Reckitt Benckiser to spin off pharma business

UK consumer goods company Reckitt Benckiser today said that it would seek to spin off its pharmaceutical business to existing shareholders, The New York Times reported.

The spin off, which is expected in the next 12 months, would allow Reckitt Benckiser, the maker of Clearasil acne treatments, Lysol cleaning products and Durex condoms, to focus on its core consumer health and hygiene businesses.

The new shares would be listed in the UK.

In October, Reckitt Benckiser reviewed its pharmaceutical business, that had experienced declining sales and market share in recent quarters. The bulk of its drug sales come from Suboxone, used in the treatment of heroin and other opiate addiction.

''We believe that RB Pharmaceuticals has the potential to deliver significant long-term value creation as a stand-alone business,'' Rakesh Kapoor, the chief executive of Reckitt Benckiser, said in a statement.

According to the company, revenue in its pharmaceuticals business, excluding the effect of exchange rates, had declined 5 per cent in the second quarter, at £174 million, as against the second quarter of the previous year. The first half of the year had seen revenue decline 8 per cent, at £344 million.

The company said there had also been some pressure on pricing, particularly in the second quarter due to the competitive environment.

Meanwhile the company's shares were up over  2 per cent today after the announcement of the spin off.

According to commentators, the company's plans to divest its pharmaceutical business came as a logical aftereffect of its deteriorating performance. The company, with a valuation between $1 and $4 billion, had been reporting negative growth for the past four quarters.

Revenue was down 5 per cent in the three months through 30 June, while the same category posted a 12 per cent decline during the second quarter last year. During the first half of the financial year, revenues fell 8 per cent to £344 million.

The company announced that it would list its pharma arm as a separate entity on the London Stock Exchange within a year and would decide later whether it would sell the entire division or retain a minority stake.

Overall, RB Pharmaceuticals' market share dropped 1 per cent to 63 per cent in the second quarter, under pressure from competitors such as Orexo AB's Zubsolv.

Bloomberg cited an analyst's note by Andrew Wood of Sanford C Bernstein, saying, ''The biggest positive of the spin 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.''