Viatris Inc. (NASDAQ:VTRS) Jefferies 2024 Global Healthcare Conference Call June 6, 2024 8:00 AM ET
Company Participants
Scott Smith – Chief Executive Officer
Doretta Mistras – Chief Financial Officer
Philippe Martin – Chief R&D Officer
Conference Call Participants
Glen Santangelo – Jefferies
Glen Santangelo
All right. Well, good morning, everybody. Thank you for joining this early. We’re excited to get Day 3 going to the Jefferies Healthcare Conference. For our next presentation, we’re excited to have Viatris with us here today. For those of you who don’t know me, I’m Glen Santangelo. I cover several sectors at Jefferies, including specialty pharma, animal health and health care information technology.
So as I said, we’re excited to host Viatris. And joining us from the company to my left is Scott Smith, who’s the CEO; to his left, Doretta Mistras, who’s the CFO; and Philippe Martin, all the way on the left, is the Chief R&D Officer. So, thank you all for joining us. And I might add, this is a relatively new management team, not their first companies but obviously, it’s amazing, Scott, how much Viatris has been rebuilt. I mean, you’re now the veteran on the group at 16 months, right?
Scott Smith
I would say, Bill, might be the veteran…
Glen Santangelo
Bill Szablewski.
Scott Smith
For everyone else, yes, it’s me.
Glen Santangelo
So maybe let me just read a quick disclaimer before we start. I just wanted to note that Viatris recently announced several transactions and given our firm’s current restriction, I’ll be refraining from asking direct questions on the deals. So I just need to get that out of the way. But why don’t we get started.
First question, Scott, it’s a high-level question. We just talked about — I think it’s 15, 16 months. I’m not exactly sure how long you’ve been there but it’s relatively new. And I’ll call it in less than 18 months, the company has undergone significant change. The company started by selling Biocon. The company bought Oyster Point and Famy. You’ve now sold your women’s health business. You sold the API business which closed pretty recently. We recently announced the Idorsia deal which we’re going to talk about. You still have one more business to sell which you’ve already announced, right? So I’m just talking about publicly traded things — not publicly, publicly announced situations. So that’s to come. And that’s expected by the middle of the year per your press releases.
So that’s a lot for an analyst like me to digest, right, think about trying to model all those changes. And so why don’t you just maybe spend a minute or 2 walking the investors through the rationale behind all these moves and what you hope to achieve on the backside of all these transactions?
Scott Smith
So thank you very much, Glen and good morning to everybody. You had your little legal language. I have to say as well that just a reminder, we’ll be making forward-looking statements during the course of this. We’re close to the end, obviously, of Q2 and we won’t be discussing Q2 results or any — or updating our guidance during this discussion. So there’s been a lot of changes. And I think what we’ve been doing is we’ve been head down, working hard executing what we outlined in the November ’22 strategic plan on the things that we were going to do to strengthen and simplify the company. And we’ve been doing that and we’ve been executing, I think, very, very well on all of those initiatives.
And when I think about where we are, I couldn’t be happier where the company is today as we sit here in June ’24. We had a very, very strong Q1. We delivered from our financial objectives in a very, very strong way in Q1. So we’re executing the business. While we’re doing that, we’re executing on the divestitures. We have closed now 2 of the 3 announced divestitures. We should close the third within the next month or so, hopefully. And so that’s a very, very important initiative for the company. And we’re executing on that and doing very, very well. We’ve given back so far, this year — if we take a look at what we’ve done already in ’24, we’ve given back to shareholders through dividend and share buybacks. We bought back 250 million shares in Q1 of this year. And we’ll continue to buy back shares this year and next year and going forward which is a very important return to shareholders.
And very importantly, we’ve also acquired some assets for the company which we can build on through our partnership and deal with Idorsia, selatogrel and cenerimod, two products which I think are very, very important for health care. These are focused on areas of very significant unmet medical need in terms of acute MI in one and SLE in the other but also very important for the potential revenue that they could generate for us in the future. We believe that these two assets have the potential to be blockbuster assets, one, of course, in the cardiovascular space; one on the immunology space. And so that was a very important transaction for us. There’s development to do. There’s investment in these products but these two could be game-changing products for the course of what we do in Viatris which is very, very exciting.
And again, I think they’re game-changing assets in terms of what they do therapeutically as well. And so very excited about that and will significantly help drive future revenues if we’re successful in getting them developed and registered and commercialized. Importantly, we’ve also added skill sets. I think as you mentioned, new skill sets to the team that we didn’t necessarily have before, a few of whom are here who have joined this year. Doretta, as the new CFO has come. Philippe Martin, our Head of Research and Development, was appointed that this year. We’ve got April Bloch in the front row there, who most recently was an Amgen running Salesforce there. So we brought in a lot of skill sets that are going to help us as we transition into this phase 2 of our strategic plan.
And then just sort of finally, all of the — what all of this has done is really, in my mind, put the company in a great position for ’25, ’26 and beyond. We really strengthened and streamlined the company over the last 14, 16 months.
Glen Santangelo
Well, thanks. I mean it certainly seems like you’re on the path to strengthen and simplify the organization, maybe pivot a little bit more towards growth. There’s a financial aspect to this and we’ve tried to make the case, at least in our research, about highlighting the significant amount of cash coming in the door. And as I said, it started with Biocon 18 months ago and continued with these asset sales. Obviously, another $2-plus billion of free cash flow last year, some similar type assumption this year. That’s a lot of money sort of coming in the door. And the company is almost being recapitalized here real time. And I think you’ve made some, not aggressive but some very straightforward assumptions with respect to where you see the balance sheet and the leverage. And so how do you think about the benefit of that financial flexibility on a go-forward basis?
Scott Smith
Yes. This is a very, very important point. And not only have we had cash coming in from divestitures but also the free cash flow we get from operations is sector-leading, right? We generate tremendous free cash flows as well. So the combination of those things have allowed us to pay down our debt. We’re line of sight now, especially since we’re doing these last divestitures of what our leverage ratio goal is. And so we can see that very closely in the near term. And all that will allow us then to really start to move forward with our capital allocation plan as part of the second phase of our strategic plan here which is basically what we can do once we get all this done is we can give capital back to shareholders through continuing the dividend, accelerating share buybacks and, importantly, continue to accelerate our business development activities to bring in assets that can fuel further growth.
And we’re going to continue to do that and I think, in a — and hopefully in a smart and disciplined way like we’ve done in the past. And so once we get through all this and a lot of the changes, the divestitures, the streamlining, the free cash flow generation really allows us to have a great platform as we get into ’25 which is sort of a base year. This is a little bit of a transition year as we divest the businesses and take them out of our revenue and move people on. But ’25 will sort of be the first clean base year for us to really go forward off of it. And I think all this stuff is putting the company in a really great position in ’25 and beyond.
Glen Santangelo
We talked a lot about the changes you made at the company. I mean, already been there 3 or 4 months, Philippe, I don’t know, maybe a little bit longer, 5 or 6 months. You also made a change to the Board, right? I don’t know if you want to talk about that real quickly.
Scott Smith
Yes. Very, very pleased to have a new Board member on board. He brings — Dr. Vivaldi brings tremendous skill set and innovative pharma to us, something we didn’t have a lot of on the Board. He’s done a lot of very interesting things, a lot of clinical development. And he can be a voice on the Board that can represent some of the different things that we’re going to need as a company as we move forward in ’25 and beyond. So we’re very, very pleased to have him on Board.
Glen Santangelo
And Doretta, before we move forward on the business development conversation, maybe if you could just quickly summarize the financial implications of kind of all these divestitures. Because, I mean, we made the case, I feel like a year ago, right, when you looked at from Biocon on forward with the announced sort of divestitures and free cash flow and all, sort of aggregated to somewhere around $10 billion in cash coming in the door. And I think the company has said the intent was to take the leverage down to about 3x and then proceed in a way that sort of Scott just described. And could you maybe just give us the current snapshot, I guess, where the balance sheet sits with that free cash flow expected.
Doretta Mistras
Yes. No and thanks, Glen. And even though I’ve only been officially in my seat since March 1, I have had the benefit of knowing the company, working with the company for over 10 years. And so I have a real appreciation for the transition, the moves that the company is — that we’ve made over time and the strength and the position that we’re in today. We’ve been focused since the kind of Upjohn integration and we’ve been able to pay $6.6 billion of debt over the past couple of years, while at the same time, continuing to deliver — pay our dividend, deliver cash to — deliver to shareholders while investing incrementally in the business in terms of business development.
And to your point, Glen, we’re kind of at that tail end of the phase 1. We were able to close our women’s health divestiture at the end of March. We closed kind of API at the end of last month, beginning of this month. And we really have the OTC divestiture that’s left which we’re on track to close midyear. And so when you look at our kind of financial flexibility, post those divestitures, we have great line of sight into achieving that leverage target of kind of approximately 3x. And going forward, this is a business given the diversity that we have, our strong free cash flow generation, that we expect we’ll be able to generate at least $2.3 billion of cash flow every year.
And so going forward, we will have that flexibility to both accelerate our ability to deliver cash to shareholders and make those incremental investments to really accelerate our growth. So we feel really good about the position that we’re in, the execution that we’re done and the position that it puts us on.
Glen Santangelo
And is that leverage ratio in the high 2s, low 3s? Is that sort of the right ZIP code for the company you feel like?
Doretta Mistras
Generally, yes. We feel good about that approximately kind of 2x, 2.8x to 3.2x [ph] kind of range going forward.
Glen Santangelo
All right. Why don’t we shift gears a little bit and talk about some of the recent business development. Philippe, you weren’t here last year when the company did Oyster Point and Famy. And maybe we can just sort of back up and you can talk about those transactions for a little bit and then we’ll sort of segue into the Idorsia deal. Ultimately, Tyrvaya has pretty recognizable asset. I specifically think you guys are targeting me in your advertising because I see a commercial every single night based on the programs I’m watching. But if you could just sort of talk about the rationale behind that transaction, the opportunity and then maybe we’ll segue over to the Idorsia deal.
Philippe Martin
Yes. So as you pointed out, I wasn’t there when this happened but I can tell you a little bit more of what I found since. I think Tyrvaya and Ryzumvi were approved since the transaction. They both represent significant asset in eye care. We also have a pipeline of various number of assets that are currently in Phase III for which we are either enrolling patients or waiting for data to come out. So we’ve built, we believe, a significant pipeline in the eye care business. We have earlier assets in this eye care business that are particularly interesting as well, such as gene therapies that we’re developing for these kinds of treatment. So we are quite excited about that pipeline going forward.
I don’t know if Scott or Doretta want to talk about the DTC in any way?
Scott Smith
No. I mean we — the results — yes, you see it a lot. I think it’s effective. We see some transition in what the script rates look like as we’ve initiated that DTC. I think you want to get into a position where you’ve done it for 6 months or so to fully evaluate. So we’re at that, and we are getting close to that point. So we’re taking a good look at that, evaluating what the return of investment is on that. But to Philippe’s point, we’re committed to the eye care and ophthalmology business. We do have two approved products right now. And I guess there’s probably 4 to 5 other products in the pipeline in the late-stage pipeline. So it’s something that we’re going to continue to launch products over the next 3, 4 years in that area.
Glen Santangelo
Perfect. All right. So let’s shift gears over to the Idorsia deal, right? The company hosted an Analyst Day, is that 2 months ago, now, somewhere around there. And you laid out the case for selatogrel and cenerimod. Maybe if you could just talk for a minute about those two assets sort of where they are in the clinical trials process, a pathway to sort of commercial viability and how you think about that timeline?
Philippe Martin
Yes. So as we’ve said previously, these are two assets that target a very high level of unmet need, one in acute MI, the other one in SLE. Selatogrel — they are both in Phase III. Phase III trials are ongoing. And we — since we’ve acquired these assets from Idorsia, not only we’ve brought about 80 drug developers on board within Viatris that are — had been working on these assets and have the knowledge and the history on these two assets, so that has been done.
In terms of enrollment, we are working to leverage the Viatris infrastructure to speed up the enrollment for these two assets where Viatris has this unique position to be present in pretty much every country in the world. So we can do drug development in pretty much every country in the world which helps us from an enrollment, from a KOL, from a site access standpoint where we think we can go into regions that Idorsia did not necessarily have the knowledge. So we think that we’ll be able to speed up the enrollment for both assets. We anticipate data around the end of the last second half of 2026. And then we’ll take these assets to market, right? So from an overall timeline standpoint, that’s where we stand.
I would say that for selatogrel, if you’re not familiar with it, we’re targeting really that unmet need, that period between the time of MI onset for patients that already had an MI and the first medical intervention. That’s really — there’s really nothing approved there. There’s really nothing for those patients. It’s a very high unmet need. And that’s a critical time in the treatment of MI. That’s when the thrombus forms and that’s when the thrombus is more responsive to antiplatelet treatment like the P2Y12 inhibitor like selatogrel. So targeting the MI at that point is critical and is the highest unmet need in the treatment of MI currently.
Scott Smith
And I don’t think there could be any better company in the world to develop and market a life-saving self-administered medication. So I think we’re in a great position. It could be completely game-changing for patients with acute MI.
Philippe Martin
Yes. And then for cenerimod in SLE, we think we have probably the best asset in development currently. The risk benefit profile that has emerged across that Phase II trial — or Phase II trials, we had multiple Phase II trials, is looking the most competitive out of the existing drug but also out of the drugs and currently in development. We believe that this asset can be given on top of standard of care and prior to more aggressive biologic therapy, if you will. So there’s a very specific spot for this — for cenerimod in SLE and the data completely support that position going forward.
Glen Santangelo
Okay. Thank you for that. So Scott, it sort of sounds like the company continues to be enthusiastic about the recent transactions. But when you sort of put this — taken it all together with the divestitures of some of the noncore assets, I think based on what Doretta just said, right, the company is going to be in a position to be — have its leverage within its target range very quickly here, right? So when you think about sort of the R&D strategy going forward within the context of the company’s capital allocation strategy, should — is it as simple as me sort of thinking about, okay, well, the company has $2 billion, $2.5 billion a year from free cash flow and some number that obviously goes to the dividend, call it, $550 million, $600 million. And so when you take the balance that’s left, that seemingly is what you’re thinking about in terms of additional business development or share repurchase?
Scott Smith
Yes. I think that said, I mean it’s important to note and remember, there’s a very strong base business here, right? We’ve got a strong global footprint. We’ve got a very strong base business. We see a way through the base business to be generating $450 million to $550 million in new product revenue every year going forward and that’s important. And the business development we’re going to do is going to build off that strong base, right? We need to continue to invest in the base. We’ve had very strong geographic positions. And the BD will help us grow revenue off that very strong base. In terms of the capital allocation, you’re exactly right. If we say there’s $2.5 billion free cash flow going forward when we get the leverage ratio in the place that we want it to be. There’s a dividend that we’re going to continue and it gives us an opportunity to accelerate both share buybacks and accelerate business development.
Glen Santangelo
So let’s shift gears to the base business, right, because there’s a number of topics here I want to talk about. First, let’s talk about Generics. This is a business that seems to be getting a lot more attention, not just at your company but up and down at some of your competitors as well. First quarter, strong here, plus 5% sort of year-over-year. Like what do you think is going on with respect to the evolution of this generics market? And what do you think has been sort of driving some of the better results here more relatively speaking?
Doretta Mistras
Yes. So on our Generics business, for us, it really is a global business and we’ve been very happy with the performance there. As you mentioned, Glen, 5% kind of overall growth that we saw in the first quarter. Really, it’s been driven by a couple of factors, specifically in the U.S. We have seen kind of portfolio rationalization, not only within our own portfolio but with the industry generally. And when you couple that with just an increased focus generally on just the reliability of supply, we have seen some increased kind of pricing stability generally in the industry.
And then when you couple that with some of the specific moves, whether it’s portfolio rationalization that I just talked about that we’ve made but also the increased focus that we’ve had on complex and harder to make generics. So whether that’s Wixela, Breyna, we recently launched kind of last year where we’ve seen strong uptake kind of the composition of that, coupled with kind of the strength that we’ve seen in Europe is what gives us confidence.
Glen Santangelo
Doretta, do you believe some of this price stability and portfolio rationalization, do you believe that’s a durable trend, at least for 2024?
Doretta Mistras
We have — I think, just given the appreciation that people have in supply, what we’ve seen — we have seen it to be stable and in line with the industry.
Glen Santangelo
Okay. Perfect. Can we just shift to brands. I mean that was — revenue was flat in the first quarter. I’m just sort of curious, I’m not sure who wants to answer but how do you guys think about that business in the sort of near to inter-medium-term sort of outlook?
Doretta Mistras
Yes. We continue to see an evolution in our branded business. The legacy kind of Upjohn business has been relatively stable. And in some regions like Europe and emerging markets, we’ve seen growth. Part of that had been offset by some dynamics that we saw in North America in the first quarter. But in the U.S., we’ve seen strong growth in Yupelri. Philippe talked about that Tyrvaya and Ryzumvi recent launch. And really, our focus on the branded side is to continue to migrate the portfolio, invest in our — in more innovative durable assets that have the potential to really accelerate the revenue growth of that business over time.
Glen Santangelo
All right. We’ve got 2 minutes. I got about 3 or 4 more questions. So let’s go really fast. Let’s talk about sort of the pipeline. You’ve talked about $450 million to $550 million of sales coming from new products. Can you sort of give us some of the highlights coming out of that pipeline and what you’re most excited about?
Philippe Martin
Yes. So I think the way I look at it personally is there’s — it’s really the breadth of that pipeline that is of particular interest. We have over 25 novel products that we are developing. We have over 50 complex injectable in our pipeline. 15 of them are under regulatory review, approximately 15 of them under regulatory review and about 10 of them are first-to-market opportunities. So we have — that pipeline is what gives us confidence in our ability to deliver that $450 million to $550 million on a regular basis.
If you ask me to single out a couple of assets, I can tell you that, for instance, our meloxicam that we are working on is of particular interest to us. We think we have an opportunity to significantly differentiate ourselves with this asset. The eye care pipeline is of significant interest as well with a number of Phase III trials ongoing and obviously selatogrel and cenerimod currently are also quite interesting. But it’s really that — and then our GLP-1 pipeline, you should not forget, is quite interesting as well, right? So I think it’s that these multiple opportunities we have ahead of us that are of particular interest to me, right?
Glen Santangelo
Doretta maybe just let’s finish up with a couple of financial questions. When we go back to the first quarter, you described the first quarter as strong. However, as sort of when we look at revenue and EBITDA in the first quarter, it sort of came in a little bit below where the Street had it bottled. Now, I suspect that has to do with divestitures and sort of assets sort of coming out of the mix that may be confusing things. And then when I look at the guidance, right, you essentially lower the revenue and EBITDA guidance for the year but I think that was very specifically for the announced divestitures. And so in a sense, you essentially maintained your guidance. Could you sort of walk us through 1Q and the guidance, if anything changed, what’s going a little bit better and maybe what’s not going as well as you might have thought?
Doretta Mistras
Yes. No. I mean the first quarter performed — as we said, we felt good about the first quarter. It was in line with our expectations. To your point, Glen, when we started the year, we said there’s going to be a series of divestitures that are closing over the course of the year. Once they close, we will be in a position to both reflect and delineate what the impact of those divestitures are and the impact to the full year. So our first quarter, we closed women’s health. That resulted in a $75 million kind of — that divestiture was $75 million of revenue, about $25 million of EBITDA. On the back of that, we also adjusted our guidance with the closing of that divestiture and the anticipated kind of imminent closing of API which also occurred.
So for the full year, to your point, we did adjust our guidance even though from a business operational perspective, we see no change to our outlook for the year. We adjusted our guidance for about $270 million of revenue and $80 million of EBITDA. And so as we stand here today, we have OTC that’s left outstanding. So that’s the one incremental divestiture that once we anticipate that closing, we will adjust for that over the course of the year.
Glen Santangelo
Scott. We got triple zeroes on the clock. So I want to give you the last word. Anything you will leave the investors with here today?
Scott Smith
Yes. So probably the question that I get asked the most is, given the valuation of the company, what are people missing? What’s underappreciated about the company, right? And I could not be happier on where the company is today and the strength that we have and what we’ve executed over the last 14, 16 months. We have a very strong global footprint. We’re commercializing in 160 countries around the world. Every year, we deliver medicine to over 1 billion patients worldwide which gives us a tremendous opportunity to affect human health care in a very positive way and an amazing footprint to leverage off of. We’ve got a very strong balance sheet. We have sector-leading free cash flows which allow us to really be able to return to shareholders and invest in business development as we go forward.
And I think through the people we brought in and some of the changes we’ve made to the company, we have a real opportunity to identify, acquire, develop and commercialize new assets, innovative sticky revenue growth that can really help us off the strong base business we have, really change the trajectory of our revenue growth over the next 5 years.
Glen Santangelo
Scott, Doretta and Philippe, thank you very much and Bill Szablewski in the front row, hats of the Investor Relations effort for the company. So if you have any questions, he’s your man or give us a call and we’re happy to try to help out where we can. All right, thank you very much everybody [ph].
Question-and-Answer Session
End of Q&A
