Pfizer Inc. (PFE) delivered a surprise over the weekend with the sudden appointment of Ian C. Read as the new President, Chief Executive Officer (CEO) and Director of the company. The announcement was made following the sudden and unexpected retirement of the erstwhile CEO, Jeffrey B. Kindler.
Jeff Kindler was responsible for pulling off the $68 billion Pfizer-Wyeth merger, which led to the creation of a more diversified company. Mr. Kindler also streamlined operations across the world through cost-cutting initiatives and the setting up of more focused and agile business segments.
While reasons like fatigue and lack of personal time for family were given for Mr. Kindler’s sudden retirement, rumors have been doing the rounds that the retirement was more to do with investor and Board dissatisfaction regarding the company’s stock price and recent late-stage pipeline failures. Moreover, there has been some element of dissatisfaction regarding the company’s strategy of boosting revenues through acquisitions and driving the bottom-line through cost cutting initiatives.
The new CEO has been heading Pfizer’s global biopharmaceutical business since 2006. The biopharma business has five global business units which together accounted for about 85% of Pfizer’s revenues. Pfizer’s Board intends to elect a non-executive Chairman in a couple of weeks.
The new CEO will have his work cut out with the company facing a major patent cliff in the next few years. Pfizer is entering a challenging operating period with the loss of patent exclusivity on several products. Moreover, the company has faced several pipeline setbacks in the recent past.
Pfizer’s news comes just a few days after Merck (MRK) announced the appointment of Kenneth C. Frazier as its CEO and President, effective Jan 1, 2011.
Neutral on Pfizer
We currently have a Neutral recommendation on Pfizer, which is supported by a Zacks #3 Rank (short-term “Hold” recommendation). While Wyeth brings with it an attractive biologics platform and some complementary products and businesses, we do not believe they are enough to sustain long-term top-line growth. We see the merger as mostly an opportunity for Pfizer to cut additional costs. Longer term growth will be dependent on the success of drug development. Pfizer’s recent track record with pipeline development has been poor.
The Lipitor patent expiration in 2011 remains a big concern. Lipitor contributed almost 23% to the top-line in 2009 with sales coming in at $11.4 billion. The entry of generic versions of the product will have a significant impact on the company’s financials. The loss of patent exclusivity over the coming years will make it challenging for the company to drive top-line growth.
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