Looking beyond the spin of Big Pharma PR. But encouraging gossip. Come in and confide, you know you want to! “I’ll publish right or wrong. Fools are my theme, let satire be my song.”
Email: jackfriday2011(at)hotmail.co.uk
Give it a year or two and you will have a Carl Icahn (or even Dan Vasella via a hostile bid) to take Pfizer and its board out of misery. And this is not because of the recent decision to exit CV – that arguably is the right decision. Rather it is due to a fundamental failure in multiple areas of good corporate stewardship by Pfizer’s board – first with their toleration of Hank McKinnell’s tenure and then with their pick of Jeff Kindler. McKinnell’s screw ups are well documented, so let me focus on what Kindler’s to date performance has been like.
First, the board was correct in recognizing that they needed a radical change of direction following McKinnell and so they were right in not picking Shedlarz or Katen – that would have been akin to a ‘third Bush term’. But the board seriously erred in picking Corporate Counsel and former fast food executive Jeff Kindler. Kindler was probably a great Corporate Counsel and probably would have made a good VP of HR or Communication or Govt. Relations – but he is no CEO. Just as a comparison, see what Kindler has accomplished in over three years to what some of the other new big pharma CEOs have done in much shorter time frames – Jim Cornelius (BMS), Andrew Witty (GSK), Severin Schwan (Roche) and even John Lechleiter (LLY) with his new Imclone move. Compared to these folks, it is clear that there is a lack imagination, when it comes to Jeff Kindler.
To be sure, Kindler has done some positive things – focused research investments, streamlined manufacturing, laid off people and tried to make Pfizer more in the mold of GE via things like laying off the bottom x% each year and via six sigma initiatives etc. A couple of moves have been really gutsy like his decision to kill Exubera. But in the end, these are all reactive, defensive moves. Any semi-competent executive knows that Pfizer needs to cut costs. By not playing offense at all, Kindler has highlighted his lack of skills and expertise in corporate strategy and finance – two essential skills for any CEO. This has been remedied to some extent in recent months by hiring Frank D’Amelio as CFO and Bill Ringo as SVP of Strategy - but a CEO still needs enough gravitas in these areas to provide effective oversight and make the tough calls.
Pfizer has many long-term problems and Kindler has tried to address them by driving accountability via structures like business units with their own P&L responsibility. However Pfizer’s most pressing problem is the lack of any products to sell and here Kindler has done precious little. This is like trying to fix the leaky plumbing, unsightly landscaping and peeling paint on a house, while there is a fire raging in one of the rooms. Kindler and Pfizer’s board sat on one of Pfizer’s biggest assets - its $26 billion hoard of cash. Instead of deploying this asset toward earning a high RoI, Pfizer have opted to make it like a treasury bill via a dividend payout. Lack of products to sell also mean that some of Pfizer’s other assets (and comparative advantages), like its field force and marketing organizations are grossly underutilized.
Don’t get me wrong – I am not advocating another huge value destroying transaction like Pfizer-Pharmacia. Those types of transactions are quite risky given prevailing valuations and the integration challenges. Still, if Pfizer were to look carefully, I’m sure there are several mid-sized deals that can move the needle way more than the puny deals Pfizer have done so far. Besides Lilly with Imclone, look at some of the other mid-sized deals – Novartis buying Alcon, GSK entering the branded generics arena with Aspen, Abbott’s acquisition of Kos. One could convincingly argue that Pfizer could do more via mid-size deals and alliances.
Besides not playing offense, I feel that even some of Kindler’s defensive moves are flawed. Pfizer is not making light bulbs or aircraft engines. So everything that works for GE will not work for Pfizer. Laying the bottom x% every year does not fit functions like drug development which take many years. It may be better to lay off the bottom x% every 5 years. Andrew Witty knows the serendipitous nature of drug discovery and was quickly able to come up with a VC based funding model that has worked in other areas like biotech and IT. Despite some positive moves like venturing into biotech with Corey Goodman, Kindler seems lost when it comes to fixing Pfizer’s small molecule R&D.
It is time for Pfizer’s board to replace Kindler now – may be even Bill Ringo would make a better CEO. If Pfizer’s plan is to shrink and be smaller ex-Lipitor, the board will see a Carl Icahn or Dan Vasella or even a KKR at their doorstep by 2011.
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Give it a year or two and you will have a Carl Icahn (or even Dan Vasella via a hostile bid) to take Pfizer and its board out of misery. And this is not because of the recent decision to exit CV – that arguably is the right decision. Rather it is due to a fundamental failure in multiple areas of good corporate stewardship by Pfizer’s board – first with their toleration of Hank McKinnell’s tenure and then with their pick of Jeff Kindler. McKinnell’s screw ups are well documented, so let me focus on what Kindler’s to date performance has been like.
First, the board was correct in recognizing that they needed a radical change of direction following McKinnell and so they were right in not picking Shedlarz or Katen – that would have been akin to a ‘third Bush term’. But the board seriously erred in picking Corporate Counsel and former fast food executive Jeff Kindler. Kindler was probably a great Corporate Counsel and probably would have made a good VP of HR or Communication or Govt. Relations – but he is no CEO. Just as a comparison, see what Kindler has accomplished in over three years to what some of the other new big pharma CEOs have done in much shorter time frames – Jim Cornelius (BMS), Andrew Witty (GSK), Severin Schwan (Roche) and even John Lechleiter (LLY) with his new Imclone move. Compared to these folks, it is clear that there is a lack imagination, when it comes to Jeff Kindler.
To be sure, Kindler has done some positive things – focused research investments, streamlined manufacturing, laid off people and tried to make Pfizer more in the mold of GE via things like laying off the bottom x% each year and via six sigma initiatives etc. A couple of moves have been really gutsy like his decision to kill Exubera. But in the end, these are all reactive, defensive moves. Any semi-competent executive knows that Pfizer needs to cut costs. By not playing offense at all, Kindler has highlighted his lack of skills and expertise in corporate strategy and finance – two essential skills for any CEO. This has been remedied to some extent in recent months by hiring Frank D’Amelio as CFO and Bill Ringo as SVP of Strategy - but a CEO still needs enough gravitas in these areas to provide effective oversight and make the tough calls.
Pfizer has many long-term problems and Kindler has tried to address them by driving accountability via structures like business units with their own P&L responsibility. However Pfizer’s most pressing problem is the lack of any products to sell and here Kindler has done precious little. This is like trying to fix the leaky plumbing, unsightly landscaping and peeling paint on a house, while there is a fire raging in one of the rooms. Kindler and Pfizer’s board sat on one of Pfizer’s biggest assets - its $26 billion hoard of cash. Instead of deploying this asset toward earning a high RoI, Pfizer have opted to make it like a treasury bill via a dividend payout. Lack of products to sell also mean that some of Pfizer’s other assets (and comparative advantages), like its field force and marketing organizations are grossly underutilized.
Don’t get me wrong – I am not advocating another huge value destroying transaction like Pfizer-Pharmacia. Those types of transactions are quite risky given prevailing valuations and the integration challenges. Still, if Pfizer were to look carefully, I’m sure there are several mid-sized deals that can move the needle way more than the puny deals Pfizer have done so far. Besides Lilly with Imclone, look at some of the other mid-sized deals – Novartis buying Alcon, GSK entering the branded generics arena with Aspen, Abbott’s acquisition of Kos. One could convincingly argue that Pfizer could do more via mid-size deals and alliances.
Besides not playing offense, I feel that even some of Kindler’s defensive moves are flawed. Pfizer is not making light bulbs or aircraft engines. So everything that works for GE will not work for Pfizer. Laying the bottom x% every year does not fit functions like drug development which take many years. It may be better to lay off the bottom x% every 5 years. Andrew Witty knows the serendipitous nature of drug discovery and was quickly able to come up with a VC based funding model that has worked in other areas like biotech and IT. Despite some positive moves like venturing into biotech with Corey Goodman, Kindler seems lost when it comes to fixing Pfizer’s small molecule R&D.
It is time for Pfizer’s board to replace Kindler now – may be even Bill Ringo would make a better CEO. If Pfizer’s plan is to shrink and be smaller ex-Lipitor, the board will see a Carl Icahn or Dan Vasella or even a KKR at their doorstep by 2011.
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