The current status of the pharmaceutical industry has market leaders considering significant changes to best align their corporate strategies with the demands and challenges of the market landscape. Many companies have recently faced the challenges of the patent cliff and generic erosion. Two companies that have been specifically in the news as of late are Pfizer and Abbott.

In an effort to curtail concerns surrounding the sustainability of the anti-inflammatory blockbuster Humira (adalimumab) and resulting impact on the perceived value of Abbott to investors, Abbott has completed (as of January 1, 2013) a company split of its proprietary drug business and diversified health care products. Abbott will now represent the diversified health care products businesses and will include medical devices, nutrition products, diagnostic tests, and the established branded generic division. The newly formed AbbVie will be responsible for research-based pharmaceuticals, including the aforementioned blockbuster Humira. 

Pfizer has been in the news due to speculation that the once Lipitor-driven goliath may be undergoing a restructuring similar to Abbott. Geno Germano, president of the specialty care and oncology businesses, was recently quoted as saying, ?[Pfizer is] probably going to evolve to two, where there's the innovative business and the value business,? in regards to Pfizer's various business units. Pfizer recently committed to a core-competency concentrated strategy by selling its nutritional health business and spinning off its animal health business, which many analysts considered to be a sign of further business unit breakdown. Although no official statement has been made by Pfizer representatives regarding a full-scale breakup, the initial steps have been seemingly taken. 

As we witness these occurrences, many analysts and investors are wondering about the rationale behind such decisions. For Abbott, the move was stated to be about increasing investor value and offering two independent business models, each with its own respective value. The same rationale may also apply to the potential split the market may witness with Pfizer. One could also speculate that healthcare conglomerates are finally recognizing the lack of synergies across these various business units and the resulting potential costs are outweighing the benefits. Although there may be costs associated with this large of a company split, the long-term benefit is much greater than the short-term costs. 

Regardless of which rationale you subscribe to, it is evident the industry is facing pressures to adapt and grow. The market will look to the industry leaders, like Abbott and Pfizer, to set the tempo for the shift that is occurring. For now, we wait to see how well these companies will cope with the changes they have made and the potential changes that are coming.

Gary Jaitowal is an Associate with the DRG Consulting Group.
 

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