December 31, 2022. During the three months ended March 31, 2020, the Company has not entered into any contract modifications in which the optional expedients were applied. However, if prior to December 31, 2022 the Company enters into a contract modification in which the optional expedients are applied, the Company will evaluate the impact of adoption of this guidance on its financial position, results of operations and cash flows.
Recently Issued Accounting Standards, Not Adopted as of March 31, 20203.REVENUE RECOGNITION
In August 2018, the FASB issued guidance modifying the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The guidance is effective for annual periods ending after December 15, 2020, with early adoption permitted. The Company is evaluating the impact of adoption of this guidance on its disclosures.
In December 2019, the FASB issued guidance simplifying the accounting for income taxes. The guidance is effective for annual periods ending after December 15, 2020, with early adoption permitted. The Company is evaluating the impact of adoption of this guidance on the Company's financial position, results of operations and cash flows.
The Company’s revenues are primarily generated from product sales, principally in the therapeutic areas of eye-health, GI and dermatology, that consist of: (i) branded pharmaceuticals, (ii) generic and branded generic pharmaceuticals, (iii) OTC products and (iv) medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment and aesthetics devices). Other revenues include alliance and service revenue from the licensing and co-promotion of products and contract service revenue primarily in the areas of dermatology and topical medication. Contract service revenue is derived primarily from contract manufacturing for third parties and is not material. See Note 19, "SEGMENT INFORMATION" for the disaggregation of revenue which depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by the economic factors of each category of customer contracts.
Product Sales Provisions
As is customary in the pharmaceutical industry, gross product sales are subject to a variety of deductions in arriving at reported net product sales. The transaction price for product sales is typically adjusted for variable consideration, which may be in the form of cash discounts, allowances, returns, rebates, chargebacks and distribution fees paid to customers. Provisions for variable consideration are established to reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant 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. Returns provision balances and volume discounts to direct customers are included in Accrued and other current liabilities. All other provisions related to direct customers are included in Trade receivables, net, while provision balances related to indirect customers are included in Accrued and other current liabilities.
The Company continually monitors its variable consideration provisions and evaluates the estimates used as additional information becomes available. Adjustments will be made to these provisions periodically to reflect new facts and circumstances that may indicate that historical experience may not be indicative of current and/or future results. The Company is required to make subjective judgments based primarily on its evaluation of current market conditions and trade inventory levels related to the Company's products. These judgments 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 paid varyof 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 period such variance becomes known.current period. The Company applies this method consistently for contracts with similar characteristics.
The following tables present the activity and ending balances of the Company’s variable consideration provisions for the three months ended March 31, 20202021 and 2019.2020.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, 2020 |
| (in millions) | | Discounts and Allowances | | Returns | | Rebates | | Chargebacks | | Distribution Fees | | Total |
| Reserve balances, January 1, 2020 | | $ | 182 |
| | $ | 691 |
| | $ | 927 |
| | $ | 168 |
| | $ | 82 |
| | $ | 2,050 |
|
| Current period provisions | | 156 |
| | 42 |
| | 602 |
| | 484 |
| | 53 |
| | 1,337 |
|
| Payments and credits | | (167 | ) | | (75 | ) | | (588 | ) | | (501 | ) | | (61 | ) | | (1,392 | ) |
| Reserve balances, March 31, 2020 | | $ | 171 |
| | $ | 658 |
| | $ | 941 |
| | $ | 151 |
| | $ | 74 |
| | $ | 1,995 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 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 | | 147 | | | 34 | | | 602 | | | 462 | | | 55 | | | 1,300 | |
| Payments and credits | | (160) | | | (56) | | | (457) | | | (483) | | | (66) | | | (1,222) | |
| Reserve balances, March 31, 2021 | | $ | 177 | | | $ | 553 | | | $ | 924 | | | $ | 163 | | | $ | 74 | | | $ | 1,891 | |
Included in Rebates in the table above are cooperative advertising credits due to customers of approximately $32$34 million and $29$32 million as of March 31, 20202021 and January 1, 2020,2021, respectively, which are reflected as a reduction of Trade receivables, net in the Consolidated Balance Sheets. Included as a reduction of Distribution Fees in the table above are price appreciation credits of approximately $4$1 million as ofduring the three months ended March 31, 2020.2021.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, 2019 |
| (in millions) | | Discounts and Allowances | | Returns | | Rebates | | Chargebacks | | Distribution Fees | | Total |
| Reserve balances, January 1, 2019 | | $ | 175 |
| | $ | 813 |
| | $ | 1,024 |
| | $ | 209 |
| | $ | 163 |
| | $ | 2,384 |
|
| Acquisition of Synergy | | — |
| | 3 |
| | 12 |
| | — |
| | 1 |
| | 16 |
|
| Current period provisions | | 204 |
| | 33 |
| | 533 |
| | 443 |
| | 48 |
| | 1,261 |
|
| Payments and credits | | (210 | ) | | (55 | ) | | (568 | ) | | (497 | ) | | (85 | ) | | (1,415 | ) |
| Reserve balances, March 31, 2019 | | $ | 169 |
| | $ | 794 |
| | $ | 1,001 |
| | $ | 155 |
| | $ | 127 |
| | $ | 2,246 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2020 |
| (in millions) | | Discounts
and
Allowances | | Returns | | Rebates | | Chargebacks | | Distribution
Fees | | Total |
| Reserve balances, January 1, 2020 | | $ | 182 | | | $ | 691 | | | $ | 927 | | | $ | 168 | | | $ | 82 | | | $ | 2,050 | |
| Current period provisions | | 156 | | | 42 | | | 602 | | | 484 | | | 53 | | | 1,337 | |
| Payments and credits | | (167) | | | (75) | | | (588) | | | (501) | | | (61) | | | (1,392) | |
| Reserve balances, March 31, 2020 | | $ | 171 | | | $ | 658 | | | $ | 941 | | | $ | 151 | | | $ | 74 | | | $ | 1,995 | |
Included in Rebates in the table above are cooperative advertising credits due to customers of approximately $27$32 million and $26$29 million as of March 31, 20192020 and January 1, 2019, which are reflected2020, respectively. Included as a reduction of Trade receivables, netDistribution Fees in the Consolidated Balance Sheets. There were 0table above are price appreciation credits forof approximately $4 million during the three months ended March 31, 2019.2020.
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 not material to any 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 collaterals (if any), and any relevant current and reasonably supportable future economic factors. Additionally, the Company generally estimates the expected credit loss on a pool basis when customers are deemed to have similar risk characteristics. Trade receivable balances are written off against the allowance when it is deemed probable that the trade receivable will not be collected. Trade receivables, net are stated net of certain sales provisions and the allowance for credit losses. Allowances for credit losses were $48 million and $48 million as of March 31, 2020 and December 31, 2019, respectively. The activity in the allowance for credit losses for trade receivables for the three months ended March 31, 2021 and 2020 is as follows. Write-offs charged against the allowance for credit losses and recoveries of amounts previously written off were not material.
| | | | | | | | | | | |
| (in millions) | 2021 | | 2020 |
| Balance, Beginning of period | $ | 39 | | | $ | 48 | |
| Retrospective effect of application of new accounting standard | 0 | | | 1 | |
| Provision | (2) | | | 2 | |
| Write-offs | (1) | | | 0 | |
| Foreign exchange and other | 1 | | | (3) | |
| Balance, end of period | $ | 37 | | | $ | 48 | |
|
| | | | |
(in millions) | | |
Balance, January 1, 2020 | | $ | 48 |
|
Retrospective effect of application of new accounting standard | | 1 |
|
Provision | | 2 |
|
Foreign exchange and other | | (3 | ) |
Balance, March 31, 2020 | | $ | 48 |
|
| |
4. | ACQUISITION, LICENSING AGREEMENTS AND ASSETS HELD FOR SALE |
Acquisition of CertainOption to Purchase All Ophthalmology Assets of Synergy Pharmaceuticals Inc.Allegro Ophthalmics, LLC ("Allegro")
On March 6, 2019,September 21, 2020, the Company acquired certainannounced that it had entered into an agreement to acquire an option to purchase all of the ophthalmology assets of Synergy Pharmaceuticals Inc. ("Synergy"Allegro (the "Option") for, a cash purchase priceprivately held biopharmaceutical company focused on the development of approximately $180 million and the assumption of certain liabilities, pursuant to the terms approved by the U.S. Bankruptcy Courttherapies that regulate integrin functions for the Southern Districttreatment of New York on March 1, 2019.ocular diseases. Among the assets to be acquired wereif the Option is exercised, is the worldwide rights to risuteganib (Luminate®), Allegro's lead investigational compound in retina, which is believed to simultaneously act on the Trulance® (plecanatide) product, a once-daily tablet for adultsangiogenic, inflammatory and mitochondrial metabolic pathways implicated in diseases such as intermediate dry Age-related Macular Degeneration ("AMD"). A U.S. Phase 2a study with chronic idiopathic constipationrisuteganib in intermediate dry AMD met its primary endpoint of vision recovery and irritable bowel syndrome with constipation. This acquired businessPhase 3 testing is included in the Company's Salix segmentplanning stages. The aggregate payments to acquire the Option are $50 million and is expected to result ininclude an upfront payment of $10 million and a second payment of $40 million should Allegro raise additional revenues and costs savings associated with business synergies.
Assets Acquired and Liabilities Assumed
The acquisition of certain assets of Synergy has been accounted for as a business combination under the acquisition method of accounting as: (i) substantially all the fair value of the assets acquired is not concentrated in a single identifiable asset or group of similar identifiable assets and (ii) substantive inputs and processes were acquired to contribute to the creation of outputs. The following table summarizes the fair values of the assets acquired and liabilities assumed related to the acquisition of certain assets of Synergy as of the acquisition date:
|
| | | |
| (in millions) | |
| Accounts receivable | $ | 7 |
|
| Inventories | 24 |
|
| Prepaid expenses and other current assets | 5 |
|
| Product brand intangible assets (estimated useful life - 7 years) | 159 |
|
| Accounts payable | (1 | ) |
| Accrued expenses | (17 | ) |
| Total identifiable net assets | 177 |
|
| Goodwill | 3 |
|
| Total fair value of consideration transferred | $ | 180 |
|
Goodwill associated with the acquisition of certain assets of Synergy is not deductible for income tax purposes.
Revenue and Operating Results
Revenues associated with the acquired assets of Synergy during the period March 6, 2019 through December 31, 2019 were $55 million. Operating results associated with the acquired assets of Synergy during the period March 6, 2019 through December 31, 2019 and pro-forma revenues and operating results forfunding. During the three months ended March 31, 2019September 30, 2020, the Company made and expensed the year 2019 were not material. Includedupfront payment of $10 million as acquired in-process research and development ("IPR&D") in Other (income) expense, (income), net duringnet. If the three months ended March 31, 2019 are acquisition-related costs of $8 million directly relatedOption is exercised, additional payments to the acquisition of certainacquire all ophthalmology assets of Synergy, which include expenditures for advisory, legal, valuation, accounting and other similar services.Allegro will be due.
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 bebe: (i) fully developed, (ii) approved by regulatory agencies, (iii) covered by third-party payors or (iv) profitable for distribution, cannot be fairly predicted.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.
Assets Held for Sale
In 2019,On March 31, 2021, the Company identifiedannounced that it and certain productsof its affiliates had entered into a definitive agreement to sell all of its equity interests in Amoun Pharmaceutical Company S.A.E ("Amoun") for total gross consideration of approximately $740 million (including the assignment to the purchasing entity of an intercompany loan granted by the Company to Amoun), subject to certain adjustments (the “Amoun Sale”). As part of the Amoun Sale, cash generated by Amoun during the period from the locked-box date of January 1, 2021 through closing will be for the benefit of the purchasing entity, subject to working capital during such period. Amoun manufactures, markets and distributes branded generics of human and animal health products. The transaction, which is expected to close in the first half of 2021, remains subject to certain customary closing conditions, including receipt of applicable regulatory approvals. The Amoun business was part of the International Rx segment (formerly included within the Bausch + Lomb/International segmentsegment) and 1 product inwas reclassified as held for sale as of
December 31, 2020. As a result of meeting the Diversified Products segmentcriteria for disposal. The products andheld for sale classification, the related assets and liabilities of this disposal group qualified as a business. Revenues associated with this business were $14 million and $19 million for the years 2019 and 2018, respectively. The carrying value of the Amoun business, including inventories, intangible assets, goodwill and deferred income taxes, was adjusted to its estimated fair value, less costs to sell, and reclassified as held for sale as of September 30, 2019 andthe Company recognized an impairment loss of $8$96 million associated with this business was recognized during the three months ended September 30, 2019. As a result of changing business dynamics, duringDecember 31, 2020. During the three months ended March 31, 2020,2021, the Company decided notrecognized an additional impairment loss of $68 million. The total loss of $164 million was primarily due to sell thesethe anticipated release of non-cash cumulative foreign currency translation losses of $340 million, which were included as part of the carrying value of the Amoun business when measuring for impairment. These losses will be reclassified from Accumulated other comprehensive loss to Net loss upon completion of the sale.
Included in the Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 are the following carrying amounts of the Amoun business' assets and reclassified $39 million ofliabilities held for sale assets as assets heldsale.
| | | | | | | | | | | |
| (in millions) | March 31,
2021 | | December 31,
2020 |
| Prepaid expenses and other current assets: | | | |
| Cash and cash equivalents | $ | 54 | | | $ | 0 | |
| Trade receivables, net | 90 | | | 91 | |
| Inventories, net | 70 | | | 63 | |
| Prepaid expenses and other current assets | 11 | | | 8 | |
| $ | 225 | | | $ | 162 | |
| Other non-current assets: | | | |
| Property, plant and equipment, net | $ | 69 | | | $ | 68 | |
| Goodwill and Intangible assets, net | 186 | | | 245 | |
| Deferred tax assets, net | 2 | | | 2 | |
| $ | 257 | | | $ | 315 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | | | | | | | | | |
| Accrued and other current liabilities: | | | |
| Accounts payable | $ | 10 | | | $ | 7 | |
| Accrued and other current liabilities | 29 | | | 28 | |
| $ | 39 | | | $ | 35 | |
| Other non-current liabilities: | | | |
| Deferred tax liabilities, net | $ | 36 | | | $ | 36 | |
| Other non-current liabilities | 22 | | | 21 | |
| $ | 58 | | | $ | 57 | |
5.RESTRUCTURING, INTEGRATION AND SEPARATION COSTS
Restructuring and used at their respective fair values at the date of the decision not to sell. This reclassification did not impact the Consolidated Statement of Operations for the three months ended March 31, 2020.integration costs
| |
5. | RESTRUCTURING AND INTEGRATION COSTS |
The Company evaluates opportunities to improve its operating results and implements 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 and include expenses associated with: (i) reducing headcount, (ii) eliminating real estate costs associated with unused or under utilizedunder-utilized facilities and (iii) implementing contribution margin improvement and other cost reduction initiatives. The liability associated with restructuring and integration costs as of March 31, 20202021 was $27$18 million.
During the three months ended March 31, 2021, the Company incurred $3 million of restructuring and integration costs. These costs included: (i) $2 million of facility closure costs and (ii) $1 million of severance costs. The Company made payments of $5 million for the three months ended March 31, 2021.
During the three months ended March 31, 2020, the Company incurred $4 million of restructuring and integration costs. These costs included: (i) $3 million of facility closure costs and (ii) $1 million of severance costs. The Company made payments of $4 million for the three months ended March 31, 2020.
During the three months ended March 31, 2019, the
Separation costs and Separation-related costs
The Company has incurred, $20 million of restructuring and integration costs. These costs included: (i) $10 million of severance and otherwill incur, costs associated with activities to effectuate the acquisitionSeparation. These activities include: (i) separating the eye-health business from the remainder of certain assets of Synergy,the Company and (ii) $6 million of other severanceregistering the eye-health business as an independent publicly traded entity. Separation costs are incremental costs directly related to the Separation and include, but are not limited to: (i) legal, audit and advisory fees, (ii) employee hiring, relocation and travel costs and (iii) $4 millioncosts associated with establishing a new board of facility closure costs. The Company made payments of $16 milliondirectors and audit committee. Included in Restructuring, integration and separation costs for the three months ended March 31, 2019.2021 and 2020 are Separation costs of $9 million and $0, respectively.
The Company has also incurred, and will incur, Separation-related costs which are incremental costs indirectly related to the Separation. Separation-related 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. Included in Selling, general and administrative expenses for the three months ended March 31, 2021 and 2020 are Separation-related costs of $20 million and $0, respectively. The Company continues to make progress toward internal objectives necessary for the Separation and the extent and timing of future charges for these costs cannot be reasonably estimated at this time and could be material.
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6. | FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS |
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:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2020 | | December 31, 2019 |
| (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: | | | | | | | | | | | | | | | | |
| Cash equivalents | | $ | 37 |
| | $ | 12 |
| | $ | 25 |
| | $ | — |
| | $ | 2,696 |
| | $ | 2,646 |
| | $ | 50 |
| | $ | — |
|
| Restricted cash | | $ | 1,011 |
| | $ | 1,011 |
| | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
| Cross-currency swaps | | $ | 55 |
| | $ | — |
| | $ | 55 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Foreign currency exchange contracts | | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Liabilities: | | | | | | |
| | | | | | | | | | |
| Acquisition-related contingent consideration | | $ | 312 |
| | $ | — |
| | $ | — |
| | $ | 312 |
| | $ | 316 |
| | $ | — |
| | $ | — |
| | $ | 316 |
|
| Cross-currency swaps | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 13 |
| | $ | — |
| | $ | 13 |
| | $ | — |
|
| Foreign currency exchange contracts | | $ | 6 |
| | $ | — |
| | $ | 6 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2021 | | December 31, 2020 |
| (in millions) | | Carrying
Value | | Level 1 | | Level 2 | | Level 3 | | Carrying
Value | | Level 1 | | Level 2 | | Level 3 |
| Assets: | | | | | | | | | | | | | | | | |
| Cash equivalents | | $ | 148 | | | $ | 107 | | | $ | 41 | | | $ | 0 | | | $ | 41 | | | $ | 8 | | | $ | 33 | | | $ | 0 | |
| Restricted cash | | $ | 1,214 | | | $ | 1,214 | | | $ | 0 | | | $ | 0 | | | $ | 1,211 | | | $ | 1,211 | | | $ | 0 | | | $ | 0 | |
| Foreign currency exchange contracts | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 3 | | | $ | 0 | | | $ | 3 | | | $ | 0 | |
| Liabilities: | | | | | | | | | | | | | | | | |
| Acquisition-related contingent consideration | | $ | 313 | | | $ | 0 | | | $ | 0 | | | $ | 313 | | | $ | 328 | | | $ | 0 | | | $ | 0 | | | $ | 328 | |
| Cross-currency swaps | | $ | 35 | | | $ | 0 | | | $ | 35 | | | $ | 0 | | | $ | 70 | | | $ | 0 | | | $ | 70 | | | $ | 0 | |
| Foreign currency exchange contracts | | $ | 11 | | | $ | 0 | | | $ | 11 | | | $ | 0 | | | $ | 11 | | | $ | 0 | | | $ | 11 | | | $ | 0 | |
| | | | | | | | | | | | | | | | |
Cash equivalents, including cash equivalents held for sale, consist of highly liquid investments, primarily money market funds, with maturities of three months or less when purchased, and are reflected in the Consolidated Balance Sheets at carrying value, which approximates fair value due to their short-term nature.
As of March 31, 2020,2021, Restricted cash includes $1,010$1,210 million of payments into an escrow fund under the terms of a settlement agreement regarding certain U.S. securities litigation, subject to 2 objectors' appeals of the final court approval, and is reflected in the Consolidated Balance Sheets at carrying value, which approximates fair value due to its short-term nature. These payments will remain in escrow until final approval of the settlement as discussed in Note 18, "LEGAL PROCEEDINGS".
There were no transfers into or out of Level 3 during the three months ended March 31, 2020.
Cross-currency Swaps
During the three months ended September 30, 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 adverse movementsfluctuation in exchange rates. The euro-denominated net investment being hedged is the Company’s investment in certain euro-denominated subsidiaries. The Company had no derivative instruments during the three months ended March 31, 2019.
The Company’s cross-currency swaps qualify for and have been designated as an accounting hedge of the foreign currency exposure of a net investment in a foreign operation and are remeasured at each 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 risk-free 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 Loss as part of Foreign currency translation adjustment to the extent they are effective and remain in Accumulative Comprehensive Incomeother comprehensive loss until either the sale or complete, or substantially complete, liquidation of the subsidiary. No portion of the cross-currency swaps were ineffective for the three months ended March 31, 2021 and 2020. The Company uses the spot method of assessing hedge effectiveness. The Company 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 fair value of the Company’s cross-currency swaps assetliability as of March 31, 2021 and December 31, 2020 was $55 million.$35 million and $70 million, respectively. Included in Other non-current assets are $52liabilities is $38 million and $79 million of cross-currency swaps and included in Prepaid expenses and other current assets is $3 million and $9 million of earned interest within the Consolidated Balance Sheets. as of March 31, 2021 and December 31, 2020, respectively.
The following table presents the effect of hedging instruments on the Consolidated Statements of Comprehensive Loss and the Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020:
|
| | | | | | | | | | |
| (in millions) | | Gain recognized in Other Comprehensive Loss | | Gain excluded from assessment of hedge effectiveness | | Location of gain in income of excluded component |
| Cross-currency swaps | | $ | 73 |
| | $ | 6 |
| | Interest expense |
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, |
| (in millions) | | | | | 2021 | | 2020 |
| Gain recognized in Other comprehensive loss | | | | | $ | 41 | | | $ | 73 | |
| Gain excluded from assessment of hedge effectiveness | | | | | $ | 6 | | | $ | 6 | |
| Location of gain of excluded component | | | Interest Expense |
Settlement of the Company's cross-currency swaps occur in February and August each year. During the three months ended March 31, 2021 and 2020, the Company received $11 million and $11 million, respectively, in settlements which are reported as investing activities in the Consolidated Statements of Cash Flows.
Foreign Currency Exchange Contracts
During the three months ended March 31,In 2020 and 2021, the Company entered into foreign currency exchange contracts. As of March 31, 2021 these contracts withhad an aggregate outstanding notional amount of $163$436 million. The Company had no foreign currency exchange contracts during 2019.
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 gain or loss in the Consolidated Statements of Operations as part of Foreign exchange and other.
The fair value of the Company's foreign currency exchange contracts liability as of March 31, 2021 and December 31, 2020 was $5 million.$11 million and $8 million, respectively. Included in Accrued and other current liabilities are $6$11 million and $11 million and included in Prepaid expenses and other current assets are $1$0 and $3 million of foreign currency exchange contracts within the Consolidated Balance Sheets.as of March 31, 2021 and December 31, 2020, respectively. During the three months ended March 31, 2021 and 2020, the net change in fair value was a loss of $2 million and $5 million.million, respectively. 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. During the three months ended March 31, 2021 and 2020, the Company reported a realized loss of $9 million and $0, respectively, related to settlements of the Company's foreign currency exchange contracts.
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, using unobservable (Level 3) inputs. These inputs may include: (i) the estimated amount and timing of projected cash flows, (ii) the probability of the achievement of the factor(s) on which the contingency is based and (iii) the risk-adjusted discount rate used to present value the probability-weighted cash flows. Significant increases or decreases in any of those inputs in isolation could result in a significantly higher or lower fair value measurement. At March 31, 2020,2021, the fair value measurements of acquisition-related contingent consideration were determined using risk-adjusted discount rates ranging from 5%6% to 25%18%, and a weighted average risk-adjusted discount rate of 7%8%. The weighted average risk-adjusted discount rate was calculated by weighting each contract's relative fair value at March 31, 2020.2021.
The following table presents a reconciliation of contingent consideration obligations measured on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 20202021 and 2019:2020:
|
| | | | | | | | | | | | | | | | |
| (in millions) | | 2020 | | 2019 |
| Balance, beginning of period | | | | $ | 316 |
| | | | $ | 339 |
|
| Adjustments to Acquisition-related contingent consideration: | | | | | | | | |
| Accretion for the time value of money | | $ | 6 |
| | | | $ | 6 |
| | |
| Fair value adjustments due to changes in estimates of other future payments | | 7 |
| | | | (27 | ) | | |
| Acquisition-related contingent consideration | | | | 13 |
| | | | (21 | ) |
| Payments | | | | (17 | ) | | | | (9 | ) |
| Balance, end of period | | | | 312 |
| | | | 309 |
|
| Current portion included in Accrued and other current liabilities | | | | 44 |
| | | | 45 |
|
| Non-current portion | | | | $ | 268 |
| | | | $ | 264 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| (in millions) | | 2021 | | 2020 |
| Balance, beginning of period | | | | $ | 328 | | | | | $ | 316 | |
| Adjustments to Acquisition-related contingent consideration: | | | | | | | | |
| Accretion for the time value of money | | $ | 5 | | | | | $ | 6 | | | |
| Fair value adjustments due to changes in estimates of other future payments | | (14) | | | | | 7 | | | |
| Acquisition-related contingent consideration | | | | (9) | | | | | 13 | |
| Payments | | | | (6) | | | | | (17) | |
| Balance, end of period | | | | 313 | | | | | 312 | |
| Current portion included in Accrued and other current liabilities | | | | 111 | | | | | 44 | |
| Non-current portion | | | | $ | 202 | | | | | $ | 268 | |
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The following table presents the components and classification of the Company’s financial assets and liabilities measured at fair value on a non-recurring basis:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2020 | | December 31, 2019 |
| (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) |
| Other non-current assets: | | | | | | | | | | | | | | | | |
| Non-current assets held for sale | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 39 |
| | $ | — |
| | $ | — |
| | $ | 39 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2021 | | December 31, 2020 |
| (in millions) | | Carrying
Value | | Level 1 | | Level 2 | | Level 3 | | Carrying
Value | | Level 1 | | Level 2 | | Level 3 |
| Other non-current assets: | | | | | | | | | | | | | | | | |
| Non-current assets held for sale | | $ | 186 | | | $ | 0 | | | $ | 0 | | | $ | 186 | | | $ | 245 | | | $ | 0 | | | $ | 0 | | | $ | 245 | |
Non-current assets held for sale of $39$186 million and $245 million included in the Consolidated Balance Sheets as of March 31, 2021 and December 31, 20192020, respectively, were remeasured to their estimated fair values less costs to sell, determined using a discounted cash flow analysis which utilized Level 3 unobservable inputs. As discussed inSee Note 4, "ACQUISITION, LICENSING AGREEMENTS AND ASSETS HELD FOR SALE", due to changing business dynamics, the Company decided not to sellfor additional details regarding these assets during the three months ended March 31, 2020.held for sale.
Fair Value of Long-term Debt
The fair value of long-term debt as of March 31, 20202021 and December 31, 20192020 was $24,462$24,877 million and $27,520$25,378 million, respectively, and was estimated using the quoted market prices for the same or similar debt issuances (Level 2).
Inventories, net of allowances for obsolescence consist of:
| | | | | | | | | | | | | | |
| (in millions) | | March 31,
2021 | | December 31,
2020 |
| Raw materials | | $ | 285 | | | $ | 286 | |
| Work in process | | 139 | | | 143 | |
| Finished goods | | 652 | | | 665 | |
| | $ | 1,076 | | | $ | 1,094 | |
|
| | | | | | | | |
| (in millions) | | March 31,
2020 |
| December 31,
2019 |
| Raw materials | | $ | 310 |
| | $ | 319 |
|
| Work in process | | 155 |
| | 149 |
|
| Finished goods | | 659 |
| | 639 |
|
| | | $ | 1,124 |
| | $ | 1,107 |
|
| |
8. | INTANGIBLE ASSETS AND GOODWILL |
Intangible Assets
The major components of intangible assets consist of:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2020 | | December 31, 2019 |
| (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: | | | | | | | | | | | | |
| Product brands | | $ | 20,989 |
| | $ | (13,924 | ) | | $ | 7,065 |
| | $ | 21,011 |
| | $ | (13,544 | ) | | $ | 7,467 |
|
| Corporate brands | | 914 |
| | (348 | ) | | 566 |
| | 930 |
| | (338 | ) | | 592 |
|
| Product rights/patents | | 3,284 |
| | (2,918 | ) | | 366 |
| | 3,297 |
| | (2,887 | ) | | 410 |
|
| Partner relationships | | 155 |
| | (154 | ) | | 1 |
| | 166 |
| | (165 | ) | | 1 |
|
| Technology and other | | 203 |
| | (186 | ) | | 17 |
| | 209 |
| | (189 | ) | | 20 |
|
| Total finite-lived intangible assets | | 25,545 |
| | (17,530 | ) | | 8,015 |
| | 25,613 |
| | (17,123 | ) | | 8,490 |
|
| Acquired IPR&D not in service | | 13 |
| | — |
| | 13 |
| | 13 |
| | — |
| | 13 |
|
| Bausch + Lomb Trademark | | 1,698 |
| | — |
| | 1,698 |
| | 1,698 |
| | — |
| | 1,698 |
|
| | | $ | 27,256 |
| | $ | (17,530 | ) | | $ | 9,726 |
| | $ | 27,324 |
| | $ | (17,123 | ) | | $ | 10,201 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2021 | | December 31, 2020 |
| (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: | | | | | | | | | | | | |
| Product brands | | $ | 20,852 | | | $ | (15,271) | | | $ | 5,581 | | | $ | 20,890 | | | $ | (14,914) | | | $ | 5,976 | |
| Corporate brands | | 903 | | | (419) | | | 484 | | | 907 | | | (404) | | | 503 | |
| Product rights/patents | | 3,304 | | | (3,086) | | | 218 | | | 3,305 | | | (3,055) | | | 250 | |
| Partner relationships | | 161 | | | (161) | | | 0 | | | 169 | | | (168) | | | 1 | |
| Technology and other | | 208 | | | (199) | | | 9 | | | 210 | | | (200) | | | 10 | |
| Total finite-lived intangible assets | | 25,428 | | | (19,136) | | | 6,292 | | | 25,481 | | | (18,741) | | | 6,740 | |
| Acquired IPR&D not in service | | 7 | | | — | | | 7 | | | 7 | | | — | | | 7 | |
| Bausch + Lomb Trademark | | 1,698 | | | — | | | 1,698 | | | 1,698 | | | — | | | 1,698 | |
| | $ | 27,133 | | | $ | (19,136) | | | $ | 7,997 | | | $ | 27,186 | | | $ | (18,741) | | | $ | 8,445 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
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 for the three months ended March 31, 2021 were $148 million and include: (i) an impairment of $71 million due to decreases in forecasted sales of a certain product line in the Ortho Dermatologics business, (ii) an adjustment of $68 million to the loss on assets held for sale in connection with the Amoun Sale and (iii) impairments of $9 million, in aggregate, related to the discontinuance of certain product lines.
Asset impairments, including loss on assets held for sale for the three months ended March 31, 2020 were $14 million due to decreases in forecasted sales of a certain product line.
Asset impairments for the three months ended March 31, 2019 were $3 million due to the discontinuance of a specific product line not aligned with the focus of the Company's core businesses.
Estimated amortization expense of finite-lived intangible assets for the remainder of 20202021 and each of the five succeeding years ending December 31 and thereafter is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Remainder of 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter | | Total | |
| Amortization | | $ | 1,025 | | | $ | 1,188 | | | $ | 1,018 | | | $ | 895 | | | $ | 811 | | | $ | 679 | | | $ | 676 | | | $ | 6,292 | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Remainder of 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total |
| Amortization | | $ | 1,188 |
| | $ | 1,374 |
| | $ | 1,217 |
| | $ | 1,071 |
| | $ | 942 |
| | $ | 832 |
| | $ | 1,391 |
| | $ | 8,015 |
|
Goodwill
The changes in the carrying amounts of goodwill during the three months ended March 31, 20202021 and the year ended December 31, 20192020 were as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Bausch + Lomb/ International | | Salix | | Ortho Dermatologics | | Diversified Products | | Total |
| Balance, January 1, 2019 | | $ | 5,805 |
| | $ | 3,156 |
| | $ | 1,267 |
| | $ | 2,914 |
| | $ | 13,142 |
|
| Acquisition of certain assets of Synergy | | — |
| | 3 |
| | — |
| | — |
| | 3 |
|
| Goodwill reclassified to assets held for sale (Note 4) | | (18 | ) | | — |
| | — |
| | — |
| | (18 | ) |
| Foreign exchange and other | | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) |
| Balance, December 31, 2019 | | 5,786 |
| | 3,159 |
| | 1,267 |
| | 2,914 |
| | 13,126 |
|
| Assets held for sale reclassified to goodwill (Note 4) | | 18 |
| | — |
| | — |
| | — |
| | 18 |
|
| Foreign exchange and other | | (110 | ) | | — |
| | — |
| | — |
| | (110 | ) |
| Balance, March 31, 2020 | | $ | 5,694 |
| | $ | 3,159 |
| | $ | 1,267 |
| | $ | 2,914 |
| | $ | 13,034 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Bausch + Lomb/ International | | Bausch + Lomb | | Salix | | International Rx | | Ortho Dermatologics | | Diversified Products | | Total |
| Balance, January 1, 2020 | | $ | 5,786 | | | $ | — | | | $ | 3,159 | | | $ | 0 | | | $ | 1,267 | | | $ | 2,914 | | | $ | 13,126 | |
| Assets held for sale reclassified to goodwill | | 18 | | | — | | | — | | | — | | | — | | | — | | | 18 | |
| Goodwill reclassified to assets held for sale (Note 4) | | (217) | | | — | | | — | | | — | | | — | | | — | | | (217) | |
| Foreign exchange and other | | 117 | | | — | | | — | | | — | | | — | | | — | | | 117 | |
| Balance, December 31, 2020 | | 5,704 | | | — | | | 3,159 | | | 0 | | | 1,267 | | | 2,914 | | | 13,044 | |
| Realignment of segment goodwill | | (5,704) | | | 5,395 | | | — | | | 887 | | | — | | | (578) | | | 0 | |
| Impairment | | 0 | | | — | | | — | | | — | | | (469) | | | — | | | (469) | |
| Foreign exchange and other | | 0 | | | (47) | | | — | | | (43) | | | — | | | — | | | (90) | |
| Balance, March 31, 2021 | | $ | 0 | | | $ | 5,348 | | | $ | 3,159 | | | $ | 844 | | | $ | 798 | | | $ | 2,336 | | | $ | 12,485 | |
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 forecasted cash flows of each reporting unit. The discount rate the Company uses represents the estimated weighted average cost of capital, which reflects the overall level of inherent risk involved in its reporting unit operations and the rate of return a market participant would expect to earn. The Company performed its annual impairment test as of October 1, 2019 by first assessing qualitative factors to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount (Step 0). Where the qualitative assessment suggested that it was more likely than not that the fair value of a reporting unit was less than its carrying amount, a quantitative fair value test was performed for that reporting unit (Step 1). The quantitative fair value test wasis 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-perpetuity growth assumption and discount factor to determine the reporting unit's terminal value.
The Company forecastsTo forecast a reporting unit's cash flows for each reporting unit andthe Company takes into consideration economic conditions and trends, estimated future operating results, management's and a market participant's view of growth rates and product lives, and anticipates future economic conditions. Revenue growth rates inherent in these forecasts 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'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.
2019 Goodwill Impairment Testing
During the interim periods of 2019, no events occurred, or circumstances changed that would indicate that the fair value of any reporting unit might be below its carrying value and therefore, no impairments were recorded. The Company conducted its annual goodwill impairment test as of October 1, 2019 by first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Where the qualitative assessment suggested that it was more likely than not that the fair value of a reporting unit was less than its carrying amount, a quantitative fair value test was performed for that reporting unit. In each quantitative fair value test performed, the fair value was greater than the carrying value of the reporting unit. As a result, there was 0 impairment to the goodwill of any reporting unit. 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. Specifically, the Company continues to assess the performance of the Ortho Dermatologics reporting unit and
the Neurology and Other reporting unit as compared to their respective projections and will perform qualitative interim assessments of the carrying value and fair value on a quarterly basis to determine if impairment testing of goodwill will be warranted. The Company performed quantitative fair value tests for the Ortho Dermatologics reporting unit and the Neuro and Other reporting unit as of October 1, 2019, utilizing long-term growth rates of 2.0% and 1.5%, and discount rates of 9.8% and 9.0%, respectively, in estimation of the fair value of these reporting units.
2020 Interim Goodwill Impairment Assessment
The unprecedented nature of the COVID-19 pandemic has adversely impacted the global economy. As the global economic landscape changes, there is a wide range of possible outcomes regarding the nature and timing of events and reactions to the COVID-19 pandemic, each of which are highly dependent on variables that are difficult to predict at this time.Assessments
In response to the COVID-19 pandemic, the Company has taken actions to protect its employees, customers and other stakeholders and mitigate the negative impact of the COVID-19 pandemic on its operations and operating results. These and additional actions can increase the costs of doing business during the pandemic and, in the periods that follow, includingmay include the costs of idling and reopening certain facilities in affected areas. Further, social restrictions and other precautionary measures taken by customers, health care patients and consumers in response to the pandemic are expected to impact the timing and amount of revenues during the COVID-19 pandemic. Although the Company's reported revenues for the three months ended March 31, 2020 are less than forecasted and additional pandemic-related declines in revenues are expected in the second quarter and possibly the remainder of 2020, there is currently no indication that these trends are materially other than COVID-19 related.
The negative impacts of the COVID-19 pandemic on the global economy were not existing conditions as of October 1, 2019 (the date goodwill was last tested for impairment) and have led to significant volatility in the global equity markets. The Company has been able to continue its operations with limited disruptions and has assessed the potential impact that the COVID-19 pandemic is likely to have on its forecasted cash flows. In performing its assessment, the Company considered the possible affectseffects and outcomes of the COVID-19 pandemic on, among other things, its supply chain, customers and distributors, employee base, product sustainability, research and development activities, product pipeline and consumer demand and related rebates and discounts and has made adjustments, although not considered to be material to its long-term
forecasts as of October 1, 2019 (the dateused in its previous goodwill was last tested for impairment)impairment assessments, for these and other matters. After completing this assessment, although not completely insulated from the negative effects of the COVID-19 pandemic, the Company believes that its long-term forecasted cash flows, as adjusted for the possible outcome of the COVID-19 pandemic and other matters, do not indicate that the fair value of any reporting unit may be below its carrying value.
During the pandemic, the public has been advised to:to engage in certain "social restrictions" such as: (i) remainremaining at home or shelter-in-place, (ii) limitlimiting social interaction, (iii) closeclosing non-essential businesses and (iv) postponepostponing certain surgical and elective medical procedures in order to prioritize/conserve available health care resources. During the three months ended March 31, 2020, this hasthese factors negatively impacted, most notably, the revenues of the Company's Global Vision Care and Global Surgical businesses particularly in Asia where the COVID-19 pandemic originated. TheBeginning in March 2020, and throughout most of the second quarter of 2020, the Company anticipates further revenue declines in these businesses during 2020 as it experienced steeper declines in these business revenues and the revenues of other businesses as social restrictions expanded worldwide, particularly in the month of March. Beginning inU.S. and Europe. Social restrictions negatively impacted the second quarter, the Company started experiencing and is anticipating COVID-19 pandemic-related revenue declines inCompany's revenues for contact lenses, intraocular lenses, medical devices, surgical systems and certain pre- and post-operative eye-medications of its OphthalmologyOphtho Rx business, in medical aesthetics and therapeutic products of its Global Solta business, and in certain branded pharmaceutical products of its Salix, Ortho Dermatologics and Dentistry businesses. These revenues declines are expected,businesses, as the offices of many health care providers arewere closed and certain surgeries and elective medical procedures are beingwere deferred. To date,
The Company’s 2020 revenues were most negatively impacted during its second quarter by the social restrictions and other precautionary measures taken in response to the COVID-19 pandemic appearspandemic. However, as governments began lifting social restrictions, allowing offices of certain health care providers to have had only a limited impact onreopen 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 the Company's Xifaxan® products.
Based on its assessmentthird quarter of 2020. Revenues for the Company believes itsthree months ended March 31, 2021 and 2020 were $2,027 million and $2,012 million, respectively. This increase of $15 million in revenue represents a continuously improving trend over the decreases in year-over-year revenues willfor the three-month periods ended June 30, 2020, September 30, 2020 and December 31, 2020 of 23%, 3% and less than 1%, respectively. Presuming there continues to be most impacted by the pandemic during the second quarter, as the infection rateincreased availability of effective vaccines and any further resurgence of the COVID-19 virus accelerated in March into April, and variant strains thereof do not have a material adverse impact on efforts to contain the COVID-19 virus, had spread beyond Asia into different geographies, including the U.S. and Europe, and the number of shelter-in-place directives issued by local authorities increased. Although the affected businesses and geographies are expected to recover at different rates, overall the Company anticipates an ongoing, gradual global recovery from the macroeconomic and health care impacts of the pandemic that occurred during the negative trend infirst half of 2020 and anticipates that its revenues will begin to stabilize during its second quarter and continue into its third quarter with the revenues of all businesses possibly returninglikely return to pre-pandemic levels as early as late 2020, but, if not, then in 2021. This assessment assumes,However, the rates of recovery for each business will vary by geography and will be dependent upon, among other matters, thatthings, the availability and effectiveness of vaccines for the COVID-19 virus, government responses, rates of economic recovery, precautionary measures taken by patients and customers, the publicrate at which remaining social restrictions are successfullifted and once lifted, the presumption that social restrictions will not be materially reenacted in decelerating the spreadevent of the virus, there will be noa resurgence of the virus in the second half of 2020 that will lead to significant social restrictions, there will be no significant social restrictions in place at the end of 2020, responses from governments and private sector participants will be successful in bringing about a quick orderly recovery of the global economy, there will be no major
interruptions in the Company's supply, manufacturing and distribution channels and the Company continues to execute on its strategiesother actions taken in response to the COVID-19 pandemic.
2020 Interim Goodwill Impairment Testing
During the interim periods of 2020, after giving consideration to the nature and timing of the negative impacts of the COVID-19 pandemic on the Company's forecasted cash flows, 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, 2020 and June 30, 2020 the operating results for the Ortho Dermatologics reporting unit were less than forecasted primarily due to certain products experiencing longer launch cycles than originally anticipated as a result of the COVID-19 pandemic. The Company revised its long-term forecasts as of March 31, 2020 and as of June 30, 2020 for these matters. Management believed that these events were indicators that there was less headroom as of March 31, 2020 and June 30, 2020 as compared to the headroom calculated on the date Ortho Dermatologics goodwill was previously tested for impairment. Therefore, a quantitative fair value test for impairment to the goodwill of the Ortho Dermatologics reporting unit was performed at March 31, 2020 and at June 30, 2020. Based on the quantitative fair value tests, the fair value of the Ortho Dermatologics reporting unit continued to be greater than its carrying value and as a result there was 0 impairment to the goodwill of the reporting unit at March 31, 2020 and at June 30, 2020.
2020 Annual Goodwill Impairment Testing
The Company conducted its annual goodwill impairment test as of October 1, 2020 by first assessing qualitative factors. Based on its qualitative assessment as of October 1, 2020, 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 therefore concluded 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, 2020, the Company considered, among other matters, a range of potential impacts of COVID-19 pandemic related matters and the limited headroom calculated on the date Ortho Dermatologics goodwill was last tested for impairment (June 30, 2020). The
Company believed that these factors may suggest that it is more likely than not that the fair value of the Ortho Dermatologics reporting unit is 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, 2020, utilizing a long-term growth rate of 2.0% and a range of discount rates between 9.50% and 9.75%, 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.
2021 Realignment of Segment Structure
Commencing in 2021, the Company began operating in the following reportable segments: (i) Bausch + Lomb, (ii) Salix, (iii) International Rx, (iv) Ortho Dermatologics and (v) Diversified Products. The Bausch + Lomb segment consists of the: (i) U.S. Bausch + Lomb and (ii) International Bausch + Lomb reporting units. The Salix segment consists of the Salix reporting unit. The International Rx segment consists of the International Rx reporting unit. The Ortho Dermatologics segment consists of the: (i) Ortho Dermatologics and (ii) Global Solta reporting units. The Diversified Products segment consists of the: (i) Neurology and Other, (ii) Generics and (iii) Dentistry reporting units. This realignment in segment structure resulted in a change in the Company's former International reporting unit, which is now divided between the International Bausch + Lomb reporting unit and International Rx reporting unit. In addition, as part of this realignment of segment structure, certain products historically included in the Generics reporting unit are now included in the U.S. Bausch + Lomb reporting unit. See Note 19, "SEGMENT INFORMATION" for additional information.
As a result of this realignment, goodwill was reassigned to each of the aforementioned reporting units using a relative fair value approach. Goodwill previously reported in the former International reporting unit was reassigned to the International Bausch + Lomb and International Rx reporting units, and a portion of goodwill previously reported in the former Generics reporting unit was reassigned to the U.S. Bausch + Lomb reporting unit.
Immediately prior to the change in reporting units, the Company performed a qualitative fair value assessment for its former: (i) International and (ii) Generics reporting units. Based 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 current: (i) International Bausch + Lomb, (ii) International Rx 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 0 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 Generics 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
The Company's latest forecasts of cash flows gives consideration to the nature and timing of the expected revenue losses related to the COVID-19 pandemic as disclosed above. The changes in the amounts and timing of these revenues as presented in the latest forecasts include a range of potential outcomes and, with the exception of the Ortho Dermatologics reporting unit as discussed below, are not substantial enough to materially adversely affect the recoverability of any of the associated reporting units’ assets and are not material enough to indicate that the fair values of those reporting units might beare more likely than not below their respective carrying values.
Based onDuring the resultsthree months ended March 31, 2021, it became apparent that recent Ortho Dermatologics product launches were not going to achieve their forecasted trajectories that were expected once the offices of health care professionals could reopen as social restrictions associated with the October 1, 2019 annual goodwill impairment test,COVID-19 pandemic began to ease in the U.S. 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 performed qualitative interim assessmentsbegan taking steps to: (i) redirect its R&D spend to eliminate projects it has identified as high cost and high risk, (ii) redirect a portion of its marketing and product development outside the respective carrying valuesU.S. to geographies where there is better patient access and fair values of(iii) reduce its cost structure to be more competitive. As result, during the Ortho Dermatologics reporting unit and the Neuro and Other reporting unit as ofthree months ended March 31, 2020 to determine if quantitative fair value testing was warranted. As part of these qualitative assessments, management considered2021, the totality of all relevant events or circumstances that effect the carrying amount or fair value of each reporting unit, including comparing the reporting units’ operating results to the forecast used to test the goodwill of the Ortho Dermatologics reporting unit and the Neuro and Other reporting unit as of October 1, 2019. Management believed that based onCompany revised its qualitative assessment, it was more likely than not that the carrying amount of the Neuro and Other reporting unit was less than its fair value and, therefore, concluded a quantitative assessment was not required at March 31, 2020. However, the operating resultslong-term forecasts for the Ortho Dermatologics reporting unit for three months ended March 31, 2020 were less than those forecasted as of October 1, 2019 for the same period. Further, the Company adjusted its forecasted cash flows for the Ortho Dermatologics reporting unit for the wide range of potential impacts of the COVID-19 pandemic and longer launch cycles for certain new products. These factorsunit. Management believes that these events are indicators that there is less headroom as of March 31, 20202021 as compared to the headroom calculated on the date goodwill was last tested for impairment. 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 2.0%1.0% and a range of discount rates between 9.5%9.0% and 10.0%. Based on the quantitative fair value test, the faircarrying value of the Ortho Dermatologics reporting unit continued to be greater thanexceeded its carryingfair value at March 31, 2021, and asthe Company recognized a result, there was nogoodwill impairment to the goodwill of the reporting unit, however, the headroom was reduced from the prior year’s assessment. $469 million.
The Company continues to monitor the market conditions impacting the Ortho Dermatologics reporting unit and Neuro and Other reporting unit including: (i) the impacts of the COVID-19 pandemic on operations, (ii) the impact of the loss of exclusivity of certain products, (iii) the impact of longer launch cycles for new products, (iv) progress of its product pipeline and (iv)(v) ongoing pricing pressures, which could negatively impact the reporting units' results over the long term.
If market conditions further deteriorate, if the factors and circumstances regarding the COVID-19 pandemic escalate beyond management’s current expectations, or if the Company is unable to execute its strategies, it may be necessary to record impairment charges in the future and those charges can be material.
No other events occurred or circumstances changed during the period October 1, 2019 (the2020(the date goodwill was last tested for impairment)impairment for all reporting units) through March 31, 20202021 that indicate it is more likely than not the fair value of any reporting unit, other than the Ortho Dermatologics reporting unit, may be below its carrying value.
Accumulated goodwill impairment charges through March 31, 20202021 were $3,711$4,180 million.
9.ACCRUED AND OTHER CURRENT LIABILITIES
| |
9. | ACCRUED AND OTHER CURRENT LIABILITIES |
Accrued and other current liabilities consist of:
| | | | | | | | | | | | | | |
| (in millions) | | March 31,
2021 | | December 31,
2020 |
| Legal matters and related fees | | $ | 1,554 | | | $ | 1,672 | |
| Product rebates | | 890 | | | 747 | |
| Product returns | | 553 | | | 575 | |
| Interest | | 372 | | | 341 | |
| Employee compensation and benefit costs | | 279 | | | 316 | |
| Income taxes payable | | 132 | | | 158 | |
| Other | | 776 | | | 767 | |
| | $ | 4,556 | | | $ | 4,576 | |
|
| | | | | | | | |
| (in millions) | | March 31,
2020 | | December 31, 2019 |
| Legal matters and related fees | | $ | 1,416 |
| | $ | 1,397 |
|
| Product rebates | | 909 |
| | $ | 898 |
|
| Product returns | | 658 |
| | 691 |
|
| Interest | | 382 |
| | 305 |
|
| Employee compensation and benefit costs | | 249 |
| | 304 |
|
| Income taxes payable | | 184 |
| | 196 |
|
| Other | | 640 |
| | 720 |
|
| | | $ | 4,438 |
| | $ | 4,511 |
|
| |
10. | FINANCING ARRANGEMENTS |
Principal amounts of debt obligations and principal amounts of debt obligations net of premiums, discounts and issuance costs consist of the following:
|
| | | | | | | | | | | | | | | | | | |
|
|
|
| March 31, 2020 |
| December 31, 2019 |
| (in millions) |
| Maturity |
| Principal Amount |
| Net of Premiums, Discounts and Issuance Costs |
| Principal Amount |
| Net of Premiums, Discounts and Issuance Costs |
| Senior Secured Credit Facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2023 Revolving Credit Facility |
| June 2023 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| June 2025 Term Loan B Facility | | June 2025 | | 3,766 |
| | 3,671 |
| | 3,869 |
| | 3,768 |
|
| November 2025 Term Loan B Facility | | November 2025 | | 1,275 |
| | 1,257 |
| | 1,275 |
| | 1,257 |
|
| Senior Secured Notes: |
|
|
|
|
|
|
|
|
|
|
| 6.50% Secured Notes |
| March 2022 |
| 1,250 |
|
| 1,243 |
|
| 1,250 |
|
| 1,242 |
|
| 7.00% Secured Notes |
| March 2024 |
| 2,000 |
|
| 1,984 |
|
| 2,000 |
|
| 1,983 |
|
| 5.50% Secured Notes | | November 2025 | | 1,750 |
| | 1,734 |
| | 1,750 |
| | 1,733 |
|
| 5.75% Secured Notes | | August 2027 | | 500 |
| | 493 |
| | 500 |
| | 493 |
|
| Senior Unsecured Notes: |
| |
|
|
|
|
|
|
|
|
| 5.50% |
| March 2023 |
| 292 |
|
| 291 |
|
| 402 |
|
| 400 |
|
| 5.875% |
| May 2023 |
| 201 |
|
| 200 |
|
| 1,448 |
|
| 1,441 |
|
| 4.50% euro-denominated debt |
| May 2023 |
| 1,655 |
|
| 1,647 |
|
| 1,682 |
|
| 1,674 |
|
| 6.125% |
| April 2025 |
| 3,250 |
|
| 3,231 |
|
| 3,250 |
|
| 3,230 |
|
| 9.00% | | December 2025 | | 1,500 |
| | 1,474 |
| | 1,500 |
| | 1,473 |
|
| 9.25% | | April 2026 | | 1,500 |
| | 1,485 |
| | 1,500 |
| | 1,484 |
|
| 8.50% | | January 2027 | | 1,750 |
| | 1,756 |
| | 1,750 |
| | 1,756 |
|
| 7.00% | | January 2028 | | 750 |
| | 741 |
| | 750 |
| | 741 |
|
| 5.00% | | January 2028 | | 1,250 |
| | 1,234 |
| | 1,250 |
| | 1,234 |
|
| 7.25% | | May 2029 | | 750 |
| | 741 |
| | 750 |
| | 740 |
|
| 5.25% | | January 2030 | | 1,250 |
| | 1,234 |
| | 1,250 |
| | 1,234 |
|
| Other |
| Various |
| 12 |
|
| 12 |
|
| 12 |
|
| 12 |
|
| Total long-term debt and other |
| |
| $ | 24,701 |
|
| 24,428 |
|
| $ | 26,188 |
|
| 25,895 |
|
| Less: Current portion of long-term debt and other |
| |
| 4 |
|
|
|
|
| 1,234 |
|
| Non-current portion of long-term debt |
| |
|
|
| $ | 24,424 |
|
|
|
|
| $ | 24,661 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | March 31, 2021 | | December 31, 2020 |
| (in millions) | | Maturity | | Principal Amount | | Net of Premiums, Discounts and Issuance Costs | | Principal Amount | | Net of Premiums, Discounts and Issuance Costs |
| Senior Secured Credit Facilities: | | | | | | | | | | |
| 2023 Revolving Credit Facility | | June 2023 | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| June 2025 Term Loan B Facility | | June 2025 | | 3,298 | | | 3,224 | | | 3,298 | | | 3,220 | |
| November 2025 Term Loan B Facility | | November 2025 | | 1,125 | | | 1,112 | | | 1,125 | | | 1,112 | |
| Senior Secured Notes: | | | | | | | | | | |
| 7.00% Secured Notes | | March 2024 | | 1,800 | | | 1,789 | | | 2,000 | | | 1,987 | |
| 5.50% Secured Notes | | November 2025 | | 1,750 | | | 1,737 | | | 1,750 | | | 1,736 | |
| 5.75% Secured Notes | | August 2027 | | 500 | | | 494 | | | 500 | | | 494 | |
| Senior Unsecured Notes: | | | | | | | | | | |
| 6.125% | | April 2025 | | 3,250 | | | 3,234 | | | 3,250 | | | 3,234 | |
| 9.00% | | December 2025 | | 1,500 | | | 1,479 | | | 1,500 | | | 1,478 | |
| 9.25% | | April 2026 | | 1,500 | | | 1,488 | | | 1,500 | | | 1,487 | |
| 8.50% | | January 2027 | | 1,750 | | | 1,755 | | | 1,750 | | | 1,755 | |
| 7.00% | | January 2028 | | 750 | | | 742 | | | 750 | | | 742 | |
| 5.00% | | January 2028 | | 1,250 | | | 1,236 | | | 1,250 | | | 1,236 | |
| 6.25% | | February 2029 | | 1,500 | | | 1,481 | | | 1,500 | | | 1,480 | |
| 5.00% | | February 2029 | | 1,000 | | | 989 | | | 1,000 | | | 988 | |
| 7.25% | | May 2029 | | 750 | | | 742 | | | 750 | | | 741 | |
| 5.25% | | January 2030 | | 1,250 | | | 1,236 | | | 1,250 | | | 1,235 | |
| 5.25% | | February 2031 | | 1,000 | | | 988 | | | 1,000 | | | 988 | |
| Other | | Various | | 12 | | | 12 | | | 12 | | | 12 | |
| Total long-term debt and other | | | | $ | 23,985 | | | 23,738 | | | $ | 24,185 | | | 23,925 | |
| Less: Current portion of long-term debt and other | | | | 0 | | | | | 0 | |
| Non-current portion of long-term debt | | | | | | $ | 23,738 | | | | | $ | 23,925 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Covenant Compliance
The Senior Secured Credit Facilities (as defined below) and the indentures governing the Senior Secured Notes and Senior Unsecured Notes contain customary affirmative and negative covenants and specified events of default. These affirmative and negative covenants include, among other things, and subject to certain qualifications and exceptions, covenants that restrict the Company’s ability and the ability of its subsidiaries to: incur or guarantee additional indebtedness; create or permit liens on assets; pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; make certain investments and other restricted payments; engage in mergers, acquisitions, consolidations and amalgamations; transfer and sell certain assets; and engage in transactions with affiliates. As of March 31, 2021, the amount available for restricted payments under the "builder basket" in the Company’s most restrictive indentures (as defined by those indentures) was approximately $13,100 million (although such availability is subject to the Company's compliance with a 2.00:1.00 fixed charge coverage ratio). The 2023 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.
In March 2020, the World Health Organization declared COVID-19 a global pandemic, resulting in an adverse impact on the global economy. While there are a number of standard borrowing conditions that must be met to make borrowings under the 2023 Revolving Credit Facility, the Company has considered the economy's impact on its non-financial and financial maintenance covenants and believes the current state of the economy does not limit its access to capital under the 2023 Revolving Credit Facility at this time.
As of March 31, 2020,2021, the Company was in compliance with its financial maintenance covenant related to its debt obligations. The Company, based on its current forecast as adjusted for the potential impactsnext twelve months from the date of the COVID-19 pandemic,issuance of these financial statements, expects to remain in compliance with its financial maintenance covenant and meet its debt service obligations for at least the twelve months following the date of issuance of these financial statements.over that same period.
The Company continues to take steps to improve its operating results to ensure continual compliance with its financial maintenance covenant and may take other actions to reduce its debt levels to align with the Company’s long-term strategy, including divesting other businesses, refinancing debt and issuing equity or equity-linked securities as deemed appropriate.
Senior Secured Credit Facilities
On 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, and as further amended (the “Restated Credit Agreement”) with a syndicate of financial institutions and investors as lenders. The Restated Credit Agreement provides for a revolving credit facility of $1,225 million, which matures on the earlier of June 1, 2023 and the date that is 91 calendar days prior to the scheduled maturity of indebtedness for borrowed money of the Company and Bausch Health Americas, Inc. ("BHA") in an aggregate principal amount in excess of $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. Both the Company and BHA are borrowers under the 2023 Revolving Credit Facility, borrowings under which may be made in U.S. dollars, Canadian dollars or euros.
Current Description of Senior Secured Credit Facilities
Borrowings under the Senior Secured Credit Facilities in U.S. dollars bear interest at a rate per annum equal to, at the Company's option, either: (i) a base rate determined by reference to the highest of: (a) the prime rate (as defined in the Restated Credit Agreement), (b) the federal funds effective rate plus 1/2 of 1.00% or (c) the eurocurrency rate (as defined in the Restated Credit Agreement) for a period of one month plus 1.00% (or if such eurocurrency rate shall not be ascertainable, 1.00%) or (ii) a eurocurrency rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs (provided however, that the eurocurrency rate shall at no time be less than 0.00% per annum), in each case plus an applicable margin.
Borrowings under the 2023 Revolving Credit Facility in euros bear interest at a eurocurrency rate determined by reference to the costs of funds for euro deposits for the interest period relevant to such borrowing (provided however, that the eurocurrency rate shall at no time be less than 0.00% per annum), plus an applicable margin.
Borrowings under the 2023 Revolving Credit Facility in Canadian dollars bear interest at a rate per annum equal to, at the Company's option, either: (i) a prime rate determined by reference to the higher of: (a) the rate of interest last quoted by The Wall Street Journal as the “Canadian Prime Rate” or, if The Wall Street Journal ceases to quote such rate, the highest per
annum interest rate published by the Bank of Canada as its prime rate and (b) the 1 month BA rate (as defined below) calculated daily plus 1.00% (provided however, that the prime rate shall at no time be less than 0.00%) or (ii) the bankers’ acceptance rate for Canadian dollar deposits in the Toronto interbank market (the “BA rate”) for the interest period relevant to such borrowing (provided however, that the BA rate shall at no time be less than 0.00% per annum), in each case plus an applicable margin.
Subject to certain exceptions and customary baskets set forth in the Restated Credit Agreement, the Company is required to make mandatory prepayments of the loans under the Senior Secured Credit Facilities under certain circumstances, including from: (i) 100% of the net cash proceeds of insurance and condemnation proceeds for property or asset losses (subject to reinvestment rights and net proceeds threshold), (ii) 100% of the net cash proceeds from the incurrence of debt (other than permitted debt as described in the Restated Credit Agreement), (iii) 50% of Excess Cash Flow (as defined in the Restated Credit Agreement) subject to 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). These mandatory prepayments may be used to satisfy future amortization.
The applicable interest rate margins for the June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility are 2.00% and 1.75%, respectively, with respect to base rate and prime rate borrowings and 3.00% and 2.75%, respectively, with respect to eurocurrency rate and BA rate borrowings. As of March 31, 2020,2021, the stated rates of interest on the Company’s borrowings under the June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility were 3.61%3.11% and 3.36%2.86% per annum, respectively.
The amortization rate for both the June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility is 5.00% per annum. The Company may direct that prepayments be applied to such amortization payments in order of maturity. As of March 31, 2020,2021, the aggregate remaining mandatory quarterly amortization payments for the Senior Secured Credit Facilities were $1,023$405 million through November 1, 2025.
The applicable interest rate margins for borrowings under the 2023 Revolving Credit Facility are 1.50%-2.00% with respect to base rate or prime rate borrowings and 2.50%-3.00% with respect to eurocurrency rate or BA rate borrowings. As of
March 31, 2020,2021, the stated rate of interest on the 2023 Revolving Credit Facility was 3.36%3.11% per annum. As of March 31, 2020,2021, the Company had 0 outstanding borrowings, $168$101 million of issued and outstanding letters of credit and remaining availability of $1,057$1,124 million under its 2023 Revolving Credit Facility. In addition, the Company is required to pay commitment fees of 0.25%-0.50% per annum with respect to the unutilized commitments under the 2023 Revolving Credit Facility, payable quarterly in arrears. The Company also is required to pay: (i) letter of credit fees on the maximum amount available to be drawn under all outstanding letters of credit in an amount equal to the applicable margin on eurocurrency rate borrowings under the 2023 Revolving Credit Facility on a per annum basis, payable quarterly in arrears, (ii) customary fronting fees for the issuance of letters of credit and (iii) agency fees.
The Restated Credit Agreement permits the incurrence of incremental credit facility borrowings up to the greater of $1,000 million and 28.5% of Consolidated Adjusted EBITDA (as defined in the Restated Credit Agreement), subject to customary terms and conditions, as well as the incurrence of additional incremental credit facility borrowings subject to a secured leverage ratio of not greater than 3.50:1.00, and, in the case of unsecured debt, 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.
Senior Secured Notes
The Senior Secured Notes are guaranteed by each of the Company’s subsidiaries that is a guarantor under the Restated Credit Agreement and existing Senior Unsecured Notes (together, the “Note Guarantors”). The Senior Secured Notes and the guarantees related thereto are senior obligations and are secured, subject to permitted liens and certain other exceptions, by the same first priority liens that secure the Company’s obligations under the Restated Credit Agreement under the terms of the indentures governing the Senior Secured Notes.
The Senior Secured Notes and the guarantees rank equally in right of repayment 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.
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, holders of the Senior Secured Notes may require the Company to repurchase such holder’s notes, in whole or in part, at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest.
5.75% Senior Secured Notes due 2027 - March 2019 Refinancing Transactions
On March 8, 2019, BHA and the Company issued: (i) $1,000 million aggregate principal amount of 8.50% Senior Unsecured Notes due January 2027 (the "January 2027 Unsecured Notes") and (ii) $500 million aggregate principal amount of 5.75% Senior Secured Notes due August 2027 (the "August 2027 Secured Notes"), respectively, in a private placement. A portion of the proceeds, and cash on hand, were used to: (i) repurchase $584 million of 5.875% Senior Unsecured Notes due 2023 (the "May 2023 Unsecured Notes"), (ii) repurchase $518 million of 5.625% Senior Unsecured Notes due 2021 (the “December 2021 Unsecured Notes”), (iii) repurchase $216 million of 5.50% Senior Unsecured Notes due 2023 (the "March 2023 Unsecured Notes”) and (iv) pay all fees and expenses associated with these transactions (collectively, the “March 2019 Refinancing Transactions”). During April 2019, the Company redeemed $182 million of the December 2021 Unsecured Notes, representing the remaining outstanding principal balance of the December 2021 Unsecured Notes and completing the refinancing of $1,500 million of debt in connection with the March 2019 Refinancing Transactions.
Senior Unsecured Notes
The Senior Unsecured Notes issued by the Company are the Company’s senior unsecured obligations and are jointly and severally guaranteed on a senior unsecured basis by each of its subsidiaries that is a guarantor under the Senior Secured Credit Facilities. The Senior Unsecured Notes issued by BHA are senior unsecured obligations of BHA and are jointly and severally guaranteed on a senior unsecured basis by the Company and each of its subsidiaries (other than BHA) that is a guarantor under the Senior Secured Credit Facilities. Future subsidiaries of the Company and BHA, if any, may be required to guarantee the Senior Unsecured Notes.
If the Company experiences a change in control, the Company may be required to make an offer to repurchase each series of Senior Unsecured Notes, in whole or in part, at a purchase price equal to 101% of the aggregate principal amount of the Senior Unsecured Notes repurchased, plus accrued and unpaid interest.
8.50% Senior Unsecured Notes due 2027 - March 2019 Refinancing Transactions
As part of the March 2019 Refinancing Transactions described above, BHA issued $1,000 million aggregate principal amount of January 2027 Unsecured Notes. These are additional notes and form part of the same series as BHA’s existing January 2027 Unsecured Notes.
7.00% Senior Unsecured Notes due 2028 and 7.25%6.25% Senior Unsecured Notes due 2029 - May 20192020 Refinancing Transactions
On May 23, 2019,26, 2020, the Company issued: (i) $750issued $1,500 million aggregate principal amount of 7.00%6.25% Senior Unsecured Notes due January 2028 (the "7.00% January 2028 Unsecured Notes") and (ii) $750 million aggregate principal amount of 7.25% Senior Unsecured Notes due MayFebruary 2029 (the "May"February 2029 Unsecured Notes"), respectively, in a private placement. The proceeds and cash on hand, were used to: (i) repurchase $1,118 million of May 2023 Unsecured Notes, (ii) repurchase $382 million of March 2023 Unsecured Notes and (iii) pay all fees and expenses associated with these transactions (collectively, the “May 2019 Refinancing Transactions”).
5.00% Senior Unsecured Notes due 2028 and 5.25% Senior Unsecured Notes due 2030 - December 2019 Financing and Refinancing Transactions
On December 30, 2019, the Company issued: (i) $1,250 million aggregate principal amount of 5.00% Senior Unsecured Notes due January 2028 (the "5.00% January 2028 Unsecured Notes") and (ii) $1,250 million aggregate principal amount of 5.25% Senior Unsecured Notes due January 2030 (the "January 2030 Unsecured Notes") in a private placement. The proceeds and cash on hand were used to: (i) redeem $1,240repurchase $1,250 million aggregate principal amount of outstanding 6.50% Senior Secured Notes due March 2022, (ii) prepay $303 million of mandatory amortization scheduled for payment in 2022 under the Company's June 2025 and November 2025 Term Loan B Facilities and (iii) pay all fees and expenses associated with these transactions (collectively, the "May 2020 Refinancing Transactions"). The May 2020 Refinancing Transactions were accounted for as an extinguishment of debt, and 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 February 2029 Unsecured Notes accrue interest at the rate of 6.25% per year, payable semi-annually in arrears on each of February 15 and August 15.
The Company may redeem all or a portion of the February 2029 Unsecured Notes at any time prior to February 15, 2024, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole” premium. In addition, at any time prior to August 15, 2023, the Company may redeem up to 40% of the aggregate principal amount of the outstanding February 2029 Unsecured Notes with the net proceeds of certain equity offerings at the redemption price set forth in the February 2029 Unsecured Notes indenture. On or after February 15, 2024, the Company may redeem all or a portion of the February 2029 Unsecured Notes at the applicable redemption prices set forth in the February 2029 Unsecured Notes indenture, plus accrued and unpaid interest to, but not including, the date of redemption.
5.00% Senior Unsecured Notes due 2029 and 5.25% Senior Unsecured Notes due 2031 – December 2020 Refinancing Transactions
On December 3, 2020, the Company issued $1,000 million aggregate principal amount of 5.00% Senior Unsecured Notes due February 2029 (the "5.00% February 2029 Unsecured Notes") and $1,000 million aggregate principal amount of 5.25% Senior Unsecured Notes due February 2031 (the "February 2031 Unsecured Notes") in a private placement. The aggregate proceeds and cash on hand were used to repurchase the remaining outstanding principal amounts of: (i) €1,500 million of 4.50% Senior Unsecured Notes due 2023 (the "Euro Notes”), (ii) $233 million of 5.50% Senior Unsecured Notes due 2023 (the “March 2023 Unsecured Notes on January 16, 2020, (ii) finance the $1,210 million settlement of certain U.S. securities litigation, subject to final court approval, as discussed in Note 18, "LEGAL PROCEEDINGS"Notes”) and (iii) pay all fees and expenses associated with these transactions (collectively, the "December 2019 Financing and2020 Refinancing Transactions"). The December 2020 Refinancing Transactions were accounted for as an extinguishment of debt, and the Company incurred a loss on extinguishment of debt of $7 million representing the difference between the amount paid to settle the extinguished debt and the extinguished debt's carrying value. The 5.00% February 2029 Unsecured Notes accrue interest at the rate of 5.00% per year, payable semi-annually in arrears on each of February 15 and August 15. The February 2031 Unsecured Notes accrue interest at the rate of 5.25% per year, payable semi-annually in arrears on each of February 15 and August 15.
The Company may redeem all or a portion of the 5.00% February 2029 Unsecured Notes at any time prior to February 15, 2024, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole” premium. In addition, at any time prior to February 15, 2024, the Company may redeem up to 40% of the aggregate principal amount of the outstanding 5.00% February 2029 Unsecured Notes with the net proceeds of certain equity offerings at the redemption price set forth in the 5.00% February 2029 Unsecured Notes indenture. On or after February 15, 2024, the Company may redeem all or a portion of the 5.00% February 2029 Unsecured Notes at the applicable redemption prices set forth in the 5.00% February 2029 Unsecured Notes indenture, plus accrued and unpaid interest to, but not including, the date of redemption.
Weighted Average Stated Rate of Interest
The weighted average stated rate of interest for the Company's outstanding debt obligations as of March 31, 20202021 and December 31, 20192020 was 6.01%6.00% and 6.21%6.02%, respectively.
Maturities and Mandatory Payments
In order to reduce future cash interest payments, as well as future maturities and mandatory payments, the 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 other factors. During the three months ended March 31, 2020, the Company repurchased and retired, outstanding senior unsecured notes with an aggregate par value of $17 million in the open market, for an aggregate cost of $16 million. In connection with these repurchases, the Company recognized a gain of $1 million included in Loss on extinguishment of debt.
Maturities and mandatory payments of debt obligations for the remainder of 2020,2021, the five succeeding years ending December 31 and thereafter are as follows:
| | | | | |
| (in millions) | |
| Remainder of 2021 | $ | 0 | |
| 2022 | 0 | |
| 2023 | 0 | |
| 2024 | 2,091 | |
| 2025 | 10,632 | |
| 2026 | 1,500 | |
| Thereafter | 9,762 | |
| Total debt obligations | 23,985 | |
| Unamortized premiums, discounts and issuance costs | (247) | |
| Total long-term debt and other | $ | 23,738 | |
|
| | | |
| (in millions) | |
| Remainder of 2020 | $ | 4 |
|
| 2021 | — |
|
| 2022 | 1,553 |
|
| 2023 | 2,447 |
|
| 2024 | 2,303 |
|
| 2025 | 10,632 |
|
| Thereafter | 7,762 |
|
| Total debt obligations | 24,701 |
|
| Unamortized premiums, discounts and issuance costs | (273 | ) |
| Total long-term debt and other | $ | 24,428 |
|
| |
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. Net periodic (benefit) cost for the Company’s defined benefit pension plans and postretirement benefit plan for the three months ended March 31, 20202021 and 20192020 consists of:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefit Plans | | Postretirement
Benefit
Plan |
| U.S. Plan | | Non-U.S. Plans | |
| (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| Service cost | | $ | 0 | | | $ | 0 | | | $ | 1 | | | $ | 1 | | | $ | 0 | | | $ | 0 | |
| Interest cost | | 1 | | | 2 | | | 1 | | | 1 | | | 0 | | | 0 | |
| Expected return on plan assets | | (3) | | | (3) | | | (1) | | | (1) | | | 0 | | | 0 | |
| Amortization of prior service credit and other | | 0 | | | 0 | | | 0 | | | (4) | | | (1) | | | (1) | |
| Net periodic (benefit) cost | | $ | (2) | | | $ | (1) | | | $ | 1 | | | $ | (3) | | | $ | (1) | | | $ | (1) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefit Plans | | Postretirement
Benefit
Plan |
| | U.S. Plan | | Non-U.S. Plans | |
| (in millions) | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| Service cost | | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
| Interest cost | | 2 |
| | 2 |
| | 1 |
| | 1 |
| | — |
| | — |
|
| Expected return on plan assets | | (3 | ) | | (3 | ) | | (1 | ) | | (1 | ) | | — |
| | — |
|
| Amortization of prior service credit and other | | — |
| | — |
| | (4 | ) | | — |
| | (1 | ) | | — |
|
| Net periodic (benefit) cost | | $ | (1 | ) | | $ | (1 | ) | | $ | (3 | ) | | $ | 1 |
| | $ | (1 | ) | | $ | — |
|
| |
12. | SHARE-BASED COMPENSATION |
In May 2014, shareholders approved the Company’s 2014 Omnibus Incentive Plan (the “2014 Plan”) which replaced the Company’s 2011 Omnibus Incentive Plan (the “2011 Plan”) for future equity awards granted by the Company. The Company transferred the common shares available under the 2011 Plan to the 2014 Plan. The maximum number of common shares that may be issued to participants under the 2014 Plan was 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 20,000,000 common shares of common stock for issuance under the 2014 Plan.
Effective April 30, 2018, the Company amended and restated the 2014 Plan (the “Amended and Restated 2014 Plan”). The Amended and Restated 2014 Plan includes the following amendments: (i) the number of common shares authorized for issuance under the Amended and Restated 2014 Plan has been increased by an additional 11,900,000 common shares, as approved by the requisite number of shareholders at the Company’s annual general meeting held on April 30, 2018, (ii) introduction of a $750,000 aggregate fair market value limit on awards (in either equity, cash or other compensation) that can be granted in any calendar year to a participant who is a non-employee director, (iii) housekeeping changes to address recent changes to Section 162(m) of the Internal Revenue Code, (iv) awards are expressly subject to the Company’s clawback policy and (v) awards not assumed or substituted in connection with a Change of Control (as defined in the Amended and Restated 2014 Plan) will only vest on a pro rata basis.
Approximately 3,892,000 common shares were available for future grants as of March 31, 2020. The Company uses reserved and unissued common shares to satisfy its obligations under its share-based compensation plans.
Effective April 28, 2020, the Company further amended and restated the Amended and Restated 2014 Plan (the “Further Amended and Restated 2014 Plan”). The Further Amended and Restated 2014 Plan includes the following amendments: (i) the number of common shares authorized for issuance under the Further Amended and Restated 2014 Plan has been increased
by an additional 13,500,000 common shares, as approved by the requisite number of shareholders at the Company’s annual general meeting held on April 28, 2020, (ii) the exercise price of stock options and share appreciation rights (“SARs”) will be based on the closing price of the underlying common shares on the date such stock options or SARs are granted (rather than on the last preceding trading date), (iii) additional provisions clarifying that: (a) stock options and SARs will not be eligible for the payment of dividend or dividend equivalents and (b) the Talent and Compensation Committee of the Board of Directors of the Company cannot, without shareholder approval, seek to effect any repricing of any previously granted “underwater” stock option or SAR and (iv) other housekeeping and/or clerical changes.
Approximately 11,858,000 common shares were available for future grants as of March 31, 2021. The Company uses reserved and unissued common shares to satisfy its obligations under its share-based compensation plans.
The Company has a long-term incentive program with the objective of realigningaligning 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:of awards that: (i) awards that vest upon achievement of certain share price appreciation conditions that are based on total shareholder return (“TSR”) and, (ii) awards that vest upon attainment of certain performance targets that are based on the Company’s return on tangible capital (“ROTC”).
The following table summarizes the components and classification of share-based compensation expense related to stock options and RSUs for the three months ended March 31, 20202021 and 2019:2020:
|
| | | | | | | |
| | Three Months Ended
March 31, |
| (in millions) | 2020 |
| 2019 |
| Stock options | $ | 4 |
| | $ | 6 |
|
| RSUs | 23 |
| | 18 |
|
| | $ | 27 |
| | $ | 24 |
|
| | | | |
| Research and development expenses | $ | 3 |
| | $ | 2 |
|
| Selling, general and administrative expenses | 24 |
| | 22 |
|
| | $ | 27 |
| | $ | 24 |
|
| | | | | | | | | | | | | | | | | |
| | | |
| (in millions) | | | | | 2021 | | 2020 |
| Stock options | | | | | $ | 4 | | | $ | 4 | |
| RSUs | | | | | 27 | | | 23 | |
| | | | | $ | 31 | | | $ | 27 | |
| | | | | | | |
| Research and development expenses | | | | | $ | 3 | | | $ | 3 | |
| Selling, general and administrative expenses | | | | | 28 | | | 24 | |
| | | | | $ | 31 | | | $ | 27 | |
| | | | | | | |
| | | | | | | |
Share-based awards granted for three months ended March 31, 2021 and 2020 consist of:
|
| | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | 2019 |
| Stock options | | | |
| Granted | 2,260,000 |
| | 1,684,000 |
|
| Weighted-average exercise price | $ | 24.77 |
| | $ | 23.16 |
|
| Weighted-average grant date fair value | $ | 6.60 |
| | $ | 8.47 |
|
| | | | |
| Time-based RSUs | | | |
| Granted | 2,453,000 |
| | 2,401,000 |
|
| Weighted-average grant date fair value | $ | 23.37 |
| | $ | 24.05 |
|
| |
|
| |
|
|
| TSR performance-based RSUs | | | |
| Granted | 425,000 |
| | 454,000 |
|
| Weighted-average grant date fair value | $ | 26.13 |
| | $ | 34.53 |
|
| | | | |
| ROTC performance-based RSUs | | | |
| Granted | 472,000 |
| | 505,000 |
|
| Weighted-average grant date fair value | $ | 27.05 |
| | $ | 25.03 |
|
| | | | | | | | | | | |
| |
| 2021 | | 2020 |
| Stock options | | | |
| Granted | 1,343,000 | | | 2,260,000 | |
| Weighted-average exercise price | $ | 32.56 | | | $ | 24.77 | |
| Weighted-average grant date fair value | $ | 11.45 | | | $ | 6.60 | |
| Time-based RSUs | | | |
| Granted | 2,560,000 | | | 2,453,000 | |
| Weighted-average grant date fair value | $ | 32.45 | | | $ | 23.37 | |
| TSR performance-based RSUs | | | |
| Granted | 400,000 | | | 425,000 | |
| Weighted-average grant date fair value | $ | 56.04 | | | $ | 26.13 | |
| ROTC performance-based RSUs | | | |
| Granted | 413,000 | | | 472,000 | |
| Weighted-average grant date fair value | $ | 31.72 | | | $ | 27.05 | |
| Separation performance-based RSUs | | | |
| Granted | 132,000 | | | 0 | |
| Weighted-average grant date fair value | $ | 32.56 | | | $ | 0 | |
As of March 31, 2020,2021, the remaining unrecognized compensation expense related to all outstanding non-vested stock options, time-based RSUs and performance-based RSUs amounted to $161$193 million, which will be amortized over a weighted-average period of 1.951.97 years.
| |
13. | ACCUMULATED OTHER COMPREHENSIVE LOSS |
13.ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss consists of:
|
| | | | | | | | |
| (in millions) | | March 31,
2020 | | December 31,
2019 |
| Foreign currency translation adjustment | | $ | (2,236 | ) | | $ | (2,046 | ) |
| Pension and postretirement benefit plan adjustments, net of income taxes | | (45 | ) | | (40 | ) |
| | | $ | (2,281 | ) | | $ | (2,086 | ) |
| | | | | | | | | | | | | | |
| (in millions) | | March 31,
2021 | | December 31,
2020 |
| Foreign currency translation adjustment | | $ | (2,201) | | | $ | (2,077) | |
| Pension and postretirement benefit plan adjustments, net of income taxes | | (55) | | | (56) | |
| | $ | (2,256) | | | $ | (2,133) | |
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.
During the three months ended March 31, 2020,2021, amounts reclassified from Accumulated other comprehensive loss into the Company's operating results were 0t material.
| |
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 for the three months ended March 31, 2021 and 2020 consist of:
| | | | | | | | | | | | | | | | | | |
| | | | |
| (in millions) | | | | | | 2021 | | 2020 |
| Product related research and development | | | | | | $ | 105 | | | $ | 114 | |
| Quality assurance | | | | | | 7 | | | 8 | |
| | | | | | $ | 112 | | | $ | 122 | |
|
| | | | | | | | |
| | | Three Months Ended
March 31, |
| (in millions) | | 2020 | | 2019 |
| Product related research and development | | $ | 114 |
| | $ | 107 |
|
| Quality assurance | | 8 |
| | 10 |
|
| | | $ | 122 |
| | $ | 117 |
|
| |
15. | OTHER EXPENSE (INCOME), NET |
Other (income) expense, (income), net for the three months ended March 31, 2021 and 2020 consists of:
| | | | | | | | | | | | | | | | | | |
| | | | |
| (in millions) | | | | | | 2021 | | 2020 |
| Litigation and other matters | | | | | | $ | 0 | | | $ | 23 | |
| Acquisition-related contingent consideration | | | | | | (9) | | | 13 | |
| Net gain on sale of assets | | | | | | (23) | | | (1) | |
| Acquired in-process research and development costs | | | | | | 2 | | | 1 | |
| | | | | | $ | (30) | | | $ | 36 | |
|
| | | | | | | | |
|
| Three Months Ended
March 31, |
| (in millions) |
| 2020 |
| 2019 |
| Net gain on sale of assets | | $ | (1 | ) | | $ | (10 | ) |
| Acquired in-process research and development costs | | 1 |
| | 1 |
|
| Acquisition-related costs | | — |
| | 8 |
|
| Litigation and other matters |
| 23 |
|
| 2 |
|
| Other, net |
| — |
|
| (4 | ) |
| |
| $ | 23 |
|
| $ | (3 | ) |
For interim financial statement purposes, U.S. GAAP income tax expense/benefit related to ordinary income is determined by applying an estimated annual effective income tax rate against a company's ordinary income, subject to certain limitations on the benefit of losses. Income tax expense/benefit related to items not characterized as ordinary income is recognized as a discrete item when incurred. The estimation of the Company's income tax provision requires the use of management forecasts and other estimates, application of statutory income tax rates, and an evaluation of valuation allowances. The Company's estimated annual effective income tax rate may be revised, if necessary, in each interim period.
Benefit from income taxes for the three months ended March 31, 2020 was $26 million and included: (i) $21 million of net income tax benefit for discrete items, which includes: (a) $10 million in tax benefits recognized for changes in uncertain tax positions, (b) a $5 million net tax benefit related to a deduction for stock compensation and (c) $4 million of net tax benefits
associated with filing certain tax returns and (ii) $5 million of income tax benefit for the Company's ordinary loss duringfor the three months ended March 31, 2020.
Benefit from income taxes for the three months ended March 31, 2019 was $74 million and included: (i) $51 million of net income tax expense for discrete items, which includes: (a) $32 million of tax benefit recognized upon a ruling from the Polish tax authorities confirming the deductibility of royalty payments by an affiliate, (b) $15 million of net tax benefits associated with filing certain tax returns and (c) $4 million in tax benefits recognized for changes in uncertain tax positions and (ii) $23 million of income tax benefit for the Company's ordinary loss during the three months ended March 31, 2019.
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 except that, as a result of the 2018 adoption of guidance regarding intra-entity transfers, any change in valuation allowance surrounding the adoption of the intra-entity transfer resulting from this adoption was recorded within equity. The valuation allowance against deferred tax assets was $2,824$2,248 million and $2,831$2,252 million as of March 31, 20202021 and December 31, 2019,2020, respectively. The decrease was primarily due to income in Canada. The Company will continue to assess the need for a valuation allowance on a go-forward basis.
As of March 31, 20202021 and December 31, 2019,2020, the Company had $967$1,042 million and $1,002$1,025 million of unrecognized tax benefits, which included $46$51 million and $45$49 million of interest and penalties, respectively. Of the total unrecognized tax benefits as of March 31, 2020, $3212021, $431 million would reduce the Company’s effective tax rate, if recognized. The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits at March 31, 20202021 could decrease by approximately $110$203 million in the next 12 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. The Company’s position as of March 31, 20202021 with regard to proposed audit adjustments has not changed and the proposed adjustments continue to result primarily in a loss of tax attributes that are subject to a full valuation allowance.
The Internal Revenue Service completed its examinations ofIn the Company’s U.S. consolidated federal income tax returns for, the years 2013 and 2014. There were no material adjustments to the Company's taxable income as a result of these examinations. The 2014 tax year remains open to the extent of a 2017 capital loss carried back to that year. Additionally, the Internal Revenue Service has selected forThe IRS is continuing their examination of the Company's annual tax filings for 2015 and 2016 and the Company's short period tax return for the period ended September 8, 2017, which was filed as a result of the Company's internal restructuring efforts during 2017. At this time, the Company does not expect thatexpects to receive a proposed adjustments, if any, for these periods would be material to the Company's Consolidated Financial Statements.adjustment disallowing a significant capital loss in 2017. The Company believes it will sustain its deduction and no income tax provision has been recorded.
The Company's U.S. affiliates remain under examination for various state tax audits in the U.S. for years 20122015 through 2017.2018.
The Company’s subsidiaries in Germany are under audit for 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’s subsidiaries in Australia are under audit by the Australian Tax Office for various years beginning in 2010.2011 through 2017. At this time, the Company does not expect that proposed adjustments, if any, would be material to the Company's Consolidated Financial Statements.
Certain affiliates of the Company in regions outside of Canada, the U.S., Germany and Australia are currently under examination by relevant taxing authorities, and all necessary accruals have been recorded, including uncertain tax benefits. At this time, the Company does not expect that proposed adjustments, if any, would be material to the Company's Consolidated Financial Statements.
Loss per share attributable to Bausch Health Companies Inc. for the three months ended March 31, 2021 and 2020 were calculated as follows:
|
| | | | | | | |
| | Three Months Ended
March 31, |
| (in millions, except per share amounts) | 2020 | | 2019 |
| Net loss attributable to Bausch Health Companies Inc. | $ | (152 | ) | | $ | (52 | ) |
| | | | |
| Basic and diluted weighted-average common shares outstanding | 353.4 |
| | 351.3 |
|
| | | | |
| Basic and diluted loss per share attributable to Bausch Health Companies Inc. | $ | (0.43 | ) | | $ | (0.15 | ) |
| | | | | | | | | | | | | | | | | |
| | | |
| (in millions, except per share amounts) | | | | | 2021 | | 2020 |
| Net loss attributable to Bausch Health Companies Inc. | | | | | $ | (610) | | | $ | (152) | |
| Basic and diluted weighted-average common shares | | | | | 356.8 | | | 353.4 | |
| Basic and diluted loss per share attributable to Bausch Health Companies Inc. | | | | | $ | (1.71) | | | $ | (0.43) | |
During the three months ended March 31, 20202021 and 2019,2020, 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 approximately 5,207,0006,657,000 and 4,920,0005,207,000 common shares for the three months ended March 31, 20202021 and 2019,2020, respectively.
During the three months ended March 31, 20202021 and 2019,2020, time-based RSUs, performance-based RSUs and stock options to purchase approximately 9,561,0004,846,000 and 5,370,0009,561,000 common shares, 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.
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 in Note 21,20, “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, 2019,2020, filed with the SEC and the CSA on February 19, 2020.24, 2021. Except as described below, there have been no material updates or developments with respect to any such proceedings or actions during the three months ended March 31, 2020.2021.
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 March 31, 2020,2021, the Company's Consolidated Balance Sheets includes accrued current loss contingencies of $1,416$1,554 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
SEC Investigation
Beginning in November 2015, the Company 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 Rx Services, LLC ("Philidor"), its accounting practices and policies, its public disclosures and other matters. On March 27, 2020, the staff of the SEC’s Los Angeles Regional Office issued a Wells Notice informing the Company that they had reached a preliminary determination to recommend that the SEC bring charges against the Company for violating the federal securities laws as a result of SEC filings and other statements made by Valeant and its former executives in 2014-2015 concerning Philidor, as well as other accounting and disclosure matters. The Company continues to cooperate with the SEC in this matter, has responded to the Wells Notice and continues to engage in settlement discussions with the staff. The Company has agreed to a tolling agreement with the SEC
regarding these potential claims. Although 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, the Company expects that it will likely result in damages, settlement payments, fines, penalties, consent orders or other administrative sanctions against the Company and/or certain of its former legacy directors and officers, any of which could be material. As a result, although no agreement has been reached, the Company has recorded an estimated liability based on these discussions which is included in the Company's accrued current loss contingencies. The final resolution may differ from the Company's current estimate and it could be material to the Company’s results of operations.
As referenced above, during the three months ended March 31, 2020,2021, there have been no material updates or developments with respect to certain other proceedings or actions as described under “Governmental“Governmental and Regulatory Inquiries” in Note 21,20, “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, 2019,2020, filed with the SEC on February 19, 2020. Such24, 2021. These matters include:
AMF Investigation
On April 12, 2016, the Company received a 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 Company’s former relationship with Philidor, the Company's accounting practices and policies and other matters. In July 2018, the Company was advised by the AMF that it had issued a formal investigation order against it.
Investigation by the U.S. Attorney's Office for the District of Massachusetts - re Arestin®OraPharma
In August 2019, the Company received a subpoena from the U.S. Attorney's Office for the District of Massachusetts, requesting materials including documents concerning the sales, marketing, coverage and reimbursement of Arestin®, including related support services, and other matters.
The Company is cooperating with all these investigations.this investigation. The Company cannot predict the outcome or the duration of these investigationsthis 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.
Securities and RICO Class Actions and Related Matters
U.S. Securities Litigation - Opt-Out Litigation
On December 16, 2019, the Company announced 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 District of New Jersey (In re Valeant Pharmaceuticals International, Inc. Securities Litigation, Case No. 15-cv-07658). On January 31, 2021 the District Court issued an order granting final approval of this settlement. On February 4, 2021, 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.
In October 2015, 4 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. The allegations related to, among other things, allegedly false and misleading statements and/or failures to disclose information about the Company’s business and prospects, including relating to drug pricing, the Company’s use of specialty pharmacies, and the Company’s relationship with Philidor.
On May 31, 2016, the court entered an order consolidating the 4 actions under the caption In re Valeant Pharmaceuticals International, Inc. Securities Litigation, Case No. 15-cv-07658. On June 24, 2016, the lead plaintiff filed a consolidated complaint asserting claims under Sections 10(b) and 20(a) of the Exchange Act against the Company, and certain current or former officers and directors, as well as claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the “Securities Act”) against the Company, certain current or former officers and directors, and certain other parties. The lead plaintiff seeks to bring these claims on behalf of a putative class of persons who purchased the Company’s equity securities and senior notes in the United States between January 4, 2013 and March 15, 2016, including all those who purchased the Company’s securities in the United States in the Company’s debt and stock offerings between July 2013 to March 2015. On September 13, 2016, the Company and the other defendants moved to dismiss the consolidated complaint. On April 28, 2017, the court dismissed certain claims arising out of the Company's private placement offerings and otherwise denied the motions to dismiss. On September 20, 2018, lead plaintiff filed an amended complaint, adding claims against ValueAct Capital Management L.P. and affiliated entities ("ValueAct"). On October 31, 2018, a third-party defendant, ValueAct, filed a motion to dismiss. On June 30, 2019, the Court denied the motion to dismiss.
On December 16, 2019, the Company, the current or former officers and directors, ValueAct, and the underwriters announced that they agreed to resolve the securities action for $1,210 million, subject to final court approval. Once approved byThis settlement received final approval from the
court the settlementon January 31, 2021 and will resolve and discharge 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. On January 27, 2020 the court preliminarily approved the settlement and scheduled thesettlement. A final settlement approval hearing forwas held on May 27, 2020.2020 and the settlement remains subject to appeals of the final court approval issued on January 31, 2021. In order to qualify for a settlement payment all persons and 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 payment is being paid in accordance with the payment schedule outlined in the settlement agreement. The opt-out litigations discussed below remain ongoing.
On June 6, 2018, a putative class action was filed in the U.S. District Court for the District 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) (“Timber Hill”), asserts securities fraud claims under Sections 10(b) and 20(a) of the Exchange Act on behalf of a putative class of persons who purchased call options or sold put options on the Company’s common stock during the period January 4, 2013 through August 11, 2016. On June 11, 2018, this action was consolidated with In re Valeant Pharmaceuticals International, Inc. Securities Litigation, (Case No. 15-cv-07658). On January 14, 2019, the defendants filed a motion to dismiss the Timber Hill complaint. Briefing on that motion was completed on February 13, 2019. On August 15, 2019, the Court denied the motion to dismiss the Timber Hill action, holding that this complaint was a legal nullity as a result of the June 11, 2018 consolidation order.
In addition to the consolidated putative class action, NaN groups of individual investors in the Company’s stock and debt securities have chosen to opt out of the consolidated putative class action and filed securities actions in the U.S. District Court for the District of New Jersey against the Company and certain current or former officers and directors. In addition to the matters captioned Maverick Neutral Levered Fund v. Valeant Pharmaceuticals International, Inc. (Case No. 20-cv-02190) (“Maverick”) and Templeton v. Valeant Pharmaceuticals International, Inc. (Case No. 20-cv-05478) (“Templeton”), theseThese actions were captioned previously in the Company’s Annual Report on Form 10K10-K for the year ended December 31, 2019,2020, filed on February 19, 2020.24, 2021. NaN of the NaN opt outopt-out actions have been dismissed; and while the total number of remaining opt outopt-out actions pending in the District of New Jersey is NaN actions, the Company has reached agreement in principle to resolve several of these actions and expects those actions to be dismissed shortly.actions.
These individual shareholder actions assert claims under Sections 10(b), 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, negligent misrepresentation, and claims under the New Jersey Racketeer Influenced and Corrupt Organizations Act and one plaintiff asserts claims under the Connecticut Uniform Securities 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 have been filed and in most cases decided in many of these individual actions. To date, 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 December 13, 2019,June 19, 2020, the Court granted the Company’s motion to dismissentered stipulations of voluntary dismissal in the Catalyst, complaintMississippi, Connecticut, and Delaware actions. On July 13, 2020, the Court entered a stipulation of voluntary dismissal in its entirety.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.
The Company disputes the claims against it in the remaining individual opt-out complaints and intends to defend itself vigorously.
Canadian Securities Litigation
In 2015, 6 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 2 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 above.
The actions generally 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 the same matters described in the U.S. Securities Litigation description above.
Each of these putative class actions, other than the Catucci action in the Quebec Superior Court, has been discontinued. In the Catucci action, on August 29, 2017, the judge granted the plaintiffs leave to proceed with their claims under the Quebec Securities Act and authorized the class proceeding. 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, 1 of the entities which exercised its opt-out rights (“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 March 11,June 16, 2020, the Company andQuebec Court of Appeal granted the other defendants filed applications for leave to appeal fromthat decision.
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, with the decision of the QuebecCourt pending.
On March 17, 2021, 4 additional opt-outs from the Catucci class issued a Statement of Claim in the Ontario Superior Court.Court of Justice. That proceeding is captioned The applicationsBank 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 appealpursue claims under the Ontario Securities Act. The allegations in this proceeding are scheduledsimilar to be heard on June 9, 2020.
After a hearing on November 11, 2019,those made by the court approved a settlementplaintiffs in the Catucci action between the class membersaction and the Company’s auditors.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.
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 2 distinct policy periods, (i) 2013-14 and (ii) 2015-16. The lawsuit is currently pending in the United States District Court for the District of New Jersey (Valeant Pharmaceuticals International, Inc., et al. v. AIG Insurance Company of Canada, et al.; 3:18-CV-00493). In the lawsuit, the Company seeks coverage for: (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. (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 certain of the investigations described above (under the 2015-2016 coverage period).
Derivative Lawsuits
On September 10, 2019 and September 13, 2019, 2 alleged stockholders filed derivative lawsuits purportedly on behalf of the Company against former Company board members and executives. On March 7, 2020, a consolidated amended derivative complaint was filed, captioned In re Bausch Health Companies Inc. F/K/A/ Valeant Pharmaceuticals International, Inc. Stockholder Derivative Litigation (Case No. 19-cv-17833).
Plaintiffs assert claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment related 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. The consolidated complaint also asserts a claim for contribution and indemnification by the Defendants for any liability the Company ultimately faces as a result of the conduct alleged in the complaint. The claims alleged in these cases are based on the same purported conduct that is at issue in In re Valeant Pharmaceuticals International, Inc. Securities
Litigation, all of which occurred prior to 2017. On April 21, 2020, the Defendants filed a motion to dismiss the consolidated amended complaint. Briefing on this motion will conclude on July 6, 2020. The Company disputes these claims and intends to defend itself vigorously.
Other Securities and RICO Class Actions and Related Matters
As referenced above during the three months ended March 31, 2020, 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” inNote 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 on February 19, 2020. Such matters include:
RICO Class Actions
Between May 27, 2016 and September 16, 2016, three3 actions were filed in the U.S. District Court for the District of New Jersey against the Company and various 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-party payors that paid claims submitted by Philidor for certain Company-branded drugs between January 2, 2013 and November 9, 2015. The consolidated complaint alleges, among other things, that the defendants committed predicate acts of mail and wire fraud by submitting or causing to be submitted prescription reimbursement requests that misstated or omitted facts regarding: (1) the identity and licensing status of the dispensing pharmacy; (2) the resubmission of previously denied claims; (3) patient co-pay waivers; (4) the availability of generic alternatives; and (5) the insured’s consent to renew the prescription. The complaint further alleges that these acts constitute a pattern of racketeering or a racketeering conspiracy in violation of the RICO statute and caused plaintiffs and the putative class unspecified damages, which may be trebled under the RICO statute. A decision onspecial master appointed by the Court has recommended that the Company’s motion to dismiss this complaintbe denied, but a final decision is pending.still pending with the Court. The Company believes these claims are without merit and intends to defend itself vigorously.
Derivative Lawsuits
On September 10, 2019 and September 13, 2019, 2 alleged stockholders filed derivative lawsuits purportedly on behalf of the Company against former Company board members and executives. On March 7, 2020, a consolidated amended derivative
complaint was filed, captioned In re Bausch Health Companies Inc. F/K/A/ Valeant Pharmaceuticals International, Inc. Stockholder Derivative Litigation (Case No. 19-cv-17833).
Plaintiffs assert claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment related 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. The consolidated complaint also asserts a claim for contribution and indemnification by the Defendants for any liability the Company ultimately faces as a result of the conduct alleged in the complaint. The claims alleged in these cases are based on the same purported conduct that is at issue in In re Valeant Pharmaceuticals International, Inc. Securities Litigation, all of which occurred prior to 2017. On April 21, 2020, the Defendants filed a motion to dismiss the consolidated amended complaint. Briefing on this motion concluded on August 3, 2020. On November 24, 2020, the Special Master appointed by the Court issued a report recommending that the motion to dismiss be granted in full. While a final decision is still pending with the Court, Plaintiffs are not contesting the dismissal in full. The Company disputes these claims and intends to defend itself vigorously.
Other Securities and RICO Class Actions and Related Matters
As referenced above during the three months ended March 31, 2021, 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, 2020, filed with the SEC on February 24, 2021. Such matters include:
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 2 distinct policy periods, (i) 2013-14 and (ii) 2015-16. The lawsuit is currently pending in the United States District Court for the District of New Jersey (Valeant Pharmaceuticals International, Inc., et al. v. AIG Insurance Company of Canada, et al.; 3:18-CV-00493). In the lawsuit, the Company seeks coverage for: (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. (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 certain of the investigations described above (under the 2015-2016 coverage period).
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. This matter is currently stayed pending the completion of discovery in one of the above-noted federal opt-out cases. The Company disputes the claims and intends to vigorously defend this matter.
Antitrust
Glumetza Antitrust Litigation
Between August 2019 and FebruaryJuly 2020, 7 (7)8 (8) putative antitrust class actions and 3 (3)4 (4) non-class complaints were filed in the Northern District of California againstnaming the Company, Salix Pharmaceuticals, Ltd., Salix Pharmaceuticals, Inc., and Santarus, Inc. (among(for purposes of this subsection, collectively, the “Company”), among other defendants) (the “California Actions”). In February 2020, an eighth putative class action wasdefendants, were filed in the Southern District of Florida; this action wasor transferred to the Northern District of California. NaN (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 on November 25, 2019.and a motion for class certification in April 2020. The 5 (5)court certified a direct purchaser class actionsin August 2020. The putative class action complaints filed by end payer purchasers have all been voluntarily dismissed. The 3NaN (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, 5 (5) of which remain pending, have been consolidated and coordinated in In re Glumetza Antitrust Litigation, Case No. 3:19-cv-05822-WHA.
Both class and non-class direct purchaser plaintiffs seek damages under federal antitrust laws. The lawsuits allege 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 allege 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 seek damages under federal antitrust laws for claims based on direct purchases. All Plaintiffs have filed a motion for partial summary judgment, whereas Defendants have filed a motion for summary judgment as to all claims. On April 29, 2020,22, 2021, the purported classes of direct purchasers filed their motion for class certification. Briefingcourt held a hearing at which the parties presented argument on the motionsummary judgment motions. The court took the motions under submission.
On February 8, 2021, the insurer plaintiff filed an action asserting state law claims in the Superior Court of Alameda County, California against the Company and others. Defendants’ demurrer to all causes of action in the state court action is expectedscheduled to conclude inbe heard on June 2020. 29, 2021.
The Company and its affiliates named in these cases disputedisputes the claims against themit and intendintends to vigorously defend these matters.
Other Antitrust Matters
As referenced above during the three months ended March 31, 2020, there have been no material updates or developments with respect to certain other proceedings or actions as described under “Antitrust” inNote 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 on February 19, 2020. This includes the following matter:
Generic Pricing Antitrust Litigation
Certain of theThe 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 a 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.Pennsylvania (MDL 2724, 16-MD-2724). The lawsuits (which include claims by direct purchasers, end payers, indirect resellers and opt-outs) 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 or are expected to be 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 2 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 either case and the cases have been put 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 proposed class proceeding entitled Kathryn Eaton vs. Teva Canada Limited, et al. in the Federal Court in Toronto, Ontario, Canada (Court File No. T-607-20). The plaintiff seeks to certify 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 United States Court for the Eastern District of Pennsylvania. The Company disputes the claims against it and will defend itself vigorously.
Intellectual Property
Patent Litigation/Paragraph IV Matters
From 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-party generic manufacturers respecting their pending applications for generic versions of certain products sold by or on behalf of the Company, including Relistor®, Uceris®, Xifaxan® 200mg, Xifaxan® 550mg, Plenvu®, Bepreve®, Bryhali®, Duobrii®, Trulance® and Jublia® in the United States, and Jublia® in Canada, or other similar suits.
On July 23, 2020, the Company received a Notice of Paragraph IV Certification from Perrigo Israel Pharmaceuticals, Ltd. (“Perrigo”), in which Perrigo asserted that certain U.S. patents, each of which is listed in the U.S. Food and Drug Administration's (the "FDA") Orange Book for Duobrii® (halobetasol propionate and tazarotine) lotion, are either invalid, unenforceable and/or will not be infringed by the commercial manufacture, use or sale of Perrigo’s generic lotion, for which an Abbreviated New Drug Application (“ANDA”) has been filed by Perrigo. On August 28, 2020, the Company filed suit against Perrigo pursuant to the Hatch-Waxman Act, alleging infringement by Perrigo of one or more claims of the Duobrii® Patents, thereby triggering a 30-month stay of the approval of the Perrigo ANDA. On September 3, 2020, this action was consolidated with the action between the Company and Perrigo described below, regarding Perrigo’s ANDA for generic Bryhali® (halobetasol propionate) lotion. The Company remains confident in the strength of the Duobrii® related patents and will vigorously defend its intellectual property.
On March 20, 2020, the Company received a Notice of Paragraph IV Certification from Perrigo, in which Perrigo 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 Perrigo’s
generic halobetasol propionate lotion, for which an ANDA has been filed by Perrigo. On May 1, 2020, the Company filed suit against Perrigo pursuant to the Hatch-Waxman Act, alleging infringement by Perrigo of one or more claims of the Bryhali® Patents, thereby triggering a 30-month stay of the approval of the Perrigo ANDA for halobetasol propionate lotion. On September 3, 2020, this action was consolidated with the action between the Company and Perrigo described above, regarding Perrigo’s ANDA for generic Duobrii® (halobetasol propionate and tazarotine) lotion. The Company remains confident in the strength of the Bryhali® Patents and intends to vigorously pursue this matter and defend its intellectual property.
On February 17, 2020, the Company and Alfasigma S.p.A. ("Alfasigma") received a Notice of Paragraph IV Certification from Norwich Pharmaceuticals Inc. (“Norwich”), in which Norwich asserted that the U.S. patents listed in the U.S. Food and Drug Administration's (the "FDA")FDA's Orange Book for 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 Norwich’s generic rifaximin tablets, 550 mg, for which an Abbreviated New Drug Application (“ANDA”)ANDA has been filed by Norwich. The Company, through its subsidiaries Salix Pharmaceuticals, Inc. and Bausch Health Ireland Limited, holds the New Drug Application for Xifaxan® and owns or exclusively licenses (from Alfasigma) these patents. On March 26, 2020, certain of the Company’s subsidiaries and Alfasigma filed suit against Norwich in the U.S. District Court for the District of Delaware (Case No. 20-cv-00430) pursuant to the Hatch-Waxman Act, alleging infringement by Norwich of one or more claims of the Xifaxan® Patents, thereby triggering a 30-month stay of the approval of Norwich’s ANDA for rifaximin tablets, 550 mg. Xifaxan® is protected by 2326 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. The Company remains confident in the strength of the Xifaxan® patents and will continue to vigorously pursue this matter and defend its intellectual property.
A similar suit was also filedIn April 2019, the Company and Alfasigma commenced litigation against Sandoz, Inc.Sun Pharmaceutical Industries Ltd. (“Sandoz”Sun”) in September 2019,, alleging patent infringement by SandozSun’s filing of one or more claims of certain of theseits ANDA for Xifaxan® Patents(rifaximin) 200 mg tablets. This suit had been filed following receipt of a Notice of Paragraph IV Certification from Sun, in which Sun had asserted that the U.S. patents listed in the FDA's Orange Book for the Company’s Xifaxan® tablets, 200 mg, were either invalid, unenforceable and/or would not be infringed by the commercial manufacture, use or sale of Sandoz’sSun’s generic rifaximin tablets, 200 mg. Subsequently, on August 10, 2020, the Company received an additional Notice of Paragraph IV Certification from Sun, in which Sun asserted that the U.S. patents listed in the FDA's Orange Book for the Company’s Xifaxan® tablets, 550 mg, were either invalid, unenforceable and/or would not be infringed by the commercial manufacture, use or sale of Sun’s generic rifaximin tablets, 550 mg, for which an ANDA had been filed.filed by Sun. On May 6,September 22, 2020, the Company announced that an agreement had been reached with SandozSun that resolved this litigation.the outstanding intellectual property disputes with Sun regarding Xifaxan® (rifaximin) 200 mg and 550 mg tablets. Under the terms of the agreement, the parties agreed to dismiss all litigation related to Xifaxan® (rifaximin), Sandoz acknowledged the validity of the licensed patents for Xifaxan® (rifaximin) 550 mg tablets and all intellectual property protecting Xifaxan® (rifaximin) 200 mg and 550 mg tablets will remain intact and enforceable until expiry in July and October 2029.2029, respectively. The agreement also grants SandozSun a non-exclusive license to the intellectual property relating to Xifaxan® (rifaximin) 200 mg and 550 mg tablets in the United States beginning January 1, 2028 (or earlier under certain circumstances). Under the terms of the agreement, beginning January 1, 2028 (or earlier under certain circumstances), SandozSun will have the right to market a royalty-free generic versionversions of Xifaxan® (rifaximin) 200 mg and 550 mg tablets, should it receive approval from the FDA on its ANDA. SandozANDAs. Sun will be able to commence such marketing earlier if another generic rifaximin product is granted approval and such other generic rifaximin product begins to be sold or distributed in the United States before January 1, 2028.The Company will not make any financial payments or other transfers of value as part of this agreement with Sandoz.
In addition, patents covering the Company's branded pharmaceutical products may be challenged in proceedings other than court proceedings, including inter partes review ("IPR") at the U.S. Patent & Trademark Office. The proceedings operate under different standards from district court proceedings, and are often completed within 18 months of institution. IPR
challenges have been brought against patents covering the Company's branded pharmaceutical products. For example, following Acrux DDS’s IPR petition, the U.S. Patent and Trial Appeal Board ("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® continues to beis covered by eleven otherfourteen Orange Book-listed patents owned by the Company andor its licensor, which expire in the years 2028 through 2035. In August and September 2018, we received notices of the filing of a number of ANDAs with paragraph IV certification, and have timely filed patent infringement suits against these ANDA filers, and, in addition, we have also commenced certain patent infringement proceedings in Canada against three separate defendants. All cases in Canada regarding Jublia® have been settled.
Product Liability
As referenced above, during the three months ended March 31, 2020,2021, there have been no material updates or developments with respect to certain proceedings or actions as described under “Product“Product Liability” inNote 21,20, “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, 2019,2020, filed with the SEC on February 19, 2020.24, 2021. These matters include:
Shower to Shower® Products Liability Litigation
Since 2016, the Company has been named in a number of product liability lawsuits involving the Shower to Shower® body powder product acquired in September 2012 from Johnson & Johnson; due to dismissals, only twelve (12)thirty (30) of such product liability suits currently remain pending. Potential liability (including its attorneys’ fees and costs) arising out of these remaining suits is subject to full indemnification obligations of Johnson & Johnson owed to the Company, and legal fees and costs will be paid by Johnson & Johnson. TenTwenty-eight (28) of these lawsuits filed by individual plaintiffs allege that the use of Shower to Shower® caused the plaintiffs to develop ovarian cancer, mesothelioma or mesothelioma.breast cancer. The allegations in these cases 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, loss of consortium and/or punitive damages. The 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, and attorneys’ fees. Additionally, two2 proposed class actions have been filed in Canada against the Company and various Johnson & Johnson entities (one(1 in the Supreme Court of British Columbia and one1 in the Superior Court of Quebec), on behalf of persons who have purchased or used Johnson & Johnson’s Baby Powder or Shower to Shower®. The class actions allege the use of the product increases certain health risks (British Columbia) or 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 (Quebec). The plaintiffs in these actions are seeking awards of general, special, compensatory and punitive damages. On November 17, 2020, the British Columbia court issued a judgment declining to certify a class as to the Company or Shower to Shower®, and at this time no appeal of that judgment has been filed. In accordance with the indemnification agreement, Johnson & Johnson will continue to vigorously defend the Company in each of the remaining actions that are not voluntarily dismissed or subject to a grant of summary judgment.
General Civil Actions
California Proposition 65 Related Matters
On January 29, 2020, Plaintiff Jan Graham filed a lawsuit (Graham v. Bausch Health Companies, Inc., et al., Case No. 20STCV03578) in Los Angeles County Superior Court against the Company, Bausch Health US and several other manufacturers, distributors and retailers of talcum powder products, alleging violations of California Proposition 65 by manufacturing and distributing talcum powder products containing chemicals listed under the statue, without a compliant warning on the label. TheOn January 29, 2021, certain defendants including the Company and Bausch Health US disputefiled a Motion for Summary Judgment or in the claims against them and intend to defend this lawsuit vigorously.Alternative Motion for Summary Adjudication, which remains pending.
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 California Safe Cosmetics Act. This lawsuit was served on Bausch Health US onin June 28, 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. The Company filed a motion to dismiss Plaintiffs’ claims, which was granted onin April 27, 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.
The Company and Bausch Health US dispute the claims against them and intend to defend each of these lawsuits 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 Companies, 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, the New Mexico Medicaid Fraud Act, the New Mexico Fraud Against Taxpayers 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. The Company disputesBausch Health US filed its Answer on November 16, 2020. On December 30, 2020, Johnson & Johnson filed a Motion for Partial Judgment on the claims asserted in this lawsuitPleadings and intends to vigorously defend the matter. On April 17, 2020,on January 4, 2021, Bausch Health US filed a joinder to that motion, which was denied on March 8, 2021.
The Company and Bausch Health US dispute the claims against them and intend to dismiss.defend each of these lawsuits vigorously.
Other General Civil Actions
As referenced above, during the three months ended March 31, 2020,2021, there have been no material updates or developments with respect to certain proceedings or actions as described under “General“General Civil Actions” inNote 21,20, “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, 2019)2020), filed with the SEC on February 19, 2020.24, 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. The Company has asserted counterclaims against Doctors Allergy.
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. The lawsuit arises out of the contractual termination of approximately $30 million in unvested equity awards following the determination by the Salix Ltd. Board of Directors that Logan intentionally engaged in wrongdoing that resulted, or would reasonably be expected to result, in material harm to Salix Ltd., or to the business or reputation of Salix Ltd. Logan seeks the restoration of the unvested equity awards and a declaration regarding certain rights related to indemnification.
The Company disputes the claims against it in each of these matters and intends to vigorously defend the matters.
Completed or Dormant Matters
The following matters have concluded, have settled, are the subject of an agreement to settle or have otherwise been closed since January 1, 2020 or the Company anticipates that no further material activity will take place with respect thereto, or the matters have been dormant for several quarters. Due to the closure, settlement, inactivity or change in status of the matters referenced below, these matters will no longer appear in the Company's next public reports and disclosures, unless required. With respect to inactive matters, to the extent material activity takes place in subsequent quarters with respect thereto, the Company will provide updates as required or as deemed appropriate.
California Proposition 65 Related Matters
On February 11, 2019, plaintiffs filed a pre-suit notice letter19.SEGMENT INFORMATION
Reportable Segments
In connection with the California Attorney General notifying the Attorney General’s office of their intent to file suit after 60 days against the Company and certainplanned Separation of its subsidiaries, alleging they committed violations of the California Safe Drinking Water and Toxic Enforcement Act of 1986 (Proposition 65) by manufacturing and distributing Shower to Shower® that they allege contained talc contaminated with asbestos, a listed carcinogen. That notice letter was served on the Company on February 22, 2019. By statute, a private lawsuit may not be filed until at least 60 days have passed following service of this pre-suit notice letter. In April 2019, rather than filing a lawsuit against Bausch Health US, the plaintiffs moved for leave to amend their complaint in a pending Proposition 65 lawsuit (Luna, et al. v. Johnson & Johnson, et al., case 2:18-cv-04830-GW-KS) against Johnson & Johnson in federal court in California to
add Bausch Health US as a defendant. Plaintiffs subsequently filed a motion to dismiss the lawsuit without prejudice. The court dismissed the case without prejudice on December 18, 2019.
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., 3 other contact lens manufacturers, and a contact lens distributor, alleging that the defendants engaged ineye-health business into an anticompetitive scheme to eliminate price competition on certain contact lens lines through the use of unilateral pricing policies, and alleging violations of Section 1 of the Sherman Act, 15 U.S.C. § 1, and of various state antitrust and consumer protection laws. These cases have been consolidated in the Middle District of Florida by the Judicial Panel for Multidistrict Litigation, under the caption In re Disposable Contact Lens Antitrust Litigation, Case No. 3:15-md-02626-HES-JRK. On August 19, 2019, B&L Inc. entered into a settlement, subject to court approval, by which it agreed to pay $10 million to fully and finally resolve plaintiffs’ class claims against B&L Inc. in the case. On October 8, 2019, the settlement agreement was preliminarily approved by the court. A final fairness hearing regarding the settlement was held on February 25, 2020. On March 4, 2020, the Court granted final approval of the settlement agreement in all respects and dismissed the case with prejudice as to B&L Inc., except as to any claim by persons who validly and timely requested exclusionindependent publicly traded entity from the settlement classes.
Mississippi Attorney General Consumer Protection Action
The Company andremainder of Bausch Health US were named in an action brought by James Hood, Attorney General of Mississippi, in the Chancery Court of the First Judicial District of Hinds County, Mississippi (Hood ex rel. State of Mississippi, Civil Action No. G2014-1207013, filed on August 22, 2014), alleging consumer protection claims against Johnson & Johnson and Johnson & Johnson Consumer Companies Inc., the Company and Bausch Health US related tohas begun managing its operations in a manner consistent with 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 sought 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 violationorganizational structure of the Mississippi Consumer Protection Act (“MCPA”). The State also sought disgorgement of profits from the sale of the product and civil penalties. The State did not make specific allegationstwo separate entities as to the Company or Bausch Health US. The Company and Bausch Health US agreed to resolve this litigation pursuant to a settlement agreement with the State of Mississippi for a non-material amount. On January 8, 2020, an order of dismissal with prejudice was enteredproposed by the Court.
Investigation bySeparation. As a result, during the Statefirst quarter of Texas
On May 27, 2014,2021, the State of Texas served Bausch & Lomb Incorporated (“B&L Inc.”) with a Civil Investigative Demand (“CID”) 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 CID. B&L Inc. has cooperated fully with the State's investigation and produced all the documents requested by the State to date. After an exchange of positions, B&L Inc. and the State agreed to settle the matter for $10 million. The Company made the payment on April 1, 2020. As part of the settlement, the underlying Texas Medicaid Fraud case will be dismissed.
Investigation by the U.S. Attorney's Office for the District of Massachusetts regarding patient assistance and pricing
In October 2015 and June 2016, the Company received two subpoenas from the U.S. Attorney's Office for the District of Massachusetts, requesting materials including documents and witness interviews with respect to the Company’s patient assistance programs and contributions to patient assistance organizations that provide financial assistance to Medicare patients taking products sold by the Company, and the Company’s pricing of its products. The Company is cooperating with this investigation. There has been no material activity for several quarters on the part of the Company with respect to this matter nor has the Company had recent contact from the U.S. Attorney's Office for the District of Massachusetts with respect to this matter. The Company cannot predict the outcome or the duration of this investigation or any other legal proceedings or any enforcement actions or other remedies that may be imposed on the Company arising out of this investigation.
Investigation by the U.S. Attorney's Office for the Southern District of New York
In October 2015, the Company received a subpoena from the U.S. Attorney's Office for the Southern District of New York, requesting materials including 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. There has been no material activity for several quarters on the part of the Company with respect to this matter. 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.
Reportable Segments
The Company’s Chief Executive Officer ("CEO"), who is the Company’s Chief Operating Decision Maker, managescommenced managing the business differently through changes in its operating and reportable segments, which necessitated a realignment of the Company's historical segment structure. This realignment is consistent with how the Company’s CEO:CEO currently: (i) assesses operating performance on a regular basis, (ii) makes resource allocation decisions and (iii) designates responsibilities of his direct reports. ThePursuant to these changes, effective in the first quarter of 2021, the Company operates in the following reportable segments: (i) Bausch + Lomb/International segment,Lomb, (ii) Salix, segment, (iii) International Rx, (iv) Ortho Dermatologics and (v) Diversified Products. In addition, as part of this realignment of segment structure, certain products historically included in certain segments are now included in their new respective segments based on the organizational structure of the two separate entities as proposed by the Separation. Prior period presentation of segment revenues and (iv) Diversified Products segment.segment profits has been recast to conform to the current segment reporting structure.
The following is a brief description of the Company’s segments:
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• | •The Bausch + Lomb/International segment consists of: (i) sales in the U.S. of pharmaceutical products, OTC products and medical device products, primarily comprised of Bausch + Lomb products, with a focus on the Vision Care, Surgical, Consumer and Ophthalmology Rx products and (ii) with the exception of sales of Solta products, sales in Canada, Europe, Asia, Australia, Latin America, Africa and the Middle East of branded pharmaceutical products, branded generic pharmaceutical products, OTC products, medical device products and Bausch + Lomb segment consists of global sales of Bausch + Lomb Vision Care, Consumer, Surgical and Ophthalmology Rx products. •The Salix segment consists of sales in the U.S. of GI products. •The International Rx segment consists of sales, with the exception of sales of Bausch + Lomb and Solta products, outside the U.S. and Puerto Rico of branded pharmaceutical products, branded generic pharmaceutical products and OTC products.
•The Ortho Dermatologicssegment consists of: (i) sales in the U.S. of Ortho Dermatologics (dermatological) products and (ii) global sales of Solta medical aesthetic devices. •The Diversified Products segment consists of sales in the U.S. of: (i) pharmaceutical products in the areas of neurology and certain other therapeutic classes, (ii) generic products and (iii) dentistry products. |
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• | The Salix segment consists of sales in the U.S. of GI products.
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• | The Ortho Dermatologics segment consists of: (i) sales in the U.S. of Ortho Dermatologics (dermatological) products and (ii) global sales of Solta medical aesthetic devices.
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• | The Diversified Products segment consists of sales in the U.S. of: (i) pharmaceutical products in the areas of neurology and certain other therapeutic classes, (ii) generic products and (iii) dentistry products.
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Segment profit is based on operating income after the elimination of intercompany transactions. Certain costs, such as Amortization of intangible assets, Asset impairments, In-processAcquired in-process research and development costs, Restructuring, integration and integration costs, Acquisition-related contingent considerationseparation costs and Other (income) expense, (income), net, are not included in the measure of segment profit, as management excludes these items in assessing segment financial performance.
Corporate includes the finance, treasury, certain research and development programs, tax and legal operations of the Company’s businesses and incurs certain expenses, gains and losses related to the overall management of the Company, which are not allocated to the other business segments. In 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-wide performance rather than the operating performance of any single segment.
Segment Revenues and Profits
Segment revenues and profits for the three months ended March 31, 2021 and 2020 were as follows:
| | | | Three Months Ended March 31, | | | Three Months Ended March 31, |
| (in millions) | 2020 | | 2019 | (in millions) | | 2021 | | 2020 |
| Revenues: | | | | Revenues: | | | | |
| Bausch + Lomb/International | $ | 1,114 |
| | $ | 1,118 |
| |
| Bausch + Lomb | | Bausch + Lomb | | $ | 881 | | | $ | 875 | |
| Salix | 477 |
| | 445 |
| Salix | | 472 | | | 477 | |
| International Rx | | International Rx | | 306 | | | 291 | |
| Ortho Dermatologics | 133 |
| | 138 |
| Ortho Dermatologics | | 141 | | | 131 | |
| Diversified Products | 288 |
| | 315 |
| Diversified Products | | 227 | | | 238 | |
| | $ | 2,012 |
| | $ | 2,016 |
| | | $ | 2,027 | | | $ | 2,012 | |
| | | | | |
| Segment profits: | | | | Segment profits: | | | | |
| Bausch + Lomb/International | $ | 325 |
| | $ | 319 |
| |
| Bausch + Lomb | | Bausch + Lomb | | $ | 239 | | | $ | 263 | |
| Salix | 319 |
| | 288 |
| Salix | | 327 | | | 319 | |
| International Rx | | International Rx | | 109 | | | 98 | |
| Ortho Dermatologics | 48 |
| | 57 |
| Ortho Dermatologics | | 70 | | | 47 | |
| Diversified Products | 202 |
| | 236 |
| Diversified Products | | 171 | | | 167 | |
| | 894 |
| | 900 |
| | | 916 | | | 894 | |
| Corporate | (156 | ) | | (125 | ) | Corporate | | (181) | | | (156) | |
| Amortization of intangible assets | (436 | ) | | (489 | ) | Amortization of intangible assets | | (357) | | | (436) | |
| Goodwill impairments | — |
| | — |
| Goodwill impairments | | (469) | | | 0 | |
| Asset impairments | (14 | ) | | (3 | ) | Asset impairments | | (148) | | | (14) | |
| Restructuring and integration costs | (4 | ) | | (20 | ) | |
| Acquisition-related contingent consideration | (13 | ) | | 21 |
| |
| Other (expense) income, net | (23 | ) | | 3 |
| |
| Operating income | 248 |
| | 287 |
| |
| Restructuring, integration and separation costs | | Restructuring, integration and separation costs | | (12) | | | (4) | |
| Other income (expense), net | | Other income (expense), net | | 30 | | | (36) | |
| Operating (loss) income | | Operating (loss) income | | (221) | | | 248 | |
| Interest income | 7 |
| | 4 |
| Interest income | | 2 | | | 7 | |
| Interest expense | (396 | ) | | (406 | ) | Interest expense | | (368) | | | (396) | |
| Loss on extinguishment of debt | (24 | ) | | (7 | ) | Loss on extinguishment of debt | | (5) | | | (24) | |
| Foreign exchange and other | (13 | ) | | — |
| Foreign exchange and other | | 1 | | | (13) | |
| Loss before benefit from income taxes | $ | (178 | ) | | $ | (122 | ) | |
| Loss before (provision for) benefit from income taxes | | Loss before (provision for) benefit from income taxes | | $ | (591) | | | $ | (178) | |
Revenues by Segment and Product Category
Revenues by segment and product category were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 |
| (in millions) | Bausch + Lomb | | Salix | | International Rx | | Ortho Dermatologics | | Diversified Products | | Total |
| Pharmaceuticals | $ | 125 | | | $ | 470 | | | $ | 59 | | | $ | 65 | | | $ | 177 | | | $ | 896 | |
| Devices | 382 | | | 0 | | | 0 | | | 72 | | | 0 | | | 454 | |
| OTC | 316 | | | 0 | | | 25 | | | 0 | | | 2 | | | 343 | |
| Branded and Other Generics | 51 | | | 0 | | | 212 | | | 0 | | | 47 | | | 310 | |
| Other revenues | 7 | | | 2 | | | 10 | | | 4 | | | 1 | | | 24 | |
| $ | 881 | | | $ | 472 | | | $ | 306 | | | $ | 141 | | | $ | 227 | | | $ | 2,027 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2020 | | Three Months Ended March 31, 2019 |
| (in millions) | Bausch + Lomb/ International | | Salix | | Ortho Dermatologics | | Diversified Products | | Total | | Bausch + Lomb/ International | | Salix | | Ortho Dermatologics | | Diversified Products | | Total |
| Pharmaceuticals | $ | 201 |
| | $ | 477 |
| | $ | 77 |
| | $ | 182 |
| | $ | 937 |
| | $ | 217 |
| | $ | 445 |
| | $ | 95 |
| | $ | 211 |
| | $ | 968 |
|
| Devices | 341 |
| | — |
| | 51 |
| | — |
| | 392 |
| | 366 |
| | — |
| | 38 |
| | — |
| | 404 |
|
| OTC | 351 |
| | — |
| | — |
| | — |
| | 351 |
| | 324 |
| | — |
| | — |
| | — |
| | 324 |
|
| Branded and Other Generics | 203 |
| | — |
| | — |
| | 103 |
| | 306 |
| | 191 |
| | — |
| | — |
| | 102 |
| | 293 |
|
| Other revenues | 18 |
| | — |
| | 5 |
| | 3 |
| | 26 |
| | 20 |
| | — |
| | 5 |
| | 2 |
| | 27 |
|
| | $ | 1,114 |
| | $ | 477 |
| | $ | 133 |
| | $ | 288 |
| | $ | 2,012 |
| | $ | 1,118 |
| | $ | 445 |
| | $ | 138 |
| | $ | 315 |
| | $ | 2,016 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 |
| (in millions) | Bausch + Lomb | | Salix | | International Rx | | Ortho Dermatologics | | Diversified Products | | Total |
| Pharmaceuticals | $ | 138 | | | $ | 477 | | | $ | 66 | | | $ | 76 | | | $ | 182 | | | $ | 939 | |
| Devices | 341 | | | 0 | | | 0 | | | 51 | | | 0 | | | 392 | |
| OTC | 321 | | | 0 | | | 26 | | | 0 | | | 2 | | | 349 | |
| Branded and Other Generics | 68 | | | 0 | | | 188 | | | 0 | | | 50 | | | 306 | |
| Other revenues | 7 | | | 0 | | | 11 | | | 4 | | | 4 | | | 26 | |
| $ | 875 | | | $ | 477 | | | $ | 291 | | | $ | 131 | | | $ | 238 | | | $ | 2,012 | |
The top 10 products for the three months ended March 31, 20202021 and 20192020 represented 40% and 36%40% of total revenues for the three months ended March 31, 20202021 and 2019,2020, respectively.
Geographic Information
Revenues are attributed to a geographic region based on the location of the customer and were as follows:
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| (in millions) | | | | | 2021 | | 2020 |
| U.S. and Puerto Rico | | | | | $ | 1,162 | | | $ | 1,211 | |
| China | | | | | 110 | | | 58 | |
| Canada | | | | | 76 | | | 90 | |
| Mexico | | | | | 69 | | | 41 | |
| Egypt | | | | | 66 | | | 58 | |
| Poland | | | | | 62 | | | 73 | |
| Japan | | | | | 60 | | | 54 | |
| France | | | | | 54 | | | 47 | |
| Germany | | | | | 42 | | | 44 | |
| Russia | | | | | 31 | | | 34 | |
| United Kingdom | | | | | 25 | | | 23 | |
| South Korea | | | | | 20 | | | 17 | |
| Other | | | | | 250 | | | 262 | |
| | | | | $ | 2,027 | | | $ | 2,012 | |
|
| | | | | | | |
| | Three Months Ended March 31, |
| (in millions) | 2020 | | 2019 |
| U.S. and Puerto Rico | $ | 1,211 |
| | $ | 1,200 |
|
| Canada | 90 |
| | 79 |
|
| Poland | 73 |
| | 62 |
|
| Egypt | 58 |
| | 53 |
|
| China | 58 |
| | 89 |
|
| Japan | 54 |
| | 55 |
|
| France | 47 |
| | 53 |
|
| Germany | 44 |
| | 45 |
|
| Mexico | 41 |
| | 46 |
|
| Russia | 34 |
| | 36 |
|
| United Kingdom | 23 |
| | 29 |
|
| Spain | 20 |
| | 21 |
|
| Italy | 20 |
| | 22 |
|
| Other | 239 |
| | 226 |
|
| | $ | 2,012 |
| | $ | 2,016 |
|
Major Customers
Customers that accounted for 10% or more of total revenues were as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2021 | | 2020 |
| AmerisourceBergen Corporation | 18% | | 19% |
| McKesson Corporation (including McKesson Specialty) | 16% | | 16% |
| Cardinal Health, Inc. | 12% | | 13% |
|
| | | |
| | Three Months Ended March 31, |
| | 2020 | | 2019 |
| AmerisourceBergen Corporation | 19% | | 16% |
| McKesson Corporation (including McKesson Specialty) | 16% | | 17% |
| Cardinal Health, Inc. | 13% | | 14% |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
Unless the context otherwise indicates, as used in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the terms “we,” “us,” “our,” “the Company,” and similar terms refer to Bausch Health Companies Inc. and its subsidiaries. This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” has been updated through May 7, 20204, 2021 and should be read in conjunction with the unaudited interim Consolidated Financial Statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 20202021 (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 Section 27A of The Securities Act of 1993,1933, as amended, and Section 21E of The Securities Exchange Act of 1934, as amended, and that may be forward-looking information within the meaning defined under applicable Canadian securities laws (collectively, “Forward-Looking Statements”). See “Forward-Looking Statements” at the end of this discussion.
Our accompanying unaudited interim Consolidated Financial Statements as of March 31, 20202021 and for the three months ended March 31, 20202021 and 20192020 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 for the year ended December 31, 2019,2020, which were included in our Annual Report on Form 10-K filed on February 19, 2020.24, 2021. In our opinion, the unaudited interim Consolidated Financial Statements reflect all adjustments, consisting of normal and recurring adjustments, necessary for a fair statement of the financial condition, results of operations and cash flows for the periods indicated. Additional company information is available on SEDAR at www.sedar.com and on the SEC website at www.sec.gov. All currency amounts are expressed in U.S. dollars, unless otherwise noted.
OVERVIEW
We are a global company whose mission is to improve people’s lives with our health care products. We develop, manufacture and market, primarily in the therapeutic areas of eye-health, gastroenterology ("GI") and dermatology, a broad range of: (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.
Core Businesses
Our strategy is to focus our business on core therapeutic classes that offer attractive growth opportunities. Within our chosen therapeutic classes, we prioritize durable products which we believe have the potential for strong operating margins and evidence of growth opportunities. We believe this strategy has reduced complexity in our operations and maximizes the value of our: (i) eye-health, (ii) GI and (iii) dermatology businesses, which collectively now represent a substantial portion of our revenues. We have found and continue to believe there is significant opportunity in these businesses and we believe our existing portfolio, commercial footprint and pipeline of product development projects position us to successfully compete in these markets and provide us with the greatest opportunity to build value for our shareholders. We identify these businesses as “core”, meaning that we believe we are best positioned to grow and develop them.
Reportable Segments and Strategies
Our portfolioAs discussed further below, on August 6, 2020, the Company announced that it intends to separate its eye-health business into an independent publicly traded entity from the remainder of products fallsBausch Health Companies Inc. (the “Separation”). In connection with the planned Separation of its eye-health business into fouran independent publicly traded entity from the remainder of Bausch Health Companies Inc., the Company has begun managing its operations in a manner consistent with the organizational structure of the two separate entities as proposed by the Separation. As a result, during the first quarter of 2021, the Company’s Chief Executive Officer ("CEO"), who is the Company’s Chief Operating Decision Maker, commenced managing the business differently through changes in its operating and reportable segments, which necessitated a realignment of the Company's historical segment structure. This realignment is consistent with how the Company’s CEO currently: (i) assesses operating performance on a regular basis, (ii) makes resource allocation decisions and (iii) designates responsibilities of his direct reports. Pursuant to these changes, effective in the first quarter of 2021, the Company operates in the following reportable segments: (i) Bausch + Lomb/International,Lomb, (ii) Salix, (iii) International Rx, (iv) Ortho Dermatologics and (iv)(v) Diversified Products. In addition, as part of this realignment of segment structure, certain products historically included in certain segments are now included in their new respective segments based on the organizational structure of the two separate entities as proposed by the Separation. Prior period presentation of segment revenues and segment profits has been recast to conform to the current segment reporting structure.
The Bausch + Lomb/InternationalLomb segment - consists of our Global Bausch + Lomb eye-health business and our International Rx business. Our Global Bausch + Lomb eye-health businesswhich includes our Global Vision Care, Global Surgical, Global Consumer and Global Ophthalmology Rx products, which in aggregate accounted for approximately 41%44%, 42% and 43%44% of our Company's revenues for the three months ended March 31, 20202021 and the years 2019 and 2018, respectively. Our International Rx business, with the exception of our Solta products, includes sales in Canada, Europe, Asia, Australia, Latin America, Africa and the Middle East of branded pharmaceutical products, branded generic pharmaceutical products and OTC products, which in aggregate accounted for approximately 14%, 13% and 13% of our Company's revenues for the three months ended March 31, 2020 and the years 2019, and 2018, respectively.
Our Bausch + Lomb business is a fully-integrated eye-health business, which we believe is critical to maintaining and developing our position in the global eye-health market. As a fully integrated eye-health business with a 165-year legacy over 165 years, Bausch + Lomb has an established line of contact lenses, intraocular lenses and other medical devices, surgical systems and devices,
vitamin and mineral supplements, lens care products, prescription eye-medications and other consumer products that positions us to compete in all areas of the eye-health market.
As part of our Globalglobal Bausch + Lomb business strategy, we continually look for key trends in the eye-health market to meet changing consumer/patient needs and identify areas for investment and growth. For instance, one of these trends is the increasing rate of myopia, and importantly, myopia as 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 supplement our well-established Bausch + Lomb product lines, we continue to identify new products tailored to address these key trends, which we develop internally with our own research and development (“R&D”) team to generate organic growth. Recent product launches include Biotrue® ONEday daily disposable contact lenses, the next generation of Bausch + Lomb ULTRA® contact lenses, SiHy Daily contact lenses (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 and Canada), 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 interocular 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. Recent product launchesExamples of this include Biotruethe acquired 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 the acquired 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®™ ONEday daily disposable contact lenses,which, if approved by the next generationU.S. Food and Drug Administration ("FDA"), will be the first treatment for patients suffering from macular edema associated with uveitis; and (iii) NOV03, an investigational drug with a novel mechanism of Bausch + Lomb ULTRAaction to treat Dry Eye Disease ("DED") associated with Meibomian gland dysfunction ("MGD"). We also acquired the U.S. rights to EM-100, which was recently launched as Alaway® contact lenses, SiHy Daily contact lenses, Lumify® (an eye redness treatment), Vyzulta® (a pressure loweringPreservative-Free and is the first OTC preservative-free formulation eye drop for patients with angle glaucoma or ocular hypertension)the temporary relief of itchy eyes due to pollen, ragweed, grass, animal hair and Ocuvitedander in adults and children 3 years of age and older. Recently, we entered into an agreement which provides the Company an option to acquire all ophthalmology assets of Allegro Ophthalmics, LLC (“Allegro”), including risuteganib (Luminate® Eye Performance (vitamins), an investigational compound in retina, which is believed to protectsimultaneously act on the eye from stressorsangiogenic, inflammatory and mitochondrial metabolic pathways implicated in diseases such as sunlightintermediate dry Age-related Macular Degeneration ("AMD"). A U.S. Phase 2a study with risuteganib in intermediate dry AMD met its primary endpoint of vision recovery and blue light emitted from digital devices).Phase 3 testing is in the planning stages. 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.
The Salix segment - consists of sales in the U.S. of GI products, and includes our Xifaxan® product. Our Xifaxan® productwhich in aggregate accounted for revenuesapproximately 23%, 24% and 23% of $375 million, $1,452 million and $1,195 millionour Company's revenues for the three months ended March 31, 20202021 and the years 2020 and 2019, respectively. The Salix segment includes our Xifaxan® product which accounted for approximately 18%, 18% and 2018, respectively.
As part17% of our acquisition of Salix Pharmaceuticals, Ltd. in April 2015 (the "Salix Acquisition"), we acquired the intellectual property to a number of products that have provided us with year-over-year revenue growth, particularly the intellectual property behind Xifaxan®Company's revenues for amongst other indications, irritable bowel syndrome with diarrhea (“IBS-D”), and Relistor® for opioid induced constipation. Revenues from our Xifaxan® product increased approximately 23%, 22% and 22% during the three months ended March 31, 2021 and the years 2020 and in the years 2019, and 2018, respectively.
We attribute the growthhave been making investments in our Salix revenues to the investments we have been makingbusiness since 2017, including: (i) hiring 200 trained and experienced sales force representatives to expand the commercial field force for Xifaxan®, (ii) increasing the focus on the development of next generation formulations of our Salix intellectual property to address new indications, (iii) completing the strategic acquisition of certain assets of Synergy Pharmaceuticals Inc. (“Synergy”), which included the Trulance® product, and (iv) increasing the number of sales force representatives for Trulance® and (v) entering. In addition, we have entered into licensing agreements for investigational products, which, once developed and if approved by the U.S. Food and Drug Administration ("FDA"),FDA, will be new treatments for certain GI and liver diseases.diseases and we anticipate will contribute to the future growth. Each of these opportunities potentially provides us with the ability to expand our GI portfolio and allows us to leverage our existing GI sales force, supply channel and distribution channel.
The International Rx segment - consists of sales, other than sales of our Bausch + Lomb and Solta products, in Canada, Europe, Asia, Australia, Latin America, Africa and the Middle East of branded pharmaceutical products, branded generic pharmaceutical products and OTC products, which in aggregate accounted for approximately 15%, 15% and 13% of our
Company's revenues for the three months ended March 31, 2021 and the years 2020 and 2019, respectively. Principal products within our International Rx segment include Bisocard®, Thrombo ASS®, Contrave® / Mysimba®, Jublia®, Ivexterm® and Espaven®.
The Ortho Dermatologics segment - consists of: (i) sales in the U.S. of Ortho Dermatologics (dermatological products) and (ii) global sales of Solta dermatological devices. Revenues from the Ortho Dermatologics segment accounted for approximately 7%, 7% and 7% of our Company's revenues for the three months ended March 31, 2021 and the years 2020 and 2019, respectively.
The Ortho Dermatologics business is our medical dermatology business dedicated to the treatment of a range of therapeutic areas, including psoriasis, actinic keratosis, acne, atopic dermatitis, onychomycosis and other dermatoses and includes our Duobrii®, Bryhali®, Jublia® and Siliq® product lines.dermatoses. As part of our business strategy for the Ortho Dermatologics segment,business, we have made significant investments to build out our psoriasis, atopic dermatitis and acne product portfolios, which are the markets within dermatology where we see the greatest opportunities, with a focus on topical gel and lotion products over injectable biologics. We continue to support and developthe use of injectable biologics; however, we believe some patients prefer topical products as an alternative to injectable biologics. Further, as topical products can, in many cases, defer the use of injectable biologics that often come with associated risk/benefit profiles, a topical product is usually readily adopted by payors, is less expensive and can be more cost-effective than injectable biologics. Therefore, we believe topical products represent alternative treatments for physicians, payors and patients, and as the preferred choice of treatment, have the potential to drive greater volumes, generate better margins and will ultimatelypotentially be a key contributing factor of our Ortho Dermatologics business.
During 2017 through the date of this filing, we have made significant investments to build out our aesthetics, psoriasis and acne product portfolios, which we believe, coupled with our experienced dermatology sales leadership team and our recently expanded Ortho Dermatologics sales force, will position our Ortho Dermatologics business for growth.
Our Solta business is dedicated to the development of innovative treatment technologies that provide proven and effective medical aesthetic and therapeutic benefits to consumers. Global Solta revenues were $72 million, $51 million, $253 million and $38$194 million for the three months ended March 31, 2021 and 2020 and the years 2020 and 2019, and $194 million and $135 million the years 2019 and 2018, respectively. The increase in revenue is primarily attributable to Next Generation Thermage FLX®, a fourth-generation non-invasive treatment option using a radiofrequency platform designed to optimize key functional characteristics and improve patient outcomes. During 2018 and 2019, Next Generation Thermage FLX® was launched in Hong Kong, Japan, Korea, Taiwan, Philippines, Singapore, Indonesia,
Malaysia, China, Thailand, Vietnam, and Australia as part of our Solta medical aesthetic devices portfolio. These launches have been successful as Next Generation Thermage FLX® revenues were $39 million, $26 million, $142 million and $77 million for the three months ended March 31, 2021 and 2020 and the years 2020 and 2019, were $26 million and $12 million, respectively andrespectively. We expect additional launches of Next Generation Thermage FLX® in full-year 2019 were $77 million.Europe in the near term, paced by country-specific regulatory registrations.
The Diversified Products segment - consists of sales in the U.S. of: (i) pharmaceutical products in the areas of neurology and certain other therapeutic classes, such as Wellbutrin®, Aplenzin®, Cuprimine®, Ativan® and Migranal®, (ii) generic products, such as Uceris® authorized generic (“AG”), Elidel® AG, Migranal® AG and Diastat® AG, and (iii) dentistry products, such as Arestin® and NeutraSal®. Revenues from our Diversified Products segment accounted for approximately 11%, 12% and 13% of our Company's revenues for the three months ended March 31, 2021 and the years 2020 and 2019, respectively. The Company utilizes the Diversified Products segment to extend the long-term cash flows from a number of assets that are expected to decline over time due to the loss of exclusivity, by launching and selling authorized generic versions of certain branded assets.
For a comprehensive discussion of our business, business strategy, products and other business matters, see Item 1. “Business” included in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, filed with the SEC and the Canadian Securities Administrators ("CSA") on SEDARFebruary 24, 2021.
Our Focus on Value
In 2016, we retained a new executive team which 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. Under the multi-year plan we have taken the following actions, among others:
•divested non-core assets in order to narrow the Company's activities to our core businesses where we believe we have an existing and sustainable competitive edge and the ability to generate operational efficiencies. To date, we received approximately $3,500 million in net proceeds from these divestitures. In addition, as discussed below, on March 31, 2021, the Company announced that it and certain of its affiliates had entered into a definitive agreement to sell all of its equity interests in Amoun Pharmaceutical Company S.A.E ("Amoun") for total gross consideration of approximately $740 million, subject to certain adjustments (the “Amoun Sale”);
•made strategic investments in our core businesses in order to support recent revenue growth and prepare for additional growth opportunities we plan to capitalize on for our core businesses;
•made measurable progress in improving our capital structure as we have repaid over $8,800 million in debt obligations (net of additional borrowings, amounts refinanced and excluding the $1,210 million financing of the U.S. Securities Litigation settlement discussed below) during the period January 1, 2016 through the date of this filing, using the proceeds from the divestiture of non-core assets, cash generated from our operations and improved working capital management. Further, upon the closing of the Amoun Sale (which is subject to certain customary closing conditions), we expect to use the net proceeds of the Amoun Sale to pay down certain debt obligations thereby further deleveraging the Company; and
•resolved many of the Company's legacy litigation matters originating back to 2015 and prior, including the most significant legacy legal matter, the U.S. Securities Litigation settlement discussed below, significantly reducing related possible disruptions and other uncertainties to our operations.
We believe that these and other positive actions we have taken to transform our Company, have properly focused our operations and improved our capital structure, and we also believe that, as a result of such actions, we are now presented with an opportunity to unlock additional value across our portfolio of assets by creating two highly attractive but dissimilar businesses.
Separation of the Bausch + Lomb Eye-Health Business
On August 6, 2020, we announced that we intend to separate our eye-health business into an independent publicly traded entity (“Bausch + Lomb”) from the remainder of Bausch Health Companies Inc. The Separation will establish two separate companies that include:
•a fully integrated, pure play eye-health company built on the iconic Bausch + Lomb brand and long history of innovation; and
•a diversified pharmaceutical company with leading positions in gastroenterology, aesthetics/dermatology, neurology and international pharmaceuticals.
The Bausch + Lomb entity will consist of the Company's Bausch + Lomb Global Vision Care, Global Surgical, Global Consumer and Global Ophthalmology Rx businesses. The remaining pharmaceutical entity will comprise a diversified portfolio of our leading durable brands across the Salix, International Rx, Solta, neurology and medical dermatology businesses. We believe the Separation will unlock value across the two post-separation entities and create two highly attractive but dissimilar businesses.
As separate 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 best manage its respective capital needs. Further, the Separation allows us and the market to compare the operating results of each entity with other “pure play” peer companies. Although management believes the Separation will bring out additional value, there can be no assurance that it will be successful in doing so.
We continue to make progress toward the internal objectives necessary for the Separation and have been actively addressing the internal organizational design and structure of the new entity. We are actively addressing the structure and pro forma capitalizations of the two entities post-separation and have announced certain key leadership positions of the Bausch + Lomb entity. Based on our assessment, we believe that, by the end of the third quarter of 2021, we will be able to address the organizational matters and regulatory requirements needed to operate the businesses separately and put the Bausch + Lomb entity in a position to become an independent publicly traded company. Management is also considering the form of the Separation and exploring a number of alternative capitalization structures in order to properly capitalize the entities post-separation. Although a public offering of a portion of the Bausch + Lomb business is among the alternate capital structures being considered, this Form 10-Q does not constitute an offer of any securities of Bausch + Lomb for sale. There are considerations, approvals and conditions that will determine the ultimate timing and structure of this transaction, including regulatory approvals, final approval by our board of directors, any shareholder vote requirements that may be applicable, compliance with U.S. and Canadian securities laws and stock exchange rules, receipt of any applicable opinions and/or rulings with respect to the Canadian and U.S. federal income tax treatment of such transaction and determination of the pro forma capitalizations of the two entities. The failure to satisfy all of the required conditions could delay the completion of this transaction for a significant period of time or prevent it from occurring at all. While we anticipate that we will be able to complete the internal organizational design and structure of the Bausch + Lomb entity by the end of the third quarter of 2021, we will need to complete a number of additional steps that will depend on the ultimate structure of the transaction (in addition to obtaining the regulatory approvals and satisfying the conditions described above) before we can complete the Separation. As a result, there can be no assurance as to the timing of the completion of the Separation or its terms, and the information in this Form 10-Q relating to the Separation is preliminary and may change as the transaction progresses and any such change may be material.
See Item 1A. “Risk Factors — Risk Relating to the Separation” ofour Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC and the CSA on February 19, 2020.24, 2021 for additional risks relating to the Separation.
ImpactDivest Assets to Improve Our Capital Structure and Simplify Our Business
In order to better focus on our core businesses, we continue to evaluate opportunities to simplify our operations and improve our capital structure, including dispositions of various assets. For example, on March 31, 2021 we announced the Amoun Sale. Amoun manufactures, markets and distributes branded generics of human and animal health products. The transaction, which is expected to close in the first half of 2021, remains subject to certain customary closing conditions, including receipt of applicable regulatory approvals. The Amoun business was part of the International Rx segment (formerly included within the Bausch + Lomb/International segment). Revenues associated with Amoun were $247 million, $220 million and $183 million for the years 2020, 2019 and 2018, respectively. For the twelve months ended March 31, 2021, Amoun's operating income was $51 million, depreciation, amortization and asset impairments were $28 million and Adjusted EBITDA contribution (non-GAAP) per our debt covenant calculations was $79 million. We anticipate using the net proceeds from the Amoun Sale to pay down certain debt obligations.
We are actively considering further dispositions of various assets in line with this strategy. While we anticipate that any future divestiture activities will be on non-core assets, consistent with our duties to our shareholders and other stakeholders, we will consider dispositions in core areas that we believe represent attractive opportunities for the Company. See Note 4, "ACQUISITION, LICENSING AGREEMENTS AND ASSETS HELD FOR SALE" to our unaudited interim Consolidated Financial Statements for additional information.
Impacts of COVID-19 Pandemic
In December 2019, a novel strain of the coronavirus disease, COVID-19, was identified in Wuhan, China. Since then, COVID-19 has spread to other parts of the world, including the United States, Canada and Europe, and was declared a global pandemic by the World Health Organization (the "WHO") on March 11, 2020. As a global health care company, now more than ever, we remain focused on our mission of helping to improve people’s lives with our health care products.
The unprecedented nature of the COVID-19 pandemic has adversely impacted the global economy. The COVID-19 pandemic and the rapidly evolving 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 intensified and 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, andsuspensions. The COVID-19 pandemic has also significantly increased demand for certain goods and services, such as pandemic-related medical services and supplies, alongside decreased demand for others, such as retail, hospitality, elective medical procedures and travel.
As the global economic landscape changes, there is a wide range of possible outcomes regarding the nature and timing of events and reactions relatingrelated to the COVID-19 pandemic, each of which are highly dependent on variables that are difficult to predict at this time. The extent and duration of the pandemic, the rapidly evolving reactions of governments, private sector participants and the public to the COVID-19 pandemic and the associated disruption to business and commerce generally, and the extent to which these may impact the Company's business, financial condition, cash flows, development programs 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 includepredict. Developments, including the ultimate geographic spread and duration of the pandemic, the extent and duration of a resurgence, if any, new information which may emerge concerning the severity of the COVID-19 pandemic,virus and variant strains thereof, the effectiveness and intensity of measures to contain the COVID-19 and/or address its impacts,virus, the availability and effectiveness of vaccines for the COVID-19 virus and the ultimate economic impact of the pandemic. Such developments, among others, depending on their nature, durationpandemic and intensity,the reactions to it, could have a significant adverse effect on our business, development programs, financial condition, cash flows and results of operations. The extent of these developments and the related impacts are highly uncertain and many are outside the Company's control.
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 viruspandemic 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. Primarily due to thisAs a result of our assessment, we immediately initiated profit protection measures to manage and reduce operating expenses and preserve cash during the COVID-19 pandemic. We have also taken actions to manage the level of our investment in support of certain existing products, anticipated launches and the expansion of our sales footprint in Europe. Postponing these investments may impact the extent and timing in achieving our longer-term forecasts for certain business units, however, we believe these actions will not have a material impact on the underlying value of the related businesses or their associated assets.
We are and will continue to closely monitor the impacts of the COVID-19 pandemic and related responses from governments and private sector participants on the Company, our customers, supply chain, third-party suppliers, project development timelines, costs, revenue, margins, liquidity and financial condition and our planned actions and responses to this pandemic.
We believe we have responded quickly to the human and commercial challenges brought on by the COVID-19 pandemic and that our early actions have, so far, enabled us to keep our employees safe and our supply lines largely intact and we believe these actions have laid the foundation for us to work our way through the uncertainties to come. Importantly, we believe that the steps we took over the last several years to manage our capital structure place us in a strong position to maintain sufficient liquidity to continue operations through an extended pandemic and we believe that our businesses will not see their long-term value diminished by this unprecedented situation.
Our Employees
TheOur employees' health, safety, and wellness are important to us. With the COVID-19 outbreak, a focus in 2020 was protecting the health and safety of our employees is paramount. Our senior management team meets regularlyand their families. We broadened our existing remote work policies to assess this ongoing situation and has implemented multiple actionsenable our global employees to protect our employees.work from home wherever possible. In most locations, employeescircumstances where remote work was not directly involved in production, including our sales forces, are working remotely. For essential personnel inpossible (such as at our manufacturing and distribution centers,facilities), we are taking every precautionimplemented safety measures to ensure that these employees are workingwe prevented the spread of COVID-19 in an environment that isthe workplace, such as safe as possible, including followingmandatory face coverings, social distancing, hand hygiene, plexiglass barriers, limited face-to-face meetings and other procedures as prescribed by global public health organizations, such as the WHO and U.S. Centers for Disease Control and Prevention. We also provided resources for our employees specifically in response to COVID-19, including launching a website – Collaborating in the New Normal – to help our employees encourage each other, lead with empathy and adapt as we navigate these unprecedented times.
Our Supply Chain and Manufacturing Facilities
Our objective is to maintain the uninterrupted availability of our products to meet the needs of patients, consumers and our customers, and in fact, we have stepped up production to meet increased demand for certain of our consumer products.customers. Business continuity plans and site-level biosecurity procedures are in place to ensure the well-being of our employees while we work to maintain the integrity of our supply chain. We have been successful in keeping our manufacturing facilities operational, although, due to shelter-in-place orders, our facilities in Milan and China were forced to temporarily close in March and April of 2020. These facilities were closed for only a short period of time and were immediately and continually operational once the shelter-in-place orders in the respective geographies were lifted.
As of the date of this filing, we have not experienced any disruption in our supply chain that would have a material impact on our results ofor operations.
Our global supply chain team worked diligently to stay ahead of this challengethe challenges presented by the COVID-19 pandemic once it appeared in Asia and has used that experience toAsia. Although we have put in place procedures to mitigate the risks ofassociated with closures and disruptions at our manufacturing facilities, the COVID-19 pandemic has had an impact on our inventory levels and the manner in other regions. We havewhich we manage our inventories. From time to time during 2020, our inventory levels were higher than usual as a result of: (i) lower demand across multiple sourcesbusiness units due to COVID-19 pandemic related matters, (ii) securing additional quantities of active pharmaceutical ingredients ("API") for our Xifaxan® products from our suppliers in Italy in contemplation of potential supply disruptions in that region, (iii) securing additional quantities of API for our Trulance® products which have longer procurement times and higher costs and (iv) the acquisition of additional quantities of certain products that were at the lower end of their optimal levels at December 31, 2019. During our third and fourth quarters of 2020, we continued to manage our inventory levels and effectively reduced our inventory levels to be relatively in line with our pre-pandemic inventory levels as of December 31, 2020 and March 31, 2021.
We have dual sources of API and intermediates for many of our products, the availability of which has not had, and at this time we do not expect will have, a material impact on our supply chain. We have been largely successful in keeping our manufacturing facilities operational, although our facilities in Milan, Laval and China were closed for short periods of time but have since resumed operations. With respect to our largest product, Xifaxan®, as of April 30, 2020,2021, we have over fivefour months’ supply of Xifaxan® finished goods on hand and enough API to manufacture another fiveseven months’ supply of Xifaxan® finished goods. We also have open orders for API for Xifaxan® that we currently expect will arrive on schedule. However, if we were to experience a lack of availability of API for Xifaxan®, such disruption to our supply chain could have a significant adverse effect on our business, financial condition and results of operations.
We continue to monitor the impacts of the COVID-19 pandemic and take the actions appropriate to regulate our inventories at levels in line with the current supply and demand for our products. These actions have been effective at meeting our objectives, and presuming there continues to be increased availability of effective vaccines and any resurgence of the COVID-19 virus and variant strains thereof do not have a material adverse impact on efforts to contain the COVID-19 virus, we believe we can maintain our inventories at their pre-pandemic levels during 2021. We will continue to monitor our inventories and continue to take the appropriate actions and make the necessary adjustments to maintain the uninterrupted availability of our products to meet the needs of patients, consumers and our customers.
Our Product Pipeline
Our leadership team actively manages the Company's product pipeline to identify what we believe are innovative and realizable projects aligned with our core businesses that are expected to provide incremental and sustainable revenues and growth. During the COVID-19 pandemic, our R&D team remains focused on meeting these objectives in a timely manner; however, there are significant events and circumstances regarding the COVID-19 pandemic that may materially affect our R&D team’s ability to do so, many of which are beyond the Company's control. As a result of these events and circumstances, we have had to pause certain early stage clinical trial and research efforts, which in turn is expected to lead to delays in the development and the anticipated launch of certain projects.
Due to the challenges of the COVID-19 pandemic, most notably those attributable to "stay at home" and travel restrictions, we have beencertain of our R&D activities were forced to pause certain R&D activities.in 2020. Clinical trials that started prior to governmental shutdowns remainremained enrolled and existing patients are progressing,have progressed, while new patient enrollments in clinical trials have been temporarilywere paused as most trial sites arewere not able to accept new patients. WhileHowever, during our third quarter of 2020, we anticipate resuming thesesaw the pace of new patient enrollments increase, and, although certain of our projects as soon as possible,are moving slower than we would like due to the ultimateimpacts of the COVID-19 pandemic, through the date of this filing we have not had to make changes to our development timelines that would have a material impact on our current or future operating results.
We continue to monitor the timing and completion of the affectedour ongoing and anticipated clinical trial programs, and the expected approval and launch of the product candidates to which these development programs relate, is dependent upon when many COVID-19 pandemic uncertainties are resolved and we may resume new patient enrollments and other impacted development activities.programs. As of the date of this filing, the delays in our clinical trials have not had a material impact on our operating results. However, continuedresults; however, a resurgence of the virus significant enough to necessitate reenacting certain social restrictions could result in unanticipated delays in our ability to resumeconduct new patient enrollments along with otherenrollments. Other possible COVID-19 pandemic related challenges impacting our R&D projects, which are beyond the Company's control, could lead to additional disruptions. Other possible COVID-19 pandemicand resurgence related challenges include, but are not limited to, facility closures, delays by third-party service providers, deferrals of doctor visits, postponement of elective medical procedures and surgeries and changes in prioritization by the FDA and other regulatory authorities. Delays, if any, caused by the COVID-19 pandemic challengesand a possible resurgence of the virus such as these and others will likely adversely affect the timely approval, launch and commercialization and the commercial success of our products, particularly those in early stage clinical trials, which could have a significantmaterial adverse effect on our future operating results.
Our Liquidity
Our primary sources of liquidity are our cash and cash equivalents, cash collected from customers, funds as available from our revolving credit facility of $1,225 million due in June 2023 (the “2023 Revolving Credit Facility,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 twelve months from the date of issuance of this Form 10-Q. Further, infor the three months ended March 31, 2021 and the years 2020 and 2019, and 2018, we generated positive cash from operations of $1,501$443 million, $1,111 million and $1,501 million, respectively. Should our operating results during the COVID-19 pandemic materially suffer in comparison to our 2020 and 2019 and 2018
operating results, we believe we would continue to generate sufficient cash flows from operations to meet our obligations in the ordinary course of business.
As of the date of this filing, weWe have no debt maturingmaturities or mandatory amortization of debt payments until the first quarter of 2022. Additionally,2024. Additionally, we have no outstanding borrowings, $168$101 million of issued and outstanding letters of credit and remaining availability of $1,057$1,124 million under our 2023 Revolving Credit Facility as defined below.Facility. In the event of a future, unexpected need for near-termnear-term liquidity, our 2023 Revolving Credit Facility would be a source of funding for us. After reviewing the terms of our Restated Credit Agreement as defined below and considering a broad range of possible outcomes of the COVID-19 pandemic, we expect that we will have access to capital under our 2023 Revolving Credit Facility across a broad range of scenarios in the event it is required.
See Note 10, "FINANCING ARRANGEMENTS" to our unaudited interim Consolidated Financial Statements and “Management's Discussion and Analysis - Liquidity and Capital Resources: Long-term Debt” for additional discussion of these matters.
Our Operating Results
While we are takingcontinue to take actions to mitigate the impact of the COVID-19 pandemic on our daily operations, the global response to the pandemic has and is expected to impact our operating results until the impacts of the pandemic subsides.subside, the timing of which is uncertain and may be dependent upon, among other matters, the availability and effectiveness of vaccines for the COVID-19 virus. The changing dynamics of the pandemic, related responses from governments and private sector participants and the precautionary measures taken by our customers and the health care patients and consumers we serve, are expected to impact the timing and amount of our revenues in the near-term. Certain of our businesses have experienced COVID-19 pandemic related declines in revenues during the three months ended March 31, 2020 and we expect continued pandemic-related revenue declines in these and other businesses in the second quarter and possibly the remainder of 2020.revenues.
During the pandemic, the public has been advised to:to engage in certain "social restrictions" such as: (i) remainremaining at home or shelter-in-place, (ii) limitlimiting social interaction, (iii) closeclosing non-essential businesses and (iv) postponepostponing certain surgical and elective medical procedures in order to prioritize/conserve available health care resources. During the three months ended March 31, 2020, these factors have negatively impacted, most notably, the revenues of our Globalthe Company's Vision Care and Global Surgical businesses in Asia where the COVID-19 pandemic originated. We anticipate further revenue declinesBeginning in these businesses duringMarch 2020, as we sawand throughout most of the second quarter of 2020, the Company experienced steeper declines in these revenues inand the monthrevenues of Marchother businesses as social restrictions expanded worldwide, particularly in the U.S. and Europe, were put in place. Beginning in March and into our second quarter, we also experienced and are anticipating COVID-19 pandemic-related revenue declines inEurope. Social restrictions negatively impacted the Company's revenues for contact lenses, intraocular lenses, medical devices, surgical systems and certain pre- and post-operative eye-medications of our Ophthalmologyits Ophtho Rx business, in medical aesthetics and therapeutic products of ourits Global Solta business, and in certain branded pharmaceutical products of ourits Salix, Ortho Dermatologics and Dentistry businesses, as the offices of many health care providers arewere closed and certain surgeries and elective medical procedures are beingwere deferred.
Based on our assessment, we believe ourOur 2020 revenues will bewere most negatively impacted by the pandemic during our second quarter by the 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 infection ratenegative trend in the revenues of certain businesses began to level off and stabilize prior to our third quarter of 2020. Presuming there continues to be increased availability of effective vaccines and any further resurgence of the COVID-19 virus accelerated in March into April,and variant strains thereof do not have a material adverse impact on efforts to contain the COVID-19 virus, had spread beyond Asia into different geographies including the U.S.Company anticipates an ongoing, gradual global recovery from the significant macroeconomic and Europe, and the number of shelter-in-place directives issued by local authorities increased. Although we expect eachhealth care impacts of the affected businessespandemic that occurred during the first half of 2020 and geographies to recover at different rates, overall we anticipateanticipates that the negative trend in ourits revenues will begin to stabilize during our second quarter and continue into our third quarter with the revenues of all our businesses possibly returninglikely return to pre-pandemic levels as early as late 2020, but, if not, then in 2021. This assessment assumes,However, the rates of recovery for each business will vary by geography and will be dependent upon, among other matters, thatthings, the availability and effectiveness of vaccines for the COVID-19 virus, government responses, rates of economic recovery, precautionary measures taken by patients and customers, the publicrate at which remaining social restrictions are successfullifted and once lifted, the presumption that social restrictions will not be materially reenacted in deceleratingthe event of a resurgence of the virus or variant strains thereof and other actions taken in response to the COVID-19 pandemic.
In the U.S., the recovery in our GI, medical dermatology, surgical, vision care, ophthalmology and dentistry businesses continues to progress, as offices of certain health care providers have reopened and certain surgeries and elective medical procedures proceed, while our U.S. consumer and Solta aesthetics businesses had been less impacted by the COVID-19 pandemic. The recovery of our businesses in China seems to be further along than the rest of our businesses in Asia, as the revenues of certain of our businesses in China have returned to their pre-pandemic levels. Although certain social restrictions were lifted in Europe during the summer, recovery in this region has been more gradual, as consumers were slower to return to their pre-pandemic habits. Further, various geographies reinstituted lockdowns or partial lockdowns as needed in response to resurgence of the original COVID-19 virus and as variant strains were identified. For instance, parts of Europe, such as England, Germany, France and Ireland, and parts of Canada returned to lockdowns of various lengths and enacted or are still considering enacting other social restrictions. Entering 2021, the daily average number of new COVID-19 cases in the U.S. was in decline and the vaccination rates in the U.S. accelerated leading to the lifting of certain government and social restrictions. However, variant strains of the virus have been identified in the U.S. and a portion of the country's residents have demonstrated reluctance to get vaccinated. Further, for various logistical, regulatory, economical, governmental and/or other availability factors, certain geographies outside the U.S. have limited access to effective vaccines allowing the spread of the original virus thereand variant strains thereof to develop. These factors are challenges to achieving herd immunity in the U.S. and globally and could lead to a resurgence and new lockdowns or other social restrictions globally.
As we monitor the direction and pace of the recovery in each business and geography, we are also continually monitoring the effectiveness of the profit protection measures we initiated to manage and reduce our operating expenses and preserve cash during the COVID-19 pandemic. These profit protection measures have been successful in expanding the profit margins in many of our businesses as referenced in the discussion of our operating results below. As the pace of recovery in each geography accelerates, we expect to allocate more resources to selling and other promotional activities to drive our return to sustainable revenue and profit growth. Therefore, if the recovery continues, we expect our operating expenses to increase in support of our existing products, product launches and products in development and expect to see our operating expenses in 2021 exceed our operating expenses in 2020 as a result.
We believe our diverse portfolio of durable products and strong brands has served us well through the COVID-19 pandemic and we continue to be well-positioned to grow market share and return to growth as the world recovers. However, this situation remains very fluid and we continue to monitor the availability and effectiveness of vaccines and any resurgence of the COVID-19 virus and variant strains thereof on our operations, businesses and primary goals. Given these circumstances, we continue to focus on: (i) revising our go-to-market and sales force strategies to address the changing business dynamics created by the COVID-19 pandemic, (ii) building out our e-commerce presence to enable us to reach customers in new ways, (iii) investing in our key promoted brands and product launches to increase market share, (iv) optimizing our cost structure and (v) looking for key trends in the market to meet changing consumer/patient needs and identify areas for investment and growth. We believe focusing on these priorities will be nobest enable us to effectively manage the changing business dynamics created by the COVID-19 pandemic, best prepare us for a possible resurgence of the virus inand any variant strains thereof and return us to growth once the second half of 2020 that will lead to significant social restrictions,there will be no significant social restrictions in place at the end of 2020, responses from governments and private sector participants will be successful in bringing about a quick orderly recoveryimpacts of the global economy, there will be no major interruptions in our supply, manufacturing and distribution channels and we are able to continue to execute on our strategies in response to the pandemic.COVID-19 pandemic substantially subside.
The changes in our segment revenues and segment profits, including the impactimpacts of the COVID-19 virus on our revenuespandemic related matters for the three months ended March 31, 2020,2021, are discussed in further detail in the respective subsequent section titled “Reportable“ — Reportable Segment Revenues and Profits”.
ThroughThe Company continually updates its near term forecasts for the date of this filing, the impacts ofchanging facts and circumstances regarding the COVID-19 pandemic appearspandemic. As more fully discussed in Note 8, "INTANGIBLE ASSETS AND GOODWILL" to have only a limited impact on our Xifaxan® product revenues andunaudited interim Consolidated Financial Statements, the COVID-19 pandemic is not expected to have a material impact on the Company's revenues once the pandemic subsides. As such, the impacts of the COVID-19 pandemic onchanges in the amounts and timing of these revenues as presented in the Company's revenueslatest forecasts include a range of potential outcomes and, with the exception of the Ortho Dermatologics reporting unit as discussed below, are not expected to be substantial enough to materially adversely affect the recoverability of any of the Company'sassociated reporting units’ assets and are not material enough to indicate that the fair values of anythose reporting unit may beunits are more likely than not below their respective carrying values.
However, if market conditions further deteriorate, if During the factors and circumstances regarding the COVID-19 pandemic escalate beyond management’s expectations, or ifthree months ended March 31, 2021, the Company is unablerevised its long-term forecasts
for the Ortho Dermatologics reporting unit, and as a result, the Company recognized a goodwill impairment of $469 million. See Note 8, "INTANGIBLE ASSETS AND GOODWILL" to execute its strategies, it may be necessaryour unaudited interim Consolidated Financial Statements for additional information.
For a further discussion of these and other COVID-19 related risks, see Item 1A. "Risk Factors— Risk Relating to record impairment charges inCOVID-19" ofour Annual Report on Form 10-K for the futureyear ended December 31, 2020, filed with the SEC and those charges can be material.the CSA on February 24, 2021.
Business Strategy
Our Focus on Core Businesses
In order to continue to focus on our core businesses where we believe there is potential for strong operating margins and evidence of growth opportunities, we have: (i) directed capital allocation to drive growth within our core businesses, (ii) made measurable progress in effectively managing our capital structure, (iii) increased our efforts to improve patient access and (iv) continued to invest in sustainable growth drivers to position us for long-term growth.
Direct Capital Allocation to Drive Growth Within Our Core Businesses
Our capital allocation is driven by our long-term growth strategies. We have been aggressively allocating resources to promote our core businesses globally through: (i) strategic acquisitions, (ii) R&D investment, (iii) strategic licensing agreements and (iii)(iv) strategic investments in our infrastructure. The outcome of this process allows us to better drive value in our product portfolio and generate operational efficiencies.
Strategic Acquisitions -
We remain very selective when considering any acquisition and pursue only those opportunities that we believe align well with our current organization and strategic plan. We sometimes refer to these opportunities as "bolt on" acquisitions. In being selective, we seek to enter into only those acquisitions that provide us with significant synergies with our existing business, thereby minimizing risks to our core businesses and providing long-term growth opportunities. Recently, we have entered into transactions that although not immediately impactful to our operating results, are expected to be accretive to our bottom line in future years and contribute to our long-term growth strategies.
In September 2020, we entered into an agreement which provides the Company an option to acquire all ophthalmology assets of Allegro (the "Option"), a privately held biopharmaceutical company focused on the development of therapies that regulate integrin functions for the treatment of ocular diseases. Among the assets to be acquired, if the Option is exercised, is the worldwide rights to risuteganib (Luminate®), Allegro's lead investigational compound in retina, which is believed to simultaneously act on the angiogenic, inflammatory and mitochondrial metabolic pathways implicated in diseases such as intermediate dry AMD. A U.S. Phase 2a study with risuteganib in intermediate dry AMD met its primary endpoint of vision recovery and Phase 3 testing is in the planning stages. We believe the addition of the ophthalmic assets of Allegro would significantly enhance our comprehensive portfolio of products for AMD and if approved, risuteganib may be the first treatment indicated to help reverse vision loss due to dry AMD and address a significant unmet medical need affecting millions of people globally.
In March 2019, we completed the acquisition of certain assets of Synergy whereby we acquired the worldwide rights to the Trulance® (plecanatide) 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 Trulance® product complements our existing Salix products and allows us to effectively leverage our existing GI sales force. In order to drive growth of the Trulance® product, we have increased the number of sales force representatives for the Trulance® product. This has been successful as Trulance® revenues were $21 million and $19 million for the three months ended March 31, 2021 and 2020, respectively.
OnIn February 18, 2019, we acquired the U.S. rights to EM-100 (an investigational preservative-free formulation eye drop) from Eton Pharmaceuticals, Inc. EM-100, is an investigational eye dropOn September 25, 2020, the Company announced that if approved by the FDA will behad approved Alaway® Preservative Free (ketotifen fumarate) ophthalmic solution, 0.035%, antihistamine eye drops (EM-100) as the first OTC preservative-free formulation eye drop for the treatment of ocular itching associated with allergic conjunctivitis. A Phase 3 trial has been completedapproved to temporarily relieve itchy eyes due to pollen, ragweed, grass, animal hair and submitted to the FDA for reviewdander. Alaway® Preservative Free was launched in February 2021 and we anticipate their response in the second half of 2020. If approved, EM-100 is expected to complement our broad range of Bausch + Lomb integrated eye-health products.
We are considering further acquisition opportunities within our core therapeutic areas, some of which could be material in size.
R&D Investment -
We continuously 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.
Internal R&D Projects - Our internal R&D organization focuses on the development of products through clinical trials. As of December 31, 2019,2020, approximately 1,4001,300 dedicated R&D and quality assurance employees in 23 R&D facilities were involved in our R&D efforts internally.
Our R&D expenses for the three months ended March 31, 2020 and the years 2019 and 2018, were $122 million, $471 million and $413 million, respectively, and was approximately 6% as a percentage of revenue for the three months ended March 31, 2020 and 5% as a percentage of revenue in each of the years 2019 and 2018. Our investment in R&D reflects our commitment to drive organic growth through internal development of new products, a pillar of our strategy.
We have over 225approximately 200 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. However, due to the challenges of the COVID-19 pandemic, most notably those attributable to "stay at home" and travel restrictions, we have beencertain of our R&D activities were forced to pause certain R&D activities.in 2020. Clinical trials that started prior to governmental shutdowns remainremained enrolled and existing patients are progressing,have progressed, while new patient enrollments in clinical trials have been temporarilywere paused as most trial sites arewere not able to accept new patients. WhileHowever, during our third quarter of 2020, we anticipate resuming thesesaw the pace of new patient enrollments increase, and, although certain of our projects as soon as possible,are moving slower than we would like due to the ultimateimpacts of the COVID-19 pandemic, through the date of this filing we have not had to make changes to our development timelines that would have a material impact on our current or future operating results.
We continue to monitor the timing and completion of the affectedour ongoing and anticipated clinical trial programs, and the expected approval and launch of the product candidates to which these development programs relate, is dependent upon when many COVID-19 pandemic uncertainties are resolved and we may resume new patient enrollments and other impacted development activities.programs. As of the date of this filing, the delays in our clinical trials have not had a material impact on our operating results. However, continuedresults; however, a resurgence of the virus significant enough to necessitate reenacting certain social restrictions could result in unanticipated delays in our ability to resumeconduct new patient enrollments along with otherenrollments. Other possible COVID-19 pandemic related challenges impacting our R&D projects, which are beyond the Company's control, could lead to additional disruptions. Other possible COVID-19 pandemicand resurgence related challenges include, but are not limited to, facility closures, delays by third-party
service providers, deferrals of doctor visits, postponement of elective medical procedures and surgeries and changes in prioritization by the FDA and other regulatory authorities. Delays, if any, caused by the COVID-19 pandemic challengesand a possible resurgence of the virus such as these and others will likely adversely affect the timely approval, launch and commercialization and the commercial success of our products.products, particularly those in early stage clinical trials. As a result, our estimates regarding the timing and success of our R&D efforts (some of which are set out below), including as it relates to study initiation, enrollment and completion, availability of study results, regulatory submissions, regulatory approvals and commercial launches, may change.
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• | Dermatology - In June 2019,Bausch + Lomb •SiHy Daily - A silicone hydrogel daily disposable contact lens designed to provide clear vision throughout the day. In September 2018, we launched SiHy Daily in Japan under the branded name AQUALOX™ ONE DAY. In August 2020, we launched Duobrii®, the first and only topical lotion that contains a unique combination of halobetasol propionate and tazarotene for the treatment of moderate-to-severe plaque psoriasis in adults. Halobetasol propionate and tazarotene are each approved to treat plaque psoriasis when used separately, but the duration of halobetasol propionate is limited by FDA labeling constraints and the use of tazarotene can be limited due to tolerability concerns. However, the combination of these ingredients in Duobrii®, with a dual mechanism of action, allows for expanded duration of use, with reduced adverse events. |
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• | Bausch + Lomb - SiHy Daily is a silicone hydrogel daily disposable contact lens designed to provide clear vision throughout the day. In September 2018, we launched this product in Japan under the branded name SiHy Daily AQUALOX™. We anticipate launching our SiHy Daily contact lens in the U.S. during the second half of 2020 under its U.S. branded name which is yet to be announced.
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Dermatology - Internal Development Project ("IDP") 126 is an acne product with a fixed combination of benzoyl peroxide, clindamycin phosphate and adapalene. Phase 3 studies initiated in December 2019 have been paused as a result of COVID-19 related factors and are expected to resume in the second halfU.S. under the branded name Bausch + Lomb INFUSE™ SiHy Daily Disposable contact lens. In the fourth quarter of 2020, assuming clinical sites throughoutSiHy Daily was launched in Australia, Hong Kong and Canada under the various geographies re-open to allowbranded name Bausch + Lomb Ultra® ONE DAY. SiHy Daily has also received regulatory approval for enrollment of new patients.New Zealand, South Korea, Singapore and Malaysia, where it will be branded as Bausch + Lomb Ultra® ONE DAY.
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• | •Bausch + Lomb - Lumify® (brimonidine tartrate ophthalmic solution, 0.025%) is an OTC eye drop developed as an ocular redness reliever. We have several line extensions under development. Further clinical studies are planned for late 2020 and early 2021. |
Gastrointestinal - Topline data from our Phase 2 study for the treatment of overt hepatic encephalopathy with a new formulation of rifaximin showed a treatment benefit. Patients receiving 40 mg twice daily showed a statistically significant separation from placebo. The topline results of this study will help inform further research on potential new indications for rifaximin using this formulation, including in sickle cell anemia where we expect our clinical trials to commence late 2020 or early 2021.
Gastrointestinal -An OTC eye drop developed as an ocular redness reliever. We are preparing to initiate a Phase 2 study to evaluate rifaximin for the treatment of small intestinal bacterial overgrowth or SIBO. Patient enrollment remains subject to getting clinical sites activated post COVID-19 and we expect our clinical trials to commence in the second half of 2020.
Gastrointestinal - We have entered into a collaboration with Cedars Sinai Medical Center to evaluate a new formulation of rifaximin for the treatment of IBS. Studies to support this research program have been paused as a result of COVID-19 related factors and are expected to resume upon the re-opening of the relevant clinical sites.
Dermatology - IDP-120 is an acne product with a fixed combination of mutually incompatible ingredients: benzoyl peroxide and tretinoin. Phase 3 enrollment has been completed with results expected in the second half of 2020.
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• | Dermatology - Arazlo™ (tazarotene) Lotion, 0.045% (formerly IDP-123) is an acne product containing lower concentration of tazarotene in a lotion form to help reduce irritation while maintaining efficacy. The FDA approved the New Drug Application ("NDA") for Arazlo™ on December 18, 2019, which we expect to launch in the first half of 2020.
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Gastrointestinal - Our partner Alfasigma S.p.A. ("Alfasigma") is initiating a Phase 2/3 study for the treatment of postoperative Crohns disease using a novel rifaximin extended release formulation in the second quarter of 2021; the start has been delayed due to COVID-19 related factors.
Gastrointestinal - We are developing a probiotic supplement to address gastrointestinal disturbances. Clinical trial is completed and a full data set is available. We expect to launchlaunched this product in the second half of 2020.
Dermatology - IDP-124 is a topical lotion product designed to treat moderate to severe atopic dermatitis, with pimecrolimus.U.S. in May 2018. Currently, we have several line extensions under development and expect Phase 3 enrollment has been completed with results expectedclinical studies to commence in 2021.
•Biotrue® ONEday for Astigmatism - A daily disposable contact lens for astigmatic patients. The Biotrue® ONEday contact lens incorporates Surface Active Technology™ to provide a dehydration barrier. The Biotrue® ONEday for Astigmatism also includes evolved peri-ballast geometry to deliver stability and comfort for the second half of 2020.
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• | Bausch + Lomb - Biotrue® ONEday for Astigmatism is a daily disposable contact lens for astigmatic patients. The Biotrue® ONEday contact lens incorporates Surface Active Technology™ 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
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astigmatic patient. We launched this product in December 2016 and launched an extended power range and further extended power ranges in each of the years 2017 2018 and November 2019.through 2020.
Bausch + Lomb - We are developing a new•New Ophthalmic Viscosurgical Device ("OVD") product with a- A formulation to protect corneal endothelium during phacoemulsification process during a cataract surgery and to help chamber maintenance and lubrication during interocular lens delivery. TheIn January 2020, we commenced an FDA clinical study for the cohesive OVD startedproduct which has now achieved its enrollment target, despite COVID-19-related slowdowns, and we expect results in January 2020 and has been paused as a resultthe fourth quarter of COVID-19 related factors and is expected to resume as soon as possible.2021. In Apriladdition, in March 2021, we filed areceived Premarket Approval applicationfrom the FDA for the dispersive OVD withproduct.
•enVista® Trifocal intraocular lens - An innovative lens design. We initiated an investigative device exemption study for this product in May 2018 and initiated the FDA.last phase of this three-phase study in the fourth quarter of 2020.
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• | Bausch + Lomb - In April 2019, we launched Lotemax•SimplifEYE™® SM (loteprednol etabonate ophthalmic gel) 0.38%, a new formulation for the treatment of post-operative inflammation and pain following ocular surgery. Lotemax® SM is the lowest concentrated loteprednol ophthalmic corticosteroid indicated for the treatment of post-operative inflammation and pain following ocular surgery in the U.S. |
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• | Bausch + Lomb - enVista® Trifocal intraocular lens is an innovative lens design. We initiated an investigative device exemption study for this product in May 2018 and initiated a Phase 2 study in October 2019.
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Bausch + Lomb - We are developing a preloaded intraocular lens injector platform for enVista interocular lens.lens - We have received approvals from the European Union and Canada and received FDA clearance for the injector. We anticipate launchinginjector and launched this platform in the second half ofOctober 2020.
Bausch + Lomb - We are developing an extended•Extended depth of focus intraocular lens - Currently under development, however, the timing and completion of which has been delayed due to COVID-19 pandemic related matters. Once development is completed and if approved, we anticipate that this product could be launched in the first half of 2022.
•Bausch + Lomb ULTRA® monthly silicone hydrogel lens - Specifically designed to address the lifestyle and vision needs of patients with MoistureSeal® technology which maintains 95% of contact lens moisture for a full 16 hours. In the second quarter of 2020, Bausch + Lomb ULTRA® received a seven day extended wear indication approval from the European Union andreceived regulatory approvalfrom the NationalMedical Products Administration in EuropeChina.
•Bausch + Lomb ULTRA® Multifocal for Astigmatism contact lens - The first and only multifocal toric lens available as a standard offering in the eye care professional's fit set. The new monthly silicone hydrogel lens, which was specifically designed to address the lifestyle and vision needs of patients with both astigmatism and presbyopia, combines the Company's unique 3-Zone Progressive™ multifocal design with the stability of its OpticAlign® toric with MoistureSeal® technology to provide eye care professionals and their patients an advanced contact lens technology that offers the convenience of same-day fitting during the initial lens exam. Bausch + Lomb ULTRA® Multifocal for Astigmatism was launched in June 2019 and received European Union regulatory approval in the second halfquarter of 2021 due2020.
•Renu® Advanced Multi-Purpose Solution (“MPS”) - Contains a triple disinfectant system that kills 99.9% of germs, and has a dual surfactant system that provides up to COVID-19 delays.20 hours of moisture. Renu® Advanced MPS is FDA cleared with indications for use to condition, clean, remove protein, disinfectant, rinse and store soft contact lenses including those composed of silicone hydrogels. Renu® Advanced MPS has gained regulatory approvals in Korea, India, Mexico, Indonesia, Malaysia, Singapore and, during the second quarter of 2020, the European Union.
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• | Bausch + Lomb - Bausch + Lomb ULTRA® Multifocal for Astigmatism contact lens is the first and only multifocal toric lens available as a standard offering in the eye care professional's fit set. The new monthly silicone hydrogel lens, which was specifically designed to address the lifestyle and vision needs of patients with both astigmatism and presbyopia, combines the Company's unique 3-Zone Progressive™ multifocal design with the stability of its OpticAlign® toric with MoistureSeal® technology to provide eye care professionals and their patients an advanced contact lens technology that offers the convenience of same-day fitting during the initial lens exam. Bausch + Lomb ULTRA® Multifocal for Astigmatism was launched in June 2019.
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• | Bausch + Lomb - Renu® Advanced Multi-Purpose Solution (“MPS”) contains a triple disinfectant system that kills 99.9% of germs, and has a dual surfactant system that provides up to 20 hours of moisture. Renu® Advanced MPS is FDA cleared with indications for use to condition, clean, remove protein, disinfectant, rinse and store soft contact lenses including those composed of silicone hydrogels. Renu® Advanced MPS has gained regulatory approvals in Korea, India, Mexico, Indonesia, Malaysia and Singapore.
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Bausch + Lomb - Custom soft contact lens (Ultra buttons) is aButtons) - A latheable silicone hydrogel button for custom soft specialty lenses including:including; Sphere, Toric, Multifocal, Toric Multifocal and irregular corneas. If approvedThis project has been placed on hold as we reprioritize other projects in our pipeline.
•Zen™ Multifocal Scleral Lens for presbyopia - In January 2019, we launched this product exclusively available with Zenlens™ and Zen™ RC scleral lenses and will allow eye care professionals to fit presbyopic patients with regular and irregular corneas and those with ocular surface disease, such as dry eye. The Zen™ Multifocal Scleral Lens incorporates decentered optics, enabling the near power to be positioned over the visual axis.
•Tangible® Hydra-PEG® - A high-water polymer coating that is bonded to the surface of a contact lens and designed to address contact lens discomfort and dry eye. We launched this product in March 2019. Tangible® Hydra-PEG® coating technology in combination with our Boston® materials and Zenlens™ family of scleral lenses will help eye care professionals provide a better lens wearing experience for their patients with challenging vision needs.
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 will help inform further research on potential new indications for rifaximin; this will include the commencement of a Phase 3 study (RED-C) in 2021 to seek an indication for the prevention of the first episode of Hepatic Encephalopathy. A separate new formulation is planned to be studiedfor the treatment of sickle cell anemia which rifaximin recently received orphan drug designation for and for which clinical trials are expected to commence in 2021.
•Rifaximin - Commencement of a Phase 2 study to evaluate rifaximin for the treatment of small intestinal bacterial overgrowth, or "SIBO", remains pending results from a new formulation study expected to be available in the first half of 2021. Development of a fit for purpose Patient Reported Outcomes tool for SIBO is continuing in 2021.
•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 Proof of Concept study that was paused due to COVID-19 pandemic related factors has recommenced.
•Rifaximin - Our partner Alfasigma S.p.A. ("Alfasigma") was previously planning a Phase 2/3 study for the treatment of post-operative Crohn's disease using a novel rifaximin extended release formulation. However, poor enrollment rates in similar trials and clinical requirements imposed by the FDA were deemed too challenging to the potential success of the program and as a result the program has been terminated.
•Envive™ - In October 2020, we expectlaunched, on a limited basis, a probiotic supplement we developed to address gastrointestinal disturbances. In April 2021, we expanded the launch to additional territories in the fourth quarterU.S.
•Amiselimod (S1P modulator) - We are preparing to initiate a Phase 2 study in the first half of 2021;2021 to evaluate Amiselimod (S1P modulator) for the changetreatment of mild to moderate ulcerative colitis.
Dermatology
•Arazlo® (tazarotene) Lotion, 0.045% (formerly Internal Development Project ("IDP")-123) - In June 2020, we launched this acne product containing lower concentration of tazarotene in date isa lotion form to help reduce irritation while maintaining efficacy.
•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 specification change activities delayingCOVID-19 pandemic related factors, but resumed in June 2020. The first Phase 3 study has been completed, and the original launch date.
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• | Bausch + Lomb - In January 2019, we launched Zen™ Multifocal Scleral Lens for presbyopia exclusively available with Zenlens™ and Zen™ RC scleral lenses and will allow eye care professionals to fit presbyopic patients with irregular and regular corneas and those with ocular surface disease, such as dry eye. The Zen™ Multifocal Scleral Lens incorporates decentered optics, enabling the near power to be positioned over the visual axis.second Phase 3 study showed statistically significant topline results. We anticipate filing a NDA in the second half of 2022.
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• | Bausch + Lomb - In March 2019, we launched Tangible® Hydra-PEG®, a high-water polymer coating that is bonded to the surface of a contact lens and designed to address contact lens discomfort and dry eye. Tangible® Hydra-PEG® coating technology in combination with our Boston® materials and Zenlens™ family of scleral lenses will help eye care professionals provide a better lens wearing experience for their patients with challenging vision needs.
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•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.
Strategic Licensing Agreements -
To supplement our internal R&D initiatives and to build-out and refresh our product portfolio, we also search for opportunities to augment our pipeline through arrangements that allow us to gain 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 primarily in the U.S. and Canada. 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, (iii) covered by third-party payors or (iv) profitable for distribution cannotis highly uncertain. Under certain agreements, the Company may be fairly predicted.required to make payments contingent upon the achievement of specific developmental, regulatory, or commercial milestones.
In December 2019, we announced that we had acquired an exclusive license from Novaliq GmbH for the commercialization and development in the U.S. and Canada of the investigational treatment NOV03 (perfluorohexyloctane), a first-in-class investigational drug with a novel mechanism of action to treat Dry Eye Disease ("DED")DED associated with Meibomian gland dysfunction ("MGD"). We expect to initiate aMGD. In an Open Label Safety study, NOV03 has achieved its enrollment target. In April 2021, we announced statistically significant topline data from the first of two Phase 3 studies and anticipate the readout of topline results from the second Phase 3 study for this product induring the second half of 2020.2021 and anticipate filing an NDA in 2022. If approved by the FDA, we believe the addition of this investigational treatment for DED will help build upon our strong portfolio of integrated eye-health products.
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™ that is being investigated as a targeted treatment of macular edema associated with uveitis. In May 2021, Clearside expects to resubmit its New Drug Applicationresubmitted the NDA for Xipere™ to the FDA in the fourth quarter of 2020.FDA.
In April 2019, we entered into two licensing agreements which present us with unique developmental opportunities to address unmet needs of individuals suffering with certain GI and liver diseases. The first of these two licensing agreements is with the University of California for certain intellectual property relating to an investigational compound targeting the pituitary adenylate cyclase receptor 1 in non-alcoholic fatty liver disease (“NAFLD”), nonalcoholic steatohepatitis (“NASH”) and other GI and liver diseases. The second is an exclusive licensing agreement with Mitsubishi Tanabe Pharma Corporation to develop and commercialize MT-1303 (amiselimod), a late-stage oral compound that targets the sphingosine 1-phosphate
receptor that plays a role in autoimmune diseases, such as inflammatory bowel disease and ulcerative colitis. We have completed a thorough QTC study, which evaluated the cardiac safety profile of the compound. Topline results were positive and we expect to initiate a Phase 2 study in the secondfirst half of 2020.2021.
On February 27, 2018, we announced that we entered into an exclusive license agreement with Kaken Pharmaceutical Co., Ltd. ("Kaken") to develop and commercialize a new chemical entity, IDP-131 (KP-470), for the topical treatment of psoriasis. An early proof of concept study has been completed and the results did not meet expectations. As a result, the Company no longer believes that IDP-131 can be viably developed for the treatment of psoriasis. The Company and Kaken are currently considering whether this new chemical entity can be developed to treat other indications.
Strategic Investments in our Infrastructure -
In support of our core businesses, we have and continue to make strategic investments in our infrastructure, the most significant of which are at our Waterford facility in Ireland, and our Rochester facility in New York.York and our Lynchburg facility in Virginia.
To meet the forecasted demand for our Biotrue® ONEday lenses, in July 2017, we placed into service a $175 million multi-year strategic expansion project of the Waterford facility. The emphasis of the expansion project was to: (i) develop new technology to manufacture, automatically inspect and package contact lenses, (ii) bring that technology to full validation and (iii) increase the size of the Waterford facility.
To address the expected global demand for our Bausch + Lomb ULTRA® contact lens, in December 2017, we completed a multi-year, $200 million strategic upgrade to our Rochester facility. The upgrade increased production capacity in support of our Bausch + Lomb Ultra® and SiHy Daily AQUALOX™ product lines and better supports the production of other well-established contact lenses, such as our PureVision®, PureVision®2 (SVS, Toric, and Multifocal), SofLens® 38 and SilSoft®.
To address the expected global demand for our SiHy Daily disposable contact lenses, in November 2018, we initiated $300 million of additional expansion projects to add multiple production lines to our Rochester and Waterford facilities. SiHy Daily disposable contact lenses are expected to bewere launched in the U.S. in September 2020.
To further help us meet the second halfanticipated demand of 2020.our contact lenses, in 2020, we initiated an expansion of the Company's Lynchburg distribution center. The new facility is expected to create new jobs over the next five years and expand the overall site to 190,000 square feet, which will provide distribution capabilities for medical devices, primarily contact lens products, and be the main point of distribution for these products in the U.S.
We believe the investments in our Waterford, Rochester and RochesterLynchburg facilities and related expansion of labor forces further demonstrates the growth potential we see in our Bausch + Lomb products and our eye-health business.
Effectively Managing Our Capital Structure
We continue to effectively manage our capital structure by: (i) reducing our debt through repayments, (ii) extending the maturities of debt through refinancing and (iii) improving our credit ratings.
Debt Repayments - Excluding the impact of the $1,210 million financing of the U.S. Securities Litigation settlement discussed below, we have been able to repayrepaid (net of additional borrowings) over $7,900$8,800 million of long-term debt during the period January 1, 2016 through the date of this filing using the net cash proceeds from divestitures of non-core assets, cash generated from operations and cash generated from tighter working capital management. This includes approximately $200 million of repayments during the three months ended March 31, 2021 with cash on hand and cash generated from operations.
20172020 Refinancing Transactions - In March, October, NovemberMay and December 2017,2020, we accessed the credit markets and completed a series of transactions, whereby we extended approximately $9,500 million in aggregate maturities of certain debt
obligations due to mature in April 2018 through April 2022, out to March 2022 through December 2025. As part of these transactions, we also extended commitments under our revolving credit facility, originally set to expire in April 2018, out to April 2020.
2018 Refinancing Transactions - In March, June and November 2018, we accessed the credit markets and completed a series of transactions, whereby we extended approximately $8,300$3,250 million in aggregate maturities of certain debt obligations due to mature in March 20202022 and 2023 out to 2029 through July2031 and $250 million in aggregate amortization payments due in 2022 out to June 20252029. In addition to extending $3,500 million in payments due in 2022 and 2023 to 2029 through January 2027. As part2031, the refinancing transactions replaced secured debt of these transactions, we obtained less stringent loan financial maintenance covenants$1,500 million with unsecured debt. This provides us with more secured debt capacity under our Senior SecuredRestated Credit FacilitiesAgreement and extended commitments under our revolving credit facility by more than three yearsexisting indentures if the market for unsecured debt in the future is less favorable. Further, by replacing $1,500 million of secured debt with unsecured debt we now have additional room under the debt maintenance covenant of our then-existing revolving credit facility, set to expire in April 2020 with a revolving credit facility of $1,225 million due in June 2023 (the “2023 Revolving Credit Facility”).
2019 Refinancing Transactions - In March, May and December 2019, we accessed the credit markets and completedFacility that requires us to maintain a seriesfirst lien net leverage ratio of not greater than 4.00 to 1.00. The refinancing transactions whereby, we extended $4,240also repaid in full €1,500 million of debt denominated in aggregate maturities of certain debt obligations dueeuros, thereby reducing our exposure to mature in December 2021 through May 2023, out to January 2027 through January 2030.
Financing of Litigation Settlement - In December 2019, we announced that we had agreed to resolve the putative securities class action litigationfluctuations in the U.S. (the "U.S. Securities Litigation") for $1,210 million, subject to final court approval. As partvalue 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. This settlement, once approved by the court, will resolve and discharge all claims against the Company in the class action, and as a result will resolve the most significant of the Company's remaining legacy legal matters and eliminate a material uncertainty regarding our Company.euro.
To finance the settlement of the U.S. Securities Litigation, on December 30, 2019, we accessed the credit markets and issued: (i) $1,250 million aggregate principal amount of 5.00% Senior Unsecured Notes due January 2028 (the "5.00% January 2028 Unsecured Notes") and (ii) $1,250 million aggregate principal amount of 5.25% Senior Unsecured Notes due January 2030 (the "January 2030 Unsecured Notes") in a private placement. The proceeds and cash on hand were used to: (i) redeem $1,240 million of 5.875% Senior Unsecured Notes due 2023 (the "May 2023 Unsecured Notes") on January 16, 2020, (ii) finance amounts owed under the Company's recently announced $1,210 million settlement agreement relating to the U.S. Securities Litigation (which is subject to final court approval), of which we paid $200 million during January 2020 and $810 million during March 2020 and (iii) pay all fees and expenses associated with these transactions (collectively, the "December 2019 Financing and Refinancing Transactions"). Through this financing, we have in effect extended the payment terms of the pending settlement of $1,210 million out to 2028 and 2030, without negatively impacting our working capital available for operations.
See Note 10, "FINANCING ARRANGEMENTS" to our unaudited interim Consolidated Financial Statements for the details of our debt portfolio as of March 31, 20202021 and December 31, 2019.2020.
The debt repayments and refinancingsrefinancing transactions outlined above have allowed us to: (i) improve our credit ratings, (ii) finance amounts owed under the Company's recently announced $1,210 million settlement agreement relatingextend maturities of certain debt obligations due in 2022 and 2023 out to the U.S. Securities Litigation without negatively impactingyears 2029 through 2031, (iii) satisfy all debt mandatory amortization payments and maturities until 2024 and (iv) reduce our working capital available for operations and (iii) asexposure to fluctuations in the value of the date of this filing, have no debt maturing, or mandatory amortizationeuro.
Our prepayment of debt payments, until the first quarter of 2022.
Our prepayment and refinancings of debtrefinancing transactions over the last four years translate into lower repayments of principal over the next four years, which, in turn, we believe will permit more cash flows to be directed toward developing our core assets, identifying new product opportunities and repaying additional debt amounts. The mandatory scheduled principal repayments of our debt obligations as of May 7, 2020, the date of this filing,March 31, 2021, were as follows and reflects repurchases of our senior unsecured notes in the open market of $8 million, in aggregate, in April 2020:follows:
| | | (in millions) | (in millions) | | | | | | | | | | | | | | | | | | | | | (in millions) | |
| 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | 2029 | | 2030 | | Total | |
| 2021 | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | 2029 | | 2030 | | 2031 | | Total |
| $ | — |
| | $ | — |
| | $ | 1,553 |
| | $ | 2,443 |
| | $ | 2,303 |
| | $ | 10,632 |
| | $ | 1,500 |
| | $ | 2,250 |
| | $ | 2,012 |
| | $ | 750 |
| | $ | 1,250 |
| | $ | 24,693 |
| — | | | $ | — | | | $ | — | | | $ | 2,091 | | | $ | 10,632 | | | $ | 1,500 | | | $ | 2,250 | | | $ | 2,012 | | | $ | 3,250 | | | $ | 1,250 | | | $ | 1,000 | | | $ | 23,985 | |
In addition, as a result of the changes in our debt portfolio, approximately 80% of our debt is fixed rate debt as of March 31, 2020,2021, as compared to approximately 60% as of January 1, 2016. The weighted average stated interest rate of the Company's outstanding debt as of March 31, 2020 and2021 was 6.00% as compared to 6.02% as of December 31, 2019 was 6.01% and 6.21%, respectively.2020.
We continue to monitor our capital structure and to evaluate other opportunities to simplify our business and improve our capital structure, giving us the ability to better focus on our core businesses. While we anticipate focusing any future divestiture activities on non-core assets, consistent with our duties to our shareholders and other stakeholders, we will consider dispositions in core areas that we believe represent attractive opportunities for the Company. Also, the Company regularly evaluates market conditions, its liquidity profile and various financing alternatives for opportunities to enhance its capital structure. If the Company determines that conditions are favorable, the Company may refinance or repurchase existing debt or issue additional debt, equity or equity-linked securities.
See Note 10, "FINANCING ARRANGEMENTS" to our unaudited interim Consolidated Financial Statements and “Management's Discussion and Analysis - Liquidity and Capital Resources: Long-term Debt” for 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.”
Improve Patient Access
Improving patient access to our products, as well as making them more affordable, is a key element of our business strategy.
Patient Access and Pricing Committee - In 2016, we formed the Patient Access and Pricing Committee which is responsible for setting, changing and monitoring the pricing of our products and evaluating contract arrangements that determine the placement of our products on drug formularies. The Patient Access and Pricing Committee considers new to market product pricing, price changes and their impact across channels on patient accessibility and affordability. The Patient Access and Pricing Committee has beenremains committed to limiting the average annual price increase for our branded prescription pharmaceutical products to no greater than single digits and has reaffirmed this commitment for 2020.2021. These pricing changes and programs could affect the average realized pricing for our products and may have a significant impact on our company revenue and profit.
Bausch Health Assistance Program - We are committed to supporting patients who have lost employment health benefits due to the COVID-19 pandemic, and because it is important to continue prescribed treatments, we are proud to offer certain of our prescription medicines through our Bausch Health 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. The purpose of the Bausch Health Assistance Program is to provide eligible unemployed patients in the U.S., who 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 product. If approved, patients receive their Bausch Health Companies Inc. 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, in order to securewith the name Dermatology.com forlimited to only online usage, including future digital teledermatology and e-commerce offerings. The cash paycash-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, we 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. Our products available under this fulfillment agreement include certain Ortho Dermatologics products, including our Duobrii®, Bryhali®, Arazlo®, Jublia®, Luzu®, Retin-A Micro® Gel and Onexton® and select branded prescription pharmaceutical products included in our cash-pay prescription program, and certain ophthalmology products, including our Vyzulta®, Besivance®, Lotemax®, Alrex®, Prolensa®, Bepreve® and Zylet® products.
Business Trends
In addition to the actions previously outlined, the events described below have affected and may affect our business trends. The matters discussed in this section contain Forward-Looking Statements. Please see “Forward-Looking Statements” for additional information.
Invest in Sustainable Growth Drivers to Position us for Long-Term Growth
We are constantly challenged by the changing dynamics of our industry 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 product launches that meet new and changing demands and replace other products that have lost momentum. We believe we have a robust pipeline that not only provides for the next generation of our existing products, but is also poised to bring new products to market.
Invest in our Eye-Health Business - As part of our Globalglobal 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 as 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 own 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 and Canada), Lumify® (an eye redness treatment), Vyzulta® (a pressure lowering eye drop for patients with angle glaucoma or ocular hypertension) and, 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 interocular 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: a microdose formulation of atropine ophthalmic solution, which is being investigated for the reduction of pediatric myopia progression in children ages 3-12; Xipere™ which, if approved by the FDA, will be the first treatment for patients suffering from macular edema associated with uveitis,uveitis; and for NOV03, an investigational drug with a novel mechanism of action to treat DED associated with MGD. We also acquired the U.S. rights to EM-100, an investigational eye drop that, if approved by the FDA, will bewhich was launched as Alaway® Preservative-Free and is the first OTC preservative-free formulation eye drop for the treatmenttemporary relief of ocular itching associateditchy eyes due to pollen, ragweed, grass, animal hair, and dander in adults and children 3 years of age and older. Recently, we entered into an agreement which provides the Company an option to acquire all ophthalmology assets of Allegro, including risuteganib (Luminate®), an investigational compound in retina, which is believed to simultaneously act on the angiogenic, inflammatory and mitochondrial metabolic pathways implicated in diseases such as intermediate dry AMD. A U.S. Phase 2a study with allergic conjunctivitis.risuteganib in intermediate dry AMD met its primary endpoint of vision recovery and Phase 3 testing is in the planning stages. 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 are at our Waterford facility in Ireland to meet the forecasted demand for our Biotrue® ONEday lenses, and our Rochester facility in New York to address the expected global demand for our Bausch + Lomb ULTRA® contact lens.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 thesethe Waterford and Rochester facilities in order to address the expected global demand for
our SiHy Daily disposable contact lenses, expected to bewhich we launched in the U.S. in August 2020, under the second half of 2020.branded name Bausch + Lomb INFUSE™ SiHy Daily Disposable contact lens.
We believe our recent product launches, licensing arrangements and the investments in our Waterford, Rochester and RochesterLynchburg facilities demonstrate the growth potential we see in our Bausch + Lomb products and our eye-health business and that these investments will position us to further extend our market share in the eye-health market.
Leveraging our Salix Infrastructure - - We strongly believe in our GI product portfolio and we have implemented initiatives, including increasing our marketing presence and identifying additional opportunities outside our existing GI portfolio, to further capitalize on the value of the infrastructure we built around these products to extend our market share.
In the first quarter of 2017, we hired approximately 250 trained and experienced sales force representatives and managers to create, bolster and sustain deep relationships with primary care physicians (“PCP”). With approximately 70% of IBS-D patients initially presenting symptoms to a PCP, we continue to believe that the dedicated PCP sales force is better positioned to reach more patients in need of IBS-D treatment.
This initiative provided us with positive results, as we experienced consistent growth in demand for our GI products throughout 2017 and 2018,through 2020, which was evident by our growth in Salix revenues of 12% in 201822% when comparedcomparing 2020 to 2017. These results encouraged us to seek out ways to bring out further value through leveraging our existing sales force and, in the later portion of 2018 and in 2019, we identified and executed on certain opportunities which we describe below.
Strategic Acquisition - As previously discussed, in March 2019, we completed the acquisition of certain assets of Synergy, whereby we acquired the worldwide rights to the Trulance® 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 Trulance® product complements our existing Salix products and allows us to effectively leverage our existing GI sales force.
Licensing Arrangements - As previously discussed, in April 2019, we entered into two licensing agreements. The first is for certain intellectual property relating to an investigational compound targeting the pituitary adenylate cyclase receptor 1 in NAFLD, NASH and other GI and liver diseases. The second is 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. These licenses present unique developmental opportunities to address unmet needs of individuals suffering with certain GI and liver diseases and if developed and approved by the FDA, will allow us to further utilize our existing sales force and infrastructure to extend our market share in the future and create value.
Investment in Next Generation Formulations - We continue to see growth in our Xifaxan® product. Revenues from our Xifaxan® product increased approximately 22%2%, 22% and 11%22% in 2020, 2019 2018 and 2017,2018, respectively. 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. In addition to one R&D program in progress, we have three other R&D programs planned to start in 2020 for next generation formulations of Xifaxan® (rifaximin) which address new indications.
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.
PositionReposition the Ortho Dermatologics Business for Growthto Generate Additional Value - In 2018, we realigned our Solta aesthetics business and combined it with our medical dermatology business, creating a complete dermatology portfolio. We continue to make investments in our Solta portfolio and anticipate building out our Solta sales force, particularly in Europe, to address the growing demand. - Our Ortho Dermatologics business continues to work towards improving the treatment options for medical dermatology patients needing topical acne and psoriasis products. We are exploring 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 pipeline products.
In support of our Ortho Dermatologics business and the opportunities we see for growth in this business, we continue to allocate resources and make additional investments in this business to recruit and retain talent and focus on our corecomplete dermatology portfolio, of products.
To position the Ortho Dermatologics business for growth, we have taken and are taking a number of actions that we believe will help our efforts to stabilize our dermatology business. These actions include: (i) rebrandingbuilding on our dermatology business,legacy brands to improve and meet today’s physician relevance and customer service, (ii) recruiting aappointing new experienced leadership, team, (iii) making significant investmentkey investments in our core dermatology portfolio,medical device and dermatological products portfolios, (iv) increasing and reorganizingoptimizing our dermatology sales force around roughly 195 territories, as we workgo to rebuildmarket strategy by building on our relationships with prescribers of our products to balance our sales portfolio with the business' profitability, (v) refocusing our operational and (v)promotional resources and (vi) improving patient access to our Ortho Dermatologics products through our cash-pay prescription program previously discussed. With these actions substantially complete, we believed
During the three months ended March 31, 2021, it became apparent that ourrecent Ortho Dermatologics business was positioned for growth in 2020. While we continueproduct launches were not going to believeachieve their forecasted trajectories that our strategies will return our Ortho Dermatologics business to growth sometime inwere expected once the future, the impactsoffices of health care professionals could reopen as social restrictions associated with the COVID-19 pandemic has had us reassess this timing. The closure of many health care facilities and medical offices duringbegan to ease in the pandemic has limitedU.S. In addition, insurance coverage pressures within the U.S. continued to persist limiting patient access to new prescriptionstopical acne and we now believe that we will not seepsoriasis products. In light of these developments, during the Ortho Dermatologics business returnfirst quarter of 2021 the Company began taking steps to: (i) redirect its R&D spend to growth until the COVID-19 pandemic subsideseliminate projects it has identified as high cost and high risk, (ii) redirect a portion of its marketing and product development outside the U.S. economy stabilizes.
Recruitto geographies where there is better patient access and Retain Talent - In 2017, we identified and retained a proven leadership team of experienced dermatology sales professionals and marketers. In January 2018, the leadership team, encouraged by the success of our GI sales force expansion program, increased our Ortho Dermatologics sales force by(iii) reduce its cost structure to be more than 25% in support of our growth initiatives for our Ortho Dermatologics business. We believe the additional sales force is vital to meet the demand we expect from our recently launched products and those we expect to launch in the near-term, pending FDA approval. We continue to monitor our pipeline for other near-term launches that we believe will create opportunity needs in our other core businesses requiring us to make additional investment to retain people for additional leadership and sales force roles.competitive.
Investment in Our Core Dermatology Portfolio - We have made significant investments to build out our aesthetics, psoriasis and acne product portfolios, which are the markets within dermatology where we see the greatest opportunities to extend our market share.
Aesthetics - In 2017, we launched our Next Generation Thermage FLX® product in the U.S., a fourth-generation non-invasive treatment option using a radiofrequency platform designed to optimize key functional characteristics and improve patient outcomes. During 2018 and 2019, Next Generation Thermage FLX® was launched in Hong Kong, Japan, Korea, Taiwan, Philippines, Singapore, Indonesia, Malaysia, China, Thailand, Vietnam, and Australia as part of our Solta medical aesthetic devices portfolio. These launches have been successful as Next Generation Thermage FLX® revenues were $39 million, $26 million, $142 million and $77 million for the three months ended March 31, 2021 and 2020 and the years 2020 and 2019, were $26 million and $12 million, respectively, andrespectively. We expect additional launches of Next Generation Thermage FLX® in full-year 2019 were $77 million.Europe in the near term, paced by country-specific regulatory registrations.
Psoriasis - AsIn response to the increasing number of reported cases of psoriasis in the U.S. has increased,, we believe there is a need to make further investments in this market in order to maximize our opportunity and supplement our current psoriasis product portfolio. We have filed NDAs for several new topical psoriasis products, launched Duobrii® in June 2019 and launched Bryhali® in November 2018. We expect that Duobrii® and Bryhali® will2018, which align well with our existing topical portfolio of psoriasis treatmentstreatments. Although, we continue to support a diverse portfolio of topical and supplemented by our injectable biologic products, such as Siliq®, willbiologics, in order to provide a diverse choice of psoriasis treatments to doctors and patients. In July 2017,patients; we launched Siliq®,believe some patients prefer topical products as an IL-17 receptor blocker monoclonal antibody biologic for treatment of moderate-to-severe plaque psoriasis, which we estimatealternative to be an over $5,000 million market in the U.S. (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). As previously discussed, we entered into an exclusive license agreement with Kaken to develop and commercialize products containing a new chemical entity, IDP-131 (KP-470), for the topical treatment of psoriasis. An early proof of concept study has now been completed and the results did not meet expectations. As a result, the Company no longer believes that IDP-131 can be viably developed for the treatment of psoriasis. The Company and Kaken are currently considering whether this new chemical entity can be developed to treat other indications.injectable biologics.
Acne - In support of our established acne product portfolio, we have developed and launched several products, which include Retin-A Microincludes Arazlo® 0.06%(tazarotene) Lotion (launched in January 2018) andJune 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.acne, and Retin-A Micro® 0.06% (launched in January 2018). We also anticipate launching ArazloTM (tazarotene) Lotion in the first half of 2020 and we have three othera unique acne projectsproject in earlier stages of developmentour pipeline that, if approved by the FDA, we believe will further innovate and advance the treatment of acne.
Bolstered
Business Trends
In addition to the actions previously outlined, the events described below have affected and may affect our business trends. The matters discussed in this section contain Forward-Looking Statements. Please see “Forward-Looking Statements” for additional information.
U.S. Tax Reform
On April 7, 2021, U.S. President Joseph Biden proposed changes to the U.S. tax system. The Proposals under discussion include changes to the U.S. corporate tax system that would increase U.S. corporate tax rates, impose a corporate minimum book tax and double the tax rate on and make other tax changes to Global Intangible Low Tax Income earned by new product launchesforeign subsidiaries. While it is expected that a tax reform bill will be introduced in the House of Representatives in the near term, many aspects of the current proposals are unclear or undeveloped. We are unable to predict which, if any, U.S. tax reform proposals will be enacted into law, and what effects any enacted legislation might have on our aesthetics, psoriasis and acne product lines andliability for U.S. corporate tax. However, it is possible that the potentialenactment of other products under development,changes in the U.S. corporate tax system could have a material adverse effect on our experienced dermatology sales leadership team, our sales forceliability for U.S. corporate tax and our cash-pay prescription program, we believe we have set the groundwork to position the Ortho Dermatologics business for future growth.consolidated effective tax rate.
U.S. Health Care Reform
The U.S. federal and state governments continue to propose and pass legislation designed to regulate the health 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, (ii) the extension of the Medicaid rebates to Managed Care Organizations that dispense drugs to Medicaid 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 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, in 2013, federal subsidies began to be phased in for brand-name prescription drugs filled in the Medicare Part D coverage gap. The ACA also included provisions designed to increase the number of Americans covered by health
insurance. In 2014, the ACA's private health insurance exchanges began to operate. The ACA also allows states to expand Medicaid coverage with most of the expansion’s cost paid for by the federal government.
For 20192020 and 2018,2019, we incurred costs of $20$21 million and $36$20 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 20192020 and 2018,2019, we also incurred costs of $137$131 million and $90$137 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”).
On July 28, 2014, the U.S. Internal Revenue Service issued final regulations related to the branded pharmaceutical drug annual fee pursuant to the ACA. Under the final regulations, an entity’s obligation to pay the annual fee is triggered by qualifying sales in the current year, rather than the liability being triggered upon the first qualifying sale of the following year. We adopted this guidance in the third quarter of 2014, and it did not have a material impact on our financial position or results of operations.
The financial impact of the ACA will be affected by certain additional developments over the next few years, including pending implementation guidance and certain health care reform proposals. Additionally, policy efforts designed specifically to reduce patient out-of-pocket costs for medicines could result in new mandatory rebates and discounts or other pricing restrictions. Also, it is possible, as discussed further below, that under the current administration, legislation will be passed by Congress repealing the ACA in whole or in part. Adoption of legislation at the federal or state level could materially affect demand for, or pricing of, our products.
In 2018, we faced 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 recent change in 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. Health and Human Services Administration 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 currentprior 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 ultimate context, timing, effect or impact of such a plan.
In 2019, the Government of Canada (Health Canada) published in the Canadian Gazette the new pricing regulation for patented drugs. These regulations will become effective on July 1, 2020. The draft application guidelines are available with the final guidelines to be published in 2020.2021. The new regulations will change the mechanics of establishing the pricing for products submitted for approval after August 21, 2019; they will also require full transparency of discounts agreed with provincial bodies; and finally, will change 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 Center 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. However, 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, and some have introduced proposals that seek to address drug pricing. We are currently reviewing those Executive Orders and the Most Favored Nation Model, the impact of which is uncertain at this time.
In addition, as part of a series of drug pricing-related rules issued by the Trump Administration, in December 2020, 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 (BP) reporting relating to certain value-based purchasing (VBP) arrangements (which take effect on January 1, 2022) and the price reporting treatment of manufacturer-sponsored patient benefit programs (which take effect on January 1, 2023). We are currently reviewing the Final Rule, the impact of which is uncertain at this time.
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 health 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 health 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
Certain of our products face the expiration of their patent or regulatory exclusivity in 20202021 or in later years, following which we anticipate generic competition of these products. In addition, in certain cases, as a result of negotiated settlements of some of our patent infringement proceedings against generic competitors, we have granted licenses to such generic companies, which will permit them to enter the market with their generic products prior to the expiration of our applicable patent or regulatory exclusivity. Finally, for certain of our products that lost patent or regulatory exclusivity in prior years, we anticipate that generic competitors may launch in 20202021 or in later years. Following a loss of exclusivity ("LOE") of and/or generic competition for a product, we would anticipate that product sales for such product would decrease significantly shortly following the loss of exclusivityLOE or entry of a generic competitor. Where we have the rights, we may elect to launch an authorized generic of such product (either ourselves or through a third-party) prior to, upon or following generic entry, which may mitigate the anticipated decrease in product sales; however, even with launch of an authorized generic, the decline in product sales of such product would still be expected to be significant, and the effect on our future revenues could be material.
A number of our products already face generic competition. Prior to and during 2020,2021, in the U.S., these products include, among others, Ammonul®, Apriso®, Benzaclin®, 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.
20192020 LOE Branded Products - Branded products that began facing generic competition in the U.S. during 20192020 include, AprisoMigranal®, CuprimineMoviPrep®, Lotemax® Suspension, Solodyn® and Zovirax® cream.certain other products. In aggregate, these products accounted for 3%less than 1% of our total revenues in 2019.2020. While certain of these products have already begun experiencing an adverse impact on volume and/or pricing as a result of the entry into the market of generic competition, we are unable to predict the complete magnitude or timing of this impact.
2021 LOE Branded Products - Branded products that began facing generic competition in the U.S. during 2021 included Lotemax® Gel. This product 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.
20202021 through 20242025 LOE Branded Products - Based on current patent expiration dates, settlement agreements and/or competitive information, we have identified branded products that we believe could begin facing potential loss of exclusivityLOE and/or generic competition in the U.S. during the years 20202021 through 2024.2025. These products and year of expected loss of exclusivityLOE include, but are not limited to, Clindagel®(2020), Lotemax® Gel (2021), Migranal® (2020), MoviPrep® (2020), Noritate®(2020) (2021), Targretin® Gel (2022), Xerese® (2022)and certain other products that are subject to settlement agreements which could impact their exclusivity during the years 20202021 through 2024.2025. In aggregate, these products accounted for 3%2% of our total revenues in 2019.2020. 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.
2021 LOE OTC Product Patent Expiry - PreserVision® AREDS and PreserVision® AREDS 2 are OTC eye vitamin formulas for those with moderate-to-advanced age-related macular degeneration. PreserVision® products accounted for 2%3% of our total revenues in 2019.2020. The PreserVision® U.S. formulation patent expiresexpired in March 2021, and whereasbut a patent covering methods of using the formulation remains in force until 2026. While the Company cannot predict the magnitude or timing of the impact from its patent expiry, as this is an OTC product and thus, the impact is not expected to be as significant as the loss of exclusivityLOE of a branded pharmaceutical product.
In addition, for a number of our products (including Uceris®, Relistor®, Plenvu®, Xifaxan® 200mg and 550mg, BepreveBryhali®, BryhaliDuobrii®, Trulance® and Jublia®, in the U.S. and 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.
Bryhali® Lotion, 0.01% (Glenmark)- In December 2019, the Company announced that it had reached an agreement to resolve the outstanding intellectual property litigation with Glenmark Pharmaceuticals, Ltd. ("Glenmark"). Under the terms of the agreement, the Company will grant Glenmark a non-exclusive license to its intellectual property relating to Bryhali® in
the U.S. and, beginning in 2026 (or earlier under certain circumstances), Glenmark will have the option to market a royalty-free generic version of Bryhali® Lotion, should it receive approval from the FDA. The parties have agreed to dismiss all litigation related to Bryhali® Lotion, and all intellectual property protecting Bryhali® Lotion remains intact.
Bryhali® Lotion, 0.01% (Perrigo) - On March 20, 2020, the Company received a Notice of Paragraph IV Certification from Perrigo Israel Pharmaceuticals, Ltd. (“Perrigo”), in which Perrigo 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 Perrigo’s generic halobetasol propionate lotion, for which an Abbreviated New Drug Application ("ANDA") has been filed by Perrigo. TheOn May 1, 2020, the Company has forty-five (45) days from the date of receipt of this notice to filefiled suit against Perrigo pursuant to the Hatch-Waxman Act, alleging infringement by Perrigo of one or more claims
of the Bryhali™® Patents, to triggerthereby triggering a 30-month stay of the approval of the Perrigo ANDA for halobetasol propionate lotion. The Company intends to file withinOn September 3, 2020, this time period.
Xifaxan® 550mg Patent Litigation (Sandoz Inc.) - In October 2019,action was consolidated with the action between the Company announced that it and its licensor, Alfasigma had commenced litigation against Sandoz Inc. ("Sandoz"), a Novartis division, alleging patent infringement of 14 patents by Sandoz's filing of itsPerrigo described below, regarding Perrigo’s ANDA for Xifaxangeneric Duobrii® (rifaximin) 550 mg tablets. On May 6, 2020, the Company announced that an agreement had been reached with Sandoz that resolved this litigation. Under the terms of the agreement, the parties agreed to dismiss all litigation related to Xifaxan® (rifaximin), Sandoz acknowledged the validity of the licensed patents for Xifaxan® (rifaximin) 550 mg tablets(halobetasol propionate and all intellectual property protecting Xifaxan® (rifaximin) 550 mg tablets will remain intact and enforceable until expiry in October 2029. The agreement also grants Sandoz a non-exclusive license to the intellectual property relating to Xifaxan® (rifaximin) 550 mg tablets in the United States beginning January 1, 2028 (or earlier under certain circumstances). Under the terms of the agreement, beginning January 1, 2028 (or earlier under certain circumstances), Sandoz will have the right to market a royalty-free generic version of Xifaxan® (rifaximin) 550 mg tablets, should it receive approval from the FDA on its ANDA. Sandoz will be able to commence such marketing earlier if another generic rifaximin product is granted approval and such other generic rifaximin product begins to be sold or distributed in the United States before January 1, 2028.The Company will not make any financial payments or other transfers of value as part of this agreement with Sandoz.
Xifaxan® 550mg Patent Litigation (Norwich Pharmaceuticals Inc.) - On March 26, 2020, The Company and its licensor Alfasigma filed suit against Norwich Pharmaceuticals Inc. (“Norwich”), alleging infringement by Norwich of one or more claims of the 23 Xifaxan® Patents by Norwich’s filing of its ANDA for Xifaxan® (rifaximin) 550 mg tablets. Xifaxan® is protected by 23 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.tazarotine) lotion. The Company remains confident in the strength of the XifaxanBryhali® patents and will continueintends to vigorously pursue these two mattersthis matter and defend its intellectual property.
RelistorDuobrii® TabletsLotion (Perrigo) - On July 23, 2020, the Company received a Notice of Paragraph IV Certification from Perrigo, in which Perrigo asserted that certain U.S. patents, each of which is listed in the FDA's Orange Book for Duobrii® (halobetasol propionate and tazarotine) lotion, are either invalid, unenforceable and/or will not be infringed by the commercial manufacture, use or sale of Perrigo’s generic lotion, for which an ANDA has been filed by Perrigo. On August 28, 2020, the Company filed suit against Perrigo pursuant to the Hatch-Waxman Act, alleging infringement by Perrigo of one or more claims of the Duobrii® Patents, thereby triggering a 30-month stay of the approval of the Perrigo ANDA. On September 3, 2020, this action was consolidated with the action between the Company and Perrigo described above, regarding Perrigo’s ANDA for generic Bryhali® (halobetasol propionate) lotion. We remain confident in the strength of the Duobrii® patents and will vigorously defend our intellectual property.
Xifaxan® 550mg Patent Litigation (Actavis) - - On December 6,March 23, 2016, the Company initiated litigation against Actavis Laboratories FL, Inc.’s ("Actavis"), which alleged infringement by Actavis of one or more claims of U.S. Patent No. 8,524,276 (the “‘276 Patent”), which protects the formulation of RELISTOR® tablets. Actavis had challenged the validity of such patent and alleged non-infringement by its generic version of such product. In July 2019, we announced that the U.S. District Court of New Jersey had upheld the validity of and determined that Actavis infringed the ‘276 Patent, expiring in March 2031.
Xifaxan® 550mg Patent Litigation (Actavis)- On March 23, 2016, the Company initiated litigation against Actavis, which alleged infringement by Actavis of one or more claims of each of the Xifaxan® patents. On September 12, 2018, we announced that we had reached an agreement with Actavis that resolved the existing litigation and eliminated the pending challenges to our intellectual property protecting Xifaxan® (rifaximin) 550 mg tablets. As part of the agreement, the parties agreed to dismiss all litigation related to Xifaxan® (rifaximin), Actavis acknowledged the validity of the licensed patents for Xifaxan® (rifaximin) 550 mg tablets and all intellectual property protecting Xifaxan® (rifaximin) 550 mg tablets will remain intact and enforceable until expiry in 2029. The agreement also grants Actavis a non-exclusive license to the intellectual property relating to Xifaxan® (rifaximin) 550 mg tablets in the United States beginning January 1, 2028 (or earlier under certain circumstances). The Company will not make any financial payments or other transfers of value as part of the agreement. In addition, under the terms of the agreement, beginning January 1, 2028 (or earlier under certain circumstances), Actavis will have the option to: (1) market a royalty-free generic version of Xifaxan® tablets, 550 mg, should it receive approval from the FDA on its ANDA, or (2) market an authorized generic version of Xifaxan® tablets, 550 mg, in which case, we will receive a share of the economics from Actavis on its sales of such an authorized generic. Actavis will be able to commence such marketing earlier if another generic rifaximin product is granted approval and such other generic rifaximin product begins to be sold or distributed before January 1, 2028.
Xifaxan® 550mg Patent Litigation (Sandoz) - In October 2019, the Company announced that it and its licensor, Alfasigma had commenced litigation against Sandoz Inc. ("Sandoz"), a Novartis division, alleging patent infringement of 14 patents by Sandoz's filing of its ANDA for Xifaxan® (rifaximin) 550 mg tablets. On May 6, 2020, the Company announced that an agreement had been reached with Sandoz that resolved this litigation. Under the terms of the agreement, the parties agreed to dismiss all litigation related to Xifaxan® (rifaximin), Sandoz acknowledged the validity of the licensed patents for Xifaxan® (rifaximin) 550 mg tablets and all intellectual property protecting Xifaxan® (rifaximin) 550 mg tablets will remain intact and enforceable until expiry in October 2029. The agreement also grants Sandoz a non-exclusive license to the intellectual property relating to Xifaxan® (rifaximin) 550 mg tablets in the United States beginning January 1, 2028 (or earlier under certain circumstances). Under the terms of the agreement, beginning January 1, 2028 (or earlier under certain circumstances), Sandoz will have the right to market a royalty-free generic version of Xifaxan® (rifaximin) 550 mg tablets, should it receive approval from the FDA on its ANDA. Sandoz will be able to commence such marketing earlier if another generic rifaximin product is granted approval and such other generic rifaximin product begins to be sold or distributed in the U.S. before January 1, 2028.The Company did not make any financial payments or other transfers of value as part of this agreement with Sandoz.
Xifaxan® 550mg Patent Litigation (Norwich) - On March 26, 2020, the Company and its licensor Alfasigma filed suit against Norwich Pharmaceuticals Inc. (“Norwich”), alleging infringement by Norwich of one or more claims of the 23 Xifaxan® patents by Norwich’s filing of its ANDA for Xifaxan® (rifaximin) 550 mg tablets. On November 13, 2020, an additional three patents alleged to be infringed by Norwich were added to the suit. Xifaxan® 550mg 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. The Company remains confident in the strength of the Xifaxan® patents and will continue to vigorously pursue this matter and defend its intellectual property.
Xifaxan® 200mg and 550mg Patent Litigation (Sun) - In April 2019, the Company and its licensor, Alfasigma, commenced litigation against Sun Pharmaceutical Industries Ltd. (“Sun”), alleging patent infringement by Sun’s filing of its ANDA for Xifaxan® (rifaximin) 200 mg tablets. This suit had been filed following receipt of a Notice of Paragraph IV Certification from Sun, in which Sun asserted that the U.S. patents listed in the FDA's Orange Book for the Company’s Xifaxan® tablets, 200 mg, were either invalid, unenforceable and/or would not be infringed by the commercial manufacture, use or sale of Sun’s generic rifaximin tablets, 200 mg. Subsequently, on August 10, 2020, the Company received an additional Notice of Paragraph IV Certification from Sun, in which Sun asserted that the U.S. patents listed in the FDA's Orange Book for the Company’s Xifaxan® tablets, 550 mg, were either invalid, unenforceable and/or would not be infringed by the commercial manufacture, use or sale of Sun’s generic rifaximin tablets, 550 mg, for which an ANDA had been filed by Sun. On September 22, 2020, the Company announced that an agreement had been reached with Sun that resolved the outstanding intellectual property disputes with Sun regarding Xifaxan® (rifaximin) 200 mg and 550 mg tablets. Under the terms of the agreement, the parties agreed to dismiss all litigation related to Xifaxan® (rifaximin) and all intellectual property protecting Xifaxan® (rifaximin) 200 mg and 550 mg tablets will remain intact and enforceable until expiry in July and October 2029, respectively. The agreement also grants Sun a non-exclusive license to the intellectual property relating to Xifaxan® (rifaximin) 200 mg and 550 mg tablets in the U.S. beginning January 1, 2028 (or earlier under certain circumstances). Under the terms of the agreement, beginning January 1, 2028 (or earlier under certain circumstances), Sun will have the right to market royalty-free generic versions of Xifaxan® (rifaximin) 200 mg and 550 mg tablets, should it receive approval from the FDA on its ANDAs. Sun will be able to commence such marketing earlier if another generic rifaximin product is granted approval and such other generic rifaximin product begins to be sold or distributed in the U.S. before January 1, 2028.
Relistor® Tablets Patent Litigation (Actavis) - On December 6, 2016, the Company initiated litigation against Actavis, which alleged infringement by Actavis of one or more claims of U.S. Patent No. 8,524,276 (the “‘276 Patent”), which protects the formulation of RELISTOR® tablets. Actavis had challenged the validity of such patent and alleged non-infringement by its generic version of such product. In July 2019, we announced that the U.S. District Court of New Jersey had upheld the validity of and determined that Actavis infringed the ‘276 Patent, expiring in March 2031. Actavis appealed this decision to the U.S. Court of Appeals for the Federal Circuit. In March 2021, the Company and Actavis reached a settlement agreement and the appeal was dismissed.
Trulance® 3mg Tablets Patent Litigation (MSN and Mylan) - In March 2021, the Company received Notices of Paragraph IV Certification from MSN Laboratories Private Ltd. (“MSN”) and Mylan Pharmaceuticals Inc., (“Mylan”) in which MSN and Mylan asserted that certain U.S. patents, each of which is listed in the FDA’s Orange Book for Trulance® (plecanatide) 3mg tablets, are either invalid, unenforceable and/or will not be infringed by the commercial manufacture, use or sale of their generic plecanatide tablets, for which each of MSN and Mylan had filed an ANDA. In April 2021, the Company filed suit against MSN and Mylan, alleging infringement of one or more claims of the patents listed for Trulance® in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, or the Orange Book. The Company remains confident in the strength of the Trulance® patents and will continue to vigorously pursue this matter and defend its intellectual property.
Generic Competition to Uceris® - In July 2018, a generic competitor launched a product which will directly compete with our Uceris® Tablet product. As disclosed in our prior filings, the Company initiated various infringement proceedings against this generic competitor. The Court construed the claims of the asserted patents on August 2, 2019 and, on October 24, 2019, the Company agreed to a judgment that the asserted patents did not cover the generic tablets under the Court’s claim construction, while reserving its right to appeal the claim construction. TheOn November 22, 2019, the Company continuesfiled a Notice of Appeal with respect to believe that its Uceris® Tablet-related patents are enforceable and is proceeding with an appeal; however, the ultimate outcomeclaim construction in the Court of Appeals for the matter is not predictable.Federal Circuit. On December 18, 2020, the Court of Appeals for the Federal Circuit affirmed the District Court’s claim construction. The ultimate impact of this generic competitor on our future revenues cannot be predicted; however, Uceris® Tablet revenues for the three months ended March 31, 20202021 and 20192020 were approximately $3$2 million and $8$3 million, respectively, and for the full years 2020, 2019 2018 and 20172018 were approximately $15 million, $20 million $84 million and $134$84 million, respectively.
Generic Competition to Jublia® - On June 6, 2018, the U.S. Patent and Trial Appeal Board (“PTAB”) completed its inter partes review for an Orange Book-listed patent covering Jublia® (U.S. Patent No 7,214,506 (the “‘506 Patent”)) and issued a written determination invalidating such patent. 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® revenues for the three months ended March 31, 20202021 and 20192020 were approximately $30$24 million and $20$30 million, respectively, and for the full years 2020, 2019 2018 and 20172018 were approximately $111 million, $110 million and $89 million, and $96 million, respectively. The Company continues to believe that the Jublia®related patent is valid and enforceable, but the ultimate
outcome of this matter is not predictable. Jublia® continues to beis covered by eleven remainingfourteen
additional Orange Book-listed patents owned by the Company or its licensor, which expire in the years 2028 through 2035. In August and September 2018, we received notices of the filing of a number of ANDAs with paragraph IV certification, and have timely filed patent infringement suits against these ANDA filers, and, in addition, we have also commenced certain patent infringement proceedings in Canada against twothree separate defendants. All cases in Canada regarding Jublia have been settled.
See Note 18, "LEGAL PROCEEDINGS" to our unaudited interim Consolidated Financial Statements elsewhere in this Form 10-Q, as well as Note 21, "LEGAL PROCEEDINGS" of our Annual Report on Form 10-K for the year ended December 31, 2019,2020, filed with the SEC and the CSA on SEDAR on February 19, 202024, 2021 for further details regarding certain infringement proceedings.
The risks of generic competition are a fact of the health care industry and are not specific to our operations or product portfolio. These risks are not avoidable, but we believe they are manageable. To manage these risks, our leadership team continually evaluates the impact that generic competition may have on future profitability and operations. In addition to aggressively defending the Company's patents and other intellectual property, our leadership team makes operational and investment decisions regarding these products and businesses at risk, not the least of which are decisions regarding our pipeline. Our leadership team actively manages the Company's pipeline in order to identify what we believe are the proper projects to pursue. Innovativeinnovative 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” of our Annual Report on Form 10-K for the year ended December 31, 2019,2020, filed with the SEC and the CSA on SEDAR on February 19, 202024, 2021 for additional information on our competition risks.
Regulatory Matters
In the normal course of business, our products, devices and facilities are the subject of ongoing oversight and review by regulatory and governmental agencies, including general, for cause and pre-approval inspections by the relevant competent authorities where we have business operations, includingoperations. Through the FDA. Currently,date of this filing, all of our global operations and facilities have the relevant operational certificates. Through the date of this filing, the Company'sgood manufacturing practices certificates and all Company products and operating sites are in good compliance standing with no material noncompliance,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, 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 practice.practices.
SELECTED FINANCIAL INFORMATIONPERFORMANCE HIGHLIGHTS
The following table provides selected unaudited financial information for the three months ended March 31, 20202021 and 2019:2020:
| | | | | Three Months Ended March 31, | | | | Three Months Ended March 31, |
| (in millions, except per share data) | | 2020 | | 2019 | | Change | (in millions, except per share data) | | | 2021 | | 2020 | | Change |
| Revenues | | $ | 2,012 |
| | $ | 2,016 |
| | $ | (4 | ) | Revenues | | | $ | 2,027 | | | $ | 2,012 | | | $ | 15 | |
| Operating income | | $ | 248 |
| | $ | 287 |
| | $ | (39 | ) | |
| Loss before benefit from income taxes | | $ | (178 | ) | | $ | (122 | ) | | $ | (56 | ) | |
| Operating (loss) income | | Operating (loss) income | | | $ | (221) | | | $ | 248 | | | $ | (469) | |
| Loss before income taxes | | Loss before income taxes | | | $ | (591) | | | $ | (178) | | | $ | (413) | |
| Net loss attributable to Bausch Health Companies Inc. | | $ | (152 | ) | | $ | (52 | ) | | $ | (100 | ) | Net loss attributable to Bausch Health Companies Inc. | | | $ | (610) | | | $ | (152) | | | $ | (458) | |
| | | | | | | | |
| Basic and diluted loss per share attributable to Bausch Health Companies Inc. | | $ | (0.43 | ) | | $ | (0.15 | ) | | $ | (0.28 | ) | Basic and diluted loss per share attributable to Bausch Health Companies Inc. | | | $ | (1.71) | | | $ | (0.43) | | | $ | (1.28) | |
Financial Performance
Summary of the Three Months Ended March 31, 20202021 Compared to the Three Months Ended March 31, 20192020
Revenue for the three months ended March 31, 2021 and 2020 was $2,027 million and 2019 was $2,012 million, and $2,016 million, respectively, a decreasean increase of $4$15 million, or less than 1%. The decreaseincrease was primarily driven by:due to: (i) higher sales deductions, (ii) the unfavorable
favorable effect of foreign currencies, primarily in Europe and Latin America, (iii)Asia, and (ii) an increase in net realized pricing. The increase was partially offset by: (i) lower volumes driven by: (a) social
restrictions and other precautionary measures taken in response to the COVID-19 pandemic, as previously discussed, and (b) the impact of the loss of exclusivity of certain products, and (ii) the impact of divestitures and discontinuations and (iv) the impacts of the COVID-19 pandemic. The decreases in our revenues were partially offset by: (i) higher gross selling prices (ii) higher volumes and (iii) the incremental product sales of our Trulance® product, which we added to our portfolio in March 2019 as part of the acquisition of certain assets of Synergy. As discussed in the "Impact of COVID-19 Pandemic" section above, although volumes were higher during the three months ended March 31, 2020 as compared to the same period in 2019, we are experiencing revenue declines in our second quarter in certain businesses in connection with the COVID-19 pandemic.discontinuations.
The changes in our segment revenues and segment profits, including the impact of the COVID-19 virus on our revenuesOperating loss for the three months ended March 31, 2020, are discussed in further detail in the subsequent section titled “Reportable Segment Revenues2021 was $221 million and Profits”.
Operating income for the three months ended March 31, 2020 and 2019 was $248 million and $287 million, respectively,which represents a decrease in our operating results of $39$469 million and reflects, among other factors:
| |
• | an increase in contribution (Product sales revenue less Cost of goods sold, excluding amortization and impairments of intangible assets) of $16 million primarily due to: (i) higher gross selling prices, (ii) the incremental contribution of the sales of our Trulance® product, which we added to our portfolio in March 2019 as part of the acquisition of certain assets of Synergy, and (iii) lower third-party royalty costs. The increases were partially offset by higher sales deductions;
|
an increase•a decrease in contribution (Product sales revenue less Cost of goods sold, excluding amortization and impairments of intangible assets) of $42 million primarily due to a decrease in volumes, as previously discussed;
•a decrease in Selling, general and administrative expenses (“SG&A”) of $46$27 million primarily due to: (i) higher professional service costs, (ii) higher compensation expense, (iii) higher sellingattributable to profit protection measures taken to manage and reduce operating expenses and (iv)during the impact of the acquisition of certain assets of Synergy. The increases were partially offset by the favorable impact of foreign currencies;COVID-19 pandemic, as previously discussed;
an increase•a decrease in R&D of $5$10 million primarily attributable to a numberto: (i) the impacts of the COVID-19 pandemic, (ii) year over year phasing, as we completed certain projects and (iii) rebalancing our portfolio within our Bausch + Lomb and GI businesses;the Ortho Dermatologics business;
•a decrease in Amortization of intangible assets of $53$79 million primarily attributable to fully amortized intangible assets no longer being amortized in 2020;2021;
•an increase in AssetGoodwill impairments of $11$469 million primarily related to decreases in forecasted salesthe impairment to the goodwill of a certain product linethe Ortho Dermatologics reporting unit during the three months ended March 31, 2020; and2021;
•an increase in Other expense (income), netAsset impairments, including loss on assets held for sale of $26$134 million, primarily attributable to: (i) higher impairments to expenses related to Litigationcertain products and other matters(ii) additional losses during the three months ended March 31, 2020.2021 related to assets classified as held for sale; and
•a favorable net change in Other (income) expense, net of $66 million, primarily attributable to: (i) a decrease in Litigation and other matters, (ii) a net gain on sale of assets during the three months ended March 31, 2021 and (iii) the favorable change in Acquisition-related contingent consideration.
Operating loss for the three months ended March 31, 2021 was $221 million and Operating income for the three months ended March 31, 2020 and 2019 was $248 million and $287 million, respectively, and included non-cash charges for Depreciation and amortization of intangible assets of $403 million and $481 million, Goodwill impairments of $469 million and $532 million,$0, Asset impairments, including loss on assets held for sale of $14$148 million and $3$14 million and Share-based compensation of $31 million and $27 million, and $24 million for the three months ended March 31, 2020 and 2019, respectively.
Our Loss before benefit from income taxes for the three months ended March 31, 2021 and 2020 and 2019 was $178$591 million and $122$178 million, respectively, an increase of $56$413 million. The increase in our Loss before benefit from income taxes is primarily attributable to: (i)to the decrease in our operating results of $39$469 million, as previously discussed, partially offset by: (i) a decrease in Interest expense of $28 million, (ii) an increasea decrease in Loss on extinguishment offrom debt of $17$19 million due to the December 2019 Financing and Refinancing Transactions, which were completed in January 2020, and (iii) an unfavorablea favorable net change in Foreign exchange and other of $13 million. The increase in our Loss before benefit from income taxes was partially offset by a decrease in Interest expense of $10$14 million.
Net loss attributable to Bausch Health Companies Inc. for the three months ended March 31, 2021 and 2020 and 2019 was $152$610 million and $52$152 million, respectively, a decrease in our reported results of $100$458 million. The decrease in our results was primarily due to: (i) the increase in our Loss before benefit from income taxes of $56$413 million, as previously discussed, and (ii) thean unfavorable change in Benefitour (Provision for) benefit from income taxes of $48$42 million.
RESULTS OF OPERATIONS
Our unaudited operating results for the three months ended March 31, 20202021 and 20192020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| (in millions) | | | | | | | 2021 | | 2020 | | Change |
| Revenues | | | | | | | | | | | |
| Product sales | | | | | | | $ | 2,003 | | | $ | 1,986 | | | $ | 17 | |
| Other revenues | | | | | | | 24 | | | 26 | | | (2) | |
| | | | | | | 2,027 | | | 2,012 | | | 15 | |
| Expenses | | | | | | | | | | | |
| Cost of goods sold (excluding amortization and impairments of intangible assets) | | | | | | | 564 | | | 505 | | | 59 | |
| Cost of other revenues | | | | | | | 10 | | | 14 | | | (4) | |
| Selling, general and administrative | | | | | | | 606 | | | 633 | | | (27) | |
| Research and development | | | | | | | 112 | | | 122 | | | (10) | |
| Amortization of intangible assets | | | | | | | 357 | | | 436 | | | (79) | |
| Goodwill impairments | | | | | | | 469 | | | — | | | 469 | |
| Asset impairments, including loss on assets held for sale | | | | | | | 148 | | | 14 | | | 134 | |
| Restructuring, integration and separation costs | | | | | | | 12 | | | 4 | | | 8 | |
| Other (income) expense, net | | | | | | | (30) | | | 36 | | | (66) | |
| | | | | | | 2,248 | | | 1,764 | | | 484 | |
| Operating (loss) income | | | | | | | (221) | | | 248 | | | (469) | |
| Interest income | | | | | | | 2 | | | 7 | | | (5) | |
| Interest expense | | | | | | | (368) | | | (396) | | | 28 | |
| Loss on extinguishment of debt | | | | | | | (5) | | | (24) | | | 19 | |
| Foreign exchange and other | | | | | | | 1 | | | (13) | | | 14 | |
| Loss before (provision for) benefit from income taxes | | | | | | | (591) | | | (178) | | | (413) | |
| (Provision for) benefit from income taxes | | | | | | | (16) | | | 26 | | | (42) | |
| Net loss | | | | | | | (607) | | | (152) | | | (455) | |
| Net income attributable to noncontrolling interest | | | | | | | (3) | | | — | | | (3) | |
| Net loss attributable to Bausch Health Companies Inc. | | | | | | | $ | (610) | | | $ | (152) | | | $ | (458) | |
|
| | | | | | | | | | | |
| | Three Months Ended March 31, |
| (in millions) | 2020 | | 2019 | | Change |
| Revenues | | | | | |
| Product sales | $ | 1,986 |
| | $ | 1,989 |
| | $ | (3 | ) |
| Other revenues | 26 |
| | 27 |
| | (1 | ) |
| | 2,012 |
| | 2,016 |
| | (4 | ) |
| Expenses | | | | | |
| Cost of goods sold (excluding amortization and impairments of intangible assets) | 505 |
| | 524 |
| | (19 | ) |
| Cost of other revenues | 14 |
| | 13 |
| | 1 |
|
| Selling, general and administrative | 633 |
| | 587 |
| | 46 |
|
| Research and development | 122 |
| | 117 |
| | 5 |
|
| Amortization of intangible assets | 436 |
| | 489 |
| | (53 | ) |
| Asset impairments | 14 |
| | 3 |
| | 11 |
|
| Restructuring and integration costs | 4 |
| | 20 |
| | (16 | ) |
| Acquisition-related contingent consideration | 13 |
| | (21 | ) | | 34 |
|
| Other expense (income), net | 23 |
| | (3 | ) | | 26 |
|
| | 1,764 |
| | 1,729 |
| | 35 |
|
| Operating income | 248 |
| | 287 |
| | (39 | ) |
| Interest income | 7 |
| | 4 |
| | 3 |
|
| Interest expense | (396 | ) | | (406 | ) | | 10 |
|
| Loss on extinguishment of debt | (24 | ) | | (7 | ) | | (17 | ) |
| Foreign exchange and other | (13 | ) | | — |
| | (13 | ) |
| Loss before benefit from income taxes | (178 | ) | | (122 | ) | | (56 | ) |
| Benefit from income taxes | 26 |
| | 74 |
| | (48 | ) |
| Net loss | (152 | ) | | (48 | ) | | (104 | ) |
| Net income attributable to noncontrolling interest | — |
| | (4 | ) | | 4 |
|
| Net loss attributable to Bausch Health Companies Inc. | $ | (152 | ) | | $ | (52 | ) | | $ | (100 | ) |
Three Months Ended March 31, 20202021 Compared to the Three Months Ended March 31, 20192020
Revenues
The Company’s revenues are primarily generated from product sales, principally in the therapeutic areas of eye-health, GI and dermatology, that consist of: (i) branded pharmaceuticals, (ii) generic and branded generic pharmaceuticals, (iii) OTC products and (iv) medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment and aesthetics devices). Other revenues include alliance and service revenue from the licensing and co-promotion of products and contract service revenue primarily in the areas of dermatology and topical medication.
Our revenues were $2,012$2,027 million and $2,016$2,012 million for the three months ended March 31, 2021 and 2020, and 2019, respectively, a decreasean increase of $4$15 million, or less than 1%. The decreaseincrease was primarily driven by: (i) higher sales deductionsthe favorable effect of $67foreign currencies of $33 million, primarily in Europe and Asia and (ii) an increase in net realized pricing of $10 million primarily in our Salix and Ortho Dermatologics segments, (ii) the unfavorable effect of foreign currenciessegment. The increase was partially offset by: (i) lower volumes of $18 million primarily in Europeour Salix, Bausch + Lomb and Latin AmericaDiversified segments and (iii)(ii) the impact of divestitures and discontinuations of $7$10 million. The decreasesdecrease in our revenues were partially offset by: (i) higher gross selling prices of $59 million primarily in our Salix segment, (ii) higher volumes of $15 million primarily in our Salix and Bausch + Lomb/InternationalLomb segments partially offset by lower volumeswas primarily due to social restrictions and other precautionary measures taken in our Diversified Products segment and the impacts ofresponse to the COVID-19 pandemic, (iii) the incremental product salesas previously discussed. The decrease in volumes of our Trulance® product, which we addedDiversified segment was primarily due to our portfolio in March 2019 as part of the acquisition of certain assets of Synergy, of $13 million and (iv) an increase in other revenues of $1 million. As discussed in the "Impact of COVID-19 Pandemic" section above, although volumes were higher during the three months ended March 31, 2020 as compared to the same period in 2019, we are experiencing revenue declines in our second quarter in certain businesses in connection with the COVID-19 pandemic.
Our segment revenues and segment profits for the three months ended March 31, 2020 and 2019, including the impact of the loss of exclusivity of certain products.
Our 2020 revenues were most negatively impacted during our second quarter by the social restrictions and other precautionary measures taken in response to the COVID-19 virus onpandemic. 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. Our revenues for the three months ended March 31, 2021 and 2020 were $2,027 million and $2,012 million, respectively. This increase of $15 million in revenue represents a continuously improving trend over the decreases in our year-over-year revenues for the three-month periods ended June 30, 2020, September 30, 2020 and December 31, 2020 of 23%, 3% and less than 1%, respectively, and suggests that a recovery is underway. Presuming there continues to be increased availability of effective vaccines and any resurgence of the COVID-19 virus and variant strains thereof do not have a material
adverse impact on efforts to contain the COVID-19 virus, the Company anticipates an ongoing, gradual global recovery from the significant macroeconomic and health care impacts of the pandemic that occurred during the first half of 2020 and anticipates that its revenues will likely return to pre-pandemic levels in 2021. However, the rates of recovery for each business will vary by geography and will be dependent upon, among other things, the availability and effectiveness of vaccines for the COVID-19 virus, 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 and other actions taken in response to the COVID-19 pandemic.
The changes in our segment revenues and segment profits, including the impacts of COVID-19 pandemic related matters for the three months ended March 31, 2021, are discussed in further detail in the respective subsequent section titled “Reportable“ — Reportable Segment Revenues and Profits”.
Cash Discounts and Allowances, Chargebacks and Distribution Fees
As is customary in the pharmaceutical industry, gross product sales are subject to a variety of deductions in arriving at net product sales. Provisions for these deductions are recognized concurrently 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. In wholesaler contracts, such credits are offset against the total distribution service fees we pay on all of our products to each such wholesaler. In addition, some payor contracts require discounting if a price increase or series of price 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 March 31, 20202021 and 20192020 were as follows:
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| | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | 2020 | | 2019 |
| (in millions) | | Amount | | Pct. | | Amount | | Pct. |
| Gross product sales | | $ | 3,323 |
| | 100.0 | % | | $ | 3,250 |
| | 100.0 | % |
| Provisions to reduce gross product sales to net product sales | | | | | | | | |
| Discounts and allowances | | 156 |
| | 4.7 | % | | 204 |
| | 6.3 | % |
| Returns | | 42 |
| | 1.3 | % | | 33 |
| | 1.0 | % |
| Rebates | | 602 |
| | 18.0 | % | | 533 |
| | 16.4 | % |
| Chargebacks | | 484 |
| | 14.6 | % | | 443 |
| | 13.6 | % |
| Distribution fees | | 53 |
| | 1.6 | % | | 48 |
| | 1.5 | % |
| Total provisions | | 1,337 |
| | 40.2 | % | | 1,261 |
| | 38.8 | % |
| Net product sales | | 1,986 |
| | 59.8 | % | | 1,989 |
| | 61.2 | % |
| Other revenues | | 26 |
| | | | 27 |
| | |
| Revenues | | $ | 2,012 |
| | | | $ | 2,016 |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2021 | | 2020 |
| (in millions) | | Amount | | Pct. | | Amount | | Pct. |
| Gross product sales | | $ | 3,303 | | | 100.0 | % | | $ | 3,323 | | | 100.0 | % |
| Provisions to reduce gross product sales to net product sales | | | | | | | | |
| Discounts and allowances | | 147 | | | 4.5 | % | | 156 | | | 4.7 | % |
| Returns | | 34 | | | 1.0 | % | | 42 | | | 1.3 | % |
| Rebates | | 602 | | | 18.2 | % | | 602 | | | 18.0 | % |
| Chargebacks | | 462 | | | 14.0 | % | | 484 | | | 14.6 | % |
| Distribution fees | | 55 | | | 1.7 | % | | 53 | | | 1.6 | % |
| Total provisions | | 1,300 | | | 39.4 | % | | 1,337 | | | 40.2 | % |
| Net product sales | | 2,003 | | | 60.6 | % | | 1,986 | | | 59.8 | % |
| Other revenues | | 24 | | | | | 26 | | | |
| Revenues | | $ | 2,027 | | | | | $ | 2,012 | | | |
Cash discounts and allowances, returns, rebates, chargebacks and distribution fees as a percentage of gross product sales were 40.2%39.4% and 38.8%40.2% for the three months ended March 31, 2021 and 2020, respectively, a decrease of 0.8 percentage points and 2019, respectively. The increase in cash includes:
•discounts and allowances as a percentage of gross product sales was lower primarily due to lower gross product sales and lower discount rates for certain generic products, such as Migranal® AG, Apriso® AG, Elidel® AG and Uceris® AG;
•returns as a percentage of gross product sales was lower primarily due to lower returns of Retin-A Micro® .08%, Onexton® and Metronidazole® AG, partially offset by adjustments in 2020 to the return reserves to reflect actual return experience for Isuprel® and Nitropress®, which lost their exclusivity;
•rebates as a percentage of gross product sales were higher primarily due to: (i) an increase in gross product sales of certain branded products with higher rebate rates such as Jublia®, Onexton® and Trulance® and (ii) an increase in rebates due to the launch of Arazlo® (June 2020) and was partially offset by lower gross product sales and lower rebate rates for branded products such as Duobrii®, Siliq® and Apriso®;
•chargebacks as a percentage of gross product sales were lower primarily due to the impact of lower gross product sales of: (i) certain generic products, such as Glumetza® AG and Ofloxacin and (ii) certain branded products, such as Wellbutrin® and Xifaxan®. The lower chargebacks as a percentage of gross product sales were partially offset by higher chargeback rates for Glumetza® SLX and (ii) higher chargeback rates for certain generics such as Targretin®, Syprine® AG and Apriso® AG; and
•distribution service fees as a percentage of gross product sales waswere higher primarily driven by:
| |
• | discounts and allowances as a percentage of gross product sales was lower primarily due to lower gross product sales and lower discount rates for our Glumetza® AG, Syprine® AG, Migranal® AG and Benzamycin® AG. The lower discounts and allowances as a percentage of gross product sales was partially offset by the impact of: (i) the release of certain generics, such as Apriso® AG (December 2019) and (ii) higher sales of Xifaxan®;due to: (i) the impact of higher distribution service fee rates for our Xifaxan® products and (ii) distribution service fees associated with the launch of Arazlo® (June 2020) and were partially offset by lower distribution fees associated with our Solodyn® and Wellbutrin® products. Price appreciation credits are offset against the distribution service fees we pay wholesalers and were $1 million and $4 million for the three months ended March 31, 2021 and 2020.
|
| |
• | returns as a percentage of gross product sales was higher primarily due to higher return experience for a limited number of products, primarily Glumetza® SLX, partially offset by lower returns for Solodyn®, Nitropress® and Xifaxan®;
|
| |
• | rebates as a percentage of gross product sales were higher primarily due the impact of: (i) increases in gross product sales for products that carry higher contractual rebates and co-pay assistance programs, including the impact of incremental rebates from contractual price increase limitations for promoted products, such as Xifaxan® , Wellbutrin® and Prolensa®, (ii) sales of our Trulance® product, which we added to our portfolio in March 2019 as part of the acquisition of certain assets of Synergy, and (iii) rebates associated with our Duobrii® product launched in June 2019, partially offset by decreases in gross product sales for products which carry higher rebate rates, such as Apriso®, Lotemax® Suspension, Lotemax® Gel, Zovirax® and Cuprimine®. The decreases in gross product sales for these products were due in part to generic competition and the release of certain branded generics.
|
| |
• | chargebacks as a percentage of gross product sales were higher primarily due to the impact of: (i) higher gross product sales of Xifaxan®, (ii) higher chargeback rates for Xifaxan® and Glumetza® SLX and (iii) the release of certain generics, such as Apriso® AG (December 2019). The higher chargebacks as a percentage of gross product sales were partially offset by the impact of lower gross product sales of: (i) certain branded products, such as and Nifediac® and Retin-A Micro® 0.06% and (ii) certain generic products, such as Glumetza® AG, Ofloxacin and Syprine® AG; and
|
| |
• | distribution service fees as a percentage of gross product sales were higher due to the impact of: (i) higher sales of branded products, such as Xifaxan®, (ii) sales of our Trulance® product, which we added to our portfolio in March 2019 as part of the acquisition of certain assets of Synergy, and (iii) sales of our Duobrii® product launched in June 2019. The higher distribution service fees as a percentage of gross product sales were partially offset by the impact of lower gross product sales of certain branded products, such as Apriso® as a result of its generic release and Cuprimine®. Price appreciation credits are offset against the distribution service fees we pay wholesalers and were $4 million and $0 for the three months ended March 31, 2020 and 2019, respectively.
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Expenses
Cost of Goods Sold (excluding amortization and impairments of intangible assets)
Cost of goods sold primarily includes: manufacturing and packaging; the cost of products we purchase from third parties; royalty payments we make to third parties; depreciation of manufacturing facilities and equipment; and lower of cost or market adjustments to inventories. Cost of goods sold excludes the amortization and impairments of intangible assets.
Cost of goods sold was $505$564 million and $524$505 million for the three months ended March 31, 2021 and 2020, and 2019, respectively, a decreasean increase of $19$59 million, or 4%12%. The decreaseincrease was primarily driven by: (i) a decrease in volumes, (ii) the favorable impact of foreign currencies, (ii) lower third-party royalty costs(iii) changes in product mix and (iii)(iv) higher manufacturing variances primarily due to the impactimpacts of divestituresthe COVID-19 pandemic, and discontinuations. The decrease was partially offset by: (i) product mix and (ii) the incremental costs of sales of our Trulance® product, which we added to our portfolio in March 2019by lower volumes as part of the acquisition of certain assets of Synergy.previously discussed.
Cost of goods sold as a percentage of product sales revenue was 25.4%28.2% and 26.3%25.4% for the three months ended March 31, 2021 and 2020, and 2019, respectively, a decreasean increase of 0.92.8 percentage points. Costs of goods sold as a percentage of Product sales revenue was favorablyunfavorably impacted as a result of: (i) changes in product mix, due to lower revenues of high margin businesses and (ii) higher gross selling prices, (ii)manufacturing variances primarily due to the favorable impactimpacts of foreign currencies on cost of goods sold and (iii) lower third-party royalty costs.the COVID-19 pandemic. These factors were partially offset by: (i)by higher sales deductions and (ii) product mix.net realized selling prices.
Selling, General and Administrative Expenses
SG&A expenses primarily include: employee compensation associated with sales and marketing, finance, legal, information technology, human resources and other administrative functions; certain outside legal fees and consultancy costs; product promotion expenses; overhead and occupancy costs; depreciation of corporate facilities and equipment; and other general and administrative costs.
SG&A expenses were $633$606 million and $587$633 million for the three months ended March 31, 2021 and 2020, and 2019, respectively, an increasea decrease of $46$27 million, or 8%4%. The increasedecrease was primarily driven by:attributable to profit protection measures taken to manage and reduce operating expenses during the COVID-19 pandemic, as previously discussed, and resulted in decreases in: (i) higher professional service costs, (ii) higher compensation expense, (iii) higher selling expenses and (iv)(ii) advertising and promotion expenses. The decrease was partially offset by: (i) the impact of foreign currencies and (ii) Separation-related costs during the acquisitionthree months ended March 31, 2021 of certain assets of Synergy. The increases were partially offset by the favorable impact of foreign currencies.$20 million.
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-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-party costs.
R&D expenses were $122$112 million and $117$122 million for the three months ended March 31, 2021 and 2020, and 2019, respectively, an increasea decrease of $5$10 million, or 4%,8%. The decrease was primarily attributable to a numberto: (i) the impacts of the COVID-19 pandemic, (ii) year over year phasing, as we completed certain projects and (iii) rebalancing our portfolio within our Bausch + Lomb and GI businesses.the Ortho Dermatologics business. R&D expenses as a percentage of Product sales were approximately 6% and 6% for both the three months ended March 31, 2021 and 2020, respectively.
As previously discussed, primarily during our second quarter of 2020, certain of our R&D activities were limited and 2019.others, 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. However, during our third quarter of 2020, many of these trial sites began to reopen and we saw the pace of new patient enrollments increase, although at this time certain of our projects are moving slower than we would like due to the impacts of the COVID-19 pandemic. As of the date of this filing, we have not had to make material changes to our development timelines and the pause in our clinical trials have not had a material impact on our operating results; however, a resurgence of the virus 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.
Amortization of intangible assets was $436 million and $489 million for the three months ended March 31, 2020 and 2019, respectively, a decrease of $53 million. The decrease was primarily attributable to fully amortized intangible assets no longer being amortized in 2020. 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 $357 million and $436 million for the three months ended March 31, 2021 and 2020, respectively, a decrease of $79 million. The decrease was primarily attributable to fully amortized intangible assets no longer being amortized in 2021.
See Note 8, "INTANGIBLE ASSETS AND GOODWILL" to our unaudited interim Consolidated Financial Statements regarding further details related to the Amortization of 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 is less than its carrying amount, a quantitative fair value test is performed for that reporting unit.
Goodwill impairments were $469 million and $0 for the three months ended March 31, 2021 and 2020, respectively, an increase of $469 million. During the three months ended March 31, 2021, it became apparent that recent Ortho Dermatologics product launches were not going to achieve their forecasted trajectories that were expected once the offices of health care professionals could reopen as social restrictions associated with the COVID-19 pandemic began to ease in the U.S. 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 has 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 result, during the three months ended March 31, 2021, the Company revised its long-term forecasts for the Ortho Dermatologics reporting unit. Management believes that these events are 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 Ortho Dermatologics reporting unit exceeded its fair value at March 31, 2021, and the Company recognized a goodwill impairment of $469 million.
See Note 8, "INTANGIBLE ASSETS AND GOODWILL" to our unaudited interim Consolidated Financial Statements regarding further details related to our goodwill impairment analysis.
Asset Impairmentsimpairments, 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 $14$148 million and $3$14 million for the three months ended March 31, 20202021 and 2019,2020, respectively, an increase of $11$134 million. Asset impairments, including loss on assets held for sale for the three months ended March 31, 2021 were $148 million and include: (i) impairments of $71 million due to decreases in forecasted sales of a certain product line in the Ortho Dermatologics business, (ii) an adjustment of $68 million to the loss of assets held for sale in connection with the Amoun Sale and (iii) impairments of $9 million, in aggregate, related to the discontinuance of certain product lines. Asset impairments, including loss on assets held for sale for the three months ended March 31, 2020 were due to decreases in forecasted sales of a certain product line. Asset impairments for the three months ended March 31, 2019 were due to the discontinuance of a specific product line not aligned with the focus of the Company's core businesses.
See Note 8, "INTANGIBLE ASSETS AND GOODWILL" to our unaudited interim Consolidated Financial Statements regarding further details related to our intangible assets.
Restructuring, Integration and IntegrationSeparation Costs
Restructuring, integration and separation costs were $12 million and $4 million for the three months ended March 31, 2021 and 2020, respectively, an increase of $8 million.
Restructuring and integration costs
The Company evaluates opportunities to improve its operating results and implements 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 and include expenses associated with: (i) reducing headcount, (ii) eliminating real estate costs associated with unused or under utilizedunder-utilized facilities and (iii) implementing contribution margin improvement and other cost reduction initiatives.
Restructuring and integration costs were $3 million and $4 million and $20included: (i) $2 million and $3 million of facility closure costs and (ii) $1 million and $1 million of severance costs for the three months ended March 31, 2021 and 2020, and 2019, respectively, a decrease of $16 million. During the three months ended March 31, 2020, these costs included $3 million of facility closure costs and $1 million of severance costs. During the three months ended March 31, 2019, these costs included: (i) $10 million of severance costs associated with the acquisition of certain assets of Synergy, which were not essential to complete, close and report the acquisition, (ii) $6 million of other severance costs and (iii) $4 million of facility closure costs.respectively. 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 costs
The Company has incurred, and will incur, costs associated with activities to effectuate the Separation. These activities include: (i) separating the eye-health business from the remainder of the Company and (ii) registering the eye-health business as an independent publicly traded entity. Separation costs are incremental costs directly related to the Separation and include, but are not limited to: (i) legal, audit and advisory fees, (ii) employee hiring, relocation and travel costs and (iii) costs associated with establishing a new board of directors and audit committee. Separation costs were $9 million and $0 for the three months ended March 31, 2021 and 2020, respectively. The Company continues to make progress toward internal objectives necessary for the Separation and the extent and timing of future charges for these costs cannot be reasonably estimated at this time and could be material.
See Note 5, "RESTRUCTURING, INTEGRATION AND INTEGRATIONSEPARATION 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 Sheets 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 a loss of $13 million for the three months ended March 31, 2020, and included net fair value adjustments of $7 million and accretion for the time value of money of $6 million. Acquisition-related contingent consideration was a gain of $21 million for the three months ended March 31, 2019, and included net fair value adjustments of $27 million, which included adjustments to future royalty payments, partially offset by accretion for the time value of money of $6 million.
Other (Income) Expense, (Income), Net
Other (income) expense, (income), net for the three months ended March 31, 20202021 and 20192020 consists of the following:
| | | | | | | | | | | | | | |
| | Three Months Ended
March 31, |
| (in millions) | | 2021 | | 2020 |
| Litigation and other matters | | $ | — | | | $ | 23 | |
| Acquisition-related contingent consideration | | (9) | | | 13 | |
| Acquired in-process research and development costs | | 2 | | | 1 | |
| Net gain on sale of assets | | (23) | | | (1) | |
| | $ | (30) | | | $ | 36 | |
|
| | | | | | | | |
| | | Three Months Ended
March 31, |
| (in millions) | | 2019 | | 2018 |
| Net gain on sale of assets | | $ | (1 | ) | | $ | (10 | ) |
| Acquired in-process research and development costs | | 1 |
| | 1 |
|
| Acquisition-related costs | | — |
| | 8 |
|
| Litigation and other matters | | 23 |
| | 2 |
|
| Other, net | | — |
| | (4 | ) |
| | | $ | 23 |
| | $ | (3 | ) |
Non-Operating Income and Expense
Interest Expense
Interest expense primarily consists of interest payments due, and amortization of debt premiums, discounts and deferred financingissuance costs on indebtedness under our credit facilities and notes.notes and the amortization of amounts excluded from the assessment of hedge effectiveness over the term of the Company's cross-currency swaps.
Interest expense was $396$368 million and $406$396 million, and included non-cash amortization and write-offs of debt premiums, discounts and deferred financingissuance costs of $15$13 million and $17$15 million, for the three months ended March 31, 20202021 and 2019,2020, respectively. Interest expense for the three months ended March 31, 20202021 decreased $10$28 million, or 2%7%, as compared to the three months ended March 31, 2019,2020, primarily due to: (i) interest related to the Company's cross-currency swaps and (ii) lower weighted average interest rate, partially offset by higher outstanding principal balances. The weighted average stated ratesrate of interest as of March 31, 2021 and 2020 was 6.00% and 2019 were 6.01% and 6.38%, respectively.
LossForeign Exchange and Other
Foreign exchange and other primarily includes: (i) translation gains/losses on Extinguishmentintercompany loans and third-party liabilities and (ii) the gain/loss due to foreign currency exchange contracts. Foreign exchange and other was a gain of Debt
Loss on extinguishment of debt represents the differences between the amounts paid to settle extinguished debts and the carrying value of the related extinguished debt. Loss on extinguishment of debt was $24$1 million and $7a loss of $13 million for the three months ended March 31, 2021 and 2020, respectively, a favorable net change of $14 million.
Income Taxes
Provision for income taxes was $16 million for the three months ended March 31, 2021 as compared to a Benefit from income taxes was $26 million for the three months ended March 31, 2020, and 2019, respectively. Loss on extinguishmentan unfavorable change of debt$42 million.
Our effective income tax rate for the three months ended March 31, 20202021 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 the December 2019 Financingto: (a) potential and Refinancing Transactions, which were completed in January 2020. Loss on extinguishment of debt for the three months ended March 31, 2019 is related to a series of transactions which allowed us to refinance portions of our debt arrangements.
See Note 10, "FINANCING ARRANGEMENTS" to our unaudited interim Consolidated Financial Statements for further details.
Foreign Exchange and Other
Foreign exchange and other was a loss of $13 million and $0 for the three months ended March 31, 2020 and 2019, respectively, an unfavorable net change of $13 million. Foreign exchange and other includes translation gains/lossesrecognized withholding taxes on intercompany loansdividends, (b) adjustments for book to income tax return provisions, (c) tax deduction for stock compensation and third-party liabilities and the gain/loss due to the change(d) changes in fair value of foreign currency exchange contracts.uncertain tax positions.
Income Taxes
Benefit from income taxes was $26 million and $74 million for the three months ended March 31, 2020 and 2019, respectively, a decrease of $48 million. Our effective income tax rate for the three months ended March 31, 2020 and 2019 differs from the statutory Canadian income tax rate primarily due to: (i) the recording of valuation allowance on entities for which no tax benefit of losses is expected, (ii) the tax benefit generated from our annualized mix of earnings by jurisdiction and (iii) the discrete treatment of certain tax matters, primarily related to: (a) the net tax benefit related to uncertain tax positions andlaw changes, (b) the adjustments for book to income tax return provisions.provisions and (c) changes in uncertain tax positions.
See Note 16, "INCOME TAXES" to our unaudited interim Consolidated Financial Statements for further details.
Reportable Segment Revenues and Profits
Our portfolioIn connection with the planned Separation of products fallsits eye-health business into fouran independent publicly traded entity from the remainder of Bausch Health Companies Inc., the Company has begun managing its operations in a manner consistent with the organizational structure of the two separate entities as proposed by the Separation. As a result, during the first quarter of 2021, the Company’s CEO, who is the Company’s Chief Operating Decision Maker, commenced managing the business differently through changes in its operating and reportable segments, which necessitated a realignment of the Company's historical segment structure. This realignment is consistent with how the Company’s CEO currently: (i) assesses operating
performance on a regular basis, (ii) makes resource allocation decisions and (iii) designates responsibilities of his direct reports. Pursuant to these changes, effective in the first quarter of 2021, the Company operates in the following reportable segments: (i) Bausch + Lomb/International,Lomb, (ii) Salix, (iii) International Rx, (iv) Ortho Dermatologics and (iv)(v) Diversified Products. In addition, as part of this realignment of segment structure, certain products historically included in certain segments are now included in their new respective segments based on the organizational structure of the two separate entities as proposed by the Separation. Prior period presentation of segment revenues and segment profits has been recast to conform to the current segment reporting structure.
The following is a brief description of ourthe Company’s segments:
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• | •The Bausch + Lomb/International segment consists of: (i) sales in the U.S. of pharmaceutical products, OTC products and medical device products, primarily comprised of Bausch + Lomb products, with a focus on the Vision Care, Surgical, Consumer and Ophthalmology Rx products and (ii) with the exception of sales of Solta products, sales in Canada, Europe, Asia, Australia, Latin America, Africa and the Middle East of branded pharmaceutical products, branded generic pharmaceutical products, OTC products, medical device products and Bausch + Lomb segment consists of global sales of Bausch + Lomb Vision Care, Consumer, Surgical and Ophthalmology Rx products. •The Salix segment consists of sales in the U.S. of GI products. •The International Rx segment consists of sales, with the exception of sales of Bausch + Lomb and Solta products, outside the U.S. and Puerto Rico of branded pharmaceutical products, branded generic pharmaceutical products and OTC products. •The Ortho Dermatologicssegment consists of: (i) sales in the U.S. of Ortho Dermatologics (dermatological) products and (ii) global sales of Solta medical aesthetic devices. •The Diversified Products segment consists of sales in the U.S. of: (i) pharmaceutical products in the areas of neurology and certain other therapeutic classes, (ii) generic products and (iii) dentistry products. |
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• | The Salix segment consists of sales in the U.S. of GI products.
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• | The Ortho Dermatologics segment consists of: (i) sales in the U.S. of Ortho Dermatologics (dermatological) products and (ii) global sales of Solta medical aesthetic devices.
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• | The Diversified Products segment consists of sales in the U.S. of: (i) pharmaceutical products in the areas of neurology and certain other therapeutic classes, (ii) generic products and (iii) dentistry products.
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Segment profit is based on operating income after the elimination of intercompany transactions. Certain costs, such as Amortization of intangible assets, Asset impairments, In-processAcquired in-process research and development costs, Restructuring, integration and integration costs, Acquisition-related contingent considerationseparation costs and Other (income) expense, (income), net, are not included in the measure of segment profit, as management excludes these items in assessing segment financial performance. See Note 19, "SEGMENT INFORMATION" to our unaudited interim Consolidated Financial Statements for a reconciliation of segment profit to LossIncome (loss) before benefit from income taxes.
The following table presents segment revenues, segment revenues as a percentage of total revenues, and the period-over-period changes in segment revenues for the three months ended March 31, 20202021 and 2019.2020. The following table also presents segment profits, segment profits as a percentage of segment revenues and the period-over-period changes in segment profits for the three months ended March 31, 20202021 and 2019.2020.
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| | Three Months Ended March 31, |
| | 2021 | | 2020 | | Change |
| (in millions) | | Amount | | Pct. | | Amount | | Pct. | | Amount | | Pct. |
| Segment Revenues | | | | | | | | | | | | |
| Bausch + Lomb | | $ | 881 | | | 44 | % | | $ | 875 | | | 43 | % | | $ | 6 | | | 1 | % |
| Salix | | 472 | | | 23 | % | | 477 | | | 24 | % | | (5) | | | (1) | % |
| International Rx | | 306 | | | 15 | % | | 291 | | | 14 | % | | 15 | | | 5 | % |
| Ortho Dermatologics | | 141 | | | 7 | % | | 131 | | | 7 | % | | 10 | | | 8 | % |
| Diversified Products | | 227 | | | 11 | % | | 238 | | | 12 | % | | (11) | | | (5) | % |
| Total revenues | | $ | 2,027 | | | 100 | % | | $ | 2,012 | | | 100 | % | | $ | 15 | | | 1 | % |
| | | | | | | | | | | | |
| Segment Profits / Segment Profit Margins | | | | | | | | | | | | |
| Bausch + Lomb | | $ | 239 | | | 27 | % | | $ | 263 | | | 30 | % | | $ | (24) | | | (9) | % |
| Salix | | 327 | | | 69 | % | | 319 | | | 67 | % | | 8 | | | 3 | % |
| International Rx | | 109 | | | 36 | % | | 98 | | | 34 | % | | 11 | | | 11 | % |
| Ortho Dermatologics | | 70 | | | 50 | % | | 47 | | | 36 | % | | 23 | | | 49 | % |
| Diversified Products | | 171 | | | 75 | % | | 167 | | | 70 | % | | 4 | | | 2 | % |
| Total segment profits | | $ | 916 | | | 45 | % | | $ | 894 | | | 44 | % | | $ | 22 | | | 2 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | 2020 | | 2019 | | Change |
| (in millions) | | Amount | | Pct. | | Amount | | Pct. | | Amount | | Pct. |
| Segment Revenues | | | | | | | | | | | | |
| Bausch + Lomb/International | | $ | 1,114 |
| | 55 | % | | $ | 1,118 |
| | 55 | % | | $ | (4 | ) | | — | % |
| Salix | | 477 |
| | 24 | % | | 445 |
| | 22 | % | | 32 |
| | 7 | % |
| Ortho Dermatologics | | 133 |
| | 7 | % | | 138 |
| | 7 | % | | (5 | ) | | (4 | )% |
| Diversified Products | | 288 |
| | 14 | % | | 315 |
| | 16 | % | | (27 | ) | | (9 | )% |
| Total revenues | | $ | 2,012 |
| | 100 | % | | $ | 2,016 |
| | 100 | % | | $ | (4 | ) | | — | % |
| | | | | | | | | | | | | |
| Segment Profits / Segment Profit Margins | | | | | | | | | | | | |
| Bausch + Lomb/International | | $ | 325 |
| | 29 | % | | $ | 319 |
| | 29 | % | | $ | 6 |
| | 2 | % |
| Salix | | 319 |
| | 67 | % | | 288 |
| | 65 | % | | 31 |
| | 11 | % |
| Ortho Dermatologics | | 48 |
| | 36 | % | | 57 |
| | 41 | % | | (9 | ) | | (16 | )% |
| Diversified Products | | 202 |
| | 70 | % | | 236 |
| | 75 | % | | (34 | ) | | (14 | )% |
| Total segment profits | | $ | 894 |
| | 44 | % | | $ | 900 |
| | 45 | % | | $ | (6 | ) | | (1 | )% |
Organic Revenues and Organic Growth Rates (non-GAAP)
Organic growth, a non-GAAP metric, is defined as a change on a period-over-period basis in revenues on a constant currency basis (if applicable) excluding the impact of recent acquisitions, divestitures and discontinuations. Organic revenue growth (non-GAAP) is growth in GAAP Revenue (its most directly comparable GAAP financial measure), adjusted for certain items, of businesses that have been owned for one or more years. 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 organic revenue growth (non-GAAP) to assess performance of its reportable segments, and the Company in total, without the impact of foreign currency exchange fluctuations and recent acquisitions, divestitures and product discontinuations. The Company believes that such measures are useful to investors as they provide a supplemental period-to-period comparison.
Organic revenue growth (non-GAAP) reflects adjustments for: (i) the impact of period-over-period changes in foreign currency exchange rates on revenues and (ii) the revenues associated with acquisitions, divestitures and discontinuations of businesses divested and/or discontinued. These adjustments are determined as follows:
Foreign currency exchange rates: Although changes in foreign currency exchange rates are part of our business, they are not within management’s control. Changes in foreign currency exchange rates, however, can mask positive or negative trends in the underlying business performance. The impact for changes in foreign currency exchange rates is determined as the difference in the current period reported revenues at their current period currency exchange rates and the current period reported revenues revalued using the monthly average currency exchange rates during the comparable prior period.
Acquisitions, divestitures and discontinuations: In order to present period-over-period organic revenues (non-GAAP) on a comparable basis, revenues associated with acquisitions, divestitures and discontinuations are adjusted to include only revenues from those businesses and assets owned during both periods. Accordingly, organic revenue growth (non-GAAP) excludes from the current period, all revenues attributable to each acquisition for twelve months subsequent to the day of acquisition, as there are no revenues from those businesses and assets included in the comparable prior period. Organic revenue growth (non-GAAP) excludes from the prior period (but not the current period), all revenues attributable to each divestiture and discontinuance during the twelve months prior to the day of divestiture or discontinuance, as there are no revenues from those businesses and assets included in the comparable current period. There were no acquisitions during the twelve month period ended March 31, 2021.
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 March 31, 20202021 and 20192020 by segment.
| | | | | Three Months Ended March 31, 2020 | | Three Months Ended March 31, 2019 | | Change in Organic Revenue | | | Three Months Ended March 31, 2021 | | Three Months Ended March 31, 2020 | | Change in
Organic Revenue |
| | | Revenue as Reported | | Changes in Exchange Rates | | Acquisition | | Organic Revenue (Non-GAAP) | | Revenue as Reported | | Divestitures and Discontinuations | | Organic Revenue (Non-GAAP) | | | 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. | (in millions) | | Amount | | Pct. |
| Bausch + Lomb/International | | $ | 1,114 |
| | $ | 17 |
| | $ | — |
| | $ | 1,131 |
| | $ | 1,118 |
| | $ | (7 | ) | | $ | 1,111 |
| | $ | 20 |
| | 2 | % | |
| Bausch + Lomb | | Bausch + Lomb | | $ | 881 | | | $ | (26) | | | $ | 855 | | | $ | 875 | | | $ | (2) | | | $ | 873 | | | $ | (18) | | | (2) | % |
| Salix | | 477 |
| | — |
| | (13 | ) | | 464 |
| | 445 |
| | — |
| | 445 |
| | 19 |
| | 4 | % | Salix | | 472 | | | — | | | 472 | | | 477 | | | — | | | 477 | | | (5) | | | (1) | % |
| International Rx | | International Rx | | 306 | | | (4) | | | 302 | | | 291 | | | (1) | | | 290 | | | 12 | | | 4 | % |
| Ortho Dermatologics | | 133 |
| | 1 |
| | — |
| | 134 |
| | 138 |
| | — |
| | 138 |
| | (4 | ) | | (3 | )% | Ortho Dermatologics | | 141 | | | (3) | | | 138 | | | 131 | | | — | | | 131 | | | 7 | | | 5 | % |
| Diversified Products | | 288 |
| | — |
| | — |
| | 288 |
| | 315 |
| | — |
| | 315 |
| | (27 | ) | | (9 | )% | Diversified Products | | 227 | | | — | | | 227 | | | 238 | | | (7) | | | 231 | | | (4) | | | (2) | % |
| Total | | $ | 2,012 |
| | $ | 18 |
| | $ | (13 | ) | | $ | 2,017 |
| | $ | 2,016 |
| | $ | (7 | ) | | $ | 2,009 |
| | $ | 8 |
| | — | % | Total | | $ | 2,027 | | | $ | (33) | | | $ | 1,994 | | | $ | 2,012 | | | $ | (10) | | | $ | 2,002 | | | $ | (8) | | | — | % |
Bausch + Lomb/InternationalLomb Segment:
Bausch + Lomb/InternationalLomb Segment Revenue
The Bausch + Lomb/InternationalLomb segment has a diversified product line with no single product group representing 10% or more of its product sales. The Bausch + Lomb/InternationalLomb segment revenue was $1,114$881 million and $1,118$875 million for the three months ended March 31, 2021 and 2020, and 2019, respectively, a decreasean increase of $4$6 million, or less than 1%. The decreaseincrease was primarily attributable to: (i)to the unfavorablefavorable effect of foreign currencies of $17$26 million, primarily attributable to our revenues in Europe and Latin AmericaAsia and was partially offset by: (i) a decrease in volumes of $13 million, (ii) a decrease in net realized pricing of $5 million and (iii) the impact of divestitures and discontinuations of $7$2 million, related to the divestiture and discontinuance of several products. These decreases were partially offset by: (i) an increase in volume of $10 million and (ii) an increase in average realized pricing of $10 million, primarily driven by increases in our Global Vision Care, International Rx and Global Consumer businesses, partially offset by theThe decrease in our Global Ophtho Rx business. The increase in volume isvolumes was primarily attributable to our Global Consumer and International Rx businesses, driven by:decreases in our: (i) our eye vitamin franchise, which includes LUMIFY® and (ii) increased demand as consumers prepared for the COVID-19 pandemic by ensuring they had access to essential products and prescriptions. The increased volumes in our Global Consumer and International Rx businesses were partially offset by decreased volumes in our Global Vision Care, Global Surgical and Global Ophtho Rx businessesOphthalmology business primarily in Asia and Europe and which we believe arethe U.S., in part due to the precautionary measuresimpact of generic competition as certain products, such as Lotemax® Gel, lost exclusivity, and Europe and (ii) Consumer business primarily in response toEurope and Canada, partially offset by increases in our Vision Care business primarily in China which was more negatively impacted by the COVID-19 pandemic as previously discussed. Our Vision Care business was most impacted by declines in contact lens use in Asia, as a result of retail store closures as well as reduced contact lens wear due to decreased social interaction.
As discussed in the "Impact of COVID-19 Pandemic" section above, although volumes were higher during the three months ended March 31, 2020 as compared tothan other geographies.
During 2020, the same period in 2019, we are experiencing revenue declines involumes of our second quarter in certain businesses in connection with the COVID-19 pandemic. In response toBausch + Lomb segment were most negatively impacted by the COVID-19 pandemic many health care facilities and medical offices are closed andduring our second quarter. During 2020, the postponement of certain surgeriessurgical and elective medical procedures have been postponed,related to the
COVID-19 pandemic, and associated declines in pre- and post-operative prescriptions, negatively impacted the volumes of our Ophthalmology and Surgical businesses while the reduction in the consumption of contact lenses worldwide due to limited social interactions and in some regions government recommended use of frames, negatively impacted the volumes of our Vision Care business. During our first quarter of 2020, certain customers engaged in "pantry-loading", which, we expect to impactpositively impacted the volumes of our Consumer business during that quarter but negatively impacted the volumes of our Consumer business for our second quarter of 2020. However, as governments began lifting social restrictions, the negative trend in the revenues of these businesses began to level off and stabilize prior to our third quarter and continued into our fourth quarter of 2020 and first quarter of 2021. Although we experienced COVID-19 pandemic related declines in year-over-year revenues in certain geographies in 2021, total Bausch + Lomb/InternationalLomb segment during 2020.revenues for the three months ended March 31, 2021 increased 1% when compared to the three months ended March 31, 2020, which suggests that a recovery is underway. Presuming the increased availability of effective vaccines and any resurgence of the COVID-19 virus and variant strains thereof or reenactment of social restrictions are not significant, we anticipate that our revenues will likely return to pre-pandemic levels in 2021.
Bausch + Lomb/InternationalLomb Segment Profit
The Bausch + Lomb/InternationalLomb segment profit for three months ended March 31, 2021 and 2020 and 2019 was $325$239 million and $319$263 million, respectively, an increasea decrease of $6$24 million, or 2%9%. The increasedecrease was primarily driven by a decrease in gross profit attributable to: (i) lower volumes of our products which carry higher margins, (ii) higher manufacturing variances primarily due to the impacts of the COVID-19 pandemic and (iii) a decrease in net realized pricing, partially offset by: (i) decreases in SG&A expenses primarily attributable to profit protection measures taken to manage and reduce operating expenses during the COVID-19 pandemic, as previously discussed, and (ii) the favorable effect of foreign currencies on our contribution and (ii) the increase in average realized pricing, as previously discussed. The increase was partially offset by: (i) product mix and (ii) higher selling expenses.currencies.
Salix Segment:
Salix Segment Revenue
The Salix segment includes the Xifaxan® product line, which accounted for 79%78% and 69%79% of the Salix segment product sales and 19%18% and 15%19% of the Company's product sales for the three months ended March 31, 20202021 and 2019,2020, respectively. No other single product group represents 10% or more of the Salix segment product sales. Salix segment revenue for the three months ended March 31, 2021 and 2020 was $472 million and 2019 was $477 million, and $445 million, respectively, an increasea decrease of $32$5 million, or 7%1%. The increase includes: (i)decrease is primarily driven by a decrease in volumes of $24 million partially offset by an increase in volumenet realized pricing of $30 million and (ii) sales of our Trulance® product, which we added to our portfolio in March 2019 as part of the acquisition of certain assets of Synergy, of $13$19 million. The increasedecrease in volumes was primarily attributabledue to increased demand for Xifaxan®, Relistor®the impacts of social restrictions and Glumetza® SLX, partially offset byother precautionary measures taken in response to the impact of generic competitionCOVID-19 pandemic, as certain products, such as Apriso® and Uceris®, lost exclusivity. These increasespreviously discussed. The increase in revenue were partially offset by a decrease in averagenet realized pricing of $11 millionwas primarily attributable to higher sales deductions for Glumetza® SLX partially offset by higher gross selling pricesnet realized pricing for Xifaxan®.
As discussedDuring 2020, certain branded pharmaceutical products within our Salix segment were negatively impacted by social restrictions and other precautionary measures taken in response to the "ImpactCOVID-19 pandemic, as previously discussed. Although we experienced COVID-19 pandemic related declines in year-over-year revenues in certain products during 2021, the decrease in Salix segment revenues for the three months ended March 31, 2021 of COVID-19 Pandemic" section above, although volumes were higher during1% when compared to the three months ended March 31, 2020 as compared tois not material. Presuming the same period in 2019, we are experiencing revenue declines in our second quarter in certain businesses in connection withincreased availability of effective vaccines and any resurgence of the COVID-19 pandemic. In responsevirus and variant strains thereof or reenactment of social restrictions are not significant, we anticipate that our revenues will likely return to the COVID-19 pandemic, many health care facilities and medical offices are closed and certain surgeries and elective medical procedures have been postponed, which we expect to impact the revenues of our Salix segment during 2020. However, through the date of this filing, we believe that the COVID-19 pandemic has had only a limited impact on the demand for our Xifaxan® products. Further, as of April 30, 2020, we have over five months’ supply of Xifaxan® on hand and enough API to manufacture another five months’ supply of Xifaxan® finished goods. We also have open orders for API that we currently expect will arrive on schedule. However, if we were to experience a lack of availability of API for Xifaxan®, such disruption to our supply chain could have a significant adverse effect on our business, financial condition and results of operations.pre-pandemic levels in 2021.
Salix Segment Profit
The Salix segment profit for the three months ended March 31, 2021 and 2020 and 2019 was $319$327 million and $288$319 million, respectively, an increase of $31$8 million, or 3%. The increase was primarily driven by decreases in SG&A expenses primarily attributable to profit protection measures taken to manage and reduce operating expenses during the COVID-19 pandemic, as previously discussed and was partially offset by the decrease in revenue, as previously discussed.
International Rx Segment:
International Rx Segment Revenue
The International Rx segment has a diversified product line with no single product group representing 10% or more of its product sales. The International Rx segment revenue was $306 million and $291 million for the three months ended March 31, 2021 and 2020, respectively, an increase of $15 million, or 5%. The increase was primarily attributable to: (i) an increase in volumes of $9 million, (ii) the favorable effect of foreign currencies of $4 million, primarily in Europe and Asia, and (iii) an increase in net realized pricing of $3 million. The increase in volumes is primarily due to increased volumes in Mexico of Ivermectin®, due to its off label use as a treatment for COVID-19, and Bedoyecta®. The increase in volumes was partially offset by lower volumes in Canada primarily due to: (i) the impacts of the COVID-19 pandemic, as previously discussed, and
(ii) the impact of the loss of exclusivity for certain products, primarily Glumetza®. These decreases were partially offset by the impact of divestitures and discontinuations of $1 million.
The volumes of our International Rx segment were negatively impacted, by social restrictions and other precautionary measures taken in response to the COVID-19 pandemic, as previously discussed, during our second quarter of 2020. However, as governments began lifting social restrictions, the negative trend in the revenues of our International Rx products began to level off and stabilize prior to our third quarter of 2020 and continued in the fourth quarter of 2020. Although we experienced COVID-19 pandemic related declines in year-over-year revenues in certain geographies during 2021, total International Rx segment revenues for the three months ended March 31, 2021 increased 5% when compared to the three months ended March 31, 2020, which suggests that a recovery is underway. Presuming the increased availability of effective vaccines and any resurgence of the COVID-19 virus and variant strains thereof or reenactment of social restrictions are not significant, we anticipate that our revenues will likely return to pre-pandemic levels in 2021.
International Rx Segment Profit
The International Rx segment profit for the three months ended March 31, 2021 and 2020 was $109 million and $98 million, respectively, an increase of $11 million, or 11%. The increase was primarily driven by a net increaseby: (i) decreases in contribution as a result of: (i)SG&A expenses primarily attributable to profit protection measures taken to manage and reduce operating expenses during the increase in volume,COVID-19 pandemic, as previously discussed and (ii) lower third-party royalty costs and (iii) gross profit from the sales of our Trulance® product, which we added to our portfolioan increase in March 2019 as part of the acquisition of certain assets of Synergy. The increases in segment profit was partially offset by: (i) a decrease in average realized pricing,revenue, as previously discussed, (ii)partially offset by higher selling, advertising and promotion expensesmanufacturing variances primarily relateddue to our Trulance® product, which we added to our portfolio in March 2019 as partthe impacts of the acquisition of certain assets of Synergy and (iii) higher costs related to professional services.COVID-19 pandemic.
Ortho Dermatologics Segment:
Ortho Dermatologics Segment Revenue
The Ortho Dermatologics segment includes the Thermage® and Jublia® product lines, which accounted for approximately 40% and 10% of the Ortho Dermatologics segment revenues for the three months ended March 31, 2021, respectively. No other single product group represents 10% or more of the Ortho Dermatologics segment revenues. The Ortho Dermatologics segment revenue for the three months ended March 31, 2021 and 2020 and 2019 was $133$141 million and $138$131 million, respectively, a decreasean increase of $5$10 million, or 4%8%. The decreaseincrease is primarily driven by:a result of: (i) an increase in volume of $19 million and (ii) the favorable effect of foreign currencies of $3 million. The increases were partially offset by a decrease in averagenet realized pricing of $8$12 million, as a result of higher sales deductions in our medical dermatology products and (ii) the unfavorable effect of foreign currencies of $1 million. These decreases were partially offset by anproducts. The increase in volume of $4 millionis primarily due to: (i)to increased demand of Thermage FLX® and (ii) the launch of Duobrii® (June 2019) and partially offset by a decrease in volumes due toby: (i) the impact of generic competition as certain products, such as Solodyn®, Zovirax® and Elidel® and Clindagel®, lost exclusivity.
As discussedexclusivity and (ii) the impacts of social restrictions and other precautionary measures taken in the "Impact of COVID-19 Pandemic" section above, although volumes were higher during the three months ended March 31, 2020 as comparedresponse to the same period in 2019, we are experiencing revenue declines in our second quarter in certain businesses in connection with the COVID-19 pandemic. As a precautionary measure, many health care facilities and medical offices are closed and many elective medical procedures and certain surgeries have been postponed, which we expect to impact the revenues of our medical dermatology, medical aesthetics and therapeutic products during 2020.pandemic, as previously discussed.
Ortho Dermatologics Segment Profit
The Ortho Dermatologics segment profit for the three months ended March 31, 2021 and 2020 and 2019 was $48$70 million and $57$47 million, respectively, a decreasean increase of $9$23 million, or 16%49%. The decreaseincrease was primarily driven by a decreaseby: (i) decreases in contributionSG&A expenses primarily attributable to profit protection measures taken to manage and reduce operating expenses during the COVID-19 pandemic, as a result of the decreasepreviously discussed, (ii) an increase in revenue, as previously discussed.discussed, and (iii) a decrease in R&D expenses.
Diversified Products Segment:
Diversified Products Segment Revenue
The following table displays the Diversified Products segment revenue by product and product revenues as a percentage of segment revenue for the three months ended March 31, 20202021 and 2019.2020.
| | | | | Three Months Ended March 31, | | Three Months Ended March 31, |
| | | 2020 | | 2019 | | Change | | 2021 | | 2020 | | Change |
| (in millions) | | Amount | | Pct. | | Amount | | Pct. | | Amount | | Pct. | (in millions) | | Amount | | Pct. | | Amount | | Pct. | | Amount | | Pct. |
Wellbutrin® Franchise | | $ | 58 |
| | 20 | % | | $ | 58 |
| | 18 | % | | $ | — |
| | — | % | Wellbutrin® Franchise | | $ | 53 | | | 23 | % | | $ | 58 | | | 24 | % | | $ | (5) | | | (9) | % |
Aplenzin® | | 26 |
| | 9 | % | | 16 |
| | 5 | % | | 10 |
| | 63 | % | Aplenzin® | | 26 | | | 11 | % | | 26 | | | 11 | % | | — | | | — | % |
Arestin® | | 19 |
| | 7 | % | | 21 |
| | 7 | % | | (2 | ) | | (10 | )% | Arestin® | | 23 | | | 10 | % | | 19 | | | 8 | % | | 4 | | | 21 | % |
Ativan® Franchise | | Ativan® Franchise | | 18 | | | 8 | % | | 8 | | | 3 | % | | 10 | | | 125 | % |
Pepcid® | | Pepcid® | | 12 | | | 5 | % | | 3 | | | 1 | % | | 9 | | | 300 | % |
Mysoline® | | Mysoline® | | 11 | | | 5 | % | | 5 | | | 2 | % | | 6 | | | 120 | % |
Librax® Franchise | | Librax® Franchise | | 10 | | | 4 | % | | 6 | | | 3 | % | | 4 | | | 67 | % |
Diastat® Franchise | | 11 |
| | 4 | % | | 6 |
| | 2 | % | | 5 |
| | 83 | % | Diastat® Franchise | | 6 | | | 3 | % | | 11 | | | 5 | % | | (5) | | | (45) | % |
Migranal® Franchise | | 10 |
| | 3 | % | | 12 |
| | 4 | % | | (2 | ) | | (17 | )% | |
| Neo/Poly/HC Otic | | 9 |
| | 3 | % | | 5 |
| | 2 | % | | 4 |
| | 80 | % | |
Uceris® AG | | 9 |
| | 3 | % | | 5 |
| | 2 | % | | 4 |
| | 80 | % | |
Apriso® | | 8 |
| | 3 | % | | — |
| | — | % | | 8 |
| | — | % | |
Ativan® | | 8 |
| | 3 | % | | 15 |
| | 5 | % | | (7 | ) | | (47 | )% | |
| Tobramycin/Dexamethasone | | 8 |
| | 3 | % | | 7 |
| | 2 | % | | 1 |
| | 14 | % | |
Xenazine® Franchise | | Xenazine® Franchise | | 6 | | | 3 | % | | 8 | | | 3 | % | | (2) | | | (25) | % |
Cardizem® Franchise | | Cardizem® Franchise | | 4 | | | 2 | % | | 5 | | | 2 | % | | (1) | | | (20) | % |
| Other product revenues | | 119 |
| | 41 | % | | 168 |
| | 52 | % | | (49 | ) | | (29 | )% | Other product revenues | | 57 | | | 26 | % | | 85 | | | 36 | % | | (28) | | | (33) | % |
| Other revenues | | 3 |
| | 1 | % | | 2 |
| | 1 | % | | 1 |
| | 50 | % | Other revenues | | 1 | | | — | % | | 4 | | | 2 | % | | (3) | | | (75) | % |
| Total Diversified Products revenues | | $ | 288 |
| | 100 | % | | $ | 315 |
| | 100 | % | | $ | (27 | ) | | (9 | )% | Total Diversified Products revenues | | $ | 227 | | | 100 | % | | $ | 238 | | | 100 | % | | $ | (11) | | | (5) | % |
The Diversified Products segment revenue for the three months ended March 31, 2021 and 2020 and 2019 was $288$227 million and $315$238 million, respectively, a decrease of $27$11 million, or 9%5%. The decrease was primarily driven byby: (i) a decrease in volume of $29 million.$9 million and (ii) the impact of divestitures and discontinuations of $7 million, partially offset by an increase in net realized pricing of $5 million, primarily in our Neurology and Other business. The decrease in volume was primarily attributable to: (i)to the impact of generic competition as certain products, such as Migranal®, Isuprel®, Demser® and Syprine®, lost exclusivity in our Neurology and Other business, as certain products such as Cuprimine®, and Ativan®, lost exclusivity and (ii)partially offset by: (i) an increase in volumes of our Dentistry business related to the postponement of certain surgeries and elective medical procedures in response to the COVID-19 pandemic. These decreases in volume were partially offset by increased demand for Aplenzin®, a product within our Neurology and Other business. These decreases in revenue were partially offset by increases in: (i) other revenues of $1 million and (ii) average realized pricingthe short-term benefit to our sales of $1 million primarily attributable to higher gross selling prices.Pepcid® as a result of a recall of a competitor's product.
Diversified Products Segment Profit
The Diversified Products segment profit for three months ended March 31, 2021 and 2020 and 2019 was $202$171 million and $236$167 million, respectively, a decreasean increase of $34$4 million, or 14% and2%. The increase was primarily driven by: (i)by decreases in SG&A expenses primarily attributable to profit protection measures taken to manage and reduce operating expenses during the COVID-19 pandemic, as previously discussed partially offset by the decrease in volume,revenue, as previously discussed, and (ii) higher general and administrative expenses.discussed.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
| | | | | Three Months Ended March 31, | | Three Months Ended March 31, |
| (in millions) | | 2020 | | 2019 | | Change | (in millions) | | 2021 | | 2020 | | Change |
| Net loss | | $ | (152 | ) | | $ | (48 | ) | | $ | (104 | ) | Net loss | | $ | (607) | | | $ | (152) | | | $ | (455) | |
| Adjustments to reconcile net loss to net cash provided by operating activities | | 541 |
| | 459 |
| | 82 |
| Adjustments to reconcile net loss to net cash provided by operating activities | | 910 | | | 541 | | | 369 | |
| Cash provided by operating activities before changes in operating assets and liabilities | | 389 |
| | 411 |
| | (22 | ) | Cash provided by operating activities before changes in operating assets and liabilities | | 303 | | | 389 | | | (86) | |
| Changes in operating assets and liabilities | | (128 | ) | | 2 |
| | (130 | ) | Changes in operating assets and liabilities | | 140 | | | (128) | | | 268 | |
| Net cash provided by operating activities | | 261 |
| | 413 |
| | (152 | ) | Net cash provided by operating activities | | 443 | | | 261 | | | 182 | |
| Net cash used in investing activities | | (40 | ) | | (203 | ) | | 163 |
| Net cash used in investing activities | | (56) | | | (40) | | | (16) | |
| Net cash used in financing activities | | (1,521 | ) | | (150 | ) | | (1,371 | ) | Net cash used in financing activities | | (243) | | | (1,521) | | | 1,278 | |
| Effect of exchange rate on cash and cash equivalents | | (21 | ) | | 1 |
| | (22 | ) | Effect of exchange rate on cash and cash equivalents | | (13) | | | (21) | | | 8 | |
| Net increase in cash, cash equivalents and restricted cash | | (1,321 | ) | | 61 |
| | (1,382 | ) | |
| Net increase (decrease) in cash, cash equivalents, restricted cash and cash held for sale | | Net increase (decrease) in cash, cash equivalents, restricted cash and cash held for sale | | 131 | | | (1,321) | | | 1,452 | |
| Cash, cash equivalents and restricted cash, beginning of period | | 3,244 |
| | 723 |
| | 2,521 |
| Cash, cash equivalents and restricted cash, beginning of period | | 1,816 | | | 3,244 | | | (1,428) | |
| Cash, cash equivalents and restricted cash, end of period | | $ | 1,923 |
| | $ | 784 |
| | $ | 1,139 |
| |
| Cash, cash equivalents, restricted cash and cash and cash equivalents held for sale, end of period | | Cash, cash equivalents, restricted cash and cash and cash equivalents held for sale, end of period | | $ | 1,947 | | | $ | 1,923 | | | $ | 24 | |
Operating Activities
Net cash provided by operating activities was $261$443 million and $413$261 million for the three months ended March 31, 2021 and 2020, and 2019, respectively, a decreasean increase of $152$182 million. The decreaseincrease was attributable to net decreases in cash from Changes in operating assets and liabilities partially offset by the decrease in Cash provided by operating activities before changes in operating assets and liabilities.
Cash provided by operating activities before changes in operating assets and liabilities.
Cash provided by operating activities before changes for the three months ended March 31, 2021 and 2020 was $303 million and $389 million, respectively, a decrease in operating assets and liabilities forcash of $86 million. The decrease is primarily attributable to: (i) $115 million of higher payments of accrued legal settlements during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 and 2019 was $389(ii) $26 million in payments for Separation costs and $411 million, respectively, a decrease of $22 million. The decrease is primarily attributable to higher sales deductions andSeparation-related costs during the unfavorable effect of foreign currencies, primarily in Europe and Latin Americanthree months ended March 31, 2021, partially offset by higher volumes, improved gross marginsthe impact of the profit protection measures taken to manage and cash expense reductions in 2020 as compared to 2019reduce operating expenses during the COVID-19 pandemic, as previously discussed.
Changes in operating assets and liabilities resulted in a net increase in cash of $140 million for the three months ended March 31, 2021 and a net decrease in cash of $128 million for the three months ended March 31, 2020 as compared to therepresenting a net increase in cash of $2 million for$268 million. During the three months ended March 31, 2019, a decrease2021, Changes in operating assets and liabilities was positively impacted by: (i) the timing of $130other payments in the ordinary course of business of $84 million, (ii) the collection of trade receivables of $60 million and (iii) an increase in accrued interest due to timing of payments of $31 million and was partially offset by an increase in inventories of $35 million. During the three months ended March 31, 2020, Changes in operating assets and liabilities was negatively impacted by: (i) the increase in inventories of $94 million and (ii) the timing of other payments in the ordinary course of business of $103$180 million and (ii) an increase in inventories of $94 million and was partially offset byby: (i) an increase in accrued interest due to timing of payments of $77 million and (ii) the collection of trade receivables of $69 million. For
Investing Activities
Net cash used in investing activities was $56 million for the three months ended March 31, 2019, Changes in operating assets2021 and liabilities was positively impactedprimarily driven by the collectionPurchases of trade receivablesproperty, plant and equipment of $89$66 million partially offset by the increase in inventoriesInterest settlements from cross-currency swaps of $68 million and the timing of payments in the ordinary course of business of $19$11 million.
Investing Activities
Net cash used in investing activities was $40 million for the three months ended March 31, 2020 and was primarily driven by Purchases of property, plant and equipment of $72 million and was partially offset by Proceeds from sale of assets and businesses, net of costs to sell of $21 million primarily related to the receipt of a milestone payment associated with a prior divestiture and Interest settlements from cross-currency swaps of $11 million.
Financing Activities
Net cash used in investingfinancing activities was $203$243 million for the three months ended March 31, 20192021 and was primarily driven by the acquisitionprepayment of businesses, net$200 million of 7.00% Senior Secured Notes due 2024 using cash acquired of $180 million, related to the acquisition of certain assets of Synergy,on hand and purchases of property, plant and equipment of $47 million, partially offset by proceedscash generated from sale of assets and businesses, net of costs to sell of $25 million, primarily related to the receipt of a milestone payment associated with a prior divestiture.operations during 2021.
Financing Activities
Net cash used in financing activities was $1,521 million for the three months ended March 31, 2020 and was primarily driven by the repayments of debt of $1,459 million which consisted of: (i) $1,240 million of May 2023 Unsecured Notes,
which was previously financed as part of the December 2019 Financing and Refinancing Transactions, which were completed in January 2020, (ii) $100 million of 5.50% Senior Unsecured Notes due March 2023, (iii) $103 million of our June 2025 Term Loan B Facility (as defined below) and (iv) the repurchase and retirement of outstanding senior unsecured notes with an aggregate par value of $17 million in the open market, for an aggregate cost of $16 million. Issuance of long-term debt, net of discounts of $(3)$3 million primarily represents the payment of fees and expenses associated with the December 2019 Financing and Refinancing Transactions.
Net cash used in financing activities was $150 million for the three months ended March 31, 2019 and was primarily driven by the net reduction in our debt portfolio. Repayments of debt for the three months ended March 31, 2019 were $1,621 million and consisted of: (i) repayments of principal amounts due under our Senior Notes of $1,318 million, (ii) repayments of term loans under our Senior Secured Credit Facilities of $228 million and (iii) repayments of our revolving credit facility of $75 million. Net proceeds from the issuances of long-term debt for the three months ended March 31, 2019 was $1,514 million and included the net proceeds of: (i) $1,021 million from the issuance of $1,000 million in principal amount of January 2027 Unsecured Notes and (ii) $494 million from the issuance of $500 million in principal amount of August 2027 Secured Notes. Net proceeds from the issuances of long-term debt is reduced by $1 million for issuance costs paid in 2019 associated with long-term debt issued in previous years. Debt extinguishment costs paid for the refinancing of certain debt was $1 million.
See Note 10, "FINANCING ARRANGEMENTS" to our unaudited interim Consolidated Financial Statements for additional information regarding the financing activities described above.
Liquidity and Debt
Future Sources of Liquidity
Our primary sources of liquidity are our cash and cash equivalents, cash collected from customers, funds as available from our revolving credit facility, issuances of long-term debt and issuances of equity and equity-linked securities. We believe these sources will be sufficient to meet our current liquidity needs for at least the twelve months following the issuance of this 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 or repurchase existing debt or issue equity or equity-linked securities. We believe our existing cash and cash generated from operations will be sufficient to service our debt obligations in the years 2020 and 2021.
Proposed Refinancing Transactions - In February 2020, we announced intentions to opportunistically amend and refinance the Company’s Restated Credit Agreement, in order to extend and reprice our term loans and revolving credit facility and make certain other amendments to the terms of the facilities in connection therewith. We also announced our intention to issue $3,250 million of secured debt securities. The proceeds of the credit agreement refinancing and the offering of the new secured debt securities, along with cash on hand, were to be used to redeem certain outstanding senior secured notes, refinance our outstanding term loans under our Restated Credit Agreement (as defined below) and to pay related fees, premiums and expenses. However, in March 2020, as a result of challenging market conditions, we decided not to pursue these opportunities. We will continue to monitor market conditions and consider opportunistic refinancing transactions from time to time.through 2023.
Long-term Debt
Long-term debt, net of unamortized premiums, discounts and issuance costs was $24,428$23,738 million and $25,895$23,925 million as of March 31, 20202021 and December 31, 2019,2020, respectively. Aggregate contractual principal amounts due under our debt obligations were $24,701$23,985 million and $26,188$24,185 million as of March 31, 20202021 and December 31, 2019,2020, respectively, a decrease of $1,487$200 million during the three months ended March 31, 2020.2021. The decrease was primarily driven by thenet debt repayments previously discussed under "Cash Flows - Financing Activities".
Our prepayment and refinancings of debt over the last four years translate into lower repayments of principal over the next four years, which, in turn, we believe will permit more cash flows to be directed toward developing our core assets, identifying new product opportunities and repaying additional debt amounts. The mandatory scheduled principal repayments of our debt obligations as of May 7, 2020, the date of this filing,March 31, 2021, were as follows and reflects repurchases of our senior unsecured notes in the open market of $8 million, in aggregate, in April 2020:follows:
| | | (in millions) | (in millions) | | | | | | | | | | | | | | | | | | | | | (in millions) | |
| 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | 2029 | | 2030 | | Total | |
| 2021 | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | 2029 | | 2030 | | 2031 | | Total |
| $ | — |
| | $ | — |
| | $ | 1,553 |
| | $ | 2,443 |
| | $ | 2,303 |
| | $ | 10,632 |
| | $ | 1,500 |
| | $ | 2,250 |
| | $ | 2,012 |
| | $ | 750 |
| | $ | 1,250 |
| | $ | 24,693 |
| — | | | $ | — | | | $ | — | | | $ | 2,091 | | | $ | 10,632 | | | $ | 1,500 | | | $ | 2,250 | | | $ | 2,012 | | | $ | 3,250 | | | $ | 1,250 | | | $ | 1,000 | | | $ | 23,985 | |
See Note 10, "FINANCING ARRANGEMENTS" to our auditedunaudited interim Consolidated Financial Statements and “Management's Discussion and Analysis - Liquidity and Capital Resources: Long-term Debt” for further details.
Senior Secured Credit Facilities
On 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, and as further amended (the “Restated Credit
Agreement”) with a syndicate of financial institutions and investors as lenders. The Restated Credit Agreement provides for a revolving credit facility of $1,225 million, which matures on the earlier of June 1, 2023 and the date that is 91 calendar days prior to the scheduled maturity of indebtedness for borrowed money of the Company and Bausch Health Americas, Inc. ("BHA") in an aggregate principal amount in excess of $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. Both the Company and BHA are borrowers under the 2023 Revolving Credit Facility, borrowings under which may be made in U.S. dollars, Canadian dollars or euros.
Current Description of Senior Secured Credit Facilities
Borrowings under the Senior Secured Credit Facilities in U.S. dollars bear interest at a rate per annum equal to, at the Company's option, either: (i) a base rate determined by reference to the highest of: (a) the prime rate (as defined in the Restated Credit Agreement), (b) the federal funds effective rate plus 1/2 of 1.00% or (c) the eurocurrency rate (as defined in
the Restated Credit Agreement) for a period of one month plus 1.00% (or if such eurocurrency rate shall not be ascertainable, 1.00%) or (ii) a eurocurrency rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs (provided however, that the eurocurrency rate shall at no time be less than 0.00% per annum), in each case plus an applicable margin.
Borrowings under the 2023 Revolving Credit Facility in euros bear interest at a eurocurrency rate determined by reference to the costs of funds for euro deposits for the interest period relevant to such borrowing (provided however, that the eurocurrency rate shall at no time be less than 0.00% per annum), plus an applicable margin.
Borrowings under the 2023 Revolving Credit Facility in Canadian dollars bear interest at a rate per annum equal to, at the Company's option, either: (i) a prime rate determined by reference to the higher of: (a) the rate of interest last quoted by The Wall Street Journal as the “Canadian Prime Rate” or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Bank of Canada as its prime rate and (b) the 1 month BA rate (as defined below) calculated daily plus 1.00% (provided however, that the prime rate shall at no time be less than 0.00%) or (ii) the bankers’ acceptance rate for Canadian dollar deposits in the Toronto interbank market (the “BA rate”) for the interest period relevant to such borrowing (provided however, that the BA rate shall at no time be less than 0.00% per annum), in each case plus an applicable margin.
Subject to certain exceptions and customary baskets set forth in the Restated Credit Agreement, the Company is required to make mandatory prepayments of the loans under the Senior Secured Credit Facilities under certain circumstances, including from: (i) 100% of the net cash proceeds of insurance and condemnation proceeds for property or asset losses (subject to reinvestment rights and net proceeds threshold), (ii) 100% of the net cash proceeds from the incurrence of debt (other than permitted debt as described in the Restated Credit Agreement), (iii) 50% of Excess Cash Flow (as defined in the Restated Credit Agreement) subject to 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). These mandatory prepayments may be used to satisfy future amortization.
The applicable interest rate margins for the June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility are 2.00% and 1.75%, respectively, with respect to base rate and prime rate borrowings and 3.00% and 2.75%, respectively, with respect to eurocurrency rate and BA rate borrowings.
As of March 31, 2020,2021, the stated rates of interest on the Company’s borrowings under the June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility were 3.61%3.11% and 3.36%2.86% per annum, respectively.
The amortization rate for both the June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility is 5.00% per annum. The Company may direct that prepayments be applied to such amortization payments in order of maturity. As of March 31, 2020,2021, the aggregate remaining mandatory quarterly amortization payments for the Senior Secured Credit Facilities were $1,023$405 million through November 1, 2025.
The applicable interest rate margins for borrowings under the 2023 Revolving Credit Facility are 1.50%-2.00% with respect to base rate or prime rate borrowings and 2.50%-3.00% with respect to eurocurrency rate or BA rate borrowings. As of March 31, 2020,2021, the stated rate of interest on the 2023 Revolving Credit Facility was 3.36%3.11% per annum. As of March 31, 2020,2021, the Company had no outstanding borrowings, $168$101 million of issued and outstanding letters of credit and remaining availability of $1,057$1,124 million under its 2023 Revolving Credit Facility. In addition, the Company is required to pay commitment fees of 0.25%-0.50% per annum with respect to the unutilized commitments under the 2023 Revolving Credit Facility, payable quarterly in arrears. The Company also is required to pay: (i) letter of credit fees on the maximum amount available to be drawn under all outstanding letters of credit in an amount equal to the applicable margin on eurocurrency rate borrowings under the 2023 Revolving Credit Facility on a per annum basis, payable quarterly in arrears, (ii) customary fronting fees for the issuance of letters of credit and (iii) agency fees.
The Restated Credit Agreement permits the incurrence of incremental credit facility borrowings up to the greater of $1,000 million and 28.5% of Consolidated Adjusted EBITDA (as defined in the Restated Credit Agreement), subject to customary terms and conditions, as well as the incurrence of additional incremental credit facility borrowings subject to a secured leverage ratio of not greater than 3.50:1.00, and, in the case of unsecured debt, 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.
Senior Secured Notes
The Senior Secured Notes are guaranteed by each of the Company’s subsidiaries that is a guarantor under the Restated Credit Agreement and existing Senior Unsecured Notes (together, the “Note Guarantors”). The Senior Secured Notes and the guarantees related thereto are senior obligations and are secured, subject to permitted liens and certain other exceptions, by the same first priority liens that secure the Company’s obligations under the Restated Credit Agreement under the terms of the indentures governing the Senior Secured Notes.
The Senior Secured Notes and the guarantees rank equally in right of repayment 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.
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, 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.
The aggregate principal amount of our Senior Secured Notes as of March 31, 2021 and December 31, 2020 was $4,050 million and $4,250 million, respectively, a decrease of $200 million representing the prepayment of $200 million 7.00% Senior Secured Notes due 2024 using cash on hand and cash generated from operations during 2021.
Senior Unsecured Notes
The Senior Unsecured Notes issued by the Company are the Company’s senior unsecured obligations and are jointly and severally guaranteed on a senior unsecured basis by each of its subsidiaries that is a guarantor under the Senior Secured Credit Facilities. The Senior Unsecured Notes issued by BHA are senior unsecured obligations of BHA and are jointly and severally guaranteed on a senior unsecured basis by the Company and each of its subsidiaries (other than BHA) that is a guarantor under the Senior Secured Credit Facilities. Future subsidiaries of the Company and BHA, if any, may be required to guarantee the Senior Unsecured Notes. On a non-consolidated basis, the non-guarantor subsidiaries had total assets of $2,562$2,484 million and total liabilities of $1,034$1,911 million as of March 31, 2020,2021, and revenues of $329$411 million and operating incomeloss of $21$30 million for the three months ended March 31, 2020.2021.
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.
The aggregate principal amount of our Senior Unsecured Notes as of March 31, 2021 and December 31, 2020 was $15,500 million.
Covenant Compliance
Any inability to comply with the covenants under the terms of our Restated Credit Agreement, Senior Secured Notes indentures or Senior Unsecured Notes indentures could lead to a default or an event of default for which we may need to seek relief from our lenders and noteholders in order to waive the associated default or event of default and avoid a potential acceleration of the related indebtedness or cross-default or cross-acceleration to other debt. There can be no assurance that we would be able to obtain such relief on commercially reasonable terms or otherwise and we may be required to incur significant additional costs. In addition, the lenders under our Restated Credit Agreement, holders of our Senior Secured Notes and holders of our Senior Unsecured Notes may impose additional operating and financial restrictions on us as a condition to granting any such waiver.
DuringSince 2017 through the three months ended March 31, 2020,date of this filing, the Company completed several actions which included using cash flows from operations to repay debt 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 the financial maintenance covenant. As of March 31, 2020,2021, the Company was in compliance with its financial maintenance covenant related to its outstanding debt. The Company, based on its current forecast as adjusted for the potential impacts of the COVID-19 pandemic, expects to remain in compliance with the financial maintenance covenant and meet its debt service obligations for at least the twelve months following the date of issuance of this Form 10-Q.
The Company continues to take steps to improve its operating results to ensure continual compliance with its financial maintenance covenant and take other actions to reduce its debt levels to align with the Company’s long-term strategy. The Company may consider taking other actions, including divesting other businesses, refinancing debt and issuing equity or equity-linked securities as deemed appropriate, to provide additional coverage in complying with the financial maintenance covenant and meeting its debt service obligations.
On August 6, 2020, we announced that we intend to separate our eye-health business into an independent publicly traded entity (“Bausch + Lomb”) from the remainder of Bausch Health Companies Inc. We continue to make progress toward the internal objectives necessary for the Separation and have been actively addressing the internal organizational design and structure of the new entity. We are actively addressing the structure and pro forma capitalizations of the two entities post-separation and have announced certain key leadership positions of the Bausch + Lomb entity. Based on our assessment, we believe that, by the end of the third quarter of 2021, we will be able to address the organizational matters and regulatory requirements needed to operate the businesses separately and put the Bausch + Lomb entity in a position to become an independent publicly traded company. Management is also considering the form of the Separation and exploring a number of alternative capitalization structures in order to properly capitalize the entities post-separation. Although a public offering of a portion of the Bausch + Lomb business is among the alternate capital structures being considered, this Form 10-Q does not constitute an offer of any securities of Bausch + Lomb for sale.
Weighted Average Interest Rate
The weighted average stated rate of interest of the Company's outstanding debt as of March 31, 20202021 and December 31, 20192020 was 6.01%6.00% and 6.21%6.02%, respectively.
See Note 10, "FINANCING ARRANGEMENTS" to our unaudited interim Consolidated Financial Statements for further details.
Credit Ratings
As of May 7, 2020,4, 2021, the credit ratings and outlook from Moody's, Standard & Poor's and Fitch for certain outstanding obligations of the Company were as follows:
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| | | | | | | | | | | | | | | | | | | | | | | | | |
| Rating Agency | | Corporate Rating | | Senior Secured Rating | | Senior Unsecured Rating | | Outlook |
| Moody’s | | B2 | | Ba2 | | B3 | | Stable |
| Standard & Poor’s | | B+ | | BB | | B | | Stable |
| Fitch | | B | | BB | | B | | Stable |
Any downgrade in our corporate credit ratings or other credit ratings may increase our cost of borrowing and may negatively impact our ability to raise additional debt capital.
Future Cash Requirements
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 20202021 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. In addition, we may use cash to enter into licensing arrangements and/or to make strategic acquisitions. We are considering further acquisition opportunities within our core therapeutic areas, some of which could be sizable.
In addition to our working capital requirements, as of March 31, 2020,2021, we expect our primary cash requirements during the remainder of 20202021 to be as follows:include:
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• | Debt service—We expect to make principal and interest payments of approximately $1,164 million during the remainder of 2020. As a result of prepayments and a series of refinancing transactions we have reduced and extended the maturities of a substantial portion of our long-term debt. As of the date of this filing, there are no scheduled principal repayments of our debt obligations through 2021. We may elect to make additional principal payments under certain circumstances. Further, in the ordinary course of business, we may borrow and repay amounts under our 2023 Revolving Credit Facility to meet business needs;
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• | IT Infrastructure Investment—We expect to make payments of approximately $35 million for licensing, maintenance and other costs associated with our IT infrastructure improvement projects during the remainder of 2020;
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• | Capital expenditures—We expect to make payments of approximately $200 million for property, plant and equipment during the remainder of 2020;
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• | Contingent consideration payments—We expect to make contingent consideration and other approval/sales-based milestone payments of approximately $30 million during the remainder of 2020;
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• | Restructuring and integration payments—We expect to make payments of approximately $6 million during the remainder of 2020 for employee separation costs and lease termination obligations associated with restructuring and integration actions we have taken through March 31, 2020; and
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• | Benefit obligations—We expect to make payments under our pension and postretirement obligations of approximately $13 million during the remainder of 2020.
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• | U.S. Securities Litigation Settlement—As more fully discussed in Note 18, "LEGAL PROCEEDINGS" to our unaudited interim Consolidated Financial Statements, in December 2019, we announced that we had agreed to resolve the U.S. Securities Litigation for $1,210 million, subject to final court approval. Once approved by the court, the settlement will resolve and discharge•Debt repayments—As a result of prepayments and a series of refinancing transactions we have reduced and extended the maturities of a substantial portion of our long-term debt and have no debt maturities or mandatory amortization payments due until 2024. We expect to make interest payments of approximately $1,088 million during the remainder of 2021. In addition, in April and May 2021, we announced we will redeem $200 million aggregate principal amount of our 7.00% Senior Secured Notes due 2024 using cash on hand and cash generated from operations, in May and June 2021. We may also elect to make additional principal payments under certain circumstances. Further, in the ordinary course of business, we may borrow and repay amounts under our 2023 Revolving Credit Facility to meet business needs; •IT Infrastructure Investment—We expect to make payments of approximately $45 million for licensing, maintenance and capitalizable costs associated with our IT infrastructure improvement projects during the remainder of 2021; •Capital expenditures—We expect to make payments of approximately $200 million for property, plant and equipment during the remainder of 2021; •Contingent consideration payments—We expect to make contingent consideration and other development/approval/sales-based milestone payments of approximately $155 million during the remainder of 2021;
•Restructuring and integration payments—We expect to make payments of $5 million during the remainder of 2021 for employee separation costs and lease termination obligations associated with restructuring and integration actions we have taken through March 31, 2021; •Benefit obligations—We expect to make aggregate payments under our pension and postretirement obligations of $11 million during the remainder of 2021; and •U.S. Securities Litigation Settlement—As more fully discussed in Note 18, "LEGAL PROCEEDINGS"to our unaudited interim Consolidated Financial Statements, we announced that we had agreed to resolve the U.S. Securities Litigation for $1,210 million. Final court approval of this settlement was granted in January 2021. Subject to two objectors' appeals of the Court's final approval order, the settlement resolves and discharges 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. This settlement, once approved by the court, will resolve the most significant of the Company's remaining legacy legal matters and eliminate a material uncertainty regarding our Company. As of March 31, 2020, Restricted cash includes $1,010 million of payments into an escrow fund under the terms of a settlement agreement regarding certain U.S. securities litigation, subject to final court |
approval. On January 27, 2020 the court preliminarily approved the settlement and scheduled the final settlement approval hearing for May 27, 2020. The balance of the settlement, will be paid in accordancethe Company and the other settling defendants admitted no liability as to the claims against it and deny all allegations of wrongdoing. This settlement resolves the most significant of the Company's remaining legacy legal matters and eliminates a material uncertainty regarding our Company. As of March 31, 2021, Restricted cash includes $1,210 million of payments into an escrow fund under the terms of a settlement agreement regarding the U.S. Securities Litigation.
Costs of Separation
As previously discussed, with the payment schedule outlinedgoal of unlocking additional Company value, on August 6, 2020, the Company announced that it intends to separate its eye-health business into an independent publicly traded entity. The Company has incurred, and will incur, costs associated with activities to effectuate the Separation. These activities include: (i) separating the eye-health business from the remainder of the Company and (ii) registering the eye-health business as an independent publicly traded entity. Separation costs are incremental costs directly related to the Separation and include, but are not limited to: (i) legal, audit and advisory fees, (ii) employee hiring, relocation and travel costs and (iii) costs associated with establishing a new board of directors and audit committee. The Company has also incurred, and will incur, Separation-related costs which are incremental costs indirectly related to the Separation. Separation-related 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. As of the date of this filing, we have begun executing on our plan for the Separation and future payments for Separation costs and Separation-related costs cannot be reasonably estimated at this time and could be material.
Proceeds From and Uses Of Sale of Business
In order to better focus on our core businesses, we continue to evaluate opportunities to simplify our operations and improve our capital structure, including dispositions of various assets. For example, on March 31, 2021, we announced that the Company and certain of its affiliates had entered into a definitive agreement to sell all of its equity interests in the settlement agreement.Amoun business for total gross consideration of approximately $740 million. The Amoun Sale is expected to close in the first half of 2021, subject to customary closing conditions, and we anticipate using the net proceeds from the Amoun Sale to pay down certain debt obligations to further deleverage the Company.
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.
Option to Acquire All Ophthalmology Assets of Allegro
As previously discussed, on September 21, 2020, we announced that we entered into an agreement to acquire an option to purchase all ophthalmology assets of Allegro. Aggregate payments under the Option are up to $50 million and include an upfront payment of $10 million and a second payment of $40 million should Allegro raise additional funding. During 2020, we made and expensed the upfront payment of $10 million as Acquired in-process research and development. If the Option is exercised, additional payments to acquire all of the ophthalmology assets of Allegro will be due over time.
Future Litigation Payments
In addition to the U.S. Securities Litigation discussed above, in the ordinary course of business, the Company is involved in litigation, claims, government inquiries, investigations, charges and proceedings. See Note 18, "LEGAL PROCEEDINGS"to our unaudited interim Consolidated Financial Statements.Statements for further details of these matters. Our ability to successfully defend the Company against pending and future litigation may impact future cash flows.
OFF-BALANCE SHEET ARRANGEMENTSFuture Licensing Payments
In the ordinary course of business, the Company may enter into select licensing and collaborative agreements for the commercialization and/or development of unique products primarily in the U.S. and Canada. In connection with these agreements, the Company may pay an upfront fee to secure the agreement. See Note 4, "ACQUISITION, LICENSING AGREEMENTS 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 relatedASSETS HELD FOR SALE" to our long-term debt, including interest, asunaudited interim Consolidated Financial Statements. Payments associated with the upfront fee for these agreements cannot be reasonably estimated at this time and could be material.
Unrecognized Tax Benefits
As of March 31, 2020:
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| | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Total | | Remainder of 2020 | | 2021 | | 2022 and 2023 | | 2024 and 2025 | | Thereafter |
| Long-term debt obligations, including interest | | $ | 33,419 |
| | $ | 1,164 |
| | $ | 1,472 |
| | $ | 6,774 |
| | $ | 15,122 |
| | $ | 8,887 |
|
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, 2019,2020, filed with the SEC and the CSA on February 19, 2020.24, 2021.
OUTSTANDING SHARE DATA
Our common shares trade on the New York Stock Exchange and the Toronto Stock Exchange under the symbol “BHC”.
At April 30, 2020,29, 2021, we had 354,727,444358,395,632 issued and outstanding common shares. In addition, as of April 30, 2020,29, 2021, we had outstanding 9,191,5699,396,980 stock options and 6,227,0305,638,209 time-based restricted share units that each represent the right of a holder to receive one of the Company’s common shares, and 2,287,5252,207,728 performance-based restricted share units that represent the right of a holder to receive a number of the Company's common shares up to a specified maximum. A maximum of 4,300,9993,786,963 common shares could be issued upon vesting of the performance-based restricted 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, 2019,2020, filed with the SEC and the CSA on February 19, 2020,24, 2021, and determined that there were no significant changes in our critical accounting policies inand estimates during the three months ended March 31, 2020,2021, except for: (i) estimates and assumptions regarding the nature, timing and extent that the COVID-19 pandemic will possibly havehad on the Company's operations and cash flows as discloseddiscussed in Note 2, "SIGNIFICANT ACCOUNTING POLICIES" to our unaudited interim Consolidated Financial Statements, (ii) the impact of the current year segment realignment had on the Company’s allocation of goodwill as discussed in Note 8, "INTANGIBLE ASSETS AND GOODWILL" to our unaudited interim Consolidated Financial Statements, (iii) the estimates associated with the fair value of Ortho Dermatologics reporting unit in testing goodwill for impairment as discussed in Note 8, "INTANGIBLE ASSETS AND GOODWILL" to our unaudited interim Consolidated Financial Statements, (iv) the impact that the COVID-19 pandemic has on the Company’s assessment of goodwill as discloseddiscussed in Note 8, "INTANGIBLE ASSETS AND GOODWILL" to our unaudited interim Consolidated Financial Statements and (iii)(v) recently adopted accounting guidance as discussed in Note 2, "SIGNIFICANT ACCOUNTING POLICIES" to our unaudited interim Consolidated Financial Statements.
NEW ACCOUNTING STANDARDS
Adoption of New Accounting Guidance
Information regarding recently issued accounting guidance is contained in Note 2, "SIGNIFICANT ACCOUNTING POLICIES" of notes to theour unaudited interim Consolidated Financial Statements.
FORWARD-LOOKING STATEMENTS
Caution regarding forward-looking information and statements and “Safe-Harbor” statements under the U.S. Private Securities Litigation Reform Act of 1995 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 laws (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; product pipeline, prospective products and product approvals, product development and future performance and results of current and anticipated products; anticipated revenues for our products; anticipated growth in our Ortho Dermatologics business; expected R&D and marketing spend; our expected primary cash and working capital requirements for 20202021 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; our ability to reduce debt levels; our ability to meet the financial and other covenants contained in our Fourth Amended and Restated Credit and Guaranty Agreement (the "Restated Credit Agreement"), and senior notes indentures; the impact of our distribution, fulfillment and other third-party arrangements; proposed pricing actions; 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; the anticipated impact of the adoption of new accounting standards; general market conditions; our expectations regarding our financial performance, including revenues, expenses, gross margins and income taxes; our impairment assessments, including the assumptions used therein and the results thereof; and 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, revenue, 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.pandemic; 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”, “designed”, “create”, “predict”, “project”, “forecast”, “seek”, “strive”, “ongoing” or “increase” and variations or other similar expressions. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements may not be appropriate for other purposes. Although we have previously indicated certain of these statements set out herein, all of the statements in this Form 10-Q that contain forward-looking statements are qualified by these cautionary statements. These statements are based upon the current expectations and beliefs of management. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making such forward-looking statements, including, but not limited to, factors and assumptions regarding the items previously outlined, 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, the rapidly 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 and costs (which may increase) and revenue and margins (both of which may decrease);
•with respect to the proposed separation of the Company’s eye-health business, the risks and uncertainties include, but are not limited to, the expected benefits and costs of the separation transaction, the expected timing of completion of the separation transaction and its terms, the Company’s ability to complete the separation transaction considering the various conditions to the completion of the separation transaction (some of which are outside the Company’s control, including conditions related to regulatory matters and a possible shareholder vote, if applicable), that market or other conditions are no longer favorable to completing the transaction, that any shareholder, stock exchange, regulatory or other approval (if required) is not obtained on the terms or timelines anticipated or at all, business disruption during the pendency of or following the separation transaction, 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 either or both of the Canada Revenue Agency and the Internal Revenue Service will be sought or obtained), potential dissynergy costs resulting from the separation transaction, the impact of the separation transaction 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;
•the expense, timing and outcome of legal and governmental proceedings, investigations and information requests relating to, among other matters, our past distribution, marketing, pricing, disclosure and accounting practices (including with respect to our former relationship with Philidor Rx Services, LLC ("Philidor")), including pending investigations by the U.S. Attorney's Office for the District of Massachusetts and the U.S. Attorney's Office for the Southern District of New York, the pending investigations by the U.S. Securities and Exchange Commission (the “SEC”) of the Company, the investigation order issued by the Company from the Autorité des marchés financiers (the “AMF”) (the Company’s principal securities regulator in Canada), a number of pending non-class securities litigations (including certain pending opt-out actions in the U.S. (relatedrelated to the recentlypreviously settled securities class action (which is subject to final court approval, and remains subject to two objectors' appeals of the riskCourt's final approval order) and uncertainty thatcertain opt-out actions in Canada relating to the U.S. District Court for the District of New Jersey may not approve the $1,210 million settlement agreement)) and the pendingrecently settled class action litigation in Canada and related opt-out actions)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;
•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 past and ongoing public scrutiny of our past distribution, marketing, pricing, disclosure and accounting practices and from our former relationship with Philidor;
•the past and ongoing scrutiny of our legacy business practices, including with respect to pricing, (including the investigations by the U.S. Attorney's Offices for the District of Massachusetts and the Southern District of New York), and 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, such as the Patient Access and Pricing Committee’s commitment that the average annual price increase for our branded prescription pharmaceutical products will be set at no greater than single digits, 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 equivalent agencies outside of the U.S. and the results thereof;
•actions by the FDA or other regulatory authorities with respect to our products or facilities;
•our substantial debt (and potential additional future indebtedness) and current and future debt service obligations, our ability to reduce our outstanding debt levels and the resulting impact on our financial condition, cash flows and results of operations;
•our ability to meet the financial and other covenants contained in our Restated Credit Agreement, senior notes indentures, 2023 Revolving Credit Facility and other current or future debt agreements and the limitations, restrictions and prohibitions such covenants impose or may impose on the way we conduct our business, including prohibitions on incurring additional debt if certain financial covenants are not met, limitations on the amount of additional obligations we are able to incur pursuant to other covenants, our ability to draw under our 2023 Revolving Credit Facility and restrictions on our ability to make certain investments and other restricted payments;
•any default under the terms of our senior notes indentures or Restated Credit Agreement and our ability, if any, to cure or obtain waivers of such default;
any delay in the filing of any future financial statements or other filings and any default under the terms of our senior notes indentures or Restated Credit Agreement as a result of such delays;
•any downgrade by rating agencies in our credit ratings, which may impact, among other things, our ability to raise debt and the cost of capital for additional debt issuances;
•any reductions in, or changes in the assumptions used in, our forecasts for fiscal year 20202021 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: (i) a failure to meet the financial and/or other covenants contained in our Restated Credit Agreement and/or senior notes indentures and/or (ii) impairment in the goodwill associated with certain of our reporting units 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;
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•the uncertainties associated with the acquisition and launch of new products, including, but not limited to, our ability to provide the time, resources, expertise and funds 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; • | the uncertainties associated with the acquisition and launch of new products (such as our recently launched Bryhali®, Duobrii® and Ocuvite® Eye Performance products), 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;
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our ability or inability to extend the profitable life of our products, including through line extensions and other life-cycle programs;
•our ability to retain, motivate and recruit executives and other key employees;
•our ability to implement effective succession planning for our executives and key employees;
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•factors impacting our ability to stabilize and reposition our Ortho Dermatologics business to generate additional value, including the success of recently launched products, expected geographic expansion in our Solta business (including with respect to Next Generation Thermage FLX®) and the approval of pipeline products (and the timing of such approvals); • | factors impacting our ability to achieve anticipated growth in our Ortho Dermatologics business, including the success of recently launched products (such as Bryhali® and Duobrii®), the ability to successfully implement and operate our new cash-pay prescription program for certain of our Ortho Dermatologics branded products, and the ability of such program to achieve the anticipated goals respecting patient access and fulfillment, the approval of pending and pipeline products (and the timing of such approvals), expected geographic expansion, changes in estimates on market potential for dermatology products and continued investment in and success of our sales force;
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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;
•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 and grow our businesses in light of the challenges that the Company has faced and market conditions, including with respect to its substantial debt, pending investigations and legal proceedings, scrutiny of our past pricing and other practices, limitations on the way we conduct business imposed by the covenants contained in our Restated Credit Agreement, senior notes indentures and the agreements governing our other indebtedness, and the impacts of the COVID-19 pandemic;
•the extent to which our products are reimbursed by government authorities, pharmacy benefit managers ("PBMs") and other third-party payors; the impact our distribution, pricing and other practices (including as it relates to our current relationship with Walgreen Co. ("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;
•the consolidation of wholesalers, retail drug chains and other customer groups and the impact of such industry consolidation on our business;
•our eligibility for benefits under tax treaties and the continued availability of low effective tax rates for the business profits of certain of our subsidiaries;
•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 certain of the countries in which we do business;
•the impact of the United States-Mexico-Canada Agreement (“USMCA”) and any potential changes to other trade agreements;
•the final outcome and impact of Brexit negotiations;and the post-Brexit trade deal between the European Union and the United Kingdom;
•the trade conflict between the United States and China;
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• | •our ability to obtain, maintain and license sufficient intellectual property rights over our products and enforce and defend against challenges to such intellectual property (such as in connection with the recent 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); •® (rifaximin) 550 mg tablets and the Company’s related lawsuit filed against Norwich in connection therewith); |
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;
•our ability to identify, finance, acquire, close and integrate acquisition targets successfully and on a timely basis and the difficulties, challenges, time and resources associated with the integration of acquired companies, businesses and products;
•any additional divestitures 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 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 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 impact of our arrangements with Walgreens;arrangements;
•our ability to effectively promote our own products and those of our co-promotion partners;
•the success of our fulfillment arrangements with Walgreens, including market acceptance of, or market reaction to, such arrangements (including by customers, doctors, patients, PBMs, third-party payors and governmental agencies), and the continued compliance of such arrangements with applicable laws;
the acceptance and success of our new cash-pay prescription program for certain of our Ortho Dermatologics branded products;
•our ability to secure and maintain third-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-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, which could lead to material impairment charges;
•the results of management reviews of our research and development portfolio (including following the receipt of clinical results or feedback from the FDA or other regulatory authorities), which could result in terminations of specific projects which, in turn, could lead to material impairment charges;
•the seasonality of sales of certain of our products;
•declines in the pricing and sales volume of certain of our products that are distributed or marketed by third parties, over which we have no or limited control;
•compliance by the Company or our third-party partners and service providers (over whom we may have limited influence), or the failure of our Company or these third parties to comply, with health care “fraud and abuse” laws and other extensive regulation of our marketing, promotional and business practices (including with respect to pricing), worldwide anti-bribery laws (including the U.S. Foreign Corrupt Practices Act and the Canadian Corruption of Foreign Public Officials Act), worldwide economic sanctions and/or export laws, worldwide environmental laws and regulation and privacy and security regulations;
•the impacts of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Health Care Reform Act”) and potential amendment thereof and other legislative and regulatory health 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 under consideration bythat may be undertaken following the Trump administration and Congress, includingchange in the effect that such changes will have on fiscal and tax policies, the potential revision 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);U.S. administration;
•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, 2019,2020, filed on February 19, 2020,24, 2021, risks underin 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 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, 2019,2020, filed on February 19, 2020,24, 2021, under Item 1A. “Risk Factors”, under 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 under 1A. “Risk Factors” of Part II of this Form 10-Q, 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, 2019,2020, filed with the SEC and the CSA on February 19, 2020.24, 2021.
Interest Rate Risk
As of March 31, 2020,2021, we had $18,005$19,562 million and $5,041$4,423 million principal amount of issued fixed rate debt and variable rate debt, respectively, that requires U.S. dollar repayment, as well as €1,500 million principal amount of issued fixed rate debt that requires repayment in euros.respectively. The estimated fair value of our issued fixed rate debt as of March 31, 2020, including the foreign currency-denominated debt,2021 was $19,654$20,467 million. If interest rates were to increase by 100 basis-points, the fair value of our issued fixed rate debt would decrease by approximately $755$458 million. If interest rates were to decrease by 100 basis-points, the fair value of our issued fixed rate debt would increase by approximately $667$371 million. We are subject to interest rate risk on our variable rate debt as changes in interest rates could adversely affect earnings and cash flows. A 100 basis-points increase in interest rates
based on 3-month LIBOR, would have an annualized pre-tax effect of approximately $50$44 million in our Consolidated Statements of Operations and Cash Flows, based on current outstanding borrowings and effective interest rates on our variable rate debt. While our variable-rate debt may impact earnings and cash flows as interest rates change, it is not subject to changes in fair value.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2020.2021. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2020.2021.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal controls over financial reporting that occurred during the three months ended March 31, 20202021 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" of notes to the unaudited interim Consolidated Financial Statements included elsewhere in this Form 10-Q.
Item 1A. Risk Factors
Except as set forth below, thereThere 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, 2019,2020, filed with the SEC and the CSA on February 19, 2020. The following risk factor sets forth are additional risks affecting the Company from those originally presented in the Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019:24, 2021.
Risk Relating to COVID-19
The ongoing COVID-19 pandemic, the rapidly evolving reaction of governments, private sector participants and the public to that pandemic and/or the associated economic impact of the pandemic and the reactions to it, could adversely and materially impact our business, financial condition, cash flows and results of operations.
In December 2019, a novel strain of the coronavirus disease, COVID-19, was identified in Wuhan, China. Since then, COVID-19 has spread to other parts of the world, including the United States, Canada and Europe, and was declared a global pandemic by the World Health Organization on March 11, 2020. The pandemic and the rapidly evolving reaction of governments, private sector participants and the public in an effort to contain the spread of COVID-19 and/or address its impacts have intensified and have had significant direct and indirect effects on businesses and commerce generally, including disruption to supply chains, employee base and transactional activity, facilities closures and production suspensions, and significantly increased demand for certain goods and services, such as pandemic-related medical services and supplies, alongside decreased demand for others, such as retail, hospitality, travel and elective surgery.
The extent and duration of the pandemic, the reactions of governments, private sector participants and the public to that pandemic and the associated disruption to business and commerce generally, and the extent to which these may impact our 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 our control and cannot be predicted with confidence. Such developments include the ultimate geographic spread and duration of the pandemic, new information which may emerge concerning the severity of COVID-19, the effectiveness and intensity of measures to contain COVID-19 and/or address its impacts, 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 our business, financial condition, cash flows and results of operations and may exacerbate other risk factors disclosed in Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 19, 2020.
As a result of these factors, we may experience disruptions that could materially impact our business, financial condition, cash flows and results of operations. For example, we may experience:
•material closures or disruptions to our manufacturing sites (including Milan, Bothell, Washington USA and our two sites in China);
•lack of availability of active pharmaceutical ingredients, or API, and intermediates, or other supply chain disruptions, including for some of our key products;
•alternative working arrangements, including personnel working remotely and additional cleaning or sterilization protocols at our production facilities, which could negatively impact our business should such arrangements remain for an extended period of time;
•interruption or delays in the operations of the FDA, the EMA and other regulatory authorities, which may impact review and approval timelines for our planned trials and launches;
•delays or difficulties in enrolling patients in our clinical trials;
•delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
•diversion of health care resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;
•interruption or postponement of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures, which may impact the integrity of subject data and clinical study endpoints;
•limitations on employee resources that would otherwise be focused on our business and operations, such as the conduct of our preclinical studies and clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;
•delays in or postponements of our clinical trial programs as a result of “stay at home” orders affecting our research facilities or the closure of such research facilities, which may impact the timing, approval and launch of the affected clinical trial programs;
•deferral of elective or elective medical procedures and of doctor and dentist visits, and reduced usage of contact lens, which may reduce demand for certain of the Company’s products, including our contact lens products and certain branded pharmaceutical products in our eye care, dermatology, GI and dentistry businesses; and
•adverse effects on the regional economies in which we operate which could reduce demand for certain of the Company’s products.
As a result of the impact of COVID-19, we have experienced delays in and postponement of our clinical trial programs and reduced demand for certain of our products due to the deferral of elective medical procedures and of doctor and dentist visits, and we expect to continue to experience those effects as a result of the pandemic, the reactions of governments, private sector participants and the public to the pandemic and the associated disruption to business and commerce generally.
Developments such as those described above, 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.
As a result, we expect that our consolidated results in 2020 and possibly beyond will be negatively impacted by COVID-19 and this impact may be material. In particular, if management’s assumptions regarding the global impact of the COVID-19 pandemic are incorrect, including our expectation of the absence of a significant second wave of mandated shutdowns, stay-at-home orders and office closures in the fall, our actual results could differ materially from those described in these and other forward-looking statements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no purchasessales of equity securities by the Company during the three months ended March 31, 2020.2021.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Bausch Health Companies Inc. (“Bausch Health” or the “Company”) has appointed Frederick J. Munsch as Controller and Chief Accounting Officer effective June 1, 2021, assuming those duties from Mr. Sam Eldessouky who, as previously disclosed, will be promoted to Chief Financial Officer effective June 1, 2021. Mr. Munsch, age 51, has served as the Vice President, Assistant Controller of Bausch Health since joining the Company on November 21, 2016 from Teleflex Incorporated, a global provider of medical technology products where he was appointed Vice President, Financial Planning & Analysis in January 2015. During the period 2004 through 2014, Mr. Munsch held a variety of positions at Tyco International Plc (“Tyco”), a global provider of security, fire detection and suppression and life safety products and services, and in 2013 was appointed Vice President, Financial Planning & Analysis. Prior to joining Tyco, Mr. Munsch spent 12 years at Viacom, Time Warner and Ernst & Young, where he held several roles of increasing responsibility and provided technical accounting guidance on complex accounting matters.
Item 6. Exhibits
|
| | | | |
| |
| |
| |
| |
| |
| |
| 101.INS* | Inline XBRL Instance Document |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.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.
| |
† | Management contract or compensatory plan or arrangement. |
† Management contract or compensatory plan or arrangement.
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.
| | | | | | | | |
| |
| Bausch Health Companies Inc.
(Registrant) |
| | |
| Date: | May 7, 20204, 2021 | /s/ JOSEPH C. PAPA |
| | Joseph C. Papa
Chief Executive Officer
(Principal Executive Officer and Chairman of the Board) |
| | |
| | |
| Date: | May 7, 20204, 2021 | /s/ PAUL S. HERENDEEN |
| | Paul S. Herendeen
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer) |
INDEX TO EXHIBITS
|
| | | | |
Exhibit
Number
| Exhibit Description |
| |
| |
| |
| |
| |
| |
| 101.INS* | Inline XBRL Instance Document |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.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.
| |
† | Management contract or compensatory plan or arrangement. |