B A U S C H H E A LT H C O M PA N I E S I N C .
Pivot to
Offense
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2 0 1 9 A N N U A L R E P O R T
Quality
Health Care
Outcomes
Customer
Focused
Core
Principles
People
Innovation
Effciency
Our Vision
To Be Your Trusted
Health Care Partner
C O R E VA L U E S
• Accountability
• Agility
• Courage
• Integrity
• Teamwork
• Results Orientation
Our Mission
Improving People’s Lives
With Our Health Care Products
C O M PA N Y O V E R V I E W
We are a global company whose mission is to improve people’s lives with our health care products. We develop,
manufacture and market a range of branded, generic and branded generic pharmaceuticals, medical devices
(contact lenses, intraocular lenses, ophthalmic surgical equipment and aesthetics devices) and over-the-
counter (OTC) products, primarily in the therapeutic areas of eye health, gastroenterology and dermatology.
We are delivering on our commitments as we build an innovative company dedicated to advancing global health.
More information can be found at www.bauschhealth.com.
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking information and statements, within the meaning of applicable securities laws (collectively, “forward-looking statements”),
including, but not limited to, statements regarding the Company’s future prospects and performance, anticipated product launches and geographic expansion and the
expected timing of such launches and expansion, anticipated timing for the submission of certain of our pipeline products and R&D programs, anticipated advances in our
development programs and pipeline products, and expectations regarding leveraging our IBS and other portfolios. Forward-looking statements may generally be identified by
the use of the words “anticipates,” “expects,” “intends,” “plans,” “should,” “could,” “would,” “may,” “will,” “believes,” “estimates,” “potential,” “target,” or “continue” and
variations or similar expressions, and phrases or statements that certain actions, events or results may, could, should or will be achieved, received or taken, or will occur or
result, and similar such expressions also identify forward-looking information. These forward-looking statements, including the Company’s future performance and growth, are
based upon the current expectations and beliefs of management and are provided for the purpose of providing additional information about such expectations and beliefs, and
readers are cautioned that these statements may not be appropriate for other purposes. These forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, but are not limited to, the risks
and uncertainties discussed in the Company’s most recent annual or quarterly report and detailed from time to time in the Company’s other filings with the Securities and
Exchange Commission and the Canadian Securities Administrators, which risks and uncertainties are incorporated herein by reference. In addition, certain material factors
and assumptions have been applied in making these forward-looking statements, including, without limitation, the assumption that the risks and uncertainties outlined above
will not cause actual results or events to differ materially from those described in these forward-looking statements, and additional information regarding certain of these
material factors and assumptions may also be found in the Company’s filings described above. The Company believes that the material factors and assumptions reflected in
these forward-looking statements are reasonable in the circumstances, but readers are cautioned not to place undue reliance on any of these forward-looking statements.
These forward-looking statements speak only as of the date hereof. Bausch Health undertakes no obligation to update any of these forward-looking statements to reflect
events or circumstances after the date of this annual report or to reflect actual outcomes, unless required by law.
THE BAUSCH FOUNDATION
Improving Lives
Around the World
The Bausch Foundation was established in 2017 to improve the lives of people around the world by providing
access to safe, effective medicines and by financially supporting health care education and causes. The
Bausch Foundation is a charitable foundation that oversees and directs all of Bausch Health’s global charitable
giving. The Bausch Foundation supports initiatives aimed at disease prevention, improving patient outcomes
and lives, and education related to our core businesses. Additionally, it supports disaster-recovery efforts
and those who need help in the communities where we live and work.
Our goal is to direct efforts toward contributions that can be repeatable, gather critical mass and make
important benefits within our therapeutic communities. Since its inception, the Bausch Foundation has
contributed millions of dollars’ worth of financial and product donations to global charitable health
organizations, including:
2 0 1 9 A n n u a l R e p o r t
1
B A U S C H H E A LT H C O M PA N I E S I N C .
Fellow Shareholders,
We entered 2019 with ambitious goals, and I am
Pivot to Offense Yields Results
pleased to report that our team has continued to
make significant progress in delivering on our com-
mitments to transform Bausch Health. Our “pivot to
offense” strategy enabled us to add several important,
complementary products to our core businesses
through acquisitions or licensing agreements.
Today, Bausch Health is a diverse, global company that develops,
manufactures and markets a wide range of pharmaceutical,
medical device and over-the-counter products. Each of our
businesses is independently strong, durable and well-positioned to
capitalize on the megatrends that are driving growth in the thera-
peutic areas of eye health, gastroenterology and dermatology.
During 2019, we delivered on the following key commitments:
• Grew reported total Company revenue for the year (compared
with 2018);
• Generated $1.5 billion in cash from operations, and used more
than $1 billion to reduce debt and make “bolt-on” acquisitions;
• Grew R&D investment by 14 percent in 2019 versus 2018; and
• Improved operational efficiency, resulting in approximately
$75 million of operating profit.
In addition, we settled the U.S. securities class action litigation,
also known as the “Valeant stock drop” case, which was one of
the largest remaining legacy liabilities we needed to address.
Still subject to final court approval, this settlement removes a
cloud of uncertainty and gives current and future stakeholders
confidence in the ongoing turnaround of Bausch Health.
We continued to deliver on our commitment to create share-
holder value as our stock price significantly outperformed the
broader market. Bausch Health stock rose 62 percent for the
year, compared with Standard & Poor’s 500 (+29 percent), the
Toronto Stock Exchange (+25 percent), the Dow Jones Industrial
Average (+22 percent) and the New York Stock Exchange Arca
Pharmaceutical Index (+15 percent). We also saw several positive
upgrades or initiations from the sell-side.
In 2019, our shift to offense was driven by innovative new
products, further debt paydown and business development
opportunities designed to enhance our core businesses and
expand our product portfolio and pipeline. Within each of our three
core businesses, there were several important achievements, as
well as strategic business development opportunities, that were
completed for less than $250 million. Among these include:
Bausch + Lomb/International
√ Launched Bausch + Lomb ULTRA® Multi-Focal for Astigmatism
contact lenses, Zen Multifocal and Tangible Science Hydra-PEG®
coating contact lenses, PreserVision® AREDS2 Formula Minigel Eye
Vitamins, Ocuvite® Eye Performance vitamins and LOTEMAX® SM
(loteprednol etabonate ophthalmic gel) 0.38% for treating
inflammation and pain following eye surgery
√ Continued the expansion of our daily disposable contact lens
parameter offerings
√ Acquired EM-100, an investigational eye drop that, if approved,
will be the first over-the-counter preservative-free eye drop
for the treatment of itchy eyes associated with allergies
√ Licensed in XIPERE™, an investigational treatment for macular
edema associated with uveitis that will be resubmitted to the
U.S. Food and Drug Administration (FDA) for review
√ Licensed in NOV03, an investigational first-in-class medicine
with a novel mechanism of action to treat Dry Eye Disease
associated with Meibomian gland dysfunction
Salix Pharmaceuticals
√ Acquired TRULANCE® (plecanatide), a treatment for adults with
chronic idiopathic constipation and irritable bowel syndrome
with constipation
√ Acquired dolcanatide, an investigational compound that has
demonstrated proof-of-concept in treating patients with
multiple gastrointestinal conditions
√ Entered into an exclusive licensing agreement for MT-1303
(amiselimod), a late-stage investigational sphinogosine
1-phosphate (S1P) modulator for the treatment of inflammatory
bowel disease
√ Entered into a licensing agreement with the University of
California, Los Angeles, to develop and commercialize an early-
stage novel investigational compound for the treatment of non-
alcoholic fatty liver disease and non-alcoholic steatohepatitis
2 B a u s c h H e a l t h C o m p a n i e s I n c .
Ortho Dermatologics
√ Launched DUOBRII® (halobetasol propionate and tazarotene)
Lotion, 0.01%/0.045%, a treatment for plaque psoriasis
√ Continued the launch of Thermage FLX®, an aesthetic
skin-tightening treatment, in more countries throughout
Southeast Asia
√ Received approval from the FDA for ARAZLO™ (tazarotene)
Lotion, 0.045% for the topical treatment for acne vulgaris in
patients nine years of age and older
√ Launched an innovative online cash-pay program at
dermatology.com
As these examples illustrate, we are focusing on improving
people’s lives by targeting unmet medical needs. Global mega-
trends in health care indicate an increasing need for strong eye
health with an aging population that requires more eye health
products; gastrointestinal treatments due to the growing global
prevalence of obesity and subsequent liver issues; and derma-
tology products with an emerging worldwide beauty enthusiast
culture that demands convenient and fast access to high-quality
skincare products.
Our 20/20 Vision
Looking at our immediate strategic direction for 2020 and
beyond, I believe it’s entirely fitting—as a fully integrated eye
care company—to say we have “20/20 Vision,” which is a clear
view of who we are and where we are headed. We are allocating
resources to the businesses that will drive long-term growth
and where we believe we can make the greatest impact on the
lives of patients.
Some of these areas include launching our daily silicone hydrogel
(SiHy) contact lenses in the U.S., launching ARAZLO™ in the first
half of the year and the continued geographic expansion of
Thermage® FLX. We also expect to continue leveraging our com-
prehensive irritable bowel syndrome (IBS) portfolio, as we believe
TRULANCE® is a natural complement to XIFAXAN® (rifaximin). With
the scale, depth and strength of our sales footprint in gastroen-
terology and primary care, our Salix team will be able to offer
physicians and patients multiple treatment options that span
the types of IBS.
We are building a world-class
organization positioned for
long-term growth.
As an innovative company dedicated to advancing health care,
we also expect to continue to make progress in advancing the
many late-stage development programs in our pipeline.
All told, we are building a world-class organization positioned for
long-term growth. We are diversified by revenue types (prescription
medicine, over-the-counter products and medical devices) and
by geography, with a broad global presence in approximately
100 countries. Approximately 60 percent of our business is not
exposed to U.S. branded prescription pricing.
I would also like to take this opportunity to thank our more than
21,000 employees for their efforts in transforming the Company
and for remaining steadfast in our commitment to improve
people’s lives with our health care products. Their hard work
and dedication to the Company and the patients and consumers
we serve is essential to our success. Thank you also to our
shareholders, who believe in our Company, our strategy and our
ability to execute. I am grateful for your continued confidence
and support.
Sincerely,
Joseph C. Papa
Chairman of the Board and Chief Executive Officer
2 0 1 9 A n n u a l R e p o r t
3
OUR APPROACH TO
Corporate Social
Responsibility
As a global company dedicated to improving people’s lives with our health care products, we take our commitment
to corporate social responsibility (CSR) seriously. We manufacture and market a broad range of products directly or
indirectly in more than 100 countries. Additionally, our more than 21,000 employees live and work around the world.
This means Bausch Health has a major opportunity—and an even greater responsibility—to make a difference. We
have framed our CSR work around five key commitment areas: operating with integrity; respecting the environment;
advancing global health and patient care; improving communities; and supporting employee growth and well-being.
Our second annual Corporate Social Responsibility Report showcases our efforts in responsible, ethical and sustainable
operations and demonstrates our company’s progress on key performance measures. The report features highlights
of success stories from our operations and philanthropic efforts around the globe and includes data showing how
the company is tracking within and across several key operational areas.
Operate with
Integrity
Respect the
Environment
Advance Global Health
and Patient Care
Improve Our
Communities
Support Employee
Growth and Well-Being
Bausch Health’s Corporate Social Responsibility Report can be found online at
https://bauschhealth.com/Portals/25/PDF/BauschHealthCSRReport2019.pdf. It provides
an introduction to our foundational work in each of these areas, featuring highlights of
success stories from our operations around the globe. The report also offers data on
several key performance indicators.
4 B a u s c h H e a l t h C o m p a n i e s I n c .
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 001-14956
Bausch Health Companies Inc.
(Exact Name of Registrant as Specified in its Charter)
British Columbia , Canada
98-0448205
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
2150 St. Elzéar Blvd. West, Laval, Québec, Canada H7L 4A8
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (514) 744-6792
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Shares, No Par Value
BHC
New York Stock Exchange ,
Toronto Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-
T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller
reporting company)
Smaller reporting
company
Emerging growth
company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the common shares held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second
fiscal quarter was $7,880,919,845 based on the last reported sale price on the New York Stock Exchange on June 30, 2019.
The number of outstanding shares of the registrant’s common stock as of February 13, 2020 was 352,704,400.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the registrant’s proxy statement for the 2020 Annual Meeting of Shareholders. Such proxy statement will be
filed no later than 120 days after the close of the registrant’s fiscal year ended December 31, 2019.
TABLE OF CONTENTS
GENERAL INFORMATION
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 15.
Item 16.
SIGNATURES
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART IV
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1
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39
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46
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100
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Basis of Presentation
General
Except where the context otherwise requires, all references in this Annual Report on Form 10-K (“Form 10-K”) to the
“Company”, “we”, “us”, “our” or similar words or phrases are to Bausch Health Companies Inc. and its subsidiaries, taken together.
In this Form 10-K, references to “$” or “USD” are to United States dollars, references to “€” are to Euros, and references to “CAD”
are to Canadian dollars. Unless otherwise indicated, the statistical and financial data contained in this Form 10-K are presented
as of December 31, 2019.
Trademarks
The following words are some of the trademarks in our Company’s trademark portfolio and are the subject of either
registration, or application for registration, in one or more of Canada, the United States of America (the “U.S.”) or certain other
jurisdictions: ACANYA®, AERGEL®, AKREOS®, ALDARA®, ALREX®, ALTRENO®, AMMONUL®, AMYTAL®,
APLENZIN®, APRISO®, AQUALOX®, ARAZLO™, ARESTIN®, ARTELAC®, ATIVAN®, ATRALIN®, B&L®, B+L®, BAUSCH
& LOMB®, BAUSCH + LOMB®, BAUSCH + LOMB ULTRA®, BAUSCH HEALTH™, BAUSCH HEALTH COMPANIES™,
BENZACLIN®, BEPREVE®, BESIVANCE®, BIOTRUE®, BOSTON®, BRYHALI®, BUPAP®, CARAC®, CARDIZEM®, CLEAR
+ BRILLIANT®, CLINDAGEL®, COLD-FX®, COMFORTMOIST®, CRYSTALENS®, CUPRIMINE®, DIASTAT®, DUOBRII®,
EDECRIN®, ENVISTA®, FRAXEL®, GLUMETZA®, IPRIVASK®, ISTALOL®, JUBLIA®, LIBRAX®, LIPOSONIX®,
LOTEMAX®, LUMIFY®, LUZU®, MEDICIS®, MEPHYTON®, MESTINON®, MIGRANAL®, MINOCIN®,
MOISTURESEAL®, MYSOLINE®, NEUTRASAL®, NORITATE®, OCUVITE®, ONEXTON®, OPTICALIGN®, ORTHO
DERMATOLOGICS®, PRESERVISION®, PROLENSA®, PUREVISION®, RELISTOR®, RENU®, RENU MULTIPLUS®,
RETIN-A®, RETIN-A MICRO®, SALIX®, SCLERALFIL®, SECONAL SODIUM®, SHOWER TO SHOWER®, SILIQ®,
SILSOFT®, SOFLENS®, SOLODYN®, SOLTA MEDICAL®, STELLARIS®, STELLARIS ELITE®, STORZ®, SYNERGETICS®,
SYPRINE®, TARGRETIN®, TASMAR®, THERMAGE®, THERMAGE FLX®, TRULIGN®, UCERIS®, VALEANT®, VANOS®,
VASERLIPO®, VICTUS®, VIRAZOLE®, VITESSE®, VYZULTA®, XENAZINE®, ZEGERID®, ZELAPAR®, ZIANA®, and
ZYLET®.
In addition to the trademarks previously noted, we have filed trademark applications and/or obtained trademark registrations
for many of our other trademarks in the U.S., Canada and in other jurisdictions and have implemented, on an ongoing basis, a
trademark protection program for new trademarks.
WELLBUTRIN®, WELLBUTRIN XL® and ZOVIRAX® are trademarks of GlaxoSmithKline LLC and are used by us under
license. ELIDEL® and XERESE® are registered trademarks of Meda Pharma SARL and are used by us under license. EMERADE®
is a registered trademark of Medeca Pharma AB and is used by us under license. ISUPREL® and NITROPRESS® are registered
trademarks of Hospira, Inc. and are used by us under license. XIFAXAN® is a registered trademark of Alfasigma S.p.A. and is
used by us under license. PEPCID® is a brand of Johnson & Johnson and is used by us under license. MOVIPREP® is a registered
trademark of Velinor AG and is used by us under license. PLENVU® is a registered trademark of Velinor AG and is used by us
under license. LOCOID® is a registered trademark of Leo Pharma A/S and is used by us under license. TANGBLE® and HYDRA-
PEG® are registered trademarks of Tangible Science, LLC and are used by us under license. SUBLINOX® is a registered trademark
of Orexo AB in Canada and is used by us under sublicense from Meda AB.
Forward-Looking Statements
Caution regarding forward-looking information and statements and “Safe-Harbor” statements under the U.S. Private
Securities Litigation Reform Act of 1995 and applicable Canadian securities laws:
To the extent any statements made in this Form 10-K contain information that is not historical, these statements are forward-
looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and may be forward-looking information within the meaning defined under applicable Canadian
securities laws (collectively, “forward-looking statements”).
These forward-looking statements relate to, among other things: our business strategy, business plans and prospects and
forecasts and changes thereto; product pipeline, prospective products and product approvals, product development and future
performance and results of current and anticipated products; anticipated revenues for our products; anticipated growth in our
Ortho Dermatologics business; expected research and development (R&D) and marketing spend; our expected primary cash and
working capital requirements for 2020 and beyond; our plans for continued improvement in operational efficiency and the
anticipated impact of such plans; our liquidity and our ability to satisfy our debt maturities as they become due; our ability to
reduce debt levels; our ability to meet the financial and other covenants contained in our Fourth Amended and Restated Credit
and Guaranty Agreement (the "Restated Credit Agreement") and senior notes indentures; the impact of our distribution, fulfillment
ii
and other third-party arrangements; proposed pricing actions; exposure to foreign currency exchange rate changes and interest
rate changes; the outcome of contingencies, such as litigation, subpoenas, investigations, reviews, audits and regulatory
proceedings; the anticipated impact of the adoption of new accounting standards; general market conditions; our expectations
regarding our financial performance, including revenues, expenses, gross margins and income taxes; and our impairment
assessments, including the assumptions used therein and the results thereof.
Forward-looking statements can generally be identified by the use of words such as “believe”, “anticipate”, “expect”,
“intend”, “estimate”, “plan”, “continue”, “will”, “may”, “could”, “would”, “should”, “target”, “potential”, “opportunity”,
“designed”, “create”, “predict”, “project”, “forecast”, “seek”, “strive”, “ongoing” or “increase” and variations or other
similar expressions. In addition, any statements that refer to expectations, intentions, projections or other characterizations of
future events or circumstances are forward-looking statements. These forward-looking statements may not be appropriate for
other purposes. Although we have previously indicated certain of these statements set out herein, all of the statements in this
Form 10-K that contain forward-looking statements are qualified by these cautionary statements. These statements are based upon
the current expectations and beliefs of management. Although we believe that the expectations reflected in such forward-looking
statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such
statements. Certain material factors or assumptions are applied in making such forward-looking statements, including, but not
limited to, factors and assumptions regarding the items previously outlined, those factors, risks and uncertainties outlined below
and the assumption that none of these factors, risks and uncertainties will cause actual results or events to differ materially from
those described in such forward-looking statements. Actual results may differ materially from those expressed or implied in such
statements. Important factors, risks and uncertainties that could cause actual results to differ materially from these expectations
include, among other things, the following:
•
•
•
•
•
•
•
•
the expense, timing and outcome of legal and governmental proceedings, investigations and information requests relating
to, among other matters, our past distribution, marketing, pricing, disclosure and accounting practices (including with
respect to our former relationship with Philidor Rx Services, LLC ("Philidor")), including pending investigations by the
U.S. Attorney's Office for the District of Massachusetts and the U.S. Attorney's Office for the Southern District of New
York, the pending investigations by the U.S. Securities and Exchange Commission (the “SEC”) of the Company, the
investigation order issued by the Company from the Autorité des marchés financiers (the “AMF”) (the Company’s principal
securities regulator in Canada), a number of pending securities litigations (including certain pending opt-out actions in
the U.S. (related to the recently settled securities class action, (which is subject to final court approval, and remains
subject to the risk and uncertainty that the U.S. District Court for the District of New Jersey may not approve the $1,210
million settlement agreement)) and the pending class action litigation in Canada and related opt-out actions) and
purported class actions under the federal RICO statute and other claims, investigations or proceedings that may be
initiated or that may be asserted;
potential additional litigation and regulatory investigations (and any costs, expenses, use of resources, diversion of
management time and efforts, liability and damages that may result therefrom), negative publicity and reputational harm
on our Company, products and business that may result from the past and ongoing public scrutiny of our past distribution,
marketing, pricing, disclosure and accounting practices and from our former relationship with Philidor;
the past and ongoing scrutiny of our legacy business practices, including with respect to pricing (including the
investigations by the U.S. Attorney's Offices for the District of Massachusetts and the Southern District of New York),
and any pricing controls or price adjustments that may be sought or imposed on our products as a result thereof;
pricing decisions that we have implemented, or may in the future elect to implement, such as the Patient Access and
Pricing Committee’s commitment that the average annual price increase for our branded prescription pharmaceutical
products will be set at no greater than single digits, or any future pricing actions we may take following review by our
Patient Access and Pricing Committee (which is responsible for the pricing of our drugs);
legislative or policy efforts, including those that may be introduced and passed by the U.S. Congress, designed to reduce
patient out-of-pocket costs for medicines, which could result in new mandatory rebates and discounts or other pricing
restrictions, controls or regulations (including mandatory price reductions);
ongoing oversight and review of our products and facilities by regulatory and governmental agencies, including periodic
audits by the U.S. Food and Drug Administration (the “FDA”) and the results thereof;
actions by the FDA or other regulatory authorities with respect to our products or facilities;
our substantial debt (and potential additional future indebtedness) and current and future debt service obligations, our
ability to reduce our outstanding debt levels and the resulting impact on our financial condition, cash flows and results
of operations;
iii
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our ability to meet the financial and other covenants contained in our Restated Credit Agreement, senior notes indentures
and other current or future debt agreements and the limitations, restrictions and prohibitions such covenants impose or
may impose on the way we conduct our business, including prohibitions on incurring additional debt if certain financial
covenants are not met, limitations on the amount of additional obligations we are able to incur pursuant to other covenants,
and restrictions on our ability to make certain investments and other restricted payments;
any default under the terms of our senior notes indentures or Restated Credit Agreement and our ability, if any, to cure
or obtain waivers of such default;
any delay in the filing of any future financial statements or other filings and any default under the terms of our senior
notes indentures or Restated Credit Agreement as a result of such delays;
any downgrade by rating agencies in our credit ratings, which may impact, among other things, our ability to raise debt
and the cost of capital for additional debt issuances;
any reductions in, or changes in the assumptions used in, our forecasts for fiscal year 2020 or beyond, which could lead
to, among other things: (i) a failure to meet the financial and/or other covenants contained in our Restated Credit
Agreement and/or senior notes indentures and/or (ii) impairment in the goodwill associated with certain of our reporting
units or impairment charges related to certain of our products or other intangible assets, which impairments could be
material;
changes in the assumptions used in connection with our impairment analyses or assessments, which would lead to a
change in such impairment analyses and assessments and which could result in an impairment in the goodwill associated
with any of our reporting units or impairment charges related to certain of our products or other intangible assets;
the uncertainties associated with the acquisition and launch of new products (such as our recently launched Bryhali®,
Duobrii® and Ocuvite® Eye Performance products), including, but not limited to, our ability to provide the time, resources,
expertise and costs required for the commercial launch of new products, the acceptance and demand for new
pharmaceutical products, and the impact of competitive products and pricing, which could lead to material impairment
charges;
our ability or inability to extend the profitable life of our products, including through line extensions and other life-cycle
programs;
our ability to retain, motivate and recruit executives and other key employees;
our ability to implement effective succession planning for our executives and key employees;
factors impacting our ability to achieve anticipated growth in our Ortho Dermatologics business, including the success
of recently launched products (such as Bryhali® and Duobrii®), the ability to successfully implement and operate
Dermatology.com, our new cash-pay prescription program for certain of our Ortho Dermatologics branded products,
and the ability of such program to achieve the anticipated goals respecting patient access and fulfillment, the approval
of pending and pipeline products (and the timing of such approvals), expected geographic expansion, changes in estimates
on market potential for dermatology products and continued investment in and success of our sales force;
factors impacting our ability to achieve anticipated revenues for our products, including changes in anticipated marketing
spend on such products and launch of competing products;
the challenges and difficulties associated with managing a large complex business, which has, in the past, grown rapidly;
our ability to compete against companies that are larger and have greater financial, technical and human resources than
we do, as well as other competitive factors, such as technological advances achieved, patents obtained and new products
introduced by our competitors;
our ability to effectively operate and grow our businesses in light of the challenges that the Company has faced and
market conditions, including with respect to its substantial debt, pending investigations and legal proceedings, scrutiny
of our past pricing and other practices, and limitations on the way we conduct business imposed by the covenants contained
in our Restated Credit Agreement, senior notes indentures and the agreements governing our other indebtedness;
the extent to which our products are reimbursed by government authorities, pharmacy benefit managers ("PBMs") and
other third-party payors; the impact our distribution, pricing and other practices (including as it relates to our current
relationship with Walgreen Co. ("Walgreens")) may have on the decisions of such government authorities, PBMs and
other third-party payors to reimburse our products; and the impact of obtaining or maintaining such reimbursement on
the price and sales of our products;
iv
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the inclusion of our products on formularies or our ability to achieve favorable formulary status, as well as the impact
on the price and sales of our products in connection therewith;
the consolidation of wholesalers, retail drug chains and other customer groups and the impact of such industry
consolidation on our business;
our eligibility for benefits under tax treaties and the continued availability of low effective tax rates for the business
profits of certain of our subsidiaries;
the actions of our third-party partners or service providers of research, development, manufacturing, marketing,
distribution or other services, including their compliance with applicable laws and contracts, which actions may be
beyond our control or influence, and the impact of such actions on our Company, including the impact to the Company
of our former relationship with Philidor and any alleged legal or contractual non-compliance by Philidor;
the risks associated with the international scope of our operations, including our presence in emerging markets and the
challenges we face when entering and operating in new and different geographic markets (including the challenges
created by new and different regulatory regimes in such countries and the need to comply with applicable anti-bribery
and economic sanctions laws and regulations);
adverse global economic conditions and credit markets and foreign currency exchange uncertainty and volatility in
certain of the countries in which we do business;
the impact of the United States-Mexico-Canada Agreement (“USMCA”) and any potential changes to other trade
agreements;
the final outcome and impact of Brexit negotiations;
the trade conflict between the United States and China;
the extent and impact of the coronavirus reported to have surfaced in China;
our ability to obtain, maintain and license sufficient intellectual property rights over our products and enforce and defend
against challenges to such intellectual property (such as in connection with the recent filing by Sandoz Inc. (“Sandoz”)
and Norwich Pharmaceuticals Inc. (“Norwich”) of their respective Abbreviated New Drug Application (“ANDA”) for
Xifaxan® (rifaximin) 550 mg tablets and the Company’s related lawsuit filed against Sandoz in connection therewith. The
Company intends to file suit against Norwich within the regulated timeframe);
the introduction of generic, biosimilar or other competitors of our branded products and other products, including the
introduction of products that compete against our products that do not have patent or data exclusivity rights;
our ability to identify, finance, acquire, close and integrate acquisition targets successfully and on a timely basis and the
difficulties, challenges, time and resources associated with the integration of acquired companies, businesses and
products;
any additional divestitures of our assets or businesses and our ability to successfully complete any such divestitures on
commercially reasonable terms and on a timely basis, or at all, and the impact of any such divestitures on our Company,
including the reduction in the size or scope of our business or market share, loss of revenue, any loss on sale, including
any resultant impairments of goodwill or other assets, or any adverse tax consequences suffered as a result of any such
divestitures;
the expense, timing and outcome of pending or future legal and governmental proceedings, arbitrations, investigations,
subpoenas, tax and other regulatory audits, examinations, reviews and regulatory proceedings against us or relating to
us and settlements thereof;
our ability to negotiate the terms of or obtain court approval for the settlement of certain legal and regulatory proceedings;
our ability to obtain components, raw materials or finished products supplied by third parties (some of which may be
single-sourced) and other manufacturing and related supply difficulties, interruptions and delays;
the disruption of delivery of our products and the routine flow of manufactured goods;
economic factors over which the Company has no control, including changes in inflation, interest rates, foreign currency
rates, and the potential effect of such factors on revenues, expenses and resulting margins;
•
interest rate risks associated with our floating rate debt borrowings;
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our ability to effectively distribute our products and the effectiveness and success of our distribution arrangements,
including the impact of our arrangements with Walgreens;
our ability to effectively promote our own products and those of our co-promotion partners;
the success of our fulfillment arrangements with Walgreens, including market acceptance of, or market reaction to, such
arrangements (including by customers, doctors, patients, PBMs, third-party payors and governmental agencies), and
the continued compliance of such arrangements with applicable laws;
our ability to secure and maintain third-party research, development, manufacturing, licensing, marketing or distribution
arrangements;
the risk that our products could cause, or be alleged to cause, personal injury and adverse effects, leading to potential
lawsuits, product liability claims and damages and/or recalls or withdrawals of products from the market;
the mandatory or voluntary recall or withdrawal of our products from the market and the costs associated therewith;
the availability of, and our ability to obtain and maintain, adequate insurance coverage and/or our ability to cover or
insure against the total amount of the claims and liabilities we face, whether through third-party insurance or self-
insurance;
the difficulty in predicting the expense, timing and outcome within our legal and regulatory environment, including with
respect to approvals by the FDA, Health Canada and similar agencies in other countries, legal and regulatory proceedings
and settlements thereof, the protection afforded by our patents and other intellectual and proprietary property, successful
generic challenges to our products and infringement or alleged infringement of the intellectual property of others;
the results of continuing safety and efficacy studies by industry and government agencies;
the success of preclinical and clinical trials for our drug development pipeline or delays in clinical trials that adversely
impact the timely commercialization of our pipeline products, as well as other factors impacting the commercial success
of our products, which could lead to material impairment charges;
the results of management reviews of our research and development portfolio (including following the receipt of clinical
results or feedback from the FDA or other regulatory authorities), which could result in terminations of specific projects
which, in turn, could lead to material impairment charges;
the seasonality of sales of certain of our products;
declines in the pricing and sales volume of certain of our products that are distributed or marketed by third parties, over
which we have no or limited control;
compliance by the Company or our third-party partners and service providers (over whom we may have limited influence),
or the failure of our Company or these third parties to comply, with health care “fraud and abuse” laws and other
extensive regulation of our marketing, promotional and business practices (including with respect to pricing), worldwide
anti-bribery laws (including the U.S. Foreign Corrupt Practices Act and the Canadian Corruption of Foreign Public
Officials Act), worldwide economic sanctions and/or export laws, worldwide environmental laws and regulation and
privacy and security regulations;
the impacts of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act of 2010 (the “Health Care Reform Act”) and potential amendment thereof and other legislative and
regulatory health care reforms in the countries in which we operate, including with respect to recent government inquiries
on pricing;
the impact of any changes in or reforms to the legislation, laws, rules, regulation and guidance that apply to the Company
and its business and products or the enactment of any new or proposed legislation, laws, rules, regulations or guidance
that will impact or apply to the Company or its businesses or products;
the impact of changes in federal laws and policy under consideration by the Trump administration and Congress, including
the effect that such changes will have on fiscal and tax policies, the potential revision of all or portions of the Health
Care Reform Act, international trade agreements and policies and policy efforts designed to reduce patient out-of-pocket
costs for medicines (which could result in new mandatory rebates and discounts or other pricing restrictions);
illegal distribution or sale of counterfeit versions of our products; and
interruptions, breakdowns or breaches in our information technology systems.
vi
Additional information about these factors and about the material factors or assumptions underlying such forward-looking
statements may be found elsewhere in this Form 10-K, under Item 1A. "Risk Factors" and in the Company's other filings with the
SEC and the Canadian Securities Administrators (the “CSA”). When relying on our forward-looking statements to make decisions
with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and
potential events. These forward-looking statements speak only as of the date made. We undertake no obligation to update or revise
any of these forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect actual
outcomes, except as required by law. We caution that, as it is not possible to predict or identify all relevant factors that may impact
forward-looking statements, the foregoing list of important factors that may affect future results is not exhaustive and should not
be considered a complete statement of all potential risks and uncertainties.
vii
PART I
Item 1. Business
Introduction
Bausch Health Companies Inc. is a global company whose mission is to improve people’s lives with our health care products.
We develop, manufacture and market, primarily in the therapeutic areas of eye-health, gastroenterology ("GI") and dermatology,
a broad range of: (i) branded pharmaceuticals, (ii) generic and branded generic pharmaceuticals, (iii) over-the-counter (“OTC”)
products and (iv) medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment and aesthetics devices).
Our Company was formed as Biovail Corporation (“Biovail”) under the Business Corporations Act (Ontario) on February 18,
2000, as a result of the amalgamation of TXM Corporation and Biovail Corporation International. Biovail was continued under
the Canada Business Corporations Act effective June 29, 2005. In connection with the acquisition of Valeant Pharmaceuticals
International in September 2010, Biovail was renamed “Valeant Pharmaceuticals International, Inc.”
Effective August 9, 2013, we continued from the federal jurisdiction of Canada to the Province of British Columbia, meaning
that we became a company registered under the laws of the Province of British Columbia as if we had been incorporated under
the laws of the Province of British Columbia. As a result of this continuance, our legal domicile became the Province of British
Columbia, the Canada Business Corporations Act ceased to apply to us and we became subject to the British Columbia Business
Corporations Act.
Effective on July 13, 2018, the Company changed its corporate name from Valeant Pharmaceuticals International, Inc. to
Bausch Health Companies Inc.
Our portfolio of products falls into four operating and reportable segments: (i) Bausch + Lomb/International, (ii) Salix, (iii)
Ortho Dermatologics and (iv) Diversified Products.
• The Bausch + Lomb/International segment consists of: (i) sales in the U.S. of pharmaceutical products, OTC products
and medical device products, primarily comprised of Bausch + Lomb products, with a focus on the Vision Care, Surgical,
Consumer and Ophthalmology Rx products and (ii) with the exception of sales of Solta products, sales in Canada, Europe,
Asia, Australia, Latin America, Africa and the Middle East of branded pharmaceutical products, branded generic
pharmaceutical products, OTC products, medical device products and Bausch + Lomb products.
• The Salix segment consists of sales in the U.S. of GI products.
• The Ortho Dermatologics segment consists of: (i) sales in the U.S. of Ortho Dermatologics (dermatological) products
and (ii) global sales of Solta medical aesthetic devices.
• The Diversified Products segment consists of sales: (i) in the U.S. of pharmaceutical products in the areas of neurology
and certain other therapeutic classes, (ii) in the U.S. of generic products, (iii) in the U.S. of dentistry products and (iv)
of certain other businesses divested during 2017 that were not core to the Company's operations, including the Company's
equity interests in Dendreon Pharmaceuticals LLC (“Dendreon”) (June 28, 2017) and Sprout Pharmaceuticals, Inc.
(“Sprout”) (December 20, 2017). As a result of the divestitures of Dendreon and Sprout, the Company exited the oncology
and women's health businesses, respectively.
For additional discussion of our reportable segments, see the discussion in Item 1 "Business - Segment Information" and
Note 23, "SEGMENT INFORMATION" to our audited Consolidated Financial Statements for further details on these reportable
segments.
Business Strategy
Our strategy is to focus our business on core therapeutic classes that offer attractive growth opportunities. Within our chosen
therapeutic classes, we prioritize durable products which we believe have the potential for strong operating margins and evidence
of growth opportunities. We believe this strategy has reduced complexity in our operations and maximizes the value of our (i)
eye-health, (ii) GI and (iii) dermatology businesses which collectively now represent a substantial portion of our revenues. We
have found and continue to believe there is significant opportunity in these businesses and we believe our existing portfolio,
commercial footprint and pipeline of product development projects position us to successfully compete in these markets and
provide us with the greatest opportunity to build value for our shareholders. We identify these businesses as “core”, meaning that
we believe we are best positioned to grow and develop them.
1
We believe we have a well-established product portfolio that is mixed within our core businesses and provides a sustainable
revenue stream to fund our operations. Our continued success is dependent upon our ability to continually refresh our pipeline
and bring new product solutions to the market that meet changing demands and replace other products that have lost momentum.
We have a robust pipeline that we believe not only provides for the next generation of our existing products, but is also poised to
bring new and innovative solutions to market. Our R&D organization focuses on the development of products through clinical
trials and, as of December 31, 2019, included approximately 1,400 dedicated R&D and quality assurance employees in 23 R&D
facilities.
We have focused our R&D to advance development programs that we believe will drive growth in our core businesses,
while creating efficiencies in our R&D efforts and expenses. Although we primarily rely on our R&D organization to build-out
and refresh our product portfolio, to supplement those efforts, we continually seek out opportunities, such as co-promotions,
licensing agreements and strategic acquisitions, to leverage our commercial footprint, particularly our sales force, by strategically
aligning ourselves with other innovative product solutions that, when coupled with our existing product portfolio, address specific
needs in the market. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations
— Overview — Focus on Core Businesses” of this Form 10-K.
Segment Information
Our revenues for 2019, 2018 and 2017 were $8,601 million, $8,380 million and $8,724 million, respectively. We have
approximately 1,400 products in our portfolio of products, which fall into four operating and reportable segments: (i) Bausch +
Lomb/International, (ii) Salix, (iii) Ortho Dermatologics and (iv) Diversified Products. Segment revenues for the years 2019,
2018 and 2017 were as follows:
(in millions)
2019
2018
2017
Amount
Pct.
Amount
Pct.
Amount
Pct.
Bausch + Lomb/International
$
4,739
55% $
4,664
56% $
4,795
Salix
Ortho Dermatologics
Diversified Products
Total revenues
2,022
565
1,275
23%
7%
15%
1,749
617
1,350
21%
7%
16%
1,566
721
1,642
$
8,601
100% $
8,380
100% $
8,724
100%
55%
18%
8%
19%
Comparative segment information for 2019, 2018 and 2017 is further presented in Note 23, "SEGMENT INFORMATION"
to our audited Consolidated Financial Statements.
Bausch + Lomb/International
Our Bausch + Lomb/International segment includes our Global Bausch + Lomb eye-health business and our International
Rx business. Our Global Bausch + Lomb eye-health business includes our Global Vision Care, Global Surgical, Global Consumer
and Global Ophthalmology Rx products, which in aggregate accounted for approximately 42%, 43% and 41% of our Company's
revenues for 2019, 2018 and 2017, respectively. Our International Rx business, with the exception of our Solta products, includes
sales in Canada, Europe, Asia, Australia, Latin America, Africa and the Middle East of branded pharmaceutical products, branded
generic pharmaceutical products and OTC products, which in aggregate accounted for approximately 13%, 13% and 14% of our
Company's revenues for 2019, 2018 and 2017, respectively.
Our Bausch + Lomb business is a fully integrated eye-health business, which we believe is critical to maintaining and
developing our position in the global eye-health market. As a fully integrated eye-health business with a 165-year legacy, Bausch
+ Lomb has an established line of contact lenses, intraocular lenses and other medical devices, surgical systems and devices,
vitamin and mineral supplements, lens care products, prescription eye-medications and other consumer products that positions us
to compete in all areas of the eye-health market.
As part of our Global Bausch + Lomb business strategy, we continually look for key trends in the eye-health market to meet
changing consumer/patient needs and identify areas for investment and growth. For instance, one of these trends is the increasing
rate of myopia, and importantly, myopia as a potential risk factor for glaucoma, macular degeneration and retinal detachment. We
continue to see increased demand for new eye-health products that address conditions brought on by factors, such as increased
screen time, lack of outdoor activities and academic pressures, as well as conditions brought on by an aging population (for
example, as more and more baby-boomers in the U.S. are reaching the age of 65). To supplement our well-established Bausch +
Lomb product lines, we continue to identify new products tailored to address these key trends, which we develop internally with
our own R&D team to generate organic growth. We also license selective molecules or technology in leveraging our own R&D
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expertise through development, as well as seek out external product development opportunities. Recent product launches include
Biotrue® ONEday daily disposable contact lenses, the next generation of Bausch + Lomb ULTRA® contact lenses, SiHy Daily
contact lenses, Lumify® (an eye redness treatment), Vyzulta® (a pressure lowering eye drop for patients with angle glaucoma or
ocular hypertension) and Ocuvite® Eye Performance (vitamins to protect the eye from stressors such as sunlight and blue light
emitted from digital devices).
Currently our principal products in the eye-health business include:
Vision Care
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SofLens® Daily Disposable Contact Lenses, which use ComfortMoist® Technology (a combination of thin lens design
and moisture-rich packaging solution) and High Definition Optics™ which is an aspheric design that reduces spherical
aberration over a range of powers, especially in low light.
PureVision® is a silicone hydrogel frequent replacement contact lens using AerGel® technology lens material to allow
natural levels of oxygen to reach the eye as well as resist protein buildup. The lens also incorporates an aspheric optical
design that reduces spherical aberration.
• Biotrue® ONEday daily disposable contact lenses, which are made of a unique material that works like the eye to form
a dehydration barrier. The lens maintains over 98% of its moisture for up to 16 hours, it matches the water content of
the cornea at 78% and allows for the oxygen a healthy eye needs.
• Biotrue® ONEday for Astigmatism is a daily disposable contact lens for astigmatic patients. The Biotrue® ONEday lenses
incorporates Surface Active Technology™ to provide a dehydration barrier. The Biotrue® ONEday for Astigmatism also
includes evolved peri-ballast geometry to deliver stability and comfort for the astigmatic patient.
• Bausch + Lomb ULTRA® is a silicone hydrogel frequent replacement contact lens that uses the proprietary MoistureSeal®
technology which allows the contact lens to retain 95% of moisture after 16 hours of wear, limiting lens dryness and
resulting symptoms.
• Bausch + Lomb ULTRA® for Astigmatism is a monthly planned replacement contact lens for astigmatic patients. The
Bausch + Lomb ULTRA® for Astigmatism lens was developed using the proprietary MoistureSeal® technology. In addition,
the Bausch + Lomb ULTRA® for Astigmatism lens integrates an OpticAlign® design engineered for lens stability and to
promote a successful wearing experience for the astigmatic patient.
• Bausch + Lomb ULTRA® for Presbyopia is a monthly planned replacement contact lens for presbyopic patients. The
Bausch + Lomb ULTRA® for Presbyopia lens was developed using the proprietary MoistureSeal® technology. In addition,
the Bausch + Lomb ULTRA® for Presbyopia lens integrates a 3-zone progressive design for near, intermediate and distance
vision. We launched expanded parameters of this product throughout 2017.
• Bausch + Lomb - SiHy Daily AQUALOX™ is a silicone hydrogel daily disposable contact lens designed to provide clear
vision throughout the day. Product validation was completed in June 2018 and SiHy Daily AQUALOX™ was launched
in Japan in September 2018. We expect to launch our SiHy Daily disposable contact lens in the U.S. in the second half
of 2020.
Surgical
• The Stellaris Elite® Vision Enhancement System is our next generation phacoemulsification cataract platform, which
offers new innovations, as well as the opportunity to add upgrades and enhancements every one to two years. Stellaris
Elite® is the first phacoemulsification platform on the market to offer Adaptive Fluidics™, which combines aspiration
control with predictive infusion management to create a responsive and controlled surgical environment for efficient
cataract lens removal. Our Stellaris Elite® Vision Enhancement System was launched in April 2017.
• A portfolio of ophthalmic surgical products, including: (i) intraocular lenses such as Akreos®, enVista®, Crystalens® and
Trulign®, (ii) a suite of surgical instruments including Synergetics® and (iii) surgical equipment for cataract, refractive
and vitreoretinal surgery, such as Stellaris® PC, a vitreoretinal and cataract surgery system and the VICTUS® femtosecond
laser for cataract surgery.
Consumer
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PreserVision® AREDS 2 is an eye vitamin formula for those with moderate-to-advanced age-related macular degeneration.
• Ocuvite® is a vitamin and mineral supplement for the eye that contains lutein (an antioxidant carotenoid), a nutrient that
supports macular health by helping filter harmful blue light.
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• Biotrue® multi-purpose solution helps prevent certain tear proteins from denaturing and fights germs for healthy contact
lens wear. Biotrue® multi-purpose solution uses a lubricant found in eyes and is pH balanced to match healthy tears.
• Lumify® (brimonidine tartrate ophthalmic solution, 0.025%) is an OTC eye drop developed as an ocular redness reliever.
Lumify® was launched in May 2018.
• Bausch + Lomb Renu® Advanced Formula multi-purpose solution was launched in 2017 and is a novel soft and silicone
hydrogel contact lenses solution that makes use of three disinfectants and two moisture agents.
• Boston® solution is a specialty cleansing solution design for gas permeable contact lenses.
Ophthalmology Rx
• Lotemax® Gel is a topical corticosteroid indicated for the treatment of inflammation and pain following ocular surgery.
This formulation is a technology that allows the drug to adhere to the ocular surface and offers dose uniformity, which
eliminates the need to shake the product in order to ensure the drug is in suspension. The product contains a low
concentration of preservative and two known moisturizers.
• Vyzulta® (latanoprostene bunod ophthalmic solution, 0.024%) is an intraocular pressure lowering single-agent eye drop
dosed once daily for patients with open angle glaucoma or ocular hypertension and was launched in December 2017.
•
Prolensa® (bromfenac ophthalmic solution) 0.07% is a nonsteroidal anti-inflammatory drug (NSAID) indicated to treat
inflammation and reduce eye pain in patients after cataract surgery.
Salix
The Salix segment consists of sales in the U.S. of GI products and includes our Xifaxan® product. Our Xifaxan® product
accounted for revenues of $1,452 million, $1,195 million and $979 million for 2019, 2018 and 2017, respectively. As part of our
acquisition of Salix Pharmaceutical, Ltd. in April 2015, we acquired the intellectual property to a number of products that have
provided us with year-over-year revenue growth, particularly the intellectual property behind Xifaxan® for, amongst other
indications, irritable bowel syndrome with diarrhea (“IBS-D”) and Relistor® for opioid induced constipation (“OIC”). Revenues
from our Xifaxan® product increased approximately 22%, 22% and 11% in 2019, 2018 and 2017, respectively.
We attribute the growth in our Salix revenues to the investments we have been making since 2017, including: (i) hiring 200
trained and experienced sales force representatives to expand the commercial field force for Xifaxan®, (ii) increasing the focus
on the development of next generation formulations of our Salix intellectual property to address new indications, (iii) completing
the strategic acquisition of certain assets of Synergy Pharmaceuticals Inc. (“Synergy”), which included the Trulance® product,
(iv) increasing the number of sales force representatives for Trulance® and (v) entering into licensing agreements for investigational
products, which, once developed and if approved by the FDA, will be new treatments for certain GI and liver diseases. Each of
these opportunities potentially provides us with the ability to expand our GI portfolio and allows us to leverage our existing GI
sales force, supply channel and distribution channel.
Currently our principal products in the Salix segment (including products of our third-party co-promotion partners) include:
• Xifaxan® which includes: (i) tablets indicated for the treatment of IBS-D in adults and for the reduction in risk of overt
hepatic encephalopathy recurrence in adults and (ii) tablets indicated for the treatment of travelers’ diarrhea caused by
noninvasive strains of Escherichia coli in patients 12 years of age and older.
• Glumetza® (metformin hydrochloride) extended release tablets are indicated as an adjunct to diet and exercise to improve
glycemic control in adults with type 2 diabetes mellitus.
• Relistor® (methylnaltrexone) is given to adults who use narcotic medicine to treat severe chronic pain that is not caused
by cancer to prevent constipation without reducing the pain-relieving effects of the narcotic.
• Trulance® (plecanatide) is a once-daily tablet for adults with chronic idiopathic constipation, or CIC, and irritable bowel
syndrome with constipation, or IBS-C.
•
Plenvu® is a novel, lower-volume polyethylene glycol-based bowel preparation developed to help provide complete bowel
cleansing, with an additional focus on the ascending colon. Plenvu® was launched in September 2018.
4
Ortho Dermatologics
The Ortho Dermatologics segment consists of: (i) sales in the U.S. of Ortho Dermatologics (dermatological products) and
(ii) global sales of Solta dermatological devices.
The Ortho Dermatologics business is our medical dermatology business dedicated to the treatment of a range of therapeutic
areas, including psoriasis, actinic keratosis, acne, atopic dermatitis, onychomycosis and other dermatoses and includes our Duobrii®,
Bryhali®, Jublia® and Siliq® product lines. As part of our business strategy for the Ortho Dermatologics segment, we have made
significant investments to build out our psoriasis, atopic dermatitis and acne product portfolios, which are the markets within
dermatology where we see the greatest opportunities, with a focus on topical gel and lotion products over injectable biologics. We
continue to support and develop injectable biologics; however, we believe some patients prefer topical products as an alternative
to injectable biologics. Further, as topical products can, in many cases, defer the use of injectable biologics that often come with
associated risk/benefit profiles, a topical product is usually readily adopted by payors, is less expensive and can be more cost-
effective than injectable biologics. Therefore, we believe topical products represent alternative treatments for physicians, payors
and patients, and as the preferred choice of treatment, have the potential to drive greater volumes, generate better margins and
will ultimately be a key contributing factor of our Ortho Dermatologics business.
During 2017 through 2019, we have made significant investments to build out our aesthetics, psoriasis and acne product
portfolios, which we believe, coupled with our experienced dermatology sales leadership team and our recently expanded Ortho
Dermatologics sales force, will position our Ortho Dermatologics business for growth.
Currently our principal products in the medical dermatology business include:
•
Jublia® (efinaconazole 10% topical solution) is a topical azole approved for the treatment of onychomycosis of the toenails
(toenail fungus).
• Targretin® (bexarotene) capsules and gel are prescription medicines used to treat the skin problems arising from the
disease cutaneous T-cell lymphoma, or CTCL, in patients who have not responded well to other treatments.
• Bryhali® was launched in November 2018 and is a novel product that contains a unique, lower concentration of halobetasol
propionate for the treatment of moderate-to-severe psoriasis.
•
Siliq® was launched in the U.S. in 2017 and is an IL-17 receptor blocker monoclonal antibody for patients with moderate-
to-severe plaque psoriasis.
• Altreno® (tretinoin 0.05%) was launched in the U.S. in October 2018 and is a lotion approved for the topical treatment
of acne vulgaris in patients 9 years of age and older.
• Duobrii® was launched in June 2019 and is the first and only topical lotion that contains a unique combination of halobetasol
propionate and tazarotene for the treatment of moderate-to-severe plaque psoriasis in adults.
• Arazlo™ (tazarotene) Lotion, 0.045% is an acne product containing lower concentration of tazarotene in a lotion form to
help reduce irritation while maintaining efficacy. The FDA approved the New Drug Application (“NDA”) for Arazlo™
on December 18, 2019, which we expect to launch in the first half of 2020.
• An Acne franchise, which includes Solodyn®, a prescription oral antibiotic approved to treat only the red, pus-filled
pimples of moderate to severe acne in patients 12 years of age and older, as well as Retin-A®, Clindagel® and Onexton®
Gel, a fixed combination 1.2% clindamycin phosphate and 3.75% benzoyl peroxide medication for the once-daily
treatment of comedonal (non-inflammatory) and inflammatory acne in patients 12 years of age and older.
Our Solta business is dedicated to the development of innovative treatment technologies that provide proven and effective
medical aesthetic and therapeutic benefits to consumers. Global Solta revenues were $194 million, $135 million and $111 million
for 2019, 2018 and 2017, respectively. The increase in revenue is primarily attributable to Next Generation Thermage FLX®, a
fourth-generation non-invasive treatment option using a radiofrequency platform designed to optimize key functional
characteristics and improve patient outcomes. During 2018 and 2019, Next Generation Thermage FLX® was launched in Hong
Kong, Japan, Korea, Taiwan, Philippines, Singapore, Indonesia, Malaysia, China, Thailand, Vietnam, and Australia as part of our
Solta medical aesthetic devices portfolio. These launches have been successful as Next Generation Thermage FLX® revenues for
2019 were in excess of $75 million. We expect additional launches of Next Generation Thermage FLX® in Asia and Europe in
the near term, paced by country-specific regulatory registrations.
Currently our principal products in the Solta business include:
• Thermage®, a non-invasive radiofrequency (RF) treatment that can smooth, tighten and contour skin for an overall
younger-looking appearance. In 2018, we began launching Next Generation Thermage FLX® as previously discussed.
5
• Fraxel®, a treatment that improves tone, texture and radiance for aging, sun damaged or scarred skin.
• Clear + Brilliant®, a laser treatment that can help prevent the visible signs of aging and address the overall effects time
and the environment can have on skin.
• VASERlipo® for minimally-invasive aesthetic body contouring that yields dramatic results with less pain and downtime
of traditional liposuction.
Diversified Products
The Diversified Products segment consists of sales in the U.S. of: (i) pharmaceutical products in the areas of neurology and
certain other therapeutic classes, (ii) generic products, (iii) dentistry products and (iv) certain other businesses divested during
2017 that were not core to the Company's operations, including the Company's equity interests in Dendreon (June 28, 2017) and
Sprout (December 20, 2017). As a result of the divestitures of Dendreon and Sprout, the Company exited the oncology and women's
health businesses, respectively. The Company utilizes the Diversified Products segment to extend the long-term cash flows from
a number of assets that are expected to decline over time due to the loss of exclusivity, by launching and selling Authorized Generic
(“AG”) versions of certain branded assets. Our principal products in this segment include:
Pharmaceutical
• Wellbutrin XL® is an extended release formulation of bupropion indicated for the treatment of major depressive disorder
in adults.
• Cuprimine® is a treatment for Wilson's disease (a condition in which high levels of copper in the body cause damage to
the liver, brain, and other organs), cystinuria (a condition which leads to cystine stones in the kidneys) and for patients
with severe rheumatoid arthritis who have failed to respond to an adequate trial of conventional therapy.
• Migranal® (dihydroergotamine mesylate) Nasal Spray is used to treat an active migraine headache with or without aura.
• Ativan® (lorazepam) is indicated for the management of anxiety disorders or for the short-term relief of the symptoms
of anxiety or anxiety associated with depressive symptoms.
• Xenazine® is indicated for the treatment of chorea associated with Huntington’s disease. In the U.S., Xenazine® is
distributed for us by Lundbeck LLC under an exclusive marketing, distribution and supply agreement.
•
Syprine® is a treatment for Wilson's disease in patients who cannot take the medication known as penicillamine.
• Aplenzin® (bupropion hydrobromide extended release tablets) is indicated for the treatment of major depressive disorder,
and for the prevention of seasonal major depressive episodes in patients with a diagnosis of seasonal affective disorder.
• Librax® (chlordiazepoxide and clidinium) is indicated to control emotional and somatic factors in gastrointestinal
disorders. Librax® may also be used as adjunctive therapy in the treatment of peptic ulcer and in the treatment of the
irritable bowel syndrome (irritable colon, spastic colon, mucous colitis) and acute enterocolitis.
Generics
• Diastat® AG (diazepam rectal gel) is a gel formulation of diazepam intended for rectal administration for certain patients
with epilepsy who are already taking antiepileptic medications, and who require occasional use of diazepam to control
bouts of increased seizure activity.
• Uceris® AG (budesonide) extended release tablets are a prescription corticosteroid medicine used to help get mild to
moderate ulcerative colitis under control (induce remission).
• Elidel® AG (pimecrolimus) is a second-line therapy for short term and intermittent long-term therapy of mild to moderate
atopic dermatitis.
• Apriso® AG is an aminosalicylate anti-inflammatory drug used to treat ulcerative colitis, proctitis and proctosigmoiditis.
Apriso is also used to prevent the symptoms of ulcerative colitis from recurring. Apriso® AG was launched in December
2019.
• Tobramycin and Dexamethasone Ophthalmic Suspension is indicated for steroid-responsive inflammatory ocular
conditions for which a corticosteroid is indicated and where superficial bacterial ocular infection or a risk of bacterial
ocular infection exists.
6
• Latanoprost Ophthalmic Solution is indicated for the reduction of elevated intraocular pressure in patients with open-
angle glaucoma or ocular hypertension.
Dentistry
• Arestin® (minocycline hydrochloride) is a subgingival sustained-release antibiotic. Arestin® is indicated as an adjunct to
scaling and root planing ("SRP") procedures for reduction of pocket depth in patients with adult periodontitis. Arestin®
may be used as part of a periodontal maintenance program, which includes good oral hygiene and SRP.
• NeutraSal® is indicated for dryness of the mouth (hyposalivation, xerostomia) and dryness of the oral mucosa due to
drugs that suppress salivary secretion.
Research and Development
Our R&D organization focuses on the development of products through clinical trials. Currently, we have over 225 R&D
projects in our pipeline. As of December 31, 2019, approximately 1,400 dedicated R&D and quality assurance employees in 23
R&D facilities were involved in our R&D efforts.
Our R&D expenses for 2019, 2018 and 2017, were $471 million, $413 million and $361 million, respectively. R&D expenses
as a percentage of revenue were approximately 5% in 2019 and 2018, as compared to approximately 4% in 2017. We have removed
projects related to divested businesses and rebalanced our portfolio to better align with our long-term plans and focus on core
businesses. Our investment in R&D reflects our commitment to drive organic growth through internal development of new
products, a pillar of our strategy. We further supplement these efforts by continually seeking out other opportunities, such as co-
promotions, licensing agreements and strategic acquisitions. See Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Overview — Focus on Core Businesses” of this Form 10-K.
Trademarks, Patents and Proprietary Rights
We rely on a combination of contractual provisions, confidentiality policies and procedures and patent, trademark, copyright
and trade secrecy laws to protect the proprietary aspects of our technology and business. Our policy is to vigorously protect,
enforce and defend our rights to our intellectual property and proprietary rights, as appropriate. See Item 1A “Risk Factors” of
this Form 10-K for additional information on the risks associated with our intellectual property and proprietary rights.
Trademarks
We believe that trademark protection is an important part of establishing product and brand recognition. We own or license
a number of registered trademarks and trademark applications in the U.S., Canada and in various other countries throughout the
world. U.S. federal registrations for trademarks remain in force for 10 years and may be renewed every 10 years after issuance,
provided the mark is still being used in commerce. Trademark registrations in Canada issued on or before June 17, 2019 remain
in force for 15 years and may be renewed for 10-year terms, provided that, as in the case of U.S. federal trademark registrations,
the mark is still being used in commerce. Trademark registrations in Canada issued after June 17, 2019 remain in force for 10
years and may be renewed every 10 years after issuance, provided that, as in the case of U.S. federal trademark registrations, the
mark is still being used in commerce. Other countries generally have similar but varying terms and renewal policies with respect
to trademarks registered in those countries.
Data and Patent Exclusivity
For certain of our products, we rely on a combination of regulatory and patent rights to protect the value of our investment
in the development of these products.
A patent is the grant of a property right which allows its holder to exclude others from, among other things, selling the
subject invention in, or importing such invention into, the jurisdiction that granted the patent. In the U.S., Canada and the European
Union (“EU”), generally patents expire 20 years from the date of application. We have obtained, acquired or in-licensed a number
of patents and patent applications covering key aspects of certain of our principal products. In the aggregate, our patents are of
material importance to our business taken as a whole.
In the U.S., the Hatch-Waxman Act provides non-patent regulatory exclusivity for five years from the date of the first FDA
approval of a new drug compound in a NDA. The FDA, with one exception, is prohibited during those five years from accepting
for filing a generic, or ANDA, that references the NDA. In reference to the foregoing exception, if a patent is indexed in the FDA
Orange Book for the new drug compound, a generic may file an ANDA four years from the NDA approval date if it also files a
Paragraph IV Certification with the FDA challenging the patent. Protection under the Hatch-Waxman Act will not prevent the
7
filing or approval of another full NDA. However, the NDA applicant would be required to conduct its own pre-clinical and adequate
and well-controlled clinical trials to independently demonstrate safety and effectiveness.
A similar data exclusivity scheme exists in the EU, whereby only the pioneer drug company can use data obtained at the
pioneer’s expense for up to eight years from the date of the first approval of a drug by the European Medicines Agency (“EMA”)
and no generic drug can be marketed for ten years from the approval of the innovator product. Under both the U.S. and the EU
data exclusivity programs, products without patent protection can be marketed by others so long as they repeat the clinical trials
necessary to show safety and efficacy.
In the U.S., the Biologics Price Competition and Innovation Act ("BPCIA") allows companies to seek FDA approval to
manufacture and sell biosimilar or interchangeable versions of brand name biological products. Due to the size and complexity
of biological products, as compared to small molecule drugs, a biosimilar must be “highly similar” to the reference product with
“no clinically meaningful differences” in safety, purity and potency between the two. The BPCIA provides reference product
sponsors with 12 years (with potential for six additional months of pediatric exclusivity) of market exclusivity, but unlike the
Hatch-Waxman Act which covers small molecules, it does not require reference product sponsors to list patents in an Orange Book
equivalent and does not include an automatic 30-month stay of FDA approval upon the timely filing of a lawsuit. The BPCIA,
however, does provide pre-litigation procedures for the parties to follow, including identification of relevant patents and each
party’s basis for infringement and invalidity. A biosimilar patent application cannot be filed until four years after the reference
product is first licensed and a biosimilar cannot be launched, at the earliest (assumes no patent litigation or an adverse decision
on all patents), until the expiration of the twelve years of data exclusivity from the approval of the reference product.
Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a disease
or condition that affects populations of fewer than 200,000 individuals in the U.S. or a disease whose incidence rates number more
than 200,000 where the sponsor establishes that it does not realistically anticipate that its product sales will be sufficient to recover
its costs. The sponsor that obtains the first marketing approval for a designated orphan drug for a given rare disease is eligible to
receive marketing exclusivity for use of that drug for the orphan indication for a period of seven years.
In Canada, the Patented Medicines (Notice of Compliance) Regulations (“PM(NOC) Regulations”) create a regime analogous
to the U.S. Hatch-Waxman Act, and link the regulatory approval process for generic and biosimilar drugs to the adjudication of
innovator patent rights. To be eligible for protection under the PM(NOC) Regulations, patents must first be listed on the Patent
Register in connection with an innovator’s drug submission to Health Canada. A generic or biosimilar manufacturer must then
provide notice to the innovator of its plans to market a drug that it compared to the innovator’s patented drug in the Health Canada
approval process. Within 45 days of receiving such a notice of allegation, an innovator drug company may commence patent
infringement proceedings against the generic or biosimilar manufacturer. The commencement of an action by the innovator under
the PM(NOC) Regulations may stay Health Canada’s regulatory approval of the generic or biosimilar drug for a period of 24
months.
Canada also employs a data exclusivity regime for innovative drugs that provides an eight-year period of data protection
from the date of market approval by Health Canada. An additional six months of data exclusivity is provided for drugs studied in
clinical trials relating to use in pediatric populations. Drug submissions seeking approval based on a comparison to an innovative
drug cannot be filed during the first six years of the data exclusivity period. Generic or biosimilar drug submissions remain on
hold until expiry of the innovator’s data protection term, unless the innovative product is a patented drug subject to further protection
under the PM(NOC) Regulations. Canada has no distinct drug submission process for biosimilar or orphan drug products.
Proprietary Know-How
We also rely upon unpatented proprietary know-how, trade secrets and technological innovation in the development and
manufacture of many of our principal products. We protect our proprietary rights through a variety of methods, including
confidentiality and non-disclosure agreements and proprietary information agreements with vendors, employees, consultants and
others who may have access to proprietary information.
8
Government Regulations
Government authorities in the U.S., at the federal, state and local level, in Canada, in the EU and in other countries extensively
regulate, among other things, the research, development, testing, approval, manufacturing, labeling, post-approval monitoring and
reporting, packaging, advertising and promotion, storage, distribution, marketing and export and import of pharmaceutical products
and medical devices. As such, our products and product candidates are subject to extensive regulation both before and after
approval. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and
foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with these
regulations could result in, among other things, warning letters, civil penalties, delays in approving or refusal to approve a product
candidate, product recall, product seizure, interruption of production, operating restrictions, suspension or withdrawal of product
approval, injunctions or criminal prosecution.
Prior to human use, FDA approval (drugs (in the form of an NDA or ANDA for generic equivalents), biologics (in the form
of a Biologics License Application (“BLA”)) and some medical devices) or marketing clearance (other devices) must be obtained
in the U.S., approval by Health Canada must be obtained in Canada, EMA approval (drugs) or a CE Marking (devices) must be
obtained for countries that are part of the EU and approval must be obtained from comparable agencies in other countries prior
to manufacturing or marketing new pharmaceutical products or medical devices. Generally, preclinical studies and clinical trials
of the products must first be conducted and the results submitted to the applicable regulatory agency (such as the FDA) for approval.
Regulation by other federal agencies, such as the Drug Enforcement Administration (“DEA”), and state and local authorities
in the U.S., and by comparable agencies in certain foreign countries, is also required. In the U.S., the Federal Trade Commission
(the “FTC”), the FDA and state and local authorities regulate the advertising of medical devices, prescription drugs, OTC drugs
and cosmetics. The Federal Food, Drug and Cosmetic Act, as amended and the regulations promulgated thereunder, and other
federal and state statutes and regulations, govern, among other things, the testing, manufacture, safety, effectiveness, labeling,
storage, record keeping, approval, sale, distribution, advertising and promotion of our products. The FDA requires a Boxed Warning
(sometimes referred to as a “Black Box” Warning) for products that have shown a significant risk of severe or life-threatening
adverse events and similar warnings are also required to be displayed on the product in certain other jurisdictions.
Manufacturers of pharmaceutical products and medical devices are required to comply with manufacturing regulations,
including current good manufacturing practices and quality system management requirements, enforced by the FDA and Health
Canada, in the U.S. and Canada respectively, and similar regulations enforced by regulatory agencies in other countries and we
face annual audits of our facilities and plants and those of our contract manufacturers by the FDA and such other regulatory
agencies. In addition, we are subject to price control restrictions on our pharmaceutical products in many countries in which
we operate.
We are also subject to extensive U.S. federal and state health care marketing and fraud and abuse regulations, such as the
federal False Claims Act, federal and provincial marketing regulation in Canada and similar regulations in foreign countries in
which we may conduct our business. The federal False Claims Act imposes civil and criminal liability on individuals or entities
who submit (or cause the submission of) false or fraudulent claims for payment to the government. The U.S. federal Anti-Kickback
Statute prohibits persons or entities from knowingly and willfully soliciting, receiving, offering or providing remuneration, directly
or indirectly, to induce either the referral of an individual, or the furnishing, recommending, or arranging for a good or service,
for which payment may be made under a federal or state health care program such as the Medicare and Medicaid programs. Some
state anti-kickback laws also prohibit such conduct where commercial insurance, rather than federal or state, programs are
involved. Due to recent legislative changes, violations of the U.S. federal Anti-Kickback Statute also carry potential federal False
Claims Act liability. In addition, in the U.S. and Canada, companies may not promote drugs or medical devices for “off-label”
uses - that is, uses that are not described in the product’s labeling and that differ from those that were approved or cleared by the
FDA or Health Canada, respectively - and “off-label promotion” in the U.S. has also formed the predicate for False Claims Act
liability resulting in significant financial settlements. These and other laws and regulations, rules and policies may significantly
impact the manner in which we are permitted to market our products. If our operations are found to be in violation of any of these
laws, regulations, rules or policies or any other law or governmental regulation, or if interpretations of the foregoing change, we
may be subject to civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the
curtailment or restructuring of our operations.
We are also subject to various state, federal and international laws and regulations governing the collection, transmission,
dissemination, use, privacy, confidentiality, security, retention, availability, integrity and other processing of health-related and
other sensitive and personal information, including, but not limited to, the Health Insurance Portability and Accountability Act of
1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (collectively, “HIPAA”).
HIPAA mandates, among other things, the adoption of uniform standards for the electronic exchange of information in common
health care transactions (e.g., health care claims information and plan eligibility, referral certification and authorization, claims
status, plan enrollment, coordination of benefits and related information), as well as standards relating to the privacy and security
of individually identifiable health information. These standards require the adoption of administrative, physical and technical
9
safeguards to protect such information. Many states in which we operate have laws that protect the privacy and security of sensitive
and personal information, including health-related information. Certain state laws may be more stringent or broader in scope, or
offer greater individual rights, with respect to sensitive and personal information than federal, international or other state laws,
and such laws may differ from each other, which may complicate compliance efforts. For example, the California Consumer
Privacy Act (the “CCPA”), which went into effect on January 1, 2020, imposes stringent data privacy and security requirements
and obligations with respect to the personal information of California residents, including, among other things, new disclosures
to California consumers and providing such consumers new data protection and privacy rights, including the ability to opt out of
certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for
certain data breaches that result in the loss of personal data that may increase the likelihood of, and risks associated with, data
breach litigation. It remains unclear how various provisions of the CCPA will be interpreted and enforced, and multiple states have
enacted or are expected to enact similar laws. The effects on our business of the CCPA and other similar state laws are potentially
significant, and may require us to modify our data processing practices and policies and to incur substantial costs and expenses
in an effort to comply. State laws are changing rapidly and there is discussion in Congress of a new federal data protection and
privacy law to which we may be subject.
Additionally, some statutory requirements, both in the U.S. and abroad, include obligations for companies to notify individuals
of security breaches involving particular personal information, which could result from breaches experienced by us or our service
providers. For example, laws in all 50 U.S. states require businesses to provide notice to customers whose personal data has been
disclosed as a result of a data breach. The laws are not consistent, and compliance in the event of a widespread data breach is
difficult and may be costly. Moreover, states have been frequently amending existing laws, requiring attention to changing regulatory
requirements.
Internationally, laws and regulations in many jurisdictions apply broadly to the collection, transmission, dissemination, use,
privacy, confidentiality, security, retention, availability, integrity and other processing of health-related and other sensitive and
personal information. For example, in the European Economic Area (the “EEA”) and, for the duration of the transition period (as
defined below), the United Kingdom, the collection and use of personal data, including clinical trial data, is governed by the
provisions of the General Data Protection Regulation (the “GDPR”). The GDPR became effective on May 25, 2018, repealing its
predecessor directive and increasing responsibility and liability of companies in relation to the processing of personal data of EU
data subjects. The GDPR, together with national legislation, regulations and guidelines of the EU member states and the United
Kingdom governing the processing of personal data, impose strict obligations and restrictions on the ability to collect, analyze,
store, transfer and otherwise process personal data, including health data from clinical trials and adverse event reporting. In
particular, the GDPR includes obligations and restrictions concerning the consent and rights of the individuals to whom the personal
data relates, the transfer of personal data out of the EEA or the United Kingdom, security breach notifications and the security and
confidentiality of personal data. The GDPR authorizes fines for certain violations of up to 4% of global annual revenue or €20
million, whichever is greater. European data protection authorities may interpret the GDPR and national laws differently and
impose additional requirements, which contributes to the complexity of processing personal data in or from the EEA or United
Kingdom. Guidance on implementation and compliance practices is often updated or otherwise revised. We are also subject to
Canada's federal Personal Information Protection and Electronic Documents Act (“PIPEDA”) and substantially similar equivalents
at the provincial level with respect to the collection, use and disclosure of personal information in Canada. Such federal and
provincial legislation impose data privacy and security obligations on our processing of personal information of Canadian residents.
The federal and Alberta legislation include mandatory data breach notification requirements. Canada’s Anti-Spam Legislation
(“CASL”) also applies to the extent that we send commercial electronic messages from Canada or to electronic addresses in
Canada. CASL contains prescriptive consent, form, content and unsubscribe mechanism requirements. Penalties for non-
compliance with CASL are up to CAD $10 million per violation. These laws and regulations may be interpreted and applied
differently over time and from jurisdiction to jurisdiction, and it is possible they will be interpreted and applied in ways that will
materially and adversely affect our business. The regulatory framework for data privacy, data security and data transfers worldwide
is rapidly evolving and is likely to remain uncertain for the foreseeable future. Complying with all of these laws and regulations
involves costs to our business, and failure to comply with these laws and regulations can result in the imposition of significant
civil and criminal penalties, as well as litigation.
Successful commercialization of our products may depend, in part, on the availability of governmental and third-party payor
reimbursement for the cost of our products. Third-party payors may include government health administration authorities, private
health insurers and other organizations. In the U.S., the E.U. and other significant or potentially significant markets for our products
and product candidates, government authorities and third-party payors are increasingly attempting to limit or regulate the price
of medical products and services, which has resulted in lower average realized prices. In the U.S., these pressures can arise from
rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid
and health care reform, pharmaceutical reimbursement policies and pricing in general. In particular, sales of our products may be
subject to discounts from list price and rebate obligations, as well as formulary coverage decisions impacting or limiting the types
of patients for whom coverage will be provided. Various U.S. health care and other laws regulate our interactions with government
agencies, private insurance companies and other third-party payors regarding coverage and reimbursement for our products. Failure
10
to comply with these laws could subject us to civil, criminal and administrative sanctions. In countries outside the U.S., the success
of our products may depend, at least in part, on obtaining and maintaining government reimbursement because, in many countries,
patients are unlikely to use prescription drugs that are not reimbursed by their governments. In addition, negotiating prices with
certain governmental authorities for newly developed products can delay commercialization. In Canada and many international
markets, governments control the prices of prescription pharmaceuticals, including through the implementation of reference pricing,
price cuts, rebates, revenue-related taxes, tenders and profit control, and they expect prices of prescription pharmaceuticals to
decline over the life of the product or as volumes increase.
See Item 1A “Risk Factors” of this Form 10-K for additional information on the risks associated with these regulations and
related matters.
Environmental and Other Regulation
Our facilities and operations are subject to federal, state and local environmental and occupational health and safety laws
and regulations in both the U.S. and countries outside the U.S. (including Canada), including those governing the discharges of
substances into the air, water and land, the handling, treatment, storage and disposal of hazardous substances and wastes, wastewater
and solid waste, the cleanup of contaminated properties and other environmental matters. Certain of our development and
manufacturing activities involve the use of hazardous substances. We believe we are in compliance in all material respects with
applicable environmental and occupational health and safety laws and regulations. We are not aware of any pending environmental
or occupational health and safety litigation or significant liabilities that are likely to have a material adverse effect on our financial
position. We cannot assure, however, that environmental liabilities relating to us or facilities owned, leased or operated by us will
not develop in the future, and we cannot predict whether any such liabilities, if they were to develop, would require significant
expenditures on our part. In addition, we are unable to predict what environmental or and occupational health and safety legislation
or regulations may be adopted or enacted in the future. See Item 1A “Risk Factors” of this Form 10-K for additional information.
Customers and Marketing
In 2019, the U.S. and Puerto Rico accounted for 60% of our total revenue. No other country accounted for more than 5%.
See Note 23, "SEGMENT INFORMATION" to our audited Consolidated Financial Statements for revenues by geographic area.
Customers that accounted for 10% or more of our total revenue for 2019, 2018 and 2017 are as follows:
McKesson Corporation
AmerisourceBergen Corporation
Cardinal Health, Inc.
2019
17%
16%
14%
2018
18%
18%
13%
2017
19%
15%
13%
We currently promote our pharmaceutical products to physicians, hospitals, pharmacies and wholesalers through our own
sales force and sell through wholesalers. In some markets, we additionally sell directly to physicians, hospitals and large drug
store chains and we sell through distributors in countries where we do not have our own sales staff. As part of our marketing
program for pharmaceuticals, we use direct to customer advertising, direct mailings, advertise in trade, social media and medical
periodicals, exhibit products at medical conventions and sponsor medical education symposia.
Competition
Competitive Landscape for Products and Products in Development
The pharmaceutical and medical device industries are highly competitive. Our competitors include specialty and other large
pharmaceutical companies, medical device companies, biotechnology companies, OTC companies and generic manufacturers, in
the U.S., Canada, Europe, Asia, Latin America, Middle East, Africa and in other countries in which we market our products. The
dermatology competitive landscape is highly fragmented, with a large number of mid-size and smaller companies competing in
both the prescription sector and the OTC and cosmeceutical sectors. With respect to the GI market, generic entrants continue to
capture significant share for treatment of many GI conditions. In the area of irritable bowel syndrome ("IBS") and OIC, competitors
have recently launched new competing products, which should increase the size of these markets and intensify competition. The
market for Bausch + Lomb products is very competitive, both across product categories and geographies. In addition to larger
diversified pharmaceutical and medical device companies, we face competition in the eye-health market from mid-size and smaller,
regional and entrepreneurial companies with fewer products in niche areas or regions.
Our competitors are pursuing the development and/or acquisition of pharmaceuticals, medical devices and OTC products
that target the same diseases and conditions that we are targeting in dermatology, GI, eye-health and other therapeutic areas.
11
Academic and other research and development institutions may also develop products or technologies that compete with our
products, which technologies and products may be acquired or licensed by our competitors. These competitors may have greater
financial, R&D or marketing resources than we do. If competitors introduce new products, delivery systems or processes with
therapeutic or cost advantages, our products can be subject to progressive price reductions or decreased volume of sales, or both.
Most new products that we introduce must compete with other products already on the market or products that are later developed
by competitors.
We sell a broad range of products, and competitive factors vary by product line and geographic area in which the products
are sold. The principal methods of competition for our products include quality, efficacy, market acceptance, price, and marketing
and promotional efforts.
Generic Competition and Loss of Exclusivity
We face increased competition from manufacturers of generic pharmaceutical products when patents covering certain of
our currently marketed products expire or are successfully challenged or when the regulatory exclusivity for our products expires
or is otherwise lost. Generic versions are generally significantly less expensive than branded versions, and, where available, may
be required to be utilized before or in preference to the branded version under third-party reimbursement programs, or substituted
by pharmacies. Accordingly, when a branded product loses its market exclusivity, it normally faces intense price competition
from generic forms of the product. To successfully compete for business with managed care and pharmacy benefits management
organizations, we must often demonstrate that our products offer not only medical benefits, but also cost advantages as compared
with other forms of care.
For details regarding products that are facing generic competition, products that could potentially face generic competition,
the corresponding potential revenue impact and infringement proceedings we initiated against potential generic competition, see
Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Business Trends — Generic
Competition and Loss of Exclusivity” of this Form 10-K. See Note 21, "LEGAL PROCEEDINGS" to our audited Consolidated
Financial Statements for further details regarding certain infringement proceedings. See Item 1A “Risk Factors” of this Form 10-
K for additional information on our competition risks.
Manufacturing
We currently operate approximately 37 manufacturing plants worldwide and continue to make capital investments in these
facilities as discussed in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations
— Overview — Focus on Core Businesses” of this Form 10-K.
In the normal course of business, our products, devices and facilities are the subject of ongoing oversight and review, by
regulatory and governmental agencies, including general, for cause and pre-approval inspections by the relevant competent
authorities where we have business operations, including the FDA. Currently, all of our global operations and facilities have the
relevant operational certificates. Through the date of this filing, the Company's operating sites are in good compliance standing,
and all sites under FDA jurisdiction are rated as either No Action Indicated (where there was no Form 483 observation) or Voluntary
Action Indicated (“VAI”) (where there was a Form 483 with one or more observations). In the case of VAI inspection outcomes,
the FDA has accepted our responses to the issues cited in the Form 483, which will be verified when the agency makes its next
inspection of those specific facilities. A Form 483 is issued at the end of each inspection when FDA investigators have observed
any condition that in their judgment may constitute violations of current good manufacturing practice.
We also subcontract the manufacturing of certain of our products, including products manufactured under the rights acquired
from other pharmaceutical companies. Products representing approximately 25% of our product sales for 2019 are produced in
total, or in part, by third-party manufacturers under manufacturing arrangements.
In some cases, the principal raw materials, including active pharmaceutical ingredient, used by us (or our third-party
manufacturers) for our various products are purchased in the open market or are otherwise available from several sources. However,
some of the active pharmaceutical ingredients and other raw materials used in our products and some of the finished products
themselves are currently only available from a single source; or others may in the future become available from only one source.
For example, with respect to some of our largest or most significant products, the supply of the finished product for each of our
Siliq®, Duobrii®, Bryhali®, Lumify®, Trulance®, Vyzulta®, SofLens®, Wellbutrin XL®, Ocuvite®, PreserVision®, Renu®, Xenazine®,
Aplenzin®, Relistor® Oral and PureVision® products are only available from a single source and the supply of active pharmaceutical
ingredient for each of our Siliq®, Duobrii®, Bryhali®, Trulance®, Vyzulta®, Xenazine®, Aplenzin®, and Relistor® Oral products are
also only available from a single source. Any disruption in the supply of any such single-sourced active pharmaceutical ingredient,
other raw material or finished product or an increase in the cost of such materials or products could adversely impact our ability
to manufacture or sell such products, the ability of our third-party manufacturers to supply us with such products, or our profitability.
We attempt to manage the risks associated with reliance on single sources of active pharmaceutical ingredient, other raw materials
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or finished products by carrying additional inventories or, where possible, developing second sources of supply. See Item 1A “Risk
Factors” of this Form 10-K for additional information on the risks associated with our manufacturing arrangements.
Employees
As of December 31, 2019, we had approximately 21,700 employees. These employees included approximately 11,000 in
production, 7,700 in sales and marketing, 1,600 in general and administrative positions and 1,400 in R&D. Collective bargaining
exists for some employees in a number of countries in which we do business. We consider our relations with our employees to be
good and have not experienced any work stoppages, slowdowns or other serious labor problems that have materially impeded our
business operations.
Product Liability Insurance
Since March 31, 2014, we have self-insured substantially all of our product liability risk for claims arising after that date.
In the future, we will continue to re-evaluate our decision to self-insure and may purchase additional product liability insurance
to cover product liability risk. See Item 1A “Risk Factors” of this Form 10-K for additional information.
Seasonality of Business
Historically, revenues from our business tend to be weighted toward the second half of the year. Sales in the first quarter
tend to be lower as patient co-pays and deductibles reset at the beginning of each year. Sales in the fourth quarter tend to be higher
based on consumer and customer purchasing patterns associated with health care reimbursement programs. However, there are
no assurances that these historical trends will continue in the future.
Geographic Areas
A significant portion of our revenues is generated from operations or otherwise earned outside the U.S. and Canada. All of
our foreign operations are subject to risks inherent in conducting business abroad, including price and currency exchange controls,
fluctuations in the relative values of currencies, political and economic instability and restrictive governmental actions including
possible nationalization or expropriation. Changes in the relative values of currencies may materially affect our results of operations.
For a discussion of these risks, see Item 1A “Risk Factors” of this Form 10-K.
See Note 23, "SEGMENT INFORMATION" to our audited Consolidated Financial Statements for revenues and long-lived
assets by geographic area.
A portion of our revenue and income was earned in Canada and Ireland, which have low effective tax rates and represent
approximately 4% of our revenues in 2019. See Item 1A “Risk Factors” of this Form 10-K relating to tax rates for more information.
Available Information
Our Internet address is www.bauschhealth.com. We post links on our website to the following filings as soon as reasonably
practicable after they are electronically filed or furnished to the SEC: annual reports on Form 10-K, quarterly reports on Form 10-
Q, current reports on Form 8-K and any amendment to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended. All such filings are available through our website free of charge. The information
on our Internet website is not incorporated by reference into this Form 10-K or our other securities filings and is not a part of
such filings. The SEC also maintains an Internet website at www.sec.gov that contains reports, proxy and information statements,
and other information regarding issuers, including us, that file electronically with the SEC.
We are also required to file reports and other information with the securities commissions in all provinces in Canada. You
are invited to read and copy any reports, statements or other information, other than confidential filings, that we file with the
provincial securities commissions. These filings are also electronically available from the Canadian System for Electronic
Document Analysis and Retrieval (“SEDAR”) (http://www.sedar.com), the Canadian equivalent of the SEC’s electronic document
gathering and retrieval system.
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Item 1A. Risk Factors
Our business, financial condition, cash flows and results of operations are subject to various risks and uncertainties. You
should carefully consider the risks and uncertainties described below, together with all of the other information in this Form 10-
K, including those risks set forth under the heading entitled “Forward-Looking Statements” and in other documents that we file
with the SEC and the CSA, before making any investment decision with respect to our common shares or debt securities. If any of
the risks or uncertainties actually occur or develop, our business, financial condition, cash flows, results of operations and/or
future growth prospects could change, and such change could be materially adverse. Under these circumstances, the market value
of our common shares and/or debt securities could decline, and you could lose all or part of your investment in our common shares
and/or debt securities.
Legal and Reputational Risks
We are the subject of a number of ongoing legal proceedings, investigations and inquiries respecting certain of our historical
distribution, marketing, pricing, disclosure and accounting practices, including our former relationship with Philidor, which
have had and could continue to have a material adverse effect on our reputation, business, financial condition, cash flows and
results of operations, could result in additional claims and material liabilities, and could cause the market value of our common
shares and/or debt securities to decline.
We have been or are currently the subject of a number of ongoing legal proceedings and investigations and inquiries by
governmental agencies, including, but not limited to, the following: (i) investigations by the U.S. Attorney’s Offices for the District
of Massachusetts and the Southern District of New York relating to certain matters, including our patient assistance programs
(including financial support provided to patients), our former relationship with Philidor and other pharmacies, our accounting
treatment for sales by specialty pharmacies, information provided to the Centers for Medicare and Medicaid Services, our pricing
(including discounts and rebates), marketing and distribution of our products, our compliance program, and employee
compensation; (ii) the investigation by the SEC of the Company relating to certain matters, including our former relationship with
Philidor, our accounting practices and policies and our public disclosures; (iii) an investigation order from the Autorité des marches
financiers (the “AMF”) (our principal securities regulator in Canada) relating to certain matters, including with respect to our
former relationship with Philidor and our accounting practices and policies; (iv) a number of pending securities litigations, including
certain opt-out actions in the U.S. (related to the U.S. Securities class action which is settled, subject to final court approval), and
the pending securities class action litigation in Canada and related opt-out actions, have been instituted, the allegations of which
relate to, among other things, allegedly false and misleading statements by the Company and/or failures to disclose information
about our business and prospects, including relating to drug pricing, our policies and accounting practices, our use of specialty
pharmacies, and our former relationship with Philidor and (v) purported class actions under the federal RICO statute on behalf of
third-party payors arising out of our pricing and use of specialty pharmacies, and our former relationship with Philidor. In addition,
we could, in the future, face additional legal proceedings and investigations and inquiries by governmental agencies relating to
these or similar matters. For more information regarding legal proceedings, see Note 21, "LEGAL PROCEEDINGS" to our audited
Consolidated Financial Statements.
We are unable to predict how long such proceedings, investigations and inquiries will continue, but we anticipate that we will
continue to incur significant costs in connection with some or all of these matters and that some or all of these proceedings,
investigations and inquiries will result in a substantial distraction of management’s time, regardless of the outcome. Some or all
of these proceedings, investigations and inquiries will likely result in damages, settlement payments (such as the $1,210 million
payment to be made by the Company in connection with the recently settled U.S. Securities class action (subject to final court
approval)), fines, penalties, consent orders or other administrative sanctions (including exclusion from federal programs) against
the Company and/or certain of our directors and officers, any of which could be material, or in changes to our business practices,
which, in turn, may result in or may contribute to an inability by us to meet the financial covenant contained in our Restated Credit
Agreement. Furthermore, publicity surrounding these proceedings, investigations and inquiries or any enforcement action as a
result thereof, even if ultimately resolved favorably for us could result in additional investigations and legal proceedings. As a
result, these proceedings, investigations and inquiries could have a material adverse effect on our reputation, business, financial
condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to
decline.
Our historical business practices, including with respect to past pricing practices, are under scrutiny. Any changes to our
practices relating to pricing or the current prices of products, whether imposed, legislated or voluntary, could have a material
adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of
our common shares and/or debt securities to decline.
We are under scrutiny with respect to our business historical practices (including with respect to past pricing practices),
including investigations by the U.S. Attorney’s Offices for the District of Massachusetts and the Southern District of New York,
various securities litigations, including certain opt-out actions in the U.S., (related to the recently settled securities class action
14
(subject to final court approval)) and a purported securities class action in Canada, including related opt-out actions, and purported
class actions under the federal RICO statute on behalf of third-party payors. We are unable to predict how such proceedings,
investigations and inquiries will impact our current business practices, including with respect to pricing, or the prices of our
products, including whether we will be required to impose pricing freezes or controls, pricing reductions (including on a retroactive
basis) or other price regulation for some or all of our products.
In addition, in recent years, in the U.S., state and federal governments have considered implementing legislation that would
control or regulate the prices of drugs, and the new administration has expressed support for lowering the cost of drug prices.
Other countries have announced or implemented measures on pricing, including suspensions on price increases, prospective and
possibly retroactive price reductions and other recoupments. These measures and proposed measures vary by country. These
measures and these proposed measures and legislation, if implemented, could lead to impairment of certain of our intangible assets
which could be significant, and/or could have a material adverse effect on our business, financial condition, cash flows and results
of operations and could cause the market value of our common shares and/or debt securities to decline.
We are involved in various other legal and governmental proceedings that are uncertain, costly and time-consuming and could
have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the
market value of our common shares and/or debt securities to decline.
We are involved in a number of other legal and governmental proceedings and may be involved in additional litigation in the
future. These proceedings are complex and extended and occupy the resources of our management and employees. These
proceedings are also costly to prosecute and defend and may involve substantial awards or damages payable by us if not found in
our favor. We may also be required to pay substantial amounts or grant certain rights on unfavorable terms in order to settle such
proceedings. Defending against or settling such claims and any unfavorable legal decisions, settlements or orders could have a
material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value
of our common shares and/or debt securities to decline. For more information regarding legal proceedings, see Note 21, "LEGAL
PROCEEDINGS" to our audited Consolidated Financial Statements.
For example, the pharmaceutical industry, including our Company, has been the focus of both private payor and governmental
concern regarding pricing of pharmaceutical products. Related actions, including Congressional and other governmental
investigations and litigation, are costly and time-consuming, and adverse resolution of such actions or changes in our business
practices, such as our approach to the pricing of our pharmaceutical products, could adversely affect our business, financial
condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to
decline.
Further, the pharmaceutical and medical device industries historically have generated substantial litigation concerning the
manufacture, use and sale of products and we expect this litigation activity to continue. As a result, we expect that patents related
to our products will be routinely challenged, and the validity or enforceability of our patents may not be upheld. In order to protect
or enforce patent rights, we may initiate litigation against third parties. Our patents may also be challenged in administrative
proceedings in the United States Patent and Trademark Office and patent offices outside of the United States. If we are not successful
in defending an attack on our patents and maintaining exclusive rights to market one or more of our products still under patent
protection, we could lose a significant portion of sales in a very short period. We may also become subject to infringement claims
by third parties and may have to defend against charges that we infringed or otherwise violated patents or the intellectual property
or proprietary rights of third parties. If we infringe or otherwise violate the intellectual property rights of others, we could lose
our right to develop, manufacture or sell products, including our generic products, or could be required to pay monetary damages
or royalties to license proprietary rights from third parties, which could be substantial.
In addition, in the U.S., it has become increasingly common for patent infringement actions to prompt claims that antitrust
laws have been violated during the prosecution of the patent or during litigation involving the defense of that patent. Such claims
by direct and indirect purchasers and other payers are typically filed as class actions. The relief sought may include treble damages
and restitution claims. Similarly, antitrust claims may be brought by government entities or private parties following settlement
of patent litigation, alleging that such settlements are anti-competitive and in violation of antitrust laws. In the U.S. and Europe,
regulatory authorities have continued to challenge as anti-competitive so-called “reverse payment” settlements between branded
and generic drug manufacturers. We may also be subject to other antitrust litigation involving competition claims unrelated to
patent infringement and prosecution. For more information regarding legal proceedings, see Note 21, "LEGAL PROCEEDINGS"
to our audited Consolidated Financial Statements. A successful antitrust claim by a private party or government entity against us
could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the
market value of our common shares and/or debt securities to decline.
15
We depend on third parties to meet their contractual, legal, regulatory, and other obligations.
We rely on distributors, suppliers, contract research organizations, vendors, service providers, business partners and other
third parties to research, develop, manufacture, distribute, market and sell our products, as well as perform other services relating
to our business. We rely on these third parties to meet their contractual, legal, regulatory and other obligations. A failure to maintain
these relationships or poor performance by these third parties could negatively impact our business. In addition, we cannot guarantee
that the contractual terms and protections and compliance controls, policies and procedures we have put in place will be sufficient
to ensure that such third parties will meet their legal, contractual and regulatory obligations or that these terms, controls, policies,
procedures and other protections will protect us from acts committed by our agents, contractors, distributors, suppliers, service
providers or business partners that violate contractual obligations or the laws or regulations of the jurisdictions in which we operate,
including matters respecting anti-corruption, fraud, kickbacks and false claims, pricing, sales and marketing practices, privacy
laws and other legal obligations. Any failure of such third parties to meet these legal, contractual and regulatory obligations or
any improper actions by such third parties or even allegations of such non-compliance or actions could damage our reputation,
adversely impact our ability to conduct business in certain markets and subject us to civil or criminal legal proceedings and
regulatory investigations, monetary and non-monetary damages and penalties and could cause us to incur significant legal and
investigatory fees and, as a result, could have a material adverse effect on our business, financial condition, cash flows and results
of operations and could cause the market value of our common shares and/or debt securities to decline. For example, the allegations
about the activities of Philidor and our former relationship with Philidor have resulted in a number of investigations, inquiries and
legal proceedings against us, which may damage our reputation and result in damages, fines, penalties or administrative sanctions
against the Company and/or certain of our officers. For more information regarding legal proceedings, see Note 21, "LEGAL
PROCEEDINGS" to our audited Consolidated Financial Statements.
If our products cause, or are alleged to cause, serious or widespread personal injury, we may have to withdraw those products
from the market and/or incur significant costs, including payment of substantial sums in damages, and we may be subject to
exposure relating to product liability claims. In addition, our product liability self-insurance program may not be adequate to
cover future losses.
We face an inherent business risk of exposure to significant product liability and other claims in the event that the use of our
products caused, or is alleged to have caused, adverse effects. For example, we have been named as a defendant (along with other
entities) in certain lawsuits in the United States and Canada in which the plaintiffs have made certain product liability claims
respecting Shower to Shower® (a product we acquired in 2012). For more information regarding legal proceedings, see Note 21,
"LEGAL PROCEEDINGS" to our audited Consolidated Financial Statements. These and other product liability proceedings may
be costly to prosecute and defend and may involve substantial awards or damages payable by us if not found in our favor.
Furthermore, our products may cause, or may appear to have caused, adverse side effects (including death) or potentially
dangerous drug interactions that we may not learn about or understand fully until the drug has been administered to patients for
some time. The withdrawal of a product following complaints and/or incurring significant costs, including the requirement to pay
substantial damages in personal injury cases or product liability cases, could have a material adverse effect on our business,
financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt
securities to decline.
In addition, since March 31, 2014, we have self-insured substantially all of our product liability risk for claims arising after
that date. We periodically evaluate and adjust our claims reserves to reflect trends in our own experience, as well as industry trends.
However, historical loss trends may not be adequate to cover future losses, as historical trends may not be indicative of future
losses. If ultimate results exceed our estimates, this would result in losses in excess of our reserved amounts. If we were required
to pay a significant amount on account of these liabilities for which we self-insure, this could have a material adverse effect on
our business, financial condition, cash flows and results of operations and could cause the market value of our common shares
and/or debt securities to decline.
Our marketing, promotional and business practices, as well as the manner in which sales forces interact with purchasers,
prescribers and patients, are subject to extensive regulation and any material failure to comply could result in significant
sanctions against us.
The marketing, promotional and business practices of pharmaceutical and medical device companies, as well as the manner
in which companies’ in-house or third-party sales forces interact with purchasers, prescribers, and patients, are subject to extensive
regulation, enforcement of which may result in the imposition of civil and/or criminal penalties, injunctions, and/or limitations
on marketing practice for some of our products and/or pricing restrictions or mandated price reductions for some of our products.
Many companies, including us, have been the subject of claims related to these practices asserted by federal authorities. These
claims have resulted in fines and other consequences, such as entering into corporate integrity agreements with the U.S. government.
Companies may not promote drugs for “off-label” uses-that is, uses that are not described in the product’s labeling and that differ
from those approved by the FDA, Health Canada, EMA or other applicable regulatory agencies. A company that is found to have
16
improperly promoted off-label uses may be subject to significant liability, including civil and administrative remedies (such as
entering into corporate integrity agreements with the U.S. government), as well as criminal sanctions. In addition, management’s
attention could be diverted from our business operations and our reputation could be damaged. For more information regarding
legal proceedings, see Note 21, "LEGAL PROCEEDINGS" to our audited Consolidated Financial Statements.
Debt-related Risks
Our Restated Credit Agreement and the indentures governing our senior notes impose restrictive covenants on us. Our failure
to comply with these covenants could trigger events, which could result in the acceleration of the related debt, a cross-default
or cross-acceleration to other debt, foreclosure upon any collateral securing the debt and termination of any commitments to
lend, each of which would have a material adverse effect on our business, financial condition, cash flows and results of
operations and would cause the market value of our common shares and/or securities to decline and could lead to bankruptcy
or liquidation.
Our Restated Credit Agreement and the various indentures governing our senior notes contain covenants that restrict the way
we conduct business and require us to satisfy certain financial tests in order to incur debt or take other actions. Additionally, our
Restated Credit Agreement contains a financial covenant that, for example, requires us to maintain a certain financial ratio at fiscal
quarter end.
The Company’s Restated Credit Agreement contains a specified quarterly financial maintenance covenant (consisting of a
first lien leverage ratio). As of December 31, 2019, we were in compliance with this financial maintenance covenant. However,
we can make no assurance that we will be able to comply with the restrictive covenants contained in the Restated Credit Agreement
and indentures in the future. Based on our current forecast for the next twelve months from the date of issuance of this Form 10-
K, we expect to remain in compliance with this financial maintenance covenant and meet our debt obligations over that same
period. In the event that we perform below our forecasted levels, we may also implement certain additional cost-efficiency
initiatives, such as rationalization of selling, general and administrative expenses ("SG&A") and R&D spend, which would allow
us to continue to comply with the financial maintenance covenant. The Company may consider taking other actions, including
divesting other businesses, refinancing debt, issuing equity or equity-linked securities as deemed appropriate, to provide additional
coverage in complying with the financial maintenance covenant and meeting its debt service obligations, or may negotiate with
the applicable lenders for an amendment or modification to such covenant, as deemed appropriate. However, we cannot guarantee
that any of the above-noted actions would be achieved. If we perform below our forecasted levels and the actions referenced above
are not effective, we would fail to comply with our financial maintenance covenant. In that instance, we would be in default, and
our lenders would be permitted to accelerate our debt unless we could obtain an amendment. If our debt was accelerated, we would
not have sufficient funds to repay our debt absent a refinancing, and we cannot provide assurance that we will be able to obtain a
refinancing.
Our inability to comply with the covenants in our debt instruments could lead to a default or an event of default under the
terms thereof, for which we may need to seek relief from our lenders and noteholders in order to waive the associated default or
event of default and avoid a potential acceleration of the related indebtedness or cross-default or cross-acceleration to other debt.
There can be no assurance that we would be able to obtain such relief on commercially reasonable terms or otherwise and we may
be required to incur significant additional costs. In addition, the lenders under our Restated Credit Agreement and holders of our
senior notes may impose additional operating and financial restrictions on us as a condition to granting any such waiver. If an
event of default is not cured or is not otherwise waived, a majority of lenders in principal amount under our Restated Credit
Agreement or the trustee or holders of at least 25% in principal amount of a series of our senior notes may accelerate the maturity
of the related debt under these agreements, foreclose upon any collateral securing the debt and terminate any commitments to
lend, any of which would have a material adverse effect on our business, financial condition, cash flows and results of operations
and would cause the market value of our securities to decline. Furthermore, under these circumstances, we may not have sufficient
funds or other resources to satisfy all of our obligations and we may be unable to obtain alternative financing on terms acceptable
to us or at all. In such circumstances, we could be forced into bankruptcy or liquidation and, as a result, investors could lose all
or a portion of their investment in our securities.
To service our debt, we will be required to generate a significant amount of cash. Our ability to generate cash depends on a
number of factors, some of which are beyond our control, and any failure to meet our debt obligations would have a material
adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of
our common shares and/or debt securities to decline.
We have a significant amount of indebtedness. For details regarding our debt and the maturity dates thereof, see Note 11,
"FINANCING ARRANGEMENTS" to our audited Consolidated Financial Statements. Our ability to satisfy our debt obligations
will depend principally upon our future operating performance. As a result, prevailing economic conditions and financial, business
and other factors, many of which are beyond our control, may affect our ability to make payments on our debt. If we do not generate
sufficient cash flow to satisfy our debt obligations, we may have to undertake alternative financing plans, such as refinancing or
17
restructuring our debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. Alternatively,
as we have done in the past, we may also elect to refinance certain of our debt, for example, to extend maturities. Our ability to
restructure or refinance our debt will depend on the capital markets and our financial condition at such time. If we are unable to
access the capital markets, whether because of the condition of those capital markets or our own financial condition or reputation
within such capital markets, we may be unable to refinance our debt. In addition, any refinancing of our debt could be at higher
interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.
Further, given our capital structure, any refinancing of our senior unsecured debt may be with secured debt, thereby increasing
our first lien and/or secured leverage ratios. Our inability to generate sufficient cash flow to satisfy our debt obligations or to
refinance our obligations on commercially reasonable terms, or at all, could have a material adverse effect on our business, financial
condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to
decline.
Repayment of our indebtedness is dependent on the generation of cash flow by our subsidiaries and their ability to make such
cash available to us, by dividend, debt repayment or otherwise. Our subsidiaries may not be able to, or may not be permitted to,
make distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity and,
under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. Certain
non-guarantor subsidiaries include non-U.S. subsidiaries that may be prohibited by law or other regulations from distributing
funds to us and/or we may be subject to payment of taxes and withholdings on such distributions. In the event that we do not
receive distributions from our subsidiaries or receive cash via services rendered, loans and intellectual property licensed, we may
be unable to make required principal and interest payments on our indebtedness.
Our ability to continue to reduce our indebtedness will depend upon factors including our future operating performance, our
ability to access the capital markets to refinance existing debt and prevailing economic conditions and financial, business and
other factors, many of which are beyond our control. We can provide no assurance of the amount by which we will reduce our
debt, if at all. In addition, servicing our debt will result in a reduction in the amount of our cash flow available for other purposes,
including operating costs and capital expenditures that could improve our competitive position and results of operations.
We have incurred significant indebtedness, which restricts the manner in which we conduct business.
We have incurred significant indebtedness, including in connection with our prior acquisitions. We may incur additional long-
term debt and working capital lines of credit to meet future financing needs, subject to certain restrictions and prohibitions under
the agreements governing our indebtedness, which would increase our total debt. This additional debt may be substantial and some
of this indebtedness may be secured.
The agreements governing our indebtedness contain restrictive covenants which impose certain limitations on the way we
conduct our business, including limitations on the amount of additional debt we are able to incur, prohibitions on incurring additional
debt if a certain financial covenant is not met and restrictions on our ability to make certain investments and other restricted
payments. Any additional debt, to the extent we are able to incur it, may further restrict the manner in which we conduct business.
Such restrictions, prohibitions and limitations could impact our ability to implement elements of our strategy, including in the
following ways:
•
our flexibility to plan for, or react to, competitive challenges in our business and the pharmaceutical and medical
device industries may be compromised;
• we may be put at a competitive disadvantage relative to competitors that do not have as much debt as we have, and
competitors that may be in a more favorable position to access additional capital resources;
our ability to make acquisitions and execute business development activities through acquisitions will be limited
and may, in future years, continue to be limited; and
our ability to resolve regulatory and litigation matters may be limited.
•
•
In the past, our credit ratings have been downgraded. Any further downgrade in our corporate credit ratings or other credit
ratings may increase our cost of borrowing and may negatively impact our ability to raise additional debt capital.
We are exposed to risks related to interest rates.
Our senior secured credit facilities bear interest based on U.S. dollar London Interbank Offering Rates or U.S. Prime Rate,
or Federal Funds effective rate (for U.S. dollar loans) and Canadian Prime Rate or Canada Bankers’ Acceptance Rate (for Canadian
dollar loans). Thus, a change in the short-term interest rate environment (especially a material change) could have an adverse
effect on our business, financial condition, cash flows and results of operations (which adverse effect could be material) and could
cause the market value of our common shares and/or debt securities to decline. As of December 31, 2019, we did not have any
outstanding interest rate swap contracts.
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In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of
LIBOR by the end of 2021. If LIBOR ceases to exist, we will need to endeavor, with the administrative agent thereunder, to amend
the credit facilities to substitute LIBOR with an alternative rate of interest that gives due consideration to the then-prevailing
market convention for syndicated loans in the U.S., subject to notice to all lenders and the absence of objection by the “required
lenders,” or pay interest based on the "base rate" until we can otherwise renegotiate our Senior Secured Credit Facilities to include
a LIBOR replacement. Any change in accordance with the aforementioned procedures, or the conversion of loans to base rate or
U.S. prime rate loans, could have an adverse impact on our cost of capital. Currently, there is no definitive information regarding
the future utilization of LIBOR or of any particular replacement rate. As such, the potential effect of any such event on our business,
financial condition, cash flows and results of operations cannot yet be determined.
Employment-related Risks
The loss of the services of, or our inability to recruit, retain, motivate, our executives and other key employees could have a
material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market
value of our common shares and/or debt securities to decline.
We must continue to retain and motivate our executives and other key employees, and to recruit other executives and employees,
in order to strengthen our management team and workforce. Our ability to retain or recruit executive and other key employees
may be hindered or delayed by, among other things, competition from other employers who may be able to offer more attractive
compensation packages or the reputational challenges the Company faces as a result of historical issues and may in the future
continue to face. A failure by us to retain, motivate and recruit executives and other key employees or the unanticipated loss of
the services of any of these executives or key employees for any reason, whether temporary or permanent, could create disruptions
in our business, could cause concerns and instability for management and employees, current and potential customers, credit rating
agencies and other third parties with whom we do business and our shareholders and debt holders and could cause concern regarding
our ability to execute our business strategy or to manage operations in the manner previously conducted and, as a result, could
have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market
value of our common shares and/or debt securities to decline. Furthermore, as a result of any failure to retain, or loss of, any
executives or key employees, we may experience increased costs in order to identify and recruit a suitable replacement in a timely
manner (and, even if we are able to hire a qualified successor, the search process and transition period may be difficult to manage
and result in additional periods of uncertainty), which could have a material adverse effect on our business, financial condition,
cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline. In
addition, once identified and recruited, the transition of new executives and key employees may be difficult to manage and we
cannot guarantee that new executives and employees will efficiently transition into their roles or ultimately be successful in their
roles. Finally, as a result of changes in our executives and key employees, there may be changes in the way we conduct our business,
as well as changes to our business strategy. We cannot predict what these changes may involve or the timing of any such changes
and how they will impact our product sales, revenue, business, financial condition, cash flows or results of operation, but any such
changes could have a material adverse effect on our business, financial condition, cash flows and results of operations and could
cause the market value of our common shares and/or debt securities to decline. Any of these factors could have a material adverse
effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common
shares and/or debt securities to decline.
Tax-related Risks
Our effective tax rates may increase.
We have operations in various countries that have differing tax laws and rates. Our tax reporting is supported by current
domestic tax laws in the countries in which we operate and the application of tax treaties between the various countries in which
we operate. Our income tax reporting is subject to audit by domestic and foreign authorities. Our effective tax rate may change
from year to year based on changes in the mix of activities and income earned among the different jurisdictions in which we
operate; changes in tax laws in these jurisdictions; changes in the tax treaties between various countries in which we operate;
changes in our eligibility for benefits under those tax treaties; and changes in the estimated values of deferred tax assets and
liabilities. Tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change, with
or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating
our provision and accruals for these taxes. Such changes could result in a substantial increase in the effective tax rate on all or a
portion of our income.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) significantly revised U.S. federal corporate income tax
law by, among other things, reducing the U.S. federal corporate income tax rate to 21%, limiting the tax deduction for interest
expense to 30% of adjusted earnings, allowing immediate expensing for certain new investments, implementing a modified
territorial tax system that includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries, imposing an
additional U.S. tax on certain non-U.S. subsidiaries’ earnings which are considered to be Global Intangible Low Taxed Income
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(referred to as “GILTI”) and imposing an alternative “base erosion and anti-abuse tax” (“BEAT”) on domestic corporations that
make deductible payments to foreign related persons in excess of specified amounts, and, effective for net operating losses (“NOLs”)
arising in taxable years beginning after December 31, 2017, eliminating net operating loss carrybacks, permitting indefinite net
operating loss carryforwards, and limiting the use of net operating loss carryforwards to 80% of current year taxable income.
There are a number of uncertainties and ambiguities as to the interpretation and application of many of the provisions in the
Tax Act, including the provisions relating to the modified territorial tax system, the one-time transition tax and the BEAT. While
the U.S. Treasury Department and the Internal Revenue Service have issued proposed and final regulations and other guidance
on many provisions in the Tax Act that address some of these uncertainties and ambiguities, there are still no final regulations or
other definitive guidance addressing other uncertainties and ambiguities in the Tax Act. In the absence of guidance on these issues,
we will use what we believe are reasonable interpretations and assumptions in interpreting and applying the Tax Act for purposes
of determining our cash tax liabilities and results of operations, which may change as we receive additional clarification and
implementation guidance and as the interpretation of the Tax Act evolves over time. It is possible that the Internal Revenue Service
could issue subsequent guidance or take positions on audit that differ from the interpretations and assumptions that we previously
made, which could have a material adverse effect on our cash tax liabilities, results of operations and financial condition.
Our provision for income taxes is based on certain estimates and assumptions made by management. Our consolidated income
tax rate is affected by the amount of pre-tax income earned in our various operating jurisdictions, the availability of benefits under
tax treaties, and the rates of taxes payable in respect of that income. We enter into many transactions and arrangements in the
ordinary course of business in respect of which the tax treatment is not entirely certain. We therefore make estimates and judgments
based on our knowledge and understanding of applicable tax laws and tax treaties, and the application of those tax laws and tax
treaties to our business, in determining our consolidated tax provision. For example, certain countries could seek to tax a greater
share of income than we will allocate to our business in such countries. The final outcome of any audits by taxation authorities
may differ from the estimates and assumptions that we may use in determining our consolidated tax provisions and accruals. This
could result in a material adverse effect on our consolidated income tax provision, financial condition and the net income for the
period in which such determinations are made.
Our deferred tax liabilities, deferred tax assets and any related valuation allowances are affected by events and transactions
arising in the ordinary course of business, acquisitions of assets and businesses, and non-recurring items. The assessment of the
appropriate amount of a valuation allowance against the deferred tax assets is dependent upon several factors, including estimates
of the realization of deferred income tax assets, which realization will be primarily based on future taxable income, including the
reversal of existing taxable temporary differences. Significant judgment is applied to determine the appropriate amount of valuation
allowance to record. Changes in the amount of any valuation allowance required could materially increase or decrease our provision
for income taxes in a given period.
See Note 18, "INCOME TAXES" to our audited Consolidated Financial Statements.
Risks Relating to Intellectual Property and Exclusivity
Products representing a significant amount of our revenue are not protected by patent or marketing or data exclusivity rights
or are nearing the end of their exclusivity period. In addition, we have faced generic competition in the past and expect to face
additional generic competition in the future. Competitors (including generic and biosimilar competitors) of our products could
have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the
market value of our common shares and/or debt securities to decline.
A significant number of the products we sell either: (i) have no meaningful exclusivity protection via patent or marketing or
data exclusivity rights or (ii) are protected by patents or regulatory exclusivity periods that will be expiring in the near future.
These products represent a significant amount of our revenues (See Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Generic Competition and Loss of Exclusivity” in this Form 10-K for a list of some of
these products). Without exclusivity protection, competitors (including generics and biosimilars) face fewer barriers in introducing
competing products. Upon the expiration or loss of patent exclusivity or regulatory exclusivity for our products or otherwise upon
the introduction of generic, biosimilar or other competitors (which may be sold at significantly lower prices than our products),
we could lose a significant portion of sales and market share of that product in a very short period and, as a result, our revenues
could be lower. In addition, the introduction of generic and biosimilar competitors may have a significant downward pressure on
the pricing of our branded products which compete with such generics and biosimilars. Where we have the rights, we may elect
to launch an authorized generic of such product (either ourselves or through a third party) prior to, upon or following generic entry,
which may mitigate the anticipated decrease in product sales; however, even with the launch of an authorized generic, the decline
in product sales of such product would still be expected to be significant, and the effect on our future revenues could be material.
The introduction of competing products (including generic products and biosimilars) could have a material adverse effect on our
business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/
or debt securities to decline.
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We may fail to obtain, maintain, license, enforce or defend the intellectual property rights required to conduct our business,
which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could
cause the market value of our common shares and/or debt securities to decline.
We strive to acquire, maintain and defend patent, trademark and other intellectual property protections over our products and
the processes used to manufacture these products. However, we may not be successful in obtaining such protections, or the patent,
trademark and intellectual property rights we do obtain may not be sufficient in breadth and scope to fully protect our products
or prevent competing products, or such patent and intellectual property rights may be susceptible to third-party challenges, which
could result in the loss of such intellectual property rights or the narrowing of scope of protection afforded by such rights. Our
intellectual property rights may also be circumvented by third parties. The failure to obtain, maintain, enforce or defend such
intellectual property rights, for any reason, could allow third parties to manufacture and sell products that compete with our products
or may impact our ability to develop, manufacture and market our own products, which could have a material adverse effect on
our business, financial condition, cash flows and results of operations and could cause the market value of our common shares
and/or debt securities to decline.
For certain of our products and manufacturing processes, we rely on trade secrets and other proprietary information, which
we seek to protect, in part, by confidentiality and nondisclosure agreements with our employees, consultants, advisors and partners.
We also attempt to enter into agreements whereby such employees, consultants, advisors and partners assign to us the rights in
any intellectual property they develop. These agreements may not effectively prevent disclosure or misappropriation of such
information and disputes may still arise with respect to the ownership of intellectual property. In addition, third parties may
independently develop the same or similar proprietary information. The disclosure of such proprietary information or the loss of
such intellectual property rights may impact our ability to develop, manufacture and market our own products or may assist
competitors in the development, manufacture and sale of competing products, which could have a material adverse effect on our
revenues, financial condition, cash flows or results of operations and could cause the market value of our common shares and/or
debt securities to decline.
For a number of our commercialized products and pipeline products, including Xifaxan®, Siliq®, Lumify®, Plenvu®, Vyzulta®,
Relistor® and Jublia®, we rely on licenses to patents and other technologies, know-how and proprietary rights held by third parties.
Any loss, expiration, termination or suspension of our rights to such licensed intellectual property would result in our inability to
continue to develop, manufacture and market our products or product candidates and, as a result, could have a material adverse
effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common
shares and/or debt securities to decline. In the future, we may also need to obtain such licenses from third parties to develop,
manufacture, market or continue to manufacture or market our products. If we are unable to timely obtain these licenses on
commercially reasonable terms, our ability to develop, manufacture and market our products may be inhibited or prevented, which
could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the
market value of our common shares and/or debt securities to decline.
Competitive Risks
We operate in extremely competitive industries. If competitors develop or acquire more effective or less costly pharmaceutical
or OTC products or medical devices for our target indications, it could have a material adverse effect on our business, financial
condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities
to decline.
The pharmaceutical, OTC and medical device industries are extremely competitive. Our success and future growth depend,
in part, on our ability to develop, license or acquire products that are more effective than those of our competitors or that incorporate
the latest technologies and our ability to effectively manufacture and market those products. Many of our competitors, particularly
larger pharmaceutical, OTC and medical device companies, have substantially greater financial, technical and human resources
than we do. Many of our competitors spend significantly more on research and development related activities than we do. Others
may succeed in developing or acquiring products and technologies that are more effective, more advanced or less costly than those
currently marketed or proposed for development by us. In addition, academic institutions, government agencies and other public
and private organizations conducting research may seek patent protection with respect to potentially competitive products and
may also establish exclusive collaborative or licensing relationships with our competitors. These competitors and the introduction
of competing products (that may be more effective or less costly than our products) could make our products less competitive or
obsolete, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and
could cause the market value of our common shares and/or debt securities to decline.
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Risks Relating to Our Business Strategy
We have made commitments and public statements with respect to the cessation of or limitation on pricing increases for certain
of our products. These pricing decisions could have a material adverse effect on our business, financial condition, cash flows
and results of operations and could cause the market value of our common shares and/or debt securities to decline.
In May 2016, we formed a new Patient Access and Pricing Committee responsible for the pricing of our drugs. The new
committee’s first action was a recommendation, which we implemented, for an enhanced rebate program to all hospitals in the
U.S. to reduce the price of our Nitropress® and Isuprel® products. In addition, the Patient Access and Pricing Committee made a
commitment that the average annual price increase for our branded prescription pharmaceutical products will be set at no greater
than single digits. This commitment was reaffirmed for 2020. All future pricing actions will be subject to review by the Patient
Access and Pricing Committee and we expect that the Patient Access and Pricing Committee will implement or recommend
additional price changes and/or new programs to enhance patient access to our drugs.
At this time, we cannot predict what specific pricing changes the committee will make nor can we predict what other changes
in our business practices we may implement with respect to pricing (such as imposing limits or prohibitions on the amount of
pricing increases we may take on certain of our products or taking retroactive or future price reductions). We also cannot predict
the impact such pricing decisions or changes will or would have on our business. However, any such changes could have a material
adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our
common shares and/or debt securities to decline.
For example, any pricing changes and programs could affect the average realized prices for our products and may have a
significant impact on our revenue trends. In addition, limiting or eliminating price increases on certain of our products will result
in fewer or lower price appreciation credits from certain of our wholesalers. Price appreciation credits are generated when we
increase a product’s wholesaler acquisition cost (“WAC”) under our contracts with certain wholesalers. Under such contracts, we
are entitled to credits from such wholesalers for the impact of that WAC increase on inventory currently on hand at the wholesalers.
In wholesaler contracts, such credits, which can be significant, are offset against the total distribution service fees we pay on all
of our products to each wholesaler. As a result, to the extent we decide to cease or limit price increases, we will have fewer or
lower price appreciation credits to use to offset against our distribution fees owing to these wholesalers. In addition, under certain
of our agreements with our wholesaler customers, we have price protection or price depreciation provisions, pursuant to which
we have agreed to adjust the value of any on-hand or in-transit inventory with such customers in the event we reduce the price of
any of our products. As a result, to the extent we reduce the WAC price for any of our products, we may owe a payment to such
customers (or such customers may earn a credit to be offset against any amounts owing to us) equal to the amount of such inventory
multiplied by the difference between the price at which they acquired the product inventory and the new reduced price.
In prior years, we have undertaken a number of divestitures or certain of our assets and business. We may, in the future, seek
to divest additional asset and/or businesses, some of which may be material and/or transformative, which could adversely affect
our business, prospects and opportunities for growth.
In recent years, we have completed a number of divestitures of our assets, products or businesses that were not considered
core to our ongoing operations or the needs of our primary-customer base, including the divestitures of our Obagi Medical Products
business, our iNova Pharmaceuticals business, our Dendreon Pharmaceuticals subsidiary, our Sprout Pharmaceuticals subsidiary
and the CeraVe®, AcneFree™ and AMBI® skincare brands. We may, in the future, seek to complete additional divestitures.
Each of these divestitures has been time-consuming and has diverted management’s attention. As a result of these divestitures
(and others we may in the future complete), we may experience lower revenue and lower cash flows from operations. In addition,
as was the case with our sale of our Sprout Pharmaceuticals subsidiary, we may recognize a loss on sale in connection with such
divestitures. We may also suffer adverse tax consequences as a result of such divestitures, including capital gains tax or the
accelerated use of NOLs or other attributes. Furthermore, divesting certain of our businesses or assets may require us to incur
restructuring charges, and we may not be able to achieve the cost savings that we expect from any such restructuring efforts or
divestitures. Any such divestiture could reduce the size or scope of our business, our market share in particular markets, our
opportunities with respect to certain markets, products or therapeutic categories or our ability to compete in certain markets and
therapeutic categories. Furthermore, we will be required to use the net proceeds (or substantial portions thereof) from certain asset
sales to repay the term loans under the Restated Credit Agreement, subject to certain reinvestment rights.
In addition, should we seek to divest other of our assets and business, we may be unable to dispose of such businesses and
assets on satisfactory or commercially reasonable terms within our anticipated timeline. In addition, our ability to identify, enter
into and/or consummate divestitures may be limited by competition we face from other companies in pursuing similar transactions
in the pharmaceutical industry. Any divestiture or other disposition we pursue, whether we are able to complete it or not, may be
complex, time consuming and expensive, may divert the management’s attention, have a negative impact on our customer
relationships, cause us to incur costs associated with maintaining the business of the targeted divestiture during the disposition
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process and also to incur costs of closing and disposing the affected business or transferring the operations of the business to other
facilities. The divestiture process may also further expose us to operational inefficiencies. In addition, if such transactions are not
completed for any reason, the market price of our common shares may reflect a market assumption that such transactions will
occur, and a failure to complete such transactions could result in a negative perception by the market of us generally and a decline
in the market price of our common shares.
As a result of these factors, any divestiture (whether or not completed) could have a material adverse effect on our business,
financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt
securities to decline.
As part of our business strategy, we seek to identify and acquire certain assets, products and businesses.
Historically, part of our business strategy included acquiring and integrating complementary businesses, products,
technologies or other assets. As part of our current business strategy, we again are seeking to complete certain acquisitions of
assets, products and businesses, including by way of in-license arrangements, although not at the volume and pace that we did
historically. Acquisitions or similar arrangements may be complex, time consuming and expensive. We may not consummate some
negotiations for acquisitions or other arrangements, which could result in significant diversion of management and other employee
time, as well as substantial out-of-pocket costs. In addition, there are a number of risks and uncertainties relating to our closing
transactions. If such transactions are not completed for any reason, we will be subject to several risks, including the following:
(i) the market price of our common shares may reflect a market assumption that such transactions will occur, and a failure to
complete such transactions could result in a negative perception by the market of us generally and a decline in the market price
of our common shares; and (ii) many costs relating to such transactions may be payable by us whether or not such transactions
are completed.
If an acquisition is consummated, the integration of the acquired business, product or other assets into our Company may
also be complex and time-consuming and, if such businesses, products and assets are not successfully integrated, we may not
achieve the anticipated benefits, cost-savings or growth opportunities. Potential difficulties that may be encountered in the
integration process include the following: integrating personnel, operations and systems, while maintaining focus on selling and
promoting existing and newly-acquired products; coordinating geographically dispersed organizations; distracting management
and employees from operations; retaining existing customers and attracting new customers; maintaining the business relationships
the acquired company has established, including with health care providers; and managing inefficiencies associated with integrating
the operations of the Company.
Furthermore, we may incur restructuring and integration costs and a number of non-recurring transaction costs associated
with these acquisitions, combining the operations of the Company and the acquired company and achieving desired synergies.
These fees and costs may be substantial. Non-recurring transaction costs include, but are not limited to, fees paid to legal, financial
and accounting advisors, filing fees and printing costs. Additional unanticipated costs may be incurred in the integration of the
businesses of the Company and the acquired company. There can be no assurance that the elimination of certain duplicative costs,
as well as the realization of other efficiencies related to the integration of the acquired business, will offset the incremental
transaction-related costs over time. Therefore, any net benefit may not be achieved in the near term, the long term or at all.
Finally, these acquisitions and other arrangements, even if successfully integrated, may fail to further our business strategy
as anticipated or to achieve anticipated benefits and success, expose us to increased competition or challenges with respect to our
products or geographic markets, and expose us to additional liabilities associated with an acquired business, product, technology
or other asset or arrangement. Any one of these challenges or risks could impair our ability to realize any benefit from our acquisition
or arrangement after we have expended resources on them.
If we fail to maintain our relationships with, and provide appropriate training in our products to, health care providers, including
physicians, hospitals, large drug store chains, wholesale distributors, pharmacies, government entities and group purchasing
organizations, customers may not buy certain of our products and our sales and profitability may decline.
We market our pharmaceutical products to physicians, hospitals, pharmacies and wholesalers through our own sales force
and sell through wholesalers. In some markets, we additionally sell directly to physicians, hospitals and large drug store chains
and we sell through distributors in countries where we do not have our own sales staff. We have developed and strive to maintain
strong relationships with members of each of these groups who assist in product research and development and advise us on how
to satisfy the full range of consumer needs. We rely on these groups to recommend our products to their patients and to other
members of their organizations. Consumers in the pharmaceutical industry, particularly the contact lens and lens care customers
in the eye-health industry, have a tendency not to switch products regularly and are repeat consumers. As a result, the success of
certain of our products, particularly our vision care products, is impacted by a physician's initial recommendation of such products
and a consumer's initial choice to use such products. As a result, the failure of certain of our products, particularly in our vision
care business, to retain the support of pharmaceutical professionals, hospitals or group purchasing organizations and to retain the
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support of the end-users and the distributors and retailers to whom we sell such products, could have a material adverse effect on
our sales and profitability.
Commercialization Risks
Our approved products may not achieve or maintain expected levels of market acceptance.
Even if we are able to obtain and maintain regulatory approvals for our pharmaceutical and medical device products, generic
or branded, the success of these products is dependent upon achieving and maintaining market acceptance. Launching and
commercializing products is time consuming, expensive and unpredictable. The commercial launch of a product takes significant
time, resources, personnel and expertise, which we may not have in sufficient levels to achieve success, and is subject to various
market conditions, some of which may be beyond our control. There can be no assurance that we will be able to, either by ourselves
or in collaboration with our partners or through our licensees or distributors, successfully launch and commercialize new products
or gain market acceptance for such products. New product candidates that appear promising in development may fail to reach the
market or may have only limited or no commercial success. While we have been successful in launching some of our products,
we may not achieve the same level of success with respect to all of our new products. Our inability to successfully launch our new
products may negatively impact the commercial success of such product, which could have a material adverse effect on our
business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/
or debt securities to decline. Our inability to successfully launch our new products could also lead to material impairment charges.
Levels of market acceptance for our new products could be impacted by several factors, some of which are not within our
control, including but not limited to the following:
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safety, efficacy, convenience and cost-effectiveness of our products compared to products of our competitors;
scope of approved uses and marketing approval;
availability of patent or regulatory exclusivity;
timing of market approvals and market entry;
ongoing regulatory obligations following approval, such as the requirement to conduct a Risk Evaluation and
Mitigation Strategy ("REMS") programs;
any restrictions or “black box” warnings required on the labeling of such products;
availability of alternative products from our competitors;
acceptance of the price of our products;
effectiveness of our sales forces and promotional efforts;
the level of reimbursement of our products;
acceptance of our products on government and private formularies;
ability to market our products effectively at the retail level or in the appropriate setting of care; and
the reputation of our products.
Further, the market perception and reputation of our products and their safety and efficacy are important to our business and
the continued acceptance of our products. Any negative publicity about our products, such as the discovery of safety issues with
our products, adverse events involving our products, or even public rumors about such events, could have a material adverse effect
on our business, financial condition, cash flows or results of operation or could cause the market value of our common shares and/
or debt securities to decline. In addition, the discovery of significant problems with a product similar to one of our products that
implicate (or are perceived to implicate) an entire class of products or the withdrawal or recall of such similar products could have
a material adverse effect on sales of our products. Accordingly, new data about our products, or products similar to our products,
could cause us reputational harm and could negatively impact demand for our products due to real or perceived side effects or
uncertainty regarding safety or efficacy and, in some cases, could result in product withdrawal.
If our products fail to gain, or lose, market acceptance, our revenues would be adversely impacted and we may be required
to take material impairment charges, all of which could have a material adverse effect on our business, financial condition, cash
flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
For certain of our products, we depend on reimbursement from governmental and other third-party payors and a reduction in
reimbursement could reduce our product sales and revenue. In addition, failure to be included in formularies developed by
managed care organizations and coverage by other organizations may negatively impact the utilization of our products, which
could harm our market share and could have a material adverse effect on our business, financial condition, cash flows and
results of operations and could cause the market value of our common shares and/or debt securities to decline.
Sales of certain of our products are dependent, in part, on the availability and extent of reimbursement from government
health administration authorities, private health insurers, pharmacy benefit managers and other organizations of the costs of our
products and the continued reimbursement and coverage of our products in such programs. Changes in government regulations
or private third-party payors’ reimbursement policies may reduce reimbursement for our products. In addition, such third-party
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payors may otherwise make the decision to reduce reimbursement of some or all our products or fail to cover some or all our
products in such programs or assert that reimbursements were not in accordance with applicable requirements. For example, these
decisions may be based on the price of our products or our current or former pricing practices and decisions. Any reduction or
elimination of such reimbursement or coverage could result in a negative impact on the utilization of our products and, as a result,
could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the
market value of our common shares and/or debt securities to decline.
Managed care organizations and other third-party payors try to negotiate the pricing of medical services and products to
control their costs. Managed care organizations and pharmacy benefit managers typically develop formularies to reduce their cost
for medications. Formularies can be based on the prices and therapeutic benefits of the available products. Due to their lower
costs, generic products are often favored. The breadth of the products covered by formularies varies considerably from one managed
care organization to another, and many formularies include alternative and competitive products for treatment of particular medical
conditions. Failure to be included in such formularies or to achieve favorable formulary status may negatively impact the utilization
and market share of our products. If our products are not included within an adequate number of formularies or adequate
reimbursement levels are not provided, or if those policies increasingly favor generic products, this could have a material adverse
effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common
shares and/or debt securities to decline.
Our fulfillment arrangements with Walgreens and our Dermatology.com cash-pay prescription program may not be successful.
At the beginning of 2016, we launched a brand fulfillment arrangement with Walgreen Co. ("Walgreens"), pursuant to which
we have made certain of our dermatology and ophthalmology products available to eligible patients through a patient access and
co-pay program available at Walgreens U.S. retail pharmacy locations, as well as participating independent retail pharmacies. We
have, in the past, experienced certain operational and other issues respecting this arrangement, including lower than anticipated
average realized prices associated with these products through this arrangement. In July 2019, we entered into an amendment to
the existing fulfillment agreement to address some of these issues. We cannot guarantee this arrangement will continue to be
successful in the future, nor can we guarantee that additional operational issues will not be encountered, nor can we guarantee that
we will be able to successfully negotiate with Walgreens any improvements or amendments to this arrangement we identify as
necessary or desired. In addition, we cannot predict how the market, including customers, doctors, patients, pharmacy benefit
managers and third-party payors, or governmental agencies, will continue to react to these arrangements and programs. If this
arrangement or program fails, if they do not achieve sufficient success and market acceptance, if we face retaliation from third
parties as a result of this arrangement and program (for example, in the form of limitations on or exclusions from the reimbursement
of our products) or if any part of this arrangement is found to be non-compliant with applicable law or regulations, this could have
a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market
value of our common shares and/or debt securities to decline.
In addition, in February 2019, we launched Dermatology.com, a cash-pay product acquisition program offering certain branded
Ortho Dermatologics products directly to patients. This program is designed to address the affordability and availability of certain
branded dermatology products, when insurers and pharmacy benefit managers are no longer offering those branded prescription
pharmaceutical products under their designated pharmacy benefit offerings. We currently have 15 Ortho Dermatologics branded
prescription pharmaceutical products in the Dermatology.com program and anticipate adding additional products in the future.
We cannot guarantee that this program will be successful or that we will continue to add new products to the program. In addition,
we cannot predict how the market, including customers, doctors and patients will react to this program. If this program fails, if it
does not achieve sufficient success and market acceptance or if any part of this program is found to be non-compliant with applicable
law or regulations, this could have a material adverse effect on our business, financial condition, cash flows and results of operations
and could cause the market value of our common shares and/or debt securities to decline.
Risks Relating to the International Scope of our Business
Our business, financial condition, cash flows and results of operations are subject to risks arising from the international scope
of our operations.
We conduct a significant portion of our business outside the U.S. and Canada and may, in the future, expand our operations
into new countries, including emerging markets. We sell our pharmaceutical and medical device products in many countries around
the world. All of our foreign operations are subject to risks inherent in conducting business abroad, including, among other things:
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difficulties in coordinating and managing foreign operations, including ensuring that foreign operations comply with
foreign laws as well as Canadian and U.S. laws applicable to Canadian companies with U.S. and foreign operations,
such as export and sanctions laws and the U.S. Foreign Corrupt Practices Act (“FCPA”), the Canadian Corruption
of Foreign Public Officials Act, and other applicable worldwide anti-bribery laws;
price and currency exchange controls;
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restrictions on the repatriation of funds;
scarcity of hard currency, including the U.S. dollar, which may require a transfer or loan of funds to the operations
in such countries, which they may not be able to repay on a timely basis;
political and economic instability;
compliance with multiple regulatory regimes;
compliance with economic sanctions laws and other laws that apply to our activities in the countries where we
operate;
less established legal and regulatory regimes in certain jurisdictions, including as relates to enforcement of anti-
bribery and anti-corruption laws and the reliability of the judicial systems;
differing degrees of protection for intellectual property;
unexpected changes in foreign regulatory requirements, including quality standards and other certification
requirements;
new export license requirements;
adverse changes in tariff and trade protection measures;
differing labor regulations;
potentially negative consequences from changes in or interpretations of tax laws;
restrictive governmental actions;
possible nationalization or expropriation;
credit market uncertainty;
differing local practices, customs and cultures, some of which may not align or comply with our Company practices
and policies or U.S. laws and regulations;
difficulties with licensees, contract counterparties, or other commercial partners; and
differing local product preferences and product requirements.
As a result of changes to U.S. policy, there may be changes to existing trade agreements and greater restrictions on trade
generally. On November 30, 2018, the United States, Canada and Mexico signed the United States-Mexico-Canada Agreement
(“USMCA”) as an overhaul and update to the North American Free Trade Agreement. The USMCA is subject to ratifications by
the legislative bodies of all three signatory countries. It is difficult to anticipate the full impact of this agreement on our business,
financial condition, cash flows and results of operations.
Notwithstanding the USMCA, support for protectionism and rising anti-globalization sentiment in the United States and other
countries may slow global growth. In particular, a protracted and wide-ranging trade conflict between the United States and China
could adversely affect global economic growth. Concerns also remain around the social, political and economic impacts of the
changing political landscape in Europe, including the final outcome of Brexit (as defined below) negotiations. In addition, there
are growing concerns over an economic slowdown in emerging markets in light of capital outflows in favor of developed markets
and expected interest rate increases. Broader geopolitical tensions remained high amongst the U.S., Russia, China, and across the
Middle East.
Given the international scope of our operations, any of the above factors, including tariffs, trade wars and other governmental
actions, could have a material adverse effect on our business, financial condition, cash flows and results of operations and could
cause the market value of our common shares and/or debt securities to decline.
Similarly, adverse economic conditions impacting our customers in these countries or uncertainty about global economic
conditions could cause purchases of our products to decline, which would adversely affect our revenues and operating results.
Moreover, our projected revenues and operating results are based on assumptions concerning certain levels of customer spending.
Any failure to attain our projected revenues and operating results as a result of adverse economic or market conditions could have
a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market
value of our common shares and/or debt securities to decline.
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. At the time of this filing,
the outbreak has been largely concentrated in China, although cases have been confirmed in other countries. In China, reactions
to, or efforts to contain the spread of, this coronavirus have led to, among other things, closure of stores, reduction in or cessation
of certain surgeries and a general reduction in consumer activity. While these effects are expected to be temporary, the duration
of the business disruption in China and related financial impact cannot be reasonably estimated at this time. Similarly, we cannot
estimate whether this impact may extend to other countries outside of China. At this point, the extent to which the coronavirus may
impact our results is uncertain. However, it is possible that our B&L/International segment and consolidated results in 2020 will
likely be negatively impacted by this event and this impact may be material.
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Due to the large portion of our business conducted in currency other than U.S. dollars, we have significant foreign currency
risk.
We face foreign currency exposure on the translation into U.S. dollars of the financial results of our operations in Europe,
Canada, Latin America, Asia, Africa and the Middle East and other regions. Where possible, we manage foreign currency risk by
managing same currency revenue in relation to same currency expenses. We may also use derivative financial instruments from
time to time to mitigate our foreign currency risk and not for trading or speculative purposes. We face foreign currency exposure
in those countries where we have revenue denominated in the local foreign currency and expenses denominated in other currencies.
Both favorable and unfavorable foreign currency impacts to our foreign currency-denominated operating expenses are mitigated
to a certain extent by the natural, opposite impact on our foreign currency-denominated revenue. In addition, the repurchase of
our U.S. dollar denominated debt may result in foreign exchange gains or losses for Canadian income tax purposes. One half of
any foreign exchange gains or losses will be included in our Canadian taxable income. Any foreign exchange gain will result in
a corresponding reduction in our available Canadian tax attributes.
In addition, in November 2016, as a result of the Egyptian government’s decision to float the Egyptian pound and un-peg it
to the U.S. Dollar, the Egyptian pound was significantly devalued. Our exposure to the Egyptian pound is primarily with respect
to Amoun Pharmaceutical Company S.A.E., which we acquired in October 2015, and which represented approximately 3% and
2% of our total 2019 and 2018 revenues, respectively. Further strengthening of the U.S. dollar and/or the devaluation of other
countries' currencies could have a negative impact on our reported international revenue.
Development and Regulatory Risks
The successful development of our pipeline products is highly uncertain and requires significant expenditures and time. In
addition, obtaining necessary government approvals is time-consuming and not assured. The failure to commercialize certain
of our pipeline products could have a material adverse effect on our business, financial condition, cash flows and results of
operations and could cause the market value of our common shares and/or debt securities to decline.
We currently have a number of pipeline products in development. We and our development partners, as applicable, conduct
extensive preclinical studies and clinical trials to demonstrate the safety and efficacy in humans of our pipeline products in order
to obtain regulatory approval for the sale of our pipeline products. Preclinical studies and clinical trials are expensive, complex,
can take many years and have uncertain outcomes. None of, or only a small number of, our research and development programs
may actually result in the commercialization of a product. We will not be able to commercialize our pipeline products if preclinical
studies do not produce successful results or if clinical trials do not demonstrate safety and efficacy in humans. Furthermore, success
in preclinical studies or early-stage clinical trials does not ensure that later stage clinical trials will be successful nor does it ensure
that regulatory approval for the product candidate will be obtained. In addition, the process for the completion of pre-clinical and
clinical trials is lengthy and may be subject to a number of delays for various reasons, which would delay the commercialization
of any successful product. If our development projects are not successful or are significantly delayed, we may not recover our
substantial investments in the pipeline product and our failure to bring these pipeline products to market on a timely basis, or at
all, could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause
the market value of our common shares and/or debt securities to decline.
In addition, FDA and Health Canada approval must be obtained in the U.S. and Canada, respectively, EMA approval (drugs)
and CE Marking (devices) must be obtained in countries in the EU and similar approvals must be obtained from comparable
agencies in other countries, prior to marketing or manufacturing new pharmaceutical and medical device products for use by
humans. Obtaining such regulatory approvals for new products and devices and manufacturing processes can take a number of
years and involves the expenditure of substantial resources. Even if such products appear promising in development stages,
regulatory approval may not be achieved and no assurance can be given that we will obtain approval in those countries where we
wish to commercialize such products. Nor can any assurance be given that if such approval is secured, the approved labeling will
not have significant labeling limitations, including limitations on the indications for which we can market a product, or require
onerous risk management programs. Furthermore, from time to time, changes to the applicable legislation or regulations may be
introduced that change these review and approval processes for our products, which changes may make it more difficult and costly
to obtain or maintain regulatory approvals.
Our marketed drugs will be subject to ongoing regulatory review.
Following initial regulatory approval of any products, we or our partners may develop or acquire, we will be subject to
continuing regulatory review by various government authorities in those countries where our products are marketed or intended
to be marketed, including the review of adverse drug events and clinical results that are reported after product candidates become
commercially available. In addition, we are subject to ongoing audits and investigations of our facilities and products by the FDA,
as well as other regulatory agencies in and outside the U.S.
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If we fail to comply with the regulatory requirements in those countries where our products are sold, we could lose our
marketing approvals or be subject to fines or other sanctions. Also, as a condition to granting marketing approval of a product,
the applicable regulatory agencies may require a company to conduct additional clinical trials or remediate Current Good
Manufacturing Practice ("CGMP") issues, the results of which could result in the subsequent loss of marketing approval, changes
in product labeling or new or increased concerns about side effects or efficacy of a product.
In May 2017, the European Commission published the Medical Device Regulation (MDR) 2017/745, which replaced the
Medical Device Directive (MDD). Pursuant to the terms of the new regulations, in order to continue to market medical device
products in the EU, such products must achieve compliance with these new regulations and be re-registered in the EU within a
specified transition period, which, for a portion of products, will end as early as May 26, 2020. These new regulations impact all
of our existing and pipeline medical device products being sold in the EU for which we are legal manufacturer and/or distributor,
including contact lens, lens care, eye-health, aesthetic and surgical areas, as well as certain of our products outside the EU, which
rely on the EU registration to support registration in those other countries. These products, in the aggregate, account for a meaningful
portion of our net revenue in this region. While we are working to ensure compliance with these new regulations for all impacted
products, we may not be able to achieve compliance for all products within the applicable transition period. If we fail to achieve
compliance, we will not be able to market and sell the non-compliant products in the EU, nor will we be able to rely on the non-
compliant registration for such products in regions outside of the EU, which could have a material adverse effect on our business,
financial condition, cash flows and results of operations in the EU and, possibly, on a consolidated basis, and could cause the
market value of our common shares and/or debt securities to decline.
In addition, incidents of adverse drug reactions, unintended side effects or misuse relating to our products could result in
additional regulatory controls or restrictions, or even lead to the regulatory authority requiring us to withdraw the product from
the market. Further, if faced with these incidents of adverse drug reactions, unintended side effects or misuse relating to our
products, we may elect to voluntarily implement a recall or market withdrawal of our product. A recall or market withdrawal,
whether voluntary or required by a regulatory authority, may involve significant costs to us, potential disruptions in the supply of
our products to our customers and reputational harm to our products and business, all of which could harm our ability to market
our products and could have a material adverse effect on our business, financial condition, cash flows and results of operations
and could cause the market value of our common shares and/or debt securities to decline.
The United Kingdom’s exit from the European Union may impact the development and the regulatory approval and review of
our products.
On June 23, 2016, the United Kingdom held a referendum on its membership in the European Union, in which United Kingdom
voters approved an exit from the European Union (“Brexit”). On March 29, 2017, the United Kingdom formally notified the
European Council pursuant to Article 50 of the Treaty of Lisbon of its intention to leave the European Union. On January 31, 2020
(“Exit Day”), the United Kingdom ceased to be a member state of the European Union. EU law applicable to the United Kingdom
continues to apply to and in the United Kingdom for the duration of a transition period which is presently scheduled to expire on
December 31, 2020 (the “Transition Period”). During the Transition Period, the European Union and the United Kingdom will
negotiate the terms of their future relationship. There is no assurance that such negotiations will be successful or certainty that
EU law will continue to apply in and to the United Kingdom following the expiration of the Transition Period. Since a significant
proportion of the United Kingdom’s regulatory framework is derived from European Union directives and regulations, EU law
ceasing to apply in and to the United Kingdom following the expiration of the Transition Period could materially impact the
regulatory regime with respect to the approval of our products in the United Kingdom. Following the Brexit vote, the European
Union moved the European Medicines Agency’s headquarters from the United Kingdom to the Netherlands, which could result
in disruptions and delays in new drug approvals in the European Union. In addition, we could face new regulatory costs and
challenges that could have a material adverse effect on our business, financial condition, cash flows and results of operations.
Until expiration of the Transition Period and the future relationship between the European Union and the United Kingdom is
established, it is difficult to anticipate Brexit’s potential impact.
Manufacturing and Supply Risks
If we or our third-party manufacturers are unable to manufacture our products or the manufacturing process is interrupted
due to failure to comply with regulations or for other reasons, the interruption of the manufacture of our products could
adversely affect our business. Other manufacturing and supply difficulties or delays may also have a material adverse effect
on our business, financial condition, cash flows and results of operations and could cause the market value of our common
shares and/or debt securities to decline.
Our manufacturing facilities and those of our contract manufacturers must be inspected and found to be in full compliance
with CGMP, quality system management requirements or similar standards before approval for marketing. Compliance with CGMP
regulations requires the dedication of substantial resources and requires significant expenditures. In addition, while we attempt to
build in certain contractual obligations on our third party manufacturers, we may not be able to ensure that such third-parties
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comply with these obligations. Our failure or that of our contract manufacturers to comply with CGMP regulations, quality system
management requirements or similar regulations outside of the U.S. could result in enforcement action by the FDA or its foreign
counterparts, including, but not limited to, warning letters, fines, injunctions, civil or criminal penalties, recall or seizure of products,
total or partial suspension of production or importation, suspension or withdrawal of regulatory approval for approved or in-market
products, refusal of the government to renew marketing applications or approve pending applications or supplements, refusal of
certificates for export to foreign jurisdictions, suspension of ongoing clinical trials, imposition of new manufacturing requirements,
closure of facilities and criminal prosecution. These enforcement actions could lead to a delay or suspension in production, which
could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash
flows.
In addition, our manufacturing and other processes use complicated and sophisticated equipment, which sometimes requires
a significant amount of time to obtain and install. Manufacturing complexity, testing requirements and safety and security processes
combine to increase the overall difficulty of manufacturing these products and resolving manufacturing problems that we may
encounter. Although we endeavor to properly maintain our equipment (and require our contract manufacturers to properly maintain
their equipment), including through on-site quality control and experienced manufacturing supervision, and have key spare parts
on hand, our business could suffer if certain manufacturing or other equipment, or all or a portion of our or their facilities, were
to become inoperable for a period of time. We could experience substantial production delays or inventory shortages in the event
of any such occurrence until we or they repair such equipment or facility or we or they build or locate replacement equipment or
a replacement facility, as applicable, and seek to obtain necessary regulatory approvals for such replacement. Any interruption in
our manufacture of products could adversely affect the sales of our current products or introduction of new products and could
have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market
value of our common shares and/or debt securities to decline.
The supply of our products to our customers (or, in some cases, supply from our contract manufacturers to us) is subject to
and dependent upon the use of transportation services. Disruption of transportation services (including as a result of weather
conditions) could have a material adverse effect on our business, financial condition, cash flows and results of operations and
could cause the market value of our common shares and/or debt securities to decline. In addition, any prolonged disruption in the
operations of our existing distribution facilities, whether due to technical, labor or other difficulties, weather conditions, equipment
malfunction, contamination, failure to follow specific protocols and procedures, destruction of or damage to any facility or other
reasons, could have a material adverse effect on our business, financial condition, cash flows and results of operations and could
cause the market value of our common shares and/or debt securities to decline.
For some of our finished products and raw materials, we obtain supply from one or a limited number of sources. If we are
unable to obtain components or raw materials, or products supplied by third parties, our ability to manufacture and deliver
our products to the market would be impeded, which could have a material adverse effect on our business, financial condition,
cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Some components and raw materials used in our manufactured products, and some finished products sold by us, are currently
available only from one or a limited number of domestic or foreign suppliers. For example, with respect to some of our largest or
most significant products, the supply of the finished product for each of our Siliq™, Duobrii®, Bryhali®, Lumify®, Trulance®,
Vyzulta®, SofLens®, Wellbutrin XL®, Ocuvite®, PreserVision®, Renu®, Aplenzin®, Xenazine®, Relistor® Oral and PureVision®
products are only available from a single source and the supply of active pharmaceutical ingredient for each of our Siliq™, Duobrii®,
Bryhali®, Trulance®, Vyzulta®, Xenazine®, Aplenzin® and Relistor® Oral products are also only available from a single source. In
the event an existing supplier fails to supply product on a timely basis and/or in the requested amount, supplies product that fails
to meet regulatory requirements, becomes unavailable through business interruption or financial insolvency or loses its regulatory
status as an approved source or we are unable to renew current supply agreements when such agreements expire and we do not
have a second supplier, we may be unable to obtain the required components, raw materials or products on a timely basis or at
commercially reasonable prices. We attempt to mitigate these risks by maintaining safety stock of these products, but such safety
stock may not be sufficient. In addition, in some cases, only a single source of active pharmaceutical ingredient is identified in
filings with regulatory agencies, including the FDA, and cannot be changed without prior regulatory approval, which would involve
time and expense to us. A prolonged interruption in the supply of a single-sourced raw material, including the active pharmaceutical
ingredient, or single-sourced finished product could have a material adverse effect on our business, financial condition, cash flows
and results of operations and could cause the market value of our common shares and/or debt securities to decline. In addition,
these third-party manufacturers may have the ability to increase the supply price payable by us for the manufacture and supply of
our products, in some cases without our consent.
As a result, our dependence upon others to manufacture our products may adversely affect our profit margins and our ability
to obtain approval for and produce our products on a timely and competitive basis, which could have a material adverse effect on
our business, financial condition, cash flows and results of operations and could cause the market value of our common shares
and/or debt securities to decline.
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Changes in inventory levels or fluctuations in buying patterns by our large distributor and retail customers may adversely
affect our sales and earnings and add to sales variability from quarter to quarter.
We balance the need to maintain inventory levels that are sufficient to ensure competitive lead times against the risk of
inventory obsolescence because of changing customer requirements, fluctuating commodity prices, changes to our products,
product transfers or the life-cycle of our products. In order to successfully manage our inventories, we must estimate demand from
our customers and produce products that substantially correspond to that demand. If we fail to adequately forecast demand for
any new or existing product, or fail to determine the appropriate product mix for production purposes, we may face production
capacity issues in manufacturing sufficient quantities of a given product. In addition, failures in our information technology systems
or human error could also lead to inadequate forecasting of our overall demand or product mix.
We have a significant number of unique products, and we anticipate that number will continue to grow over time. As a result,
the demand forecasting precision required for us to avoid production capacity issues will also increase, which could increase the
risk of product unavailability and lost sales. Additionally, an increasing number of unique products could increase global inventory
requirements, negatively impacting our working capital performance and leading to write-offs due to obsolescence and expired
products.
Due to the lead times necessary to obtain and install new equipment and ramp up production of product lines, if we fail to
adequately forecast the need for additional manufacturing capacity, whether for new or existing products, we may be unable to
scale production in a timely manner to meet demand for our products. In addition, the technically complex manufacturing processes
required to manufacture many of our products increase the risk of production failures, and can increase the cost of producing our
goods. As a result, because the production process for many of our products is so complex and sensitive, the cost of production
and the chance of production failures and lengthy supply interruptions is increased, which can have a substantial impact on our
inventory levels.
Finally, a significant portion of our products are sold to major health care distributors and major retail chains in Canada, the
United States and abroad. Consequently, our sales and quarterly growth comparisons, as well as our estimates for required inventory
levels, may be affected by fluctuations in the buying patterns of major distributors, retail chains and other trade buyers. These
fluctuations may result from seasonality, pricing, large retailers' and distributors' buying decisions or other factors. If we
overestimate demand and produce too much of a particular product, we face a risk of inventory obsolescence, leaving us with
inventory that we cannot sell profitably or at all. In addition, we may have to write down such inventory if we are unable to sell
it for its recorded value. Conversely, if we underestimate demand and produce insufficient quantities of a product, we could be
forced to produce that product at a higher price and forego profitability in order to meet customer demand. For example, if a
competitor initiates a recall and there is an unexpected increase in the demand for our products, we may not be able to meet such
increased demand. Insufficient inventory levels may lead to shortages that result in loss of sales opportunities altogether as potential
end-customers turn to competitors' products that are readily available. If any of these situations occur frequently or in large volumes
or if we are unable to effectively manage our inventory and that of our distribution partners, this could have a material adverse
effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common
shares and/or debt securities to decline.
Risks Relating to Specific Legislation and Regulations
We are subject to various laws and regulations, including “fraud and abuse” laws, anti-bribery laws, environmental laws and
privacy and security regulations, and a failure to comply with such laws and regulations or prevail in any litigation related to
noncompliance could have a material adverse effect on our business, financial condition, cash flows and results of operations
and could cause the market value of our common shares and/or debt securities to decline.
Pharmaceutical and medical device companies have faced lawsuits and investigations pertaining to violations of health care
“fraud and abuse” laws, such as the federal False Claims Act, the federal Anti-Kickback Statute (“AKS”) and other state and
federal laws and regulations. The AKS prohibits, among other things, knowingly and willfully offering, paying, soliciting or
receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any
health care item or service reimbursable under federally financed health care programs. This statute has been interpreted to apply
to arrangements between pharmaceutical or medical device manufacturers, on the one hand, and prescribers, purchasers, formulary
managers and other health care related professionals, on the other hand. More generally, the federal False Claims Act, among other
things, prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal
government. Pharmaceutical and medical device companies have been prosecuted or faced civil liability under these laws for a
variety of alleged promotional and marketing activities, including engaging in off-label promotion that caused claims to be submitted
for non-covered off-label uses. If we are in violation of any of these requirements or any such actions are instituted against us,
and we are not successful in defending ourselves or asserting our rights, this could have a significant impact on our business,
including the imposition of significant criminal and civil fines and penalties, exclusion from federal health care programs or other
sanctions, including consent orders or corporate integrity agreements.
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In addition, the U.S. Department of Health and Human Services Office of Inspector General recommends, and increasingly
states require pharmaceutical companies to have comprehensive compliance programs. Moreover, the Physician Payment Sunshine
Act enacted in 2010 imposes reporting and disclosure requirements on device and drug manufacturers for any “transfer of value”
made or distributed to prescribers and other health care providers. Failure to submit this required information may result in
significant civil monetary penalties. While we have developed corporate compliance programs based on what we believe to be
current best practices, we cannot provide assurance that we or our employees or agents are or will be in compliance with all
applicable federal, state or foreign regulations and laws. If we are in violation of any of these requirements or any such actions
are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a
significant impact on our business, including the imposition of significant criminal and civil fines and penalties, exclusion from
federal health care programs or other sanctions, including consent orders or corporate integrity agreements.
The U.S. FCPA and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making
improper payments to officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these
anti-bribery laws. We operate in many parts of the world that have experienced governmental corruption and in certain
circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices or may require us to interact
with doctors and hospitals, some of which may be state controlled, in a manner that is different than in the U.S. and Canada. We
cannot provide assurance that our internal control policies and procedures will protect us from reckless or criminal acts committed
by our employees, consultants, distributors, third party contractors or agents. Violations of these laws, or allegations of such
violations, could disrupt our business and result in criminal or civil penalties or remedial measures, any of which could have a
material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value
of our common shares and/or debt securities to decline.
We are also subject to various state, federal and international laws and regulations governing the collection, transmission,
dissemination, use, privacy, confidentiality, security, retention, availability, integrity and other processing of health-related and
other sensitive and personal information, including HIPAA. Many states in which we operate have laws that protect the privacy
and security of sensitive and personal information, including health-related information. Certain state laws may be more stringent
or broader in scope, or offer greater individual rights, with respect to sensitive and personal information than federal, international
or other state laws, and such laws may differ from each other, which may complicate compliance efforts. For example, the CCPA
imposes stringent data privacy and security requirements and obligations with respect to the personal information of California
residents and provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in
the loss of personal data that may increase the likelihood of, and risks associated with, data breach litigation. The effects on our
business of the CCPA and other similar state laws are potentially significant, and may require us to modify our data processing
practices and policies and to incur substantial costs and expenses in an effort to comply. State laws are changing rapidly and there
is discussion in Congress of a new federal data protection and privacy law to which we may be subject.
Internationally, laws and regulations in many jurisdictions apply broadly to the collection, transmission, dissemination, use,
privacy, confidentiality, security, retention, availability, integrity and other processing of health-related and other sensitive and
personal information. For example, the GDPR, together with national legislation, regulations and guidelines of the EU member
states and the United Kingdom governing the processing of personal data, impose strict obligations and restrictions on the ability
to collect, analyze, store, transfer and otherwise process personal data, including health data from clinical trials and adverse event
reporting. The GDPR authorizes fines for certain violations of up to 4% of global annual revenue or €20 million, whichever is
greater. European data protection authorities may interpret the GDPR and national laws differently and impose additional
requirements, which contributes to the complexity of processing personal data in or from the EEA or United Kingdom. Guidance
on implementation and compliance practices is often updated or otherwise revised. We are also subject to Canada's federal Personal
Information Protection and Electronic Documents Act (“PIPEDA”) and substantially similar equivalents at the provincial level
with respect to the collection, use and disclosure of personal information in Canada. Such federal and provincial legislation impose
data privacy and security obligations on our processing of personal information of Canadian residents. The federal and Alberta
legislation include mandatory data breach notification requirements. Canada’s Anti-Spam Legislation (“CASL”) also applies to
the extent that we send commercial electronic messages from Canada or to electronic addresses in Canada. CASL contains
prescriptive consent, form, content and unsubscribe mechanism requirements. Penalties for non-compliance with CASL are up to
CAD $10 million per violation. These laws and regulations may be interpreted and applied differently over time and from jurisdiction
to jurisdiction, and it is possible they will be interpreted and applied in ways that will materially and adversely affect our business.
The regulatory framework for data privacy, data security and data transfers worldwide is rapidly evolving and is likely to remain
uncertain for the foreseeable future. Complying with all of these laws and regulations involves costs to our business, and failure
to comply with these laws and regulations can result in the imposition of significant civil and criminal penalties, as well as litigation,
all of which could have a material adverse effect on our business, financial condition, cash flows and results of operations and
could cause the market value of our common shares and/or debt securities to decline. For more information regarding applicable
data privacy and security laws and regulations, see Item 1 “Business - Government Regulations” of this Form 10-K.
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We are also subject to U.S. federal laws regarding reporting and payment obligations with respect to our participation in
federal health care programs, including Medicare and Medicaid. Because our processes for calculating applicable government
prices and the judgments involved in making these calculations involve subjective decisions and complex methodologies, these
calculations are subject to risk of errors and differing interpretations. In addition, they are subject to review and challenge by the
applicable governmental agencies, and it is possible that such reviews could result in changes that could have material adverse
legal, regulatory, or economic consequences.
Legislative or regulatory reform of the health care system may affect our ability to sell our products profitably and could have
a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market
value of our common shares and/or debt securities to decline.
In the U.S. and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the
health care system in ways that could impact our ability to sell our products profitably. The Patient Protection and Affordable Care
Act, as amended by the Health Care Reform Act may affect the operational results of companies in the pharmaceutical and medical
device industries, including the Company and other health care related industries, by imposing on them additional costs. Effective
January 1, 2010, the Health Care Reform Act increased the minimum Medicaid drug rebates for pharmaceutical companies,
expanded the 340B drug discount program, and made changes to affect the Medicare Part D coverage gap, or “donut hole.” The
law also revised the definition of “average manufacturer price” for reporting purposes, which may affect the amount of our Medicaid
drug rebates to states. Beginning in 2011, the law imposed a significant annual fee on companies that manufacture or import
branded prescription drug products. More recently, the Bipartisan Budget Act of 2018 amended the Patient Protection and Affordable
Care Act, effective January 1, 2019, to close the donut hole in most Medicare drug plans. In addition, in April 2018, the Centers
for Medicare & Medicaid Services published a final rule that gives states greater flexibility in setting benchmarks for insurers in
the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under
the Patient Protection and Affordable Care Act for plans sold through such marketplaces.
Although efforts at replacing the Health Care Reform Act have stalled in Congress, there could still be changes to this legislation
in the near term. We cannot predict what those changes will be or when they will take effect, and we could face additional risks
arising from such changes or changed interpretations of our obligations under the legislation. Because of this continued uncertainty,
including the potential for further legal challenges or repeal of that legislation, we cannot quantify or predict with any certainty
the likely impact of the Health Care Reform Act or its repeal on our business model, prospects, financial condition or results of
operations, in particular on the pricing, coverage or reimbursement of any of our product candidates that may receive marketing
approval. Additionally, policy efforts designed specifically to reduce patient out-of-pocket costs for medicines could result in new
mandatory rebates and discounts or other pricing restrictions. Legislative efforts relating to drug pricing, the cost of prescription
drugs under Medicare, the relationship between pricing and manufacturer patient programs, and government program
reimbursement methodologies for drugs have been proposed and considered at the U.S. federal and state level. At the federal level,
the administration's budget proposal for fiscal year 2019 contained further drug price control measures that could be enacted in
future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under
Medicare Part B, to allow some states to negotiate drug prices under Medicaid and to eliminate cost sharing for generic drugs for
low-income patients. While any proposed measures will require authorization through additional legislation to become effective,
Congress and the administration have each indicated an intent to continue to seek new legislative or administrative measures to
control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to
control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain
product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation
from other countries and bulk purchasing. We also anticipate that Congress, state legislatures, and third-party payors may continue
to review and assess alternative health care delivery and payment systems and may in the future propose and adopt legislation or
policy changes or implementations effecting additional fundamental changes in the health care delivery system. We cannot provide
assurance as to the ultimate content, timing, or effect of changes, nor is it possible at this time to estimate the impact of any such
potential legislation.
In 2019, the U.S. Health and Human Services Administration announced a preliminary plan to allow for the importation of
certain lower-cost drugs from Canada. The preliminary plan excludes insulin, biological drugs, controlled substances and
intravenous drugs. The preliminary plan relies on individual states to develop proposals for safe importation of those drugs from
Canada and submit those proposals to the federal government for approval. Although the preliminary plan has some support from
the current administration, at this time, studies to evaluate the related costs and benefits, evaluate the reasonableness of the logistics,
and measure the public reaction of such a plan have not been performed. While we do not believe this will have a significant
impact on our future cash flows, we cannot provide assurance as to the ultimate content, timing, effect or impact of such a plan.
In 2019, the Government of Canada (Health Canada) published in the Canadian Gazette the new pricing regulation for patented
drugs. These regulations will become effective on July 1, 2020. The draft application guidelines are available with the final
guidelines to be published in February 2020. The new regulations will change the mechanics of establishing the pricing for products
32
submitted for approval after August 21, 2019; they will also require full transparency of discounts agreed with provincial bodies;
and finally, will change the number and composition of reference countries used to determine if a drug’s price is excessive. While
we do not believe this will have a significant impact on our future cash flows, as additional facts materialize, we cannot provide
assurance as to the ultimate content, timing, effect or impact of such regulations.
The Health Care Reform Act and further changes to health care laws or regulatory framework that reduce our revenues or
increase our costs could also have a material adverse effect on our business, financial condition, cash flows and results of operations
and could cause the market value of our common shares and/or debt securities to decline.
We are subject to a broad range of environmental laws and regulations and may be subject to environmental remediation
obligations under such safety and related laws and regulations. The impact of these obligations and the Company’s ability to
respond effectively to them may have a material adverse effect on our business, financial condition, cash flows and results of
operations and could cause the market value of our common shares and/or debt securities to decline.
We are subject to a broad range of federal, state, provincial and local environmental laws and regulations concerning the
environment, safety matters, regulation of chemicals and product safety in the countries where we manufacture and sell our products
or otherwise operate our business. These requirements include, among other matters, regulation of the handling, manufacture,
transportation, storage, use and disposal of materials, including the discharge of pollutants, hazardous substances and waste into
the environment. In the normal course of our business, such substances and waste may be released into the environment, which
could cause environmental or property damage or personal injuries, and which could subject us to remediation obligations regarding
contaminated soil and groundwater, potential liability for damage claims or to social or reputational harm and other similar adverse
impacts. Under certain laws, we may be required to remediate contamination at certain of our properties regardless of whether the
contamination was caused by us or by previous occupants of the property or by others and at third-party sites where we send waste.
In recent years, the operations of all companies have become subject to increasingly stringent legislation and regulation related
to environmental protection. Such legislation and regulations are complex and constantly changing. Future events, such as changes
in existing laws or regulations or the enforcement thereof or the discovery of contamination at our facilities may, among other
things, require us to install additional controls for certain of our emission sources, undertake changes in our manufacturing processes,
remediate soil or groundwater contamination at facilities where such cleanup is not currently required or to take action to address
social expectations or concerns arising from or relating to such changes and our response to such changes. The cost of such
additional compliance or remediation obligations or responding to such social expectations or concerns may be significant and
could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the
market value of our common shares and/or debt securities to decline.
Other Risks
We have significant goodwill and other intangible assets and potential impairment of goodwill and other intangibles may have
a significant adverse impact on our profitability.
Goodwill and intangible assets represent a significant portion of our total assets. Finite-lived intangible assets are subject to
an impairment analysis whenever events or changes in circumstances indicate the carrying amount of the asset may not be
recoverable. Goodwill and indefinite-lived intangible assets are tested for impairment annually, or more frequently if events or
changes in circumstances indicate that the asset may be impaired. If impairment exists, we would be required to take an impairment
charge with respect to the impaired asset.
For example, in 2019, 2018 and 2017, we recognized impairments to finite-lived and indefinite-lived intangible assets of $75
million, $568 million and $714 million, respectively. These asset impairments were primarily attributable to: (i) assets being
classified as held for sale and (ii) revisions in sales forecasts associated with discontinuances, generic competition and other market
forces. In addition to impairments to finite-lived and indefinite-lived intangible assets, in 2019, 2018 and 2017, we recognized
goodwill impairments of $0, $2,322 million and $312 million, respectively. These impairments to goodwill were primarily the
result of: (i) the adoption of new accounting guidance in 2018, (ii) revisions to forecasts to certain reporting units, as a result of
changing business dynamics and market conditions and (iii) realignments to our reporting units.
The Company conducted its annual goodwill impairment test as of October 1, 2019. No impairment to the goodwill of any
reporting unit was identified. If market conditions deteriorate, or if the Company is unable to execute its strategies, it may be
necessary to record impairment charges in the future.
See Note 6, "FAIR VALUE MEASUREMENTS" and Note 9, "INTANGIBLE ASSETS AND GOODWILL" to our audited
Consolidated Financial Statements for further information on these impairment charges.
Events giving rise to impairment are difficult to predict, including the uncertainties associated with the launch of new products,
and are an inherent risk in the pharmaceutical and medical device industries. As a result of the significance of goodwill and
33
intangible assets, our financial condition and results of operations in a future period could be negatively impacted should such an
impairment of goodwill or intangible assets occur, which could cause the market value of our common shares and/or debt securities
to decline. We may be required to take additional impairment charges in the future and such impairment charges may be material.
We have become increasingly dependent on information technology systems and infrastructure and any breakdown,
interruption, breach or other compromise of our information technology systems could subject us to liability or interrupt the
operation of our business, which could have a material adverse effect on our business, financial condition, cash flows and
results of operations and could cause the market value of our common shares and/or debt securities to decline.
We are increasingly dependent upon our information technology systems and infrastructure, as well as those of third parties
with whom we interact, and internal and public internet sites, data hosting and processing facilities, cloud-based services and
hardware, social media sites and mobile technology, in connection with the conduct of our business.
We must constantly update our information technology systems and infrastructure and undertake investments in new
information technology systems and infrastructure. However, we cannot provide assurance that the information technology systems
and infrastructure on which we depend, including those of third parties, will continue to meet our current and future business needs
or adequately safeguard our operations. Furthermore, modification, upgrade or replacement of such systems and infrastructure
may be costly or out of our control.
Any failure to so modify, upgrade or replace such systems and infrastructure, any disruptions that occur during the process
of such modification, upgrade or replacement and/or any breakdown, interruption or corruption of our information technology
systems and infrastructure could create system disruptions, shutdowns, delays in generating or the corruption of data and information
or other disruptions that could result in negative financial, operational, business or reputational consequences for us.
The size and complexity of the information technology systems and infrastructure on which we rely makes such systems and
infrastructure potentially vulnerable to internal or external inadvertent or intentional security breaches, including as a result of
private or state-sponsored cybercrimes,
terrorism, war, malware, ransomware, human error, system malfunction,
telecommunication and electrical failures, natural disaster, misplaced or lost data, socially engineered breaches or other similar
events.
In addition, during the normal course of our business operations, including through the use of information technology systems
and infrastructure, we are involved in the collection, processing, transmission, use and retention of sensitive, confidential, non-
public or personal data and information in Canada, the United States and abroad.
Cyber-attacks are increasing in frequency, sophistication and intensity and are made by groups and individuals with a wide
range of motives and expertise. Cyber-attacks could include the deployment of harmful malware, ransomware, denial-of-service
attacks, worms, social engineering, improper modification of information, fraudulent “phishing” e-mails and other means to affect
service reliability or threaten data confidentiality, integrity or availability. Techniques used in these attacks are often highly
sophisticated, change frequently and may be difficult to detect for periods of time.
We have established: (i) physical, electronic and organizational measures to safeguard and secure our systems to prevent a
compromise and (ii) policies and procedures designed to provide for the timely investigation of cybersecurity incidents and the
timely disclosure of cybersecurity incidents consistent with our legal and contractual obligations. We also rely on commercially
available systems, software, tools and monitoring to provide security for the processing, transmission and storage of digital
information.
While we attempt to take appropriate security and cybersecurity measures to protect our information technology systems and
infrastructure (including any confidential or other sensitive information) and to prevent and detect breakdowns, unauthorized
breaches and cyber-attacks, we cannot guarantee that these measures will be successful and that breakdowns and breaches of, or
attacks on, our systems and data, or those of third parties upon which we rely, will be prevented. Such breakdowns and breaches
of, or attacks on, our systems and infrastructure, or the public perception that we or any third party upon which we rely have
suffered a cybersecurity incident or breakdown, may cause business interruption and could have a material adverse effect on our
business, financial condition, cash flows and results of operations, damage our reputation with customers, employees and third
parties with whom we do business and cause the market value of our common shares and/or debt securities to decline, and we
may suffer financial damage or other loss, including fines or criminal penalties because of lost or misappropriated information.
While we maintain insurance against some of these risks, this insurance may not be sufficient to cover the financial, legal,
business or reputational losses that may result from a breakdown, breach, cyber-attack or other compromise of or interruption to
our information technology systems and infrastructure or confidential and other sensitive information.
In addition, we provide confidential, and other sensitive information to third parties when necessary to pursue our business
objectives. While we obtain assurances that these third parties will protect this information and, where appropriate, monitor the
34
protections employed by these third parties, there is a risk that the confidentiality of information held by third parties, including
trade secrets and sensitive personal information, may be compromised. If personal information of our customers or employees is
misappropriated, our reputation with our customers and employees may be injured, resulting in loss of business and/or morale.
Any such incidents could require us to incur costs to remediate possible injury to our customers and employees, to further improve
our protective measures or to pay fines or take other action with respect to litigation, judicial or regulatory actions arising out of
such incidents which may be significant. Any of the foregoing could have a material adverse effect on our business, financial
condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to
decline.
Our operating results and financial condition may fluctuate.
Our operating results and financial condition may fluctuate from quarter to quarter for a number of reasons. In addition, our
stock price can be volatile. The following events or occurrences, among others, could cause fluctuations in our financial performance
and/or stock price from period to period:
•
•
•
•
•
development and launch of new competitive products;
the timing and receipt of FDA approvals or lack of approvals;
costs related to business development transactions;
changes in the amount we spend to promote our products;
delays between our expenditures to acquire new products, technologies or businesses and the generation of revenues
from those acquired products, technologies or businesses;
changes in treatment practices of physicians that currently prescribe certain of our products;
increases in the cost of raw materials used to manufacture our products;
FDA regulatory actions relating to our manufacturers;
•
•
•
• manufacturing and supply interruptions;
our responses to price competition;
•
new legislation that would control or regulate the prices of drugs;
•
a protracted and wide-ranging trade conflict between the United States and China;
•
expenditures as a result of legal actions (and settlements thereof), including the defense of our patents and other
•
intellectual property;
• market acceptance of our products;
•
•
•
•
•
•
•
the timing of wholesaler and distributor purchases and success of our wholesaler and distributor arrangements;
general economic and industry conditions, including potential fluctuations in interest rates;
changes in seasonality of demand for certain of our products;
foreign currency exchange rate fluctuations;
changes to, or the confidence in, our business strategy;
changes to, or the confidence in, our management; and
expectations for future growth.
As a result, quarter-to-quarter comparisons of results from operations, or any other similar period-to-period comparisons, may
not be reliable indicators of our future performance. In any quarterly period, our results may be below the expectations of market
analysts and investors, which could cause the market value of our common shares and/or debt securities to decline.
The Company’s ability to effectively monitor and respond to the rapid and ongoing developments and expectations relating to
environmental, social and governance (“ESG”) matters, including related social expectations and concerns, may impose
unexpected costs on the Company or result in reputational or other harm to the Company that could have a material adverse
effect on our business, financial condition, cash flows and results of operations and could cause the market value of our
common shares and/or debt securities to decline.
If the Company is not able to adequately recognize and respond to the rapid and ongoing developments and governmental
and social expectations relating to ESG matters such as climate change and access to health care and affordable drugs, this failure
could result in missed corporate opportunities for the Company, additional regulatory, social or other scrutiny of the Company
and its businesses, the imposition of unexpected costs on the Company or in damage to the reputation of the Company or its various
brands with governments, customers, employees, third parties and the communities in which we operate, in each case that could
have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market
value of our common shares and/or debt securities to decline.
The restatement of our previously issued financial statements was time-consuming and expensive and could expose us to
additional risks that could have a material adverse effect on our business, financial condition, cash flows and results of
operations and could cause the market value of our common shares and/or debt securities to decline.
35
We restated our previously issued audited Consolidated Financial Statements for the year ended December 31, 2014 and the
unaudited financial information for the quarters ended December 31, 2014 and March 31, 2015. This restatement and the review
of the misstatements that necessitated the restatement was time consuming and expensive and could expose us to potential claims
and additional risks that could have a material adverse effect on our business, financial condition, cash flows and results of
operations and could cause the market value of our common shares and/or debt securities to decline. In particular, we could be
subject to further shareholder litigation and additional governmental investigations and proceedings in connection with the
restatements or related other matters. If we do not prevail in any such proceedings, we could be required to pay substantial damages
or settlement costs. In addition, although the remediation of the material weaknesses in our internal control over financial reporting
that contributed to the material misstatements in the Consolidated Financial Statements previously described has been completed,
if our remedial measures were insufficient to properly and fully address the material weaknesses, or if additional material weaknesses
in our internal controls are discovered or occur in the future, it may materially adversely affect our ability to report our financial
condition and results of operations in a timely and accurate manner and there will continue to be an increased risk of future
misstatements.
We have entered into distribution agreements with other companies to distribute certain of our products at supply prices based
on net sales. Declines in the pricing and/or volume, over which we have no or limited control, of such products, and therefore
the amounts paid to us, could have a material adverse effect on our business, financial condition, cash flows and results of
operations and could cause the market value of our common shares and/or debt securities to decline.
Certain of our products are the subject of third-party distribution or sublicense agreements, pursuant to which we may
manufacture and sell products to other companies, which distribute such products in return for a royalty or a supply price, in both
cases which are often based on net sales. Our ability to control pricing and volume of these products may be limited and, in some
cases, these companies make all distribution and pricing decisions independently of us. If the pricing or volume of such products
declines, our revenues would be adversely impacted which could have a material adverse effect on our business, financial condition,
cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
The illegal distribution and sale of counterfeit versions of our products may reduce demand for our products or have a negative
impact on the reputation of our products, which could have a material adverse effect on our business, financial condition, cash
flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Third parties may illegally distribute and sell counterfeit versions of our products, which do not meet or adhere to the rigorous
quality, safety, manufacturing, storage and handling standards and regulations that apply to our products. The prevalence of
counterfeit products is a growing industry-wide issue due to the widespread use of the Internet, which has greatly facilitated the
ease by which counterfeit products can be advertised, purchased and delivered. The discovery of safety or efficacy issues, adverse
events or even death or personal injury associated with or caused by counterfeit products may be attributed to our products and
may cause reputational harm to our products or the Company. We may not be able to detect or, if detected, prevent or prohibit the
sale of such counterfeit products. As a result, the illegal sale or distribution of counterfeit products may negatively impact the
demand for and sales of our products, which could have a material adverse effect on our business, financial condition, cash flows
and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Our revenues and profits could be reduced by imports from countries where our products are available at lower prices.
Prices for our products are based on local market economics and competition and differ from country to country. Our sales
in countries with relatively higher prices may be reduced if products can be imported into those or other countries from lower
price markets. If this happens with our products, our revenues and profits may be adversely affected, which could have a material
adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our
common shares and/or debt securities to decline.
Our policies regarding returns, allowances and chargebacks, and marketing programs adopted by wholesalers, may reduce
our revenues in future fiscal periods.
We provide certain rebates, allowances, chargebacks and other credits to our customers with respect to certain of our products.
For example, we make payments or give credits to certain wholesalers for the difference between the invoice price paid to us by
our wholesaler customer for a particular product and the negotiated price that such wholesaler sells such products to its hospitals,
group purchasing organizations, pharmacies or other retail customers. We also give certain of our customers credits on our products
that such customers hold in inventory after we have decreased the WAC prices of such products, such credit being for the difference
between the old and new price. In addition, we also implement and maintain returns policies, pursuant to which our customers
may return product to us in certain circumstances in return for a credit. Although we establish reserves based on our prior experience,
wholesaler data, then-current on-hand inventory, our best estimates of the impact that these policies may have in subsequent periods
and certain other considerations, we cannot ensure that our reserves are adequate or that actual product returns, rebates, allowances
36
and chargebacks will not exceed our estimates, which could have a material adverse effect on our business, financial condition,
cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
We may experience declines in sales volumes or prices of certain of our products as the result of the concentration of sales to
wholesalers and the continuing trend towards consolidation of such wholesalers and other customer groups and this could
have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the
market value of our common shares and/or debt securities to decline.
For certain of our products, a significant portion of our sales are to a relatively small number of customers. If our relationship
with one or more of such customers is disrupted or changes adversely or if one or more of such customers experience financial
difficulty or other material adverse changes in their businesses, it could materially and adversely affect our sales and financial
results, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and
could cause the market value of our common shares and/or debt securities to decline.
In addition, wholesalers and retail drug chains have undergone, and are continuing to undergo, significant consolidation. This
consolidation may result in these groups gaining additional purchasing leverage and consequently increasing the product pricing
pressures facing our business. The result of these developments could have a material adverse effect on our business, financial
condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to
decline.
We have various indemnity agreements and indemnity arrangements in place, which may result in an obligation to indemnify
or reimburse the relevant counterparty, which amounts may be material.
All directors and/or officers of the Company, and each of its various subsidiary entities, are indemnified by the Company in
respect of their service as directors and/or officers, subject to certain restrictions. We have purchased directors’ and officers’ liability
insurance to mitigate the cost of any potential future lawsuits or actions. The maximum amount of any potential future payment
cannot be reasonably estimated but could have a material adverse effect on the Company.
In the normal course of business, we have entered or may enter into agreements that include indemnities in favor of third
parties, such as purchase and sale agreements, license agreements, engagement letters with advisors and consultants and various
product and service agreements. These indemnification arrangements may require us to compensate counterparties for losses
incurred by the counterparties as a result of breaches in representations, covenants and warranties provided by us or as a result of
litigation or other third-party claims or statutory sanctions that may be suffered by the counterparties as a consequence of the
relevant transaction. In some instances, the terms of these indemnities are not explicitly defined. We, whenever possible, try to
limit this potential liability within the particular agreement or contract, but due to the unpredictability of future events the maximum
amount of any potential reimbursement cannot be reasonably estimated, but could have a material adverse effect on the Company.
Item 1B. Unresolved Staff Comments
None.
37
Item 2. Properties
We own and lease a number of important properties. Our headquarters and one of our manufacturing facilities are located
in Laval, Quebec. We own several manufacturing facilities throughout the U.S. We also own or have an interest in manufacturing
plants or other properties outside the U.S., including in Canada, Mexico, and certain countries in Europe, North Africa, Asia and
South America.
We consider our facilities to be in satisfactory condition and suitable for their intended use, although some limited investments
to improve our manufacturing and other related facilities are contemplated, based on the needs and requirements of our business.
Our administrative, marketing, research/laboratory, distribution and warehousing facilities are located in various parts of the world.
We co-locate our R&D activities with our manufacturing at the plant level in a number of facilities. Our scientists, engineers,
quality assurance/quality control professionals and manufacturing technicians work side-by-side in designing and manufacturing
products that fit the needs and requirements of our customers, regulators and business units.
We believe that we have sufficient facilities to conduct our operations during 2020. Our facilities in aggregate are over 11
million square feet and include, among others, the following list of principal properties by segment:
Location
Corporate & Administration
Laval, Quebec, Canada
Bridgewater, New Jersey(1)
Bausch + Lomb/International
Jelenia Gora, Poland
Rochester, New York
San Juan del Rio, Mexico
El Obour City, Egypt
Waterford, Ireland
Woodruff, South Carolina
Jinan, China
Rzeszow, Poland
Berlin, Germany
Greenville, South Carolina
Chattanooga, Tennessee
Tampa, Florida
Aubenas, France
Macherio, Italy
Beijing, China
Salix
Purpose
Owned
or
Leased
Approximate
Square
Footage
Corporate headquarters, R&D, manufacturing and warehouse facility
Administration
Offices, R&D, manufacturing and warehouse facility
Offices, R&D and manufacturing facility
Offices and manufacturing facility
Offices, R&D, manufacturing and warehouse facility
R&D and manufacturing facility
Distribution facility
Offices and manufacturing facility
Offices, R&D, manufacturing and warehouse facility
Manufacturing, distribution and office facility
Manufacturing and distribution facility
Distribution facility
R&D and manufacturing facility
Offices, manufacturing and warehouse facility
Offices, R&D, manufacturing and warehouse facility
Warehouse facility and distribution
Owned
Leased
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Owned
338,000
310,000
1,567,000
953,000
853,000
630,000
500,000
432,000
418,000
380,000
339,000
314,000
240,000
176,000
148,000
119,000
102,000
Steinbach, Manitoba, Canada
Offices, manufacturing and warehouse facility
Owned
241,000
____________________________________
(1) — A lease for a second building in Bridgewater, New Jersey was signed in 2015 and was not included in the square footage shown in the table above as the
Company never occupied the second building. In 2016, the Company concluded that it would not occupy the second building and recognized the appropriate
charge for all future rents due, net of the anticipated sub-let income associated with the second building.
Item 3. Legal Proceedings
See Note 21, "LEGAL PROCEEDINGS" to our audited Consolidated Financial Statements for details on legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
38
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common shares are traded on the New York Stock Exchange (“NYSE”) and on the Toronto Stock Exchange (“TSX”)
under the symbol “BHC”.
Market Price Volatility of Common Shares
Market prices for the securities of pharmaceutical, medical devices and biotechnology companies, including our securities,
have historically been highly volatile, and the market has experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. Factors such as fluctuations in our operating results, the aftermath of public
announcements by us or by others about us, changes in our executive management, changes in our business strategy, concern as
to the safety of drugs and medical devices, the commencement or outcome of legal or governmental proceedings, changes in our
ability to access credit markets, changes in the cost of capital, investigations or inquiries, and general market conditions can have
an adverse effect on the market price of our common shares and other securities. For example, during 2015 and 2016, we experienced
significant fluctuations and decreases in the market price of our common shares as a result of, among other things, legal and
governmental proceedings and investigations with respect to certain of our distribution, marketing, pricing, disclosure and
accounting practices, rising interest rates and certain public allegations made by short sellers and other third parties relating to
certain of these matters. See Item 1A “Risk Factors” of this Form 10-K for additional information.
Holders
The approximate number of holders of record of our common shares as of February 13, 2020 was 1,853.
39
Performance Graph
The following performance graphs compare the cumulative total return on a $100 investment on December 31, 2016 and
December 31, 2014, assuming reinvestment of all dividends, in: (i) our common shares, (ii) the S&P 500 Index, (iii) the S&P/
TSX Composite Index and (iv) a composite peer group of 13 major U.S. based pharmaceutical companies for the three and five
years ended December 31, 2019. The composite peer group of 13 major U.S. based pharmaceutical companies consists of Alexion
Pharmaceuticals Inc, Allergan Plc, Amgen Inc, Biogen Inc, Bristol-Myers Squibb Co, Eli Lilly And Co, Endo International Plc,
Jazz Pharmaceuticals Plc, Mallinckrodt Plc, Mylan Nv, Perrigo Company Plc, United Therapeutics Corp and Zoetis Inc.
Five Year Performance - Cumulative total return on a $100 investment on December 31, 2014
Bausch Health Companies Inc.
S&P 500
S&P/TSX Composite
Peer Group
2014
$100
$100
$100
$100
2015
$71
$101
$92
$108
As of December 31,
2016
$10
$114
$111
$88
2017
$15
$138
$121
$96
2018
$13
$132
$110
$99
2019
$21
$174
$136
$121
40
Prior to 2016, the Company completed a series of mergers and acquisitions, which, at the time, were in-line with the Company's
strategy for growth. However, in response to changing business dynamics within our Company, we recognized the need to change
our focus in order to build a world-class health organization. To do so, in 2016, we retained a new executive team, which, in 2017,
implemented a multi-year plan to stabilize, turnaround and transform our Company. The performance graph below of cumulative
total return as of December 31, 2016 is provided to coincide with the implementation of the Company's turnaround strategies in
2017 to focus on our core businesses, eye-health, GI and dermatology, and emphasize organic long-term growth.
Three Year Performance - Cumulative total return on a $100 investment on December 31, 2016
Bausch Health Companies Inc.
S&P 500
S&P/TSX Composite
Peer Group
Dividends
2016
$100
$100
$100
$100
As of December 31,
2017
$143
$122
$109
$110
2018
$127
$116
$99
$113
2019
$206
$153
$122
$138
No dividends were declared or paid in 2019, 2018 or 2017. While our Board of Directors will review our dividend policy
periodically, we currently do not intend to pay any cash dividends in the foreseeable future. In addition, our Restated Credit
Agreement and indentures include restrictions on the payment of dividends. See Note 11, "FINANCING ARRANGEMENTS"
to our audited Consolidated Financial Statements for further details regarding these restrictions.
Restrictions on Share Ownership by Non-Canadians
There are no limitations under the laws of Canada or in our organizational documents on the right of foreigners to hold or
vote securities of our Company, except that the Investment Canada Act (Canada) (the “Investment Canada Act”) may require
review and approval by the Minister of Innovation, Science and Economic Development (Canada) (the “Minister”) of an acquisition
of “control” of our Company by a “non-Canadian”.
41
Investment Canada Act
An acquisition of control of a Canadian business by a non-Canadian is either reviewable (a “Reviewable Transaction”), in
which case it is subject to both a reporting obligation and an approval process, or notifiable, in which case it is subject to only a
reporting obligation. In the case of a Reviewable Transaction, the non-Canadian acquirer must submit an application for review
with the prescribed information. The Minister is then required to determine whether the Reviewable Transaction is likely to be of
net benefit to Canada, taking into account the assessment factors specified in the Investment Canada Act and any written
undertakings that may have been given by the non-Canadian acquirer.
The Investment Canada Act provides that any investment by a non-Canadian in a Canadian business, even where control
has not been acquired, can be reviewed on grounds of whether it may be injurious to national security. Where an investment is
determined to be injurious to national security, Cabinet can prohibit closing or, if closed, can order the investor to divest control.
Short of a prohibition or divestment order, Cabinet can impose terms or conditions on the investment or can require the investor
to provide binding undertakings to remove the national security concern.
Competition Act
Part IX of the Competition Act (Canada) (the “Competition Act”) requires that a pre-merger notification filing be submitted
to the Commissioner of Competition (the “Commissioner”) in respect of certain classes of merger transactions that exceed certain
prescribed thresholds. If a proposed transaction exceeds such thresholds, subject to certain exceptions, the notification filing must
be submitted to the Commissioner and the statutory waiting period must expire or be terminated early or waived by the
Commissioner before the transaction can be completed.
All mergers, regardless of whether they are subject to Part IX of the Competition Act, are subject to the substantive mergers
provisions under Section 92 of the Competition Act. In particular, the Commissioner may challenge a transaction before the
Competition Tribunal where the transaction prevents or lessens, or is likely to prevent or lessen, competition substantially in a
market. The Commissioner may not make an application to the Competition Tribunal under Section 92 of the Competition Act
more than one year after the merger has been substantially completed.
Exchange Controls
Canada has no system of exchange controls. There are no Canadian exchange restrictions on the repatriation of capital or
earnings of a Canadian public company to non-resident investors. There are no Canadian exchange restrictions affecting the
remittance of dividends, profits, interest, royalties and other payments to non-resident holders of our securities.
Taxation
Canadian Federal Income Taxation
The following discussion is a summary of the principal Canadian federal income tax considerations generally applicable to
a holder of our common shares who, at all relevant times, for purposes of the Income Tax Act (Canada) and the Income Tax
Regulations (collectively, the “Canadian Tax Act”) deals at arm’s-length with, and is not affiliated with, our Company, beneficially
owns its common shares as capital property, does not use or hold and is not deemed to use or hold such common shares in carrying
on a business in Canada, does not with respect to common shares enter into a “derivative forward agreement” as defined in the
Income Tax Act, and who, at all relevant times, for purposes of the application of the Canadian Tax Act and the Canada-U.S. Income
Tax Convention (1980, as amended) (the “U.S. Treaty”), is resident in the U.S., is not, and is not deemed to be, resident in Canada
and is eligible for benefits under the U.S. Treaty (a “U.S. Holder”). Special rules, which are not discussed in the summary, may
apply to a non-resident holder that is an insurer that carries on an insurance business in Canada and elsewhere or that is an
“authorized foreign bank” as defined in the Canadian Tax Act.
The U.S. Treaty includes limitation on benefits rules that restrict the ability of certain persons who are resident in the U.S. to
claim any or all benefits under the U.S. Treaty. Furthermore, limited liability companies (“LLCs”) that are not taxed as corporations
pursuant to the provisions of the U.S. Internal Revenue Code of 1986, as amended do not generally qualify as resident in the
U.S. for purposes of the U.S. Treaty. Under the U.S. Treaty, a resident of the U.S. who is a member of such an LLC and is otherwise
eligible for benefits under the U.S. Treaty may generally be entitled to claim benefits under the U.S. Treaty in respect of income,
profits or gains derived through the LLC. Residents of the U.S. should consult their own tax advisors with respect to their eligibility
for benefits under the U.S. Treaty, having regard to these rules.
42
This summary is based upon the current provisions of the U.S. Treaty and the Canadian Tax Act and our understanding of
the current administrative policies and assessing practices of the Canada Revenue Agency published in writing prior to the date
hereof. This summary takes into account all specific proposals to amend the U.S. Treaty and the Canadian Tax Act publicly
announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof. This summary does not otherwise take
into account or anticipate changes in law or administrative policies and assessing practices, whether by judicial, regulatory,
administrative or legislative decision or action, nor does it take into account provincial, territorial or foreign tax legislation or
considerations, which may differ from those discussed herein.
This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice
generally or to any particular holder. Holders should consult their own tax advisors with respect to their own particular
circumstances.
Gains on Disposition of Common Shares
In general, a U.S. Holder will not be subject to tax under the Canadian Tax Act on capital gains arising on the disposition
of such holder’s common shares unless the common shares are “taxable Canadian property” to the U.S. Holder and are not “treaty-
protected property”.
As long as the common shares are then listed on a “designated stock exchange”, which currently includes the NYSE and
TSX, the common shares generally will not constitute taxable Canadian property of a U.S. Holder, unless: (a) at any time during
the 60-month period preceding the disposition, the U.S. Holder, persons not dealing at arm’s length with such U.S. Holder or the
U.S. Holder together with all such persons, owned 25% or more of the issued shares of any class or series of the capital stock of
the Company and (b) more than 50% of the fair market value of the common shares was derived, directly or indirectly, from any
combination of: (i) real or immoveable property situated in Canada, (ii) “Canadian resource property” (as such term is defined in
the Canadian Tax Act), (iii) “timber resource property” (as such term is defined in the Canadian Tax Act) or (iv) options in respect
of, or interests in, or for civil law rights in, any such properties whether or not the property exists or the common shares are
otherwise deemed to be taxable Canadian property.
Common shares will be treaty-protected property where the U.S. Holder is exempt from income tax under the Canadian
Tax Act on the disposition of common shares because of the U.S. Treaty. Common shares owned by a U.S. Holder will generally
be treaty-protected property where the value of the common shares is not derived principally from real property situated in Canada,
as defined in the U.S. Treaty.
Dividends on Common Shares
Dividends paid or credited on the common shares or deemed to be paid or credited on the common shares to a U.S. Holder
that is the beneficial owner of such dividends will generally be subject to non-resident withholding tax under the Canadian Tax Act
and the U.S. Treaty at the rate of: (a) 5% of the amounts paid or credited if the U.S. Holder is a company that owns (or is deemed
to own) at least 10% of our voting stock or (b) 15% of the amounts paid or credited in all other cases. The rate of withholding
under the Canadian Tax Act in respect of dividends paid to non-residents of Canada is 25% where no tax treaty applies.
Securities Authorized for Issuance under Equity Compensation Plans
Information required under this Item will be included in our definitive proxy statement for the 2020 Annual Meeting of
Shareholders expected to be filed with the SEC no later than 120 days after the end of the fiscal year covered by this Form 10-K
(the “2020 Proxy Statement”), and such required information is incorporated herein by reference.
Purchases of Equity Securities by the Company and Affiliated Purchases
There were no purchases of equity securities by the Company during the fourth quarter of the year ended December 31,
2019.
43
Item 6. Selected Financial Data
The following tables of selected consolidated financial data of our Company have been prepared in accordance with
U.S. generally accepted accounting principles (“U.S. GAAP”). The data is qualified by reference to, and should be read in
conjunction with our audited Consolidated Financial Statements and related notes thereto prepared in accordance with U.S. GAAP.
See Item 15 “Exhibits and Financial Statement Schedules” and the discussion in Item 7 “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” to this Form 10-K.
(in millions, except per share data)
Consolidated operating data:
Revenues
Operating (loss) income
Net (loss) income attributable to Bausch Health Companies Inc.
(Loss) earnings per share attributable to Bausch Health Companies Inc.
Basic
Diluted
Cash dividends declared per share
(in millions)
Consolidated balance sheet information:
Cash and cash equivalents
Working capital
Total assets
Years Ended December 31,
2019
2018
2017
2016
2015
$
$
$
$
$
$
$
$
8,601
$
8,380
$
8,724
(203) $
(2,384) $
102
(1,788) $
(4,148) $
2,404
(5.08) $
(11.81) $
(5.08) $
(11.81) $
6.86
6.83
$
$
$
$
$
9,674
$ 10,447
(566) $
1,527
(2,409) $
(292)
(6.94) $
(6.94) $
(0.85)
(0.85)
— $
— $
— $
— $
—
At December 31,
2019
2018
2017
2016
2015
3,243
721
$
$
721
375
$
$
720
478
$
$
542
1,468
$
$
597
194
$ 33,863
$ 32,492
$ 37,497
$ 43,529
$ 48,965
Long-term debt, including current portion
$ 25,895
$ 24,305
$ 25,444
$ 29,846
$ 31,088
Common shares
Bausch Health Companies Inc. shareholders’ equity
$ 10,172
1,063
$
$ 10,121
2,733
$
$ 10,090
5,849
$
$ 10,038
3,152
$
$
$
Number of common shares issued and outstanding
352.6
349.9
348.7
347.8
9,897
5,910
342.9
The following are the significant items affecting the comparability of the selected financial information for the periods
presented:
Acquisitions - We completed a series of mergers and acquisitions, the most significant, of which, were the acquisition of
Amoun Pharmaceutical Company S.A.E. (October 19, 2015), the acquisition of Salix Pharmaceuticals, Ltd. (the "Salix
Acquisition") (April 1, 2015) and the acquisition of certain assets of Synergy Pharmaceuticals Inc. (“Synergy”) (March 6, 2019).
The assets, liabilities and results of operations of these and other acquisitions are included in the reported amounts effective upon
the respective acquisition dates.
Divestitures - We have divested businesses that were not considered core to our ongoing operations or the needs of our
primary-customer base. The most significant of these divestitures included the divestitures of the Obagi Medical Products, Inc.
business (November 9, 2017), the iNova Pharmaceuticals business (September 29, 2017), the Company's equity interest in Dendreon
Pharmaceuticals LLC (June 28, 2017), the Company's equity interests in Sprout Pharmaceuticals, Inc. ("Sprout") (December 20,
2017) and the Company's interests in the CeraVe®, AcneFree™ and AMBI® skincare brands (March 3, 2017). The assets, liabilities
and results of operations of these and other divestitures and discontinuances are included in the reported amounts through the date
of the respective divestiture and discontinuance dates. See Note 4, "DIVESTITURES" to our audited Consolidated Financial
Statements for additional information. The proceeds of these divestitures, to the extent applicable, were used to repay long-term
debt.
Restructuring and Integration Costs - We incurred cost-rationalization and integration initiatives in order to capture operating
synergies, which generated cost savings across the Company. In 2019, 2018, 2017, 2016 and 2015, Operating (loss) income
included Restructuring and integration costs of $31 million, $22 million, $52 million, $132 million and $362 million, respectively.
See Note 5, "RESTRUCTURING AND INTEGRATION COSTS" to our audited Consolidated Financial Statements for additional
information.
Goodwill Impairments - In 2019, 2018, 2017, 2016 and 2015, Operating (loss) income included Goodwill impairments of
$0, $2,322 million, $312 million, $1,077 million and $0, respectively. These impairments to goodwill were primarily the result
44
of: (i) the adoption of new accounting guidance in 2018, (ii) revisions to forecasts to certain reporting units, as a result of changing
business dynamics and market conditions and (iii) realignments to our reporting units. See Note 9, "INTANGIBLE ASSETS AND
GOODWILL" to our audited Consolidated Financial Statements for additional information.
Asset Impairments - In 2019, 2018, 2017, 2016 and 2015, Operating (loss) income included Asset impairments of $75 million,
$568 million, $714 million, $422 million and $304 million, respectively. These asset impairments were primarily attributable to:
(i) assets being classified as held for sale and (ii) revisions in sales forecasts associated with discontinuances, generic competition
and other market forces.
Litigation and other matters - In 2019, Operating (loss) income included litigation charges of $1,401 million primarily related
to the settlement of a legacy U.S. securities class action matter (which is subject to final court approval), to which the Company
and the other settling defendants admitted no liability as to the claims against it and deny all allegations of wrongdoing.
Net Gains on Sales of Assets - In 2017, Operating (loss) income included the net gains on sales of assets of $580 million
related to the 2017 divestitures previously discussed.
Benefit from Income Taxes - In 2017, Net (loss) income attributable to Bausch Health Companies Inc. included non-cash
deferred income tax benefits of approximately $4,145 million related to: (i) adjustments to previously recorded outside basis
differences as a result of the Company’s internal corporate restructuring and (ii) the accounting for the U.S. Tax Cuts and Jobs
Act of 2017.
Debt Issuance, Refinancing, Interest Expense, and Loss on Extinguishment of Debt - We completed a series of transactions
which allowed us to obtain the necessary financing to fund the acquisitions previously discussed and refinance certain of our debt
arrangements under our Senior Secured Credit Facilities and our Senior Unsecured Notes to extend the maturities of our debt. See
Note 11, "FINANCING ARRANGEMENTS" to our audited Consolidated Financial Statements for additional information. These
transactions impacted the selected financial information for the periods presented as follows:
•
• Financing of Litigation Settlement - At December 31, 2019, Cash and cash equivalents and Long-term debt includes
$2,472 million in net proceeds from the December 2019 Financing and Refinancing Transactions (defined below).
Interest Expense in 2019, 2018, 2017, 2016 and 2015 was $1,612 million, $1,685 million, $1,840 million, $1,836 million
and $1,563 million, respectively. The increase in interest expense during the years 2015 through 2017 is reflective of
the additional debt obtained to finance the acquisitions previously discussed and, to a lesser extent, increases in the stated
rates of interest for our debt obligations. The decrease in interest expense in the years 2018 and 2019 as compared to
2017 reflects: (i) lower principal amounts of outstanding debt throughout 2018 and for most of 2019, as during 2016
through 2019 the Company repaid (net of additional borrowings and excluding the impact from the December 2019
Financing and Refinancing Transactions (defined below)) over $7,700 million of debt and (ii) lower amortization and
write-offs of debt discounts and deferred financing costs.
Loss on extinguishment of debt in 2019, 2018, 2017, 2016 and 2015 was $42 million, $119 million, $122 million, $0 and
$20 million, respectively, and was incurred in connection with the repayments and refinancing of our debt obligations.
•
• Weighted average stated rate of interest as of December 31, 2019, 2018, 2017, 2016 and 2015 was 6.21%, 6.23%, 6.07%,
5.75% and 5.10%, respectively.
45
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” has been updated through
February 19, 2020 and should be read in conjunction with the audited Consolidated Financial Statements and the related notes
thereto included elsewhere in this Annual Report on Form 10-K. Additional company information, including this Form 10-K, is
available on SEDAR at www.sedar.com and on the U.S. Securities and Exchange Commission (the “SEC”) website at www.sec.gov.
All currency amounts are expressed in U.S. dollars, unless otherwise noted.
OVERVIEW
Bausch Health Companies Inc. (“we”, “us”, “our” or the “Company”) is a global company whose mission is to improve
people’s lives with our health care products. We develop, manufacture and market, primarily in the therapeutic areas of eye-health,
gastroenterology ("GI") and dermatology, a broad range of: (i) branded pharmaceuticals, (ii) generic and branded generic
pharmaceuticals, (iii) over-the-counter (“OTC”) products and (iv) medical devices (contact lenses, intraocular lenses, ophthalmic
surgical equipment and aesthetics devices).
We generated revenues for 2019, 2018 and 2017, of $8,601 million, $8,380 million and $8,724 million, respectively. Our
portfolio of products falls into four operating and reportable segments: (i) Bausch + Lomb/International, (ii) Salix, (iii) Ortho
Dermatologics and (iv) Diversified Products.
• The Bausch + Lomb/International segment consists of: (i) sales in the U.S. of pharmaceutical products, OTC products
and medical device products, primarily comprised of Bausch + Lomb products, with a focus on the Vision Care, Surgical,
Consumer and Ophthalmology Rx products and (ii) with the exception of sales of Solta products, sales in Canada, Europe,
Asia, Australia, Latin America, Africa and the Middle East of branded pharmaceutical products, branded generic
pharmaceutical products, OTC products, medical device products and Bausch + Lomb products.
• The Salix segment consists of sales in the U.S. of GI products.
• The Ortho Dermatologics segment consists of: (i) sales in the U.S. of Ortho Dermatologics (dermatological) products
and (ii) global sales of Solta medical aesthetic devices.
• The Diversified Products segment consists of sales: (i) in the U.S. of pharmaceutical products in the areas of neurology
and certain other therapeutic classes, (ii) in the U.S. of generic products, (iii) in the U.S. of dentistry products and (iv) of
certain other businesses divested during 2017 that were not core to the Company's operations, including the Company's
equity interests in Dendreon Pharmaceuticals LLC (“Dendreon”) (June 28, 2017) and Sprout Pharmaceuticals, Inc.
(“Sprout”) (December 20, 2017). As a result of the divestitures of Dendreon and Sprout, the Company exited the oncology
and women's health businesses, respectively.
For additional discussion of our reportable segments, see the discussion in Item 1 "Business - Segment Information" and
Note 23, "SEGMENT INFORMATION" to our audited Consolidated Financial Statements for further details on these reportable
segments.
Focus on Core Businesses
Our strategy is to focus our business on core therapeutic classes that offer attractive growth opportunities. Within our chosen
therapeutic classes, we prioritize durable products which we believe have the potential for strong operating margins and evidence
of growth opportunities. We believe this strategy has reduced complexity in our operations and maximizes the value of our: (i)
eye-health, (ii) GI and (iii) dermatology businesses which, collectively, now represent a substantial portion of our revenues. We
have found and continue to believe there is significant opportunity in these businesses and we believe our existing portfolio,
commercial footprint and pipeline of product development projects position us to successfully compete in these markets and
provide us with the greatest opportunity to build value for our shareholders. We identify these businesses as “core”, meaning that
we believe we are best positioned to grow and develop them. In order to continue to focus on our core businesses we have: (i)
directed capital allocation to drive growth within our core businesses, (ii) made measurable progress in effectively managing our
capital structure, (iii) increased our efforts to improve patient access and (iv) continued to invest in sustainable growth drivers to
position us for long-term growth.
46
Direct Capital Allocation to Drive Growth Within Our Core Businesses
Our capital allocation is driven by our long-term growth strategies. We have been aggressively allocating resources to promote
our core businesses globally through: (i) strategic acquisitions, (ii) research and development (“R&D”) investment and (iii) strategic
investments in our infrastructure. The outcome of this process allows us to better drive value in our product portfolio and generate
operational efficiencies.
Strategic Acquisitions - We remain very selective when considering any acquisition and pursue only those opportunities that
we believe align well with our current organization. In being selective, we seek to enter into only those acquisitions that provide
us with significant synergies with our existing business, thereby minimizing risks to our core businesses and providing long-term
growth opportunities. Recently, we have entered into transactions that although not immediately impactful to our operating results,
are expected to be accretive to our bottom line in future years and contribute to our long-term growth strategies.
In March 2019, we completed the acquisition of certain assets of Synergy Pharmaceuticals Inc. (“Synergy”) whereby we
acquired the worldwide rights to the Trulance® (plecanatide) product, a once-daily tablet for adults with chronic idiopathic
constipation, or CIC and irritable bowel syndrome with constipation, or IBS-C. We believe that the Trulance® product complements
our existing Salix products and allows us to effectively leverage our existing GI sales force.
On February 18, 2019, we acquired the U.S. rights to EM-100 from Eton Pharmaceuticals, Inc. EM-100, is an investigational
eye drop that, if approved by the FDA, will be the first OTC preservative-free formulation eye drop for the treatment of ocular
itching associated with allergic conjunctivitis. A Phase 3 trial has been completed and submitted to the FDA for review and we
anticipate their response in the second half of 2020. If approved, EM-100 is expected to complement our broad range of Bausch
+ Lomb integrated eye-health products.
In October 2018, we completed the planned acquisition of Medpharma Pharmaceutical and Chemical Industries LLC
("Medpharma"). The completion of this acquisition provides us with full control over the business activities of Medpharma and
allows us to wholly benefit from the allocation of additional Company resources and the growth, if any, in the Arab Emirates and
the surrounding region.
We are considering further acquisition opportunities within our core therapeutic areas, some of which could be sizable.
R&D Investment - We continuously search for new product opportunities through internal development and strategic licensing
agreements, that if successful, will allow us to leverage our commercial footprint, particularly our sales force, and supplement our
existing product portfolio and address specific unmet needs in the market.
Internal R&D Projects - Our R&D organization focuses on the development of products through clinical trials. As of December
31, 2019, approximately 1,400 dedicated R&D and quality assurance employees in 23 R&D facilities were involved in our R&D
efforts internally.
Our R&D expenses for 2019, 2018 and 2017, were $471 million, $413 million and $361 million, respectively, and was
approximately 5% as a percentage of revenue for 2019 and 2018 and approximately 4% for 2017. As part of our turnaround, we
removed projects related to divested businesses and rebalanced our portfolio to better align with our long-term plans and focus
on core businesses. Our investment in R&D reflects our commitment to drive organic growth through internal development of
new products, a pillar of our strategy. We have over 225 projects in our global pipeline and anticipate submitting approximately
100 of those projects for regulatory approval in 2020 and 2021.
Core assets that have received a significant portion of our R&D investment in current and prior periods are listed below.
• Dermatology - In June 2019, we launched Duobrii®, the first and only topical lotion that contains a unique combination
of halobetasol propionate and tazarotene for the treatment of moderate-to-severe plaque psoriasis in adults. Halobetasol
propionate and tazarotene are each approved to treat plaque psoriasis when used separately, but the duration of halobetasol
propionate is limited by Food and Drug Administration ("FDA") labeling constraints and the use of tazarotene can be
limited due to tolerability concerns. However, the combination of these ingredients in Duobrii®, with a dual mechanism
of action, allows for expanded duration of use, with reduced adverse events.
• Dermatology - In November 2018, we launched Bryhali®, a novel product that contains a unique, lower concentration
of halobetasol propionate for the treatment of moderate-to-severe psoriasis which is FDA approved for 8 weeks of use.
The FDA has previously approved halobetasol propionate to treat plaque psoriasis, but limited duration of use to two
weeks.
47
• Bausch + Lomb - Bausch + Lomb ULTRA® for Astigmatism is a monthly planned replacement contact lens for astigmatic
patients. The Bausch + Lomb ULTRA® for Astigmatism lens was developed using the proprietary MoistureSeal®
technology. In addition, the Bausch + Lomb ULTRA® for Astigmatism lens integrates an OpticAlign® design engineered
for lens stability and to promote a successful wearing experience for the astigmatic patient. In 2017, we launched this
product and the extended power range for this product. In 2018, we launched the Bausch + Lomb ULTRA® for Astigmatism
-2.75 cylinder expanded SKU range.
• Bausch + Lomb - SiHy Daily AQUALOX™ is a silicone hydrogel daily disposable contact lens designed to provide clear
vision throughout the day. Product validation was completed in June 2018 and SiHy Daily AQUALOX™ was launched
in Japan in September 2018. We expect to launch our SiHy Daily disposable contact lens in the U.S. in the second half
of 2020.
• Dermatology - Internal Development Project ("IDP") 126 is an acne product with a fixed combination of benzoyl peroxide,
clindamycin phosphate and adapalene. Phase 3 studies were initiated in December 2019.
• Bausch + Lomb - Lumify® (brimonidine tartrate ophthalmic solution, 0.025%) is an OTC eye drop developed as an ocular
redness reliever. We have several line extensions currently under development and further clinical studies are planned to
start in 2020.
• Gastrointestinal - We have initiated a Phase 2 study for the treatment of overt hepatic encephalopathy with a new
formulation of rifaximin, which we acquired as part of the Salix Acquisition. We expect to complete an interim analysis
in the first quarter of 2020.
• Gastrointestinal - Following the read out of the overt hepatic encephalopathy study, we are planning to initiate a study
potentially evaluating the new formulation of rifaximin in potential hepatic encephalopathy and gastrointestinal
conditions. The study is expected to start in the second half of 2020. This study replaces the planned Xifaxan® 550mg
tablets Phase 2 study evaluating the prevention of complications of decompensation cirrhosis referenced in our Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2019.
• Gastrointestinal - We are initiating a Phase 2 study to evaluate rifaximin for the treatment of small intestinal bacterial
overgrowth or SIBO. Patient enrollment is expected to begin in the first half of 2020.
• Dermatology - IDP-120 is an acne product with a fixed combination of mutually incompatible ingredients: benzoyl
peroxide and tretinoin. Phase 3 clinical studies are ongoing.
• Dermatology - Arazlo™ (tazarotene) Lotion, 0.045% (formerly IDP-123) is an acne product containing lower
concentration of tazarotene in a lotion form to help reduce irritation while maintaining efficacy. The FDA approved the
New Drug Application ("NDA") for Arazlo™ on December 18, 2019, which we expect to launch in the first half of 2020.
• Gastrointestinal - Our partner Alfasigma S.p.A. ("Alfasigma") is initiating a Phase 2/3 study for the treatment of
postoperative Crohns disease using a novel rifaximin extended release formulation. The study is expected to start in the
first half of 2020.
• Gastrointestinal - We are developing a probiotic supplement to address gastrointestinal disturbances. Patient enrollment
for clinical trial has been completed and we expect to launch this product in 2020.
• Dermatology - IDP-124 is a topical lotion product designed to treat moderate to severe atopic dermatitis, with
pimecrolimus, currently in Phase 3 testing.
• Bausch + Lomb - Biotrue® ONEday for Astigmatism is a daily disposable contact lens for astigmatic patients. The Biotrue®
ONEday contact lens incorporates Surface Active Technology™ to provide a dehydration barrier. The Biotrue® ONEday
for Astigmatism also includes evolved peri-ballast geometry to deliver stability and comfort for the astigmatic patient. We
launched this product in December 2016 and launched an extended power range and further extended power ranges in
2017, 2018 and November 2019.
• Bausch + Lomb - We are developing a new Ophthalmic Viscosurgical Device product, with a formulation to protect
corneal endothelium during phacoemulsification process during a cataract surgery and to help chamber maintenance and
lubrication during interocular lens delivery. We anticipate filing a Premarket Approval application for the dispersive
Ophthalmic Viscosurgical Device with the FDA in the first quarter of 2020.
• Bausch + Lomb - In April 2019, we launched Lotemax® SM (loteprednol etabonate ophthalmic gel) 0.38%, a new
formulation for the treatment of post-operative inflammation and pain following ocular surgery. Lotemax® SM is the
48
lowest concentrated loteprednol ophthalmic corticosteroid indicated for the treatment of post-operative inflammation and
pain following ocular surgery in the U.S.
• Bausch + Lomb - enVista® Trifocal intraocular lens is an innovative lens design. We initiated an investigative device
exemption study for this product in May 2018 and initiated a Phase 2 study in October of 2019.
• Bausch + Lomb - Enhanced enVista® Toric intraocular lens was launched in July 2018.
• Bausch + Lomb - We are developing a preloaded intraocular lens injector platform for enVista interocular lens. We have
received approvals from the European Union and Canada and received FDA clearance for the injector. We anticipate
launching this platform in the second quarter of 2020.
• Bausch + Lomb - We are developing an extended depth of focus intraocular lens which we anticipate launching in 2020,
excluding the U.S., starting with Europe.
• Bausch + Lomb ULTRA® Multifocal for Astigmatism contact lens is the first and only multifocal toric lens available as
a standard offering in the eye care professional's fit set. The new monthly silicone hydrogel lens, which was specifically
designed to address the lifestyle and vision needs of patients with both astigmatism and presbyopia, combines the
Company's unique 3-Zone Progressive™ multifocal design with the stability of its OpticAlign® toric with MoistureSeal®
technology to provide eye care professionals and their patients an advanced contact lens technology that offers the
convenience of same-day fitting during the initial lens exam. Bausch + Lomb ULTRA® Multifocal for Astigmatism was
launched in June 2019.
• Bausch + Lomb - Renu® Advanced Multi-Purpose Solution (“MPS”) contains a triple disinfectant system that kills 99.9%
of germs, and has a dual surfactant system that provides up to 20 hours of moisture. Renu® Advanced MPS is FDA
cleared with indications for use to condition, clean, remove protein, disinfectant, rinse and store soft contact lenses
including those composed of silicone hydrogels. Renu® Advanced MPS has gained regulatory approvals in Korea, India,
Mexico, Indonesia, Malaysia and Singapore.
• Bausch + Lomb - Custom soft contact lens (Ultra buttons) is a latheable silicone hydrogel button for custom soft specialty
lenses including; Sphere, Toric, Multifocal, Toric Multifocal and irregular corneas. If approved by the FDA, we expect
to launch in the first quarter of 2021.
• Bausch + Lomb - In January 2019, we launched Zen™ Multifocal Scleral Lens for presbyopia exclusively available with
Zenlens™ and Zen™ RC scleral lenses and will allow eye care professionals to fit presbyopic patients with irregular and
regular corneas and those with ocular surface disease, such as dry eye. The Zen™ Multifocal Scleral Lens incorporates
decentered optics, enabling the near power to be positioned over the visual axis.
• Bausch + Lomb - In March 2019, we launched Tangible® Hydra-PEG®, a high-water polymer coating that is bonded to
the surface of a contact lens and designed to address contact lens discomfort and dry eye. Tangible® Hydra-PEG® coating
technology in combination with our Boston® materials and Zenlens™ family of scleral lenses will help eye care
professionals provide a better lens wearing experience for their patients with challenging vision needs.
Strategic Licensing Agreements - To supplement our reliance on our internal R&D organization to build-out and refresh our
product portfolio, we also search for opportunities to augment our pipeline through arrangements that allow us to gain access to
unique products and investigational treatments, by strategically aligning ourselves with other innovative product solutions.
In the normal course of business, the Company will enter into select licensing and collaborative agreements for the
commercialization and/or development of unique products primarily in the U.S. and Canada. These products are sometimes
investigational treatments in early stage development that target unique conditions. The ultimate outcome, including whether the
product will be: (i) fully developed, (ii) approved by the FDA, (iii) covered by third-party payors or (iv) profitable for distribution
cannot be fairly predicted.
On February 27, 2018, we announced that we entered into an exclusive license agreement with Kaken Pharmaceutical Co.,
Ltd. to develop and commercialize a new chemical entity, IDP-131 (KP-470), for the topical treatment of psoriasis. An early
proof of concept study was initiated in the first half of 2019. If approved by the FDA, IDP-131 could represent a novel drug with
an alternative mechanism of action in the topical treatment of psoriasis.
In December 2019, we announced that we had acquired an exclusive license from Novaliq GmbH for the commercialization
and development in the U.S. and Canada of the investigational treatment NOV03 (perfluorohexyloctane), a first-in-class
investigational drug with a novel mechanism of action to treat Dry Eye Disease ("DED") associated with Meibomian gland
dysfunction ("MGD"). A Phase 3 study is underway for NOV03, and we anticipate starting an additional Phase 3 study in 2020.
49
If approved by the FDA, we believe the addition of this investigational treatment for DED will help build upon our strong portfolio
of integrated eye-health products.
In October 2019, we acquired an exclusive license from Clearside Biomedical, Inc. ("Clearside") for the commercialization
and development of Xipere™ (triamcinolone acetonide suprachoroidal injectable suspension) in the U.S. and Canada. Xipere™ is
a proprietary suspension of the corticosteroid triamcinolone acetonide formulated for suprachoroidal administration via Clearside's
proprietary SCS Microinjector™ that is being investigated as a targeted treatment of macular edema associated with uveitis.
Clearside expects to resubmit its NDA for Xipere™ to the FDA in mid-year 2020.
In April 2019, we entered into two licensing agreements which present us with unique developmental opportunities to address
unmet needs of individuals suffering with certain GI and liver diseases. The first of these two licensing agreements is with the
University of California for certain intellectual property relating to an investigational compound targeting the pituitary adenylate
cyclase receptor 1 in non-alcoholic fatty liver disease (“NAFLD”), nonalcoholic steatohepatitis (“NASH”) and other GI and liver
diseases. The second is an exclusive licensing agreement with Mitsubishi Tanabe Pharma Corporation to develop and commercialize
MT-1303 (amiselimod), a late-stage oral compound that targets the sphingosine 1-phosphate receptor that plays a role in autoimmune
diseases, such as inflammatory bowel disease and ulcerative colitis. We plan to initiate a Phase 2 study for the development of
MT-1303 in ulcerative colitis in 2020.
Strategic Investments in our Infrastructure - In support of our core businesses, we have and continue to make strategic
investments in our infrastructure, the most significant of which are at our Waterford facility in Ireland and our Rochester facility
in New York.
To meet the forecasted demand for our Biotrue® ONEday lenses, in July 2017, we placed into service a $175 million multi-
year strategic expansion project of the Waterford facility. The emphasis of the expansion project was to: (i) develop new technology
to manufacture, automatically inspect and package contact lenses, (ii) bring that technology to full validation and (iii) increase
the size of the Waterford facility.
To address the expected global demand for our Bausch + Lomb ULTRA® contact lens, in December 2017, we completed a
multi-year, $200 million strategic upgrade to our Rochester facility. The upgrade increased production capacity in support of our
Bausch + Lomb Ultra® and SiHy Daily AQUALOX™ product lines and better supports the production of other well-established
contact lenses such as our PureVision®, PureVision®2 (SVS, Toric, and Multifocal), SofLens® 38 and SilSoft®.
To address the expected global demand for our SiHy Daily disposable contact lenses, in November 2018, we initiated $300
million of additional expansion projects to add multiple production lines to our Rochester and Waterford facilities. SiHy Daily
disposable contact lenses are expected to be launched in the U.S. in the second half of 2020.
We believe the investments in our Waterford and Rochester facilities and related expansion of labor forces further demonstrates
the growth potential we see in our Bausch + Lomb products and our eye-health business.
Effectively Managing Our Capital Structure
We continue to effectively manage our capital structure by: (i) reducing our debt through repayments, (ii) extending the
maturities of debt through refinancing and (iii) improving our credit ratings.
Financing of Litigation Settlement - In December 2019, we announced that we had agreed to resolve the putative securities
class action litigation in the U.S. (the "U.S. Securities Litigation") for $1,210 million, subject to final court approval. Once approved
by the court, the settlement will resolve and discharge all claims against the Company in the class action. As part of the settlement,
the Company and the other settling defendants admitted no liability as to the claims against it and deny all allegations of wrongdoing.
This settlement, once approved by the court, will resolve the most significant of the Company's remaining legacy legal matters
and eliminate a material uncertainty regarding our Company.
To finance the settlement of the U.S. Securities Litigation, on December 30, 2019 we accessed the credit markets and issued:
(i) $1,250 million aggregate principal amount of 5.00% Senior Unsecured Notes due January 2028 (the "5.00% January 2028
Unsecured Notes") and (ii) $1,250 million aggregate principal amount of 5.25% Senior Unsecured Notes due January 2030 (the
"January 2030 Unsecured Notes") in a private placement. The proceeds and cash on hand were used to: (i) redeem $1,240 million
of 5.875% Senior Unsecured Notes due 2023 (the "May 2023 Unsecured Notes") on January 16, 2020, (ii) finance amounts owed
under the Company's recently announced $1,210 million settlement agreement relating to the U.S. Securities Litigation (which is
subject to final court approval), of which we paid $200 million during January 2020 and (iii) pay all fees and expenses associated
with these transactions (collectively, the "December 2019 Financing and Refinancing Transactions"). On December 18, 2019, the
Company issued a conditional notice of redemption for $1,240 million of May 2023 Unsecured Notes on January 16, 2020. On
December 30, 2019, the Company received the proceeds associated with the December 2019 Financing and Refinancing
Transactions, satisfying the condition included in the conditional notice of redemption. Through this financing, we have in effect
50
extended the payment terms of the pending settlement of $1,210 million out to 2028 and 2030, without negatively impacting our
working capital available for operations.
Debt Repayments - Excluding the impact of the $1,210 million financing of the U.S. Securities Litigation settlement discussed
above, we have been able to repay (net of additional borrowings) over $7,700 million of long-term debt during the period January
1, 2016 through the date of this filing using the net cash proceeds from divestitures of non-core assets, cash generated from
operations and cash generated from tighter working capital management. This includes $906 million of repayments with cash on
hand during 2019.
2017 Refinancing Transactions - In March, October, November and December of 2017, we accessed the credit markets and
completed a series of transactions, whereby we extended approximately $9,500 million in aggregate maturities of certain debt
obligations due to mature in April 2018 through April 2022, out to March 2022 through December 2025. As part of these transactions
we also extended commitments under our revolving credit facility, originally set to expire in April 2018, out to April 2020.
2018 Refinancing Transactions - In March, June and November 2018, we accessed the credit markets and completed a series
of transactions, whereby we extended approximately $8,300 million in aggregate maturities of certain debt obligations due to
mature in March 2020 through July 2022, out to June 2025 through January 2027. As part of these transactions we obtained less
stringent loan financial maintenance covenants under our Senior Secured Credit Facilities and extended commitments under our
revolving credit facility by more than three years by replacing our then-existing revolving credit facility, set to expire in April
2020 with a revolving credit facility of $1,225 million due in June 2023 (the “2023 Revolving Credit Facility”).
2019 Refinancing Transactions - In March, May and December 2019, we accessed the credit markets and completed a series
of transactions, whereby, through the date of this filing, we extended $4,240 million in aggregate maturities of certain debt
obligations due to mature in December 2021 through May 2023, out to January 2027 through January 2030.
See Note 11, "FINANCING ARRANGEMENTS" to our audited Consolidated Financial Statements for the details of our
debt portfolio as of December 31, 2019 and 2018.
The debt repayments and refinancings outlined above have allowed us to: (i) improve our credit ratings as discussed under
“Management's Discussion and Analysis - Liquidity and Capital Resources: Long-term Debt”, (ii) to finance amounts owed under
the Company's recently announced $1,210 million settlement agreement relating to the U.S. Securities Litigation without negatively
impacting our working capital available for operations and (iii) as of the date of this filing, reduce our mandatory scheduled
principal repayments of our debt obligations in 2020 and 2021 to $0 and $103 million, respectively.
Our prepayment and refinancings of debt over the last four years translate into lower repayments of principal over the next
four years, which, in turn, we believe will permit more cash flows to be directed toward developing our core assets, identifying
new product opportunities and repaying additional debt amounts. The mandatory scheduled principal repayments of our debt
obligations as of December 31, 2019 and February 19, 2020, the date of this filing, were as follows:
(in millions)
As of December 31, 2019
As of February 19, 2020
2020 - 2021
1,343
$
2022 - 2023
4,148
$
2024 - 2025
12,935
$
2026 - 2027
3,750
$
2028 - 2029
2,762
$
2030
$ 1,250
Total
$ 26,188
103
4,148
12,935
3,750
2,762
1,250
24,948
In addition, as a result of the changes in our debt portfolio, approximately 80% of our debt is fixed rate debt as of December 31,
2019, as compared to approximately 60% as of January 1, 2016. The weighted average stated interest rate of the Company's
outstanding debt as of December 31, 2019 and 2018 was 6.21% and 6.23%, respectively.
We continue to monitor our capital structure and to evaluate other opportunities to simplify our business and improve our
capital structure, giving us the ability to better focus on our core businesses. While we anticipate focusing any future divestiture
activities on non-core assets, consistent with our duties to our shareholders and other stakeholders, we will consider dispositions
in core areas that we believe represent attractive opportunities for the Company. Also, the Company regularly evaluates market
conditions, its liquidity profile and various financing alternatives for opportunities to enhance its capital structure. If the Company
determines that conditions are favorable, the Company may refinance or repurchase existing debt or issue additional debt, equity
or equity-linked securities.
See Note 11, "FINANCING ARRANGEMENTS" to our audited Consolidated Financial Statements for further details and
“Management's Discussion and Analysis - Liquidity and Capital Resources: Long-term Debt” for additional discussion of these
matters. Cash requirements for future debt repayments including interest can be found in “Management's Discussion and Analysis
- Off-Balance Sheet Arrangements and Contractual Obligations.”
51
Improve Patient Access
Improving patient access to our products, as well as making them more affordable, is at the forefront of our business strategies.
Patient Access and Pricing Committee - In 2016, we formed the Patient Access and Pricing Committee which is responsible
for setting, changing and monitoring the pricing of our products and evaluating contract arrangements that determine the placement
of our products on drug formularies. The Patient Access and Pricing Committee considers new to market product pricing, price
changes and their impact across channels on patient accessibility and affordability. The Patient Access and Pricing Committee has
been committed to limiting the average annual price increase for our branded prescription pharmaceutical products to no greater
than single digits and reaffirmed this commitment for 2020. These pricing changes and programs could affect the average realized
pricing for our products and may have a significant impact on our company revenue and profit.
Dermatology.com Cash-pay Prescription Program - In February 2019, we launched Dermatology.com, a cash-pay product
acquisition program offering certain branded Ortho Dermatologics products directly to patients. This program is designed to
address the affordability and availability of certain branded dermatology products, when insurers and pharmacy benefit managers
are no longer offering those branded prescription pharmaceutical products under their designated pharmacy benefit offerings.
Through Dermatology.com, any patient with a valid prescription is able to purchase medicines at prices ranging from $50 to $115
per prescription. By doing so, the program provides branded products that offer proven treatment options for certain disease states
that typically encounter insurance coverage challenges and high patient out of pocket costs. This program includes products for
acne, actinic keratosis, superficial basal cell carcinoma, barrier repair (e.g. eczema treatments), wounds and corticosteroid-
responsive diseases such as rashes, psoriasis and atopic dermatitis. All products included in the Dermatology.com program are
eligible for Flexible Spending Accounts or Health Saving Accounts and continue to be supported by the Company's Patient
Assistance Program, which offers free medication for patients who meet income and other eligibility criteria. We currently have
15 Ortho Dermatologics branded prescription pharmaceutical products in the Dermatology.com program and anticipate adding
additional products in the future, including some investigational therapies that will be added to the program as soon as, and if,
they are approved by the FDA.
Walgreens Fulfillment Arrangements - In the beginning of 2016, we launched a brand fulfillment arrangement with Walgreen
Co. ("Walgreens"). Under the terms of the brand fulfillment arrangement, as amended in July 2019, we made certain dermatology
and ophthalmology products available to eligible patients through patient access and co-pay assistance programs at Walgreens
U.S. retail pharmacy locations, as well as participating independent retail pharmacies. Our products available under this fulfillment
agreement include certain Ortho Dermatologics products, including our Jublia®, Luzu®, Retin-A Micro® Gel, and Onexton® and
select branded prescription pharmaceutical products included in our Dermatology.com cash-pay prescription program and certain
ophthalmology products, including our Vyzulta®, Besivance®, Lotemax®, Alrex®, Prolensa®, Bepreve® and Zylet® products.
Invest in Sustainable Growth Drivers to Position us for Long-Term Growth
We are constantly challenged by the changing dynamics of our industry to innovate and bring new products to market. We
have divested certain businesses where we saw limited growth opportunities, so that we can be more aggressive in redirecting our
R&D spend and other corporate investments to innovate within our core businesses where we believe we can be most profitable
and where we aim to be an industry leader.
We believe that we have a well-established product portfolio that is diversified within our core businesses and provides a
sustainable revenue stream to fund our operations. However, our future success is also dependent upon our ability to continually
refresh our pipeline, to provide a rotation of product launches that meet new and changing demands and replace other products
that have lost momentum. We believe we have a robust pipeline that not only provides for the next generation of our existing
products, but is also poised to bring new products to market.
Invest in our Eye-Health Business - As part of our Global Bausch + Lomb business strategy, we continually look for key
trends in the eye-health market to meet changing consumer/patient needs and identify areas for investment to extend our market
share through new launches and effective pricing.
For instance, there is an increasing rate of myopia, and importantly, myopia as a potential risk factor for glaucoma, macular
degeneration and retinal detachment. We continue to see increased demand for new eye-health products that address conditions
brought on by factors such as increased screen time, lack of outdoor activities and academic pressures, as well as conditions
brought on by an aging population (for example, as more and more baby-boomers in the U.S. are reaching the age of 65). To
extend our market share in eye-health, we continually identify new products tailored to address these key trends which we develop
internally with our own R&D team to generate organic growth. Recent product launches include Biotrue® ONEday daily disposable
contact lenses, the next generation of Bausch + Lomb ULTRA® contact lenses, SiHy Daily contact lenses, Lumify® (an eye redness
treatment), Vyzulta® (a pressure lowering eye drop for patients with angle glaucoma or ocular hypertension) and Ocuvite® Eye
Performance (vitamins to protect the eye from stressors such as sunlight and blue light emitted from digital devices).
52
We also license selective molecules or technology in leveraging our own R&D expertise through development, as well as
seek out external product development opportunities. As previously discussed, we acquired exclusive licenses for the
commercialization and development in the U.S. and Canada for Xipere™ which, if approved by the FDA, will be the first treatment
for patients suffering from macular edema associated with uveitis, and for NOV03, an investigational drug with a novel mechanism
of action to treat DED associated with MGD. We also acquired the U.S. rights to EM-100 an investigational eye drop that, if
approved by the FDA, will be the first OTC preservative-free formulation eye drop for the treatment of ocular itching associated
with allergic conjunctivitis. We believe investments in these investigational treatments, if approved by the FDA, will complement,
and help build upon, our strong portfolio of integrated eye-health products.
As previously discussed, we have also made strategic investments in our infrastructure, the most significant of which are at
our Waterford facility in Ireland to meet the forecasted demand for our Biotrue® ONEday lenses and our Rochester facility in New
York to address the expected global demand for our Bausch + Lomb ULTRA® contact lens. During late 2018, we began investing
in additional expansion projects at these facilities in order to address the expected global demand for our SiHy Daily disposable
contact lenses expected to be launched in the U.S. in the second half of 2020.
We believe our recent product launches, licensing arrangements and the investments in our Waterford and Rochester facilities
demonstrate the growth potential we see in our Bausch + Lomb products and our eye-health business and that these investments
will position us to further extend our market share in the eye-health market.
Leveraging our Salix Infrastructure - As we strongly believe in our GI product portfolio, we have taken initiatives to further
capitalize on the value of the infrastructure we built around these products to extend our market share by increasing our marketing
presence and identifying additional opportunities outside our existing GI portfolio.
In the first quarter of 2017, we hired approximately 250 trained and experienced sales force representatives and managers
to create, bolster and sustain deep relationships with primary care physicians (“PCP”). With approximately 70% of IBS-D patients
initially presenting symptoms to a PCP, we continue to believe that the dedicated PCP sales force is better positioned to reach
more patients in need of IBS-D treatment.
This initiative provided us with positive results, as we experienced consistent growth in demand for our GI products throughout
2017 and 2018, which was evident by our growth in Salix revenues of 12% in 2018 when compared to 2017. These results
encouraged us to seek out ways to bring out further value through leveraging our existing sales force and in the later portion of
2018 and in 2019 we have identified and executed on certain opportunities which we describe below.
Strategic Acquisition - As previously discussed, in March 2019, we completed the acquisition of certain assets of
Synergy, whereby we acquired the worldwide rights to the Trulance® product, a once-daily tablet for adults with chronic
idiopathic constipation, or CIC and irritable bowel syndrome with constipation, or IBS-C. We believe that the Trulance®
product complements our existing Salix products and allows us to effectively leverage our existing GI sales force. As we
focus on reestablishing momentum in the Trulance® product, we have reviewed certain strategies for the Salix business and
as a result, we mutually agreed with US WorldMeds, LLC and Dova Pharmaceuticals to terminate our arrangements to co-
promote Lucemyra® and Doptelet® effective September 30, 2019 and December 31, 2019, respectively.
Licensing Arrangements - As previously discussed, in April 2019, we entered into two licensing agreements. The first
is for certain intellectual property relating to an investigational compound targeting the pituitary adenylate cyclase receptor
1 in NAFLD, NASH and other GI and liver diseases. The second is to develop and commercialize MT-1303 (amiselimod),
a late-stage oral compound that targets the sphingosine 1-phosphate receptor that plays a role in autoimmune diseases, such
as inflammatory bowel disease and ulcerative colitis. These licenses present unique developmental opportunities to address
unmet needs of individuals suffering with certain GI and liver diseases and if developed and approved by the FDA, will
allow us to further utilize our existing sales force and infrastructure to extend our market share in the future and create value.
Investment in Next Generation Formulations - We continue to see growth in our Xifaxan® product. Revenues from our
Xifaxan® product increased approximately 22%, 22% and 11% in 2019, 2018 and 2017, respectively. In order to extend
growth in Xifaxan®, we continue to directly invest in next generation formulations of Xifaxan® and rifaximin, the principal
semi-synthetic antibiotic used in our Xifaxan® product. In addition to one R&D program in progress, we have three other
R&D programs planned to start in 2020 for next generation formulations of Xifaxan® (rifaximin) which address new
indications.
We believe that the acquisition and licensing opportunities discussed above, will be accretive to our business by providing
us access to products and investigational compounds that are a natural pairing to our Xifaxan® business, allowing us to effectively
leverage our existing infrastructure and sales force. We believe these opportunities, coupled with our investment in next generation
formulations, will allow our GI franchise to continue to further extend market share.
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Position the Ortho Dermatologics Business for Growth - In support of our Ortho Dermatologics business and the opportunities
we see for growth in this business, we continue to allocate resources and make additional investments in this business to recruit
and retain talent and focus on our core dermatology portfolio of products.
To position the Ortho Dermatologics business for growth, we have taken and are taking a number of actions which we believe
will help our efforts to stabilize our dermatology business. These actions include: (i) rebranding our dermatology business, (ii)
recruiting a new experienced leadership team, (iii) making significant investment in our core dermatology portfolio, (iv) increasing
and reorganizing our dermatology sales force around roughly 195 territories, as we work to rebuild relationships with prescribers
of our products and (v) improving patient access to our Ortho Dermatologics products through Dermatology.com, our cash-pay
prescription program previously discussed. With these actions substantially complete, we believe our Ortho Dermatologics business
is positioned for growth in 2020.
Recruit and Retain Talent - In 2017, we identified and retained a proven leadership team of experienced dermatology
sales professionals and marketers. In January 2018, the leadership team, encouraged by the success of our GI sales force
expansion program, increased our Ortho Dermatologics sales force by more than 25% in support of our growth initiatives
for our Ortho Dermatologics business. We believe the additional sales force is vital to meet the demand we expect from our
recently launched products and those we expect to launch in the near term, pending FDA approval. We continue to monitor
our pipeline for other near term launches that we believe will create opportunity needs in our other core businesses requiring
us to make additional investment to retain people for additional leadership and sales force roles.
Investment in Our Core Dermatology Portfolio - We have made significant investments to build out our aesthetics,
psoriasis and acne product portfolios, which are the markets within dermatology where we see the greatest opportunities to
extend our market share.
Aesthetics - In 2017, we launched our Next Generation Thermage FLX® product in the U.S., a fourth-generation non-
invasive treatment option using a radiofrequency platform designed to optimize key functional characteristics and
improve patient outcomes. During 2018 and 2019, Next Generation Thermage FLX® was launched in Hong Kong,
Japan, Korea, Taiwan, Philippines, Singapore, Indonesia, Malaysia, China, Thailand, Vietnam, and Australia as part
of our Solta medical aesthetic devices portfolio. These launches have been successful as Next Generation Thermage
FLX® revenues for 2019 were in excess of $75 million. We expect additional launches of Next Generation Thermage
FLX® in Asia and Europe in the near term, paced by country-specific regulatory registrations.
Psoriasis - As the number of reported cases of psoriasis in the U.S. has increased, we believe there is a need to make
further investments in this market in order to maximize our opportunity and supplement our current psoriasis product
portfolio. We have filed NDAs for several new topical psoriasis products, launched Duobrii® in June 2019 and launched
Bryhali® in November 2018. We expect that Duobrii® and Bryhali® will align well with our existing topical portfolio
of psoriasis treatments and, supplemented by our injectable biologic products, such as Siliq®, will provide a diverse
choice of psoriasis treatments to doctors and patients. In July 2017, we launched Siliq®, an IL-17 receptor blocker
monoclonal antibody biologic for treatment of moderate-to-severe plaque psoriasis, which we estimate to be an over
$5,000 million market in the U.S. (Siliq® has a Black Box Warning for the risks in patients with a history of suicidal
thoughts or behavior and was approved with a Risk Evaluation and Mitigation Strategy involving a one-time enrollment
for physicians and one-time informed consent for patients). As previously discussed, we entered into an exclusive
license agreement with Kaken Pharmaceutical Co., Ltd. to develop and commercialize products containing a new
chemical entity, IDP-131 (KP-470), for the topical treatment of psoriasis. An early proof of concept study was initiated
in the first half of 2019. If approved by the FDA, IDP-131 could represent a novel drug with an alternative mechanism
of action in the topical treatment of psoriasis.
Acne - In support of our established acne product portfolio, we have developed several products, which include Retin-
A Micro® 0.06% (launched in January 2018) and Altreno® (launched in the U.S. October 2018), the first lotion (rather
than a gel or cream) product containing tretinoin for the treatment of acne. We also anticipate launching
ArazloTM (tazarotene) Lotion in the first half of 2020 and we have three other unique acne projects in earlier stages of
development that, if approved by the FDA, we believe will further innovate and advance the treatment of acne.
Bolstered by new product launches in our aesthetics, psoriasis and acne product lines and the potential of other products
under development, our experienced dermatology sales leadership team, our sales force and our Dermatology.com cash-pay
prescription program, we believe we have set the groundwork to position the Ortho Dermatologics business for growth.
In early 2018, we identified seven of our products, which we called the “Significant Seven”, that, at the time, we believed
would be among the key drivers of our future growth and which we anticipated would have significant revenues in the future. In
2019, the reported revenue of the Significant Seven products was approximately $268 million, an increase of 68% as compared
to 2018. Additionally, at the end of 2017, we stated that we believed that our Dermatology business, Ortho Dermatologics, had
54
the potential to double its revenue within five years based on new product introductions including Siliq®, Duobrii®, Bryhali®,
Altreno®, and Arazlo™. We expect our future company-wide revenue growth will be driven by a broader group of products that
have existed or since emerged from within our product portfolio (e.g., Xifaxan®, Thermage®, Biotrue® ONEday, Aplenzin®, Bausch
+ Lomb Ultra®, Jublia®, enVista®), from our internal development pipeline and/or from business development efforts (e.g.
Trulance®). As our portfolio evolves over time our promotional priorities shift based on where we see the greatest potential to
drive profitable growth and to improve returns on invested capital. Our company-wide prospects today are different, more wide-
ranging, and we believe that they continue to be as attractive as they were at the time we communicated our views for the “Significant
Seven” and the near-term prospects for Ortho Dermatologics. While we continue to believe that the “Significant Seven” and Ortho
Dermatologics will be important contributors to future growth, we are withdrawing our existing outlook with respect to the
anticipated revenue for the Significant Seven group of products and the doubling in revenue of the Ortho Dermatologics business
and, going forward, we do not expect to provide any specific qualitative or quantitative outlooks as to the revenue related to these
groups. We plan to continue to provide the revenues for our top products, for both the total Company as well as for our reportable
segments, in the earnings material prepared by the Company.
Business Trends
In addition to the actions previously outlined, the following events have affected and may affect our business trends:
U.S. Health Care Reform
The U.S. federal and state governments continue to propose and pass legislation designed to regulate the health care industry.
In March 2010, the Patient Protection and Affordable Care Act (the “ACA”) was enacted in the U.S. The ACA contains several
provisions that impact our business, including: (i) an increase in the minimum Medicaid rebate to states participating in the Medicaid
program, (ii) the extension of the Medicaid rebates to Managed Care Organizations that dispense drugs to Medicaid beneficiaries,
(iii) the expansion of the 340(B) Public Health Services drug pricing program, which provides outpatient drugs at reduced rates,
to include additional hospitals, clinics and health care centers and (iv) a fee payable to the federal government based on our prior-
calendar-year share relative to other companies of branded prescription drug sales to specified government programs.
In addition, in 2013 federal subsidies began to be phased in for brand-name prescription drugs filled in the Medicare Part
D cover gap. The ACA also included provisions designed to increase the number of Americans covered by health insurance. In
2014, the ACA's private health insurance exchanges began to operate. The ACA also allows states to expand Medicaid coverage
with most of the expansion’s cost paid for by the federal government.
For 2019, 2018 and 2017, we incurred costs of $20 million, $36 million and $48 million, respectively, related to the annual
fee assessed on prescription drug manufacturers and importers that sell branded prescription drugs to specified U.S. government
programs (e.g., Medicare and Medicaid). For 2019, 2018 and 2017, we also incurred costs of $137 million, $90 million and $106
million, respectively, on Medicare Part D utilization incurred by beneficiaries whose prescription drug costs cause them to be
subject to the Medicare Part D coverage gap (i.e., the “donut hole”).
On July 28, 2014, the U.S. Internal Revenue Service issued final regulations related to the branded pharmaceutical drug
annual fee pursuant to the ACA. Under the final regulations, an entity’s obligation to pay the annual fee is triggered by qualifying
sales in the current year, rather than the liability being triggered upon the first qualifying sale of the following year. We adopted
this guidance in the third quarter of 2014, and it did not have a material impact on our financial position or results of operations.
The financial impact of the ACA will be affected by certain additional developments over the next few years, including
pending implementation guidance and certain health care reform proposals. Additionally, policy efforts designed specifically to
reduce patient out-of-pocket costs for medicines could result in new mandatory rebates and discounts or other pricing restrictions.
Also, it is possible, as discussed further below, that under the current administration, legislation will be passed by Congress
repealing the ACA in whole or in part. Adoption of legislation at the federal or state level could materially affect demand for, or
pricing of, our products.
In 2018, we faced uncertainties due to federal legislative and administrative efforts to repeal, substantially modify or invalidate
some or all of the provisions of the ACA. However, we believe there is low likelihood of repeal of the ACA, given the recent
failure of the Senate’s multiple attempts to repeal various combinations of ACA provisions. There is no assurance that any
replacement or administrative modifications of the ACA will not adversely affect our business and financial results, particularly
if the replacing legislation reduces incentives for employer-sponsored insurance coverage, and we cannot predict how future
federal or state legislative or administrative changes relating to the reform will affect our business.
In 2019, the U.S. Health and Human Services Administration announced a preliminary plan to allow for the importation of
certain lower-cost drugs from Canada. The preliminary plan excludes insulin, biological drugs, controlled substances and
intravenous drugs. The preliminary plan relies on individual states to develop proposals for safe importation of those drugs from
55
Canada and submit those proposals to the federal government for approval. Although the preliminary plan has some support from
the current administration, at this time, studies to evaluate the related costs and benefits, evaluate the reasonableness of the logistics,
and measure the public reaction of such a plan have not been performed. While we do not believe this will have a significant
impact on our future cash flows, we cannot provide assurance as to the ultimate context, timing, effect or impact of such a plan.
In 2019, the Government of Canada (Health Canada) published in the Canadian Gazette the new pricing regulation for
patented drugs. These regulations will become effective on July 1, 2020. The draft application guidelines are available with the
final guidelines to be published in February 2020. The new regulations will change the mechanics of establishing the pricing for
products submitted for approval after August 21, 2019; they will also require full transparency of discounts agreed with provincial
bodies; and finally, will change the number and composition of reference countries used to determine if a drug’s price is excessive.
While we do not believe this will have a significant impact on our future cash flows, as additional facts materialize, we cannot
provide assurance as to the ultimate content, timing, effect or impact of such regulations.
Other legislative efforts relating to drug pricing have been proposed and considered at the U.S. federal and state level. We
also anticipate that Congress, state legislatures and third-party payors may continue to review and assess alternative health care
delivery and payment systems and may in the future propose and adopt legislation or policy changes or implementations affecting
additional fundamental changes in the health care delivery system.
Generic Competition and Loss of Exclusivity
Certain of our products face the expiration of their patent or regulatory exclusivity in 2020 or in later years, following which
we anticipate generic competition of these products. In addition, in certain cases, as a result of negotiated settlements of some of
our patent infringement proceedings against generic competitors, we have granted licenses to such generic companies, which will
permit them to enter the market with their generic products prior to the expiration of our applicable patent or regulatory exclusivity.
Finally, for certain of our products that lost patent or regulatory exclusivity in prior years, we anticipate that generic competitors
may launch in 2020 or in later years. Following a loss of exclusivity ("LOE") of and/or generic competition for a product, we
would anticipate that product sales for such product would decrease significantly shortly following the loss of exclusivity or entry
of a generic competitor. Where we have the rights, we may elect to launch an authorized generic of such product (either ourselves
or through a third party) prior to, upon or following generic entry, which may mitigate the anticipated decrease in product sales;
however, even with launch of an authorized generic, the decline in product sales of such product would still be expected to be
significant, and the effect on our future revenues could be material.
A number of our products already face generic competition. Prior to and during 2019, in the U.S., these products include,
among others, Ammonul®, Apriso®, Benzaclin®, Bupap®, Cuprimine®, Edecrin®, Elidel®, Glumetza®, Istalol®, Isuprel®, Locoid®
Lotion, Lotemax® Suspension, Mephyton®, Nitropress®, Solodyn®, Syprine®, Uceris® Tablet, Virazole®, Wellbutrin XL®,
Xenazine®, Zegerid® and Zovirax® cream. In Canada, these products include, among others, Glumetza®, Wellbutrin® XL and
Zovirax® ointment.
2019 LOE Branded Products - Branded products that began facing generic competition in the U.S. during 2019 include,
Apriso®, Cuprimine®, Lotemax® Suspension, Solodyn® and Zovirax® cream. In aggregate, these products accounted for 3% of
our total revenues in 2019. We believe the entrance into the market of generic competition generally would have an adverse impact
on the volume and/or pricing of the affected products, however we are unable to predict the magnitude or timing of this impact.
2020 through 2024 LOE Branded Products - Based on current patent expiration dates, settlement agreements and/or
competitive information, we have identified branded products that we believe could begin facing potential loss of exclusivity and/
or generic competition in the U.S. during the years 2020 through 2024. These products and year of expected loss of exclusivity
include, but are not limited to, Clindagel® (2020), Lotemax® Gel (2021), Migranal® (2021), MoviPrep® (2020), Noritate® (2020),
Targretin® Gel (2022), Xerese® (2022) and certain other products that are subject to settlement agreements which could impact
their exclusivity during the years 2020 through 2024. In aggregate, these products accounted for 3% of our total revenues in 2019.
These dates may change based on, among other things, successful challenge to our patents, settlement of existing or future patent
litigation and at-risk generic launches. We believe the entrance into the market of generic competition generally would have an
adverse impact on the volume and/or pricing of the affected products, however we are unable to predict the magnitude or timing
of this impact.
2021 LOE OTC Product - PreserVision® AREDS and PreserVision® AREDS 2 are OTC eye vitamin formulas for those with
moderate-to-advanced age-related macular degeneration. PreserVision® products accounted for 2% of our total revenues in 2019.
The PreserVision® patent expires in 2021, and whereas the Company cannot predict the magnitude or timing of the impact from
its patent expiry, as this is an OTC product the impact is not expected to be as significant as the loss of exclusivity of a branded
product.
56
In addition, for a number of our products (including Uceris®, Relistor®, Plenvu®, Xifaxan® 200mg and 550mg and Jublia®,
in the U.S. and Jublia® in Canada), we have commenced (or anticipate commencing) and have ongoing infringement proceedings
against potential generic competitors in the U.S. and Canada. If we are not successful in these proceedings, we may face increased
generic competition for these products.
Bryhali® Lotion, 0/01% - In December 2019, the Company announced that it had reached an agreement to
resolve the outstanding intellectual property litigation with Glenmark Pharmaceuticals, Ltd. ("Glenmark"). Under the terms of the
agreement, the Company will grant Glenmark a non-exclusive license to its intellectual property relating to Bryhali® in the U.S.
and, beginning in 2026 (or earlier under certain circumstances), Glenmark will have the option to market a royalty-free generic
version of Bryhali® Lotion, should it receive approval from the FDA. The parties have agreed to dismiss all litigation related to
Bryhali® Lotion, and all intellectual property protecting Bryhali® Lotion remains intact.
Xifaxan® 550mg Patent Litigation (Sandoz Inc.) - In October 2019, the Company announced that it and its licensor, AlfaSigma
had commenced litigation against Sandoz Inc. ("Sandoz"), a Novartis division, alleging patent infringement of 14 patents by
Sandoz's filing of its ANDA for Xifaxan® (rifaximin) 550 mg tablets. Xifaxan® is protected by 23 patents covering the composition
of matter and the use of Xifaxan® listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, or the
Orange Book.
Xifaxan® 550mg Patent Litigation (Norwich Pharmaceuticals Inc.) - On February 17, 2020, the Company and Alfasigma
received a Notice of Paragraph IV Certification from Norwich Pharmaceuticals Inc. (“Norwich”), in which Norwich asserted that
certain U.S. patents, each of which is listed in the FDA’s Orange Book for Salix Pharmaceuticals, Inc.’s (“Salix Inc.”) Xifaxan®
tablets, 550 mg, are either invalid, unenforceable and/or will not be infringed by the commercial manufacture, use or sale of
Norwich’s generic rifaximin tablets, 550 mg, for which an ANDA has been filed by Norwich. Salix Inc. and its affiliates and
Alfasigma (the “Plaintiffs”) have forty-five (45) days from the date of receipt of notice to file suit against Norwich pursuant to
the Hatch-Waxman Act, alleging infringement by Norwich of one or more claims of each of the Xifaxan® Patents, thereby triggering
a 30-month stay of the approval of Norwich’s ANDA for rifaximin tablets, 550 mg. The Plaintiffs intend to file suit per the
regulations. The Company remains confident in the strength of the Xifaxan® patents and will continue to vigorously pursue this
matter and defend its intellectual property.
Relistor® Tablets Patent Litigation - On December 6, 2016, the Company initiated litigation against Actavis Laboratories
FL, Inc.’s ("Actavis"), which alleged infringement by Actavis of one or more claims of U.S. Patent No. 8,524,276 (the “276
Patent”), which protects the formulation of RELISTOR® tablets. Actavis had challenged the validity of such patent and alleged
non-infringement by its generic version of such product. In July 2019, we announced that the U.S. District Court of New Jersey
had upheld the validity of and determined that Actavis infringed the ‘276 Patent, expiring in March 2031.
Xifaxan® 550mg Patent Litigation (Actavis)- On March 23, 2016, the Company initiated litigation against Actavis, which
alleged infringement by Actavis of one or more claims of each of the Xifaxan® patents. On September 12, 2018, we announced
that we had reached an agreement with Actavis that resolved the existing litigation and eliminated the pending challenges to our
intellectual property protecting Xifaxan® (rifaximin) 550 mg tablets. As part of the agreement, the parties agreed to dismiss all
litigation related to Xifaxan® (rifaximin), Actavis acknowledged the validity of the licensed patents for Xifaxan® (rifaximin) 550
mg tablets and all intellectual property protecting Xifaxan® (rifaximin) 550 mg tablets will remain intact and enforceable until
expiry in 2029. The agreement also grants Actavis a non-exclusive license to the intellectual property relating to Xifaxan®
(rifaximin) 550 mg tablets in the United States beginning January 1, 2028 (or earlier under certain circumstances). The Company
will not make any financial payments or other transfers of value as part of the agreement. In addition, under the terms of the
agreement, beginning January 1, 2028 (or earlier under certain circumstances), Actavis will have the option to: (1) market a royalty-
free generic version of Xifaxan® tablets, 550 mg, should it receive approval from the FDA on its ANDA, or (2) market an authorized
generic version of Xifaxan® tablets, 550 mg, in which case, we will receive a share of the economics from Actavis on its sales of
such an authorized generic. Actavis will be able to commence such marketing earlier if another generic rifaximin product is granted
approval and such other generic rifaximin product begins to be sold or distributed before January 1, 2028.
Generic Competition to Uceris® - In July 2018, a generic competitor launched a product which will directly compete with
our Uceris® Tablet product. As disclosed in Note 21, "LEGAL PROCEEDINGS" to our audited Consolidated Financial Statements,
the Company initiated various infringement proceedings against this and other generic competitors. The Company continues to
believe that its Uceris® Tablet-related patents are enforceable and is proceeding in the ongoing litigation between the Company
and the generic competitor; however, the ultimate outcome of the matter is not predictable. The ultimate impact of this generic
competitor on our future revenues cannot be predicted; however, Uceris® Tablet revenues for 2019, 2018 and 2017 were
approximately $20 million, $84 million and $134 million, respectively.
Generic Competition to Jublia® - On June 6, 2018, the U.S. Patent and Trial Appeal Board completed its inter partes review
for an Orange Book-listed patent covering Jublia® and issued a written determination invalidating such patent. Although the
Company is not aware of any imminent launches of a generic competitor to Jublia®, the ultimate impact of this decision on our
57
future revenues cannot be predicted. Jublia® revenues for 2019, 2018 and 2017 were approximately $110 million, $89 million
and $96 million, respectively. The Company continues to believe that the Jublia® related patent is valid and enforceable and, on
August 7, 2018, an appeal of this decision was filed. The ultimate outcome of this matter is not predictable. Jublia® continues to
be covered by eight remaining Orange Book-listed patents owned by the Company, which expire in the years 2028 through 2034.
In August and September 2018, we received notices of the filing of a number of ANDAs with paragraph IV certification, and have
timely filed patent infringement suits against these ANDA filers.
See Note 21, "LEGAL PROCEEDINGS" to our audited Consolidated Financial Statements for further details regarding
certain infringement proceedings.
The risks of generic competition are a fact of the health care industry and are not specific to our operations or product
portfolio. These risks are not avoidable, but we believe they are manageable. To manage these risks, our leadership team continually
evaluates the impact that generic competition may have on future profitability and operations. In addition to aggressively defending
the Company's patents and other intellectual property, our leadership team makes operational and investment decisions regarding
these products and businesses at risk, not the least of which are decisions regarding our pipeline. Our leadership team actively
manages the Company's pipeline in order to identify what we believe are the proper projects to pursue. Innovative and realizable
projects aligned with our core businesses that are expected to provide incremental and sustainable revenues and growth into the
future. We believe that our current pipeline is strong enough to meet these objectives and provide future sources of revenues, in
our core businesses, sufficient enough to sustain our growth and corporate health as other products in our established portfolio
face generic competition and lose momentum.
We believe that we have a well-established product portfolio that is diversified within our core businesses. We also believe
that we have a robust pipeline that not only provides for the next generation of our existing products, but also brings new solutions
into the market.
See Item 1A “Risk Factors” of this Form 10-K for additional information on our competition risks.
58
SELECTED FINANCIAL INFORMATION
The following table provides selected financial information for each of the last three years:
Years Ended December 31,
Change
(in millions, except per share data)
Revenues
Operating (loss) income
Loss before benefit from income taxes
Net (loss) income
Net (loss) income attributable to Bausch Health Companies Inc.
$ (1,788)
$ (4,148)
(Loss) earnings per share attributable to Bausch Health Companies Inc.
Basic
Diluted
Financial Performance
Summary of 2019 Compared with 2018
$
$
(5.08)
$ (11.81)
(5.08)
$ (11.81)
2019
2018
2017
$
$
8,601
$
8,380
(203)
$ (2,384)
$
$
8,724
102
$ (1,837)
$ (4,154)
$ (1,741)
$ (1,783)
$ (4,144)
2018 to
2019
2017 to
2018
$
$
$
$
$
$
$
221
$
(344)
2,181
2,317
2,361
2,360
$ (2,486)
$ (2,413)
$ (6,548)
$ (6,552)
6.73
6.73
$ (18.67)
$ (18.64)
$
$
$
$
2,404
2,404
6.86
6.83
Revenues for 2019 and 2018 were $8,601 million and $8,380 million, respectively, an increase of $221 million, or 3%. The
increase was primarily driven by: (i) higher gross selling prices, (ii) higher volumes and (iii) sales of our Trulance® product, which
we added to our portfolio in March 2019 as part of the acquisition of certain assets of Synergy. These increases in Revenues were
partially offset by: (i) the unfavorable effect of foreign currencies, primarily in Europe, Asia and Latin America, (ii) the impact of
divestitures and discontinuations and (iii) higher sales deductions. The changes in our segment revenues and segment profits are
discussed in further detail in the subsequent section titled “Reportable Segment Revenues and Profits”.
Operating loss for 2019 and 2018 was $203 million and $2,384 million, respectively, an increase in our operating results of
$2,181 million which reflects, among other factors:
•
•
•
•
•
an increase in contribution (product sales revenue less cost of goods sold, exclusive of amortization and impairments of
intangible assets) of $230 million. The increase was primarily driven by: (i) higher gross selling prices, (ii) higher volumes,
(iii) the incremental contribution of the sales of our Trulance® product, which we added to our portfolio in March 2019
as part of the acquisition of certain assets of Synergy and (iv) better inventory management, partially offset by: (i) the
unfavorable effect of foreign currencies, (ii) the impact of divestitures and discontinuations, (iii) higher sales deductions
and (iv) the amortization of the inventory fair value step-up recorded in acquisition accounting related to the inventories
we acquired as part of the acquisition of certain assets of Synergy;
an increase in Selling, general, and administrative expenses (“SG&A”) of $81 million, primarily attributable to: (i) higher
selling, advertising and promotion expenses, (ii) the impact of the acquisition of certain assets of Synergy, (iii) costs in
2019 attributable to our IT infrastructure improvement projects and (iv) the charge associated with the termination of a
co-promotional agreement with US WorldMeds, LLC. The increase was partially offset by: (i) the favorable effect of
foreign currencies, (ii) lower costs related to professional services and (iii) the impact of divestitures and discontinuations;
an increase in R&D of $58 million primarily attributable to a number of projects within our Bausch + Lomb and GI
businesses;
a decrease in Amortization of intangible assets of $747 million, primarily due to: (i) the impact of the change in the
estimated useful life of the Xifaxan® related intangible assets made in September 2018 to reflect management's changes
in assumptions, (ii) fully amortized intangible assets no longer being amortized in 2019 and (iii) lower amortization as
a result of impairments to intangible assets in prior periods;
a decrease in Goodwill impairments of $2,322 million, as a result of impairments in 2018 to the goodwill of our: (i) Salix
reporting unit upon adopting the new guidance for goodwill impairment accounting at January 1, 2018, (ii) Ortho
Dermatologics reporting unit due to unforeseen changes in business dynamics during the three months ended March 31,
2018 and (iii) Dentistry reporting unit as a result of revised forecasts due to changing market conditions during the three
months ended December 31, 2018;
59
•
•
a decrease in Asset impairments of $493 million, primarily related to specific impairments in 2018 as a result of: (i)
decreases in forecasted sales for the Uceris® Tablet product due to generic competition and (ii) decreases in forecasted
sales for the Arestin® product due to changing market conditions;
an increase in Other expense (income), net of $1,434 million, primarily attributable to: (i) an increase in net charges to
Litigation and other matters primarily related to the settlement of a legacy U.S. securities class action matter (which is
subject to final court approval) in 2019, to which the Company and the other settling defendants admitted no liability as
to the claims against it and deny all allegations of wrongdoing and (ii) Acquired in-process research and development
costs (“IPR&D”) incurred during 2019 associated with the upfront payments to enter into certain exclusive licensing
agreements. These increases in other expenses were partially offset by the expected receipt for the achievement of a
milestone related to a certain product.
Operating loss for 2019 and 2018 was $203 million and $2,384 million, respectively, and includes non-cash charges for
Depreciation and amortization of intangible assets of $2,075 million and $2,819 million, Goodwill impairments of $0 and $2,322
million, Asset impairments of $75 million and $568 million and Share-based compensation of $102 million and $87 million,
respectively.
Our Loss before benefit from income taxes for 2019 and 2018 was $1,837 million and $4,154 million, respectively, an
increase in our results before benefit from income taxes of $2,317 million. The decrease in our Loss before benefit from income
taxes is primarily attributable to: (i) the increase in our operating results of $2,181 million previously discussed, (ii) the decrease
in the Loss on extinguishment of debt of $77 million and (iii) a decrease in Interest expense of $73 million as a result of lower
principal amounts of outstanding debt for most of 2019, partially offset by the effect of higher interest rates during 2019. The
decrease in our Loss before benefit from income taxes was partially offset by an unfavorable net change in Foreign exchange and
other of $15 million.
Net loss attributable to Bausch Health Companies Inc. for 2019 and 2018 was $1,788 million and $4,148 million, respectively,
an increase in our results of $2,360 million. The increase in our results was primarily due to the decrease in Loss before benefit
from income taxes of $2,317 million, as previously discussed, and the increase in the Benefit from income taxes of $44 million.
Summary of 2018 Compared with 2017
Revenues for 2018 and 2017 were $8,380 million and $8,724 million, respectively, a decrease of $344 million, or 4%. The
decrease was primarily driven by: (i) the impact of 2017 divestitures and discontinuations and (ii) lower volumes primarily as a
result of the loss of exclusivity for a number of products in our Diversified Products and Ortho Dermatologics segments which
were partially offset by higher volumes in our Bausch + Lomb/International segment. These decreases in Revenue were partially
offset by: (i) higher gross selling prices, (ii) lower sales deductions and (iii) the favorable effect of foreign currencies, primarily
in Europe and Asia.
Operating loss for 2018 was $2,384 million, as compared to operating income for 2017 of $102 million, a decrease of $2,486
million. Our operating loss for 2018 compared to our operating income for 2017 reflects, among other factors:
•
•
•
•
•
a decrease in contribution (product sales revenue less cost of goods sold, exclusive of amortization and impairments of
intangible assets) of $127 million. The decrease was primarily driven by the impact of 2017 divestitures and
discontinuations, partially offset by: (i) higher gross selling prices, (ii) lower sales deductions, (iii) lower third-party
royalty costs and (iv) the favorable effect of foreign currencies;
a decrease in SG&A of $109 million, primarily attributable to: (i) the impact of 2017 divestitures and discontinuations,
(ii) a decrease in legal expenses as we resolved certain legacy legal issues and (iii) a decrease in bad debt expense. The
decrease was partially offset by: (i) higher advertising and promotion expenses, (ii) higher compensation costs and (iii)
the unfavorable impact of the effect of foreign currencies;
an increase in R&D of $52 million;
a decrease in Amortization of intangible assets of $46 million, primarily attributable to: (i) the impact of the change in
the estimated useful life of the Xifaxan®-related intangible assets made in September 2018 to reflect management's changes
in assumptions, (ii) lower amortization as a result of impairments to intangible assets and divestitures and (iii)
discontinuances of product lines during 2017 as the Company focuses on its core assets. These decreases were partially
offset by the impact of changes in estimates made in 2017 to reduce the remaining useful lives of certain products and
the Salix brand name to reflect management's changes in assumptions;
an increase in Goodwill impairments of $2,010 million. In 2018, we recognized Goodwill impairments of $2,322 million
in connection with: (i) impairment to the goodwill of our Salix reporting unit recognized upon adopting new accounting
guidance at January 1, 2018, (ii) impairment to the goodwill of the Ortho Dermatologics reporting unit due to unforeseen
60
changes in business dynamics and (iii) impairment to the goodwill of the Dentistry reporting unit as a result of revised
forecasts due to changing market conditions during the three months ended December 31, 2018. In 2017, we recognized
Goodwill impairments of $312 million in connection with a change in reporting unit during the three months ended
September 30, 2017;
a decrease in Asset impairments of $146 million, as a result of Asset impairments of $714 million, recognized in 2017,
primarily related to the Sprout and Obagi businesses being classified as held for sale, compared to Asset impairments of
$568 million, in 2018, that were primarily due to decreases in forecasted sales for the Uceris® Tablet product and other
product lines due to generic competition;
an increase in Acquisition-related contingent consideration of $280 million as a result of a fair value adjustments in 2017
which reflected a decrease in forecasted sales for specific products, including Addyi®;
a decrease in the net charges to Litigation and other matters of $253 million. Litigation and other matters are included in
Other expense (income), net, and are primarily associated with estimated settlements of certain legacy matters; and
a decrease in net gains on sales of businesses and other assets of $586 million. In order to improve our capital structure
and simplify our operations, during 2017, we divested certain businesses and assets not aligned with our core business
objectives. Included in Other expense (income), net is the net loss on sales of businesses and other assets of $6 million
for 2018 as compared to the net gain on sales of businesses and other assets $580 million in 2017.
•
•
•
•
Operating loss for 2018 of $2,384 million and Operating income for 2017 of $102 million includes non-cash charges for
Depreciation and amortization of intangible assets of $2,819 million and $2,858 million, Goodwill impairments of $2,322 million
and $312 million, Asset impairments of $568 million and $714 million and Share-based compensation of $87 million and $87
million, respectively.
Our Loss before benefit from income taxes for 2018 and 2017 was $4,154 million and $1,741 million, respectively, an
increase of $2,413 million. The increase in our Loss before benefit from income taxes is primarily attributable to: (i) the decrease
in our operating results of $2,486 million, as previously discussed and (ii) an unfavorable net change in Foreign exchange and
other of $84 million. These changes in Loss before benefit from income taxes were partially offset by: (i) a decrease in Interest
expense of $155 million as a result of lower principal amounts of outstanding debt, partially offset by the effect of higher interest
rates during 2018 and (ii) the decrease in the Loss on extinguishment of debt of $3 million.
Net loss attributable to Bausch Health Companies Inc. for 2018 was $4,148 million as compared to Net income attributable
to Bausch Health Companies Inc. for 2017 of $2,404 million, a decrease of $6,552 million. The decrease in our results was
primarily due to: (i) the decrease in the Benefit from income taxes of $4,135 million which in 2017 included non-cash income tax
benefits related to the Company’s internal corporate restructuring and the accounting for the Tax Cuts and Jobs Act (the “Tax Act”)
and (ii) the increase in Loss before benefit from income taxes of $2,413 million previously described.
61
RESULTS OF OPERATIONS
Our results for the years 2019, 2018 and 2017 were as follows:
(in millions)
Revenues
Product sales
Other revenues
Expenses
Years Ended December 31,
Change
2019
2018
2017
2018 to
2019
2017 to
2018
$ 8,489
$ 8,271
$ 8,595
$
218
$
(324)
112
8,601
109
8,380
129
8,724
3
221
(20)
(344)
Cost of goods sold (excluding amortization and impairments of intangible assets)
2,297
2,309
2,506
(12)
(197)
Cost of other revenues
Selling, general and administrative
Research and development
Amortization of intangible assets
Goodwill impairments
Asset impairments
Restructuring and integration costs
Acquisition-related contingent consideration
Other expense (income), net
Operating (loss) income
Interest income
Interest expense
Loss on extinguishment of debt
Foreign exchange and other
Loss before benefit from income taxes
Benefit from income taxes
Net (loss) income
Net income attributable to noncontrolling interest
53
2,554
471
1,897
—
75
31
12
1,414
8,804
42
2,473
413
2,644
2,322
568
22
(9)
(20)
42
2,582
361
2,690
312
714
52
(289)
(348)
11
81
58
(747)
—
(109)
52
(46)
(2,322)
2,010
(493)
9
21
1,434
(146)
(30)
280
328
10,764
8,622
(1,960)
2,142
(203)
(2,384)
12
11
102
12
(1,612)
(1,685)
(1,840)
(42)
8
(119)
23
(122)
107
54
10
(1,783)
(4,144)
(5)
(4)
4,145
2,404
—
2,181
(2,486)
1
73
77
(15)
44
2,361
(1)
155
3
(84)
(2,413)
(4,135)
(6,548)
(1)
(4)
(1,837)
(4,154)
(1,741)
2,317
Net (loss) income attributable to Bausch Health Companies Inc.
$ (1,788) $ (4,148) $ 2,404
$ 2,360
$ (6,552)
A detailed discussion of the year-over-year changes of the Company’s 2018 results compared with that of 2017 can be found
under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form
10-K for the year ended December 31, 2018 filed on February 20, 2019.
62
2019 Compared with 2018
Revenues
Our revenues are primarily generated from product sales, primarily in the therapeutic areas of eye-health, GI and dermatology
that consist of: (i) branded pharmaceuticals, (ii) generic and branded generic pharmaceuticals, (iii) OTC products and (iv) medical
devices (contact lenses, intraocular lenses, ophthalmic surgical equipment and aesthetics devices). Other revenues include alliance
and service revenue from the licensing and co-promotion of products and contract service revenue primarily in the areas of
dermatology and topical medication. Contract service revenue is derived primarily from contract manufacturing for third parties
and is not material. See Note 23, "SEGMENT INFORMATION" to our audited Consolidated Financial Statements for the
disaggregation of revenue which depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected
by the economic factors of each category of customer contracts.
Our revenue was $8,601 million and $8,380 million for 2019 and 2018, respectively, an increase of $221 million, or 3%.
The increase was primarily driven by: (i) higher gross selling prices of $213 million primarily in our Salix and Bausch + Lomb/
International segments, (ii) higher volumes of $130 million primarily in our Bausch + Lomb/International and Salix segments,
partially offset by lower volumes in our Ortho Dermatologics and Diversified Products segments, (iii) the incremental product
sales of our Trulance® product, which we added to our portfolio in March 2019 as part of the acquisition of certain assets of
Synergy, of $55 million and (iv) an increase in other revenues of $3 million. The increases in our revenues were partially offset
by: (i) the unfavorable effect of foreign currencies, primarily in Europe, Asia and Latin America, of $112 million, (ii) the impact
of divestitures and discontinuations of $54 million and (iii) higher sales deductions of $14 million primarily in our Diversified
Products segment.
Our segment revenues and segment profits are discussed in detail in the subsequent section titled "Reportable Segment
Revenues and Profits".
Cash Discounts and Allowances, Chargebacks and Distribution Fees
As is customary in the pharmaceutical industry, gross product sales are subject to a variety of deductions in arriving at net
product sales. Provisions for these deductions are recognized concurrently with the recognition of gross product sales. These
provisions include cash discounts and allowances, chargebacks, and distribution fees, which are paid or credited to direct customers,
as well as rebates and returns, which can be paid or credited to direct and indirect customers. Price appreciation credits are generated
when we increase a product’s wholesaler acquisition cost (“WAC”) under our contracts with certain wholesalers. Under such
contracts, we are entitled to credits from such wholesalers for the impact of that WAC increase on inventory on hand at the
wholesalers. In wholesaler contracts such credits are offset against the total distribution service fees we pay on all of our products
to each such wholesaler. In addition, some payor contracts require discounting if a price increase or series of price increases in a
contract period exceeds a negotiated threshold. Provision balances relating to amounts payable to direct customers are netted
against trade receivables and balances relating to indirect customers are included in accrued liabilities.
We actively manage these offerings, focusing on the incremental costs of our patient assistance programs, the level of
discounting to non-retail accounts and identifying opportunities to minimize product returns. We also concentrate on managing
our relationships with our payors and wholesalers, reviewing the ranges of our offerings and being disciplined as to the amount
and type of incentives we negotiate. Provisions recorded to reduce gross product sales to net product sales and revenues for 2019
and 2018 were as follows:
(in millions)
Gross product sales
Provisions to reduce gross product sales to net product sales
Discounts and allowances
Returns
Rebates
Chargebacks
Distribution service fees
Net product sales
$
63
Years Ended December 31,
2018
2019
Amount
Pct.
Amount
Pct.
$
13,776
100.0% $
14,158
100.0%
776
113
2,265
1,938
195
5,287
8,489
5.6%
0.8%
16.4%
14.1%
1.5%
38.4%
61.6% $
865
293
2,551
1,966
212
5,887
8,271
6.1%
2.1%
18.0%
13.9%
1.5%
41.6%
58.4%
Cash discounts and allowances, returns, rebates, chargebacks and distribution fees as a percentage of gross product sales
were 38.4% and 41.6% in 2019 and 2018, respectively. Changes in cash discounts and allowances, returns, rebates, chargebacks
and distribution fees as a percentage of gross product sales were primarily driven by:
•
•
•
•
•
discounts and allowances as a percentage of gross product sales was lower primarily due to lower gross product sales
of higher discounted generics, such as Glumetza® authorized generic ("AG"), Xenazine® AG, Targretin® AG and
Benzamycin® AG. The lower discounts and allowances as a percentage of gross product sales was partially offset by
the impact of: (i) the release of certain generics such as Elidel® AG (December 2018), Uceris® AG (July 2018) and
Apriso® AG (December 2019) and (ii) higher sales of Xifaxan®;
returns as a percentage of gross product sales was lower primarily due to: (i) better inventory practices and disciplines
and (ii) lower gross product sales of Isuprel® and Mephyton® as a result of generic competition. Additionally, over the
last several years the Company increased its focus on maximizing operational efficiencies and reducing product returns.
The Company continually takes actions to address product returns including but not limited to: (i) monitoring and
reducing customer inventory levels, (ii) instituting disciplined pricing policies and (iii) improving contracting. These
actions resulted in improved sales return experience related to current branded products and previously genericized
products. As a result, for the year 2019 as compared to 2018, the provision for sales returns improved by a net of $180
million. During the three months ended September 30, 2019 and 2018 we recorded a reduction in variable consideration
for sales returns of approximately $80 million and $30 million, respectively, related to past sales. The Company's actual
return rate experience in the current period was lower than its historical rate experience primarily in its: (i) GI business
primarily related to Glumetza® SLX and Xifaxan®, (ii) neurology business, primarily related to Wellbutrin® and
Nitropress® and (iii) generics business, primarily related to Zegerid® AG and Glumetza® AG. The lower returns as a
percentage of gross product sales was partially offset by the impact of higher return experience for a limited number
of products, primarily Mysoline® and Solodyn® AG. See Note 2, "SIGNIFICANT ACCOUNTING POLICIES" to our
audited Consolidated Financial Statements regarding further details related to product sales provisions;
rebates as a percentage of gross product sales were lower primarily due to decreases in gross product sales of certain
products which carry higher rebate rates, such as Solodyn®, Elidel®, Jublia® and Retin-A Micro® 0.06%. The decreases
in gross product sales for these products were due in part to generic competition and the release of certain branded
generics. The lower rebates as a percentage of gross product sales were partially offset by the impact of: (i) increased
gross product sales of products that carry higher contractual rebates and co-pay assistance programs, including the
impact of incremental rebates from contractual price increase limitations for promoted products, such as Xifaxan® and
Apriso®, (ii) sales of our Trulance® product, which we added to our portfolio in March 2019 as part of the acquisition
of certain assets of Synergy and (iii) rebates associated with our Duobrii® product which we launched in June 2019;
chargebacks as a percentage of gross product sales were higher primarily due to the impact of: (i) higher gross product
sales of Xifaxan®, Glumetza® SLX and Syprine® AG, (ii) higher chargeback rates in 2019 as compared to 2018 for
certain products such as Glumetza® AG and (iii) the release of certain authorized generics, such as Elidel® AG (December
2018) and Uceris® AG (July 2018). The higher chargebacks as a percentage of gross product sales were partially offset
by the impact of lower gross product sales of certain generic products, such as Zegerid® AG and Xenazine® AG and
certain branded products, such as Isuprel® and Nifediac; and
distribution service fees as a percentage of gross product sales were unchanged as the impact of lower gross product
sales of Solodyn®, Elidel®, Targretin® and Cuprimine® were offset by the impact of: (i) higher sales of Xifaxan® and
Apriso® and other branded products, (ii) sales of our Trulance® product, which we added to our portfolio in March
2019 as part of the acquisition of certain assets of Synergy and (iii) distribution service fees associated with our Duobrii®
product launched in June 2019. Price appreciation credits are offset against the distribution service fees we pay
wholesalers and were $11 million and $31 million for 2019 and 2018, respectively.
Operating Expenses
Cost of Goods Sold (exclusive of amortization and impairments of intangible assets)
Cost of goods sold primarily includes: manufacturing and packaging; the cost of products we purchase from third parties;
royalty payments we make to third parties; depreciation of manufacturing facilities and equipment; and lower of cost or market
adjustments to inventories. Cost of goods sold excludes the amortization and impairments of intangible assets.
Cost of goods sold was $2,297 million and $2,309 million for 2019 and 2018, respectively, a decrease of $12 million, or
1%. The decrease was primarily driven by: (i) the favorable impact of divestitures and discontinuations, (ii) better inventory
management and (iii) the favorable impact of foreign currencies, partially offset by: (i) the net increase in volumes, (ii) the
incremental costs of sales of our Trulance® product, which we added to our portfolio in March 2019 as part of the acquisition of
64
certain assets of Synergy and (iii) the amortization of the inventory fair value step-up recorded in acquisition accounting related
to the inventories we acquired as part of the acquisition of certain assets of Synergy.
Cost of goods sold as a percentage of Product sales revenue was 27.1% and 27.9% for 2019 and 2018, respectively, a decrease
of 0.8 percentage points. Costs of goods sold as a percentage of Product sales revenue was favorably impacted as a result of: (i)
higher gross selling prices, (ii) better inventory management and (iii) the impact of divestitures and discontinuations, which
generally had lower gross margins than the balance of our product portfolio. These factors were partially offset by: (i) product
mix within our Ortho Dermatologics and Neurology and Other business units, (ii) the incremental costs of sales of our Trulance®
product, which we added to our portfolio in March 2019 as part of the acquisition of certain assets of Synergy and (iii) the
amortization of acquisition accounting adjustments related to the inventories we acquired as part of the acquisition of certain assets
of Synergy.
Our segment revenues and segment profits are discussed in detail in the subsequent section titled “Reportable Segment
Revenues and Profits”.
Selling, General and Administrative Expenses
SG&A expenses primarily include: employee compensation associated with sales and marketing, finance, legal, information
technology, human resources and other administrative functions; certain outside legal fees and consultancy costs; product promotion
expenses; overhead and occupancy costs; depreciation of corporate facilities and equipment; and other general and administrative
costs.
SG&A was $2,554 million and $2,473 million for 2019 and 2018, respectively, an increase of $81 million, or 3%. The
increase was primarily driven by: (i) higher selling, advertising and promotion expenses, (ii) the impact of the acquisition of certain
assets of Synergy, (iii) costs in 2019 attributable to our IT infrastructure improvement projects and (iv) the charge associated with
the termination of a co-promotional agreement with US WorldMeds, LLC. The increase was partially offset by: (i) the favorable
impact of foreign currencies, (ii) lower costs related to professional services and (iii) the impact of divestitures and discontinuations;
Research and Development Expenses
Included in Research and development are costs related to our product development and quality assurance programs. Expenses
related to product development include: employee compensation costs; overhead and occupancy costs; depreciation of research
and development facilities and equipment; clinical trial costs; clinical manufacturing and scale-up costs; and other third-party
development costs. Quality assurance are the costs incurred to meet evolving customer and regulatory standards and include:
employee compensation costs; overhead and occupancy costs; amortization of software; and other third-party costs.
R&D expenses were $471 million and $413 million for 2019 and 2018, respectively, an increase of $58 million, or 14%,
primarily attributable to a number of projects within our Bausch + Lomb and GI businesses.
Amortization of Intangible Assets
Intangible assets with finite lives are amortized using the straight-line method over their estimated useful lives, generally 2
to 20 years.
Amortization of intangible assets was $1,897 million and $2,644 million for 2019 and 2018, respectively, a decrease of $747
million, or 28%. The decrease was primarily due to: (i) the impact of $420 million related to the change in the estimated useful
life of the Xifaxan® related intangible assets made in September 2018 to reflect management's changes in assumptions, (ii) fully
amortized intangible assets no longer being amortized in 2019 and (iii) lower amortization as a result of impairments to intangible
assets. Management continually assesses the useful lives related to the Company's long-lived assets to reflect the most current
assumptions.
See Note 9, "INTANGIBLE ASSETS AND GOODWILL" to our audited Consolidated Financial Statements for further
details related to our intangible assets and the change in the estimated useful life of the Xifaxan® related intangible assets.
Goodwill Impairments
Goodwill is not amortized but is tested for impairment at least annually at the reporting unit level. A reporting unit is the
same as, or one level below, an operating segment. The fair value of a reporting unit refers to the price that would be received to
sell the unit as a whole in an orderly transaction between market participants. The Company estimates the fair values of all reporting
units using a discounted cash flow model which utilizes Level 3 unobservable inputs.
Goodwill impairments were $0 and $2,322 million for 2019 and 2018, respectively.
2019 Annual Goodwill Impairment Test
65
The Company conducted its annual goodwill impairment test as of October 1, 2019 by first assessing qualitative factors to
determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Where the
qualitative assessment suggested that it was more likely than not that the fair value of a reporting unit was less than its carrying
amount, a quantitative fair value test was performed for that reporting unit. In each quantitative fair value test performed, the fair
value was greater than the carrying value of the reporting unit. As a result, there was no impairment to the goodwill of any reporting
unit. If market conditions deteriorate, or if the Company is unable to execute its strategies, it may be necessary to record impairment
charges in the future. Specifically, the Company continues to assess the performance of the Ortho Dermatologics reporting unit
and the Neuro and Other reporting unit as compared to their respective projections and will perform qualitative interim assessments
of the carrying value and fair value on a quarterly basis to determine if impairment testing of goodwill will be warranted. The
Company performed quantitative fair value tests for the Ortho Dermatologics reporting unit and the Neuro and Other reporting
unit as of October 1, 2019, utilizing long-term growth rates of 2.0% and 1.5%, and discount rates of 9.8% and 9.0%, respectively,
in estimation of the fair value of these reporting units.
March 31, 2018
In January 2017, the Financial Accounting Standards Board issued guidance which simplifies the subsequent measurement
of goodwill by eliminating “Step 2” from the goodwill impairment test. Instead, goodwill impairment is measured as the amount
by which a reporting unit's carrying value exceeds its fair value. The Company elected to adopt this guidance effective January 1,
2018.
Upon adopting the new guidance, the Company tested goodwill for impairment and determined that the carrying value of
the Salix reporting unit exceeded its fair value. As a result of the adoption of new accounting guidance, the Company recognized
a goodwill impairment of $1,970 million associated with the Salix reporting unit.
As of October 1, 2017, the date of the 2017 annual goodwill impairment test, the fair value of the Ortho Dermatologics
reporting unit exceeded its carrying value. However, at January 1, 2018, unforeseen changes in the business dynamics of the Ortho
Dermatologics reporting unit, such as: (i) changes in the dermatology sector, (ii) increased pricing pressures from third-party
payors, (iii) additional risks to the exclusivity of certain products and (iv) an expected longer launch cycle for a new product, were
factors that negatively impacted the reporting unit's operating results beyond management's expectations as of October 1, 2017,
when the Company performed its 2017 annual goodwill impairment test. In response to these adverse business indicators, as of
January 1, 2018, the Company reduced its near and long term financial projections for the Ortho Dermatologics reporting unit.
As a result of the reductions in the near and long term financial projections, the carrying value of the Ortho Dermatologics reporting
unit exceeded its fair value at January 1, 2018 and the Company recognized a goodwill impairment of $243 million.
2018 Annual Goodwill Impairment Test
The Company conducted its annual goodwill impairment test as of October 1, 2018 and determined that the carrying value
of the Dentistry reporting unit exceeded its fair value and, as a result, the Company recognized a goodwill impairment of $109
million for the Dentistry reporting unit, representing the full amount of goodwill for the reporting unit. Changing market conditions
such as: (i) an increasing competitive environment and (ii) increasing pricing pressures negatively impacted the reporting unit's
operating results. The Company continues to monitor these changing market and business conditions.
See Note 9, "INTANGIBLE ASSETS AND GOODWILL" to our audited Consolidated Financial Statements for further
details related to our goodwill impairment analysis.
Asset Impairments
Long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. The Company continues to monitor the recoverability of its finite-lived intangible
assets and tests the intangible assets for impairment if indicators of impairment are present.
Asset impairments were $75 million and $568 million for 2019 and 2018, respectively, a decrease of $493 million.
Asset impairments for 2019 included impairments of: (i) $58 million reflecting decreases in forecasted sales of certain product
lines due to generic competition and other factors, (ii) $8 million related to assets being classified as held for sale, (iii) $5 million
related to certain product/patent assets associated with the discontinuance of specific product lines not aligned with the focus of
the Company's core businesses and (iv) $4 million related to Acquired IPR&D not in service.
Asset impairments in 2018 included impairments of: (i) $348 million reflecting decreases in forecasted sales for the Uceris®
Tablet product in the Company's Salix reporting unit and other product lines due to generic competition, (ii) $132 million reflecting
decreases in forecasted sales for the Arestin® product in the Company's Dentistry reporting unit and other product lines due to
changing market conditions, (iii) $55 million related to certain product/patent assets associated with the discontinuance of specific
66
product lines not aligned with the focus of the Company's core businesses, (iv) $28 million to Acquired IPR&D not in service
related to a certain product and (v) $5 million related to assets being classified as held for sale.
See Note 9, "INTANGIBLE ASSETS AND GOODWILL" to our audited Consolidated Financial Statements regarding further
details related to our intangible assets.
Restructuring and Integration Costs
Restructuring and integration costs primarily consist of costs associated with the implementation of cost savings programs
to streamline operations and eliminate redundant processes and expenses. The expenses associated with the implementation of
these cost savings programs include expenses associated with: (i) reducing headcount, (ii) eliminating real estate costs associated
with unused or under-utilized facilities and (iii) implementing contribution margin improvement and other cost reduction initiatives.
Restructuring and integration costs were $31 million and $22 million for 2019 and 2018, respectively, an increase of $9
million. During 2019, these costs included: (i) $11 million of severance costs and other costs associated with the acquisition of
certain assets of Synergy, (ii) $11 million of facility closure costs and (iii) $9 million of other severance costs. During 2018 these
costs included: (i) $11 million of severance costs, (ii) $10 million of facility closure costs and (iii) $1 million of other costs. The
Company continues to evaluate opportunities to streamline its operations and identify additional cost savings globally. Although
a specific plan does not exist at this time, the Company may identify and take additional exit and cost-rationalization restructuring
actions in the future, the costs of which could be material.
See Note 5, "RESTRUCTURING AND INTEGRATION COSTS" to our audited Consolidated Financial Statements for
further details regarding these actions.
Acquisition-Related Contingent Consideration
Acquisition-related contingent consideration primarily consists of potential milestone payments and royalty obligations
associated with businesses and assets we acquired in the past. These obligations are recorded in the Consolidated Balance Sheets
at their estimated fair values at the acquisition date, in accordance with the acquisition method of accounting. The fair value of
the acquisition-related contingent consideration is remeasured each reporting period, with changes in fair value recorded in the
Consolidated Statements of Operations. The fair value measurement is based on significant inputs not observable in the market
and thus represents a Level 3 measurement as defined in fair value measurement accounting.
Acquisition-related contingent consideration was a loss of $12 million in 2019 and included accretion for the time value of
money of $22 million, partially offset by net fair value adjustments due to changes in estimates of expected future royalty payments
of $10 million, which included net fair value adjustments to expected future royalty payments.
Acquisition-related contingent consideration was a net gain of $9 million in 2018 and included net fair value adjustments
due to changes in estimates of expected future royalty payments of $33 million, which included net fair value adjustments to
expected future royalty payments, partially offset by accretion for the time value of money of $24 million.
See Note 6, "FAIR VALUE MEASUREMENTS" to our audited Consolidated Financial Statements for further details.
Other expense (income), net
Other expense (income), net for 2019 and 2018 consists of the following:
(in millions)
Litigation and other matters
Net (gain) loss on sales of assets
Acquired in-process research and development costs
Acquisition-related costs
Other, net
Other expense (income), net
2019
2018
$
$
1,401
(31)
41
8
(5)
1,414
$
$
(27)
6
1
1
(1)
(20)
In 2019, Litigation and other matters includes the settlement of a legacy U.S. securities class action matter (which is subject
to final court approval) discussed below. In 2018, Litigation and other matters includes a favorable adjustment of $40 million
related to the Salix legacy litigation matter.
In December 2019, we announced that we had agreed to resolve the U.S. Securities Litigation for $1,210 million, subject to
final court approval. Once approved by the court, the settlement will resolve and discharge all claims against the Company in this
class action. As part of the settlement, the Company and the other settling defendants admitted no liability as to the claims against
67
it and deny all allegations of wrongdoing. This settlement, once approved by the court, will resolve the most significant of the
Company's remaining legacy legal matters and eliminate a material uncertainty.
In addition to the anticipated resolution of the U.S. Securities Litigation, through the date of this filing, we achieved dismissals
and other positive outcomes in a number of litigations, disputes and investigations, as we continue to actively address others. These
matters and other significant matters are discussed in further detail in Note 21, "LEGAL PROCEEDINGS" to our audited
Consolidated Financial Statements.
In 2019, Net (gain) loss on sales of assets includes $20 million related to the expected receipt for the achievement of a
milestone related to a certain product. In 2019, Acquired in-process research and development costs includes $38 million of in-
process research and development costs associated with upfront payments to enter into certain licensing agreements.
Non-Operating Income and Expense
Interest Expense
Interest expense primarily consists of interest payments due and amortization of debt discounts and deferred financing costs
on indebtedness under our credit facilities and notes. Interest expense was $1,612 million and $1,685 million and included non-
cash amortization and write-offs of debt discounts and deferred financing costs of $63 million and $79 million for 2019 and 2018,
respectively. The decrease in interest expense is primarily due to lower principal amounts of outstanding long-term debt throughout
most of 2019, partially offset by the effect of higher interest rates throughout most of 2019. The weighted average stated rate of
interest as of December 31, 2019 and 2018 was 6.21% and 6.23%, respectively.
See Note 11, "FINANCING ARRANGEMENTS" to our audited Consolidated Financial Statements for further details.
Loss on Extinguishment of Debt
Loss on extinguishment of debt represents the differences between the amounts paid to settle extinguished debts and the
carrying value of the related extinguished debt. Loss on extinguishment of debt was $42 million and $119 million for 2019 and
2018, respectively, associated with a series of transactions which allowed us to refinance and extend the maturities of portions of
our debt arrangements.
See Note 11, "FINANCING ARRANGEMENTS" to our audited Consolidated Financial Statements for further details.
Foreign Exchange and Other
Foreign exchange and other was a net gain of $8 million and $23 million for 2019 and 2018, respectively, an unfavorable
net change of $15 million. Foreign exchange gains/losses include translation gains/losses on intercompany loans and third-party
liabilities, primarily denominated in euros.
Income Taxes
Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the temporary
differences between the financial statement and income tax bases of assets and liabilities, and for operating losses and tax credit
carryforwards. Deferred tax assets for outside basis differences in investments in subsidiaries are only recognized if the difference
will be realized in the foreseeable future. Benefit from income taxes was $54 million and $10 million in 2019 and 2018, respectively,
an increase in the Benefit from income taxes of $44 million.
Our consolidated foreign rate differential reflects the net total tax cost or benefit on income earned or losses incurred in
jurisdictions outside of Canada as compared to the net total tax cost or benefit of such income (on a jurisdictional basis) at the
Canadian statutory rate of 26.9%. Tax costs below the Canadian statutory rate generate a beneficial foreign rate differential as do
tax benefits generated in jurisdictions where the statutory tax rate exceeds the Canadian statutory tax rate. The net total foreign
rate differentials generated in each jurisdiction in which we operate is not expected to bear a direct relationship to the net total
amount of foreign income (or loss) earned outside of Canada.
In 2019, our effective tax rate differed from the Canadian statutory tax rate of 26.9% primarily due to: (i) the recording of
valuation allowance on entities for which no tax benefit of losses is expected, (ii) the tax benefit generated from our annualized
mix of earnings by jurisdiction and (iii) the discrete treatment of certain tax matters, primarily related to: (a) the net income tax
charge related to uncertain tax positions and (b) the adjustments for book to income tax return provisions.
In 2018, our effective tax rate differed from the Canadian statutory tax rate of 26.9% primarily due to: (i) the recording of
valuation allowance on entities for which no tax benefit of losses is expected, (ii) a charge related to the non-deductibility of
goodwill impairments, (iii) a benefit related to internal integrations and restructurings and (iv) a benefit generated from our
annualized mix of earnings by jurisdiction.
68
We record a valuation allowance against our deferred tax assets to reduce their net carrying value to an amount that we
believe is more likely than not to be realized. In determining our deferred tax asset valuation allowance, we estimate our ability
to utilize future sources of income to realize the benefits of our temporary income tax differences including: (i) NOL carryforwards
in each jurisdiction, primarily in Canada, the U.S. and Ireland, (ii) research and development tax credit carryforwards, (iii) scientific
research and experimental development pool carryforwards and (iv) investment tax credit carryforwards. When we establish/
increase or reduce/decrease the valuation allowance, the provision for income taxes will increase or decrease, respectively, in the
period such determination is made. Our valuation allowance against deferred tax assets as of December 31, 2019 and 2018 was
$2,831 million and $2,913 million, respectively, a decrease of $82 million which was primarily driven by NOLs written-off during
2019 for entities which were liquidated.
See Note 18, "INCOME TAXES" to our audited Consolidated Financial Statements for further details regarding income
taxes.
Reportable Segment Revenues and Profits
Our portfolio of products falls into four operating and reportable segments: (i) Bausch + Lomb/International, (ii) Salix, (iii)
Ortho Dermatologics and (iv) Diversified Products.
The following is a brief description of our segments:
• The Bausch + Lomb/International segment consists of: (i) sales in the U.S. of pharmaceutical products, OTC products
and medical device products, primarily comprised of Bausch + Lomb products, with a focus on the Vision Care, Surgical,
Consumer and Ophthalmology Rx products and (ii) with the exception of sales of Solta products, sales in Canada, Europe,
Asia, Australia, Latin America, Africa and the Middle East of branded pharmaceutical products, branded generic
pharmaceutical products, OTC products, medical device products and Bausch + Lomb products.
• The Salix segment consists of sales in the U.S. of GI products.
• The Ortho Dermatologics segment consists of: (i) sales in the U.S. of Ortho Dermatologics (dermatological) products
and (ii) global sales of Solta medical aesthetic devices.
• The Diversified Products segment consists of sales in the U.S. of: (i) pharmaceutical products in the areas of neurology
and certain other therapeutic classes, (ii) generic products and (iii) dentistry products.
Effective in the first quarter of 2019, one product historically included in the reported results of the Ortho Dermatologics
business unit in the Ortho Dermatologics segment is now included in the reported results of the Generics business unit in the
Diversified Products segment and another product historically included in the reported results of the Ortho Dermatologics business
unit in the Ortho Dermatologics segment is now included in the reported results of the Dentistry business unit in the Diversified
Products segment as management believes the products better align with the new respective business units. These changes in
product alignment are not material. Prior period presentations of business unit and segment revenues and profits have been
conformed to current segment and business unit reporting structures.
Segment profit is based on operating income after the elimination of intercompany transactions. Certain costs, such as
Amortization of intangible assets, Asset impairments, In-process research and development costs, Restructuring and integration
costs, Acquisition-related contingent consideration costs and Other expense (income), net, are not included in the measure of
segment profit, as management excludes these items in assessing segment financial performance. See Note 23, "SEGMENT
INFORMATION" to our audited Consolidated Financial Statements for a reconciliation of segment profit to Loss before benefit
from income taxes.
69
The following table presents segment revenues, segment revenues as a percentage of total revenues and the year over year
changes in segment revenues for 2019 and 2018. The following table also presents segment profits, segment profits as a percentage
of segment revenues and the year over year changes in segment profits for 2019 and 2018.
(in millions)
Segment Revenue
Bausch + Lomb/International
Salix
Ortho Dermatologics
Diversified Products
Total revenues
Segment Profits / Segment Profit Margins
Bausch + Lomb/International
Salix
Ortho Dermatologics
Diversified Products
Total segment profit
Years Ended December 31,
2018
2019
Change
2018 to 2019
Amount
Pct.
Amount
Pct.
Amount
Pct.
$
$
$
$
4,739
2,022
565
1,275
8,601
1,332
1,349
222
932
3,835
55% $
23%
7%
15%
100% $
28% $
67%
39%
73%
45% $
4,664
1,749
617
1,350
8,380
1,330
1,149
257
1,012
3,748
56% $
21%
7%
16%
100% $
29% $
66%
42%
75%
45% $
75
273
(52)
(75)
221
2 %
16 %
(8)%
(6)%
3 %
2 — %
17 %
(14)%
(8)%
2 %
200
(35)
(80)
87
Organic Revenues and Organic Growth Rates (non-GAAP)
Organic growth, a non-GAAP metric, is defined as a change on a period-over-period basis in revenues on a constant currency
basis (if applicable) excluding the impact of recent acquisitions, divestitures and discontinuations. Organic revenue growth (non-
GAAP) is growth in GAAP Revenue (its most directly comparable GAAP financial measure), adjusted for certain items, of
businesses that have been owned for one or more years. Organic revenue (non-GAAP) is impacted by changes in product volumes
and price. The price component is made up of two key drivers: (i) changes in product gross selling price and (ii) changes in sales
deductions. The Company uses organic revenue (non-GAAP) and organic revenue growth (non-GAAP) to assess performance of
its reportable segments, and the Company in total, without the impact of foreign currency exchange fluctuations and recent
acquisitions, divestitures and product discontinuations. The Company believes that such measures are useful to investors as they
provide a supplemental period-to-period comparison.
Organic revenue growth (non-GAAP) reflects adjustments for: (i) the impact of period-over-period changes in foreign
currency exchange rates on revenues and (ii) the revenues associated with acquisitions, divestitures and discontinuations of
businesses divested and/or discontinued. These adjustments are determined as follows:
Foreign currency exchange rates: Although changes in foreign currency exchange rates are part of our business, they are
not within management’s control. Changes in foreign currency exchange rates, however, can mask positive or negative trends in
the underlying business performance. The impact for changes in foreign currency exchange rates is determined as the difference
in the current period reported revenues at their current period currency exchange rates and the current period reported revenues
revalued using the monthly average currency exchange rates during the comparable prior period.
Acquisitions, divestitures and discontinuations: In order to present period-over-period organic revenues (non-GAAP) on a
comparable basis, revenues associated with acquisitions, divestitures and discontinuations are adjusted to include only revenues
from those businesses and assets owned during both periods. Accordingly, organic revenue growth (non-GAAP) excludes from
the current period, all revenues attributable to each acquisition for twelve months subsequent to the day of acquisition, as there
are no revenues from those businesses and assets included in the comparable prior period. Organic revenue growth (non-GAAP)
excludes from the prior period (but not the current period), all revenues attributable to each divestiture and discontinuance during
the twelve months prior to the day of divestiture or discontinuance, as there are no revenues from those businesses and assets
included in the comparable current period.
70
The following table presents a reconciliation of GAAP revenues to organic revenues (non-GAAP) and presents organic
revenue (Non-GAAP) and the year over year changes in organic revenue (Non-GAAP) for 2019 and 2018 by segment.
(in millions)
Revenue
as
Reported
Changes in
Exchange
Rates
Acquisition
Organic
Revenue
(Non-GAAP)
Revenue
as
Reported
Divestitures and
Discontinuations
Organic
Revenue
(Non-GAAP)
Change in
Organic Revenue
Amount
Pct.
Year Ended December 31, 2019
Year ended December 31, 2018
Bausch + Lomb/International
$
4,739
$
110
$
— $
4,849
$
4,664
$
(41)
$
4,623
$
Salix
Ortho Dermatologics
Diversified Products
2,022
565
1,275
—
2
—
(55)
—
—
1,967
567
1,275
1,749
617
1,350
(9)
—
(4)
1,740
617
1,346
226
227
(50)
(71)
Total
$
8,601
$
112
$
(55) $
8,658
$
8,380
$
(54)
$
8,326
$
332
5 %
13 %
(8)%
(5)%
4 %
Bausch + Lomb/International Segment:
Bausch + Lomb/International Segment Revenue
The Bausch + Lomb/International segment has a diversified product line with no single product group representing 10% or
more of its segment product sales. The Bausch + Lomb/International segment revenue was $4,739 million and $4,664 million for
2019 and 2018, respectively, an increase of $75 million, or 2%. The increase was primarily attributable to: (i) an increase in volume
of $168 million, primarily in our Global Consumer and Global Vision Care businesses, (ii) an increase in average realized pricing
of $52 million primarily driven by increased selling prices in our International Rx, International Consumer and Global
Ophthalmology Rx businesses and (iii) an increase in other revenues of $6 million. The increase in volume in our Global Consumer
business is primarily attributable to the launch of Lumify® (May 2018) and sales of PreserVision®. The increase in volume in our
Global Vision Care business is primarily attributable to our Biotrue® ONEday and Ultra® product lines in the U.S. and internationally.
The increase in average realized pricing in our Global Ophthalmology Rx business is primarily attributable to Lotemax® and
Vyzulta®. The increase was partially offset by: (i) the unfavorable effect of foreign currencies of $110 million primarily attributable
to our revenues in Europe, Asia and Latin America and (ii) the impact of divestitures and discontinuations of $41 million, primarily
related to the divestiture and discontinuance of several products within our International Rx business.
Bausch + Lomb/International Segment Profit
The Bausch + Lomb/International segment profit was $1,332 million and $1,330 million for 2019 and 2018, respectively,
an increase of $2 million, or less than 1%. The increase was primarily driven by an increase in contribution as a result of: (i) the
increase in volume and average realized pricing as previously discussed and (ii) better inventory management. The increase was
partially offset by: (i) higher selling, advertising and promotion expenses primarily due to the launch of Lumify®, (ii) the unfavorable
effect of foreign currencies, (iii) higher R&D expenses and (iv) the impact of divestitures and discontinuations.
Salix Segment:
Salix Segment Revenue
The Salix segment includes the Xifaxan® product line, which accounted for approximately 72% and 68% of the Salix segment
product sales and approximately 17% and 14% of the Company's product sales for 2019 and 2018, respectively. No other single
product group represents 10% or more of the Salix segment product sales. The Salix segment revenue was $2,022 million and
$1,749 million for 2019 and 2018, respectively, an increase of $273 million, or 16%. The increase includes: (i) an increase in
average realized pricing of $113 million primarily attributable to higher gross selling prices and lower sales deductions for Xifaxan®,
(ii) an increase in volume of $111 million primarily attributable to increased demand for Xifaxan®, Glumetza® SLX, and Plenvu®,
partially offset by decreased demand for certain products, primarily Uceris® due to loss of exclusivity, (iii) sales of our Trulance®
product, which we added to our portfolio in March 2019 as part of the acquisition of certain assets of Synergy, of $55 million and
(iv) an increase in other revenues of $3 million. The increase in revenue was partially offset by the impact of divestitures and
discontinuations of $9 million. Although Glumetza® SLX contributed to the increase in volumes during 2019 as discussed above,
an accelerated shift in channel mix could lead to deteriorating average realized pricing for this product in future periods.
Salix Segment Profit
The Salix segment profit was $1,349 million and $1,149 million for 2019 and 2018, respectively, an increase of $200 million,
or 17%. The increase was primarily driven by a net increase in contribution as a result of the increase in average realized pricing
and volume, as previously discussed. The increase in segment profit was partially offset by: (i) higher R&D expenses, (ii) the
charge associated with the termination of a co-promotional agreement with US WorldMeds, LLC and (iii) higher selling, advertising
and promotion expenses.
71
Ortho Dermatologics Segment:
Ortho Dermatologics Segment Revenue
The Ortho Dermatologics segment revenue was $565 million and $617 million for 2019 and 2018, respectively, a decrease
of $52 million, or 8%. The decrease includes: (i) a decrease in volume of $93 million, (ii) a decrease in other revenues of $8 million
and (iii) the unfavorable effect of foreign currencies of $2 million. The decrease in volume is primarily due to: (i) the impact of
generic competition as certain products lost exclusivity, including Elidel®, Solodyn® and Zovirax® and (ii) decreased demand for
Tretinoin®, Onexton®, Jublia®, Retin-A Micro® 0.08% and Targretin®, partially offset by the increased demand for Thermage
FLX®, Siliq® and Clindagel® and the launch of Duobrii® (June 2019). The decrease in revenue was partially offset by an increase
in average realized pricing of $51 million as a result of lower sales deductions primarily attributable to Jublia® and Retin-A Micro®
0.06%.
Ortho Dermatologics Segment Profit
The Ortho Dermatologics segment profit was $222 million and $257 million for 2019 and 2018, respectively, a decrease of
$35 million, or 14%. The decrease was primarily driven by a decrease in contribution as a result of the decrease in revenue, as
previously discussed, partially offset by decreases in: (i) selling expenses and (ii) professional fees.
Diversified Products Segment:
Diversified Products Segment Revenue
The following table displays the Diversified Products segment revenues by product and product revenues as a percentage
of segment revenue for 2019 and 2018.
Years Ended December 31,
2018
2019
Change
2018 to 2019
Amount
(in millions)
Wellbutrin® Franchise
Arestin®
Aplenzin®
Migranal® Franchise
Cuprimine®
Uceris® AG
Ativan®
Xenazine® Franchise
Diastat® Franchise
Elidel® AG
Other
Total Diversified Products revenues
Amount
244
$
87
83
55
49
46
43
38
35
34
561
1,275
$
Pct.
19% $
7%
6%
4%
4%
4%
3%
3%
3%
3%
44%
100% $
Pct.
Amount
19% $
252
7%
96
4%
54
5%
62
6%
88
1%
13
4%
54
4%
52
3%
36
4 —%
47%
100% $
639
1,350
Pct.
(3)%
(9)%
54%
(11)%
(44)%
254%
(20)%
(27)%
(3)%
750%
(12)%
(6)%
(8)
(9)
29
(7)
(39)
33
(11)
(14)
(1)
30
(78)
(75)
The Diversified Products segment revenue was $1,275 million and $1,350 million for 2019 and 2018, respectively, a decrease
of $75 million, or 6%. The decrease was primarily driven by: (i) a decrease in volume of $56 million, (ii) a decrease in average
realized pricing of $17 million and (iii) the impact of divestitures and discontinuations of $4 million. The decrease was partially
offset by an increase in other revenues of $2 million. The decrease in volume was primarily attributable to our Neurology and
Other business due to: (i) the loss of exclusivity of Cuprimine®, Isuprel®, Mephyton®, Syprine® and Xenazine® and (ii) lower
demand for Wellbutrin® XL and Ativan®, partially offset by increased demand for Aplenzin®. The net decrease in volume in our
Neurology and Other business was partially offset by the impact of the launches of Elidel® AG (December 2018) and Uceris® AG
(July 2018) and other increases in product volumes in our Generics business. The decrease in average realized pricing is primarily
attributable to the impact of generic competition in our Generics business for Glumetza® AG, Syprine® AG, Targretin® AG,
Mephyton® AG and Cardizem® AG, partially offset by an increase in average realized pricing in our Neurology and Other business.
Although the launches of Elidel® AG and Uceris® AG positively impacted the product volumes in our Generics business in 2019,
generic versions of these products launched by competitors could lead to deteriorating revenues for these and other products in
our Generics business in future periods.
72
Diversified Products Segment Profit
The Diversified Products segment profit was $932 million and $1,012 million for 2019 and 2018, respectively, a decrease
of $80 million, or 8%. The decrease was primarily driven by: (i) the decrease in volume and average realized pricing, as previously
discussed and (ii) higher selling, advertising and promotion expenses, partially offset by lower third-party royalty costs.
73
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Summarized cash flow information for the years 2019, 2018 and 2017 is as follows:
(in millions)
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating activities
Cash provided by operating activities before changes in operating assets and liabilities
Changes in operating assets and liabilities
Net cash provided by operating activities
Net cash (used in) provided by investing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash, beginning of year
Cash and cash equivalents and restricted cash, end of year
Years Ended December 31,
Change
2019
2018
2017
2018 to
2019
2017 to
2018
$ (1,783) $ (4,144) $ 2,404
$ 2,361
$ (6,548)
3,602
1,819
(318)
1,501
(419)
5,627
1,483
18
1,501
(196)
(958)
(2,025)
6,585
1,446
844
2,290
2,887
336
(336)
—
37
(826)
(789)
(223)
(3,083)
1,443
(1,353)
(4,963)
2,796
3,610
(4)
2,521
723
$ 3,244
$
(26)
(74)
797
723
$
41
255
542
797
22
2,595
(74)
$ 2,521
$
(67)
(329)
255
(74)
A detailed discussion of the year-over-year changes of the Company’s 2018 summarized cash flow information compared
with that of 2017 can be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
in our Annual Report on Form 10-K for the year ended December 31, 2018 filed on February 20, 2019.
Operating Activities
Net cash provided by operating activities was $1,501 million in each of the years 2019 and 2018.
Cash provided by operating activities before changes in operating assets and liabilities for the years 2019 and 2018 was
$1,819 million and $1,483 million, respectively, an increase of $336 million. The increase is primarily attributable to: (i) Payments
of accrued legal settlements during 2018 not recurring in 2019 and (ii) higher revenues, improved gross margins and cash expense
reductions in 2019 as compared to 2018 as previously discussed. During 2018, Payments of accrued legal settlements were $224
million and were related to the settlements of the Solodyn® antitrust litigations, the Allergan litigation and other matters.
Changes in operating assets and liabilities resulted in a net decrease in cash of $318 million in 2019, as compared to the net
increase in cash of $18 million in 2018, a decrease of $336 million. During 2019, Changes in operating assets and liabilities was
negatively impacted by: (i) the build-up of inventories of $209 million and (ii) the timing of other payments in the ordinary course
of business of $148 million, partially offset by the collection of trade receivables of $39 million. During 2018, Changes in operating
assets and liabilities was positively impacted by the collection of trade receivables of $216 million partially offset by the timing
of payments in the ordinary course of business of $193 million and the buildup of inventories of $5 million.
Investing Activities
Net cash used in investing activities was $419 million in 2019 and was driven by: (i) Purchases of property, plant and
equipment of $270 million and (ii) Acquisition of businesses, net of cash acquired of $180 million, related to the acquisition of
certain assets of Synergy. Net cash used in investing activities was partially offset by Proceeds from sale of assets and businesses,
net of costs to sell of $45 million, primarily related to the receipt of a milestone payment associated with a prior year divestiture.
Net cash used in investing activities was $196 million in 2018 and was driven by: (i) Purchases of property, plant and
equipment of $157 million and (ii) Payments for intangible and other assets previously acquired of $78 million.
Financing Activities
Our financing activities reflect our leadership's commitment to improve the Company’s capital structure. Through debt
repayments and refinancings during 2019, we have effectively managed our capital structure which has allowed us to, among
other things: (i) improve our credit ratings as discussed under “Credit Ratings" below, (ii) access the credit markets to finance
amounts owed under the Company's recently announced $1,210 million settlement agreement relating to the U.S. Securities
Litigation without negatively impacting our working capital available for operations and (iii) as of the date of this filing, reduce
our mandatory scheduled principal repayments of our debt obligations through 2021 to $103 million.
74
Net cash provided by financing activities during 2019 was $1,443 million and primarily reflects the aggregate net proceeds
from the issuance of the 5.00% January 2028 Unsecured Notes and January 2030 Unsecured Notes of $2,472 million, partially
offset by: (i) debt repayments during 2019 with cash on hand of $906 million and (ii) payments for all other financing activities.
The aggregate net proceeds from the issuance of the January 2028 Unsecured Notes and January 2030 Unsecured Notes are to be
used and were used to: (i) pay the Company's recently announced $1,210 million settlement agreement relating to the U.S. Securities
Litigation (which is subject to final court approval), of which we paid $200 million during January 2020 and (ii) redeem $1,240
million of May 2023 Unsecured Notes on January 16, 2020.
In 2019, net proceeds from the issuances of long-term debt of $5,960 million consists of: (i) $1,236 million from the issuance
of $1,250 million in principal amount of 5.00% January 2028 Unsecured Notes, (ii) $1,236 million from the issuance of $1,250
million in principal amount of January 2030 Unsecured Notes, (iii) $1,018 million from the issuance of $1,000 million in principal
amount of 8.50% Senior Unsecured Notes due January 2027 (the "January 2027 Unsecured Notes"), (iv) $740 million from the
issuance of $750 million in principal amount of 7.00% Senior Unsecured Notes due January 2028 (the "7.00% January 2028
Unsecured Notes"), (v) $740 million from the issuance of $750 million in principal amount of 7.25% Senior Unsecured Notes
due May 2029 (the "May 2029 Unsecured Notes"), (vi) $492 million from the issuance of $500 million in principal amount of
5.75% Senior Secured Notes due August 2027 (the "August 2027 Secured Notes") and (vii) $500 million of borrowings under our
revolving credit facilities. Net proceeds from the issuances of long-term debt is net of $2 million in payments we made in 2019
for issuance costs associated with long-term debt issued in previous years. Repayments of long-term debt during 2019 was $4,406
million consisting of: (i) repayments of principal amounts due under our Senior Notes of $3,100 million, (ii) repayments of term
loans under our Senior Secured Credit Facilities of $731 million and (iii) repayments of our revolving credit facility of $575
million. Payments of financing costs associated with the refinancing of certain debt was $28 million.
Net cash used in financing activities during 2018 was $1,353 million and included repayments of long-term debt of $10,101
million consisting of: (i) repayments of term loans under our Senior Secured Credit Facilities of $3,711 million, (ii) repayments
of principal amounts due under our Senior Notes of $5,465 million, (iii) refinancing $500 million of outstanding amounts under
our 2020 Revolving Credit Facility with our 2023 Revolving Credit Facility and (iv) repayments of our revolving credit facilities
of $425 million. Issuance of long-term debt, net of discounts for 2018 was $8,944 million and included: (i) the net proceeds of:
(a) $4,507 million from the issuance of $4,565 million in principal amount of our seven year Tranche B Term Loan Facility
maturing in June 2025 (the “June 2025 Term Loan B Facility”), (b) $1,480 million from the issuance of $1,500 million in principal
amount of April 2026 Unsecured Notes, (c) $1,476 million from the issuance of $1,500 million in principal amount of our seven
year Tranche B Term Loan Facility maturing in November 2025 (the "November 2025 Term Loan B Facility") and (d) $738 million
from the issuance of $750 million in principal amount of January 2027 Unsecured Notes, (ii) refinancing $500 million of outstanding
amounts under our 2020 Revolving Credit Facility with our 2023 Revolving Credit Facility and (iii) $250 million of borrowings
under our revolving credit facilities. The net proceeds from the Issuance of long-term debt, net of discounts in 2018 is further
reduced by $7 million in payments we made in 2018 for issuance costs associated with senior notes issued during 2017. Payments
for costs associated with the refinancing of certain debt was $102 million for 2018.
See Note 11, "FINANCING ARRANGEMENTS" to our audited Consolidated Financial Statements for further details
regarding the financing activities previously described.
Liquidity and Debt
Future Sources of Liquidity
Our primary sources of liquidity are our cash and cash equivalents, cash collected from customers, funds as available from
our revolving credit facility, issuances of long-term debt and issuances of equity and equity-linked securities. We believe these
sources will be sufficient to meet our current liquidity needs for the next twelve months.
The Company regularly evaluates market conditions, its liquidity profile, and various financing alternatives for opportunities
to enhance its capital structure. If opportunities are favorable, the Company may refinance or repurchase existing debt or issue
equity or equity-linked securities. We believe our existing cash and cash generated from operations will be sufficient to service
our debt obligations in the years 2020 through 2022.
Long-term Debt
Long-term debt, net of unamortized discounts and finance costs was $25,895 million and $24,305 million as of December
31, 2019 and 2018, respectively. Aggregate contractual principal amounts due under our debt obligations were $26,188 million
and $24,632 million as of December 31, 2019 and 2018, respectively, an increase of $1,556 million.
Financing of Litigation Settlement - In December 2019, we announced that we had agreed to resolve the U.S. Securities
Litigation for $1,210 million, subject to final court approval. Once approved by the court, the settlement will resolve and discharge
all claims against the Company in the class action. As part of the settlement, the Company and the other settling defendants admitted
75
no liability as to the claims against it and deny all allegations of wrongdoing. This settlement, once approved by the court, will
resolve the most significant of the Company's remaining legacy legal matters and eliminate a material uncertainty regarding our
Company. To finance this settlement, on December 30, 2019 we accessed the credit markets in a private offering and issued the
January 2028 Unsecured Notes (defined below) and the January 2030 Unsecured Notes (defined below), the net proceeds of which,
along with cash on hand, are to be used and were used to: (i) finance the $1,210 million pending settlement of the U.S. Securities
Litigation and (ii) replace $1,240 million of debt due May 2023 on January 16, 2020.
Debt Repayments - Excluding the impact of the financing of the litigation settlement discussed above, using the net cash
proceeds from divestitures of non-core assets, cash generated from operations and cash generated from tighter working capital
management, we repaid (net of additional borrowings) over $7,700 million of long-term debt during the period January 1, 2016
through the date of this filing, which includes $906 million of repayments with cash on hand during 2019.
2019 Refinancing Transactions
In March, May and December 2019, we accessed the credit markets and completed a series of transactions, whereby we
extended $4,240 million in aggregate maturities of certain debt obligations due to mature in December 2021 through May 2023,
out to January 2027 through January 2030.
On March 8, 2019, we issued: (i) $1,000 million aggregate principal amount of January 2027 Unsecured Notes and (ii) $500
million aggregate principal amount of August 2027 Secured Notes in a private placement. The proceeds and cash on hand were
used to: (i) repurchase the remaining $700 million outstanding principal amount of 5.625% Senior Unsecured Notes due 2021
(the “December 2021 Unsecured Notes”), (ii) repurchase $584 million of May 2023 Unsecured Notes, (iii) repurchase $216 million
of 5.50% Senior Unsecured Notes due 2023 (the "March 2023 Unsecured Notes") and (iv) pay all fees and expenses associated
with these transactions (collectively, the “March 2019 Refinancing Transactions”).
On May 23, 2019, we issued: (i) $750 million aggregate principal amount of 7.00% January 2028 Unsecured Notes and (ii)
$750 million aggregate principal amount of May 2029 Unsecured Notes in a private placement. The proceeds and cash on hand
were used to: (i) repurchase $1,118 million of May 2023 Unsecured Notes, (ii) repurchase $382 million of March 2023 Unsecured
Notes and (iii) pay all fees and expenses associated with these transactions (collectively, the “May 2019 Refinancing Transactions”).
On December 30, 2019, we issued: (i) $1,250 million aggregate principal amount of 5.00% January 2028 Unsecured Notes
and (ii) $1,250 million aggregate principal amount of January 2030 Unsecured Notes in a private placement. The proceeds and
cash on hand were used to: (i) redeem $1,240 million of May 2023 Unsecured Notes on January 16, 2020, (ii) finance amounts
owed under the Company's recently announced $1,210 million settlement agreement relating to the U.S. Securities Litigation
(which is subject to final court approval) and (iii) pay all fees and expenses associated with these transactions. On December 18,
2019, the Company issued a conditional notice of redemption to redeem $1,240 million of May 2023 Unsecured Notes on January
16, 2020. On December 30, 2019, the Company received the proceeds associated with the December 2019 Financing and
Refinancing Transactions, satisfying the condition included in the conditional notice of redemption.
The aforementioned repayments, refinancings and other changes in our debt portfolio completed during 2019 have lowered
our cash requirements for principal debt repayment over the next five years. The mandatory scheduled principal repayments of
our debt obligations as of December 31, 2019 and February 19, 2020 (the date of this filing) were as follows:
(in millions)
As of December 31, 2019
As of February 19, 2020
2020 - 2021
1,343
$
2022 - 2023
4,148
$
2024 - 2025
12,935
$
2026 - 2027
3,750
$
2028 - 2029
2,762
$
2030
$1,250
Total
$ 26,188
103
4,148
12,935
3,750
2,762
1,250
24,948
See Note 11, "FINANCING ARRANGEMENTS" to our audited Consolidated Financial Statements and “Management's
Discussion and Analysis - Liquidity and Capital Resources: Long-term Debt” for further details.
The weighted average stated rate of interest as of December 31, 2019 and 2018 was 6.21% and 6.23%, respectively.
Senior Secured Credit Facilities
On February 13, 2012, the Company and certain of its subsidiaries as guarantors entered into the “Senior Secured Credit
Facilities” under the Company’s Third Amended and Restated Credit and Guaranty Agreement, as amended (the “Third Amended
Credit Agreement”) with a syndicate of financial institutions and investors.
On June 1, 2018, the Company entered into the Restated Credit Agreement, effectuating the Restated Credit Agreement
which amended and restated in full the Company’s Third Amended Credit Agreement.
76
On November 27, 2018, the Company entered into the First Incremental Amendment to the Restated Credit Agreement which
provided the November 2025 Term Loan B Facility of $1,500 million.
As of December 31, 2019, the Company had no outstanding borrowings, $170 million of issued and outstanding letters of
credit, and remaining availability of $1,055 million under its 2023 Revolving Credit Facility.
Current Description of Senior Secured Credit Facilities
Borrowings under the Senior Secured Credit Facilities in U.S. dollars bear interest at a rate per annum equal to, at the
Company's option, either: (i) a base rate determined by reference to the highest of: (a) the prime rate (as defined in the Restated
Credit Agreement), (b) the federal funds effective rate plus 1/2 of 1.00% or (c) the eurocurrency rate (as defined in the Restated
Credit Agreement) for a period of one month plus 1.00% (or if such eurocurrency rate shall not be ascertainable, 1.00%) or (ii) a
eurocurrency rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such
borrowing adjusted for certain additional costs (provided however, that the eurocurrency rate shall at no time be less than 0.00%
per annum), in each case plus an applicable margin.
Borrowings under the 2023 Revolving Credit Facility in euros bear interest at a eurocurrency rate determined by reference
to the costs of funds for euro deposits for the interest period relevant to such borrowing (provided however, that the eurocurrency
rate shall at no time be less than 0.00% per annum), plus an applicable margin.
Borrowings under the 2023 Revolving Credit Facility in Canadian dollars bear interest at a rate per annum equal to, at the
Company's option, either: (i) a prime rate determined by reference to the higher of: (a) the rate of interest last quoted by The Wall
Street Journal as the “Canadian Prime Rate” or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest
rate published by the Bank of Canada as its prime rate and (b) the 1 month BA rate (as defined below) calculated daily plus 1.00%
(provided however, that the prime rate shall at no time be less than 0.00%) or (ii) the bankers’ acceptance rate for Canadian dollar
deposits in the Toronto interbank market (the “BA rate”) for the interest period relevant to such borrowing (provided however,
that the BA rate shall at no time be less than 0.00% per annum), in each case plus an applicable margin.
Subject to certain exceptions and customary baskets set forth in the Restated Credit Agreement, the Company is required to
make mandatory prepayments of the loans under the Senior Secured Credit Facilities under certain circumstances, including from:
(i) 100% of the net cash proceeds of insurance and condemnation proceeds for property or asset losses (subject to reinvestment
rights and net proceeds threshold), (ii) 100% of the net cash proceeds from the incurrence of debt (other than permitted debt as
described in the Restated Credit Agreement), (iii) 50% of Excess Cash Flow (as defined in the Restated Credit Agreement) subject
to decrease based on leverage ratios and subject to a threshold amount and (iv) 100% of net cash proceeds from asset sales (subject
to reinvestment rights). These mandatory prepayments may be used to satisfy future amortization.
The applicable interest rate margins for the June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility
are 2.00% and 1.75%, respectively, with respect to base rate and prime rate borrowings and 3.00% and 2.75%, respectively, with
respect to eurocurrency rate and BA rate borrowings. As of December 31, 2019, the stated rates of interest on the Company’s
borrowings under the June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility were 4.74% and 4.49% per
annum, respectively.
The amortization rate for both the June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility is 5.00%
per annum. The Company may direct that prepayments be applied to such amortization payments in order of maturity. As of
December 31, 2019, the aggregate remaining mandatory quarterly amortization payments for the Senior Secured Credit Facilities
were $1,126 million through November 1, 2025.
The applicable interest rate margins for borrowings under the 2023 Revolving Credit Facility are 1.50%-2.00% with respect
to base rate or prime rate borrowings and 2.50%-3.00% with respect to eurocurrency rate or BA rate borrowings. As of December
31, 2019, the stated rate of interest on the 2023 Revolving Credit Facility was 4.74% per annum. In addition, the Company is
required to pay commitment fees of 0.25% - 0.50% per annum with respect to the unutilized commitments under the 2023 Revolving
Credit Facility, payable quarterly in arrears. The Company also is required to pay: (i) letter of credit fees on the maximum amount
available to be drawn under all outstanding letters of credit in an amount equal to the applicable margin on eurocurrency rate
borrowings under the 2023 Revolving Credit Facility on a per annum basis, payable quarterly in arrears, (ii) customary fronting
fees for the issuance of letters of credit and (iii) agency fees.
The Restated Credit Agreement permits the incurrence of incremental credit facility borrowings, up to the greater of $1,000
million and 28.5% of Consolidated Adjusted EBITDA (as defined in the Restated Credit Agreement), subject to customary terms
and conditions, as well as the incurrence of additional incremental credit facility borrowings subject to a secured leverage ratio
of not greater than 3.50:1.00, and, in the case of unsecured debt, a total leverage ratio of not greater than 6.50:1.00 or an interest
coverage ratio of not less than 2.00:1.00.
77
Senior Secured Notes
The Senior Secured Notes are guaranteed by each of the Company’s subsidiaries that is a guarantor under the Restated Credit
Agreement and existing Senior Unsecured Notes (together, the “Note Guarantors”). The Senior Secured Notes and the guarantees
related thereto are senior obligations and are secured, subject to permitted liens and certain other exceptions, by the same first
priority liens that secure the Company’s obligations under the Restated Credit Agreement under the terms of the indentures
governing the Senior Secured Notes.
The Senior Secured Notes and the guarantees rank equally in right of repayment with all of the Company’s and Note
Guarantors’ respective existing and future unsubordinated indebtedness and senior to the Company’s and Note Guarantors’
respective future subordinated indebtedness. The Senior Secured Notes and the guarantees related thereto are effectively pari
passu with the Company’s and the Note Guarantors’ respective existing and future indebtedness secured by a first priority lien on
the collateral securing the Senior Secured Notes and effectively senior to the Company’s and the Note Guarantors’ respective
existing and future indebtedness that is unsecured, including the existing Senior Unsecured Notes, or that is secured by junior
liens, in each case to the extent of the value of the collateral. In addition, the Senior Secured Notes are structurally subordinated
to: (i) all liabilities of any of the Company’s subsidiaries that do not guarantee the Senior Secured Notes and (ii) any of the
Company’s debt that is secured by assets that are not collateral.
Upon the occurrence of a change in control (as defined in the indentures governing the Senior Secured Notes), unless the
Company has exercised its right to redeem all of the notes of a series, holders of the Senior Secured Notes may require the Company
to repurchase such holder’s notes, in whole or in part, at a purchase price equal to 101% of the principal amount thereof plus
accrued and unpaid interest.
5.75% Senior Secured Notes due 2027 - March 2019 Refinancing Transactions
On March 8, 2019, Bausch Health Americas, Inc. ("BHA") and the Company issued: (i) $1,000 million aggregate principal
amount of January 2027 Unsecured Notes and (ii) $500 million aggregate principal amount of August 2027 Secured Notes,
respectively, in a private placement. A portion of the proceeds and cash on hand were used to: (i) repurchase $584 million of May
2023 Unsecured Notes, (ii) repurchase $518 million of December 2021 Unsecured Notes, (iii) repurchase $216 million of March
2023 Unsecured Notes and (iv) pay all fees and expenses associated with these transactions (collectively, the “March 2019
Refinancing Transactions”). During April 2019, the Company redeemed $182 million of the December 2021 Unsecured Notes,
representing the remaining outstanding principal balance of the December 2021 Unsecured Notes and completing the refinancing
of $1,500 million of debt in connection with the March 2019 Refinancing Transactions. Interest on the August 2027 Secured Notes
is payable semi-annually in arrears on each February 15 and August 15.
The August 2027 Secured Notes are redeemable at the option of the Company, in whole or in part, at any time on or after
August 15, 2022, at the redemption prices set forth in the indenture. The Company may redeem some or all of the August 2027
Secured Notes prior to August 15, 2022 at a price equal to 100% of the principal amount thereof plus a “make-whole” premium.
Prior to August 15, 2022, the Company may redeem up to 40% of the aggregate principal amount of the August 2027 Secured
Notes using the proceeds of certain equity offerings at the redemption price set forth in the indenture.
Senior Unsecured Notes
The Senior Unsecured Notes issued by the Company are the Company’s senior unsecured obligations and are jointly and
severally guaranteed on a senior unsecured basis by each of its subsidiaries that is a guarantor under the Senior Secured Credit
Facilities. The Senior Unsecured Notes issued by the Company’s subsidiary, BHA, are senior unsecured obligations of BHA and
are jointly and severally guaranteed on a senior unsecured basis by the Company and each of its subsidiaries (other than BHA)
that is a guarantor under the Senior Secured Credit Facilities. Future subsidiaries of the Company and BHA, if any, may be required
to guarantee the Senior Unsecured Notes.
If the Company experiences a change in control, the Company may be required to make an offer to repurchase each series
of Senior Unsecured Notes, in whole or in part, at a purchase price equal to 101% of the aggregate principal amount of the Senior
Unsecured Notes repurchased, plus accrued and unpaid interest.
8.50% Senior Unsecured Notes due 2027 - June 2018 Refinancing Transactions and March 2019 Refinancing Transactions
As part of the March 2019 Refinancing Transactions described above, BHA issued $1,000 million aggregate principal amount
of 8.50% Senior Unsecured Notes due January 2027. These are additional notes and form part of the same series as BHA’s existing
January 2027 Unsecured Notes.
78
7.00% Senior Unsecured Notes due 2028 and 7.25% Senior Unsecured Notes due 2029 - May 2019 Refinancing Transactions
On May 23, 2019, the Company issued: (i) $750 million aggregate principal amount of 7.00% January 2028 Unsecured
Notes and (ii) $750 million aggregate principal amount of May 2029 Unsecured Notes, respectively, in a private placement. The
proceeds and cash on hand were used to: (i) repurchase $1,118 million of May 2023 Unsecured Notes, (ii) repurchase $382 million
of March 2023 Unsecured Notes and (iii) pay all fees and expenses associated with these transactions. Interest on the January
2028 Unsecured Notes is payable semi-annually in arrears on each January 15 and July 15. Interest on the May 2029 Unsecured
Notes is payable semi-annually in arrears on each May 30 and November 30.
The 7.00% January 2028 Unsecured Notes and the May 2029 Unsecured Notes are redeemable at the option of the Company,
in whole or in part, at any time on or after January 15, 2023 and May 30, 2024, respectively, at the redemption prices set forth in
the respective indenture. The Company may redeem some or all of the 7.00% January 2028 Unsecured Notes or the May 2029
Unsecured Notes prior to January 15, 2023 and May 30, 2024, respectively, at a price equal to 100% of the principal amount
thereof plus a “make-whole” premium. Prior to July 15, 2022, and May 30, 2022, the Company may redeem up to 40% of the
aggregate principal amount of the 7.00% January 2028 Unsecured Notes or the May 2029 Unsecured Notes, respectively, using
the proceeds of certain equity offerings at the redemption price set forth in the respective indenture.
5.00% Senior Unsecured Notes due 2028 and 5.25% Senior Unsecured Notes due 2030 - December 2019 Financing
Transactions
On December 30, 2019, we issued: (i) $1,250 million aggregate principal amount of 5.00% January 2028 Unsecured Notes
and (ii) $1,250 million aggregate principal amount of January 2030 Unsecured Notes in a private placement. The proceeds and
cash on hand were used to: (i) redeem $1,240 million of May 2023 Unsecured Notes on January 16, 2020, (ii) finance amounts
owed under the Company's recently announced $1,210 million settlement agreement relating to the U.S. Securities Litigation
(which is subject to final court approval) and (iii) pay all fees and expenses associated with these transactions (collectively, the
"December 2019 Financing and Refinancing Transactions"). Interest on the 5.00% January 2028 Unsecured Notes is payable semi-
annually in arrears on each January 30 and July 30. Interest on the January 2030 Unsecured Notes is payable semi-annually in
arrears on each January 30 and July 30.
The 5.00% January 2028 Unsecured Notes and the January 2030 Unsecured Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after January 30, 2023 and January 30, 2025, respectively, at the redemption prices
set forth in the respective indenture. The Company may redeem some or all of the 5.00% January 2028 Unsecured Notes or the
January 2030 Unsecured Notes prior to January 30, 2023 and January 30, 2025, respectively, at a price equal to 100% of the
principal amount thereof plus a “make-whole” premium. Prior to January 30, 2023 and January 30, 2025, the Company may
redeem up to 40% of the aggregate principal amount of the 5.00% January 2028 Unsecured Notes or the January 2030 Unsecured
Notes, respectively, using the proceeds of certain equity offerings at the redemption price set forth in the respective indenture.
Remaining Senior Unsecured Notes
The aggregate principal amount of our other Senior Unsecured Notes as of December 31, 2019 and 2018 was $7,932 million
and $7,970 million, respectively, a decrease of $38 million representing the impact of the foreign currency exchange rate on our
euro denominated note.
Covenant Compliance
Any inability to comply with the covenants under the terms of our Restated Credit Agreement, Senior Secured Notes
indentures or Senior Unsecured Notes indentures could lead to a default or an event of default for which we may need to seek
relief from our lenders and noteholders in order to waive the associated default or event of default and avoid a potential acceleration
of the related indebtedness or cross-default or cross-acceleration to other debt. There can be no assurance that we would be able
to obtain such relief on commercially reasonable terms or otherwise and we may be required to incur significant additional costs.
In addition, the lenders under our Restated Credit Agreement, holders of our Senior Secured Notes and holders of our Senior
Unsecured Notes may impose additional operating and financial restrictions on us as a condition to granting any such waiver.
During 2018 and 2019, the Company completed several actions which included using cash flows from operations to repay
debt and refinancing debt with near term maturities. These actions have reduced the Company’s debt balance and positively affected
the Company’s ability to comply with its financial maintenance covenant. As of December 31, 2019, the Company was in
compliance with the financial maintenance covenant related to its outstanding debt. The Company, based on its current forecast
for the next twelve months from the date of issuance of this Form 10-K, expects to remain in compliance with the financial
maintenance covenant and meet its debt service obligations over that same period.
The Company continues to take steps to improve its operating results to ensure continual compliance with its financial
maintenance covenant and take other actions to reduce its debt levels to align with the Company’s long-term strategy. The Company
79
may consider taking other actions, including divesting other businesses, refinancing debt and issuing equity or equity-linked
securities as deemed appropriate, to provide additional coverage in complying with the financial maintenance covenant and meeting
its debt service obligations.
The Senior Notes and Secured Notes are guaranteed by a substantial portion of the Company’s subsidiaries. On a non-
consolidated basis, the non-guarantor subsidiaries had total assets of $2,682 million and $2,954 million and total liabilities of
$1,075 million and $1,264 million as of December 31, 2019 and 2018, respectively, and revenues of $1,463 million and $1,689
million and operating income of $121 million and $174 million for years ended December 31, 2019 and 2018, respectively.
Credit Ratings
In December 2019, Standard & Poor's upgraded our credit ratings and maintained our outlook as stable. As of February 19,
2020, the credit ratings and outlook from Moody's, Standard & Poor's and Fitch for certain outstanding obligations of the Company
were as follows:
Rating Agency
Moody’s
Standard & Poor’s
Fitch
Corporate Rating
B2
Senior Secured Rating
Ba2
Senior Unsecured Rating
B3
B+
B
BB
BB
B
B
Outlook
Stable
Stable
Stable
Any downgrade in our corporate credit ratings or other credit ratings may increase our cost of borrowing and may negatively
impact our ability to raise additional debt capital.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
We have no off-balance sheet arrangements that have a material current effect or that are reasonably likely to have a material
future effect on our results of operations, financial condition, capital expenditures, liquidity, or capital resources.
The following table summarizes our contractual obligations as of December 31, 2019 for the years presented:
(in millions)
Long-term debt obligations, including interest
Operating lease obligations
Purchase obligations
Total contractual obligations
Total
2020
2021 and
2022
2023 and
2024
Thereafter
$
$
35,548
383
888
36,819
$
$
2,758
70
557
3,385
$
$
4,708
97
201
5,006
$
$
7,568
67
104
7,739
$
$
20,514
149
26
20,689
Purchase obligations consist of agreements to purchase goods and services that are enforceable and legally binding and
include obligations for minimum inventory and capital expenditures, and outsourced information technology, product promotion
and clinical research services.
The table of contractual obligations excludes payments for: (i) contingent milestone payments to third parties as part of
certain development, collaboration and license agreements and (ii) acquisition-related contingent consideration. See Note 22,
"COMMITMENTS AND CONTINGENCIES" and Note 6, "FAIR VALUE MEASUREMENTS" to our audited Consolidated
Financial Statements for further details related to these contingent payments.
The table of contractual obligations excludes payments for unrecognized tax benefits totaling $355 million as of December
31, 2019 because a reliable estimate of the period in which uncertain tax positions will be payable, if ever, cannot be made.
Other Future Cash Requirements
Our other future cash requirements relate to working capital, capital expenditures, business development transactions
(contingent consideration), restructuring and integration, benefit obligations and litigation settlements. In addition, we may use
cash to enter into licensing arrangements and/or to make strategic acquisitions. We are considering further acquisition opportunities
within our core therapeutic areas, some of which could be sizable.
In addition to our working capital requirements and other amounts presented in the contractual obligations table presented
above, we expect our primary cash requirements for 2020 to include:
80
• Debt repayments—As a result of prepayments and a series of refinancing transactions we have reduced and extended the
maturities of a substantial portion of our long-term debt. Payments of Long-term debt obligations, including interest as
presented in the contractual obligations table above for the year 2020 of $2,758 million, is inclusive of the payment for the
redemption of $1,240 million in aggregate principal amount of May 2023 Unsecured Notes made on January 16, 2020. As of
the date of this filing, scheduled principal repayments of our debt obligations through 2021 are $103 million. We may elect
to make additional principal payments under certain circumstances. Further, in the ordinary course of business, we may borrow
and repay amounts under our 2023 Revolving Credit Facility to meet business needs;
IT Infrastructure Investment—We expect to make payments of approximately $80 million, net of the amounts included in
Purchase obligations in the table above, for licensing, maintenance and capitalizable costs associated with our IT infrastructure
improvement projects during 2020;
•
• Capital expenditures—We expect to make payments of approximately $300 million for property, plant and equipment during
2020, of which there were $115 million in committed amounts as of December 31, 2019;
• Contingent consideration payments—We expect to make contingent consideration and other development/approval/sales-
based milestone payments of $64 million during 2020;
• Restructuring and integration payments—We expect to make payments of $5 million during 2020 for employee separation
costs and lease termination obligations associated with restructuring and integration actions we have taken through December
31, 2019;
• Benefit obligations—We expect to make payments under our pension and postretirement obligations of $3 million, $9 million
and $5 million to the U.S. pension benefit plan, the non-U.S. pension benefit plans and the U.S. postretirement benefit plan,
respectively during 2020. See Note 12, "PENSION AND POSTRETIREMENT EMPLOYEE BENEFIT PLANS" to our
audited Consolidated Financial Statements for further details of our benefit obligations; and
• U.S. Securities Litigation Settlement—As more fully discussed in Note 21, "LEGAL PROCEEDINGS" to our audited
Consolidated Financial Statements, we expect to make payments of $1,210 million to resolve the U.S. Securities Litigation
during 2020, of which we paid $200 million during January 2020. In December 2019, we announced that we had agreed to
resolve the U.S. Securities Litigation for $1,210 million, subject to final court approval. Once approved by the court, the
settlement will resolve and discharge all claims against the Company in the class action. As part of the settlement, the Company
and the other settling defendants admitted no liability as to the claims against it and deny all allegations of wrongdoing. This
settlement, once approved by the court, will resolve the most significant of the Company's remaining legacy legal matters
and eliminate a material uncertainty regarding our Company.
We continue to evaluate opportunities to improve our operating results and may initiate additional cost savings programs to
streamline our operations and eliminate redundant processes and expenses. These cost savings programs may include, but are not
limited to: (i) reducing headcount, (ii) eliminating real estate costs associated with unused or under-utilized facilities and (iii)
implementing contribution margin improvement and other cost reduction initiatives. The expenses associated with the
implementation of these cost savings programs could be material and may impact our cash flows.
In the ordinary course of business, the Company is involved in litigation, claims, government inquiries, investigations, charges
and proceedings. See Note 21, "LEGAL PROCEEDINGS" to our audited Consolidated Financial Statements for further details
of these matters. Our ability to successfully defend the Company against pending and future litigation may impact cash flows.
OUTSTANDING SHARE DATA
Our common shares are listed on the TSX and the NYSE under the ticker symbol “BHC”.
At February 13, 2020, we had 352,704,400 issued and outstanding common shares. In addition, as of February 13, 2020,
we had 7,049,164 stock options and 5,872,874 time-based RSUs that each represent the right of a holder to receive one of the
Company’s common shares, and 2,355,100 performance-based RSUs that represent the right of a holder to receive a number of
the Company's common shares up to a specified maximum. A maximum of 4,149,539 common shares could be issued upon vesting
of the performance-based RSUs outstanding.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our business and financial results are affected by fluctuations in world financial markets, including the impacts of foreign
currency exchange rate and interest rate movements. We evaluate our exposure to such risks on an ongoing basis, and seek ways
to manage these risks to an acceptable level, based on management’s judgment of the appropriate trade-off between risk, opportunity
and cost. We may use derivative financial instruments from time to time as a risk management tool and not for trading or speculative
purposes.
81
Inflation; Seasonality
We are subject to price control restrictions on our pharmaceutical products in a number of countries in which we now operate.
As a result, our ability to raise prices in a timely fashion in anticipation of inflation may be limited in some markets.
Historically, revenues from our business tend to be weighted toward the second half of the year. Sales in the first quarter
tend to be lower as patient co-pays and deductibles reset at the beginning of each year. Sales in the fourth quarter tend to be higher
based on consumer and customer purchasing patterns associated with health care reimbursement programs. However, there are
no assurances that these historical trends will continue in the future.
Foreign Currency Risk
In the year ended December 31, 2019, a majority of our revenue and expense activities and capital expenditures were
denominated in U.S. dollars. We have exposure to multiple foreign currencies, including, among others, the Euro, Chinese yuan,
Polish zloty, Canadian dollar and Mexican peso. Our operations are subject to risks inherent in conducting business abroad,
including price and currency exchange controls and fluctuations in the relative values of currencies. In November 2016, as a result
of the Egyptian government’s decision to float the Egyptian pound and un-peg it to the U.S. Dollar, the Egyptian pound was
significantly devalued. Our exposure to the Egyptian pound is primarily with respect to Amoun Pharmaceutical Company S.A.E.,
which we acquired in October 2015, and which represented approximately 3% and 2% of our total 2019 and 2018 revenues,
respectively. In addition, to the extent that we require, as a source of debt repayment, earnings and cash flows from some of our
operations located in foreign countries, we are subject to risk of changes in the value of the U.S. dollar, relative to all other currencies
in which we operate, which may materially affect our results of operations. Where possible, we manage foreign currency risk by
managing same currency revenues in relation to same currency expenses. Further strengthening of the U.S. dollar and/or further
devaluation of foreign currencies will have a negative impact on our reported revenue and reported results. As of December 31,
2019, a 1% change in foreign currency exchange rates would have impacted our shareholders’ equity by approximately $52 million,
which could be partially mitigated by our cross-currency swaps discussed below.
As of December 31, 2019, the unrealized foreign exchange loss on the translation of the remaining principal amount of U.S.
denominated senior secured and unsecured notes was $142 million, for Canadian income tax purposes. Additionally, as of
December 31, 2019, the unrealized foreign exchange loss on certain intercompany balances was equal to $5 million. One-half of
any realized foreign exchange gain or loss will be included in our Canadian taxable income. Any resulting gain will result in a
corresponding reduction in our available Canadian Losses, Scientific Research and Experimental Development Pool, and/or
Investment Tax Credit carryforward balances. However, the repayment of the senior notes and the intercompany loans denominated
in U.S. dollars does not result in a foreign exchange gain or loss being recognized in our Consolidated Financial Statements, as
these statements are prepared in U.S. dollars.
We may use derivative financial instruments from time to time to mitigate our foreign currency risk and not for trading or
speculative purposes. During 2019, we entered into cross-currency swaps, with aggregate notional amounts of $1,250 million, to
mitigate fluctuation in the value of a portion of our euro-denominated net investment in our consolidated financial statements from
adverse movements in exchange rates. The euro-denominated net investment being hedged is the Company’s investment in certain
euro-denominated subsidiaries. Prior to 2019, the Company had no derivative instruments for any period presented.
Interest Rate Risk
We currently do not hold financial instruments for speculative purposes. Our financial assets are not subject to significant
interest rate risk due to their short duration. The primary objective of our policy for the investment of temporary cash surpluses
is the protection of principal, and accordingly, we generally invest in high quality, money market investments and time deposits
with varying maturities, but typically less than three months. As it is our intent and policy to hold these investments until maturity,
we do not have a material exposure to interest rate risk.
As of December 31, 2019, we had $19,362 million and $5,144 million principal amount of issued fixed rate debt and variable
rate debt, respectively, that requires U.S. dollar repayment, as well as €1,500 million principal amount of issued fixed rate debt
that requires repayment in Euros. The estimated fair value of our issued fixed rate debt as of December 31, 2019, including the
foreign currency denominated debt, was $22,351 million. If interest rates were to increase by 100 basis-points, the fair value of
our long-term debt would decrease by approximately $248 million. If interest rates were to decrease by 100 basis-points, the fair
value of our long-term debt would increase by approximately $441 million. We are subject to interest rate risk on our variable rate
debt as changes in interest rates could adversely affect earnings and cash flows. A 100 basis-points increase in interest rates, based
on 3-month LIBOR, would have an annualized pre-tax effect of approximately $51 million in our Consolidated Statements of
Operations and Consolidated Statements of Cash Flows, based on current outstanding borrowings and effective interest rates on
our variable rate debt. While our variable-rate debt may impact earnings and cash flows as interest rates change, it is not subject
to changes in fair value.
82
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Critical accounting policies and estimates are those policies and estimates that are most important and material to the
preparation of our Consolidated Financial Statements, and which require management’s most subjective and complex judgments
due to the need to select policies from among alternatives available, and to make estimates about matters that are inherently
uncertain. We base our estimates on historical experience and other factors that we believe to be reasonable under the circumstances.
On an ongoing basis, we review our estimates to ensure that these estimates appropriately reflect changes in our business and new
information as it becomes available. If historical experience and other factors we use to make these estimates do not reasonably
reflect future activity, our results of operations and financial condition could be materially impacted.
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued guidance on recognizing revenue from contracts
with customers. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services. In applying the revenue model to contracts within its scope, an entity will: (i) identify the contract(s)
with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the
transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a
performance obligation. In addition to these provisions, the new standard provides implementation guidance on several other
topics, including the accounting for certain revenue-related costs, as well as enhanced disclosure requirements. The new guidance
requires entities to disclose both quantitative and qualitative information that enables users of financial statements to understand
the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
The Company adopted this guidance effective January 1, 2018 using the modified retrospective approach, and therefore,
revenue reported for the year 2017 has not been restated. Based upon review of customer contracts, the Company concluded the
implementation of the new guidance did not have a material quantitative impact on its 2018 Consolidated Financial Statements
as the timing of revenue recognition for product sales did not significantly change. The new guidance did however result in
additional disclosures as to the nature, amounts, and concentrations of revenue.
Product Sales Provisions
The following table presents the activity and ending balances for our product sales provisions for each of the last three years.
(in millions)
Reserve balance, January 1, 2017
Provision
Payments or credits
Reserve balance, December 31, 2017
Provision
Payments or credits
Reserve balance, December 31, 2018
Acquisition of Synergy
Provision
Payments or credits
Discounts
and
Allowances
124
$
829
(786)
167
$
865
(857)
175
—
776
(769)
Reserve balance, December 31, 2019
$
182
$
Returns
Rebates
708
423
(268)
863
293
(343)
813
3
113
(238)
691
$
$
897
2,545
(2,348)
1,094
2,551
(2,621)
1,024
12
2,265
(2,374)
927
Chargebacks
273
$
2,145
(2,144)
274
1,966
(2,031)
209
—
1,938
(1,979)
168
$
Distribution
Fees
Total
$
$
197
288
(337)
148
212
(197)
163
1
195
(277)
82
$
$
2,199
6,230
(5,883)
2,546
5,887
(6,049)
2,384
16
5,287
(5,637)
2,050
Included in Rebates in the table above are cooperative advertising credits due to customers of approximately $29 million
and $26 million as of December 31, 2019 and 2018, respectively, which are reflected as a reduction of Trade accounts receivable,
net in the Consolidated Balance Sheets.
The development and application of the critical accounting policies associated with the new revenue recognition guidance,
including the policies associated with each of the above product sales provisions, are discussed in more detail in Note 2,
"SIGNIFICANT ACCOUNTING POLICIES".
83
Other Revenues
We generate alliance revenue and service revenue from the licensing of products and from contract services mainly in the
areas of dermatology and topical medication. Contract service revenue is derived primarily from contract manufacturing for third
parties.
Acquisition-Related Contingent Consideration
Some of the business combinations that we have consummated include contingent consideration to be potentially paid based
upon the occurrence of future events, such as sales performance and the achievement of certain future development, regulatory
and sales milestones. Acquisition-related contingent consideration associated with a business combination is initially recognized
at fair value and remeasured each reporting period, with changes in fair value recorded in the Consolidated Statements of Operations.
The estimates of fair value involve the use of acceptable valuation methods, such as probability-weighted discounted cash flow
analysis and Monte Carlo Simulation (when appropriate), and contain uncertainties as they require assumptions about the likelihood
of achieving specified milestone criteria, projections of future financial performance and assumed discount rates. Changes in the
fair value of the acquisition-related contingent consideration result from several factors including changes in the timing and amount
of revenue estimates, changes in probability assumptions with respect to the likelihood of achieving specified milestone criteria
and changes in discount rates. A change in any of these assumptions could produce a different fair value, which could have a
material impact on our results of operations. At December 31, 2019, the fair value measurements of acquisition-related contingent
consideration were determined using risk-adjusted discount rates ranging from 5% to 25%.
Intangible Assets
We evaluate potential impairments of amortizable intangible assets acquired through asset acquisitions or business
combinations if events or changes in circumstances indicate that the carrying amounts of these assets may not be recoverable. Our
evaluation is based on an assessment of potential indicators of impairment, such as:
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an adverse change in legal factors or in the business climate that could affect the value of an asset. For example, a
successful challenge of our patent rights resulting in earlier than expected generic competition;
an adverse change in the extent or manner in which an asset is used or is expected to be used. For example, a decision
not to pursue a product line-extension strategy to enhance an existing product due to changes in market conditions and/
or technological advances; or
current or forecasted reductions in revenue, operating income, or cash flows associated with the use of an asset. For
example, the introduction of a competing product that results in a significant loss of market share.
Impairment exists when the carrying value of the asset exceeds the related estimated undiscounted future cash flows expected
to be derived from the asset. If impairment exists, the carrying value of the asset is adjusted to its fair value. A discounted cash
flow analysis is typically used to determine an asset's fair value, using estimates and assumptions that market participants would
apply. Some of the estimates and assumptions inherent in a discounted cash flow model include the amount and timing of the
projected future cash flows, and the discount rate used to reflect the risks inherent in the future cash flows. A change in any of
these estimates and assumptions could produce a different fair value, which could have a material impact on our results of operations.
In addition, an intangible asset’s expected useful life can increase estimation risk, as longer-lived assets necessarily require longer-
term cash flow forecasts, which for some of our intangible assets can be up to 20 years. In connection with an impairment evaluation,
we also reassess the remaining useful life of the intangible asset and modify it, as appropriate.
Management continually assesses the useful lives of the Company's long-lived assets. In 2017 and 2018, management revised
the estimated useful lives of certain intangible assets in connection with market events and changes in assumptions. In 2017, the
useful lives of certain product brands, with an aggregate carrying value of $7,618 million as of December 31, 2017, were revised
to take into consideration, among other factors, various scenarios related to the date each product is anticipated to lose its exclusivity
and the resulting potential changes in the forecasted sales. In addition, the useful life of the Salix Brand, with a carrying value of
$569 million as of December 31, 2017, was revised from seventeen years to ten years to reflect a number of possible scenarios
related to forecasted sales of its product portfolio.
Effective September 12, 2018, the Company changed the estimated useful life of its Xifaxan®-related intangible assets due
to the positive impact of an agreement between the Company and Actavis Laboratories FL, Inc. ("Actavis") resolving the intellectual
property litigation regarding Xifaxan® tablets, 550 mg. Under the agreement, the parties have agreed to dismiss all litigation related
to Xifaxan® tablets, 550 mg and all intellectual property protecting Xifaxan® will remain intact and enforceable. As a result, the
useful life of the Xifaxan® related intangible assets was extended from 2024 to January 1, 2028. This change in the estimated
useful life is considered a change in accounting estimate and will result in changes to the Company's amortization expense
prospectively. As of December 31, 2019, the net carrying value of the Xifaxan® related intangible assets was $4,309 million.
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Indefinite-lived intangible assets, including IPR&D and the B&L corporate trademark, are tested for impairment annually,
or more frequently if events or changes in circumstances between annual tests indicate that the asset may be impaired. Impairment
losses on indefinite-lived intangible assets are recognized based solely on a comparison of their fair value to carrying value, without
consideration of any recoverability test. In particular, we will continue to monitor closely the progression of our R&D programs
as their likelihood of success is contingent upon the achievement of future milestones. See Item 7 “Management’s Discussion
and Analysis of Financial Condition and Results of Operations — Overview — Focus on Core Business” for additional information
regarding our R&D programs.
Goodwill
Goodwill is not amortized but is tested for impairment at least annually as of October 1st at the reporting unit level. A
reporting unit is the same as, or one level below, an operating segment. The fair value of a reporting unit refers to the price that
would be received to sell the unit as a whole in an orderly transaction between market participants. The Company estimates the
fair values of all reporting units using a discounted cash flow model which utilizes Level 3 unobservable inputs.
The discounted cash flow method relies on assumptions regarding revenue growth rates, gross profit, projected working
capital requirements, selling, general and administrative expenses, research and development expenses, business restructuring
costs, capital expenditures, income tax rates, discount rates and terminal growth rates. To estimate fair value, the Company discounts
the forecasted cash flows of each reporting unit. The discount rate the Company uses represents the estimated weighted average
cost of capital, which reflects the overall level of inherent risk involved in its reporting unit operations and the rate of return a
market participant would expect to earn. To estimate cash flows beyond the final year of its model, the Company estimates a
terminal value by applying an in-perpetuity growth assumption and discount factor to determine the reporting unit's terminal value.
The Company incorporates the present value of the resulting terminal value into its estimate of fair value.
The Company forecasted cash flows for each of its reporting units and took into consideration economic conditions and
trends, estimated future operating results, management's and a market participant's view of growth rates and product lives, and
anticipated future economic conditions. Revenue growth rates inherent in these forecasts were based on input from internal and
external market research that compare factors such as growth in global economies, recent industry trends and product life-cycles.
Macroeconomic factors such as changes in economies, changes in the competitive landscape including the unexpected loss of
exclusivity to the Company's product portfolio, changes in government legislation, product life-cycles, industry consolidations
and other changes beyond the Company’s control could have a positive or negative impact on achieving its targets. Accordingly,
if market conditions deteriorate, or if the Company is unable to execute its strategies, it may be necessary to record impairment
charges in the future.
In January 2017, the FASB issued guidance which simplifies the subsequent measurement of goodwill by eliminating “Step
2” from the goodwill impairment test. Instead, goodwill impairment is measured as the amount by which a reporting unit's carrying
value exceeds its fair value. The Company elected to early adopt this guidance effective January 1, 2018.
Upon adopting the new guidance, the Company tested goodwill for impairment and determined that the carrying value of
the Salix reporting unit exceeded its fair value. As a result of the adoption of new accounting guidance, the Company recognized
a goodwill impairment of $1,970 million associated with the Salix reporting unit.
2018 Annual Goodwill Impairment Test
The Company conducted its annual goodwill impairment test as of October 1, 2018 and determined that the carrying value
of the Dentistry reporting unit exceeded its fair value and, as a result, the Company recognized a goodwill impairment of $109
million for the Dentistry reporting unit, representing the full amount of goodwill for the reporting unit. Changing market conditions
such as: (i) an increasing competitive environment and (ii) increasing pricing pressures negatively impacted the reporting unit's
operating results. The Company is taking steps to address these changing market and business conditions.
The Company's remaining reporting units passed the goodwill impairment test as the estimated fair value of each reporting
unit exceeded its carrying value at the date of testing and, therefore, there was no impairment to goodwill for any reporting unit
other than the Dentistry reporting unit. In order to evaluate the sensitivity of its fair value calculations on the goodwill impairment
test, the Company compared the carrying value of each reporting unit to its fair value as of October 1, 2018, the date of testing.
As of October 1, 2018, the fair value of each reporting unit with associated goodwill exceeded its carrying value by more than
15%.
2019 Annual Goodwill Impairment Test
The Company conducted its annual goodwill impairment test as of October 1, 2019 by first assessing qualitative factors to
determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Where the
qualitative assessment suggested that it was more likely than not that the fair value of a reporting unit was less than its carrying
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amount, a quantitative fair value test was performed for that reporting unit. In each quantitative fair value test performed, the fair
value was greater than the carrying value of the reporting unit. As a result, there was no impairment to the goodwill of any reporting
unit. If market conditions deteriorate, or if the Company is unable to execute its strategies, it may be necessary to record impairment
charges in the future. Specifically, the Company continues to assess the performance of the Ortho Dermatologics reporting unit
and the Neuro and Other reporting unit as compared to their respective projections and will perform qualitative interim assessments
of the carrying value and fair value on a quarterly basis to determine if impairment testing of goodwill will be warranted. The
Company performed quantitative fair value tests for the Ortho Dermatologics reporting unit and the Neuro and Other reporting
unit as of October 1, 2019, utilizing long-term growth rates of 2.0% and 1.5%, and discount rates of 9.8% and 9.0%, respectively,
in estimation of the fair value of these reporting units.
As previously discussed the Company estimated the fair value of each reporting unit using an income approach which values
the unit based on the future cash flows expected from that reporting unit. Future cash flows are based on forward-looking information
regarding market share and costs for each reporting unit and are discounted using an appropriate discount rate. Future discounted
cash flows can be affected by changes in industry or market conditions or the rate and extent to which anticipated synergies or
cost savings are realized with newly acquired entities. The Company performed its annual impairment test as of October 1, 2019,
utilizing long-term growth rates for its reporting units ranging from 1.5% to 3.0% and discount rates applied to the estimated cash
flows ranging from 8.0% to 9.8% in estimation of fair value. To estimate cash flows beyond the final year of its model, the Company
estimates a terminal value by applying an in-perpetuity growth assumption and discount factor to determine the reporting unit's
terminal value.
See Note 9, "INTANGIBLE ASSETS AND GOODWILL" to our audited Consolidated Financial Statements for further
details on the goodwill impairments recognized in 2018 and 2017.
Contingencies
In the normal course of business, we are subject to loss contingencies, such as claims and assessments arising from litigation
and other legal proceedings, contractual indemnities, product and environmental liabilities and tax matters. Other than loss
contingencies that are assumed in business combinations for which we can reliably estimate the fair value, we are required to
accrue for such loss contingencies if it is probable that the outcome will be unfavorable and if the amount of the loss can be
reasonably estimated. We evaluate our exposure to loss based on the progress of each contingency, experience in similar
contingencies and consultation with our legal counsel. We re-evaluate all contingencies as additional information becomes
available. Given the uncertainties inherent in complex litigation and other contingencies, these evaluations can involve significant
judgment about future events. The ultimate outcome of any litigation or other contingency may be material to our results of
operations, financial condition and cash flows. See Note 21, "LEGAL PROCEEDINGS" to our audited Consolidated Financial
Statements for further details regarding our current legal proceedings.
Income Taxes
We have operations in various countries that have differing tax laws and rates. Our tax structure is supported by current
domestic tax laws in the countries in which we operate and the application of tax treaties between the various countries in which
we operate. Our income tax reporting is subject to audit by domestic and foreign tax authorities. Our effective tax rate may change
from year to year based on changes in the mix of activities and income earned under our intercompany arrangements among the
different jurisdictions in which we operate, changes in tax laws in these jurisdictions, changes in tax treaties between various
countries in which we operate, changes in our eligibility for benefits under those tax treaties and changes in the estimated values
of deferred tax assets and liabilities. Such changes could result in an increase in the effective tax rate on all or a portion of our
income and/or any of our subsidiaries.
Our provision for income taxes is based on a number of estimates and assumptions made by management. Our consolidated
income tax rate is affected by the amount of income earned in our various operating jurisdictions, the availability of benefits under
tax treaties and the rates of taxes payable in respect of that income. We enter into many transactions and arrangements in the
ordinary course of business in which the tax treatment is not entirely certain. We must therefore make estimates and judgments
based on our knowledge and understanding of applicable tax laws and tax treaties, and the application of those tax laws and tax
treaties to our business, in determining our consolidated tax provision. For example, certain countries could seek to tax a greater
share of income than has been provided for by us. The final outcome of any audits by taxation authorities may differ from the
estimates and assumptions we have used in determining our consolidated income tax provisions and accruals. This could result
in a material effect on our consolidated income tax provision, results of operations, and financial condition for the period in which
such determinations are made.
Our income tax returns are subject to audit in various jurisdictions. Existing and future audits by, or other disputes with, tax
authorities may not be resolved favorably for us and could have a material adverse effect on our reported effective tax rate and
after-tax cash flows. We record liabilities for uncertain tax positions, which involve significant management judgment. New laws
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and new interpretations of laws and rulings by tax authorities may affect the liability for uncertain tax positions. Due to the
subjectivity and complex nature of the underlying issues, actual payments or assessments may differ from our estimates. To the
extent that our estimates differ from amounts eventually assessed and paid our income and cash flows may be materially and
adversely affected.
We assess whether it is more likely than not that we will realize the tax benefits associated with our deferred tax assets and
establish a valuation allowance for assets that are not expected to result in a realized tax benefit. A significant amount of judgment
is used in this process, including preparation of forecasts of future taxable income and evaluation of tax planning initiatives. If
we revise these forecasts or determine that certain planning events will not occur, an adjustment to the valuation allowance will
be made to tax expense in the period such determination is made.
The Company’s Benefit from income taxes for the year 2017 included provisional net tax benefits of $975 million attributable
to the Tax Act for: (i) the re-measurement of certain deferred tax assets and liabilities based on the rates at which they are expected
to reverse in the future of $774 million, (ii) the one-time transition tax on the accumulated previously untaxed earnings of foreign
subsidiaries (the "Transition Toll Tax") of $88 million and (iii) the decrease in deferred tax assets attributable to certain legal
accruals, the deductibility of which is uncertain for U.S. federal income tax purposes, of $10 million. We provisionally utilized
NOLs to offset the provisionally determined $88 million Transition Toll Tax and therefore no amount was recorded as payable.
The Company has previously provided for residual U.S. federal income tax on its outside basis differences in certain foreign
subsidiaries which, due to the Tax Act, are no longer taxable. As such, our residual U.S. federal income tax liability of $299 million
prior to the law change was reversed and we recognized a deferred tax benefit of $299 million in the fourth quarter of 2017.
The provisional amounts included in Benefit from income taxes for the year 2017, including the Transition Toll Tax, were
finalized during 2018. Differences between the provisional net income tax benefits provided for the year 2017 attributable to the
Tax Act of $975 million, as previously disclosed, and the benefit for income taxes as finalized are included in the Benefit from
income taxes for 2018 and were not material to the Company’s financial results for the year 2018.
Share-Based Compensation
We recognize employee share-based compensation, including grants of stock options and RSUs, at estimated fair value. As
there is no market for trading our employee stock options, we use the Black-Scholes option-pricing model to calculate stock option
fair values, which requires certain assumptions related to the expected life of the stock option, future stock price volatility, risk-
free interest rate and dividend yield. The expected life of the stock option is based on historical exercise and forfeiture patterns.
The expected volatility of our common stock is estimated by using implied volatility in market traded options. The risk-free interest
rate is based on the rate at the time of grant for U.S. Treasury bonds with a remaining term equal to the expected life of the stock
option. Dividend yield is based on the stock option’s exercise price and expected annual dividend rate at the time of grant. Changes
to any of these assumptions, or the use of a different option-pricing model, such as the lattice model, could produce a different
fair value for share-based compensation expense, which could have a material impact on our results of operations.
We determine the fair value of each RSU granted based on the trading price of our common shares on the date of grant,
unless the vesting of the RSU is conditional on the attainment of any applicable performance goals based on total shareholder
return, in which case we use a Monte Carlo simulation model. The Monte Carlo simulation model utilizes multiple input variables
to estimate the probability that the performance condition will be achieved. Changes to any of these inputs could materially affect
the measurement of the fair value of the performance-based RSUs.
We also have performance-based RSUs that vest upon attainment of certain performance targets. We recognize the expense
associated with these performance-based RSUs based on the number of RSUs we expect to vest, which is estimated by comparing
our latest forecast to the applicable performance targets. If RSUs do not vest as a result of a determination that the prescribed
performance goals failed to be attained, then no expense would be recognized and any expense previously recognized for the
RSUs would be reversed upon such determination.
NEW ACCOUNTING STANDARDS
Information regarding the recently issued new accounting guidance (adopted and not adopted as of December 31, 2019) is
contained in Note 2, "SIGNIFICANT ACCOUNTING POLICIES" to our audited Consolidated Financial Statements.
FORWARD-LOOKING STATEMENTS
Caution regarding forward-looking information and statements and “Safe-Harbor” statements under the U.S. Private
Securities Litigation Reform Act of 1995 and applicable Canadian securities laws:
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To the extent any statements made in this Form 10-K contain information that is not historical, these statements are forward-
looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and may be forward-looking information within the meaning defined under applicable Canadian
securities laws (collectively, “forward-looking statements”).
These forward-looking statements relate to, among other things: our business strategy, business plans and prospects and
forecasts and changes thereto; product pipeline, prospective products and product approvals, product development and future
performance and results of current and anticipated products; anticipated revenues for our products; anticipated growth in our Ortho
Dermatologics business; expected R&D and marketing spend; our expected primary cash and working capital requirements for
2020 and beyond; our plans for continued improvement in operational efficiency and the anticipated impact of such plans; our
liquidity and our ability to satisfy our debt maturities as they become due; our ability to reduce debt levels; our ability to meet the
financial and other covenants contained in our Fourth Amended and Restated Credit and Guaranty Agreement (the "Restated Credit
Agreement") and senior notes indentures; the impact of our distribution, fulfillment and other third-party arrangements; proposed
pricing actions; exposure to foreign currency exchange rate changes and interest rate changes; the outcome of contingencies, such
as litigation, subpoenas, investigations, reviews, audits and regulatory proceedings; the anticipated impact of the adoption of new
accounting standards; general market conditions; our expectations regarding our financial performance, including revenues,
expenses, gross margins and income taxes; and our impairment assessments, including the assumptions used therein and the results
thereof.
Forward-looking statements can generally be identified by the use of words such as “believe”, “anticipate”, “expect”,
“intend”, “estimate”, “plan”, “continue”, “will”, “may”, “could”, “would”, “should”, “target”, “potential”, “opportunity”,
“designed”, “create”, “predict”, “project”, “forecast”, “seek”, “strive”, “ongoing” or “increase” and variations or other similar
expressions. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events
or circumstances are forward-looking statements. These forward-looking statements may not be appropriate for other purposes.
Although we have previously indicated certain of these statements set out herein, all of the statements in this Form 10-K that
contain forward-looking statements are qualified by these cautionary statements. These statements are based upon the current
expectations and beliefs of management. Although we believe that the expectations reflected in such forward-looking statements
are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain
material factors or assumptions are applied in making such forward-looking statements, including, but not limited to, factors and
assumptions regarding the items previously outlined, those factors, risks and uncertainties outlined below and the assumption that
none of these factors, risks and uncertainties will cause actual results or events to differ materially from those described in such
forward-looking statements. Actual results may differ materially from those expressed or implied in such statements. Important
factors, risks and uncertainties that could cause actual results to differ materially from these expectations include, among other
things, the following:
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the expense, timing and outcome of legal and governmental proceedings, investigations and information requests relating
to, among other matters, our past distribution, marketing, pricing, disclosure and accounting practices (including with
respect to our former relationship with Philidor Rx Services, LLC ("Philidor")), including pending investigations by the
U.S. Attorney's Office for the District of Massachusetts and the U.S. Attorney's Office for the Southern District of New
York, the pending investigations by the U.S. Securities and Exchange Commission (the “SEC”) of the Company, the
investigation order issued by the Company from the Autorité des marchés financiers (the “AMF”) (the Company’s principal
securities regulator in Canada), a number of pending securities litigations (including certain pending opt-out actions in
the U.S. (related to the recently settled securities class action, (which is subject to final court approval, and remains subject
to the risk and uncertainty that the U.S. District Court for the District of New Jersey may not approve the $1,210 million
settlement agreement)) and the pending class action litigation in Canada and related opt-out actions) and purported class
actions under the federal RICO statute and other claims, investigations or proceedings that may be initiated or that may
be asserted;
potential additional litigation and regulatory investigations (and any costs, expenses, use of resources, diversion of
management time and efforts, liability and damages that may result therefrom), negative publicity and reputational harm
on our Company, products and business that may result from the past and ongoing public scrutiny of our past distribution,
marketing, pricing, disclosure and accounting practices and from our former relationship with Philidor;
the past and ongoing scrutiny of our legacy business practices, including with respect to pricing (including the
investigations by the U.S. Attorney's Offices for the District of Massachusetts and the Southern District of New York),
and any pricing controls or price adjustments that may be sought or imposed on our products as a result thereof;
pricing decisions that we have implemented, or may in the future elect to implement, such as the Patient Access and
Pricing Committee’s commitment that the average annual price increase for our branded prescription pharmaceutical
products will be set at no greater than single digits, or any future pricing actions we may take following review by our
Patient Access and Pricing Committee (which is responsible for the pricing of our drugs);
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legislative or policy efforts, including those that may be introduced and passed by the U.S. Congress, designed to reduce
patient out-of-pocket costs for medicines, which could result in new mandatory rebates and discounts or other pricing
restrictions, controls or regulations (including mandatory price reductions);
ongoing oversight and review of our products and facilities by regulatory and governmental agencies, including periodic
audits by the U.S. Food and Drug Administration (the “FDA”) and the results thereof;
actions by the FDA or other regulatory authorities with respect to our products or facilities;
our substantial debt (and potential additional future indebtedness) and current and future debt service obligations, our
ability to reduce our outstanding debt levels and the resulting impact on our financial condition, cash flows and results
of operations;
our ability to meet the financial and other covenants contained in our Restated Credit Agreement, senior notes indentures
and other current or future debt agreements and the limitations, restrictions and prohibitions such covenants impose or
may impose on the way we conduct our business, including prohibitions on incurring additional debt if certain financial
covenants are not met, limitations on the amount of additional obligations we are able to incur pursuant to other covenants,
and restrictions on our ability to make certain investments and other restricted payments;
any default under the terms of our senior notes indentures or Restated Credit Agreement and our ability, if any, to cure
or obtain waivers of such default;
any delay in the filing of any future financial statements or other filings and any default under the terms of our senior
notes indentures or Restated Credit Agreement as a result of such delays;
any downgrade by rating agencies in our credit ratings, which may impact, among other things, our ability to raise debt
and the cost of capital for additional debt issuances;
any reductions in, or changes in the assumptions used in, our forecasts for fiscal year 2020 or beyond, which could lead
to, among other things: (i) a failure to meet the financial and/or other covenants contained in our Restated Credit Agreement
and/or senior notes indentures and/or (ii) impairment in the goodwill associated with certain of our reporting units or
impairment charges related to certain of our products or other intangible assets, which impairments could be material;
changes in the assumptions used in connection with our impairment analyses or assessments, which would lead to a
change in such impairment analyses and assessments and which could result in an impairment in the goodwill associated
with any of our reporting units or impairment charges related to certain of our products or other intangible assets;
the uncertainties associated with the acquisition and launch of new products (such as our recently launched Bryhali®,
Duobrii® and Ocuvite® Eye Performance products), including, but not limited to, our ability to provide the time, resources,
expertise and costs required for the commercial launch of new products, the acceptance and demand for new
pharmaceutical products, and the impact of competitive products and pricing, which could lead to material impairment
charges;
our ability or inability to extend the profitable life of our products, including through line extensions and other life-cycle
programs;
our ability to retain, motivate and recruit executives and other key employees;
our ability to implement effective succession planning for our executives and key employees;
factors impacting our ability to achieve anticipated growth in our Ortho Dermatologics business, including the success
of recently launched products (such as Bryhali® and Duobrii®), the ability to successfully implement and operate
Dermatology.com, our new cash-pay prescription program for certain of our Ortho Dermatologics branded products, and
the ability of such program to achieve the anticipated goals respecting patient access and fulfillment, the approval of
pending and pipeline products (and the timing of such approvals), expected geographic expansion, changes in estimates
on market potential for dermatology products and continued investment in and success of our sales force;
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factors impacting our ability to achieve anticipated revenues for our products, including changes in anticipated marketing
spend on such products and launch of competing products;
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the challenges and difficulties associated with managing a large complex business, which has, in the past, grown rapidly;
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our ability to compete against companies that are larger and have greater financial, technical and human resources than
we do, as well as other competitive factors, such as technological advances achieved, patents obtained and new products
introduced by our competitors;
our ability to effectively operate and grow our businesses in light of the challenges that the Company has faced and market
conditions, including with respect to its substantial debt, pending investigations and legal proceedings, scrutiny of our
past pricing and other practices, and limitations on the way we conduct business imposed by the covenants contained in
our Restated Credit Agreement, senior notes indentures and the agreements governing our other indebtedness;
the extent to which our products are reimbursed by government authorities, pharmacy benefit managers ("PBMs") and
other third-party payors; the impact our distribution, pricing and other practices (including as it relates to our current
relationship with Walgreen Co. ("Walgreens")) may have on the decisions of such government authorities, PBMs and
other third-party payors to reimburse our products; and the impact of obtaining or maintaining such reimbursement on
the price and sales of our products;
the inclusion of our products on formularies or our ability to achieve favorable formulary status, as well as the impact
on the price and sales of our products in connection therewith;
the consolidation of wholesalers, retail drug chains and other customer groups and the impact of such industry consolidation
on our business;
our eligibility for benefits under tax treaties and the continued availability of low effective tax rates for the business
profits of certain of our subsidiaries;
the actions of our third-party partners or service providers of research, development, manufacturing, marketing,
distribution or other services, including their compliance with applicable laws and contracts, which actions may be beyond
our control or influence, and the impact of such actions on our Company, including the impact to the Company of our
former relationship with Philidor and any alleged legal or contractual non-compliance by Philidor;
the risks associated with the international scope of our operations, including our presence in emerging markets and the
challenges we face when entering and operating in new and different geographic markets (including the challenges created
by new and different regulatory regimes in such countries and the need to comply with applicable anti-bribery and
economic sanctions laws and regulations);
adverse global economic conditions and credit markets and foreign currency exchange uncertainty and volatility in certain
of the countries in which we do business;
the impact of the United States-Mexico-Canada Agreement (“USMCA”) and any potential changes to other trade
agreements;
the final outcome and impact of Brexit negotiations;
the trade conflict between the United States and China;
the extent and impact of the coronavirus reported to have surfaced in China;
our ability to obtain, maintain and license sufficient intellectual property rights over our products and enforce and defend
against challenges to such intellectual property (such as in connection with the recent filing by Sandoz Inc. (“Sandoz”)
and Norwich Pharmaceuticals Inc. (“Norwich”) of their respective Abbreviated New Drug Application (“ANDA”) for
Xifaxan® (rifaximin) 550 mg tablets and the Company’s related lawsuit filed against Sandoz in connection therewith.
The Company intends to file suit against Norwich within the regulated timeframe);
the introduction of generic, biosimilar or other competitors of our branded products and other products, including the
introduction of products that compete against our products that do not have patent or data exclusivity rights;
our ability to identify, finance, acquire, close and integrate acquisition targets successfully and on a timely basis and the
difficulties, challenges, time and resources associated with the integration of acquired companies, businesses and products;
any additional divestitures of our assets or businesses and our ability to successfully complete any such divestitures on
commercially reasonable terms and on a timely basis, or at all, and the impact of any such divestitures on our Company,
including the reduction in the size or scope of our business or market share, loss of revenue, any loss on sale, including
any resultant impairments of goodwill or other assets, or any adverse tax consequences suffered as a result of any such
divestitures;
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the expense, timing and outcome of pending or future legal and governmental proceedings, arbitrations, investigations,
subpoenas, tax and other regulatory audits, examinations, reviews and regulatory proceedings against us or relating to
us and settlements thereof;
our ability to negotiate the terms of or obtain court approval for the settlement of certain legal and regulatory proceedings;
our ability to obtain components, raw materials or finished products supplied by third parties (some of which may be
single-sourced) and other manufacturing and related supply difficulties, interruptions and delays;
the disruption of delivery of our products and the routine flow of manufactured goods;
economic factors over which the Company has no control, including changes in inflation, interest rates, foreign currency
rates, and the potential effect of such factors on revenues, expenses and resulting margins;
interest rate risks associated with our floating rate debt borrowings;
our ability to effectively distribute our products and the effectiveness and success of our distribution arrangements,
including the impact of our arrangements with Walgreens;
our ability to effectively promote our own products and those of our co-promotion partners;
the success of our fulfillment arrangements with Walgreens, including market acceptance of, or market reaction to, such
arrangements (including by customers, doctors, patients, PBMs, third-party payors and governmental agencies), and the
continued compliance of such arrangements with applicable laws;
our ability to secure and maintain third-party research, development, manufacturing, licensing, marketing or distribution
arrangements;
the risk that our products could cause, or be alleged to cause, personal injury and adverse effects, leading to potential
lawsuits, product liability claims and damages and/or recalls or withdrawals of products from the market;
the mandatory or voluntary recall or withdrawal of our products from the market and the costs associated therewith;
the availability of, and our ability to obtain and maintain, adequate insurance coverage and/or our ability to cover or
insure against the total amount of the claims and liabilities we face, whether through third-party insurance or self-insurance;
the difficulty in predicting the expense, timing and outcome within our legal and regulatory environment, including with
respect to approvals by the FDA, Health Canada and similar agencies in other countries, legal and regulatory proceedings
and settlements thereof, the protection afforded by our patents and other intellectual and proprietary property, successful
generic challenges to our products and infringement or alleged infringement of the intellectual property of others;
the results of continuing safety and efficacy studies by industry and government agencies;
the success of preclinical and clinical trials for our drug development pipeline or delays in clinical trials that adversely
impact the timely commercialization of our pipeline products, as well as other factors impacting the commercial success
of our products, which could lead to material impairment charges;
the results of management reviews of our research and development portfolio (including following the receipt of clinical
results or feedback from the FDA or other regulatory authorities), which could result in terminations of specific projects
which, in turn, could lead to material impairment charges;
the seasonality of sales of certain of our products;
declines in the pricing and sales volume of certain of our products that are distributed or marketed by third parties, over
which we have no or limited control;
compliance by the Company or our third-party partners and service providers (over whom we may have limited influence),
or the failure of our Company or these third parties to comply, with health care “fraud and abuse” laws and other extensive
regulation of our marketing, promotional and business practices (including with respect to pricing), worldwide anti-
bribery laws (including the U.S. Foreign Corrupt Practices Act and the Canadian Corruption of Foreign Public Officials
Act), worldwide economic sanctions and/or export laws, worldwide environmental laws and regulation and privacy and
security regulations;
91
•
•
•
•
•
the impacts of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation
Act of 2010 (the “Health Care Reform Act”) and potential amendment thereof and other legislative and regulatory health
care reforms in the countries in which we operate, including with respect to recent government inquiries on pricing;
the impact of any changes in or reforms to the legislation, laws, rules, regulation and guidance that apply to the Company
and its business and products or the enactment of any new or proposed legislation, laws, rules, regulations or guidance
that will impact or apply to the Company or its businesses or products;
the impact of changes in federal laws and policy under consideration by the Trump administration and Congress, including
the effect that such changes will have on fiscal and tax policies, the potential revision of all or portions of the Health Care
Reform Act, international trade agreements and policies and policy efforts designed to reduce patient out-of-pocket costs
for medicines (which could result in new mandatory rebates and discounts or other pricing restrictions);
illegal distribution or sale of counterfeit versions of our products; and
interruptions, breakdowns or breaches in our information technology systems.
Additional information about these factors and about the material factors or assumptions underlying such forward-looking
statements may be found elsewhere in this Form 10-K, under Item 1A. "Risk Factors" and in the Company's other filings with the
SEC and the Canadian Securities Administrators (the “CSA”). When relying on our forward-looking statements to make decisions
with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and
potential events. These forward-looking statements speak only as of the date made. We undertake no obligation to update or revise
any of these forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect actual
outcomes, except as required by law. We caution that, as it is not possible to predict or identify all relevant factors that may impact
forward-looking statements, the foregoing list of important factors that may affect future results is not exhaustive and should not
be considered a complete statement of all potential risks and uncertainties.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information relating to quantitative and qualitative disclosures about market risk is detailed in Item 7 “Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Quantitative and Qualitative Disclosures About
Market Risk” and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The information required by this Item is contained in the financial statements set forth in Item 15 “Exhibits and Financial
Statement Schedules” as part of this Form 10-K and is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2019. Based on that evaluation,
the Company’s Chief Executive Officer and the Company’s Chief Financial Officer have concluded that as of December 31, 2019,
the Company’s disclosure controls and procedures were effective to provide reasonable assurance that the information required
to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and
communicated to management as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting
as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is
a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles.
92
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including the Company’s Chief Executive Officer and the
Company’s Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its internal control over financial
reporting as of December 31, 2019 based on the framework described in Internal Control - Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, management has concluded
that the Company maintained effective internal control over financial reporting as of December 31, 2019.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Changes in Internal Control over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarter of 2019 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
None.
93
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required under this Item is incorporated herein by reference from information included in the 2020 Proxy
Statement.
The Board of Directors has adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer,
the principal accounting officer, controller, and all vice presidents and above in the finance department of the Company worldwide.
A copy of the Code of Ethics can be found as an annex to our Standards of Business Conduct, which is located on our website at:
www.bauschhealth.com. We intend to satisfy the SEC disclosure requirements regarding amendments to, or waivers from, any
provisions of our Code of Ethics on our website.
Item 11. Executive Compensation
Information required under this Item relating to executive compensation is incorporated herein by reference from information
included in the 2020 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required under this Item relating to securities authorized for issuance under equity compensation plans and to
security ownership of certain beneficial owners and management is incorporated herein by reference from information included
in the 2020 Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required under this Item relating to certain relationships and transactions with related parties and about director
independence is incorporated herein by reference from information included in the 2020 Proxy Statement.
Item 14. Principal Accounting Fees and Services
Information required under this Item relating to the fees for professional services rendered by our independent auditors in
2019 and 2018 is incorporated herein by reference from information included in the 2020 Proxy Statement.
94
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as a part of the report:
PART IV
(1) The consolidated financial statements required to be filed in the Annual Report on Form 10-K are listed on page F-1
hereof.
(2) Schedule II — Valuation and Qualifying Accounts.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Balance at
Beginning
of Year
Charged to
Costs and
Expenses
Charged to
Other
Accounts
Deductions
Balance at
End of
Year
$
$
$
$
$
$
47
2,913
97
2,001
80
1,857
$
$
$
$
$
$
10
13
4
870
33
221
$
$
$
$
$
$
(1) $
(95) $
(4) $
42
$
4
$
(77) $
(8) $
— $
(50) $
— $
(20) $
— $
48
2,831
47
2,913
97
2,001
(in millions)
Year ended December 31, 2019
Allowance for doubtful accounts
Deferred tax asset valuation allowance
Year ended December 31, 2018
Allowance for doubtful accounts
Deferred tax asset valuation allowance
Year ended December 31, 2017
Allowance for doubtful accounts
Deferred tax asset valuation allowance
(3) Exhibits
Item 16. Form 10-K Summary
None.
95
Exhibit
Number
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
INDEX TO EXHIBITS
Exhibit Description
Certificate of Continuation, dated August 9, 2013, originally filed as Exhibit 3.1 to the Company's Current Report
on Form 8-K filed on August 13, 2013, which is incorporated by reference herein.
Notice of Articles of Valeant Pharmaceuticals International, Inc., dated August 9, 2013, originally filed as Exhibit
3.2 to the Company's Current Report on Form 8-K filed on August 13, 2013, which is incorporated by reference
herein.
Articles of Valeant Pharmaceuticals International, Inc., dated August 8, 2013, originally filed as Exhibit 3.3 to
the Company's Current Report on Form 8-K filed on August 13, 2013, which is incorporated by reference herein.
Notice of Articles of Bausch Health Companies Inc., as of July 16, 2018, originally filed as Exhibit 3.1 to the
Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on July 16, 2018,
which is incorporated by reference herein.
Articles of Bausch Health Companies Inc., as of July 13, 2018, originally filed as Exhibit 3.2 to the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on July 16, 2018, which is
incorporated by reference herein.
Indenture, dated as of March 27, 2015 (the “VRX Escrow Corp Indenture”), between VRX Escrow Corp., the
Bank of New York Mellon Trust Company, N.A., as trustee, registrar and US paying agent, and The Bank of New
York Mellon, acting through its London branch, as the Euro paying agent, governing the 5.375% Senior Notes
due 2020 (the “2020 Notes”), the 5.875% Senior Notes due 2023 (the “May 2023 Notes”), the 4.50% Senior
Notes due 2023 (the “Euro Notes”) and the 6.125% Senior Notes due 2025 (the “2025 Notes” and together with
the 2020 Notes, the May 2023 Notes and the Euro Notes, the “Notes”), originally filed as Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed on March 27, 2015, which is incorporated by reference herein.
First Supplemental Indenture to the VRX Escrow Corp Indenture, dated as of March 27, 2015, between Valeant
Pharmaceuticals International, Inc., the guarantors named therein and the Bank of New York Mellon Trust
Company, N.A., as trustee, governing the Notes, originally filed as Exhibit 4.2 to the Company's Current Report
on Form 8-K filed on March 27, 2015, which is incorporated by reference herein.
Indenture, dated as of March 21, 2017, by and among Valeant Pharmaceuticals International, Inc., the guarantors
party thereto, The Bank of New York Mellon, as trustee and the notes collateral agents party thereto, governing
the 6.50% Senior Secured Notes due 2022 and the 7.00% Senior Secured Notes due 2024, originally filed as
Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 21, 2017, which is incorporated by
reference herein.
Indenture, dated as of October 17, 2017, by and among Valeant Pharmaceuticals International, Inc., the guarantors
party thereto, The Bank of New York Mellon, as trustee and the notes collateral agents party thereto, governing
the 5.50% Senior Secured Notes due 2025, originally filed as Exhibit 4.1 to the Company’s Current Report on
Form 8-K filed on October 17, 2017, which is incorporated by reference herein.
Indenture, dated as of December 18, 2017, by and among Valeant Pharmaceuticals International, Inc., the
guarantors party thereto and The Bank of New York Mellon, as trustee, governing the 9.00% Senior Notes due
2025, originally filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 18, 2017,
which is incorporated by reference herein.
Indenture, dated as of March 26, 2018, by and among Valeant Pharmaceuticals International, Valeant
Pharmaceuticals International, Inc., the other guarantors party thereto and The Bank of New York Mellon, as
trustee, originally filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 27, 2018,
which is incorporated by reference herein.
Indenture, dated as of June 1, 2018, by and among Valeant Pharmaceuticals International, Valeant Pharmaceuticals
international, Inc., the other guarantors party thereto and The Bank of New York Mellon, as trustee, originally
filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 1, 2018, which is incorporated
by reference herein.
Indenture, dated as of March 8, 2019, by and among Bausch Health Companies Inc., the guarantors named therein,
The Bank of New York Mellon Trust Company, N.A., as trustee, and the notes collateral agents party thereto,
governing the 5.750% Senior Secured Notes due 2027, originally filed as Exhibit 4.1 to the Company’s Current
Report on Form 8-K filed on March 8, 2019, which is incorporated by reference herein.
Indenture, dated as of May 23, 2019, by and among Bausch Health Companies Inc., the guarantors named
therein and The Bank of New York Mellon Trust Company, N.A., as trustee, governing the 7.000% Senior
Notes due 2028 and the 7.250% Senior Notes due 2029, originally filed as Exhibit 4.1 to the Company’s
Current Report on Form 8-K filed on May 24, 2019, which is incorporated by reference herein.
Indenture, dated as of December 30, 2019, by and among Bausch Health Companies Inc., the guarantors named
therein and The Bank of New York Mellon Trust Company, N.A., as trustee, governing the 5.000% Senior Notes
due 2028 and the 5.250% Senior Notes due 2030, originally filed as Exhibit 4.1 to the Company’s Current Report
on Form 8-K filed on December 30, 2019, which is incorporated by reference herein.
96
4.11
4.12*
10.1*
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
Form of Common Share Certificate of Bausch Health Companies Inc., originally filed as Exhibit 4.1 to the
Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on July 16, 2018,
which is incorporated by reference herein.
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, As Amended
Bausch Health Companies Inc. Amended and Restated 2014 Omnibus Incentive Plan, effective as of April 30,
2018 (the "Amended and Restated 2014 Omnibus Incentive Plan").†
Form of Matching Restricted Stock Unit Agreement (Matching Units) under the Amended and Restated 2014
Omnibus Incentive Plan, originally filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed
on August 7, 2018, which is incorporated by reference herein.†
Form of 2016 Stock Option Grant Agreement under the Amended and Restated 2014 Omnibus Incentive Plan,
originally filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2019 filed on May 6, 2019, which is incorporated by reference herein.†
Form of Stock Option Grant Agreement (Nonstatutory Stock Options), under the Amended and Restated 2014
Omnibus Incentive Plan, originally filed as Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2017 filed on February 28, 2018, which is incorporated by reference herein.†
Form of Restricted Stock Unit Award Agreement (Restricted Stock Units), under the Amended and Restated 2014
Omnibus Incentive Plan, originally filed as Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2017 filed on February 28, 2018, which is incorporated by reference herein.†
Form of Director Restricted Share Units Award Agreement (Annual Grants), under the Amended and Restated
2014 Omnibus Incentive Plan, originally filed as Exhibit 10.6 to the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2017 filed on February 28, 2018, which is incorporated by reference
herein. †
Form of Share Unit Grant Agreement (Performance Vesting) (Performance Restricted Share Units), under the
Amended and Restated 2014 Omnibus Incentive Plan, originally filed as Exhibit 10.16 to the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2016 filed on March 1, 2017, which is incorporated
by reference herein.†
Form of Stock Option Grant Agreement (Nonstatutory Stock Options), under the Amended and Restated 2014
Omnibus Incentive Plan, originally filed as Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2016 filed on March 1, 2017, which is incorporated by reference herein.†
Form of Restricted Stock Unit Award Agreement (Restricted Stock Units), under the Amended and Restated 2014
Omnibus Incentive Plan, originally filed as Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2016 filed on March 1, 2017, which is incorporated by reference herein. †
Form of 2018 Share Unit Grant Agreement (Performance Vesting) (Performance Restricted Share Units), under
the Amended and Restated 2014 Omnibus Incentive Plan, originally filed as Exhibit 10.11 to the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed on February 28, 2018, which is
incorporated by reference herein.†
Form of 2018 Restricted Stock Unit Agreement, under the Amended and Restated 2014 Omnibus Incentive Plan,
originally filed as Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 2017 filed on February 28, 2018, which is incorporated by reference herein.†
Form of 2018 Stock Option Grant Agreement (Nonstatutory Stock Options), under the Amended and Restated
2014 Omnibus Incentive Plan, originally filed as Exhibit 10.13 to the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2017 filed on February 28, 2018, which is incorporated by reference
herein.†
Valeant Pharmaceuticals International, Inc. 2011 Omnibus Incentive Plan (the “2011 Omnibus Incentive Plan”),
effective as of April 6, 2011, as amended on and approved by the shareholders on May 16, 2011, originally filed
as Annex A to the Company's Management Proxy Circular and Proxy Statement on Schedule 14A filed with the
Securities and Exchange Commission on April 14, 2011, as amended by the Supplement dated May 10, 2011 to
the Company's Management Proxy Circular and Proxy Statement filed with the Securities and Exchange
Commission on May 10, 2011, which is incorporated by reference herein.†
Form of Stock Option Grant Agreement under the 2011 Omnibus Incentive Plan, originally filed as Exhibit 10.2
to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed on February
28, 2012, which is incorporated by reference herein.†
Valeant Pharmaceuticals International, Inc. Directors Share Unit Plan, effective May 16, 2011, originally filed
as Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2011 filed
on August 8, 2011, which is incorporated by reference herein.†
Employment Agreement between Valeant Pharmaceuticals International, Inc. and Joseph C. Papa, dated as of
April 25, 2016, originally filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 27,
2016, which is incorporated by reference herein.†
97
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30*
21.1*
23.1*
31.1*
31.2*
32.1*
32.2*
101.INS*
101.SCH*
Employment Agreement, dated as of August 17, 2016, between Valeant Pharmaceuticals International, Inc. and
Paul S. Herendeen, originally filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August
23, 2016, which is incorporated by reference herein.†
Employment Agreement between Valeant Pharmaceuticals International, Inc. and Christina Ackermann, dated
July 8, 2016, originally filed as Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2016 filed on March 1, 2017, which is incorporated by reference herein.†
Employment Agreement between Valeant Pharmaceuticals International, Inc. and William Humphries, dated
December 1, 2016, originally filed as Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2017 filed on February 28, 2018, which is incorporated by reference herein.†
Employment Agreement between Valeant Pharmaceuticals International, Inc. and Thomas Appio, dated March
23, 2017, originally filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2017 filed on February 28, 2018, which is incorporated by reference herein.†
Employment Agreement between Bausch Health Companies Inc. and Joseph F. Gordon, dated August 2, 2018,
originally filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2019 filed on May 6, 2019, which is incorporated by reference herein.†
First Incremental Amendment, dated as of November 27, 2018, to the Fourth Amended and Restated Credit and
Guaranty Agreement, by and among Bausch Health Companies Inc., Valeant Pharmaceuticals International,
certain subsidiaries of Bausch Health Companies Inc. as guarantors, each of the financial institutions named
therein as lenders and issuing banks and Barclays Bank PLC, as Administrative Agent, originally filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 27, 2018, which is incorporated
by reference herein and which First Incremental Amendment appends, as an exhibit thereto, a copy of such Fourth
Amended and Restated Credit and Guaranty Agreement, as amended to date.
Amended and Restated Supply Agreement dated October 25, 2018 among Salix Pharmaceuticals, Inc., Valeant
Pharmaceuticals Ireland Limited, Valeant Pharmaceuticals Luxembourg s.à r.l. and Alfasigma S.p.A., originally
filed as Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2018 filed on February 20, 2019, which is incorporated by reference herein.
Amended and Restated License Agreement dated August 6, 2012 by and between Alfa Wassermann S.p.A. and
Salix Pharmaceuticals, Inc., originally filed as Exhibit 10.95 to Salix’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2012 filed on November 8, 2012, which is incorporated by reference herein.
Letter Amendment dated September 5, 2012 by and between Alfa Wassermann S.p.A. and Salix Pharmaceuticals,
Inc., originally filed as Exhibit 10.100 to Salix’s Quarterly Report on Form 10-Q for the quarter ended September
30, 2012 filed on November 8, 2012, which is incorporated by reference herein.
Amendment No. 2 to the Amended and Restated License Agreement dated October 25, 2018 among Salix
Pharmaceuticals, Inc., Valeant Pharmaceuticals Ireland Limited, Valeant Pharmaceuticals Luxembourg s.à r.l. and
Alfasigma S.p.A., originally filed as Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2018 filed on February 20, 2019, which is incorporated by reference herein.
Trademark License Agreement (Alfa to Salix) dated August 6, 2012 by and between Alfa Wassermann Hungary
Kft. and Salix Pharmaceuticals, Inc., originally filed as Exhibit 10.98 to Salix’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2012 filed on November 8, 2012, which is incorporated by reference herein.
Restatement Agreement, dated as of June 1, 2018, among Valeant Pharmaceuticals International, Inc., Valeant
Pharmaceuticals International, certain subsidiaries of Valeant Pharmaceuticals International, Inc. as guarantors,
each of the financial institutions named therein as lenders and issuing banks and Barclays Bank PLC, as
Administrative Agent, originally filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with
the Securities and Exchange Commission on June 1, 2018, which is incorporated by reference herein.
Amended and Restated Asset Purchase Agreement dated January 4, 2019 among Bausch Health Companies Inc.,
Bausch Health Ireland Limited, Synergy Pharmaceuticals Inc. and Synergy Advanced Pharmaceuticals, Inc.,
originally filed as Exhibit 10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2018 filed on February 20, 2019, which is incorporated by reference herein. ††
Stipulation of Settlement dated December 15, 2019 in the U.S. Securities Litigation ††
Subsidiaries of Bausch Health Companies Inc.
Consent of PricewaterhouseCoopers LLP.
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certificate of the Chief Executive Officer of Bausch Health Companies Inc. pursuant to 18 U.S.C. § 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certificate of the Chief Financial Officer of Bausch Health Companies Inc. pursuant to 18 U.S.C. § 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Inline XBRL Instance Document
Inline XBRL Taxonomy Extension Schema Document
98
101.CAL*
101.LAB*
101.PRE*
101.DEF*
104*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Label Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Inline XBRL Taxonomy Extension Definition Linkbase Document
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
____________________________________
* Filed herewith.
** Portions of this exhibit have been omitted pursuant to an application for confidential treatment. Such information has been
omitted and filed separately with the SEC.
† Management contract or compensatory plan or arrangement.
†† One or more exhibits or schedules to this exhibit have been omitted pursuant to Item 601(a)(5) or Item 601(b)(2) of
Regulation S-K. We undertake to furnish supplementally a copy of any omitted exhibit or schedule to the SEC upon request.
99
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 19, 2020
By:
/s/ JOSEPH C. PAPA
BAUSCH HEALTH COMPANIES INC.
(Registrant)
Joseph C. Papa
Chief Executive Officer
(Principal Executive Officer and Chairman of the
Board)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ JOSEPH C. PAPA
Joseph C. Papa
Chief Executive Officer and Chairman of
the Board
February 19, 2020
/s/ PAUL S. HERENDEEN
Paul S. Herendeen
/s/ SAM ELDESSOUKY
Sam Eldessouky
/s/ RICHARD U. DESCHUTTER
Richard U. DeSchutter
/s/ D. ROBERT HALE
D. Robert Hale
/s/ ARGERIS N. KARABELAS
Argeris N. Karabelas
/s/ SARAH B. KAVANAGH
Sarah B. Kavanagh
/s/ JOHN A. PAULSON
John A. Paulson
/s/ ROBERT N. POWER
Robert N. Power
/s/ RUSSEL C. ROBERTSON
Russel C. Robertson
/s/ THOMAS W. ROSS, SR.
Thomas W. Ross, Sr.
/s/ ANDREW C. VON ESCHENBACH
Andrew C. von Eschenbach
/s/ AMY B. WECHSLER
Amy B. Wechsler
Executive Vice President and Chief
Financial Officer (Principal Financial
Officer)
Senior Vice President, Controller and
Chief Accounting Officer (Principal
Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
100
February 19, 2020
February 19, 2020
February 19, 2020
February 19, 2020
February 19, 2020
February 19, 2020
February 19, 2020
February 19, 2020
February 19, 2020
February 19, 2020
February 19, 2020
February 19, 2020
BAUSCH HEALTH COMPANIES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Management on Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
Page
F-2
F-3
F-6
F-7
F-8
F-9
F-10
F-11
F-1
REPORT OF MANAGEMENT ON FINANCIAL STATEMENTS
The Company’s management is responsible for preparing the accompanying consolidated financial statements in conformity
with United States generally accepted accounting principles (“U.S. GAAP”). In preparing these consolidated financial statements,
management selects appropriate accounting policies and uses its judgment and best estimates to report events and transactions as
they occur. Management has determined such amounts on a reasonable basis in order to ensure that the consolidated financial
statements are presented fairly, in all material respects. Financial information included throughout this Annual Report is prepared
on a basis consistent with that of the accompanying consolidated financial statements.
PricewaterhouseCoopers LLP has been engaged by the Company to audit the consolidated financial statements.
The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and is
ultimately responsible for reviewing and approving the consolidated financial statements. The Board of Directors carries out this
responsibility principally through its Audit and Risk Committee. The members of the Audit and Risk Committee are outside
Directors. The Audit and Risk Committee considers, for review by the Board of Directors and approval by the shareholders, the
engagement or reappointment of the external auditors. PricewaterhouseCoopers LLP has full and free access to the Audit and
Risk Committee.
/s/ JOSEPH C. PAPA
Joseph C. Papa
Chief Executive Officer
February 19, 2020
/s/ PAUL S. HERENDEEN
Paul S. Herendeen
Executive Vice President and
Chief Financial Officer
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Bausch Health Companies Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Bausch Health Companies Inc. and its subsidiaries (the
"Company") as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive (loss)
income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, including the
related notes, and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2019
appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the
Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Changes in Accounting Principles
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts
for leases in 2019 and the manner in which it accounts for income taxes and goodwill in 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in
Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to
express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits
also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
F-3
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on
the critical audit matters or on the accounts or disclosures to which they relate.
Medicaid Rebates and Sales Returns Allowances
As described in Note 2 to the consolidated financial statements, gross product sales are subject to a variety of deductions in arriving
at reported net product sales. The transaction price for product sales is typically adjusted for variable consideration, which may
be in the form of cash discounts, allowances, returns, rebates, chargebacks and distribution fees paid to customers. The provisions
for these deductions are recorded concurrently with the recognition of gross product sales revenue as a reduction in revenue. The
variable consideration provisions, either recognized within accrued and other current liabilities or as a reduction of trade receivables,
included $691 million related to return allowances and $927 million related to rebate allowances, including Medicaid rebates as
of December 31, 2019. For certain rebate programs, such as Medicaid, provisions recognized by management are based on the
terms of state government-managed programs, estimates of outstanding and future claims for end-customer sales and the sales
mix. For sales returns, management estimates provisions utilizing existing return policies with customers, historical sales and
return rates, inventory levels in the distribution channel, prescription demand and product shelf lives.
The principal considerations for our determination that performing procedures relating to Medicaid rebates and sales return
allowances is a critical audit matter are there was significant judgment by management when developing the estimate of Medicaid
rebates and allowances for sales returns. This in turn led to a high degree of auditor judgment and subjectivity in performing
procedures to evaluate management’s estimates, including significant assumptions related to terms of state government managed
Medicaid programs, existing return policies with customers, projected sales mix and prescription demand.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to
provisions for Medicaid rebates and allowances for sales returns, including controls over the assumptions used to estimate these
rebates and allowances. These procedures also included, among others, (i) developing an independent estimate of Medicaid rebates
by utilizing third-party information on price and projected market conditions, the terms of the specific Medicaid rebate programs,
and the historical trends of actual Medicaid rebate claims paid, (ii) comparing the independent estimate for these Medicaid rebates
to management’s estimates, (iii) evaluating the reasonableness of management’s assumptions related to the allowances for sales
returns, including existing return policies with customers, projected sales mix and forecasted prescription demand, by comparing
to historical trends and considering whether these assumptions were consistent with evidence obtained in other areas of the audit,
(iv) evaluating the appropriateness of the sales return model and testing the completeness, accuracy, and relevance of underlying
data used in the model, and (v) testing Medicaid rebate and sales return claims processed by the Company, including evaluating
those claims for consistency with the contractual terms of the Company’s arrangements and policies.
Finite-Lived Intangible Assets Impairment Assessment
As described in Note 9 to the consolidated financial statements, the Company’s consolidated finite-lived net intangible asset
balance was $8,490 million as of December 31, 2019, which consists of product and corporate brands, product rights/patents,
partner relationships and technology and other assets. Finite-lived intangible assets are tested for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be recoverable. As disclosed by management,
recoverability is measured through the use of an undiscounted future cash flow model when an indication of impairment is
determined to exist. If an asset is determined to not be recoverable, a discounted cash flow model is used to estimate fair value.
Management’s impairment tests included significant estimates and assumptions related to the amount and timing of projected
future cash flows and in the situation when the asset is determined to not be recoverable, the discount rate.
The principal considerations for our determination that performing procedures relating to the finite-lived intangible assets
impairment assessment is a critical audit matter are there was significant judgment by management in the identification of events
that suggest an asset group might not be recoverable and in developing the assumptions used in the impairment testing process.
F-4
This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating evidence
related to management’s future cash flow projections and the discount rate assumption.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to
management’s finite-lived intangible assets impairment process, including the Company’s controls over the development of
assumptions used to estimate recoverability or the fair value and controls over the identification of events that suggest an asset
group might not be recoverable. These procedures also included, among others, testing management’s process for identifying
potential impairment events and determining the recoverability of the intangible assets, evaluating the appropriateness of the cash
flow model used in the impairment testing process; testing the completeness, accuracy, and relevance of underlying data used in
the model; and evaluating the reasonableness of the significant assumptions used by management, including the future cash flow
projections and discount rates. Evaluating the reasonableness of management's assumptions for future cash flow projections and
discount rates involved evaluating whether the assumptions used by management were reasonable considering (i) the current and
past performance of the asset group, (ii) the consistency with external market and industry data, and (iii) whether these assumptions
were consistent with evidence obtained in other areas of the audit.
Goodwill Impairment Assessment - Ortho Dermatologics Reporting Unit
As described in Note 9 to the consolidated financial statements, the Company’s consolidated goodwill balance was $13,126 million
as of December 31, 2019, and the goodwill associated with the Ortho Dermatologics segment was $1,267 million. The Ortho
Dermatologics segment consists of the Ortho Dermatologics and Global Solta reporting units. Management conducted its annual
goodwill impairment test as of October 1, 2019 by first assessing qualitative factors to determine whether it is more likely than
not that the fair value of a reporting unit is less than its carrying amount. Where the qualitative assessment suggested that it was
more likely than not that the fair value of a reporting unit was less than its carrying amount, a quantitative fair value test was
performed for that reporting unit. As disclosed by management, goodwill impairment is measured by the amount the carrying
value exceeds the fair value. Fair value of each reporting unit is estimated by management based on the income approach, using
a discounted cash flow model. Management’s discounted cash flow model includes judgments and assumptions relating to revenue
growth rates, gross profit, projected working capital requirements, selling, general and administrative expenses, research and
development expenses, business restructuring costs, capital expenditures, income tax rates, discount rates and terminal growth
rates.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of
the Ortho Dermatologics reporting unit is a critical audit matter are there was significant judgment by management when developing
the fair value estimate of the reporting unit. This in turn led to a high degree of auditor judgment, subjectivity, and effort in
performing procedures and evaluating evidence related to management’s cash flow projections and significant assumptions,
including revenue growth rates, terminal growth rates, gross profit, and the discount rate. In addition, the audit effort involved the
use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence
obtained from these procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the financial statements. These procedures included testing the effectiveness of controls relating to management’s
goodwill impairment assessments, including controls over the significant assumptions included in the valuation of the Company’s
reporting units. These procedures also included, among others, evaluating management’s qualitative assessment and testing
management’s process for developing the fair value estimate of the reporting unit; evaluating the appropriateness of the discounted
cash flow model; testing the completeness, accuracy, and relevance of underlying data used in the model; and evaluating the
reasonableness of the significant assumptions used by management, including the revenue growth rates, terminal growth rates,
gross profit and the discount rate. Evaluating management’s assumptions related to revenue growth rates and gross profit involved
evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the
reporting unit, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent
with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the
evaluation of the Company’s discounted cash flow model and certain significant assumptions, including the terminal growth rates
and discount rate.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 19, 2020
We have served as the Company’s auditor since 2012.
F-5
BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share amounts)
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Trade receivables, net
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Intangible assets, net
Goodwill
Deferred tax assets, net
Other non-current assets
Total assets
Liabilities
Current liabilities:
Accounts payable
Accrued and other current liabilities
Current portion of long-term debt and other
Total current liabilities
Acquisition-related contingent consideration
Non-current portion of long-term debt
Deferred tax liabilities, net
Other non-current liabilities
Total liabilities
Commitments and contingencies (Notes 21 and 22)
Equity
Common shares, no par value, unlimited shares authorized, 352,562,636 and 349,871,102 issued
and outstanding at December 31, 2019 and 2018, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total Bausch Health Companies Inc. shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
On behalf of the Board:
December 31,
2019
2018
$
$
$
$
3,243
1
1,839
1,107
779
6,969
1,466
10,201
13,126
1,690
411
33,863
503
4,511
1,234
6,248
262
24,661
705
851
32,727
10,172
429
(7,452)
(2,086)
1,063
73
1,136
33,863
$
$
$
$
721
2
1,865
934
689
4,211
1,353
12,001
13,142
1,676
109
32,492
411
3,197
228
3,836
298
24,077
885
581
29,677
10,121
413
(5,664)
(2,137)
2,733
82
2,815
32,492
/s/ JOSEPH C. PAPA
Joseph C. Papa
Chief Executive Officer
/s/ RUSSEL C. ROBERTSON
Russel C. Robertson
Chairperson, Audit and Risk Committee
The accompanying notes are an integral part of these consolidated financial statements.
F-6
BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
Revenues
Product sales
Other revenues
Expenses
Cost of goods sold (excluding amortization and impairments of intangible assets)
Cost of other revenues
Selling, general and administrative
Research and development
Amortization of intangible assets
Goodwill impairments
Asset impairments
Restructuring and integration costs
Acquisition-related contingent consideration
Other expense (income), net
Operating (loss) income
Interest income
Interest expense
Loss on extinguishment of debt
Foreign exchange and other
Loss before benefit from income taxes
Benefit from income taxes
Net (loss) income
Net income attributable to noncontrolling interest
Net (loss) income attributable to Bausch Health Companies Inc.
(Loss) earnings per share attributable to Bausch Health Companies Inc.
Basic
Diluted
Weighted-average common shares
Basic
Diluted
Years Ended December 31,
2017
2018
2019
$
8,489
112
8,601
$
8,271
109
8,380
$
8,595
129
8,724
2,297
53
2,554
471
1,897
—
75
31
12
1,414
8,804
(203)
12
(1,612)
(42)
8
(1,837)
54
(1,783)
(5)
$ (1,788)
2,309
42
2,473
413
2,644
2,322
568
22
(9)
(20)
10,764
(2,384)
11
(1,685)
(119)
23
(4,154)
10
(4,144)
(4)
$ (4,148)
$
$
(5.08)
(5.08)
$ (11.81)
$ (11.81)
2,506
42
2,582
361
2,690
312
714
52
(289)
(348)
8,622
102
12
(1,840)
(122)
107
(1,741)
4,145
2,404
—
2,404
6.86
6.83
$
$
$
352.1
352.1
351.3
351.3
350.2
351.8
The accompanying notes are an integral part of these consolidated financial statements.
F-7
BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in millions)
Net (loss) income
Other comprehensive income (loss)
Pension and postretirement benefit plan adjustments:
Net actuarial (loss) gain arising during the year
Amortization of prior service credit
Amortization or settlement recognition of net loss
Income tax (expense) benefit
Foreign currency impact
Net pension and postretirement benefit plan adjustments
Foreign currency translation adjustment
Net unrealized holding loss on sale of assets and businesses:
Arising in period
Reclassification to net (loss) income
Other comprehensive income (loss)
Comprehensive (loss) income
Comprehensive income attributable to noncontrolling interest
Comprehensive (loss) income attributable to Bausch Health
Companies Inc.
Years Ended December 31,
2018
$ (4,144)
2019
$ (1,783)
2017
$ 2,404
(8)
(4)
2
(2)
(2)
(14)
64
—
—
50
(1,733)
(4)
(7)
(4)
1
3
—
(7)
(237)
—
—
(244)
(4,388)
(1)
20
(4)
2
(4)
1
15
202
(26)
26
217
2,621
(4)
$ (1,737)
$ (4,389)
$ 2,617
The accompanying notes are an integral part of these consolidated financial statements.
F-8
BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions)
Bausch Health Companies Inc. Shareholders' Equity
Balance, January 1, 2017
Common shares issued under share-
based compensation plans
Share-based compensation
Share-based awards tax withholding
Acquisition of noncontrolling interest
Noncontrolling interest distributions
Net income
Other comprehensive income
Balance, December 31, 2017
Effect of application of new accounting
standard: Income taxes
Common shares issued under share-
based compensation plans
Share-based compensation
Share-based awards tax withholding
Acquisition of noncontrolling interest
Noncontrolling interest distributions
Net (loss) income
Other comprehensive loss
Balance, December 31, 2018
Common shares issued under share-
based compensation plans
Share-based compensation
Share-based awards tax withholding
Noncontrolling interest distributions
Net (loss) income
Other comprehensive income (loss)
Balance, December 31, 2019
Common Shares
Shares
347.8
Amount
$10,038
Additional
Paid-In
Capital
$
351
Accumulated
Deficit
$ (5,129) $
Accumulated
Other
Comprehensive
Loss
(2,108) $
Bausch Health
Companies Inc.
Shareholders'
Equity
Noncontrolling
Interest
3,152
$
106
Total
Equity
$ 3,258
0.9
—
—
—
—
—
—
348.7
—
1.2
—
—
—
—
—
—
349.9
2.7
—
—
—
—
—
352.6
52
—
—
—
—
—
—
10,090
—
31
—
—
—
—
—
—
10,121
51
—
—
—
—
—
$10,172
$
(52)
87
(4)
(2)
—
—
—
380
—
—
—
—
—
2,404
—
(2,725)
—
1,209
(29)
87
(10)
(15)
—
—
—
413
(46)
102
(40)
—
—
—
429
—
—
—
—
—
(4,148)
—
(5,664)
—
—
—
—
(1,788)
—
$ (7,452) $
—
—
—
(1)
—
—
213
(1,896)
—
—
—
—
—
—
—
(241)
(2,137)
—
—
—
—
—
51
(2,086) $
—
87
(4)
(3)
—
2,404
213
5,849
1,209
2
87
(10)
(15)
—
(4,148)
(241)
2,733
5
102
(40)
—
(1,788)
51
1,063
$
—
—
87
—
(4)
—
(9)
(6)
(9)
(9)
— 2,404
217
5,944
4
95
— 1,209
—
—
—
(3)
(11)
4
(3)
82
—
—
—
(13)
5
(1)
73
2
87
(10)
(18)
(11)
(4,144)
(244)
2,815
5
102
(40)
(13)
(1,783)
50
$ 1,136
The accompanying notes are an integral part of these consolidated financial statements.
F-9
BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Years Ended December 31,
2018
2017
2019
Cash Flows From Operating Activities
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
$ (1,783)
$ (4,144)
$ 2,404
Depreciation and amortization of intangible assets
Amortization and write-off of debt discounts and debt issuance costs
Asset impairments
Goodwill impairment
Acquisition-related contingent consideration
Allowances for losses on trade receivables and inventories
Deferred income taxes
(Gain) loss on disposal of assets and businesses
Additions (reductions) to accrued legal settlements
Insurance proceeds for legal settlement
Payments of accrued legal settlements
Share-based compensation
Foreign exchange loss (gain)
Interest expense on cross-currency swaps
Loss on extinguishment of debt
Payments of contingent consideration adjustments, including accretion
Other
Changes in operating assets and liabilities:
Trade receivables
Inventories
Prepaid expenses and other current assets
Accounts payable, accrued and other liabilities
Net cash provided by operating activities
Cash Flows From Investing Activities
Acquisition of businesses, net of cash acquired
Acquisition of intangible assets and other assets
Purchases of property, plant and equipment
Purchases of marketable securities
Proceeds from sale of marketable securities
Proceeds from sale of assets and businesses, net of costs to sell
Other
Net cash (used in) provided by investing activities
Cash Flows From Financing Activities
Issuance of long-term debt, net of discounts
Repayments of long-term debt
Borrowings of short-term debt
Repayments of short-term debt
Payment of share-based awards tax withholding
Payments of contingent consideration
Payments of deferred consideration
Payments of financing costs
Other
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash, beginning of year
Cash and cash equivalents and restricted cash, end of year
Cash and cash equivalents, end of year
Restricted cash, end of year
Cash and cash equivalents and restricted cash, end of year
2,075
63
75
—
12
75
(230)
(31)
1,401
—
(15)
102
7
(9)
42
(1)
36
39
(209)
1
(149)
1,501
(180)
(8)
(270)
(16)
10
45
—
(419)
2,819
79
568
2,322
(9)
69
(144)
6
(27)
—
(224)
87
(19)
—
119
(2)
(17)
216
(5)
(72)
(121)
1,501
5
(78)
(157)
(7)
7
34
—
(196)
2,858
151
714
312
(289)
119
(4,386)
(579)
226
60
(221)
87
(106)
—
122
(4)
(22)
417
7
33
387
2,290
—
(165)
(171)
(7)
2
3,253
(25)
2,887
5,960
(4,406)
12
(12)
(40)
(35)
—
(28)
(8)
1,443
(4)
2,521
723
$ 3,244
$ 3,243
1
$ 3,244
8,944
(10,101)
—
(3)
(10)
(37)
(18)
(102)
(26)
(1,353)
(26)
(74)
797
723
721
2
723
$
$
$
9,424
(14,203)
1
(8)
(4)
(45)
—
(110)
(18)
(4,963)
41
255
542
797
720
77
797
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-10
BAUSCH HEALTH COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Bausch Health Companies Inc. (the “Company”), formerly known as Valeant Pharmaceuticals International, Inc., is a
multinational, specialty pharmaceutical and medical device company that develops, manufactures and markets a broad range
of branded, generic and branded generic pharmaceuticals, over-the-counter (“OTC”) products and medical devices (contact
lenses, intraocular lenses, ophthalmic surgical equipment and aesthetics devices) which are marketed directly or indirectly in
approximately 100 countries. Effective August 9, 2013, the Company continued from the federal jurisdiction of Canada to
the Province of British Columbia, meaning that the Company became a company registered under the laws of the Province
of British Columbia as if it had been incorporated under the laws of the Province of British Columbia. As a result of this
continuance, the legal domicile of the Company became the Province of British Columbia, the Canada Business Corporations
Act ceased to apply to the Company and the Company became subject to the British Columbia Business Corporations Act.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Use of Estimates
The Consolidated Financial Statements have been prepared by the Company in United States (“U.S.”) dollars and in accordance
with U.S. generally accepted accounting principles (“U.S. GAAP”), applied on a consistent basis. The Consolidated Financial
Statements include the accounts of the Company and those of its subsidiaries and any variable interest entities (“VIEs”) for
which the Company is the primary beneficiary. All intercompany transactions and balances have been eliminated.
In preparing the Company’s Consolidated Financial Statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates
made by management include: provisions for product returns, rebates, chargebacks, discounts and allowances and distribution
fees paid to certain wholesalers; useful lives of amortizable intangible assets and property, plant and equipment; expected
future cash flows used in evaluating intangible assets for impairment, assessing compliance with debt covenants and making
going concern assessments; reporting unit fair values for testing goodwill for impairment and allocating goodwill to new
reporting unit structure on a relative fair value basis; provisions for loss contingencies; provisions for income taxes, uncertain
tax positions and realizability of deferred tax assets; fair value of cross-currency swaps; and the recognition of the fair value
of assets and liabilities acquired in a business combination, including the fair value of contingent consideration. Under certain
product manufacturing and supply agreements, management uses information from the Company’s commercialization
counterparties to arrive at estimates for future returns, rebates and chargebacks.
On an ongoing basis, management reviews its estimates to ensure that these estimates appropriately reflect changes in the
Company’s business and new information as it becomes available. If historical experience and other factors used by
management to make these estimates do not reasonably reflect future activity, the Company’s Consolidated Financial
Statements could be materially impacted.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
Acquisitions
Acquired businesses are accounted for using the acquisition method of accounting, which requires that assets acquired and
liabilities assumed be recorded at fair value, with limited exceptions. Transaction costs and costs to restructure the acquired
company are expensed as incurred. The operating results of the acquired business are reflected in the Consolidated Financial
Statements after the date of acquisition. Acquired in-process research and development (“IPR&D”) is recognized at fair value
and initially characterized as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative
future use. If the acquired net assets do not constitute a business, the transaction is accounted for as an asset acquisition and
no goodwill is recognized. In an asset acquisition, the amount allocated to acquired IPR&D with no alternative future use is
charged to expense at the acquisition date.
Fair Value of Financial Instruments
The estimated fair values of cash and cash equivalents, trade receivables, accounts payable and accrued liabilities approximate
their carrying values due to their short maturity periods. The fair value of acquisition-related contingent consideration is based
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on estimated discounted future cash flows or Monte Carlo Simulation (when appropriate) analyses and assessment of the
probability of occurrence of potential future events.
Fair Value of Derivative Instruments
The accounting for changes in the fair value of a derivative instrument depends on whether the instrument has been designated
and qualifies as part of a hedging relationship and on the type of hedging relationship. For derivative instruments designated
and qualifying as hedging instruments, the hedging instrument must be designated, based upon the exposure being hedged,
as a fair value hedge, cash flow hedge, or a hedge of the foreign currency exposure of a net investment in a foreign operation.
For derivative instruments not designated as hedging instruments, the gain or loss is recognized in the Consolidated Statements
of Operations during the current period.
The Company’s cross-currency swaps qualify for and have been designated as an accounting hedge of the foreign currency
exposure of a net investment in a foreign operation and are remeasured at each reporting date to reflect changes in their fair
values. The fair value is determined via a mark-to-market analysis, using observable (Level 2) inputs. These inputs may
include: (i) the foreign currency exchange spot rate between the euro and U.S. dollar, (ii) the risk-free interest rate and (iii) the
credit risk rating for each applicable counterparty. The net change in fair value of cross-currency swaps, is reported as a gain
or loss in the Consolidated Statements of Comprehensive Loss as part of Foreign currency translation adjustment to the extent
they are effective, and remain in Accumulative Comprehensive Income until either the sale or complete, or substantially
complete, liquidation of the subsidiary. No portion of the cross-currency swaps were ineffective for the year 2019. The
Company uses the spot method of assessing hedge effectiveness. The Company has elected to amortize amounts excluded
from the assessment of effectiveness over the term of its cross-currency swaps as Interest expense in the Consolidated
Statements of Operations.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in bank accounts and highly liquid investments with maturities of three months or
less when purchased.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of
cash and cash equivalents, marketable securities and trade receivables.
The Company invests its excess cash in high-quality, money market instruments and term deposits with varying maturities,
but typically less than three months. Cash deposited at banks may exceed the amount of insurance provided on such deposits.
Generally, these cash deposits may be redeemed upon demand and are maintained with financial institutions with reputable
credit and therefore bear minimal credit risk. The Company seeks to mitigate such risks by spreading its risk across multiple
counterparties and monitoring the risk profiles of these counterparties.
The Company’s trade receivables primarily represent amounts due from wholesale distributors, retail pharmacies, government
entities and group purchasing organizations. Outside of the U.S., concentrations of credit risk with respect to trade receivables,
which are typically unsecured, are limited due to the number of customers using the Company’s products, as well as their
dispersion across many different geographic regions. The Company performs periodic credit evaluations of customers and
does not require collateral. The Company monitors economic conditions, including volatility associated with international
economies, and related impacts on the relevant financial markets and its business, especially in light of sovereign credit issues.
The credit and economic conditions within Argentina, Brazil, Egypt, Greece, among other members of the European Union,
Turkey, Ukraine and Venezuela have been weak in recent years. In November 2016, as a result of the Egyptian government’s
decision to float the Egyptian pound and un-peg it to the U.S. Dollar, the Egyptian pound was significantly devalued. The
Company's exposure to the Egyptian pound is with respect to the Amoun Pharmaceutical Company S.A.E. business acquired
in October 2015, which represented approximately 3%, 2% and 2% of the Company's total revenues in each of the years 2019,
2018 and 2017, respectively. These conditions have increased, and may continue to increase, the average length of time that
it takes to collect on the Company’s trade receivables outstanding in these countries.
As of December 31, 2019, the Company’s three largest U.S. wholesaler customers accounted for approximately 41% of net
trade receivables. In addition, as of December 31, 2019 and 2018, the Company’s net trade receivable balance from Argentina,
Brazil, Egypt, Greece, Turkey, Ukraine and Venezuela amounted to $128 million and $105 million, respectively, the majority
of which is current or less than 90 days past due. The portion of the net trade receivable from these countries that is past due
more than 90 days amounted to $1 million, as of December 31, 2019, a portion of which is comprised of public hospitals.
Based on analysis of bad debt experience and assessment of historical payment patterns for such customers, the Company
has established a reserve covering more than half of the balance past due more than 90 days for such countries. Over the three-
F-12
year period ended December 31, 2019, the Company has not experienced any material losses from uncollectible accounts in
excess of the established reserves.
Allowance for Credit Losses
An allowance for doubtful accounts is maintained for potential credit losses based on the aging of trade receivables, historical
bad debts experience and changes in customer payment patterns. Trade receivable balances are written off against the allowance
when it is deemed probable that the receivable will not be collected. Trade receivables, net are stated net of reserves for certain
sales allowances and provisions for doubtful accounts. Provisions for doubtful accounts were $48 million and $47 million as
of December 31, 2019 and 2018, respectively.
Inventories
Inventories comprise raw materials, work in process and finished goods, which are valued at the lower of cost or net realizable
value, on a first-in, first-out basis. The cost value for work in process and finished goods inventories includes materials, direct
labor and an allocation of overheads.
The Company evaluates the carrying value of inventories on a regular basis, taking into account such factors as historical and
anticipated future sales compared with quantities on hand, the price the Company expects to obtain for products in their
respective markets compared with historical cost and the remaining shelf life of goods on hand.
Property, Plant and Equipment
Property, plant and equipment are reported at cost, less accumulated depreciation. Costs incurred on assets under construction
are capitalized as construction in progress. Depreciation is calculated using the straight-line method, commencing when the
assets become available for productive use, based on the following estimated useful lives:
Land improvements
Buildings and improvements
Machinery and equipment
Other equipment
Equipment on operating lease
Leasehold improvements
Intangible Assets
15 - 30 years
Up to 40 years
3 - 20 years
3 - 10 years
Up to 5 years
Lesser of term of lease or 10 years
Intangible assets are reported at cost, less accumulated amortization and impairments. Intangible assets with finite lives are
amortized over their estimated useful lives. Amortization is calculated primarily using the straight-line method based on the
following estimated useful lives:
Product brands
Corporate brands
Product rights
Partner relationships
Out-licensed technology and other
Divestitures of Products
2 - 20 years
7 - 20 years
3 - 15 years
7 - 9 years
8 - 10 years
The net proceeds on the divestiture of products and the carrying amount of the related assets is recorded as a gain/loss on sale
within Other expense (income), net. Any contingent payments that are potentially due to the Company as a result of these
divestitures are recorded when realizable.
IPR&D
The fair value of IPR&D acquired through a business combination is capitalized as an indefinite-lived intangible asset until
the completion or abandonment of the related research and development activities. When the related research and development
is completed, the asset will be assigned a useful life and amortized. IPR&D assets are tested for impairment at least annually
or when triggering events are identified.
The fair value of an IPR&D intangible asset is typically determined using an income approach. This approach starts with a
forecast of the net cash flows expected to be generated by the asset over its estimated useful life. The net cash flows reflect
the asset’s stage of completion, the probability of technical success, the projected costs to complete, expected market
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competition and an assessment of the asset’s life-cycle. The net cash flows are then adjusted to present value by applying an
appropriate discount rate that reflects the risk factors associated with the expected cash flow streams.
Impairment of Long-Lived Assets
Long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. If indicators of impairment are present, the asset is tested for recoverability
by comparing the carrying value of the asset to the related estimated undiscounted future cash flows expected to be derived
from the asset. If the expected undiscounted cash flows are less than the carrying value of the asset, then the asset is considered
to be impaired and its carrying value is written down to fair value, based on the related estimated discounted future cash flows.
Indefinite-lived intangible assets, which includes acquired IPR&D and the corporate trademark acquired in the acquisition
of Bausch & Lomb Holdings Incorporated (the ‘‘B&L Trademark’’), are tested for impairment annually or more frequently
if events or changes in circumstances between annual tests indicate that the asset may be impaired. Impairment losses on
indefinite-lived intangible assets are recognized based on a comparison of the fair value of the asset to its carrying value.
Goodwill
Goodwill is recorded with the acquisition of a business and is calculated as the difference between the acquisition date fair
value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill is not
amortized but is tested for impairment at least annually as of October 1st at the reporting unit level. A reporting unit is the
same as, or one level below, an operating segment.
An interim goodwill impairment test in advance of the annual impairment assessment may be required if events occur that
indicate an impairment might be present. For example, a substantial decline in the Company’s market capitalization, changes
in reportable segments, unexpected adverse business conditions, economic factors and unanticipated competitive activities
may signal that an interim impairment test is needed. Accordingly, among other factors, the Company monitors changes in
its share price between annual impairment tests. The Company considers a decline in its share price that corresponds to an
overall deterioration in stock market conditions to be less of an indicator of goodwill impairment than a unilateral decline in
its share price reflecting adverse changes in its underlying operating performance, cash flows, financial condition and/or
liquidity. In the event that the Company’s market capitalization does decline below its book value, the Company would consider
the length and severity of the decline and the reason for the decline when assessing whether potential goodwill impairment
exists. The Company believes that short-term fluctuations in share prices may not necessarily reflect underlying values.
Prior to January 1, 2018, the goodwill impairment test consisted of two steps. In step one, the Company compared the carrying
value of each reporting unit to its fair value. In step two, if the carrying value of a reporting unit exceeded its fair value, the
Company would measure goodwill impairment as the excess of the carrying value of the reporting unit’s goodwill over the
fair value of its goodwill, if any. The fair value of goodwill was derived as the excess of the fair value of the reporting unit
over the fair value of the reporting unit’s identifiable assets and liabilities.
Effective January 1, 2018, the Company elected to early adopt guidance issued by the Financial Accounting Standards Board
("FASB") which simplified the subsequent measurement of goodwill by eliminating “Step 2” from the goodwill impairment
test. Instead, as of January 1, 2018 and all subsequent periods, goodwill impairment is measured as the amount by which a
reporting unit's carrying value exceeds its fair value.
Further, an entity is permitted to first assess qualitatively whether it is necessary to perform a quantitative impairment test for
any of its reporting units. The quantitative impairment test is required only when the Company concludes that it is more likely
than not that a reporting unit’s fair value is less than its carrying amount. In evaluating whether it is more likely than not that
the fair value of a reporting unit is less than its carrying amount, the Company considers the totality of all relevant events or
circumstances that affect the fair value or carrying amount of a reporting unit.
Debt Discounts and Premiums, Issuance Costs and Deferred Financing Costs
Debt discounts, premiums and issuance costs are presented in the Consolidated Balance Sheets as a direct deduction from or
addition to the carrying amount of the related debt and are amortized or accreted, using the effective interest method, as interest
expense over the contractual lives of the related credit facilities or notes. Deferred financing costs associated with revolving
credit facility arrangements are included in the balances of Prepaid expenses and other current assets and Other non-current
assets in the Consolidated Balance Sheets and are amortized as interest expense over the contractual life of the related revolving
credit facility.
F-14
Foreign Currency Translation
The assets and liabilities of the Company’s foreign operations having a functional currency other than the U.S. dollar are
translated into U.S. dollars at the exchange rate prevailing at the balance sheet date, and at the average exchange rate for the
reporting period for revenue and expense accounts. The cumulative foreign currency translation adjustment is recorded as a
component of accumulated other comprehensive loss in shareholders’ equity.
Foreign currency exchange gains and losses on transactions occurring in a currency other than an operation’s functional
currency are recognized in Net (loss) income.
Revenue Recognition
Effective January 1, 2018, the Company adopted guidance issued by the FASB regarding recognizing revenue from contracts
with customers. Based upon review of current customer contracts, the Company concluded the implementation of the new
guidance did not have a material quantitative impact on its Consolidated Financial Statements as the timing of revenue
recognition for product sales did not significantly change. The Company adopted this guidance using the modified retrospective
approach, and therefore, revenue reported for the year 2017 has not been restated. Although the new guidance did result in
additional disclosures as to the nature, amounts and concentrations of revenue, it did not have a material impact on the
Company's significant accounting policies. The revenue recognition policies as enumerated below reflect the Company's
accounting policies effective January 1, 2018, which did not have a materially different financial statement result than what
the results would have been under the previous accounting policies for revenue recognition.
The Company’s revenues are primarily generated from product sales, primarily in the therapeutic areas of eye-health,
gastroenterology ("GI") and dermatology that consist of: (i) branded pharmaceuticals, (ii) generic and branded generic
pharmaceuticals, (iii) OTC products and (iv) medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment
and aesthetics devices). Other revenues include alliance and service revenue from the licensing and co-promotion of products
and contract service revenue primarily in the areas of dermatology and topical medication. Contract service revenue is derived
primarily from contract manufacturing for third parties and is not material. See Note 23, "SEGMENT INFORMATION" for
the disaggregation of revenue which depicts how the nature, amount, timing and uncertainty of revenue and cash flows are
affected by the economic factors of each category of customer contracts.
The Company recognizes revenue when the customer obtains control of promised goods or services and in an amount that
reflects the consideration to which the Company expects to be entitled to receive in exchange for those goods or services. To
achieve this core principle, the Company applies the five-step revenue model to contracts within its scope: (i) identify the
contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv)
allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity
satisfies a performance obligation.
Product Sales
A contract with the Company’s customers exists for each product sale. Where a contract with a customer contains more than
one performance obligation, the Company allocates the transaction price to each distinct performance obligation based on its
relative standalone selling price. The transaction price is adjusted for variable consideration which is discussed further below.
The Company generally recognizes revenue for product sales at a point in time, when the customer obtains control of the
products.
Product Sales Provisions
As is customary in the pharmaceutical industry, gross product sales are subject to a variety of deductions in arriving at reported
net product sales. The transaction price for product sales is typically adjusted for variable consideration, which may be in
the form of cash discounts, allowances, returns, rebates, chargebacks and distribution fees paid to customers. Provisions for
variable consideration are established to reflect the Company’s best estimates of the amount of consideration to which it is
entitled based on the terms of the contract. The amount of variable consideration included in the transaction price may be
constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount
of the cumulative revenue recognized will not occur in the future period.
Provisions for these deductions are recorded concurrently with the recognition of gross product sales revenue and include
cash discounts and allowances, chargebacks, and distribution fees, which are paid to direct customers, as well as rebates and
returns, which can be paid to direct and indirect customers. Returns provision balances and volume discounts to direct
customers are included in Accrued and other current liabilities. All other provisions related to direct customers are included
in Trade receivables, net, while provision balances related to indirect customers are included in Accrued and other current
liabilities.
F-15
The following table presents the activity and ending balances of the Company’s variable consideration provisions for years
ended December 31, 2019 and 2018.
(in millions)
Reserve balance, January 1, 2018
$
Current period provision
Payments and credits
Reserve balance, December 31, 2018
Acquisition of Synergy
Current period provision
Payments and credits
Discounts
and
Allowances
Returns
Rebates
Chargebacks
Distribution
Fees
Total
$
167
865
(857)
175
—
776
(769)
863
293
(343)
813
3
113
(238)
$
1,094
$
274
$
2,551
(2,621)
1,024
12
2,265
(2,374)
1,966
(2,031)
209
—
1,938
(1,979)
$
148
212
(197)
163
1
195
(277)
2,546
5,887
(6,049)
2,384
16
5,287
(5,637)
2,050
Reserve balance, December 31, 2019
$
182
$
691
$
927
$
168
$
82
$
Included in Rebates in the table above are cooperative advertising credits due to customers of approximately $29 million and
$26 million as of December 31, 2019 and 2018, respectively, which are reflected as a reduction of Trade accounts receivable,
net in the Consolidated Balance Sheets.
The Company continually monitors its variable consideration provisions and evaluates the estimates used as additional
information becomes available. Adjustments will be made to these provisions periodically to reflect new facts and
circumstances that may indicate that historical experience may not be indicative of current and/or future results. The Company
is required to make subjective judgments based primarily on its evaluation of current market conditions and trade inventory
levels related to the Company's products. This evaluation may result in an increase or decrease in the experience rate that is
applied to current and future sales, or an adjustment related to past sales, or both. If the actual amounts paid vary from the
Company’s estimates, the Company adjusts these estimates, which would affect net product revenue and earnings in the period
such variance becomes known. The Company applies this method consistently for contracts with similar characteristics. The
following describes the major sources of variable consideration in the Company’s customer arrangements and the methodology,
estimates and judgments applied to estimate each type of variable consideration.
Cash Discounts and Allowances
Cash discounts are offered for prompt payment and allowances for volume purchases. Provisions for cash discounts and
allowances are estimated at the time of sale and recorded as direct reductions to trade receivables and revenue. Management
estimates the provisions for cash discounts and allowances based on contractual sales terms with customers, an analysis of
unpaid invoices and historical payment experience. Estimated cash discounts and allowances have historically been predictable
and less subjective, due to the limited number of assumptions involved, the consistency of historical experience and the fact
that these amounts are generally settled within one month of incurring the liability.
Returns
Consistent with industry practice, customers are generally allowed to return products within a specified period of time before
and after its expiration date, excluding European businesses which generally do not provide a right of return. The returns
provision is estimated utilizing historical sales and return rates over the period during which customers have a right of return,
taking into account available information on competitive products and contract changes. The information utilized to estimate
the returns provision includes: (i) historical return and exchange levels, (ii) external data with respect to inventory levels in
the wholesale distribution channel, (iii) external data with respect to prescription demand for products, (iv) remaining shelf
lives of products at the date of sale and (v) estimated returns liability to be processed by year of sale based on an analysis of
lot information related to actual historical returns.
In determining the estimate for returns, management is required to make certain assumptions regarding the timing of the
introduction of new products and the potential of these products to capture market share. In addition, certain assumptions
with respect to the extent and pattern of decline associated with generic competition are necessary. These assumptions are
formulated using market data for similar products, past experience and other available information. These assumptions are
continually reassessed, and changes to the estimates and assumptions are made as new information becomes available. A
change of 1% in the estimated return rates would have impacted the Company’s pre-tax earnings by approximately $84 million
for the year 2019.
The estimate for returns may be impacted by a number of factors, but the principal factor relates to the inventory levels in the
distribution channel. When management becomes aware of an increase in such inventory levels, it considers whether the
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increase may be temporary or other-than-temporary. Temporary increases in wholesaler inventory levels will not differ from
original estimates of provision for returns. Other-than-temporary increases in wholesaler inventory levels, however, may be
an indication that future product returns could be higher than originally anticipated, and, as a result, estimates for returns may
need to be adjusted. Factors that suggest increases in wholesaler inventory levels are temporary include: (i) recently
implemented or announced price increases for certain products, (ii) new product launches or expanded indications for existing
products and (iii) timing of purchases by wholesale customers. Conversely, factors that suggest increases in wholesaler
inventory levels are other-than-temporary include: (i) declining sales trends based on prescription demand, (ii) introduction
of new products or generic competition, (iii) increasing price competition from generic competitors and (iv) changes to the
U.S. National Drug Codes (“NDC”) of products. Changes in the NDC of products could result in a period of higher returns
related to products with the old NDC, as U.S. customers generally permit only one NDC per product for identification and
tracking within their inventory systems.
Over the last several years the Company increased its focus on maximizing operational efficiencies and reducing product
returns. The Company continually takes actions to address product returns including but not limited to: (i) monitoring and
reducing customer inventory levels, (ii) instituting disciplined pricing policies and (iii) improving contracting. These actions
resulted in improved sales return experience related to current branded products and previously genericized products. As a
result, for the year 2019 as compared to 2018, the provision for sales returns improved by a net of $180 million. During the
three months ended September 30, 2019 and 2018 we recorded a reduction in variable consideration for sales returns of
approximately $80 million and $30 million, respectively, related to past sales.
Rebates and Chargebacks
Product sales made under governmental and managed-care pricing programs in the U.S. are subject to rebates. The Company
participates in state government-managed Medicaid programs, as well as certain other qualifying federal and state government
programs whereby rebates are provided to participating government entities. Medicaid rebates are generally billed 45 days
to 270 days after the quarter in which the product is dispensed to the Medicaid participant. As a result, the Medicaid rebate
reserve includes an estimate of outstanding claims for end-customer sales that occurred, but for which the related claim has
not been billed and/or paid, and an estimate for future claims that will be made when inventory in the distribution channel is
sold through to plan participants. The calculation of the Medicaid rebate reserve also requires other estimates, such as estimates
of sales mix, to determine which sales are subject to rebates and the amount of such rebates. A change of 1% in the estimated
rates used in the Medicaid rebate reserve would have impacted the Company’s pre-tax earnings by approximately $83 million
for 2019. Quarterly, the Medicaid rebate reserve is adjusted based on actual claims paid. Due to the delay in billing, adjustments
to actual claims paid may incorporate revisions of that reserve for several periods.
Managed Care rebates relate to contractual agreements to sell products to managed care organizations and pharmacy benefit
managers at contractual rebate percentages in exchange for volume and/or market share.
Chargebacks relate to contractual agreements to sell products to government agencies, group purchasing organizations and
other indirect customers at contractual prices that are lower than the list prices the Company charges wholesalers. When these
group purchasing organizations or other indirect customers purchase products through wholesalers at these reduced prices,
the wholesaler charges the Company for the difference between the prices they paid the Company and the prices at which
they sold the products to the indirect customers.
In estimating provisions for rebates and chargebacks, management considers relevant statutes with respect to governmental
pricing programs and contractual sales terms with managed-care providers and group purchasing organizations. Management
estimates the amount of product sales subject to these programs based on historical utilization levels. Changes in the level of
utilization of products through private or public benefit plans and group purchasing organizations will affect the amount of
rebates and chargebacks that the Company is obligated to pay. Management continually updates these factors based on new
contractual or statutory requirements, and any significant changes in sales trends that may impact the percentage of products
subject to rebates or chargebacks.
The amount of Managed Care, Medicaid and other rebates and chargebacks has become more significant as a result of a
combination of deeper discounts due to the price increases implemented in each of the last three years, changes in the Company’s
product portfolio due to recent acquisitions and increased Medicaid utilization due to expansion of government funding for
these programs. Management’s estimate for rebates and chargebacks may be impacted by a number of factors, but the principal
factor relates to the level of inventory in the distribution channel.
Rebate provisions are based on factors such as timing and terms of plans under contract, time to process rebates, product
pricing, sales volumes, amount of inventory in the distribution channel and prescription trends. Adjustments to actual for the
years 2019 and 2018 were not material to the Company’s revenues or earnings.
F-17
Patient Co-Pay Assistance programs, Consumer Rebates and Loyalty Programs are rebates offered on many of the Company’s
products. Patient Co-Pay Assistance Programs are patient discount programs offered in the form of coupon cards or point of
sale discounts, with which patients receive certain discounts off their prescription at participating pharmacies, as defined by
the specific product program. An accrual for these programs is established, equal to management’s estimate of the discount,
rebate and loyalty incentives attributable to a sale. That estimate is based on historical experience and other relevant factors.
The accrual is adjusted throughout each quarter based on actual experience and changes in other factors, if any.
Distribution Fees
The Company sells product primarily to wholesalers, and in some instances to large pharmacy chains such as CVS and
Walmart. The Company has Distribution Services Agreements ("DSAs") with several large wholesale customers such as
McKesson Corporation, AmerisourceBergen Corporation, Cardinal Health, Inc. and McKesson Specialty. Under the DSAs,
the wholesalers agree to provide services, and the Company pays the contracted DSA distribution service fees for these services
based on product volumes. Additionally, price appreciation credits are generated when the Company increases a product’s
wholesaler acquisition cost (“WAC”) under contracts with certain wholesalers. Under such contracts, the Company is entitled
to credits from such wholesalers for the impact of that WAC increase on inventory currently on hand at the wholesalers. Such
credits are offset against the total distribution service fees paid to each such wholesaler. The variable consideration associated
with price appreciation credits is reflected in the transaction price of products sold when it is determined to be probable that
a significant reversal will not occur. Included as a reduction of current period provisions for Distribution Fees in the table
above are price appreciation credits of $11 million and $31 million for the years 2019 and 2018, respectively.
Contract Assets and Contract Liabilities
There are no contract assets for any period presented. Contract liabilities consist of deferred revenue, the balance of which is
not material to any period presented.
Sales Commissions
Sales commissions are generally attributed to periods shorter than one year and therefore are expensed when incurred. Sales
commissions are included in selling, general and administrative expenses.
Financing Component
The Company has elected not to adjust consideration for the effects of a significant financing component when the period
between the transfer of a promised good or service to the customer and when the customer pays for that good or service will
be one year or less. The Company's global payment terms are generally between thirty to ninety days.
Leases
The Company leases certain facilities, vehicles and equipment principally under multi-year agreements generally having a
lease term of one to twenty years, some of which include termination options and options to extend the lease term from one
to five years or on a month-to-month basis. The Company includes options that are reasonably certain to be exercised as part
of the lease term. The Company may negotiate termination clauses in anticipation of changes in market conditions but generally,
these termination options are not exercised. Certain lease agreements also include variable payments that are dependent on
usage or may vary month-to-month such as insurance, taxes and maintenance costs. None of the Company's lease agreements
contain material residual value guarantees or material restrictive covenants.
As discussed under the caption "Adoption of New Accounting Standards" to this Note 2, effective January 1, 2019, the
Company adopted guidance issued by the FASB regarding accounting for leases. The Company is required to record a right-
of-use asset and corresponding lease liability, equal to the present value of the lease payments at the commencement date of
each lease. For all asset classes, in determining future lease payments, the Company has elected to aggregate lease components,
such as payments for rent, taxes and insurance costs with non-lease components such as maintenance costs, and account for
these payments as a single lease component. In limited circumstances, when the information necessary to determine the rate
implicit in a lease is available, the present value of the lease payments is determined using the rate implicit in that lease. If
the information necessary to determine the rate implicit in a lease is not available, the Company uses its incremental borrowing
rate at the commencement of the lease, which represents the rate of interest that the Company would incur to borrow on a
collateralized basis over a similar term.
All leases must be classified as either an operating lease or finance lease. The classification is determined based on whether
substantive control has been transferred to the lessee. The classification governs the pattern of lease expense recognition. For
leases classified as operating leases, total lease expense over the term of the lease is equal to the undiscounted payments due
in accordance with the lease arrangement. Fixed lease expense is recognized periodically on a straight-line basis over the term
F-18
of each lease and includes: (i) imputed interest during the period on the lease liability determined using the effective interest
rate method plus (ii) amortization of the right-of-use asset for that period. Amortization of the right-of-use asset during the
period is calculated as the difference between the straight-line expense and the imputed interest on the lease liability for that
period. Variable lease expense is recognized when the achievement of the specific target is considered probable.
Research and Development Expenses
Costs related to internal research and development programs, including costs associated with the development of acquired
IPR&D, are expensed as goods are delivered or services are performed. Under certain research and development arrangements
with third parties, the Company may be required to make payments that are contingent on the achievement of specific
developmental, regulatory and/or commercial milestones. Milestone payments made to third parties before a product receives
regulatory approval, but after the milestone is determined to be probable, are expensed and included in Research and
development expenses. Milestone payments made to third parties after regulatory approval is received are capitalized and
amortized over the estimated useful life of the approved product.
Amounts due from third parties as reimbursement of development activities conducted under certain research and development
arrangements are recognized as a reduction of Research and development expenses.
Legal Costs
Legal fees and other costs related to litigation and other legal proceedings or services are expensed as incurred and are included
in Selling, general and administrative expenses. Certain legal costs associated with acquisitions are included in Acquisition-
related costs and certain legal costs associated with divestitures, legal settlements and other business development activities
are included in Litigation and other matters or Gain on investments, net within Other expense (income), net, as appropriate.
Legal costs expensed are reported net of expected insurance recoveries. A claim for insurance recovery is recognized when
realization becomes probable.
Advertising Costs
Advertising costs comprise product samples, print media, promotional materials and television advertising. Advertising costs
related to new product launches are expensed on the first use of the advertisement. Included in Selling, general and
administrative expenses are advertising costs of $544 million, $481 million and $462 million, for 2019, 2018 and 2017,
respectively.
Share-Based Compensation
The Company recognizes all share-based payments to employees, including grants of employee stock options and restricted
share units (“RSUs”), at estimated fair value. The Company amortizes the fair value of stock option or RSU grants on a
straight-line basis over the requisite service period of the individual stock option or RSU grant, which generally equals the
vesting period. Stock option and RSU forfeitures are estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. Share-based compensation is recorded in Research and development
expenses and Selling, general and administrative expenses, as appropriate.
Acquisition-Related Contingent Consideration
Acquisition-related contingent consideration, which primarily consists of potential milestone payments and royalty
obligations, is recorded in the Consolidated Balance Sheets at its acquisition date estimated fair value, in accordance with the
acquisition method of accounting. The fair value of the acquisition-related contingent consideration is remeasured each
reporting period, with changes in fair value recorded in the Consolidated Statements of Operations. The fair value measurement
is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in fair value
measurement accounting.
Interest Expense
Interest expense includes standby fees, the amortization of debt discounts and deferred financing costs, accretion of debt
premiums and the amortization of amounts excluded from the assessment of effectiveness related to the Company's cross-
currency swaps. Interest costs are expensed as incurred, except to the extent such interest is related to construction in progress,
in which case interest is capitalized. Capitalized interest related to construction in progress as of December 31, 2019 and 2018
was $34 million and is included in Property, plant and equipment, net.
Income Taxes
Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the temporary
differences between the financial statement and income tax bases of assets and liabilities, and for operating losses and tax
F-19
credit carryforwards. A valuation allowance is provided for the portion of deferred tax assets that is more likely than not to
remain unrealized. Deferred tax assets and liabilities are measured using enacted tax rates and laws. Deferred tax assets for
outside basis differences in investments in subsidiaries are only recognized if the difference will be realized in the foreseeable
future.
In October 2016, the FASB issued guidance requiring an entity to recognize the income tax consequences of an intra-entity
transfer of an asset other than inventory when the transfer occurs, rather than when the asset has been sold to an outside party.
This guidance was effective for the Company January 1, 2018 and was applied using a modified retrospective approach
through a cumulative-effect adjustment to accumulated deficit and deferred income taxes as of the effective date. The Company
recorded a net cumulative-effect adjustment of $1,209 million to increase deferred income tax assets and decrease the opening
balance of Accumulated deficit for the income tax consequences deferred from past intra-entity transfers involving assets
other than inventory.
The tax benefit from an uncertain tax position is recognized only if it is more likely than not that the tax position will be
sustained upon examination by the appropriate taxing authority, based on the technical merits of the position. The tax benefits
recognized from such position are measured based on the amount for which there is a greater than 50% likelihood of being
realized upon settlement. Liabilities associated with uncertain tax positions are classified as long-term unless expected to be
paid within one year. Interest and penalties related to uncertain tax positions, if any, are recorded in the provision for income
taxes and classified with the related liability on the consolidated balance sheets.
In accordance with accounting guidance, the Company provided for the income tax effects of the Tax Cuts and Jobs Act (the
“Tax Act”) enacted on December 22, 2017 and finalized the provisional amounts during 2018.
Earnings Per Share
Basic (loss) earnings per share attributable to Bausch Health Companies Inc. is calculated by dividing Net (loss) income
attributable to Bausch Health Companies Inc. by the weighted-average number of common shares outstanding during the
reporting period. Diluted (loss) earnings per share attributable to Bausch Health Companies Inc. is calculated by dividing Net
(loss) income attributable to Bausch Health Companies Inc. by the weighted-average number of common shares outstanding
during the reporting period after giving effect to dilutive potential common shares for stock options and RSUs, determined
using the treasury stock method.
Comprehensive Income
Comprehensive (loss) income comprises Net (loss) income and Other comprehensive income (loss). Other comprehensive
income (loss) includes items such as foreign currency translation adjustments, unrealized holding gains and losses on available-
for-sale and other investments and certain pension and other postretirement benefit plan adjustments. Accumulated other
comprehensive loss is recorded as a component of shareholders’ equity.
Contingencies
In the normal course of business, the Company is subject to loss contingencies, such as claims and assessments arising from
litigation and other legal proceedings, contractual indemnities, product and environmental liabilities, and tax matters. Accruals
for loss contingencies are recorded when the Company determines that it is both probable that a liability has been incurred
and the amount of loss can be reasonably estimated. If the estimate of the amount of the loss is a range and some amount
within the range appears to be a better estimate than any other amount within the range, that amount is accrued as a liability.
If no amount within the range is a better estimate than any other amount, the minimum amount of the range is accrued as
a liability. These accruals are adjusted periodically as assessments change or additional information becomes available.
If no accrual is made for a loss contingency because the amount of loss cannot be reasonably estimated, the Company will
disclose contingent liabilities when there is at least a reasonable possibility that a loss or an additional loss may have been
incurred.
Employee Benefit Plans
The Company sponsors various retirement and pension plans, including defined benefit pension plans, defined contribution
plans and a participatory defined benefit postretirement plan. The determination of defined benefit pension and postretirement
plan obligations and their associated expenses requires the use of actuarial valuations to estimate the benefits employees earn
while working, as well as the present value of those benefits. Net actuarial gains and losses that exceed 10 percent of the
greater of the plan’s projected benefit obligations or the market-related value of assets are amortized to earnings over the
shorter of the estimated average future service period of the plan participants (or the estimated average future lifetime of the
plan participants if the majority of plan participants are inactive) or the period until any anticipated final plan settlements.
F-20
Adoption of New Accounting Standards
In February 2016, the FASB issued a new standard revising the accounting for leases to increase transparency and comparability
among organizations that lease buildings, equipment and other assets by requiring the recognition of lease assets and lease
liabilities on the balance sheet. Under the new standard, all leases are classified as either a finance lease or an operating lease.
The classification is determined based on whether substantive control has been transferred to the lessee and its determination
will govern the pattern of lease cost recognition. Finance leases are accounted for in substantially the same manner as capital
leases under the former U.S. GAAP standard. Operating leases are accounted for in the statements of operations and statements
of cash flows in a manner substantially consistent with operating leases under the former U.S. GAAP standard. However, as
it relates to the balance sheet, operating lessees are, with limited exception, required to record a right-of-use asset and a
corresponding lease liability, equal to the present value of the lease payments for each operating lease. Lessees are not required
to recognize a right-of-use asset or lease liability for short-term leases, but instead recognizes lease payments as an expense
on a straight-line basis over the lease term. The standard also requires lessees and lessors to provide additional qualitative
and quantitative disclosures to help financial statement users assess the amounts, timing and uncertainty of cash flows arising
from leases.
The Company adopted the new standard effective January 1, 2019, using the modified retrospective approach. Upon adoption,
the Company elected the available practical expedients, including: (i) the package of practical expedients as defined in the
accounting guidance, which among other things, allowed the carry forward of historical lease classifications, (ii) the election
to use hindsight in determining the lease terms for all leases, (iii) the transition method, which does not require the restatement
of prior periods, (iv) the election to aggregate lease components with non-lease components and account for these payments
as a single lease component and (v) the short-term lease exemption, which does not require recognition on the balance sheet
for leases with an initial term of 12 months or less. The Company has updated its systems, processes and controls to track,
record and account for its lease portfolio, including implementation of a third-party software tool to assist in complying with
the new standard. Upon adoption of the new standard, the Company recognized a right-of-use asset and a corresponding lease
liability of $302 million. In addition, approximately $20 million of restructuring liabilities associated with facility closures
and deferred rents, included in Other non-current liabilities as of December 31, 2018, were reclassified to reduce right-of-use
assets. The adoption of the standard did not have a material impact on the Consolidated Statements of Operations,
Comprehensive Loss, Equity and Cash Flows for any of the periods presented. See Note 13, "LEASES" for additional details
and application of this standard.
In August 2018, the FASB issued guidance aligning the requirements for capitalizing implementation costs incurred in a
hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop
or obtain internal-use software. The guidance is effective for annual periods beginning after December 15, 2019, and interim
periods within those fiscal years with early adoption permitted. The Company has early-adopted this guidance prospectively
for all implementation costs incurred after January 1, 2019. In 2019, implementation costs incurred in the Company's hosting
arrangements which were capitalized were not material.
Recently Issued Accounting Standards, Not Adopted as of December 31, 2019
In June 2016, the FASB issued guidance on the impairment of financial instruments requiring an impairment model based on
expected losses rather than incurred losses. Under this guidance, an entity recognizes as an allowance its estimate of expected
credit losses. The guidance is effective for the Company beginning January 1, 2020. The application of this guidance is not
expected to have a material effect on the Company's financial position, results of operations and cash flows.
In August 2018, the FASB issued guidance modifying the disclosure requirements for fair value measurement. The guidance
is effective for the Company beginning January 1, 2020. The application of this guidance is not expected to have a material
effect on the Company's disclosures.
In August 2018, the FASB issued guidance modifying the disclosure requirements for employers that sponsor defined benefit
pension or other postretirement plans. The guidance is effective for annual periods ending after December 15, 2020, with
early adoption permitted. The Company is evaluating the impact of adoption of this guidance on its disclosures.
In December 2019, the FASB issued guidance simplifying the accounting for income taxes. The guidance is effective for
annual periods ending after December 15, 2020, with early adoption permitted. The Company is evaluating the impact of
adoption of this guidance on the Company's financial position, results of operations and cash flows.
F-21
3. ACQUISITIONS AND LICENSING AGREEMENTS
Acquisition Agreement for Synergy Pharmaceuticals Inc.
On March 6, 2019, the Company acquired certain assets of Synergy Pharmaceuticals Inc. ("Synergy") for a cash purchase
price of approximately $180 million and the assumption of certain liabilities, pursuant to the terms approved by the U.S.
Bankruptcy Court for the Southern District of New York on March 1, 2019. Among the assets acquired are the worldwide
rights to the Trulance® (plecanatide) product, a once-daily tablet for adults with chronic idiopathic constipation and irritable
bowel syndrome with constipation. This acquired business is included in the Company's Salix segment and is expected to
result in additional revenues and costs savings associated with business synergies.
Assets Acquired and Liabilities Assumed
The acquisition of certain assets of Synergy has been accounted for as a business combination under the acquisition method
of accounting since: (i) substantially all of the fair value of the assets acquired is not concentrated in a single identifiable asset
or group of similar identifiable assets and (ii) substantive inputs and processes were acquired to contribute to the creation of
outputs. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed related to the
acquisition of certain assets of Synergy as of the acquisition date:
(in millions)
Accounts receivable
Inventories
Prepaid expenses and other current assets
Product brand intangible assets (estimated useful life - 7 years)
Accounts payable
Accrued expenses
Total identifiable net assets
Goodwill
Total fair value of consideration transferred
$
$
7
24
5
159
(1)
(17)
177
3
180
Goodwill associated with the acquisition of certain assets of Synergy is not deductible for income tax purposes.
Revenue and Operating Results
Revenues associated with the acquired assets of Synergy during the period March 6, 2019 through December 31, 2019 were
$55 million. Operating results associated with the acquired assets of Synergy during the period March 6, 2019 through
December 31, 2019 and pro-forma revenues and operating results for the years 2019 and 2018 were not material. Included
in Other expense (income), net for 2019 are acquisition-related costs of $8 million directly related to the acquisition of certain
assets of Synergy, which include expenditures for advisory, legal, valuation, accounting and other similar services.
Noncontrolling Interest in Medpharma
On October 16, 2018, using cash on hand, the Company acquired the 40% noncontrolling interest of Medpharma
Pharmaceutical & Chemical Industries LLC (“Medpharma”) for $18 million. The difference between the carrying value and
the price paid for the noncontrolling interest in Medpharma of $15 million, is a reduction of additional paid-in capital.
There were no other material business combinations in 2019, 2018 or 2017. The measurement period for all acquisitions has
closed.
Licensing Agreement
In the normal course of business, the Company may enter into select licensing and collaborative agreements for the
commercialization and/or development of unique products primarily in the U.S. and Canada. These products are sometimes
investigational treatments in early stage development that target unique conditions. The ultimate outcome, including whether
the product will be: (i) fully developed, (ii) approved by the FDA, (iii) covered by third-party payors or (iv) profitable for
distribution cannot be fairly predicted. The commitment periods under these agreements vary and include customary
termination provisions. Expenses arising from commitments, if any, to fund the development and testing of these products
and their promotion are recognized as incurred. Royalties due are recognized when earned and milestone payments are accrued
when each milestone has been achieved and payment is probable and can be reasonably estimated.
F-22
On February 21, 2017, EyeGate Pharmaceuticals, Inc. (“EyeGate”) granted a subsidiary of the Company the exclusive
worldwide licensing rights to manufacture and sell the EyeGate® II Delivery System and EGP-437 combination product
candidate for the treatment of post-operative pain and inflammation in ocular surgery patients. Under the terms of the licensing
agreement, EyeGate was responsible for the continued development of this product candidate in the U.S. for the treatment of
post-operative pain and inflammation in ocular surgery patients, and all associated costs, and the Company had the right to
further develop the product in the field outside of the U.S. at its cost. In connection with the licensing agreement, the Company
paid an initial license fee of $4 million during the three months ended March 31, 2017 and was obligated to make future
payments of: (i) up to $34 million upon the achievement of certain development and regulatory milestones, of which $3
million was paid, (ii) up to $65 million upon the achievement of certain sales-based milestones and (iii) royalties. Based on
early stage of development of the asset, and lack of acquired significant inputs, the Company concluded this was an asset
acquisition.
On December 14, 2018, the Company issued a notice voluntarily terminating this licensing agreement dated February 21,
2017 and another license agreement dated July 9, 2015 with EyeGate, such termination was effective March 14, 2019. Following
the termination of these agreements on March 14, 2019, the Company relinquished all rights to the EyeGate® II Delivery
System and EGP-437 combination product. During the three months ended September 30, 2018, the Company fully impaired
the EyeGate® II Delivery System and EGP-437 combination product intangible assets and reduced the carrying value of the
contingent consideration liabilities associated with these licensing agreements to zero. All payments due to EyeGate for
reimbursement of certain out-of-pocket costs incurred in connection with development work have been provided for in the
Company's Consolidated Financial Statements.
4. DIVESTITURES
During 2019, the Company reclassified certain products as held for sale. During 2018, the Company did not make any material
divestitures. During 2017, the Company divested certain businesses and assets, which, in each case, was not aligned with its
core business objectives.
2019
Assets Held for Sale
The Company has identified certain products in the Bausch + Lomb/International segment and one product in the Diversified
Products segment for disposal as of December 31, 2019. The products and the related assets and liabilities of this disposal
group qualify as a business. Revenues associated with this business were $14 million and $19 million for the years 2019 and
2018, respectively. The carrying value of the business, including inventories, intangible assets, goodwill and deferred income
taxes, was adjusted to its estimated fair value less costs to sell and reclassified as held for sale as of December 31, 2019.
Included in Asset impairments in 2019 is a charge of $8 million associated with these assets held for sale.
2017
CeraVe®, AcneFree™ and AMBI® skincare brands
On March 3, 2017, the Company completed the sale of its interests in the CeraVe®, AcneFree™ and AMBI® skincare brands
for $1,300 million in cash (the “Skincare Sale”). The CeraVe®, AcneFree™ and AMBI® skincare business was part of the
Bausch + Lomb/International segment and was reclassified as held for sale as of December 31, 2016. Included in Other
expense (income), net for the year 2017 is the Gain on the Skincare Sale of $309 million, as adjusted.
Dendreon Pharmaceuticals LLC
On June 28, 2017, the Company completed the sale of all outstanding equity interests in Dendreon Pharmaceuticals LLC
(formerly Dendreon Pharmaceuticals, Inc.) (“Dendreon”) for $845 million in cash (the “Dendreon Sale”), as adjusted.
Dendreon was part of the former Branded Rx segment and was reclassified as held for sale as of December 31, 2016. Included
in Other expense (income), net for the year 2017 is the Gain on the Dendreon Sale of $97 million, as adjusted.
iNova Pharmaceuticals
On September 29, 2017, the Company completed the sale of its Australian-based iNova Pharmaceuticals (“iNova”) business
for $938 million in cash (the “iNova Sale”), as adjusted. iNova markets a diversified portfolio of weight management, pain
management, cardiology and cough and cold prescription and OTC products in more than 15 countries, with leading market
positions in Australia and South Africa, as well as an established platform in Asia. The Company continues to operate in these
geographies through the Bausch + Lomb franchise. The iNova business was part of the Bausch + Lomb/International segment
F-23
and was reclassified as held for sale as of December 31, 2016. Included in Other expense (income), net for the year 2017 is
the Gain on the iNova Sale of $309 million, as adjusted.
Obagi Medical Products, Inc.
On November 9, 2017, certain of the Company's affiliates completed the sale its Obagi Medical Products, Inc. (“Obagi”)
business for $190 million in cash (the “Obagi Sale”). Obagi is a global specialty skin care pharmaceutical business with
products focused on premature skin aging, skin damage, hyperpigmentation, acne and sun damage which are primarily available
through dermatologists, plastic surgeons and other skin care professionals. The Obagi business was part of the former U.S.
Diversified Products segment and was reclassified as held for sale as of March 31, 2017. The carrying value of the Obagi
business, including associated goodwill, was adjusted to its estimated fair value less costs to sell and an impairment of $103
million was recognized in Asset impairments in the Consolidated Statement of Operations. Included in Other expense (income),
net for the year 2017 is a $13 million loss related to this transaction.
Sprout Pharmaceuticals, Inc.
On December 20, 2017, the Company completed the sale of Sprout to a buyer affiliated with certain former shareholders of
Sprout (the “Sprout Sale”), in exchange for a 6% royalty on global sales of Addyi® (flibanserin 100 mg) beginning June 2019.
In connection with the completion of the Sprout Sale, the terms of the October 2015 merger agreement relating to the Company's
acquisition of Sprout were amended to terminate the Company's ongoing obligation to make future royalty payments associated
with the Addyi® product, as well as certain related provisions (including the obligation to make certain marketing and other
expenditures). In connection with the completion of the Sprout Sale, the litigation against the Company, initiated on behalf
of the former shareholders of Sprout, which disputed the Company's compliance with certain contractual terms of that same
merger agreement with respect to the use of certain diligent efforts to develop and commercialize the Addyi® product (including
a disputed contractual term with respect to the spend of no less than $200 million in certain expenditures), was dismissed
with prejudice. In connection with the completion of the Sprout Sale, the Company issued the buyer a five-year $25 million
loan for initial operating expenses. Addyi®, a once-daily, non-hormonal tablet approved for the treatment of acquired,
generalized hypoactive sexual desire disorder in premenopausal women, is Sprout's only approved and commercialized
product. Sprout was part of the former Branded Rx segment and was reclassified as held for sale as of September 30, 2017.
The carrying value of the Sprout business, including associated goodwill, was adjusted to its estimated fair value less costs
to sell and a $351 million impairment was recognized in Asset impairments in the year ended December 31, 2017. Upon
consummation of the transaction, a loss of $98 million was recognized in Other expense (income), net. Beginning in June
2019, the Company has been recognizing the agreed upon 6% royalty of global sales of Addyi® as these royalties become
due, as the Company does not recognize contingent payments until such amounts are realizable.
5. RESTRUCTURING AND INTEGRATION COSTS
The Company evaluates opportunities to improve its operating results and implements cost savings programs to streamline
its operations and eliminate redundant processes and expenses. The expenses associated with the implementation of these
cost savings programs include expenses associated with: (i) reducing headcount, (ii) eliminating real estate costs associated
with unused or under-utilized facilities and (iii) implementing contribution margin improvement and other cost reduction
initiatives. Cost-rationalization and integration initiatives relating to the acquisition of Salix Pharmaceuticals, Ltd. ("Salix
Ltd.") in April 2015 (the "Salix Acquisition") were substantially completed by mid-2016. The remaining liability associated
with all cost-rationalization and integration initiatives as of December 31, 2019 was $27 million.
During 2019, the Company incurred $31 million of restructuring and integration-related costs. These costs included: (i) $11
million of severance costs and other costs associated with the acquisition of certain assets of Synergy, (ii) $11 million of
facility closure costs and (iii) $9 million of other severance costs. The Company made payments of $31 million during 2019.
During 2018, the Company incurred $22 million of restructuring and integration-related costs. These costs included: (i) $11
million of severance costs, (ii) $10 million of facility closure costs and (iii) $1 million of other costs. The Company made
payments of $33 million during 2018.
During 2017, the Company incurred $52 million of restructuring and integration-related costs. These costs included: (i) $16
million of integration consulting, transition service and other costs, (ii) $16 million of severance costs and (iii) $20 million
of facility closure costs. The Company made payments of $85 million during 2017.
F-24
6. FAIR VALUE MEASUREMENTS
Fair value measurements are estimated based on valuation techniques and inputs categorized as follows:
• Level 1 — Quoted prices in active markets for identical assets or liabilities;
• Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other
inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets
or liabilities; and
• Level 3 — Unobservable inputs that are supported by little or no market activity and that are financial instruments whose
values are determined using discounted cash flow methodologies, pricing models, or similar techniques, as well as
instruments for which the determination of fair value requires significant judgment or estimation.
If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization
is based on the lowest level input that is significant to the fair value measurement of the instrument.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following fair value hierarchy table presents the components and classification of the Company’s financial assets and
liabilities measured at fair value on a recurring basis as of December 31, 2019 and 2018:
2019
2018
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
Carrying
Value
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Carrying
Value
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$ 2,696
$
2,646
$
50
$
— $
197
$
166
$
31
$
—
$
$
316
13
$
$
— $
— $
— $
13
$
316
$
339
$
— $
— $
— $
— $
— $
— $
339
—
(in millions)
Assets:
Cash equivalents
Liabilities:
Acquisition-related contingent
consideration
Cross-currency swaps
There were no transfers between Level 1, Level 2 or Level 3 during 2019 and 2018.
Cross-currency Swaps
During 2019, the Company entered into cross-currency swaps, with aggregate notional amounts of $1,250 million, to mitigate
fluctuation in the value of a portion of its euro-denominated net investment in its consolidated financial statements from
adverse movements in exchange rates. The euro-denominated net investment being hedged is the Company’s investment in
certain euro-denominated subsidiaries. Prior to 2019, the Company had no derivative instruments for any period presented.
The fair value of the Company’s cross-currency swaps liability as of December 31, 2019 was $13 million. Included in Other
non-current liabilities is $22 million of cross-currency swaps liability and included in Prepaid expenses and other current
assets is $9 million of earned interest within the Consolidated Balance Sheets. The following table presents the effect of
hedging instruments on the Consolidated Statements of Operations and Consolidated Statements of Comprehensive Loss for
the year 2019:
(in millions)
Cross-currency swaps
Loss recognized in
Other comprehensive loss
22
$
$
Gain excluded from
assessment of hedge
effectiveness
Location of gain in
income of excluded
component
Interest expense
9
During 2019, there were no payments or receipts in settlement of the Company’s cross-currency swaps as the settlement dates
occur in February and August of each year, with the first settlement in February 2020. Future settlements of the Company’s
cross-currency swaps will be reported as investing activities in the Consolidated Statement of Cash Flows.
Acquisition-related Contingent Consideration Obligations
The fair value measurement of acquisition-related contingent consideration arising from business combinations is determined
via a probability-weighted discounted cash flow analysis or Monte Carlo Simulation (if deemed appropriate), using
unobservable (Level 3) inputs. These inputs may include: (i) the estimated amount and timing of projected cash flows, (ii) the
probability of the achievement of the factor(s) on which the contingency is based, (iii) the risk-adjusted discount rate used to
F-25
present value the probability-weighted cash flows and (iv) volatility of projected performance (Monte Carlo Simulation).
Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value
measurement. At December 31, 2019, the fair value measurements of acquisition-related contingent consideration were
determined using risk-adjusted discount rates ranging from 5% to 25%.
The following table presents a reconciliation of contingent consideration obligations measured on a recurring basis using
significant unobservable inputs (Level 3) for 2019 and 2018:
(in millions)
Beginning balance, January 1,
Adjustments to Acquisition-related contingent consideration:
2019
$
339
2018
$
387
Accretion for the time value of money
Fair value adjustments due to changes in estimates of future payments
$
22
(10)
$
24
(33)
Acquisition-related contingent consideration adjustments
Payments / Settlements
Foreign currency translation adjustment included in other comprehensive loss
Ending balance, December 31,
Current portion
Non-current portion
12
(36)
1
316
54
262
$
(9)
(39)
—
339
41
298
$
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The following table presents the components and classification of the Company’s financial assets and liabilities measured at
fair value on a non-recurring basis:
December 31, 2019
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Carrying
Value
Significant
Unobservable
Inputs
(Level 3)
Carrying
Value
December 31, 2018
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(in millions)
Other non-current assets:
Non-current assets held for sale
$
39
$
— $
— $
39
$
— $
— $
— $
—
Non-current assets held for sale of $39 million included in the Consolidated Balance Sheets as of December 31, 2019 were
remeasured to estimated fair values less costs to sell. Included in Asset impairments in 2019 is a charge of $8 million associated
with these assets held for sale. The estimated fair values of these assets less costs to sell were determined using a discounted
cash flow analysis which utilized Level 3 unobservable inputs. See Note 4, "DIVESTITURES" for additional details regarding
these assets held for sale.
Fair Value of Long-term Debt
The fair value of long-term debt as of December 31, 2019 and 2018 was $27,520 million and $23,357 million, respectively,
and was estimated using the quoted market prices for the same or similar debt issuances (Level 2).
7.
INVENTORIES
Inventories, net of allowance for obsolescence, as of December 31, 2019 and 2018 consist of:
(in millions)
Raw materials
Work in process
Finished goods
2019
$
319
149
639
$ 1,107
2018
$
$
275
95
564
934
F-26
8. PROPERTY, PLANT AND EQUIPMENT
The major components of property, plant and equipment as of December 31, 2019 and 2018 consist of:
(in millions)
Land
Buildings
Machinery and equipment
Other equipment and leasehold improvements
Equipment on operating lease
Construction in progress
Less accumulated depreciation
2019
2018
$
79
696
1,606
$
81
693
1,527
369
56
301
366
46
162
3,107
(1,641)
$ 1,466
2,875
(1,522)
$ 1,353
Depreciation expense was $178 million, $175 million and $168 million for 2019, 2018 and 2017, respectively.
9.
INTANGIBLE ASSETS AND GOODWILL
Intangible Assets
The major components of intangible assets as of December 31, 2019 and 2018 consist of:
(in millions)
Finite-lived intangible assets:
Product brands
Corporate brands
Product rights/patents
Partner relationships
Technology and other
Total finite-lived intangible assets
Acquired IPR&D not in service
B&L Trademark
Weighted-
Average
Remaining
Useful
Lives
(Years)
2019
Accumulated
Amortization
and
Impairments
Gross
Carrying
Amount
Net
Carrying
Amount
Gross
Carrying
Amount
2018
Accumulated
Amortization
and
Impairments
Net
Carrying
Amount
7
8
4
2
3
NA
NA
$ 21,011
$
(13,544) $ 7,467
$ 20,891
$
(11,958) $ 8,933
930
3,297
166
209
25,613
13
1,698
(338)
(2,887)
(165)
(189)
592
410
1
20
926
3,292
168
208
(263)
(2,658)
(166)
(173)
663
634
2
35
(17,123)
8,490
25,485
(15,218)
10,267
—
—
13
1,698
36
1,698
—
—
36
1,698
$ 27,324
$
(17,123) $ 10,201
$ 27,219
$
(15,218) $ 12,001
Long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. Impairment charges associated with these assets are included in Asset
impairments in the Consolidated Statement of Operations. The Company continues to monitor the recoverability of its finite-
lived intangible assets and tests the intangible assets for impairment if indicators of impairment are present.
Asset impairments for 2019 included impairments of: (i) $58 million reflecting decreases in forecasted sales of certain product
lines due to generic competition and other factors, (ii) $8 million related to assets being classified as held for sale, (iii) $5
million related to certain product/patent assets associated with the discontinuance of specific product lines not aligned with
the focus of the Company's core businesses and (iv) $4 million related to Acquired IPR&D not in service.
Asset impairments in 2018 included impairments of: (i) $348 million reflecting decreases in forecasted sales for the Uceris®
Tablet product in the Company's Salix reporting unit and other product lines due to generic competition, (ii) $132 million
reflecting decreases in forecasted sales for the Arestin® product in the Company's Dentistry reporting unit and other product
lines due to changing market conditions, (iii) $55 million, in aggregate, related to certain product/patent assets associated
with the discontinuance of specific product lines not aligned with the focus of the Company's core businesses, (iv) $28 million
to Acquired IPR&D not in service related to a certain product and (v) $5 million related to assets being classified as held for
sale.
F-27
Asset impairments in 2017 included impairments of: (i) $351 million related to the Sprout business being classified as held
for sale, (ii) $151 million reflecting decreases in forecasted sales for other product lines, (iii) $114 million to other assets
classified as held for sale, primarily related to the Obagi business, (iv) $95 million, in aggregate, to certain product/patent
assets associated with the discontinuance of specific product lines not aligned with the focus of the Company's core business
and (v) $3 million related to acquired IPR&D.
The impairments to assets reclassified as held for sale were measured as the difference of the carrying value of these assets
as compared to the estimated fair values of these assets less costs to sell determined using a discounted cash flow analysis
which utilized Level 3 unobservable inputs. The other impairments and adjustments to finite-lived intangible assets were
measured as the difference of the historical carrying value of these finite-lived assets as compared to the estimated fair value
as determined using a discounted cash flow analysis using Level 3 unobservable inputs.
Periodically, the Company’s products face the expiration of their patent or regulatory exclusivity. The Company anticipates
that product sales for such product would decrease shortly following a loss of exclusivity, due to the possible entry of a generic
competitor. Where the Company has the rights, it may elect to launch an authorized generic of such product (either as the
Company’s own branded generic or through a third-party). This may occur prior to, upon or following generic entry, which
may mitigate the anticipated decrease in product sales; however, even with launch of an authorized generic, the decline in
product sales of such product could still be significant, and the effect on future revenues could be material.
As a result of the launch of a generic competitor in July 2018, the Company revised its near and long term financial projections
of the Uceris® Tablet-related intangible assets. As of June 30, 2018, the carrying value of the Uceris® Tablet-related intangible
assets exceeded the undiscounted expected cash flows from the Uceris® Tablet. As a result, the Company recognized an
impairment of $263 million to reduce the carrying value of the Uceris® Tablet-related intangible assets to their estimated fair
value. As of December 31, 2019, the remaining carrying value of the Uceris® Tablet-related intangible assets was $47 million.
Prior to its launch, the Company initiated infringement proceedings against this generic competitor. The Company continues
to believe that its Uceris® Tablet related patents are enforceable and is proceeding in the ongoing litigation between the
Company and the generic competitor; however, the ultimate outcome of the matter is not predictable.
Management continually assesses the useful lives related to the Company's long-lived assets to reflect the most current
assumptions. In review of the Company’s finite-lived intangible assets, management revised the estimated useful lives of
certain intangible assets in 2018 and 2017.
In review of the Company’s finite-lived intangible assets, management revised the estimated useful lives of certain intangible
assets in the third and fourth quarters of 2017. As a result, the useful lives of certain product brands, with an aggregate carrying
value of $7,618 million as of December 31, 2017, were revised from an average of seven years to four years primarily due
to revisions in forecasted sales as a result of revisions to the date each product is expected to lose exclusivity. In addition, the
useful life of the Salix Brand, with a carrying value of $569 million as of December 31, 2017, was revised from seventeen
years to ten years, due to a change in the forecasted sales of its product portfolio.
Effective September 12, 2018, the Company changed the estimated useful life of its Xifaxan®-related intangible assets due
to the positive impact of an agreement between the Company and Actavis Laboratories FL, Inc. ("Actavis") resolving the
intellectual property litigation regarding Xifaxan® tablets, 550 mg. Under the agreement, the parties agreed to dismiss all
litigation related to Xifaxan® tablets, 550 mg and all intellectual property protecting Xifaxan® will remain intact and
enforceable. As a result, the useful life of the Xifaxan®-related intangible assets was extended from 2024 to January 1, 2028.
As this change in the estimated useful life is a change in an accounting estimate, amortization expense is impacted prospectively.
The change in the estimated useful life of the Xifaxan®-related intangible assets resulted in a decrease to the Net loss attributable
to Bausch Health Companies Inc. of $473 million and $143 million, and a decrease to the Basic and Diluted Loss per share
attributable to Bausch Health Companies Inc. of $1.34 and $0.41 for the years 2019 and 2018, respectively. As of December
31, 2019, the net carrying value of the Xifaxan®-related intangible assets was $4,309 million.
Estimated amortization expense of finite-lived intangible assets for the five years ending December 31 and thereafter are
as follows:
(in millions)
Amortization
2020
2021
2022
2023
2024
$
1,624
$
1,375
$
1,224
$
1,079
$
950
Thereafter
2,238
$
Total
$
8,490
F-28
Goodwill
The changes in the carrying amounts of goodwill during the years ended December 31, 2019, 2018 and 2017 were as follows:
(in millions)
Balance, January 1, 2017
Realignment of segment goodwill
Goodwill reclassified to assets held for sale and
subsequently disposed
Impairment of the former Branded Rx reporting unit
Foreign exchange and other
Balance, December 31, 2017
Impairment of the Salix and Ortho Dermatologics
reporting units
Realignment of Global Solta reporting unit goodwill
Goodwill reclassified to assets held for sale and
subsequently disposed
Realignment of segment goodwill
Impairment of the Dentistry reporting unit
Foreign exchange and other
Balance, December 31, 2018
Acquisition of certain assets of Synergy
Bausch +
Lomb/
International
5,499
$
264
Branded
Rx
$ 7,265
(264)
U.S.
Diversified
Products
$ 3,030
—
Salix
Ortho
Dermatologics
Diversified
Products
Total
$ — $
—
— $
—
— $15,794
—
—
(30)
—
283
6,016
(61)
(312)
3
6,631
— (2,213)
(82)
115
(2)
—
— (4,533)
—
—
—
(127)
—
5,805
—
—
(84)
—
—
2,946
—
(33)
—
—
—
—
—
—
—
—
3,156
(2,913)
—
—
—
—
— 3,156
3
—
—
—
—
—
—
—
—
1,267
—
—
1,267
—
—
—
1,267
(175)
—
(312)
—
—
286
— 15,593
— (2,213)
—
—
—
3,023
(109)
—
2,914
—
(2)
—
(109)
(127)
13,142
3
—
—
$ 2,914
(18)
(1)
$13,126
Goodwill reclassified to assets held for sale (Note 4)
Foreign exchange and other
Balance, December 31, 2019
(18)
(1)
5,786
—
—
$ — $
—
—
—
—
— $3,159
$
$
Goodwill is not amortized but is tested for impairment at least annually at the reporting unit level. A reporting unit is the same
as, or one level below, an operating segment. The fair value of a reporting unit refers to the price that would be received to
sell the unit as a whole in an orderly transaction between market participants. The Company estimates the fair values of all
reporting units using a discounted cash flow model which utilizes Level 3 unobservable inputs.
The discounted cash flow model relies on assumptions regarding revenue growth rates, gross profit, projected working capital
needs, selling, general and administrative expenses, research and development expenses, capital expenditures, income tax
rates, discount rates and terminal growth rates. To estimate fair value, the Company discounts the forecasted cash flows of
each reporting unit. The discount rate the Company uses represents the estimated weighted average cost of capital, which
reflects the overall level of inherent risk involved in its reporting unit operations and the rate of return a market participant
would expect to earn. The Company performed its annual impairment test as of October 1, 2019 by first assessing qualitative
factors to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount
(Step 0). Where the qualitative assessment suggested that it was more likely than not that the fair value of a reporting unit
was less than its carrying amount, a quantitative fair value test was performed for that reporting unit (Step 1). The quantitative
fair value test was performed utilizing long-term growth rates and discount rates applied to the estimated cash flows in
estimation of fair value. To estimate cash flows beyond the final year of its model, the Company estimates a terminal value
by applying an in-perpetuity growth assumption and discount factor to determine the reporting unit's terminal value.
The Company forecasts cash flows for each reporting unit and takes into consideration economic conditions and trends,
estimated future operating results, management's and a market participant's view of growth rates and product lives, and
anticipates future economic conditions. Revenue growth rates inherent in these forecasts were based on input from internal
and external market research that compare factors such as growth in global economies, recent industry trends and product
life-cycles. Macroeconomic factors such as changes in economies, changes in the competitive landscape including the
unexpected loss of exclusivity to the Company's product portfolio, changes in government legislation, product life-cycles,
industry consolidations and other changes beyond the Company’s control could have a positive or negative impact on achieving
its targets. Accordingly, if market conditions deteriorate, or if the Company is unable to execute its strategies, it may be
necessary to record impairment charges in the future.
F-29
2017
2017 Realignment of Segment Structure
Effective January 1, 2017, revenues and profits from the Company's operations in Canada were reclassified from the former
Branded Rx segment to the Bausch + Lomb/International segment. In connection with this change, the prior-period presentation
of segment goodwill has been recast to conform to the then-current reporting structure, of which $264 million of goodwill as
of December 31, 2016 was reclassified from the former Branded Rx segment to the Bausch + Lomb/International segment.
No facts or circumstances were identified in connection with this change in alignment that would suggest an impairment
existed.
As detailed in Note 4, "DIVESTITURES", the Sprout business was classified as held for sale as of September 30, 2017. As
the Sprout business represented only a portion of a former Branded Rx reporting unit, the Company assessed the remaining
reporting unit for impairment and determined the carrying value of the remaining reporting unit exceeded its fair value. After
completing step two of the impairment testing, the Company determined and recorded a goodwill impairment charge of $312
million during the three months ended September 30, 2017.
2017 Annual Goodwill Impairment Test
The Company conducted its annual goodwill impairment test as of October 1, 2017 and determined that the carrying value
of the Salix reporting unit exceeded its fair value and, as a result, the Company proceeded to perform step two of the goodwill
impairment test for the Salix reporting unit. After completing step two of the impairment testing, the Company determined
that the carrying value of the unit's goodwill did not exceed its implied fair value and, therefore, no impairment was identified
to the goodwill of the Salix reporting unit. As of the date of testing, the Salix reporting unit had an estimated fair value of
$10,660 million and a carrying value of $13,404 million, including goodwill of $5,127 million. The Company's remaining
reporting units passed step one of the goodwill impairment test as the estimated fair value of each reporting unit exceeded its
carrying value at the date of testing and, therefore, there was no impairment to goodwill.
Subsequent to the annual impairment test, the Company considered events occurring after October 1st to determine if further
testing was required. The Company considered the impact of the changes in the Tax Cuts and Jobs Act (the “Tax Act”) on its
reporting units, including the impact on the carrying value, for changes in deferred tax assets and liabilities, and changes in
assumptions related to the tax rate when assessing the fair value. The Company concluded that the fair value continued to
exceed the carrying value for all reporting units, except Salix, after considering the impact of the changes in the Tax Act.
Further, the Step 2 impairment test for Salix continued to support the carrying value of goodwill. As a result, no additional
impairment charges were recorded.
2018
Adoption of New Accounting Guidance for Goodwill Impairment Testing
In January 2017, the FASB issued guidance which simplifies the subsequent measurement of goodwill by eliminating “Step
2” from the goodwill impairment test. Instead, goodwill impairment is measured as the amount by which a reporting unit's
carrying value exceeds its fair value. The Company elected to adopt this guidance effective January 1, 2018.
Upon adopting the new guidance, the Company tested goodwill for impairment and determined that the carrying value of the
Salix reporting unit exceeded its fair value. As a result of the adoption of new accounting guidance, the Company recognized
a goodwill impairment of $1,970 million associated with the Salix reporting unit.
As of October 1, 2017, the date of the 2017 annual goodwill impairment test, the fair value of the Ortho Dermatologics
reporting unit exceeded its carrying value. However, at January 1, 2018, unforeseen changes in the business dynamics of the
Ortho Dermatologics reporting unit, such as: (i) changes in the dermatology sector, (ii) increased pricing pressures from third-
party payors, (iii) additional risks to the exclusivity of certain products and (iv) an expected longer launch cycle for a new
product, were factors that negatively impacted the reporting unit's operating results beyond management's expectations as of
October 1, 2017, when the Company performed its 2017 annual goodwill impairment test. In response to these adverse
business indicators, as of January 1, 2018, the Company reduced its near and long term financial projections for the Ortho
Dermatologics reporting unit. As a result of the reductions in the near and long term financial projections, the carrying value
of the Ortho Dermatologics reporting unit exceeded its fair value at January 1, 2018 and the Company recognized a goodwill
impairment of $243 million.
2018 Realignment of Solta Business
Effective March 1, 2018, revenues and profits from the U.S. Solta business included in the former U.S. Diversified Products
segment in prior periods and revenues and profits from the international Solta business included in the Bausch + Lomb/
F-30
International segment in prior periods, are reported in the new Global Solta reporting unit, which, at that time, was a part of
the former Branded Rx segment. As a result of this change, $115 million of goodwill was reallocated to the new Global Solta
reporting unit and the Company assessed the impact on the fair values of each of the reporting units affected. After considering,
among other matters: (i) the limited period of time between last impairment test (January 1, 2018) and the realignment (March
1, 2018), (ii) the results of the last impairment test and (iii) the amount of goodwill reallocated to the new Global Solta reporting
unit, the Company did not identify any indicators of impairment at the time of the realignment.
2018 Realignment of Segment Structure
In the second quarter of 2018, the Company began operating in the following reportable segments: (i) Bausch + Lomb/
International segment, (ii) Salix segment, (iii) Ortho Dermatologics segment and (iv) Diversified Products segment. The
Bausch + Lomb/International segment consists of the: (i) U.S. Bausch + Lomb and (ii) International reporting units. The
Salix segment consists of the Salix reporting unit. The Ortho Dermatologics segment consists of the: (i) Ortho Dermatologics
and (ii) Global Solta reporting units. The Diversified Products segment consists of the: (i) Neurology and Other, (ii) Generics
and (iii) Dentistry reporting units. There was no triggering event which would require the Company to test goodwill for
impairment as a result of the second quarter realignment of the segment structure as it did not result in a change in the reporting
units.
2018 Interim Goodwill Impairment Assessments - Salix
As a result of the change in accounting policy for goodwill impairment testing and the resulting impairment to the goodwill
of the Salix reporting unit as of January 1, 2018, the carrying value of the Salix reporting unit approximated its fair value at
that time. Therefore, during the three months ended March 31, 2018, June 30, 2018 and September 30, 2018, the Company
performed qualitative assessments of the Salix reporting unit to determine if testing was warranted.
As part of these qualitative assessments, management considered the revisions made to its forecasts for the Salix reporting
unit and compared the reporting unit’s revised operating results to its original forecasts through the date of each assessment.
The revisions to the forecasts reflected, among other matters: (i) the launch of a generic competitor in July 2018 to the
Company’s Uceris® Tablet product, (ii) the improved performance of the remaining Salix product portfolio, including the
Xifaxan® products, (iii) the positive impact of the settlement agreement between the Company and Actavis resolving the
intellectual property litigation regarding Xifaxan® tablets, 550 mg and (iv) certain other assumptions used in preparing its
discounted cash flow model. As part of these qualitative assessments, management also considered the sensitivity of its
conclusions as they related to changes in the estimates and assumptions used in the latest forecast available for each period.
Based on these qualitative assessments, management believed that the carrying value of the Salix reporting unit did not exceed
its fair value and, therefore, concluded a quantitative assessment was not required for the Salix reporting unit.
2018 Interim Goodwill Impairment Assessments and Testing - Ortho Dermatologics
As a result of the change in accounting policy for goodwill impairment testing and the resulting impairment to the goodwill
of the Ortho Dermatologics reporting unit as of January 1, 2018, the carrying value of the Ortho Dermatologics reporting unit
approximated its fair value at that time. Therefore, during the three months ended March 31, 2018, June 30, 2018 and
September 30, 2018, the Company performed qualitative assessments of the Ortho Dermatologics reporting unit to determine
if testing was warranted.
As part of the qualitative assessment as of March 31, 2018, management compared the reporting unit’s operating results to
the forecast used to test the goodwill of the Ortho Dermatologics reporting unit as of January 1, 2018. Based on the qualitative
assessment, management believed that the carrying value of Ortho Dermatologics reporting unit did not exceed its fair value
and, therefore, concluded a quantitative assessment was not required at March 31, 2018.
During the three months ended June 30, 2018, unforeseen changes in the business dynamics of the Ortho Dermatologics
reporting unit, such as changes in the dermatology sector, additional risks to the exclusivity of certain products and a longer
than originally expected launch cycle for a certain product, were factors that negatively impacted the reporting unit's operating
results beyond management's expectations as of January 1, 2018, when the Company performed its last goodwill impairment
test. In response to these adverse business indicators, the Company performed a goodwill impairment test of the Ortho
Dermatologics reporting unit. Based on the goodwill impairment test performed, the estimated fair value of the Ortho
Dermatologics reporting unit exceeded its carrying value at the date of testing by approximately 5% and, therefore, there was
no impairment to goodwill.
As part of the qualitative assessment as of September 30, 2018, management compared the reporting unit’s operating results
to the forecast used to test the goodwill of the Ortho Dermatologics reporting unit as of June 30, 2018. Based on the qualitative
F-31
assessment, management believed that the carrying value of Ortho Dermatologics reporting unit did not exceed its fair value
and, therefore, concluded a quantitative assessment was not required at September 30, 2018.
2018 Annual Goodwill Impairment Test
The Company conducted its annual goodwill impairment test as of October 1, 2018 and determined that the carrying value
of the Dentistry reporting unit exceeded its fair value and, as a result, the Company recognized a goodwill impairment of
$109 million for the Dentistry reporting unit, representing the full amount of goodwill for the reporting unit. Changing market
conditions such as: (i) an increasing competitive environment and (ii) increasing pricing pressures negatively impacted the
reporting unit's operating results. The Company is taking steps to address these changing market and business conditions.
The Company's remaining reporting units passed the goodwill impairment test as the estimated fair value of each reporting
unit exceeded its carrying value at the date of testing and, therefore, there was no impairment to goodwill for any reporting
unit other than the Dentistry reporting unit. In order to evaluate the sensitivity of its fair value calculations on the goodwill
impairment test, the Company compared the carrying value of each reporting unit to its fair value as of October 1, 2018, the
date of testing. As of October 1, 2018, the fair value of each reporting unit with associated goodwill exceeded its carrying
value by more than 15%.
2019
2019 Interim Goodwill Impairment Assessment
No events occurred or circumstances changed during the period October 1, 2018 through September 30, 2019 that would
indicate that the fair value of any reporting unit might be below its carrying value. Based on the results of the October 1, 2018
annual goodwill impairment test, the Company performed qualitative interim assessments of the carrying value and fair value
of the Ortho Dermatologics reporting unit on a quarterly basis to determine if quantitative fair value testing was warranted.
As part of these qualitative assessments, management considered the totality of all relevant events or circumstances that affect
the carrying amount or fair value of the reporting unit, including comparing the reporting unit’s operating results to the forecast
used to test the goodwill of the Ortho Dermatologics reporting unit as of October 1, 2018. Based on the qualitative assessments,
management believed that the carrying value of Ortho Dermatologics reporting unit did not exceed its fair value and, therefore,
concluded a quantitative assessment was not required for any period.
2019 Annual Goodwill Impairment Test
The Company conducted its annual goodwill impairment test as of October 1, 2019 by first assessing qualitative factors to
determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Where the
qualitative assessment suggested that it was more likely than not that the fair value of a reporting unit was less than its carrying
amount, a quantitative fair value test was performed for that reporting unit. In each quantitative fair value test performed, the
fair value was greater than the carrying value of the reporting unit. As a result, there was no impairment to the goodwill of
any reporting unit. If market conditions deteriorate, or if the Company is unable to execute its strategies, it may be necessary
to record impairment charges in the future. Specifically, the Company continues to assess the performance of the Ortho
Dermatologics reporting unit and the Neuro and Other reporting unit as compared to their respective projections and will
perform qualitative interim assessments of the carrying value and fair value on a quarterly basis to determine if impairment
testing of goodwill will be warranted. The Company performed quantitative fair value tests for the Ortho Dermatologics
reporting unit and the Neuro and Other reporting unit as of October 1, 2019, utilizing long-term growth rates of 2.0% and
1.5%, and discount rates of 9.8% and 9.0%, respectively, in estimation of the fair value of these reporting units.
Accumulated goodwill impairment charges through December 31, 2019 were $3,711 million.
F-32
10. ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other current liabilities as of December 31, 2019 and 2018 consist of:
(in millions)
Legal matters and related fees
Product rebates
Product returns
Interest
Employee compensation and benefit costs
Income taxes payable
Other
2019
$ 1,397
898
691
305
304
196
720
$ 4,511
2018
$
11
998
813
273
301
167
634
$ 3,197
F-33
11. FINANCING ARRANGEMENTS
Principal amounts of debt obligations and principal amounts of debt obligations net of premiums, discounts and issuance costs
as of December 31, 2019 and 2018 consists of the following:
(in millions)
Senior Secured Credit Facilities:
2023 Revolving Credit Facility
June 2025 Term Loan B Facility
Maturity
June 2023
June 2025
November 2025 Term Loan B Facility
November 2025
Senior Secured Notes:
6.50% Secured Notes
7.00% Secured Notes
5.50% Secured Notes
5.75% Secured Notes
Senior Unsecured Notes:
5.625%
5.50%
5.875%
4.50% euro-denominated debt
6.125%
9.00%
9.25%
8.50%
7.00%
5.00%
7.25%
5.25%
Other
March 2022
March 2024
November 2025
August 2027
December 2021
March 2023
May 2023
May 2023
April 2025
December 2025
April 2026
January 2027
January 2028
January 2028
May 2029
January 2030
Various
2019
2018
Net of
Premiums,
Discounts and
Issuance Costs
Net of
Premiums,
Discounts and
Issuance Costs
Principal
Amount
Principal
Amount
—
3,869
1,275
1,250
2,000
1,750
500
—
402
1,448
1,682
3,250
1,500
1,500
1,750
750
1,250
750
1,250
12
—
3,768
1,257
1,242
1,983
1,733
493
—
400
1,441
1,674
3,230
1,473
1,484
1,756
741
1,234
740
1,234
12
75
4,394
1,481
1,250
2,000
1,750
—
700
1,000
3,250
1,720
3,250
1,500
1,500
750
—
—
—
—
12
75
4,269
1,456
1,239
1,979
1,730
—
697
995
3,229
1,709
3,226
1,469
1,482
738
—
—
—
—
12
Total long-term debt and other
$
26,188
25,895
$
24,632
Less: Current portion of long-term debt and other
Non-current portion of long-term debt
1,234
24,661
$
24,305
228
24,077
$
Covenant Compliance
The Senior Secured Credit Facilities (as defined below) and the indentures governing the Senior Secured Notes and Senior
Unsecured Notes contain customary affirmative and negative covenants and specified events of default. These affirmative
and negative covenants include, among other things, and subject to certain qualifications and exceptions, covenants that restrict
the Company’s ability and the ability of its subsidiaries to: incur or guarantee additional indebtedness; create or permit liens
on assets; pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; make
certain investments and other restricted payments; engage in mergers, acquisitions, consolidations and amalgamations; transfer
and sell certain assets; and engage in transactions with affiliates. The 2023 Revolving Credit Facility (as defined below) also
contains a financial maintenance covenant that requires the Company to maintain a first lien net leverage ratio of not greater
than 4.00:1.00. The financial maintenance covenant may be waived or amended without the consent of the term loan facility
lenders and contains a customary term loan facility standstill.
As of December 31, 2019, the Company was in compliance with its financial maintenance covenant related to its debt
obligations. The Company, based on its current forecast for the next twelve months from the date of issuance of these financial
statements, expects to remain in compliance with its financial maintenance covenant and meet its debt service obligations
over that same period.
F-34
The Company continues to take steps to improve its operating results to ensure continual compliance with its financial
maintenance covenant and may take other actions to reduce its debt levels to align with the Company’s long-term strategy,
including divesting other businesses, refinancing debt and issuing equity or equity-linked securities as deemed appropriate.
Senior Secured Credit Facilities
On February 13, 2012, the Company and certain of its subsidiaries as guarantors entered into the “Senior Secured Credit
Facilities” under the Company’s Third Amended and Restated Credit and Guaranty Agreement, as amended (the “Third
Amended Credit Agreement”) with a syndicate of financial institutions and investors, as lenders. As of January 1, 2017, the
Third Amended Credit Agreement provided for: (i) a $1,500 million Revolving Credit Facility maturing on April 20, 2018
(the "2018 Revolving Credit Facility") and (ii) $9,939 million in a series of term loans maturing during the years 2018 through
2022. There was $875 million outstanding under the 2018 Revolving Credit Facility as of January 1, 2017.
2017 Activity
During 2017, the Company repaid $3,221 million of outstanding debt under its Senior Secured Credit Facilities using the net
proceeds from the Skincare Sale, Dendreon Sale, iNova Sale, Obagi Sale and the divestiture of a manufacturing facility in
Brazil. During 2017, the Company also repaid another $786 million of outstanding debt under its Senior Secured Credit
Facilities using cash on hand.
On March 21, 2017, the Company entered into Amendment No. 14 to the Third Amended Credit Agreement, which, among
other changes, provided additional financing from an incremental term loan under the Company's Series F Tranche B Term
Loan Facility (the “Series F Tranche B Term Loan Facility”), the proceeds of which, combined with the proceeds from the
issuance of the March 2022 Secured Notes (as defined below) and the March 2024 Secured Notes (as defined below) and
cash on hand, were used to: (i) refinance $4,962 million of term loans under the Senior Secured Credit Facilities (the “March
2017 Refinanced Debt”), (ii) repurchase $1,100 million in principal amount of 6.75% senior unsecured notes due August
2018 (the "August 2018 Unsecured Notes"), (iii) repay $350 million of amounts outstanding under the Company's 2018
Revolving Credit Facility and (iv) pay related fees and expenses (collectively, the “March 2017 Refinancing Transactions”).
On March 28, 2017, the Company entered into Amendment No. 15 to the Third Amended Credit Agreement which provided
for the extension of the maturity date of $1,190 million of revolving credit commitments under the 2018 Revolving Credit
Facility from April 20, 2018 to April 20, 2020 (the “2020 Revolving Credit Facility”).
On November 21, 2017, the Company entered into Amendment No. 16 to the Third Amended Credit Agreement to reprice
the then outstanding term loans under its Senior Credit Facilities.
In connection with the repayments of debt and amendments to its Senior Secured Credit Facilities during 2017, the Company
recognized $66 million in aggregate losses on extinguishment of debt representing: (i) the difference between the amounts
paid to settle extinguished debt and its carrying value (the stated principal amount net of unamortized discount and debt
issuance costs) and (ii) prepayment penalties. Third-party expenses of $3 million associated with the modification of certain
debt under the Senior Secured Credit Facilities were expensed as incurred and included in Interest expense during 2017.
2018 Activity
During 2018, the Company repaid (net of additional borrowings) $571 million of outstanding debt under its Senior Secured
Credit Facilities using cash on hand.
On June 1, 2018, the Company entered into a Restatement Agreement in respect of a Fourth Amended and Restated Credit
and Guaranty Agreement (the “Restated Credit Agreement”) which restated in full the Third Amended Credit Agreement. The
Restated Credit Agreement replaced the 2020 Revolving Credit Facility with a revolving credit facility of $1,225 million (the
"2023 Revolving Credit Facility") and replaced the Series F Tranche B Term Loan Facility principal amount outstanding of
$3,315 million with a new seven year Tranche B Term Loan Facility of $4,565 million (the “June 2025 Term Loan B Facility”)
borrowed by the Company’s subsidiary, Bausch Health Americas, Inc. ("BHA") (formerly Valeant Pharmaceuticals
International).
The 2023 Revolving Credit Facility matures on the earlier of June 1, 2023 and the date that is 91 calendar days prior to the
scheduled maturity of indebtedness for borrowed money of the Company or BHA in an aggregate principal amount in excess
of $1,000 million. Both the Company and BHA are borrowers with respect to the 2023 Revolving Credit Facility. Borrowings
under the 2023 Revolving Credit Facility may be made in U.S. dollars, Canadian dollars or euros.
On June 1, 2018, the Company issued an irrevocable notice of redemption for the remaining outstanding principal amounts
of: (i) $691 million of the March 2020 Unsecured Notes (as defined below), (ii) $578 million of 6.75% Senior Unsecured
Notes due August 2021 (the “August 2021 Unsecured Notes”), (iii) $550 million of 7.25% Senior Unsecured Notes due July
F-35
2022 (the “July 2022 Unsecured Notes”) and (iv) $146 million of 6.375% Senior Unsecured Notes due October 2020 (the
March 2020 Unsecured Notes (as defined below), together with the August 2021 Unsecured Notes, the July 2022 Unsecured
Notes and the 6.375% Senior Unsecured Notes due October 2020 the “June 2018 Unsecured Refinanced Debt”). On June 1,
2018, using the remaining net proceeds from the June 2025 Term Loan B Facility, the net proceeds from the issuance of $750
million in aggregate principal amount of 8.50% Senior Unsecured Notes due 2027 (the "January 2027 Unsecured Notes") by
BHA and cash on hand, the Company prepaid the remaining Series F Tranche B Term Loan Facility and redeemed the June
2018 Unsecured Refinanced Debt at its aggregate redemption price and the indentures governing the June 2018 Unsecured
Refinanced Debt were discharged (collectively, the “June 2018 Refinancing Transactions”).
The Restated Credit Agreement was accounted for as a modification of debt, to the extent the June 2018 Unsecured Refinanced
Debt was replaced with newly issued debt to the same creditor, and as an extinguishment of debt if: (i) the June 2018 Unsecured
Refinanced Debt was replaced with newly issued debt to a different creditor, (ii) a portion of the unamortized deferred financing
fees was allocated to debt that was paid down or (iii) the borrowing capacity declined when issuing a new revolving credit
facility. The following was accounted for as an extinguishment of debt: (i) the difference between the amounts paid to redeem
the June 2018 Unsecured Refinanced Debt and the June 2018 Unsecured Refinanced Debt’s carrying value, (ii) the replacement
of the Series F Tranche B Term Loan Facility with the June 2025 Term Loan B Facility to the extent any unamortized deferred
financing fees were associated with the portion of the Series F Tranche B Term Loan Facility that was paid down and (iii) the
replacement of the 2020 Revolving Credit Facility with the 2023 Revolving Credit Facility to the extent any unamortized
deferred financing fees were associated with the decline in borrowing capacity. For amounts accounted for as an extinguishment
of debt, the Company incurred a loss on extinguishment of debt of $48 million. Payments made to the lenders and a portion
of payments made to third parties of $74 million associated with the June 2018 Refinancing Transactions were capitalized
and are being amortized as interest expense over the remaining terms of the debt, ranging from 2023 through 2027. Third-
party expenses of $4 million associated with the modification of debt were expensed as incurred and included in Interest
expense.
On November 27, 2018, the Company entered into the First Incremental Amendment to the Restated Credit Agreement, which
provided an additional seven year Tranche B Term Loan Facility of $1,500 million (the "November 2025 Term Loan B
Facility") and used the net proceeds, and cash on hand, to repay $1,483 million of 7.50% Senior Unsecured Notes due July
2021 (the “July 2021 Unsecured Notes”) in a tender offer (the "November 2018 Refinancing Transactions"). On December
27, 2018, the Company redeemed, using cash on hand, the remaining outstanding principal amount of $17 million of the July
2021 Unsecured Notes.
The repayment of the July 2021 Unsecured Notes was accounted for as an extinguishment of debt and the Company incurred
a loss on extinguishment of debt of $43 million representing the difference between the amount paid to settle the extinguished
debt and the extinguished debt’s carrying value. Payments made to the lenders and other third parties of $25 million associated
with the issuance of the November 2025 Term Loan B Facility were capitalized and are being amortized as interest expense
over the remaining term of the November 2025 Term Loan B Facility.
2019 Activity
During 2019, the Company repaid (net of additional borrowings) $806 million of outstanding debt under its Senior Secured
Credit Facilities using cash on hand.
As of December 31, 2019, the Company had no outstanding borrowings, $170 million of issued and outstanding letters of
credit, and remaining availability of $1,055 million under its 2023 Revolving Credit Facility.
Current Description of Senior Secured Credit Facilities
Borrowings under the Senior Secured Credit Facilities in U.S. dollars bear interest at a rate per annum equal to, at the Company's
option, either: (i) a base rate determined by reference to the highest of: (a) the prime rate (as defined in the Restated Credit
Agreement), (b) the federal funds effective rate plus 1/2 of 1.00% or (c) the eurocurrency rate (as defined in the Restated
Credit Agreement) for a period of one month plus 1.00% (or if such eurocurrency rate shall not be ascertainable, 1.00%) or
(ii) a eurocurrency rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant
to such borrowing adjusted for certain additional costs (provided however, that the eurocurrency rate shall at no time be less
than 0.00% per annum), in each case plus an applicable margin.
Borrowings under the 2023 Revolving Credit Facility in euros bear interest at a eurocurrency rate determined by reference
to the costs of funds for euro deposits for the interest period relevant to such borrowing (provided however, that the eurocurrency
rate shall at no time be less than 0.00% per annum), plus an applicable margin.
Borrowings under the 2023 Revolving Credit Facility in Canadian dollars bear interest at a rate per annum equal to, at the
Company's option, either: (i) a prime rate determined by reference to the higher of: (a) the rate of interest last quoted by The
F-36
Wall Street Journal as the “Canadian Prime Rate” or, if The Wall Street Journal ceases to quote such rate, the highest per
annum interest rate published by the Bank of Canada as its prime rate and (b) the 1 month BA rate (as defined below) calculated
daily plus 1.00% (provided however, that the prime rate shall at no time be less than 0.00%) or (ii) the bankers’ acceptance
rate for Canadian dollar deposits in the Toronto interbank market (the “BA rate”) for the interest period relevant to such
borrowing (provided however, that the BA rate shall at no time be less than 0.00% per annum), in each case plus an applicable
margin.
Subject to certain exceptions and customary baskets set forth in the Restated Credit Agreement, the Company is required to
make mandatory prepayments of the loans under the Senior Secured Credit Facilities under certain circumstances, including
from: (i) 100% of the net cash proceeds of insurance and condemnation proceeds for property or asset losses (subject to
reinvestment rights and net proceeds threshold), (ii) 100% of the net cash proceeds from the incurrence of debt (other than
permitted debt as described in the Restated Credit Agreement), (iii) 50% of Excess Cash Flow (as defined in the Restated
Credit Agreement) subject to decrease based on leverage ratios and subject to a threshold amount and (iv) 100% of net cash
proceeds from asset sales (subject to reinvestment rights). These mandatory prepayments may be used to satisfy future
amortization.
The applicable interest rate margins for the June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility
are 2.00% and 1.75%, respectively, with respect to base rate and prime rate borrowings and 3.00% and 2.75%, respectively,
with respect to eurocurrency rate and BA rate borrowings. As of December 31, 2019, the stated rates of interest on the
Company’s borrowings under the June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility were 4.74%
and 4.49% per annum, respectively.
The amortization rate for both the June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility is 5.00%
per annum. The Company may direct that prepayments be applied to such amortization payments in order of maturity. As of
December 31, 2019, the aggregate remaining mandatory quarterly amortization payments for the Senior Secured Credit
Facilities were $1,126 million through November 1, 2025.
The applicable interest rate margins for borrowings under the 2023 Revolving Credit Facility are 1.50%-2.00% with respect
to base rate or prime rate borrowings and 2.50%-3.00% with respect to eurocurrency rate or BA rate borrowings. As of
December 31, 2019, the stated rate of interest on the 2023 Revolving Credit Facility was 4.74% per annum. In addition, the
Company is required to pay commitment fees of 0.25% - 0.50% per annum with respect to the unutilized commitments under
the 2023 Revolving Credit Facility, payable quarterly in arrears. The Company also is required to pay: (i) letter of credit fees
on the maximum amount available to be drawn under all outstanding letters of credit in an amount equal to the applicable
margin on eurocurrency rate borrowings under the 2023 Revolving Credit Facility on a per annum basis, payable quarterly
in arrears, (ii) customary fronting fees for the issuance of letters of credit and (iii) agency fees.
The Restated Credit Agreement permits the incurrence of incremental credit facility borrowings, up to the greater of $1,000
million and 28.5% of Consolidated Adjusted EBITDA (as defined in the Restated Credit Agreement), subject to customary
terms and conditions, as well as the incurrence of additional incremental credit facility borrowings subject to a secured leverage
ratio of not greater than 3.50:1.00, and, in the case of unsecured debt, a total leverage ratio of not greater than 6.50:1.00 or
an interest coverage ratio of not less than 2.00:1.00.
Senior Secured Notes
The Senior Secured Notes are guaranteed by each of the Company’s subsidiaries that is a guarantor under the Restated Credit
Agreement and existing Senior Unsecured Notes (together, the “Note Guarantors”). The Senior Secured Notes and the
guarantees related thereto are senior obligations and are secured, subject to permitted liens and certain other exceptions, by
the same first priority liens that secure the Company’s obligations under the Restated Credit Agreement under the terms of
the indentures governing the Senior Secured Notes.
The Senior Secured Notes and the guarantees rank equally in right of repayment with all of the Company’s and Note Guarantors’
respective existing and future unsubordinated indebtedness and senior to the Company’s and Note Guarantors’ respective
future subordinated indebtedness. The Senior Secured Notes and the guarantees related thereto are effectively pari passu with
the Company’s and the Note Guarantors’ respective existing and future indebtedness secured by a first priority lien on the
collateral securing the Senior Secured Notes and effectively senior to the Company’s and the Note Guarantors’ respective
existing and future indebtedness that is unsecured, including the existing Senior Unsecured Notes, or that is secured by junior
liens, in each case to the extent of the value of the collateral. In addition, the Senior Secured Notes are structurally subordinated
to: (i) all liabilities of any of the Company’s subsidiaries that do not guarantee the Senior Secured Notes and (ii) any of the
Company’s debt that is secured by assets that are not collateral.
F-37
Upon the occurrence of a change in control (as defined in the indentures governing the Senior Secured Notes), unless the
Company has exercised its right to redeem all of the notes of a series, holders of the Senior Secured Notes may require the
Company to repurchase such holder’s notes, in whole or in part, at a purchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest.
6.50% Senior Secured Notes due 2022 and 7.00% Senior Secured Notes due 2024 - March 2017 Refinancing Transactions
As part of the March 2017 Refinancing Transactions, the Company issued $1,250 million aggregate principal amount of
6.50% senior secured notes due March 15, 2022 (the “March 2022 Secured Notes”) and $2,000 million aggregate principal
amount of 7.00% senior secured notes due March 15, 2024 (the “March 2024 Secured Notes”), in a private placement, the
proceeds of which, when combined with the proceeds from the Series F Tranche B Term Loan Facility and cash on hand,
were used to: (i) repay the March 2017 Refinanced Debt, (ii) repurchase $1,100 million in principal amount of August 2018
Unsecured Notes, (iii) repay $350 million of amounts outstanding under the 2018 Revolving Credit Facility and (iv) pay
related fees and expenses. Interest on these notes is payable semi-annually in arrears on each March 15 and September 15.
The March 2022 Secured Notes are redeemable at the option of the Company, in whole or in part, at the redemption prices
set forth in the indenture.
The March 2024 Secured Notes are redeemable at the option of the Company, in whole or in part, at any time on or after
March 15, 2020, at the redemption prices set forth in the indenture. The Company may redeem some or all of the March 2024
Secured Notes prior to March 15, 2020 at a price equal to 100% of the principal amount thereof plus a “make-whole” premium.
Prior to March 15, 2020, the Company may redeem up to 40% of the aggregate principal amount of the March 2024 Secured
Notes using the proceeds of certain equity offerings at the redemption price set forth in the indenture.
5.50% Senior Secured Notes due 2025 - October 2017 Refinancing Transactions and November 2017 Refinancing Transactions
On October 17, 2017, the Company issued $1,000 million aggregate principal amount of 5.50% Senior Secured Notes due
November 2025 (the “November 2025 Secured Notes”), in a private placement, the proceeds of which were used to repurchase
$1,000 million in aggregate principal amount of previously outstanding senior unsecured notes (the “October 2017 Refinancing
Transactions”). The related fees and expenses were paid using cash on hand. Interest on the November 2025 Secured Notes
is payable semi-annually in arrears on each May 1 and November 1.
The November 2025 Secured Notes are redeemable at the option of the Company, in whole or in part, at any time on or after
November 1, 2020, at the redemption prices set forth in the indenture. The Company may redeem some or all of the November
2025 Secured Notes prior to November 1, 2020 at a price equal to 100% of the principal amount thereof plus a “make-whole”
premium. Prior to November 1, 2020, the Company may redeem up to 40% of the aggregate principal amount of the November
2025 Secured Notes using the proceeds of certain equity offerings at the redemption price set forth in the indenture.
On November 21, 2017, the Company issued $750 million aggregate principal amount of the November 2025 Secured Notes
in a private placement. These are additional notes and form part of the same series as the Company’s existing November 2025
Secured Notes. The proceeds were used to prepay $750 million of its Series F Tranche B Term Loan Facility. The related fees
and expenses were paid using cash on hand (collectively, the “November 2017 Refinancing Transactions”).
5.75% Senior Secured Notes due 2027 - March 2019 Refinancing Transactions
On March 8, 2019, BHA and the Company issued: (i) $1,000 million aggregate principal amount of January 2027 Unsecured
Notes and (ii) $500 million aggregate principal amount of 5.75% Senior Secured Notes due August 2027 (the "August 2027
Secured Notes"), respectively, in a private placement. A portion of the proceeds and cash on hand were used to: (i) repurchase
$584 million of 5.875% Senior Unsecured Notes due 2023 (the "May 2023 Unsecured Notes"), (ii) repurchase $518 million
of 5.625% Senior Unsecured Notes due 2021 (the “December 2021 Unsecured Notes”), (iii) repurchase $216 million of 5.50%
Senior Unsecured Notes due 2023 (the "March 2023 Unsecured Notes”) and (iv) pay all fees and expenses associated with
these transactions (collectively, the “March 2019 Refinancing Transactions”). During April 2019, the Company redeemed
$182 million of the December 2021 Unsecured Notes, representing the remaining outstanding principal balance of the
December 2021 Unsecured Notes and completing the refinancing of $1,500 million of debt in connection with the March
2019 Refinancing Transactions. The March 2019 Refinancing Transactions were accounted for as an extinguishment of debt
and the Company incurred a loss on extinguishment of debt of $8 million representing the difference between the amount
paid to settle the extinguished debt and the extinguished debt’s carrying value. Interest on the August 2027 Secured Notes is
payable semi-annually in arrears on each February 15 and August 15.
The August 2027 Secured Notes are redeemable at the option of the Company, in whole or in part, at any time on or after
August 15, 2022, at the redemption prices set forth in the indenture. The Company may redeem some or all of the August
2027 Secured Notes prior to August 15, 2022 at a price equal to 100% of the principal amount thereof plus a “make-whole”
F-38
premium. Prior to August 15, 2022, the Company may redeem up to 40% of the aggregate principal amount of the August
2027 Secured Notes using the proceeds of certain equity offerings at the redemption price set forth in the indenture.
Senior Unsecured Notes
The Senior Unsecured Notes issued by the Company are the Company’s senior unsecured obligations and are jointly and
severally guaranteed on a senior unsecured basis by each of its subsidiaries that is a guarantor under the Senior Secured Credit
Facilities. The Senior Unsecured Notes issued by BHA are senior unsecured obligations of BHA and are jointly and severally
guaranteed on a senior unsecured basis by the Company and each of its subsidiaries (other than BHA) that is a guarantor
under the Senior Secured Credit Facilities. Future subsidiaries of the Company and BHA, if any, may be required to guarantee
the Senior Unsecured Notes.
If the Company experiences a change in control, the Company may be required to make an offer to repurchase each series of
Senior Unsecured Notes, in whole or in part, at a purchase price equal to 101% of the aggregate principal amount of the Senior
Unsecured Notes repurchased, plus accrued and unpaid interest.
5.625% Senior Unsecured Notes due 2021
On December 2, 2013, the Company issued $900 million aggregate principal amount of December 2021 Unsecured Notes in
a private placement. The December 2021 Unsecured Notes accrued interest at the rate of 5.625% per year and were subsequently
repaid in full: (i) using cash on hand of $200 million in December 2018 and (ii) as part of the March 2019 Refinancing
Transactions.
5.50% Senior Unsecured Notes due 2023
On January 30, 2015, the Company issued $1,000 million aggregate principal amount of March 2023 Unsecured Notes in a
private placement. On March 8, 2019 and May 23, 2019, the Company repurchased $216 million and $382 million of March
2023 Unsecured Notes as part of the March 2019 Refinancing Transactions and the May 2019 Refinancing Transactions (as
defined below), respectively. The March 2023 Unsecured Notes accrue interest at the rate of 5.50% per year, payable semi-
annually in arrears. The Company may redeem all or a portion of the remaining March 2023 Unsecured Notes at the applicable
redemption prices set forth in the March 2023 Unsecured Notes indenture, plus accrued and unpaid interest to the date of
redemption.
5.375% Senior Unsecured Notes due 2020, 5.875% Senior Unsecured Notes due 2023, 4.50% Senior Unsecured Notes due
2023 and 6.125% Senior Unsecured Notes due 2025
On March 27, 2015, VRX Escrow Corp. (the "VRX Issuer"), a newly formed wholly owned subsidiary of the Company,
issued $2,000 million aggregate principal amount of 5.375% Senior Unsecured Notes due 2020 (the "March 2020 Unsecured
Notes"), $3,250 million aggregate principal amount of 5.875% Senior Unsecured Notes due 2023 (the "May 2023 Unsecured
Notes"), €1,500 million aggregate principal amount of 4.50% Senior Unsecured Notes due 2023 (the "Euro Notes”) and $3,250
million aggregate principal amount of 6.125% Senior Unsecured Notes due 2025 (the "April 2025 Unsecured Notes" and,
together with the March 2020 Unsecured Notes, the May 2023 Unsecured Notes and the Euro Notes, the "VRX Notes") in a
private placement.
In addition, the VRX Issuer entered into an escrow and security agreement (the “Escrow Agreement”) dated as of March 27,
2015, with an escrow agent. Pursuant to the Escrow Agreement, the proceeds from the issuance of the VRX Notes, together
with cash sufficient to fund certain accrued and unpaid interest on the VRX Notes, totaling $10,340 million in the aggregate,
were deposited into escrow accounts and held as security for the VRX Issuer’s obligations until the consummation of the
Salix Acquisition, which occurred on April 1, 2015. At the time of the closing of the Salix Acquisition, (1) the VRX Issuer
was voluntarily liquidated and all of its obligations were assumed by, and all of its assets were distributed to, the Company,
(2) the Company assumed all of the VRX Issuer's obligations under the VRX Notes and the related indenture and (3) the funds
previously held in escrow were released to the Company and were used to finance the Salix Acquisition (as such, the $10,340
million referenced in this paragraph was released from restricted cash and cash equivalents in April 2015.)
The March 2020 Unsecured Notes accrued interest at the rate of 5.375% per year and were repaid in full as part of: (i) the
December 2017 Refinancing Transactions (as defined below), (ii) the March 2018 Refinancing Transactions (as defined below)
and (iii) the June 2018 Refinancing Transactions. The May 2023 Unsecured Notes, the Euro Notes and the April 2025 Unsecured
Notes accrue interest at the rate of 5.875%, 4.50% and 6.125% per year, respectively, payable semi-annually in arrears.
On March 8, 2019 and May 23, 2019, the Company repurchased $584 million and $1,118 million of May 2023 Unsecured
Notes as part of the March 2019 Refinancing Transactions and the May 2019 Refinancing Transactions (as defined below),
respectively, and on October 3, 2019, the Company repaid an additional $100 million of May 2023 Unsecured Notes using
cash on hand. On December 18, 2019, the Company issued a conditional notice of redemption to redeem $1,240 million of
F-39
May 2023 Unsecured Notes on January 16, 2020. On December 30, 2019, the Company received the proceeds associated
with the December 2019 Financing and Refinancing Transactions (as defined below), satisfying the condition included in this
conditional notice of redemption. On January 16, 2020, the Company redeemed $1,240 million aggregate principal amount
of May 2023 Unsecured Notes.
The Company may redeem all or a portion of the April 2025 Unsecured Notes at any time prior to April 15, 2020 at a price
equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a
“make-whole” premium. The Company may redeem all or a portion of the May 2023 Unsecured Notes or the Euro Notes
and, on or after April 15, 2020, the Company may redeem all or a portion of the April 2025 Unsecured Notes, at the redemption
prices applicable to each series of such notes, as set forth in the applicable indenture, plus accrued and unpaid interest to the
date of redemption.
9.00% Senior Unsecured Notes due 2025 - December 2017 Refinancing Transactions
On December 18, 2017, the Company issued $1,500 million aggregate principal amount of 9.00% Senior Unsecured Notes
due 2025 (the “December 2025 Unsecured Notes”) in a private placement, the net proceeds of which were used to repurchase
$1,500 million in aggregate principal amount of previously outstanding senior unsecured notes (the “December 2017
Refinancing Transactions”). The related fees and expenses were paid using cash on hand. The December 2025 Unsecured
Notes accrue interest at the rate of 9.00% per year, payable semi-annually in arrears on each of June 15 and December 15.
The Company may redeem all or a portion of the December 2025 Unsecured Notes at any time prior to December 15, 2021,
at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption,
plus a “make-whole” premium. In addition, at any time prior to December 15, 2020, the Company may redeem up to 40% of
the aggregate principal amount of the outstanding December 2025 Unsecured Notes with the net proceeds of certain equity
offerings at the redemption price set forth in the December 2025 Unsecured Notes indenture. On or after December 15, 2021,
the Company may redeem all or a portion of the December 2025 Unsecured Notes at the applicable redemption prices set
forth in the December 2025 Unsecured Notes indenture, plus accrued and unpaid interest to the date of redemption.
9.25% Senior Unsecured Notes due 2026 - March 2018 Refinancing Transactions
On March 26, 2018, BHA issued $1,500 million in aggregate principal amount of 9.25% Senior Unsecured Notes due 2026
(the “April 2026 Unsecured Notes”) in a private placement, the net proceeds of which, and cash on hand, were used to
repurchase $1,500 million in aggregate principal amount of unsecured notes. All fees and expenses associated with these
transactions were paid with cash on hand (collectively, the “March 2018 Refinancing Transactions”). The March 2018
Refinancing Transactions were accounted for as an extinguishment of debt and the Company incurred a loss on extinguishment
of debt of $26 million representing the difference between the amount paid to settle the extinguished debt and the extinguished
debt’s carrying value. The April 2026 Unsecured Notes accrue interest at the rate of 9.25% per year, payable semi-annually
in arrears on each of April 1 and October 1.
BHA may redeem all or a portion of the April 2026 Unsecured Notes at any time prior to April 1, 2022, at a price equal to
100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole”
premium. In addition, at any time prior to April 1, 2021, BHA may redeem up to 40% of the aggregate principal amount of
the outstanding April 2026 Unsecured Notes with the net proceeds of certain equity offerings at the redemption price set forth
in the April 2026 Unsecured Notes indenture. On or after April 1, 2022, BHA may redeem all or a portion of the April 2026
Unsecured Notes at the applicable redemption prices set forth in the April 2026 Unsecured Notes indenture, plus accrued and
unpaid interest to the date of redemption.
8.50% Senior Unsecured Notes due 2027 - June 2018 Refinancing Transactions and March 2019 Refinancing Transactions
As part of the June 2018 Refinancing Transactions, BHA issued $750 million in aggregate principal amount of January 2027
Unsecured Notes in a private placement, the net proceeds of which, when combined with the remaining net proceeds from
the June 2025 Term Loan B Facility and cash on hand, were deposited with The Bank of New York Mellon Trust Company,
N.A., as trustee under the indentures governing the June 2018 Unsecured Refinanced Debt, to redeem the June 2018 Unsecured
Refinanced Debt at its aggregate redemption price and the indentures governing the June 2018 Unsecured Refinanced Debt
were discharged. The January 2027 Unsecured Notes accrue interest at the rate of 8.50% per year, payable semi-annually in
arrears on each of January 31 and July 31.
As part of the March 2019 Refinancing Transactions described above, BHA issued $1,000 million aggregate principal amount
of 8.50% Senior Unsecured Notes due January 2027. These are additional notes and form part of the same series as BHA’s
existing January 2027 Unsecured Notes.
F-40
BHA may redeem all or a portion of the January 2027 Unsecured Notes at any time prior to July 31, 2022, at a price equal to
100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole”
premium. In addition, at any time prior to July 31, 2021, BHA may redeem up to 40% of the aggregate principal amount of
the outstanding January 2027 Unsecured Notes with the net proceeds of certain equity offerings at the redemption price set
forth in the January 2027 Unsecured Notes indenture. On or after July 31, 2022, BHA may redeem all or a portion of the
January 2027 Unsecured Notes at the applicable redemption prices set forth in the January 2027 Unsecured Notes indenture,
plus accrued and unpaid interest to the date of redemption.
7.00% Senior Unsecured Notes due 2028 and 7.25% Senior Unsecured Notes due 2029 - May 2019 Refinancing Transactions
On May 23, 2019, the Company issued: (i) $750 million aggregate principal amount of 7.00% Senior Unsecured Notes due
January 2028 (the "7.00% January 2028 Unsecured Notes") and (ii) $750 million aggregate principal amount of 7.25% Senior
Unsecured Notes due May 2029 (the "May 2029 Unsecured Notes"), respectively, in a private placement. The proceeds and
cash on hand were used to: (i) repurchase $1,118 million of May 2023 Unsecured Notes, (ii) repurchase $382 million of March
2023 Unsecured Notes and (iii) pay all fees and expenses associated with these transactions (collectively, the “May 2019
Refinancing Transactions”). The May 2019 Refinancing Transactions were accounted for as an extinguishment of debt and
the Company incurred a loss on extinguishment of debt of $32 million representing the difference between the amount paid
to settle the extinguished debt and the extinguished debt’s carrying value. Interest on the 7.00% January 2028 Unsecured
Notes is payable semi-annually in arrears on each January 15 and July 15. Interest on the May 2029 Unsecured Notes is
payable semi-annually in arrears on each May 30 and November 30.
The 7.00% January 2028 Unsecured Notes and the May 2029 Unsecured Notes are redeemable at the option of the Company,
in whole or in part, at any time on or after January 15, 2023 and May 30, 2024, respectively, at the redemption prices set forth
in the respective indenture. The Company may redeem some or all of the 7.00% January 2028 Unsecured Notes or the May
2029 Unsecured Notes prior to January 15, 2023 and May 30, 2024, respectively, at a price equal to 100% of the principal
amount thereof plus a “make-whole” premium. Prior to July 15, 2022, and May 30, 2022, the Company may redeem up to
40% of the aggregate principal amount of the 7.00% January 2028 Unsecured Notes or the May 2029 Unsecured Notes,
respectively, using the proceeds of certain equity offerings at the redemption price set forth in the respective indenture.
5.00% Senior Unsecured Notes due 2028 and 5.25% Senior Unsecured Notes due 2030 - December 2019 Financing and
Refinancing Transactions
On December 30, 2019, the Company issued: (i) $1,250 million aggregate principal amount of 5.00% Senior Unsecured Notes
due January 2028 (the "5.00% January 2028 Unsecured Notes") and (ii) $1,250 million aggregate principal amount of 5.25%
Senior Unsecured Notes due January 2030 (the "January 2030 Unsecured Notes") in a private placement. The proceeds and
cash on hand were used to: (i) redeem $1,240 million of May 2023 Unsecured Notes on January 16, 2020, (ii) finance the
$1,210 million settlement of certain U.S. Securities litigation as discussed in Note 21, "LEGAL PROCEEDINGS" and (iii)
pay all fees and expenses associated with these transactions (collectively, the "December 2019 Financing and Refinancing
Transactions").
Interest on the 5.00% January 2028 Unsecured Notes is payable semi-annually in arrears on each January 30 and July 30.
Interest on the January 2030 Unsecured Notes is payable semi-annually in arrears on each January 30 and July 30. The 5.00%
January 2028 Unsecured Notes and the January 2030 Unsecured Notes are redeemable at the option of the Company, in whole
or in part, at any time on or after January 30, 2023 and January 30, 2025, respectively, at the redemption prices set forth in
the respective indenture. The Company may redeem some or all of the 5.00% January 2028 Unsecured Notes or the January
2030 Unsecured Notes prior to January 30, 2023 and January 30, 2025, respectively, at a price equal to 100% of the principal
amount thereof plus a “make-whole” premium. Prior to January 30, 2023, the Company may redeem up to 40% of the aggregate
principal amount of the 5.00% January 2028 Unsecured Notes or the January 2030 Unsecured Notes using the proceeds of
certain equity offerings at the redemption price set forth in the respective indenture.
Weighted Average Stated Rate of Interest
The weighted average stated rate of interest for the Company's outstanding debt obligations as of December 31, 2019 and
2018 was 6.21% and 6.23%, respectively.
F-41
Maturities and Mandatory Payments
Maturities and mandatory payments of debt obligations for the five succeeding years ending December 31 and thereafter are
as follows:
(in millions)
2020
2021
2022
2023
2024
Thereafter
Total gross maturities
Unamortized discounts
Total long-term debt and other
$
1,240
103
1,553
2,595
2,303
18,394
26,188
(293)
25,895
$
On December 18, 2019, the Company issued a conditional notice of redemption to redeem $1,240 million of May 2023
Unsecured Notes on January 16, 2020. On December 30, 2019, the Company received the proceeds associated with the
December 2019 Financing and Refinancing Transactions, satisfying the condition included in the conditional notice of
redemption. On January 16, 2020, the Company repaid $1,240 million aggregate principal amount of May 2023 Unsecured
Notes which were due in 2020 in the table above.
Under the Restated Credit Agreement, there is no Excess Cash Flow payment due for 2019.
12. PENSION AND POSTRETIREMENT EMPLOYEE BENEFIT PLANS
The Company has defined benefit plans and a participatory defined benefit postretirement medical and life insurance plan,
which covers a closed grandfathered group of legacy Bausch & Lomb Holdings Incorporated (‘‘B&L’’) U.S. employees and
employees in certain other countries. The U.S. defined benefit accruals were frozen as of December 31, 2004 and benefits
that were earned up to December 31, 2004 were preserved. Participants continue to earn interest credits on their cash balance.
The most significant non-U.S. plans are two defined benefit plans in Ireland. In 2011, both Ireland defined benefit plans were
closed to future service benefit accruals; however, additional accruals related to annual salary increases continued. In December
2014, one of the Ireland defined benefit plans was amended effective August 2014 to eliminate future benefit accruals related
to salary increases. All of the pension benefits accrued through the plan amendment date were preserved. As a result of the
plan amendment, there are no active plan participants accruing benefits under the amended Ireland defined benefit plan. The
U.S. postretirement benefit plan was amended effective January 1, 2005 to eliminate employer contributions after age 65 for
participants who did not meet the minimum requirements of age and service on that date. The employer contributions for
medical and prescription drug benefits for participants retiring after March 1, 1989 were frozen effective January 1, 2010.
Effective January 1, 2014, the Company no longer offers medical and life insurance coverage to new retirees.
In addition to the B&L benefit plans, outside of the U.S., a limited group of the Company's employees are covered by defined
benefit pension plans.
The Company uses December 31 as the year-end measurement date for all of its defined benefit pension plans and the
postretirement benefit plan.
Accounting for Pension Benefit Plans and Postretirement Benefit Plan
The Company recognizes in its Consolidated Balance Sheets an asset or liability equal to the over- or under-funded benefit
obligation of each defined benefit pension plan and postretirement benefit plan. Actuarial gains or losses and prior service
costs or credits that arise during the period but are not recognized as components of net periodic benefit cost are recognized,
net of tax, as a component of other comprehensive income (loss).
F-42
The amounts included in Accumulated other comprehensive loss as of December 31, 2019, and 2018 were as follows:
(in millions)
Unrecognized actuarial losses
Unrecognized prior service credits
Pension Benefit Plans
U.S. Plan
2019
2018
Non-U.S. Plans
2018
2019
U.S. Postretirement
Benefit Plan
2019
2018
$
$
(20)
$
— $
(31)
$
— $
(65)
26
$
$
(50)
27
$
$
(2)
14
$
$
(1)
17
Of the December 31, 2019 amounts, the Company expects to recognize $3 million and $1 million of unrecognized prior
service credits related to the U.S. postretirement benefit plan and the non-U.S. defined benefit plans, respectively, in net
periodic (benefit) cost during 2020. In addition, the Company expects to recognize $2 million of unrecognized actuarial
losses related to the non-U.S. pension benefit plans in net periodic (benefit) cost during 2020.
Net Periodic (Benefit) Cost
The following table provides the components of net periodic (benefit) cost for the Company’s defined benefit pension plans
and postretirement benefit plan in 2019, 2018 and 2017:
Pension Benefit Plans
(in millions)
Service cost
Interest cost
Expected return on plan assets
Amortization of net loss
Amortization of prior service credit
Other
2019
2
$
8
(13)
—
—
—
U.S. Plan
2018
2
$
7
(15)
—
—
—
2017
2
$
8
(13)
—
—
—
Non-U.S. Plans
2018
3
$
5
(5)
1
(1)
—
2017
3
$
5
(5)
2
(1)
—
2019
3
$
5
(5)
1
(1)
1
U.S. Postretirement
Benefit Plan
2017
2018
2019
$ — $ — $ —
2
—
—
(3)
—
1
—
—
(2)
—
1
—
—
(2)
—
Net periodic (benefit) cost
$
(3)
$
(6)
$
(3)
$
4
$
3
$
4
$
(1)
$
(1)
$
(1)
F-43
Benefit Obligation, Change in Plan Assets and Funded Status
The table below presents components of the change in projected benefit obligation, change in plan assets and funded status
for 2019 and 2018:
(in millions)
Change in Projected Benefit Obligation
Projected benefit obligation, beginning of year
Service cost
Interest cost
Employee contributions
Settlements
Benefits paid
Actuarial losses (gains)
Currency translation adjustments
Projected benefit obligation, end of year
Change in Plan Assets
Fair value of plan assets, beginning of year
Actual return on plan assets
Employee contributions
Company contributions
Settlements
Benefits paid
Currency translation adjustments
Fair value of plan assets, end of year
Funded Status at end of year
Recognized as:
Accrued and other current liabilities
Other non-current liabilities
Pension Benefit Plans
U.S. Plan
2019
2018
Non-U.S. Plans
2018
2019
U.S. Postretirement
Benefit Plan
2019
2018
$
$
214
2
8
—
—
(15)
18
—
227
187
42
—
2
—
(15)
—
216
(11)
$
$
234
2
7
—
—
(16)
(13)
—
214
206
(11)
—
8
—
(16)
—
187
(27)
$ —
(11)
$
$ —
(27)
$
$
$
$
$
235
3
5
—
(2)
(8)
30
(4)
259
147
17
—
10
(2)
(8)
(3)
161
(98)
(2)
(96)
$
$
$
$
254
3
5
—
(2)
(5)
(10)
(10)
235
155
(2)
—
7
(2)
(5)
(6)
147
(88)
(2)
(86)
$
$
$
$
41
—
1
1
—
(4)
2
—
41
—
—
1
3
—
(4)
—
—
(41)
(5)
(36)
$
$
$
$
48
—
1
1
—
(5)
(4)
—
41
—
—
1
4
—
(5)
—
—
(41)
(5)
(36)
A number of the Company’s pension benefit plans were underfunded as of December 31, 2019 and 2018, having accumulated
benefit obligations exceeding the fair value of plan assets. Information for the underfunded pension benefit plans is as follows:
(in millions)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
U.S. Plan
2019
2018
Non-U.S. Plans
2018
2019
$
227
227
216
$
214
214
187
$
259
251
161
$
235
225
147
The Company’s policy for funding its pension benefit plans is to make contributions that meet or exceed the minimum statutory
funding requirements. These contributions are determined based upon recommendations made by the actuary under accepted
actuarial principles. In 2020, the Company expects to contribute $3 million, $9 million and $5 million to the U.S. pension
benefit plan, the non-U.S. pension benefit plans and the U.S. postretirement benefit plan, respectively. The Company plans
to use postretirement benefit plan assets and cash on hand, as necessary, to fund the U.S. postretirement benefit plan benefit
payments in 2020.
F-44
Estimated Future Benefit Payments
Future benefit payments over the next 10 years for the pension benefit plans and the postretirement benefit plan, which reflect
expected future service, as appropriate, are expected to be paid as follows:
(in millions)
2020
2021
2022
2023
2024
2025-2029
Assumptions
Pension Benefit Plans
U.S. Plan
$
$
$
Non-U.S. Plans
5
6
6
6
6
33
14
18
18
17
16
77
U.S.
Postretirement
Benefit
Plan
5
4
4
4
3
13
The weighted-average assumptions used to determine net periodic benefit costs and benefit obligations for 2019, 2018 and
2017 were as follows:
Pension Benefit Plans
2018
2019
2017
U.S. Postretirement Benefit Plan
2018
2019
2017
For Determining Net Periodic (Benefit) Cost
U.S. Plans:
Discount rate
Expected rate of return on plan assets
Rate of compensation increase
Non-U.S. Plans:
Discount rate
Expected rate of return on plan assets
Rate of compensation increase
For Determining Benefit Obligation
U.S. Plans:
Discount rate
Rate of compensation increase
Non-U.S. Plans:
Discount rate
Rate of compensation increase
4.16%
—
—
3.47%
—
—
3.85%
—
—
4.25%
7.25%
—
2.39%
3.46%
2.89%
3.56%
7.50%
—
2.29%
3.66%
2.87%
4.04%
7.50%
—
2.08%
3.84%
2.64%
Pension Benefit Plans
2019
2018
U.S. Postretirement
Benefit Plan
2019
2018
3.04%
—
4.16%
—
3.16%
—
1.68%
3.05%
4.25%
—
2.39%
2.89%
The expected long-term rate of return on plan assets was developed based on a capital markets model that uses expected asset
class returns, variance and correlation assumptions. The expected asset class returns were developed starting with current
Treasury (for the U.S. pension plan) or Eurozone (for the Ireland pension plans) government yields and then adding corporate
bond spreads and equity risk premiums to develop the return expectations for each asset class. The expected asset class returns
are forward-looking. The variance and correlation assumptions are also forward-looking. They take into account historical
relationships, but are adjusted to reflect expected capital market trends. The expected return on plan assets for the Company’s
U.S. pension plan for 2019 was 7.25%. The expected return on plan assets for the Company’s Ireland pension plans was 3.50%
for 2019.
The discount rate used to determine benefit obligations represents the current rate at which the benefit plan liabilities could
be effectively settled considering the timing of expected payments for plan participants.
The 2020 expected rate of return for the U.S. pension benefit plan will be 6.25%. The 2020 expected rate of return for the
Ireland pension benefit plans will be 3.00%.
F-45
Pension Benefit Plans Assets
Pension benefit plan assets are invested in several asset categories. The following presents the actual asset allocation as of
December 31, 2019 and 2018:
U.S. Plan
Equity securities
Fixed income securities
Other
Non-U.S. Plans
Cash and cash equivalents
Equity securities
Fixed income securities
Other
2019
2018
55%
44%
1%
6%
25%
64%
6%
52%
47%
1%
5%
20%
69%
6%
The investment strategy underlying pension plan asset allocation is to manage the assets of the plan to provide for the non-
current liabilities while maintaining sufficient liquidity to pay current benefits. Pension plan assets are diversified to protect
against large investment losses and to reduce the probability of excessive performance volatility. Diversification of assets is
achieved by allocating funds to various asset classes and investment styles within asset classes, and retaining investment
management firm(s) with complementary investment philosophies, styles and approaches.
The Company’s pension plan assets are managed by outside investment managers using a total return investment approach,
whereby a mix of equity and debt securities investments are used to maximize the long-term rate of return on plan assets. A
significant portion of the assets of the U.S. and Ireland pension plans have been invested in equity securities, as equity portfolios
have historically provided higher returns than debt and other asset classes over extended time horizons. Correspondingly,
equity investments also entail greater risks than other investments. Equity risks are balanced by investing a significant portion
of plan assets in broadly diversified fixed income securities.
Fair Value of Plan Assets
The Company measured the fair value of plan assets based on the prices that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. See Note 6, "FAIR VALUE
MEASUREMENTS" for details on the Company's fair value measurements based on a three-tier hierarchy.
The table below presents total plan assets by investment category as of December 31, 2019 and 2018 and the classification
of each investment category within the fair value hierarchy with respect to the inputs used to measure fair value. There were
no transfers between Level 1 and Level 2 during 2019 and 2018.
Pension Benefit Plans - U.S. Plans
December 31, 2019
December 31, 2018
Significant
Unobservable
Inputs
(Level 3)
Total
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
$
— $
— $
1
$
2
— $
Significant
Other
Observable
Inputs
(Level 2)
$
Significant
Unobservable
Inputs
(Level 3)
Total
(in millions)
Cash and cash equivalents
Commingled funds:
Equity securities:
U.S. broad market
Emerging markets
Worldwide developed
markets
Other assets
Fixed income securities:
Investment grade
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
$
1
—
—
—
—
—
1
$
— $
2
—
—
—
—
—
51
13
21
13
87
51
13
21
13
87
$
185
$
— $
187
64
15
26
15
95
—
—
—
—
—
64
15
26
15
95
$
215
$
— $
216
$
—
—
—
—
—
2
F-46
Pension Benefit Plans - Non-U.S. Plans
December 31, 2019
December 31, 2018
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
9
Significant
Unobservable
Inputs
(Level 3)
Total
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
— $
$
— $
9
$
— $
Significant
Other
Observable
Inputs
(Level 2)
7
Significant
Unobservable
Inputs
(Level 3)
$
— $
—
—
—
—
1
—
1
2
38
9
3
90
8
$
159
$
—
—
—
—
—
1
1
2
38
9
3
91
9
—
—
—
—
—
—
1
29
9
2
90
9
—
—
—
—
—
—
$
161
$
— $
147
$
— $
147
Total
7
1
29
9
2
90
9
(in millions)
Cash equivalents
Commingled funds:
Equity securities:
Emerging markets
Worldwide developed
markets
Fixed income securities:
Investment grade
Global high yield
Government bond funds
Other assets
$
$
Cash equivalents consisted primarily of term deposits and money market instruments. The fair value of the term deposits
approximates their carrying amounts due to their short term maturities. The money market instruments also have short
maturities and are valued using a market approach based on the quoted market prices of identical instruments.
Commingled funds are not publicly traded. The underlying assets in these funds are publicly traded on the exchanges and
have readily available price quotes. The Ireland pension plans held approximately 95% of the non-U.S. commingled funds
in 2019 and 2018. The commingled funds held by the U.S. and Ireland pension plans are primarily invested in index funds.
The underlying assets in the fixed income funds are generally valued using the net asset value per fund share, which is derived
using a market approach with inputs that include broker quotes, benchmark yields, base spreads and reported trades.
Defined Contribution Plans
The Company sponsors defined contribution plans in the U.S., Ireland and certain other countries. Under these plans, employees
are allowed to contribute a portion of their salaries to the plans, and the Company matches a portion of the employee
contributions. The Company contributed $41 million, $36 million and $22 million to these plans during the years ended
December 31, 2019, 2018 and 2017, respectively.
13. LEASES
Right-of-use assets and lease liabilities associated with the Company's operating leases are included in the Consolidated
Balance Sheet as of December 31, 2019 as follows:
(in millions)
Right-of-use assets included in:
Other non-current assets
Lease liabilities included in:
Accrued and other current liabilities
Other non-current liabilities
Total lease liabilities
$ 271
$
53
240
$ 293
As of December 31, 2019, the Company's finance leases were not material and for the year 2019 sub-lease income and short-
term lease expense were not material. Lease expense for the year 2019 includes:
(in millions)
Operating lease costs
Variable operating lease costs
Other information related to operating leases for 2019 is as follows:
F-47
$
$
62
16
(dollars in millions)
Cash paid from operating cash flows for amounts included in the measurement of lease liabilities
Right-of-use assets obtained in exchange for new operating lease liabilities
Weighted-average remaining lease term
Weighted-average discount rate
$
$
73
47
8.2 years
6.2%
Right-of-use assets obtained in exchange for new operating lease liabilities during the year ended December 31, 2019 of $47
million in the table above does not include $282 million of right-of-use assets recognized upon adoption of the new standard
for accounting for leases on January 1, 2019. See Note 2, "SIGNIFICANT ACCOUNTING POLICIES" for further detail
regarding the impact of adoption.
As of December 31, 2019, future payments under noncancelable operating leases for each of the five succeeding years ending
December 31 and thereafter are as follows:
(in millions)
2020
2021
2022
2023
2024
Thereafter
Total
Less: Imputed interest
Present value of remaining lease payments
Less: Current portion
Non-current portion
$
70
55
42
37
30
149
383
90
293
53
$ 240
Upon adopting the new lease guidance, the Company elected the modified retrospective approach without revising prior
periods. Accordingly, rental expense related to operating lease agreements was $92 million and $102 million for 2018 and
2017, respectively, and the Company is providing the following table of future payments under noncancelable operating leases
as of December 31, 2018, for each of the five succeeding years ending December 31 and thereafter as previously disclosed
under prior accounting guidance:
(in millions)
Future payments
2019
2020
2021
2022
2023
$
78
$
60
$
44
$
39
$
32
Thereafter
166
$
Total
$
419
14. SHARE-BASED COMPENSATION
In May 2014, shareholders approved the Company’s 2014 Omnibus Incentive Plan (the “2014 Plan”) which replaced the
Company’s 2011 Omnibus Incentive Plan (the “2011 Plan”) for future equity awards granted by the Company. The Company
transferred the common shares available under the 2011 Plan to the 2014 Plan. The maximum number of common shares that
may be issued to participants under the 2014 Plan is equal to 18,000,000 common shares, plus the number of common shares
under the 2011 Plan reserved but unissued and not underlying outstanding awards and the number of common shares becoming
available for reuse after awards are terminated, forfeited, cancelled, exchanged or surrendered under the 2011 Plan and the
Company’s 2007 Equity Compensation Plan. The Company registered 20,000,000 common shares of common stock for
issuance under the 2014 Plan.
Effective April 30, 2018, the Company amended and restated the 2014 Plan (the “Amended and Restated 2014 Plan”). The
Amended and Restated 2014 Plan includes the following amendments: (i) the number of common shares authorized for
issuance under the Amended and Restated 2014 Plan has been increased by an additional 11,900,000 common shares, as
approved by the requisite number of shareholders at the Company’s annual general meeting held on April 30, 2018, (ii)
introduction of a $750,000 aggregate fair market value limit on awards (in either equity, cash or other compensation) that can
be granted in any calendar year to a participant who is a non-employee director, (iii) housekeeping changes to address recent
changes to Section 162(m) of the Internal Revenue Code, (iv) awards are expressly subject to the Company’s clawback policy
and (v) awards not assumed or substituted in connection with a Change of Control (as defined in the Amended and Restated
2014 Plan) will only vest on a pro rata basis.
During 2017, the Company introduced a new long-term incentive program with the objective of realigning the share-based
awards granted to senior management with the Company’s focus on improving its tangible capital usage and allocation, while
F-48
maintaining focus on improving total shareholder return over the long-term. The share-based awards granted under this long-
term incentive program consist of time-based stock options, time-based RSUs and performance-based RSUs. Performance-
based RSUs are comprised of: (i) awards that vest upon achievement of certain share price appreciation conditions that are
based on total shareholder return (“TSR”) and (ii) awards that vest upon attainment of certain performance targets that are
based on the Company’s return on tangible capital (“ROTC”).
Approximately 9,864,000 common shares were available for future grants as of December 31, 2019. The Company uses
reserved and unissued common shares to satisfy its obligation under its share-based compensation plans.
The components and classification of share-based compensation expense related to stock options and RSUs for the years
2019, 2018 and 2017 were as follows:
(in millions)
Stock options
RSUs
Share-based compensation expense
Research and development expenses
Selling, general and administrative expenses
Share-based compensation expense
Stock Options
2019
2018
2017
$
$
$
$
21
81
102
9
93
102
$
$
$
$
23
64
87
9
78
87
$
$
$
$
18
69
87
8
79
87
Stock options granted under the 2011 Plan and the Amended and Restated 2014 Plan generally expire on the fifth or tenth
anniversary of the grant date. The exercise price of any stock option granted under the 2011 Plan and the Amended and
Restated 2014 Plan will not be less than the closing price per common share preceding the date of grant. Stock options generally
vest 33% and 25% each year over a three-year and four-year period, respectively, on the anniversary of the date of grant.
The fair values of all stock options granted for the years 2019, 2018 and 2017 were estimated as of the date of grant using
the Black-Scholes option-pricing model with the following weighted-average assumptions:
Expected stock option life (years)
Expected volatility
Risk-free interest rate
Expected dividend yield
2019
2018
2017
3.0
46.5%
2.5%
—%
3.0
54.0%
2.7%
—%
3.0
67.3%
1.8%
—%
The expected stock option life was determined based on historical exercise and forfeiture patterns. The expected volatility
was determined based on implied volatility in the market traded options of the Company’s common stock. The risk-free
interest rate was determined based on the rate at the time of grant for zero-coupon U.S. government bonds with maturity dates
equal to the expected life of the stock option. The expected dividend yield was determined based on the stock option’s exercise
price and expected annual dividend rate at the time of grant.
The Black-Scholes option-pricing model used by the Company to calculate stock option values was developed to estimate
the fair value of freely tradeable, fully transferable stock options without vesting restrictions, which significantly differ from
the Company’s stock option awards. This model also requires highly subjective assumptions, including future stock price
volatility and expected time until exercise, which greatly affect the calculated values.
F-49
The following table summarizes stock option activity during 2019:
(in millions, except per share amounts)
Outstanding, January 1, 2019
Granted
Exercised
Expired or forfeited
Outstanding, December 31, 2019
Weighted-
Average
Exercise
Price Per
Share
27.88
23.19
16.03
37.27
26.99
27.43
34.27
Weighted-
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value
7.5
7.4
6.5
$
$
$
61
57
24
Options
$
5.9
1.7
$
(0.3) $
(0.2) $
$
7.1
Vested and expected to vest, December 31, 2019
Vested and exercisable, December 31, 2019
6.7
3.6
$
$
The weighted-average fair values of all stock options granted in 2019, 2018 and 2017 were $8.45, $7.83 and $5.97, respectively.
The total intrinsic values of stock options exercised in 2019, 2018 and 2017 were $3 million, $1 million and $1 million,
respectively. Proceeds received on the exercise of stock options in 2019, 2018 and 2017 were $5 million, $2 million and $1
million, respectively.
As of December 31, 2019, the total remaining unrecognized compensation expense related to non-vested stock options
amounted to $11 million, which will be amortized over the weighted-average remaining requisite service period of
approximately 1.5 years. The total fair value of stock options vested in 2019, 2018 and 2017 were $18 million, $17 million
and $20 million, respectively.
RSUs
RSUs generally vest on the first or third anniversary date from the date of grant or 33% a year over a three-year period. Annual
RSUs granted to non-management directors vest immediately prior to the next Annual Meeting of Shareholders. Pursuant to
the applicable unit agreement, certain RSUs may be subject to the attainment of any applicable performance goals specified
by the Board of Directors. If the vesting of the RSUs is conditional upon the attainment of performance goals, any RSUs that
do not vest as a result of a determination that the prescribed performance goals failed to be attained will be forfeited immediately
upon such determination. RSUs are credited with dividend equivalents, in the form of additional RSUs, when dividends are
paid on the Company’s common shares. Such additional RSUs will have the same vesting dates and will vest under the same
terms as the RSUs in respect of which such additional RSUs are credited.
To the extent provided for in a RSU agreement, the Company may, in lieu of all or a portion of the common shares which
would otherwise be provided to a holder, elect to pay a cash amount equivalent to the market price of the Company’s common
shares on the vesting date for each vested RSU. The amount of cash payment will be determined based on the average market
price of the Company’s common shares on the vesting date. The Company’s current intent is to settle vested RSUs through
the issuance of common shares.
Time-Based RSUs
Each vested time-based RSU represents the right of a holder to receive one of the Company’s common shares. The fair value
of each RSU granted is estimated based on the trading price of the Company’s common shares on the date of grant.
The following table summarizes non-vested time-based RSU activity during 2019:
(in millions, except per share amounts)
Non-vested, January 1, 2019
Granted
Vested
Forfeited
Non-vested, December 31, 2019
F-50
Weighted-
Average
Grant-Date
Fair Value
Per Share
Time-Based
RSUs
5.8
3.1
(1.9)
(0.9)
6.1
$
$
$
$
$
18.29
24.13
17.88
23.77
20.54
As of December 31, 2019, the total remaining unrecognized compensation expense related to non-vested time-based RSUs
amounted to $56 million, which will be amortized over the weighted-average remaining requisite service period of
approximately 1.6 years. The total fair value of time-based RSUs vested in 2019, 2018 and 2017 were $34 million, $30 million
and $58 million, respectively.
Performance-Based RSUs
Each vested performance-based RSU represents the right of a holder to receive a number of the Company’s common shares
up to a specified maximum. Performance-based RSUs vest upon achievement of certain share price appreciation conditions
or attainment of certain performance targets. If the Company’s performance is below a specified performance level, no common
shares will be paid.
The fair value of each TSR performance-based RSU granted during 2019, 2018 and 2017 was estimated using a Monte Carlo
Simulation model, which utilizes multiple input variables to estimate the probability that the performance condition will be
achieved. The fair value of the ROTC performance-based RSUs is estimated based on the trading price of the Company’s
common shares on the date of grant. Expense recognized for the ROTC performance-based RSUs in each reporting period
reflects the Company’s latest estimate of the number of ROTC performance-based RSUs that are expected to vest. If the
ROTC performance-based RSUs do not ultimately vest due to the ROTC targets not being met, no compensation expense is
recognized and any previously recognized compensation expense is reversed.
The fair values of TSR performance-based RSUs granted during 2019, 2018 and 2017 were estimated with the following
assumptions:
Contractual term (years)
Expected Company share volatility
Risk-free interest rate
2019
3.0
46.5%
2.5%
2018
3.0
54.2%
2.7%
2017
3.0
67.2% - 77.2%
1.7% - 1.8%
The expected company share volatility was determined based on implied volatility in the market traded options of the
Company’s common stock. The risk-free interest rate was determined based on the rate at the time of grant for zero-coupon
U.S. government bonds with maturity dates equal to the contractual term of the performance-based RSUs.
The following table summarizes non-vested performance-based RSU activity during 2019:
(in millions, except per share amounts)
Non-vested, January 1, 2019
Granted
Vested
Forfeited
Non-vested, December 31, 2019
Performance-
based
RSUs
Weighted-
Average
Grant-Date
Fair Value
Per Share
$
1.5
1.0
$
(0.3) $
(0.2) $
$
2.0
34.06
29.52
48.42
91.76
25.80
During 2019, the Company granted approximately 959,000 performance-based RSUs, consisting of approximately 454,000
units of TSR performance-based RSUs with an average grant date fair value of $34.53 per RSU and approximately 505,000
units of ROTC performance-based RSUs with a weighted-average grant date fair value of $25.03 per RSU.
As of December 31, 2019, the total remaining unrecognized compensation expense related to non-vested performance-based
RSUs amounted to $28 million, which will be amortized over the weighted-average remaining requisite service period of
approximately 1.6 years. A maximum of approximately 3,486,000 common shares could be issued upon vesting of the
performance-based RSUs outstanding as of December 31, 2019.
In connection with the 2018 grant of long-term incentive awards with an aggregate value of $10 million, approximately
933,000 performance-based RSUs received by the Company’s Chief Executive Officer ("CEO") upon his hire in 2016 were
canceled, and the shares underlying those performance-based RSUs were permanently retired and are not available for future
grants under the 2014 Plan. The CEO's long-term incentive award was accounted for as an award modification whereby the
Company continues to recognize the unamortized compensation associated with the original award plus the incremental fair
value of the new award measured at the date of grant, over the vesting period of the new award.
F-51
15. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss as of December 31, 2019 and 2018 consists of:
(in millions)
Foreign currency translation adjustment
Pension adjustment, net of tax
2019
$ (2,046)
(40)
$ (2,086)
2018
$ (2,111)
(26)
$ (2,137)
Income taxes are not provided for foreign currency translation adjustments arising on the translation of the Company’s
operations having a functional currency other than the U.S. dollar, except to the extent of translation adjustments related to
the Company’s retained earnings for foreign jurisdictions in which the Company is not considered to be permanently reinvested.
16. RESEARCH AND DEVELOPMENT
Included in Research and development are costs related to product development and quality assurance programs. Quality
assurance are the costs incurred to meet evolving customer and regulatory standards. Research and development costs for the
years 2019, 2018 and 2017 consists of:
(in millions)
Product related research and development
Quality assurance
Research and development
17. OTHER EXPENSE (INCOME), NET
Other expense (income), net for the years 2019, 2018 and 2017 consists of:
(in millions)
Gain on the Skincare Sale
Gain on the iNova Sale
Gain on the Dendreon Sale
Loss on the Sprout Sale
Net (gain) loss on other sales of assets
Litigation and other matters
Acquired in-process research and development costs
Acquisition-related costs
Other, net
Other expense (income), net
2019
2018
2017
$
$
434
37
471
$
$
376
37
413
2019
$ —
—
—
—
(31)
1,401
41
8
(5)
$ 1,414
2018
$ —
—
—
—
6
(27)
1
1
(1)
(20)
$
$
$
$
$
328
33
361
2017
(309)
(309)
(97)
98
37
226
5
—
1
(348)
In 2019, Litigation and other matters of $1,401 million includes the settlement of a legacy U.S. securities class action matter
(which is subject to final court approval). In 2018, Litigation and other matters of $27 million includes a favorable adjustment
of $40 million related to the Salix legacy litigation matter. In 2017, Litigation and other matters of $226 million includes: (i)
$96 million related to the settlement of the Allergan shareholder class actions, (ii) $93 million related to the settlement of the
Solodyn® antitrust class actions litigation and (iii) $20 million related to the Mimetogen Pharmaceuticals litigation. These
matters and other significant matters are discussed in further detail in Note 21, "LEGAL PROCEEDINGS".
In 2019, Net (gain) loss on other sales of assets includes $20 million related to the achievement of a milestone related to a
certain product. In 2019, Acquired in-process research and development costs includes $38 million of in-process research and
development costs associated with the upfront payments to enter into certain exclusive licensing agreements.
F-52
18. INCOME TAXES
The components of Loss before benefit from income taxes for 2019, 2018 and 2017 consist of:
(in millions)
Domestic
Foreign
The components of Benefit from income taxes for 2019, 2018 and 2017 consist of:
(in millions)
Current:
Domestic
Foreign
Deferred:
Domestic
Foreign
2019
$ (2,396)
559
$ (1,837)
2018
$ (1,475)
(2,679)
$ (4,154)
2017
$ (2,032)
291
$ (1,741)
2019
2018
2017
$
$
(12)
(116)
(128)
(5)
187
182
54
$ —
(327)
(327)
17
320
337
10
$
$
(20)
(146)
(166)
(2)
4,313
4,311
$ 4,145
The Benefit from income taxes differs from the expected amount calculated by applying the Company’s Canadian statutory
rate of 26.9% to Loss before benefit from income taxes for 2019, 2018 and 2017 as follows:
(in millions)
Loss before benefit from income taxes
Benefit from income taxes
Expected benefit from income taxes at Canadian statutory rate
Non-deductible amount of share-based compensation
Adjustments to tax attributes
Impact of changes in enacted income tax rates
Change in valuation allowance related to foreign tax credits and NOLs
Change in valuation allowance on Canadian deferred tax assets and tax rate
changes
Change in uncertain tax positions
Foreign tax rate differences
Non-deductible portion of Goodwill impairments
Tax differences on divestitures of businesses
Tax benefit on intra-entity transfers
Other
2019
$ (1,837)
2018
$ (4,154)
2017
$ (1,741)
$
$
494
(7)
(99)
—
21
(142)
(350)
186
—
—
—
(49)
54
$ 1,117
(10)
(4)
—
(3)
(875)
(47)
(3)
(488)
—
356
(33)
10
$
$
468
(37)
(242)
747
139
(360)
(65)
933
(139)
203
2,480
18
$ 4,145
F-53
Deferred tax assets and liabilities as of December 31, 2019 and 2018 consist of:
(in millions)
Deferred tax assets:
Tax loss carryforwards
Provisions
Research and development tax credits
Scientific Research and Experimental Development pool
Tax credit carryforwards
Deferred revenue
Unrealized FX on U.S. dollar debt and other financing cost
Prepaid expenses
Share-based compensation
Other
Total deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Intangible assets
Plant, equipment and technology
Outside basis differences
Other
Total deferred tax liabilities
Net deferred tax asset (liability)
2019
2018
$ 2,911
641
155
52
25
5
94
41
19
23
3,966
(2,831)
1,135
53
56
41
—
150
985
$
$ 2,886
519
143
52
46
4
262
44
24
—
3,980
(2,913)
1,067
163
55
29
29
276
791
$
On December 22, 2017, the Tax Act was signed into law and included a number of changes in the U.S. tax law, most notably
a reduction of the U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. The
Tax Act also implemented a modified territorial tax system that included a one-time transition tax on the accumulated previously
untaxed earnings of foreign subsidiaries (the “Transition Toll Tax”) equal to 15.5% (reinvested in liquid assets) or 8%
(reinvested in non-liquid assets). At the taxpayer's election, the Transition Toll Tax can be paid over an eight-year period
without interest, starting in 2018. The Company elected not to use this option and instead used a portion of its U.S. net operating
losses ("NOLs") to offset this income inclusion.
The Tax Act also includes two U.S. tax base erosion provisions: (i) the base-erosion and anti-abuse tax (“BEAT”) and (ii) the
global intangible low-taxed income (“GILTI”). BEAT provides a minimum tax on U.S. tax deductible payments made to
related foreign parties after December 31, 2017. GILTI requires an entity to include in its U.S. taxable income the earnings
of its foreign subsidiaries in excess of an allowable return on each foreign subsidiary’s depreciable tangible assets. Accounting
guidance provides that the impacts of GILTI can be included in the consolidated financial statements either by recording the
impacts in the period in which GILTI has been incurred or by adjusting deferred tax assets or liabilities in the period of
enactment related to basis differences expected to reverse as a result of the GILTI provisions in future years. The Company
elected to provide for the GILTI tax in the period in which it is incurred and, therefore, the 2017 benefit for income taxes did
not include a provision for GILTI. Income tax expense for years after 2017 includes the effects of the Tax Act including both
GILTI and BEAT.
As part of the Tax Act, the Company’s U.S. interest expense is subject to limitation rules which limit U.S. interest expense
to 30% of adjusted taxable income, defined similar to EBITDA through 2021 and EBIT thereafter. Disallowed interest can
be carried forward indefinitely and any unused interest deduction assessed for recoverability. The Company considered such
provisions in 2018 and 2019 and expects to fully utilize any interest carry forwards in future periods.
The Company’s Benefit from income taxes for the year 2017 included provisional net tax benefits of $975 million attributable
to the Tax Act which included: (i) the re-measurement of certain deferred tax assets and liabilities based on the rates at which
they are expected to reverse in the future of $774 million, (ii) the one-time Transition Toll Tax of $88 million and (iii) the
decrease in deferred tax assets attributable to certain legal accruals, the deductibility of which is uncertain for U.S. federal
income tax purposes, of $10 million. The Company utilized NOLs to offset the provisionally determined $88 million Transition
Toll Tax and therefore no amount was recorded as payable. The Company previously provided for residual U.S. federal income
tax on its outside basis differences in certain foreign subsidiaries which, due to the Tax Act, are no longer taxable. As such,
F-54
the Company's residual U.S. federal income tax liability of $299 million prior to the Tax Act was reversed and the Company
recognized a deferred tax benefit of $299 million in the fourth quarter of 2017.
The provisional amounts included in Benefit from income taxes for the year 2017, including the Transition Toll Tax, were
finalized during 2018. Differences between the provisional net income tax benefits provided for the year 2017 attributable
to the Tax Act of $975 million, as previously disclosed, and the benefit for income taxes as finalized are included in the Benefit
from income taxes for 2018 and were not material to the Company’s financial results for the year 2018.
The Company has provided for income taxes, including the impacts of the Tax Act, in accordance with guidance issued by
accounting regulatory bodies, the U.S. Internal Revenue Service and state and local governments through the date of the
issuance of these Consolidated Financial Statements. Additional guidance and interpretations can be expected and such
guidance, if any, could impact future results. While management continues to monitor these matters, the ultimate impact, if
any, as a result of the application of any guidance issued in the future cannot be determined at this time.
In 2017, the Company liquidated its top U.S. subsidiary (Biovail Americas Corp.) in a taxable transaction that resulted in a
taxable loss which was of a character that offset certain gains from internal restructurings and third-party divestitures, the
excess of which was, under U.S. tax law, able to be carried back to offset previously recognized gains in 2016, 2015 and 2014.
This carryback resulted in an increase in the deferred tax asset for NOLs previously utilized against such gains. In connection
with this taxable transaction, the Company recognized a net income tax benefit of approximately $400 million related to the
carryback of losses and reversed a previously established deferred tax liability of approximately $1,900 million.
The realization of deferred tax assets is dependent on the Company generating sufficient domestic and foreign taxable income
in the years that the temporary differences become deductible. A valuation allowance has been provided for the portion of the
deferred tax assets that the Company determined is more likely than not to remain unrealized based on estimated future taxable
income and tax planning strategies. As a result of taxable losses in Canada as offset by a reduction of deferred tax assets due
to internal restructurings, the valuation allowance decreased by $82 million during 2019 and increased by $912 million during
2018. Given the Company’s history of pre-tax losses and expected future losses in Canada, the Company maintained that
there was insufficient objective evidence to release the valuation allowance against Canadian tax loss carryforwards,
International Tax Credits (“ITC”) and pooled Scientific Research and Experimental Development Tax Incentive (“SR&ED”)
expenditures. The Canadian valuation allowance represents a material portion of the Company's total valuation allowance.
As of December 31, 2019 and 2018, the Company had accumulated taxable losses available to offset future years’ federal and
provincial taxable income in Canada of approximately $7,441 million and $5,655 million, respectively. As of December 31,
2019 and 2018, unclaimed ITCs available to offset future federal taxes in Canada were approximately $34 million and $34
million, respectively, which expire in the years 2020 through 2036. In addition, as of December 31, 2019 and 2018, pooled
SR&ED expenditures available to offset against future taxable income in Canada were approximately $192 million and $192
million, respectively, which may be carried forward indefinitely. As of December 31, 2019 and 2018, a full valuation allowance
against the net Canadian deferred tax assets has been provided of $2,461 million and $2,470 million, respectively.
As of December 31, 2019 and 2018, the Company had accumulated taxable losses available to offset future years' federal
taxable income in the U.S. of approximately $636 million and $1,552 million, respectively, including acquired losses which
expire in the years 2021 through 2037. While the remaining taxable losses are subject to multiple annual loss limitations as
a result of previous ownership changes, the Company believes that the recoverability of the deferred tax assets associated
with these taxable losses are more likely than not to be realized. As of December 31, 2019 and 2018 U.S. research and
development credits available to offset future years' federal income taxes in the U.S. were approximately $106 million and
$97 million, respectively, which includes acquired research and development credits and which expire in the years 2021
through 2038. The Company intends to amend prior U.S. tax filings in order to deduct foreign taxes rather than take a foreign
tax credit. Therefore, during 2017, the Company reversed the deferred tax asset and associated valuation allowance of
approximately $342 million in U.S. foreign tax credits, including acquired U.S. foreign tax credits. The Company recorded
a deferred tax benefit of $84 million for such deduction and adjusted its expected NOL carryforward accordingly. In conjunction
with the Sprout Sale in 2017, the Company recognized a capital loss and established a valuation allowance on the portion of
the loss for which a benefit is not expected to be realized. Previously valued capital loses utilized during 2019 were not
material.
As of December 31, 2019 and 2018, the Company had accumulated taxable losses available to offset future years’ taxable
income in Ireland of approximately $6,765 million and $5,495 million, respectively. As of December 31, 2019 and 2018, the
Company recognized a capital loss and established a valuation allowance on the portion of the loss for which a benefit is not
expected to be realized.
The Company provides for Canadian tax on the unremitted earnings of its direct foreign affiliates except for its direct U.S.
subsidiaries. The Company continues to assert that the unremitted earnings of its U.S. subsidiaries will be permanently
F-55
reinvested and not repatriated. As of December 31, 2019, the Company estimates there will be no tax liability attributable to
the permanently reinvested U.S. earnings.
As of December 31, 2019 and 2018, unrecognized tax benefits (including interest and penalties) were $1,002 million and
$654 million, of which $355 million and $345 million would affect the effective income tax rate, respectively. In 2019 and
2018, the remaining unrecognized tax benefits would not impact the effective tax rate as the tax positions are offset against
existing tax attributes or are timing in nature. In 2019 and 2018, the Company recognized net increases to unrecognized tax
benefits for current year tax positions of $362 million and $18 million, respectively. The Company recognized a net reduction
of $13 million during 2019 and a net increase of $38 million during 2018 in the unrecognized tax benefits related to tax
positions taken in the prior years.
The Company provides for interest and penalties related to unrecognized tax benefits in the provision for income taxes. As
of December 31, 2019 and 2018, accrued interest and penalties related to unrecognized tax benefits were approximately $45
million and $42 million, respectively. In 2019 and 2018, the Company recognized a net increase of approximately $3 million
and $1 million of interest and penalties, respectively.
The Company and one or more of its subsidiaries file federal income tax returns in Canada, the U.S., and other foreign
jurisdictions, as well as various provinces and states in Canada and the U.S. The Company and its subsidiaries have open tax
years, primarily from 2005 to 2018, with significant taxing jurisdictions, respectively, including Canada and the U.S. These
open years contain certain matters that could be subject to differing interpretations of applicable tax laws and regulations and
tax treaties, as they relate to the amount, timing, or inclusion of revenues and expenses, or the sustainability of income tax
positions of the Company and its subsidiaries. Certain of these tax years are expected to remain open indefinitely.
Jurisdiction:
United States - Federal
Canada
Germany
France
China
Ireland
Netherlands
Australia
Open Years
2014 - 2018
2005 - 2018
2013 - 2018
2013 - 2018
2015 - 2018
2015 - 2018
2018
2011 - 2018
The Internal Revenue Service completed its examinations of the Company’s U.S. consolidated federal income tax returns for
the years 2013 and 2014. There were no material adjustments to the Company's taxable income as a result of these examinations.
The 2014 tax year remains open to the extent of a 2017 capital loss carried back to that year. Additionally, the Internal Revenue
Service has selected for examination the Company's annual tax filings for 2015 and 2016 and the Company's short period tax
return for the period ended September 8, 2017, which was filed as a result of the Company's internal restructuring efforts
during 2017. At this time, the Company does not expect that proposed adjustments, if any, for these periods would be material
to the Company's Consolidated Financial Statements.
The Company is currently under examination by the Canada Revenue Agency for four separate cycles: (a) years 2005 through
2006, (b) years 2007 through 2009, (c) years 2012 through 2013 and (d) years 2014 through 2015. The Company received
from the Canada Revenue Agency a proposed audit adjustment for the years 2005 through 2009. The Company disagrees
with the adjustments and has filed the respective Notices of Objection. The total proposed adjustment will result in a loss of
tax attributes which are subject to a full valuation allowance and will not result in material change to the provision for income
taxes. The Canada Revenue Agency audits of the 2010 and 2011 tax years were closed in 2016, and resulted in no material
adjustments. The Company received an assessment for certain transfer pricing matters in 2012 and 2013 for CAD 85 million
and CAD 90 million, respectively. The Company disagrees with the adjustments and has filed a Notice of Objection for 2012
and will file an objection for 2013. Of the total proposed adjustments, all but CAD 3 million will result in a loss of tax
attributes which are subject to a full valuation allowance and will not result in a material change to the provision for income
taxes.
The Company’s subsidiaries in Germany are under audit for tax years 2014 through 2016. At this time, the Company does
not expect that proposed adjustments, if any, would be material to the Company's Consolidated Financial Statements.
The Company’s subsidiaries in Australia are under audit by the Australian Tax Office for various years beginning in 2010.
On August 8, 2017, the Australian Taxation Office issued a notice of assessment for the tax years 2011 through 2017 in the
aggregate amount of $117 million, which includes penalties and interest. The Company disagrees with the assessment and
F-56
continues to believe that its tax positions are appropriate and supported by the facts, circumstances and applicable laws. The
Company intends to defend its tax position in this matter vigorously and has filed a holding objection against the assessment
by the Australian Taxation Office and has secured a bank guarantee to cover any potential cash outlays regarding this
assessment. As of December 31, 2017, Restricted cash of $77 million was deposited with a bank as collateral to secure a bank
guarantee for the benefit of the Australian Government. On January 9, 2018, the cash collateral of $77 million of Restricted
cash was returned to the Company in exchange for a $77 million letter of credit.
The Company's U.S. affiliates remain under examination for various state tax audits in the U.S. for years 2012 through 2017.
Certain affiliates of the Company in regions outside of Canada, the U.S., Germany and Australia are currently under
examination by relevant taxing authorities, and all necessary accruals have been recorded, including uncertain tax benefits.
At this time, the Company does not expect that proposed adjustments, if any, would be material to the Company's Consolidated
Financial Statements.
The following table presents a reconciliation of the unrecognized tax benefits for 2019, 2018 and 2017:
(in millions)
Balance, beginning of year
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Lapse of statute of limitations
Balance, end of year
2019
$
654
361
63
(58)
(18)
$ 1,002
2018
2017
$
$
598
18
55
(11)
(6)
654
$
$
423
145
57
(18)
(9)
598
The Company believes it is reasonably possible that the total amount of unrecognized tax benefits at December 31, 2019
could decrease by approximately $110 million in the next twelve months as a result of the resolution of certain tax audits and
other events.
19. (LOSS) EARNINGS PER SHARE
(Loss) earnings per share attributable to Bausch Health Companies Inc. for 2019, 2018 and 2017 were calculated as follows:
(in millions, except per share amounts)
Net (loss) income attributable to Bausch Health Companies Inc.
Basic weighted-average number of common shares outstanding
Dilutive effect of stock options, RSUs and other
Diluted weighted-average number of common shares outstanding
(Loss) earnings per share attributable to Bausch Health Companies Inc.
Basic
Diluted
2019
2018
2017
$ (1,788)
$ (4,148)
$
2,404
352.1
—
352.1
351.3
—
351.3
350.2
1.6
351.8
$
$
(5.08)
(5.08)
$ (11.81)
$ (11.81)
$
$
6.86
6.83
In 2019 and 2018, all potential common shares issuable for stock options and RSUs were excluded from the calculation of
diluted loss per share, as the effect of including them would have been anti-dilutive. The dilutive effect of potential common
shares issuable for stock options and RSUs on the weighted-average number of common shares outstanding would have been
approximately 5,106,000 and 3,763,000 common shares for 2019 and 2018, respectively.
Additionally, in 2019, 2018 and 2017, stock options, time-based RSUs and performance-based RSUs to purchase
approximately 2,598,000, 4,185,000 and 7,050,000 common shares of the Company, respectively, were not included in the
computation of diluted earnings per share because the effect would have been anti-dilutive under the treasury stock method.
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20. SUPPLEMENTAL CASH FLOW DISCLOSURES
Supplemental cash flow disclosures for 2019, 2018 and 2017 are as follows:
(in millions)
Other Payments
Interest paid
Income taxes paid
21. LEGAL PROCEEDINGS
2019
2018
2017
$
$
1,537
172
$
$
1,665
138
$
$
1,708
179
From time to time, the Company becomes involved in various legal and administrative proceedings, which include product
liability, intellectual property, commercial, tax, antitrust, governmental and regulatory investigations, related private litigation
and ordinary course employment-related issues. From time to time, the Company also initiates actions or files counterclaims.
The Company could be subject to counterclaims or other suits in response to actions it may initiate. The Company believes
that the prosecution of these actions and counterclaims is important to preserve and protect the Company, its reputation and
its assets. Certain of these proceedings and actions are described below. Going forward, in the Company's subsequent Quarterly
Reports on Form 10-Q, the Company will only include a description of these matters to the extent there has been a material
update with respect thereto during the applicable quarter or to the extent otherwise required by law.
On a quarterly basis, the Company evaluates developments in legal proceedings, potential settlements and other matters that
could increase or decrease the amount of the liability accrued. As of December 31, 2019, the Company's Consolidated Balance
Sheets includes accrued current loss contingencies of $1,397 million, inclusive of the settlement of the U.S. Securities Litigation
(as discussed below) and related to other matters which the Company believes a potential resolution or settlement is both
probable and reasonably estimable. For all other matters, unless otherwise indicated, the Company cannot reasonably predict
the outcome of these legal proceedings, nor can it estimate the amount of loss, or range of loss, if any, that may result from
these proceedings. An adverse outcome in certain of these proceedings could have a material adverse effect on the Company’s
business, financial condition and results of operations, and could cause the market value of its common shares and/or debt
securities to decline.
Governmental and Regulatory Inquiries
SEC Investigation
Beginning in November 2015, the Company received from the staff of the Los Angeles Regional Office of the SEC subpoenas
for documents, as well as various document, testimony and interview requests, related to its investigation of the Company,
including requests concerning the Company's former relationship with Philidor Rx Services, LLC ("Philidor"), its accounting
practices and policies, its public disclosures and other matters. The Company is cooperating with the SEC in this matter, has
agreed to a tolling agreement with the SEC regarding certain potential claims and continues to engage in discussions with the
SEC regarding resolution of the matter. Although the Company cannot predict the outcome or the duration of the SEC
investigation or any other legal proceedings or any enforcement actions or other remedies that may be imposed on the Company
arising out of the SEC investigation, the Company expects that it will likely result in damages, settlement payments, fines,
penalties, consent orders or other administrative sanctions against the Company and/or certain of its former legacy directors
and officers, any of which could be material. As a result, although no agreement has been reached, the Company has recorded
an estimated liability based on these discussions which is included in the Company's accrued current loss contingencies. The
final resolution may differ from the Company's current estimate and it could be material to the Company’s results of operations.
AMF Investigation
On April 12, 2016, the Company received a request letter from the Autorité des marchés financiers (the “AMF”) requesting
documents concerning the work of the Company’s ad hoc committee of independent directors (established to review certain
allegations regarding the Company’s former relationship with Philidor and related matters), the Company’s former relationship
with Philidor, the Company's accounting practices and policies and other matters. The Company is cooperating with the AMF
in this matter. In July 2018, the Company was advised by the AMF that it had issued a formal investigation order against it.
The Company cannot predict whether any enforcement action against the Company will result from such investigation.
Investigation by the U.S. Attorney's Office for the District of Massachusetts - re Arestin®
In August 2019, the Company received a subpoena from the U.S. Attorney's Office for the District of Massachusetts. The
materials requested pursuant to the subpoena include documents concerning the sales, marketing, coverage and reimbursement
F-58
of Arestin®, including related support services, and other matters. The Company is cooperating with this investigation. The
Company cannot predict the outcome or the duration of this investigation or any other legal proceedings or any enforcement
actions or other remedies that may be imposed on the Company arising out of this investigation.
Investigation by the U.S. Attorney's Office for the District of Massachusetts - re patient assistance and pricing
In October 2015, the Company received a subpoena from the U.S. Attorney's Office for the District of Massachusetts, and,
in June 2016, the Company received a follow-up subpoena. The materials requested, pursuant to the subpoenas and follow-
up requests, include documents and witness interviews with respect to the Company’s patient assistance programs and
contributions to patient assistance organizations that provide financial assistance to Medicare patients taking products sold
by the Company, and the Company’s pricing of its products. The Company is cooperating with this investigation. The
Company cannot predict the outcome or the duration of this investigation or any other legal proceedings or any enforcement
actions or other remedies that may be imposed on the Company arising out of this investigation.
Investigation by the U.S. Attorney's Office for the Southern District of New York
In October 2015, the Company received a subpoena from the U.S. Attorney's Office for the Southern District of New York.
The materials requested, pursuant to the subpoena and follow-up requests, include documents and witness interviews with
respect to the Company’s patient assistance programs; its former relationship with Philidor and other pharmacies; the
Company’s accounting treatment for sales by specialty pharmacies; information provided to the Centers for Medicare and
Medicaid Services; the Company’s pricing (including discounts and rebates), marketing and distribution of its products; the
Company’s compliance program; and employee compensation. The Company is cooperating with this investigation. The
Company cannot predict the outcome or the duration of this investigation or any other legal proceedings or any enforcement
actions or other remedies that may be imposed on the Company arising out of this investigation.
Securities and RICO Class Actions and Related Matters
U.S. Securities Litigation - Opt-Out Litigation
On December 16, 2019, the Company announced that it had agreed to settle, subject to final court approval, the consolidated
securities class action filed in the U.S. District Court for the District of New Jersey (In re Valeant Pharmaceuticals International,
Inc. Securities Litigation, Case No. 15-cv-07658).
In October 2015, four putative securities class actions were filed in the U.S. District Court for the District of New Jersey
against the Company and certain current or former officers and directors. The allegations related to, among other things,
allegedly false and misleading statements and/or failures to disclose information about the Company’s business and prospects,
including relating to drug pricing, the Company’s use of specialty pharmacies, and the Company’s relationship with Philidor.
On May 31, 2016, the court entered an order consolidating the four actions under the caption In re Valeant Pharmaceuticals
International, Inc. Securities Litigation, Case No. 15-cv-07658. On June 24, 2016, the lead plaintiff filed a consolidated
complaint asserting claims under Sections 10(b) and 20(a) of the Exchange Act against the Company, and certain current or
former officers and directors, as well as claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the “Securities
Act”) against the Company, certain current or former officers and directors, and certain other parties. The lead plaintiff seeks
to bring these claims on behalf of a putative class of persons who purchased the Company’s equity securities and senior notes
in the United States between January 4, 2013 and March 15, 2016, including all those who purchased the Company’s securities
in the United States in the Company’s debt and stock offerings between July 2013 to March 2015. On September 13, 2016,
the Company and the other defendants moved to dismiss the consolidated complaint. On April 28, 2017, the court dismissed
certain claims arising out of the Company's private placement offerings and otherwise denied the motions to dismiss. On
September 20, 2018, lead plaintiff filed an amended complaint, adding claims against ValueAct Capital Management L.P. and
affiliated entities ("ValueAct"). On October 31, 2018, a third-party defendant, ValueAct, filed a motion to dismiss. On June
30, 2019, the Court denied the motion to dismiss and ValueAct has filed for interlocutory appeal of this decision.
On December 16, 2019, the Company, the current or former officers and directors, ValueAct, and the underwriters announced
that they agreed to resolve the securities action for $1,210 million, subject to final court approval. Once approved by the
court, the settlement will resolve and discharge all claims against the Company in the class action. As part of the settlement,
the Company and the other settling defendants admitted no liability as to the claims against it and deny all allegations of
wrongdoing. The opt-out litigations related to this matter discussed above remain ongoing. On January 10, 2020, the Company
made a payment of $200 million into an escrow fund under the terms of the settlement agreement. On January 27, 2020 the
court preliminarily approved the settlement and scheduled the final settlement approval hearing for May 27, 2020. The balance
of the settlement will be paid in accordance with the payment schedule outlined in the settlement agreement. The opt-out
litigations discussed below remain ongoing.
F-59
On June 6, 2018, a putative class action was filed in the U.S. District Court for the District of New Jersey against the Company
and certain current or former officers and directors. This action, captioned Timber Hill LLC, v. Valeant Pharmaceuticals
International, Inc., et al., (Case No. 18-cv-10246) (“Timber Hill”), asserts securities fraud claims under Sections 10(b) and
20(a) of the Exchange Act on behalf of a putative class of persons who purchased call options or sold put options on the
Company’s common stock during the period January 4, 2013 through August 11, 2016. On June 11, 2018, this action was
consolidated with In re Valeant Pharmaceuticals International, Inc. Securities Litigation, (Case No. 15-cv-07658). On January
14, 2019, the defendants filed a motion to dismiss the Timber Hill complaint. Briefing on that motion was completed on
February 13, 2019. On August 15, 2019, the Court denied the motion to dismiss the Timber Hill action, holding that this
complaint was a legal nullity as a result of the June 11, 2018 consolidation order.
In addition to the consolidated putative class action, thirty-three groups of individual investors in the Company’s stock and
debt securities have chosen to opt out of the consolidated putative class action and filed securities actions pending in the U.S.
District Court for the District of New Jersey against the Company and certain current or former officers and directors. These
actions are captioned: T. Rowe Price Growth Stock Fund, Inc. v. Valeant Pharmaceuticals International, Inc. (Case No. 16-
cv-5034); Equity Trustees Limited as Responsible Entity for T. Rowe Price Global Equity Fund v. Valeant Pharmaceuticals
International Inc. (Case No. 16-cv-6127); Principal Funds, Inc. v. Valeant Pharmaceuticals International, Inc. (Case No. 16-
cv-6128); BloombergSen Partners Fund LP v. Valeant Pharmaceuticals International, Inc. (Case No. 16-cv-7212); Discovery
Global Citizens Master Fund, Ltd. v. Valeant Pharmaceuticals International, Inc. (Case No. 16-cv-7321); MSD Torchlight
Partners, L.P. v. Valeant Pharmaceuticals International, Inc. (Case No. 16-cv-7324); BlueMountain Foinaven Master Fund,
L.P. v. Valeant Pharmaceuticals International, Inc. (Case No. 16-cv-7328); Incline Global Master LP v. Valeant Pharmaceuticals
International, Inc. (Case No. 16-cv-7494); VALIC Company I v. Valeant Pharmaceuticals International, Inc. (Case No. 16-
cv-7496); Janus Aspen Series v. Valeant Pharmaceuticals International, Inc. (Case No. 16-cv-7497) (“Janus Aspen”); Okumus
Opportunistic Value Fund, LTD v. Valeant Pharmaceuticals International, Inc. (Case No. 17-cv-6513) (“Okumus”); Lord
Abbett Investment Trust- Lord Abbett Short Duration Income Fund, v. Valeant Pharmaceuticals International, Inc. (Case No.
17-cv-6365) (“Lord Abbett”); Pentwater Equity Opportunities Master Fund LTD v. Valeant Pharmaceuticals International,
Inc., et al. (Case No. 17-cv-7552) ("Pentwater"); Public Employees’ Retirement System of Mississippi v. Valeant
Pharmaceuticals International Inc. (Case No. 17-cv-7625) (“Mississippi”); The Boeing Company Employee Retirement Plans
Master Trust v. Valeant Pharmaceuticals International Inc., et al., (Case No. 17-cv-7636) (“Boeing”); State Board of
Administration of Florida v. Valeant Pharmaceuticals International Inc. (Case No. 17-cv-12808); The Regents of the University
of California v. Valeant Pharmaceuticals International, Inc. (Case No. 17-cv-13488); GMO Trust v. Valeant Pharmaceuticals
International, Inc. (Case No. 18-cv-0089); Första AP Fonden v. Valeant Pharmaceuticals International, Inc. (Case No. 17-
cv-12088); New York City Employees’ Retirement System v. Valeant Pharmaceuticals International, Inc. (Case No. 18-
cv-0032) (“NYCERS”); Hound Partners Offshore Fund, LP v. Valeant Pharmaceuticals International, Inc. (Case No. 18-
cv-08705) (“Hound Partners”); Blackrock Global Allocation Fund, Inc. v. Valeant Pharmaceuticals International, Inc. (Case
No. 18-cv-0343) (“Blackrock”); Colonial First State Investments Limited As Responsible Entity for Commonwealth Global
Shares Fund 1 v. Valeant Pharmaceuticals International, Inc. (Case No. 18-cv-0383); Bharat Ahuja v. Valeant Pharmaceuticals
International, Inc. (Case No. 18-cv-0846); Brahman Capital Corp. v. Valeant Pharmaceuticals International, Inc (Case No.
18-cv-0893); The Prudential Insurance Company of America v. Valeant Pharmaceuticals International, Inc. (Case No. 18-
cv-01223) (“Prudential”); Senzar Healthcare Master Fund LP v. Valeant Pharmaceuticals International, Inc. (Case No. 18-
cv-02286) ("Senzar"); 2012 Dynasty UC LLC v. Valeant Pharmaceuticals International, Inc. (Case No. 18-cv-08595) ("2012
Dynasty"); Catalyst Dynamic Alpha Fund v. Valeant Pharmaceuticals International, Inc. (Case No. 18-cv-12673) (“Catalyst”);
Northwestern Mutual Life Insurance Co., v. Valeant Pharmaceuticals International, Inc. (Case No. 18-cv-15286)
(“Northwestern Mutual”); Bahaa Aly, et al. v. Valeant Pharmaceuticals International, Inc., (Case No. 18-cv-17393) (“Aly”);
Office of the Treasurer as Trustee for the Connecticut Retirement Plans and Trust Funds v. Valeant Pharmaceuticals
International, Inc. (Case No. 19-cv-18473) (“Connecticut”); and Delaware Public Employees’ Retirement System v. Valeant
Pharmaceuticals International, Inc. (Case No. 19-cv-18475) (“Delaware”).
These individual shareholder actions assert claims under Sections 10(b), 18, and 20(a) of the Exchange Act, Sections 11, 12(a)
(2), and 15 of the Securities Act, common law fraud, and negligent misrepresentation under state law, based on alleged
purchases of Company stock, options, and/or debt at various times between January 3, 2013 and August 10, 2016. Some
plaintiffs additionally assert claims under the New Jersey Racketeer Influenced and Corrupt Organizations Act and one plaintiff
asserts claims under the Connecticut Uniform Securities Act. The allegations in the complaints are similar to those made by
plaintiffs in the putative class action. Motions to dismiss have been filed and in most cases decided in many of these individual
actions. To date, the Court has dismissed state law claims including New Jersey Racketeer Influenced and Corrupt
Organizations Act, common law fraud, and negligent misrepresentation claims in certain cases. On January 7, 2019, the Court
entered a stipulation of voluntary dismissal in the Senzar Healthcare Master Fund LP v. Valeant Pharmaceuticals International,
Inc. (Case No. 18-cv-02286) opt-out action, closing the case. On September 10, 2019, the Court granted defendants’ motion
to dismiss all claims in the Bahaa Aly v. Valeant Pharmaceuticals International, Inc. (“Aly”) (Case No. 18-cv-17393) opt-out
F-60
action. On October 9, 2019, the Aly Plaintiffs filed a notice of appeal to the United States Court of Appeals for the Third
Circuit. On December 13, 2019, the Court granted the Company’s motion to dismiss the Catalyst complaint in its entirety.
The Company disputes the claims against it in the remaining individual opt-out complaints and intends to defend itself
vigorously.
Canadian Securities Litigation
In 2015, six putative class actions were filed and served against the Company and certain current or former officers and
directors in Canada in the provinces of British Columbia, Ontario and Quebec. These actions are captioned: (a) Alladina v.
Valeant, et al. (Case No. S-1594B6) (Supreme Court of British Columbia) (filed November 17, 2015); (b) Kowalyshyn v.
Valeant, et al. (CV-15-540593-00CP) (Ontario Superior Court) (filed November 16, 2015); (c) Kowalyshyn et al. v. Valeant,
et al. (CV-15-541082-00CP) (Ontario Superior Court) (filed November 23, 2015); (d) O’Brien v. Valeant et al.
(CV-15-543678-00CP) (Ontario Superior Court) (filed December 30, 2015); (e) Catucci v. Valeant, et al. (Court File No.
540-17-011743159) (Quebec Superior Court) (filed October 26, 2015); and (f) Rousseau-Godbout v. Valeant, et al. (Court
File No. 500-06-000770-152) (Quebec Superior Court) (filed October 27, 2015).
The Company is also aware of two additional putative class actions that were filed with the applicable court but which have
not been served on the Company. These actions are captioned: (i) Okeley v. Valeant, et al. (Case No. S-159991) (Supreme
Court of British Columbia) (filed December 2, 2015); and (ii) Sukenaga v Valeant et al. (CV-15-540567-00CP) (Ontario
Superior Court) (filed November 16, 2015), and the factual allegations made in these actions are substantially similar to those
outlined above.
The actions generally allege violations of Canadian provincial securities legislation on behalf of putative classes of persons
who purchased or otherwise acquired securities of the Company for periods commencing as early as January 1, 2013 and
ending as late as November 16, 2015. The alleged violations relate to the same matters described in the U.S. Securities
Litigation description above.
Each of these putative class actions, other than the Catucci action in the Quebec Superior Court, has been discontinued. In
the Catucci action, on August 29, 2017, the judge granted the plaintiffs leave to proceed with their claims under the Quebec
Securities Act and authorized the class proceeding. On October 26, 2017, the plaintiffs issued their Judicial Application
Originating Class Proceedings.
In addition to the class proceedings described above, on April 12, 2018, the Company was served with an application for
leave filed in the Quebec Superior Court of Justice to pursue an action under the Quebec Securities Act against the Company
and certain current or former officers and directors. This proceeding is captioned BlackRock Asset Management Canada
Limited et al. v. Valeant, et al. (Court File No. 500-11-054155-185). The allegations in the proceeding are similar to those
made by plaintiffs in the Catucci class action. On June 18, 2018, the same BlackRock entities filed an originating application
(Court File No. 500-17-103749-183) against the same defendants asserting claims under the Quebec Civil Code in respect of
the same alleged misrepresentations.
The Company is aware that certain other members of the Catucci class exercised their opt-out rights prior to the June 19, 2018
deadline. On February 15, 2019, one of the entities which exercised its opt-out rights (“CalSTRS”) served the Company with
an application in the Quebec Superior Court of Justice for leave to pursue an action under the Quebec Securities Act against
the Company, certain current or former officers and directors of the Company and its auditor. That proceeding is captioned
California State Teachers’ Retirement System v. Bausch Health Companies Inc. et al. (Court File No. 500-11-055722-181).
The allegations in the proceeding are similar to those made by the plaintiffs in the Catucci class action and in the BlackRock
opt out proceedings. On that same date, CalSTRS also served the Company with proceedings (Court File No.
500-17-106044-186) against the same defendants asserting claims under the Quebec Civil Code in respect of the same alleged
misrepresentations.
On February 3, 2020, the Quebec Superior Court granted the applications of CalSTRS and BlackRock for leave to pursue
their respective actions asserting claims under the Quebec Securities Act.
After a hearing on November 11, 2019, the court approved a settlement in the Catucci action between the class members and
the Company’s auditors.
The Company believes that it has viable defenses in each of these actions. In each case, the Company intends to defend itself
vigorously.
F-61
Insurance Coverage Lawsuit
On December 7, 2017, the Company filed a lawsuit against its insurance companies that issued insurance policies covering
claims made against the Company, its subsidiaries, and its directors and officers during two distinct policy periods, (i) 2013-14
and (ii) 2015-16. The lawsuit is currently pending in the United States District Court for the District of New Jersey (Valeant
Pharmaceuticals International, Inc., et al. v. AIG Insurance Company of Canada, et al.; 3:18-CV-00493). In the lawsuit, the
Company seeks coverage for: (i) the costs of defending and resolving claims brought by former shareholders and debtholders
of Allergan, Inc. in In re Allergan, Inc. Proxy Violation Securities Litigation and Timber Hill LLC, individually and on behalf
of all others similarly situated v. Pershing Square Capital Management, L.P., et al. (under the 2013-2014 coverage period),
and (ii) costs incurred and to be incurred in connection with the securities class actions and opt-out cases described in this
section and certain of the investigations described above (under the 2015-2016 coverage period).
RICO Class Actions
Between May 27, 2016 and September 16, 2016, three virtually identical actions were filed in the U.S. District Court for the
District of New Jersey against the Company and various third-parties, alleging claims under the federal Racketeer Influenced
Corrupt Organizations Act (“RICO”) on behalf of a putative class of certain third-party payors that paid claims submitted by
Philidor for certain Company branded drugs between January 2, 2013 and November 9, 2015. On November 30, 2016, the
Court entered an order consolidating the three actions under the caption In re Valeant Pharmaceuticals International, Inc.
Third-Party Payor Litigation, No. 3:16-cv-03087. A consolidated class action complaint was filed on December 14, 2016.
The consolidated complaint alleges, among other things, that the defendants committed predicate acts of mail and wire fraud
by submitting or causing to be submitted prescription reimbursement requests that misstated or omitted facts regarding (1)
the identity and licensing status of the dispensing pharmacy; (2) the resubmission of previously denied claims; (3) patient co-
pay waivers; (4) the availability of generic alternatives; and (5) the insured’s consent to renew the prescription. The complaint
further alleges that these acts constitute a pattern of racketeering or a racketeering conspiracy in violation of the RICO statute
and caused plaintiffs and the putative class unspecified damages, which may be trebled under the RICO statute. The Company
moved to dismiss the consolidated complaint on February 13, 2017. On March 14, 2017, other defendants filed a motion to
stay the RICO class action pending the resolution of criminal proceedings against Andrew Davenport and Gary Tanner. On
August 9, 2017, the Court granted the motion to stay and entered an order staying all proceedings in the case and accordingly
terminating other pending motions. On April 12, 2019, the court lifted the stay. On July 30, 2019, the plaintiffs filed an
amended complaint. On August 28, 2019, the Company filed a motion to dismiss the amended complaint. Briefing on this
motion concluded on October 25, 2019.
The Company believes these claims are without merit and intends to defend itself vigorously.
Hound Partners Lawsuit
On October 19, 2018, Hound Partners Offshore Fund, LP, Hound Partners Long Master, LP, and Hound Partners Concentrated
Master, LP, filed a lawsuit against the Company in the Superior Court of New Jersey Law Division/Mercer County. This
action is captioned Hound Partners Offshore Fund, LP et al., v. Valeant Pharmaceuticals International, Inc., et al. (No. MER-
L-002185-18). This suit asserts claims for common law fraud, negligent misrepresentation, and violations of the New Jersey
Racketeer Influenced and Corrupt Organizations Act. The factual allegations made in this complaint are similar to those made
in the District of New Jersey Hound Partners action. On March 29, 2019, the Company, certain individual defendants, and
Plaintiffs submitted a consent order to stay further proceedings pending the completion of discovery in the federal opt-out
case Hound Partners Offshore Funds, LP et al. v. Valeant Pharmaceuticals International, Inc. (Case No. 3:18-cv-08705). On
October 9, 2019, the Court entered the consent order. The Company disputes the claims and intends to vigorously defend
this matter.
Derivative Lawsuits
On September 10, 2019 and September 13, 2019, two alleged stockholders filed derivative lawsuits purportedly on behalf of
the Company against former Company board members and executives. The cases are Wessels v. Pearson (Case No. 3:19-
cv-17833) and Shabbouei v. Pearson (Case No. 3:19-cv-17987). Plaintiffs in both cases assert claims for breach of fiduciary
duty, waste of corporate assets, and unjust enrichment related to, among other things, allegedly false and misleading statements
and/or failures to disclose information about the Company’s business and prospects, including relating to drug pricing, the
Company’s use of specialty pharmacies, and the Company’s relationship with Philidor. The claims alleged in these cases are
based on the same purported conduct that is at issue in In re Valeant Pharmaceuticals International, Inc. Securities Litigation,
all of which occurred prior to 2017. The Shabbouei complaint also asserts a claim for contribution and indemnification by
the Defendants for any liability the Company ultimately faces as a result of the conduct alleged in the complaint. On January
3, 2020, the parties submitted a letter to the Court requesting consolidation of the two derivative lawsuits. The Company
disputes these claims and intends to defend itself vigorously.
F-62
Antitrust
Generic Pricing Antitrust Litigation
The Company's subsidiaries, Oceanside Pharmaceuticals, Inc. (“Oceanside”), Bausch Health US, LLC (formerly Valeant
Pharmaceuticals North America LLC) (“Bausch Health US”), and Bausch Health Americas, Inc. (formerly Valeant
Pharmaceuticals International) (“Bausch Health Americas”) (for the purposes of this subsection, collectively, the “Company”),
are defendants in multidistrict antitrust litigation (“MDL”) entitled In re: Generic Pharmaceuticals Pricing Antitrust Litigation,
pending in the United States District Court for the Eastern District of Pennsylvania (MDL 2724, 16-MD-2724). The lawsuits
seek damages under federal and state antitrust laws, state consumer protection and unjust enrichment laws and allege that the
Company’s subsidiaries entered into a conspiracy to fix, stabilize, and raise prices, rig bids and engage in market and customer
allocation for generic pharmaceuticals. The initial lawsuit to which the Company was added as a defendant in June 2018 was
filed by a putative class of direct purchaser plaintiffs. In December 2018, certain direct purchaser plaintiffs that had opted
out of this putative class filed an amended complaint in the MDL that added the Company, alleging similar claims as the direct
purchaser plaintiffs’ putative class action complaint. In February 2019, the Company filed a motion to dismiss the individual
claims brought against it and that motion remains pending. In October 2019, an end payer plaintiff that had opted out of the
putative end payer class filed a complaint against the Company in the Eastern District of Pennsylvania alleging similar claims.
In December 2019, end payer opt-out complaints also were filed against the Company in the Eastern District of Pennsylvania
and in the Northern District of California. In December 2019, separate putative class action complaints were filed against
the Company in the Eastern District of Pennsylvania by end payer and indirect reseller plaintiffs. In February 2020, a new
putative class action complaint was filed against the Company in the Eastern District of Pennsylvania by direct purchaser
plaintiffs. The cases have been consolidated into the MDL. There are also additional, separate complaints by other plaintiffs
which have been consolidated in the same MDL that do not name the Company or any of its subsidiaries as a defendant. In
July 2019, 87 health plans commenced an action in the Court of Common Pleas of Philadelphia County against the Company
and other defendants related to the multidistrict litigation, but no complaint has been filed and the case has been put in deferred
status. The Company disputes the claims against it and continues to defend itself vigorously.
Glumetza Antitrust Litigation
Between August and December 2019, six (6) putative antitrust class actions and two (2) non-class complaints were filed in
the Northern District of California against the Company, Salix Pharmaceuticals, Ltd., Salix Pharmaceuticals, Inc., and Santarus,
Inc. (among other defendants) (the “California Actions”). One of these class actions has been voluntarily dismissed. Three
of the remaining class actions were filed by plaintiffs seeking to represent a class of direct purchasers and two of the class
actions were filed by end payer purchasers. The purported classes of direct purchasers and end payer purchasers filed
consolidated amended complaints on November 25, 2019. The two non-class complaints were filed by direct purchasers.
These actions have been consolidated and coordinated in In re Glumetza Antitrust Litigation, Case No. 3:19-cv-05822-WHA.
In February 2020, an additional non-class complaint was filed in the Northern District of California and two (2) additional
class actions were filed - one in the Northern District of California and one in the Southern District of Florida (the "Florida
Action") (collectively, the "February 2020 Actions"). The February 2020 Actions are brought against the same defendants
and allege the same anticompetitive conduct alleged in the California Actions. The Florida Action has been ordered to be
transferred to the Northern District of California. Both class and non-class direct purchaser plaintiffs seek damages under
federal antitrust laws and the end payer purchasers seek damages under state antitrust, consumer protection, and unjust
enrichment laws. The lawsuits allege that a 2012 settlement of a patent litigation regarding Glumetza® delayed generic entry
in exchange for an agreement not to launch an authorized generic of Glumetza® or grant any other company a license to do
so. The complaints allege that the settlement agreement resulted in higher prices for Glumetza® and its generic equivalent
both prior to and after generic entry. Motions to dismiss the California Actions are fully briefed and set for oral argument on
February 20, 2020. The Company and its affiliates named in these cases dispute the claims against them and intend to
vigorously defend these matters.
Intellectual Property
Patent Litigation/Paragraph IV Matters
From time to time, the Company (and/or certain of its affiliates) is also party to certain patent infringement proceedings in
the United States and Canada, including as arising from claims filed by the Company (or that the Company anticipates filing
within the required time periods) in connection with Notices of Paragraph IV Certification (in the United States) and Notices
of Allegation (in Canada) received from third-party generic manufacturers respecting their pending applications for generic
versions of certain products sold by or on behalf of the Company, including Relistor®, Uceris®, Xifaxan® 200mg, Xifaxan®
550mg, Plenvu®, and Jublia® in the United States and Jublia® in Canada, or other similar suits. These matters are proceeding
in the ordinary course.
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In July 2019, the Company announced that the U.S. District Court of New Jersey had upheld the validity of and determined
Actavis' infringement of a patent protecting the Company's Relistor® tablets, expiring in March 2031. In December 2019, the
Company announced that the Company had agreed to resolve the outstanding intellectual property litigation with Glenmark
Pharmaceuticals, Ltd. ("Glenmark") regarding Bryhali®. As part of the agreement the Company grants Glenmark a non-
exclusive license effective 2026 to its intellectual property relating to Bryhali® and the parties agreed to dismiss all litigation
related to Bryhali® and all intellectual property protecting Bryhali® remains intact.
In September 2019, the Company received a Notice of Paragraph IV Certification from Sandoz, Inc. (“Sandoz”), in which
Sandoz asserted that the following U.S. patents, each of which is listed in the FDA’s Orange Book for Salix Pharmaceuticals,
Inc.’s (“Salix Inc.”) Xifaxan® tablets, 550 mg, are either invalid, unenforceable and/or will not be infringed by the commercial
manufacture, use or sale of Sandoz’s generic rifaximin tablets, 550 mg, for which an Abbreviated New Drug Application
(“ANDA”) has been filed by Sandoz: U.S. Patent No. 8,309,569 (the “‘569 patent”), U.S. Patent No. 7,045,620 (the “‘620
patent”), U.S. Patent No. 7,612,199 (the “‘199 patent”), U.S. Patent No. 7,902,206 (the “‘206 patent”), U.S. Patent No.
7,906,542 (the “‘542 patent”), U.S. Patent No. 7,915,275 (the “‘275 patent”), U.S. Patent No. 8,158,644 (the “‘644 patent”),
U.S. Patent No. 8,158,781 (the “‘781 patent”), U.S. Patent No. 8,193,196 (the “‘196 patent”), U.S. Patent No. 8,518,949 (the
“‘949 patent”), U.S. Patent No. 8,741,904 (the “‘904 patent”), U.S. Patent No. 8,835,452 (the “‘452 patent”), U.S. Patent No.
8,853,231 (the “‘231 patent”), and U.S. Patent No. 9,271,968 (the “’968 Patent”) (collectively, the “Xifaxan® Patents”). Salix
Inc. holds the New Drug Application ("NDA") for Xifaxan® and its affiliate, Salix Pharmaceuticals, Ltd. (“Salix Ltd.”), is
the owner of the ‘569 patent and Alfasigma S.p.A. (“Alfasigma”) is the owner of the ‘620 patent, the ‘199 patent, the ‘206
patent, the ‘542 patent, the ‘275 patent, the ‘644 patent, the ‘781 patent, the ‘196 patent, the ‘949 patent, the ‘904 patent, the
‘452 patent, the ‘231 patent, and the ‘968 patent, each of which has been exclusively licensed to Salix Inc. and its affiliate,
Bausch Health Ireland Limited (“BIRL”) to market Xifaxan® tablets, 550 mg. On September 30, 2019, Salix Inc. and its
affiliates, Salix Ltd. and BIRL, and Alfasigma (the “Plaintiffs”) filed suit against Sandoz in the U.S. District Court for the
District of New Jersey (Case No. 19-18566) pursuant to the Hatch-Waxman Act, alleging infringement by Sandoz of one or
more claims of each of the Xifaxan® Patents, thereby triggering a 30-month stay of the approval of Sandoz’s ANDA for
rifaximin tablets, 550 mg. Xifaxan® is protected by 23 patents covering the composition of matter and the use of Xifaxan®
listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, or the Orange Book. The claim is
substantially similar to the claim brought by Actavis in February 2016 that was settled in September 2018. The Company
remains confident in the strength of the Xifaxan® patents and will continue to vigorously pursue this matter and defend its
intellectual property.
On February 17, 2020, the Company and Alfasigma received a Notice of Paragraph IV Certification from Norwich
Pharmaceuticals Inc. (“Norwich”), in which Norwich asserted that the following U.S. patents, each of which is listed in the
FDA’s Orange Book for Salix Inc. Xifaxan® tablets, 550 mg, are either invalid, unenforceable and/or will not be infringed by
the commercial manufacture, use or sale of Norwich’s generic rifaximin tablets, 550 mg, for which an ANDA has been filed
by Norwich: U.S. Patent No. 8,309,569 (the “‘569 patent”), U.S. Patent No. 7,045,620 (the “‘620 patent”), U.S. Patent No.
7,612,199 (the “‘199 patent”), U.S. Patent No. 7,902,206 (the “‘206 patent”), U.S. Patent No. 7,906,542 (the “‘542 patent”),
U.S. Patent No. 7,915,275 (the “‘275 patent”), U.S. Patent No. 8,158,644 (the “‘644 patent”), U.S. Patent No. 8,158,781 (the
“‘781 patent”), U.S. Patent No. 8,193,196 (the “‘196 patent”), U.S. Patent No. 8,518,949 (the “‘949 patent”), U.S. Patent No.
8,642,573 (the “573 patent”), U.S. Patent No. 8,741,904 (the “‘904 patent”), U.S. Patent No. 8,829,017 (the “017 patent”),
U.S. Patent No. 8,835,452 (the “‘452 patent”), U.S. Patent No. 8,853,231 (the “‘231 patent”), U.S. Patent No. 8,946,252 (the
“252 patent”), U.S. Patent No. 8,969,398 (the “‘398 patent”), U.S. Patent No. 9,271,968 (the “’968 Patent”), U.S. Patent No.
9,421,195 (the “‘195 patent”), U.S. Patent No. 9,629,828 (the “‘9828 patent”), U.S. Patent No. 10,314,828 (the “’4828
patent”), U.S. Patent No. 10,335,397 (the “‘397 patent”), and U.S. Patent No. 10,456,384 (the “‘384 patent”) (collectively,
the “Xifaxan® Patents”). Salix Inc. holds the NDA for Xifaxan® and is the owner of the ‘569 patent, the ‘573 patent, the ‘017
patent, the ‘252 patent, the ‘398 patent, the ‘195 patent, the ‘9828 patent, the ‘4828 patent, the ‘397 patent, the ‘384 patent.
Alfasigma is the owner of the ‘620 patent, the ‘199 patent, the ‘206 patent, the ‘542 patent, the ‘275 patent, the ‘644 patent,
the ‘781 patent, the ‘196 patent, the ‘949 patent, the ‘904 patent, the ‘452 patent, the ‘231 patent, and the ‘968 patent, each
of which has been exclusively licensed to Salix Inc. and/or its affiliate, Bausch Health Ireland Limited (“BIRL”) to market
Xifaxan® tablets, 550 mg. Salix Inc. and its affiliates and Alfasigma (the “Plaintiffs”) have forty-five (45) days from the date
of receipt of notice to file suit against Norwich pursuant to the Hatch-Waxman Act, alleging infringement by Norwich of one
or more claims of each of the Xifaxan® Patents, thereby triggering a 30-month stay of the approval of Norwich’s ANDA for
rifaximin tablets, 550 mg. The Plaintiffs intend to file suit per the regulations. The Company remains confident in the strength
of the Xifaxan® patents and will continue to vigorously pursue this matter and defend its intellectual property.
In addition, patents covering the Company's branded pharmaceutical products may be challenged in proceedings other than
court proceedings, including inter partes review ("IPR") at the U.S. Patent & Trademark Office. The proceedings operate
under different standards from district court proceedings, and are often completed within 18 months of institution. IPR
challenges have been brought against patents covering the Company's branded pharmaceutical products. For example,
following Acrux DDS’s IPR petition, the U.S. Patent and Trial Appeal Board, in May 2017, instituted inter partes review for
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an Orange Book-listed patent covering Jublia® and, on June 6, 2018, issued a written determination invalidating such patent.
An appeal of this decision was filed on August 7, 2018. Jublia® continues to be covered by eight other Orange Book-listed
patents owned by the Company, which expire in the years 2028 through 2034.
Product Liability
Shower to Shower® Products Liability Litigation
Since 2016, the Company has been named in one hundred sixty-five (165) product liability lawsuits involving the Shower to
Shower® body powder product acquired in September 2012 from Johnson & Johnson; due to dismissals, only twelve (12) of
such product liability suits currently remain pending, and these twelve (12) matters are subject to the Johnson & Johnson
indemnification referenced below.
Potential liability (including its attorneys’ fees and costs) arising out of the covered Shower to Shower® lawsuits filed against
the Company is subject to certain indemnification obligations of Johnson & Johnson owed to the Company, and legal fees
and costs will be paid by Johnson & Johnson. The Company and Johnson & Johnson reached an agreement on April 17, 2019,
regarding the scope of the indemnification relating to the majority of the Shower to Shower® matters (the “Covered Matters”)
and the Company has dismissed the demand for arbitration that the Company filed against Johnson & Johnson to assert its
rights to indemnification. Johnson & Johnson will fully indemnify the Company in the Covered Matters, which include (i)
personal injury and products liability actions arising from alleged exposure to Shower to Shower® prior to March 2020 and
(ii) consumer fraud, consumer protection, false advertising or other regulatory actions arising out of the manufacture, use, or
sale of Shower to Shower® up to and including September 9, 2012. The Company does not believe that the Covered Matters
will have a material impact on the Company’s financial results going forward.
The various lawsuits include three cases originally filed in the In re Johnson & Johnson Talcum Powder Litigation, Multidistrict
Litigation 2738, pending in the United States District Court for the District of New Jersey, and one case that was filed in the
District of Puerto Rico and subsequently transferred to the MDL. The Company and Bausch Health US were first named in
a lawsuit filed directly into the MDL alleging that the use of the Shower to Shower® product caused the plaintiff to develop
ovarian cancer. The plaintiff agreed to a dismissal of all claims against the Company and Bausch Health US without prejudice.
The Company has subsequently been named in one additional lawsuit, originally filed in the District of Puerto Rico and
subsequently transferred into the MDL, but has not been served in that case. The Company was also named in two additional
lawsuits filed directly into the MDL that have also not yet been served.
These lawsuits also include a number of matters filed in the Superior Court of Delaware and six cases filed in the Superior
Court of New Jersey alleging that the use of Shower to Shower® caused the plaintiffs to develop ovarian cancer. The Company
has been voluntarily dismissed from nearly all of these cases, with claims against Bausch Health US only remaining in two
cases pending in New Jersey and one case pending in Delaware. Four of the six cases in the Superior Court of New Jersey
were voluntarily dismissed as to Bausch Health US as well. The allegations in the remaining three cases specifically directed
to Bausch Health US include failure to warn, design defect, negligence, gross negligence, breach of express and implied
warranties, civil conspiracy concert in action, negligent misrepresentation, wrongful death, and punitive damages. One hundred
twenty-two (122) of the Delaware actions were voluntarily dismissed without prejudice pursuant to stipulation in January
2019, and although the stipulation permitted the cases to be filed again within 60 days, none of the cases have been refiled.
In addition, these lawsuits also include a number of cases filed in certain state courts in the United States (including the
Superior Courts of California, Delaware and New Jersey); the District Court of Louisiana; the Supreme Court of New York
(Niagara County); the District Court of Oklahoma City, Oklahoma; the South Carolina Court of Common Pleas (Richland
County); and the District Court of Nueces County, Texas (transferred to the asbestos MDL docket in the District Court of
Harris County, Texas for pre-trial purposes) alleging use of Shower to Shower® and other products resulted in the plaintiffs
developing mesothelioma. The Company has been successful in obtaining voluntarily dismissals in most of these cases or the
plaintiffs have not opposed summary judgment. Presently, four cases remain pending in the Superior Court of New Jersey.
The allegations in these cases generally include design defect, manufacturing defect, failure to warn, negligence, and punitive
damages, and in some cases breach of express and implied warranties, misrepresentation, and loss of consortium. The damages
sought by the various Plaintiffs include compensatory damages, including medical expenses, lost wages or earning capacity,
and loss of consortium. In addition, Plaintiffs seek compensation for pain and suffering, mental anguish anxiety and discomfort,
physical impairment and loss of enjoyment of life. Plaintiffs also seek pre- and post-judgment interest, exemplary and punitive
damages, and attorneys’ fees.
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Additionally, two proposed class actions have been filed in Canada against the Company and various Johnson & Johnson
entities (one in the Supreme Court of British Columbia and one in the Superior Court of Quebec). The Company also acquired
the rights to the Shower to Shower® product in Canada from Johnson & Johnson in September 2012. In the British Columbia
matter, the plaintiff seeks to certify a proposed class action on behalf of persons in British Columbia and Canada who have
purchased or used Johnson & Johnson’s Baby Powder or Shower to Shower®, including their estates, executors and personal
representatives, and is alleging that the use of this product increases certain health risks. In the Quebec matter, the plaintiff
sought to certify a proposed class action on behalf of persons in Quebec who have used Johnson & Johnson’s Baby Powder
or Shower to Shower®, as well as their family members, assigns and heirs, and is alleging negligence in failing to properly
test, failing to warn of health risks, and failing to remove the products from the market in a timely manner. A certification
(also known as authorization) hearing was held in the Quebec matter and the Court certified (or as stated under Quebec law,
authorized) the bringing of a class action by a representative plaintiff on behalf of people in Quebec who have used Johnson
& Johnson's Baby Powder and/or Shower to Shower® in their perineal area and have been diagnosed with ovarian cancer and/
or family members, assigns and heirs. The plaintiffs in these actions are seeking awards of general, special, compensatory
and punitive damages.
In accordance with the indemnification agreement, Johnson & Johnson will continue to vigorously defend the Company in
each of the remaining actions that are not voluntarily dismissed or subject to a grant of summary judgment.
General Civil Actions
California Proposition 65 Related Matters
On February 11, 2019, plaintiffs filed a pre-suit notice letter with the California Attorney General notifying the Attorney
General’s office of their intent to file suit after 60 days against the Company and certain of its subsidiaries, alleging they
committed violations of the California Safe Drinking Water and Toxic Enforcement Act of 1986 (Proposition 65) by
manufacturing and distributing Shower to Shower® that they allege contained talc contaminated with asbestos, a listed
carcinogen. That notice letter was served on the Company on February 22, 2019. By statute, a private lawsuit may not be
filed until at least 60 days have passed following service of this pre-suit notice letter. In April 2019, rather than filing a lawsuit
against Bausch Health US, the plaintiffs moved for leave to amend their complaint in a pending Proposition 65 lawsuit (Luna,
et al. v. Johnson & Johnson, et al., case 2:18-cv-04830-GW-KS) against Johnson & Johnson in federal court in California to
add Bausch Health US as a defendant. Plaintiffs subsequently filed a motion to dismiss the lawsuit without prejudice. The
court dismissed the case without prejudice on December 18, 2019.
On April 15, 2019, a plaintiff filed a pre-suit notice letter with the California Attorney General notifying the Attorney General’s
office of its intent to file suit after 60 days against the Company and certain of its subsidiaries, alleging they committed
violations of Proposition 65 by manufacturing and distributing Shower to Shower® that they allege contained silica, arsenic,
lead and chromium (hexavalent compounds), which they allege are known to cause cancer and/or reproductive toxicity. That
notice letter was served on the Company on April 18, 2019. On January 29, 2020, Plaintiff Jan Graham filed a lawsuit (Graham
v. Bausch Health Companies, Inc., et al., Case No. 20STCV03578) in Los Angeles County Superior Court against the Company,
Bausch Health US and several other manufacturers, distributors and retailers of talcum powder products, alleging violations
of California Proposition 65 by manufacturing and distributing talcum powder products containing chemicals listed under
the statue, without a compliant warning on the label. The Company and Bausch Health US dispute the claims against them
and intend to defend this lawsuit vigorously.
On June 19, 2019, plaintiffs filed a proposed class action in California state court against Bausch Health US and Johnson &
Johnson (Gutierrez, et al. v. Johnson & Johnson, et al., Case No. 37-2019-00025810-CU-NP-CTL), asserting claims for
purported violations of the California Consumer Legal Remedies Act, False Advertising Law and Unfair Competition Law
in connection with their sale of talcum powder products that the plaintiffs allege violated Proposition 65 and/or the California
Safe Cosmetics Act. This lawsuit was served on Bausch Health US on June 28, 2019 and was subsequently removed to the
United States District Court for the Southern District of California, where it is currently pending. Plaintiffs seek damages,
disgorgement of profits, injunctive relief, and reimbursement/restitution. The Company filed a motion to dismiss Plaintiffs’
claims, which is fully briefed. The Company and Bausch Health US dispute the claims against them and intend to defend this
lawsuit vigorously.
New Mexico Attorney General Consumer Protection Action
The Company and Bausch Health US were named in an action brought by State of New Mexico ex rel. Hector H. Balderas,
Attorney General of New Mexico, in the County of Santa Fe New Mexico First Judicial District Court (New Mexico ex rel.
Balderas v. Johnson & Johnson, et al., Civil Action No. D-101-CV-2020-00013, filed on January 2, 2020), alleging consumer
protection claims against Johnson & Johnson and Johnson & Johnson Consumer Companies, Inc., the Company and Bausch
Health US related to Shower to Shower® and its alleged causal link to mesothelioma and other cancers. As indicated above,
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the Company acquired Shower to Shower® in September 2012 from Johnson & Johnson. The State of New Mexico brings
claims against all defendants under the New Mexico Unfair Practices Act, the New Mexico Medicaid Fraud Act, the New
Mexico Fraud Against Taxpayers Act, and other common law and equitable causes of action, alleging defendants engaged in
wrongful marketing, sale and promotion of talcum powder products. The lawsuit seeks to recover the cost of the talcum
powder products as well as the cost of treating asbestos-related cancers allegedly caused by those products. The Company
disputes the claims asserted in this lawsuit and intends to vigorously defend the matter.
Doctors Allergy Formula Lawsuit
In April 2018, Doctors Allergy Formula, LLC (“Doctors Allergy”), filed a lawsuit against Bausch Health Americas in the
Supreme Court of the State of New York, County of New York, Index No. 651597/2018. Doctors Allergy asserts breach of
contract and related claims under a 2015 Asset Purchase Agreement, which purports to include milestone payments that
Doctors Allergy alleges should have been paid by Bausch Health Americas. Doctors Allergy claims its damages are not less
than $23 million. On June 14, 2018, Bausch Health Americas filed a motion to dismiss the complaint in part and a motion
to strike. On July 16, 2019 the court granted the Company's motion in part and dismissed Doctor's Allergy's fraud and punitive
damages claims. On August 28, 2019, the Company filed an Amended Answer and asserted Counterclaims against Doctors
Allergy alleging breach of the covenant of good faith and fair dealing and tortious interference with contract. Bausch Health
Americas disputes the claims against it and intends to vigorously defend against those claims and enforce its rights as asserted
in its Counterclaims.
Litigation with Former Salix CEO
On January 28, 2019, former Salix Ltd. CEO and director Carolyn Logan filed a lawsuit in the Delaware Court of Chancery,
Case No. 2019-0059, asserting claims for breach of contract and declaratory relief. The lawsuit arises out of the contractual
termination of approximately $30 million in unvested equity awards following the determination by the Salix Ltd. Board of
Directors that Logan intentionally engaged in wrongdoing that resulted, or would reasonably be expected to result, in material
harm to Salix Ltd., or to the business or reputation of Salix Ltd. Logan seeks the restoration of the unvested equity awards
and a declaration regarding certain rights related to indemnification. On June 19, 2019, the Court entered an order staying
the claim for declaratory relief pending the final resolution of the breach of contract claim. The Company disputes the claims
and intends to vigorously defend the matter.
Completed or Inactive Matters
The following matters have concluded, have settled, are the subject of an agreement to settle or have otherwise been closed
since January 1, 2019, have been inactive from the Company’s perspective for several quarters or the Company anticipates
that no further material activity will take place with respect thereto. Due to the closure, settlement, inactivity or change in
status of the matters referenced below, these matters will no longer appear in the Company's next public reports and disclosures,
unless required. With respect to inactive matters, to the extent material activity takes place in subsequent quarters with respect
thereto, the Company will provide updates as required or as deemed appropriate.
Canadian Securities Litigation
As described above, the following putative Canadian class actions were discontinued in the fourth quarter of 2019: (a) Alladina
v. Valeant, et al. (Case No. S-1594B6) (Supreme Court of British Columbia) (filed November 17, 2015); (b) Kowalyshyn v.
Valeant, et al. (CV-15-540593-00CP) (Ontario Superior Court) (filed November 16, 2015); (c) Kowalyshyn et al. v. Valeant,
et al. (CV-15-541082-00CP) (Ontario Superior Court) (filed November 23, 2015); (d) O’Brien v. Valeant et al.
(CV-15-543678-00CP) (Ontario Superior Court) (filed December 30, 2015); (f) Rousseau-Godbout v. Valeant, et al. (Court
File No. 500-06-000770-152) (Quebec Superior Court) (filed October 27, 2015); (g) Okeley v. Valeant, et al. (Case No.
S-159991) (Supreme Court of British Columbia) (filed December 2, 2015); and (h) Sukenaga v Valeant et al.
(CV-15-540567-00CP) (Ontario Superior Court) (filed November 16, 2015).
Settlement of Horizon Blue Cross Blue Shield of New Jersey Lawsuit
On July 26, 2018, Horizon Blue Cross Blue Shield of New Jersey ("Horizon") filed a lawsuit against the Company in the
Superior Court of New Jersey Law Division/Essex County. This action was captioned Horizon Blue Cross Blue Shield of
New Jersey v. Valeant Pharmaceuticals International Inc., et. al., (No. ESX-L-005234-18). This suit asserted a claim under
the New Jersey Insurance Fraud Prevention Act, N.J.S.A. 17:33A-1 to -30, as well as claims for common law fraud and
negligent misrepresentation. In its complaint, Horizon alleged that the Company and other defendants submitted and caused
Horizon to pay fraudulent insurance claims. On October 5, 2018, the Company filed a motion to dismiss the claims against
it. While that motion was pending, plaintiff and the Company entered into a confidential settlement agreement, pursuant to
which the Company was dismissed from the action on January 8, 2019.
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Afexa Class Action
On March 9, 2012, a Notice of Civil Claim was filed in the Supreme Court of British Columbia which sought an order certifying
a proposed class proceeding against the Company and a predecessor, Afexa Life Sciences Inc. ("Afexa") (Case No. NEW-S-
S-140954). The proposed claim asserted that Afexa and the Company made false representations respecting Cold-FX® to
residents of British Columbia who purchased the product during the applicable period and that the proposed class has suffered
damages as a result. On November 8, 2013, the plaintiff served an amended notice of civil claim which sought to re-characterize
the representation claims and broaden them from what was originally claimed. On December 8, 2014, the Company filed a
motion to strike certain elements of the plaintiff’s claim for failure to state a cause of action. In response, the plaintiff proposed
further amendments to its claim. The hearing on the motion to strike and the plaintiff’s amended claim was held on February
4, 2015. The Court allowed certain additional subsequent amendments, while it struck others. The hearing to certify the class
was held on April 4-8, 2016 and, on November 16, 2016, the Court issued a decision dismissing the plaintiff’s application
for certification of this action as a class proceeding. On December 15, 2016, the plaintiff filed a notice of appeal in the British
Columbia Court of Appeal appealing the decision to dismiss the application for certification. The plaintiff filed its appeal
factum on March 15, 2017 and the Company filed its appeal factum on April 19, 2017. The appeal hearing was held on
September 19, 2017 and, on April 30, 2018, the British Columbia Court of Appeal dismissed the appeal. On June 29, 2018,
the plaintiff filed leave to appeal to the Supreme Court of Canada in this matter and, on February 7, 2019, the Supreme Court
of Canada dismissed the application for leave to appeal with costs.
Settlement of Salix Ltd. SEC Investigation
In the fourth quarter of 2014, the SEC commenced a formal investigation into alleged securities law violations by Salix Ltd.
The investigation related to certain disclosures made prior to the Salix Acquisition by Salix Ltd. and its then-chief financial
officer relating to the amounts of Salix Ltd. drugs held in inventory by certain wholesaler customers. The Company cooperated
with the SEC's investigation. On September 28, 2018, the Company reached a settlement of the relevant charges with the
SEC. Under the terms of the settlement, Salix Ltd. neither admitted nor denied the SEC’s allegations. No monetary penalty
against the Company or Salix Ltd. was assessed by the terms of the settlement. On April 4, 2019, the U.S. District Court for
the Southern District of New York rendered its final judgment approving the settlement.
Contact Lens Antitrust Class Actions
Beginning in March 2015, a number of civil antitrust class action suits were filed by purchasers of contact lenses against B&L
Inc., three other contact lens manufacturers, and a contact lens distributor, alleging that the defendants engaged in an
anticompetitive scheme to eliminate price competition on certain contact lens lines through the use of unilateral pricing
policies, and alleging violations of Section 1 of the Sherman Act, 15 U.S.C. § 1, and of various state antitrust and consumer
protection laws. These cases have been consolidated in the Middle District of Florida by the Judicial Panel for Multidistrict
Litigation, under the caption In re Disposable Contact Lens Antitrust Litigation, Case No. 3:15-md-02626-HES-JRK. On
August 19, 2019, B&L Inc. entered into a settlement, subject to court approval, by which it agreed to pay $10 million to fully
and finally resolve plaintiffs’ class claims against B&L Inc. in the case. On October 8, 2019, the settlement agreement was
preliminarily approved by the court. A final fairness hearing regarding the settlement has been scheduled for February 25,
2020.
Mississippi Attorney General Consumer Protection Action
The Company and Bausch Health US were named in an action brought by James Hood, Attorney General of Mississippi, in
the Chancery Court of the First Judicial District of Hinds County, Mississippi (Hood ex rel. State of Mississippi, Civil Action
No. G2014-1207013, filed on August 22, 2014), alleging consumer protection claims against Johnson & Johnson and Johnson
& Johnson Consumer Companies, Inc., the Company and Bausch Health US related to the Shower to Shower® body powder
product and its alleged causal link to ovarian cancer. As indicated above, the Company acquired the Shower to Shower® body
powder product in September 2012 from Johnson & Johnson. The State sought compensatory damages, punitive damages,
injunctive relief requiring warnings for talc-containing products, removal from the market of products that fail to warn, and
to prevent the continued violation of the Mississippi Consumer Protection Act (“MCPA”). The State also sought disgorgement
of profits from the sale of the product and civil penalties. The State did not make specific allegations as to the Company or
Bausch Health US. The Company and Bausch Health US agreed to resolve this litigation pursuant to a settlement agreement
with the State of Mississippi for a non-material amount. On January 8, 2020, an order of dismissal with prejudice was entered
by the Court.
Investigation by the State of Texas
On May 27, 2014, the State of Texas served Bausch & Lomb Incorporated (“B&L Inc.”) with a Civil Investigative Demand
concerning various price reporting matters relating to the State's Medicaid program and the amounts the State paid in
reimbursement for B&L products for the period from 1995 to the date of the Civil Investigative Demand. B&L Inc. has
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cooperated fully with the State's investigation and produced all the documents requested by the State to date. After an exchange
of positions, B&L Inc. and the State have agreed in principle to settle the matter for $10 million, subject to finalization of a
definitive agreement.
Letter from the U.S. Department of Justice Civil Division and the U.S. Attorney’s Office for the Eastern District of Pennsylvania
The Company has received a letter dated September 10, 2015 from the U.S. Department of Justice Civil Division and the
U.S. Attorney’s Office for the Eastern District of Pennsylvania stating that they are investigating potential violations of the
False Claims Act arising out of Biovail Pharmaceuticals, Inc.'s ("Biovail Pharmaceuticals") treatment of certain service fees
under agreements with wholesalers when calculating and reporting Average Manufacturer Prices in connection with the
Medicaid Drug Rebate Program. The letter requests that the Company voluntarily produce documents and information relating
to the investigation. The Company produced certain documents and clarifying information in response to the government’s
request and has cooperated with the government’s investigation; although, during 2019, there has been no material activity
on the part of the Company with respect to this matter nor has the Company had contact from the government with respect
to this matter. The Company cannot predict the outcome or the duration of this investigation or any other legal proceedings
or any enforcement actions or other remedies that may be imposed on the Company arising out of these investigations. The
underlying qui tam complaint asserting claims under the federal and certain state False Claims Acts has been voluntarily
dismissed, on a without prejudice basis, as it relates to Biovail Pharmaceuticals, Inc. and two of the other defendants.
Investigation by the State of North Carolina Department of Justice
In the beginning of March 2016, the Company received an investigative demand from the State of North Carolina Department
of Justice. The materials requested relate to the Company's Nitropress®, Isuprel® and Cuprimine® products, including
documents relating to the production, marketing, distribution, sale and pricing of, and patient assistance programs covering,
such products, as well as issues relating to the Company's pricing decisions for certain of its other products. The Company
has cooperated with this investigation; although, during 2019, there has been no material activity on the part of the Company
with respect to this matter nor has the Company had contact from the State with respect to this matter. The Company cannot
predict the outcome or the duration of this investigation or any other legal proceedings or any enforcement actions or other
remedies that may be imposed on the Company arising out of this investigation.
California Department of Insurance Investigation
On May 4, 2016, B&L International, Inc. (“B&L International”) received from the Office of the California Insurance
Commissioner an administrative subpoena to produce books, records and documents. On September 1, 2016, a revised and
corrected subpoena, issued to B&L Inc., was received naming that entity in place of B&L International and seeking additional
books records and documents. The requested books, records and documents are being requested in connection with an
investigation by the California Department of Insurance and relate to, among other things, consulting agreements and financial
arrangements between Bausch & Lomb Holdings Incorporated and its subsidiaries (“B&L”) and health care professionals in
California, the provision of ocular equipment, including the Victus® femtosecond laser platform, by B&L to health care
professionals in California and prescribing data for prescriptions written by health care professionals in California for certain
of B&L’s products, including the Crystalens®, Lotemax®, Besivance® and Prolensa®. B&L Inc. and the Company have
cooperated with the investigation, although, during 2019, there has been no material activity on the part of either B&L Inc.
or the Company with respect to this matter nor has B&L Inc. nor the Company had contact from the California Department
of Insurance with respect to this matter. The Company cannot predict the outcome or the duration of this investigation or any
other legal proceedings or any enforcement actions or other remedies that may be imposed on the Company arising out of
this investigation.
22. COMMITMENTS AND CONTINGENCIES
The Company has commitments related to capital expenditures of approximately $142 million as of December 31, 2019.
Under certain agreements, the Company may be required to make payments contingent upon the achievement of specific
developmental, regulatory, or commercial milestones. As of December 31, 2019, the Company believes it is reasonably
possible that it may potentially make milestone and license fee payments, including sales-based milestone payments, of
approximately $315 million over time, in the aggregate, to third parties for products currently under development or being
marketed, primarily consisting of the following:
• Under the terms of a June 2013 distribution and supply agreement with Spear Pharmaceuticals, Inc and Spear Dermatology
Products Inc., the Company may be required to make sales-based milestone payments. The Company believes it is
reasonably possible that these payments over time may approximate $70 million, in the aggregate.
F-69
• Under the terms of an April 2019 agreement with Mitsubishi Tanabe Pharma Corporation, the Company has acquired an
exclusive license to develop and commercialize MT-1303 (amiselimod), a late-stage oral compound that targets the
sphingosine 1-phosphate (S1P) receptor that plays a role in autoimmune diseases, such as Inflammatory Bowel Disease
(IBD) and ulcerative colitis. The Company may be required to make development and sales-based milestone payments
over time of up to $60 million, in the aggregate, as well as royalties on future sales.
• Under the terms of a December 2019 agreement with Novaliq GmbH, the Company has acquired an exclusive license
for the commercialization and development in the U.S. and Canada of NOV03 (perfluorohexyloctane), an investigational
drug to treat Dry Eye Disease associated with Meibomian gland dysfunction and may be required to make sales-based
milestone payments. The Company believes it is reasonably possible that these payments over time may approximate
$45 million, in the aggregate, as well as royalties on future sales.
• Under the terms of a February 2018 agreement with Kaken Pharmaceutical Co., Ltd., the Company has acquired an
exclusive license to develop and commercialize products containing an investigational compound, KP-470, a new
chemical entity, which is being studied for the topical treatment of psoriasis and may be required to make potential
development and sales-based milestone payments. The Company believes it is reasonably possible that these payments
over time may approximate $43 million, in the aggregate, as well as royalties on future sales.
Due to the nature of these arrangements, the future potential payments related to the attainment of the specified milestones
over a period of several years are inherently uncertain.
Indemnification Provisions
In the normal course of business, the Company enters into agreements that include indemnification provisions for product
liability and other matters. These provisions are generally subject to maximum amounts, specified claim periods and other
conditions and limits. As of December 31, 2019 and 2018, no material amounts were accrued for the Company’s obligations
under these indemnification provisions. In addition, the Company is obligated to indemnify its officers and directors in respect
of any legal claims or actions initiated against them in their capacity as officers and directors of the Company in accordance
with applicable law. Pursuant to such indemnities, the Company is indemnifying certain former officers and directors in respect
of certain litigation and regulatory matters.
23. SEGMENT INFORMATION
Reportable Segments
The Company’s CEO, who is the Company’s Chief Operating Decision Maker, manages the business through operating and
reportable segments consistent with how the Company’s CEO: (i) assesses operating performance on a regular basis, (ii)
makes resource allocation decisions and (iii) designates responsibilities of his direct reports. The Company operates in the
following reportable segments: (i) Bausch + Lomb/International segment, (ii) Salix segment, (iii) Ortho Dermatologics
segment and (iv) Diversified Products segment.
The following is a brief description of the Company’s segments:
• The Bausch + Lomb/International segment consists of: (i) sales in the U.S. of pharmaceutical products, OTC products
and medical device products, primarily comprised of Bausch + Lomb products, with a focus on the Vision Care, Surgical,
Consumer and Ophthalmology Rx products and (ii) with the exception of sales of Solta products, sales in Canada, Europe,
Asia, Australia, Latin America, Africa and the Middle East of branded pharmaceutical products, branded generic
pharmaceutical products, OTC products, medical device products and Bausch + Lomb products.
• The Salix segment consists of sales in the U.S. of GI products.
• The Ortho Dermatologics segment consists of: (i) sales in the U.S. of Ortho Dermatologics (dermatological) products
and (ii) global sales of Solta medical aesthetic devices.
• The Diversified Products segment consists of sales: (i) in the U.S. of pharmaceutical products in the areas of neurology
and certain other therapeutic classes, (ii) in the U.S. of generic products, (iii) in the U.S. of dentistry products and (iv)
of certain other businesses divested during 2017 that were not core to the Company's operations, including the Company's
equity interests in Dendreon (June 28, 2017) and Sprout (December 20, 2017). As a result of the divestitures of Dendreon
and Sprout, the Company exited the oncology and women's health businesses, respectively.
Effective in the first quarter of 2019, one product historically included in the reported results of the Ortho Dermatologics
business unit in the Ortho Dermatologics segment is now included in the reported results of the Generics business unit in the
Diversified Products segment and another product historically included in the reported results of the Ortho Dermatologics
F-70
business unit in the Ortho Dermatologics segment is now included in the reported results of the Dentistry business unit in the
Diversified Products segment as management believes the products better align with the new respective business units. These
changes in product alignment are not material. Prior period presentations of business unit and segment revenues and profits
have been conformed to current segment and business unit reporting structures.
Segment profit is based on operating income after the elimination of intercompany transactions. Certain costs, such as
Amortization of intangible assets, Asset impairments, In-process research and development costs, Restructuring and integration
costs, Acquisition-related contingent consideration costs and Other expense (income), net, are not included in the measure of
segment profit, as management excludes these items in assessing segment financial performance.
Corporate includes the finance, treasury, certain research and development programs, tax and legal operations of the Company’s
businesses and incurs certain expenses, gains and losses related to the overall management of the Company, which are not
allocated to the other business segments. In assessing segment performance and managing operations, management does not
review segment assets. Furthermore, a portion of share-based compensation is considered a corporate cost, since the amount
of such expense depends on company-wide performance rather than the operating performance of any single segment.
Segment Revenues and Profit
Segment revenues and profits for the years 2019, 2018 and 2017 were as follows:
(in millions)
Revenues:
Bausch + Lomb/International
Salix
Ortho Dermatologics
Diversified Products
Total revenues
Segment profit:
2019
2018
2017
$ 4,739
$ 4,664
$ 4,795
2,022
565
1,275
1,749
617
1,350
1,566
721
1,642
$ 8,601
$ 8,380
$ 8,724
Bausch + Lomb/International
$ 1,332
$ 1,330
$ 1,412
Salix
Ortho Dermatologics
Diversified Products
Total segment profit
Corporate
Amortization of intangible assets
Goodwill impairments
Asset impairments
Restructuring and integration costs
Acquisition-related contingent consideration
Other expense (income), net
Operating (loss) income
Interest income
Interest expense
Loss on extinguishment of debt
Foreign exchange and other
Loss before benefit from income taxes
1,349
222
932
3,835
(609)
(1,897)
—
(75)
(31)
(12)
(1,414)
(203)
12
(1,612)
(42)
8
$ (1,837)
1,149
257
1,012
3,748
(605)
(2,644)
(2,322)
(568)
(22)
9
20
(2,384)
11
(1,685)
(119)
23
$ (4,154)
935
333
1,115
3,795
(562)
(2,690)
(312)
(714)
(52)
289
348
102
12
(1,840)
(122)
107
$ (1,741)
F-71
Capital Expenditures
Capital expenditures by segment for the years 2019, 2018 and 2017 were as follows:
(in millions)
Capital expenditures:
Bausch + Lomb/International
Salix
Ortho Dermatologics
Diversified Products
Corporate
Total capital expenditures
2019
2018
2017
$
225
$
139
$
159
2
1
2
230
40
270
$
2
1
2
144
13
157
$
3
2
4
168
3
$
171
Revenues by Product and by Product Category
The top ten products represented 39%, 36% and 32% of total product sales for the years 2019, 2018 and 2017, respectively.
Revenues by segment and product category were as follows:
(in millions)
Bausch + Lomb/
International
Salix
Ortho
Dermatologics
Diversified Products
Total
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
2017
Pharmaceuticals $ 885 $ 892 $ 956
$2,022 $1,752 $1,564
$ 355 $ 457 $ 567
$ 810 $ 927 $1,290
$ 4,072 $ 4,028 $ 4,377
Devices
OTC
Branded and
Other Generics
Other revenues
1,524
1,505
1,421
1,452
1,412
1,529
801
77
784
71
819
70
—
—
—
—
—
—
—
(3)
—
—
—
2
193
135
111
—
—
17
—
—
25
—
—
43
—
—
447
18
—
—
407
16
—
—
338
14
1,717
1,640
1,532
1,452
1,412
1,529
1,248
1,191
1,157
112
109
129
$4,739 $4,664 $4,795
$2,022 $1,749 $1,566
$ 565 $ 617 $ 721
$1,275 $1,350 $1,642
$ 8,601 $ 8,380 $ 8,724
Geographic Information
Revenues are attributed to a geographic region based on the location of the customer for the years 2019, 2018 and 2017 were
as follows:
(in millions)
U.S. and Puerto Rico
China
Canada
Japan
Poland
Mexico
Egypt
France
Russia
Germany
United Kingdom
Spain
Italy
Other
2019
2018
2017
$ 5,164
$ 5,011
$ 5,225
368
339
241
231
228
218
201
180
150
115
86
85
995
361
319
226
218
211
178
205
154
170
117
83
85
331
326
223
201
201
152
188
200
157
108
77
78
1,042
1,257
$ 8,601
$ 8,380
$ 8,724
F-72
Long-lived assets consisting of property, plant and equipment, net of accumulated depreciation, are attributed to geographic
regions based on their physical location as of December 31, 2019 and 2018 were as follows:
(in millions)
U.S. and Puerto Rico
Ireland
Canada
Poland
Germany
Egypt
Mexico
France
China
Serbia
Italy
Other
2019
2018
$
656
255
103
90
68
62
50
30
27
27
22
76
$
593
217
99
94
66
50
48
31
25
28
23
79
$ 1,466
$ 1,353
Major Customers
Customers that accounted for 10% or more of total revenues were as follows:
McKesson Corporation
AmerisourceBergen Corporation
Cardinal Health, Inc.
2019
17%
16%
14%
2018
18%
18%
13%
2017
19%
15%
13%
F-73
Selected unaudited quarterly consolidated financial data are shown below:
SUPPLEMENTARY DATA (UNAUDITED)
2019
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
2,224
3,300
$ (1,076)
2,209
1,880
329
(49)
$ (1,516)
(0.14)
515
$
$
(4.30)
234
$
$
$
$
$
2,152
1,895
257
(171)
(0.49)
339
$
$
$
$
$
2018
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
$
2,128
2,373
(245)
(873)
(2.49)
222
$
$
$
$
$
2,136
2,019
117
(350)
(1.00)
522
$
$
$
$
$
2,121
2,096
25
(344)
(0.98)
319
$
$
$
$
$
2,016
1,729
287
(52)
(0.15)
413
First
Quarter
$
1,995
4,276
$ (2,281)
$ (2,581)
$
$
(7.36)
438
(in millions, except per share amounts)
Revenue
Expenses
Operating income (loss)
Net loss attributable to Bausch Health Companies Inc.
Basic and Diluted loss per share attributable to Bausch Health
Companies Inc.:
Net cash provided by operating activities
(in millions, except per share amounts)
Revenue
Expenses
Operating (loss) income
Net loss attributable to Bausch Health Companies Inc.
Basic and Diluted loss per share attributable to Bausch Health
Companies Inc.:
Net cash provided by operating activities
F-74
Subsidiary Information
As of February 19, 2020
Company
Bausch & Lomb Argentina S.R.L.
Waicon Vision S.A.
Bausch & Lomb (Australia) Pty Limited
Bausch Health Australia Pty Limited
(f/k/a Valeant Holdco 2 Pty Ltd)
Wirra Holdings Pty Limited
Bausch & Lomb Gesellschaft m.b.H.
Closed Joint-Stock Company Bausch
Health (f/k/a Closed Joint-Stock Company
Valeant Pharma)
Bausch & Lomb Pharma S.A.
veliko d.o.o. Sarajevo
BL Importações Ltda.
BL Indústria Ótica Ltda.
0909657 B.C. Ltd.
PharmaSwiss EOOD
Bausch Health, Canada Inc.
Valeant Canada GP Limited/ Commandité
Valeant Canada Limitée
Valeant Canada Limited / Valeant Canada
Limitée
Valeant Canada S.E.C./Valeant Canada LP
V-BAC Holding Corp.
9079-8851 Quebec Inc.
Mercury (Cayman) Holdings
Bausch & Lomb (Shanghai) Trading Co.,
Ltd.
Beijing Bausch & Lomb Eyecare Co., Ltd.
Shandong Bausch & Lomb Freda New
Packing Materials Co., Ltd.
Shandong Bausch & Lomb Freda
Pharmaceutical Co., Ltd.
Cambridge Pharmaceutical S.A.S.
Farmatech S.A.
Humax Pharmaceutical S.A.
Exhibit 21.1
Jurisdiction of
Incorporation
Argentina
Argentina
Australia
Australia
Australia
Austria
Belarus
Belgium
Bosnia
Brazil
Brazil
Doing Business As
Bausch & Lomb Argentina S.R.L.
Waicon Vision S.A.
Bausch & Lomb (Australia) Pty
Limited
Bausch Health Australia Pty Limited
(f/k/a Valeant Holdco 2 Pty Ltd)
Wirra Holdings Pty Limited
Bausch & Lomb GmbH
CJSC Bausch Health (f/k/a CJSC
Valeant Pharma)
Bausch & Lomb Pharma S.A.
PharmaSwiss BH d.o.o. Sarajevo
BL Importações Ltda.
BL Indústria Ótica Ltda.
British Columbia (Canada)
0909657 B.C. Ltd.
Bulgaria
Canada
Canada
Canada
Canada
Canada
Quebec (Canada)
Cayman Islands
China
China
China
China
Colombia
Colombia
Colombia
PharmaSwiss EOOD
Bausch Health, Canada Inc.
Valeant Canada GP Limited/
Commandité Valeant Canada Limitée
Valeant Canada Limited / Valeant
Canada Limitée
Valeant Canada S.E.C./Valeant Canada
LP
V-BAC Holding Corp.
9079-8851 Quebec Inc.
Mercury (Cayman) Holdings
Bausch & Lomb (Shanghai) Trading
Co., Ltd.
Beijing Bausch & Lomb Eyecare Co.,
Ltd.
Shandong Bausch & Lomb Freda New
Packing Materials Co., Ltd.
Shandong Bausch & Lomb Freda
Pharmaceutical Co., Ltd.
Cambridge Pharmaceutical S.A.S.
Farmatech S.A.
Humax Pharmaceutical S.A.
PharmaSwiss Ceská republika s.r.o.
Czech Republic
PharmaSwiss Ceská republika s.r.o.
Croatia
Amoun Distribution LLC
Amoun Pharmaceutical Company S.A.E.
ICN Egypt LLC
PharmaSwiss Eesti OÜ
Bausch & Lomb France S.A.S.
Laboratoire Chauvin S.A.S.
Bausch & Lomb GmbH
B L E P Holding GmbH
Dr. Gerhard Mann chem.-pharm. Fabrik
Gesellschaft mit beschränkter Haftung
Dr. Robert Winzer Pharma GmbH
Grundstücksverwaltungsgesellschaft
Dr.Gerhard Mann chem.- pharm. Fabrik
GmbH
Pharmaplast Vertriebsgesellschaft mbH
Technolas Perfect Vision GmbH
Bausch Health Hellas Single-Member
Pharmaceuticals Société Anonyme
(f/k/a PharmaSwiss Hellas Commercial
Société Anonyme of Pharmaceuticals)
Bausch & Lomb (Hong Kong) Limited
Sino Concept Technology Limited
Bausch Health Magyarország Korlátolt
Felelõsségû Társaság (f/k/a Valeant Pharma
Magyarország Kereskedelmi Korlátolt
Bausch & Lomb India Private Limited
PT Bausch Lomb Indonesia
Bausch Health Ireland Limited
Oceana Therapeutics Limited
Valeant Holdings Ireland
Bausch Health HoldCo Limited
Bausch & Lomb-IOM S.p.A.
B.L.J. Company Limited
Bausch & Lomb (Jersey) Limited
Egypt
Egypt
Egypt
Estonia
France
France
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Greece
Hong Kong
Hong Kong
Hungary
India
Indonesia
Ireland
Ireland
Ireland
Ireland
Italy
Japan
Jersey
Amoun Distribution LLC
Amoun Pharmaceutical Company
S.A.E.
ICN Egypt LLC
PharmaSwiss Eesti OÜ
Bausch & Lomb France S.A.S.
Laboratoire Chauvin S.A.S.
Bausch & Lomb GmbH
B L E P Holding GmbH
Dr. Gerhard Mann chem.-pharm.
Fabrik GmbH
Dr. Robert Winzer Pharma GmbH
Grundstücksverwaltungsgesellschaft
Dr.Gerhard Mann chem.- pharm.
Fabrik GmbH
Pharmaplast Vertriebsgesellschaft mbH
Technolas Perfect Vision GmbH
Bausch Health Hellas
(f/k/a PharmaSwiss Hellas S.A.)
Bausch & Lomb (Hong Kong) Limited
Sino Concept Technology Limited
Bausch Health Magyarország Korlátolt
Felelõsségû Társaság (f/k/a Valeant
Pharma Magyarország Kereskedelmi
Bausch & Lomb India Private Limited
PT Bausch Lomb Indonesia
Bausch Health Ireland Limited
Oceana Therapeutics Limited
Valeant Holdings Ireland
Bausch Health HoldCo Limited
Bausch & Lomb-IOM S.p.A.
B.L.J. Company Limited
Bausch & Lomb (Jersey) Limited
Bausch Health LLP (f/k/a Valeant LLP)
Kazakhstan
Bausch Health LLP (f/k/a Valeant LLP)
Bausch & Lomb Korea Co., Ltd.
Bausch Health Korea Co., Limited
Bescon Co., Ltd.
UAB PharmaSwiss
Bausch & Lomb Luxembourg S.à r.l.
Valeant Finance Luxembourg S.à r.l.
Korea
Korea
Korea
Lithuania
Luxembourg
Luxembourg
Bausch & Lomb Korea Co., Ltd.
Bausch Health Korea Co., Limited
Bescon Co., Ltd.
UAB PharmaSwiss
Bausch & Lomb Luxembourg S.à r.l.
Valeant Finance Luxembourg S.à r.l.
Valeant Pharmaceuticals Luxembourg S.à
r.l.
Bausch & Lomb (Malaysia) Sdn. Bhd.
Bausch & Lomb México, S.A. de C.V.
Laboratorios Fedal, S.A.
Laboratorios Grossman, S.A.
Nysco de México, S.A. de C.V.
Tecnofarma, S.A. de C.V.
Valeant Servicios y Administración, S. de
R.L. de C.V.
Bausch+Lomb OPS B.V.
Natur Produkt Europe B.V.
Valeant Dutch Holdings B.V.
Bausch & Lomb (New Zealand) Limited
Valeant Farmacéutica Panamá, S.A.
Bausch Health Perú S.R.L. (f/k/a Valeant
Farmacéutica Perú S.R.L.)
Bausch & Lomb Philippines Inc.
Przedsiebiorstwo Farmaceutyczne Jelfa
Amoun Pharmaceutical Romania SRL
S.C. Valeant Pharma SRL
Bausch Health LLC (f/k/a VALEANT
LLC)
zastupanje Beograd
Bausch & Lomb (Singapore) Private
Limited
Technolas Singapore Pte. Ltd.
Bausch Health Slovakia s.r.o. (f/k/a Valeant
Slovakia s.r.o.)
PharmaSwiss, trgovsko in proizvodno
podjetje, d.o.o.
Luxembourg
Valeant Pharmaceuticals Luxembourg
S.à r.l.
Malaysia
Bausch & Lomb (Malaysia) Sdn. Bhd.
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Netherlands
Netherlands
Netherlands
New Zealand
Panama
Peru
Philippines
Poland
Poland
Poland
Poland
Poland
Poland
Romania
Romania
Russia
Serbia
Singapore
Singapore
Slovakia
Bausch & Lomb México, S.A. de C.V.
Laboratorios Fedal, S.A.
Laboratorios Grossman, S.A.
Nysco de México, S.A. de C.V.
Tecnofarma, S.A. de C.V.
Valeant Servicios y Administración, S.
de R.L. de C.V.
Bausch+Lomb OPS B.V.
Natur Produkt Europe B.V.
Valeant Dutch Holdings B.V.
Bausch & Lomb (New Zealand)
Limited
Valeant Farmacéutica Panamá, S.A.
Bausch Health Perú S.R.L. (f/k/a
Valeant Farmacéutica Perú S.R.L.)
Bausch & Lomb Philippines Inc.
Emo-Farm sp. z o.o.
ICN Polfa Rzeszow SA
Przedsiebiorstwo Farmaceutyczne Jelfa
SA
Valeant Med sp. z o.o.
Valeant sp. z o.o. Europe sp. j.
Bausch Health Poland sp.z o.o. (f/k/a
Valeant Pharma Poland sp. z o.o.)
Amoun Pharmaceutical Romania SRL
Valeant Pharma SRL
Bausch Health LLC (f/k/a VALEANT
LLC)
PharmaSwiss doo, Beograd
Bausch & Lomb (Singapore) Private
Limited
Technolas Singapore Pte. Ltd.
Bausch Health Slovakia s.r.o. (f/k/a
Valeant Slovakia s.r.o.)
Slovenia
PharmaSwiss d.o.o.
Bausch & Lomb (South Africa) (Pty) Ltd
South Africa
Bausch & Lomb (South Africa) (Pty)
Ltd
Soflens (Pty) Ltd
South Africa
Soflens (Pty) Ltd
Bausch & Lomb S.A.
Bausch & Lomb Nordic Aktiebolag
Bausch & Lomb Swiss AG
PharmaSwiss SA
Bausch & Lomb Taiwan Limited
Bausch & Lomb (Thailand) Limited
Bausch Health Limited Liability Company
(f/k/a VALEANT PHARMACEUTICALS
Limited Liability Company)
Medpharma Pharmaceutical & Chemical
Industries LLC
Bausch Health Trading DWC-LLC
Bausch & Lomb UK Holdings Limited
Bausch & Lomb U.K. Limited
Sterimedix Limited
Synergetics Surgical EU Limited
Salix Pharmaceuticals, Inc.
Visioncare Devices, Inc.
Audrey Enterprise, LLC
Bausch & Lomb South Asia, Inc.
Bausch Foundation, LLC
Bausch Health Americas, Inc.
Bausch Health US, LLC
Eye Essentials LLC
Medicis Pharmaceutical Corporation
Oceanside Pharmaceuticals, Inc.
OraPharma, Inc.
PreCision Dermatology, Inc.
Salix Pharmaceuticals, Ltd.
Santarus, Inc.
Solta Medical, Inc.
Synergetics IP, Inc.
Unilens Corp. USA
Unilens Vision Sciences Inc.
VRX Holdco LLC
Synergetics, Inc.
Alden Optical Laboratories, Inc.
Bausch & Lomb Incorporated
Spain
Sweden
Switzerland
Switzerland
Taiwan
Thailand
Turkey
Ukraine
UAE
UAE
United Kingdom
United Kingdom
United Kingdom
United Kingdom
California (US)
California (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Missouri (US)
New York (US)
New York (US)
Bausch & Lomb S.A.
Bausch & Lomb Nordic AB
Bausch & Lomb Swiss AG
PharmaSwiss SA
Bausch & Lomb Taiwan Limited
Bausch & Lomb (Thailand) Limited
Bausch Health Limited Liability
Company (f/k/a VALEANT
PHARMACEUTICALS LLC)
Medpharma Pharma & Chem Ind LLC
Bausch Health Trading DWC-LLC
Bausch & Lomb UK Holdings Limited
Bausch & Lomb U.K. Limited
Sterimedix Limited
Synergetics Surgical EU Limited
Salix Pharmaceuticals, Inc.
Visioncare Devices, Inc.
Audrey Enterprise, LLC
Bausch & Lomb South Asia, Inc.
Bausch Foundation, LLC
Bausch Health Americas, Inc.
Bausch Health US, LLC
Eye Essentials LLC
Medicis Pharmaceutical Corporation
Oceanside Pharmaceuticals, Inc.
OraPharma, Inc.
PreCision Dermatology, Inc.
Salix Pharmaceuticals, Ltd.
Santarus, Inc.
Solta Medical, Inc.
Synergetics IP, Inc.
Unilens Corp. USA
Unilens Vision Sciences Inc.
VRX Holdco LLC
Synergetics, Inc.
Alden Optical Laboratories, Inc.
Bausch & Lomb Incorporated
In accordance with the instructions of Item 601 of Regulation S-K, certain subsidiaries are omitted from the foregoing table.
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Joseph C. Papa, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Bausch Health Companies Inc. (the “Company”);
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the
periods presented in this report;
The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the Company's internal control over financial reporting that occurred
during the Company's most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control
over financial reporting; and
5.
The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons
performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize
and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the Company's internal control over financial reporting.
Date: February 19, 2020
/s/ JOSEPH C. PAPA
Joseph C. Papa
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Paul S. Herendeen certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Bausch Health Companies Inc. (the “Company”);
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the
periods presented in this report;
The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the Company's internal control over financial reporting that occurred
during the Company's most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control
over financial reporting; and
5.
The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons
performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize
and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the Company's internal control over financial reporting.
Date: February 19, 2020
/s/ PAUL S. HERENDEEN
Paul S. Herendeen
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. § 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
I, Joseph C. Papa, Chairman of the Board and Chief Executive Officer of Bausch Health Companies Inc. (the “Company”), certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1.
2.
The Annual Report of the Company on Form 10-K for the fiscal year ended December 31, 2019 (the “Annual Report”)
fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Date: February 19, 2020
/s/ JOSEPH C. PAPA
Joseph C. Papa
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the
extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the
Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it
by reference.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the
Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. § 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
I, Paul S. Herendeen, Executive Vice President and Chief Financial Officer of Bausch Health Companies Inc. (the “Company”),
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1.
2.
The Annual Report of the Company on Form 10-K for the fiscal year ended December 31, 2019 (the “Annual Report”)
fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Date: February 19, 2020
/s/ PAUL S. HERENDEEN
Paul S. Herendeen
Executive Vice President and Chief Financial Officer
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the
extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the
Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it
by reference.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the
Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.
B A U S C H H E A LT H C O M PA N I E S I N C .
Corporate
Information
BOARD OF DIRECTORS
E XECUTI VE OFFICERS
Joseph C. Papa
Chairman of the Board and
Chief Executive Officer
Christina M. Ackermann
Executive Vice President
and General Counsel
Thomas J. Appio
President & Co-Head,
Bausch + Lomb/International
Joseph F. Gordon
President & Co-Head,
Bausch + Lomb/International
Paul S. Herendeen
Executive Vice President
and Chief Financial Officer
William D. Humphries
President, Ortho Dermatologics
SENIOR MANAGEMENT
Dennis Asharin
Senior Vice President, Chief Global
Manufacturing and Supply Chain Officer
Scott Hirsch
Chief Business Strategy Officer, Senior
Vice President/General Manager, Dentistry
Barbara Purcell
President, Diversified Products
Dr. Tage Ramakrishna
Chief Medical Officer, President of
Research and Development
Robert Spurr
Senior Vice President, Market Access
and Commercial Operations
Kelly Webber
Senior Vice President and
Chief Human Resources Officer
Dr. Louis Yu
Chief Quality Officer, Global Quality
Joseph C. Papa
Chairman of the Board and
Chief Executive Officer
Bausch Health Companies Inc.
Thomas W. Ross, Sr.
President and Director, The Volcker Alliance
Lead Independent Director
Committees: Audit and Risk, Nominating
and Corporate Governance
Richard U. De Schutter
Corporate Director
Committees: Finance and Transactions,
Talent and Compensation
D. Robert Hale
Partner, ValueAct Capital Management, L.P.
Committees: Finance and Transactions
(Chairperson), Talent and Compensation
Argeris (Jerry) N. Karabelas
Partner, Care Capital, LLC
Committees: Talent and Compensation
(Chairperson), Science and Technology
Sarah B. Kavanagh
Corporate Director
Committees: Audit and Risk, Finance and
Transactions, Nominating and Corporate
Governance
John A. Paulson
President and Portfolio Manager,
Paulson & Co. Inc.
Committees: Finance and Transactions
Robert N. Power
Corporate Director
Committees: Nominating and Corporate
Governance (Chairperson), Audit and Risk,
Science and Technology
Russel C. Robertson
Corporate Director
Committees: Audit and Risk (Chairperson),
Nominating and Corporate Governance
Andrew C. von Eschenbach, M.D.
President, Samaritan Health Initiatives, Inc.
Committees: Science and Technology
(Chairperson)
Dr. Amy Wechsler
Dermatologist, Dr. Amy Wechsler
Dermatology
Committees: Talent and Compensation,
Science and Technology
Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com
CORPOR ATE INFORMATION
2150 St. Elzéar Blvd. West
Laval, Quebec H7L 4A8
Canada
Phone: 800-361-1448
514-744-6792
514-744-6272
Fax:
GENER AL INVESTOR REL ATIONS
Email: ir@bauschhealth.com
877-281-6642
514-856-3855 (Canada)
You may request a copy of documents, at
no cost, by contacting ir@bauschhealth.
com. Email updates are also available
through the Investor Relations page at
www.bauschhealth.com.
TR ANSFER AGENT AND REGISTR AR
Bausch Health Companies Inc.’s designated
transfer agent is AST Trust Company
(Canada). The transfer agent is responsible
for maintaining all records of registered
stockholders (including change of address,
telephone number and name), canceling
or issuing stock certificates and resolving
problems related to lost, destroyed or
stolen certificates. If you are a registered
stockholder of Bausch Health Companies
Inc. and need to change your records
pertaining to stock, please contact the
transfer agent listed below:
AST Trust Company (Canada)
P.O. Box 700
Station B
Montreal, QC H3B 3K3
Canada
Email: inquiries@astfinancial.com
Fax: 888-249-6189
Phone (for all security transfer inquiries):
1-800-387-0825 or 416-682-3860
Website: www.astfinancial.com/ca-en
2150 St. Elzéar Blvd. West
Laval, Quebec H7L 4A8
Canada
(800) 361-1448
www.bauschhealth.com