10-Q: Viatris Reports First Quarter 2024 Results, Impacted by Currency and Divestitures

Viatris' first quarter 2024 results show a slight decrease in revenue and earnings compared to the same period last year, influenced by currency fluctuations and strategic divestitures.

Summary

• Viatris reported a decrease in total revenue to $3.66 billion for the first quarter of 2024, down from $3.73 billion in the same period last year.
• Net sales decreased by 2% to $3.65 billion, primarily due to unfavorable foreign currency translation impacts of approximately $77.1 million and the inclusion of net sales in the prior year period related to divestitures that have closed during 2023 and 2024.
• On a constant currency basis, net sales from the remaining business increased by approximately 2% driven by new product sales of approximately $154.5 million, partially offset by base business erosion of approximately $97.3 million.
• Gross profit was $1.50 billion, with a gross margin of 41%, compared to $1.54 billion and 41% respectively in the prior year period.
• Operating expenses increased to $1.30 billion, up from $1.14 billion in the prior year period, primarily due to higher selling, general, and administrative expenses.
• Net earnings decreased to $113.9 million, or $0.09 per diluted share, compared to $224.7 million, or $0.19 per diluted share, in the first quarter of 2023.
• Adjusted EBITDA was $1.19 billion, compared to $1.34 billion in the prior year period.
• The company repurchased approximately 19.2 million shares of common stock at a cost of approximately $250 million during the quarter.

Sentiment

Score: 5

Explanation: The document presents mixed results with some positive aspects like new product sales and strategic divestitures, but also negative aspects like decreased revenue and earnings. The overall sentiment is neutral to slightly negative due to the decline in key financial metrics.

Positives

• New product sales contributed significantly to revenue, indicating successful product launches.
• The company completed the divestiture of its women's healthcare business, generating a pre-tax gain of approximately $80.8 million.
• Viatris continues to execute its share repurchase program, returning capital to shareholders.
• Constant currency net sales from the remaining business increased by approximately 2%.

Negatives

• Total revenue and net sales decreased year-over-year, primarily due to unfavorable foreign currency translation and divestitures.
• Net earnings and diluted earnings per share decreased significantly compared to the prior year period.
• Operating expenses increased, impacting overall profitability.
• Adjusted EBITDA decreased compared to the prior year period.

Risks

• The company is exposed to foreign currency risk, which significantly impacted revenue in the first quarter.
• The company faces risks associated with the successful completion of pending divestitures, including regulatory approvals and other closing conditions.
• The company is involved in various legal proceedings, which could have a material impact on its financial results.
• The company is subject to ongoing IRS examinations and international tax audits, which could result in material losses.
• The company faces competition and pricing pressures in the pharmaceutical industry, which could impact future sales and profitability.

Future Outlook

The company expects the OTC Transaction to close by mid-year 2024. Capital expenditures for the 2024 calendar year are expected to be approximately $350 million to $450 million. The company anticipates having sufficient liquidity to fund foreseeable cash needs.

Management Comments

• Viatris executive management team is focused on ensuring that the Company is optimally structured and efficiently resourced to deliver sustainable value to patients, shareholders, customers and other key stakeholders.
• Management believes that adjusted net earnings and adjusted EPS are important internal financial metrics related to the ongoing operating performance of the Company, and are therefore useful to investors and that their understanding of our performance is enhanced by these measures.

Industry Context

The pharmaceutical industry is highly competitive and regulated, with factors such as generic competition, pricing pressures, and regulatory approvals significantly impacting results. Viatris is navigating these challenges through strategic divestitures, acquisitions, and a focus on new product launches.

Comparison to Industry Standards

• Viatris' performance is being impacted by similar industry trends as other generic and branded pharmaceutical companies, including pricing pressures and the impact of currency fluctuations.
• The company's adjusted gross margin of 59% is within the range of other large pharmaceutical companies, but is slightly down compared to the prior year period.
• The company's strategic divestitures and acquisitions are similar to actions taken by other companies in the industry to optimize their portfolios and focus on core businesses.
• The company's focus on new product launches and complex products is a common strategy to drive growth and offset the impact of generic competition on existing products.
• The company's share repurchase program is a common method for returning capital to shareholders, similar to other companies in the industry.

Legal Proceedings

• The company is involved in various disputes, governmental and/or regulatory inquiries, investigations and proceedings, tax proceedings and litigation matters, both in the U.S. and abroad.
• The company is a defendant in multiple lawsuits related to the pricing and marketing of EpiPen Auto-Injector.
• The company is involved in civil litigation alleging anticompetitive conduct with respect to generic drugs.
• The company is a defendant in securities related litigation.
• The company is a defendant in opioid related litigation.
• The company is involved in product liability lawsuits related to alleged personal injuries.
• The company is involved in intellectual property litigation related to patents.

Related Party Transactions

• Viatris and Biocon Biologics have agreed to a closing working capital target of $250 million, of which $220 million was paid during 2023.
• Viatris and Idorsia are both contributing to the development costs for both programs related to the acquisition of development programs.

Stakeholder Impact

• Shareholders are impacted by the decrease in net earnings and diluted earnings per share, but also by the share repurchase program.
• Employees are impacted by restructuring and divestiture activities.
• Customers are impacted by the availability of new products and the potential changes in distribution agreements.
• Suppliers are impacted by changes in manufacturing and supply agreements.
• Creditors are impacted by the company's debt levels and compliance with debt covenants.

Next Steps

• The company expects the OTC Transaction to close by mid-year 2024.
• The company will continue to monitor and manage its legal proceedings and tax audits.
• The company will continue to execute its share repurchase program.
• The company will continue to focus on new product launches and strategic initiatives.

Key Dates

Keywords

Viatris, pharmaceuticals, financial results, divestitures, acquisitions, revenue, net sales, EBITDA, earnings per share, share repurchase, currency impact, generic drugs, branded drugs, biosimilars