Good morning, everybody. I'm Chris Schott at JP Morgan, and it's my pleasure to be hosting a fireside chat today with Viatris. From the company, we're going to have a quick presentation from CEO Scott Smith, and then we're going to open up to a Q&A session with the broader management team. So with that, happy New Year, everybody. And, Scott, thanks for joining us.
Thank you, Chris. And just gonna make a couple of short remarks here and a couple of quick slides, and the bulk of the presentation is gonna be Q&A. I just wanna show a forward-looking statement. Obviously, we're gonna make some forward-looking statements during the course of this presentation. And then, so just good morning to everybody here and everybody who's joining via the webcast. 2013 was an outstanding year at Viatris. We integrated and simplified the company. We stabilized the base business and have seen two consecutive quarters of revenue growth, organic revenue growth. We've delivered on our pipeline, and we executed on our capital allocation framework, maintaining our investment-grade rating and returning capital via quarterly dividends and share buybacks.
With the completion of our announced divestitures, we will have delivered on all our phase one commitments. The resulting company, as we sit here today, is a large, global, diversified company with a broad product mix and broad geographic reach across the globe, and an ability to generate solid and sustainable cash flows. Since the completion of the merger three years ago, we have generated $7.2 billion in free cash flow. We paid down $6.6 billion in debt and returned $1.8 billion in capital to shareholders. Importantly, in 2023, we supplied medicines to approximately 1 billion patients worldwide. You know, just a comment on that, just a remarkable figure.
I think for me, it really strikes me, and what an opportunity for me and the 37,000 employees of Viatris to affect human healthcare, as we move into 2024 and beyond. Now, moving into phase two of our strategic plan, we're very well positioned to unlock shareholder value. As I mentioned before, we've simplified and stabilized our base business, and we've moved to organic revenue growth. We plan to further improve on our target leverage ratio, and we have in line of sight our gross leverage target. Our plan will return approximately 50% of our free cash flows to shareholders through quarterly dividends and share buybacks, and with the other 50%, we plan on investing in assets and businesses that will drive future revenue growth.
I believe this combination will position us to be a strong, adjusted earnings per share growth story in the future. In terms of business development activity, we plan to engage in all manners of developing the portfolio, importantly, licensing, strategic arrangements, partnerships, and also M&A. Focusing on the innovative products, we are gonna focus our business development activities on innovative products with durable and predictable revenue streams. You know, there's four main areas we see for investment as we move forward relative to our business development activities. We'll continue to invest in organic growth that fuels our base business. We will invest regionally or country-specific opportunities to take advantage of our strong global operations. We'll continue to invest to develop the three core areas that we have previously identified: ophthalmology, dermatology, and GI.
But we're also going to be opportunistic in seeking out assets that fit our company and can help us significantly grow revenue in the future. So that's just a little, opening feel for the company in a few words, and I'll turn it over to Chris for Q&A for the three of us.
Great. I guess the first question from me, Scott, would be, you've got the divestitures now behind you. You've had a bit more time under your belt as CEO. So what are you most focused on for Viatris as we think about 2024 and as we think about even the next few years? And I guess maybe just similar with that, what do you see as the biggest opportunities for, for the company going forward?
So I wouldn't say that we have the divestitures behind us. They're announced, we need to work through that and close them, and they'll continue to close-
Sure
... as we get through to sort of the end of the first half this year. Once we get those divestitures, we'll be focusing on paying down our debt to get to that target ratio. And after that, we're gonna execute our strategic plan, right?
Our capital allocation plan. You know, approximately over the next three to five years, 50% of that free cash flow, which at a minimum, should be at the $2.3 billion range, 50% return to shareholders through share buybacks, which we're gonna try and be increasingly aggressive around as we move in 2024 and 2025, the dividend, of course, and then for business development. As I mentioned, I see business development as far more than just binary M&A. I think licensing, partnering, strategic arrangements, research agreements and things like that are very, very important to our future. So I see a fulsome approach to business development and building the portfolio long term. And I think, you know, for me, the base of the company is so strong. We've, we...
We've integrated, we've streamlined, we're now moving, and we've seen the last couple of quarters, real organic revenue growth, and that solid base of the business allows us to do the other things. But, you know, we're gonna execute our capital allocation plan as laid out, and we're gonna build the company and the future revenue streams of the company through business development.
Great. On that 50% business development, 50% capital, return algorithm, I guess one of the questions we get is, should we think about that as a consistent number year to year, or should we think about that as kind of an average over, let's say, a three or five year period of time?
Yeah, I think it will average out over a three or five year period of time. Any one year, we expect to do both, right? We expect to be returning to shareholders and we expect to be doing some business development. Whether that's 50/50 in any specific year, it's hard to say. It depends on the environment. We wanna be opportunistic in pursuing, you know, pursuing assets when they're available at the right time, and we wanna be, you know, aggressive in buying back shares at times that are advantageous to us. So you don't wanna be too prescriptive to do that. You need to be fluid, to be able to take advantage of the business conditions ahead of you. But certainly, over the next three or five years, I'd expect sort of half and half as we've laid out.
Great, I guess the question I get a lot, and I just think about it, your stock price is, you know, fairly... It's an expensive multiple. Why not focus a lot of the cash on repo, just given what it seems like you're talking about a base business that's stable. You've got good cash flows. Like, why not just return that capital and, you know, I guess the question is like, how do you think about, like, returns on just your own stock versus some of these external deals?
During the course of 2023, we did purchase significant stock back $150 million worth of shares. I think we wanna be more aggressive in share buybacks as we get in 2024 and 2025, given the cash flow that we see, get, you know, given the fact that we, you know, see getting to the appropriate leverage ratio, and so I think we're gonna be more aggressive doing that, for sure.
Excellent. In terms of areas for business development, I think you've mentioned ophthalmology, dermatology, GI, as kind of the big three. Where of those three do you see the most opportunity for Viatris?
So that's hard for me to answer directly, right? There's different types of opportunities in those three buckets. I wouldn't say that one has way more opportunities than the other. I think part of the reason that we were initially focused on those three areas is we saw a lot of opportunity in each of the three areas. Again, there tends to be different types. It evolves over time, right? Companies become more viable in terms of business development or transaction over time and less. So it's a very dynamic situation, but we see all three of those therapeutic areas, I think, being very viable in terms of our ability to partner, to license, to acquire assets.
And again, in your time as CEO, is there any interest in looking at assets outside of those verticals and expanding the lens a little bit?
Absolutely, right. I think, you know, we've identified three areas that we thought fit us very well. I think we wanna be a little bit agnostic. The core principle being here: Can we find assets with significant revenue growth that we can leverage this base that we've built globally as a company and really accelerate or inflect revenue, in a way better than the possessing company could, right? So, you know, certainly I think, you know, we're not just gonna look in those areas, we're gonna look for impactful assets. You know, when I take a look at the company and what the company is, I think there are some areas which are a little too far afield-
Okay.
that I don't see any real benefit. I don't see us moving into cellular immunotherapy, for example. Certainly, even though, you know, given my background, I've got significant oncology background, I don't see a lot of oncology assets coming in. You know, but certainly going into places like neurology or immunology, places, again, that I have, you know, significant development, commercial experience, if the right assets are there, I definitely, would definitely be open for us.
Okay, great. As I think about geographies, is there a bias of U.S. versus ex-U.S. or anything you'd comment on that front?
I would say no bias. You know, there are four kind of opportunities that you see out there from a geographic perspective. You see some very country-specific opportunities, right? There's a product available for Japan and Japan only. You know, we wanna do some of that as well. We've got some very strong operating units all around the globe, and we may wanna do some of that type of business development, shore up some of the individual countries. You see sort of ex-US deals, right? Companies that have... And I know this story very well from my history in biotech.
You know, I think you see companies that can have line of sight on being able to develop, get a registration, and commercialize in the U.S., but don't really understand or have the resources to be able to do it outside of the U.S. So certainly, there are ex-U.S. assets that we would pursue as well. We've got strong infrastructure from an ex-U.S. perspective. About 75% of our revenues are outside of the United States, so those are assets, you know, that I think we'd be very, very interested in to leverage the strong international base that we have. 165 countries we're operating in. We've got 4,400 products. I mean, it's a big, diverse company.
Mm-hmm.
You also see companies that have acquired the rights to a product for the U.S. only.
Mm-hmm.
So you see some U.S.-only opportunities out there in the biotech world of people who have licensed something from Europe or somewhere else. So there's those opportunities. We'd be interested in those, and then, of course, sort of the, the gold standard, the best possible outcome are global opportunities, right, that you see worldwide. And so, you know, we'd be interested in any of all, any or all of those, given sort of the, you know, the, the, the diversity, the strength of the company. And similar to therapeutic areas, I think we wanna be a little bit agnostic to that, open our minds to doing any of it. It's where can we find impactful assets that can help drive revenue growth, that sort of we can leverage the strong organization that we have?
Yeah. I was interested in the comments. You talked about partnerships, maybe less about, you know, augmenting maybe just the binary M&As. I think that's one of the... When we think about capital deployment, historically, we thought about Viatris buying assets just outright. Just how much of an opportunity is there and how big of a piece of your BD strategy is, you know, some of these things you just mentioned of, you know, finding somebody who's got US rights that maybe can't commercialize globally, things like that?
So in, in my, you know, in my personal history-
Mm-hmm.
with Celgene, with BioAtla, with other biotech companies, and before that, you know, I don't know the number of deals I've been involved with, either centrally or peripherally, maybe 100.
Okay.
I would say ninety percent of those would be partnerships, licenses, other things. You know, five percent would be M&A, and five percent would be something else. And, you know, as I've made my way around this conference and looked at other companies that are highly, highly successful, including a, you know, a meeting I was at, and saw you the other day, you know, I think that's a really, really viable strategy, right? I mean, the combination of investing in your own in organic programs, which we need to do, you know, finding partnerships and sprinkling in occasionally some M&A, you know, disciplined M&A, I think is the way to build the portfolio. But I think if at the end of five years, you look at the business development we've done, I think the majority of it would be licensing, partnership, that sort of thing.
Can I just ask a follow-up on that? In terms of how much of that work is this something Viatris has been working on for a long period of time, or is this a newer piece of the strategy that I think the kind of broader partnership lens, I guess?
So I'm just gonna speak to my experience-
Yeah
... in the, you know, almost a year that I've been, been CEO, and, you know, you come into an organization like this, it's a big, complex organization. I wanted to learn it. I wanted to understand the geography. I want to understand the people, the business dynamic. So I spent some time doing that. We wanted to sort of get line of sight on, are we gonna be able to do these divestitures, and are we gonna get sort of... Which, which the divestitures went, by the way, just an aside, I think, very, very well. We were very pleased with the outcome. You know, we, we got what we were expecting for these assets, which are very well-performing assets, but we wanted to have line of sight of, are these gonna get done?
And when are they gonna get done, and when do we get the proceeds so that we can get to our leverage ratio, our target leverage ratio, and then really move into to BD. So I would say it became apparent to me, you know, talking with these two extensively and understanding things, it became apparent to me last summer, that we were gonna be able to do all those things, that these assets were gonna transact out of the company, that we were gonna be able to do that at the valuations that we were looking at, and they would happen during the course of 2023. So at that point, I think we became more aggressive in looking at opportunities.
I will say, though, you know, the vast majority of the business development activity that's coming in is inbound to me.
Okay.
Based on, you know, my past at Celgene, my past in biotech and other things. Certainly, there are. And it's been a little bit of a capital-starved world in the biotech world, so there's been very significant outreach coming to me and, you know, based on the strength of the company that we built and the transparency that we have right now around wanting to license and partner and do real business development and develop the portfolio.
Great. Great. Maybe pivoting a little bit, 2024, I know you're not giving guidance today, but just the biggest swing factors we should keep in mind for this year. There's obviously a piece of EBITDA coming out associated with the divestitures, but just other factors we should be keeping in mind for the year.
So I think the base of this, from my perspective, and maybe Rajiv and Sanjeev can comment as well, very solid year in 2023, right? Obviously, we... You know, it's a diverse company. I don't know exactly where we finalized and landed in 2023. That work's still being done. 4,400 products, 165 countries, right? But, so, what is clear to me, it was a very strong year. We moved to organic revenue growth. We would expect that to continue in 2024. If you're looking to figure out EBITDA and other things by taking a look at what happened in 2023 and removing, you know, some of the things that we've divested, I think you're sort of roughly getting to that point.
I don't know if you want to be more specific and comment on that.
So, Chris, let me. So, Scott talked about the swing factors. So obviously, solid base business, that will continue. So then you have, obviously, the new product launches that we've kind of provided a range of like $450 million-$550 million. And we're very excited about next year, particularly in U.S. We should expect some kind of organic growth on a, you know, divestiture adjusted basis on that. So I think that will continue. I think the most important part that we're gonna kind of talk about it is in the, how do we provide guidance to that so people understand that because of the-
Yes
... divestitures that you talked about? So the way we are thinking about right now is we'll provide guidance on an all-in basis, so people can do a comparison to 2023.
Mm-hmm.
So you kind of have that because all these businesses are, by and large, still with us. Because they will be sold during the year, we'll lose. We will also provide some kind of a framework, a guidance on a post-divestiture basis, what does the business look like, right? It's gonna be a choppy year because as you divest, the revenues will go away. And we will provide transparency, like we did in case of biosimilar, when that is happening and what is the impact on revenue and EBITDA and free cash flow. So I think we'll provide that so people can see what's the base business, what happens after the divestitures, both on the top line and the EBITDA, and what happens after that, so people can look at that.
I think the other thing that is important for a purpose of understanding as to what Scott talked about it. Because we will be aggressively buying back shares, we will also provide guidance on the Adjusted EPS basis-
Okay, great
... for next year on.
It sounds like you're giving us a framework that we can-
Yes
... kind of work with.
Exactly, right.
And I guess on that, maybe that before we think about the top line and EBITDA impact from the divestitures, is there a reason to think that there would be big deviations in terms of performance relative to what we're seeing in 2023, or is-
No
... 2023 a good proxy for the business?
You should not. It's very steady from what we've been talking about. In that range, yeah.
We should be delivering on what we have been talking.
Yeah, it should be in the range.
Okay.
You know, I think it's important as well to remember that, you know, we have this solid base of business. We've got revenue growth in the 1%-2% that we can see in the future. We're putting $400 million-$600 million in new products in every year.
Mm-hmm.
So, you know, it's a very strong, solid, you know, fundamentally solid company at this point in time.
Great. When I look beyond 2024, I think one of the things I'm struggling with is how to think about the margin progression of the business. So can you just elaborate on, is there leverage in the P&L in this business over time, and what is it gonna take to see that leverage play through?
... Yeah. So, so Chris, starting with gross margins, you've seen, like, we have a very strong gross margin performance. You saw that three, three quarters this year, and then last couple of years, very strong gross margin. And that's just obviously a function of product mix that we have and obviously the new product launches.
Mm-hmm.
I expect the gross margin to be stable-
Okay.
As we go forward. As again, the gross margin coming from new product tend to be higher than the company average. The other thing that is gonna help us a little bit is, the gross margin from the divested businesses is a little bit less than the company average.
Okay.
That's probably gonna help.
Yeah.
As we go forward, we obviously continue to invest in our business, like we did that in Eye Care this year. We'll continue with the DTC that we have and the R&D pipeline that we expect to go there in next year onwards. So I expect our EBITDA to be stable, Chris, from that perspective. But the important thing to keep in mind, again, because the focuses of the company in phase two is gonna be in share buyback, we expect over a period of time to be showing growth on adjusted EPS basis.
Yeah, the EPS piece starts to deliver. Yeah, excellent.
Sorry, just a quick comment.
Yeah.
I think, you know, longer term, looking at margins, right?
Yeah.
The businesses that we're looking to invest in and bring in a licensed partner, you know, generally, specialist, patent-protected, longer-
Mm-hmm.
more predictable revenue streams, innovative products, with a different margin profile than the business currently. So that could provide some tailwind to where we're going from a margin perspective as well.
Great. Maybe jumping into the business units. Maybe first starting on China. Would just love to get your sense of just kind of more broadly, how do you see the China business kind of evolving over the next few years for Viatris?
Hello. Chris, China has been, you know, for us, has been performing very well and better than our expectations.
Mm-hmm.
We have managed the policy framework, the tightening of the VBP. Our 95% business has already gone through the VBP. URP is expanding, but at the same time, you know, this is all on the reimbursement package of the hospitals. And we have been able to successfully and continue to move the business to the retail as well as the private hospitals. So we see, you know, this year, of course, business did pretty well, and we see this business continue to perform well while we're bringing the new products. So for us, this anti-corruption campaign-
Yeah
We lived through that, we have not seen much impact on that. We feel, we seem very confident about continuing to perform the way we have performed in the last three years on China.
Okay. So in terms of growth profile going forward, this is, do you view this as a growth business for the company? Is that fair to say?
As we bring in the pipeline and we add on to this product, definitely, we are looking into this market becoming one of the growth market for our business.
I know there's a lot of worry about business in China-
Mm-hmm
... and some of the macroeconomic and policy issues that are going on in China. And, you know, delivering healthcare in China for is from a government perspective very complex, right? It's a massive undertaking. And, you know, I think for us, if we are really gonna be a diverse global company with that kind of scale and that kind of reach, China needs to be a very important part of our strategy going forward. We don't want to run away from it. We want to understand the changes. We want to make sure that we operate in the environment in the best way possible. But we see China being a very important part of our strategy globally going forward.
Great. Just pivoting a little bit, the JANZ region is one where I think we've been seeing some declines in the business. And maybe similar kind of commentary, how do we think of what's been happening in that part of the portfolio? And what's a way to think about that going forward?
That's the only business in our only geography in our business, which, because of the regulated reasons, regulatory reasons, we have that 4%-5% decline, which we have taken into the computation when we calculate, okay, this business, base business, set up for 2%-3% growth. Yes, but it's a little bit... We are trying to work feverishly-
Mm-hmm
... to add more products in that pipeline to offset that erosion.
Okay. So, for that business to stabilize over time-
Yeah
... it's more about new products coming in.
Yeah.
Is that the way? And what's a timeline to think about that? Is that a-
I think that will be around. I would say 2026.
Yeah.
2026, yeah.
2026.
Okay.
And Japan's a very, very important part of our future as well, and I think we've got a strong company there, strong operating company. We need assets. It's a difficult market in a lot of ways, and the way that they've structured price declines and things is difficult, so we need to refresh the portfolio in Japan. That's one of the things that I'm focusing on and concentrating on is not only refreshing the portfolio through some of the global programs, internal and external, but also maybe some Japan-specific opportunities as well.
Okay. Okay, great. Eye Care, I know there was some activity here over the last few years. Just what are you most excited about when you think about the broader Eye Care portfolio with the company today?
So maybe I can comment, and then Rajiv is much closer to the Eye Care business on a day-to-day basis.
Okay
... than I am, but we're very happy with that acquisition. We're excited to have an Eye Care business. The Eye Care business—you know, we've launched Tyrvaya, and you have it in the marketplace today. I think we have six, seven, eight other products in the pipeline that will hopefully come to market in the next few years. We see this as a very viable, strong business for us, you know, that can move to a billion-dollar business over time. We think it's a good place to play in. You know, we've got, again, we've got one product out there, but we've got six, seven, eight products in the pipeline that hopefully the majority of those will hit the market.
Yeah, you know, Chris, it was never one product acquisition. It was a platform which we're buying to build for the future.
Mm-hmm.
The pipeline continues to progress. In fact, we will be launching our second product, Ryzumvi, which is the reversal of mydriasis, in the next few months. So and also, there are three, you know, products which are entering the second study of the phase III. Everything is going very well. The DTC, which we just switched on because this segment is very DTC segment, the dry eye segment, and we just reached on, and we're seeing some very positive trends in the last quarter. So we are, you know, as we go along, we are very confident that, yes, this business will be, like you said, deliver on the $1 billion, $1 billion dollar commitment which we made.
Just on Tyrvaya, can you expand a little bit on that, just in terms of has the asset performed in line with your expectations so far, or has there been any surprises with it?
More or less, yes. There was, you know, because at a quarter-over-quarter, at a very early stage, it's very difficult to read through, because we were moving from the, you know, trying to stabilize the gross-to-net, remove the bridge which was there at the early stage. So all that has been more or less expected to, you know, deliver as, as per our expectations.
Just to comment on that, you know, it's, I think people forget sometimes it's very early days, right?
Yeah.
You know, that deal was closed around this time one year ago. And then you close the deal, you've got to do integration, and not that there was tremendous integration. It's a small company, but understanding it, bringing it into the Viatris tent, and we just initiated the DTC in October. So, we're gonna be anxious to see if that's, you know, what that's doing. It's too early for me to give you a sense of, you know, what the effect of that DTC has been. Maybe by the time we get to the fourth quarter call in February, we'll have a better look at it.
It's for DTC, you know, from my experience and, and, you know, I initiated the Otezla DTC program, which I think everyone in this room has probably seen millions of Otezla ads. You know, but so, so I've been deeply involved with it. But my, you know, my, my experience with it is, you know, there's usually a two, three, four month lag till you see real demand uptick, right? And people need to be driven into the physician's office, the physician needs to write the product, there's reimbursement considerations, and so there's usually a little bit of a lag. We started in October. I would say by the time we get to the Q4 call, we'll have better visibility on how effective this DTC has been, but we're very hopeful.
Okay, so it's one to watch for this year.
One to watch.
And then just a bigger picture. Just any learnings from that, the Oyster transaction that we would think about, whether it's future deals in ophthalmology or just in some of your other core areas that you're looking to build on?
From my experience, every transaction is different, comes with different challenges, different good things, different bad things, different positives, different negatives. I think that's a good sort of framework for us if you take a look at what we did in the Eye Care. We bought a company in Oyster Point that, you know, had a commercialized asset, had a commercial group, a small commercial group, focused on the U.S. We bought that. We also bought other assets to put into the Eye Care group and pipeline.
And then we can take not only Tyrvaya, but the other programs, put our development expertise in and globalize them and commercialize them around the world. So, you know, I think that's a pretty good framework for the type of deals that we'd like to do. Sort of a lead and anchor product or anchor company, and then bring other assets in.
Okay, excellent. Just continuing through the, maybe a couple of U.S. specific questions. U.S. generics, I know it's a smaller part of the business, certainly than in the past, but just what are you seeing on the pricing side there? I think it's been a big debate of, are we finally seeing more stable environment or just based on your perspective of?
Yeah
... the markets now?
There are two components to that, Chris. One is the market, and for seven to eight quarters now, which is, I mean, I've been seeing, we have seen relatively stable pricing, relatively stable pricing than what we have seen in the previous quarter.
Mm-hmm.
That, I think, is a little bit of realization and appreciation with our big customers. They appreciate the, the importance of the sustainable supply chain-
Mm-hmm
... as well as the quality. And all this is rendering that. And I see this, I see this a little bit sticking around. It's not the- it's always been a cyclical, but I see all the signs of pointing towards this, this stability, you know, this stability being sticking around. The second is your own mix, and I think as a company, we have been consistently moving a little bit, relatively away from quantities. Of course, access is the center, but we have been focusing on certain complex and difficult-to-make products-
Mm-hmm
... like launching every second year, a couple of those products. And that has basically positioned us in a way that we see our even U.S. market coming back to the growth now, and as we look for this. We are very excited by the portfolio we have in the USA, the market stability, which is, you know, encouraging sign for this market. And every year, when we, you know, launch $400 million-$600 million of launches, U.S. is a big part of that.
Mm-hmm.
U.S. is a big part of that, and it will continue to be the focus because the science you do for U.S.A. can be taken out to the rest of the world-
Yeah
... and countries.
Yeah. Maybe just on a specific purchase, please, thinking on the generic Symbicort opportunity, and it seems like one of the bigger, the bigger ones for you in the U.S.
Yeah, it's, you know, exciting. Again, another first from us. We were in the race over here, and we have been able to launch, and the market is shaping exactly the way we thought, and especially at this point of time. You know, there has been shifts happening in because of the AMP cap coming in and, you know, brands dropping the price 40%-50%. We see us getting the generics or us getting the market share, and as this market and overall ICS/LABA market will evolve between generic Advair, Symbicort, and some of the brands which are out there, Dulera and all that. And we are very excited and well-positioned to get the market share in this, these two products.
Yeah. Just the final one on the U.S. generics, just the product shortages that we've seen across the industry, is that changing at all, your customer kind of discussions you're having of just maybe a better appreciation of-
Yeah
... you can't just keep driving price to zero, and it has some consequences? Yeah.
That's what I meant from the realization-
Yeah
... with the customers.
Yeah
... of the importance of having a sustainable supply-
Mm-hmm
... a quality supply, and not just being the lowest price.... because they have seen the impact it had on the overall industry, and that's what led to the drug shortages, because many people walked away from several products. Like, we eliminated about 300-400 products. So did Teva or Sandoz. Big players walked away, and that had impact on the drug shortages.
Yeah, absolutely. Just finally, on the European portfolio, just, I'm trying to get my hands around just how to think about the growth of this portfolio, and I guess, if we think about this, like, how does price play into this? Is this a market where there's incremental pressures? Are things, you know, more stable? Just help me a little bit.
Relatively very stable market-
Okay.
-from a price point.
Yeah.
That's why we have been for several last years, so we have been growing Europe by two, three, 4% in that range, depending upon the year to year.
Mm-hmm.
It's about, if I talk about price decline, it's not more than 0.5% or 1% in Europe.
Okay. So that's, I mean, you see that, that's a sustainable kind of dynamic.
Yeah.
Excellent. Last question on the core business. Just on the pipeline, brand and generic, what are you most excited about over the next few years that we should be watching?
Actually, many products. You know, this year, 2024 can be a big year for exciting products, launch of Victoza, launch of iron sucrose, which was another first. We're excited to bring in this year, of course, Sandostatin LAR, the octreotide product, and also looking forward to launch our once monthly Copaxone-
Mm-hmm
in the middle of the year. So there are several. And then followed on, like, you know, we have exciting, as we have been talking about the complex generics portfolio, but also the 505(b)(2), like Xulane low dose and the Breyna. There are, you know, there are buckets of our... We framed it in a $ billion+ buckets, which should come to light between now and the next three to four years.
Great. Great. Just a couple of cash flow questions. Maybe the first one, thinking about 2024, are there one-time costs we need to think about in, in the P&L or anything from a cash flow perspective tied to the divestitures that we should be keeping in mind?
Yeah. So let me take, Chris, take it back and kind of raise kind of the overall, what is the sources of cash flow next year and what's gonna happen?
Okay.
And then I'll talk to specifically on that. So if you think about 2024, there are three sources of cash flow that we're looking at. So one is obviously the organic cash flow, that from the business that we talked about. Then we have the opening cash balance, that the excess cash that we have, and then the proceeds from divestiture. All of these three will be in excess of $5 billion.
Okay.
Right? So that, that's the sources. And then what we are committed, we'd probably be paying somewhere around $3 billion of debt to get to our leverage target that we talked about. That will leave us sufficient cash for the committed dividend that we have and for share buyback and business development that we talked about. So that's kind of the holistically we looked at that. For 2024, we've been talking about a minimum cash flow of $2.3 billion, which is the organic cash flow before any divestiture cost and any expense around it. So the way to simply think about it is this 2.3 minimum is from the operating business.
There would be some one-time cost associated with the restructuring, some of the closing of that work that is going on, but that's much less, as you can see. Over a period of time, we brought that down. Our conversion is improving from EBITDA to cash flow. It has improved this year. It's gonna improve that. And then as far as the divestiture are concerned, the cost and the taxes that we had are in line with what we committed before. Roughly about $1 billion that we've committed for all the divestiture, and that's all factored in, and that'll be reflected. The important thing to keep in mind, because of the way accounting works, some of the divestiture costs will hit the operating cash flow line.
But we will give transparency as we've given that, so that you can see the base business operating cash flow is still strong and growing. And then you have the proceeds for the divestiture, which will be, in fact, funded by the divestiture proceeds.
I just wanna... If you don't mind just-
Yeah
... stepping in and sort of maybe reiterating something that Sanjeev said, just 'cause I think it's really important and one of the reasons that I'm so excited about 2024. That, you know, from the cash from regular operations together with divestitures in the course of 2024, we're gonna be able to do all the things that we need to do, right?
Right.
We're gonna be able to pay down the debt to the target ratio that we're looking for. We're gonna be able to continue with the dividend. We're gonna be able to get more aggressive in terms of share buybacks during the course of this year, and we're gonna be able to do substantial business development. So we're gonna be able to execute on all parts of the plan right in 2024. So, you know, I think it's largely due to the hard work that's been done by these guys and others to get 2023 and get the company in such a great place. And so it gives me a very nice jumping off point for 2024 and beyond.
Yeah, that's great. Maybe just one more on the cash flow. How do we think about normalized kind of translation of EBITDA to cash flow for Viatris? We think about maybe 2025 and beyond.
So, Chris, it's a great story to what Scott just talked about. So we—if you recall, back in 2021, we had, because of the combination, we had a lot of significant one-time costs as you come, bring companies together, whether it's the TSAs, setting up the infrastructure, you know, rationalizing the plants, and all that kind of stuff. So that was substantial. Over a period of time, we brought that down. We worked on a working capital optimization. So if you look at it from where we were to this year, we'd probably be somewhere around 50% cash flow conversion.
Okay.
Which is very important.
Mm-hmm.
I expect this to continue to grow over a period of time.
Okay.
There are still areas that we're looking at. Low-hanging fruits, we by and large been able to do, but I continue to expect this 50% conversion from EBITDA to free cash will continue to improve over a period of time.
How high could that go over time?
I think it's. We can, we can, again, a lot depends on kind of what kind of focus on this, but I, I wouldn't be surprised if we can hit maybe 55%-60% over a period of time, the next three to four years.
Great. Just final question for me, for, for Scott, just to wrap up. Just thoughts on the stock. You know, it seems like you've, you're kind of making a lot of progress towards these issues. Seems like you're really excited about the kind of dynamics going forward. What do you see as the, the primary disconnects between your view of the business and opportunities and, and what's reflected in valuation?
You know, I think the primary discount is just how solid the company is, right?
Mm-hmm.
And just how predictable the company is from a revenue perspective, from an EBITDA perspective, from a cash flow perspective. When you have a merger like the one, like the one we had, which is a, you know, a large global event, a big merger, lots of moving pieces, it takes a while sometimes to get to that real stable base. And through the divestitures that we're doing and other things, you know, I feel confident that there is a tremendously strong company. And we talk a lot about free cash flow, and we're talking about a minimum of $2.3 billion post-divestiture, 2024 and beyond, and hopefully more than that as we go beyond. That is as much or more as every company in the sector, right?
We've got a strong, diversified company, 37,000 employees, 165 countries, and we have cash flow that will enable us to be able to be aggressive in terms of giving back to our shareholders and developing the portfolio and moving towards real revenue growth. Like, I don't think people fully understand just how solid the company is and the opportunity is in 2024 and beyond, to really grow the company and unlock the multiple.
Great. Well, thanks so much for joining us. Really appreciate the time today.
Thank you, Chris.
Thank you.