Three years after Bausch Health Companies (NYSE: BHC) announced in August 2020 that it plans to spin off its eye health business into an independent publicly traded company, Bausch + Lomb, the anticipated transaction remains ongoing, dampening credit investors’ belief it will ever materialize, according to market sources.
At the heart of the issue is a patent dispute over subsidiary Salix Pharmaceuticals’ Xifaxan drug, sources said.
Norwich Pharmaceuticals and parent company Alvogen are trying to launch a generic version of Xifaxan and are challenging the validity of Salix’s patents for two of the drug’s applications: one for treating irritable bowel syndrome diarrhea (IBS-D) and another for treating hepatic encephalopathy (HE).
Bausch filed a lawsuit against Norwich in March 2020 in the US District Court of Delaware, alleging infringement by Norwich, according to court documents. In August 2022, the court ruled in favor of Norwich that some IBS-D patents are invalid, but also ruled in favor of Bausch and upheld the patents for HE.
In that same court, Norwich filed a motion seeking to modify the court’s final decision, which prevents the US Food and Drug Administration from approving an abbreviated new drug application (ANDA) for Xifaxan IBS-D until 2029, but that motion was denied in May 2023, court documents state. That same month, Norwich filed an appeal in the US Court of Appeals for the Federal Circuit, seeking to reverse that decision, court records show.
A decision on the appeal is expected in the first quarter of next year, according to a press statement from Bausch.
Bausch losing the appeal could lead to what S&P Global called “a material decline” in the company’s revenue and EBITDA and, according to market sources, could also scuttle the Bausch + Lomb spinoff. Event-driven investors, who believe the transaction is likely to close, now view Bausch’s paper as an appealing target with significant upside, sources said.
Today, Bausch’s 11% first-lien secured notes due 2028 were trading at roughly 65.5, while its 5% senior unsecured notes due 2029 are trading at about 40 and its 4.875% senior secured notes due 2028 are trading around 53.25.
In its third quarter Form 10-Q, Bausch said that it “continues to evaluate all relevant factors and considerations” on the Bausch + Lomb spinoff, including the Norwich litigation, adding that it “remains confident in the strength” of its patents and “intends to vigorously defend its intellectual property.”
Bausch was not immediately available for comment.
Bausch Health develops, manufactures, and markets a range of pharmaceutical, medical device and over-the-counter products, primarily in the therapeutic areas of eye health, gastroenterology and dermatology.
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