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’ 2022 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 six months ended June 30, 2023, and cash flows for the six months ended June 30, 2023 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 goals or outlooks with respect to the Company’s strategic initiatives, including but not limited to the Company’s two-phased strategic vision and potential divestitures and acquisitions; the benefits and synergies of acquisitions, divestitures 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, stock repurchases, 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 possibility that the Company may be unable to realize the intended benefits of, or achieve the intended goals or outlooks with respect to, its strategic initiatives;
the possibility that the Company may be unable to achieve expected benefits, synergies and operating efficiencies in connection with acquisitions, divestitures, or its global restructuring program within the expected timeframe or at all;
goodwill or other impairment charges or other losses related to the divestiture or sale of businesses or assets;
the Company’s failure to achieve expected or targeted future financial and operating performance and results;
the potential impact of public health outbreaks, epidemics and pandemics, including the ongoing challenges and uncertainties posed by the COVID-19 pandemic;
actions and decisions of healthcare and pharmaceutical regulators;
changes in relevant laws, regulations and policies and/or the application or implementation thereof, including but not limited to tax, healthcare and pharmaceutical laws, regulations and policies globally (including the impact of recent and potential tax reform in the U.S. and pharmaceutical product pricing policies in China);
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;
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 an acquisition or divestiture;
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;

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uncertainties and matters beyond the control of management, including but not limited to general political and economic conditions, inflation rates 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 2022 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.

Company Overview

Viatris is a global healthcare company formed in November 2020 whose mission is to empower people worldwide to live healthier at every stage of life, regardless of geography or circumstance. Improving the ability of patients to gain access to sustainable and high-quality healthcare is our relentless pursuit. One that rests on visionary thinking, determination and best-in-class capabilities that were strategically built to remove barriers across the health spectrum and advance access globally.

Viatris’ seasoned management team is focused on ensuring that the Company is optimally structured and efficiently resourced to deliver sustainable value to patients, shareholders, customers and other key stakeholders. With a global workforce of more than 38,000, the Company has industry leading commercial, R&D, regulatory, manufacturing, legal and medical expertise complemented by a strong commitment to quality and an 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 brands, generics, and complex generics. The Company operates approximately 40 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 has four reportable segments: Developed Markets, Greater China, JANZ, and Emerging Markets. The Company reports segment information on the basis of markets and geography, which reflects its focus on bringing its broad and diversified portfolio of branded, complex generics, 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 presence in more than 125 countries with developing markets and emerging economies including in Asia, Africa, Eastern Europe, Latin America and the Middle East as well as the Company’s ARV 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.

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.

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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.

In addition to the impact of competition, government pricing actions and other measures designed to reduce healthcare costs, our results of operations, cash flows and financial condition could also be affected by other risks of doing business internationally, including the impact of public health epidemics, such as the COVID-19 pandemic, inflation, geopolitical events, including the ongoing conflict between Russia and Ukraine and related trade controls, sanctions, supply chain and staffing challenges and other economic considerations, supply chain disruptions, foreign currency exchange fluctuations, changes in intellectual property legal protections and other regulatory changes.

Recent Developments

Ophthalmology Acquisitions

During the first quarter of 2023, the Company completed the acquisition of Oyster Point for approximately $427.4 million in cash, which included $11 per share paid to Oyster Point stockholders through a tender offer, payment for vested share-based awards, and the repayment of debt of Oyster Point. In addition to the upfront cash consideration, each Oyster Point stockholder received one non-tradeable contingent value right representing up to an additional $2 per share, or approximately $60 million in the aggregate, contingent upon Oyster Point achieving certain metrics based upon full year 2022 performance. Oyster Point did not achieve the metrics that would have triggered a contingent payment and the contingent value rights have expired. Oyster Point is focused on the discovery, development, and commercialization of first-in-class pharmaceutical therapies to treat ophthalmic diseases.

On November 7, 2022, the Company entered into a definitive agreement to acquire the remaining equity shares of Famy Life Sciences, a privately-owned research company with a complementary portfolio of ophthalmology therapies under development, for consideration of $281 million. The Company had previously entered into a Master Development Agreement with Famy Life Sciences on December 20, 2019 under which the Company obtained rights with respect to acquiring certain pharmaceutical products and had also acquired shares representing approximately 13.5% equity interest in Famy Life Sciences for $25.0 million at December 31, 2020. The investment was accounted for in accordance with ASC 321, Investments - Equity Securities. The transaction to acquire the remaining equity shares of Famy Life Sciences closed during the first quarter of 2023.

Refer to Note 4 Acquisitions and Other Transactions for more information.

Share Repurchase Program

On February 28, 2022, the Company announced that its Board of Directors had authorized a share repurchase program for the repurchase of up to $1.0 billion of the Company’s shares of common stock. Such repurchases may be made from time-to-time at the Company’s discretion and effected by any means, including but not limited to, open market repurchases, pursuant to plans in accordance with Rules 10b5-1 or 10b-18 under the Exchange Act, privately negotiated transactions (including accelerated stock repurchase programs) or any combination of such methods as the Company deems appropriate. The program does not have an expiration date. During the six months ended June 30, 2023, the Company repurchased approximately 21.2 million shares of common stock at a cost of approximately $250 million. The Company did not repurchase any shares of common stock under the share repurchase program in 2022. The share repurchase program does not obligate the Company to acquire any particular amount of common stock.

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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. As part of the restructuring, the Company is optimizing its commercial capabilities and enabling functions, and closing, downsizing or divesting certain 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. The remaining actions under the 2020 restructuring program are expected to be substantially completed in 2023.

For the committed restructuring actions, the Company expects to incur total pre-tax charges of up to approximately $1.4 billion. Such charges are expected to include up to approximately $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 up to approximately $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 other plant disposal costs. In addition, management believes the potential annual savings related to these committed restructuring activities to be up to approximately $900 million once fully implemented, with most of these savings expected to improve operating cash flow.

Financial Summary

The table below is a summary of the Company’s financial results for the three and six months ended June 30, 2023 compared to the prior year period:


	Three Months Ended
	June 30,
(In millions, except per share amounts)	2023		2022		Change
Total revenues	$	3,918.6	$	4,116.8	$	(198.2)
Gross profit	1,608.6		1,703.3		(94.7)
Earnings from operations	369.2		548.7		(179.5)
Net earnings	264.0		313.9		(49.9)
Diluted earnings per share	$	0.22	$	0.26	$	(0.04)

	Six Months Ended
	June 30,
(In millions, except per share amounts)	2023		2022		Change
Total revenues	$	7,647.7	$	8,308.5	$	(660.8)
Gross profit	3,150.8		3,474.5		(323.7)
Earnings from operations	769.0		1,256.1		(487.1)
Net earnings	488.7		713.1		(224.4)
Diluted earnings per share	$	0.41	$	0.59	$	(0.18)

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.

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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 - Results of Operations and Results of Operations - Use of Non-GAAP Financial Measures.”

Results of Operations

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022


	Three Months Ended
	June 30,
(In millions, except %s)	2023		2022		% Change		2023 Currency Impact (1)		2023 Constant Currency Revenues		Constant Currency % Change (2)
Net sales
Developed Markets	$	2,353.8	$	2,479.1	(5)	%	$	(11.9)	$	2,341.9	(6)	%
Greater China	532.1		548.3		(3)	%	26.3		558.4		2	%
JANZ	375.5		427.1		(12)	%	25.2		400.7		(6)	%
Emerging Markets	648.1		650.9		—	%	52.0		700.1		8	%
Total net sales	$	3,909.5	$	4,105.4	(5)	%	$	91.6	$	4,001.1	(3)	%

Other revenues (3)	9.1		11.4		NM		—		9.1		NM
Consolidated total revenues (4)	$	3,918.6	$	4,116.8	(5)	%	$	91.6	$	4,010.2	(3)	%

(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 2023 constant currency net sales or revenues to the corresponding amount in the prior year.

(3)For the three months ended June 30, 2023, other revenues in Developed Markets, JANZ, and Emerging Markets were approximately $6.0 million, $0.4 million, and $2.7 million, respectively.

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

Total Revenues

For the three months ended June 30, 2023, Viatris reported total revenues of $3.92 billion, compared to $4.12 billion for the comparable prior year period, representing a decrease of $198.2 million, or 5%. Total revenues include both net sales and other revenues from third parties. Net sales for the current quarter were $3.91 billion, compared to $4.11 billion for the comparable prior year period, representing a decrease of $195.9 million, or 5%. Other revenues for the current quarter were $9.1 million, compared to $11.4 million for the comparable prior year period.

The decrease in net sales was partially driven by the unfavorable impact of foreign currency translation of approximately $91.6 million, or 2%, primarily reflecting changes in the U.S. Dollar as compared to the currencies of subsidiaries in China, Japan and India. Additionally, net sales further decreased by approximately $161.8 million, or 4%, due to the inclusion of net sales related to the divested biosimilars business in the prior year period. On a constant currency basis, the increase in net sales from the remaining business was approximately $47.3 million, or 1%, for the three months ended June 30, 2023 compared to the prior year period. The increase in constant currency net sales from the remaining business was due to new product sales of approximately $123.8 million, primarily in the U.S. and Europe. New product sales include new products launched in 2023 and the carryover impact of new products, including business development, launched within the last twelve months. This increase was partially offset by a decrease in net sales from existing products due to base business erosion of approximately $76.5 million. Net sales from acquisitions totaled $10.2 million during the current quarter.

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additional competition in the market. Our top ten products in terms of net sales, in the aggregate, represented approximately 34% for the three months ended June 30, 2023 and 2022.

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 decreased by $125.3 million or 5% during the three months ended June 30, 2023 when compared to the prior year period. The favorable impact of foreign currency translation on current period net sales was approximately $11.9 million, or less than 1%. Net sales decreased by approximately $142.0 million or 6% due to the inclusion of net sales related to the divested biosimilars business in the prior year period. Constant currency net sales from the remaining business decreased by approximately $5.4 million when compared to the prior year period. Net sales within North America totaled approximately $1.02 billion and net sales within Europe totaled approximately $1.34 billion. The decrease in constant currency net sales was driven by anticipated lower net sales of existing products, including Wixela Inhub® in the U.S., as a result of lower pricing and, to a lesser extent, lower volumes due to additional competition. These decreases were partially offset by new product sales, including lenalidomide in the U.S. Net sales from Tyrvaya® totaled $10.2 million during the current quarter.

Greater China Segment

Net sales from Greater China decreased by $16.2 million or 3% for the three months ended June 30, 2023 when compared to the prior year period. This decrease was the result of the unfavorable impact of foreign currency translation of approximately $26.3 million, or 5%. Constant currency net sales increased by approximately $10.4 million, or 2% when compared to the prior year period, driven primarily by increased volumes of existing products. The disposition of the biosimilars business did not have a significant impact on the net sales for the current quarter.

JANZ Segment

Net sales from JANZ decreased by $51.6 million or 12% for the three months ended June 30, 2023 when compared to the prior year period. This decrease was partially the result of the unfavorable impact of foreign currency translation of approximately $25.2 million, or 6%. Constant currency net sales decreased by approximately $21.4 million, or 5% when compared to the prior year period. The decrease was due to lower net sales of existing products mainly driven by lower pricing and, to a lesser extent, volumes, in Japan as a result of government price reductions and additional competition. The disposition of the biosimilars business did not have a significant impact on the net sales for the current quarter.

Emerging Markets Segment

Net sales from Emerging Markets for the three months ended June 30, 2023 were essentially flat when compared to the prior year period. The unfavorable impact of foreign currency translation on current period net sales was approximately $52.0 million or 8%. In addition, net sales also decreased by approximately $14.5 million, or 2% due to the inclusion of the divested biosimilars business in the prior year period. Constant currency net sales from the remaining business increased by $63.7 million, or 10% when compared to the prior year period, driven primarily by higher volumes of existing products, including in certain Middle Eastern countries.

Cost of Sales and Gross Profit

Cost of sales decreased from $2.41 billion for the three months ended June 30, 2022 to $2.31 billion for the three months ended June 30, 2023. Cost of sales was primarily impacted by the decrease in net sales, including the impact of the disposition of the biosimilars business in November 2022*.*

Gross profit for the three months ended June 30, 2023 was $1.61 billion and gross margins were 41%. For the three months ended June 30, 2022, gross profit was $1.70 billion and gross margins were 41%. This change is primarily related to the decrease in cost of sales. Adjusted gross margins were 60% for the three months ended June 30, 2023, compared to 59% for the three months ended June 30, 2022.

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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 June 30, 2023 compared to the three months ended June 30, 2022 is as follows:


	Three Months Ended
	June 30,
(In millions, except %s)	2023			2022
U.S. GAAP cost of sales	$	2,310.0		$	2,413.5
Deduct:
Purchase accounting related amortization	(609.3)			(644.9)
Acquisition and divestiture related items	(7.6)			(15.8)
Restructuring related costs	(68.9)			(6.7)
Share-based compensation expense	(0.9)			(0.5)
Other special items	(36.4)			(40.5)
Adjusted cost of sales	$	1,586.9		$	1,705.1

Adjusted gross profit (a)	$	2,331.7		$	2,411.7

Adjusted gross margin (a)	60		%	59		%

(a)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 June 30, 2023 was $208.3 million, compared to $162.6 million for the comparable prior year period, an increase of $45.7 million. This increase was primarily due to continued investment in our pipeline, including approximately $10.5 million related to the ophthalmology acquisitions.

Acquired IPR&D

Acquired IPR&D expense for the three months ended June 30, 2023 was $10.2 million. The current quarter expense was driven by an upfront licensing payment to InDex Pharmaceuticals Holding AB related to cobitolimod in Japan. There was no acquired IPR&D expense for the three months ended June 30, 2022.

Selling, General & Administrative Expense

SG&A expense for the current quarter was $1.03 billion, compared to $981.1 million for the comparable prior year period, an increase of $50.8 million. The increase was primarily due to expenses related to the ophthalmology acquisitions of approximately $38.1 million, higher investment in selling and promotional activities, and increased compensation, including severance-related costs. Partially offsetting these increases were lower acquisition and divestiture related costs of approximately $61.1 million, mainly as a result of transitioning certain support services from Pfizer during 2022.

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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 June 30, 2023 and 2022, respectively:


	Three Months Ended
	June 30,
(In millions)	2023		2022
Contingent consideration adjustment (related to the Respiratory Delivery Platform)	$	14.1	$	1.3
Litigation settlements, net	(25.1)		9.6
Total litigation settlements and other contingencies, net	$	(11.0)	$	10.9

Interest Expense

Interest expense for the three months ended June 30, 2023 totaled $143.7 million, compared to $145.9 million for the three months ended June 30, 2022, essentially flat as the impact of debt repayments was offset by higher costs related to our periodic short-term variable rate borrowings.

Other (Income) Expense, Net

Other (income) expense, net includes gains and losses from changes in the fair value of equity securities, foreign exchange, expense (income) related to post-employment benefit plans, TSA income, and interest and dividend income. Other (income) expense, net for the three months ended June 30, 2023 totaled $107.5 million of income, compared to expense of $13.5 million for the three months ended June 30, 2022.

The current quarter income was primarily driven by the reimbursement for transition services provided to Biocon Biologics of approximately $46.9 million. The costs related to the transition services are included in SG&A and R&D. The current quarter income also included gains of approximately $74.5 million as a result of remeasuring our equity interest in Mapi and the CCPS in Biocon Biologics to fair value, and higher interest income.

Income Tax Provision

For the three months ended June 30, 2023, the Company recognized an income tax provision of $69.0 million, compared to $75.4 million for the comparable prior year period, a decrease of $6.4 million. The current year and prior year provisions were impacted by the levels of income and the changing mix at which it is earned in jurisdictions with differing tax rates.

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Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022


	Six Months Ended
	June 30,
(In millions, except %s)	2023		2022		% Change		2023 Currency Impact (1)		2023 Constant Currency Revenues		Constant Currency % Change (2)
Net sales
Developed Markets	$	4,524.2	$	4,955.2	(9)	%	$	61.3	$	4,585.6	(7)	%
Greater China	1,096.7		1,121.4		(2)	%	61.3		1,158.0		3	%
JANZ	717.7		850.9		(16)	%	58.8		776.4		(9)	%
Emerging Markets	1,290.0		1,356.1		(5)	%	107.3		1,397.3		3	%
Total net sales	$	7,628.6	$	8,283.6	(8)	%	$	288.7	$	7,917.3	(4)	%

Other revenues (3)	19.1		24.9		NM		0.4		19.5		NM
Consolidated total revenues (4)	$	7,647.7	$	8,308.5	(8)	%	$	289.1	$	7,936.8	(4)	%

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

(3)For the six months ended June 30, 2023, other revenues in Developed Markets, JANZ, and Emerging Markets were approximately $13.1 million, $0.6 million, and $5.4 million, respectively.

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

Total Revenues

For the six months ended June 30, 2023, Viatris reported total revenues of $7.65 billion, compared to $8.31 billion for the comparable prior year period, representing a decrease of $660.8 million, or 8%. Total revenues include both net sales and other revenues from third parties. Net sales for the six months ended June 30, 2023 were $7.63 billion, compared to $8.28 billion for the comparable prior year period, representing a decrease of $655.0 million, or 8%. Other revenues for the six months ended June 30, 2023 were $19.1 million, compared to $24.9 million for the comparable prior year period.

The decrease in net sales was partially driven by the unfavorable impact of foreign currency translation of approximately $288.7 million, or 4%, primarily reflecting changes in the U.S. Dollar as compared to the currencies of subsidiaries in countries within the EU, China, Japan and India. Additionally, net sales further decreased by approximately $326.6 million, or 4%, due to the inclusion of net sales related to the divested biosimilars business in the prior year period. On a constant currency basis, the decrease in net sales from the remaining business was approximately $56.2 million, or 1%, for the six months ended June 30, 2023 compared to the prior year period. The decrease in constant currency net sales from the remaining business was due to base business erosion of approximately $264.9 million. This decrease was partially offset by approximately $208.7 million of new product sales, primarily in the U.S. and Europe. New product sales include new products launched in 2023 and the carryover impact of new products, including business development, launched within the last twelve months. Net sales from acquisitions totaled $16.5 million during the six months ended June 30, 2023.

From time to time, a limited number of our products may represent a significant portion of our net sales, gross profit and net earnings. Generally, this is due to the timing of new product introductions, seasonality, and the amount, if any, of additional competition in the market. Our top ten products in terms of net sales, in the aggregate, represented approximately 35% and 34%, respectively, for the six months ended June 30, 2023 and 2022.

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

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Developed Markets Segment

Net sales from Developed Markets decreased by $431.0 million or 9% during the six months ended June 30, 2023 when compared to the prior year period. This decrease was partially due to the unfavorable impact of foreign currency translation of approximately $61.3 million, or 1%. Net sales also decreased by approximately $286.6 million or 6% due to the inclusion of net sales related to the divested biosimilars business in the prior year period. Constant currency net sales from the remaining business decreased by approximately $99.6 million, or 2% when compared to the prior year period. Net sales within North America totaled approximately $1.94 billion and net sales within Europe totaled approximately $2.58 billion. The decrease in constant currency net sales was driven by anticipated lower net sales of existing products, including cyclosporine ophthalmic emulsion and Wixela Inhub® in the U.S., as a result of lower pricing and, to a lesser extent, lower volumes due to additional competition. These decreases were partially offset by new product sales, including lenalidomide in the U.S. Net sales from Tyrvaya® totaled $16.5 million during the during the six months ended June 30, 2023.

Greater China Segment

Net sales from Greater China decreased by $24.7 million or 2% for the six months ended June 30, 2023 when compared to the prior year period. This decrease was the result of the unfavorable impact of foreign currency translation of approximately $61.3 million, or 5%. Constant currency net sales increased by approximately $37.0 million, or 3% when compared to the prior year period, driven primarily by increased volumes, partially offset by lower pricing, of existing products. The disposition of the biosimilars business did not have a significant impact on the net sales during the six months ended June 30, 2023.

JANZ Segment

Net sales from JANZ decreased by $133.2 million or 16% for the six months ended June 30, 2023 when compared to the prior year period. This decrease was partially the result of the unfavorable impact of foreign currency translation of approximately $58.8 million, or 7%. Constant currency net sales decreased by approximately $64.8 million, or 8% when compared to the prior year period. The decrease was due to lower net sales of existing products mainly driven by lower pricing and, to a lesser extent, volumes, in Japan as a result of government price reductions and additional competition. Net sales decreased by approximately $9.6 million or 1% due to the inclusion of net sales related to the divested biosimilars business in the prior year period.

Emerging Markets Segment

Net sales from Emerging Markets decreased by $66.1 million or 5% for the six months ended June 30, 2023 when compared to the prior year period. This decrease was mainly driven by the unfavorable impact of foreign currency translation of approximately $107.3 million or 8%. In addition, net sales also decreased by approximately $30.0 million, or 2% due to the inclusion of the divested biosimilars business in the prior year period. Constant currency net sales from the remaining business increased by $71.2 million, or 5% when compared to the prior year period, driven primarily by higher volumes of existing products, including in certain Middle Eastern and Asian countries.

Cost of Sales and Gross Profit

Cost of sales decreased from $4.83 billion for the six months ended June 30, 2022 to $4.50 billion for the six months ended June 30, 2023. Cost of sales was primarily impacted by the decrease in net sales, including the impact of the disposition of the biosimilars business in November 2022*.*

Gross profit for the six months ended June 30, 2023 was $3.15 billion and gross margins were 41%. For the six months ended June 30, 2022, gross profit was $3.47 billion and gross margins were 42%. This change is primarily related to the decrease in cost of sales. Adjusted gross margins were 60% for the six months ended June 30, 2023, compared to 59% for the six months ended June 30, 2022.

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A reconciliation between cost of sales, as reported under U.S. GAAP, and adjusted cost of sales and adjusted gross margin for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 is as follows:


	Six Months Ended
	June 30,
(In millions)	2023			2022
U.S. GAAP cost of sales	$	4,496.9		$	4,834.0
Deduct:
Purchase accounting related amortization	(1,262.7)			(1,303.7)
Acquisition and divestiture related items	(12.6)			(24.8)
Restructuring related costs	(79.8)			(19.8)
Share-based compensation expense	(1.5)			(0.8)
Other special items	(75.2)			(81.5)
Adjusted cost of sales	$	3,065.1		$	3,403.4

Adjusted gross profit (a)	$	4,582.6		$	4,905.1

Adjusted gross margin (a)	60		%	59		%

(a)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 six months ended June 30, 2023 was $391.2 million, compared to $304.9 million for the comparable prior year period, an increase of $86.3 million. This increase was primarily due to continued investment in our pipeline, including approximately $21.4 million related to the ophthalmology acquisitions.

Acquired IPR&D

Acquired IPR&D expense for the six months ended June 30, 2023 was $10.2 million. The current year period expense was driven by an upfront licensing payment to InDex Pharmaceuticals Holding AB related to cobitolimod in Japan. There was no acquired IPR&D expense for the six months ended June 30, 2022.

Selling, General & Administrative Expense

SG&A expense for the six months ended June 30, 2023 was $1.99 billion, compared to $1.90 billion for the comparable prior year period, an increase of $94.4 million. The increase was primarily due to expenses related to the ophthalmology acquisitions of approximately $71.6 million, higher investment in selling and promotional activities, and increased compensation, including severance-related costs. Partially offsetting these increases were lower acquisition and divestiture related costs of approximately $83.8 million, mainly as a result of transitioning certain support services from Pfizer during 2022.

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Litigation Settlements and Other Contingencies, Net

The following table includes the (gains) / losses recognized in litigation settlements and other contingencies, net during the six months ended June 30, 2023 and June 30, 2022, respectively:


	Six Months Ended
	June 30,
(In millions)	2023		2022
Contingent consideration adjustment (related to the Respiratory Delivery Platform)	$	15.5	$	13.6
Litigation settlements, net	(25.9)		3.5
Total litigation settlements and other contingencies, net	$	(10.4)	$	17.1

Interest Expense

Interest expense for the six months ended June 30, 2023 totaled $290.7 million, compared to $292.1 million for the six months ended June 30, 2022, essentially flat as the impact of debt repayments was offset by higher costs related to our periodic short-term variable rate borrowings.

Other (Income) Expense, Net

Other (income) expense, net includes gains and losses from changes in the fair value of equity securities, foreign exchange, expense (income) related to post-employment benefit plans, TSA income, and interest and dividend income. Other (income) expense, net for the six months ended June 30, 2023 totaled $177.4 million of income, compared to expense of $47.2 million for the six months ended June 30, 2022.

The current year period income was primarily driven by the reimbursement for transition services provided to Biocon Biologics of approximately $92.6 million. The costs related to the transition services are included in SG&A and R&D. The current year period income was also attributed to gains of approximately $96.0 million as a result of remeasuring our equity interests in Mapi and Famy Life Sciences and the CCPS in Biocon Biologics to fair value, and higher interest income. The prior year period expense was primarily driven by higher foreign exchange costs.

Income Tax Provision

For the six months ended June 30, 2023, the Company recognized an income tax provision of $167.0 million, compared to $203.7 million for the comparable prior year period, a decrease of $36.7 million. The current year and prior year provisions were impacted by the levels of income and the changing mix at which it is earned in jurisdictions with differing tax rates. Also impacting the tax provision for the six months ended June 30, 2023 was a tax expense of $22.3 million related to an agreement with the Indian tax authorities in March 2023 in respect of the pricing of its international transactions.

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, divestitures 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

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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 acquisitions, divestitures 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, impairment of long-lived assets, acquisition and divestiture 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:

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, intangible asset impairment charges, including for in-process research and development, and impairment of goodwill. 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.

Fair Value Adjustments, Including Contingent Consideration

The impact of changes to the fair value of assets and liabilities, including contingent and deferred consideration and non-marketable equity investments, and the related accretion income or 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.

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Share-based Compensation Expense

Share-based compensation expense is excluded from adjusted cost of sales, 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 and Divestiture Related and Other Special Items

Costs related to restructuring, acquisition and divestiture related 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 and divestiture costs, including costs relating to integration and planning, 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 set-up and 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, including other-than-temporary impairments of investments in equity or debt instruments, or liability adjustments;
Certain costs to further develop and optimize our global enterprise resource planning systems, operations and supply chain;
Gains or losses from divestitures, including impairments of held for sale assets; and
The impact of changes related to uncertain tax positions are excluded from adjusted cost of sales and 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 excludes these amounts from adjusted cost of sales, 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.

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Reconciliation of U.S. GAAP Net Earnings to Adjusted Net Earnings

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


	Three Months Ended June 30,			Six Months Ended June 30,
(In millions)	2023		2022			2023	2022
U.S. GAAP net earnings	$	264.0		$	313.9			$	488.7	$	713.1
Purchase accounting related amortization (primarily included in cost of sales) (a)	609.3			644.9				1,262.6		1,303.8
Litigation settlements and other contingencies, net	(11.0)			10.9				(10.4)		17.1
Interest expense (primarily amortization of premiums and discounts on long term debt)	(10.5)			(13.1)				(20.8)		(26.8)
Clean energy investments pre-tax gain	—			0.1				—		—

Acquisition and divestiture related costs (primarily included in SG&A) (b)	56.3			122.4				114.4		207.1

Restructuring related costs (c)	74.1			10.2				83.8		27.0
Share-based compensation expense	39.2			29.4				81.8		57.7
Other special items included in:
Cost of sales (d)	36.4			40.5				75.2		81.5
Research and development expense	0.4			0.6				2.4		0.9
Selling, general and administrative expense	16.4			17.0				31.3		24.4
Other income, net (e)	(65.8)			(0.4)				(87.6)		(1.9)
Tax effect of the above items and other income tax related items (f)	(103.4)			(111.1)				(183.1)		(213.3)
Adjusted net earnings	$	905.4		$	1,065.3			$	1,838.3	$	2,190.6

Significant items include the following:

(a)For the six months ended June 30, 2023, charges include an intangible asset charge of approximately $32.0 million related to the potential divestiture of the Upjohn Distributor Markets to write down the disposal group to fair value, less cost to sell. Also includes amortization of the step-up in the fair value of inventory related to the Oyster Point acquisition of approximately $7.3 million and $14.7 million, for the three and six months ended June 30, 2023, respectively.

(b)Acquisition and divestiture related costs consist primarily of transaction costs including legal and consulting fees and integration activities.

(c)For the three and six months ended June 30, 2023, charges include approximately $68.9 million and $79.8 million, respectively, in cost of sales and approximately $5.2 million and $4.0 million, respectively, in SG&A. Refer to Note 15 Restructuring included in Part I, Item 1 of this Form 10-Q for additional information.

(d)For the three and six months ended June 30, 2023, charges include incremental manufacturing variances at plants in the 2020 restructuring program of approximately $12.9 million and $35.6 million, respectively, and charges related to the potential divestiture of the Upjohn Distributor Markets of approximately $10.0 million and $19.2 million, respectively.

(e)For the three months ended June 30, 2023, includes gains of approximately $74.5 million as a result of remeasuring our non-marketable equity investments to fair value, including our equity interest in Mapi and the CCPS in Biocon Biologics. For the six months ended June 30, 2023, includes gains of approximately $96.0 million as a result of remeasuring our non-marketable equity investments to fair value, including our equity interests in Mapi and Famy Life Sciences and the CCPS in Biocon Biologics.

(f)Adjusted for changes for uncertain tax positions.

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

Below is a reconciliation of U.S. GAAP net earnings to EBITDA and adjusted EBITDA for the three and six months ended June 30, 2023 compared to the prior year period:


	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2023		2022		2023		2022
U.S. GAAP net earnings	$	264.0	$	313.9	$	488.7	$	713.1
Add adjustments:
Net contribution attributable to equity method investments	—		0.1		—		—
Income tax provision	69.0		75.4		167.0		203.7
Interest expense (a)	143.7		145.9		290.7		292.1
Depreciation and amortization (b)	686.7		722.3		1,416.7		1,458.3
EBITDA	$	1,163.4	$	1,257.6	$	2,363.1	$	2,667.2
Add / (deduct) adjustments:
Share-based compensation expense	39.2		29.4		81.8		57.7
Litigation settlements and other contingencies, net	(11.0)		10.9		(10.4)		17.1
Restructuring, acquisition and divestiture related and other special items (c)	114.1		184.2		212.1		326.4
Adjusted EBITDA	$	1,305.7	$	1,482.1	$	2,646.6	$	3,068.4

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

(b) Includes purchase accounting related amortization.

Liquidity and Capital Resources

Our primary source of liquidity is net cash provided by operating activities, which was $1.49 billion for the six months ended June 30, 2023. 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, and fund planned capital expenditures, share repurchases 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 decreased by $454.9 million to $1.49 billion for the six months ended June 30, 2023, as compared to net cash provided by operating activities of $1.94 billion for the six months ended June 30, 2022. Net cash provided by operating activities is derived from net 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.

The decrease in net cash provided by operating activities was principally due to lower operating earnings, including as a result of the disposition of the biosimilars business in November 2022, and the timing of cash payments and collections.

Investing Activities

Net cash used in investing activities was $826.1 million for the six months ended June 30, 2023, as compared to $149.0 million for the six months ended June 30, 2022, an increase of $677.1 million.

In 2023, significant items in investing activities included the following:

cash paid for acquisitions, net of cash acquired, of $667.7 million.

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capital expenditures, primarily for equipment and facilities, totaling approximately $115.6 million. While there can be no assurance that current expectations will be realized, capital expenditures for the 2023 calendar year are expected to be approximately $400 million to $500 million.

In 2022, significant items in investing activities included the following:

capital expenditures, primarily for equipment and facilities, totaling approximately $148.4 million.

Financing Activities

Net cash used in financing activities was $1.28 billion for the six months ended June 30, 2023, as compared to $1.79 billion for the six months ended June 30, 2022, a decrease of $510.4 million.

In 2023, significant items in financing activities included the following:

repayment of the 3.125% Senior Notes at maturity of approximately $750.0 million;
share repurchases of $250.0 million;
net short-term borrowings of $23.1 million;
cash dividends paid of $287.7 million; and
net cash of $33.2 million collected on behalf of other partners, which is included in Other items, net.

In 2022, significant items in financing activities included the following:

long-term debt payments of approximately $1.79 billion consisting of the repayment of the 0.816% Euro Senior Notes due 2022 and the 1.125% Senior Notes due 2022;
long-term debt borrowings of $795.4 million primarily consisting of Revolving Facility borrowings;
net repayments of short-term borrowings of $473.5 million; and
cash dividends paid of $290.6 million.

Capital Resources

Our cash and cash equivalents totaled $629.2 million at June 30, 2023, and the majority of these funds are held by our non-U.S. subsidiaries. In order to support our global operations, the majority of our cash and cash equivalents are held within the banking system with the majority of this at Global Systemically Important Banks. We monitor the third-party depository institutions that hold our cash and cash equivalents on a regular basis. Our primary emphasis is on the safety of the principal. Where possible, we diversify our cash and cash equivalents among counterparties to minimize exposure to any one counterparty. The Company anticipates having sufficient liquidity, including existing borrowing capacity under the 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.

The Company has access to $4.0 billion under the Revolving Facility which matures in July 2026. Effective April 28, 2023, we executed an amendment to the Revolving Facility to convert the benchmark interest rate from LIBOR to an adjusted SOFR, with no change in the applicable interest rate margins. Up to $1.65 billion of the Revolving Facility may be used to support borrowings under our Commercial Paper Program. As of June 30, 2023, the Company did not have any borrowings outstanding under the Commercial Paper Program and the Revolving Facility.

The Company has a $400 million Receivables Facility which expires in April 2025, and a $200 million Note Securitization Facility which expires in August 2023. As of June 30, 2023, the Company did not have any borrowings outstanding under the Receivables Facility or the Note Securitization Facility. 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. Amounts outstanding under either facility 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

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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 over and risk related to the receivables 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 $188.2 million and $34.7 million of accounts receivable as of June 30, 2023 and December 31, 2022 under these factoring arrangements, respectively.

The Company has certain voluntary supply chain finance programs with financial intermediaries which provide participating suppliers the option to be paid by the intermediary earlier than the original invoice due date. The Company’s responsibility is limited to making payments on the terms originally negotiated with the suppliers, regardless of whether the intermediary pays the supplier in advance of the original due date. The range of payment terms the Company negotiates with suppliers are consistent, regardless of whether a supplier participates in a supply chain finance program. The total amounts due to financial intermediaries to settle supplier invoices under supply chain finance programs as of June 30, 2023 and December 31, 2022 were $55.6 million and $33.4 million, respectively. These amounts are included within Accounts payable in the condensed consolidated balance sheets.

For information regarding our dividends paid and declared, refer to Note 9 Earnings per Share in Part I, Item 1 of this Form 10-Q.

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.

In November 2022, the Company provided an update on the strategic priorities announced in February 2022, including identifying the following businesses no longer considered core to its future strategy that the Company intends to divest:

OTC;
API (while retaining some selective development API capabilities);
Women’s health care, primarily related to our oral and injectable contraceptives. This does not include all of our women’s health care related products; as an example, our Xulane® product in the U.S. is excluded; and
Upjohn Distributor Markets.

Long-term Debt Maturity

For information regarding our debt agreements and mandatory minimum repayments remaining on the outstanding notional amount of long-term debt at June 30, 2023, refer to Note 12 Debt in Part I, Item 1 of this Form 10-Q.

The YEN Term Loan Facility and the Revolving Facility 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 a financial covenant, which set the Maximum Leverage Ratio as of the end of any quarter at 3.75 to 1.00 for the quarter ended March 31, 2023 and each quarter ending thereafter, except in circumstances as defined in the related credit agreement, and other 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 June 30, 2023 and expects to remain in compliance for the next twelve months.

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Supplemental Guarantor Financial Information

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 U.S. Dollar 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. U.S. Dollar 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 U.S. Dollar 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 U.S. Dollar 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 U.S. Dollar 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 U.S. Dollar Notes.

The guarantees by Mylan Inc., Mylan II B.V. and Utah Acquisition Sub Inc. under the applicable series of Senior U.S. Dollar 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 U.S. Dollar 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 U.S. Dollar 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 Triggering Indebtedness; (4) with respect to the guarantees provided by Utah Acquisition Sub Inc. and Mylan II B.V. of the Mylan Inc. U.S. Dollar 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 Notes (as defined in the indenture governing the Registered Upjohn 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 indenture governing the Registered Upjohn Notes.

The guarantee obligations of Viatris Inc., Mylan Inc., Utah Acquisition Sub Inc., and Mylan II B.V. under the Senior U.S. Dollar 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.

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 six months ended June 30, 2023 and as of and for the year ended December 31, 2022. All intercompany balances have been eliminated in consolidation. This unaudited combined summarized financial information is presented utilizing the equity method of accounting.

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	Combined Summarized Balance Sheet Information of Viatris Inc., Mylan Inc., Utah Acquisition Sub Inc. and Mylan II B.V.
(In millions)	June 30, 2023		December 31, 2022
ASSETS
Current assets	$	518.0	$	996.3
Non-current assets	62,097.7		61,972.6

LIABILITIES AND EQUITY
Current liabilities	26,541.1		26,631.5
Non-current liabilities	15,231.4		15,265.2


	Combined Summarized Income Statement Information of Viatris Inc., Mylan Inc., Utah Acquisition Sub Inc. and Mylan II B.V.
(In millions)	Six Months Ended June 30, 2023		Year Ended December 31, 2022
Revenues	$	—	$	—
Gross profit	—		—
Loss from operations	(488.2)		(1,132.4)
Net earnings	488.7		2,078.6

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 $180.7 million accrued for legal contingencies at June 30, 2023.

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 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 six months ended June 30, 2023, the Company incurred approximately $1.0 million and $4.7 million, respectively, related to this provision of the TSA and approximately $142.7 million during the period beginning on the closing date of the Combination and ended June 30, 2023. We expect to incur future costs related to the completion of the services. As of December 31, 2022, the Company has exited substantially all transition services with Pfizer.

In conjunction with the Biocon Biologics Transaction, Viatris and Biocon Biologics also entered an agreement pursuant to which Viatris is providing commercialization and certain other transition services on behalf of Biocon Biologics, including billings, collections, and the remittance of rebates, to ensure business continuity for patients, customers and colleagues. The original term of the transition services agreement was generally up to two years; however, the parties agreed to reduce the term of the transition services agreement to expire on December 31, 2023, subject to early termination of services at the discretion at Biocon Biologics and/or extensions until April 30, 2024 for certain services. Under the transition services agreement, Viatris is entitled to be reimbursed for its costs (subject to certain caps) plus a markup of $44 million for 2023. In the event services are provided after 2023 through April 30, 2024, Viatris is entitled to be reimbursed for its costs plus service-

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based markups for such period. During the three and six months ended June 30, 2023, the Company recognized TSA income of approximately $46.9 million and $92.6 million, respectively, as a component of Other (Income) Expense, Net.

Application of Critical Accounting Policies

There have been no changes to the Critical Accounting Policies disclosed in Viatris’ 2022 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, 2023.

The Company performed its annual goodwill impairment test on a quantitative basis for its five reporting units, North America, Europe, Emerging Markets, JANZ, and Greater China. In estimating each reporting unit’s fair value, the Company performed an extensive valuation analysis, utilizing a discounted cash flow approach. 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, the discount rate, terminal growth rates, operating income before depreciation and amortization, capital expenditures forecasts and control premiums.

When compared to the prior year’s annual goodwill impairment test completed on April 1, 2022, the Company has experienced significant fluctuations in foreign exchange rates in certain international markets, combined with a significant increase in market interest rates. These market factors have caused the discount rate utilized in all our reporting units to increase between 1.0% to 4.5%, resulting in a significant reduction in the calculated fair values at April 1, 2023 for all our reporting units. Also, in conjunction with the Company’s annual strategic planning process which included determining long-term growth rate targets for our business, operational results during the forecast period were reduced and long-term growth rates were increased. As a result of these changes, the calculated fair values of the North America, Greater China and Europe reporting units declined in excess of 10% and the JANZ and Emerging Markets reporting units declined in excess of 15% when compared to the prior year fair values.

As of April 1, 2023, the allocation of the Company’s total goodwill was as follows: North America $3.15 billion, Europe $4.47 billion, Emerging Markets $1.34 billion, JANZ $0.68 billion and Greater China $0.94 billion.

As of April 1, 2023, the Company determined that the fair value of the North America 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 $535 million or 3.9% for the annual goodwill impairment test. As it relates to the discounted cash flow approach for the Europe reporting unit at April 1, 2023, the Company forecasted cash flows for the next 10 years. During the forecast period, the revenue compound annual growth rate was approximately 2.4%. A terminal year value was calculated with a 2.0% revenue growth rate applied. The discount rate utilized was 11.0% and the estimated tax rate was 14.9%. If all other assumptions are held constant, a reduction in the terminal value growth rate by 1.0% or an increase in discount rate by 0.5% 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 $145 million or 5.5% for the annual goodwill impairment test. As it relates to the discounted cash flow approach for the JANZ reporting unit at April 1, 2023, the Company forecasted cash flows for the next 10 years. During the forecast period, the revenue compound annual growth rate was approximately negative 2.0%. A terminal year value was calculated with a 1.5% revenue growth rate applied. The discount rate utilized was 7.0% and the estimated tax rate was 30.6%. If all other assumptions are held constant, a reduction in the terminal value growth rate by 0.5% or an increase in discount rate by 0.5% would result in an impairment charge for the JANZ reporting unit.

For the Emerging Markets reporting unit, the estimated fair value exceeded its carrying value by approximately $513 million or 7.7% for the annual goodwill impairment test. As it relates to the discounted cash flow approach for the Emerging Markets reporting unit at April 1, 2023, the Company forecasted cash flows for the next 10 years. During the forecast period, the revenue compound annual growth rate was approximately 1.8%. A terminal year value was calculated with a 2.0% revenue growth rate applied. The discount rate utilized was 11.5% and the estimated tax rate was 17.4%. If all other assumptions are held constant, a reduction in the terminal value growth rate by 2.5% or an increase in discount rate by 1.0% would result in an impairment charge for the Emerging Markets reporting unit.

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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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