Pfizer (NYSE: PFE) announced yesterday that it plans to sell or spin off its animal-health and nutrition businesses but keep its consumer health-care and established products division.
It's better than nothing, I suppose.
The animal-health business will almost certainly be sold. It's the type of business where having more products can increase net margins, and the current players have shown an appetite for acquitting more products. Eli Lilly (NYSE: LLY) recently purchased Johnson & Johnson's (NYSE: JNJ) European-based animal-health business. And Sanofi (NYSE: SNY) and Merck (NYSE: MRK) tried unsuccessfully to bring their divisions together in a joint venture.
The nutrition business looks like a good spinout candidate, akin to Bristol-Myers Squibb's (NYSE: BMY) spinout of Mead Johnson (NYSE: MJN). Investors who decided to swap their Bristol shares for Mead Johnson ones have made out pretty well so far.
Holding on to the consumer-health business seems pretty ironic, since Pfizer sold its consumer-health business to Johnson & Johnson five years ago. Now it's interested in keeping the group it got in the Wyeth acquisition? Advil and ChapStick trump Listerine and Sudafed, apparently.
As much as I'm not a fan of dabbling in low-margin generics, Pfizer's established products business serves its purpose. The division allows Pfizer to squeeze out a few extra dollars from products that have generic competition and has in-licensed a few old-fogy drugs as well. The established products business is probably more valuable to Pfizer than the cash it could get from selling the business.
As Pfizer moves on with the breakup, investors should keep an eye on what the company does with the proceeds. The breakup -- whatever size it is -- will benefit investors only if management can use the cash to develop new, innovative drugs.
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