Viatris Inc. (NASDAQ:VTRS) BofA Global Research Global Healthcare Conference September 15, 2022 11:45 AM ET
Company Participants
Michael Goettler – Chief Executive Officer
Rajiv Malik – President
Sanjeev Narula – Chief Financial Officer
Conference Call Participants
Jason Gerberry – BofA Securities
Jason Gerberry
Well, good day, everybody. Thanks for joining us at the BofA London Healthcare Conference. My name is Jason Gerberry. I’m one of the biopharma analyst here at Bank of America. And I’m pleased to be introducing our next company Viatris. And we’re joined by the team. We’ve got Michael Goettler, CEO; Rajiv Malik, President; and Sanjeev Narula, CFO. So gentleman, thanks so much for joining us.
Michael Goettler
Thanks, Jason.
Jason Gerberry
So I think, Michael, you may have a few prepared remarks first before we jump into Q&A or not?
Michael Goettler
Yes, not really prepared. But I wanted to thank you for inviting us to this. And Viatris is, it’s almost two years old now, like in November will be our second anniversary. And yet this because of COVID actually the first international investor conference that the three of us are attending in-person. So that’s a good opportunity.
And it’s, I would say long overdue. If you look at our business, we get about three quarter of our business outside of the U.S. We get less than 20% of our shareholder outside of the U.S. So it’s a great opportunity to communicate and reach out to some European investors and some more international investors. And look since it, maybe not as familiar with us, let me just recapitulate a little bit what we have with the creation of the Viatris, right?
We built, we come together Mylan and legacy Upjohn in November, 2020, really created one of a kind global biopharmaceutical company. I think $6.5 billion in revenue, roughly $6 billion EBITDA, $2.7 billion and very solid in growing cash flow. So, I think one of the unique characteristics of this business, but more importantly, 37,000 colleagues around the world are pay or products reach 165 countries. That’s very important to us because of our mission. Our mission is access to affordable quality medicine, independent of circumstances of independent geography. And that’s one way we do it.
We have a solid operating operational platform over 40 sites around the world. And again, at a time when you hear about supply chain disruptions with COVID, when it’s hard for anything from diapers to furnitures, is delayed and stuck. And we had service levels that are add or above our peak levels from before the pandemic. So, very, very solid there.
We have a strong development house. We have almost 3,000 people working in development and regulatory and medical, and Rajiv can elaborate on that, but a track record of a highly productive development, and many, many first, the first interchangeable insulin, the Semglee biosimilar the first generic to Advair, the first generic to Symbicort, which just got approved. The first Copaxone, again of goes through the list, there’s a long list of first. We have a business that’s extremely diversified, right. Over 3,000 products, brands, generics, complex generics, biosimilars for the time being. And that diversification gives you resilience.
And I think we’ve shown that now with six quarters of very solid, strong performance quarter-after-quarter consecutively. We’re no longer dependent on what happened to one product or one part of the business, anywhere in the world, we have waste offset. So that’s kind of what we built. When we launched November, 2020, we set some very clear goals. We set, we want to strengthen the balance sheet, reduce $6.5 billion in debt. We are more than halfway there now, right? So, we’re on track of achieving that.
We said, we want to initiate and grow dividend. We’ve done that. We’ve initiated. We’ve grown up by 9% recently. And so we got about a 5% dividend yield at the current share price. And we say, we integrate and synergize about $1 billion in synergies. And we are again, more than halfway there. And I’ll try to achieve that importantly by the end of this year will be essentially free from all transitional service agreements as Pfizer, Upjohn provide a lot on Pfizer support. That gives us the independence to operate, but importantly, the savings, right?
So that’s kind of what we call the Phase 1, the years 2021, 2022, 2023. And then importantly, last February went out and laid out a strategic vision for how we see the next phase going. And where we want to move the company? How to move the company a more simpler, a more stronger, and a more focused company that includes some divestitures and includes some capital allocation plans, right? And those investors start with the biosimilar deal that we struck with Biocon, which allows us not only to unlock value, significant value at 16.5 time multiple versus our multiple, $2 billion in immediate cash flow when the deal closes. But also create a vertically integrated champion in biosimilar.
So take all of that together. We’re unlocking value. We’re creating additional financial flexibility and then have a lot of optionality what to do with that flexibility, whether it’s share buybacks, whether it’s business development or additional investment R&D and of course, for the debt pay down. So, we’re excited about how we’re performing. We’re excited about the execution we have. But even more excited about what we can take the company.
Jason Gerberry
Great. So a lot about the complexion of the company, as you alluded to is going to change in the company with the divestitures, and newly acquired businesses. But let’s maybe talk about the performance of the business since the merger, and even this year, just maybe kind of what the base business is doing just to set a foundation for maybe then we pivot to the – some of the strategic topics.
Last year you absorbed some headwinds in business, this year you guided to some headwinds and then on the most recent quarterly update there were some offsets to some of those headwinds. So maybe if you can just sort of set the business for what parts of the business are strong? Which parts of the businesses maybe haven’t been as strong and kind of what you see as kind of like the core base of the business that you want to retain versus other aspects of the business that maybe are weaker or I mean…
Michael Goettler
So, let me answer the second part, then maybe Rajiv and Sanjeev can elaborate on the current performance. But look, what you’re going to have is Viatris going forward. You’re still going to have a strongly diversified business. You’re going to have a core in generics. You’re going to have increasingly complex generics with the push into complex generics. You’re going to have a strong brand business, right? We have 60% of our revenue right now is brand. Now, most of that is posted at rebrands, right? Like Lipitor, Norvasc, Viagra, you name it. But it’s a branded business.
And then increasingly as we laid out, we want to also make a foray into more innovative areas. And we laid out what the therapeutic areas could be. That’s GI, ophthalmology and dermatology, because particular opportunities in those areas. And that hopefully sets us up on a return to growth. Right? Rajiv, if you want to add on that?
Rajiv Malik
From the base business part ofJason, I would say we are hitting on all cylinders, everything we had anticipated and expected. We are performing either to the expectations or better than expectations take care of. We had assume in Europe grow organically again this year by 5%, 6%. We are well on that path. North America, we had anticipated some headwinds, the way we are anticipated. We, products, some more competition around Wixela or Xulane. Other than that, we had anticipated some launches, which are coming through.
Very recently, we launched the generic [indiscernible]. So its right, exactly how we have anticipated. Somewhere, when you say that we are not dependent upon a product or a market and all that, all this comes together to offset somewhere, some softness and you come up with an additional opportunity.
China is even when I say better than expectations. We had assumed had, which we have continue to assume, and yes, COVID had delayed certain policy implementation. So where you see our China business still very executing strongly around, both in the retail, as well as the hospital – in the hospital. Even emerging markets, we had factored in some HIV, some more pressure on the HIV or the COVID, I think where – whatever we had anticipated, rather than that, everything, every business, the branded business is delivering that as we have anticipated. So it’s a generics. And so is the operations have delivered to support this. Taken into consideration, the inflation headwinds we are factored in. We are right, where we were, we had assume. So, I don’t see anything else.
Sanjeev Narula
So if you – Jason, if you look at the numbers, FX aside, we were clearly transparent FX as a headwind that impacted operationally. Everything is exactly in line with what we had expected. Maybe slightly better with the top line.
Gross margin is coming slightly better, because a better mix of what we have. And better geography, geographic distribution. The other thing that is also very positive is the cash flow. So, we are able to absorb the, all of the FX impact in our cash flow. Because of the management focus on looking at the cash flow, because it’s so critical. And then looking at the cash optimization work, you’re looking at the networking capital management, all of that is helping it to offset on.
Jason Gerberry
Can we drill into China a little bit more, because that’s a segment that you guys have exceeded our expectations and the retail growth, I think has helped offset some of the headwinds there. I remember at the time of the merger, there was a lot of concerns around Lipitor and I think it was Norvasc and those were two products. And you mentioned gross margin, I imagine when China stays flat or strong, that that’s a good gross margin segment for your business overall.
So it seems like you’re navigating these lockdowns pretty seamlessly, maybe distribution, even during lockdowns has been something where patients aren’t getting deprived in medicines. I guess, where are we right now in terms of like the lockdown dynamics that we kind of feels like in London or in the states we’re kind of post-COVID. I don’t know if we could say the same about that part of the world.
Rajiv Malik
China has lockdown have been going on in the first phases for Shanghai; I know some other small provinces of going through the lockdowns. Our business, let’s say mixed little bit change, earlier we were seeing momentum behind the products like Viagra in the retail and all that. That mix maybe retail might be a little bit that softer than what we thought, but hospital, more than – hospital channel more than made up for that. So both businesses continue to retail is still going grow maybe a little bit less than what we thought, because one channel, which gets impacted when the lockdown is the retail channel as patients are not able to get out as frequently to the pharmacies and all that.
But overall from what we are anticipated, in fact, we did better. We did not anticipate the lockdowns. What had done lockdowns had basically, I think, taken the administration little bit away in managing the COVID than to implementing the policy. So that policy implementation has been a little bit further sort of, I would say, pushed out or but otherwise our performance in China, the team has done great job of understanding and navigating through those policy changes.
Jason Gerberry
Yes. You mentioned having a lot of post-LOE brands right, in the portfolio. You’re now, I think 60% of your revenue is brands, give or take. Are there any chunky products that have any kind of exposure points or LOEs in the portfolio? Or do you feel like you’re pretty insulated from the LOE?
Rajiv Malik
LOEs are, LOEs in Yupelri [ph] which goes in 2030 that only small product, which is going to go LOE maybe in the next couple of year is Dymista mostly a Europe based product. That’s small, about $150 million brand. We are factored in.
Sanjeev Narula
FX for Japan…
Rajiv Malik
FX for Japan is 2027, FX for Japan and that also is not big, like Lyrica, its couple of $1 million products. And so it’s Amitiza is 2026. Yeah. So other than our branded business patent protected branded business is less than $600 million, $700 million. Total in the $6.5 billion [ph]. And that’s over period of so many years. Right.
Jason Gerberry
Yes. Okay. And maybe Sanjeev, just in terms of, you talked about capturing the synergies, I think that the goal and the goal date, and is there an opportunity for incremental synergies, if you can talk about the cost structure as the company’s current, the constructed, I imagine a lot of that could change with divestitures in the future as to what goes and what stays, but maybe how you’re seeing the business currently?
Sanjeev Narula
Yes. So Jason, we are always constantly looking at opportunities. We have a very robust plan right now, multidimensional on capturing synergy, which is at least $1 billion over three years. We are well on track. We did $0.5 billion last year, $250 million this year. Well on track coming from different line items. And we constantly looking at that. Right now, we are on track. And as we are looking at these businesses there was, we will continue to look at the opportunities and that’s going to be the goal of how we can free up lot of a capital and do that. But I think right now, I’m very confident and comfortable with the plan that we laid out in front of us.
Jason Gerberry
Okay. Okay. Maybe couple questions for Rajiv, just on the pipeline. Thinking about a few product opportunities, there’s Symbicort in terms of where we are with that process. I know that there’s a patent ruling pending. And as we think about that opportunity, assuming if the IP events go your way, just curious like commercialization, I know with Advair either there was decent amount of CapEx investment to have a facility to make dry powder inhalers. Can you leverage that investment for a product like Symbicort assumes a DPI as well?
Rajiv Malik
It’s MDI.
Jason Gerberry
Oh, it’s MDI. Okay.
Rajiv Malik
MDI and we have in this case, we are manufacturing partner can gave up, which was a legacy 3M Company who is our partner. We are in the state of readiness from the launch perspective. All we are waiting for is the – any day which this, we said, September, the judge retires. So in the next 14 days, 15 days, we can hear from it. And then based on that, we take a call, the launch of the product. It’s not factored in our 2022 numbers. We didn’t factor it. If we launch it with an upside, let’s see, we are hoping, we are pretty confident, optimistic, but we are hoping…
Jason Gerberry
Because there’s additional IP that got asserted later, that’s not in the ruling. And that might put you in a position of an at-risk launch?
Rajiv Malik
We – once we take a call, we take all everything into consideration. We take a view as a management presently to the Board. Our business has been – we have been taking this launch at-risk as a part of our business plan, but I just want to get ahead of us. We’ll go back to our IP legal team, understand where the litigation is and then based on that make a call.
Jason Gerberry
Yes. Okay. And you also have the once monthly glatiramer acetate product that they do have some data here in the second half? Just thinking conceptually about what that product could be as a value enhancement to patients, right. I know you want to look at our MS endpoint, for registration purposes, but how that could potentially differentiate obviously fewer injections, perhaps there’s a lot of injection side effects that you have with the drug and there’s convenience right in patient’s life. But have I sort of encapsulated the benefits there?
Rajiv Malik
Yeah. You have been encapsulated very well. You have been encapsulated of course it has to be efficacious, as efficacious as twice a week. So that’s one is the convenience. Along with convenience, we believe that injection site, because that’s been one of the issue because you are now lesser number of injections, you would assume less number of incidences. So yes, and that depends upon the lead into the data. So I don’t want to get ahead of me that we are waiting any – it should be actually it’s due in the next, maybe a week or so.
Jason Gerberry
This would require, entail building out some sort of commercial presence to call on MS specialists that’s not an area that you currently imagine have a salesforce detailing.
Rajiv Malik
We, look, Copaxone even generic was not as simple, it required a lot of hub services and some call points we do that.
Jason Gerberry
You can leverage those.
Rajiv Malik
So yes, we will be able to leverage. Our experience and understanding this market, how this MS market works. The key was around that we have been working very closely. So yes, we will not bring a sort of 505(b)(2) product like this and then launch it as a generic, we will do whatever we need to do to make it success.
Jason Gerberry
Yes. Okay. And then the other product I’m curious about you retained this in the Biocon arrangement in Botox. This was, if I recall correctly, you guys got this through Revance. Revance got approval recently for aesthetics. You guys want to be in dermatology down the line is so maybe help me think through the opportunity and if you’re able to get this, is this more of a true generic for the therapeutic applications? Is this something that the aesthetic market’s kind of a difficult, very different unique market. So just kind of curious how you think about the value opportunity?
Rajiv Malik
It’s – for us it’s a biosimilar, which will have all the indications, therapeutic as well as aesthetic. At part what the business case we build was mostly of the therapeutic. Aesthetic will be upside. So if we, for example, when we launched, when we say dermatology, can this be a product of interest? Yes. So if not, we will find the right dermatology partner at that point of time to leverage what we do the [ph] science, we will create out that.
Jason Gerberry
Got it. Okay. This – it’s the same API the Revance just got approval on though is it the long acting or is it…
Rajiv Malik
The long acting is a formulation thing. It’s basically the product, the basic strain and science is the same, yes.
Jason Gerberry
Okay. Okay. Well, maybe we can shift gears to some of the corporate strategy, updates and talk a little bit more about the decision to divest the biosimilars business and how much of that was driven just by perhaps pricing erosion and biosimilar end markets. Maybe not the pricing power, maybe not being as sticky. It seems like biosimilars is very much a first mover type of category. It’s tough business. And you look at like products like Humira. There’s a lot of competitors. We’re seeing Viatris [ph] decouple their biosimilars business. So just kind of curious what or ultimately was this the valuation so compelling that you had to do the right thing for shareholders?
Michael Goettler
I think it’s a combination of things. Number one is the biosimilar market is an attractive market right now, right? There’s no doubt. There’s growth opportunity. There’s better margin than the core generic market. But if you look out a little bit more strategically and a little bit longer term, you see that this is a market that’s kind of similar to where generic market was maybe in the mid 2000s, right. And that the way to be successful in the generic market was vertical integration. The same thing here, you need to have vertical integration. Eventually it just makes pricing power better. It makes decision making better, you more flexible, more nimble in the market, et cetera.
And then, so that was the logic. And then the question is, well, you have two ways of doing that. You either double down and invest yourself and do that, or you find another way to participate. And luckily we have this great relationship with Biocon. So we found another way to do that. And obviously you mentioned already the evaluation is very, very attractive, an implied multiple of six and a half versus where a company is. There’s a clear value creation, but we continue to participate with at least 12.9% shareholding in what we believe will be vertically integrated biosimilar powerhouse.
Jason Gerberry
Yes. Okay.
Rajiv Malik
Only thing I will add is, because you said it’s going to be more and more competitive. And if you want to basically really leave this market, you need to capture the whole margin line over there and do that. So for us, because we are not vertically integrated either, we are sharing with partner over here or partner over there. So that’s what he meant by either double down, invest and create your own capacity, could create your own R&D to do everything you need to do, because that gives you that flexibility, ability to strike in the market, pick up the opportunities, hang in the market. It’s like, then first in last out, that was the slogan 10 years back. You have to get in first and you need to have a staying power to hang in the market and vertical integration is that [indiscernible] review.
Sanjeev Narula
And Jason, one other thing that this deal does that is the enhances the financial flexibility, right. So we now from this transaction, as soon as we close the transaction have flexibility to do lot more than we were able to do before, at least in the Phase 1. So we are looking at potential tuck-in and bolt-on deals. We are looking at potentially share buyback, all the flexibility that didn’t exist before. Now we got that with this, and then the other divestments that are on the docket by the end of next year.
Jason Gerberry
Yes. Now there are additional businesses that I believe you’ve already identified that could garner an estimated $4 billion to $6 billion of divestiture proceeds. Where are you in that process of those businesses been identified? Are you talking to other counterparties about those divestitures? Just kind of curious if you can give us a sense, I know you indicated via, I think 2023, you’d like to have, I think those deals closed or announced maybe just kind of…
Michael Goettler
Closed, but yes, so the timelines are right. So on the Biocon deal, we continue to be confident that we can close this within this year, right? You said second half we’re already in September now, it’s coming soon. And on the other divestitures, we’re very pleased with the progress we’re making and continue to be confident to have that by the end of 2023. Now we still haven’t announced them yet, right. And I think what you can expect is to see that maybe as the deals become more concrete at that time, we would completely announced them.
Rajiv Malik
But to be specific to your question, of course we have identified. When we gave you that number, we have not only identified exactly what, how much it can be valued on. So you would expect us to do that work. So we have identified it. And we are at the point in socializing that and getting out there, and we didn’t want to compromise the integrity of the whole process. So we are right there now.
Jason Gerberry
So is there anything about the – what will be the closing process for those types of deals? Would they be similar to Biocon such that, where I’m going with this, I’m trying to back into, if you’re saying year end 2023 closed, if they have a similar kind of announcement to closing timeline as Biocon, that’ll help investors kind of think through where we are now versus how the process could evolve?
Michael Goettler
So we’re talking about is having these deals announced and mostly closed by the end of 2023.
Rajiv Malik
So I wasn’t sure if like the approval in different regions like India and stuff like that maybe slowed the closure of the Biocon deal versus say a pure U.S. only asset.
Sanjeev Narula
I would say announcing by the first quarter and then giving ourselves six months.
Michael Goettler
Close – and you have to close.
Rajiv Malik
We had factored in mostly. And I don’t think these are going to be highly like a – from the competition commission point of view that sort of issues [indiscernible].
Jason Gerberry
Okay. And are the efforts internally about those processes or in parallel running the process of looking at the future assets that you want to acquire and in earmark those proceeds for, because I know that there’s a bit of a gating factor to buying some of the more durable assets that you want to buy. And I’m just curious, if you’re in the process of identifying those assets now and it’s just really, but for the capital infusion.
Michael Goettler
Yes, and I mean, of course, we run both processes in parallel and obviously we always looked at opportunities. We always have and we actually did a couple of very small deals. But – and I wouldn’t say we are limited or gated by the amount of capital. We’re very cash rich company. And I think for the right deal, we can strike, but we’re also very committed to the commitments that we made on capital allocation in terms of debt pay down, dividend, et cetera. So you’ve seen us being very, very disciplined, I think up to now. And clearly those starting with the Biocon deal then maybe on the future deals really enhance the optionality that we have for capital allocation.
Rajiv Malik
But Jason from long term, likely, when he said, we know that we have announced a strategy on February 28. Three therapeutic areas going up the value chain, investing in that space. That’s exactly. I think that’s the one question which we are trying to come back and answer as quickly as possible about how to company to – how to bring the company back to the growth and by when. So that we can give you the elements of that. So this strategy of reshaping, creating the flexibility, financial flexibility, and investing in is all tied up, so that we can get there sooner the possible.
Sanjeev Narula
Yes. I want to just one point add to that about in the capital allocation. I think one thing is very clear is about maintaining an investment grade rating. They’re very committed to that. Even before these divestments, that was only possible that that’s something that’s always going to be in the forefront and we are committed to that.
Jason Gerberry
Yes. And as we think about these three therapeutic categories where you want to get more NCEs and 505(b)(2) tech products that are brands, presumably these are global brands because you have a global infrastructure. And presumably there’s an element of using internal in-house capabilities to also pair and build these therapeutic verticals such that it’s not entirely about what you can license and acquire, but it’s also, you’ll be pairing that with assets that you bring in-house as well. Is that the right way to think about?
Rajiv Malik
It’s the right way to look into. If you’re looking into first step let’s take ophthalmology or dermatology as an area. The first acquisition or first tuck-in acquisition can be a sort of anchor asset, where we also bring in some capabilities, competencies and some pipeline or some market product, depending upon what’s available at that point of time.
And then simultaneously continue to scout for more Phase 2, Phase 3 candidates to enrich the pipeline and build that pipeline, because one product is not going to build a sort of franchise for that. And we are good – what we are good at from development point of view to take this science across the globe, so that will be a simultaneously plan, which will work.
Michael Goettler
Yes, and we have experience, regulatory experience development capabilities.
Jason Gerberry
Well, that was where I was going to go with this in terms of, do you need to do like a CMO hire? Do you have the people in-house to kind of help vet these assets and build out these therapeutic verticals? Maybe some of those people maybe came from the Upjohn side of the, which had more of a lineage in brands versus the Mylan people had more of a lineage in generics.
Michael Goettler
Yes. Well, let me maybe go back and maybe explain a little bit why we picked these three areas, right. Why we think they’re particularly fit for us, right. And it starts with these are areas that are number one, of sufficient size. Number two, there is sufficient innovation there. A lot of the innovation that happens is, I don’t want to saw incremental is kind of bit, but a little bit more incremental is often the reformulation of an existing molecule or, so we purposely existing molecule. So, you have a lot of that kind of innovation happening.
A lot of innovation happens by smaller companies, not big pharmas not focusing on these three areas, which means we are also not competing with big pharma, which means we actually to get a commercial presence, a relatively normal size sale, like in the U.S. with 60 to 80 people, you can cover most of these areas from salesforce perspective. So the build is relatively small. You have high likelihood of development success, right? The PTRS is higher, the end points are clear. So that’s all the characteristics that we think that really fits us.
And when Rajiv talks about an anchor assets, I mean an anchor asset doesn’t have to be a $1 billion blockbuster. It could be a $500 million. It could be a $400 million product that comes in that gives you the presence in the market maybe comes with the salesforce, maybe comes with some of the branded capabilities. Not that we don’t have it, but we can always add some more experts exactly particular from that therapeutic area, some of the key relationships, et cetera. And so bring that in-house really the anchor asset will bring that in and you can build around that and expand. That was always a strategy.
Rajiv Malik
And there was one area definitely we enhanced and strengthen was the medical with Upjohn coming altogether. So, we had enough medical to prosecute biosimilars or 505(b)(2)s, because lot of these even biosimilars have to go through Phase 3 and stuff like that. But yes, that’s one area which got strengthen. So and anything, what you don’t have, you reach out to get more KOLs or CMO in the part.
Jason Gerberry
And I know you throw some kind of guardrails around this, talking about $200 million to $500 million type of acquisitions, that’s preserving your investment grade status in terms of the capital deployment is, the thought that you can go out and get commercial stage assets because the multiples on those we can kind of back into that would imply kind of niche year size, brands or would it be more trying to acquire pipeline assets and to invest and build things where you can get perhaps things with greater growth potential in front of the company?
Michael Goettler
I think it’s a combination. I mean at the end, what you want, you want some commercial presence to get started. You want some pipeline and you want the capabilities, right to complement the internal capabilities that we already have. That’s what you need to build to build a franchise now.
Jason Gerberry
Yes. Okay. Yes. And then the other question that I had just thinking about this as a process. Right. So for investors, you’ll be divesting some things, you’ll be bringing some new things in my mind goes to, are the financial results going to be very muddied for a couple of years? Right. Because on the one hand, like once divestitures happen are what are the comps, right. That becomes the challenge for kind of modeling the business and, will you recast financial results, X the divestitures or how are you thinking about that? Because I think it’s an important thing for investors to sort of understand, what’s left and what’s the core kind of base business and performance trends. So maybe for Sanjeev just kind of…
Sanjeev Narula
Yes, sure. So let’s start with, first of all the base business like before the divestments that is executing as Rajiv and Michael pointed out. Firing on cylinders, all the commitments that we laid out, we are on those commitments or maybe slightly ahead of that, including this year, as we said on the second quarter call. This year operationally on track with the base business buying before an exchange, which we talked about that, so all that is on track with, as we talked about.
Now, we’ve given some kind of performer numbers when we back went down in February in terms of what the remain code looks like post these investments, kind of given like a high level number of that. So, while not giving the specific guidance and what the numbers would look like, we’ll come back with that at the right time about that right. But here is what you should think about that. You should think about stability in the top line, right? Because there are no big LOEs there are – these are still branded products.
You should see stability in gross margin, as we talked about because the concentration of business that, that you have. You should see new product revenue, even after biosimilar of roughly $500 million that actually help from that. You should expect that there is going to be a flow through of the synergies in their SG&A line. And then we kind of manage the SG&A line as we go forward. We should also expect a very significant sustainable cash flow that we come from the business that we’ll be able to kind of sustain.
Once we get to our leverage target by the end of next year. Jason, the cash flow that we generate from the business, all that cash flow is available to returning capital to the shareholders or investing back in this. That’s what you should expect. Right. So we’ll come back at the right time about what this would look like, but you should expect a very robust, sustainable cash flow from the company going forward.
Michael Goettler
That’s the profile of – I’ve remain co [ph]. Right.
Rajiv Malik
And overlay on that. Anything you will add, which we have been talking about that are three therapeutic areas or tuck-ins we do. And that’s how we see that can bring the company back to the growth in that period of time.
Michael Goettler
And it is no different from the original strategy, if you will, but what the reshaping does, it kind of accelerates that. Right. So you get.
Jason Gerberry
Yes. Okay. And then there was more discussion about, I think at the onset of the merger being this partner of choice for biotechs in China, right. These companies who probably didn’t have the infrastructure ability to take these products to market we, certain companies like Everest and LianBio do this, with a lot of biotech companies. We haven’t really heard a lot of announcements of a lot of these types of deals. Is that still a focus? Is that still a part of the strategy in terms of the cap deployment and being that partner of choice?
Sanjeev Narula
Yes. And it’s not only China. I mean really is we, we got a global platform and capabilities pretty much everywhere in the world. A lot of companies to whom that capability can be very valuable. And so our business development effort do not only focus on the three therapeutic areas that we outline. That’s kind of, but also in the one year term, there’s some regional opportunities and that’s also being persecuted of Course.
Jason Gerberry
Yep. Okay. Maybe just shifting back gears to two questions, one on pipeline, one on inflation. Pipeline or anything else that you’re really excited about. I know you have the Blepharitis program that you recently partnership on. Just anything that we didn’t touch on that you think is maybe missed by investors or you feel excited about the opportunity?
Michael Goettler
Yes, there are one the complex injectables pipeline is improve, progressing very well. And there are unique assets once they hit you. You don’t seem a multiple players out there in for a period of time. Just because what it takes to develop them and make them. The second is some 505(b)(2)s like we talk, Xulane low dose patch. We have been maintaining and sustaining the brand of Xulane for five, six years, which is a contraceptive patch. We are coming up the low dose patch of that.
Meloxicam, that’s another exciting product we very soon we’ll have a read out of that product, which is a opioid sparing, especially for day surgeries. And if you, if we can, if proudly signs of that product from the Phase 1 dose finding and all that, if they can be confirmed, that can be a very nice add on. So like Praxone [ph] once a month falls in that category, and there are a few more in that. So, we are building the portfolio of these 505(b)(2), other than complex generics, which I just talked about and continue to add those to our portfolio.
Jason Gerberry
Complex injectables feels like three buckets to me it’s long acting anesthetics. It’s these microsphere products that are hard to make like Exparel, and then theirs is Venofer, which we’ve talked about for like a decades – he’s ever been able – but these are basically generic opportunities that presumably would have first to market, potentially like exclusivity dynamics. That could be…
Michael Goettler
Nice tails also.
Jason Gerberry
But with the LAIs, I mean, from my recollection, I think in Vega [ph] got a patent upheld and it may be gating for the market opportunity for a while.
Michael Goettler
For the [indiscernible] or…
Jason Gerberry
And Vega’s…
Rajiv Malik
But, I have to come back there three on that one, one month, three months. We have the three months one, which we are the first to fire and all that. But I’ll tell you, there are multiple strikes on the goal at this cases between the Sandostatin, this one [indiscernible], I can go on, this is very exciting pipeline, which is going to cover over the next five, six years. These all products are going to hit the market over this period of time.
One is the first to market. Second, is these products going to have a long tail? They are not going to be 10 players within, because these players, these products have been out there for so long. So they are, they have difficult, really hard to make products.
Jason Gerberry
This all dates back through like the strides business that you guys acquired in terms of where all these product opportunities?
Rajiv Malik
We acquire technology, we developed these products in the last five years.
Jason Gerberry
Yeah. Okay. And then lastly just some of the inflationary dynamics that, that affect your business and not asking you for guidance per se, but just kind of just currently your assessment of the world we’re living in, we heard J&J talk on their 2Q call about people cost being more of a 2023 headwind, right. In terms of employees and having to pay up and raw material costs is another aspect, thinking about the inputs. Right. I know that you guys did provide some guidance parameters for this year, but just, yes as you look…
Michael Goettler
And I would limit my comments for this year because we’re not giving guidance yet, but I think two things I want to point out Sanjeev maybe of you more, is no one is we included that in our guidance call at the beginning of the year. It wasn’t very popular item at the time, right. But you haven’t heard us talk about it since, right. So we, I think made the right call. We include, we managed within those parameters, maybe even a little bit better. Right. So that’s number one.
Number two is in, obviously as we put the plan together for next year, we have multiple levers. Right. There’s other efficiencies that can be gained. There’s SG&A. We have the synergies coming. So, I think it’s too early to make any call on how would that influence us for next year.
Jason Gerberry
Okay.
Michael Goettler
And you covered it.
Jason Gerberry
Got it. I guess maybe since we have two minutes left, just anything just on the legal front, it’s always a conversation point, with the price fixing matter opioids, et cetera. It seems like there’s really no exposure there, no exposures, Zantac. Those are probably the big three that make my job complicated on certain days. But maybe just, can you summarize your exposures?
Michael Goettler
There’s really no update to what’s been disclosed and, or anything that we set in the last six earnings call we only…
Jason Gerberry
Yes. I mean, I imagine that there’s statute of limitations that on the price fixing matter that probably have subsequently left.
Michael Goettler
Yes. Again, look what the bottom, the core is I don’t know, what statute limitation, but the core is that, we have done nothing wrong. That’s our investigation shows and we stand by that and variously defend ourselves. And on opioids, that we were a very, very small player. Right. We’re not impacted any of the settlements. Back of the line on that one. It’s we have other things to focus on.
Jason Gerberry
Yeah. Well, all well, great. Well, thanks. So much for joining us the conference and appreciate the update. Thank you very much.
Michael Goettler
Thank you.
Sanjeev Narula
Thank you for having us.
Question-and-Answer Session
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