Why Did BofA Downgrade Bausch Health?

There are challenges to value creation in the proposed separation of Bausch Health Companies Inc’s BHC Bausch and Lomb (B&L) unit and RemainCo, which will be pharma-focused, according to BofA Securities.

The Bausch Health Analyst: Jason Gerberry downgraded the rating for Bausch Health from Neutral to Underperform, while reducing the price target from $33 to $27.

The Bausch Health Thesis: The remaining company, after spinning off the B&L unit, will face “risk of multiple compression” as it is highly levered to Xifaxan, Gerberry said in the downgrade note.

While Xifaxan “has not shown signs of C19 recovery (1Q21: -5% Y/Y),” the recent Medicaid cap removal could limit the drug’s future pricing power, he added. The analyst further noted that the company’s pharma pipeline “has failed to diversify.”

“BHC is already pricing in favorable outcomes in a multi-step separation including favorable divestiture valuations, C19 portfolio recovery, negligible impact to Xifaxan from Medicaid rebate changes and a very sizeable B&L spin at premium multiple," Gerberry wrote, "and recent CFO succession comes at an odd time.”

CFO Paul S. Herendeen was appointed to a newly created role of advisor to the chairman and CEO of Bausch Health, effective June 1, 2021. He is succeeded by Sam Eldessouky, currently senior vice president, controller and chief accounting officer of Bausch Health.

BHC Price Action: Shares of Bausch Health Companies had declined by 0.60% to $31.47 at the time of publication Wednesday.

(Photo by Myriam Zilles on Unsplash)