July 29, 2013 / 1:20 PM / in 5 years

Pfizer to split generic, branded drugs units

(Reuters) - Pfizer Inc, in what could be the prelude to spinning off of its generics drug business, said it plans to separate its commercial operations into two units mainly for patent-protected branded treatments and a third for generics.

The entrance of Pfizer World headquaters in New York City, August 31, 2003. ECONM REUTERS/Jeff Christensen

Pfizer, the largest U.S. drugmaker, said on Monday the changes will go into effect in January in countries that do not require a consultation with labor unions.

Earlier this year, Pfizer said it would begin examining the finances of its patent-protected unit, which it calls its “innovative” business, and its generic operation, its “value” business, to decide whether to spin off the generics operation. It said the review would take three years.

Pfizer generics, which have far lower profit margins than patent-protected drugs, had global sales last year of $10.2 billion. The business represents 17 percent of total sales and overwhelmingly comes from overseas.

One “innovative” business will include drugs expected to have patent protection beyond 2015, and include treatment areas for inflammation, immunology, cardiovascular and metabolic, neuroscience and pain, rare diseases and women’s and men’s health. Geno Germano, currently heads Specialty Care and Oncology, will serve as president of the Innovative Products Group.

The other “innovative” business will include vaccines, cancer and consumer healthcare. Amy Schulman will be president of the Vaccines, Oncology and Consumer Healthcare unit.

“The vaccines, oncology and consumer operations that will be bundled together seem unlikely bed fellows,” Citibank analyst Andrew Baum said in a research note. He speculated the components, all dependable sources of revenue, were grouped together to provide a “balanced” revenue base.

Many analysts have urged Pfizer to spin off its generics business, just like it did with the nutritional products and animal health units in recent years so it can focus on its core, more lucrative branded pharmaceuticals business.

Baum said any new divestment or spinoff of a company division would be unlikely before 2016 because of the complexities of the supply chain and infrastructure that Pfizer is examining.

Schulman is Pfizer’s general counsel and also heads the company’s consumer healthcare unit, a $4 billion-a-year business. Pfizer has shown no interest in selling the unit, which makes the Advil painkiller and Robitussin cold treatment.

As Pfizer’s top lawyer, Schulman helped negotiate its purchase of rival drugmaker Wyeth in 2009. She also helped spearhead Pfizer’s $11.85 billion sale of nutritionals products, a business she had headed, to Swiss food giant Nestle last year.

Pfizer’s global sales fell 9 percent to $13.5 billion in the first quarter, hurt after losing marketing exclusivity for its Lipitor cholesterol fighter. Sales of generics fell 16 percent to $2.35 billion, dragging down overall company results.

Chief Executive Ian Read said in April Pfizer will need three years to determine whether to hold on to its innovative and value businesses, or whether shareholders would benefit from a sale of the generics business.

In the meantime, Read said the company will increasingly manage the businesses as separate operations and conduct financial audits to gauge their relative worth to Pfizer.

“We will test the model of separate managements and see if it generates shareholder value, and whether shareholders recognize that,” Read said in an interview. “And we’ll take decisions from them.”

Pfizer’s shares gained nearly 1 percent to $29.63 in mid-day trading on the New York Stock Exchange.

Reporting by Ransdell Pierson; Editing by Gerald E. McCormick, Maureen Bavdek and Jeffrey Benkoe

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