Senior Boots managers, advised by the US management consultancy Marikon, are putting the business under the microscope and will dispose of what is sellable, and close the rest, unless they are convinced that it will generate long- term value for shareholders.
The warts-and-all examination is expected to take months, but the deadline for a decision is thought to be in time for the interim results, due in November.
The business, Boots Pharmaceuticals, employs 7,800 people, including 2,200 in the UK. It has a large research team, two sales forces supplying GPs and hospitals, and production employees in plants at Nottingham and at Cramlington in Northumberland.
Alastair Eperon, director of corporate affairs at Boots, said: 'If the process of analysis of this business demonstrates that in the long term it's not going to be value-generating for shareholders, then we have to consider those options (disposal or closure).' His comments appear to signal a significant shift from earlier in the week when Boots said it was 'totally committed' to the business.
Sir James Blyth, chief executive, has to weigh up whether to continue to devote heavy capital expenditure to research and develop new drugs, a highly risky activity at which Boots, like Fisons, has had little recent success.
A team under David Thompson, the finance director, is putting each operating business under scrutiny. An earlier examination of Sephora, its poorly performing French health and beauty business, led to its disposal last week.
Last week Boots was forced to withdraw Manoplax, its drug for congestive heart failure, just months after launching it in the UK and US. Research showed it led to more hospital admissions, and that in larger dosages it hastened death. It was a bitter blow for Boots Pharmaceuticals, which has no other prescription drugs still under patent in the UK, and none likely to reach commercial exploitation for several more years.
Boots has already paved the way for a disposal of Boots Pharmaceuticals by separating it from its two other drug businesses, Boots Healthcare International and Boots Contract Manufacturing. BHI makes products which can be sold without prescription, such as Strepsils. BCM manufactures on behalf of third parties. It is thought that these two businesses would be retained, whatever the fate of Boots Pharmaceuticals. Together the three made operating profits of about pounds 130m last year. For the first time Boots plans to split out the profits of Boots Pharmaceuticals at its interim results.
Boots Pharmaceuticals' biggest sellers are Synthroid, a treatment for thyroid deficiency, with sales of pounds 124m, and Brufen and Froben with sales of pounds 65m and pounds 40m respectively.
These brands might attract bidders among the world's pharmaceutical companies, but the shortage of blockbuster drugs in the pipeline would depress the asking price. Prescription drug companies have plunged in value this year.
A disposal of the business would threaten jobs. Buyers would be more interested in the future income streams of existing products than the business's research and sales teams and infrastructure.
Boots is due to meet City analysts tomorrow to present details of its analysis of its 11 operating businesses. Do It All, its loss-making DIY retailing joint venture with WH Smith, has already undergone the treatment. Boots believes it can succeed in the long term, despite its horrendous losses.
Robin Gilbert, analyst with Panmure Gordon, commented: 'Boots Pharmaceuticals don't have a very strong position. It's difficult to believe they once bid for Glaxo.'
Manoplax heartache, pages 6-7