Drug maker Pfizer, Inc. (PFE - Analyst Report) has finally decided not to split its two segments – Innovative Health (IH) and Essential Health (EH) – into two publicly traded companies.
For years, the company has been facing pressure from investors and analysts alike to split into two separate companies in hopes of driving growth. In April, Pfizer said it would come up with a decision by the year end, following the termination of its planned $160 billion merger with Allergan plc (AGN - Analyst Report) .
However, per Pfizer's management, a recent analysis has showed that it was already favorbaly positioned to maximize shareholder value in its current form.
Pfizer reorganized its reporting segments to IH and EH from the second quarter onward. While the IH business includes the new products, EH covers legacy brands, branded generics, generic sterile injectable products, biosimilars and infusion systems.
Pfizer's management asserted that both the IH and EH units have delivered strong results over the past three years as well as the first half of 2016. While IH sales witnessed growth of 18%, EH revenues jumped 22% on an operational basis (excluding the impact of foreign exchange) in the first half of 2016. While the Sep 2015 Hospira acquisition boosted sales at the EH segment, the IH unit gained from strong performance of key new drugs like breast cancer drug, Ibrance. Strong performance of both the segments met one of the key criteria for keeping the two units together – their ability to compete on a standalone basis.
Also, management said that a separation at this juncture would improve neither its cash flow generation ability nor the competitive edge of the businesses. Moreover, it could result in operational disturbance while raising costs, without resulting in any incremental tax efficiencies.
Management believes that new products like Eliquis, Xeljanz, Xalkori and Ibrance, the Jun 2016 acquisition of Anacor, as well as the pending $14 billion acquisition of cancer-focused biopharma company, Medivation, Inc. , will boost sales at the IH segment, going forward. On the other hand, EH is expected to return to sustainable growth over the next few years driven by sterile injectable and biosimilar capabilities acquired from the Hospira deal and expected growth in the emerging markets.
Instead, Pfizer is expected to buy more companies in the future, which will add key branded products to help offset at least some impact of increasing generic threats. Pfizer’s top line is presently under pressure due to generic competition for several of its products.
Shares of Pfizer fell around 2% on the news.
Pfizer has a Zacks Rank #3 (Hold). A stock worth considering in the large-cap healthcare sector is Eli Lilly and Company (LLY - Analyst Report) , which carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Eli Lilly has delivered an average four-quarter positive earnings surprise of 4.31%. Its earnings estimate for 2016 has risen 0.6%, while that for 2017 increased over 2% over the last 60 days.
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