Good morning, everyone, and welcome to the Viatris Q3 2024 Earnings Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please 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.

Good morning, everyone. Welcome to our Q3 2024 earnings call. With us today is our CEO, Scott Smith; CFO, Doretta Mistras; Chief R&D Officer, Philippe Martin; and Chief Commercial Officer, Corinne Le Goff. During today's call, we'll 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 most directly comparable GAAP measures. When discussing 2024 actual or reported results, we'll be making certain comparisons to 2023 actual reported results on a divestiture adjusted operational basis, which excludes the impact of foreign currency rates and also excludes the proportionate results from the divestitures that closed in 2024 and 2023 from the 2023 period. When discussing our expectations for 2024, we'll be making certain comparisons to 2024 actual or reported results on a divestiture adjusted operational basis, which excludes the impact of foreign currency rates. We may refer to those as changes on an operational basis. With that, I'll hand the call over to our CEO, Scott Smith.

Good morning, everyone, and welcome to our third quarter earnings call. I'm very pleased to report that we had an outstanding quarter, continuing the strong momentum we've seen all year. We've achieved our sixth consecutive quarter of operational revenue growth and have delivered growth across adjusted EBITDA and adjusted earnings per share. In addition, we made significant strides in all three of our strategic pillars we laid out earlier this year: our diversified and growing base business, our financial strength and significant cash flow, and our expanding innovative portfolio. Viatris is not only stronger and more streamlined, but more importantly, our future direction is now clear and more focused. We are in a period of consistent base business growth, and we expect this momentum to continue into next year. I'm happy to report that in the third quarter, we delivered total revenues of $3.8 billion, which represents operational revenue growth of approximately 3%, adjusted EBITDA of $1.3 billion, growing approximately 4% from a year ago, and adjusted EPS of $0.75 per share, growing approximately 6%. We had a very strong quarter of free cash flow generating $866 million, excluding the impact of transaction costs and taxes. New product revenues were also strong at $133 million in the quarter. We delivered on our commitment to use the proceeds from our divestitures to pay down debt, repaying approximately $1.9 billion in debt and putting us firmly on track to achieve our long-term gross leverage target. With this milestone, the company is operating from a position of strength and has a clear and focused outlook that centers on capital allocation. We believe that how we prioritize capital allocation going forward will be the single most critical factor in optimizing and maximizing shareholder value and in driving future growth. Returning value to shareholders through dividends and share repurchases will remain a central element of our plan. In 2025, we expect to be more aggressive on share buybacks, given our current valuation level. This will be balanced with making disciplined investments in commercialized or late-stage assets through regional and global business development that leverage our unique commercial and R&D infrastructure to drive our future growth. We expanded our innovative portfolio of patent-protected assets by entering into an exclusive licensing agreement with Lexicon Pharmaceuticals for sotagliflozin in all markets outside of the U.S. and Europe. This licensing agreement continues to build on our strong presence in cardiovascular disease, which already includes approximately $2.5 billion in annual revenue, as well as selatogrel, which we licensed earlier this year. This agreement leverages our global health care gateway, which provides partners with access to our unique global infrastructure. We believe we will be able to leverage our experience in cardiovascular disease and our infrastructure to execute on the potential of sotagliflozin. This quarter is a great demonstration of the power of a stronger, more streamlined Viatris. We are seeing good performance from our base business, as demonstrated by our strong track record of delivering new product revenues and by our operational revenue growth over the past few quarters. We expect this momentum to continue into 2025. Now, I'd like to turn the call over to Philippe to share an update on our pipeline.

Thanks, Scott. Our strong track record in delivering on our new product revenue is driven by the reliability of our base business pipeline. This diverse growth engine generates a steady flow of core generics, complex generics, and novel products. Our focused execution on this robust pipeline gives us confidence in our ability to continue to grow our base business and address unmet medical needs. EFFEXOR is a great example. Last month, we announced positive top-line results that demonstrated the efficacy and safety of EFFEXOR for the treatment of generalized anxiety disorder (GAD) in Japanese patients with moderate to severe disease. We believe this significant life cycle opportunity has the potential to be a meaningful treatment option for patients with GAD, a condition which currently does not have any approved treatment available in Japan. We are targeting to submit our application to the Japanese health authorities in 2025. The growth of our base business is critical for us to be able to reinvest in our innovative pipeline as we look for opportunities that can make a meaningful difference in patients' lives. We also have the unique opportunity to leverage our global development expertise and broad commercial infrastructure. Products like Sotagliflozin and INPEFA represent a good strategic fit for us. INPEFA was previously approved by the FDA to reduce the risk of cardiovascular death, hospitalization for heart failure, and urgent heart failure visits in adults with heart failure or type 2 diabetes, connective disease, and other cardiovascular risk factors. We believe that INPEFA is a differentiated asset that offers a broader label compared to SGLT2 inhibitors and a unique mechanism of action with dual SGLT inhibition, potentially contributing to the unique safety and efficacy profile of the drug. Our plan is to leverage the FDA approval as a reference in certain ex-U.S. markets and conduct clinical studies where needed to expand the patients' reach. We also believe there is potential for expansion into further indications, which could include hypertrophic cardiac myopathy. Furthermore, Viatris has a strong legacy in cardiovascular diseases, with our portfolio expanding across the overall cardiovascular continuum from reducing risk factors to improving patient outcomes with well-known products like Lipitor, Norvasc, and Caduet, in addition to our expertise in the area of thrombosis with products like Arixtra and Fraxiparine. With this legacy and broad portfolio also comes strong relationships with the medical community, which we're tapping into as we progress our selatogrel program. I've provided details about Selatogrel and Cenerimod on our last call, but let me share a brief status update. Our recruitment effort for both our SOS-AMI clinical trials and our OPUS clinical trial are progressing well. The development for each asset is on track and aligned with our previously communicated timelines. Additionally, we are working on expanding Cenerimod indications by initiating a registration program in lupus nephritis. And finally, as part of our innovative pipeline, we are continuing to advance our ophthalmology program with three key registrational readouts expected in 2025. I'm proud of the work to date across our entire R&D platform, and I believe we'll continue to make an impact for many years to come by harnessing the combination of both our base business and innovative pipeline. And with that, I'll turn it over to Doretta.

Thank you, Philippe, and good morning, everyone. Building on Scott's earlier comments, this has been an exceptionally strong quarter, and our first full quarter on an ex-divestiture basis, the results of which are highly encouraging and indicative of the strong momentum we anticipate carrying into the new year. We're pleased to report our diversified base business grew 3% year-over-year, marking our sixth consecutive quarter of operational revenue growth. This performance also carried through to adjusted EBITDA and adjusted earnings per share, which grew approximately 4% and 6%, respectively. We generated significant free cash flow of $866 million, excluding the impact of transaction costs and taxes, which enabled us to continue strengthening the balance sheet by paying down debt. Going forward, we have a strong foundation to execute on our three strategic pillars. As I review the highlights for the quarter, note my commentary on segment performance will be on a divestiture adjusted operational basis. Growth of our base business revenue was up 3% year-over-year. And once again, all of our segments grew versus the prior year. We had strong performance from brands, up 2%, and from Generics, up 4%. Brand performance included expansion of our cardiovascular portfolio in certain Latin American countries and strong growth in Europe and Greater China. Generics growth was attributable to strength in our broader European portfolio, complex products in North America, and strong volume performance across the JANZ region. New product revenue was $133 million for the quarter, bringing the total to $497 million year-to-date. We remain confident we will be at the higher end of our range of $500 million to $600 million for the year. In developed markets, net sales grew by approximately 3%, driven by robust strength in our generics business. In Europe, we saw another quarter of durable growth across our diversified business, up 6%, driven by contributions from new products and strong generics performance in key countries, including France. In North America, we saw another quarter of growth in generics, up 5%, benefiting from complex products such as Breyna and Wixela, as well as from Lisdexamfetamine. Within our brands business, net sales declined from the continued impact of Medicaid utilization in certain non-promoted brands and lower EpiPen volumes resulting from the formulary changes which occurred earlier in the year. In Greater China, net sales grew approximately 3% over the prior year. This was the result of continued strong volume growth across multiple channels, including e-commerce, retail, and hospitals. In emerging markets, net sales grew 2%, driven by the expansion of our branded cardiovascular portfolio in certain Latin American countries and strength in our MENA and Emerging Asia regions. These benefits helped to absorb supply chain impacts affecting our ARV generics business. Lastly, JANZ grew approximately 8% benefiting from new products in Australia and volume growth from our promoted brands in Japan. Turning to the P&L and cash flow. Adjusted gross margin was stable at approximately 58.5%, and operating expenses were roughly flat over the prior year, both in line with our expectations. Free cash flow for the quarter, excluding transaction costs and taxes grew 10%, driven by higher adjusted EBITDA and lower working capital. This significant free cash flow and cash from divestitures enabled us to continue executing on our debt repayment plan. We repaid $1.9 billion of debt, including the $325 million that was repaid in October, bringing our notional debt outstanding below $15 billion and line of sight to below $14 billion by year-end. Following the upcoming repayment of approximately EUR1 billion at maturity in November, we expect to exit the year at approximately 3 times gross leverage. We will have successfully completed our deleverage and achieved meeting our long-term gross leverage target at year-end. Going forward, we plan to operate within our long-range target of 2.8 times to 3.2 times. This positions the company with a meaningfully stronger balance sheet and a continuing investment grade rating, all of which will serve as the foundation of our capital allocation decisions going into next year and beyond. Turning to the remainder of the year, we are reaffirming our outlook with full-year 2024 base business operational revenue growth of approximately 2% and flat adjusted EBITDA and adjusted earnings per share versus last year. We have revised these earnings ranges solely to reflect the impact of IP R&D related to the sotagliflozin licensing agreement incurred in October. A few comments on sequential phasing for the fourth quarter. Total revenue is expected to be lower for the following reasons: normal product seasonality in developed markets and the Greater China region, phasing of certain generic products in North America, and generic entrants in our cardiovascular products in JANZ. Adjusted EBITDA and adjusted earnings per share will be impacted by a step down in adjusted gross margin due to normal product and segment mix and an increase in adjusted SG&A due to timing and normal cadence of investment. Lastly, free cash flow in the fourth quarter is also expected to be lower due to the impact from divestiture costs and taxes, higher CapEx, and semiannual interest payments. I would note that these trends are all consistent with our expectations and prior periods. In summary, we believe these results demonstrate our encouraging fundamentals from our diversified and growing base business which continues to produce significant free cash flow. The prudent work we have done on strengthening the balance sheet provides us with a strong foundation as we pivot to a more balanced capital allocation strategy of funding our vision and returning capital to shareholders. But before I conclude, given the level of investor interest in modeling our selatogrel and cenerimod assets, we are providing a workbook as part of our Q3 earnings package that can be found on our investor website. And with that, I'll hand it back to the operator to begin the Q&A.

Ladies and gentlemen, at this time, we will begin the question-and-answer session. Our first question today comes from Glen Santangelo from Jefferies. Please go ahead with your question.

Yeah. Good morning. Thanks for taking my question. Hey, Scott. I have just two quick questions for you. The first one is, a lot of comments around the base business continuing to have strong momentum in that sort of continuing into '25. And I appreciate you don't want to give any forward guidance, but when we look out over the next couple of years, is that sort of $500 million contribution from new product revenues. You're obviously generating a little more than that this year. But is that sort of the right range for us to think about as a starting point for the next couple of years? And then secondly, on the capital allocation, the company said repeatedly that you want to use half the free cash flow for business development and the other half, you want to return to shareholders through repurchases and dividends. Is getting the leverage down to 3 times by the end of the year the trigger to start that? And based on what you see in the market with respect to business development versus Viatris trading at only 6 times EBITDA, does that push you one way or another as you move into '25? Thanks.

Thank you very much for the questions, Glen. So for the first one, yeah, with the base business, we're not guiding it to '25, but we see the base business continuing to generate and continuing to have momentum similar to what we have this year. We think we can generate, and we have historically, since 2020, generated $450 million to $550 million in new product revenue every year, and we expect that to continue. And yeah, to your second question on capital allocation, I think getting to 3 times is very, very important for us, that will allow us to be able to use $2.3 billion in free cash flow at minimum to give half back to shareholders through dividends and share buybacks. We're trying to be more aggressive on share buybacks as we move into '25 and beyond because we'll be at that desired leverage ratio. We also want to make some disciplined business development focusing on in-market or near-market assets. So yeah, getting into ‘25, getting that leverage ratio right really is a springboard for us to be able to execute on our capital allocation strategy in ‘25 and beyond.

Our next question comes from Jason Gerberry from Bank of America. Please go ahead with your question.

Thank you for taking my questions. I have a couple. We've seen a multinational company in China recently investigated over some reimbursement issues. From your perspective, do you think this is an isolated case, or could it be part of a larger trend towards stricter reimbursement practices? Any insights you could provide would be appreciated. Additionally, I apologize if I missed it, but do you have any updates regarding Sandostatin LAR and its potential approval in the near term, as well as the status of the GA Depot resubmission? Thank you.

Thank you, Jason. I'll take the first question on China, and then Philippe can fill you in on your new product question. So we don't have any direct comment on any investigation that's going on in another country. We as a leadership team were just in China last week and meeting with the affiliate there. As an organization, we hold ourselves to the highest standards possible. We've got a strong compliance organization in China, a strong overall structure in China, and a very strong affiliate. We've developed deep and strong partnerships within the healthcare community there. We feel very, very strongly about our business in China overall.

And this is Philippe regarding your second question. GA Depot, we have a meeting scheduled with the agency in mid-December. So we'll be in a better place to give you an update next year once we hear from them and have this meeting with the FDA. Regarding Sandostatin, yes, we are still going through FDA review for this product, and we expect we'll be in a position to launch the product next year.

Our next question comes from Chris Schott from JPMorgan. Please go ahead with your question.

Hi, this is Ethan standing in for Chris. Thank you for taking our questions. First, regarding the deals you've completed this year with Idorsia and SGLT2, should we anticipate similar deals in the future in terms of size and scale? Secondly, looking ahead to 2025, could you provide any initial insights on your expectations for EBITDA and how we should consider the various factors influencing that? Thank you.

Yeah. Thank you, Ethan for the question. Good morning. I’ll take the first one and then I’ll push to Doretta to talk to you about EBITDA going forward. The Idorsia transaction was a bit of an opportunistic deal. It's a bit of an earlier deal than I think it will be normal for us going forward. These are products that were in Phase III development, and I think they are very, very good positive assets. We felt like we could contribute to the continued development of them. We think they've got the potential to be blockbusters if the data comes in positive globally. So that was a deal of opportunity for us. I think we're really focused right now on doing disciplined business development. We want to focus on end-market or near-market assets; things that we can leverage our global health care gateway. We have a very strong global infrastructure, and we want to deliver assets that can drive some revenue in the '25, '26, '27 timeframe. And in terms of the size of the deal, yes, I think that's the type of deal we're looking for. We're hoping to add multiple different assets over the next couple of years to the pipeline, focusing on very disciplined business development with these end-market or near-market assets.

And thanks for the 2025 questions. We're not going to be providing forward-looking revenue and EBITDA guidance. But just to your point, just to give you a sense of some of the pushes and pulls. As Scott commented earlier on the momentum that we're continuing to see from the base business on the revenue perspective and how we expect that to continue at the top line. From an EBITDA and EPS perspective, we are currently working through the adjustments post the divestitures from a stranded cost TSA perspective. But going into next year, we are focused on really prioritizing adjusted EBITDA stability. We're balancing the growth of the business with making the necessary investments in R&D and commercial that can drive our future growth. I would say we will continue to work and provide clarity, providing an apples-to-apples comparison when we provide our ‘25 guidance. We do see things reasonably calibrated in the models, and we also feel confident in our cash flow of $2.3 billion, and we’ll provide more color as we get into next year.

And our next question comes from Ash Verma from UBS. Please go ahead with your question.

Yeah. Thanks for taking my questions. Good to see some steady progress here. Just a capital allocation question. So with the bulk of the debt paydown that you were sort of driving towards behind you and the stock trading at sub-4x run rate EPS? How do you think about balancing business development investment and share repurchases? And then secondly, for emerging markets, yeah, I saw this like ARV supply chain impact. I think you have talked about this for a little bit of time. Just curious, when does this start to lap that we don't see this as a drag on the business going forward? Thanks.

Thanks, Ash and good morning. I'll take your first question again, and Doretta can pick up your second question. We've got line of sight on getting our debt repayment right to the target we've talked about, a leverage ratio of approximately 3.0. We see that very closely and have a great line of sight on that. That definitely then allows us to move into our capital allocation us implementing the full capital allocation strategy, minimum of $2.3 billion in free cash flow, half of that to shareholders in terms of dividend and share buyback, and the other half in business development and building the pipeline in a disciplined way. I think, given the share price and the valuation of the company right now, we might be a little more aggressive on the share buyback side than on the business development side going into '25. But we're looking at a three to five-year period where approximately half will return to shareholders and half will go to business development. But I think implicit in your point is this idea of the valuation of the company, and I think we see a nice opportunity as we move into '25 to be more aggressive in terms of share buybacks.

With respect to the ARV business, historically, we have made comments around just therapy shifts that have been ongoing in the business. However, my comments this quarter were really specific to some delays that we saw in the supply of ARV products. We are currently working to catch up on those backlogs across our ARV portfolio, and that's what my comments were referring to.

Our next question comes from David Amsellem from Piper Sandler. Please go ahead with your question.

Thanks. Well, I don't want to belabor the topic of new launch contribution for '25. I know that you've sounded a note of confidence regarding the impact from new launches. However, it feels to me that there is less transparency regarding new products than there has been historically. So one question is you've talked historically about products like Sandostatin LAR and Victoza as contributors. Can you talk about how much products like that are going to contribute for next year? Other products like iron sucrose, Venofer, is that going to be a contributor? You talked about glucagon, injectable glucagon in the past. Is that going to be a contributor? And also, one of your competitors, Teva, has talked about potentially entering the Symbicort market next year. I'm wondering if you can talk to potential competitive dynamics regarding Symbicort. So I know there's a lot there on specific products, but I'm hoping to get granularity. Thank you.

Thank you, David. Thank you for the question and good morning. Just from a macro level, we feel very good about the new product numbers. Traditionally, if you take a look at the last four to five years, we've delivered $450 million to $550 million in new product revenue every year. This year, we're at the high end of it. We believe we're doing very well in terms of the number of submissions and the number of products approved overall. We feel very confident in those numbers going forward. To get to your specifics around individual products, I'll ask Philippe to comment.

Thank you, Scott. As Scott said, we are very confident about $450 million to $550 million next year, and this includes carryover from 2024, generic launches in North America and Europe. To your question specifically, it includes complex products such as glucagon, iron sucrose, and liraglutide. So these three products are clearly in the mix for next year. We continue to work on that broad portfolio and bring over a significant number of submissions every year. So again, we can only reiterate our confidence in the $450 million to $550 million range for next year.

And David, on your comment about additional generic competition in the Symbicort area, what I can say is that, first, we are very pleased with the execution and performance of Breyna, our complex generic that plays in this market. We currently have about 15% TRx market share and expect that Breyna will continue to deliver growth for us going into 2025. Again, a good example of having had the possibility to launch early as a complex generic in this market and to be able to deliver more durable and sustainable value.

And we do have an additional question and this comes from Balaji Prasad from Barclays. Please go ahead with your question.

Hi. Good morning. Just two sets of questions from me, and apologies if one of them has been asked earlier. Firstly, could you comment on sotagliflozin in terms of the contributions and the number of markets that you plan to launch in the next one to two years and how should we think about modeling this into our thoughts? Secondly, a big picture thematic question. With the new administration, it's likely that we could see a pushback towards making America. I want to understand how that could change your priorities towards the U.S. generics market. Is this something that you will want to refocus or increase in terms of focus and future revenue contributions from this region? Thanks.

Thank you, Balaji. I’ll take the macro question and then Philippe and Corinne can discuss Sotagliflozin further. From a macro perspective, it's far too early for us to be able to fully understand the healthcare implications under the new administration. However, we will work positively and productively with the incoming administration as we would with any administration going forward. It is premature to understand healthcare implications at this point in time, but we are optimistic about what the years look like for us in '25 and beyond.

Regarding sotagliflozin, we plan to leverage the U.S. approval and get the drug registered in several large emerging markets such as Canada, Australia, and New Zealand, for which there is a very clear straightforward path to approval. In Asian markets like Japan and China, it might require another clinical study. We will be discussing this with the health authorities over the next few months and putting a development plan together. We expect that Sota will start contributing to our revenue growth around 2027, but I'll turn it over to Corinne for more details.

I'm not going to comment on the overall size of the opportunity, but what I can say is that Sotagliflozin fits perfectly with our cardiovascular infrastructure in the regions where we'll be launching this product. We have about $2.5 billion of annual revenues in cardiovascular diseases, so we have the appropriate infrastructure in place to promote these assets across the regions. We view sotagliflozin as a franchise that will, as Philippe mentioned, start generating revenue in 2027 and will contribute to growth through the end of the decade.

Thank you very much, and thank you for everybody on the call. In closing, it was another great quarter. I’m proud of our team and our continued strong performance. We have great momentum, and I’m looking forward to the future. With our leverage target in sight and the strength of our balance sheet, our company is operating from a position of financial strength. We have a clear and focused outlook that centers on capital allocation. Returning value to shareholders through dividends and share repurchases will remain a central element of optimizing and maximizing shareholder value. We will balance this with making disciplined investments in regional and global business development to drive our future growth. Thank you all.

And ladies and gentlemen, with that, we'll conclude today's conference call. We thank you for joining. You may now disconnect your lines.