The Deal: Pfizer's 3-Way Split Preps Company Long Term

Tickers in this article: PFE
NEW YORK (The Deal) -- As expected, Pfizer announced last week its plans to split its generics business into a distinct unit. What analysts and investors didn't expect was that Pfizer would divide itself into three parts instead of just two.

Pfizer will formally separate into three distinct businesses and integrate emerging markets into each, with the separation of financials expected to begin starting with Pfizer's fiscal 2014, Chairman and CEO Ian Read said during the company's sales and earnings conference call with investors Tuesday, July 30.

Pfizer's generics business, now called the "value products group," includes brands that have lost their exclusivity and mature products expected to go generic by 2015. This sector also retains Pfizer's biosimilars portfolio.

Many investors believe the move is in preparation for a spinoff into a separate generics company or for an outright sale, but Pfizer isn't ready to say that.

The two other segments include the expected unit of drugs with exclusivity beyond 2015, called "innovative products" and led by Geno Germano. That unit, which was the one industry watches hadn't expected in the reognization, combines vaccines, oncology and consumer healthcare products, and will be headed up by Amy Schulman.

The rationale for the third unit, Read said, is that Germano's group is operationally and commercially quite different from the vaccines group. The products in Germano's group target a collection of large disease areas that are detailed to both primary care and specialist physicians. Contrast that to the vaccines business, which is smaller, with a distinct culture, dedicated research facilities and a research focus.

"I thought it was very important for those businesses to maintain their unique focus and extend it globally," Read said. Plus, he "didn't want vaccines to be subsumed into a larger primary care business."

"Each has a different operating model with distinct specializations around science, talent and market approach," Read noted.

The generics segment will maintain collaborations for broadening Pfizer's off-patent business, including its partnerships with Mylan Pharmaceuticals in Japan, China's Zhejiang Hisun Pharmaceutical and Laboratorio Teuto Brasileiro in Brazil.

Like several other lumbering pharma giants, Pfizer needed to do something to get lean and mean. It reported revenue of roughly $13 billion for the second quarter, down 7% from 2012's second quarter revenue of $14 billion. The downturn reflects loss of exclusivity for Lipitor and continued volatility in emerging markets.