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 Vietris 2023 first 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 one on your telephone keypad. If you need to ask further questions, you may re-answer the queue. Lastly, if you should require operator assistance, please press star zero. Thank you. I will now turn the call over to Bill Zabulski, head of Global Capital Markets. Please go ahead.

Good morning, everyone. It is my pleasure to welcome you to our first quarter 2023 earnings call. With us today is our CEO, Scott Smith, President Rajiv Malik, CFO Sanjeev Narula, and Jeff Nail from our high care division. During today's call, we will be making forward-looking statements on a number of matters, including our financial guidance for 2023 and various strategic initiatives. These forward-looking statements are subject to risk and uncertainties that could cause future results or events to differ materially from today's projections. Please refer to today's slide presentation and our SEC filings for a fuller explanation of those risks and uncertainties and the limits applicable to forward-looking statements. We will be referring to certain actual and projected non-GAAP financial measures to supplement investors' understanding and assessment of our financial performance. Reconciliations of those non-GAAP measures to the most directly comparable GAAP measures are available on our website and in the appendix of today's slide presentation. An archived copy of today's presentation and other earnings materials will be available on our website at investor.beatrice.com following the conclusion of today's call. With that, it is my pleasure to welcome our CEO, Scott Smith.

Good morning, everyone. I'm excited to speak to you today officially as the CEO of Beatrice. It's been a busy and productive first month. Beatrice is a special company. I knew that from the moment I joined the board in December, and I appreciate it even more today. It begins with our ability to sustainably deliver access to high-quality medicines at scale to people, regardless of geography or circumstance. Since becoming CEO, I've met with colleagues all over the globe, and I've had the opportunity to spend time with each business segment, I have seen firsthand the unique combination of passion, dedication, and skills of the people of Beatrice. Their unwavering commitment to our mission is infectious. I'm honored to be part of this amazing organization, and I'm extremely impressed by everything that has been accomplished to date. In addition to our historically strong regulatory, clinical, and manufacturing capabilities, I've also been very impressed with the company's global commercial infrastructure and the talented people we have there. I look forward to finding additional ways to leverage these capabilities to deliver more access to more medicines to more patients around the world. I want to reiterate that I firmly believe in the strategic plan announced in November of last year. I believe that executing this plan will ensure that we are able to solidify our unique place in the global healthcare landscape. A critical part of my job is to enhance the already strong execution of the company and ideally accelerate our well-crafted strategy. When I've already seen the experience, I believe we are positioned well to be set up for success in phase two of our strategic plan. I believe that Beatrice has the strong financial profile and financial flexibility to accelerate growth in the coming years. and I am fully aligned with the future capital allocation priorities that the company laid out in November, namely that, although we are not giving guidance beyond 2023, beginning in 2024, we expect the reshaped, rebased company to generate at least $2.3 billion of free cash flows per year, excluding transaction costs and taxes. And in phase two, we intend to earmark approximately 50% of our free cash flows annually to be returned to shareholders in the form of dividends and share repurchases. With the remaining 50%, we intend to identify and be able to reinvest further in our businesses organically and inorganically with value-creating strategic transactions. Well, I will leave the discussion of details of our first quarter results to Rajiv and Sanjeev. I am very pleased to report that Beatrice has had a great start to the year with yet another quarter of strong operational performance that gives us further confidence in our ability to return to growth as we enter phase two of our strategic plan in 2024. In the first quarter, we delivered total revenues of $3.73 billion, adjusted EBITDA of $1.34 billion, and free cash flow of $923 million. Based on the strong performance, we are reaffirming our financial guidance for 2023. We are also laser focused on executing our pipeline, especially our three franchises with the potential to reach $1 billion each in peak sales by 2028. Complex injectables, novel and complex products, and eye care. On our planned divestitures, I think it is important to note that we are in a position of strength. Executing these planned divestitures is a matter of strategic choice, not a necessity that we believe will accelerate our ability to move up the value chain and lay a solid foundation for our return to growth in phase two. We have been engaged in productive discussions with a number of interested parties to determine the right fit for these well-performing assets. We continue to believe that these divestitures will unlock meaningful value for the company And we remain on track with our stated goals, including announcing the transactions in 2023. I expect to be able to announce one or more of these transactions early in the second half of the year. And finally, on business development, the company laid out a strategic vision for business development in the area of ophthalmology, GI, and dermatology. Our acquisitions of Oyster Point and FAMI Life Sciences earlier in the year are excellent examples of the execution of that strategy, and I am focused on continuing to look for additional significant transaction in these areas and potentially others should the right opportunities arise. I think my combined experience with big biotech, big pharma, and smaller biotech companies will help us accelerate this vision. In summary, I could not be more energized by my time at the company so far, by the people I've met, and by all that I've experienced. I look forward to the exciting path ahead. I'll now turn the call over to Rajiv to provide you with an update on our operations and our pipeline, and then to Sanjeev, who will give you more detail on our financial results and capital deployment activities. Rajiv?

Thanks, Scott, and good morning, everyone. As Scott mentioned, we had another strong start to the year and a strong quarter of operational performance across various segments as well as product categories. Let me now begin by sharing our commercial segment highlights from the quarter. As I do, I will be making certain comparisons on an operational basis which excludes the negative impact of foreign currency rates versus the plan that supports our financial guidance, as well as to Q122 results, which also excludes the results from the diverse and biosimilar business from Q122. Our well-balanced business of developed markets, where brands make up close to 60% of our net sales, delivered another strong quarter. Europe performed ahead of our expectations, with France and Italy driving the strong performance. The region grew low single digits in Q1 compared to the prior year on an operational basis, making it our fifth consecutive quarter of year-over-year growth. Our key brands like Canlista, Creon, and Brufett, as well as our generics portfolio, continue to perform strongly in Q1. Our North America business also performed ahead of expectations, driven by better-than-expected performance in our genetics portfolio, including lenalidomide and our injectables portfolio. Our brand business was led by stronger performance of upelry. We look forward to launching several new products in North America this year, including Brenna, our generic to Simpicorps. We and our partner, Kendeva Drug Delivery, have settled the patent litigation with AstraZeneca and expect to launch the product after expiration of regulatory exclusivity. We anticipate launching Brenna with 180 days first to file generic exclusivity subject to FDA's future determination of the issue if and when another ANDA filer becomes eligible for final approval. For the remainder of the year, in developed markets, we expect to meet or exceed our expectations of both North America and Europe. Moving to emerging markets, Korea, Malaysia, Thailand, as well as Middle East delivered strong performance. Lipitor, Norwex, and Viagra performed better than expected. Generics also performed ahead of expectations driven by solid ARE performances. We remain confident for this segment to deliver mixed single-digit growth for the full year, primarily driven by our brand category of this region. In Jan, the brand category fell slightly behind expectations, primarily due to customer buying patterns in Japan. We remain confident in our overall outlook for the year due to the projected strong performance of our generics including authorized generics, as well as our brands like Creon, Ametiza, and Effexor. Greater China performed better than expected with 5% year-over-year growth on an operational basis. We expect another strong year of operational performance in line with our expectations as we continue to focus on the retail segment and growing the self-patient base while navigating the evolving policy environment. I'm also pleased to confirm that we have 10 regulatory submissions under review with the SFDA in China. Moving to iCare. Turbaya's launch continued to progress as planned in its first quarter as a part of the efforts. March delivered. Travaya's highest launch-to-date monthly prescriber count and total prescriptions. Furthermore, we remain excited about Travaya's opportunities ahead, including driving prescriptions from the recent Medicare Part D coverage range, leveraging Beatrice's commercial infrastructure, and launching its first direct-to-consumer marketing campaign in Q4, which together provides confidence in our current full-year outlook For Travaya, as well as beyond that, we have made significant progress in stabilizing our base business, which we believe is one of the key elements to the successful execution of our phase two strategy in 24 and beyond. One of the primary drivers to our expected stabilization is the effective management of our brand portfolio, which forms approximately two-thirds of our overall base. I'm pleased to report that for the last several quarters, our branded business has consistently performed at or above our expectations across the various geographies. This continued strong performance of our branded category, as well as generics across the segments, combined with our anticipated 500 million plus of new product launches in 23, gives us tremendous confidence that our base business excluding the positive impact of our IKEA division, will return to growth in the second half of the year versus the prior year. We believe we are headed into the final stages of completing all aspects of our Phase 1 commitments and will deliver another strong year that we expect will put the company in a very solid position to execute Phase 2. Let me now switch to provide noteworthy updates on our pipeline with a focus on the three key buckets we highlighted at the beginning of the year. I will begin with our portfolio of complex injectable products. We secured the sole first-to-file position for Vigovi, a weight loss treatment. In addition, we can also confirm that we have achieved the sole first-to-file status for our Xempic 8mg strength. As we have previously disclosed, we have a shared first-to-file position on the other strengths of Zempi. In addition, we have strengthened this portfolio and submitted our ANDA for Abraxane, used in the treatment of breast cancer, as well as advanced our MR151 product and anticoagulant into its clinical phase of development. Finally, we have also submitted another first-to-market ANDA to FDA for MR204, which is indicated for chronic dry eye disease. Within our select novel and complex products pipeline, I'm really excited to announce that we filed our ANDA for glatamer acetate once monthly to FDA. As we have previously noted, our GA Once Monthly product has met its primary endpoint of reduction in annual relapse rate in a placebo-controlled Phase III study. GA Once Monthly demonstrated a 30% reduction in ARR compared to placebo. In addition to this, GA Once Monthly, when compared to placebo, demonstrated clinically relevant superiority on the expanded disability status scale score that was statistically significant. For MelaxChem, we have completed our end of Phase 2 meeting with FDA on May 1st with positive outcomes, and we look forward to initiating our Phase 3 clinical trials in the second half of this year. Finally, we are progressing our IND enabling study for our Botox program and remain on track to making our IND filing this year. Our iCare pipeline is also advancing as planned. We are pleased that we have received positive top end results for Travaya in China. We, along with our partner, are now tracking our submission in China to August of this year. Our clinical program for MR142 for night vision test surfaces is progressing well. We also submitted our IND and our phase III ready for our MR148 for dry eye disease. In addition, We aligned with the FDA on the phase 3 study design for our blepharitis program, which will get initiated later this year. Finally, we are executing an anti-enabling study for our nerve growth factor product, MR146, which we hope to progress to treat all stages of neurotrophic keratitis. Before I hand it over to Sanjeev. I want to recognize that our execution has been and continues to be a team effort, and I would like to thank our colleagues around the globe for delivering another strong quarter. With that, I will now hand the call over to Sanjeev.

Thank you, Rajiv, and good morning, everyone. We're off to a great start to the year, and as a team, could not be more confident in our strategy to deliver our plan and return the company to growth. As Scott mentioned, first quarter was in line or slightly ahead of our expectation. Our business fundamentals are strong, and we are encouraged by continued performance, including the stability of our base business. In the quarter versus prior year, excluding buy similar, net sales from our Europe emerging market China businesses grew operationally. New product contributed well. We are looking forward to several exciting launches in the second half of the year. Early in the quarter, we closed the iCare acquisition and our SGN and R&D expenses for Q1 includes costs associated with the commercial infrastructure and late-stage pipeline of these businesses. We continue to see benefit from our unique platform and its ability to generate significant cash flow from operations. We feel good about the opportunities ahead that will strengthen our free cash flow generation. Looking at quarter one 2023 highlights, you will see our summarized results versus prior year on a reported basis. It is important to note that for comparison purposes, our reported results for quarter one 2022 included the biosimilar business. Our net sales and adjusted EBITDA walks show sales for the quarter were in line with our expectation. And on an operational basis, down slightly versus the prior year. Foreign exchange had a negative impact of approximately 5% on net sales versus the first quarter 2022. The stability of our business was primarily driven by growth in Europe across diverse portfolio, key products in greater China, and brands in emerging markets. As mentioned, base business performance was in line with our expectation, and the full year remains on track with the estimate we provided in February due to ramp of new product and volumes. New product revenues off to a solid start and benefited from sales of additional strength of lanalidomide. Adjusted gross margin of approximately 60% in the quarter exceeded our expectation and was driven by positive portfolio and segment mix, new product launches, the lower impact of inflation on carbs, and the impact of certain positive variances. We reported strong adjusted EBITDA, which included SG&A investment in the iCare franchise and R&D to progress key programs across injectable and complex products. We had another excellent quarter of free cash flow of $923 million. In the quarter, free cash flow conversion continued to improve. The year-on-year decline was driven by lower adjusted EBITDA, the biosimilar divestiture, and the impact of foreign exchange. In the quarter, we incurred approximately $22 million in transaction costs, primarily relating to iCare acquisitions. We continue to deliver on our capital allocation plan and financial commitment. As a result, we remain in a strong balance sheet position with a low-coupon fixed-rate capital structure. We are committed to our investment-grade rating, and we continue to pay down debt to reach our leverage target of three times. In the quarter, we paid down approximately 550 million of debt for a total of approximately 6 billion since the beginning of 2021. Additionally, we returned approximately 400 million of capital to our shareholders in the quarter. Before I discuss the 2023 outlook, although we are not providing guidance beyond 2023, especially given the strong start to this year, I have even more confidence in our Phase 2 outlook beginning in 2024. This includes the expectation of generating at least $2.3 billion in free cash flow from the rebase business before any associated transaction costs and taxes. Coming back to 2023, we are reaffirming our 2023 guidance ranges. We currently expect full year revenue, adjusted EBITDA, and free cash flow to be at the midpoint of the ranges. While foreign exchange continues to be dynamic, based on current rates, we have assumed a slight advent in Q2 and minimal to neutral impact for the full year. Now a few updates on expected phasing for the rest of the year. We continue to expect total revenue to be higher in the second half due to ramp and launch of new products, including Brena, our generic version of Symbicote, as well as normal product seasonality, particularly in Europe. We now expect adjusted EBITDA to be evenly weighted between the first half and the second half, driven by two factors. Number one, gross margins stepping down in Q2 and moderating in the second half due to portfolio and segment mix. Expected high COGS because of inflation and expectation that positive variance in the first quarter will not repeat. And number two, SG&A and R&D spending to step up in Q2 and increase sequentially in the second half. This includes the expected DTC invested in tier via as well as increased investment in the ICARE pipeline and organic R&D. We expect cash flow to be lower in subsequent quarters given the expected increase in capital expenditure, one-time cost, and working capital. Specifically, quarter two and quarter four will be lower due to timing of semi-annual interest payments. As a reminder, our adjusted EBITDA and free cash flow guidance exclude any future acquired IPRND for unsigned deals, and our free cash flow does not include any transaction costs and taxes associated with the planned divestiture or the ICAR acquisition. In closing, based on the sound fundamentals of our business, we're well positioned for a strong 2023, and nothing has changed with respect to our phase two outlook beginning in 2024. With that, I'll hand it back to the operator to begin the Q&A.

At this time, if you'd like to ask a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, you may do so by pressing star 2. We remind you to please pick up your handset and please limit yourself to one question. We'll take our first question from Glenn Centennial from Jefferies.

yeah hi thanks uh scott i i just want to start with you it seems it's been a couple months since you've been on board you had a chance to look at everything and you know encouragingly you seem to you know agree with the strategic plan they're comfortable with everything so could you maybe revisit what you expect uh the proceeds to be from the three asset sales coming later this year and you know i i think from memory you said five to six billion pre-tax and what is that after tax and then you know, what's the plan for those proceeds? Will 50% of that be returned to shareholders? Because that would imply a share would purchase that significantly bigger than the authorization you currently have outstanding. So any more details around the back half of the year as it relates to that capital deployment would be helpful. Thanks.

So good morning, Glenn, and thank you very much for the question. So you said comfortable with the strategic plan. I think I'm more than comfortable. I'm very, very supportive of the strategic plan. You know, as I came in on the board at the end of the year, one of the things I was most impressed with was the plan and the way forward. I think it's a very, very strong plan. I'm very, very much supportive of it. You asked a question about divestitures as well, and I think it's really important to note that we expect to be, as I said in my prepared remarks, we expect to be in the previously announced ranges for both value and for timing. And it's really important to note that we don't need to do these divestitures. We have strong financial performance. These are a matter of strategic choice and not of necessity. So, you know, these are strongly performing assets. There's a lot of interested parties. We're on track to announce all of them, hopefully, in 2023. And we hope to be able to announce one or more early in the second half. So we're very, very pleased where we are from that perspective. But, again, it's really important to note that we don't have to do these divestitures in order to execute on our plan. Our plan is strong and, you know, due to the strong operational and financial performance of the company.

I think, Scott, you covered everything. I think just two points to kind of just double-click on that. Glenn, to your point about the ranges, so we talked about in that net proceeds of about 4.9 to 6.1, and that was after the taxes, one-time cost, and the oyster point acquisition at that point. So we stayed within the range. And the idea that is that would be the proceeds that would be available for additional debt pay down, buying back shares, and investing in the business for the capital allocation plan that was already laid out.

Our next question comes from Chris Schulte from J.P. Morgan.

Great. Thanks so much. Just following up on the divestiture process, it sounds like things are on track, but you mentioned this position of strength. I guess to the extent the current rate environment does not result in valuations that are aligned with your targets, Can you still kind of push forward with this capital allocation story and, you know, kind of the targeted acquisitions just given the step up in free cash flow? Or would that part of the plan have to change? I know that's not plan A, but just the extent that, you know, we weren't able to get all these to goal line kind of, you know, should we think about there being a different outlook or is the outlook pretty much the same regardless? Thank you.

Thank you very much for the question, Chris. I think it's very important to note that due to the strong operational financial performance of the company, we can execute on our financial commitment and on the plan without the divestitures. These are really good, well-performing assets. Yes, there's been some deterioration, I believe, in interest rates in the macroeconomic environment, and we don't opt to go into any sale that we don't think mimics the value that we see in these important assets. Again, having said that, there's a lot of interest in these assets, and we believe they're going to move forward, and I believe they're going to be, by the time we get to the end of this process, I believe they're going to be in the previously announced range, both for value and for timing. But no, they're not necessary for us to be able to execute on the plan.

Our next question comes from Jason Gerberry from Bank of America.

Hey, guys. Thanks for taking our questions. This is Salman Patel on for Jason. So first is on your monthly GA for multiple sclerosis. How do you see the market opportunity there given the decreased use of GA overall? And do you believe you can increase the use of GA with the monthly depot? And then on Turbaya, just early impressions, what do you think is needed to drive the launch curve to look like more successful dry eye launch analogs? Thank you.

Thank you for your question. You know, first of all, you know, very happy to announce today the submission of this NDA, a very important product for us. with our partner, maybe. And I would say, you know, it's not just a compliance play. We have studied this data very carefully over the last couple of months, deep into the previous studies which are available. The significant treatment effect of the TPO product in reducing the ARR, strengthened by the MRI endpoints, supports the use of G.A. Depot for the RMS patients. And, you know, just put your head around, just as against one injection per month, 14 injections is what current treatment is, and almost 560 milligram drug against the 40 milligram. Moreover, you know, not only just was the annual relapse rate, but G.A. Depot significantly reduced the contrast enhanced lesions by 28%. as well as new or enlarging T2 hyper-intense lesions by 17%, and significantly, you know, health on the EDSS, which is expanded disability status scale. So I think with all these, we are looking forward to, you know, GH, this molecule still has a significant market share, and this product will revive, this product will further revive and boost that, you know, acceleration.

On the TIRVIA side, if we look at TIRVIA performance in 2022, it's predominantly driven by commercial coverage. And as we enter into 2023, we have increased Medicare Part D coverage from single digits now to leaving the quarter about 54% of Medicare Part D lives being covered. So if you think about the marketplace, approximately half of all dry eye disease prescriptions come from Medicare Part D. So we expect that to be a significant tailwind. As we exited the quarter in March, we had the strongest launch to date for prescribers and prescriptions. We expect this to continue as digital advertising ramps, and we initiate the DTC campaign in the end of the year. And Furthermore, when we leverage Beatrice's commercial infrastructure, we feel that's going to drive an additional intermediate and long-term tailwind for Tiervi and the overall portfolio.

I'd like to make a quick comment on Tiervi and the IK business as well. We need to remember that this deal closed in January. So this Q2 is our first full quarter with Oyster Point under the Beatrice 10th. Both revenue and demand for CureVaya were in line with our expectations for Q1, and March had the highest demand as previously noted. We see opportunities for leveraged strong parts of the existing organization, including commercial access and a large development team to help accelerate revenues in the future, including initiating DTC later in this year. I just want to say that, you know, we're very, very excited about not only CureVaya, but the eye care business in general.

Our next question comes from Balaji Prasad from Barclays.

Good morning, everyone. Thanks for the questions. Scott, just a couple of questions on the EBITDA side. You called out $2.3 billion of EBITDA for 2024, at least. Can you help us understand what this fact is? I would imagine this factors your asset divestments, and maybe some helpful color would be on what is it like-for-like. Continuing on EBITDA, the cadence implies that Q2 EBITDA is below where the street is currently. So was there any pull forward of EBITDA from Q2 to Q1? Thanks.

And yes, I did confirm $2.3 billion going forward. But let me take it to Sanjeev to get into some of the more context around your EBITDA question.

Yeah.

Thank you, Balaji. I will cover both points that you talked about in terms of So a simple way to think about this is the two, what Scott mentioned, minimum 2.3 free cash flow for 2024 is after taking out all the divested assets that we've announced. So if you talk about today, this 2023 guidance that we have for $2.5 billion, that includes all the divested assets that we have with us. But this is to kind of show you the starting point for phase two, which is assuming all the divested assets are out of the numbers, and that's how you get to that $2.3 billion. Both note that before any cost for divestments or any taxes, which will obviously be funded through the divestment proceeds of that. And we are well on track, and we feel very good about where we are on that particular point. As far as the EBITDA is concerned, again, we had a strong quarter. came in at our expectations, slightly ahead of our expectations. The way to think about it in terms of the phasing is going to be now evenly phased between first half and second half. And that's going on because there are two factors that are driving it. First is obviously the gross margin, which, you know, first quarter came in ahead of our expectations, but gross margin is going to step down in Q3, Q2, and it's going to moderate in the second half of the year. So there's a function of product and portfolio mix, the continued impact of the inflation, and not non-repeat of certain positive variances that we had in the first quarter. And then you obviously have the SG and R&D stepping up, starting from Q2 and 11th year, because the investment that we are making in the IK division, the R&D pipeline on organic products, and the DTC that Scott talked about for Cheerwire, which is going to kick in later part of the year. That's why we feel, again, great about overall where we are, but that's the cadence that we expect now, but still will be at the midpoint of our EBITDA guidance.

Our next question comes from David Absalom from Piper Stanley.

Thanks. So just wanted to ask a couple of product-specific question. So you still have a lot of exposure to Lipitor and Norvac. Can you talk about how sticky you think those products can be globally? And then secondly, just in general, how are you thinking about the trajectory of of the established brands portfolio over time. And then another question I have is just, this is a high level philosophical question. As you think about your exposure to regular way generics, oral solid generics in developed markets in particular, how do you think about the role of that business in the overall organization? And I guess more specifically is,

you know are are oral solid generics a a business that um you want to de-emphasize over time thank you i can start with the sec from the second part i think we never uh weren't de-emphasizing the oral solid business all we did was diligently looked into our portfolio looked into there are multiple options products are commoditized there are more more than 10 15 suppliers out there access is not an issue and we pruned those prune that portfolio and focused on going up the value chain focused on excess of the more complex hard to make products because somebody is going to take the lead to bring those products to So I would say that genetics are still a very important part of our access. Basically, it's all about access, and that's where we have been focusing on bringing access to this hard-to-make, difficult products in this segment across the globe. So we're not walking away from that segment. That's the first thing. Second, from the brand's point of view, established brand's point of view, not just Lipitor and this. You know, these brands, we have been – these brands, some of these brands were before Upjohn or even the Abert Experience. We never – you know, declining at an accelerated rate. And we, why? Because there was perhaps not enough focus over the last two years. We have I know what we have to work with, and we have focused on these products. Over the last several quarters, six to eight quarters, we have been able to stabilize this bucket very successfully from, you know, decline of initial decline of four or five percent to about one percent. And in fact, this quarter, it was flat. And next quarter, you will see this segment coming to a little bit of growth. So it's all about stabilization of this bucket, which is leading to the further

robustness of this platform so we are very excited with the you know work which we have done around this and our ability to manage this portfolio our next question comes from ash burma from ubs hi uh thanks for the uh questions um so i have two on pipeline um one on botox have you received uh clarity from the fba and can you share with us like What's going to be the trial design, biosimilarity, endpoint, et cetera, for this program? And are you pursuing just the therapeutic indications here and not aesthetics? And then separately, for Zulane low-days, can you elaborate a little bit? Like, what is the value proposition? Does this in any way expand the market opportunity, or is it going to cannibalize the high-dose product that you have? Thanks.

You know, in the Zuland low-dose ash market is already like a commoditized cannibalized. I would not say it's cannibalized, but commoditized with now one, two, three players out there. And Zuland low-dose actually is a medical need. It's an unmet need over there. There's been always an ask for a low-dose, you know, hormonal product over here, and we are well on track where phase one studies are now completed, sensitization, irritation, adhesion, and phase three studies underway targeting about 200 women, and we are looking forward to bring this product to the market maybe by 25, sorry, 26 in this case. On SOS and Botox, yes, very early on, maybe almost a year and a half back, we sort the alignment, and we got the alignment with the FDA. Very clearly, what their expectations were on CMC, and what on the clinical trials, like, for example, one of the clinical studies, they were looking on a cervical dystonia, as well as extensor digitorum bravis. So, all those studies are well in, you know, all that work is well on track, and we will be submitting our IND later this year for the initiation of phase three studies.

Our next question comes from Uwe Rappet from Envercore.

Hi, guys. Thanks for taking my question. I have two here, if I may. First, it seems like China has been a very good tailwind through the duration of COVID lockdowns. And considering it did so well last year, considering it's doing so well, up 5% in 1Q as well, how are you baking in potential for a restart and implementation of BBP programs across China into back half of this year and especially into next year, number one? Number two, Symbicort. I know adware opportunity did not necessarily play out versus your internal expectations, and it perhaps wasn't really a needle mover. In fact, one of the big droppers this quarter is your Vixella product. Why should Symbicort be different, and to what extent has the brand discounted on Symbicort already? Thank you very much.

Well, thanks for the question. is and vixella always has been ever since launch a very meaningful contributor even this quarter it has been a very decent contributor to our uh projection or to our numbers and all that and it's a very uh important product you know we have met and exceeded every expectancy expectation we had around vexella and we expect to leverage what we learned in the market to further leverage the same expertise to leverage in this product We are very much looking forward to bring this product once the regulatory exclusivity expires, everything is lined up, and we anticipate launching this with the 180-day first-to-file generic exclusivity, unless, as we mentioned, subject to FDA's future determination of this issue when another ANDA filer becomes eligible for final approval. Now, let me switch back to China. Four years of successful implementation of VBP, China has significantly improved the cost efficiency. And first I will tell you, we don't have any more products to go through the VBP rounds at this point of time. We have gone multiple rounds. The market has evolved towards segmentation of privately paid and government reimbursement pay. And what have we done at our end? Commercially, we have aligned, we have continued to make a lot of progress, effectively to compete in, especially in the private paid channel, leverage the brand equity of the products in the private paid channel, and reorient ourselves over there. Operationally, what we have done is loaded up the pipeline. We have already 10 products under active review with SFDA, and sooner than later, this pipeline will start coming up into the add to the growth. And my last one, I was just there with our management team as well as Scott and China to review. And I'll tell you, we had a great team. They have been performing wonderful well during the COVID or even during the integration. This was the first time we ended up there after integration. I have nothing to say but the great things and our confidence in that business has been reconfirmed. Scott, you want to like to add something?

Yeah, and just thank you for the question. And just to add to what Rajiv said there, My first international trip on behalf of Vietris was to China and to meet the China team. And I was incredibly impressed by the leadership, by the strength of the leadership team, and the overall strength of the operating affiliate in China, a very, very strong, particularly commercial organization that we have there. And, you know, as Rajiv noted, lots of products in the pipeline and really looking forward to the next step with our affiliate in China.

And our last question comes from Nathan Rich from Goldman Sachs.

Great. Thanks for the questions. One high level and then one on the quarter. I guess, Scott, how are you thinking about the best way to prioritize the free cash flow that you're planning to reinvest in the business, either organically or to drive growth inorganically? And any thoughts on therapeutic areas that you think the company should focus on And then on the quarter, the level of base business erosion was a little bit high relative to the full-year guidance. I think complex generics were called out as a soft spot. I guess could you maybe just talk about how this is expected to trend over the balance of the year? Thank you.

So thank you for the question. And just relative to the BD strategy going forward, you know, what was laid out in November, the areas we were going to focus on were GI, dermatology, And, of course, eye care. And I am very, very comfortable in all those areas. I've had very significant experience, both development experience and commercialization experience in GI and dermatology. And, again, very comfortable moving forward in those areas. I will say, however, though, we will also be opportunistic. If there's something, and we're very open to something outside of these areas, if it fits our business dynamic and is right and will bring the right kind of value to the company. So, you know, I'm very excited about the strategy going forward. Again, focus, iCare, DERM, GI, but opportunistic and open to other opportunities as they come in. And I think if you take a look at the model of the type of acquisitions that we would like to make, take a look at the Oyster Point and Family Life Sciences that was completed earlier in the year, it's an excellent example of the execution of that strategy. We acquired a company with an approved asset, customer-facing organization, and we were able to marry it with the family development assets. I think that's a really good example of the type of deals that we'd like to be going forward.

Yeah, and Nate, on the erosion, everything as we had expected, everything as far as expected, it came from the complex genetic category, as you noted, and largely driven by sea pearls in North America. One was the stasis, because we had almost exclusively of the stasis last year over this period. We had an initial competition come on Zulane, Amnil, and that's one second contributor. And the third was Vixella, where we had seen some hypercompetition over there. So I think these three products largely contributed to the erosion in North America in the complex generation category. But as we look forward, I think we're looking forward to, in fact, bringing the developed markets back to the growth in the second half of the year.

I believe that was the last question, the end of the questions. And if so, I'd just like to take a moment to say thank you to everybody on the call for your time and attention today. I just want to say really, really proud of the strong operational and financial quarter we had in Q1, a great start to the year. And I really look forward to meeting and spending more time with all of you as we move forward in the future here. So thank you very much.

This does conclude today's Vietris 2023 first quarter earnings call and webcast. Please disconnect your line at this time and have a wonderful day.