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Pfizer May Cut Loose Its Generics Unit Despite Doubts It Can Thrive on Its Own

Ever since Pfizer (PFE) CEO Ian Read announced he was considering breaking up the company and selling off parts such as its Greenstone unit, which makes cheap generic drugs, there have been a small number of voices suggesting this may not be a good idea. In Pfizer's Q1 conference call, two analysts asked Read whether Greenstone would even be functional as a standalone unit. He answered one of them, saying yes:
Tim Anderson - Sanford C. Bernstein & Co.: If you decide that Established Products is not really part of the core or the future for Pfizer going forward, can that business really be carved out from the parent? I'm just trying to figure out what that would look like and how it would work. Is there a potential buyer for that business? Is it capable of standing on its own as a separate publicly traded company or what exactly?
CEO Ian Read: So Tim, on your question on Established Products. All good questions, all really good strategic questions that we're in fact dealing with and thinking through as we go through this year. Certainly, we have the critical mass and the size of our Established Products in the Emerging Markets for the business to be a stand-alone if we want it to be or if we wanted to try and look at some sort of way of improving the capabilities of that organization to be more effective. I mean our thinking on this is clearly, how do we create more value for shareholders, what are the core capabilities needed to drive that business?
Read said he'd make key decisions on whether to sell or hold Greenstone in 2012.

Is Greenstone a millstone?
Another analyst, Richard Evans of Sector & Sovereign Research, has been arguing since late May that splitting up the company would create more, not fewer, inefficiencies. He elaborated to Pharmalot May 31:

As Pfizer has become bigger over the years, it has become more efficient, in part, because those mergers allowed it to reduce shifts in the manufacturing base. As you break the company up, unless you make some possible but novel arrangements, then you're going to lose those efficiencies. And those efficiencies are significant.
What will you do about manufacturing efficiencies? If investors contemplate a break up, manufacturing efficiency will be a primary question and they need to have an answer to that.
There's a debate to be had about whether Pfizer is becoming more efficient or whether it's merely treading water. But if you ask Ameet Mallik, global head of Novartis (NVS)' Sandoz Biopharmaceuticals generic drugs division, he says he depends on the parent company for collaboration and support, calling the conglomeration "a very big advantage for us." According to a Bernstein Research note published in May, Mallik said:
Being a part of Novartis is a very big advantage for us because we rely on quite a bit of collaboration and support, not only from a talent standpoint where many people in my organization have come from Novartis but also from a capabilities standpoint. I'll give you just a few examples On the development side, for example, when we have to do modeling and simulation or very specific capabilities like that we leverage the Novartis Pharma Group. When we have to do specific preclinical models we use our Novartis Research Group. In manufacturing, we share capacity across the Novartis group as well as talent. When it comes to commercialization, we also work quite a bit together on government affairs and market access. In smaller markets, particularly in the emerging markets, where it wouldn't make sense to build scale where you need a high share of voice, we leverage Novartis to actually lead the commercialization on the pharma side.
That doesn't mean losing Greenstone would be bad for Pfizer, however. Established product revenues sank 15 percent to $2.4 billion in Q1 2011. Greenstone may need Pfizer more than Pfizer needs Greenstone -- which is why there's all this talk of cutting it loose whether it can stand on its own or not.


Image by Flickr user Bob MacInnes, CC.