In November 2020, after months of delay caused by COVID-19 disruptions and a US antitrust roadblock, Mylan and Pfizer’s Upjohn generics unit finally closed a USD 12 billion merger. The combined new company, ‘Viatris’, boasts a global workforce of over 45,000, 50 manufacturing sites, and a presence in 165 countries, but Upjohn’s tepid growth rates in recent years and plenty of competition in the generics space mean that success is not assured. Viatris is embarking on a sizeable cost-cutting exercise to absorb short-term losses in the hope of establishing the firm as a profitable global generics player.
Viatris has a broad offering of branded and non-branded generics, biosimilars, and OTC products across a wide range of therapeutic areas, including well-known off-patent Upjohn legacy products such as Xanax, Lipitor, Celebrex, Viagra, and Zoloft. These products account for 60 percent of Viatris’s expected revenues; the rest from its stable of generic and biosimilar products from Mylan. Both sides are facing significant pricing pressures globally, leading Viatris to plan for only “modest growth.”
More worryingly, although Mylan has achieved steady, if unspectacular, growth in recent years (one percent year-on-year revenue growth up to USD 8.32 billion in 2020), Upjohn has been a real underperformer for Pfizer. “[Upjohn has been] like an anchor dragging behind [Pfizer’s] ship for a while now,” according to Keith Speights, writing in The Motley Fool.
Speights outlines, “Just look at Pfizer’s third-quarter results [from 2020]. The company’s total revenue slipped four percent year over year. However, this decline stemmed entirely from the Upjohn business. Sales for Upjohn plunged 18 percent year over year, in large part due to sinking sales for Lyrica as it faces generic competition. On the other hand, Pfizer’s biopharma revenue grew four percent, even with some headwinds from the COVID-19 pandemic.”
However, Mylan’s biosimilars footprint is being touted as one of the combined company’s key assets and an important growth area. A push in US Congress to push affordable biosimilar drugs could make Viatris’ 20-strong portfolio of biosimilars either already being sold or in development increasingly valuable. The company has biosimilar development programs in oncology, immunology, endocrinology, ophthalmology, and dermatology, which could receive federal government funding.
We have an absolute premium infrastructure in China
Michael Goettler, CEO, Viatris
Another source of growth could be further acquisitions, although CEO Michael Goettler told the JP Morgan Healthcare Conference that any dealmaking would have to be “disciplined,” only involving deals with small upfront payments. In the short-term at least, the management focus will be on cutting costs, stabilising the business, and investing in the company’s own pipeline. This cost-cutting will see 20 percent of the company’s 45,000 workforce laid off and 15 manufacturing facilities either closed or downsized, with the aim of saving USD one billion annually.
China – where Viatris has a presence thanks to legacy Upjohn – has also been identified as a growth market in the longer-term, but decline is expected in the short thanks to the country’s volume-based procurement (VBP) scheme designed to lower the price of off-patent drugs. Goettler feels that two dozen legacy Mylan products can be introduced to the Chinese market, leading to longer-term success.
“We have adapted very quickly and very well to the volume-based procurement impact, we … rightsized hospital business but invested in the retail space,” he said at JP Morgan 2021. He added that retail—which is shielded from VBP and is more self-pay—now represents more than one-third of Viatris’ China business and is growing at over 20 percent. Goettler added, “We have an absolute premium infrastructure in China that can promote in multiple channels—hospital, retail and digital—has deep reach in the country not just in top cities, has deep knowledge and deep relationships; we have local manufacturing and international quality standards and also the highest compliance standards.”