Viatris Inc. (NASDAQ:VTRS) Q4 2023 Earnings Call Transcript

Viatris Inc. (NASDAQ:VTRS) Q4 2023 Earnings Call Transcript February 28, 2024

Viatris Inc. misses on earnings expectations. Reported EPS is $0.61 EPS, expectations were $0.67. Viatris Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to the Viatris Q4 and Full Year 2023 Earnings, 2024 Guidance Call. All participants will be in a listen-only mode. [Operator Instructions] Also note, today’s event is being recorded. At this time, I’d like to turn the floor over to Bill Szablewski, Head of Capital Markets. Please go ahead.

Bill Szablewski: Good morning, everyone. Welcome to our Q4 2023 earnings call. With us today is our CEO, Scott Smith; President, Rajiv Malik; CFO, Sanjeev Narula; and CFO Elect, Doretta Mistras. During today’s call, we will be making forward-looking statements on a number of matters, including our financial guidance for 2024 and various strategic initiatives. These statements are subject to risks and uncertainties. We will also be referring to certain actual and projected non-GAAP financial measures. Please refer to today’s slide presentation and our SEC filings for more information, including reconciliations of those non-GAAP measures to the most directly comparable GAAP measures. When discussing 2023 actual results, we will be making certain comparisons to 2022 results on a divestiture adjusted operational basis, which excludes the impact of foreign currency rates and also excludes the results from the divested biosimilars business and proportionate results from the divestitures that closed in 2023 from the 2022 period.

When discussing our expectations for 2024, we will be making certain comparisons to 2023 results on a divestiture adjusted operational basis, which excludes the impact of foreign currency rates and also excludes the results of the divestitures that closed in 2023 from the 2023 period. With that, I’ll hand the call over to our CEO, Scott Smith.

Scott Smith: Good morning, everyone. 2023 was an outstanding year for Viatris in which we delivered strong operational results, streamline the company and finish the year with our third consecutive quarter of operational revenue growth. I am pleased to say that as we begin 2024, I could not be more excited about the future ahead. We are already executing on our vision for our next chapter. We continue to generate strong free cash flows. This provides us with the flexibility to balance returning capital to shareholders through share repurchases and dividends was continuing to fuel our base business and make strategic investments in future growth. As I’ve said, in addition to continuing to develop the three core therapeutic areas that we previously identified, ophthalmology, dermatology and GI, we are also going to be opportunistic in seeking out assets that fit our company well and have the potential to contribute significantly for our future revenue growth.

Today’s announcement that we’ve entered into a global research and development collaboration with Idorsia is a great example of this approach in action. We are bringing in two late-stage potential blockbuster assets with long-dated patent protection, and we are connecting Idorsia’s proven, highly-productive drug development team and innovation engine with our own strong existing infrastructure experience. We believe that together, we will be able to execute on the potential of these global assets and any future assets, as we work to deliver on our goal of building a more durable, predictable portfolio on the foundation of our strong base business. We believe that Selatogrel and Cenerimod can become meaningful components of Viatris’ business over the long term.

I’ll talk more about the deal in a moment, but first, 2023. We finished the year strong with full year results in line operationally with our 2023 adjusted guidance. Importantly, our fourth quarter results represent our third consecutive quarter of operational revenue growth, giving us good momentum going into the new year. We expect that momentum to continue into 2024 and beyond. In 2023, we delivered total revenues of approximately $15.4 billion, adjusted EBITDA of approximately $5.1 billion, and free cash flow of approximately $2.4 billion. We have already completed certain of our divestitures and are on track to complete all remaining divestitures by mid-year, subject to final regulatory approvals. Turning to 2024. Today, we are sharing our full year guidance ranges for total revenue, adjusted EBITDA, free cash flow and adjusted earnings per share.

Adjusted EPS will increasingly become an important metric to reflect earnings growth and balanced capital allocation for us in ’24 and beyond. From a capital allocation perspective, we continue to pay down debt and expect to reach our long-term gross leverage target this year. We are maintaining our dividend for 2024. We completed $250 million share repurposes earlier this year. Our Board of Directors has provided us with an additional $1 billion share repurpose authorization, to use at the appropriate time, bringing our total authorization to $2 billion, of which we have used $500 million and have $1.5 billion in authorization remaining. And earlier today, we announced a significant global research and development collaboration. Diving further into our Idorsia announcement, we are very excited about this new partnership.

The agreement combines Viatris’ financial strength and worldwide operational infrastructure, with a portfolio of novel assets that we believe will provide the foundation for accelerated top line growth. Viatris will receive exclusive global development and commercialization rights to two assets, Selatogrel, a potential life-saving self-administered medicine for patients at risk of recurring heart attack, and Cenerimod, a novel immunology asset that has the potential to be a first-in-class oral therapy for the treatment of SLE, with potential broad application across multiple other autoimmune diseases. The global collaboration also includes future optionality to expand the collaboration with additional pipeline assets in a transaction that minimizes near-term P&L impact and provides significant upside following Phase 3 readouts and regulatory approvals.

The addition of Selatogrel builds on Viatris’ existing global cardiovascular franchise and our deep knowledge and expertise in self-administered medicines for acute life-threatening conditions. Cenerimod has the potential to be a cornerstone asset in Viatris’ immunology platform, an area which I personally and our Chief R&D Officer, Philippe Martin, and others at Viatris have deep development and commercialization expertise. The agreement also highlights Viatris’ capability to identify depth and secure high-growth assets in areas of unmet medical need and do it in a way that reinforces our disciplined approach to capital allocation. We will be hosting an R&D event on March 27 in New York City, to discuss the collaboration with Idorsia and other elements of the company’s pipeline in more depth.

Before I move on, I want to take this opportunity to welcome Doretta Mistras, who will become our new Chief Financial Officer on March 1. Doretta joined us in January as CFO elect. She has been spending valuable time getting to know the company even better than she already did as a former Deputy Adviser. I’m pleased to have Doretta coming on board for what I expect to be an extremely successful next phase of Viatris. She’ll share a few comments later in the call. But now let me turn the call over to Rajiv as we continue our discussion of our strong fourth quarter and full year 2023 results and our expectations for 2024. Rajiv?

Rajiv Malik: Thanks, Scott, and good morning, everyone. As we close Phase 1 of our strategy, I’m incredibly proud of all that we have accomplished. We simplified but more importantly, stabilize the base business. We continue to deliver on our strong pipeline and are in the final stages of reshaping the company with remaining divestitures being on track. We believe that the stability of our core business and our deep pipeline positions the company very well for continued growth into ’24 and beyond. Let me talk to you a bit more about what we believe makes our core business stable. It is driven by the consistent and steady performance of our brand business, the sustainability of our generics portfolio and our ability to continue to bring to market our organic pipeline consisting of high-margin, durable and complex products.

Let me further expand this into three elements. First, our Brand business, which makes up about two-thirds of our portfolio, grew 1% in ’23, supported by brands like Yupelri and Effexor. We expect our branded portfolio to continue to build upon the success of 2023 and show a moderate growth. Next, is our Generics business, which now also includes our complex generics and makes up the remaining one-third of our revenue. This business was flat in 2023, and is expected to show a slight growth in 2024. The geographic and portfolio diversity, which includes a number of high-value complex products such as Wixela, Breyna and Xulane, rendered this portfolio inherent stability. The third driver of our stable base is our ability to execute on our pipeline.

This is the third consecutive year that Viatris has delivered at least $450 million in new product launches. In 2023, we made significant progress across our complex injectables, select novel and complex products and eye care pipelines. We launched Breyna, the first generic Symbicort and Lisdexamfetamine and several others. FDA accepted our NDA filing application for glatiramer acetate depot injection. We received FDA approval of Ryzumvi, an eye drop for the treatment of pharmacologically-induced mydriasis. And we received positive top line results for our Phase 3 trials of Yupelri in China. We also received positive top line results for our Phase 3 trial of Tyrvaya in China and subsequent NMPA acceptance of our NDA. For 2024, we are excited to continue to deliver on our deep pipeline and execute on several key launches that will expand access to patients.

For example, from our complex injectables portfolio, we expect to be an early entrant with our Sandostatin LAR product, liraglutide, a generic for Victoza as well as iron sucrose, a generic for Venofer. From our eye care pipeline, we expect to launch Ryzumvi. And from our novel and 505(b)(2) pipeline, we are excited to bring to market our once-monthly, glatiramer acetate depot for patients with multiple sclerosis, and we are pleased to present our latest data this week at [indiscernible], a key medical conference. We also continue to be laser focused on progressing our other pipeline assets, many of which are in Phase 3 stages such as Xulane low dose, Meloxicam and Effexor GAD. We are especially excited about advancing our eye care pipeline that has several programs in a Phase 3 aimed at addressing vision-related disorders such as Presbyopia, Night Vision disturbances and Blepharitis.

Let me now turn to the commercial segments and our expectations for 2024. In ’24, we expect total revenues to grow approximately 2%, which includes approximately $450 million to $550 million in new product revenue. Starting with Developed Markets. In ’23, Developed Markets declined by 1%. Our European business for the third consecutive year demonstrated operational net sales growth led by Italy and Spain, as well as contributions from new product launches. This helped us offset the decline in North America due to the expected impact of increased generic entrance to performance and higher competitive pressures on certain complex products, including Wixela and Xulane in the first half of the year. For 2024, we expect this segment to grow with both Europe and North America expected to grow 3%.

Europe’s growth is expected to be led by our strong brand portfolio including Brufen, EpiPen and products from our Thrombosis portfolio. In addition, we anticipate further growth in key markets, including Italy and France, and strong Generics performance aided by new product launches. North America is expected to grow by 3%, driven by the exciting new launches of GA Depot, Liraglutide and Sandostatin LAR. In addition, we expect to further strengthen our position of respiratory products like Wixela and Breyna. Yupelri is expected to continue its growth trajectory and grow by double digits. For the Eye Care portfolio, we expect further gains in 2024, resulting from the continued prescription growth in Tyrvaya as we expand access through patient fulfillment, coupled with the launch of new product, Ryzumvi.

The Tyrvaya TTC campaign launched in October has shown early indications of both increased patient responsiveness and performance as quarter four non-bridge prescriptions were up 18% quarter-over-quarter. Emerging Markets had another strong year, delivering 7% year-over-year operational growth in ’23. These better-than-expected results benefited from strength across our broader generics portfolio and stronger-than-expected performance from brands like Dymista and Viagra, led by markets such as Turkey, South Korea and Southeast Asia. Going into 2024, we are projecting this segment to grow by 6% year-over-year, primarily driven by our branded business. Moving to JANZ. Full-year ’23 came in below our expectations due to the continued impacts from the government-driven price regulations in this region, which we expect to continue into 2024.

We anticipate to partially offset the pricing dynamics with the ongoing strong volume growth from our three brands, including Amitiza, Creon and Effexor, as well as optimizing our Generics business. This segment is expected to decline by 8% in 2024. Greater China performed ahead of our expectations for the full-year 2023, delivering 2% growth, driven by strong performance of our retail channel in China. This is a result of our ability to adapt our business model to the evolving market dynamics. Going forward, we will leverage our investments to further expand the self-pay patient market and our brand equity in this channel which we expect will help to absorb some of the impacts from the government-implemented health care policy regulations.

With these dynamics in mind, we have modeled a 2% year-over-year decline for 2024. Before I conclude, I want to take the opportunity to thank the management team for their partnership over the years and all our employees who have helped us build a strong global platform. I’m very pleased with where we are today in Viatris’ journey, and the strength as well as stability of our core business, which is now nicely set up for continued growth from here onwards. With that, I’ll hand the call over to Sanjeev.

Sanjeev Narula: Thank you, Rajiv, and good morning, everyone. 2023 was another strong year across total revenue, adjusted EBITDA and free cash flow. Our results were in line or better than our expectations. We believe that the foundation we built sets the company up to deliver on our strategy and future growth outlook. Our guidance, as updated in November included a full year contribution from the divested businesses. As a result of certain transactions that closed in 2023, we’re adjusting our guidance on total revenue and adjusted EBITDA by $35 million and $20 million, respectively. Adjusted EBITDA included $105 million of acquired IP R&D, primarily related to upfront licensing payments. Please note, we do not include acquired IP R&D in guidance for future periods, as it cannot be reasonably forecasted.

Free cash flow was impacted by approximately $235 million associated with the divestitures, including transaction costs and taxes. Excluding this impact, free cash flow would have been $2.64 billion on a full year basis. This was the third consecutive quarter of operational revenue growth, and we continue to see solid performance across Developed Markets, Emerging Markets in our Greater China segment. Excluding the impact of divestitures, revenue grew over 1%. During the last earnings call, we noted that adjusted gross margin would moderate in Q4 due to the timing of segment and product mix. On a full year basis, adjusted gross margin came in at the high end of our expectation at 59.1%, driven by strong brand performance. Adjusted SG&A and R&D included certain investment we made in Q4 to support future revenue growth.

We had another strong year of free cash flow generation, reflecting our underlying operational performance and continued priority on cash optimization initiatives. Free cash flow in the fourth quarter was impacted by transaction costs and taxes related to the divestiture. And excluding these items, would have been $454 million. It is important to reiterate that gross proceeds from the divestiture benefit cash flow from investing activities, while the related taxes and transaction costs are included in cash flow from operating activities. The strong free cash flow generation over the last three years exceeded $7.5 billion, and has enabled us to deliver on our financial commitment. This included debt paydown of greater than $6.6 billion, and a return of approximately $1.8 billion of capital to shareholders.

These positive actions taken by the company reinforce our continuing commitment to an investment-grade rating and an expectation of increasing the return of capital to our shareholders. For 2024, our guidance includes the estimated full year results from the divestitures that have not yet closed. The expected timing of closing of divestitures will impact reported results for the next few quarters. We will provide future adjustment to guidance as remaining divestitures close. The anticipated driver for 2024 total revenue guidance include growth of approximately 2% operationally versus 2023, and expected new product revenue of approximately $450 million to $550 million, and a growth from our Eye Care division. As a reminder, guidance currently includes approximately $1.1 billion of total revenue on a full year basis from the remaining divestitures.

The driver for adjusted EBITDA include contribution from new product launches and revenue growth, moderation in gross margin relative to ’23 levels due to anticipated product and segment mix and increased R&D primarily related to Idorsia collaboration. The estimated adjusted EBITDA from the remaining divestiture is approximately $320 million on a full year basis. We expect to generate approximately $2.5 billion in free cash flow in 2024 before any divestiture costs and taxes. Lastly, we’re providing adjusted EPS guidance as a measure of our expected earnings growth moving forward. Estimated shares outstanding include the benefit of share buyback executed earlier this month. Now a few comments about anticipated phasing in this year. Total revenue is expected to be higher in the second half due to launch of new products and normal product seasonality.

Taking into account the phasing of revenue, margins and investments, we expect adjusted EBITDA and free cash flow to be evenly phased between first half and second half. And in general, free cash flow tend to be lower in quarter two and quarter four due to timing of semiannual interest payments. In the revenue guidance walk, the 2023 adjusted number of $15.2 billion excludes the result of divestiture that closed in 2023, and includes anticipated foreign exchange headwinds. We expect reported adjusted EBITDA to be impacted by the benefit of approximately 2% total operational revenue growth, estimated impact of foreign exchange, divestitures that closed in 2023, and Idorsia R&D investment and impact of IP R&D. Taken these items into consideration, we expect adjusted EBITDA for the base business to be stable this year.

We have pivoted to a more balanced capital allocation approach. This includes a focus on capital return and business development. The Idorsia R&D collaboration represents a disciplined approach, with a modest upfront payment of approximately $350 million. The license structure serves to minimize and share the future development expenses for the program while providing potentially significant upside economics. The Board has maintained the annual dividend policy of $0.48 per share in 2024. Earlier this month, the company has repurchased approximately $250 million in shares of common stock. The Board of Directors has increased our existing share repurchase authorization by an additional $1 billion. We anticipate excess cash will be used opportunistically for additional buyback in future.

Lastly, we expect to continue to strengthen our balance sheet with debt paydown of approximately $3.5 billion this year to reach our long-term growth leverage target. Before I close, I want to take this opportunity to thank all of our colleagues around the world and a special call out to my finance team for their extraordinary work over the last four years. I’m extremely proud of what we’ve accomplished together. I would be remiss if I did not acknowledge our management team and the Board of Directors for the opportunity to serve as the Chief Financial Officer of Viatris. Viatris in its strongest financial position here. The foundation is solid and will ensure its ability to make a real difference in patients’ lives for many years to come. Now, I’d like to turn it over to Doretta.

Doretta Mistras: Thank you, Sanjeev. It’s an honor to be here, and I look forward to working with Scott and the rest of the management team to execute on the company’s growth strategy and capital allocation priorities. Prior to joining Viatris, I had the benefit of working with the team as an adviser. I have helped companies across the health care industry drive shareholder returns for the past 20 years. This gives me a strong appreciation for the unique position that Viatris is in today, to create significant value for our shareholders, given the diversity of the business and the stability of the cash flow. With our gross leverage target in sight, I believe the company is striking the right balance with respect to business investment and capital returns.

I expect that with the strong foundation we have coupled with thoughtful capital allocation, we will be a strong adjusted EPS growth story in the future. As Scott mentioned, the Idorsia collaboration is a great example of the kinds of deals we’ll continue to evaluate. This collaboration has the potential to enhance our growth profile by delivering a strong portfolio of branded, patent-protected assets targeting significant unmet patient needs, while leveraging our capabilities in therapeutic areas where we have differentiated insights. Additionally, the transaction was structured in a way that deploys capital judiciously and creates the potential for asymmetric returns for our shareholders relative to the quantum of capital deployed. Now, I’d like to turn it back over to the operator for Q&A.

Operator: [Operator Instructions] Our first question today comes from Christopher Schott from JPMorgan.

Christopher Schott: Just had a question on business development, just building on some of the comments from the prepared remarks. Just as you think about business development opportunities, how do you think about balancing I guess, kind of R&D deals that may be come with a bit more risk like we saw today. It could be a nice opportunity upside, but have some risk with them versus maybe more in-market transactions or in-licensing of already approved drugs that maybe have potentially lower returns, but a bit more certainty. I’m just trying to sense, is there a bias one way or the other? Are you seeing more opportunities in one bucket versus the other?

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Q&A Session

Scott Smith: Thank you, Chris. Thank you for the question. And I think we’re going to look at all manner of opportunities in order to build the portfolio. I think licensing, partnering, M&A for in-market assets is something that we’re looking at. I also think we’re looking at broader licensing agreements. In this case, we’re looking at two Phase 3 assets, I believe, that are relatively derisked that have real blockbuster potential. I think Doretta said asymmetric — the potential for asymmetric return, which I believe is the case here. In terms of Phase 3 assets, we also have an ability to affect the development and the registration strategy and of course, the commercial strategy going forward. So there’s some benefits, I think, to do anything at this stage.

But certainly, we’re going to look at all manner of opportunities and able to build the portfolio in the right way in the future. And just one comment is, I think the solid base of the company that we built through ‘21, ‘22, ‘23 and into ‘24 really provides us that opportunity to look for appropriate business development opportunities to build off that base and grow in the future.

Operator: Our next question comes from Glen Santangelo from Jefferies.

Glen Santangelo: Just maybe to build on Schott’s question. Scott, what should we expect at this upcoming R&D Day. I mean it seems you’ve been pretty clear that the hope was always to use half the available free cash flow towards business development? And do you still expect that to be the case? Or based on your time in the seat, do you see more opportunities maybe than what you originally thought? Or because now it seems like you laid out your preferred therapeutic areas, and we’re buying outside of that. I’m just kind of curious to get your take on the market for these assets and what you’re planning at a high level to discuss at R&D Day.

Scott Smith: So I think, first of all, thank you for the question, Glen. Our capital allocation plan is not changing. Going forward, we plan to deliver return to shareholders through share buybacks, which we’ve initiated in ’24, and done $250 million of dividends and then also looking for business development opportunities. As I’ve said many times before, we’re going to look at the core therapeutic areas, dermatology, GI, ophthalmology, but we’re also going to be opportunistic outside of those areas to find assets that fit what we do best. And in terms of these two assets, I think they fit what we do very, very well. We have $2.5 billion in cardiovascular revenue. globally. And so we take a look at that. I think Selatogrel fits very well into the pre-existing expertise and drug, can play across multiple different therapeutic areas, including dermatology, GI, neurology, rheumatology.

And so I think these two assets fit our portfolio very, very well. And again, we’re going to look at our three core areas, but we’re also going to try and be opportunistic to look for opportunities outside of that. In terms of what we’re going to cover in the R&D Day, we’re going to do — we’re going to cover the — we’re going to do a deep dive into the two assets that we’re talking about here, Selatogrel and Cenerimod. We’re going to also talk about other opportunities in the pipeline that we have that we’re developing, Eye Care, as well as some other things in the pipeline. So it will be a full pipeline review, but a main focus will be on Selatogrel and Cenerimod, including having some KOL thoughts and expertise.

Glen Santangelo: Maybe I just ask Sanjeev a quick follow-up on the guidance. In your slides, it seems, and I think you sort of commented on this a little bit that we should expect revs to be higher in the second half of the year versus the first half of the year. I’m assuming that excludes the impact of divestitures. So I just wanted to confirm that. But you also suggested that EBITDA and cash flow would be evenly phased sort of first half versus second half. I was wondering if you could just sort of comment a little bit on the cadence of how we should expect this year to play out.

Sanjeev Narula: Right. Thank you, Glen, for the question. So you’re right. So the revenue for the businesses. So first of all, this guidance includes the businesses that has not been divested as yet, and I had given the full year impact of that in my prepared remarks. So you can actually see and get to kind of like a pro forma number, what that would look like for 2025, if you’re looking at modeling. So during this year, on the total business, before any divestment, the second half is going to be higher on revenue, and that’s just a function of how the business is. New product revenue that Rajiv talked about $450 million to $550 million, a lot of that new launches are happening in the second half of the year, right? That’s one.

Second is the product seasonality, some of that we have in Europe, that happens in the second half of the year. So that’s just a function of some of that happening. In terms of gross margin, you will expect a little bit of a moderation in the second half. Again, that’s again, a segment and the product mix, a lot of the pricing impact happens in the later part of the year that will impact the gross margin from there. And then typically, the expenses pick up in the second half of the year, and that kind of — that impacts. When you put all those things together, the EBITDA and cash flow is going to be evenly phased. The other thing to keep in mind, Glen, is if you’re looking at cash flow on a quarter-to-quarter basis, quarter two and quarter four tend to be lower for us because of our semi-annual interest payments that we have.

And that kind of drives that and that’s why you will see quarter four of this year and quarter two last year, both were lower than quarter one and quarter three. So that’s the overall kind of trending on the cash flow. The other point that I would talk about it is, as and when these divestitures close, and we’ve given kind of in our slides, Women’s Health and the API business will close kind of in the first half of the year and the OTC business probably in the middle of the year. We will provide the guidance update as and when those close, so that you can have a sense on what the impact of that. And then we will provide the revised guidance so that kind of secondary, you have a transparency of that.

Operator: Our next question comes from Balaji Prasad from Barclays.

Balaji Prasad: So while I don’t want to front run your R&D Day, clearly, I want to understand the deal announced today. Firstly, with both Selatogrel and Cenerimod, I’d love to understand the differentiation. While you look at the acute MI landscape, a couple of approved drugs, including Activase. So help us understand the gap in the current treatment and how much more rapid or short-acting Selatogrel is versus current treatment. Also same question on Cenerimod, too. Just following up on this, I see that Idorsia will contribute around $200 million in the next three years. Is it fair to assume that Viatris will also be contributing an equal amount?

Scott Smith: Yes. Thank you very much for the question, Balaji. We’ll be contributing just to start at the back. We’ll be contributing as well. I’m not saying it’s equal, but the two companies will be contributing, and Idorsia will be contributing up to $200 million in the development programs going forward. In terms of product differentiation, I’d like to turn it over to Philippe Martin, our Head of R&D. Just to talk a little bit about some of the differentiation he sees at a very high level. And these are the type of things that we’re really going to dig into when we get to the R&D Day later in March. And take a very strong deep dive talking about the assets differentiation, where we think they’re going to play therapeutically, et cetera. But just to give a couple of initial thoughts on that, I’ll hand it over to Philippe.

Philippe Martin: Thank you so much, Scott. Yes, just to target Selatogrel, I think at a high level, Selatogrel targets the crucial time between the symptom onset and the first medical attention. That’s a time where currently, there is really no treatment for these patients, and that’s a critical time when the heart muscle can be impacted. So that’s clearly a different positioning in the treatment paradigm for Selatogrel. I think for — you didn’t ask for Cenerimod really, but I think Cenerimod in terms of differentiation, clearly, we’ve seen a very strong Phase 2 data that supports a differentiated and highly-competitive benefit risk profile. We have fast track designation for this asset. And together with Selatogrel, I would say that the strength of the regulatory interactions bodes well for the future of the two assets.

We have a spine in place for Selatogrel. And that gives you a good view on the agency support for the critical elements of our pivotal protocol design. So really a benefit risk differentiation that comes through for these two assets, and we really think they have the potential to shift the treatment paradigm in these two areas of high-unmet medical need.

Scott Smith: So just to add on to what Philippe said quickly before we go to the next question. And part of the excitement around Cenerimod is, Philippe and I have both been involved in the development, registration and commercialization of S1P molecules in the past. It’s a broad immunomodulatory drug that we can take a lot of different places. The initial indication is SLE. But as you know, there’s proof of concept of S1P molecules and things from multiple sclerosis, IBD, certainly in skin dermatologic conditions, including psoriasis. So it could be ripe for a real indication expansion once we get through the first indication. I think it could play in a lot of different therapeutic areas. So we’re excited about it as well.

Operator: Our next question comes from Nathan Rich from Goldman Sachs. Once again, the next question comes from Nathan Rich. [Operator Instructions].

Sarah Conrad: Can you hear me now?

Operator: I can hear you now. Yes.

Sarah Conrad: Perfect. This is Sarah Conrad on for Nate. I just had a quick question on the Eye Care franchise. So ahead of your second eye care launch, Ryzumvi, in the first half. How are you approaching the commercial launch? And can you give us any details on plans to drive uptake? And then when we’re modeling this, how should we model the product ramp compared to Tyrvaya and the timing of the associated expenses?

Scott Smith: So thank you for the question. Let me hand it over to Rajiv to talk specifically about the eye care division and Tyrvaya, and I’ll comment afterwards.

Rajiv Malik: Yes, thanks. I think we started with the DTC as we informed in the last Q3 earnings. We started with the DTC program in October, Q4, in the quarter four, non-bridge prescription saw about 18% increase. So all the indications are very solid, and we are seeing that expansion of the excess. And we continue to be very optimistic, and we are more optimistic now with the follow-on launch of Ryzumvi earlier this year. Again, we will see a little bit more momentum behind that. And more importantly, all the pipeline programs, which we acquired along with this, they continue to also progress well, as we have indicated earlier.

Sanjeev Narula: In terms of, Sarah, the ramp for Tyrvaya. So clearly, the expenses we are incurring. So you’ll see an evenly phased expenses because DTC is happening as we speak for the year. And revenue as these prescriptions pick up, we’ll obviously — each quarter is going to be better than previous quarter for modeling purposes.

Scott Smith: Just a comment for me on the Eye Care division. We’re very early days here, right? We’re in the launch phase of Tyrvaya the first product. We’re going to be launching the second product very, very quickly here. And there’s a whole pipeline of assets, five or six further assets in development that we can bring forward. So we’re very hopeful and aspirational that the eye care division is going to be a very important part of our business as we go forward. We’re looking forward, as Rajiv said, we’re looking forward to see more data to see the effect of DTC and see a further ramp in the business, but we’re excited about the business overall.

Operator: And our next question comes from Ash Verma from UBS.

Ash Verma: Yes. Congrats on all the progress. I had two questions. One on the pipeline. So for Selatogrel, for the Phase 3 readout, do you think this is a big binary risk type of program? And also as a commercial opportunity, how do you expect patients to accurately identify their heart attack symptoms and self-inject under an emergency situation? And then second one, I wanted to get your thoughts on the — there is an FTC examination going into PBMs and wholesaler business practices pertaining to putting undue pressure on generics. What do you expect to come out of this process? And do you believe generic pricing could get favorable as a result of this?

Scott Smith: Thanks, Ash. So in terms of Selatogrel, I believe there’s approximately 6,000 patients already enrolled in the Phase 3 program. When we take a look at it from the Phase 2 data and what’s going on in Phase 3, we think it’s relatively derisked as an asset. In terms of the detailed question you asked on patient self-diagnosis and self-injection and identification of patient subsets, that’s kind of thing that we’re going to get into, again, in R&D Day on March 27. We’ll do a deep dive not only on the development programs, the regulatory strategies, but also sort of our commercial strategies as well.

Rajiv Malik: And as to your follow-on question on the FTC inquiry, I think we have already seen some stabilization in the — as far as the pricing is concerned. Obviously, when such investigation is on, there’s a little bit of decent oversight. And I believe our customers already appreciate — our industry has almost hit the rock bottom. And that’s why you’re seeing drug shortages and all those things and everybody is taking attention of that. And our dialogue with our customers have changed from the — always the cost, cost, price, price, price to availability, uninterrupted supply, the quality of supply, as well as new products. So I believe this is going to be good for overall the health of the industry, the generics industry.

Operator: And our next question comes from David Amsellem from Piper Sandler.

David Amsellem: So just have a couple. First, just wanted to pick your brain a little more on how you’re thinking philosophically about business development. Oyster Point was an outright acquisition. This is more of a risk sharing type of arrangement. So I guess the question is, this transaction you announced today, is that more of a harbinger of things to come in terms of what you’re looking for, in terms of a smaller type of upfront payment with milestones and royalties. How philosophically are you thinking about that? Or are you really just really casting a wide net. And then secondly, just following up on the base Generics business and all solid, you talked about stabilization. Can you just talk about how you’re managing the commercial portfolio and the extent to which you’re looking to cull lower margin assets, and how we should think about the mix between oral solids and other dosage forms in the coming years?

Scott Smith: Thank you, David, for the question there. So when I look back at the deals that I’ve been involved with and over my career, probably by well over 100 deals that I’ve worked on and been involved with. I would say the majority of them we’re partnering, licensing of some sort. We have an extraordinarily strong base and global reach from a commercial perspective in this company. So I think the idea of in-licensing partnering assets is one that works very well for us. But we’re going to throw a wide net. We’re going to look at all manners to build the portfolio, use our capital correctly. We’ll look at M&A, but we’ll also look at licensing and partnerships. At the end of the day, they’ll probably be a little bit more of the latter, given that they’re a little bit less initially capital-intensive and also sort of risk sharing to some extent.

But again, what we’re looking to do, we’ve got a very strong global commercial network out there, and we’re looking to utilize that the best we can, bring in assets that fit what we do best, and we’ll do a combination of partnering licensing acquisition with all the things that we need to do to build the portfolio.

Rajiv Malik: And, David, to your second question, I think your more question is about the U.S. or Generics portfolio, but I’ll answer it comprehensively in the sense that, globally, we have two-thirds of the brand, established brands, iconic brands. Every market has a different needs. We continue to look into the market-specific needs of those markets, and what do they know — need it from the next 2, 3, 4, 5 years. But overall, we take a — over the last three, four years from the U.S. point, at Generics point of view, we took a hard look into our portfolio. The focus was our access, how can we continue to provide access to the affordable and quality products? And wherever we saw that cost was not up. Price was not the only reason, but if we see more than 10, 15 players out there.

Yes, we rationalized a number of products. We rationalized more than 300, 400 products just to take some volume off and focus on more complex, more hard to make where, again, somebody needs to take a lead and bring access to those products like Wixela, Breyna and complex injectables. So we are continuing to be focusing on where we can make a difference. Access is always at the center. And of course, at a point in time, if we believe that something is not making sense economically, as well as there are from the supply point of view, there are a number of players out there. We do take off certain products off. And that’s when I think every company, every other company has also followed the same thing.

Operator: Ladies and gentlemen, our final question today comes from Jason Gerberry from Bank of America.

Jason Gerberry: Just wanted to follow-up on the BD strategy and mindful that you have presence in sort of cardiology, say, OUS. I guess, like, what investors would see is that most of the value in innovative brands tend to occur in the U.S. market. So is the thinking here like you’d be in potentially four or five therapeutic areas, and that’s going to entail sort of an investment both in more deals and scale up to be competitive in those categories. As we look at like a category like rheumatology, we see companies in the I&I space having to generate a lot of investment to be competitive in those areas. And I’m sure you could appreciate that from your time at Celgene. So just trying to think through what this will look like from a P&L investment standpoint and further BD to be competitive in these therapeutic areas.

Scott Smith: So I think, first of all, from my perspective, the most difficult thing in this business is to find impactful assets that you can develop to become blockbusters that are patented with long-term revenue streams. That’s what’s hard. I think building the commercial structure around that is relatively easy if you have an asset that can really play and be impactful. We’re going to be opportunistic. We’re going to look at our core therapeutic areas. We’re going to look outside. We’re going to find things that fit. We’re going to find things that fit with the appropriate investment that we can make as a company. And so we’re dedicated to, again, finding the kind of assets that can really, really drive business. Certainly, we’ve got a very solid base business that we see growing at a couple of percent a year as we move forward.

and looking for things that can provide durable, sticky, long-term revenue stream for us, is what we’re really after here. And we’re going to do it in a smart and disciplined way. And we’re going to find areas that we can be competitive and leverage off the existing infrastructure as much as we can.