Bausch Health Companies, Inc. (BHC) Presents at Wolfe Research Healthcare Broker Conference Call - (Transcript)

Bausch Health Companies, Inc. (NYSE:BHC) Wolfe Research Healthcare Conference November 19, 2020 2:55 PM ET

Company Participants

Joseph Papa - CEO & Chairman

Osama Eldessouky - SVP, Controller & CAO

Conference Call Participants

Andrew Newton - Wolfe Research

Akash Tewari - Wolfe Research

Andrew Newton

Okay. Good afternoon, everyone. Thank you for joining our next fireside chat today with Bausch Health Company. This is on Andrew Newton on for Akash Tewari, and he will be joining us any minute now. And I'm excited to welcome Joe Papa, Chairman and CEO of Bausch with us here today.

So before we get going on our kind of questions, I wanted to turn it over to Joe to make some opening remarks. Please go ahead.

Joseph Papa

Thank you, everyone, for joining us today. I wanted to just build on some of the comments we made during our third quarter report in November and then just kind of build on that from there. First and foremost, I'd say that our business recovery is in progress. We had a really good fundamental quarter in the third quarter that we reported. I remind everyone that pre-COVID, we had 9 consecutive quarters of organic growth. As we looked at our third quarter of 2020, yes, we were down versus the third quarter a year ago by 3%. However, that was because of COVID. Sequentially though, versus the second quarter, we grew by 28%. Obviously, I'll talk about more of that in the Q&A, but we think that's really exciting that the business recovery is underway.

The other thing I'll talk about is that we are making very good progress on the spin that we announced, the spin of Bausch & Lomb. We believe the fundamental question there is, can we unlock shareholder value by spinning off P&L? And we believe the answer to that is, yes. Although we will explore all opportunities to drive or unlock shareholder value, that's really where we are focused as a management team.

Finally, my comments back to the third quarter is that we continue in the third quarter and through the most recent months of November and October, we are gaining market share with our key products. That's one area of focus for us. We were able to optimize our adjusted SG&A expense during the quarter and manage that so that we could ensure that we had appropriate profitability.

The other comment that we are continuing to focus on is our durable brand. Good news is that around the world, we do business in over 100 countries. We have a global durable brand and a very diversified product portfolio -- final comment I would say is that each one of our business, B&L, also showed sequential growth. It was up 32% versus the second quarter, our Salix business was up 23% versus our second quarter of 2020, and our Ortho Derm business was also up 24%. So you're seeing good recovery in our business that's what makes us excited about the rest of this year and building on our 2021.

That concludes really what I wanted to cover on a brief overview, happy to take any questions at this time.

Question-and-Answer Session

Q - Andrew Newton

Okay. Great. So let's dive into some questions. I wanted to start off with some questions going back to Q3 and kind of how we should be thinking about Bausch heading into year-end? I think when we go back to Q3, there was a little bit of surprise at the really strong EBITDA number that you guys posted, but it didn't necessarily translate into a big increase in operating cash flow.

Now as you guys pointed out, I think that was due to two overarching dynamics, one being a little bit of channel inventory build and the other being kind of a working capital adjustment that would hurt cash flows. So can you kind of characterize for us, thinking back to that quarter, kind of the magnitudes of these two pieces and how we should be thinking about things like working capital, either build or spend going into year-end as well as inventories in the channel?

Joseph Papa

Sure. Good question. Glad you asked it because it's 1 -- we want to make sure we give clarity to. I think the first comment I would offer and Sam Eldessouky, our Senior Vice President, may also want to comment after I finish my section.

The first comment I would say is as we look at what happened in the quarter, the first thing, as you expect, with working capital, whenever you show a sequential growth of 28%, you naturally assume that working capital is going to go up as well simply because business was up by 28%. So clearly, that is 1 element of what happened.

On the months on hand question and their inventory question, channel question, I want to be 100% clear that the actual month on hand has not deviated. It's run approximately -- 1 month is approximately what we have in inventory. So really, there's been no material change there. But what did happen, of course, as a customer is increasing their sales, they buy the product to sell it, but then they also buy one to replace it. So that's really where you see the increase in the orders that occur with any business, but especially one that is growing by 28%.

Sam, anything you want to add to that comment?

Osama Eldessouky

Yes. Well, thanks, Joe. And Akash, I'll probably cover 2 parts here, one is cover on the working cap. The second one, I would just want to talk about your cash flow conversion.

So on the working capital, as you think about it, important to step back and look at what we have done also in working capital in the last couple of years, we've been able to get roughly about 70 days, which we previously disclosed it to be about $1 billion of working capital. So that's been a lot of heavy lift and a lot of work. And many of those processes has been pulling place, and we'll continue to operate as we stand today.

One of the things to highlight here is looking at the comments that were made regarding inventory, I think we -- if you look at back at our balance sheet and you see the inventory probably at the end of the year, it was about $1.1 billion, went up to about $1.2 billion. And you see the expansion at the end of the year. And I think there's 2 parts here. One is the strategic part where we end up building up more strategic inventory as we were going through into 2020.

The other part is exactly what Joe was referring to as you've seen the demand because of the pandemic in the second quarter drop, some of the inventory will work on the balance sheet that we'll be able to work itself out as the recovery takes place.

On the cash flow conversion, it's very important to point out a couple of data points. One, if you look at back at 2018, 2019, we've generated roughly about $1.5 billion of cash flow and are best poised to present conversion. Pre-pandemic, we were -- actually, Paul in his earlier remarks in the year, pre-pandemic he was expecting another $1.5 billion for this year and then the pandemic came about. So we end up adjusting that guidance down to about $1 billion for the full year. We're on track to achieve $1 billion of cash flow for 2020. And as we do the recovery and we go through a recovery going forward, we do expect that we'll return back to the same level of conversion as we had pre-pandemic. So I hope that answers your question.

Akash Tewari

Sorry to interrupt. It's Akash. I apologize I had a bit of a technical difficulty. Can everyone hear me?

Joseph Papa

Yes, Akash. We can hear you.

Akash Tewari

Okay. So thanks for that color. I think the other thing we've been trying to understand, I know it sounds very simplistic, but it's important if you look at Teva, right, Teva tells us, don't build your free cash flow models starting with no cash. You're not going to take into account the interest expense and the debt.

And I think a question that comes up with investors often is like what is kind of the normalized true free cash flow ability to pay down debt for Bausch, right? And I think a lot of us in our models have over $2 billion, something more like $2.5 billion. But I think there's -- the worry is, it's more like $1.5 billion. So if we think about like over the next 3 years and the Spinco happens, how much free cash flow towards debt paydown, is Bausch going to be able to commit when we think about delevering?

Joseph Papa

Sure. I'm going to start, but as I said -- Sam is here as well, so he can help answer this question. But I think the best way to think about this is go back historically. Our 2019 number for free cash flow to pay down debt was approximately $1.5 billion. With that $1.5 billion, we paid down approximately $1 billion of debt. And in 2020 pre-COVID, we had approximately the same number, about $1.5 billion plus or minus, but it was approximately that same rate.

Now obviously, COVID interrupted that issue so we brought down that free cash flow for -- to about approximately $1 billion, predominantly because of the reduction in EBITDA. And as we said, we -- the working capital increases. But that is probably the best way to think about it. As we go forward, 100%, one of the ways that we expect to increase our EBITDA to pay down debt, that will be one of the things that we will look at, as we talk about the out years.

Akash Tewari

Understood. And kind of maybe -- and, I know, I'm not going to ask you on guidance for 2021. But really, the working capital issue, it seems like there's no quick resolution, right? Like we're going to have to wait for consumer demand to really return back to normal for that to sort of resolve at least within your own channel -- or sorry, what you have on payment. If we think about 2020 being kind of a $1 billion operating cash flow type of year for Bausch. If COVID, let's say, extends to next year as well. And for now, it seems like, at least for the first half of the year, it will, is it crazy to think free cash -- operating cash flow will be in the $1 billion to $1.5 billion type of range? Just from a ballpark perspective, obviously, I know you can't kind of specifically comment, but is that where our expectation should be?

Joseph Papa

So let me start on the first part about what we're seeing out there. And then Sam could comment more about the specifics on that free cash flow. Obviously, you're bringing up the critical question that we look at every single day. It's monitoring the evolving situation of COVID-19. But importantly, the data that we have through the third quarter -- in the third quarter is that we saw a significant progress in the recovery being up about 28% versus the second quarter. So that, obviously, we think, is very good news, but we're going to continue to monitor it.

The other comment I want to offer is that relative to what happened in the early part of, let's say, March, April of 2020. We're not seeing the global shutdowns. We're seeing local shutdowns, not full-scale shutdowns that we saw in the first half of the year. We think that's important because I think hospitals and physicians have learned to deal with the COVID issues and be able to -- still be able to do like elective procedures. So that we think that's an important part of we're better prepared.

And finally, for us, it builds to part of your question, our manufacturing supply chain internally at Bausch Healthcare has also been well prepared, knows how to deal with COVID, knows how to keep our employees safe and has allowed us to determine how best to manage that working capital to continue to make sure that we are successful as a company in delivering product to our customers and to physicians out there.

So all those things are well underway. As it would relate to though, we believe that's how we will reduce the working capital as we just get back to our normal operating efficiency. And Sam, you may want to talk about how we've already -- if you think about going back to 2016, how we've already been able to do working capital reductions and as well with what your -- what we did most recently in terms of managing the system.

Osama Eldessouky

Yes. And as I was saying in my remarks, if you step back and you look back at what we have done and what we did under what we referred to as project core and the work that we did on working capital, we're able to take roughly about 70 days as of working capital, 16 onwards to in 2019, which trended roughly to about $1 billion that we previously disclosed that venture us from a cash flow.

So many of that work that took place in achieving that outcome, those measures are still in place and they're operating as we stand here today, and we'll continue to operate going forward.

In terms of your remarks regarding the working capital for the third quarter and what I would probably highlight here is there's 2 parts that you want to think about this an element of timing, whereby Joe referred to it as the sequential growth between the second quarter where we had the worst in our results for this year from the pandemic and the recovery that we start to see in the third quarter and the impact between those 2 -- the cycle between the second quarter and the third quarter and the timing of some of the recovery back in our revenue and which transits to receivables, and how is that working out.

The second part would be on our inventory. And the critical part to highlight here is as we enter into 2020, there was a number of strategic decisions that we've made to be able to hold -- turn level safety stock and inventory to be able to have sufficient inventory within our supply chain to make sure that we are able to support the growth and the key brands that we have. And that's an area where we continue to work through and we'll continue to manage to make sure that we're holding the right level of inventory as we move forward.

Akash Tewari

Got it. Okay. Understood. And now maybe stepping back a bit and outside of just working capital. One thing that I think keeps coming up in investor conversations is we don't -- like if we were talking to you guys in 2019, we understood the growth message, organically, right? Significant Seven, they're returning to growth, International growing low single digits, mid-single digits, something like that.

Post Q2, I really struggled with that. Because if I think about where you're Significant Seven will probably end up this year, my guess is it's like maybe $200 million to $250 million. And obviously, COVID very obviously had an impact, and there's nothing you can do about that. But as we think about the growth profile of this company, let's say, it was together or even if they slip RemainCo, what is going to bridge the organic growth? If, let's say, Significant Seven may not be at $1 billion by the end of 2023, what are some other products that you think you've grown more bullish on over the last year that you think makes you comfortable that the long-term guidance you put out. And I think at this point, you haven't formally removed, it's still kind of possible?

Joseph Papa

Sure. It's a great question. I think, first and foremost, I'll point back to 1 thing I said already, and then I'll go further with your comment. The great news for us is that the recovery is in progress. And that obviously is a critical factor for us. But let me make some specific comments. Obviously, there's a number of products in that. But I want to start maybe more from the macro level and then get down to specific products. The first comment is that if, unfortunately, you had cataracts before COVID, you still have cataracts, and you still need to get that treatment. So there's a certain amount of pent-up demand there for cataract surgeries. And that's something that's going to be certainly a tailwind for us as we approach the 2021 and beyond.

The other point I'll make is certainly is one of the comments you're going to hear from me is that we -- during the time period of COVID, we have been successful in increasing our market share. Give you an example in the surgical side, in the United States, our cataract procedures was up 1.4%. The market was down 2.6%. We clearly picked up market share. Good news is that, that market will come back. As I said, it will come back even stronger because of the pent-up demand. We believe our market share is going to be in a very strong position to help us to grow -- grow our business as a simple example of that.

Another example is that because we are a global business, you talked about some places where there are some challenges, I absolutely understand that. But because we do business in over 100 countries, I'll give you an example of things that we're seeing, and I can speak about this on the webcast that in our Singles' festival, this is Singles' Day, you probably heard in China, it's a big promotional opportunity, we had a very strong Singles' Day -- Singles' festival in China, it's now a multiple day, we are up versus last year, before COVID. We are up now 20% versus last year. And we are the #1 player in eye care in the Singles' festival that occurred in China. So we are absolutely seeing growth in the marketplace, notwithstanding the COVID issues that we face.

And then finally, I'll talk maybe specifically staying in the Eye Health business, one other example. One of the things that we are excited about, not just for the near term, but the longer term, as we just announced that an abstract that was published on our LUMIFY product, where in an in vitro study, LUMIFY was shown to inactivate the COVID virus. Now there is -- that's a lot more work that has to be done there. That's simply an in vitro study, it is not in humans, but that's an example of things that we are excited about for the future. A lot more work has to be done there. I want to be 100% clear. But that concept of LUMIFY and other formulations are best events as well, inactivated the COVID virus, is we think, a really important opportunity.

Probably, the second thing I'll go to is -- and you made a little bit of a comment, but I'll pick up on that. We have been able to grow market share in this challenging market. Our XIFAXAN business grew share. TRULANCE grew share, JUBLIA grew share. Our Solta business has been an outstanding performer, mostly behind the strength of our Thermage FLX that clearly was another place that our Solta business in the quarter versus a year ago, even in the presence of COVID, was up 55%. That gives you some example of what we see as true opportunities to grow our business both in the short-term and in the long term.

And then maybe finally, I remind you that pre-COVID, we had 9 consecutive quarters of organic growth despite the fact that we had to deal with over $1 billion of loss of exclusivity. The good news is that most of those loss of exclusivities are behind us for the next several years. Therefore, the growth that we get will be manifest itself into true revenue growth, not simply just replacing loss of exclusivity. So we find ourselves in a much stronger position. Admittedly, we've got a deal with the COVID issue in the near term. But everything we see right now says the business is starting the recovery process. That's what gives us really optimism for the future of how we're looking at the business. I hope that answers your question.

Akash Tewari

That is definitely helpful.

Joseph Papa

I'm sorry, I left one out that I have to mention or else I would be remiss. The daily SiHy product launch is also a critical factor for us, and we are really excited about what we're seeing as we enter in the United States, it's SiHy -- daily SiHy is about $800 million market, we're really excited. We think we have admittedly bias as I may be. We think we have a true best-in-class offering because of not only the optics, the comfort, but this ability to help patients -- the #1 issue they have when they wear contact lens is contact lens dryness. We think we have a really strong positioning on that category to help us to launch our daily SiHy lens. Sorry, just couldn't forget my daily SiHy.

Akash Tewari

Only understandable. Now I guess, maybe to just honing on that a bit more. Like, I think end of 2020, if COVID did happen, I think you were talking about $670 million, somewhere around the $450 million range. I'm guessing it's maybe $200 million to $250 million right now. But really, to your point, you've mentioned it's not like you've lost market share, it's just demand has kind of decreased. But as we think about demand returning in 2021 and beyond, if it was supposed to be $450 million in 2020 and 2021 maybe like $600 million, is it -- that seems like an unrealistic expectation that the Significant Seven, you're certainly going to get paying scripts, and it's now going to be annualizing at a $600 million run rate because you didn't lose market share.

So if we think about products like DUOBRII, where you had a really bullish start or VYZULTA or some of these more Medicare Part D or derm type products. And you think about that, a, becoming paying scripts and then inflecting on demand, there's -- the 250 that you might be at now, there's a 600 that you could have been if COVID didn't happen, like as -- if I'm an investor, where do I think that run rate is going forward? Like is it going to rebound very dramatically? Or is it going to take some time for you to actually record sales on some of these kind of heavy promotional spend products?

Joseph Papa

Sure. Respectfully, as we talked about our Significant Seven, it was something that was really important. But we diversified our business since we originally came out with that, and we are launching products like TRULANCE that really wasn't even a part of our business when we came up with a Significant Seven.

We also were incrementally growing XIFAXAN by such a significant amount that it is something that we had to look at in terms of expanding the horizons on what we're looking at. But to be clear, the Significant Seven still are growing. Ballpark, it's going to grow. I don't know, it's going to grow probably about 20% or something this year or thereabouts.

But that's not -- but it's more than that for us in terms of a growth factor. We're really looking at not just the Significant Seven, but we're adding to it TRULANCE, we're adding to it XIFAXAN, we're adding to PreserVision, we're adding the Thermage FLX. These are all the types of products that we think are going to add a lot more value to the -- for our shareholders, and that's where we really look at the growth prospects for us as a company. That's where we truly believe there is going to be a significant long-term opportunity as we grow share in markets that are currently challenged by COVID, but they will come back. And when they come back, our belief is that's where we'll see the real uptake in the revenue side for our business.

So clearly, that's the infuse opportunity, the consumer opportunity, the surgical, International still is about 70% of our business. That's a big opportunity. We're picking up share there. As I said, Solta, up 55% is, I would guess most people did not expect Solta to be up that kind of growth rate going into the third quarter in a world where things were impacted by the COVID lockdown.

Final comment and because I do need to mention DUOBRII. DUOBRII got off to a great start. It got hit because it needed new patient starts to be clear. That is something, but it still has come back. We're now picking up about 1/3 of the new branded prescription patients. When you consider ourselves, we're at the level of an OTEZLA and Enstilar. So we're doing okay, but it is behind our expectations to be very clear. So that's something that we're managing our way through. We still think there's a nice opportunity because of what DUOBRII will do to help reduce the overall cost of health care.

Akash Tewari

Right. Right. Okay. Got it. Maybe moving a bit towards the split, and I will be very careful because I know we don't have 2021 guidance. But I think holistically, I think everyone did their math. We're like, you're probably going to be, I don't know, $23 billion, $22 billion of long-term debt by the time you get to that 12 to 18-month time line. So we're getting to this $2 billion to $3 billion gap, right?

And so we're thinking investments, we're thinking we're a grade, 20% IPO, the whole works. I think the long -- the really important question in my mind is like, are you going to let perfect be the enemy of good. And what I mean by that is like, let's say we're sitting here at the end of next year. And like you haven't hit $20 billion long-term debt. What is the most important thing for you? Is it getting -- like is it conditional, I need to get the leverage this way for me to do this deal. And as these ratios between RemainCo and split? Or is it -- I made a plan to investors on the Q2 call that I'm going to have a split in 12 to 18 months, and like that will be the most important thing. So like in a scenario where you don't hit the leverage target, is the spin still going to occur in 12 to 18 months?

Joseph Papa

Sure. So this is a great question. And I want to step back -- and I'm going to answer your question, but I want to step back a little bit in terms of what was our goals, what's our objectives and what's happened since the time we announced that spin. So step back to what were we trying to do? We were trying and we believe fundamentally that we can unlock shareholder value. The company and the management team believes that there's significant upside in our business and we can unlock shareholder value, especially when you consider the shareholder value for ourselves versus some peer companies. The B&L is the easy example. B&L trades today versus its peers, Alcon is trading at 30x 2020 EBITDA; Cooper, 27x 2020 EBITDA; Zeus 41x 2020 EBITDA. So we clearly think there's some value to unlock there.

As you said, appropriately, we announced our spin of B&L to unlock the value for shareholders. We want to be very transparent with the market. We knew it would take us about 1 year to complete the internal operating structure, legal entity, the tax-efficient programs that needed to happen. But what else happened when we announced it? And this is an important commentary I want to make to you is that we also announced that we hired Morgan Stanley and Goldman Sachs as strategic advisers to the company.

As we expected, when we announced the spin, it created a number of inbound calls to the company and to our advisers about interest in our great businesses we have at Bausch Healthcare and creative ways to unlock value for all of our stakeholders. Obviously, the spin is one way, but other ways in which we can unlock value. And what do I mean by that? While the obvious thing, you correctly point out is that the leverage -- reducing leverage is an important characteristic for the spin.

The best approach we have to do the leverage reduction is to grow EBITDA. And as we grow EBITDA, in the first -- obviously, advantage increases cash, that helps us pay down debt to our previous questions. Second, obviously, the increased EBITDA will lower the leverage ratio.

The other thing though that has come up, to be clear, is asset divestitures. Now I'm not going to comment on any specific ones because I don't think it's appropriate. But there are speculation out there, I clearly saw the Bloomberg article that speculated on us divesting on moon business as a simple example. That's a fabulous growth business. It's been growing at low double-digit rates. Clearly, it could achieve a significant multiple. Others have speculated. I'm not going to make any specific comments on any business, but people have speculated that we could look at our Solta business. I won't comment on that, but specifically, the Solta business has grown phenomenally, as I mentioned before, up 55%.

The third thing that we have said is we would look at working capital reductions, if we can reduce working capital to your previous question, generates cash, pay down debt. The one thing I want to say that we're not interested in is, as a shareholder of the company, we're aligned with our shareholders. We don't think that issuing Bausch Healthcare equity at these levels when the company is trading in the teens makes any sense. So those are the types of things we're looking at. We put out approximate guidance of where we'd like to have the leverage of P&L at 4x and the remaining Bausch Healthcare at 5.5x. But obviously, we're going to be smart. Our goal, as a reminder, though, is to do what we can to continue to try to improve shareholder value creation. I hope that answers your question.

Akash Tewari

Right. That is really helpful. But maybe to hold in on that a bit more. So it sounds like equity raise pre-deal off the table, it doesn't make sense at these levels. Divestments may be possible. I think a question asking it from investors is like we always think rationally. We think like Bausch is going to make sure that they divest a net deleveraging amount, and it has to be [indiscernible] to work. But I think some bulls in your stock will say, just divest anything. I don't care if it's a great deal or not, give near another for a really low multiple. But if it means that the deal is happening, the stock will go up.

So I think to that question, like how picky are you going to be when you're thinking about divestments, right? Like is the goal first to be -- we want to make sure that this deal is great for Bausch. Or is it, I want to make sure this deal is great for about, but I also want to make sure that I'm getting the spin-off occurring in time? Like is -- where are you thinking about divestments and how picky you're being in terms of the offers you're getting on the table?

And then I think the other question on divestments is really previously, when we've talked about divestments, you said, look, here's our historical business. These are our core opportunities, and then here is some of the more adjacent ones. And should we be thinking about that when we think about divestments? Like do you want to streamline your organizational structure? Do you feel like places that don't maybe fit where you're headed long-term as a company are on the chopping block? Or do you feel like, no, right now, Bausch is pretty tightly organized right now. So there is nothing that's sticking out as non-essential, if you get what I mean.

Joseph Papa

Sure. So I mean the best way to answer is, look, historically, what we're doing, but -- and I'll talk about that. But the first comment I want to make, to me, this is all about one simple equation. It's how do we increase shareholder value? And how do we -- that create shareholder value? To me, that's the fundamental question. I think what we looked at and we -- as we saw the opportunity in comparing the B&L business versus some of the peer companies that I mentioned before, that's a simple example of what you're thinking about in terms of the company.

The second opportunity, and I'll let you Akash comment on is that I'm willing to bet, there's not many people that when they do the sum of the parts, they put in our Solta business at a couple of billion-dollar opportunity because it's just doing that well. I think at a 50-plus percent growth rate it's kind of EBITDA. That's the kind of business that we have and we do think there's ways to unlock that value. As I said, we had a plan for the spin, but there are other -- that's one plan.

As other things come up, we're going to just continue to focus on the first priority, which is as we said on the call in August, how do we unlock shareholder value creation? I remind you historically, over the last 4 years, we have divested approximately $3.8 billion of proceeds. We did it at an average EBITDA multiple of approximately 11x. Some were more than 11x, some were less than 11x, but approximation was 11x. So those are the types of things that we're thinking about as 11x EBITDA, I should have said. Those are types of things that we're looking at in order to try to drive that shareholder value creation, and we're going to continue to look at ways to do that for the future.

So that's the fundamental comment for us. It's not about a specific timing or a specific debt level. It's about doing what we believe is the best thing to help drive shareholder value creation.

Akash Tewari

Understood. And maybe to that point, okay. So this is what we want to do, but we have to be flexible depending on how the business operates and opportunities that you get in discussions. As we think about like what's the leverage of RemainCo versus what the leverage of Spinco? I think you had kind of alluded to this on the Q3 call, but is it set in stone, right, like how much variation in terms of debt at time of spin are you willing to kind of go up or down if it means that you're going to get the deals kind of to a current time?

And when you say, like, we're going to make sure we do right by both companies, what does that really mean? Like let's say that you have really good EBITDA and free cash flow for RemainCo, like why can't I put this at 6x and just make sure Spinco is at under 5. If I know that, that's going to make sure -- that's going to put the Spinco on good fitting, and I'm getting a low multiple for RemainCo anyway, but I have high free cash flow. How do you think about your flexibility on leverage target for each one of those two businesses?

Joseph Papa

Yes. I think you -- the way you asked the question probably is the way I'm going to answer it. I think we're going to be flexible. We have put out some target levels, to be clear. But I'm getting feedback -- we put out target levels to be clear that -- on that 4x for the B&L business, 5.5x for the remaining Bausch Healthcare business. But if there's opportunities -- there's other things that we can think about. I'll give you a simple example just to make my point.

If I was to divest a large business as part of our Bausch Healthcare today, I can pretty much accomplish the same thing as B&L spin without even doing a spin. So to me, we're going to look at all the different opportunities that come into us as a company to ensure that -- and that's why we hired both Morgan Stanley and Goldman Sachs. We got great advisers helping us think through the alternatives that will present themselves as we think about this business.

But we have flexibility. Yes, we do have some flexibility. We wanted to give an approximate understanding so the market -- we were transparent with the market, though, to be clear.

Akash Tewari

Okay. Look, I think the -- just to make sure we're being clear, like, are you saying right now, like, you know what, we're not fully committed to the spin. We're fully committed to creating shareholder value. I mean, is that the takeaway? Or is it -- no, we're definitely doing the spin, but we'll do it in a way that makes sense for us given how it's operating. Like I feel like I'm going to get this question a lot, post this call. So I just want to make sure we're being really clear on this point.

Joseph Papa

So as a team, we are fully committed to increasing shareholder value, number one. We believe that the spin is an example of a good way to increase shareholder value, to be clear. But there probably are other alternatives that we'll continue to explore in order to pursue the shareholder value creation, and that's really the way I would say it. But to be clear, we are putting all the steps in place to execute on a spin, we will be ready with the internal organizational design, legal entity structure, tax efficiency by the end of the third quarter of 2021, just to be clear.

Akash Tewari

Okay. Okay. Got it. Got it. And in terms of incremental steps, on tax growth. Like, are there -- is there anything else that we should expect to hear in regards to the spin, outside of like, let's say, you have a divestment announcement until Q3 2021?

Joseph Papa

So I want to focus truly on business fundamentals to be clear. I think that's the most important thing because that will drive the EBITDA, that will drive our success and the turnaround of this company. But I expect that every quarter, we will get questions on the spin. So we will update our investors as we go through each quarter.

But the fundamental comment I would say is that we are focused on the business fundamentals. We think that's the most important part especially as we return to growth as we get this COVID behind us, as we continue to show the growth in market share, the performance. I didn't even talk about how TRULANCE is performing, but it's up 57% versus a year ago, third quarter. So those types of things are things we want to focus on. We think that's the most important thing. But we clearly will continue to work hard in the background on the spin. We -- I'm sure we'll have a chance each quarter to give an update to the marketplace on what's happening with our overall business.

Osama Eldessouky

Akash, we're over on time right now.

Akash Tewari

Okay. If we can sneak in one on sickle cell, because I do want to ask, but if not, I totally understand. If we can on sickle cell?

Joseph Papa

Sure. Go ahead.

Akash Tewari

The VOC endpoint, it feels like it takes a while to gather enough events for you to show a difference on that versus some of these other endpoints that companies developing drugs on sickle cell go for. If we think about your path for potentially accelerated approval and then path to market, should we think you might go after like a Phase II/III adaptive design like maybe a [indiscernible] is going for right now? And is there any color on what you're going to learn from this Phase II study outside of just VOC, but maybe some on these endpoints where you could maybe start a Phase III study before you gathered an event on the VOC side? I hope -- I now know it's a little complicated, but I'd love to get any color on that.

Joseph Papa

Sure. First, Akash, I will compliment you on your right up. I had a chance to read it. Very good. It's very good. Very good write up on it. So what we are excited about in sickle cell is that, number one, the FDA agrees with us, and they gave us the Orphan designation for sickle cell. We -- I'm not -- if you think about what happened, Akash, if you put yourself on mute, I think you'll get less feedback. If you think about what happened in a relatively small pilot clinical trial, we were able to show rifaximin that we decreased vaso-occlusive events and decrease the need for injectable opioids in a significant way in a small number of patients.

So that to us is very, very promising in terms of what's happening there. We also believe that it was through this mechanism of action on the circulating activated neutrophil impact on inflammatory cascade, which is important for a couple of reasons. Number one, it's important because it gives us a marker to quickly get understanding of what we think is happening in terms of the activated neutrophils. The second thing it's important is that we believe that this is just one opportunity to have an impact on the inflammatory pathway, as you do understand inflammatory pathways, this could have opportunities by impacting microbiome beyond just sickle cell, but this is the first place we're obviously going because of the significant need.

And we've obviously looked at some of the competitive companies that have approvals here. One has an approval for an injectable product that's difficult for a chronic disease. Another one has an oral, but we think based on at least the preliminary data we have, we could potentially show a very beneficial impact on these patients in terms of reducing vaso-occlusive and the need for injectable opioids.

But those are just some of the exciting things that we see so far. We are developing -- just to be one more point that's important. We are developing a new formulation because we believe these patients will be on the rifaximin molecule chronically, we want to come out with a more patient-friendly formulation with the lowest effective dose. Those are things that we have underway. I think you know we have the SSD formulation that we've shown to be effective.

If you look at clinicaltrials.gov, you'll also see that we have ongoing trials in New Zealand for other formulations of rifaximin. We're going to go forward with the formulation we believe gives the best chance for a good outcome for patients at the lowest effective dose. And we are going to look at these types of designs because of the unmet medical need here that can allow us to do this as expeditiously as possible. Well, I think I tried to hit all the key points on the rifaximin and sickle cell.

Akash Tewari

Understood. No, that was very impressive in a short amount of time. So thank you so much, and I know we are over. So I will end it here. Thanks so much for the time, also for the investors who joined us. If you have any other questions, shoot me e-mail or reach out to the Bausch team. Thanks again.

Joseph Papa

Thank you, Akash. Have a good day.

Osama Eldessouky

Thank you, Akash.