Viatris Inc. (VTRS) Earnings Call Transcript & Summary

Rajiv, why don't you take this?

Yes. No. David, I'll take that. And I think Mylan has done a decent job with the brands that we acquired, whether through Abbott or Meda and we keep on -- we talk about Creon, Influvac, Dymista and what we have done with these brands. And from the market perspective, I think we are going to see our critical math in markets like Brazil, Russia, Turkey, Mexico, Korea, go to a different scale than what Mylan is stand-alone. Many of the -- this market segment makes about $100 billion in sales when you put them together and growing at about 6% CAGR, largely driven by the growing middle class. Given that health care agenda of these markets is driven by their concern around infectious as well as noncommunicable disease, and Viatris will have a lot of those products. So by nature, these markets are not generic generics markets, but they are largely branded generic markets are what we call LOE markets. Viatris infrastructure, I can tell you, will be well positioned to leverage the macro trends of these markets and drive the growth. That enhanced commercial and medical affairs capabilities of Viatris will also help to drive our growth strategy for these markets.

And maybe, Rajiv, I can add. I think the revenue -- potential for revenue synergies and cost pollinization, that's just one of the many benefits of combining these 2 companies. And I think it's very clear Viatris is stronger together. I mean just start with the financial, combined the company as a much stronger cash flow, stronger margins, allowing us to immediately initiate a dividend, returning value to shareholders, strengthening our balance sheet. Just on the financial aspects alone, those -- these 2 companies coming together is much better. But then you add to that, the broadened geographic footprint of being in 175 markets now being truly global, a significant presence in China and other markets where previously weren't so strong, diversification of our portfolio, not only towards more branded products, which are now 60% of the total revenue, but also towards a more longer tail portfolio such as the biosimilars, the complex generics, high-quality manufacturing with now over 50 sites around the world, allowing us to be local, where we need to be local, technical expertise on the scientific side, the regulatory side, so we're truly excited about the platform that we're building by combining these 2 companies. And that allows us to not only be stronger for our own business, but also positions us well as a partner of choice for the future.

Excellent. That's very helpful, Michael. So then I was hoping to just transition to the generic business briefly. So for the Mylan generic business, could you just update us on the company's progress in addressing any FDA manufacturing concerns? And then I had another question about commercial opportunities.

So, David, let me start addressing this compliance issues. State that, first of all, the quality of our products and the safety of our patients has been and will be -- will continue to be our primary focus. Anytime FDA or any other has authority, has questions about our operations, our industry overall, we always take an active role in developing solutions and address those concerns and maintain a proper balance between risk management and the patient access. The recent FDA warning letter issued to our API facility, primarily focused on our ability to anticipate and control the presence of nitrosamine impurities in our products. So let me put it in perspective, David. The products produced by Unit 7, which was under question, where the intrinsic risk of nitrosamine impurities was identified have not been shipped to U.S. since 2014. Nonetheless, we are committed to take all necessary steps to address any concerns FDA has and to resolve the compliance status at the site expeditiously. Mylan doesn't anticipate any interruption in manufacturing at our distribution from Unit 7 nor any significant commercial impact as a result of this warning letter.

Excellent. And then well, I'll just stick with you for one more question, Rajiv, before we pivot. So could you discuss U.S. biosimilar pushes and pulls? Maybe you could touch on Lantus and interchangeability? And also discuss other pipeline opportunities that you're most enthused about.

Okay. So let me start with the biosimilars. And although you are specifically going to ask me about U.S., I'm going to talk about a little bit global and then come back to U.S. because we view our biosimilar franchise as a long-term global opportunity and not just for U.S. as a market. We continue to deliver and enhance on our portfolio front from this perspective. And this is an attractive market, David. And due to nature of the marketplace, we see new competitors come in. So not every market is the same. Not every product is the same. So it will be not easy to paint it in one stroke. The U.S. landscape continues to evolve. Payer and provider dynamics are also evolving. This year, we also saw a little bit of impact of COVID on adoption of some of these products. For example, total Neulasta biosimilar market has remained flat at 28% despite additional competition, although our market share has slightly ticked up from 6% to 7%. Our focus is on having the right products at the right time with adequate supply. And so we'll continue to focus on these fundamentals, as always, and get it right. From a performance point of view, we have seen uptick in Ogivri, which is a biosimilar to Herceptin. For the last couple of months, we have picked up 3% to 4% additional market share. Now let me switch to Semglee, which is a exciting news. We're excited to bring the biosimilar to long-acting insulin to the patients. It's marketplace with enormous needs from patients' point of view, payer's point of view as well as health care systems. We'll be soon only player with the interchangeability. Also, we'll be the only ones with vials as a presentation, which is roughly 25% of the IMS or IQVIA market. Based on the strength of our scientific data, we feel pretty confident about the adoption of our product. And moreover, achieving interchangeability designation will provide additional level of confidence for patients, peers as well as providers with the recognition that there will be no concerns left regarding safety, efficacy or clinical outcome. But as we said, we see this as a slow ramp but sticky with a longer tail and see as a long-term opportunity. So let me take your third part of the question was pipeline. Take it -- put it in perspective that I'm speaking for the next 3 to 4-year horizon. Biosimilars will continue to be one of the key drivers, products like Avastin biosimilar to aspart, then EYLEA, Humira and when you go out a little bit beyond products like BOTOX, Toujeo or Perjeta will be in the pipeline. The other bucket where we continue to focus is devices, drug devices like generics Advair, and we are excited very soon we'll have Symbicort first to market opportunity. And how can I not mention Copaxone once a month, a great product, which we are very excited to have. But I'm -- as I shared in our last earning calls, I'm very excited with our potential opportunity around complex injectables. We have been working for years to build slowly and steadily, the development pipeline using technologies like depo gels, microspheres, liposomes, peptides. And today, we have almost 10 ANDAs under review with FDA. For products like Victoza, Invega TRINZA or Invega Sustenna, Venofer, glucagon. And I can tell you, firsthand as a scientist, that these are not easy to develop. These are not easy to manufacture, and they will be hard. There will be the products with a high hurdle and difficult to commoditize. So exciting pipeline as we look forward.

Excellent. That's very helpful. So maybe just pivoting to Sanjeev. So could you just discuss the mechanics of the 4 coming creation of Viatris. So better -- investors better understand how Upjohn will be merged into Mylan and some of the technical considerations?

Sure. Sure. David, there's a lot of work going on. As you know, we are separating from Pfizer. We were a division of Pfizer and integrated with Mylan. So all the necessary plumbing that is necessary, things like legal entity setup in countries, geography, all that has been planned and largely complete, and we're ready to go on, on day 1. Secondly, you also know that Upjohn was relying on Pfizer for a lot of the services, and we'll continue to rely on Pfizer until we absorb that infrastructure onto Mylan infrastructure. So we have extensive TSA arrangement with Pfizer. All of that have been largely planned and finalized. The third element of standup is the capabilities that we need for the new companies, including critical hires, all that have been planned and largely complete. So keeping all these things in mind, I'm very confident. We're all very confident. Still a lot of work to do that we will have a successful day 1 without any business interruption. Finally, as we closed on Q4 what the investors will see, the combination of Mylan's and Upjohn result, which will obviously will be released in conjunction with the Investor Day in the February, beginning of March.

Okay. Very good. And then could you just -- could you discuss the dividend plans, the GAAP free cash flow basis for dividends and likely timing of the first Viatris dividend?

Why don't you, Sanjeev, take the basis of the dividend and GAAP free cash flow. And when you're done, let me discuss the timing.

Right. So David, as we've said that before, so the dividend will be based on free cash flow, which is a standard definition of free cash flow, which is the GAAP cash flow minus the capital expenditure. And both these items will be part of our disclosure. But that's the base -- the dividend percentage will be based on that free cash flow.

And David, in terms of timing, I'm really kind of glad you asked that question because I have gotten that question from a few investors. So let me be clear. First, at the Board level, there is nothing more sacred than the commitment that we have behind this dividend once we launch it. I expect shortly after we close here in the fourth quarter when the new Board gets together, we will declare the new dividend policy. We will -- we'll definitely put out a release. I think that's extremely important that, that commitment is set down right upfront. And then what we said is that we would actually pay the dividend after the first full quarter after close. So if we close in the fourth quarter, the first full quarter end would be March 31, expect the Board to get together thereafter in the normal course to approve the Q and the results. The Board would then declare that dividend. I think we have to set a record date, a minimum of 10 days after our declaration. So you can put the timing together. And I believe that the dividend in the normal course has to be paid within 60 days of that declaration. So if you just do the timing of that, you should -- you could probably figure out when exact payment actually goes out, when the exact payment actually goes out. But I just walked you through how I see the iteration for the investment community say they know when to expect the actual dividend to be both declared and paid.

Excellent. And Robert, maybe just to wrap up, I think it'd be great to have you talk. I mean clearly, the leadership team it's been very helpful today, but it'll also be helpful to hear from you with respect to your plans to drive the strategy for Viatris as Executive Chairman.

So yes. I mean, for -- as you know, David, with me, it's some other nature, but that strategy will be driven directly with the management team and the Board of Directors. I think in the presentation, I want you to know that we spent an exorbitant amount of time on the individual roles of everybody. I can't even begin to tell you how excited I am with this new management team. I can't even begin to express the complementary competencies that each one of us bring to the table. And I'll be honest with you. We're going to go from a company that spent 60 years, known for its manufacturing and operational excellence, really in a building phase. We were building the skyscraper for the last, like basically is the example of a construction site. And we all know what that looks like while you're building that Skyscraper. At Viatris, that building phase is done as the developer now delivers it to the new owner. You can expect it to be in pristine condition, and we want to go from a manufacturing, operational excellence to more known now as the commercial excellence I think that the combination between Upjohn and Mylan gives us exactly that enhanced capabilities on the commercial side than even what we've had before. So there's a high emphasis that we are now putting on becoming a much greater performance-based company, and therefore, the emphasis on commercialization, optimizing the each commercial opportunity to its fullest is the only way we're going to be able to achieve the ultimate results and metrics we set out for ourselves and meet our commitment to return capital to shareholders. And look, multiple expansion is going to be a very, very big part of this. It's not going to just be the dividend, return of capital and capital allocation and the competition, what I now call stingy capital that management will have to compete for because the Board will be just as inclined and satisfied to continue to pay down debt beyond even our targets that we set, increase the dividend or even buy our own shares back. So we feel that we are -- the strength of our starting point speaks for itself. And -- but I will tell you, there's not going to be anything that's ever going to bring multiple expansion to this organization without performance, performance, performance, execution, execution, execution in a flawless way. I think this management understands that. I think this Board intends on holding management accountable to that. We're all signing up for that. And you can expect all of our compensation arrangements to basically follow the philosophy and the strategy and directionally where we want to drive the company.

Excellent. So I think that's a great way to wrap up. Any other final comments you want to offer, Robert, before we sign off?

I am very excited, not just for the Mylan shareholder. I'm really excited to welcome the new Pfizer shareholders. I've had fantastic discussions with them as well. And I'm really excited for the Viatris shareholders as we go forward. I'm excited for the people in the company. I've never -- I feel there's a renewed robustness. I'm very sad, and our hearts go out to all the COVID people who are suffering as a result of this unbelievable global situation. And from our perspective, I don't want to forget that, but in a very perverse way, this delayed closure for us as we get ready to set up Viatris has really inured to the benefit of our opportunity to really pull together a management team that I believe is qualified, capable, motivated, cohesive and extraordinarily collaborative. And I think that's all going to show up in their execution and in the results. So thank you very, very much, David, for this opportunity.

Excellent. All right. Thank you, again, to you and the team. And operator, you can close out the call.