Is Viatris Stock a buy it now?

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Pharmaceutical companies spend billions of dollars developing drugs which they then protect with a fortress of intellectual property (IP) safeguards to ensure that competitors cannot benefit from their work.

But for companies that are a bit patient, it’s worth waiting for years of exclusivity protections and then developing generic versions of the best-selling drugs of yesteryear, which are usually still in demand by patients. Moreover, these patients are often tired of paying high prices for their drugs, which pushes them towards the off-brand drug market as soon as these versions are there to buy.

And that’s why Viatris (TRV 2.33%) manufactures and sells generic versions of crucial drugs. It owns the rights to sell some of the most popular brand name drugs like Lipitor, Xanax, Viagra, and Zoloft, to name a few. And it is also a relatively new player in the field of generic drugs.

But does its big-brand ownership and slow-burn business model make it a buy?

What is the long-term thesis?

The main reason investors might want to buy Viatris is that it has a relatively stable business. He sells drugs that will more or less always be in demand. People take many of its products to control chronic disease, so they will need it for the rest of their lives. This company will be ideal for investors who have a long-term horizon and a lot of patience.

With steady revenue from its patient base, the company should be able to slowly expand into international markets while gradually expanding its drug portfolio and steadily increasing revenue, which it will then have years and years to return to its shareholders. . Since demand for its products is expected to be continuous, its stocks may end up holding up in a downturn, but not the current bear market, apparently. Its shares are down more than 31% in the past 12 months.

Over the next few years, the company is expected to become more profitable through a combination of adjustment operations and lowering its cost of goods sold (COGS). Before the end of 2023, it expects to achieve approximately $1 billion in remaining cost synergies from its spin-off of Pfizer. Given that its net loss in 2021 was approximately $1.2 billion, these reductions and optimizations will go a long way towards achieving better results.

Additionally, management plans to continue to use its excess capital to make acquisitions, buy back its stock, and pay (and possibly increase) its dividend. At the moment, its forward dividend yield is a hair above 4.9%, which is quite attractive for a slow-growing pharmaceutical company. Investors who buy the stock today will thus benefit from this high yield while potentially benefiting from future increases in the payout.

Better times may be ahead – not now

The problem with Viatris’ stock as it is today is that it’s not steadily growing its revenue from its core products. According to its second-quarter earnings report, its generic drug sales fell 11% year-over-year in constant currency, and its total revenue fell 3%. This undermines part of this company’s investment thesis, particularly the part that claims demand for its generics will be fairly even over time.

Moreover, the decline in revenue is concentrated precisely where the company’s future growth should come from: emerging markets. In South America, Africa, the Middle East, Southeast Asia and most of the rest of Eurasia, Viatris net sales fell 19% year-over-year. It’s unclear exactly what went wrong, as management’s only comment is that the quarter’s sales performance was “in line with expectations” given the evolution of exchange rates, so it’s hard to say if the situation will worsen or improve over the next few years.

Then there’s the sub-optimal distribution of projects in its pipeline. It plans to launch one drug in 2023, another in 2024, and then four in 2025. That means strong revenue growth is still a few years away, so current revenue issues could be troublesome for some time. time.

What is the right decision?

Viatris is a favorable stock to buy and hold to earn passive income from its dividend. But if you’re not looking to pay dividends, it’s hard to see how it would outperform the market, since it’s not committed to a high-growth niche, nor does it plan to make significant innovations that would give it a advantage over the competition.

On the other hand, if you’re looking for safe growth, it could be an attractive option in a few years, once its post-spinoff cuts are complete and its pipeline has had some time to generate new revenue. Either way, if you’re not investing for the dividend, it’s probably best to stay away for now.

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