Is Pfizer pursuing a full-scale breakup strategy, just on the down low and on the long finger? Goldman Sachs analyst Jami Rubin has set investors abuzz by suggesting that the drugmaker won't stop with divesting its animal health and nutrition units. A final, big split could come two or three years after that.
In a recent meeting with Goldman, CEO Ian Read (photo) said he was open "to going further with separations beyond animal health and nutrition if the conditions make sense," Rubin wrote in a note to investors. Hiving off those two units, then, would just set the stage for more. "We see these moves as first steps in a potential full-scale breakup," Rubin writes.
Already, Read has said that he sees Pfizer ($PFE) encompassing "two primary businesses with distinct cost structures and operating approaches," namely the R&D-based, branded-drug business and the "value business" of selling off-patent products. And, as Bloomberg notes, Read has pledged to break out the numbers on branded and generic drugs, so that investors can better understand each business.
Rubin suggests that, in the end, Pfizer's branded-drug business could go one way, and its generics unit would take its own separate path. (Where the consumer health business fits isn't clear, but presumably with the generics.) That split would give Pfizer's pharma operations a chance to shine: Without the drag of lower-margin generics, branded drugs could deliver faster, more impressive growth for investors. And the separate generics business would be a stable, value-oriented company in its own right.
Theoretically, anyway. As Rubin notes, some pipeline successes would have to precede this sort of split, to ensure that the branded business has enough oomph going forward.
Setting the stage would require some preliminary work internally, Rubin figures, as Pfizer rejigs its operations to separate the two businesses, each with its own management structure and its own set of goals. But a breakup could happen by 2015, she says.
What does Pfizer say? Spokesman Ray Kerins tells Bloomberg that "[u]ltimately, our decisions will be driven by value creation for the businesses and delivering the greatest after-tax value for our shareholders over time." By Rubin's calculations, a breakup would do just that.
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