Viatris Inc (VTRS) 2025 Q4 法說會逐字稿

Good morning, and welcome to the Viatris Q4 2025 earnings call. (Operator Instructions) Please note that today's event is being recorded.

I would now like to turn the conference over to Mr. Bill Szablewski, Head of Capital Markets. Please go ahead.

Good morning, everyone. Welcome to our Q4 2025 earnings call. With us today is our CEO, Scott Smith; CFO, Theodora Mistras; Chief R&D Officer, Philippe Martin; and Chief Commercial Officer, Corinne Le Goff.

During today's call, we will be making forward-looking statements on a number of matters, including our financial guidance for 2026 and various strategic initiatives. These statements are subject to risks and uncertainties. We will also be referring to certain actual and projected non-GAAP financial measures. Please refer to today's slide presentation and our SEC filings for more information, including reconciliations for those non-GAAP measures to the most directly comparable GAAP measures.

When discussing 2025 actual or reported results, we will be making certain comparisons to 2024 actual or reported results on a divestiture-adjusted operational basis, which excludes the impact of foreign currency rates and also excludes the proportionate results from the divestitures that closed in 2024 from the 2024 period. We may refer to those as changes on an operational basis. When comparing our 2025 actual or reported results to our expectations, we're making comparisons to our 2025 financial guidance.

When discussing our expectations for 2026, we will be making certain comparisons to 2025 actual or reported results on an operational basis which excludes the impact of foreign currency rates.

With that, I'll hand the call over to our CEO, Scott Smith.

Good morning, everyone. 2025 was a strong year for Viatris and I'm very proud of what we are able to accomplish across all our strategic priorities. The result of all that great work is that we have positioned the company to enter a period of long-term sustainable growth beginning in 2026.

Specifically for 2025, we drove strong commercial performance across our global portfolio, continue to stabilize and strengthen our base business and delivered solid results, including $14.3 billion in total revenues representing approximately 2% growth versus '24, excluding the Indore Impact and adjusted EBITDA of $4.2 billion. We advanced our pipeline, including five positive Phase III readouts that made significant regulatory progress on multiple assets. Importantly, we also advanced both cenerimod and selatogrel in their Phase III trials with full enrollment for both programs expected in 2026.

We prioritized capital return with more than $1 billion in capital returned to shareholders through dividends and share repurchases. We targeted an accretive regional business development, completing 60 regional transactions, including our acquisition of Aculys Pharma in Japan.

For our Indore facility, we met with the FDA in November to review our progress and discuss potential timing for reinspection. That timing remains at the agency's discretion, but we'll be ready for reinspection this year. In the meantime, we've built operational redundancies in alternative supply sources.

Finally, we just completed our enterprise-wide strategic review. As a result, we've identified opportunity from across our company to optimize our cost structure, improve our resource allocation and strengthen our operational efficiency. We are expecting to deliver approximately $650 million in gross cost savings over a three-year period. We plan to reinvest up to $250 million during that same period.

We are creating this reinvestment capacity to invest in areas that enhance the growth profile and long-term competitiveness of the company, such as sharpening our commercial execution and go-to-market effectiveness, advancing our R&D and innovative assets, and continuing to build the capabilities we need to enable sustained success. In addition, we've identified three strategic imperatives that will shape our future. We will drive our base business by executing successful launches, focusing on supply chain continuity, evolving our generics portfolio over time towards more profitable, higher-margin products and strengthening our established brand portfolio.

We will fuel our innovative portfolio by advancing a pipeline of late-stage in-market growth assets sourced both internally and externally, and we will modernize for sustainable growth by strengthening our technology, data and talent capabilities to enable sustained success in a rapidly evolving health care environment.

Together, we expect these actions will accelerate the transformation of Viatris into a more focused, efficient and future-ready organization and position the company to enter a period of sustained revenue and earnings growth beginning in 2026. There's been a lot of work over the last year and really over the last few years to get us to this point. A sincere thank you to the more than 30,000 employees of Viatris for your thoughtful and focused execution. Your contributions make a real difference for our company and for the approximately 1 billion patients we serve around the world every year.

As we look to 2026, we expect another year of strong execution. Specifically, we will be very focused on delivering strong financial performance and driving commercial execution across our businesses, including the anticipated launches of our low-dose estrogen weekly patch in the US and Effexor for generalized anxiety disorder in Japan while preparing for launch of fast-acting meloxicam.

From a pipeline perspective, we are hoping for regulatory decisions for 6 product candidates, including Effexor and pitolisant in Japan, fast-acting meloxicam, low-dose estrogen weekly patch and Ryzumvi for presbyopia in the US. In addition, we are expecting regulatory decisions for Inpefa in Australia and Canada. We are also expecting a number of meaningful Phase III data readouts this year and to reach full enrollment in several priority Phase III programs.

From a capital perspective, we expect to generate robust cash flow in 2026, which will give us significant financial flexibility to continue with our balanced capital allocation approach. We have also reiterated our commitment to our dividend in 2026. At the same time, we are focused on building a portfolio of growth assets through business development and continued execution of our internal pipeline.

From a business development perspective, we are targeting accretive high-growth end-market assets.Finally, with the completion of our enterprise-wide strategic review, we'll focus on evolving and modernizing our organization to strengthen our operating model and ensure sustained growth.

We look forward to sharing more details at our investor event on March 19, including our long-term outlook for revenue and earnings growth and our portfolio strategy across generics, established and innovative brands. We'll also provide a deep look at our R&D capabilities and key pipeline programs as well as our commercial strategy and how we are building the capabilities needed to execute upcoming launches.

To summarize, we believe 2026 is shaping up to be a pivotal year for Viatris, one where strong execution, disciplined capital allocation and the benefit of our strategic review will begin translating into sustained profitable growth and long-term value creation.

Now I'll turn it over to Philippe.

Thank you, Scott. 2025 was an outstanding year from a research and development perspective. We achieved 5 positive Phase III readouts, advanced trial enrollment and delivered numerous regulatory milestones across multiple therapeutic areas, technologies and regions. The strong momentum sets the foundation for what we aim to achieve this year.

Our 2026 R&D priorities are to secure eight regulatory approvals for six product candidates to progress our innovative portfolio, advanced 6 Phase III development programs and continue to drive our generic pipeline and established brand portfolio, which together accounts for more than 100 new product approvals expected globally in 2026.

At our upcoming investor event, we will share a comprehensive update on our pipeline. Today, I'll focus on high-level updates beginning with regulatory submissions. In Japan, we expect a regulatory decision for Effexor for the treatment of generalized anxiety disorder in March this year. If approved, this will be the first and only treatment for generalized anxiety disorder, which would represent an important medical milestone for approximately 8 million Japanese patients estimated to be affected by this condition.

The Japanese health authority PMDA is also reviewing the 2 J-NDAs for pitolisant that we submitted last year. One for excessive daytime sleepiness associated with obstructive sleep apnea and the other associated with narcolepsy type 1 and 2. We anticipate regulatory decisions for both indications in the second half of 2026. Pitolisant has the potential to be a first-line noncontrolled treatment option for these indications in Japan.

In the US, FDA recently accepted our sNDA for phentolamine ophthalmic solution for the treatment of presbyopia and has signed a PDUFA goal date of October 17, 2026. Phentolamine offers a physiological approach to treating presbyopia that relaxes the iris dilator muscle to improve near vision without engaging the ciliary muscle, which helps preserve this transfusion.

Data from our VEGA-3 pivotal trial will be presented at the American Society of Cataract and Refractive Surgery Conference in April and at the Association for Research in Vision and Ophthalmology Conference in May.

Regarding our low dose estrogen weekly patch for contraception, the FDA accepted our NDA review late last year, signing a PDUFA goal date of July 30, 2026. This patch addresses an important need for women seeking a reversible transdermal birth control option with lower estrogen exposure and potential best-in-class addition. Results from our Phase III study will be presented at the American College of Obstetrician and Gynecologists Conference in May. We remain excited about our fast-acting meloxicam for the treatment of moderate-to-severe pain, including postoperative pain, which has demonstrated in clinical trial a reduced need for opioid analgesics.

We recently had a positive pre-NDA meeting with the FDA. Based on the outcome of this meeting, we anticipate submitting our NDA by the end of this month. With regards to sotagliflozin, we successfully simulate multiple filings last year and anticipate a regulatory decision from Australia and Canada later this year. Sotagliflozin is emerging as a best-in-class SGLT inhibitor which we believe uniquely provides early benefit in reducing heart failure-related outcomes.

Consistent with this dual SGLT1 and 2 inhibition, sotagliflozin is the first SGLT inhibitor to demonstrate a significant reduction in MI and stroke.

Turning to brief updates on our Phase III development programs, beginning with cenerimod in SLE. The OPUS-2 study was fully enrolled last year, and I'm pleased to share that we recently closed enrollment for the OPUS-1 study. The marks a significant milestone, reflecting the Viatris team's ability to execute on an ambitious recruitment strategy. Importantly, we enrolled a high proportion of patients with high interferon I signature.

Recall that in our Phase II CARE study, this population demonstrated the greatest treatment effect. If successful, cenerimod has the potential to offer a differentiated oral treatment option for patients with SLE by targeting the S1P1 pathway with the goal of improving disease control while maintaining a favorable safety profile when given in combination with standard of care treatment. We are also advancing our cenerimod Phase III study in lupus nephritis and our actively randomizing patients into the study.

For selatogrel, a potential life-saving self-administered medicine for patients with the history of acute myocardial infection (sic - infarction) or heart attack, our enrollment rate in our Phase III trial has accelerated to approximately 1,200 patients per month, and we expect full enrollment by the end of this year.

Phase III enrollment for our Norelgestromin only weekly patch is ongoing and is expected to be completed in the first half of this year. This product candidate complements our US portfolio and pipeline. It is a progestin-only contraceptive transdermal system designed for women with medical comorbidities, including those with a BMI of 30 or higher and for those who prefer to avoid estrogen exposure with known safety risks.

Moving to our Phase III study of Nefecon for the treatment of IgA Nephropathy in Japan. We expect a top line readout in the first half of this year. If successful, Nefecon has the potential to become a first-line disease-modifying therapy in Japan for IgA nephropathy. It is the first targeted release formulation designed to reduce the production of galacto-deficient IgA1 at its source in the gut. IgA Nephropathy remains a significant unmet medical need particularly in Japan, where disease prevalence is high.

And finally, we are advancing our Influvac High Dose Phase III program, which represent a strategic life cycle extension of our current Influvac vaccine in Europe. Influvac High Dose has the potential to offer patients, particularly those age 60 and older and enhancing immune response compared to the standard dose.

The consistent execution of our pipeline over the past year demonstrates the rigor we are bringing to our development programs. I look forward to sharing more on March 19 about our R&D strategy and how we plan to accelerate innovation and increase the value we deliver to the business and to patients worldwide.

Now I'll turn it over to Doretta.

Thank you, Philippe, and good morning, everyone. My remarks today will focus on the key highlights from our fourth quarter and full year 2025 results and our growth outlook for 2026, which we believe will be powered by continued commercial momentum and the anticipated benefits from our strategic review. Building on Scott's comments, we are proud of our team's strong performance in 2025.

Our fourth quarter and full year results reflects disciplined execution across our diversified global business and importantly, strong momentum as we exited the year. We reported total revenues for the fourth quarter of $3.7 billion, up 1% versus the prior year, excluding the Indore Impact. This result was driven by strong commercial performance across key regions. In Greater China, growth was supported by demand in our cardiovascular portfolio. And in Europe and emerging markets, growth was driven by the breadth and competitive strength of our portfolio.

Moving to full year 2025 results. We delivered total revenues of $14.3 billion, in line with our expectations, and up 2% versus the prior year, excluding the Indore Impact. Adjusted EBITDA of $4.2 billion, reflecting solid operating performance; adjusted EPS of $2.35 per share and free cash flow, excluding transaction-related costs of $2.2 billion. Importantly, we prioritized capital return with over $1 billion returned to shareholders, including share buybacks and dividends.

Turning now to our outlook for 2026. We expect to build on our positive momentum exiting 2025 and establish a clear baseline for sustainable growth. We are guiding to approximately 2% total revenue and adjusted EBITDA growth versus 2025. A key enabler of this growth is the company's strategic review, which is expected to deliver approximately $650 million of gross cost savings or $400 million of net savings after reinvestment. These cost savings are expected to be evenly balanced between SG&A efficiencies and COGS optimization and phased over a three-year period with full run rate benefits realized in 2029.

Importantly, we plan to reinvest up to $250 million of these cost savings into areas we anticipate will drive our future growth. This includes strengthening our commercial execution for near-term launches, advancing our innovative assets and building the capabilities required for success. We believe these efforts will not only strengthen our competitiveness, but also support sustainable growth over the long term.

Now here's what we expect to accomplish in 2026. We are very excited about anticipated launches of Effexor, low-dose estrogen weekly patch and sotagliflozin. These are important strategic launches for us. And while they are not expected to be material top line drivers in 2026, we do anticipate them to be significant financial contributors over the longer term.

Let me now walk you through the building blocks for our 2026 total revenues outlook. We are anticipating new product revenues of $450 million to $550 million which are expected to contribute to strong segment performance. We expect net sales in developed markets to grow 2% versus 2025. In Europe, we expect growth of 4% year-over-year, benefiting from several tailwinds.

First, we expect increased contributions from new product revenue, led by apixaban and paliperidone. In addition, we anticipate continued growth in key markets such as France and Italy, including some supply recovery from Indore. And finally, we expect strong continued performance in some of our key brands like Creon and Brufen.

North America is expected to be flat year-over-year as new product revenues, primarily from complex products, and ongoing strength from existing products such as Breyna, Estradiol TDS, and Xulane are expected to offset certain competitive impacts, including the Isosulfan Blue LOE.

Turning to emerging markets. We expect to grow 6% year-over-year. This is primarily driven by expansion in key growth markets, including Turkey, Mexico, India and Brazil, new product revenue contributions and some supply recovery in our ARV business. These benefits are expected to more than offset pricing headwinds in certain Asian markets.

As it relates to JANZ, we remain focused on returning the segment to growth. Our outlook for this year reflects the expected impacts from government-driven price regulations in Japan and Australia as well as the anticipated impact from the midyear Amitiza LOE in Japan. At the same time, we expect to launch important strategic products in 2026, including Effexor and pitolisant to begin supporting future performance for this region.

And lastly, in Greater China, we expect to deliver 3% year-over-year growth, driven primarily by our cardiovascular products that are sensitive to proactive patient choice. Our confidence in Greater China is the result of our ability to continue to maximize our well-established commercial presence across multiple channels. These include retail, private hospitals and e-commerce where we have invested strategically over the past few years and are seeing continued growth, in particular, for certain retail-oriented products.

Last, as mentioned in our press release, in mid-February, a fire occurred in a service area at our oral solid dose manufacturing facility in Nashik, India. Manufacturing at the facility has been temporarily suspended and we expect to resume operations beginning in April. We've considered the potential impact of this incident and the facility shutdown and formulating our 2026 financial guidance.

Moving to the drivers of adjusted gross margin, adjusted EBITDA and adjusted EPS. We expect gross margins to be modestly lower year-over-year, primarily due to anticipated losses of exclusivity and mix shift as supply recovers in our lower-margin ARV business.

These headwinds are partially offset by favorable segment mix and higher-margin new product launches. Over time, however, we expect gross margins to benefit from the realization of cost savings and the scaling of our higher-margin products.

Adjusted SG&A is expected to decline year-over-year as a percentage of sales, reflecting the net benefits from our strategic review. Adjusted R&D is expected to be flat versus the prior year as we continue to advance our innovative programs while maintaining disciplined cost management. And finally, in 2025, we benefited from approximately $40 million in TSA income related to divestitures, which will not recur in 2026.

Moving to free cash flow. We continue to expect significant and durable cash generation in 2026. Our cash flow this year will be impacted by transaction-related and restructuring costs from our strategic review, but the underlying cash-generating profile of the business remains robust.

We expect to be in a strong financial position in 2026 with over $2.5 billion of cash available for deployment. That includes our excess cash on hand and the net proceeds received to date from the Biocon monetization. This position provides flexibility to deliver on our balanced capital allocation framework.

Our priorities for 2026 include targeting in-market accretive business development while remaining committed to shareholder return. Our plans this year also include paying down a portion of our debt maturities to further strengthen our balance sheet and investment-grade financial profile while reducing leverage back to our 2.8 times to 3.2 times gross leverage range.

Now a few comments regarding the pushes and pulls of our 2026 guidance. Total revenues are expected to be higher in the second half of the year, driven by normal product seasonality and the timing of anticipated new product launches.

Operating expenses are expected to be more evenly phased between the first and second half of the year, reflecting the implementation of our strategic review and timing of investments. As a result, we expect adjusted EBITDA and adjusted EPS to be more heavily weighted towards the second half of the year. Finally, free cash flow is expected to be lower in the first half of the year. Also, the first quarter is expected to be the lowest quarter for total revenues and adjusted gross margins, driven by product seasonality and mix.

Free cash flow is also anticipated to be the lowest in the first quarter, primarily due to the timing of working capital and onetime operating cash costs as well as transaction-related and restructuring costs and taxes.

In summary, our 2026 outlook reflects continued momentum in the business, disciplined financial execution and a strengthened cost structure that supports both reinvestment and shareholder return. We are entering the year with a growing base, clear priorities and the financial flexibility to execute. We look forward to hosting our investor event in New York City next month where we plan to provide an update on the company's future outlook for growth.

And with that, I'll hand it back to the operator to begin the Q&A.

(Operator Instructions)

Glen Santangelo, Barclays.

Yeah, thanks and good morning and thanks for taking my question. Yeah, Just two quick ones for me. Scott, at a conference last month, you seem to mention a path to mid-single-digit revenue growth. And I fully understand that's not where we are today. But maybe I was just hoping you could give us a little bit more color on those six potential approvals this year, your confidence level in those, which may be most meaningful?

And then maybe how that was layered into the guidance, if at all? And then I'll just ask my follow-up upfront. Doretta, I did want to talk about the strategic review. You did mention the release $650 million of savings with $250 million of reinvestment. So if we call it net $400 million of savings over the next three years, maybe for modeling purposes, if you could just sort of help us think about the timing of those savings across the three years thanks.

Thank you, Glen. Thank you for the question. So Doretta is going to address the enterprise-wide strategic review cadence and timing, things like that. But I just want to say that we're very pleased with the work that's done. I'm very confident in our ability to deliver the results from the enterprise-wide strategic review.

Relative to the mid-single digits path, which is a longer-term path that we have over the next few years. The way that I think we get there when I think about it, this is the way that I look at it in my mind, we've got a base business, and Doretta pointed it out in her comments, that's growing at 3% this year, grew last year. We've got a growing base business.

On top of that, you layer in the launches that are coming in '26, and those will be Effexor, pitolisant and Spydia in Japan, although we launched Spydia at the very end of last year, I consider it a launch product for Japan. Japan is a very important market for us.

So three very important launches in the CNS space there for us that can really help build on what we have there. In the US we're hoping to launch, our low-dose estrogen weekly patch, Ryzumvi in presbyopia and potentially even meloxicam -- fast-acting meloxicam, which as Philippe alluded to, we should be filing tomorrow. And so depending on the cadence of that review, we may be launching that.

On top of that, we've got a number of data readouts in '26 that are going to be launching in '27 and beyond. We've got selatogrel and cenerimod readouts, which we think are going to be early '27, but we could get 1 or 2 of those readouts in '26. Selatogrel is an event-driven study, so we'll see how that goes.

But those are relatively near-term launches, which can provide a lot of growth as we get into the '28, '29, '30 time frame. And then on top of all that, we've got capital to deploy to bring in accretive growth assets portfolio and pipeline. So all those things together give me a lot of confidence that we can get to that mid-single digits in the coming years.

And Glen, with respect to your question around the $400 million of savings, we do expect them to be phased over three years. The way to think about it is we anticipate roughly 30% in '26, an additional 30% in '27 and then the remaining approximately 40% in 2028. The sequencing really reflects the timing of how we think about workforce actions and other efficiencies as we build them into the organization. But importantly, as those savings are phased in, they're expected to support our EBITDA growth and margin expansion over time.

Umer Raffat, Evercore.

Hi guys, thanks for taking my question maybe two here, if I may. First, on the cost cut announcement, the strategic review, could you break down for us the $650 million as it's broken down between COGS versus SG&A versus R&D? And if there's any CapEx associated to get to these, which is not sort of reflected in the $400 million versus $650 million? And then secondly, could you also remind us, what are you assuming for Indore bounce back in 2026? Is there any modeled in at all in the current EBITDA guidance or not? Because I know there was a $325 million headwind over the course of '25?

Thank you. Good morning, Amber. Let me just make a couple of comments, and then I'll pass it over to Doretta to give you some of the specifics. In terms of where the $650 million comes from, about 50% of that is coming from headcount reductions at this point in time.

The other 50% is coming from COGS efficiencies, inventory management, support structures, not a lot from R&D. There were some medical affairs and some streamlining things, but that's not a major area of focus for us in terms of cost cutting because we're moving forward to execute on a number of pipeline programs.

So that's an area, I think, that we're focused on bringing in more assets and growing. There are some efficiencies there in the way we do it, but it's not an area of major cost savings. Again, 50% of headcount reductions and the rest in COGS efficiency, inventory and support structures. But I'll pass it over to Doretta to give some more detail.

Right. I think you handled from a cost savings perspective, you mentioned roughly evenly split between operating efficiencies and SG&A. I would state the operating efficiencies and the COGS efficiencies are a little bit more back-end weighted as you think about the phasing, just given the timing of implementation, but that should give you a rough sense.

Secondly, with respect to your Indore question, we would -- we assume a little less than 1% of indoor recovery baked into our top line. Just as a reminder, we had done a lot of work over the course of the year to remediate Indore.

And there was a portion of Indore that was lenalidomide that was not expected to recur in 2026. And so when you take out lenalidomide and also all the work that we've done over the course of the year, kind of we've remediated and managed through the impact. So it wouldn't have a material impact on our 2026 guidance.

Yeah, and I think it's all baked in as we stand. Again, we've requalified the plant, found alternate sources. And so I don't expect any bounce up of when the plant comes back online or bounce down if there's a delay in reinspection. We've tried to remediate the full effects of anything that happened at indoor and affect us last year.

Ash Verma, UBS.

Hi, thanks for taking your question and congrats on all the progress. So I just wanted to understand the levels of these restructuring charges versus the net savings you're realizing. So you're effectively spending $700 million to $850 million pretax charges or a $400 million net savings. Is this within a typical benchmark range for such cost-saving initiatives in the industry?

And then secondly, on the fast-acting meloxicam, so yes, this can have a pretty broad set of physician universe that you can go after from primary care all the way to surgery settings, pain specialists, et cetera. What do you consider to be your initial focus and where can it go from there? Thanks.

Thank you, Ash, for the question, and we'll have Doretta answer the first part and Corinne will talk about fast-acting meloxicam segments.

Yeah, and Ash, let me break this up into two parts. So the first piece are the onetime costs that are necessary to achieve the onetime savings. Our current estimate, you can think about a general ballpark about over the lifetime of the program, about 1x our gross savings in order to achieve them. We estimate that it will be about $250 million this year, and that's what's baked into that $700 million number you quoted. There are two other components to that number that it would be helpful to break out.

Number one, we've talked about the fact that even though we realize the cash proceeds from both the divestitures as well as the Biocon proceeds as cash, when it comes to the taxes and other costs associated with those monetizations, they're reported as operational outflows.

And so those are the two numbers. And so from the Biocon perspective, we received the $400 million of cash. We've included the $110 million of taxes associated with that in that $700 million. And then we still have about $320 million of divestiture-related cash and cost and taxes that are included in that number. So it's really the three components you have to think about.

And Ash, regarding your question on fast-acting meloxicam, yes, you're right, we are -- there is a broad opportunity in -- for acute pain, moderate-to-severe acute pain, and we are very excited about the potential of meloxicam and the place that meloxicam will play in this market. Just to remind everyone about the size of the opportunity, we see every year in the US 80 million cases of acute pain.

And unfortunately, opioids are still prescribed broadly about 50% of prescriptions are opioids. So the way we look at how we're going to enter this market is for us to be -- to make sure that we can guarantee faster uptake for the asset. We, therefore, will focus operative -- post-operative and operative acute pain management versus nonoperative pain.

We will build a specialty sales force that will target those physicians in their offices, and like surgeons, orthopedic surgeons, dental surgeries, podiatry so I'm giving you like a range of the targets that we will focus on. Beyond those targets, because you are right, pain medication can be prescribed very broadly, including from PCP. So beyond those specialty targets, we will plan on looking for potential partnerships to expand our reach and as we progress with the launch of the product.

Les Sulewski, Truist.

Thank you for taking my questions and, congrats on the progress. A couple for me. First on Japan. Can you quantify the regulatory pricing challenges you're seeing across the region? And you noted the Japanese coming to an inflection point. Do the Aculys assets and Effexor provide net growth for the region or more of an offset from erosion due to LOE facing there?

And then on the cost savings side, can you quantify if the remaining costs are tied to discontinued operations? Or what percentage of the strategic review savings is essentially cleaning up the divestiture tail versus actual efficiency gain in the core business? And then essentially, as you realize the net savings, ultimately, do you have a kind of a long-term gross margin or EBITDA margin target for the business? Thank you.

Thanks for the question. Just a little bit on Japan. Japan is a very important market for us. Structurally, Japan is a difficult market traditionally for where we've been over the last few years as a company. There's mandatory price decreases every year on LOE products. And so that's a good part of our portfolio. So we've seen downward pressure.

There's a lack of ability to modify our structure from a personnel perspective in Japan, labor laws and things make it very expensive to make changes. So our decision was we've got a well-functioning company. We've got good people there. We've just seen downward pressure on both revenue and EBITDA in Japan because of the structure of the Japanese market, the mandatory price decreases, et cetera. But -- so we decided to add assets in there.

And I think those assets will turn us from revenue and EBITDA decline to growth as we get into '28 and beyond. So the long-term picture for Japan is much better with the internal development of Effexor GAD. The acquisition of pitolisant and Spydia and others, which are coming into the -- there's also some other pipeline developments, which should come in the next couple of years. So we're very, very pleased about where we are with Japan now, very good group of people. We're putting assets into their hands, and we should turn that to growth as we get into '28 and beyond. In terms of the enterprise-wide review?

Yeah, And I was just going to add one more impact that's impacting our Japan business this year. We do anticipate the loss of Amitiza midyear. And so in addition to the normal price decreasing -- decreases that we get in that region, that is another factor that's impacting, and you can see that in the trends. But as Scott mentioned, longer term, we feel good about the trajectory of that business.

With respect to the cost savings, we're not currently contemplating any significant divestitures or recuts of our business. As Scott mentioned, this is really about taking a look at our infrastructure, how we're organized, reevaluating the business makeup post the divestitures and making sure that we're set up for success going forward. And so it's not a material change to how we do business today.

You asked also about a little bit of cleanup that we're doing maybe around divestitures. So I think people ask me why now? Why did you do this exercise now? And I think it was really important to do this exercise now, a merger of two companies five years ago, very different companies, different business dynamics and then four major divestitures, biosimilars, women's health care, OTC, API.

And a lot of the people associated with those businesses went with the business, right, directly. But then there's a back-end support structure in place to support those business. And we want to make sure that those people are oriented best as possible as we move the business dynamic forward. So it was really important for us to take a holistic look at the company, do we have the right people in the right places to move forward? And as Doretta alluded to, this isn't about divesting pieces of the company. This is about us getting more modern, leaner and better able to execute on the base business today and the innovative portfolio as we move forward.

Matt Dellatorre, Goldman Sachs.

Hey guys, good morning and thanks for the question. Maybe first on fast-acting meloxicam. Could you share your latest expectations in terms of the label, in particular, how you expect opioid sparing to be reflected there. For instance, will it be in Section 14 kind of like clinical data inclusion? Or will it be -- could we expect that to be up top in that kind of initial section?

And then also any feedback you've received from the FDA thus far ahead of the kind of pending submission? And then maybe on BD, what are your latest thoughts in terms of bringing in or in-licensing maybe a more substantial branded asset versus doing smaller deals? And what would be your comfort level in doing earlier stage, for example, maybe Phase II where less of the value is baked in? And then which verticals would that make the most sense in thank you.

Yeah, let me maybe answer the second question first, and then I'll throw it over to Philippe to talk about fast-acting meloxicam. We're not -- we're looking for in-market accretive growth assets. That's what we're really focusing on. We're not looking to acquire early pipeline. We want to support the business today. We've built an internal pipeline that's going to be producing over the next few years. Our focus is finding assets that can help us drive growth in the short term and now in the next three, four years. So we're not focused on pipeline assets.

Happy to do bigger things as long as they fit as long as we're good owners of them and that we can swallow them. We had 60 regional deals last year, including the Aculys to support the base business. But certainly, I'd like to bring in some assets that can have an effect and have some real -- add some real growth and more high-margin revenue, particularly to the US but also globally. So that -- we're not focused on pipeline. We're focused on things which can move the needle for us today. Philippe relative to fast-acting meloxicam?

Yes. Just to just to reiterate that we've had a pre-NDA meeting with the agency in January, we just received the minutes, and we were waiting for those in order to be able to file. The meeting was -- and so we will be filing tomorrow. The meeting was extremely positive. We were able to align on all points of discussion we had with the agency, and that's why we're filing tomorrow.

In terms of label implications, I think this will remain a discussion with the agency. However, if you recall, we have very strong data when it comes to opioid sparing and we anticipate that we'll have that language included in the label. Whether it is in the indication section or as part of the clinical section of the label, I think it is future for me to tell you that, but I don't think it really matters at the end of the day as long as it's captured in the label.

Chris Schott, JPMorgan.

Great, thanks so much for the questions. I just want to come back maybe first to the longer-term growth algorithm. I guess when I look at the 3% top line growth this year or I guess, maybe 2% adjusting for Indore recovery, is that a good proxy to think about for underlying growth before we consider some of these bigger pipeline readouts in BD? I'm just trying to get a sense of like when you think about building up that mid-singles, is that just kind of like a business that can do two or three kind of as stands and then we can kind of enhance that as these readouts come through?

And then my second question was just maybe elaborating a bit on the BD side. It sounds like from the comments you just made, a US branded asset could be a focus here. Can you just talk a little bit about the landscape for those? Like how big of an opportunity set is there? Are you seeing assets that are interesting in market? Or is that more just kind of conceptual? I just want to get a sense of like how broad of an opportunity set do you see for those? Thanks.

Thanks, Chris, so first question, let me -- again, let me maybe do it a little bit backwards the landscape of business development. I think there's lots of assets out there, a lot of interesting things. We're looking at lots of things. It's a matter of making sure that it's the right price, the right asset that fits us. But there's lots out there. It seems like 12 months ago, there wasn't much happening from a BD M&A perspective and the pharma world seems to be heating up a little bit. There seems to be more activity and more action. So it feels like a good time to start to really build the pipeline.

BD is not something that you can ever predict to get done at a certain time. It depends on the flow of things, depends on price, depends on availability of assets. But this seems to be a time from my perspective, where there is a significant number of assets out there that are interesting, but I believe we could be good owners of --

in terms of the growth algorithm, the way that I look at the base business right now is it's low single digits growth that we see right now.

We have had -- so excluding the impact, the onetime impact of Indore, we've seen seven, eight, nine consecutive quarters of growth. Sometimes it's 1%, 2%. This is a little bit higher this year at 3%. I see them that 1%, 2% growth. And what we're trying to do is continue to invest in the space, sustain this space, do the things we need to keep the base healthy and then add on to it things which can be higher growth, higher margin. And that's our path to getting sustainable higher margin, higher level, mid-single-digit growth in the longer term.

We'll get into all of this at the Investor Day as we get into March and give more specifics around it. I don't want to get ahead of ourselves because we're going to be talking to everybody in a couple of weeks but that's sort of the algorithm on how we can potentially get there.

David Amsellem, Piper Sandler.

Hey, thanks so I know you're going to be talking about R&D in a couple of weeks. Though I did want to get some more detailed thoughts on how you feel about your internal R&D capabilities. You say you don't want to acquire pipeline assets. You're looking more at commercial stage assets. So just talk generally about your innovative capabilities internally, where you feel you're at particularly as it relates to novel assets. That's number one.

Number 2 is, can you just remind us where you are in your exclusivity runway or potential exclusivity runway for the meloxicam product? And then third question is just on contribution from new revenues this year. Is there any one product in particular that has an outsized impact of the $450 million to $550 million? Or is it spread around pretty evenly? Thanks.

So internal research and development capabilities, I feel very good at. From an innovative perspective, we've added some late development. And again, even though we're looking from a BD perspective, not necessarily to acquire pipeline right now, but in-market assets, we're developing a number of things on our own internally. And I think we have a very strong research and development. It's not really -- it's not really R&D. There's not much research, it's development. We've got a very strong late-stage development group led by Philippe and maybe you want to talk a little bit about those capabilities.

Yes, I mean, I think we believe we have a strong group that can develop drugs from Phase I and IND filing type drugs like the MR-146 we have for our gene therapy in eye care, all the way down to life cycle strategy for assets like Effexor. So we have the whole gamut of expertise from a development standpoint. We've shown that we know how to do it.

And we'll show you as part of the Investor Day more details about all this and who we are. We also have a very strong medical affair structure that we are reorganizing as part of the enterprise-wide strategic review to focus more on the innovative portfolio than on the legacy portfolio. But I think all the required expertise is there for us from a development standpoint.

Relative to meloxicam exclusivity, we'll get more into this as we get into the 19th and talk more specifically about meloxicam. It's being filed under 505(b)(2) route. There's exclusivity which comes with that. In addition, there's some uniqueness in the data, which we think we can add significant other -- more intellectual property protection around that asset.

The way that I look at it is I consider it to be a contributor into the 2030s from an exclusivity perspective in the market. But we'll get more into that as we go and get more -- it becomes more granular, right, as we start to file some of this intellectual property and other things, but we have a very strong strategy to extend that exclusivity as long as we can. And again, I think of it as a contributor into the early 2030s.

Just to answer your question around new product revenue, the $450 million to $550 million is really diversified, both in terms of products and geographies. I would call out some of the contributors that we're excited about include octreotide, iron ferric, iron sucrose in Europe. We've talked about apixaban and paliperidone. But I would also call out -- it is also relatively balanced between products that we have already approved like an octreotide and iron sucrose and products that we expect approval for this year.

And maybe to add that we are very excited also about the launch of our branded new products. We mentioned them already in Japan, Effexor GAD and pitolisant at the very end of the year for Japan. And in the US, low-dose estrogen weekly contraceptive patch. Even though those products will be in their launch year, and will not contribute greatly in '26, they are important growth contributors in the following years.

Jason Gerberry, Bank of America.

Hey guys, thanks for taking my question. One for Doretta, I'm struggling a little bit with the '26 guidance relative to '25, right? So your EBITDA goes up about $150 million or so. It looks like that's largely on the cost restructuring dynamics, but you have plus $400 million in revenue versus prior year. It seems like none of that is dropping to the bottom line, but your gross margin degradation is only like 30 bps. So I was just wondering what I'm missing there.

And then -- on the enterprise review, so it looks like about half is on the cost of goods side, if I understand that. And so maybe if you can unpack that a little bit. Is that mainly like better procurement, reduced facility footprint type of cost, just wondering what you guys are going to be doing differently versus, say, prior years to drive that cost of goods improvement thanks.

So with respect to your question, Chris, on EBITDA, we've always talked about EBITDA stability. We feel good about the momentum and the inflection point that our business has gone. But this year, we're really proud of where we are. We -- just to give you a flavor of some of the components. So we did see a marginal decline in our gross margins.

We've talked about the drivers of that, just given the mix, some of these LOEs and some of the recovery coming from our low-margin ARV product. Also call out the $40 million of TSA income that we don't expect to recover this year on the back of that. So I would characterize '26 really is a stabilization year, supported by the savings realization with structural expansion really coming more visible as the savings pop in and some of our new products come into account.

Good. And Jason, on the enterprise-wide strategic review, 50% is coming from head cost reduction, not from COGS efficiency. A much more minor pieces coming from COGS efficiency. I think you asked the question the other way around, but it's 50% from headcount reduction across the board and only a much smaller piece in terms of COGS efficiency.

Dennis Ding, Jefferies.

Hi, good morning. Thanks for taking my questions. I had one on the enterprise review, the $400 million net savings. I'm just wondering if there could be additional savings upside as you execute on this over the next one to three years, basically how realistic and conservative is the $400 million in net savings? And then number two, specifically on meloxicam, what is your base case in terms of launching activity in the US on net revenue? What does the good launch look like to you? And if you internally view the JOURNAVX launch is a good proxy for meloxicam? thank you.

So just a couple of comments, and then I'll ask Corinne to talk a little bit about the comparative launches in the acute pain space. But yes, $400 million is a number we feel good about. We took our time in doing this and wanted to make sure that we can cement that within the organization. Could there be additional opportunities as time goes over the next few years? Sure. That's not something we're saying is going to happen.

The other thing is we talked about the $250 million in reinvestments up to $250 million, depending on the progress of how things go. So we could spend less than that. That could be more net savings than $400 million. But $400 million, I think, is the right number for you to think about and that we're very, very confident that we can deliver.

In terms of meloxicam, a very important product for us. We want to be able to show a very strong launch. I believe in the team we're putting together to be able to launch it. We're looking at partner strategies. We're making sure that it's resourced properly to do well. It's important for us. In terms of launch metrics and what does a good launch look like in the US it's a little hard these days with access concerns and other things. We'll roll that out and talk more about that on the 19th for sure. But if Corinne, you'd like to make any general comments.

Yes. Thank you very much, yes. And you mentioned one of the competitors in the field. What I'd like to say is that we are going to launch meloxicam where we think we can have the greatest impact and fastest uptake. And part of this is linked to our pricing strategy. The other part is linked to how we are going to focus on target physicians that have the most patients in terms of acute pain management.

Well, Vertex has been launching, I think, have a different time frame in mind. We have a different strategy. So again, our focus is on pickaxes. And we'll put resources behind these products that we can be successful with the launch.

And at this time, this concludes today's question-and-answer session. I would now like to turn the conference back over to Mr. Scott Smith, CEO, for any closing remarks.

Thank you very much. And just let me close with this. I think '25 is very, very important -- or '26, excuse me, '25 is a great year. '26 is a very important and pivotal year for us. Our base business is not only stable, but it's growing. We continue to generate strong cash flow, which gives us financial flexibility, and we're expecting multiple launches and pipeline milestones this year.

With our strategic review complete, we are building a more focused, efficient future-ready company and we are confident that we are at the beginning of a period of sustained revenue and earnings growth for the company. Thank you very much for your attention.

And this does conclude today's conference. Thank you for attending today's presentation, and you may now disconnect.