Global pharmaceutical company Viatris Inc. (VTRS) manufactures and distributes complex generic drugs, biosimilars, and active pharmaceutical ingredients (APIs) worldwide. The company was created in November 2020 from Pfizer Inc.’s (PFE) generic medicine unit’s (Upjohn Business) spin-off and its merger with Mylan N.V., a specialty pharmaceuticals company. VTRS is based in Canonsburg, Pa.
VTRS’ diverse global portfolio and progress in advancing key pipeline programs have accelerated the company’s sales and growth opportunities. In addition, its new product launches helped it generate $163 million in revenue for the first quarter of 2021.
The stock has gained 5.7% over the past three months on the news of tentative FDA approval of its new drug application. But its shares are down 24.1% year-to-date and 11.9% over the past year. The stock is now trading 24.2% below its all-time high of $18.86. While the recent FDA approval of its first interchangeable biosimilar product has helped the stock attract investor attention, the company has incurred significant operating losses in its last reported quarter due to higher expenses. Since rapid growth and profitability are unlikely to be in the picture for the stock, we think its near-term prospects look uncertain now.
Here is what we think could influence VTRS’ performance in the coming months:
Biosimilar Drug Receives FDA Approval
This month, VTRS and Biocon Biologics Ltd., a fully integrated global biosimilars organization, received approval for Semglee, the first interchangeable biosimilar product for the treatment of diabetes. As the industry’s first approved interchangeable biosimilar product in the United States, this development represents a significant milestone. This should help VTRS cater to the increasing needs of people living with diabetes and strengthen its position in the pharmaceuticals industry.
Mixed Growth Story
VTRS’ revenue is expected to increase 46.1% for the next quarter, ending September 2021, and 47.2% in its fiscal year 2021. However, its revenue is estimated to decrease 0.9% year-over-year to $17.43 billion next year. Also, analysts expect the company’s EPS to decline 32.8% next quarter and 10.6% in the current year. VTRS’ EPS is expected to increase 4% year-over-year to $3.67 in 2022. But the Street expects its EPS to decrease at a 2.6% rate per annum over the next five years.
Although VTRS’ total assets increased at a 18.8% CAGR over the past three years, its EBIT declined at a 5.6% annualized rate over this period.
VTRS’ total net sales rose 70% from its year-ago value to $4.40 billion for the first quarter ended March 31, 2021. Its adjusted gross profit increased 91% year-over-year to $2.64 billion. However, its total operating expenses rose 93.2% year-over-year to $1.39 billion. VRTS reported a $266.2 million operating loss, versus $184.7 million in operating income in the prior-year period. Also, its net loss came in at $1.04 billion, and loss per share amounted to $0.86 for this quarter. As of March 31, 2021, VRTS’ long-term debt stood at $22.10 billion.
The company’s trailing-12-month 31.9% EBITDA margin is 493.9% higher than the 5.4% industry average. In addition, its 9.9% levered free cash flow margin is 503.6% higher than the 1.6% industry average. But VRTS’ net income margin, ROE, and ROA came in at negative 12.6%, 10.6%, and 2.9%, respectively.
Consensus Price Target Indicates Potential Upside
Of the 14 Wall Street analysts that provided ratings for the stock, six rated it Buy, and nine rated it Hold. Currently trading at $14.29, analysts expect the stock to hit $20.21 in the near term, indicating a 41.4% potential upside.
POWR Ratings Reflect Uncertainty
VTRS has an overall C rating, which translates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. VTRS has a B grade for Value. The stock’s 3.98 P/E ratio is 83.3% lower than the 23.82 industry average, which is consistent with its value grade.
In terms of Quality Grade, VTRS has a D. This is in sync with its lower-than-industry gross profit margin.
Also, the company has a C Sentiment grade. Analysts’ expectation that its EPS will decline in the next quarter, ending September 2021, justifies the Sentiment grade.
In addition to the grades we’ve highlighted, one can check out additional VTRS ratings for Momentum, Growth, and Stability here. VTRS is ranked #69 of 221 stocks in the F-rated Medical – Pharmaceuticals industry.
Click here to view the top-rated stocks in the Medical – Pharmaceuticals industry.
Even though new product launch revenues, a robust business portfolio, and optimism surrounding the FDA approval of its biosimilar product could benefit VTRS, given its staggering losses and mixed profitability it could take some time before it becomes a viable growth company. So, we think it is wise to wait for better entry points in the stock.
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VTRS shares rose $0.04 (+0.28%) in premarket trading Friday. Year-to-date, VTRS has declined -22.94%, versus a 17.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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