July 29, 2013 / 1:17 PM / 4 years ago

Pfizer to split generic, branded drugs units

The entrance of Pfizer World headquaters in New York City, August 31, 2003. ECONMJeff Christensen

(Reuters) - Pfizer Inc, in what could be the prelude to spinning off its generics drug business, said it plans to separate its commercial operations into two units, mainly for patent-protected brands and a third for generics.

Pfizer, the largest U.S. drugmaker, said on Monday the changes will take effect by January in countries that do not require a consultation with labor unions.

Earlier this year, Pfizer said it would begin examining the finances of its patent-protected unit, which it calls its "innovative" business, and its generic operation, called its "value" business, to decide whether to spin off the generics operation. It said the review would take three years.

Pfizer generics, which have far lower profit margins than patent-protected drugs, had global sales last year of $10.2 billion. The business represents 17 percent of total sales and overwhelmingly comes from overseas.

One "innovative" business will include drugs expected to have patent protection beyond 2015 and focus on treatment areas such as inflammation, immunology, cardiovascular and metabolic, neuroscience and pain, rare diseases and women's and men's health.

Geno Germano, who currently heads Specialty Care and Oncology, will head the Innovative Products Group.

The other "innovative" business will include vaccines, cancer and consumer healthcare, to be headed by Amy Schulman.

"The vaccines, oncology and consumer operations that will be bundled together seem unlikely bed fellows," Citibank analyst Andrew Baum said in a research note. He speculated that the components, all dependable sources of revenue, were grouped together to provide a "balanced" revenue base.

Leerink Swann analyst Seamus Fernandez said the structure of the three planned units, although not obvious at first, seems sound. Germano's business, which Fernandez called "innovative core #1," will have the largest sales force and provide global administrative and research support.

Schulman's group, "innovative core #2," will require far fewer sales representatives and likely have the highest value, the analyst said.

"Investors should be pleased" with the planned structure, Fernandez said, including the fact that it integrates into all three units a focus on sales in emerging markets - fast-growing countries like China, India, Russia and Brazil, where the industry aims to reap most of its growth in coming years.

Many analysts have urged Pfizer to spin off its generics business, just like it did with the nutritional products and animal health units in recent years, so it can focus on its core, more lucrative branded pharmaceuticals business.

Baum and Fernandez said any spin-off of a company division would be unlikely before 2016, after Pfizer completes its examination.

Schulman is Pfizer's general counsel and also heads the company's consumer healthcare unit, a $4 billion-a-year business. Pfizer has shown no interest in selling the unit, which makes the Advil painkiller and Robitussin cold treatment.

As Pfizer's top lawyer, Schulman helped negotiate its purchase of drugmaker Wyeth in 2009 and spearheaded Pfizer's $11.85 billion sale last year of its nutritionals products, a business she headed, to Swiss food giant Nestle.

Douglas Lankler, who is now chief compliance and risk officer, takes over as general counsel on January 1.

The "value" business unit, to be headed by John Young, will generally include products that will lose patent protection through 2015 in most major markets. It will also include biosimilars, which are generic forms of biotech medicines.

First-quarter sales of Pfizer generics fell 16 percent to $2.35 billion, dragging down overall company results.

Pfizer's shares gained nearly 1.2 percent to $29.73 in mid-day trading on the New York Stock Exchange.

Reporting by Ransdell Pierson; Editing by Gerald E. McCormick, Maureen Bavdek, Jeffrey Benkoe and Dan Grebler

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