Pfizer's New Structure Could Be The Prelude To A Breakup

New York-based Pfizer said it will divide its commercial and development efforts into three divisions, each with its own top executive who will report to Chairman and Chief Executive Ian Reed. They will include:

• An “innovative” business segment led by Geno Germano, who will be a Group President, which will include most products that will still be protected by patents after 2015. This will include inflammation, immunology, heart disease and diabetes, neuroscience and pain, rare disease, and men’s and women’s health.
• Vaccines, oncology, and consumer products will go in a separate division run by Amy Schulman, who was until now Pfizer’s general counsel but who also had authority over the consumer division. She will also be a Group President. How did those three divisions get split out on their own? Pfizer spokeswoman Joan Campion says they have “distinct operating models” with regard to other disease areas. Vaccines often rely on innovation campaigns and government endorsements; oncology is increasingly shaped by the academe; consumer products are sold over the counter.
• A "value" business segment will be led by John Young that will market products that don’t rely on patent protection, like Lipitor (off-patent, but it is expected to generate $2 billion in sales this year) as well as generic versions of biotech drugs, known as biosimilars, and partnerships in Japan, Brazil, and China. This is the division that most people on Wall Street expect to be spun off in 2017 or later, raising cash for the higher-growth science businesses.

The idea, as I outlined in a story two years ago, is that Pfizer could become a faster-growing, R&D based drug company by jettisoning the older products, and would thereby be more attractive to investors. Meanwhile, the older drugs would yield steady, predictable sales, making them a lower-risk investment. This idea has helped lead Pfizer shares higher over the past several years.

“At this time we have not made a decision nor are we in a position to make a decision involving future actions that could involve an external split,” says Campion. Pfizer has already sold its infant nutrition business to Nestle for $11.9 billion and spun off its veterinary division, Zoetis .

The new divisions will go into effect in 2014, when Pfizer will start reporting individual results for them.

Pfizer’s earlier stage research and development remains unchanged, run by head of R&D Mikael Dolsten. Products are developed until they reach “proof of concept,” when there is enough data for one of the divisions to make a bet, and then the division decides whether or not to continue.

Update:  Seamus Fernandez at Leerink Swann said in a note to clients that the "value" business segment will include Lyrica, for pain due to nerve damage, which generated $4.1 billion last year.  A Pfizer spokeswoman says this is incorrect, and that Lyrica will be in the innovative products division in the U.S., where it is patent protected until 2018, but not in Europe, where the patent expires in the second quarter of next year.