Viatris Could Soon Make a Generic Ozempic, But Does That Make It a Buy?

Viatris (VTRS 0.87%) could be on the verge of eating the lunch of Novo Nordisk's (NVO 0.84%) two golden cash cows: The diabetes drug Ozempic, and another version that's formulated for weight loss called Wegovy. If everything goes according to plan, the generic drug manufacturer will soon get regulatory approval for its two copies of Novo Nordisk's diabetes and weight loss medicines, potentially raking in billions in the process.

It's a no-brainer that such a big development could excite investors and send Viatris' stock climbing. But there are some complications involved and the issue is far from decided. On top of that, success in the market might be harder to come by than it seems.

Is Viatris stock a buy based on the expectations of this play succeeding, or is it better to invest in something else? 

Will Viatris actually produce generics for semaglutide?

If Viatris could sell generic versions of Wegovy and Ozempic, it'd be a major driver of new top-line growth. Sales of Ozempic brought in more than $3 billion for Novo Nordisk in the most recent quarter alone. And with more widespread use of the diabetes and weight loss drugs, public awareness of what's possible with treatment is skyrocketing. In fact, Wegovy is so popular that Novo Nordisk implemented supply restrictions to prevent new patients from starting treatment until it can manufacture enough doses for everyone to have a sufficient amount.

Regulators at the U.S. Food and Drug Administration (FDA) are reviewing Viatris' applications for commercialization of its two generics. Viatris' generics for Ozempic and Wegovy would be the first of their kind to reach the market since Novo Nordisk's launch of the branded versions. But in January, Novo Nordisk sued Viatris, alleging that Viatris infringed on Novo's patents. That could put an obstacle in management's plans to commercialize the two generics later this year or early next year.

The outcome of the lawsuit is uncertain, but if it loses, Viatris might need to pay royalties or defer action for a while, assuming it can move forward at all. Regardless of what happens, investing right now based on this possibility is not risk-free, as the market wouldn't react well to news of anticipated new revenue failing to materialize. 

Does the growth warrant a Viatris stock purchase?

It's important to note that it probably won't be possible for Viatris to match the sales volumes of Ozempic or Wegovy that Novo Nordisk benefits from. It doesn't have any competitive advantage that would enable that to happen.

While there is no doubt that insurers and patients would prefer to pay lower prices per dose, especially considering that dosing is done on a routine and perpetual basis, there may soon be more sophisticated medicines being commercialized for the same indications. For example, Eli Lilly's drug Mounjaro for diabetes was developed after Ozempic, and it may be more effective for blood sugar maintenance and weight control.

Therefore, if patients are already taking Ozempic, there's no guarantee that they'd switch to a lower-cost generic version, as they could likely pay roughly the same amount that they're used to and take a more effective medication instead. 

That emphasizes the point that Viatris will probably not be able to capture a huge portion of the market for such therapies, as its generics would be copies of the less effective options. Given its trailing 12-month (TTM) total sales of roughly $16 billion, it wouldn't take a large slice of the market to drive a meaningful amount of growth over a few years. And once it starts manufacturing the drugs, there's a solid chance that it'll pick up a steadily recurring income stream that'll be paying off for years to come. Furthermore, the more demand there is for any of its products, the lower its manufacturing costs will be thanks to economies of scale.

There are other reasons to consider a purchase of Viatris stock, like its difficult-to-disrupt business model or its dividend yield of 4.2%. But the uncertainty surrounding the ongoing lawsuit makes buying the stock based solely on these potential launches less than advisable. If you're still interested in a purchase to capture the dividend income, go ahead. Just recognize that generics of Ozempic and Wegovy won't be the be-all and end-all of Viatris' financial performance in the next few years.