In 2022, Pfizer's annual revenue exceeded $100 billion, making it the world's largest pharmaceutical company in terms of revenue. However, as the COVID-19 pandemic quickly receded, revenue fell by 41% in 2023, and revenue ranking also dropped from first to fourth. Recently, the well-known radical investment institution Starboard Value invested $1 billion in Pfizer. What changes will this bring to this pharmaceutical giant?

In 1849, Charles Pfizer and Charles Erhart founded Pfizer in New York, initially focusing on the production of chemical products. During World War II, Pfizer successfully mass-produced penicillin and launched oxytetracycline, officially entering the pharmaceutical industry. Since then, Pfizer has continued to expand through research and development and mergers and acquisitions, launched blockbuster drugs such as Norvasc and Viagra, and gradually became a leading global pharmaceutical company. Since the 21st century, Pfizer has topped the list of the top 50 pharmaceutical companies in the world (Pharm Exec Top50) from 2001 to 2013, and is known as the "cosmic pharmaceutical factory." In 2020, the COVID-19 coronavirus swept the world. Pfizer, in collaboration with BioNTech, quickly launched the mRNA COVID-19 vaccine Comirnaty, and independently developed the oral COVID-19 drug Paxlovid.

Thanks to the popularity of these two new crown products, Pfizer's sales revenue reached US$72.043 billion in 2021, and Pfizer's revenue in 2022 exceeded US$100 billion, reaching US$100.3 billion, setting a record in the company's 174-year history. Among them, the sales of COVID-19 vaccine Comirnaty in 2022 were US$37.8 billion, and the sales of new crown oral drug Paxlovid in 2022 were US$18.9 billion, with a total revenue of US$56.7 billion from new crown-related products. However, the epidemic soon changed, and the sales of new crown products in 2023 did not continue to sell well as Pfizer expected.

In 2023, Comirnaty and Paxlovid had a total sales of US$12.5 billion, far lower than the US$21.5 billion expected by Pfizer management. In 2024, the two products continued to decline sharply, and Pfizer did not achieve the expected growth. Perhaps the COVID-19 epidemic changed too quickly, and Pfizer did not respond enough, resulting in a sharp decline in revenue. The full-year revenue in 2023 was US$58.5 billion, a year-on-year decrease of 41%. In the capital market, Pfizer's current share price is less than $30, down 50% from its high of nearly $60 in December 2021, and even slightly lower than the pre-pandemic level.

Recently, Starboard prepared a presentation for Pfizer's investor summit, discussing Pfizer's market performance, R&D pipeline, and M&A investments. First, he affirmed Pfizer's contribution to the COVID-19 pandemic, but he believes that Pfizer's subsequent performance lags behind its peers and the market, including R&D pipelines that are not as good as expected and huge mergers and acquisitions that have not brought the expected returns.

In terms of R&D, Pfizer set a goal in 2018 to launch 15 "blockbuster" products in the next five years. However, looking back at these pipelines, Pfizer has encountered many challenges. In the past few years, in addition to its success in COVID-19 products, Pfizer has also launched a number of innovative drugs, such as: Vyndaqel (tafamidis meglumine) is an oral TTR stabilizer developed by Pfizer. It was approved by the US FDA in 2019 and is the first and only drug to treat ATTR-CM. In 2023, the sales of Vyndaqel series drugs were US$3.32 billion, and in the first half of this year, the sales of the drug were US$2.46 billion, a year-on-year increase of 68%.

PCV20 (Prevnar 20, 20-valent pneumococcal conjugate vaccine) successfully replaced PCV13 and became a highlight of Pfizer's performance. After the RSV vaccine Abrysvo was approved in May 2023, it generated US$890 million in revenue in the first year. However, there are also many projects that did not meet expectations. For example, although Bavencio has been approved by regulators for marketing, it is still far from the "blockbuster" threshold (US$1 billion). In addition, Pfizer terminated its cooperation with Merck in March 2023 and transferred the relevant rights to Merck. The two new autoimmune drugs Cibinqo (JAK1) and Litfulo (JAK3) have also been slow to release.

In addition, new drugs such as C.Difficile vaccine, Rivipansel, and Tanezumab have not been successfully approved for marketing, and the results of a Phase III study of its blockbuster breast cancer drug Ibrance were not good. In the hot field, Bourla sees the GLP-1 project as a potential $10 billion product. However, due to safety and other issues, Pfizer terminated the development of the second-generation small molecule GLP-1R drug lotiglipron (PF-07081532). Danuglipron (twice daily oral) also has a high withdrawal rate due to side effects. Later, Pfizer launched an improved version of danuglipron that is taken orally once a day. Currently, its two indications for the treatment of type 2 diabetes and obesity are both in clinical phase I. Another oral small molecule GLP-RA drug PF-06954522 is also still in clinical phase I, and its progress lags behind its competitors.

In terms of mergers and acquisitions, after Pfizer obtained abundant cash flow from the new crown products, its "huge mergers and acquisitions" gene awakened, and it spent $43 billion to acquire ADC company Seagen. Since the outbreak, Pfizer has spent as much as $70 billion on mergers and acquisitions. However, these mergers and acquisitions failed to bring the expected returns. Seagen brought Pfizer $1.587 billion in revenue in the first half of 2024. But this is still a long way from Pfizer's previous forecast that "by 2030, Seagen's series of products are expected to contribute more than $10 billion in annual sales."

In addition, Pfizer acquired Global Blood Therapeutics for $5.4 billion in 2022 and obtained the sickle cell disease drug Oxbryta (voxelotor). But recently, out of consideration for the best interests of patients, Pfizer withdrew this drug from the global market. To make matters worse, in 2022, Pfizer acquired ReViral for $525 million, and the two RSV candidate drugs Sisunatovir and RV-299 (RSV N protein inhibitor) obtained were also successively removed from Pfizer's pipeline.

Is the turning point coming? Pfizer seems to have encountered considerable challenges in both self-developed and externally introduced pipelines. The COVID-19 pandemic has changed too quickly, and Pfizer's COVID-19 products have failed to bring the company the expected revenue, and there are more and more doubts about Pfizer. At this time, Starboard Value invested $1 billion in Pfizer. Although its shares account for less than 1% of Pfizer's total market value, it can persuade other shareholders to join its ranks in various ways and force management to adjust its strategy.

It is reported that Starboard Value was founded by Jeff Smith and has a strong style. It is one of the most "feared" aggressive investment institutions on Wall Street. Its usual investment strategy is to hold part of the company's equity and try to put pressure on the company's management and board of directors to promote the company's strategic adjustments, cut costs, promote mergers and acquisitions and reforms to optimize operational efficiency, enhance value, and bring higher returns to shareholders.

This time, Starboard Value held Pfizer accountable, pointing out a series of reasons for its decline in market value, including unsuccessful internal research and development, low pipeline valuations, limited returns from huge mergers and acquisitions, and failure to achieve expected business goals. It urged Pfizer to reduce costs and improve efficiency and adjust its strategy. In fact, Pfizer has already begun to adjust. In 2023, Pfizer announced a plan to cut $4 billion in expenses. In May of this year, it announced a new plan to cut another $1.5 billion in expenses by the end of 2027. Based on these two plans, Pfizer has made multiple layoffs last year and this year. In terms of personnel, Pfizer has also made frequent adjustments, hiring Tina Deignan, former senior vice president of Novartis's US oncology business, as head of oncology commercialization to help the company achieve its goal of selling eight blockbuster drugs by 2030. In addition, Dr. Mikael Dolsten, Pfizer's chief scientific officer and president of research and development, will also leave, and Pfizer is looking for the next head of the research and development department. Whether or not it is subject to the pressure of Starboard Value, Pfizer has begun to change, and I believe that in the near future, we will see a new look of this pharmaceutical giant.

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