Bausch Health Companies Inc.  (NYSE: BHC) Q4 2019 Earnings Call Transcript

Bausch Health Companies Inc.  (BHC) Q4 2019 earnings call dated Feb. 19, 2020

Corporate Participants:

Arthur J. Shannon — Senior Vice President and Head of Investor Relations and Communications

Joseph C. Papa — Chairman of the Board and Chief Executive Officer

Paul S. Herendeen — Executive Vice President and Chief Financial Officer

Analysts:

Terence Flynn — Goldman Sachs — Analyst

David Amsellem — Piper Sandler — Analyst

Ken Cacciatore — Cowen & Company — Analyst

Umer Raffat — Evercore — Analyst

Greg Fraser — SunTrust — Analyst

Jason Gerberry — Bank of America — Analyst

Chris Schott — JPMorgan — Analyst

Akash Tewari — Wolfe Research — Analyst

Presentation:

Operator

Good day and welcome to the Bausch Health Fourth Quarter and Full-Year 2019 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Arthur Shannon, Senior Vice President of Investor Relations and Global Communications. Please go ahead.

Arthur J. Shannon — Senior Vice President and Head of Investor Relations and Communications

Thank you, Alicia. Good morning, everyone, and welcome to our fourth quarter and full-year 2019 financial results conference call. Participating on today’s call are Chairman and Chief Executive Officer Mr. Joe Papa and Chief Financial Officer Mr. Paul Herendeen. In addition to this live webcast, a copy of today’s slide presentation and a replay of this conference call will be available on our website under the Investor Relations section.

Before we begin, we’d like to remind you that our presentation today contains forward-looking information. We would ask that you take a moment to read the forward-looking statement legend at the beginning of our presentation as it contains important information. This presentation contains non-GAAP financial measures. For more information about these measures, please refer to Slide 2 of the presentation. Non-GAAP reconciliations can be found in the appendix to the presentation posted on our website. Finally, the financial guidance in this presentation is effective as of today only. It is our policy to generally not update guidance until the following quarter and not to update or affirm guidance other than through broadly disseminated public disclosure.

With that, it’s my pleasure to turn the call over to Joe Papa.

Joseph C. Papa — Chairman of the Board and Chief Executive Officer

Thank you, Art, and thanks everyone on the phone for joining us today. Let’s quickly review the topics we will cover today. I’ll begin with a brief summary of our 2019 Company highlights before turning the call over to Paul Herendeen, our CFO. Paul will take us through the fourth quarter and full-year financial results and provide our 2020 guidance. I’ll then review the segment highlights and catalysts before opening the line for questions.

Beginning on Slide 4, in 2019, our theme was pivot to offense or focus on driving organic growth in our core businesses. We have now delivered eight consecutive quarters of organic growth and 2019 was our first full year of reported revenue growth since 2015. Bausch Health grew organically by 4% in 2019 and reported revenues were up 3%. Our largest segment, B&L International delivered its third consecutive year of mid-single-digit organic revenue growth. Salix reported full-year revenue of more than $2 billion for the first time ever. We generated $1.5 billion of cash from operations. We increased R&D investment by 14% compared to 2018 and we used approximately $1.1 billion of cash to pay down roughly $900 million of debt and fund approximately $250 million of bolt-on acquisitions or licensing products. Pivoting to offense also include launching new products and driving their growth and our new products continue to grow.

First, following the launch of Thermage FLX in Asia Pacific, the Thermage franchise saw 73% organic revenue growth compared to 2018. This exceptional growth rate made the Thermage one of the Bausch Health’s Top 10 franchises in 2019. Lumify achieved a weekly market share of approximately 43% in 2019, is the Number 1 physician-recommended product in the redness reliever category. Trulance TRxs grew by 31% year-over-year and we have improved the market access position for approximately 35 million lives since we acquired the product in the first quarter of 2019. Duobrii has been another standout. Weekly TRxs grew by 25% from the third quarter to the fourth quarter of 2019 and we have now achieved 63% commercial access. Overall, the entire Bausch Health team of 22,000 employees delivered on our promise to pivot to offense in 2019 and demonstrated the durability of our business, which we grew both organically and through strategic bolt-on acquisitions. Great effort by the entire Bausch Health team.

Paul’s going to walk you through the fourth quarter and full-year results in more detail. So with that, I’ll turn it over to Paul.

Paul S. Herendeen — Executive Vice President and Chief Financial Officer

Thanks, Joe. A lot to cover. I’ll try to go fast. Good quarter and a good year, a little different approach this quarter. I’m going to start with Slide 5, a summary of the changes in revenue by segment and major business units for both Q4 and the full-year 2019. I’ll then walk down the top level P&L for the quarter and provide some observations about the full year before turning to our guidance for 2020. Quick reminder, when we talk about organic growth, that means excluding the impact of changes in FX rates, the impact of divested and discontinued businesses in the prior-year periods and the impact of acquired businesses.

Okay, Slide 5. In the quarter, we posted 4% organic revenue growth versus Q4 of 2018. Recall that last year we took steps to reduce our channel inventories held at wholesalers and that that had the effect of reducing Q4 ’18 revenue by an estimated $76 million. So, that’s a tailwind for us this quarter. Excluding the impact of the inventory contraction, we still posted top level organic revenue growth of plus 1%. There were a lot of moving parts, but a lot of good stuff within each of our segments.

Let’s start with Salix as it was the largest contributor of organic revenue growth in the quarter, up 17% organically on continued strong performance from Xifaxan, up 29%. Relistor up 29% and Plenvu also contributed growth. We lost exclusivity for Apriso in the quarter and that combined with the continued generic erosion of Uceris offset some of the growth. While not a factor in organic growth, Trulance sales totaled $18 million in the quarter and Salix TRxs were up 69% versus Q4 of ’18. A strong quarter from Salix to wrap up a great year, posting 13% organic revenue growth for the full year versus 2018, despite LOEs.

B&L International segment revenue was up 3% organically in the quarter led by Global Consumer plus 7% organically on strength in Lumify in the US and our global contact lens solution brands Renu and Biotrue Multi-Purpose. Global Surgical was plus 5% organically in the quarter on strength in consumables for the back of the eye and enVista IOLs. Global Vision Care was plus 4% organically in the quarter on strength in ULTRA monthly silicone hydrogel lenses, our AQUALOX Daily SiHy lenses in Japan and Biotrue ONEday lenses. Our international pharma business was essentially flat versus Q4 of ’18 while Global Ophtho Rx declined 2% organically as growth of Vyzulta and Prolensa were more than offset by the decline of the Lotemax brand family due to generic erosion.

For the full year, B&L International grew 5% organically, consistent with our belief that this diverse and durable segment can deliver mid-single-digit growth over time. All five of the B&L International business units posted organic revenue growth for the year, led by Global Consumer up 6% organically on strength of Lumify in the US and our eye vitamins globally, followed by Global Vision Care up 7% organically, with contributions from our Biotrue ONEday lenses, our monthly ULTRA lenses and our AQUALOX Daily SiHy lenses in Japan.

Our international pharma business was up 5% organically on strength in Russia, Egypt and Canada. Global Ophtho Rx was up 2% organically. Unlike in the quarter, for the full year, growth of Vyzulta, Prolensa and a portfolio of our international ophthalmic brands overcame the LOE drag from Lotemax. The Ortho Dermatologics segment declined 1% organically in Q4 of ’19 versus ’18 as spectacular growth in our global aesthetics business Solta, which was up 42%, nearly overcame the 18% decline in medical dermatology. In the Solta business, the Thermage platform is now solidly in the Top 10 products for the entire company and was a significant contributor to company-wide growth. LOEs played a big role in the quarterly decline in medical derm, mainly Elidel and Zovirax cream. The balance of promoted products in medical derm including Duobrii, Jublia, Siliq and Bryhali, all grew versus Q4 of 2018. It’s pretty much the same story for the Ortho Derm segment for the full year, strong growth from Global Solta plus 45% organically for the year, more than offset by the decline in medical dermatology. For the full year, medical derm was our business most impacted by LOEs, a minus $121 million growth drag versus 2018.

On the plus side, Jublia was one of the Top 15 contributors to company-wide revenue growth in 2019 versus ’18. As the impact of LOEs moderate in this segment, Jublia, together with our brands in growth phase, that’s Duobrii, Siliq and Bryhal, form the core of our medical derm portfolio and the basis for an expected return to growth in this business in 2020.

Finally, the Diversified segment, which declined 5% organically in the quarter as LOEs were a $29 million [Phonetic] drag on the neuro business. Our generics business grew 3% organically in the quarter with authorized generic versions of our branded products that lost exclusivity, mainly Uceris, Apriso, Lotemax and Elidel providing the bulk of that growth. For the full year, Diversified declined 5% organically as a 11% growth of our generics business offset some of the $116 million LOE growth drag in our neuro business.

Total company revenue for the year grew 4% organically, with 2% coming from improved realized net selling prices and 2% from increased volume.

Flip to Slide 6, the P&L summary for the quarter. Our gross margin in the quarter was 71.4%, down about 20 basis points versus Q4 of 2018, mainly due to higher inventory write-offs in Q4 ’19 relative to the prior-year quarter. Note that for the full year, our gross margin was 72.7%, favorable by 80 basis points versus 2018 with mix a big driver, particularly impacted the growth of Xifaxan, but also from improvements associated with our Project CORE activities. Our final guidance for the full year for gross margin was roughly 73%.

Selling and advertising expenses in the quarter were up — are unfavorable on a constant-currency basis by 6% versus Q4 of 2018 due to the addition of Trulance to the Salix portfolio and higher A&P costs in Vision Care to support new launches and in international pharma for product launches, particularly in Canada and Russia. Adjusted G&A expenses on a constant-currency basis were 8% unfavorable in the quarter compared to Q4 of 2018 due to increased cost of business development initiatives and higher ongoing IT costs as we continue to work to improve our global operating systems. I want to point out that in Q4 of 2019, adjusted G&A run rate, is above what I would expect on average the quarterly run rate to be in 2020. The go-forward adjusted G&A run rate is likely between the $163 million we saw in Q4 and the $140 million average over the first three quarters of 2019. R&D was down in the quarter or favorable by 5% on a constant-currency basis. I would not read much into that. It’s just how the timing of expenses fell in both periods. For the full year, R&D was up 15% on a constant-currency basis to $471 million, slightly below our final 2019 guidance for R&D of $480 million. Again, just the timing of how expenses fell. As you’ll see when I get to 2020 guidance, we intend to commit more capital to R&D activities.

Adjusted EBITDA in the quarter was $898 million, up 5% from the year-ago quarter on a constant-currency basis, a solid quarter that enabled us to post adjusted EBITDA of $3.571 billion for the full year, which was plus 4% on a constant-currency basis from 2018 and just below the top end of our final guidance range for 2019.

Turning to Slide 7. I think it’s worth taking a look back at how we did in 2019 relative to the midpoint of our original 2019 guidance, which was $8.4 billion of revenue and $3.425 billion of adjusted EBITDA. Our actual 2019 revenue was $201 million above the midpoint of original guidance with a favorable result a function of four things. The acquisition of Trulance added $55 million, revenue from LOE assets was plus $53 million, our base business was favorable by $115 million, and offsetting the good guys, changes in FX rates reduced revenue by some $22 million. Adjusted EBITDA was $146 million above the midpoint of our original guidance. FX had no impact, Trulance had no impact, the better LOE revenue has added $36 million of profit, the better base performance added $71 million of profit, while investment in R&D and SG&A spending were both a bit above our original view. The biggest single factor in the improved adjusted EBITDA was our gross margin coming in at 120 basis points better than initially forecast, which accounted for roughly $100 million of lift. Point of the story is that, as the year played out, we had some good fortune with the LOE assets, but the lion’s share of the better results came from our commercial units driving improved performance in our base businesses, from our Project CORE activities to improve gross to nets, and from our relentless efforts to improve efficiency in our supply chain, a good year.

Turn to Slide 8, the cash flow summary. Our net cash provided by operating activities in 2019 came in at $1.501 billion, the low end of our expected range as we increased inventories of certain key products and API to ensure uninterrupted supply. Note that at year end, we had $3.244 billion of cash on hand as we completed an offering of $2.5 billion of unsecured notes in late December and had not yet applied those proceeds to the payment of the US Securities Litigation, that’s $1.21 billion and the prepayment of other debt totaling $1.24 billion. Net of those amounts and related fees, our working cash at year end was roughly $750 million.

Similarly on Slide 9, the cash and debt on our balance sheet at year end are inflated due to the timing of the $2.5 billion debt raise and the use of those net proceeds. I think of it like this. Pro forma for the deployment of those funds, our net debt at year end would have been roughly $24.2 billion. Settling the US Securities case, set us back in our progress reducing the quantum of our debt and improving our leverage ratios, but it was absolutely the right thing to do to quantify and settle a significant overhanging uncertainty. Quick aside, just last week, we began the process of calling another $100 million principal amount of bonds. We intend to continue to systematically grind our debt down. One last thing on the balance sheet. During the quarter, we accrued for the settlement of the US stock drop case, other related cases, and ongoing legacy litigation and investigations. The total accrual was for $1.39 billion and is included in GAAP other income and expenses in our P&L. For the avoidance of doubt, we exclude this expense from the computation of adjusted EBITDA and adjusted net income.

Finally and onto the money slides for me, starting with Slide 10, showing our guidance for 2020. Our revenue guidance for 2020 is a range of $8.65 billion to $8.85 billion and that represents a range of growth of plus 1% to plus 3% at current FX rates. Our adjusted EBITDA guidance is a range of $3.5 billion to $3.65 billion, representing a range of growth of minus 2% to plus 2% at current FX rates. I want to cover the other elements of our guidance on this slide before talking about how to think about those revenue and profit growth rates for 2020.

Adjusted SG&A expenses were $2.5 billion in 2019 and we’re guiding to approximately $2.6 billion for 2020. The roughly $100 million or 4% increase is higher than it may be as we look ahead to 2021 and 2022. In our 2020 plan, we rationalized opex across several business units, but we also allocated incremental selling, advertising and promotional resources to some units to support launch products and products in launch phases, including Daily SiHy lenses, Lumify, Duobrii, and Thermage.

In G&A, we are continuing to build out our global IT organization and infrastructure and that comes at a cost, increasing our adjusted G&A in 2020 versus 2019. As we move forward into 2021 and 2022, we should be able to hold the growth of SG&A below that of revenue growth. We’re guiding to roughly $500 million in R&D for 2020, up roughly $30 million from 2019. If you go back to 2017, our investment in R&D totaled $361 million. Over the last few years, we’ve built up the R&D organization and infrastructure to support an increased volume of product to sustain each of our core businesses. That includes reducing the investment intensity in some areas, while increasing commitments to other areas where we had been underinvested over a number of years and that’s specifically GI, B&L Surgical and Optho Rx. While a 6% increase in R&D reduces our near-term earnings and earnings growth, it’s the right thing to do to enhance our prospects to deliver long-term organic growth.

For interest expense, we’re guiding to $1.55 billion, down from $1.6 billion, despite the addition of $1.21 billion of debt to fund the settlement of the US Securities class action. Our tax rate on adjusted earnings was 7.8% in 2019. We expect that rate to be about the same, roughly 8% in 2020. Towards the bottom of the page, note that we’re guiding to capital expenditures in 2020 of roughly $300 million. In the past, I’ve said that our steady state capex might be roughly $160 million to $175 million per year and that the uptick in 2019 was mainly due to investments in connection with the daily silicone hydrogel lens initiative and our build-out of our global IT systems. Over time, we’ve determined that under investment, particularly in our supply chain over the last number of years, necessitate increased investment in 2020 and beyond. It’s our current view that after roughly $300 million of investment in 2020, we will likely see capex requirements decrease in 2021 and again in 2022 are steady state, a few years out, maybe closer to $225 million of capex per year.

Contingent consideration milestones and license agreements totaled $58 million in 2019 and we’re guiding to roughly $100 million in 2020. The increase was related to a forecast sales milestone on Relistor and payments related to the recently acquired rights to Xipere and NOV03.

Finally, restructuring and other. In 2019, these items totaled $52 million. In 2020, we’re guiding to $75 million. I’d point out that this item represents our estimate of restructuring costs, some systems integration and settlement of legal cases and investigations.

Turning to Slide 11, the bridge from 2019 actual results to our 2020 guidance. First, focus on the LOE impact. We are forecasting a $275 million of growth drag from the basket of LOE assets in 2020. The good news here is that we are finally close to putting the impact of the large bucket of LOEs behind us. In 2007 [Phonetic] versus ’16, the growth drag was $486 million. In ’18 versus ’17, it was $289 million. In ’19 versus ’18, it was $360 million. Over the last three years, our revenue growth was trammeled by more than $1.1 billion of LOE drag. In 2020, we expect the drag to moderate to $275 million. And here is the good part. That’s based on us realizing revenues on the LOE basket of $237 million in 2020 and while that amount will decline into 2021 versus 2020, the drag will be substantially reduced. We did not add any new LOEs to the LOE basket in 2020. And looking out over the period from ’21 to ’23, we expect the impact of future LOE assets to be quite manageable.

The base performance of plus a $100 million — excuse me, $415 million is impacted in negative ways by a few things that I called out on our last call and a few others worth noting. First, there is the non-recurrent portion of the improvements in gross to nets that we saw in 2019 and especially in Q3 that are a headwind to 2020 growth. Next, the trajectory of the — is the trajectory of Glumetza. Glumetza had been a strong performer through the first three quarters of 2019 before as we forewarned, it dropped almost in half in Q4 and is now expected to trend downward from there in future quarters. Next and one I had not previously called out for you, we had terrific performance in our generics business in 2019 with major contributions from the authorized generic versions of Uceris and Elidel. As more generic versions of these products have launched, we will see significant declines in revenue for our AGs in 2020. Think of the AGs as us stretching the tail of brands that lose exclusivity. It’s good, but it’s fleeting.

One other bit of color. The base performance could have been better, but our guidance includes an estimate of a meaningful headwind on our Asia-Pac region, especially China, associated with the coronavirus situation. Our revenue guidance includes a roughly $50 million coronavirus impact. That’s an estimate and we’ll see how this plays out over 2020. Obviously this impacted our adjusted EBITDA guidance as well. So, these items are part of the reason why the revenue growth in 2020 implied by guidance is only in the range of 1% to 3% at current FX rates.

Turning to the EBITDA bridge at the bottom of the page, the currency LOE in R&D impacts are self-explanatory. Within the base performance, we’re absorbing the roughly $100 million or 4% increase in SG&A and the coronavirus impact on our revenue expectations impacts our adjusted EBITDA as well. All these items together are drivers of the adjusted EBITDA growth rates implied by our guidance ranges being below that of our revenue growth rate.

That’s it for me. Back to you, Joe.

Joseph C. Papa — Chairman of the Board and Chief Executive Officer

Thank you, Paul. On Slide 12, there is a lot of information, but the important message to highlight is we have now delivered three consecutive years of mid-single-digit organic revenue growth for B&L International. B&L International was up 6% in 2017, up 4% in 2018, and up 5% in 2019.

Turning to Slide 13, Global Vision Care has been a strong performer and I want to highlight two products that have been key drivers of the growth in this business, Biotrue ONEday and ULTRA contact lenses. We’ve shown five-year reported revenue for each in the charts on the bottom of Slide 13. On the left, from 2015 to 2019, Biotrue ONEday lenses had a 22% compound annual growth rate and in organic revenue grew by 23% in 2019. On the right, our ULTRA lenses had a 32% CAGR over the past five years and grew organically by 24% in 2019. We’ve called out the significant milestones that drove incremental growth, including the launches of lenses for astigmatism, presbyopia, and extended wear. This strong performance underscores the durability of these products and the strength of the Bausch & Lomb brand. We are seeing increased market share in US Vision Care. This business gained 1.6 share points to 11% unit share for the month of December 2019 versus a 9.4% share in December 2018. Finally, we plan to launch our daily silicone hydrogel lenses in the US later this year. Silicone hydrogel lenses are one of the fastest growing segments of the content — of its market.

Turning to Slide 14 for an update on Global Consumer, I want to highlight two franchises. First, our top-selling eye vitamin portfolio in the US Ocuvite and PreserVision grew organically by 4% in 2019 and had a CAGR of about 7% from 2015 to 2019. And second, Lumify, the Number 1 physician-recommended product in the redness reliever category had sales of $63 million in 2019 and achieved a weekly market share of approximately 43%.

On Slide 15, we highlighted enVista’s performance in our Global Surgical business. The enVista family of intraocular lenses or IOLs are clear artificial lenses that eye surgeons use to replace a person’s natural lenses when it becomes too cloudy due to a cataract. enVista grew organically by 36% in 2019. The chart below provides enVista’s reported revenue for the past five years, which grew at a 22% CAGR. We also launched an enVista toric in 2019, which we’ve shown on the bottom right. Looking ahead to the 2020 catalysts, we expect to launch an extended depth of focus intraocular lens platform in 2020. With the introduction of this platform, we will be entering the premium IOL segment, outside the US. And finally, we expect to launch a pre-loaded IOL injector platform for enVista IOLs in the second quarter of 2020.

Moving now to Slide 16, before we go through the key highlights for Salix, I want to address two updates. First, after reviewing our GI portfolio in light of market opportunities, we decided to increase promotional focus of Xifaxan and Trulance and have discontinued promoting Doptelet and Lucemyra. Also, we recently received notice that Norwich Pharmaceuticals have filed an ANDA for rifaximin 550-milligram tablets. Alfasigma and Bausch Health will file suit against Norwich, alleging patent infringement and will trigger a 30-month stay of approval. We remain confident in the strength of the 23 patents covering Xifaxan and we will continue to vigorously defend our intellectual property.

The chart on the right shows Xifaxan TRx growth over the past nine quarters. As you can see, TRxs grew by 7% from 2017 [Phonetic] to 2018 and by 8% from 2018 to 2019. For IBS-D specifically, TRxs grew by 15% in 2019 compared to 2018. Moving now to Relistor, TRxs grew by 6% in 2019 and beginning in 2020, we recently improved Relistor’s Oral market access position for more than 50 million lives. Finally, Trulance. TRxs grew by greater than 30% in 2019 and since the acquisition, we have improved the market access position for approximately 35 million lives. We are seeing progress in the IBS-D branded market where Trulance new Rx market share grew by — from 3.9% to 6.4% in 2019.

Onto Slide 17, Ortho Dermatologics. First, Duobrii TRxs were up 25% in the fourth quarter compared to the third quarter and we’re very pleased with this launch. As we show in the chart on the bottom left, within two quarters of launch, Duobrii is capturing approximately 40% of new patients who were started on a first-line branded topical or oral psoriasis product. When you look at Duobrii against these three competitors listed, we believe it gives a perspective on the opportunity for Duobrii and the potential savings that could result from delaying the need to start patients on a biologic. Also, I am delighted to say that Duobrii is now at 63% commercial access for the United States and we gain — as we gain incremental coverage, we expect to reduce couponing support and expect gross to nets will improve over time. Importantly, average selling price increased from the third quarter and we ended the year with a higher ASP. We are clearly moving in the right direction. We are very enthusiastic about the opportunity for Duobrii, primarily because for the first time, we can offer psoriasis patients a topical product with a high potency corticosteroid that they can treat to clearance, rather than being limited to a certain duration of time.

Moving now to Siliq, TRxs grew by 100% in 2019 compared to the prior year and we achieved 67% [Phonetic] commercial access. Bryhali TRxs were up 60% in the second half of 2019 compared to the first half and Bryhali now has 71% commercial access. We believe access rates of 60% to 70% demonstrate that managed care recognizes the value and the efficacy of our psoriasis products in helping to improve patients’ lives. On the right, we highlight a new cash-pay model for our prescription dermatology products in United States that’s now available online at dermatology.com. Telemedicine and e-commerce are available on the platform as of yesterday. Iconic products such as Retin-A will be available on dermatology.com as well as new products like Altreno. The platform was launched with a portfolio of 15 products and we plan to expand the number of cash-pay products over time. We believe that dermatology.com has the potential to meet patient needs and help grow our dermatology business.

Turning to Slide 18, our aesthetics business Global Solta grew organically by 42% in the fourth quarter of 2019 versus the fourth quarter of 2018 and 45% in the full year, driven by the global expansion of Thermage FLX. Thermage is a non-invasive radio frequency therapy that can address the signs of aging skin. You can see the trend in the chart on the left with a 46% CAGR from 2017. Looking ahead to 2020 and beyond, we expect to see continued global expansion for Thermage FLX, including geographic expansion in the EU.

On Slide 19, you can see we have a good number of late-stage development programs in each of our core business segments. We increased R&D investment in 2019 versus 2018 and allocated a greater percentage of our R&D budget to Bausch & Lomb and Salix on a full-year basis. Launching new products will drive our future growth and we are pleased to have active late-stage pipeline of innovative new products with potential to expand our eye health GI in dermatology portfolio.

I’ve talked about some of the programs along the way, but I want to highlight a couple of them in more detail. Before we turn to Slide 20, at the beginning of 2018, we identified the Significant Seven as key drivers of future growth and these seven products grew collectively by 68% in 2019. While we are pleased with that growth, limiting ourselves to seven products and excluding growth products like Biotrue, ULTRA, PreserVision, enVista IOL, Thermage, Aplenzin, Trulance and Xifaxan doesn’t give a complete picture of the expected drivers of our future revenue growth. Accordingly, we will continue to report revenue for our Top 10 products for each business and in overall for Bausch Health, but would no longer report combined revenue for the Significant Seven.

Let’s turn to Slide 20 for additional detail on our promising late-stage programs in GI and eye health. Amiselimod is a late-stage oral compound that targets the S1P receptor, which plays an important role in autoimmune diseases such as inflammatory bowel disease. Approximately 1.6 million Americans currently suffer from IBD and as many as 70,000 new patients are diagnosed in US annually. We entered into an exclusive licensing agreement with Mitsubishi to develop and commercialize amiselimod in April 2019. In January ’20, we completed an FDA-approved cardiovascular clinical trial protocol that compared amiselimod to placebo and moxifloxacin. The primary endpoint demonstrated that amiselimod had no effect on QT interval prolongation and no other secondary safety signals were identified. We expect to initiate a multi-arm, randomized, placebo-controlled Phase 2 study in 2020 in ulcerative colitis for amiselimod.

On Slide 21, we highlight NOV03 which we recently licensed in for the US and Canada. NOV03 is a non-aqueous eye drop for the treatment of dry eye. The prescription dry eye market represents a great opportunity with 6.8% of the US adult population projected to have diagnosed dry eye disease and prevalence will increase with age. If approved, NOV03 will be the first new prescription treatment for dry eye disease with mechanism of action that is different from currently available products. A Phase 2 study has already been completed which showed significant and clinically meaningful improvements in both signs and symptoms of dry eye disease. There is a Phase 3 study underway and we expect to initiate a second Phase 3 study later this year.

To wrap up, on Slide 22, we have provided an overview of the 2020 vision for our three core businesses, which includes both a look back and what has driven performance and a look ahead to what is coming into focus for 2020.

First Bausch & Lomb. We expect mid-single-digit growth to continue for 2020 based on five years of organic revenue growth for ULTRA, Biotrue and Ocuvite and PreserVision and new products like Lumify and Vyzulta. Looking ahead, we see significant opportunities into SiHy launch in the US and EU and the rest of the world, the ramp of our enVista IOL platform and the expected launch of an extended depth of focus for the IOL platform.

Next in Salix, while absorbing the headwinds from Apriso and Glumetza in 2020, our GI business will be based on two years of high-single TRx growth for Xifaxan, increased market share for Trulance, and double-digit growth driven by market access for our Relistor Oral business. In 2020, we are planning to look forward to also the Plenvu ramp-up, continue to develop of new formulations and indications for rifaximin and pipeline expansion including dolcanatide and amiselimod.

Third in Ortho Dermatologics, we expect this business to return to growth in 2020 based on a 73% organic revenue growth for the Thermage franchise, weekly Duobrii TRx growth and increased commercial access, driving improved gross to nets and the continued ramp of launch products including Siliq, Bryhali, and Altreno. Looking head, we see opportunity in building out the cash-pay model with more products, telemedicine and e-commerce and the launch of ARAZLO.

Finally, we continue to expect to deliver on our three-year CAGRs on a constant-currency basis and from the midpoint of 2019 guidance, we expect revenue to grow at 4% to 6% CAGR and adjusted EBITDA to grow at 5% to 8% CAGR.

With that, operator, let’s open up the line for questions.

Questions and Answers:

Operator

[Operator Instructions] The first question today comes from Terence Flynn of Goldman Sachs. Please go ahead.

Terence Flynn — Goldman Sachs — Analyst

Great. Thanks for taking the questions. Maybe two for me. Just wondering at a high level, what’s embedded in your 2020 guidance for net pricing across the portfolio, how that compares to 2019. And then on SiHy, the launch in Japan, I was wondering, any details you can share on market share and then how we should think about pricing, and positioning as you approach the US launch. Thank you.

Joseph C. Papa — Chairman of the Board and Chief Executive Officer

Okay. Let me start on our pricing — net pricing. Our expectation is that we’ll have somewhere in that 2% range approximately. That’s very consistent with what we saw in our 2019 information. Net pricing was approximately 2%. We expect it to be something comparable to that. Now, there will be some variation between product A and product B, but on balance there.

In terms of the SiHy market share gains in Japan, we’re pleased with our initial launch in Japan. There were some issues that we had to deal with as we launched a new product, but on balance, we are pleased with what we’ve seen in terms of that launch and as Paul said in previous quarters are — importantly as we look at the Japan market, we believe the SiHy market as a percentage of Japan is about 15% and is growing by about 31%, so — the SiHy market that is. So, we think it’s an important contributor to growth and will be an important contributor for a long time and also as we launch here in the US later this year. The US is a little smaller percentage of total market in the US. It’s less than I think 13%, but we also see it growing quickly. So, we’re excited about what that means for us. We probably aren’t going to say anything about pricing yet on the SiHy Daily, but I think you could take it that we’ll be competitive with the other products out in the marketplace in the US SiHy Daily business.

Next question, operator?

Operator

[Operator Instructions] The next question comes from David Amsellem of Piper Sandler. Please go ahead.

David Amsellem — Piper Sandler — Analyst

Thanks. I wanted to focus on Xifaxan and looking at the IQVIA retail data in January, it looks like the growth trajectory of prescriptions is a little more muted compared to 2019. So, I’m wondering if there’s any indication that the franchise is maturing in any way and how should we think about the trajectory of volumes for both IBS and AG as we move more into 2020. Thanks.

Joseph C. Papa — Chairman of the Board and Chief Executive Officer

Sure. I’ll start with that one. We always see some normal variation in the early year, especially as patients have the donut hole questions and different reimbursement challenges as we start the year. So, we don’t see anything specifically happening there that is unusual relative to what we’ve seen in the past. I think as you think about trajectory, I mean, if you — one of the comments I made was talking about Xifaxan specifically relative to IBS-D. I remind you that within IBS-D, we were growing, I think, it was mid double digits, somewhere around 15%.

And importantly, we believe the opportunity there is still very significant for us with Xifaxan. I remember that the IBS-D category, for example, has about 9 million — I’m sorry, has about 12 million antispasmodic prescriptions and as we’ve looked at that, we’re less than, let’s call it, 10% of that business. Therefore, we believe we’ve got a great product for IBS-D patients where with the episodic treatment, you can potentially get these patients to just move off of these products like the antispasmodics like Bentyl dicyclomine and actually get relief from — long-term relief from use of Xifaxan. And so, we’re going to continue to promote that area and we continue to expect to see that growth going on into the future to be clear.

Operator, next question?

Operator

Your next question comes from Ken Cacciatore of Cowen & Company.

Ken Cacciatore — Cowen & Company — Analyst

Good morning and congratulations on all the progress. I know from time to time you’re asked about splitting or selling some of the businesses, but I was wondering as you get more credit for your performance in the underlying value of all the entity and everything that you’re doing, your equity is clearly responding. So, just wanted to know strategically how you view your equity. Is it something that you would think about using to deleverage. Is it something you’re thinking about in terms of maybe larger acquisitions? Just wanted to get your thoughts on that. Thank you.

Paul S. Herendeen — Executive Vice President and Chief Financial Officer

Yeah. Thanks for the question, Ken. It’s Paul. Yeah, our equity has responded. It kind of opens the door to potentially using that equity in some way. I’d say that for now, I mean, we have a great deal of runway to continue to run our businesses and using equity to reduce our leverage just based on a quantum of our debt and what it would take in order to make a meaningful change, probably not the path we go down.

Now using equity in the context of a value-generative transaction, obviously, would have to be the right transaction and something we were incredibly excited about, but we would indeed consider that. I want to touch on, because it’s interesting. We haven’t heard the question as often about splitting the Company up over the last, I’d say, several months as the stock has performed better, but I think when you look longer term, the trend in — the overall trend in financial markets is for a preference on the part of investors for pure plays and we own a bunch of great businesses that are today together and I think that they are stronger — we are stronger with those businesses together today in light of our capital structure, but as we look down the road someday, down the road, there may be opportunities to pursue more pure plays with respect to one or more of our businesses, but that’s just something that’s down the road.

Ken Cacciatore — Cowen & Company — Analyst

Thank you.

Joseph C. Papa — Chairman of the Board and Chief Executive Officer

Operator, next question please.

Operator

The next question comes from Umer Raffat of Evercore.

Umer Raffat — Evercore — Analyst

Hi [Technical Issues] my question. I have two if I may, one for you, Joe, maybe both for you Joe, okay. Joe, clearly characterized the pivot to be offense and the EBITDA growth of 5% to 8%, but in light of the guidance for this year and in light of our raging investor debate on whether the base business is truly a growth business in the first place, I’m curious, do you feel strongly that the 5% to 8% CAGR is achievable, especially, this year tracks at the midpoint of the guidance.

And secondly, I was very curious about the S1P1 press release you guys put out in January, not only because I could still never find the trial online anywhere. So, I was curious where it was actually done and — but also, it seemed to me that the issue with the drug was cardiovascular adverse events and not exactly a QT signal. So, I was curious that FDA asked to do a QT study as a clearing event for larger trials? Thank you so much.

Joseph C. Papa — Chairman of the Board and Chief Executive Officer

Okay. So, I’ll start on the first part of the question of what we’re thinking — pivot to offense and guidance, but I am going to also turn it over to Paul who has worked his way through that. And then, I’ll comment on the S1P modulator. So the simple answer to your question on the CAGRs, are we confident, the answer is yes. We continue to look at that revenue guidance of 4% to 6% growth and then the 5% to 8% on the EBITDA as something that is achievable and I’m going to let Paul comment more about that specifically. But the simple answer is yes, and Paul, do you want to make some specific comments, and I’ll come back on the amiselimod.

Paul S. Herendeen — Executive Vice President and Chief Financial Officer

Yeah, sure. I mean and thanks for the question, because we — Umer, because we do get this question a fair amount. Joe said in his remarks. So that’s a refresh of what we meant when we said 4% to 6% and 5% to 8%, it was off the midpoint of our original 2019 guidance at constant currency. If you adjust that, you could come up with a range of targets for 2022 in order to meet that CAGR in the range of say $9 billion — circa $9.4 billion to $9.95 billion at revenue, $3.9 billion to $4.29 billion [Phonetic] for adjusted EBITDA. Yeah, we continue to believe that we can and will produce revenue and adjusted EBITDAs in that range.

I mean, that’s our current belief. Obviously, not a forecast or a bit of guidance that we take lightly. It is fully supported by our bottoms up long-term view of what we think we can do with each of our businesses. I want to point out because people lose sight of this. As I said it was off the midpoint of 2019 guidance. I spent some time in my prepared remarks talking about how we did in 2019 relative to that original midpoint. We did better. So, that helps us along the road. I think people are going to look at our revenue forecast, revenue off of our guidance range of plus 1% to plus 3% and adjusted EBITDA of minus 2% to plus 2%, say, gee, you’re not on track to say — first of all, we’ve said this a million times. It’s not linear and we are focused on where we need to be in 2022 in order to be able to achieve those targets that we set for ourselves and we remain confident that we can achieve those targets. The good news is, we had a great 2019. The bad news is part of that was through LOEs that continued on. We’re delighted to have earned the profit and have generated the cash from those LOEs, but that goes away. And so, it has a bit of a growth track for us in 2020. Net-net, we are on track.

Joseph C. Papa — Chairman of the Board and Chief Executive Officer

On the second part of your question, Umer, on the S1P modulator amiselimod, the trial that we did was an FDA-approved protocol that we had gone and had the FDA approve the protocol. So, we had that in place. We wanted to solve that question or answer that question so that we were assured that there was no Q2 elongation issue. As you know, the cat products in this category have had that problem and we wanted to make sure that that was not going to happen with this product. We had a belief that it wasn’t, but we finished — we wanted to finish the definitive trial for amiselimod to get to that answer. So, that is the reason we did it. There was no request or anything. It was just, we had asked and had that as part of the information that we acquired when we received the product from Mitsubishi on amiselimod. So, I think that answers that part of the question. On the rest of it, we will publish this trial. It has not been published yet, but it will be published and presented in a poster session in the not too distant future. And I think that was the other part of the question.

Okay. Operator, next question please.

Operator

The next question comes from Gregg Gilbert of SunTrust.

Greg Fraser — SunTrust — Analyst

Thank you. It’s Greg Fraser on for Gregg Gilbert. On Xifaxan, can you comment on payer coverage for the IBS indication and whether there is any room for improvement there? And can you also please comment on your initiatives to drive higher growth for the HE indication? Thank you.

Joseph C. Papa — Chairman of the Board and Chief Executive Officer

Sure. We have very strong coverage for Xifaxan. Overall, it’s 98.7%. HE is a little bit stronger, but at that level, it’s essentially universal coverage. I mean, we’ve got very strong coverage on Xifaxan. There is some variation from plan A to plan B, but we’re very pleased with that. On the question of HE, our view is that, we are going to continue to try to improve the compliance and adherence to the product. We have great data that says that if a patient stays compliant with Xifaxan, you can reduce re-hospitalization for hepatic encephalopathy and if we’re able to do that, obviously we could save the healthcare system tremendous amount of dollars. So that’s our plan and our focus and we continue to go out and share that data with plan so that they can help lower the cost.

Our fundamental belief though is that as healthcare plans and there’s mergers where the medical and the pharmaceutical comes together, we believe we’re going to have even more traction of that as we look at the opportunity to not only lower the total cost of the patient from the point of view of both the drug cost and the cost of re-hospitalization, etc. So, that’s our plan and that’s how we’ve been working on it. We think it’s going to be important for patients going into the future with hepatic encephalopathy, and that — you may recall from our previous comments, we’re even looking at trying to get to some of these patients before the actual hepatic encephalopathy by going after some clinical trial evidence that we see in patients who have psoriasis. So, a lot more work. So, stay tuned to that for the future.

Next question, operator.

Operator

The next question comes from Jason Gerberry of Bank of America.

Jason Gerberry — Bank of America — Analyst

Good morning, thanks for taking my questions. So, quick question on Xifaxan. I think previously in September, you communicated around a 10% to 12% range of growth with minimal contribution from Project CORE. I just wanted to confirm if that’s still the fundamental outlook. And then just on the Significant Seven, is the change in disclosure more or less, hey, this is indicative of our broader pipeline value or is there a diminished outlook as it pertains to the $1 billion target end of 2022? Thanks.

Joseph C. Papa — Chairman of the Board and Chief Executive Officer

Paul, why don’t you take the first part of that?

Paul S. Herendeen — Executive Vice President and Chief Financial Officer

Yeah. Yeah, on the first part of that, I think, what we said was, we kind of continue to believe that Xifaxan would in 2020 versus 2019 that the way — the best way to forecast that would be to think about TRxs growth and use that as a proxy for unit growth and I think we continue to believe that that can be in the high single digits. And to that, you need to add a couple of hundred basis points of net price increase and the reason it’s only a couple hundred basis points is that non-recurring part of the revenue that we saw in 2019 related to the non-durable part of the improvements in gross to nets, some of it is reflected in absolutely improved net selling and step selling price increases that we’ve realized in ’19. But some of it is, it just goes away and becomes kind of a growth headwind. So, net net, I think we pretty much said high single digits units and a couple of hundred basis points of growth. So, circa 10%.

Joseph C. Papa — Chairman of the Board and Chief Executive Officer

On the second part of your question on Significant Seven, the way we look that is, if you go back historically, in 2018, early 2018, we identified seven products that we felt were the key growth drivers for us and as we thought about that, we had great success. This year, it was up 68%, achieved $269 million and expect to see it continue to grow, to be clear going forward. But what we felt is that, that’s going to leave out some really important growth drivers, like Xifaxan, like Trulance, like Thermax, like Biotrue, ULTRA, PreserVision, enVista, Aplenzin and we really came up with a group of not seven, but actually I could be fair, say, so closer to 15 products that are clear drivers for our future.

Now, we’re not going to comment specifically about those, but my point was that, there are some big opportunities there for for the future relative to where we saw the future of this business and specifically you get a product like Xifaxan, our largest product growing double digits, really is a meaningful contributor and you can’t leave that out of the equation as you’re thinking about the future for our business. So, that was really the issue. It was — no concerns about our expectations for the future on that one.

Chris Schott? Next question?

Operator

The next question comes from Chris Schott of JPMorgan. Please go ahead.

Chris Schott — JPMorgan — Analyst

Great, thanks very much. Maybe, first question was — maybe one for Paul, and just following up with the potential for a split and some of those comments you made investor appetite for pure plays. You mentioned that’s a trend to think about down the road, but just maybe a little more color on what you’d need to see to enable a split. Is this simply just a matter of getting leverage to a lower level or is there something fundamentally we need to think about in the businesses before you would consider maybe separating out into individual kind of units as compared to the portfolio you have today.

My second question, which is a quick one on the second Xifaxan filer. Just any color about this filer relative to Sandoz as you think about the defense of that franchise over time? Thanks very much.

Paul S. Herendeen — Executive Vice President and Chief Financial Officer

Yeah, Chris. Thanks for the question. I’ll, obviously take the first one. Yeah, leverage — I would say, our level of leverage today is a — makes it — would make it challenging to pursue something where we spin out one of our entities or whatever. It’s not impossible, but it would make it a fairly significant challenge. That is the primary thing that we’d sit there and say, it becomes more clear for us with the passage of time. And yeah, I don’t think I’m saying anything here that’s groundbreaking. Pure play is a thing. I mean people pure play. We get it. We own businesses that are very attractive and very attractive in their own right, as we’re sitting here today, and for the near term and we continue to believe that we are based on our cap structure stronger together and we’ll continue to evaluate opportunities for providing that pure play as we go forward.

Joseph C. Papa — Chairman of the Board and Chief Executive Officer

On the second part of your question, the new Xifaxan filer, as I mentioned in my comments, that company is Norwich. My understanding, although we don’t have all the information yet, is they filed specifically on both the IBS-D and HE. Our belief is that we have 23 patents. So, when we initially settled with the largest generic company Teva, we had 22 patents. We have now supplemented that with another patent. So, we have 23 patents. So, we feel very strong about our intellectual property position, relative to this filing and we don’t see anything specifically different from this — from what they filed versus what Teva filed. So, we continue to believe we’ve got a strong intellectual property position. So, no other specifics or any differences that we’ve observed.

Operator, I have time for one more question, please.

Operator

The last question comes from Akash Tewari of Wolfe Research.

Akash Tewari — Wolfe Research — Analyst

Hey, guys. Thanks so much. So, look, if we take into account the $275 million LOE impact, the roughly $160 million kind of inventory true-up accrual benefit you had in 2019 that might not necessarily carry over. It looks like you need over $500 million in new product sales year-over-year to kind of hit the midpoint of your guidance on reps. Can you walk us through where that growth is coming from? I’m assuming maybe like a $150 million is on Xifaxan, but what’s the contribution on the Significant Seven, what’s the contribution on Thermage etc., etc. Any color would be really appreciated.

And then, just a bit on the cash flow, there was a bit of dip in Q4. I’d love a bit more color on what happened and then how we should think about it in 2020. It looks like your 2020 cash flow from operations is $1.5 billion, which is a bit lower than what I had expected. So, if there is any color on that, we’d really appreciate it. Thanks.

Joseph C. Papa — Chairman of the Board and Chief Executive Officer

Okay. I’m going to start, but Paul, we’re going to — there is a quite a few questions. We’re going to have to take pieces here. I think the fundamental first question is, where can we grow and how can we grow in 2020 and beyond and what I would simply go back to is that, as we look at our business, we think the overall B&L International business is going to grow at that mid-single-digit rate. I think your characterization of Xifaxan growing ballpark 10%. I think that’s a fair characterization. Solta, I think, you saw the growth that we experienced with Solta in 2019. We clearly think that that’s a great opportunity. And then, the final area I’d say is the derm returning to growth is a really important message. If you think about our business, the B&L business, the Salix business have been important to us, but we’ve had a headwind with dermatology as that dermatology grows, especially, with some of the new programs — new products like Duobrii plus the derm.com — dermatology.com contribution to our business, we think, are all going to be important parts of that growth for the future and obviously we got less LOEs versus we had in the past, but, Paul, anything you want to add to that portion or talk a little bit about cash flow with it.

Paul S. Herendeen — Executive Vice President and Chief Financial Officer

Well, sure. I mean, I actually — I do want to talk about the kind of the growth and where is it going to come from. First is, I think you stated a number of — on the kind of an inventory issue that was we are well above what it really was. In 2019 V ’18, the aggregate amount that it was kind of an one-timer if you will, of us taking those wholesale inventories down, was $76 million. Big number in the quarter, a couple of hundred basis points of volume growth that was based on that relative — basically what was a relative expansion, although was — we are not in expansion at all. And for the year, yeah, it was also baked into our year versus 2018, but not as big a factor on a total revenue base of $8.6 billion odd [Phonetic]. If you look at the bridge on Slide 11 of our presentation, that $415 million of increase coming off from what we call base performance is obviously net of any pipeline things that that would have come up. So, that bridge shows you, I think, how we will get to — in the aggregate at a company-wide basis, how we’ll get to within our revenue guidance.

With respect to cash flow, I mean, I don’t want to start [Phonetic] with 2019 because as I said on my prepared remarks, we were at $1.501 billion. So just at the low end of our guidance range and to be superclear, that is for cash generated from operations and that’s on a GAAP basis. The primary difference between us — it being $1.5 billion and being $1.55 billion or $1.6 billion was that we did at the end of the year have more inventory than we had perhaps been thinking about when we started the year and that was based on specific decisions that we took to increase inventories of both finished goods and API for key products to ensure that we had consistency of supply. You’ll get our balance sheet later this year. You’ll see the increase in our inventory at the end of the year and that was a primary driver.

Looking ahead to 2020, we have all the factoids that you essentially need to make a — come up with a forecast for cash flow from ops. You got our adjusted EBITDA from the guidance range, you’ve got our interest expense. You’ve got restructuring and other. You’ve got milestones and license agreements. You have a pretty good idea of what our taxes will be based on our guidance there and the one wildcard is working capital. We will grow in 2020 V 2019 and accordingly, that growth if you assume we are currently at the right level of adjusted working capital, which I would comment on in a minute that you would add to working capital. So, you’ll do that math, and you’re going to come out somewhere near $1.5 billion. That’s the way the math works out. I mean the pieces that you can’t see or can’t forecast as well as we can, is the interaction, or the impact of accruals and other things that are very difficult to forecast, but I think the $1.5 billion will be consistent. I mean, interesting if you look at the history, in 2018, it was $1.501 billion and in ’20 — ’19, it was $1.501 billion and we’re guiding to a $1.5 billion in 2020. It’s what we expect today. It could be more than that, but we are — we’ll just have to wait and see how that year plays out.

On my last comment, I said about inventory and working capital. I want to — do provide additional texture. Over time, we are going to drive our inventory balance down. We made some progress and we’ve now taken some strategic steps that have moved us in the opposite direction. Longer term, we will be able to unlock cash from our balance sheet by better managing our inventory balances. We’re not seeing it in 2019 and I am essentially telling you, we’re not going to see it in a significant way in 2020.

Joseph C. Papa — Chairman of the Board and Chief Executive Officer

Stop there. Okay. Let me just thank everyone for joining us and we’ll see you soon as we will be on the road for the next few months at the various healthcare conference. Thank you everyone for joining. Have a great day, everyone.

Operator

[Operator Closing Remarks]