Corporate structures and strategies for competition are cyclicle. It wasn't that long ago that analysts were touting the virtues of Big Pharma companies being diversifed into diagnostics, animal heath, OTC, etc as it supposedly made them more recession resistant when the phama business was down.
Now we are entering (again) a phase where analysts would like to see many Big Pharma companies get back to their "core businesses". Thus, we've had Pfizer spin off animal health and drug delivery and Abbott split its diagnostics and pharma (now AbbVie) businesses in recent years. To continue in that vein, Merck is talking about divesting its animal health and consumer businesses. Now we have Novartis talking about ridding itself of animal health (notice a theme), consumer business, and vaccines. All of this woudl be done to make a stronger pharma business -- or so the theory goes.
As Novartis mulled this over in public, it's stock responded with a 1.4% jump yesterday -- as did Pfizer's and Abbott's back when they were planning similar moves. This is the new black or is it orange. There is no doubt that a significant number of analysts ae in love with this type of straegy at the moment -- and they will be only too willing to tout it as a masterstroke and pump the stock.
But to me, it is just another cycle that we will go through befor we get to the next inevitable round of diversification. While I suppose that a company that did divest assets, woudl in theory have a chance to reinvent itself as it were --- that would require it to do something strategic with the proceeds of the sale besides line its own pockets and those of its investors in the immediate term. Otherwise, nothing fundamentally has changed and any bumps will be short-term. See Bloomberg.
Besides, if everyone follows suit can it be that novel or groundbreaking?
Posted by Bruce Lehr Nov 5th 2013.