Viatris Inc. (VTRS) Earnings Call Transcript & Summary

Keep going here at the BofA Annual Healthcare Conference, and our last company presenter of the day, Viatris. Joining us is Doretta Mistras, Chief Financial Officer; and Philippe Martin, Chief R&D Officer. Martin or Martin?

Whatever you want. Martin is good.

Well, thanks. And my name is Jason Gerberry. I cover SMID cap biotech and specialty pharma at BofA.

And maybe just for starters, since the Upjohn-Mylan merger and then subsequent some divestitures within the portfolio, if you could just kind of level set in terms of where you are, in terms of setting the strategic compass for the company, what Viatris wants to become as we think to the next 3 to 5 years for the business. I know you guys have been vocal about moving up the value chain in terms of more durable high-growth brands and where you feel like you're at in terms of that trajectory.

Yes. Thank you, and thank you for having us. We're happy to be here. As you mentioned, I mean, since the inception of Viatris as we know it today, we've integrated 2 very large organizations between Mylan and Upjohn. We've also been focused on really streamlining the enterprise over the past couple of years. We've made several large divestments, including biosimilars, OTC, women's health and API. And kind of today, as we look at portfolio of kind of assets that we have today, we're really focused on executing on our strategy. That includes delivering on kind of our diverse base business of assets and really delivering on the $450 million to $550 million of new product revenues. We have very strong cash flow generation, where we leverage those cash flows to really invest not only to return capital to shareholders, but really invest in adding assets more innovative, branded durable assets to our portfolio in order to build upon kind of our base business revenue to accelerate revenue over time and kind of continuing to advance our innovative pipeline. And over the past kind of 12 to 18 months, we've added selatogrel, cenerimod, sotagliflozin. We just had positive data on meloxicam, XULANE LO dose. And so really advancing a growing pipeline of innovative assets going forward.

Yes. Okay. Maybe capital deployments, a key part of the story and investors here, I would say, hypersensitive to this. There is a peer company that lost a fair amount of value in the last couple of weeks. They announced cutting up a dividend. I don't think that that's in the offing for you guys. But as you think about the guardrails for shareholder return versus M&A, and I got the sense that from the earnings call, M&A still part of the focus. Maybe it's a little bit more shifted to near-to-market or on-market types of structures, but how would you orient investors to think about how you'll be deploying capital?

Yes. Business development is still a strategic priority for the company. We've talked about generally deploying 50% of our cash flows to -- returning it to shareholders, 50% to business development. That's more over a longer-term average. We may lean in a little bit more towards one area or another in any specific time. This year, we've talked about allocating a little bit more towards capital deployment. But it is important to continue to add to the portfolio. We're really focused on those durable, innovative, near-market opportunities that really can provide durability and accelerate our long-term growth. But we're also going to be looking at regional deals where we can kind of leverage our base infrastructure, especially outside of the U.S. and have more of a kind of tuck-in, immediately accretive nature. I would say this year, we're really focused on kind of the latter of the immediately accretive-type transactions, but it's important to take a portfolio approach as we think about the growth of the company and really accelerating our revenue growth over time.

And the importance of remaining investment grade with like entities like Moody's, is that still a top priority for you guys? In the aftermath of the divestitures, it seems like that was important to get the leverage to a level that investors are maybe more comfortable with.

Yes, an investment grade is still important to us. We haven't changed our financial policy. Over the past 4 years, we've actually paid down over $10 billion of debt to get to our kind of 3x leverage target, and we've always talked about operating within a 2.8 to 3.2 kind of window as we've kind of talked about it.

Yes. Okay. Maybe shift to just portfolio and portfolio-related topics. I mean tariffs have been topical. I think we've heard from a lot of our companies that nothing to see here so far right on what we know today. Maybe just how you guys are thinking about your manufacturing supply chain and flexibility to maneuver around any potential policy shifts as the administration has the ongoing 232 investigation.

Yes. And there's still a lot of unknowns in terms of kind of where, what types of tariffs will be implemented. And to start, our big focus, and we are engaged with members of the administration, with Congress to really kind of articulate and explain the impact of tariffs to patient access because at the end of the day, that's the most important to us. Number one, I think it's helpful just to contextualize a little bit about our footprint. About 25% of our business is in the U.S. Of that 25%, about 50% of our revenue -- a little over is actually manufactured within the U.S. About 50% comes from outside of the U.S. and primarily in Ireland, India and the U.K. And we have 8 facilities in the U.S. between our manufacturing R&D and packaging sites. And we actually manufacture about 8.5 billion doses annually here in the U.S. And the U.S. is an important piece of our manufacturing and will remain. But also, we are actively looking at ways to not only mitigate but look at ways on how we can continue to leverage our U.S. manufacturing footprint. That includes seeing where we can increase existing capacity. That includes opportunities to leverage third-party suppliers. It also includes areas where we can potentially invest as well. And so we're looking at all those opportunities as we move forward.

And then I guess like the spirit of the 232 investigation had to do with critical medicines. And does Viatris play a role at all in supplying some of these critical medicines, where maybe there's a perceived over-indexing or overreliance to countries that maybe there's concern about having an excess of reliance like China as you think about sort of the supply chain continuum. And is there an opportunity to play a role in that to address those concerns that the administration has raised? It's an unfair question. I'm just kind of curious if you have a thought on that.

Yes. No. And we did actually participate in the 232 process. Really, our focus was, number one, articulating the value that generics play in providing important and critical medicines to the U.S. We -- generics provide about 90% of the volume in the U.S. but account for a little over 1% of the total cost. And so it is important to kind of not only articulate the value that generic medicines play, but the potential risk to supply shortages and patient access in the instance. So we did participate, but it's hard to know the exact impacts until we have more clarity.

Okay. maybe 5 or 6 more minutes, just on some portfolio-related topics, don't want to get to the pipeline. But as we think about the kinetics of growth this year, stronger growth in the second half. And what are some of the drivers for that second half growth? And what underpins that you'll get to that? I know you've kind of let some upside drivers out of the guide, including like resolution of the import ban with Indore. There's -- I think FX tailwinds were not factored into your guidance as well. So is it more just capturing more of a second half weighted new product introduction into the guide that drives that swing?

Yes. And just to start, from a Q1 perspective, Q1 operationally performed in line with what we expected across all regions and excluding the impact of Indore, we saw growth in the business of approximately 2%. And so kind of in line with what we expected. And in light of that, to your point, we have maintained our outlook for the year. As we think about phasing, number one, we've talked about Indore, still unchanged in terms of our expectation of total year impact of Indore, about $500 million of revenue, $385 million of EBITDA. We do expect that to be more kind of first half weighted versus second half weighted. So that is a factor. The other 2 factors that impact our phasing, number one, our new product launches are expected to be more second half weighted versus first half weighted. And we do have some normal product seasonality that kind of factor into the second half. And so when you take that in aggregate, as I talked about on our call last week, we do expect the second half to be slightly more weighted. And so as we think about revenue contribution, about 52% of our revenue, we expect to come in the second half. In terms of some of the factors that we kind of haven't incorporated, FX kind of we do see as a tailwind. If we do think -- if spot rates continue at the current rates that we've seen kind of the past little while, we do expect that to be to offset the 2% to 3% headwind that we had projected at the time of guidance. But at the same time, we're also not factoring in any of the unknowns as it relates to tariffs or other macro policies that are unknown at this time.

Okay. And from a manufacturing quality perspective, your kind of overall arching commentary in terms of level of confidence that you feel like you got a good handle on this that they won't spread to other facilities or anything like along those lines?

Yes. Indore remediation is on track. The anticipated impact, as I mentioned, for the first quarter was in line with our expectations and continue to see that for the full year. We are on track to submit or go back to the FDA midyear and request reinspection. And so we're on track there. As we've talked about, we have 1 other facility in Nashik that is pending classification. We've been working with the FDA. We've actually completed all the kind of steps that were kind of requested at the time of inspection, but that is still outstanding.

Okay. And then, do you feel like your level set in terms of divestitures that you've got the businesses in-house now that you plan to kind of move forward with for the next 3 to 5 years and the geographical footprint. I guess for companies that pivot to specialty brands, it tends to be a U.S. focus. So I'm just kind of curious, like the broad based global approach, how that fits within the longer-term plans?

Yes. As mentioned, we did go through a series of divestitures in light kind of in order to streamline the business. I would say we're always going to be looking at how do we optimize our footprint. I would say we feel good about the portfolio of assets that we have today, but we are embarking and in the process of undergoing an enterprise-wide review in light of the divestments that were made to just make sure that we're fit for purpose, we're optimizing our current structure, not only to support the base business but to make sure were really set up for the future, and that process is ongoing. But we feel good about the portfolio that we have today, we'll continue to evaluate it.

And so you have a planned Investor Day at some point this year. I don't think you've come up with a specific date, but is the agenda for something like that, more about the enterprise review and decisions and more about the fundamentals of the business or you did an R&D Day a year ago, and that was more education on the pipeline? Or is it some combination of both?

I think it's the way we view it, and we're targeting the second half of the year will be forthcoming with more details as we get closer. But it's really to be able to tell a full picture. We have a number of pipeline readouts expected in the first half of the year. We already had 3 positive readouts already. We're anticipating 3 more readouts in the first half. But it's to be able to talk -- go more in depth around R&D. It is the kind of first year as a post-divestiture kind of enterprise, and it is the opportunity for us to provide additional context around the enterprise-wide review that we're undergoing. So it enables us to tell a full picture of where Viatris is going, going forward.

Okay. Maybe Philippe, maybe we can jump some pipeline topics. And you had some interesting data at the most recent quarterly update. Maybe starting with the fast-acting meloxicam Phase III data for acute pain. I don't know. How would you sort of contextualize, I think, the clinical benefit that you're seeing with this product relative to existing acute pain treatment options? And how you see that as like a value add for patients?

Yes. So as we've just released during the quarterly call -- the top line results of 2 Phase III studies for meloxicam fast-acting. We designed this assets specifically for the treatment of acute pain. I think we couldn't be more pleased with the data we get. We hit on the primary and all secondary endpoint. Importantly, we saw a significant and clinically meaningful improvement in pain versus placebo. As part of the study, we had, on purpose, added an opioid arm so that we could ensure that we have the proper sensitivity of the -- for those models. And post-hoc analysis have shown that meloxicam has consistently a superior profile to tramadol from an efficacy standpoint. And that was extremely important for us to have a drug that is at least as efficacious as opioids. At the same time, we looked at the ability of the drug to reduce the usage of opioids. And we saw a statistical significant difference where patients on meloxicam had low -- less doses of your opioid overall and more patient -- significantly more patients had -- were steroid-free by the end of the study. Fast-acting meloxicam, fast onset was also very important. And our data shows that we are very fast, faster than other treatment currently available. So -- and obviously, the safety profile is well known for meloxicam the Phase III study showed again that this drug in terms of incidence rates of TEAEs was very similar to placebo. So we believe that we have data from these 2 Phase III study and from the Phase II study in dental pain as well that position this drug optimally for first-line treatment, and importantly, is able to show that to significantly reduce the usage and dependence on opioids for the treatment of acute pain.

Would you anticipate at least when the NDA is submitted a sort of a broad indication like Vertex' JOURNAVX, which is, I think, just for acute pain. I don't think that it's specific to post-surgical or...

No. But it's moderate to severe acute pain, and we believe that we'll get a similar label patient population in the Phase III study at a mean pain score at baseline of 7.8 and 7.3 in the 2 studies. So a population representative of moderate to severe patients.

How would you break down I think there's something like 70 million cases, right? That's such a vast market, but I imagine there's a lot of segmentation. And maybe this is the sector for a future Investor Day to educate investors on how to drill down into that moderate to severe. And I imagine that a lot of these patients maybe get a 5-day script for an opioid or acetaminophen or some high dose acetaminophen.

Yes. So we decided the study we had an inpatient phase and an outpatient phase as part of the study, a patient phase of 5 days duration total. But as to what the duration of the scripts, I think to your point, we'll go into that in a level of detail during the Investor Day. I think what is particularly important, you said 70 to 80 million patients are treated in the U.S. for acute pain every year. Out of those, approximately 40 million are on a -- given an opioid, right? And so I think there's a clear push for this to stop and for this opioid treatment to be replaced by other non-opioid, nonaddictive treatments such as meloxicam fast-acting.

So it sounds like perhaps like this can be both an institutionally used medicine as well as an outpatient-used medicine based on some of the clinical data that you generated and the value that you feel like this can bring to patients in both of those settings. Is that a fair supposition?

That's exactly how we see it. Yes.

Okay. And any observations at all in terms of the monitoring, the Vertex launch? I imagine like that's been a controversial how big can acute pain as a category B. And they bring a novel non-opioid mechanism to the table, right? I guess like the million-dollar question a lot of folks are wondering is sort of like price and access because it's such a big market?

Yes. So it's a bit early for us to start talking about pricing and access. I mean we got the data 4 days ago, I think, something like that.-- But that will be certainly a significant focus of ours going forward is to look into this. And as I said, we'll certainly go into more details during the Investor Day. But I think the -- to me, the commercial need, the unmet need is very clear. There is a need for a drug that is at least as efficacious as the opioid but doesn't have the issues that are known with the opioids and that can replace this treatment. And we've shown as part of our 2 Phase III study that the drug can do that.

Okay. You also have a Phase III program Pimecrolimus for Blepharitis which is a large market by epidemiology. We actually cover a company called Tarsus XDEMVY for, I guess, Blepharitis, where you have a Demodex infestation, a mite infestation. And their view of things is that like a Pimecrolimus therapy would be address more of the inflammation, whereas they get to the root cause with the mite. And so these are potentially complementary therapies. Do you see the world that way in terms of sort of like the therapeutic benefit of what a Pimecrolimus-based therapy might offer to a patient with Blepharitis and...

Yes. So you're completely really right in the sense that we are an anti-inflammatory. Pimecrolimus is an anti-inflammatory agent. XDEMVY is an anti-infective. XDEMVY is approved for the treatment of Blepharitis, Demodex Blepharitis, which is a subtype of Blepharitis. We intend to -- at least our studies are designed for the total -- any etiology of Blepharitis, including Demodex Blepharitis. So you could very well see a need -- a higher need for a drug that treat Blepharitis outside of Demodex Blepharitis. That being said, the treatment with XDEMVY is not 100% cure, right? So there's a lot of patients that will need other treatments. And you could see these Demodex patients certainly be treated with Pimecrolimus as well.

And what are you hoping to see from the data in terms of like, I guess, a benefit and maybe what are patients using for the inflammation now? Or is there any anti-inflammatory agents that they've got available?

No, typically, right now, they use the antibiotics and just compresses that they put on it until they resolve, but it takes a very long time for it to resolve. What we expect from the Phase III study is clinically meaningful changes in both the debris that you see in those patients and then also the ocular pain that is seen in those patients. We want to label for signs and symptoms of Blepharitis. We believe that's what we're treating with Pimecrolimus, which is not the case with XDEMVY.

Okay. Maybe with selatogrel, it sounds like enrollment is progressing in line with targets. I guess with this study, the things that you're hyper-focused on, are event accrual and our patients properly using the therapy when it's appropriate to use it. And I know historically, you've tracked that and commented on that. So any updates that you would just kind of provide to investors just as they think about the integrity of the trial and the ability to like read out hopefully a successful result there?

Yes. So I think I can make a couple of comments. So we certainly are on schedule to get the study enrolled in 2026 with over 800 active sites around the world. This is a pretty large study. To your point, I think event rate is particularly important. What I've said previously is still very valid which is that what we're observing is patients are self-injecting. They're self-injecting at the right time, which is the earlier they inject, the better. But certainly within that first golden hour is extremely important. We see them do that. Importantly, once they've self-injected, they have to self-inject for the right reasons. We certainly see that they're injecting when they have symptoms of acute MI which is typically just chest pain, right? And then lastly, it's important that they seek medical support once they're self-injected just at the minimum to get proper diagnosis, and we see them do that very quickly after injected. So the study from that point of view is happening as we had planned. What's also important is that we are now have enough data to start seeing how the distribution of the acute MI for the purpose of the primary endpoint are looking like because it's a ranked endpoint with different sorts of different types of acute MI. And what I can say is that the assumptions we had originally are spot on. We're seeing that distribution to date. Talking about the primary endpoint, we always say that we are looking for a 20% risk reduction. We believe that is somewhat conservative and that we should be able to see a higher risk reduction than the 20% based on...

The basis of that was what was seen with IV Cangrelor if you get that in the proper window to treat, how you help patients?

Yes. With the other P2Y12 inhibitors, there are a number of studies, none of them are perfect, but they are looking at the -- they look -- the time frame of when those patients are injected and depending on how quickly the drug is acting, you're able to determine the risk reduction that you see with the treatment and it should be well above 20% if the drug is given at the right time, which is what we're seeing right now.

And do you have an estimate at this point in terms of once enrollment is complete, how long until you'd be a potential or a range of time when you be able to have top line data?

Well -- so again, it's an event-driven study. So there's a little bit of uncertainty around once you're done enrolling when you get enough of these -- all the events you need. That said, we're planning on rolling right through to the time we get the number of events we need which we anticipate is in 2026.

Okay. So let's see. -- so for selatogrel I think you've talked about 2 million patients, maybe U.S., Europe combined that maybe fit the profile of a prior MI event as sort of your addressable market. These are more of a recent incidence-based pool of patients who had a recent MI event versus someone who maybe had an MI event like 10 years ago. My understanding, like just trying to get a sense of commercially, this ends up looking like EpiPen, right, where patients are going to want to have that coverage and carry that with them and with that patient profile, and that experience that they have is going to motivate them to want to ensure that this doesn't happen or they can achieve the best outcome if that does happen.

Yes. So I think at the time of initial launch, what we are looking to have is patients that -- targeting patients that have had prior acute MI, okay? Now for the purpose of the conduct of this study, in order to get a faster event rate, we're looking at factors that can increase that event rate. And we did a recent real-world evidence study that we'll publish soon that looks at this factor that are increasing the risk of recurrence of an acute MI. And we've -- we are including those as part of our study, which give you an example, comorbidities, such as type 2 diabetes are typically a significant risk factor for recurrence of acute MI. Multi-vessel disease is another one that -- so as part of the study, we are enriching the study to get higher event rate, but we believe that, that will cover that the data is applicable to the entire recurrent acute MI population.

Which is 25 million.

Which is 25 million.

The annual incidents, that's 2 million.

Right. And it's about 10 million in the U.S., the number of patients we're talking about. That said, there's also a risk for -- an opportunity for expansion over time, again, looking at these risk factors for patients that are at risk of an acute MI, but that's for the future of this drug.

Got it. Okay. We're out of time. So thank you so much for joining us at the conference.

Thank you.

Thank you so much.

Okay.