Q4 2022 Viatris Inc Earnings Call and Investor Event
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Good morning, everyone welcome to our Q4 2022 earnings in 2023 guidance call.
With us today is our executive Chairman Robert Coury.
Michael Gettler incoming CEO , Scott Smith, President Rajiv Malik and CFO Sanjeev Noah.
During today's call, we will be making forward looking statements on a number of matters.
Our financial guidance for 2023, and various 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 todays slide presentation, and our SEC filings for a full explanation of those risks and uncertainties and the limits applicable to forward looking statements.
We will be referring to certain actual and projected non-GAAP financial measures to supplement investors' understanding and assessment of our financial performance reconciliations of those non-GAAP measures to the most directly comparable GAAP measures are available on our website and in the appendix of today's slide presentation.
An archived copy of today's presentation and other earnings materials will be available on our website at investor Dot Beatrice Dot com. Following the conclusion of today's call with that let me welcome Robert Coury.
Good morning.
When I spoke with you on November seven I shared my excitement for all that I saw ahead for Beatrice as we begin to approach the end of phase one of our strategic plan, which as you know has been our setup.
And now as we prepare to enter phase two beginning in 2024 I am pleased to report with our eighth consecutive successful quarter of execution behind us.
<unk> of our business model is well underway.
And though we are not giving guidance for 2024.
And even more confident today that we will not only generate a minimum of $2 3 billion of free cash flows.
<unk> transaction costs and taxes, but now also see the potential for accelerated top line growth from 2023 to 2024 as well.
This is on top of the expected topline growth you saw in this morning's press release between 2022 and 2023 after excluding the full year impact of the Biosimilars business in 2022.
Now turning to the other press release you saw this morning.
The board of Directors has appointed Scott Smith, as <unk>, New Chief Executive Officer effective April <unk>.
Scott will lead the company in the execution of our previously announced phase III strategy.
Scott has been a member of the <unk> Board since December of 2022, and is a deeply knowledgeable senior global biotechnology pharmaceutical executive with over 35 years of experience, including as a former president and Chief operating Officer of Celgene Corporation, where he built the oversaw the clinical development.
Registration launch and global commercial success of the blockbuster drug plasma.
Most recently, Scott, who will serve as the president of bio Alpine.
A publicly traded global biotechnology companies focused on the development of conditionally active biologic antibody therapeutics.
The Board view, Scott is a seasoned builder, who possesses vast global commercial and pharmaceutical expertise and a proven ability to build grow and manage large complex organizations.
We see a strong commercial and strategic expertise being complemented by his experience and organically building product franchises and executing business development and partnering activities. He also has substantial experience in the development of regulatory and clinical strategy, bringing products to market.
I personally have been very impressed with Scott's overall approach to leadership his deep industry knowledge and forward looking business mindset.
With our foundation is now firmly in place and as we enter into phase two of our strategic plan.
<unk> truly believes that Scott is well positioned for success as he leads the growth of the interest in the years ahead.
We are excited to welcome Scott and believe that he is absolutely the right choice to lead the company into the next phase of our journey.
I'd now like to turn the call over to Scott to say a few words himself.
Scott.
Thank you Robert and good morning to everybody on the call.
Credibly exciting time to become <unk> CEO I watch closely in November as the company laid out the next important steps and it's well crafted strategic plan, including its commitment to its future capital allocation priorities, which I totally support since then and particularly after joining the board and <unk>.
They are incredible level of engagement I've been extremely impressed by every moment I've met during this process and have also been inspired by all that has been accomplished in such a short period of time.
I strongly identify with futures, just culture, which when combined with the company's strategic forward looking mindset. It makes it a natural fit for me.
Just as importantly, I am also motivated by the company's strong financial profile and financial flexibility, which has one of the strongest balance sheets in the sector.
I can see many additional opportunities and options for <unk> to accelerate its growth in the coming years.
I believe that my franchise building business development and recent biotech experiences coupled with a great platform. We have to work from can accelerate <unk> momentum and help to deliver on its full value and potential.
I would like to thank Robert and the board for this amazing opportunity and look forward to collaborating with Michael during this transition.
I am very excited about the prospect of working with the board Rajiv Malik fans, even a ruler and the entire management team on the execution ahead, and lastly to the company's 37000 employees I am honored to have the opportunity to serve each of you and look forward to working with all of you in the near future as we can.
Continued to deliver on <unk> mission to empower people worldwide to live healthier at every stage of life.
Thank you Scott.
And I very much look forward to supporting Scot during the execution of our phase II strategy, while continuing to remain focused on identifying additional opportunities to further unlock value for our shareholders.
Also as Scott mentioned, Michael will be working closely with them to support a smooth transition and will then stepped down as CEO and as a member of the board of directors on April one of this year.
I and the board would like to personally thank Michael for his service and his dedication. During this critical time of the creation of the of choice and the establishment of the ongoing execution of our phase one strategy.
Wish him nothing but the best as he moves forward.
With that said.
I do look forward to answering your questions on the Q&A session, but for now I'd like to turn the call over to Michael So he can add a few comments and then also lead the walk through of our 2000, <unk> fourth quarter and full year earnings.
Michael.
Thank you Robert.
We began this journey three years ago, when we first made plans to embark on an unprecedented endeavor.
Combined Mylan and upjohn to create a company that would spend the divide between generic and branded medicines to more fully address patients' expectations or needs around the world.
Now it's been my sincere honor to serve as <unk> CEO for the past two years.
The opportunity to create a new kind of global health care company has been experienced that I will never forget <unk>.
And I want to thank Robert the entire <unk> Board of directors Rajiv Sanjeev My leadership team, but most especially all of our <unk> colleagues around the world, whose tireless effort laid the foundation for what I believe to be a truly bright future.
As the interest now embarks on its phase two of our strategic plan. This is now a natural time for transition.
And I'm pleased to welcome Scott into the address I'm.
Im looking forward to supporting him during this transition as he is now well positioned to continue to build on the company's momentum.
And now as usual here are some highlights for 2022.
Quarter four was another strong quarter in line with our expectations.
Into account the bike on transaction and IP R&D accounting.
Well the interest.
Is the eighth consecutive quarter of strong operational performance closing out another strong year.
In 2022, we delivered total revenue of approximately $16 3 billion U S dollars.
Adjusted EBITDA of approximately $5 8 billion U S dollars.
And free cash flow of approximately $2 $5 billion on a reported basis and.
At approximately $2 $8 billion after adjusting for the extra cost and taxes associated with the <unk> transition.
This strong performance has not only enabled us to continue to deliver on our phase one commitments, but.
But has also built a solid foundation setting our company up for 2024 and beyond.
Our integration plans have captured approximately $750 million in synergies to date and we're well on track.
To capture at least $1 billion of cost synergies by the end of phase one and we've exited substantially all of the transitional services agreement with Pfizer.
As of the end of 2022, we've paid down approximately $3 3 billion for the year in that.
And approximately $5 4 billion since the beginning of 2021.
We continue to exercise financial discipline.
Painting, our investment grade rating and continuing to reduce our gross leverage towards our long term target of three times.
We're returning capital to shareholders. Our board of Directors just has approved a 2023 dividend policy of <unk> 48 per share and has declared a first quarter dividend of <unk> 12 per share.
And cumulatively since the formation of the interest we've already returned nearly $1 billion to shareholders through dividend payments alone.
In January and February of this year, we've executed $250 million of our $1 billion share repurchase authorization now combined with the projected annual dividend. This represents an increase to date of more than 40% and returned to shareholders over 2022.
Put another way, 33% of the midpoint of our free cash flow guidance for 2023.
In addition to that.
We're continuing to execute on our plans to reshape our company for the future.
In November we completed our transaction with Viacom biologics to create what we expect to be unique fully integrated global Biosimilars Neider leader.
And as we provide transitional services to biotech and we're deeply committed to doing our part to help biochem biologic succeed.
In January we completed the acquisitions of Oyster point pharma and family life Sciences to establish our new via Tris Ikea Division.
And as we've said we anticipate the combined assets of these acquisitions to add to the topline immediately.
And growing strong double digits from their reaching at least $1 billion in sales by 2028.
Coupled with the strength of our organic pipeline, especially our complex injectables novel products franchises.
Both of which also has the potential to reach $1 billion in peak net sales. Each by 2028. This kind of business transaction is a very important component of our strategy.
And finally, we remain on track to execute our plans and announced divestitures.
Today, we also be sharing the 2023 full year guidance ranges for total revenue EBITDA and free cash flow, which sanjeev will give more details on in a moment.
Let me summarize.
By being laser focused on our phase one priorities integrating the two organizations.
Generating $1 billion in cost synergies.
Deleveraging the balance sheet and strengthening the balance sheet.
<unk> down at least $6 5 billion in debt.
Reducing our gross leverage towards our long term target of three times.
Maintaining our investment grade credit rating.
Returning capital to shareholders through quarterly dividends and the share repurchase programs and reshaping the company through key divestitures and acquisitions.
We are successfully stabilizing the business.
And as a result, although we're not giving guidance beyond 2023.
Confidence in our expectation that 2024 will begin a period of renewed growth of the address and generate at least $2 3 billion and free cash flows per year, excluding transaction costs and taxes.
Of which we intend to earmark approximately 50% annually to be returned to shareholders in form of dividends or share repurchases.
And now for one final time, let.
Turn it over to Rajiv and Sanjeev to share more details Rajiv.
Thanks, Michael and good morning, everyone.
Two was another solid year of business execution and performance.
Met our stated commitment, including delivering the pipeline integrating and capturing synergies and most importantly, stabilizing the base business.
We are really excited with how we see 2023 shaping up and nothing has changed from what we shared with you on November seven as we prepare for 2034.
Back to return to growth in phase II is clear and now it's about continued execution, which is what we do best.
One of the key drivers behind the stable <unk> business is the understanding and effective management of our established brands.
This was further evidenced by the better than expected performance of this category in 2022, driven by year over year growth from brands like Creon, <unk>, Dymista and you barely while norvasc and Amitiza and affects our help desk.
We expect this stabilization to continue into 2023 and beyond.
Let me now turn to the commercial segments and our expectations for this year.
I will be making certain comparison through 2022 results on a constant currency basis.
It excludes the negative impact of foreign exchange as well as excluding the Biosimilar business from 'twenty to 'twenty two.
Our 2023 business is on a gross block, we expect to deliver approximately $500 million in new launches plus $56 million in revenue from <unk>, which more than offsets to one 9% erosion of our base business.
As Robert mentioned in his prepared remarks, while we are not giving guidance beyond 2023, we see the potential for accelerated top line growth as we go into 2024 and beyond.
Developed markets grew by one party.
On the strength of European growth offsetting the decline in North America.
Slide 23, we expect this segment to remain flattish.
Europe grew by 4%, primarily driven by the stability of our branded business.
New launches and a strong performance from countries like France and Italy.
In <unk>, we believe we are well positioned to further grow this vision by 3% led by brands like Creon, <unk> <unk> and our thrombosis portfolio.
In North America, despite the solid performance of <unk> the business declined by 4% as we navigated the competitive headwinds on key products like <unk> and loss of exclusively on Markel <unk> and performance.
We project your belly to continue to have strong double digit growth in 2023, which will help offset the continued competitive pressures on certain key products.
These market dynamics will be the primary reason for our expectation of an approximate 3% decline in credit quality.
We are excited and look forward to bringing several new products, including generic symbicort to market. This year.
Greater China again performed strongly and grew by 3% year over year. Despite COVID-19 lockdowns in this region.
Our hospital business performed relatively better than retail.
We believe China has significantly improved the cost efficiency of the medical reimbursement farm, while achieving their goals.
Providing the broader coverage of health care to its population through the successful implementation of BBB and other policies.
At the same time market as you work towards publicly the English channel and private pay kennan.
We have made significant progress in adapting our business model.
Walgreens market dynamics, while focusing on value added that can be used to help patients manage their chronic disease states more effectively.
These investments are helping us expand the private pay market and also leverage our brand equity in the channel.
Keeping in mind that it was.
Right policy framework, we have modeled a small year over year decline for 2023.
And marketing markets performed in line with expectations and benefited from a solid performance of the overall branded business led by markets, such as Middle East, Turkey, and Korea, bringing.
Playing into 'twenty three we are projecting this segment to grow by 4% year over year, primarily driven by our branded business.
Our <unk> segment performed in line with our expectations, while continuing to be impacted by the economy, driven price degradations and decision.
While our brand Creon grew both in volume and value. Our other two key brands Amitiza in fact, Saar sure solid volume growth in 2022.
We anticipate strong volume growth due to the continued for our key brands part 23. This segment is expected to decline by 4% in 2023.
Now, let me turn to our newly formed Ikea Division.
We're pleased with the tailwind that we expect will provide important liquidity.
Since the beginning of this year Medicare part D coverage has grown from 2% to 32, 5% of covered lives.
We also launched a 90 day script program and we are already seeing an uptick in the total prescriptions midway through this high deductible period of the year.
We are significantly investing in the business and intend to launch a direct to consumer campaign in the fourth quarter of this year that is anticipated to start delivering results in early 2024.
Switching to our deep pipeline.
Our NDA W. For reversal of my desk. This program was accepted and has been granted a <unk> date of September 28 of this year.
We have made the decision to terminate our stage one Bureau trough Keratopathy program because it failed to meet the primary endpoint in the phase two <unk>.
Study.
We have started enrollment in the pivotal phase III trial for Presbyopia and are also on track to initiate the first phase III study.
The treatment of <unk>.
This in 2023.
With the positive momentum of <unk> and continued progress in our pipeline, we remain confident that our eye care Division will deliver $1 billion in net sales by 2028.
2022 was a very productive year from a science perspective.
We are very pleased with the progress of our complex injectable pipeline.
Currently we have 10 Andas under review with FDA and have scale.
Several first to market generic product opportunities such as <unk>.
Sandra Stat in L. A R <unk> recovery and Abilify maintainer.
We expect to file a number of complex injectables in 2023, including EMR 117 for the treatment of breast cancer and about 150 indicated for use in the iron deficient anemia, and <unk> 151 for the use in the treatment of certain bleeding disorders.
Our novel and complex product programs have also progressed well in pretty equally too.
As you are aware our partner MAPI has successfully completed the phase three trial for our lead term a once monthly and we are on track to submit this NDA to FDA by this effort.
We have also initiated a phase III trial for expanding the indication of FX or <unk> in Japan and have also made good progress on the recruitment of subjects into our Zulay and low dose clinical program.
Looking ahead into 2003, we believe we are well positioned to initiate phase II trial for our Meloxicam rapid onset of action dosage form, which we believe has opioid sparing etsy views.
We also remain on track to initiate our clinical program for our Biosimilar to Botox later this year.
For our core and complex generics, we made over 100 additional submissions globally in 2022, and we expect to see this trend continue through 2023.
Our program for complex journey.
One five T indicated for treatment of type two diabetes.
154 indicated for the treatment of asthma are well on track.
Our China eight products were filed with the FDA in 2022, including genetic Symbicort.
And we plan to submit additional 10 products this year in China.
Our operations had yet another year of solid performance delivering high customer service levels.
And we see this trend continuing throughout 2023.
From an integration point of view.
Able to exhibit substantially all the transition services with Pfizer in 2022 and are well on our path to achieve $1 billion in cost synergies by end of this year.
Before I conclude I would like to tackle colleagues for their hard work and commitment that delivered another year of strong performance.
With that I will now hand, the call over to Sandeep.
Thank you Rajiv and good morning, everyone let.
Let me start with what you heard from Robert in particular as it relates to 2024.
We continue to feel confident about the starting point for phase two as communicated in November of last year and nothing has changed from then to now.
As mentioned, although we are not giving guidance beyond 2023, we expect to have at least $2 3 billion in free cash flow from the underlying business in 2024 before any divestment cost in Texas.
This reflects the expected cash flow generation after moving the planned divestitures.
2022 was another strong year for the company, enabling us to deliver on that phase one commitments, while further investing in that business.
We're taking bold steps in reshaping the company and remain confident in our strategy to return to growth in phase two.
Moving to slide 26, we finished the year on a strong note across total revenue adjusted EBITDA and free cash flow and results were in line with our expectations.
Recall that our previous guidance included full year contribution from Biosimilar business.
As a result, because of the <unk> transaction closing in late November when adjusting our guidance down by approximately 86 million into revenue $31 million and adjusted EBITDA and $20 million in free cash flow relating to the exclusion of results since closing.
Also impacting adjusted EBITDA and free cash flow was $36 million of acquired IP R&D.
Which was not included in the guidance free cash flow also impacted by $254 million of transaction costs and taxes related to the <unk> transaction. Excluding this impact free cash flow would have been $2 8 billion on a full year basis.
Now turning to slide 27, 70 was impacted by foreign exchange given our significant international operations.
Excluding this impact we are encouraged by the operational stability and diversification of our global portfolio.
As mentioned on the third quarter call, we anticipated an adjusted gross margin to moderate in Q4 due to continued inflationary headwinds and product mix.
On a full year basis adjusted gross margin came in at the high end of our expectations at 15, 9% driven by strong brand performance.
Adjusted SG&A in adjusted R&D came in line with our expectation and included certain investment we made in Q4 to support our 2023 plan.
We had a very strong year of cash flow generation, reflecting our underlying operational performance and continued organizational priority on cash optimization initiatives.
As mentioned before free cash flow in fourth quarter was impacted by Biochar transaction and excluding this would have been $243 million in Q4 2022.
Slide 20 illustrates the uses of the upfront cash proceeds received upon the closing of <unk> transaction.
It is important to note that the gross proceeds of approximately $2 billion are included in the cash flow from investing activities.
While the related tax and transaction costs are included as negative cash flows from the operating activities.
The net proceeds serve to accelerate debt Paydown fund, the <unk> acquisition and execute on share repurchase in Q1 2023.
Slide 29 illustrates the continued prioritization of debt pay down which has resulted in total pay down of approximately $5 4 billion over last eight quarter.
As a result.
As expected divestiture proceeds we expect to meet our commitment of paying down at least $6 5 billion during phase one.
We exited 2022 with gross leverage of approximately three two times.
These deliberate actions taken by the company reinforce our commitment to the investment grade rating.
Another priority is returning capital to shareholders, which included approximately $580 million in dividend in 2022 and more than $980 million since the beginning of 2021.
Slide 31, and 30 to speak to the assumptions and guidance for 2023, which we expect to be a bridge year to get to a starting point in 2024.
In 2023, we expect continued strengthening of our financial profile, which includes our expectation that total revenue will grow versus 2022, excluding the contribution of Biosimilar.
Investment into eye care Division and a strong pipeline for future growth.
Another strong year.
Record free cash flow generation, and our capital allocation framework, which includes debt paydown and significantly enhanced capital return to our shareholders.
As previously mentioned the timing of planned divestitures may create fluctuation in our future reported results.
The guidance we presented today includes the anticipated full year performance of businesses that we expect to divest.
Similar to Biochar transaction, we will provide as much transparency as possible on the expected impact to our guidance and wisdom as and when these transactions are announced.
As it relates to key metrics, we expect slight moderation in our gross margin relative to 2022 levels. This includes the expected pricing impact on key product base business erosion and the continued inflation impact.
With respect to acquired IP R&D, we do not include any amount in our guidance related to uncertainty.
Now, let me explain the anticipated phasing for this year.
We expect total revenue and adjusted EBITDA to be higher in the second half due to ramp of new products and normal product seasonality.
Specifically, we expect Q1 to be the lowest quarter for the total revenue and adjusted EBITDA.
We estimated free cash flow will be evenly weighted between first half and second half in general Q2, and Q4 tend to be lower due to timing of semi annual interest payments.
It is important to note in the revenue guidance walk on slide 33. The 2022 adjusted number of $15. Six 5 billion excludes the 11 month Biosimilar revenue included in our reported results.
On a comparable basis at the midpoint of revenue guidance, we expect total revenue of the underlying business will grow in 2023.
Based on January FX, eight full year guidance assumes minimum foreign exchange impact on total revenue adjusted EBITDA and free cash flow.
We remain encouraged by the operational performance of our segment stability and global brands and expectation of approximately $500 million in new launches.
In addition, we expect $56 million in revenue from tier one.
New eye care product.
On slide 30 for a few items that will impact adjusted EBITDA.
First we expect adjusted gross margin to be impact from continued competition on key products.
Next adjusted gross margin of new products is expected to be above the company average.
Todd when investing in eye care Division, which includes commercial infrastructure and DTC investment in the second half of the year.
We're making further investment to advance the deep phase III ready <unk> pipeline and lastly, other bucket includes the impact of continued inflation and investment with some offsetting benefit including synergies.
Turning to slide 35, we expect another strong year of free cash flow generation as a result of expected lower onetime cash costs and continued focus on cash optimization initiatives.
On slide 36, I will now turn to our financial commitment, including return of capital to shareholders.
To start we have completed $250 million, a share buyback or the previously announced $1 billion repurchase authorization.
In addition, we anticipate an annual dividend of 40 <unk> per share.
Taken together this will increase our capital return by over 40% versus 2022.
This represents a minimum payout of approximately 33% at the midpoint of free cash flow guidance.
In addition to capital return, we will continue to prioritize debt reduction and expect to pay down our scheduled maturity of $1 3 billion in 2023, and thereby we expect to deliver on our commitment of $6 5 billion of debt Paydown in phase one.
This is irrespective of proceeds from the divestiture.
This is continued evidence of progress towards our stated gross leverage target of three times.
We're in an extraordinarily strong financial position and are benefiting from our investment grade rating in this rising interest rate environment with nearly all of our capital structure being fixed rates, we expect interest expense for 2023 to be flat versus 2022.
In closing.
We are well positioned for a strong start in 2023, which we considered a bridge year.
The reshaping initiative will serve to strengthen the company and set us up well heading into 2024 and beyond.
With that I will hand, it back to the operator to begin Q&A.
Thank you.
At this time, we will open the floor for questions. If you would like to ask a question. Please press star one on your telephone keypad if.
If you wish to remove yourself from the queue you may do so by pressing star two.
We remind you to please pickup your handset and please limit yourself to one question.
Again, Thats star one to ask a question we will take our first question from Chris Schott with J P. Morgan.
Okay, great. Thanks, so much for the questions.
Maybe just a bigger picture one to start out I'm just trying to get my hands, maybe a question for Robert and Scott.
I'm just trying understand the timing of the CEO transition here a bit more.
It seems like you laid out a strategy kind of last fall. It seems like we're in the midst of kind of a divestiture repositioning of the company right. Now. So can you just talk a little bit about kind of why now on the transition versus either before we went down this process or a little bit later in the process and if I can ask a second clarification one on the 2020 for free cash flow number.
I know, you're not giving formal guidance, but $2 3 billion of free cash flow. This we're all the same page can you just elaborate what's included in that number as we think about whatever you can say on EBITDA versus onetime costs. What you have for divestitures et cetera, I think what I was trying to make sure. We're in rate adjustments that $2 3 billion. Thanks, so much.
Okay.
First I would not say that we are repositioning the company at all I would say the news today is all about preparation not not change.
I think.
As you look.
Day, one we laid out a two phase process phase, one which had to do all of that integration Synergize, Inc, and really execution and bringing the two organizations together, we believe that Michael alluded the Upjohn division at that time.
<unk> role at that time, we felt that those two leaders.
Coming together with our leadership was the absolute right leadership for phase one.
And it's really demonstrated improved ought to be actually the perfect right decision because the company has been stabilized the organization to its been integrated our synergies are well on target. So this is and then of course in November the board of directors and management, we laid out a very clear strategy for phase.
So once you lay out that vision once you understand what the strategy is and then you put together an execution plan.
The simple last step is who is the right leader with the right background to support that strategy going forward. So really this is a very natural authentic handoff for.
Michael to Scott when you look at the both backgrounds, but you should expect that this is not a repositioning or change or a change in strategy.
In fact, I think Scott in his prepared remarks has said so but Scott let me say a few words about your view of this I want to thank you for the question, Chris and I want to be very very clear I fully support the strategy that's been laid out.
The capital allocation strategy.
November seven strategic reset certainly caught my attention and then being on the board since late 2022, I've had a chance to really deeply understand the strategy and where it's going and I fully support it.
Our strategy and the way it's laid out as part of what made this opportunity very attractive to me and I am here to work with the team to execute it not to deviate from it.
Yes, yes.
Chris So nothing nothing has changed from November seven Chris when we talked about that.
Including the fact that we.
We provided an outlook of $2 $3 billion on free cash flow for 2020 for Chris you've seen we've demonstrated last two years of very strong cash flow generation in the company the entire focus on that and that's allowed us to meet our phase one commitments, thus far and that momentum will continue from that so what's included $2 3 billion.
A couple of things first is we have considered all of the divested business out of that number.
And from $2 three what it does not include any divestment cost and any taxes on the divestment proceeds which will actually be funded out of the procedure for the proceeds so thats the number.
That takes into account all the divestment and we feel very confident about where we are the guidance that we've given today, Chris has a line of sight to all the moving pieces and we remain very confident about $2 3 billion outlook in 2020, and I guess, the only thing I would add Chris We said the word at least $2 3 billion for 2024 taken into <unk>.
Consideration everything.
Sanjiv said.
So I believe even the onetime cost.
We are extremely confident that.
We're going to be able to hopefully again, we're not giving guidance I don't want people to think we're giving guidance, but we thought that that metric was very critical so look hopefully will even be able to absorb even the onetime cost I think the new piece of information that we telegraph today, even though we're not giving guidance for 'twenty four and the fact that we're shoveling growth now and.
<unk> III topline over 'twenty two when you take out the Biosimilars business is the accelerated growth we see in topline from 23 to 24 now.
And I do think in the last call. We were asked in terms of again I think maybe it was <unk> question is it fair to say if we look at the EBITDA conversion for the cash flow you back.
Back into EBITDA I think the range of a four 6% to five was what my answer was on November seven and that Hasnt changed at all.
Thank you. Our next question will come from Glen Santangelo with Jefferies.
Hi, Yes, good morning, and thanks for taking my question.
Robert I just wanted to follow up on these noncore divestitures I mean, you all said a number of times that everything sort of remains on track and I was just wondering if you could sort of comment on the tone of those negotiations and are you still comfortable with the level of proceeds from these transactions that you've discussed historically.
You threw out some pretty high valuation multiples on those sales and then I guess just a follow up to that would be assuming you are I mean, that's a lot of cash coming in the door. I was wondering if you could just sort of.
Revisit some of your capital allocation priorities I mean, you gave in the slide deck your capital allocation framework for the free cash flow, but that's a lot more money and I'm trying to think about how you may want to deploy that vis vis business development versus paydown versus repo.
Thanks.
No. Thank you that was a pretty powerful.
Let me try to go from the beginning.
Sure.
Let's say that.
If you could read my body language.
But you can listen to my voice.
You don't need these divestitures to hit all of our phase one targets you heard from Sanjay.
We will be using operating cash flows, especially to meet R. R.
Our pay down of debt of at least six 5 billion. So we don't.
Starting point when you don't need to do the divestitures, but you want to do that because of.
The longer term strategy and how we thought about where we want to take the company going forward, that's probably your best starting position when it comes to divesting or like what you want to get a telegraph from a negotiation perspective, I think all the perspective.
The people that we saw on the other side of the table the potential acquirers I think that they know that I think that they see that and I think at the end and I am very happy with where things are.
Especially in the OTC business, which I think is the more material one and I do think that.
We have a very strong process the process will happen naturally.
Still feel very strong that we're going to announce at the very minimum all three of these things within this calendar year and once you've locked down the announcements it really doesn't matter when the proceeds come in but to your last point, we do expect in terms of capital allocation to meet.
Once again.
Our priorities as we stated over and over again, we will use all proceeds first to pay down debt to hit our target of three <unk> leverage ratio.
Yes, that's what we promised at our rating agencies, that's what we intend on doing at all excess cash.
Will be used for other type of investments, we fully intend on meeting the 50%.
Return of capital to shareholders both in dividends.
Stock purchases.
And look.
With our stock price, where it's at and us not being fully recognized for the value. We believe that we created we look at stock buybacks as one of the best investments.
The company can deploy today, so I would think more like that and in terms of inorganic activity I really believe that the oyster point framework as a framework that you guys ought to consider as we go forward with the other.
Excess cash after the return of capital we intend on deployed into the business.
Thank you. Our next question will come from <unk> Prasad with Barclays.
Hi, good morning, and thanks for the questions.
Couple of ones a couple of questions from me firstly the.
Fair bit of detail on the pipeline exogenously that amongst the most proximate opportunities I want to focus on too.
Classroom editable and I'll also Dubai launch, but still so with Blackberry manner, we met with the partner recently, they expect around 5000 patients can be prescribed in the.
The first day of launch and and then expect to reach around 20% to 40000 patients per year I would like to get your confidence level on these expectations on what would revenue heidrick really look like.
Secondly on <unk> could you also please.
Help us understand your peak expectations and the EBITDA spend that you expect this year.
And thinking about next gen to spend what percent of business is recurring and what is one off spending plans accordingly. Thank you.
So I think.
Due time, you will get that information from lots of lots of trajectory on the patient and all that but I think it's going to be a very meaningful product from 'twenty four 'twenty five onwards for us.
Tell you more excited I am about the science behind it the data we have seen the analyte.
Yes.
Reception is maybe.
Just a convenient place not even for Dominion today, it's one one injection against solid access which is the current therapy 40 milligram against already but more importantly, I think we are seeing the insight insights into the data.
Statistical significance, we are seeing in the standard disability scores at Etfs, which basically connect directly to the quality of life.
Where I think our excitement is that we will be able to build it in the label and that will drive that and Moreover that this platform you should be doing and to see that this platform can be the platform, which we may potentially used for many extended lease deeper.
For our <unk> opportunities like.
So flattering for enterprise were flat yes.
Morning. This is Jeff now and I want to give you an update on the question about your buy thanks for asking that question.
In 2023, we expect that we will more than double revenue for <unk>. There are a number of key fundamental drivers behind that number the first being Medicare part D coverage, which we did not have.
Very minimal last year, we've grown that to almost 32, 5% already we expect that to continue to grow. This year. We've also launched a 90 day script program and we're investing in the business and so we're really excited about investing in that from a marketing perspective, and so we expect to have a great year. This year.
And regarding the point about the investment we.
We saw that in the bridge that we provided on the Ics Division SG&A investment.
It's a function of investment in our field force investment in the marketing program and the investment in direct to consumer.
That will be implementing later this year.
Our investment in science, and enlist corn and size of the R&D absolutely.
Thank you. Our next question will come from Jason <unk> with Bank of America.
Hey, guys. Thanks for taking my questions.
I was just looking at the product level disclosures to lipitor and Norvasc.
That's held up pretty nicely I think is about to $2 4 billion in revenue. So it looks like those products have weathered the GBP processing I'm, just trying to get a sense that you can speak to the extent to which sales of these products are still concentrated in China.
And really trying to just frame product concentration risk.
It might be two products, probably contributed a pretty substantial amount of EBITDA and by our estimate maybe even close to $2 billion. So just wanted to get any framing that you can offer there and then just on sort of the.
2028 outlook for a $1 billion in additional revenue is there any specific family product that you would say is the biggest contributor to that.
Let me talk about China, and the lipitor and Norvasc, but even if we analyze these products and many other brands.
One of the reasons behind US every day as the effective management of these established brands routine that lipitor, Norvasc and xanax, whether it's in multiple markets or in Europe are steadying up and.
Well, having even one 2% growth over there, but China is.
Our say our business continues to perform products. Despite COVID-19 lockdowns, you'll see the strength in that business.
And we have a great team and commercial infrastructure.
China, which is very well understood the nuances as well as the rationale behind this policy framework, where we are completely as I said.
Governments initiative to expand our SaaS, but I think the business has evolved into two segments.
Public reimbursement channel and private pay channel.
And we have adapted our business so that we can capture the patient from the.
And then it moved from the public at a bookstore channel to the private pay channel and for just from the modeling perspective, yes. We have modeled flattish is the small decline, but the business is hitting on all cylinders.
And then I'll touch base on.
The eye care portfolio and pipeline I think what's important here is these numbers that we've shared are really risk adjusted and when you look at the entire portfolio. We see that all of that $1 billion target about 60% will come globally from dry eye disease assets about two thirds of those from the.
Are you asking about one third of those from the rest of the world approximately 20% will come from blepharitis globally.
And approximately 20% will come from all other assets in the pipeline, but as you can see we have a robust pipeline with a number of different indications with significant unmet need and if I could just back up just a highlight blepharitis best myopia and reversal of bad debt.
There are some unmet need or there.
There is a law prescribes established therapy. So thats why these were expected very nicely over time.
Yes.
Thank you. Our next question comes from Elliot Wilbur with Raymond James.
Thanks. Good morning question for Rajiv just respect with respect to new product launch.
Expectations and 2023 actual performance in 2022, those those numbers never seem to over perform expectations. I was wondering if you could just maybe provide a little bit of color in terms of.
Performance in 2020 to weather.
Revenue from new products was lighter than expected due to performance of the assets.
Or was it more about the timing of approvals and then thinking about some of the factors that sort of gives you should give us more confidence in your expectations for 2023 looking at some of the expected approvals I mean products like iron sucrose, I mean theres been through multiple iterations.
FDA not sure how important that is in terms of its contribution to the total but just if you could highlight one or two factors that we.
We should be thinking about that.
Sort of bolster your confidence in the new product outlook for 2023.
Yes, let me first answer your 22 question and it was noncore underperforming up the approved assets. It was more from some delay and if you recall earlier 22 included a couple of Biosimilars, where we were at getting waiting for FERC approval S block Biosimilar to S partnered biosimilar to Avastin and that didn't happen because of the.
<unk> issues with the backlog facility. So that was the primary reason behind that met but going into 2000 and <unk> always said to you we're not dependent upon one product over here every broke his risk adjusted products like Symbicort and we still have that tailing effect of the product like leather to <unk>. This year.
But yes iron to growth.
It is a complex product you will appreciate that when you are trying to bring our first of the market. There can be sometimes amortizations, but we are at a point with the science, where we see it happening and all of those factors have been considered to build this 23.
<unk>.
I feel very confident at the beginning of the year that that number as I said.
<unk>, 98% of these products are either approved or already lost a couple up Roes are pending approval that we had the items grow something.
Thank you. Our next question will come from Ash Verma with UBS.
Hi.
Thanks for taking our question. So I have two on capital allocation real quick.
So what drove the decision to keep the dividend per share flat this year.
Last year, we saw a 9% growth and then on share repurchases.
Any change in thinking on the timing here in the light of follow up has been bite and quality.
Quadrupling of taxes on buybacks.
Thanks.
Hi, Ash I think look ash.
I think we're.
The promises made and promises kept as total shareholder return, Okay that was always predicated upon both the dividend and a share buyback. We said we were going to have a dividend. When we first started out we thought that was important that we follow through and execute and establish a baseline for the dividend.
But when your security is trading at the levels of where our security is trading.
It doesn't take a rocket scientist to.
Now that's the best investment that we have for any excess capital is to buy our own company back and that's what you should be expected from us and until we see levels within the security that.
Better represent what the valuation in terms of what we believe that we created were going to continue to buy our shares back. So I would strongly ask the investment community to stick with what we said from day. One total shareholder return is a combination of both dividend and share buyback and as Sanjay pointed out.
Believe just at this point alone.
We've already returned a 33% of the free cash flow and an increase of how much percent 40%.
And a return of 40% greater than we did all of 2002 and you guys should expect that going forward.
Remember as we go into 2024.
I believe the company will be well positioned to convert from a valuation from this EBITDA, especially as we pay down our debt and get it to the three times to really converted over to an adjusted earnings per share strategy.
I see tremendous growth as an adjusted earnings per share because of our capital allocation commitment to.
Sure the investment community of return at least 50%.
Through the dividend and more importantly, the share buyback.
Thank you. Our next question will come from Gary Nachman with BMO.
Thanks. Good morning first one for Scott do you think you might want to do anything differently in terms of positioning the company to be more successful on the branded side of the house given your experience there.
And I'm curious how you think about some of the planned initiatives to expand into areas like ophthalmology Gi and derm, that's been talked about in the past.
What do you hope to leverage on the branded side in terms of your experience.
And then for the team.
In North America, with the guidance down 3% this year.
What point do you think the new product revenue will be able to offset that base erosion.
And returned to growth in North America is that something that can happen next year based on the trajectory that youre seeing and maybe talk about if you're still comfortable maintaining that same level of base erosion now going forward. Thank you.
Why don't you take this backwards why don't you go first and then let Scott close.
First of all overall from stability point of view.
It was a very very clear of analyses of speaking this is sustainable and stable and we see in fact accelerating the top line top line growth, we are not giving guidance, but we are projecting that this stability enhanced stability would lead to that coming directly to North America. There are no major no alloys for North America for us the mic assay and.
Performance alloys for the North American business, we don't see any.
Any major alloys and from 24, Ron works with our expectation ex practices is right.
Should we see a doctor manpower coming back to the growth and.
All the basic reason being offset by the new launches of North America.
So.
Gary. Thank you very much for the question I think a very important part of the strategy is moving up the value chain as we move into part two and beyond.
There are transactions that happened recently is very good model for the way that we're going to want to do BV going forward you mentioned the therapeutic areas of interest obviously through my branded experience with Tesla as opposed to others I'm very familiar with the Gi space and with of course, the derm space. These are two areas that I think.
Can I fit our strategy very very well, but I will say I think I want us to be a little bit opportunistic as well if there are opportunities outside of these <unk> that fit our model going forward, we should be very open minded to engage in those as well so.
This to me is a very very important and exciting part of our strategy moving up the value chain and I'm really excited to be leading that effort.
Thank you. Our next question will come from David <unk> with Piper Sandler.
Hey, Thanks, So I wanted to drill down more on your longer term expectations on <unk>.
Complex products and also brands you talked about.
Novel and complex products about $1 billion peak sales by 2020, Ed I know you addressed <unk> once monthly, but just wondering.
What are the other products that you think standout here like for instance, meloxicam product.
Post surgery. There was one that was recently discontinued so I'm just wondering what makes you think that's a great opportunity for.
For instance, and then regarding the.
The brand side.
On <unk>, you said, it's mostly dry eye.
Just to be clear is that today.
Other than other products I mean can you just help me better understand the mix there. Thank you.
Okay. Let me, let me just start and I think.
I'd, rather not speak about any one particular product, but the franchises that we outlined on November seven so the.
The ophthalmic being one.
The complex generics being another Rajiv why don't you outline.
Each of the franchises and then lets articulate a little bit about what's inside those franchise.
We've talked about.
Sensibly about three buckets of billion dollar franchises, one was the Ikea Oh, sorry, one was the Ikea of course, which is the latest one but then complex injectables and the third was a complex boroughs and not given complex injectables almost.
10 permits are already 10 protocol already under review with FDA with seven and first to market position secured over there and many more like I said three to four products up get it getting into the filing in 2000, and we have about 33% the pipeline. They're all you can follow it cracks. Unlike marvell, but then we go to the.
Complex five five veto Beverly is botox <unk> low dose.
And we did discontinue Melaka meloxicam meloxicam in practice advancing very nicely. We just concluded phase <unk> we have.
And of the Phase two study.
<unk>.
The meeting with <unk>.
<unk> could you.
Next few weeks.
In fact, a couple of months and that protocol will be heading into the political clinical phase III clinical studies later this year so.
There is a lot going on in that bucket because both botox.
Suzanne.
All of those assets blocks somewhat rent okay.
Later this year, yes, David I would just say when you look at the franchises and you look at their makeup.
But word complexity should also telegraph how much competition.
We anticipate at market formation.
And also the type of pricing that we anticipate as well and also the let's not underestimate the pipeline, which is far markets like China, Japan, and Europe separately, because it'll upset the basic rule that pipeline never existed that pipeline has been created so that pipeline will be coming into the play.
Severity for Ralph.
And so when we talk about the eye care franchise and dry eye in particular, I think one of the things Thats really important to appreciate what the pipeline is to Avaya really has a very unique mechanism of action. It's the only product out there that stimulates the production of natural tear film when we think about dry eye disease.
A multifactorial disease. So we wont stop understanding how to treat this disease, just because were launched <unk>, we're selling tier buyer. There may be other mechanisms that can be added in there and that's the nice part about <unk> is it really is a product that stands by itself and is able to be used with any other dry eye product thats.
Out there in the market. The other thing that I think is really important is we haven't really scratched the surface outside of the U S and that's a really important market to go into and with the power of.
The interest in all of the supply chain and the ability to go outside the U S. I think that's something that we look forward to as well.
Okay.
Okay.
Thank you Arnaud.
Come from Humira <unk> with Evercore ISI.
Hi, guys. Thanks for taking my question I have two if I may and both for Robert today actually Robert I feel like.
I don't have a good explanation for why Michael leaving and I'd be curious how you lay that out, especially also in the context of.
With all the divestitures that Beatrice is doing the upjohn component of the business only got bigger but also just the timing of the depart like I don't think this was telegraphed.
Everyone's quite confused candidly and the second one is.
I know Ian read left in December as well.
These two things related or not and it's hard not to think about these two things together.
Well in our over it can look at the glass half update or you can look at the glass half full.
So you're looking at it from that perspective. Thank you for the question and the opportunity quite frankly, the glasses only half full and just half full and still feeling.
This is a very natural let's let's start with Ian right. Okay.
You should probably know that Ian was on the board and.
Could not have gotten more support from and when it came to Scott Smith Okay.
It was absolutely a part of the vote to bring them on.
And actually quite frankly, given his deep industry knowledge.
I actually gave us.
A bit of strong advice <unk> and <unk>.
Support for Scott and I can tell you that he is fully supportive of Scott understands the strategy.
And brought a lot of value to us on that board and quite frankly.
Sorry, he wanted to move on he has got a lot of other things going on.
I think even his departure was all again for all the right reasons, so I'm very thankful for and I'm very thankful. He was here to give the advice.
Two are to us about Scott and obviously had a long history with Scotts former Boston, having that insight was really valuable to us from from the board.
Let me just say this when you say about.
Where we are in our business lifecycle.
Look most companies make transitions when theres a problem most companies make transitions.
Something's going on in the company, where there is an event.
Why is it why why should it be viewed.
Why should be viewed as the glass half empty versus half full when we were highly articulate about what we wanted to get done in phase one I articulated why Michael was absolutely the right one to bring the organizations together given timid.
<unk> actually Randy Upjohn Division.
Where integration managing that product portfolio.
And now that we're here and looking forward, we've laid out phase III and.
I think I think crystal clear.
The vision that we laid out on November seven I think the strategy behind the vision the execution plan that we put in place and now to try to find the best right later and if you looked at Scott's background. His background. This is right in his sweet spot the level of experience. He brings the filter that.
Is all the things that you've heard me say I think that this is much more of a natural transgression and companies should not be viewed as making changes.
Because anything is negative I think you can hear it in Michael's voice I think yes.
Yes, I think that there should be nothing looked upon other than preparation we are only months away from entering phase II I think.
Michael's transition with Scott and Scott the ability to get his feet on the ground as we get ready for this next few months before we enter.
Our phase two in 2024 and beyond is honestly, it's a real advantage for any new leader coming in to have that runway before we hit 2024 phase two or beyond.
There's really nothing more than that.
Omer.
And I'll be glad to answer any follow up that you have on that as well.
Thank you. Our next question will come from Greg Fraser with Truest.
Good morning folks thanks for taking the question.
For the $500 million of new product revenue that you expect this year what are the most important thing to be contributors to that number and just a quick follow up on Glitzier mirror. The once monthly program, how much sales do generate with your generic acetone and how are you thinking about the potential impact to the once monthly product on your generic sales. Thanks, so much.
Yes.
The <unk> you can pick up further.
I messed that up.
We have about 51% market share we are slowly built it over the last three to four year to date, we have about more than what they are.
In that market and it's been a meaningful vertical a several year copaxone once a month will be a very meaningful.
<unk>.
Launches product later second half of 2014.
So I don't know 500 million as always said.
We now have built it on sort of one of these pipeline of $500 million. It's not on one product. There is a scaling effect of Lenalidomide and this of course, but then there is a product like <unk>, which we have been very.
Publicly telling you where we are at a risk adjusted basis. So we are looking forward to launch this product in <unk>.
So there are many more products like that but I guess two if you ask me to follow up with other examples.
Thank you at this time I have no further questions in queue I'll turn the call back over to Michael Cutler CEO to make a few closing remarks.
Okay. Thank you operator, and I guess.
Last time I got to get the closing remarks.
And this in this forum, but I want to thank everybody for the good question with interest.
The company.
We obviously I think as you heard from the tone of our voice and but what we presented as a company are in a position of strength. We're looking back at eight quarters of consecutive strong execution. We're looking forward and we're confident in phase II.
I think you can see that already in the guidance that we gave for 2023, starting with revenue growth and the confidence that we have finally, you also heard from Scott the continuous commitment through the capital allocation commitments that we make so with that I think we're closing the call. Thank you very much.
Thank you. This does conclude today's fee interest 2022 fourth quarter, and 2023 guidance call and webcast.
Please disconnect. Your line at this time and have a wonderful day.
Okay.
Yes.
[music].