After toying with the idea of separating their branded drugs and generics divisions, Pfizer has announced that it will remain one company. While both businesses will fall under the same Pfizer umbrella, they will be managed separately.
As the news comes three month before year’s end, Pfizer’s made good on their promise to make their decision on a split by the end of 2016. Pfizer has had an eventful year, with the $160 billion deal between it and Allergan falling through, and the successful acquisition of the biopharmaceutical company, Medivation.
“With this decision, our two distinct businesses will remain separately managed units within Pfizer, which we believe is currently the best structure to continue to deliver on our commitments to patients, physicians, payers and governments, and to drive value for our shareholders,” said Ian Read, CEO of Pfizer. “We believe that by operating two separate and autonomous units within Pfizer we are already accessing many of the potential benefits of a split – sharper focus, increased accountability, and a greater sense of urgency – while also retaining the operational strength, efficiency and financial flexibility of operating as a single company as compared with operating as two, separate publicly traded companies.”
In making this decision, Pfizer evaluated several criteria including assessing each business’s performance and determining whether they could act as stand-alone entities. According to a statement released by the company, both the Innovative Health and Essential Health businesses have shown strong performance over the past three years, indicating that they could potentially act as independent companies.
“When we first explored the trapped value question several years ago, market valuations of other companies suggested that our two businesses could potentially be worth more as separate companies than they are together in a single company,” said Frank D’Amelio, executive vice president, Business Operations and CFO of Pfizer. “However, over time, any potential gap between Pfizer’s market valuation and an implied Sum of the Parts (SOTP) market valuation has closed. In our analysis, we concluded that splitting into two companies at this time would not enhance the cashflow generation and competitive positioning of the businesses and the operational disruption, increased costs of a split and inability to realize any incremental tax efficiencies would likely be value destructive.”
Pfizer’s recent acquisitions are also positioned to strengthen its branded business. Medivation’s blockbuster prostate cancer drug and Anacor’s eczema drug candidate are expected to add major value to the business.