Good morning. My name is Gretchen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Viatris 2022 Third 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. [Operator Instructions] Thank you. I will now turn the call over to Bill Szablewski, Head of Global Capital Markets. Please go ahead.

Good morning, everyone. During today's call, we will be making forward-looking statements on a number of matters, including our financial guidance for 2022, various strategic initiatives in our Phase I and Phase II outlooks. These forward-looking statements are subject to risks and uncertainties and that could cause future results or events to differ materially from today's projections. Please refer to today's presentation and our SEC filings for a full explanation of these risks and uncertainties and the limits applicable to forward-looking statements, including certain assumptions and risks related to the Phase I and Phase II outlooks. We will be referring to certain actual and projected non-GAAP financial metrics to supplement investors' understanding and assessment of our financial performance. Reconciliations of those non-GAAP measures to the most directly comparable GAAP measures can be found on our website and in the appendix of today's slide presentation. A copy of today's presentation and other earnings materials will be available on our website at investor.viatris.com following this call. Now I'd like to turn it over to our Executive Chairman, Robert Coury.

Almost two years ago today, we brought together two great complementary organizations to form a new company, Viatris, with the purpose of creating a sustainable global health care leader. Under the leadership of our Board of Directors, along with management, we laid out a very clear and deliberate strategy to build a highly diversified company with multiple capabilities spanning numerous geographies and therapeutic areas. At that time, we established a two-phase road map that detailed and emphasized our strategic priorities to deliver value to our shareholders. Phase 1 has always been designed as our setup Phase for Viatris. It is about building a rock solid foundation setting us up for Phase 2, which is expected to be a period of renewed growth and leadership in our sector. Up until now, we have been laser-focused on executing on Phase 1, consisting of the years 2021 through 2023. In doing so, our priorities have been clear: integrate the two organizations, generate $1 billion in cost synergies, deleverage the balance sheet, pay down at least $6.5 billion in debt, reduce our gross leverage to our long-term target ratio of 3x and maintain our investment-grade rating, all while returning capital to our shareholders. Today, here's where we stand. First, we continue to execute on our integration plans and are well on track to capturing at least $1 billion of cost synergies by the end of Phase 1. Second, we continue to exercise our financial discipline and intend to keep our investment grade rating. Third, we paid down $4.2 billion in debt since the beginning of 2021 and are on track to paying down at least $6.5 billion by the end of Phase I. And lastly, we returned capital to shareholders beginning in 2021 with our inaugural dividend, growing the dividend by 9% in 2022…

Thank you, Robert. Now following your detailed outline, let me go directly to today's acquisition announcement and a high-level overview of our Q3 results. In February, we announced three therapeutic areas of focus for moving up the value chain with NCEs and 505(b)(2)s and that included ophthalmology. We believe that the two ophthalmology acquisitions which we're announcing today, Oyster Point Pharma and Famy Life Sciences, give us a significant head start in creating an ophthalmology franchise within the Company that will set a strong foundation for what we expect to be a future ophthalmology leader and in accelerating our strategy to move up the value chain. The total cash consideration for both acquisitions, including equity and debt, will be between $700 million and $750 million. I'm excited about the assets, the talent the expertise and the capabilities which we're bringing into the Company with these acquisitions. Oyster Point will provide us with an exciting commercial stage growth asset, Tyrvaya, the first and only FDA-approved nasal spray for sinus symptoms of dry eye disease with a unique and novel mechanism of action, activating the trigeminal parasympathetic pathway to increase the production of the patient's own natural tear film. Tyrvaya was launched in November 2021 and patients and physician feedback is very encouraging. Dry eye disease is an area of major unmet medical needs affecting approximately 17 million patients in the U.S. alone, and we're excited to bring an important innovation like Tyrvaya to more patients and more countries consistent with our mission to empower patients worldwide to live healthy at every stage of life regardless of geography or circumstances. Clinical development is also ongoing to expand Tyrvaya into further indications, such as neurotrophic caratopathy. In addition to that, the Famy Life Science's acquisition will add five additional Phase III or Phase…

Thanks, Michael, and good morning, everyone. I'm very proud of what we have accomplished in our last two years as Viatris. We have executed seven consecutive quarters of strong performance, underscoring the underlying strength of our diversified base business. Let me begin with brief commentary about our strong third quarter operational results. On an operational basis, we were down 1% year-over-year for the quarter. Every segment performed solidly versus our expectations, including China, despite COVID headwinds. Our Generics segment in developed markets benefited from the launch of lenalidomide in North America. Overall, our Brands grew 1% year-over-year on a rational basis in the quarter and performed better than expected, led by Lipitor, Brufen and Creon. Our resilient global operations once again delivered excellent customer service levels while we weather increasing headwinds from inflation. Moving to integration. We successfully completed our remaining SAP cutovers from Pfizer, and we have now substantially exited all of the remaining transition services. For the full year '22, we now expect to deliver approximately $525 million in new product launch revenue with better-than-expected margins, but below our expectations due to the timing of certain launches. And on the R&D front, we crossed a major milestone with the announcement of positive top line results from our GA Depot Phase III clinical trial along with our partner Mapi. We remain on track for our submission to FDA in quarter one, two and three. Now turning to the next slide. I want to remind you of our operational priorities for Phase 1. We are well on our way to integrate and synergize, stabilize the base business and deliver the pipeline. In addition, we are on track to complete the planned divestitures by the end of '23. We believe these achievements position Viatris well for the future growth. Flipping to…

Thank you, Rajiv, and thank you to Viatris for allowing me the opportunity to speak today. Good morning. My name is Jeff Nau, and I am the President and CEO of Oyster Point Pharma, a public biopharmaceutical company focused on the discovery, development and commercialization of first-in-class pharmaceutical therapies to treat ophthalmic diseases. Our mission at Oyster Point is to advance truly breakthrough science to deliver therapies that patients and eye care professionals need. I was the first employee at Oyster Point in 2017. And since then, we have grown the Company to more than 250 employees, including launching one of the most exciting commercial products in dry eye disease with a leading sales team in ophthalmology. By educational training, I hold a Masters in Medical Science and a PhD in Public Health and Epidemiology. And for over 20 years, I have dedicated my career exclusively to drug and device development in the field of ophthalmology. Prior to joining Oyster Point Pharma, I was involved in the development of a number of promising therapies in the retina space, including while at Genentech, where I was part of the FDA approval and commercialization of numerous indications for the anti-VEGF therapy Lucentis, a medical breakthrough for treating blindness which generated multibillion-dollar peak annual sales. The Oyster Point team brings decades of experience in the eye care space, with most of the leadership team dedicating their entire careers to eye care. Currently, we are one year into the successful launch of our first FDA-approved product. Tyrvaya is the first and only nasal spray for the treatment of the signs and symptoms of dry eye disease. Dry eye disease is a large market affecting an estimated 38 million Americans and over 700 million people worldwide. It's a chronic multi-factorial disease, which is characterized by…

Thank you, Jeff, and good morning, everyone. It's great to be with you today to share my thoughts on the recent quarter and expand on what you've heard from Robert, Michael and Rajiv on the outlook of our company. Please turn to the slide with our third quarter financial highlights and the outlook for fourth quarter and full year 2022. We had another strong quarter operationally that was in line with our expectation. On a reported basis, revenue was impacted by foreign exchange headwinds by approximately 9% versus Q3 2021. Let me walk you through the key drivers that contributed to the strong performance in third quarter. For revenue, we saw continued stability in our segments, including developed markets and China. New product revenue in the quarter benefited from the launch of lenalidomide in the U. S. This performance contributed to an overall favorable mix resulting in better gross margin. With respect to SG&A, we continue to benefit from synergies. R&D increased due to continued investment in the pipeline. We had another strong quarter of free cash flow generation. This underscores our confidence in the stability of our base business and the organizational effort around cash optimization initiatives. On a year-to-date basis, we have met 2020 commitments and have paid down approximately $2.1 billion in debt and have also paid out approximately $436 million in dividends. With three quarters of solid performance under our belt, we feel good about the rest of the year and expect the positive momentum to continue. Now a few comments on the expected Q4 financial results. We anticipate the gross margin percentage will moderate from third quarter levels due to product and segment mix. SG&A, similar to last year, is expected to step up from Q3 2022. Free cash flow is expected to be significantly…

[Operator Instructions] We'll take our first question from Elliot Wilbur from Raymond James.

A lot to digest this morning. I appreciate the team taking the time to walk us through the detail. My first question and only question, I guess, is with respect to the acquisition of Oyster Point and Famy Life Sciences. I know you've talked about the ophthalmology portfolio generating around $1 billion in sales by 2028. But if I look at current external expectations, at least for Oyster Point, they seem to embed peak sales somewhere around $400 million, which I assume is Tyrvaya exclusively in 2027. And I know that you're expecting contribution from some other pipeline assets, but doesn't seem like many of those would hit before 2025 or 2026. So I'm trying to close the gap there between external expectations and what you are anticipating in terms of contribution from the new broader portfolio. Are you simply more optimistic on Tyrvaya than external expectations? Or am I under appreciating the potential contribution from some of the pipeline assets in that period of time?

Elliot, I will take. And maybe later on, Jeff can add. So first of all, let me just break it. One is that, yes, Tyrvaya U.S. expectations and we are talking about the global expectations. We have take this $1 billion, divide almost 2/3 is U.S. and 1/3 is the rest of the world for us. That's the first one. The second one is most and maybe every -- all of these products will hit the market within this period of time. Because as you see, there are some Phase III assets and well advanced. And it's not going to be a long clinical study over there. So, we see more products launched around '26, '27 to add on along with Tyrvaya. So and if I have to do it by portfolio, I think our dry eye will be almost 2/3 again and 1/3 will be -- maybe, Jeff, do you want to add something to that?

We're really excited about the portfolio that's been created here. And as Rajiv said, with the two dry eye assets making up most of the potential, I wouldn't discount the other products that are in the pipeline. They are exciting markets. This is the leading front of the eye portfolio. Lots of unmet need here with regards to things like blepharitis [Technical Difficulty] we're really excited about the opportunity to go forward. And I think what's most exciting about it is, we have many Phase III-ready assets that will drop right into an existing sales force that is there and ready to go.

Your Next question comes from Umer Raffat from Evercore.

EBITDA. So your midpoint of the guidance is $6 billion. And Robert, I think you mentioned between divestitures, the SEC accounting as well as additional spend on new tuck-ins, it sounds like there's an additional $1 billion to $1.2 billion worth of headwinds on EBITDA, and that's without sort of the impact of China VBP rollout back on schedule next year. So is it fair to say that the EBITDA in 2024 is trending somewhere between $4.6 billion and $5 billion? That's question number one. Number two, on Oyster Point. It looks like there's either a bridge program or a major co-pay assistance in place. And you can kind of see that on the realized pricing per prescription versus where Xiidra and where RESTASIS track. Can you speak to the absolute BOMs we're seeing and to the extent we can scale them up? And also on Oyster Point, the Phase II OLYMPIA trial in neurotrophic keratopathy, that was due right around now. There was no update of that. I'd be curious on that. And it looks like the CVR is in the bag because the TRx and the sales numbers that were pointed out, it looks like it's trending towards that anyway. So we should assume that Oyster Point acquisition is $450 million valuation, correct, plus the net debt?

So let me go first. Obviously, I want to thank the entire investment community and really all of you for your input since the management team came forth in February because today, we're able to deliver in much more detail just on the basis of answering all of your questions, quite frankly. And so the clarity that we gave you, and obviously I want to be clear, we're not giving the kind of the detailed '24 actual financial guidance right now. But we've given you enough directionally a guide where I will not dispute, let's just say, some of the things that you're throwing out because I think, once again, given your numbers, you can get to -- people can see you can get to where you are. I think the most important, Umer, is in my prepared remarks, I also try to be clear that we've taken into consideration living out 2023 with the rest of the initiatives that -- and the actions that were going to be taken as well as the pushes and pulls that we can see today in order to build that bridge for you to get to '24 to where you're at. So Jeff, do you want to take his next question?

Yes. Maybe I'll break it down into two parts, and we'll answer the easier one first. So as we have earnings coming up this week, what I would say on Olympia is we are tracking according to schedule, and we'll have an update there. And then with regards to Tyrvaya, I think what's really important in looking at this product is obviously first launched into the space this year. Our goal this year was really to build prescriber base. We are primarily a commercial prescription product this year. We still have bridge on. As we enter into 2023, we intend to pick up additional coverage. And at that point in time, we will reassess bridge. But I think that's also a really big opportunity for some marketing during that time. So we want to make sure that we have good coverage on before we really pull the trigger on marketing. And as we know, this space is highly sensitive to that type of marketing. I think when you look at a product like Tyrvaya, there's a really unique opportunity to market the patient as it is the only nasal spray for the treatment of signs and symptoms of dry eye disease.

Next question is from Balaji Prasad from Barclays.

This is Michaela on for Balaji. Just circling back on the acquisition. Just wondering if this would be the template for your other two specialties as well? And could you provide some more color on when the EPS accretion will start?

So, I think as I mentioned in my prepared remarks, yes, we think that this is an excellent example of a very attractive -- the type of targets that we can be highly sensitive, while maintaining our investment grade, while being sensitive to the increase in R&D and while we continue to be real sensitive to adding to the growth to the top line. But I think most importantly, in terms of an earnings per share accretion, I also try to stress, given now the clarity that we've now delivered to the Street our capital allocation, we cannot ignore the 50% commitment once we're done with Phase 1 and hit our gross leverage target of 3x. There is a tremendous amount of more capital we intend to return to shareholders and especially through share buybacks. So, I think that the earnings accretion, the adjusted earnings per share growth is really going to be what this story is all about on a going-forward basis.

Next question comes from Chris Schott from JPMorgan.

You've laid out today why ophthalmology is the right vertical for Viatris. But I'm just interested in how you compared, I guess, this vertical versus some of the franchises like OTC and biosimilars where the Company also had an established footprint but where the Company is exiting. So, I guess what led you to kind of build up this direction and exit the others? I'm just trying to understand a little bit of kind of the thought process of kind of what's staying and what's going as you're thinking about the portfolio build?

Thanks, Chris. I mean I would say that we made a -- we've done a tremendous amount of work and analysis on where we wanted to take Viatris. We've examined all the things that have worked in the past, investments made in the past and kind of sort of where we are, where we want to take. I would say that the financial analog of our entire business model is what we're being most sensitive to. If you look at our current pipeline portfolio and if you just examine the rotation within our own pipeline portfolio, we've been changing, moving up the value chain. We have a complete different product mix today than we did four or five years ago. And we've seen the benefit of that already. So continuing to move up the value chain, and really, for example, the OTC, I'll be honest with you, is just a great business. It's not a declining business. It had very low single-digit growth. But in order to even keep that since we're not a consumer-oriented company, there was a tremendous amount of investment we would have to make year in and year out to support even that low-digit growth. Now as we shift our attention and really have identified what we consider to be what was once a core asset, no longer to be really a core asset, where we want to focus our attention going forward, both in human capital and financial resources, we think that today is a very good example of the opportunity to really once and for all set the interest on the trajectory of growth and do it in a way where we can grow that top line, grow the EBITDA, continue to generate significant cash flows while returning a substantial amount back to shareholders and especially through the share repurchases.

Your next question comes from Gary Nachman from BMO Capital Markets.

Thanks for the update. So for the other non-core divestitures, to get to the $5 billion to $6 billion of additional proceeds, that's a lot to get through between now and the end of next year. So how far along are you with those discussions? And what's your confidence in getting that done with respect to the different areas that you outlined? Maybe you could walk through some of the opportunities in more detail. And then just a quick follow-up. Just what caused some of the launch delays causing new product revenue to be lower than expected? And when you think of the annual contribution per year, I think you said $450 million to $550 million, just talk about your confidence in that, how risk-adjusted that number is given the importance in generating the 3% revenue CAGR in '24 to '28?

I mean just in terms of the -- and let me take the second one, Rajiv. But in terms of the -- we actually did really have a head start. We've been working on this project for quite some time in terms of identifying these particular assets. We have all the right advisers on board for each one of these. So, we are well into the process. And we see no issue at all by striking and executing on each one of these in '23 and actually expect to even have the proceeds, certainly and if not, by the end of '23, the proceeds from these initiatives, but very, very shortly thereafter. Rajiv?

Yes. On the platform stands around top, as Robert mentioned about very clearly on rotation in the pipeline, over the several years, we have been moving up the value chain steadily and have proven success record. Now on -- if you just -- that's why I tried to give you a little bit more granularity today about the growth catalysts of this pipeline. I try to break it in the bucket of the -- let's just take examples of complex injectables, that how much they add. In the Phase 1 of the -- if I break up this five years, First two, three years, you will see major contribution coming from those injectables. While '25, '26 onwards, 24 onwards, whether COPAXONE once a month, BOTOX, meloxicam, Xulane Low-Dose, Effexor GAD, now five of these products have a great potential just to have $1 billion over there and injectable bucket of one here. And then we have a dedicated focused program of markets like Europe and China and the rest of the world market. And I gave a breakup of the China benefiting '25 onwards about approximately million every year and Europe getting $100 million to $150 million every year. If you add that up, $450 million to $550 million is a very well-thought and risk-adjusted range.

Your next question comes from Ash Verma from UBS.

For the potential diversity of candidates that you mentioned, I guess what I'm trying to understand is, is the collection -- solely based on whether you can be a core or non-core tier portfolio. Have you also considered factors like how these divestments would impact your main core revenue or EBITDA post play or the user profile?

Ash, obviously, we would have taken all that into consideration to be able to come here and to deliver to you our outlook. So the answer is yes, we've taken all that into consideration.

Our next question comes from Jason Gerberry from Bank of America.

Just on Famy care, it looks like that's probably about half the value that's kind of -- of the $700 million to $750 million. So is there a specific asset that sort of drives the valuation? Or is it just kind of more broadly dispersed across all the late-stage-ready assets? And then as you lay out what looks like a leverage for what will be effectively remain quo, just wondering, is that sort of what you think is the right amount of leverage for this business to carry longer term? And how ambitious should be sort of once the dust settles on all these transactions in terms of either more aggressively or more ambitiously building out some of these specialty brand verticals?

Let me just address on the Famy assets. I'd like to make a point that we've been around these assets for the last five years. We helped set up this company originally. We have a small 13.5% stake. And we've watched the development of what this company has done. So we're very, very familiar with these assets. To be able to find the right frontline asset, such as Oyster with such a phenomenal leadership team, they're very, very much into this community, this was not by happenstance. This was a very deliberate, well-targeted opportunity that we saw to create a real ophthalmology franchise. So yes, we're very, very confident. Michael, do you want to just address some of the actual sure opportunities?

Sure. So Jason, for the Famy life sciences portfolio, it's really portfolio is not one single asset that kind of drives the fair value. Just to give you a little bit more color, the blepharitis asset is the asset that we talked about a few months ago already, which just basically at time Cromologous. We now got the full right to that. Then there is the dry eye product that we're quite excited about, that's very complementary to mechanism of action to Tyrvaya. And the other three indications, the presbyopia, the mydriasis and the night vision, that's actually the same molecule, maybe combined with another one, for all these three indications. So it's a very balanced portfolio.

It was the second question on -- yes, I mean let me just say that after two years of now operating this business, the only way you really ever know what kind of sort of that sweet spot from a leverage ratio perspective is actually living your business and understanding all these pushes and pulls. I would say that the range of about 2.8 to 3.2, with 3 being the midpoint, is that sweet spot range where you can have that accordion, where you can lever up and very quickly, get right back to your target. That is -- I mean we are extraordinarily disciplined and focused on that. All activity from here will be -- that will be front and center because we made some commitments to maintain investment grade. And what we now see, even with that commitment to 3x, we've actually seen through the significant cash flows that we're going to be generating once our Phase 1 commitments are satisfied that we can -- we have enough financial flexibility to fund ourselves. We do not see a real need of outside capital. And that's why I think that the transactions we announced this morning is a perfect example how we can continue to return significant amount more of capital back to shareholders, especially through share repurchases plan but as well as invest in our business at the same time. Sanjeev, do you want to add anything?

I think Robert you covered that. You covered very well that we will have -- that we've not had in Phase 1 additional cash to invest organically, inorganically, and that will support that. That's why we are comfortable with the range that we talked about.

Our next question comes from Glenn Santangelo from Jefferies.

I just want to follow up on some of the pro forma numbers you gave regarding 2024 and the Phase 2 part of the plan. I mean it seems like you're assuming that once you get out to 2024 that the erosion on the base business on the revenue line will be about minus 3%. And now with the benefit of some of these announcements today that the new growth CAGR is going to be plus three -- 6% swing or almost close to $1 billion a year. And so, I just want to make sure I understand in terms of what you're seeing and where that's coming from. It sounds like you -- in the past, you've been talking about $500 million a year from new product introductions, maybe with the balance coming from the acquisitions? And then my follow-up to that would be, does that 3% CAGR in '24 to '28 include any incremental contribution from GI and Derm? Or could those opportunities augment those growth rates from here?

So thank you, Glenn, and welcome to our sector. Let me start by saying, I think you can recalibrate if you get one of the variables in everything that you mentioned, and that is the base business from '24 and going on, we no longer see it eroding. Actually, we see a -- and that's why this morning I took the time because I think it was highly critical that, one, we identify exactly the assets for divestitures to support the economics and the expected proceeds we are going to get in; two, what we intend on doing with those proceeds in a very clear and transparent way. And then three, once these assets are no longer with the -- our core business going forward, what does that base business look like ex any inorganic activity, including this morning's announcement. So it's very important that we share with the investment community what is that current base business that we have right now, with all the assets that we have right now in-house, after these divestitures? What we outlined this morning and what you heard from Rajiv is what we now forecast, given now that we have much more visibility and clarity, a 2% to 3% based this erosion, which is naturally inherent in our model. And we're benefiting from such a lower erosion than really most in our industry because we did diversify ex U.S.; outside the United States. As I mentioned, I think that could have been one of the -- maybe sometimes misunderstood, were viewed as a U.S. and specialty generics company, but we're actually not. We've spent a considerable amount of time to derisk our model not to have such emphasis in any one market or, in fact, any one country. So I think once you can see the base business, only then, in the strength of that base business, only then when you begin to add that anything from that point forward can be truly additive. So if you take a look at the 1% that we see in the base business alone and then add the Oyster Point asset on top of that, that's how you get to the 3% revenue CAGR from '24 to '28 and a 4% to 5% EBITDA growth from there.

And Robert, just to further clarify, you talk about 2% to 3% base erosion, which is being more than offset by $450 million to $550 million of launches to bring what Robert said, a stable base. And then overlay on that, that ophthalmology assets, which will bring it back from flat to 1% to 3% growth.

And the answer to your last point, because there was a lot in your question, Glenn, there is nothing, as a matter of fact, right now, in the current models that we see as a hedge, we committed -- we are committing 50% return of capital to shareholders. But right now in our models, we have the other 50% simply accumulating cash in our current models. We did not deploy that cash yet for two reasons. One, we wanted to hedge for anything that can come our way; and two, we have not really identified at this juncture the specific target that we're looking at other than directionally giving you the kind of assets that we're looking at. So I think that from everything that we see, it should be noted that we are also accumulating cash in our model at a rapid base to be deployed, which also really significantly brings our net leverage ratio down even that much more.

Our next question comes from Greg Fraser, Truist Securities.

I want to follow up on capital allocation. How should investors think about the mix between funding the dividend and share buybacks in 2024 and beyond given the 50% targeted for free cash flow allocation? I guess, is a material increase in the payout ratio likely?

I guess I think the most important thing today, right now, today, and to be very honest with you, I don't know what '24, I'm not going to try to predict what '24 would look like. I think the most important commitment today is the commitment of 50% of our free cash flows to return to shareholders. That is a -- that's our commitment, period. Now if it were today, I have to tell you with our -- as I mentioned, I really think with our current PE multiple and where we are, it's very difficult, very difficult to find a better investment than to buy our own shares back. I just have to be very honest with you. So I think we want to focus on total shareholder return, dividend combined with share buyback. But if it were today, I would probably strike much more on reinvesting in our own business through the purchase of our own shares. Because I think what is going to quickly become the investment -- I think that what Viatris is going to become is very quickly an extraordinarily strong adjusted earnings per share growth story once we begin to execute. And especially the repurchase of our shares is going to go a long way, I think, in that story.

The next question comes from Nathan Rich from Goldman Sachs.

I wanted to ask you on free cash flow. I guess how should we be thinking about the baseline for free cash flow? Kind of understand you're not planning to give guidance, but should we think about sort of the step down in EBITDA similar to what would happen to free cash flow? Or are there other factors to consider as we think about free cash flow in 2023 and beyond? And then just a couple of clarification questions, as we think about the target for EPS accretion next year from the deals as well as share repurchases, any more detail on how much EBITDA dilution you're expecting from the acquisitions? And was the R&D expense step-up of $300 million, was that inclusive of the two acquisitions as well?

Sanjeev, before you answer that question, I think, Nathan, I think we gave you the starting point of at least $2.3 billion in what we see in -- as a starting point. But we absolutely see it growing from there. Sanjeev?

Yes. So Nathan, so as Robert pointed out in the opening remarks, so you start from where we are this year, which is -- it takes the midpoint. We're about $2.7 billion. There are two adjustments that we are making from there. One is the EBITDA loss that is from the divested businesses and the R&D increase. So that both have an impact on cash flow. A high percentage of that goes into the cash flow. On the positive side, you will see our onetime cash cost is coming down. And then there's going to be a reduction in the interest cost as we pay down significant amount of debt next year. So put all those things together and you get our number, which is close to what Robert talked about. Again, we're not giving the guidance. I think the important thing to think about this is once that 2024 is achieved, our focus that we have -- you have seen in t he last seven quarters in terms of continually growing the cash flow conversion in the Company will continue and we continue to add in the growth from cash optimization effort and then obviously focusing on our onetime cash costs. Now 2023 is going to be a little bit choppy, if I kind of use the term, in terms of the cash flow because of all the transactions that are going to be happening during the year. The base cash flow is going to be very, very strong. But as I pointed out, as we divest these assets, the taxes of these assets that only proceeds and some of the onetime cash costs gets recorded in the free cash flow line. So we'll provide you all the transparency so you understand that the cash flow is very strong, but the outlook that I gave you for 2024 is a good starting point from that perspective.

Because I mean, one thing we are not able to be able to time exactly. So until we actually divest the assets that we've identified, we will continue to benefit in '23 from the top line EBITDA and even its cash flow. So look, the beauty about this is that we don't have a gun to our head and there's no need to rush and because these assets are all what they are. They're contributors, but certainly not where we want to apply our focus. That's why we took the time to build you a bridge to get right to '24 with all the activities that are going to be going on in '23.

Yes, the R&D question, so the increased $300 million, that includes the investment from the two assets that we did, the R&D investment of those pipelines.

Our last question comes from David Amsellem from Piper Sandler.

So just going back to Tyrvaya. Can you talk about the challenges associated with the payer landscape, bearing in mind that with Stasis is available as a generic? And I know there's some differentiation that you cited, but I just wanted to get your thoughts on what you have to do to improve access. And then related to that, as you're thinking broadly about your acquisition strategy, are you also willing to look at clinical-stage assets in more rare diseases where payer challenges ostensibly would not be as much as an issue? How do you think about that in your overall strategy in terms of taking on significant R&D risk?

Yes. Great. This is Jeff now, and thanks for that question. So I think with -- as it pertains to our Tyrvaya, as we look at any launch into this space, the commercial opportunity is obviously the first opportunity that any company would face. We've been lucky enough that this year we're tracking at about 19% of our scripts will go to Medicare Part D patients. As we turn the year into 2023, obviously, we expect those formularies to begin to adapt. And we're really excited about the opportunities as we move into that year. We've had great coverage so far on the commercial side. As you talked to, this is a really well-differentiated product. Our goal in 2023 is adopt that additional coverage and really just drive demand into the year. Before Robert jumps in, one of the things that I will say on the ophthalmology pipeline is keeping in mind there are a number of products in there, especially on the gene therapy pipeline, that are in that rare disease area. And so, that has already begun, but I'll let Robert add to the story there.

Well, I mean I would just say that in terms of the R&D, David, I would guide you more towards the D and not the R. We will not be a company to be taking the type of binary risk that, say, big pharma takes. We're going to be very careful and selective. And we've also given you targets what we'll be looking for next in the GI side as well as dermatology from mature emphasis because if you now look at our business model, we're crystal clear about being therapeutic agnostic. Our product portfolio with having products from first to every stage of life around the globe is very critical going forward in our portfolio. It's just that the cash flows that we generate off of that portfolio is exactly what is going to be funding the very marketed opportunities that we highlighted, that we've emphasized, ophthalmology, GI and dermatology. So I think you can expect that directionally going forward. But yes, thank you for your question. Was there any other questions?

No. We're good.

We have reached our allotted time for question-and-answer session. I will now turn the call back over to Michael Goettler, CEO, to make a few quarterly remarks.

Okay. So thank you, everybody, for the good questions. And look, as you've seen, this is an exciting point in our development. We're following up on everything we said in terms of returning the Company to growth, having a capital allocation that has the ability to both return capital to shareholders as well as invest in our business. And we're really excited to have Jeff and his team, join us in Viatris going forward. Thank you very much.

This does conclude today's Viatris 2022 third quarter earnings call and webcast. Please disconnect your line at this time, and have a wonderful day.