EUR 442.45 For Business Accounts Only

Multiple Catalysts with Restructuring Indicate Future Spin Potential

Major U.S. pharmaceutical player Pfizer, Inc. (PFE) announced on July 11, 2018 that it plans to organize the company into three businesses from the current two business units, creating a separate Consumer Healthcare unit from the Innovative & Essential Medicines business. The Consumer Healthcare business was earlier part of the Innovative Health business, and deals with over-the-counter products like Advil pain medicines, Centrum vitamins and Chapstick lip balm. Furthermore, as part of the reorganization, a new Hospital business unit (including anti-infectives and sterile injectables) will also be part of the new Innovative Medicines segment and the company’s biosimilars will realign with business units corresponding to their therapeutic category.

The management believes that the reorganization is in-line with the company’s strategy beyond 2020 where this new structure helps to better position each business unit to achieve its true growth potential. Pfizer’s Innovative Health division focuses on developing and commercializing novel, value-creating medicines and vaccines that significantly improve patients’ lives. The company’s Essential Health segment includes legacy brands like Lipitor, Celebrex and Premarin that have lost or will soon lose market exclusivity in both developed and emerging markets. For the 170-year-old pharmaceutical company, the time has come for a significant shakeup in operations to keep up with other healthcare players in the space. Following its previous Spinoff of Zoetis, Inc. (ZTS), PFE is looking to find value for shareholders. Now PFE’s reorganization into three segments lays the groundwork for future divestitures, including another potential Spinoff.

We believe that PFE is a developing story with multiple catalysts and the current reorganization plan (which is branded as “necessary for future growth”) is the company’s next step towards monetizing the Consumer Healthcare business. The restructuring was announced as the company’s efforts to sell the Consumer Healthcare business fell through in early 2018, with both Reckitt Benckiser (RB) and GlaxoSmithKline (GSK) pulling out of an auction that was estimated to fetch roughly $20bn. The structural separation of the Consumer Healthcare business will provide clarity on if the unit can survive as a standalone entity in the short-term.

There are not many synergies between the over-the-counter Consumer Healthcare business with the rest of Pfizer, and we believe that it may be Spun off or sold at a reasonable valuation in the near future. PFE is no stranger to restructuring, as the company earlier successfully Spun off its animal healthcare business Zoetis, Inc. (ZTS) in 2013 that has generated more than +150% return since its listing.