At an investor summit in New York on Tuesday, activist investor Starboard called out Pfizer's PFE board of directors to take action against the latter’s management for making poor capital allocation, research and development (R&D) failures and problems with forecasting and budgeting.
Per Starboard, these decisions have resulted in Pfizer losing nearly $20-$60 billion of market value since 2019, despite receiving a $40 billion boost from its COVID-19 franchise during the pandemic.
This is the first time that the activist shareholder has publicly detailed its concerns about the pharma giant. Before raising these concerns, Starboard built a $1 billion position in PFE and even met with the company’s CEO, Albert Bourla, last week.
PFE Stock Performance
Year to date, Pfizer’s shares have moved up 0.4% compared with the industry’s 19.0% growth.
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Starboard Highlights PFE’s R&D Inefficiency
Starboard attributed Pfizer’s market value decline to a lack of internal innovation and failure to deliver on its commitments. It pointed out Pfizer’s inability to stick to its previously announced commitment to deliver up to 15 potential blockbuster drugs by 2022.
As part of a 73-page presentation, the activist investor painted a grim picture of the pharma giant, highlighting numerous clinical setbacks and product launches that fell short of commercial expectations. It also criticized Pfizer's efforts with its GLP-1 agonist obesity program, citing Wall Street analysts’ skepticism about the company’s once-daily formulation of oral GLP-1 drug danuglipron.
Starboard also stressed the increasing competition, which threatens the growth of established products like its Prevnar pneumococcal vaccine franchise.
PFE Management Accused of Making Overpriced M&A Deals
Starboard highlighted that Pfizer has invested nearly $70 billion since the pandemic in a string of acquisitions, namely Seagen, Biohaven, Arena Pharmaceuticals, Global Blood Therapeutics and ReViral. Per the investor, the company overpaid for these acquisitions, citing PFE’s own target of generating more than $20.5 billion in sales from products acquired from these deals by 2030. Starboard also pointed out that this sales target set by management was $7 billion more than Wall Street’s expectations.
Starboard specifically criticized Pfizer's $5.4 billion acquisition of Global Blood Therapeutics in 2022. Last month, Pfizer unexpectedly withdrew Oxbryta, the key sickle cell disease therapy from the deal, from global markets after new clinical data revealed a rise in painful vaso-occlusive crises and deaths.
Starboard’s Request to Pfizer’s Board
Starboard focused on the need for capital allocation as an important discipline for the pharma giant. It requested PFE’s board to hold management accountable for the company’s incorrect capital allocation.
The activist shareholder provided a detailed explanation on the company’s expected return on revenues and compared it with the industry peers. Starboard’s calculation suggests a revenue return of just 15% (between 2023 and 2030) on the company’s R&D and acquisition investments. The figure is far below the industry peer median of 38%.
Pfizer will need an additional $29 billion in revenues by 2030 to reach its target of a 38% median growth rate.
Starboard believes that it is unlikely for Pfizer to achieve this target. It expects Pfizer’s board to ‘actively hold management accountable for earning appropriate returns on R&D and M&A moving forward’.
In its presentation, the activist shareholder neither put forward any specific demand, such as the CEO’s removal, nor made any recommendation for improvement.
PFE’s Zacks Rank
Pfizer currently carries a Zacks Rank #3 (Hold).
Key Picks Among Biotech Stocks
Some better-ranked stocks from the sector are ANI Pharmaceuticals ANIP, Castle Biosciences CSTL and Alnylam Pharmaceuticals ALNY. While ANIP and CSTL sport a Zacks Rank #1 (Strong Buy) each, ALNY carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
In the past 90 days, estimates for ANI Pharmaceuticals’ 2024 earnings per share have moved up from $4.50 to $4.81. Year to date, shares of ANIP have risen 9.0%.
ANIP’s earnings beat estimates in each of the trailing four quarters, the average surprise being 31.32%.
In the past 90 days, estimates for Castle Biosciences’ 2024 loss per share have narrowed from $1.66 to 58 cents. Year to date, shares of Castle Biosciences have surged 49.5%.
CSTL’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 132.32%.
In the past 90 days, estimates for Alnylam’s 2024 loss per share have narrowed from $2.16 to 64 cents. Loss per share estimates for 2025 have narrowed from 61 to 27 cents. Year to date, shares of ALNY have rallied 54.9%.
ALNY’s earnings beat estimates in each of the trailing four quarters, the average surprise being 108.53%.
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