Pfizer: Breaking Up Is Hard to Do

| About: Pfizer Inc. (PFE)

Matthew Herper has a good piece over in Forbes on the speculation that Pfizer (NYSE:PFE) might devolve. Here's his breakdown of how five (or so) separate Pfizer-derived companies could be worth substantially more than the current entity.

But, as he notes, we're talking about several different things here. Were I a long-suffering Pfizer shareholder (which, outside of index funds, I have tried not to be), I would have one perspective on this, similar to this one. It would all be about the stock price:

“The stock can only go up if they break up the company and cut research and development,” says Jami Rubin, a pharmaceuticals analyst at Goldman Sachs who has been pushing a Pfizer breakup for three years. “When Read was announced as the new chief executive Wall Street was skeptical, but he’s listening and he’s responding to what we have been saying. My sense is he’s already made up his mind.”

As an observer of (and participant in) the drug industry, though, I have other views, and they're more like these:

Not everyone agrees that a breakup is the right fix for Pfizer, which has struggled to invent new blockbusters even as it acquired Warner-Lambert for $114 billion in 2000, Pharmacia for $60 billion in 2003 and Wyeth for $68 billion in 2009. Those big mergers sidetracked its researchers and salespeople and created baroque management structures—at one point there were 17 layers between the chief executive and the lowest employee. Critics say undoing them risks similar distraction. As one fund manager said, a breakup would just mean the investment bankers and lawyers who got rich putting Pfizer together will now get richer taking it apart, without improving its ability to invent and market drugs, already a struggle. “I think it’s financial engineering. I think it makes the stock more valuable,” says Les Funtleyder, a fund manager at Miller Tabak. “From a strategic point of view, would it solve the problem? No.”

That's the problem, all right. I've made this point in various ways over the years, but let me be as blunt as possible: I think that Pfizer's consolidation, both of large companies and of small ones, has been a disaster for drug discovery in general. Just the sheer loss of intellectual diversity is enough to call it that. And the resulting huge, ugly omelet cannot be unscrambled. The disruptions in all those research organizations can never be undone, not without a fleet of fully powered time machines.

It will give many people (I'm one) some cold satisfaction to see the company reverse course, admit that the mega-merger strategy has been a mistake all along, and painfully retrace its steps. But that's not much compensation, is it? Not compared with what's been lost.

Disclosure: None