Pfizer's 'weak' Q1 numbers bolster case for AZ buy--and post-merger split, too
Pfizer ($PFE) has pulled back the veil on its three new operating segments. It's the long-awaited peek at these units, created last July as a prelude to potential sales or spin-offs. Do the numbers bear out analyst enthusiasm for more Pfizer split-up action?
Well, the jury is still out on that. Pfizer had a weak first quarter, with sales down all over the place. The established products business--which comprises drugs that are off-patent, or will be by next year--saw a 13% drop in sales. Revenues in the global innovative products unit slipped by 7%. Consumer health fell by 6%. The only bright spots were oncology--up 7%--and vaccines, which managed a slight increase.
Overall, the company's revenue dropped by 9%, including the loss of sales. That's a $1.1 billion slide. Total: $11.4 billion. Analysts had expected $12.1 billion.
So, some market-watchers are billing Pfizer's Q1 results as motivation for its behemoth bid for AstraZeneca ($AZN). With AstraZeneca's products in hand, Pfizer could beef up each of its three units for sale or spinoff action.
Consider the established products unit, flagged as the likely first choice for disposal, because it's seen as a lower-growth business. Sales for Q1 dropped on new generic rivals for the bladder drug Detrol LA and continued competition for the once-top-selling statin, Lipitor. But even after that sales slide, it's still the largest of the three businesses, at $6 billion in sales. AstraZeneca's off-patent products--such as the original formulation of its antipsychotic blockbuster Seroquel, which brought in $350 million last year--could join the line-up.
And then there's Nexium, which goes off patent in the U.S. this month; the stomach-acid fighter could add a hefty chunk of sales, at least till multiple generics hit the market. Crestor copies don't go on sale till mid-2016, under the terms of a patent settlement, but Pfizer could theoretically add that statin drug to the established products mix--and it's a $6 billion-plus product, for now. Pfizer could add these meds to its near-term revenue, and then capitalize on them if and when it decides to hive off that business.
|Pfizer CEO Ian Read|
It's a similar story for each of the remaining Pfizer businesses, with AstraZeneca adding marketed drugs and pipeline products. Brilinta, which the U.K. company is pushing as a new-growth product, would join the innovative products group. The group comprising vaccines, oncology and consumer health would notably get AZ's promising cancer immunotherapies and its new four-strain flu vaccine.
Essentially, it's a case of getting bigger to go smaller. "The crux [of the AZ deal] is the potential break-up," Seamus Fernandez, a Leerink analyst, said last week. "[W]e believe [it] is more realistic than without AstraZeneca."
There's one catch--buying AstraZeneca could put off those hoped-for split-offs. Pfizer CEO Ian Read has said the company needs three years of financials to show investors. Under that rule, if the AZ deal closes mid-2015, deals would have to wait till 2018.
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