Viatris Inc.'s Exclusion from the FTSE All-World Index: A Deep Dive into Valuation and Market Visibility Risks

The recent exclusion of Viatris Inc. (NASDAQ: VTRS) from the FTSE All-World Index has sparked significant debate among investors and analysts. This decision, rooted in regulatory and operational challenges at the company's Indore, India, manufacturing facility, underscores the broader implications of index inclusion for pharmaceutical firms. As a global equity benchmark representing 95% of the investible world market capitalizationFTSE All‑World Index^[3], the FTSE All-World Index's composition directly influences institutional investor behavior, liquidity, and valuation dynamics. For Viatris, the exclusion compounds existing financial headwinds and raises critical questions about its long-term market visibility and investor confidence.

Regulatory Scrutiny and Immediate Financial Fallout

Viatris's exclusion appears tied to a December 2024 FDA warning letter and import alert for its Indore facility, which led to the suspension of 11 key products, including lenalidomide and everolimusWhy Viatris Inc. (VTRS) Is Plunging So Far In 2025^[1]. These actions are projected to reduce 2025 revenues by $500 million and adjusted EBITDA by $385 millionWhy Viatris Inc. (VTRS) Is Plunging So Far In 2025^[1]. The company's Q4 2024 earnings report, released on February 27, 2025, further amplified investor concerns, triggering a 15% stock price dropFTSE All‑World Index^[3]. While the FDA's actions were the immediate catalyst, the exclusion from the FTSE All-World Index likely exacerbated the decline by reducing exposure to index-tracking funds and institutional investors.

The pharmaceutical sector's unique valuation challenges—lengthy R&D cycles, regulatory binary outcomes, and high capital intensity—make such exclusions particularly damaging. Traditional valuation models, such as risk-adjusted net present value (rNPV), already struggle to account for the volatility inherent in drug development pipelinesValuation of Pharma Companies: 5 Key Considerations^[4]. For Viatris, the loss of index inclusion adds a layer of uncertainty, as reduced liquidity and institutional ownership could amplify valuation pressures.

Index Exclusion and Long-Term Valuation Implications

The FTSE All-World Index's quarterly rebalancing ensures that companies must maintain compliance with evolving ESG and operational standards to retain inclusionFTSE All‑World Index^[3]. Exclusion often signals underperformance or regulatory risks, which can deter passive and active investors alike. For example, Hess Corporation's removal from the index in July 2025 coincided with a 12% stock price drop and heightened scrutiny of its debt levelsWhy Viatris Inc. (VTRS) Is Plunging So Far In 2025^[1]. Similarly, Viatris's exclusion may deter index-linked ETFs from holding its shares, reducing demand and potentially depressing its price-to-earnings (P/E) ratio.

Pharmaceutical companies, in particular, face amplified risks from index exclusion. The sector's reliance on R&D-driven growth means that any disruption—regulatory, operational, or reputational—can erode investor confidence. A 2025 study by FasterCapital found that companies excluded from major indices experienced an average 8-12% decline in institutional ownership within six monthsValuation of Pharma Companies: 5 Key Considerations^[4]. For Viatris, this could translate to reduced access to capital at a time when its pipeline is already under strain from manufacturing delays.

Broader Market Visibility and ESG Considerations

The exclusion also highlights the growing importance of ESG criteria in index composition. While Viatris was not explicitly cited for ESG violations, the broader FTSE4Good All-World Index's stricter climate change criteria suggest that pharmaceutical firms must increasingly demonstrate sustainability efforts to retain investor favorDozens of companies ejected from FTSE4Good indices^[2]. This aligns with a 2025 report by the Financial Times, which noted that companies failing to meet decarbonization targets faced higher capital costs and reduced index inclusionDozens of companies ejected from FTSE4Good indices^[2]. For Viatris, this means addressing not only regulatory compliance but also aligning with global ESG benchmarks to mitigate long-term valuation risks.

Strategic Path Forward for Viatris

To mitigate the fallout from its exclusion, Viatris must prioritize resolving the Indore facility's regulatory issues and rebuilding investor trust. Restoring FDA compliance could pave the way for re-inclusion in the FTSE All-World Index, while transparent communication about its pipeline and ESG initiatives may attract long-term investors. However, the company's ability to recover will depend on its capacity to address operational inefficiencies and demonstrate resilience in a sector increasingly shaped by global regulatory and sustainability standards.