Good morning and welcome to the Viatris Q1 2024 Earnings Conference Call. .

[Operator Instructions].

Please note that today's event is being recorded. .

I would now like to turn the conference over to Bill, Viatris Head of Capital Markets. Please go ahead, sir. .

Good morning, everyone. Welcome to our Q1 2024 earnings call. With us today is our CEO, Scott Smith; CFO, Doretta Mistras; and Chief R&D Officer, Philippe Martin. .

During today's call, we will be making forward-looking statements on a number of matters, including our financial guidance for 2024 and various strategic initiatives. These statements are subject to risks and uncertainties. .

We will also be referring to certain actual and projected non-GAAP financial measures. Please refer to today's slide presentation and our SEC filings for more information, including reconciliations of those non-GAAP measures to the most directly comparable GAAP measures. .

When discussing 2024 actual results, we will make certain comparisons to 2023 results on a divestiture adjusted operational basis, which excludes the impact of foreign currency rates and also excludes the proportionate results from the divestitures that closed in '24 and '23 from the 2023 period.

When discussing our expectations for 2024, we will be making certain comparisons to 2024 results on a divestiture adjusted operational basis, which excludes the impact of foreign currency rates and also excludes from guidance the forecasted results from the date of closing until the end of the period for the divestitures that closed in 2024. .

With that, I'll hand the call over to our CEO, Scott Smith. .

Good morning. Our first quarter financial results demonstrate continued execution against our business fundamentals, which includes maintaining base business stability while driving new product revenue and executing on our vision for future growth.

We are making progress on all our key priorities, including completing planned divestitures, continuing to pay down debt, increasing shareholder return, fueling our base business and, importantly, making strategic investments in future growth. .

Since last quarter's call, we closed our transaction with Idorsia and held a successful R&D event in which we reviewed key elements of our base business pipeline and did a deep dive into our newest assets, selatogrel and cenerimod.

Our focus for the event was outlining how we are continuing to evolve our R&D strategy and deliver on our goal of assembling a more durable, high-margin portfolio of patented innovation on the foundation of our strong base business. .

We were joined by 2 key opinion leaders, Dr. Deepak Bhatt, Director at Mount Sinai Fuster Heart Hospital and a widely recognized cardiology expert, and Dr. Anca Askanase, Founder and Clinical Director of Columbia University's Lupus Center. Dr. Bhatt and Dr.

Anca Askanase discussed challenges in treating acute MI and lupus, highlighting the need for highly innovative novel products that have the potential for meaningful patient impact that address significant unmet need in these 2 areas. .

We also reviewed the study designs for the Phase III SOS AMI study for selatogrel and the Phase III OPUS studies for cenerimod. I'm pleased to say that since we closed the transaction, we are already leveraging our own existing infrastructure and experience to expand and accelerate the development plans for both assets. .

Turning to the first quarter. We delivered total revenue of approximately $3.7 billion, adjusted EBITDA of approximately $1.2 billion, adjusted EPS of $0.67 per share, and free cash flow of approximately $565 million. We have now closed our Women's Healthcare Business divestiture. We expect to close our API divestiture imminently.

We are on track to close the OTC divestiture by midyear, subject to receipt of certain regulatory approvals and consents. .

Today, we are reaffirming our 2024 financial guidance after adjusting the ranges solely to reflect the impact of divestitures and acquired IP R&D. We are also reaffirming our 2024 new product revenue range of $450 million to $550 million. .

From a capital allocation perspective, we continue to focus on delivering strong total shareholder return. In the first quarter, we returned $393 million to shareholders in dividends and share buybacks, and our Board of Directors has declared another quarterly dividend of $0.12 a share for this quarter. .

We also continue to pay down our debt, and we are continuing our efforts to identify, vet and secure additional best-in-class patented assets that have the potential to contribute to our future revenue growth. .

Before we move on, I want to talk about the executive leadership team we've put in place since our last call to deliver on our strategy. Executing on our base business while also pursuing opportunities for innovation and growth will be key to our future success.

With these 2 priorities in mind, we have built a leadership team that is a balance between the talented group of leaders we already have within Viatris with some new faces who add new skills, new capabilities and new areas of expertise. .

The most recent addition to the team is Corinne Le Goff who joined us as Chief Commercial Officer.

In addition to bringing a wealth of experience from serving executive leadership roles at companies across the biotech and pharmaceutical industries, Corinne has also lived, worked and studied around the world, bringing a global perspective that is important to a company like Viatris that reaches patients in more than 165 countries. .

I'm very pleased to have Corinne onboard. I look forward to working with her and all of the members of the executive leadership team as we continue to build the truly unique company that we have envisioned. .

Now let me turn it over to Philippe Martin to discuss progress on our pipeline.

Philippe?.

Thank you, Scott. I'd also like to welcome Corinne to Viatris and I look forward to working with her. .

Since our last earning call, we held an R&D event to discuss key elements of our pipeline as well as details about the collaboration with Idorsia, including the 2 potential blockbuster assets, selatogrel and cenerimod. As we said, we have built a strong foundation. .

Our base business pipeline and portfolio is expected to keep delivering consistent results, currently reaching more than 1 billion patients a year. Our new partnership with Idorsia has the potential to broaden that reach. We are very excited about selatogrel and cenerimod.

They are highly innovative products that have the potential to deliver meaningful patient impact in significantly advanced treatment in areas of high unmet medical need. The deal closed on March 15. And since then, we have brought onboard approximately 80 Idorsia employees, ensuring no interruption in program continuity.

They are a team of talented drug developers who are fully dedicated to driving forward the development programs for both assets. .

For selatogrel and cenerimod, we are focused on expanding and accelerating enrollment of the Phase III SOS MI study and Phase III OPUS studies, respectively. We are adding approximately 250 sites to each program, and we are expanding into additional regions, leveraging the strength of Viatris' global reach. .

We have initiated the development of life cycle strategies for both assets looking to maximize these opportunities by developing additional indications or expanding into broader patient populations as well as optimizing, labeling and launch sequencing globally. .

Finally, we will have a normal presentation at EULAR in June focused on cenerimod effect on biomarker of inflammation in SLE. .

Looking at our eye care pipeline. We launched Ryzumvi in the U.S. for the reversal of pharmacologically induced mydriasis on April 1. We are actively enrolling Phase III studies of MR-139 for the treatment of blepharitis and MR-142 for the treatment of dim light or night vision disturbances.

For MR-146, gene therapy for neurotrophic keratopathy, we are targeting an IND submission in the second half of this year. .

Looking at our base business pipeline, we have more than 25 products in our novel portfolio. Of those, I'd like to highlight 3 particular projects. For GA Depot, as you know, our partner Mapi received a CRL back in March.

We are working with Mapi to respond to comments received from the FDA and intend to seek a meeting with the FDA in the next few months. We will determine the next step after that meeting. .

Phase III studies for meloxicam fast acting, a potential opioid-sparing treatment in post-surgery pain are well underway. The Phase III study for Xulane Low Dose for use in contraception has completed enrollment.

With our complex injectable pipeline alone, we have more than 50 products in total, 15 products currently under FDA review, 9 of these represent potential first-to-market opportunities. .

Finally, our core generic pipeline is progressing well with submissions continuing at a steady pace, in line with expectations. .

In summary, we are making progress on key elements of our pipeline. We have an incredibly talented team. And we have clear plans to deliver on our key R&D objectives to support Viatris' overall growth. .

Now I will turn the call over to Doretta to work through the quarterly results. .

Thank you, Philippe, and good morning, everyone. It's great to be here to discuss our Q1 performance. As Scott highlighted, we are off to a strong start to the year with our fourth consecutive quarter of top line growth.

We continue to execute against our growth plan, which includes maintaining our base business stability and driving new product revenue. Our globally diverse platform is generating growth from our base business in emerging markets in Europe, and from higher-than-expected new product revenue. .

In the quarter, we made great progress on our strategic initiatives. We closed the Women's Healthcare Business divestiture, completed the Idorsia transaction, and expect to close the divestiture of the API business imminently. I will provide an update on these items as it relates to guidance in a bit.

And I echo Scott's comments as it relates to Corinne. I look forward to working closely with her as we continue to drive growth and unlock value from our platform. .

Turning to first quarter performance. We delivered 2% year-over-year operational growth, which was in line with our expectations. This excludes the impact of foreign exchange which was approximately 2%. This marks the fourth consecutive quarter of top line growth, and once again highlights the power of our well-diversified global platform.

The growth was driven by strength in emerging markets, Europe and JANZ and by better-than-expected new product revenue of $154 million in the quarter. .

Moving to our Commercial segment. For developed markets, Europe delivered another strong quarter, growing approximately 2% versus the prior year. We saw growth across our broad portfolio of brands, generics in key markets such as Italy and France, and the positive benefit from new product launches.

Our North America business declined approximately 3% year-over-year as a result of channel dynamics and customer formulary changes in our brand portfolio. This was partially offset by approximately 18% net sales growth in Yupelri and continued uptake in Tyrvaya versus Q1 of 2023. .

Generics performed better than expected, driven by new product launches, including Breyna as well as strong performance in base business complex products such as Wixela. Emerging Markets had another strong quarter, delivering approximately 9% year-over-year operational growth.

This performance was driven by strong results in the MENA and Eurasia regions as well as key countries like Thailand and Malaysia. .

Generics grew approximately 10% due to ARV phasing benefits and strength across our broad portfolio. And brands were up approximately 8%, more than expected, driven by key products such as Lipitor, Elidel and Xalabrands. .

JANZ grew approximately 2% over the prior year, driven by expansion of business activities in Australia. This helped to more than offset the expected declines due to government price regulations in Japan and Australia. And lastly, in Greater China, our results were flat versus Q1 2023.

We continue to focus on the retail segment and on growing the self-pay patient base while navigating the evolving policy environment. .

Now I'll walk you through the remainder of the P&L and the drivers of adjusted EBITDA and adjusted EPS. Adjusted gross margin of approximately 59% in the quarter was ahead of our expectations and was driven by positive portfolio and segment mix.

As anticipated, adjusted gross margin declined versus the prior year due to price regulations in Japan and the increase in COGS. As expected, first quarter operating expenses increased due to SG&A investments in the eye care franchise, new product launches and progress in key R&D programs. .

Free cash flow for the quarter met expectations and versus prior year was driven by lower adjusted EBITDA, the closing of divestitures and the timing of working capital. Excluding transaction costs, and taxes from the divestitures, free cash flow would have been $648 million. .

It is important to note that related taxes and transaction costs associated with the divestitures will continue to impact cash flow from operating activities. The proceeds received from the divestitures will benefit cash flow from investing activities. .

Moving to the balance sheet and capital allocation. We ended the quarter with approximately $1 billion in cash and cash equivalents on hand. We continue to execute on our balanced capital allocation framework and returned $393 million of capital to shareholders in Q1 in the form of both dividends and share repurchases. .

Now I'll walk you through the details of our financial guidance for the rest of the year. We are reaffirming our 2024 financial guidance after adjusting the ranges solely due to divestitures and acquired IP R&D.

These adjustments represent approximately $270 million in revenue, $86 million in adjusted EBITDA and $0.04 in adjusted EPS for the remainder of 2024. .

The underlying fundamentals for 2024 total revenue guidance include, no change to the base business growth of approximately 2% operationally versus 2023, and continued confidence in meeting our new product revenue range of $450 million to $550 million due to the strong uptake of Breyna and the breadth of our new product launches. .

Lastly, if April foreign exchange rates hold for the rest of the year, there could be a headwind of approximately 2% on full year revenue. .

Now a few comments about anticipated phasing for the rest of the year. Total revenue is expected to be modestly higher in the second half, mainly due to normal product seasonality. New product revenue is expected to be higher in the first half driven by Breyna, which is treated as new product revenue through July. .

Adjusted gross margin is expected to be higher in the first half versus second half due to product and segment mix. We expect operating expenses to be relatively evenly phased between the first half and the second half. .

Taking these factors into consideration, adjusted EBITDA and adjusted EPS are expected to be slightly higher in the second half. .

Free cash flow is also expected to be more weighted to the second half. As a reminder, free cash flow tends to be lower in Q2 and Q4 due to timing of semiannual interest payments. .

Based on the strong fundamentals of our business and our progress to date against our objectives, we believe we are well positioned to meet our expectations for the remainder of this year. .

And with that, I'll hand it back over to the operator to begin the Q&A. .

[Operator Instructions].

And the first question comes from Nathan Rich with Goldman Sachs. .

Maybe a couple of product questions to start. First, I guess, Doretta, you mentioned the North America softness in brands.

Could you elaborate on the channel and formulary dynamics that you saw? How much of that was different than your expectations? And is there anything you can do to improve access there?.

And then with respect to GA Depot, and the expected meeting with the FDA in the third quarter, I think you had previously talked about kind of site inspection that needed to be done as well as some questions on the Phase III study.

I guess as you had a little bit more time to talk to Mapi, what is the current kind of time line for remediation that you see and when that product could potentially get approval and launch?.

So Scott Smith here. I'm going to kick it over to Doretta to answer the product-specific question, and Philippe will address the GA Depot.

So Doretta?.

Great. Specifically, I would say, in North America, as mentioned, as you noted, we were impacted by 2 items. The first was a formulary change and the second was channel dynamics. The formulary change really impacted EpiPen.

The change in channel dynamics in Q1, we saw slightly higher-than-expected utilization in certain kind of legacy brands, and that was really due to higher utilization in those noncommercial channels. .

I would say kind of over the course of the year, we do expect those impacts to be offset by growth in other brands. So we saw 18% in Yupelri growth, Tyrvaya growth. These are factors that we're all kind of monitoring in Q1. I would say we were kind of -- it was a disproportionate impact in what we kind of originally anticipated.

But I think as we go through the course of the year, we expect these to be offset. .

And Nate, just a couple of comments before I turn it over to Philippe. And Q1 for brands in the U.S. is always a little bit choppy. Again, as Doretta said, we expect to have a good full year performance. And I would just like to say, overall, the business is performing as expected globally.

It's a very large and diverse business, there's lots of puts and takes. But we're very happy with the overall global performance this quarter. .

Thanks, Scott. And so with regard to Mapi and GA Depot, we are working with them to address comments that we received from the FDA, as I mentioned, and seeking a meeting in the next few months. Once we have that meeting, we'll have clarity on -- more clarity on the time line and what to expect. So we'll be sharing that with you once available. .

And the next question comes from Jason Gerberry with Bank of America. .

This is Bhavin Patel on for Jason. For us, I just want to focus on just Tyrvaya. The product appears to be about an $80 million product with moderate growth. So maybe can you just help us form the bridge to the $1 billion in ophthalmology sales that you're expecting by 2028 between Oyster and Famy Care assets.

I believe the recently launched Ryzumvi was framed as a sort of commercially niche product.

So is the key seeing an inflection in Tyrvaya in the remainder of 2024?.

And then second, on free cash flow.

Longer term, do you continue to see a floor as being $2.3 billion unchanged post divestitures, which would be 2025 onwards?.

Thank you very much for the question. Tyrvaya, we're seeing positive trends. We're seeing continued uptake with Tyrvaya. It performed in line with our expectations in Q1. We're very hopeful on the trajectory of Tyrvaya. We just started the DTC in Q4, and we'll see where it goes.

That $1 billion that you're talking about over the next 4, 5, 6 years is relative to the whole pipeline of products, right? Definitely, Ryzumvi is a little bit of a niche product.

It's complementary to what we're doing with Tyrvaya in terms of sales call dynamics and things, but we're continuing to be very, very hopeful relative to the ophthalmology business, and we've got a number of products in the pipeline. .

And specifically, the free cash flow, the short answer is yes, with respect to your question around $2.3 billion kind of -- we feel that even post the divestitures, kind of as we look into 2025 and beyond, just given the diversity of our business, the portfolio and the stability of the base business as well as some of the kind of broader objectives and cash optimization kind of initiatives we've put in place, our business should be able to generate at least $2.3 billion in free cash on an ongoing basis.

.

And the next question comes from Glen Santangelo with Jefferies. .

Scott, in your prepared remarks, I mean, you obviously made the comment that API is expected to sort of close imminently. And I didn't hear clearly what you said on OTC.

Is that still expected to close by June 30, I think, was the previous timing? Is that still fair?.

Yes. I think what we talked about in the last time was closed by midyear. I'm not sure if it's going to be June or a little bit later than that, but we're expecting to close it midyear. It's obviously subject to certain regulatory approvals and consents, which are a little bit out of our control, but that continues to track very well.

We're pleased with our progress there. We should be closing that transaction by midyear. .

And the next question comes from Ash Verma with UBS. .

I had 2. So just on JANZ, maybe, can you elaborate the business dynamics here? It seems like the business has been facing some headwinds. I mean kind of you were up 2% on an operational basis, but on a relatively easy comp.

And what sort of that should be the go-forward trajectory here?.

And then second, on the new product revenue, good to see the $154 million.

How much of that is driven by Tyrvaya? And can you get to your -- this year guide for $450 million, $550 million without CapEx or once monthly?.

Yes. Doretta can answer the first part and then on JANZ, and I'll take the new product question afterwards. .

Great. So I would say on JANZ, it is performing kind of in line with what we expected for the first quarter, we are seeing growth. We did see some FX headwind relative to last year in the region. But the growth we're seeing there, the 2% operational growth, was really driven by some expansion of business activities that we saw in Australia.

And this is a business kind of that we expect on an ongoing basis there is natural price erosion just due to government price regulation, specifically in Japan and Australia. And so that will factor in as we think about the rest of the year. And we do expect this business to perform in line with our expectations..

And then specifically also just to add a little bit to what Scott said around new products, we have great confidence in our $450 million to $550 million of new product launches. One of the benefits is we're not dependent on any one single product.

Kind of Breyna is performing better than what we expected, but there's -- kind of the breadth of our portfolio is what allows us to kind of have that confidence in our $450 million to $550 million. .

And specific to your question, $0 of that is on Tyrvaya. That's no longer defined as a new product within our company. And again, just very pleased with $154 million in the quarter for new products and reaffirming the $450 million to $550 million despite maybe some delays in GA Depot. .

And the next question comes from Chris Schott with JPMorgan. .

Just 2 for me. Maybe on just some of the comments from the prepared remarks. I think on the Idorsia assets, you mentioned accelerating some site enrollment there or expanding a number of sites.

Does that accelerate the time lines at all that you laid out at the Analyst Meeting or were those already reflected in those time lines?.

And then my second question was on the capital deployment front. I know it's asked frequently.

But just, Scott, can you share what you're thinking about -- how you're thinking about the range of opportunities you're evaluating as we think about in-market versus pipeline, in-licensing or partners versus outright acquisitions? Just is there any baskets within there that seem particularly interesting versus others? And maybe just as part of that, just with where the stock is, how you're thinking about repo in the mix of capital deployment?.

So I'll take the first question on Idorsia, this is Philippe.

So no, it's not -- the acceleration that we are currently working on by adding a significant number of sites and expanding into regions that originally were not planned by Idorsia but where Viatris has significant experience, is not included in the time line that we presented at the R&D Day.

It's too early for us to see the impact that this is going to have, but we'll keep you updated as we go forward. .

And relative to capital allocation, important to note already this year, we have bought back shares delivered on the dividend, done the Idorsia deal, and brought assets that could drive potential future growth. In terms of the things that we're looking at, I'll continue to say, we look at all manner of different opportunities.

Certainly, I like the licensing partnership route for a lot of it given the strong global company we have and the base we have worldwide that I think we're a very favorable partner for people with good technologies and products to be able to launch their products globally. So we're looking at partnering. .

There's a lot of interesting opportunities out there for a company of our size and our breadth and we're sorting through it all.

And I will say, as we continue through the year, although we've already done some share repurchases and some BD, we expect to have the capital to be able to continue to do some share buybacks as we get through the year and also potentially some BD if the right opportunities arise for us. .

And the next question comes from David Amsellem with Piper Sandler. .

A couple of questions on injectables. Any color on Venofer and also glucagon. I know you'd cited those 2 in prior slides. And then also, in general, how are you thinking about the broadening of your complex injectable footprint? I know you cited some metrics in the slides.

But I guess the question here is, how big of a priority is that as a percentage or as a portion of your overall generic R&D mix? And how are you thinking about new launches outside of this year in terms of how you're thinking about a number of potential complex injectable launches for '25 and '26?.

So I'll kick it over to Philippe to talk specifically about some of the products and the strategy. But just overall, the complex injectable portfolio is a very important part of our base business. We're investing in it. We see important products on the market today from it. We see important products in the future from it.

So it's a very sort of important part of our base business mix. And important to continue to invest in the complex generics as we move forward and add other new products, innovative products, patented products to the portfolio to accelerate that growth. .

Yes. And to answer your first question, the 2 assets you mentioned are second half launches. We're working through the regulatory approval process. We remain confident in our $450 million to $550 million new product revenue guidance for the full year.

And we've -- as you know, we've been very successful in bringing similar products to market in the past. So we feel good about our new product revenue going forward. .

And then in terms of the mix of products regarding the injectable -- complex injectable pipeline, I mean, they represent more than 50 products in total, and we have about 15 that are currently under FDA review. So in terms of product mix, they represent a significant number of approvals for us going forward.

So that remains a very important segment of our R&D portfolio that will continue to grow over time. .

And the next question comes from Balaji Prasad with Barclays. .

A couple of macro questions and a bookkeeping question from me on, firstly, emerging markets, it looks like this quarter has been largely driven by emerging markets. Can you comment around the sustainability of this? And maybe also help me understand how this translated on an FX basis through the P&L..

And on the guidance, the revised guidance and the divestiture impact, if I understand right, so the $270 million strip is for 9 months of Women's Health and 7 or 8 months of the API business, is that the right way to think about it?.

Thank you, Balaji. I'm going to hand it over to Doretta to answer the specific questions on the emerging market segments and the divestitures. .

Yes. So on emerging markets specifically, we were very pleased with the performance that we've seen in that region. It was really -- we saw broad performance specifically both in our MENA and our Eurasia region, both across generics, and across our branded portfolio such as Lipitor, Elidel, Xalabrands. So we really saw outperformance across the board.

And this was despite some FX headwinds that we saw in that region. We had multiple currencies that we saw some weakness in versus the U.S. dollar relative to last year. So we were very pleased with our performance in emerging markets. .

With respect to your second question around the divestitures.

So yes, so as kind of the Women's Health transaction we closed in March, given we expect to close the API transaction imminently, the way we thought about the remainder of '24, we've stripped out Women's Health as of its close and we've stripped out the API business as if it has closed in May given its imminent closure -- expected closure. .

Thank you. And this concludes our question-and-answer session. I would like to return the conference to Mr. Scott Smith, CEO, for any closing comments. .

So thank you, and thank you to everybody online for your attention this morning. In closing, we're continuing our momentum for last year.

We've had a great -- we've made great progress on all our key priorities and have a strong executive leadership team in place, a passionate global workforce that is dedicated to leading the company into what we believe is an exciting future ahead. Thank you again. .

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your phone lines..