Good morning. My name is Todd, and I will be your conference operator today. At this time, I would like to welcome everyone to the Viatris 2023 Second Quarter Earnings Call and Webcast. All participant lines have been muted to prevent any background noise. After the speakers' remarks, there'll 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. It is my pleasure to welcome you to our second-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 full 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, I will now hand the call over to our CEO, Scott Smith.

Good morning to everyone on the call. I’m pleased to report that the second quarter of 2023 was one of the strongest quarters we've had to date at Viatris. I could not be more pleased with our overall execution. The positive momentum of the base business continues to push us forward. We are laser-focused on delivering our pipeline and are excited about new product launches. In the second quarter, we delivered total revenues of $3.9 billion, representing approximately 2% year-over-year growth on an operational adjusted basis and adjusted EBITDA of $1.3 billion and free cash flow of $447 million, both of which were ahead of our expectations. Based on our performance this quarter and in the first half of the year, we are reaffirming our full-year financial guidance for 2023. These results signal the beginning of what we expect to be a growth journey for Viatris and set us up well for future success as we prepare to bring Phase 1 of our strategic plan to successful completion and initiate Phase 2, beginning in 2024. While I'm proud of our strong performance, the foundation the company has built and the stability and predictability that we believe have clearly been achieved. My focus is on the future and on the trajectory of the company moving forward. Now let's turn our attention there. On executing our planned divestitures, we are on track to announce all transactions in 2023. As we said, executing these planned divestitures is a matter of strategic choice, not a necessity. I am extremely pleased with where we are in the process. We are currently in advanced stages of discussions with potential buyers and anticipate announcing at least one significant divestiture in the third quarter, possibly more. As a result, I will not be in a position to take…

Thanks, Scott, and good morning, everyone. Our strong performance this quarter highlights the momentum of our business like never before and further reinforces the predictability of our base business, which is well-diversified from a geography, as well as portfolio point-of-view. The performance of the last 10 quarters demonstrates that our business model of bringing access has never relied on any one product or any one market. That strength of our underlying business is enabling us to position the company well for Phase 2 growth. Our continued new product revenue performance is another key feature of our plan and for this year, again, we remain on track to deliver on our expectation of approximately $500 million of new product revenue. As I provide the commercial segment highlights for the quarter, 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. In addition, I will be making certain comparisons to our Q2 2022 results on a divestiture-adjusted operational basis as defined in our earnings lease. This quarter total net sales grew 1.5% on an operational basis due to a strong performance across various geographies and product portfolios. We believe achieving this top-line growth for the first time as Viatris to flex the power of our platform, well-thought-out strategy, and our consistent execution. Let me get into our commercial segment highlights. Our well-balanced business of developed markets where brands makeup approximately 55% of our net sales in quarter two delivered another strong quarter. Europe performed ahead of our expectations, delivering 2% year-over-year growth on an operational basis. Italy, Spain, and UK, as well as several other markets, drove the strong momentum for the quarter. As solid performance of generics in Europe was another contributing factor. Our…

Thank you, Rajiv, and good morning, everyone. We had another excellent quarter and are seeing the results of our efforts, which include revenue growth versus the prior year. Unless otherwise stated, I will be making year-on-year comparison on a divestiture-adjusted operational basis as defined in our earnings release. The second quarter exceeded our expectations. We are encouraged by our fundamentals and continued strong operational performance. Our branded business and new product revenue was contributing to a favorable gross margin. In the quarter versus the prior year, net sales from emerging markets, Europe, and Greater China grew. The revenue growth included the impact of the new product and we expect this momentum will continue with our recent Breyna launch. We continue to invest behind future growth drivers which includes the Eye Care Division's commercial investment and late-stage pipeline programs. We believe that our unique global platform, which is diversified across product categories has proven its ability to continue to generate significant and sustainable free cash flow. And we remain confident in the durability of this performance moving forward. Turning to Q2 and first-half 2023 highlights. To summarize results versus the prior year on a reported basis, including the biosimilar business in 2022. Net sales were slightly ahead of expectations and grew at 1.5% versus the prior year. This performance is consistent with our expectations for the business over the long term. On a reported basis, foreign exchange had an impact of approximately 2% of net sales versus the second-quarter 2022. The diverse portfolio of growth drivers included brand performance in the emerging market, Europe and Greater China. We expect this M&A trends to continue in the second half, aided by product seasonality and the continued ramp of new products. New product revenue in the quarter met expectations and included sales of…

Thanks you. [Operator Instructions] We'll take our first question from Glenn Santangelo with Jefferies. Please go ahead.

Yes. Thanks and good morning. Hey, Scott, just a couple of quick questions for you. I appreciate that you don't want to talk about the divestitures, but maybe you could just answer one high-level question. You've been in your seat now for just over four months. And I'm kind of curious, from your perspective is it fair to say that you're happy with how the process has been run, and you're happy with the demand you saw in the process because it's obvious that you weren't in your seat when this process started and you kind of inherited and I appreciate we're far along seeing, you don't want to give any comments, but I was wondering if you could just comment at a high-level if you're happy with where you're at in the demand you're seeing.

Thank you very much, Glenn, for the question. Yes. I would say, I'm very happy with what I've seen. These are very well-performing businesses. There's been lots of demand, there's been lots of interest in these assets. We're very excited on where we are in the process. I would say that we're in discussions with multiple potential buyers on multiple assets and we're looking forward to giving people the details on the time and the place where we can. Just one other comment that I think is really important and it's important to remember that these divestitures represent a [cash flow] (ph) that will be coming to us to help us accelerate towards our desired leverage ratios. What they do is, they really set us up well going into 2024 and beyond. And the critical thing for the future is our ability to deliver on our capital allocation plans in 2024 and beyond, which include capital return to investors through divestitures and particularly share buybacks and also business development and M&A, licensing, and partnership. So, very happy with the process and very happy to be accelerating into 2024 and beyond.

Thank you. We'll take our next question from Jason Gerberry with Bank of America.

Hey guys, thank you for taking my question. Curious, are there any alternative structures that you guys would consider with these divestitures to minimize the tax consequences? And then with Tyrvaya, just wondering, what's going to drive a growth inflection here, do you really think that the DTC could be needle-moving for this product?

So, first of all, thank you, Jason, for the question. I can't comment on the deal structures or anything like that at this point in time. I would just be all speculation. I will turn it over though to -- for the Eye Care question, please.

Yes. Hi, this is Jeff Nau. Yes. And I think it's a great question. We look at the marketplace for dry eye disease there's about 2 million patients currently being treated, but about 16 million that have been diagnosed. So, I think, among other things that we talked about on the prepared remarks, including an increase in Medicare, and many of the other tactics that we're taking into account, that 14 million patients that are sort of sitting on the couch, waiting for a new therapy, it's not something that's really unlocked to us today. And that's really I think the benefit that the DTC campaign brings forward.

Thanks, Jeff.

We'll take our next question from Ash Verma with UBS.

Hi, good morning. Thanks for taking my question. So for the EU OTC business, not asking about the spin-off, but just wanted to understand any business trends that you can highlight. Some of the other like OTC players in Europe had particularly strong start to the year, but now flagging more of a normalization of that growth trend. So anything that you can share in that? And then just on complex injectables, I wanted to get a sense around the timing of some of the key launches of these products. I think you're estimating $1 billion in peak sales by 2027. So just wanted to understand if you have confidence in the approval timelines here? Thanks.

Thank you, Ash. And I'd ask Rajiv to address your questions.

Yeah. So, within our business, Ash, the OTC is performing exactly as we had anticipated and planned, especially this -- during this year of that sort of deal and transition and we are very happy in fact, how the overall business in Europe, because this is predominantly a European business, a 2% solid performance in Europe, overall and OTC playing its role. And OTC, just let me put it like that, OTC is not a very -- for us is a huge growth driver within the region. But yes, it's a pretty steady, steady business, and it's performing as we expected. To your point, question about complex injectables, every program and it's not that every product is going to come in 2027, in fact, we should be looking into launching these products. Later I -- if we are optimistic later this year or early next year. And then from there onwards, I think every year you're going to see two to three key products getting launched. However, that’s, I would say 2024, 2025, and 2026, leading to 2027 and 2028, a $1 billion franchise, we said. We have about eight first-to-file first-to-market opportunities, which we have already secured, we are about 37 products in this pipeline and we are adding more. And from the science point-of-view, we could not be more pleased. Yes. We -- there is always a little bit of -- with the FDA, changing in time, but we have taken that into consideration while modeling all this.

Thank you. We'll take our next question from David Amsellem with Piper Sandler.

Thanks. So, at the outset of the evolution of the company's overall strategy, I think you had called out three therapeutic verticals, I think it was Derm GI and ophthalmology, and I'm just wondering is that something you're led to closely going forward? Are you looking at other therapeutic verticals, how should you think -- how are you thinking about that as you think about your brand strategy more broadly? And secondly, just any comments you might have on epinephrine and how you're thinking about the intranasal and another formulation that might come to market, and how you're thinking about potential pressure on EpiPen if any? Thank you.

Yes. Thank you, David, for the question. I'll answer the first one, and then I'll kick it over to Rajeev. We're focused on looking for strategically significant transactions. Our initial focus on the three therapeutic areas that you called out: ophthalmology, GI, and dermatology. However, we are looking for other things, which may be adjacent to that, we are a little bit agnostic. What we're really looking for is assets that can use the leverage and the company that we have, the strength that we have as a base company, the strength in terms of commercialization, in terms of research and development, in terms of distribution, in terms of market access. That's the important thing is that we look at and are interested in assets for which we can use the strong company that we have to be able to maximally commercialize them going forward.

So, regarding epinephrine, David. First of all, after maybe a few years, we have seen growth in this overall market, epinephrine market, there has been a healthy growth this year and we have also participated in the growth. And so, a market which is being well served today, we're not by -- just one player by two to three players and there is still there are -- there is a -- I would say, that the unmet need or there is a patients out there. So we welcome the more competition or a different dosage form from patient’s point-of-view. Having said that, we have followed epinephrine or this intranasal product very closely from science perspective and actually have some of the concerns from how -- it's execution, because there was a public hearing and we got to see the science from that point-of-view. And we have raised our voice to highlight those concerns to FDA. But having said that, we have always taken these products into the consideration while doing the modeling for the out years from 2024, and 2025. We knew there will be other dosage forms there, but there will be always a place for an emergency use products like EpiPen, which has been there in the market. So, yes. It's a market which is going to evolve, and we are watching it very carefully and closely.

Thank you. We'll take our next question from Umer Raffat with Evercore.

Hi guys, thanks for taking my question. Scott, I remember during your closing time at Celgene, you were spending a lot of time on ozanimod commercial planning, and I'm sure you've taken a fresh look at Viatris expectations on the monthly Glatiramer Acetate the Copaxone. Do you think it is a less than $500 million product? And also, and this may not be a popular question. The sheer amount of time the divestitures are taking, it's just odd, especially given a lot of the closures, and so I think the Street would really appreciate just finding out what's going on, why is it taking as long as it is and when does it come to a closure on that?

So, thank you, Umer. Second question first. I think we expect to announce all three divestitures in 2023, and we expect to announce a significant one -- at least one in the third quarter, you know it's complex transactions, sometimes to make sure you're doing the right thing, getting the right partnerships and I don't think where delays on very, very happy with the progress that we're making on all these divestitures and very excited that we'll be getting these done and announced or at least announced in 2023. And again for me, the important thing here is, these divestitures represent an ability of cash bonus and the ability for us to be able to get to our desired leverage ratios and then move into Phase 2 of the strategy and beyond in 2024 look for execution of our capital allocation strategies. In terms of MF, I will say, yes, it is the -- a lot of commercial planning for ozanimod and I've been involved in the MS Market. In other ways before, and I will just say without getting into specific -- guiding to any specific number, I think this is a great asset, it's going to have the very significant potential, not only for its ability to reduce injections, but also because of the clinical data that's being generated here and maybe I'd ask Rajiv to dig in a little bit more on the launch.

No, Scott. I would just say that we are very excited with this clarity about the PDUFA date and launch. And I will just reiterate that this product offers the safe effective treatment for RMS with a preference schedule and with fewer injection site reactions than other GA Depot or other GA products, and expected to improve the compliance and overall patient experience and patient satisfaction. So, we look forward to bringing this product to the market.

And Omer, one other point I would just go back to the divestiture -- this is Sanjeev, go back to the divestiture point and we've said that it's a matter of strategic choice. These are well-performing assets and we want to make sure we do it in the right way and to get the best value for the company, because we're able to meet our financial commitments we've laid it out without these divestitures. What the divestitures do as Scott pointed out, accelerate what we're trying to do, but we are well-positioned as a company even without the divestitures with everything that is going in the financial outlook of the company.

Thank you. We'll take our next question from Balaji Prasad with Barclays.

Good morning. This is Sean on for Balaji. Thanks for taking our question. On a recent tornado damage to the Pfizers Rocky Mount facility, what level of impact do you see this event could potentially have on the sterile injectable market? And as we think about pushing potential shortages here, do you see any specific opportunities in a sterile injectable market from this incident for Viatris. Thank you.

Yes. First of all, really unfortunate event, nobody anticipated it, but having said, we have stayed very close to the market. We have stayed close to our customers. We have stayed close to FDA from the drug shortages point-of-view, we have some overlap products with Pfizer's portfolio coming out of the Rocky Mount facility. And look, if there is a need as we are seeing those customers we will step-up, we are working very closely with the supply chain to make sure that we are in a position to address the drug shortages as and when if they come through.

Thank you. We'll take our next question from Nathan Rich with Goldman Sachs.

Great. Good morning, thanks for taking the questions. First, you noted the generics business came in ahead of expectations. It seems like the new product launch guidance wasn't changed and maybe base business erosion was a bit better than you had anticipated. Can you just maybe talk about what you're seeing there? There's obviously been a lot in the news on product shortages, have you seen stabilization or firming of generic pricing in that business? And then as a follow-up. I wanted to ask on gross margin. Could you just go into a bit more detail on what's driving the step-down in the back half of the year and where you'd expect the gross margin to be for the full year within the guidance range that you have? Thank you.

So, Nate, let me take the first part and second I’ll have Sanjeev respond to that. The first, overall, from our -- just let me talk first globally. First, the base business. We have -- as I said in my prepared remarks, we have -- we see the momentum we have seen never before and our base business, whether it's in emerging markets or China or Europe or North America, yes, it's hitting on all cylinders. So, the stability and predictability of seeing we have never seen before. So, it's setting up the company exactly how we have planned it and how we've seen it, the execution is just bringing this to the whole another level now. So, having said that from the generics point-of-view, generics across, not only just US, see I'll come to the US specifically because I know your question was about the USA. But even in emerging markets in Europe, generics you had a very solid performance. In fact, 11% or 10% growth in emerging markets was largely also driven by the generic performance. In the US, we always knew that the pricing is a factor of -- two factors. It's one either, demand and supply, and the second is your portfolio mix. Now on portfolio mix, we have diligently worked, moved away from commodities, more diversified complex products, and that's given up that's part of the underlying stability of the mix in the USA. Demand and Supply, yes, the market is seeing some disruption, the market is seeing some hiccups and it may go a little bit further in that direction. We may see more supply disruptions before it comes better and because of the slight disruptions, because of the diversity we have seen price stabilization over the last several quarters in the North America, which we have not seen for a few years back. So, yes, we see the market conditions improving as well as -- [indiscernible] as well as generics are concerned.

And Nate, I'll take the question on the gross margin. So, as I talked about the gross margin came in ahead of our expectation and that's again, obviously, driven by strong operational business performance, in particular, we had a favorable segment and a portfolio mix and lower-than-expected inflation cost on the COGS. So, what's going on things products like lenalidomide, which have a higher gross margin contributed to the higher gross margin that we said. And then we had inventory beginning of the year, which was built at the lower cost that we were able to consume giving us a benefit that we saw in the gross margin in the first half of this particular quarter two of the year. For the balance of the year, we expect gross margin to step-down a little bit and that's expected, as we have the expected impact of the inflation, and then a little bit of the segment mix and the portfolio mix that probably we'll have a little bit of pressure on the gross margin, but that's all expected and built into the forecast. In a full-year basis, I expect our gross margin will be within the range of 57.5% to 58.5%.

I will now turn the call back over to Scott Smith, CEO, to make a few closing remarks.

Thank you very much. Obviously, I'm very, very pleased with the second quarter. It's one of the strongest quarters that we've had to date at Viatris. I could not be more pleased with the overall execution of the company. But most importantly, I'm very much looking forward to the road ahead and moving into Phase 2 and beyond. I think we have tremendous opportunities as a company for over the next foreseeable years. Really, I'm very excited to be executing and with that forward-looking view. So, I'd just like to say also, thank you all very much for your attention this morning and for your questions. And I look forward to interacting as we go forward.

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