Starboard Slams Pfizer; Board Must Hold Execs ‘Accountable’

Starboard Value took aim at Pfizer (PFE) in another blow Tuesday, saying the company has failed to deliver on what it once called the “best pipeline” ever.

Activist investor Starboard is making waves after taking a roughly $1 billion stake in Pfizer earlier this month. Despite becoming a household name with the development of a Covid vaccine and treatment, Pfizer has dramatically underperformed its peers and the broader market since 2019, Starboard said in its presentation. Pfizer has lost roughly $20 billion to $60 billion in market value over five years.

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The presentation argues Pfizer’s research and development, as well as expected returns on that R&D, have contributed to its downfall. In addition, Starboard says the company’s capital allocation — which includes some big acquisitions — and forecasting/budgeting have proved lackluster.

“The board needs to hold management accountable for achieving sufficient revenue returns on R&D and M&A (mergers and acquisitions),” Starboard said.

Pfizer stock lost 0.3%, closing at 28.85.

Starboard also took a stake in Johnson & Johnson (JNJ) spinoff Kenvue (KVUE) this month. Kenvue stock rose a small fraction to 22.94 after the activist investor noted in a separate presentation that the consumer health company trades at a valuation discount to its peers despite having a war chest of “strong brands in attractive categories,” including Tylenol, Listerine and Band-Aid.

Starboard Hammers Pfizer’s Innovation

Starboard argues Pfizer has suffered from a “lack of internal innovation from 2019 to 2023.” On Jan. 2, 2019, the company had 61 new drugs in its pipeline — above the peer median of 46. But of 10 potential blockbusters expected by 2022, only two have achieved that status.

The company also hoped to launch a weight-loss pill, joining the ranks of Eli Lilly (LLY) and Novo Nordisk (NVO), which have injectable versions. Pfizer Chief Executive Albert Bourla said it could be a $10 billion product in a $90 billion market.

“We think that we’ll be very few players that will play in the oral GLP-1, us and Lilly,” Bourla said on Jan. 9, 2023. “Clearly, we are going to be one of them.”

But Pfizer has faced several setbacks and hasn’t yet launched a weight-loss drug. Like others, its daily pill is still in testing.

Across all products, Pfizer’s sales are expected to decline 3% from 2023 to 2030 — vs. expected growth for other big biopharma names. Excluding its Covid products, Pfizer’s sales are expected to grow 9%. But that still lags a peer group median of 27%.

GBT Acquisition Under Scrutiny

Starboard noted Pfizer has invested nearly $70 billion in takeovers since the pandemic. That includes the $43 billion takeover of Seagen and $12.9 billion spent on Biohaven Pharmaceuticals.

Pfizer expects its acquisitions since 2022 to generate more than $20.5 billion in sales by 2030. But the Street only projects $13.3 billion in sales from those takeovers, signaling Pfizer could have overpaid for its newest assets.

Notably, Pfizer spent $5.4 billion to acquire Global Blood Therapeutics in 2022. Then it said GBT’s products would generate $3 billion in peak sales. But Pfizer recently pulled GBT’s sickle cell disease treatment, Oxbryta, from the market due to patient deaths.

“Pfizer’s failed GBT acquisition shocked the industry and raised serious questions about its BD (business development) capabilities,” Starboard said.

Pfizer Stock Takes Guidance Hit

The activist firm also argues Pfizer has struggled to accurately predict its quarterly results. During the past 22 quarters, Pfizer beat its sales expectations in 14 quarters. Half of those beats were in 2021 and 2022 when Pfizer experienced a big benefit due to its Covid products.

Its 64% success rate in predicting sales lags the peer group median of 77%.

Pfizer issued light 2024 guidance, resulting in a “blow to management’s credibility,” Starboard said.

Starboard says Pfizer needs to achieve stronger revenue growth based on its investments in R&D and M&A. The investor firm says the company would need to generate $79 billion in 2030 revenue to achieve the median revenue returns expected for its peers. Analysts expect just $50 billion in sales that year.

Today, Pfizer stock is trading below its 50-day moving average. Shares are forming a flat base with a buy point at 31.54, according to MarketSurge.

Follow Allison Gatlin on X, the platform formerly known as Twitter, at @IBD_AGatlin.

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