Pfizer may be headed toward a major restructuring that could include the sale of some of its most enduring brands, an analyst says.
According to a research note from Tim Anderson of Bernstein Research, new CEO Ian Read and the board are weighing several options to stimulate growth off a smaller revenue base, $35-40 billion vs. about $67 billion. These include spinning off or selling four non-pharma divisions—nutritionals, consumer health, animal health and Capsugel, a capsule manufacturer—along with the Established Products division, which includes the Greenstone generics and biosimilars units.
Pfizer, arguably the most acquisitive of the big pharmas, swallowed up Wyeth in 2009 for $68 billion and King Pharmaceuticals the following year under previous CEO Jeff Kindler. Post-Wyeth, its late-stage pipeline has some promising agents but share price has languished, and now Read and the board are rethinking the notion that bigger is better.
“In general, of course, it is easier to grow if you are smaller, and as we discuss in the report, PFE is past the point of having scale benefits,” Anderson told MM&M
by e-mail. Read's recent plan to trim the 2012 R&D budget by 18%
was, apparently, one clue he was about to turn the ship around.
The CEO appears to want to narrow the focus, albeit without sacrificing marketing muscle. Added Anderson: “They will probably have fewer therapeutic areas, which means their sales force would be smaller, but that's not the same as saying they will have under-resourced product.”
What would Pfizer reps have left to sell in their bag of patent-protected, pharma-only products, what Read calls the “Innovative Core?”
Anderson speculates remaining key franchises would include products such as Prevnar-7v/-13v, Enbrel, Sutent, Viagra (assuming US patent protection to 2019), Lyrica, Chantix, Benefix, Pristiq, Zyvox and others. Co-promoted drugs, like Aricept, would also be included, as would the late-stage pipeline drugs such as tofacitinib (JAK-3 inhibitor), apixaban (blood clot prevention), crizotinib (anti-cancer), and Prevnar-13v for adults (pneumonia prevention). Total Bernstein sales forecasts for pipeline drugs amount to $3.8 billion by 2015.
What brands would go? Pfizer does not provide the exact list of drugs that are included in the Established Products division. It includes those —like Zoloft—that have lost patent protection or marketing exclusivity in major markets but not necessarily everywhere. These legacy brands, in authorized generic form, are cash cows that, in total, rake in several hundred million dollars a year.
However, “There is no exact trigger for when exactly products get
reclassified as Established Products—it is determined on a case by case
basis,” notes the report. According to Anderson, six drugs could be added to Established Products after 2011, including some ahead of
their expected patent expiry: Aromasin, Caduet, Celebrex, Detrol, Geodon and best-seller Lipitor.
That's the analyst's best guess, though, on what could be included at the time of a potential spin-off. On the other hand, if Read can put together a deal for Established Products prior to November, and decides to add Lipitor to Established Products to make it more attractive to potential suitors, the firm might end up jettisoning the statin sooner than its US patent expiry. Additional brands could be added as they lose marketing exclusivity.
In Anderson's view, shareholders would prefer spin-offs over outright sales of non-core units. Separation of many of the different businesses may not occur until 2012, the analyst wrote, with the timing likely to vary by division. His new price target on PFE: $23, up from $21 before.