Viatris Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 27, 2023

There are 17 speakers on the call.

Operator

Excuse me, everyone. Thank you for standing by. We apologize. We did experience some technical difficulties. We will now begin your conference.

Operator

Please go ahead.

Speaker 1

Good morning, everyone. Welcome to our Q4 2022 earnings and 2023 guidance call. With us today is our Executive Chairman, Robert Kory CEO, Michael Gettler Incoming CEO, Scott Smith President, Rajeev Malik and CFO, Sanjeev Narua. During today's call, we will be making forward looking statements on a number of matters, including our financial guidance for 2023 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.

Speaker 1

Please refer to today's slide presentation and our SEC filings for a fuller explanation of those risk uncertainties and the limits applicable to forward looking statements. We will be referring to certain actual and projected non GAAP financial measures supplement investors' understanding and assessment of our financial performance. Reconciliations of those non GAAP measures to the most Directly comparable GAAP measures are available on our website and in the appendix of today's slide presentation. An archived copy of today's presentation and other earnings materials will be available on our website at investor.beatrice.com following the conclusion of today's call. With that, let me welcome Robert Kory.

Speaker 2

Good morning. When I spoke with you on November 7, I shared my excitement for all that I saw ahead for Beatrice as we begin to approach the end of Phase 1 of our strategic plan, which as you know has been our setup phase. And now as we prepare to enter Phase 2 beginning in 2024, I am pleased to report With our 8th consecutive successful quarter of execution behind us, the re basin of our business model is well underway. And though we are not giving guidance for 2024, I am even more confident today that we will not only generate a minimum of $2,300,000,000 of free Cash flows excluding transaction costs and taxes, but now also see the potential for accelerated top line growth from 2023 to 2024 as well. This is on top of the expected top line growth you saw In this morning's press release between 20222023 after excluding the full year impact of the biosimilars business in 2022.

Speaker 2

Now turning to the other press release you saw this morning. The Board of Directors has appointed Scott Smith as Beatrice's new Chief Executive Officer effective April 1. Scott will lead the company in the execution of our previously announced Phase 2 strategy. Scott has been a member of the Beatrice's Board Since December of 2022 and is a deeply knowledgeable senior global biotechnology pharmaceutical executive With over 35 years of experience, including as a former President and Chief Operating Officer at Celgene Corporation, where he built and oversaw the clinical development, registration, launch and global commercial success of the blockbuster drug Otezla. Most recently, Scott has served as the President of BioAlta, a publicly traded global biotechnology company focused on the development of conditionally active biologic antibody therapeutics.

Speaker 2

The Board views Scott as a season builder who possesses global commercial and pharmaceutical expertise and a proven ability to build, grow and manage large complex organizations. We see his strong commercial and strategic expertise being complemented by his experience in With Scott's overall approach to leadership, his deep industry knowledge and forward looking business mindset. With our foundation now firmly in place and as we enter into Phase 2 of our strategic plan, the Board truly believes that Scott is well positioned for success as he leads the growth of Beatrice in the years ahead. We are excited to welcome Scott and believe that he is absolutely the right choice to lead the company into the next phase of our journey. I'd now like to turn the call over to Scott to say a few words himself.

Speaker 2

Scott?

Speaker 3

Thank you, Robert, and good morning to everybody on the call. It is an incredibly exciting time to become Beatrice's CEO. I watched closely in November as the company laid out the next important steps in its well crafted strategic plan, including its commitment to its future capital allocation priorities, which I totally support. Since then, and particularly after joining the Board and seeing their incredible level of engagement, I've been extremely impressed by everyone that I've met during this process and have also been inspired by all that has been accomplished in such a short period of time. I strongly identify with Viatris' culture, which when combined with the company's strategic forward looking mindset, Makes it a natural fit for me.

Speaker 3

Just as importantly, I'm also motivated by the company's strong financial profile and financial flexibility, Which has one of the strongest balance sheets in the sector. I can see many additional opportunities and options for Viatrist to accelerate its growth in the coming years. I believe that my franchise building, business development and recent biotech experiences coupled with the great platform we have to work from Can accelerate Viatrix's momentum and help deliver on its full value and potential. I would like to thank Robert And the Board for this amazing opportunity and look forward to collaborating with Michael during this transition. I am very excited about the prospect of working with the Board, Rajiv Malik, Sanjeev Narula and the entire management team on the execution ahead.

Speaker 3

And lastly, To the company's 37,000 employees, I am honored to have the opportunity to serve each of you and look forward to working with all of you in the near future As we continue to deliver on Viatris' mission to empower people worldwide to live healthier at every stage of life.

Speaker 2

Thank you, Scott. The Board and I very much look forward to supporting Scott during the execution of our Phase 2 strategy, while continuing to remain focused on identifying additional opportunities to further unlock value for our shareholders. Also as Scott mentioned, Michael will be working closely with him to support a smooth transition and will then step down as CEO and as a member of the Board of Directors on April for this year. I and the Board would like to personally thank Michael for his service and his dedication during this critical time The creation of Beatrice and the establishment of the ongoing execution of our Phase 1 strategy, we wish him nothing but the best as he moves forward. With that said, I do look forward to answering your questions in the Q and A session.

Speaker 2

But for now, I'd like to turn the call over to Michael So he can add a few comments and then also lead the walk through of our 2022 Q4 and full year earnings. Michael?

Speaker 4

Thank you, Robert. We began this journey three and a half years ago when we first made plans embark on an unprecedented endeavor to combine Mylan and Upjohn to create a company that would spend the divide between generic and branded medicines to more fully address patients' expectations and needs around the world. It has been my sincere honor to serve as Viatra's 1st CEO for the past 2 years. The opportunity to create a new kind of global healthcare company has been experienced that I will never forget. And I want to thank Robert, the entire Beatrice Board of Directors, Rajiv, Sanjeev, my leadership team, but most especially all of our Beatrice colleagues around the world whose tireless effort laid the foundation for what I believe to be a truly bright future.

Speaker 4

As Beatrice now embarks on a Phase 2 of a strategic plan, this is now a natural time for transition. And I'm pleased to welcome Scott into Beatrice. I'm looking forward to supporting him during this transition as he is now well positioned to continue to build on the company's momentum. And now, as usual, here are some highlights for 2022. Quarter 4 was Another strong quarter, in line with our expectations, taking into account the Biocon transaction and IP For Beatrice, this is the 8th consecutive quarter of strong operational performance, closing out another strong year.

Speaker 4

In 2022, we delivered total revenue of approximately $16,300,000,000 adjusted EBITDA of approximately 5,800,000,000 dollars and free cash flow of approximately $2,500,000,000 on a reported basis, but approximately $2,800,000,000 after adjusting for the transaction cost and taxes associated with the Biocon transition. This strong performance has not only enabled us to continue to deliver on our Phase 1 commitments, but has also built a solid foundation, setting our company up for 2024 and beyond. Our integration plans have captured approximately $750,000,000 in synergies to date and we're well on track To capture at least $1,000,000,000 of cost synergies by the end of Phase 1, and we've exited substantially all the transitional services agreements with Pfizer. As of the end of 2022, we've paid down approximately $3,300,000,000 for the year in debt and approximately $5,400,000,000 since the beginning of 2021. We continue to exercise financial discipline, Maintaining our investment grade rating and continuing to reduce our gross leverage towards our long term target of 3 times.

Speaker 4

We're returning capital to shareholders. Our Board of Director just has approved a 2023 dividend policy of $0.48 per share and has a Q1 dividend of $0.12 per share. And cumulatively, since the formation of the address, we've already returned Nearly $1,000,000,000 to shareholders through dividend payments alone. In January February of this year, We've executed $250,000,000 of our $1,000,000,000 share repurchase authorization. Now combined with the projected annual dividend, This represents an increase to date of more than 40% in return to shareholders over 2022 or put it another way, 33% of the midpoint of our free cash flow guidance for 2023.

Speaker 4

In addition to that, We're continuing to execute on our plans to reshape our company for the future. In November, we completed our transaction with Biocon Biologics create what we expect to be unique, fully integrated global biosimilars leader. And as we provide transitional services to Biocon, we're deeply committed to doing our part to help Biocon Biologics succeed. In January, we completed the acquisitions of Oyster Point Pharma and Family Life Sciences To establish our new Viatrix Eye Care division. And as we said, we anticipate the combined assets of these acquisitions To add to the top line immediately and grow in strong double digits from there reaching at least $1,000,000,000 in sales by 2028.

Speaker 4

Coupled with the strength of our organic pipeline, especially our complex injectables and novel products franchises, both of which also have the potential to reach $1,000,000,000 in peak net sales each by 2028. This kind of business transaction is a very important component of our strategy. And finally, we remain on track to execute our plans and announced divestitures. Today, we'll also be sharing the 2023 full year guidance ranges for total revenue, EBITDA and free cash flow, which Sanjeev will give more details on in a moment. Let me summarize.

Speaker 4

By being laser focused on our Phase 1 priorities, integrating the 2 organizations, generating $1,000,000,000 in cost synergies, Deleveraging the balance sheet and strengthening the balance sheet, paying down at least $6,500,000,000 in debt, Reducing our gross leverage towards our long term target of 3x, maintaining our investment grade credit rating, Returning capital to shareholders through quarterly dividends and the share repurchase programs and reshaping the company through key divestitures and acquisitions, We are successfully stabilizing the business. And as a result, although we're not giving guidance beyond 2023, We're confident in our expectation that 2024 will begin a period of renewed growth for the address and generate at least $2,300,000,000 in free cash per year, excluding transaction costs and taxes, of which we intend to earmark approximately 50% annually to be returned to shareholders in form of dividends or share repurchases. And now for one final time, let me turn it over to Rajeev and Sanjeev to share more details. Rajeev?

Speaker 5

Thanks, Michael, and good morning, everyone. 2022 was another solid year of business execution and performance. We met Our stated commitments, including delivering the pipeline, integrating and capturing synergies, and most importantly, stabilizing the base business. We are really excited with how we see 2023 shaping up and nothing has changed from what we shared with you On November 7, as we prepare for 2024, our path to return to growth in Phase 2 is clear And now it's about continued execution, which is what we do best. One of the key drivers Behind the stability of our business is the understanding and effective management of our established brands.

Speaker 5

This was further evidenced by the better than expected performance of this category in 2022, driven by year over year growth from brands like Creon, Capitor, Celebrex, Dimista and YUPELRI, while Norvesque and Amitiza and FXR held their ground. We expect this stabilization to continue into 2023 and beyond. Let me now turn to the commercial segments and our expectations for this year. I will be making certain comparisons to 2022 results On a constant currency basis, which excludes the negative impact of foreign exchange as well as excluding the biosimilars business from 2022. Our 2023 business is on a growth path.

Speaker 5

We expect to deliver approximately $500,000,000 2.9 percent erosion of our base business. As Robert mentioned in his prepared remarks, While we are not giving guidance beyond 2023, we see the potential for accelerated top line growth as we go into 2024 and beyond. Developed markets grew by 1% in 2022 on the strength of European growth Offsetting the decline in North America, for 'twenty three, we expect this segment to remain flattish. Europe grew by 4%, primarily driven by the stability of our branded business, new launches and a strong performance from countries like France and Italy. In 2023, we believe we are well positioned to In North America, despite the solid performance of YUPELRI, the business declined by 4% as we navigated the competitive headwinds on key products like Wixela and loss of exclusivity on my calcine and performance.

Speaker 5

We project YUPELRI to continue to have Strong double digit growth in 2023, which will help offset the continued competitive pressures on certain key products. These market dynamics will be the primary reason for our expectation of an approximate 3% decline in 2023. That said, we are excited and look forward to bringing several new products, including generic Symbicort to market this year. Greater China again performed strongly and grew by 3% year over year despite COVID lockdowns in this region. Our hospital business performed relatively better than retail.

Speaker 5

We believe China has significantly improved the cost efficiency of the medical reimbursement funds, while achieving their goals of providing the broader coverage of healthcare to its population through the successful implementation of VBP and other policies. At the same time, market has evolved towards Publicly reimbursed channel and private paid channels, we have made significant progress in adapting our business model to the evolving market dynamics while focusing on value added activities to help patients manage their chronic disease states more effectively. These investments are helping us expand the private pay market and also leverage our brand equity in this channel. Keeping in mind the evolving policy framework, we have modeled a small year over year decline for 2023. Emerging Markets performed in line with expectations and benefited from a solid performance of the overall branded business led by markets such as Middle East, Turkey and Korea, going into 'twenty three, we are projecting this segment to grow by 4% year over year, primarily driven by our branded business.

Speaker 5

Our Jan segment performed in line with our while continuing to be impacted by the government driven price regulations in this region. While our brand Creon grew both in volume and value, Our other 2 key brands, Amitiza and Effrexor showed solid volume growth in 2022. We anticipate strong volume growth to continue for our key brands for 'twenty three. This segment is expected to decline by 4% in 2023. Now let me turn to our newly formed Eye Care division.

Speaker 5

We are pleased with the tailwinds that we expect with Trevya in 2023. Since the beginning of this year, Medicare Part D coverage has grown from 2% to 32.5% of covered lives. We also launched a 90 day script program And we are already seeing an uptick in the total prescriptions midway through this high deductible period of the year. We are significantly investing in the business and intend to launch a direct to consumer campaign in the Q4 of this year That is anticipated to start delivering results in early 2024. Switching to our deep eye care pipeline, Our NDA review for reversal of mydriasis program was accepted and has been granted a PDUFA date of September 28 this year.

Speaker 5

We have made the decision to terminate our Stage 1 neurotrophic keratopathy program because it failed to meet the primary endpoint in the Phase 2 OLEMPIA study. We have started enrollment in the 1st pivotal Phase 3 trial for presbyopia and are also on track to initiate the 1st Phase 3 study for the treatment of lephritis in 2023. With the positive momentum of Troia and continued progress in our pipeline, we remain confident that our Eye Care division will deliver $1,000,000,000 in net sales by 2028. 2022 was a very productive year from a science perspective. We are very pleased with the progress of our complex injectable pipeline.

Speaker 5

Currently, we have 10 ANDA is under review with FDA and have secured several first to market generic product opportunities such as Sandostatin LAR, Ozempic, Rygovy and Abili-five Mantana. We expect to file a number of complex injectables in 2023, including MR-one hundred and seventeen for the treatment of breast cancer, MR150 indicated for use in the iron deficient anemia and MR151 for the use in the treatment of certain bleeding disorders. Our novel and complex product programs have also progressed well in 2022. As you are aware, our partner MAPI has successfully completed the Phase 3 trial for our glitomer once monthly And we are on track to submit this NDA to FDA by this April. We have also initiated a Phase 3 trial For expanding the indication of FXR ER in Japan and have also made good progress on the recruitment of subjects into our Zulane low dose clinical program.

Speaker 5

Looking ahead into 'twenty three, we believe we are well positioned to initiate Phase 3 trial for our meloxicam rapid onset of action dosage form, which we believe has opioid sparing attributes. We also remain on track to initiate our clinical program for our biosimilar to BOTOX data this year. For our core and complex generics, we made over 100 additional submissions globally in 2022 And we expect to see this trend continue through 2023. Our program for complex generic MR-one hundred and fifty three indicated for treatment of Type 2 diabetes and MR-one hundred and fifty four Indicated for the treatment of asthma are well on track. For China, 8 products were filed with SFDA in 2022, including generic Symbicort, and we plan to submit additional 10 products this year in China.

Speaker 5

Our operations had yet another year of solid performance delivering high customer service levels And we see this trend continuing throughout 2023. From an integration point of view, We were able to exit substantially all the transition services with Pfizer in 2022 and are well on our path to achieve $1,000,000,000 in cost synergies by end of this year. Before I conclude, I would like to thank our colleagues for their hard

Speaker 6

Thank you, Rajeev, and good morning, everyone. Let me start with what you heard from Robert, in particular as it relates to 2024. We continue to feel confident about the starting point for Phase 2 as communicated in November of last year and nothing has changed from then to now. As mentioned, although we are not giving guidance beyond 2023, we expect to have at least $2,300,000,000 in free cash flow from the underlying business in 2024 before any divestment cost and taxes. This reflects the expected cash flow generation after removing the planned divestiture.

Speaker 6

2022 was another strong year for the company, enabling us to deliver on our Phase 1 commitments while further investing in our business. We're taking bold steps in reshaping the company and remain confident in our strategy to return to growth in Phase 2. Moving to Slide 26. We finished the year on a strong note across total revenue, adjusted EBITDA and free cash flow and results were in line with our expectation. Recall that our previous guidance included full year contribution from biosimilar business.

Speaker 6

As a result, because of the Biocon transaction closing in late November, we're adjusting our guidance down by approximately $86,000,000 in total revenue, $31,000,000 in adjusted EBITDA and $20,000,000 in free cash flow relating to the exclusion of results since closing. Also impacting adjusted EBITDA and free cash flow was $36,000,000 of acquired IP R and D, which was not included in the guidance. Free cash flow also impacted by $254,000,000 of transaction costs and taxes related to the Biocon transaction. Excluding this impact, Revenue was impacted by foreign exchange given our significant international operation. Excluding this impact, We're encouraged by the operational stability and diversification of our global portfolio.

Speaker 6

As mentioned on the 3rd quarter call, We anticipated adjusted gross margin to moderate in Q4 due to continued inflationary headwind and product mix. On a full year basis, adjusted gross margin came in at the high end of our expectation at 58.9%, driven by strong brand performance. Adjusted SG and A and adjusted R and D came in line with our expectation and included certain investment we made in Q4 to support our 2023 plan. We had a very strong year of cash flow generation, reflecting our underlying operational performance and continued organizational priority on cash optimization As mentioned before, free cash flow in 4th quarter was impacted by Biocon transaction And excluding this would have been $243,000,000 in Q4 2022. Slide 28 illustrates the uses of the upfront cash proceeds received upon the closing of Biocon transaction.

Speaker 6

It is important to note that the gross proceeds of approximately $2,000,000,000 are included in the cash flow from investing activities, while the related tax and transaction costs are included as negative cash flows from the operating activities. The net proceeds serve to accelerate debt pay down, fund the iCAD acquisition and execute on share repurchase in Q1 2023. Slide 29 illustrates the continued prioritization of debt pay down, which has resulted in total pay down of approximately $5,400,000,000 over last 8th quarter. As a result and irrespective of divestiture proceeds, we expect to meet our commitment of paying down at least $6,500,000,000 during Phase 1. We exited 2022 with a gross leverage of approximately 3.2 times.

Speaker 6

These deliberate actions taken by the company reinforce our commitment to the investment grade rating. Another priority is returning capital to our shareholders, which included approximately $580,000,000 in dividend in 2022 and more than $980,000,000 since the beginning of 2021. Slide 3132 speak to the assumptions and guidance for 2023, which we expect to be a bridge year to get to a starting point in 2024. In 2023, we expect continued strengthening of our financial profile, which includes our expectation that total revenue will grow versus 2022 excluding the contribution of Biosimilar Investment into I Care Division and our strong pipeline for future growth. Another strong year of expected free cash flow generation and As previously mentioned, the timing of planned divestiture may create fluctuation in our future reported results.

Speaker 6

The guidance we presented today includes the anticipated full year performance of businesses that we expect to divest. Similar to Biocon transaction, we will provide as much transparency as possible on the expected impact to our guidance and result as and when these transactions are announced. As it relates to key metrics, we expect slight moderation in our gross margin relative to 2022 levels. This includes the expected pricing impact on key products, base business erosion and the continued inflation impact. With respect to acquired IP R and D, we do not include any amount in our guidance related to unsigned deal.

Speaker 6

Now let me explain the anticipated phasing for this year. We expect total revenue and adjusted EBITDA to be higher in the second half due to ramp of new products and normal product seasonality. Specifically, we Q1 to be the lowest quarter for the total revenue and adjusted EBITDA. We estimated free cash flow will be evenly weighted between first half and second half. In general, Q2 and Q4 tend to be lower due to timing of semi annual interest payments.

Speaker 6

It is important to note in the revenue guidance walk on Slide 33, the 2022 adjusted number of 15,650,000,000 Excludes the 11 month biosimilar revenue included in our reported results. On a comparable basis, At the midpoint of revenue guidance, we expect total revenue of the underlying business will grow in 20 Based on January FX rate, full year guidance assumes minimum foreign exchange impact on total revenue, adjusted EBITDA and free cash flow. We remain encouraged by the operational performance of our segment, stability in global brands and expectation of approximately $500,000,000 in new launches. In addition, we expect $56,000,000 in revenue from TierVia, our new eye care product. On Slide 34 are few items that will impact adjusted EBITDA.

Speaker 6

First, we expect adjusted gross margin to be impacted continued competition on key products. Next, adjusted gross margin of new products is expected to be above the company average. 3rd, we're investing in iCAD division which includes commercial infrastructure and DTC investment in the second half of the year. We're making further investment to advance the deep Phase 3 ready eye care pipeline. And lastly, other bucket includes of continued inflation and investment with some offsetting benefit including synergies.

Speaker 6

Turning to Slide 35. We expect another strong year of free cash flow generation as a result of expected lower one time cash cost and continued focus on cash optimization initiatives. On Slide 36, I will now turn to our financial commitment, including return of capital to shareholders. To start, we have completed $250,000,000 of share buyback out of the previously announced $1,000,000,000 repurchase authorization. In addition, we anticipate an annual dividend of $0.48 per share.

Speaker 6

Taken together, this will increase our capital return by over 40% versus 2022. This represents a minimum payout of approximately 33% of the midpoint of free cash flow guidance. In addition to capital return, we will continue to prioritize debt reduction and expect to pay down Our scheduled maturity of $1,300,000,000 in 2023 and thereby we expect to deliver on our commitment of $6,500,000,000 of debt pay down in Phase 1. This is irrespective of proceeds from the divestiture. This is continued evidence of progress towards our stated gross leverage target of 3x.

Speaker 6

We're in an extraordinarily strong financial position and from our investment grade rating in this rising interest rate environment. With nearly all of our capital structure being fixed rate, We expect interest expense for 2023 to be flat versus 2022. In closing, We are well positioned for a strong start in 2023, which we considered our bridge year. The reshaping initiative will serve to strengthen the company and set us up well heading into 2024 and beyond. With that, I will hand it back to the operator to begin Q and

Operator

Thank you. At this time, we will open the floor for questions. We'll take our first question from Chris Schott with JPMorgan.

Speaker 7

Great. Thanks so much for the questions. Maybe just a bigger picture one to start out. I'm just trying to Maybe a question for Robert and Scott. Just trying to understand the timing of the CEO transition here a bit more.

Speaker 7

I guess it seems like you laid out a strategy kind of last fall. It seems like we're in the midst of kind of a divestiture repositioning of the company right now. So can you just talk a little bit about kind of why now on the transition versus either before we went down this process or a little bit later in the process? And if I can just get a second Clarification 1 on the 2024 free cash flow number. I know you're not giving formal guidance, but at $2,300,000,000 of free cash flow, just so we're all on the same page, can you just elaborate What's included in that number as we think about whatever you can say on EBITDA versus one time costs, what you have for divestitures, etcetera?

Speaker 7

I think we're just trying to get make sure we're in the right adjustments to The $2,300,000,000 Thanks so much.

Speaker 2

Thanks, Chris. First, I would not say that we're repositioning the company At all. I would say the news today is all about preparation, not change. I think as you look From day 1, we laid out a 2 phase process. Phase 1, which had to do all of our integration, Synergizing and really execution in bringing the 2 organizations together.

Speaker 2

We believe that Michael leading the Upjohn division at that time, Sanjeev's role at that time, we felt that those two leaders coming together with our leadership Was the absolute right leadership for Phase 1 and it's really demonstrated and improved out to be actually the perfect right decision because company has been stabilized. The organization has been integrated. Our synergies are well on target. So this is and then of course in November 7th, we the Board of Directors and Management, we laid out a very clear strategy for Phase 2. So once you lay out that vision, once you understand what the strategy is and then you put together an execution plan, the simple last step is Who is the right leader with the right background to support that strategy going forward?

Speaker 2

So really this is a very natural, Authentic handoff from Michael to Scott when you look at the both backgrounds, but you should That this is not a repositioning or a change or a change in strategy. In fact, I think Scott in his prepared remarks has said so. But Scott, let say a few words about your view of this?

Speaker 3

Yes. I want to thank you for the question, Chris. And I want to be very, very clear. I fully support the strategy that's been laid out, Including the capital allocation strategy. On the November 7 strategic reset, it certainly caught my attention.

Speaker 3

And then being on the Board since late 2022, I've had a chance to really deeply understand the strategy and where it's going and I fully support The strategy and the way it's laid out is part of what made this opportunity very attractive to me. And I'm here to work with the team to execute it, not to deviate

Speaker 2

Sure. Do you want to hit the

Speaker 6

Yes, yes. So sure. Chris, so nothing has changed from November 7, Chris, when we talked about That, including the fact that we provided an outlook of $2,300,000,000 on free cash flow for 2024. Chris, you've seen we've demonstrated last 2 years of very strong cash flow generation in the company. The entire focus on that and that's allowed us to meet our Phase 1 commitment thus far and that momentum will continue from that.

Speaker 6

So what's included in $2,300,000,000 are essentially a couple of things. First is we've considered all the divested business out of that number from 2.3. What it does not include Cost and any taxes on the divestment proceeds, which will actually be funded out of the for the proceeds. So that's a number That takes into account all the divestment, and we feel very confident about where we are. The guidance that we've given today, Chris, has a line of sight to all the moving pieces, And we remain very confident about $2,300,000,000 outlook in 2024.

Speaker 2

Yes. And I guess the only thing I would add, Chris, we said the word at least $2,300,000,000 for 2024 taking into consideration everything that Sanjeev said. And so I believe even the one time cost, I think we are extremely confident that we're going to be able to hopefully again, we're not giving guidance. Don't want people to think we're giving guidance, but we thought that that metric was very critical. So look, hopefully we'll even be able to absorb even the one time cost.

Speaker 2

Think the new piece of information that we telegraphed today, even though we're not giving guidance for 2024 and the fact that we're showing growth now in '23 top line over 'twenty two when you take out the biosimilars business is the accelerated growth we see in top line from 'twenty three to 'twenty four now. And I do think in the last call we were asked in terms of again, I think maybe it was Umer's question, is it fair Say, if we look at the EBITDA conversion for cash flow and how you back into EBITDA, I think the range of the 4.6 to 5 Was what my answer was on November 7 and that hasn't changed at all.

Operator

Thank you. Our next question will come from Glenn Santangelo with Jefferies.

Speaker 8

Hi, good morning and thanks for taking my question. Hey, Robert, I just wanted to follow-up on these non core divestitures. I mean, you said a number of times that everything sort of remains on track. I was just wondering if you could sort of comment on the tone of those negotiations. And are you still comfortable With the level of proceeds from these transactions that you discussed historically, because you threw out some pretty high Valuation multiples on those sales.

Speaker 8

And then I guess just a follow-up to that would be assuming you are, I mean that's a lot of cash coming in the door. I was wondering if you could just sort of Revisit some of your capital allocation priorities. I mean, you gave in the slide deck your capital allocation framework for the free cash flow, but That's a lot more money and I'm trying to think about how you may want to deploy that visavisbusinessdevelopmentversuspaydownversus repo? Thanks.

Speaker 2

No, thank you, Glenn. That was pretty powerful. First, let me try to go from the beginning. Let's say that if you could read my body language, but you can't listen to my voice. We don't need These divestitures to hit all of our Phase 1 targets.

Speaker 2

You heard from Sanjeev, we will be using operating cash flows especially To meet our pay down of debt of at least $6,500,000,000 So we don't as a starting point, when you don't need to do the divestitures, but you want to do them because of the longer term strategy and how we thought about Where we want to take the company going forward. That's probably your best starting position when it comes to divesting or in like when you want to get Telegraph from a negotiations perspective, I think all the perspective, the people that we saw on the other side of the table, the potential acquirers, I think that they know that. I think that they see that. And I think at the end of it, I'm very happy with where things are, especially in the OTC business, which I think is the more And I do think that we have a very strong process. The process will happen naturally.

Speaker 2

We still feel very strong that we're going to announce at the very minimum all three of these things within this calendar year. And once you've locked down the announcements, it really doesn't matter when the proceeds come in. But to your last point, We do expect in terms of capital allocation to meet once again our priorities as we stated over and over again. We will use all proceeds first to pay down debt to hit our target of 3.0 Leverage ratio, that's what we promised to the rating agencies. That's what we intend on doing.

Speaker 2

And all excess cash will be used for other type of investments. We fully intend on meeting the 50% return of capital to shareholders both in dividends and stock repurchases. And look, with our stock price where it's at and us not being fully recognized for the value we believe that we We look at stock buybacks as one of the best investments that the company can deploy today. So I would think more like that. And in terms of inorganic activity, I really believe that the Oyster Point framework It is a framework that you guys ought to consider as we go forward with the other excess cash after the return of capital we intend on deploying into the business.

Operator

Thank you. Our next question will come from Balaji Prasad with Barclays.

Speaker 9

Hi, good morning and thanks for the questions. A couple of questions from me. Firstly, There's a fair bit of detail in the pipeline. Exactly to see that. Amongst the most proximate opportunities, I want to focus on 2, GLASTROMARE DEPO and also TYWIRE launch, but still.

Speaker 9

So with GLASTROMARE, we met with a partner recently. They expect around 5,000 patients be prescribed in the 1st year of launch and then expect to reach around 20000 to 40000 patients per year. I would like to get your confidence level on these expectations and what would revenue trajectory look like. Secondly, on Tervaya, could you also please Help us understand your peak expectations. And the EBITDA spend that you expect this year, I beg your pardon, this change of spend, what percent of this is recurring and what is one off spend in 2023?

Speaker 9

Thank you.

Speaker 5

So I think, Paji, on due time, you will get confirmation from us about the trajectory on the patient and all that. But I think it's going to be a very meaningful product From 2024, 2025 onwards for us. But I'll tell you more excited I am is about the science behind it, the data we have seen, the analyze, Because perception is maybe it's just a convenient place, not even if a convenient place, It's one injection against trial injection, which is the current therapy, 40 milligram against 4 80. But More importantly, I think we are seeing the insights in the data that the statistical significance we are seeing in the extended disability Score, the EDSS, which basically connects directly to the quality of life. That's where I think We will be able to build it in the label and that will drive that.

Speaker 5

So more and moreover that this platform, you should be tuned in to see that this

Speaker 3

platform can be the platform which

Speaker 5

we may potentially use for many extended Form can be the platform which we may potentially use for many extended lease T4 forms for 505(2) opportunities like the Glitter Marasik. So why don't you go on and if I would provide?

Speaker 10

Yes. Good morning. This is Jeff now and I want to give you an update on the question about Tier VI. Thanks for asking that question. In 2023, we expect that we will more than double revenue for TIERVIA.

Speaker 10

There are a number of key fundamental drivers Behind that number, the first being Medicare Part D coverage, which we did not have very minimal last year. We've grown that to almost 32.5% Already, we expect that to continue to grow this year. We've also launched a 90 day script program and we're investing in the business. And so we're really excited about Investing in that from a marketing perspective. And so we expect to have

Speaker 4

a great year this year.

Speaker 6

And Balaji, regarding the point about the investment, You saw that in the bridge that we provided on the IK division, SG and A investment. That's the function of investment in our field force, Investment in the marketing program and the investment in direct to consumer that we'll be implementing later in this year. And investment in science. And investment in science and the R and D, absolutely.

Operator

Thank you. Our next question will come from Jason Gerberry with Bank of America.

Speaker 11

Hey, guys. Thanks for taking my questions. Just looking at the product level disclosure, so Lipitor and Norbasc has held up pretty nicely, I think $2,400,000,000 in revenue. So it looks like those products have weathered the VBP process. And I'm just trying to get a sense if you can speak to the extent To which sales of these products are still concentrated in China?

Speaker 11

And really trying to just frame product concentration risk, it would seem like these two products probably Contribute a pretty substantial amount of EBITDA by our estimate maybe even close to $2,000,000,000 So just wanted to get any framing that you can offer there. And then just on The 2028 outlook for the $1,000,000,000 in additional revenue, is there any specific FAME product that you'd say is the biggest contributor to that? Thanks.

Speaker 5

Let me talk about China and the Lipitor and Norwasc. Even if we analyze these products and many other brands, Yes. That's one of the reasons behind the stability is the effective management of these established brands. We've seen the Lipitor, Norwasc and Xanax, So whether it's in emerging markets or in Europe, steadying up and having even 1%, 2% growth over there. But China I would say our business continues to perform solid despite COVID lockdowns.

Speaker 5

You see the strength in the business. And we have a great team in Commercial Infrastructure in China, which has very well understood the nuances as well as the rationale behind this Policy framework where we are completely, as I said, agree with China government's initiative to expand the sales. But I think the business has evolved into 2 segments, public reimbursement channel and private pay channel. And we have adopted our business so that we can capture the patient from the when it moves from the public reimbursement channel To the private pay channel. And just from the modeling perspective, yes, we have modeled a flattish small decline, But the business is hitting on our cylinders.

Speaker 10

And then I'll touch base on the eye care portfolio I think what's important here is these numbers that we've shared are really risk adjusted. When we look at the entire portfolio, we see that of that Leo, we see that of that $1,000,000,000 target, about 60% will come globally from dry eye disease assets, About 2 thirds of those from the U. S. And about 1 third of those from the rest of the world. Approximately 20% will come from blepharitis globally And approximately 20% will come from all other assets in the pipeline.

Speaker 10

But as you can see, we have a robust pipeline with a With a number of different indications with significant unmet need.

Speaker 5

And if I can just add just to highlight, blepharitis, Breast biopias and reversal of med therapies, there are these unmet need over there. There is no prescribed established therapy. So that's These products fit in very nicely over there.

Operator

Thank you. Our next Question comes from Elliot Wilbur with Raymond James.

Speaker 12

Thanks. Good morning. A question for Rajiv, just with respect to new product launch expectations in 2023, Actual performance in 2022, those numbers never seem to over perform expectations. I'm wondering if you could just maybe provide a little bit of color in terms of Performance in 2022, whether revenue from new products was later than expected due to performance of the assets Or was it more about the timing of approvals? And then thinking about some of the factors that sort of give us should give us more Confidence in your expectations for 2023, looking at some of the expected approvals, I mean products like iron sucrose, I mean those been through multiple iterations At FDA, not sure how important that is in terms of its contribution to the total, but just If you could highlight 1 or 2 factors that we should be thinking about that sort of bolster your confidence in the new product outlook for 2023?

Speaker 12

Thanks.

Speaker 5

Yes. Let me first answer your 2022 question and it was not underperforming of the approved asset. It was more from delay. And if you recall, Elliot, 22 included a couple of biosimilars that we were getting waiting for the first approval on SPOT, biosimilar to SPOT similar to Avastin and that didn't happen because of the issues with the Biocon facility. So that was the primary reason behind that miss.

Speaker 5

Going into 23, as we always said to you, we're not dependent upon one product over here. Every product is risk adjusted, Products like SYMBI CORT and we still have the tailing effect of the products like lenalidomide in this year. But yes, iron's growth, It is a complex product you will appreciate. And when you are trying to bring a first to the market, there can be sometimes more iterations. But we are at a point with the science We see it happening and all those factors have been considered to build this 23% number.

Speaker 5

And I feel very confident at the beginning of the year that December, as I said, put out 98% of these products are either approved or already launched or a couple of products are pending approval. That's where the iron sucrose comes in.

Operator

Thank you. Our next question will come from Ash Verma with UBS.

Speaker 13

Hi, thanks for taking our question. So I have 2 on capital allocation real quick. So what drove the decision to keep the dividend per share flat this year? I know last year we saw a 9% growth. And then on share repurchases, Any change in thinking on the timing here in the light of President Biden calling for a quadrupling of taxes and buybacks?

Speaker 13

Thanks.

Speaker 2

Hi, Ash. I think look, Ash, I think we're The promises made and the promises kept is total shareholder return, okay? That was always predicated upon both the dividend and a share buyback. We said we were going to have a dividend when we first started out. We thought that was important that we follow through and execute and establish a baseline for the dividend.

Speaker 2

But when your security is trading at the levels of where our security is trading, I mean, it doesn't take a rocket Scientists to know that the best investment that we have for any excess capital is to buy our own company back. And that's what you should be expecting from us. And until we see levels within the security that better represent What the valuation in terms of what we believe that we created, we're going to continue to buy our shares back. So I would strongly ask the investment community to Stick with what we said from day 1. Total shareholder return is a combination of both dividend and share buyback.

Speaker 2

And as Sanjeev pointed out, I believe just at this point alone, we've already returned a 33% of the Free cash flow in an increase of how much percent? 40%, that's minimum 40%. And a return of 40% greater than we did of all of 'twenty two. And you guys should expect that going forward. And remember, as we go into 2024, I believe the company We'll be well positioned to convert from a valuation from this EBITDA, especially as we pay down our debt and get it to the 3 times To really convert it over to an adjusted earnings per share strategy, I see tremendous growth as an adjusted earnings per share Because of our capital allocation commitment to the investment community of return at least 50% through the dividend and more importantly, the share buyback.

Operator

Thank you. Our next question will come from Gary Nachman with BMO.

Speaker 14

Thanks. Good morning. First one for Scott. Do you think you might want to do anything differently in terms of positioning the company to be more successful on the branded side of the house, given your experience there. And I'm curious how you think about some of the planned initiatives to expand into areas like ophthalmology, GI and derm that's been talked about in the past.

Speaker 14

So what do you hope to leverage on the branded side in terms of your experience? And then for the team, just in North America with the guidance down 3% this year, just at what point do you think the new product revenue will be able offset that base erosion and return to growth in North America. Is that something that can happen next year based Don, on the trajectory that you're seeing and maybe talk about if you're still comfortable maintaining that same level of base erosion now going forward? Thank you.

Speaker 2

Why don't you take this backwards? Why don't you go first and then let Scott close?

Speaker 5

Yes. First of all, overall, from stability point of view, I Very clear, Renato Siwa speaking, this is sustainable stability and we see in fact accelerating the top line, Top line growth. We are not giving guidance, but we are projecting that this stability, enhanced stability will lead to that. Coming directly to North America, there are no major no LOEs for North America. In North America, there are no major no LOEs for North America.

Speaker 5

And why I say for us the Myakkasten and Performance was the LOEs for the North American business. We don't see any major LOEs. And from 2024 onwards, your expectation is right. You should be seeing North America coming back to the growth and all the basic growth being offset by the new launches of North America.

Speaker 3

So Gary, thank you very much for the question. I think a very important part of the strategy is moving up the value chain as we move into Part 2 and beyond. I think the eye care transactions that happened recently are a very good model for the way that we're going to want Going forward, you mentioned the therapeutic areas of interest, obviously through my branded experience with Otezla, Zeposia, others, I'm very familiar with the GI space and with of course the derm space. These are two areas that I think that I fit our strategy very, very well. But I will say, I think I want us to be a little bit opportunistic as well.

Speaker 3

If there are opportunities outside of these TEIs that fit our model going forward, We should be very open minded to engage in those as well. So this to me is a very, very important and exciting part of the strategy moving up the value chain and I'm really excited to be leading that effort.

Operator

Thank you. Our next question will come from David Amsellem with Piper Sandler.

Speaker 15

Hey, thanks. So I wanted to drill down more on your longer term expectations on complex products and also brands. You talked about Novel and complex products, about $1,000,000,000 of peak sales by 2028. I know you address gladiramer once monthly, but just wondering What are the other products that you think stand out here? Like for instance, the meloxicam product, Post surgery, there was one that was recently discontinued.

Speaker 15

So I'm just wondering what makes you think that's a great opportunity, For instance, and then regarding the brand side on eye care, you said it's mostly dry eye. Just to be clear, is that TUVIA? Is that are there other products? I mean, can you just help me better understand the mix there? Thank you.

Speaker 2

Okay. Let me just start. I think I'd rather you not speak about any one particular product, But the franchises that we outlined on November 7. So the ophthalmic being 1, The complex generics being another. Rajiv, why don't you outline each of the franchises and then let's articulate a little bit about What's inside those franchises?

Speaker 5

Yes. We talked about extensively about 3 buckets of $1,000,000,000 franchises. 1 was the eye care sorry, one was the eye care, of course, which is the latest one, but then complex injectables and the third was the complex products. And given complex Injectables almost 10 products are already under review with FDA with 7 first to market positions secured over there And many more, like I said, 3 to 4 products are getting into the filing in 'twenty three and we have about 33 products in the pipeline. They're all you can follow a COPAXONE like model.

Speaker 5

But then we go to the complex 505(2) whether it's BOTOX, Well, it's Zulane low dose, GA and we didn't discontinue meloxicam. Meloxicam in fact is advancing very We just concluded Phase 2b. We have a end of the Phase 2 study with the meeting with FDA scheduled in the Next few weeks, in fact, couple of months. And that product will be heading into the clinical Phase 3 clinical studies later this year. So there's a lot going on in that bucket because both BOTOX, Zulen low dose as well as block 6 months enter Well, later this year.

Speaker 2

Yes. And David, I would just say when you look at the franchises and you look at their makeup And the word complexity should also telegraph how much competition we anticipate at market formation And also the type of pricing that we anticipate as well.

Speaker 5

And also let's not underestimate Pipeline which is for markets like China and Japan and Europe separately because to offset their basic erosion. That pipeline never existed. That pipeline has been created. So that pipeline will be upcoming into the play.

Speaker 2

So, Barrett or the Dry Eye franchise. Yes.

Speaker 10

And so when we talk about the Eye Care Franchise and dry eye in particular, I think one of the things that's really important to appreciate what the pipeline is, Tearvaya really has a very unique mechanism of action. It's the only product out there that stimulates the production of natural When we think about dry eye disease, it's a multifactorial disease. So we won't stop understanding how to treat this disease just because we're Launched Tervaya and we're selling Tervaya. There may be other mechanisms that can be added in there. And that's the nice part about It really is a product that stands by itself and is able to be used with any other dry eye product that's out there in the market.

Speaker 10

The other thing that I think is really important is haven't really scratched the surface outside of the U. S. And that's a really important market to go into and with the power of Viatrix and all the supply chain and the ability to go outside the U. S, I think that's something that we look forward to as well.

Operator

Thank you. Our next question will come from Umer Raffat with Evercore ISI.

Speaker 16

Hi, guys. Thanks for taking my question. I have 2, if I may, and both for Robert today, actually. Robert, I feel like I don't have a good And I'd be curious how you lay that out, especially also in the context of, with all the divestitures that Beatrice is doing, the Upjohn component of the business only got bigger, but also just the timing of the departure like I don't think this Telegraph and everyone's quite confused candidly. And the second one is, I know Ian Reed left in December as well.

Speaker 16

Are these two things related or not? And it's hard not to think about these two things together.

Speaker 2

Well, Umer, you can look at the glass Half empty or you can look at the glass half full. So you're looking at it from that perspective. Thank you for the question and the opportunity. Quite frankly, the Glasses only half full and just half full and still filling. This is a very natural let's start with Ian Reed, okay?

Speaker 2

You should probably know that Ian was on the Board and could not have gotten more support from Ian when it came to Scott Smith, okay. Ian was absolutely a part of the vote to bring him on. Ian actually quite frankly given his deep industry knowledge, Ian actually gave us Quite a bit of strong advice and support for Scott. And I can tell you that he's fully supportive of Scott, Understands the strategy. Ian brought a lot of value to us on that Board.

Speaker 2

And quite frankly, I'm sorry he wanted to move on. He's got a lot of other things going on. But I think even his departure was all again for all the right reasons. So I'm very thankful for Ian and I'm very thankful he was here to The advice to us about Scott, Ian's obviously had a long history with Scott's former boss and having that insight was really invaluable From the Board. Let me just say this when you say about where we are in our business life cycle.

Speaker 2

Look, most companies make transitions when there's a problem. Most companies make transitions when something's going on in a company or there's an event. Why is it why should it be viewed as the glass half empty versus half full when we were highly articulate about What we wanted to get done in Phase 1, I articulated why Michael was absolutely the right one to bring the organization together given him and Sanjeev actually ran the Upjohn division. We're integration, managing that product portfolio. And now that we're here and looking forward, we laid out Phase 2.

Speaker 2

And I think I've been crystal clear. And The vision that we laid out on November 7, I think the strategy behind the vision, the execution plan that we put in place and now to try to find the best Right leader. And if you looked at Scott's background, his background, this is right in his sweet spot. The level of experience he brings, The builder that he is, all the things that you've heard me say, I think that this is much more of a natural transgression And companies should not be viewed as making changes for because anything is negative. I think you can hear it in Michael's voice.

Speaker 2

I think Yes. So I think that there should be nothing looked upon other than preparation. We are only months away from entering Phase 2. I think Michael's transition with Scott and Scott's ability to get his feet on the ground as we get ready these next few months before we enter Our Phase 2 in 2024 and beyond is honestly, it's a real advantage for any new leader coming in to have that runway Before we hit 2024 Phase 2 and beyond, there's really nothing more than that,

Speaker 1

Umer. And I'll

Speaker 2

be glad to answer any follow-up that you have on that as well.

Operator

Thank you. Our next question will come from Greg Fraser with Truist.

Speaker 16

Good morning, folks. Thanks for taking the question. For the $500,000,000 of new product revenue that you expect this year, what are the most important 2 to 3 contributors to that number? And just a quick follow-up On Glitchiramir, the once monthly program, how much sales do you generate with your generic cataxone? And how are you thinking about the potential impact of the once monthly product on your generic sales?

Speaker 5

The CapEx one, you can pick up from the IMS data, where We have about 51% market share. We have slowly built it over the last 3 to 4 years. Today, we have about more than what they were In that market and it's been a meaningful product for several years and CapEx for once a month will be a very meaningful product as we launch this product Second half of twenty twenty four and beyond that. So and on the $500,000,000 as always said, we never built it on sort of this pipeline of $100,000,000 is not on one product. There is a tailing effect of leluridomide in this, of course, but then there is a product like SYMBIKOT, which we have been very Publicly telling you where we are and that's a risk adjusted basis.

Speaker 5

We are looking forward to launch these products in 'twenty three. So there are many more products like Yes, if you ask me to follow-up, those are the one or two examples.

Operator

Thank you. At this time, I have no further questions in queue. I will turn the call back over to Michael Geddler, CEO, To make a few closing remarks.

Speaker 4

Okay. Thank you, operator. And I guess last time I got to get the closing remarks In this forum, but I want to thank everybody for the good questions and the interest in the company. We obviously, I think as you heard from the tone of our voice and What we presented as a company are in a position of strength. We're looking back at 8 quarters of consecutive strong execution.

Speaker 4

We're looking forward

Speaker 3

and we're confident in Phase 2. And I think

Speaker 4

you can see that already in the guidance that In Phase 2, and I think you can see that already in the guidance that we gave for 2023 starting with revenue growth and the confidence that we have. And finally, You also heard from Scott the continuous commitment to the capital allocation commitments that we made. So with that, I think we're closing the call. Thank you very much.

Operator

Thank you. This does conclude today's Fietris 2022 Q4 and 2023 guidance call and webcast. Please disconnect your line at this time and have a wonderful day.

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Earnings Conference Call
Viatris Q4 2022
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