Company Reports

No-moat Viatris reported first-quarter earnings that came in a tad below our expectations. Total sales of $3.6 billion were down 1.8% year over year, or up 2% on divestiture-adjusted basis, and profitability slipped on weaker gross margin and higher expenses. We maintain our fair value estimate of $13 per share as minor adjustments to our model were offset by time value of money impacts.

Viatris is one of the largest generic drug manufacturers in the world. Generic drugs make up about 40% of the firm's sales and, along with other generics manufacturers, they continues to suffer low- to mid-single-digit erosion year over year in developed markets like North America and the majority of Europe. Because price and margin headwinds exist predominantly in small-molecule oral tablets that are easy to produce, we expect Viatris’ future pipeline to focus more on complex generics—drugs that have complex formulations, dosage forms, or are injected or have more complex administration.

Viatris hosted its R&D day where it mainly discussed its two new phase III assets, selatogrel and cenerimod. Selatogrel is a self-administered injection that treats patients with a history of acute myocardial infarction (AMI), or heart attack, and cenerimod is a once-daily oral tablet that treats mild to severe systemic lupus erythematosus, or SLE. The firm added these two drugs in its pipeline through a partnership with Idorsia Pharmaceuticals (biotech company based in Switzerland) which was announced on the day of fourth-quarter earnings last month. After reviewing the materials, we have not made any meaningful changes to our model and maintain our fair value estimate of $13 per share and no-moat rating for the firm.

No-moat Viatris reported fourth-quarter earnings that came in largely in line with our expectations. Total sales of $3.8 billion were down 1% year over year. The Biocon divestiture, which closed November 2022, posed certain difficulties in comparison but resilient branded business in both developed and robust emerging markets offset most of the headwinds. We maintain our fair value estimate of $13 per share, as minor adjustments to our near-term assumptions didn't affect our valuation.

No-moat Viatris reported third-quarter earnings that were largely in line with our expectations. Total sales were down 3.3% year over year but up 1% excluding foreign exchange impacts and divestitures. The base business remains healthy, and prescription trends across different regions look to be generally stable. Management slightly lowered sales guidance for the year to $15.4 billion-$15.6 billion from $15.5 billion-$16.0 billion mainly due to adverse foreign exchange. After adjusting our near-term assumptions and accounting for time value of money impacts, we are maintaining our fair value estimate of $13 per share.

No-moat Viatris announced yesterday that it entered into agreements with various buyers to divest an array of its noncore businesses for a total price of $3.6 billion. The firm is selling the majority of its over-the-counter pharmaceutical business to Cooper Consumer Health for up to $2.17 billion as well as an active pharmaceutical ingredient, or API, division to an India-based private pharmaceutical company. Other sales include Duphaston, a treatment for menstrual conditions, and Femoston, which treats symptoms of menopause, to Theramax; oral and injectable women's healthcare pharmaceuticals to Insud Pharma; and divesture of certain noncore assets. Given that Viatris announced these plans last November, we don't see this as an unexpected move, although we are pleasantly surprised at the timing of the announcement.

No-moat Viatris reported second-quarter results that were slightly ahead of our expectations. Total sales were down 4.8% year over year but up 1.5% on an operational basis (excluding foreign exchange and divestiture impacts). Our assumptions for the second half of the year remain largely the same, and we maintain our $13 fair value estimate.

We are establishing a fair value estimate of $13 per share for Viatris we don't believe Viatris has created an economic moat. Our forecast lies on a low-single-digit top-line growth and a slight improvement in operating margin over our model period from new branded drugs and complex generics launches offsetting pressures found in its core portfolio.

Viatris is one of the largest generic drug manufacturers in the world. Viatris' generics business makes up roughly 40% of company's sales and, along with other generics manufacturers, it continues to suffer low- to mid-single-digit erosion year over year in developed markets like North America and the majority of Europe. Because price and margin

We are dropping coverage of Viatris. We provide broad coverage of more than 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

We are placing Viatris under review as we evaluate analyst stock coverage decisions. As a reminder, we provide broad coverage of close to 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

Viatris' first-quarter results were largely within our expectations, with mid-single-digit revenue erosion across branded and generic drug categories partially offset by the realization of post-Upjohn merger cost synergies. Overall, there were few surprises during the quarter, and management reiterated its top- and bottom-line guidance targets for the year. We are maintaining our fair value estimate of $12.50 per share.

Viatris surprised investors with a special investor event in tandem with the company's fourth-quarter earnings results, announcing the anticipated $3.3 billion sale of its biosimilar portfolio at the end of this year to Biocon, a privately held Indian pharmaceutical company. Furthermore, the company identified $4 billion-$6 billion in other assets that it intends to sell by the end of 2023, in order to return capital to shareholders, accelerate deleveraging, and simplify the company's operating model. Our take of the news is somewhat negative overall--while the sale price at 16.5 times adjusted EBITDA represents a much higher multiple than the company's overall trading multiple at 2.9 times adjusted EBITDA, this multiple doesn't take into account revenue associated with drugs in the end stages of the company's development pipeline (e.g. Viatris' biosimilar for Humira anticipated to launch in 2023), which are expected to contribute materially to the fast-growing business unit. Beyond representing the fastest-growing segment of the company's operations, longer term, we anticipated Viatris' biosimilar pipeline would help offset erosion in the company's core generics business in the U.S. market. Digesting the news and the company's fourth-quarter operating results, we are lowering our fair value estimate to $12.50 per share from $14, and reiterate our no-moat assessment of the company.

Viatris was formed in 2020 through the merger of Mylan with Pfizer’s Upjohn business unit, combining a leading global generics manufacturer with a portfolio of off-patent branded drugs (Lipitor, Viagra, and Celebrex, among others). Generic drug manufacturers with large exposure to the U.S. have fared very poorly compared with the overall market over the past few years due to a highly deflationary generic drug price environment. To combat further margin deterioration, the largest, most capable manufacturers have invested more heavily in developing and marketing complex generics and biosimilars, which face much less steep competition and price erosion compared with small-molecule generics. The Viatris deal improves cash flow to the firm to fund research and development costs to replace the company's portfolio. In Feburary 2022, the company announced the upcoming sale of its biosimilar business for $3.3 billion.

Following an extensive review of the generic drug manufacturers under our coverage, we have revised our fair value estimates to better align with our expectations for revenue growth and margin erosion over the next five years. We are lowering our fair value estimate for Viatris to $14 per share from $25, lowering our fair value estimate for Teva Pharmaceutical to $9 per share from $20, and are raising our fair value estimate for Dr. Reddy’s Laboratories to $60 per share from $49. The shares of all three appear fairly valued in the market today. We are maintaining our no-moat rating and stable moat trend assessment for Viatris and Teva, as we believe heavy exposure to the U.S. and other pure generic markets where small-molecule generic drugs are highly commoditized will continue to pressure returns, despite the companies’ burgeoning investments in relatively more differentiated areas like complex generics and biosimilar drugs. We believe Dr. Reddy’s comparatively more differentiated approach lends itself to a narrow moat rating, with higher exposure to emerging markets (particularly India) where brand recognition translates to market power and stable pricing.

Viatris was formed in 2020 through the merger of Mylan with Pfizer’s Upjohn business unit, combining a leading global generics manufacturer with a portfolio of off-patent branded drugs (Lipitor, Viagra, and Celebrex, among others). Generic drug manufacturers with large exposure to the U.S. have fared very poorly compared with the overall market over the past few years due to a highly deflationary generic drug price environment. To combat further margin deterioration, the largest, most capable manufacturers have invested more heavily in developing and marketing complex generics and biosimilars, which face much less steep competition and price erosion compared with small-molecule generics. The Viatris deal improves cash flow to the firm to fund research and development costs as the company develops complex generics and biosimilars.

Viatris had an unremarkable third quarter, posting a modest year-over-year decline, spread evenly among its product categories. Revenue was slightly subdued by competitive pressures in contrast with a strong prior quarter. It is expected that the long-term erosion of generic drug revenue will be irregular quarter to quarter and dependent on each manufacturer’s product mix. We maintain our $25 fair value estimate for no-moat Viatris.

Viatris announced strong second-quarter results across all segments, driven by increased demand for COVID-19-related generic products and steady growth in biosimilars. Management raised full-year revenue guidance to $17.5–17.9 billion, up from $17.2–17.8 billion, and raised adjusted EBITDA guidance to $6.15–6.45 billion, up from $6.0–6.4 billion. The company also paid its first dividend of $0.11 per share this quarter. We maintain our fair value estimate of $25 per share on no-moat Viatris.

Viatris posted first-quarter results on track with our forecasts, and we maintain our $25 fair value estimate and no-moat rating. First-quarter revenue was $4.4 billion with a 25% adjusted net margin. Compared with a premerger-adjusted first quarter of 2020, global generics revenue declined 4% due a tough comparison period in Europe. Branded generics' revenue declined by the same amount due to a moderate slowdown in emerging markets. In contrast, complex generics and biosimilars grew 30%, driven by biosimilars including pegfilgrastim (for febrile neutropenia), trastuzumab (for cancer) and adalimumab (for immunology). We anticipate a degree of bumpiness in earnings over the next few quarters and beyond as management proceeds with its restructuring plan, but we expect that the gross margins of the component businesses will remain solid. Management reduced long-term debt by $300 million this quarter to $22.1 billion and reaffirmed last quarter’s guidance for 2021.

From Nov. 17, Viatris will be the surviving company formed by the combination of leading generic maker Mylan and Upjohn, Pfizer's generics business. The new entity will continue to focus on the prior Mylan strategy focused on generic and biosimilar drugs and will also manufacture key mature branded drugs from Pfizer, including Lipitor (cholesterol), Lyrica (pain), Norvasc (high blood pressure), Celebrex (arthritis), in addition to numerous other generic medications. Mylan shareholders will have a minority share, about 43%, interest in the new combination, and Pfizer shareholders will own the majority balance.