Viatris Inc. (VTRS) Earnings Call Transcript & Summary

Great. Well, thank you, everyone, for joining us. We're very pleased to have Viatris today. And with us, we have Scott Smith, CEO; Theodora Mistras, Chief Financial Officer; Corinne Le Goff, Commercial Officer; and Philippe Martin, Head of R&D. Maybe, Scott, before I jump into questions, I'll just hand it over to you to kind of make some opening remarks and then kind of frame the current year.

So first of all, thank you for having us, and we brought a full team with us here, I think showing the importance of where we are as a company right now. Just a few things that I want to run through for where we are this year. First of all, we talk a lot about the base business. We've got the base business is very strong. Aside from some manufacturing issues that we had at a plant called Indoor. We've had 8 or 9 consecutive quarters of operational revenue growth. And we've really been executing on our new product revenue last year, we were well above the initial guidance in terms of total new product revenue. So the base business is strong and thriving. We have some issues in terms of managing the operations part of it, which we'll talk about and how we'll remediate and getting through that. But the base business is running very, very strong. We've been delivering on our capital allocation strategy. We've been paying dividend, we've been buying back shares. We bought back just a little bit over $300 million at this point in time in share buybacks. We're also looking at business development, and we're looking at immediately accretive business development, very importantly. So we want to be able to help build the revenue and EBITDA picture for the company. We've also had a very strong focus on our pipeline. And Philippe will talk a little bit about that as we go through this. We have -- when we started the year, we had 11 different programs in Phase III. Four of those have read out so far, all 4 positive, including Effexor for generalized anxiety disorder in Japan, XULANE low dose, meloxicam in acute pain and a product for dim light vision from our -- for an asset in our Eye Care division. So very, very strong focus this year on the pipeline and things have been going very, very well and the execution has been very strong. We've also initiated a what we call an enterprise-wide strategic review, and we're taking a look at the cost, where do we have people in the right places, what are the processes that we're using. It sort of feels like us, like the right time to be doing this. We merged 4.5 years ago. We've divested 4 separate businesses. Now it's time to really take a look, do we have the right people in the right places to be able to deliver in '25 and '26 and beyond. So that's really important as well. Also, as I mentioned, we're working hard to do the remediations in Indoor. That's coming along at or ahead of schedule. We will look to ask the FDA to reinspect midyear this year. So everything is coming along there. If you think about those things that building the base business looking for accretive business development, delivering on the pipeline, making sure that we're doing what we need to do from a deficiency standpoint in terms of the operations and manufacturing and really looking at the company enterprise wide and seeing where do we have the right people and the right cost. All those things, those are the hard work in '25 that goes into what we expect to be sustainable revenue and EBITDA growth in '26 and beyond. And I think a little bit '24 was a year where we did a lot of debt pay down, closing our divestitures, those sorts of things, getting -- strengthening the balance sheet. '25 is about executing on the pipeline and understanding the organization. We've got new leadership in place, and we really need to take a look at the company fulsomely to make sure that we've got the right people in the right places. And then '26 and beyond should be about revenue growth, sustainable revenue and EBITDA growth going forward.

Great. Great. Maybe kind of digging a little bit further into the kind of a longer-term perspective. Where do you see Viatris heading in 2030 and kind of what are you guys most focused on from an execution perspective over the next 12 to 18 months kind of to power that growth.

Yes. So 2 things that really were starting this year, right, the pipeline and taking a look at the company from an enterprise-wide strategic review perspective. One of the -- the company is about 60% branded products, about 40% generic products. But of those branded products, most of them are past LOE. Only 1% of our current portfolio is patent protected. And what we want to do is we want to continue to sustain that base, that fuels, right? We see a path to 1%, 2%, 3% revenue growth, some EBITDA leverage off the existing base, but we want to add to that with the capital that we're generating, patented innovative products as well as products add to the base business, we want to be able to do both. But as we evolve towards 2030, I would see us having a larger portion of the pipeline, in innovative products, which have a more predictable, longer revenue stream than what we're doing currently. So I think we would see a company that maybe looks a little bit different geographically. We may put different people in different places, depending on where our opportunities are. You would see a portfolio that would have more innovative products. We're not walking away from the base at all. We want to keep that base but a portfolio that has more innovative products and one in which we will again, be focused on capital allocation, giving back to shareholders and also looking to build the portfolio and the pipeline through business development.

Great. You've touched on this enterprise-wide strategic review. And you've noted plans of hosting a potential investor event in the second half to kind of frame the long-term strategy, could you maybe touch a little further on what are the key aspects of this review? And what would you give us at the event? Could we see long-term guidance of some sort?

So just on the strategic review first, as I mentioned, the company is about 4.5 years old. We did all these divestitures. And when you do divestiture often, the people who are directly associated with that business go to the other company, but still, you're left with the company that we need to make sure is fit for purpose going forward, right? So we're looking at all aspects of what we're doing. We're looking at our manufacturing network. We're looking at our commercial structure. We're looking at how we purchase things. We're looking at like everything that the company does and trying to make sure that it's the most efficient, effective, cost-effective setup that we have. And again, to me, it's not just about a cost-cutting exercise. It's about making sure we've got the company that's fit for purpose for business today and also is able to execute on the business going forward. I think that's really important. I'm assuming there's going to be some cost benefits that come out of this, but that's not the main focus. The main focus is to make us a really more effective company going forward. In terms of having an Investor Day, one of the bits of feedback that I received from a lot of investors and a lot of people is don't get out ahead of yourself, make sure that you understand the environment, where you're going, what you're doing. It is a little bit of a volatile environment from a policy and a tariff perspective right now. So if things settle down, we would look to initiate that investor event second half of the year. We'd want to give investors a view of what the long-term health of the company looks like, what our strategies are, a bit of a deeper dive into the pipeline. And certainly, a deeper dive into this enterprise-wide review and what does it mean and where -- what's the new cost structure of the company look like?

Great. Well, that's a great segue to my next question on tariffs, which is what is your guys' base case right now in terms of likelihood, timing and scope of potential pharma tariffs?

That's a great question. Maybe you can tell me. I've spent some time over the past month or so in Washington. We've got connections to both the administration and to Congress and I've had direct communication with both. And it's very uncertain as to exactly where this is going to land. Certainly, one of the key talking points that I've had when I'd been talking to members of Congress is this idea of tariffs, particularly on generic products, right, could lead to major supply issues going forward. Although we produce 50% of our products for the U.S., in the U.S., 50% we don't. I would say approximately 50% of our portfolio in the U.S. operates at 20% margin or less. And so tariffs could lead to major supplies. It's not just us, it's the generic industry in general. One of the real points of discussion is this idea that 90% of the products of the pharmaceuticals that are in the U.S. market, right, that are dispensed in the U.S. marketplace, 90% are generics, and you had generics account for about 1% of the total health care cost in the U.S. So it's not a place where you're going to get -- depending on what they want to solve for, for tariffs, it's not an area where you're going to get particular cost savings. And I think the congressmen I've talked to are very, very weary around the idea of supply shortages for patients and things like that. And we're very committed to making sure that patients have access to our medications. So yes, I don't know where it's all going to land. I don't know if there's going to be an exemption for pharmaceuticals. Certainly, there is an understanding both, I think, at the administration level and in Congress, the tariffs on generics could be very detrimental to U.S. health care.

And just a refresher, Scott mentioned about 50% of the products that we manufacture in the U.S. are made in the U.S., the key countries that we import from are Ireland and India, but also about 25% of our business is in the U.S. So 75% of our business is outside of the U.S. And then in addition, we have about 8 manufacturing, 8 facilities in the U.S. between manufacturing, R&D and packaging in totality that kind of sums up to about 8.5 billion doses annually that we manufacture here in the U.S.

And we do have manufacturing network, 25, 26 active plants. And so we are able, depending on if there is a tariff structure, we're able to move things around a little bit to try and minimize the impact. So we're in a place where we're trying to think deeply around what the tariffs could look like, how they impact us, how can we find ways to make sure patients get access to our medication even in a tariff environment. But there's only so much work you can do and so you know exactly what the tariff situation is going to be.

Great. Great. Maybe just sticking on policy for a second. Obviously, Trump's MFN executive order a few weeks ago is a big focus for the industry, and it's been kind of an overhang on the sector. Do you guys have any thoughts on kind of how or if that will get implemented. And then in terms of Viatris' specific exposures, it seems fair to say that you guys probably have somewhat limited exposure to something like that.

Yes. So I don't know exactly how the legislation is going to get implemented. It's vague at this point in time in terms of what the details look like. There was an attempt in the first Trump administration to do go this direction and it was held up in the court. So I don't know the viability of this particular policy and whether or not it will actually be inactive in the U.S. In terms of the effect, the Viatris would be, I think, very minimal. As I said, 99% of our portfolio has been through LOE, only 1% is patented. So I see very little impact on the current business. I think we may have to do some thinking if it is inactive, we may have to do some thinking around new products, patented products that come in, launch sequence, pricing, global consequences of pricing and launch sequencing and some of those things. So current impact, not very much, future impact potential. But we're trying to think through all that. And again, you need the details of the legislation before you can go too far, right?

Right. Right. Maybe just 1 last one before shifting to the pipeline. The Indoor facility, I think you said is on track for the midyear kind of resubmission to FDA, could you just walk us through kind of what are the next steps there once you guys do that? And then how should we think about modeling? Obviously, generic Revlimid will be off in '26. But how should we think kind of like a boost in terms of revenue and EBITDA next year?

Yes. So we are on track. We're going through the remediation of the whole plant. Most of us here have been there and -- or at least a couple of us have been there personally and checking out, making sure the remediation is going according to plan, making sure people are getting the right messages around it. The impact is, I'd sort of look at it around 3 separate buckets, as you said, generic Revlimid likely gone, right? There are some fines and things that are associated that are onetime that won't be recurring. And the rest of it, once indoor is up and we're also qualifying other plants to be able to produce those products and things, we'll be able to recoup some of that, it takes time. You don't recoup it immediately. There's competition out there supplying that drug. So you have to come in, you have to gain back the market share. But certainly, some of that will be part of our going-forward enterprise.

We've talked about an approximately $500 million impact from indoor this year. It is expected to be slightly more first half weighted than second half weighted. We saw about $140 million in the first quarter. I would expect -- we would expect the second quarter to be in and around that same amount. But to Scott's point, as we look into '26, Revlimid is about 40% of that $500 million that was anticipated to kind of go away anyways. About $100 million is due to the penalties in the short term supply disruptions that we anticipate to be resolved. And then the remainder is what we'd be looking to kind of recapture over time.

Got it. Great. Maybe with that, kind of shifting to the pipeline. You guys recently had several kind of positive Phase III data sets. One of those was -- or 2 of those were in pain, which created some buzz in terms of just kind of other competitive assets that are on or reaching the market. Obviously, this is a huge market, but there are nuances just given opioids, generics, et cetera. Maybe just give us a brief background on kind of what this asset is and how it's potentially differentiated versus the other assets that are out there? And then what is the kind of forward commercial strategy and maybe potential opportunity?

Thank you. Yes, I'll start, and then I'll pass it over to Corinne. So clearly, in acute pain, there's a significant unmet need for treatment that is at least as effective or more than the current opioids, but it has a safety profile that doesn't have the well-known side effects of the opioids. I think that's really what the profile that we've demonstrated in Phase III across 2 different models of pain. We've been able to show a significant and statistically meaningful reduction in acute pain versus placebo. As part of the study design, we also had an opioid arm, tramadol 50-milligram given every 6 hours to make sure that we could test the sensitivity of the model, but we've also done the post-op analysis where we looked at the effect of fast-acting meloxicam versus tramadol and across both studies, we were consistently superior in terms of pain reduction, which is something that other treatments, including the most recent ones have not been able to demonstrate as part of their Phase III trial. So I think this is very strong data that shows that not only we have an efficacy superior to tramadol 50-milligram every 6 hours. But if you look at the dosage of opioids that we use, the equivalent is about 40 morphine equivalents, which is about -- than hydroxycodone 20 milligram, which is typically can be sometimes the other opioids that's used. So a very important opioid dose that was used there, which shows that really truly the efficacy demonstrated in the 2 Phase III study was very strong. And on top of it, and importantly, after a lot of discussion with the agency, we went -- we added endpoints around reducing the use of opioids, right, where we're able to reduce the use of opioids when patients are on meloxicam and we show clinically meaningful, statistically significant effect across both studies across both pain models. So the profile it became as strong as one would have liked as part of these 2 Phase III studies. The safety profile was also very favorable. We saw an incidence rate of adverse events that was comparable to placebo. So benefit risk for this acute pain with meloxicam fast-acting is very strong. We plan on using this data and filing by the end of the year, we'll have conversations with the agency around fast track and to get the drug approved faster based on the unmet need. And we'll go from there.

So we're going to commercialize this asset as a branded product and based on those very positive results, I think we feel that the product can compete very effectively in the acute pain moderate-to-severe market. Just to give you an idea of the sizing of this market, you have in the U.S. every year between 70 million to 80 million cases of acute pain. And half of those patients still rely on opioids despite the fact that it is very well known that the use of opioid has abuse potential. So we feel that with a profile like fast-acting meloxicam, we can offer what the market demands, which is a nonopioid as effective therapy with a very well-characterized and established safety profile. The way we're going to commercialize this, of course, we're going to look at the postoperative segment, both inpatient and outpatient. But potentially, we can go broader than this depending on the label we're going to get because you can think of the treatment of acute pain in many sittings, including dental pain, labor pain, post operative pain as already mentioned. So potentially a large market that we can address, we will build a specialty sales force team to address this market, but we will also be able to leverage the current infrastructure that we have in institutions and notably in terms of contracting.

So Corinne talked a little bit about the patient numbers, the 80 million to 90 million, you said?

Yes.

The last I saw valuation of the marketplace was 2022 data, which suggested the acute pain market in the United States was $44 billion, '22. So it's a very large market. In clinical development, and Philippe knows this better than I do, sometimes you get surprised, right? You have a study that doesn't work or sometimes you get data that's better than expected. And I think we were very, very pleased with the quality of the study and the quality of data that come out, and it gives us a very, very nice platform to be able to launch this product and given the strength of the data.

Great. Maybe just kind of lastly on meloxicam. Given this is a fast-acting formulation, how should we think about IP and your guys' patent protection?

Yes. So it's -- we're going to file using a 505(b)2 pathway. And we also are in the process of -- we have patent pendings and so once the patent situation is resolved, we have more visibility there...

Great. Great. Maybe shifting to selatogrel. This represents a really interesting kind of emergency therapeutic option for heart attack that clearly addresses a major unmet need. But obviously, there's questions around patients' ability to administer it in an emergency situation. Could maybe -- could you just maybe comment on what you've seen so far? I think you've commented on this on the last earnings call about the patients are doing this correctly. But really, what other kind of data have you seen so far? And when will we get an update there?

Yes, we're getting often a question around this aspect. I think the -- so just to start the study going very well. We get good momentum. We extended the study globally. We are reaching 800 sites around the world. So that part is going well. In terms of what we are seeing with the data, I think what we're seeing patients is that patients are self-injecting on time, which is -- it is important that the patients self-inject as soon as they start any symptoms of acute MI or heart attack. And what we see is that patients typically self-inject within a half hour to an hour, which is extremely important in the sense that P2Y12 inhibitors [indiscernible] have been shown to be particularly efficacious, very early on in the acute MI process when the thrombus is still made of platelets, right? . The evolution of the thrombus then moves away from platelets and that makes the P2Y12 less effective. So we're seeing that. What we're also seeing is that patients are able to recognize this symptoms of heart attacks or acute MI properly, typically just chest pain, but they're self-injecting based on those symptoms. And what we are also seeing is that these patients are able to take themselves. Typically, the worry is that the self-injected don't call to get proper diagnosis, we're not seeing that. We're seeing patients are well trained and are able to take themselves to the hospital and get proper diagnosis of that. Then in terms of the type of acute MI we're seeing, I think we're -- there was also another assumptions. And what we're seeing is that type of acute MI observed in the studies are on par with the assumptions that we had at the beginning of the study. So that's particularly important for the primary endpoint. Talking about the primary endpoint, we wanted to see a 20% reduction in risk, 20% risk reduction. And we sized the study that way. We think that's somewhat conservative, and that there is room for us. And then finally, on safety profile. We've had over 10 independent DMCs at this point. They've always told us to continue unchanged. They are unblinded to the data. We're not seeing an increased risk of bleeding at this point -- severe bleeding at this point. That study is still ongoing, obviously. But -- so all the assumptions that we had put together at the beginning of this study are playing out in a way that gives us confidence about what's about to happen.

Very, very interesting asset, I think, and we to wait on the data and see if the data is positive and we get to registration. I don't think there's any better home for this asset or any company that's better than us given our history with injectable self-administered rescue medicine, the fact that we've got -- that we've commercialized assets like that globally. We're currently in 165 countries. And we've got tremendous experience with self-administered medication. So I think I'm very excited about the data. If the data looks good and positive will leads to registration. I think this could be a very, very important product for us.

Great. And then late '26 is that's still kind of the base case...

Yes, it's still the base assumption.

Event-driven study. So it could be before or after because an event is not standard in terms of number of patients enrolled and then going to the endpoint. So because it's event-driven, the timing could vary a little bit, but the assumption is still into '26.

As Scott said, we will be ready to commercialize this asset. It's a market that we will be developing. They are like about if you look at just U.S. and Europe, you have about 2 million acute MI every year, right? And maybe 9 million to 10 million patients living with -- who had an MI previously. So we'll be targeting those patients, identifying those patients early on, educating patients and the medical community as well on how to recognize the symptoms, and we will be deploying a specialty sales force visiting cardiologist, both in the hospital setting and in office. And in terms of access, I think it's a question we get, if you look at this population of patients who have acute MI and about half of them are Medicare patients. And the second half commercial in the U.S. So we expect that we'll get relatively fast access considering the need. If you think in terms of the value proposition of the asset, the type of risk reduction, relative risk reduction we're going to see added to the reduction of negative outcomes post MI will be very important in defining the value of these assets. So we are pretty bullish about it.

Great. Great. Maybe switching over to the capital allocation strategy. So I mean, we know Viatris was formed with kind of a stated goal to transition the company's business model to a capital return focus company through dividends and repurchases. Clearly, this is obviously a really important aspect for you guys. But maybe kind of just frame for us how you think about the balance of capital return versus investing more in the company, business development?

Yes. So we've talked generally going forward, getting the debt paid down, then having sort of a 50-50 capital allocation, 50% back to shareholders in dividend and share buybacks and the other 50% of business development. That may be different any 1 year. This is a year where there's a lot of volatility, external volatility, macro volatility so we're leaning in and certainly the first half of the year, we've leaned into share buybacks a little bit. Other years, there may be more business development opportunities. I think we're looking for things. I'm very excited about sort of the midterm pipeline that we have, the selatogrels cenerimods, Sotagliflozins and other things. But I think from a business development perspective, we want to look for more near-term assets, either sort of in market or very proximal to being a market, we want to make -- try and do accretive deals that are going to add both to our revenue and our EBITDA going forward.

Great. You mentioned cenerimod. We saw a really interesting mix but interesting Phase II data there. How are you guys thinking about the development of that asset? I mean, obviously, you're in lupus now, we know that's historically a tricky space. But maybe how do you kind of think about POS for that Phase III?

So I think to your point, the development of cenerimod, we've done 3 Phase II studies. And I think what we've seen across these 3 Phase II studies is a consistent profile for the 4-milligram dose, which is the dose we're taking to Phase III. Those lower dose did not work as well as this 4-milligram dose, which is what you do dose range finding for. So I think the profile that is emerging from a benefit risk profile looks particularly attractive for an oral drug that can be given in combination on top of standard of care and prior to more aggressive biologic therapies, right? What we've seen in the Phase II also is that the drug seems to work better in a more severe population in patient population with interferon-1 high signature. And that's the type of patients we are recruiting and reaching in the Phase III program for. We're targeting about 80% of those patients, which is typically what has been seen 80%, 85% with the most recent Phase III trial in the patients. We've also learned quite a bit from Phase II, and we'll be implementing a number of changes. For instance, the primary endpoint is no longer at 6 months, it's at 1 year, which is in favor of the drug in favor of the treatment effect versus the placebo. We also have to implement a steroid tapering mandatory, which will reduce the overall placebo response rate for the study. We have 2 large studies, enrollment is going well, and enrollment is anticipated to be finalized around the end of the year. And then it takes about a year to be done.

You mentioned probability of success, right? When asking that question to Philippe. And 1 of the things I think that's always important when you're developing assets and plays into the probability of success is do you have experience developing these types of assets before. Philippe was a lead developer in S1P molecule, which is in the market for multiple indications now. So I think that helps give us a good chance to pull this over the line necessarily.

And are you guys thinking about broader indication expansion for this asset?

One natural evolution is through lupus nephritis from SLE. I think that's 1 particular area that we are embarking on. Probably just success varies, it is pretty high based on mechanism of action and what we know so far.

These S1P molecules have broad immunomodulatory activity. we've seen them work in IBD, we've seen them work in MS. You see them work in a lot of different places. So there's a lot of different indications and we can take this in. We will follow lupus nephritis. But depending on once you see the initial data, it may take us down some other routes as well.

And late '26 also for that is, okay. And then maybe kind of lastly on the pipeline. You guys have an ocular portfolio, and we just saw recent positive Phase III data. Maybe you just kind of briefly touch on what we recently saw. And then what would you highlight from this portfolio in terms of kind of next steps and where the major opportunities are.

Yes. So we built -- we're in the process of building a pretty broad portfolio in Ophthalmology or eye care. We just had our first readout this year in patients that have dim light disturbances after Keratorefractive surgery. These are patients that typically cannot drive or cannot function during -- under low or dim light and what we've shown in our Phase III study is that we saw a significant functional improvement in these patients driving the ability to function under these low light. So we think there's nothing approved for these types of treatment. We've had long conversations with the agency on how we design this and what is relevant and what kind of questions we should be asking these patients in the patient reported outcome. So we feel that this data will -- can make a difference for these patients. I don't know if you wanted to add...

Yes. So I mean if you just look at the number of territory refractive surgeries every year, it's about 800,000 in the U.S., so potentially a large market. Now I would say, post surgery, most of these patients will have visual aberrations in dim light conditions. And sometimes it will resolve by itself. But in 25% of the patients, 1 month after the surgery, they still have those disturbances. And this is a chronic condition. So this would be the first FDA-approved product to address this issue. And I think potentially could be a very interesting market to address.

The eye care division itself has gotten off commercially, it's a little bit slower start than we had initially anticipated. I think Corinne's done a lot of work to reform that group. We've got new leadership there from an overall perspective, from a commercial perspective, from a sales perspective, we're taking a look at that group, seeing how we can be more effective. We just had a positive readout. We've got 2 more Phase III readouts for eye care coming this year. So I feel very, very hopeful that the eye care group will be a major contributor to the company going forward over the next 5, 10 years. We just had some work to get it going in the right direction, but I think we've done some of that work, and I'm excited about the future.

Great. Well, with that, we are out of time, but thank you guys very much for joining us.

Thank you very much.

Thank you for having us.