Reckitt Benckiser Group Plc To Spin Off Pharmaceuticals Arm

Shares of Reckitt Benckiser (LSE: RB) gained nearly 3% in early trade after the consumer goods giant decided to spin off its pharmaceuticals business, allowing for management to increase their focus on more profitable divisions such as consumer health and hygiene.

reckitt.benckiserThe chief executive, Rakesh Kapoor, said a standalone RB Pharmaceuticals (RBP) can deliver “significant long term value creation” for shareholders.

The move concludes a strategic review announced in October of last year. Pharmaceutical net revenue fell 8% to £344m (at constant currency rates) in the six months to 30 June 2014.

Between 2004 and 2011 sales of Suboxone — an opioid-dependency drug — climbed from £89 to £762m, but profitability has waned since the patent expired and cheaper generics entered the market. Suboxone sales account for nearly all pharmaceutical revenue.

Excluding the Suboxone business, Reckitt’s like-for-like sales increased by 4% in the first half of 2014, driven by the consumer health category, which includes brands such as Scholl, Gaviscon and Durex.

Operating profit was just north of £1bn, up 16% on 2013, which reflected a reduction of exceptional pre-tax charges.

“We believe market conditions will remain challenging in the second half of the year, particularly in the USA and certain emerging markets,” Reckitt said. “Nonetheless we remain on track to achieve our full year total revenue growth target1 of 4-5% (ex RBP).”

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Mark Stones has no position in any shares mentioned.