Although Pfizer Inc. and Albert Bourla prevailed in their initial battle with Starboard Value LP, the pharmaceutical company and its troubled CEO still have a lengthy battle ahead of them against an activist who detests defeat.
Bourla is scheduled to meet with Starboard on Wednesday. This comes after news broke early this week that the investment firm had acquired a $1 billion interest in the $165 billion pharmaceutical company and was collaborating with two former Pfizer officials to advocate for reforms.
According to persons acquainted with the situation, Ian Read, the former CEO of Pfizer, and Frank D’Amelio, the former finance chief, had several conversations with Starboard and agreed with many of the arguments made in a more than fifty-page slide deck critical of the business. Unexpectedly, it turned out that D’Amelio might have given Pfizer a heads-up by sending Bourla a blank email that was also addressed to someone at Starboard.
Initially, pundits openly questioned if Bourla could be removed. Analyst Jared Holz of Mizuho Securities stated in a client note that “investors would not mind an executive refresh.”
Then, in an unusually timed, late-night news release on Wednesday from an investment bank they used to work with, Read and D’Amelio quickly changed their minds and stated they supported Pfizer’s management. They also made it clear that they were unaffiliated with the Starboard activism movement.
Their abrupt change of heart was not mysterious for long. Starboard claimed early on Thursday morning that Pfizer had threatened to revoke some of the executives’ stock options and recoup part of their income, accusing the corporation of pressuring the individuals. The board of Pfizer was urged by Starboard to look into the company’s activities.
It was a win for Bourla to have two of Pfizer’s most reputable former executives back in the fold, at least temporarily. It is unlikely, though, to dispel concerns about his leadership. In fact, it brings up further concerns about his management style for the business. As everything was going on, Pfizer’s stock had dropped by over 50% from late 2021, when the company had just released the Covid vaccine.
Bourla had assumed that there would be a longer-lasting need for Covid vaccinations and treatments than there actually was. Pumped full of cash by selling antiviral drugs and vaccines to governments across the globe, Pfizer started a $70 billion series of transactions.
The conclusion of the worldwide public health catastrophe has, however, swept Pfizer’s legs out from under it, just as rapidly as the epidemic propelled the corporation to the top of the pharmaceutical sector. A recent rush of Pfizer medicine approvals hasn’t been enough to make up for the sharp decline in sales of Covid treatments.
Starboard believes Pfizer mishandled its pandemic windfall by entering into expensive but unprofitable businesses. According to a person familiar with the situation, Read and D’Amelio told the Pfizer board that Starboard is concentrated on cost containment and being more disciplined about deals.
Regarding its intentions regarding Pfizer, Starboard has not made any public comments. A spokesman for Starboard opted not to respond.
A representative for Pfizer declined to comment.
Several Setbacks
Bourla had already announced plans to cut expenses by $1.5 billion in 2024 in addition to the $4 billion in cost reductions he had promised last year. However, investors are unsatisfied, believing Pfizer overspent elsewhere and missed out on the lucrative market for obesity therapies.
Pfizer’s efforts to produce an obesity pill have not yet yielded significant results, since Covid revenues have declined. Last autumn, it mishandled the introduction of a promising RSV vaccine, which gave competitor GSK Plc the opportunity to seize a sizable portion of the market that Pfizer was depending on to make up for declining Covid sales.
“We used to be this star. We used to be the pride of the pharma industry,” Bourla said in January. “We ended up in a situation that very rapidly deteriorated.”
It will take years for Pfizer’s largest transaction under Bourla, the $43 billion acquisition of cancer medication manufacturer Seagen last year, to pay off. By 2030, the business aims to increase the number of cancer medications with over $1 billion in revenue from five to eight. That won’t solve the company’s current revenue drain right now.
According to Mark DesJardine, an associate professor at the Tuck School of Business at Dartmouth College, Bourla has overspent on transactions that “haven’t paid off.” According to DesJardine, the Pfizer board bears some of the responsibility because it ought to have implemented stronger oversight to keep expenditures from spiralling out of hand.
Tuesday, the day before Pfizer and Starboard are scheduled to meet, the pharmaceutical company named Tim Buckley, the former CEO of Vanguard Group Inc., to its board of directors with immediate effect. According to a release, Buckley, 55, will join the board’s audit and governance and sustainability committees.
Pfizer is up against competition for blockbusters like the pneumococcal vaccine Prevnar and the breast cancer treatment Ibrance. It has also experienced a number of failures with rare-disease medications that could have offset lost profits. A medication for sickle cell anaemia had to be recalled in September owing to safety issues, while a gene treatment for Duchenne muscular dystrophy failed a significant trial in June.
Gradual Climb
After receiving training as a veterinarian, Bourla joined Pfizer in 1993 and worked his way up to the executive levels. A person acquainted with the situation claims that during D’Amelio’s tenure as president and general manager of Pfizer’s established products division from 2010 to 2013, he occasionally received criticism for his ability to close deals.
Nevertheless, the person claimed that for years, Read and Bourla had a tight relationship—so much so that other workers used to make fun of Read for treating Bourla like a son.
A turning point in Bourla’s career occurred in 2013, when Pfizer split into three business divisions. Although Bourla wasn’t initially selected for a leadership position, the executive who was supposed to manage the section on cancer and vaccinations suddenly resigned. After securing the position, Bourla proceeded to become Read’s preferred replacement.
Pfizer’s chances were unclear prior to the pandemic. Sales had decreased by 4% in 2019 and the stock had dropped by 10% in Bourla’s first year on the job. But Covid brought about a complete transformation.
Bourla placed a large wager on messenger RNA technology alongside partner BioNTech SE, leveraging Pfizer’s clinical trial expertise and manufacturing power to be the first business to bring a vaccine to market. Pfizer immediately followed up with the now-commonly prescribed antiviral medication Paxlovid, capturing the majority of the global Covid shot sales.
Pfizer’s Covid medications had combined sales of over $56 billion at their height in 2022. By 2024, that is anticipated to have shrunk to less than $9 billion.
Pipeline Pressure
Cuts in costs by themselves won’t address Pfizer’s broader problem, which is the absence of clear, breakthrough hits to boost sales of Covid.
Bourla made a number of agreements in an effort to restock Pfizer’s pipeline when the pandemic subsided. For $5.4 billion in 2022, he acquired the developer of sickle cell anaemia drugs, Global Blood Therapeutics Inc., but the deal’s lead medication was cancelled in September following a trial that revealed a higher fatality rate among those who used it. Other agreements included less innovative medications, like a $11.6 billion agreement from Biohaven Pharmaceuticals for migraine medications in 2022.
Bourla then started using diet medications. He pledged at the 2023 JPMorgan Healthcare Conference that Pfizer could make $10 billion in sales a year by creating diabetes and obesity medications that were similar to Novo Nordisk A/S’s popular Ozempic medication.
Pfizer discontinued studying one tablet five months later because of negative effects connected to the liver. A second pill that was intended to be taken twice daily was discontinued by year’s end. Although experts no longer see the business’s reformulated second tablet as a front-runner in the hunt for next-generation obesity medications, the company is still studying it.
Not long before its value shot through the roof, Bourla also ceded ownership of an experimental bowel medication. In December 2022, Pfizer received a 25% share in a business established to develop the medicine, in return for Roivant Sciences Ltd. acquiring the US rights to it. Roche Holding AG paid $7.1 billion to acquire the Roivant subsidiary a year later. Of total, $5.2 billion went to Roivant, based on its securities filings.
