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Stock of the Week: Bausch Health

How one court ruling cut a stock price in half.

Andrew Willis 8 August, 2022 | 3:34AM
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Andrew Willis: The last time we spoke about Bausch Health, we discussed a drug business that we thought the market had seemingly discounted to zero. Fast forward to a month and a half later – the stock is down around fifty percent in one day on one ruling.

As equity analyst Aaron Degagne puts it, while our ‘very high’ Morningstar uncertainty rating for Bausch Health (BHC) was meant to capture some of the risk, the market’s reaction was more severe than we anticipated…

The court ruling in question concerns competitor Norwich Pharma’s ability to bring out a generic version of the drug Xifaxan, which makes up around 30% of total sales. Now, instead of a patent loss in 2028, Bausch Health could lose around 50% of the sales of the irritable bowl syndrome drug.

Painful, but is it a deal breaker? Maybe. Knock-on effects related to the company’s planned distribution of Bausch & Lomb shares to existing shareholders could pose a problem. Bausch Health is now essentially in a race against the clock to complete the full spinoff of Bausch and Lomb by 2024 when the company’s earnings [EBITDA] could fall below a target ratio [6.7] if Norwich brings a generic to the market.

We share the concern with investors on these recent developments and are now putting both Bausch entities under review. However, the situation isn’t black-and-white. Some rulings in the recent decision went in Bausch’s favour, so Norwich should come to the negotiating table. And an appeal is a possibility...

For Morningstar, I’m Andrew Willis.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Bausch & Lomb Corp22.22 CAD4.47
Bausch Health Companies Inc9.58 CAD0.42Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar.ca. He previously produced content for Fidelity Investments and finance events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @AndrewWillisCDN.

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