Good morning. My name is Todd, and I will be your conference operator today. At this time, I would like to welcome everyone to the Viatris 2023 Second Quarter Earnings Call and Webcast. All participant lines have been muted to prevent any background noise. After the speakers' remarks, there'll be a question-and-answer period. Thank you. I will now turn the call over to Bill Szablewski, Head of Global Capital Markets. Please go ahead.

Good morning, everyone. It is my pleasure to welcome you to our second-quarter 2023 earnings call. With us today is our CEO, Scott Smith; President, Rajiv Malik; CFO, Sanjeev Narula; and Jeff Nau from our Eye Care division. During today's call, we will be making forward-looking statements on a number of matters, including our financial guidance for 2023 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 today's slide presentation and our SEC filings for a full explanation of those risks and uncertainties and the limits applicable to forward-looking statements. We will be referring to certain actual and projected non-GAAP financial measures to supplement investors' understanding and assessment of our financial performance. Reconciliations of those non-GAAP measures to the most directly comparable GAAP measures are available on our website and in the appendix of today's slide presentation. An archived copy of today's presentation and other earnings materials will be available on our website following the conclusion of today's call. With that, I will now hand the call over to our CEO, Scott Smith.

Good morning to everyone on the call. I’m pleased to report that the second quarter of 2023 was one of the strongest quarters we've had to date at Viatris. I could not be more pleased with our overall execution. The positive momentum of the base business continues to push us forward. We are laser-focused on delivering our pipeline and are excited about new product launches. In the second quarter, we delivered total revenues of $3.9 billion, representing approximately 2% year-over-year growth on an operational adjusted basis and adjusted EBITDA of $1.3 billion and free cash flow of $447 million, both of which were ahead of our expectations. Based on our performance this quarter and in the first half of the year, we are reaffirming our full-year financial guidance for 2023. These results signal the beginning of what we expect to be a growth journey for Viatris and set us up well for future success as we prepare to bring Phase 1 of our strategic plan to successful completion and initiate Phase 2, beginning in 2024. While I'm proud of our strong performance, the foundation the company has built and the stability and predictability that we believe have clearly been achieved. My focus is on the future and on the trajectory of the company moving forward. Now let's turn our attention there. On executing our planned divestitures, we are on track to announce all transactions in 2023. As we said, executing these planned divestitures is a matter of strategic choice, not a necessity. I am extremely pleased with where we are in the process. We are currently in advanced stages of discussions with potential buyers and anticipate announcing at least one significant divestiture in the third quarter, possibly more. As a result, I will not be in a position to take any further questions on this topic during Q&A today, but very much look forward to discussing it in detail with you at an appropriate time in the future. The company has laid out a clear capital allocation of business development priorities for Phase 2, and we are fully dedicated to executing on these priorities, which will allow us to continue our move up the value chain. We intend to earmark approximately 50% of our free cash flow annually to be returned to shareholders in the form of dividends and especially share repurchases. With the remaining capital, we intend to invest in our businesses, both organically and inorganically. I continue to be focused on looking for strategically significant transactions in ophthalmology, gastroenterology, and dermatology, as well as evaluating other therapeutic areas should the right opportunities arise. It's become apparent to me that there are many assets that could fit our needs and are transactable. I am optimistic about our ability to execute high-quality business development deals, not only through M&A but also through strategic licensing agreements and partnerships when the time is right. In summary, I am very proud of our execution to date, the health of the company, and the strong foundation that has been built. Looking ahead, I believe in the future trajectory of the company and I'm very excited for what's to come. I will now turn the call over to Rajiv to provide you with an update on our operations and our pipeline and then to Sanjeev who will give you more details of our financial results, 2023 guidance, and capital allocation activities. Rajiv?

Thanks, Scott, and good morning, everyone. Our strong performance this quarter highlights the momentum of our business like never before and further reinforces the predictability of our base business, which is well-diversified from both a geography and portfolio point of view. The performance of the last 10 quarters demonstrates that our business model of bringing access has never relied on any one product or any one market. That strength of our underlying business is enabling us to position the company well for Phase 2 growth. Our continued new product revenue performance is another key feature of our plan and for this year, again, we remain on track to deliver on our expectation of approximately $500 million of new product revenue. As I provide the commercial segment highlights for the quarter, I will be making certain comparisons on an operational basis, which excludes the negative impact of foreign currency rates versus the plan that supports our financial guidance. In addition, I will be making certain comparisons to our Q2 2022 results on a divestiture-adjusted operational basis as defined in our earnings release. This quarter total net sales grew 1.5% on an operational basis due to a strong performance across various geographies and product portfolios. We believe achieving this top-line growth for the first time as Viatris demonstrates the power of our platform, well-thought-out strategy, and our consistent execution. Let me get into our commercial segment highlights. Our well-balanced business of developed markets, where brands make up approximately 55% of our net sales in quarter two, delivered another strong quarter. Europe performed ahead of our expectations, delivering 2% year-over-year growth on an operational basis. Italy, Spain, and the UK, as well as several other markets, drove the strong momentum for the quarter. The solid performance of generics in Europe was another contributing factor. Our North America business was flat year-over-year on an operational basis and also performed ahead of expectations. Generics delivered a better-than-expected performance, led by lenalidomide, Wixela, and Xulane. Our brand business was supported by strong demand in the epinephrine market and Yupelri, which grew 12% this year over last year. Yupelri, which is the only nebulized long-acting muscarinic agent available in the market, continues to show significant growth and enjoys about a 30% market share in the broader long-acting nebulized COPD market and is well on its way to becoming the number-one product in this space. Our new launches in North America are on track, and we are very excited about our recent introduction of Breyna, our generic Symbicort. We expect that this launch will be 180 days first-to-file generic exclusivity, which is subject to FDA's future determination of the issue if and when another ANDA filer becomes eligible for final approval. For the second half of the year, we believe the developed market segment is poised for year-over-year growth, and we remain confident to meet or exceed our full-year expectations of both North America and Europe. Emerging markets had another strong quarter and delivered 10% year-over-year operational growth, led by the stronger-than-expected performance of generics and brands like Lipitor, Lyrica, and Celebrex. Emerging Asia and the Middle East were strong-performing geographies. We remain confident that this segment will deliver better than expected for the full year and grow versus the prior year. JANZ performed in line with our expectations and we anticipate continuing to meet our expectations for the full year. In Greater China, we delivered 1% operational growth in this quarter, primarily due to Viagra and other retail-driven products in China. We remain on track to meet our planned expectations for the year. Our team in China has been focused on continuing to expand our presence in the private channel while navigating and managing the evolving policy dynamics on the ground. We have also been very focused on building and expanding our pipeline of new products in China. To that end, our NDAs for Dymista and for Formed received approval from SFDA in this quarter. In addition, our partner's NDA for Tyrvaya was also accepted, while eight other products are under active review. Moving to Eye Care. Tyrvaya’s launch continued to progress as planned in its second quarter as part of Viatris. During the quarter, Tyrvaya's bridge program was optimized to drive increased value per script and achieved the highest quarterly TRX launched to date. Furthermore, we remain focused on maximizing its potential, including increasing share of Medicare prescriptions, driving continued growth in total prescriptions, and launching the brand's first direct-to-consumer campaign in the fourth quarter, which together, we believe provides support for our near and longer-term expectations for the brand. We are also excited by the continued progress of our eye care pipeline, which is aimed at addressing a range of vision-related disorders. Our NDA review of MR-140 for the reversal of mydriasis program is under active review with a PDUFA date of September 28 of this year. We have completed patient enrollment in the first pivotal Phase 3 trial of MR-141 for the treatment of presbyopia and expect top-line data in Q3 of this year. And we remain on track to initiate the second Phase 3 trial later this year. We have initiated patient enrollment in the first Phase 3 study, MR-148, for the treatment of Dry Eye Disease and expect top-line data in 2024. We are initiating a Phase 3 program of MR-139 for the treatment of blepharitis later this year. MR-142 for Night Vision Disturbances and MR-146 for Neurotrophic Keratopathy also remain on track. Switching to other pipeline updates, and beginning with the news we announced today around GA Depot. The FDA has accepted for review our recently submitted NDA and assigned a PDUFA date of March 8, 2024. Our application is backed by Phase 3 efficacy and safety data, and we believe GA Depot could improve patient experience through fewer injections, greater tolerability, and increased compliance. We are feeling very confident in the strength of our GA Depot clinical program and continue to believe that we remain on track to launch in the second half of 2024. We are equally excited about the potential opportunity to also bring this to patients in Europe, which we expect to file later this year. Our Botox biosimilar program is progressing well from development, characterization, and validation of drug substance and drug product perspectives. We remain on track to file our IND by the end of this year. Our Phase 3 study forward Xulane Low Dose program in the USA remains on track with nearly 800 of the planned 12,000 women enrolled. We are targeting completion of enrollment by March 2024. And our Phase 3 study for Effexor Generalized Anxiety Disorder in Japan is well on schedule, and we are targeting an NDA filing in the first half of 2025. Lastly, all our complex injectable programs are moving ahead as planned. Before I turn the call to Sanjeev, I want to thank our colleagues for another strong quarter and consistent performance.

Thank you, Rajiv, and good morning, everyone. We had another excellent quarter and are seeing the results of our efforts, which include revenue growth versus the prior year. Unless otherwise stated, I will be making year-on-year comparisons on a divestiture-adjusted operational basis as defined in our earnings release. The second quarter exceeded our expectations. We are encouraged by our fundamentals and continued strong operational performance. Our branded business and new product revenue were contributing to a favorable gross margin. In the quarter versus the prior year, net sales from emerging markets, Europe, and Greater China grew. The revenue growth included the impact of the new product and we expect this momentum will continue with our recent Breyna launch. We continue to invest behind future growth drivers, which include the Eye Care Division's commercial investment and late-stage pipeline programs. We believe that our unique global platform, which is diversified across product categories, has proven its ability to continue to generate significant and sustainable free cash flow. And we remain confident in the durability of this performance moving forward. Turning to Q2 and first-half 2023 highlights. To summarize results versus the prior year on a reported basis, including the biosimilar business in 2022. Net sales were slightly ahead of expectations and grew at 1.5% versus the prior year. This performance is consistent with our expectations for the business over the long term. On a reported basis, foreign exchange had an impact of approximately 2% on net sales versus the second-quarter 2022. The diverse portfolio of growth drivers included brand performance in the emerging market, Europe, and Greater China. We expect this M&A trend to continue in the second half, aided by product seasonality and the continued ramp of new products. New product revenue in the quarter met expectations and included sales of all strengths of lenalidomide. Adjusted gross margin of approximately 60% in the quarter exceeded our expectations, and was driven by a positive portfolio mix and lower than expected inflation on COGS. We reported strong adjusted EBITDA, which included the anticipated step-up in SG&A associated with the Eye Care division and the R&D to advance key programs across Eye Care, injectable, and complex products. We had another solid quarter of free cash flow of $447 million, ahead of our expectation. The year-on-year decline was primarily driven by lower adjusted EBITDA due to the biosimilar divestiture, the impact of foreign exchange, and anticipated timing of working capital. We are delivering on our capital allocation priority and continue to pay down debt to reach our gross leverage target of 3 times. We remain in a strong balance sheet position and are committed to our investment-grade rating. In the quarter, we paid down shortened debt of $181 million for a total of approximately $6.1 billion since the beginning of 2021. We expect to pay down the $500 million maturity in Q4 from cash on hand. Additionally, we returned approximately $144 million of capital to our shareholders in the quarter through the dividend. The strong performance in the first half of this year gives us continued confidence in our Phase 2 outlook. Although we're not providing guidance beyond 2023, it remains our expectation to generate at least $2.3 billion of free cash flow from the rebased business before any associated transaction costs and taxes. We are reaffirming our 2023 financial guidance ranges and expect full-year revenue, adjusted EBITDA, and free cash flow to be at the midpoint of the ranges. We are closely watching foreign exchange of select currencies. While we have absorbed the impact of foreign exchange headwinds in the first half versus what we had assumed in our February guidance, it is possible that we may encounter a slight headwind in the second half. Now, a few updates on the expected phasing for the rest of the year. We continue to expect total revenue to be higher in the second half due to the launch and ramp of new products, as well as normal product seasonality, particularly in developed markets. We expect adjusted EBITDA to be slightly lower in the second half driven by two factors. First, gross margin moderating due to a less favorable portfolio and segment mix, as well as expected higher COGS driven by inflation. And second, the investment we're making behind future growth drivers, this includes DTC investment in Tyrvaya, Eye Care pipeline, and organic R&D. We anticipate free cash flow to be slightly lower in the second half based on our adjusted EBITDA outlook, an increase in capital expenditure, and one-time costs. As a reminder, our free cash flow guidance does not include any transaction costs and taxes associated with the biosimilar divestments, the Eye Care acquisition, or the planned divestiture. Additionally, our adjusted EBITDA and free cash flow ranges exclude any required IPR&D for unsigned deals. In the second quarter, we incurred $10 million of IPR&D related to our investments in Japan. In closing, based on the continued strong underlying fundamentals of the business, we're well-positioned for the remainder of the year and look forward to 2024 and beyond.

Thank you. We'll take our first question from Glenn Santangelo with Jefferies. Please go ahead.

Yes. Thanks and good morning. Hey, Scott, just a couple of quick questions for you. I appreciate that you don't want to talk about the divestitures, but maybe you could just answer one high-level question. You've been in your seat now for just over four months. And I'm kind of curious, from your perspective is it fair to say that you're happy with how the process has been run, and you're happy with the demand you saw in the process because it's obvious that you weren't in your seat when this process started and you kind of inherited and I appreciate we're far along seeing, you don't want to give any comments, but I was wondering if you could just comment at a high-level if you're happy with where you're at in the demand you're seeing.

Thank you very much, Glenn, for the question. Yes. I would say I'm very happy with what I've seen. These are very well-performing businesses. There's been a lot of demand; there's been a lot of interest in these assets. We're very excited about where we are in the process. I would say that we're in discussions with multiple potential buyers on multiple assets and we're looking forward to giving people the details at the time and the place where we can. Just one other comment that I think is really important and it's important to remember that these divestitures represent cash flow that will be coming to us to help us accelerate towards our desired leverage ratios. What they do is, they really set us up well going into 2024 and beyond. And the critical thing for the future is our ability to deliver on our capital allocation plans in 2024 and beyond, which include capital return to investors through divestitures and particularly share buybacks and also business development and M&A, licensing, and partnership. So, very happy with the process and very happy to be accelerating into 2024 and beyond.

Thank you. We'll take our next question from Jason Gerberry with Bank of America.

Hey guys, thank you for taking my question. Curious, are there any alternative structures that you guys would consider with these divestitures to minimize the tax consequences? And then with Tyrvaya, just wondering, what's going to drive a growth inflection here, do you really think that the DTC could be needle-moving for this product?

So, first of all, thank you, Jason, for the question. I can't comment on the deal structures or anything like that at this point in time. I would just be all speculation. I will turn it over, though, for the Eye Care question, please.

Yes. Hi, this is Jeff Nau. Yes. And I think it's a great question. We look at the marketplace for dry eye disease; there are about 2 million patients currently being treated, but about 16 million that have been diagnosed. So, I think, among other things that we talked about in the prepared remarks, including an increase in Medicare and many of the other tactics that we're taking into account, there are 14 million patients that are sort of sitting on the couch, waiting for a new therapy. It's not something that's really unlocked to us today. And that's really, I think, the benefit that the DTC campaign brings forward.

We'll take our next question from Ash Verma with UBS.

Hi, good morning. Thanks for taking my question. So for the EU OTC business, not asking about the spin-off, but just wanted to understand any business trends that you can highlight. Some of the other OTC players in Europe had a particularly strong start to the year, but now flagging more of a normalization of that growth trend. So anything that you can share in that? And then just on complex injectables, I wanted to get a sense around the timing of some of the key launches of these products. I think you're estimating $1 billion in peak sales by 2027. So just wanted to understand if you have confidence in the approval timelines here? Thanks.

Thank you, Ash. And I'd ask Rajiv to address your questions.

The OTC segment is performing as we expected, particularly during this transitional year, and we are quite pleased with the overall business performance in Europe, which is primarily focused there, showing a solid 2% growth. While OTC may not be highly profitable, it remains a significant growth driver for the region. It's a stable business, delivering results in line with our predictions. Regarding complex injectables, we are not expecting all programs to launch by 2027; we are anticipating product launches later this year or early next year. Moving forward, we expect to introduce two to three key products annually, particularly in 2024, 2025, and 2026, aiming for a $1 billion franchise by 2027 and 2028. We currently have eight first-to-file and first-to-market opportunities already secured, alongside a pipeline of 37 products, with plans to expand it further. Scientifically, we are very satisfied with our progress. While there is some uncertainty due to potential changes in FDA timelines, we have factored this into our modeling.

Thank you. We'll take our next question from David Amsellem with Piper Sandler.

Thanks. At the beginning of the company's overall strategy, you mentioned three therapeutic areas: dermatology, gastroenterology, and ophthalmology. I'm curious if you plan to focus on these moving forward or if you're considering other therapeutic areas as well. How are you approaching your brand strategy in this regard? Additionally, do you have any comments on epinephrine, particularly regarding intranasal and other formulations that may be introduced to the market, and your thoughts on any potential pressure on EpiPen? Thank you.

Yes. Thank you, David, for the question. I'll answer the first one, and then I'll kick it over to Rajiv. We're focused on looking for strategically significant transactions. Our initial focus on the three therapeutic areas that you called out: ophthalmology, GI, and dermatology. However, we are looking for other things which may be adjacent to that; we are a little bit agnostic. What we're really looking for is assets that can utilize the leverage and the strength that we have as a base company for commercialization, research and development, distribution, and market access. That's the important thing that we look at and are interested in assets for which we can use the strong company that we have to maximize commercialization going forward.

So, regarding epinephrine, David. First of all, after maybe a few years, we have seen growth in this overall market; the epinephrine market has had healthy growth this year, and we have also participated in that growth. It's a market that is being served by more than just one player, there are two to three players offering competitive products, and there still remains an unmet need among patients. So we welcome more competition or a different dosage form from the patient's point of view. Having said that, we have followed the epinephrine or this intranasal product very closely from a scientific perspective and actually have some concerns regarding its execution because there was a public hearing and we got to see the science from that point of view. However, we have always taken these products into consideration while doing the modeling for the out years from 2024 and beyond. We knew there would be other dosage forms, but there will always be a place for emergency-use products like EpiPen which has been there in the market. So, yes, it's a market that is going to evolve, and we are watching it very carefully and closely.

Thank you. We'll take our next question from Umer Raffat with Evercore.

Hi guys, thanks for taking my question. Scott, I remember during your closing time at Celgene, you were spending a lot of time on ozanimod commercial planning, and I'm sure you've taken a fresh look at Viatris expectations on the monthly Glatiramer Acetate the Copaxone. Do you think it is a less than $500 million product? And also, and this may not be a popular question. The sheer amount of time the divestitures are taking, it's just odd, especially given a lot of the closures, and so I think the Street would really appreciate just finding out what's going on, why is it taking as long as it is, and when does it come to a closure on that?

So, thank you, Umer. Second question first. I think we expect to announce all three divestitures in 2023, and we expect to announce at least one significant one in the third quarter. It's complex transactions; sometimes to make sure you're doing the right thing requires getting the right partnerships and I don’t think we're delayed on where you're looking. I'm very, very happy with the progress that we're making on all these divestitures and very excited that we'll be getting these done and announced in 2023. And again for me, the important thing here is, these divestitures represent an ability for cash flow and the ability for us to reach our desired leverage ratios and then move into Phase 2 of the strategy and beyond in 2024 looking for execution of our capital allocation strategies. In terms of MF, I will say, yes, it is a lot of commercial planning for ozanimod, and I've been involved in the MS Market in other ways before, and I will just say without getting into specific guidance to any specific number, I think this is a great asset; it's going to have very significant potential, not only for its ability to reduce injections but also because of the clinical data that's being generated here, and maybe I'd ask Rajiv to dig in a little bit more on the launch.

No, Scott. I would just say that we are very excited with this clarity about the PDUFA date and launch. I will just reiterate that this product offers a safe effective treatment for RMS with a preferred schedule and with fewer injection site reactions than other GA Depot or other GA products, and is expected to improve compliance, overall patient experience, and patient satisfaction. So, we look forward to bringing this product to the market.

I would like to revisit the divestiture point. We believe this is a strategic choice. These are strong assets, and we want to ensure we handle this correctly to maximize value for the company. We are capable of meeting our financial commitments without these divestitures. As Scott mentioned, they would help us accelerate our goals, but we are in a strong position as a company even without them, given the current financial outlook.

Thank you. We'll take our next question from Balaji Prasad with Barclays.

Good morning. This is Sean on for Balaji. Thanks for taking our question. On a recent tornado damage to the Pfizer Rocky Mount facility, what level of impact do you see this event could potentially have on the sterile injectable market? And as we think about pushing potential shortages here, do you see any specific opportunities in the sterile injectable market from this incident for Viatris? Thank you.

Yes. First of all, really unfortunate event; nobody anticipated it. But having said that, we have stayed very close to the market. We have stayed close to our customers. We have stayed close to FDA from the drug shortages perspective. We have some overlap products with Pfizer's portfolio coming out of the Rocky Mount facility. And look, if there is a need, as we are seeing with those customers, we will step up; we are working very closely with the supply chain to make sure that we are in a position to address the drug shortages as and when they arise.

Thank you. We'll take our next question from Nathan Rich with Goldman Sachs.

Great. Good morning, thanks for taking the questions. First, you noted the generics business came in ahead of expectations. It seems like the new product launch guidance wasn't changed and maybe base business erosion was a bit better than you had anticipated. Can you just maybe talk about what you're seeing there? There's obviously been a lot in the news on product shortages; have you seen stabilization or firming of generic pricing in that business? And then as a follow-up, I wanted to ask on gross margin. Could you just go into a bit more detail on what's driving the step-down in the back half of the year and where you'd expect the gross margin to be for the full year within the guidance range that you have? Thank you.

So, Nate, let me take the first part and second I’ll have Sanjeev respond to that. The first, overall, just let me talk first globally. First, the base business; we have as I said in my prepared remarks, we see the momentum we have seen never before and our base business, whether it's in emerging markets or China or Europe or North America, yes, it's hitting on all cylinders. So, the stability and predictability that we have never seen before is setting up the company just as we have planned and how we've seen it, the execution is just bringing this to another level now. So, having said that from the generics perspective, generics across, not only just the US, but even in emerging markets and Europe, generics had a very solid performance. In fact, 10% growth in emerging markets was largely driven by generic performance. In the US, we always knew that the pricing is a factor of two: it's either demand and supply or a portfolio mix. Now on the portfolio mix, we have diligently worked to move away from commodities to more diversified complex products, and that's given us part of the underlying stability of the mix in the USA. Demand and supply; yes, the market is seeing some disruptions and it may go a little bit further in that direction. We may see more supply disruptions before it gets better, and because of the slight disruptions, we have seen price stabilization over the last several quarters in North America, which we have not seen for a few years back. So, yes, we see the market conditions improving as well as generics are concerned.

And Nate, I'll take the question on the gross margin. So, as I talked about, gross margin came in ahead of our expectations and that's driven by strong operational business performance; in particular, we had a favorable segment and portfolio mix and lower-than-expected inflation costs on COGS. So, products like lenalidomide, which have a higher gross margin contributed to the higher gross margin that we said. And then we had inventory beginning of the year built at the lower cost that we were able to consume, giving us a benefit that we saw in the gross margin in the first half of this particular quarter two of the year. For the balance of the year, we expect gross margin to step down a little bit, and that's expected; we have the anticipated impact of inflation, and we may see a little bit of pressure from the segment and portfolio mix, but that's all expected and built into the forecast. On a full-year basis, I expect our gross margin will be within the range of 57.5% to 58.5%.

I will now turn the call back over to Scott Smith, CEO, to make a few closing remarks.

Thank you very much. Obviously, I'm very, very pleased with the second quarter. It's one of the strongest quarters that we've had to date at Viatris. I could not be more pleased with the overall execution of the company. But most importantly, I'm very much looking forward to the road ahead and moving into Phase 2 and beyond. I think we have tremendous opportunities as a company for the next foreseeable years. Really, I'm very excited to be executing with that forward-looking view. So, I'd just like to say also, thank you all very much for your attention this morning and for your questions. I look forward to interacting as we go forward.

This concludes today's Viatris 2023 Second Quarter Earnings Call and Webcast. Please disconnect your line at this time and have a wonderful day.