Amidst dwindling share prices and widespread criticism, Pfizer CEO Albert Bourla appears to have withstood an attempted ousting by activist investor Starboard Value.
On 6 October, Bourla received a blank email from former CFO Frank D’Amelio cc’ing a Starboard representative setting a chain of events that resulted in a challenge to Bourla’s leadership from the activist investor. Starboard, under CEO Jeffery Smith, had built a $1 billion stake in Pfizer, at around 0.6% of the company’s $162bn market cap at the time, and claimed the support of D’Amelio and former Pfizer CEO Ian Read. One of the motives for the challenge was to force a turnaround in Pfizer’s declining share price, which was blamed on Bourla.
However, more than two months later, Bourla remains in control. Experts largely attribute this to Starboard’s reliance on an underbaked analysis of Bourla’s leadership and the potential hidden value in Pfizer’s recent dealmaking.
Neither Starboard nor Pfizer responded to comment for this story.
Starboard's ill-conceived attack
Assuming leadership on 1 January, 2019, Bourla was initially lauded for overseeing the FDA approval of Pfizer’s two blockbuster Covid-19 products—the antiviral drug Paxlovid (nirmatrelvir and ritonavir) and the vaccine Comirnaty. Following their launches into the market, the company’s share value continued to increase, reaching a high of $61.71 in December 2021. Since then, however, the company’s share price has declined by more than half, to $25.36 as of market close on 11 December 2024.
At the 13D Monitor Active-Passive Investor Summit, held in New York on 22 October 2024, Smith presented Starboard’s case against Pfizer’s management. In a 74-slide presentation, he stated, “[Pfizer’s] Covid breakthrough should have created substantial value”, and argued that, under Bourla’s stewardship, the company had squandered pandemic revenues on overpriced acquisitions. By Starboard’s calculation, the firm estimates Pfizer to have lost $20–60 billion in market value since 2019.
John Singer, founder of the New York-based Blue Spoon Consulting group, countered this, saying “I would characterise it as an under-conceptualised diagnosis”. In his view, Starboard’s analysis overemphasised the role of Pfizer’s CEO in its fortunes amid a multifactorial market. Furthermore, he argues that the activist investor tactic of cost-cutting would falter in the pharmaceutical space where lengthy, expensive, risky investments require consistent patience.
Even before beginning in earnest, Starboard’s campaign met a hurdle when, on 9 October, Read and D’Amelio retracted their support for Starboard and backed Bourla. Starboard issued a statement on October 10 accusing Pfizer management of forcing this retraction by threat of litigation, clawback of compensation, and cancelling unvested performance stock units.
The truth behind the allegations is unknown, but not entirely implausible according to Singer, who says, “these can be bare-knuckle fights, and so that wouldn’t surprise me”. Alternatively, it may be a tactic aimed at controlling the narrative and winning over public opinion, says Dr. Mark Thomas, former associate dean of Grenoble Ecole de Management, France.
Pfizer's hidden value
In its 22 October presentation, Starboard cited Pfizer’s 132-point lag in shareholder returns in H2 2024 in the NYSE Arca Pharma Index behind a cross-section of leading pharmaceutical companies as a sign of dramatic underperformance. Starboard claims that by investing nearly $70 billion in mergers and acquisitions (M&As) since the Covid-19 pandemic, “Pfizer appears to have overpaid for its post-2022 acquisitions based on the company’s sales targets.”
However, a proper reading of the data does not back this position, according to Jeffrey Sonnenfeld, senior associate dean for leadership studies at Yale University, New Haven, Connecticut. An analysis from Sonnenfeld and his colleague Steven Tian, research director at the Yale Chief Executive Leadership Institute, concludes that under Bourla, Pfizer has shrewdly reinvested its Covid-19 profits in acquisitions that are likely to pay off.
Since Bourla’s predecessor Read depleted much of Pfizer’s clinical pipeline to cut costs, Sonnenfeld told Pharmaceutical Technology that large acquisitions might be vital to ensure the company can maintain revenues while outpacing patent expiries and declining interest in Covid-19 drugs. Sonnenfeld disputes criticism of Pfizer’s recent acquisitions, foremost its $43 billion acquisition of Seagen in December 2023. Although a cheaper deal for Seagen might have been feasible if Pfizer had waited, it is impossible to time the markets with complete accuracy, says Stephen Henriques, senior research fellow at the Yale Chief Executive Leadership Institute.
The Seagen acquisition was the 12th largest pharmaceutical M&A deal in history. Still, it sits well below Pfizer’s $64.3bn acquisition of Pharmacia in 2002, $68bn acquisition of Wyeth in 2009, and $90bn acquisition of Warner-Lambert in 2000, the most expensive pharmaceutical M&A deal ever. Moreover, after just one year, it is likely too soon to judge whether the deal is a success or failure, notes Henriques.
Sonnenfeld further notes that Starboard’s evaluation of Pfizer with the Arca Pharma Index ignores certain market trends, chiefly the disparity between stocks driven by sales of the glucagon-like peptide-1 receptor agonist (GLP-1RA) obesity and diabetes therapies and the rest. Excluding the performance of metabolic space leaders Eli Lilly and Novo Nordisk, Sonnenfeld argues that Pfizer’s performance is on par with that of Merck & Co, Johnson & Johnson, and Bristol Myers Squibb.
The case for Pfizer's performance was further strengthened on 29 October, when it released its Q3 2024 report, recording revenues over 30% above those in Q3 2023, fuelled in part by $854 million in sales stemming from Seagen. Without the support of Pfizer veterans, with Starboard’s analysis under question, and with Pfizer’s revenues on the rise, the activist investor bid lost its momentum.
The future for Starboard and Pfizer
The consensus among experts is that the future is uncertain for the contest between Starboard and Pfizer management to control the company. Sonnenfeld notes that following Read and D’Amelio’s reversal, the activist investor may try a different approach. “I don’t think Starboard wants the look of a hostile raid”, Sonnenfeld says. As a seasoned investor with successes in other industries, Sonnenfeld believes Starboard will consider a number of approaches, including a more cooperative partnership with Bourla and his supporters.
The risks of mismanaged activist investment in pharma are evident in the investor Bill Ackman’s $4bn loss in Valeant Pharmaceuticals, now known as Bausch Health Companies. His firm, Pershing Square Capital Management, described the investment as requiring “a disproportionately large amount of time and resources”, as per a March 13, 2017 statement, too great even for Ackman’s commitment to companies in his portfolio.
At the same time, activist investors have prevailed in steering the course of pharma companies, as seen when Politan Capital unseated the CEO of the medical devices company Masimo, Joe Kiani, on September 19, 2024 after a year-long struggle.
Singer says that it is unlikely Starboard will withdraw its investment any time soon, as it will be unwilling to take a loss like Ackman and Pershing Square. Alternatively, the activist investor could end up nominating Pfizer directors ahead of the company’s 2025 stockholder meeting rather than push for Bourla to be ousted, according to Bill Roegge, partner at the Palo Alto, California-based law firm Cooley. Meanwhile, Thomas believes that the threat of Starboard’s influence, even if it is ultimately unsuccessful, might be enough to force Bourla to make concessions and alter his business strategy in a way that aligns with Starboard’s aims.
Opinions vary on where exactly Starboard went wrong. For Singer, it lies with the analysis that misunderstood the pharmaceutical market and the impact of one senior executive, without offering new ideas.. Roegge and Kevin Cooper, also a partner at Cooley, say Starboard misjudged Pfizer’s strength of management. When former executives rallied to Bourla and Q3 revenues rose, it took “the wind out of the activist’s sails”, says Cooper.
As a sector full of highly qualified, affluent, and mobile people, the pharmaceutical industry may be inherently more unwelcoming to activist investors than others, says Thomas. He points out that senior Pfizer management may simply prefer Bourla as CEO, feeling safe in the knowledge that they can find employment elsewhere if their fortunes change.
Update: Paragraph 20 was updated to more closely reflect John Singer's comments on Starboard's analysis.
