The conference operator, Todd, welcomed everyone to the Viatris 2023 Second Quarter Earnings Call and Webcast, and then introduced Bill Szablewski, Head of Global Capital Markets. Szablewski discussed forward-looking statements and non-GAAP financial measures, and then handed the call over to the CEO, Scott Smith, who reported that the second quarter of 2023 was one of the strongest quarters for Viatris to date.

Viatris reported positive financial results in the second quarter of 2023, with total revenues of $3.9 billion and adjusted EBITDA of $1.3 billion and free cash flow of $447 million. The company is on track to announce divestitures in 2023 and anticipates announcing at least one significant divestiture in the third quarter. Viatris has laid out a capital allocation of business development priorities for Phase 2 and is dedicated to executing on these priorities.

Scott is proud of the company's execution to date and optimistic about its future trajectory. He is confident that they will be able to execute high-quality business deals, and Rajiv Malik will provide an update on their operations and pipeline. The company's performance over the last 10 quarters has demonstrated that their business model is well-diversified and that they are in a good position for Phase 2 growth.

Viatris achieved 1.5% year-over-year growth in total net sales this quarter due to strong performance across various geographies and product portfolios. Europe delivered 2% growth on an operational basis, while North America was flat year-over-year. Generics in Europe and North America performed better than expected, with lenalidomide, Wixela, Xulane, and epinephrine driving the growth. Yupelri saw a 12% growth this year over last year.

Yupelri, a nebulized long-acting muscarinic agent, is showing significant growth and has a 30% market share in the COPD market. Additionally, Breyna, a generic Symbicort, was recently introduced and is expected to have 180 days of first-to-file generic exclusivity. The developed market is expected to have year-over-year growth and the emerging markets had a strong quarter, with emerging Asia and Middle East performing particularly well. JANZ is performing in line with expectations. In China, there was 1% operational growth due to Viagra and other retail-driven products, and SFDA approved NDAs for Dymista and Formed. Overall, the team is confident that they will meet their expectations for the full year.

Tyrvaya's bridge program was optimized to increase value and achieved the highest quarterly TRX launched to date. Additionally, Viatris is focused on increasing share of Medicare prescriptions, launching a direct-to-consumer campaign, and continuing progress of their eye care pipeline. The FDA has accepted the NDA for GA Depot, which could improve patient experience with fewer injections, greater tolerability, and increased compliance. The PDUFA date is March 8, 2024.

In the second quarter, GA Depot's clinical program was progressing well, with the Botox biosimilar program on track to file an IND by the end of the year, a Phase 3 study for Xulane Low Dose program in the USA nearing completion, and a Phase 3 study for Effexor Generalized Anxiety Disorder in Japan targeting an NDA filing in the first half of 2025. The company also saw revenue growth in emerging markets, Europe, and Greater China, including the impact of the new product Breyna. Overall, the quarter exceeded expectations and the company is encouraged by their strong operational performance.

In the second quarter and first half of 2023, net sales were slightly ahead of expectations and grew 1.5% compared to the prior year. Foreign exchange had an impact of 2% on net sales. The diverse portfolio of growth drivers included brand performance in emerging markets, Europe, and Greater China. Adjusted gross margin was 60% due to a positive portfolio mix and lower than expected inflation on COGS. Adjusted EBITDA included the step-up in SG&A associated with the Eye Care division and the R&D for key programs across Eye Care, injectable, and complex products. Free cash flow was $447 million, ahead of expectations, with the year-on-year decline primarily driven by the biosimilar divestiture, foreign exchange, and anticipated working capital timing. The company is continuing to pay down debt to reach their gross leverage target of 3 times.

In the quarter, the company paid down debt of $181 million and returned $144 million to shareholders through dividends. They remain confident in their Phase 2 outlooks and are reaffirming their 2023 financial guidance. They expect total revenue to be higher in the second half due to new product launches and seasonality, but adjusted EBITDA and free cash flow to be slightly lower due to a less favorable portfolio mix, higher COGS, and investments in future growth drivers.

Scott Smith is pleased with the demand and interest in the assets up for divestment, which have been performing well. He is happy with the process and is looking forward to the outcome.

Scott Smith cannot comment on the deal structures of potential divestitures, but Jeff Nau notes that there is a large untapped market for dry eye disease treatments. He states that there are 16 million people who have been diagnosed, but only 2 million who are currently being treated. The company is looking to capitalize on this opportunity and drive growth in the future.

The OTC business in Europe is performing as expected and is a steady business. The complex injectables are expected to launch in the coming years with the peak sales estimated at $1 billion by 2027.

Scott Smith is focused on finding strategically significant transactions in ophthalmology, GI, and dermatology, but is open to other adjacent areas. He also discussed the potential of an intranasal epinephrine formulation to compete with EpiPen.

Rajiv Malik explains that while the epinephrine market is already being served by two to three players, there is still an unmet need for patients and Merck welcomes the competition and different dosage forms. Merck has raised their voice to highlight their concerns to the FDA, but they have taken these products into consideration for the out years 2024 and 2025. They believe there will always be a place for emergency use products like EpiPen. Merck is carefully and closely watching the market as it evolves.

Scott Smith and Rajiv Malik discussed the expectations for the monthly Glatiramer Acetate Copaxone product. Smith expects the three divestitures to be announced in 2023, and Malik said that the product has great potential due to its ability to reduce injections and its clinical data.

Viatris has stayed close to the market, customers, and FDA in regards to the recent tornado damage to the Pfizer's Rocky Mount facility. They have overlap products with Pfizer's portfolio coming out of the Rocky Mount facility and are monitoring the potential of drug shortages.

Rajiv Malik discussed the strong performance of the company's base business, noting that it was the best they had ever seen. He also noted that the generics business performed well in the US, Europe, and emerging markets. He concluded by stating that the execution of the company's plans was taking it to a higher level.

The US market has seen some disruption and supply issues, leading to price stabilization in the last few quarters. This is in contrast to a few years ago. Sanjeev Narula then discussed how the gross margin was higher than expected in the first half of the quarter, due to a favorable segment and portfolio mix, as well as lower-than-expected inflation costs. He expects the gross margin to step-down a bit in the second half of the quarter due to inflation and portfolio mix.

Viatris CEO Scott Smith was pleased with the company's strong second quarter performance and is optimistic about the future of the company. He thanked everyone for their attention and questions and concluded the Viatris 2023 Second Quarter Earnings Call and Webcast.

This summary was generated with AI and may contain some inaccuracies.