Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis addresses material changes in the financial condition and results of operations of Viatris Inc. and subsidiaries for the periods presented. Unless context requires otherwise, the “Company,” “Viatris,” “our” or “we” refer to Viatris Inc. and its subsidiaries.

This discussion and analysis should be read in conjunction with the Consolidated Financial Statements, the related Notes to Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Viatris’ 2020 Form 10-K, the unaudited interim financial statements and related Notes included in Part I — ITEM 1 of this Form 10-Q and our other SEC filings and public disclosures. The interim results of operations and comprehensive earnings (loss) for the three and nine months ended September 30, 2021, and cash flows for the nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full fiscal year or any other future period.

This Form 10-Q contains “forward-looking statements”. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, without limitation, statements about the Combination, the benefits and synergies of the Combination or our global restructuring program, future opportunities for the Company and its products and any other statements regarding the Company’s future operations, financial or operating results, capital allocation, dividend policy and payments, debt ratio and covenants, anticipated business levels, future earnings, planned activities, anticipated growth, market opportunities, strategies, competitions, commitments, confidence in future results, efforts to create, enhance or otherwise unlock the value of our unique global platform, and other expectations and targets for future periods. Forward-looking statements may often be identified by the use of words such as “will”, “may”, “could”, “should”, “would”, “project”, “believe”, “anticipate”, “expect”, “plan”, “estimate”, “forecast”, “potential”, “pipeline”, “intend”, “continue”, “target”, “seek” and variations of these words or comparable words. Because forward-looking statements inherently involve risks and uncertainties, actual future results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to:

the integration of Mylan and the Upjohn Business or the implementation of the Company’s global restructuring program being more difficult, time consuming or costly than expected;
the possibility that the Company may be unable to achieve expected benefits, synergies and operating efficiencies in connection with the Combination or its global restructuring program within the expected timeframe or at all;
the possibility that the Company may be unable to successfully integrate Mylan and the Upjohn Business or implement its global restructuring program;
operational or financial difficulties or losses associated with the Company’s reliance on agreements with Pfizer in connection with the Combination, including with respect to transition services;
the possibility that the Company may be unable to achieve all intended benefits of its strategic initiatives;
the potential impact of public health outbreaks, epidemics and pandemics, including the ongoing challenges and uncertainties posed by the COVID-19 pandemic;
the Company’s failure to achieve expected or targeted future financial and operating performance and results;
actions and decisions of healthcare and pharmaceutical regulators;
changes in relevant laws and regulations, including but not limited to changes in tax, healthcare and pharmaceutical laws and regulations globally (including the impact of potential tax reform in the U.S.);
the ability to attract and retain key personnel;
the Company’s liquidity, capital resources and ability to obtain financing;
any regulatory, legal or other impediments to the Company’s ability to bring new products to market, including but not limited to “at-risk launches”;
success of clinical trials and the Company’s or its partners’ ability to execute on new product opportunities and develop, manufacture and commercialize products;
any changes in or difficulties with the Company’s manufacturing facilities, including with respect to inspections, remediation and restructuring activities, supply chain or inventory or the ability to meet anticipated demand;
the scope, timing and outcome of any ongoing legal proceedings, including government inquiries or investigations, and the impact of any such proceedings on the Company;
any significant breach of data security or data privacy or disruptions to our information technology systems;
risks associated with having significant operations globally;
the ability to protect intellectual property and preserve intellectual property rights;
changes in third-party relationships;

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the effect of any changes in the Company’s or its partners’ customer and supplier relationships and customer purchasing patterns, including customer loss and business disruption being greater than expected following the Combination;
the impacts of competition, including decreases in sales or revenues as a result of the loss of market exclusivity for certain products;
changes in the economic and financial conditions of the Company or its partners;
uncertainties regarding future demand, pricing and reimbursement for the Company’s products;
uncertainties and matters beyond the control of management, including but not limited to general political and economic conditions and global exchange rates; and
inherent uncertainties involved in the estimates and judgments used in the preparation of financial statements, and the providing of estimates of financial measures, in accordance with U.S. GAAP and related standards or on an adjusted basis.

For more detailed information on the risks and uncertainties associated with Viatris, see the risks described in Part I, Item 1A in the 2020 Form 10-K, and our other filings with the SEC. You can access Viatris’ filings with the SEC through the SEC website at www.sec.gov or through our website, and Viatris strongly encourages you to do so. Viatris routinely posts information that may be important to investors on our website at investor.viatris.com, and we use this website address as a means of disclosing material information to the public in a broad, non-exclusionary manner for purposes of the SEC’s Regulation Fair Disclosure (Reg FD). The contents of our website are not incorporated by reference in this Form 10-Q and shall not be deemed “filed” under the Securities Exchange Act of 1934, as amended. Viatris undertakes no obligation to update any statements herein for revisions or changes after the filing date of this Form 10-Q other than as required by law.

Explanatory Note

In accordance with ASC 805, Business Combinations, Mylan is considered the accounting acquirer of the Upjohn Business and all historical financial information of the Company prior to November 16, 2020 represents Mylan’s historical results and the Company’s thereafter.

Company Overview

Viatris is a global healthcare company formed in November 2020 through the combination of Mylan and Upjohn, whose mission is to empower people worldwide to live healthier at every stage of life. By integrating the strengths of these two businesses, including our global workforce of approximately 38,000 employees and contractors, Viatris aims to deliver increased access to affordable, quality medicines for patients worldwide regardless of geography or circumstance. Viatris brings together industry leading commercial, R&D, regulatory, manufacturing, legal and medical expertise complemented by a strong commitment to quality and unparalleled geographic footprint to deliver high-quality medicines to patients in more than 165 countries and territories. Viatris’ portfolio comprises more than 1,400 approved molecules across a wide range of key therapeutic areas, including globally recognized iconic and key brand, generic, complex generic, and biosimilar products. Viatris operates approximately 50 manufacturing sites worldwide that produce oral solid doses, injectables, complex dosage forms and APIs. Viatris is headquartered in the U.S., with global centers in Pittsburgh, Pennsylvania, Shanghai, China and Hyderabad, India.

Viatris reports segment information on the basis of markets and geography. In conjunction with the formation of Viatris, the Company has changed its reportable segments, from North America, Europe, and Rest of World, to Developed Markets, Greater China, JANZ, and Emerging Markets. This approach reflects the Company’s focus on bringing its broad and diversified portfolio of branded, complex generics and biosimilars, and generic products to people in markets everywhere. Our Developed Markets segment comprises our operations primarily in North America and Europe. Our Greater China segment includes our operations in China, Taiwan and Hong Kong. Our JANZ segment reflects our operations in Japan, Australia and New Zealand. Our Emerging Markets segment encompasses our operations in countries with developing markets and emerging economies including countries in Asia, the Middle East, South and Central America, Africa and Eastern Europe, and also includes the Company’s anti-retroviral franchise.

Certain Market and Industry Factors

The global pharmaceutical industry is a highly competitive and highly regulated industry. As a result, we face a number of industry-specific factors and challenges, which can significantly impact our results. The following discussion highlights some of these key factors and market conditions.

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Generic products, particularly in the U.S., generally contribute most significantly to revenues and gross margins at the time of their launch, and even more so in periods of market exclusivity, or in periods of limited generic competition. As such, the timing of new product introductions can have a significant impact on the Company’s financial results. The entrance into the market of additional competition generally has a negative impact on the volume and pricing of the affected products. Additionally, pricing is often affected by factors outside of the Company’s control. Conversely, generic products generally experience less volatility over a longer period of time in Europe as compared to the U.S., primarily due to the role of government oversight of healthcare systems in the region.

For branded products, the majority of the product’s commercial value is usually realized during the period in which the product has market exclusivity. In the U.S. and some other countries, when market exclusivity expires and generic versions of a product are approved and marketed, there can often be very substantial and rapid declines in the branded product’s sales. For example, several companies launched a generic to Lyrica® in Japan in December 2020 despite pending patent infringement litigation. While the litigation remains ongoing, the rate of generic conversion is significant and, combined with market dynamics relating to the COVID-19 pandemic, the Company expects a significant reduction in the annual revenues of Lyrica®.

Certain markets in which we do business outside of the U.S. have undergone government-imposed price reductions, and further government-imposed price reductions are expected in the future. Such measures, along with the tender systems discussed below, are likely to have a negative impact on sales and gross profit in these markets. However, government initiatives in certain markets that appear to favor generic products could help to mitigate this unfavorable effect by increasing rates of generic substitution and penetration.

Additionally, a number of markets in which we operate outside of the U.S. have implemented, or may implement, tender systems for generic pharmaceuticals in an effort to lower prices. Generally speaking, tender systems can have an unfavorable impact on sales and profitability. Under such tender systems, manufacturers submit bids that establish prices for generic pharmaceutical products. Upon winning the tender, the winning company will receive priority placement for a period of time. The tender system often results in companies underbidding one another by proposing low pricing in order to win the tender. The loss of a tender by a third party to whom we supply API can also have a negative impact on our sales and profitability. Sales continue to be negatively affected by the impact of tender systems in certain countries.

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Recent Developments

SEMGLEE®

On June 11, 2020, the FDA approved the SEMGLEE® vial and pen products, which the Company began selling on August 31, 2020. On July 28, 2021, Viatris and Biocon Biologics Ltd. announced that the FDA had approved SEMGLEE® (insulin glargine-yfgn) injection as the first interchangeable biosimilar product under the 351(k) regulatory pathway. The interchangeable SEMGLEE® product, which will allow substitution of SEMGLEE® for the reference product, Lantus®, at the pharmacy counter, will be introduced before the end of the year. The Company is eligible to have exclusivity for 12 months before the FDA can approve another biosimilar interchangeable to Lantus®. Commercial preparations for launch are underway. Over the next few months, Viatris will transition the current product to the 351(k) interchangeable product.

2020 Restructuring Program

During the fourth quarter of 2020, Viatris announced a significant global restructuring program in order to achieve synergies and ensure that the organization is optimally structured and efficiently resourced to deliver sustainable value to patients, shareholders, customers, and other stakeholders. Viatris’ restructuring initiative incorporates and expands on the restructuring program announced by Mylan N.V. earlier in 2020 as part of its business transformation efforts. The Company expects to optimize its commercial capabilities and enabling functions, and close, downsize or divest up to 15 manufacturing facilities globally that are deemed to be no longer viable either due to surplus capacity, challenging market dynamics or a shift in its product portfolio toward more complex products. As a result, Viatris expects that up to 20% of its global workforce may be impacted upon completion of the restructuring initiative.

For the committed restructuring actions, the Company expects to incur total pre-tax charges ranging between $1.1 billion and $1.4 billion. Such charges are expected to include between $350 million and $450 million of non-cash charges mainly related to accelerated depreciation and asset impairment charges, including inventory write-offs. The remaining estimated cash costs of between $750 million and $950 million are expected to be primarily related to severance and employee benefits expense, as well as other costs, including those related to contract terminations and decommissioning costs. In addition, management believes the potential annual savings related to these committed restructuring activities to be between $700 million and $900 million once fully implemented, with most of these savings expected to improve operating cash flow.

During the three and nine months ended September 30, 2021, the Company recorded pre-tax charges of $172.8 million and $738.3 million, respectively. For the charges recognized during the three months ended September 30, 2021, $87.3 million were non-cash accelerated depreciation and asset impairment charges and the remaining charges were primarily related to severance and employee benefits. Included within the charges during the nine months ended September 30, 2021 were $319.1 million for non-cash accelerated depreciation and asset impairment charges with the remaining charges primarily related to severance and employee benefits.

Impact of the Coronavirus pandemic on our business and results of operations

As a leading global pharmaceutical company, Viatris is committed to continue doing its part in support of public health needs amid the evolving COVID-19 pandemic. The Company’s priorities remain protecting the health and safety of our workforce, continuing to produce critically needed medicines, deploying resources and expertise in the fight against COVID-19 through potential prevention and treatment efforts, supporting the communities in which we operate and maintaining the health of our overall business.

The following section discusses the important measures the Company continues to take in light of the COVID-19 pandemic.

Employee Health and Safety

Viatris continues to align with government and health authority guidelines in an effort to safeguard our workforce and continues to make assessments on an ongoing basis.
While Viatris’ business operations are currently considered essential based on government guidelines throughout the world due to the important role pharmaceutical manufacturers play within the global healthcare system, many Viatris administrative offices continue operating under work from home protocols.

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Because protecting the health and safety of our workforce remains paramount, Viatris has taken extra precautions at manufacturing facilities to aid in the protection of site personnel and operations, including the implementation of social distancing guidelines, daily health assessments and split shifts where feasible.
Many customer facing field personnel continue on a remote engagement model to ensure continued support for healthcare professionals, patient care and access to needed products.
Global restrictions have been placed on travel and in-person meetings.
Viatris has taken steps to protect the safety of study participants, our employees and staff at clinical trial sites and ensure regulatory compliance and scientific integrity of trial data.

Continuing to Produce Critically Needed Medicines

Manufacturing and Supply

Viatris has activated worldwide business continuity plans to seek to ensure that our global supply chain platform continues to operate without significant disruption.
All of our manufacturing facilities, and those of our key global partners, are currently operational and, at this time, we are not experiencing any significant disruptions to our supply chain, including the availability of APIs. Also, we are currently not experiencing any negative impact on our customer service levels.
Viatris has a broad, diverse and resilient global manufacturing and supply chain footprint. We are not dependent on any one country or site. Even in India, our manufacturing footprint is spread over five different states, which mitigates the risk of disruption in any given part of the country.
Viatris continues to engage with regulatory authorities around the world who are committed to maintaining ongoing regulatory processes while also continuing to make available our global R&D, regulatory and manufacturing expertise and capacity to partners who may be in need of additional resources.

Commercial Operations

We have and continue to experience fluctuations in demand trends due to COVID-19. We will continue to monitor trends closely as we work to ensure patients have access to needed medicine.
Inventory levels, both ours and those in our distribution channel, remain in-line with normal levels and are currently assessed to be sufficient for anticipated demand.

Deploying Resources and Expertise in the Fight Against COVID-19

Product Development

On May 12, 2020, Mylan announced a global collaboration with Gilead Sciences, Inc. to expand access to the investigational antiviral remdesivir for the potential treatment of COVID-19. Under the terms of the license agreement the Company has rights to manufacture and distribute remdesivir in 127 low-and middle-income countries, including India.
On July 6, 2020, Mylan announced that the DCGI approved its remdesivir 100 mg/vial for restricted emergency use in India as part of the DCGI’s accelerated approval process to address urgent, unmet needs amid the evolving COVID-19 pandemic.
On November 20, 2020, the World Health Organization issued a conditional recommendation against the use of remdesivir in hospitalized patients, regardless of disease severity, as there was no evidence that remdesivir improved survival and other outcomes in these patients.

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Viatris continues to supply antiviral medicines, including remdesivir and ambisome, and continues to work with government authorities related to product usage.

Maintaining the Health of Our Overall Business

Access to Capital Markets and Liquidity

While currently we are not experiencing any negative liquidity trends related to the COVID-19 pandemic, we continue to closely monitor developments and the potential negative impact on our operating performance and our ability to access the capital markets.

Due to the Company’s ability to generate significant cash flows from operations, as well as its revolving credit agreement, other short-term borrowing facilities and access to capital markets, we believe that we currently have, and will maintain, the ability to meet foreseeable liquidity needs.

Impact on Results of Operations

The global spread of COVID-19 has created and continues to create significant volatility, uncertainty and economic disruption affecting the markets we serve. The extent to which the COVID-19 pandemic will impact our business, operations and financial results in future periods will depend on numerous evolving factors that are beyond our control and that we may not be able to accurately predict. For additional information, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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Financial Summary

The table below is a summary of the Company’s financial results for the three and nine months ended September 30, 2021 compared to the prior year period:


	Three Months Ended
	September 30,
(In millions, except per share amounts)	2021		2020		Change		% Change
Total revenues	$	4,536.6	$	2,972.1	$	1,564.5	53	%
Gross profit	1,574.1		1,158.5		415.6		36	%
Earnings from operations	357.6		351.4		6.2		2	%
Net earnings	311.5		185.7		125.8		nm
Diluted earnings per share	$	0.26	$	0.36	$	(0.10)	nm

	Nine Months Ended
	September 30,
(In millions, except per share amounts)	2021		2020		Change		% Change
Total revenues	$	13,544.7	$	8,322.5	$	5,222.2	63	%
Gross profit	4,029.1		3,090.3		938.8		30	%
Earnings from operations	43.6		670.3		(626.7)		(93)	%
Net (loss) earnings	(1,005.3)		245.9		(1,251.2)		nm
Diluted (loss) earnings per share	$	(0.83)	$	0.48	$	(1.31)	nm

A detailed discussion of the Company’s financial results can be found below in the section titled “Results of Operations.” As part of this discussion, we also report sales performance using the non-GAAP financial measures of “constant currency” net sales and total revenues. These measures provide information on the change in net sales and total revenues assuming that foreign currency exchange rates had not changed between the prior and current period. The comparisons presented at constant currency rates reflect comparative local currency sales at the prior year’s foreign exchange rates. We routinely evaluate our net sales and total revenues performance at constant currency so that sales results can be viewed without the impact of foreign currency exchange rates, thereby facilitating a period-to-period comparison of our operational activities, and believe that this presentation also provides useful information to investors for the same reason.

More information about non-GAAP measures used by the Company as part of this discussion, including adjusted cost of sales, adjusted gross margins, adjusted net earnings and adjusted EBITDA (all of which are defined below) can be found in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Use of Non-GAAP Financial Measures.”

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Results of Operations

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020


	Three Months Ended
	September 30,
(In millions, except %s)	2021		2020		% Change		2021 Currency Impact (1)		2021 Constant Currency Revenues		Constant Currency % Change (2)
Net sales
Developed Markets	$	2,655.9	$	2,163.2	23	%	$	(17.3)	$	2,638.4	22	%
Greater China	566.8		31.5		nm		(0.3)		566.6		nm
JANZ	505.3		282.4		79	%	2.5		507.9		80	%
Emerging Markets	792.5		471.0		68	%	(6.2)		786.3		67	%
Total net sales	$	4,520.5	$	2,948.1	53	%	$	(21.3)	$	4,499.2	53	%

Other revenues (3)	16.1		24.0		(33)	%	—		16.1		(33)	%
Consolidated total revenues (4)	$	4,536.6	$	2,972.1	53	%	$	(21.3)	$	4,515.3	52	%

(1)Currency impact is shown as unfavorable (favorable).

(2)The constant currency percentage change is derived by translating net sales or revenues for the current period at prior year comparative period exchange rates, and in doing so shows the percentage change from 2021 constant currency net sales or revenues to the corresponding amount in the prior year.

(3)For the three months ended September 30, 2021, other revenues in Developed Markets, JANZ, and Emerging Markets were approximately $12.2 million, $0.3 million, and $3.6 million, respectively.

(4)Amounts exclude intersegment revenue that eliminates on a consolidated basis.

Total Revenues

For the current quarter, Viatris reported total revenues of $4.54 billion, compared to $2.97 billion for the comparable prior year period, representing an increase of $1.56 billion, or 53%. Total revenues include both net sales and other revenues from third parties. Net sales for the current quarter were $4.52 billion, compared to $2.95 billion for the comparable prior year period, representing an increase of $1.57 billion, or 53%. Other revenues for the current quarter were $16.1 million, compared to $24.0 million for the comparable prior year period.

The increase in total revenues and net sales was primarily driven by net sales totaling $1.62 billion from the Upjohn Business in the current quarter and approximately $158.3 million of new product sales, partially offset by a decrease of approximately $223.5 million in net sales from existing products, primarily as a result of lower pricing, and to a lesser extent, lower volumes. New product sales include new products launched in 2021 and the carryover impact of new products, including business development, launched within the last twelve months. The Company’s net sales were favorably impacted by the effect of foreign currency translation, primarily reflecting changes in the U.S. Dollar as compared to the currencies of subsidiaries in countries within the EU. The net favorable impact of foreign currency translation on net sales was approximately $21.3 million, or 1%. On a constant currency basis, the increase in net sales was approximately $1.55 billion, or 53% for the three months ended September 30, 2021. We estimate that the COVID-19 pandemic positively impacted our third quarter 2021 net sales by approximately 3%, primarily driven by the partial recovery of customer buying patterns during the third quarter of 2021 as compared to the prior year period. The prior year period was negatively impacted by lower retail pharmacy demand, lower non-COVID-19 related patient hospital visits and a lower number of in person meetings with prescribers and payors, as well as the impact on the back to school sales of the EpiPen® Auto-Injector.

From time to time, a limited number of our products may represent a significant portion of our net sales, gross profit and net earnings. Our top ten products in terms of net sales, in the aggregate, represented approximately 34% and 25% for the three months ended September 30, 2021 and 2020, respectively, with the year-over-year increase a result of the Combination. This percentage may fluctuate based upon the timing of new product launches, seasonality and the timing of changes in competition.

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Net sales are derived from our four reporting segments: Developed Markets, Greater China, JANZ, and Emerging Markets.

Developed Markets Segment

Net sales from Developed Markets increased by $492.4 million or 23% during the three months ended September 30, 2021 when compared to the prior year period. Net sales within North America totaled approximately $1.10 billion and net sales within Europe totaled approximately $1.56 billion. This increase was due primarily to net sales from the Upjohn Business in the current quarter of $498.6 million and new product sales, including the portfolio of thrombosis products in Europe acquired from Aspen in the fourth quarter of 2020, as well as higher volumes in Europe, and higher EpiPen® Auto-Injector volume in North America, both of which include partial COVID-19 recovery. This increase was partially offset by lower pricing in Europe, and lower pricing and volumes on net sales of certain existing North American products, including dimethyl fumarate, Miacalcin®, Xulane®, Perforomist®, and Wixela® Inhub®, primarily driven by additional competition. Lower volumes were also due to the impact of product divestitures, including certain North American OTC products during the second quarter of 2021 and other products during 2020 as a result of the Combination. The favorable impact of foreign currency translation on current period net sales, primarily in Europe, was approximately $17.3 million, or 1%. Constant currency net sales increased by approximately $475.1 million, or 22% when compared to the prior year period.

Greater China Segment

Net sales from Greater China increased by $535.3 million for the three months ended September 30, 2021 when compared to the prior year period. This increase was the result of net sales from the Upjohn Business in the current quarter of $540.0 million. This increase was partially offset by lower net sales of existing products. The favorable impact of foreign currency translation was approximately $0.3 million, or 1%. Constant currency net sales increased by approximately $535.0 million when compared to the prior year.

JANZ Segment

Net sales from JANZ increased by $223.1 million or 79% for the three months ended September 30, 2021 when compared to the prior year period. This increase was the result of net sales from the Upjohn Business in the current quarter of $199.7 million and higher net sales of existing products driven by higher volumes primarily related to Amitiza®, Lyrica® and Creon® brands, our authorized generics to Lyrica® and Norvasc®, as well as the impact of the termination of the collaboration arrangement with Pfizer in the prior year in Japan, partially offset by lower pricing driven by government price reductions and product competition. Foreign currency translation had an unfavorable impact of approximately $2.5 million, or 1%. Constant currency net sales increased by approximately $225.6 million, or 80% when compared to the prior year period.

Emerging Markets Segment

Net sales from Emerging Markets increased by $321.6 million or 68% for the three months ended September 30, 2021 when compared to the prior year period. This increase was the result of net sales from the Upjohn Business in the current quarter of $378.0 million and COVID-19 related product sales in India, primarily related to remdesivir and ambisome. This increase was partially offset primarily by lower volumes as a result of competitive market conditions, including for antiretroviral drugs. The favorable impact of foreign currency translation was $6.2 million, or 1%. Constant currency net sales increased by approximately $315.4 million, or 67%.

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Cost of Sales and Gross Profit

Cost of sales increased from $1.81 billion for the three months ended September 30, 2020 to $2.96 billion for the three months ended September 30, 2021.Gross profit for the three months ended September 30, 2021 was $1.57 billion and gross margins were 35%. For the three months ended September 30, 2020, gross profit was $1.16 billion and gross margins were 39%. Cost of sales and gross margins were primarily impacted by increased purchase accounting related amortization of acquired intangible assets and other special items, which are described further in the section titled Use of Non-GAAP Financial Measures. Cost of sales from the Upjohn Business, including the impact of amortization expense, was $968.4 million for the three months ended September 30, 2021. This includes increased amortization expense of $539.2 million primarily for purchase accounting related amortization of intangible assets and the step-up of acquired inventory. Gross profit from net sales of existing products was impacted by lower pricing and to a lesser extent, lower volumes. Adjusted gross margins were 60% for the three months ended September 30, 2021, compared to 55% for the three months ended September 30, 2020, with the year-over-year increase driven by the impact of the Combination.

A reconciliation between cost of sales, as reported under U.S. GAAP, and adjusted cost of sales and adjusted gross margin for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 is as follows:


	Three Months Ended
	September 30,
(In millions, except %s)	2021			2020
U.S. GAAP cost of sales	$	2,962.5		$	1,813.6
Deduct:
Purchase accounting related amortization	(919.9)			(368.5)
Acquisition related items	(4.5)			(9.4)
Restructuring related costs	(151.3)			(8.7)
Share-based compensation expense	(0.8)			(0.4)
Other special items	(72.7)			(83.6)
Adjusted cost of sales	$	1,813.3		$	1,343.0

Adjusted gross profit (a)	$	2,723.3		$	1,629.1

Adjusted gross margin (a)	60		%	55		%

(a)U.S. GAAP gross profit is calculated as total revenues less U.S. GAAP cost of sales. U.S. GAAP gross margin is calculated as U.S. GAAP gross profit divided by total revenues. Adjusted gross profit is calculated as total revenues less adjusted cost of sales. Adjusted gross margin is calculated as adjusted gross profit divided by total revenues.

Operating Expenses

Research & Development Expense

R&D expense for the three months ended September 30, 2021 was $152.1 million, compared to $129.8 million for the comparable prior year period, an increase of $22.3 million. This increase was primarily due to costs associated with the Upjohn Business of $10.8 million and increased costs for inventory validation batches for certain products under development. These increases were partially offset by lower expenses in the current year period related to licensing arrangements for products in development.

Selling, General & Administrative Expense

SG&A expense for the three months ended September 30, 2021 was $1.06 billion, compared to $658.4 million for the comparable prior year period, an increase of $396.6 million. The increase was primarily due to costs related to the Upjohn Business of $340.1 million and an increase of approximately $17.4 million for restructuring costs due to the implementation of the 2020 restructuring program. Partially offsetting these increases were lower selling and promotional expenses, including through our active management related to synergies.

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Litigation Settlements and Other Contingencies, Net

The following table includes the losses/(gains) recognized in litigation settlements and other contingencies, net during the three months ended September 30, 2021 and September 30, 2020:


	Three Months Ended
	September 30,
(In millions)	2021		2020
Respiratory delivery platform contingent consideration adjustment	$	9.2	$	16.9
Litigation settlements, net	0.2		2.0
Total litigation settlements and other contingencies, net	$	9.4	$	18.9

Interest Expense

Interest expense for the three months ended September 30, 2021 totaled $151.9 million, compared to $117.3 million for the three months ended September 30, 2020, an increase of $34.6 million. The increase is due to the interest expense related to the additional debt assumed in the Combination of approximately $69.7 million, partially offset by amortization of debt premium of $17.1 million and by the impact of debt repayments in 2021.

Other Expense (Income), Net

Other expense, net was $5.8 million for the three months ended September 30, 2021, compared to other income, net of $7.5 million for the comparable prior year period. Other expense (income), net includes losses from equity affiliates, foreign exchange gains and losses and interest and dividend income. Other expense (income), net was comprised of the following for the three months ended September 30, 2021 and 2020, respectively:


	Three Months Ended
	September 30,
(In millions)	2021		2020
Losses from equity affiliates, primarily clean energy investments	$	17.6	$	2.9
Foreign exchange gains, net	(3.8)		(8.8)



Other gains, net	(8.0)		(1.6)
Other expense (income), net	$	5.8	$	(7.5)

Income Tax (Benefit) Provision

For the three months ended September 30, 2021, the Company recognized an income tax benefit of $111.6 million, compared to an income tax provision of $55.9 million for the comparable prior year period, a change of $167.5 million. A tax benefit was recorded in the current quarter as a result of the lower impacts of purchase accounting adjustments combined with the estimated full year loss being reduced during the quarter. The income tax provision for both periods was also impacted by the changing mix of income earned in jurisdictions with differing tax rates.

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Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020


	Nine Months Ended
	September 30,
(In millions, except %s)	2021		2020		% Change		2021 Currency Impact (1)		2021 Constant Currency Revenues		Constant Currency % Change (2)
Net sales
Developed Markets	$	7,867.9	$	6,132.3	28	%	$	(226.4)	$	7,641.4	25	%
Greater China	1,709.0		69.3		nm		(0.6)		1,708.4		nm
JANZ	1,488.2		805.8		85	%	(34.3)		1,453.9		80	%
Emerging Markets	2,417.2		1,224.8		97	%	(30.8)		2,386.4		95	%
Total net sales	$	13,482.3	$	8,232.2	64	%	$	(292.1)	$	13,190.1	60	%

Other revenues (3)	62.4		90.3		(31)	%	(1.3)		61.1		(32)	%
Consolidated total revenues (4)	$	13,544.7	$	8,322.5	63	%	$	(293.4)	$	13,251.2	59	%

(1)Currency impact is shown as unfavorable (favorable).

(3)For the nine months ended September 30, 2021, other revenues in Developed Markets, JANZ, and Emerging Markets were approximately $46.7 million, $1.3 million, and $14.4 million, respectively.

(4)Amounts exclude intersegment revenue that eliminates on a consolidated basis.

Total Revenues

For the nine months ended September 30, 2021, Viatris reported total revenues of $13.54 billion, compared to $8.32 billion for the comparable prior year period, representing an increase of $5.22 billion, or 63%. Total revenues include both net sales and other revenues from third parties. Net sales for the nine months ended September 30, 2021 were $13.48 billion, compared to $8.23 billion for the comparable prior year period, representing an increase of $5.25 billion, or 64%. Other revenues for the current year were $62.4 million, compared to $90.3 million for the comparable prior year period.

The increase in total revenues and net sales was primarily driven by net sales totaling $4.97 billion from the Upjohn Business in the current year and approximately $557.4 million of new product sales, partially offset by a decrease of approximately $566.1 million in net sales from existing products as a result of lower pricing, and to a lesser extent, lower volumes. New product sales include new products launched in 2021 and the carryover impact of new products, including business development, launched within the last twelve months. The Company’s net sales were favorably impacted by the effect of foreign currency translation, primarily reflecting changes in the U.S. Dollar as compared to the currencies of subsidiaries in countries within the EU and in Australia and India. The net favorable impact of foreign currency translation on net sales was approximately $292.1 million, or 4%. On a constant currency basis, the increase in net sales was approximately $4.96 billion, or 60% for the nine months ended September 30, 2021. We estimate that the COVID-19 pandemic positively impacted our net sales during the nine months ended September 30, 2021 by approximately 2% as compared to the prior year period.

From time to time, a limited number of our products may represent a significant portion of our net sales, gross profit and net earnings. Our top ten products in terms of net sales, in the aggregate, represented approximately 33% and 23% for the nine months ended September 30, 2021 and 2020, respectively, with the year-over-year increase a result of the Combination. This percentage may fluctuate based upon the timing of new product launches, seasonality and the timing of changes in competition.

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Net sales are derived from our four reporting segments: Developed Markets, Greater China, JANZ, and Emerging Markets.

Developed Markets Segment

Net sales from Developed Markets increased by $1.74 billion or 28% during the nine months ended September 30, 2021 when compared to the prior year period. Net sales within North America totaled approximately $3.50 billion and net sales within Europe totaled approximately $4.37 billion. This increase was due primarily to net sales from the Upjohn Business in the current year of $1.56 billion, new product sales, including the portfolio of thrombosis products in Europe acquired from Aspen in the fourth quarter of 2020, and higher volumes, which include market growth and/or market share gains in North America for the EpiPen® Auto-Injector, Yupelri®, and biosimilar products. This increase was partially offset by lower pricing and volumes on net sales of certain existing North American products, including Xulane®, Wixela® Inhub®, Perforomist®, and dimethyl fumarate, due to additional competition. Lower volumes were also due to the impact of product divestitures, including certain North American OTC products during the second quarter of 2021 and other products during 2020 as a result of the Combination. Sales of existing products in Europe were negatively impacted by lower pricing and lower volumes as a result of a decline in certain tender sales. The favorable impact of foreign currency translation on current period net sales, primarily in Europe, was approximately $226.4 million, or 4%. Constant currency net sales increased by approximately $1.51 billion, or 25% when compared to the prior year period.

Greater China Segment

Net sales from Greater China increased by $1.64 billion for the nine months ended September 30, 2021 when compared to the prior year period. This increase was the result of net sales from the Upjohn Business in the current year of $1.67 billion. This increase was partially offset by lower net sales of existing products. The favorable impact of foreign currency translation was approximately $0.6 million, or less than 1%. Constant currency net sales increased by approximately $1.64 billion when compared to the prior year.

JANZ Segment

Net sales from JANZ increased by $682.6 million or 85% for the nine months ended September 30, 2021 when compared to the prior year. This increase was the result of net sales from the Upjohn Business in the current year of $581.2 million and higher net sales of existing products driven by higher volumes primarily related to Amitiza®, Lyrica® and Creon® brands, our authorized generics to Lyrica® and Norvasc®, as well as the impact of the termination of the collaboration arrangement with Pfizer in the prior year in Japan, partially offset by lower pricing driven by government price reductions and product competition. Foreign currency translation had a favorable impact of approximately $34.3 million, or 4%. Constant currency net sales increased by approximately $648.1 million, or 80% when compared to the prior year period.

Emerging Markets Segment

Net sales from Emerging Markets increased by $1.19 billion or 97% for the nine months ended September 30, 2021 when compared to the prior year period. This increase was the result of net sales from the Upjohn Business in the current year of $1.16 billion and COVID-19 related product sales in India, primarily related to remdesivir and ambisome. These increases were partially offset by lower volumes and pricing as a result of customer purchasing patterns and competitive market conditions including for antiretroviral drugs. The favorable impact of foreign currency translation was $30.8 million, or 3%. Constant currency net sales increased by approximately $1.16 billion, or 95%.

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Cost of Sales and Gross Profit

Cost of sales increased from $5.23 billion for the nine months ended September 30, 2020 to $9.52 billion for the nine months ended September 30, 2021. Gross profit for the nine months ended September 30, 2021 was $4.03 billion and gross margins were 30%. For the nine months ended September 30, 2020, gross profit was $3.09 billion and gross margins were 37%. Cost of sales was primarily impacted by increased purchase accounting related amortization of acquired intangible assets and other special items, which are described further in the section titled Use of Non-GAAP Financial Measures. Cost of sales from the Upjohn Business, including the impact of amortization expense, was $3.42 billion for the nine months ended September 30, 2021. This includes increased amortization expense of $2.09 billion primarily for purchase accounting related amortization of intangible assets and the step-up of acquired inventory. Gross profit from net sales of existing products was impacted by lower pricing and to a lesser extent, lower volumes. Adjusted gross margins were 59% for the nine months ended September 30, 2021, compared to 54% for the nine months ended September 30, 2020, with the year-over-year increase driven by the impact of the Combination.

A reconciliation between cost of sales, as reported under U.S. GAAP, and adjusted cost of sales and adjusted gross margin for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 is as follows:


	Nine Months Ended
	September 30,
(In millions, except %s)	2021			2020
U.S. GAAP cost of sales	$	9,515.6		$	5,232.2
Deduct:
Purchase accounting related amortization	(3,344.7)			(1,072.5)
Acquisition related items	(8.0)			(11.5)
Restructuring related costs	(399.5)			(17.6)
Share-based compensation expense	(2.0)			(1.1)
Other special items	(257.1)			(299.3)
Adjusted cost of sales	$	5,504.3		$	3,830.2

Adjusted gross profit (a)	$	8,040.4		$	4,492.3

Adjusted gross margin (a)	59		%	54		%

Operating Expenses

Research & Development Expense

R&D expense for the nine months ended September 30, 2021 was $483.9 million, compared to $400.3 million for the comparable prior year period, an increase of $83.6 million. This increase was primarily due to costs associated with the Upjohn Business of $77.3 million and increased costs for inventory validation batches for certain products under development. These increases were partially offset by lower expenses in the current year period related to licensing arrangements for products in development.

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Selling, General & Administrative Expense

SG&A expense for the nine months ended September 30, 2021 was $3.45 billion, compared to $1.98 billion for the comparable prior year period, an increase of $1.46 billion. The increase was primarily due to costs related to the Upjohn Business of $1.08 billion and an increase of approximately $301.1 million for restructuring costs due to the implementation of the 2020 restructuring program. Partially offsetting these increases were lower acquisition related costs of approximately $65.9 million, including approximately $115.0 million related to obligations in the prior year period to reimburse Pfizer for certain financing costs under the Business Combination Agreement and the Separation and Distribution Agreement, and lower selling and promotional expenses, including through our active management related to synergies and certain lower expenses as a result of COVID-19.

Litigation Settlements and Other Contingencies, Net

The following table includes the losses/(gains) recognized in litigation settlements and other contingencies, net during the nine months ended September 30, 2021 and September 30, 2020:


	Nine Months Ended
	September 30,
(In millions)	2021		2020
Respiratory delivery platform contingent consideration adjustment	$	41.2	$	35.6
Litigation settlements, net	14.1		0.9
Total litigation settlements and other contingencies, net	$	55.3	$	36.5

Interest Expense

Interest expense for the nine months ended September 30, 2021 totaled $488.0 million, compared to $353.4 million for the nine months ended September 30, 2020, an increase of $134.6 million. The increase is due to the interest expense related to the additional debt assumed in the Combination of approximately $213.6 million, partially offset by amortization of debt premium of $51.6 million and by the impact of debt repayments in 2021.

Other Expense (Income), Net

Other expense, net was $16.1 million for the nine months ended September 30, 2021, compared to $24.6 million for the comparable prior year period. Other expense, net includes losses from equity affiliates, foreign exchange gains and losses and interest and dividend income. Other expense, net was comprised of the following for the nine months ended September 30, 2021 and 2020, respectively:


	Nine Months Ended
	September 30,
(In millions)	2021		2020
Losses from equity affiliates, primarily clean energy investments	$	52.2	$	37.4
Foreign exchange losses, net	4.8		8.6



Other gains, net	(40.9)		(21.4)
Other expense, net	$	16.1	$	24.6

Income Tax Provision

For the nine months ended September 30, 2021, the Company recognized an income tax provision of $544.8 million, compared to an income tax provision of $46.4 million for the comparable prior year period, an increase of $498.4 million. The income tax provision for the nine months ended September 30, 2021 was negatively impacted by the tax rates applied to the reversal of intercompany profit in inventory reserve which was recorded on the opening balance sheet as part of Combination. This reserve eliminates the profit in inventory related to intercompany transactions and changes to this reserve occur as products are sold to third parties. During the nine months ended September 30, 2020, the Company recognized a net charge as a result of adjustments to reserves for uncertain tax positions, partially offset by changes in the assessment of the realizability of

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deferred tax assets. Also impacting the current year income tax expense for both periods was the changing mix of income earned in jurisdictions with differing tax rates.

Use of Non-GAAP Financial Measures

Whenever the Company uses non-GAAP financial measures, we provide a reconciliation of the non-GAAP financial measures to their most directly comparable U.S. GAAP financial measure. Investors and other readers are encouraged to review the related U.S. GAAP financial measures and the reconciliation of non-GAAP measures to their most directly comparable U.S. GAAP measure and should consider non-GAAP measures only as a supplement to, not as a substitute for or as a superior measure to, measures of financial performance prepared in accordance with U.S. GAAP. Additionally, since these are not measures determined in accordance with U.S. GAAP, non-GAAP financial measures have no standardized meaning across companies, or as prescribed by U.S. GAAP and, therefore, may not be comparable to the calculation of similar measures or measures with the same title used by other companies.

Management uses these measures internally for forecasting, budgeting, measuring its operating performance, and incentive-based awards. Primarily due to acquisitions and other significant events which may impact comparability of our periodic operating results, we believe that an evaluation of our ongoing operations (and comparisons of our current operations with historical and future operations) would be difficult if the disclosure of our financial results was limited to financial measures prepared only in accordance with U.S. GAAP. We believe that non-GAAP financial measures are useful supplemental information for our investors and when considered together with our U.S. GAAP financial measures and the reconciliation to the most directly comparable U.S. GAAP financial measure, provide a more complete understanding of the factors and trends affecting our operations. The financial performance of the Company is measured by senior management, in part, using adjusted metrics as described below, along with other performance metrics. The Company’s use of such non-GAAP measures is governed by an adjusted reporting policy maintained by the Company and such non-GAAP measures are reviewed in detail with the Audit Committee of the Board of Directors.

Adjusted Cost of Sales and Adjusted Gross Margin

We use the non-GAAP financial measure “adjusted cost of sales” and the corresponding non-GAAP financial measure “adjusted gross margin.” The principal items excluded from adjusted cost of sales include restructuring, acquisition related and other special items and purchase accounting related amortization, which are described in greater detail below.

Adjusted Net Earnings

Adjusted net earnings is a non-GAAP financial measure and provides an alternative view of performance used by management. Management believes that, primarily due to acquisition activity and other significant events, an evaluation of the Company’s ongoing operations (and comparisons of its current operations with historical and future operations) would be difficult if the disclosure of its financial results were limited to financial measures prepared only in accordance with U.S. GAAP. Management believes that adjusted net earnings is an important internal financial metric related to the ongoing operating performance of the Company, and is therefore useful to investors and that their understanding of our performance is enhanced by this measure. Actual internal and forecasted operating results and annual budgets used by management include adjusted net earnings.

EBITDA and Adjusted EBITDA

EBITDA and adjusted EBITDA are non-GAAP financial measures that the Company believes are appropriate to provide additional information to investors to demonstrate the Company’s ability to comply with financial debt covenants and assess the Company’s ability to incur additional indebtedness. The Company also believes that adjusted EBITDA better focuses management on the Company’s underlying operational results and true business performance and, is used, in part, for management’s incentive compensation. We calculate “EBITDA” as U.S. GAAP net earnings (loss) adjusted for net contribution attributable to equity method investments, income tax provision (benefit), interest expense and depreciation and amortization. EBITDA is further adjusted for share-based compensation expense, litigation settlements and other contingencies, net, and restructuring, acquisition related and other special items to determine “adjusted EBITDA”. These adjustments are generally permitted under our credit agreement in calculating Adjusted EBITDA for determining compliance with our debt covenants.

The significant items excluded from adjusted cost of sales, adjusted net earnings, and adjusted EBITDA include:

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Purchase Accounting Amortization and Other Related Items

The ongoing impact of certain amounts recorded in connection with acquisitions of both businesses and assets is excluded from adjusted cost of sales, adjusted net earnings, and adjusted EBITDA. These amounts include the amortization of intangible assets, inventory step-up, property, plant and equipment step-up, and intangible asset impairment charges, including for in-process research and development. For the acquisition of businesses accounted for under the provisions of ASC 805, Business Combinations, these purchase accounting impacts are excluded regardless of the financing method used for the acquisitions, including the use of cash, long-term debt, the issuance of common stock, contingent consideration or any combination thereof.

Upfront and Milestone-Related R&D Expenses

These expenses and payments are excluded from adjusted net earnings and adjusted EBITDA because they generally occur at irregular intervals and are not indicative of the Company’s ongoing operations.

Accretion of Contingent Consideration Liability and Other Fair Value Adjustments

The impact of changes to the fair value of contingent consideration and accretion expense are excluded from adjusted net earnings and adjusted EBITDA because they are not indicative of the Company’s ongoing operations due to the variability of the amounts and the lack of predictability as to the occurrence and/or timing and management believes their exclusion is helpful to understanding the underlying, ongoing operational performance of the business.

Share-based Compensation Expense

Share-based compensation expense is excluded from adjusted net earnings and adjusted EBITDA. Our share-based compensation programs have become increasingly weighted toward performance-based compensation, which leads to variability and to a lack of predictability as to the occurrence and/or timing of amounts incurred. As such, management believes the exclusion of such amounts on an ongoing basis is helpful to understanding the underlying operational performance of the business.

Restructuring, Acquisition Related and Other Special Items

Costs related to restructuring, acquisition and integration activities and other actions are excluded from adjusted cost of sales, adjusted net earnings and adjusted EBITDA, as applicable. These amounts include items such as:

Costs related to formal restructuring programs and actions, including costs associated with facilities to be closed or divested, employee separation costs, impairment charges, accelerated depreciation, incremental manufacturing variances, equipment relocation costs, decommissioning and other restructuring related costs;
Certain acquisition related remediation and integration and planning costs, as well as other costs associated with acquisitions such as advisory and legal fees, certain financing related costs, certain reimbursements related to the Company’s obligation to reimburse Pfizer for certain financing and transaction related costs under the Business Combination Agreement and Separation and Distribution Agreement, certain other TSA related exit costs, and other business transformation and/or optimization initiatives, which are not part of a formal restructuring program, including employee separation and post-employment costs;
The pre-tax loss of the Company’s clean energy investments, whose activities qualify for income tax credits under the Code; only included in adjusted net earnings is the net tax effect of the entity’s activities;
Other costs, incurred from time to time, related to certain special events or activities that lead to gains or losses, including, but not limited to, incremental manufacturing variances, asset write-downs, or liability adjustments;
Certain costs to further develop and optimize our global enterprise resource planning systems, operations and supply chain; and
The impact of changes related to uncertain tax positions and certain impacts related to the Combination are excluded from adjusted net earnings. In addition, tax adjustments to adjusted earnings are recorded to present items on an after-tax basis consistent with the presentation of adjusted net earnings.

The Company has undertaken restructurings and other optimization initiatives of differing types, scope and amount during the covered periods and, therefore, these charges should not be considered non-recurring; however, management

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excludes these amounts from adjusted net earnings and adjusted EBITDA because it believes it is helpful to understanding the underlying, ongoing operational performance of the business.

Litigation Settlements, Net

Charges and gains related to legal matters, such as those discussed in Note 18 Litigation included in Part I, Item 1 of this Form 10-Q are generally excluded from adjusted net earnings and adjusted EBITDA. Normal, ongoing defense costs of the Company made in the normal course of our business are not excluded.

Reconciliation of U.S. GAAP Net Earnings (Loss) to Adjusted Net Earnings

A reconciliation between net earnings (loss) as reported under U.S. GAAP, and adjusted net earnings for the periods shown follows:


	Three Months Ended September 30,					Nine Months Ended September 30,
(In millions)	2021		2020			2021	2020
U.S. GAAP net earnings (loss)	$	311.5		$	185.7		$	(1,005.3)	$	245.9
Purchase accounting related amortization (primarily included in cost of sales) (a)	919.9			368.5			3,344.7		1,072.5
Litigation settlements and other contingencies, net	9.4			18.9			55.3		36.5
Interest expense (primarily amortization of premiums and discounts on long term debt)	(13.6)			5.3			(40.3)		16.6
Clean energy investments pre-tax loss	17.6			2.9			52.2		37.4

Acquisition related costs (primarily included in SG&A) (b)	41.5			72.3			149.7		218.2

Restructuring related costs (c)	169.8			14.5			741.6		47.0
Share-based compensation expense	25.0			15.1			88.7		49.8
Other special items included in:
Cost of sales (d)	72.7			83.6			257.1		299.3
Research and development expense (e)	3.7			3.7			12.1		45.8
Selling, general and administrative expense	9.9			7.5			39.4		12.9
Other expense, net	(2.3)			—			(2.3)		(16.4)
Tax effect of the above items and other income tax related items (f)	(366.0)			(98.3)			(196.8)		(344.3)
Adjusted net earnings	$	1,199.1		$	679.7		$	3,496.1	$	1,721.2

Significant items include the following:

(a)For the three and nine months ended September 30, 2021, includes amortization of the purchase accounting inventory fair value adjustment related to the Combination totaling approximately $238.5 million and $1.19 billion, respectively.

(b)Acquisition related costs consist primarily of transaction costs including legal and consulting fees and integration activities. Refer to SG&A discussion within the section “Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020” and “Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020”.

(c)For the three months ended September 30, 2021, charges of approximately $151.3 million are included in cost of sales, approximately $(4.7) million are included in R&D, and approximately $23.1 million are included in SG&A. For the nine months ended September 30, 2021, charges of approximately $399.5 million are included in cost of sales, approximately $11.9 million are included in R&D, and approximately $330.1 million are included in SG&A. Refer to Note 15 Restructuring included in Part I, Item 1 of this Form 10-Q for additional information.

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(d)Costs incurred during the three and nine months ended September 30, 2021 include incremental manufacturing variances and site remediation activities as a result of the activities at the Company’s Morgantown plant of approximately $18.2 million and $107.3 million, respectively, and at other plants in the 2020 restructuring program of approximately $41.0 million and $103.6 million, respectively. Costs incurred during the three and nine months ended September 30, 2020 include incremental manufacturing variances and site remediation activities as a result of the activities at the Company’s Morgantown plant of approximately $57.8 million and $179.6 million, respectively. In addition, the three and nine months ended September 30, 2020 includes incremental manufacturing variances incurred as a result of the COVID-19 pandemic of approximately $8.0 million and $32.0 million, respectively. Also, the nine months ended September 30, 2020 includes $27.0 million related to a special bonus for plant employees as a result of the COVID-19 pandemic.

(e)Adjustments primarily relate to non-refundable payments related to development agreements.

(f)Adjusted for changes for uncertain tax positions and for certain impacts of the Combination.

Reconciliation of U.S. GAAP Net Earnings (Loss) to EBITDA and Adjusted EBITDA

Below is a reconciliation of U.S. GAAP net earnings (loss) to EBITDA and adjusted EBITDA for the three and nine months ended September 30, 2021 compared to the prior year period:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2021		2020		2021		2020
U.S. GAAP net earnings (loss)	$	311.5	$	185.7	$	(1,005.3)	$	245.9
Add adjustments:
Net contribution attributable to equity method investments	17.6		2.9		52.2		37.4
Income tax (benefit) provision	(111.6)		55.9		544.8		46.4
Interest expense (a)	151.9		117.3		488.0		353.4
Depreciation and amortization (b)	1,017.1		432.3		3,756.7		1,263.0
EBITDA	$	1,386.5	$	794.1	$	3,836.4	$	1,946.1
Add adjustments:
Share-based compensation expense	25.0		15.1		88.7		49.8
Litigation settlements and other contingencies, net	9.4		18.9		55.3		36.5
Restructuring, acquisition related and other special items (c)	277.4		181.6		1,029.9		606.6
Adjusted EBITDA	$	1,698.3	$	1,009.7	$	5,010.3	$	2,639.0

(a) Includes amortization of premiums and discounts on long-term debt.

(b) Includes purchase accounting related amortization.

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Liquidity and Capital Resources

Our primary source of liquidity is net cash provided by operating activities, which was $2.49 billion for the nine months ended September 30, 2021. We believe that net cash provided by operating activities and available liquidity will continue to allow us to meet our needs for working capital, capital expenditures, interest and principal payments on debt obligations, and dividend payments. Nevertheless, our ability to satisfy our working capital requirements and debt service obligations, fund planned capital expenditures, or dividend payments, will substantially depend upon our future operating performance (which will be affected by prevailing economic conditions), and financial, business and other factors, some of which are beyond our control.

Operating Activities

Net cash provided by operating activities increased by $1.30 billion to $2.49 billion for the nine months ended September 30, 2021, as compared to net cash provided by operating activities of $1.20 billion for the nine months ended September 30, 2020. Net cash provided by operating activities is derived from net (loss) earnings adjusted for non-cash operating items, gains and losses attributed to investing and financing activities and changes in operating assets and liabilities resulting from timing differences between the receipts and payments of cash, including changes in cash primarily reflecting the timing of cash collections from customers, payments to vendors and employees and tax payments in the ordinary course of business.

Net cash provided by operating activities was favorably impacted in the current year period by higher operating earnings, after adjusting for non-cash items in both periods, and increased collections of accounts receivable and lower inventories. This was partially offset by changes in operating assets and liabilities, primarily driven by increased payments, including for income taxes.

Investing Activities

Net cash from investing activities was $101.3 million for the nine months ended September 30, 2021, as compared to net cash used in investing activities of $278.8 million for the nine months ended September 30, 2020, a net increase of $380.1 million.

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In 2021, significant items in investing activities included the following:

cash received from acquisitions, net totaling approximately $277.0 million related to additional target cash balances received from Pfizer subsequent to the closing of the Combination;
proceeds from sale of assets of $96.5 million, primarily related to a group of OTC products in the U.S.;
capital expenditures, primarily for equipment and facilities, totaling approximately $259.8 million. While there can be no assurance that current expectations will be realized, capital expenditures for the 2021 calendar year are expected to be approximately $450 million to $550 million; and
payments for product rights and other, net totaling approximately $28.2 million, primarily related to the acquisition of intellectual property rights and marketing authorizations.

In 2020, significant items in investing activities included the following:

payments for product rights and other, net totaling approximately $97.3 million, primarily related to deferred non-contingent purchase payments for the acquisition of intellectual property rights and marketing authorizations;
purchase of marketable securities and other investments of $96.1 million; and
capital expenditures, primarily for equipment and facilities, totaling approximately $126.1 million.

Financing Activities

Net cash used in financing activities was $2.66 billion for the nine months ended September 30, 2021, as compared to $754.8 million for the nine months ended September 30, 2020, a net increase of $1.91 billion.

In 2021, significant items in financing activities included the following:

long-term debt payments of $4.20 billion, consisting of the redemption of $2.25 billion of the 3.150% Senior Notes due 2021, repayment of $1.35 billion of borrowings under the 2020 Revolving Facility and the 2021 Revolving Facility, and repayment of $600.0 million of the USD Term Loan;
long-term borrowings of $1.71 billion, consisting of borrowings of $1.35 billion under the 2020 Revolving Facility and the 2021 Revolving Facility, and borrowings of $360.0 million under the YEN Term Loan;
net short-term borrowings of $606.1 million;
cash dividends paid of $266.0 million;
deferred non-contingent payments for product rights totaling approximately $456.0 million primarily related to the acquisition of Aspen’s thrombosis product portfolio in Europe; and
milestone payments totaling approximately $28.6 million related to the respiratory delivery platform contingent consideration.

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In 2020, significant items in financing activities included the following:

long-term debt payments of approximately $588.9 million consisting primarily of the redemption of $555.2 million principal amount of the 2020 Floating Rate Euro Notes;
non-contingent payments for product rights totaling approximately $139.5 million primarily related to the acquisitions of intellectual property rights and marketing authorizations in prior periods; and
payments totaling $48.5 million of the $82.1 million in milestone payments related to the respiratory delivery platform contingent consideration. The remaining payments related to the respiratory delivery platform contingent consideration are included as a component of other operating assets and liabilities, net within net cash from operating activities.

Capital Resources

Our cash and cash equivalents totaled $756.6 million at September 30, 2021, and the majority of these funds are held by our non-U.S. subsidiaries. The Company anticipates having sufficient liquidity, including existing borrowing capacity under the 2021 Revolving Facility, Commercial Paper Program and the Receivables Facility and the Note Securitization Facility combined with cash to be generated from operations, to fund foreseeable cash needs without requiring the repatriation of non-U.S. cash.

In September 2021, Viatris filed a registration statement with the SEC with respect to an offer to exchange $7.45 billion aggregate principal amount of Unregistered Upjohn Notes with Registered Upjohn Notes in the same aggregate principal amount and with terms substantially identical in all material respects, which was declared effective on September 28, 2021. The exchange offer expired on October 28, 2021 and settled on October 29, 2021. More than 99.9% of the aggregate principal amount of each of the Unregistered Upjohn Notes were exchanged for Registered Upjohn Notes.

In July 2021, Viatris entered into (i) the YEN Term Loan and (ii) the 2021 Revolving Facility with various syndicates of banks. The 2021 Revolving Facility amended and restated the 2020 Revolving Facility and proceeds from the 2021 Revolving Facility were used to repay outstanding obligations under the 2020 Revolving Facility. Proceeds from the YEN Term Loan and 2021 Revolving Facility were also used to repay the USD Term Loan in full and the USD Term Loan was terminated. The 2021 Revolving Facility and the YEN Term Loan have substantially identical terms to the 2020 Revolving Facility and USD Term Loan, respectively, with the following exceptions: 1) the maturity of both the YEN Term Loan and the 2021 Revolving Facility is July 2026, 2) the pricing was adjusted to reflect current market prices (which were generally more favorable) and 3) the maximum leverage ratio as of the end of any quarter was set at 4.25 to 1.00 for each quarter ending after June 30, 2021 through and including June 30, 2022, 4.0 to 1.00 for each quarter ending after June 30, 2022 through and including December 31, 2022 and 3.75 to 1.00 thereafter, except in circumstances as defined in the related credit agreement. Prior to July 2021, the maximum leverage ratio under the 2020 Revolving Facility was 4.25 to 1.00 for the first four full fiscal quarters following the close of the Combination.

The Company has access to $4.0 billion under the 2021 Revolving Facility which matures in July 2026. Up to $1.65 billion of the 2021 Revolving Facility may be used to support borrowings under our Commercial Paper Program. As of September 30, 2021, the Company had $1.13 billion outstanding under the Commercial Paper Program and did not have any borrowings outstanding under the 2021 Revolving Facility.

In addition to the 2021 Revolving Facility, MPI, a wholly owned subsidiary of the Company, has access to $400 million under the Receivables Facility, which expires in April 2022. As of September 30, 2021, the Company had $375 million outstanding under the Receivables Facility.

In August 2020, the Company entered into the Note Securitization Facility for borrowings up to $200 million, which was amended on July 1, 2021 to extend the term to August 2022. As of September 30, 2021, the Company had $200 million outstanding under the Note Securitization Facility.

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Under the terms of each of the Receivables Facility and Note Securitization Facility, certain of our accounts receivable secure the amounts borrowed and cannot be used to pay our other debts or liabilities. The amount that we may borrow at a given point in time is determined based on the amount of qualifying accounts receivable that are present at such point in time. Borrowings outstanding under the Receivables Facility bear interest at a commercial paper rate plus 0.925% and under the Note Securitization Facility at a rate per annum quoted from time to time by MUFG Bank, Ltd. plus 1.00% (0.85% after the amendment of the Note Securitization Facility on July 1, 2021) and are included as a component of short-term borrowings, while the accounts receivable securing these obligations remain as a component of accounts receivable, net, in our condensed consolidated balance sheets. In addition, the agreements governing the Receivables Facility and Note Securitization Facility contain various customary affirmative and negative covenants, and customary default and termination provisions.

We have entered into accounts receivable factoring agreements with financial institutions to sell certain of our non-U.S. accounts receivable. These transactions are accounted for as sales and result in a reduction in accounts receivable because the agreements transfer effective control and risk related to the receivables over to the buyers. Our factoring agreements do not allow for recourse in the event of uncollectibility, and we do not retain any interest in the underlying accounts receivable once sold. We derecognized $35.2 million and $153.0 million of accounts receivable as of September 30, 2021 and December 31, 2020 under these factoring arrangements, respectively.

At September 30, 2021, our long-term debt, including the current portion, totaled $21.74 billion, as compared to $24.69 billion at December 31, 2020. Total long-term debt is calculated net of deferred financing fees which were $43.8 million and $49.2 million at September 30, 2021 and December 31, 2020, respectively.

For additional information regarding our debt and debt agreements refer to Note 12 Debt in Part I, Item 1 of this Form 10-Q.

The Company paid quarterly cash dividends of $0.11 per share on the Company’s issued and outstanding common stock on June 16, 2021 and September 16, 2021. On November 5, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.11 per share on the Company’s issued and outstanding common stock, which will be payable on December 16, 2021 to shareholders of record as of the close of business on November 23, 2021. The declaration and payment of future dividends to holders of the Company’s common stock will be at the discretion of the Board of Directors, and will depend upon factors, including but not limited to, the Company’s financial condition, earnings, capital requirements of its businesses, legal requirements, regulatory constraints, industry practice, and other factors that the Board of Directors deems relevant.

We are continuously evaluating the potential acquisition of products, as well as companies, as a strategic part of our future growth. Consequently, we may utilize current cash reserves or incur additional indebtedness to finance any such acquisitions, which could impact future liquidity. Also, on an ongoing basis, we review our operations including the evaluation of potential divestitures of products and businesses as part of our future strategy. Any divestitures could impact future liquidity. In addition, we plan to continue to explore various other ways to create, enhance or otherwise unlock the value of the Company’s unique global platform in order to create shareholder value.

Long-term Debt Maturity

Mandatory minimum repayments remaining on the outstanding notional amount of long-term debt at September 30, 2021 was as follows for each of the periods ending December 31:

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The Company’s YEN Term Loan and 2021 Revolving Facility (and, prior to July 2021, the 2020 Revolving Facility and USD Term Loan) contain customary affirmative covenants for facilities of this type, including among others, covenants pertaining to the delivery of financial statements, notices of default and certain material events, maintenance of corporate existence and rights, property, and insurance and compliance with laws, as well as customary negative covenants for facilities of this type, including limitations on the incurrence of subsidiary indebtedness, liens, mergers and certain other fundamental changes, investments and loans, acquisitions, transactions with affiliates, payments of dividends and other restricted payments and changes in our lines of business.

The Company is in compliance with its covenants at September 30, 2021 and expects to remain in compliance for the next twelve months.

Supplemental Guarantor Financial Information

Following the Exchange Offer, Viatris Inc. is the issuer of the Registered Upjohn Notes, which are fully and unconditionally guaranteed on a senior unsecured basis by Mylan Inc., Mylan II B.V. and Utah Acquisition Sub Inc.

Following the Combination, Utah Acquisition Sub Inc. is the issuer of the Utah Senior Notes, which are fully and unconditionally guaranteed on a senior unsecured basis by Mylan Inc., Viatris Inc. and Mylan II B.V.

Mylan Inc. is the issuer of the Mylan Inc. Senior Notes, which are fully and unconditionally guaranteed on a senior unsecured basis by Mylan II B.V., Viatris Inc. and Utah Acquisition Sub Inc.

The respective obligations of Viatris Inc., Mylan Inc., Utah Acquisition Sub Inc., and Mylan II B.V. as guarantors of the applicable series of Senior Notes are senior unsecured obligations of the applicable guarantor and rank pari passu in right of payment with all of such guarantor’s existing and future senior unsecured obligations that are not expressly subordinated to such guarantor’s guarantee of the applicable series of Senior Notes, rank senior in right of payment to any future obligations of such guarantor that are expressly subordinated to such guarantor’s guarantee of the applicable series of Senior Notes, and are effectively subordinated to such guarantor’s existing and future secured obligations to the extent of the value of the collateral securing such obligations. Such obligations are structurally subordinated to all of the existing and future liabilities, including trade payables, of the existing and future subsidiaries of such guarantor that do not guarantee the applicable series of Senior Notes.

The guarantees by Mylan Inc., Mylan II B.V. and Utah Acquisition Sub Inc. under the applicable series of Senior Notes will terminate under certain customary circumstances, each as described in the applicable indenture, including: (1) a sale or disposition of the applicable guarantor in a transaction that complies with the applicable indenture such that such guarantor ceases to be a subsidiary of the issuer of the applicable series of Senior Notes; (2) legal defeasance or covenant defeasance or if the issuer’s obligations under the applicable indenture are discharged; (3) with respect to the Utah Senior Notes, the earlier to occur of (i) with respect to the guarantee provided by Mylan Inc., (x) the release of Utah Acquisition Sub Inc.’s guarantee under all applicable Mylan Inc. Debt (as defined in the applicable indenture) and (y) Mylan Inc. no longer having any obligations in respect of any Mylan Inc. Debt and (ii) with respect to the guarantee provided by Mylan II B.V., (x) the release of Mylan II B.V.’s guarantee under all applicable Triggering Indebtedness (as defined in the applicable indenture) and (y) the issuer and/or borrower of the applicable Triggering Indebtedness no longer having any obligations with respect to such indebtedness; (4) with respect to the guarantees provided by Utah Acquisition Sub Inc. and Mylan II B.V. of the Mylan Inc. Senior Notes, subject to certain exceptions set forth in the applicable indenture, such guarantor ceasing to be a guarantor or obligor in respect of any Triggering Indebtedness; and (5) with respect to the Registered Upjohn Notes, (a) upon the applicable guarantor no longer being an issuer or guarantor in respect of (i) Mylan Inc. Senior Notes or Utah Senior Notes that have an aggregate principal amount in excess of $500.0 million or (ii) any Triggering Indebtedness; in each case, other than in respect of indebtedness or guarantees, as applicable, that are being concurrently released; or (b) upon receipt of the consent of holders of a majority of the aggregate principal amount of the outstanding notes of such series in accordance with the applicable indenture.

The guarantee obligations of Viatris Inc., Mylan Inc., Utah Acquisition Sub Inc., and Mylan II B.V. under the Senior Notes are subject to certain limitations and terms similar to those applicable to other guarantees of similar instruments, including that (i) the guarantees are subject to fraudulent transfer and conveyance laws and (ii) each guarantee is limited in amount to an amount not to exceed the maximum amount that can be guaranteed by the applicable guarantor without rendering the guarantee, as it relates to such guarantor, voidable under applicable fraudulent transfer and conveyance laws or similar laws affecting the rights of creditors generally.

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The following table presents unaudited summarized financial information of Viatris Inc., Mylan Inc., Utah Acquisition Sub Inc., and Mylan II B.V. on a combined basis as of and for the nine months ended September 30, 2021 and as of and for the year ended December 31, 2020. All intercompany balances have been eliminated in consolidation. This unaudited combined summarized financial information is presented utilizing the equity method of accounting.


	Combined Summarized Balance Sheet Information of Viatris Inc., Mylan Inc., Utah Acquisition Sub Inc. and Mylan II B.V.
(In millions)	September 30, 2021		December 31, 2020
ASSETS
Current assets	$	374.8	$	477.7
Non-current assets	60,007.5		61,272.4

LIABILITIES AND EQUITY
Current liabilities	22,819.6		20,951.7
Non-current liabilities	16,421.4		17,844.2


	Combined Summarized Income Statement Information of Viatris Inc., Mylan Inc., Utah Acquisition Sub Inc. and Mylan II B.V.
(In millions)	Nine Months Ended September 30, 2021		Year Ended December 31, 2020
Revenues	$	—	$	—
Gross Profit	—		—
Loss from Operations	(773.3)		(929.6)
Net loss	(1,005.3)		(669.9)

Other Commitments

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, that arise from time to time, some of which could result in losses, including damages, fines and/or civil penalties, and/or criminal charges against the Company. These matters are often complex and have outcomes that are difficult to predict. We have approximately $451.3 million accrued for legal contingencies at September 30, 2021.

While the Company believes that it has meritorious defenses with respect to the claims asserted against it and the assumed legal matters referenced above, and intends to vigorously defend its position, the process of resolving these matters is inherently uncertain and may develop over a long period of time, and so it is not possible to predict the ultimate resolution of any such matter. It is possible that an unfavorable resolution of any of the ongoing matters could have a material effect on the Company’s business, financial condition, results of operations, cash flows, ability to pay dividends and/or stock price.

In conjunction with the Combination, Viatris entered into a TSA with Pfizer pursuant to which each party will provide certain limited transition services to the other party generally for an initial period of 24 months from the closing date of the Combination. In addition to the monthly service fees under the TSA, Viatris has agreed to reimburse Pfizer for fifty percent of the costs, up to the first $380 million incurred, to establish and wind down the TSA services. Viatris will be required to fully reimburse Pfizer for total costs in excess of $380 million. During the three and nine months ended September 30, 2021, the Company has incurred approximately $9.5 million and $35.8 million, respectively, related to this provision of the TSA, and approximately $88.9 million during the period beginning on the closing date of the Combination and ended September 30, 2021.

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Application of Critical Accounting Policies

There have been no changes to the Critical Accounting Policies disclosed in Viatris’ 2020 Form 10-K. The following discussion supplements our Critical Accounting Policy for Acquisitions, Intangible Assets, Goodwill and Contingent Consideration as it relates to the annual goodwill impairment test performed as of April 1, 2021.

The Company performed its annual goodwill impairment test as of April 1, 2021 on a quantitative basis for its five reporting units, North America, Europe, Emerging Markets, JANZ, and Greater China. Additionally, the net assets acquired as part of the Combination were included in the respective reporting units and in the annual impairment test for the first time. In estimating each reporting unit’s fair value, the Company performed an extensive valuation analysis, utilizing both income and market-based approaches. The determination of the fair value of the reporting units requires the Company to make significant estimates and assumptions that affect the reporting unit’s expected future cash flows. These estimates and assumptions, utilizing Level 3 inputs, primarily include, but are not limited to, market multiples, control premiums, the discount rate, terminal growth rates, operating income before depreciation and amortization, and capital expenditures forecasts.

As of April 1, 2021, the allocation of the Company’s total goodwill was as follows: North America $3.66 billion, Europe $5.15 billion, Emerging Markets $1.58 billion, JANZ $0.82 billion and Greater China $0.70 billion.

As of April 1, 2021, the Company determined that the fair value of the North America, Emerging Markets and Greater China reporting units was substantially in excess of the respective unit’s carrying value.

For the Europe reporting unit, the estimated fair value exceeded its carrying value by approximately $0.91 billion or 5.8% for the annual goodwill impairment test. As it relates to the income approach for the Europe reporting unit at April 1, 2021, the Company forecasted cash flows for the next 10 years. During the forecast period, the revenue compound annual growth rate was approximately 3.0%. A terminal year value was calculated with a 0.9% revenue growth rate applied. The discount rate utilized was 10.5% and the estimated tax rate was 19.0%. Under the market-based approach, we utilized an estimated range of market multiples of 7.5 to 8.5 times EBITDA plus a control premium of 15.0%. If all other assumptions are held constant, a reduction in the terminal value growth rate by 2.9% or an increase in discount rate by 1.5% would result in an impairment charge for the Europe reporting unit.

For the JANZ reporting unit, the estimated fair value exceeded its carrying value by approximately $0.23 billion or 7.0% for the annual goodwill impairment test. As it relates to the income approach for the JANZ reporting unit at April 1, 2021, the Company forecasted cash flows for the next 10 years. During the forecast period, the revenue compound annual growth rate was approximately negative 1.5%. A terminal year value was calculated with a 0.7% revenue growth rate applied. The discount rate utilized was 8.5% and the estimated tax rate was 30.5%. Under the market-based approach, we utilized an estimated market multiple of 6.0 times EBITDA plus a control premium of 15.0%. If all other assumptions are held constant, a reduction in the terminal value growth rate by 4.2% or an increase in discount rate by 2.0% would result in an impairment charge for the JANZ reporting unit.

Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates. In addition, changes in underlying assumptions, especially as they relate to the key assumptions detailed, could have a significant impact on the fair value of the reporting units.

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