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Reckitt Benckiser To Spin Off Pharmaceutical Unit

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Reckitt Benckiser To Spin Off Pharmaceutical Unit

Reckitt Benckiser Group Plc will spin off its pharmaceutical unit after concluding that the business that once accounted for a fifth of earnings doesn’t fit into chief executive officer Rakesh Kapoor’s long-term plans to focus on consumer health.

The spin-off will occur in the next 12 months and will be a UK-listed company, the company said in a statement. The company may still sell the business and could maintain a stake in the spin-off, finance chief Adrian Hennah said in an interview. The company also reported second-quarter sales growth of 4 per cent, excluding the pharmaceutical business, in line with analysts’ estimates.

Analysts have advocated a sale of the pharmaceutical unit, which gets almost all of its £780 million of revenue from Suboxone, a drug to treat addiction to opioids, including heroin. Kapoor has said that is not “a space we want to be in” and began the review seven months after the first generic variants of the drug began to erode sales and margins. Since 2010, Suboxone has been sold in a film-strip format, which has captured about two thirds of the market in the US.

The pharmaceutical spin-off comes as Kapoor is pushing further into consumer health-care through acquisitions and new products. The division has grown from 5 per cent of revenue in 2005 to 30 per cent, and now accounts for more than a third of operating profit. Sales in that division rose 10 per cent in the quarter, fuelled by Scholl footcare and Durex condoms.

Valuation Range

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The spin-off means that “it hasn’t been able to attract a trade buyer on satisfactory terms,” James Edwardes Jones, an analyst at RBC Europe, said in a note. Valuations for the business, which will continue to be run by CEO Shaun Thaxter after the spin-off, range from about £1 billion to as much as £4.8 billion. Hennah declined to speculate on a value for the unit.

The division’s sales fell 5 per cent in the second quarter at constant exchange rates, the company said, while its market share declined to 63 per cent from 64 per cent due to pricing pressure from rival remedies. Orexo AB’s Zubsolv has captured about 2 per cent of the market since its introduction in September, according to Sanford C. Bernstein estimates. Last month, BioDelivery Sciences International Inc. won US regulatory approval for Bunavail film, which CEO Mark Sirgo has claimed is more effective than Suboxone.

“The biggest positive of the spin[-off] of RBP is that it will finally remove the cloud of uncertainty that has shrouded RB for years, and allow investors to focus on the attractive strategic shift towards health,” Andrew Wood, an analyst at Sanford C. Bernstein, said in a note to clients last week.

Kapoor also said that he was “not happy” with the company’s homecare business, where sales declined 1 per cent in the quarter due to a slowdown in sales of air-freshener Air Wick.

Bloomberg News, edited by ESM

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