Viatris Will Be the New Kid in Generic Drugs. Don't Expect the Stock to Surge, Analyst Says.

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Don’t Expect the Stock to Surge, Analyst Says. Viatris Will Be the New Kid in Generic Drugs. Don’t Expect the Stock to Surge, Analyst Says. Mylan Stock Gets Neutral Rating Ahead of Deal With Pfizer’s Upjohn

Pfizer’s legacy-drug business Upjohn will merge with the generic-drug company Mylan to create a new company called Viatris this year. Piper Sandler doesn’t expect the stock to rise any time soon.

Viatris Will Be the New Kid in Generic Drugs. Don’t Expect the Stock to Surge, Analyst Says.

Pfizer’s legacy-drug business Upjohn will merge with the generic-drug company Mylan to create a new company called Viatris this year.

https://www.barrons.com/articles/pfizer-stock-why-its-pipeline-of-new-drugs-is-crucial-51574442781 https://www.barrons.com/articles/how-investors-could-pay-for-the-opioid-crisis-51569006234 mailto:josh.nathan-kazis@barrons.com Viatris Will Be the New Kid in Generic Drugs. Don’t Expect the Stock to Surge, Analyst Says. By Josh Nathan-Kazis Photograph by Drew Hays David Amsellem at Piper Sandler began coverage of Mylan with a Neutral rating.

Don’t look now, but here comes Viatris.

Sometime this year, Pfizer (PFE)’s legacy-drug unit Upjohn will spin off and merge with the generic drug maker Mylan (MYL) to create a big new company with significant businesses around the world. That new player in the business, to be called Viatris, is one of the big question marks for pharmaceutical investors in 2020.

On Thursday, David Amsellem at Piper Sandler (Piper Jaffray completed a merger this week) initiated coverage of Mylan with a note that looks forward toward the transformation. Amsellem rated the company Neutral, with a $21 target price. Shares of Mylan closed Wednesday at $21.22.

“With the business mix and leadership poised for transformational change, we tend to believe that transparency will improve and with that, polarization surrounding the new entity will ebb to some extent,” Amsellem wrote. “That however does not mean that Viatris will start to trade at a richer valuation anytime soon.”

The back story. Shares of Mylan are down 27.1% over the past twelve months, and up 5.6% so far in 2020. The company has faced years of controversy, including criticism over the pricing of its emergency allergy treatment EpiPen. It is among the many makers of generic drugs facing lawsuits over sales of opioid-containing drugs.

What’s new. In his note on Thursday, Amsellem said that the outlook for the firm was mixed. On the one hand, the newly diversified company will be much less reliant on revenue from U.S. retail generic drugs than Mylan was, good news given the dynamics of that market. On the other hand, it will be heavily reliant on a handful of Pfizer’s old off-patent brands, and on revenues from China, where the business has faced significant challenges.

“Is that the kind of geographic diversification that is desirable?” Amsellem wrote. “We doubt it.”

Amsellem wrote that he was worried about China, where the government is changing how it buys pharmaceuticals. “As the Chinese generics industry eventually comes into its own, so to speak, we would expect to see further pressure on pricing as a result of new tender processes down the road,” he wrote. “We have a difficult time envisioning how these dynamics do not translate into meaningful and potentially significant pressure on corporate pro forma revenue and EBITDA over the intermediate-to-longer term.”

Still, he praised the company’s efforts on biosimilars, the complex generic versions of biologic drugs.

Looking forward. The Pfizer deal is expected to close in the middle of 2020. Shares of Mylan were down 0.9% in early trading, while the S&P 500 was 0.5% higher.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.