Vivus Plunges on Downgrade, Johnson & Johnson Ties Up Loose Ends, Pfizer Initiates a Spin-Off

Shares of Pfizer, Johnson & Johnson, and Vivus were all on the move on Friday:

Pfizer (NYSE:PFE): Closing Price $26.54

Pfizer’s plan to spin off its animal-health business Zoetis is underway. The pharmaceutical company filed an amended registration with the SEC for an Initial Public Offering, outlining plans to sell 86.1 million shares at a price between $22 and $25. At the mid-point of this range, the business would be worth $11.8 billion.

Zoetis will trade on the New York Stock Exchange under the ticker “ZTZ,” and the deal will be underwritten by JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC) Merrill Lynch, Morgan Stanley (NYSE:MS), and several other financial firms.

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Johnson & Johnson (NYSE:JNJ): Closing Price $73.23

The New Jersey-based healthcare company may see its 10,000-lawsuit battle over its recalled hip implants coming to a close. Johnson & Johnson reportedly offered to pay more than $200,000 to settle each case, an offer that could cost the company more than $2 billion if most plaintiffs accept the terms.

After compiling statistics that showed more than 12 percent of the hips failed within the first five years of use, the company recalled 93,000 devices worldwide in 2010. Lawsuits piled up as patients alleged that metal particles from the replacement hips were causing the tissue surrounding the joint to die. Now, numerous consolidated cases are pending across the United States, including in federal courts in Toledo, Ohio, and San Francisco, California.

“The company can’t afford to defend these lawsuits case by case,” John M. Fitzpatrick, a lawyer at Wheeler Trigg O’Donnell who is not involved in the case, told Bloomberg. “J&J needs to shut this down. The only way they can do that is through a global settlement.”

Johnson & Johnson has been preparing for a deal for several months, although sources told the publication that the settlement discussions will not end until after the first trials have begun. The company said in a filing submitted with the Securities and Exchange Commission in November that it had increased its cash reserves due to “anticipated product liability litigation and costs associated with” the replacement hips.

Vivus (NASDAQ:VVUS): Closing Price $13.36

Thursday’s downgrade of the Qsymia manufacturer’s shares by Brean Capital prompted shareholders to submit a schedule 13D filing with the Securities and Exchange Commission the same day. In the document, First Manhattan and First BioMed Management Associates, which own respective stakes of 7.2 percent and 2.3 percent, expressed concerns over the weight-loss drug’s dismal sales, the company’s declining share value, and its lack of revenue guidance.

The two shareholders noted that they had acquired stakes in Vivus because they believed that the company “represented an attractive investment opportunity,” but its sales results have put the “the strategic direction of its management” in question.

Brean Capital downgraded shares of Vivus from Hold to Sell and reduced the price target to $7, more than 50 percent below where the stock was trading before the rating change. In the accompanying research note seen by StreetInsider, the firm’s analysts wrote that a lack of insurance coverage has created “sticker shock” among patients. This problem will likely become worse as “the competitive environment is only going to increase” when Arena Pharmaceuticals (NASDAQ:ARNA) and Orexigen Therapeutics (NASDAQ:OREX), each with larger sales forces, release rival obesity therapies.

More than three months have passed since the drug was launched, and still only one in five patients are covered for Qsymia. These insurance statistics have pushed down the company’s stock price by more than 42 percent since the treatment’s launch.

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