Pfizer, the world's second-largest pharmaceutical company, plans to split into three separate businesses. The reorganization of the $209 billion company will occur at the start of the 2019 fiscal year. Operations will be split into three divisions: Innovative Medicines, which will focus on the biological science and new hospital medicines business; Established Medicines, which will include the sale of older Pfizer drugs that have lost their patent protection; and ,Consumer Healthcare, which will handle over-the-counter medicines.
Pfizer generated $52.5 billion in revenue in 2017, half of which was generated within the United States. Known best for their over-the-counter and prescription drugs like Lipitor, Enbrel, and Viagra, the company has already generated $12.6 billion in Q1 of 2018.
The Innovative Medicines division will bring in most of Pfizer’s revenue. In a press release, the company said that the growth potential for that business is strongest in part because of the aging population which will increase the 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 Albert Bourla, Chief Operating Officer of Pfizer in a statement following the announcement.
Large companies breaking up has recently become something of a trend on Wall Street. Hewlett-Packard’s high-profile decision to split into two companies was actually just the latest in a series of corporate breakups. This followed Ebay’s announcement to spin-off PayPal and many other similar announcements. HP’s stock went up more than 4% the day they announced their split, and Ebay’s rose 7.5% following theirs. “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, its time to split.
Demographic Changes: an Aging Population, an Emerging Market
The announcement also comes at the start of what will become a global demographic shift. Between 2015 and 2030, the number of people in the world aged 60 years or older is expected to grow by 56% from 900 million to nearly 1.5 billion. By 2050, the global population of people older 60 is expected to jump to 2 billion. In the United States alone, the number of Americans over the after of 65 is expected to double from roughly 50 million today to nearly 100 million by 2060.
The U.S. and other countries will face challenges to meet the needs of this aging population. As people age, they suffer from more and more illnesses, 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 professor at the Harvard Medical School.
We can attribute this aging population to advances in medicine and technology that increase longevity across the board. 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 aging 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, CEO of Pfizer said in a statement earlier this year that he expects Pfizer to win 25-30 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 is positioning itself for growth as we brace for the impacts of an aging population. In the press release announcing Pfizer’s split, the company says, “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 ages, markets need to evolve to meet their needs. According to Paul Irving, Chairman of the Milken Institute Center for the Future of Aging 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 its 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 aging population. With the proper awareness and new approaches, the aging population can be a blessing for business.