Matthew Walsh : Thanks for the question, David. On the first part, I’ll take that one. So we are and have been managing the business pretty tightly. From a cost perspective, most of the increases that you’ve seen in our reported results, whether it’s in the SG&A line or the R&D line, have been for revenue-producing activities in the future so that we can sustain our long-term revenue growth rate. That said, as regards what you might refer to as infrastructure costs, administrative costs, et cetera. We’re going after those, hard to manage those as tightly as we can. And so just we’re rest assured that we’re really examining the cost structure hard to make sure that we’re differentiating from revenue-producing costs that represent investments in the future, and any costs related to running the business from an administrative perspective, we are clamping down on those.
Kevin Ali : And David, in regards to your second question regarding Biosimilars, I’ve always maintained that biosimilars is really an opportunistic — an opportunity for us in the short to medium term. I look through, I guess, the end of the decade, when you have, say, for example, I/O is coming off a patent. There’s going to be still a very robust market there. Hadlima, our Humira biosimilar is definitely slower than we had anticipated. But when you start to think about kind of our share of total prescriptions, we’re 3x greater than our nearest competitor that launched in the July timeframe. So to me, it is a question — more a question of when, not if this market will start to open up. You’re talking about the fact that 1/3 of the patients currently today are spending about $1,000 out of their pocket every month for co-pay cost for Humira, still to this day, even after LOE.
And when you consider the fact that 2/3 of — it’s estimated that 2/3 of Americans today are moving check-to-check. I truly believe that over time that, that market will start to open up on its own, and it will be something where we are talking about more of a linearity to our Hadlima business going forward as opposed to that kind of quick peak and then on the other side coming straight down. So it is something that we believe in the biosimilar franchise. That’s very opportunistic for us, and we’ll continue to treat it is as so. Because remember, the return on invested capital is very good. We don’t spend a lot of money in regards to our biosimilar franchise in regards to boots on the ground or any other type of resources. So it’s a very healthy return on that.
So we feel good about it for the time being.
Operator: Our next question comes from the line of Jason Gerberry with Bank of America.
Bhavin Patel: This is Bhavin Patel on for Jason Gerberry. Two questions from us. The first is on free cash flow. It seems like the lower $700 million to $800 million free cash flow target from $1 billion previously is mainly due to net working capital use as well as lower EBITDA outlook. So how likely is this net working capital use impact to carry over into next year? Do you think that we should start thinking about $700 million to $800 million of free cash flow as an annual benchmark? Or do you see it possibly getting back to $1 billion annually next year? And then the second is on capital allocation. Notice these plans for further debt paydown in 2024. So can you frame any sort of leverage ratio target or at least how you may balance the debt paydown with business development and paying dividend?
Matthew Walsh : Okay. So we’ll take the free cash flow question first. We started the year with an anticipation of in round numbers, about $1 billion of free cash flow. We have had to take that back given developments this year, as we noted, related to lower EBITDA as well as the investment in net working capital. Now the latter is temporary, okay? That will come back out of the business. We will be fully through the implementation of our global ERP system in the second quarter of next year. So working capital should work its way back into our bank accounts as cash, sort of more or less ratably over that timeframe. And so we do see that the business should return to a higher level of free cash flow generation next year. And when you combine that with the fact that we expect to see lower onetime costs from the separation next year, we’re actually quite optimistic about what next year’s free cash flow number will look like and when we guide to that in February.
In terms of capital allocation, we’ve been, since the spin-off, trying to achieve a balance of capital allocation between investments and growth for the future, and balancing that against the near term and certain benefits of leverage reduction. That equation has been tilted a little bit more, given where interest rates have gone, the near-term benefits of debt reduction look more attractive. So as we’ve said in the past a few times, it raises the bar on the type of business development and M&A transactions that we would execute. And that’s one of the reasons why you’ve seen, relatively speaking, a lower level of activity in BD in 2023 than you saw in 2022. We continue to believe that the business — the cash flow profile that the business exhibits supports a dividend, certainly at the level that we have.
There’s no plans to change that in the near term.
Operator: Our next question comes from the line of Chris Shibutani with Goldman Sachs.
Roger Xu: This is Roger on for Chris. Just one quick question from our end. So just given the updated statements from the FDA recommending that all labeling for biosimilars include one statement, the biosimilarity statement, can you comment on how you view this change and whether this act as a tailwind or headwind for the uptake of Hadlima?
Kevin Ali : Yes. Look, listen, that’s a draft statement right now. It’s in draft form. It’s not necessarily going out in terms of what people need to do right now, but I think it’s eventually going to take hold. What I do believe is we’ve already made the investment in interchangeability. We — the data has already come on very strong with our partners at Samsung Bioepis we believe that we’ll be able to launch our interchangeability indication, probably sometime in the second quarter — end of the second quarter, beginning of the third quarter of next year. It will definitely, I think, help us in terms of being a tailwind. What we’re seeing playing out in the market today is the fact that interchangeability, especially at the pharmacy level, will be able to have an easier switch for patients when they get to the pharmacy, they’ll understand that do they want to, for example, pay $1,000 a month or — as a co-pay or do they want to pay $100 or whatever it is, it’s going to be in that particular plan.
