Pfizer Finds Breaking Up Is Hard to Do

Back in July, I was positive on shares of Pfizer (PFE) . I thought the company was executing exceptionally well. Then, the stock took a dive.

Now what?

In early August, Pfizer reported an OK quarter. The company said it earned 64 cents per share, 2 cents better than the consensus estimate. Revenue rose 10.9% to $13.15 billion. Management reaffirmed guidance for fiscal 2016. The stock dipped because management didn't provide any update on its Essential Health spinoff.

Then, on Aug. 22, the company announced it would acquire Medivation (MDVN) , a biotech company focused on commercializing small molecules for oncology. Pfizer paid $81.50 a share in cash for a total of $14 billion -- a stiff 38 times 2017 estimates for the company. Management hopes the deal will jump-start its growth.

The high price Pfizer paid for Medivation only confirmed investors' view that Pfizer is desperate for growth. Investors freaked out and hit the sell button on the news.

Then, a few weeks later, management really dropped a bomb. The company said it would not split its Essential Health unit from its Innovative Health division. The two divisions operate separately and investors had expected the company to spin off the slower-growing, lower-margin EH business.

Essential Health is Pfizer's portfolio of older products and generic treatments. Off-patent drugs like Lipitor saw sales drop 8% to $422 million and Premarin sales fell 7% to $244 million. Last quarter, the EH unit posted sales of $5.7 billion, up 7%, but that includes $3.4 billion of "other" sales that were up 24%.

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