Pfizer reorg came on heels of its walk-back on price hikes

Share this content:


Pfizer announced on Wednesday its intent to reorganize into three businesses from two and will now include discrete units for science-based innovative medicines, consumer healthcare, and off-patent branded and generic established medicines.

The extent to which consumer remains one of the three units is unknown, however, as the company did not address previous plans to sell the consumer health arm. Nor did it address the possibility of splitting off its established meds unit, a scenario that remains on the table, according to analysts.

As of now, Pfizer has operated as two businesses: innovative medicines and essential health. Pfizer said the changes will go into effect at the start of its 2019 fiscal year, but that they will not impact 2018 guidance or capital allocation priorities. 

The announcement came just a day after Pfizer agreed to defer a set of price increases on more than 100 medications, following what it called an “extensive discussion” between President Donald Trump and Pfizer CEO and Chairman Ian Read. The price increases had been effective July 1.

The company vowed to reinstate pre-July pricing “as soon as technically possible” and to keep the prices fixed until the administration's blueprint goes into effect or until the end of the year, whichever comes first. Pfizer's press statement also added that it was delaying the increase “to give the president an opportunity to work on his blueprint to strengthen the healthcare system.”

Meanwhile, in letters sent yesterday to HHS Secretary Alex Azar and Pfizer's Read, Sen. Ron Wyden (D-OR) called on them for additional information on the agreement, specifically when the drugmaker's delayed pricing will go into effect, when details could be expected, and whether other pharma companies could expect similar treatment.

Saying in the Pfizer letter that the drugmaker's decision to put a hold on the price hikes “illustrates how arbitrary” such decisions are, Wyden asked, “What did the administration specifically agree to in exchange for Pfizer's decision to delay its previously announced price increases?”

He accused Trump and the administration of “scoring cheap PR points that don't address the fundamental challenges that lead to higher prices every year.”


More streamlined experience

Pfizer is well-known for its habit of restructuring, though analysts hailed this one as different owing to the imminent expiration of several patents.

“Pfizer seems to have spent the better part of the last decade structuring and restructuring,” wrote Credit Suisse analysts yesterday in an investor note, “but we do feel things are somewhat different this time around as the company approaches the end of a period with heavy patent expirations and sets itself up for what should be a period of stronger growth starting in 2020.”

While the company anticipates losing exclusivity on megablockbuster fibromyalgia drug Lyrica as soon as December, Wednesday's announced plan is designed to optimize growth opportunity among the off-patent established brands. Lyrica will be housed within this unit, along with such other off-patent legacy brands as the statin Lipitor, antihypertensive Norvasc, and ED pill Viagra, plus certain generic medicines. 

Revenue for Lyrica in the most recent quarter was $1.1 billion, roughly the same as the year prior. It netted the second-highest revenue of any drug in Pfizer's innovative health business. Even after Lyrica goes off-patent, Pfizer said this unit “has the potential to generate sustainable modest revenue growth,” adding that it expects emerging markets, particularly Asia, to deliver a lot of the demand. 

In terms of the long-rumored possibility of splitting off this unit, “We believe the potential for Pfizer to ultimately sell or spin the business likely remains on the table over time, especially as it develops more fully-dedicated manufacturing, marketing and regulatory capabilities,” the Credit Suisse analysts noted.

Meanwhile biosimilars and hospital medicines (think anti-infectives and sterile injectables) will soon be shifted from essential health over to innovative medicines, a change which could offer customers a more streamlined experience.

“We had long seen PFE's approach to keeping biosimilars in Essential Health as inefficient, requiring two different sales teams to talk to the same customers about branded and biosimilar medications in areas such as oncology and inflammation/immunology,” Credit Suisse added. “With biosimilars likely to make a greater impact going forward, we feel this shift makes sense, while a focus on Hospital Medicines could provide Pfizer with an opportunity to gain traction in an area where many of their larger competitors are no longer focusing.”

Consumer healthcare will comprise all of Pfizer's OTC drugs, including products like Advil and ChapStick. Pfizer last commented on the potential sale of the consumer unit in May, saying that as of that time it had not received an acceptable offer. The business is valued at around $15 billion.

Innovative meds and consumer health will comprise three-quarters of Pfizer's revenue, with established brands comprising the other quarter. The company's total 2017 revenue was $53 billion. 


Pricing

The Financial Times first reported last week that Pfizer would continue its biannual price increases on many of its most popular drugs, including erectile dysfunction drug Viagra and Lyrica. 

But many of Pfizer's competitors—like Novartis AG, Gilead Sciences Inc. and Roche Holding AG—had curtailed such price hikes after coming under fire from the public and lawmakers, instead agreeing to raise prices just once per year and to keep increases at less than 10% each year. 

The walk-back on pricing followed some strident tweeting by the president. On Monday, Trump tweeted that Pfizer and others “should be ashamed that they have raised drug prices for no reason.

“They are merely taking advantage of the poor & others unable to defend themselves, while at the same time giving bargain basement prices to other countries in Europe & elsewhere. We will respond!” he wrote. 

On Tuesday, he tweeted that following the conversation with Read and Health and Human Services Secretary Alex Azar, “Pfizer is rolling back price hikes, so American patients don't pay more.”

“We applaud Pfizer for this decision and hope other companies do the same. Great news for the American people!”

Pfizer stock has gained 3.3% so far this year. 

Share this content:
Scroll down to see the next article