Home > companies > Reckitt Benckiser confirms plans to spin off Suboxone unit

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

The spinoff will occur in the next 12 months and will be a UK-listed company, the Slough, England-based company said in a statement. “The company may still sell the business and could maintain a stake in the spinoff," finance chief Adrian Hennah said in an interview on Monday. The company also on Monday reported second-quarter sales growth of 4%, 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 ($1.3 billion) 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 spinoff comes as Kapoor is pushing further into consumer healthcare through acquisitions and new products. The division has grown from 5% of revenue in 2005 to 30%, and now accounts for more than one third of operating profit. Sales in that division rose 10% in the quarter, fuelled by Scholl footcare and Durex condoms.

Reckitt Benckiser shares rose 2.5% in London trading, bringing its 2014 gain to about 8% and the company’s market value to £37.6 billion.

Valuation range

“The spinoff means 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 on Monday. Valuations for the business, which will continue to be run by CEO Shaun Thaxter after the spinoff, range from about £1 billion ($1.7 billion) to as much as £4.8 billion. Hennah declined to speculate on a value for the unit.

The division’s sales fell 5% in the second quarter at constant exchange rates, the company said on Monday, while its market share declined to 63% from 64% due to pricing pressure from rival remedies. Orexo AB’s Zubsolv has captured about 2% 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 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 he was not happy with the company’s homecare business, where sales declined 1% in the quarter due to a slowdown in sales of air freshener Air Wick. Bloomberg

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