In July 2018, Pfizer, the world's second-largest pharmaceutical company, announced plans to split into three separate businesses. The reorganization of the $188 billion company was set to occur at the start of the 2019 fiscal year.

The plan was for operations to be split into three divisions: Innovative Medicines, which was to focus on the biological science and new hospital medicines business and would bring in most of Pfizer's revenue; Established Medicines, which was to include the sale of older Pfizer drugs that had lost their patent protection; and Consumer Healthcare, which would handle over-the-counter medicines.

The Innovative Medicines division was expected to bring in most of Pfizer’s revenue. In a press release, the company said that the growth potential for that business was strongest in part because of the older population that was increasing demand for new medicines. "The new Innovative Medicines division will include their biosimilars business and a new hospital business unit. This design gives us a sharper focus on diverse patients in diverse markets,” said Dr. Albert Bourla, then Chief Operating Officer of Pfizer, now CEO, in a statement following the announcement.

At the beginning of fiscal year 2019, Pfizer began managing its new global structure composed of three businesses, each led by a single manager—Pfizer Biopharmaceuticals Group (Biopharma), Upjohn and, through July 31, 2019, Pfizer’s Consumer Healthcare business.

Then, in November 2020, Pfizer announced that it had completed a transaction to spin off its Upjohn business and combine it with Mylan N.V. (Mylan) to form Viatris Inc. (Viatris).

Why all this activity? Part of the reason for corporate splits is to appease shareholders when growth is waning. Pfizer generated $51.8 billion in revenue in 2019, which was a 4% decline compared to 2018. And, in 2020, Pfizer reported full-year revenues for the year of $41.9 billion.

In 2015, eBay separated from PayPal, and, in October 2020, International Business Machines Corp. (IBM) announced that it was splitting itself into two public companies so that it could focus on its cloud business, Typically, the stock price goes up when big companies split. eBay’s stock rose 7.5% following their announcement, and IBM's stock rose 6% after their announcement.

“Investors prefer more focused, nimble companies,” explained Joe Cornell, publisher of Spin-Off Research, a firm that tracks corporate splits. On the business end, when the whole of a diversified organization is no longer greater than the sum of its parts, it's time to split.

Demographic Changes: An Older Population, an Emerging Market 

But there is another reason for Pfizer's restructuring. It comes at the start of what will become a global demographic shift in the global population's age. The United Nations reports that in 2019, there were 703 million persons aged 65 years or over in the world. That number is expected to double to 1.5 billion by 2050. In terms of the share of the global population, those aged 65 years or over, represented 6% of the population in 1990, 9% in 2019, and the proportion is expected to reach 16% by 2050. In other words, one in six people in the world will be aged 65 years or over.

The United States and other countries will face challenges in meeting the needs of this older population. As people age, they suffer from more illness, and these chronic illnesses place an increasing burden on health systems. “Governments need to recognize the effects of demographic change, not merely on public services, but on the social climate of each nation. Countries will have to reconsider all aspects of their communities, from healthcare systems and methods of delivering care, to how whole cities are structured” says William A. Haseltine, an American biologist, entrepreneur, philanthropist, and former professor at Harvard Medical School.

We can attribute this older population to advances in medicine and technology that increase longevity. Older individuals today are generally healthier than their counterparts in past generations and live much longer. While some see these changes as a source of growing challenges, many see an older population as a dynamic emerging market. Pfizer’s split was rooted in the desire to provide space and resources to the sector of the company that deals with innovative geriatric medicines. In fact, Ian Read, former CEO of Pfizer said in a statement that he expects Pfizer to win 25 to 30 approvals for new medicines through 2022.

With a diverse portfolio of growing in-market products and this new wave of expected new product launches, Pfizer has positioned itself for growth as we brace for the impacts of an older population. In the press release announcing Pfizer’s split, the company stated, “The growth fundamentals for the Innovative Medicines business are strong with an aging population that is leading to increasing demand for new innovative medicines and quickly advancing biological science that is delivering breakthrough solutions.”

As our population gets older, markets must evolve to meet their needs. According to Paul Irving, Chair of the Milken Institute Center for the Future of Aging, and scholar-in-residence at the University of Southern California Davis School of Gerontology, “with consumption habits and service needs distinct from those of younger adults, Americans over 50 already account for $7.6 trillion in direct spending and related economic activity annually and control more than 80% of household wealth."

The Bottom Line

While it's too early to tell if Pfizer’s split will ultimately be profitable, the move signals a growing trend in the tech and business world—strategic moves to anticipate and prepare for an older population. With the proper awareness and new approaches, an older population can be a blessing for business.