Even if you don't recognize the name Viatris (VTRS 0.87%), you may have come in very close contact with this pharma company. It sells a wide variety of generic drugs -- such as generic Zyrtec allergy pills -- as well as branded medicines like cholesterol drug Lipitor. The company formed a few years ago when Pfizer combined its Upjohn business with generic drug giant Mylan.
With a solid portfolio of popular products, we might expect earnings and the stock price to climb. Well, earnings have advanced. But the stock has lost about 38% since it started trading in November 2020.
Is Viatris a buy now? Fool.com contributors Adria Cimino and Keith Speights discuss the bull and bear cases.
The bull case
Adria Cimino: Generic drugmakers generally don't have the power to drive tremendous revenue growth. Patient populations are already established and have been taking the specific drug for years. And these companies don't wow the crowd with innovation.
But this sort of company can gain by becoming more efficient and by expanding its portfolio. And that's exactly what Viatris is doing.
The pharma company is on the way to reaching $1 billion in cost synergies by the end of this year. Viatris also has made tackling debt a big priority -- and has paid down $6 billion since the start of 2021. Meanwhile, the company has a plan to boost growth, and things are looking bright here too. This is through supercharging its pipeline.
Viatris expects more than $1 billion in annual peak sales from its complex injectables pipeline by 2027. Potential products include generic versions of popular drugs such as diabetes drug Ozempic and weight loss drug Wegovy. The company also predicts more than $1 billion in annual peak sales by 2028 from certain novel and complex products -- one of these candidates includes a potential biosimilar of wrinkle treatment, Botox.
And Viatris also is counting on its new eye care line to pump up revenue. It launched Tyrvaya for dry eye disease in 2021 -- and this pipeline includes seven other candidates, with two in phase 3 trials. This business also has the potential to add more than $1 billion in annual peak sales to Viatris' top line by 2028.
Finally, it's important to remember that Viatris also is a dividend stock. The company returned about $400 million to shareholders in the first quarter through dividends and share buybacks. This offers us two things: first, income for simply holding the shares, and second, the share repurchases show Viatris is confident about its future -- so we might be too.
The bear case
Keith Speights: Viatris stock is cheap. It offers a juicy dividend yield. What's not to like? For one thing, the company's lack of anything resembling growth.
In the first quarter of 2023, Viatris reported that its total net sales declined by nearly 11%. No product category delivered higher sales. And yet the company's press release called those results "strong" and said they reflected "robust operational performance." That's a good attempt at spinning, but it's still akin to putting lipstick on a pig.
The reality is that the generic drug business has been mediocre for a long time. Sure, Viatris also markets branded drugs. However, those brands are long-in-the-tooth products such as Lipitor and Lyrica that the company sells in developing markets, including South Korea and Malaysia.
I'll admit that Viatris could have some growth opportunities on the way. It hopes to be first to market with generics to blockbuster drugs, including Ozempic and Wegovy. Viatris also expects to launch several new drugs over the next few years.
The main problem, though, is that it will take a while for these products to reach peak sales. In the meantime, there are simply too many other stocks that could and should deliver much stronger total returns than Viatris will.
Bull or bear?
Both cases present good points. Viatris makes an interesting bet for its dividend, its growing portfolio, and low valuation. But there are many stocks out there that will offer you stronger growth prospects -- and likely better share performance down the road.
All of this means investors looking for growth may favor the bear case -- and avoid Viatris shares. But if you're a cautious investor shopping around for a new dividend stock to add to your portfolio, you may want to consider this generic drug leader.
