Q1 2021 Viatris Inc Earnings Call
Ladies and gentlemen, this is the operator todays conference is scheduled to begin momentarily until that time your lines will again be placed on music hold thank you for your patience.
[music].
Good morning, My name is Lori and I'll be your conference operator today at this time I would like to welcome everyone to the Villa trusts first quarter 2021 earnings call and webcast. All participant lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be.
A question and answer session, if you'd like to ask a question at that time. Please press star one on your Touchtone phone in the interest of time, we ask that you. Please limit yourself to one question. If you need to ask further questions. You may reenter the queue. Lastly, if you should need operator assistance. Please press star zero.
Thank you I will now turn the call over to Melissa <unk> head of Global Investor Relations. Please go ahead.
Thank you Lori good morning, everyone. Welcome to day actresses first quarter 2021 earnings conference call. Joining me on this call are the interesting Chief Executive Officer, Michael Gettler, President Rajiv Malik Chief Financial Officer, Sanjeev, NOLA, Chief Accounting Officer on controller, Paul Campbell.
And bill so blue ski head of capital markets well some of US are in remote locations I would ask for your patience should we encounter any technical difficulties.
During today's call, we'll be making forward looking statements on a number of matters, including our financial guidance for 2021. These forward looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections. Please refer to the earnings release that we furnished to the SEC on form 8-K earlier today.
For a fuller explanation of those risks and uncertainties and the limits applicable to forward looking statements. We also posted supplemental slides on our website at Investor day, the interest dotcom Beatrice routinely posts information that may be important to investors on this website.
And we use this website address as a means of disclosing material information to the public in a broad non exclusionary manner for purposes of the SEC's regulation fair disclosure.
We also will be referring to certain non-GAAP financial measures, including free cash flow and adjusted EBITDA, We will reference such measures in order to supplement your understanding and assessment of our first quarter 2021 financial results and financial guidance for 2021.
Non-GAAP measures should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP. The most directly comparable GAAP measures as well as reconciliations of the non-GAAP measures to those GAAP measures are available in our first quarter 2021 earnings release and supplemental earnings slides as well as India.
Yeah.
Industrial sector. In addition solely to supplement your understanding and assessment of our first quarter 2021 financial performance. We have provided in our earnings release and supplemental slide and we will discuss during today's call certain financial measures relating to the first quarter of 2020, including combined result of legacy Mylan.
And the Upjohn business.
With indicated adjustment, which do not reflect pro forma results in accordance with ASC eight O five or article 11 of regulation S X such measures do not reflect the effect of any purchase accounting adjustments.
Let me also remind you that the information discussed during this call except for the participants' questions is the property of the interests and cannot be recorded or rebroadcast without beatrice's expressed written permission.
An archived copy of today's call will be available on our website and will remain available for a limited time with that I'd like to turn the call over to Michael.
Thank you Melissa and good morning, and thanks for joining us for our first quarterly earnings call as the interest on.
I am pleased to say that we're off to a strong start with high quality first quarter results.
The board.
And this strong performance comes at a time when the COVID-19 global pandemic continues to evolve taking different courses across the many geographies in which we introduced operates.
We're grateful to our colleagues around the world, who continue to put patients first ensuring stable access to needed medicines, particularly in India on parts of Latin America, where significant resurgence has impacted our teams there.
The health and safety of our colleagues and their families is our highest priority.
And we're supporting the continually evolving situations around the globe with urgency with care and with compassion.
Ah patients we are working diligently to bring the medicines, they need including ramping up the production of antiviral medicines when deaths each year in India, a closely partnering with the government there to ensure access to this critical medicine.
Back when we launched <unk> in November 2020, our vision was to build a new kind of health care Company day.
<unk> by our global operating platform with significant scale and commercial capabilities and expertise across science manufacturing legal and IP.
Yeah.
Our broad and diverse product portfolio that includes brands complex generics and Biosimilars and generics and is agnostic to therapeutic categories dosage forms and delivery mechanisms.
And the strong R&D platform that is well positioned to deliver a broad pipeline of complex novel products, including late stage Biosimilar programs.
Our strong first quarter results validate the success of a diversified and robust business there.
Can absorb headwinds in any individual part of the business.
While seizing market opportunities, where and when they present themselves.
In the first quarter, we reported net sales of $4 4 billion U S dollars.
Adjusted EBITDA of $1 6 billion U S dollars.
And free cash flow of $799 million, you guys start ups, which were above our original expectations.
These results reflect the strength of our business.
And were also partially helped by favorable timing of some revenue and expenses and by favorable FX.
Now let me give you some key highlights for the quarter.
The strength of our business was driven by solid performance across all four of our commercial segments developed markets greater China emerging market and gems, which is Japan, Australia and his EBIT.
Excluding the effects of Eloise on loss of exclusivity of Lyrica in Japan incentive breaks in Japan. This quarter, we would have reported 3% growth on actual exchange rate basis, or 2% decline on a constant currency basis as compared to the combined and adjusted quarter, One 2020 results.
Lyrica, Japan is our last major endo and.
And we see no further significant eloise impacting our business in the coming years.
This quarter, we generated $163 million in new product revenue to partially offset inherent product erosion and we're on track to achieve 690 million U S dollars in new product revenue for the full year.
We're continuing to shift to more differentiated and sustainable portfolio with strong growth in complex generics and Biosimilars and growth of our recently acquired thrombosis franchise in Europe.
Regarding our pipeline this quarter, we received notable approvals in Europe for instance, as part and be able to see them up.
And we've made significant progress on many key pipeline projects, which Rajiv will discuss later in more detail.
With regard to the integration of our two legacy companies. We are pleased to say our plans are progressing smoothly.
This quarter I also had the opportunity to meet remotely with hundreds of colleagues around the world.
And I continue to be impressed with the talent the passion and the engagement that we have would be interest we are well on our way to forming as one team and making a performance driven highly engaging and inclusive culture a reality.
And for our shareholders, we are delivering our commitments the vs.
Interest Board has declared an inaugural quarterly dividend of 11 cents a share consistent with 25% of the midpoint of the 2021 full year free cash flow guidance.
We are on track to achieve $500 million on synergies this year.
We're on plan and continue to target $6 5 billion in debt repayment by 2023.
And we are reporting our first quarter results with the enhanced disclosures and transparency that we previously committed to.
Yeah.
We're also aware of the interest by our shareholders and the sustainability of our business and our commitment to corporate social responsibility and sustainability is fundamental to our mission and embedded in everything we do.
And I'm pleased to share that we published our inaugural sustainability report is the interest.
More details on that can be found on our website, including a deeper look at via choices raw in the important fight against COVID-19.
In clothing.
We're proud to report a very strong and high quality first quarter.
We're seeing underlying strength in our business.
And we are reaffirming our full year financial guidance for 2021, which incorporates the known potential headwinds and <unk> for the remainder of the year.
At the conclusion of the second quarter, we will be reassessing, whether to update guidance for the full year and while we're not giving long term guidance at this time.
We continue to feel strongly that 2021 is our trough year as defined by the midpoint of our guidance of $6 2 billion U S dollars adjusted EBITDA.
And we believe that that $6 2 billion dollar is a true floor all business not just for this year, but also for future years.
Now with that let me turn it over to Rajiv to give you more details about our segment results pipeline progress and restructuring and integration efforts Rajiv.
Okay.
Thank you Michael and good morning, everyone.
I would like to say Hello to our employees around the world and thank them for all of their hard work and commitment to battery.
I would especially like to recognize my colleagues and friends in India and express my deepest sympathies to everyone, who is enduring a very difficult situation as the pandemic resulted in the parts of the water.
Earlier this year, we shared with you our approach to execute on 'twenty one plan.
Minimizing the BSP since erosion executing the new launches and to integrate and synergize.
I'm very pleased to inform you that we are off to a great stock.
Ill be making comparisons to combined alloy adjusted quarter 120 commodity desserts on a constant currency basis as well as comparison versus our expectations as included in our full year guidance.
Beginning on slide 10.
Our business performed better than expectations.
But was down 2% in this quarter as compared to combined and we are just at quarter, one could equal leads us.
Our branch business performed better than our expectations driven by products, such as Epipen Amitiza Lipitor viagra.
Flex generics and Biosimilar business grew by 27% largely driven by Biosimilars.
And our global generics business performed in line with our expectations.
We delivered $163 million for the new launches and remain on track to meet our 690 million target for the year.
We continue to expect non life base business erosion of <unk> four per cent for the year.
Our developed market segment performed better than our expectations this quarter.
Our brand portfolio performance was driven by higher Epipen sales.
In the U S largely due to recognition related buying your battery or force Nebulize Lama performed in line with our expectations and we are well positioned to expand this market.
Our European brand business was helped by Creon Dymista as low as our promoted portfolio.
Right from Aspen, highlighting our ability to effectively manage our portfolio of established brands.
Our complex generics and Biosimilar portfolio grew by 27% in developed markets largely driven by backflip Grafton.
So as map as a day living bye bye.
Biosimilars.
Our generics portfolio performed in line with our expectations once adjusted for COVID-19 surge by.
In the first quarter of 2020, which accounts for half of the year over year decline.
I would like to provide a bit more color around our U S. Generics business, which is approximately 11 per picked up our total business now.
Our current generics portfolio is now a combination of diversified product forms including extended release oral solids Injectables charts, our most and topical.
We implemented our disciplined approach to resource allocation and portfolio management, including the rationalization of negative margin targets.
We believe debt extending this approach to our overall business will help us manage our base business more effectively.
Looking ahead, we have assumed increased competition for a complex product like Xu Lei with seller Terminator ticket. In addition to the loss of exclusivity of performance.
Moving to the next slide.
Our emerging markets segment performed in line with expectations.
Our business was affected by the negative impact of COVID-19 on our lifestyle brands as well as a one time impact of change in go to market strategy in Vietnam.
We see our complex generics and Biosimilar business growing over the year driven by a number of new launches in multiple countries.
Our generics business was roughly flat and in line with expectations.
Our Gen segment grew 14% as we adjusted for one time Lyrica Celebrex alloys.
Our brand portfolio in Japan had a strong performance driven by Amitiza lipitor and creon.
<unk> is performing to our expectations.
We also launched the first actually move that Biosimilar in Japan.
Our generics business performed strongly.
Now to slide 14, our greater China segment performed strongly and grew by 9%.
This was primarily driven by 30% growth of our retail channel.
Better than expected hospital channel performance as well as the benefits from the COVID-19 recovery.
On a retail channel now represents 40% of our China business.
We have assumed the full impact of EVP for 'twenty, one as well as media implementation of ERP in certain regions.
As already mentioned on our guidance call.
<unk> of our China business will be determined by the timing of the full implementation of ERP.
We see continued momentum and we look forward to investing in our pipeline in this region.
25 products, we identified for greater China, we are well positioned to file six regulatory submissions in 'twenty one.
Now switching to providing more details around the impact of the COVID-19.
India is currently going through its worst pandemic fees and we are doing everything possible to protect the health and safety of our employees in India.
We're also working closely with the health authorities to maintain supply of <unk>.
We have a broad diverse and resilient global manufacturing and supply chain footprint.
We are not depending on any one country on a site.
Even in India on manufacturing footprint is spread over five different states, which mitigates the risk of disruption in any given part of the country.
Its reactors over reliance on India as a supply hub has relatively calm down as compared to legacy Mylan.
The diversity of our network helped us achieve an approximate approximately 95% customer service level across the globe last year.
We are continuously monitoring our inventories and currently are in a strong position from a supply point of view to meet our customer needs across the globe.
I would now like to share some key updates on our pipeline shared with you on Investor day.
I'll start with our Biosimilar franchise on slide 17.
Our T <unk> insulin blocking for interchange ability is on track for July FDA Gordy.
Our incident as part is also tracking towards its FDA cold day in July and is expected to include interchange ability.
We are making steady progress for our Biosimilar to Botox and recently submitted our briefing package to FDA for agreement on Phase III.
We have just received top line results for our clinical phase III study for our Biosimilar to Eylea.
And I'm pleased to report that we met the primary endpoint for this study.
We received European approval for the Biosimilar to Avastin and insulin at spot.
While we no longer have any open questions with FDA, our U S approval of Biosimilar to Avastin has been impacted by the delay in a pre approval inspection due to COVID-19 travel restrictions.
The next slide shows on a complex product pipeline.
For our letter.
Once monthly we have dosed more than 900 patients and are on track for our submission at the end of 2022.
We also achieved positive results in phase two trial for Meloxicam, which was designed as a proof of concept study for a quicker onset of acute pain relief as an alternative to opioids.
We are excited that we have advanced a new low dose formulation of <unk>, which we formally called <unk> 100.
We are expecting this to be one of the smallest low dose package index cloth and on a.
Phase three clinical trial has been initiated.
The next slide shows our continued progress in our complex injectable pipeline.
Are you tight and Mod injection clinical study is well underway to support our U S submission.
Clinical study, Florida, you things are on track for quarter two 2021.
We are also in the process of initiating clinical studies for Amphotericin B previously called M on 118.
I'll finish with an update on our integration and restructuring program.
As you can see on slide 21, we remain on track to realize $500 million of cost synergies this year.
Our workforce actions are well underway, including a recently announced what entry retirement program in Japan, which is on schedule.
As we announced earlier this year the rationalization of 13 manufacturing sites.
Have been identified and closure or divestiture activities are in process.
We are working very closely with regulators and our customers do a wide any supply disruptions and on building appropriate safety stocks.
All of these actions underway, we remain confident that we will exceed our target of $1 billion in cumulative cost savings by 2023.
Let me now turn the call over to Sandeep. Thank you.
Thank you and good morning, everyone.
As Michael and Rajiv mentioned, we're off to a strong start and I'll walk you through the key drivers and how we see certain trends shaping up for the rest of the year.
As you will see in coming slides I'll make comparison to prior year Mylan Standalone combined adjusted as well as our 2021 expectations.
On slide 23, we've summarized our results versus prior year on a reported basis, which reflect mylan standalone results for quarter one 2020.
Adjusted gross margin and adjusted EBITDA benefited from contributions of Upjohn branded products and the strength of China, which was driven by stable sales in hospital business and retail growth, including COVID-19 recovery.
In total these factors led to a significant increase in financial strength, including profitability and cash flow generation.
Moving to slide 24.
I have highlighted the drivers in the quarter compared to combined adjusted Q1 2020 results.
As a reminder.
Discharged reflect the sum of Mylan Standalone results and Upjohn carve out financials for the period of January one 2020 to March 31st 2020.
Adjusted for certain transaction related items, including divested products in connection with combination.
A few key comments on this chart.
Beginning with that Louise as Rajeev mentioned genetic penetration is tracking in line with our expectation and year on year on record and Celebrex in Japan are down by $206 million.
COVID-19 continues to negatively impact on business as a result of low volumes across many of our key markets, particularly Europe, where we saw pre COVID-19 surge buying last year and to a lesser extent in the U S.
In China, we saw favorable impacts due to COVID-19 with company.
While we're still anticipating a gradual recovery beginning in the second half the recovery is likely to be slower across some emerging markets.
Base business erosion was driven by normal price erosion and volume declines in U S Europe and emerging markets.
And for rest of the year, we still for cash erosion of box, 3% to 4%.
We're off to a good start with new product revenue was primarily driven by European thrombosis business, which grew versus prior year and additional uptick on complex generics and biosimilars.
Lastly.
With respect to foreign exchange, it's important to remember approximately 70% of our business is outside the U S.
In the quarter.
The weaker dollars relative to key currencies, such as Euro Chinese RMB.
Provided approximately 5% tailwind compared to our combined adjusted 2020 revenue results.
Moving forward.
Great remains at the current level, we expect a continued tailwind from foreign exchange consistent with full year guidance, but not to the levels realized in quarter one.
Moving to slide 25, which bridges adjusted EBITDA the year on year margin is declining because of item listed on the bridge as you will recall from our 2021 financial guidance Bridge, we were impacted by lower depreciation and amortization associated with Pfizer, TSV, which negatively impacts EBITDA.
Turning to slide 26.
Free cash flow came in above our expectations.
Driven by strong operating performance benefits from working capital improvement initiatives and timing of one time cost and Capex.
For the quarter onetime cash costs were approximately 340 million primarily related to integration cost and TSA startup for quarter. Two we expect both to increase over Q1 levels.
With respect to cash flow phasing, we expect Q2 cash flow to be significantly reduced versus Q1 and expect it to be our lowest for the year.
The decline is driven by expected increases in one time cash cost.
Trust payments, which are cash semiannual in Q2, and Q4, an increase in capital expenditure.
Turning to our balance sheet strong cash flow allowed us to pay down approximately $1 billion in short term debt. We anticipate that Q2 short term debt will increase as a result of June maturity of 225 billion final payment of European Chombo, CIS business and the quarterly dividend.
From a capital deployment standpoint, we declared our first quarterly dividend, which is consistent with our guidance framework.
We do not expect the 11 cents per share amount to change for subsequent quarters in 2021, but all future dividend declarations are subject to board approval.
Overall, we remain on track with our 2021 free cash flow guidance of two to $2 3 billion.
Moving to slide 20, as you heard from Michael earlier, we are reaffirming our full year 2021 guidance ranges based on our strong start we saw in Q1 balanced by expected headwinds for the remainder of the year.
In terms of revenue phasing, we expect Q2, 2021 to be roughly in line with Q1 2021 due to modest recovery from COVID-19 in Europe.
Strong performance in China, offset by expected negative impact of a low competition and more normalized epipen sales.
Going forward these.
These items would have pressured our gross margin to be more in line with our guidance range.
As we look out to Q2, we expect SG&A to be in line with Q1 on an absolute basis on.
On a full year basis, we expect SG&A to be within our previously indicated range of 25 to 21, 5%.
Given these dynamics it is likely that Q1 will be the highest adjusted EBITDA quarter overall, I'm really pleased with the execution in this quarter and the commitment we delivered against including the initiation of dividend.
With that let me open the call to Q&A operator.
Thank you at this time, if you'd like to ask a question. Please press star one on your Touchtone phone if you wish to remove yourself from the queue. You may do so by pressing the pound key we remind you to please pick up your handset and please limit yourself to one question. Our first question comes from the line of Elliot Wilbur of Raymond James.
Thanks. Good morning, first question will be for Shin said, she could you just maybe talk a little bit more in detail about some of the working capital initiatives that you've undertaken how they impacted first quarter results and then maybe just a little bit of color commentary on how working capital trends.
<unk> performed in the quarter versus your expectation and then just a quick clarification.
Like $315 million in restructuring costs in the deck and I think the guidance was originally for $450 million for the full year.
Want to make sure that the remaining cash flow drag related to restructuring and there's only $135 million for the balance of the year not sure. If there's other items debt should be thinking about but just some clarification on that item. Thanks.
Elliot Thank you for your question.
There are a couple of questions index. So let me take them one by one so first on fall very pleased with the cash flow generation in the business split.
Specifically talking about net working capital there are two things going on one is on the positive side, which is the initiative. We are taking as a company when you bring two companies together managing ours.
Receivables payables and inventory so that created an upside of roughly about $65 million in this quarter and thats going to continue to be we continue to build on that so that's clearly a positive.
On other side on the net working capital from operations, we did live but have a timing benefit we were able to accelerate certain collections in Europe.
In this quarter, which actually helped us and will have an impact on the second quarter, but overall, we're very pleased and I expect the net working capital improvement initiatives to continue to help us for rest of the year.
Coming to the kind of phasing as I've mentioned about.
On the on the.
On the cash flow second quarter, as I said would be significantly lower.
Net working capital requirement for second quarter will go up Elliot because a couple of things going on.
Particularly about our our debt interest and debt debt, it's about $200 million will be paying in second quarter, which is only paid in second and fourth quarter. So they did go up quarter to quarter variation that is happening, but we are very pleased with debt.
With regard to your second question is about $350 million.
As we have in our disclosures is combination of two items one is the restructuring.
As related to the Unabsorbed overhead of the 13 plants that we've gotten probably announced including Morgan them and then the second part of that is about this evidence that's across.
Across the board based on the initiatives that we've taken on the synergy part so that's in line with our expectation and that the comment that he made at about $400 million that was on the one time cost as part of the $1 $5 billion. So all in line what you see in this quarter is in line with one 5 billion.
And then it is combination of two items, which is the severance cost on the restructuring cost we saw part of the $1 $5 billion. If I can just add one thing Ali.
The $3 50 is expense non cash so when we're talking about the cash impact of the restructuring.
Phases over time.
The charge in the quarter.
From an expense perspective is that the $300 million number here right.
Thanks, Paul.
Operator next question.
Your next question comes from the line of <unk> of Evercore.
Hi, Thanks, so much for taking my question I just wanted to start by saying this has to be the first time I've seen this level of visibility into your product revenue. So.
Appreciate that very much I had two quick ones. If I may 1st the China retail business is up 30% year over year and I'm just trying to understand is that all cash pay or could pair. If there's pairs involved could they find a way to come back and adding some new price corrections down the road just trying to figure out how durable the trends are.
Lipitor and Norvasc, because really what I'm getting at and one for Rajeev as well Rajeev on Botox Biosimilar I saw that you guys are submitting a briefing package does that mean that you adequately validated and characterized and figured out all the process scale up is all of that done at this point. Thank you very much alright, well, let me let me. Thank you for your comment on.
The transparency that's exactly what we tried to do and we continue to take your feedback on that and Rajiv If you could answer both the China and the Botox question on Palo on.
Thank you first of all we are very pleased with our.
Performance in China, as you see them continuing to go golf strength to strength, we also.
The better than expected menu makeup our hospital business. So there are two things playing into this now to your specific question predominantly retail is cash.
As a little bit of <unk>.
Employer base.
Hello.
GAAP.
When you have that healthcare support that's a little bit I'll still.
Appears on an award I can give you exactly what percentages of that but it's predominantly the cash base.
Question on the Botox.
Our program is.
Moving on them.
<unk> well aligned line.
Aligned with our partner event, we had laid out we had gone and met FDA couple of thing we understand that extract Asia, we have come to a point, where we just seeking the agreement on basically what the possibility as low as a clinical program. So we have enough debt on now to go back on share with them before we move on.
So we added a critical stage of this and obviously I'm very optimistic about this program as we go along.
Okay.
Operator next question please.
Your next question comes from the line of Nathan Rich of Goldman Sachs.
Hi, good morning, Thanks for the questions.
I had two on the competitive dynamics and how they're playing out relative to your expectations.
First it looks like on the sales walk the base business erosion of $111 million in the quarter, that's running kind of well below I think the range that you anticipated for the year I know that the impact may build over the course of the year, but I'd be curious just to get your comments on on how that flows through the P&L.
Then the second question was related to the Lyrica headwind.
It looks like $206 million in the quarter.
On that I think if we annualized that would be above the range.
A range that you gave at the back at the Analyst Day I know it includes Celebrex now so any additional color you could provide there on in terms of what youre seeing would be helpful. Thank you.
Sure. Thank you Nader and I think we're going to get those questions to Rajiv and Rajiv I think Lyrica, Japan, specifically on <unk>, specifically I think the 206 is a combination of political and.
Second of all the steps that it cost 140 of that is <unk> about 60, 65 up debt itself Celecoxib.
I actually Nathan bullets are in line.
Are you referring to the.
Guidance that we gave at the beginning of the year debt only had lytic identified debt and then now we are capturing bolt.
Both are tracking in line with what we had assumed in our guidance as you pointed out.
Okay.
I was wondering what all on a base business just offer them on the comment on the businesses.
Underlying business net.
Net debt you across the geographies, whether I start with the China, Let's talk about the developed markets North America Europe is strong the underlying business is strong the competitive dynamics on exactly what we had and assume we see that Stan I think debt.
Our approach we had adopted to manage this pit is a key and our focus will be to optimize leverage and minimize the beach area and so as we go along I think it's going to further evolve and we'll keep you posted on debt. Thank you Rajiv and I think I mean, what we said from the beginning and we want to build a new kind of health care companies and that's diversified and robust than we were.
Or do you see this playing out in this quarter with strength in <unk>.
All four of our regions on a four of our commercial segments as well as all three of our categories.
Generics complex generics and Biosimilars all brands.
So very pleased to see that.
Operator next question please.
Next question comes from the line of Chris Schott with J P. Morgan.
Oh, great. Thanks for the questions on Echo <unk> comments earlier about the disclosure as being very very helpful. Here.
Just for me first one on China, any additional clarity or certainty on your P and the impact of implemented I know, there's some still uncertainty about that the last update I just want to see if there's been any additional learnings. Since then and then the second question I had was just on the developed market complex generics and Biosimilars and I guess, just trying to get my.
A little bit of a flavor here of any products in particular that are particularly driving the growth that we're seeing and is this level of growth reasonable going forward. Because I think you are seeing some competitors. So some of those products as we think about the next few quarters. So just a little bit more color about how to think about that that line item evolving as the year progresses. Thanks. So much for any of you want to start with both of these.
So first blood on China, Yes ERP.
Yeah.
Given the nature of the implementation, Chris difficult to give us more visibility as we learned as it was evolving the USB was announced it was announced that it's going to be implemented on the 11th city. It is obviously little routines Shandong provision has just implemented in AR.
Recently, we assume we would assume debt as we go into the year as we had predicted.
Five or six other provinces will implemented perhaps not 11% so that hasn't changed so we have been.
Watching it closely and given the nature of its implementation is debt.
Difficult to give you exactly how it's going to evolve and what timing, but one thing. We know we will keep you informed and bottom up our China trough, our China business will depend upon the extent and timing of the implementation of the day.
The ERP.
Now the second question is.
It was about the complex.
And.
Biosimilars category that relative market.
The Biosimilars are key contributors to this growth driven by the launch of the last year excuse me year over year trusses a map.
Backfill Grafton Julio.
Growing and Julio going growing and especially in the Germany and launching these biosimilars also between Australia and Canada on many of these European markets. So that's helpful.
I would say the key driver behind this growth.
On this segment.
Mhm.
Next question please.
Your next question comes from the line of <unk> Prasad of Barclays.
Hi, good morning on congratulations on the quarter.
Couple of multipart questions on global generic side, so as I looked at Delek market generates being down 14% can you kind of call out the pricing impact on especially North America, and it's related in Florida and CTO.
And also as we look at Colgate research on the on India, and you called out debt your supply chain is.
Dealing from this but can you comment on any impact on supply chain from your partner back on was based on Bangalore. That's one of the most impact of cities. Thank you.
Thank you so on the global generics and specific to the U S. Generics question I'll ask Rajiv to answer, but just because he just to point out again that this is 11% of our overall business.
<unk>.
One of the strength, we have is that we have such a diversified portfolio now.
Our products, but I think what else is fairing very well within the category Rajeev. If you can comment on that day, absolutely do you use as Michael said, 11% of our total business diversified mix.
<unk>, even within that genetic sequence at select or.
Our standard lease that based on that mentioned lot of injectable lot of batches.
Top because overall pricing trends are very similar to what we had anticipated mid single digit if you if I corrected for Colgate because if you remember <unk> last year Q1 was when the COVID-19.
Factored in there was some lost 15 this surge buying on some of the FERC granted.
<unk> U S genetics out.
Clearly at one 4% decline year over year very much in line, but we had expected.
No.
Especially from our U S pawn business point of view.
We have healthy inventories in that channel.
<unk> customer service levels and believe our diversified portfolio on new launches and steady supply is being appreciated by the customer. So we feel very good about this 11% part of the business also now coming back to India.
Last year it was not no different five five months almost apology if you remember yellow.
Fleet locked on for Mark.
On we're almost up to July or August.
There were four or five months of complete Lockdown, we talked about $95, 96% of our customer service level on what the figure.
Especially regarding to black on we are working very closely with back on and at this point of time, where we stand I don't see any issue if I look.
The forward look.
We are keeping our eyes on the ground, we are staying close with our customers. We are working closely with the regulators, we're trying everything to take care of our employees, especially the frontline in flight.
Yes, <unk> is important and at the same point of time, what Mylan legacy the way Mylan legacy was dependent on India. I think are dependent as a new company that is very different now on it yet so I think all in all it is.
Stuff.
Yeah, let me over there, but we feel good where we stand from supply point of view on it.
Let me underline that I think the.
The strength of our supply chain the diversity of our supply chain is very robust and so that gives us a lot of confidence I think as a general comment on COVID-19.
Obviously still ongoing we're still very much in the midst of it.
What we do see is from a demand perspective kind of a divergence.
In the countries, where some countries are clearly improving in China. For example, it's been actually a headwind because we compare this quarter to a very low first quarter last year because of COVID-19 started their first we see other regions slowly recovering mostly due to vaccinations and then we see countries getting worse like India or Latin America. So I think what we can say overall at this point.
We're reaffirming our guidance, we assume a gradual recovery in the second quarter and we're very confident debt.
The diversity and the robustness that we have both on the commercial side as well as the supply side.
Shows the strength of our model.
Next question please.
Your next question comes from the line of Gregg Gilbert on for the security of the journey.
Thanks, Good day folks just making sure that your comments about potentially updating guidance next quarter comes from a position of strength just in case, there's any investor confusion about why you decided to say it that way and then Michael I think it's a strategic question, perhaps I think it's pretty clear to investors why companies like American <unk>.
<unk> and others decided to divest or separate their legacy businesses to reduce complexity to focus on innovative activities et cetera, but how would you describe to investors the value proposition of our stories like yours.
Maybe some angles of the street may not appreciate from your.
Perspective, as a longtime operator within one of these companies not sort of just we need to beat estimates and maybe get a value re rate debt what are some of those real value proposition for me.
On an operational point of view that you sense folks.
Don't understand thank you.
Okay, Greg Greg Thanks for those questions, let me start with the guidance question on the.
For the second quarter look I think it's very clear that we are very very pleased with our quarter. One results income from a position of strength, there's no other way to say it.
I think the results show and really validate as I've said multiple times, the diversified and robust business model that we have that can absorb individual headwinds in one part of the business, but really jumping and seizing on opportunities where and when we see them and I think you saw us do that in quarter. One you also see the strength of quarter, one being in all four of our commercial <unk>.
<unk> on all three of our categories, whether its brand generics or complex generics and Biosimilars and we've been I think very transparent on what part of that is due to timing what part of that is due to FX on what part of it is real underlying business performance, but it's also just one quarter. So what we're saying is at this point, we're reaffirming our guidance for the year, we're very confident.
And that that applies to revenue EBITDA and cash flow.
We're confident that we are delivering on our commitments and as we would in regular course of business doing well look at it again after the second quarter and then update the guidance at that point. So that's that's what that comment is.
On the question do you have on organ on.
Doug I think it's very clear debt.
We're very pleased with this because it's a real positive for investors to have another company to add.
Comparable to a newly created peer set but we are obviously focused on running the interests are 100% focus on debt and we're excited about the differentiated.
Platform that we have on let me let me give you some of that differentiation. One we have a truly global operating platform. One that has significant scale significant commercial capabilities expertise across science and manufacturing with Eagle on IP very importantly, we've got a broad and diverse product portfolio that includes brands comp.
Blacks in Biosimilars and generics and that isn't that's important is agnostic to any particular therapeutic area to any particular dosage form on a particular delivery mechanism and that gives us robustness and opportunities going forward and we're very proud of the strong R&D that we have that really positions us well to deliver a broad pipeline.
Complex and novel products, including the late stage Biosimilars and you saw some of the progress we've made in the pipe on the pipeline just this quarter. So.
That's what I would comment there we're focused on of your interest and I think the robust and diversity of the platform is unique that we have.
Next question comes from the line of David Risinger of Morgan Stanley.
Yeah.
Yes, thanks very much.
So my first question is could you. Please discuss organic revenue growth prospects from the 2021 base going into 2022.
And then second.
Could you talk us through your expectations for competition to branded generics ex U S longer term from pure generic companies.
You.
Yeah.
Okay, let's start with the organic growth 21 to 'twenty two movies on <unk>, who can provide some color on that and then I'm not sure I caught the second question, but maybe rajeev I can't competition Okay.
Alright, sorry, yeah, so so David.
So as we talked about before in terms of live.
We when we gave the guidance that we spend time looking at 2021, we've got both companies together.
<unk>.
And brought that on gave you a guidance with the transparency that you saw with right now in the midst self.
Working on a long term strategic plan in terms of trying to understand all the levers of our growth in terms of organically, where we could we could see that whether it's branded complex genetic biosimilar and generic genetics. All of that is is a work in progress right now will come back later in the year to talk to your back to where they are.
Opportunities on it but I feel very confident of what we see.
With the first quarter in terms of all the all the opportunities we have to drive organic growth, whether it's in the branded side, whether it's Cindy.
Whether it's a genetic cited by the shine on all the geographies so feel good about it but more to come as we come back with that midterm guidance.
No.
David.
A question on their own branded generic.
Petition, let me break it into low.
Developed markets and Janet in China, and give you a little.
Bob The U S and Europe deep market. These products on a commoditized steady Eddie whatever is left is steady dirty debt.
These are per region their core iconic brands. So there's still brand share the mandate. Some of these markets. So we have seen over the last four or five years, it's pretty steady business not much at all your debt.
Emerging markets is there still.
Iconic brands and desert getting for these people are looking for this iconic names and these are the branded genetic market, partially the healthcare environment as to as you know the consumerism is drawing as up.
Spend on the health care cost is growing we see the opportunity or are there. Many of these market share is a mixed bag, but growing emerging markets with some type of them between us. This is where we see some opportunity over here you have seen as of Jan one.
You lose it.
Have a low E jets, a combination of regaining some of the band business on the AG business that kicks in for US we have a pretty effective debt. When it comes up operating ANV student debt out market share in markets like Japan, especially Japan, and you are already seeing the value of iconic brown and how much equity they can hold in there.
Sales channel like China, so far.
We are not very much in overall, if I have to say we are not very much.
And about the competition coming from genetics to this brand I think we have factored in and the way. We are managing this business is at a very granular level non one global approach per country by country approach.
Maybe the one thing I would like to add to the question on the organic growth on the rhythm, obviously, not giving guidance right, but I just want to points against the two comments, we've made already which is one is what we disclose the day the $6 $2 billion is a floor on EBITDA going forward I think that should give you a lot of confidence.
And then the strong cash flow growth that we see because of EBITDA and because of reducing of onetime expenses.
So that should help a little bit until we get further guidance later in the year.
Next question.
Your next question comes from the line of Jason Gardner <unk> of Bank of America.
Oh, Hey, guys.
Thanks for taking my questions. So just one follow up.
Should investors look at this year's revenue as the top as well I know that's one question.
Because revenue was omitted and then.
On pipeline for <unk> call out on thrombosis. So just wondering about sort of the more true pipeline versus M&A, new product and from like mature pipeline products baked into guidance. How comfortable are you that you're through the regulatory legal gating factors to really deliver.
On the full year net product revenue guidance. Thanks.
Okay. Thanks, Jason.
What we said is.
We're not giving guidance at this point, but the $6 two as a floor. We're highly highly confident in because we know all the levers that we can have we know the robustness of our business and our EBITDA can pull any lever free cash flow high confidence again, because we clearly see the growth coming driven by EBITDA and lower onetime cost on revenue we've got a good understanding.
Off the base erosion that we have on the business we have a good understanding of the new pipeline revenue. We can be we can bring but if you look at it quarter on quarter, even year on year. It can be it can be a bit choppy because of things like COVID-19 for example, or because of Europe, China timing if that gets further delayed that would change a little bit how 'twenty one over 'twenty to develop so we'll give you an.
Updates throughout the year on revenue and again look for more long term guidance towards the end of the year on that net.
On the question of thrombosis business we.
We can break this out on ask Rajiv maybe to break out the number on the pipeline that the one thing I do want to highlight though is the composites business was always part of the number we gave you for the pipeline. So that's in line with expectations and I think the important thing that I would like to highlight for this quarter is that we are growing that business on a like to like basis. So that's I think shows the strength of what.
We can bring to a business like this that we take over Rajeev look, yes, and it's a portfolio approach 690, while they're on the new growth portfolio that commodity there are many debt of about 200 plus policies a bit.
Now obviously when you're on a portfolio of products. Some products can deliver delayed somebody sub products better performed better than expectations. We remain very confident that we're going to keep $690 million. Despite we are seeing a little bit delay in some.
Inspections in India for example, as biopharm called out the diversity map, which is our best is biosimilar, but it's not going to impact us materially from the numbers part of it to the morning sitting over here. We just got approval in August in Boston not in Australia. So approvals are kicking in from all of our divestment of what a little bit.
I'll hit on that we'll see something but it's going to not come in the way up on television $690 million.
Hi.
New new launch revenue for this year.
Thanks, Rajiv next question.
This question comes from the line of our cash to worry of Wolfe research.
Yes.
Hi, This is Andrew on for a caution on just had two if I can.
First on China, how much of the like the reps in the quarter were from FX and I asked because the Pie chart. You showed earlier this year kind of implied about $1 75 billion and Chinese revenues. This year and I think like the run rate now is a good bit above that so is this just an FX issue or is this like need to be adjusted downward for.
Additional pressures from like <unk> coming in the back half of the year and then secondly on EBITDA growth if I use your starting debt this year.
The midpoint of your guide and your debt pay down guidance and your leverage goal and I put those things together.
It kind of implies to me that you are looking at a 2023 EBITDA figure somewhere between like 6869, given youre going to get another 500 million in synergies over 22% and 23 that would imply organic EBITDA growth somewhere in the line 100 million to $200 million range. So.
Pretty pretty flat on that item is that the right way to think about it and are there other levers you can pull to.
Change how this would look in out years. Thanks.
Okay. Thank you Andrew.
Look on.
On China.
Ask the question on China, but on EBITDA growth, let me take that first where operating off giving guidance now for 2000 Twenty's free right. We're not going to do that will give you a feeling for that later, we said that the two five times leverage is our long term goal and Thats. Our long term growth post 2023, so that hopefully helps you to model that a little bit.
On China, clearly, we do still expect Europe to come in the second half of the year. So take that to account for the rhythm of the numbers and since you've maybe if you can give some color on the FX comments right. So if you look at the slide 14 that we had as part of our <unk>.
Presentation, so that kind of breaks it out between.
FX and the operational growth, what's going on so I think on both sides you are absolutely right FX as a tailwind in China.
Chinese RMB, which was.
Seven at MBS to a $1 is roughly at $6. Five this time. So there is obviously a tailwind coming from the FX, but operationally as well.
China has done well part of it is driven by the fact last year, we were impacted by COVID-19 Big.
Big way in products like <unk>, we are doing better this quarter, but again operationally as Rajiv pointed on any of his comments, we are doing well. So that's the answer to the China question, and then things would normalize as COVID-19 impact.
Recovery happens in case of China.
Okay. Thank you next question please.
Your next question comes from the line of Ronny Gal with Bernstein.
And good morning, everybody and I. Appreciate you fitting me in two questions. If you don't mind product specific first about the interchange ability for lodging in ASP art. So first that will obviously be quite an achievement being the first biosimilar approved as interchangeable I guess the question I have is about the commercial or levers that you can play here.
It seems that the payer market is somewhat blocked by the competitors at least that's what they're suggesting I was wondering if you do have some levers in the channel debt interchange ability gives you. They will allow you to leverage those products and should we expect debt in 'twenty, one or is this more for 'twenty, two 2023 contributor and second.
Regarding petroleum toxin biosimilar the requirements in the guidance talks about.
Characterizing the QUADRA restructure and the post translational modification across multiple batches, which seems to be very hard in the case of petroleum toxin I was kind of wondering if you actually just met dose or is the FDA simply establish more functional guidelines for the petroleum toxin just given the very small amount of product in every sample.
Thank you.
Rajiv.
So the first one the first one was on interchangeability lodging as part in any channel.
I think that from <unk> point of view, we obviously have been staying close with the FDA on blocking and we know exactly where we stand so by September of <unk>, we expect to have.
This behind us and have first interchangeable.
Working with why is that less than <unk>.
Youre right about the fear and debt abating challenges and all of that and in discussions with many of these customers. We see this as an opportunity to sort of relaunched this product once we have an interchangeable as spot once we have an interchange ability around there is our opportunity to basically relocated the debt challenges, which we have had so far and picking.
The market share I think we have been.
Slowly and steadily picking up your drilling on coupon five per se, but it's not that we wanted to be so that that's going to give us an optionality and opportunity to look into this product in a very different way and.
Essentially relaunched the product as we go for the non on from the App.
What is the point of view you're right.
This is where I think.
Fda's guidance and thinking continues to wall as we keep on sharing with them that information.
Nothing different than what happened on Advair. When you continue to interact with the FDA between the from the science point of view the challenges you have whats achievable.
Attributable was not achievable on I can tell you running at the moment, we feel very excited and positive about.
The science, the data, which we have already got and so far the feedback from FDA, which we have been getting thank.
Thank you Rajiv and I think we're a little bit over time, but we want to have time for one more question. Please operator.
Anil question will come from the line of Gary Nachman of BMO capital markets.
Okay. Thanks for getting me in good morning, Michael what do you expect the pace will be securing partnerships in various regions for the global healthcare gateway or there are already a lot of discussions ongoing with different parties, how long before you really start to execute on that and in what regions do you think would come first.
Then secondly, the $1 5 billion of cost to achieve synergies is there a chance that it'll come below that this year and how much will those costs come down next year, just wanted to get a sense of how everything is going on that front and the impact to cash flow. If you were conservative or if that's really the accurate assessment at this point. Thanks.
Thank you Gary So let me say on the global healthcare Gateway, obviously is a very important topic for us we're constantly looking for opportunities that create value for patients partners and especially for our shareholders.
And we're going to always apply our disciplined investment criteria and very very strict diligence on that so you can absolutely expect us to be very active in this space, but consistent with our capital allocation priorities in terms of focus areas.
Highlights for <unk>.
One is established brands within our therapeutic categories or established channels that we have that are synergistic to debt.
You've seen what we can do with this on both this franchise for example, where we take it and improve on it.
Biosimilars is clearly a focus area for US China is a focus area for US and then anything that helps us go up the value chain with more differentiation and longer tail. So we're not we're looking for long term sustainable kind of revenue in these areas. So that's what's the deal or the areas that I want to focus on and then on the $1 $5 billion essentially.
As you could take that correct, yes, so sure so.
So obviously, we got on monitoring and managing.
The onetime spend very closely on this quarter as I mentioned in my prepared remarks, we had $340 million. So at this point in time, where we are.
I see we will be in line with us with our expectation of one 5 billion on is clearly.
The other thing important to note is quarter to quarter, there is going to be variability as I said quarter to.
The onetime costs are going to be higher because of a lot of the.
Tax and legal settlements that are happening in quarter, two but overall for the full year, we expect that to be it on one 5 billion on us going forward again, not giving the guidance on I think the simple way to think about this is by the end of third year I expect the $1 5 billion.
To be down significantly to the level of debt legacy Mylan used to be which was I think in 2017 2000 and continues to be about $500 million. So you can see the trajectory is going to come down significantly next year and obviously when we provided the 2022 guidance, we'll let you know about the exact demand. Thank.
Thank you Sanjay so unfortunately, we will over time, but let me just summarize.
You've seen our first quarter results very strong, we're very confident and proud of them a day validate.
The strength of the diversified and robust business model that we have on that differentiates us as a company.
You've seen us meeting our financial commitments, we will continue to do that including declaring a dividend paying down our debt and on track to deliver on our synergies.
Reaffirming our full year 2021 guidance and as we said on after the end of Q2, we're going to look at that again and reassess whether we would update that guidance.
We continue to remain confident that 21 is our trough year.
And we gave a definition of that the definition of $6 2 billion dollar on EBITDA at our floor going forward.
And with that I want to thank you for all the questions and look forward to continuing discussion. Thank you.
Thank you.
<unk> today is via trusts first quarter 2021 earnings conference call and webcast. Please disconnect. Your lines at this time and have a wonderful day.
[music].