The Hunter is now the Hunted

More than a decade later, the hunter became the hunted. With the ongoing Starboard conflict, Pfizer finds itself in almost the same spot as AZ did in 2014.

In 2014, AstraZeneca stood at a crossroads. The pharmaceutical giant, once a formidable player in the industry, faced significant challenges. A pipeline laden with failures and looming patent expirations cast doubt on its future, prompting speculation about its viability as a takeover target. In this turbulent landscape, Pascal Soriot, who took the helm as CEO in 2012, initiated a transformative strategy that not only thwarted attempts at acquisition but also set the company on a path to recovery.

As Pfizer grapples with similar pressures from activist investors like Starboard, there are critical lessons to be gleaned from AstraZeneca’s journey.

AstraZeneca in 2014

By 2014, AstraZeneca’s reputation was marred by a series of high-profile drug failures and an aging product portfolio. The company’s stock was vulnerable, prompting interest from larger competitors, including Pfizer, which made a bid to acquire AstraZeneca in a move that would have significantly reshaped the pharmaceutical landscape. However, Soriot was determined to chart a different course. He emphasized the importance of independence and the potential for revitalization through innovation rather than capitulation.

Soriot’s Strategic Vision

Pascal Soriot’s response to the crisis centered on a bold plan to refocus AstraZeneca’s efforts on research and development, particularly in oncology, respiratory, and cardiovascular diseases. He understood that in order to convince shareholders and stave off activist investors, he needed to present a compelling vision of the future. Key elements of his strategy included:

1. R&D Investment: Soriot increased investment in the company’s R&D pipeline, which was crucial in restoring confidence. By prioritizing high-impact therapeutic areas and streamlining the development process, he positioned AstraZeneca as a leader in innovation.

2. Collaborative Partnerships: AstraZeneca pursued strategic partnerships with biotech firms and academic institutions. These collaborations allowed for shared risk and accelerated development timelines, enhancing AstraZeneca’s capability to bring new drugs to market.

3. Operational Efficiency: Soriot implemented significant cost-cutting measures and streamlined operations, allowing AstraZeneca to reinvest in critical areas without sacrificing financial health.

4. Transparent Communication: Engaging transparently with shareholders and stakeholders about the company’s strategic direction was essential. Soriot communicated his vision clearly, emphasizing the long-term benefits over short-term gains.

Fighting Off Activist Investors

Soriot’s strategic vision faced skepticism from activist investors who sought immediate returns. However, he adeptly navigated this landscape through decisive action:

• Defensive Measures: AstraZeneca adopted defensive tactics against hostile takeovers, enhancing its shareholder engagement to ensure that investors understood the company’s long-term potential.

• Focus on Shareholder Value: Soriot’s narrative included a commitment to increasing shareholder value through sustainable growth, which resonated with investors looking for stability in a volatile market.

By 2019, these strategies bore fruit. AstraZeneca successfully launched several key drugs, significantly improving its market position and restoring investor confidence.

Lessons for Pfizer and Dr. Bourla

1. Focus on Long-Term R&D Investment: Just as AstraZeneca invested heavily in its drug pipeline to secure its future, Pfizer should focus on strengthening its R&D investments in key therapeutic areas, such as oncology and rare diseases, to ensure a strong long-term outlook.

Despite spending about $70 billion on acquisitions from its windfall Covid vaccine earnings, Starboard isn’t very happy about that. That’s because Pfizer expects those products to produce just $20 billion in returns (which Starboard thinks won’t be over $13 billion). Hence, the displeasure on capital allocation into pipeline assets. It argues Pfizer has suffered from a "lack of internal innovation from 2019 to 2023." 

2. Communicate a Clear Vision: AZ’s Soriot had a clear revenue goal and his focus on key disease areas helped regain investor confidence. Pfizer should articulate a similar clear vision for growth, outlining specific drug development goals and long-term revenue projections, which Starboard says, it currently does not have.

3. Resist Short-Term Pressures: Soriot resisted the temptation of accepting a high-value offer in exchange for AstraZeneca’s long-term potential. Pfizer’s board seems willing to push back against short-term pressure from Starboard if the company believes that long-term growth prospects from its pipeline justify patience. The fact that ex-CEO Ian Read and ex-CFO Frank D’Melio turned on Starboard to side with Pfizer management seems to indicate that.

4. Strengthen Strategic Partnerships: Just as AstraZeneca leveraged partnerships to accelerate drug development, Pfizer could consider more collaborations with biotech firms and academia to innovate and bring new products to market faster. While Pfizer has several such collaborations, the outcome isn’t very clear.

For investor companies like Starboard, it seems too much into the future. This is a clear demarcation from the cultural DNA that rules pharma. Very little is predictable for the capital intensive investments made into R&D inside the company as well as money invested into collaborations. There are more failures than successes, and this might look scary to opportunistic investors like Starboard. Which leads to point 5.

5. Defensive Strategies: Pfizer must be prepared to defend itself against activist investors. Engaging proactively with shareholders and reinforcing the value of long-term strategies can help deter takeover attempts.

The hunter of 2014 has become the hunted in 2024. What can it do to address investor concerns and build a successful long term strategy? Starboard offers no solutions. Instead it hopes to make changes in the Board of Directors to include people who might know what to do.

The resurgence of AstraZeneca under Pascal Soriot serves as a powerful case study for Pfizer as it navigates its current challenges. By embracing innovation, fostering strategic partnerships, communicating transparently, and adopting defensive strategies, Pfizer can position itself for a sustainable future. In a landscape marked by rapid change and investor pressure, these lessons are not just relevant—they are essential for thriving in the competitive pharmaceutical arena.