Viatris Inc. (VTRS) Earnings Call Transcript & Summary

Good day, everybody. My name is Ash Verma, I cover SMID-cap, biotech and spec pharma at UBS, and welcome to UBS Global Healthcare Conference with us. Our next session is with Viatris. I'm really pleased to introduce you to Doretta Mistras, who is the CFO at Viatris.

Great. Thanks, Ash, and very pleased to be here. Thank you for having us.

Excellent. Thanks. Yes, thanks for joining us. I'm really excited for this session. Lots going on in the story. Just a couple of quick housekeeping things. So if for the audience that are either listening in or in the room, if you have any questions, please feel free to send them through the app, and we can take them towards the end. And with that, we can get started. So maybe like Doretta, I think it will be helpful. So you just recently announced the third quarter earnings, and we are starting to see more of a continued operational growth in the story, which has been very steady. Can you talk to us about just like where are we in the story? And what are you starting to think about like the 3 strategic pillars that you've outlined before?

Yes. No, thank you. And we feel good about the position that the company is in, and the strong foundation that we've built really grounded, as you mentioned, on the 3 strategic pillars that we introduced earlier this year. And really, the third quarter earnings was a testament to the continued momentum that we are kind of continuing to execute against those pillars. And I think it is worth a minute just spending on kind of the advancements that we've made in each of them as we continue to evolve the story. So as we think about it. Number one, the diversified and growing base business. In Q3, we delivered what I think exceptional results. It was the sixth consecutive quarter where we demonstrated year-over-year operational adjusted revenue growth. That growth was driven by both growth in brands and generics. We showed growth across all our reported segments and we saw contributions of about $133 million of new product revenue and we're still on track to be at the upper end of our $500 million to $600 million of new product revenue for the year. We saw growth in -- a lot of that growth was driven by growth in Europe and our Greater China region as well as in JANZ. And that growth in top line, actually, we were able to demonstrate both adjusted EBITDA growth and adjusted EPS growth of 4% and 6%, respectively, for the quarter. And we also reiterated our 2% top line growth for the base business for the year. And all of this from an operational perspective positions us to show continued kind of base business growth not only through this year, but into next year. From a balance sheet and cash flow perspective, we continue to strengthen our balance sheet. We continue to invest in our investment grade rating. We repurchased about $1.9 billion of debt this quarter, and we have clear line of sight to reaching our leverage targets at the end of the year of approximately 3x. We generated strong free cash flow of $866 million. That obviously excludes transaction costs and taxes but that brings our year-to-date cash flow generation to $1.9 billion for the year. And we have confidence in the ability to generate that $2.3 billion of cash flow on an ongoing basis. And really when you think about that, that's what gives us the kind of confidence as we think about our capital allocation strategy going forward to allocate both to capital return as well as business development. And the third pillar is our innovative pipeline. We continue to execute with selatogrel and cenerimod in terms of the clinical trials, and it's proceeding according to the time lines that we've laid out. And this quarter, we actually also entered into an exclusive licensing agreement with Lexicon on sotagliflozin for markets outside of Europe and the U.S., which adds innovative capabilities and leverages our cardiovascular kind of pipeline outside of the U.S. And so with the combination of all those factors, we think we're in a very strong position on an ongoing basis to really kind of be a capital allocation story going forward.

Great. Excellent. So maybe just like talking about just the base business and where you're starting to see like the new product revenue coming in, I know like this -- as you head towards like 2025, do you think this type of continued execution on the base business can be seen in 2025? And I think you've talked a lot about this like the new product contribution. So the -- like how much of a line of sight do you have in this $450 million to $550 million in new product revenue. I think this year, you're doing a lot more than that. Just if you can talk about like the dynamics going into 2025, that would be great.

Right. And thank you, Philippe spent some time talking about this in our third quarter conference call. But really, our pipeline and our new product contribution is based on a really broad and diverse pipeline, both across regions but across generics -- complex generics and novel products. And that is what kind of gives us the confidence that we're going to be able to deliver in that $450 million to $550 million range. And our history has demonstrated that we have been able to deliver at least $450 million over the past kind of since Viatris' inception over the past years. This year, to your point, we are actually at the higher end of our guidance range of $500 million to $600 million. But the way we think about it is really a portfolio approach and we really aren't dependent on 1 region or 1 product to make up that $450 million to $550 million. It's a weighted average probability adjusted based on what we have in our pipeline. As we think about '25, the makeup is really going to come from a couple of different areas. It includes carryover from our 2024 launches. It includes kind of generic launches in both North America and Europe as well as some of the key complex generic kind of products we anticipate kind of launching and going through the process include glucagon, liraglutide and iron sucrose.

Yes. Okay. Excellent. So can we maybe just like quickly spend a minute on just like some of the main products. So if you can give some high-level thoughts on like where we are on sandostatin LAR or liraglutide and then iron sucrose, and there was one more that I -- or yes, like just the Copaxone depot right just quick update on that.

Yes. And we're currently going through the regulatory process on all those products. And we'll continue to give an update as we go through the process. We are nearing the end based on the visibility that we have today on those programs, and we'll continue to provide an update. We have confidence in our ability to get those products approved. It's the question of just going through the process. With respect to those programs specifically, we've mentioned for GA Depot, we have a meeting set up with the FDA at the end of the year in December, and we'll be able to provide more clarity and visibility in terms of timing and process subsequent to that meeting. For Sandostatin and liraglutide, again, we are going through the process. We do expect to kind of launch those as generic products when kind of once they're approved, it's just a function of kind of going through that process.

Okay. So maybe just like switching gears a little bit. Just wanted to focus on the capital allocation. I know this has been a big focus for your story. And so the capital allocation framework that you've outlined sort of like the 50-25-25 split between doing BD and then share repo and dividend like what makes you believe that, that is the optimal balance. And I know we've talked about this before, like there can be different ways that you can look at it. But as you go into this phase of the company, why is this the right sort of bidding for what you're trying to do?

And we've spent -- it's a really important question largely driven by the strength of our cash flow. And so it is something we've spent a lot of time thinking about. And honestly, it's something that we continuously talk to the Board about as well. But we believe that we've struck the appropriate kind of framework for capital allocation in terms of that 50-50. And really, it's driven, number one, by our sector leading free cash flow. The fact that we're able to kind of -- we have confident and are able to -- the durability and our ability to deliver that $2.3 billion of free cash flow. And that really gives us the flexibility to both capital return and allocate capital as well as invest in our growth. I would also say that it is meant to be a framework. And it's important to keep in mind that as we really view it in a kind of 3- to 5-year time frame. And so could there be some variability on a year-to-year basis, depending on the opportunities, yes. So it is meant to be a framework. And we have said that in 2025, we are going to be more aggressive with respect to share repurchases, just given the strength of our base business as well as the valuation of our company. But that being said, we're always going to look at BD opportunities and evaluate them because it's important to continue to invest in growth for the company.

Got it. Okay. So like for -- and yes, I think 2025 dynamic is pretty important. For the remainder of this year, I think like the quarterly update that you provided, I think you had done like $250 million of the $500 million authorized. Is that authorization just for this year? Or can that go into next year?

Yes. And just to give some color on our current authorization. We have about $1.5 billion authorized from the Board perspective, there is no time line associated with that authorization. And we've spent about $500 million. Well, we had a $2 billion authorization. We spent about $500 million so we have $1.5 billion left to that authorization.

So it's not necessarily like a year attached to it, it's more of like when you find the.

exactly. An ongoing authorization. Exactly.

Okay. All right. So let's talk about like business development. I mean like clearly, like with 50% of this, let's say, like, call it like $2.3 billion of free cash flow that you've talked about that would equate to like $1.15 billion on an annual basis, which can be pretty significant. So I'm very curious to sort of dive into this, like how you're thinking about that? And it seems that there's quite a bit of focus on growth for you. Do you think that you could use this type of like consistent capital allocation to propel your growth rate forward.

That's certainly the strategy and the intention and the goal, right? As we think about allocating capital to invest in growth. The goal really is to kind of accelerate the base business growth that we currently see, to your point, in the low single digit to get it to kind of mid-single digits. And I really view kind of in 2 buckets. The first bucket is how do you continue to support and invest in the base business kind of some of the recent partnership deals we announced earlier this year is a good example of kind of continuing to support the base business, leveraging our existing infrastructure kind of outside of the U.S. and kind of adding assets. The second bucket is how do we add kind of meaningful, innovative durable kind of assets where we think we can be successful. We've talked about kind of late-stage commercial assets that will really drive our near-term revenue growth and kind of leverage the strength that we have today. And we will be kind of disciplined in how we think about kind of those 2 buckets, but it's important not only to invest in the base, but think about how we add that durability, innovative portfolio as well.

Great. Yes. I mean, I guess like with your background like just coming from like investment banking, tenured banking profession. I think you -- I'm sure you have a very good perspective on this. And I guess I would say that in the past, like some of the deals that we have seen, right, like -- so let's say, if you talk about like Famy or Oyster Point, some of those type of deals haven't really resulted in that level of like growth, what investors initially expected. Like what makes you believe that now the approach that you're taking is going to result in a different outcome? Like have you sort of like analyzed what were you doing before versus what would be the focus now or try to do deals in a different way.

Yes. And listen, with respect to Famy Care and Oyster point, I would say it's still early in the life cycle of that franchise, right? With both Famy Care and Oyster Point, we added an eye care franchise. We contributed to our innovative portfolio. And we have a number of readouts in eye care over the next 12 to of 24 months. So we're kind of continuing to see that franchise. But taking a step back, as we think about BD, number one, we have a great leadership team. And importantly, we've added a significant amount of skill sets to supplement and complement the existing strength of our team with people that have deep experience in branded and innovative products. And we're going to leverage that expertise in that history as we think about continuing to vet and identify opportunities. And so we think we have the right leadership team, the right skill set to be able to execute on the strategy. But I would say, above all, we are going to be disciplined in how we think about that. And we are going to be thoughtful and we look at a number of criteria as we evaluate opportunities. That includes the strategic fit, the commercial potential of the asset, the financial impact to it. And we always compare it to other allocations of how we can allocate our capital amongst other things. And so we kind of leverage all that factors in terms of how we think about business development opportunities.

Got it, okay. And then in terms of like, if you think about like the -- across like the spec pharma space, like some companies have tried to do a little bit like more bigger tangible transaction like you see like Organon going after one of the [ vans ]. And then I think whereas like some of the other companies have like tried to focus on more sort of like small scale or in-licensing type opportunity, which seems to be a little bit like your approach. Like for you, like as you think about it, like is there a certain approach here, certain size that appeals more to you than the other? Or would it be sort of like all opportunity driven?

I don't think there really is a one-size-fits-all approach to business development. I think it really comes down to identifying good assets that we think can accelerate our near-term revenue growth and structuring in a way that makes sense for the enterprise. And there really is kind of a couple of buckets that you can think about it. Obviously, there's the opportunity to do smaller bolt-ons, opportunistic, right? The partnership, the agreement that we signed with Lexicon and sotagliflozin is an example of that, right, where we're leveraging our OUS infrastructure, especially in cardiovascular to add in some kind of regional growth. But it is also important to add kind of larger, more innovative assets to the portfolio as well. Selatogrel and cenerimod are examples of what we had done earlier this year, both of those assets, but having kind of that blockbuster potential. Now we structured in a way that we thought kind of was optimal for us, but it is important to kind of look at both as we think about building our portfolio and really accelerating our growth.

Got it. Okay. And then in terms of like therapy area, is there any particular focus or even like from a geographical standpoint, I guess the main thing for on these type of things is that like where do you think like investors will value the transactions that you do like is it like more sort of like growth opportunities, differentiated products, but wherein this mix of the type of the asset from either way, like would be the best utilization of BD dollars.

Yes, really, honestly, it depends on who you talk to on any given day, right? But I can see from what I hear from investors, it's really kind of leveraging our kind of existing footprint capabilities to drive that near-term growth. I think it opened my eyes and I don't -- in our dialogue, I don't know if oftentimes people appreciate that with the Upjohn merger, the amount of kind of scale and capabilities that we were able to kind of acquire and get with the combination globally in terms of kind of how we think about opportunities. And we've talked about ophthalmology, GI as well as dermatology as 3 areas. We've also said we're going to be opportunistic with selatogrel, right, Cardiovascular, Lexicon, sotagliflozin leverages our cardiovascular. And we have a $2.5 billion franchise in cardiovascular outside of the U.S. So it's really identifying opportunities where we think we can be successful that are kind of good assets and think that we can accelerate our near-term revenue growth.

Yes. I guess just related to that, for the implications of this on a P&L standpoint, right, and you're starting to think more of, let's say, near commercial assets and trying to bring them in the mix -- like in the long run, like where is Viatris' margin profile going to look like as you sort of execute on this strategy?

Yes. And part of the benefit of investing in these innovative durable patent-protected assets is many times, the majority of the times, the margin profile, especially gross margin profile of these products is significantly higher and has the potential to kind of improve the margin profile of the enterprise. And so speaking specifically to selatogrel and cenerimod, kind of we think that these assets kind of even including the royalties as a kind of owed to Idorsia will have significantly higher margins, the gross margin profile than kind of Viatris' stand-alone -- current stand-alone margin profile of kind of that 5% plus or minus, we've been talking about.

Got it. Okay. So that was going to be my next question, actually. So I wanted to talk about the Idorsia assets. So starting to get more and more questions on this from investors. Yes, I guess just maybe go over these one by one, just on cenerimod so lupus market is pretty massive, like I think you've outlined in this -- one of the workbooks that you put out with this quarter that it can be between like 220,000 to 240,000 patients in the U.S. I think where you're studying it is more in like the interferon 1 high patients. Just as you think about this, right, like what is the -- like the core TAM of the market that you're going after and what gives you excitement about this opportunity? When do you think you can get in the market like all those sort of things would be helpful.

Yes. And just to note, I know you mentioned it, but because of the strong continued kind of investor engagement and broader engagement we've had on those assets since we've owned them earlier this year, we did publish a workbook on our website that goes into a lot more detail in terms of the kind of potential and the development plan and how we think about those assets. And so that's on our website. But specifically to cenerimod, you're kind of -- you're absolutely right. We think there's a significant unmet need in that area for people with SLE. The one note and it's not only the 220,000 to 240,000, but it's also to keep in mind, there's also 16,000 of kind of annual incidences on top of kind of on top of that. With respect to interferon 1, the statistics that we've seen, it's about kind of 75% to 80% of moderate-to-severe SLE patients kind of -- and so what that means from a kind of total population, it's about kind of 30% to 40% of overall SLE, but we think that cenerimod really has the potential to kind of serve a significant unmet need in that market.

Got it. Great. And anything that you would just like to call out on the time line, like for clinical development or just like when you think you could be in the market by.

So I think, Philippe, when kind of we've talked about it, everything is consistent with the same time lines that we've been communicating. We're anticipating kind of Phase III readouts in kind of end of '26 plus or minus time frame, which would put us in the market kind of end of '27, early '28 time frame.

Got it. Okay. And then just on selatogrel. So this is kind of the acute heart attack market. It is a very interesting opportunity. I have to say like I have not seen this type of a focus from other companies. I think like -- so here, when you look at sort of like people have called this sort of like the EpiPen for heart attack, right? So as you think about that, I mean, this market can be massive. But where you are trying to focus on, is it more of like the recurrent MI patients that have had like a first incident and then they want to like try to use this type of a drug device combination? Or could it also be just like the incident population that where these patients are getting first time heart-attack?

Yes. We think there's a significant kind of opportunity in selatogrel. I think you highlighted some of the reasons why -- just to put it in perspective, in the U.S. alone, right, even though we're conducting a global study, including areas like China, you have about 8.5 million people who have suffered some version of AMI with an annual incidence of 800,000, right? And that is the initial target population of our Phase III study. It's -- the protocol is for people that have already suffered a heart attack or acute MI, but kind of -- we do see life cycle management opportunities beyond that. One such example is maybe people who are kind of high risk that maybe haven't suffered 1 before that are kind of at high risk. But even excluding that, there is a significant population and opportunity with selatogrel just in the current Phase III design.

Got it. Okay. And both these are like after just like the global market, just to confirm for the audience?

Selatogrel is for global, yes. Exactly, global.

So I mean like for selatogrel, I've always thought about this that someone who as a patient like actively having a heart attack episode, right? Like how do you get comfortable to put a device in their hand that they would be in an emergency situation, either them or their caregiver would be accurately able to identify that this is the symptoms that I'm having. And then like self-administer without like a health care provider being available. Just would love to get your thoughts on that, like how do you foresee that working out? And what type of steps would you require to sort of educate the market patients, physicians to achieve that point.

Yes. And Philippe is -- would be much, much better equipped to answer than me. But I can say a couple of things. One, this is for patients that have already suffered heart attack. And I have -- luckily, I have never had to go through something like that. So I don't know what that feeling is like. But for people that have gone through a heart attack, they number one, are well equipped to recognize the symptoms given they've already gone through one. But apart from that, we have had very strict protocols in place in terms of teaching patients, number one, how to identify the symptoms. Number two, based on those symptoms how to self-inject. And then number three, post that immediately going to the hospital for treatment. And so far, this is something that we monitor and track as part of the Phase III protocols. And so far, the study is continuing to kind of run as we've designed it, and we've seen no issues with that.

Yes. Great. Awesome. And then like for this trial, like when do you expect like the data to start to come out, it's like event driven, if I remember correctly or...

It is. But however, kind of similar to the cenerimod time line is -- it is event driven. But based on the kind of time lines that we've laid out, it's all going according to expectations, and we expect to kind of see that Phase III readout similar time line to cenerimod. So end of '26 for Phase III and approval in that late '27 or early '28 time frame.

Got it. Okay. So lots of these pipeline opportunities starting to coming before the end of the decade. So you have...

Not end of the decade over the next couple of years. We're almost in '25.

Yes. That's true. All right. That's great. So I had a couple of questions just come in here through the iPad so maybe just very quickly. I think this might be a little bit addressed, but yes, like I'll just read it out. Like can you elaborate on the therapeutic areas of focus for future innovative product acquisition and/or development.

Yes. So we've publicly talked about ophthalmology, GI and dermatology as 3 areas of potential focus. Obviously, we have an existing ophthalmology franchise. But we've also said we are going to be opportunistic as we think about opportunities. Cardiovascular, obviously, with Lexicon and the selatogral opportunity, kind of cenerimod ultimately gives us an immunology presence, which has tie-ins to some of the other areas. So kind of -- but we are going to be disciplined in terms of how we approach those therapeutic areas. There's certain areas where kind of whether it's gene therapy, specialized oncology, those aren't areas that we need to make sure that we're going to be -- that we have the opportunity to be successful and it kind of fits with the strategy going forward.

Perfect. All right. So just in the couple of minutes that we have, I would just like to ask if there's any audience in the room that has any questions, and I have a couple of follow-ups that we can come back to. So maybe just I wanted to actually like for the different geographies that you have, right, if you can just quickly talk about like the pushes and pulls in the next few minutes that we have remaining really. Just what would you call out like for either for developed markets, China, emerging or emerging markets and then if we can sort of like wrap up after that.

Great. And I think 1 of the strengths of our business is the diversification that we have in terms of geographies, expertise, both in brands and generics. And this quarter, actually, we were able to show growth in all of our kind of reported segments. Obviously, there's pushes and pulls as we think about each of them, Europe continues to be kind of a very stable, strong business for us. We continue to see strength in the generics portfolio there, really driven by continued execution in France and Italy. And then on the brand side, kind of continued strength in that portfolio, giving us kind of that mid-single-digit growth in Europe. Greater China, we have very kind of our business there, a strong brand loyalty, we expect to kind of -- that business grew 2% in the third quarter. We have very strong commercial presence there. And even though you always have to kind of navigate the ongoing political kind of unknown environment, we feel good about the franchise that we have there are commercial infrastructure and our continued execution. And then with respect to emerging markets and JANZ kind of emerging markets is a very diverse portfolio of kind of many assets continue to benefit, especially in Eurasia and our MENA regions. In JANZ, that is an area of continued focus for us, just the age of our portfolio in that area. There does have kind of ongoing pressure. But for example, some of the assets that we've kind of added in the pipeline there as it relates to kind of sotagliflozin et cetera to benefit that region. And obviously, there's pushes and pulls in North America, strong generics growth especially given the growth in Breyna and Wixela complex products offset by some near-term kind of headwinds we've seen through just Medicaid utilization and EpiPen formulary changes. But I take it back to the benefit of having a global portfolio, we're not dependent on kind of any one product, any one region getting us to that kind of couple percent stable kind of revenue growth.

Yes. Great. Excellent. Thank you so much for this, Doretta. Really appreciate you coming in and participating at the UBS Healthcare Conference. Good luck with all these different initiatives that you have in your business, and yes, looking forward to staying in touch on this.

Thank you for having us. It's great to be here.