Pfizer Won’t Split-up, Shareholders See More Deals

Investors and shareholders of Pfizer Inc are expecting more deals that could bolster its roster of new medicines after the company, which was considering splitting itself for more than two years, said on Monday it would not do so.

Cash flow would not be boosted nor would the position the businesses be bettered competitively by the splitting off its low-growth generics from its patent-protected branded products, the largest U.S. drugmaker said after a lengthy analysis. The company said that the move would fail to deliver any tax efficiencies, have inherent costs and also disrupt operations.

“I never saw the logic behind a split-up,” said portfolio manager Les Funtleyder of E Squared Asset Management, which owns Pfizer shares. He said that the key to growth for the company is buying and developing new drugs in oncology and other therapeutic areas.

“We’d rather see them do some bolt-ons in the $1-to-$10-billion range, which are easily doable for Pfizer,” he said.

Saying it retains the option to split later if “factors materially change at some point in the future,” Pfizer will keep the generics and branded medicines as separate divisions.

Especially in the highly lucrative oncology area, he expected to see deals that could add future branded products, said Portfolio manager Jeff Jonas of Gabelli Funds, which holds Pfizer shares. The recent success of Ibrance breast cancer drug, developed internally by Pfizer was cited as an example by him.

With more deals of “that size or smaller,” Jonas expects Pfizer to follow its decision to buy Medivation Inc for $14 billion. For its blockbuster prostate cancer drug Xtandi, Pfizer had bought Medivation.

After a change in U.S. law had negated the tax benefits for companies moving corporate headquarters overseas, Pfizer’s $160 billion deal to buy Irish drugmaker Allergan Inc collapsed in April.

They did not believe Pfizer’s current strategy includes any Allergan-sized deals, investors said.

Its 2016 financial forecast would not be affected by the decision against a split, Pfizer said. Amid a 1.5 percent decline in the ARCA Pharmaceutical Index of large drugmakers .DRG, its shares were down 2.1 percent at $33.55 in afternoon trading.

Sanford Bernstein analyst Tim Anderson said in a research note that investors had been expecting the company to step back from the split.

Saying it would track the two divisions’ progress for three years before reaching a decision, Pfizer began openly planning for a possible split in early 2014. In August, it said it would decide by year-end.

While demand for its generics typically declined, its patent-protected medicines routinely enjoyed sales growth and these were the reasons that the company had largely considered the split.

However, the company’s wide array of generics, such as the once top-selling cholesterol drug Lipitor, was bolstered with Pfizer’s $15 billion purchase of Hospira a year ago. Cheaper versions of the world’s leading biotech drugs – in the area of generic injectable hospital products and biosimilars, are made by Hospira.

JPMorgan analyst Chris Schott said in a research note that in the coming years, the annual sales of Pfizer’s generic portfolio should grow by a single-digit percentage rate.

(Adapted from Reuters)


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