Viatris Inc.

Good morning. My name is Gretchen, and I will be your conference operator today. At this time, I would like to welcome everyone to the VIATRIS 2022 Third Quarter Earnings Call and 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'd 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 will now turn the call over to Bill Schabowski, head of global capital markets. Please go ahead.

Good morning, everyone. During today's call, we will be making forward-looking statements on a number of matters, including our financial guidance for 2022, various strategic initiatives, and our phase one and phase two outlooks. 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 today's presentations and our SEC filings for a fuller explanation of these risks and uncertainties and the limits applicable to forward-looking statements, including certain assumptions and risks related to the Phase I and Phase II outlooks. We will be referring to certain actual and projected non-GAAP financial metrics to supplement investors' understanding and assessment of our financial performance. Reconciliations of those non-GAAP measures to the most directly comparable GAAP measures can be found on our website and in the appendix of today's slide presentations. A copy of today's presentation and other earnings materials will be available on our website at investor.viatris.com following this call. Now I'd like to turn it over to our Executive Chairman, Robert Corey. Robert Corey Good morning.

Almost two years ago today, we brought together two great complementary organizations to form a new company, Viatris, with the purpose of creating a sustainable global healthcare leader. Under the leadership of our board of directors, along with management, we laid out a very clear and deliberate strategy to build a highly diversified company with multiple capabilities spanning numerous geographies and therapeutic areas. At that time, we established a two-phase roadmap that detailed and emphasized our strategic priorities to deliver value to our shareholders. Phase one has always been designed as our setup phase for Vietris. It is about building a rock-solid foundation, setting us up for phase two, which is expected to be a period of renewed growth and leadership in our sector. Up until now, we have been laser-focused on executing on phase one. consisting of the years 2021 through 2023. In doing so, our priorities have been clear. Integrate the two organizations, generate $1 billion in cost synergies, deleverage the balance sheet, pay down at least $6.5 billion in debt, reduce our gross leverage to our long-term target ratio of three times, and maintain our investment grade rating all while returning capital to our shareholders. Today, here's where we stand. First, we continue to execute on our integration plans and are well on track to capturing at least $1 billion of cost synergies by the end of Phase 1. Second, we continue to exercise our financial discipline and intend to keep our investment grade rating. We paid down $4.2 billion in debt since the beginning of 2021 and are on track to paying down at least $6.5 billion by the end of Phase 1. And lastly, we returned capital to shareholders beginning in 2021 with our inaugural dividend, growing the dividend by 9% in 2022 given our strong cash flow generation and plan to add to such return through the execution of our share repurchase plan. All of this while delivering on the seventh straight quarter of strong operating results, despite many industry headwinds, including inflationary pressures and a negative impact that we estimate to be approximately $1.3 billion year over year for 2022 to the top line as a result of the material effects of adverse foreign exchange movements. We anticipate that Viatris' second full-year results will only further demonstrate the strength and robustness of our business. This past February, we announced a strategically important transaction with Biocon Biologics regarding our biosimilars franchise, which we anticipate will close shortly. We also reported strong results on our first year of operations, as well as announced after careful analysis the economics and proceeds that we anticipate receiving through other potential divestitures. I will give more detail and speak more about these potential divestitures shortly. But first, while we will remain therapeutic agnostic overall, We announced this morning two acquisitions consistent with one of our previously announced therapeutic areas of emphasis, ophthalmology. We anticipate the combined assets of these acquisitions to add to the top line immediately and grow in strong double digits from there, potentially reaching to at least $1 billion in sales by 2028. As a result of the expected strong top line growth, we anticipate these acquisitions will also add at least $500 million in adjusted EBITDA by 2028 as well. The aggregate purchase price for the acquisitions is approximately $700 to $750 million, which we expect to fund with cash on hand upon closing. Michael and Rajiv will discuss more about this in their prepared remarks. Furthermore, Given that we believe that our shares are significantly undervalued, our view is that in addition to investing in growth assets, repurchasing our shares is another one of the best uses of our cash. Therefore, we intend to increase our return of capital to shareholders, not only through the continuation of our dividend, but also following the receipt of the proceeds of the Bicon Biologics transaction, we intend to begin executing in 2023 on the $1 billion stock repurchase program authorized by our Board of Directors earlier this year. And now, with almost two years of operations under our belt, we are even more confident in the strength of our platform and can more fully address a number of important questions that we have received from investors since our last investor update. These include, one, further details in our planned divestitures. Two, the stability of our base business post-phase one. Three, our future capital allocation priorities and plans for phase two. Four, how we will return our business back to growth. And lastly, confidence in our ability to ultimately execute on all actions that we have outlined to date. I will start with our announced divestitures. In February, management provided commentary with respect to our planned divestitures. We currently expect approximately $5 to $6 billion in pre-tax proceeds in addition to the proceeds expected from the sale of our biosimilars business. In order to fully address the stability and outlook of our current base business in Phase 2, 2024 and beyond, I will need to identify for you additional detail on the planned assets to be divested. It is important to note that these identified assets which once were core assets to us in the past, based on where we were in our business lifecycle then, but have been now determined not to be core assets today, based on where we are taking Viatris on a going-forward basis, which is continuing to move up the value chain. Similar to our biosimilar transaction, we believe some additional benefits of divesting these non-core assets are reduced SG&A costs, reduced capital expenditures, And the aggregate average gross margin profile of these assets is lower than the company's current gross margin as a whole. The non-core assets that have been identified and that we intend to divest are as follows. One, our OTC business. Two, our women's healthcare business. Our active pharmaceutical ingredients business, our API, but retaining some selective development API capabilities. And lastly, certain geographical markets that were part of the combination with Upjohn's business that are smaller in nature and in which we had no established infrastructure prior to or following the transaction. We expect to complete these planned divestitures by the end of 2023 and also expect the proceeds to provide additional significant financial flexibility for both our Phase I and Phase II commitments. Now that I've addressed our divestiture plans, let me provide some additional detail on the outlook of our current business in Phase II. My comments will refer to the base business from that point going forward, but before any positive impact of the two acquisitions we announced this morning, unless otherwise indicated. We believe that our base business will be well positioned to deliver 1% top line growth long term. This is supported primarily by our strong internal organic pipeline for our new product launches. We expect our strong pipeline alone to more than offset our annual base business erosion, which we now expect to be 2% to 3% beginning in Phase 2 versus previously forecasted 4% to 5% that we modeled for Phase 1. Rajiv will provide more details later. When including the potential financial impact of the two acquisitions announced this morning, which we expect will only be additive to our growth, we are targeting during Phase 2 a top-line total revenue KGAR of approximately 3%, adjusted EBITDA KGAR of approximately 4% to 5%, and most importantly, an adjusted earnings per share KGAR of approximately mid-teens. Note that while these KGARs include acquisitions announced this morning, they do not take into consideration the positive impact of any future business development or M&A. These targets reflect our commitment to executing and delivering growth to our business only using the assets that we already have in-house, a continuation of paying down debt and thereby decreasing net interest expenses, and most importantly, returning capital to shareholders through our anticipated future share repurchases plans, which I will discuss shortly. For modeling purposes, you should consider two adjustments in exchange for the additional $8 to $9 billion of aggregate pre-tax proceeds we anticipate to receive by the end of 2023 or shortly thereafter from all our divestitures, including our biosimilars business. Therefore, as we enter phase two, beginning in 2024, you should think about making the following adjustments where we see ourselves for 2022. First, An adjustment of $2.1 billion in revenues and $700 million in adjusted EBITDA to reflect our four planned divestitures just mentioned, including our biosimilars business. And two, an adjustment of approximately $300 million in increased R&D expenses, partly due to the impact of the recent SEC guidelines for licensing deals that were previously excluded from adjusted EBITDA but will be included in the future. Also in that number are some continuing development expenses for the two acquisitions announced this morning, which will drive our continued long-term growth. Although we are not given any official guidance today beyond 2022, These adjustments have taken into consideration the remaining actions that need to be taken on our divestitures as well as other expected pushes and pulls in 2023 as we reshape and rebase Beatrice. Now turning to our future capital allocation priorities. For phase two beginning in 2024, We expect the reshaped and rebased features to generate at least $2.3 billion of free cash flows per year, excluding transaction costs and taxes, of which we intend to earmark 50% annually to be returned to shareholders in the form of dividends and future share repurchases. With the remaining approximately 50%, we do intend to identify and be able to reinvest further into our business organically and inorganically with value-creating, financially accretive, bolt-on transactions, and other potential transactions that fit the mold of what we announced this morning. We are excited as we begin to approach the end of Phase 1 and enter Phase 2 of our strategic plan. After reporting on seven straight strong quarters, we are hopeful that the market will increasingly begin to recognize the value of our strong balance sheet, our ability to generate strong cash flows, our ability to return capital to shareholders through our dividend, and especially now with our commitment to future share repurchase plans, given the tremendous undervaluation in our security shown by our current P.E. multiples. Now, in terms of adding to the growth of our base business, when we laid out our strategic vision at our February investor event, we discussed business development in the areas of ophthalmology, GI, dermatology as an important complementary vehicle to drive inorganic growth for our company. As Michael and Rajeev will elaborate later, We believe that the acquisitions of Oyster Point and Family Life Sciences are excellent examples that will establish for Beatrice a strong foundation for a leading ophthalmology franchise. We expect these acquisitions over time to be substantially additive to both our top line and bottom line. And on a standalone basis, when combined with our commitment to begin repurchasing our shares, We expect these acquisitions to be adjusted earnings per share accretive in 2023. I would like to personally welcome Dr. Jeffrey Nao, CEO of Oyster Point Pharma, who upon closing will be the newest member of Beatrice's management team and who will be introducing himself and speaking to you shortly. Dr. Now will be leading our new ophthalmology franchise at Vietris, along with his talented and seasoned management team. We have been keenly impressed by Jeff and his team's accomplishments, and especially Jeff's leadership and vision. We are confident that their talent and expertise will be a great asset to Vietris following the closing of the acquisition of Waster Point Pharma and the complimentary acquisition of Family Life Sciences. In terms of the confidence in our ability to execute on all the actions that we have just detailed, when you consider the tremendous operational and financial progress that we have made over the past two years, despite a challenging external backdrop, there is no stronger testament to our entire company's ability and capabilities to successfully execute on all facets of our plan than delivering the consistent results that we have. Another notable achievement in our continuing successful integration is having been able to exit substantially all the transition services with Pfizer last month. And for all of this, the Board of Directors would like to thank the senior management team and all of our approximately 37,000 employees around the globe for their unwavering commitment dedication, and performance, especially during some of the toughest years in this industry, including taking on the global fight against COVID. Before I conclude my prepared remarks, I would like to provide to the broader investment community a few items from our perspective that might be self-evident but underappreciated. One, how truly differentiated our company is amongst many of our peers. I believe that it sometimes gets lost on the investment community that we are no longer just a US generics and specialty pharmaceutical company that is materially exposed to all the volatility and the level of erosion that exists in the US market. In fact, only 1.8 billion out of an estimated 16.5 billion of our estimated sales in 2022 will represent the total sales of our generics in the US. We have deliberately taken steps to minimize such exposure by de-risking our business model in the United States through geographical expansion and also by moving up the value chain with more highly complex products launched in the United States and elsewhere where our products would be differentiated and with a better financial analog. Two, Vietris is the only U.S. company with an investment grade credit rating amongst our peers. which we believe is significant and meaningful, especially in today's environment. Three, with one of the strongest balance sheets amongst our peers and significant cash flows, we have significant financial flexibility, which we believe positions us to be able to quickly adapt and adjust to the ever-changing global healthcare environment. And four, we have one of the lowest gross leverage ratios amongst our peers. Five, we will be returning a quantum capital to shareholders through what we believe is an attractive dividend and soon through share repurchases. Six, the Board will continue to look at opportunities to add or even further unlock value when and where we see opportunities. And lastly, we represent a unique opportunity for the investment community to participate in what we expect to soon be a strong adjusted earnings per share growth story. Simply put, once our business is rebased, we feel very confident in our future prospects for where we believe we will be able to deliver top-line growth, adjusted EBITDA growth, and adjusted earnings per share growth. And with our significant cash flow generation, we expect to be able to return capital to shareholders through dividends and especially through share repurchases. With that, and before I turn the call over to Michael, Rajiv, and Sanjeev, I would like to note that following the call today, we will be commencing our annual shareholder outreach program. So please look forward to hearing from us in the coming weeks. Thank you. And especially thank you for your interest in Beatrice. I look forward to answering your questions during our Q&A period. I will now turn the call over to Michael.