Harvard Case - Pfizer and the Spinoff of Upjohn
"Pfizer and the Spinoff of Upjohn" Harvard business case study is written by Andrew C. Inkpen. It deals with the challenges in the field of Strategy. The case study is 12 page(s) long and it was first published on : Jan 1, 2020
At Fern Fort University, we recommend that Pfizer proceed with the spinoff of Upjohn, creating a new, independent company focused on mature, off-patent pharmaceuticals. This strategy aligns with Pfizer's strategic intent to focus on innovative, high-growth pharmaceutical segments while allowing Upjohn to leverage its established market position and optimize its operations for a mature market. This move will unlock value for both companies, enabling them to pursue distinct growth strategies tailored to their respective competitive landscapes.
2. Background
This case study examines Pfizer's decision to spin off its mature, off-patent pharmaceutical division, Upjohn, in 2019. Pfizer, a global pharmaceutical giant, was facing increasing pressure to streamline its portfolio and focus on high-growth areas like oncology and vaccines. Upjohn, on the other hand, was a mature business with established brands and a strong presence in emerging markets. The spinoff aimed to create two distinct entities, each with a clear strategic focus and the ability to compete effectively in their respective markets.
The main protagonists in this case are:
- Pfizer: A global pharmaceutical leader with a strong focus on innovation and high-growth segments.
- Upjohn: A mature pharmaceutical business with a strong presence in emerging markets and a portfolio of established brands.
- Albert Bourla: Pfizer's CEO, who spearheaded the spinoff decision.
3. Analysis of the Case Study
Strategic Analysis:
- Porter's Five Forces: The pharmaceutical industry is characterized by high barriers to entry (due to regulatory hurdles and high R&D costs), strong buyer power (due to the presence of large healthcare providers and government agencies), moderate supplier power, and intense rivalry among established players. The spinoff allowed Pfizer to focus on high-growth segments with higher profit margins, reducing its exposure to the competitive pressures of the mature pharmaceutical market.
- SWOT Analysis:
- Pfizer:
- Strengths: Strong R&D capabilities, global reach, brand recognition, and a strong financial position.
- Weaknesses: Dependence on a few blockbuster drugs, high R&D costs, and potential for patent expirations.
- Opportunities: Focus on high-growth segments like oncology and vaccines, expansion into emerging markets, and leveraging digital technologies for innovation.
- Threats: Increasing competition, regulatory scrutiny, and potential for generic drug erosion.
- Upjohn:
- Strengths: Established brands, strong presence in emerging markets, and a cost-efficient operating model.
- Weaknesses: Limited growth potential in mature markets, potential for generic competition, and dependence on a few key products.
- Opportunities: Leverage existing brands and distribution channels in emerging markets, optimize operations for cost efficiency, and explore new business models for mature products.
- Threats: Increased generic competition, pricing pressure, and potential for regulatory changes.
- Pfizer:
- Value Chain Analysis: The spinoff allowed Pfizer to streamline its value chain by focusing on its core competencies in R&D and innovation, while Upjohn could focus on optimizing its value chain for cost efficiency and market penetration in mature markets.
- Business Model Innovation: The spinoff represented a significant business model innovation for both companies. Pfizer could focus on a high-growth, innovation-driven business model, while Upjohn could adopt a cost-efficient, market-focused business model.
Financial Analysis:
- Diversification: The spinoff allowed Pfizer to diversify its portfolio by focusing on high-growth segments, reducing its dependence on mature products.
- Value Creation: The spinoff was expected to unlock value for both companies by allowing them to focus on their respective core competencies and pursue growth strategies tailored to their specific market positions.
Organizational Analysis:
- Organizational Culture: The spinoff required a significant shift in organizational culture for both companies. Pfizer needed to embrace a culture of innovation and growth, while Upjohn needed to adapt to a more cost-conscious and market-focused culture.
- Leadership: Strong leadership was crucial for managing the spinoff process and ensuring a smooth transition for both companies.
4. Recommendations
Pfizer should proceed with the spinoff of Upjohn, following these recommendations:
- Develop a clear strategic plan for both companies: Define distinct growth strategies, target markets, and competitive advantages for each entity.
- Optimize operations for cost efficiency: Upjohn should leverage its existing infrastructure and expertise to optimize its operations for cost efficiency and market penetration in mature markets.
- Explore new business models: Upjohn should explore new business models for its mature products, such as over-the-counter (OTC) sales, licensing agreements, and partnerships with generic manufacturers.
- Invest in digital technologies: Both companies should invest in digital technologies to enhance their R&D capabilities, improve customer engagement, and optimize their supply chains.
- Develop a strong communication strategy: Communicate the spinoff rationale and benefits to stakeholders, including employees, investors, and customers.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The spinoff allows both companies to focus on their core competencies and pursue strategies that align with their respective missions.
- External customers and internal clients: The spinoff provides both companies with the flexibility to tailor their products and services to the specific needs of their target markets.
- Competitors: The spinoff allows both companies to compete more effectively in their respective markets by focusing on their strengths and addressing specific market needs.
- Attractiveness ' quantitative measures: The spinoff is expected to unlock value for both companies by improving their financial performance and enhancing their competitive position.
6. Conclusion
The spinoff of Upjohn represents a strategic decision that allows Pfizer to focus on high-growth segments and unlock value for both companies. By creating two independent entities with distinct strategic focuses, Pfizer and Upjohn can leverage their respective strengths and compete effectively in their respective markets.
7. Discussion
Alternatives:
- Maintaining the status quo: This would have limited Pfizer's ability to focus on high-growth segments and potentially hindered Upjohn's growth potential.
- Selling Upjohn to another company: This could have resulted in a loss of control over Upjohn's future and potentially limited Pfizer's ability to capture value from the spinoff.
Risks and Key Assumptions:
- Integration challenges: The spinoff process could present integration challenges for both companies, requiring careful planning and execution.
- Market volatility: The pharmaceutical market is subject to volatility, which could impact the performance of both companies.
- Regulatory changes: Regulatory changes could impact the operations of both companies, requiring them to adapt their strategies.
8. Next Steps
- Develop a detailed implementation plan: Outline specific timelines, milestones, and resources required for the spinoff process.
- Communicate the spinoff rationale to stakeholders: Ensure clear and transparent communication with employees, investors, and customers.
- Monitor and evaluate the spinoff's impact: Track the performance of both companies and make adjustments to the spinoff strategy as needed.
Key Milestones:
- Q1 2020: Complete the legal and regulatory processes for the spinoff.
- Q2 2020: Launch the new Upjohn company and begin trading on the stock market.
- Q3 2020: Integrate the new Upjohn company into its new organizational structure.
- Q4 2020: Begin implementing the new strategic plans for both companies.
By following these recommendations and carefully managing the spinoff process, Pfizer can unlock value for both companies and position them for long-term success.
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Case Description
In July 2019, Pfizer announced that it would spin off its Upjohn division and merge it with Mylan, a specialty and generic drugs firm. Within Pfizer, the Upjohn business unit was a conduit for Pfizer drugs going off-patent. Divesting the Upjohn business would allow Pfizer to focus on innovative drugs and exit the generics sector. Combining Upjohn with Mylan would create a new company that would compete in branded prescription drugs, generics, biosimilars, and over-the-counter medicines. Cost synergies from the merger of $1 billion were projected. Under the terms of the agreement, each Mylan share would be converted into one share of the new company. Pfizer shareholders would own 57% of the combined new company and Mylan shareholders would own 43%.
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