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Item 7. Management’s Discussion and Analysis

2022-02-28 compared with 2021-03-01 · 259 added, 439 removed, 455 unchanged (61% of the section changed)

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These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements may include, without limitation, statements about the Combination, the benefits and synergies of the Combination or our global restructuring program, future opportunities for the Company and its products and any other statements regarding the Company’s future operations, financial or operating results, capital allocation, dividend policy, debt ratio, anticipated business levels, future earnings, planned activities, anticipated growth, market opportunities, strategies, competitions, and other expectations and targets for future periods.

Such forward-looking statements may include, without limitation, statements about the Biocon Biologics Transaction;

statements about the Combination, the benefits and synergies of the Combination or our global restructuring program, future opportunities for the Company and its products and any other statements regarding the Company’s future operations, financial or operating results, capital allocation, dividend policy and payments, debt ratio and covenants, anticipated business levels, future earnings, planned activities, anticipated growth, market opportunities, strategies, competitions, commitments, confidence in future results, efforts to create, enhance or otherwise unlock the value of our unique global platform, and other expectations and targets for future periods.

Forward-looking statements may often be identified by the use of words such as “will”, “may”, “could”, “should”, “would”, “project”, “believe”, “anticipate”, “expect”, “plan”, “estimate”, “forecast”, “potential”, “pipeline”, “intend”, “continue”, “target”, “seek” and variations of these words or comparable words.

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• the integration of Mylan and the Upjohn Business or the implementation of the Company’s global restructuring program being more difficult, time consuming or costly than expected;

• the pending Biocon Biologics Transaction may not achieve its intended benefits;

• the possibility that the Company may be unable to achieve expected benefits, synergies and operating efficiencies in connection with the Combination or its global restructuring program within the expected timeframe or at all;

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• actions and decisions of healthcare and pharmaceutical regulators;

• changes in relevant laws and regulations, including but not limited to changes in tax, healthcare and pharmaceutical laws and regulations globally;

• changes in relevant laws and regulations, including but not limited to changes in tax, healthcare and pharmaceutical laws and regulations globally (including the impact of potential tax reform in the U.S.);

• the ability to attract and retain key personnel;

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• uncertainties regarding future demand, pricing and reimbursement for the Company’s products;

• uncertainties and matters beyond the control of management, including but not limited to general political and economic conditions and global exchange rates;

• uncertainties and matters beyond the control of management, including but not limited to general political and economic conditions, inflation rates and global exchange rates;

• inherent uncertainties involved in the estimates and judgments used in the preparation of financial statements, and the providing of estimates of financial measures, in accordance with U.S.

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Company Overview

Viatris is a global healthcare company formed in November 2020 through the combination of Mylan and Upjohn, whose mission is to empower people worldwide to live healthier at every stage of life.

By integrating the strengths of these two businesses, including our global workforce of approximately 45,000 employees and contractors, Viatris aims to deliver increased access to affordable, quality medicines for patients worldwide regardless of geography or circumstance.

Viatris brings together industry leading commercial, R&D, regulatory, manufacturing, legal and medical expertise complemented by a strong commitment to quality and unparalleled geographic footprint to deliver high-quality medicines to patients in more than 165 countries and territories.

Viatris’ portfolio comprises more than 1,400 approved molecules across a wide range of key therapeutic areas, including globally recognized iconic and key brand, generic, complex generic, and biosimilar products.

Viatris operates approximately 50 manufacturing sites worldwide that produce oral solid doses, injectables, complex dosage forms and APIs.

Viatris is a global healthcare company formed in November 2020 whose mission is to empower people worldwide to live healthier at every stage of life, regardless of geography or circumstance.

Improving the ability of patients to gain access to sustainable and high-quality healthcare is our relentless pursuit.

One that rests on visionary thinking, determination and best-in-class capabilities that were strategically built to remove barriers across the health spectrum and advance access globally.

Viatris’ seasoned management team is focused on ensuring that the Company is optimally structured and efficiently resourced to deliver sustainable value to patients, shareholders, customers and other stakeholders.

With a global workforce of approximately 37,000, the Company has industry leading commercial, R&D, regulatory, manufacturing, legal and medical expertise complemented by a strong commitment to quality and unparalleled geographic footprint to deliver high-quality medicines to patients in more than 165 countries and territories.

Viatris’ portfolio comprises more than 1,400 approved molecules across a wide range of key therapeutic areas, including globally recognized iconic and key brands, generics, complex generics, and biosimilars.

The Company operates approximately 40 manufacturing sites worldwide that produce oral solid doses, injectables, complex dosage forms and APIs.

Viatris is headquartered in the U.S., with global centers in Pittsburgh, Pennsylvania, Shanghai, China and Hyderabad, India.

Viatris reports segment information on the basis of markets and geography.

In conjunction with the formation of Viatris, the Company has changed its reportable segments, from North America, Europe, and Rest of World, to Developed Markets, Greater China, JANZ, and Emerging Markets.

This approach reflects the Company’s focus on bringing its broad and diversified portfolio of branded, complex generics and biosimilars, and generic products to people in markets everywhere.

Viatris has four reportable segments:

Developed Markets, Greater China, JANZ, and Emerging Markets.

The Company reports segment information on the basis of markets and geography, which reflects its focus on bringing its broad and diversified portfolio of branded, complex generics and biosimilars, and generic products to people in markets everywhere.

Our Developed Markets segment comprises our operations primarily in North America and Europe.

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Our JANZ segment reflects our operations in Japan, Australia and New Zealand.

Our Emerging Markets segment encompasses our operations in countries with developing markets and emerging economies including countries in Asia, the Middle East, South and Central America, Africa and Eastern Europe, and also includes the Company’s anti-retroviral franchise.

Our Emerging Markets segment encompasses our presence in more than 125 countries with developing markets and emerging economies including in Asia, Africa, Eastern Europe, Latin America and the Middle East as well as the Company’s ARV franchise.

Certain Market and Industry Factors

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The entrance into the market of additional competition generally has a negative impact on the volume and pricing of the affected products.

Additionally, pricing is often affected by factors outside of the Company’s control.Conversely, generic products generally experience less volatility over a longer period of time in Europe as compared to the U.S., primarily due to the role of government oversight of healthcare systems in the region.

Additionally, pricing is often affected by factors outside of the Company’s control.

Conversely, generic products generally experience less volatility over a longer period of time in Europe as compared to the U.S., primarily due to the role of government oversight of healthcare systems in the region.

For branded products, the majority of the product’s commercial value is usually realized during the period in which the product has market exclusivity.

and some other countries, when market exclusivity expires and generic versions of a product are approved and marketed, there can often be very substantial and rapid declines in the branded product’s sales.

For example, several companies launched a generic to Lyrica® in Japan in December 2020 despite pending patent infringement litigation.

While the litigation remains ongoing, the rate of generic conversion is significant and, combined with market dynamics relating to the COVID-19 pandemic, the Company expects a significant reduction in the annual revenues of Lyrica®.

Certain markets in which we do business outside of the U.S.

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Recent Developments

Biocon Biologics Agreement

On February 28, 2022, the Company entered into an agreement to contribute its biosimilars business to Biocon Biologics.

Under the terms of the Biocon Agreement, at closing Viatris will receive an up-front cash payment of $2.0 billion, $1.0 billion of convertible preferred equity and up to $335 million as additional cash payments that are expected to be paid in 2024.

Viatris will own a stake of at least 12.9% of Biocon Biologics, on a fully-diluted basis, and will have certain priority rights with respect to certain liquidity events.

The companies will also enter into a two-year transition services agreement, subject to extension in certain circumstances, during which time Viatris will provide certain commercial and administrative services for an applicable service fee.

The transaction is expected to close in the second half of 2022 and is subject to customary closing conditions (including regulatory approvals).

Share Repurchase Program

On February 28, 2022, the Company announced that its Board of Directors had authorized a share repurchase program for the repurchase of up to $1.0 billion of the Company’s shares of common stock.

The Company has not yet repurchased any shares of common stock under the share repurchase program and the share repurchase program does not obligate the Company to acquire any particular amount of common stock.

Cyclosporine Ophthalmic Emulsion

On February 3, 2022, the Company announced that it had received approval from the FDA for its ANDA for Cyclosporine Ophthalmic Emulsion 0.05%, the first generic version of Allergan's Restasis®.

Cyclosporine Ophthalmic Emulsion is indicated to increase tear production in patients whose tear production is presumed to be suppressed due to ocular inflammation associated with keratoconjunctivitis sicca, also known as dry eye.

The commercial launch of the product occurred in February 2022.

On June 11, 2020, the FDA approved the SEMGLEE® vial and pen products, which the Company began selling on August 31, 2020.

On July 28, 2021, Viatris and Biocon announced that the FDA had approved SEMGLEE® (insulin glargine-yfgn) injection as the first interchangeable biosimilar product under the 351(k) regulatory pathway.

The interchangeable SEMGLEE® product, which allows substitution of SEMGLEE® for the reference product, Lantus®, at the pharmacy counter, was launched in the fourth quarter of 2021.

The Company has exclusivity for 12 months from launch before the FDA can approve another biosimilar interchangeable to Lantus®.

2020 Restructuring Program

During the fourth quarter of 2020, Viatris announced a significant global restructuring program in order to achieve synergies of $1 billion and ensure that the organization is optimally structured and efficiently resourced to deliver sustainable value to patients, shareholders, customers, and other stakeholders.

During the fourth quarter of 2020, Viatris announced a significant global restructuring program in order to achieve synergies and ensure that the organization is optimally structured and efficiently resourced to deliver sustainable value to patients, shareholders, customers, and other stakeholders.

Viatris’ restructuring initiative incorporates and expands on the restructuring program announced by Mylan N.V.

earlier in 2020 as part of its business transformation efforts.

The company expects to optimize its commercial capabilities and enabling functions, and close, downsize or divest up to 15 manufacturing facilities globally that are deemed to be no longer viable either due to surplus capacity, challenging market dynamics or a shift in its product portfolio toward more complex products.

As a result, Viatris expects that up to 20% of its global workforce of approximately 45,000 may be impacted upon completion of the restructuring initiative.

For the committed restructuring actions, the Company expects to incur total pre-tax charges ranging between $1.1 billion and $1.4 billion.

Such charges are expected to include between $350 million and $450 million of non-cash charges mainly related to accelerated depreciation and asset impairment charges, including inventory write-offs.

The remaining estimated cash costs of between $750 million and $950 million are expected to be primarily related to severance and employee benefits expense, as well as other costs, including those related to contract terminations and decommissioning costs.

In addition, management believes the potential annual savings related to these committed restructuring activities to be between $700 million and $900 million once fully implemented, with most of these savings expected to improve operating cash flow.

2016 Restructuring Program

Mylan previously announced a restructuring program representing a series of actions in certain locations that are anticipated to further streamline its operations globally.

We have incurred total restructuring related costs of approximately $733.0 million through December 31, 2020.

The 2016 Restructuring Program is substantially complete at December 31, 2020.

In April 2018, the FDA completed an inspection at Mylan’s plant in Morgantown, West Virginia and made observations through a Form 483.

In the fourth quarter of 2018, Mylan received a warning letter related to the previously disclosed observations at the plant.

The issues raised in the warning letter were addressed within the context of the Mylan’s comprehensive restructuring and remediation activities.

On May 11, 2020 Mylan received the close-out of the warning letter.

On December 11, 2020, the Company announced that it expects the Morgantown plant to be closed or divested as part of the 2020 Restructuring Program.

As part of the restructuring, the Company is optimizing its commercial capabilities and enabling functions, and closing, downsizing or divesting certain manufacturing facilities globally that are deemed to be no longer viable either due to surplus capacity, challenging market dynamics or a shift in its product portfolio toward more complex products.

For the committed restructuring actions, the Company expects to incur total pre-tax charges of up to approximately $1.4 billion.

Such charges are expected to include up to approximately $450 million of non-cash charges mainly related to accelerated depreciation and asset impairment charges, including inventory write-offs.

The remaining estimated cash costs of up to approximately $950 million are expected to be primarily related to severance and employee benefits expense, as well as other costs, including those related to contract terminations and other plant disposal costs.

In addition, management believes the potential annual savings related to these committed restructuring activities to be up to approximately $900 million once fully implemented, with most of these savings expected to improve operating cash flow.

Impact of the Coronavirus Pandemic

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The Company’s priorities remain protecting the health and safety of our workforce, continuing to produce critically needed medicines, deploying resources and expertise in the fight against COVID-19 through potential prevention and treatment efforts, supporting the communities in which we operate and maintaining the health of our overall business.

The following section discusses the important measures the Company is taking in light of the COVID-19 pandemic.

Employee Health and Safety

• Viatris continues to align with government and health authority guidelines in an effort to safeguard our workforce and continues to make assessments on an ongoing basis.

• While Viatris’ business operations are currently considered essential based on government guidelines throughout the world due to the important role pharmaceutical manufacturers play within the global healthcare system, many Viatris administrative offices continue operating under work from home protocols.

• Because protecting the health and safety of our workforce remains paramount, Viatris has taken extra precautions at manufacturing facilities to aid in the protection of site personnel and operations, including the implementation of social distancing guidelines, daily health assessments and split shifts where feasible.

• Many customer facing field personnel have moved to a remote engagement model to ensure continued support for healthcare professionals, patient care and access to needed products.

• Global restrictions have been placed on travel and in-person meetings.

• Viatris has taken steps to protect the safety of study participants, our employees and staff at clinical trial sites and ensure regulatory compliance and scientific integrity of trial data.

Continuing to Produce Critically Needed Medicines

Manufacturing and Supply

• Viatris has activated worldwide business continuity plans to seek to ensure that our global supply chain platform continues to operate without significant disruption.

• All of our manufacturing facilities, and those of our key global partners, are currently operational and, at this time, we are not experiencing any significant disruptions to our supply chain, including the availability of APIs.

Also, we are currently not experiencing any negative impact on our customer service levels.

• Viatris continues to engage with regulatory authorities around the world who are committed to maintaining ongoing regulatory processes while also continuing to make available our global R&D, regulatory and manufacturing expertise and capacity to partners who may be in need of additional resources.

Commercial Operations

• We have and continue to experience certain negative fluctuations in demand trends due to COVID-19.

We will continue to monitor trends closely as we work to ensure patients have access to needed medicine.

• Inventory levels, both ours and those in our distribution channel, remain in-line with normal levels and are currently assessed to be sufficient for anticipated demand.

Deploying Resources and Expertise in the Fight Against COVID-19

Product Development

• On May 12, 2020, Mylan announced a global collaboration with Gilead Sciences, Inc.

to expand access to the investigational antiviral remdesivir for the potential treatment of COVID-19.

Under the terms of the license agreement the Company has rights to manufacture and distribute remdesivir in 127 low-and middle-income countries, including India.

• On July 6, 2020, Mylan announced that the DCGI approved its remdesivir 100 mg/vial for restricted emergency use in India as part of the DCGI’s accelerated approval process to address urgent, unmet needs amid the evolving COVID-19 pandemic.

• On November 20, 2020, the WHO issued a conditional recommendation against the use of remdesivir in hospitalized patients, regardless of disease severity, as there was no evidence that remdesivir improved survival and other outcomes in these patients.

Maintaining the Health of Our Overall Business

Access to Capital Markets and Liquidity

While currently we are not experiencing any negative liquidity trends related to the COVID-19 pandemic, we continue to closely monitor developments and the potential negative impact on our operating performance and our ability to access the capital markets.

Due to the Company’s ability to generate significant cash flows from operations, as well as its revolving credit agreement, other short-term borrowing facilities and access to capital markets, we believe that we currently have, and will maintain, the ability to meet foreseeable liquidity needs.

Impact on Results of Operations

The global spread of COVID-19 has created significant volatility, uncertainty and economic disruption affecting the markets we serve, and has had a negative impact on our current year results of operations.

The extent to which the COVID-19 pandemic will impact our business, operations and financial results in future periods will depend on numerous evolving factors that are beyond our control and that we may not be able to accurately predict.

As a result, many Viatris administrative offices continue operating under work from home protocols and some of our customer facing field personnel continue on a remote engagement model to ensure continued support for healthcare professionals, patient care and access to needed products.

Additionally, all of our manufacturing facilities, and those of our key global partners, are currently operational and, at this time, we are not experiencing any significant disruptions.

Current inventory levels, both ours and those in our distribution channel, remain in-line with normal levels.

The global spread of COVID-19 has created and continues to create significant volatility, uncertainty and economic disruption affecting the markets we serve, including impacts on supply chain partners, third-party manufacturers, logistics providers and other vendors.

Due to the Company’s ability to generate significant cash flows from operations, combined with our access to borrowing facilities and capital markets, we believe that we currently have, and will maintain, the ability to meet foreseeable liquidity needs .

For additional information, see Results of Operations in Part II.

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Year Ended December 31,

(In millions, except per share amounts) 2020 2019 Change % Change

(In millions, except per share amounts and %s) 2021 2020 Change % Change

Total revenues $ 17,886.3 $ 11,946.0 $ 5,940.3 50 %

Gross profit 5,575.5 3,796.7 1,778.8 47 %

(Loss) earnings from operations (210.8) 715.5 (926.3) (129) %

Net (loss) earnings (669.9) 16.8 (686.7) nm

Diluted (loss) earnings per share $ (1.11) $ 0.03 $ (1.14) nm

Loss from operations (34.0) (210.8) 176.8 nm

Net loss (1,269.1) (669.9) (599.2) (89) %

Diluted loss per share $ (1.05) $ (1.11) $ 0.06 5 %

A detailed discussion of the Company’s financial results can be found below in the section titled “Results of Operations.” As part of this discussion, we also report sales performance using the non-GAAP financial measures of “constant currency” net sales and total revenues.

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Year Ended December 31,

(In millions) 2020 2019 % Change 2020 Currency Impact (1)

(In millions, except %s) 2021 2020 % Change 2021 Currency Impact (1)

2021 Constant Currency Revenues Constant Currency % Change (2)

Developed Markets $ 10,428.7 $ 8,510.9 23 % $ (185.1) $ 10,243.6 20 %

Greater China 259.9 214.6 21 % 1.5 261.4 22 %

Greater China 2,212.8 259.9 nm (9.3) 2,203.5 nm

JANZ 2,027.4 1,195.3 70 % (2.7) 2,024.7 69 %

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(2) The constant currency percentage change is derived by translating net sales or revenues for the current period at prior year comparative period exchange rates, and in doing so shows the percentage change from 2021 constant currency net sales or revenues to the corresponding amount in the prior year.

(3) For the year ended December 31, 2020, other revenues in Developed Markets, Greater China, JANZ, and Emerging Markets were approximately $94.0 million, $0.3 million, $10.5 million, and $21.3 million, respectively.

(3) For the year ended December 31, 2021, other revenues in Developed Markets, JANZ, and Emerging Markets were approximately $51.0 million, $1.5 million, and $20.2 million, respectively.

(4) Amounts exclude intersegment revenue which eliminates on a consolidated basis.

Total Revenues

For the year ended December 31, 2020, the Company reported total revenues of $11.95 billion, compared to $11.50 billion for the comparable prior year period, representing an increase of $445.5 million, or 4%.

For the year ended December 31, 2021, the Company reported total revenues of $17.89 billion, compared to $11.95 billion for the comparable prior year period, representing an increase of $5.94 billion, or 50%.

Total revenues include both net sales and other revenues from third parties.

Net sales for the year ended December 31, 2020 were $11.82 billion, compared to $11.37 billion for the comparable prior year period, representing an increase of $449.6 million, or 4%.

Net sales for the year ended December 31, 2021 were $17.81 billion, compared to $11.82 billion for the comparable prior year period, representing an increase of $5.99 billion, or 51%.

Other revenues for the year ended December 31, 2021 were $72.7 million, compared to $126.1 million for the comparable prior year period, a decrease of $53.4 million.

The increase in net sales was primarily the result of increases in net sales in the Developed Markets segment of 3%, the Emerging Markets segment of 8%, and the Greater China segment of 21%.

The Company’s net sales were unfavorably impacted by the effect of foreign currency translation, primarily reflecting changes in the U.S.

Dollar as compared to the currencies of subsidiaries in India and other emerging markets, partially offset by the favorable effect of foreign currency translation in countries within the EU.

The net unfavorable impact of foreign currency translation on current year net sales was approximately $28.0 million, or less than 1%.

On a constant currency basis, the increase in net sales was approximately $477.6 million, or 4% for the year ended December 31, 2020.

This increase was driven by net sales totaling $864.9 million from the Upjohn Business following the consummation of the Combination and new product sales, partially offset by a decrease in net sales from existing products as a result of lower pricing and volumes.

W e estimate that the COVID-19 pandemic negatively impacted our 2020 net sales by approximately 3%, primarily driven by lower retail pharmacy demand, lower non-COVID-19 related patient hospital visits and a lower number of in person meetings with prescribers and payors.

The increase in net sales was primarily driven by the incremental net sales from the Upjohn Business totaling $5.80 billion and the favorable impact of foreign currency translation, primarily reflecting changes in the U.S.

Dollar as compared to the currencies of subsidiaries in countries within the EU, of approximately $206.4 million, or 2%.

New product sales of $698.7 million were offset by a decrease in net sales from existing products as a result of lower pricing and volumes of $710.9 million.

New product sales include new products launched in 2021 and the carryover impact of new products, including business development, launched within the last twelve months.

We estimate that the COVID-19 pandemic positively impacted our 2021 net sales compared to the prior year by approximately 2%, primarily driven by a partial recovery of customer buying patterns in the current year.

From time to time, a limited number of our products may represent a significant portion of our net sales, gross profit and net earnings.

Generally, this is due to the timing of new product introductions and the amount, if any, of additional competition in the market.

Our top ten products in terms of net sales, in the aggregate, represented approximately 23% for the years ended December 31, 2020 and 2019, respectively.

This percentage may fluctuate based upon the timing of new product launches, seasonality and the timing of the discontinuation of products.

As a result of the Combination, we estimate that the percentage of our top products could change in future periods.

Our top ten products in terms of net sales, in the aggregate, represented approximately 33% and 23% for the years ended December 31, 2021 and 2020, respectively, with the year over year increase a result of the Combination.

This percentage may fluctuate based upon the timing of new product launches, seasonality and the impact of competition.

Net sales are derived from our four reporting segments:

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Developed Markets Segment

Net sales from Developed Markets increased by $270.9 million or 3% during the year ended December 31, 2020 when compared to the prior year.

Net sales from Developed Markets increased by $1.92 billion or 23% during the year ended December 31, 2021 when compared to the prior year.

Net sales within North America totaled approximately $4.59 billion and net sales within Europe totaled approximately $5.84 billion.

This increase was due primarily to new product sales, and net sales from the Upjohn Business following the consummation of the Combination of $317.5 million.

This increase was partially offset by lower volumes primarily driven by the EpiPen® Auto-Injector, and to a lesser extent, by lower pricing of existing products, driven by changes in the competitive environment, including for Levothyroxine Sodium.

Lower volumes of existing products were partially offset by increased Wixela TM Inhub TM volumes.

This increase was primarily the result of the incremental net sales from the Upjohn Business in the current year of $1.83 billion and new product sales, including the portfolio of thrombosis products in Europe acquired from Aspen in the fourth quarter of 2020.

This increase was partially offset by lower pricing and volumes on net sales of existing products, including Wixela® Inhub®, Perforomist®, Xulane®, and Miacalcin® within the U.S., due to additional competition.

Lower volumes were also due to the impact of product divestitures, including certain North American OTC products during the second quarter of 2021 and other products during 2020 as a result of the Combination.

The favorable impact of foreign currency translation on current period net sales was approximately $185.1 million, or 2%.

Constant currency net sales increased by approximately $198.5 million, or 2% when compared to the prior year.

Greater China Segment

Net sales from Greater China increased by $45.3 million or 21% for the year ended December 31, 2020 when compared to the prior year.

This increase was the result of net sales from the Upjohn Business following the consummation of the Combination of $226.5 million.

This was partially offset by lower net sales of existing products, driven by lower volumes, and to a lesser extent, lower pricing.

Lower volumes on net sales of existing products were negatively impacted by the competitive market conditions, including VBP, and COVID-19.

The unfavorable impact of foreign currency translation was approximately $1.5 million, or 1%.

Constant currency net sales increased by approximately $46.8 million, or 22% when compared to the prior year.

Net sales from JANZ increased by $2.8 million or less than 1% for the year ended December 31, 2020 when compared to the prior year.

This increase was the result of net sales from the Upjohn Business following the consummation of the Combination of $171.8 million, and to a lesser extent, new product sales, primarily in Australia.

These increases were partially offset by lower net sales of existing products, driven by lower volumes, and to a lesser extent, lower pricing.

Lower volumes on net sales of existing products were effected by the estimated negative impact of COVID-19, and the impact of the termination of the collaboration agreement with Pfizer in Japan.

As a result of the termination, and the repurchase of collaboration inventory, the Company reduced revenue by $86.5 million.

Lower pricing on net sales of existing products were driven by government price reductions in Japan and Australia.

Foreign currency translation had a favorable impact of approximately $4.8 million, or less than 1%.

Constant currency net sales decreased by approximately $2.0 million, or less than 1% when compared to the prior year.

Emerging Markets Segment

Net sales from Emerging Markets increased by $130.6 million or 8% for the year ended December 31, 2020 when compared to the prior year.

This increase was the result of net sales from the Upjohn Business following the consummation of the Combination of $149.1 million and new product sales, including Remdesivir in India and other emerging markets.

These increases were partially offset by lower net sales of existing products, driven by lower pricing.

Volumes on existing products increased primarily as a result of increases from the Company’s ARV franchise.

The increase in net sales was partially offset by the unfavorable impact of foreign currency translation of $103.7 million, or 6%.

Constant currency net sales increased by approximately $234.3 million, or 14%.

Cost of Sales and Gross Profit

Cost of sales increased from $7.60 billion from the year ended December 31, 2019 to $8.15 billion for the year ended December 31, 2020.

Cost of sales was primarily impacted by purchase accounting related amortization of acquired intangible assets and other special items, which are described further in the section titled Use of Non-GAAP Financial Measures .

Gross profit for the year ended December 31, 2020 was $3.80 billion and gross margins were 32%.

For the year ended December 31, 2019, gross profit was $3.90 billion and gross margins were 34%.

Gross margins were negatively impacted by the decline in gross profit from net sales of existing products, partially offset by net sales of new product sales, of approximately $380 million.

This decline in gross profit was primarily the result of lower pricing in the Developed Markets and lower net sales in Greater China and JANZ and includes the impacts of unfavorable competitive market conditions, COVID-19 and the termination of a collaboration agreement with Pfizer in Japan.

In addition, gross margins were negatively impacted by

approximately $182 million from higher restructuring and acquisition related costs, as well as additional costs due to COVID-19.

These unfavorable items were partially offset by gross profit from the Combination of approximately $223 million, and lower legacy business amortization and impairment charges compared to the prior year of approximately $238 million.

Adjusted gross margins were approximately 54% and 53% for the years ended December 31, 2020 and 2019, respectively.

A reconciliation between cost of sales, as reported under U.S.

GAAP, and adjusted cost of sales and adjusted gross margin for the year ended December 31, 2020 compared to the year ended December 31, 2019 is as follows:

(In millions) 2020 2019

GAAP cost of sales $ 8,149.3 $ 7,602.9

Purchase accounting amortization and other related items (1,933.6) (1,767.1)

Acquisition related items (16.9) (6.8)

Restructuring and related costs (207.7) (100.9)

Shared-based compensation expense (1.5) (1.1)

Other special items (438.1) (366.0)

Adjusted cost of sales $ 5,551.5 $ 5,361.0

Adjusted gross profit (a)

$ 6,394.5 $ 6,139.5

Adjusted gross margin (a)

(a) Adjusted gross profit is calculated as total revenues less adjusted cost of sales.

Adjusted gross margin is calculated as adjusted gross profit divided by total revenues.

Operating Expenses

Research & Development Expense

R&D expense for the year ended December 31, 2020 was $555.1 million, compared to $639.9 million for the prior year, a decrease of $84.8 million.

This decrease was primarily due to lower expenditures related to the reprioritization of global programs, and higher payments in the prior year related to licensing arrangements for products in development.

Partially offsetting this decrease was R&D expense incurred from the Combination of $22.4 million.

Selling, General & Administrative Expense

SG&A expense for the year ended December 31, 2020 was $3.34 billion, compared to $2.56 billion for the prior year, an increase of $781.0 million.

The increase was primarily due to an increase of approximately $587.5 million in Combination related costs.

These costs include approximately $200.9 million for advisory and consulting fees, $303.5 million related to the Company’s obligation to reimburse Pfizer for certain financing and transaction related costs under the BCA and SDA and approximately $69.3 million of employee related change in control and retention amounts.

Also contributing to the increase were costs related to the Upjohn Business incurred from the date of the Combination of $280.7 million, and approximately $111.2 million increase in restructuring costs due to the implementation of the 2020 restructuring program.

Partially offsetting these increases were lower selling and promotional expenses, including through our active management and certain lower expenses as a result of COVID-19.

Litigation Settlements and Other Contingencies, Net

During the year ended December 31, 2020, the Company recorded a net charge of $107.8 million for litigation settlements and other contingencies, net, compared to a net gain of $21.4 million in the prior year.

The following table includes the losses / (gains) recognized in litigation settlements and other contingencies, net during the year ended December 31, 2020 and 2019, respectively:

(In millions) 2020 2019

Respiratory delivery platform contingent consideration adjustment $ 73.1 $ (20.4)

Litigation settlements, net 34.7 (1.0)

Total litigation settlements and other contingencies, net $ 107.8 $ (21.4)

During the year ended December 31, 2020, the Company recorded a $73.1 million loss for fair value adjustments related to respiratory delivery platform contingent consideration.

Additionally, the Company recorded a net charge of approximately $34.7 million related to a number of litigation matters.

During the year ended December 31, 2019, the Company recognized a net gain in litigation settlements of approximately $1.0 million.

This net gain was primarily due to a favorable litigation settlement related to the Celgene Corporation matter of $62.0 million, which was partially offset by litigation related charges for settlements reached during the year.

Charges for litigation related matters included $18.0 million for the modafinil antitrust matter and $30.0 million for Mylan’s settlement with the SEC.

In addition, a $20.4 million gain was recognized for the reduction of contingent consideration related to the respiratory delivery platform.

Interest Expense

Interest expense for the year ended December 31, 2020 totaled $497.8 million, compared to $517.3 million for the year ended December 31, 2019, a decrease of $19.5 million.

The decrease is primarily due to lower average long-term debt balances during the current year, partially offset by the interest expense related to the additional debt assumed in the Combination of approximately $26.8 million.

Other Expense, Net

Other expense, net was $12.6 million for the year ended December 31, 2020, compared to other expense, net of $43.8 million for the prior year.

Other expense (income), net includes losses from equity affiliates, foreign exchange gains and losses, and interest and dividend income.

Other expense (income), net was comprised of the following for the year ended December 31, 2020 and 2019, respectively:

Year Ended December 31,

(In millions) 2020 2019

Losses from equity affiliates, primarily clean energy investments $ 48.4 $ 62.1

Foreign exchange losses/(gains), net 2.2 (9.4)

Other gains, net (38.1) (8.9)

Other expense, net $ 12.5 43.8

Income Tax (Benefit) Provision

For the year ended December 31, 2020, the Company recognized an income tax benefit of $51.3 million, compared to an income tax provision of $137.6 million for the comparable prior year, an increase in the benefit of $188.9 million.

The current year benefit recognized was the result of tax impacts related to the Combination.

These impacts include a benefit related to recording deferred tax assets for non-U.S.

entities that will be taxed in the both their local jurisdictions and U.S., offset by the loss of certain attributes in non-U.S.

jurisdictions and non-deductible transaction and employee related costs.

During the year ended December 31, 2019, we reached an agreement in principle with the IRS to resolve all issues relating to our positions on the EPD Business Acquisition.

As a result, the Company recorded a reserve of approximately $155.0 million as part of its

liability for uncertain tax positions, with a net impact to the income tax provision of approximately $144.9 million.

Also impacting the current and prior year income tax provision and benefit, respectively, was the changing mix of income earned in jurisdictions with differing tax rates.

2019 Compared to 2018

Year Ended December 31,

(In millions) 2019 2018 % Change 2019 Currency Impact (1)

2019 Constant Currency Revenues Constant Currency % Change (2)

Developed Markets $ 8,240.0 $ 8,289.1 (1) % $ 231.0 $ 8,471.0 2 %

Greater China 214.6 168.1 28 % 8.6 223.2 33 %

JANZ 1,192.5 1,132.8 5 % 27.8 1,220.3 8 %

Emerging Markets 1,723.2 1,678.7 3 % 55.0 1,778.2 6 %

Total net sales 11,370.3 11,268.7 1 % 322.4 11,692.7 4 %

Other revenues (3)

130.2 165.2 (21) % 2.1 132.3 (20) %

Consolidated total revenues (4)

$ 11,500.5 $ 11,433.9 1 % $ 324.5 $ 11,825.0 3 %

(1) Currency impact is shown as unfavorable (favorable).

(2) The constant currency percentage change is derived by translating net sales or revenues for the current period at prior year comparative period exchange rates, and in doing so shows the percentage change from 2019 constant currency net sales or revenues to the corresponding amount in the prior year.

(3) For the year ended December 31, 2019, other revenues in Developed Markets, Greater China, JANZ, and Emerging Markets were approximately $90.2 million, $0.5 million, $3.1 million, and $36.4 million, respectively.

(4) Amounts exclude intersegment revenue which eliminates on a consolidated basis.

Total Revenues

For the year ended December 31, 2019, the Company reported total revenues of $11.50 billion compared to $11.43 billion for the comparable prior year period, representing an increase of $66.6 million, or 1%.

Total revenues include both net sales and other revenues from third parties.

Net sales for the year ended December 31, 2019 were $11.37 billion, compared to $11.27 billion for the comparable prior year period, representing an increase of $101.6 million, or 1%.

Other revenues for the year ended December 31, 2019 were $130.2 million, compared to $165.2 million for the comparable prior year period, a decrease of $35.0 million.

The increase in net sales was the result of increases in net sales in the JANZ segment of 5%, the Greater China segment of 28%, and the Emerging Markets segment of 3%, partially offset by a decrease in the Developed Markets segment of 1%.

The Company’s net sales were unfavorably impacted by the effect of foreign currency translation, primarily reflecting changes in the U.S.

Dollar as compared to the currencies of subsidiaries in the EU, Australia and India.

The unfavorable impact of foreign currency translation on current year net sales was approximately $322.4 million, or 3%.

On a constant currency basis, the increase in net sales was approximately $424.0 million, or 4% for the year ended December 31, 2019.

This increase was driven by new product sales, partially offset by a decrease in net sales from existing products as a result of lower pricing and volumes.

From time to time, a limited number of our products may represent a significant portion of our net sales, gross profit and net earnings.

Generally, this is due to the timing of new product introductions and the amount, if any, of additional competition in the market.

Our top ten products in terms of net sales, in the aggregate, represented approximately 23% and 20% for the years ended December 31, 2019 and 2018, respectively.

This percentage may fluctuate based upon the timing of new product launches, seasonality and the timing of the discontinuation of products.

Net sales are derived from our four reporting segments:

Developed Markets, Greater China, JANZ and Emerging Markets.

Developed Markets Segment

Net sales from Developed Markets decreased by $49.1 million or 1% during the year ended December 31, 2019 when compared to the prior year.

Net sales within North America totaled approximately $4.2 billion and net sales within Europe totaled approximately $4.1 billion.

New product sales, including the Wixela TM Inhub TM , Fulphila® (biosimilar to Neulasta®) and YUPELRI TM , were partially offset by lower net sales from existing products due to lower volumes and pricing driven by changes in the competitive environment and portfolio rationalization.

In addition, net sales were negatively impacted by the unfavorable impact of foreign currency translation of $231.0 million, or 3%.

Constant currency net sales increased by approximately $181.9 million, or 2% when compared to the prior year.

Constant currency net sales increased by approximately $1.73 billion, or 20% when compared to the prior year.

Greater China Segment

Net sales from Greater China increased by $46.5 million or 28% for the year ended December 31, 2019 when compared to the prior year.

This increase was primarily the result of higher net sales from existing products, primarily driven by higher volumes, and to a lesser extent, favorable pricing and new product sales.

These increases were partially offset by the unfavorable impact of foreign currency translation of $8.6 million, or 5%.

Constant currency net sales increased by approximately $55.1 million, or 33% when compared to the prior year.

Net sales from Greater China increased by $1.95 billion for the year ended December 31, 2021 when compared to the prior year.

This increase was primarily the result of the incremental net sales from the Upjohn Business of $1.93 billion.

The favorable impact of foreign currency translation was approximately $9.3 million or 4%.

Constant currency net sales increased by approximately $1.94 billion when compared to the prior year.

Net sales from JANZ increased by $832.1 million or 70% for the year ended December 31, 2021 when compared to the prior year.

This increase was primarily the result of higher net sales from existing products and new product sales.

The increase to net sales from existing products was driven by higher volumes and was partially offset by unfavorable pricing.

New products sales was primarily due to new product sales in Australia.

These increases were partially offset by the unfavorable impact of foreign currency translation of $27.8 million, or 3%.

This increase was primarily the result of the incremental net sales from the Upjohn Business of $666.6 million, and higher net sales of existing products driven by higher volumes primarily related to Amitiza® and Creon®, as well as the impact of the termination of the collaboration arrangement with Pfizer in the prior year in Japan.

These increases were partially offset by lower pricing driven by government price reductions and product competition.

Foreign currency translation had a favorable impact of approximately $2.7 million, or less than 1%.

Constant currency net sales increased by approximately $829.4 million, or 69% when compared to the prior year.

Emerging Markets Segment

Net sales from Emerging Markets increased by $44.5 million or 3% for the year ended December 31, 2019 when compared to the prior year.

This increase was primarily the result of higher volumes of existing products and, to a lesser extent, new product sales.

Volumes of existing products increased primarily due to increases in the Company’s ARV franchise and certain emerging markets.

The increase in net sales as a result of new products was primarily due to new product sales in certain emerging markets and from the Company’s ARV franchise.

These increases were partially offset by lower pricing on existing products and the unfavorable impact of foreign currency translation.

Overall, net sales from Emerging Markets were unfavorably impacted by the effect of foreign currency translation of approximately $55.0 million, or 3%.

Constant currency net sales increased by approximately $99.5 million, or 6%.

Net sales from Emerging Markets increased by $1.29 billion or 70% for the year ended December 31, 2021 when compared to the prior year.

This increase was primarily the result of the incremental net sales from the Upjohn Business of $1.37 billion and COVID-19 related product sales in India, primarily remdesivir and ambisome.

These increases were partially offset by lower volumes and, to a lesser extent, pricing as a result of customer purchasing patterns and competitive market conditions, including for ARV products.

The increase in net sales was partially offset by the favorable impact of foreign currency translation of $9.3 million, or less than 1%.

Constant currency net sales increased by approximately $1.28 billion, or 69%.

Cost of Sales and Gross Profit

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Gross profit for the year ended December 31, 2019 was $3.90 billion and gross margins were 34%.

For the year ended December 31, 2018, gross profit was $4.00 billion and gross margins were 35%.

Gross margins were negatively impacted by the decline in sales of existing products by approximately 550 basis points.

The decline in sales of existing products was primarily in North America and includes the impacts of product rationalization.

Partially offsetting this impact, gross margins were positively impacted by approximately 500 basis points due to new product introductions primarily in North America.

Adjusted gross margins were approximately 53% and 54% for the years ended December 31, 2019 and 2018, respectively.

Adjusted gross margins were negatively impacted by lower gross profit from sales of existing products partially offset by gross margins on new product introductions primarily in North America.

Additional incremental cost of sales from the Upjohn Business, including the impact of amortization expense, was $3.57 billion for the year ended December 31, 2021.

This includes incremental amortization expense of $2.01 billion primarily for purchase accounting related amortization of intangible assets and the fair value step-up of acquired inventory.

Gross profit from net sales of existing products was impacted by lower pricing and to a lesser extent, lower volumes.

Gross margins were 31% and 32% for the years ended December 31, 2021 and 2020, respectively.

Adjusted gross margins were approximately 59% and 54% for the years ended December 31, 2021 and 2020, respectively, with the year-over-year increase driven by the impact of the Combination.

A reconciliation between cost of sales, as reported under U.S.

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Year Ended December 31,

(In millions) 2019 2018

(In millions, except %s) 2021 2020

GAAP cost of sales $ 12,310.8 $ 8,149.3

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Restructuring and related costs (534.7) (207.7)

Shared-based compensation expense (1.1) —

Share-based compensation expense (2.3) (1.5)

Other special items (333.0) (438.1)

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Research & Development Expense

R&D expense for the year ended December 31, 2019 was $639.9 million, compared to $704.5 million for the prior year, a decrease of $64.6 million.

This decrease was primarily due to lower expenditures related to the reprioritization of global programs and lower restructuring related costs.

R&D expense for the year ended December 31, 2021 was $751.1 million, compared to $555.1 million for the prior year, an increase of $196.0 million.

This increase was primarily due to additional incremental costs associated with the Upjohn Business of $81.7 million, higher expenses related to licensing arrangements for products in development, and increased costs for inventory validation batches for certain products under development.

Selling, General & Administrative Expense

SG&A expense for the year ended December 31, 2019 was $2.56 billion, compared to $2.44 billion for the prior year, an increase of $122.6 million.

The increase was primarily due to an increase of approximately $82.5 million for consulting fees and other expenses primarily related to the Combination in addition to increased investment in selling and marketing activities.

Also contributing to the increase was higher share-based compensation expense of approximately $60.7 million as a result of the reversal of all of the cumulative expense related to certain performance-based awards totaling $70.6 million in the prior year.

Partially offsetting these increases was bad debt expense of approximately $26.5 million incurred in the prior year related to a special business interruption event for one customer and $20.0 million of compensation expense for an additional discretionary bonus for a certain group of employees in the prior year.

None of the employees who received the 2018 discretionary bonus were named executive officers.

SG&A expense for the year ended December 31, 2021 was $4.53 billion, compared to $3.34 billion for the prior year, an increase of $1.18 billion.

The increase was primarily due to additional incremental costs associated with the Upjohn Business of $1.21 billion and an increase of approximately $236.4 million in restructuring costs due to the implementation of the 2020 restructuring program.

Partially offsetting these increases were lower selling and promotional expenses, including through our active management related to synergies and certain lower expenses as a result of COVID-19.

In addition, the Company incurred lower acquisition related costs of approximately $386.9 million, as the prior year costs included approximately $200.9 million for advisory and consulting fees related to the closing of the Combination, $303.5 million related to the Company’s obligation to reimburse Pfizer for certain financing and transaction related costs under the BCA and SDA and approximately $69.3 million of employee related to change in control and retention amounts.

Litigation Settlements and Other Contingencies, Net

During the year ended December 31, 2019, the Company recorded a net gain of $21.4 million for litigation settlements and other contingencies, net, compared to $49.5 million in the prior year.

The following table includes the (gains) / losses recognized in litigation settlements and other contingencies, net during the year ended December 31, 2019 and 2018, respectively:

The following table includes the losses recognized in litigation settlements and other contingencies, net during the years ended December 31, 2021 and 2020, respectively:

Year Ended December 31,

(In millions) 2021 2020

Respiratory delivery platform contingent consideration adjustment $ (20.4) $ (44.0)

Jai Pharma Limited and other contingent consideration adjustments — 2.5

Contingent consideration adjustment (primarily related to respiratory delivery platform) $ 50.3 $ 73.1

Litigation settlements, net 278.9 34.7

Total litigation settlements and other contingencies, net $ 329.2 $ 107.8

During the year ended December 31, 2019, the Company recognized a net gain in litigation settlements of approximately $1.0 million.

Charges for litigation related matters included $18.0 million for the modafinil antitrust matter and $30.0 million for Mylan’s settlement with the SEC.

In addition, a $20.4 million gain was recognized for the reduction of contingent consideration related to the acquisition of the exclusive worldwide rights to develop, manufacture and commercialize a generic equivalent to GlaxoSmithKline’s Advair® Diskus incorporating Pfizer’s respiratory delivery platform.

Litigation settlements for the year ended December 31, 2018 consisted primarily of a gain of approximately $22.9 million related to a favorable litigation settlement, which was partially offset by litigation related charges of approximately $14.9 million related to an antitrust and a patent infringement matter.

In addition, a $44.0 million gain was recognized for the change in value of contingent consideration related to the respiratory delivery platform, which was partially offset by losses incurred on other contingent consideration.

Litigation settlements in 2021 include a $264.0 million charge for the EpiPen® related settlement.

Interest Expense

Interest expense for the year ended December 31, 2019 totaled $517.3 million, compared to $542.3 million for the year ended December 31, 2018, a decrease of $25.0 million.

The decrease is primarily due to lower average long-term debt balances during the current year.

Interest expense for the year ended December 31, 2021 totaled $636.2 million, compared to $497.8 million for the year ended December 31, 2020, an increase of $138.4 million.

The increase is primarily due to additional incremental interest expense related to the debt assumed in the Combination of approximately $247.6 million, partially offset by amortization of debt premium of $60.1 million and by the impact of debt repayments in 2021.

Other Expense, Net

Other expense, net, was $43.8 million for the year ended December 31, 2019, compared to other expense, net of $64.9 million for the prior year.

Other expense (income), net includes losses from equity affiliates, foreign exchange gains and losses, and interest and dividend income.

Other expense (income), net was comprised of the following for the year ended December 31, 2019 and 2018, respectively:

Other expense (income), net includes losses from equity affiliates, foreign exchange gains and losses, expense (income) related to post-employment benefit plans and interest and dividend income.

Other expense (income), net was comprised of the following for the years ended December 31, 2021 and 2020, respectively:

Year Ended December 31,

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Losses from equity affiliates, primarily clean energy investments $ 61.9 $ 48.4

Foreign exchange gains, net (9.4) (20.0)

Other (gains)/losses, net (8.9) 6.2

Foreign exchange losses, net 2.1 2.2

Other gains, net (69.8) (38.0)

Other expense, net $ (5.8) 12.6

Income Tax Provision (Benefit)

For the year ended December 31, 2019, the Company recognized an income tax provision of $137.6 million, compared to an income tax benefit of $54.1 million for the comparable prior year, an increase of $191.7 million.

During the year ended December 31, 2019, we reached an agreement in principle with the IRS to resolve all issues relating to our positions on the EPD Business Acquisition.

As a result, the Company recorded a reserve of approximately $155.0 million as part of its liability for

uncertain tax positions, with a net impact to the income tax provision of approximately $144.9 million.

The tax provision for the year ended December 31, 2018 included a net benefit to the income tax provision of approximately $53.0 million as a result of the federal and state audits and settlements and expirations of certain state, federal, and foreign statutes of limitations.

Partially offsetting this benefit was an increase in the reserve for uncertain tax benefits of approximately $18.0 million for certain other matters.

Also impacting the current and prior year income tax provision and benefit, respectively, was the changing mix of income earned in jurisdictions with differing tax rates.

Income Tax (Benefit) Provision

For the year ended December 31, 2021, the Company recognized an income tax provision of $604.7 million, compared to an income tax benefit of $51.3 million for the comparable prior year, a change in the provision of $656.0 million.

The income tax provision for the year ended December 31, 2021 was negatively impacted by the tax rates applied to the reversal of intercompany profit in inventory reserve which was recorded on the opening balance sheet as part of the Combination.

This reserve eliminates the profit in inventory related to intercompany transactions and changes to this reserve occur as products are sold to third parties.

During the year ended December 31, 2020, the Company recognized a net charge as a result of adjustments to reserves for uncertain tax positions, partially offset by changes in the assessment of the realizability of deferred tax assets.

Also impacting the current year income tax expense for both periods was the changing mix of income earned in jurisdictions with differing tax rates.

2020 Compared to 2019

Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 are not included in this Form 10-K, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Use of Non-GAAP Financial Measures

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The financial performance of the Company is measured by senior management, in part, using adjusted metrics as described below, along with other performance metrics.

The Company’s use of such non-GAAP measures is governed by an adjusted reporting policy maintained by the Company and such non-GAAP measures are reviewed in detail with the Audit Committee of the Board of Directors.

Adjusted Cost of Sales and Adjusted Gross Margin

We use the non-GAAP financial measure “adjusted cost of sales” and the corresponding non-GAAP financial measure “adjusted gross margin.” The principal items excluded from adjusted cost of sales include restructuring, acquisition related and other special items and purchase accounting amortization and other related items, which are described in greater detail below.

We use the non-GAAP financial measure “adjusted cost of sales” and the corresponding non-GAAP financial measure “adjusted gross margin.” The principal items excluded from adjusted cost of sales include restructuring, acquisition related and other special items and purchase accounting related amortization, which are described in greater detail below.

Adjusted Net Earnings

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Management believes that, primarily due to acquisition activity and other significant events, an evaluation of the Company’s ongoing operations (and comparisons of its current operations with historical and future operations) would be difficult if the disclosure of its financial results were limited to financial measures prepared only in accordance with U.S.

Management believes that adjusted net earnings is an important internal financial metric related to the ongoing operating performance of the Company, and are therefore useful to investors and that their understanding of our performance is enhanced by this measure.

Management believes that adjusted net earnings is an important internal financial metric related to the ongoing operating performance of the Company, and is therefore useful to investors and that their understanding of our performance is enhanced by this measure.

Actual internal and forecasted operating results and annual budgets used by management include adjusted net earnings.

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EBITDA and adjusted EBITDA are non-GAAP financial measures that the Company believes are appropriate to provide additional information to investors to demonstrate the Company’s ability to comply with financial debt covenants and assess the Company’s ability to incur additional indebtedness.

The Company also believes that adjusted EBITDA better focuses management on the Company’s underlying operational results and true business performance and, beginning in 2020, is used, in part, for management’s incentive compensation.

The Company also believes that adjusted EBITDA better focuses management on the Company’s underlying operational results and true business performance and, is used, in part, for management’s incentive compensation.

We calculate EBITDA as U.S.

GAAP net earnings (loss) adjusted for net contribution attributable to equity method investments, income tax provision (benefit), interest expense and depreciation and amortization.

EBITDA is further adjusted for share-based compensation expense, litigation settlements and other contingencies, net, and restructuring and other special items to determine “adjusted EBITDA”.

EBITDA is further adjusted for share-based compensation expense, litigation settlements and other contingencies, net, and restructuring, acquisition related and other special items to determine adjusted EBITDA.

These adjustments are generally permitted under our credit agreement in calculating adjusted EBITDA for determining compliance with our debt covenants.

The significant items excluded from adjusted cost of sales, adjusted net earnings, EBITDA and adjusted EBITDA include:

The significant items excluded from adjusted cost of sales, adjusted net earnings, and adjusted EBITDA include:

Purchase Accounting Amortization and Other Related Items

The ongoing impact of certain amounts recorded in connection with acquisitions of both businesses and assets is excluded from adjusted cost of sales, adjusted net earnings, EBITDA and adjusted EBITDA.

The ongoing impact of certain amounts recorded in connection with acquisitions of both businesses and assets is excluded from adjusted cost of sales, adjusted net earnings, and adjusted EBITDA.

These amounts include the amortization of intangible assets, inventory step-up, property, plant and equipment step-up, and intangible asset impairment charges, including for in-process research and development.

For the acquisition of businesses accounted for under the provisions of the Financial Accounting Standards Board Accounting Standards Codification Topic 805, these purchase accounting impacts are excluded regardless of the financing method used for the acquisitions, including the use of cash, long-term debt, the issuance of common stock, contingent consideration or any combination thereof.

For the acquisition of businesses accounted for under the provisions of ASC 805, Business Combinations , these purchase accounting impacts are excluded regardless of the financing method used for the acquisitions, including the use of cash, long-term debt, the issuance of common stock, contingent consideration or any combination thereof.

Upfront and Milestone-Related R&D Expenses

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• Certain costs to further develop and optimize our global enterprise resource planning systems, operations and supply chain;

• The impact of changes related to uncertain tax positions is excluded from adjusted net earnings.

• The impact of changes related to uncertain tax positions and certain impacts related to the Combination are excluded from adjusted net earnings.

In addition, tax adjustments to adjusted earnings are recorded to present items on an after-tax basis consistent with the presentation of adjusted net earnings.

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Item 8 of this Form 10-K are generally excluded from adjusted net earnings and adjusted EBITDA.

Normal, ongoing defense costs incurred by the Company in the normal course of our business are not excluded.

Normal, ongoing defense costs of the Company made in the normal course of our business are not excluded.

Reconciliation of U.S.

GAAP Net Earnings to Adjusted Net Earnings

GAAP Net (Loss) Earnings to Adjusted Net Earnings

A reconciliation between net (loss) earnings as reported under U.S.

1 unchanged sentence

Year Ended December 31,

(In millions, except per share amounts) 2020 2019 2018

(In millions) 2021 2020 2019

GAAP net (loss) earnings $ (1,269.1) $ (669.9) $ 16.8

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Litigation settlements and other contingencies, net 329.2 107.8 (21.4)

Interest expense (primarily clean energy investment financing and accretion of contingent consideration) 12.6 27.2 39.7

Interest expense (primarily amortization of premiums and discounts on long term debt) (53.8) 12.6 27.2

Clean energy investments pre-tax loss 61.9 48.4 62.1

3 unchanged sentences

899.4 323.1 104.6

Share-based compensation expense (d)

Share-based compensation expense 111.2 79.2 56.8

Other special items included in:

Cost of sales (e)

Cost of sales (d)

333.0 438.1 366.0

Research and development expense (f)

Research and development expense (e)

83.2 47.2 121.1

1 unchanged sentence

Other expense, net (8.0) (16.8) 10.7

Tax effect of the above items and other income tax related items (589.7) (380.1) (564.5)

Tax effect of the above items and other income tax related items (f)

(343.0) (589.7) (380.1)

Adjusted net earnings $ 4,467.8 $ 2,371.8 $ 2,280.5

Significant items for the year ended December 31, 2021 include the following:

(a ) Includes amortization of the purchase accounting inventory fair value adjustment related to the Combination totaling approximately $238.2 million.

(a ) I ncludes amortization of the purchase accounting inventory fair value adjustment related to the Combination totaling approximately $1.19 billion.

(b) Acquisition related costs consist primarily of transaction costs including legal and consulting fees and integration activities.

Refer to SG&A discussion within the section “2020 Compared to 2019”.

(c) For the year ended December 31, 2020, charges of approximately $207.7 million are included in cost of sales, approximately $0.4 million is included in R&D, and approximately $115.0 million is included in SG&A.

(c) For the year ended December 31, 2021, charges of approximately $534.7 million are included in cost of sales, approximately $13.3 million are included in R&D, and approximately $351.5 million are included in SG&A.

Refer to Note 17 Restructuring included in Part II.

Item 8 of this Form 10-K for additional information.

(d) Beginning in 2019, share-based compensation expense is excluded from adjusted net earnings.

The full year impact for the year ended December 31, 2018 was insignificant.

As such, the 2018 amount was not added back to U.S.

GAAP net earnings.

(e) Costs incurred during the year ended December 31, 2020 includes incremental manufacturing variances and site remediation activities as a result of the activities at the Company’s Morgantown plant of approximately $238.4 million and incremental manufacturing variances and special bonus incurred as a result of the COVID-19 pandemic of $67.7 million.

(f) Adjustments primarily relate to non-refundable payments related to development collaboration agreements.

(d) Costs incurred during the year ended December 31, 2021 include incremental manufacturing variances and site remediation activities as a result of the activities at the Company’s Morgantown plant of approximately $123.4 million, and at other plants in the 2020 restructuring program of approximately $143.3 million.

(e) Adjustments primarily relate to non-refundable payments related to development partner agreements.

(f) Adjusted for changes for uncertain tax positions and for certain impacts of the Combination.

Reconciliation of U.S.

GAAP Net Earnings to EBITDA and Adjusted EBITDA

GAAP Net (Loss) Earnings to EBITDA and Adjusted EBITDA

Below is a reconciliation of U.S.

GAAP net (loss) earnings to EBITDA and adjusted EBITDA for the twelve months ended December 31, 2020 compared to the prior year period:

GAAP net (loss) earnings to EBITDA and adjusted EBITDA for the year ended December 31, 2021 compared to the prior year periods:

Year Ended December 31,

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Net contribution attributable to equity method investments 61.9 48.4 62.1

Income tax (benefit) provision (51.3) 137.6 (54.1)

Income tax provision (benefit) 604.7 (51.3) 137.6

Interest expense (a)

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Add / (deduct) adjustments:

Share-based compensation expense (income) 79.2 56.8 (3.3)

Share-based compensation expense 111.2 79.2 56.8

Litigation settlements and other contingencies, net 329.2 107.8 (21.4)

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Adjusted EBITDA $ 6,426.1 $ 3,654.1 $ 3,539.7

(a) Includes clean energy investment financing and accretion of contingent consideration.

(a) Includes amortization of premiums and discounts on long-term debt.

(b) Includes purchase accounting related amortization.

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Our primary source of liquidity is net cash provided by operating activities, which was $3.02 billion for the year ended December 31, 2021.

We believe that net cash provided by operating activities and available liquidity will continue to allow us to meet our needs for working capital, capital expenditures and interest and principal payments on debt obligations.

Nevertheless, our ability to satisfy our working capital requirements and debt service obligations, or fund planned capital expenditures, will substantially depend upon our future operating performance (which will be affected by prevailing economic conditions), and financial, business and other factors, some of which are beyond our control.

We believe that net cash provided by operating activities and available liquidity will continue to allow us to meet our needs for working capital, capital expenditures, interest and principal payments on debt obligations, and dividend payments.

Nevertheless, our ability to satisfy our working capital requirements and debt service obligations, fund planned capital expenditures, or dividend payments, will substantially depend upon our future operating performance (which will be affected by prevailing economic conditions), and financial, business and other factors, some of which are beyond our control.

Operating Activities

Net cash provided by operating activities decreased by $571.9 million to $1.23 billion for the year ended December 31, 2020, as compared to net cash provided by operating activities of $1.80 billion for the year ended December 31, 2019.

Net cash provided by operating activities increased by $1.79 billion to $3.02 billion for the year ended December 31, 2021, as compared to net cash provided by operating activities of $1.23 billion for the year ended December 31, 2020.

Net cash provided by operating activities is derived from net (loss) earnings adjusted for non-cash operating items, gains and losses attributed to investing and financing activities and changes in operating assets and liabilities resulting from timing differences between the receipts and payments of cash, including changes in cash primarily reflecting the timing of cash collections from customers, payments to vendors and employees and tax payments in the ordinary course of business.

The net decrease in net cash provided by operating activities was principally due to the following:

• a decrease in net earnings for the year ended December 31, 2020 of $686.7 million, principally as a result of a decrease in earnings from operations as a result of Combination and restructuring related expenses;

• a net increase of $229.0 million in the amount of cash used through changes in inventory balances;

• a net decrease in the amount of cash provided by changes in income taxes of $54.3 million as a result of the level and timing of estimated tax payments made during the current period.

These items were partially offset by the following:

• a net increase in non-cash expenses of $303.3 million;

• a net increase in the amount of cash provided by changes in accounts receivable of $98.7 million, reflecting the timing of sales and cash collections including the impact of factoring arrangements.

The increase in net cash provided by operating activities was principally due to higher operating earnings after adjusting for non-cash operating items.

Non-cash operating items increased significantly during the year reflecting the impacts of purchase accounting related to the Combination and non-cash charges related to the ongoing restructuring initiatives.

In addition, net cash provided by operating activities was unfavorably impacted in 2021 by changes in operating assets and liabilities.

Investing Activities

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In 2021, significant items in investing activities included the following:

• cash received from acquisitions, net totaling approximately $415.8 million primarily related to the cash received as part of the Combination;

• payments for product rights and other, net totaling approximately $438.2 million, primarily related to the acquisition of Aspen’s thrombosis product portfolio in Europe along with other acquisitions of intellectual property rights and marketing authorizations;

• proceeds from the sale of assets of $20.0 million;

• cash received from acquisitions, net totaling approximately $277.0 million related to additional target cash balances received from Pfizer subsequent to the closing of the Combination;

• proceeds from the sale of assets of $96.7 million, primarily related to a group of OTC products in the U.S.;

• capital expenditures, primarily for equipment and facilities, totaling approximately $457.2 million.

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In 2020, significant items in investing activities included the following:

• cash paid for acquisitions, net totaling approximately $148.7 million, primarily related to payments to Novartis for the purchase of the worldwide rights to the TOBI Podhaler® and TOBI® solution global cystic fibrosis products;

• payments for product rights and other, net totaling approximately $192.8 million, primarily related to the acquisitions of intellectual property rights and marketing authorizations;

• proceeds from the sale of assets of $28.0 million;

• cash received from acquisitions, net totaling approximately $415.8 million primarily related to the cash received as part of the Combination;

• capital expenditures, primarily for equipment and facilities, totaling approximately $243.0 million.

Financing Activities

Net cash used in financing activities was $605.7 million for the year ended December 31, 2020, as compared to net cash used in financing activities of $1.17 billion for the year ended December 31, 2019, a decrease of $563.3 million.

Net cash used in financing activities was $3.01 billion for the year ended December 31, 2021, as compared to net cash used in financing activities of $605.7 million for the year ended December 31, 2020, an increase of $2.41 billion.

In 2021, significant items in financing activities included the following:

• net short-term borrowings of $1.10 billion;

• long-term borrowings under the Revolving Facility of $983.0 million;

• long-term debt payments of approximately $2.48 billion, consisting primarily of repayment at maturity of €500.0 million principal amount of Floating Rate Euro Notes due May 2020, repayment at maturity of €750.0 million principal amount of Euro Senior Notes due November 2020, repayment of $983.0 million of borrowings under the Revolving Facility and repayment at maturity of $50.0 million principal amount of Senior Notes due 2020;

• non-contingent payments for product rights totaling approximately $143.3 million primarily related to the acquisitions of intellectual property rights and marketing authorizations in prior periods;

• payments totaling approximately $48.5 million (of the $111.8 million) in profit share and milestone payments related to the respiratory delivery platform contingent consideration.

The remaining payments related to the respiratory delivery platform contingent consideration are included as a component of other operating assets and liabilities, net within net cash from operating activities.

• long-term debt payments of approximately $4.20 billion, consisting of the redemption of $2.25 billion of the 3.150% Senior Notes due 2021, repayment of $1.35 billion of borrowings under the 2020 Revolving Facility and the 2021 Revolving Facility, and repayment of $600.0 million of the USD Term Loan;

• long-term borrowings of $1.71 billion, consisting of borrowings of $1.35 billion under the 2020 Revolving Facility and the 2021 Revolving Facility, and borrowings of $360.0 million under the YEN Term Loan;

• net short-term borrowings of $392.1 million;

• deferred non-contingent payments for product rights totaling approximately $456.0 million primarily related to the acquisition of Aspen’s thrombosis product portfolio in Europe;

• cash dividends paid of $399.0 million.

In 2020, significant items in financing activities included the following:

• long-term debt payments of approximately $1.11 billion consisting primarily of the repayment at maturity of $550.0 million principal amount of the 2.500% Senior Notes due 2019, the partial redemption of $450.0 million principal amount of the 3.750% Senior Notes due 2020 and the repayment of the remaining approximately $100.0 million balance of the 2016 Term Facility;

• payments totaling approximately $60.3 million (of the total $99.0 million) in milestone payments related to Pfizer’s respiratory delivery platform contingent consideration.

• net short-term and long-term borrowings of $2.08 billion;

• long-term debt payments of approximately $2.48 billion, consisting primarily of repayment at maturity of €500.0 million principal amount of Floating Rate Euro Notes due May 2020, repayment at maturity of €750.0 million principal amount of Euro Senior Notes due November 2020, repayment of $983.0 million of borrowings under the 2020 Revolving Facility and repayment at maturity of $50.0 million principal amount of Senior Notes due 2020;

• payments totaling approximately $48.5 million (of the $111.8 million) in profit share payments related to the respiratory delivery platform contingent consideration.

Refer to the consolidated statements of cash flows in Part II.

Item 8 of this Form 10-K for additional details on other significant sources and uses of cash during the years ended December 31, 2021 and 2020.

Capital Resources

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The Company anticipates having sufficient liquidity, including existing borrowing capacity under the 2021 Revolving Facility, Commercial Paper Program and the Receivables Facility and the Note Securitization Facility combined with cash to be generated from operations, to fund foreseeable cash needs without requiring the repatriation of non-U.S.

The Company has access to $4.00 billion under the Revolving Facility which matures in November 2023.

In September 2021, Viatris filed a registration statement with the SEC with respect to an offer to exchange up to $7.45 billion aggregate principal amount of Unregistered Upjohn U.S Dollar Notes with Registered Upjohn Notes in the same aggregate principal amount and with terms substantially identical in all material respects, which was declared effective on September 28, 2021.

The exchange offer expired on October 28, 2021 and settled on October 29, 2021.

More than 99.9% of the aggregate principal amount of the Unregistered Upjohn U.S.

Dollar Notes were exchanged for Registered Upjohn Notes.

In July 2021, Viatris entered into (i) the YEN Term Loan Facility and (ii) the 2021 Revolving Facility with various syndicates of banks.

The 2021 Revolving Facility amended and restated the 2020 Revolving Facility and proceeds from the 2021 Revolving Facility were used to repay outstanding obligations under the 2020 Revolving Facility and the 2020 Revolving Facility was terminated.

Proceeds from the YEN Term Loan Facility and the 2021 Revolving Facility were also used to repay the USD Term Loan Facility in full and the USD Term Loan Facility was terminated.

The 2021 Revolving Facility and the YEN Term Loan Facility have substantially identical terms to the 2020 Revolving Facility and USD Term Loan Facility, respectively, with the following exceptions:

1) the maturity of both the YEN Term Loan Facility and the 2021 Revolving Facility is July 2026, 2) the pricing was adjusted to reflect current market prices (which were generally more favorable) and 3) the maximum leverage ratio as of the end of any quarter was set at 4.25 to 1.00 for each quarter ending after June 30, 2021 through and including June 30, 2022, 4.0 to 1.00 for each quarter ending after June 30, 2022 through and including December 31, 2022 and 3.75 to 1.00 thereafter, except in circumstances as defined in the related credit agreement.

The Company has access to $4.0 billion under the 2021 Revolving Facility which matures in July 2026.

Up to $1.65 billion of the 2021 Revolving Facility may be used to support borrowings under our Commercial Paper Program.

In addition to the Revolving Facility, Mylan Pharmaceuticals Inc., a wholly owned subsidiary of the Company, has access to $400 million under the Receivables Facility, which expires in April 2022.

As of December 31, 2021, the Company had $1.17 billion outstanding under the Commercial Paper Program and did not have any borrowings outstanding under the 2021 Revolving Facility.

In addition to the 2021 Revolving Facility, MPI, a wholly owned subsidiary of the Company, has access to $400 million under the Receivables Facility, which expires in April 2022.

As of December 31, 2021, the Company had $318.5 million outstanding under the Receivables Facility.

In August 2020, the Company entered into the Note Securitization Facility for borrowings up to $200 million.

In August 2020, the Company entered into the Note Securitization Facility for borrowings up to $200 million, which was amended on July 1, 2021 to extend the term to August 2022.

As of December 31, 2021, the Company did not have any borrowings outstanding under the Note Securitization Facility.

Under the terms of each of the Receivables Facility and Note Securitization Facility, certain of our accounts receivable secure the amounts borrowed and cannot be used to pay our other debts or liabilities.

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We derecognized $29.6 million and $153.0 million of accounts receivable as of December 31, 2021 and 2020 under these factoring arrangements, respectively.

At December 31, 2020, our long-term debt, including the current portion, totaled $24.69 billion, as compared to $12.67 billion at December 31, 2019.

Total long-term debt is calculated net of deferred financing fees which were $49.2 million and $60.5 million at December 31, 2020 and December 31, 2019, respectively.

For additional information regarding our debt and debt agreements refer to Note 10 Debt in Part II.

We are continuously evaluating the potential acquisition of products, as well as companies, as a strategic part of our future growth.

Consequently, we may utilize current cash reserves or incur additional indebtedness to finance any such acquisitions, which could impact future liquidity.

Also, on an ongoing basis, we review our operations including the evaluation of potential divestitures of products and businesses as part of our future strategy.

Any divestitures could impact future liquidity.

In addition, we plan to continue to explore various other ways to create, enhance or otherwise unlock the value of the Company’s unique global platform in order to create shareholder value.

For information regarding our dividends paid and declared, refer to Note 2 Summary of Significant Accounting Policies in Part II.

Item 8 of this Form 10-K.

Long-term Debt Maturity

Mandatory minimum repayments remaining on the outstanding notional amount of long-term debt at December 31, 2020 was as follows for each of the periods ending December 31:

The Company’s Revolving Facility contains customary affirmative covenants for facilities of this type, including among others, covenants pertaining to the delivery of financial statements, notices of default and certain material events, maintenance of corporate existence and rights, property, and insurance and compliance with laws, as well as customary negative covenants for facilities of this type, including limitations on the incurrence of subsidiary indebtedness, liens, mergers and certain other fundamental changes, investments and loans, acquisitions, transactions with affiliates, payments of dividends and other restricted payments and changes in our lines of business.

The Revolving Facility contains a maximum consolidated leverage ratio financial covenant requiring maintenance of a maximum ratio of consolidated total indebtedness as of the end of any quarter to consolidated EBITDA for the trailing four quarters as defined in the related credit agreement (“maximum leverage ratio”).

The maximum leverage ratio is 4.25 to 1.00 for the first four full fiscal quarters following the close of the Combination and 3.75 to 1.00 thereafter, except in circumstances as defined in the related credit agreement.

The Company is in compliance at December 31, 2020 and expects to remain in compliance for the next twelve months.

For information regarding our debt agreements and mandatory minimum repayments remaining on the outstanding notional amount of long-term debt at December 31, 2021, refer to Note 10 Debt in Part II.

Item 8 of this Form 10-K.

The YEN Term Loan Facility and the 2021 Revolving Facility contain customary affirmative covenants for facilities of this type, including among others, covenants pertaining to the delivery of financial statements, notices of default and certain material events, maintenance of corporate existence and rights, property, and insurance and compliance with laws, as well as customary negative covenants for facilities of this type, including limitations on the incurrence of subsidiary indebtedness, liens, mergers and certain other fundamental changes, investments and loans, acquisitions, transactions with affiliates, payments of dividends and other restricted payments and changes in our lines of business.

The Company is in compliance with its covenants at December 31, 2021 and expects to remain in compliance for the next twelve months.

Supplemental Guarantor Financial Information

Subsequent to the Combination, Utah Acquisition Sub Inc.

is the issuer of the 3.150% Senior Notes due 2021, 3.950% Senior Notes due 2026 and 5.250% Senior Notes due 2046 (collectively, the “Utah Senior Notes”), which are fully and unconditionally guaranteed on a senior unsecured basis by Mylan Inc., Viatris Inc.

is the issuer of the Registered Upjohn Notes, which are fully and unconditionally guaranteed on a senior unsecured basis by Mylan Inc., Mylan II B.V.

and Utah Acquisition Sub Inc.

Following the Combination, Utah Acquisition Sub Inc.

is the issuer of the Utah U.S.

Dollar Notes, which are fully and unconditionally guaranteed on a senior unsecured basis by Mylan Inc., Viatris Inc.

and Mylan II B.V.

is the issuer of the 4.200% Senior Notes due 2023, 4.550% Senior Notes due 2028, 5.400% Senior Notes due 2043 and 5.200% Senior Notes due 2048 (collectively, the “Mylan Inc.

Senior Notes” and, together with the Utah Senior Notes, the “Senior Notes”), which are fully and unconditionally guaranteed on a senior unsecured basis by Mylan II B.V., Viatris Inc.

is the issuer of the Mylan Inc.

Dollar Notes, which are fully and unconditionally guaranteed on a senior unsecured basis by Mylan II B.V., Viatris Inc.

and Utah Acquisition Sub Inc.

The respective obligations of Viatris Inc., Mylan Inc., Utah Acquisition Sub Inc., and Mylan II B.V.

as guarantors of the Senior Notes, as applicable, are senior unsecured obligations of the applicable guarantor and rank pari passu in right of payment with all of such guarantor’s existing and future senior unsecured obligations that are not expressly subordinated to such guarantor’s guarantee of the applicable series of Senior Notes, rank senior in right of payment to any future obligations of such guarantor that are expressly subordinated to such guarantor’s guarantee of the applicable series of Senior Notes, and are effectively subordinated to such guarantor’s existing and future secured obligations to the extent of the value of the collateral securing such obligations.

The respective obligations of Viatris Inc., Mylan Inc., Utah Acquisition Sub Inc., and Mylan II B.V.

as guarantors of the Senior Notes, as applicable, are structurally subordinated to all of the existing and future liabilities, including trade payables, of the existing and future subsidiaries of such guarantor that do not guarantee the applicable series of Senior Notes.

The guarantees by Viatris Inc., Mylan Inc.

and Mylan II B.V.

of the Utah Senior Notes will terminate under the following customary circumstances:

(1) a sale or disposition of Mylan Inc.

in a transaction that complies with the applicable indenture such that Mylan Inc.

ceases to be a subsidiary of Viatris Inc.; (2) legal defeasance or covenant defeasance, each as described in the applicable indenture, or if Utah Acquisition Sub Inc.’s obligations under the applicable indenture are discharged; or (3) the earlier to occur of (i) the release of their respective guarantees under all applicable Mylan Inc.

debt and (ii) Mylan Inc.

as guarantors of the applicable series of Senior U.S.

Dollar Notes are senior unsecured obligations of the applicable guarantor and rank pari passu in right of payment with all of such guarantor’s existing and future senior unsecured obligations that are not expressly subordinated to such guarantor’s guarantee of the applicable series of Senior U.S.

Dollar Notes, rank senior in right of payment to any future obligations of such guarantor that are expressly subordinated to such guarantor’s guarantee of the applicable series of Senior U.S.

Dollar Notes, and are effectively subordinated to such guarantor’s existing and future secured obligations to the extent of the value of the collateral securing such obligations.

Such obligations are structurally subordinated to all of the existing and future liabilities, including trade payables, of the existing and future subsidiaries of such guarantor that do not guarantee the applicable series of Senior U.S.

Dollar Notes.

The guarantees by Mylan Inc., Mylan II B.V.

and Utah Acquisition Sub Inc.

under the applicable series of Senior U.S.

Dollar Notes will terminate under certain customary circumstances, each as described in the applicable indenture, including:

(1) a sale or disposition of the applicable guarantor in a transaction that complies with the applicable indenture such that such guarantor ceases to be a subsidiary of the issuer of the applicable series of Senior U.S.

Dollar Notes;

(2) legal defeasance or covenant defeasance or if the issuer’s obligations under the applicable indenture are discharged;

(3) with respect to the Utah U.S.

Dollar Notes, the earlier to occur of (i) with respect to the guarantee provided by Mylan Inc., (x) the release of Utah Acquisition Sub Inc.’s guarantee under all applicable Mylan Inc.

Debt (as defined in the applicable indenture) and (y) Mylan Inc.

no longer having any obligations in respect of any Mylan Inc.

Debt and (ii) with respect to the guarantee provided by Mylan II B.V., (x) the release of Mylan II B.V.’s guarantee under all applicable Triggering Indebtedness (as defined in the applicable indenture) and (y) the issuer and/or borrower of the applicable Triggering Indebtedness no longer having any obligations with respect to such Triggering Indebtedness;

(4) with respect to the guarantees provided by Utah Acquisition Sub Inc.

and Mylan II B.V.

of the Mylan Inc.

Dollar Notes, subject to certain exceptions set forth in the applicable indenture, such guarantor ceasing to be a guarantor or obligor in respect of any Triggering Indebtedness;

and (5) with respect to the Registered Upjohn Notes, (a) upon the applicable guarantor no longer being an issuer or guarantor in respect of (i) Mylan Notes (as defined in the indenture governing the Registered Upjohn Notes) that have an aggregate principal amount in excess of $500.0 million or (ii) any Triggering Indebtedness;

in each case, other than in respect of indebtedness or guarantees, as applicable, that are being concurrently released;

or (b) upon receipt of the consent of holders of a majority of the aggregate principal amount of the outstanding notes of such series in accordance with the indenture governing the Registered Upjohn Notes.

The guarantee obligations of Viatris Inc., Mylan Inc., Utah Acquisition Sub Inc., and Mylan II B.V.

under the Senior Notes are subject to certain limitations and terms similar to those applicable to other guarantees of similar instruments, including that (i) the guarantees are subject to fraudulent transfer and conveyance laws and (ii) each guarantee is limited in amount to an amount not to exceed the maximum amount that can be guaranteed by the applicable guarantor without rendering the guarantee, as it relates to such guarantor, voidable under applicable fraudulent transfer and conveyance laws or similar laws affecting the rights of creditors generally.

under the Senior U.S.

Dollar Notes are subject to certain limitations and terms similar to those applicable to other guarantees of similar instruments, including that (i) the guarantees are subject to fraudulent transfer and conveyance laws and (ii) each guarantee is limited in amount to an amount not to exceed the maximum amount that can be guaranteed by the applicable guarantor without rendering the guarantee, as it relates to such guarantor, voidable under applicable fraudulent transfer and conveyance laws or similar laws affecting the rights of creditors generally.

The following table presents unaudited summarized financial information of Viatris Inc., Mylan Inc., Utah Acquisition Sub Inc., and Mylan II B.V.

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Non-current liabilities 16,465.6 17,844.2

Combined Summarized Balance Sheet Information of Viatris Inc., Mylan Inc., Utah Acquisition Sub Inc.

Combined Summarized Income Statement Information of Viatris Inc., Mylan Inc., Utah Acquisition Sub Inc.

and Mylan II B.V.

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Loss from operations (1,023.9) (929.6)

Net (loss) earnings (669.9) 16.8

Net loss (1,269.1) (669.9)

Other Commitments

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It is possible that an unfavorable resolution of any of the ongoing matters could have a material effect on the Company’s business, financial condition, results of operations, cash flows, ability to pay dividends and/or stock price.

In conjunction with the Combination, Viatris entered into a TSA with Pfizer pursuant to which each party will provide certain limited transition services to the other party generally for an initial period of 24 months from closing date.

In addition to the monthly service fees under the TSA, Viatris has agreed to reimburse Pfizer for fifty percent of the costs, up to the first $380 million incurred, to establish and wind down the TSA services.

Viatris will be required to fully reimburse Pfizer for total costs in excess of $380 million.

Through the year ended December 31, 2020, the Company has incurred $53.1 million related to this provision of the TSA.

We are continuously evaluating the potential acquisition of products, as well as companies, as a strategic part of our future growth.

Consequently, we may utilize current cash reserves or incur additional indebtedness to finance any such acquisitions, which could impact future liquidity.

In addition, on an ongoing basis, we review our operations including the evaluation of potential divestitures of products and businesses as part of our future strategy.

Any divestitures could impact future liquidity.

Contractual Obligations

The following table summarizes our contractual obligations at December 31, 2020 and the effect that such obligations are expected to have on our liquidity and cash flows in future periods:

(In millions) Total Less than

One Year One-Three

Years Three-Five

Years Thereafter

Long-term debt $ 23,947.0 $ 2,250.0 $ 3,766.0 $ 3,499.0 $ 14,432.0

Scheduled interest payments (1)

4,341.1 393.7 698.3 593.7 2,655.4

361.9 89.9 114.6 62.3 95.1

Other Commitments (2)

2,595.7 1,328.1 360.0 291.9 615.7

$ 31,245.7 $ 4,061.7 $ 4,938.9 $ 4,446.9 $ 17,798.2

(1) Scheduled interest payments represent the estimated interest payments related to our outstanding borrowings under senior notes and other long-term debt.

Variable debt interest payments are estimated using current interest rates.

(2) Other commitments include funding commitments related to the Company’s clean energy investments, agreements to purchase third-party manufactured products, open purchase orders, transition tax and estimated post-employment payments at December 31, 2020.

Due to the uncertainty with respect to the timing of future payments, if any, the following contingent payments have not been included in the table above.

We are contractually obligated to make potential future development, regulatory and commercial milestone, royalty and/or profit sharing payments in conjunction with acquisitions we have entered into with third parties.

The most significant of these relates to the potential future consideration related to the acquisition of the exclusive worldwide rights to develop, manufacture and commercialize a generic equivalent to GlaxoSmithKline’s Advair® Diskus incorporating Pfizer’s respiratory delivery platform.

These payments are contingent upon the occurrence of certain future events and, given the nature of these events, it is unclear when we may be required to pay such amounts.

The amount of the contingent consideration liabilities was $223.6 million at December 31, 2020.

In addition, the Company expects to incur approximately $8 million to $10 million of non-cash accretion expense related to the increase in the net present value of the contingent consideration liabilities in 2021.

With respect to the timing of future cash flows associated with our unrecognized tax benefits at December 31, 2020, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authority.

As such, $391.1 million of unrecognized tax benefits have been excluded from the contractual obligations table above.

During the years ended December 31, 2021 and 2020, the Company incurred $30.4 million and $53.1 million, respectively, related to this provision of the TSA, and approximately $83.5 million during the period beginning on the closing date of the Combination and ended December 31, 2021.

At December 31, 2021, our material cash requirements from known contractual and other obligations primarily relate to repayment of outstanding borrowings and interest, open purchase orders, post-employment benefit plans, unrecognized tax benefits, capital expenditures, dividends and leases.

For additional information, refer to Notes 2, 6, 10, 12, 14, and 16 in Part II.

Item 8 of this Form 10-K.

We anticipate our cash requirements related to ordinary course purchases of goods and services will be consistent with our past levels.

In the normal course of business, Viatris periodically enters into employment, legal settlement and other agreements which incorporate indemnification provisions.

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These agreements provide for severance payments under certain circumstances.

Collaboration and Licensing Agreements

We periodically enter into collaboration and licensing agreements with other pharmaceutical companies for the development, manufacture, marketing and/or sale of pharmaceutical products.

Our significant collaboration agreements are primarily focused on the development, manufacturing, supply and commercialization of multiple, high-value generic biologic compounds, insulin analog products and respiratory products, among other complex products.

Under these agreements, we have future potential milestone payments and co-development expenses payable to third parties as part of our licensing, development and co-development programs.

Payments under these agreements generally become due and are payable upon the satisfaction or achievement of certain developmental, regulatory or commercial milestones or as development expenses are incurred on defined projects.

Milestone payment obligations are uncertain, including the prediction of timing and the occurrence of events triggering a future obligation and are not reflected as liabilities in the consolidated balance sheets, except obligations reflected as acquisition related contingent consideration.

Refer to Note 9 Financial Instruments and Risk Management included in Part II.

Item 8 of this Form 10-K for further discussion of contingent consideration.

Our potential maximum development milestones

not accrued for at December 31, 2020 totaled approximately $380 million.

We estimate that the amounts that may be paid in the next twelve months to be approximately $40 million.

These agreements may also include potential sales-based milestones and call for us to pay a percentage of amounts earned from the sale of the product as a royalty or a profit share.

The amounts disclosed do not include sales-based milestones or royalty or profit share obligations on future sales of product as the timing and amount of future sales levels and costs to produce products subject to these obligations is not reasonably estimable.

These sales-based milestones or royalty or profit share obligations may be significant depending upon the level of commercial sales for each product.

The Company’s significant collaboration and licensing agreements include those with Revance, Momenta, Theravance Biopharma, Biocon and FKB.

Refer to Note 18 Collaboration and Licensing Agreements included in Part II.

Item 8 of this Form 10-K for additional information related to our collaborations.

Licensing and Other Partner Agreements

Under our licensing and other partner agreements, our potential maximum development milestones not accrued for at December 31, 2021 totaled approximately $351 million.

We estimate that the amounts that may be paid during the next twelve months to be approximately $18 million.

Additionally, these agreements may also include potential sales-based milestones and call for us to pay a percentage of amounts earned from the sale of the product as a royalty or a profit share.

Refer to Note 18 Licensing and Other Partner Agreements included in Part II.

Item 8 of this Form 10-K for additional information.

Application of Critical Accounting Policies

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Revenue Recognition

We recognize revenues in accordance with ASC 606.

We recognize revenues in accordance with ASC 606, Revenue from Contracts with Customers .

Under ASC 606, the Company recognizes net revenue for product sales when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

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The Company’s estimate of the provision for returns is generally based upon historical experience with actual returns.

Generally, returned products are destroyed and

customers are refunded the sales price in the form of a credit.

Generally, returned products are destroyed and customers are refunded the sales price in the form of a credit.

A change of 5% would have an effect on our reserve balance of approximately $34.3 million.

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We estimate discounts on branded prescription drug sales to Medicare Part D participants in the Medicare “coverage gap” based on historical experience of prescriptions and utilization expected to result in the discount of the “coverage gap”.

Outside the U.S.

the majority of our pharmaceutical sales are contractually or legislatively governed.

Outside the U.S., the majority of our pharmaceutical sales are contractually or legislatively governed.

In certain European countries, certain rebates are calculated on the governments total pharmaceutical spending or on specific product sale thresholds.

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The following is a rollforward of the categories of variable consideration during 2021:

(In millions) Balance at December 31, 2019 Current Provision Related to Sales Made in the Current Period Balances Acquired Through Acquisition Checks/ Credits Issued to Third Parties Effects of Foreign Exchange Balance at December 31, 2020

(In millions) Balance at December 31, 2020 Current Provision Related to Sales Made in the Current Period Measurement Period Adjustments and Reclasses Checks/ Credits Issued to Third Parties Effects of Foreign Exchange Balance at December 31, 2021

Chargebacks $ 585.2 $ 5,530.1 $ 63.4 $ (5,585.4) $ (1.6) $ 591.7

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2021 December 31,

Accounts receivable $ 1,802.9 $ 1,512.0

Accounts receivable, net $ 1,688.6 $ 1,802.9

Other current liabilities 1,362.1 1,211.8

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Acquisitions, Intangible Assets, Goodwill and Contingent Consideration

The Company accounts for acquired businesses using the acquisition method of accounting in accordance with the provisions of ASC 805, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective estimated fair values.

The Company accounts for acquired businesses using the acquisition method of accounting in accordance with the provisions of ASC 805, Business Combinations , which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective estimated fair values.

The cost to acquire businesses is allocated to the underlying net assets of the acquired business based on estimates of their respective fair values.

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The judgments made in determining the projected cash flows used to estimate the fair value can materially impact the Company’s financial condition and results of operations.

Mylan historically performed its annual goodwill impairment test on April 1st.

As a result of the decline in the Mylan’s share price during the first quarter of 2020, and the general uncertainty and volatility in the economic environments in which the Company operates, including the impacts of the COVID-19 pandemic, the Company performed an interim goodwill impairment test as of March 31, 2020 and its annual goodwill impairment test as of April 1, 2020.

Mylan performed both the interim and annual goodwill impairment tests on a quantitative basis for its four reporting units, North America Generics, North America Brands, Europe and Rest of World.

In estimating each reporting unit’s fair value, Mylan performed an extensive valuation analysis, utilizing both income and market-based approaches, except for the North America Brands reporting unit where the fair value was estimated utilizing the income approach.

The determination of

the fair value of the reporting units requires management to make significant estimates and assumptions that affect the reporting unit’s expected future cash flows.

The Company performed its annual goodwill impairment test as of April 1, 2021 on a quantitative basis for its five reporting units, North America, Europe, Emerging Markets, JANZ, and Greater China.

Additionally, the net assets acquired as part of the Combination were included in the respective reporting units and in the annual impairment test for the first time.

In estimating each reporting unit’s fair value, the Company performed an extensive valuation analysis, utilizing both income and market-based approaches.

The determination of the fair value of the reporting units requires the Company to make significant estimates and assumptions that affect the reporting unit’s expected future cash flows.

These estimates and assumptions, utilizing Level 3 inputs, primarily include, but are not limited to, market multiples, control premiums, the discount rate, terminal growth rates, operating income before depreciation and amortization, and capital expenditures forecasts.

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The Company also utilizes a market-based approach to estimate fair value, principally utilizing the guideline company method which focuses on comparing our risk profile and growth prospects to a select group of publicly traded companies with reasonably similar guidelines.

As of March 31, 2020 and April 1, 2020, the allocation of goodwill among the reporting units was as follows:

North America Generics $2.60 billion, North America Brands $0.65 billion, Europe $4.43 billion and Rest of World $1.65 billion.

As of March 31, 2020 and April 1, 2020, Mylan determined that the fair value of the North America Generics, North America Brands and Rest of World reporting units was substantially in excess of the respective unit’s carrying value.

However, when compared to the April 1, 2019 test, the fair value of the overall business declined because of future forecasts and the decline in share price.

For the Europe reporting unit, the estimated fair value exceeded its carrying value by approximately $1.2 billion or 11.0% for both the interim and annual goodwill impairment test.

As it relates to the income approach for the Europe reporting unit at March 31, 2020 and April 1, 2020, the Company forecasted cash flows for the next 5 years.

As of April 1, 2021, the allocation of the Company’s total goodwill was as follows:

North America $3.66 billion, Europe $5.15 billion, Emerging Markets $1.58 billion, JANZ $0.82 billion and Greater China $0.70 billion.

As of April 1, 2021, the Company determined that the fair value of the North America, Emerging Markets and Greater China reporting units was substantially in excess of the respective unit’s carrying value.

For the Europe reporting unit, the estimated fair value exceeded its carrying value by approximately $0.91 billion or 5.8% for the annual goodwill impairment test.

As it relates to the income approach for the Europe reporting unit at April 1, 2021, the Company forecasted cash flows for the next 10 years.

During the forecast period, the revenue compound annual growth rate was approximately 3.0%.

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If all other assumptions are held constant, a reduction in the terminal value growth rate by 2.9% or an increase in discount rate by 1.5% would result in an impairment charge for the Europe reporting unit.

For the JANZ reporting unit, the estimated fair value exceeded its carrying value by approximately $0.23 billion or 7.0% for the annual goodwill impairment test.

As it relates to the income approach for the JANZ reporting unit at April 1, 2021, the Company forecasted cash flows for the next 10 years.

During the forecast period, the revenue compound annual growth rate was approximately negative 1.5%.

A terminal year value was calculated with a 0.7% revenue growth rate applied.

The discount rate utilized was 8.5% and the estimated tax rate was 30.5%.

Under the market-based approach, we utilized an estimated market multiple of 6.0 times EBITDA plus a control premium of 15.0%.

If all other assumptions are held constant, a reduction in the terminal value growth rate by 4.2% or an increase in discount rate by 2.0% would result in an impairment charge for the JANZ reporting unit.

Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates.

In addition, changes in underlying assumptions, especially as it relates to the key assumptions detailed, could have a significant impact on the fair value of the reporting units.

As a result of the Combination and the integration of our portfolio across our regions, the Company changed its reportable segments.

The Company now has four reportable segments on a geographic basis, Developed Markets, Greater China, JANZ and Emerging Markets.

Subsequent to the change in segments, our reporting units for allocating and evaluating Goodwill impairment will be North America, Europe, Greater China, JANZ and Emerging Markets.

In addition, changes in underlying assumptions, especially as they relate to the key assumptions detailed, could have a significant impact on the fair value of the reporting units.

The carrying values of long-lived assets, which include property, plant and equipment and intangible assets with finite lives, are evaluated periodically in relation to the expected future undiscounted cash flows of the underlying assets and monitored for other potential triggering events.

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Significant management judgment is involved in estimating the recoverability of these assets and is dependent upon the accuracy of the assumptions used in making these estimates, as well as how the estimates compare to the eventual future operating performance of the specific asset or asset grouping.

For the years ended December 31, 2020, 2019 and 2018, the Company recorded $45.0 million, $42.3 million, and $106.3 million, respectively, of impairment charges for finite-lived intangible assets, which were recorded as a component of amortization expense.

For the years ended December 31, 2021, 2020 and 2019, the Company recorded $83.4 million (related to the sale of a group of OTC products in the U.S.), $45.0 million, and $42.3 million, respectively, of impairment charges for finite-lived intangible assets, which were recorded as a component of amortization expense.

At December 31, 2021 and 2020, the Company’s finite-lived intangible assets totaled $26.09 billion and $29.60 billion, respectively.

Changes to any of the

Company’s assumptions related to the estimated fair value based on the discounted cash flows, including discount rates or the competitive environment related to the assets, could lead to future material impairment charges.

Changes to any of the Company’s assumptions related to the estimated fair value based on the discounted cash flows, including discount rates or the competitive environment related to the assets, could lead to future material impairment charges.

Any future long-lived assets impairment charges could have a material impact on the Company’s consolidated financial condition and results of operations.

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Any future increases to the Company’s valuation allowances could materially impact the Company’s consolidated financial condition and results of operations.

At December 31, 2020 and 2019, the Company’s net deferred tax assets totaled $2.15 billion and $703.1 million, respectively.

At December 31, 2021 and 2020, the Company’s net deferred tax assets totaled $1.33 billion and $2.15 billion, respectively.

A variance of 5% between estimated reserves and valuation allowances and actual resolution and realization of these tax items would have an effect on our reserve balance and valuation allowance of approximately $55.1 million.

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An estimate is made to accrue for a loss contingency relating to any of these legal proceedings if it is probable that a liability was incurred as of the date of the financial statements and the amount of loss can be reasonably estimated.

Because of the subjective nature inherent in assessing the outcome of litigation and because of the potential that an adverse outcome in a legal proceeding could

have a material adverse effect on our business, financial condition, results of operations, cash flows, and/or ordinary share price, such estimates are considered to be critical accounting estimates.

Because of the subjective nature inherent in assessing the outcome of litigation and because of the potential that an adverse outcome in a legal proceeding could have a material adverse effect on our business, financial condition, results of operations, cash flows, and/or ordinary share price, such estimates are considered to be critical accounting estimates.

A variance of 5% between estimated and recorded litigation reserves and actual resolution of certain legal matters would have an effect on our litigation reserve balance of approximately $30.4 million.

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Dollar and the local currencies in the markets in which we operate, mainly the Euro, Indian Rupee, Chinese Renminbi, Japanese Yen, Australian Dollar, Canadian Dollar, Pound Sterling and South Korean Won affect our results as previously noted.

We do not believe that inflation has had a material impact on our revenues or operations in any of the past three years.

We do not believe that inflation has had a material impact on our revenues or results of operations in any of the past three years.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis