Bausch Health is successfully battling generics, Raymond James says

Raymond James bullish rating for Bausch Health Companies (Bausch Health Companies NAME Stock Quote, Chart, News, Analysts, Financials NYSE:BHC) remains unchanged after a U.S. District Court ruling on April 17, which granted summary judgment in favour of Bausch Health and Teva, denying Norwich Pharmaceuticals’ attempt to launch a generic version of Xifaxan before January 2028.

The court decision reinforces BHC’s exclusivity on Xifaxan and is a positive development, the analysts said, as investors “appreciated having greater clarity here.”

Analyst Michael W. Freeman, in a research update April 21, reiterated his “Outperform” rating on the stock.

Xifaxan is Bausch’s most lucrative product, comprising more than 40% of revenue and about 60% of EBITDA (excluding Bausch + Lomb), so avoiding early generic competition is crucial for its cash flow and ability to manage debt. Analysts expect full Xifaxan sales to continue through 2027, with a sharp decline anticipated to begin in 2028, when generics are expected to enter the market.

However, risks remain. Xifaxan may face reduced pricing in 2027 under U.S. Medicare price negotiations, and potential changes in drug pricing policies could affect future earnings.

“We flag Xifaxan’s inclusion in the Medicare Price Negotiation list (reduced prices to be enacted in 2027, ⁠our note) as a risk to FY27 earnings,” Freeman said. “President Trump’s recent ⁠EO on drug pricing suggests this second round of Medicare price negotiations will result in greater price reductions than the first (40-80% list price reductions, produced 22% Medicare savings).”

“Management recently spoke about this topic at a competitor conference and cited that it remains too early to provide specific guidance about the potential of being on the negotiation list as there are many variables involved in the final outcome; once BHC has a better understanding of the final outcome they will then decide how to optimize their channel, develop various mitigation strategies to minimize the P&L impact, and properly communicate the final impact.”

Bausch is also involved in ongoing legal battles with other generic drugmakers, including Amneal, Zydus, Cipla, Carnegie, and likely Mylan.

The analyst estimates that Bausch Health Companies will generate $3.6-billion in adjusted EBITDA on $10-billion in revenue for fiscal 2025.

Xifaxan (rifaximin) is a non-absorbable, broad-spectrum antibiotic from the rifamycin class, primarily used to treat travellers’ diarrhea caused by E. coli in patients aged 12 and older. It works by stopping the growth of bacteria that cause the illness, but is ineffective for diarrhea accompanied by blood or fever.

Approved in Italy in 1987, Xifaxan has since been licensed in over 30 countries to treat various non-infectious gastrointestinal conditions, including irritable bowel syndrome and hepatic encephalopathy.