Q2 2022 Viatris Inc Earnings Call
Good morning, My name is Leo and I'll be your conference operator today.
At this time I would like to welcome everyone to the Villa Trust 2022 second quarter earnings call and webcast. All participant lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer period.
If you'd like to ask a question at that time. Please press star one on your telephone keypad. If you need to ask further questions you may reenter the queue.
Lastly, if you should require operator assistance, please press star zero.
Thank you.
And now I'll turn the call over to Bill sub Lipski head of global capital markets. Please go ahead.
Thank you and good morning, everyone welcome to our second quarter 2022 earnings call.
And me today is Michael <unk>, our Chief Executive Officer, Rajiv Malik President and Sanjeev Aggarwal, our Chief Financial Officer.
A copy of today's presentation and other earnings materials are available on our website at Investor <unk> Com during.
During today's discussion.
We will be making forward looking statements on a number of matters, including our financial guidance for 2022.
Strategic initiatives. 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 slide two of the presentation and our SEC filings for a for explanation of these risks and uncertainties.
We will also be referring to certain actual and projected non-GAAP financial measures to supplement investors' understanding of our financial performance non-GAAP financial measures are reconciled to comparable GAAP measures on our website and in today's presentation.
With that now I'd like to hand, the call over to Michael.
Thank you Bill and good morning, everybody. Thank you all for joining us for our second quarter 2022 earnings call.
I am proud to report that we're hitting on all cylinders operationally, even while foreign exchange rates continued to be challenging.
And we have now demonstrated six consecutive quarters of strong performance.
We are delivering on our financial and strategic commitments.
We're making great progress on the reshaping initiatives, which we announced in February .
Remember Beatrice was designed with diversification and resilience in mind.
We believe our geographic and product diversity allows us to balance occasional headwinds in one part of the business with opportunities and others, which we expect will enable us to deliver consistent and predictable performance overtime.
Okay.
We are reaffirming our full year 2022 financial guidance ranges for adjusted EBITDA and free cash flow.
Because of our continued strong operational performance, we believe that we can absorb the foreign exchange rate impact within those ranges.
However, we are revising our full year 2022 financial guidance range for total revenue solely to reflect our current expectation of the negative impact of foreign exchange rates.
You will hear later more specific commentary on the guidance ranges for all three of these metrics, including our consideration of the foreign exchange rate impacts.
Now, let me share some highlights from the quarter.
In the second quarter, we reported total revenue of 4.12 billion and adjusted EBITDA 148 billion.
Free cash flow generation continues to be strong at $719 million for the quarter.
I am pleased with our solid performance across segments, this quarter, particularly in China, and our operational growth in Europe .
Our continued strong performance has enabled us to continue to deliver on our financial commitments with debt repayments and returning capital to shareholders through the payment of our dividends.
In the first half of the year, we paid down approximately $1 $5 billion in debt and we are on track to achieve approximately $2 billion in debt repayment for the year.
We continue to be committed to maintaining our investment grade rating, which is something that we believe really differentiates us from our peers.
Our board of director has again authorized payment of a quarterly dividend of 12 <unk> per share.
And we're very proud that our internal development engine continues to deliver our key pipeline milestones, which we believe positions us well to continue to move up the value chain.
Overall, we're on track for approximately $600 million in new product revenue for the full year and we look forward to the anticipated launch of Lenalidomide in the second half of 2022.
And finally, we're continuing our successful integration capturing synergies and simplifying our processes and our organization by the end of this year, we expect to have exited substantially all transitional service agreements with Pfizer. In addition, we're seeing continued strong engagement from our employees.
We're all working diligently to execute on our priorities.
Okay.
Now as you remember in February we announced a significant global reshaping initiative to unlock trapped value and build would we expect to be a simpler stronger and more focused company, that's well positioned to deliver more access to patients and more value to shareholders.
We continue to make good progress on the Biosimilar transaction with our partner <unk> biologics.
The transaction received key antitrust clearances in the U S, India and other markets.
And we are still targeting a deal close in the second half of this year.
While we await final regulatory approval from the reserve Bank of India. The two companies have been working productively to put plans and transition service agreements in place to ensure business continuity for patients customers and importantly, our colleagues.
We're also making good progress on the previously announced divestitures of other select non core assets and we continue to expect to execute against these plans by the end of 2023.
With regard to business development, we further ramped up our inorganic activities in our global healthcare Gateway.
We're looking at everything.
We remain therapeutic area agnostic.
And our business development efforts are centered on bolt on and tuck in opportunities that match, our three identified therapeutic areas for moving up the value chain as well as other opportunities.
In summary.
We had a very strong quarter and we're excited about the future we're building for the interest.
The entire company is focused on executing on the initiatives, we set forth for the business meeting or exceeding our operational goals that we've set.
<unk> generated significant free cash flow.
In unlocking value, while the reshaping our company for a stronger future.
With that let me turn it over to Rajiv Rajiv.
Thanks, Michael and good morning, everyone.
Our six consecutive quarters, we have consistently executed against our overall operational priorities.
Our strong operational performance this quarter reflects the resilience of our diversified business, we have deliberately vague.
As shared before we are not dependent on any one market any one product and we remain agile and opportunistic in how we manage the business with a goal of maximizing the strength of each market and address unforeseen challenges.
Our execution has been and continues to be a team effort and I would like to tackle colleagues for delivering another solid quarter and continuing to meet our customer commitments.
The strong business performance and the execution of our underlying plan in the first half of the year supported by consistent supply gives us the confidence that the momentum will continue for the second half and deliver our operational commitments for the year.
We also continue to expect to achieve our approximately $600 million new lost revenue target for 'twenty two.
Moving to our quarterly segment results.
I will be making certain comparisons to second quarter of 2021 results on a constant currency basis as less comparison.
Rational basis, our CSR plan that supports our guidance.
These comparisons exclude the impact of foreign currency exchange.
Our North American business represents a balanced portfolio consisting of several brands complex devices and many other genetic products. We believe this mix per whilst the business enhanced stability and predictability.
<unk> continues to grow and deliver high teens and epipen performed better than we expected.
We experienced healthy demand for our genetics portfolio, while it can add up once again.
Again delivered a better than expected performance.
We look forward to the expected launch of Lenalidomide in the second half of the year.
Regarding <unk>, our FDA approved generic Symbicort, we anticipate a ruling from the district court in the coming months on the trial that was held in May.
We also have a separate case.
On a newly issued patent that is in front of a different judge in the same court.
We remain prepared operationally and continue to look forward to bringing the product to market.
Yes possible date as these court cases develop.
Our European business had another strong quarter, delivering 8% year over year growth.
Creon, Dymista bluefin and our thrombosis portfolio showed solid performance.
France, Germany, Italy, and Spain led our growth.
The region also benefited from certain customer purchasing patterns in the quarter.
We expect that the new launches across Europe will be another key driver for 22 performance.
The emerging market segment delivered another quarter of consistent performance and was in line with our expectations.
We delivered strong performance in key markets, like South Korea, Brazil, and Malaysia, and in key brands like Lyrica and our RASK.
The year over year change was driven by previously disclosed anticipated.
Therapy landscape changes and sales of its second quality related products in 'twenty one.
Excluding these two items total net sales were flat to the prior year.
Our <unk> segment performance this quarter was driven by better than expected performance of our generics business.
As well as our off patent branded portfolio.
Lyrica and Celebrex and Japan came in better than expected.
Additionally, the generics portfolio in Japan benefited from favorable market dynamics.
The generic portfolio in Australia also performed better than our expectations, which will be further supported by the addition of a key wholesale and pharmacy customer.
Greater China continued its strong performance and exceeded our expectation this quarter with 1% year over year operational growth.
Our ability to manage the business and supply chain effectively through the Covid lockdown.
Is it a testament to our combustion strength in this market.
Our hospital channel again demonstrated a strong performance led by Lipitor and Norvasc.
We are on track to meet our full year expectations as we continue to navigate the evolving health care policy.
Okay.
We also continue to make steady progress in building up our R&D portfolio for China.
I will now share an update on our pipeline, which builds upon our strong legacy in the development of value added complex products and our extensive scientific capabilities.
I am pleased to report that we have been able to successfully manage their trial.
<unk> acetate once monthly and remain on schedule. Despite the unfortunate situation in Ukraine.
We expect to read out our phase three clinical trial by the end of this.
Timber and we remain on track to make our U S submission in quarter 123.
We received FDA approval of Angola, Mark Ritchie said genetic to Gilenya and are on track to launch in the U S and 24.
With our settlement date.
We filed our submission to Octreotide in U S and this may which keeps us on track to launch in 'twenty four.
Our new NSS Ophthalmic program <unk> 139 for the treatment of moderate to severe.
Chronic blepharitis is making steady progress and we intend to submit the IND for this program at the end of the year in order to initiate the phase III clinical trial in quarter $1 23.
We are making steady progress on our biosimilar to Botox program with reverse.
We are targeting a BLA submission in 2025, and we remain committed to the launch.
Of this complex biosimilar at the earliest possible launch and the United States.
And finally backlog expect FDA site inspection of two office sites to be conducted in the next few weeks, which hopefully will pave the way for Biosimilar Bevacizumab and incident as part approvals later this year.
We believe we are well positioned to add more complex products and pursue additional opportunities to further move up the value chain by leveraging our global healthcare gateway and strengthen our pipeline and the previously stated therapeutic Ats of Gi ophthalmology and dermatology.
And lastly, an update on integration.
I am pleased to report that we continue to make significant progress.
As you May recall, the legacy Upjohn business was heavily dependent on Pfizer systems and infrastructure, which was supported by a significant transition services agreement.
We are currently on track to exit the remaining Pfizer TSS by end of this year and I would like to attack all please from the actress and Pfizer around the World supporting this important initiative.
We are also on track to achieve at least $1 billion in cumulative cost synergies by the end of 2023.
With that let me now turn the call over to Sandeep.
Thanks, Rajiv and good morning, everyone.
<unk> 16, and 17 show second quarter financial highlights as well as the results for the first half of this year.
For the quarter and first half of 2020 to the operations of the business were in line or slightly ahead of our expectation.
This performance is across our global diversified portfolio, Brian genetics and complex projects.
As anticipated operation revenue was solidly in line with our expectation, but slightly down compared to prior year.
Adjusted EBITDA and free cash flow well ahead of expectation and we were able to offset foreign exchange headwinds.
The business benefited from strong adjusted gross margin lowered adjusted SG&A due to the realization of synergy and disciplined spend management.
Cash flow benefited from our cash optimization initiative.
And reduction in one time cash cost.
Moving to slide 18 for the quarter.
We have seen dollar strengthening significantly at Greens major currencies, including the euro.
As a result net of hedging activities foreign exchange had an impact of approximately 7% on net sales versus the second quarter 2021.
Net sales were in line with our expectation on an operational basis, Don versus prior year by approximately 3% due to anticipated drivers.
Our developed market business has a strong quarter and we're operationally flat versus prior year.
This performance was driven by strong growth in Europe due to category diversity.
Actually offset by anticipated competition on key products in North America.
Yeah.
As anticipated other base business erosion was primarily driven by lower ARV volumes due to the anticipated change in therapy landscape and lower sales of certain corporate related product.
New product revenue was driven by interchangeable insulin largely in North America.
Despite foreign exchange headwinds, we had another solid quarter of adjusted EBITDA that were ahead of our expectations.
Adjusted gross margin was driven by strong brand performance and favorable segment and product mix.
SG&A continues to benefit from our synergies integration activities and disciplined spend management.
Turning to slide 19, we had another excellent quarter with better than expected free cash flow of more than $700 million up significantly versus the prior year.
This improvement in our cash flow conversion was driven by positive changing changes in the operational working capital and lower one time cash cost.
Free cash flow through the first half of the year was strong at $1 8 billion.
An increase of approximately 40% or $500 million compared to same period last year.
Slide 20 illustrates our capital allocation framework and the strong and consistent history of free cash flow generation since the formation of the interest.
I am proud to say that over the last six quarters. The company has generated more than $4 3 billion of free cash flow.
We're well over the halfway mark of our goal of generating more than 8 billion in free cash flow by the end of 2023.
This has allowed us to deliver on our capital allocation commitment for.
For the year, so far we have repaid approximately one 5 billion of debt and more than $3 5 billion since the beginning of 2021.
Additionally, we paid approximately $290 million in dividend this year and approximately $690 million in dividend since the beginning of 2021.
We remain committed to our 2022 debt repayment target of approximately $2 billion.
<unk> strengthened our balance sheet and support our commitment to maintain an investment grade rating.
We expect to accelerate financial flexibility through the anticipated closing of Biosimilar transaction in the second half of 2020, which we expect to net approximately $1 6 billion after tax proceeds.
As we look ahead.
We expect our capital allocation framework will broaden with potential share repurchases and tuck in or bolt on business development opportunities.
Before I discussed our revised 2022 financial guidance. If you recall our commentary May mentioned, we would reassess the foreign exchange impact on total revenue adjusted EBITDA and free cash flow.
The dollar has strengthened significantly across major currencies and approximately 70% of our business is non dollar denominated.
Moving to slide 23, the business is in strong position to first six months of the year and we expect full year revenue to be in line if not slightly ahead of our expectation on an operational basis.
With respect to our revenue guidance, we now estimate an approximately 7% foreign exchange headwind on a full year basis, assuming July rate hold for the remainder of the year. As a result, we're revising our revenue guidance range by 800 million to $16 2 billion to $16 7 billion.
Our revised revenue guidance takes into account foreign exchange impact through the first half of the year and approximately 600 million split evenly between third and fourth quarter for the.
<unk> 2022.
Operationally, we expect revenue will be driven by continued ramp of new products, including the U S launch of <unk>.
<unk> in the second half and the seasonality of inflow in developed markets.
Because of our continuing strong execution and operational performance. We currently expect to be able to absorb the foreign exchange headwind within our free cash flow range and also our.
The adjusted EBITA Bridge.
As it relates to adjusted EBITDA, We may end up towards the lower end of the range.
Our expectation to absorb foreign exchange headwind is due to several factors, including positive product mix benefiting gross margin favorable SG&A due to synergies and expense management as well as increased cost optimization initiatives and lower capex.
So let me cover some of the expected drivers for financial performance for the second half.
We expect sequential increase in SG&A and R&D in the second half of the year.
We expect cash flow will be heavily weighted to.
To the first half of the year, mainly due to the timing of one time cash cost of which we expect approximately two third to come in the second half of this.
This includes the previously announced <unk> litigation settlement, which was paid in July . In addition, we expect capital expenditure to ramp up in the second half of the year.
We're pleased with the strong first half performance the momentum we see in the operations of the business position us well for the remainder of the year.
Our capital allocation framework, including debt paydown goals commitment to dividend.
The value we see in maintaining an investment grade will continue to be important drivers in creating long term value.
Now I'd like to turn the call back to the operator to open the call for Q&A.
At this time, if you would like to ask a question. Please press star one on your telephone keypad, if you wish to remove yourself from the queue do so by pressing the pound key.
We remind you to please pickup your handset and please limit yourself to one question.
We will take our first question from Jason <unk> of Bank of America. Your line is open.
Hey, guys. Thanks for taking my question. This is <unk> on for Jason Barry. So I just wanted to focus on China do you have any exposure to upcoming rounds of Edp and if so can you size and provide some timing when you would expect to see any impact. Thank you.
Okay. Good morning. Thank you for the question Rajiv do you want to talk about the beauty in China.
Yes.
I think we are.
China is concerned we have been living with this evolving health care policy.
Now you are into EPS of ERP to the Colgate cycles, and we continue to see strong performance from one of its kind.
Very strong commercial infrastructure. So we have for our team is flat.
Well, the transition grout and product channels to hospital channel.
<unk> continue to perform better than our expectations.
Okay. Next question. Please our next question is from Elliot Wilbur of Raymond James.
Thanks. Good morning, just one question for Sanjay just wanted to get a little bit more detail in terms of the change in outlook with respect to FX and then the anticipated impact on the EBITDA and free cash flow line.
At the beginning of the year. When you first provided initial outlook you talked about in.
And FX impact roughly $350 million, then there was an anticipated negative impact of about 35% of that to the EBITDA line. Now obviously, you have a much bigger potential headwind coming from FX, but not really any impact to the EBITDA or free cash flow line. So maybe you could just go.
Into a little bit more detail in terms of whats off setting that whether it may be.
The effectiveness of your hedging programs of some hedging gains or it's really just more about sort of the natural mix of the business and then just having the appropriate sort of natural.
Our hedges to that thanks.
Thanks Elliot John So let me unpack that just a couple of things I want to just.
So first of all I think.
Put the FX aside as.
As we've said that.
Turning remarks business is performing very well operationally.
Whether you look at segments and look at new product revenues.
Spend management cash flow generation pipeline business is performing.
As expected if not slightly ahead.
For the first two quarters and that's the outlook we have for the rest of the year. So that's.
Keep that in Dubai, that's kind of what is going on.
In terms of FX, when we gave our guidance back in February we had anticipated approximately 2% FX impact.
Roughly $350 million on the topline and that's what we showed the guidance chart.
And then what has happened is when we came out in May for our first quarter call. We highlighted that theres going to be additional 2% FX impact on top of that based on the rates.
The time of our.
Our conference call in May because the dollar has further strengthened now.
Now when we are in July that's what we've upgraded the updated the guidance.
Overall FX impact on the top line.
These incremental of 5% so 2% was built into the guidance.
5% is what we have that's the 7% that we've got in APAC.
Just a function of Elliot 70% of our businesses.
Non U S dollar denominated 45% of foreign exchange.
Impact comes from Euro and Euro is at historic low as you would know about that.
Do have the hedging programs in the company the industry standard layering, we do and to the extent, we can and the impact that we're talking about is it reflective of that.
Coming to the last part of your question in terms of hope Youre able to offset that clearly we are able to offset because of the operational strength of the business. So if you look at it in EBITDA.
We have done.
So far we are ahead of gross margin.
Cause of the favorable mix in terms of our product segment and excellent control of our cost of goods.
And then on the SG&A line, we are doing better with synergies and disciplined expense management. Both is going to help on the EBITDA line to be able to offset the impact of that.
You'll notice the we've actually increased the gross margin midpoint by 50 basis points on a full year basis because of the strength that we've seen.
Business so far.
The last point about free cash flow.
Actually done very well as you see in the first two quarters over 40% versus last year, we continued to see strength in our cash optimization initiatives that will actually help and then there is some lower capex.
Capex cost that we're going to be able to offset so we feel very confident.
Got.
EBITDA range and the free cash flow range that we provided.
Next question please.
Our next question is from Chris Schott of JP Morgan.
Great. Thanks, so much for the questions I was wondering a little bit more color on additional divestitures in terms of just how far along are these discussions and maybe even kind of more broadly does the rising rate environment. We're currently in is that impacting how.
Prospective bidders or thinking about valuation or even just one set of assets that you may be looking to sell.
More color on that would be much I appreciate it. Thank you.
Sure Chris Good morning, and thanks for the question.
Any opening remarks, let me first talk a little bit about biochar on the progress there is clear we're making good progress we received all the antitrust clearances.
We made good progress with our partner Novartis on also setting up TSA saw quite transition all of those things. So that's on track for closing in the second half are very very confident about that.
The divestiture as I also said we're on track.
We are going to close these by the end of 2023.
We're making good progress there as well.
And talk to valuation is concerned really.
It's not it's not so much a concern for us at the moment I think these are high value assets. They are well performing businesses fundamentally nothing changed on that.
We'll give an update as we go along.
Next question please.
Our next question is from Omer Rafat of Evercore.
Guys. Thanks for taking my question I had a question on the clarification if I may.
On capital allocation.
Especially after the Viacom deal closes there's been investor question around how.
The dynamic nature of the market right now could or could not impact how youre thinking about weather.
Whether you will have preference is around buyback versus debt paydown versus possibly smid biotech M&A.
Be curious about your latest temperatures on that and also on the Letterman study.
It is the data in house already it looks like the 52 week endpoint was heard back in May timeframe. So I'm, just trying to understand sort of the amount of time, it's taken to get the data process. Thank you very much.
Okay very good so I'll take the first question Rajeev, maybe you can address the second one so on capital allocation, but we're very consistent in our strategy is very clear first of all as a basis. We are confident to meet our 2223 financial commitments, which includes dividend you saw four has got again.
<unk> per share dividend.
Pay down since you just gave you an update on the progress good progress we've made there and then maintaining investment grade that's the baseline as we look ahead, we expect to close the <unk> transaction in the second half of 'twenty, two which will provide us optionality and flexibility with capital allocation and then the other non core asset divestiture also remain on track for.
<unk> suite, so with regard to share buybacks other capital allocation decisions.
Those decisions and outlook value for shareholders in mind at the right time for the right reasons.
All of the circumstances at that time.
If you wanted to.
And more of that in the last monthly as you remember we had already indicated that about 10% of the patients for this trial. We are in the Ukraine and in fact, we were anticipating at one point of time that might be more delay in managing that book I think the team did a great job and we're going to ask my prepared remarks as I mentioned.
We will be having at either of these.
Yes.
And some sometime in the middle of September So we're looking forward to that.
Sharing with us at all.
Okay next question please.
We will take our next question from Gary Nachman of BMO capital markets.
Alright. Thanks, good morning on your scaling back efforts on spending in order to manage the EBITDA it phases.
How much of that will come back and how much.
Of these costs are permanent so.
So how much was I guess from original cost synergies and how much of that might be new.
And then just talk about some of the other levers that you have to improve cash flow like the working capital and the reduction in Capex, how should we think about those trends going forward and then also the improvement in gross margin.
How that should trend for rest of the year and into next year and how durable those improvements are thank you.
Zero would ask you to start on that and maybe if you can it okay sure. So.
Gary Let me take on three items, one by one so clearly.
As you heard in our remarks.
We are <unk>.
Managing our synergies and integration very well and expect to achieve.
Synergy target that we laid out and then we're doing exceedingly well on managing the expenses.
So clearly all of those items are going to stick and that is clearly obviously some benefit that we're getting because of the FX as you see it but but all the all the items that we are seeing in terms of SG&A.
SG&A line.
Sticky and sustain over a period of time clearly as we look for the second half of the year, there is going to be a little bit of a ramp up.
Because of the timing of the spend but overall, we feel we feel good about the trajectory of ours.
The SG&A line.
With regard to again on the.
Free cash flow.
<unk> is doing a permanent nature of these are fundamental drivers of working capital whether you're looking at how we pay how we receive.
These are fundamental drivers of the changes that we're doing and how we operate and theyre going to stay stay with us and clearly there is some benefit that we're getting this year a little bit on the lower capex budget essentially be the broader point about improvement in cash flow will sustain and help us on the.
On the camera coming it hasn't been lowering onetime cash cost, which is again is a permanent benefit that we see as we go forward. The last item is on the gross margin clearly as we see in the first.
Two quarters, we have a better product mix, we're getting a better products the higher gross margin and some geographies, which have a higher gross margin and that our cost.
Controls are doing very well on the cost lines again those bent.
Benefits are going to stick with us for the remaining of the year and as we come out with next year's guidance will provide more details on that.
And I think overall overall comment I would make us our business is strong we now have six quarters of strong operational performance. This is not liquid.
And the cost cutting business of cost cutting or achieving results that we are doing this to set up the business strengths of the business over the long term.
Next question.
Our next question is from Greg Fraser of Truest Securities.
Good morning folks thanks for taking the questions.
I'm Nicole camera program, what's the bar for success in the Phase III study with efficacy looks similar to SaaS and Tolerability. Its favorable is that a win and how youre thinking about the commercial potential of that product. Thank you sorry.
Sorry, just a clarification you were a little bit unclear, which study are you asking about.
Doug Glatiramer once monthly.
Okay.
Your first question sorry.
The bar Christy if thats, what youre, hoping to hear in that study and also how you're thinking about commercial potential.
Yeah, so on the auto.
And felt.
Very clearly we are looking into the improvement.
On that it's not the progressive relapsing one.
And so that well, it's very much at the moment, but the indication of the Copaxone is what we're looking forward is the effectiveness once monthly.
Yes.
Because amongst priority trial yeah.
Our.
Next question please.
Our next question is from Ash Verma of UBS.
Hi, guys. Thank you for taking my question. So just wanted to understand the levers for 2023 top and bottom line. We see consensus at 16, five and $5 eight EBITDA does that look like the right ballpark can you just directionally speaking.
Your partner <unk> recently added declined by seamlessly.
$1 1 billion and <unk> billion top and bottom driver for 2023. So as you look at your 2023 numbers.
This represents an adequate stepped down to you.
And my second question I would just add on the investing in the business. So <unk>.
Absorbing a lot of cost on the Opex side.
How is inflation playing in all of this you haven't made any comment on that I'm. Just curious how much of your opex is being driven up by heightened machine that is designed to optimize <unk>.
<unk> even more.
Then you would have otherwise.
Yes. Thank.
So we're not giving 2023 guidance. So that's what I would just say for the first question for the second business like all of our business are strong.
And I want to remind you we were actually when we get guidance, we already foresaw and include as inflation and the guidance that we gave.
I think one of the few companies that fit that.
So first a step at a time, we're performing as expected and the business was very strong.
Do you have anything you want to add no I mean, only thing I will add we are not cutting the cost to manage it exactly.
We are running and driving the business.
We had planned and we are hitting on all cylinders.
Whether it's by segment audits by our operations are expected to cost of goods.
And as a final point is again continue to look at the cash flow generation as you saw that in the six quarter. Its very very strong and as you get into the next year those benefits will continue and that as we reduce the onetime cash cost contingency.
Our significant cash flow generation of the company.
Okay.
Final question. Please.
We'll move next to David <unk> of Piper Sandler.
Thanks, So just.
A couple of high level questions just on capital deployment and certainly you've talked about this in the <unk>.
In the past but.
As you start looking at assets to buy.
Do you start to look at prior.
Prioritizing share buybacks differently or not prioritizing them at all and then.
Also as Youre looking at assets to buy.
Yes.
So we have a larger transaction.
The road, how do you think about the dividend.
Just help us understand your latest thought process. Thank you.
Sure David Let me.
Reiterate again, but we've been very clear consistent about what our capital allocation priorities are again guys.
Base the base.
We need to hit our 22, when we will have 22 and 'twenty three financial commitments that includes the dividend we're committed to a dividend that includes debt paydown, which we're very committed to.
Maintaining investment grade then with the divestitures, we have we get Optionality Bicarb transaction for the first time, which we expect to close in the second half we got Optionality and then with the other core assets, which are on track for end of phase III should we get additional optionality and again, we will make the right decisions with shareholder value.
In your mind.
At the right time for the right reasons, given all the circumstances at that time.
No well commitments on.
On assets.
We're looking at what business development, nothing really has changed from the analysis that we did is we continue to believe that the therapeutic areas that we've paid for moving up the value chain are the right ones I think that gets confirmed and we also continue to be agnostic and as we said we look at all opportunities.
Mobile apps the gateway I should say it is always is an integral part of our strategy is integral part of our business model to leverage our global infrastructure to leverage the commercial platforms that we have strength.
The business for the long term, we're very disciplined about this I think we've proven that over the last six quarters, but you should always expect us to look at all opportunities.
Nick or inorganic.
And David to your point about dividend.
Just kind of want to reiterate our commitment to dividend continues to be a priority of returning capital to shareholders.
That's very important for us and that will.
Our priority as we go forward.
I think we have time for one more question operator.
We will take that question from Nathan Rich of Goldman Sachs.
Hey, good morning, Thanks for the questions.
I'll ask both upfront first I wanted to ask on weather.
Whether you've seen any change in underlying pricing trends for the generics portfolio I think kind of looking at results from peers. So far this quarter are the updates have been a bit mix I'm, just curious kind of what youre seeing.
And then as inflation changing the conversation with the buying groups at all and maybe potentially support to pricing going forward and then you highlighted the progress with the <unk> divestiture I guess could you give us an update on.
The other kind of noncore assets that you might be looking to divest and kind of.
What you are seeing currently in terms of timeframe for when we might hear more on that front. Thank you.
So let me let me take the second question first because our Kodiak with it is we're on track for end of 'twenty, three and we're going to give you updates as we go along as it happens on the pricing dynamics I think is very important you understand the difference in the portfolios between different companies that make comments on it and Rajiv maybe you can comment.
There isn't any any prices.
Underlying pricing trend is an outcome of the portfolio and we have four.
Four years consistently worked through.
Shape of our portfolio to have yes of course, we will have some generic commodities, but more and more of the complex hard to maintenance with a different sort of erosion for quiet and as an outcome that that can talked out of this quarter for the last several quarters. We have consistently seen a company level, we have a price erosion novel.
At the enterprise level racquetball three four partner when it comes to North America, even at this blogger.
Except some exceptional items, we have seen about.
Now about 4% price erosion, so we see that continuing trend.
Mid single digit now had inflation gains up pricing.
Some of these discussions.
We expect that and what has actually started making a difference.
The buyers are also seeing the rationalization as every company is undertaking, especially at an oral solid products. They see that they are.
See that many companies discontinuing those products and I think that.
Sending a bigger message to the buyers that the sustainability of this very important industry is first time I think it's coming it was being put on the table. When we go back and have those discussions because the cash flows of this business are so important for us to reinvest and and bringing in more.
More cost to make products like Advair, obviously, because they're not going to work. So there's a balance and I think that the.
Discussion, which is right right right at this time on the table and I'm glad that we are having those type of discussion rather than just pricing discussion.
Okay I'll take that one.
Our quarterly earnings call, we reiterate what we got the message we are hitting on all cylinders operationally, we now demonstrate X, which we're very proud of six quarters of strong growth.
Operational performance was taken to our delivering on our financial commitments and we're also making great progress on our reshaping initiatives. We look forward to updating you more as we go along thank you very much.
This does conclude today's fee interest 2022 second quarter earnings call and webcast. Please disconnect. Your lines at this time and have a wonderful day.
[music].
Hum.
Yeah.
[music].
Okay.
[music].
Yeah.
Yeah.
Hum.
Okay.