Good morning, and welcome to the Viatris Q4 and Full Year 2023 Earnings, 2024 Guidance Call. All participants will be in a listen-only mode. [Operator Instructions] Also note, today's event is being recorded. At this time, I'd like to turn the floor over to Bill Szablewski, Head of Capital Markets. Please go ahead.

Good morning, everyone. Welcome to our Q4 2023 earnings call. With us today is our CEO, Scott Smith; President, Rajiv Malik; CFO, Sanjeev Narula; and CFO Elect, Doretta Mistras. During today's call, we will be making forward-looking statements on a number of matters, including our financial guidance for 2024 and various strategic initiatives. These statements are subject to risks and uncertainties. We will also be referring to certain actual and projected non-GAAP financial measures. Please refer to today's slide presentation and our SEC filings for more information, including reconciliations of those non-GAAP measures to the most directly comparable GAAP measures. When discussing 2023 actual results, we will be making certain comparisons to 2022 results on a divestiture adjusted operational basis, which excludes the impact of foreign currency rates and also excludes the results from the divested biosimilars business and proportionate results from the divestitures that closed in 2023 from the 2022 period. When discussing our expectations for 2024, we will be making certain comparisons to 2023 results on a divestiture adjusted operational basis, which excludes the impact of foreign currency rates and also excludes the results of the divestitures that closed in 2023 from the 2023 period. With that, I'll hand the call over to our CEO, Scott Smith.

Good morning, everyone. 2023 was an outstanding year for Viatris in which we delivered strong operational results, streamline the company and finish the year with our third consecutive quarter of operational revenue growth. I am pleased to say that as we begin 2024, I could not be more excited about the future ahead. We are already executing on our vision for our next chapter. We continue to generate strong free cash flows. This provides us with the flexibility to balance returning capital to shareholders through share repurchases and dividends was continuing to fuel our base business and make strategic investments in future growth. As I've said, in addition to continuing to develop the three core therapeutic areas that we previously identified, ophthalmology, dermatology and GI, we are also going to be opportunistic in seeking out assets that fit our company well and have the potential to contribute significantly for our future revenue growth. Today's announcement that we've entered into a global research and development collaboration with Idorsia is a great example of this approach in action. We are bringing in two late-stage potential blockbuster assets with long-dated patent protection, and we are connecting Idorsia's proven, highly-productive drug development team and innovation engine with our own strong existing infrastructure experience. We believe that together, we will be able to execute on the potential of these global assets and any future assets, as we work to deliver on our goal of building a more durable, predictable portfolio on the foundation of our strong base business. We believe that Selatogrel and Cenerimod can become meaningful components of Viatris' business over the long term. I'll talk more about the deal in a moment, but first, 2023. We finished the year strong with full year results in line operationally with our 2023 adjusted guidance. Importantly,…

Thanks, Scott, and good morning, everyone. As we close Phase 1 of our strategy, I'm incredibly proud of all that we have accomplished. We simplified but more importantly, stabilize the base business. We continue to deliver on our strong pipeline and are in the final stages of reshaping the company with remaining divestitures being on track. We believe that the stability of our core business and our deep pipeline positions the company very well for continued growth into '24 and beyond. Let me talk to you a bit more about what we believe makes our core business stable. It is driven by the consistent and steady performance of our brand business, the sustainability of our generics portfolio and our ability to continue to bring to market our organic pipeline consisting of high-margin, durable and complex products. Let me further expand this into three elements. First, our Brand business, which makes up about two-thirds of our portfolio, grew 1% in '23, supported by brands like Yupelri and Effexor. We expect our branded portfolio to continue to build upon the success of 2023 and show a moderate growth. Next, is our Generics business, which now also includes our complex generics and makes up the remaining one-third of our revenue. This business was flat in 2023, and is expected to show a slight growth in 2024. The geographic and portfolio diversity, which includes a number of high-value complex products such as Wixela, Breyna and Xulane, rendered this portfolio inherent stability. The third driver of our stable base is our ability to execute on our pipeline. This is the third consecutive year that Viatris has delivered at least $450 million in new product launches. In 2023, we made significant progress across our complex injectables, select novel and complex products and eye care pipelines. We…

Thank you, Rajiv, and good morning, everyone. 2023 was another strong year across total revenue, adjusted EBITDA and free cash flow. Our results were in line or better than our expectations. We believe that the foundation we built sets the company up to deliver on our strategy and future growth outlook. Our guidance, as updated in November included a full year contribution from the divested businesses. As a result of certain transactions that closed in 2023, we're adjusting our guidance on total revenue and adjusted EBITDA by $35 million and $20 million, respectively. Adjusted EBITDA included $105 million of acquired IP R&D, primarily related to upfront licensing payments. Please note, we do not include acquired IP R&D in guidance for future periods, as it cannot be reasonably forecasted. Free cash flow was impacted by approximately $235 million associated with the divestitures, including transaction costs and taxes. Excluding this impact, free cash flow would have been $2.64 billion on a full year basis. This was the third consecutive quarter of operational revenue growth, and we continue to see solid performance across Developed Markets, Emerging Markets in our Greater China segment. Excluding the impact of divestitures, revenue grew over 1%. During the last earnings call, we noted that adjusted gross margin would moderate in Q4 due to the timing of segment and product mix. On a full year basis, adjusted gross margin came in at the high end of our expectation at 59.1%, driven by strong brand performance. Adjusted SG&A and R&D included certain investment we made in Q4 to support future revenue growth. We had another strong year of free cash flow generation, reflecting our underlying operational performance and continued priority on cash optimization initiatives. Free cash flow in the fourth quarter was impacted by transaction costs and taxes related to…

Thank you, Sanjeev. It's an honor to be here, and I look forward to working with Scott and the rest of the management team to execute on the company's growth strategy and capital allocation priorities. Prior to joining Viatris, I had the benefit of working with the team as an adviser. I have helped companies across the health care industry drive shareholder returns for the past 20 years. This gives me a strong appreciation for the unique position that Viatris is in today, to create significant value for our shareholders, given the diversity of the business and the stability of the cash flow. With our gross leverage target in sight, I believe the company is striking the right balance with respect to business investment and capital returns. I expect that with the strong foundation we have coupled with thoughtful capital allocation, we will be a strong adjusted EPS growth story in the future. As Scott mentioned, the Idorsia collaboration is a great example of the kinds of deals we'll continue to evaluate. This collaboration has the potential to enhance our growth profile by delivering a strong portfolio of branded, patent-protected assets targeting significant unmet patient needs, while leveraging our capabilities in therapeutic areas where we have differentiated insights. Additionally, the transaction was structured in a way that deploys capital judiciously and creates the potential for asymmetric returns for our shareholders relative to the quantum of capital deployed. Now, I'd like to turn it back over to the operator for Q&A.

[Operator Instructions] Our first question today comes from Christopher Schott from JPMorgan.

Just had a question on business development, just building on some of the comments from the prepared remarks. Just as you think about business development opportunities, how do you think about balancing I guess, kind of R&D deals that may be come with a bit more risk like we saw today. It could be a nice opportunity upside, but have some risk with them versus maybe more in-market transactions or in-licensing of already approved drugs that maybe have potentially lower returns, but a bit more certainty. I'm just trying to sense, is there a bias one way or the other? Are you seeing more opportunities in one bucket versus the other?

Thank you, Chris. Thank you for the question. And I think we're going to look at all manner of opportunities in order to build the portfolio. I think licensing, partnering, M&A for in-market assets is something that we're looking at. I also think we're looking at broader licensing agreements. In this case, we're looking at two Phase 3 assets, I believe, that are relatively derisked that have real blockbuster potential. I think Doretta said asymmetric -- the potential for asymmetric return, which I believe is the case here. In terms of Phase 3 assets, we also have an ability to affect the development and the registration strategy and of course, the commercial strategy going forward. So there's some benefits, I think, to do anything at this stage. But certainly, we're going to look at all manner of opportunities and able to build the portfolio in the right way in the future. And just one comment is, I think the solid base of the company that we built through ‘21, ‘22, ‘23 and into ‘24 really provides us that opportunity to look for appropriate business development opportunities to build off that base and grow in the future.

Our next question comes from Glen Santangelo from Jefferies.

Just maybe to build on Schott's question. Scott, what should we expect at this upcoming R&D Day. I mean it seems you've been pretty clear that the hope was always to use half the available free cash flow towards business development? And do you still expect that to be the case? Or based on your time in the seat, do you see more opportunities maybe than what you originally thought? Or because now it seems like you laid out your preferred therapeutic areas, and we're buying outside of that. I'm just kind of curious to get your take on the market for these assets and what you're planning at a high level to discuss at R&D Day.

So I think, first of all, thank you for the question, Glen. Our capital allocation plan is not changing. Going forward, we plan to deliver return to shareholders through share buybacks, which we've initiated in '24, and done $250 million of dividends and then also looking for business development opportunities. As I've said many times before, we're going to look at the core therapeutic areas, dermatology, GI, ophthalmology, but we're also going to be opportunistic outside of those areas to find assets that fit what we do best. And in terms of these two assets, I think they fit what we do very, very well. We have $2.5 billion in cardiovascular revenue. globally. And so we take a look at that. I think Selatogrel fits very well into the pre-existing expertise and drug, can play across multiple different therapeutic areas, including dermatology, GI, neurology, rheumatology. And so I think these two assets fit our portfolio very, very well. And again, we're going to look at our three core areas, but we're also going to try and be opportunistic to look for opportunities outside of that. In terms of what we're going to cover in the R&D Day, we're going to do -- we're going to cover the -- we're going to do a deep dive into the two assets that we're talking about here, Selatogrel and Cenerimod. We're going to also talk about other opportunities in the pipeline that we have that we're developing, Eye Care, as well as some other things in the pipeline. So it will be a full pipeline review, but a main focus will be on Selatogrel and Cenerimod, including having some KOL thoughts and expertise.

Maybe I just ask Sanjeev a quick follow-up on the guidance. In your slides, it seems, and I think you sort of commented on this a little bit that we should expect revs to be higher in the second half of the year versus the first half of the year. I'm assuming that excludes the impact of divestitures. So I just wanted to confirm that. But you also suggested that EBITDA and cash flow would be evenly phased sort of first half versus second half. I was wondering if you could just sort of comment a little bit on the cadence of how we should expect this year to play out.

Right. Thank you, Glen, for the question. So you're right. So the revenue for the businesses. So first of all, this guidance includes the businesses that has not been divested as yet, and I had given the full year impact of that in my prepared remarks. So you can actually see and get to kind of like a pro forma number, what that would look like for 2025, if you're looking at modeling. So during this year, on the total business, before any divestment, the second half is going to be higher on revenue, and that's just a function of how the business is. New product revenue that Rajiv talked about $450 million to $550 million, a lot of that new launches are happening in the second half of the year, right? That's one. Second is the product seasonality, some of that we have in Europe, that happens in the second half of the year. So that's just a function of some of that happening. In terms of gross margin, you will expect a little bit of a moderation in the second half. Again, that's again, a segment and the product mix, a lot of the pricing impact happens in the later part of the year that will impact the gross margin from there. And then typically, the expenses pick up in the second half of the year, and that kind of -- that impacts. When you put all those things together, the EBITDA and cash flow is going to be evenly phased. The other thing to keep in mind, Glen, is if you're looking at cash flow on a quarter-to-quarter basis, quarter two and quarter four tend to be lower for us because of our semi-annual interest payments that we have. And that kind of drives that and that's why you will see quarter four of this year and quarter two last year, both were lower than quarter one and quarter three. So that's the overall kind of trending on the cash flow. The other point that I would talk about it is, as and when these divestitures close, and we've given kind of in our slides, Women's Health and the API business will close kind of in the first half of the year and the OTC business probably in the middle of the year. We will provide the guidance update as and when those close, so that you can have a sense on what the impact of that. And then we will provide the revised guidance so that kind of secondary, you have a transparency of that.

Our next question comes from Balaji Prasad from Barclays.

So while I don't want to front run your R&D Day, clearly, I want to understand the deal announced today. Firstly, with both Selatogrel and Cenerimod, I'd love to understand the differentiation. While you look at the acute MI landscape, a couple of approved drugs, including Activase. So help us understand the gap in the current treatment and how much more rapid or short-acting Selatogrel is versus current treatment. Also same question on Cenerimod, too. Just following up on this, I see that Idorsia will contribute around $200 million in the next three years. Is it fair to assume that Viatris will also be contributing an equal amount?

Yes. Thank you very much for the question, Balaji. We'll be contributing just to start at the back. We'll be contributing as well. I'm not saying it's equal, but the two companies will be contributing, and Idorsia will be contributing up to $200 million in the development programs going forward. In terms of product differentiation, I'd like to turn it over to Philippe Martin, our Head of R&D. Just to talk a little bit about some of the differentiation he sees at a very high level. And these are the type of things that we're really going to dig into when we get to the R&D Day later in March. And take a very strong deep dive talking about the assets differentiation, where we think they're going to play therapeutically, et cetera. But just to give a couple of initial thoughts on that, I'll hand it over to Philippe.

Thank you so much, Scott. Yes, just to target Selatogrel, I think at a high level, Selatogrel targets the crucial time between the symptom onset and the first medical attention. That's a time where currently, there is really no treatment for these patients, and that's a critical time when the heart muscle can be impacted. So that's clearly a different positioning in the treatment paradigm for Selatogrel. I think for -- you didn't ask for Cenerimod really, but I think Cenerimod in terms of differentiation, clearly, we've seen a very strong Phase 2 data that supports a differentiated and highly-competitive benefit risk profile. We have fast track designation for this asset. And together with Selatogrel, I would say that the strength of the regulatory interactions bodes well for the future of the two assets. We have a spine in place for Selatogrel. And that gives you a good view on the agency support for the critical elements of our pivotal protocol design. So really a benefit risk differentiation that comes through for these two assets, and we really think they have the potential to shift the treatment paradigm in these two areas of high-unmet medical need.

So just to add on to what Philippe said quickly before we go to the next question. And part of the excitement around Cenerimod is, Philippe and I have both been involved in the development, registration and commercialization of S1P molecules in the past. It’s a broad immunomodulatory drug that we can take a lot of different places. The initial indication is SLE. But as you know, there’s proof of concept of S1P molecules and things from multiple sclerosis, IBD, certainly in skin dermatologic conditions, including psoriasis. So it could be ripe for a real indication expansion once we get through the first indication. I think it could play in a lot of different therapeutic areas. So we’re excited about it as well.

Our next question comes from Nathan Rich from Goldman Sachs. Once again, the next question comes from Nathan Rich. [Operator Instructions].

Can you hear me now?

I can hear you now. Yes.

Perfect. This is Sarah Conrad on for Nate. I just had a quick question on the Eye Care franchise. So ahead of your second eye care launch, Ryzumvi, in the first half. How are you approaching the commercial launch? And can you give us any details on plans to drive uptake? And then when we're modeling this, how should we model the product ramp compared to Tyrvaya and the timing of the associated expenses?

So thank you for the question. Let me hand it over to Rajiv to talk specifically about the eye care division and Tyrvaya, and I'll comment afterwards.

Yes, thanks. I think we started with the DTC as we informed in the last Q3 earnings. We started with the DTC program in October, Q4, in the quarter four, non-bridge prescription saw about 18% increase. So all the indications are very solid, and we are seeing that expansion of the excess. And we continue to be very optimistic, and we are more optimistic now with the follow-on launch of Ryzumvi earlier this year. Again, we will see a little bit more momentum behind that. And more importantly, all the pipeline programs, which we acquired along with this, they continue to also progress well, as we have indicated earlier.

In terms of, Sarah, the ramp for Tyrvaya. So clearly, the expenses we are incurring. So you'll see an evenly phased expenses because DTC is happening as we speak for the year. And revenue as these prescriptions pick up, we'll obviously -- each quarter is going to be better than previous quarter for modeling purposes.

Just a comment for me on the Eye Care division. We're very early days here, right? We're in the launch phase of Tyrvaya the first product. We're going to be launching the second product very, very quickly here. And there's a whole pipeline of assets, five or six further assets in development that we can bring forward. So we’re very hopeful and aspirational that the eye care division is going to be a very important part of our business as we go forward. We’re looking forward, as Rajiv said, we’re looking forward to see more data to see the effect of DTC and see a further ramp in the business, but we’re excited about the business overall.

And our next question comes from Ash Verma from UBS.

Yes. Congrats on all the progress. I had two questions. One on the pipeline. So for Selatogrel, for the Phase 3 readout, do you think this is a big binary risk type of program? And also as a commercial opportunity, how do you expect patients to accurately identify their heart attack symptoms and self-inject under an emergency situation? And then second one, I wanted to get your thoughts on the -- there is an FTC examination going into PBMs and wholesaler business practices pertaining to putting undue pressure on generics. What do you expect to come out of this process? And do you believe generic pricing could get favorable as a result of this?

Thanks, Ash. So in terms of Selatogrel, I believe there's approximately 6,000 patients already enrolled in the Phase 3 program. When we take a look at it from the Phase 2 data and what's going on in Phase 3, we think it's relatively derisked as an asset. In terms of the detailed question you asked on patient self-diagnosis and self-injection and identification of patient subsets, that's kind of thing that we're going to get into, again, in R&D Day on March 27. We'll do a deep dive not only on the development programs, the regulatory strategies, but also sort of our commercial strategies as well.

And as to your follow-on question on the FTC inquiry, I think we have already seen some stabilization in the -- as far as the pricing is concerned. Obviously, when such investigation is on, there's a little bit of decent oversight. And I believe our customers already appreciate -- our industry has almost hit the rock bottom. And that’s why you’re seeing drug shortages and all those things and everybody is taking attention of that. And our dialogue with our customers have changed from the -- always the cost, cost, price, price, price to availability, uninterrupted supply, the quality of supply, as well as new products. So I believe this is going to be good for overall the health of the industry, the generics industry.

And our next question comes from David Amsellem from Piper Sandler.

So just have a couple. First, just wanted to pick your brain a little more on how you're thinking philosophically about business development. Oyster Point was an outright acquisition. This is more of a risk sharing type of arrangement. So I guess the question is, this transaction you announced today, is that more of a harbinger of things to come in terms of what you're looking for, in terms of a smaller type of upfront payment with milestones and royalties. How philosophically are you thinking about that? Or are you really just really casting a wide net. And then secondly, just following up on the base Generics business and all solid, you talked about stabilization. Can you just talk about how you're managing the commercial portfolio and the extent to which you're looking to cull lower margin assets, and how we should think about the mix between oral solids and other dosage forms in the coming years?

Thank you, David, for the question there. So when I look back at the deals that I've been involved with and over my career, probably by well over 100 deals that I've worked on and been involved with. I would say the majority of them we're partnering, licensing of some sort. We have an extraordinarily strong base and global reach from a commercial perspective in this company. So I think the idea of in-licensing partnering assets is one that works very well for us. But we're going to throw a wide net. We're going to look at all manners to build the portfolio, use our capital correctly. We'll look at M&A, but we'll also look at licensing and partnerships. At the end of the day, they'll probably be a little bit more of the latter, given that they're a little bit less initially capital-intensive and also sort of risk sharing to some extent. But again, what we're looking to do, we've got a very strong global commercial network out there, and we're looking to utilize that the best we can, bring in assets that fit what we do best, and we'll do a combination of partnering licensing acquisition with all the things that we need to do to build the portfolio.

And, David, to your second question, I think your more question is about the U.S. or Generics portfolio, but I'll answer it comprehensively in the sense that, globally, we have two-thirds of the brand, established brands, iconic brands. Every market has a different needs. We continue to look into the market-specific needs of those markets, and what do they know -- need it from the next 2, 3, 4, 5 years. But overall, we take a -- over the last three, four years from the U.S. point, at Generics point of view, we took a hard look into our portfolio. The focus was our access, how can we continue to provide access to the affordable and quality products? And wherever we saw that cost was not up. Price was not the only reason, but if we see more than 10, 15 players out there. Yes, we rationalized a number of products. We rationalized more than 300, 400 products just to take some volume off and focus on more complex, more hard to make where, again, somebody needs to take a lead and bring access to those products like Wixela, Breyna and complex injectables. So we are continuing to be focusing on where we can make a difference. Access is always at the center. And of course, at a point in time, if we believe that something is not making sense economically, as well as there are from the supply point of view, there are a number of players out there. We do take off certain products off. And that's when I think every company, every other company has also followed the same thing.

Ladies and gentlemen, our final question today comes from Jason Gerberry from Bank of America.

Just wanted to follow-up on the BD strategy and mindful that you have presence in sort of cardiology, say, OUS. I guess, like, what investors would see is that most of the value in innovative brands tend to occur in the U.S. market. So is the thinking here like you'd be in potentially four or five therapeutic areas, and that's going to entail sort of an investment both in more deals and scale up to be competitive in those categories. As we look at like a category like rheumatology, we see companies in the I&I space having to generate a lot of investment to be competitive in those areas. And I'm sure you could appreciate that from your time at Celgene. So just trying to think through what this will look like from a P&L investment standpoint and further BD to be competitive in these therapeutic areas.

So I think, first of all, from my perspective, the most difficult thing in this business is to find impactful assets that you can develop to become blockbusters that are patented with long-term revenue streams. That's what's hard. I think building the commercial structure around that is relatively easy if you have an asset that can really play and be impactful. We're going to be opportunistic. We're going to look at our core therapeutic areas. We're going to look outside. We're going to find things that fit. We're going to find things that fit with the appropriate investment that we can make as a company. And so we're dedicated to, again, finding the kind of assets that can really, really drive business. Certainly, we've got a very solid base business that we see growing at a couple of percent a year as we move forward. and looking for things that can provide durable, sticky, long-term revenue stream for us, is what we're really after here. And we're going to do it in a smart and disciplined way. And we're going to find areas that we can be competitive and leverage off the existing infrastructure as much as we can.

Ladies and gentlemen, that will conclude today's question-and-answer session. I'd like to turn the floor back over to Scott Smith for any closing remarks.

Thank you very much. In closing, 2023 was an outstanding year for Viatris that has continued our momentum as we enter the next phase of our strategic plan. I expect 2024 will be a transformational year for our company, as we continue to deliver on our base business while building on our current strengths and adding new capabilities that will enable us to deliver on our future. With our ability, beginning in 2024, to use our substantial free cash flow to both return capital to shareholders and to make strategic investments to grow our business, we are truly evolving into the strong and unique company that we have envisioned. Before we close the call, I want to take one final moment to personally thank both Rajiv and Sanjeev for whom today is their last earnings call with Viatris. Rajiv has been with the company since 2007, and has been integral in building the company that we have today. He will remain as a member of the Board of Directors. Sanjeev has helped the company to successfully execute our Phase 1 strategy since 2020. Thank you both for your tremendous leadership and dedication and service to our company. Thank you.

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.