Viatris Inc. (VTRS) on Q1 2022 Results - Earnings Call Transcript
Operator: Good morning. My name is Britney, and I will be your conference operator today. At this time, I would like to welcome everyone to the Viatris 2022 First Quarter Earnings Call and Webcast. All participant lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer period. Thank you. I would now like to turn the call over to Bill Szablewsk, Head of Global Capital Markets. Please go ahead.
Bill Szablewsk: Thank you, and good morning, everyone. Welcome to our first quarter 2022 earnings call. Joining me today is Michael Goettler, Chief Executive Officer; Rajiv Malik, our President; and Sanjeev Narula, our Chief Financial Officer. During today’s discussion, 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 the press release that we furnished to the SEC on Form 8-K earlier today for an explanation of those risks and uncertainties, and the limits applicable to forward-looking statements. We will be referring to certain actual and projected financial metrics of Viatris on an adjusted basis, which are non-GAAP financial measures. We will refer to these measures as adjusted and present them to supplement your understanding and assessment of our financial performance. Non-GAAP measures should not be considered as a substitute for or superior to financial measures calculated in accordance with GAAP. The most direct comparable GAAP measures, as well as reconciliations of non-GAAP measures to those GAAP measures are available on our website at investor.viatris.com and in the appendix of today’s slide presentation. The information discussed during the presentation except for the participant questions is the property of Viatris and cannot be recorded or rebroadcast without Viatris’ expressed written consent and permission. A copy of today’s presentation is available on our website at investor.viatris.com. An archived replay of the webcast will be available on our website following the conclusion of today’s event. With that, now I’d like to hand the call over to Michael Goettler, our Chief Executive Officer.
Michael Goettler: Thank you, Bill, and good morning. Thank you all for joining us for our first quarter 2022 earnings call. I am pleased to say that we are off to a good start to the year with strong first quarter results in line with our expectations across all key financial metrics, delivering on our financial commitments and making good progress on the reshaping initiatives we announced in February. For the full year, we remain confident in our 2022 financial guidance on operational basis and we are continuing to monitor the current headwinds brought on by foreign exchange rates. Now, here are some highlights from the quarter. In the first quarter, we reported total revenue of $4.19 billion, adjusted EBITDA of $1.59 billion and free cash flow of $1.07 billion, a 34% increase over last year. This strong performance has enabled us to continue to deliver on our financial commitments for debt repayment, while continuing to return capital to shareholders through the payment of the dividend. We are continuing our successful integration, capturing synergies and simplifying our processes and organization. Our development engine continues to deliver key pipeline milestones and highlights for this quarter include the launch of generic Restasis and generic Revlimid, and the full FDA approval of generic Symbicort. Overall, we generated approximately $120 million of new product revenue in the first quarter and we are on track for $600 million in new product revenues for the full year. Now, allow me to switch gears to our future. In February, we announced a significant global reshaping initiative to unlock trapped value and build a simpler, stronger and more focused company, which is well positioned to deliver more access to patients and more value to shareholders. Since February, we have engaged in conversations and meeting with numerous shareholders. We have listened carefully to your feedback and we recognize there is a desire for more clarity and more certainty about our strategic plans and the steps we are taking to get there. We fully understand the importance of remaining engaged with you and we will update you on our progress as we go along. So let me give you an update on what was achieved in the first quarter. I am pleased to say we made good progress during the quarter on the biosimilar transaction with our partner a Biocon Biologics and we believe we are on track to close the transaction in the second half of 2022. Rajiv later will give you more details on our activities to-date. We are also making good progress on the previously announced divestiture of the portfolio assets of other select non-core assets, which we identified. We remain confident that we execute against all of these plans by the end of 2023. We strongly believe that our company’s equity securities continue to be significantly undervalued, and as we continue to generate strong operating cash flows from our business and realize the proceeds from more efforts to unlock value, we are focused on maintaining our quarterly dividend, paying down debt, future share buybacks and other actions, all of which will enhance shareholder value over the short, medium and long-term. And with regard to timing for share buybacks, we hope to consider repurchases under the program already approved by the Board of Directors as soon after the close of Biocon Biologics as possible. In summary, we had a very strong quarter and we are excited about the future that we are building for Viatris. I can assure you that the entire company is focused on executing on these initiatives that we set forth for our business, meeting or exceeding the operational goals that we set, generating significant free cash flow, which remains our financial North Star and unlocking value, while reshaping our company for a stronger future. With that, let me turn it over to Rajiv. Rajiv?
Rajiv Malik: Thank you, Michael, and good morning. I am excited by our strong results this quarter that reflect our focus business execution on all fronts. We manage the base business, maximize new launches, delivered on our pipeline and continue to execute our integration and TSA exits, all while advancing our reshaping initiatives Let me start with an update on transaction with Biocon Biologics. We are progressing with all regulatory approvals, and importantly, have clearance from a U.S. antitrust perspective. The remaining regulatory approvals are expected in the coming months. Biocon is also on track with securing its financial commitments. With this positive momentum we are well positioned to close this transaction in the second half of 2022. Now moving to our quarterly segment results, which begin on slide seven of our earnings slides posted on our website. As I walk you through the performance in each of our segments and product categories, I will be making certain comparison on an operational basis versus our plan that supported our guidance we communicated back in late February. Our Developed Market segment continues to be a strong and resilient commercial business built on a foundation of a well diversified portfolio of brand, generics and complex products, which has allowed us to improve the predictability and sustainability in what continues to be a dynamic and challenging environment. In North America, we continue to demonstrate our focus and dedication to patients through the innovative solutions based on the strength of our proven development capabilities. Our interchangeable biosimilar Semglee is off to a great start as the total prescription share approaches 10% which is in line with our expectations. Generic Restasis is another example of a first-to-market complex product and is also off to a strong start. Moving toward generics Symbicort named Breyna, we are very excited to receive FDA’s final approval in March. This milestone furthers our track record of successful first in developing complex generic medicines to help increase patient access. There is a trial scheduled for May 19th in the West Virginia Federal Court and we continue to have the opportunity to launch this product in 2022 as upcoming proceedings develop. Other key products like Yupelri and Wixela performed in line with our expectations, while showing year-over-year double-digit volume growth. Our European business is also off to a solid start and remains on track to grow mid single-digit for the full year 2022. Italy, France, Spain and Portugal performed strongly to further enhance our retail channel leadership in these countries. We also saw stronger than expected performance across brands such as Creon, Lipitor, Dymista, Lyrica and Brufen. Our thrombosis portfolio continue to grow in line with our expectations. Hulio are biosimilar to Humira, which had roughly 20% plus market share of the biosimilar market is another key contributor to our German and France businesses. Our recently launched generic Revlimid is the first in series of key launches planned for Europe this year. Our emerging market segment showed a strong quarterly performance. Our ARV franchise performed slightly better versus our expectations this quarter. Key geographies such as South Korea, Southeast Asia, Turkey drove higher volumes, while Brazil realized better pricing. Lipitor and Lyrica led to strong growth in this segment and helped the brand category perform better than expectations. Moving to JANZ, the headwinds on account of government NHI price reductions in Japan are being partially offset by strong year-over-year volume growth of our authorized generics and brands like Celecox, Amitiza, and EFFEXOR. In addition, we saw strength in Creon and EpiPen in Australia versus last year. On biosimilars, we are pleased that Hulio has achieved more than 50% market share in Japan. However, we continue to believe that there is a plenty of room for the overall Humira biosimilars market to grow as it only stands at 10% today. Lastly, an update on Greater China. Our strong and broad commercial infrastructure has helped us to deliver a strong performance despite COVID and COVID related lockdowns. Our retail channel performance especially in Viagra was slightly impacted by COVID, which was more than offset by better than expected performance of the hospital channel primarily led by Lipitor. Our manufacturing operations in China continue to perform well and at this time, we do not foresee any potential disruption to our China supply chain. Given our solid start to the year and the strong customer service performance across all segments delivered by our global supply chain, we remain confident to deliver on our full year expectations across all segments on an operational basis. Switching now to our pipeline. For your benefit we have included current snapshots in our earnings materials building on slide 13. There are a few noteworthy pipeline updates. Our Eylea biosimilar review is progressing well and we can confirm that we have no outstanding science issues. We are currently waiting for the facility approval by FDA. As a reminder, this program is a part of Biocon transaction. Our biosimilar to Botox filing for USA FDA will be delayed. We remain committed to the successful development of this complex biosimilar with Revance and to the earliest possible launch in United States. Our clinical trial for GA once monthly has a number of patients who are located in Ukraine and are being impacted by ongoing situation there. As a result, we are pushing back our FDA filing by one quarter, which is now scheduled for the first quarter of 2023. We recently received FDA approval of our Levothyroxine Oral Solution named Amitiza and are looking forward to launching later this year. Also, we received a PDUFA date of October 2022 for our potentially first to file generic Pentasa. Lastly, we believe that we achieved first-to-file status for our generic Abilify Maintena further enriching our first-to-market opportunities of complex injectables, which now include Paliperidone 3-month, Octreotide LAR, Ferric Carboxymaltose, Iron Sucrose and Semaglutide. And finally, an update on integration. As you can see on slide 17, we remain on track to realize $500 million of cost synergies over the next two years, resulting in at least $1 billion cumulative cost synergies since becoming Viatris. Our objective throughout this year is to complete our TSA exits from Pfizer making Viatris self-reliant in terms of systems and processes, and positioning the company to further accelerate the optimization of our infrastructure. Before I conclude, I would like to thank our colleagues for their hard work to deliver yet another excellent quarter and lay a solid foundation for the year. With that, let me now turn the call over to Sanjeev.
Sanjeev Narula: Thank you, and good morning, everyone. Please turn to slide 18 as we discussed our first quarter 2022 financial highlights. We are off to a good start and saw strength across the business, operation revenue was stable relative to prior year, gross margin was strong, SG&A benefited from realization of synergies and free cash flow improved significantly. This performance in total was solid and in line with our expectation. Let me walk you through the key drivers that contributed to first quarter performance. On slide 19, we have summarized our results versus prior year on a reported basis. Moving to slide 20, sales benefited from performance across our segments and several new product launches. As a result, sales were in line with expectation on an operational basis, down marginally versus prior year by approximately 1%. Our global business is approximately 70% non-U.S. dollar denominated, as a result of dollar strengthening against major currencies, foreign exchange had an unfavorable impact of approximately 4% versus first quarter 2021. Sales in Developed Markets were flat as a result of stability across brands and genetics along with the contribution of new product sales. In North America, sales of $1.1 billion were in line with expectation. We saw growth across products like Yupelri and the benefit of new product sales including interchangeable insulin Glargine and generic Restasis. In the quarter these trends contributed to overall performance and offset the expected impact of competition on key products and generic price erosion. In Europe, we are off to a strong start and sales grew by 5% on an operational basis. This is a result of category diversity which spans generic brand products such as Dymista and Creon and our thrombosis business with recently launched generic Revlimid. Moving on to the emerging market, overall operation brands including Lipitor and Lyrica. This offset pressure in generics as a result of lower ARV volumes. Our gen segment was down which we had anticipated in Japan and lower volume in Australia. Partially offsetting these trends is a continued uptake of authorized generic products. Lastly, the Greater China’s segment was impacted by carryover of policy changes in China that were implemented in 2021. Overall, trends are stable across key brands such as Lipitor in the hospital setting. The retail setting continues to be a priority area of growth given our focus on broadening the patient population. On slide 21, let me walk you through the P&L elements that led to EBITDA being essentially flat versus prior year. Adjusted gross margin of 59% % came in slightly ahead of expectation and were driven by favorable mix associated with brand performance and new product launches. SG&A was down approximately 14% and benefited from synergies realized over the last year associated with integration and restructuring activities. Turning to slide 22. We had an excellent quarter. Free cash flow of more than $1 billion, up 34% versus the prior year. This improvement in our cash flow conversion was driven by lower one-time cash cost, positive change in net working capital, which total approximately $300 million in the quarter. Improvement in free cash flow generation continues to be an organizational priority we are confident that the cash optimization efforts will benefit cash flow throughout the rest of 2022. In the quarter, we delivered our capital allocation commitment, which included approximately $840 million of short-term debt payment and increase our quarterly dividend by 9%. Moving to slide 24. We are off to a strong start in 2022 and solid quarter supports the operational strength of business across total revenue, adjusted EBITDA and free cash flow. You will recall that the guidance we provided in February assumed a full year of Biosimilar business and FX impact of approximately 2% on total revenue and adjusted EBITDA versus the prior year. Given the dollar has strengthened against major currency, if the mid-April spot rates hold throughout the rest of the year, there could be an additional impact on total revenue, adjusted EBITDA and to a lesser extent free cash flow. FX aside the momentum seen first quarter gives us confidence in the outlook for rest of the year. Now let me cover the estimated phasing of our financial performance for the full year. With respect to revenue phasing, we estimate 48% of revenue will come in the first half and 52% in the second half. This is driven by the ramp of new products, the U.S. launch of generic Revlimid in the third quarter and Developed Market. We expect a sequential increase in SG&A and R&D throughout the year with approximately 52% of spend occurring in the second half. For the full year, we expect gross margin, SG&A and R&D to be within the guidance metrics we provided earlier this year. As a result of previously announced, legal settlement which will occur in third quarter, free cash flow will be more heavily weighted in the first half. Also, we expect one-time cash cost and capital expenditure to be more significant in third and fourth quarters. We are firmly on track with our 2022 debt pay down target of approximately $2 billion and are committed to maintaining an investment grade rating. Before I conclude, I want to make a few comments on our reshaping initiatives. We expect the Biocon transaction will generate $2 billion in gross proceeds or approximately $1.6 billion after-tax. The proceeds will be used for debt pay down and potentially for share buyback. As Michael and Rajiv both mentioned, we are making good progress and expect other assets to be divested by the end of 2023. This will bring in significant capital for further share buyback and potential tuck-ins BD opportunities. We are obviously pleased with the strong start in the first quarter. The momentum we see in the operations of the business, position us well for the remainder of the year. Now I would like to turn the call back to the Operator to open the call for Q&As.
Operator:
Bill Szablewsk: Thank you, Operator. Let’s go to the first question to Jason Gerberry, please.
Operator:
Bill Szablewsk: Hi, Jason.
Pavan Patel: Hey. What is up?
Bill Szablewsk: Hi, Jason.
Pavan Patel: Hey. Hey, guys. Thanks for taking my question. This is Pavan Patel on for Jason Gerberry. My first question is on Restasis. Can you talk about your supply capacity for this product and your guidance assumption for this product to remain semi-exclusive? And then, second, can you speak to your second half 2022 capital deployment priorities. How will you balance buybacks at current price versus acquiring new assets?
Michael Goettler: Yeah. I think, I guess. Good morning, everybody. I guess the first question to Rajiv and Sanjeev if you can comment on the second half capital deployment.
Rajiv Malik: Thanks, Michael. I would start by saying that very pleased to have again received the first FDA approval for generic Restasis, which reinforces our ongoing commitment to this market and the complex products. I would say that supply is not a constraint. The market continues to evolve. It’s a three player plus brand market at this point of time as the -- and we have been very happy, we have been very happy with the perform -- we have performed so far and remain confident about the rest of the year’s forecast.
Sanjeev Narula: Yeah. And on the capital allocation, as Michael said and I said in my opening comments, we are pretty clear about our priorities. Our priority is continued to delever as we demonstrate that last year by paying down $2 billion and then on plan to pay down another $2 billion this year and overall pay down $6.5 billion in three years and maintain our investment grade rating. So that’s on the debt side. And we have also been clear about paying and maintaining and growing dividend, which we demonstrated by increasing our dividend by 9%. So our priorities are pretty clear and we have sufficient cash flow from the organic business to be able to support our capital allocation priorities.
Michael Goettler: And then as the proceeds coming from the Biocon transaction, I think, we said very clearly before that obviously the tax implications of that, the implications on maintaining leverage neutral and paying down some additional debt, but then there will be additional funds available. And clearly we hope to consider buybacks at the time, share buybacks, especially at the current share price, we are so undervalued that clearly share buybacks are the case to be to us for the additional capital that’s coming in. Next question, please.
Bill Szablewsk: Thank you, Michael. Operator, you go to Elliot Wilbur, please.
Elliot Wilbur: Thanks. Good morning. I am live?
Bill Szablewsk: Yeah.
Elliot Wilbur: Okay. Thanks. Good morning, everyone. Just wanted to ask about the EBITDA impact of competitive product have been in the first quarter referring specifically to the bridging slides on pages 20 and 21 of the deck. So just looking at the EBITDA impact of key or on key products, I mean it looks like it was effectively 100% margin and I think that’s relatively consistent with what you outlined at year end, but the EBITDA impact on other base business assets at least in terms of the margin profile of those products was quite a bit higher. I think it’s around 85% in the quarter. If you look at the EBITDA impact of negative revenue trends on other base products base generics. So I just wanted to get some insight in terms of what particular products that may have been impacted within that bucket in the first quarter? Why was the impact quite a bit higher than what you are expecting for the full year? And in fact your guidance still relatively consistent with what you would expect in terms of the EBITDA impact on base business products for the balance of the year? Thanks.
Michael Goettler: Thanks, Elliot. Sanjeev can you start?
Sanjeev Narula: Yeah. Yeah. I can. So, Elliot, you are absolutely right. So if you look at kind of like the two pieces, if I could step back first is the competition on key U.S. products. The revenue and EBITDA impacts are consistent with what we have been outlining. These two products, which is, are my consistent performers are a very high gross margin above 90% as was evident. As you can see the year-on-year revenue impact and the flow through to EBITDA, so that’s consistent, that’s -- those are the two products. On the other base business erosion as you saw, we talked probably in the quarter. That’s again in line with what we have seen. Quarter-to-quarter there is a variation. This quarter particularly we had the pricing impact for, as Rajiv pointed out in his opening comment, from NHI in Japan. This will be annual price reduction that we experienced that and that’s all scheduled and anticipated. That flows to the bottomline. There are other couple of brands in U.S. that have a pricing impact, competitive price impact that again has a higher impact on the EBITDA. So, overall, I’d say the impact on both the competition and on the base business erosion is in line. Now the other important to note again Rajiv pointed out is the offset. If you look at the new product sales they were impressive for the quarter and the gross margin on those were also fairly significant that we were able to offset part of the impact on the base business erosion.
Michael Goettler: Okay. Next question, please.
Bill Szablewsk: Thank you. Operator if we go to Chris Schott, please.
Operator: Your line is open.
Chris Schott: Great. Thanks so much. So just a couple of questions from me, just coming back to this issue of capital redeployment. So, I guess, once you address the debt reduction and kind of the targets you have put out there, should we think about most of the capital that you are going to be getting from whether it’s the Biocon deal or additional asset divestitures, going to repo assuming your stock prices in the kind of like $10 level and that the deals you are considering bit more smaller in size. I am sure you sense, I think, that’s been one of the debates is just how do we think about, what Viatris looks like going forward and it’s always been the messaging here is that, repo is going to be a pretty high hurdle to overcome, as we think about that versus deal. That’s kind of the first question is, to clarify a bit more there. The second one for me is, which think we touched on a little bit, but just on gross margin progression and trends for the year, it seems like the 1Q, results were well ahead of your annual targets and that you said there is slightly ahead of your own internal targets. Help me just understand a little bit of how we kind of bridge from the 1Q results to the rest of the year like what drives that step down in gross margins going forward as we think about the implications for that and the kind of the go-forward business into 2023? Thanks so much.
Michael Goettler: Yeah. Thank you, Chris. Look on capital allocation and the trade-off between share repurchases and BD, I think, we have been very, very consistent. We got our Phase 1 commitments that we are committed to, that’s the $6.5 billion in paydown targeting the leverage target that we put out there paying the dividend. And as Sanjeev mentioned earlier, all of that is supported by our strong organic free cash flow, right? We don’t need the cash from divestitures to achieve those targets. Our commitment is unchanged that what we aiming for. Then with the divestitures we have additional capital coming in, right? And starting with the $2 billion from Biocon again taking tax into account and look at the net proceeds, we are planning to use some of that to be leverage neutral. But then the remaining clearly especially with the share price that we have right now, as we said, share buybacks are the case to be. It doesn’t mean we are completely inactive on the BD side. We are very active looking at opportunities there and we have our target areas that we laid out. But clearly, share buybacks are the case to beat and we hope to consider starting that as soon as after the close of the Biocon transaction. And on the gross margin, Sanjeev, do you want to…
Sanjeev Narula: Yeah. Sure. Chris, you are right. We came in slightly ahead of our internal expectation. The gross margin of 59.5% for the quarter, but I think there are a couple of things going on just kind of put this in context with what’s happening. So we had a strong brand performance as Rajiv pointed out, that’s obviously has a impact on the gross margin. We also had new product launches, generic Restasis, clearly high gross margin product has an impact on that. And then we also had some timing of emerging market tenders in case of acceleration in first quarter that has an impact on the gross margin. So we came in ahead. I expect the gross margin to step down a little bit in the second quarter, because of the product mix and then what we talked about. But on a full year basis, we are still on track with the metrics that we provided on 57.5 to 58.5.
Bill Szablewsk: Thanks for the question. Next we will go to Umer, please.
Umer Raffat: Hi, guys. Thanks for taking…
Operator: Umer, your line is open.
Umer Raffat: Oh!. Thank you, guys. Thanks for my question. So I guess, maybe more specifically, is it reasonable to assume on capital allocation that perhaps the magnitude of up to a couple of billion dollars worth of repurchase as possible? And also on full year guidance, can you clarify if there is impact of excess purchases in China head of lockdowns that was helping in the first quarter and if that’s appropriately baked into the back half of the year, I know you guys did mention a 2% impact to EBITDA from FX, just wanted to go through that as well?
Michael Goettler: Yeah. Rajiv, can you start with the China question and then, Sanjeev, if you can talk about the potential of share buybacks?
Rajiv Malik: I think, Umer, China is again is -- and expensive commercial infrastructure. But importantly, how team has adopted to the new environment and that has helped us deliver a strong performance despite COVID and COVID-related lockdowns. We have continued to see all of those sentiment around China not being at its peak, due to the lockdowns. At this point in time, we believe we can meet our financial objective and we remain confident about that. So I don’t see any doubts about our China business and because of the COVID.
Sanjeev Narula: Okay. And Umer, on two points about the share buyback one that you mentioned. So, if you can step back as we kind of Michael pointed out in his opening comments. If you look at the total net proceeds of Biocon and other asset that we talked about that and adjusted for the potential tax impact and pay down debt to keep us leverage neutral. We are talking about approximately $4 billion of net proceeds that we could generate. Now conceptually or hypothetically if you think about where our security prices are, we could be deploying all of that for share buyback, that clear is possible, but obviously, that decision will be taken as we start closing the Biocon transaction and getting proceeds from the other perspective. But clearly, the reshaping and unlocking the trapped value gives us a lot more flexibility in terms of accelerating and expanding our capital allocation.
Michael Goettler: And I think just as an overlay, Umer, obviously, as Sanjeev said, we will make a decision at the time when it comes. But we believe the company is significant undervalued at the current levels. I think there is no doubt about that. We are confident in the strategy that we have to unlock trapped value. Our decisions will be guided and are always guided by our TSR model and commitment to return value to shareholders. And very importantly, we are confident in the outlook of our core business and continue to be highly diversified and that gives us that confidence. So I think that backgrounds should help you. Next question.
Bill Szablewsk: Yeah. Thanks, Michael, Operator, if we could go to a Greg Fraser, please.
Operator: Your line is open.
Greg Fraser: Good morning. Thanks for taking the questions. Was there any notable drivers behind the stronger than expected brand performance in the quarter that could prove durable? And just following up on the guidance approach in light of FX trends, why not update the ranges based on the current exchange rates? I guess what’s the bar trigger to updated guidance based on FX? Thank you.
Michael Goettler: Rajiv, do you want to take the branch question?
Rajiv Malik: Yeah. I think that it is -- it nothing is a surprise. We exactly planned the business and this is how we have executed China, Lipitor and Norvasc drove the brand performance. Japan strong performance for is Amitiza, EFFEXOR, Celecox, Enbrel, and U.S. was Yupelri and again even Perforomist although we have a competition, I think, we did better than expected in U.S. And Europe has been a steady, steady for last couple of years, whether it’s Creon, thrombosis portfolio, Brufen. So I think everything, which we have planned are -- it has been executed and we remain confident for the year.
Sanjeev Narula: Yeah. On the guidance question, but just want to start with first of all, I think, as you can see, we had a very strong quarter operationally. And the momentum we see the end of where we are today and the outlook for the rest of the year, we feel very confident on the outlook for the year in terms of operationally, how we going to be performing. But clearly, FX is a headwind, as I mentioned that in my opening remarks, and if you take the mid-April FX rate they were to hold, there is going to be a headwind on the overall on the revenue and adjusted EBITDA, and to a lesser extent of the free cash flow. Now, we are not in the business of predicting foreign exchange. Foreign exchange has been changing every day. What we are expecting to do is at the second quarter call we will take into consideration the prevailing FX rate at that time and an update guidance as necessary. And by the way, keep in mind that we also have -- we are expecting the Biocon transaction to close in the second half and depending upon the timing of the close, there would be an impact on our full year guidance, which then we will take into account and reflect that in the guidance. The last point I want to say, irrespective of the FX rate, we feel very good about the cash flow generation in the company and are on track to pay down $2 billion of debt and then continue to maintain a good dividend as we talked about.
Bill Szablewsk: Thanks, Sanjeev. Operator, we go to Nate Rich from Goldman, please.
Nate Rich: Hi. Good morning. Thanks for the questions. Maybe two quick clarifications on guidance and then a higher level question. Just following up on the last question actually, was first quarter ahead of your expectations? And should we think of that outperformance being offset a little bit by FX or has the expectations for the year not really changed on a core basis, you are just highlighting this additional FX risk if current exchange rates hold? And then are you able to give us the contribution from biosimilars in the quarter two overall growth so just so we can get a better view of sort of underlying performance once that divestiture takes place? And then is a higher level and then I will stop there, but at a higher level, when could we hear more progress on additional divestitures and has your view or scope of the potential assets to be divested changed at all just given the volatility we have seen in the markets and how some of the public assets are being valued? Thank you.
Michael Goettler: Sanjeev, you want to start with Q1?
Sanjeev Narula: Yeah. Yeah. Nathan, so, Q1, we had a slight FX headwind, because if you go back and saw the dollar started strengthening in the month of March. We had a slight headwind. But we were able to absorb within our operational results. And that impact obviously gets bigger, because dollar had continued to strengthen. So that’s kind of why I am highlighting, but on a full year basis the expected headwinds. So Q1 did come up slightly ahead of the expectation. But we were able to offset, that were to be able to offset by the -- as we were able to offset the FX impact because of that.
Michael Goettler: Okay. On the biosimilar question, Rajiv do you want take that?
Rajiv Malik: Yeah. Biosimilars, for the full year, as we said, it’s about $850 million is the total revenue for the full year and the month end , for quarter two it’s about $175 or something.
Sanjeev Narula: Quarter one $170 million approximately.
Rajiv Malik: Quarter one. Yeah.
Sanjeev Narula: Yeah. $170 million.
Rajiv Malik: Yes.
Sanjeev Narula: Approximartely.
Rajiv Malik: Yeah.
Michael Goettler: And on the larger question you had, Nate, on the other divestures, look nothing we have changed. We identified these other select assets that we consider non-core to the future of Viatris and as we continue to move up the value chain looking for more durable and complex product. But you know these are quality assets. Quality asset that we think are attractive, maybe more attractive to somebody outside of Viatris than inside of Viatris and helps us to unlock value and to simplify our business. We are not disclosing the assets at this point, need to maintain the integrity of the process, but as we said, we are making good progress on them, we are confident in the timeline that we laid out to have all of those wrapped up by the end of 2023, and obviously, we keep the street and the shareholders updated as we go along. Next question?
Bill Szablewsk: Thank you, Michael. Operator, next question from David Amsellem, please.
David Amsellem: Thanks. Just a couple of quick ones. So first, just remind us, and I apologize if I missed this, what you are assuming for pricing erosion for both your generics business, particularly Developed Markets broadly speaking? And also just how you are thinking about pricing erosion broadly, it’s ex-China because I know that’s a bit of a different case, but how you are thinking about pricing erosion for established brands less about the guide this year and more just longer term, and how you thinking about overall trajectory there? And then in terms of just the repositioning of the business, you have talked about that you believe that the shares are undervalued and that there is value to be unlocked. You mentioned it number of times in this call. So with all respect, I am just trying to understand what do you think the market isn’t getting or what do you think could be or should be unlocked in your view? Thank you.
Michael Goettler: Start with the price erosion, Rajiv?
Rajiv Malik: Yeah. And I think the diversity of our business, whether it’s within the product portfolio or commercial infrastructure or footprint has given us -- has provided us predictability and sustainability. And I believe pricing, yes, it’s used broadly at the industry level, but it’s very specific when it comes to generics is to your own sort of portfolio, which by design, if you recall, we have been moving slowly and steadily from commodities to the high value complex niche hard to make products. So we are moving making -- we have been making a diligent moved from the volume play to the value play. And as I have always said that generic pricing environment has been for stable as I see given the specific portion for last -- this quarter it was Miacalcin, Perforomist, Wixela. These were the three key drivers. If I take that off core business in the generic for us was pretty stable. It’s a stable pricing environment. Now from globally. If I have to say we had always forecasted about mid single-digit somewhere around that percent as a price erosion. And if you look into this quarter, overall, for example, take just North America flat, brands were down 3%, complex made up -- complex and biosimilars made up 18% positive over there, GA was minus 3%. Overall, net-net, it was flat. So that’s what I was talking about this diversified portfolio has given us that sort of broad, deep portfolio now which can withstand this volatility and give us more predictability and sustainability.
Michael Goettler: Yeah. Yeah. And David, on the repositioning of the company and what the market is, we believe, not getting them and you need to look no further than the biosimilar business and I look at it actually. This is all the value they have a hardware simplicity valued inside of Viatris and then the value we are getting by unlocking it often implied multiple of 16.5. We think that applies to other assets as well. So at the end, after we done with reshaping what you are going to be left with there is a company that’s very well positioned to house a broad portfolio of generic medicines that reaches across in our global commercial network, addresses patient need for high quality affordable medicines that will always be a core of us, complex products, injectables, off patent and rebrands including some of the iconic brands that came in from legacy Upjohn. And then we want to add to that moving further up the value chain some additional products. That product, that portfolios we believe very, very strong. It’s going to be a high value global by value oriented global diversified business and diversity will stay with us. And I believe in time the street will come to appreciate that both our financial profile that we have, as well as the strategic profile that we have.
Rajiv Malik: And Michael, if I could just add to that, that profile that Michael talked about, will continue to generate sustainable…
Michael Goettler: Yeah.
Rajiv Malik: … cash flow and that we believe is the strength has we demonstrated and then will continue to be positive momentum as you go forward for the company.
Michael Goettler: Thank you, Rajiv.
Bill Szablewsk: Thanks for the question. Operator, can we go to Gary please.
Operator: Your line is open.
Gary Nachman: Thanks. Good morning. Hi. Great. So the SG&A was much lighter than we expected in 1Q, is that a timing issue or a quicker realization of synergies? Just talk through the run rate on that through the rest of the year? And then how much of the $600 million of new product revenue is from current market products versus new launches and how much is biosimilars’ that will be divested to Biocon? And then just lastly, just you mentioned about the Botox biosimilar filing delays, so can you just explain that a little bit more, what’s causing that and how long of a delay you think that will be? Thanks.
Michael Goettler: So if take them same sequence maybe SG&A timing first. Sanjeev?
Sanjeev Narula: Sure. Sure. So first quarter SG&A came in lower than a kind of internal tracking it’s that essentially timing and we expect to catch that up, and I said that in my opening comments, we expect SG&A and R&D to ramp up, 52% of our yearly spend is going to happen in the second half of the year. But it’s important to note again in our guidance is built into these synergies realization that Rajiv mentioned that in his comment and that’s why we see year-on-year first quarter our SG&A is down double-digits and on a full year basis, our SG&A is down as well.
Rajiv Malik: And Gary from the new launch perspective, I think, important fact is that almost 95% of the products, which we are supposed to launch in this year have either have been approved or already launched. So other than a couple of products, which we had factored in our plan, which is as part and invest in most of those approvals are in the bag and we are on a very much track to deliver $600 million as we have planned. And on biosimilars that will give you on an annual basis almost one-third of this new launch revenue is coming this year, this year from the biosimilars.
Gary Nachman: Thanks. Okay. Thanks.
Michael Goettler: The Botox biosimilar, also, why the filing is still late.
Rajiv Malik: Yeah. On the Botox, look, we have -- let me start with this, that we remain committed to the program and we are making some good headway with the science along with FDA. We are still starting I will say and FDA approval in 2026 and launch thereafter. There are several moving pieces with our program with Revance, including their plan to qualify and corporate a new working set back. So this is going to -- that’s one reason for along with various other pieces, that’s one reason for us switching back this filing.
Michael Goettler: Thanks, Rajiv.
Gary Nachman: Appreciate it.
Bill Szablewsk: And thank you guys for the questions. We are going to -- I don’t see any other folks in the queue. So we are going to hand over to Michael to close the call.
Michael Goettler: Yeah. Thank you everybody for joining us this morning. Look, in summary, let me just say, we obviously had a strong quarter on track operationally to meet our full year 2022 guidance. We made good progress on executing on our reshaping initiatives that we laid out in February and we are going to continue to engage with you and engage with investors as we go along. So thank you for joining us this morning and that concludes the call. Thank you.
Operator: This does conclude today’s Viatris 2022 first quarter earnings call and webcast. Please disconnect your line at this time and have a wonderful day.
