Bausch Health Companies Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed February 23, 2022. Amounts are in U.S. dollars unless noted. This is an annual report, not a standalone fourth-quarter earnings report.
Business context
Bausch Health is a global pharmaceutical and medical-device company operating in eye health, gastroenterology, dermatology and other therapeutic areas. Its five 2021 reporting segments were Bausch + Lomb, Salix, International Rx, Ortho Dermatologics and Diversified Products. The company reported sales in approximately 100 countries.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $8.434 billion | $8.027 billion |
| Operating income | $450 million | $676 million |
| Net loss attributable to Bausch Health | $948 million | $560 million |
| Loss per share, basic and diluted | $2.64 | $1.58 |
| Cash provided by operating activities | $1.426 billion | $1.111 billion |
| Capital expenditures | $269 million | $302 million |
| Interest expense | $1.426 billion | $1.534 billion |
| Long-term debt, net of discounts and costs | $22.654 billion | $23.925 billion |
- Revenue increased 5%; reported organic revenue growth was 6%. Recovery from COVID-19 and foreign exchange supported growth, partly offset by the Amoun divestiture, lower realized pricing and product exclusivity losses.
- Operating income declined despite higher revenue. FY2021 included a $469 million Ortho Dermatologics goodwill impairment, $234 million of asset impairments and higher SG&A, including separation and IPO-related costs.
- Year-end cash and cash equivalents were $582 million. Restricted cash and settlement deposits were $1.537 billion, including $1.510 billion in litigation-related escrow; this restricted balance should not be treated as freely available liquidity.
- Gross debt principal was $22.870 billion at year-end. The company reported covenant compliance and expected to meet debt obligations over the following 12 months. Management estimated 2022 interest payments of approximately $1.350 billion based on the year-end debt portfolio.
- Current assets were $5.607 billion and current liabilities $5.198 billion. Shareholders’ deficit attributable to Bausch Health was $106 million.
Segments and material changes
- Bausch + Lomb: Revenue rose 10% to $3.765 billion; segment profit was $958 million, up 5%.
- Salix: Revenue rose 9% to $2.074 billion; segment profit increased 12% to $1.493 billion. Xifaxan revenue was $1.644 billion, about 79% of segment revenue.
- International Rx: Revenue declined 1% to $1.166 billion, primarily reflecting Amoun’s sale; segment profit increased 4% to $403 million.
- Ortho Dermatologics: Revenue increased 3% to $564 million; segment profit rose 16% to $265 million. The segment recorded the $469 million goodwill impairment after revised forecasts for medical dermatology.
- Diversified Products: Revenue fell 12% to $865 million and segment profit declined 13% to $624 million, primarily due to generic competition and lower sales in certain products.
- Net operating cash flow increased $315 million year over year. Investing cash flow was positive $409 million, primarily due to $669 million of net proceeds from asset and business sales, including Amoun. Financing activities used $1.513 billion, including substantial debt repayments.
- The company sold Amoun for gross consideration of approximately $740 million and used sale proceeds and cash to repay $600 million of term loans. It reported approximately $1.3 billion of net debt repayments in 2021.
Outlook, commentary, risks and unusual items
- Management expected the COVID-19 pandemic to have a minimal impact on remaining businesses and geographies in 2022, conditional on continued recovery and no material disruption from resurgent infections or variants. No specific consolidated revenue or earnings guidance was provided in the supplied filing text.
- The company aimed to launch Bausch + Lomb and Solta IPOs in the first half of 2022, subject to market conditions, approvals and other conditions. Completion of the Bausch + Lomb separation was also dependent on post-IPO lockups and targeted debt leverage ratios; neither transaction was assured.
- In January 2022, the company announced a proposed credit-agreement refinancing tied to the Bausch + Lomb IPO, and conditional debt redemptions. In February 2022, it issued $1.0 billion of 6.125% secured notes due 2027. If the Bausch + Lomb IPO did not occur by August 15, 2022, those notes were subject to mandatory redemption. These are subsequent events, not FY2021 results.
- Legal matters remained significant. Accrued current loss contingencies were $1.890 billion at year-end; $1.567 billion had been paid or was expected to be payable during 2022, though timing was uncertain. The $1.210 billion U.S. securities settlement remained subject to an appeal; a $300 million Glumetza antitrust class settlement received court approval in February 2022, subject to appeal. The company denied wrongdoing in both settlements.
- Other notable items included $213 million of litigation insurance recoveries, a $469 million goodwill impairment, and a sterilization-service supplier issue affecting certain Bausch + Lomb consumer products. The quality issue resulted in $8 million of manufacturing variances and $6 million of returns, and constrained regional product supply during 2021; the company said it had qualified replacement suppliers.
- Key risks include substantial debt and interest-rate exposure, covenant compliance, litigation and legacy-practice scrutiny, generic competition and patent challenges, product pricing and reimbursement pressure, reliance on single-source suppliers, regulatory compliance, COVID-19 disruption, and execution and costs of the planned IPOs and separation. Three wholesalers accounted for 46% of 2021 revenue, and the three largest U.S. wholesalers represented approximately 44% of net trade receivables.
- PwC issued an unqualified audit opinion and concluded internal control over financial reporting was effective as of December 31, 2021. The auditor highlighted sales returns and Medicaid rebate estimates, finite-lived intangible impairment testing, and Ortho Dermatologics goodwill impairment as critical audit matters.
Important facts for investors to verify
- Whether the proposed IPOs, separation and related financing were completed, on what terms, and how proceeds affected debt and leverage.
- Cash available for operations after excluding restricted settlement escrow, and the timing and final amounts of litigation payments and recoveries.
- Debt maturities, interest costs, covenant headroom and the outcome of proposed refinancings and conditional redemptions.
- Whether revenue recovery translated into sustained operating improvement, particularly given higher SG&A, inflationary costs and pricing deductions.
- Performance of Xifaxan and other major products amid generic challenges, patent litigation, reimbursement pressure and potential loss of exclusivity.
- Further developments in the Ortho Dermatologics outlook, goodwill and intangible asset impairment risks, and the supplier-related product availability issue.