What activist Starboard's participation means for Pfizer

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Happy Tuesday! PfizerThe problems may finally be coming to a head.

According to recent reports, former executives of the pharmaceutical giant are backing an initiative by activist investor Starboard Value to turn around the struggling company.

Starboard has a roughly $1 billion stake in the drugmaker and approached former Pfizer CEO Ian Read and former CFO Frank. D'Amelio, who expressed interest in supporting the activist investor's efforts to restructure the company, CNBC previously reported. As of late Tuesday, Pfizer had a market capitalization of about $165 billion.

Read and D'Amelio conveyed Starboard's proposals to several members of the company's board of directors on Sunday, the Financial Times reported on Monday, citing sources familiar with the conversations. Still, details of the recovery plan are scarce.

Read was CEO of Pfizer from 2010 to 2018, while D'Amelio was CFO of Pfizer from 2007 to 2021.

Here's why it matters: Read and D'Amelio's alleged involvement is a rare example of former executives involved in what could be an activist fight over the future of one of the world's largest pharmaceutical companies.

Investors have been clamoring for a turnaround at Pfizer, whose shares have fallen more than 30% over the past two years. The company has struggled to recover from the rapid decline of its Covid business, which saw record revenue during the peak of the pandemic.

Albert Bourla, Pfizer's chief executive, faces increasing pressure to improve the company's performance after several business missteps over the past two years, including disappointing data on an experimental anti-obesity pill and a slower launch of the expected of a vaccine against respiratory syncytial virus, along with an expensive mergers and acquisitions strategy that has not yet yielded significant results.

Pfizer is betting big on oncology, and in particular its huge $43 billion acquisition of cancer drug developer Seagen, to regain its footing. But that agreement may take years to bear fruit. Meanwhile, Pfizer last month pulled a key sickle cell anemia drug from global markets, the centerpiece of its roughly $5 billion purchase of Global Blood Therapeutics in 2022.

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

“We have felt investor frustration with CEO Albert Bourla since at least early 2023,” BMO Capital Markets analyst Evan Seigerman wrote in a research note on Monday.

Still, he said, “while blaming one person may seem easy, it will rarely result in quick change.”

Other analysts similarly said there may not be a quick fix from an activist investor.

“We look forward to future developments, but do not see easy-to-achieve results to increase shareholder value,” Leerink Partners analyst David Risinger wrote in a research note on Monday.

Risinger said that's because the company faces “revenue growth constraints” over the next five years, driven by patent expirations on top-selling drugs and pressure from competitors. Pfizer has also made significant cost-reduction efforts, he added. Last fall, the company announced it would cut $4 billion in costs and in May revealed another multi-year plan to cut 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. It said that figure could only be partially reduced by selling more shares of its assets, such as consumer health business Haleon.

We will continue to follow Starboard's recovery momentum, so stay tuned for our coverage.

Feel free to send any tips, suggestions, story ideas, and facts to Annika at [email protected].

Actions of Health for him and hera direct-to-consumer healthcare company, closed up 10% on Monday following the announcement that the stock will be added to the S&P SmallCap 600.

S&P Dow Jones Indices said Hims & Hers will replace Vector Group before the opening bell on Oct. 9, according to a statement Friday. Japan Tobacco on Monday completed the acquisition of Vector Group, which operates tobacco and real estate businesses.

Hims & Hers offers treatments for weight loss, sexual health, hair loss and other conditions, and shares are up nearly 120% so far this year through Monday's close. However, the company's shares plummeted last week after the US Food and Drug Administration announced that there is no longer a shortage of tirzepatide injections.

Tirzepatide is the active ingredient in Eli Lilly's weight-loss drug GLP-1 Zepbound and diabetes drug Mounjaro. Hims & Hers does not offer these drugs through its platform, but CEO Andrew Dudum told investors in August that the company was looking to introduce access to compounded versions in the near future, as well as branded versions. when supply permitted.

Compounded medications are customized alternatives to brand-name medications and can be produced when brand-name treatments are in short supply. Hims & Hers has been offering customers compounded versions of semaglutide, the active ingredient in Novo Nordisk's GLP-1s called Wegovy and Ozempic.

“We do not offer access to tirzepatide at this time,” a Hims & Hers spokesperson told CNBC in a statement Monday. “Whenever we bring a treatment to our platform, our first consideration is how accessible it will be to the vast majority of customers and what accessible means will be consistently available at a reasonable price.”

Hims & Hers is one of several digital health companies selling GLP-1 compounded drugs as a cheaper alternative for consumers as demand for weight loss and diabetes drugs increases. But they are not a foolproof way to grab a piece of the obesity drug market, which some analysts estimate could generate $100 billion in annual revenue by 2030.

Both Zepbound and Mounjaro are under patent protection in the United States, and Eli Lilly does not supply the active ingredient in those two drugs to outside parties. The FDA warned last week that outsourcing facilities generally cannot prepare copies of an approved drug unless it is on the shortage list.

“When a drug shortage is resolved, the FDA generally considers the drug to be commercially available,” the agency said on its website. “Certain quantities are permitted by law as long as the compounding is not done 'regularly or in excessive quantities.'”

Although Hims & Hers does not offer compounded tirzepatide, the FDA announcement was enough to spook investors. Shares of Hims & Hers closed down nearly 10% on Thursday.

Citi analysts said Hims & Hers won't be directly affected by the tirzepatide news, but it does limit the company's overall addressable market. It also suggests the shortage could be resolved faster than anticipated, they added.

“HIMS has maintained that it will be able to continue manufacturing GLP-1 after the shortage eases by changing the form/formulation/dose factor for an individual's clinical benefit,” the analysts wrote in a Thursday note. “In our view, this sets HIMS up for a legal battle in the coming months.”

Please feel free to send any tips, suggestions, story ideas, or information to Ashley at [email protected].