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Wednesday, March 16, 2011

Pfizer Inc. - may now be headed in the opposite direction

Pfizer Inc., whose serial mega-mergers have disappointed investors, may now be headed in the opposite direction.
The New York-based drug maker may spin off various businesses, including its consumer-health and generic-drug units, in deals that result in a 40% contraction in its revenue base, Sanford C. Bernstein analyst Tim Anderson wrote in a research note Monday, after meeting with Pfizer Chief Executive Ian Read.
The mounting speculation of potential Pfizer divestitures helped lift its shares to a 52-week high Monday, recently trading up nearly 2% at $19.82.
"Investors are desperate to see pharmaceutical companies take bold steps...to try and break the cycle of underperformance," Anderson said. He added that Read and Pfizer's board "appear eager to do the same and dismantling the business will accomplish that goal."
Pfizer spokeswoman Joan Campion said Monday, "As we previously stated on Feb. 1, we're conducting a portfolio review in 2011, and the review encompasses all of our businesses." She declined to say whether Anderson's predictions were on the mark.
Hints of Pfizer asset sales have been emerging over the past six months. In October, Pfizer said it was reviewing options including a divestiture for its Capsugel unit, which manufactures drug dosage forms.
The talk seemed to accelerate after Read replaced Jeffrey Kindler as CEO in December. In February, Read said the company was performing a review of its businesses to determine the "optimal mix of businesses."
The potential for significant Pfizer asset sales comes less than two years after the company closed its latest mega-merger, the $68 billion purchase of Wyeth. Pfizer had previously snatched up Warner-Lambert and Pharmacia in huge deals.
But Pfizer now faces sales-eroding patent expirations for its top drugs, including cholesterol-lowering Lipitor, and few newer drugs with the capacity to replace the lost revenue.
Anderson sees the potential for Pfizer to spin off five of its nine distinct business units: animal health, consumer health, nutritionals, Capsugel, and established products.
The biggest unit would be Pfizer's established-products division, which includes generic drugs. Anderson said this unit generated sales of $10 billion for 2010, but probably would grow to $17 billion in coming years when Lipitor and other products lose patent protection.
Such deals would leave behind four pharmaceutical units: primary care, specialty care, oncology and emerging markets. Anderson believes this represents the "innovative core" that Read has cited, and would include top-selling products such as Enbrel and Prevnar.
Anderson believes the deals could emerge this year and next. He expects most of the asset divestitures to be in the form of spinoffs to Pfizer shareholders, though Capsugel may be sold outright.
Anderson lifted his price target on Pfizer shares to $23 from $21.

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