Pfizer's Future: The Impact of Starboard's $1 Billion Investment

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Happy Tuesday! 's troubles may finally be coming to a head.

Recent reports indicate that former executives of the pharmaceutical giant are supporting activist investor Starboard Value's efforts to revive the struggling company.

Pfizer has a market cap of roughly $165 billion and Starboard, which has a roughly $1 billion stake in the drugmaker, has approached former Pfizer CEO Ian Read and ex-CFO Frank D'Amelio to support the activist investor's efforts to shake up the company, according to CNBC's previous report.

On Sunday, Read and D'Amelio presented proposals from Starboard to various members of the company's board, according to the Financial Times' report on Monday, citing sources privy to the discussions. However, the specifics of the turnaround plan remain unclear.

Pfizer's CEO was Read from 2010 to 2018, and D'Amelio served as the company's chief financial officer from 2007 to 2021.

The involvement of Here's why it matters: Read and D'Amelio in an activist fight for the future of one of the largest pharmaceutical companies in the world is a rare occurrence of former executives engaging in such a fight.

Pfizer's shares have fallen more than 30% over the past two years, prompting investors to demand change. Despite its successful Covid business, which generated unprecedented revenue during the pandemic, the company has struggled to recover.

Albert Bourla, CEO of Pfizer, is under increasing pressure to enhance the company's performance due to a series of commercial blunders in the past two years, such as lackluster data on an experimental obesity pill and a delayed rollout of a respiratory syncytial virus vaccine, as well as an expensive M&A strategy that has yet to generate substantial returns.

Pfizer is making a significant investment in oncology through its $43 billion acquisition of cancer drug developer Seagen, in an attempt to recover. However, the payoff from this deal may take several years. Additionally, Pfizer recently removed a key sickle cell disease drug from global markets, which was a key component of its $5 billion acquisition of Global Blood Therapeutics in 2022.

Starboard's turnaround push raises questions about Bourla's fate at the company.

Since the start of 2023, investor frustration with CEO Albert Bourla has been detected by BMO Capital Markets analyst Evan Seigerman, as stated in a research note on Monday.

Placing blame on one person may seem easy, but it rarely results in a quick turn-around.

No quick fix may be possible through an activist investor, as other analysts concur.

David Risinger, an analyst at Leerink Partners, wrote in a research note on Monday that while we are waiting for future developments, there are no immediate opportunities to increase shareholder value.

According to Risinger, the company's revenue growth constraints over the next five years are due to patent expirations for top-selling drugs and competition. Additionally, Pfizer has pursued significant cost-cutting efforts, including cutting $4 billion in costs last fall and another $1.5 billion in expenses by 2027.

Risinger pointed out that Pfizer's debt levels are relatively high, with $57.5 billion in debt as of June 30. He noted that selling more shares from its assets, such as the consumer health business Haleon, may only partially reduce this debt.

We'll continue to monitor Starboard's turnaround efforts, so keep an eye on our coverage.

Rewritten sentence: Please provide any tips, suggestions, story ideas, and data to Annika at [email protected].

Hims & Hers is set to join the S&P SmallCap 600 index as concerns arise about the future of its weight loss product.

On Monday, the stock of a direct-to-consumer health-care company closed 10% higher after being added to the S&P SmallCap 600 index.

On Monday, Japan Tobacco completed its acquisition of Vector Group, which operates tobacco and real estate businesses. As a result, Hims & Hers will replace Vector Group ahead of the opening bell on Oct. 9, according to a release Friday from the S&P Dow Jones Indices.

Hims & Hers offers treatments for weight loss, sexual health, hair loss, and other conditions, and their stock has increased by nearly 120% year to date as of Monday's close. However, their shares fell last week after the U.S. Food and Drug Administration announced that tirzepatide injections are no longer in shortage.

Eli Lilly's GLP-1 weight loss drug Zepbound and diabetes drug Mounjaro contain the active ingredient tirzepatide. Although Hims & Hers does not offer these medications on its platform, CEO Andrew Dudum stated in August that the company plans to introduce access to compounded versions in the near future, as well as branded versions when supply becomes available.

Custom-made alternatives known as compounded medications can be produced when brand-name treatments are in shortage. Hims & Hers offers customers compounded versions of semaglutide, the active ingredient in Novo Nordisk's GLP-1s called Wegovy and Ozempic.

"At present, we do not provide access to tirzepatide on our platform," a Hims & Hers representative stated to CNBC on Monday. "Our top priority when introducing a treatment is ensuring it's widely accessible, meaning it's consistently available at an affordable price for the majority of our customers."

While demand for weight loss and diabetes drugs increases, Hims & Hers is one of several digital health companies offering compounded GLP-1 medications as a cheaper alternative. However, these drugs are not a guaranteed way to capture a share of the growing anti-obesity drug market, which some analysts predict will be worth $100 billion annually by 2030.

In the U.S., both Zepbound and Mounjaro are protected by patents, and Eli Lilly does not provide the active ingredient of these drugs to external groups. The FDA cautioned last week that outsourcing facilities are generally prohibited from producing copies of approved drugs unless they are on the shortage list.

"The FDA considers a drug to be commercially available when a shortage is resolved, but only allows certain amounts to be compounded under specific conditions."

Despite not providing compounded tirzepatide, the FDA's announcement caused investors to sell off Hims & Hers shares, resulting in a 9.9% decline on Thursday.

Citi analysts stated that although the tirzepatide news will not directly affect Hims & Hers, it may limit the company's total market potential. However, they also noted that shortages could resolve faster than expected.

"The analysts wrote in a Thursday note that HIMS plans to continue compounding GLP-1s after shortages subside by altering the form factor/formulation/dosage for the benefit of individual patients. However, this move may set HIMS up for a legal battle in the near future."

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