Bausch Health stock plummets even as company looks to start ‘new chapter’

Bausch Health’s sep­a­ra­tion from its cash-rich eye care unit is of­fi­cial­ly un­der­way, as the spin­off clos­es its pub­lic of­fer­ing and the com­pa­ny taps a team to guide it in­to a “new chap­ter.” Too bad in­vestors aren’t on the same page.

Bausch Health Com­pa­nies $BHC stock plunged more than 25% on Tues­day, pric­ing in at around $9.67 a share.

The drop fol­lows a rough few years for Bausch, marked by mount­ing le­gal trou­ble and a ma­jor re­brand. Just last year, Bausch promised more than a bil­lion dol­lars to set­tle class claims in a se­cu­ri­ties fraud case, and crit­ics have ar­gued the re­cent spin­out is mere­ly an at­tempt to pro­tect the com­pa­ny’s as­sets from on­go­ing lit­i­ga­tion.

“It is a priv­i­lege to lead Bausch Health as it en­ters a new chap­ter,” in­com­ing Bausch Health CEO Thomas Ap­pio said on the com­pa­ny’s Q1 call. “Last­ly, we are com­mit­ted to build­ing a cul­ture of per­for­mance and ac­count­abil­i­ty, as go­ing for­ward we’ll fo­cus on peo­ple, prod­ucts and process­es.”

Bausch an­nounced on Tues­day morn­ing that Ap­pio will take the reins from Joseph Pa­pa, who’s led Bausch Health since 2016 when it was still known as Valeant Phar­ma­ceu­ti­cals. He guid­ed the com­pa­ny through a name change in 2018 af­ter the com­pa­ny faced a slew of in­ves­ti­ga­tions in­to its ac­count­ing and pric­ing prac­tices. That same year for­mer ex­ec Gary Tan­ner was sen­tenced to a year in prison af­ter be­ing con­vict­ed of de­fraud­ing the com­pa­ny in a kick­back scheme.

Af­ter tak­ing over in 2016, Pa­pa promised to set Bausch on a “new course,” and has since di­vest­ed bil­lions in non-core as­sets, while cre­at­ing a plan to sep­a­rate the main phar­ma­ceu­ti­cal busi­ness from its eye care busi­ness. The lat­ter is one of the world’s largest sup­pli­ers of con­tact lens­es, lens and eye care prod­ucts, along with phar­ma­ceu­ti­cals such as glau­co­ma drug Vyzul­ta. The unit brought in $889 mil­lion last quar­ter, ac­count­ing for just un­der half the com­pa­ny’s to­tal earn­ings over that pe­ri­od.

Mean­while, Bausch Health keeps no­table drugs such as a suite of gas­troin­testi­nal prod­ucts from Sal­ix, in­clud­ing the IBS drug Xi­fax­an.

“Our an­chor brand of Xi­fax­an is best po­si­tioned for in­cre­men­tal growth with in­creased in­vest­ments in­tend­ed to fur­ther raise aware­ness of the clin­i­cal un­met need in IBS-D and HE,” Ap­pio said.

Just this past quar­ter, Bausch Health saw $72 mil­lion in sav­ings from di­vesti­tures and dis­con­tin­u­a­tions, pri­mar­i­ly due to its deal to sell off Egypt-based Amoun Phar­ma­ceu­ti­cal, which makes and mar­kets brand­ed gener­ics and an­i­mal health prod­ucts.

Pa­pa will now take over Bausch + Lomb, which priced a pub­lic of­fer­ing of 35 mil­lion for $18 apiece last week, falling just be­low the tar­get­ed $21 to $24 it had pen­ciled in. The re­sult­ing $630 mil­lion will be used to pay down debt at Bausch Health, Pa­pa said.

“Giv­en cur­rent mar­ket con­di­tions, we de­cid­ed to pro­ceed with a small­er IPO of­fer­ing than we orig­i­nal­ly in­tend­ed,” Pa­pa said on the Q1 call, adding that Bausch Health will own a 90% ma­jor­i­ty stake in the eye care com­pa­ny at clos­ing.

Pa­pa had al­so in­tend­ed to pur­sue a pub­lic of­fer­ing for Sol­ta Med­ical, part of Bausch’s or­tho der­ma­to­log­ics busi­ness, but that’s no longer the plan — at least for now.

“We re­main pa­tient with Sol­ta and wait for bet­ter mar­ket con­di­tions for its IPO,” he said on the Q1 call. “Sol­ta Med­ical is a valu­able as­set and has the po­ten­tial to grow in the dou­ble-dig­its dri­ven by healthy de­mand for aes­thet­ic prod­ucts and ser­vices.”

Ap­pio, who’s fill­ing Pa­pa’s shoes, has been at Bausch since 2010 when he joined as a man­ag­ing di­rec­tor in Chi­na. In Au­gust 2016, he was pro­mot­ed to pres­i­dent of Bausch + Lomb/In­ter­na­tion­al. Be­fore join­ing the com­pa­ny, he served 23 years with Scher­ing-Plough in a wide range of po­si­tions.

Go­ing for­ward, Ap­pio said the com­pa­ny plans on lever­ag­ing its in­ter­na­tion­al com­mer­cial scale by launch­ing 45 prod­ucts across 50 mar­kets with­in its in­ter­na­tion­al seg­ment. He al­so hint­ed that the new, slim­mer Bausch Health might not stay slim for long.

“We have es­tab­lished an en­tire BD and strat­e­gy team, and that is look­ing at tuck-in type ac­qui­si­tions that we can bring in­to the port­fo­lio,” he said.