Pfizer CEO Kindler, 55, unexpectedly replaced
Monday, December 6, 2010
Pfizer Inc. abruptly replaced its CEO and chairman Sunday, saying Jeffrey B. Kindler was retiring after 4 1/2 years leading the world’s biggest drugmaker to “recharge.”
Analysts saw the unexpected departure as an ouster, however, coming amid repeated failures from Pfizer’s labs to produce new, much-needed blockbuster drugs, multiple patent expirations that threaten its income and a questionable strategy of relying on acquisitions and cost cutting to overcome those mammoth problems.
The move, announced unexpectedly late Sunday night, may be an attempt to palliate investors unhappy with Pfizer’s languishing stock price, which is well below that of its peers and down about 30 percent since Kindler took the helm.
Ian Read, 57, a 32-year Pfizer employee who has run Pfizer’s worldwide pharmaceutical operations since 2006, took over immediately as chief executive and president. The board appears to want a tighter rein for now, saying it will elect one of its members as a non-executive chairman within the next two weeks.
Kindler, who reorganized most of the New York-based company’s operations in an effort to maintain sales, said he plans to “recharge my batteries” and spend more time with his family while preparing for new challenges, according to a company statement. It gave no further details.
“I think what you’re seeing is board frustration,” said analyst Steve Brozak of WBB Securities.
He said Kindler’s latest big acquisition, a pending $3.6 billion deal for pain drug maker King Pharmaceuticals, may have been the last straw for the board. He noted Pfizer also mysteriously backed out of at least one partnership with a small biotech company whose experimental drug subsequently did well in an important clinical study.
Kindler, a Harvard Law School graduate and former McDonald’s Corp. executive who joined Pfizer in 2002, revamped its sprawling pharmaceutical sales operation into five divisions that gave their leaders more control and responsibility. That shift boosted revenue in emerging markets — currently the industry’s key target — and stabilized sales of older medicines hit by generic competition in wealthy countries by promoting them heavily elsewhere.
Kindler also arranged a huge acquisition that ensures Pfizer remains the pharmaceutical industry’s revenue leader for a while, buying Wyeth for $68 billion in October 2009.
The deal transformed Pfizer overnight from a maker of blockbuster pills such as cholesterol fighter Lipitor, the world’s top seller at nearly $13 billion a year, to a highly diversified company. It gained a lucrative biologic drug business, veterinary medicines and consumer health products including Centrum vitamins and Advil and Anacin pain relievers.
But that deal and Kindler’s other moves have not been enough to compensate for Pfizer’s biggest problem: Lipitor loses U.S. patent protection in a year and will see billions in sales evaporate almost overnight.
Les Funtleyder, health care portfolio manager at Miller Tabak, said he thinks managers of pension and other institutional funds were as frustrated as Pfizer’s board, given that other drugmakers have generally performed better. Most of Pfizer’s peers have stock prices two or three times its current $17.62.
The company also halved its coveted dividend to help pay for Wyeth, which infuriated investors and drove down the stock price. It has only risen $1.10 in the 23 months since the deal was announced.
“He was dealt a difficult hand when (a promising cholesterol drug called) torcetrapib failed and there was no successor to Lipitor,” Funtleyder said, adding, “He might have done a better job.”
He called the sudden move suspicious in an industry known for orderly transitions announced well in advance.
By comparision, No. 2 drugmaker Merck & Co. last week said that Kenneth C. Frazier, head of its pharmaceutical business since 2007, will take over Jan. 1 as CEO from Richard T. Clark, who reaches mandatory retirement age early next year. Frazier’s succession was telegraphed last May, when he was made company president, adding responsibility for Merck’s research labs and manufacturing operations as well as pharmaceutical sales.
The company declined Associated Press requests for interviews with Kindler and Read.
“Now that we are about to complete a full year of operating Pfizer and Wyeth together, with our world-class team fully in place, I have concluded the time is right to turn the leadersip of the company over to Ian Read,” Kindler said in a statement.
As the chairman of the trade group Pharmaceutical Research and Manufacturers of America, Kindler was instrumental in lining up drugmaker support for this year’s health care overhaul in a deal that ultimately will bring those companies more customers and sales. The industry had helped defeat the Clinton adminstration’s attempt to reform health care in 1994.
Constance J. Horner, the lead independent director of Pfizer’s board, said in the company statement that Kindler had recruited talented new leaders and made the company stronger and more focused.
But in recent years, Pfizer has suffered multiple failures of promising experimental drugs in the very-expensive late stages of testing, plus other problems. In September 2009, the company got hit with a record $2.3 billion government fine for illegally promoting a number of medicines for unapproved uses that were inappropriate for some patients — a widespread industry practice.
“This is probably a wake-up call for every other CEO that thinks they can buy their way out of a problematic health care market” with acquisitions, Brozak said.
Read was promoted in 2006 to head the global pharmaceutical business, which brings in about 85 percent of Pfizer’s revenue, or $61 billion a year. It sells everything from pain drug Lyrica and impotence pill Viagra to cancer drugs and specialty medicines, generally pricey injected drugs for complex, chronic diseases.
Horner said Read’s track record shows he understands global markets and can quickly adapt to competitive pressures.
Read began his career at Pfizer as an operational auditor in 1978, but his undergraduate training was in chemical engineering.
He moved up through leadership positions in Pfizer’s Latin America operations, then oversaw operations in Europe, Canada and other areas. By 2002, he was head of operations in Latin America, Africa and the Middle East.