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10 OCT 2024 / INVESTMENTS
It seems that even the big pharma giants need a little nudge every now and then. Activist investor Starboard Value, known for shaking things up in companies that have lost their sparkle, has taken a significant stake in Pfizer—about $1 billion, to be exact. Starboard’s goal? To turn around the performance of the U.S. pharmaceutical giant, which has been struggling to find its post-pandemic footing.
While Pfizer may have once soared on the wings of its COVID-19 vaccine and antiviral treatment Paxlovid, the post-pandemic landscape has not been kind to the drugmaker. Shares are down more than 50% from their pandemic-era highs, leaving investors wondering if Pfizer can rediscover its magic. But can Starboard, with its activist approach, really save the day, or is this just another case of big money trying to perform CPR on a flat-lining stock?
Back in 2020, Pfizer became a household name, partnering with BioNTech to deliver the world’s first COVID-19 vaccine. The subsequent flood of cash was nothing short of staggering. Revenue skyrocketed from $40 billion in 2019 to over $100 billion in 2022, thanks to its COVID vaccine and antiviral pill Paxlovid. But as the pandemic began to fade, so too did demand for these products. What goes up must come down, right?
Pfizer’s stock, which reached an all-time high of $61.25 in December 2021, now trades at under $30. The company has shed about $180 billion in market cap, a staggering decline for a company that was once flying so high. Much of this downturn can be attributed to overestimating the ongoing demand for its COVID products and the failure to adequately prepare for life after the pandemic. While Pfizer expected a smoother transition into new revenue streams, reality had other plans.
Pfizer has struggled to find a blockbuster product to replace the revenue generated during the COVID-19 boom. Its initial attempt to enter the obesity drug market faced setbacks, with safety concerns forcing the discontinuation of its twice-daily pill. While Pfizer is now developing a once-daily version, it faces fierce competition from Novo Nordisk’s Wegovy and Eli Lilly’s Ozempic, both already dominating the market.
Additionally, CEO Albert Bourla’s aggressive acquisition strategy has yet to win over investors. Since 2020, Pfizer has spent around $70 billion on acquisitions, including the $43 billion Seagen deal for cancer drugs, which holds potential but requires time to yield results. Other deals, like the $5.4 billion purchase of Global Blood Therapeutics, have been more troubling, with Pfizer recently pulling the sickle cell drug Oxbryta from the market after patient deaths, raising concerns about Bourla's expansion approach.
Enter Starboard Value, the activist investor that has built a reputation for getting its hands dirty with struggling companies. Led by Jeff Smith, Starboard has a history of pushing for major changes in companies like Darden Restaurants (remember the Olive Garden overhaul?) and Salesforce. Now, the hedge fund is turning its attention to Pfizer, hoping to get the company back on track. While Starboard has remained tight-lipped about its specific plans, sources say it has reportedly reached out to former Pfizer CEO Ian Read (2010-2018) and ex-CFO Frank D’Amelio (CFO until 2021) to help steer the company back on course. Both industry veterans have expressed interest, signaling Starboard's intention to leverage experienced hands in reshaping Pfizer’s future—talks are already underway!
However, a turnaround won’t be simple. While analysts see potential in Pfizer, they remain cautious; David Risinger of Leerink Partners remarked that there’s no “low-hanging fruit” here to boost shareholder value. With high debt levels and a $1.5 billion cost-cutting target by 2027, Pfizer faces stiff competition from Novo Nordisk and generic versions of its older drugs. While no miracles are promised, Starboard believes a strategic approach could help Pfizer regain its former glory. At the very least, its involvement brings fresh ideas to a company confronting significant challenges.
Pfizer is banking on its cancer drug portfolio to deliver the returns investors want, although these drugs are still in early development stages. Simultaneously, the company is trying to break into the $130 billion obesity drug market with its new weight-loss pill, but it faces stiff competition as a latecomer. Starboard’s involvement might bolster investor confidence, especially if former Pfizer executives like Ian Read and Frank D’Amelio return to lend their expertise. However, revitalizing a giant like Pfizer is no easy task. While Starboard has a solid track record in other sectors, it remains uncertain whether its influence will translate to success in big pharma. Wall Street is watching closely, hoping for signs of a turnaround, though Pfizer’s future remains unpredictable. With Starboard advocating for change and potential new leadership on the horizon, there's a glimmer of hope for a comeback. After all, if Pfizer could help navigate a global pandemic, it may yet withstand the challenges of corporate restructuring.
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