Viatris Views Ophthalmology, Dermatology, and Gastroenterology as Future Pipeline Focus

Equity Analyst

Keonhee Kim

Revenue segments as reported by the company.

Brands

Complex Gx and Biosimilars

Generics

Other revenues

Revenue Segments

Gross Profit, Operating Income, and Net Income as a percentage of Revenue

Gross Margin

Operating Margin

Profit Margin

Margins

An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX.

Research and development

Selling, general and administrative

Litigation settlements and other contingencies, net

Acquired IPR&D

Operating Expenses

Year over year growth in Revenue and Operating Expenses.

Revenue Y/Y

OpEx Y/Y

Growth

Shares outstanding refer to a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders.

Outstanding Shares

Market Cap

Also known as Price/Sales Ratio. Calculated using Average market cap for the quarter / Annualized quarterly revenue.

Revenue Multiple

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 

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. 

Complex generics are more difficult to manufacture which by nature limits competition. And since price, volume, and margin are highly dependent on the competitiveness of a drug, complex generics pave an opportunistic road for Viatris. But other players in the industry are employing a similar strategy so success in this area relies on the company’s ability to seek out profitable drugs and efficiently launching them to market.

The remaining 60% of Viatris’ sales is derived from off-patent branded drugs, including Lipitor, Lyrica, and Norvasc. While macrotrends like the aging population and growing emerging markets can continue to boost sales, we still expect low- to mid-single-digit erosion in the business from pricing and volume headwinds driven from more patients opting generic versions. To combat this, Viatris has identified ophthalmology, dermatology, and gastroenterology as three key therapeutic areas of focus for future innovations. Since these areas are all specialty-driven, a small salesforce can capture a large number of doctors. And a lot of innovations usually come from smaller players, meaning there is not one big leader that Viatris has to displace to gain shares. It launched Tyrvaya, the first and only nasal spray 

for the treatment of dry eye disease at the time of launch, and it expects additional products for dry eye disease going forward. In 2023, it acquired Oyster Point and Famy Life Sciences, two companies that focus on ophthalmology, and we expect additional small tuck-in acquisitions in the three therapeutic areas to fuel its pipeline.

Business Strategy & Outlook

We assign Viatris a no-moat rating because we do not believe the company possesses any structural advantages strong enough to earn excess returns and generate return on invested capital above its cost of capital over the next 10 years. 

While generic drugs were around in the U.S. since the early 20th century, their industry experienced a significant growth following the passage of the 1984 Hatch-Waxman Act. The legislation facilitated the drug application process for generic drug manufacturers by providing them a safe harbor from patent infringement litigation from branded drug manufacturers and allowed the U.S. Food and Drug Administration to approve applications for generic drugs with abbreviated new drug applications. An ANDA requires the applicant to demonstrate its generic drug’s pharmaceutical equivalence and bioequivalence to the reference drug, but it generally does not require preclinical and clinical data to prove safety and effectiveness since it relies on the FDA’s prior approval of the reference drug’s safety and effectiveness. Overall, this legislation paved a much swifter way for generics manufacturers to get their drugs approved compared with a new drug application, which a new branded drug must go through.

The U.S. generic drug industry enjoyed another boost when Congress enacted a series of amendments named the Generic Drug User Fee Amendments (first one passed in 2012, second in 2017 and the latest in 2022), allowing the FDA to collect fees from ANDA applicants to expedite application approval process. The fees (an ANDA fee rate for 2023 was around $240,000) are not meaningful to sway big generic manufacturers away and they also provide additional revenue streams and financial support to the FDA, allowing applications to be approved more quickly and efficiently. 

These regulatory pushes by the U.S. government paved ways for the industry to be highly competitive and be filled with commoditized products, eroding a lot of pricing power that generics manufacturers once had. And although there are a few number of players that make up a relatively healthy share of the generics market, barriers to entry here is quite low, expanding possibilities for firms in the space to face additional competition going forward. This explains the hike in generic dispensing rate (percentage of prescriptions dispensed with a generic rather than a branded reference drug) which grew from 54% to 91% between 2002 and 2019. And while an average of less than 300 ANDAs were approved annually from 1985 to 2012, thanks to these changes, the FDA has averaged around 1,000 ANDA approvals per year over the last five years. 

Beyond government actions, generics manufacturers also face pressures from players within the drug supply chain. The formation of powerful generic sourcing groups and establishment of generic formularies by pharmacy benefit manager enabled drug distributors and drug buyers to effectively negotiate lower generic prices, hurting manufacturers’ margins.

Three large generic sourcing programs that were formed as joint ventures between large wholesalers and drug purchasers—ClarusONE (2016, McKesson and Walmart); Red Oak Sourcing (2013, Cardinal Health and CVS); and Walgreens Boots Alliance Development (2012, AmerisourceBergen and Walgreens)—have acted as additional headwind for generics manufacturers. These entities were created to lower generics acquisition costs through the aggregation of purchasing power and as a result, they can demand higher buy-side discounts and rebates from generics manufacturers, ultimately eating into their profits. They now purchase roughly 80% of all generics sold in the U.S. Additionally, the interchangeability between generics has facilitated the establishment of generic formularies, in which wholesalers can use their purchasing scale to negotiate deeper concessions for placement in the generic sourcing program. As these three players continue to make up a larger portion of generic sourcing in the country and enhance their buying power, generics manufacturers are left with no other choice but to face the burden, resulting in low- to mid-single-digit price erosion in the market year over year.

By our estimate, roughly 40% and 50% of Viatris total sales are derived from generics and off-patent branded drugs, respectively, and both areas are highly susceptible to all the pricing headwinds mentioned above. Viatris has decided to combat this by rationalizing and optimizing its portfolio, carefully deciding which drugs to continue commercializing and which drugs to discontinue. The company opted to exit spaces where it had too many existing players and discontinue small-molecule drugs that are fairly simple to be FDA-approved and to be replicated. Furthermore, Viatris has continued to pursue more opportunities into branded drugs, aiming to launch sizable novel drugs that can have a meaningful impact on the top and bottom lines. Viatris has also sought to expand its presence in complex generics. These drugs typically face limited competition due to a more complicated level of research and development required before reaching commercial stage. Instead of being available in simple oral tablets, which are relatively easy to replicate by competitors, complex generics and biosimilars usually come in injectables, inhalers, and other different forms that pose more challenges to other manufacturers to produce. 

Despite these efforts, we don’t believe Viatris has any structural advantages over other generic manufacturers. It doesn’t have a meaningfully larger number of first-to-file launches compared with other players in the space. And even if it launches a few drugs that are first to market and gain 180-day exclusivity periods in certain products, they are likely to face direct competition as soon as that period expires, leading to significant volume reductions. If Viatris continues to downsize its portfolio of commoditized and easy-to-replicate generic drugs and replace them with more innovative medicines, we could potentially revisit our analysis. For now, we do not believe Viatris earns a moat rating.

None

Economic Moat

Viatris

Viatris, Inc. is a global healthcare company, which engages in the provision of access to medicines and sustainable operations. It also offers support services such as diagnostic clinics, educational seminars, and digital tools. The firm operates through the following segments: Developed Markets, Greater China, JANZ, and Emerging Markets. The Developed Markets segment consists of operations primarily in North America and Europe. The Greater China segment includes operations in mainland China, Taiwan and Hong Kong. The JANZ segment consists of operations in Japan, Australia and New Zealand. The Emerging Markets segment encompasses operations with developing markets and emerging economies including countries in Asia, the Middle East, South and Central America, Africa and Eastern Europe. The company was founded on February 14, 2019 and is headquartered in Canonsburg, PA.

Earnings data Q1 2024

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Viatris has been paying down debt, but investors remain wary of investing in the company. Interest costs, however, haven't been crippling the business.

Is Viatris' 5% Dividend Yield Safe?

Kraft Heinz

Warner Bros Discovery Inc

Drugmaker Viatris anticipates a year of strong free cash flow, enabling it to continue paying a strong dividend. Warner Bros.

Nasdaq Bear Market: These 3 Stocks Are Trading Below Their Book Values

Teva Pharmaceutical

Teva is the world's largest maker of generic drugs. Viatris offers an above-average dividend yield.

Better Generics Pharmaceutical Stock: Teva or Viatris?

23andMe

There's nothing better than getting a bargain that'll pay off for years.

2 Undervalued Growth Stocks With Long-Term Prospects That Are Ready to Rise

Viatris recently closed out 2022 having largely met management's prior guidance. It's aggressively paying down debt and recent acquisitions may drive meaningful growth down the road.

Viatris: Too Cheap To Ignore

Viatris (VTRS) reports in-line Q4 earnings but misses on sales. The company is now looking to reshape its business after selling its biosimilars portfolio.

Viatris' (VTRS) Q4 Earnings In-Line, Revenues Miss Estimates

While the top- and bottom-line numbers for Viatris (VTRS) give a sense of how the business performed in the quarter ended December 2022, it could be worth looking at how some of its key metrics compare to Wall Street estimates and year-ago values.

Viatris (VTRS) Q4 Earnings: Taking a Look at Key Metrics Versus Estimates

Viatris (NASDAQ: VTRS ) stock is in the news Monday after the healthcare company announced Scott Smith as its next CEO. This will see Smith take over as the next CEO of Viatris on April 1, 2023.

VTRS Stock Alert: What to Know as Viatris Appoints New CEO

Viatris Inc. (NASDAQ:VTRS ) Q4 2022 Earnings Conference Call February 27, 2023 8:30 AM ET Company Participants Robert Coury - Executive Chairman Scott Smith - Incoming Chief Executive Officer Michael Goettler - Chief Executive Officer Rajiv Malik - President Sanjeev Narula - Chief Financial Officer Jeff Nau - Oyster Point Chief Executive Officer Conference Call Participants Chris Schott - JPMorgan Glenn Santangelo - Jefferies Balaji Prasad - Barclays Jason Gerberry - Bank of America Elliot Wilbur - Raymond James Ash Verma - UBS Gary Nachman - BMO David Amsellem - Piper Sandler Umer Raffat - Evercore ISI Greg Fraser - Truist Operator Excuse me, everyone. Thank you for standing by.

Viatris Inc. (VTRS) Q4 2022 Earnings Call Transcript

Viatris (VTRS) delivered earnings and revenue surprises of 0% and 2.32%, respectively, for the quarter ended December 2022. Do the numbers hold clues to what lies ahead for the stock?

Viatris (VTRS) Matches Q4 Earnings Estimates

Pfizer

Their shares are ripe for getting while the getting is good.

2 Dividend Stocks to Buy at a Discounted Price In 2023

Smith, a seasoned senior healthcare executive, will lead the company's previously announced Phase 2 strategy and execution Board of Directors thanks Michael Goettler, who will support a smooth transition prior to his departure PITTSBURGH , Feb. 27, 2023 /PRNewswire/ -- Viatris Inc. (NASDAQ: VTRS), a global healthcare company, today announced that as it prepares to enter Phase 2 of its previously announced strategic plan in 2024, Scott A. Smith has been appointed by its Board of Directors to lead the execution of that plan as Viatris' new Chief Executive Officer, effective April 1, 2023.

Viatris Announces Appointment of Scott A. Smith as CEO Effective April 1, 2023

PITTSBURGH , Feb. 27, 2023 /PRNewswire/ --  Company Meets its 2022 Adjusted Guidance After Incorporating the Fourth Quarter Impact of the Biosimilars Transaction and Acquired IPR&D 2023 Guidance Midpoint Reflects Revenue Growth Over 2022, Excluding Full-Year Impact of Biosimilars Reaffirms 2024 Phase 2 Outlook from November 7 Strategic Update Company Increases Return of Capital to Shareholders by Completing $250 Million in Share Repurchases Board of Directors Approves 2023 Dividend Policy of Forty-Eight Cents ($0.48) per Share and Declares First Quarter Dividend of Twelve Cents ($0.12) per Share Paid Down Debt of Approximately $3.3 Billion in 2022, Retiring $5.4 Billion of Debt Since 2021 Remains on Track to Execute Planned Divestitures Viatris Inc. (NASDAQ: VTRS) today reported strong results for the fourth quarter and full year 2022, meeting its adjusted guidance range for 2022 after incorporating the fourth quarter impact of the closing of the transaction pursuant to which the Company contributed its biosimilars portfolio to Biocon Biologics (the "Biosimilars Transaction") and acquired IPR&D. Financial Impact of Completion of the Biosimilars Transaction and Acquired IPR&D The 2022 financial guidance metrics were impacted by the Biosimilars Transaction and acquired IPR&D as follows: (In millions) 2022 GuidanceRanges(1) (November 7, 2022) Biosimilars Transaction Acquired IPR&D Adjusted 2022 Guidance Ranges(1) 2022 Results Total Revenues $16,200 - $16,700 $(86) $— $16,100 - $16,600 $16,263 Adjusted EBITDA $5,800 - $6,200 $(31) $(36) $5,725 - $6,125 $5,777(2) Free Cash Flow $2,500 - $2,900 $(274) $(36) $2,200 - $2,600 $2,547(2) ___________ (1) Viatris did not provide forward-looking guidance for comparable U.S. GAAP net earnings (loss) or a quantitative reconciliation of its 2022adjusted EBITDA guidance.

Viatris Reports Strong Fourth Quarter and Full Year 2022 Financial Results and Provides 2023 Financial Guidance

Energy Transfer LP Unit

Fresenius Medical Care

Organon & Co

Taro Pharmaceutical Industries

Francisco Garcia Parames' Cobas Funds 4th-Quater Letter

Viatris' gross margin reached its highest level since its inception in the fourth quarter of 2020, despite rising raw material and labor costs. On February 27, 2023, Viatris management will publish financial results for the 4th quarter of 2022.

What To Expect From Viatris In 2023

NextEra Energy

There might not be an opportunity to get them for much cheaper than now.

2 Superb Dividend Stocks to Buy Before the Next Bull Market

Viatris (VTRS) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

Analysts Estimate Viatris (VTRS) to Report a Decline in Earnings: What to Look Out for

Bristol-Myers

These pharmaceutical stocks probably won't stay so attractively valued for too much longer.

3 Dirt-Cheap Stocks to Buy Sooner Rather Than Later

AbbVie

Alvotech SA

Amgen

Coherus BioSciences

Cigna

CVS Health

GlaxoSmithKline

Johnson & Johnson

Merck

Novo Nordisk

Novartis

Regeneron Pharmaceuticals

Roche Holding AG

Sanofi

It's among the prohibitively expensive biologic pharmaceuticals being replaced by cheaper “biosimilar” copycats. Relief is on the way for patients who need Humira, a product made by AbbVie.

Competition Coming For AbbVie's Blockbuster Humira

PITTSBURGH , Feb. 15, 2023 /PRNewswire/ -- Viatris Inc. (NASDAQ: VTRS) plans to report its fourth quarter and full year 2022 financial results on Monday, February 27 before the open of the U.S. financial markets. Chief Executive Officer  Michael Goettler , President  Rajiv Malik , and Chief Financial Officer  Sanjeev Narula  also will host a webcast at 8:30 a.m.

Viatris to Report Fourth Quarter and Full Year 2022 Financial Results on February 27, 2023

Comcast

PACCAR

These stocks can be good options whether you value dividends or growth.

These Are 3 of the Nasdaq's Cheapest Dividend Stocks

Viatris and Organon are what can currently be described as "deep value plays" in the pharmaceutical sector. They face largely similar challenges, but on closer inspection are quite different companies. While I have already reported on Viatris' ever-changing portfolio, in this article I will take a closer look at Organon's portfolio and highlight the differences in strategy.

Don't Buy Viatris And Organon Just Because Of The Dividends

These two companies have long runways for growth and decent yields today.

2 Superb Dividend Stocks to Buy Today and Hold Forever

Abbott Labs

AvalonBay Communities

Brookfield Asset Management

Brookfield Renewable Partners

Brookfield Infrastructure Partners L.P.

Brookfield Infrastructure

Crown Castle International

Digital Realty Trust

Con Ed

Enbridge

Enterprise Products Partners

Gilead Sciences

Intel

Medical Properties Trust

Realty Income Corp

Procter & Gamble

Verizon

Walgreens

W. P. Carey

A list of high-yielding dividend stocks to consider buying now.

20 High-Yield Dividend Stocks to Buy in 2023

Viatris has seen a disappointing performance since its 2019 mega tie-up. Sales and EBITDA have fallen a bit, as leverage has fallen a bit further.

Viatris: Where Is The Cure?

News for Viatris Stock (VTRS)