On Sunday, 55-year old Pfizer (PFE: Charts, News, Offers) CEO Jeffrey Kindler announced his retirement after four and a half years at the helm of the world’s largest drug company by sales, citing stress and fatigue as the reasons for his sudden departure. He will be replaced by 57-year old Ian Read, who has been with the company since 1978. Kindler led the company through troubled times, as pharmaceutical giant’s stock price lagged behind rivals Novartis (NVS: Charts, News, Offers), GlaxoSmithKline (GSK: Charts, News, Offers) and Merck (MRK: Charts, News, Offers). Like many other biotech stocks, Pfizer has been dumped by investors out of fear of patent expirations, cheap generic drugs and a drying pipeline. While the 4.7% quarterly dividend yield of 18 cents still attracts dividend investors to the stock, does Pfizer have any chance to escape the bearish sentiment weighing on big pharmaceutical stocks?
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Kindler’s greatest challenge during his tenure as CEO was the upcoming June 2011 patent expiration of its best-selling drug, Lipitor, the trade name of devastating, a drug used to lower blood cholesterol. This drug alone accounted for $11.4 billion of Pfizer’s $60 billion in sales last year. The company attempted to offset the imminent loss by its massive $68 billion takeover of its rival Wyeth, which added the Enbrel arthritis treatment and Prevnar 13 pneumonia vaccine to its pipeline. Pfizer also announced favorable clinical trials for its cancer drug, crizotinib, and its rheumatoid arthritis drug, tasocitinib, which analysts have both earmarked for potential blockbuster sales. The company also has a foothold in emerging markets such as China, and has much room to grow in these areas despite domestic stagnation.
Kindler also divided Pfizer into business units in order to increase production efficiency and clarify which units’ profits and losses were dragging the company down. While this idea was sound on paper, the reorganization was messy and the lines of authority were unclear. Coupled with the massive merger with Wyeth, this restructuring of the company caused confusion among its 100,000 global employees. The company also had a major setback in 2008 spending $2.8 marketing its inhalable insulin, which surprisingly failed in the market. In 2009, the company was also fined $2.3 billion for the illegal promotion of its painkiller Bextra, which was known to cause cardiac problems and stroke in patients. Pfizer hit three discouraging roadblocks in March 2010. The company’s experimental Alzheimer’s drug Dimebon, which had the potential to earn $5 billion annually, failed and was abandoned. Its kidney and stomach cancer drug, Sutent, failed to shrink breast tumors, and its lung cancer drug figitumumab failed as well. Last month, Pfizer’s joint venture with Bristol-Myers Squibb in production of an experimental blood thinner apixaban was halted due to an increase in bleeding in patients which offset the cardiac benefits of the drug. The drug was intended to prevent heart complications in patients with acute coronary syndrome. Kindler also cut the company’s dividend to help the company integrate Wyeth, and his long-term guidance disappointed investors.
Jeffrey Kindler was a surprising choice to head Pfizer back in 2006, due to his background at McDonald’s in a field dominated by pharmaceutical insiders. Speaking of his trying times at Pfizer, Kindler stated, “The combination of meeting the requirements of our many stakeholders around the world and the 24/7 nature of my responsibilities has made this period extremely demanding on me personally.” His replacement, Ian Read, has a long history at Pfizer and since 2006 has headed the pharmaceutical sales businesses segment of the company, which accounted for 85% of the company’s revenue.
Investors seemed to initially cheer Kindler’s departure, bidding the stock up 1.5% in morning trading on Monday. Many pundits believe that Kindler’s retirement may have been involuntary, given the long series of fumbles during his term. The stock currently trades at 22 times earnings and has a PEG ratio of 2.33, both neutral signs. However, the forward P/E of 7.4 and its high yielding dividend may be enough to attract some patient income investors to this stock. In addition, there is constantly speculation that Pfizer, with a market cap of 135.77 billion, will eventually buy out the smaller struggling biotechs, such as Gilead Sciences (GILD: Charts, News, Offers) to diversify its all-important pipeline and become one of the last biotechs standing following market-wide consolidation.
Other News About PFE
Pfizer CEO Kindler Quits After Stock Underperforms 97% of S&P
Kindler throws down the towel as Ian Read attempts to revive Pfizer.
Pfizer Drug Fails to Beat Novartis’s Gleevec in Trial
More bad news for Pfizer as Novartis beats it to the punch in leukemia drugs.
Other Stocks in the News
Gilead Sciences: Expanding Product Portfolio and Attractively Valued
Gilead’s shares have been stuck in a rut as investors worry about its next big drug.
Novartis’s Tasigna Medicine Beats Existing Gleevec Drug in Leukemia Study
Novartis successfully expands its pipeline into leukemia drugs.
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Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
