Pfizer: Breaking Up Is Not Hard To Do?
26 CommentsBy Ed Silverman // March 14th, 2011 // 9:39 am
After spending more than a decade growing into a behemoth by single-mindedly pursuing big acquisitions - think Warner-Lambert, Pharmacia and Wyeth - Pfizer is now signaling a change of heart. To wit, the drugmaker is said to considering the spin off or sale of all four non-pharma units, including nutritionals, consumer health, animal health and a business that makes capsules.
Moreover, Pfizer may even shed what it calls the Established Products division, a $10 billion operation that includes off-patent meds, the Greenstone generics unit and biosimilars, according to an investor note from Sanford Bernstein analyst Tim Anderson. He writes that such moves would trim Pfizer nearly in half - from about $67 billion in annual revenue to between $35 billion and $40 billion.
“If we hadn’t been there ourselves to hear it firsthand, we would not have believed it, but it seems from our recent meeting with ceo Ian Read that Pfizer may be destined for a significant shake-up,” he writes, adding that what will be left would be thought of as the ‘Innovative Core.’ “No final decisions have yet been made, but all options appear to be on the table.”
Ironically, the push toward big acquistions came from Pfizer chairman emeritus and former ceo Bill Steere, who continues to wield considerable influence over the drugmaker, a role that sources say contributed to the departure late last year of former Pfizer ceo Jeff Kindler (read here and here).
The board, however, appears to have finally recognized the folly of growing big for the sake of it. As Anderson continues, Pfizer stock “has languished and now management and the board could find themselves taking a very different path forward that simplistically involves splitting the company up into different pieces…As Read points out, he too is a shareholder and has been frustrated with Pfizer’s stock price.”
This is not the first time that the sale of a division has been mentioned recently. The nutritional business, in particular, has been the subject of speculation, especially after Pfizer took the unusual move of giving responsibility for the business to general counsel Amy Schulman (read this). And last fall, Pfizer announced plans to sort out the future for the Capsugel division. In fact, these moves suggest Pfizer management has been eyeing ways to shrink for awhile and the recent decision to further cut R&D is part of the plan to support a smaller revenue (look here).
But is this a good idea? Anderson notes that “getting smaller is not a bad thing,” but there are reasons for pause. “At least as it relates to the non-pharma divisions, it is valid to ask whether management could be making a short-sighted decision in favor of shareholders, at the expense of the long-term integrity of the Pfizer organization by hitching its wagon solely to the prescription pharma side of the business. Non-pharma divisions are, in essence, annuities that help buffer the pharmaceutical business where the fundamental outlook remains more clouded. The risk is magnified when considering PFE’s poorer R&D track record over the last decade,” despite an interesting promising late-stage pipeline.
Indeed, Pfizer sold off the Warner-Lambert over-the-counter business and then, recognizing that a more diversified portfolio would smooth out rough patches that come with a pharma biz, appeared happy to acquire the Wyeth OTC business. Spinning off or selling this operation would mark yet another about-face and, as Anderson notes, leave Pfizer vulnerable to the vagaries of a pipeline, however interesting.
In any event, how this will work is not yet clear, but pharma spin-offs are certainly not new - examples include Merck and Medco; Eli Lilly and Guidant; Abbott Labs and Hospira; and Bristol-Myers Squibb and both Zimmer and Mead Johnson.
industry insider
Consider the following time frame from the perspective of shareholder confidence in Pfizer:
-2006, Pfizer sells consumer products division to J&J;
-2009 Pfizer acquires Wyeth Consumer Products Division;
-2011 Pfizer considers spinning off Consumer Products Division.
The time has long passed for PFE to decide whether it wants to be a pure play pharma co. or a diversivied healthcare co. They are in the final two minutes of the fourth quarter in a game which they are trainiling badly. Even a Hail Mary won’t get the job done.
Last thing the stock market wants to see is uncertainty in a company. With their recent decisions, PFE has been and continues to be the modern day practitioner of the Heisenberg Uncertainty Principle.
Searching2000
A decision to spin off the “non-phrma” units as described is one thing. The idea of going even farther - “Pfizer may even shed what it calls the Established Products division, a $10 billion operation that includes off-patent meds, the Greenstone generics unit and biosimilars” - seems absurd.
Generics and especially biosimilars are THE wave of the future as defined by both current business patterns and every other large pharma, IMHO. Perhaps this is an over-statement that can be retracted to make spinning off the initial group of companies palatable?
Condor
One other collateral consequence of the Tim Anderson/Pfizer piece:
Suddenly the Merck-Sanofi New Merial JV — in Animal Health markets (where it would have been the biggest player) — is likely to be re-evaluated by US and EU antirtrust regulators, and potential counter-parties to the correlative required divestitures.
Earlier today, Lilly announced it was buying some J&J Animal Health businesses; Lilly was a suspected buyer of some of the divested Merial assets.
Now, Pfizer/Fort Dodge is suggesting there may be buyers or new players holding these latests AH assets. . . .
The whole animal health market, on a global baiss, is about to be transformed. Will any of the old line names even be on the table any more?
Who knows.
Namaste, and great stuff, Ed!
Ricardo Ros
It does seem more like the involuntary spasms of a dying animal.
The biggest problem for the company is there will be no way they can attract real talent with the total lack of direction. The lack of a solid strategy from the bod and the army of ceos of the last 10 years is a dangerous precedent for anyone wanted to make a career in Pfe.
Insider
It seems like those companies are a good buffer. I do not know why they sold their consumer division the first time. THey are suppose to have 20 billion in cash so I don’t see a need for more cash. Pharma seems to be very unstable as far as developing new drugs. IT seems like a good idea to stay diversified. I don’t understand their thinking.
They have already dumped all their talent, I did not understand that thinking either.
THey seemed to want to keep all the managers invovled in the illegal activity. THose people are not what I call talented.
Mike Wokasch
If Pfizer in fact downsizes further and divests to the extent discussed here, it will be the single biggest validation of the recommendations for change and pharmaceutical industry predictions outlined in the book Pharmaplasia™. http://www.PharmaReform.com
industry insider
Sedaka still going strong.
http://www.neilsedaka.com/
mike
Pfizer is a menace to society. Thousands, and thousands of layoffs as the executives who steered the company there got rich. The company is a poster boy for everything that’s wrong with America’s economy.
industry insider
Mike, I don’t agree that Pfizer is a “menace” to society unless you think they put the cyanide in the Tylenol capsules. They have rather been a poorly managed company with an outmoded business model and bad executive decision making. Employees are the ones to feel the brunt as always. Any employee that still felt that a big pharma position was a “job for life” after about Y2K was sorely mistaken or simply naive.
Best career advice? Be your own boss. Take charge of your career, keep youu eyes open and your ears to the ground. Explore the job market even when you think you are securely employed. Those are the tips for staying one step ahead of The Grim Reaper. I was taught that by my first big pharma boss way back in 1983 when things were indeed seemingly more secure. Do these things and you’ll be ok.
industry insider
Mike W, I see that “Pharmaplasia” is only available as an e-book on Kindle. Any other formats available?
Mike Wokasch
Industry Insider,
Thanks for asking. Hard and soft cover copies of Pharmaplasia™ are available at http://www.PharmaReform.com. It is also available in ePub format at Barnes and Noble.
neers87
Pfizer is actually making very bold moves. I’m not a fan of Pfizer, however I expect the divestiture is a preliminary move to capitalize in the Bio-Tech space.
There are incredible advances being made right now in Bio-Tech, and my take on this would be that Pfizer is looking at finding optimal value for current assets that it believes will have less value in the future relative to some Bio-Tech targets.
PFE has been on its heels for some time now, obviously the current model is not optimizing shareholder value. To continue down that path simply doesn’t make sense. Bold Move!!!
AnnePME
So, let me see if I understand this correctly:
If work for Pfizer in drug development, production or sales, you do not have good job security or salary prospects. If you are employed by Pfizer’s investment bankers, you have good job security and salary prospects…?
Ricardo Ros
Sorry, but, advances in Biotech? The only advances in biotech are the ones about how to scam big pharma quicker and more effectively from their dollars.
Christopher
Dear Anne - have you looked at the fall out in financial circles this past couple of years? Investment banking has never offered good job security; it has always been about performance and is now more so than ever. Good = stay, poor = go.Other than for some in academia and the perhaps military I don’t believe there is any job security. At all. Hasn’t been for years and it’s sad that those in the pharma industry are finding that to be the case.
JaT
My question/concern about the shedding of the Established Products Division applies to all of the drugs involved - but I’m going to focus on the one I am very familiar with. I don’t take Pfizer’s phenytoin (I refuse to call it Dilantin as it is only Dilantin in name, as far as I am concerned).
Anyone taking any of these “established products” might want to think about what this could mean for them.
Speaking from experience and assuming the rights to these drugs, and their trusted and trademarked names, would be sold off. Might these drugs still be dispensed under these venerable names despite the potential for changes, further rendering the DAW pointless?
I am curious if those who dodged the “New Look” Dilantin bullet, a few years ago, should be warned this time - and given a few months to titrate safely. The purchaser may, as Pfizer did, change the process, quality of ingredients, or absorption - leading to a whole new group of people adding to the 1500+ who reported to Medwatch last time.
In short, will consumers be notified of a change of hands (or process) so they can understand why, if their medication suddenly works or feels differently, that it is being produced by someone else.
Keep in mind that I was opposed to the immediate yanking of Avandia for the purpose of allowing consumers a few months to make safe and informed changes. There is nothing quite like being thrown into a dangerous tailspin because your medication is not what it used to be or is no longer available.
Dilantin, which was once the most prescribed epilepsy drug country (world?), after 69 years (I think it was) was altered to the extent that it no longer met the criteria of the innovator product. Making me wonder - what is the point of ever getting it right?
PfiredAgain
While it is sad that an icon of the industry may be gasping its last breaths I am far more saddened by the realization that on a far larger scale I, and many of my colleagues may no longer have the option of a career hunting drugs. This is the mid-life second career I believed would thrill me until retirement. But now, after trying unsuccessfully for 13 months to keep my hands in the hood I am forced to consider other career options no matter how unsatisfying that may be. As for Pfizer, there is no doubt in my mind that
“…management could be making a short-sighted decision in favor of shareholders, at the expense of the long-term integrity of the Pfizer organization…”
and it is not the first time. Or the last.
keiner
@Crisitopher
Oh, come on, do job security for investment bankers! Scandal! Please arrange a date with my secretary, so that we can sit together and cry for an hour or so. Plese bring with your last bonus, if it fits in your wallet.
It’s a shame that these guys are still not in jail (or worse), but please don’t come up with job security for gangsters.
Christopher
Hello Keiner,
Read it again. You missed the point entirely. And I’m not an investment banker.
Chris
Darrell plough
Pfizer is just confirming what everyone in Kalamazoo Mich (former home of the Pfizer gobbled Upjohn Co) has known for years, their management is grasping at straws and doesn’t really have a clue. Personally, I’m very glad I retired when I had a chance. Corporate Pfizer, shame on you!!! There’s a saying we used to say about them, “their heart ain’t no bigger than a mustard seed!”
Darrell Plough
industry insider
Keiner and Christopher, you are both speaking truth. Whenever my last consulting contract in Pharma expires I plan to parlay my expertise into a job as a hired gun for an investment banking company. Having made presentations to these firms in my dialing for dollars days, I managed to put together a pretty decent rolodex. It’s not quite as much money, but the life of sitting in mahogany paneled corporate board rooms and listening to a one hour powerpoint presentation from a pharma executive while eating a catered lunch 2-3X/week, with weekends off isn’t a bad way to go.
Darrell
Wait a minute! Pfizer stock is up 19 percent with the new CEO, best growth in years, give it a chance! The board may have finally grasped the right straw. Don’t be too quick to condem the CEO’s, didn’t the Board select/approve them! Perhaps they are the ones to be held accountable.
DP
David Avitabile
What an indictment of the “bigger is better” strategy that big pharma has pursued for at least the past 10 years. Smaller, more agile and better managed companies will always out-innovate. They are much more fun to deal with as well.
pharm d
The “structual reorganization” mantra as many Big Pharma companies would call it seems to be a recurrent trend for many pharmaceutical companies these days. As notably stated by David, “smaller, more agile and better managed companies will always out-innovate” the bigger companies. It’s the corporation and larger companies that seem to get convoluted in the business side of things. Pfizer perhaps is preparing to shed it’s smaller assets due to their imminent “money-maker” Lipitor patent expiration in June.
David
It looks like Pfizer is serious this time.
Subject: FW: Pfizer in the News
PFIZER TO CUT WORKFORCE 120 PERCENT
NEW YORK, N.Y. (AP.com) - Pfizer will reduce its workforce by an
unprecedented 120 percent by the end of 2011, believed to be the first
time a major corporation has laid off more employees than it actually
has.
Pfizer stock soared more than 12 points on the news.
The reduction decision, announced Wednesday, came after a year-long
internal review of cost-cutting procedures.The initial report concluded
the company would save $1.2 billion by eliminating 20 percent of its
108,000 employees.
From there, said a spokesperson, “it didn’t take a genius to figure out
that if we cut 40 percent of our workforce, we’d save $2.4 billion, and
if we cut 100 percent of our workforce, we’d save $6 billion. But then
we thought, why stop there? Let’s cut another 20 percent and save $7
billion.
“We believe in increasing shareholder value, and we believe that by
decreasing expenditures, we enhance our competitive cost position and
our bottom line,” he added.
Pfizer plans to achieve the 100 percent internal reduction through
layoffs, attrition and early retirement packages. To achieve the 20
percent in external reductions, the company plans to involuntarily
downsize 22,000 non-Pfizer employees who presently work for other
companies.
“We pretty much picked them out of a hat,”.
Among firms Pfizer has picked as “External Reduction Targets,” or ERTs,
are Quaker Oats, AMR Corporation, parent of American Airlines, Lockheed,
Boeing, and Charles Schwab & Co. Pfizer’s plan presents a “win-win” for
the company and ERTs, said Chris, as any savings by ERTs would be passed
on to Pfizer, while the ERTs themselves would benefit by the increase in
stock price that usually accompanies personnel cutback announcements.
“We’re also hoping that since, over the years, we’ve been really helpful
to a lot of companies, they’ll do this for us kind of as a favor,”.
Legally, pink slips sent out by Pfizer would have no standing at ERTs
unless those companies agreed. While executives at ERTs declined to
comment, employees at those companies said they were not inclined to
cooperate.
“This is ridiculous. I don’t work for Pfizer. They can’t fire me,” said
Kaili Blackburn, a flight attendant with American Airlines.
Reactions like that, replied the Pfizer spokesperson “are not very
sporting.”
Inspiration for Pfizer’s plan came from previous cutback initiatives,
said company officials. In January of 1998, for instance, the company
announced it would trim 18,000 jobs over two years. However, just a year
later, Pfizer said it had already reached its quota. “We were quite
surprised at the number of employees willing to leave Pfizer in such a
hurry, and we decided to build on that,”.
Analysts credited the short-term vision, noting that the announcement
had the desired effect of immediately increasing Pfizer’s share value.
However, the long-term ramifications could be detrimental, said Morgan Stanley analyst Beldon McInty.
“It’s a little early to tell, but by eliminating all its employees,
Pfizer may jeopardize its market position and could, at least
theoretically, cease to exist,” said McInty.
The spokesperson, however, urged patience: “To my knowledge, this hasn’t
been done before, so let’s just wait and see what happens.”
RPH
Am a 32 year Pfizer veteran. Pfizer has gone through significant change in the last decade, since the buying frenzy started!!! It started with Steere’s ASTUTE acquistion of WL, McKinnel demonstarted his inate incompetence when purchasing the big loser Pharmacia, and ended with Kindler’s acquistion of Wyeth out of desperation. The post WL acquisitions were all attempts to backfill Lipitor revenue upon patent expiration!!!! An impossible task!!!! All these men are very wealthy, most of my collegues and friends are out of work. It has been devastating to watch!!! Bottom line: gross mis mangement!!!