Pfizer Plans To Give Diversified Businesses Time To Grow

Pfizer plans to give its consumer products businesses "the opportunity to grow" as it integrates Wyeth into its operations, according to CEO Jeffrey Kindler.

Pfizer closed its $68 billion acquisition of Wyeth Oct. 15, one day after the Federal Trade Commission cleared the buyout.

Acquiring Wyeth returns Pfizer to the consumer product and nutritionals markets, where it has been absent since selling its consumer health care business to Johnson & Johnson in 2006 (¹ (Also see "Pfizer’s Wyeth Buy Rebuilds OTC Switch Potential" - Pink Sheet, 2 Feb, 2009.)). Wyeth brands include Advil pain relievers, Centrum multivitamins and Robitussin cough/cold products.

Pfizer grouped its Consumer Health, Nutritional, Animal Health and Capsugel delivery technology businesses in its Diversified Businesses unit under Group President Cavan Redmond as part of the acquisition.

However, since Pfizer announced the acquisition of Wyeth in January, observers have speculated as to whether Pfizer will grow even bigger over the long term or if some business segments would eventually be spun-out or sold.

When Kindler fielded more questions on this issue during the firm's fiscal 2009 third-quarter earnings call Oct. 20, he indicated he is committed to consumer health and other Diversified Businesses - at least for now.

"We are not setting them up to be sold; we are setting them up to grow. We are giving the businesses the opportunity to do that," he said.

While pointing out "it is early days" and he was not ready to elaborate on specific plans, Kindler observed that the diversified businesses offer benefits beyond their financial performance. "We're excited about all these businesses not just as individual businesses but also for the opportunities they may create among each other."

For example, marketing a "full range of products in places like China that includes nutrition, vaccines, consumer products and the rest creates a footprint in a marketplace like that that I think gives us terrific benefits," he said.

However, he added that Pfizer will evaluate its ongoing investments based on results. "Like every other business in this company," the Diversified Businesses will compete for capital based on "the risks and returns that they present," Kindler explained.

"We, as keepers of our owners' capital, always have the obligation to look at whether the mix of assets and portfolio that we have needs to be reviewed to determine whether certain assets should be reconsidered in terms of their place in our organization."

Integration: New Roles And Cuts

With the combined executive leadership team in place months ago, Pfizer began implementing its integration plan immediately upon closing.

"Our leadership teams below the executive level are now in place across most of the company, and every employee in the company knows their reporting relationship," Kindler said.

"In all, 112 Wyeth senior executives have accepted offers to join Pfizer so far," Kindler said. "Of these, 14 are joining as country managers or country business-unit leaders, and 12 have agreed to join our research and development organization, a number that we expect to increase."

In April, Pfizer outlined the post-merger key leadership positions, including the appointment of several Wyeth executives (² (Also see "Pfizer To House Consumer, Nutritional Divisions In Diversified Businesses Unit" - Pink Sheet, 13 Apr, 2009.)).

The combined business is organized around nine units: Primary Care, Specialty Care & Vaccines, Emerging Markets, Oncology, Established Products, and the four units under Diversified Businesses.

Pfizer already announced internally the major sites from which it will operate as well as some closings.

Wyeth's Madison, N.J., headquarters will remain open as a home for Diversified Businesses. Wyeth's pharmaceutical operations in Collegeville, Pa., also will remain open, housing the combined company's Specialty Care business unit.

Plans call for closing Wyeth's Great Valley, Pa., site and Pfizer's technology manufacturing facility in Bridgewater, Conn., and a multi-function operation in Peapack, N.J.

Those early announcements represent the first wave of staffing and operating updates with more facility closings to come.

The mega-merger - intended to save $4 billion in costs - will result in 19,000 job eliminations. Pfizer plans to announce final decisions on research and development sites in the next 30 to 60 days and on manufacturing operations in the next three to six months, Kindler said.

Profits Rise 26% On Cost Cuts

Pfizer reported third-quarter sales and earnings excluding Wyeth, which has scheduled its quarterly earnings release for Oct. 22.

For Pfizer, revenues of $11.6 billion declined 3 percent compared to the year-ago quarter. U.S. revenues fell 2 percent to $4.8 billion.

Sales in all but one of its five pharmaceutical business units declined, with sales hit negatively by foreign exchange during the July-September period.

Specialty Care sales increased 3 percent to $1.6 billion, driven by the solid performance of Rebif and Revatio . Primary Care revenues dropped 4 percent to $5.5 billion, with sales flat operationally.

Sales of many of Pfizer's top-sellers were down. Lipitor slipped 9 percent to $2.85 billion, Norvasc 13 percent to $488 million, Chantix 15 percent to $155 million, Aricept 17 percent to $108 million and Viagra 8 percent to $466 million.

Despite the lackluster sales results, Pfizer's net income increased 26 percent in the quarter, favorably impacted by a $640 million charge in the year-ago period and lower costs associated with the company's ongoing cost-reduction initiatives.

The company has cut about 6,500 jobs since the end of 2008, with Pfizer's standalone workforce at 75,400 employees as of Sept. 30. Pfizer has cut 11,200 jobs since the beginning of 2008, the firm reported.

- Jessica Merrill ( ³ [email protected] )