Starboard spells out its concerns with Pfizer's direction

Activist investor Starboard Value has launched a broadside against Pfizer's leadership under chief executive Albert Bourla, claiming at least $20 billion in value – and possibly as much as $60 billion – has drained away from the group since 2019.

The hedge fund's chief executive, Jeff Smith, made its accusations at an investor summit in which it made the case that Pfizer has squandered the "significant contributions" it made to ending the COVID-19 pandemic with vaccine and drug products, from which it reaped tens of billions of dollars in revenues.

Despite that cash windfall, Pfizer has "dramatically underperformed its peers and the market since 2019," according to Starboard, investing $70 billion in a string of acquisitions that it believes will fall well short of the returns that the drugmaker has forecasted, and consistently failing to meet consensus sales targets since COVID.

Furthermore, it maintains that Pfizer is saddled with an inefficient R&D organisation – with a poor output of new products from its pipeline between 2019 and 2023 – while many of the would-be blockbusters it was trumpeting at the start of that period have fallen short of expectations.

A target of launching 15 new blockbusters made in 2018 looks completely unachievable, said Smith, who also criticised Pfizer's efforts with its GLP-1 agonist obesity programme.

The 73-slide presentation makes painful reading for Pfizer, with page after page pointing to a litany of clinical trial failures, launches that failed to meet their commercial expectations, and established products including its Prevnar pneumococcal vaccine franchise now facing competitive threats that could undermine their growth.

Smith's presentation at the 13D Monitor Active-Passive Investor Summit marked the first time that Starboard has revealed the details of its concerns about Pfizer's direction, coming a couple of weeks after it first revealed it had taken a $1 billion stake in the group.

The intervening period has been like something out of a blockbuster movie, with allegations that former CEO Ian Read and ex-chief financial officer Frank D'Amelio had sided with Starboard against their former employer, only to withdraw their support shortly afterwards. The hedge fund has claimed that they did so because they were threatened by Pfizer with litigation clawback of prior compensation.

"We believe the root cause of Pfizer's issues are its low expected return on organic and inorganic R&D Investments," said Smith at the meeting, adding that Pfizer's board needs to be "laser-focused" on tracking those returns.

"It is unlikely that Pfizer will be able to achieve $79 billion in revenue by 2030, thereby making Pfizer's return on R&D and M&A insufficient," he continued. "The board needs to actively hold management accountable for earning appropriate returns on R&D and M&A moving forward."

He did not, however, deliver any specific demands, such as the removal of Bourla as CEO, or make any recommendations for improvement. Pfizer has not commented on the claims made in the presentation.