- After years of back-and-forth discussions, Pfizer on Monday decided against splitting its branded drugs and generics businesses into two stand-alone companies, opting instead to remain unified with two separately managed units.
- Pfizer CEO Ian Read indicated the company believed operating as one company with two distinct businesses unlocked "many of the potential benefits of a split — sharper focus, increased accountability, and a greater sense of urgency."
- In recent months, company executives had taken a more cautious tone discussing the potential split, while major deals for Anacor Pharmaceuticals in May and Medivation, Inc. in August bolstered growth prospects. Still, Pfizer stock fell by 1.4% in early trading Monday morning in reaction to the news.
Pfizer stuck to its promise to decide on a split before the end of the year, capping an eventful spring and summer which saw a proposed $160 billion mega-merger with Allergan collapse and the successful acquisition of hot-ticket cancer company Medivation.
"In our analysis, we concluded that splitting into two companies at this time would not enhance the cashflow generation and competitive positioning of the businesses and the operational disruption, increased costs of a split and inability to realize any incremental tax efficiencies would likely be value destructive," said Frank D'Amelio, head of business operations and chief financial officer at Pfizer.
Pfizer internally reorganized its business several years ago, separating its higher-growth branded products from its legacy lower growth generic drugs. Investors had questioned whether keeping the two units together under one roof trapped potential value — in which case a split could unlock higher values.
The company's branded portfolio has grown strongly, notching an 11% year-over-year gain in 2015 and rising 14% over the first six months of this year, compared to the same period a year prior.
The established products unit, on the other hand, has struggled. Excluding revenues realized from Pfizer's 2015 acquisition of Hospira, product sales have dropped by 6% through two quarters this year.
Pfizer believes both units are primed for stronger performance, however. Acquiring Medivation and Anacor has added a blockbuster prostate cancer drug and a potential high-growth eczema drug candidate to Pfizer's branded portfolio.
On the established product side, Pfizer sees a return to growth over the next several years, led by sterile injectables and biosimilars.
As part of its decision to remain unified, Pfizer will overhaul its financial reporting for the two businesses, "more fully" allocating indirect expenses to each beginning in the first quarter of 2017.
"We believe [a unified company with separately managed units] is currently the best structure to continue to deliver on our commitments to patients, physicians, payers and governments, and to drive value for our shareholders,” Read said.