Reckitt Benckiser Said to Move Toward Spinoff of Suboxone Unit

Reckitt Benckiser Group Plc, the maker of Durex condoms, plans to spin off its pharmaceutical unit rather than sell it or pursue an initial public offering, according to four people with knowledge of the matter.

The spinoff is likely to take place at the end of the year or early 2015, said three of the people, who asked not to be identified as the plans are private. Reckitt Benckiser will retain a stake in the new entity, the people said, allowing the maker of Lysol cleaners and Nurofen painkillers to benefit if the business is later acquired. An internal announcement to employees has already been made, one of the people said.

The company began a strategic review of the Richmond, Virginia-based pharmaceutical unit in October, and has said it will update investors on the process when it reports first-half results July 28. The review of the business, which most analysts estimate is worth at least 1 billion pounds ($1.7 billion), now “points to a capital markets solution,” meaning a spinoff or an IPO, Reckitt Benckiser Chief Executive Officer Rakesh Kapoor said in a June 13 interview in London.

Andraea Dawson-Shepherd, a spokeswoman for Slough, England-based Reckitt Benckiser, declined to comment.

Analysts have long advocated ditching the pharmaceutical unit, which gets almost all of its revenue from Suboxone, a drug to treat addiction to opioids including heroin. Kapoor has said pharmaceuticals is not “a space we want to be in.” The business once accounted for a fifth of Reckitt Benckiser’s profit, yet sales and profit margins have ebbed as Suboxone faces a growing roster of competitors eager to reach the estimated 48 million Americans who are chronic opioid users.

Declining Revenue

The division’s revenue fell 11 percent in the first quarter at constant exchange rates as generic versions, introduced last year, grab sales. In addition to the generics, Orexo AB’s Zubsolv has captured about 2 percent of the market since its introduction in September, according to Sanford C. Bernstein estimates. Last month, BioDelivery Sciences International Inc. won U.S. regulatory approval for Bunavail film, which CEO Mark Sirgo has claimed is more effective than Suboxone.

The market share of Suboxone’s newer film variant, which has narrower profit margins than the tablet that the company discontinued last year, declined by 4 percentage points to 64 percent in the first three months of the year, the company said. Suboxone film was introduced in September 2010, a year after the tablet version lost U.S. patent protection.

The medicine combines buprenorphine, a painkiller derived from the opium poppy, with naloxone, a chemical that blunts withdrawal symptoms. The unit is also developing an injectable Suboxone and a schizophrenia drug. Its research and development spending almost doubled last year to 47 million pounds, according to an April investor presentation.

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