Pfizer (PFE +0.38%) was in the news Wednesday for a second day in a row. On Tuesday, the company announced that it was holding off on price increases for dozens of drugs. This decision came after CEO Ian Read spoke with President Trump and Health and Human Services Secretary Alex Azar. The president had tweeted earlier, ripping Pfizer for the price hikes.
Wednesday's news for Pfizer didn't involve as much drama, but it could be more far-reaching. The big pharmaceutical company announced a major restructuring. Here are four things you need to know about Pfizer's reorganization plans.
Image source: Pfizer.
1. What changes are being made
Pfizer currently has two business segments, innovative health and essential health. These two segments consist of the following:
| Innovative Health |
Essential Health |
|---|---|
|
|
Data source: Pfizer.
The company plans to restructure into three business segments: innovative medicines, established medicines, and consumer healthcare. Each segment will include the following:
| Innovative Medicines |
Established Medicines |
Consumer Healthcare |
|---|---|---|
|
|
|
Data source: Pfizer.
Pfizer plans to make this new organizational structure effective at the beginning of 2019.
2. Why Pfizer is restructuring
Pfizer mentioned two reasons for reorganizing into three business segments. The headline of the drugmaker's press release announcing the changes stated that the company was organizing "for future growth." CEO Read echoed this idea, saying, "As we transition to a period post-2020 where we expect a higher and more sustained revenue-growth profile, we see this new structure better positioning each business to achieve its growth potential."
The second reason given for the restructuring is that it simply made sense. Read said that the "new structure represents a natural evolution of these businesses." Pfizer plans to move its biosimilars into business units corresponding to their therapeutic category. Inflectra, for example, which is a biosimilar to Johnson & Johnson's autoimmune-disease drug Remicade, will move into Pfizer's inflammation and immunology business unit that's currently in the innovative health segment.
3. What's next for consumer healthcare
Could there also be an unstated reason behind some of the restructuring? Perhaps. Pfizer announced in October 2017 that it was considering either selling or spinning off the consumer healthcare business. The company said in the press release announcing the restructuring that it is continuing to evaluate strategic alternatives for the unit and expects to make a decision later this year.
The reorganization plans could make a sale or spinoff of the consumer healthcare business somewhat easier for Pfizer. Setting up the business as a distinct segment is a smart move to better facilitate a potential separation of consumer healthcare from Pfizer.
Several prospective buyers for Pfizer's consumer healthcare business have dropped out. However, a handful of companies still could be interested in acquiring the unit. The price that Pfizer can get for the consumer healthcare business will likely drive the decision on which path to take.
4. What all this means for investors
Did investors rush to buy or sell Pfizer stock based on the company's restructuring plans? Nope. The reality is that this reorganization isn't likely to impact investors much at all -- with perhaps two exceptions.
The first exception is if the restructuring provides a hint that Pfizer has a buyer lined up for the consumer healthcare unit. I think that a sale of this business would be a nice win for Pfizer shareholders. Selling consumer healthcare would give Pfizer some money that it could use to potentially acquire a smaller biotech with a pipeline that could generate future growth.
What's the second exception? Maybe, just maybe, the reorganization could also increase the chances that Pfizer will one day sell or spin off its established-medicines business. The company considered a spinoff in 2016 but decided that the move wouldn't unlock enough value for shareholders.
Shuffling deck chairs?
Sometimes when a company reorganizes, observers use the phrase that it's like shuffling deck chairs on the Titanic. The implication is that restructuring is futile when there are much bigger problems in store. I think that Pfizer might be doing a bit of shuffling deck chairs, but the company isn't like the Titanic at all. Actually, Pfizer's future seems brighter now than it's been in a while.
The company's established-medicines segment should be able to generate modest revenue growth after 2020, when the damage from loss of exclusivity in the U.S. for Lyrica will be less of a factor. Pfizer should also be able to move past the issues that have caused product shortages in its sterile-injectables business. With these headwinds easing in the future, the main stories for the company in the next few years will be its core drugs and its pipeline. And that's great news for Pfizer.
