Big Pharma buybacks, spinoffs cater to investors

How can a drugmaker please shareholders when R&D productivity is, to put it politely, in the tank? Point to shiny objects in the opposite direction. If pharma companies weren't buying back shares by the million this year, they were raising dividends or spinning off units.

The two biggest please-the-investment-community decisions came from Pfizer ($PFE) and Abbott Laboratories ($ABT). Pfizer CEO Ian Read (photo) announced a company-wide asset review, stirring up talk of a breakup, then announced plans to shed its $1.9 billion nutritionals unit and $3.6 billion animal health business, but keep its generics unit. In the meantime, it sold off its Capsugel business for $2.4 billion. Plans for the cash these deals generate? Stock buybacks and dividends, at least partly. Operational payoff, says Pfizer, is sharper focus on its core business. Analysts weren't necessarily convinced. "I think it's financial engineering," Miller Tabak's Les Funtleyder said at the time.

A few months later, Abbott pulled its breakup plans out of a hat, announcing that it would split into two companies: A diversified medical products firm under the Abbott name and an as-yet-unnamed drugmaker. A few weeks after the announcement, which gave short shrift to the pharma spinoff's prospects, its future CEO, Richard Gonzalez, started touting growth estimates for Humira and prospects for pipeline drugs. Significantly, Abbott decided to split its dividend between the two businesses.

Meanwhile, AstraZeneca ($AZN) and GlaxoSmithKline ($GSK) continued with their multibillion-dollar stock repurchasing plans. Amgen ($AMGN) announced a $5 billion buyback plan of its own. Teva Pharmaceutical Industries ($TEVA) joined the party just before the holidays with a $3 billion plan. Merck ($MRK) raised its dividend 11%. Pfizer hiked its payout 10% and announced a $10 billion buyback plan. With share repurchases ongoing—and dividends still coming—pharma shareholders can expect the red-carpet treatment to continue. After all, drugmakers need some investor loyalty to carry them through the patent-cliff years.

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