Bausch Health's Q3 2025: Contradictions Emerge on Xifaxan Revenue vs. Prescriptions, EBITDA Margins, Manufacturing, and 340B/Medicaid Exit

Date of Call: October 29, 2025

Financials Results

• Revenue: $2.681 billion, up 7% on a reported basis and 5% on an organic basis year-over-year
• Gross Margin: 72.7%, down 40 basis points year-over-year

Guidance:

• Full-year revenue now expected to be $5.0B–$5.1B (midpoint +$25M, ~4% YoY)
• Adjusted EBITDA now expected to be $2.7B–$2.75B (excludes core IP R&D; midpoint +$50M, ~7% vs 2024)
• Adjusted operating cash flow now expected to be $975M–$1.025B (midpoint +$150M)

Business Commentary:

* Revenue and Earnings Growth: - Bausch Health, excluding Bausch + Lomb, reported 7% year-over-year revenue growth on a reported basis and 5% on an organic basis in Q3 2025. - The growth was driven by operational and financial momentum, with notable performance in its Solta and Salix businesses.

• Strong Performance in Specific Business Units:
• The Solta Medical segment saw 25% growth on a reported basis and 24% on an organic basis, with a focus on the Asia Pacific region, particularly South Korea.

• Growth was supported by domestic demand and high levels of medical aesthetics-related tourism in the region.

• Impact of Strategic Initiatives:

• Salix, another significant contributor, delivered 12% growth on a reported basis and 11% on an organic basis, driven by the AI-driven customer insights engine and increased Xifaxan volume.

• The launch and growth of Cabtreo played a significant role in the dermatology segment's success, contributing to its rising revenue and market position.

• Innovation and R&D Impact:

• The acquisition and integration of DURECT Corporation were completed, enhancing Bausch Health's R&D pipeline, particularly in the hepatology area.
• This strategy aims to advance treatments like larsucosterol and RED-C as potential game-changers in their respective therapeutic fields.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted the "10th consecutive quarter of revenue and adjusted EBITDA growth," noted they "are raising full year guidance for revenue, adjusted EBITDA and adjusted cash flow," and reported they "reduced our debt by approximately $600 million," signaling operational momentum and financial progress.

Q&A:

• Question from Leszek Sulewski (Truist Securities): First one, it appears the revenue growth for Xifaxan is outpacing the script growth. So first, can you touch on the disconnect there? Is it backed by a greater focus on commercial plans and direct-to-consumer initiatives? And then second, can you talk to which channel is mostly driving the overall script growth? Is it the primary care side? And how durable is this growth profile as we kind of look out for the end of the life cycle management for the asset? And then I have a follow-up.
  Response: A one-time gross-to-net benefit inflated reported pricing; underlying pricing is mid-single digits while durable volume/new-patient growth is broad-based across channels and driven by DTC and the AI customer-insight engine.

• Question from Leszek Sulewski (Truist Securities): So as we're getting ready for CMS to disclose the final pricing from IRA price negotiations. Perhaps maybe give us a little bit of a sense of where Xifaxan land and the script trends for tied to Medicare Part D. And any sort of commentary that you could provide, how receptive has CMS been to your challenges, specifically given OHEs and orphan indication and the LOE component to the assets?
  Response: Negotiations have concluded and CMS pricing is expected Nov 30, 2025; ~30% of Xifaxan volume is Medicare Part D and the impact is meaningful, but mitigation strategies should leave the average EBITDA for 2026–27 broadly similar to 2025.

• Question from Umer Raffat (Evercore ISI): Congrats on the quarter. This is [ JP ] for Umer Raffat. First question, on MFN, are you guys planning or negotiating anything regarding manufacturing in the U.S.? What's your exposure there?
  Response: Manufacturing is regional; Xifaxan is produced out of Canada with the active ingredient originating in Italy; no current plan to shift U.S. manufacturing and no material tariffs affecting flows today.

• Question from Chi Meng Fong (BofA Securities): Maybe the first one is on the revised guidance. So you saw strength across multiple pharma sets this quarter, but yet you're only taking up the lower bound of the top line guidance by 1% and 50 bps at the midpoint. Can you just talk about that? Are you seeing onetimers in 3Q that you want to expect to carry forward in 4Q...?
  Response: Q3 included onetime gross-to-net adjustments tied to channel inventory; Q4 is expected roughly in line with prior expectations, and the guidance raise is modest on revenue but larger for EBITDA and cash flow reflecting improved cash conversion assumptions.

• Question from Chi Meng Fong (BofA Securities): The SG&A spend this quarter is below the run rate for the past 5 quarters. Is there any seasonality with the SG&A spend this quarter? How should we think about the SG&A run rate going forward?
  Response: Q3 SG&A was unusually low due to nonrecurring changes to accruals; use Q1–Q2 as a better indicator of ongoing SG&A run rate.

• Question from Chi Meng Fong (BofA Securities): On the pipeline. You mentioned you're going to have Phase III results for RED-C early next year. Are you planning a concurrent readout for both Phase II and early 2026? I heard initial data readouts by early 2026 — confirm timing and whether more data would be needed for regulatory filing if positive?
  Response: Both global Phase III RED‑C trials are fully enrolled and will be read out together in early 2026 (Q1); that will be the program's final readout before assessing next steps.

• Question from Chi Meng Fong (BofA Securities): Do you have any expectation or how would you frame what would be a successful outcome of the trial? Is it just needing the primary endpoint? Or is there more to it?
  Response: Success hinges on primary endpoint results plus important secondary endpoints; management declined to define specifics ahead of data.

• Question from Liwen Wang (Jefferies LLC): The IRA. The Xifaxan, like the commercial spillover?
  Response: The IRA renegotiation primarily affects 2027 by changing discounts for Medicare Part D volume; it doesn't alter core commercial dynamics or spillover in the near term.

• Question from Liwen Wang (Jefferies LLC): And can I follow up with what do you think about the erosion curve with the generic for 2028 plus?
  Response: Expect a typical erosion curve with multiple generic entries in 2028; nothing unusual anticipated but it's uncertain.

• Question from Michael Nedelcovych (TD Cowen): In response to an earlier question, did I hear correctly that you suggested 2026 and 2027 EBITDA is expected to be flattish versus 2025?
  Response: Clarification: the average of 2026 and 2027 EBITDA should be similar to 2025, per management's commentary.

• Question from Michael Nedelcovych (TD Cowen): Roughly what proportion of prescribers of Xifaxan that use it to treat hepatic encephalopathy are hepatologists versus gastroenterologists? And how might that split change if RED‑C is successful?
  Response: No split provided on the call (management will follow up); franchise is treated as gastroenterology, and addressable U.S. populations cited: ~650k with OHE and ~1.9M with cirrhosis who have never had OHE.

• Question from Michael Nedelcovych (TD Cowen): When we get the initial top line data for RED‑C, what is the likelihood that we also see the all‑cause mortality data? Would that be mature as well?
  Response: Initial top-line will include the primary and key secondary endpoints; management will provide data in totality when available.

• Question from Douglas Miehm (RBC Capital Markets): With respect to those accruals that impacted this quarter, could you expand on how they specifically arose?
  Response: Q3 adjustments related to estimated liabilities from prior fiscal periods recorded in the quarter; these roughly offset IP R&D charges recorded from the DURECT acquisition.

• Question from Douglas Miehm (RBC Capital Markets): As you think about the next couple of years, can you speak to cash flow in 2026/2027 and how that will be used to pay down debt?
  Response: Specific 2026 cash‑flow guidance will be provided with Q4 results; current capital allocation priorities are: service/deleverage debt first, reinvest in the business second, and potential shareholder returns only if excess cash remains.

• Question from Michael Freeman (Raymond James): JJ, I wonder if you could walk through the thought process that led to Bausch Health's decision to exit participation in the 340B program and the Medicaid channel?
  Response: Decision intended to optimize U.S. sales channels while enhancing patient access: the expanded patient assistance program offers eligible patients no‑cost access and 90‑day supplies versus Medicaid's 30‑day scripts.

• Question from Michael Freeman (Raymond James): Can you describe benefits to the company beyond the onetime accruals?
  Response: Management expects channel optimization benefits but it's early to quantify and they did not provide specific details on how benefits will flow through financially.

• Question from Michael Freeman (Raymond James): Can you give the lay of the land on your debt refinancing programs and further steps you envision taking to deleverage?
  Response: Deleveraging will rely primarily on free cash flow; equity issuance is unlikely; remaining options include limited discount capture and proceeds from asset sales (B+L equity stake viewed as the most likely supplementary source).

Contradiction Point 1

Xifaxan Revenue and Prescription Growth Disconnect

It involves the explanation for the disconnect between Xifaxan's revenue growth and prescription growth, which affects financial performance expectations and investor understanding of the company's dynamics.

Why is revenue growth for Xifaxan outpacing script growth? - Leszek Sulewski (Truist Securities, Inc., Research Division)

2025Q3: Xifaxan benefited from a onetime benefit associated with the gross to net accrual, typically in the mid-single digits year-over-year. The volume growth was balanced across channels. - Jean-Jacques Charhon(CFO)

What are the potential IRA-related headwinds for Xifaxan in 2027, and how do you explain the gap between revenue and prescription growth for Relistor and Trulance? - Douglas Miehm (RBC Capital Markets, Research Division)

2025Q2: The discrepancy in revenue vs. prescription growth is due to gross-to-net favorability and accruals. - Thomas J. Appio(CEO)

Contradiction Point 2

EBITDA Margin Phasing and Guidance

It involves changes in financial forecasts, specifically regarding EBITDA margin expectations, which are critical indicators for investors.

Why is the guidance increase limited to the lower end? - Chi Meng Fong (BofA Securities, Research Division)

2025Q3: Onetimers were in Q3, affecting gross to net. The increase in guidance reflects better free cash flow conversion. - Thomas Appio(CEO)

What is the current impact of tariffs? Can you break down the $150 million operating cash flow guidance update? How should we assess the EBITDA margin cadence moving forward? - Les Sulewski (Truist Securities)

2025Q1: The EBITDA margin phasing will be similar to 2024. - Jean-Jacques Charhon(CFO)

Contradiction Point 3

Manufacturing Footprint and Tariff Impact

It involves the company's strategy regarding manufacturing locations and how it is being affected by tariffs, which could impact operational costs and global supply chain management.

Are you planning or negotiating any U.S. manufacturing initiatives? - Umer Raffat (Evercore ISI)

2025Q3: Our manufacturing footprint is regional. Products are produced where they're sold. Currently, there are no material tariffs impacting our products. - Jean-Jacques Charhon(CFO)

How long can Solta's growth in Korea be sustained? - Doug Miehm (RBC Capital Markets)

2025Q1: Tariffs mainly impact Solta in China. We have inventory in country to minimize short-term impact. We're exploring options to offset tariffs if needed. - Thomas Appio(CEO)

Contradiction Point 4

Impact of 340B and Medicaid Program Exit

It involves the strategic decision and expected benefits from exiting the 340B and Medicaid program, which can impact sales and financial performance.

What prompted the decision to exit the 340B and Medicaid programs? - Michael Freeman (Raymond James & Associates, Inc., Research Division)

2025Q3: Exit to optimize sales channels, enhance patient assistance programs with no out-of-pocket costs and 90-day treatment. - Jean-Jacques Charhon(CFO)

What is the potential impact of pharmaceutical international tariffs on your supply chains or pricing? - Michael Freeman (Raymond James & Associates, Inc., Research Division)

2024Q4: We expect the gross to net recovery on 340B to be $60 million in a year. We think it's a little bit conservative. - Jean-Jacques Charhon(CFO)