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P&G to cut ties with pharma brands

Procter & Gamble (P&G) is rumoured to have hired Goldman Sachs to identify buyers for its pharmaceutical products as it aims to exit the sector

Procter & Gamble (P&G) is rumoured to have hired Goldman Sachs to identify buyers for its pharmaceutical products as it aims to exit the sector.

The move comes as the consumer goods group looks to streamline its business, concentrating only on high-growth areas in its portfolio and divesting non-key assets. It has already sold its coffee business Folgers to JM Smucker for $2.95bn.

In 2008, P&G's healthcare division posted $14.6bn in sales and $2.5bn in net earnings. The company said that its pharmaceuticals unit, which is part of the healthcare business, accounts for more than $2bn in global sales.

Shares in the US firm fell to a 52-week low of $52.21 on Monday when it reported poor second quarter results and lowered its full-year sales forecast. Shares reached a 12-month high of $73.57 on September 15, 2008.

For many, news of the planned sale will not come as too much of a surprise given that in December chief executive AG Lafley told analysts that the company had stopped investing in new drug development and brand divesture was a reality. At the time he explained that while drug development – in which the company invested heavily in the 1990s – and the sale of prescription drugs had produced significant returns "pharma companies now trade at multiples at or below consumer products".

In addition, he said market conditions were growing more hostile thanks to increased regulation and rising generic competition.

Going forward, P&G plans to invest in research and new product development through partnerships with biotech and pharma companies.

5th February 2009

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