In a bid to utilize its resources optimally so as to maximize shareholder value, Pfizer Inc. (PFE) announced that it will explore options regarding its Animal Health and Nutrition segments. The company may even sell off the units to meet the objective.
Pfizer also stated that it will consider other options such as spinning off the two segments or pursuing separate strategies for each unit. The transaction is not expected to be completed before a year and may even take two years. Consequently, the pharma giant is not expected to provide further updates on the exercise before 2012.
We note that Pfizer currently operates through five operating segments––Primary Care, Specialty Care and Oncology, Established Products and Emerging Markets (EP&EM), Animal Health and Consumer Healthcare and Nutrition. If Pfizer ultimately drops the animal health and nutrition segments, whose combined 2010 revenues stood at $5.5 billion (8% of 2010 revenues at Pfizer), then it will be able to focus more on the other segments particularly the EP&EM unit.
Emerging markets are the most rapidly growing markets in the pharmaceutical space. With many top-selling drugs losing patent protection, off-patent therapies and their generic versions are highly sought after in the emerging markets. Pfizer’s blockbuster drug Lipitor for cholesterol management goes off patent in the US in November 2011. Consequently, the move by Pfizer is also aimed at combating the loss of revenues due to the genericization of Lipitor.
While JPMorgan Chase (JPM), a leading financial holding company, will help Pfizer evaluate the various options regarding the animal health business, Morgan Stanley (MS) and Centerview Partners will do the same for the nutrition business.
Our Recommendation
We currently have a Neutral recommendation on Pfizer, which carries a Zacks #2 Rank (short-term Buy rating). While near-term earnings growth will come in the form of cost cutting and share repurchases, longer-term growth will depend on successful drug development. 2011 should be a catalyst-filled year for the company, which is expecting to present phase III data on several candidates.
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