Pfizer (PFE) is considering selling its hospital drugs unit (Pfizer Hospital) to free up cash and reduce its debt load. The pharmaceutical giant is facing increasing pressure from activist investor Starboard Value to improve the company’s performance and boost the share price. The news was first reported by Reuters.
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Starboard disclosed a $1 billion stake in Pfizer in October this year. It alleges that Pfizer spent billions on acquisitions but failed to make them worthy enough. Also, Starboard accuses Pfizer of being unable to produce any profitable drugs from either such takeovers or from its internal research and development efforts. Year-to-date, PFE shares have declined 3.5%.
Here’s More About Pfizer’s Hospital Unit
Pfizer has roped in Goldman Sachs (GS) to gauge the potential interest in the hospital unit from private equity firms and other drug companies. The unit could fetch a few billions of dollars, freeing up cash for the company to bring down its debt load. Nonetheless, according to the Reuters report, sources warned that Pfizer could ultimately decide to retain the business and that a deal might not actually happen.
The Pfizer Hospital unit was formed in 2015 after the drug maker acquired Hospira for $17 billion. The unit primarily focuses on antibiotics and other drugs delivered in the form of sterile injectables to hospitals and clinics. The company sold Hospira’s hospital infusion system in 2017. Importantly, the Hospital unit generates roughly $500 million in EBITDA (earnings before interest, tax, depreciation, and amortization), implying that it is a profitable business and could garner interest.
Pfizer had a long-term debt of $61.5 billion as of December 31, 2023. The pharma company is striving to bring down this debt pile by selling non-core assets amid activist pressure. Last month, Pfizer sold a notable stake in UK-based consumer healthcare company Haleon PLC (GB:HLN) for $3.26 billion.
During its Q3 FY24 earnings call held recently, CFO Dave Denton noted that Pfizer has paid down nearly $4.4 billion of outstanding debt so far in 2024 and will continue to sell more non-core assets. Notably, Pfizer exceeded the Q3 estimates for both sales and earnings and even raised its full-year outlook.
Is Pfizer Stock a Buy or Hold?
Wall Street remains divided on Pfizer stock amid the ongoing challenges. On TipRanks, PFE stock has a Moderate Buy consensus rating based on six Buys versus 13 Hold ratings. The average Pfizer price target of $32.36 implies 23.6% upside potential from current levels.
