Q2 2021 Viatris Inc Earnings Call
Good morning, My name is Christie and I will be your conference operator today.
At this time I would like to welcome everyone to the Beatrice 2021 second quarter earnings call and webcast.
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I will now turn the call over to Melissa Trump better head of global of Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone. Welcome to <unk> second quarter 2021 earnings Conference call. Joining me on this call or the interest is Chief Executive Officer, Michael Gettler, President Rajiv Malik Chief Financial Officer, Sanjeev, and the ruler Chief Accounting Officer and controller Paul Camp.
<unk> and head of capital markets Bill simpler the ski while some of US are in remote locations I would ask for your patience should we encounter any technical difficulties. During today's call, we will 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 of our 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.
The investor Dot the interest dotcom via.
The interest 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 any broad non exclusionary manner for purposes of the SEC 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 second 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 second quarter 2021 earnings release and supplemental earnings slides as well.
As in the investors section of our website. In addition solely the supplement your understanding and assessment of our second quarter 2021 financial performance. We have provided in our earnings release and supplemental slides and we'll discuss during today's call certain financial measures relating to the second quarter of 2020, including combined result.
Of legacy Mylan and the Upjohn business.
With indicators of adjustments, which do not reflect pro forma results in accordance with ASC 8 O 5 or article 11 of regulation S X.
Such measures also 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 of trust and cannot be recorded or rebroadcast without the interest is 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 thank you all for joining us on our second quarterly earnings call as the interest.
I am pleased to say that the strong execution, we share with the first quarter has continued into the second quarter.
We are performing at or above the upper end of our own expectations.
Ross the entire business.
4 of our commercial segments.
For 3 of our product categories.
Picturing operations, our R&D and our enabling functions.
And thereby laying a solid foundation for future performance.
Today's strong results are not only a testament to the flawless execution of our colleagues who've quickly come together as 1 of the interest team.
But also validate the vision of the strategy, we had in combining the 2 legacy organizations.
The combination brought together 2 highly complementary high quantity investment grade companies.
Creating an even stronger more powerful unique and differentiated global platform focused on empowering people worldwide to live healthier at every stage of life by ensuring patient access to safe effective and high quality medicines.
Milan broad via the <unk> portfolio diversity.
Rich R&D pipeline strong internal scientific capabilities, improving the integration expertise.
And option provided strong iconic brands, the global commercial engine and scale and critical markets. The.
The result is an even stronger future ready and resilient platform.
With the enhanced global scale and geographic reach.
Sustainable diverse and differentiated portfolio of pipeline.
Powerful operating platform and strong commercial capabilities with significant future potential.
The power to generate strong and sustainable cash flows.
And today marks the second consecutive quarter.
And which we have demonstrated our ability to drive the value of this combination and we remain confident in our outlook.
Now, let me dive into the quarter.
In the second quarter, we reported total revenue of $4.5.8 billion U S dollars.
Adjusted EBITDA of $1.6 $8 billion.
And free cash flow of $470 million.
For the first half of the meaning of quarter 1 quarter 2 combined.
We have generated 127 billion in free cash flow more than half of all of initial guidance for the full year.
Yeah.
Free cash flow generation continues to be our north star.
Our unique global platform has the ability to consistently generate substantial free cash flows.
And we anticipate significant increases in the coming years, driven by continued strong performance.
The reduction in onetime cost and continued improvements in cash flow conversion.
And given how critical cash flow is to our long term financials, our strategy and commitment to shareholders.
The Board has also made it 1 of the key metrics of managing the short and long term compensation.
The performance extends not only to our commercial segments.
But also to our operations.
Even in the midst of of COVID-19, pandemic and our ongoing supply network optimization efforts, we have seen customer service levels that are at or above historic peaks.
And I continue to be impressed with our internal R&D engine and scientific capabilities.
In July we received the historic approval from the U S food and drug administration for the industry's first ever interchangeable biosimilar product in the U S Assembly or incident lodging.
We're extremely proud of this achievement, which will help broaden access to this important diabetes medicines for patients for physicians for payers and for providers.
And as you know from was set by FDA and policymakers throughout the government. There is significant interest in us approval.
And what it can mean for patients and the healthcare system of all both now and in the future.
The interchangeable assembly product, which will allow for substitution for the reference product at the pharmacy counter.
We will be introduced before the end of the year.
But <unk> is not the only advance in our pipeline this quarter.
With regard to of Biosimilar of complex products pipeline, we're making steady progress across multiple programs, which rajiv will discuss in more detail.
Overall.
We generated 224 million of new product revenue.
Continue to be on track for 600 of $90 million in new product revenue for the full year.
This high level of performance.
Enables us to continue to deliver on our commitments.
We've paid down $1, 1.5 billion in debt year to date.
We are well on track to achieve $6.5 billion of debt repayment by 2023.
In June we returned value to shareholders by paying our first quarterly dividend of <unk> 11 per share.
And the <unk> Board has declared another <unk> 11 per share dividend for the next quarter.
And we are on track to achieve $500 million of synergies this year and on track for at least $1 billion by the end of 2023.
On last quarter's earnings call I said that we would reassess guidance for the full year.
Based on our strong first and second quarter performance.
I am pleased to report that we are raising our guidance across revenue.
Adjusted EBITDA and free cash flow, which sanjeev will discuss in more detail.
We have strong momentum.
Going to the second half of the year.
And we will be once again open to reassessing financial guidance at the end of the third quarter.
Also on last earnings call I stated that we see $6.2 billion and adjusted EBITDA as a true floor of our business going forward.
And with the momentum we have this is now clearer than ever.
We also continued to make good progress on a rigorous bottom up strategic planning effort.
By better understanding how our portfolio will evolve over the next several years.
And looking at all of the strategic levers at our disposal.
We will be better able to serve patients.
Provide increased access to medicine, and unlock value for our shareholders and that work will complete towards the end of the year.
Lastly.
And as I've already mentioned I cannot emphasize enough the impressive R&D engine and scientific capabilities that we have.
As we prepare to deliver our strategic plan.
Can fully expect that we will continue to add high value assets to our pipeline and further leverage our scientific expertise.
R&D platform.
With that said now let me turn it over to Rajeev for more details about our segment results pipeline progress and restructuring and integration efforts Rajiv.
Thank you Michael and good morning, everyone.
We had another strong quarter and are very pleased with the positive momentum across our entire business.
Driven by strong commercial performance.
Supported by excellent customer service levels.
The new scientific execution of our diversified pipeline.
<unk> historic.
Historic flushed approval of often interchangeable biosimilar.
Insulin blocking.
This was achieved while we continue to successfully integrate the structure and navigate the COVID-19 pandemic.
All of our performance would not be possible without the dedication of our global workforce and I would like to thank them for their continued commitment.
Over the next several slides.
I will walk you through the performance in each of our segments and product categories.
I will be making certain comparisons to the combined annually adjusted second quarter 2020, the Zurich.
On a constant currency basis.
As for less comparisons versus our expectations as included in our initial guidance.
Beginning on slide 6.
Each of our segment.
And for all the categories delivered a strong performance.
When excluding the impact of Japan, Lyrica and sell index Louie.
As seen on the bottom left hand side of the slight.
Net sales were up for question this quarter.
Compared to the combined and we adjusted quarter 2.2014.
All of our brands business grew by 3% year over year and perform better than our expectations.
We are pleased to report.
That's our global Biosimilar portfolio grew by 40% this quarter.
While the overall complex generics and Biosimilar.
Category declined by 8% year over year, mainly due to anticipated competition on certain products.
Complex generics portfolio.
Our global generics business grew by 8% year over year and performed better than our expectations.
We delivered $224 million for new launches in the second quarter.
And as we look ahead, we remain.
On track to meet our $690 million target it would equally 1.
We believe that day.
The of our portfolio and commercial reach.
<unk> as well to balance the impact of any changes in the market and eliminate our reliance on any 1 product or geography.
Accordingly, we expect our base business to continue to perform strongly.
Turning to slide 7.
Our developed market segment grew by 2% year over year.
This was primarily driven by brands like capacity and Mr and Creon.
Our composite portfolio also performed better than expected, which continues to highlight our ability to effectively manage and grow established brands.
And expand our presence in the hospital segment.
Our biosimilar performed strongly with 47% growth this quarter.
Which helped offset the negative impact of the previously anticipated competition to the accelerant and Xu Lei.
Our genetics portfolio also performed better than our expectations.
I'm really driven by our U S injectables portfolio.
As the less favorable.
Favorable COVID-19 related buying patterns in Europe.
Having said that we see our biosimilars portfolio of timing continued growth, while offsetting anticipated competition in our complex generic space.
Moving to the next slide.
Our margin market segment delivered 12% year over year growth and perform better than our expectations.
Brands like <unk> and Datacom drove strong performance aspect of the country started recovering from Covid.
Our better than expected growth of all the genetics business, what's helped by a certain COVID-19 related products.
The next slide shows.
Jan segment grew 6% year over year and performed in line with our expectations.
Our brand portfolio of products like Lyrica and Epipen, primarily contributed to the strong performance of Japan.
We continue to be pleased with the growth of our generics business in Jan.
Firstly, the contribution from our expanded authorized generics offering including authorized generics to lyrica and sell it back.
It should be noted that approximately half of the overall generics growth is due to the termination of our collaboration with Pfizer from the prior year.
The next slide.
As our last segment slide ensures that our greater China business.
Once again delivered a strong performance, which was better than our expectations.
Our retail channel showed double digit growth in our hospital channel performed better than our expectations, while managing the impact of BBB and UFP.
The 3 part strength year over year decline.
It's driven by anticipated we'd be implementation of Celebrex zoloft.
As we look at the rest of the year, we anticipate the full year to be better than our original expectations. Although we see the second half being softer than the first because of the implementation of ERP.
Now turning to slide 12, which highlights our proven track record of introducing.
First the market complex products.
Breaking down barriers goes beyond best in class sign and right from day, 1 our cross from its current team of R&D regulatory legal medical and policy experts.
Diligently.
The AG collaboratively with the regulators partners and other stakeholders.
The seek.
And create part with.
The clear.
Enable access.
It can take on average 7 to 9 year from development to regulatory approval given the highly complex nature of these molecules.
Getting to the finish line the required tremendous for creative Tennessee.
And then unwavering commitment to patients.
The success stories of receiving the funds for approval for our Copaxone 40 milligram AG.
Neulasta Herceptin Symbicort and most recently the first interchangeable biosimilar to the lenses.
Give us great confidence that we are well positioned to deliver on our pipeline.
We intend to leverage our deep scientific capabilities to further expand access to the complex products for patients.
I will now walk you through some key pipeline updates starting on slide 13.
As it relates to our Biosimilar to key pipeline I would like to take a moment to echo Michael's remarks, and applaud the efforts of so many of the address leaks.
Who played a huge growth in achieving this historic FDA approval of the first interchangeable Biosimilar Assembly.
We look for our loyalty of exciting opportunity before the end of the year.
Moving to ex block.
If pre approval inspection from FDA of Black box manufacturing facility in Malaysia is now scheduled for the end of this quarter.
Scientifically we believe we are on track to achieve indicated ability for us block, which should further expand our portfolio of interchangeable insulin.
We remain on schedule for the submission in quarter 4 of this year for Eylea.
Our program for Botox is progressing well and we have of meetings scheduled with the FDA in September of this year to align on our path forward.
Moving to Biosimilar to Avastin.
While we have no for scientific questions with the FDA. Our U S approval has been impacted by the delay in a pre approval inspection due to COVID-19 restrictions.
The same product has been approved by TBA.
Jody and several other regulators.
As you will see on the next slide we continue to make steady progress on our complex product programs and have some important upcoming milestones.
We submitted our final of 5 <unk> application to FDA for our level of tariffs and oral solution.
The June as planned.
For our Meloxicam.
Correct and IND submission with phase II B study planned for quarter 4 this year.
We are excited with the progress of our new low dose formulation of <unk>.
And we plan to initiate our clinical utility for.
For our phase III program in September.
We also continue to make comprehensive progress on our complex injectable pipeline.
We are happy to report that we are first to file on valid for it on 1.3 months product equally.
<unk> got cleaned up on the 546 milligram and 829 milligram.
The remaining strength of for 10, and $2.73 milligram have already been submitted and pending acceptance from FDA.
Before I conclude I would like to touch upon our integration and restructuring activities.
Sales closing the transaction almost 9 months ago.
Our teams have been harder for us to ensure no business disruption.
We remain on track to realize $500 million.
Of cost synergies this year and confident in our overall plans to achieve at least $1 billion of cost synergies by 2033.
Net we now turn the call over to Sandeep.
Thank you.
Thank you and good morning, everyone as Michael and Rajiv mentioned, we had another strong quarter with better than expected revenue adjusted EBITDA and cash flow generation.
These results demonstrate the underlying strength of our business and the momentum we have going into rest of the year.
In slides ahead, I will make comparison to prior year Mylan stand alone.
Adjusted for me of Trust and the factors that are leading to an increase in our 2021 guidance.
On slide 17 summarizes the results versus prior year on a reported basis, which reflects mylan standalone results for quarter 2.2020.
Moving to slide 18, we've highlighted the drivers in the quarter compared to combined adjusted Q2.2020 results.
This chart reflects the some of the Mylan Standalone results and upjohn's carve out financials for the period of your plan for 2020 to June 30 of 2020, adjusted for certain employees and transaction related items, including divested products in connection with the combination.
A few comments on the slide.
Beginning with <unk> current Celebrex Halloween.
While we continue to see anticipated decline versus last year. Our commercial teams have done a nice job of managing rate of erosion as the genetic penetrations levels have come in better the not expectations.
Adjusting for the Louise operationally total net sales in the quarter were up 4%.
This growth was driven by strong demand across you probably dymista, the thrombosis portfolio, Hawaii growth and the new product revenue.
Base business sales you must do.
Driven by price declines from the generic business and was in line with that expectation and also anticipated competition across 3 of our complex products for.
For example competition in the access.
Xu Lei and performance contributed to the base erosion in the quarter.
This erosion was partially offset by 40% growth of our global Biosimilar portfolio.
For the U S. We continue to expect base business erosion to be approximately 3% to 4%.
As compared to Q2, 2020, Covid had a positive impact in the quarter, primarily due to full recovery in China and partial recovery of an emerging market in Europe.
Given the evolving COVID-19 situation for the remainder of the year. We currently expect the slower recovery than originally anticipated across key markets.
Lastly, with respect to foreign exchange the week of dollar relative to key currencies, such as the Euro and Chinese renminbi provided an approximately 4% tailwind compared to our combined adjusted 2020 results.
Moving to slide 19, which bridges adjusted EBITDA.
In the quarter, we had of high run rate of inventory items, which had a negative impact on our gross margin.
We don't expect this level of write offs to continue into subsequent quarters.
As mentioned previously and as expected base business erosion was predominantly driven by competitive pressure on high margin complex products and to a lesser extent anticipated price decline across the rest of the portfolio in North America and Europe.
As you look at gross margin it is down slightly on a sequential basis. This is primarily driven by anticipated product mix and the higher inventory write offs.
Integration of restructuring activities remain on track and SG&A was in line with our expectations.
Turning to slide 20.
For quarter, 2.2021 free cash flow generation was strong and better than expected at $470 million.
As I highlighted during quarter, 1 free cash flow of decline versus quarter..1 due to increased 1 time cash cost interest payment in Q2 and increased operational working capital and Capex.
I'm encouraged by higher than expected.
EBITDA to cash flow conversion and the year to date cash flow of approximately $1.2 billion.
This is net of approximately $800 million in 1 time cost.
The results reflect the organization focus and companies Covid Madhu cash flow and we are seeing an early benefit from cash flow improvement initiatives.
Turning to balance sheet year to date, we have reduced our debt by approximately $1.2 billion, which reflects the repayment of June $2.2 billion maturity.
Partially offset by lower than anticipated increase in the Q2 short term balance.
In the quarter cash was used for the utopian thrombosis transaction and dividend payment of the shareholders.
We also extended all of a 4 billion revolving credit facility to a 5 year 2 of them and just the for the first time in quarter preserved the option to include sustainability metrics consistent with other future corporate ESG goals.
Moving to slide 22 based on the underlying strength of our business with raising our full year 2021 guidance for total revenue of just.
So the EBITDA and free cash flow.
The expected increase in revenue was driven by stronger performance in the underlying business. This includes the lower than previously anticipated full year impact of Europe, and the greater China region. Each of the tailwind from foreign exchange rate lower generic penetration for Lyrica in Japan and sustained strength from Brian.
Partially offsetting these positive trends include anticipated competition in North America.
Genetic volume of emerging market and slow of Covid recovery.
As a result of increased topline expectation and margin pull through on these items.
We are also raising our adjusted EBITDA guidance.
Includes SG&A investment that is not expected to bring us to the high end of the range of 25% to $21.5 as a percentage of total revenue.
Free cash flow guidance has also been increased as a result of higher adjusted EBITDA lower cash taxes and continued cash flow.
Movement of initiatives.
With respect to key metrics on the Lincoln financial guidance, which are largely unchanged. We have lowered our adjusted effective tax rate to be in the range of 17% to 18% due to the favorable mix of income across our tax jurisdiction.
Now with few comments from second half phasing.
We now expect second half of revenue to be slightly lower than first half.
This is primarily driven by anticipated competition of select brands.
And complex genetics and expected lower sales of Covid related products.
With respect of greater China, we anticipate slightly load of of new as a result of ABB in Europe the timing.
Moving to adjusted EBITDA, while the strength in the base business continues would also expect competition to negatively impact gross margin slightly in the second half of the year.
In addition, we the assuming R&D and ESG investment of sequentially pick up which we expect will help fuel.
Long term sustainability and growth of the business.
We're also expecting the second half free cash flow phasing will be impacted by the timing of capital expenditure.
The underlying strength of momentum, we've seen business and solid execution gives us confidence in the outlook for the back half of 2021, and I believe positions us for the solid starting point heading into 2022.
As we've mentioned previously we expect the onetime cash cost of decreased significantly over the next 2 years to historical myelin level of approximately $500 million.
With the momentum we have built and what we can see to date, our 3 year cash outlook makes us highly confident that we will meet our stated objectives of potential dividend growth.
$6.5 billion of debt Paydown by 2023 and increased financial flexibility for the company going forward overall.
Overall, I am very pleased with the execution I've seen out of our ability to deliver on our commitments with that let me open the call for Q&A operator.
Thank you for the floor is now open for questions. At this time of you would like to ask a question. Please press star 1 on your telephone keypad.
If you wish to remove yourself from the queue you may do so by pressing the pound key.
We remind you to please pickup your handset and please limit yourself to 1 question.
We will take our first question from Chris Schott of JP Morgan.
Great. Thanks, so much for the question I guess my question was just on the branded performance. It looks like you've had a couple of quarters now of the stronger than expected results and I'm trying to get my hands around.
Is this the situation where if the guidance was conservative and Youre seeing later at the next specially the competitive pressures for you.
We're actually seeing improving fundamentals for some of these assets just trying get my hands around is this kind of a near term phenomenon or something we should be kind of anticipating could persist longer term. It's actually some of these underlying assets are outperforming your expectations. Thanks, so much.
Thank you, Chris and I think I'll pass the question to Rajiv.
So Chris.
It's a great question and thanks for that I think color, you'll see our confidence in the underlying business as we put our arms around the business as the new team that's taken over the new country manager in the region.
We definitely see the momentum we definitely see we can do more of it.
As I said, we are taking everything into consideration.
Going into the long term plan that what how best we can that range our capabilities as we get through teams have come together and get 1 of them all day.
Sensors DNS some bright spots.
The pandemic has also played some role in so I think.
I don't want to jump ahead of our IC wind behind the sales the momentum of and I think.
When we come to you with our Strat plan, we will be able to give you a better appreciation of what we can get out of this cell revenue portfolio, but we are very excited how this whole swap. This has played out.
And of course, the only thing I would add is this performance is no accident right. This is executing by the team at the highest level.
You see a better performance on some of the key brands like Viagra I missed the thrombosis business that we took all of them Aspen, where we're growing it actually.
And you see very good execution against our strategy in China and much better results there than we had originally expected. So it's not there's not an accidental result.
Thank you. Your next question is from Elliot Wilbur of Raymond James.
Thanks, Good morning, a question for Michael in for Sanjay of as well could you just maybe given I guess given all of the different moving parts here and the complexities of combining the 2 businesses could you just maybe walk us through the top 3 of 4 items that led to the upward revision.
<unk> in operating cash flow.
And.
Your free cash flow.
Outlook for the year.
Sure. Let me just make a general comment and then pass it over to the Sanjiv to walk through some of the details.
We're at 2 quarters under our belt now we continue to manage the business and we're getting more and more confident actually in our ability.
Not only to deliver against the plan, but also improve free cash flow conversion. In addition to the strength you get from the underlying business.
Going forward the reduction of the onetime cost of fusing of piece was very good about our ability to generate cash flow and to grow that over the coming years. Some GBP 1 of Joe that most of the water.
Elliot. Thank you for the question. So a couple of things going on obviously as you pointed out the.
Cash flow from operations.
Is improving because we've improved our adjusted EBITDA guidance of that clearly is helping on that the.
The second Big partners, which is all of the effort that we began as we brought the companies together.
Working on all of the working capital improvement initiatives, we're looking at all of the elements of the balance sheet.
Inventory and those are beginning to contribute index the.
The third aspect is the.
The modest benefit because of the lower cash tax.
That we see for the remaining.
The year so overall.
Those 3 items.
Contributing to our increased free cash flow not only for rest of the year, but I see that momentum exiting into next year and as Michael pointed out that as we look at for your cash cash flow horizon as the onetime cost come down as the strength of base business continues and we continue to work on cash improvement improvement opportunities I feel highly concert.
And in our ability to pay $6.5 billion of debt and continue to grow the dividend.
Thank you. Your next question is from <unk> of Evercore.
Hi, guys. Thanks, so much for taking my question.
And congrats on all of the progress to date.
I wanted to focus on 1 of your key growth drivers going forward and you have mentioned and Eylea biosimilar for your expectation of that you could be on the market at the first of the launch in 2024.
If I think about the IP of state what that basically means is earmarked youre, assuming I leave the composition patent expires late 'twenty 3 plus the pediatric exclusivity, which means you basically launch right. After the composition of Pam for pediatric exclusivity.
How confident are you of that they're non composition pants won't be relevant for your launch and can you speak to that.
Okay. So I'll, let I'll, let rajiv comment.
On the order of entry into the.
If you want to comment on the the IP situation, but the AUM.
Let me just pick up and make a general comment here is that.
To me this the.
The interchange ability on Lantus I mean, these are all proof points of things that we have that our biosimilar portfolio of strong is going to be the driver of growth for us going forward and something to be very proud of the.
Approval of Assembly, the Changeability of historic and Eylea look where the.
The number of competitors going to it we are leading right now of where the first ones of the finish of clinical trials. So we're very proud about this is Richard for you want to give some more details.
Thanks for your question.
2 of question when it comes to the Plaza the recipes.
The idea of for Us right.
The buckets 1 assignment.
I think we are very proud of how youre very confident of Gulf of navigating it successfully.
The integrate very integral to that is all the IP legal strength the John So protocol that the if I look back into the classroom, which we'd never do the venue of 5.7 years back when the planning we had we saw this wholesale book.
Thanks for out there.
The greater linkages.
We saw the.
For the whole thing, but the Walgreens that all of the beat in data and all of that when I look at the performance.
Pro forma instrument revenue has stepped in neulasta fully invested.
And then similarly, as we I believe of Eylea alright.
Walgreens is the approval accounts, combining and deploying of the IPR strategy are hard to manage the patient.
All of that into the lottery Andrew from continue to do the work, but that gives us the current against net backed by the science and our IPD growth strategy will be Dr. Jules.
The open the market in the phosphate if not the plus we are very confident they are very bullish on this product.
Thank you. Your next question is from the larger Prasad of Barclays.
Hi, good morning, and congratulations.
Just following up on <unk>.
You called out the delaying of preapproval restriction delayed because of delayed travel.
Since you are expecting as part of inspection for the end of this quarter I imagine this is.
And the Indian facility that Youre expecting approval from saw to any of the key approvals that you're anticipating from yours of beichuan facilities in India that could be delayed.
For the.
Yes. Thanks.
Michael.
<unk>.
At spot is not from Indian locations as part of his from Malaysia, and this pre approval inspection at R&D day.
I'm sorry on the schedule.
In the next few weeks, we'll be having that so thats 1 for all of I think of estimates only sort of upfront of the backlog, which has been impacted and we continue to work closely EBIT and.
And an FDA and FDA.
How expeditiously, we didn't get the schedule.
Thank you. Your next question is from Jason <unk> of Bank of America.
Hey, guys. Good morning, Thanks for taking my question first can you confirm now.
At the beyond the 5 year thoughts the limitations on the generic drug price fixing.
So Dana.
More than 5 years out, but I know there can be tolling agreement from Covid related delays.
That could extend upon that so just curious if you could confirm.
You're out of the woods with the price fixing matters that are an issue for other generic suppliers and then just.
On China, and <unk> can you help.
Dimensionalize, a little bit what's going on there like the proportion of your $500 million plus revenue per quarter run rate right. Now all of that is potentially exposed to you RP versus the proportion of that the perhaps growing through this retail market growth dynamic. Thanks.
Sure.
Jason Thanks for the question look on the price fixing our position Hasnt changed at all.
We believe for the claims against US are without merit and we are going to continue to defend them vigorously as we have so there's really no change there on the Europe question was China, maybe Rajiv you can give a little bit more color to the composition of the revenue that Jason basketball.
And probably just.
Just want to go back and complement of the China team for the strong performance.
The I've done a great job in managing of the BBB the whole of <unk>.
The how to manage the BBC and shift the business and how BBB and USB has been non to fly it has given us enough time to implement our own share and that's why you will see our business performing better than our expectations over the year and we will be definitely starting from it.
As we go into 'twenty, 2 and housekeeping consumerism elevation of property insurance private hospitals.
And also of the market expansion, we have seen.
The other drivers variant that so as we commercialize the ERP as we have already set.
Repeat the need that the your USP.
Decline of China business will be determined by how fast and the extent of USB.
The foundation, which has been winning from provinces the provinces and all of that we definitely see the decline maybe much.
Different from SME.
And what we saw on the unanticipated and Jason 1 of the point just to kind of.
For you to understand the phasing of this business into this year.
We obviously as both Mike and of G pointed out.
Performing better than expected both in hospital the retail channel. The second half of this year, we're going to see a step down in the revenue starting with third quarter for China, Greater China region, because of the timing of MVP. So thats all anticipated in the guidance reflected in the guidance. It is doing better than what we had originally anticipated, but you will see a step down from the second half of this myself.
And we're starting of the higher base as we go into 'twenty 2.
Next question please.
Thank you. Your next question is from Nathan Rich of Goldman Sachs.
Hi, Good morning. Thanks for the question since you and maybe just following up on your previous comments and the last question.
It seems like the performance so far we're kind of puts you on track to kind of be above the EBITDA range. I know you guys made comments about.
Phasing with respect the competition in China, ERP and also of Covid.
But it seems like I guess in total of those headwinds with the map to amounts of something like $400 million.
To get you kind of back to the midpoint of your full year guidance. So I was wondering if you could maybe just comment on some of those moving pieces for the back half as we think about sizing them.
As we do our models for the year. Thank you.
Yes.
No listen.
There's been a lot of the other things going on we're very we are very very pleased with the performance the strength of the business.
All segments of product grouping.
<unk>.
The momentum we have getting into the second half. So there are a couple of things out of going on and I'll walk you through both on the revenue and EBITDA lines. So.
The revenue line, starting with that so we talked about China, performing better than our expectation, but we will expect us step down in the second half because of the timing of Covid and BBB.
The second part we have is the <unk>.
Anticipated competition in the product slide with sale of Zululand for pharmacy, all reflected in the.
In our guidance, but that will have an impact of the second half versus first half.
Will have an impact on the gross margin as well and then you have to a lesser extent you have the some of the COVID-19 related buying that happened in quarter, 2 that is going to step down in quarter 3 quarter for what all of those things together you will see an awfully second half revenue to be lower.
In the first half, though the end of the extent of the business continues.
Now taking the EBITDA exactly some of these elements that I mentioned the level of flow to impact of the gross margin do you when do I expect the gross margin for full year to be in the in the range of 50% to 59% the other important item.
Having any effect on the EBITDA is the the pickup sequentially.
SG&A and R&D expenses and Thats, all again reflected in the guidance, we are expecting the SG&A and R&D to pick up part of for this COVID-19, but part of it is deliberate design of investing into the business. So that we have not only achieve an objective for this year, but have a stronger momentum getting into next year all of those are reflecting in the.
EBITDA for the second half to be slightly lower but again, the strong and on the cash flow again, the performance strength and everything continues that I mentioned about the working capital improvement initiatives better cash flow from operations.
And the higher.
The only offsetting on the cash flow side, the higher Capex that we expect in the second half what's the fix in terms of averages on the timing of that that kind of gives you the sense of the rhythm of all the items.
And we'll be reassessing again.
As we see the quarter evolved where the weather.
Need to get for the update for the guidance of note.
Thank you. The next question please.
And your next question is from Greg Fraser of true it.
Good morning, guys. Thanks for taking the question.
On China can you comment on your expectations for new product introductions from the legacy <unk> portfolio.
Should we think about the timeline for product submissions and potential approvals. Thank you.
Yes can you just comment on the submissions we already made.
What's to come.
I think.
The 2 components of of that 1 is.
Existing business in China, especially the strength of Upjohn legacy Upjohn business, we will be able to get water.
Mylan legacy portfolio of then what Mylan was doing with the limited presence that's 1 piece the <unk>.
The pieces of new growth reach without losing at the time, we haven't been.
We said, we have identifiable Tony for Us now.
6 of them are scheduled for filing all of this year have already been flight. So we are very much on the attack and I think from a regulatory point of view of it takes about 3 years to get these first of all of the finish line and it comes from China.
Thank you. Your next question is from Gary Nachman of BMO capital markets.
Hi, good morning on the interchange ability approval for <unk>, just talk about the challenges getting that done.
How difficult for other companies to potentially get that interchange ability as well for insulin. So what is sort of the barriers to entry there.
That would be helpful.
Just talk about the plans for the launch Les.
Later this year. So how are you thinking about pricing dynamics in formulary acceptance.
Central share capture.
How much is factored in the $690 million guidance for new products for Assembly Assembly is there anything meaningful in there. Thank you.
Gary Thank you before I hand, this over to Rajeev, Let me just add a few I would say a little bit of color.
To this and what this means.
Does this <unk> historic for its approval of edition of the ability for any biosimilar in the U S.
For the past of that is not always the straight 1 of the regulatory landscape has evolved we have evolved with it and I.
I think we should be so proud of what we have done at the team.
In enabling this and being tenacious enough to evolve with it and sticking to it and actually.
Getting this done.
The significant interest as you know from from policymakers from advocacy groups et cetera, and what this potentially could mean for access for patients.
To be honest meaningful from the on a personal level because 20 years ago I'll, let the global marketing effort of Orlando Center for launch So I know what this product can do how good is of patients we're excited about.
Typically what this means of assigning side with this but the estimates of patients and I want to ask Rajiv to comment on the commercial potential and the timeline also that we see in enrolling the zones.
And 1 of the question was about how difficult is the.
The change, but at the end I would share it.
Nope.
Net ideally suited for the entertainment media of the chronically administered by some notice of disease needs to be relatively stable and with the limited chunks of revenue.
The decline and it's the case by case.
It does include the current guidance across for the Biosimilars of interchangeable Dean foods pharmacokinetic England's occupancy switches of debts.
Difference desk versus that effort for us.
Yes. It is.
In each of the work and science and water coming back from the law of large very excited and very proud of this achievement.
It's a new levels of the new Mtc cohort and the FDA has agreed with us that framework from transit transition in the interchangeable from a wildcard.
The thing out of non Inc.
The journey and we ended the lead also in the timeframe of what period of about 6 months to manage which aligns well with ramping up all of our supply of interchangeable market.
From a margin point of view of if anybody knows this market. This market is not just Marshall of driven by the formularies of <unk> made up of Medicare part D.
The.
Second 1 cohort by the <unk>.
Pbms.
The third 1 managed Medicaid.
VA hospital of corrections Gatsby, and FFS and if the market channel segment has its own dynamics and nuances. So there is no 1 silver we'll leg of our 1 strategy to commercialize our goal will be to basically drive the access and we believe that the.
Substitution.
At the pharmacy level of his help us.
Drive that and we see from timing perspective, we see some you will see some uptick in the market share around for the fourth but the actual net of decent impact of in the G&A ability.
So the market share perspective of success will be seen over the next year for us.
The long term opportunity with the long period and in the pay dividend.
Just 1 thing I of mid cycle.
A question of how long, we do have several months exclusive D.
Our ink for any other intangible protocol. So I think I have 1 for most of Europe.
1 of the thing.
Got no bearing on $6.90 for this year.
This is going to be as of as you pointed out bigger impact next year. Thank you for it.
The next question.
Thank you. Your next question is from Nevada tie of Citi.
Hi, Good morning, just the sort of last 1 you are for you and thanks for the card out of you. Just provided you can expect Europe to limit reimbursement of the BP pricing and can you comment on the early impact of any qualitative comments.
You can make for 2022, thank you.
And so let me take the 'twenty 2 question first and I'll, let rajeev talk about the Europe, and how we see the rolling out such as.
It's heterogeneous as province by Province, and we're getting more clarity on the but on the 22 questions. Let me just reemphasize again.
What I also said in my prepared remarks that we really see the $6.2 billion in EBITDA as the true floor for this business I think with the performance we have under our belt now from both the first and the second quarter. It is more clear than ever to us if thats the case.
We have really strong momentum coming from from those 2 quarters and we feel good about where we are.
If that's the way EBITDA, if you're looking at the cash flow.
Clearly, we see cash flow growing strongly growing in the coming years and that's because of the continued performance from where we see EBITDA.
It's from reduction of onetime cost and Sanjeev was very clear about where we see the devolving to basically.
Legacy Mylan levels by the end of 2023, so you see the improvements that can come from just that factor and then as we've seen in this quarter continued improvements in working capital and cash flow conversion. So that drives cash flow very strongly and then if you ask the revenue we're not really talking about revenue yet for.
<unk> the strategy to the plan that we're doing that will be completed towards the end of the year that gives us we will be able to give you much more clarity on the trajectory, but in summary, we feel good about where we are.
Richard if you want to comment on the ERP question.
<unk>.
The European from the policy point of view, the absolute and is being gradually implemented and Michael said, the tightest Heathrow unit and it's also evolving.
The provinces.
Any thoughts of elite.
For the big provinces, like Shanghai and Beijing.
Did that doing it in the gradual maybe some provinces are doing.
Using the right for the 50% of the business the price.
Of those we are seeing the person.
Loving and the CFO David.
Yes.
Thank you. Your next question is from David Epsilon of Piper Sandler.
So sorry, if I missed this but can you just talk about.
Youre thinking about the trajectory of Epipen.
Beyond this year, particularly with the standard.
And the uptick from the margin as the result of mass vaccinations or at least in part of that from car T for that the gist.
Give us your general thoughts on trajectory of.
Of that franchise and then just a couple of other product specific questions any color on.
How are you thinking about launch timing of approval timing for iron sucrose and also injected for that would be helpful. Thanks.
Okay.
Given the Straits of you epipen little bit of rhythm of the numbers there and then anything on pipeline modules.
At the bank has been and will continue to be a meaningful growth from our global business point of view.
For the U S markets, because even in the USA we have been.
For the non from the bulk of late third piece of the market share.
The existing of multi multi billion market non BCC.
Losses.
Blake.
<unk>.
It will continue to be of meaningful for us actually we are more excited the pressure.
<unk> and the market share in all of the site.
We are seeing in the euro and many other emerging market. So as we expand as the.
Further build upon this franchise.
This is 1 of the product which will be.
It across the other geographies and expanding it globally.
Yeah.
We want to hit the question on the <unk>, Yeah, so items growth in Vienna.
<unk> is most likely to point of view.
Losses.
Very good thank you rajeev.
Operating last question please.
And that was your final question I will now turn the call back over.
So Michael get lift CEO to make a few closing remarks.
Well. Thank you for all of the question.
And look in summary, I just want to say again, we're are performing at or above the upper end of our own expectations across the business with the good where we are we.
While meeting our financial commitments that includes the dividends I think it was the debt pay down when track on synergies and we're delivering very strong and sustainable free cash flow generation I think that this quarter has made that very visible.
The continued to make good progress on our pipeline and Rajeev highlighted a few of those including the story approvals of assembly interchange ability.
We've raised the guidance for 2021, and I want to reiterate again $6.2 billion is the true floor of.
This business in terms of adjusted EBITDA and Thats more clear than ever we think we can definitely be at or above that level going forward and lastly, we've embarked on a robust bottom of strategic planning effort that work will complete by the end of the year, we look really for where to communicating that with you. When it's completed so thank you very much and that concludes the call for today. Thank you.
This does conclude today's Beatrice 2021 second quarter earnings call and webcast. Please disconnect. Your lines at this time and have a wonderful day for day.