Viatris Inc.

Good morning and welcome to the Beatrice Q4 and full year 2023 earnings 2024 guidance call. All participants will be in a listen only mode. Should you need assistance, please say no a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your touch-tone telephones. To withdraw your questions, you may press star and two. Also note today's event is being recorded. At this time, I'd like to turn the floor over to Bill Cebulski, head of capital markets. Please go ahead.

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

Good morning, everyone. 2023 was an outstanding year for V-Trust, in which we delivered strong operational results, streamlined the company, and finished the year with our third consecutive quarter of operational revenue growth. I am pleased to say that as we begin 2024, I could not be more excited about the future ahead. We are already executing on our vision for our next chapter. We continue to generate strong free cash flows. This provides us with the flexibility to balance returning capital with shareholders through share repurchases and dividends, with continuing to fuel our base business and make strategic investments in future growth. As I said, in addition to continuing to develop the three core therapeutic areas that we previously identified, ophthalmology, dermatology, and GI, we are also going to be opportunistic in seeking out assets that fit our company well and have the potential to contribute significantly for future revenue growth. Today's announcement that we have entered into a global research and development collaboration with EIDORCIA is a great example of this approach in action. We are bringing in two late stage potential blockbuster assets with long data patent protection, and we are connecting EIDORCIA's proven, highly productive drug development team and innovation engine with our own strong existing infrastructure experience. We believe that together we will be able to execute on the potential of these global assets and any future assets as we work to deliver on our goal of building a more durable, predictable portfolio on the foundation of our strong base business. We believe that Salada Grill and SoneraMod can become meaningful components of Beatrice's business over the long term. I'll talk more about the deal in a moment, but first, 2023. We finished the year strong with full year results in line operationally with our 2023 adjusted guidance. Importantly, our fourth quarter results represent our third consecutive quarter of operational revenue growth, giving us good momentum going into the new year. We expect that momentum to continue into 2024 and beyond. In 2023, we delivered total revenues of approximately $15.4 billion, adjusted EBITDA of approximately $5.1 billion, and free cash flow of approximately $2.4 billion. We have already completed certain of our divestitures and are on track to complete all remaining divestitures by midyear subject to final regulatory approvals. Turning to 2024, today we are sharing our whole year guidance ranges for total revenue, adjusted EBITDA, free cash flow, and adjusted earnings per share. Adjusted EPS will increasingly become an important metric to reflect earnings growth and balance capital allocation for us in 2024 and beyond. From a capital allocation perspective, we continue to pay down debt and expect to reach our long-term gross leverage target this year. We are maintaining our dividend for 2024. We completed 250 million share repurposes earlier this year. Our board of directors has provided us with an additional 1 billion share repurpose authorization to use at the appropriate time, bringing our total authorization to $2 billion, of which we have used 500 million and have 1.5 billion in authorization remaining. And earlier today, we announced a significant global research and development collaboration. Diving further into our EIDORSIA announcement, we are very excited about this new partnership. The agreement combines Beatrice's financial strength and worldwide operational infrastructure with a portfolio of novel assets that we believe will provide the foundation for accelerated top-line growth. Beatrice will receive exclusive global development and commercialization rights to two assets, biotech growth, a potential lifesaving self-administered medicine for patients at risk of recurring heart attack, and Teneramod, a novel immunology asset that has the potential to be a -in-class oral therapy for the treatment of SLE, with potential broad application across multiple other autoimmune diseases. The global collaboration also includes future optionality to expand the collaboration with additional pipeline assets in a transaction that minimizes near-term P&L impact and provides significant upside following phase III redis and regulatory approvals. The addition of slatagroup builds on Beatrice's existing global cardiovascular franchise and a deep knowledge and expertise in self-administered medicine for acute life-threatening conditions. Teneramod has the potential to be a cornerstone asset in Beatrice's immunology platform, an area in which I personally and our chief R&D officer, Philippe Marten, and others at Beatrice have deep development and commercialization expertise. The agreement also highlights Beatrice's capability to identify, vet, and secure high-growth assets in areas of unmet medical need and do it in a way that reinforces our discipline approach to capital allocation. We will be hosting an R&D event March 27th in New York City to discuss the collaboration with Adorica and other elements of the company's pipeline and board debt. Before I move on, I want to take this opportunity to welcome Doretta Mistross, who will become our new chief financial officer on March 1st. Doretta joined us in January as CFO-elect. She has been spending valuable time getting to know the company even better than she already did as a former company advisor. I'm pleased to have Doretta coming on board for what I expect to be an extremely successful next phase for Beatrice. She'll share a few comments later in the call. But now, let me turn the call over to Rajiv as we continue our discussion of our strong fourth quarter and full year 2023 results and our expectations for 2024.

Rajiv? Thanks, Scott, and good morning, everyone. As we close phase one of our strategy, I'm incredibly proud of all that we have accomplished. We simplified, but more importantly, stabilized the base business. We continue to deliver on our strong pipeline and are in the final stages of reshaping the company with remaining diversions being on track. We believe that the stability of our core business and our deep pipeline positions the company very well for continued growth into 2024 and beyond. Let me talk to you a bit more about what we believe makes our core business stable. It is driven by the consistent and steady performance of our brand business, the sustainability of our generic portfolio, and our ability to continue to bring to market our organic pipeline consisting of high margin, durable and complex products. Let me further expand this into three elements. First, our brand business, which makes up about two thirds of our portfolio, grew one percent in 23, supported by brands like Upalri and FXR. We expect our branded portfolio to continue to build upon the success of 2023 and show a moderate growth. Next is our generics business, which now also includes our complex generics and makes up the remaining one third of our revenue. This business was flat in 2023 and is expected to show slight growth in 2024. The geographic and portfolio diversity, which includes a number of high value complex products such as Vixala, Brena and Zulane, render this portfolio inherent stability. The third driver of our stable base is our ability to execute on our pipeline. This is the third consecutive year that Viatris has delivered at least $450 million in new product launches. In 2023, we made significant progress across our complex injectables, select novel and complex products and eye care pipelines. We launched Brena, the first generic symbiocort, Endless Text Amphetamine and several others. FDA accepted our NDA filing application for glateramyl acetate depot injection. We received FDA approval of ResumVe nitrops for the treatment of pharmacologically induced mitreosis and we received positive top-line results for our phase III trials of Upalri in China. We also received positive top-line results for our phase III trials of Trabaya in China and subsequent NMPA acceptance of our NDA. For 2024, we are excited to continue to deliver on our deep pipeline and execute on several key launches that will expand access to patients. For example, from our complex injectables portfolio, we expect to be an early entrant with our Sandostatin LAR product, Liraglutatide, a generic for Victoza, as well as iron sucrose, a generic for Veno4. From our eye care pipeline, we expect to launch ResumVe and from our novel and 505b2 pipeline, we are excited to bring to market our once monthly glateramyl acetate depot for patients with multiple sclerosis and we are pleased to present our latest data this week at Actremis, a key medical conference. We also continue to be laser focused on progressing our other pipeline assets, many of which are in phase III stages such as Zulin low dose, Meloxicam and FxR-GAD. We are especially excited about advancing our eye care pipeline that has several programs in a phase III aimed at addressing vision related disorders such as breast biopsy, night vision disturbances and blepharitis. Let me now turn to the commercial segments and our expectations for 2024. In 2024, we expect total revenues to grow approximately 2%, which includes approximately 450 to 550 million in new product revenue. Starting with developed markets, in 2023, developed markets declined by 1%. Our European business for the third consecutive year demonstrated operational net sales growth led by Italy and Spain as well as contributions from new product launches. This helped us offset the decline in North America due to the expected impact of increased generic entrance to performance and higher competitive pressures on certain complex products including Vaxella and Zulin in the first half of the year. For 2024, we expect this segment to grow with both Europe and North America expected to grow 3%. Europe's growth is expected to be led by our strong brand portfolio including Blufen, IPPEN and products from our Thrombosis portfolio. In addition, we anticipate further growth in key markets including Italy and France and strong generic performance aided by new product launches. North America is expected to grow by 3% driven by the exciting new launches of GA-Depot, Liragrotide and Sandostatin LAR. In addition, we expect to further strengthen our position of respiratory products like Vaxella and Brenna. UPELRI is expected to continue its growth trajectory and grow by double digits. For the Ikea portfolio, we expect further gains in 2024 resulting from the continued prescription growth in Troia as we expand access through patient fulfillment coupled with the launch of new product ResumBee. The Troia TTC campaign launched in October has shown early indications of both increased patient responsiveness and performance as quarter fold non-bridge prescriptions for up 18% quarter over quarter. A emerging market had another strong year delivering 7% -over-year operational growth in 2023. These better than expected results benefited from strength across our broader generics portfolio and stronger than expected performance from brands like Dimisra and Vyagra led by markets such as Turkey, South Korea and Southeast Asia. Going into 2024, we are projecting this segment to grow by 6% -over-year primarily driven by our branded business. Moving to JANs, full year 2023 came in below our expectations due to the continued impacts from the government-driven price regulations in this region which we expect to continue into 2024. We anticipate to partially offset the pricing dynamics with the ongoing strong volume growth from our Cree brands including Amitiza, Creon and FXR as well as optimizing our generics business. This segment is expected to decline by 8% in 2024. Greater China performed ahead of our expectations for the full year 2023 delivering 2% growth driven by strong performance of our retail channel in China. This is a result of our ability to adapt our business model to the evolving market dynamics. Going forward, we will leverage our investments to further expand the self-pay patient market and our brand equity in this channel which we expect will help to absorb some of the impacts from the government-implemented healthcare policy regulations. With these dynamics in mind, we have modeled a 2% -over-year decline for 2024. Before I conclude, I want to take the opportunity to thank the management team for their partnership over the years and all our employees who have helped us build a strong global platform. I am very pleased with where we are today in our journey and the strength as well as stability of our core business which is now nicely set up for continued growth from here onwards. With that, I will hand the call over to Sanjeev.

Thank you Rajiv and good morning everyone. 2023 was another strong year across total revenue adjusted a bit and free cash flow. Our reserves were in line or better than our expectations. We believe that the foundation we built sets the company up to deliver on our strategy and future growth outlook. Our guidance as updated in November included a full year contribution from the divested businesses. As a result of certain transactions that closed in 2023, we are adjusting our guidance on total revenue and adjusted EBITDA by 35 million and 20 million respectively. Adjusted EBITDA included 105 million of acquired IPRND primarily related to upfront licensing payments. Please note we do not include acquired IPRND in guidance for future periods as it cannot be reasonably forecasted. Free cash flow was impacted by approximately 235 million associated with the divestitures including transaction costs and taxes. Excluding this impact, free cash flow would have been 2.64 billion on a full year basis. This was the third consecutive quarter of operational revenue growth and we continue to see solid performance across developed markets, emerging markets and our Greater China segment. Excluding the impact of divestiture, revenue grew over 1%. During the last earnings call, we noted that adjusted gross margin would moderate in Q4 due to the timing of segment and product mix. On a full year basis, adjusted gross margin came in at the high end of our expectation at .1% driven by strong brand performance. Adjusted SG&A and R&D included certain investments we made in Q4 to support future revenue growth. We had another strong year of free cash flow generation reflecting our underlying operational performance in continued priority on cash optimization initiative. Free cash flow in the fourth quarter was impacted by transaction costs and taxes related to the divestiture. In excluding these items would have been 454 million. It is important to reiterate that gross proceeds from the divestiture benefit cash flow from investing activities while the related taxes and transaction costs are included in cash flow from operating activities. The strong free cash flow generation over the last three years exceeded 7.5 billion and has enabled us to deliver on our financial commitment. This included debt pay down of greater than 6.6 billion and return of approximately 1.8 billion of capital to shareholders. These positive actions taken by the company reinforce our continuing commitment to an investment grade rating and an expectation of increasing the return of capital to our shareholders. For 2024, our guidance includes the estimated full results from the divestiture that have not yet closed. The expected timing of closing of divestitures will impact reported results for the next few quarters. We will provide future adjustments to guidance as remaining divestitures close. The anticipated drivers for 2024 total revenue guidance include growth of approximately 2% operationally versus 2023 and expected new product revenue of approximately 450 million to 550 million and a growth from our ICAD division. As a reminder, guidance currently includes approximately 1.1 billion of total revenue on a fuller basis from the remaining divestiture. The drivers for adjusted EBITDA include contribution from new product launches and revenue growth, moderation in gross margin relative to 23 levels due to anticipated product and segment mix, and increased R&D primarily related to a DORSEA collaboration. The estimated adjusted EBITDA from the remaining divestiture is approximately 320 million on a fuller basis. We expect to generate approximately 2.5 billion in free cash flow in 2024 before any divestiture costs and taxes. Lastly, we are providing adjusted EPS guidance as measure of our expected earnings growth moving forward. The estimated share outstanding include the benefit of share buyback executed earlier this month. Now a few comments about anticipated phasing in this year. Total revenue is expected to be higher in the second half due to launch of new products and normal product seasonality. Taking into account the phasing of revenue, margins and investment, we expect adjusted EBITDA and free cash flow to be evenly phased between first half and second half. And in general, pre-cash flow tends to be lower in quarter two and quarter four due to timing of semiannual interest payments. In the revenue guidance walk, the 2023 adjusted number of 15.2 billion excludes the result of divestiture that closed in 2023 and includes anticipated foreign exchange headwinds. We expect reported adjusted EBITDA to be impacted by the benefit of approximately 2% old operational revenue growth, estimated impact of foreign exchange, divestiture that closed in 2023 and Eidosia R&D investment and impact of IPR&D. Taking these items into consideration, we expect adjusted EBITDA for the base business to be stable this year. We have pivoted to a more balanced capital allocation approach. This includes a focus on capital return and business development. The Eidosia R&D collaboration represents a disciplined approach with a modest upfront payment of approximately 350 million. The license structure serves to minimize and share the future development expenses for the programs while providing potentially significant upside economics. The board has maintained the annual dividend policy of 48 cents per share in 2024. Earlier this month, the company has repurchased approximately 250 million in shares of common stock. The board of directors has increased our existing share repurchase authorization by an additional 1 billion. We anticipate excess cash will be used opportunistically for additional buyback in future. Lastly, we expect to continue to strengthen our balance sheet with debt pay down of approximately 3.5 billion this year to reach our long-term gross leverage target. Before I close, I want to take this opportunity to thank all of our colleagues around the world and a special call out to my finance team for their extraordinary work over the last four years. I am extremely proud of what we have accomplished together. I would be remiss if I did not acknowledge our management team and the board of directors for the opportunity to serve as the chief financial officer of Beatrice. Beatrice is in its strongest financial position here. The foundation is solid and will ensure its ability to make a real difference in patients' lives for many years to come. Now I would like to turn it over to Dorada.

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

Ladies and gentlemen, at this time we'll begin that question and answer session. To ask a question, you may press star and then 1 on your touchtone telephones. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and 2. Once again, that is star and then 1 to join the question queue. We'll pause momentarily to assemble the roster. Our first question today comes from Christopher Schott from JP Morgan. Please go ahead with your question.

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

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

Our next question comes from Glenn Santangelo from Jeffreese. Please go ahead with your question.

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

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

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

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

thanks. Thank you.

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

Hi, morning and thanks for the questions. So while I don't want to front run your R&D day, I clearly want to understand the deal today, announced today. Firstly, we both, Saladagraal and Sanri Moira, love to understand the differentiation. While I look at the acute MI landscape, a couple of approved drugs including active A's. So help us understand the gap in the current treatment and how much more rapid or short acting Saladagraal is versus current treatment. Also, same question on Sanri Moira too. Just following up on this, I see that Erosia will contribute around $200 million in the next three years. Is it fair to assume that Viatris will also be contributing an equal amount? Thanks.

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

Thank you so much, Scott. Just to target the lateral grail, I think at a high level, the lateral grail targets the crucial time between the symptom onset and the first medical attention. That's the time where currently there is really no treatment for these patients, and that's the critical time when the heart muscle can be impacted. So that's clearly a different positioning in the treatment paradigm for the lateral grail. I think for scenario mode, in terms of differentiation, clearly we've seen a very strong phase two data that supports a differentiated and highly competitive benefit risk profile. We have fast track designation for this asset, and together with the lateral grail, I would say that the strength of the regulatory interactions bodes well for the future of these two assets. We have a spine place for the lateral grail, and that gives you a good view on the agency support for the critical elements of our PIVOT protocol design. So really a benefit risk differentiation that comes through for these two assets, and we really think they have the potential to shift the treatment paradigm in these two areas of high on medical need.

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

Our next question comes from Nathan Rich from Goldman Sachs. Please go ahead with your question. One moment.

Once again, the next question comes from Nathan Rich. Mr. Rich, are you able to hear us?

Hi, can you hear me

now?

I can hear you now, yes. Please proceed.

Okay, hi. This is Sarah Conrad. I'm for Nate. I just had a quick question on the iCare franchise. So ahead of your second iCare launch, ResumBi in the first place, what was the first step in the process of developing S1P molecules? How are you approaching the commercial launch, and can you give us any details on plans to drive uptake? And then, when we're modeling this, how should we model the product ramp compared to Teravaya and the timing of the associated expenses?

So thank you for the question. Let me hand it over to Rajiv to talk specifically about the iCare division in Teravaya, and I'll comment afterwards. Yeah,

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

In terms of the ramp for Teravaya, so clearly the expenses we're incurring. So you'll see an evenly-phased expenses because DTC is happening as we speak over the years. And revenue as these scripts pick up, will obviously, each quarter is going to be better than the previous quarter for modeling purposes.

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

And our next question comes from Ash Verma from UBS. Please go ahead with your question.

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

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

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

And our next question comes from David Amselen from Piper Sandler. Please go ahead with your question.

Hey, thanks. So just

to have

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

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

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

Ladies and gentlemen, our final question today comes from Jason Gerber from Bank of America. Please go ahead with your question.

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

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

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

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

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