Pfizer Decides To Keep Company As One; No Spinoffs in Future

Pfizer has announced that the company will not pursue separating the company into two independent companies, one focused on the company’s innovator products and the second on the company’s established products business.The company had previously announced that it was considering separating the two businesses.

Pfizer reported that the its Board of Directors and executive leadership team have determined the company is “best positioned to maximize future shareholder value creation in its current structure and will not pursue splitting Pfizer Innovative Health and Pfizer Essential Health into two, separate publicly traded companies at this time.”

Pfizer manages its commercial operations through two distinct businesse: Pfizer Innovative Health (formerly the Innovative Products business) and Pfizer Essential Health (formerly the Established Products business). For the first six months of 2016, Pfizer Innovative Health, which as the name implies includes the company’s innovator pharmaceutical products, reported sales of $14.1 billion, a 14% increase year over year, Pfizer Essential Health, which includes the company’s established products (i.e., products late in product lifecycle or generic, including the legacy products from Pfizer’s $17 billion acquisition of Hospira in 2015) reported revenues of $12.0 billion, a 16% increase year over year.

“With this decision, our two distinct businesses will remain separately managed units within Pfizer, which we believe 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,” said Ian Read, chairman and chief executive officer, in a company statement. “We believe that by operating two separate and autonomous units within Pfizer, we are already accessing many of the potential benefits of a split–sharper focus, increased accountability, and a greater sense of urgency–while also retaining the operational strength, efficiency and financial flexibility of operating as a single company as compared with operating as two, separate publicly traded companies. We will continue to generate the financial information necessary to preserve our option to split our businesses should factors materially change at some point in the future.”

Pfizer said the process for making a decision was guided by criteria that included evaluating the performance of each business within Pfizer, determining if each business could compete as a stand-alone entity, assessing if trapped value existed in a combined entity and if any trapped value could be unlocked efficiently. In addition, the company evaluated whether key strategic and operating imperatives could best be achieved in the current structure versus two, separate publicly traded companies.

“When we first explored the trapped value question several years ago, market valuations of other companies suggested that our two businesses could potentially be worth more as separate companies than they are together in a single company,” explained Frank D’Amelio, executive vice president, business operations and chief financial officer. “However, over time, any potential gap between Pfizer’s market valuation and an implied Sum of the Parts (SOTP) market valuation has closed. 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.”

Pfizer said it believes it can grow its Innovative Health and Essential Health businesses, pointing to several recent developments. Over the past several years, the company rebuilt its pipeline and transformed its approach to R&D. Pfizer also created a dedicated R&D capability for its Essential Health business and formed the Global Product Development Group, which is a unified center for late-stage development to maximize the value of its R&D investments. Since 2010, Pfizer received 20 new drug approvals (new molecular entities and new indications for existing drugs) and launched multiple products, including Ibrance, Xalkori, Bosulif, Inlyta, Eliquis, Prevnar Adult and Trumenba.

In Pfizer Innovative Health, the company further points to incremental revenues from the company’s most recently launched products and the recent cquisition of Anacor and the pending acquisition of Medivation. Pfizer believes that its Essential Health business is positioned to return to sustainable growth over the next few years driven by the sterile injectables and biosimilars businesses and anticipated continued growth in emerging markets. The business was further bolstered with the $17 billion acquisition of Hospira in 2015, the 2015 acquisition of Innopharma, and the pending acquisition of AstraZeneca’s small-molecule anti-infectives business.

Over the same period, Pfizer captured approximately $32 billion from the disposition of its Capsugel and Nutrition businesses and the initial public offering and share exchange associated with the spinoff of its animal health business and has returned $88.1 billion to shareholders through dividends and share repurchases since 2010.

Source: Pfizer

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