Pfizer's Incoming CEO Represents Pipeline Push Over Dealmaking
(Bloomberg) -- Albert Bourla helped build Pfizer Inc.’s growing pipeline of drugs. Now he’ll run the biggest U.S. pharmaceutical company as it banks on that channel for future sales.
The New-York-based drugmaker said Monday that company veteran Bourla will succeed Ian Read as chief executive officer next year, a change that brings continuity but also symbolizes Pfizer’s recent shift toward emphasizing its laboratory over a larger merger or acquisition.
“It’s the strongest pipeline they’ve had in a long time, so giving him the reins means innovation and new products will be their focus,” said Ashtyn Evans, an Edward Jones & Co. analyst who rates the shares as buy. “They’ve done a generally good job building the pipeline, and he’s been the one in charge.”
Bourla, 56, the company’s chief operating officer, helped construct a path that’s already produced blockbuster cancer drug Ibrance, which now sells $3.1 billion annually. Pfizer projects regulatory approval of as many as 30 new drugs by 2022, with half of them potentially reaching $1 billion in sales. New scientific data led doctors to predict that one drug in the pipeline, tafamidis, could become a standard of care for a fatal heart condition.
The company is working toward lucrative -- if competitive -- areas such as rare diseases, oncology and personalized medicine. In July, Pfizer said it would spend more on research and development. It’s also building a factory to develop gene-therapy drugs and has a number of partnerships and investments in revolutionary cancer medicines known as CAR-T therapy.
The declaration to not look for a major takeover, repeated multiple times this year, is a pivot from Pfizer’s traditional acquisitive strategy. The drugmaker grew to become the largest U.S. drugmaker by revenue in part by gobbling up companies, which expanded its commercial reach and filled its labs with promising medicines. In 2016 alone, it acquired at least eight companies or product lines, including Medivation Inc. for $14 billion.
Investors, perhaps encouraged by the drugmaker’s pipeline, appear unfazed by the shift away from M&A. Pfizer shares are up 22 percent in 2018, making it one of the best performers in the Dow Jones Industrial Average.
Pfizer’s biggest deal ideas under the 65-year-old Read didn’t work out, including a proposed $160 billion merger with Allergan Plc and a $120 billion proposed takeover of British drugmaker AstraZeneca Plc. It also decided against splitting into two companies.
Pfizer’s aversion to a big deal will probably continue because of the executive transition but also because Bourla hasn’t suggested otherwise, said Jeff Jonas, a portfolio manager at Gabelli & Co, which holds shares of Pfizer.
“Ian’s obviously done some of those megadeals, and I don’t know that Albert is a big proponent of that,” Jonas said.
Success through its pipeline would make up for other setbacks, including disappointing sales in biosimilars, which are cheaper versions of biologic medicines. Pfizer is trying to turn around that segment, which grew through its biggest deal in a decade, the $17 billion acquisition of Hospira Inc. in 2015.
Some of Pfizer’s most successful drugs came from acquisitions, including blockbuster vaccine franchise Prevnar as part of the $68 billion Wyeth deal in 2009. Its current pipeline is no different. Tafamidis arrived through acquiring closely held FoldRx in 2010. Rivipansel, which is being tested in sickle-cell patients, is licensed from GlycoMimetics Inc.
There have been some cracks in the pipeline, however. In August, Pfizer said domagrozumab, which was being tested in patients with a deadly muscle disease, failed crucial mid-stage testing. The drugmaker said it will look to see if domagrozumab could have an effect on other diseases.
Still, there remain questions about the company’s long-term growth. Evans of Edward Jones said it’s difficult for a company with $52.5 billion in revenue to “move the needle” on just sales.
Analysts like John Boris at Suntrust Robinson Humphrey Inc. don’t expect the drugmaker -- which is sitting on billions of cash -- to abandon deals entirely. Boris, who rates the shares as hold, expects Pfizer to buy smaller companies or specific products, including those that treat infectious disease. In fact, Read said on a recent earnings call that gene-therapy medicines are one area it might consider a deal.
Despite Read’s past comments, a new CEO could mean a new strategy.
“I’ve seen pharma companies say that and then turn around do deals,” Brian Skorney, an analyst at Robert W. Baird & Co., said in an interview. “They feel like they’re the only ones who can recognize something special.”
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