Reckitt Benckiser has said the time to weigh options for its pharmaceuticals unit would come after its flagship drug, Suboxone, fell victim to generic competition. That time is now. The British consumer goods group says it's reviewing options for its pharma business, including a possible sale that could grab upwards of $3.2 billion.
After announcing a pharma sales decline of 16% for the third quarter, CEO Rakesh Kapoor hinted that the unit could very well wind up on the block. "Nothing is ruled out," he told Bloomberg in a telephone interview. "We've always said it's a fantastic business, but it's not core to the company."
Things have been a bit uncertain for the unit since February, when the FDA rejected Reckitt's petition to block rival copies of the heroin addiction drug. Reckitt had sunk time and money into a study to support stricter packaging rules. But the agency approved two Suboxone generics, prompting Reckitt to stop making its Suboxone tablet versions and restrict sales to its film-strip format. That move cost the company a 14% drop in Suboxone's third-quarter sales amid an otherwise sunny earnings report.
News of a possible sale cheered analysts and investors alike, with shares rising more than 5%, Reuters reports. "I think it's a combination of the market seeing a way out of (the pharmaceuticals business) and liking the core story as well," Investec analyst Martin Deboo told the news service.
While Kapoor said the unit review was separate from any other strategic tacks the company may take, some analysts have suggested Reckitt could use funds raised through a sale or spinoff of the pharma business to bolster its consumer health business. The company has said it wants to beef up its offerings in the sector, which is growing thanks to aging populations in the West and climbing incomes in emerging markets, Reuters notes. To that end, it picked up U.S.-based Schiff Nutrition, a vitamins and supplements maker, for $1.4 billion last year.
Investing in the low-margin consumer health sector right now is not a unique idea in the pharma world. Sanofi ($SNY), for one, has been pressing full steam ahead with its own consumer health unit, doubling revenues between 2008 and 2012 and reorganizing its operations to become a top OTC player globally. FDA approval for over-the-counter sale of its steroid-based allergy med Nasacort should boost its consumer health unit further, as the drug is the first in its class to hit drugstore aisles.