May 3 (Bloomberg) -- Pfizer Inc. Chief Executive Officer Ian Read said he is reviewing the possible sale or spinoff of four divisions with $18.3 billion in annual revenue, led by the company’s third-biggest unit, established products.
Results of the division reviews will be announced in the second half this year and in early 2012, Read said today in a telephone interview. The emerging-markets portion of New York-based Pfizer’s established-products business is big enough to stand on its own, with $915 million in sales in the first quarter, he said. No decisions have been made.
“We need to fix the innovative core” of Pfizer, Read said. “Part of that may be we become a smaller company.”
Read, who took control of Pfizer in November, said in February that he was reviewing each of the company’s units to focus on product development. The shares have climbed 17 percent this year as investors bet that Read may create a leaner, more-profitable company.
“Even though some of these businesses are growing, they’re not growing fast enough and they’re not large enough to impact the whole company,” said Linda Bannister, an analyst at Edward Jones & Co. in Des Peres, Missouri, in a telephone interview today. “With the core that’s left, good news in the pipeline could really have an impact.”
Read said he is reviewing veterinary products, over-the-counter medicines, baby formula and established products to determine whether the company should divest or increase investment for each unit. The question of whether Read might shed the established-products division, which sells generic drugs and brands that have lost patent exclusivity, has generated the most controversy, said Tony Butler, an analyst at Barclays Capital in New York.
“Established products are a bit of a cash cow. You don’t pay to market it,” Butler said today in a telephone interview. “The real key is, if restructuring comes to fruition, what’s the value of what’s left? That’s where things get a little tricky.”
Pfizer fell 58 cents, or 2.8 percent, to $20.44 at 4 p.m. in New York Stock Exchange composite trading.
Pfizer today reported first-quarter profit excluding certain items of 60 cents a share, beating the 58-cent average estimate of 17 analysts surveyed by Bloomberg. Reduced costs and higher sales of its Prevnar pneumonia vaccine offset declining sales of Lipitor, the best-selling drug in the world with $10.7 billion in sales last year. The company lost patent exclusivity for Lipitor in Spain and Canada in 2010 and faces competition from cheaper generics in the U.S. in November.
Lipitor sales declined 13 percent to $2.39 billion, falling short of the $2.55 billion average estimate of five analysts surveyed by Bloomberg. Sales will decline by more than half next year after generic-drug makers flood the U.S. market with cheaper copies, according to eight analysts surveyed.
Sales at Pfizer’s established products fell 15 percent $2.37 billion for the quarter. As a stand-alone business, the worldwide division is big enough to be “a player, to be a substantial presence in the established products marketplace,” Read said.
Read’s plan is to focus on making new drugs, responsible for generating about 85 percent of the company’s revenue. Pfizer has mixed results generating new products through research spending, a process that needs improving, Read said.
“If approximately 85 percent of the company comes from the innovative core, we can’t be successful unless the innovative core is successful,” Read said. “What is the best way to deliver value to shareholders? That’s the key question, and that’s what I’m driven by and what my team is driven by.”
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