Pfizer May be Turning its Attention to New Drugs

From Day, The (New London, CT) (March 15, 2011)

March 15--Pharmaceutical giant Pfizer Inc., after years of mega-mergers that bloated its worldwide presence and punctured its stock price, appears poised to refocus its efforts on drug-discovery work while possibly spinning off various business units.

Analysts see the move as likely benefiting both stockholders and Pfizer scientists, including the 3,400 who will be left in Groton after a company downsizing is completed next year.

"This could be a good thing for research and development," Linda Bannister, a drug-industry analyst for Edward Jones in St. Louis, said of Pfizer's interest in spinning off the non-pharmaceutical side of its business. "There could be more money spent on R&D."

"It makes the company more reliant on scientists, and therefore scientists will be safe," added Les Funtleyder, fund manager and health care strategist at Miller Tabak & Co. in New York. "However, they have to discover new drugs ... and the recent track record of Pfizer R&D is not good."

Nothing is written in stone, but Pfizer Chief Executive Ian Read told at least one analyst in recent days that he is seriously considering moves that would spin off divisions accounting for up to 40 percent of the company's current revenue base. Sanford C. Bernstein analyst Tim Anderson, in a Monday research note, said the businesses under review include the Greenstone generics unit, Pfizer's established-products division, animal health, nutritionals, its Capsugel unit and the consumer-health division acquired less than two years ago in Pfizer's merger with Wyeth Pharmaceuticals.

"Pfizer may be destined for a significant shakeup," Anderson said in his research note. "All options appear to be on the table."

Pfizer only acknowledged that a portfolio review is under way. Spokeswoman Joan Campion said the review, to be completed this year, would help determine "what the optimal mix is to achieve consistent growth and a maximum return on our investment."

"The review is still ongoing and no decisions have been made," she added.

If the company decides to sell all the units currently being discussed, Pfizer would retain only four pharmaceutical divisions, according to The Wall Street Journal: oncology, primary care, specialty care and emerging markets. These make up the "innovative core" of Pfizer that Read has been focusing on since taking over from previous company leader Jeffrey B. Kindler late last year.

If all of the units under review are sold, Pfizer's revenues -- most recently running at an annual clip of about $67 billion -- would range between $35 billion and $40 billion. And, presumably, the days of mega-mergers like those involving Warner-Lambert (2000), Pharmacia (2003) and Wyeth (2009) would be over.

"Ironically, the push toward big acquisitions came from Pfizer chairman emeritus and former CEO Bill Steere," according to the Pharmalot blog by longtime industry watcher Ed Silverman. "The board ... appears to have finally recognized the folly of growing big for the sake of it."

Ironically, the company's new direction comes about a month after Pfizer announced a major downsizing of its R&D structure, including the loss of 1,100 Pfizer scientists in Groton and New London over the next year and a half, with 350 to be moved to Massachusetts and most others losing their jobs. The company's R&D establishment has been under the microscope in recent years as the company rushes to develop new drugs to replace lost revenue from cholesterol treatment Lipitor, a $10 billion blockbuster that is scheduled to lose its U.S. patent in November.

The sale of Pfizer's various business units would give a major push to the company's stock price, according to analysts. The stock zoomed higher by more than 4 percent as spinoff talk climaxed early in Monday's session before closing nearly 2 percent higher at $19.81, on a day when the Dow Jones Industrial Average- of which Pfizer is a member -- finished down more than 50 points.

But the stock is still far from its height in July 2000, when Pfizer hit $49 a share.

l.howard@theday.com

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Posted: March 2011


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