What activist Starboard’s stake means for Pfizer

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Glad Tuesday! Pfizer‘s troubles may finally be coming to a head. 

Former executives of the pharmaceutical giant are backing a push by activist investor Starboard Value to show across the struggling company, in accordance with recent reports. 

Starboard has a roughly $1 billion stake within the drugmaker and approached former Pfizer CEO Ian Read and ex-CFO Frank D’Amelio, each of whom expressed interest in supporting the activist investor’s efforts to shake up the corporate, CNBC previously reported. As of late Tuesday, Pfizer has a market cap of roughly $165 billion. 

Read and D’Amelio relayed proposals from Starboard to several members of the corporate’s board on Sunday, the Financial Times reported on Monday, citing sources acquainted with the conversations. Still, the main points of the turnaround plan are scant. 

Read was Pfizer’s CEO from 2010 through 2018, while D’Amelio was Pfizer’s chief financial officer from 2007 to 2021.

Here’s why it matters: Read and D’Amelio’s reported involvement is a rare instance of former executives engaging in what may very well be an activist fight for the longer term of certainly one of the biggest pharmaceutical firms on this planet.

Investors have been clamoring for change at Pfizer, whose shares are down greater than 30% over the past two years. The corporate has struggled to get better from the rapid decline of its Covid business, which raked in record-breaking revenue through the peak of the pandemic. 

Pfizer CEO Albert Bourla is facing mounting pressure to enhance the corporate’s performance after several business missteps over the past two years – including disappointing data on an experimental obesity pill and a slower-than-expected launch of a respiratory syncytial virus vaccine – together with a costly M&A method that has yet to yield significant returns. 

Pfizer is betting big on oncology, and particularly its whopping $43 billion acquisition of cancer drug developer Seagen, to regain its footing. But that deal may take years to repay. Meanwhile, Pfizer last month pulled a key sickle cell disease drug from global markets – the centerpiece of its roughly $5 billion buyout of Global Blood Therapeutics in 2022. 

Starboard’s turnaround push raises questions on Bourla’s fate at the corporate. 

“We have sensed investor frustration with CEO Albert Bourla since not less than the start of 2023,” BMO Capital Markets analyst Evan Seigerman wrote in a research note Monday. 

Still, he said, “While placing blame on one person could appear easy, rarely will it lead to a fast turn-around.”

Other analysts similarly said there could also be no quick fix by an activist investor. 

“We await future developments, but we don’t see low-hanging fruit to spice up shareholder value,” Leerink Partners analyst David Risinger wrote in a research note on Monday. 

Risinger said that is because the corporate faces “revenue growth constraints” over the subsequent five years, driven by patent expirations for top-selling drugs and pressure from competitors. Pfizer has also pursued significant cost-cutting efforts, he added. The corporate last fall announced that it could cut $4 billion in costs and in May disclosed one other multi-year plan to slash roughly $1.5 billion in expenses by 2027. 

Pfizer’s debt levels are also relatively high, Risinger noted, with $57.5 billion in debt as of June 30. He said which will only be partially reduced by selling more shares from its assets, reminiscent of the buyer health business Haleon. 

We’ll proceed to follow Starboard’s turnaround push, so stay tuned for our coverage.

Be at liberty to send any suggestions, suggestions, story ideas and data to Annika at annikakim.constantino@nbcuni.com.

Shares of Hims & Hers Health, a direct-to-consumer health-care company, closed 10% higher on Monday following the announcement that the stock is being added to the S&P SmallCap 600. 

The S&P Dow Jones Indices said Hims & Hers will replace Vector Group ahead of the opening bell on Oct. 9, in accordance with a release Friday. Japan Tobacco accomplished its acquisition of Vector Group, which operates tobacco and real estate businesses, on Monday.

Hims & Hers offers treatments for weight reduction, sexual health, hair loss and other conditions, and the stock is up nearly 120% yr thus far as of Monday’s close. Nonetheless, shares of the corporate tumbled last week after the U.S. Food and Drug Administration announced tirzepatide injections aren’t any longer in shortage. 

Tirzepatide is the energetic ingredient in Eli Lilly’s GLP-1 weight reduction drug Zepbound and diabetes drug Mounjaro. Hims & Hers doesn’t offer these medications through its platform, but CEO Andrew Dudum told investors in August that the corporate was trying to introduce access to compounded versions within the near future, in addition to the branded versions when supply allowed. 

Compounded medications are custom-made alternatives to the brand drugs, and so they could be produced when brand-name treatments are in shortage. Hims & Hers has been offering customers compounded versions of semaglutide, the energetic ingredient in Novo Nordisk’s GLP-1s called Wegovy and Ozempic.

“We do not offer access to tirzepatide presently,” a Hims & Hers spokesperson told CNBC in an announcement Monday. “Each time we bring a treatment to our platform, our first consideration is how accessible it’s going to be for the big majority of consumers and accessible means consistently available at an affordable price.”

Hims & Hers is certainly one of several digital health firms selling compounded GLP-1 medications as a less expensive alternative for consumers while demand for the burden loss and diabetes drugs spikes. But they don’t seem to be a foolproof option to carve out a bit of the anti-obesity drug market, which some analysts estimate could generate $100 billion in annual revenue by 2030.

Each Zepbound and Mounjaro are under patent protection within the U.S., and Eli Lilly doesn’t supply the energetic ingredient of those two drugs to outside groups. The FDA warned last week that outsourcing facilities are generally restricted from compounding copies of an approved drug unless it’s on the shortage list. 

“When a drug shortage is resolved, FDA generally considers the drug to be commercially available,” the agency said on its website. “Certain amounts are permissible under the law so long as the compounding isn’t done ‘recurrently or in inordinate amounts.'”

Though Hims & Hers doesn’t offer compounded tirzepatide, the FDA’s announcement was enough to spook investors. Shares of Hims & Hers closed down nearly 10% on Thursday.  

Analysts at Citi said that Hims & Hers won’t be directly impacted by the tirzepatide news, however it does limit the corporate’s total addressable market. It also suggests that shortages could resolve faster than anticipated, they added.

“HIMS has maintained that it’s going to have the option to proceed to compound GLP-1s after shortages abate by changing the shape factor/formulation/dosage for the clinical good thing about a person,” the analysts wrote in a Thursday note. “In our view, this sets HIMS up for a legal battle in the approaching months.” 

Be at liberty to send any suggestions, suggestions, story ideas and data to Ashley at ashley.capoot@nbcuni.com.