Viatris stands out amid selloff in generic drugmakers
The shares of Viatris (NASDAQ:VTRS) and Teva (VTRS) have well underperformed the broader market over the past 12 months. Weighed down by pricing pressure and opioid-related liabilities, Teva (NYSE:TEVA) has lost ~25%, while high leverage and, most recently, the decision to divest biosimilar assets have driven a ~29% decline in Viatris (VTRS) shares. In comparison, SPDR S&P Pharmaceuticals ETF (NYSEARCA:XPH) has lost only ~17% over the past year, as shown in this graph.
The shares of Viatris (VTRS) have never been this cheap, and Israel-based Teva (TEVA) is trading at the lowest level since Mar. 2020. However, there are noteworthy differences between the two leading generic drugmakers in terms of several key financial measures and valuations.
Teva's (TEVA) topline contracted by ~5% YoY in 2021 to $15.9B, mainly driven by lower revenue from multiple sclerosis medication Copaxone in the U.S. For 2022, the company projects only flat revenue growth at the mid-point of the forecast.
Meanwhile, Viatris (VTRS), formed after Pfizer (NYSE:PFE) spinoff Upjohn combined with generic drugmaker Mylan in Nov. 2020, reported full-year net sales of $17.8B, which indicated a ~3% YoY decline on an operational basis compared to combined adjusted 2020 results. The company's 2022 guidance, which includes the anticipated sales from the proposed divestment, stands at $17.3B at the mid-point, implying a decline of ~3% YoY.
In the earnings release, Viatris (VTRS) Chief Executive Michael Goettler projected that the transaction expected to close in Q4 2022 will generate up to ~$9B in pre-tax proceeds. The sale of non-core assets will lead to financial flexibility and higher margins, which in turn could maximize shareholder returns, he added.
Compared to peers, Teva (TEVA) and Amphastar Pharmaceuticals (NASDAQ:AMPH), Viatris (VTRS) has the lowest profit margin at ~43%. Its debt-to-equity ratio stands at ~1.1x compared to ~2.1x of Teva (TEVA). The divestment will help the company lower debt, add new growth drivers, and deploy capital, Bank of America analysts led by Jason M. Gerberry noted following the news.
Notably, in terms of EV/EBITDA ratio, Viatris (VTRS) looks cheaper in valuation, trading at ~5.7x, compared to ~7.0x of Teva (TEVA), which has slightly lower ratings among Wall Street analysts as well as Seeking Alpha contributors.
However, the BofA analysts later downgraded the stock, questioning the management’s ability to channel the proceeds for areas of priority given the lack of track record in M&A. Despite the selloff, even SA contributors took an increasingly negative view on Viatris (VTRS). The stock has already drawn two Hold ratings from them this month, compared to none in February.