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Item 7. Management’s Discussion and Analysis

2023-02-27 compared with 2022-02-28 · 238 added, 203 removed, 511 unchanged (46% 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 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.

Such forward-looking statements may include, without limitation, statements about the goals or outlooks with respect to the Company’s strategic initiatives, including but not limited to the Company’s two-phased strategic vision and potential divestitures and acquisitions;

the benefits and synergies of acquisitions, divestitures 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, stock repurchases, 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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Factors that could cause or contribute to such differences include, but are not limited to:

• 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;

• the possibility that the Company may be unable to successfully integrate Mylan and the Upjohn Business or implement its global restructuring program;

• operational or financial difficulties or losses associated with the Company’s reliance on agreements with Pfizer in connection with the Combination, including with respect to transition services;

• the possibility that the Company may be unable to achieve all intended benefits of its strategic initiatives;

• the potential impact of public health outbreaks, epidemics and pandemics, including the ongoing challenges and uncertainties posed by the COVID-19 pandemic;

• the possibility that the Company may be unable to realize the intended benefits of, or achieve the intended goals or outlooks with respect to, its strategic initiatives;

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

• impairment charges or other losses related to the divestiture or sale of businesses or assets;

• the Company’s failure to achieve expected or targeted future financial and operating performance and results;

• the potential impact of public health outbreaks, epidemics and pandemics, including the ongoing challenges and uncertainties posed by the COVID-19 pandemic;

• 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 (including the impact of potential tax reform in the U.S.);

• 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 recent and potential tax reform in the U.S.);

• the ability to attract and retain key personnel;

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• changes in third-party relationships;

• the effect of any changes in the Company’s or its partners’ customer and supplier relationships and customer purchasing patterns, including customer loss and business disruption being greater than expected following the Combination;

• the impacts of competition, including decreases in sales or revenues as a result of the loss of market exclusivity for certain products;

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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.

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 an 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, and complex generics, including biosimilars prior to the Biocon Biologics Transaction.

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

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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.

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, including biosimilars prior to the Biocon Biologics Transaction, 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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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).

Ophthalmology Acquisitions

During the first quarter of 2023, the Company completed the acquisition of Oyster Point for approximately $425 million in cash, which includes $11 per share paid to Oyster Point stockholders through a tender offer and the repayment of the principal amount of certain debt of Oyster Point.

In addition to the upfront cash consideration, each Oyster Point stockholder received one non-tradeable contingent value right representing up to an additional $2 per share, or approximately $60 million in the aggregate, contingent upon Oyster Point achieving certain metrics based upon full year 2022 performance, which are expected to be determined by the end of the first quarter of 2023.

Oyster Point is a commercial-stage biopharmaceutical company focused on the discovery, development, and commercialization of first-in-class pharmaceutical therapies to treat ophthalmic diseases.

On November 7, 2022, the Company entered into a definitive agreement to acquire the remaining equity shares of Famy Life Sciences, a private-owned research company with a complementary portfolio of ophthalmology therapies under development, for a consideration of $281 million.

The Company had previously entered into a Master Development Agreement with Famy Life Sciences on December 20, 2019 to grant the Company rights with respect to acquiring certain pharmaceutical products and had additionally acquired shares representing approximately 13.5% equity interest in Famy Life Sciences for $25.0 million during the year ended December 31, 2020.

The transaction to acquire the remaining equity shares of Famy Life Sciences closed during the first quarter of 2023.

The accounting impact of the Oyster Point and Famy Life Sciences acquisitions and the results of the operations for Oyster Point and Famy Life Sciences will be included in our consolidated financial statements beginning in the first quarter of 2023.

Refer to Note 4 Acquisitions and Other Transactions included in Part II.

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

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®.

Such repurchases may be made from time-to-time at the Company’s discretion and effected by any means, including but not limited to, open market repurchases, pursuant to plans in accordance with Rules 10b5-1 or 10b-18 under the Exchange Act, privately negotiated transactions (including accelerated stock repurchase programs) or any combination of such methods as the Company deems appropriate.

The program does not have an expiration date.

During 2022, the Company did not repurchase any shares of common stock under the share repurchase program.

In January and February 2023, the Company repurchased approximately 21.2 million shares of common stock at a cost of approximately $250 million.

The share repurchase program does not obligate the Company to acquire any particular amount of common stock.

International Operations

The ongoing conflict between Russia and Ukraine did not have a material impact on our business as the combined total revenues for both countries were approximately 1% of consolidated total revenues during the years ended December 31, 2022 and 2021.

However, trade controls, sanctions, supply chain and staffing challenges and other economic considerations related to the conflict have impacted our operations in these markets and may negatively impact our financial results in future periods.

In addition, a significant escalation or expansion of the conflict’s current scope may have a negative impact on our operations and financial results in future periods.

For a further discussion of the risks we encounter in our business, including the risks of conducting our business internationally, please refer to Risk Factors in Part I, Item 1A of this Form 10-K.

Under ASC 830, Foreign Currency Matters (“ASC 830”), a highly inflationary economy is one that has cumulative inflation of approximately 100% or more over a three-year period.

Effective April 1, 2022, we classified Turkey as highly inflationary and began to utilize the U.S.

dollar as our functional currency in Turkey, which historically utilized the Turkish lira as the functional currency.

Application of the guidance in ASC 830 did not have a material impact on our consolidated financial statements for the year ended December 31, 2022.

The impacted net sales for the year ended December 31, 2022 and total assets at December 31, 2022 represented less than 1% of our consolidated net sales and total assets, respectively.

Biocon Biologics Transaction

On February 27, 2022, Viatris entered into a definitive agreement with Biocon Biologics to contribute its biosimilars portfolio to Biocon Biologics.

The transaction subsequently closed on November 29, 2022, creating what Viatris expects to be a unique fully vertically integrated global biosimilars leader.

Under the terms of the Biocon Agreement, Viatris received $3 billion in consideration in the form of a $2 billion cash payment, adjusted as set forth in the Biocon Agreement, and approximately $1 billion of CCPS representing a stake of approximately 12.9% (on a fully diluted basis) in Biocon Biologics.

Viatris also is entitled to $335 million of additional cash payments in 2024.

In addition, Viatris and Biocon Biologics have agreed to a closing working capital target of $250 million.

An amount of cash equal to all or a portion of the closing working capital target may become payable to Biocon Biologics in connection with certain events in the future, depending on the valuations attributable to such events.

Upon closing of the transaction, the Company recognized a gain on sale of approximately $1.75 billion and has not recognized the results of the business in its consolidated financial statements subsequent to November 29, 2022.

Viatris and Biocon Biologics also entered an agreement pursuant to which Viatris is providing commercialization and certain other transition services on behalf of Biocon Biologics, including billings, collections and the remittance of rebates, to ensure business continuity for patients, customers and colleagues.

The term of the transition services agreement is generally up to two years.

Under the transition services agreement, Viatris is entitled to be reimbursed for its costs (subject to certain caps) plus a markup.

2020 Restructuring Program

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.

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.

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As a leading global pharmaceutical company, Viatris is committed to continue doing its part in support of public health needs amid the evolving COVID-19 pandemic.

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.

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.

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, and could adversely impact our results of operations in future periods.

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.

In addressing the COVID-19 pandemic and helping meet urgent global health needs, tens of thousands of dedicated Viatris employees across the world have worked to help ensure a stable supply of much needed treatments.

Because protecting the health and safety of our workforce remains paramount, we continue to align with government directives and the advice of relevant international, national and local health authorities at every Viatris facility around the world.

As a result, 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 and we have continued to take extra precautions at our manufacturing facilities to protect our site personnel and operations.

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.

The global spread of COVID-19 has created and continues to create 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.

Financial Summary

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Year Ended December 31,

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

(In millions, except per share amounts) 2022 2021 Change

Total revenues $ 16,262.7 $ 17,886.3 $ (1,623.6)

Gross profit 6,497.0 5,575.5 921.5

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 %

Earnings (loss) from operations 1,614.9 (34.0) 1,648.9

Net earnings (loss) 2,078.6 (1,269.1) 3,347.7

Diluted earnings (loss) per share $ 1.71 $ (1.05) $ 2.76

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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Developed Markets $ 9,768.9 $ 10,428.7 (6) % $ 666.6 $ 10,435.5 — %

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

Greater China 2,201.2 2,212.8 (1) % 73.8 2,275.1 3 %

JANZ 1,632.4 2,027.4 (19) % 230.8 1,863.2 (8) %

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Total Revenues

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%.

For the year ended December 31, 2022, the Company reported total revenues of $16.26 billion, compared to $17.89 billion for the comparable prior year period, representing a decrease of $1.62 billion, or 9%.

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

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%.

Net sales for the year ended December 31, 2022 were $16.22 billion, compared to $17.81 billion for the comparable prior year period, representing a decrease of $1.60 billion, or 9%.

Other revenues for the year ended December 31, 2022 were $44.6 million, compared to $72.7 million for the comparable prior year period, a decrease of $28.1 million.

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.

The decrease in net sales was primarily driven by the unfavorable impact of foreign currency translation of approximately $1.24 billion, or 7%, primarily reflecting changes in the U.S.

Dollar as compared to the currencies of subsidiaries in countries within the EU, Japan and India.

On a constant currency basis, the decrease in net sales was approximately $359.6 million, or 2% for the year ended December 31, 2022 compared to the prior year period.

This decrease was partially due to approximately $63.5 million related to the year over year impact of the sale of the biosimilars business on November 29, 2022.

The decrease was also due to competition on certain key U.S.

products representing a decline of approximately $188 million, and approximately $591 million as a result of other base business erosion.

The decrease in net sales from existing products was partially offset by approximately $483.1 million of new product sales, primarily in the U.S.

New product sales include new products launched in 2022 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 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.

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

Our top ten products in terms of net sales, in the aggregate, represented 33% for the years ended December 31, 2022 and 2021.

Net sales are derived from our four reporting segments:

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Developed Markets Segment

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 from Developed Markets decreased by $659.8 million or 6% during the year ended December 31, 2022 when compared to the prior year.

This decrease was primarily the result of unfavorable impact of foreign currency translation of approximately $666.6 million, or 6%.

Constant currency net sales increased by approximately $6.8 million, or less than 1%, when compared to the prior year.

Net sales within North America totaled approximately $4.34 billion and net sales within Europe totaled approximately $5.43 billion.

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 $1.73 billion, or 20% when compared to the prior year.

The increase in constant currency net sales was driven by new product sales, including lenalidomide, unbranded insulin glargine and Semglee®, and cyclosporine ophthalmic emulsion in the U.S., and higher volumes of existing products in Europe.

This increase was partially offset by the year over year impact of the sale of the biosimilars business, and lower net sales of existing products in the U.S., including Miacalcin®, Wixela Inhub® and Perforomist®, as a result of lower pricing and, to a lesser extent, volumes due to additional competition.

Greater China Segment

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 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.

Net sales from Greater China decreased by $11.6 million, or less than 1%, for the year ended December 31, 2022 when compared to the prior year.

This decrease was primarily the result of the unfavorable impact of foreign currency translation of approximately $73.8 million, or 3%.

Constant currency net sales increased by approximately $62.2 million, or 3%, when compared to the prior year, driven primarily by increased volumes of existing products.

Net sales from JANZ decreased by $395.0 million or 19% for the year ended December 31, 2022 when compared to the prior year.

This decrease was primarily the result of the unfavorable impact of foreign currency translation of approximately $230.8 million, or 11%.

Constant currency net sales decreased by approximately $164.2 million, or 8%, when compared to the prior year.

The decrease was primarily due to lower net sales of existing products mainly driven by lower pricing in Japan as a result of government price reductions and additional competition, and lower volumes of existing products in Australia.

These decreases were partially offset by higher volumes of existing products in Japan, including for Celebrex®.

Emerging Markets Segment

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%.

Net sales from Emerging Markets decreased by $529.1 million or 17% for the year ended December 31, 2022 when compared to the prior year.

This decrease was partially driven by the unfavorable impact of foreign currency translation of approximately $264.7 million, or 8%.

Constant currency net sales decreased by approximately $264.4 million, or 8%, when compared to the prior year.

This decrease was primarily driven by lower volumes of COVID-19 related products in India, primarily remdesivir and ambisome, and lower sales of ARV products as a result of competitive market conditions.

These decreases were partially offset by higher volumes in certain markets in Asia.

Cost of Sales and Gross Profit

Cost of sales increased from $8.15 billion for the year ended December 31, 2020 to $12.31 billion for the year ended December 31, 2021.

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 .

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.

Cost of sales decreased from $12.31 billion for the year ended December 31, 2021 to $9.77 billion for the year ended December 31, 2022.

Cost of sales was primarily impacted by purchase accounting related amortization of the step-up in the fair value of acquired inventory of $1.19 billion in the prior year period, lower restructuring costs in the current year related to the 2020 restructuring program versus the prior year period, and lower costs associated with 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, 2022 was $6.50 billion and gross margins were 40%.

For the year ended December 31, 2021, gross profit was $5.58 billion and gross margins were 31%.

This change is primarily related to the decrease in cost of sales.

Adjusted gross margins were approximately 59% for the year ended December 31, 2022, essentially flat when compared to the year ended December 31, 2021.

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

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Purchase accounting amortization and other related items (2,721.2) (4,039.7)

Acquisition related items (13.9) (16.9)

Acquisition and divestiture related costs (50.0) (13.9)

Restructuring and related costs (56.8) (534.7)

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Research & Development Expense

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.

R&D expense for the year ended December 31, 2022 was $662.2 million, compared to $681.0 million for the prior year, a decrease of $18.8 million.

This decrease was primarily due to the impact of synergies.

Certain reclassifications were made to conform the prior period consolidated financial statements to the current period presentation.

Upfront and milestone-related charges in connection with collaboration and licensing arrangements previously presented in R&D expense are now presented in Acquired IPR&D.

Acquired IPR&D

Acquired IPR&D expense for the year ended December 31, 2022 was $36.4 million, compared to $70.1 million for the prior year, a decrease of $33.7 million.

The decrease was primarily due to an upfront licensing payment in the prior year of $40.0 million for the development of an ophthalmic product.

This was partially offset by an upfront licensing payment of $20.0 million to Calliditas Therapeutics AB related to Nefecon® recorded during the current year.

Selling, General & Administrative Expense

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.

SG&A expense for the year ended December 31, 2022 was $4.18 billion, compared to $4.53 billion for the prior year, a decrease of $350.1 million.

The decrease was primarily due to lower restructuring costs of approximately $322.8 million related to the 2020 restructuring program and the impact of synergies.

Partially offsetting these decreases were higher integration costs as a result of transitioning certain support services from Pfizer, costs incurred in conjunction with the Biocon Biologics Transaction, and a goodwill impairment charge of $117.0 million related to the potential divestiture of the Upjohn Distributor Markets.

Litigation Settlements and Other Contingencies, Net

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

The following table includes the (gains) losses recognized in litigation settlements and other contingencies, net during the years ended December 31, 2022 and 2021, respectively:

Year Ended December 31,

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Total litigation settlements and other contingencies, net $ 4.4 $ 329.2

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

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

Interest Expense

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 (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,

(In millions) 2021 2020

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

Foreign exchange losses, net 2.1 2.2

Other gains, net (69.8) (38.0)

Other expense, net $ (5.8) 12.6

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.

Interest expense for the year ended December 31, 2022 totaled $592.4 million, compared to $636.2 million for the year ended December 31, 2021, a decrease of $43.8 million.

The decrease is primarily due to the impact of debt repayments.

Other (Income) Expense, Net

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

Other income, net for the year ended December 31, 2022 totaled $1.79 billion, compared to $5.8 million for the year ended December 31, 2021.

The increase was primarily driven by the gain from the Biocon Biologics Transaction of $1.75 billion and income of $17.7 million related to reimbursement for transition services provided to Biocon Biologics subsequent to the closing of the Biocon Biologics Transaction.

The costs related to the transition services are included in SG&A and R&D.

In addition, the prior year was negatively impacted by losses of $61.9 million from the Company’s clean energy investments, which did not recur in 2022 as all of the clean energy investments wound down operations at the end 2021.

Income Tax Provision

For the year ended December 31, 2022, the Company recognized an income tax provision of $734.6 million, compared to an income tax provision of $604.7 million for the prior year, a change in the provision of $129.9 million.

The income tax provision for the year ended December 31, 2022 was negatively impacted by the gain from the Biocon Biologics Transaction.

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.

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

2021 Compared to 2020

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Management uses these measures internally for forecasting, budgeting, measuring its operating performance, and incentive-based awards.

Primarily due to acquisitions and other significant events which may impact comparability of our periodic operating results, we believe that an evaluation of our ongoing operations (and comparisons of our current operations with historical and future operations) would be difficult if the disclosure of our financial results was limited to financial measures prepared only in accordance with U.S.

Primarily due to acquisitions, divestitures and other significant events which may impact comparability of our periodic operating results, we believe that an evaluation of our ongoing operations (and comparisons of our current operations with historical and future operations) would be difficult if the disclosure of our financial results was limited to financial measures prepared only in accordance with U.S.

We believe that non-GAAP financial measures are useful supplemental information for our investors and when considered together with our U.S.

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Adjusted net earnings is a non-GAAP financial measure and provides an alternative view of performance used by management.

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, primarily due to acquisitions, divestitures 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 is therefore useful to investors and that their understanding of our performance is enhanced by this measure.

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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, acquisition related 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, impairment of long-lived assets, acquisition and divestiture 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.

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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 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

These expenses and payments are excluded from adjusted net earnings and adjusted EBITDA because they generally occur at irregular intervals and are not indicative of the Company’s ongoing operations.

Accretion of Contingent Consideration Liability and Other Fair Value Adjustments

The impact of changes to the fair value of contingent consideration and accretion expense are excluded from adjusted net earnings and adjusted EBITDA because they are not indicative of the Company’s ongoing operations due to the variability of the amounts and the lack of predictability as to the occurrence and/or timing and management believes their exclusion is helpful to understanding the underlying, ongoing operational performance of the business.

Beginning in 2022, upfront and milestone-related R&D expenses related to collaboration and licensing arrangements made prior to regulatory approval of a development product are no longer excluded from adjusted net earnings and adjusted EBITDA.

For purposes of comparability, the prior years’ non-GAAP financial measures have been updated to reflect this change.

For the years ended December 31, 2021 and 2020, this resulted in a decrease in adjusted EBITDA of $70.1 million and $42.5 million, respectively, and a decrease in adjusted net earnings of $57.8 million and $34.6 million, respectively.

Fair Value Adjustments, Including Contingent Consideration

The impact of changes to the fair value of assets and liabilities, including contingent and deferred consideration, and the related accretion income or expense are excluded from adjusted net earnings and adjusted EBITDA because they are not indicative of the Company’s ongoing operations due to the variability of the amounts and the lack of predictability as to the occurrence and/or timing and management believes their exclusion is helpful to understanding the underlying, ongoing operational performance of the business.

Share-based Compensation Expense

Share-based compensation expense is excluded from adjusted net earnings and adjusted EBITDA.

Share-based compensation expense is excluded from adjusted cost of sales, adjusted net earnings and adjusted EBITDA.

Our share-based compensation programs have become increasingly weighted toward performance-based compensation, which leads to variability and to a lack of predictability as to the occurrence and/or timing of amounts incurred.

As such, management believes the exclusion of such amounts on an ongoing basis is helpful to understanding the underlying operational performance of the business.

Restructuring, Acquisition Related and Other Special Items

Restructuring, Acquisition and Divestiture Related, and Other Special Items

Costs related to restructuring, acquisition and integration activities and other actions are excluded from adjusted cost of sales, adjusted net earnings and adjusted EBITDA, as applicable.

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• Costs related to formal restructuring programs and actions, including costs associated with facilities to be closed or divested, employee separation costs, impairment charges, accelerated depreciation, incremental manufacturing variances, equipment relocation costs, decommissioning and other restructuring related costs;

• Certain acquisition related remediation and integration and planning costs, as well as other costs associated with acquisitions such as advisory and legal fees, certain financing related costs, certain reimbursements related to the Company’s obligation to reimburse Pfizer for certain financing and transaction related costs under the BCA and SDA, certain other TSA related exit costs, and other business transformation and/or optimization initiatives, which are not part of a formal restructuring program, including employee separation and post-employment costs;

• Certain acquisition and divestitures related remediation and integration and planning costs, as well as other costs associated with acquisitions and divestitures such as advisory and legal fees, certain financing related costs, certain reimbursements related to the Company’s obligation to reimburse Pfizer for certain financing and transaction related costs under the BCA and SDA, certain other TSA related set-up and exit costs, and other business transformation and/or optimization initiatives, which are not part of a formal restructuring program, including employee separation and post-employment costs;

• The pre-tax loss of the Company’s clean energy investments, whose activities qualify for income tax credits under the Code;

only included in adjusted net earnings is the net tax effect of the entity’s activities;

• Other costs, incurred from time to time, related to certain special events or activities that lead to gains or losses, including, but not limited to, incremental manufacturing variances, asset write-downs, or liability adjustments;

• 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 and certain impacts related to the Combination are excluded from adjusted net earnings.

• Gains or losses from divestitures, including impairments of held of sale assets;

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

The Company has undertaken restructurings and other optimization initiatives of differing types, scope and amount during the covered periods and, therefore, these charges should not be considered non-recurring;

however, management excludes these amounts from adjusted net earnings and adjusted EBITDA because it believes it is helpful to understanding the underlying, ongoing operational performance of the business.

however, management excludes these amounts from adjusted cost of sales, adjusted net earnings and adjusted EBITDA because it believes it is helpful to understanding the underlying, ongoing operational performance of the business.

Litigation Settlements, Net

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Reconciliation of U.S.

GAAP Net (Loss) Earnings to Adjusted Net Earnings

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

GAAP Net Earnings (Loss) to Adjusted Net Earnings

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

GAAP, and adjusted net earnings for the periods shown follows:

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(In millions) 2022 2021 2020

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

GAAP net earnings (loss) $ 2,078.6 $ (1,269.1) $ (669.9)

Purchase accounting related amortization (primarily included in cost of sales) (a)

2,721.3 4,039.7 1,933.6

Impairment of goodwill related to assets held for sale (a)

Litigation settlements and other contingencies, net 4.4 329.2 107.8

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Clean energy investments pre-tax loss — 61.9 48.4

Acquisition related costs (primarily included in SG&A) (b)

Acquisition and divestiture related costs (primarily included in SG&A) (b)

475.7 234.6 613.6

Biocon Biologics gain on divestiture (included in other (income) expense, net) (1,754.1) — —

Restructuring related costs (c)

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Research and development expense (e)

Selling, general and administrative expense (f)

68.8 49.5 44.6

Selling, general and administrative expense 49.5 44.6 60.2

Other expense, net (8.0) (16.8) 10.7

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

Other (income) expense, net (3.8) (8.0) (16.8)

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

(41.7) (330.7) (581.8)

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Significant items for the year ended December 31, 2022 include the following:

(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.

(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.

(a) For the year ended December 31, 2022, charges include an intangible asset charge of approximately $172.9 million to write down the disposal group to fair value, less cost to sell, and a related goodwill impairment charge of $117.0 million for the potential divestiture of the Upjohn Distributor Markets.

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

(c) For the year ended December 31, 2022, charges include approximately $56.8 million in cost of sales, approximately $1.4 million in R&D, and approximately $28.7 million in SG&A.

Refer to Note 18 Restructuring included in Part II.

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

(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.

(d) For the year ended December 31, 2022, charges include incremental manufacturing variances at plants in the 2020 restructuring program of approximately $118.4 million and inventory reserves related to the potential divestiture of the Upjohn Distributor Markets of approximately $44.8 million.

(e) Beginning in 2022, upfront and milestone-related R&D expenses related to collaboration and licensing arrangements made prior to regulatory approval of a development product are no longer excluded from adjusted net earnings and adjusted EBITDA.

For purposes of comparability, the prior years’ non-GAAP financial measures have been updated to reflect this change.

(f) For the year ended December 31, 2022, charges include costs of $39.5 million related to the potential divestiture of the Upjohn Distributor Markets.

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

Reconciliation of U.S.

GAAP Net (Loss) Earnings to EBITDA and Adjusted EBITDA

GAAP Net Earnings (Loss) to EBITDA and Adjusted EBITDA

Below is a reconciliation of U.S.

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

GAAP net earnings (loss) to EBITDA and adjusted EBITDA for the year ended December 31, 2022 compared to the prior year periods:

Year Ended December 31,

(In millions) 2022 2021 2020

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

GAAP net earnings (loss) $ 2,078.6 $ (1,269.1) $ (669.9)

Add / (deduct) adjustments:

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Litigation settlements and other contingencies, net 4.4 329.2 107.8

Restructuring, acquisition related and other special items (c)

Biocon Biologics gain on divestiture (1,754.1) — —

Impairment of goodwill related to assets held for sale 117.0 — —

Restructuring, acquisition and divestiture related and other special items (c)

859.9 1,375.4 1,383.5

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(b) Includes purchase accounting related amortization.

GAAP Net (Loss) Earnings to Adjusted Net Earnings.

GAAP Net Earnings (Loss) to Adjusted Net Earnings.

Liquidity and Capital Resources

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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.

Nevertheless, our ability to satisfy our working capital requirements and debt service obligations, and fund planned capital expenditures, share repurchases, 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 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 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.

Net cash provided by operating activities decreased by $64.3 million to $2.95 billion for the year ended December 31, 2022, as compared to net cash provided by operating activities of $3.02 billion for the year ended December 31, 2021.

Net cash provided by operating activities is derived from net earnings (loss) 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 decrease in net cash provided by operating activities was principally due to the timing of cash payments and collections, including payments for litigation matters, and due to deal-related expenses, primarily taxes and transaction costs, associated with the Biocon Biologics Transaction.

These increases were partially offset by lower payments for restructuring activities and other special items, and the impact of synergies.

Investing Activities

Net cash used in investing activities was $117.8 million for the year ended December 31, 2021, as compared to net cash used in investing activities of $301.1 million for the year ended December 31, 2020, a decrease of $183.3 million.

Net cash from investing activities was $1.52 billion for the year ended December 31, 2022, as compared to net cash used in investing activities of $117.8 million for the year ended December 31, 2021, an increase of $1.64 billion.

In 2022, significant items in investing activities included the following:

• 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.;

• proceeds from the sale of assets of $1.95 billion related to the Biocon Biologics Transaction;

• capital expenditures, primarily for equipment and facilities, totaling approximately $406.0 million.

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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;

• 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.

Financing Activities

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.

Net cash used in financing activities was $3.88 billion for the year ended December 31, 2022, as compared to net cash used in financing activities of $3.01 billion for the year ended December 31, 2021, an increase of $865.9 million.

In 2022, significant items in financing activities included the following:

• repayments of Senior Notes at maturity of approximately $1.79 billion, consisting of the 0.816% Euro Senior Notes and the 1.125% Senior Notes;

• borrowings and repayments under the 2021 Revolving Facility of $1.88 billion;

• net repayments of short-term borrowings of $1.49 billion;

• cash dividends paid of $581.6 million;

• proceeds of $19.3 million related to cash collected on behalf of Biocon Biologics.

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

• 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;

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• cash dividends paid of $399.0 million.

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

• 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.

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.

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

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Capital Resources

Our cash and cash equivalents totaled $701.2 million at December 31, 2021, and the majority of these funds are held by our non-U.S.

Our cash and cash equivalents totaled $1.26 billion at December 31, 2022, and the majority of these funds are held by our non-U.S.

subsidiaries.

In early 2023, approximately $700 million of cash was used to finance the acquisitions of Oyster Point and Famy Life Sciences.

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.

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.

The YEN Term Loan Facility and the 2021 Revolving Facility will mature in July 2026.

The Company has access to $4.0 billion under the 2021 Revolving Facility.

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

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, which was amended on July 1, 2021 to extend the term to August 2022.

As of December 31, 2022, the Company did not have any borrowings outstanding under the Commercial Paper Program and the 2021 Revolving Facility.

In addition, MPI, a wholly owned subsidiary of the Company, has access to $400 million under the Receivables Facility, which expires in April 2025.

As of December 31, 2022, the Company did not have any borrowings outstanding under the Receivables Facility.

In August 2020, the Company entered into the Note Securitization Facility for borrowings up to $200 million, which was amended to extend the term to August 2023.

As of December 31, 2022, the Company did not have any borrowings outstanding under the Note Securitization Facility.

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The amount that we may borrow at a given point in time is determined based on the amount of qualifying accounts receivable that are present at such point in time.

Borrowings outstanding under the Receivables Facility bear interest at a commercial paper rate plus 0.925% and under the Note Securitization Facility at a rate per annum quoted from time to time by MUFG Bank, Ltd.

plus 0.85% and are included as a component of short-term borrowings, while the accounts receivable securing these obligations remain as a component of accounts receivable, net, in our consolidated balance sheets.

Borrowings outstanding under the Receivables Facility bear interest at the applicable base rate plus 0.775%, and under the Note Securitization Facility at the relevant base rate plus 0.85% and are included as a component of short-term borrowings, while the accounts receivable securing these obligations remain as a component of accounts receivable, net, in our consolidated balance sheets.

In addition, the agreements governing the Receivables Facility and Note Securitization Facility contain various customary affirmative and negative covenants, and customary default and termination provisions.

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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.

In November 2022, the Company provided an update on the strategic priorities announced in February 2022, including identifying the following businesses no longer considered core to its future strategy that the Company intends to divest:

• API (while retaining some selective development API capabilities);

• Women’s health care, primarily related to our oral and injectable contraceptives.

This does not include all of our women’s health care related products;

as an example, our Xulane® product in the U.S.

• Upjohn Distributor Markets.

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

Item 8 of this Form 10-K.

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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 a financial covenant, which set the Maximum Leverage Ratio as of the end of any quarter 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, and other 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, 2022 and expects to remain in compliance for the next twelve months.

Supplemental Guarantor Financial Information

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.

is the issuer of the outstanding 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.

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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;

and (5) with respect to the outstanding 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 outstanding 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.

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Gross profit — —

Loss from operations (1,023.9) (929.6)

Net loss (1,269.1) (669.9)

Loss (earnings) from operations (1,132.4) (1,023.9)

Net earnings (loss) 2,078.6 (1,269.1)

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 of the Combination.

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.

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

In addition to the monthly service fees under the TSA, Viatris 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.

During the years ended December 31, 2022 and 2021, the Company incurred $54.5 million and $30.4 million, respectively, related to this provision of the TSA, and approximately $138.0 million during the period beginning on the closing date of the Combination and ended December 31, 2022.

We expect to incur future costs related to the completion of the services.

As of December 31, 2022, the Company has exited substantially all transition services with Pfizer.

In conjunction with the Biocon Biologics Transaction, Viatris and Biocon Biologics also entered an agreement pursuant to which Viatris is providing commercialization and certain other transition services on behalf of Biocon Biologics, including billings, collections and the remittance of rebates, to ensure business continuity for patients, customers and colleagues.

At December 31, 2022, 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.

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The following is a rollforward of the categories of variable consideration during 2022:

(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

(In millions) Balance at December 31, 2021 Current Provision Related to Sales Made in the Current Period Balances Divested Checks/ Credits Issued to Third Parties Effects of Foreign Exchange Balance at December 31, 2022

Chargebacks $ 591.7 $ 6,192.2 $ (53.4) $ (6,205.6) $ (1.5) $ 523.4

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Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

Refer to Note 4 Acquisitions and Other Transactions included in Part II.

Item 8 of this Form 10-K for further additional information regarding the Company’s acquisitions, including the acquisition accounting related to the Combination.

Refer to Note 4 Acquisitions and Other Transactions and Note 9 Goodwill and Intangible Assets included in Part II.

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

Purchases of developed products and licenses that are accounted for as asset acquisitions are capitalized as intangible assets and amortized over an estimated useful life.

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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.

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.

The Company performed both its interim and annual goodwill impairment tests on a quantitative basis for its five reporting units, North America, Europe, Emerging Markets, JANZ, and Greater China.

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

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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.

The following describes the valuation methodologies used to derive the estimated fair value of the reporting units.

Income Approach :

Under this approach, to determine fair value, we discounted the expected future cash flows of each reporting unit.

We used a discount rate, which reflected the overall level of inherent risk and the rate of return an outside investor would have expected to earn.

To estimate cash flows beyond the final year of our model, we used a terminal value approach.

Under this approach, we used EBITDA in the final year of our model, adjusted to estimate a normalized cash flow, applied a perpetuity growth assumption, and discounted by a perpetuity discount factor to determine the terminal value.

We incorporated the present value of the resulting terminal value into our estimate of fair value.

Market-Based Approach :

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

As of March 31, 2022 and April 1, 2022, the allocation of the Company’s total goodwill (prior to the reclassification of goodwill to assets held for sale) was as follows:

North America $3.61 billion, Europe $4.95 billion, Emerging Markets $1.64 billion, JANZ $0.78 billion and Greater China $0.97 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.

As of March 31, 2022 and April 1, 2022, the Company determined that the fair value of the North America 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 $797 million or 5.3% for both the interim and annual goodwill impairment tests.

As it relates to the income approach for the Europe reporting unit at March 31, 2022 and April 1, 2022, the Company forecasted cash flows for the next 10 years.

During the forecast period, the revenue compound annual growth rate was approximately 0.5%.

A terminal year value was calculated with a 0.9% revenue growth rate applied.

A terminal year value was calculated with a negative 1.0% revenue growth rate applied.

The discount rate utilized was 9.5% and the estimated tax rate was 15.3%.

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If all other assumptions are held constant, a reduction in the terminal value growth rate by 3.0% 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.

For the JANZ reporting unit, the estimated fair value exceeded its carrying value by approximately $231 million or 7.4% for both the interim and annual goodwill impairment tests.

As it relates to the income approach for the JANZ reporting unit at March 31, 2022 and April 1, 2022, the Company forecasted cash flows for the next 10 years.

During the forecast period, the revenue compound annual growth rate was approximately negative 4.8%.

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

A terminal year value was calculated assuming no revenue growth rate.

The discount rate utilized was 6.0% and the estimated tax rate was 30.4%.

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If all other assumptions are held constant, a reduction in the terminal value growth rate by 3.5% or an increase in discount rate by 2.0% would result in an impairment charge for the JANZ reporting unit.

For the Emerging Markets reporting unit, the estimated fair value exceeded its carrying value by approximately $816 million or 10.3% for both the interim and annual goodwill impairment tests.

As it relates to the income approach for the Emerging Markets reporting unit at March 31, 2022 and April 1, 2022, the Company forecasted cash flows for the next 10 years.

During the forecast period, the revenue compound annual growth rate was approximately 1.6%.

A terminal year value was calculated with a 0.8% revenue growth rate applied.

The discount rate utilized was 10.5% and the estimated tax rate was 18.4%.

Under the market-based approach, we utilized an estimated market multiple of 7.5 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 approximately 8.5% or an increase in discount rate by 3.0% would result in an impairment charge for the Emerging Markets reporting unit.

In the fourth quarter of 2022, we determined that our Upjohn Distributor Markets should be classified as held for sale on the December 31, 2022 consolidated balance sheet.

The Company allocated goodwill to its Upjohn Distributor Markets using a relative fair value approach and recorded a goodwill impairment charge of $117.0 million within the Emerging Markets reporting unit, which was recorded within SG&A in the consolidated statement of operations.

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

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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, 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.

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

At December 31, 2022 and 2021, the Company’s finite-lived intangible assets totaled $22.57 billion and $26.09 billion, respectively.

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

If the divestitures of the Upjohn Distributor Markets are not completed during 2023, the distribution arrangements will expire and the Company will wind down operations in these markets, which may result in additional asset impairment and other costs being incurred.

These additional charges could be in excess of $300 million.

The Company’s indefinite-lived intangible assets, principally IPR&D, are tested at least annually for impairment or upon the occurrence of a triggering event.

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

At December 31, 2022 and 2021, the Company’s net deferred tax assets totaled $925.9 million and $1.33 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 $34.2 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 results of operations in any of the past three years.

During 2022, the global economy has been impacted by high levels of inflation and rising energy costs, which has resulted in significant economic volatility.

As a result, central banks have and continue to tighten their monetary policies and increase interest rates.

These macroeconomic pressures combined with the volatility in foreign exchange rates, including the strengthening of the U.S.

dollar versus the other currencies in which we operate, negatively impacts our results of operations.

We proactively look to manage such macroeconomic pressures by implementing strategies to mitigate and partially offset the impact of these factors.

While inflationary and other macroeconomic pressures may ease, we continue to experience higher costs and we expect that this will likely continue throughout 2023.

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