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Pfizer Says They Won’t Break Up

Pfizer has been mulling over the idea of turning into at least two Pfizers for a long time now, but they’re out with an announcement this morning that they’ve decided that their current structure is the one that will help them be the best Pfizer that they can be. That’s going to disappoint a lot of folks on Wall Street, because you can collect the heftiest investment bank fees when companies split up. Or merge, whatever, as long as they’re doing something instead of just sitting there running their flippin’ business.

So Pfizer’s flippin’ business will continue to contain both their Innovative Health and Essential Health divisions, as they’re calling them. Apparently, when they first started running the numbers on a split, it looked as if the two could be worth more apart, but over time, they say, that gap has closed, and now it’s more trouble than it’s worth to split up. That again runs counter to what appears to be the motto of the investment banking industry, that nothing’s more trouble than its worth so long as you do it with them, but I’m willing to bet that in a few years the breakup thesis will appear to make sense again. Every large company seems to go through these cycles. Buy something, you need help/you have too much cash, then break up, you’re too spread out/have too much hidden value.

As a side issue, looking through that Pfizer press release, I note that it says that since 2010, the company has received 20 new drug approvals. I sure couldn’t name them, so I worked back through some lists. Here’s what I have:

2016: Troxyca (oxycodone/naltrexone)

2015: Ibrance (palbociclib, a Parke-Davis drug project that Pfizer had shelved for years)

2014: Trumenba (meningococcal vaccine),

2013: Duavee (estrogens/bazedoxifene, acquired with Wyeth)

2012: Equilis (apixaban, a Bristol-Myers Squibb drug that Prizer has been co-developing), Xeljanz (tofacitinib), Inlyta (axitinib), Elelyso (enzyme for Gaucher’s), Bosulif (bosutinib, acquired with Wyeth)

2011: Xalkori (crizotinib), Oxecta (oxycodone formulation)

That ain’t 20 new drugs – in fact, I’d count about 8 new drugs that actually get counted to Pfizer on that list, and three of those were acquired. Clearly they’re counting new indications, which are certainly real, and take real work and real money. But if you read the Pfizer statement as referring to 20 new drugs, then no. They’re certainly not the only company that does this; inflation of this sort happens all the time. But it’s worth keeping in mind next time you see a reference to some such figure.

22 comments on “Pfizer Says They Won’t Break Up”

  1. Morten G says:

    Troxyca.

    1. Derek Lowe says:

      I think that might have been one of my favorite typos yet.

      1. Hah says:

        Did you call it toxyca?

        1. Derek Lowe says:

          Yep. I have the touch.

  2. “In response to complaints that U.S. drug prices are at least twice those in any other country, Pfizer and other U.S. pharmaceutical companies have argued that the profits from these high prices—enabled by a generous intellectual-property regime and lax price regulation—permit more R&D to be done in the United States than elsewhere. Yet from 2003 through 2012, Pfizer funneled an amount equal to 71% of its profits into buybacks, and an amount equal to 75% of its profits into dividends. In other words, it spent more on buybacks and dividends than it earned and tapped its capital reserves to help fund them. The reality is, Americans pay high drug prices so that major pharmaceutical companies can boost their stock prices and pad executive pay.”

    At least OnePfizer is still spending money where it counts

    1. M says:

      Pfizer’s Warner Lambert acquisition was stock, and presumably other ones. So the buybacks for the next 10-15 years were at least in part retiring the $100B+ in shares they’d floated during their merger happy days. Assuming debt after an expensive acquisition is not necessarily a ridiculous time to do so.

      The contrast with research and “percent of profits” metrics for dividends is also not on point. Research is pre-profit so the more you spend on research the higher the “dividend cost” looks like by that metric.

      Plenty to criticize but the numbers the author used seem cherry picked to be eye-popping rather than informative.

  3. Druid says:

    Just a bit of spin. They probably did get 20 new approvals and since they were drug-approvals, they were technically new drug approvals. Actually not many for such a large company but they were late arriving at the biologics table. Looking at the 17 current late-stage projects, 6 are biosimilars. Since it is pretty hard to fail with a biosimilar (proven efficacy and safety), I bet the Pfizer spin-doctors are hard at work preparing ways to break the news of so many “new drug approvals” to an astonished world. No new therapeutic options, but maybe 10% cheaper than the existing drugs.

  4. Me says:

    How many of those 20 would be indication extension of current drugs? I would guess that might be where the other 12 are hiding? And it would tally with our opinion of corporate spin.

    And given the tone of comments, I’d muse that Pfizer is spending it’s cash on R&D into mergers and acquisitions, rather than drug stuff.

    1. Ouroboros, M&A Specialist says:

      Maybe they can break up and then Pfizerling 1 can buy/merge with Pfizerling 2 in a couple years for the double play. Rinse and repeat until there is literally nothing left but some very rich investment bankers

  5. Anon says:

    Pfizer is pfu**ed if it thinks M&A, restructuring, job cuts, buybacks, price hikes, tax avoidance, biosimilars and all the other non-innovation based financial engineering stuff they get up to will create any value for patients and shareholders. Soon it won’t be up to Ian Reed whether Pfizer gets split up, remains as one company, or remains at all.

    1. Hap says:

      Sure, but the people doing the deciding won’t care if a breakup benefits anyone but themselves.

      Pfizer versus their activist shareholders and investment banks is the pharma version of Alien vs. Predator: I’m not sure I care who wins, but I know who’s going to lose.

      1. Anon says:

        Unfortunately, this is what happens when a company can’t innovate, whether that’s due to management strategy, culture or individual talent. The company starts to die, gets chewed up and spat out, while any talent gets recycled, hopefully to find a more productive culture.

  6. Barry says:

    a quarter century in to the merger craze, we have abundant data to digest. six small-molecule NCEs in six years wouldn’t sustain even the old Groton Pfizer, much less the behemoth it has become.
    If Pfizer’s vision is of a Development House advancing NCEs discovered elsewhere (or a Biologics House) a glorious Research machine may be left to wither by attrition.

  7. AndyD says:

    As for breaking up another Big Pharma, seems some big investors are not so happy with GSK’s CEO-in-waiting:
    http://www.telegraph.co.uk/business/2016/09/24/investor-anger-mounts-over-gsks-choice-of-chief-executive/

    1. JeffC says:

      Neil Woodford. Hmmm, well if you spend any time looking into his investment setup you will find very quickly it’s not a million miles from a Ponzi scheme. None of his investments are making any money, but he’s still creaming off the cash based on them increasing in “value”. A GSK break up allows him to book “increased” profits and milk off the profit.without doing anything while shoring up his funds dodgy financial footing. Whatever you may think if GSK’s choice, Neil Woodford’s opinion is not really worth much.

      1. AndyD says:

        JeffC, point taken, I wasn’t endorsing the criticisms of GSK’s next CEO. Personally, I would like to have seen someone with more o a drug discovery background in the top post but am highly skeptical of the merits of a break-up that would only benefit City fat cats.

        1. Me says:

          Yes, the consumer health background does concern me a little, but it does look like a continuation of the path Witty set up. Consumer makes far less than pharma within GSK…

          1. Dionysius Rex says:

            But toothpaste doesn’t go off patent…..

          2. Anon says:

            Who knew? Innovation = new flavours of toothpaste in different shaped tubes!

  8. steve says:

    In response to @Anon – Innovation may not be different flavors of toothpaste but it sure worked for razor blades. Let’s see – what can we do to improve them? Let’s stick two together? Wow, it worked! What could possibly be better than that? Wait, what about 3 at once? Yes, they bought it! The field waited breathlessly for the next brilliant insight. Could it be 4? Yes! 4 blades at once! And no need to prove better efficacy with FDA or reimbursement authorities! Now if we could just start doing that with drugs….

  9. Pfizer Joe says:

    I am sure now that the big downsizing is coming! Get the resumes in order because it will be difficult. Some of you need to think retirement. This company has no heart when it comes to getting rid of people. High flyers watch out.

  10. Dave says:

    Ok, so much for Pfizer One, Pfizer Two.
    Or, was it to be Pfizer Red, Pfizer Blue?

    Dave

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