Mylan N.V.  (NASDAQ: MYL) Q1 2020 Earnings Call Transcript

Mylan N.V.  (MYL) Q1 2020 earnings call dated May 11, 2020

Corporate Participants:

Melissa Trombetta — Head of Global Investor Relations

Robert J. Coury — Executive Chairman and Executive Director

Heather Bresch — Executive Director and Chief Executive Officer

Rajiv Malik — President and Executive Director

Anthony Mauro — Chief Commercial Officer

Ken Parks — Chief Financial Officer

Analysts:

Ronny Gal — Bernstein — Analyst

Chris Schott — JPMorgan — Analyst

Randall Stanicky — RBC Capital Markets — Analyst

Umer Raffat — Evercore ISI — Analyst

Akash Tewari — Wolfe Research — Analyst

Greg Gilbert — SunTrust — Analyst

Jason Gerberry — Bank of America Merrill Lynch — Analyst

Elliot Wilbur — Raymond James — Analyst

Gary Nachman — BMO Capital Markets — Analyst

Xiaozhou Fan — SVB Leerink — Analyst

David Risinger — Morgan Stanley — Analyst

David Amsellem — Piper Sandler — Analyst

Louise Chen — Cantor Fitzgerald & Co. — Analyst

Presentation:

Operator

Good day. My name is Erica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mylan First Quarter 2012 Earnings Conference Call and Webcast. [Operator Instructions]

After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Melissa Trombetta, Head of Global Investor Relations. Please go ahead.

Melissa Trombetta — Head of Global Investor Relations

Thank you, Erica. Good morning, everyone. Welcome to Mylan’s first quarter 2020 earnings conference call. As we begin our call today, I would like to note that we are mindful of social distancing guidelines and as such are dialed into today’s call remotely. I would ask for your patience should we encounter any technical difficulties.

Joining me on the call from a separate location, albeit six feet apart from one another are Mylan’s Executive Chairman, Robert Coury; Chief Executive Officer, Heather Bresch; President, Rajiv Malik; Chief Commercial Officer, Tony Mauro; and Chief Financial Officer, Ken Parks.

During today’s call, we will be making forward-looking statements on a number of matters, including our financial guidance for 2020 and the proposed transaction pursuant to which Mylan will combine with Pfizer Inc.’s Upjohn business in a Reverse Morris Trust transaction to create a new company that will be named Viatris. 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 the earnings release we furnished to the SEC on Form 8-K earlier today, as well as our supplemental earnings slides, all of which are posted on our website at investor.mylan.com, for a fuller explanation of those risks and uncertainties and the limits applicable to forward-looking statements.

Mylan routinely posts information that may be important to investors on this website and we use this website address as a means of disclosing material information to the public in a broad, non-exclusionary manner for purposes of the SEC’s Regulation Fair Disclosure. In addition, we will be referring to certain actual and projected financial metrics of Mylan on an adjusted basis, which are non-GAAP financial measures. We will refer to these measures as adjusted and present them in order to supplement your understanding and assessment of our financial performance.

Non-GAAP measures should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP. The most directly comparable GAAP measures as well as reconciliations of the non-GAAP measures to those GAAP measures are available in our first quarter 2020 earnings release and supplemental earnings slides as well as in the Investor section of our website. Please note that this call relates to Mylan’s first quarter 2020 earnings and we will be limited in what we can speak about during Q&A regarding Viatris and we will be not — we will not be speaking about the Upjohn business.

Let me also remind you that the information discussed during the call, except for the participant questions is the property of Mylan and cannot be recorded or rebroadcast without Mylan’s expressed written permission. An archived copy of today’s call will be available on our website and will remain available for a limited time.

With that, I’d like to turn the call over to Robert.

Robert J. Coury — Executive Chairman and Executive Director

Thank you, Melissa, and good morning. I’d like to welcome everyone to Mylan’s first quarter earnings call, including our Mylan and future Upjohn colleagues. As I begin, let me take a moment on behalf of Mylan to extend our deepest appreciation to all the health care workers and first responders working tirelessly around the globe to care for all those affected by the COVID-19 virus.

I’d also like to sincerely thank our Mylan employees worldwide and their families for the remarkable resilience and determination, they continue to show to help deliver on our mission of providing patients around the globe with continued access to much-needed high quality medicines. I will be turning the call over to Heather and the management team in a moment to discuss the quarter at hand. But first either I or a member of our management team will also take this opportunity to address some of the questions and themes that I have received over time from shareholders and analysts, and I do really appreciate their inputs.

We will address those questions to either during our opening remarks or during today’s Q&A session. While management will cover the effects of COVID-19 in our business and operations, I would like to share some high level observations regarding the pandemic as a whole. I will also be providing an update on the status of our exciting combination with Pfizer’s Upjohn business. As the COVID-19, since our last earnings call, the global landscape has changed significantly as a result of this pandemic. We all remember events in our lifetimes that have left lasting impact on us as individuals, our communities and the world. This global pandemic is one of those moments.

While the pandemic has brought significant challenges that will profoundly impact the global community for years to come, we are also witnessing an incredible examples of human ingenuity, compassion, the extraordinarily talented efforts of health care professionals around the world and the critical importance like never before of the pharmaceutical industry during these unprecedented times. I also believe that we could be at the beginning of a resurgence of appreciation of the generic pharmaceutical industry and the critical value the industry delivers to the majority of the patient populations around the globe.

The COVID-19 pandemic only magnifies healthcare needs that we must meet by delivering both cost effective therapies and targeted innovation. It is this unique and balanced profile that characterizes Viatris, which will be a leading role within the industry once we launch upon our closing later this year. Mylan for its part is deeply committed to continuing to support public health efforts as the pandemic evolves, and I am extremely proud that the one of a kind global platform, we built over the last decade has enabled us to do just that by continuing to deliver access to medicines around the world even as supply chains across multiple industries in countries are challenged more than ever.

Mylan achieves these things because we continue to remain intensely focused on controlling what we can control and running our business safely and efficiently. It never ceases to amaze me on how Mylan and our dedicated workforce mobilizes to address challenges at hand, including those brought on by this pandemic. There are a couple of examples that bring to life. Some of the unique value proposition of Mylan’s powerful global platform coupled with its equally unique talented global workforce.

For example, Mylan has already shown its ability to rapidly ramp up production to manufacture potential COVID-19 treatments in response to request of governments. Additionally, as many other innovative and biotech companies work to develop their own potential therapeutic treatments for COVID-19 and given Mylan’s rich experience on anti-retrovirals you can surely expect that Mylan will once again be in a readiness position to do its part to develop, partner, produce and soon scale up necessary medications, active ingredients in a matter of months, not years.

Our ability to deliver on these unprecedented time frames is only possible, as a result of Mylan’s entrepreneurial spirit, vast global manufacturing and scientific platform, broad product portfolio covering nearly all therapeutic areas including antiretrovirals and by partnering with a broad scientific community all around the world, including CHAI, among others. Mylan has a long and successful history of partnerships with other companies. For example, we partnered with Gilead to help expand access to infectious disease medicines including HIV in the markets that they cannot reach alone.

From this partnership we have licensed nine medicines and distributed to nearly 10 million patients annually in more than 100 countries. These examples speak directly to the unique capabilities and nimbleness of Mylan’s global diverse platform and the value we continue to bring to others by helping them expand their reach around the globe. Without speaking for other industries, I can certainly tell you that in the pharmaceutical industry, especially when needed to meet global health needs for medications. These kind of accomplishments simply could not occur with just one company or one country alone approach. This is exactly why Mylan built out its global platform in the first place. So that we can leverage our global resources and efficiently deliver high quality medicines when and where needed.

Now turning to a quick update on the status of our very exciting transaction with Pfizer’s Upjohn business. To start, I think it’s important to reiterate some of the clear fundamentals and substantial merits that this transaction has to offer. More specifically, one, this combination with Upjohn would not only enhance our global scale and geographical reach, but two, this combination will also accelerate Mylan’s own standalone business plan by at least three years to five years. Number 3, this combination will create an even stronger business model and operating platform with expanded commercial capabilities that will not only enhance our EBITDA, but our EBITDA margins as well and generate much greater free cash flows.

We also expect to garner an estimated $1 billion in annual cost synergies by the fourth full year after close, while at the same time pursuing more attractive revenue growth opportunities as well. For this combination we will also create a much stronger financial profile by further strengthening our balance sheet and financial flexibility. We remain committed to rapidly delever and work towards our goal of 2.5 times leverage ratio and finally, 5, Viatris will provide a greater focus on total shareholder return by creating a more shareholder-friendly capital allocation model, starting with our commitment to institute a dividend policy for Viatris after our first full quarter post close of at least 25% of our free cash flow.

In addition, and as I’ve stated previously, I continue to believe that 2021 will be a trough year from which Viatris will establish a financial baseline to grow from. While we will not be giving guidance at this time, I do think that many, but not all analysts models on both revenue and EBITDA ranges are directionally moving in the right place and consistent which where I believe 2021 may be coming together. But once again official guidance, we will be given by the new Viatris management team led by Michael, Rajiv and Sanjeev at the appropriate time. And when that occurs, I am even actually more excited about their having opportunity to rollout and present to, to all of you Viatris’ new and unique global health care gateway.

Importantly, this new global healthcare gateway will be powered by Viatris’ unmatched global infrastructure and expertise while also offering others the ability to further empower their own assets to reach more patients worldwide. By offering other’s access to Viatris’ global health care gateway, which will include access to our global commercial reach across all channels. Our global supply chain, our global expansive regulatory expertise and our global cost efficient manufacturing platform. Viatris will be able to serve a unique sweet spot and tap a new reservoir value creation as a new pathway for partners who would otherwise need to rely on either a fragmented or highly localized for regional expansion strategies of their own. You will hear more about this and why we believe Viatris will be the true partner of choice at the first Investor Day post close.

Turning to integration planning. And although, Heather and Rajiv will provide their own comments, from my own continued discussions and efforts in working with the future management team of interest. I am extremely pleased with their continued alignment and commitments to executing on the objectives that we have set forth in the road map to optimize total shareholder return. We will also be finding an opportunity for Michael, Rajiv and Sanjeev to speak with shareholders and analysts directly at the appropriate time and as we monitor the evolution of the COVID-19 precautions but certainly, before closing.

Also you should know that our Extraordinary General Meeting, EGM for the Mylan shareholder vote to approve this transaction is currently scheduled to coincide with our Annual General Meeting or AGM on June 30. In addition to the shareholder approval at that meeting, the only outstanding third party approvals at that point would require to close — to close the transaction will be from the remaining antitrust regulatory authorities. Hence, this is why we feel very confident at this time that we’ll be able to close this transaction in the second half of this year.

I look forward to answering your questions during the Q&A session. I’ll now turn the call over to Heather for comment at the quarter at hand.

Heather Bresch — Executive Director and Chief Executive Officer

Thank you, Robert, and good morning. We hope everyone listening today is staying safe and healthy as we continue to navigate these unprecedented times together. Our hearts and thoughts are with all of those have been personally affected by COVID and all of the health care workers and first responders who continue to go above and beyond to help save lives. I’d also like to send a special message of gratitude to our entire Mylan family especially our frontline workers. Due to their efforts our manufacturing facilities have remained operational and we’ve been able to continue meeting patients’ needs even amid the challenges of a global pandemic.

We recognize that the pharmaceutical industry including Mylan has a unique responsibility to help respond to public health needs during this time. Our efforts have been aimed at fulfilling those responsibilities on a number of fronts, including protecting the health and safety of our workforce, continuing to produce critically needed medicines, deploying our resources and expertise in the fight against COVID-19, supporting the community — communities in which we operate and maintaining the health of our overall business. So, the world around us has certainly changed our mission remains the same. We’ve made extensive efforts to ensure supply continuity for critical medicines ranging from maintenance treatment for chronic conditions, the ICU drugs or anti-effectives in short supply due to the increased demand related to COVID-19.

We’re also participating in clinical and prophylactic trials through which product donations, including the World Health Organization’s global SOLIDARITY trial and are continuing to evaluate additional opportunities to meet unmet needs. There is no doubt that COVID-19 has tested the strength of supply chains across multiple industries and countries. We all rely on a very global economy, especially when it comes to the availability of medicines. As the pandemic continues to evolve, we have received a number of inquiries regarding governments increasingly urgent interest and strengthening domestic pharmaceutical manufacturing and supply.

We have and will continue to spend time with legislators and regulators around the world on this important topic to hopefully help find the right balance between strategic supply and global needs.

With all that said, I’d now like to turn to our first quarter results. Our performance came in with total revenues growing 5% or 8% on a constant currency basis. In addition, adjusted EBITDA improved 6% over the prior year with strong adjusted free cash flow, especially for the first quarter, coming in at $357 million. Adjusted SG&A and capital expenditures came in lower than expectations and our EBITDA margins were ahead of what we normally see during Q1.

During the quarter, North America and Europe’s performance more than compensated for our Rest of World segment where COVID-19 impacts hit sooner than other parts of the globe.

As we look forward, we’re reaffirming our 2020 financial guidance as we continue to expect total revenues to be in the range of $11.5 billion to $12.5 billion absorbing approximately $200 million of foreign exchange headwind versus our previous expectations, and adjusted EBITDA to be in the range of $3.2 billion to $3.9 billion absorbing approximately $50 million of foreign exchange headwinds versus our previous expectations. These ranges account for COVID-19 impact forecasted through Q2 and assume that health care systems around the world will begin to resume their normal function in the second half of 2020.

This guidance also takes into account the fact that we are absorbing a delay in some of the benefits of our business transformation program because we paused certain restructuring elements of the plan due to COVID. Regarding the work we’re doing to successfully close the transaction with Pfizer’s Upjohn business, as Robert mentioned, we remain confident in our ability to achieve that milestone in the second half of 2020. To date, we have received antitrust regulatory clearances in 15 jurisdictions including the recently announced conditional approval from the European Commission and we continue to work collaboratively with regulatory agencies around the world on the remaining clearances.

I’m impressed every day by the energy and motivation that the Mylan and Upjohn teams bring to the integration planning, while also meeting their day-to-day and COVID related responsibilities. I’m confident that Viatris will be well positioned to be a true partner of choice, especially as health systems globally grapple with the realities of evolving patient needs and new healthcare paradigm.

With that, I’ll turn the call over to Rajiv, Tony and Ken to provide additional detail on the quarter and our COVID-19 response effort.

Rajiv Malik — President and Executive Director

Thank you, Heather. And good morning, everyone. I would like to begin by equaling Robert and Heather’s thanks to our thousands of Mylan colleagues all over the world who have done above and beyond during this challenging time in support of our mission, especially our frontline workers whose commitment and teamwork has enabled Mylan to continue its operations without missing a beat. And respond to the need for certain critical medicines. During this unprecedented time, we have taken extraordinary measures to keep our operations safe, so we can ensure continued supply of our medicines.

A few examples include implementing social distancing within the plants, increased sanitization of common areas, temperature and symptoms monitoring and staggering shifts. I would like to take some time to address the inquiries that have come from various stakeholders around the impact of COVID-19 on our supply chain, especially given our relatively large presence in India. As you can see on slide 5 in our earnings presentation, Mylan strategically has maintained a broad diverse and resilient manufacturing footprint.

Our 44 manufacturing facilities across 12 countries position us to maintain proximity to the key markets and help us maintain supply continuity even when the environment around us changes rapidly. Our top 50 products are supplied from 15 different countries in 30 different manufacturing locations. From an API point of view, not only are we vertically integrated for several key products but we have also built strategic partnerships with our API suppliers, and built in redundancies to mitigate the disruption. Today, approximately half of our API come from India and China and the other half from North America, Europe and Rest of the World.

In India, we have 19 manufacturing facilities located in five different states which mitigates risk of disruption in any given part of the country. Similar to other countries, our operations in India did not experience much disruption. Even during the first week of lock down while rules regarding essential workers were being clarified, these sites saw minimal disruption. By the second to third week Indian operations were back to normal. It’s also worth noting that Mylan has not to date experienced any meaningful disruption from its more than 500 third-party supply partners located around the world.

We are continuously monitoring our inventory levels of our raw materials and dosage forms and currently are in a strong position from a supply point of view to meet our customer needs across the globe.

Turning to our first quarter results. We delivered $2.6 billion in total revenues, which is an 8% constant currency growth, versus the prior year. These results reflect solid underlying business performance and execution on recent launches. As you may expect, we did see increased demand due to COVID-19, which has resulted in an increase in net positive consolidated revenues of approximately 2% primarily coming from Europe.

For North America, our net sales were $956 million, which is up 4% compared to the same period last year. Growth was largely driven by Wixela a generic to Advair, which as you may recall was launched in the first quarter of 2019. We are also pleased to see that Yupelri, our nebulized once-daily LAMA achieved 87% share of nebulized LAMA market and a 13.7% share of long-acting nebulized market.

In Europe, our net sales totaled $1 billion, which are up 18% on a constant currency basis compared to the same period last year. Our strong quarterly performance was primarily driven by the higher net sales and volumes of existing products. For example, products such as Creon, Dymista, Brufen and Hulio which is our biosimilars to Humira showed double-digit growth due to the targeted investments in the key markets. In addition to the estimated impact of COVID-19 increased volumes were driven by the resolution of the supply disruptions in the prior year period.

Moving on to the rest of the world. Our net sales were $611 million. This is flat on a constant currency basis compared to the same period last year. The estimated negative impact from COVID-19, which resulted in a slightly weak performance in China and Japan was largely offset by strong performance of our anti-retroviral franchise and new product sales primarily in Australia. I would now like to share some key pipeline updates.

I’ll start with an update on our industry-leading comprehensive global biosimilar portfolio. Tony will later provide more detail from a commercial perspective. To begin, we remain on track with our expected approval of insulin glargine to support a mid-year product launch. This quarter, Biocon’s Malaysia’s manufacturing facility received FDA pre-approval. With respect to the related patent litigation, we received a favorable District Court decision on March 9, and further IPR DCNs remains pending. We also continue to be engaged in active discussion with the FDA on a viable pathway to obtain an interchangeable designation.

In addition, we expect to launch our Etanercept product, which is our biosimilar to Enbrel in the second half of this year in Europe. Our BLA and marketing authorizations for our biosimilar to Avastin is currently under review with FDA and European authorities. In addition, the development of our biosimilar to Aspart and EYLEA remain on track. Also as recently announced by Revance, we are continuing discussions with them regarding the development of a biosimilar to BOTOX. We plan to provide an update on the path forward by May 31.

Now, I will provide an update on some other pipeline products. As I mentioned last quarter, we continue to deepen our pipeline with high value product opportunity. I’m pleased to inform you that we have filed an IND application for MR-107A-01, which is being developed as a non-narcotic oral analgesic for the management of moderate to severe pain, and we plan to initiate Phase 2 clinical studies this year. We also continue to progress the development of MR-106A-01, which is a novel synthetic antimicrobial peptide that’s being developed as a topical product for burn wound treatments. This product will enter clinical development later this year.

Lastly, the Phase 3 study for our Glatiramer Acetate once a month program was initiated last October. This is a pivotal clinical study for the US NDA. Today, the study enrollment has been progressing well with more than 170 patients dosed in the study across 56 sites. Regarding Morgantown. We have continued to make progress on our comprehensive and ongoing remediation efforts at the facility and I’m pleased to share that FDA has determined the inspection classification of the site as voluntary action indicated. We changed from OAI. We are awaiting the formal close out of the warning letter, which was issued in November 2018 and we expect to receive it at any time.

Before I hand it over to Tony, I would also like to express my excitement about our continued progress with Upjohn on integration planning. I look forward to continue to partner with Michael, Sanjeev and the future Viatris leaders as we plan this integration and create a new champion for global health. We are successfully managing the process virtually given the current environment and are taking advantage of the additional time to focus on executing a quality separation and integration planning program.

And with that I will now turn the call over to Tony.

Anthony Mauro — Chief Commercial Officer

Thank you, Rajiv. And good morning everyone. In terms of my remarks today, I’d like to elaborate on two topics. First, I’d like to provide a state of the union on our commercial efforts and share some further detail on how we are navigating our commercial business globally through the COVID-19 pandemic. Secondly, and also important, I’d like to begin today by highlighting our biosimilars franchise and share our path from science to commercialization of one of the industry’s deepest product pipeline.

To start with the COVID-19 situation, our number one priority continues to be the safety of our employees including our dedicated sales force and commercial team of 7,500 people globally. In most countries, we have moved to a remote engagement model and have found new ways of doing business, relying heavily on technology and focusing efforts on connecting with healthcare professionals through various virtual tools. Through the impressive work of our sales team, we have completed nearly 200,000 interactions with healthcare providers over the past eight weeks and continue to provide the same level of value support that our teams have always delivered.

I’d like to personally thank these dedicated teams for their continued efforts and hard work during these complex times. Throughout this pandemic, we also continue to collaborate with pharmacies, hospitals, wholesalers, governments and health care providers to help address patient needs. We remain focused on ensuring customer and patient access to needed medicines and are closely monitoring volumes of critical products. Our service levels are currently strong and I am pleased to report that to date, our customers have sufficient supply on hand in markets across geographies.

Turning to our biosimilars franchise, we have always viewed this as an investment for the long term and one made globally across many territories. As we have invested in our pipeline and successfully demonstrated the science behind these products, we knew the next important step was the focus on the commercialization strategy. We are in the beginning stages of this journey in most of the developed markets around the world, and we know we have much work to do. We are focusing on 2020 as a year of expansion as we continue to increase our commercial footprint in the US and abroad.

Our initial focus for this stage with the scale of the organization and ensure we were methodically optimizing the opportunity to meet demand and maintain stock as we began to introduce biosimilars to markets around the world. Now with multiple global commercial launches underway and added learnings from our experiences in market, our focus has shifted to execution and strategic performance and we continue to look to grow our business and capitalize on new global opportunities. To provide a comprehensive look at where we are today, we offer one of the industry’s largest and most diverse global biosimilars franchises, which includes products either on the market or in development focused on areas of oncology, immunology, endocrinology, ophthalmology and dermatology.

We have received more than 150 marketing authorizations for biosimilar products in more than 85 countries worldwide. In the US, we’ve launched Fulphila, a biosimilar to Neulasta and Ogivri a biosimilar to Herceptin and have strong confidence in our long-term capabilities from physicians, payer and hospital standpoints to fully execute on both products throughout 2020 and the coming years. As Rajiv mentioned, we look forward to the anticipated approval and launch of Semglee, our insulin glargine, as we continue to expand our portfolio in this market.

In Europe, we’ve launched Hulio, a biosimilar to Humira, and we are beginning to launch process for Ogivri, Semglee and Fulphila in various markets as we broaden our biosimilar franchise offerings in many European countries. In addition, as Rajiv noted, we are looking forward to launching Nepexto, our biosimilar to Enbrel following anticipated regulatory approval in the coming months.

Other highlights include the recent launch of Fulphila in Canada, which extends our oncology portfolio there along with Ogivri. Additionally in Australia, after being the first to offer biosimilar trastuzumab, we recently launched Fulphila there as well and are encouraged by the early market response. Overall, we continue to believe that our experience and ability to develop complex products and successfully commercialize these products on a global basis have positioned us to be a worldwide leader in the biosimilar space over the long term.

We remain enthusiastic about this franchise and continue to look for opportunities to invest as well as expand our portfolio. With that, I’ll now turn the call over to Ken.

Ken Parks — Chief Financial Officer

Thanks, Tony, and good morning everyone. I’ll take a few minutes to provide a summary of our financial results for the first quarter. Q1 2020 total revenues of $2.6 billion were 5% higher than the prior year, and 8% higher on a constant currency basis. The consolidated results were favorably impacted by approximately 2% due to increased customer buying patterns and patient prescription trends resulting from the COVID-19 pandemic. The majority of this impact was realized in Europe.

In addition, total revenue growth reflects higher volumes of existing products and to a lesser extent new product sales of approximately $70 million, partially offset by lower pricing. In the first quarter, our adjusted gross margins were approximately 53% compared to approximately 54% in the same period last year. The decline is primarily the result of lower gross margin on sales of existing products in the Rest of World, as well as North America, partially offset by higher gross margin on sales of existing products in Europe along with sales of new products in all three regions.

From a segment profitability standpoint, North America increased 9% in the quarter excluding cost associated with the Morgantown restructuring and remediation program. This increase reflects contributions from new product sales, higher volumes and favorable product mix, partially offset by impacts from lower pricing on existing products due to changes in the competitive environment including Levothyroxine. Europe segment profitability also expanded up 35% in the quarter, primarily driven by the favorable impact of higher sales volumes, along with lower SG&A spending.

Conversely, Rest of World segment profitability declined in the quarter down 27%, as a result of lower pricing on existing products primarily due to governmental pricing reductions in Australia and Japan and unfavorable product mix, which was partially offset by benefits from new product sales along with higher ARV volumes. Both Europe and Rest of World’s segment profitability results were negatively impacted by foreign currency translation.

In Q1, adjusted R&D of $112 million was 19% lower compared to 2019 due to higher payments in the prior year period related to clinical activities for products and development. During the quarter, adjusted SG&A spending was lower than our expectations and essentially flat year-over-year, reflecting lower travel and promotional activities primarily resulting from COVID-19 related travel restrictions and lower legal expenses primarily offset by higher payroll related. In Q1, we reported adjusted net earnings of $467 million and adjusted EBITDA of $751 million, an increase of 11% and 6% respectively.

These increases versus the prior year primarily reflects the impact of the increase in our revenues and lower R&D spending, partially offset by negative foreign currency translation impacts. For the three months ended March 31, 2020, adjusted free cash flow was strong at $357 million, an increase of $330 million over the prior year. The year-over-year increase was primarily driven by improvements in working capital velocity and timing of certain other payments. For the remainder of the year, we expect adjusted free cash flow to benefit from seasonally increasing profitability, coupled with the resulting reductions in net working capital from first quarter levels.

At the end of Q1 2020, our debt to adjusted EBITDA leverage ratio was 3.6 times, in line with our expectation and our covenant requirements. We anticipate full year adjusted free cash flow generation consistent with 2019 levels and continue to target approximately $1 billion of debt repayment in 2020, starting with a scheduled maturity of EUR500 million of bonds later this month. While we don’t presently see any negative liquidity trends related to the COVID-19 pandemic, we will certainly continue to monitor those trends very closely.

We currently believe our positive cash flow from operations, along with our existing borrowing facilities providing liquidity up to $2.6 billion will allow us to meet our liquidity needs for the remainder of the year. We remain fully committed to our investment grade credit rating and to further reducing leverage. Finally, as you heard earlier, we are reaffirming our full-year 2020 guidance that we provided this past February. Total revenues are expected to be in the range of $11.5 billion to $12.5 billion absorbing an estimated $200 million of foreign exchange headwind beyond our previous expectations.

Full-year adjusted EBITDA is expected to be in the range of $3.2 billion to $3.9 billion absorbing approximately $50 million of foreign exchange headwinds beyond our previous expectations. It’s important to note that both of these ranges reflect our current expectations for operational and commercial performance as well as estimated COVID related impacts continuing through the second quarter.

Before I close, I would be remiss if I didn’t take a moment to express my thanks to our incredible teams around the world who worked and continue to work tirelessly to deliver on our mission and our commitments, while keeping themselves, their families and their co-workers safe and healthy. With that, we’ll now open the call up for your questions. Erica?

Questions and Answers:

Operator

[Operator Instructions] We’ll take our first question from Ronny Gal with Bernstein.

Ronny Gal — Bernstein — Analyst

Good morning, thanks for taking my question, and since I’m first I want to just thank all your staff all the hard work you guys are doing and making sure we all have the drugs we need in this difficult time. Question about biosimilars. First, you highlighted this as the key driver for the year. Could you share with us roughly what is your current run rate for biosimilars in the first quarter? And how much do you think it will grow to the end of the year obviously? If you said it yourself as a key goal would be great to be able to track your performance against that.

And related you’ve mentioned interchangeability for Lantus. I guess my question is, are we looking for the launch of both the vial and the pen at the same time, and do you expect interchangeability potentially in both or just one of them?

Anthony Mauro — Chief Commercial Officer

Thanks, Ronny. And first of all, I just want to reiterate, I could not be more excited, more confident about our biosimilars franchises, not just here in the US but around the world globally. As we continue to launch these products, not just the run rate we’re seeing in the quarter or the year for 2020, but for the long term, these products are products that are sticky, they had long-term value and we truly look forward to not just launching we have of launching other products. As we outlined either late last year or early beginning of this year, we had $3 billion in revenues from products we’re going to be launching up through 2023.

And with that being said, although we’re not giving guidance, you can continue to expect the biosimilars will be a very good portion of that value moving forward. I think the next question was about Lantus.

Rajiv Malik — President and Executive Director

And Ronny, regarding Lantus, we remain on track to launch both vial and the syringe as we earlier said in the second half of the year. And as far as the interchangeability is concerned, we have now signed to support science interchangeability and we are seeking interchangeability for both the dosage form. Science is very laid out in FDA’s guidance. And that’s where we are trying to negotiate with the FDA now, this interchangeability status.

Robert J. Coury — Executive Chairman and Executive Director

And I would only add Ronny and thanks for your expression at the beginning of your question, we do, we really do appreciate it. I would only —

Ronny Gal — Bernstein — Analyst

Thank you.

Robert J. Coury — Executive Chairman and Executive Director

Yes. We highlighted to biosimilar franchise because that’s really what it is for franchise. For quite some time, shareholders and analysts alike have been really focused in on our portfolio. When we first started building the portfolio, obviously, we were an unknown in this space. And the first thing we needed to do was demonstrate our science. Now what that’s done, we are shifting completely to a commercial effort. I have to be very honest and clear. Yes. We’ve have starts and stops, this is not, and I do think it would be our mistake for the investment community to look at this as a short-term measurement because we didn’t invest in this franchise nine years or 10 years for the next nine months, we invested, because as Tony said, this is a very sticky product in.

And also, to be frank, I think you guys have heard in the past, we did not get into this biosimilar franchise actually for the United States. We didn’t even think that the United States would come online so quickly. We thought it would come on afterwards. So we were very fortunate to be here first, but we do have a lot of work to do on the commercial end and you can expect because of the long-term nature of this franchise that we’re going to continue to put into type of improvements that are necessary to make sure that we get our value proposition out of our investments.

Operator

Your next question is from Chris Schott with JPMorgan.

Chris Schott — JPMorgan — Analyst

Great, thanks very much for the questions. I guess my first one here. Has there been any change in the way you’re thinking about Viatris? And what that pro forma portfolio and company looks like on your base 2021 year given the timing, the delay of the timing close as well as just recent business trends you’re seeing? Just any updates there would be appreciated.

And if I can slip in a second quick question was just on the Rest of World performance in the quarter, can you just elaborate a little bit more on the COVID impact to that business in Q1 versus how much pricing in Australia and Japan are impacting the results? I’m just trying to get a sense of what growth would have looked like ex-COVID for that part of the business? Thanks so much.

Robert J. Coury — Executive Chairman and Executive Director

Why don’t you take the second one first and then I’ll do the first?

Rajiv Malik — President and Executive Director

Yeah. As you would expect, Chris, China and Japan were the first two countries impacted from the quarter point of view. We saw that especially the impact on sales force not being in the field and all that. So we did see some impact over there, which was not significant. And if I have to put in the dollar terms, it was maybe $10 million, $15 million, and the same was offset by a very strong performance in our anti-retroviral franchise as well as new launches in Australia.

Robert J. Coury — Executive Chairman and Executive Director

And Chris, I would say if there is any change in the Viatris 2021 trough year, I would probably say that that change is I’m probably a lot more confident and how I’m feeling about going into 2021 and making sure that that baseline is set low enough to give management an opportunity to meet and exceed because when we hit that reset button, there cannot be variability in execution. There needs to be a constant at the very minimum meet or exceed quarter after quarter in order to restore confidence back in the sentiment of this very strong and powerful platform’s ability to generate substantial and durable cash flows.

I will tell you this pandemic is for first is what I’m going to say, there are silver linings we can’t control what we can’t control, and unfortunately this pandemic was thrown at us. So I am constantly trying to find silver linings and pick those silver linings out. A couple of them is, one, I believe that confidence that I am conveying to you has been in large part because of the delay in the — as a result of this pandemic. I’m seeing a higher quality integration process. I’m seeing a very strong alignment with management, I’m seeing much more clarity and what’s in front of us as things begin to materialize.

I do think that this extra time has bode extremely well and that’s where you know and you could certainly rely even though I won’t be the one be giving you actual guidance, I’m going to directionally help you guys understand what I see from time to time and so I would say that the only change is my absolute increased confidence in where I think that starting point is going to be and the fact that we’re going to be able to grow from that starting point.

Operator

Your next question is from — yes your next question is from Randall Stanicky with RBC Capital Markets.

Randall Stanicky — RBC Capital Markets — Analyst

Great, thanks. Hey, Robert, earlier this year you talked about picking a couple of therapeutic areas and focusing on those. Which areas are you thinking about and how opportunistic can you be and still balance of 2.5 times leverage target? And has that changed with the pandemic at all? Thanks.

Robert J. Coury — Executive Chairman and Executive Director

Actually, great question, Randall and that the approach has not changed, the final answer, I don’t have exactly yet because it’s not just a balance for that. Nothing is going to stand in the way of the 2.5 times, I think that that’s critical because we believe that that is the right level to ensure that we can deliver you know the capital allocation, you know how we want to disseminate capital allocation going forward. And part of that is to make sure that that dividend is sticky. Okay.

What we are doing and we actually have a process well underway and I’m actually looking forward to Michael and Rajiv, you know work is going to be done specifically in the therapeutic areas. We are doing a very deep dive analysis on Mylan’s core competencies, on Upjohn’s core competencies and really determining you know after that dividend what free cash flows that we have to make for investments and what therapeutic areas makes sense to leverage what we already have versus those areas that we can complement with the talents that we’re, that we’re bringing together.

So I do believe we’re going to need a little bit of time. I can probably promise you that closing now that we’ve been extended and when Michael, Sanjeev and Rajeev come up and make the presentation, we will have those therapeutic categories for you in terms of directionally where this company wants to put its investments.

Operator

Your next question is from Umer Raffat with Evercore.

Umer Raffat — Evercore ISI — Analyst

Hi, thanks so much for taking my question. Robert, there has been a lot of investor questions on whether you guys will have a dividend at all? And with the size of the dividend maybe it would be really helpful if you could give us some color and perspective on that. And Rajiv, perhaps if you could speak to pharmacy visit trends in Europe in light of COVID? And I asked because it seems like you’re not seeing any demand impact but I’m trying to lay it in the context of what’s happening because of COVID social separation, as well as in particular with the impact of Meda and Abbott EPD business could look like in Europe.

Robert J. Coury — Executive Chairman and Executive Director

You go first.

Anthony Mauro — Chief Commercial Officer

Okay. Umer, thank you. I think whether it’s in the US or in Europe in particular, we’ve seen physician visits down based on IQVIA data down 75% plus and certainly as we work through the Q1 pharmacy sales were strong in Europe as we outlined today, and we continue to monitor and watch those trends on a weekly basis to ensure not just what we’ve captured but looking ahead, looking forward, we’re always ensuring that we’ve got the right product in the right place at the right time for our customers and for our patients.

Robert J. Coury — Executive Chairman and Executive Director

And Umer, in terms of the dividend, I honestly I’m trying to figure out how the question in the mind of some investors or what was said to give any thought that we are not committed to this dividend. There are two things that I want to point out. One, in my beginning in opening remarks, I can’t make it any more clear that once we come together with Pfizer’s Upjohn business and create Viatris, we are completely change in the emphasis of our business model to total shareholder return and a huge part of that, especially I must respect the Pfizer shareholders as well, because part of what is — was in our thinking is to make sure that that dividend is not only are we committed to it, but I hope that we can grow that dividend over time.

That is our strategy, we are deeply committed to this dividend as part of our more friendly shareholder allocation of capital going forward. And so, I will — so I hope I think between that change of business model and the fact that we’re going to be taking in 57% of Pfizer shareholders we are very, very committed. In terms of amount, we don’t give a dollar amount Umer, but that 25% of free cash flows is a commitment of ours and I think what you’ll need to do is take the EBITDA, I think I’ve kind of sort of directionally given you guys where I think the right starting point is and I think it’s, I do believe it’s substantially higher than the $500 million that you are referencing. But I don’t want to give a specific dollar because we’re basing it off of our free cash flows.

Operator

Your next question is from Akash Tewari with Wolfe Research.

Akash Tewari — Wolfe Research — Analyst

Hey, guys. So I wanted to go back to the $4 billion pro forma GAAP free cash flow that was I guess not guided, but at least directionally guided for Viatris when the deal was originally announced. Can you walk us through the bridge between the roughly $7.5 billion in pro forma EBITDA to the $4 billion in free cash flow. There seems like there is an undisclosed impairment charge. And given the tweaks on the business, are you comfortable with that $4 billion free cash flow number on a go-forward basis?

And secondly on gross margins, we noticed both in the US and EU margins were up year-over-year. But overall, gross margins were slightly down. Can you give us some color on what’s driving this gap between the interest segment margins going up, but the overall gross margins going down. Thanks a lot.

Robert J. Coury — Executive Chairman and Executive Director

So, Ken.

Ken Parks — Chief Financial Officer

Yeah. So Akash, thanks for the question. On the difference between the cash flow and the EBITDA number, it’s the typical items that run through there, it’s depreciation and amortization that’s added back, right. So then you get down to cash flow, you actually have to take that back out, you get your tax rate applied to it. You have interest and there is clearly going to be interest on the not only the existing Mylan debt, which is about $0.5 billion. There is going to be interest on the $12 billion of financing debt and you can call that about the same amount, depending on where our rates land.

When you do that, you’re going to end up, you should end up very much right at the $4 billion number that you’re trying to calculate to. So it’s the typical items that would take you from EBITDA right down. I don’t see and I don’t think there’s anything related to — I know there’s nothing related to anticipated impairment charges in that math.

Robert J. Coury — Executive Chairman and Executive Director

On the gross margins.

Ken Parks — Chief Financial Officer

The gross margins. The gross margins overall, the business gross margins are in, I think both North America and Europe. The operating margins of those businesses, which are somewhat reflective are both increasing year-over-year, whereas in the Rest of World segment, the operating margins in that business and that’s shown on the chart that’s included in our earnings material declined a bit I think about 300 basis points year-over-year driven by the details that we called out including stronger volumes of the ARV which tends to be a lower gross margin part of the business, combined with the pricing changes, the government pricing changes in Australia and Japan.

So not all three businesses are showing expanding operating margins, which is reflective of the gross margin trends and that should get you to about a point of overall consolidated gross margin deterioration.

Operator

Your next question is from Greg Gilbert with SunTrust.

Greg Gilbert — SunTrust — Analyst

Thank you. Ken, I was hoping you could talk about the inventory levels of Mylan products at key customers at the end of March versus the end of December? And for Tony on biosimilars I get that your comments are about the long-term franchise value. But I was hoping to ask more specifically whether anything has changed in either your approach or your supply situation in the Neulasta market in the US and any early comments you have on the Herceptin market, albeit early pros and cons or anything different about that market. Thanks.

Ken Parks — Chief Financial Officer

So, Greg, on inventory levels, I’ll make a comment Tony may have more to add to it because we’re all following this very, very closely and one of the things that we are pleased with is, is that with the sales levels that we’ve seen, including with the COVID impact that we called out, primarily in Europe equivalent to about 2% of our total consolidated revenues, inventory levels consistently by market, by category have been relatively consistent with what we saw December 31 going to March. And we measure those based upon looking at the sales numbers and the anticipated sale out over a period of time and taking into account some of the step up in the sell into the channel. Even with that we are seeing inventory levels that are solid. But very consistent with what we saw in December.

Anthony Mauro — Chief Commercial Officer

Yeah. And Ken, I think the only thing I’d add to the inventories around customers is, this is consistent, even as we see certain therapeutic categories surging sequentially in the months like products in the respiratory therapy that we have a large percentage of products in. So we’re monitoring these on a monthly basis ensuring patients and customers have ample supply. I think Greg as it relates to biosimilars, just going back to this is really a long-term play for us, one that’s not just US centric, but global and as we see these launches happening throughout the world and in the US products like Ogivri and Fulphila, we walk through kind of where we saw Fulphila at the end of ’19 in terms of where supply ceiling was.

We’re seeing that open up, we are concentrating on building that commercial infrastructure, how we built that foundation and we’re starting to see green sprouts, Ogivri’s share is up almost 3% this year in the US. We’re seeing these kind of optimistic things happening and we look forward to just growing them in 2020 and the years beyond.

Operator

Your next question is from Jason Gerberry with BoA.

Jason Gerberry — Bank of America Merrill Lynch — Analyst

Hi, good morning and thanks for taking my question. Just as a follow-up, you talked about sell side consensus estimates for the Viatris combination going in the right direction, but we only have access with the aggregators to Mylan’s standalone forecast. So can you comment at all 2020, what you’re seeing in terms of the mean level of the consensus? Is it in the same ballpark as I think you commented in the fourth quarter call about $18 million — $18 billion is the number that wasn’t directionally off. So just sort of curious if you can help for us characterize what you see for the consensus for the Viatris combination, which sounds like a number that you want to come in conservative against based on some of the earlier commentary. Thanks.

Robert J. Coury — Executive Chairman and Executive Director

Yeah. So again, I want to be careful here, but you’re exactly right, because I’m not actually giving guidance and I’m trying to signal to all of you that what I see in 2021 is really not a surprise to me. It’s what we’ve seen very early on as we were at way in front of some of the changes that were happening in China and we obviously were well aware of the LOEs going into this transaction. That’s why if you look at the transaction, you look at the pricing of the transaction, you will see that we fully incorporated a lot of what we see in front of us.

So we didn’t really have the opportunity to jump up front and really articulate directionally where the business is going, and everybody started off by looking at Upjohn 2020 and that is why I have also given comments in the past to try to help the Street understand that, you know, it’s not a simple as taking as fours and adding them together and it looking out into the future there is as you bring companies together, there are many other moving pieces. And I think that the $18 billion. Yes, I was directionally very comfortable and I also think that the EBITDA, I don’t see EBITDA coming down as much only because there is a number of offsets that I can see.

So we’re really thinking hard and this is where this extra time has really helped, how we will be bringing the businesses back together, and then when we take a look at the transformation work that we’re doing that was already well underway at Mylan and now underway at Upjohn and again I just feel that directionally you are correct. One of the things I have to make sure and ensure and pressure test with management is making sure that that starting point is a true baseline to grow from where management — this new management has the best chance of coming — I mean you can see by the roadmap that we have out there.

We have very explicit plants when it comes to execution, what is it that we need to execute on and how we’re going to deliver that total shareholder return for our investors. So I think that that $18 billion — $7 billion range roughly in that, right, that’s kind of an area — that’s kind of a — is I think the right and I haven’t changed on that even with what I see today I haven’t changed, if anything, I’m a little more confident as I continue to see things come together. But look, if you just be a little bit patient and let management come forth with very specific guidance with a lot of detail behind the guidance.

And then also, I want to live up to the promise of the expectations that when management does come forth. I do think that they owe it to the investment community to share how exactly they are thinking about this global business to do a walk around — around each of the geographical territories, do SWOT analysis for you. And as they speak about how they’re thinking about the business. Then the next step should be, you know, that should help you guys begin to build your models. And then I think there needs to be a discussion between management and the sell side analysts and shareholders, who are building models to make sure how we’re thinking about the business. What disclosures and how transparent we could be because we absolutely want to be as transparent as we could without hurting our competitive landscape.

So please expect that we’re still going to go through that process and it’s just a process, but it’s an exciting process and one that we’re looking forward to working together with you all.

Operator

Your next question is from Elliot Wilbur with Raymond James.

Elliot Wilbur — Raymond James — Analyst

Thanks, good morning. Maybe just one question for Rajiv specifically talked about the Company’s ability to mitigate any negative impact on its supply chain via vertical integration and the diversification of your manufacturing base, but maybe just tell us a little bit more about what you’re seeing in on the cost side, hearing from a lot of companies about significant price spikes or increases in APIs and intermediates and then global shipping costs on occasion, kind of go through the roof as well. So I don’t know if those are significant enough in the aggregate were actually noticing an impact on overall margins, but maybe just some commentary there.

And I also wanted to ask about epinephrine and supply chain dynamics there where you currently stand in terms of inventory and how you’re thinking about that product as we kind of gear up for the key back-to-school season, particularly since it may be an asset that you’re going to be a lot more control over going forward. Thanks.

Rajiv Malik — President and Executive Director

Thanks, Elliot. Look, there has been some fluctuations from the cost perspective, there has been some increased costs of certain intermediates. There has been definitely some increased costs which we have a thought on the logistics from freight point of view. There has been impact on from the absorption of the overheads of certain plants, but it’s not at the point that it has come to a point that it’s going to adversely. We don’t, we don’t see some of these trends continue the way we are at where we are. We see freight basically getting normalized as we go along, we are getting used to this set, there is whole new norm.

But as we go along we are keeping a very close watch on this and we will be transparent about what’s coming from what bucket, how it’s being impacted. We — more importantly, our focus has been on the continuity of supply. Supply of the critical products, supply of important — how can we meet the search some ICU critical products, how the demands have increased. So we have kept our focus on that. So that’s I think from the supply chain point of view.

The second from epinephrine. We are a strong position from supply at this point of time, we are ready for the school season. We don’t see any hiccups at this point of time, Elliot.

Robert J. Coury — Executive Chairman and Executive Director

Operator, if I may and I would ask that the rest of the analysts your questions, we ask for one question because I did promise that we would extend our time a bit and I do want to give all analysts an opportunity to ask questions if I could. So if you could limit your questions to one, I would greatly appreciate that just given the time constraints.

Operator

And your next question is from Gary Nachman with BMO Capital Markets.

Gary Nachman — BMO Capital Markets — Analyst

Hi, thanks, good morning. How much additional flexibility with expenses do you have to manage through COVID-19 in the near term? Or will you just wait for Upjohn, the Upjohn’s deal to close since the restructuring program is on hold for now with the COVID pandemic. Thank you.

Robert J. Coury — Executive Chairman and Executive Director

So, Gary, thanks for the question and it is something that we’ve been watching for the last several months. There is a portion of our cost clearly that is less flexible, especially since we have and said in the prepared remarks that certain parts of our restructuring programs will be placed on hold for a period of time. We will not be addressing certain programs that require impact on employees for all the reasons that you would want us to put those on hold. There are parts of our restructuring program that can continue, preparatory phase is looking at certain parts of our supply chain and our operational change. So, those will continue.

On the question of cost besides the payroll cost, we do have buckets of cost that are variable in nature, whether it be travel, which I called out advertising and promotions, meeting expenses, things such as that, along with other parts of our spend that is discretionary or I would say more discretionary and flexible in nature. With what’s going on, some of that naturally reduces, I’m sure you see the same thing, just like we do. People are not traveling, people are not getting on airplanes. People are doing much more by conferencing and telecalls and things such as that. So we have a measurable bucket of cost in this business that will move favorably with us.

I would also remind you that our business transformation activities are anticipated and that extends beyond our restructuring program, but it is a part of our restructuring program. Those will continue to occur as we move throughout the year. Those parts of the business transformation that relates to products and evaluation of products that remain in the portfolio. So I think with the mix of all that without giving you specific numbers on that. We believe that there is plenty of room to kind of manage with what we see with COVID and our current outlook extending through the second quarter to manage our cost base in relation to the current environment.

Operator

Your next question is from Ami Fadia with SVB Leerink.

Xiaozhou Fan — SVB Leerink — Analyst

Hi, this is Sheldon on for Ami. Thanks for taking my question. So maybe just one on biosimilar, now that Neulasta and Herceptin biosimilar market is becoming more crowded with more players coming in. What’s your overall strategy of differentiation in this market? Thanks.

Anthony Mauro — Chief Commercial Officer

Let me try to answer the best of my ability.

Robert J. Coury — Executive Chairman and Executive Director

I mean, I mean I would say, the first thing I would just say our competitors would love to hear exactly that, what is our strategy. It’s a real dynamic marketplace. And there’s actually a lot more players than I think any of us really anticipated that would be in the field. So it’s all of that, all the strategy. This market is still in the infancy of evolving and there is still a number of moving pieces that everyone I think is assessing. So with that, Tony, you could do the best you can. But I do want to be sensitive about just that.

Anthony Mauro — Chief Commercial Officer

For sure. And I think as Robert said, not going to walk through strategy, but I think we view these biosimilar as a franchise and franchises could be in certain therapeutic categories like oncology like you mentioned Fulphila and Ogivri. Yes we’re used to competing and in markets where there is many competitors and we look forward to continuing to do that. That’s not something we back away from something we look forward to and something I feel very confident and very excited about doing and growing over not just the quarters, but the years.

Robert J. Coury — Executive Chairman and Executive Director

Yeah. And again on the biosimilars, because it is really important to a lot of investors. We are going to measure our overall portfolio and not focus at this juncture to any one particular launch. I believe there are some launches for example the launches that you’ve seen here in the United States. You’re not really following the ones overseas as much, but yes we had starts and stops, we had pushes and pulls. But there is also learnings that come with that as well. And that’s why I think your question is appropriate about strategy, you also need to adjust that strategy along the way as well.

Operator

Your next question is from David Risinger with Morgan Stanley.

David Risinger — Morgan Stanley — Analyst

Yes, thanks very much and congrats on the performance, and thank you for all the detailed updates. So Robert, my question is back on the last call, you talked about trough in 2021, but that you also maybe take a hard look at 2022. Could you just please provide an update on your thoughts and any additional commentary on the pushes and pulls. Thank you.

Robert J. Coury — Executive Chairman and Executive Director

Thank you, David. And it’s a great question because without at least me projecting or in my own mind going out to 2022, how would I ever ensure that 2021 is going to be that trough year. I think that, David, what I’m trying to focus on is, one, I think that the company is going to go through two stages for a potential re-rate. I think one, we have to get the closing. That’s the very first thing we need to do. You know you can talk about paying the dividend, but until you actually are in a position to start paying it. I think there is that way.

So I want to be very clear about our commitment and I’m glad that Umer asked the question that he did, and I think people are much closer when it comes to the dividend, even though I’m not going to give an exact number. But commit to 25% of free cash flows. I actually think people are much closer to what they have anticipated than the numbers that Umer put out that some people are thinking about. But I think once we close and we actually form Viatris and we have that right starting point and people actually can see the new financial profile.

I mean we are already stronger from a financial profile that any one of our — anyone in our sector right now, imagine when we bring Mylan together with the Pfizer Upjohn business. When you take a look at that balance sheet and you take a look at our cash generation and you take a look at our friendly shareholder capital allocation, I’m just telling you right off the bat, I do think that will be the first time, we’ll get the first re-rate but the second re-rate will come and the one I think it’s going to be most impactful is when management could outline the three to five year CAGR offer that ’21 trough number and put legs behind underneath that three to five year CAGR, be very explicit about how you’re going to hit those growth rates both in three to five years, what do we already have in-house. What are we relying upon?

And then I think once the investment community really gets comfortable with the stabilization and the consistency quarter after quarter of the the baseline profile and then they start to see some vision where there is actually they can actually see how we’re going to get the growth, then I really think that the multiple that our company really deserves will materialize, but it has to happen in steps. That’s not going to happen overnight and certainly not going to happen over our looks, but I want to thank you for that question, because I can only say that I’m looking at 2022, but more so to ensure that 2021 is really going to be that trough year.

David Risinger — Morgan Stanley — Analyst

Thank you.

Operator

Your next question is from David Amsellem with Piper Sandler.

David Amsellem — Piper Sandler — Analyst

Thanks. Just a high-level question, I realize that asking a question about M&A and business development when you’re trying to close something transformational might be tricky. But as you’re thinking about the continued evolution of the new, the new organization, can you give us a window into your thinking on bolt-on acquisitions, additional areas of interest in terms of the acquisitions and particularly asset acquisitions and how should we think about your focus on brands versus generics in terms of your shopping list over the long term. Thank you.

Robert J. Coury — Executive Chairman and Executive Director

Thank you for the question. I think really to be fair to your answer, to really be fair to your answer. I think when the new management comes forth and speaks about our new Global Health Care gateway and really outlines how we intend to put to use the excess free cash flows after the dividend is paid, I do think you’re going to get a very concise response and I do think it would be a combination between what we already have in the pipeline, between what we think we should supplement our pipeline with and that will come with to Randall’s question. I think Randall is spot on in how he is thinking about the way we should be thinking about going forward. So that I think the therapeutic category, you’re going to get.

I think there really will be some opportunities for some tuck-ins. I don’t believe you should ever be thinking about major M&A. I do think that we need to really begin to start returning capital back to shareholders. So there, we are in the process of really thinking about an extraordinarily disciplined approach about allocation of capital on a going forward basis and I think it would be only fair one to the answer to your question. And two to the new management team. There is a tremendous amount of work that’s being done and I would like to let Michael and Rajiv and Sanjeev, let them present to the Board of Directors. This is something that we’re expecting.

We like to get their thoughts and we like to get the rationale behind their thoughts. We like to absolutely opine on them. And then let them come forth and I really believe that the real concise answer to your question will be forthcoming.

Operator

Our next question is from Louise Chen with Cantor.

Louise Chen — Cantor Fitzgerald & Co. — Analyst

Hi, thanks for taking my question here. So I just have a very simple question, what are the next steps that need to be completed in order for this Upjohn deal to close? Is there any timing you can give around those next steps and if they could be impacted at all by the COVID-19 pandemic? Thank you.

Robert J. Coury — Executive Chairman and Executive Director

Well, the first thing is to get to our shareholder vote and you saw that we moved it to June 30 and kind of sort of worked out well because we can now have it at the same time as our Annual General Meeting. So to put the two together, actually kind of worked out well. I’m hoping I could land in the Netherlands by then to actually conduct the meeting if need be. I did see that the Netherlands passed some emergency legislation to actually postpone to give people an extension up until October to actually have their Annual General Meeting on kind of the COVID.

So I’m looking at different ways of working through that. I don’t think that’s going to be a problem. We’ll look at other alternatives if we have to, but it’s right now it’s my intention to absolutely be there in person and to conduct that meeting. So I actually think that’s not a difficult one but you asked about how COVID-19 could play in, I would say, I would say that. I would say that the other one — the only other one is the remaining regulatory agencies for the anti-trust. And I can tell you I’m feeling very comfortable with the work that’s been done just where we are. I mean obviously when DC closed down, they themselves, the agency themselves, the FTC asked for an extension. So we’ve absolutely opined on their request. I don’t know how you can’t, but there is nothing I see that’s going to get in the way of our ability to close at the second half of this year.

There is nothing I see, there is no impediment. I think we have plenty of time to accommodate both COVID-19 and the antitrust regulators in terms of what needs to get done. Thank you.

Operator

[Operator Closing Remarks]