Viatris Q2 2022 Earnings Call Transcript

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Provided by Quartr
August 8, 2022

Key Takeaways

  • Beatrice delivered Q2 revenue of $4.12 billion, adjusted EBITDA of $1.48 billion, and $719 million in free cash flow, marking its sixth consecutive quarter of strong performance.
  • Management reaffirmed its full‐year 2022 guidance for adjusted EBITDA and free cash flow, citing confidence in operational execution despite currency headwinds.
  • The company revised down its 2022 total revenue outlook by $800 million to $16.2–16.7 billion, attributing the cut solely to a stronger US dollar impact.
  • Beatrice repaid approximately $1.5 billion of debt in H1, stays on track for ~$2 billion this year, and maintains its investment‐grade rating while continuing quarterly dividends.
  • Strategic progress includes targeting ~$600 million in new‐product revenue (notably the lenalidomide launch in H2), on‐track completion of the Biocon biosimilar transaction in H2 2022, and divestiture of non‐core assets by end-2023.
AI Generated. May Contain Errors.
Earnings Conference Call
Viatris Q2 2022
00:00 / 00:00

There are 11 speakers on the call.

Operator

Morning. My name is Leo, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Beatrice 2022 Second Quarter Earnings Call and Webcast. Call. I'll now turn the call over to Bill Ciebliewski, Head of Global Capital Markets.

Operator

Please go ahead.

Speaker 1

Thank you, and good morning, everyone. Welcome to our Q2 2022 earnings call. Joining me today is Michael Goettler, our Chief Executive Officer Rajiv Malik, our President and Sanjeev Maruwa, our Chief Financial Officer. A copy of today's presentation and other earnings materials are available on our website at investor. Beatrice.com.

Speaker 1

During today's discussion, Call. We will be making forward looking statements on a number of matters, including our financial guidance for 2022 and various strategic initiatives. These forward looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections. Please refer to Slide 2 of the presentation and our SEC filings for a full explanation of these risks and uncertainties.

Speaker 2

Call.

Speaker 1

We will also be referring to certain actual and projected non GAAP financial measures to supplement investors' understanding of our financial performance. Non GAAP financial measures are reconciled to comparable GAAP measures on our website and in today's presentation. With Call. Now I'd like to hand the call over to Michael.

Speaker 2

Thank you, Bill, and good morning, everybody. Thank you all for joining us for our Q2 2022 earnings Call. I'm proud to report that we're hitting on all cylinders operationally, even while foreign exchange rates continue to be challenging, and we have now demonstrated 6 consecutive quarters of strong performance. We're delivering on our financial and strategic commitments, Conference Call. And we're making great progress on the reshaping initiatives, which we announced in February.

Speaker 2

Remember, Beatrice was designed with expectation and resilience in mind. We believe our geographic and product diversity allows us to balance occasional headwinds in one part of the business with opportunities in others, which we expect will enable us to deliver consistent and predictable performance over time. We are reaffirming our full year 2022 financial guidance ranges for adjusted EBITDA and free cash flow. Because of our continued strong operational performance, we believe that we can absorb and the foreign exchange rate impact within those ranges. However, we are revising our full year 2022 financial guidance range for total revenue solely to reflect our current expectation of the negative impact of foreign exchange rates.

Speaker 2

You will hear later more specific commentary on the guidance ranges for all three of these metrics, including our consideration of the foreign exchange rate impacts. Now let me share some highlights from the quarter. In the Q2, we reported total revenue of $4,120,000,000 and adjusted EBITDA of $1,480,000,000 Free cash flow generation continues to be strong at USD 719,000,000 for the quarter. Segment. I'm pleased with our solid performance across segments this quarter, particularly in China and our operational growth in Europe.

Speaker 2

Our continued strong performance has enabled us to continue to deliver and our financial commitments for debt repayments and returning capital to shareholders through the payment of our dividends. Call. In the first half of the year, we paid down approximately $1,500,000,000 in debt, and we're on track to achieve approximately $2,000,000,000 in debt repayment for the year. We continue to be committed to maintaining our investment grade rating, which is something that we believe really differentiates us from our peers. Call.

Speaker 2

Our Board of Directors has again authorized payment of a quarterly dividend of $0.12 per share. And we're very proud that that our internal development engine continues to deliver key pipeline milestones, which we believe positions us well to continue to move up the value chain. Call. Overall, we're on track for approximately $600,000,000 in new product revenue for the full year, and we look forward to the anticipated launch of the lenalidomide in the second half of twenty twenty two. And finally, we're continuing our successful integration, officially all transitional service agreements with Pfizer.

Speaker 2

In addition, we're seeing continued strong engagement for our employees We're all working diligently to execute on our priorities. As you remember, in February, we announced A significant global reshaping initiative to unlock trapped value and build what we expect to be a simpler, stronger and more focused company that's well positioned to deliver more access to patients and more value to shareholders. We continue to make good progress on the biosimilar transaction with our partner Biocon Biologics. The transaction received key antitrust clearances in the U. S, in India and other markets, and we are still targeting a deal close in the second half of this year.

Speaker 2

While we await final regulatory approval from the Reserve Bank of India, The 2 companies have been working productively to put plans and transition service agreements in place to ensure business continuity for patients, customers and support our colleagues. We're also making good progress on the previously announced divestitures of other select non core assets, and we continue to expect to execute against these plans by the end of 2023. With regard to business development, We further ramped up our inorganic activities in our global healthcare gateway. We're looking at everything. We remain therapeutic area agnostic and and our business development efforts are centered on bolt on and tuck in opportunities that match our 3 identified therapeutic areas for moving up the value chain as well as other opportunities.

Speaker 2

In summary, we had a very strong quarter, Conference Call. We're excited about the future we're building for Beatrice. The entire company is focused on executing on the initiatives we set forth for the business, meeting or exceeding our operational goals that we have set, generating significant free cash flow and unlocking value while reshaping our company for a stronger future. With that, let me turn it over to Rajeev. Rajeev?

Speaker 3

Thanks, Michael, and good morning, everyone. For 6 consecutive quarters, we have consistently executed against our overall operational priorities. Our strong operational performance this quarter reflects the resilience of the diversified business we have deliberately built. As shared before, we are not dependent on any one market or any one product, and we remain agile and opportunistic in how we manage the business with the goal of maximizing and the strength of each market and address unforeseen challenges. Our execution Conference Call has been and continues to be a team effort, and I would like to thank our colleagues for delivering another solid quarter and continuing to meet our customer commitments.

Speaker 3

The strong business performance and the execution of our underlying plan in the first half of the year, supported by consistent supply, gives us the confidence that the momentum will continue for the second half and deliver our operational commitments for the year. We also continue to expect to achieve our Approximately $600,000,000 new loss revenue target for 'twenty two. Moving to our quarterly segment results. I will be making certain comparisons to Q2 2021 results on a constant currency basis as well as comparisons on an operational basis versus our plan that supports our guidance. These comparisons exclude the impact of foreign currency exchange.

Speaker 3

Our North America business represents a balanced portfolio consisting of several brands, complex drug devices and many other generic products. We believe this mix provides the business enhanced stability and predictability. YUPELRI continues to grow and delivered high teens, and EpiPen performed better than we expected. We experienced healthy demand for our generics portfolio, while KINEDA once again delivered a better than expected performance. We look forward to the expected launch of lenalidomide in the second half of the year.

Speaker 3

Regarding Brenna, our FDA approved generic to Symbicort, We anticipate a ruling from the District Court in the coming months on the trial that was held in May. We also have a separate case and continue to look forward to bringing the product to market at the earliest possible date as these court cases develop. Our European business had another strong quarter, delivering 8% year over year growth. Call.

Operator

.:] .:]

Speaker 3

Conference, Germany, Italy and Spain led the growth. The region also benefited from certain customer purchasing patterns in the quarter. Conference Call. We expect that the new launches across Europe will be another key driver for 2022 performance. The emerging segment.

Speaker 3

The key market segment delivered another quarter of consistent performance and was in line with our expectations. We delivered strong performance in key markets like South Korea, Brazil and Malaysia, and in key brands like Lyrica and Norwescap. Call. The year over year change was driven by previously disclosed anticipated ARB therapy landscape changes and sales of certain COVID related products in 2021. Excluding these two items, total net sales were flat to the prior year.

Speaker 3

Our Jan segment performance this quarter was driven by better than expected performance of our generics business as well as our off patent branded portfolio. Lyrica and Celebrex in Japan came in better than Act. Additionally, the generics portfolio in Japan benefited from favorable market dynamics. The generics portfolio in Australia also performed better than our expectations, which will be further supported by the addition of a key wholesale and Pharmacy Customer. Greater China continued its strong performance and exceeded our expectation this quarter with 1% year over year operational growth.

Speaker 3

Our ability to manage the business and Supply Chain effectively through the COVID lockdown period is a testament to our commercial strength in this market. Our hospital channel again demonstrated a strong performance led by Lipitor and Norvasc. We are on track to meet our full year expectations as we continue to navigate the evolving healthcare policy. We also continue to make steady progress in building up our R and D portfolio for China. I will now share an update on our pipeline, which builds upon our strong legacy in the development of value added complex products and our extensive scientific capabilities.

Speaker 3

I'm pleased to report that we have been able to successfully manage our trial of We expect to read out our Phase III clinical trial by the end of this September, and we remain on track to make our U. S. Submission in quarter 1, 'twenty three. We received FDA approval of Fingolimod, which is a generic pozylenia and are on track to launch in the U. S.

Speaker 3

In 24 times with our settlement date. We filed our submission to ocularotide MR in U. S. In this way, which keeps us on track to launch in 'twenty four. Our new InnoSense ophthalmic program, MR-139, for the treatment of moderate to severe Chronic blepharitis is making steady progress and we intend to submit the IND for this program at the end of the year.

Speaker 3

In order to initiate the Phase III clinical trial in quarter 1, 'twenty three. We are making steady progress Call. On our biosimilar to Botox program with RIMENS, we are targeting a BLA submission in 2025, and we remain committed to the launch of this complex biosimilar at the earliest possible launch in the United States. And finally, Biocon expects FDA site inspection of 2 of its sites to be conducted in the next few weeks, which hopefully will pave the way for biosimilar bevacizumab and insulin as part approvals later this year. We believe we are well positioned to add more complex products and pursue additional opportunities to further move up the value chain by leveraging our global healthcare gateway and strengthen our pipeline in the previously stated therapeutic areas of GI, ophthalmology and dermatology.

Speaker 3

And lastly, an update on integration. Call. I'm pleased to report that we continue to make significant progress. As you may recall, the legacy Upjohn business was heavily dependent on Pfizer Systems and Infrastructure, which was supported by a significant transition services agreement. We are currently on track to exit the remaining Pfizer TSAs by end of this year, and I would like to thank all colleagues from Beatrice and Pfizer around the world supporting this important initiative.

Speaker 3

We are also on track to achieve at least $1,000,000,000 in cumulative cost synergies by the

Speaker 2

end of

Speaker 3

2023. Call. With that, let me now turn the call over to Sanjeev.

Speaker 4

Thanks, Rajeev, and good morning, everyone. Slide 16 and 17 show 2nd quarter financial highlights as well as results for the first half of this year. Call. For the quarter and first half of twenty twenty two, the operations of the business were in line or slightly ahead of our expectation. This performance is across our global diversified portfolio of brand, genetics and complex products.

Speaker 4

As anticipated, operational revenue was solidly in line with our expectation, but slightly down compared to prior year. Adjusted EBITDA and free cash flow were ahead of expectation and we were able to offset foreign exchange headwinds. The business benefited from strong adjusted gross margin, lower adjusted SG and A due to the realization of synergy and disciplined spend management. Cash flow benefited from our cash optimization initiative and reduction in one time cash cost. Moving to Slide 18.

Speaker 4

For the quarter, we are seeing dollar strengthening significantly against major currencies including the euro. Segment. As a result, net of hedging activities, foreign exchange had an impact of approximately 7% on net sales versus the Q2 2021. Net sales were in line with our expectation on an operational basis, down versus prior year by approximately 3% due to anticipated drivers. Our developed market business has a strong quarter and were operationally flat versus prior year.

Speaker 4

This performance was driven by strong growth in Europe due to category diversity, partially offset by anticipated competition on key products in North America. Call. As anticipated, other base business erosion was primarily driven by lower ARV volumes due to the anticipated change in therapy landscape and lower sales of certain COVID related product. New product revenue was driven by interchangeable insulin glargine in North America. Despite foreign exchange headwinds, we had another solid quarter of adjusted EBITDA that were ahead of our expectations.

Speaker 4

Adjusted gross margin was driven by strong brand performance and favorable segment and product mix. SG and A continues to benefit from our synergies, integration activities and disciplined spend management. Turning to Slide 19. We had another excellent quarter with better than expected free cash flow of more than 700,000,000 up significantly versus the prior year. This improvement in our cash flow conversion was driven by positive changes in the operational working capital and lower one time cash cost.

Speaker 4

Free cash flow through the first half of the year was strong at 1,800,000,000 an increase of approximately 40% or $500,000,000 compared to same period last year. Slide 20 illustrates our capital allocation framework and the strong and consistent history of free cash flow generation since the formation of Viatrist. I'm proud to say that over the last 6 quarters, the company has generated more than $4,600,000,000 of free cash flow. We are well over the halfway mark of our goal of generating more than $8,000,000,000 in free cash flow by the end of 2023. This has allowed us to deliver on our capital allocation commitment.

Speaker 4

For the year so far, we have repaid approximately $1,500,000,000 of debt and more than $3,500,000,000 since the beginning of 2021. Call. Additionally, we have paid approximately $290,000,000 in dividends this year and approximately $690,000,000 in dividends since the beginning of 2021. We remain committed to our 2022 debt repayment target of approximately $2,000,000,000 This will strengthen our balance sheet and support our commitment to maintain an investment grade rating. We expect to accelerate financial flexibility through the anticipated closing of biosimilar transaction in the second half of twenty twenty, which we expect to net approximately 1,600,000,000 after tax proceeds.

Speaker 4

As we look ahead, we expect our capital allocation framework will broaden with potential share repurchases and tuck in or bolt on business development opportunities. Before I discuss Our revised 2022 financial guidance, if you recall, our commentary in May mentioned, we would reassess the foreign exchange impact on total revenue, adjusted EBITDA and free cash flow. The dollar has strengthened significantly across major currencies and approximately 70% of our business is non dollar denominated. Moving to Slide 23, the business is in strong position through 1st 6 months of the year and we expect full year revenue to be in line if not slightly ahead of our expectation on an operational basis. With respect Call.

Speaker 4

As a result, we're revising our revenue guidance range by $800,000,000 to $16,200,000,000 to $16,700,000,000 Our revised revenue guidance takes into account foreign exchange impact through the first half of the year and approximately $600,000,000 split evenly between 3rd and 4th quarter of 2022. Operationally, we expect revenue will be driven by continued ramp of new product including the U. S. Launch of lenalidomide in the second half and the seasonality of Influvac in developed markets. Because of our continuing strong execution and operational performance, we currently expect to be able to absorb the foreign exchange headwind within our free cash flow range and also our adjusted EBITDA range.

Speaker 4

As it relates to adjusted EBITDA, we may end up towards the lower end of the range. Our expectation to absorb foreign exchange headwind is due to several factors, including positive product mix benefiting gross margin, favorable SG and A due to synergy and expense management as well as increased cash optimization initiative and lower CapEx.

Speaker 2

Now let me cover some of

Speaker 4

the expected drivers for financial performance for the second half. We expect sequential increase in SG and A and R and D in the second half of the year. We expect cash flow will be heavily weighted to the first half of the year, mainly due to the timing of one time cash costs, of which We expect approximately 2 thirds to come in the second half of the year. This includes the previously announced EpiPen litigation settlement, which was paid in July. In addition, we expect capital expenditure to ramp up in the second half of the year.

Speaker 4

We're pleased with the strong first half performance. The momentum we see in the operations of the business position us well for the remainder of the year. Our capital allocation framework, including debt pay down goals, commitment to dividend and the value we see in maintaining an investment grade will continue to be important drivers in creating long term value. Call. Now I'd like to turn the call back to the operator to open the call for Q and

Speaker 3

Key.

Speaker 2

We'll take our

Operator

We'll take our first question from Jason Gerberry of Bank of America. Your line is open.

Speaker 5

Hey, guys. Thanks for taking my question. This is Bhavan on for Jason Gerberry. So I just want to focus on China. Do you have any exposure to upcoming rounds of VBP?

Speaker 5

And if so, can you size and provide some timing when you'd expect to see any impact. Thank you.

Speaker 2

Okay. Good morning. Thank you for the question. Rajiv, do you want to talk to us, BUP in China?

Speaker 3

Call. Yes. Thanks, Bhond. I think as China is concerned, we have been living with this evolving healthcare policy, EBITDA. Now you are in the U.

Speaker 3

K. Some ERP, if to the COVID cycles and we continue to see a strong performance from one of its kind, I think it's Very strong commercial infrastructure. So we have our team has planned the business growth, the transition growth and both the channels, the hospital channel as well as the KJN continue to perform better than our expectations.

Speaker 2

Segment. Okay. Next question please.

Operator

Our next question is from Elliot Wilbur of Raymond James.

Speaker 6

Thanks. Good morning. Just one question for Sanjeev. Just wanted to get a little bit more detail in terms of the Change in outlook with respect to FX and then the anticipated impact on the EBITDA and free cash flow line. So I think at the beginning of the year when you first provided initial outlook, you talked about And FX impact roughly $350,000,000 Then there was an anticipated negative impact of about 35% of that to the EBITDA line.

Speaker 6

Now obviously, you have a much bigger potential headwind coming from FX, but not really any impact to the EBITDA or free cash flow line. So maybe you could just go into a little bit more detail in terms of what's offsetting that, whether it may be Just effectiveness of your hedging programs or some hedging gains or if it's really just more about sort of Natural mix in the business and then just having the appropriate sort of natural offsets or hedges to that. Thanks.

Speaker 4

Call. Thanks, Elliot. So let me unpack that. Just a couple of things I want to just So first of all, I think, put the FX aside, as we said in our opening remarks, business is performing very well operationally. Whether you look at segments, you look at new product revenues, our spend management, cash flow generation's pipeline business is performing as expected, if not slightly ahead for 1st 2 quarters and that's the outlook we have for the rest of the year.

Speaker 4

So that's keep that in the mind that that's Trade in approximately 2% FX impact, roughly $350,000,000 in the top line. And that's what we showed the guidance chart. And then what had happened is when we came out in May for our Q1 call, we highlighted that there's going to be additional 2% FX impact on top of that based on the rates where they were at the time of our conference call in May because dollar has further strengthened. Now when we are in July, that's That's what we've upgraded. We updated the guidance.

Speaker 4

The overall FX impact on the top line is incremental of 5%. Segment. So 2% was based into the guidance, 5% is what we have. That's the 7% that we've gotten there. And that's just a function of Elliot.

Speaker 4

70% of our business is non U. S. Dollar denominated, 40 started low as you know about that. We do have the hedging programs in the company. The industry standard layering, we do.

Speaker 4

And to the extent we can, and the impact that we talk about is reflective of that. Coming to the last part of your question in terms of how we are able to Offset that. Clearly, we are able to offset because of the operational strength of the business. So if you look at in the EBITDA, We have done so far, we are ahead of gross margin because of the favorable mix in terms of our product segment and excellent control on the cost of goods. And then on the SG and A line, we are doing better with synergies and disciplined expense management, both is going to help on the EBITDA line to be able to offset the impact of that.

Speaker 4

And you noticed the we've actually increased the gross margin midpoint by 50 basis points on a full year basis because of the strength that we've seen in our business so far. Coming to the last point about free cash flow, we've actually done very well as you see in the first two quarters, over 40% versus last year. We continue to see strength in our cash optimization initiatives that will actually help. And then there is some lower CapEx cost that we're going to

Speaker 2

be able to offset.

Speaker 4

So we feel very confident about the EBITDA range and the free cash flow range that we provide. Segment. Next question please.

Operator

Our next question is from Chris Schott of JPMorgan.

Speaker 1

Great. Thanks so much for the questions. As we get a little bit more color on additional divestitures In terms of just how far along are these discussions? And maybe kind of more broadly, does the rising rate environment we're currently in, is that impacting how Prospective bidders are thinking about valuation or even just the set of assets that you may be looking to sell. So just any more color on that would be much Series.

Speaker 1

Thank you.

Speaker 2

Chris, good morning and thanks for the question. Look, as I said in the opening remarks, let me first talk a little bit about Biocon. The progress there is Clear, we're making good progress. We received all the antitrust clearances, and we made good progress with our partner, Bioncon, also in setting up TSAs to talk about position and all of those things. And that's on track for closing in the second half.

Speaker 2

We're very, very confident about that. Now on the other divestitures, I also said we're on track. Call. We said we're going to close these by the end of 2023. As you know, we're making good progress there as well.

Speaker 2

And as far

Speaker 4

as the valuation is concerned, really

Speaker 3

It's not so much of

Speaker 4

a concern for us at

Speaker 2

the moment. I think these are high value assets. They're well performing Investment Fundamentally nothing changed on that, and we'll give you an update as we go along. Next question please.

Operator

Segment. Our next question is from Umer Raffat of Evercore.

Speaker 7

Hi, guys. Thanks for taking my question. I have a question on Capital allocation, especially after the Biocon deal closes, there's been investor question on how the dynamic nature of the market right now could or could not impact How you're thinking about whether you will have preferences around buyback versus debt paydown versus possibly smid biotech M and A. So I'd be curious about your latest temperatures on that. And also on the glattermur study, is the data in house already?

Speaker 7

Because it looks slide. The 52 week endpoint was hit back in May timeframe.

Operator

So I'm just trying to understand sort

Speaker 7

of the amount of time it's taking to get the data processed. Thank you very much.

Speaker 2

Very good. So I'll take the first question and Rajit, maybe you can address the second one. So, Umer, on capital allocation, look, we're very System. Our strategy is very clear. First of all, on the basis, we're confident to meet our 2022 and 2023 financial commitments, which is through its dividend.

Speaker 2

You saw our goal has yet again, the clear $0.12 per share dividend. Debt pay down, Satish gave you an update on the progress, the good progress we made there, and and then maintaining investment grade. That's the baseline. As we look ahead, we expect to close the Biocon transaction in the second half of 'twenty two, Which will provide us optionality and flexibility with capital allocation. And then the other non core asset divestiture also remain on track for 23.

Speaker 2

So with regard to share buybacks, other capital allocation decisions, we'll make those decisions with value for shareholders in mind at the right time and Call right reasons, considering all the circumstances at the time. And Reg, if you want

Speaker 5

to take that? Yes.

Speaker 3

And more regarding the GA Once Monthly. As you remember, we had already indicated that about 10% of the patients for this trial were in the campaign. And in fact, we were anticipating at one point of time there might be more delay in managing that, but I think the team did a great job. And we will as my prepared remarks, as I mentioned, we will be having a readout of these results in sometime in the middle of September. So we're looking forward to that and sharing with you with all.

Speaker 2

Okay. Next question, please.

Operator

We'll take our next question from Gary Nachman of BMO Capital Markets.

Speaker 5

Hi, thanks. Good morning. On your scaling back efforts on spending in order to manage the EBITDA as you face these FX headwinds, How much of that will come back and how much of these costs are permanent? So how much was, I guess from original cost synergies and how much of that might be new? And then just talk about some of the other levers that you have to improve cash flow like the working capital and the reduction in CapEx.

Speaker 5

How should we think about those trends going forward? And then also the improvements in gross margin, How that should trend for rest of the year and into next year and how durable those improvements are? Thank you.

Speaker 2

I would ask you to start on that and maybe Suraj, if you can add.

Speaker 4

Okay, sure. So Gary, let me take all 3 items 1 by 1. So clearly, As you heard in our remarks, we are managing our synergies and integration very well and expect to achieve synergy target that we laid out. And then we're doing exceedingly well on managing the expenses. So clearly, all those items are going to stick.

Speaker 4

And there is clearly, obviously, some benefit that we're getting because of the FX, as you see. But all the items that we are seeing in terms of our SG and A line are sticky and sustainable a bit of time. Clearly, as we look for the second There is going to be a little bit of a ramp up because of the timing of the spend. But overall, we feel good about The trajectory of our SG and A line. With regard to again on the free cash flow, The improvement that we're doing are a permanent nature.

Speaker 4

These are fundamental drivers of working capital, whether you're looking at how we pay, how we receive. Those are fundamental drivers of the changes that we're doing and how we operate, and they're going to stay with us. And clearly, there is some benefit that we're getting this year a little bit on the lower CapEx, but essentially the broader point about improvement in cash flow will sustain and help us on the coming years. And then lowering one time cash cost, which is again is a permanent benefit that we see as we go forward. The last item is on the gross margin.

Speaker 4

Clearly, as we see

Speaker 2

in the first

Speaker 4

two quarters, we have a better product mix. We're getting better products, from the higher gross margin and from geographies which have a higher gross margin. And that our cost controls are doing very well on the card lines. Again, those benefits are going to stick with us for the remaining of the year. And then as we come out with the next year's guidance, we'll provide more details segment.

Speaker 2

Yes. And I think overall, overall comment I would make is, our business is strong. We're now at 6 quarters of strong operational performance. This We're not in the cost cutting business or cost cutting or achieving results. We're doing this to set up the business and strengthen the for the long term.

Speaker 2

Next question.

Operator

Our next question is from Greg Fraser of Truist Securities.

Speaker 1

Good morning, folks. Thanks for taking the questions. On the Glatiramer program, what's the bar for success

Speaker 3

in the Phase III study. If that's the C, it looks similar to kasthanon

Speaker 1

and tolerability is favorable. Is that a win? And how are you thinking about the commercial potential of that product? Thank you.

Speaker 2

Sorry, just to clarify, you were a little bit unclear. Which study are you asking about?

Speaker 1

The gliitirim or once monthly. The bar for success and what you're hoping to see in study and also how you think you've got commercial potential.

Speaker 3

Yes. It's on the RIMS. And very clearly, we are looking into the improvement programs Around that, it's not the progressive, it's a revasting one. And that it's very much at the moment with the indication of the What we are looking forward is the effectiveness once monthly.

Speaker 2

It's a non directed trial.

Speaker 3

Yes, it's

Speaker 8

a non directed trial.

Speaker 2

Next question please.

Operator

Our next question is from Ash Verma of UBS.

Speaker 9

Hi, guys. Thank you for taking my question. So just wanted to understand the levers for 2023 top and bottom line. We see consensus at 165.8 of EBITDA. Does that look like the right ballpark to you just directionally speaking?

Speaker 9

Yes, partner Biocon recently identified biosimilars as like a $1,100,000,000 $250,000,000 top and bottom driver for 2023. As you look at your 2023 numbers, does the consensus represent like an adequate step down to you? And my second question was just around like investing in the So clearly you're absorbing a lot of cost on the OpEx side. How is inflation playing in all of this? You haven't made any comment on that.

Speaker 9

I'm just curious, How much of your OpEx is being driven up by higher inflation that is resulting you to optimize your spend base even more What's the venue, Ralph? Otherwise, thank you.

Speaker 2

Thank you. So we're not giving 2023 guidance. So that's what I would just say for the first question. For the second business, Our business is strong. And I want to remind you, we were actually when we gave guidance, we already foresaw and included inflation in the guidance expected and the business was very strong.

Speaker 2

Ritu, anything you want to add?

Speaker 3

No, I mean, only thing I will add, we are not cutting the cost to manage it. It's exactly We are running and driving the business as we had planned and we are hitting on all cylinders to it, whether it's by segment or it's by operations or it's by the cost of goods.

Speaker 4

And as the final point is again, continue to look at the cash flow generation. As you saw that in The 6th quarter, it's very, very strong. And as you get into the next year, those benefits will continue. And then as we reduce the one time cash cost, you're going to continue to see Significant cash flow generation of the company. Okay.

Speaker 2

Final question, please.

Operator

We'll move next to David Amsellem of Piper Sandler.

Speaker 10

Thanks. So just had a Couple of high level questions just on capital deployment and certainly you've talked about this in the past, but As you start looking at assets to buy, do you start to look Prioritizing share buybacks differently or not prioritizing them at all. And then Also as you're looking at assets to buy to a larger transaction And down the road, how do you think about the dividend? Just help us understand your latest stock process. Thank you.

Speaker 2

Sure. David, let me reiterate again that we've been very clear and consistent about what our capital allocation priorities are. Again, there is the base is that we need to hit R22 and we will hit our 2022 financial commitments. That includes a dividend, we're committed to dividend, that includes debt pay down, which we're very committed to and that includes maintaining investment grade. Then with the divestitures we have, we get optionality.

Speaker 2

With the Biocon transaction for the first time, which we expect to close the second half, we get optionality. And then with the other core assets, which are on track for end of 30 3, We get additional optionality and we are going to make the right decisions with shareholder value, funds of shareholder value in mind, at the right time, for the right reasons, given all the circumstances at that time, right? So, but you know where our commitment is on that. On essence, we're looking at Fabulous development. Nothing really has changed from analysis that we did is we continue to believe that the therapeutic areas that we picked for moving up the value chain are the right ones.

Speaker 2

I think that gets confirmed. And But we also continue to be TA agnostic. And as we said, we look at all opportunities. The global healthcare gateway, as you said, is always An integral part of our strategy, an integral part of our business model to leverage our global infrastructure, to leverage the commercial platforms that we have to strengthen the business for the long term. We're very disciplined about this.

Speaker 2

I think we've proven that over the last 6 quarters. We should always expect us to look at all opportunities, Organic or inorganic?

Speaker 4

And David, to your point about dividend, just kind of want to reiterate, Commitment to dividend continues to be a priority in returning capital to shareholders. That's very important for us and that will be a priority as we go Call.

Speaker 2

I think we have time for one more question, operator.

Operator

We'll take that question from Nathan Rich of Goldman Sachs.

Speaker 8

Hey, good morning. Thanks for the questions. I'll ask both upfront. First, I wanted

Speaker 7

to ask

Speaker 8

on Whether you've seen any change in underlying pricing trends for the generics portfolio, I think kind of looking at results from peers so far this quarter, dates have been a bit mixed. I'm just curious kind of what you're seeing. And then is inflation changing the conversation with the buying groups at all and maybe potentially support to pricing going forward. And then, you highlighted the progress So the Biocon divestiture, I guess, could you give us an update on the other kind of non core assets that you might be looking to divest and kind of What you're seeing currently in terms of timeframe for when we might hear more on that front? Thank you.

Speaker 2

So let me take the second question first because our reporting after that is we're on track for end of 'twenty three and we're going to give you updates as we go along as it happens. On the pricing dynamics, I think it's very important you understand the difference in the portfolios between different companies that make comments on it. And Rajiv, maybe

Speaker 3

season. Yes. Any pricing underlying pricing trend is an outcome of the portfolio. And we have for years consistently worked to shape up our portfolio to have Yes, of course, we will have some generic commodities, but more and more of the complex hard to make mix with a different sort of erosion profile. Call.

Speaker 3

And as an outcome that I can talk not of this quarter, but for the last several quarters, we have consistently seen at a company level, We have a price here early enough about at the enterprise level at about 3%, 4%. When it comes to North America, even at this quarter, Except some exceptional items, we have seen about the 3 about 4% price variance. So we see the continuing trend of mid single digit. Now has inflation changed the pricing, some of these discussions? You would expect that.

Speaker 3

And what has actually started making a difference is the buyers are also seeing the rationalization As every company is undertaking, especially around order solid products, they see that many companies discontinuing those products. And I think that's Sending a bigger message to the buyers that the sustainability of this very important industry is first time I I think it's coming it's being put on the table when we go back and have those discussions because the cash flows of this business are so important for us to reinvest and bringing in more and more cost to make products like whether it's Advair or should be cost and that can go up. So there's a balance. And I think there's a discussion which is right at this time on the table and I'm glad that we are having Those back on discussions rather than just pricing discussions.

Speaker 2

Okay. I think that concludes our quarterly earnings call. I want to reiterate, We got the message we're hitting on all cylinders operationally. We now demonstrated, which we're very proud of, 6 quarters of strong consecutive operational performance. We're sticking to our and delivering on our financial commitments.

Speaker 2

And we're also making great progress in our reshaping initiatives, and we look forward to updating you more as we go along. Thank you very much.

Operator

Call. This does conclude today's Viatrist 2022 Second Quarter Earnings Call and Webcast. Please disconnect your line at this time and have a wonderful

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