Bausch Health: Living With Valeant’s Legacy of Debt, Xifaxan and a Stalled Bausch + Lomb Split

Bausch Health is the clearest example in Canadian business of a company that survived its own collapse but could not escape it. Michael Pearson’s Valeant bought more than a hundred companies, raised drug prices aggressively and borrowed more than US$30 billion to do it; when the model broke in 2015-2016, shareholders, Quebec’s pension fund and hedge-fund managers Bill Ackman, John Paulson and Carl Icahn were all caught in the fallout. The company that emerged under Joseph Papa and now Thomas Appio has deleveraged, settled most of the litigation and grown its core franchises, yet the balance sheet and the Xifaxan patent cliff still frame every decision. This article explains how Valeant was built, why it failed, what Bausch Health has done since and what remains unresolved in October 2026. It is part of the Canada Company Stories hub.

How did Valeant become Canada’s most valuable company?

Valeant reached a market value above C$110 billion in mid-2015 by executing a strategy that was unusual in pharmaceuticals: buy mature drugs and companies, strip out research and development, raise prices and use the cash flow to borrow for the next deal. The company was created in 2010 when Biovail of Mississauga merged with California-based Valeant and kept the Canadian domicile for tax reasons, moving its headquarters to Laval, outside Montreal.

Under chief executive Michael Pearson, a former McKinsey consultant, Valeant bought Medicis (2012), Bausch + Lomb (2013, for US$8.7 billion), Salix Pharmaceuticals (2015, for about US$11 billion) and dozens of smaller businesses, while a hostile bid for Allergan in 2014 alongside Bill Ackman’s Pershing Square failed but made Pearson a Wall Street celebrity. The company argued that pharmaceutical R&D was a poor use of capital and that it could earn more by acquiring proven products and running them with lean overheads and low tax.

Investors loved the arithmetic. Each deal added earnings, the shares rose, and the higher share price supported more borrowing. By 2015 Valeant had more than US$30 billion of debt and was the largest company on the Toronto Stock Exchange, briefly surpassing Royal Bank of Canada, an outcome that in hindsight says as much about the Canadian market’s concentration as it did about Valeant.

Why did the Valeant model collapse in 2015-2016?

The model depended on three things that could not all last: cheap debt, tolerance for drug price increases and investors’ faith in the reported numbers. All three gave way within a year. In September 2015 US politicians began attacking Valeant’s price rises on heart drugs Nitropress and Isuprel, which had risen several hundred per cent after acquisition. In October 2015 short-seller Citron Research alleged that Valeant was using Philidor, a specialty pharmacy it had an option to buy, to inflate sales and steer patients away from cheaper generics.

Valeant cut ties with Philidor, restated results, delayed its annual report and faced investigations from the SEC, US attorneys and Quebec’s securities regulator. The shares fell from a peak above US$260 in August 2015 to below US$10 by 2017. Pearson left in 2016, replaced by Perrigo’s Joseph Papa. Pershing Square sold at a loss it put at about US$4 billion; the Caisse de dépôt et placement du Québec, John Paulson and ValueAct were among other large holders hit. Paulson joined the board in 2017 and chaired it from 2019.

The securities litigation was eventually settled for US$1.21 billion in 2019, and the company’s 10-K for 2025 confirms that the US and Canadian class actions, the SEC investigation and the Quebec regulator’s order have all been resolved, though some securities suits remain pending. More important than the legal cost was the strategic one: Valeant had no research pipeline to replace the growth that acquisitions had provided, and its debt made new deals impossible.

What did Joseph Papa change, and what did he leave for Thomas Appio?

Papa’s job from 2016 to 2022 was to keep the company solvent. He sold non-core assets, including the Dendreon cancer business and Bausch’s skincare lines, paid down more than US$8 billion of debt, renamed the company Bausch Health in 2018 to distance it from the Valeant brand and restored modest investment in research. He also announced in 2020 the plan that still defines the company: separate Bausch + Lomb, the eye-care business with the strongest brand and lowest regulatory risk, into an independent listed company.

Bausch + Lomb completed its initial public offering in May 2022 on the NYSE and TSX, but only about 11 per cent of its shares were sold; Bausch Health retained the rest and, as of 30 June 2026, still holds about 87 per cent, or 310.4 million shares. The full spin-off was conditioned on reaching target leverage ratios at the parent, a condition the debt markets and litigation have repeatedly pushed back. Papa became chairman of Bausch + Lomb, and Thomas Appio, who had run the company’s international business, took over as Bausch Health chief executive in May 2022.

Appio inherited a business with real franchises but a constrained balance sheet. His strategy has been to grow the Salix gastroenterology unit, led by Xifaxan, invest in Solta Medical aesthetics devices, rebuild a small pipeline, and use every quarter of growth to refinance debt further out. By his account, the fourth quarter of 2025 marked the eleventh consecutive quarter of year-on-year growth in revenue and adjusted EBITDA for Bausch Health excluding Bausch + Lomb.

How much does Bausch Health depend on Xifaxan?

Xifaxan is the company’s single most important product by a wide margin. The Salix segment, of which Xifaxan is by far the largest part, generated US$2.58 billion of revenue in 2025, up 11 per cent, out of US$10.27 billion for the group and about US$5.2 billion for Bausch Health excluding Bausch + Lomb. In the second quarter of 2026 Salix revenue rose 21 per cent to US$758 million, with Xifaxan growing 26 per cent. Because Xifaxan carries high margins, its contribution to adjusted EBITDA is larger still.

Two deadlines hang over the drug. First, generics. Bausch Health has litigated against multiple generic filers for years; its 2025 annual report states that generic rifaximin entry could occur earlier than January 2028 and that a generic could launch at risk before litigation ends. January 2028 is the widely cited date from prior settlements for the hepatic encephalopathy indication. Second, the US Inflation Reduction Act: CMS selected Xifaxan for the second round of Medicare price negotiation, with negotiated prices taking effect in 2027.

The company’s defence is rifaximin SSD, a reformulated version in two Phase 3 trials for preventing hepatic encephalopathy hospitalisation in cirrhosis, with results expected in 2026, and larsucosterol, acquired through the US$63 million purchase of DURECT in 2025 for alcoholic hepatitis with up to US$350 million in sales milestones. Neither can fully replace Xifaxan’s cash flow by 2028, which is why the debt profile matters so much.

How has Bausch Health managed US$20 billion of debt?

The company has survived by refinancing rather than repaying. In 2025 it completed US$9.6 billion of refinancing transactions, including a new credit agreement and senior secured notes due 2032 in June 2025 and a US$1.7 billion exchange offer in the fourth quarter that moved US$1.6 billion of maturities from 2028 to 2032. Total long-term debt stood at about US$20.7 billion on the balance sheet at 30 June 2026, or US$20.2 billion of principal, against cash of US$1.8 billion.

What has changed is the trajectory. In the second quarter of 2026 Appio said net debt fell by one of the largest amounts since the 2022 refinancing, helped by net income of US$260 million and adjusted EBITDA attributable to Bausch Health of US$1.08 billion, up 28 per cent. For 2026 the company guides to revenue of US$10.79 billion to US$11.04 billion, and, excluding Bausch + Lomb, to adjusted EBITDA of US$3.03 billion to US$3.10 billion and adjusted operating cash flow of US$1.4 billion to US$1.48 billion.

Even so, leverage at the parent remains far above the level most pharmaceutical peers tolerate, and interest expense consumes a large share of cash flow. That is why the Bausch + Lomb separation keeps slipping: distributing the 87 per cent stake to shareholders would remove a consolidated US$5.4 billion revenue business and its EBITDA from the credit base supporting Bausch Health’s bonds, and creditors have been unwilling to accept that without more deleveraging first.

Why has the Bausch + Lomb separation taken so long?

The separation was announced in August 2020, the IPO happened in May 2022, and more than four years later Bausch Health still owns 87 per cent. The stated condition is that Bausch Health must reach targeted leverage ratios before distributing the remaining shares; the practical obstacles are creditor resistance, the Xifaxan uncertainty and, at times, litigation threatening to block the spin.

Bausch + Lomb itself has become an attractive business. Under Brent Saunders, the former Allergan chief executive who returned as chairman and chief executive in 2023, it bought Xiidra from Novartis, launched the dry-eye drug Miebo and reported 2025 revenue of US$5.10 billion. At its November 2025 investor day it set a target of raising adjusted EBITDA margins from about 17 per cent in 2025 to about 23 per cent by 2028, with revenue growing 5 to 7 per cent a year and net leverage falling to about 3.5 times. Second-quarter 2026 revenue was US$1.39 billion, up 9 per cent, and guidance was raised.

Reports during 2025 that Bausch + Lomb’s board was exploring an outright sale, with private-equity and strategic interest, did not produce a transaction, and the company’s own filings continue to describe only the proposed distribution to Bausch Health shareholders, subject to leverage targets and market conditions. A sale of the unit would be the simplest route to deleveraging Bausch Health, but it would also hand the parent’s best asset to someone else, which is why the company says it is evaluating all options for unlocking value rather than committing to one.

What role did Icahn, Paulson and Ackman play?

Three of the best-known activist investors of the 2010s were involved at different stages, and their experiences mark the arc of the company. Bill Ackman’s Pershing Square partnered with Valeant in the 2014 Allergan bid, built a large stake, took a board seat in 2016 and exited in 2017 at a loss of around US$4 billion, which he later described as one of his worst investments. John Paulson’s firm accumulated shares before and during the collapse; Paulson joined the board in June 2017, became chairman in 2019 and has stayed through the Bausch + Lomb separation saga, giving the company an unusually patient anchor shareholder.

Carl Icahn arrived later. In 2021 he disclosed a stake of about 7.8 per cent and reached an agreement for two board seats, pressing for the Bausch + Lomb spin-off to be completed and value unlocked. His involvement sharpened the tension between equity holders, who want the separation, and bondholders, who want the eye-care cash flows kept inside the credit group. That tension, more than any operational issue, explains why the structure has not moved.

The lesson from the three investors is that activism cannot overcome a capital structure. Each of them correctly identified that Bausch + Lomb was worth more than the market gave Bausch Health credit for; none could change the fact that US$20 billion of debt sits above it.

What are the main risks for Bausch Health now?

The near-term risks are concentrated in Xifaxan. A generic launch at risk before January 2028, or an adverse court ruling, would take a large part of the Salix segment’s revenue quickly, since rifaximin generics would be priced to win formulary share. Medicare’s negotiated price from 2027 reduces US revenue even if no generic appears. Rifaximin SSD’s Phase 3 results are therefore not just a pipeline event but a balance-sheet one.

Beyond that, the company’s debt maturities now cluster in 2028 to 2032, and each refinancing depends on credit-market conditions and on investor confidence that the post-Xifaxan business can service the notes. Legacy risks have not vanished: certain securities suits remain pending, and the 10-K notes that an adverse outcome could affect compliance with the revolving credit facility’s covenants.

For Bausch + Lomb, the July 2026 pivotal data for the enVista Beyond intraocular lens narrowly missed some targets, and the glaucoma candidate acquired from Whitecap missed its Phase 2 endpoint, reminders that even the stable unit depends on a pipeline. Readers tracking how one Quebec company’s debt problems ripple across the province’s investors may also find the Desmarais and Power Corporation story instructive on how patient Quebec capital behaves differently.

What can founders and investors learn from Bausch Health?

The first lesson is that a financing strategy is not a business strategy. Valeant’s pitch was a view about capital allocation, that acquired drugs beat R&D, and it was correct only while debt was cheap and price increases went unchallenged. When the environment shifted, the company had no products of its own to fall back on. Businesses built on an arbitrage should plan for the day the arbitrage closes.

The second lesson concerns governance and reputation. Philidor was a small part of Valeant’s revenue, but the way it was disclosed destroyed trust in all of the company’s numbers. The 2018 name change to Bausch Health was an admission that the Valeant brand had become a liability with regulators, payers and recruits. Founders should assume that a single opaque arrangement can contaminate an entire company’s credibility.

The third lesson is about the limits of deleveraging. Bausch Health has done almost everything a turnaround textbook prescribes, selling assets, refinancing, growing core franchises and settling litigation, and it has still not restored a normal capital structure a decade after the crisis. Compare that with how Apotex used an IPO in 2026 to cut debt in a single transaction, or how AbCellera kept a cash cushion through its own slump. Debt taken on in good times is paid back in bad ones, and the repayment schedule is rarely the one management planned. For a parallel from another market, the UK Company Stories hub covers several leveraged roll-ups that met the same fate.

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