Pfizer Scraps Plan to Break Up Company -- WSJ

By Jonathan D. Rockoff and Austen Hufford 

Pfizer Inc. said Monday it would remain a single company, deciding not to split into one business focused on patent-protected drugs and another on cash-rich older products.

The decision means the New York City-based drug company would remain one of the industry's largest. It projects at least $51 billion in revenue this year from a growing portfolio of cancer drugs and vaccines as well as a pipeline with copies of expensive big-molecule drugs.

Pfizer spent at least $600 million preparing for a potential split, a spokeswoman said. Chief Executive Ian Read said staying whole was "the best structure," though the company would "preserve our option to split our businesses should factors materially change at some point in the future."

Shares of Pfizer fell 1.7% in trading on the New York Stock Exchange Monday morning.

Mr. Read had been considering a breakup for years as a way to reduce the big pharmaceutical company's complexity while rewarding shareholders with the windfall from a split into two stocks. Toward that goal, Pfizer shed its animal-health business and created two internal organizations.

Many on Wall Street thought the odds of a companywide breakup rose after Pfizer agreed late last year to a $150 billion deal for Allergan PLC. But Pfizer walked away from the tie-up when the Obama administration moved earlier this year t o deter such tax-lowering inversion deals.

Meanwhile, the stocks of innovative pharmaceutical companies rose amid new-drug approvals, while shares in generic- and specialty-drug companies fell amid questions about their abilities to grow.

The varying performances suggested hiving off a separate business focused on off-patent drugs might not generate the level of market returns that had once been expected, while denying the new-drugs company all the cash generated by the older medicines.

That cash funds the company's new sources of growth, according to Citi Research, including the drug-development work of the company's laboratories and deals such as the recently announced agreement to buy Medivation Inc. and its prostate-cancer drug Xtandi for $14 billion.

Pfizer said in a news release announcing the decision that a supposed "valuation gap" between the company's market cap and the value of its individual units has closed over time.

"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," Mr. Read said.

Pfizer's new-drugs business had $26.8 billion in sales last year from the Prevnar pneumonia vaccine, Ibrance breast-cancer treatment and other patent-protected medicines whose sales are increasing.

Meantime, the company's older-drugs business notched $22.1 billion in sales mostly from products that have lost patent protection and therefore are losing sales, such as cholesterol-lowering drug Lipitor and menopausal drug Premarin.

Write to Jonathan D. Rockoff at [e-mail] and Austen Hufford at [e-mail]

(END) Dow Jones Newswires

September 27, 2016 02:48 ET (06:48 GMT)

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