Here are the facts that activist critics of Pfizer CEO Albert Bourla are missing, according to a Yale analysis

We don’t know for sure what Starboard’s turnaround plan contains. It is alleged that he createdAn extensive 50-page slide deck on its turnaround plans“, which has not yet been revealed publicly. But one can easily guess what the underlying complaints about Bourla are, as these criticisms have now been repeated several times in anonymous leaks to the media: that Pfizer’s stock has moved sideways under Bourla’s watch That he allegedly overpaid on several major acquisitions and squandered tens of billions in windfall gains from Pfizer’s coronavirus vaccine; that Pfizer’s business is in big trouble after demand for Covid vaccines declined faster than anyone thought.

There’s just one problem: these criticisms simply aren’t realistic, no matter how many times they might be repeated, as we reveal in this article. Our original detailed analysis and 36-page slide deck.

“The haves versus the have-nots” in the GLP-1 revolution

Of course, what is undeniably true is that Pfizer’s stock price has moved sideways during Bourla’s tenure, which has understandably frustrated some shareholders. However, Pfizer stock’s poor performance isn’t all it seems. In fact, Pfizer stock performed In line with, if not a little stronger Compared to pharmaceutical peers such as Merck, Johnson & Johnson, and Bristol-Myers Squibb this year.

Pharma stocks It’s been reduced to “haves versus have-nots.”“: A stark split between the GLP-1-led stocks, Novo Nordisk and Eli Lilly, which rose to record highs, and all the other drug companies, many of which Trading weakens near record low multiples as investor sentiment declines. This is a reversal from the Covid-19 pandemic when those now high-flying stocks (Novo Nordisk and Eli Lilly) looked weak because they missed the Covid vaccine and therapeutics boom and were attacked by critics, while Covid-supported stocks benefited.

To blame Borla for the stock market swings, considering that Pfizer’s stock performance is quite in line with its non-Novo Nordisk and non-Eli Lilly Pharma peers, one has to blame Borla for not developing the GLP-1 drug sooner, even though From the fact that almost the entire pharmaceutical industry – like almost every investor – was surprised by the speed with which these new obesity drugs were commercialized.

Mergers and acquisitions

Likewise, persistent criticism that Dr. Bourla overpaid and made bad deals during the post-coronavirus M&A wave — a criticism that appears to have become a rallying cry for investors dissatisfied with Bourla’s leadership —It’s not all it seems.

Sure enough, one of Pfizer’s four largest deals, and the smallest of the four, Pfizer’s acquisition of Global Blood Therapeutics, has been completed. Disaster so far By most objective (though not irreparable) measures.

However, Return on investment As for the three larger deals — the $6.7 billion acquisition of Arena, the $11.6 billion acquisition of Nurtec from Biohaven, and, most importantly, the transformative $43 billion acquisition of Seagen — they appear to be working. Superior even Internal and external expectations have been more optimistic so far, as we explain in more detail Deep dive into our original analysis.

ROI numbers aside, the simple fact that many seem to have forgotten is that it is too early to call these deals defeats. Much of the value of these deals is locked into the research and development (R&D) pipeline of potential drug candidates that Pfizer has acquired — and It will take many years For these pipeline projects to reach maturity. As the old pharmaceutical saying goes, the problem with research is that you don’t know if you did the right thing for 10 years. Until this pipeline reaches maturity, writing off these trades as failures is equivalent to giving up after the first inning with eight innings remaining.

This is the trap that critics fall into Constantly falling into. For decades, growth through mergers and acquisitions has been Pfizer’s way, and each time, the financial markets have mistakenly undervalued Pfizer’s acquisitions, only for those deals to pay off handsomely over time. As we show in our analysis.

For example, though Initial investor criticism From Pfizer’s acquisition of Warner-Lambert for $90 billion in 2000 In the end it was paid off several times over As Lipitor and other great drugs reach maturity, with additional revenue brought in from divesting some of the additional assets that came with the deal like Entenmann’s Bakery and Schick Razors.

As we showSimilar criticism was leveled at Pfizer’s $64.3 billion acquisition of Pharmacia in 2002, as well as Pfizer’s $68 billion acquisition of Wyeth in 2009 (including its flagship product Revnar), both of which ended. Pay off over time. And each time, markets fell into the same trap: chronic undervaluation of high-potential drugs, for which investors had little insight, understanding or patience. While it takes several years in some cases, many of these medications are unpopular It ended up being turned into blockbuster movies Which was hugely profitable for Pfizer.

Some critics wonder And whether Bourla is right to spend on mergers and acquisitions at all. Some shareholders have even publicly called for large special dividends or accelerating stock buybacks in lieu of deals. But Pfizer’s board — one of the most qualified in America and including such luminaries as Coca-Cola CEO James Quincy, State Street CEO Cyrus Taraporevala, and former Food and Drug Administration Commissioner Scott Gottlieb — knew such moves were short-sighted. That would exacerbate the problem. Mortgage Pfizer’s future It puts the company at risk.

Because Pfizer’s blockbuster drugs are currently limited to patent terms of 10 to 20 years, Pfizer must continually search for new and promising drug candidates to make up for lost revenue as patents are periodically taken off its books. one another ~$17 billion in revenue to starttoBy exiting Pfizer’s books over the next five years, Pfizer did just that No choice But to revamp its R&D pipeline through mergers and acquisitions, it could not wait for more favorable entry points. In addition, it is not as if Bourla neglected capital returns to shareholders during the period of his mergers and acquisitions, as he was paying… Distributing more than $50 billion in profits Since becoming CEO, continue the streak 345 consecutive quarters Pfizer paid its dividend, all while maintaining its status as a company Highest pharmaceutical company in terms of dividend yield.

Investing in businesses through mergers and acquisitions is often unpopular with short-term focused investors – but it can deliver significant returns given enough time, a pattern that applies across various industries. Five years ago, I celebrated Occidental CEO Vicki Holub’s acquisition of Anadarko Petroleum and stood by it when Carl Icahn and other activist investors sought to back out of the deal when oil prices collapsed during the pandemic. Fortunately, Occidental, with the support of Warren Buffett, was able to overcome the challenge posed by Icahn and ride the economic cycle back to high oil prices, allowing Anadarko to pay for itself several times over.

Product pipeline

Aside from the persistent myths surrounding Pfizer’s mergers and acquisitions record, there is also a persistent narrative that Pfizer’s business is in trouble after demand for COVID-19 vaccines declined faster than anyone thought. Bourla’s pandemic heroics, for which he received widespread acclaim, need no recounting. There is no doubt that the remarkable partnership between Pfizer and BioNTech, and his leadership through later-stage vaccine development and successful clinical trials, with seamless execution of unparalleled production and distribution as well as follow-on therapies like Paxlovid, has profoundly changed the course of society at large. Health history and global economic resilience in very positive ways.

Pfizer management has taken responsibility because it was overly optimistic in its recent strong forecast for demand for its coronavirus (COVID-19) vaccine and is prudently adjusting its cost structure accordingly. However, through analysis Pfizer Sales Product Line By product line, it is clear that almost the entire decline in Pfizer’s revenues was due to declines alone In demand for the Covid-19 vaccine, and nothing else. All other major Pfizer products Lines saw significant importance on a yearly basis Growth, including record growth in our critical oncology segment, with cancer therapeutics poised for continued rapid revenue growth in the years ahead.

It’s easy to miss the green shoots of progress as Pfizer’s post-coronavirus reset gains steam: Pfizer now has no less Of 112 promising drug candidates in its vaunted pipeline, including several recent launches with blockbuster potential. Since Bourla became CEO, he has been at Pfizer Higher success of clinical trials rate than many of their industry peers – a stark shift from Worst R&D returns For any pharmaceutical company under prior leadership.

Dangerous playbook

Which is exactly why the radical cost cuts that Starboard seems to be calling for right now are so risky for Pfizer. These cost reductions take a page out of the old reading book. like Pointed out by CNBC’s Jim Cramer“Ian Read, a very tough guy. He cut costs. I was afraid of him. He lacked a sense of humour. At the end of Read’s tenure, this approach had depleted Pfizer’s pipeline, With only a few dozen projects launched Leave. Furthermore, Reid sold parts of Pfizer’s business that provided stable revenue streams, including… Profitable dump Departments of Consumer Health and Animal Health Bottom of the barrel prices. At a company with a long history of former CEOs sticking around and undermining their successors, as documented in striking fashion by luck In 2011, Starboard-Read’s Guide to Pfizer trimming its way to growth may be trimming its way to oblivion.

As with all CEOs, with the wisdom of hindsight, Pfizer and Bourla may have timed some of the moves differently. However, our reality Analysis of Pfizer’s performance He points out that some of the misleading narratives put forward about Bourla’s leadership were patently unfair.

We know, love and respect both sides. We have previously supported several Starboard Value campaigns, such as their successful efforts at Darden, and work closely with Jeff Smith’s partners at his previous companies. Likewise, Albert Bourla attended CEO summits at Yale and Cannes Winning Yale Leadership Legend In 2021, he represented peer pharma giants like Merck CEO Ken Frazier, Johnson & Johnson CEO Alex Gorsky, Regeneron co-founders Len Schleifer and George Yancopoulos, former Amgen CEO Gordon Binder, and many others. But we do not have any conflict of interest that hinders the provision of our services Objective and independent analysis We call it as we see it.

As Starboard ramps up its engagement with Pfizer with a meeting scheduled next week, we believe Starboard will have the opportunity to play a constructive role in helping Dr. Bourla and Pfizer’s impressive Board of Directors guide the company toward greater success. We hope Starboard takes this real opportunity to be constructive — which will be a win-win for everyone involved — rather than falling into the fact-free abyss and personal attacks that some anonymous sources seem to have fallen into.

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