Viatris Inc. 2023 Q1 Form 10-Q Summary
Business Context and Reporting Period
Viatris is a global pharmaceutical company with branded, generic and complex generic products, operating in more than 165 countries through four segments: Developed Markets, Greater China, JANZ and Emerging Markets. This unaudited Form 10-Q covers the three months ended March 31, 2023, compared primarily with the three months ended March 31, 2022.
Financial Performance and Liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenues | $3.729 billion | $4.192 billion | Down 11% |
| Gross profit | $1.542 billion | $1.771 billion | Down $229.0 million |
| GAAP gross margin | 41% | 42% | Down 1 point |
| Earnings from operations | $399.8 million | $707.4 million | Down $307.6 million |
| Net earnings | $224.7 million | $399.2 million | Down $174.5 million |
| Diluted EPS | $0.19 | $0.33 | Down $0.14 |
| Adjusted gross margin | 60% | 59% | Up 1 point |
| Adjusted net earnings | $932.9 million | $1.125 billion | Down $192.4 million |
| Adjusted EBITDA | $1.341 billion | $1.586 billion | Down $245.4 million |
| Operating cash flow | $971.2 million | $1.139 billion | Down $167.3 million |
Net sales were $3.719 billion, including an unfavorable foreign-exchange impact of approximately $197.1 million and a $164.8 million comparison impact from the biosimilars business contributed to Biocon Biologics in November 2022. On a constant-currency basis, net sales from the remaining business declined approximately 3%, reflecting about $188 million of base-business erosion, partly offset by $85.2 million of new-product sales.
Cash and cash equivalents were $506.6 million at March 31, 2023, compared with $1.260 billion at December 31, 2022. Total debt consisted of $18.069 billion of long-term debt and $204.6 million of short-term borrowings. The Company repaid approximately $750 million of senior notes at maturity, and its maximum leverage ratio covenant was 3.75 to 1.00; management stated that it was in compliance and expected to remain in compliance for the next twelve months. Viatris had access to a $4.0 billion revolving facility, with no borrowings outstanding at quarter-end, and $197.0 million outstanding under its receivables facility.
The Company paid $143.8 million of dividends and repurchased approximately 21.2 million shares for $250.0 million. It reported a net decrease of $751.8 million in cash, cash equivalents and restricted cash, primarily reflecting acquisitions, debt repayment, repurchases and dividends.
Material Changes Versus the Prior Comparable Period
- Revenue declined 11%, driven by foreign exchange, the Biocon biosimilars divestiture and erosion in existing products.
- Developed Markets sales declined 12%, JANZ declined 19%, Emerging Markets declined 9%, and Greater China declined 1% on a reported basis. Greater China increased 5% in constant currency, while the other segments declined in constant currency.
- Operating expenses increased: research and development rose $40.6 million to $182.9 million, and SG&A rose $43.6 million to $958.9 million, primarily due to ophthalmology acquisitions, promotional investment and payroll costs.
- Other income improved to $69.9 million from $33.7 million of expense, primarily from $45.7 million of Biocon transition-services income and an $18.9 million gain on remeasurement of the Famy Life Sciences investment.
- Operating cash flow decreased 15% to $971.2 million, while investing cash outflows increased substantially because of acquisition spending.
- Viatris completed the Oyster Point acquisition and acquired the remaining equity of Famy Life Sciences, expanding its ophthalmology portfolio and pipeline.
Guidance, Outlook, Commentary and Unusual Items
- No clear full-year revenue or earnings guidance value is provided in the filing text.
- Capital expenditures for 2023 are expected to be approximately $400 million to $500 million.
- The 2020 restructuring program is expected to be substantially completed in 2023. Total committed pre-tax charges could reach approximately $1.4 billion, with potential annual savings of up to approximately $900 million once fully implemented.
- Viatris intends to divest certain non-core businesses, including OTC, API, selected women’s healthcare products and Upjohn Distributor Markets. The Company recorded $41.2 million of additional inventory and intangible-asset charges in Q1 2023 related to the Upjohn Distributor Markets and warned that failure to complete the transactions could result in additional charges exceeding $250 million.
- Oyster Point generated $6.3 million of revenue and a $49.3 million net loss from acquisition through March 31, 2023, including purchase-accounting and acquisition-related costs. Famy Life Sciences included approximately $290 million of indefinite-lived in-process research and development assets and is expected to require approximately $120 million of project costs through 2024.
- Legal contingencies accrued at March 31, 2023 totaled approximately $200.9 million. The filing states that unfavorable outcomes in litigation, tax disputes, intellectual-property matters, product-liability claims and opioid-related proceedings could materially affect results, cash flow or shareholder returns.
- International tax audits remain ongoing. The Company recorded $21.6 million of tax expense related to an agreement with Indian tax authorities and held a $299.3 million reserve for uncertain international tax positions.
Important Facts for Investors to Verify
- Whether constant-currency sales stabilize after the biosimilars divestiture and whether new product launches offset continued base-business erosion and pricing pressure.
- The sustainability of operating cash flow relative to approximately $18.3 billion of long-term debt, upcoming maturities and dividend and repurchase commitments.
- Progress and valuation implications of the Oyster Point and Famy ophthalmology assets, including Tyrvaya and Famy’s pipeline.
- Timing and proceeds from planned divestitures, particularly Upjohn Distributor Markets, and any additional impairment or write-off charges.
- Execution of the restructuring program, total remaining charges and realization of the projected annual savings.
- Potential outcomes and cash exposure from litigation, tax examinations, intellectual-property disputes, contingent consideration and other unaccrued commitments.
- The valuation and liquidity of the $1.0 billion Biocon Biologics convertible preferred-share investment and related deferred or contingent consideration.