Pfizer Inc. (PFE), the world’s biggest drugmaker, narrowed its plans to sell or spin off businesses, saying today it would divest only the Animal Health and Baby Food units, with combined annual sales of $5.5 billion.
The company’s shares fell 2.7 percent, as Pfizer said it will keep the larger established products and consumer health units within the parent company. Those businesses had revenue of $12.9 billion last year. Investors have been pressing Chief Executive Officer Ian Read to slim the drugmaker and focus on developing new medicines.
Read said on Feb. 1 he was reviewing each of the four business areas that aren’t involved in drug discovery as the company faces loss of exclusivity for its biggest product, the Lipitor cholesterol pill. Since then, Pfizer shares climbed 14 percent before today as investors anticipated the benefits from sales and spinoffs.
“It doesn’t transform Pfizer, it only adjusts it,” said Erik Gordon, a University of Michigan business professor in Ann Arbor who studies the biomedical industry. “Shedding the consumer business would have been more interesting.”
Pfizer fell 55 cents, or 2.7 percent, to $20.23 at 4 p.m. in New York Stock Exchange composite trading. The shares have climbed 38 percent in the past 12 months.
“The plan is to enhance the value of established products and consumer health care within Pfizer,” said Joan Campion, a spokeswoman for Pfizer. “That said, as is typical of global companies our size, we will continue to assess our businesses and assets on a regular ongoing basis.”
Pfizer said it doesn’t anticipate making more announcements about the alternatives for the two units until sometime in 2012, and that any transaction could take as many as 24 months to complete. Read said in a May 3 interview he plans to use proceeds from the sales to buy back shares. The company sold Capsugel, a hard-capsules business, to KKR & Co. in April for $2.38 billion.
J.P. Morgan will advise on the Animal Health business, while Morgan Stanley and Centerview Partners are advisers on the Nutrition unit, Pfizer said.
“From a credit standpoint, we view the news as a negative, with the likely separation of two growing and healthy units,” said Joel Levington, managing director of corporate credit at Brookfield Investment Management Inc. in New York, in an e-mail. He said the moves may lead to “negative rating actions” at Standard & Poor’s and Fitch Ratings.
No Immediate Impact
While today’s moves are negative for Pfizer’s credit standing, Moody’s Investors Service doesn’t have any immediate plans to lower the drugmaker’s rating, said Michael Levesque, a Moody’s analyst, in a statement.
Pfizer was smart to keep the established products unit, which makes generic drugs and medicines that have lost patent exclusivity, said David Maris, an analyst with CLSA in New York. Read said in May that about $915 million of the unit’s $2.37 billion in first-quarter sales were in emerging markets, an area where the company plans to grow.
“To give up emerging markets is a silly proposition, because that is the future,” Maris said in a telephone interview. “I’m sure there was some subset of investors that was still hoping for established products to be divested. We’ve said for a long time that wouldn’t make sense.”
Maris said the animal health and baby food units will attract a variety of potential buyers, including private equity and pharmaceutical companies hoping to diversify their product offerings or gain market share in animal medicines or infant formula sales. He said a spinoff of either unit is possible, though a sale is more likely.
Tim Anderson, the Sanford C. Bernstein analyst whose March 14 research report drove up Pfizer shares on speculation the company may halve its revenue base, said the company might take different approaches to each unit.
“Our best guess is that animal health could be a spin-out, a tax-free transaction like Bristol-Myers Squibb did with Mead Johnson in 2009, and that Nutrition could be sold,” Anderson said in a note to clients today.
Pfizer had 28 divestitures completed in the last five years, with an average deal size of $1.8 billion, according to data compiled by Bloomberg. The company’s biggest was the $16.6 billion sale of its consumer products business to Johnson & Johnson (JNJ) in June 2006.
Lipitor had sales of $10.7 billion last year, accounting for about 16 percent of the company’s revenue, data compiled by Bloomberg show. Pfizer forecasts revenue may fall as much as 6.9 percent in two years as the pipeline of experimental drugs fails to offset lower sales of Lipitor.
Pfizer acquired the nutrition unit in the 2009 purchase of Wyeth. It makes the Gold line of products for infants and children and Enercal supplements for adults. The unit sells food replacement and supplement products in more than 80 countries, according to the company’s website.
Overall sales of baby food and milk formula in Asia, Latin America and Eastern Europe more than doubled from 2005 to 2010, according to Euromonitor, a London-based research firm. Nestle SA (NESN) of Vevey, Switzerland, and Paris-based Danone (BN) are the market leaders for infant formula in those markets, Euromonitor said.
In 2009, Pfizer bought Wyeth to add biologic drugs, consumer and animal health products, and baby formula. The company expanded sales in emerging markets such as China, India and Brazil to 18 percent of the company’s revenue under Jeffrey Kindler, who was CEO from July 2006 until Read replaced him in December.
Mead Johnson Nutrition Co. (MJN), the baby-formula maker that Bristol-Myers Squibb Co. (BMY) took public in February 2009, had sales of $3.14 billion last year, led by Enfamil infant formula. The Glenview, Illinois-based company has more than doubled since the initial public offering.
Pfizer’s consumer unit, which sells the over-the-counter brands Advil and Centrum, drew $2.8 billion in 2010 revenue, making it the fifth-largest over-the-counter health products business worldwide, Pfizer said in a February regulatory filing. In addition to Advil and Centrum for pain management and dietary supplementation, the unit sells the cough syrup Robitussin and personal-care items including ChapStick and Preparation H.
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