HROW - Bausch + Lomb's Bet-The-Farm Xiidra Acquisition Is Looking Questionable But Miebo Could Make The Stock A Winner

2024-05-24 12:12:17 ET

Summary

• Bausch + Lomb (BLCO) is a company with entrenched brands but poor recent financial performance.
• The company issued debt to acquire Dry Eye Disease [DED] drug Xiidra, hoping to ramp revenue to a more sensible level given their high fixed costs.
• The acquisition is not going well. Despite deploying substantial marketing expenses, Xiidra's revenue is mediocre and declining.
• However, BLCO also owns DED drug Miebo, a drug with tremendous potential.

Bausch + Lomb ( BLCO ) is an eye health company with products spanning everything from contacts lenses to pharmaceuticals. The company recently spun off from Bausch Health ( BHC ) - formerly known as Valeant - and it's safe to say that despite having many well entrenched brands, the company did not have a reputation for being particularly well run.

BLCO hired veteran CEO/serial deal maker Brent Saunders to right the ship, and Saunders immediately recognized that fixed costs were too high relative to revenue. His solution was to buy more revenue through M&A in the Dry Eye Disease [DED] space, acquiring Xiidra from Novartis in 2023, and leveraging the company's balance sheet to get it done. On the surface, this seemed to make sense. Adding revenue to a business where fixed costs are too high is often the right answer, and DED is a $20B TAM, a huge opportunity compared to BLCO's ~$4B revenue today....

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