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 2023 First Quarter Earnings Call and Webcast. [Operator Instructions]. Thank you. I will now turn the call over to Bill Szablewski, Head of Capital -- Global Capital Markets. Please go ahead.

Good morning, everyone. It is my pleasure to welcome you to our first quarter 2023 earnings call. With us today is our CEO, Scott Smith, President, Rajiv Malik; CFO, Sanjeev Narula; and Jeff Nau from our Eye Care Division. During today's call, we will be making forward-looking statements on a number of matters, including our financial guidance for 2023 and various strategic initiatives. These forward-looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections. Please refer to today's slide presentation and our SEC filings for a fuller explanation of those risks and uncertainties and the limits applicable to forward-looking statements. We will be referring to certain actual and projected non-GAAP financial measures to supplement investors' understanding and assessment of our financial performance. Reconciliations of those non-GAAP measures to the most directly comparable GAAP measures are available on our website and in the appendix of today's slide presentation. An archived copy of today's presentation and other earnings materials will be available on our website at investor.viatris.com following the conclusion of today's call. With that, it is my pleasure to welcome our CEO, Scott Smith.

Good morning, everyone. I'm excited to speak to you today officially as the CEO of Viatris. It's been a busy and productive first month. Viatris is a special company, I knew that from the moment I joined the Board in December, and I appreciate it even more today. It begins with our ability to sustainably deliver access to high-quality medicines at scale to people regardless of geography or circumstance. Since becoming CEO, I have met with colleagues all over the globe and have had the opportunity to spend time with each business segment. I have seen firsthand the unique combination of passion, dedication, and skills of the people of Viatris. Their unwavering commitment to our mission is infectious. I'm honored to be part of this amazing organization, and I'm extremely impressed by everything that has been accomplished to date. In addition to our historically strong regulatory, clinical, and manufacturing capabilities, I've also been very impressed with the company's global commercial infrastructure and the talented people we have there. I look forward to finding additional ways to leverage these capabilities to deliver more access to more medicines to more patients around the world. I want to reiterate that I firmly believe in the strategic plan announced in November of last year. I believe that executing this plan will ensure that we are able to simplify our unique place in the global healthcare landscape. A critical part of my job is to enhance the already strong execution of the company and ideally accelerate our well-crafted strategy. What I've already seen and experienced, I believe we are positioned well to be set up for success in Phase II of our strategic plan. I believe that Viatris has the strong financial profile and financial flexibility to accelerate growth in the coming years, and I…

Thanks, Scott, and good morning, everyone. As Scott mentioned, we had another strong start to the year and a strong quarter of operational performance across various segments as well as product categories. Let me now begin by sharing our commercial segment highlights from the quarter. As I do, I will be making certain comparisons on an operational basis, which excludes the negative impact of foreign currency rates versus the plan that supports our financial guidance as well as to Q1 '22 results which also excludes the results from the divested biosimilars business from Q1 '22. Our well-balanced business of developed markets where gross margin close to 60% of our net sales delivered another strong quarter. Europe performed ahead of our expectations, with France and Italy driving the strong performance. The region grew low single digits in Q1 compared to the prior year on an operational basis, making it our fifth consecutive quarter of year-over-year growth. Our key brands like Dymista, Creon and Yupelri as well as our generics portfolio continued to perform strongly in Q1. Our North America business also performed ahead of expectations driven by better-than-expected performance in our generics portfolio, including generic Symbicort [ph], and our injectables portfolio. Our brand business was led by stronger performance of Yupelri. We look forward to launching several new products in North America this year, including Breyna, our generic to Symbicort. We and our partner can develop Drug Delivery, have settled the patent litigation with AstraZeneca and expect to launch the product after the expiration of regulatory exclusivity. We anticipate launching Breyna with 180 days first-to-file generic exclusivity subject to FDA's future determination of the issue if and when another NDA filer becomes eligible for final approval. For the remainder of the year, in developed markets, we expect to meet or exceed…

Thank you, Rajiv, and good morning, everyone. We're off to a great start to the year and as a team could not be more confident in our strategy to deliver our plan and return the company to growth. As Scott mentioned, the first quarter was in line or slightly ahead of our expectations. Our business fundamentals are strong, and we are encouraged by continued performance, including the stability of our base business. In the quarter versus prior year, excluding biosimilar, net sales from our Europe, emerging market, China businesses grew operationally. New products contributed well. We are looking forward to several exciting launches in the second half of the year. Early in the quarter, we closed the Eye Care acquisition and our SG&A and R&D expenses for Q1 includes costs associated with the commercial infrastructure and late-stage pipeline of these businesses. We continue to see benefit from our unique platform and its ability to generate significant cash flow from operations. We feel good about the opportunities ahead that will strengthen our free cash flow generation. Looking at quarter 1, 2023 highlights, you will see our summarized results versus the prior year on a reported basis. It is important to note that for comparison purposes, our reported results for quarter 1, 2022 included the biosimilar business. Our net sales and adjusted EBITDA walks show sales for the quarter were in line with our expectation and, on an operational basis, down slightly versus the prior year. Foreign exchange had a negative impact of approximately 5% on net sales versus the first quarter 2022. The stability of our business was primarily driven by growth in Europe across diverse portfolio, key products in Greater China, and brands in Emerging Markets. As mentioned, base business performance was in line with our expectation, and the full…

[Operator Instructions] We'll take our first question from Glen Santangelo from Jefferies.

Hi, thanks. Scott, I just wanted to start with you. It seems -- it's been a couple of months since you've been on board and you a chance to look at everything. And encouragingly, you seem to agree with the strategic plan, are comfortable with everything. So, could you maybe revisit what you expect the proceeds to be from the three asset sales coming later this year? And I think from memory, you said $5 billion to $6 billion pretax. And what is that after tax? And then what's the plan for those proceeds? Will 50% of that be returned to shareholders because that would imply a share repurchase that's significantly bigger than the authorization you currently have outstanding. So, any more details around the back half of the year as that -- as it relates to that capital deployment would be helpful. Thanks.

Good morning, Glen, thank you very much for the question. So, you said comfortable with the strategic plan. I think I'm more than comfortable. I'm very, very supportive of the strategic plan. As I came in on the Board at the end of the year, one of the things that I was most impressed with was the plan and the way forward. I think it's a very, very strong plan, I'm very, very much supportive of it. You asked a question about divestitures as well. And I think it's really important to note that we expect to be -- as I said in my prepared remarks, we expect to be in the previously announced ranges for both value and for timing. And it's really important to note that we don't need to do these divestitures, we have strong financial performance. These are a matter of strategic choice and not a necessity. So, these are strongly performing assets. There's a lot of interested parties who are on track to announce all of them, hopefully, by -- in 2023. And we hope to be able to announce one or more early in the second half. So, we're very, very pleased where we are from that perspective. But again, it's really important to note that we don't have to do these divestitures in order to execute on our plan. Our plan is strong, and due to the strong operational and financial performance of the company. Sanjeev, do you want to talk little bit?

No, I think, Scott, you covered everything. I think just two points to kind of just double-click on that. Glenn, to your point about the ranges. So, we talked about in that net proceeds of about $4.9 billion to $6.1 billion. And that was after the taxes onetime cost and the Oyster Point acquisition at that point. So, we stay within the range. And the idea there is that will be the proceeds that will be available for additional debt pay down, buying back shares and investing in the business for the capital allocation plan that was already laid out.

Our next question comes from Chris Schott from JPMorgan.

Thanks so much. Just following up on the divestiture process. It sounds like things are on track, but you mentioned this position of strength. I guess, to the extent the current rate environment does not result in valuations that are aligned with your targets, can you still kind of push forward with this capital allocation story and kind of the targeted acquisitions just given the step-up in free cash flow? Or would that part of the plan have to change? I know that's not plan A, but just to the extent that we weren't able to get all these to go in line kind of, should we think about there being a different outlook? Or is the pretty much the same regardless? Thank you.

Thank you very much for the question, Chris. I think it's very important to note that due to the strong operational and financial performance of the company, we can execute our financial commitment and on the plan without the divestitures. So, these are really good, well-performing assets. Yes, there's been some deterioration, I believe, in interest rates in the macroeconomic environment. And we don't go in to any sale that we don't think mimics the value that we see in these important assets. Again, having said that, there's a lot of interest in these assets, and we believe they're going to move forward. And I believe they're going to be, by the time we get to the end of this process, I believe they're going to be in the previously announced range, both for value and for timing. But no, they're not necessary for us to be able to execute on the plan.

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

Thanks for taking my question. This is Robin [indiscernible] for Jason. So, first is on your monthly GA for multiple sclerosis. How do you see the market opportunity there given the decreased use of GA overall? And do you believe you can increase the use of GA with a monthly Depot? And then on Tyrvaya, just early impressions. What do you think is needed to drive the launch curve to look like more successful dry-eye launch analogs? Thank you.

Thanks, Jason, for your question. First of all, very happy to announce today the submission of this NDA very important for a product without a partner maybe. And I would say, it's not just a compliance play. We have studied this data very carefully over the last couple of months, got deep into the previous studies which are available. The significant treatment effect of the Depot product in reducing the ARR strengthened by the MRI endpoint supports the use of GA Depot for the RMS patients. And just map put your head around, just as against one injection per month, 14 injections is what current treatment is and almost 560-milligram drug against the 40-milligram. Moreover, not only this was in relapses, but GA people significantly reduce the contrast enhanced lesions by 28% as well as new or enlarging key to T2 hyperintense about 17% and significantly help on the EDSS, which is expanded disability status scale. So, I think with all this, we are looking forward to GA still -- this molecule still has a significant market share. And this product will revive -- this product will for the revive and boost that aspiration.

Yes, sorry. Yes. On the Tyrvaya side, if we look at Tyrvaya performance in 2022, predominantly driven by commercial coverage. And as we enter into 2023, we have increased Medicare Part D coverage from single digits now to leaving the quarter about 54% Medicare Part D cover -- lives being covered. So, if you think about the marketplace, approximately half of all dry eye disease prescriptions come from Medicare Part D. So, we expect that to be a significant tailwind. As we exited the quarter in March, we had the strongest launch today for prescribers and prescriptions. We expect this to continue as digital advertising ramps and we initiate the DTC campaign in the end of the year. And Furthermore, when we leverage Viatris' commercial infrastructure, we feel that's going to drive an additional intermediate and long-term tailwind for Tyrvaya in the overall portfolio.

I just like to make a quick comment on Tyrvaya and the Eye Care business as well. We need to remember that this deal closed in January. So, this Q2 is our first full quarter with Oyster Point under Viatris's hand. Both revenue and demand for Tyrvaya were in line with our expectations for Q1 and March had the highest demand, as previously noted. We see opportunities for leverage strong parts of the existing organization, including commercial access and our large development team to help accelerate revenues in the future, including initiating DTC later in this year. I just want to say that we're very, very excited about not only Tyrvaya but the Eye Care business in general.

Our next question comes from Balaji Prasad from Barclays.

Good morning, everyone. Thanks for the question. Scott, just a couple of questions on the EBITDA side. You called out $2.3 billion of EBITDA for 2024 at least. Can you help us understand what this factors? I would imagine this factors in your asset divestments and maybe some helpful color would be on what is it like-for-like. Continuing on EBITDA, the cadence implies that Q2 EBITDA is below where the Street is currently. So, was there any pull-forward of EBITDA from Q2 to Q1? Thanks.

And, I did confirm $2.3 billion going forward. But let me take it to Sanjeev to give you some more context around your EBITDA question.

Yes. Thank you, Balaji, I will cover both points that you have talked about in terms of 2024. So, a simple way to think about this as the two. What Scott mentioned, minimum $2.3 billion free cash flow for 2024 is after taking out all the divested assets that we have announced. So, if you talk about today's 2023 guidance that we have, the $2.5 billion, that includes all the divested assets that we have with us. But this is to kind of show you the starting point for phase II, which is assuming all the divested assets are out of the numbers, and that's how we get to that $2.3 billion. Important to note that before any cost for divestment or any taxes which will obviously be funded through the divestment proceeds on that. And we are well on track, and we feel very good about where we are on that particular point. As far as the EBITDA is concerned, again, we had a strong quarter, came in at our expectation, slightly ahead of our expectation. The way to think about EBITDA in terms of the phasing is going to be now evenly phased between first half and second half. And that's going on because there are two factors that is driving it. First is obviously the gross margin, which first quarter came in ahead of our expectations. Our gross margin is going to step down in Q3 -- Q2 and is going to moderate in the second half of the year. So, there's a function of product and portfolio mix, the continued impact of the inflation, and non-repeat of certain positive variances that we had in the first quarter. And then you obviously have the SG and R&D stepping up starting from Q2 and later in the year because the investment that we are making in the IT division, the R&D pipeline on organic products, and the DTC that Scott talked about for Tyrvaya, which is going to kick in at the later part the year. That's why we feel, again, great about overall where we are. But that's the cadence that we expect now but still will be at the midpoint of our EBITDA guidance.

Our next question comes from David Amsellem from Piper Stanley.

Thanks. So, I just wanted to ask a couple of product specific. So, you still have a lot of exposure to Lipitor and Norvasc. Can you talk about how sticky you think those products can be globally? And then secondly, just in general, how are you thinking about the trajectory of the established brands portfolio over time? And then another question I have is just a societal, philosophical question. As you think about your exposure to regular way, generics, oral solid generics in developed markets in particular, how do you think about the role of that business in the overall organization? And I guess, more specifically, is our oral solid generics are a business that you want to deemphasize over time? Thank you.

I can start with the -- from the second part. I think we never want deemphasizing the oral solid business. All we did was diligently looked into our portfolio, looked into there are multiple options products are commoditized. There are more than 10, 15 suppliers out there. excess is not an issue. And we pruned that portfolio and focused on going up the value chain, focused on excess of the more complex, hard-to-make products, because somebody is going to take the lead to bring those products, too. so, I would say that generics are still a very important part. Our excess -- basically, it's all about excess, and that's where we have been focusing on. Bringing excess to this hard-to-make, difficult products in this segment across the globe. So, we're not walking away from that segment. That's the first thing. Second, from the brands point of view, established brands point of view, not just Lipitor and this, these brands, we have been -- these brands -- some of these brands were before Upjohn or even the average experience. We were never declining at an accelerated rate. And we while because there was perhaps not enough focus over the last two years, we have -- I know what we have to work with, and we are focused on these products. Over the last several quarters, six to eight quarters, we have been able to stabilize this bucket very successfully from a decline of -- initial decline of 4%, 5% to about now 1%. And in fact, this quarter, it was flat. And next quarter, you will see this segment coming to a little bit of growth. So, it's all about stabilization of this bucket, which is leading to the further robustness of this platform. So, we are very excited with the work which we have done around this and our ability to manage this portfolio.

Our next question comes from Ash Verma from UBS.

So, I have two on pipeline. On Botox, have you received clarity from the FDA? And can you share with us like what's going to be the trial design, biosimilarity endpoint, et cetera, for this program? And are you pursuing just the therapeutic indications here, not aesthetic? And then separately, for July nowadays, can you elaborate a little bit like what is the value proposition? Does this in any way, expand the market opportunity? Or is it going to cannibalize the high-dose product that you have? Thanks.

On the student low dose, as market is already lighted commoditized cannibalize, I would not say it's cannibalized but commoditized with now one, tow, three players out there. And [indiscernible] low dose actually is a medical need. There's an unmet need here. There has been always an ask for a low-dose hormone of product over here, and we are well on track, where Phase I studies are now completed, stylization, irritation, addition, and Phase III studies underway targeting about 12 under women, and we are looking forward to bring this product to the market maybe by '25 -- sorry, '26, in this case. On address of Botox, yes, very early on, maybe almost 1.5 years back, we saw the alignment, and we got the alignment with the FDA very clearly what they have expectations were on CMC. And what are on the clinical trials, like, for example, one of the clinical study, they were looking on a survival dystonia as well as extensive digital and embroidery. So, all those studies are well in -- all that work is well on track. And we will be submitting our IND later this year for the initiation of Phase III studies.

Our next question comes from Umer Raffat from Evercore.

Hi, guys. Thanks for taking my question. I have two here, if I may. First, it seems like China has been a very good tailwind through the duration of COVID lockdowns. And considering it did so well last year, considering it's doing so well, up 5% in 1Q as well, how are you baking in potential for a restart and implementation of BBP programs across China into back half of this year and especially into next year? Number one. Number two, Symbicort, I know Advair opportunity did not necessarily play out versus your internal expectations. And it perhaps wasn't really a needle mover. In fact, one of the big droppers this quarter is your Wixela product. Why should Symbicort be different? And to what extent has the brand discounted on Symbicort already? Thank you, very much.

Wixela is and Wixela always has been ever since launch a very meaningful contributor. Even this quarter, it has been a very decent contributor to our projection or to our numbers and all that. And it's a very important product. We have met and exceeded every expectation we had around Wixela. And we expect to leverage what have we learned in the market to further leverage the same expertise to leverage in this product. We are very much looking forward to bring this product once the regulatory exclusivity expires. Everything is lined up. And we anticipate launching this with 180-day first-to-file generic exclusivity unless, as we mentioned, subject to FDA's future determination of this issue when another ANDA filer becomes eligible for final approval. Now let me switch back to China. Four years of successful implementation of VPP, China has significantly improved the cost efficiency. And first, I will tell you, we don't have any more products to go through the VPP rounds at this point of time. We have gone multiple rounds. The market has evolved towards segmentation of privately paid and government reimbursement paid. And what have we done at our end? Commercially, we have aligned -- we have continued to make a lot of progress effectively to compete in, especially in the private paid channel, leverage the brand equity of the products in the private pay channel, and reorient ourselves over there. Operationally, what we have done is loaded up the pipeline. We have already 10 products under active review with FDA. And sooner than later, this pipeline will start coming up and add to the growth. And over last one, I was just there with our management team and Scott in China to review. And I'll tell you, we had a great team, they have been performingly wonderful well during the COVID even through the integration, we have -- this was the first time we ended up there after integration. I have nothing to say but great things, and our confidence in that business has been reconfirmed. Scott, do you want to like to add something?

Yes. And just thank you, Umer, for the question. I'd just add to what Rajiv said. My first international trip on behalf of Viatris was to China, and to meet the China team, and I was incredibly impressed by the leadership, by the strength of the leadership team, and the overall strength of the operating affiliate in China, a very, very strong, particularly commercial organization that we have there. As Rajiv noted, lots of products in the pipeline, and really looking forward to the next step with our affiliate in China.

And our last question comes from Nathan Rich from Goldman Sachs.

Great. Thanks for the questions. One high level and then one on the quarter. I guess, Scott, how are you thinking about the best way to prioritize the free cash flow that you're planning to reinvest in the business, either organically or to drive growth inorganically? And any thoughts on therapeutic areas that you think the company should focus on? And then on the quarter, the level of base business erosion was a little bit high relative to the full-year guidance. I think complex generics were called out as a soft spot. I guess could you maybe just talk about how this is expected to trend over the balance of the year. Thank you.

So, thank you for the questions. And just relative to the BD strategy going forward, what was laid out in November, the areas we were going to focus on were GI, dermatology, and, of course, eye care. And I am very, very comfortable in all those areas. I've had a very significant experience, both development experience and commercialization experience, in GI and dermatology. And again, very comfortable moving forward in those areas. I will say, however, though, we will also be opportunistic. If there's something, and we're very open to something outside of these areas, if it fits our business dynamic and it's right and will bring the right kind of value to the company. So, I'm very excited about the strategy going forward. Again, focus, eye care, derm, GI, but opportunistic and open to other opportunities as they come in. And I think if you take a look at the model of the type of acquisitions that we would like to make, take a look at the Oyster Point and Famy Life Sciences that was completed earlier in the year. Those are an excellent example of the execution of that strategy. We acquired a company with an approved asset, customer-facing organization, and we were able to marry it with the Famy development assets. So, I think that's a really good example of the type of deals that we'd like to do going forward.

Yes, and Nate, on the erosion, everything as we had expected, everything as were expected, it came from the complex generic’s category, as you noted, and largely driven by three products in the North America. One was Restasis because we had almost exclusively of the cases over last year over this period. We had additional competition come on Xulane, Amyl, and that's one second contributor. And the third was Wixela where we have seen some hyper competition over there. So, I think these three products largely contributed to the erosion in the North America in the complex generics category. But as we look forward, we know -- I think we're looking forward to, in fact, bringing the developed markets back to the growth in the second half of the year.

I believe that was the last question, the end of the questions. And if so, I'd just like to take a moment to say thank you to everybody on the call here for time, and attention today. So, want to say, really, really proud of the strong operational and financial quarter we had in Q1, a great start to the year. and I really look forward to meeting and spending more time with all of you as we move forward in the future here. So, thank you very much.

This does conclude today's Viatris 2023 First Quarter Earnings Call and Webcast. Please disconnect your line at this time, and have a wonderful day.