JPMorgan analyst Chris Schott downgraded Bausch Health (BHC) to Neutral from Overweight without a price target following today’s Xifaxan patent update. An initial read suggests the judge intends to rule in favor of Bausch Health on the 2029 hepatic encephalopathy method of use patents but against Bausch on the 2029 irritable bowel syndrome method of use patents and, more critically, against Bausch on the 2024 polymorph patents, which very few investors were expecting, Schott tells investors in a research note. If the court rules as the oral order is suggesting, it would represent a “near-worst-case scenario” for the company and likely enable generic competition for Xifaxan in the late 2024-2025 time frame, says the analyst. He notes that Xifaxan generates $1.7B in revenues today and estimates that lost free cash flow could amount to $2.5B-$3.0B in the late 2024-2027 time frame. Following the news, Schott struggles to see how Bausch Health will be able to proceed with the planned separation of Bausch + Lomb (BLCO) “given the significant leverage problems the patent loss creates on the pharma business.” While noting there is still hope Bausch could win on appeal, the analyst says the risks to the downside outweigh the risks to the upside. Before halting for news pending, shares of Bausch Health dropped 50% to $4.36.
previous post