Drugmakers Weigh Carve-Outs as Abbott Laboratories, Pfizer Inc. Set Pace

Published: Feb 15, 2013

Breaking up is getting easier for pharmaceutical companies. Recent restructurings by Pfizer and Abbott Laboratories have set the pace for others as investors applaud the unlocking of value trapped inside large drugmakers. The success of deals such as Abbott splitting off its innovative drugs into AbbVie and Pfizer's spin-out of animal health into Zoetis has increased the pressure on other boards to consider smarter corporate structures. "We will see more," said Jeff Greene, head of life sciences transactions at Ernst & Young. "It doesn't mean we are not going to see a lot of merger and acquisition activity as well, but there is going to be a focus on rationalising portfolios." Two factors are driving the trend: the changing nature of the market - which demands different offerings in different countries - and a more rigorous approach to capital allocation, prompting firms to carve out some areas while adding others. Bristol-Myers Squibb is one company ahead of the pack on divestments, after spinning off its baby food unit Mead Johnson Nutrition in 2009. It took a further step to shed non-core assets with a $482 million deal this week that gives Reckitt Benckiser rights to sell certain over-the-counter (OTC) drugs in Latin America. Johnson & Johnson, arguably the ultimate healthcare conglomerate, is also considering selling its diagnostics business or turning it into a stand-alone company. And Pfizer, which sold its nutrition business to Nestle for $12 billion nine months before floating Zoetis, is not ruling out an even bigger split of its premium branded drugs from its generic products, although such a step, if entertained, is likely to be some way off. European drugmakers have been more wary about such radical reshaping, reflecting their broader global footprint relative to U.S. rivals. "Since the European companies have twice the emerging markets presence as the U.S. companies, they have been moving more towards diversification - global presence tends to dictate a broader business model," said UBS analyst Gbola Amusa.

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