Viatris to Divest From Biosimilar Business; Doubling Down on Core Generics Business With Higher R&D

Viatris surprised investors with a special investor event in tandem with the company's fourth-quarter earnings results, announcing the anticipated $3.3 billion sale of its biosimilar portfolio at the end of this year to Biocon, a privately held Indian pharmaceutical company. Furthermore, the company identified $4 billion-$6 billion in other assets that it intends to sell by the end of 2023, in order to return capital to shareholders, accelerate deleveraging, and simplify the company's operating model. Our take of the news is somewhat negative overall--while the sale price at 16.5 times adjusted EBITDA represents a much higher multiple than the company's overall trading multiple at 2.9 times adjusted EBITDA, this multiple doesn't take into account revenue associated with drugs in the end stages of the company's development pipeline (e.g. Viatris' biosimilar for Humira anticipated to launch in 2023), which are expected to contribute materially to the fast-growing business unit. Beyond representing the fastest-growing segment of the company's operations, longer term, we anticipated Viatris' biosimilar pipeline would help offset erosion in the company's core generics business in the U.S. market. Digesting the news and the company's fourth-quarter operating results, we are lowering our fair value estimate to $12.50 per share from $14, and reiterate our no-moat assessment of the company.