Viatris Inc. 2020 Form 10-K Summary
Business context and reporting period
Viatris was formed on November 16, 2020 through the combination of Mylan and Pfizer’s Upjohn Business. The filing covers the fiscal year ended December 31, 2020, with quarterly data including the three months ended December 31, 2020. Because Mylan was the accounting acquirer, historical results before November 16, 2020 primarily represent Mylan, while Upjohn results are included only after the transaction date.
The company operates in more than 165 countries and territories, with more than 1,400 approved molecules, approximately 45,000 employees and contractors, and approximately 50 manufacturing sites. Reportable segments are Developed Markets, Greater China, JANZ, and Emerging Markets.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenues | $11.946 billion | $11.501 billion | Up 4% |
| Net sales | $11.820 billion | $11.370 billion | Up 4% |
| Gross profit | $3.797 billion | $3.898 billion | Down 3% |
| Gross margin | 32% | 34% | Down 2 percentage points |
| Operating income/(loss) | $(210.8) million | $715.5 million | Declined $926.3 million |
| Net income/(loss) | $(669.9) million | $16.8 million | Declined $686.7 million |
| Diluted EPS | $(1.11) | $0.03 | Declined $1.14 |
| Operating cash flow | $1.232 billion | $1.804 billion | Down $571.9 million |
| Cash and cash equivalents | $844.4 million | $475.6 million | Up $368.8 million |
| Long-term debt, including current portion | $24.686 billion | $12.672 billion | Up $12.014 billion |
Adjusted gross margin was approximately 54% versus 53% in 2019. Adjusted net earnings were $2.372 billion versus $2.281 billion, and adjusted EBITDA was $3.654 billion versus $3.540 billion. These are non-GAAP measures and exclude substantial purchase-accounting, acquisition, restructuring, litigation, and other special items.
Fourth-quarter 2020 total revenue was $3.624 billion, gross profit was $706.4 million, and net loss was $915.8 million, or $(1.07) diluted loss per share. The fourth-quarter results included significant combination, restructuring, purchase-accounting, and other special charges.
Material changes versus the prior comparable period
- Revenue growth was driven by $864.9 million of post-combination Upjohn sales and new product sales, partly offset by lower pricing and volumes for existing products.
- Management estimated that COVID-19 reduced 2020 net sales by approximately 3%, primarily because of lower retail pharmacy demand, fewer non-COVID patient visits, and fewer in-person meetings with prescribers and payors.
- Developed Markets net sales increased 3%, Greater China increased 21%, JANZ was essentially flat, and Emerging Markets increased 8% on a reported basis. Constant-currency growth was 2%, 22%, flat, and 14%, respectively.
- Gross margin declined because of lower pricing and volumes, competitive pressures, COVID-19 effects, the termination of a Pfizer collaboration in Japan, and approximately $182 million of higher restructuring and acquisition-related costs and COVID-related costs.
- SG&A increased $781.0 million, including approximately $587.5 million of combination-related costs, $280.7 million of Upjohn costs after closing, and approximately $111.2 million of higher restructuring costs.
- Operating cash flow declined primarily because of the net loss, higher inventory investment, and tax-payment timing.
- Total assets increased to $61.553 billion from $31.256 billion, largely reflecting the combination, including $18.040 billion of acquired identifiable intangible assets and $2.108 billion of acquired goodwill.
- Short-term borrowings increased to $1.101 billion from zero, while total long-term debt including the current portion increased to $24.686 billion from $12.672 billion.
Outlook, guidance, risks, contingencies, and unusual items
Viatris announced a global restructuring program intended to generate approximately $1 billion of synergies. The program may affect up to 20% of the global workforce and involve closing, downsizing, or divesting up to 15 manufacturing facilities. Estimated pre-tax charges are $1.1 billion to $1.4 billion, including $350 million to $450 million of non-cash charges and $750 million to $950 million of cash costs. Expected annual savings from committed actions are $700 million to $900 million once fully implemented. The filing does not provide a conventional revenue or earnings-per-share forecast.
Management expects 2021 capital expenditures of approximately $500 million to $650 million and expects to initiate quarterly dividends in 2021, subject to board approval, financial performance, cash flows, contractual restrictions, and other factors.
- Liquidity included $844.4 million of cash, a $4.0 billion revolving facility maturing in November 2023, a $1.65 billion commercial paper program, a $400 million receivables facility, and a $200 million note securitization facility. The company reported compliance with applicable debt covenants and expected to remain compliant for the next twelve months.
- Mandatory long-term debt repayments totaled $23.947 billion, including $2.250 billion in 2021 and $2.516 billion in 2022, before scheduled interest payments of $4.341 billion.
- The company had approximately $343 million accrued for legal contingencies, including material matters involving EpiPen, generic-drug pricing and antitrust claims, opioids, product liability, intellectual property, and other proceedings. Management states that additional losses are possible but generally cannot estimate a range.
- Potential contingent consideration liabilities were $223.6 million at year-end, including a $73.1 million 2020 fair-value loss. The company expects $8 million to $10 million of non-cash accretion expense in 2021.
- The Pfizer transition services agreement generally covers an initial 24-month period. Viatris had incurred $53.1 million of related cost reimbursements through year-end and may bear additional costs above specified thresholds.
- Pricing and reimbursement pressure remains significant, particularly from government price controls, tenders, China’s volume-based procurement program, and the expected universal reimbursement pricing policy in China.
- Key operating risks include integration execution, restructuring disruption, dependence on Pfizer transition and supply arrangements, COVID-19, manufacturing and supplier concentration, regulatory compliance, product recalls, patent litigation, cybersecurity, foreign exchange, pension obligations, and high leverage.
- Management concluded that internal control over financial reporting was effective, and Deloitte & Touche issued unqualified opinions. However, the Upjohn Business, which represented 48% of total assets, was excluded from management’s year-end internal-control assessment because it had been acquired less than one year earlier.
Most important facts for investors to verify
- Whether the announced $1 billion synergy target and $700 million to $900 million of annual savings are achieved within the expected timeline and at the estimated cost.
- The post-combination revenue and earnings contribution of Upjohn versus the legacy Mylan business, given the limited post-closing period included in 2020 results.
- The company’s ability to reduce leverage while funding restructuring charges, capital expenditures, pension obligations, dividends, and debt maturities.
- The sustainability of adjusted EBITDA and adjusted net earnings after excluding recurring or substantial purchase-accounting, restructuring, acquisition, litigation, and other special items.
- Exposure to China pricing programs, loss of exclusivity for key products such as Lyrica, generic competition, and customer concentration.
- Developments in major litigation, government investigations, opioid obligations, intellectual-property cases, and the approximately $343 million legal-contingency accrual.
- Integration of Upjohn’s systems and controls before the next annual internal-control assessment, including any resulting material weaknesses.
- The final purchase-price allocation for the Upjohn combination and the sensitivity of the company’s substantial goodwill and intangible assets to impairment.