Good afternoon, everyone. Thank you all for joining us at the Barclays Healthcare Conference. Continuing our Spec Pharma session for the day, I'm delighted to have the CEO of Viatris, Scott Smith, and Doretta Mistras, the CFO of Viatris. Scott, I know you're not scheduled to come here originally, and really delighted that we could make it and we could have you here. So appreciate that. I would love to get you to get started with some opening remarks around recent Q4 results and the outlook you provided, and then we could jump into some Q&A.
Sure. First of all, thank you very much for being flexible and getting us in here at this time slot. We're very happy to be here. Thank you, everybody, for attending. Doretta and I are going to run through some questions. I think sort of the first thing is we had our earnings call a couple of weeks ago. We put earnings out. We talked about the effect of the plan called Indore on sales into the United States and revenues in EBITDA. We reset sort of the base a little bit for where we're going in 2025 based on that. One of the things I get a lot of questions from, it's been a very busy period of time from an investor perspective. From my perspective, the questions they're asking is, has anything changed? Talk about the base business.
What about new product revenue? From my perspective, really nothing has changed. We do have a little bit of a reset here in terms of the effect of Indore in this year, and some of that is remediatable going forward. Really, the fundamentals are still very strong in the company. Before the Indore situation, we had seven consecutive quarters of operational revenue growth, which was good. This year, without the effect of that, we would have had 3% revenue growth and 1%-2% EBITDA growth. The fundamentals are very strong. We had new product revenues last year of almost $600 million, which is well above what we originally guided to. We have still sector-leading cash flows that we can deploy and put towards our capital allocation strategy. We have a lot of stuff sort of moving through the pipeline right now.
We have six readouts, Phase III readouts coming this year, and 10 assets in Phase III in totality. I think the company is very strong. This is not the situation with Indore is not something that we're running away from. We're dealing with it head-on. We're going to remediate it. To me, the message that I've been trying to get to investors was when we really look at the fundamentals of the company, it's very strong, and the investment thesis is still very much there as it was before this.
Got it. Understood. We'll dig into each of these, Scott. The other major thing that you mentioned on the earnings call was also the enterprise review that you're launching on. Could you comment on the scope, size, and timing of this enterprise review, and what are your implications?
Yeah. If you take a look back, take a moment and think about the last four years for the company, there's been a merger of two global companies coming together. We've divested biosimilars business. We've divested our OTC business, Women's Healthcare business, our API business. This is the right time to really take a look at the company. Is it the right size? Is it fit for purpose, not just for now, but for going forward? Do we have the right people in the right places, and do we have the right cost basis as we've evolved with the company? We were going to take a look at the enterprise overall during the course of this year.
Again, the situation with Indore and the import alert there sort of really led us to think we need to move this up and be very thoughtful about taking a look at it. We're going to work our way through it during the course of this year. We've already initiated this process. We're working with some outside vendors to be able to get there. We'll update everybody on sort of where we've gotten with it and the net effect, which I think there could be some positive effect from a cost perspective in 2025, but the big effect will be 2026 and beyond.
Got it. We will look forward to hearing more about it. As we think about Viatris in the last couple of years, I think capital allocation has been a big priority with you every time I spoke to the team. On the call, we discussed the buyback too, and you said you have a minimum range of buyback of $500 million-$650 million, which coupled with the dividend brings it to your goal of returning capital to shareholders of around 50%. It has been a few weeks since earnings. Are there any incremental updates that either of you would like to provide?
No, I mean, and I'll pass it to Doretta in a minute, but I don't think there's any updates since earnings. It's still the same strategy that we've had. We've done a lot in the last few years to pay down debt and get to a good place in terms of the company going forward from a capital perspective. Our capital allocation strategy is to we're generating $2 billion plus in free cash flow a year, and we're going to allocate that both if you take a look at a three- to five-year period, we're going to allocate it to about 50% to going back to shareholders through buybacks, through dividends, and another 50% into business development. That's over a three- to five-year period. Any one year we may be stilted to one side or the other. We may do different things depending on opportunities.
We need the freedom to manage the business, but that's a long-term goal to have about 50% back to shareholders and 50% into business development to help grow the revenue. EBITDA, I think in the course of 2025, it's a year where we're leaning in a little bit more to the share buyback portion, maybe returning a little bit more to shareholders this year, given where the share price is and some of the dynamics going on. We do have significant capital, both after dividend and after talking about, what, $500 million -$650 million in share buybacks. We do have significant capital to have some flexibility in terms of share buybacks, in terms of doing business development, in terms of paying down debt or doing other things.
What we're trying to do here is lean in a little bit to the capital allocation part of it, which is pay back to shareholders, but retain some flexibility as we go through the second half of the year to do the right things for the company.
I think you said it well, Scott. Got it. Maybe let's get into Indore. I think clearly top of the mind for investors as your own incoming calls has been, so has it been with us. Help us understand the requirements now from an FDA perspective, the key challenges for you as it stands, and ultimately the bottom line, the impact to the business.
This resulted from an inspection which happened last June at this facility in Indore. Post the inspection, they issued a 483 report with some incidents that we needed to work on. We immediately began the remediation on all the things that the FDA said, right? Just right after June. We then got, and we were working on that remediation, then got a warning letter and import alert late December this year. With that in place, we worked through that. There were products that were excluded from that. It took us a little time to figure out what's the exact economic impact of that. When we take a look in totality, what we talked about in the Q4 call was about $500 million in revenue and $385 million approximately in EBITDA. There are two parts to that.
The first part of that is things which sort of go away forever, right?
Sure.
Lenalidomide's included in there. I will say we were going to lose lenalidomide beginning of the year, potentially towards the end of 2025, but certainly by the beginning of 2026. Anyhow, just move that up. There are some one-time fines and things associated with that. Once we get the plant up and running and remediated, a lot of that other business we can start bidding on again. It's ARV business and other things that come out of there. We're also qualifying other plants within our network. It's one plant out of 26 in our network, and we're looking for third-party vendors as well to be able to look at the situation. I would say we're past the 50% part in the remediation of the facility. We've been working hard on that remediation.
Once that's done, which I believe will be sometime mid-year this year, then we would ask the FDA to come in and reinspect, and we go from there.
Understood. Past 50% into remediation. I think one of the things I did discuss with the team later on was if there is any service-level commitment from the FDA that once you let them know that you're ready for an inspection, would they visit you within two months, four months, or is there any defined timeframe?
I can't speak to what the FDA timeframes will be. I think just based on sort of historical precedent, if things continue to flow that way, I would expect towards the end of the year, very early part of next year, that there would be a revisit and go. I will say that part's out of my control. It's out of the company's control. It's up to the FDA. Again, we've got an evolving regulatory environment right now, I believe, and a new commissioner for the FDA coming in. I don't know if that was voted on today or I haven't been in the news, but we'll have a new commissioner coming in. There's obviously a lot of focus on governmental departments.
I don't know what things are going to look like in the future, but my guess would be sometime later this year, early next year for the reinspection.
Got it. One of the things that I'd done a few years ago was look at 20 years of warning letter histories with the FDA. I saw that the average time to resolution was around 18 to 20 months. It looks like there's a possibility that you could be ahead of that 18 months too if you take that December 2024 as a.
I think what we did is we started the remediation efforts immediately after getting that. If you take a look at June, that's when we really started. That 18 months would take you towards the end of this year. I think that's the way that we look at it, right? We didn't wait for a warning letter or further communication from the FDA to start remediating. We started remediating immediately.
Got it. I think within the $500 million of revenue impacted, lenalidomide is one of the biggest components. What are the options for you in terms of tying up with a third-party provider or any other options that you have of salvaging as much of this business?
I mean, what's in there, I think, and Doretta can speak to it, is the full effect of lenalidomide being gone. Certainly, we're very active looking for third parties. I can't give you an estimate of what we may be able to make up, if any of that. Certainly, we're working very hard on it.
Yeah. Part of the, as we thought about contextualizing the impact of Indore, there were multiple discussions, not only with the FDA, but kind of other alternatives to figure out the full kind of impact of lenalidomide. We got to the best estimate of that view kind of leading up to earnings.
Got it. Maybe just one final question around this. That other facility inspected was Nashik facility.
Right.
Could you comment around that and when you expect to hear from the FDA on potential clearance there?
Yeah. That inspection happened actually, I think, just before Indore. There was a 483 associated with that. They have not closed that down or gotten back to us. I do not know the timeframe for that. I would assume in the next couple of months we will hear back from them on any action, if there is some, in Nashik.
Are the findings of the 483 and the observations, are they comparable to Indore or?
There's some that are comparable. I think it's a shorter list. When I look at it with my eyes, and not being a regulator, I don't think it's as significant a list of remediations that needs to happen there. I think the other thing that's important to note, in terms of the impact on the U.S. business, Nashik has got much smaller in terms of revenue and in EBITDA than Indore was. We're also trying to qualify other plants and things to make sure that regardless of what the outcome is there, that we protect the business as much as possible.
Got it. Maybe shifting from that towards the business itself, new product launches will be a big part of your business, at least incremental launches. Could you discuss a bit more about the new product launches and the revenue potentially expect for 2025 and any pushes and pulls there?
Yeah. I'll give you a general comment, and then I'll kick it to Doretta to address individual launches within there. We project $450 million-$550 million every year in new product revenue. We've delivered that since the company was created in 2021 and beyond. Last year, we were ahead of the $450 million-$550 million with almost $600 million in new revenues. I think 2025 is going to be a very important year for us as well. 2025 will be. 2026, 2027 as well will be very important years for new product launches. We do have some significant product launches this year.
We continue to have confidence in that $450-$550 number that we've quoted. To Scott's point, we have a number of complex products expected to launch this year. Glucagon, we got approval late last year. We're in the process of launching. Other products in our pipeline include octreotide, iron sucrose, and liraglutide. Again, we've always talked about this $450-$550 being a combination of products, and that's how we have confidence in that number.
Important to note, I think, even though we call out a few that are important, it's a large series of launches that happen during the year. If one gets delayed, we can still make that $450-$550 number. We've got a lot of optionality.
Got it. I know that kind of 2025, definitely there's a reset happening with this facility impact, and investors will want to look at too. As we look at 2026, how should we think about the inherent growth in the business and potential margin trends too?
Yeah. Again, I'll give sort of a general comment, and Doretta can fill in the specifics. I sort of look at, based on everything that's happened and where we are with Indore, with the enterprise-wide cost-saving and structure project that we're looking at, and some other things. I look at 2025 as kind of a year where we're doing a lot of work to get us ready for 2026 and 2027 and 2028 and beyond, right? This is where we're here. We're going to do hard work. We're going to make sure the company's in the right place. We're doing a lot of work on the pipeline, both the base pipeline and the innovative pipeline, and the right kind of investments to make sure we've got good product flow. Again, both base business and innovative products over the next few years. We're doing the cost restructuring exercise.
We're doing a lot of things in 2025, which will help set us up for what we believe is going to be sustainable long-term revenue growth starting in 2026 and beyond.
Yeah. If you take a step back, even with respect to 2025, putting the Indore impact aside, we are demonstrating we feel good about the base business fundamentals. If you unpack that a little bit in terms of where that growth is coming from, we continue to see that as being sustainable. Europe, for example, we're continuing to see kind of broad-based growth there, really driven by not only new product launches, but also continued strength and volume growth in our generics business, as well as strength in some of our key brands like our Thrombosis portfolio, Creon, Brufen. Europe, we continue to see strength.
China, we also are continuing to see growth there, really driven by patient demand for our brands that are really iconic, treating chronic diseases, that is really treating a population in China that is just coming of kind of age for that type of product. I would also highlight in emerging markets, we continue to see strength there due to growth not only in the expansion of our cardiovascular portfolio, but just broad-based business volume growth across the region. We feel good about our base business fundamentals.
In addition to that, when we're talking about 2026 and beyond, there's sort of the things that we know or that we can see, right, which are what's in our pipeline, how the geographies are operating. We also have capital to deploy to bring in assets, right, hopefully accretive assets that can help build our revenue base and our EBITDA basis as we go forward here. The combination of the things that we're controlling internally, plus our ability to take our capital and build the portfolio and the pipeline at the same time, gives us good security about the growth profile that we can put on the company in the short to medium term.
Yeah. The things we're going to continue to monitor as we go through the year, obviously timing as it relates to Indore remediation activities, our product approvals and uptakes, but also we continue to look at FX. We continue to look at the macro policy environment, not only as it relates to tariffs, but kind of broader healthcare environment. We will continue to monitor that as we move towards the year.
Got it. It's been a few years since you embarked on the global Gateway model. An outcome of that is also that you are exposed to macro far more than before. Can you comment around this impact on the business from new tariffs? What could it mean between China, Mexico, and Canada? What could the impact be to the business?
Yeah. I think in general, again, I'll make a general comment here. It's very difficult for us to be able to predict what the tariff environment is going to look like, right, a month from now, two months from now, where this is going to land, what the real strategy is behind this. We do not at this point source a lot of product for the U.S. from Mexico, Canada, or China. We don't see any significant impact in the short term. I don't know if this is where this ends, where this lands. It's a very volatile, constantly changing environment relative to tariffs. It seems like there's news every day.
I think what we're trying to do is keep our ear close to the ground, try and have some people in Washington that understand policy, but also be flexible to adapt here, knowing that it's a very volatile environment. I don't think there's anybody who knows where this is going to land. I sort of look at it as an unknown to stay close to, but I can't give you a projection on whether it's a headwind or a tailwind in the near term.
Yeah.
No, I would agree. Just to add some flavor to what Scott mentioned, we have a global network of about 26 sites, several of which are based here in the U.S. As Scott mentioned, we're not highly dependent on either China, Mexico, or Canada for our products. About 50% of our revenue is imported primarily from the U.K., India, and Ireland. The rest of our products are local in the U.S.
Understood. Maybe just one on the outlook itself as we look at the year. Can you call out the phasing that we should expect through the year? Especially, I've been getting questions around Q1 too.
Yeah. Absolutely. As part of our recent earnings call, we did provide 2025 guidance. We provided the magnitude not only of Indore and FX, but we also talked about phasing and specifically called out an expectation of a seasonal step down in Q1, both from a revenue and an EBITDA perspective. Just to focus on Q1 revenue, just to provide a little bit more context and really in relation to kind of what we're seeing with respect to consensus, if you take a look at those pieces, we've talked about Indore, about a $500 million impact for the year. We anticipate about $150 million of that impact occurring in the first quarter, about 60% of that in developed markets, about 40% of that hitting emerging markets. The second piece is really FX. We've talked about a 2%-3% headwind for the year.
We expect about $100 million of that if you use today's spot rate to impact us in Q1. The only other thing I'd mention is there is some normal seasonality that impacts both Europe as well as JANZ in the first quarter, JANZ because of the normal kind of pricing that occurs in that region, in Europe because of Influvac.
Got it. Thank you. That's helpful. Maybe in the few minutes left, I do want to discuss the pipeline side of things too. I mean, as you got in Selatogrel, Cenerimod, and SOTA in the recent past too. So help us understand how this fits within the global infrastructure of the company and also, of course, the plans for commercialization of it.
Yeah. I think we're excited about all three of those assets. Last year, we were able to do a lot of things, simplifying the company, paying down our debt, returning to shareholders. One of the things I think we're most proud of is we were able to bring in three sort of unique, innovative assets in Phase III development that could have a major impact on the company long-term as we get into 2027, 2028 and beyond. If you take a look at the strategy for post-approval, if you look for the strategy for commercialization of the products, we've got 13,000 people in commercial organization worldwide in countries like Japan, China, Italy, France. We've got very large competitive commercial structures. We in those markets are somewhere between the first and 15th largest pharma company operating in those countries. We've got the right kind of people.
We need to repurpose some people. We've got a big cardiovascular business as it pertains to Selatogrel already in place. Where we're going to have to build, I think, is in the U.S. where we don't have a lot of customer-facing cardiovascular immunology people. Now, these are specialty products. You don't need huge sales forces, particularly in the U.S. I've built sales forces before. We got lots of people in the company who've done it before. I think we're very able and excited to be able to get the products, hopefully positive and approved, and start to build in the U.S. We do have good commercial structure in place already internationally, and it's a matter of focusing on the U.S. to build.
Understood. Maybe some quick comments around business development. I think we have seen a whole host of divestments and some recent deals in the recent past. What should we think about future BDs and what would the priority and preference be for you?
What I'm focused on right now is sort of building that bridge between now and when we get to 2027 or 2028. I'm looking for smaller, accretive things that we can leverage with the global organization that we have, looking to build up our revenue and EBITDA numbers off things which are de-risked, either already on the market, right on the market, ready to launch. I think we're focusing more on that than big M&A or things that are early in development. Late-stage, commercialized, accretive type of assets is really what we're looking for to build the company. Again, that's sort of our focus right now. I feel really good about the developing portfolio, both in the base business and the innovative business as we get out to 2027, 2028 and beyond.
I think we're really focused on assets which can generate revenue and EBITDA in the short to midterm.
it reasonable to assume that especially the smaller deals that you're looking at could be near-term too?
Yes, absolutely.
Yeah. We're just out of time, Scott, but maybe I'll just invite you to make some closing remarks around how you think about the longer-term direction for the company.
Good. No, despite some obvious challenges earlier in this year that we're taking head-on, I feel I couldn't feel better about where the company is. Again, seven consecutive quarters before this of operational revenue growth. We've streamlined the company. We've paid down debt very significantly. We put the company in a really good place to get into 2026 and beyond and really start to grow. Again, we've got sort of one more year of construction before we get there. I feel really, really good about what the future holds. Sector-leading cash flows, the diversity and scale of the company that we have, I think we're in a really nice position over the next year to five years over this period to really turn to long-term sustainable growth.
We want to continue to update people on not only Indore, but the enterprise-wide project and other things as we go through quarterly calls, but also look to have some investor events as we get to somewhere in the middle of the year this year, depending on how things go and when we feel good about doing that, talking about what the long-term plan looks like, long-term revenue plan, long-term EBITDA and EPS, talking about the pipeline and how it's evolving, and when we've got significant inflection points there, and also talking about our enterprise-wide projects to really take a look at the cost basis of the company. We hope to have a nice opportunity sometime in mid-year this year to really dig into the company with investors and start to talk about some of those things.
Got it. We'll definitely look forward to that and look forward to incremental updates on the various parts of the business too. Scott and Doretta, thank you so much for joining us.
Thank you very much.
I do wish you a very productive conference.
Thank you very much.
Thank you.