LAST year, Pfizer almost became the world’s largest drug firm when it tried to merge with Allergan, an Irish company that makes Botox, among many other products. The deal would have been worth $160 billion, but was indirectly blocked by the American government (via a change in tax rules) because it appeared to be aimed at avoiding taxation. In the confused aftermath, Pfizer said it would return to an earlier plan: breaking itself up. Then last month it gobbled up Medivation, a cancer-drug company, in a $14 billion deal, followed by AstraZeneca’s antibiotics division for $1.6 billion, and questioned whether a split would be worthwhile.

By wrestling with the question of its corporate structure, Pfizer is having a debate that echoes throughout the industry. Investors have pressed many diversified drug firms this year over whether they should break themselves up into more specialised units. Diversified firms are those that typically have consumer-health divisions offering low-margin products such as plasters and talcum powder. Meanwhile, “pure-play” drug companies focus on innovative medicines—for example, a full cure for Hepatitis...Continue reading