Q1 2024 Organon & Co Earnings Call
Operator: Thank you for standing by. My name is Mandeep, and I'll be your operator today. At this time, I'd like to welcome everyone to the Organon & Co. First Quarter 2024 Earnings Column Webcast. All lies have been placed on me to prevent any background. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Jennifer Halchak, Vice President of Investor Relations. You may begin.
Thank you for standing by my name is small deep and I'll be your operator today.
Small Deep: At this time I'd like to welcome everyone to the Oregon on and co first quarter 2024 earnings call and webcast.
Small Deep: What's been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session. If you'd like to ask a question. During this time simply press the star followed by the number one on your telephone keypad.
Small Deep: To withdraw your question Press Star one again, thank you.
Speaker Change: I would now like to turn the call over to Jennifer haul Chats, Vice President of Investor Relations you may begin.
Jennifer Halchak: Thank you, Operator. Good morning, everyone.
Speaker Change: Thank you operator, and good morning, everyone. Thank you for joining Oregon on its first quarter 2024 earnings call with me today are Kevin Ali organized Chief Executive Officer, who will cover our strategy and operational highlights and Matt Walsh, Our Chief Financial Officer, who will review performance and guidance.
Jennifer Halchak: Thank you for joining Organon's first quarter 2024 earnings call. With me today are Kevin Ali, Organon's Chief Executive Officer, who will cover strategy and operational highlights, and Matt Walsh, our Chief Financial Officer, who will review performance and guidance. Also joining us for the Q&A portion of this call is Organon's Head of R&D, Juan Camilo Arjona Ferreira.
Speaker Change: Also joining us for the Q&A portion of this call is organized head of R&D, one Camilo <unk> arena.
Speaker Change: Today, we will be referencing a presentation that will be visible during this call for those of you on our webcast. The presentation will also be available. Following this call on the events and presentations section of our Oregon on Investor Relations website at Www Dot urban on Dot com.
Jennifer Halchak: Today we will be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available following this call on the events and presentations section of our Organon Investor Relations website at www.organon.com. Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements. However, actual results could differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business, which are discussed in the company's filings with the Securities and Exchange Commission, including our 10-K and subsequent periodic filings.
Speaker Change: Before we begin I would like to caution listeners that certain information discussed by management. During this conference call will include forward looking statements actual results could differ materially from those stated or implied by forward looking statements due to risks and uncertainties associated with the company's business, which are discussed in the company's form.
Speaker Change: <unk> with the Securities and Exchange Commission, including our 10-K and subsequent periodic filings. In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the.
Jennifer Halchak: In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the press release and conference call presentation. I would now like to turn the call over to our CEO, Kevin Ali.
Speaker Change: Comparable GAAP measures is included in the press release and conference call presentation, I would now like to turn the call over to our CEO Kevin Ali.
Kevin Ali: Good morning, everyone, and thank you, Jen. Welcome to today's call, where we'll talk about our 2024 first quarter results. We entered this year with a clear focus on delivering our 2024 financial targets, improving our financial position, and positioning ourselves for future growth. To that end, the first quarter was a very solid start.
Kevin Ali: Good morning, everyone and thank you Jan welcome to today's call. We will talk about our 2024 first quarter results.
Kevin Ali: We entered this year with a clear focus to deliver our 2024 financial targets.
Kevin Ali: Improving our financial position and positioning ourselves for future growth.
Kevin Ali: To that end the first quarter was a very solid start for the first quarter of 2024 revenue was $1 $6 billion with all three franchises contributing to a 7% growth rate at constant currency.
Kevin Ali: For the first quarter of 2024, revenue was $1.6 billion, with all three franchises contributing to a 7% growth rate at constant currency. I'm pleased to report that the women's health franchise grew 12%, our biosimilars franchise group 46, and our established brands business continued its stable performance with growth of 2%. In the first quarter, adjusted EBITDA was $538 million, representing a 33.2% adjusted EBITDA margin, and adjusted diluted EPS was $1.22.
Kevin Ali: I am pleased to report that the women's health franchise grew 12%.
Kevin Ali: Similar franchise grew 46% and our established brands business continued its stable performance with growth of 2%.
Kevin Ali: In the first quarter, adjusted EBITDA was $538 million, representing a 33, 2%.
Kevin Ali: Adjusted EBITDA margin and adjusted diluted EPS was $1 22.
Kevin Ali: The strong performance in the first quarter strengthens our conviction and our financial guidance for the full year 2024, and we are affirming those ranges. We remain confident in our ability to deliver our third year of revenue growth on a constant currency basis, and we remain committed to delivering full-year adjusted EBITDA margins that are in line with last year or better. From a capital allocation standpoint, we continue to believe this business can generate a billion dollars of free cash flow before one-time costs, and we will be driving towards that number in 2024.
Kevin Ali: The strong performance in the first quarter strengthens our conviction and our financial guidance for the full year 2024, and we are affirming those ranges.
Kevin Ali: We remain confident in our ability to deliver our third year of revenue growth on a constant currency basis, and we remain committed to delivering full year adjusted EBITDA margins that are in line with last year or better.
Kevin Ali: From a capital allocation standpoint, we continue to believe this business can generate $1 billion of free cash flow before one time costs and we will be driving towards that number in 2024.
Kevin Ali: That strong cash flow will provide financial flexibility to comfortably service our dividend, make progress on achieving a leverage ratio below four times by the end of 2024, and to continue to do business development in line with the types of transactions we have completed in the last couple of years. This includes transactions in biosimilars and the recent commercial agreement with Eli Lilly to license two migraine assets. These transactions have solid returns, but importantly, they're also aligned with our mission of offering solutions in women's health beyond the narrow definition of reproductive health. Moving on, to discuss our franchise performance.
Kevin Ali: That strong cash flow will provide financial flexibility to comfortably service our dividend make progress on achieving a leverage ratio of below four times by the end of 2024 and to continue to do business development in line with the types of transactions. We have completed in the last couple of years.
Kevin Ali: This includes transactions in Biosimilars and the recent commercial agreement with Eli Lilly to license to migraine assets. These transactions have solid returns, but importantly, there are also aligned with our mission of offering solutions in women's health beyond the narrow definition of reproductive health.
Kevin Ali: The first quarter, Girls and Women's Health franchise was led by Nexplanum. Last year, we took the appropriate actions to position Nexplanon for a successful 2024 and the long-term growth opportunity we see for the product. We remain confident that the product can achieve robust revenue growth in 2024. Nexplanon's first quarter constant currency growth was 34%. The U.S. was up 35%, and the rest of the world was up 34%.
Kevin Ali: Moving on to discuss our franchise performance.
Kevin Ali: The first quarter growth in women's health franchise was led by next one on the.
Kevin Ali: Last year, we took the appropriate actions to position <unk> for successful 2024, and the long term growth opportunity, we see for the product.
Kevin Ali: We remain confident that the product can achieve robust revenue growth in 2024.
Kevin Ali: Next one on first quarter constant currency growth was 34%.
Kevin Ali: The U S was up 35% and the rest of the world was up 34% year over year growth in the U S reflected a shift in timing of our list price increase which brought stability to distributor buying patterns. As a result of this shift going forward, we expect less volatility quarter to quarter Nexplanon results.
Kevin Ali: Year-over-year growth in the U.S. reflected a shift in the timing of our list price increase, which brought stability to distributor buying patterns. As a result of this shift, going forward, we expect less volatility quarter to quarter next month on results. For the full year, we expect growth to be driven by Nexplanon's leadership in contraception, the benefits of our pricing strategy, including list price in the U.S., and management of the 340B channel, as well as physician demand.
Kevin Ali: For the full year, we expect growth to be driven by next one <unk> leadership in contraception, the benefits of our pricing strategy, including list price in the U S and management to the 340 B channel as well as physician demand growth.
Kevin Ali: Outside the U.S., Max Planon grew 34% XFX in the first quarter, driven by increased demand in the La Mera region and in larger markets in the Yukon region, like France, the U.K., and Canada. Outside the U.S., for the full year of 2024, growth will be driven by continued strong performance in those markets, as well as our ability to better meet increased demand in our access markets, which we cited as a priority for us in 2025.
Kevin Ali: Outside the U S. Nexplanon grew 34% ex FX in the first quarter driven by increased demand in the La Metro region and in larger markets in the U can reason like France, the UK and Canada outside.
Kevin Ali: Outside the U S for the full year of 2020 for growth will be driven by continued strong performance in those markets as well as our ability to better meet increased demand in our access markets, which we cited as a priority for us in 2024.
Kevin Ali: As I mention nearly every quarter, we believe Nexplanon will be on a billion-dollar annual run rate in 2025. And beyond 2025, we believe there is still significant runway for growth up until the loss of exclusivity for Nexplanon in the U.S., which in our view will not occur until 2030 for three specific reasons. First, Nexplanon will be on a billion-dollar annual run rate in 2025 for three specific reasons. Our five-year study is on track to close this year, and pending FDA review and approval, our planning assumption is that we will be able to market Nexplanon with a five-year label in 2026. A differentiated label will give us three years of data exclusivity on that five-year duration of use claim, which we know from our market research is preferred by women and providers.
Kevin Ali: As I mentioned nearly every quarter, we believe nexplanon will be on a $1 billion annual run rate in 2025 and beyond 2025. We believe there is still significant runway for growth up until the loss of exclusivity for <unk> in the U S, which in our view will not occur until 'twenty 30 for three <unk>.
Kevin Ali: Second, we have IP protection on aspects of the applicator device until 2030. We believe that any generic coming to market before then would have to develop its own device and training programs to go along with it. So, it's not until 2030, when IP protection on both implant and device would have expired, that we might see the market start to alter with a similar 5-year product and application life cycle. Third, complex drug-device combinations have demonstrated strong post-LOE performance, which could be due to the fact that complex drug-device development can pose significant challenges in terms of showing therapeutic equivalence.
Kevin Ali: Pacific reasons first our five year study is on track to close this year and pending FDA review and approval. Our planning assumption is that we will be able to market with a five year label in 2026, a differentiated label will give us three years of data exclusivity on that five year duration of use claim which we.
Kevin Ali: No from our market research is preferred by women and providers.
Kevin Ali: We have IP protection on aspects of the applicator device until 2030, we believe that any generic coming to market. Before then would have to develop their own device and training programs to go along with it.
Kevin Ali: So it's not until 2030, when IP protection on both implant and device would have expired. So we might see the market start to alter with a similar five year product and applicators.
Kevin Ali: And third <unk>.
Kevin Ali: Complex drug device combinations have demonstrated strong post elo performance, which could be due to the fact that complex drug device development can pose significant challenges in terms of showing therapeutic equivalents.
Kevin Ali: So overall, we're confident in the sales longevity of Nexplanon, and further, when competition does come, we do not expect a traditional generics erosion. Moving on to our fertility, As expected, our global fertility business was essentially flat this quarter, down about $2 million, or about 2% XFX. You'll recall that in the fourth quarter of 2023, in the U.S., we exited a spin-related commercial arrangement, and we onboarded a significant customer, resulting in a very strong buy-in of Follistim at the end of last year that we have largely worked through in the first quarter, offsetting U.S. performance with strong growth in fertility in China, which grew double digits, benefiting from strong demand.
Kevin Ali: So overall, we're confident in the sales longevity of next one on and further when competition does come we do not expect a traditional generic erosion curve.
Kevin Ali: We expect continued momentum in our fertility business in China in 2024, with growth supported by solid demand, especially in key provinces like Beijing, where reimbursement for assisted reproductive technologies has been implemented. Together, the U.S. and China make up north of 50% of our fertility business; strong demand in those markets, coupled with new launches and footprint expansion in other markets, is supportive of the high single-digit revenue growth we expect to see in fertility on a global basis for the full year of 2024.
Kevin Ali: Moving on to our fertility franchise as expected our global fertility business was essentially flat this quarter down about $2 million or about 2% ex FX youll recall that in the fourth quarter of 2023 in the U S. We exited a spin related commercial arrangement and we on boarded a significant customer.
Kevin Ali: Resulting in a very strong buying a policy at the end of last year that we have largely worked through in the first quarter offsetting U S performance was strong growth in fertility in China, which grew double digits benefiting from strong demand. We expect continued momentum in our fertility business in China in 2024 with growth supported by saw.
Kevin Ali: Should demand, especially in key provinces like Beijing, where reimbursement for assisted reproductive technologies has been implemented.
Kevin Ali: Together, the U S and China make up north of 50% of our fertility business strong demand in those markets, coupled with new launches and footprint expansion in other markets are supportive of the high single digit revenue growth, we expect to see in fertility on a global basis for the full year of 2024.
Kevin Ali: Let's move now to our biosimilar business, which grew 46% in the first quarter and continues to be a solid growth pillar for Organon. We expect 2024 to be another year of double-digit growth on a global basis for our biosimilars franchise. In the U.S., the growth driver in 2024 for biosimilars will primarily be the uptake of Hedlima. We are getting very good traction with Hedlima in Veterans Affairs, who within 60 days of exclusively carrying Hedlima managed to convert more than 50% of the patients from Humira to Hedlima.
Kevin Ali: Let's move now to our Biosimilar business, which grew 46% in the first quarter and continues to be a solid growth pillar for Oregon. One we expect 2024, it should be another year of double digit growth on a global basis.
Kevin Ali: Our biosimilars franchise in the U S. The growth driver in 2024 for Biosimilars were primarily be the uptake of head Lima, we are getting very good traction with had Lima with veterans Affairs, who within 60 days of exclusively carrying had Lima managed to convert more than 50% of the patients from humira.
Kevin Ali: Two had Lima.
Kevin Ali: This is a strong indicator of payers' ability to rapidly change utilization, which is a critical factor for accelerating conversion to buy similars in this market. Behind the U.S., two other key markets in our biosimilar business are Brazil and Canada. In Brazil, we're seeing strong performance from Entrezant, in particular.
Kevin Ali: This is a strong indicator of payers ability to rapidly convert utilization, which is a critical factor for accelerating conversion two biosimilars in this market.
Kevin Ali: Behind the U S to other key markets and our Biosimilar business are Brazil, and Canada, and Brazil, We're seeing strong performance from <unk> in particular.
Kevin Ali: The fourth quarter of 2023 was very strong for Entrezant, driven by favorable timing of a tender in Brazil, but in Q1, we saw incremental volumes come through that we would characterize as opportunistic. In Canada, we continue to see strong performance, especially in Hadlema and Renflexus, as the government-mandated province-by-province transition to biosimilars progresses. As we have previously talked about, our aim in biosimilars is to launch a new asset every couple of years.
Kevin Ali: The fourth quarter of 2023 was very strong for ultrasonic driven by favorable timing of a tender in Brazil, but in Q1, we saw incremental volume come through that we would characterize as opportunistic upside in Canada. We continue to see strong performance, especially in had Lima and ran plexus as the government mandated.
Kevin Ali: By province transition to Biosimilar progresses.
Kevin Ali: As we have previously talked about our aim in Biosimilars is to launch a new asset every couple of years, we are well positioned to execute on that beyond 2024.
Kevin Ali: We are well positioned to execute on that beyond 2024. A great example of this is our collaboration with Shanghai Henleus Biotech, where we licensed commercialization rights for two investigational projects: Pergeta, or pertuzumab, and Prolia and Xgeva, or denosumab, by a similar candidate.
Kevin Ali: Great example of this is our collaboration with Shanghai handle is biotech where we licensed commercialization rights for two investigational products.
Kevin Ali: Adder for <unk> map and Prolia in ex Java, or Denosumab Biosimilar candidates Organon will have exclusive global commercialization rights to these assets outside of mainland, China, Hong Kong, Macau and Taiwan.
Kevin Ali: Organon will have exclusive global commercialization rights to these assets outside of mainland China, Hong Kong, Macau, and Taiwan. Clinical trials on both molecules have been progressing. In fact, we just recently announced that the phase three comparative clinical trial for the denosumab biosimilar met its primary endpoint. We expect regulatory filings for two denosumab biosimilar candidates to occur during 2024 in certain markets, including the U.S. and EU, followed by filings for the pertuzumab biosimilar candidate in the U.S. in late 2024 or early 2025, and then rounding out the discussion The impact of VVP in China was more than offset by the initial contribution from the recent commercial agreement for the two migraine drugs, Imgality and Rava.
Kevin Ali: Clinical trials on both molecules have been progressing in fact, we just recently announced that the phase III comparative clinical trial for the Denosumab Biosimilar met primary endpoints.
Kevin Ali: We expect regulatory filings for our two day no <unk> biosimilar candidates to occur during 2024 in certain markets, including the U S and EU followed by filings for the <unk> Biosimilar candidate in the U S. In late 2024 or early 2025.
Kevin Ali: And then rounding out the discussion with established brands, which grew 2% ex FX in the first quarter.
Kevin Ali: Demonstrating the resilience of this business impact from Pvp in China was more than offset by the initial contribution from the recent commercial agreement for the two migraine drugs and reality in radar. We also saw a recovery in our injectable steroid products. Following last year's market action for full year 2024, we expect to.
Kevin Ali: We also saw a recovery in our injectable steroid products following last year's market action. For Fool Year 2024, we expect established brands to achieve flat performance on an XFX basis, and Matt will go into more detail about the pushes and pulls on the established brands portfolio for 2024. Moving now to slide six, where we take a look at revenue by GRB.
Kevin Ali: Tablet brands to achieve flat performance on an ex FX basis, and Matt will go into more detail about the pushes and pulls on the established brands portfolio for 2024.
Matthew M. Walsh: Moving now to slide six where we take a look at revenue by geography.
Kevin Ali: UK grew 10% XFX in the quarter driven by the addition of the two migraine assets and the recovery of injectable steroids, both of which I just mentioned. We're still experiencing solid growth in Adizet in Europe, which should be the trend for the nine months of the year until it loses exclusivity in late the third quarter of this year. The U.S. was up 14% in the quarter, driven by performance in Nexplanon, as well as uptake of both Hadlema and Jada post-mortem.
Matthew M. Walsh: <unk> grew 10% ex FX in the quarter driven by the addition of the two migraine assets and the recovery of injectable steroids, both of which I just mentioned.
Kevin Ali: Still having solid growth in <unk> in Europe, which should be the trend for the nine months of the year until it loses exclusivity in late third quarter of this year.
Kevin Ali: U S was up 14% in the quarter driven by performance in Nexplanon as well as uptake of both had Lima and Jada post launch.
Kevin Ali: These factors offset rate pressure and the channel dynamics in fertility, which benefited the fourth quarter of last year, as well as U.S. performance in The La Mera region has been a significant contributor to Organon's growth since spin-off. The 36% XFX growth in the first quarter was primarily driven by opportunistic volume associated with the Entrezon tender in Brazil, as well as strong growth in Nexplanon across the access markets and The APJ region was down 7% in XFX this quarter.
Kevin Ali: These factors offset rate pressure and the channel dynamics in fertility, which benefited the fourth quarter of last year as well as U S performance of <unk>.
Kevin Ali: The La Metro region has been a significant contributor to organize growth since spin the 36% ex FX growth in the first quarter was primarily driven by opportunistic volume associated with the entre is on tender in Brazil, as well as strong growth in nexplanon across the access markets in Mexico.
Kevin Ali: The P. J region was down 7% ex FX this quarter, we expect it to be a challenging year in Japan as we faced some national pricing revisions lap favorability from last year. When some competitors were out of stock and work through the <unk> and how does that and roses that.
Kevin Ali: We expect it to be a challenging year in Japan as we face some national pricing revisions, lap favorability from last year when some competitors were out of stock, and work through the LOEs of Adazet and Rosenthal. China was down 5% XFX in the quarter, but for the full year 2024, we expect China to grow, particularly as we address the economy-related challenges in China as we saw in the back half of last year.
Kevin Ali: China was down 5% ex FX in the quarter, but for the full year 2024, we expect China to grow, particularly as we lap the economy related challenges in China as we saw in the back half of last year.
Kevin Ali: Overall, we are very pleased with the results through the first quarter of the year. Operational execution is progressing very nicely. We also have our eye on smart deals that fit within our desired financial profile while moving us forward as a company.
Kevin Ali: Overall, we are very pleased with the results through the first quarter of the year operational execution is progressing very nicely. We also have our eye on smart deals that fit within our desired financial profile, while moving us forward as a company.
Kevin Ali: And finally.
Kevin Ali: There is potential value yet to be unlocked in our clinical portfolio. In life cycle management, in addition to the Nexplanon five-year study and the two biosimilar assets with Shanghai Henleus that I spoke about earlier, we're making progress in the development of Mersolon for primary dysmenorrhea in Japan. On the innovative side, both assets we acquired through Forendo are progressing well, and our OG6219 study investigating a novel approach for treating endometriosis is progressing towards a phase two readout next year.
Kevin Ali: There is potential value yet to be unlocked in our clinical portfolio and lifecycle management. In addition to the next one on five year study and the two biosimilar assets with Shanghai handlers that I spoke about earlier, we're making progress in the development of Merce law for primary dysmenorrhea in Japan on.
Kevin Ali: We're also awaiting first-in-human dosing for our OG719 program, targeting the symptoms related to PCOS later this year for which there is no current treatment. Additionally, we are anticipating preclinical data related to our collaboration with CERCLA, which is a novel method for non-hormonal contraception. It's great to see progress not only happening on the commercial execution side of things but also in positioning Organon for future growth through our innovative therapy. Now, I'll turn the call over to Matt, who will go into our financial results in more detail. Thank you.
Kevin Ali: On the innovative side both assets, we acquired through <unk> are progressing well and our <unk> six to one nine study investigating a novel approach for treating endometriosis is progressing towards a phase III readout next year. We're also awaiting first in human dosing for our <unk> 719 program targeting the symptoms related to pcos later.
Kevin Ali: This year for which there is no current treatment. Additionally, we are anticipating preclinical data related to our collaboration with circle, which is a novel method for non hormonal contraception, it's great to see progress not only happening on the commercial execution side of things, but also in positioning Oregon on for future growth through our innovative third.
Kevin Ali: Now, let's turn the call over to Matt who will go into our financial results in more detail.
Matthew M. Walsh: Thank you, Kevin. Beginning on slide seven. Here we bridge revenue for the first quarter year over year. In February, for modeling purposes, we suggested that you could consider evenly spreading revenue over the year, which would mean every quarter would be slightly under $1.6 billion in revenue if you were working from the midpoint of our guidance. We did a little better than that in the first quarter of 2024, driven by stronger volume, especially from Nexplanon and Biosimilar, followed by recovery and injectable steroids, namely DIPRASPAN, as well as continued growth from J-10.
Matthew M. Walsh: Thank you Kevin beginning on slide seven here, we bridge revenue for the first quarter year over year.
Matthew M. Walsh: In February for modeling purposes, we suggested that you could consider evenly spreading revenue over the year, which would mean every quarter will be slightly under $1 6 billion revenue if youre working from the midpoint of our guidance range.
Kevin Ali: Did a little better than that in the first quarter of 2024, driven by stronger volume, especially from <unk> and Biosimilars.
Matthew M. Walsh: Road by recovery in injectable steroids, namely <unk> as well as continued growth from data.
Matthew M. Walsh: Outside of FX, the other revenue drivers were fairly neutral in the quarter. Taken in totality, these other drivers finished Q1 ahead of our expectations, which drove the margin favorability we saw in the quarter. We'll discuss margins in more detail shortly. Eloi was about $5 million of impact in the first quarter, which reflects the impact of Adizet in Japan.
Matthew M. Walsh: Outside of FX. The other revenue drivers were fairly neutral in the quarter taken in totality. These other drivers finished Q1 ahead of our expectations, which drove the margin favorability we saw in the quarter.
Matthew M. Walsh: We will discuss margins in more detail shortly.
Matthew M. Walsh: <unk> was about $5 million of impact in the first quarter, which reflects the low we have added that in Japan.
Matthew M. Walsh: The impact of VBP in China was also about $5 million in the first quarter and reflects the lingering effects of the July 2023 implementation of Round 8 that included Remeron and Heisenberg. There was negligible impact from price in the first quarter. The benefits of our next one on pricing strategy in the U.S. have muted expected pricing pressure in other parts of our business, particularly in biosimilars and to a lesser degree, fertility. Supply Other, we capture the lower margin contract manufacturing arrangements that we had with Merck and have been declining since the spinoff, as expected.
Matthew M. Walsh: The impact of Edp, and China was also about $5 million in the first quarter and reflects the lingering effects of the July 2023 implementation of around eight that included Remeron Anheuser.
Matthew M. Walsh: There was negligible impact from price in the first quarter the benefits of our next one on pricing strategy in the U S muted expected pricing pressure in other parts of our business, particularly in Biosimilars and to a lesser degree fertility.
Matthew M. Walsh: In supply other we capture the lower margin contract manufacturing arrangements that we have with Merck and have been declining since the spin off as expected.
Matthew M. Walsh: And lastly, foreign exchange translation had an approximate $30 million impact, or 2 percentage point headwind to revenue, and that's a function of more than 75% of our business being generated outside the U.S. Now, let's turn to performance by Fran Schott. As has been our convention, I will target my comments over the next three slides to those areas most relevant to your modeling as we think about where we end the quarter and what the near-term future may hold. Let's start with women's health on slide eight.
Matthew M. Walsh: And lastly, foreign exchange translation had an approximate $30 million impact or two percentage point headwind to revenue and that's a function of more than 75% of our business being generated outside the U S.
Matthew M. Walsh: Now, let's turn to performance by franchise as has been our convention I will target my comments over the next three slides to those areas most relevant to your modeling as we think about where we ended the quarter and what the near term future may hold.
Matthew M. Walsh: Let's start with women's health on slide eight as.
Matthew M. Walsh: As Kevin mentioned, we expect robust growth for Nexodon for the full year. With such strong growth in the first quarter and the benefit of our annual price increase in the U.S., which we took in January, Nexmonon could achieve double-digit growth this year on a constant currency basis. However, for fertility, growth will be skewed toward the second half of the year.
Matthew M. Walsh: As Kevin mentioned, we expect robust growth for <unk> in the full year.
Matthew M. Walsh: With such strong growth in the first quarter and the benefit of our annual price increase in the U S, which we took in January next one could achieve double digit growth this year on a constant currency basis.
Matthew M. Walsh: For fertility growth will be skewed towards the second half of the year in.
Matthew M. Walsh: In the first half, we'll be absorbing the two Q4 2023 issues that Kevin referenced. First, the buy-in that resulted from exiting a temporary spin-off related commercial arrangement in the U.S. And second, initial supply chain stocking related to the large contract initiation, which is also in the U.S. In the second half of the year, we will have the benefit of lapping what was a difficult fertility environment in China last year, plus we expect volume growth from the provincial expansion of reimbursement and new launches in other markets, as Kevin referenced. Turning to biosimilars on slide 9, with Entrezant, we have had competitive success as a key supplier of a biosimilar of Herceptin in Brazil.
Matthew M. Walsh: In the first half will be absorbing the two Q4 2023 issues that Kevin referenced first the buy in that resulted from exiting a temporary spinoff related commercial arrangement in the U S and second initial supply chain stocking related to the large contract initiation, which is also in the U S.
Matthew M. Walsh: In the second half of the year, we will have the benefit of lapping what was a difficult fertility environment in China last year.
Matthew M. Walsh: We expect volume growth from the provincial expansion of reimbursement and new launches in other markets as Kevin referenced.
Speaker Change: Turning to Biosimilars on slide nine with Entre is on we have had competitive success as a key supplier of a biosimilar of herceptin in Brazil and in the quarter, we had the benefit of incremental upside coming from additional volume through that tender.
Matthew M. Walsh: And in the quarter, we had the benefit of incremental upside coming from additional volume through that tender. I would note that Entrezant growth would have been down this quarter if not for the incremental upside we had from these additional volumes in Brazil. In fact, on a global basis, we expect Entrezant growth to be declining this year due to competition in other markets.
Matthew M. Walsh: I would note that <unk> growth would have been down this quarter, if not for the incremental upside we had from these additional volumes in Brazil in fact on a global basis, we expect <unk> will be declining this year due to competition in other markets.
Matthew M. Walsh: And on U.S. Head Lima, we had a strong first quarter, but given that this market has been difficult to predict and continues to evolve, we'll only say that it is our objective to grow that product sequentially each quarter this year. Turning to slide 10, let's talk about pushes and pulls on established brands for the full year 2024. We'll see VBP impacts pick up later in the year, driven by Fosamax's inclusion in round 10, expected late in the third quarter.
Matthew M. Walsh: And on U S had Lima, we had a strong first quarter, but given that this market has been difficult to predict and continues to evolve we'll only say that it is our objective to grow that product sequentially each quarter. This year.
Matthew M. Walsh: Turning to slide 10, let's talk about pushes and pulls on established brands for the full year 2024.
Matthew M. Walsh: We'll see GBP impacts pick up later in the year driven by faster Max's inclusion in round 10 expected late in the third quarter.
Matthew M. Walsh: Adizet will go through LOE in the EU in September of this year, and that product has been doing very well for us in that market. We expect those headwinds to be offset by continued volume growth, for example, from the new migraine assets in Gality and Ray Valley.
Matthew M. Walsh: How does that will go through <unk> in the EU in September of this year and that product has been doing very well for us in that market.
Matthew M. Walsh: We expect those headwinds to be offset by continued volume growth for example contribution from the new migraine assets and <unk> array that we.
Matthew M. Walsh: We expect injectable steroids to continue to recover, and you already see that here with 19% XFX growth in the non-opioid pain and bone-derm portfolio. These factors should result in about level performance for the established brands portfolio in 2024 on X exchange. Now let's turn to slide 11, where we show key non-GAAP P&L line items and metrics for first quarter performance. For reference, GAAP financials and reconciliations to the non-GAAP financial measures are included in our press release and the slides in the appendix of this presentation.
Matthew M. Walsh: We expect injectable steroids to continue to recover and you already see that here with 19% ex FX growth in the non opioid pain and bone derm portfolio.
Matthew M. Walsh: These factors should result in about level performance for the established brands portfolio in 2024 ex exchange.
Matthew M. Walsh: Now, let's turn to slide 11, where we show key non-GAAP P&L line items and metrics for first quarter performance.
Matthew M. Walsh: For reference GAAP financials, and reconciliations to the non-GAAP financial measures are included in our press release and the slides in the appendix of this presentation.
Matthew M. Walsh: For gross profit, we are excluding cost of goods sold, purchase accounting amortization, and one-time items related to the spinoff, which can be seen in our appendix. Adjusted gross margin was 62.1% in the first quarter of 2024 compared with 65.2% in the first quarter of 2023. In the first quarter of 2024, the lower adjusted gross margin was primarily related to unfavorable product mix, foreign exchange translation, and higher inflation impacts on material and distribution.
Matthew M. Walsh: For gross profit we are excluding from cost of goods sold purchase accounting amortization and one time items related to the spinoff, which can be seen in our appendix slides.
Matthew M. Walsh: Adjusted gross margin was 62, 1% in the first quarter of 2024, compared with 65, 2% in the first quarter of 2023.
Matthew M. Walsh: In the first quarter of 2024, the lower adjusted gross margin was primarily related to unfavorable product mix foreign exchange translation and higher inflation impacts to material and distribution costs.
Matthew M. Walsh: Despite being below last year, gross margin actually came in stronger than we expected in the first quarter, mostly driven by better performance and price across the aggregated portfolio. Total non-GAAP operating expense was down 3% in the quarter, excluding IP R&D, reflective of our cost containment efforts. That is especially the case in R&D, where we have reprioritized clinical spending and rationalized headcount to better align with the types of business development programs we've recently completed and plan to pursue in the near term. IPR&D expense was $15 million in the first quarter compared with $8 million in the prior year.
Matthew M. Walsh: Despite being below last year gross margin actually came in stronger than we expected in the first quarter, mostly driven by better performance in price across the aggregated portfolio.
Matthew M. Walsh: Total non-GAAP operating expense was down 3% in the quarter, excluding IP R&D reflective of our cost containment efforts.
Matthew M. Walsh: That is especially the case in R&D, where we have re prioritized clinical spending and rationalized head count to better align with the types of business development programs. We've recently completed and plan to pursue in the near term.
Matthew M. Walsh: IP R&D expense was $15 million in the first quarter compared with $8 million in the prior year period.
Matthew M. Walsh: The $15 million of milestone expense in the first quarter was related to the development progression of a denosumab biosimilar. Milestone payments are inherently difficult to forecast, so we will continue to utilize the same convention that we employed this quarter, and that is to include an estimate of IPR&D and milestones to be recorded in the quarter in our earnings-date press release, which will be posted as soon as practical after the close of each quarter.
Matthew M. Walsh: The $50 million of milestone expense in the first quarter was related to development progression of it denotes a mab biosimilar.
Matthew M. Walsh: Milestone payments are inherently difficult to forecast. So we will continue to utilize the same convention that we employed this quarter and that is to include an estimate of IP R&D and milestones to be recorded in the quarter in our earnings press release, which will be posted as soon as practical after the close of each quarter.
Matthew M. Walsh: Foreign exchange losses were modestly lower, $6 million in the first quarter of 2024, compared with $9 million in the prior year period. In both periods, these are foreign exchange losses primarily driven by normal course business activities in countries where it's not feasible to hedge movements in the local currency.
Matthew M. Walsh: Foreign exchange losses were modestly lower $6 million in the first quarter of 2024, compared with $9 million in the prior year period.
Matthew M. Walsh: In both periods. These are foreign based losses, primarily driven by normal course business activities in countries, where it's not feasible to hedge movements in the local currency.
Matthew M. Walsh: These factors culminated in an adjusted EBITDA margin of 33.2% in the first quarter of 2024 compared with 33.7% in the first quarter of 2023. Non-GAAP-adjusted net income was $315 million, or $1.22 per diluted share, compared with $276 million, or $1.08 per diluted share, in 2023. Turning to slide 12, we provide a closer look at our cash flow for the quarter. For the last two years, our free cash flow generation has followed an approximate pattern of 30-70. 30% of our free cash flow is generated in the first half of the year, and 70% is generated in the second half.
Matthew M. Walsh: These factors culminated in an adjusted EBITDA margin of 33, 2% in the first quarter of 2024, compared with 33, 7% in the first quarter of 2023.
Matthew M. Walsh: non-GAAP adjusted net income was $315 million or $1 22 per diluted share compared with $276 million or $1 <unk> per diluted share in 2023.
Matthew M. Walsh: Turning to slide 12, we provide a closer look at our cash flow for the quarter for the last two years, our free cash flow generation has followed the approximate pattern of 30, 70%, 30% of our free cash flow was generated in the first half of the year and 70% is generated in the back half.
Matthew M. Walsh: In 2022, we generated $875 million of free cash flow before one-time charges. In 2023, that figure rose to $940 million. And in 2024, we expect to reach approximately $1 billion of free cash flow before one-time items underpinned by our financial guidance. Like many companies with December fiscal year ends, Q1 free cash flow is impacted by accrual runoff, largely related to the timing of annual incentive payments, and that represents about a third of that working capital consumption number. Typical of the first quarter, we also see seasonal fluctuations in working capital, which affects the remainder of the chain.
Matthew M. Walsh: In 2022, we generated $875 million of free cash flow before one time charges in 2023 that figure rose to $940 million.
Matthew M. Walsh: And in 2024, we expect to reach approximately $1 billion of free cash flow before one time items underpinned by our financial guidance.
Matthew M. Walsh: Like many companies with December fiscal year ends Q1 free cash flow was impacted by accrual runoff largely related to the timing of annual incentive payments and that represented about a third of that working capital consumption number.
Matthew M. Walsh: Typical to the first quarter, we also see seasonal fluctuations in working capital, which drove the remainder of the change.
Matthew M. Walsh: For one-time cash costs related to the spinoff, in February, when we gave full-year 2024 guidance, we said to expect about a 40% reduction from 2023, which would put us in the $200 million ballpark. The $68 million you see here is consistent with that expectation. Of note, we have completed the implementation of our global ERP system as of April, which was the main driver of one-time costs up until this point. Next year, we expect even lower one-time spin-related costs, and beyond 2025, we expect one-time spin-related costs to be diminishing, in the $36 million of other one-time costs.
Matthew M. Walsh: For onetime cash costs related to the spin off in February when we gave full year 2024 guidance, we said to expect about a 40% reduction from 2023, which would put us in the $200 million ballpark.
Matthew M. Walsh: The $68 million you see here is consistent with that expectation.
Matthew M. Walsh: Of note we have completed the implementation of our global ERP system as of April which was the main driver of onetime costs up until this point.
Matthew M. Walsh: Next year, we would expect even lower one time spin related costs and beyond 2025, we expect one time spin related cost to be de Minimis.
Matthew M. Walsh: In the $36 million of other one time costs here, we capture head count restructuring initiatives and the transition of our manufacturing network related to the spinoff.
Matthew M. Walsh: Here, we capture headcount restructuring initiatives and the transition of our manufacturing network related to the spin-off. These costs are distinct from the spin-related startup costs in that they're associated with actions that will ultimately drive cost efficiency.
Matthew M. Walsh: These costs are distinct from the spin related standup costs and that they are associated with actions, which will ultimately drive cost efficiencies some of which we realized in Q1, and which are already incorporated into our earnings guidance for 2024.
Matthew M. Walsh: Some of which we realized in Q1 and which are already incorporated into our earnings guidance for 2024. Moving to slide 13, now on debt and leverage. When we provided guidance in February, we were bracing ourselves for leverage to tick higher in the first half of the year before coming down in the second half, ending the year better than 2023, with a view to ending the year below four times. With stronger-than-expected EBITDA performance in Q1, our net leverage ratio has remained level with 2023 year-end and is holding at 4.1 times. This solid result gives us greater confidence in our February commentary around lowering our net leverage ratio during the year.
Matthew M. Walsh: Moving to slide 13, now on debt and leverage.
Matthew M. Walsh: When we provided guidance in February we were bracing ourselves for leverage to tick higher in the first half of the year before coming down in the second half ending the year better than 2023 with a view to ending the year below four times.
Matthew M. Walsh: Stronger than expected EBITDA performance in Q1, our net leverage ratio has remained level with 2023 year and it is holding at four one times.
Matthew M. Walsh: This solid result gives us greater confidence in our February commentary around lowering our net leverage ratio during the year.
Matthew M. Walsh: Now turning to 2024 guidance on slide 14, where we highlight the items driving our 2024 revenue guidance range of $6.2 to $6.5 billion. Some of the individual drivers have changed, but our top-line revenue guidance is remaining unchanged. For LOE, that approximate $70 to $90 million impact for the full year 2024 incorporates Adizet in both Japan and in the EU later this year. We also have a provision for DILERA, where we have been expecting a generic since its launch in 2020.
Matthew M. Walsh: Now turning to 2024 guidance on slide 14, where we highlight the items driving our 2020 for revenue guidance range of $6 2 million to $6 5 billion.
Matthew M. Walsh: Some of the individual drivers have changed but our topline revenue guidance is remaining unchanged for low.
Matthew M. Walsh: That approximate 70% to $90 million impact for the full year 2024 incorporates AD is that both Japan and in the EU later this year.
Matthew M. Walsh: We also have a provision for delay era, where we had been expecting a generic since its low in 2020.
Matthew M. Walsh: VBP impact is still expected to be in the range of $30 to $50 million in 2024. By the end of the year, we expect approximately 85% of the portfolio to have gone through VBP. At the minimum, in Q1, we expect the impact from price to be in the $180 to $220 million range, which is up $25 million at the midpoint from the $150 to $200 million range we talked about in February. Overall, this represents a bit over a three-percentage point headwind versus the prior year and is more in line with our longer-term expectations of price impact across our entire business, given pricing pressure in biosimilars, U.S. fertility, and the mandatory pricing revisions we expect to see in certain international markets.
Matthew M. Walsh: The Pvp impact is still expected to be in the range of $30 million to $50 million for 2024.
Matthew M. Walsh: By the end of the year, we expect approximately 85% of the portfolio to have gone through EVP.
Matthew M. Walsh: The minimal in Q1, we expect the impact from price to be in the $180 million to $220 million range, which is up $25 million at the midpoint from the $150 million to $200 million range, we talked about in February.
Matthew M. Walsh: Overall this represents a bit over a three percentage point headwind versus prior year and is more in line with our longer term expectations of price impact across our entire business given pricing pressure in biosimilars.
Matthew M. Walsh: Fertility and the mandatory pricing revisions, we expect to see in certain international markets.
Matthew M. Walsh: And for volume, we are raising our estimate by $75 million at the midpoint to $450 to $650 million to primarily reflect the upside we saw in biosimilars in the first quarter. Overall, that almost 9% volume growth we expect over last year will be coming from our growth pillar. Nexplanon, Fertility, and Jada within Women's Health, Biosimilars, and China Retail, as well as the latest edition of Lilly's M. gallaudet and Ray Vau in Europe.
Matthew M. Walsh: And for volume, we are raising our estimate by $75 million at the midpoint to $450 million to $650 million to primarily reflect the upside we saw in biosimilars in the first quarter overall that almost 9% volume growth, we expect over last year will be coming from our growth pillars.
Matthew M. Walsh: <unk> fertility and Jada within women's health, Biosimilars, and China retail as well as the latest addition of lilly's and <unk> and rave out in Europe.
Matthew M. Walsh: And finally, based on current spot rates, we think we could see an increasing headwind from FX, now at 160 to 200 basis points, compared with 80 to 160 basis points that we were forecasting back in February. We've absorbed that impact with an improved view of volume growth, so our constant currency revenue guide effectively went up a bit. Moving to the other components of guidance, now on slide 15.
Matthew M. Walsh: And finally based on current spot rates, we think we could see an increasing headwind from FX now at 160 to 200 basis points compared with 80 to 160 basis points that we were forecasting back in February.
Matthew M. Walsh: We've absorbed that impact with an improved view of volume growth. So our constant currency revenue guide effectively went up a bit.
Matthew M. Walsh: Moving to the other components of guidance now on slide 15.
Matthew M. Walsh: For adjusted gross margin, we are continuing to guide to a range of 61 to 63% for 2024. For Off X expense, even though we are tracking to the lower end of the ranges for SG&A and R&D expense, if you simply annualize Q1, it's a little too early in the year to be calling those ranges. For SG&A, we have some expense in the second half related to product launches. The Migraine products have Lima, Zaciato, and Jada internationally, to cite a few examples.
Matthew M. Walsh: For adjusted gross margin, we are continuing to guide to a range of <unk>, 61% to 63% for 2024.
Matthew M. Walsh: And Opex expense, even though we are tracking to the lower end of the ranges for SG&A and R&D expense. If you simply annualize Q1, it's a little too early in the year to be calling those ranges down for SG&A. We have some expense in the second half related to product launches the migraine products had Lima zasyadko.
Matthew M. Walsh: And Jay to internationally to cite a few examples.
Matthew M. Walsh: And that will be partially offsetting the favorable impact of our restructuring cost containment efforts. For R&D, the $400 million to $500 million range still feels good, even inclusive of IP R&D to date, but we'll continue to evaluate this as the year progresses and milestone achievement becomes more clear. Interest, tax, and depreciation expense ranges are all unchanged. All things considered, Q1 was a solid start to the year. We're heading in the right direction on volume growth, margins, and operating expense discipline, and we're tracking to another year of constant currency revenue. With that, now, let's turn the call over to questions.
Matthew M. Walsh: And that will be partially offsetting the favorable impact of our restructuring cost containment efforts.
Matthew M. Walsh: For R&D, the $400 million to $500 million range still feels good even inclusive of IP R&D to date, but we will continue to evaluate this as the year progresses and milestone achievement becomes more clear.
Matthew M. Walsh: Interest tax and depreciation expense ranges are all unchanged.
Matthew M. Walsh: All things considered Q1 was a solid start to the year, we're heading in the right direction on volume growth margins and operating expense discipline, and we're tracking to another year of constant currency revenue growth.
Speaker Change: With that now, let's turn the call over to questions and answers.
Operator: Thank you. We will now begin the question and answer session. If you've dialed in and would like to ask a question, please press star 1 on your telephone keypad, raise your hand, and join the queue. If you'd like to withdraw your question, simply press star 1 again. If you're called upon to ask a question and are listening via the loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. Our first question comes from the line of Umer Raffat with Evercore ISI. Please go ahead.
Speaker Change: Thank you we will now begin the question and answer session <unk> would like to ask a question. Please press star one their telephone keypads raised her hand and joined the queue. If you would like to withdraw your question simply press Star one again.
Umer Raffat: Paul Good question and our listing be allowed to speak Ron Your device. Please pickup your handset and ensure that your phone is not on mute when asking your question.
Operator: Press Star one to join the queue.
Umer Raffat: Our first question comes from the line of <unk> with Evercore ISI. Please go ahead.
Umer Raffat: Hi guys, thanks for taking my question. I just wanted to focus on free cash flow for a quick second. It's about $109 million before one-time costs, and I guess the true free cash flow is $6 million for this quarter, so it's roughly flat, roughly neutral. And my question is, I know working capital was the biggest drag of about $300 million, but 1Q last year wasn't exactly similar. Wasn't it half that at $160?
Umer Raffat: Hi, guys. Thanks for taking my question.
Speaker Change: I just wanted to focus on free cash flow for a quick second.
Umer Raffat: It's about $109 million before one time costs and I guess, the true free cash flow is $6 million. This quarter. So its roughly flat roughly neutral and my question is I know working capital is the biggest drag of about $300 million.
Umer Raffat: <unk> last year wasn't exactly similar it wasn't at half that at $1 60, So how do we square those knowing that the ERP costs have actually come down but also knowing that maybe heading into 2025 26, you could potentially have nexplanon headwind.
Umer Raffat: So, how do we square those, knowing that the ERP costs have actually come down, but also knowing that maybe heading into 2025, 2026, you could potentially have neck bonon headwinds from a free cash flow perspective as patients switch to a five-year regimen instead of a three-year regimen? Thank you.
Umer Raffat: From a free cash flow perspective, as patients switched to a five year regimen set of three year regimen. Thank you.
Matthew M. Walsh: So, we'll take the 2024 free cash flow part of your question first, Umer. And in our forecasting, it's the seasonality of working capital that will start to reverse in the latter quarters of the year. And so that really enables us to recover to the $1 billion before one-time items that we are forecasting. Overall, one-time costs related to the spinoff, which were about $344 million last year, we do see that number coming down about 40%.
Umer Raffat: So we'll take the <unk>.
Matthew M. Walsh: <unk> 2020 for free cash flow part of your question first tumor and in our in our forecasting its the seasonality of working capital that.
Matthew M. Walsh: We'll start to reverse in the latter quarters of the year and so that really enables us to.
Matthew M. Walsh: Recover to the $1 billion before one time items that we are forecasting.
Matthew M. Walsh: Overall onetime costs related to the spinoff, which were about $344 million last year, we didn't see that number coming down.
Matthew M. Walsh: 40% and that will really all be real lot youll see that really in the back quarters.
Matthew M. Walsh: And that'll really all be real – you'll see that really in the back quarters of the year. So just returning to the seasonality of that cash flow being more 70% driven in the back half, really, the first quarter performance, Umer, just gives us confidence that we'll be able to hit the full year note. And Umer, on your second question,
Matthew M. Walsh: In the back quarters of the year.
Matthew M. Walsh: Just returning to the seasonality of that cash flow.
Matthew M. Walsh: Be more 70% driven in the back half really the first quarter performance.
Matthew M. Walsh: Just gives us confidence that we'll be able to hit the full year number.
Kevin Ali: And Umer, on your second question, in regards to Nexplanon being a headwind in the 2025-2026 range, we don't expect the five-year indication to be instituted until 2026, first of all. And second of all, we see two reasons to believe that that will not be a headwind. First, there's always the possibility of taking prices, but we haven't, in terms of additional price in the five-year indication; we haven't decided on that yet.
Umer Raffat: And whom are on your second question in regards to the next one on being a headwind in the $25 96 range. We don't expect the five year indication is likely be.
Kevin Ali: Instituted until 2026 first of all and second of all we see two reasons to believe that that will not be.
Kevin Ali: Headwind first there's always the possibility of taking price, but we haven't in terms of additional price in the five year indication, we haven't decided on that yet thats a lot of research is required but thats definitely they are on the table and second and probably more importantly, there is a large chunk of health care providers and patients who would prefer to add.
Kevin Ali: There's a lot of research required, but that's definitely on the table. And second, and probably more importantly, there's a large chunk of healthcare providers and patients who would prefer to actually have the five-year indication, who are potentially right now using other forms of contraception. So it is potentially a net gain for us as opposed to a significant headwind.
Kevin Ali: We have the five year indications potentially right now are using other forms of contraception. So it is potentially a net gain for us as opposed to a significant headwind.
Operator: Thank you very much.
Speaker Change: Thank you very much.
Operator: Sure.
Operator: Our next question comes from the line of Balaji Prasad with Barclays. Please go ahead. Your line is open, please go ahead.
Operator: Our next question comes from the line of <unk> Prasad with Barclays. Please go ahead.
Operator: Okay.
Balaji V. Prasad: Your line is open. Please go ahead.
Operator: Okay, maybe we can come back to Balaji.
Balaji V. Prasad: Okay, Let me come back to the Lockheed.
Operator: Sure.
Operator: Next, next operator. Let's go to the next question. Our next question comes from the line of Terrence Flynn with Morgan Stanley. Please go ahead. Hi, this is Dan on behalf of Terrence. Thanks for taking our questions. Just two from us, I guess. First, just on U.S.
Balaji V. Prasad: Now, let's go to that.
Operator: Our next question comes from the line of Terrence Flynn with Morgan Stanley. Please go ahead. Hi, this is Dan on behalf of Terrence.
Speaker Change: Our next question comes from the line of Terence Flynn with Morgan Stanley. Please go ahead.
Operator: Hi, This is Dan on for Terence Thanks for taking our questions. Just two from US I guess first just on U S. <unk> be great to get a little more color just on the underlying volume trends that you saw in the quarter and how youre thinking about the rest of the year and then on <unk>.
Dan: How youre thinking about maybe initially the opportunity in 25 at this point and any color on some of your initial ppm contracting conversations. Thank you.
Operator: Yeah, thanks for the question, Dan. It's Kevin.
Operator: Yes. Thanks for the question Dan It's Kevin So I would tell you that the components of next point on growth. This year in the U S is strong.
Kevin Ali: So I would tell you that the components of Nexplanon growth this year in the U.S. are strong, and we believe that we made the right decision in terms of moving price to Q1 within the Q, within the quarter. So ultimately, any kind of just, you know, any type of buy-in and buy-out scenario will happen in that given quarter. Also, demand is starting to really move nicely, both in the 340B channel as well as on the commercial side of things. So we feel really good, and that's solid.
Kevin Ali: We believe that we made the right decision in terms of moving price to Q1 within the Q within the quarter. So ultimately any kind of any type of buy in and buyout scenario will happen in that given quarter also demand is starting to really move nicely. Both in the 340 B channel as well as the commercial side of things. So we.
Kevin Ali: There's going to be a very solid year overall. I do believe it'll be a double-digit growth year for Nexplanon globally, driven by its U.S. performance. And there are just good signals coming out of a number of things that we've done on the ground in order to drive demand for Nexplanon in the U.S. And secondly, in regards to Hadlema, I would tell you that Hadlema is also progressing very well. I've said, it feels like forever now, but for the last few years, that it's going to be a slow-moving market formation period of
Kevin Ali: Really good in that solid theres going to be a very solid year overall I do believe it will be a double digit growth year for <unk> globally, and driven by the U S performance and there is just good signals coming out of a number of things that we've done on the ground in order to drive demand and next one on in the U S and <unk>.
Kevin Ali: Secondly in regards to head Lima, I would tell you that at Lima is also progressing very well it is.
Kevin Ali: Keep ive said for.
Kevin Ali: It feels like forever now, but for the last few years that it's going to be a slow moving market formation period of time right. Now you see for example, more and more pbms starting to move over to its actually prefer biosimilars to have Lima, we want of course exclusive contract with the VA and so theres going to be more of the market.
Kevin Ali: Right now, you see, for example, more and more PBMs starting to move over to essentially prefer biosimilars to Hadlema. We want, of course, an exclusive contract with the VA. And so there's going to be more market formation as you start to look at 2024 and 2025. And I think as you go through 2025 and to 2026, you'll start to see much more erosion of Humira. And as I've always said, as long as you're in the top two or three, you will benefit from that opening of the market.
Kevin Ali: <unk> as you start to look at 2024, and 2025 and I think as you go through 2025 and to 2026, you'll start to see much more erosion of head of Humira and as I've always said as long as you are in the top two or three you will benefit from that opening of the market and I continue to say that our peak.
Kevin Ali: And I continue to say that our peak revenues that we've signaled, a couple of hundred million in the U.S., are definitely achievable. Hopefully, we'll do more than that as time progresses, but we feel very good. It's just a time continuum of being able to kind of push forward and do what we want to do with our strategy for Hadlema. And I feel very confident about the product for the coming year.
Kevin Ali: Revenues that we've signaled a couple of $100 million in the U S is.
Kevin Ali: It is definitely achievable.
Kevin Ali: Currently achievable hopefully will do more than that as time progresses, but we feel very good. It's just a time continuum of being able to kind of push forward and do what we want to do on our strategy for head Lima, and I feel very confident about about the product for the coming years.
Operator: Our next question comes from the line of Chris Shibutani with Goldman Sachs. Please go ahead.
Kevin Ali: Our next question comes from the line of Chris <unk> with Goldman Sachs. Please go ahead.
Chris Shibutani: Thank you very much. Good morning. Two questions. Perhaps if we think about the operating margin progression beyond 2024, based upon the progress that you're making so far, can you give us a sense of your confidence in potential sources for where and the scope of how that could improve? Secondly, on business development, maybe update us on where you are in terms of seeing opportunities. In particular, the opportunity that you had with MGALADY was quite attractive. Are there more such opportunities? Do you favor certain segments of the business or geographies?
Chris Shibutani: Thank you very much good morning, two questions.
Chris Shibutani: Perhaps if we think about the operating margin progression beyond 2024 based upon the progress that you're making so far can you give us a sense for your confidence or potential sources for wear and the scope of how that could improve.
Chris Shibutani: Secondly on business development maybe.
Chris Shibutani: Maybe update us on where you are in terms of seeing opportunities in particular, the opportunity that you had with them quality was quite attractive are there more such opportunities do you favor certain segments of the business or geographies. Thank you.
Kevin Ali: Thank you.
Matthew M. Walsh: So, I'll start, Chris, on the operating margin part of this. So, as we look out into the future, we see margin accretion coming in a few areas, and that will be offsetting, we believe, sort of the constant issues that we face with price in our markets, which are highly competitive, as you know. On the upside, we believe that our product mix, over time, will be mixing towards higher-margin products as things come out of the pipeline and become commercial.
Speaker Change: So I will start Chris on the operating margin part of this so as we look out into the future.
Matthew M. Walsh: We see margin accretion coming in a few areas and that will be offsetting we believe sort of a constant issues that we face with price in our markets, which are highly competitive as you know.
Matthew M. Walsh: On the upside we will we believe that our product mix over time will be mixing towards.
Matthew M. Walsh: Awards.
Matthew M. Walsh: Margin products as things come out of the pipeline and become commercial.
Matthew M. Walsh: We see productivity efforts and overall cost of goods sold improvement efforts coming from the network rationalization work that we'll be doing as we transition away from Merck services. And finally, we believe that we'll be able to generate operating leverage off of our fixed costs, which we're in the process of realigning this year. And you saw some of the benefits of that in the first quarter itself. So those are the margin-enhancing areas that we're really working hard to pursue. And, you know, once again, as we referenced in some of the prepared comments, that we believe will help us more than offset sort of that constant drumbeat of price that we see around our aggregated network.
Speaker Change: We see.
Matthew M. Walsh: Productivity efforts.
Matthew M. Walsh: And overall cost of goods sold improvement efforts coming from the network rationalization.
Matthew M. Walsh: Work that will be doing as we transition away from Merck services.
Matthew M. Walsh: And finally, we believe that we will be able to generate operating leverage off of our fixed costs, which as you know we're in the process of realigning. This year and you saw some of the benefits of that in the first quarter itself. So those are the margin up areas that we're really working hard to pursue.
Matthew M. Walsh: Yes.
Matthew M. Walsh: And once again as we referenced in some of the prepared comments that we believe will help us more than offset sort of that constant drumbeat of price that we see around our aggregated network.
Kevin Ali: Chris, in regards to your question around business development, yeah, I mean, there's going to be more and more of those type of deals that you saw with the Lilly deal with Ray Bowen and Gality. Our deals that we do are essentially focused on opening the apertures, as I've mentioned before, of women's health. In that case, it was migraine, which essentially two-thirds of patients who suffer from migraine happen to be women.
Matthew M. Walsh: And Chris.
Kevin Ali: As to your question around business development, Yes, I mean, theres going to be more and more of those type of deals that you saw with the Lilly deal with rave island in reality.
Kevin Ali: Our deals that we do is essentially focused on opening the aperture as I've mentioned before of women's health in that case, it was migraine, which essentially two thirds of patients who suffer from migraine are happen to be women. So there are opportunities there coming fast and furious.
Kevin Ali: So there are opportunities. They're coming fast and furious over our desk in terms of regional-specific, country-specific, like, for example, China for China. We have opportunities. We do see China as being a growth market for us in the future in a number of different areas, including women's health, of course.
Kevin Ali: Over our desk in terms of.
Kevin Ali: Regional specific country specific like for example, China for China, we have opportunities, we do see China as being.
Kevin Ali: <unk> country for us in the future a number of different areas, including women's health of course.
Kevin Ali: So we'll continue to do that. We'll be very disciplined in the sense that we'll be picking out those opportunities that clearly fit into our capacity and so that, you know, we don't really have to dedicate much operating expense to expanding that portfolio that we bring in, and essentially, it's just to create it pretty soon. And so we'll be doing more of those, and we'll always have our eye towards more of the larger deals as well that move the needle.
Kevin Ali: We will continue to do that we'll be very disciplined in the sense that we will be picking out on those opportunities that clearly fit into our capacity.
Kevin Ali: And so that we don't really have to dedicate much operating expense to expanding that portfolio that we bring in.
Kevin Ali: Essentially it's just accretive pretty soon and so we'll be doing more of those and we'll always have our eye towards more of the larger deals as well that moved the needle.
Kevin Ali: And they're more infrequent, as you would expect, but we're definitely looking there. But this year, it's really all about focusing on our financial execution, on making sure that we deliver the numbers, and even better, hopefully, in the future, in this year, and working on our leverage and all those nice things that we need to do in order to be able to have more flexibility in the future to do more transformative things. And I think you should just stay tuned.
Kevin Ali: And there are more infrequent as you would expect but we are definitely looking there and but this year, it's really all about focusing on our financial execution on making sure that we deliver the numbers and even better hopefully in the future in this year and are working on our leverage and all those nice things that we need to do in order to be able.
Kevin Ali: To have more flexibility in the future to do more transformative things and I think just stay tuned.
Operator: Thank you. A helpful update on your perspective. Thanks. Our next question comes from a line in Navantai with BMP Paribas. Please go ahead. Hi, it's Jane Marie from
Speaker Change: Thank you helpful update on your perspective thanks.
Operator: Our next question comes from Alana Navonti with BNP Paribas. Please go ahead. Hi, it's Jane Marie from Novant.
Jane Marie: Our next question comes from the line of Nepal and tie with BNP Paribas. Please go ahead.
Kevin Ali: Yeah, Jane, sure. I can address that.
Operator: Hi, it's James <unk> from Ivan.
Alana Navonti: Thanks for taking my question can you comment more on what your expectations are for the Humira Biosimilar market for this year and next.
Alana Navonti: Considering the rise in hemodialysis and our Inc. After Cvs Caremark effective fleet revenue to mirror.
Kevin Ali: Formulary.
Kevin Ali: So I do think it's what I've been essentiallypredicting for the last couple of years, that it's going to be a slow, steady beat, drumbeat of, you know, winds that you see across the channels, whether it's in the PBM world, and you've just mentioned one large PBM, CVS, deciding to go with a different product, and obviously, than Humira in terms of exclusivity, which is And then you talk about our strategy, which is really about low net cost providers like the VA and Blue Cross Blue Shield, Medicare, and Medicaid, which are about 40%, 45% of the lives covered in the U.S. today.
Alana Navonti: Yeah, Jamie sure.
Kevin Ali: I can address that so I do think it's what I have been essentially predicting for the last couple of years and it's going to be a.
Kevin Ali: Slow steady beat drumbeat of wins that you see across the channels, whether it's in the <unk> World and you've just mentioned one large television haven't Cvs deciding to go with <unk> with a.
Kevin Ali: Different product and obviously that humira in terms of exclusivity, which is one of the large pbms and then you talk about our strategy, which is really on the low net cost providers like the VA and Blue Cross Blue Shield, Medicare and Medicaid, which is about 40% 45% of the lives covered in the U S. Today, they're looking more to try to save money.
Kevin Ali: They're looking more to try to save money quicker. And look, at the end of the day, something like about 25 to 30% of patients in commercial plans today are still paying $1,000 or more per month out of pocket for the use of something like Humira. And I think that is something that we're working to try to bring more savings to not only patients but the system so that there's more headroom for investment and other innovative things that need to be done. So I do think that the market will open up slowly. It was very slow in 24. I think it'll be more in 25 than I think it really will open up in 26 and beyond.
Kevin Ali: Quicker and look at the at the end of the day more like something like about 25% to 30% of patients and the commercial plans today are still paying $1000 or more per month out of pocket for the for the use of.
Kevin Ali: Of something like a humira and I think that is something that we're working to try to bring more savings to not only patients, but the system so that theres more headroom.
Kevin Ali: Investment and other innovative things that need to be done. So I do think that the market will open up slowly.
Kevin Ali: He was very slow in 'twenty four I think it will be more than 25% and I think it really will open up in 2006 and beyond.
Speaker Change: Thank you so much.
Kevin Ali: Okay.
Operator: Our next question comes from the line of Jason Gerberry with the Bank of America. Please go ahead.
Kevin Ali: Our next question comes from the line of Jason <unk> with Bank of America. Please go ahead.
Jason Matthew Gerberry: Hey guys, thanks for taking my questions. Just to follow up on what Umer said, Sandoz and Teva have had some success with these private label type deals with large insurer groups. I think Optum's still up for grabs. Like, is there, do you see that as a strategy of interest to you? Because I know that, at least with Teva, they're exclusive to Cigna.
Jason Matthew Gerberry: Hey, guys.
Speaker Change: Great questions.
Jason Matthew Gerberry: Just to follow up on the unless you can here. So it looks like Sandoz and Teva had have had some success with private label type deals with large insurer groups.
Jason Matthew Gerberry: I think optum still up for grabs like is there do you see that.
Jason Matthew Gerberry: Our strategy of interest to you because I know that at least for further.
Jason Matthew Gerberry: If the second half.
Jason Matthew Gerberry: And then another question just on Nexplanon O U S. Your 10-K, you talked about next year.
Jason Matthew Gerberry: 40 of countries, where next one is commercial.
Jason Matthew Gerberry: Ex U S is going to expire so how do you think about that erosion profile with the loss of exclusivity and bulk of their U S. Geography is that sort of a typical U S kind of down 30% or not a typical U S. Cliff type dynamic or is it better than that just curious how you think about the next one.
Jason Matthew Gerberry: So how do you think about that erosion profile with the loss of exclusivity in the bulk of your OUS geography? Is that sort of typical OUS kind of down 30% or not a typical OUS cliff-type dynamic, or is it better than that? Just curious how you think about the Nexplanon OUS in 2025.
Jason Matthew Gerberry: I know the U S and 25.
Operator: Thanks, Jason. Let me
Kevin Ali: Thanks, Jason. Let me take the first question, which is really around what's happening with the Humira biosimilar kind of event or Humira LOE event. Yeah, I mean, you said it right in the sense that Sandoz was able to acquire the CVS business, and then Teva has announced something recently. And of course, Optum. We've got more than 50% access to the Optum business already as we speak today. And I do think that our strategy is responding with our providers, which is, again, I'll reinforce.
Speaker Change: Thanks, Jason Let me take the first question, which is really around what's happening with the Humira biosimilar kind of event with Humira LOE event.
Kevin Ali: Yes, I mean, you said it right in the sense of Sandoz was able to acquire the.
Kevin Ali: Cvs business and then and then Teva has announced something recently and of course, often we've got more than 50% access already in the Optum business as we speak today and I do think that our strategy is resonating with our providers, which is again I'll reinforce we do have obviously penetration into the Optum world in regards to large.
Kevin Ali: We do have, obviously, penetration into the Optum world in regards to a large PVM, but we also have really good pickup state-by-state, whether you're talking about the VAs at various levels or whether you're talking about Blue Cross Blue Shield in various states, certain systems.
Kevin Ali: <unk> <unk>, but we also have really good pick up state by state level, whether you're talking about.
Kevin Ali: The VA is a.
Kevin Ali: <unk> levels or whether you're talking about.
Kevin Ali: Cross Blue shield in various states.
Kevin Ali: And I think those are probably more resilient, more sticky businesses over the long term. If you look at it as more kind of diversified, the more diversified you are in the biosimilar business, the more you can retain share as it gets more competitive over time. And I still do hold the fact that I think in 2025, 2024, as the year progresses, you'll see better overall penetration into that world. But 2025 will definitely open up for us in terms of what we expect to do with HeadLima.
Kevin Ali: Certain systems and I think those are probably more resilient more sticky business over the long term is that if you look at it as more kind of diversified the more diversified you are in the Biosimilar business. The more you can retain share as it gets more competitive over time and I still do hold the fact that I think in 25 24 as the euro.
Kevin Ali: Progresses, youll see better better overall penetration into that world, but 25 will definitely open up for us in terms of in terms of what we expect to do with had Lima, turning to your question about Nexplanon I don't foresee any market erosion for the ex U S business look 70% of our business is in the U S.
Kevin Ali: Turning to your question about Nexplanon, I don't foresee any market erosion for the ex-U.S. business. Look, 70 percent of our business is in the U.S. That's where everybody is going to be looking forward to try to penetrate first, and I think after that, you would get into a much, let's just say, less attractive pricing environment in the ex-U.S., whether it's the access I think that it's just too fragmented and too difficult to penetrate unless you've got essentially the breadth of being able to get into the U.S., and I don't think, as I've mentioned earlier in my prepared remarks, I clearly think there's a lot of facts out there.
Kevin Ali: That's where everybody is going to be looking forward to try to penetrate first I think after that you would get into the much less to say less attractive pricing environment in ex U S. Whether it's.
Kevin Ali: The access markets in the emerging markets or whether its in Europe, I think that it's just too fragmented and too difficult to penetrate unless you've got essentially.
Kevin Ali: The breadth of being able to get into the U S and I don't think as I've mentioned earlier in my prepared remarks.
Kevin Ali: Clearly think theres a lot of fact out there. This is not just suppositions a lot of fact that would lead one to believe that this is a 2030 event our applicator alone globally has.
Kevin Ali: This is not just speculation. There are a lot of facts that would lead one to believe that this is a 2030 event. Our applicator alone globally has patent protection until 2030, and somebody would have to develop their own applicator, which is not as easy as you may think because you've got to do studies around safety and efficacy of the applicator device alone before you can actually show anything else in regards to the rod itself. So I think this is a 2030 event globally and beyond.
Kevin Ali: Patent protection until 2030, and somebody would have to develop their own applicator, which in itself is not as easy as you may think because you've got to do studies around safety around efficacy of the applicator device alone before you can actually show anything else in regards to the Rod itself. So I think this is the 20 <unk> globally and beyond.
Kevin Ali: Thanks.
Operator: Our next question comes from the line of David Amsellem with Piper Sandler. Please go ahead.
Kevin Ali: Our next question comes from the line of David <unk> with Piper Sandler. Please go ahead.
David A. Amsellem: Hey, thanks. So, two questions. One is longer term on EBITDA margins beyond Control and Spend. Do you think there's room for margin expansion based on the top line? Anything in the established brands business that can drive margin expansion over time? Anything in terms of the women's health business or just its overall footprint that can drive margin expansion over time? This is more of a beyond 24 question.
David A. Amsellem: Hey, Thanks, so two questions.
David A. Amsellem: One is longer term on EBITDA margins.
David A. Amsellem: Beyond.
David A. Amsellem: Control in spend.
David A. Amsellem: Do you think there is room.
David A. Amsellem: For margin expansion based on.
David A. Amsellem: The top line anything in the established brands business that can drive margin expansion over time.
David A. Amsellem: Anything in terms of the women's health business or just the overall footprint that can drive margin expansion over time. This is more of a beyond 'twenty. Four question. So that's number one and then number two is.
Matthew M. Walsh: That's number one. And then number two is to help us better understand long-term leverage targets, particularly with the 2028 maturities. How are you thinking about that? Looking at, say, Teva, they have a leverage target at 27 of 2x. I'm not trying to pin you down on a target necessarily, but some of your peers do talk about that. Where do you get comfortable in terms of a steady state? And that's it to you, the doctors. Thanks.
Matthew M. Walsh: Help us better understand long term leverage targets, particularly with the 2028 maturities.
Matthew M. Walsh: How are you thinking about that.
Matthew M. Walsh: Looking its a teva they have a leverage target and 27% to <unk>.
Matthew M. Walsh: I'm not trying to pin you down on a target necessarily but some of your peers do talk about that so.
Matthew M. Walsh: Where do you get.
Matthew M. Walsh: Get comfortable.
Matthew M. Walsh: In terms of a steady state.
Matthew M. Walsh: Net debt to EBITDA.
Matthew M. Walsh: Okay.
Matthew M. Walsh: Yeah, okay, David, so we'll start with your comment on longer-term margin accretion, basically through revenue mix, I think is your question. And, you know, really where we'll be able to achieve that is in what we have coming out of the pipeline towards the latter part of the decade and what we can acquire during that timeframe. So, I think we will continue to see stability among the portfolio of products that we have now.
Speaker Change: Yes, David So so we'll start with your comment on longer term margin accretion basically through revenue mix. I think is I think is your question and yes.
Matthew M. Walsh: Really where we will be able to achieve that.
Matthew M. Walsh: Is in what we have coming out of the pipeline towards the towards the towards the latter part of the decade.
Matthew M. Walsh: And what we can acquire and during that timeframe.
Matthew M. Walsh: So, I think, really, the improvement in the revenue mix comes from a relative mix of the things that are growing faster that are in the portfolio right now, and I'm mainly thinking about Nexplanon, Jada, and then what we bring in through business development. In terms of leverage... Really, since the spin, we've had the same commentary, the same view, that this business can run very effectively at leverage levels underneath three and a half times, and how far underneath would be dependent on business conditions at the time or just the overall marketability of the stock in terms of investor comfort with the leverage ratio on this business.
Matthew M. Walsh: So.
Matthew M. Walsh: I think we will continue to see stability amongst the portfolio of products that we have now so I think really the improvement.
Matthew M. Walsh: Revenue mix comes from the.
Matthew M. Walsh: Relative mix of.
Matthew M. Walsh: The things that are growing faster that are in the portfolio right now and are mainly thinking about next benign jada.
Matthew M. Walsh: And then what we bring in through business development.
Matthew M. Walsh: In terms of leverage.
Matthew M. Walsh: Really since the spin we've had the same commentary the same view.
Matthew M. Walsh: That this business can run very effectively.
Matthew M. Walsh: Leverage levels underneath three five times and how far underneath would be.
Matthew M. Walsh: Would be dependent on business conditions at the time or just the overall market ability of the stock in terms of investor comfort with leverage ratio on this business.
Matthew M. Walsh: So we see ourselves getting to under four times by the end of this year and then by the end of 2025, getting to that 3.5 target that we've been referring to. So our view on that really hasn't changed. I think investor sentiment around leverage has changed, but really, our view in terms of where this business runs most effectively has not. So we still feel the same, and that's sort of what we're targeting as we think about the capital structure going forward.
Matthew M. Walsh: So we see ourselves getting to <unk>.
Matthew M. Walsh: Underneath four times by the end of this year and then by the end of 2025 getting to that $3 five ton.
Matthew M. Walsh: Target that we've been.
Matthew M. Walsh: Referring to.
Matthew M. Walsh: So our view on that really Hasnt changed I think investor sentiment around leverage has changed.
Matthew M. Walsh: But really.
Matthew M. Walsh: Our view in terms of where this business runs most effectively.
Matthew M. Walsh: Has not so we still feel the same.
Matthew M. Walsh: And that's sort of what we're targeting as we think about the capital structure going forward.
Operator: That's helpful; thank you.
Speaker Change: That's helpful. Thank you.
Operator: Our final question comes from the line of Balaji Prasad with Barclays. Please go ahead.
Operator: Our final question comes from the line of <unk> Prasad with Barclays. Please go ahead.
Balaji V. Prasad: Hi, good morning, and thank you for taking me back on again. Apologies for missing the earlier call, and again, apologies if this has already been covered. Please feel free to refer to the transcripts; if so, refer me to the transcripts.
Balaji V. Prasad: Hi, good morning.
Balaji V. Prasad: For taking me back at all and again apologies for missing the earlier call.
Balaji V. Prasad: And again apologies. If this has already been colored please feel free to refer to the transcript of Seo.
Balaji V. Prasad: I think for me to the transcript a couple of things firstly on the <unk> market clearly the private label moves with <unk> and what you saw with what the alloy Teva recently with some landy seems to be the one week chance shaken the market and.
Kevin Ali: A couple of things. Firstly, on the Bison-Mimara market, clearly, the private label moves with Cardivis, Zymos, and what we saw with Alvo and Teva recently with Simlandi seem to be the ones which are shaking the market and getting greater market share dynamics. So can you comment on your thoughts and expectations around that? On a related note, can you also remind us of Hadley-Muss's path to interchangeability, or is it still on track for a June approval, and would you have to wait until Alvotech's exclusivity ends next year for you to claim interchangeability? Secondly, on the established brand side, now that we see M.Gallaty and Raywar contributing, can you help me understand a bit more about the dynamics here and the expectations for these brands going forward?
Kevin Ali: Getting greater market share dynamics. So can you comment on your thoughts expectations around that.
Kevin Ali: Related note can also remind us of Hadley mass Pat interchangeably are you still on track for a June June promo.
Kevin Ali: When would you have to wait till <unk> explicitly ends next year for you to claim interchange in beauty.
Speaker Change: One SEC.
Kevin Ali: Secondly on the established brands side now that we see in <unk> and <unk> are contributing.
Kevin Ali: Can you help me understand a bit more on the dynamics here and the expectations for these brands going forward. Thanks.
Balaji V. Prasad: Balaji, it's good to talk to you. So, the first question in regards to biosimilars and HED-LIMA, you know, I do think that it's a good signal, by the way, that, you know, for example, the first signal being CVS, essentially going strictly with the Sandos product, it really is a good signal for the market formation that we keep talking about. But remember, the market is split into two pieces.
Kevin Ali: But largely it's good to talk to you. So so I would say the first question in regards to Biosimilars and had Lima.
Balaji V. Prasad: I do think that it's a good signal by the way that for example, the first signal being Cvs essentially going strictly with with the Sandoz product. It really is a good signal for the market formation that we keep talking about itself, but remember the market is split into two pieces. It's the pbms.
Balaji V. Prasad: It's the PBMs that are about 55 or so percent of the overall lives covered, and it's all the other low-net-cost providers, as I've mentioned many times, that represent about 45% of the business. And they're really more focused, or lives, rather, covered. They're more focused on low-net-cost products. They're not playing the rebate game as well.
Balaji V. Prasad: At or about.
Balaji V. Prasad: 55, or so percent of the overall lives covered and it's and it's all the other low net cost providers as I've mentioned many times that.
Balaji V. Prasad: That represented about 45% of the business and they are really more focused or lives rather covered theyre more focused on our low net cost.
Kevin Ali: They're just focusing on lower net costs. So I think it is going to be very dynamic as we think about what's going to happen this year and next year. And we're continuing to be very competitive, and our strategy is working. We're among the top one or two biosimilars currently in terms of TRX and NRX in the U.S., and we feel very strongly that we'll be in a very solid position as time progresses to continually grab share from the originator and to drive for our peak revenues, which we've always signaled that we feel very strong about in terms of the couple of hundred million in the U.S.
Balaji V. Prasad: <unk>.
Balaji V. Prasad: They are not playing the rebate.
Kevin Ali: Game as well, but they're just focusing on lower net cost. So I think it is going to be very dynamic as we think about what's going to happen over this year and next year and we're continuing we're continuing to be very competitive and our strategy is pulling through were among the top one or two biosimilars currently.
Kevin Ali: <unk> and <unk> in the U S and we feel very strongly that we'll be in a very solid position as time progresses to continually grab share from the originator and to drive for our peak revenues, what we've always signaled that we.
Kevin Ali: We feel very strong about in terms of a couple of $100 in the U S and.
Kevin Ali: In terms of established brands and where we're going with Raybaon and Gality, look, we've just started right now in terms of promotion in the EU. Some countries still have yet to come in terms of that, but I think that will happen in the coming months. It's a fast-growing segment, actually, in Europe in terms of the migraine segment, and we are really well-positioned because these are two products that are well-known, recently launched, have a good reputation, and we've got a great team that is really, really excited and very energized about being able to take over and showing what we can do with these two products.
Kevin Ali: In regards to established brands and where we're going with re Val and in reality look we've just started right now in terms of promotion in the EU.
Kevin Ali: Some countries still have yet to two to two to come in in terms of that I think that will happen in the coming months.
Kevin Ali: It's a fast growing segment actually in Europe in terms of the migraine segment.
Kevin Ali: And we're really well positioned because these are two products that are well known recently launched have a good reputation and we've got a great team that are really really excited and very energized about being able to take over and showing what we can do with these two products and look for more of these type of deals to happen that are accretive.
Kevin Ali: Look for more of these types of deals to happen that are accretive, that make use of our scale and our global infrastructure, and that really make sense in terms of fitting in to what we're trying to do and generating more cash for us to be able to do more business development on a larger scale over time.
Kevin Ali: Make use of our scale and our global infrastructure.
Kevin Ali: And that really makes sense in terms of fitting in to what we're trying to do and generating more cash.
Kevin Ali: For us to be able to do more business development in a larger scale over time.
Balaji V. Prasad: Thank you. If I could just add a follow-up to it, I appreciate the detailed explanation. In light of this performance and the outlook, I thought guidance could have raised possibly how conservative are you with the guidance retaining or reaffirming what you had said earlier.
Speaker Change: Thank you if I could just had a follow up to that I appreciate the detailed explanation.
Speaker Change: In light of this performance and the outlook I thought guidance could have raised possibly.
Balaji V. Prasad: <unk> comes.
Speaker Change: <unk> with the guidance retaining reaffirming what you had said earlier.
Matthew M. Walsh: Yeah, so we were certainly encouraged by the first quarter performance across all of our franchises, Balaji. But the thing that we were considering most when thinking about what to do with guidance was really what's going on with foreign exchange. The dollar is persistently strong. When we created our initial guidance in 2024, the euro was somewhere between 108 and 109. It's since come back.
Speaker Change: Yes, so well we were certainly encouraged by the first quarter performance really across all of our franchises logic.
Matthew M. Walsh: But the thing that we were considering most when thinking about what to do with guidance was really what's going on with foreign exchange the dollars persistently strong.
Matthew M. Walsh: When we created our initial guidance in 2020 for the Euro was somewhere between 108 and 109 has since come back.
Matthew M. Walsh: And so, like we said in the prepared comments, when we look at the nuts and bolts aspects of our top line revenue, we're actually up on a constant currency basis. And it's really just the FX dynamic that is causing us to be a little bit reticent about raising guidance this early in the year. We'll revisit this when we issue Q2 results. But once again, the performance in the first quarter gives us a lot of confidence in the initial guidance that we gave, and we're just optimistic as we head into the second quarter here.
Matthew M. Walsh: And so like we said in the prepared comments when we look at the nuts and bolts aspects of our topline revenue were actually up on constant currency.
Matthew M. Walsh: Basis, then it's really just the FX dynamic that is causing us to be a little bit reticent about raising guidance. This early in the year, we'll we'll revisit this when we issue to Q2 results.
Matthew M. Walsh: But once again the performance in first quarter gives us a lot of confidence.
Matthew M. Walsh: In the initial guidance that we gave and we're just optimistic as we as we leg into the.
Matthew M. Walsh: Second quarter here.
Speaker Change: Thank you.
Kevin Ali: That concludes our question and answer session. I would now like to turn the call back over to Kevin Ali for closing remarks.
Matthew M. Walsh: That concludes our question and answer session I would now like to turn the call back over to Kevin Lee for closing remarks.
Kevin Ali: I want to thank you. I want to close today's call by essentially repeating what I began today's call with, namely that we came into 2024 looking at it as a year to focus on execution, delivering on our projections, improving our financial positioning, and, of course, building for our future pipeline. And through Q1, we can definitely say that we're progressing well towards those goals. And I wanna thank all of you for a great discussion today, and we look forward to continuing engagement.
Kevin Ali: I want to thank you I want to close todays call.
Operator: This concludes today's call. You may now disconnect.
Kevin Ali: Essentially repeating what I began today's call with namely that we came into 2020 for looking at it as a year to focus on execution delivering on our projections, improving our financial positioning and of course building for our future pipeline and through Q1, we can definitely say that we're progressing well towards those goals and I want to thank.
Operator: All of you for a great discussion today, and we look forward to continuing engagement.
Operator: This concludes today's call you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
Operator: Okay.
Operator: Sure.
Operator: Okay.
Operator: Yes.
Operator: Okay.
Operator: Yes.
Operator: Okay.
Operator: Yes.
Operator: Okay.
Operator: Okay.
Operator: Yes.
Operator: [music].
Operator: Sure.
Operator: [music].
Operator: No.
Operator: Okay.
Operator: Yes.
Operator: Yes.
Operator: Okay.
Operator: Yeah.
Operator: Yes.
Operator: Yes.
Operator: [music].
Operator: Thanks.
Operator: [music].