Bausch & Lomb: Acquisition of Xiidra Boosts Dry Eye Portfolio at a Favorable Price

Bausch & Lomb BLCO announced an agreement with Novartis to acquire dry eye drug Xiidra (along with a few early-stage eye care products) for $1.75 billion in upfront cash and potential sales-based milestone payments of up to $750 million. After baking in the impact of the acquisition, we are raising our fair value estimate to $26 from $25 (CAD 34.50 from CAD 34). We expect a roughly $500 million annual top-line contribution from Xiidra and a healthy margin boost until 2030 when we expect Xiidra to start facing generic entry. We are also raising Bausch’s Uncertainty Rating to High from Medium given the level of debt required to finance this deal combined with already high levels of debt outstanding. The company ended 2022 with $380 million in cash and a debt balance of $2.4 billion, but we expect an additional debt raise of $1.0 billion-$1.25 billion to fund the acquisition, raising its net debt/EBITDA to over 4.0. The deal is expected to close by the end of 2023, and we don’t think the deal will have a major impact on the firm’s narrow moat.

Dry eye disease affects roughly 16 million people in the U.S. and occurs when eyes are unable to generate a sufficient level of tears to keep them moistened, causing symptoms such as scratchy eyes, eye redness, and high sensitivity to light. The global dry eye disease market is estimated to be worth roughly $5 billion. Xiidra received approval from the FDA in 2016 and generated $487 million in 2022. Xiidra mainly competes with Restasis (by AbbVie) which generated $621 million in 2022 as well as recently launched generic versions of Restasis. This deal adds depth to Bausch’s dry eye portfolio, which was recently complemented by Miebo (formerly known as NOV03). Approved in May 2023, Miebo is the first and only FDA-approved treatment for dry eye disease that directly targets tear evaporation.

From a high-level perspective, we think this is a good deal given the attractiveness of the dry eye disease space as well as limited competition.