(Bloomberg) -- Starboard Value LP Chief Executive Officer Jeffrey Smith said there has been at least $20 billion in value destruction at drugmaker Pfizer Inc., which he admonished for failing to deliver on a pipeline of new potential blockbusters.
Speaking at the 13D Monitor Active-Passive Investor Summit on Tuesday, Smith described Pfizer’s share price drop since the Covid pandemic as “crazy” and said it was time to “amp up the accountability” at the company.
Smith went comfortably over his alloted 30-minute time slot at the New York event as he took Pfizer to task over a series of missteps, including overpaying for acquisitions, falling short with new treatments and generating just a 15% return from spending on research and development — which he said trailed peers including Eli Lilly & Co. and AbbVie Inc.
“This is the problem,” Smith said. “The discipline of the spend and getting the appropriate return of that spend.”
Shares in Pfizer were broadly flat at 2:52 p.m. in New York on Tuesday, giving the company a market value of about about $163 billion. The stock has lost more than a third of its value over the last two years.
Starboard Stake
It emerged earlier this month that Starboard had built a $1 billion position in Pfizer and is seeking to spur a turnaround of the pharmaceuticals company, which the activist thinks has mismanaged its pandemic windfall with costly deals that haven’t paid off.
Under Chief Executive Officer Albert Bourla, Pfizer has embarked on a $70 billion string of deals in recent years, acquiring the likes of sickle cell anemia drugmaker Global Blood Therapeutics Inc. and cancer specialist Seagen Inc. But a drastic drop off in demand for Covid shots and treatments, and competition emerging for some of its top sellers, has left Pfizer struggling to fill the void, despite the big-ticket purchases.
Smith said that the lead drug from the Global Blood Therapeutics deal was recalled due to safety issues. “This is a black eye on on their diligence.”
Starboard noted in a presentation accompanying Tuesday’s conference that Pfizer appeared to have overpaid for its post-2022 acquisitions based on its own sales targets. “They need to do something different to make sure that they’re changing the way they’re allocating capital,” Smith said. “They can’t follow Einstein’s definition of insanity and continue to do the same thing over and over again.”
Smith said at the New York event that Pfizer had also failed to deliver on the promise of its experimental weight-loss drugs, initially setting a $10 billion sales target for the category that the investor said is now expected to deliver less than $600 million by 2030.
It initially looked like Starboard might have the backing of former Pfizer executives Ian Read and Frank D’Amelio in its efforts to push for change, only for the pair to change tack and pledge their support to the company and its existing management. In a separate interview with CNBC on Tuesday, Smith said it could make sense for Pfizer to replace Bourla as CEO.
A spokesperson for Pfizer declined to comment.
Kenvue Bet
Shares of consumer-products company Kenvue Inc., meanwhile, jumped this week after Starboard took a stake in the Tylenol maker with an eye toward making changes to boost the company’s stock price. The activist thinks Kenvue, which was spun out of Johnson & Johnson last year, has some of the best consumer brands in the industry but its shares have underperformed the broader market.
“These are world-class brands, the best of the best,” Smith said at the 13D conference on Tuesday. Smith said that Kenvue, whose other brands include Zyrtec and Benadryl, was cheap compared with peers that have a similar growth trajectory, even though it has the strongest portfolio.
“We believe Kenvue has the best brand portfolio in its peer group,” he said.
Smith said that J&J had made the right decision to spin out Kenvue. He said Kenvue now needed to focus more on skin and beauty products to help spur growth.
“We look forward to engaging with Starboard Value, as well as our other shareholders, as we continue to advance our three strategic priorities of reaching more consumers, investing further behind our brands and building a culture of performance and impact,” a spokesperson for Kenvue said.
--With assistance from Cynthia Koons and Bill Haubert.
(Adds Kenvue statement in final paragraph, updates Pfizer shares in fifth paragraph.)
©2024 Bloomberg L.P.