Viatris to Sell Biosimilars Business for $3 Billion. Shares Tumble.

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Viatris
,
the company formed in 2020 through a merger of the generic drugmaker Mylan with a

Pfizer

division, said Monday that it would sell Mylan’s old biosimilars business to the Indian drugmaker

Biocon

for up to $3.3 billion.

Viatris

(ticker: VTRS) shares fell 22.9% on the news, as analysts wrote that while the deal represented a good price for the biosimilars business, it removes a key case for the overall company’s growth.

“Absent Biosimilars, what else does VTRS have to talk about in terms of future growth assets?” wrote Raymond James analyst Elliot Wilbur in a note out Monday morning. “The company has been touting Biosimilars as a key growth platform for well over ten years.”

Under the terms of the deal announced Monday, Viatris will sell its biosimilars business to a

Biocon

(532523.India) subsidiary called Biocon Biologics for $2 billion in cash up front, plus up to $335 million in additional cash payments to be paid in 2024, and $1 billion in convertible preferred equity that will give Viatris a 12.9% stake in Biocon Biologics.

Viatris said that Biocon Biologics will go public through an initial public offering in India in late 2023.

Viatris and Biocon have been longtime partners, and are partnered on a number of the biosimilars that Biocon is now buying. Biosimilars are the rough equivalent of generics for complex biologic medications. Unlike with the more traditional so-called small molecule drugs, it’s not possible for competitors to design exact replicas of biologics to sell once their patents expire.

“This transaction is the right natural next step for our partnership,” said Viatris’s president, Rajiv Malik, in a statement. “Creating what we expect to be a unique vertically integrated global biosimilars leader is a continuation of our biosimilars journey and enables us to participate in this space in a more optimized way while unlocking substantial trapped value.”

Viatris shares have struggled to gain purchase since the company was created in November of 2020 through the merger of Mylan and

Pfizer

‘s (PFE) Upjohn unit. The stock was down 5.4% between the merger and the close of trading on Friday, a period in which the S&P 500 has risen 23.2%.

The stock had been on the upswing since the start of December, up 19.1% while the S&P 500 fell 3.7%. Trading on Monday has so far erased those gains. The

S&P 500
fell 0.1% on Monday, and the

Dow Jones Industrial Average
fell 0.4%.

Also on Monday, Viatris reported earnings for 2021 that met Wall Street expectations. The company reported non-GAAP earnings for the year of $3.70 per share, according to

FactSet
,
near the FactSet consensus expectation of $3.72. And the company reported sales for the year of $17.9 billion, also in line with consensus estimates.

In his note on Monday, Raymond James’s Wilbur wrote that the deal with Biocon had been the subject of months of speculation.

“Despite the negative impact to the current growth narrative, total consideration of $3.335B is simply too good to walk away from in our view,” Wilbur wrote.

In a separate note, UBS analyst Kevin Caliendo wrote that the terms of the deal appear to be “highly attractive” to Viatris “at first blush.”

Still, he called the agreement surprising, given what company leaders have said about their hopes for biosimilars as a “future growth driver for the company.”

Speaking on an investor call early Monday, Viatris CEO Michael Goettler said the deal gave Viatris an attractive valuation for its biosimilars business. “It’s immediately unlocking value,” he said. “It’s giving us $2 billion immediately in cash upfront. We continue to be involved in the biosimilar business, just in a different way by having the 12.9%… stake in the future Biocon Biologics with the upside potential that comes with this.”

The company will have a chance to further explain how management sees its future growth prospects without its biosimilars business at an analyst day it is hosting on Tuesday.

Write to Josh Nathan-Kazis at [email protected]