Shrewd M&A activity and R&D spending growth could help fuel future growth as the company goes on the offensive.

Bausch Health Companies Inc. (BHC) plans to finally return to revenue growth in 2019 as the bloodshed looks to be coming to an end for the company even as it works to slowly resolve its legacy massive debt issues. With smart M&A decisions backed by a growing R&D budget, fueling future growth is becoming more of a concern for the company as growing revenues and a declining debt load could eventually result in a full rerating of the stock, albeit maybe still years in the future.

Bausch's core eye care business continues its solid performance with slow growth on over 50% of the company's revenue streams while the company's "Significant Seven" new product launches will be one of the keys to sustained revenue growth over the next 4 years. Revenues are expected to double for the seven in 2019 to ~$300M, with the goal of peak revenue streams of over $1B by the end of 2022.

Bausch's Salix division is the other key catalyst to creating greater future growth for the company. Bausch bought Salix back in 2015 in an almost $15B deal that was one of the last things that the former Valeant Pharmaceuticals did before scandals rocked the company almost to the point of bankruptcy. Since then, the company's new CEO, Joe Papa, has done a marvelous job stopping the cratering, although divisions like Salix never had the time or opportunity to fully develop its lead commercial product Xifaxan properly. Salix is now helping to lead the turnaround to profitability for Bausch as it now totals 21% of the company's revenue according to its Q3 conference call with a very healthy 16% organic 2018 growth through Q3. Here's what Xifaxan's past revenue streams look like as it will help lead Bausch's growth in the future.



The table shows Xifaxan sales bottoming out and returning to strong growth as a forerunner to what Bausch's overall revenues are expected to do over the course of 2019. The Salix division should help lead Bausch's profit growth as Xifaxan and Relistor help offset loss of exclusivity of its Uceris drug. Salix also has 4 late stage R&D programs scheduled in 2019 to go along with the expected closing of its Synergy Pharmaceuticals (SGYP) deal.

Bausch is serving as a "stalking horse" bidder for the majority of bankrupt Synergy Pharmaceuticals assets after a $200M bid in a court-supervised auction and sale. This acquisition is expected to close in Q1 and will give Bausch a drug to treat chronic idiopathic constipation and irritable bowel syndrome with constipation that could be a perfect strategic fit with Xifaxan. This is the new type of deal that Bausch is interested in under the management of CEO Papa who continues to deliver on his promises. No more massive ~$15B Salix deals taking the company in new directions, but inexpensive strategic deals that fit the company's core competencies moving forward.

With Bausch looking to move more into a growth and profit mode after several few years of purely defensive maneuvering to keep it out of bankruptcy, the company's massive debt load will continue to be the main anchor weighing down the stock for investors. Bausch's debt load peaked at over $31B when CEO Papa took over the company in 2016. Since then, Papa has been able to wheedle down the debt load annually through initial non-core asset sales and cash flow payments while stabilizing the company before the bankruptcy vultures started landing. He has also managed to refinance a lot of the company's key debt into longer and more manageable maturities so that the company could continue to pay its debts without a large loan maturing in the near future. Here's what the company's debt position currently looks like.

Bausch plans on paying down over $1B in debt a year at this time going forward which means that there appears to be no real debt hurdles to jump until 2023 at the earliest. This gives the company a few years to refinance maybe half of that 2023 debt to a later maturity at rates that continue to want to stay lower for the foreseeable future. A return to revenue growth along with additional debt pay downs should also be factors in helping Bausch get lower refinancing rates along with better terms going forward as the company continues to de-risk its bondholders and shareholders.

CEO Papa has managed to take the company's debt load all the way from over $31B down to under $25B in just a few years when many investors foresaw only bankruptcy in the cards as the company's stock price plunged from a high of $263.81 in 2015 and bottomed out at $8.31 in the span of a few short years.

Bausch continues to peck away at its debt load with small payments when cash becomes available while maintaining about ~$1B in cash liquidity at all times in case it starts running into problems again or another inexpensive M&A opportunity arises. Here are some of the most recent debt pay downs the company has done along with refinancing debt at the end of 2018 as CEO Papa and his financing team continue to be very active in addressing its debt in small baby steps while still paying off over $1B in total debt a year along with pushing out its larger maturity loan years to keep near-term payments manageable.

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2019 could be a game changing year for Bausch Health as it pivots to a company now more concerned with rapidly growing its revenues while aggressively paying down its debt instead of a company trying to stave off bankruptcy fears. Small, smart M&A acquisitions that fit Bausch's core competencies along with meaningful growth in R&D spending will help offset the company's loss of exclusivities on its legacy drugs. Growing revenues and declining debt over the course of the coming years should help in the eventual rerating of the stock from more of a bankruptcy concern to a growing healthcare company with currently a little too much debt on its plate which the company is intent on addressing. Best of luck to all.

Disclosure: I am/we are long BHC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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