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Bausch Health Companies Inc. (NYSE:BHC)
Q3 2019 Earnings Call
Nov 4, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Bausch Health Third Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Art Shannon, Senior Vice President, Head of Investor Relations and Corporate Communications. Please go ahead.

Arthur Shannon -- Senior Vice President, Head of Investor Relations and Corporate Communications

Thank you, Andrew. Good morning, everyone and welcome to our third quarter 2019 financial results conference call. Participating on today's call are Chairman and Chief Executive Officer, Joe Papa; and Chief Financial Officer, Paul Herendeen. In addition to this live webcast, a copy of today's slide presentation and a replay of this conference call will be available on our website under the Investor Relations section.

Before we begin, we'd like to remind you that our presentation today contains forward-looking information. We would ask that you take a moment to read the forward-looking statement legend at the beginning of our presentation as it contains important information. This presentation contains non-GAAP financial measures. For more information about these measures, please refer to Slide 2 of the presentation. Non-GAAP reconciliations can be found in the appendix to the presentation posted on our website.

Finally, the financial guidance in this presentation is effective as of today only. It is our policy to generally not update guidance until the following quarter and not to update or affirm guidance other than through broadly disseminated public disclosure.

With that, it is my pleasure to turn the call over to Joe.

Joseph C. Papa -- Chairman and Chief Executive Officer

Thank you, Art, and thank you, everyone, for joining us today. I'll begin with the third quarter highlights before turning the call over to Paul Herendeen, our CFO to review the financial results in detail and update our 2019 guidance. We'll then review the segment highlights and open the line for questions.

Beginning with Slide 4. We had another strong quarter, a sustained performance that demonstrates that our team is continuing to gain traction with our plan to pivot to office. Total Company organic revenue grew by 4% compared to the third quarter of 2018 and represented the seventh consecutive quarter of total Company organic revenue growth. B&L is leading our turnaround with a 12th consecutive quarter of organic revenue growth. Key drivers were a strong LUMIFY launch, strong international prescription results and the performance of our Global Vision Care business. Salix reported more than $500 million in total quarterly revenue driven by XIFAXAN's 24% growth.

Additionally, we generated $515 million of cash from operations and increased R&D investment by 15% during the third quarter. As of September 30, we have utilized approximately $900 million to repay approximately $700 million of debt and approximately $200 million to complete the acquisition of TRULANCE, and entered into a license agreement for amiselimod. And in October, we acquired rights to [Indecipherable] I'll talk more about that later.

Moving over to the right of Slide 4, our new products are also producing results. The Thermage brand is now a top 10 Bausch Health franchise following the successful launch of Thermage FLX in the Asia Pacific region. LUMIFY generated $21 million in revenue in the third quarter and has achieved a weekly market share of approximately 43%.

TRULANCE generated $37 million of revenue since our Synergy acquisition and continues to track to full-year guidance of $55 million. DUOBRII is off to a strong start at four months post-launch with weekly TRx tracking right around the 2,300 level. Thanks to a great team effort and the continued engagement of over 21,000 employees of Bausch Health, we have delivered another strong quarter. We remain focused on launching new products, improving operations and delivering on the commitments we outlined at the beginning of the year.

With that, I'll turn it over to Paul.

Paul S. Herendeen -- Executive Vice President and Chief Financial Officer

Yes. Thanks, Joe. And I will start with a quick walk down the Q3 P&L, which is on Slide 5. First, some housekeeping. When we talk about organic growth, we mean on a constant currency basis and adjusted to remove the impact of acquisitions and divestitures. So top-line organic revenue growth of 4% in the quarter, as Joe said, the seventh consecutive quarter of organic revenue growth, pretty good considering we absorb the growth drag of $85 million from LOE assets versus Q3 of 2018.

Revenue in our B&L International segment grew 5% organically in the quarter. Four of the five sub-segments within B&L posted growth led by the Global Consumer business, up 7% organically in large part on the continued ramp from LUMIFY, followed by our International Rx business, up 7% organically on strength in Canada, Russia, and the Middle East.

Next, our Global Vision Care business was up 10% in the U.S. and 4% outside the United States, plus 6% overall on strength in our Biotrue ONEday lens family, our ultra-monthly silicone hydrogel lenses and the ramp of AQUALOX, daily silicone hydrogel lenses in Japan. Next Global Surgical was up 5% organically on strength from a STELLARIS ELITE system and related consumables. And finally, to wrap up the B&L segment from a revenue perspective, Global Ophtho Rx declined 6% organically, mainly due to the greater erosion of our branded LOTEMAX business in the U.S., including revenue lost to our own authorized generic of LOTEMAX suspension that shows up in our generics business in our diversified segment. So overall a solid quarter for the B&L International segment.

Salix delivered another terrific quarter, up 18% organically, which excludes the $14 million a TRULANCE revenue in the quarter. The star again was XIFAXAN, as Joe said, up 24% versus Q3 of 2018. But I want to break down the components of that 24% as it's important in how you think about growth rates for XIFAXAN in Q4 and into 2020. So the 24% growth versus Q3 2018 came 8% from volume, meaning more units sold, 6% from the net impact of the price increase that we took for XIFAXAN back in January, and the balance of the plus 10% came as a result of successful initiatives that we implemented as part of our project core to improve gross to nets for XIFAXAN. Reminder, core stands for cost optimization and revenue enhancement. This clearly falls into the revenue enhancement category.

From a growth perspective, roughly half of the project core driven growth in XIFAXAN in 2019 is durable and will continue on in future XIFAXAN results. So think of it as a step function increase in realized net selling prices for XIFAXAN, while the other half is more transitory, very real value-driven by reductions in process gross to net items in 2019 results but not repeating in 2020.

I'll repeat what I've said in a number of public forums when thinking about XIFAXAN's growth prospects in 2020. Growth will be driven by a combination of volume, which is selling more units and perhaps a couple 100 basis points of net selling price increase if we raise the gross selling price. So important safety tip, while I would and you should expect XIFAXAN to deliver net sales growth at an attractive rate in 2020 versus '19, that growth will not be at the levels you're seeing in 2019. While I'm on the subject, I mentioned on our Q2 call that we expected about one more quarter that's this quarter of strong performance from Glumetza before that brand sees more pronounced losses of revenue due to an accelerated shift in channel mix resulting in substantial deterioration in net selling prices. So as you think about Glumetza, the Q4 run rate for the brand, maybe half of what we've seen in the first three quarters of 2019. On more positive notes, RELISTOR and PLENVU delivered TRx growth in the quarter and TRULANCE accounted for $14 million of revenue and remains on track to deliver the $55 million of revenue we guided to for 2019.

In the Ortho Derm segment, total segment revenue was down 16% organically as growth in Solta could not overcome declines in our medical derm business. Global Solta delivered organic growth of 62% on continued strong demand for our Thermage FLX systems, which in turn feeds demand for the consumable FLX tips. Solta has been delivering robust growth, mainly in Asia Pac, and as we look ahead to 2020, we will be allocating more resources to Tom Hart and his team to enable Solta to pursue similar opportunities in other regions, particularly Western Europe.

Our medical derm business was down $47 million versus Q3 of 2018, militated by the $43 million impact of LOE for Elidel, Zovirax, SOLODYN, and Acanya. With the bulk of the impact of the LOEs for medical derm now reflected in our quarter results, I want to call out that our medical derm business will be rebased in Q4 of 2019 at roughly $85 million to $90 million of net sales per quarter, and be poised to return to growth with a portfolio of promoted brands including DUOBRII, BRYHALI, SILIQ, ALTRENO, and JUBLIA plus tail brands including TARGRETI, RETIN-A MICRO, ELIDEL ,ONEXTON ,CLINDAGEL and others.

Finally, our diversified segment declined 5% organically. Considering that LOE assets were approximately 900 basis point drag versus Q3 of 2018, that's a pretty good quarter for [Indecipherable] and her team. I want to call out a few highlights. Our bupropion franchise in the neuro business including Wellbutrin XL, and APLENZIN grew 12% versus Q3 of 2018, as a result of targeted and effective promotion in collaboration with our market access team led by Bob Spurr.

Our generics unit has been the beneficiary of the LOEs of many of our branded products launching and selling authorized generic versions of those brands. Generic revenues were up 7% versus Q3 of 2018. And I've said this before, but here it comes again. We manage the diversified group to maximize the long-term cash flows from a basket of assets that are expected to decline over time. Our objective is to slow that decline and thereby maximize the cash flow, and our team is doing a great job there.

Down to the gross margin line, with a -- excuse me, blended gross margin of 73.6% in the quarter, we were plus 80 basis points versus Q3 of 2018. Our core initiatives within the supply chain drove the majority of the 50 basis point positive variance in the B&L International segment and roughly half the 350 basis point improvement in Salix. Mix improved gross margins in Salix, decreased gross margins in the Ortho Derm segment with Solta making up a greater percentage of total sales, and decreased gross margins in diversified where generics made up a greater percentage of segment revenues.

Note that we are guiding to a roughly 73% gross margin for the full year 2019. Our year-to-date gross margin was 73.2%. Selling, advertising and promotion expenses increased by $32 million compared with Q3 of 2018 unfavorable by 7% reported and 8% constant currency. Half of that unfavorable movement came from B&L International and was due to our deploying additional promotional resources to drive revenue growth, mainly in the Global Vision Care and the international surgical businesses.

The $13 million increase in selling and advertising and promotion in Salix was mainly due to the addition of roughly 100 sales territories associated with the acquisition of TRULANCE. Companywide G&A spending was up 5%, mainly due to increased investment building out our IT infrastructure. Our investment in R&D increased $16 million compared with Q3 of 2018, as we continue the process of building the R&D organization and adding to our portfolio of development projects to enable us to sustain long-term organic growth for our businesses. Our adjusted EBITDA of $942 million in the quarter was up 3% on a reported and 2% on a constant currency basis compared with Q3 of 2018, a good quarter.

So Slide 6, 7, 8 and 9 show additional details for the segments. I'm not going to dwell on them as I've covered the main items of note on each. So turn to Slide 10, cash flow summary. In the quarter, we generated $515 million of cash from operating activities. The amount, while down slightly from the amount in the prior-year quarter keeps us well in line to deliver between $1.5 billion and $1.6 billion of cash from operations in 2019. Year-to-date, our cash provided by operating activities is up $85 million from the prior year.

If you flip to Slide 11, the balance sheet summary. During the quarter, we repaid $303 million of our term loan debt and paid $150 million to reduce our revolving credit borrowings to zero at September 30, 2019. Year-to-date to September 30, we've repaid $631 million of long-term debt and reduced revolving credit borrowings by $75 million. I want to note that we could have repaid more long-term debt year-to-date but elected to allocate roughly $200 million of cash flow to what we view as a high-value business development activity, mainly in this case the acquisition of TRULANCE.

On to Slide 12, and our revised guidance. Today, we raised and tightened our full-year 2019 guidance for revenue, increasing the low end of the range by $75 million and the top end by $25 million. The new range is $8.475 billion to $8.625 billion. The midpoint of our current revenue guidance is up $50 million from our August guidance from the midpoint in the August guidance. As you'll see on the guidance bridge on Slide 13, the raise was in part driven by $40 million increase in revenue expectations for our LOE assets with the most significant change moving the anticipated LOE date for Apriso to [Indecipherable] and $20 million increase in revenue from our base business, offset in part by unfavorable movements in FX since August, which reduces our forecast by above $10 million.

We also raised and tightened our guidance for adjusted EBITDA to $3.5 billion to $3.6 billion. The midpoint of our current guidance is up $50 million from our August guidance. $35 million of that came from greater revenue expectations for the LOE assets, $5 million from FX -- plus that's plus $5 million from FX, minus $25 million for the higher than expected investment in R&D, and plus $35 million from a combination of the increased base business revenue, improved gross margins and other items.

Last thing before I turn it back to Joe. I think it's worth looking back at how we now expect to end 2019 compared with our guidance from back in February. At the midpoint of our initial guidance range, we expected revenue of $8.4 billion for 2019. Mid-point of our current guidance revenue was $8.55 billion, so plus $150 million. $85 million of the increase in revenue comes from roughly $60 million more expected revenue from the LOE assets, $55 million from the acquisition of TRULANCE and offset by $30 million of unfavorable movements in FX.

So that explains the first $85 million. The remaining $65 million increase comes from both better performance in our base businesses and better gross to nets in some businesses driven by project core than we originally forecast. The point of the story is that our original guidance for revenue on a constant currency basis and excluding the date uncertain LOEs was quite tight to how we expect to end up 2019. We're proud of the degree to which we've improved our forecast accuracy.

That's back to you, Joe.

Joseph C. Papa -- Chairman and Chief Executive Officer

Thank you, Paul. I would like to go through some of the highlights in our B&L International segment. The important takeaway from Slide number 14, this segment delivered its 12th consecutive quarter of organic growth, up 5% versus last year as you can see on the chart. Turning now to Slide 15, Global Vision Care had a great quarter, up 6% organically driven by the performance across Biotrue ONEday, up 22% and ULTRA up 25% as well as the AQUALOX launch.

We launched the ULTRA Multifocal lenses for astigmatism in the U.S. in mid-June. These lenses offer consumers a seamless transition between distances from near too far in, and between. And a survey patients using ULTRA Multifocal lenses, 92% agree that they are comfortable throughout the day, and four out of five patients surveyed preferred Bausch and Lomb ULTRA Multifocal over their previous method of vision correction.

On Slide 16, LUMIFY continues to outpace expectations having achieved a weekly market share of approximately 43% as you can see from the chart on the right. Third quarter reported revenue of $21 million grew by 91% compared to the second quarter. LUMIFY is now the number one eye care UPC in the United States and the number one physician recommended product in the redness reliever category. E-commerce continues to be an important channel for our global consumer products as a third quarter Amazon data demonstrate with 65% growth compared to the third quarter of 2018.

Turning now to Slide 17 for an update on Salix. Organic revenue grew by 18% compared with the third quarter of 2018 and revenue exceeded $500 million for the second consecutive quarter, driven by the TRx growth in XIFAXAN, as well as other promoted brands including RELISTOR and PLENVU. Since our Salix acquisition in 2015, revenues are tracking greater than 12% as we shown in the chart on the left. Since 2017, we've been making investments in Salix to drive this growth, including hiring 200 primary care sales reps to expand the commercial field force for XIFAXAN, increasing the focus on next-generation XIFAXAN formulations, acquiring TRULANCE and dolcanatide earlier this year, and entered into license agreements to develop and commercialize novel compounds to treat GI conditions.

Turning now to Slide 18, we've shown the overall quarterly trend since we've added the primary care team at the beginning of 2017 in the chart on the left. With respect to IBS-D specifically, TRxs grew by 14% compared to the prior-year quarter into date. XIFAXAN accounts though for less than 10% of the IBS-D prescriptions, so we believe there is a great opportunity to help more IBS-D patients.

Moving on to TRULANCE on the right. TRULANCE has generated reported revenue of $37 million since the acquisition and remains on track toward full-year guidance of $55 million. TRx grew by 25% compared to the prior-year quarter and by 10% versus the second quarter sequentially. Since the TRULANCE acquisition in the first quarter of 2019, our team has done a great job of improving the market access position for greater than 37 million lives. We've also increased reach and frequency of TRULANCE promotion to healthcare providers by more than 90%.

Overall, we are pleased with TRULANCE progress in the IBS-D category. And as we focus on reestablishing momentum for TRULANCE, we prioritized our Salix portfolio and as a result, we mutually agree with US WorldMeds to terminate our arrangement co-promote Lucemyra effective September 30.

Moving on to Ortho Derm on Slide 19. While we reported a total segment organic revenue decline in the third quarter, the performance of Global Solta, our esthetics business has been outstanding, up 62% organically compared to the prior-year quarter, driven by the strong launch of Thermage FLX in the Asia-Pacific region. We've shown the quarterly growth on the chart on the right.

Additional highlights include a strong DUOBRII launch, which I'll talk about in the next slide. SILIQ TRx growth of 65% compared to the third quarter of 2018. BRYHALI scripts also grew nicely, up 20% from second quarter, and we expanded our dermatology cash pay prescription program dermatology.com to more than 9,000 Walgreens U.S. retail pharmacies, which offer patients convenient access to our products at a predictable price. Finally, we continue to move new treatments through our pipeline. We filed an NDA for ARAZLO in acne treatment and have a PDUFA date of December 22.

On to slide 20. Since the June launch, DUOBRII TRxs are tracking above the plan. Strong adoption by doctors, patients in managed care is driving weekly TRx growth. The chart on the left shows weekly TRx as compared to other dermatology launches. And as you can see from the data, the DUOBRII launch has been very strong in its first four months in the market, tracking right around 2,300 weekly TRxs. While the early launch has been supported by our couponing strategy, managed care is recognizing DUOBRII's potential and DUOBRII is quickly gaining commercial access.

With the addition of DUOBRII to the CVS Caremark formulary [Phonetic] at the beginning of November, we are now at approximately 57% commercial access as you can see in the chart on the right. We continue to believe there is an enormous opportunity for DUOBRII based on early data and remain very optimistic about DUOBRII's potential to improve the lives of patients with psoriasis.

As we shown on Slide 21, revenue of $525 million from new products accounts for approximately 10% of our core business revenue year-to-date as compared to only 2% in 2017. We expect this number to continue growing as we launch new products.

On the Slide 22. At the current run rate, 2019 revenue from our significant seven products is up 65% versus last year, and tracking at approximately $265 million, down from our previous estimate of approximately $300 million. Even though DUOBRII scripts have been better than expected, the expected approval and launch was delayed, we have been couponing to support the long-term DUOBRII opportunity. As you saw with the launch of XIFAXAN IBS-D, early couponing is an effective way to initiate patient trial. As patients adopt DUOBRII, we expect couponing to fade and the realized selling price to improve. We continue to expect the significant seven annualized peak total revenues of over $1 billion by the end of 2022.

Turning now to Slide 23, we show the progress of our late-stage and new product pipeline in each of our three core business segments. In health, [Phonetic] we have a lot of pipeline activity. First, we are expecting to launch SiHy Daily in the United States in late 2020. We are working on line extensions for LUMIFY with further clinical studies planned for 2020. Our surgical business also has a number of late-stage pipeline products, including a new ophthalmic viscosurgical device in the enVista Trifocal intraocular lenses.

Late last month, we announced an exclusive license for the commercialization XIPERE in the U.S. and Canada. XIPERE is being developed as a treatment for macular edema associated with uveitis. And if approved by the FDA, XIPERE would be the first treatment for this condition. We expect the NDA to be resubmitted in the first quarter of 2020. I believe that FDA will review it within the six months of resubmission.

Moving on to Salix, we're expecting a readout for the cardiovascular Holter study for amiselimod around year-end. In addition, we are developing a number of new formulations and indications for rifaximin that we've listed on the slide. Interim analysis for the over-hepatic encephalopathy study is expected in the first quarter of 2020. In Ortho Derm, I mentioned the NDA submission for ARAZLO earlier, and we have a strong pipeline of other acne in atopic dermatitis treatments in Phase 3.

To wrap up on Slide 24. We continue to grow our existing business and invest in future growth drivers. We have a durable business, approximately 60% which is not exposed to the U.S. branded prescription pricing. The third quarter was our seventh consecutive quarter of total Company organic growth led by B&L International and Salix. And we expect a strong growth outlook for the next three years.

We're continuing to invest in sustainable growth drivers. We are increasing R&D investment and continue to deliver new products, while also pursuing value-creating acquisition, partnerships and licensing opportunities. And we've leveraged our investment for the XIFAXAN primary care sales force to now also promote TRULANCE.

Finally, we are consistently improving our balance sheet, having reduced debt as a September 30 by $8.5 billion since the first quarter of 2016. We have also successfully managed the maturity profile of our outstanding debt and produced strong cash flow from operations for these reasons, we believe that our third quarter results demonstrate that Bausch Health is well-positioned for long-term growth.

With that, operator, let's open up the line for questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Chris Schott of J.P. Morgan. Please go ahead.

Christopher Schott -- J.P. Morgan -- Analyst

Great. Congrats on the quarter and thanks for the questions. I guess my first one was on DUOBRII. Can you just talk a little bit more about how we should be thinking about gross to net dynamics of this product in the near term? So how long will this couponing strategy continue as well as any color in terms of where you see gross to net stabilizing longer term as we try to translate this very healthy volume trend we're seeing what that means from a revenue perspective?

My second question was on gross margin upside. We've seen that throughout 2019. Add just a little more color in terms of what's driving that and how sustainable the upside is? What I'm [Phonetic] trying to get to is, is the 73% a good number going forward, does that go up or down? Or just any kind of pushes and pulls we should be thinking about that going forward? Thanks so much.

Joseph C. Papa -- Chairman and Chief Executive Officer

Okay. Chris, thank you for the question. I'll start with DUOBRII. Yes, we are really excited about what we see for the launch of DUOBRII in both the acceptance by physicians, patients and really how we're really making a difference in the lives of patients. Relative to the question yes, our couponing strategy is such that we want to encourage the opportunity for patients to give it a try. But if you look at what we've been able to do on our slide and looking at the overall market access acceptance, when we were talking last quarter, the acceptance -- I'm sorry, I should say the market access, it was about 30% coverage, and then by September, it moved up to 38%; now it's up to 43%. And right now at the beginning of November, we're at about 57% commercial covered. We think that's going to be a big help to us as improving the gross to net.

The summation question or comment, I would say is that I would say that we expect to be more of a steady-state gross to net somewhere around 12 months as we at that point approach what we think will be approximately 70%, 75% market access coverage. So it takes about 12 months, I believe, as a general comment for products in the pharmaceutical industry, but it always depends on market access coverage.

The second question, I think you had was relative to gross margin. Paul, why don't you take that one?

Paul S. Herendeen -- Executive Vice President and Chief Financial Officer

Yes, sure. Yes. First, I'm not going to guide to gross margin percentage for 2020, but just let's comment on how we've done in 2019 because I think it's pretty impressive. It's really a combination of three things. One is project core, which I've talked about quite a bit already. Dennis Asharin and our supply chain team have been engaged with supply chain efficiency initiatives since 2016, and boy, are we getting results there and it is helping for sure drive our aggregate gross margin percentage in the right direction.

The second thing is mix. We do have a mix of businesses. Those businesses have different margins and so that certainly comes into play. I actually called out in my prepared remarks, where mix was a helper and mix was working against us in our Q3 results. And so that plays a big role in how you forecast into 2020 and beyond.

And the last piece, I want to mention is the wild card of FX. We are a global Company. We have manufacturing facilities around the world. We produce in currencies and then often will sell those products in other markets where we the -- they're denominated in a different currency. So it's a bit of a wild card. You saw that we -- our year-to-date 73.2% and we're guiding to circa 73% for this year. It bounces around a little bit. I mean, I'm not going to guide you for next year. I just say we've made great progress doing the fundamental things right that we are supposed to do to keep that percentage as high as it can be, mix and FX are very big factors.

Christopher Schott -- J.P. Morgan -- Analyst

Thank you.

Paul S. Herendeen -- Executive Vice President and Chief Financial Officer

Operator, next question, please.

Operator

The next question comes from Umer Raffat of Evercore. Please go ahead.

Umer Raffat -- Evercore ISI -- Analyst

Hi. Thanks so much for taking my questions. Joe, there's been a lot of commentary on the street on setting DUOBRII expectations, possibly as high as $2 billion plus. And I noticed your Slide 20 today in the deck is also doing some of those same non-apples-to-apples comparison in my opinion comparing DUOBRII versus novel biologics like Dupi. [Phonetic]

So my questions are, number one, A, Joe, are you comfortable with setting expectations at those types of numbers? And two, if you take the DUOBRII TRx this quarter which is 24,000 [Phonetic] and you multiply it by a net price of even $500, you get to something like $10 million in sales. Now granted there's a lot of free drug, but that should still at least be $5 million in sales or so. The fact that it was less than $4 million, I'm just curious how much free drug is in those TRx that people are comparing versus Dupi?

And then finally, just curious why TRULANCE declined quarter-over-quarter? And it sounds like based on your guidance, 4Q might also not be much higher than the 2Q levels. Thank you.

Joseph C. Papa -- Chairman and Chief Executive Officer

Okay. So first, I'm not going to make any comment specifically on the long-term guidance of DUOBRII specifically to numbers, other than to say, we're really excited by what we're seeing, because for the very first time we have a product that you can treat patients who have psoriasis topically and you can treat them to clearance whereas previously you had a limited duration of treatment.

So we think it's really exciting what we see. Obviously, the prescription in the first four months we think have been very strong in terms of growth rate. We clearly just wanted to look at some of the other products that have been dermatology specific and compared the uptake of our product versus them. We're not trying to put numbers out, specifically for the future, other than to say, we think it's going to be important part of our future dermatology business and help us with the turnaround of the dermatology business.

On the question of the gross to net, we absolutely acknowledge that initial first nine months, 12 months will be a lower gross to net than what we would normally see and what we'll see at the quite steady state. But the reality is, it really depends a lot on how successful we are gaining commercial access. We think the uptake in commercial access -- market access has been very good and we'll look to continue to do that going forward. So that's really all I can say on the DUOBRII side relative to, we're not going to put a specific number out in the plan for future.

On the question of TRULANCE, yes the TRULANCE quarter two revenue was higher. That was -- if you recall we've acquired the product out of a bankruptcy situation and there were some stocking in the quarter two. But if you look at really the measure of growth prescriptions for TRULANCE quarter three versus quarter two was up 10%. So we clearly think that's one important metric. There was some noise on the stocking side. And then of course, as you think about quarter three this year versus quarter three 2018, we were up 25%.

So every metric we look at with TRULANCE gives us a lot of optimism for the future, and certainly, in line with what we said with our full-year guidance on the $55 million. So pleased with TRULANCE. And especially now that we've moved from 100 reps promoting it to 200 reps, now up to 500 reps, we think there's a great opportunity as we brought together the XIFAXAN and TRULANCE IBS opportunity to have what we believe is a best-in-class product in IBS-D with XIFAXAN, and we believe a best-in-class label with the TRULANCE product for IBS-D. A long way to go in terms of the performance there, but we think it's a great opportunity for us.

Operator, next question?

Operator

The next question comes from Akash Tewari of Wolfe Research. Please go ahead.

Akash Tewari -- Wolfe Research -- Analyst

Hey. Thanks so much. So consensus has the derm segment kind of growing at a steady clip. If you include Solta, you go from like around 560 to close to 900 [Phonetic] by 2025. Can you give us a sense of how you expect this segment to grow internally? And would it be fair to say that consensus isn't really modeling uptake for your IDP pipeline products? So of IDP-120, IDP-123, IDP-126, which one of these products are you guys kind of internally most bullish about and why?

And then a bit maybe on XIFAXAN and the patent case. What is your -- you've talked about your willingness potentially to settle with Novartis. How do you feel their case is different as at all with Teva's? And with that in mind, would we -- would it be unreasonable to expect a settlement for anything sooner than the 2028 that Teva has settled for previously? Thanks.

Joseph C. Papa -- Chairman and Chief Executive Officer

Okay. You asked quite a few questions here. I'm going to try to get them all. But if I miss any, please do remind me. First, starting on dermatology. We are really excited about our dermatology business as most evidenced by my comments relative to do DUOBRII. We think DUOBRII is a game-changer, relative to the ability to treat these patients topically and with -- which is what most psoriasis patients are looking for us to treat their product -- treat topically.

We also believe it's a game-changer because of the ability for patients to delay the need for biologic. And as you know that we did the study that for every patient that you delay the need for biologic or the use of biologic, you can save a plan a significant amount of dollars. My recollection is for a plan with 1 million lives. It's something in the order of $3 million to $5 million of savings for that plan on an annual basis. So clearly, that is the first comment in terms of the overall DUOBRII and derm.

I'm not going to make any comments about the outlook for -- specifically for our commentary, other than to say that we do believe the dermatology business has significant upside from where we are today. We had to work our way through the LOEs. We believe most of that is behind us as Paul mentioned. Now as we look, we have the growth opportunity, especially with DUOBRII, BRYHALI, SILIQ in the category.

On the question of other products certainly, on the one -- IDP-120, that's a dual product for acme. IDP-123 is the ARAZLO that we also talked about for -- that we filed and have a December PDUFA date. So clearly that's something that we think also could be an exciting opportunity for us, once again, in acne. And then IDP-126 is a triple combination we have. So a lot of good opportunities for us for the future. We think that's -- what going to build our dermatology business going forward.

I think the last question you had, was on XIFAXAN IP. We think we have a very strong position. We did file suit again Sandoz on September 30th. We believe that the 22 patents that we were originally had and that was supplemented with one additional patent that we announced, we now have 23 patents, we believe we have a very strong position.

There is important commentary on intellectual property. We know that the polymorph patents are very important to us and the FDA has come out with guidance on how one would need to be -- shown to be bioequivalent. We think that the differences in the absorption of the polymer is a very important consideration and one that gives us based on our information a very strong position to defend it. And we see nothing in the Sandoz's filing that would give us reason to move off of that 2028 date. [Phonetic] So we feel very good about it and obviously, we'll continue to try to work through with Sandoz, but feel very strong about our 2028 date.

I think I've gotten them well. Operator, next question, please.

Operator

The next question comes from Gregg Gilbert of SunTrust. Please go ahead.

Gregg Gilbert -- SunTrust Robinson Humphrey -- Analyst

Thanks, gentlemen. First, Paul, I know you're not in the mood to give a lot of specifics about 2020, but hoping you could just at least highlight some of the pushes and pulls as you see them in '20. And as part of that more of a qualitative question about just -- maybe a little bit quantitative. How much flexibility do you expect to have next year to to consider extra curricular activities and BD as you continue to emphasize deleveraging sort of 2020 versus how it has felt in 2019 and previously?

And then secondly on XIFAXAN, there's a competitive launch coming in traveler's diarrhea. I know it's a tiny revenue contributor for XIFAXAN, but Joe, maybe you could talk about whether you're seeing or expect to see any the signs in the contracting environment that, that is relevant, even though it's not a head-to-head sort of comparison to where the business lies? Thanks.

Joseph C. Papa -- Chairman and Chief Executive Officer

Paul, take the first and I'll take the second.

Paul S. Herendeen -- Executive Vice President and Chief Financial Officer

Yes. Sure. Thanks for the question, Gregg. Let me start and yes, I don't want to provide guidance for 2020. But there are some things that you should be able to take away from our commentary earlier today that help you start thinking about how -- at least how we view 2020. I mean I'll start with the B&L International segment. We are continuing to deliver solid kind of mid single-digit organic revenue growth in that B&L International segment. And we talked in the past, how this business over time is kind of a mid to maybe even a little better than mid single-digit performer or could expect to be, that is the majority of our revenue. So as you're thinking about it that piece there is one growth driver.

Second, I called out XIFAXAN obviously, our largest individual asset and was pretty clear. I mean you can come up with your own volume expectation -- growth for volume in XIFAXAN for 2020 V '19 and we said, we've got a couple of 100 basis points of -- we think of a pick-up in price there. So got your largest franchise, which you're expecting to grow at an attractive rate into 2020 V '19.

I called out the derm as we rebased it here in Q4, we expect the medical derm part of our business to return to a growth profile. That's on the strength of the products that we've launched and are launching in the medical derm business. Part of that Ortho Derm segment Solta has been growing very, very strong growth here in '19 V '18. Do I expect it to grow at that same same rate going forward? That will be hard to achieve, but I expect it to be -- kind of a strong, strong grower.

So there is a majority of our business which you'd expect to be growing into 2020 versus '19. The flip side, the things that could be headwinds to -- headwinds for us there, I called out Glumetza. Glumetza was -- has been a great product for us. But as we had called out, I want to say we started talking about it at the end of Q1, given people a heads up, keep an eye on. And it's been really good for us. But as that as that volume shifts into what I call, far less profitable channels for us that is going to be a year-over-year decliner. And It's kind of a material MD&A item.

The other thing I'd call out is, we will -- when we provide our guidance for 2020, we will of course update our LOE schedule. The next LOE of significance is something that I did speak about in talking about guidance, which is Apriso. We moved that out to 1H '20. That comes January 1. It's different than if it comes, June 29. So those are the things I'd be looking at when thinking about 2020 from a revenue perspective V '19. I hope that help.

Joseph C. Papa -- Chairman and Chief Executive Officer

And on XIFAXAN, the competitive launch in traveler's diarrhea, we take every competitor very seriously. Having said that, the rifamycin product was approved approximately one year ago. And to date, we really haven't seen anything of consequence there yet. The only point I would add to that is that for us, the traveler's diarrhea is less than 2% of our TRx, so a very small portion of our business. And for the most part, managed care doesn't usually cover that, so I think it would be somewhat difficult to get too much contracting with that particular indication. But we obviously take it series and see what happens in the marketplace relative to the traveler's diarrhea indication.

Paul S. Herendeen -- Executive Vice President and Chief Financial Officer

Gregg, I'm sorry. It's Paul again. I realized I skipped over your question regarding our flexibility to allocate free cash flow for business development opportunities. This year, I mean I think early in the year, we're fortunate to be able to acquire the assets of Synergy and get the TRULANCE asset and drop it into Salix business. As I want to say, we would do that deal 100 out of 100 times. It was circa $190 million. And I wish we could do one of those every quarter but those sorts of transactions are not always available.

As we look ahead to 2020 and beyond that we will continue to prioritize the use of our free cash flow to reduce our debt, I think we have reduced the quantum of our debt and we are improving our leverage. But we continue to be very highly levered Company and one that needs to work to bring our capital structure to something that is more reasonable for a company that's comprised of the assets that were comprised of. So we will prioritize that.

Now that said, if there are opportunities out there that fit dead center on top of our our core areas of focus that would be eyecare, GI and medical derm. And we would certainly consider those things and you should expect us to try to find -- trying to find opportunities where we can deploy capital in business development opportunities that would be value generative.

Joseph C. Papa -- Chairman and Chief Executive Officer

Operator, next question, please.

Operator

The next question comes from David Amsellem of Piper Jaffray. Please go ahead.

David Amsellem -- Piper Jaffray -- Analyst

Thanks. Just a couple. So first on DUOBRII, I wanted to come back to the topic of access. So you said 57% covered commercial lives. So I wanted to get a sense of how much of that is hassle-free? Or maybe another way to asking the question is, what do the steps look like in terms of the covered lives? So that's another one.

And then on TRULANCE, I don't know if you're willing to cover this. So can you just talk about how we should envision steady state gross in that -- for that product? It seems like you've made some gains on contracting and reducing restriction, so how does that affect [Indecipherable] steady-state than it look like longer-term? And then lastly, a real quick on ziconotide, [Phonetic] do you have anything new to say about that and where you may go in terms of the development of that asset? Thanks.

Joseph C. Papa -- Chairman and Chief Executive Officer

Yes. I'm going to try to get all of them, but just for me start with DUOBRII. The question of what the step-through is look like for access? I think we've been very fortunate. As I said, we've continued to improve our access with DUOBRII moving from as I've said, when we're on this call last quarter, it was 30%, and now we're up to 57%, a majority of that has improved. Specifically, in the unrestricted -- for DUOBRII, we expect to have about 44% unrestricted and about 30% has some [Indecipherable] step-throughs. But you can see the majority of the 57% is specifically an unrestricted access, which we think makes a lot of sense because as I said before, it's the first time a patient could use a topical and treat to clearance versus what previously it was limited on duration, and because of the ability for us potentially delay the need for biologic.

On the second part of the question, TRULANCE, how do you envision the steady-state of the product going forward? I think when we acquired it, we made the comment about what we were trying to accomplish. And I think we stated that comment. First thing we said we have to improve reach and frequency. And as I made a comment in the call, we improved reach frequency by about 90% additional promotion behind our XIFAXAN primary care effort as well as what we have in gastroenterologist since we acquired it. So clearly doing reach frequency.

On the second part of what we said, we needed to improve the market access position. And we've done that. What specifically we've done is improve the availability of this product for about 37 million lives. and by improving it either we got additional formulary additions or we made it easier to use the product more -- moving it more toward the unrestricted side of the equation. So those are the things we've done with TRULANCE. And as we sit here today, our overall TRULANCE availability unrestricted and restricted is about 88%, so we -- you can see we've made some very good progress there.

And the third question you have with dolcanatide. We are continuing to evaluate dolcanatide. We do think it has some significant opportunity for us relative to us doing some additional preclinical work with the molecule. At the very least, we clearly think it has a life cycle for us relative to improving on TRULANCE. But we're going to look at other gastroenterology indications as well as I said through preclinical models.

I think I got all your questions, David.

David Amsellem -- Piper Jaffray -- Analyst

Yes.

Joseph C. Papa -- Chairman and Chief Executive Officer

Operator, next question.

Operator

The next question comes from Gary Nachman of BMO Capital Markets. Please go ahead.

Gary Nachman -- BMO Capital Markets -- Analyst

Hi. Good morning. First in B&L and the contact lens market, just talk about how you've been able to gain share, particularly in the U.S.? And when will the Daily SiHy be ready to launch in the U.S.? And how much share could that potentially take? How will it be differentiated in the market? And then is VYZULTA still a major focus for the B&L team as Medicare, where it needs to be? And when should we see this product accelerate?

And then Joe, on the cash-pay model for legacy derm products, have those products gained traction yet? And how much should the expansion help in Walgreens that you talked about? Thank you.

Joseph C. Papa -- Chairman and Chief Executive Officer

Okay. You've got a lot there. I'm going to try to get them all in terms of -- but if I miss any of them, let -- please remind me. On the contact lens side, really it's been the new innovation that we've brought out, the new ULTRA, the Biotrue -- the ULTRA Multifocal, the ULTRA [Indecipherable] that's been really the primary way because I mentioned to you Biotrue was up 22%, ULTRA was up 25% quarter versus a year ago. So it really shows I think great performance by the team. I most and certainly want to also recognize the team -- Joe Gordon and his team that's done an outstanding job, and John Ferris as they've taken over this responsibility, and then Yang Yang on our international side has also done a great job on our business. So a lot of good efforts by the teams, really focusing on our new innovation and the opportunities for people to have better optics, more comfort and the ability to have access to new innovations such as our Multifocal for Astigmatism.

On the question of the SiHy Daily, we said it's a second half of 2020. To date in the United States, the U.S. SiHy percentage in market is about 12%, 13% of market. But it is growing significantly and we believe we have an opportunity once again to bring some innovation into this marketplace with a new SiHy that we think is going to be very desirable for patients relative to the current existing SiHy products out in the market, which will help us with the growth of that product.

VYZULTA, is it still a focus? The answer is absolutely, yes. If you look at our performance, the performance in the third quarter of 2019 was up 140% versus the third quarter of 2018. So I think you can clearly tell by that, the team is doing a good job with it and continuing to move that product forward for us as a Company.

Last comment was at dermatology.com, how much will the cash [Indecipherable] help us. We've been working very diligently. Bill Humphries and his team has been working very diligently to ensure that as we got greater access, what we felt the problems that we could solve with dermatology.com is to make sure that the doctors get the brand with the predictable access. They get the product that they want and the formulation they want. And then, of course, the patients that the patients have access at a -- in a network that means that they're going to get the product that doctor wanted. They're going to get the results that the doctor is expecting in the formulation that they're expecting at a very predictable price point. So that's what we expect is going to help us. And having an additional 9,300 or so stores from Walgreens only makes it -- the model work even better.

I think I got all your questions. Operator, next question.

Operator

The next question comes from Louise Chen of Cantor. Please go ahead.

Louise Chen -- Cantor Fitzgerald -- Analyst

Hi. Thanks for taking my questions. First question I had for you if you could comment more on the gross to net for the third quarter of '19? And then second question I wanted to ask you was as you move through this growth phase between 2019 and 2020, how do you plan to achieve the sales and EBITDA growth that you've forecasted as a CAGR over the next couple of years? And the last question I had was just how should we think about R&D spend as we enter 2020 and beyond? Thank you.

Joseph C. Papa -- Chairman and Chief Executive Officer

Hey, Paul, why don't take that first, the gross 2019 question?

Paul S. Herendeen -- Executive Vice President and Chief Financial Officer

Yes. Sure. And it is -- the gross to net is a -- it's kind of a -- I'll call it a complicated thing. But if you look, the growth, the pickup that we've observed in the quarter and frankly have observed year-to-date, yes, there's been a theme for us over the last couple of years. And it's not something they just kind of happened in a vacuum. It's been a result of a lot of management focus. We implemented some improved processes and made -- I'll use product returns as an example if I might. I think it's worth spending a second on this. Year-to-date through September, the amount of product returns that we actually processed were $77 million less than we had in the same period in the prior year. That's a 30% reduction. So for the avoidance of doubt, a process return results in credit against accounts receivable, meaning we're talking about core hard cash here. So I'll repeat $77 million favorable year-to-date versus 2018.

So -- then why did process returns go down so much? It's because beginning back in the latter part of '16 and continuing even as we speak, we've more actively monitored and managed the channel inventories of our products. And what we're talking about here is mainly our branded Rx businesses. I think we're talking about in the U.S. now, Salix, neuro, derm and optho Rx. We tightened up our policies. We successfully challenged channel partners that may have been gaming us in the past. We've worked the channel inventories down, which is in and of itself helpful, and significantly, we changed our pricing policy, such as the large and frequent price increases are not part of our business model.

So we're working our way through the situation we started with and we made great progress. And that's really resulted in measurable declines in the level of the process returns that you saw beginning in say 2018. And you're going to see this -- while you've seen it already in our 10-K and our 10-Q, yes, you look at the revenue recognition footnotes, you can find information there. But as we develop sufficient data to support an assumption that our future returns to be less than we previously estimated in accrued, we change both the amount by which we reduce gross sales for returns during that period and we true up the returns accrual to reflect the lower amount of returns that we now expect the process against previously sold product.

So that first part, that reduction in the deduction amount continues on as an increase in the average selling price for impacted products. I'd call that out a little bit when I talked about XIFAXAN. And then the true-up -- the accruals, that's helped our revenue in the current period, but it does not repeat in a such it becomes a little bit more of a challenge when we're comparing this period from here forward.

So I'll stop there. I'll say, it's not just returns by the way. It's a whole host of things. I mean it's rebates. It's how we manage our co-pay assistance cards. And the overall trend of our gross to the net has been getting better some -- from '17 to '18, now year-to-date to '19. And that's something that's been a real helper for us so far. And I think as we go forward, what it results in higher realized average net selling prices for those branded Rx products. That were sort of a long walk. But I hope it helps.

Louise Chen -- Cantor Fitzgerald -- Analyst

Absolutely.

Joseph C. Papa -- Chairman and Chief Executive Officer

So the second part of your question, Louise is about, I think our three-year growth rates and CAGRs, and what we're thinking about there. First and foremost, I'll remind everyone that we're looking at revenue CAGR of 4% to 6% on a three-year basis, and on EBITDA, 5% to 8% CAGR. So that's the mindset we have. Relative to how we will do it, I mean I think it comes down to just -- first, just look at what we've done and then importantly move forward.

If you look at what we've done, the B&L and the Salix business together has done very well for us. They now account for about 77% of our business, so clearly, -- that's 78% of our business, so that's clearly a large part of our business. But by definition, the derm business has not been there yet. We now think that we have the derm business at a point where with the success of DUOBRII launch, BRYHALI launch, continuing to grow SILIQ, and then launching these new products, we think that turnaround is also going to help us with the future growth driver.

So, yes, it's been so far, fueled by the Salix and B&L. But we do think the derm business is also now as Paul mentioned in his comments at a point where you can significantly contribute to our growth.

So that part is clearly, the derm business is important. The second part of it is, it's just new products across all of our business. That -- on the slide we showed on Page 21, new products in fiscal year '17 accounted for about 2% of our sales. Today, that's up to be about 10% of our revenue. So clearly that's the second part, new products and we expect to see that to continue to accelerate as we launch these opportunities.

And then the final thing I'll just pick up on what Paul said, it's all about that project core, in terms of making us more efficient. And that's just a cost optimization, revenue enhancement project that has yielded very good returns for us. And we expect to see that continue going into the future, and that helps us both on the revenue side, but also on the EBITDA side. So those are the primary ways that we're going to work through this.

The final comment you have was about R&D spend. We did make significant investments in research and development in 2017, '18 now '19. I would look as we go forward, I'm not going to guide to it, but certainly we think we will continue to invest in R&D at slightly above our revenue growth rates as we think about the future of where we are going with the product.

That concludes my comments there.

Operator, I think I have time for one last question, please.

Operator

And that question will come from David Risinger of Morgan Stanley. Please go ahead.

David Risinger -- Morgan Stanley -- Analyst

Thanks very much. So three questions, please. The first is, are there any formulary positioning changes of note for January for VYZULTA or SILIQ that could help their sales potential? Second, consensus isn't quite at the $1 billion level for the Significant Seven by the end of 2022. Are there any products you think consensus may be under-appreciating besides DUOBRII?

And then third, could you talk a little bit more on a bigger picture level about esthetics market digital opportunities? It seems like consumers are increasingly receptive to purchasing products online and paying up for higher-value products. And this seems like it could fit with your Ortho Derm direct-to-consumer initiative. But it's still not quite clear to me whether you're really there yet in terms of maximizing that potential for your derm business. Thanks so much.

Joseph C. Papa -- Chairman and Chief Executive Officer

Okay. A lot of good questions, maybe I'll try to take them one at a time here. VYZULTA and SILIQ relative the formulary positions and where are we today, and how we continue to improve on that. We're very pleased with the success we've had with VYZULTA. VYZULTA right now is up to about 74% access -- commercial access and about somewhere around 30% on the Part D side.

We know we are going to continue to work on that. I don't have anything specific to say about January contract. But I can simply say that our market access team has been doing a great job for all of our products. And we'll continue to look to renegotiate some of the positions we have with VYZULTA, both on the commercial side and on the Part D covered side.

On the question of SILIQ, SILIQ is also right around 78% on commercial coverage, less so on Part D, but it's much less of a Part D marketplace. So SILIQ has -- as I said 78% covered. We will continue to look to get better coverage there. But we think we've got pretty close to what we're looking for in terms of what's going on.

On the question -- second part of your question was on Significant Seven. We do think there are some significant upsides. We mentioned DUOBRII clearly is one of the products that we think is a very significant opportunity for us. Beyond that, the other products we think are performing better than people expect is LUMIFY, RELISTOR, and we clearly think that SiHy Daily is a good opportunity. So those will be the ones that I don't want to comment specifically on any consensus model, but ones that we feel have a good opportunity for the future.

On the esthetics market opportunity, clearly, our -- what we're doing there is exactly what we commented before about dermatology.com in the Solta business. As we put those two businesses together, we think we've got the right prescription for the future. Some patients, especially with the treatment of acne are just looking to get a cash pay option where the cash pay option is not that much different than what they pay on a co-pay. So that's clearly one side.

On the aesthetic business, I think the results of Solta, and Tom Hart and what he has done there just speak for themselves with being up 62%. Clearly, they have done just an outstanding job. And our expectations is that we have a great opportunity for the future because, yes, it's doing really well in Asia, yes, it's doing well here in the United States. But there is a European opportunity that -- as Paul mentioned, we're investing in for the future. So we feel very good about the opportunities we see with the esthetics. And specifically, both on the [Indecipherable] side, but also what we're doing on cash pay as we solve problems for patients that are looking for predictable access and a predictable price point, we think our cash pay model will do exactly that.

Operator, that concludes what we wanted to cover today. I thank everyone for joining us and look forward to having more conversations in the future. Thank you. Have a great day, everyone.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Arthur Shannon -- Senior Vice President, Head of Investor Relations and Corporate Communications

Joseph C. Papa -- Chairman and Chief Executive Officer

Paul S. Herendeen -- Executive Vice President and Chief Financial Officer

Christopher Schott -- J.P. Morgan -- Analyst

Umer Raffat -- Evercore ISI -- Analyst

Akash Tewari -- Wolfe Research -- Analyst

Gregg Gilbert -- SunTrust Robinson Humphrey -- Analyst

David Amsellem -- Piper Jaffray -- Analyst

Gary Nachman -- BMO Capital Markets -- Analyst

Louise Chen -- Cantor Fitzgerald -- Analyst

David Risinger -- Morgan Stanley -- Analyst

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