July 18, 2016
By Mark Terry, BioSpace.com Breaking News Staff
It’s fairly easy to forget that when Pfizer attempted to acquire AstraZeneca in 2014 and Allergan in 2015/2016, that a tax inversion was only part of the company’s strategy. The company’s net sales have been slowing since 2011, largely related to patent expirations for its top drugs. The acquisitions were strategically designed to bolster the company’s established products lines.
In addition to the mergers, Pfizer has been floating the idea for about three years, of splitting the company into at least two parts, one made up of older, established products and other of newer drugs. Although a split up is still on the table, investors and analysts are undecided on the best way forward.
As Forbes writes, “The strongest argument in favor of the split is: two smaller more focused companies can add extra value, which for now, is trapped in the conglomerate structure.”
As it is currently structured, Pfizer has two primary units, Pfizer Essential Health, made up of the Global Established Products (GEP) division, and Pfizer Innovative Health, which has two units, Global Innovation Products (GIP) and Vaccines, Oncology and Consumer healthcare (VOC). The GEP accounts for a significant proportion of Pfizer’s annual revenue, but the GIP and VOC divisions are far more growth-based than the established products.
Forbes writes, “New products in GIP such as Enbrel, Lyrica, Eliquis, and Xeljanz could become blockbuster drugs—with the Street expecting sales of $14.6 billion this year. At present, VOC contributes 29% to total revenue and comprises two top-selling products: a vaccine by the name of Prevnar, and breast cancer drug, Ibrance. Both, Prevnar and Ibrance, have surpassed expectations since launch, and are expected to yield a hefty $7 and $9 billion in sales by 2020, respectively.”
If the two companies split, the overall sales of faster-growing products wouldn’t be dragged down by its slower sales. “The potential split could further lead to stronger ownership and motivation for GEP employees, potential operational improvements, better access to capital for R&D, a freer mandate to aggressively challenge IP related to biosimilars and potential disappointment for many investors if it does not go ahead,” said Jeffrey Holford, an analyst at Jefferies, in a note to investors.
The other strategy, if Pfizer should decide to stay together (and even if it does split), is smart, strategic acquisitions. In 2015, Pfizer acquired Hospira for about $17 billion. In May 2016, Pfizer acquired Anacor Pharmaceuticals for about $5.2 billion.
As Forbes writes, “While Anacor’s purchase was meant to boost Pfizer Innovative Health, the Hospira acquisition was meant to revive growth at GEP. Hospira’s addition has blessed Pfizer with a leadership position in the sterile injectables market, with a robust portfolio of both generic and branded drugs. The sterile injectables market is expected to reach $70 billion by 2020, as per a company press release from 2015. Similarly, the acquisition also puts Pfizer in a leading position in the biosimilars market, which is expected to become a $20 billion market by 2020, as per the press release.”
If Pfizer does split, it unloads its GEP segment, which is currently its highest revenue-generator, which is doing even better because of the Hospira acquisition. Forbes writes, “The current strategy of focusing on smart acquisitions can bless the drugmaker with a much-needed turnaround; a strategy Pfizer should adopt in the long run. An Acquire-to-expand strategy is also sustainable for Pfizer, given its hefty stream of cash flows. The idea completely diminishes the need for a split, a move which will lead to duplication of expenses rather than extra savings that consolidation offers.”
Which is undoubtedly why the company’s chief executive officer, Ian Read, executives and board of directors make the big bucks—they get to make the tough decisions and live with the consequences.
