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Next Step For Pfizer After Nestle Sale: Get Drugs Approved, Sell Them

Pfizer announced today that it is selling its nutritional business, a leading maker of infant formula in Asia, Europe, and Latin America, to Nestle for $11.85 billion or nearly 20 times the division’s EBITDA. That’s nearly $2 billion more than analysts were forecasting the business might get last year, when I first reported on the idea that the drug giant might be spinning off non-core divisions. The Pfizer baby formula unit is expected to generate $2.4 billion in sales this year.


That Pfizer got such a good price is obviously a win for investors. The company will be using the money to buy back shares, according to a statement by chief executive Ian Read – unless, he says, he can find a better way to put it to use. But shares edged down sixteen cents to $22.40 this morning, so, obviously, this victory was already baked in.
What’s next? For one thing, investors are likely to turn their eyes to another sale. Pfizer has already said it will also explore options for its animal health business, which sells veterinary drugs. Last year, I pegged the value of this $3.9 billion (sales) division at $16 billion. There could be more upside there.
A more important question – really, the big, meta-argument around both asset divestitures – is whether the world’s largest drug company will be able to go even further in taking itself apart. The big bull argument is that Pfizer will eventually get rid of its consumer health division too, and then build up its established products business into a generics business that can also be sold or spun off. That would leave a smaller, faster-growing pharmaceutical company. Some Wall Street analysts, including Jami Rubin at Goldman Sachs, have been fans of this idea for years.
Richard Evans, of research firm Sovereign & Sector, has made the counter-argument that even if you spin off all the really old, nearly generic drugs, most of Pfizer’s products are still pretty old, and that the company’s research and development spending won’t produce enough hits to make that new, smaller company, nearly so compelling.
Lest we forget, the key to running a successful drug company is not spinning off existing divisions but inventing new drugs, bringing them to market, and then selling them. Key events by which Pfizer’s research efforts will be judged are approaching.
On May 9, the company’s key rheumatoid arthritis pill, tofacitinib, will go before a panel of experts chosen by the Food and Drug Administration. The potential for this drug is very big, but the big question is whether it will be able to compete directly with Abbott Laboratories’ injectible Humira – expected to soon be the best-selling drug in the world – or whether it will be relegated to use afterward, at least at first.
Also this summer, Eliquis, a new blood thinner for patients at high risk of stroke Pfizer has developed with Bristol-Myers Squibb, could be approved; the FDA is due to make a decision on June 28. Also worth watching: a study, due to complete in August 2013 with results due in December 2014, of whether the company’s Prevnar 13 vaccine prevents pneumonia in adults. Sales of other new products, like cancer drug Xalkori, will also be key.

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