Business Corpus: Does Bausch Face A Reckoning? 5 Key Issues To Look For In Its EarningsThe name Valeant Pharmaceuticals might be in the dustbin, but Bausch Health Companies still faces an uphill earnings battle with investors, analysts say. The post Does Bausch Face A Reckoning? 5 Key Issues To Look For In Its Earnings appeared first on Investor's Business Daily.

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The name Valeant Pharmaceuticals might be in the dustbin, but newly dubbed Bausch Health Companies (BHC) still faces an uphill earnings battle with investors, analysts say.

Bausch Health is set to unveil its second-quarter earnings early Tuesday — the first quarterly report following its name change in mid-July. Since then, Bausch Health stock has dipped 1.8% while broader drug stocks have risen 4.7%.

Investors likely will stay tough on Bausch Health stock. Piper Jaffray analyst David Amsellem says the transition to Bausch Health consigns the Valeant name "to the dustbin of pharma history" but "a new name should not obscure myriad underlying risks."

Here are five key issues investors will look for from Bausch Health to address on Tuesday.

1. Improving Bausch And Lomb Sales

The transition to Bausch Health aptly recognizes the former Valeant's biggest segment: Bausch and Lomb. The company acquired Bausch and Lomb for $8.7 billion in cash in 2013. But sales have struggled in recent history.

In 2017, Bausch and Lomb/international sales represented 56% of the former Valeant's total revenue bucket. But Bausch and Lomb sales declined 1% year over year. Excluding the impact of foreign exchange rates and divestitures, the unit grew 6%.

First-quarter sales for Bausch and Lomb/international, though, grew only 2% organically. Bausch and Lomb sales have been under the microscope over the last year. In June 2017, it looked possible the firm could sell its Bausch and Lomb eye-surgery assets to deal with the company's debt.

As of March 31, the drugmaker had about $25 billion in net debt on its balance sheet.

2. Xifaxan Progress To Blockbuster

Investors have a lot of hope riding on potential blockbuster, Xifaxan, a gastrointestinal drug. In the first quarter, Xifaxan sales grew 49% to $275 million. That helped Bausch Health's total Salix unit to grow 40% organically to $422 million.

Salix is a newer addition to Bausch Health's portfolio. The former Valeant acquired Salix and its slew of gastrointestinal drugs in 2015 for about $14.5 billion. Salix sales are recognized in the firm's branded drugs unit.

In a recent report, Mizuho analyst Irina Koffler called Bausch Health's gastroenterology drugs "an underappreciated growth driver." She expects Xifaxan to be a growth driver for the firm as Bausch Health expands its potential uses.

"No one gives (the former) Valeant any credit for this pipeline, in our view," she said.

3. Duobrii Hurdles

Investors will also look for Bausch Health to comment on its progress addressing Food and Drug Administration concerns regarding potential plaque psoriasis lotion Duobrii. In June, the FDA rejected the firm's application for Duobrii.

The rejection letter noted questions of pharmacokinetic data. This refers to the movement of a drug into, through and out of the body. At the time, the firm said it had already requested a meeting with the FDA to determine how it can proceed with Duobrii.

Piper Jaffray's Amsellem says this is not "suggestive of a minor delay."

"Beyond that, we continue to believe that a product like Duobrii, where its individual component molecules are available as generics, will run into significant reimbursement hurdles," he said.

Mizuho's Koffler, too, expects Bausch Health to make a "more muted effort in dermatology" after its setback for Duobrii.

4. Generic Competition Looms

Meanwhile, Bausch Health is facing a growing list of generic rivalries, Piper Jaffray's Amsellem said. He lists five drugs set to lose patent protection in the near term.

Teva Pharmaceutical (TEVA) already has a generic version of ulcerative colitis drug Uceris on the market. The FDA also recently granted Teva approval to make a generic copy of Apriso, which also treats ulcerative colitis.

Both sell in Bausch Health's Salix segment. A patent protecting Apriso was found invalid in 2017. Bausch Health is now appealing that decision, Amsellem said. But guidance reflects erosion for both Uceris and Apriso over the second half of 2018 and first half of 2019.

"The larger issue in our view is how Bausch Health can point to 2018 as a trough year given its continued significant exposure to loss of exclusivities and pressure from brands and generics on other key products," Amsellem said.

5. New Product Launches

To contend with these losses, investors will key in on drug launches. But Amsellem says Bausch Health has seen "limited traction" from Xenazine, which treats a movement disorder caused by Huntington's disease, and Wellbutrin XL, a smoking cessation aid and antidepressant.

Further, early volume trends for plaque psoriasis drug Siliq and eye-disease drug Vyzulta "are suggestive of relatively underwhelming uptake," he said. Siliq rivals Eli Lilly's (LLY) Taltz and Novartis' (NVS) Cosentyx. Amsellem expects it to be a "bit player" among others in its drug class.

Mizuho's Koffler, though, is more bullish on Siliq which she said in late June has outperformed her expectations.

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