Spin-offs of big pharmas in the past decade
The following are the big pharma spin-offs I know of in the past ten years. These pharmaceutical companies are all world-renowned super pharmaceutical companies, so these three spin-off cases are very important. They all have the same purpose, dismantling or selling all businesses that are not the core of human pharmaceutical research and development.
Pfizer
- In 2012, Pfizer (ticker: PFE) sold its Wyeth infant milk formula business to Nestle (ticker: NSRGY) for $78.5 billion.
- In 2012, Pfizer spun off its animal health business independently into Zoetis (ticker: ZTS), which went public and raised $13.8 billion for Pfizer.
- In 2019, Pfizer merged its generic drug business with generic drug giant Mylan, as a new company Viatris (ticker: MYL).
- In 2019, Pfizer spun off its consumer health products business to GSK.
- In May 2020, Pfizer divested its anti-infective drug.
Abbott
- In 2013, Abbott (ticker: ABT) spun off its branded pharmaceutical business, which has since been traded under the name AbbVie (ticker: ABBV).
- For Abbot, please see my previous post “Abbott, the world’s most important medical device and nutritional food supplier, how does it make money?“
Johnson & Johnson
- In 2021, Johnson & Johnson’s baby powder will be riddled with cancer-causing lawsuits, and there will be as many as 38,000 lawsuits. For this reason, in October 2021, Johnson & Johnson established a new subsidiary, LTL Management LLC (“LTL” for short) . For the purpose of dumping the liability, transfer the liabilities to the new company, let LTL absorb all the debts related to the baby powder cancer lawsuit, and declare that the company has filed for bankruptcy protection and the newly established entity will assume legal responsibility.
- Johnson & Johnson will spin off the health consumer goods company and go public independently. New company named Kenvue. The separation is expected to be completed within 18 to 24 months from November 2021.
Merck
- In 2022, Merck (ticker: MRK) spin off its $6.5 billion business into a new public company, Organon (ticker: OGN), which includes women’s health products and biosimilars, a move that will allow Merck focus on high-growth areas such as cancer drugs and vaccines.
- For Merck, please see my previous post “Stable Dow Component Merck, how does it make money?“
GlaxoSmithKline
- In 2014, GlaxoSmithKline bought Novartis’ vaccines unit (excluding flu drugs) for $5.25 billion.
- In 2018, GlaxoSmithKline acquired Novartis’ 36.5% stake in the two companies’ consumer healthcare joint venture for $13 billion in cash.
- On July 18, 2022, GlaxoSmithKline (ticker: GSK) will spin off its consumer health business to form a new company called Haleon (ticker: HLN), becoming the world’s largest independent consumer health company. It owns the toothpaste brand Sensodyne, the anti-inflammatory and pain-relieving Voltaren, the pain-relieving magic drug Panadol, the vitamin brand Shancun, and the calcium supplement Caerqi.
- Haleon has been listed on the London Stock Exchange first, which is also the largest listed company in London in the past 10 years. It is also successfully listed in the United States as well.
Novartis
- In 2014, Novartis sold its animal health unit to Eli Lilly (ticker: LLY) for $5.4 billion.
- In April 2014, Novartis acquired the cancer drug division of GlaxoSmithKline for $16 billion.
- In 2015, Novartis completes divestiture of influenza vaccines business to CSL Limited for USD 275 million.
- In 2015, Novartis completes sale of animal health unit to Elanco (ticker: ELAN) under Lilly (ticker: LLY).
- In 2018, Switzerland-based Novartis announced it plans to spin off Alcon (ticker: ALC).
- In 2022, Novartis Leaning Toward Spinoff of $25 Billion Generics Arm, sold to Sandoz.
- Novartis (ticker: NVS), decided to sell or divest its generic drug company Sandoz by the end of 2022. It is reported that PE giants Blackstone Group and Carlyle Group may jointly acquire Sandoz for $25 billion.
Sanofi
In 2019, Sanofi (ticker: SNY) adjusted its global business framework to a “3+1” model, that is, focusing on special medicines, vaccines, and general medicines (diabetes, cardiovascular, etc.), while the original consumer healthcare business ( including products such as over-the-counter pain relievers) was spun off into a separate consumer division.
3M
3M announced in July 2022 that it plans to spin off its healthcare business into a company and go public independently. The transaction is expected to be completed by the end of 2023. After the spin-off is completed, 3M will hold 19.9% of the newly established medical company’s equity.
An industry trends
Why spin-off?
The answer is very simple, first in terms of organization and business. Because the business of the spun-off department is too different from other departments of the parent company; usually, the main business of the parent company is biotechnology and pharmaceuticals, and the spun-off department is related to health consumer goods; while the health consumer goods department is more inclined to people’s livelihood industry.
However, in business and business, the main consideration is capital, and the spin-off can:
- Have the more developed sub-group be independent, the prospects of the new company are good, and the stock price valuation is of course much higher than that of the parent company. Why not do it? Remaining in the parent company, the promising group is forced to use a lower valuation to calculate the market value, which is not worth it.
- The other is the other way around, to avoid sub-group dragging down the entire company. Of course, it is better to keep the main parent company. The example of Johnson & Johnson I mentioned in my blog a few days ago: Compared with the other two businesses (medical equipment and pharmaceuticals), the revenue and growth rate of the consumer goods business are slightly lower. Both businesses achieved double-digit growth in 2021. After ditching the consumer goods business, spin-offs can increase the parent company’s valuation, a common practice for companies.
How did the split play out?
Of course, not all transitions are successful. According to incomplete statistics, internationally, 39 such companies have embarked on an independent development path. From the perspective of parent companies and the time of spin-off, most of them have been spin-off from 12 large global pharmaceutical companies in the past 10 years. from. Among them, 10 have been successfully listed, 8 are still privately held, 11 have been acquired, and the remaining 10 ended up going bankrupt or no longer active.
How does it actually perform?
How are these companies performing?
| Index | Johnson & Johnson | Pfizer | AbbVie | Merk |
| 2021 revenue (billion) | 93.775 +13.55% | 81.288 +95% | 56.197 +22.69% | 48.704 +17.31% |
| pharmaceuticals | 52.08 +14.28% | 79.557+95% | 56.197 +22.69% | 48.704 +17.31% |
| Medical devices / Pfizer’s CDMO | 27.06 +17.86% | 1.731 +87% | 0 | 0 |
| Health consumer goods | 14.645 +4.1% | 0 | In Abbott Laboratories | Become Organon |
| Gross margin | 68.27% | 62.28% | 69.65% | 72.81% |
| Operating margin | 26.92% | 33.02% | 35.29% | 32.56% |
| Net margin | 22.26% | 27.04% | 22% | 26.79% |
Their share price performance
In the past 10 years, the stock prices of Johnson & Johnson, Pfizer, Merck, and AbbVie, as shown in the chart below, have risen by 119.75%, 46.11%, 84.56%, 140.82%, and 297.71%, respectively.
How is the stock market valued?
| Johnson & Johnson | Pfizer | AbbVie | Merk | |
| Market capital (billion) | 474.54 | 277.14 | 259.43 | 221.61 |
| Share price | 180.46 | 49.07 | 146.88 | 87.65 |
| P/E | 24.31 | 12.5 | 22.76 | 15.68 |
| P/S | 5.08 | 3.51 | 4.91 | 4.1 |
| Dividend yield | 2.5% | 3.26% | 3.84% | 3.15% |
Advantage of big pharma split
Capital activation
In the short term, the spin-off of pharmaceutical companies often heralds a good return on capital and has an obvious role in supplementing cash flow. Refinement management can also reduce the negative effects brought about by the parent company’s overall planning, avoid complex procedures of large enterprises, improve R&D efficiency, enable each business entity to focus on core business, achieve “specialization in the technical industry”, and effectively improve the allocation of resources.
Suitable for conservative investors
The major pharmaceutical companies in the U.S. stock market are suitable for investors who are conservative but unwilling to hold ETFs tracking the market index for the following reasons:
- They are all typical blue-chip stocks, which means that they have decades of stable performance as their history shown, and the chances of losing money in the long-term are very low.
- All are, or were, components of the Dow Jones Index.
- Dividends will be issued, and dividend yields are considered a very high group in U.S. stocks.
- The stock price will not perform worse than the S&P 500 index, which represents the U.S. stock market in the long run.
Relative articles
- “Weight loss is the future golden goose of the drug market “
- “Alzheimer, the only major disease yet to be conquered, current progress and related companies“
- “Why Eli Lilly become global pharmaceutical market value king?“
- “Big pharma spin-offs, and advantages to invest them“
- “Eli Lilly, a big pharma with astonishing valuation“
- “Pfizer, the world’s largest pharmaceutical company“
- “Novo Nordisk’s new diabetes drug Semaglutide,Ozempic,Wegovy and Mounjaro found to have surprising weight-loss effects“
- “The next No. 1 pharmaceutical leader AbbVie“
- “Stable Dow Component Merck, how does it make money?“
- “The ex-largest pharma Merck“
- “Abbott, the world’s most important medical device and nutritional food supplier, how does it make money?“
- “Roche, the lord of anti-cancer“
- “How the best AAA credit rating Johnson & Johnson makes money?“
- “How does dominated Intuitive Surgical make money?”
Disclaimer
- The content of this site is the author’s personal opinions and is for reference only. I am not responsible for the correctness, opinions, and immediacy of the content and information of the article. Readers must make their own judgments.
- I shall not be liable for any damages or other legal liabilities for the direct or indirect losses caused by the readers’ direct or indirect reliance on and reference to the information on this site, or all the responsibilities arising therefrom, as a result of any investment behavior.
