Good morning, everyone, and welcome to the Viatris Q2 2024 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Bill Szablewski, Head of Investor Relations and Capital Markets. Please go ahead.

Good morning, everyone. Welcome to our Q2 2024 earnings call. With us today is our CEO, Scott Smith; CFO, Doretta Mistras; Chief R&D Officer, Philippe Martin; and Chief Commercial Officer, Corinne Le Goff 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 2024 results, 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 proportionate results from the divestitures that closed in 2024 and 2023 from the 2023 period. When discussing our expectations for 2024, we will be making certain comparisons to 2024 results on a divestiture adjusted operational basis, which excludes the impact of foreign currency rates and also excludes from guidance the results from the date of closing until the end of the period of the divestitures that closed in 2024. With that, I'll hand the call over to our CEO, Scott Smith.

Good morning, everyone, and welcome to our second quarter earnings call. I'm pleased to announce we reported another strong quarter, our fifth consecutive quarter of operational revenue growth. We've had a great start to 2024. And with the completion of our divestitures in July, we are now an important inflection point for our company. Four years ago, Viatris embarked on a journey to build a new kind of health care company. By combining Mylan, a strong global generics company, and Upjohn, a division of Pfizer, with 20 of the most iconic off-patent brands, our goal was to build a unique global pharmaceutical company with the scale to bring patients access to high-quality medicines worldwide. The team has done an outstanding job of executing the plan that was laid out when the two companies were brought together. Among the many accomplishments we have, integrated two global companies, simplified and streamlined the business by completing our divestitures, returned the base business to growth, strengthened our balance sheet through significant debt paydown, returned capital to shareholders through dividends and share repurchases and importantly, we've already started to build our portfolio of innovative assets. As we move forward in the second half of the year and beyond, we want to accelerate growth and shareholder return by building on the strength of our base business with an expanding portfolio of innovative, best-in-class patent-protected assets that have the potential for meaningful revenue growth and patient impact. I believe we have all the components necessary to successfully execute our vision, including an extensive global footprint that reaches 1 billion patients annually, a globally integrated company with deep capabilities in manufacturing, medical and regulatory affairs and commercialization, a robust development engine across a number of therapeutic areas, sector-leading cash flow generation from our base business to fund our…

Thank you, Scott. I have been with the company for about four months now. And based on what I've seen, I'm very excited about the opportunity ahead of us. I would like to share a few observations as I've gotten to know the global commercial organization. Our strong performance is a result of many puts and takes that only the diversity and the strength of our portfolio across geographies can allow. Our global commercial footprint is extensive. We have a presence in 165 countries and territories, which is an incredible platform to leverage as we continue to grow our base business and expand our innovative portfolio. We have a broad knowledge across many therapeutic areas and many of our branded and generic products are today's standards of care all over the world. This is a real differentiator as it demonstrates our unique ability to continue to drive volume and expand patient access at scale. As we prepare for additional innovative opportunities, we have a lot to build from. For example, if I think about selatogrel, we are already leaders at rescue and emergency medicines in COPD, in asthma, in anaphylaxis. We have years of experience in educating patients to identify an attack and act in the moment. Plus, we have deep expertise in cardiovascular, with a portfolio that treats a very large patient population from CV risk factors to CV events like thrombosis, MI and stroke. Finally, I love what I'm seeing in our teams. I am impressed with the agility and efficiency of the commercial organization. And I also see incredible energy, entrepreneurial spirit and proactivity to seize opportunities and make a difference in patients' lives. I am excited to continue to work with the entire team at Viatris on the tremendous opportunities ahead.

Thank you, Corinne. Your wealth of experience and global perspective have been invaluable as we continue to build a truly unique company we have envisioned. Now I'd like to turn the call over to Philippe to talk about our approach to R&D, both our base business and our innovative portfolio. Philippe?

Thanks, Scott. I share the team's excitement about where we are today and where we are headed. I've had the opportunity to fully evaluate our R&D organization and further define our approach to innovation and growth. Our R&D strategy is driven by our deep in-house development capabilities and two engines to fuel our growth, our base business pipeline and our innovative pipeline. Our base business pipeline provides Viatris with a diverse and resilient growth engine. We anticipate a steady flow of core generics and an ever-increasing flow of complex generics and novel 505(b)(2)-like product. The strong pipeline gives us confidence in achieving our new product revenue goals. Our focus for our innovative pipeline is on expanding our patent-protected portfolio of assets that have the potential for meaningful patient impact and the ability to address significant unmet medical need. I'm very impressed with the core competencies and talent we have at Viatris, in particular, our strong preclinical, clinical development and medical affairs teams across multiple therapeutic areas. Our experienced manufacturing and device teams of a wide range of dosage forms and our proven regulatory pharmacovigilance, legal and IP skills. This foundation is especially critical as we expand our innovative portfolio. We are identifying assets where we can leverage our expertise and global network and are assessing each opportunities based on specific criteria. We are looking for derisked innovative assets that address significant unmet medical need. This includes having a validated mechanism of action, a strong clinical proof-of-concept and a clear path to regulatory approval. Selatogrel and cenerimod are two great examples. Selatogrel has the potential to relieve the high disease burden of acute MI and specifically address the dire need for early intervention at the onset of symptoms. P2Y12 inhibition is a well-established target in the treatment of MI, with multiple…

Thank you, Philippe, and good morning, everyone. To echo the comments from the team, we reported a strong quarter, and I want to spend some time walking through the highlights. But before I dive into the details, I want to take a moment to expand on our financial strength and how we think about it in the context of our overall strategy. First, we have built an extensive global footprint that already enables us to reach over 1 billion patients annually. We've successfully stabilized the base business and expect it to be a source of growth. And today we have a broad and diversified portfolio across markets and therapeutic areas. Second, we have a strong balance sheet. We are committed to continuing to pay down debt and maintaining our investment-grade rating and have a clear line of sight to reach our long-term gross leverage target this year. And finally, our ability to generate significant cash flow is sector-leading. This gives us the financial agility to fund our vision and continue returning capital to shareholders. Now on to the results for the quarter. Our second quarter results demonstrate the power of what our portfolio can deliver. Operational revenue grew for the fifth consecutive quarter, up approximately 2%. This performance also carried through to adjusted EBITDA and adjusted EPS, growing approximately 2% and 3%, respectively. We also generated significant free cash flow of $426 million in the quarter, which was in line with our expectations. This excluded transaction costs and taxes from the divestitures. Let's move on to discuss the performance of our base business, which grew operationally on a year-over-year net sales basis. Both generics and brands grew this quarter, up approximately 2%. The growth of our base business included new product revenue that was exceptionally strong with $210 million in…

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. [Operator Instructions] And our first question today comes from Ash Verma from UBS. Please go ahead with your question.

Hey, good morning. Thanks for taking our question. Congrats on all the progress. So I wanted to talk about 2025 dynamics a little bit. So I think the $2.3 billion free cash flow guide that you provided previously, what does that translate into EBITDA? Like if you look at the run rate that you've had sort of in the difference between EBITDA and free cash flow, it would roughly translate to $4.5 billion to $4.6 billion. Is that something that you would be comfortable with? And then secondly, on the new product revenues, yes, that's good to see you're raising the guide there. Just what's driving that? Is that primarily the benefit that you saw by Breyna or are there more products that you think that you're benefiting from? Thanks.

Thank you, Ash, and good morning. Thank you very much for the question. Sort of two parts here, right, talking about new product revenue, which is very important as we move forward here. And we're very strong. We saw in the second quarter and we're expecting full year very strong new product revenue. And then also some '25 dynamics. I'll turn it over to Doretta to take those two for you.

Great. Thanks, Ash. So, yes, on new products, to your point, we feel great about the momentum we've seen from the new product perspective this year. This quarter, we did $210 million. And then when you add that to the $154 million that we did in the first quarter, already year-to-date, we're at $354 million. And so that in addition to the momentum that we're seeing broadly across our new product portfolio and it really isn't dependent on one product, one region, we've seen growth. To your point in Breyna and Lisdexamfetamine, we've also seen growth in other generics in North America, but we've also seen new products in Europe and some additions in emerging markets in JANZ. So as we look for the full year, the strong performance and the continuation of that really is going to be largely driven by products that we've already launched year-to-date. And that's what gives us confidence in the $500 million to $600 million for the year. With respect to '25 dynamics, listen, it's still early. We feel good about the momentum that we're seeing thus far in 2024. We see kind of the stability of our revenue growth. We are going to continue to invest in our business from a kind of R&D and investment perspective to fuel our growth. But the kind of dynamics in terms of what we've seen from our free cash flow, we kind of continue to see the $2.3 billion that you mentioned in terms of free cash flow generation and we're going to continue to kind of focus on our EBITDA conversion going forward. But with respect to '25, I think, it's still too early to get into the dynamics specific to '25.

And our next question comes from Chris Schott from JPMorgan. Please go ahead with your question.

Thank you so much. This is Ekaterina on for Chris and thank you for taking our questions. I'll start with a bigger picture one if I may. So just given that you're now done with the divestiture process, can you maybe talk about how you're thinking about the longer-term profile of the company, both from a margin standpoint and a top line standpoint? And I guess where you see the most opportunity for the business from here? And then second question just on business development. I think you've touched upon this in the prepared remarks. But just what's your latest thinking in terms of business development and balancing development stage and commercial stage deals? And just what do you think makes the most sense for the company and maybe where you're seeing more interesting opportunities. Thank you.

Yes. Thank you very much, Ekaterina, for the question. Again, I'll maybe address the second one first. From a BD perspective, we're engaged in a lot of different discussions. We're going to take a disciplined approach. As we go through the divestitures sort of the net effect of that is that we're going to get to -- we've got line of sight and pay down our debt going into '25. And executing on our capital allocation plan of 100%, where we're giving back to shareholders at least $2.3 billion of free cash flow through dividends and share buybacks, but also taking a disciplined approach to business development. We've got a diversified company in terms of the number of therapeutic areas that we're in. We're looking at a number of different assets. We're looking at things which can help us supercharge our growth as we get into '25 and beyond. We're very -- it's very important to understand that the base business is solid. The base business, we're showing operational growth. And then on top of that, we want to add what I would consider a significantly derisked type assets from an innovative perspective assets that can help us drive growth in the future that are focused on unmet medical need that are patented, have long runways that we can invest in, but we're also going to shore up our base business as well. We're going to look for things currently marketed and different particularly -- in particular geographies that we can be effective in. And so we're going to do business development to shore up the base and we're also going to be business development to bring in new innovative assets into the company.

Our next question comes from David Amsellem from Piper Sandler. Please go ahead with your question.

Hey, thanks. So just a couple for me and I apologize if you addressed this since I joined late. Can you talk about overall your innovative brand strategy? I mean you did an important in licensing earlier this year. I guess my question here is, how aggressive do you want to be regarding adding innovative brands in the US and developed markets broadly speaking? So that's number one. Then number two, can you just talk generally about complex generics and how we should think about contribution from complex products or new launches as we move through '25? I mean it might be a little bit early to think about that, but I wanted to get a sense of what key launches, on the complex front, that you're flagging or should flag? Thanks.

Thanks, David. I think you used the language, how aggressive we want to be from a BD perspective. I think what we want to be is we want to be disciplined. There are -- we're engaged with a lot of companies. There's a lot of inbound that we got, both for things to help build the base business and in new innovative assets that we can take forward. And so we're carefully looking at them all. We're really looking forward to getting into '25, where we've got more capital to apply from a business development perspective. We want to build a pipeline of assets. You mentioned that we already did a deal in-license, selatogrel and cenerimod, two products, which could be very, very important to us. And we fully expect, either as later in '24, as we get into '25, '26, to continue to add assets to the pipeline, both, again, to shore up and to accelerate the growth that we're seeing in the base business and secondly, to add to the innovative portfolio. We plan on doing both. And I would say, we want to do it in a smart and disciplined way. Philippe?

Yes, regarding the complex generic, I think, we -- as you can see on this presentation that we've provided, we have over 250 products in the pipeline that are either under development or under regulatory review. So we think we'll be -- we know we'll have a steady flow of complex generic coming in every year, this year, and 2025 and so on. So we feel confident about our complex generic pipeline.

[Operator Instructions] Our next question comes from Umer Raffat from Evercore. Please go ahead with your question.

Hi, guys. Thanks for taking my question. I have a two-part question on just broad investments. First, perhaps on GLP-1. Scott, I'm curious, what are your GLP-1 aspirations? What's the capacity now? And what type of CapEx investments are you or are you not looking to make? Just thinking about that out loud. And also, part two was, the investment on cenerimod in lupus. I'm curious how you guys are thinking about that in light of some really groundbreaking data we're seeing with CD19 CAR-Ts and presumably with bispecifics as well? And how do you put that in perspective relative to what we know on cenerimod? That will be very helpful. And then finally, I think, the prior question was on, what are your complex generics in '25? I don't think maybe I misheard. What are the complex generics on '25 launches?

So thanks for the question, Umer. There's sort of three parts there, right, complex generics, cenerimod and how that fits into the therapeutic landscape as we move forward here in advances of the main lupus and I think highly differentiated relative to CAR-T constructs or bispecifics and other things. And then just a little bit on the overall GLP-1 strategy. So I'll kick it over to Philippe to from a pipeline and R&D perspective to address those questions. Philippe?

Yes. So from a GLP-1 point of view, we are looking at developing multiple GLP-1s, semaglutide as well as liraglutide as well as mounjaro. So we are deep into the development of these assets. From a supply chain standpoint, as you know, supply chain can be a little tight, but we've secured supply of API for all these assets and certainly have invested in our capability to manufacture these drugs going forward. So we anticipate we'll have a significant role going forward in that GLP-1 market. Regarding cenerimod, I think, if you were to compare the cenerimod benefit risk profile versus the one we anticipate from the CAR-T or the bispecific, you'll see that we anticipate to be in the higher end of efficacy, with a safety profile that is clearly differentiated. CAR-Ts and bispecific typically having significant safety baggage. And so we anticipate that our benefit profile will be very different, which will allow us to be placed prior to the use of either any bispecific, biologics or CAR-Ts going forward. I'm not even talking about the convenience factor of having an oral drug versus these CAR-Ts that can be quite difficult to administer. And then on the last one on the complex generic, I think, I wouldn't highlight one specific product. I think it's the breadth of the pipeline that we have that we see will be delivered this year for the rest of the year, '25, '26. So we feel very confident in our new product revenue, as you can see, and we anticipate the same going forward.

Our next question comes from Balaji Prasad from Barclays. Please go ahead with your question.

Thank you. Hi. Good morning and congratulations on the quarter. A couple of questions from me. Could you comment around the magnitude of the expected base business erosion from government price regulations in Japan and Australia? I presume in Japan is the annual price cuts or are there any other dynamics at play? Second, could you comment around the split between the innovative pipeline and non-innovative pipeline currently? And with the improvement in cash metrics, how do you see the spend on innovative R&D progressing into the next couple of years or do you intend to keep it at a similar percentage? Thanks.

Thank you very much, Balaji. I'll take the first question over to Doretta to talk about the dynamics that we're seeing in Australia and Japan et cetera.

Yes. To your point, Balaji, we aren't seeing anything kind of that -- it really is driven by the ongoing price normal government price declines that we're seeing in Japan and Australia. Now the offset to that is we actually have seen better volume in Japan as well. And given that Japan is actually and the broader JANZ region is actually performing better than our expectations for the year.

And relative to your question on R&D spend and where we're going from an R&D perspective, maybe I'll make a general comment and Phillippe can comment as well here. But we're going to continue to invest in both the base business, the base generics, complex generics and others and in the innovative pipeline. We've already as we talked about here brought in a couple of new innovative assets, through our business development activities through the global health care gateway and others. We're going to continue to bring in assets and continue to develop them. So you might see some movement in the distribution of that spend as we bring in more innovative assets, but we're going to continue to invest in all components of the base business and in new innovative assets as we move forward. Okay. Thank you.

Our next question comes from Jason Gerberry from Bank of America. Please go ahead with your question.

Hey, guys. This is Bhavin Patel on for Jason Gerberry. My first question is can you approximate the full year 2024 EBITDA contribution from divestitures that provided partial first half 2024 contribution? Just so that we can understand the RemainCo business profile and model appropriately headed into 2025 and onwards. And then my second question is, given all the changes in the portfolio relative to reported financial results in 2022 and 2023, do you see low 30% EBITDA margins similar to certain peers like Organon as a good long-run assumption, pending any breakthroughs on the pipeline side of course. And with regards to your pipeline, is there a time line update based on new enrollment strategies for the Phase III selatogrel SOS-AMI trial? Thank you.

So thank you very much for the question. I'll ask Doretta to address the first part of your question and then I'll talk about the [indiscernible] timelines for selatogrel and cenerimod later.

Great. Thank you. And on the divestitures, I think, as we've laid it out when we started the year, the way we've approached it is as we close the divestitures, we've adjusted and taken out the kind of impact from our -- and provided the impact from our actuals and then also adjusted our guidance going forward to reflect those divestitures. And we'll continue to do that kind of now that the divestitures are behind us as we get through the back half of the year and we look into '25, we will be providing that additional kind of detail as we move into the rest of the year. But as we had in our earnings presentation in our press release, we do lay out the components of both the divestitures that have closed as well as the impact to our guidance and our results. With respect to margins, I mean, I think as we think about the business, we have confidence in both our base business growth as well as the stability of our EBITDA margins as we continue to invest in growth. But as Scott laid out as we continue to invest in the business, bring in more patent-protected innovative assets, we have the opportunity to continue to expand the business, but I think we feel good about the stability of our EBITDA.

And then relative to pipeline acceleration on the innovative assets, I'll say that we're very, very excited, obviously, about with both selatogrel and cenerimod. As I said in my prepared remarks, we're already making significant progress in doing the things we need to do to accelerate the development of these assets and move the timelines forward. I don't have a specific update for you on the date we want to get in and do some remediation further, continue to open new sites continue to invest in the development. And then by the time we get into the new year, we'll be able to be in a better position to give you sort of specifics on where we think those timelines are going, but we think we're going to significantly be able to help and accelerate the development timelines. And again, we'll look to update those timelines as we get into '25.

And ladies and gentlemen, with that, we'll conclude today's question-and-answer session. I'd like to turn the floor back over to Scott Smith, CEO, for closing remarks.

Thank you, everybody, and thank you to the operator. In closing, it's been a great year for us so far with the completion of our divestitures in July were the turning point for the company. We have built a strong foundation. We have a bold vision for our future and we have the key ingredients we need to be successful to deliver on our goals. Thank you all very much for your attention.

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.