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Starboard Value called on Pfizer’s leadership to do “something different” and hold management accountable for its languishing performance, as the activist investor spoke publicly about its plans for the pharmaceutical company for the first time since its $1bn stake became public.
Jeff Smith, Starboard’s chief executive, criticised Pfizer for what he said was its failure under the leadership of chief executive Albert Bourla to turn a $40bn bump in cash flow from its Covid-19 products into better returns for shareholders.
Speaking at an annual conference for activist shareholders in New York, Smith said the return on investment from research and development efforts as well as a $70bn deals spree at Pfizer was “not adequate” and that management had overseen “a minimum of $20bn of value destruction”.
“You know what’s crazy since 2019 . . . how is it possible that a company like Pfizer that creates the [Covid] vaccine as well as Paxlovid, has their revenue more than double, has their cash flow . . . triple or quadruple, create all this extra cash, and the stock price is lower than where it was in 2019,” Smith said.
One of the final slides in Smith’s presentation called on the board “to actively hold management accountable for earning appropriate returns on R&D and M&A moving forward”, adding that the drugmaker “deserves to be best in class”.
Starboard showed a similar presentation to Bourla and another Pfizer board member in a meeting last week, according to people familiar with the matter.
The veiled threat to overhaul Pfizer’s management during Smith’s keynote presentation at the 13D gathering was an opportunity for the activist investor to regain its footing in a campaign against one of America’s best-known companies after a faltering start.
Smith also unveiled a stake in Tylenol maker Kenvue, which was spun out of Johnson & Johnson last year, and called for further improvements at software group Salesforce.
After slowly building a 0.6 per cent position in the drugmaker over the past few months, Starboard, which is known for targeting big US corporations such as News Corp, had recruited the support of the former Pfizer chief executive Ian Read and ex-finance chief Frank D’Amelio.
But after throwing their weight behind Starboard, the former Pfizer executives abruptly withdrew from Starboard’s campaign after just 72 hours earlier this month. Moreover, misfired emails from D’Amelio to Bourla and three other Pfizer board members prematurely alerted Pfizer to Starboard’s campaign ahead of 13D.
Smith said he thought the company was “unlikely” to reverse declining revenues by the end of the decade without a major shake-up.
“What we would say to management and the board is, if you also think it’s unlikely, then you have to just do something different,” he said, without defining what he thought the alternative path for Pfizer would be.
Hinting at the possibility of management change, Smith added: “They can’t follow Einstein’s definition of insanity and continue to do the same thing over and over again and expect a different result.”
Shares in the New York-based drugmaker fell 0.5 per cent to below $29 on Tuesday morning, giving it market value of $162bn. Pfizer’s share price is down more than 50 per cent from its pandemic peak. Pfizer declined to comment and Starboard did not comment further on its plans.
Smith criticised Pfizer for failing to deliver on its promise to turn 15 experimental treatments into blockbusters during Bourla’s tenure, as well as for generating just a 15 per cent return on investment from its R&D and M&A spending, compared with an industry median of 38 per cent.
Smith pointed out that Pfizer lagged even further behind weight loss drugmakers Eli Lilly and Novo Nordisk despite “spending a tonne of money” on researching the lucrative new class of drugs.
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