Pfizer CEO Albert Bourla is in a tough spot as activist investor Starboard Value continues to call for a change in the company’s leadership. However, analysts are supportive of the embattled executive.
After taking a $1 billion stake in Pfizer earlier this month, activist investor Starboard Value has put a target on the back of CEO Albert Bourla. At an investor summit on Tuesday, Starboard laid out its case against Bourla and senior management in a presentation that included 74 slides on how the once-mighty company “has dramatically underperformed peers and the market since 2019.”
While Starboard CEO Jeff Smith told CNBC this week that Pfizer’s management did a “great job” during the COVID-19 pandemic, he said “the growth they’re producing from their investments is worst in class” and that the company’s board needs to hold management “accountable” for achieving sufficient revenue returns on R&D and M&A.
“In similar situations where a company has underperformed like this, you may see a board make a change at CEO,” Smith said. “It wouldn’t be unheard of, it wouldn’t be strange, it could make sense.”
No one can deny that Bourla is in a tough spot. In 2022, Pfizer was the biopharma industry’s top revenue generator, bringing in more than $100 billion. However, the company’s revenue nosedived more than 40% to $58.5 billion in 2023 as sales of its COVID-19 products Comirnaty and Paxlovid cratered.
Making matters worse, Pfizer is “facing various challenges or uncertainties with their nine largest revenue generators,” Guggenheim Securities analysts wrote in a note to investors, pointing out that several medications that are expected to lose patent exclusivity over the next four years.
However, analysts have rallied around Bourla in response to the Starboard challenge.
Support From Analysts
BMO Capital Markets analysts in a note to investors said their view “remains that an activist could do little to change the story near term,” and while a senior management change may “feel good in the moment,” it “is also likely to do little to change the narrative.”
BMO’s Evan Seigerman opined in a separate note that “this seems like the ideal story” for an activist investor like Starboard. However, he said solving the company’s “many woes” will likely take time instead of a “quick fix.”
Likewise, Guggenheim analysts say Starboard’s recent $1 billion stake in Pfizer “has spurred discussions, but we view their potential influence as limited given the company’s scale.” Indeed, Starboard’s stake represents just 0.6% ownership of the company.
Seigerman acknowledged that Pfizer is faced with a very challenging business environment but contends the activist assault on Bourla seems short-sighted. “While placing blame on one person may seem easy, rarely will it result in a quick turnaround,” he wrote to investors.
Bourla has taken steps to turn things around at Pfizer through cost-cutting programs and pipeline investments to help return the company to growth, including an RSV vaccine and a potential approval in obesity. Guggenheim credits Pfizer’s current management team for its “aggressive” cost-saving efforts, with $4 billion being removed from the company’s operating expenses by the end of 2024.
“The first step in optimizing their manufacturing efforts is expected to deliver another $1.5B in savings over the next three years, with the CFO already suggesting there are more steps they can take on that front, all leaving investors to wonder what additional steps can be taken from an activist perspective,” according to Guggenheim.
Despite Starboard’s criticism of Bourla, the activist investor has provided no recommendations on how Pfizer’s management could improve the company’s business performance.
While BMO analysts said they “understand why an activist might think that Pfizer is the right story to get involved in,” their assessment is that “management appears to actually be undertaking many of the corrective actions to right the ship.”
“[C]hange takes time,” they continued, “and replacing the CEO (while satisfying to some) is unlikely to fix the story and immediately re-rate shares.”
Q3 Outlook for Pfizer
BMO analysts last week said it’s been a “tumultuous few weeks” heading into Q3 earnings season for Pfizer. In addition to this month’s Starboard challenge, Pfizer pulled sickle cell drug Oxbryta off the global market in late September, while on the positive side of the ledger the company earned the FDA’s approval of Hympavzi for hemophilia A and B earlier this month. Pfizer is slated to report its third-quarter results on Oct. 29.
Jefferies analysts said they believe the company will beat Wall Street Q3 expectations “on both topline and bottom line.” Guggenheim analysts also said they see Pfizer having “significant upside potential” based on increased demand for its COVID-19 products in Q3. The group forecast Q3 sales of $16.95 billion and earnings per share (EPS) of $0.78, significantly above the current FactSet consensus sales of $14.74 billion and EPS of $0.59, respectively.
Guggenheim analysts’ projections also suggest “favorable trends” for full year 2024 and 2025, with higher estimates than current consensus. “Despite market skepticism about the long-term demand for COVID-19 products, we believe that concerns are somewhat misplaced, especially for Paxlovid, which we expect to maintain demand even if vaccination uptake slows,” the analysts wrote. “Paxlovid’s high margin and significant share of commercial insurance coverage will continue to enhance Pfizer’s profitability.”
BMO was similarly positive, with an overall message to investors to sit tight for now. “Staying the course and focus is usually the right answer in the long run.” The analysts pointed out that Eli Lilly “did not undergo a management change despite a challenging decade, only recently becoming the darling of pharma.”
