Pfizer, one of the world's largest drug companies, has begun a plan of shedding assets in order to focus on drug research and development. The plan initiated by CEO Ian Reed focuses on using the proceeds of asset sales to increase shareholder value. The asset sale is a questionable strategy to me considering nutrition, animal health, and consumer products all have been growing at double digit rate, while Pfizer's prescription medication sales have decreased.
Pfizer has already sold off their Capsugel unit for over $2 billion, and are believed to be actively shopping their infant nutrition and animal health divisions as well. It's been speculated that Pfizer's consumer health products, which were mostly was acquired from Wyeth during their acquisition, could be spun off as well.
There is precedent for this, as recently as 2006 Pfizer sold their consumer health division to Johnson & Johnson (NYSE:JNJ) for over $16 billion in a similar effort to buy back shares. The chart below shows that while pharmaceuticals still make up the bulk of Pfizer's revenue, all their growth lies in their other divisions.
% of Total Revenue
Pfizer's infant nutrition unit is the smallest of the four in sales, but has the most promise largely due to its popularity in emerging markets. Their portfolio includes SMA Gold and Promil Gold infant nutritional products. I think Pfizer is crazy for even considering selling its nutrition unit considering they have a strong foothold in one of the most desirable and fastest growing markets in the world, China. Nestle, Danone (OTCQX:DANOY), and Abbott Labs (NYSE:ABT) are believed to be in the bidding, which is supposed to net in the $10 billion range. That would give the nutritional unit a stand alone PE of just under 20, which I don't believe is high enough given its growth prospects in emerging markets.
Pfizer's fastest growing unit is its animal health division. At its current growth rate in 5 years, this unit would have over $9 billion in sales. Selling a variety of products for both household pets and livestock this is another division with excellent growth prospects.
Pet ownership and spending has continuously been climbing over the years, as people become more willing to invest in the health of their pets. The real potential with Pfizer's animal health division lies in the services and products they provide to farmers to manage their livestock. Pfizer sells vaccines, antibiotics, and genetic testing to their customers.
As Asia becomes richer and their demand for meat increases, their farming industries will demand more innovative and efficient products as well. If Pfizer goes ahead with the decision to shed their animal health division the most plausible outcomes are either an outright sale or a spinoff. As a shareholder, I would prefer a spinoff, as that would allow me to profit from the new companies excellent growth prospects.
As previously stated Pfizer acquired their consumer health brands during the acquisition of Wyeth. Their portfolio includes household names such as Centrum Vitamins, Advil, and Preparation H. Some of Pfizer's main competitors have substantial consumer health divisions as well and could be potential suitors if Pfizer does indeed decide to sell.
Consumer Health Sales
Sales as a % of Revenue
Dimetapp, Advil, Preparation H, Centrum
Prevacid 24h, Voltaren, Excedrin, Maalox
Johnson & Johnson (JNJ)
Listerine, Tylenol, Zyrtec
Their recent acquisitions of Alacer and Ferrosan's consumer health products lead me to believe that Pfizer plans on staying committed to the sector. Ferrosan makes the ever increasingly popular omega 3 supplements while Alacer produces Vitamin C supplements. This should be greeted as welcome news for investors as consumer health products tend to have high margins, strong brand loyalty, and minimal development costs.
They also can help protect earnings in the years when Research and Development don't yield the major blockbusters that drug companies depend on for profits. The wildcard in all of this is Lipitor, Pfizer's blockbuster cholesterol medication that they intend to make available over the counter. If the FDA approves this, Pfizer's consumer health sales could possibly double within a couple years. If the FDA doesn't approve OTC Lipitor, their two acquisitions should help increase Pfizer's consumer health products sales to over 5% of total revenue for 2012.
Disclosure: I am long PFE.