A sale of Procter & Gamble's pharma business could fetch about $1 billion, according to an estimate by one analyst. That represents cash P&G could reinvest in its core business areas, beauty and consumer health care, at a time when the recession is impacting growth and the credit crisis is forcing some retailers to cut inventories to conserve cash.

Reports that P&G's prescription business is up for sale began circulating the week of Feb. 2. Sources say the company hired Goldman Sachs to facilitate a sale of the business, although Procter & Gamble dismissed the reports as "total speculation."

News of a potential sale hardly comes as a surprise. CEO A.G. Lafley announced during P&G's analyst day in December that the company was not investing in pharmaceuticals and reducing headcount in its 2,900-person pharmaceutical workforce by 6 percent to 7 percent to focus on more profitable businesses, including oral care and consumer health care (¹ Also see "P&G Focuses On Consumer Health, “Deemphasizes” Pharma" - Pink Sheet, 15 December, 2008., p. 6).

At the time, the executive said the company would manage its four marketed drugs through each brand's lifecycle, although he did say the firm would consider divesting some or all of them.

Although P&G doesn't break out its Rx sales from the consumer health unit, the pharma brands represent a roughly $3 billion business, with operating profit of about $600 million, analysts say.

Pharma is a minor component of P&G's business. Health care - comprising personal health, oral care, feminine care and pharmaceuticals - represented 17 percent of P&G's total sales in fiscal 2008 (ended June 30).

Finding a buyer for the pharma brands, however, may mean negotiating an attractive price. The largest of P&G's four pharma brands is Actonel (risedronate) for osteoporosis, representing over $1 billion in sales in fiscal 2008.

However, this class of medicines, bisphosphonates, was hit with competition last year from generic versions of the market-leading brand, Merck's Fosamax (alendronate).

Marketing exclusivity for Actonel expired in January, potentially opening the drug up to patent challenges, although risedronate is protected by patents extending into 2018, the first of which expires in 2011, according to FDA's Orange Book.

On Actonel, P&G partnered with Sanofi-Aventis. The French drug maker could represent a potential buyer if it is seeking to take over full marketing rights for the brand. The company reported $424.7 million in sales for the brand outside the U.S. in 2008.

P&G partnered with Novartis on Enablex (darifenacin), its drug for overactive bladder. The deal leaves open the possibility of a continued partnership in the event the firms pursue an OTC switch for the drug, which loses exclusivity in December (² Also see "Novartis/P&G Enablex Deal Offers OTC Switch Option" - Pink Sheet, 11 July, 2005., p. 4).

The other drugs in P&G's portfolio include Asacol (mesalamine) for ulcerative colitis and Intrinsa (testosterone patch) for female sexual dysfunction. Intrinsa is approved in Europe, but not in the U.S. In 2004, an FDA advisory committee recommended against approving the drug, and P&G subsequently withdrew its new drug application.

With the portfolio focused in osteoporosis, overactive bladder and female sexual dysfunction, other potential buyers could include drug companies with an interest in women's health.

P&G reported Jan. 30 that pharmaceutical volume declined by mid-single digits in its fiscal 2009 second quarter, October-December.

The announcement that P&G is deemphasizing pharmaceuticals comes at an interesting time for diversified health care companies, as consumer segments are increasingly attractive given the pricing and regulatory challenges faced on the pharma side. Lafley cited those hurdles among factors driving P&G's decision to step away from the pharma business.

After selling its consumer unit to Johnson & Johnson in 2006, Pfizer seemed to admit the move was a mistake in January when it announced plans to acquire Wyeth and management appeared pleased to regain entry to the consumer health care market (³ Also see "Wyeth Nutritionals: Pfizer’s New MVP, Or Benchwarmer?" - Pink Sheet, 9 February, 2009., p. 10).

- Jessica Merrill (j.merrill@elsevier.com)

P&G Pharma Sale Could Bring $1 Billion To Feed Consumer Business

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