August 6, 2015
By Alex Keown, BioSpace.com Breaking News Staff
NEW YORK – While Pfizer Inc. still awaits final regulatory approval of its $17 billion acquisition of Hospira, Inc., Ian Read, Pfizer’s chief executive officer, said a decision will be made by the end of the fourth quarter of 2016 on whether or not to break up the company into smaller entities.
“…on the breakup, we have not changed our views on wanting to have the optionality of the breakup. We continue to spend considerable amounts of money preparing and putting ourselves in a place to trigger that optionality if we take that decision,” Read said last week during a second quarter earnings call.
Pfizer is currently operating as essentially two separate companies, Innovative Products and Established Products.
To date the company has spent $300 million in total on the breakup, including $164 million spent this year, Frank A. D’Amelio, Pfizer’s chief financial officer said during the same call.
Before a breakup is finalized, if that does happen, D’Amelio said the costs of breaking up the company would run into the “low billions of dollars,” in part due to “tax leakage” from the creation of multiple legal entities that exist in multiple countries. He added that revamping the supply chain for existing pipeline products would also be a significant expense.
“It’s a massive amount of work. And think about the visual. This is a company that’s been restructuring for a decade, integrating, putting things together. And now you want to do something where you’re taking a major piece of the company and you’re going to carve it out, in a sense undo much of the work that you’ve done previously. It requires a lot of effort. It costs a bunch of money,” D’Amelio said.
The idea of Pfizer breaking up into smaller units has been floated for several years. Pfizer announced in 2012 it would shed units that were non-essential to its stated goal of focusing on the development of new medications.
But before any such breakup could occur, Read said they would have to examine if the proposed entities were financially sustainable on their own and how that would impact shareholders.
In June Chris Schott, an analyst at J.P. Morgan told BioSpace that three years of audited financial statements (2014-2016) are required before any part of Pfizer could be spun off.
“…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 said.
While Pfizer explores a potential breakup, Read said the company was still on the hunt for potential acquisitions, something most analysts have expected since the company’s failure to acquire London-based AstraZeneca PLC. Some suspect Pfizer may take a stab at another British pharmaceutical company, GlaxoSmithKline . Pfizer was speculated to be considering the deal in order to “unlock access to its balance sheet and improve its tax situation,” according to an analyst following the 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.
Pfizer is not the only large entity to consider breaking up into smaller units. Just months after Allergan Inc. and Actavis plc merged to form Allergan Plc, the company is considering breaking up into two businesses as part of a corporate realignment before the ink on the deal completely dries. The possible corporate realignment would likely keep branded products in one company and spin the generic drugs off into a separate entity.
In July Mad Money’s Jim Cramer recommended that Johnson & Johnson split into three separate companies in order to more focus their business units and drill down on specific customer bases.
