Friday, October 15, 2021

Viatris’ growth story hinges on M&A as China, Japan hang in the balance: analyst


After months of delay thanks to a U.S. antitrust roadblock, Pfizer and Mylan finally wrapped up their generics merger on Monday.

Enter Viatris, which hopes the additional geographic reach offered by Pfizer’s former Upjohn established medicines unit could further growth. But as one analyst sees it, tapping into new territories alone likely won’t be enough.

“We think business development is going to be critical to the growth story of Viatris going forward,” RBC Capital Markets analyst Randall Stanicky wrote in a Monday note to clients.

The reason? Legacy Upjohn’s prospects in China and Japan remain unclear, he said, calling the two countries “major swing factors” to his near-term forecast for the new company.

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Viatris will see its revenue decline from about $19.4 billion in 2020 to $18.8 billion in 2021, and then grow slightly to $19.0 billion in 2022, according to Stanicky’s projection based on the company’s current portfolio. The major stumbling block comes from Upjohn, whose contribution to the combined business will drop from $7.86 billion in 2020 to $6.51 billion in 2022 by Stanicky’s estimate.

Upjohn previously enjoyed robust growth in China until the country rolled out a volume-based procurement program in 2019 that pitted off-patent drugs’ originators with generic players in bidding for critical public hospital purchases.

Upjohn’s cardiovascular therapies Lipitor and Norvasc suffered miserably after they lost the first round of government contracts. During this year’s bidding, Upjohn again lost Viagra and Celebrex tenders, although Stanicky figures the private pay market will help keep Viagra strong.

RELATED: Mylan, Pfizer’s $12B Viatris merger clears FTC with deal for product selloffs

As a result, Stanicky sees Upjohn’s China revenue falling by 57% in 2021 compared with 2019’s haul. That means Upjohn China will only make up 6% of Viatris’ business by 2021, versus 12% in 2019.

Is there any additional risk to the remaining $1.1 billion Upjohn China 2021 revenue? “It’s hard to say,” given ongoing government reforms, Stanicky said. But as it will make up a smaller part of the new company’s total revenue, any erosion will have a more limited impact, he said.

In Japan, the problem lies with pain med Lyrica—or to be specific, with its copycats. Generics have already launched in the U.S., but entry timing in Japan is unclear. Japanese health authorities approved several generic versions in August, but Pfizer filed applications seeking injunctions.

Stanicky, for his part, is assuming early generic launch, and he’s therefore cut his forecast for Lyrica’s 2021 Japan sales to $136 million in 2021, representing an 82% slide from 2019’s tally.

RELATED: Mylan and Pfizer roll out tricolor branding for their giant generics combo, Viatris

Make no mistake, though: The new Viatris will still benefit from geographic expansion, and Mylan’s own potential new launches through 2023 could eventually add $3 billion to its revenue, Stanicky argued.

“The optionality we see in this new platform is for Viatris management to find ways to leverage it and broaden its drug portfolios across the various geographies both organically and also, importantly, through business development,” he said.

While investors and industry watchers will debate over Viatris’ current growth outlook, the sure thing is that “if the new company can find ways to perpetuate a serial bolt-on deal and licensing/partnership strategy, and leverage those in-sourced products across the new and more global platform, there is an opportunity to boost that growth outlook,” he added.

By Stanicky’s analysis, Viatris will have $1.3 billion of excess cash in 2022 and $12.7 billion by 2025 to carry out those bolt-on deals.

Meanwhile, to cut costs, Viatris is embarking on a global restructuring program with the goal of squeezing out $1 billion in savings. Details of the overhaul remain under wraps. “The company is currently in the process of defining the specific parameters of the program, including workforce actions and other restructuring activities,” it said in a statement on Monday.



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