New York - Wall Street initially welcomed the abrupt departure of Pfizer CEO Jeffrey Kindler, but quickly turned to questions about the condition of the pharmaceutical company and the behaviour of its board.
Many analysts were amazed that the world's top drugmaker - a Dow component company, worth $130-billion - could lose its chief without warning on a Sunday night and with no explanation beyond a claim that the job was simply too tiring for Kindler.
The Pfizer board immediately promoted company veteran and global head of pharmaceutical operations Ian Read, apparently not bothering with a wider CEO search.
“It has to raise some red flags, and if nothing else, it's poor communication by Pfizer,” said Tom Villalta, lead portfolio manager for Jones Villalta Opportunity Fund.
“Couldn't the transition have been done more tactfully?” Villalta said. “I like Read's marketing experience and don't think he's a bad choice. But this is a weird way to replace the CEO of one of the largest companies in the world.”
Shares of Pfizer rose as much as 2.2 percent on the news of Kindler's resignation, as investors hoped Read would push through asset sales, cost cuts, share buybacks or higher dividends to boost the company's lacklustre share price.
But the stock ended the day barely higher with a rise of 0.4 percent, as the suddenness of the news suggested disorganisation at Pfizer.
Mike Krensavage, principal at Krensavage Management LLC and a long-time drug industry watcher, said Kindler, 55, had yet to lead Pfizer through the biggest challenge in its history: the US patent expiration of its top-selling Lipitor cholesterol drug in November 2011.
“It's a big surprise,” Krensavage said. “Companies usually have a more orderly change of leadership.”
Nell Minow, editor of GovernanceMetrics International, an independent research firm specialising in corporate governance, said boards have become “a bit trigger-happy when it comes to CEOs,” calling it the “new normal”.
“We're living in an off-with-his-head environment,” Minow said. “I'm not saying they should have given him more time. I am saying they should have been clearer with him about what they wanted... This situation reflects poorly on the board. It makes them look impulsive and desperate.”
Still, few shed tears over Kindler's exit. Over the course of his tenure, which began in July 2006, Pfizer's shares have lost 27 percent of their value, underperforming a 10 percent decline in the NYSE Arca Pharmaceutical index of large drugmakers.
A lawyer by trade, Kindler was previously Pfizer's general counsel and before that led the McDonald's owned Boston Market restaurant chain.
Analysts said Read could be more active since he knows the pharmaceutical business inside out.
“I have long thought it would be very positive if Kindler left,” said Jordan Schreiber, senior investment officer of Princeton Capital Management Inc. “The manner was highly unusual, but I'm glad he's gone.”
Kindler said in a statement issued by Pfizer on Sunday night that the job had been “extremely demanding” and that he wanted to “recharge my batteries.” He was also replaced by Sanofi-Aventis CEO Christopher Viehbacher as chairman at the Pharmaceutical Research and Manufacturers of America trade group.
“People are hopeful there will be some more aggressive restructuring that takes place within Pfizer,” said Edward Jones analyst Linda Bannister. “We're up against the patent expiration of Lipitor...It's right around the corner.”
Kindler's departure comes more than a year after Pfizer completed the signature move of his tenure - the $67-billion acquisition of rival Wyeth.
That acquisition, which brought Pfizer more access to biotech drugs and vaccines as well as cost cuts, was intended to help Pfizer move through the decline of Lipitor. But the deal has failed to spur stock gains.
Goldman Sachs analyst Jami Rubin said she had “long argued that Pfizer should be more aggressive in achieving greater efficiencies in both its $28.5-billion operating expenses base as well as its massive balance sheet and portfolio of various businesses, some of which should be divested.”
“We are delighted to see the board taking action as Pfizer's share price continues to underperform amid a flurry of questions about strategic direction,” Rubin said in research note.
JPMorgan analyst Chris Schott said the CEO change could lead to more aggressive actions at Pfizer, including share repurchases or dividend increases.
“While a CEO transition in the midst of a major merger integration will likely create added uncertainty with the story, the key question, in our view, remains on the changes this transition will bring to the Pfizer story,” Schott said in a research note.
Rubin of Goldman Sachs called Read, who joined Pfizer in 1978, a “seasoned executive with over 20 years of experience running many different regions and businesses in pharma”.
“Some investors may be concerned that the new CEO may not shake up the company to the degree that some would like to see, but he has the ability to focus the strategy and get the ship going in the right direction,” Rubin said.
But Read can only do so much restructuring, and the company will need some promising experimental drugs to succeed, Edward Jones' Bannister said, citing drugs in development for pain, rheumatoid arthritis, blood clots and Alzheimer's disease.
“In order for the stock to really start to move on a sustainable basis, it's going to have to come from positive results from their pipeline,” Bannister said.
Pfizer's shares ended up seven cents at $16.80 on the New York Stock Exchange. - Reuters