As Pfizer Closes Hospira Acquisition, Analysts Speculate About Spinoff

September 4, 2015
By Mark Terry, BioSpace.com Breaking News Staff

Pfizer Inc. , announced yesterday that it had closed its acquisition of Hospira, Inc..

The acquisition had been announced on Feb. 5, totaling about $17 billion. The company projected about $800 million in annual cost savings by 2018. Hospira, headquartered in Lake Forest, Ill., develops and markets injectable drugs and infusion technologies. It employs 19,000 people worldwide.

Now that the deal is closed, Hospira is no longer listed on the stock market, and Hospira chief executive officer Michael Ball made $91.1 million with the sale of his shares to Pfizer, analysts are speculating on whether the deal will trigger a company spinoff.

Pfizer indicates it will revise its financial guidance for the full year of 2015 in the next couple weeks to reflect the Hospira acquisition. “We believe that through this transaction,” said Ian Read, Pfizer chairman and chief executive officer in a statement, “we’ve created value for our shareholders by delivering incremental revenue and expected EPS growth in the near-term by strengthening our GEP business and positioning it for future growth.”

As a result of the merger, Pfizer’s Global Established Products (GEP) are expected to hit an enterprise value of $34 billion to $63 billion by 2018, which granted is a pretty wide range. In 2014, the GEP segment reported $21.15 billion in revenue.

The question then, is will Pfizer spin off its GEP operations? That GEP unit would then become the largest generic drug company in the world. Generics are very active in the life sciences merger and acquisition market lately. Yesterday’s announcement that Philadelphia-based Lannett Company, Inc. bought Kremers Urban Pharmaceuticals Inc. , the U.S.-based specialty generic drugs subsidiary of Belgium-based UCB S.A. is just the most recent case of consolidation in the generics market. Other big moves in the generic market include Israel-based Teva Pharmaceutical Industries Ltd. ’s acquisition of Allergan plc and Jordan-Hikma Pharmaceuticals ’s acquisition of Boehringer Ingelheim’s U.S. generic drugs unit in July. In May, Endo International plc acquired Par Pharmaceutical Holdings Inc. for $8.05 billion, making it one of the fifth largest in the U.S. generics market.

Andrew Baum, an analyst with Citigroup, recently wrote that the Pfizer Inc. -Hospira, Inc. merger could materially improve the long-term cash flow profile for PFE’s GEP division, facilitating the likely spin out anticipated post 2017.

Echoing the statement, Sam Fazelisaid, an analyst with Bloomberg Intelligence, said, “It’s all about fattening up the established pharma business. … This way they can get the established products into a much larger organization and potentially spin that off,” reported BidnessEtc.

At least some of the speculation revolves around the fact that, compared to similarly sized drug companies, Pfizer stock is one of the cheapest, based mostly on the structure of its conglomerate, according to BidnessEtc. But soon? Maybe.

“While a Pfizer break-up would likely be a 2017 event,” wrote Chris Schott, a JPMorgan analyst in a June research note, “we see potential catalysts in 2015 - 2016. Three years of audited financial statements (2014-2016) are required before any part of Pfizer can be spun off, and we also see 2017 as an attractive time for action as investors see Pfizer’s innovative pipeline clearly contributing to growth and the established business having transitioned to a more stable profile.”