Viatris 10-Q 2023-09-30

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

For the quarterly period ended September 30, 2023

OR

For the transition period from __to

Commission file number 001-39695

VIATRIS INC.

(Exact name of registrant as specified in its charter)

1000 Mylan Boulevard, Canonsburg, Pennsylvania 15317

(Address of principal executive offices)

(724) 514-1800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The number of shares of common stock outstanding, par value $0.01 per share, of the registrant as of November 2, 2023 was 1,199,671,000.

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VIATRIS INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

For the Quarterly Period Ended

September 30, 2023

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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 nine months ended September 30, 2023, and cash flows for the nine months ended September 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 and announced 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 (including but not limited to announced divestitures);

• the possibility that the Company may be unable to achieve intended or expected benefits, goals, outlooks, synergies and operating efficiencies in connection with acquisitions, divestitures, or its global restructuring program within the expected timeframe or at all;

• with respect to previously announced divestitures, such divestitures not being completed on the expected timelines or at all, the risk that the conditions set forth in the definitive agreements with respect to such divestitures will not be satisfied or waived, failure to realize the total transaction values for the divestitures and/or the expected proceeds for any or all such divestitures, including as a result of any purchase price adjustment or a failure to achieve any conditions to the payment of any contingent consideration, the risk that the Company may elect not to exercise its option to accept the offer in the OTC transaction, and that the Company expects to incur a significant loss related to the OTC divestiture;

• goodwill or other impairment charges or other losses related to the divestiture or sale of businesses or assets (including but not limited to announced divestitures);

• 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;

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• 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;

• 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

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For a discussion of the Company’s market risk, see “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in Viatris’ 2022 Form 10-K.

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Principal Executive Officer and the Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2023. Based upon that evaluation, the Principal Executive Officer and the Principal Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

Management has not identified any changes in the Company’s internal control over financial reporting (“ICFR”) that occurred during the third quarter of 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s ICFR.

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PART II — OTHER INFORMATION

For information regarding legal proceedings, refer to Note 18 Litigation, in the accompanying Notes to interim financial statements in this Form 10-Q.

Except as set forth below, there have been no material changes in the Company’s risk factors from those disclosed in Viatris’ 2022 Form 10-K.

There are risks and uncertainties associated with the Announced Divestitures, including the OTC Transaction, one or more of which could have a material adverse effect on our business, financial condition, results of operations, cash flows, ability to pay dividends or stock price.

On October 1, 2023, we announced we had received an offer for the divestiture of substantially all of our OTC business (the “OTC Transaction”) and had entered into definitive agreements to divest our women’s healthcare business and, separately, in another transaction, our rights to two women’s healthcare products, our API business in India and commercialization rights in the Upjohn Distributor Markets (all such transactions, including the OTC Transaction, the “Announced Divestitures”). There are a number of risks and uncertainties associated with the Announced Divestitures, including, among other things:

• the Announced Divestitures not being completed on the expected timelines or at all (including that, should we elect to exercise our option to accept the offer in the OTC Transaction and enter into a transaction agreement, either party will have the right to terminate that transaction agreement if the closing has not occurred by August 1, 2024, subject to two automatic extensions to no later than October 1, 2024 if certain conditions relating to regulatory approvals have not been satisfied or waived on such date), including but not limited to the inefficiencies and lack of control that may result if the Announced Divestitures are delayed or not implemented effectively, and unforeseen difficulties and expenditures that may arise as a result;

• the risk that the conditions set forth in the definitive agreements with respect to the Announced Divestitures will not be satisfied or waived (including that, should we elect to exercise our option to accept the offer in the OTC Transaction and enter into a transaction agreement, the potential failure of the conditions in that transaction agreement related to obtaining required regulatory and other consents and approvals, which could give rise to the termination of that transaction agreement or that the financing closing condition in the case of the API business divestiture will not be met, which could give rise to the termination of that transaction agreement);

• failure to realize the total transaction values for the Announced Divestitures and/or the expected proceeds for any or all of the Announced Divestitures, including as a result of any purchase price adjustment or a failure to achieve any conditions to the payment of any contingent consideration (including, should we elect to exercise our option to accept the offer in the OTC Transaction and enter into a transaction agreement, that transaction agreement’s net indebtedness and working capital adjustments as well as the up to €100.0 million in contingent additional cash consideration);

• the possibility that the Company may be unable to realize the intended or expected benefits of, or achieve the intended or expected goals, outlooks, synergies or operating efficiencies with respect to, the Announced Divestitures, including but not limited to as a result of carrying stranded costs; the risk that the Company may elect not to exercise its option to accept the offer in the OTC Transaction;

• the risk that we will incur losses related to the Announced Divestitures, including that, with respect to the OTC Transaction, we expect to record a pre-tax loss ranging from $600 million to $700 million in the fourth quarter of 2023 for the difference between the estimated consideration to be received and the carrying value of the business to be divested, including an allocation of goodwill (see Note 5 - Divestitures in Part I, Item 1 of this Form 10-Q for more information);

• the risk that if the remaining Upjohn Distributor Market transactions are not completed, the distribution arrangements will expire in accordance with our agreement with Pfizer and the Company will wind down operations in these markets, which may result in additional asset write-offs and other costs being incurred, which could be in excess of $150 million; and

• the risk that we may incur losses related to unhedged foreign exchange exposure related to receiving proceeds from the divestiture of the OTC business in Euros.

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To the extent that the current market price of our common stock reflects an assumption that the Announced Divestitures will be consummated in the timeframe and manner currently anticipated, and that the Company will prioritize use of net proceeds from the Announced Divestitures for debt paydown, any delay in closing or failure to close the Announced Divestitures could result in a decline in the market price of our common stock. Similarly, any delay in closing or failure to close the Announced Divestitures could result in damage to our relationships with customers, suppliers and employees and have an adverse effect on our business. Pending the completion of the Announced Divestitures, the attention of our management may be directed toward such transactions and related matters, and their focus may be diverted from the day-to-day business operations of our company, including from other opportunities that might otherwise be beneficial to us. We have agreed to indemnify the respective purchasers in the Announced Divestitures and certain of their respective representatives against certain losses suffered as a result of certain breaches of our representations, warranties, covenants and agreements in the applicable transaction agreements and related documents. In particular, should we elect to exercise our option to accept the offer in the OTC Transaction and enter into a transaction agreement, and subject to certain limitations as set forth in that transaction agreement, we will indemnify the purchaser, its affiliates and certain of its and its affiliates’ representatives for certain liabilities and for certain losses arising out of breaches of certain representations, warranties, covenants and agreements in that transaction agreement. Any event that results in a right for the purchaser in the OTC Transactions or the other Announced Divestitures to seek indemnity from us could result in substantial liability to us and could adversely affect our financial position and results of operations. In addition, should we elect to exercise our option to accept the offer in the OTC Transaction and enter into a transaction agreement, at the closing of that transaction we will enter into a transition services agreement pursuant to which we will provide services to the purchaser, including manufacturing, quality, supply chain, pricing and procurement, regulatory, product safety and risk management, medical affairs, IT, finance, human resources, real estate, commercial development and local commercial operations services substantially the same as we currently provide to our OTC business, generally for a period of up to 12 months. Once in effect, our obligations under the transition services agreement may result in additional expenses that are borne by us and may divert our focus and resources that would otherwise be invested into maintaining or growing our retained business.

Whether the Announced Divestitures are ultimately consummated or not, their pendency could have a number of negative effects on our current business, including potentially disrupting our regular operations, diverting the attention of our workforce and management team, and increasing workforce turnover. It could also disrupt existing business relationships, make it harder to develop new business relationships, or otherwise negatively impact the way that we operate the business, which could negatively impact Viatris’ results of operations and cash flows during the pendency of the transactions.

If we successfully complete the Announced Divestitures, our total revenues, results of operations and cash flows from operating activities are expected to be reduced after the close of each transaction. In addition, we have expended significant time and resources, and expect to continue to expend significant time and resources, on these transactions, including management time and focus, costs and expenses related to the separation of the businesses from Viatris, the provision of the transition services and other transaction costs. Many of these expenses must be paid regardless of whether the transactions close, and even if the expected benefits are not achieved. These costs may be significant and we currently do not expect to be reimbursed for them. We may also face other challenges as a result of the announcement and completion of the Announced Divestitures, including that we may not be able to realize the anticipated benefits from such transactions, such as prioritizing use of net proceeds from these divestitures for debt paydown, maintaining employee morale and retaining key management and other employees to provide the transition services and to operate our retained business, and the inability to effectively minimize liabilities and stranded costs associated with the Announced Divestitures.

Any of the risks described above could have a material adverse effect on our business, financial condition, results of operations, cash flows, ability to pay dividends and/or stock price. Refer to Note 5 - Divestitures in Part I, Item 1 of this Form 10-Q for more information about the Announced Divestitures.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no repurchases of the Company’s common stock during the three months ended September 30, 2023. Refer to Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations– Recent Developments of this Form 10-Q for additional information regarding the Company’s authorized share repurchase program.

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Trading Arrangements

During the three months ended September 30, 2023, no director or “officer” of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

November 7, 2023

November 7, 2023