As economists puzzle over the future direction of global markets, there is a growing consensus among pharmaceutical industry analysts that slimming down will reap profits for Pfizer. Last week the company saw its stock price increase after an analyst at Goldman Sachs wrote that Pfizer’s chief executive, Ian Read, had signaled in a meeting she attended that he may go beyond the divestitures the company has already announced. Pfizer is already in the midst of spinning off its nutritional and animal health businesses, and last week’s news raised speculations from analysts that other divisions may also be destined for the chopping block in the near future.
The time scale for further spin-offs by Pfizer is probably two to five years, says Damien Conover, an analyst at Morningstar in Chicago. “This is a good strategy to unlock value within the company,” he says, adding that “the most likely next step would be to get rid of the over-the-counter business.” It wouldn’t be the first pharma giant to do so: New York-based Bristol-Myers Squibb sold its own over-the-counter division in 2009.
Although there have also been rumblings that the Pfizer might also consider spinning off its generics business, he and others say such a move would be both unprecedented and ill-advised because of the synergy between generic and new drug research and development at the company. “Investors have signaled they welcome streamlining, but [selling] generics is not on the table,” says Jamie Davies, head of pharmaceuticals and healthcare analysis at Business Monitor International in London.
Pfizer is not the only company in the process of scaling back. Illinois’s Abbott Laboratories last week unveiled the name of its new non-pharmaceutical sister company, AbbVie. The trend is a predictable reaction to the merger-mania of the last three years, says Lindsay Meyers, an analyst at Canaan Partners in Menlo Park, California. “It takes a lot of clean-up when you’ve been through a merger or acquisition,” she says.
Meyers expects more companies both in the US and in Europe to begin consolidating and selling off inefficient businesses in the coming years. “Pfizer is not the only company that made a big purchase in the last few years,” she says. But others think the trend will remain a US phenomenon. “European companies have to look more broadly because the markets in their domestic region are contracting,” explains Davies, who says shrinking profits at home are an incentive for European companies to stay big and diverse in order to tap into new markets.
European companies such as British GlaxoSmithKline, French Sanofi and Swiss Novartis have all grown in recent years. “This trend speaks to more European exposure to emerging markets,” says Conover, “and emerging markets are good for diverse product lines.”
Photo courtesy of Pfizer