Pfizer’s Falling Share Price Couldn’t Be Cured

With Shares Down

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

The problem is pharma’s glacial timescale. Drug companies pour billions into research and development, yet the fruits don’t become evident for years. Pfizer’s most pressing concern is replacing revenue that will be lost in 2011 when patent protection expires on Lipitor, the company’s treatment for high cholesterol, which brought in $11 billion in 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 research and development is one reason drug group bosses like to buy other companies, as Mr. Kindler did with the $68 billion acquisition of Wyeth. Mergers and acquisition 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 Mr. Kindler did it in early 2009 with the financial crisis still fresh, so he didn’t overpay.

On the R.& D. front, Mr. Kindler talked when he was appointed of rejuvenating Pfizer’s drug pipeline and tried to accomplish it by splitting the division into smaller groups. There is little sign of success as yet, but the process can take a decade or more.

Along the way, Mr. Kindler paid $225 million for the rights to an allergy pill promoted as an Alzheimer’s treatment based on trials performed in the unreliable Russia market. The drug bombed, one of several errors that tarnished his reputation.

But in the end, it may be the failure to turn around Pfizer’s share price that weakened Mr. Kindler’s grip on the corner office at the age of 55. The 57-year-old Ian C. Read, who succeeds him, will now get a chance to create his legacy, by his own and his predecessors’ actions.

Playing With Fire

Investors might wonder what Hungary is up to. After falling out with the International Monetary Fund in July, the country’s government has now raided private pensions, and Moody’s has downgraded the country’s debt to just above junk. The risk of default is considerable, as is the danger of inflation and economic crisis. But the temptation to run from I.M.F. strictures is one that other countries on the periphery of the euro zone will understand — and could eventually be tempted to copy.

Hungary’s economic challenges are not as daunting as those of the euro zone. The country does not have the double-digit fiscal deficit of Ireland or Greece. The Hungarian government expects a shortfall of about 3.8 percent of gross domestic product this year and hopes to get that below 3 percent of G.D.P. in 2011. Hungary’s trade position, unlike those in Spain, Greece and Portugal, is almost in balance. Its floating currency, the forint, means competitiveness is not undermined by being locked into a single currency as euro zone members are.

Yet Hungary is restive. Even though its debt-to-G.D.P. ratio remains high at 79 percent, the country is tired of cutbacks and weak growth. The government is now resorting to easy methods of shrinking the deficit, like raiding private pension funds, worth some 11.5 percent of G.D.P. As half the funds’ assets are in government debt, the state can cut its borrowing ratio.

Tricks like these will make Hungarians and international investors anxious. That won’t help growth and might cause a crisis. Almost half its debt is in foreign currencies, so a tumbling forint would make debt ratios worse. That is why the central bank last week acted to bolster the currency by raising interest rates.

Hungary’s bid for freedom from outside constraints is another warning sign for the euro zone. Greece and Ireland have taken bailouts that will make far greater demands than Hungary has had to endure. In the zone’s periphery, too, voters and governments may tire of creditors’ demands. The risks for the economy, and for creditors, are great.

ROBERT CYRAN and IAN CAMPBELL

via nytimes.com

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