Bausch Sees Clearer With Less Debt

Bausch Health Companies Inc BHC jumped 3% on Tuesday after the company announced it has taken a major stride in paying down its massive debt load.

Bausch, which changed its name from Valeant Pharmaceuticals roughly a year ago, announced Tuesday it's using $100 million in cash from operations to pay down senior secured term loans.

Why It’s Important

Valeant went on a massive spending spree to help drive growth in the past decade. But while its acquisitions beefed up revenue and the stock’s share price, the business model proved itself to be unsustainable. After peaking at above $263 back in 2015, Valeant shares tanked to as low as $8.31 in 2017.

A big part of that decline was due to the company's slowing growth coupled with its ballooning debt from a seemingly never-ending parade of acquisitions. Valeant’s long-term debt skyrocketed from $314 million in 2009 to as high as $30.2 billion by 2015. Asset sales and debt payments like the one reported Tuesday helped cut that debt down to $24 billion by 2018, but the stock’s debt-to-equity ratio remains sky-high at 8.98, according to Finviz.

Even after asset divestments, Bausch owns a number of diverse dermatology, neurology and infectious disease drugs, as well as a line of eye care products. Brands include Xifaxan, Uceris, Jublia, Ocuvite, ReNu Multiplus, Biotrue and many others.

What’s Next

Investors will need to see further evidence of significant debt reduction for the company with more than $20 billion in debt generating $2 billion in revenue per quarter. In addition, CFRA analyst Colin Scarola says Bausch is facing other obstacles other than debt.

“We are neutral on BHC shares as we see recent successes out of its drug pipeline being offset by industry-wide pricing pressure on brand drugs and intense competition from generics,” Scarola said. CFRA has a Hold rating and $27 price target for Bausch shares.

Options Activity

Bausch certainly had option traders' attention on Tuesday morning. Benzinga Pro subscribers were alerted to three large Bausch option trades on Tuesday.

At around 8:49 a.m., a trader sold 900 Bausch put options at a $24 strike price that expire on July 19. The puts were sold at the bid price of 70 cents and represent a $63,000 bullish bet that Bausch shares will trade above $23.30 within the next month.

Less than a minute later, potentially the same trader bought 1,002 Bausch call options at a $24 strike price that expire on July 5. The calls were purchased at the ask price of $1.289 and represent a $129,157 bullish bet that Bausch will be trading above $25.29 by the end of next week.

Finally, most certainly the same trader sold the same lot of 1,002 July 5 call options almost exactly a minute later at the bid price of $1.409. The trade earned the trader a quick 9.3% profit, or more than $12,000.

Bausch's stock traded around $24.49 per share at time of publication.

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Photo courtesy of Bausch.