Viatris Inc. (VTRS) Earnings Call Transcript & Summary

Good day, everybody. My name is Ash Verma, I cover SMID-cap, biotech and spec pharma. Welcome to UBS Healthcare Conference. And with me really excited to have from Viatris, Theodora Mistras, who is the Chief Financial Officer. Theodora, thank you for joining us.

Thank you so much for having me. It's great to be here.

Yes. So a lot of exciting things happening with your story. I want to learn more about what are the key updates. Maybe if you can just kind of give us a high-level thought on -- you just reported third quarter earnings and where the story is and then we can get into...

Thanks, Ash. We're really pleased with the momentum in the business. We remain on track to deliver 2% to 3% operational revenue growth, excluding Indore. And as we look into 2026, we expect that positive momentum to continue. We're really focused on executing against our strategic priorities. The enterprise-wide review is ongoing. We've delivered 5 of 6 positive pipeline readouts in the first half of this year. And overall, we feel really good about the momentum. And then finally, we're also delivering on our capital allocation priorities. We're on track to deliver over $1 billion of capital to shareholders, including $500 million of share repurchases this year.

Great. Awesome. So yes, I wanted to understand like some of the pushes and pulls on just the financials like going here right now. So I think big part -- one of the big part of the focus for you is that the new product launches that you've been kind of articulating as run rating at $450 million to $550 million every year. So as we think about like next year, maybe if we could talk about that, like where -- what's your line of sight on that? Like do you have visibility into what would be the key contributors from that standpoint?

Yes. So from a revenue perspective, we've talked about being generally in that $450 million to $550 million range. And we are not dependent on any one product to generate that contribution. However, as I sit today, when I look at 2026, I think we have strong momentum building in, in terms of our new product revenue. And that's really driven by a couple of factors. Number one, the continued uptake on our new products that have already launched. That includes iron sucrose, glucagon and paclitaxel as well as anticipated product launches into next year, which include octreotide, Effexor GAD, sotagliflozin amongst others. And so we'll be able to provide more specifics next year when we give our full year guidance, but we're pleased with the momentum that we're seeing for new product revenues into next year.

Great. Great. Yes. And I want to go over those like a couple of quick ones. But maybe just kind of staying at the high level, so that like if you have line of sight on that. And I guess the other part of like the -- where the base business erosion has been, is there any change in that or sort of like the low single digit, what you were facing, just excluding some of the extremeous factors, I know like Indore FX.

So we feel good about the momentum that we're seeing into 2026. Just to articulate some of the pushes and pulls when you're such a big and dynamic business. Number one, continued positive trends in China, Europe and emerging markets. We expect that to continue. We've talked about the new product momentum and the timing associated with that. We're also continuing to execute around Indore and so timing around potential reinspection there. And then we're also continuing to monitor just ongoing competitive dynamics in North America and the potential loss of Amitiza exclusivity in Japan. But when you put all that together from an overall picture perspective, we expect to see continued kind of growth into next year.

Got it. Got it. Okay. Yes. I guess, I mean, if you think about like the top line, like where this year has been shaking out pretty well for you, there seems to be a fair bit of FX tailwind on that as like around $700 million. So when I think about like the dynamic for next year or so like if that becomes -- I mean, we don't know where the FX is going to go, but like if that becomes essentially like a headwind, but you do have the new product revenue coming in and sort of where the base business erosion is, like net-net, when you combine those factors, do you think like the top line growth can continue at the same momentum that you have?

Yes. And I just want to clarify with respect to FX, it's not necessarily a lapping. So when we set our outlook at the beginning of the year, we use the prevailing rates of FX at the time. And as we move through the year, we compare our actuals to the prior year. Based on what we've seen in 2025, FX has been a tailwind for us. And assuming that rates continue to hold at current rates, we expect that momentum to continue into 2026.

Got it. Okay. All right. Perfect. So maybe we talk about some of these like different geographies a little bit. So North America, yes, I think just kind of the pushes and pulls in that. And I know you called out like just increased competition in North America. Is that to like a specific product, like group of products? Just where is that coming from?

Yes. We did see some continued competition in certain generic products, including Wixela. But I would say the decline in North America was primarily driven by the Indore impact. So when we look at the overall portfolio, we're not seeing any specific pockets of weakness and pricing erosion is generally in line with our expectations. And offsetting that is we're continuing to see strong double-digit growth in both RNA as well as Yupelri.

Got it. Okay. All right. And then if we switch over to the emerging market side. So there, I mean, you have a lot of strong growth, both from the brand and generic side, I've been looking at it. So, yes, what's effectively driving that and what contributed?

We're really pleased with our established brands business in emerging markets. And when we look at this, it's really driven by the growth and durability not only in the work that we've done around life cycle management, but it also reflects our strong branded marketing infrastructure and just the general brand equity that our products have in those regions. When you look at it from a market perspective, we're seeing strong growth in Turkey, Mexico and emerging Asia on the established brands business. On the generic side, that business -- that growth has been supported by the stabilization of some of our lower-margin ARB products that had been impacted by Indore. And so that stabilization has resulted in growth in our generics business as well.

Got it. And then on the JANZ side, so yes, like this going price regulation seems to be having a pretty material impact on JANZ this year. Yes, like if you can kind of walk through like what -- where do you expect that to go from this side?

Yes. So from a JANZ perspective, in the near term, our legacy portfolio is -- has been subject to just normal price regulations due to government price regulations in Japan. And so our focus really in Japan is continuing to add innovative, durable assets to that portfolio in order to stabilize and return that business to growth because Japan is a key strategic market for us. The Aculys deal that we announced several weeks ago is a good example of that. We added pitolisant and Spydia to that portfolio. When we look at some of the pipeline investments that we've made, we expect anticipated approval on Effexor GAD, Nefecon as well as sotagliflozin. And then if you take a slightly longer-term perspective, the potential of cenerimod and selatogrel also have the potential to really transform and stabilize the region and return the region to growth over time.

Got it. Okay. Okay. That's good. So a lot of different positive upside drivers on the Japan side. I guess -- yes, like -- I mean, China has been particularly strong for you, especially this year, like 9% operational growth, very, very happy to see that. Yes, I think like -- I know you used to talk about this like retail versus nonretail like where the volume is coming from. What's the latest on that? And where are we on the growth of those?

Yes. So our China business delivered 9% operational growth this quarter. And it was really driven by, to your point, our diversified commercial model across multiple channels as well as the fact that our portfolio benefits from brands that have strong demand for proactive patient choice. Just -- and I would also note, however, that we did see some benefit this quarter from just normal customer purchasing patterns, and we do expect that to normalize in Q4. But to give you a flavor of our portfolio, we have over 10,000 customers, and that's spread across e-commerce, retail and the private hospital channel and over 95% of our portfolio has already gone through VBP. So we feel good not only about the commercial team, but our portfolio in China, and we continue to see the opportunity for kind of low to mid-single-digit growth in our China portfolio over time.

Got it. Got it. Yes. Yes. I know that's where you were guiding to as well this year, right? And then -- yes, I mean, it's come out like pretty well. Okay. And then -- so just yes, like going back to the new product contribution. Yes, you have a few different pipeline programs here that are starting to shake out. I think the one that I'm particularly excited about is oral meloxicam, like very, very good data. And like when I compare it to [indiscernible], you guys have way better clinical efficacy, faster onset of action. So like, yes, I'm curious to understand like what is the feedback that you're hearing on that program? And what type of potential does it have?

Yes. And it's still early. We just released data earlier this year, but thank you. I would echo and agree, Ash, that we are really excited about the opportunity in fast-acting meloxicam. We view this as a broad market opportunity, and there's a real need in moderate to severe acute pain for a non-opioid alternative. And our profile, I think, stacks up well to be able to capitalize on that opportunity.

Yes. So any early thoughts on just like pricing on that? And I know you've talked about this before that you're trying to extend the IP of where it can be. But yes, just like ultimately, like what type of shape can it take?

Yes, there's a lot there. So let me take it in pieces. So just number one, on the market dynamics, and Corinne went into this a little bit on our earnings call last week. There are 80 million acute pain cases annually in the U.S. each year. And opioids still make up over 50% of prescriptions despite the risk of dependence and misuse. Additionally, in the market, what we're seeing is we're starting to see a shift, and we're seeing a multimodal approach where generally patients that are being discharged are being prescribed several options to be able to manage their pain. And so we see fast-acting meloxicam playing a critical role in that area. From our perspective, what we're currently targeting is both the outpatient and ambulatory kind of centers. So think of joint replacement bunionectomies and then as well in more of the kind of office procedures, i.e., cosmetics and dental. From a pricing perspective, it's still early. Ultimately, we're going to have to wait for the label. But just to give you a sense of how we're thinking about it, really, we're focused on the value that fast-acting meloxicam can bring. And you highlighted some of the points. But number one, both its rapid onset and its ability to reduce opioid usage are both benefits. But ultimately, we're balancing that with just ensuring broad and affordable access to patients. But we think meloxicam can be a meaningful contributor to our portfolio.

Yes. And then I'm assuming like that is more of a second half '26 launch as well, right? And then I think a couple of other ones that you mentioned. So maybe if you can give me a little bit of a sense like which ones you think might have like an early year contribution like next year versus like sort of later year?

Yes. So you are correct. We are targeting -- I mean, ultimately, it will depend on FDA approval. We anticipate filing fast-acting meloxicam by the end of the year. We are asking for accelerated approval, but it will be sometime kind of during the second half of 2026. In terms of other assets in our portfolio, mentioned octreotide, mentioned Effexor GAD in Japan. We also filed our low-patch estrogen product earlier this quarter. And so we have a number of opportunities as we think about next year from a new product perspective, both in our traditional kind of base generics business as well as some of these more kind of durable 505(b)(2) more innovative assets.

Perfect. Yes. So octreotide, like that was still undergoing the review, right? That's where we are on that. Okay. So that's helpful. So maybe just, I guess, one thing that I wanted to understand is that for some of the other pipeline programs that you have, like for presbyopia, MR-141. So yes, I think it's a pretty good market, but just like kind of a heavy cash pay model. So where you're seeing some of the analogs that have come out like UAT, if you look at it, Yes, just -- does that give you a sense on like where the uptake can be for 141 or any other?

Yes. And I don't want to get into specifics around competitor uptake. What I can share is that we're encouraged by the positive readouts that we've seen in phentolamine, both in terms of dim light disturbances as well as presbyopia. And we think that this asset in these indications can be a meaningful contributor to our overall eye care franchise, which includes Tyrvaya as well as Ryzumvi. If you take a step back and you look at our Phase III readouts to date, it suggests that we have the potential for 3 -- this asset has 3 indications, and it's supported by a favorable safety profile, especially in presbyopia, where we've shown a lowered risk of retinal detachment. And so specifically, just given the broad market, the kind of unmet need as well as the early market adoption given some of these other assets in the market, we think that this could be a meaningful contributor to our portfolio over time. And we are anticipating filing for presbyopia with the FDA by the end of the year.

Great. Okay. And then maybe on selatogrel. So yes, like where you are on the enrollment time line and when can we expect the data?

Yes. So Philippe mentioned this on our earnings call and gave an update on time line. So I won't get into the details. I'll just provide a few of the highlights. We are pleased with the progression that we've seen in selatogrel. We've seen an acceleration in enrollment, and we're kind of on track to enroll about 1,000 patients per month. And so based on that, we're on track to complete enrollment currently targeting towards the end of 2026 for selatogrel.

Got it. Yes. So that's great. So that kind of covers the pipeline question that I had. And then, yes, in terms of where we are on the Indore warning letter if you can give us a sense like what are the remediation steps like what's done, what's remaining? And then there would be like a reinspection, which I'm assuming that you would want to request from the FDA. And yes, just like I'll add this to the mix. It seems like there's a lot of backlog at the FDA may be because of the shutdown. So does that start to impact the time line for the reinspection when you eventually get to that?

Yes. So with respect to Indore, we feel really good about the progress that we've made with respect to remediation. And I would say kind of standing where I am today, we feel like we're largely complete with our remediation efforts. We also recently had a productive and transparent meeting with the FDA, where we not only discussed our remediation plan, but also the plan for reinspection. And ultimately, to your point, we can't control -- ultimately, the timing is up to the FDA on when they come to reinspect. From our perspective, we will be operationally ready for that reinspection in 2026. But also importantly, we've been working on contingency plans by qualifying other sites, adding third-party vendors in order to help derisk and not rely necessarily on the timing for reinspection. And you've seen some of that with the stabilization of our ARV business this quarter.

Yes. Great. Yes. And then yes, the enterprise-wide strategic review. I mean that's a topic very, very big focus for investors, as you can imagine. And so we've heard like some of that from you, but I think like ultimately, what the latest training that kind of like Scott mentioned on the call as well that we will get this in 1Q '26. So yes, I think -- I believe, if I'm not mistaken, I think we introduced it like late last year, this concept. And yes, what I'm trying to understand is like what's the kind of the organizational momentum that's driving that time line? Like why didn't we here sooner on like a specific number, let's say, this year versus you're finally going to get the specific outline of the financials by next year time frame?

Yes. And specifically as it relates to the strategic review, so we initiated that process actually towards the end of the first quarter this year. So it was about 6 months ago. And it really has to do with just given the breadth and extensiveness by which we're going about this, we want to do it in a thoughtful and deliberate way. When you think about what we have done over the past 4 years, we've merged 2 companies. We've divested 3 assets. We've kind of focused on returning the company to growth. And so we really felt like now was the appropriate time to take a look at everything comprehensively and make sure that we're set up for sustainable future growth. What does that mean? Scott went into some of the areas that we're looking into, but we're looking into our commercial infrastructure and new products, our R&D, medical and regulatory activities, our manufacturing and supply chain, including inventory optimization as well as the corporate functions that support that. And ultimately, our objective is that whatever changes we put in deliver credible and sustainable cost savings, and we want to do this work right. And so we should be -- we will be in a position to give that clarity in Q1 along with our full year 2026 measure.

Yes. But this is effectively like a multiyear process. And is it right to think about it like the kind of the order of where there is more room for improvement on the margin side is like commercial, R&D and costs. Is that the right way to think about it?

That's basically our P&L. So without getting into the specifics on kind of margins, that's exactly right. We think there's opportunity in both our supply chain and our manufacturing as well as our commercial infrastructure. Ultimately, the goal is to deliver meaningful cost savings over a multiyear period while also allowing to be able to invest in future growth as well.

Great. Great. Okay. I know you've also just touched on this briefly on the earnings, like redistributing these savings. If you can expand on that, like what effectively -- like what would be the time line? Or is there anything specific that you have in mind in terms of how to distribute those savings back?

We'll be able to provide more clarity in the first quarter, but it really is investments in order to be able to fund our future growth. That includes some of these positive pipeline readouts that we've already had. That includes investments in our innovative pipeline, including selatogrel and cenerimod. But we're being deliberate about it. On a net basis, we still expect to deliver meaningful savings over time, and it's really to set ourselves up to deliver sustainable growth going forward.

Great. Great. Awesome. Just as a reminder for audience in the room, if you have any questions that you want us to cover, feel free to send them to me by the QR code, and I'll take it from here at the end of the session. So just continuing on the capital allocation discussion maybe now. So I guess, yes, I know you've kind of been consistently talking about that this 50-25-25 framework of effectively like BD dividend and share repo. And as you think about where you are in the story, you can be way more heavily on one versus other if there is a need. So as you like look towards 2026, what does that framework look like? Is there anything that is like more pressing of a need as opposed to other?

Yes. We continue to have a balanced approach to capital allocation, as you said. And over a 3- to 5-year time frame, we've talked about allocating about 50-50 between business development and capital return. This year, in 2025, we leaned more heavily into capital return. As I mentioned, we're on track to return over $1 billion via share repurchases and dividends. But it's also important to continue to support the business through development. And I would say it's in 2 areas. Number one, continued regional support, leveraging our OUS infrastructure. The Aculys deal with pitolisant is a great example of that. But we're also looking for opportunities to add durable innovative assets to complement our U.S. business as well.

Got it. Got it. Okay. All right. And then, yes, I mean, I think it's been an interesting year for business development. So I think in a long time, we haven't seen premiums being so low. So it's effectively more biotech seems like are willing to take the strategic exit even at a lower premium. And when you think about that, like does that make any kind of like a tilting your thinking towards that, oh, like this is the right opportunity that if I don't have to pay premiums and particularly for the U.S. assets, we are seeing this more and more than -- I mean, there's obviously an exception of Nxera, but if you keep everything in the rest of the bucket, there seems to be quite a bit of that dynamic happening. So does that influence your thinking in any way?

Yes, you're absolutely right, Ash. It's been a very dynamic market from a business development perspective, especially here in the U.S. And we see that as an opportunity as well. Our focus from a business development strategy, as I mentioned, is overall accelerating our company growth by investing in durable, higher-margin innovative assets that can accelerate our growth. The U.S. is an attractive market right now, especially for commercial and in-market assets. There's a lot of opportunity. And if we find an opportunity at the right valuation and at a reasonable price, there is -- it certainly represents a disciplined use of cash.

Great. Yes. I know you have like in the last few years, I guess, like done more ex-U.S. transactions. Like the feedback that you get from investors, is there more of an appetite for investors that they won't want you to do U.S. deals? Or how is that?

I think it's been a balance of both. About 75% of our business is outside of the U.S. And so we have significant infrastructure there that is easy to leverage. But that being said, it's also really important to continue to support our U.S. business as well, and we see significant opportunity to add these durable higher-margin innovative assets to our U.S. portfolio as well.

Great. And then this recent transaction on Aculys like pitolisant, I mean it's a molecule a lot of investors are familiar with just on the U.S. side, but if you can talk about like what's the opportunity in the Japan market?

Yes. There's a significant unmet need in Japan. Currently, there's no approved therapies. And so we see the opportunity in narcolepsy for both type 1 and type 2, and we're on track. We've already filed pitolisant in one indication, and we're on track to file for the second indication as well. And so we feel very excited about the opportunity there to leverage our existing infrastructure and provide some growth to our Japan business.

Yes. Great. Awesome. So with that, any closing remarks that you want to make, and we can wrap it up.

Yes. Thanks, Ash. Hopefully, you've heard from me today that we're really proud of the progress that we've made. We've been hard at work this year, as Scott mentioned, this has been a year of execution. And so we've been continuing to execute on the business, remain on track to deliver our 2% to 3% operational revenue growth. We've made significant progress on our enterprise-wide review. We anticipate being in a position to disclose the details early next year. We're executing on our pipeline, 5 of 6 positive readouts, and we feel good about the momentum on the new product side that we're building into next year. And we're continuing to make progress on our Indore remediation having had a recent meeting with the FDA. And so when you look at that collectively, I feel really good about the position that we're currently in going into 2026.

Excellent. Thank you so much for joining us.

Thank you for having us again.