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Mar 27, 2012

Goldman Sachs Points to Possible Three-Phase Breakup of Pfizer Businesses

  • In announcing fourth-quarter and full-year 2011 results on January 31, Pfizer chairman and CEO Ian Read maintained that Pfizer was “exploring value-creating alternatives” to sell or spin off its animal health and nutrition units while holding on to its brand-name drug, generic drug, and consumer health businesses; the restructuring was first announced in July, seven months after Read took over the helm at Pfizer. A decision is planned sometime this year, with implementation between this July and July 2013.

    That restructuring is likely the first of three stages by which Pfizer will fully break itself up in order to maximize earnings and shareholder value over the next few years, Goldman Sachs concluded in a report published this week. The report followed a meeting with Read.

    Goldman Sachs said it expects proceeds from the sale or spinoff of animal health and nutrition to be used toward buying back shares, which the firm estimated “could drive $0.18 in EPS accretion.

    “Mr. Read laid out what he saw for Pfizer after the disposals: a pharma business (innovative growth) and generics business (stable value), in what we call Stage 2,” according to an excerpt from the report quoted in Benzinga. “We see the business reporting structure being re-characterized around these business units and business unit leaders laying out different goals to optimize each business. Under such a scenario, Goldman Sachs projected a sum of the parts (SOTP) share value of $26, 17% above the $22.16 closing price on March 26.

    If Pfizer finds success with its drug pipeline in 2012, it would go a long way toward building its brand-name and generic drug businesses further into stand-alone entities, touching off what Goldman Sachs says would be Stage 3 of the restructuring scenario. “Stage 3 (a full breakup) could take two or three years to build the stand-alone potential of the two businesses and very much depends on the drug pipeline's success,” the report stated.

    As of February 28, Pfizer says, its 90-product pipeline consists of 70 NMEs and 20 additional indications for approved drugs. The pharma giant has 26 products in Phase I, another 35 in Phase II, 18 in Phase III, and 11 at the registration phase. During 2011, Pfizer says that it advanced about 30 early- and mid-stage drug candidates and won five approvals in the U.S. and Europe, according to a proxy statement. Since November, Pfizer won EC approval for Vyndaqel for transthyretin familial amyloid polyneuropathy (TTR-FAP) in adult patients with stage 1 symptomatic polyneuropathy as well as FDA approval of Prevnar 13 for prevention of pneumococcal pneumonia and invasive disease in adults 50 years of age and older and of Inlyta (for advanced renal cell carcinoma.

    In commentary accompanying the 2011 results, Read cited Prevna 13 adult and Inlyta as “important new product opportunities that may enhance the performance of our business,” as well as three other pipeline drugs: Tofacitnib for rheumatoid arthritis, now in registration phase; Eliquis for stroke prevention in atrial fibrillation, also in registration phase in the U.S. and approved in Europe in May; and Xalkori for ALK-positive first- and second-line non-small-cell lung cancer, which won accelerated approval by FDA in August, while Pfizer continues to study the drug in Phase III trials.

    Earlier this month, though, Pfizer and Bristol-Myers Squibb acknowledged that the FDA postponed its deadline for deciding whether to approve Eliquis to June 28 after the companies had to submit additional data from studies. The delay reduces the drug’s impact on Pfizer’s 2012 results.

    Goldman Sachs estimated that pipeline success could drive $5.7 billion in additional sales, $0.93 in EPS accretion, and an SOTP value of $33, which assumes no profits-to-earnings expansion. “A breakup could drive even further upside ($37.50 SOTP value) due to a pharma multiple expansion if investors can see visible mid-single-digit growth (4% between 2013 and 2017 sales CAGR) unfettered by the slower generics business,” Goldman Sachs concluded.

    Goldman holds 42,593,238 shares of Pfizer, according to its quarterly 13F filing with the SEC. The firm maintains a “Buy” rating on Pfizer.

    --
    To read the story from Benzinga, click here.


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