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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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March 29, 2012

Pfizer: Making the Case for a Breakup

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Posted by Derek

I would not like to count the number of times I've said bad things here about pharma mergers. The best of them, as far as I can see, have been not all that harmful, and the worst have been near-disasters. As the undisputed M&A kings of the industry over the last twenty years, I've been especially hard on Pfizer.

And now that great big financial wheel is turning. Huge mergers and acquisitions appear, finally, to be going out of favor. Since there are no longer reputations to be made, bold visions to be realized, and (don't forget) massive fees to be earned by implementing such moves, the latest word is: breaking up. Spinning off. Leaner, meaner, core businesses, unlocking value, more focus, back to what they do best . .you can write the Wall Street reports as well as I can. Goldman Sachs is out this week making the breathless case for Pfizer doing just this.

I suspect we're in for years of this sort of thing, with Abbott's spinoff of their pharma business now looks like the starter's pistol going off. (They named the new company AbbVie, which I hope they didn't pay someone too much to think up, the same time disappointing the legions of fans who wanted to see it named Costello). Get ready for a long cycle of devolution.

Comments (26) + TrackBacks (0) | Category: Business and Markets


1. schinderhannes on March 29, 2012 7:08 AM writes...

Hi Derek,

the really sad thing about this is that Goldman Sachs and friends couldĀ“t care less if the do a merger or a split up they make money on it. I was always susspicious of the fact that only the financial wolrd has any benefit from M&As. And they lured us into believing this was to the greater good of pharma industry.
Unfortunately our managers were gullible enough....

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2. Over-paid chemist on March 29, 2012 7:16 AM writes...

Pfizer is selling Nutritionals and Animal Health so that it can raise funds to pay for the next acquisition.

Get on with the program.

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3. MQD on March 29, 2012 7:26 AM writes...

"Get ready for a long cycle of devolution."

Oh No! It's Devo!

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4. processchemist on March 29, 2012 7:28 AM writes...

Value maximization is probably the most destructive philosophy (or buzzword or excuse) in the last 50 years of history.

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5. Rick Wobbe on March 29, 2012 7:48 AM writes...

processchemist, #4, More specifically, the problem has arisen from the fact that the sole definition of "value" is shareholder return". We'd be far better off if our economic definition of "value" included things like meeting patient needs and innovating.

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6. HelicalZz on March 29, 2012 7:50 AM writes...

Value is always a relative thing. Breaking up Pfizer may well benefit investors in the short term, or over the next couple of years. But what gives Pfizer the best chance of succeeding for decades? Is it split up 'focused' companies some of which will succumb to competition and pressure, or a mix of businesses that should generate cash flows to the parent for the long term?

GS clearly favors the former, and I'm sure many investors do to (and add 'new' management with option rich compensation packages), but long term investors and dividend focused income investors should favor the perennially undervalued conglomerate for its ability to provide income with a decent yield. But these latter investors seem to be more and more the minority.

Shame about that.


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7. M on March 29, 2012 7:56 AM writes...

Rubin was the same person in who in just 2009 was beating the drum for PFE diversification and big take over - now, just 3 years on she is shouting about unlocking the value within PFE. Around 2015 she will again be bleating diversification/big take over. It's all to keep the M&A bankers busy and financing share-buybacks. Who gets screwed in all of this? Pharma employees - mainly scientists. Don't get sucked in to the evil of Wall St.

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8. Anonymous on March 29, 2012 8:13 AM writes...

"Oh No! It's Devo!"

We are not men. We are MBAs.

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9. johnnyboy on March 29, 2012 8:13 AM writes...

"Oh No! It's Devo!"

We are not men. We are MBAs.

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10. anon the II on March 29, 2012 8:34 AM writes...

@ schinderhannes

Although I agree with the sentiment of what you're saying, I don't think that the decision makers were gullible. If you looked at some of the departing packages the top guys got, "bought off" describes it better.

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11. schinderhannes on March 29, 2012 8:48 AM writes...

@ anon the II

point well taken!

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12. josh on March 29, 2012 8:50 AM writes...

"...disappointing the legions of fans who wanted to see it named Costello."

I see what you did there. Witty

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13. AbbVie is for Me on March 29, 2012 8:59 AM writes...

Abbott's success was always considered to come from it's diversification, different units performing well together to insulate each other from the ups and downs of the market. It was a core strength until one day they decided it wasn't.

Humira was lauded for its strong performance as the 'pipeline in a drug', its strong sales that brought in a lot of revenue for the company. Now, even with increasing sales, it's considered a liability for a variety of reasons. It was explained that too much of Abbott's profit came from Humira, around 20%. So, what do they do, they spin of the pharma side where its revenue will be closer to 50% of the new company, and right at the point where several things are going off-patent. The first couple of years at AbbVie (the most ridiculous name in the industry, by the way. Thanks, Miles!) are going to be tough, assuming they aren't already being shopped. They even kept the branded generics within Abbott rather than being part of the pharma company, as many feel it should have.

The only thing Abbott wanted to unlock was the door so they could push off something they no longer felt was going to benefit them over the next few lean years. Well, they also wanted to unlock the bank vault for upper management as well.

If the name AbbVie is any indication at their ability to make good decisions, well...

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14. Gilbert Pinfold on March 29, 2012 9:01 AM writes...

@ josh

GSK troll!

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15. josh on March 29, 2012 9:37 AM writes...

@Gilbert Pinfold

i am going to assume you were told to say that by the voices from your LIDA

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16. Derek Lowe on March 29, 2012 10:13 AM writes...

If there's a blog about Evelyn Waugh novels out there, I'll bet that they don't make jokes about drug discovery in the comments.

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17. NH_chem on March 29, 2012 11:05 AM writes...

I can say that I thought I was the only scientist that listened still to Devo. That is refreshing to see more out there.

As for Pfizer and a potential break-up, it is all driven by the stock price which is why a private company may be a better bet when looking at stability since they tend to be more patient.

Dividing Pfizer actually may be better for all.

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18. Bemused on March 29, 2012 1:47 PM writes...

Eh? Cost savings when you merge AND cost savings when you break up? If there's a management consultant out there, please enlighten us how that works...

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19. sgcox on March 29, 2012 7:00 PM writes...

It is very trivial. You merge, get some assets and fire people. + in money books. You break up => get read of marginal business and useless people. + in money books.
"firing people is just like printing your own money" - sorry, have no quotation source.

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20. JG on March 29, 2012 9:49 PM writes...

I'm trying to figure out enough about pharmaceuticals to write a book about the adventures therein. Ow! and Thanks!

I agree with the consensus that AbbVie has to be the craziest name they could have invented.

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21. drug_hunter on March 30, 2012 1:53 AM writes...

Could have called it AbbyNormal....

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22. CMCguy on March 30, 2012 12:47 PM writes...

@21- thanks for the LOL as immediately Young Frankenstein came to mind - you may want to see if you can Trademark that (or AbbVieNormal) as could be they will want to use as name of their first product?

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23. Sili on March 30, 2012 6:45 PM writes...

AbbVie en rose.

Good names never happen. Al Gore didn't name his investment firm Blood and Gore either.

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24. pilotgrrl on March 30, 2012 7:17 PM writes...


Something for everyone!

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25. Jocko Homo on April 1, 2012 12:13 PM writes...

8. Anonymous
The Devo analogy is inspired - see Wikipedia:

"The name "Devo" comes "from their concept of 'de-evolution' - the idea that instead of continuing to evolve, mankind has actually begun to regress, as evidenced by the dysfunction and herd mentality of American society."


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26. Bruce Grant on April 2, 2012 10:50 AM writes...

Dr. Frederick Frankenstein: [to Igor] Now that brain that you gave me. Was it Hans Delbruck's?

Igor: [pause, then] No.

Dr. Frederick Frankenstein: Ah! Very good. Would you mind telling me whose brain I DID put in?

Igor: Then you won't be angry?

Dr. Frederick Frankenstein: I will NOT be angry.

Igor: Abby someone.

Dr. Frederick Frankenstein: [pause, then] Abby someone. Abby who?

Igor: Abby... Normal.

Dr. Frederick Frankenstein: [pause, then] Abby Normal?

Igor: I'm almost sure that was the name.

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