Viatris Inc. (VTRS) is a global healthcare company that has undergone a significant transformation in recent years, positioning itself to deliver sustainable value to patients, shareholders, and other stakeholders. The company's journey is marked by strategic decisions, divestitures, and a relentless focus on strengthening its core business and expanding its innovative pipeline.
Business Overview and History Viatris was formed in 2020 through the combination of Mylan N.V. and Pfizer's Upjohn business unit. The company has a rich history that dates back to Mylan's founding in 1961 as a small pharmaceutical distributor. Over the decades, Mylan grew to become a leading global generic and specialty pharmaceutical company, known for its commitment to providing access to high-quality medicines.
The Combination with Upjohn further diversified Viatris' portfolio, adding iconic and well-established brands such as Lipitor, Norvasc, and Lyrica. This strategic move allowed the company to leverage its global scale and expertise to serve patients worldwide more effectively.
Mylan's growth trajectory included significant milestones such as the 2007 acquisition of Matrix Laboratories, which expanded its global footprint and capabilities. Meanwhile, Pfizer's Upjohn business had its own rich heritage, tracing its roots back to 1849 when it was founded as a small drug store. Upjohn grew into a major pharmaceutical company, developing and marketing many well-known branded drugs including Viagra.
The integration of these two legacy companies presented challenges, but Viatris was able to leverage the strengths and capabilities of both to establish itself as a leader in the pharmaceutical industry. Today, Viatris operates in over 165 countries and territories worldwide, with approximately 32,000 employees globally, combining the best of both companies' expertise and resources.
Since the Combination, Viatris has undergone a transformative journey, streamlining its operations and focusing on its core strengths. The company has divested several non-core assets, including its OTC business, women's healthcare business, and certain API operations. These divestitures have enabled Viatris to strengthen its balance sheet and enhance its financial flexibility.
Viatris has a global commercial infrastructure and manufacturing capabilities across oral solids, injectables, complex products and APIs. The company is focused on growing its diversified base business of branded and generic products, while also expanding its innovative pipeline through business development.
Financial Overview Viatris' financial performance has been resilient, with the company generating consistent cash flows and maintaining a strong balance sheet. In the latest fiscal year (2023), the company reported annual revenue of $15.43 billion and net income of $54.70 million. Its operating cash flow for the year stood at $2.80 billion, while free cash flow reached $2.51 billion.
For the most recent quarter (Q3 2024), Viatris reported revenue of $3.75 billion, net income of $94.8 million, operating cash flow of $826.5 million, and free cash flow of $750.5 million. Year-over-year, revenues decreased 4.8% due to divestitures, but operational revenue grew 3% excluding divestitures and foreign exchange impacts. Net income decreased 71.4% due to increased costs. Operating cash flow and free cash flow decreased 6.9% and 8.4% respectively, primarily due to timing of cash payments and collections.
The company's debt reduction efforts have been a key priority, and Viatris has successfully reduced its net debt from $22.37 billion at the end of 2021 to $17.13 billion as of the latest reporting period. This has positioned the company to operate within its target leverage range of 2.8x to 3.2x, providing ample financial flexibility for future investments and shareholder returns.
Viatris' liquidity position remains strong, with a debt-to-equity ratio of 0.84, cash reserves of $1.88 billion, and an available credit line of $3.5 billion under the 2024 Revolving Facility. The company's current ratio stands at 1.67, and its quick ratio is 1.18.
Segmental Performance Viatris' diversified business model is reflected in its four reportable segments: Developed Markets, Greater China, JANZ (Japan, Australia, and New Zealand), and Emerging Markets. Each segment has contributed to the company's overall performance, with varied growth dynamics and market conditions.
In the Developed Markets segment, which comprises primarily North America and Europe, Viatris has maintained a strong presence in both branded and generic products. For the three months ended September 30, 2024, net sales from Developed Markets decreased by $109.8 million or 5% compared to the prior year period. This decrease was primarily due to the impact of divestitures that have closed during 2023 and 2024, partially offset by the favorable impact of foreign currency translation and an increase in constant currency net sales from the remaining business, driven by new product sales. Net sales within North America totaled approximately $990.6 million and net sales within Europe totaled approximately $1.31 billion. Despite the overall decrease, Europe grew 6% operationally.
The Greater China segment, which includes Viatris' operations in China, Taiwan and Hong Kong, has been a consistent performer. Net sales from Greater China increased by $13.4 million or 2% for the three months ended September 30, 2024 compared to the prior year period. This increase was driven by higher volumes of existing products, partially offset by the unfavorable impact of foreign currency translation. Overall, revenues grew 2.4% and 3% operationally.
In the JANZ segment, which reflects Viatris' operations in Japan, Australia and New Zealand, net sales increased by $9.8 million or 3% for the three months ended September 30, 2024 compared to the prior year period. This increase was primarily driven by new product sales in Australia and volume growth of promoted brands in Japan, partially offset by the unfavorable impact of foreign currency translation and the impact of divestitures. However, on an operational basis, revenues declined 1.9% due to government price cuts and competition.
The Emerging Markets segment, which spans over 125 countries with developing markets and emerging economies including in Asia, Africa, Eastern Europe, Latin America and the Middle East, as well as the company's ARV franchise, faced some challenges. Net sales from Emerging Markets decreased by $109.3 million or 17% for the three months ended September 30, 2024 compared to the prior year period. This decrease was primarily due to the impact of divestitures and the unfavorable impact of foreign currency translation, partially offset by growth from new products and higher volumes of existing products in certain regions. Despite the overall decrease, the segment grew 1.5% operationally.
Pipeline and Innovation Viatris has a robust pipeline of complex generics, biosimilars, and innovative products that are expected to drive future growth. The company's research and development efforts focus on addressing unmet medical needs and developing differentiated solutions for patients.
One notable example is the company's acquisition of the development programs and certain personnel related to selatogrel and cenerimod from Idorsia. These Phase 3 assets in the cardiovascular and immunology therapeutic areas align with Viatris' strategic focus on expanding its innovative portfolio and leveraging its global infrastructure to drive commercial success.
Additionally, Viatris has entered into an exclusive licensing agreement with Lexicon Pharmaceuticals for the development and commercialization of sotagliflozin, an SGLT1 and SGLT2 dual inhibitor, in markets outside the United States and Europe. This transaction further strengthens the company's presence in the cardiovascular disease segment, a key therapeutic area for Viatris.
Risks and Challenges Like any pharmaceutical company, Viatris faces a range of risks and challenges that could impact its operations and financial performance. These include regulatory uncertainties, pricing pressures, competition from generic and branded products, and the potential for supply chain disruptions.
The company also operates in a highly competitive industry, where the ability to develop and successfully launch new products is crucial. Viatris' ability to navigate these challenges and execute its strategic initiatives will be critical to its long-term success.
Outlook and Key Takeaways Viatris has demonstrated its resilience and adaptability in the face of industry headwinds and a rapidly evolving healthcare landscape. The company's strategic focus on streamlining its operations, strengthening its balance sheet, and expanding its innovative pipeline positions it well for the future.
For the full year 2024, Viatris is reaffirming its outlook for base business operational revenue growth of approximately 2% and flat adjusted EBITDA and adjusted earnings per share versus last year. The company expects to be at the higher end of its range of $500 million to $600 million for new product revenues in 2024.
Viatris plans to operate within its long-range target of 2.8 times to 3.2 times gross leverage and expects to exit 2024 at approximately 3 times gross leverage. The company anticipates sequential declines in total revenue, adjusted EBITDA, and adjusted EPS in Q4 2024 due to normal product seasonality, phasing of certain generic products, and generic entrants in the cardiovascular portfolio. Lower free cash flow is also expected in Q4 2024 due to divestiture costs, taxes, higher capital expenditures, and semiannual interest payments.
In Q3 2024, Viatris delivered total revenues of $3.8 billion, representing operational revenue growth of approximately 3% compared to the prior year. The company achieved adjusted EBITDA of $1.3 billion, growing approximately 4% from a year ago, and adjusted EPS of $0.75 per share, growing approximately 6% from the prior year. Viatris generated $866 million in free cash flow, excluding the impact of transaction costs and taxes, and reported new product revenues of $133 million in Q3 2024.
As Viatris continues to navigate through this transformative period, investors should closely monitor the company's execution of its strategic priorities, the integration of its recent acquisitions, and its ability to drive sustainable growth across its diversified business segments. The company's ability to leverage its global infrastructure, maintain a strong financial profile, and capitalize on emerging opportunities will be crucial in shaping its long-term success.