Sanjeev Narula
Chief Financial Officer at Viatris
Thank you, Rajiv and good morning, everyone. Let me start with what you heard from Robert, in particular as it relates to 2024. We continue to feel confident about the starting point for Phase II as communicated in November of last year, and nothing has changed from then to now.
As mentioned, although we are not giving guidance beyond 2023, we expect to have at least $2.3 billion in free cash flow from the underlying business in 2024 before any divestment cost and taxes. This reflects the expected cash flow generation after removing the planned divestiture.
2022 was another strong year for the company, enabling us to deliver on our Phase I commitment, while further investing in our business. We're taking bold steps in reshaping the company and remain confident in our strategy to return to growth in Phase II.
Moving to slide 26. We finished the year on a strong note across total revenue, adjusted EBITDA, and free cash flow and results were in line with our expectations. Recall that our previous guidance included full year contribution from biosimilar business. As a result, because of the Biocon transaction closing in late November, we're adjusting our guidance down by approximately $86 million in total revenue, $31 million in adjusted EBITDA, and $20 million in free cash flow relating to the exclusion of results since closing. Also impacting adjusted EBITDA and free cash flow was $36 million of acquired IPR&D, which was not included in the guidance. Free cash flow also impacted by $254 million of transaction cost and taxes related to the Biocon transaction. Excluding this impact, free cash flow would have been $2.8 billion on a full year basis.
Now, turning to slide 27. Revenue was impacted by foreign exchange, given our significant international operation. Excluding this impact, we're encouraged by the operational stability and diversification of our global portfolio.
As mentioned on the third quarter call, we anticipated adjusted gross margin to moderate in Q4 due to continued inflationary headwinds and product mix. On a full year basis, adjusted gross margin came in at the high end of our expectation at 58.9%, driven by strong brand performance. Adjusted SG&A and adjusted R&D came in line with our expectations and included certain investments we made in Q4 to support our 2023 plan.
We had a very strong year of cash flow generation, reflecting our underlying operational performance and continued organizational priority on cash optimization initiatives. As mentioned before, free cash flow in fourth quarter was impacted by Biocon transaction. And excluding this would have been $243 million in Q4 2022.
Slide 28 illustrates the uses of the upfront cash proceeds received upon the closing of Biocon transaction. It is important to note that the gross proceeds of approximately $2 billion are included in the cash flow from investing activities. While the related tax and transaction costs are included as negative cash flows, from the operating activities. The net proceeds, serve to accelerate debt pay down, fund the eye care acquisition and execute on share repurchase in Q1 2023.
Slide 29 illustrates the continued prioritization of debt paydown, which has resulted in total paydown of approximately $5.4 billion over the last eight quarters. As a result, and irrespective of divestiture proceeds, we expect to meet our commitment of paying down at least $6.5 billion during Phase I. We exited 2022 with a gross average of approximately 3.2 times. These deliberate actions taken by the company reinforce our commitment to the investment-grade rating. Another priority is returning capital to our shareholders, which included approximately $580 million in dividend in 2022 and more than $980 million, since the beginning of 2021.
Slide 31 and 32 speak to the assumptions and guidance for 2023, which we expect to be a bridge year to get to our starting point in 2024. In 2023, we expect continued strengthening of our financial profile, which includes, our expectation that total revenue will grow versus 2022, excluding the contribution of biosimilar.
Investment into Eye Care Division and our strong pipeline for future growth, another strong year of expected free cash flow generation and our capital allocation framework, which includes debt paydown and significantly enhanced, capital return to our shareholders. As previously mentioned, the timing of planned divestiture may create fluctuation in our future reported results.
The guidance we presented today includes the anticipated full year performance of businesses that we expect to divest. Similar to Biocon transaction, we will provide as much transparency as possible on the expected impact to our guidance and results as and when these transactions are announced.
As it relates to key metrics, we expect slight moderation in our gross margin relative to 2022 levels this includes the expected pricing impact on key products, base business erosion and the continued inflation impact. With respect to acquired IPR&D, we do not include any amount in our guidance related to unsigned deal.
Now let me explain the anticipated phasing for this year. We expect total revenue and adjusted EBITDA to be higher in the second half, due to ramp up new products and normal product seasonality. Specifically, we expect Q1 to be the lowest quarter for the total revenue and adjusted EBITDA.
We estimated free cash flow will be evenly weighted between first half and second half. In general, Q2 and Q4 tend to be lower due to timing of semiannual interest payments. It is important to note, in the revenue guidance walk on slide 33, the 2022 adjusted number of $15.65 billion excludes the 11-month biosimilar revenue included in our reported results.
On a comparable basis, at the midpoint of revenue guidance, we expect total revenue of the underlying business will grow in 2023. Based on January FX rate, full year guidance assumes minimum foreign exchange impact on total revenue, adjusted EBITDA and free cash flow. We remain encouraged by the operational performance of our segment, stability in global brands and expectation of approximately $500 million in new launches. In addition, we expect $56 million in revenue from Tyrvaya of our new eye care product.
On Slide 34 are few items that will impact adjusted EBITDA. First, we expect adjusted gross margin to be impacted from continued competition on key products. Next, adjusted gross margin of new products is expected to be above the company average. Third, we're investing in Eye Care division, which includes commercial infrastructure and DTC investment in the second half of the year. We're making further investment to advance the deep Phase III ready eye care pipeline. And lastly, other bucket includes the impact of continued inflation and investment with some offsetting benefit, including synergies.
Turning to Slide 35. We expect another strong year of free cash flow generation as a result of expected lower one-time cash cost and continued focus on cash optimization initiatives.
On Slide 36, I will now turn to our financial commitment, including return of capital to shareholders. To start, we have completed $250 million of share buyback or the previously announced $1 billion repurchase authorization. In addition, we anticipate an annual dividend of $0.48 per share. Taken together, this will increase our capital return by over 40% versus 2022. This represents a minimum payout of approximately 33% of the midpoint of free cash flow guidance.
In addition to capital return, we will continue to prioritize debt reduction and expect to pay down our scheduled maturity of $1.3 billion in 2023, and thereby, we expect to deliver on our commitment of $6.5 billion of debt paydown in Phase I. This is irrespective of proceeds from the divestiture. This is continued evidence of progress towards our stated gross leverage target of three times.
Within an extraordinarily strong financial position and are benefiting from our investment-grade rating in this rising interest rate environment, with nearly all of our capital structure being fixed rate, we expect interest expense for 2023 to be flat versus 2022.
In closing, we are well positioned for a strong start in 2023, which we considered our bridge year. The reshaping initiative will serve to strengthen the company and set us up well heading into 2024 and beyond.
With that, I will hand it back to the operator to begin Q&As.
