Viatris

 

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The sale of Viatris to Swedish pharmaceuticals group Meda demonstrates the effectiveness of targeted restructuring.  Under our guidance, Viatris was transformed from a loose collection of international pharmaceutical manufacturing and sales assets into an attractive and profitable sales and marketing platform affording strategic acquirers valuable access to the Western European market.

Viatris, the last asset to be sold, was comprised of operations which didn’t fit anywhere else, meaning that restructuring was the only viable alternative for making it an attractive acquisition target.  For many buyers this represented a risky proposition, but to Advent it made it an interesting investment. By addressing Viatris’ several – quite sizeable – problems and bringing in expert operating partners to advise on strategy and operations, we felt we could turn the company into a valuable asset.

"Our initial plan for Viatris was completely fulfiled, it was the reason the buyer acquired the business in the end. Our game plan played out perfectly, it was a 100 per cent fit." Marion Oswald, Director, Advent International

“The branded generics business did attract us,” said Tom Spinner, Director at Advent’s Frankfurt office. “No one else wanted it, but together with a strengthened management team we saw an opportunity to create a pan-European sales and marketing organisation that would be attractive to an expanding pharmaceutical group looking to improve its European coverage.”

Making this vision a reality was no simple task. Operations in Brazil and the US were sold off to improve focus and generate cash. And we scaled back the company’s drug development centre, which was excessive in size for a generics company, representing a major drain on capital with uncertain returns.

Then it was a question of building on Viatris’s strengths. This included extending the product life of its branded generics by developing new delivery systems and creating a more focused sales and marketing function. In 2004, we merged the business with another Advent portfolio company, Tropon, to deliver scale and synergies.

As a result, Viatris became an even more profitable and well-run business. In 2005 it was sold to Meda, a Scandinavian pharmaceutical group seeking broader geographic coverage into all major Western European pharma markets – the exit outlined by our strategy paper written three years previously.

Analysis to action

From the outset of the Viatris deal, we recognised that the business needed a radical overhaul. The management team, supported by Advent operating partners Ian Black, Wilhelm Plumpe and Renee Zeederberg, decided to significantly change the group – turning it into a focused, European pharmaceutical sales and marketing company with a well-defined range of branded generic drugs.

“The initial review was a huge task – we must have gone through about 400 P&Ls by product, by country,” said Holger Schnoes, Director at Advent Frankfurt. “Advent also commissioned research to assess strengths and weaknesses in the Viatris product portfolio. There were options to generate cash from selling non-core assets and some cost-improvement opportunities were also apparent.”

The heart of the deal was a disposal of the company’s operations in Brazil and the US and the divestment of non-core operations, such as an Austrian effervescents plant.  The rightsizing of the drug development centre (DDC) was also on the ‘to-do’ list. Although the business had three compounds already in phase one trials, New Chemical Entity (NCE) Research was deemed too expensive and uncertain activity for a company of Viatris’ size. Scaling back the DDC and selling the NCEs to companies focused on basic/primary research cut costs substantially – and by investing instead in line extensions for existing products, we could create new opportunities to grow the business within a shorter period of time.

The Operating Partners helped us understand management’s existing plan – and what more options for improvement could be taken. Marion Oswald, Director, Advent International

Generate cash

Advent’s plan to restructure Viatris required focusing the business on its European operations – which meant divestments. These included selling the company’s 40 per cent stake in Carter Wallace to joint venture partner MedPointe; disposing of Viatris’s US subsidiary, Muro; and selling the Brazilian operation, which successfully marketed over-the-counter medication and local products, but offered few synergies with the core European products businesses.

As well as creating a more logical structure, these transactions freed up cash. “Advent had an idea of how much the disposals would realise and knew it had to do them pretty quickly,” said Marion Oswald Director, Advent International. “But in fact they happened much sooner than we thought they might. After just one year, Advent had raised enough cash to de-leverage the business by €100m.”
After one year the business was refinanced. Advent was able to pay a small dividend, too, but the real impact was an improvement to the capital structure – which gave the business more breathing space for future growth options.

Viatris was affordable precisely because it had some difficult problems; but we knew Advent could create value by solving them.Holger Schnoes, Director, Advent International

Develop the core proposition

When Advent acquired Viatris, the conventional wisdom was that its branded generic drugs were already too old and that their value to the business could only fall. We recognised that good life-cycle management and intelligent delivery systems could also create new products out of old compounds.
 
Viatris also had a strong respiratory drug franchise, including a highly innovative multi-dose drug inhaler, the Novolizer, that could be used with new substances – offering solid growth potential.
In-licensing – buying the right to distribute other companies’ drug compounds – and co-marketing deals also ensured that Viatris would have a strong pipeline of products to feed the improved sales and marketing channels that management was developing. As a result of these actions, within a relatively short time it had become an attractive, independent, pan-European licensing partner for third-party products.

Viatris has top-three brands in certain segments and market leaders in some geographies – so they knew how to optimise product life-cycle. Tom Spinner, Director, Advent International

Merger opportunity

“Initially we thought it would be good to have two standalone companies,” said Wilhelm Plumpe, the Advent Operating Partner who was at the time managing director of Tropon. “But partly thanks to the success of the restructuring programme at Viatris and partly as a result of changes to the way health insurance operated in Germany, we realised we had some excellent synergies.” Plumpe became Viatris’ CFO after the merger – and is now CFO at another Advent-backed business, Nukem.

Tropon manufactures drugs for the treatment of rheumatic diseases. These fitted into Viatris’ newly focused European sales and marketing operation perfectly, delivering both cost-savings for the merged group as well as a strengthened pain franchise due to a complementary product portfolio and a better sales force utilisation.

The Tropon merger – which had a compelling logic – meant Advent could profit from strong operational synergies that increased the attractiveness of the business for a potential new ownerHolger Schnoes, Director, Advent International

Clean, attractive structure

When Advent invested, Viatris was a mixed bag of products and geographies – and as a business it seemed very complex. The divestments of non-core, non-European businesses and the scaling back of the drug development centre provided much more clarity in its operations. This allowed management to focus on investing in the European sales and marketing operation and key new product developments. Alongside the cost-improvement measures and the merger with Tropon, this meant that Viatris had become a well-organised, highly profitable business with good growth prospects and a clean structure.

“With the pace of acquisitions in the pharmaceuticals industry picking up and Viatris’ repositioning achieved, the time was right to evaluate the company’s exit options”, said Ralf Huep, General Manager, Advent International. This entailed a thorough internal review of the financials and operations, followed by a so-called ‘beauty contest’ to select an M&A advisor.

Viatris was eventually sold to Meda, a Swedish pharmaceutical company looking to gain broader geographic coverage in Europe, for €750m.

The merged company will be a very attractive pharmaceutical in-licensing partner for operations that seek strong pan-European sales and marketing coverage. Anders Lönner, Meda CEO.

 

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Ralf Huep

General Manager, Advent International GmbH, Frankfurt
T: +49 (0) 69 955 2700