Key Takeaways
- Pfizer CEO Albert Bourla responded during the company’s Q3 call to Starboard Value’s push for change after the investor bought a $1bn stake in the big pharma.
- Bourla defended Pfizer’s business development and financial track record, though acknowledged that shareholder return has under-performed since 2019.
- However, he said Pfizer has already begun implementing the types of change that Starboard is seeking, pointing to recent cost cuts, reorganizations and appointments.
Pfizer, Inc. CEO Albert Bourla went public for the first time during the company’s third quarter sales and earnings call with his view of activist investor Starboard Value buying a $1bn stake in the company in a negative critique of the big pharma’s stock value.
“We plan to engage with shareholders, including Starboard, and consider any good ideas that create long-term shareholder value,” Bourla said. “But I don’t think that the statement, ‘Something needs to change,’ is really pragmatic because it’s coming 15 months late.”
Starboard’s $1bn stake in Pfizer was revealed on 6 October in a report in The Wall Street Journal, with the activist investor focused on turning around the company’s market value. Starboard has since published a slide deck highlighting a series of what it believes are R&D and business development missteps Pfizer has made since 2019. The investment group did not describe any potential changes it would like to see, however.
Bourla said he and other members of Pfizer management met with Starboard Value two weeks ago and described the meeting as “constructive and cordial.”
“While we agreed with some of the points they raised, we have vastly different views on many others,” Bourla said. For example, Pfizer agrees with Starboard that total shareholder return has been disappointing since 2019 but pushed back against Starboard’s accusation that Pfizer overpaid for assets it brought in through a string of business development deals.
Defending Business Development
“We believe that our deals will produce significant shareholder returns and some of them, like Seagen and BioNTech, have been transformational for Pfizer,” Bourla said. Pfizer acquired the antibody-drug conjugate (ADC) specialist Seagen late last year in a $43bn buyout, its largest in a series of acquisitions the company undertook since launching the COVID-19 vaccine Comirnaty in 2021 with partner BioNTech.
“By far, the two biggest is Seagen and BioNTech in terms of revenues,” Bourla said. “I think the Street moved on Seagen way up compared to when we made the deal and on the Comirnaty, we are very stable.”
The addition of Seagen’s commercial ADC products, like Adcetris (brentuximab vedotin) and Padcev (enfortumab vedotin), to Pfizer’s pipeline have helped to pad the company’s top line this year as sales of its COVID-19 products, Comirnaty and the antiviral Paxlovid, have reset post-pandemic.
But Bourla urged investors not to just look at revenue growth today, but to consider pipeline-expansion opportunities ahead, including the advancement of two other ADCs into late-stage development.
“Those are mega-blockbusters,” he said of the potential opportunity.
Bourla also pointed to Pfizer’s $11.6bn acquisition of Biohaven’s migraine portfolio, including Nurtec ODT, as a success, with Nurtec ODT revenues exceeding Wall Street expectations for a second quarter in Q3. The migraine medicines Nurtec ODT and Vydura, both versions of rimegepant, generated $337m in the third quarter, growth of 45% over the year-ago quarter, a sign of strong momentum.
Other acquisitions, however, like Pfizer’s $5.4bn acquisition of Global Blood Therapeutics for the sickle cell disease therapy Oxbryta (voxelotor) appear less successful. Oxbryta was withdrawn from the market in September over safety concerns. Also, the return on Pfizer’s acquisition of Arena Pharmaceuticals for $6.7bn in 2021 remains undetermined. The company launched the Arena-developed Velsipity (etrasimod) for ulcerative colitis, but Pfizer hasn’t yet broken out sales of the drug and took a $1.4bn impairment charge related to Velsipity last year, citing “overall revenue expectations.”
Defending Performance
Bourla also took a moment during Pfizer’s Q3 call to defend his track record leading the company.
“In the five and a half years that I’m CEO, I had 23 earnings releases of which 22 we beat [earnings per share estimates] of Bloomberg and one we missed,” he said. “And I don’t like the one we missed.” That miss was in the third quarter of 2023 when Pfizer admitted to investors that COVID-19 product revenues were well below financial estimates.
“There are excuses that, you know, the last pandemic was 100 years ago so we didn’t have, let’s say, a benchmark,” he said.
“No matter if we agree or disagree on what has happened, I think the most important thing is what we are doing going forward,” Bourla said. “Starboard has not presented any specific actions, but they suggested something needs to change. On that point, in the beginning of the year, already a year ago, we already started changing a lot of things.”
Pfizer has already implemented a five-point action plan, starting more than a year ago, including a significant $5.5bn cost-cutting strategy, impacting R&D and manufacturing. The company also changed its commercial model, appointed new leaders, and established a new oncology division near Seattle at Seagen’s former headquarters.
Bourla also pointed to Pfizer’s appointment of former industry analyst Andrew Baum as chief strategy and innovation officer in May as another sign of change.
Baum weighed in with his thoughts since joining Pfizer and what he hopes to bring to the company’s strategic planning during the Q3 call.
“I’ve always regarded Pfizer’s R&D engine highly,” he said, pointing to some of the company’s first-in-class internal R&D accomplishments: the ALK inhibitor Xalkori (crizotinib), the CDK4/6 inhibitor Ibrance (palbociclib) and the JAK inhibitor Xeljanz (tofacitinib).
“There’s clearly a very, very strong record of discovery and execution, and it’s not just small molecules,” he said, pointing to the company’s success with vaccines and investments in cell therapy and bispecific antibodies.
“Historically, perhaps we may have pursued areas where that R&D investment hasn’t translated into the types of revenues you want,” Baum added. “This is a much easier challenge to solve. It’s a matter of taking this incredibly powerful machine and pointing it in the right direction, so that we are targeting those areas that translate into revenues.”
Pfizer came to its sales and earnings call with solid third quarter financial results. The company reported revenues of $17.7bn in Q3, growth of 31% over the prior quarter, driven by acquired products and strong sales of Paxlovid.
