Build up to break up

Why Pfizer needs AstraZeneca to make a break-up plan work

Pfizer Inc. continues to give signals that the grand plan is to break itself up, and the reality looks like it absolutely needs AstraZeneca plc's assets to make it work.

Pfizer already has internally organized itself into three business units, and has been hinting at a breakup scenario for months. Last week it honed the narrative down further, telling investors that should the breakup occur, it would become two companies.

The question is how each business would create more value than they can create inside the bigger company. Last week the answer to that also became more clear: Pfizer needs the AZ assets to create a growth story.

Pfizer reported independent financials for the three units for the first time last week, making clear that all three are flat to declining. The company did not provide any guidance for the units.

In a breakup, one newco would house the two units that CEO Ian Read calls Pfizer's "innovative core." The Global Innovative Pharma unit includes branded prescription drugs for primary care, autoimmune diseases, men's and women's health, and rare diseases. The second unit is its Vaccines, Oncology and Consumer Healthcare business, which includes OTC products.

This company would be similar in focus to the pharmaceutical and OTC portions of Johnson & Johnson. But J&J's pharma business is growing and has more near-term drivers than Pfizer does on its own.

The addition of AstraZeneca's diabetes, cardiovascular and cancer drugs would make a stand-alone Pfizer innovative products company almost as big as the J&J pharma and OTC businesses. And AZ would bring both fast-growing launches and a late-stage pipeline that could drive growth over the near and long term.

AstraZeneca also would add to the scale and global reach of the second potential Pfizer spinout, which would house the global established pharma unit that includes mostly generic and soon-to-be generic products.

So far, AstraZeneca isn't biting.

The U.K. pharma has turned down two bids using a mix of stock and cash, the latest of which valued the company at £63 billion ($106 billion). The bid is a 24% premium to AstraZeneca's market cap of £51.4 billion ($86.6 billion) on April 25, the last trading day before the initial

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