Viatris Inc. (VTRS) on Q2 2022 Results - Earnings Call Transcript
Operator: Good morning. My name is Leo, and I'll be your conference operator conference today. At this time, I'd like to welcome everyone to the Viatris 2022 Second 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'll now turn the call over to Bill Szablewski, Head of Global Capital Markets. Please, go ahead.
Bill Szablewski: Thank you, and good morning, everyone. Welcome to our second quarter 2022 earnings call. Joining me today is Michael Goettler, our Chief Executive Officer; Rajiv Malik, our President; and Sanjeev Narula, our Chief Financial Officer. A copy of today's presentation and other earnings materials are available on our website at investor.viatris.com. 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 slide two of the presentation in our SEC filings for a full explanation of these risks and uncertainties. We will also be referring to certain actual and projected non-GAAP financial measures to supplement investors' understanding of our financial performance. Non-GAAP financial measures are reconciled to comparable GAAP measures on our website and in today's presentation. With that, now I'd like to hand the call over to Michael.
Michael Goettler: Thank you, Bill, and good morning, everybody. Thank you all for joining us for our second quarter 2022 earnings call. I'm proud to report that we're hitting on all cylinders operationally, even while foreign exchange rates continue to be challenging. And we have now demonstrated six consecutive quarters of strong performance. We're delivering on our financial and strategic commitments. And we're making great progress on the reshaping initiatives, which we announced in February. Remember, Viatris was designed with diversification and resilience in mind. We believe our geographic and product diversity allows us to balance occasional headwinds in one part of the business with opportunities in others, which we expect will enable us to deliver consistent and predictable performance over time. We are reaffirming our full year 2022 financial guidance ranges for adjusted EBITDA and free cash flow. Because of our continued strong operational performance, we believe that we can absorb the foreign exchange rate impact within those ranges. However, we are revising our full year 2022 financial guidance range for total revenue, solely to reflect our current expectation of the negative impact of foreign exchange rates. You will hear later more specific commentary on the guidance ranges for all three of these metrics, including our consideration of the foreign exchange rate impacts. Now let me share some highlights from the quarter. In the second quarter, we reported total revenue of $4.12 billion and adjusted EBITDA of $1.48 billion. Free cash flow generation continues to be strong at US$719 million for the quarter. I'm pleased with our solid performance across segments this quarter, particularly in China and our operational growth in Europe. Our continued strong performance has enabled us to continue to deliver on our financial commitments for debt repayment and returning capital to shareholders through the payment of our dividends. In the first half of the year, we paid down approximately $1.5 billion in debt. And we're on track to achieve approximately $2 billion in debt repayment for the year. We continue to be committed to maintaining our investment-grade rating, which is something that we believe really differentiates us from our peers. Our Board of Directors has again authorized payment of a quarterly dividend of $0.12 per share. And we're very proud that our internal development engine continues to deliver key pipeline milestones, which we believe positions us well to continue to move up the value chain. Overall, we're on track for approximately US$600 million in new product revenue for the full year. And we look forward to the anticipated launch of lenalidomide in the second half of 2022. And finally, we're continuing our successful integration, capturing synergies and simplifying our processes and our organization. By the end of this year, we expect to have exited substantially all transitional service agreements with Pfizer. In addition, we are seeing continued strong engagement for our employees, who are all working diligently to execute on our priorities. As you remember, in February, we announced a significant global reshaping initiative to unlock trapped value and build what we expect to be a simpler, stronger and more focused company that's well positioned to deliver more access to patients and more value to shareholders. We continue to make good progress on the biosimilar transaction with our partner, Biocon Biologics. The transaction received key antitrust clearances in the US, India and other markets. And we are still targeting a deal close in the second half of this year. While we await final regulatory approval from the Reserve Bank of India, the two companies have been working productively to put plans and transition service agreements in place to ensure business continuity for patients; customers; and importantly, our colleagues. We're also making good progress on the previously announced divestitures of other select non-core assets. And we continue to expect to execute against these plans by the end of 2023. With regard to business development, we further ramped up our inorganic activities in our global health care gateway. We're looking at everything. We remain therapeutic area agnostic. And our business development efforts are centered on bolt-on and tuck-in opportunities that match our three identified therapeutic areas or moving up the value chain as well as other opportunities. In summary, we had a very strong quarter. And we're excited about the future we're building for Viatris. The entire company is focused on executing on the initiatives we set forth for the business, meeting or exceeding our operational goals that we have set, generating significant free cash flow and unlocking value, while reshaping our company for a stronger future. With that, let me turn it over to Rajeev. Rajiv?
Rajiv Malik: That's Michael, and good morning, everyone. For six consecutive quarters, we have consistently executed against our overall operational priorities. Our strong operational performance this quarter reflects the resilience of the diversified business we have deliberately built. As shared before, we are not dependent on any one market or any one product. And we remain agile and opportunist in how we manage the business with the goal of maximizing the strength of each market and address unforeseen challenges. Our execution has been and continues to be a team effort. And I would like to thank our colleagues for delivering another solid quarter and continuing to meet our customer commitments. The strong business performance and the execution of our underlying plan in the first half of the year, supported by consistent supply, gives us the confidence that the momentum will continue for the second half and deliver our operational commitments for the year. We also continue to expect to achieve our approximately $600 million new loss revenue target for 2022. Moving to our quarterly segment results. I will be making certain comparisons to second quarter 2021 results on a constant currency basis as well as comparisons on an operational basis versus our plan that supports our guidance. These comparisons exclude the impact of foreign currency exchange. Our North America business represents a balanced portfolio consisting of several brands, complex drug devices and many other generic products. We believe this mix provides the business enhanced stability and predictability. Yupelri continues to grow and delivered high teens, and EpiPen performed better than we expected. We experienced healthy demand for our generics portfolio, while Canada once again delivered a better-than-expected performance. We look forward to the expected launch of lenalidomide in the second half of the year. Regarding Breyna, our FDA to generic to Symbicort, we anticipate a ruling from the district court in the coming months on the trial that was held in May. We also had a separate case, brought on a newly issued patent that is in front of a different judge in the same court. We remain prepared operationally and continue to look forward to bringing the product to market at the earliest possible date as these court cases developed. Our European business had another strong quarter, delivering 8% year-over-year growth. Creon, Dymista, BRUFEN and our Thrombosis portfolio showed solid performance. France, Germany, Italy and Spain led the growth. The region also benefited from certain customer purchasing patternss in the quarter. We expect that the new launches across Europe will be another key driver for 2022 performance. The Emerging Markets segment delivered another quarter of consistent performance and was in line with our expectations. We delivered strong performance in key markets like South Korea, Brazil and Malaysia and in key brands like Lyrica and Norvasc. The year-over-year change was driven by previously disclosed anticipated ARV therapy landscape changes and sales of a certain COVID-related products in 2021. Excluding these two items, total net sales were flat to the prior year. Our JANZ segment performance this quarter was driven by better-than-expected performance of our generics business, as well as our off-patent branded portfolio. Lyrica and Celebrex in Japan came in better than expected. Additionally, the generics portfolio in Japan benefited from favorable market dynamics. The generics portfolio in Australia also performed better than our expectations, which will be further supported by the addition of a key wholesale and pharmacy customer. Greater China continued its strong performance and exceeded our expectations this quarter with 1% year-over-year operational growth. Our ability to manage the business and supply chain effectively through the COVID lockdown period is a testament to our commercial strength in this market. Our hospital channel again demonstrated a strong performance, led by Lipitor and Norvasc. We are on track to meet our full year expectations as we continue to navigate the evolving health care policy. We also continue to make steady progress in building up our R&D portfolio for China. I will now share an update on our pipeline, which builds upon our strong legacy in the development of value-added complex products and our extensive scientific capabilities. I'm pleased to report that we have been able to successfully manage the trial of glatiramer acetate once monthly and remain on schedule despite the unfortunate situation in Ukraine. We expect to read out our Phase 3 clinical trial by the end of this September, and we remain on track to make our US submission in quarter one 2023. We received FDA approval of fingolimod, which is a generic to Gilenya and are on track to launch in the US in 2024, timed with our settlement date. We filed our submission to oculotideMR in US in this May, which keeps us on track to launch in 2024. Our new in-license ophthalmic program, MR139, for the treatment of moderate-to-severe chronic blepharitis is making steady progress. And we intend to submit the IND for this program at the end of the year in order to initiate the Phase 3 clinical trial in quarter one 2023. We are making steady progress on our biosimilar to Botox program with Revance. We are targeting a BLA submission in 2025. And we remain committed to the launch of this complex biosimilar at the earliest possible launch in the United States. And finally, Biocon expects FDA site inspection of two of its sites to be collected in the next few weeks, which hopefully will pave the way for biosimilar bevacizumab and insulin as part approvals later this year. We believe we are well-positioned to add more complex products and pursue additional opportunities to further move up the value chain by leveraging our global health care gateway and strengthen our pipeline in the previously stated therapeutic areas of GI, ophthalmology and dermatology. And lastly, an update on integration, I'm pleased to report that we continue to make significant progress. As you may recall, the legacy Upjohn business was heavily dependent on Pfizer systems and infrastructure, which was supported by a significant transition services agreement. We are currently on track to exit the remaining Pfizer TSAs by end of this year. And I would like to thank our colleagues from Viatris and Pfizer around the world supporting this important initiative. We are also on track to achieve at least $1 billion in cumulative cost synergies by the end of 2023. With that, let me now turn the call over to Sanjeev.
Sanjeev Narula: Thanks, Rajiv, and good morning, everyone. Slides 16 and 17 show second quarter financial highlights as well as results for the first half of this year. For the quarter and first half of 2022, the operations of the business were in line or slightly ahead of our expectation. This performance is across our global diversified portfolio of brands, generics and complex products. As anticipated, operation revenue was solidly in line with our expectation, but slightly down compared to prior year. Adjusted EBITDA and free cash flow were ahead of expectation. And we were able to offset foreign exchange headwinds. The business benefited from strong adjusted gross margin, lower adjusted SG&A due to the realization of synergy and disciplined spend management. Cash flow benefited from our cash optimization initiative and reduction in one-time cash costs. Moving to slide 18. For the quarter, we have seen dollar strengthening significantly against major currencies, including the euro. As a result, net of hedging activities, foreign exchange had an impact of approximately 7% on net sales versus the second quarter 2021. Net sales were in line with our expectation on an operational basis, down versus prior year by approximately 3% due to anticipated drivers. Our developed market business has a strong quarter and were operationally flat versus prior year. This performance was driven by strong growth in Europe due to category diversity, partially offset by anticipated competition on key products in North America. As anticipated, other base business erosion was primarily driven by lower ARV volumes due to the anticipated change in therapy landscape and lower sales of certain COVID-related product. New product revenue was driven by interchangeable insulin glargine in North America. Despite foreign exchange headwinds, we had another solid quarter of adjusted EBITDA that were ahead of our expectations. Adjusted gross margin was driven by strong brand performance and favorable segment and product mix. SG&A continues to benefit from our synergies, integration activities and disciplined spend management. Turning to slide 19. We had another excellent quarter with better-than-expected free cash flow of more than $700 million, up significantly versus the prior year. This improvement in our cash flow conversion was driven by positive changes in the operational working capital and lower one-time cash cost. Free cash flow through the first half of the year was strong at $1.8 billion, an increase of approximately 40% or $500 million compared to same period last year. Slide 20 illustrates our capital allocation framework and the strong and consistent history of free cash flow generation since the formation of Viatris. I'm proud to say that over the last six quarters, the company had generated more than $4.3 billion of free cash flow. We are well over the halfway mark of our goal of generating more than $8 billion in free cash flow by the end of 2023. This has allowed us to deliver on our capital allocation commitment. For the year so far, we have repaid approximately $1.5 billion of debt and more than $3.5 billion since the beginning of 2021. Additionally, we have paid approximately $219 million in dividend this year and approximately $690 million in dividend since the beginning of 2021. We remain committed to our 2022 debt repayment target of approximately $2 billion. This will strengthen our balance sheet and support our commitment to maintain an investment-grade rating. We expect to accelerate financial flexibility through the anticipated closing of biosimilar transaction in the second half of 2020, which we expect to net approximately $1.6 billion after-tax proceeds. As we look ahead, we expect our capital allocation framework will broaden with potential share repurchases in tuck-in or bolt-on business development opportunities. Before I discuss our revised 2022 financial guidance. If you recall, our commentary may mention we would reassess the foreign exchange impact on total revenue, adjusted EBITDA and free cash flow. The dollar has strengthened significantly across major currencies and approximately 70% of our business is nondollar-denominated. Moving to Slide 23. The business is in a strong position through first six months of the year. And we expect full year revenue to be inline, if not slightly ahead, of our expectation on an operational basis. With respect to our revenue guidance, we now estimate an approximately 7% foreign exchange headwind on a full year basis, assuming July rate hold for the remainder of the year. As a result, we're revising our revenue guidance range by $800 million to $16.2 billion to $16.7 million. Our revised revenue guidance takes into account foreign exchange impact through the first half of the year and approximately $600 million, split evenly between third and fourth quarter of 2022. Operationally, we expect revenue will be driven by continued ramp-up of new products, including the US launch of lenalidomide in the second half and the seasonality of Influvac in developed markets. Because of our continuing strong execution and operational performance, we currently expect to be able to absorb the foreign exchange headwind within our free cash flow range and also our adjusted EBITDA range. As it relates to adjusted EBITDA, we may end up towards the lower end of the range. Our expectation to absorb foreign exchange headwind is due to several factors, including positive product mix benefiting gross margin, favorable SG&A due to synergies and expense management, as well as increased cash optimization initiatives and lower CapEx. Now let me cover some of the expected drivers for financial performance for the second half. We expect sequential increase in SG&A and R&D in the second half of the year. We expect cash flow will be heavily weighted to the first half of the year, mainly due to the timing of onetime cash costs, of which we expect approximately 2/3 to come in the second half of the year. This includes the previously announced EpiPen litigation settlement, which was paid in July. In addition, we expect capital expenditure to ramp up in the second half of the year. We're pleased with the strong first half performance. The momentum we see in the operations of the business position us well for the remainder of the year. Our capital allocation framework, including debt paydown goals, commitment to dividend and the value we see in maintaining an investment grade, will continue to be important drivers in creating long-term value. Now I'd like to turn the call back to the operator to open the call for Q&As.
Operator: We'll take your first question from Jason Gerberry of Bank of America. Your line is open.
Unidentified Analyst: Yes, thanks for taking my question. This is Bob in on for Jason Gerberry. So, I just wanted to focus on China. Do you have any exposure to upcoming rounds of VBP? And if so, can you size and provide some timing when you'd expect to see any impact? Thank you.
Michael Goettler: Okay. Good morning. Thank you for the question. Rajiv, do you want to talk about VBP in China?
Rajiv Malik: Yeah. Yeah. Thanks Bob. I think -- as far as China is concerned, we have been living with this evolving healthcare policy, VBP. Now you are in the UK with VRP lived through COVID cycles. And we continue to see a strong performance from one of its kind. I think it's a very strong commercial infrastructure. So we have -- our team has managed the business for the transition well. And both the channels, the hospital channel as well as retail channel continue to perform better than our expectations.
Michael Goettler: Okay. Next question please.
Operator: Our next question is from Elliot Wilbur of Raymond James.
Elliot Wilbur: Thanks. Good morning. Just one question for Sanjeev. I just wanted to get a little bit more detail in terms of the change in outlook with respect to FX and then the anticipated impact on the EBITDA and free cash flow line. So I think at the beginning of the year, when you first provided initial outlook, you talked about an FX impact roughly $350 million, then there was an anticipated negative impact of about 35% of that to the EBITDA line. Now, obviously, you have a much bigger potential headwind coming from FX, but not really any impact to the EBITDA or free cash flow line. So maybe you could just go into a little bit more detail in terms of what's offsetting that, whether it may be just effectiveness of your hedging programs and some hedging gains. Or if it's really just more about the natural mix of the business and then just having the appropriate natural offsets or hedges to that? Thanks.
Sanjeev Narula: Thanks, Elliot. So let me unpack that, just a couple of things I want to just -- so first of all, I think put the FX aside, as we've said in our opening remarks, business is performing very well operationally. Whether you look at segments, you look at new product revenues, our spend management, cash flow generation pipeline business is performing as expected, if not slightly ahead for the first two quarters. And that's the outlook we have for the rest of the year. So that's -- keep that in the mind that that's kind of what is going on. In terms of FX, when we gave our guidance back in February, we had anticipated approximately 2% FX impact, roughly $350 million in the top line. And that's what we showed that in that guidance shift. And then what has happened is when we came out in May for our first quarter call, we highlighted that there's going to be additional 2% FX impact on top of that, based on the rates as they were at the time of our conference call in May because dollar has further strengthened. Now when we are in July, that's what we've upgraded, we updated the guidance. The overall FX impact on the top line is incremental of 5%. So 2% was built into the guidance, 5% is what we have. That's the 7% that we've gotten later. And that's just a function of, Elliott, 70% of our business is non-US dollar denominated. 45% of foreign exchange impact comes from euro. And euro is at historical low, as you know about that. We do have the hedging programs in the company, the industry standard layering we do, and to the extent we can. And this -- the impact that we talked about is reflective of that. Coming to the last part of your question in terms of how we are able to offset that. Clearly, we are able to offset because of the operational strength of the business. So if you look at the EBITDA, we have done -- so far, we are ahead of gross margin, because of the favorable mix in terms of our product segment and excellent control on the cost of goods. And then on the SG&A line, we are doing better with synergies and disciplined expense management. Both is going to help on the EBITDA line to be able to offset the impact of that. And as you noticed, we've actually increased the gross margin midpoint by a 50 basis points on a full year basis because of the strengths that weâve seen in our business so far. Coming to the last point about free cash flow, we've actually done very well, as you see in the first two quarters, over 40% versus last year. We continue to see strength in our cash optimization initiatives. That will actually help. And then there's some lower on CapEx that we're going to be able to offset. So we feel very confident about the EBITDA range and the free cash flow range that we provided.
Michael Goettler: Next question please.
Operator: Our next question is from Chris Schott of JPMorgan.
Chris Schott: Great. Thanks so much for the questions. I just want a little bit more color on additional divestitures in terms of just how far along are these discussions? And maybe kind of more broadly, does the rising rate that we're currently in, is that impacting how prospective bidders are thinking about valuation or even just the sort of assets that you may be looking to sell? So just any more color on that would be much appreciated. Thank you.
Michael Goettler: Chris, good morning. Thanks for the question. Look at our company's opening remark, let me first talk a little bit of Biocon. The progress there is clear. We're making good progress. We received all the antitrust clearances. And we made good progress with our partner. Biocon also is setting up TSAs, talking about transition and all of these things. So that's on track for closing in the second half. We're very, very confident about that. Now on the other divestitures, I also said we're on track. We said we're going to close this by the end of 2023. And we're making good progress there as well. And as far as evaluation is concerned, really it's not so much of a concern for us at the moment. I think these are high-value assets. They're a well-performing business. So fundamentally, nothing changed on that, and we'll give an update as we go on. Next question?
Operator: Our next question is from Umer Raffat of Evercore.
Umer Raffat: Hi, guys. Thanks for taking my question. I have a question or clarification, if I may. On capital allocation, especially after the Biocon deal closes, there's been an investor question on how the dynamic nature of the market right now could or could not impact how you're thinking about whether you will have preferences around buyback versus debt pay down versus possibly SMID biotech M&A. So I'd be curious what your latest temperature is on that. And also on the glatiramer study, is the data in-house already? Because it looks like the 52-week endpoint was hit back in May time frame. So I'm just trying to understand sort of the amount of time it's taking to get the data process. Thank you very much.
Michael Goettler: Very good. So I'll take the first question, and Rajiv, maybe you can address the second one. So Umer, on capital allocation, look, we're very consistent. Our strategy is very clear. First of all, the basis, we're confident to meet our 2022 and 2023 financial commitments, which includes dividends. You saw our Board has, yet again, declared $0.12 per share dividend. Debt paydown, Sanjeev gave you an update on about the progress, the good progress we make there and then maintaining investment grade. That's the baseline. As we look ahead, we expect to close the Biocon transaction in the second half of 2022, which will provide us optionality and flexibility with capital allocation. And then the other non-core asset divestiture also remain on track for 2023. So with regard to share buybacks, other capital allocation decisions, we'll make those decisions with value for shareholders in mind at the right time and for the right reasons, considering all the circumstance and effect. And Rajiv, you want to talk about--
Rajiv Malik: Yes. And no more regarding the GA once monthly, as you remember, we had already indicated that about 10% of the patients for this trial were in the Ukraine. And in fact, we were anticipating at one point of time, there might be more delay in managing that, but I think the team did a great job. And we go to -- at my prepared remarks, as I mentioned, we will having a readout be these results sometime in the middle of the September. So, we're looking forward to that and sharing with you -- with all.
Michael Goettler: Okay. Next question please.
Operator: We'll take our next question from Gary Nachman of BMO Capital Markets.
Gary Nachman: Hi. Thanks. Good morning. On your scaling back efforts on spending in order to manage the EBITDA you face these FX headwinds, how much of that will come back? And how much of these costs are permanent? So, how much was, I guess, from original cost synergies? And how much of that might be new? And then just talk about some of the other levers that you have to improve cash flow, like the working capital and the reduction in CapEx. How should we think about those trends going forward? And then also the improvements in gross margin, how that should trend for rest of the year and into next year? And how durable those improvements are? Thank you.
Michael Goettler: Sanjeev, I would ask you to start on that and maybe, Rajiv, you can add.
Sanjeev Narula: Okay. Sure. So, Gary, let me take all three items one by one. So, clearly, as you heard in our remarks, we are managing our synergies and integration very well and expect to achieve our synergy target that we laid out. And then we're doing exceedingly well on managing the expenses. So, clearly, all those items are going to stick. And there is clearly obviously some benefit that we're getting because of the FX, as you see. But all the items that we are seeing, in terms of our SG&A line, are sticky and sustainable over a period of time. Clearly, as we look for the second half of the year, there is going to be a little bit of a ramp-up because of the timing of the spend. But overall, we feel good about the trajectory of our SG&A line. With regard to, again, on the free cash flow, the improvement that we're doing are of permanent nature. These are fundamental drivers of working capital, whether you're looking at how we pay, how we receive, those are fundamental drivers of the changes that we're doing and how we operate, and they're going to stay with us. And clearly, there is some benefit that we're getting this year a little bit on the lower CapEx. But essentially the broader point about improvement in cash flow will sustain and help us on the coming years and then lowering one-time cash costs, which is again is a permanent benefit that we see as we go forward. The last item is on the gross margin. Clearly, as we see in the first two quarters, we have a better product mix. We're getting better products, the higher gross margin and from geographies, which have a higher gross margin, and that our cost controls are doing very well on the cost lines. So, again, those benefits are going to stick with us for the remaining of the year. And then as we come out with the next year's guidance, we'll provide more details on that.
Michael Goettler: Yes. And I think overall, overall comment I would make is our business is strong. We now have six quarters of strong operational performance. This is not that -- we're not in the cost-cutting business or cost-cutting or achieving results. We're doing this to set up the business and strengthen the business over the long-term. Next question.
Operator: Our next question is from Greg Fraser of Truist Securities.
Greg Fraser: Good morning folks. Thanks for taking the question. On the glatiramer program, what's the bar for success in the Phase III study? Is that perceived look similar to capacity on tolerability of favorable? Is that a win? And how are you thinking about the commercial potential of that product? Thank you.
Michael Goettler: Sorry, just for clarification, you're a little bit unclear. Which study are you asking about?
Greg Fraser: The glatiramer once-monthly.
Michael Goettler: And what was your question, sorry?
Greg Fraser: The bar for success and what you're hoping to see in that study and also how you're thinking about commercial potential.
Rajiv Malik: Yes, it's on the RRMS. And very clearly, we are looking into the improvements around that. It's not the progressive study, a relapsing one. And that -- it's very much at the moment with the indication of the Copaxone is. What we are looking forward is the effectiveness once-monthly.
Michael Goettler: Yes. It's a monthly drug.
Rajiv Malik: Yes.
Michael Goettler: Next question, please.
Operator: Our next question is from Ash Verma of UBS.
Ash Verma: Hi, guys. Thank you for taking my question. So just wanted to understand the levers for 2023 top and bottom line. We see consensus are 16.5 and 5.8 EBITDA. Does that look like the right ballpark to you, or just directionally speaking, your partner, Biocon, recently identified biosimilars like $1.1 billion and $250 million top and bottom driver for 2023. So as you look at your 2023 numbers, does the consensus represent like an adequate step down to you? And my second question is, just around like investing in the business. So, clearly, you're absorbing a lot of cost on the OpEx side. How is inflation playing in all of this? You haven't made any comments on that. I'm just curious, how much of the OpEx is being driven up by higher inflation that is resulting you to optimize your spend base even more versus than you would have otherwise?
Rajiv Malik: Thanks. Yes.
Michael Goettler: Thank you. So we're not giving 2023 guidance. So that's what I would just say for the first question. For the second business, look, our business is strong. And I want to remind you, we were actually -- when we give guidance, we already foresaw and included inflation in the guidance that we gave. We're actually, I think, one of the few companies that did that. And so, versus that, at the time, we are performing as expected, and the business will go, is very strong. Rajiv, anything you want to add?
Rajiv Malik: No. I mean, the only thing I will add, we are not cutting the cost to manage it. It's exactly -- we are running and driving the business as we had planned. And we are hitting on all cylinders to -- whether it's by segment or by operations or it's for the cost of goods.
Sanjeev Narula: And the refined point is, again, continue to look at the cash flow generation. As you saw that in the sixth quarter, it's very, very strong. And as you get into the next year, those benefits will continue. And that as we reduce the one-time cash costs, you're going to continue to see significant cash flow generation of the company.
Michael Goettler: Okay. Final question, please.
Operator: We'll move next to David Amsellem of Piper Sandler.
David Amsellem: Thanks. So just had a couple of high-level questions, just on capital deployment. And certainly, you've talked about this in the past. But as you start looking at assets to buy, do you start to look at prioritizing share buybacks differently, or not prioritizing them at all? And then, also, as you're looking at assets to buy a larger transaction down the road, how do you think about the dividend? Just help us understand your latest thought process. Thank you.
Michael Goettler: Sure. David, let me reiterate again that we've been very clear and consistent about what our capital allocation priorities are. Again, there is -- so the base, the base is that we need to hit our '22 and we will hit our '22 and '23 financial commitments, that includes the dividends. We're committed to a dividend, that includes debt paydown, which we're very committed to and it improves maintaining investment grade. Then with the divestitures we have, we get optionality. The Biocon transaction for the first time, which we expect to close in the second half, we get optionality. And then with the other core assets, which we are on track for end of '23, we get additional optionality. And we do make the right decisions with shareholder value, in mind at the right time for the right reasons, given all the circumstances at that time, right? So -- but you know where our commitment is on that. On assets that we're looking at for business development, nothing really has changed from the analysis that we did. We continue to believe that the therapeutic areas that we pick from moving up the value chain are the right ones. I think that gets confirmed. And -- but we also continue to be GA agnostic. And as we said, we look at all opportunities. The global health gateway, as you said is always is an integral part of our strategy. It's integral part of our business model to leverage our global infrastructure, to leverage the commercial platforms that we have, to strengthen the business for the long term. We're very disciplined about this. I think we've proven that over the last six quarters. They should always expect us to look at all opportunities, organic or inorganic as we go on.
Rajiv Malik: And David, to your point about dividend, just kind of want to reiterate. Commitment to dividend continues to be a priority in returning capital to shareholders, that's very important for us, and that will be a priority as we go forward.
Michael Goettler: I think we have time for one more question, operator.
Operator: We'll take that question from Nathan Rich of Goldman Sachs.
Nathan Rich: Hey good morning. Thanks for the question. I'll ask both upfront. First, I wanted to ask on whether you've seen any change in underlying pricing trends for the generics portfolio. I think kind of looking at results from peers so far this quarter. The updates have been a bit mixed. I'm just curious kind of what you're seeing? And then is inflation changing the conversation with the buying groups at all and maybe potentially support to pricing going forward? And then you highlighted the progress with the Biocon divestiture. I guess could you give us an update on the other kind of noncore assets that you might be looking to divest? And kind of what you're seeing currently in terms of timeframe for when we might hear more on that front? Thank you.
Michael Goettler: So let me take the second question first, because only out to that is, we're on track for end of '23. And we're going to give you updates as we go along as it happens. On the pricing dynamics, I think, very important you understand the difference in the portfolios between different companies that make comments on it. And Rajiv, maybe you can comment.
Rajiv Malik: Yes. any price -- underlying pricing trend is an outcome of the portfolio. And we have, for years consistently work to shape of our portfolio to have â yes, of course, we will have some generic commodities, but more and more of the complex hard to make mix, with a different sort of erosion profile. And as an outcome that I can talk not of this quarter, but for the last several quarters, we have consistently seen. At a company level, we have a price erosion of about -- at an enterprise level at about 3%, 4%. When it comes to North America, even at this quarter, exceptional items, we have seen about 4% price range. So we see the continuing trend of mid-single digits. Now has inflation change the pricing? Some of these discussions we would expect that and what has actually started making a difference is the buyers are also seeing rationalization, as every company is undertaking, especially it on oral solid products. They see â they would see that many companies discontinuing those products and I think thatâs sending a bigger message to the buyers that the sustainability of this very important industry is first time, I think is coming would being put on the table when we go back and have those discussions because the cash flows of this business are so important for us to reinvest in and brining in more and more hard to make products like whether its Advair or Symbicort and that can go on. So thereâs a balance and I think thereâs a discussion which is right at this time on the table and I am glad that we are having those types of discussions rather than just fighting discussions.
Michael Goettler: Okay. I think that concludes our quarterly earnings call from Viatris. Hope you got the message. Weâre hitting on all cylinders operationally. We now demonstrate â which weâre proud of six quarters of strong consecutive operational performance was taken to our -- and delivering on our financial commitments. And we're also making great progress on our reshaping initiatives. And we look forward to updating you more as we go along. Thank you very much.
Operator: This does conclude today's Viatris 2022 second quarter earnings call and webcast. Please disconnect your line at this time, and have a wonderful day.
