Viatris Inc. 2023 Form 10-K Summary
Business context and reporting period
Viatris is a global healthcare company supplying branded, generic, complex and over-the-counter medicines in more than 165 countries. As of December 31, 2023, it had more than 1,400 approved molecules, approximately 38,000 employees and approximately 40 manufacturing sites. Reportable segments are Developed Markets, Greater China, JANZ and Emerging Markets.
The filing covers the fiscal year ended December 31, 2023. The request references 2023 Q4; the filing provides annual results, with certain fourth-quarter items separately identified.
Financial performance and liquidity
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenues | $15.43 billion | $16.26 billion | Down 5% |
| Gross profit | $6.44 billion | $6.50 billion | Down $58.4 million |
| GAAP gross margin | 42% | 40% | Up approximately 2 points |
| Earnings from operations | $766.2 million | $1.61 billion | Down $848.7 million |
| Net earnings | $54.7 million | $2.08 billion | Down $2.02 billion |
| Diluted EPS | $0.05 | $1.71 | Down $1.66 |
| Operating cash flow | $2.80 billion | $2.95 billion | Down $153.0 million |
| Adjusted gross margin | Approximately 59% | Approximately 59% | Flat |
| Adjusted EBITDA | $5.12 billion | $5.78 billion | Down $652.7 million |
Net sales were $15.39 billion, including approximately $258.9 million of unfavorable foreign-exchange impact. On a constant-currency basis, sales from the remaining business increased less than 1%, as approximately $451.3 million of new-product sales largely offset approximately $434.3 million of base-business erosion.
- Developed Markets sales declined 5% to $9.25 billion; constant-currency sales from the remaining business declined 1%.
- Greater China sales declined 2% reported but increased 2% at constant currency.
- JANZ sales declined 13% reported and 7% at constant currency.
- Emerging Markets sales declined 2% reported but increased 4% at constant currency.
Cash and cash equivalents were $991.9 million at year-end, compared with $1.26 billion in 2022. Total debt, based on current and long-term debt reported on the balance sheet, was approximately $18.12 billion. The company had no borrowings outstanding under its $4.0 billion revolving facility, $1.65 billion commercial paper program, $400 million receivables facility or $200 million note securitization facility at December 31, 2023. The revolving facility matures in July 2026, while the note securitization facility expires in August 2024.
Debt maturities on outstanding notional amounts total approximately $1.93 billion in 2024, $1.30 billion in 2025, $2.53 billion in 2026, $1.69 billion in 2027, $1.58 billion in 2028 and $8.58 billion thereafter. Viatris reported compliance with its debt covenants and expects to remain compliant for the next twelve months.
Capital expenditures were $377.0 million in 2023. Management expects 2024 capital expenditures of approximately $350 million to $450 million. Dividends paid were $575.6 million, and the company repurchased $250 million of common stock during 2023.
Material changes versus the prior comparable period
- Revenue declined primarily because 2022 included sales from the biosimilars business contributed to Biocon Biologics in November 2022 and because of other completed divestitures. The biosimilars business contributed approximately $601.1 million of 2022 sales.
- Reported earnings were materially reduced by the absence of the approximately $1.75 billion gain on the Biocon Biologics transaction recognized in 2022.
- Fourth-quarter 2023 results included approximately $734.7 million of charges related to the planned OTC divestiture, comprising a $580.1 million goodwill impairment and a $154.7 million write-down of the disposal group.
- SG&A increased by $471.0 million, primarily because of the OTC goodwill impairment, ophthalmology acquisition costs, higher selling and promotional investment and increased compensation and severance costs.
- R&D expense increased $143.0 million to $805.2 million, reflecting greater pipeline investment and approximately $42.1 million related to ophthalmology acquisitions.
- Interest expense declined $19.3 million to $573.1 million, primarily due to debt repayments.
- Adjusted net earnings declined to $3.54 billion from $4.08 billion, despite the substantial reconciliation adjustments to GAAP results.
Guidance, outlook, commentary, risks and unusual items
Management is transitioning from Phase 1, focused on stabilizing the base business, reducing debt and returning capital, toward Phase 2, focused on complex and innovative products, higher-margin opportunities and expanded R&D and business development. The company identified ophthalmology, gastrointestinal and dermatology as core therapeutic areas.
Viatris completed or initiated multiple portfolio transactions. It expects gross proceeds of up to approximately $2.17 billion from the OTC transaction and up to approximately $1.4 billion from the remaining announced divestitures. The OTC transaction was expected to close by mid-2024; the women’s healthcare and India API divestitures were expected by the end of the first quarter of 2024, subject to regulatory approvals and other closing conditions. Completion timing, proceeds, purchase-price adjustments and stranded costs remain uncertain.
In February 2024, Viatris announced a proposed acquisition of development programs and personnel from Idorsia for an upfront payment of $350 million, plus potential milestones, contingent sales payments and royalties. Closing remains subject to conditions.
- Pricing and reimbursement pressure remains significant, including government price controls, tender systems, China volume-based procurement and customer consolidation.
- Loss of exclusivity, generic competition and patent litigation may reduce sales and margins. The top ten products represented approximately 33% of consolidated net sales in both 2023 and 2022, while the top three customers represented approximately 25% of 2023 sales.
- Legal and regulatory exposures include generic drug pricing litigation, opioid matters, product liability, patent disputes, tax audits and government investigations. Legal contingencies accrued at year-end were approximately $173 million; the company states that additional losses could be material but often cannot be estimated.
- Viatris had approximately $77.5 million accrued for opioid matters, $64.9 million for product liability matters and approximately $5.1 million for intellectual-property matters.
- Goodwill and intangible assets remain significant. Year-end goodwill was $9.87 billion and net intangible assets were $19.18 billion. Certain reporting units had relatively limited valuation cushions, making future impairment charges possible if forecasts, discount rates or market conditions deteriorate.
- The company’s effective tax rate was 73.0% in 2023, affected by goodwill impairment, jurisdictional earnings mix, tax matters and internal restructuring. Unrecognized tax benefits were $272.8 million and the deferred-tax valuation allowance was $421.4 million.
- Cybersecurity threats, supply-chain interruptions, manufacturing quality issues, foreign exchange volatility, inflation, geopolitical conflicts and higher interest rates could adversely affect operations and liquidity.
The financial statements received an unqualified audit opinion from Deloitte & Touche LLP, and management and the auditor concluded that internal control over financial reporting was effective as of December 31, 2023.
Important facts for investors to verify
- Confirm the timing, regulatory status and final proceeds of the OTC, women’s healthcare, India API and remaining Upjohn Distributor Markets divestitures.
- Reconcile GAAP net earnings of $54.7 million with adjusted net earnings of $3.54 billion and evaluate whether excluded costs are recurring.
- Review debt maturities, refinancing requirements and covenant headroom, particularly the approximately $1.93 billion due in 2024 and $2.53 billion due in 2026.
- Assess the sustainability of operating cash flow after dividends, share repurchases, acquisitions, milestone payments and debt service.
- Monitor goodwill and intangible-asset impairment sensitivity, especially in the Europe, JANZ and Emerging Markets reporting units.
- Evaluate the effect of China pricing policies, loss of exclusivity, generic competition and customer concentration on future sales and margins.
- Track material legal, opioid, product-liability, patent and tax proceedings beyond recorded accruals.
- Verify the commercial progress and funding requirements of the ophthalmology pipeline and the proposed Idorsia programs.