Reckitt CFO: Spinoff of pharma unit a 'strong option'

Reckitt CFO Adrian Hennah

British consumer products maker Reckitt Benckiser said during a first-quarter business review today that it's moving closer to carving out its struggling pharmaceutical unit and listing it as a separate public company. A strategic review of the unit that was launched last October continues, but a "capital markets solution is emerging as a strong option," Reckitt CFO Adrian Hennah told Reuters.

The revelation came after Reckitt announced that the pharma unit's revenues in the first quarter declined 11% from the year-ago period on a constant-currency basis to £170 million ($285.5 million). The unit, which makes the opioid addiction drug Suboxone, has been suffering from generic competition. Last year, Reckitt took Suboxone pills off the market, restricting sales to the film-strip version, which the company said today has a 64% market share.

Analysts initially speculated Reckitt's pharma unit would be put on the block, but then the company hired a new pharma chairman, Howard Pien, in February--a major sign that it was considering a spinoff instead. JP Morgan estimates the unit is worth about £1.3 billion ($2.2 billion), according to Bloomberg.

One question left unanswered by Reckitt is what its acquisition plans might be for its much stronger consumer business. Last week, rumors emerged that the company might be in the race to acquire Merck's ($MRK) consumer health unit, which analysts estimate could fetch upwards of $12 billion. Novartis ($NVS), Bayer and Sanofi ($SNY) were rumored as likely acquirers, but Reckitt could win out because it poses less of an antitrust risk than larger players do. Reckitt executives offered no hints about their acquisition plans today, however.

If Reckitt were to acquire Merck's consumer health unit, it would rocket from ninth to third place in consumer health, where it's already well-positioned with such famous brands as Mucinex allergy pills and Airborn supplements. Reckitt is clearly determined to increase its profile in consumer products, which it demonstrated in March, when it bought J&J's ($JNJ) K-Y brand of sexual products, complementing its own Durex condom business.

And it is the consumer unit that's propping up Reckitt these days: the company's first-quarter sales, excluding the pharmaceutical business, rose 4% over the year-ago period on a constant-currency basis to £2.4 billion ($4 billion)--slightly beating analyst estimates, according to Reuters.

- access Reckitt's first-quarter review here
- here's the Reuters story
- read more at Bloomberg

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