Viatris Inc (VTRS) 2022 Q1 法說會逐字稿

Good morning. My name is Britney, and I will be your conference operator today. At this time, I would like to welcome everyone to the Viatris 2022 First Quarter Earnings Call and Webcast. (Operator Instructions) I would now like to turn the call over to Bill Szablewski, Head of Global Capital Markets. Please go ahead.

Thank you, and good morning, everyone. Welcome to our first quarter 2022 earnings call. Joining me today is Michael Goettler, Chief Executive Officer; Rajiv Malik, our President; and Sanjeev Narula, our Chief Financial Officer.

During today's discussion, we will be making forward-looking statements on a number of matters, including our financial guidance for 2022 and various strategic initiatives. These forward-looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections. Please refer to the press release that we furnished to the SEC on Form 8-K earlier today for an explanation of those risks and uncertainties and the limits applicable to forward-looking statements.

We will be referring to certain actual and projected financial metrics of Viatris on an adjusted basis, which are non-GAAP financial measures. We will refer to these measures as adjusted and present them to supplement your understanding and assessment of our financial performance. Non-GAAP measures should not be considered as a substitute for or superior to financial measures calculated in accordance with GAAP. The most direct comparable GAAP measures as well as reconciliations of non-GAAP measures to those GAAP measures are available on our website at investor.viatris.com and in the appendix of today's slide presentation.

The information discussed during the presentation, except for the participant questions, is the property of Viatris and cannot be recorded or rebroadcast without Viatris express written consent and permission. A copy of today's presentation is available on our website at investor.viatris.com. An archived replay of the webcast will be available on our website following the conclusion of today's event.

With that, now I'd like to hand the call over to Michael Goettler, our Chief Executive Officer.

Thank you, Bill, and good morning. Thank you all for joining us for our first quarter 2022 earnings call. I'm pleased to say that we're off to a good start to the year with strong first quarter results, in line with our expectations across all key financial metrics, delivering on our financial commitments and making good progress on the reshaping initiatives we announced in February.

For the full year, we remain confident in our 2022 financial guidance on an operational basis, and we're continuing to monitor the current headwinds brought on by foreign exchange rates.

Now here are some highlights from the quarter. In the first quarter, we reported total revenue of USD 4.19 billion, adjusted EBITDA of USD 1.59 billion and free cash flow of $1.07 billion, a 34% increase over last year. This strong performance has enabled us to continue to deliver on our financial commitments for debt repayment while continuing to return capital to shareholders through the payment of a dividend.

We're continuing our successful integration, capturing synergies and simplifying our processes and organization. Our development engine continues to deliver key pipeline milestones and highlights for this quarter, include the launch of generic Restasis and generic Revlimid, and the full FDA approval of generic Symbicort. Overall, we generated approximately $120 million of new product revenue in the first quarter, and we're on track for $600 million in new product revenues for the full year.

Now let me just switch gears to our future. In February, we announced a significant global reshaping initiative to unlock trapped value and build a simpler, stronger and more focused company, which is well-positioned to deliver more access to patients and more value to shareholders. Since February, we've engaged in conversations in a meeting with numerous shareholders. We've listened carefully to your feedback and we recognize there's a desire for more clarity and more certainty about our strategic plans and the steps we're taking to get there. We fully understand the importance of remaining engaged with you, and we'll update you on our progress as we go along.

So let me give you an update on what was achieved in the first quarter. I'm pleased to say we made good progress during the quarter on the biosimilar transaction with our partner, Biocon Biologics, and we believe we are on track to close the transaction in the second half of 2022. Rajiv later will give you more details on our activities to date.

We're also making good progress on the previously announced divestiture of the portfolio assets of other select noncore assets, which we identified. We remain confident that we execute against all of these plans by the end of 2023. We strongly believe that our company's equity securities continue to be significantly undervalued. And as we continue to generate strong operating cash flows from our business and realize the proceeds to more efforts to unlock value, we are focused on maintaining our quarterly dividend, paying down debt, future share buybacks and other actions, all of which will enhance shareholder value over the short, medium and long term.

And with regard to timing for share buybacks, we hope to consider repurchases under the program already approved by the Board of Directors as soon after the close of Biocon Biologics as possible.

In summary, we had a very strong quarter, and we're excited about the future that we're building for Viatris. I can assure you that the entire company is focused on executing on these initiatives that we set forth for our business; meeting or exceeding the operational goals that we've set; generating significant free cash flow, which remains our financial north star; and unlocking value while reshaping our company for a stronger future.

With that, let me turn it over to Rajiv. Rajiv?

Thank you, Michael, and good morning. I'm excited by our strong results this quarter that reflect our focused business execution on all fronts. We managed the base business, maximized new launches, delivered on our pipeline and continued to execute our integration and TSA exits, all while advancing our reshaping initiatives.

Let me start with an update on transaction with Biocon Biologics. We are progressing with all regulatory approvals and importantly, have clearance from a U.S. antitrust perspective. The remaining regulatory approvals are expected in the coming months. Biocon is also on track with securing its financial commitments. With this positive momentum, we are well-positioned to close this transaction in the second half of '22.

Now moving to our quarterly segment results, which begin on Slide 7 of our earnings slides posted on our website. As I walk you through the performance in each of our segments and product categories, I will be making certain comparisons on an operational basis versus our plan that supported our guidance we communicated back in late February.

Our developed market segment continues to be a strong and resilient commercial business built on a foundation of a well-diversified portfolio of brand, generics and complex products, which has allowed us to improve the predictability and sustainability in what continues to be a dynamic and challenging environment. In North America, we continue to demonstrate our focus and dedication to patients through the innovative solutions based on the strength of our proven development capabilities.

Our interchangeable biosimilar, Semglee, is off to a great start as the total prescription share approach is 10%, which is in line with our expectations. Generic Restasis is another example of a first-to-market complex product and is also off to a strong start.

Moving to our generic Symbicort named Breyna. We are very excited to receive FDA's final approval in March. This milestone furthers our track record of successful first in developing complex generic medicines to help increase patient access. There is a trial scheduled for May 19 in the West Virginia Federal Court, and we continue to have the opportunity to launch this product in 2022 as upcoming proceedings developed.

Other key products like Yupelri and Wixela performed in line with our expectations while showing year-over-year double-digit volume growth. Our European business is also off to a solid start and remains on track to grow mid-single digit for the full year '22. Italy, France, Spain and Portugal performed strongly to further enhance our retail channel leadership in these countries. We also saw stronger-than-expected performance across brands such as Creon, Lipitor, Dymista, Lyrica and Brufen. Our thrombosis portfolio continued to grow in line with our expectations. Hulio, our biosimilar to Humira, which has roughly 20-plus percent market share of the biosimilar market, is another key contributor to our German and France businesses. Our recently launched generic Revlimid is the first in series of key launches planned for Europe this year.

Our emerging markets segment showed a strong quarterly performance. Our ARV franchise performed slightly better versus our expectations this quarter. Key geographies such as South Korea, Southeast Asia, Turkey drove higher volumes while Brazil realized better pricing. Lipitor and Lyrica led to strong growth in this segment and helped the brand category perform better than expectations.

Moving to JANZ. The headwinds on account of annual government NHI price reductions in Japan are being partially offset by strong year-over-year volume growth of our authorized generics and brands like Celecox, Amitiza and Effexor. In addition, we saw strength in Creon and EpiPen in Australia versus last year. On biosimilars, we are pleased that Hulio has achieved more than 50% market share in Japan. However, we continue to believe that there's plenty of room for the overall Humira biosimilars market to grow as it only stands at 10% today.

Lastly, an update on Greater China. Our strong and broad commercial infrastructure has helped us to deliver a strong performance despite COVID and COVID-related lockdowns. Our retail channel performance, especially Viagra, was slightly impacted by COVID, which was more than offset by better-than-expected performance of the hospital channel primarily led by Lipitor. Our manufacturing operations in China continue to perform well. And at this time, we do not foresee any potential disruption to our China supply chain. Given our solid start to the year and the strong customer service performance across all segments delivered by our global supply chain, we remain confident to deliver on our full year expectations across all segments on an operational basis.

Switching now to our pipeline. For your benefit, we have included current snapshots in our earnings materials beginning on Slide 13.

Here are a few noteworthy pipeline updates. Our Eylea biosimilar review is progressing well, and we can confirm that we have no outstanding science issues. We are currently waiting for the facility approval by FDA. As a reminder, this program is a part of Biocon transaction.

Our biosimilar to BOTOX filing for USA FDA will be delayed. We remain committed to the successful development of this complex biosimilar with (inaudible) and to the earliest possible launch in the United States.

Our clinical trial for GA once monthly has a number of patients who are located in Ukraine and are being impacted by ongoing situation there. As a result, we are pushing back our FDA filing by 1 quarter, which is now scheduled for the first quarter of '23. We recently received FDA approval of our levothyroxine oral solution named (inaudible) and are looking forward to launching later this year. Also, we received a PDUFA goal date of October 22 for our potentially first-to-file generic Pentasa. We believe that we achieved first-to-file status for our generic, Abilify Maintena, further enriching our first-to-market opportunities of complex injectables, which now include paliperidone 3-month, octreotide LAR, ferric carboxymaltose, iron sucrose and semaglutide.

And finally, an update on integration. As you can see on Slide 17, we remain on track to realize $500 million of cost synergies over the next 2 years, resulting in at least $1 billion cumulative cost synergy, since becoming Viatris. Our objective throughout this year is to complete our TSA exits from Pfizer, making Viatris self-provide in terms of systems and processes and positioning the company to further accelerate the optimization of our infrastructure.

Before I conclude, I would like to thank our colleagues for their hard work to deliver yet another excellent quarter and lay a solid foundation for the year. With that, let me now turn the call over to Sanjeev.

Thank you, and good morning, everyone. Please turn to Slide 18 as we discuss our first quarter 2022 financial highlights.

We're after a good start and saw strength across the business. Operational revenue was stable relative to prior year. Gross margin was strong. SG&A benefited from realization of synergies, and free cash flow improved significantly. This performance in total was solid and in line with our expectation. Let me walk you through the key drivers that contributed to first quarter performance.

On Slide 19, we have summarized our results versus prior year on a reported basis. Moving to Slide 20. Sales benefited from performance across our segments and several new product launches. As a result, sales were in line with expectation on an operational basis, down marginally versus prior year by approximately 1%.

Our global business is approximately 70% non-U.S. dollar-denominated. As a result of dollar strengthening against major currencies, foreign exchange had an unfavorable impact of approximately 4% versus first quarter 2021. Sales in developed markets were flat as a result of stability across brands and generics, along with contribution of new product sales.

In North America, sales of $1.1 billion were in line with expectation. We saw growth across products like Yupelri and the benefit of new product sales, including interchangeable insulin glargine and generic Restasis. In the quarter, these strengths contributed to overall performance and offset the expected impact of competition on key products and generic price erosion.

In Europe, we're off to a strong start, and sales grew by 5% on an operational basis. This is a result of category diversity, which spans generic brand products such as Dymista and Creon and our thrombosis business. We're seeing encouraging trends with recently launched generic, Revlimid. Moving on to emerging markets. Overall, operational sales were flat and benefited from growth in brands, including Lipitor and Lyrica. This offset pressure in generics as a result of lower ARV volumes.

Our JANZ segment was down 4% driven by government price reduction, which we anticipated in Japan and lower volume in Australia. Partially offsetting these trends is a continued uptick of authorized generic products. Lastly, the Greater China segment was impacted by carryover of policy changes in China that were implemented in 2021. Overall, trends are stable across key brands such as Lipitor in the hospital setting. The retail selling continues to be a priority area of growth, given our focus on broadening the patient population.

On Slide 21, let me walk you through the P&L elements that led to EBITDA being essentially flat versus prior year. Adjusted gross margin of 59% came in slightly ahead of expectation and were driven by favorable mix associated with brand performance and new product launches. SG&A was down approximately 14% and benefited from synergies realized over the last year associated with integration and restructuring activities.

Turning to Slide 22. We had an excellent quarter. Free cash flow of more than $1 billion, up 34% versus the prior year. This improvement in our cash flow conversion was driven by lower onetime cash cost, positive change in net working capital, which totaled approximately $300 million in the quarter. Improvement in flat free cash flow generation continues to be an organizational priority. We're confident that the cash optimization efforts will benefit cash flow throughout the rest of 2022. In the quarter, we delivered our capital allocation commitment, which included approximately $840 million of short-term debt payment and increased our quarterly dividend by 9%.

Moving to Slide 24. We're off to a strong start in 2022, and solid quarter supports the operational strength of business across total revenue, adjusted EBITDA and free cash flow. You will recall that the guidance we provided in February assumed a full year of biosimilar business, an FX impact of approximately 2% on total revenue and adjusted EBITDA versus the prior year. Given the dollar has strengthened against major currency, if the mid-April spot rates hold throughout the rest of the year, there could be an additional impact on total revenue, adjusted EBITDA and to a lesser extent, free cash flow. FX aside, the momentum seen first quarter gives us confidence in the outlook for the rest of the year.

Now let me cover the estimated phasing of our financial performance for the full year. With respect to revenue phasing, we estimate 48% of revenue will come in the first half and 52% in the second half. This is driven by ramp of new products, the U.S. launch of generic Revlimid in the third quarter and seasonality of Influvac in developed market. We expect sequential increase in SG&A and R&D throughout the year with approximately 52% of spend occurring in the second half. For the full year, we expect gross margin, SG&A and R&D to be within the guidance metrics we provided earlier this year. As a result of previously announced legal settlement, which will occur in third quarter, free cash flow will be more heavily weighted in the first half.

Also, we expect onetime cash cost and capital expenditure to be more significant in third and fourth quarters. We are firmly on track with our 2022 debt paydown target of approximately $2 billion and are committed to maintaining an investment-grade rating. Before I conclude, I want to make a few comments on our reshaping initiatives. We expect the Biocon transaction would generate $2 billion in gross proceeds or approximately $1.6 billion after tax. The proceeds will be used for debt pay down and potentially for share buyback.

As Michael and Rajiv both mentioned, we are making good progress and expect other assets to be divested by the end of 2023. This will bring in significant capital for further share buyback and potential tuck-in [BD] opportunities. We're obviously pleased with the strong start in the first quarter. The momentum we see in the operations of the business position us well for the remainder of the year.

Now I would like to turn the call back to the operator to open the call for Q&As.

(Operator Instructions)

Thank you, operator. Let's go to the first question to Jason Gerberry, please.

(Operator Instructions)

Okay. We'll start with Jason.

This is [Bobby Patel] on for Jason Gerberry. My first question is on Restasis. Can you talk about your supply capacity for this product and your guidance assumption for this product to remain semi-exclusive? And then second, can you speak to your second half '22 capital deployment priorities? How will you balance buybacks at current price versus acquiring new assets?

Yes. I'll give -- I give the first question to Rajiv and Sanjeev, if you can comment on the second half capital deployment.

Thanks, Michael. I would start by saying that very pleased to have again received the first FDA approval for generic Restasis, which reinforces our ongoing commitment to this market and the complex products. I would say that supply is not a constraint. The market continues to evolve. It's a 3-player-plus brand market at this point of time as the -- and we have been very happy. We have been very happy with the -- how we have performed so far and remain confident about the rest of the year's forecast.

Yes. And on the capital allocation, as Michael said -- and I in my opening comments, we're pretty clear about our priorities. Our priorities is continue to delever as we demonstrated that last year we're paying down $2 billion and then on plan to pay down another $2 billion this year, and overall pay down $6.5 billion in 3 years and maintain our investment-grade rating. So that's on the [debt] side. And we've also been clear about paying and maintaining and growing dividend, which we demonstrated by increasing our dividend by 9%. So our priorities are pretty clear. And we have sufficient cash flow from the organic business to be able to support our capital allocation priorities.

Then as the proceeds come in from the Biocon transaction, I think we said very clearly before that, obviously, there are tax implications of that, the implications on maintaining leverage-neutral and paying down some additional debt. But then there will be additional funds available. And clearly, we hope to consider buybacks at the time, share buybacks, especially at the current share price. We are so undervalued that clearly, share buybacks are the case to be for us for the additional capital that's coming in.

Thank you, Michael. Operator, we'd go to Elliot Wilbur, please.

Am I live?

Sure.

Okay. Just wanted to ask about the EBITDA impact of competitive product events in the first quarter, referring specifically to the breaking slides on Pages 20 and 21 of the deck. So just looking at the EBITDA impact of key -- or on key products. I mean, it looks like it was effectively 100% margin. And I think that's relatively consistent with what you outlined at year-end, but the EBITDA impact on other base business assets, at least, in terms of the margin profile of those products was quite a bit higher. I think it's about 85% in the quarter.

If you look at the EBITDA impact of negative revenue trends on other base products, base generics. So I just wanted to get some insight in terms of what particular products that may have been impacted within that bucket in the first quarter. Why was the impact quite a bit higher than what you're expecting for the full year? And in fact, your guidance still relatively consistent with what you would expect in terms of the EBITDA impact on base business products for the balance of the year.

Sanjeev, can you start?

Yes, I can. So Elliot, you're absolutely right. So if you look at kind of like the 2 pieces, if I could step back. First is the competition on key U.S. products. The revenue and EBITDA impacts are consistent with what we've been outlining. These 2 products, which is Miacalcin and Perforomist are a very high gross margin, above 90% as was evident.

As you can see, the year-on-year revenue impact and the flow through to the EBITDA, so that's consistent. That's -- those are the 2 products.

On the other base business erosion, as you saw, we talked about in the quarter. That's, again, in line with what we have seen. Quarter-to-quarter, there is a variation.

This quarter, particularly, we had the pricing impact. But as Rajiv pointed out in his opening comment from NHI in Japan, this is the annual price reduction that we experienced that. And that's all scheduled and anticipated. That flows to the bottom line. And there are other couple of brands in the U.S. that have a pricing impact, competitive price impact that again has a higher impact on the EBITDA. So overall, I'd say the impact on both the competition and on the base business erosion is in line.

Now the other important thing to note, again, Rajiv pointed out, is the offset. If you look at the new product sales, they were impressive for the quarter. And the gross margin on those were also fairly significant that we were able to offset part of the impact on the base business erosion.

Thank you. Operator, Chris Schott, please.

So just a couple of questions for me. Just going back to this issue of capital redeployment. So I guess once you address the debt reduction and kind of the targets you've put out there, should we think about most of the capital that you're going to be getting from, whether it's the Biocon deal or additional asset divestitures going to repo? Assuming your stock price is in this kind of like $10 level and that the deals you're considering will be more smaller in size.

I'm sure -- sense I think that's been one of the debates is just how do we think about what Viatris looks like going forward. And it's only from the messaging here is that repo is going to be a pretty high hurdle to overcome as we think about that versus deals. So that's kind of the first question, just to clarify a bit more there. The second one for me is, which I think you touched on a little bit, but just on gross margin progression and trends for the year. It seems like the 1Q results were well ahead of your annual targets. You said they're slightly ahead of your own internal targets.

Help me understand a little bit about how we kind of bridge from the 1Q results to the rest of the year. Like what drives that step down in gross margins going forward as we think about the implications of that and the kind of the go-forward business into '23.

Sure. Thank you, Chris. Look, on capital allocation and the trade-off between share repurchases in BD, I think we've been very, very consistent. We've got our Phase 1 commitments that we're committed to. That's the $6.5 billion in paydown, targeting the leverage target that we put out there, paying the dividend. And as Sanjeev mentioned earlier, all of that is supported by our strong organic free cash flow, right? We don't need the cash from divestitures to achieve those targets. Our commitment is unchanged. That's what we're aiming for.

Then with the divestitures, we have additional capital coming in, right? And starting with the $2 billion from Biocon. Again, taking tax into account and look at the net proceeds, we're planning to use some of that to be leverage-neutral. But then the remaining clearly, especially with the share price that we have right now, as we said, share buybacks are the case to beat.

It doesn't mean we're going to be completely inactive on the BD side. We're very active looking at opportunities there, and we have our target areas that we laid out. But clearly, share buybacks are the case to beat, and we hope to consider starting that as soon as after the close of the Biocon transaction. And on the gross margin, Sanjeev, you want to?

Yes, sure. So sure, Chris, you're right. We came in slightly ahead of our internal expectation, the gross margin of 59.5% for the quarter. But I think there are a couple of things going on, just kind of put this in context with what's happening.

So we had a strong brand performance, as Rajiv pointed out. That, obviously, has an impact on the gross margin. We also had new product launches. Generic Restasis, clearly high gross margin product has an impact on that. And then we also had some timing of emerging market tenders in case of acceleration in first quarter. That has an impact on the gross margin.

So we came in ahead. I expect the gross margin to step down a little bit in the second quarter because of the product mix and then what we talked about. But on a full year basis, we are still on track with the metrics that we provided on 57.5% to 58.5%.

Thanks for the question. Next, we'll go to Umer, please.

So I guess maybe more specifically, is it reasonable to assume on capital allocation that perhaps the magnitude of up to a couple of billion dollars worth of repurchase as possible? And then also on full year guidance, can you clarify if there's impact of excess purchases in China, ahead of lockdowns that was helping in the first quarter and if that's appropriately baked into the back half of the year? I know you guys did mention a 2% impact to EBITDA from FX. I just wanted to go through that as well.

Rajiv, you start with the China question, and then Sanjeev, you can talk about the potential of share buybacks.

I think, Umer, China, again is a strong and expensive commercial infrastructure, but more importantly, our team has adapted to the new environment. And that has helped us deliver strong performance despite COVID and COVID-related lockdowns. We continue to see -- although the sentiment around China not being at its peak due to the lockdown at this point in time, we believe we can meet our financial objectives for the year. We remain confident about that. So I don't see any doubt for our China business center because of the COVID.

And Umer, on -- 2 points about share buyback [to point of solution]. So if you can step back as we kind of Michael sorted out in his opening comments. If you look at the total net proceeds of Biocon and other assets that we talked about that and adjust that for the potential tax impact and pay down debt to keep us leverage-neutral, we talk about approximately $4 billion of net proceeds that we could generate.

Now conceptually, hypothetically, if you think about where our security prices are, we could be deploying all of that for share buyback. That clearly is possible. But obviously, that decision will be taken as we start closing the Biocon transaction and getting proceeds from the other perspective. But clearly, the reshaping and unlocking the track value gives us a lot more flexibility in terms of accelerating and expanding our capital allocation priorities.

And I think just as an overlay. Umer, obviously, as Sanjeev said, we'll make the decision at the time when it comes. But we believe the company is significantly undervalued at the current level. I think there's no doubt about that. We're confident in the strategy that we have to unlock that value. Our decisions will be guided and are always guided by our TSR model, and our commitment to return value to shareholders. And very importantly, we are confident in the outlook of our core business. We continue to be highly diversified. That gives us that confidence. So I think that background should help you.

Thanks, Michael. Operator, if we could go to Greg Fraser, please.

Were there any notable drivers behind the stronger-than-expected brand performance in the quarter that could prove durable? And just following up on the guidance approach in light of FX trends. Why not update the ranges based on the current exchange rates? I guess what's the bar or trigger to update the guidance based on FX?

Rajiv, do you want to take the brands question?

Yes. I think nothing is a surprise, we exactly planned the business, and this is how we have executed. China, Lipitor and Norvasc drove the brand performance. Japan, strong performance for Amitiza, Effexor Celecox and that drove -- and U.S. was Yupelri. And again, even performance, although we have a competition, I think we did better than expected in the U.S. And Europe has been a steady for last couple of years, whether it's Creon, our thrombosis portfolio, Brufen. So I think everything, which we have planned, has been executed, and we remain confident for the year.

Yes. On the guidance question, just want to start with, first of all, I think as you can see, we had a very strong quarter operationally. And the momentum we see at the end of where we are today and the outlook for the rest of the year. We feel very confident on the outlook for the year in terms of operationally how we're going to be performing. Now clearly, FX is a headwind, as I mentioned that in my opening remarks. And if you take the mid-April rate, if they were to hold, there is going to be a headwind on the overall -- on the revenue and adjusted EBITDA and to a lesser extent on the free cash flow.

Now we're not in the business of predicting foreign exchange. Foreign exchange has been changing every day. What we are expecting to do is at the second quarter call, we will take into consideration the prevailing FX rate at that time and update guidance as necessary. And by the way, keep in mind that we also have -- we are expecting the Biocon transaction to close in the second half. And depending upon the timing of the closure, there would be an impact on our full year guidance, which then we will take into account and reflect that in the guidance.

The last point I want to say, irrespective of the FX rate, we feel very good about the cash flow generation in the company and are on track to pay down $2 billion of debt and then continue to maintain and grow the dividend as we talked about.

Thanks, Sanjeev. Operator, if we go to Nate Rich from Goldman, please.

Maybe 2 quick clarifications on guidance and then a higher-level question. Just following up on the last question, actually. Was first quarter ahead of your expectations? And should we think of that outperformance being offset a little bit by FX? Or has the expectations for the year not really changed on a core basis, you're just highlighting this additional FX risk if current exchange rates hold?

And then are you able to give us the contribution from biosimilars in the quarter to overall growth? So just so we can get a better view of sort of underlying performance once that divestiture takes place?

And then at a higher level, and then I'll stop there. But at a higher level, when could we hear more progress on additional divestitures? And has your view or scope of the potential assets to be divested changed at all, just given the volatility we've seen in the markets, and how some of the public assets are being valued?

Sanjeev, do you want to start with Q1?

Yes. Yes, Nathan, so Q1, we had a slight FX headwind because if you go back, you saw the dollar start strengthening in the month of March. We had a slight headwind, but we were able to absorb within our operational results. And that impact, obviously, gets bigger because dollar has continued to strengthen. So that's kind of why I'm highlighting. But on a full year basis, the expected headwinds, so Q1 did come up slightly ahead of the expectation, but we were able to offset -- were able to offset by the -- as we were able to offset the FX impact because of that.

Okay. On the biosimilar question, Rajiv, you want to take that?

Yes. Biosimilar sales for the full year, as we said, it's about $850 million is the total revenue for the full year. It's (inaudible) for per quarter. It's about $175 million...

Quarter 1, $170 million.

Quarter 1. Yes.

Yes, $170 million, approximately.

Yes.

And on the larger question you had, Nate, on the other divestures. Look, nothing really has changed. We identified these other select assets that we consider noncore to the future of Viatris and as we continue to move up the value chain looking for more durable and complex product. But these are quality assets. These are quality assets we think are attractive, maybe more attractive to somebody outside of Viatris than inside of Viatris, and helps us to unlock value and to simplify our business.

We're not disclosing the assets at this point to maintain the integrity of the process. But as we said, we're making good progress on them. We are confident in the timeline that we laid out to have all of this wrapped up by the end of 2023. And obviously, we keep The Street and the shareholders updated as we go along.

Thank you, Michael. Operator, next question from David Amsellem, please.

Of course.

Just a couple of quick ones. So first, just remind us, and I apologize if I missed this, what you are assuming for pricing erosion for both your generics business, particularly developed markets, broadly speaking? And also just how you're thinking about pricing erosion broadly? It's ex China because I know that's a bit of a different case, but how you're thinking about pricing erosion for established brands.

Less about the guide this year, more just longer term and how you're thinking about overall trajectory there.

And then in terms of just the repositioning of the business, you've talked about that you believe that the shares are undervalued and that there is value to be unlocked. And you mentioned that a number of times in this call. So with all respect, I'm just trying to understand what do you think the market isn't getting? Or what do you think could be or should be unlocked in your view?

You want to start with the price erosion, Rajiv?

Yes. I think diversity of our business, whether it's in the product portfolio or commercial infrastructure or footprint has given us -- has provided us predictability and sustainability. And I believe pricing, yes, it's used broadly at the industry level, B.ut it's very specific when it comes to generics is to your own sort of portfolio, which by design if you recall, we have been moving slowly and steadily from commodities to the high-value, complex, niche, hard-to-make products.

So we are moving -- making -- we have been making a diligent move from the volume play to the value play. And as I've always said, the generic pricing environment has been, first, stable as I see, given the specific, for example of -- this quarter because Miacalcin, Perforomist, Wixela, these were the 3 key drivers. If I take it off, core business in the generic for us was pretty stable. It's a stable pricing environment. Now from globally, now if I have to say, we have always forecasted about mid-single digits, somewhere around that percent as a price (inaudible).

And if you look into this quarter, overall, for example, take just North America, flat. Brands were down 3%. Complex made up for a complex biosimilars beta from 18% positive over there and [GX] was minus 3. Overall, net-net, it was flat. So that's what I was talking about. This diversified portfolio has given us that sort of dark, deep sort of portfolio now, which can withstand this volatility and give us more predictability and sustainability.

Yes. And David, on the repositioning of the company and what the market is, we believe, not getting. I mean, you need to look no further than the biosimilar business and look at the interaction with them. This is all the value it has, how it was implicitly valued inside of Viatris and the value we're getting by unlocking it, off an implied multiple of 16.5%. We think that applies to other assets as well.

So at the end, after we've done it all reshaping, what you're going to be left with is a company that's very well-positioned to have a broad portfolio of generic medicines that reaches across our global commercial network, addresses patient need for high-quality affordable medicines. That will always be a core of us, complex products, injectables, off-patent LOE brands, including some of the iconic brands that came in from legacy Upjohn.

And then we want to add to that moving further up the value chain, some additional products. That product, that portfolio is we believe very, very strong. It's going to be a high-value -- global, high-value-oriented, global diversified business, a diversity will stay with us. And I believe, in time, The Street will come to appreciate that both -- our financial profile that we have as well as the strategic profile that we have.

And Michael, if I can just add to that is that profile that Michael talked about will continue to generate sustainable cash flow. And that, we believe, is the strength has been demonstrated and then will continue to be a positive momentum as we go forward for the company.

Thanks for the question. Operator, can we go to Gary, please?

All right. Great. So the SG&A was much lighter than we expected in 1Q. Was that a timing issue or a quicker realization of synergies? Just talk through the run rate on that through the rest of the year. And then how much of the $600 million of new product revenue is from current market products versus new launches? And how much is biosimilars that will be divested to Biocon?

And then just lastly, just you mentioned about the BOTOX biosimilar filing, this delay. So can you just explain that a little bit more? What's causing that? And how long of a delay do you think that will be?

Taken the same sequence, maybe SG&A timing first. Sanjeev?

Sure, sure. So first quarter, SG&A came in lower than our kind of internal tracking. That's essentially timing. And we expect to catch that up, and I said that in my opening comments, we expect SG&A and R&D to ramp up. 52% of our yearly spend is going to happen in the second half of the year. But it's important to note, again, in our guidance is built into these synergies, realizations that Rajiv mentioned that in his comment. And that's why we see year-on-year first quarter SG&A is down double digits and on a full year basis, our SG&A is down as well.

Okay. From the new launch perspective, I think important fact is that almost 95% of the products, which we are supposed to launch in this year, have either been approved or already launched. So other than a couple of products, which we had factored in our plan, which is (inaudible) and Avastin, most of those approvals are in the [back]. And we are on very much track to deliver $600 million as we have planned. And on biosimilars, I will give you on an annual basis, almost 1/3 of this new loss revenue is coming this year, this year from the biosimilars.

Okay. And the Botox biosimilar also, why the filing is so late?

Yes. On Botox, look, we -- let me start with this, that we remain committed to the program, and we are making some good headway with the science along with the FDA. We are still targeting, I would say, an FDA approval in '26 and launch it thereafter. There are several moving pieces with our program with regard, including their plan to qualify and incorporate a new working cell pack. So this is going to -- that's one reason for -- along with various other pieces. That's one reason for us pushing back this filing.

And thank you guys for the questions. We're going to -- I don't see any other folks in the queue, so we're going to hand over to Michael to close the call.

Yes. Thanks, everybody, for joining us this morning. Look, in summary, let me just say we, obviously, had a strong quarter. We're on track operationally to meet our full year 2022 guidance.

We made good progress on executing on our reshaping initiatives that we laid out in February. And we're going to continue to engage with you and engage with investors as we go along. So thank you for joining us this morning, and that concludes the call. Thank you.

This does conclude today's Viatris 2022 First Quarter Earnings Call and Webcast. Please disconnect your line at this time, and have a wonderful day.