Executive Summary / Key Takeaways

• Bausch Health has demonstrated operational momentum, achieving its eighth consecutive quarter of year-over-year revenue and adjusted EBITDA growth (excluding Bausch + Lomb) in Q1 2025, driven by strong performance in its core segments like Salix and Solta Medical.
• A significant $7.9 billion refinancing transaction completed in April 2025 has substantially extended debt maturities, pushing approximately $6.9 billion from 2025-2028 to 2030-2032, providing increased financial flexibility and runway.
• Key growth drivers include the Salix segment's Xifaxan (8% growth in Q1 2025, fueled by new patient starts and optimized sales force technology) and the Solta Medical segment (33% organic growth in Q1 2025, particularly strong in Asia Pacific with Thermage and Fraxel technologies).
• The company is advancing its R&D pipeline, notably the RED-C program for a novel rifaximin formulation targeting prevention of hepatic encephalopathy in a large cirrhotic patient population, and progressing Amiselimod for ulcerative colitis towards Phase 3.
• Despite operational progress and refinancing, Bausch Health faces substantial debt levels, ongoing litigation risks (including critical Xifaxan patent defense), and potential impacts from healthcare reform (IRA) and macroeconomic factors, necessitating continued focus on value creation and capital structure optimization, including evaluating options for its Bausch + Lomb stake.

A Complex Transformation Underway

Bausch Health Companies Inc. stands as a global, diversified specialty pharmaceutical and medical device entity, strategically focused on therapeutic areas including gastroenterology, hepatology, neurology, dermatology, and, through its significant stake in Bausch + Lomb Corporation (LAB), eye health. The company's journey has been marked by substantial strategic shifts, notably the ongoing plan to separate its Bausch + Lomb eye health business, initiated in 2020 and advanced through a partial IPO in 2022, leaving Bausch Health with approximately 88% ownership as of March 31, 2025. This planned separation, aimed at creating two appropriately capitalized, independent entities, remains a core strategic priority, albeit subject to achieving targeted debt leverage ratios and obtaining necessary approvals.

Within the broader healthcare industry, Bausch Health operates across diverse competitive landscapes. In pharmaceuticals, it contends with large, diversified players like Johnson & Johnson (JNJ), biopharmaceutical giants such as AbbVie (ABBV), major global pharmaceutical companies like Pfizer (PFE), and generics specialists like Teva Pharmaceutical Industries (TEVA). Its Solta Medical aesthetic device business competes in a market with specialized aesthetic companies. The competitive dynamics vary by segment, ranging from intense price competition in generics (where Teva is a significant player) to innovation-driven competition in branded pharmaceuticals (against AbbVie and Pfizer) and medical devices (against J&J and others). Bausch Health's strategy often leverages a combination of established brands, targeted R&D, and operational efficiency, positioning itself to capture demand across different market segments and geographies.

The company's operational footprint spans approximately 90 countries, supported by a regional supply chain model where manufacturing is largely conducted in the regions where products are consumed. This structure aims to enhance agility and responsiveness to local market needs.

A key element of Bausch Health's operational strategy and competitive positioning lies in its technological capabilities and innovation efforts. In the Salix segment, the company has deployed an AI-driven customer engagement initiative for Xifaxan, which management reports has increased sales force productivity, enabling representatives to deliver 20% to 30% more calls to targeted healthcare providers compared to 18 months ago. This technological application directly supports commercial execution and growth for a key product. In the Solta Medical segment, the company's aesthetic device portfolio, including Thermage, Fraxel, and Clear + Brilliant, benefits from proprietary technology. The Thermage FLX system, for instance, recently received Health Canada clearance in April 2025, following its approval in China in January 2024. The Next Generation Fraxel, cleared by the FDA in August 2024, launched in the U.S. in April 2025. These product advancements and regulatory approvals are intended to enhance treatment efficacy and expand market access. The Solta business model is further differentiated by its high proportion of consumable revenue, representing over 75% of segment sales, which contributes to a durable revenue stream. In the Bausch + Lomb segment (in which BHC holds a majority stake), recent product launches like Lumify Preservative Free (launched Q1 2025) and the expansion of the enVista IOL platform demonstrate ongoing product development leveraging specialized ophthalmic technology. These technological differentiators and ongoing innovation initiatives are crucial to Bausch Health's strategy, contributing to its competitive moat by offering differentiated products and enhancing commercial effectiveness, thereby supporting revenue growth and market positioning against rivals.

Operational Momentum and Financial Resilience

Building on its strategic foundation, Bausch Health has demonstrated consistent operational improvement. The company achieved its eighth consecutive quarter of year-over-year growth in both revenue and adjusted EBITDA (excluding Bausch + Lomb) in Q1 2025. This performance underscores the effectiveness of its focus on core businesses and operational efficiency.

In the first quarter of 2025, Bausch Health reported consolidated revenues of $2.26 billion, a 5% increase on a reported basis and a 6% increase on an organic basis compared to the prior year period. This growth was broad-based, with contributions from the Salix, International, Solta Medical, and Bausch + Lomb segments. Adjusted EBITDA attributable to Bausch Health Companies was $661 million in Q1 2025, in line with the prior year period on a consolidated basis, but showing a 14% increase for Bausch Health excluding Bausch + Lomb, reflecting strong performance and cost management within the core pharmaceutical and aesthetic businesses.

Segment-specific performance highlights in Q1 2025 include:

• Salix: Revenues grew 9% to $542 million, driven by strong Xifaxan performance (8% growth), balanced across price and volume. New Xifaxan patient starts exceeded 59,000 in the quarter, indicating continued market penetration.
• International: Revenues were $262 million (-1% reported, +5% organic), demonstrating resilience despite foreign currency headwinds, with organic growth across Canada, Latin America, and EMEA.
• Solta Medical: Revenues surged 28% to $113 million (+33% organic), fueled by exceptional volume growth in Asia Pacific markets like South Korea (+136% organic) and China (+30% organic).
• Diversified: Revenues grew 1% to $205 million (flat organic), primarily driven by net realized pricing gains in the Neurology business, partially offset by volume declines.
• Bausch + Lomb: Revenues increased 3% to $1.14 billion (+5% organic), benefiting from volume growth across businesses and acquisitions, though segment profit was impacted by increased selling/marketing expenses and charges related to a voluntary recall of certain enVista IOL products ($15 million inventory reserve charge).

Profitability metrics in Q1 2025 reflected these dynamics. The consolidated adjusted gross margin was 69.9%, a decrease of 130 basis points year-over-year, primarily due to the inventory reserve charge related to the Bausch + Lomb IOL recall. Selling, general, and administrative expenses increased, notably driven by investments in MIEBO marketing and Bausch + Lomb business transformation costs. R&D expenses saw a slight decrease overall, influenced by project prioritization across segments.

Cash flow generation remains a critical focus, particularly given the company's debt profile. Net cash provided by operating activities was $211 million in Q1 2025, consistent with the prior year period. For the full year 2024, Bausch Health (excluding Bausch + Lomb) generated approximately $1.3 billion in adjusted operating cash flow, a significant increase from 2023, partly due to favorable one-time factors but also reflecting improved operational performance.

Liquidity and debt management are central to the Bausch Health investment narrative. As of March 31, 2025, the company had $1.13 billion in cash and cash equivalents (excluding $215 million held by Bausch + Lomb entities). Total debt stood at $21.51 billion net of premiums/discounts. A pivotal development occurred shortly after the quarter close with the completion of the April 2025 Refinancing Transactions. This involved issuing $4.4 billion of 10.00% senior secured notes due 2032 and securing new senior secured credit facilities totaling $3.5 billion (a $500 million revolving facility due 2030 and a $3000 million term loan B due 2030). The proceeds were primarily used to retire approximately $6.87 billion of debt maturities originally due between 2025 and 2028, significantly extending the company's maturity profile. This transaction, which included pledging 52.5% of Bausch Health's Bausch + Lomb shares as collateral, provides enhanced financial flexibility. As of April 30, 2025, the company had approximately $476 million available under the new revolving credit facility and $300 million outstanding under its AR Credit Facility (with $300 million additional availability). Management expects to remain in compliance with debt covenants and meet debt service obligations for at least the next twelve months, supported by cash on hand and anticipated cash flows.

Outlook and Strategic Path Forward

Bausch Health's outlook for 2025 reflects confidence in its operational momentum and the benefits of the recent refinancing. The company is maintaining its full year 2025 guidance for Bausch Health (excluding Bausch + Lomb):

• Revenue: Expected to be between $4.950 billion and $5.100 billion, representing a 4% increase year-over-year at the midpoint.
• Adjusted EBITDA: Expected to be between $2.625 billion and $2.725 billion, representing a 5% increase versus 2024 at the midpoint.
• Adjusted Operating Cash Flow: Updated to a range of $825 million to $875 million, primarily reflecting the higher interest expense resulting from the April 2025 refinancing transaction.

This guidance is underpinned by expectations of continued growth in key segments, driven by ongoing investments in promoted brands like Xifaxan and Solta's aesthetic devices, as well as contributions from new product launches and business development initiatives.

Strategic priorities for the remainder of 2025 and beyond remain centered on three key pillars: increasing the value of Bausch Health's operational assets, maximizing the value of the Bausch + Lomb equity stake, and optimizing the capital structure.

Enhancing operational asset value involves driving growth through innovation and execution. The RED-C program, studying a novel rifaximin formulation for preventing hepatic encephalopathy in cirrhotic patients, is a key pipeline asset with Phase 3 results expected by early 2026, targeting a patient population significantly larger than the current OHE market. The company is also advancing Amiselimod for ulcerative colitis into Phase 3. Business development efforts continue, particularly in the International segment, with recent licensing deals aimed at expanding the portfolio in areas like the cardio metabolic market in Latin America.

Maximizing the value of the Bausch + Lomb stake remains a priority, with the objective of completing the separation in the most accretive way for Bausch Health shareholders. While the exploration of a sale of Bausch + Lomb recently concluded without an offer reflecting its long-term value, Bausch Health continues to evaluate all options for its ownership interest, including potential monetization or distribution, subject to market conditions and strategic considerations.

Optimizing the capital structure is an ongoing effort. The April 2025 refinancing was a major step in extending maturities, but the company continues to evaluate opportunities to further reduce debt leverage and manage its maturity profile, including potentially tapping capital markets again in the first half of 2025 to address 2027 and beyond maturities, which could involve pledging additional Bausch + Lomb shares.

Risks and Challenges

Despite the operational progress and refinancing success, Bausch Health operates under significant risks and challenges that warrant careful consideration by investors.

The most prominent risk is the substantial debt burden, totaling over $21 billion. While the recent refinancing extended maturities, the sheer magnitude of the debt requires significant cash flow generation for servicing and eventual repayment. The ability to generate sufficient cash flow depends on future operating performance, which is subject to market conditions, competition, and successful execution of growth strategies. Failure to comply with debt covenants could trigger defaults and accelerate maturities, potentially having a material adverse effect on the company's financial condition.

The potential loss of exclusivity for key products, particularly Xifaxan (U.S. LOE currently anticipated January 1, 2028, but subject to change based on litigation outcomes), poses a significant threat to future revenues and cash flow. The company is vigorously defending its Xifaxan patents against numerous generic challenges, and the outcome of this complex litigation is critical. Additionally, Xifaxan has been selected for Medicare drug price negotiation under the Inflation Reduction Act, with initial price applicability in 2027, which could accelerate revenue erosion.

Bausch Health is involved in numerous legal proceedings, including securities litigation, antitrust claims, product liability lawsuits (such as those related to Shower to Shower, though indemnified by J&J), and intellectual property disputes. The expense, timing, and outcome of these proceedings are uncertain and could result in material liabilities or adversely impact business operations.

Other risks include potential impacts from healthcare reform measures beyond the IRA, pricing pressures from payors and government initiatives, supply chain disruptions (as highlighted by the Bausch + Lomb IOL recall), macroeconomic factors like inflation, interest rate fluctuations (on variable rate debt), foreign currency exchange rate changes, and geopolitical conflicts. The successful completion of the Bausch + Lomb separation remains subject to various conditions and uncertainties, and there is no assurance regarding its timing, structure, or whether it will achieve the anticipated benefits.

Conclusion

Bausch Health Companies Inc. is executing a complex transformation, marked by consistent operational growth in its core segments and a significant step forward in optimizing its capital structure through the recent $7.9 billion refinancing. This transaction provides crucial financial flexibility and extends the runway to address future debt maturities, a critical factor for the investment thesis. The company's focus on leveraging its diversified portfolio, investing in key pipeline assets like the RED-C program and Amiselimod, and expanding its technological capabilities in areas like aesthetic devices and sales force effectiveness underpins its strategy to drive sustainable growth and enhance asset value.

However, the path forward is challenging, shadowed by a substantial debt load, the looming threat of generic competition for its largest product, and a complex web of litigation. The ability to successfully navigate these risks while continuing to generate robust cash flow and execute on strategic initiatives, including the potential separation of Bausch + Lomb, will be paramount. The investment thesis hinges on Bausch Health's capacity to convert its operational momentum and strategic flexibility into sustained deleveraging and value creation, ultimately positioning the company for long-term success beyond its current challenges.