The Pros And Cons Of Pfizer Separating GEP

Pfizer Inc PFE is once again considering separating its Global Established Pharmaceutical segment. The potential separation of GEP from the rest of Pfizer’s operations would occur by the end of 2017.

The segment, known internally now as Pfizer Innovative Health, accounted for nearly half of Pfizer's total sales in 2015. Analysts at Jefferies broke out pros and cons of what is being called the “GEPxit” debate.

Pros include:

• Potential valuation uplift
• Stronger ownership and motivation for GEP employees
• Potential operational improvements
• Better access to R&D capital
• More freedom to challenge intellectual property related to biosimilars (a drug designed to have properties similar to one that is already been licensed).
• Avoiding disappointing investors that want the separation to occur

Cons:

• Lack of a tax inversion
• Declining valuation comps
• Potential dis-synergies (which some investors believe are being underestimated by management)
• Increased stock price for comparisons against perceived valuations

Jefferies analysts see a 50/50 chance of the split happening, and adjusted their price target to $40/share, down from $42.

Pfizer shares traded at $34.62, up 1 percent.