Daily Stock Pick: December 27th, 2022

Regardless of what’s happening elsewhere in the market, biopharma is a great place to look for stocks to pack into your portfolio because there’s always an illness that can be treated more effectively in the future than it is being treated today. 

Our trade alert features an established drug maker with an excellent approval history. Their treatments have been widely trusted for years, and currently, they have multiple promising projects in the pipeline. 

Drugmaker, Viatris’ (VTRS)  portfolio currently comprises more than one thousand approved molecules across a wide range of critical therapeutic areas, including globally recognized iconic and key brands, generic, complex generic, and biosimilar products. Branded products include EpiPen, Amitiza, Lipitor, and Viagra. The Biosimilars portfolio includes pegfilgrastim, trastuzumab, and adalimumab biosimilars.

Viatris is profitable, but it is looking for more growth. The company reported revenue of $4.1 billion in the third quarter, down 10.1% year over year. Adjusted earnings came in at $0.87 per share, surpassing consensus estimates but down from $0.99 per share in the year-ago quarter. 

The company generated $144 million in revenues from products launched in 2022, primarily driven by lenalidomide, its myeloma treatment, its interchangeable insulin injectable Semglee, and its unbranded insulin pen in the United States. It is on track to achieve approximately $525 million in new product revenues in 2022, which is below expectations due to the timing of launches but with better-than-expected margins.

Viatris’ earnings are expected to contract by 4% in 2022, and the stock is down 21% year to date. However, analysts, on average, expect Viatris to rise nearly 18% going forward, according to FactSet. The reason behind Wall Street’s optimism is changes to the company’s business plan that has already been set into motion. 

The company is trimming its less-profitable operations, including its biosimilars, women’s health division, and over-the-counter drugs. In its place, it is adding an ophthalmology franchise through the $750 million acquisitions of Oyster Point Pharma and Famy Life Sciences. The deal is expected to close in the first quarter of 2023, the company said, adding that it sees the acquisitions generating at least $1 billion in sales by 2028.

The company has a relatively high debt-to-equity ratio of nearly two, but it has the right idea by trimming its less-profitable operations and paying down its debt. Management sees revenues expanding at a CAGR of 3% between 2024 and 2028 and EPS expanding at a CAGR of around 15% over the same period. VTRS hopes to use the expanding revenue to reward its investors through steady dividend growth. Its current yield is 4.4%, and its payout ratio is very safe at 20%.