Good morning. My name is Brittany, 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. All participant lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer period. If you would like to ask a question at that time, please press star one on your telephone keypad. If you need to ask further questions, you may re-enter the queue. Lastly, if you should require operator assistance, please press star zero. Thank you. 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 archive 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 commitment 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 $4.19 billion, adjusted EBITDA of $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 the dividend. We're continuing our successful integration, capturing synergies, and simplifying our processes and organization. Our development engine continues to deliver key pipeline milestones. 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 in new product revenue in the first quarter, and we're on track for $600 million in new product revenues for the full year. Now allow me to 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 and meetings 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. 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're 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 non-core assets which we identified. We remain confident that we'll 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. As we continue to generate strong operating cash flows from our business and realize the proceeds from our efforts to unlock value, we're focused on maintaining our quarterly dividends, paying down debt, future share buybacks, and other actions, all of which will enhance shareholder value over the short, medium, and long term. 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 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 2022. Now moving to our quarterly segment results, which begin on slide seven 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 approaches 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 firsts in developing complex generic medicines to help increase patient access. There is a trial scheduled for May 19th in the West Virginia Federal Court, and we continue to have the opportunity to launch this product in 2022 as upcoming proceedings develop. 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 2022. 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, Tamiflu, Lyrica, and Brufen. Our thrombosis portfolio continued to grow in line with our expectations. Hulio or biosimilar to Humira, which has roughly 20%+ market share of the biosimilar market, is another key contributor to our Germany and France businesses. Our recently launched generic REVLIMID is the first in series of key launches planned for Europe this year. Our emerging market 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 the 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 U.S. FDA will be delayed.
We remain committed to the successful development of this complex biosimilar with Revance and to the earliest possible launch in the U.S. . Our clinical trial for GA once monthly has a number of patients who are located in Ukraine and are being impacted by the ongoing situation there. As a result, we are pushing back our FDA filing by one quarter, which is now scheduled for the first quarter of 2023. We recently received FDA approval of our levothyroxine oral solution, named Ermeza, and are looking forward to launching later this year. Also, we received a GDUFA goal date of October 2022 for our potentially first-to-file generic Pentasa. Lastly, 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 three-month, octreotide LAR, ferric carboxymaltose, iron sucrose, and semaglutide.
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 two years, resulting in at least $1 billion cumulative cost synergies since becoming Viatris. Our objective throughout this year is to complete our TSA exits from Pfizer, making Viatris self-reliant 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 off to 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 trends 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 in 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'd anticipated in Japan and lower volume in Australia. Partially offsetting these trends is a continued uptake 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 setting 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 one-time cash cost, positive change in net working capital, which totaled approximately $300 million in the quarter. Improvement in 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 and 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 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 one-time cash cost and capital expenditure to be more significant in third and fourth quarters. We are firmly on track with our 2022 debt pay down 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 will 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.
At this time, if you would like to ask a question, please press star one on your telephone keypad. If you wish to remove yourself from the queue, you may do so by pressing the pound key. We remind you to please pick up your handset and please limit yourself to one question.
Thank you, operator. Let's go to the first question, to Jason Gerberry, please.
Jason, please press star one if you would like to ask a question.
Okay. We'll start with Jason.
Hey. Hey, guys. Thanks for taking my question. This is Bhavin 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? Then, second, can you speak to your second half 2022 capital deployment priorities? How will you balance buybacks at current price versus acquiring new assets?
Good morning, everybody. 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 I'm 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. You know, the market continues to evolve. It's a three-player plus brand market at this point of time. We have been very happy with how we have performed so far and remain confident about the rest of the year's forecast.
Yeah, on the capital allocation, as Michael said then, and I said that in my opening comments, we're pretty clear about our priorities. Our priority is just continue to delever, as we demonstrated that last year by paying down $2 billion, and then on plan to pay down another $2 billion this year, and overall pay down $6.5 billion in three years and maintain our investment-grade rating. That's on the debt side. We've also been clear about paying and maintaining and growing dividend, which we demonstrated by increasing our dividend by 9%. Our priorities are pretty clear, and we have sufficient cash flow from the organic business to be able to support our capital allocation priorities.
As the proceeds come in from the Biocon transaction, I think we said very clearly before that, you know, obviously, there are tax implications of that, there are implications on maintaining leverage neutral and paying down some additional debt, but then there will be additional funds available. Clearly, we hope to consider buybacks at the time, share buybacks, especially at the current share price. You know, we're so undervalued that clearly share buybacks are the case to beat for us for the additional capital that's coming in. Next question, please.
Thank you, Michael. Operator, if we go to Elliot Wilbur, please.
Thanks. Good morning. Am I live?
Sure.
Okay, thanks. Good morning, everyone. Just wanted to ask about the EBITDA impact of competitive product events in the first quarter, referring specifically to the bridging slides on page pages 20 and 21 of the deck. Just looking at the EBITDA impact of key or on key products, I mean, it looks like it was effectively a 100% margin, and I think that's relatively consistent with what you outlined at year-end. 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 around 85% in the quarter if you look at the EBITDA impact of negative revenue trends on other base products, base generics.
I just wanted to get some insight in terms of, you know, 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? Is, in fact, your guidance, you know, still relatively consistent with what you would expect in terms of the EBITDA impact on base business products for the balance of the year? Thanks.
Thanks, Elliot. Sanjeev, can you start?
Yeah. Yeah, I can. Elliot, you're absolutely right. If you look at kinda like the two 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 two products, which is Mycobutin and Perforomist, are a very high gross margin, about 90% as was evident. As you can see the year-on-year revenue impact and the flow through to the EBITDA. That's consistent. That's those are the two 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, as Rajiv pointed out in his opening comment, from NHI in Japan. This is the annual price reduction that we experienced, and that's all scheduled and anticipated. That flows to the bottom line, and there are other couple of brands in U.S. that have a pricing impact, competitive pricing impact that again has a higher impact on the EBITDA. 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.
Okay. Next question.
Thank you. Operator, if we could go to Chris Schott, please.
Your line is open.
Great. Thanks so much. Just a couple questions from me. Just coming back to this issue of capital redeployment. 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 you get a sense. I think that's been one of the debates is just how do we think about, you know, what Viatris looks like going forward.
It sounds like from the messaging here is that repo is gonna be a pretty high hurdle to overcome as we think about that versus deals. That was kind of the first question, just to clarify a bit more there. The second one for me is, and which I think we've touched on a little bit, but just on gross margin progression and trends for the year. It seems like the 1Q results were w ell ahead of your annual targets. I think you said they were slightly ahead of your own internal targets. Help me just 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, you know, implications for that and then kind of the go forward business into 2023. Thanks so much.
Sure. Thank you, Chris. Look on capital allocation and, you know, the trade-off between, you know, share repurchases and BD, I think we've been very consistent. You know, we got our phase one commitments that we're committed to. That's the $6.5 billion in pay down, you know, targeting the leverage target that we put out there, paying the dividend. As Sanjeev mentioned earlier, you know, 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. With the divestitures, we have additional capital coming in, right? And, you know, 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. 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 gonna 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. 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. On the gross margin, Sanjeev, do you wanna[cross talk]?
Yeah, 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 to kind of put this in context with what's happening. 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 is 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. 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. On a full year basis, we are still on track with the metrics that we provided on 57.5%-58.5%.
Thanks for the question. Next, we'll go to, Umer, please.
Hi, guys. Thanks for taking [cross talk]
Your line is open.
Thank you, guys. Thanks for taking my question. I guess maybe more specifically, is it reasonable to assume on capital allocation that perhaps a magnitude of up to $2 billion worth of repurchase is possible? Then also on full year guidance, can you clarify if there's impact of excess purchases in China ahead of lockdowns that was helping 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. Just wanted to go through that as well.
Maybe, 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 an outcome of long and expensive commercial infrastructure, but more importantly, our team has adapted to the new environment, and that has helped us deliver a strong performance despite COVID and COVID-related lockdowns. You know, we continue to see, you know, although the sentiment around China not being at its peak due to the lockdowns at this point in time, we believe we can meet our financial targets for the year. We remain confident about that. I don't see any, you know, doubts about our China business and because of the COVID.
Okay. Umer on the two points about the share buyback, the point that you mentioned. If you can step back, as kind of Michael pointed 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, you're talking about approximately $4 billion of net proceeds that we could generate. Now, conceptually or 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.
Clearly, the reshaping and unlocking the trapped value gives us a lot more flexibility in terms of accelerating and expanding our capital allocation priorities.
I think just as an overlay, Umer, you know, obviously, as Sanjeev said, we'll make a decision at the time when it comes. But, you know, we believe the company is significantly undervalued at the current levels. I think there's no doubt about that. We're confident in the strategy that we have to unlock trapped value. Our decisions will be guided and are always guided by our TSR model and our commitment to return value to shareholders. Very importantly, we're confident in the outlook of our core business and continue to be highly diversified, and that gives us that confidence. So I think that background should help you. Next question?
Yes, thanks, Michael. Operator, if we could go to, Greg Fraser, please.
Your line is open.
Thanks for taking the questions.
Were there any notable drivers behind the stronger than expected brand performance in the quarter that could prove durable? 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 for update the guidance based on FX? Thank you.
Rajiv, do you wanna take the brand question and [cross talk]
Yeah. I think that nothing is a surprise. We exactly planned the business, and this is how we have executed. In China, Lipitor and Norvasc drove the brand performance. Japan, strong performance for Amitiza, as well as our celecoxib, as I said, drove, and U.S. was YUPELRI. Again, revenue performance, although we have competition, I think we did better than expected in the U.S.. Europe has been a steady Eddie for last couple of years, whether it's Creon, our thrombosis portfolio, Brufen. I think everything which we have planned has been executed and we remain confident for the year.
Yeah. On the guidance question, but just wanna start with first of all, I think as you can see, we had a very strong quarter, operationally. The momentum we see at the end of where we are today and the outlook for rest of the year, we feel very confident on the outlook for the year in terms of operationally how we're gonna be performing. Now clearly, FX is a headwind, as I mentioned that in my opening remarks. If you take the mid-April FX rate if they were to hold, there is gonna be a headwind 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. By the way, keep in mind that we are expecting the Biocon transaction to close in the second half. Depending upon the timing of that 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 part I wanna 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.
Hi. Good morning. Thanks for the questions. Maybe two 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.
At a higher level, when could we hear more progress on additional divestitures? 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? Thank you.
Do you wanna start with Q1?
Yeah. Nathan, so Q1, we had a slight FX headwind, because as you go back, you saw the dollar started strengthening in the month of March. We had a slight headwind that we were able to absorb within our operational results. That impact obviously gets bigger because dollar has continued to strengthen. That's kind of why I'm highlighting, but on a full year basis, the expected headwind. Q1 did come up slightly, you know, ahead of the expectation, but we were able to offset the FX impact because of that.
On the biosimilar question, Rajiv, you wanna take that?
Biosimilars for the full year, as we said, it's about $850 million is the total revenue for the full year. For quarter two, it's about $175 million or something.
Quarter 1. $170 million.
Oh, sorry, quarter one. Yeah.
Yeah, $170 million.
Yeah.
Approximately. Yeah.
On the larger question you had, Nate, on the other divestitures. Look, nothing really has changed. We identified these other, you know, select assets that we consider non-core to the future of Viatris, and as we continue to move up the value chain, looking for more durable and complex products. You know, that 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. As we said, we're making good progress on them. We're confident in the timeline that we laid out to have all of this wrapped up by the end of 2023.
Obviously, we keep the street and the shareholders updated, as we go along.
Next question.
Yeah. Thank you, Michael. Operator, next question from David Amsellem, please.
Thanks. Just a couple of quick ones. 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. Also just how you're thinking about pricing erosion, broadly, just ex-China, 'cause 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. Then, in terms of just, you know, the repositioning of the business, you know, you've talked about that you believe that the shares are undervalued and that there's value to be unlocked. You mentioned that a number of times on this call.
With all due respect, I'm just trying to understand, you know, what do you think the market isn't getting, or what do you think could be or should be unlocked in your view? Thank you.
Wanna start with the price erosion, Rajiv?
Yeah. Yeah, I think the diversity of our business, whether it's within the product portfolio or commercial infrastructure or footprint, has provided us predictability and sustainability. I believe pricing, yes, it's used broadly at an industry level, but it's very specific when it comes to generics, as 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. We have been making a diligent move from the volume play to the value play. As I've always said, the generic pricing environment has been fairly stable as I see. Given the specifics, for example, in the U.S. this quarter, it was Meloxicam, Perforomist, Wixela. These were the three key drivers.
If I take that off, core business in the generic for us was pretty stable, you know, it's a stable pricing environment. Now from globally, you know, if I have to say, we had always forecasted about, you know, mid-single digits, somewhere around that percent as a price erosion. If you look into this quarter, you know, with overall, for example, take just North America. Flat. Brands were down 3%. Complex and biosimilars made up for 18+% over there, and Gx was -3%. Overall, net-net, it was flat. That's what I was talking about, you know, this diversified portfolio has given us that sort of broad, deep sort of portfolio now which can withstand this volatility and give us more predictability and sustainability.
Yeah. Yeah, David, on the repositioning of the company and what the market is not getting, we believe. I mean, you need to look no further than the biosimilar business. I mean, look at the transaction we did. You know, the value that it had, how it was implicitly valued inside of the enterprise and then the value we're getting by unlocking it at an implied multiple of 16.5. We think that applies to other assets as well. At the end, after we're done with all the reshaping, what you're gonna be left with is a company that's very well-positioned, that has a broad portfolio of generic medicines that reaches across, you know, 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. Then we wanna add to that, moving further up the value chain, some additional products. That product, that portfolio is we believe very strong. It's gonna be a high value, global high value-oriented, global diversified business. The diversity will stay with us. 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.
Michael, if I can just add to that profile that Michael talked about will continue to generate sustainable-
Yes.
Cash flow. That we believe is a strength has been demonstrated and then will continue to be a positive momentum as we go forward for the company.
Thank you, Sanjeev.
Thanks for the question. Operator, could we go to Gary, please?
Your line is open.
Thanks. Good morning. All right, great. So the SG&A was much lighter than we expected in 1Q. Is that a timing issue or 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 on-market products versus new launches? And how much is biosimilars that will be divested to Biocon? And then just lastly, you mentioned about the Botox biosimilar filing is delayed, so can you just explain that a little bit more, what's causing that, and how long of a delay you think that'll be? Thanks.
Let's take them the same sequence, maybe SG&A timing first. Sanjeev?
Sure, sure. First quarter, SG&A came in lower than our kind of internal tracking. That's essentially timing. 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 gonna happen in the second half of the year. It's important to note again, our guidance is built into the synergies realization that Rajiv mentioned in his comment. That's why we see year-on-year, first quarter our 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. Other than a couple of products which we had factored in our plan, which is Spiriva and Avastin, most of those approvals are in the bag, and we are on very much track to deliver $600 million as we have planned. On biosimilars, I will give you on an annual basis, almost 1/3 of this new launch revenue is coming this year, this year from the biosimilars.
Thanks.
Okay.
Thanks.
The Botox biosimilar also, why the filing is delayed?
Let me start with this, that we remain committed to the program, and we are making some good headway with the science along with FDA. We are still targeting, I would say, an FDA approval in 2026 and launch thereafter. There are several moving pieces with our program, with Revance, including, you know, their plan to qualify and incorporate a new working cell bank. That’s one reason, along with various other pieces, for us pushing back this filing.
Thanks, Rajiv Malik.
Thank you.
Thank you guys for the questions. We don't see any other folks in the queue, so we're gonna hand it over to Michael to close the call.
Yeah. 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 initiative that we laid out in February, and we're gonna continue to engage with you and engage with investors as we go along. Thank you for joining us this morning, and that concludes the call. Thank you.
This does conclude today's Viatris's 2022 first quarter earnings call and webcast. Please disconnect your line at this time and have a wonderful day.