Viatris Inc.

Q1 2022 Earnings Conference Call

5/9/2022

spk13: Good morning. My name is Brittany and I will be your conference operator today. At this time, I would like to welcome everyone to the Beatrice 2022 First Quarter Earnings Call-In Webcast. All participant lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If you need to ask further questions, you may re-enter the queue. Lastly, if you should require operator assistance, please press star zero. Thank you. I would now like to turn the call over to Bill Cebulski, Head of Global Capital Markets. Please go ahead.
spk03: Thank you, and good morning, everyone. Welcome to our first quarter 2022 earnings call. Joining me today is Michael Gettler, Chief Executive Officer, Rajiv Malik, our President, and Sanjeev Narula, our Chief Financial Officer. During today's discussion, we will be making forward-looking statements on a number of matters, including our financial guidance for 2022 and various strategic initiatives. These forward-looking statements are subject to risk and uncertainties that could cause future results or events to differ materially from today's projections. Please refer to the press release that we furnished to the SEC on Form 8 earlier today for an explanation of those risks and uncertainties. and the limits applicable to forward-looking statements. We will be referring to certain actual and projected financial metrics of VATRS on an adjusted basis, which are non-GAAP financial measures. We will refer to these measures as adjusted and present them to supplement your understanding and assessment of our financial performance. Non-GAAP measures should not be considered as a substitute for or superior to financial measures calculated in accordance with GAAP. The most direct comparable gap measures, as well as reconciliations of non-gap measures to those gap measures, are available on our website at investor.veitrus.com and in the appendix of today's slide presentation. The information discussed during the presentation, except for the participant questions, is the property of Veitrus and cannot be recorded or rebroadcast without Veitrus express written consent and permission. A copy of today's presentation is available on our website at investor.beatrice.com. And an archived replay of the webcast will be available on our website following the conclusion of today's event. With that, now I'd like to hand the call over to Michael Gettler, our Chief Executive Officer.
spk04: Thank you, Bill, and good morning. Thank you all for joining us for our first quarter 2022 earnings call.
spk17: I'm pleased to say that we're off to a good start to the year with strong first quarter results, in line with our expectations across all key financial metrics, delivering on our financial commitment and making good progress on the reshaping initiatives we announced in February. For the full year, we remain confident in our 2022 financial guidance on an operational basis, and we're continuing to monitor the current headwinds brought on by foreign exchange rates. Now, here are some highlights from the quarter. In the first quarter, we reported total revenue of $4.19 billion, adjusted EBITDA of $1.59 billion, and free cash flow of $1.07 billion, a 34% increase over last year. This strong performance has enabled us to continue to deliver on our financial commitments for debt repayment while continuing to return capital to shareholders through the payment of the dividend. We're continuing our successful integration, capturing synergies, and simplifying our processes and organization. Our development engine continues to deliver key pipeline milestones, and highlights for this quarter include the launch of generic Restasis and generic Revlimid, and the full FDA approval of generic Symbicord. Overall, we generated approximately $120 million in new product revenue in the first quarter, and we're on track for $600 million in new product revenues for the full year.
spk04: Now, allow me to switch gears to our future.
spk17: In February, we announced a significant global reshaping initiative to unlock trapped value and build a simpler, stronger, and more focused company, which is well-positioned to deliver more access to patients and more value to shareholders. Since February, we've engaged in conversations and meetings with numerous shareholders. We've listened carefully to your feedback, and we recognize there's a desire for more clarity and more certainty about our strategic plans and the steps we're taking to get there. We fully understand the importance of remaining engaged with you and will update you on our progress as we go along. So let me give you an update on what was achieved in the first quarter. I'm pleased to say we made good progress during the quarter on the biosimilar transaction with our partner Biocon Biologics and we believe we are on track to close the transaction in the second half of 2022. Rajiv later will give you more details on our activities to date. We're also making good progress on the previously announced divestiture of the portfolio assets of other select non-core assets which we identified.
spk04: We remain confident that we execute against all of these plans by the end of 2023.
spk17: We strongly believe that our company's equity securities continue to be significantly undervalued. And as we continue to generate strong operating cash flows from our business, and realize that proceeds from our efforts to unlock value, we're focused on maintaining our quarterly dividends, paying down debt, future share buybacks, and other actions, all of which will enhance shareholder value over the short, medium, and long term. And with regard to timing for share buybacks, we hope to consider repurchases under the program already approved by the Board of Directors as soon after the close of Biocomp Biologics as possible.
spk04: In summary, we had a very strong quarter, and we're excited about the future that we're building for Vietris.
spk17: I can assure you that the entire company is focused on executing on these initiatives that we set forth for our business, meeting or exceeding the operational goals that we set, generating significant free cash flow, which remains our financial North Star, and unlocking value while reshaping our company for a stronger future.
spk04: With that, let me turn it over to Rajiv. Rajiv?
spk15: Thank you, Michael, and good morning. I'm excited by our strong results this quarter that reflect our focused business execution on all fronts. We manage the base business, maximize new launches delivered on our pipeline, and continue to execute our integration and TSA exits all while advancing our reshaping initiatives. Let me start with an update on transaction with Biocon Biologics. We are progressing with all regulatory approvals and importantly have clearance from a U.S. antitrust perspective. The remaining regulatory approvals are expected in the coming months. Biocon is also on track with securing its financial commitments. With this positive momentum, we are well positioned to close this transaction in the second half of 2022. Now moving to our quarterly segment results, which begin on slide seven of our earnings slides posted on our website. As I walk you through the performance in each of our segments and product categories, I will be making certain comparisons on an operational basis versus our plan that supported our guidance we communicated back in late February. Our developed market segment continues to be a strong and resilient commercial business built on a foundation of a well-diversified portfolio of brand, generics, and complex products, which has allowed us to improve the predictability and sustainability in what continues to be a dynamic and challenging environment. In North America, we continue to demonstrate our focus and dedication to patients through the innovative solutions based on the strength of our proven development capabilities. Our interchangeable biosimilar assembly is off to a great start as the total prescription share approaches 10%, which is in line with our expectations. Generic recessive, is another example of a first-to-market complex product and is also off to a strong start. Moving to our generic Symbicot named Brena, we are very excited to receive FDA's final approval in March. This milestone furthers our track record of successful firsts in developing complex generic medicines to help increase patient access. There is a trial scheduled for May 19 in the West Virginia Federal Court, and we continue to have the opportunity to launch this product in 2022 as upcoming proceedings develop. Other key products like Upelri and Vixella performed in line with our expectations while showing year-over-year double-digit volume growth. Our European business is also off to a solid start and remains on track to grow mid-single digit for the full year 22. Italy, France, Spain, and Portugal performed strongly to further enhance our retail channel leadership in these countries. We also saw stronger than expected performance across brands such as Creon, Lipitor, Temistar, Lyrica, and Brufen. Our thrombosis portfolio continues to grow in line with our expectations. Julio, or biosimilar to Humira, which has roughly 20-plus percent market share of the biosimilar market, is another key contributor to our German and France businesses. Our recently launched generic development is the first in a series of key launches planned for Europe this year. Our emerging market segment showed a strong quarterly performance. Our ARV franchise performed slightly better versus our expectations this quarter. Key geographies such as South Korea, Southeast Asia, Turkey drove higher volumes while Brazil realized better pricing. Lipitor and Lyrica led to strong growth in this segment and helped the brand category perform better than expectations. Moving to GEMS, the headwinds on account of annual government NHI price reductions in Japan are being partially offset by strong year-over-year volume growth of our authorized generics and brands like Sellycox, Ametiza, and Effexor. In addition, we saw strength in Creon and Epipen in Australia versus last year. On biosimilars, we are pleased that Julio has achieved more than 50% market share in Japan. However, we continue to believe that there is plenty of room for the overall Humira biosimilars market to grow as it only stands at 10% today.
spk07: Lastly, an update on Greater China.
spk15: Our strong and broad commercial infrastructure has helped us to deliver a strong performance despite COVID and COVID-related lockdowns. Our retail channel performance, especially Viagra, was slightly impacted by COVID, which was more than offset by better than expected performance of the hospital channel, primarily led by Lipitor. Our manufacturing operations in China continue to perform well, and at this time, we do not foresee any potential disruption to our China supply chain. Given our solid start to the year, and the strong customer service performance across all segments delivered by our global supply chain, we remain confident to deliver on our full year expectations across all segments on an operational basis. Switching now to our pipeline. For your benefit, we have included current snapshots in our earnings materials beginning on slide 13. Here are a few noteworthy pipeline updates. Our ILEA biosimilar review is progressing well, and we can confirm that we have no outstanding science issues. We are currently waiting for the facility approval by FDA. As a reminder, this program is a part of Biocon transaction. Our biosimilar to Botox filing for USAFTA will be delayed. We remain committed to the successful development of this complex biosimilar with revance and to the earliest possible launch in the United States. Our clinical trial for GA once monthly has a number of patients who are located in Ukraine and are being impacted by ongoing situation there. As a result, we are pushing back our FDA filing by one quarter, which is now scheduled for the first quarter of 23. We recently received FDA approval of our liver thorax and oral solution named Hermiza and are looking forward to launching later this year. Also, we received a GDUFA goal date of October 22 for our potentially first-to-file generic Pentessa. Lastly, we believe that we achieved first-to-file status for our generic Abilify Mentena. further enriching our first-to-market opportunities of complex injectables, which now include paliperidone 3-month, octirotide LAR, traric carboxymaltose, iron sucrose, and semaglutide. And finally, an update on integration. As you can see on slide 17, we remain on track to realize $500 million of cost synergies over the next two years, resulting in at least $1 billion cumulative cost energy since becoming Viatris. Our objective throughout this year is to complete our TSA exits from Pfizer, making Viatris self-reliant in terms of systems and processes and positioning the company to further accelerate the optimization of our infrastructure. Before I conclude, I would like to thank our colleagues for their hard work to deliver yet another excellent quarter and lay a solid foundation for the year. With that, let me now turn the call over to Sanjeev.
spk16: Thank you and good morning, everyone. Please turn to slide 18 as we discussed our first quarter 2022 financial highlights. We're off to a good start and saw strength across the business. Operational revenue was stable relative to prior year. Gross margin was strong. SG&A benefited from realization of synergies and free cash flow improved significantly. This performance in total was solid and in line with our expectation. Let me walk you through the key drivers that contributed to first quarter performance. On slide 19, we have summarized our results versus prior year on a reported basis. Moving to slide 20, sales benefited from performance across our segments and several new product launches. As a result, Sales were in line with expectation on an operational basis, down marginally versus prior year by approximately 1%. Our global business is approximately 70% non-US dollar denominated. As a result of dollar strengthening against major currencies, foreign exchange had an unfavorable impact of approximately 4% versus first quarter 2021. Sales in developed markets were flat as a result of stability across brands and generics, along with contribution of new product sales. In North America, sales of $1.1 billion were in line with expectation. We saw growth across products like Upelri and the benefit of new product sales, including interchangeable insulin, glargine, and generic Restasis. In the quarter, these strains contributed to overall performance and offset the expected impact of competition on key products and generic price erosion. In Europe, we're off to a strong start and sales grew by 5% on an operational basis. This is a result of category diversity, which spans generic brand products such as Dimesta and Creon in our thrombosis business. We're seeing encouraging trends with recently launched generic Revlimid. Moving on to emerging market, overall, operational sales were flat and benefited from growth in brands including Lipitor and Lyrica. This offset pressure in generics as a result of lower ARV volumes. Our Jan segment was down 4%, driven by government price reduction, which we had anticipated in Japan and lower volume in Australia. Partially offsetting these trends is a continued uptake of authorized generic products. Lastly, the Greater China segment was impacted by carryover of policy changes in China that were implemented in 2021. Overall, trends are stable across key brands, such as Lipitor in the hospital setting, the retail setting continues to be a priority area of growth given our focus on broadening the patient population. On slide 21, let me walk you through the P&L elements that led to EBITDA being essentially flat versus prior year. Adjusted gross margin of 59% came in slightly ahead of expectation and were driven by favorable mix associated with brand performance and new product launches. SG&A was down approximately 14% and benefited from synergies realized over the last year associated with integration and restructuring activities. Turning to slide 22, we had an excellent quarter, free cash flow of more than one billion, up 34% versus the prior year. This improvement in our cash flow conversion was driven by lower one-time cash cost, positive change in networking capital, which totaled approximately 300 million in the quarter. Improvement in FLAC free cash flow generation continues to be an organizational priority We're confident that the cash optimization efforts will benefit cash flow throughout the rest of 2022. In the quarter, we delivered our capital allocation commitment, which included approximately $840 million of short-term debt payment and increased our quarterly dividend by 9%. Moving to slide 24. We're off to a strong start in 2022, and solid quarter supports the operational strength of business across total revenue, adjusted EBITDA, and free cash flow. You will recall that the guidance we provided in February assumed a full year of biosimilar business and FX impact of approximately 2% on total revenue and adjusted EBITDA versus the prior year. Given the dollar has strengthened against major currency, if the mid-April spot rates hold throughout the rest of the year, there could be an additional impact on total revenue, adjusted EBITDA, and to a lesser extent, free cash flow. FX aside, the momentum seen first quarter gives us confidence in the outlook for the rest of the year. Now let me cover the estimated phasing of our financial performance for the full year. With respect to revenue phasing, we estimate 48% of revenue will come in the first half and 52% in the second half. This is driven by ramp of new products, the U.S. launch of generic Revlimid in the third quarter, and seasonality of InfluVac in developed markets. We expect sequential increase in SG&A and R&D throughout the year, with approximately 52% of spend occurring in the second half. For the full year, we expect gross margin, SG&A, and R&D to be within the guidance metrics we provided earlier this year. As a result of previously announced legal settlement, which will occur in third quarter, free cash flow will be more heavily weighted in the first half. Also, we expect one-time cash cost and capital expenditure to be more significant in third and fourth quarters. We are firmly on track with our 2022 debt pay down target of approximately 2 billion and are committed to maintaining an investment grade rating. Before I conclude, I want to make a few comments on our reshaping initiatives. We expect the buy account transaction will generate 2 billion in gross proceeds or approximately 1.6 billion after tax. The proceeds will be used for debt pay down and potentially for share buyback. As Michael and Rajiv both mentioned, we're making good progress and expect other assets to be divested by the end of 2023. This will bring in significant capital for further share buyback and potential tuck-in BD opportunities. We're obviously pleased with a strong start in the first quarter. The momentum we see in the operations of the business position us well for the remainder of the year. Now I would like to turn the call back to the operator to open the call for Q&As.
spk13: At this time, if you would like to ask a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, please, you may do so by pressing the pound key. We remind you to please pick up your handset and please limit yourself to one question.
spk06: Thank you, operator. Let's go to the first question to Jason Garberry, please. And Jason, please press star 1 if you would like to ask a question. Okay, we'll start with Jason.
spk10: Hey, guys. Thanks for taking my question. This is Bhavan Patel on for Jason Gerberry. My first question is on risk basis. Can you talk about your supply capacity for this product and your guidance assumption for this product to remain semi-exclusive? And then second, can you speak to your second half 22 capital deployment priorities? How will you balance buybacks at current price versus acquiring new assets?
spk17: Yeah, I think I'll give, good morning, everybody. I'll give the first question to Rajiv, and Sanjeev, if you can comment on the second half capital deployment.
spk15: Thanks, Michael. I would start by saying that I'm very pleased to have, again, received the first FTA approval for generic assets, which reinforces our ongoing commitment to this market and the complex products. I would say that supply is not a constraint. You know, the market continues to evolve. It's a three-player plus brand market at this point of time. And we have been very happy with how we have performed so far and remain confident about the rest of the year's forecast.
spk16: Yeah, and on the Capital allocation, as Michael said, and I said that in my opening comments, we're pretty clear about our priorities. Our priorities is continue to deliver as we demonstrated that last year by paying down $2 billion and then on plan to pay down another $2 billion this year and overall pay down $6.5 billion in three years and maintain our investment grade rating. So that's on the debt side. And we've also been clear about paying and maintaining and growing dividend, which we demonstrated by increasing a dividend by 9%. So our priorities are pretty clear, and we have sufficient cash flow from the organic business to be able to support our capital allocation priorities.
spk17: Then as the proceeds come in from the biocon transaction, I think we said very clearly before that, you know, obviously there are tax implications of that, there are implications on maintaining leverage neutral and paying down some additional debt, but then there will be additional funds available. And clearly, we hope to consider buy-by-backs at the time, share buy-backs, especially at the current share price. We're so undervalued that clearly share buy-backs are the case to beat for us for the additional capital that's coming in.
spk05: Next question, please. Thank you, Michael. Operator, if we could go to Elliot Wilbur, please.
spk06: Thanks. Good morning. Am I live? Good job.
spk08: Okay. Thanks. Good morning, everyone. Just wanted to ask about the EBITDA impact of competitive product events in the first quarter, referring specifically to the bridging slides on pages 20 and 21 of the deck. So just looking at the EBITDA impact of or on key products, I mean, it looks like it was effectively 100% margin, and I think that's relatively consistent with what you outlined at year end. But the EBITDA impact on other base business assets, at least in terms of the margin profile of those products, was quite a bit higher. I think it's around 85% in the quarter. If you look at the EBITDA impact of – negative revenue trends on other base products, base generics. So I just wanted to get some insight in terms of what particular products may have been impacted within that bucket in the first quarter. Why was the impact quite a bit higher than what you're expecting for the full year? And is, in fact, your guidance still relatively consistent with what you would expect in terms of the EBITDA impact on base business products for the balance of the year. Thanks.
spk16: Thanks, Elliot. Sanjeev, can you start? Yeah, I can. So, Elliot, you're absolutely right. So, if you look at kind of like the two pieces, if I could step back, first is the competition on key U.S. products. The revenue and EBITDA impacts are consistent with what we've been outlining. These two products, which is MyCalcine and Performance, are a very high gross margin, about 90 percent, as was evident. As you can see, the revenue impact and the flow through to impact up. So that's consistent. Those are the two products. On the other base business erosion, as you saw, we talked about in the quarter, that's again in line with what we have seen. Quarter to quarter, there is a variation. This quarter, particularly, we had the pricing impact, as Rajiv pointed out in his opening comment, from NHI in Japan. This is the annual price reduction that we experienced, and that's all scheduled and anticipated. That flows to the bottom line, and there are other couple of brands in U.S. that have a pricing impact, competitive price impact, that, again, has a higher impact on the EBITDA. So, overall, I'd say the impact on both the competition and on the base business erosion is in line. Now, the other important thing to note, again, Rajiv pointed out, is the offset. If you look at the new product sales, they were impressive for the quarter, and the gross margin on those were also fairly significant that we were able to offset part of the impact on the base business erosion.
spk05: Next question. Thank you. Operator, if we go to Chris Shaw, please.
spk13: Your line is open.
spk02: Great. Thanks so much. So just a couple questions for me. Coming back to this issue of capital redeployment. So I guess once you address the debt reduction and kind of the targets you've put out there, should we think about most of the capital that you're going to be getting from whether it's the Biocon deal or additional asset divestitures going to repo, assuming your stock price is in this kind of like $10 level? and that the deals you're considering would be more smaller in size. I'm sure you get a sense, I think that's been one of the debates is just how do we think about, you know, what the interest looks like going forward. And it's something from the messaging here is that repo is going to be a pretty high hurdle to overcome as we think about that versus deals. So that's kind of the first question is to clarify a bit more there. The second one for me is, which I think we touched on a little bit, but just on gross margin progression and trends for the year, it seems like the 1Q results were well ahead of your annual targets. I think you said they were slightly ahead of your own internal targets. Help me understand a little bit about how we kind of bridge from the 1Q results to the rest of the year. Like what drives that step down in gross margins going forward as we think about the implications for that and kind of the go-forward business into 23? Thanks so much.
spk17: Thank you, Chris. Look, on capital allocation and, you know, the tradeoff between, you know, share repurchases and BD, I think we've been very, very consistent. You know, we got our phase one commitments that we committed to. That's the $6.5 billion in pay down, you know, targeting the leverage target that we put out there, paying the dividend. And as Sanjeev mentioned earlier, you know, all of that is supported by our strong organic pre-cash flow, right? We don't need the cash from divestitures to achieve those targets. Our commitment is unchanged. That's what we're aiming for. Then with the divestiture, we have additional capital coming in, right? And, you know, starting with the $2 billion from Biocon, again, taking taxes into account, look at the net proceeds. We're planning to use some of that to be leveraged neutral. But then the remaining, clearly, especially with the share price that we have right now, as we said, share buybacks are the case to be. It doesn't mean we're going to be completely inactive on the BD side. We're very active looking at opportunities there. We have our target areas that we laid out. But clearly, share buybacks are the case to beat, and we hope to consider starting that as soon as after the close of the Viacom transaction. And on the gross margin, Sanjeev, do you want to?
spk16: Yeah, sure. So, sure, Chris, you're right. We came in slightly ahead of our internal expectation, the gross margin of 59.5% for the quarter. But I think there are a couple of things going on, just kind of put this in context with what's happening. So, we had a strong brand performance, as Rajeev pointed out. That obviously has an impact on the gross margin. We also had new product launches, generic rest cases, clearly high gross margin product has an impact on that. And then we also had some timing of emerging market tenders. in case of acceleration in first quarter. That has an impact on the gross margin. So we came in ahead. I expect the gross margin to step down a little bit in the second quarter because of the product mix and then what we talked about. But on a full year basis, we are still on track with the metrics that we provided on 57.5 to 58.5.
spk07: Thanks for the question.
spk05: Next, we'll go to Boomer, please.
spk01: Hi, guys. Thanks for taking my question. So I guess maybe more specifically, is it reasonable to assume on capital allocation that perhaps a magnitude of up to a couple billion dollars' worth of repurchase is possible? And also on full-year guidance, can you clarify if there's impact of excess purchases in China ahead of lockdowns that was helping the first quarter, and if that's appropriately baked into the back half of the year. I know you guys did mention a 2% impact to EBITDA from FX. I just wanted to go through that as well.
spk17: Rajeev, you start with the China question, and then, Sanjeev, you can talk about the potential of share markets.
spk15: I think, Omar, China, again, is an outcome of and expensive commercial infrastructure, but more importantly, how team has adopted to the new environment. And that has helped us deliver a strong performance despite COVID and COVID-related lockdowns. You know, we continue to see, you know, although the sentiment around China not being at its peak due to the lockdowns, at this point in time, we believe can meet our finances yeah we remain confident about that so i don't see any uh you know doubts about our china business and uh because of the kobe okay and uh on the two points about um the shared buybacks the point that you mentioned so if you can step back at the kind of michael um in his opening comments if you look at the
spk16: total net proceeds of Biocon and other assets that we talked about that, and adjust that for the potential tax impact and pay down debt to keep us leveraged neutral. You talk about approximately $4 billion of net proceeds that we could generate. Now, conceptually or hypothetically, if you think about where our security prices are, we could be deploying all of that for share buyback. That clearly is possible, but obviously that decision will be taken as we start closing the buy-con transaction and getting proceeds from the other perspective. But clearly, the reshaping and unlocking the trapped value gives us a lot more flexibility in terms of accelerating and expanding our capital allocation priorities.
spk04: And I think just as an overlay, Umar, you know, obviously, as Sajeev said, we'll make the decision at the time when it comes.
spk17: But, you know, we believe the company is significantly undervalued at the current levels. I think there's no doubt about that. We're confident in the strategy that we have to unlock trap value. Our decision will be guided and are always guided by our TSR model and our commitment to return value to shareholders. And very importantly, we're confident in the outlook of our core business and continue to be highly diversified in that That gives us that confidence. So I think that background should help you.
spk05: Next question. Thanks, Michael. If we could go to Greg Frazier, please.
spk13: Your line is open.
spk12: Thanks for taking the questions. Were there any notable drivers behind the stronger-than-expected brand performance in the quarter that could prove durable? And just following up on the guidance approach in light of FX trends, why not update the ranges based on the current exchange rates? I guess, what's the bar or trigger for updating the guidance based on FX? Thank you.
spk15: Richard, do you want to take the branch question? Yeah, I think that thing is, you know, nothing is a surprise. We exactly planned the business, and this is how we have executed. China, Lipitor, and Norvath drove the brand performance. Japan, strong performance for Ameteza, FXR, Sellycock, as I said, drove it up. And, you know, U.S. was jubilee, and again, Even performance, although we have a competition, I think we did better than expected in the U.S. And Europe has been a steady teddy for the last couple of years, whether it's Creon or thrombosis portfolio, Drufen. So I think everything which we have planned has been executed and we remain confident for the year.
spk16: Yeah, on the guidance question, but just want to start with, first of all, I think, as you can see, We had a very strong quarter operationally, and the momentum we see at the end of where we are today and the outlook for the rest of the year, we feel very confident on the outlook for the year in terms of operationally how we're going to be performing. But clearly, FX is a headwind, as I mentioned that in my opening remarks. And if you take the mid-April FX rate, if they were to hold, there is going to be a headwind on the overall, on the revenue and adjusted EBITDA and to a lesser extent on the free cash flow. Now, we're not in the business of predicting foreign exchange. Foreign exchange has been changing every day. What we are expecting to do is at the second quarter call, we will take into consideration the prevailing FX rate at that time and update guidance as necessary. And by the way, keep in mind that we also have, we are expecting the biocon transaction to close in the second half, and depending upon the timing of that closure, there would be an impact on our full year guidance, which then we will take into account and reflect that in the guidance. The last part I want to say, irrespective of the FX rate, we feel very good about the cash flow generation in the company and are on track to pay down $2 billion of debt and then continue to maintain and grow the dividend as we talked about.
spk05: Thanks, Sanjeev. Operator, if we go to Nate Rich from Goldman, please.
spk00: Hi, good morning. Thanks for the questions. Maybe two quick clarifications on guidance and then a higher level question. Just following up on the last question actually, was first quarter ahead of your expectations and should we think of that outperformance being offset a little bit by FX or has the expectations for the year not really changed on a core basis? You're just highlighting this additional FX risk if current exchange rates hold. And then are you able to give us the contribution from biosimilars in the quarter to overall growth? So just so we can get a better view of sort of underlying performance once that divestiture takes place. And then at a higher level, and then I'll stop there, but at a higher level, when could we hear more progress on additional divestitures? And has your view or scope of the potential assets to be divested changed at all, just given the volatility we've seen in the markets and how some of the public assets are being valued? Thank you.
spk16: So did you want to start with Q1? Yeah, yeah. Nathan, so Q1, we had a slight FX headwind. because as we go back and saw the dollar start strengthening in the month of March, we had a slight headwind that we were able to absorb within our operational results. And that impact obviously gets bigger because dollar has continued to strengthen. So that's kind of why I'm highlighting, but on a full year basis, the expected headwind. So Q1 did come out slightly, you know, ahead of the expectation. But we were able to offset the effects impact because of that. On the biosimilar question?
spk15: Yeah, biosimilar. For the full year, as we said, it's about $850 million is the total revenue for the full year. And for quarter two, it's about $175 or something. Quarter one, $170 million. Approximately, yeah.
spk17: And on the larger question you had, Nate, on the other divesters. Look, nothing really has changed. We identified these other, you know, select assets that we consider non-core to the future of Vietris. And as we continue to move up the value chain, looking for more durable and complex products. But, you know, these are quality assets. These are quality assets that we think are attractive maybe more attractive to somebody outside of the address than inside of the address, and helps us to unlock value and to simplify our business. We're not disclosing the assets at this point to maintain the integrity of the process, but as we said, we're making good progress on them. We're confident in the timeline that we laid out to have all of this wrapped up by the end of 2023, and obviously we keep the street and the shareholders updated as we go along.
spk05: Next question. Thank you, Michael. Operator, next question from David Amsel, please.
spk11: Thanks. Just a couple of quick ones. So first, just remind us, and I apologize if I missed this, what you are assuming for pricing erosion for both your generics business, particularly developed markets, broadly speaking, and And also just how you're thinking about pricing erosion broadly. It's ex-China because I know that's a bit of a different case, but how you're thinking about pricing erosion for established brands. Less about the guide this year and more just longer term and how you're thinking about overall trajectory there. And then in terms of just the repositioning of the business, you've talked about that you believe that the shares are undervalued and that there's value to be unlocked. And you mentioned that a number of times on this call. So with all respect, I'm just trying to understand, you know, what do you think the market isn't getting or what do you think could be or should be unlocked in your view? Thank you.
spk17: Want to start with the price erosion, Rajiv?
spk15: Yeah. Sure. I think the diversity of our business, whether it's within the product portfolio or commercial infrastructure or footprint, has given us, has provided us predictability and sustainability. And I believe pricing, yes, it's used broadly at the industry level, but it's very specific when it comes to generics, is to your own sort of portfolio, which by design, If you recall, we have been moving slowly and steadily from commodities to the high-value, complex niche, hard-to-make products. So we are moving, we have been making a diligent move from the volume play to the value play. And as I've always said, the generic pricing environment has been first stable, as I see, given the specific, for example, this quarter, it was Mya Kelsen, Performance, Vixella, These were the three key drivers. If I take it off, core business in the genetics for us was pretty stable. You know, it's a stable pricing environment. Now, from globally, you know, if I have to say, we had always forecasted about, you know, mid-single digits, somewhere around that percent as a price erosion. And if you look into this quarter, you know, overall, for example, take just North America. Black. Brands were down 3%. Complex made up for a complex biosimilars made up from 18% positive over there, and GX was minus 3. Overall, net-net, it was flat. So that's what I was talking about. You know, this diversified portfolio has given us that sort of deep sort of portfolio now which can withstand this volatility and give us more predictability and sustainability.
spk17: Yeah, and David, on the repositioning of the company and what the market is, we believe, not getting. I mean, you need to look no further than the buy similar business. I mean, look at the transaction we did. You know, these are all the value they had, how it was implicitly valued inside of the interest, and then the value we're getting by unlocking it off an implied multiple of 16.5. We think that applies to other assets as well. So at the end, after we're done with all the reshaping, what you're going to be – Leftwith is a company that's very well positioned to have a broad portfolio of generic medicines that reaches across our global commercial network, addresses patient needs for high-quality affordable medicines. That will always be a core of us. Complex products, injectables, off-patent LOE brands, including some of the iconic brands that came in from Legacy Upjohn. And then we want to add to that, moving further up the value chain, some additional products. That product, that portfolio is, we believe, very, very strong. It's going to be a high-value, global, high-value-oriented, global, diversified business. The diversity will stay with us. And, you know, I believe in time the street will come to appreciate that both our financial profile that we have as well as the strategic profile that we have.
spk16: And, Michael, if I can just add to that, that profile that Michael talked about will continue to generate sustainable cash flow. Yes. And that, we believe, is a strength, as we demonstrated, and then will continue to be a positive momentum as we go forward for the company.
spk05: Thank you, Sanjeev. Thanks for the question. Hopper, can we go to Gary, please?
spk06: Thanks. Good morning.
spk14: All right, great. So the SG&A was much lighter than we expected in one queue. Is that a timing issue or quicker realization of synergies? Just talk through the run rate on that through the rest of the year. And then how much of the $600 million of new product revenue is from current market products versus new launches? And how much is biosimilars that will be divested to biocons? And then just lastly, just you mentioned about the Botox biosimilar filing is delayed, so can you just explain that a little bit more, what's causing that, and how long of a delay you think that'll be? Thanks.
spk17: So let's take them the same sequence, maybe SG&A timing first. Sajid?
spk16: Sure, sure. So first quarter, SG&A came in lower than our kind of internal tracking. That's essentially timing. And we expect to catch that up. And I said that in my opening comments. We expect SG&A and R&D to ramp up. 52% of our yearly spend is going to happen in the second half of the year. But it's important to note again, in our guidance is built into the synergies realization that Rajiv mentioned that in his comment. And that's why we see year on year, First quarter, RSGN is down double digits, and on a full year basis, RSGN is down as well.
spk15: Okay. From the new launch perspective, I think important fact is that almost 95% of the products which we are supposed to launch in this year have either been approved or already launched. So other than a couple of products which we had factored in our plan, which is Aspart and Westin, Most of those approvals are in the back, and we are on very much track to deliver $600 million as we have planned. And on biosimilars, I will give you on an annual basis, almost one-third of this new launch revenue is coming this year from the biosimilars.
spk07: Thanks.
spk06: Okay. The Botox biosimilar also?
spk14: Why the filing is delayed?
spk15: Yeah, on a Botox, look, we have, let me start with this, that we remain committed to the program and we are making some good headway with the science along with the FDA. We are still targeting, I would say, an FDA approval in 26 and launch thereafter. There are several moving pieces with our program with Revance, including, you know, their plan to qualify and incorporate a new working cell pack. So this is going to, that's one reason for, along with various other pieces.
spk07: That's one reason for us pushing back this filing.
spk06: Thanks, Rishi.
spk05: And thank you guys for the questions. We're going to, I don't see any other folks in the queue, so we're going to hand over to Michael to close the call.
spk17: Yeah, thanks everybody for joining us this morning. Look, in summary, let me just say we obviously had a strong quarter. We're on track operationally to meet our full year 2022 guidance. We made good progress. on executing on our reshaping initiative that will be laid out in February. And we're going to continue to engage with you and engage with investors as we go along. So thank you for joining us this morning. And that concludes the call. Thank you.
spk13: This does conclude today's VITERIS 2022 First Quarter Earnings Call and Webcast. Please disconnect your line at this time and have a wonderful day.
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