Starboard Value Acquires $1 Billion Stake in Pfizer Amid Share Price Struggles

_{Source-cnbc.com}

Investment Amidst Share Price Decline

Activist investor Starboard Value has acquired a $1 billion stake in Pfizer, as the pharmaceutical giant struggles to regain its footing following a significant drop in its share price, which has fallen below pre-pandemic levels. This move reflects growing investor skepticism about Pfizer’s ability to generate post-pandemic growth after its Covid-19 vaccine provided only a temporary boost in revenues.

As of last Friday, Pfizer’s market value stood at approximately $161 billion, marking a staggering 52% decrease from its pandemic peak. Throughout this year, Pfizer’s shares have remained stagnant, contrasting sharply with the S&P 500, which has risen by about 20%.

Starboard’s Strategic Intentions

Sources indicate that Starboard is actively pursuing a turnaround strategy for Pfizer. While the specifics of their plan remain unclear, there is speculation about potential management changes or board representation. Starboard has reached out to former Pfizer executives Ian Read, the company’s previous CEO and chair, and Frank D’Amelio, its former CFO, seeking their support in its efforts. Although neither has been informed of the precise plans, they share Starboard’s view that Pfizer has underperformed in recent times.

Currently, Starboard value represents at least 0.6% of Pfizer’s total value, but the hedge fund has yet to present its plans to Pfizer’s full board of directors. A regular board meeting is scheduled for this week, which may provide further insights into the situation.

Pressure on Pfizer’s Leadership

The acquisition of this significant stake is likely to place additional pressure on Pfizer’s CEO, Albert Bourla, who was appointed by Read in 2019. Bourla was instrumental in the partnership with BioNTech, which led to the development of the top-selling COVID-19 vaccine. However, at an investor conference earlier this year, he acknowledged the challenges Pfizer faced in 2023 as the pandemic’s impact diminished and indicated that 2024 would serve as a clean slate for the company.

Acquisition Challenges and Strategic Shifts

Pfizer has invested a considerable portion of its $92 billion windfall from Covid product sales into acquisitions, including a $43 billion takeover of cancer drugmaker Seagen. This move was intended to establish a foothold in the rapidly growing field of antibody-drug conjugates. However, investors have expressed concerns about the hefty price tag, which amounts to 22 times Seagen’s revenues.

Moreover, just last week, Pfizer withdrew its lead sickle cell drug, a product acquired in its $5.4 billion purchase of Global Blood Therapeutics, due to safety concerns. This withdrawal further adds to the scrutiny surrounding Pfizer’s recent acquisitions.

Cost-Cutting Measures and Market Outlook

In response to its declining performance, Pfizer announced a $1.5 billion cost-cutting initiative slated for implementation before 2027. This plan is in addition to an earlier $4 billion cost-saving program that was introduced in the aftermath of the pandemic. However, David Risinger, an analyst at Leerink Partners, highlighted the need for immediate opportunities for enhancing shareholder value, given that the company has already executed a substantial cost-cutting drive. Additionally, Pfizer faces limitations on growth stemming from patent expirations and a considerable debt burden.

Starboard value has previously targeted healthcare companies, most notably in 2019 when it urged Bristol Myers Squibb to abandon its acquisition of Celgene—a campaign that ultimately did not succeed. More recently, the activist firm has turned its attention to media conglomerate News Corp and software company Autodesk, showcasing its diverse focus in the investment landscape.

As Pfizer navigates these challenging waters, the impact of Starboard’s involvement remains to be seen, but the pressure for a successful turnaround is mounting.