Pfizer non-turnaround claims boss as victim

December 6, 2010

Pfizer’s boss Jeffrey Kindler has quit, saying he is tired—perhaps of impatient investors calling for him to step down. Kindler made one sensible big deal and some mistakes, but shareholders lost about 20 percent of their investment during his 4-1/2 year tenure. Even so, whether he jumped or was pushed it’s far too early to judge him.

The problem is pharma’s glacial timescale. Drug companies pour billions into research and development, yet the fruits aren’t evident for years. Pfizer’s most pressing concern is replacing revenue which will be lost in 2011 when patent protection expires on the company’s high cholesterol treatment Lipitor, which brought in $11 billion of revenue in 2009. The drug was first synthesized in 1985 by a company swallowed by Pfizer in 2000. And the research that led to this class of drugs was performed by a Japanese company in the early 1970s.

The slowness and uncertainty of any payoff from R&D is one reason drug group bosses like to buy other companies — as Kindler did with the $68 billion purchase of Wyeth. M&A activity brings growth and cost savings within an executive’s typical tenure. While it’s too early to assess fully the Wyeth deal, at least Kindler did it in early 2009 with the financial crisis still fresh, so he didn’t overpay. But the hidden costs of such deals may not appear until several years later. Size, for instance, seems to make firms less productive at discovering new drugs.

When he was appointed, Kindler talked of rejuvenating Pfizer’s drug pipeline and tried to accomplish this by splitting R&D into smaller groups. There’s little sign of success as yet—but the process can take a decade or more, so in this case it’s the upside that may not be known for a long time.

Along the way, Kindler paid $225 million to acquire the rights to an allergy pill touted as an Alzheimer’s treatment based on trials performed in the unreliable Russia market. The drug bombed, one of several errors to hit his reputation with investors.

But in the end it may be the failure to turn around Pfizer’s share price that cost Kindler his corner office at the age of 55. The 57-year-old Ian Read, who replaces him, will now get his chance to create his legacy—out of his own and his predecessors’ actions.

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