Pfizer Split Could Come as Early as 2015-2016, J.P. Morgan Says
June 1, 2015
By Riley McDermid, BioSpace.com Breaking News Sr. Editor
The revamping of Pfizer Inc. ’s internal business structure could happen as soon as this year, said an analyst with J.P. Morgan, a much faster timeline than most of Wall Street had predicted for Pfizer’s stated mission to refocus its efforts on new medicines.
Pfizer initially announced in 2012 that it would be shedding units that were non-essential to that goal. It then promptly sold its nutrition silo to Nestle for $11.85 billion, which was rapidly accompanied by a public spin-off of its animal health business for $2.2 billion.
Now, however, Pfizer is zeroing in on just exactly what it will unload in this coming year—and those changes will be significant, wrote Chris Schott, an analyst at J.P. Morgan, in a note to investors on Friday.
“While a Pfizer break-up would likely be a 2017 event, 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,” he wrote.
“However, we believe there could be related 2015-2016 catalysts for the stock, and note that the AbbVie spin-off from Abbott Laboratories was announced over 14 months before the deal was effective and the Baxalta spin-off from Baxter International was announced in March 2014 ahead of a July 2015 split.”
Schott also noted that Pfizer’s management has been sending signals that it will take actions to restructure soon, disclosing that Pfizer CEO Ian Read reportedly showed "an openness to going further with separations” at an investor meeting held a few months ago.
In an earnings call, Read said that he looks at Pfizer consists as two separate silos: Its R&D-based drug unit, a second moneymaker from generic or off-patent (established) drugs.
That has an analyst at Goldman, Sachs & Co., Jami Rubin, projecting a scenario where Pfizer breaks up entirely into a generic drug business and a separate pharma entity, which he estimated could rake in $5.7 billion in additional revenue via its existing pipeline.
“[That would create] a sum-of-the-parts value of $33, which assumes no P/E expansion," wrote Rubin in a note to investors, adding that Pfizer’s 2013-2017 sales could have cumulative annual growth rate (CAGR) of 4 percent, which would be a huge boost to investors.
Pfizer CFO Frank D’Amelio has also hinted at a larger Pfizer split, saying on an earning calls April 28, “If we were to do a large transaction, and as Ian said before, we're agnostic to size...it clearly could impact our timeline."
Will PfizerKline Become the Next Pharma Player?
The speculation surrounding a possible bid from Pfizer Inc. for struggling GlaxoSmithKline is heating up, after one closely-watched biotech analyst said in a note last week that Pfizer buying the company would “unlock access to its balance sheet and improve its tax situation.”
Gregg Gilbert, a biotech analyst at Deutsche Bank, wrote in a note to investors “Introducing PfizerKline” that he thinks a deal would be “materially accretive” for both companies. Gilbert estimated that a bid priced at $29.86 a share, via half stock and half cash, which would push up Pfizer’s earnings per share by 10 percent to 16 percent beginning in 2016.
“We believe that the company has a sense of urgency to create value by leveraging the power of its balance sheet to do needle-moving deals,” Gilbert wrote. “Since media reports in the past have pointed to the potential for a Pfizer/GSK combination, we are revisiting that theme.”
We want to know, dear readers, if you agree? Should Glaxo continue going it alone, or might Pfizer buy it and create one of the world’s largest pharma players in history?