The abrupt news that Pfizer, Inc.'s board of directors has elected Ian Read president, CEO and director of the company, succeeding Jeffrey Kindler, sets the stage for a management transition at the company, which has under-performed its peers on several measures in the last four years.

The announcement, which Pfizer's board issued on Sunday evening, Dec. 5, surprised Wall Street, although analysts could not say it was unforeseen. Even as other companies facing similar challenges saw their stock performance swing upwards in recent months, Pfizer's stock price has languished, despite significant changes during Kindler's four and a half years at the helm. These changes included the completion of the largest merger in pharmaceutical history, Pfizer's $68 billion acquisition of Wyeth.

Read will be tasked with navigating Pfizer through the Lipitor (atorvastatin) patent loss in November 2011 and ultimately define what the world's largest pharmaceutical manufacturer will look like in the post-Lipitor era. The loss of the blockbuster cholesterol medicine, with $11 billion plus in revenues, beginning late next year is a vast overhang that will be difficult for any chief executive to surmount.

Read, 57, is a pharmaceutical industry veteran who has clocked 32 years at Pfizer, most recently as head of global biopharmaceutical operations. He is not likely to be a change agent, but his long pharmaceutical experience could reassure investors he has the chops to steer the company through the difficult period ahead. In contrast, Kindler came to the post largely as an industry outsider and with a message of change. He worked as Pfizer's chief counsel for only four years, and before that at McDonald's, prior to replacing Hank McKinnell as Pfizer CEO in July 2006 (Also see "Pfizer Set For “Fundamental And Sustained” Change Under New CEO Kindler" - Pink Sheet, 7 August, 2006.).

Wall Street's reaction to the management shakeup appears largely wait-and-see. The stock was flat and closed Dec. 6 at $16.81.

With Pharmaceutical Experience, Read Is Groomed For The Post

Aside from the brief announcement, issued Sunday night, Pfizer did not elaborate on the transition, but Read's years of experience integrating complex internal pharmaceutical operations may have appealed to a frustrated board. As head of Pfizer's worldwide biopharmaceutical business since 2006, he essentially has been responsible for 85% of Pfizer revenues. The pharma business at Pfizer consists of five global business units (Primary Care, Specialty Care, Oncology, Established Products and Emerging Markets), following a reorganization in 2009, which he helped to orchestrate (Also see "Pfizer’s Business Units Enable It To Be Nimble Even as It Grows" - Pink Sheet, 18 March, 2009.). The business comprises more than 40,000 employees and accounts for the vast majority of Pfizer's annual revenues - 85 percent.

Read moved up the ranks at Pfizer after joining in 1978, working initially in Latin America. He was appointed president of Pfizer's International Pharmaceuticals Group, with responsibility for Latin America and Canada, in 1996. He was named corporate VP in 2001, overseeing Canada and Europe and later added responsibility to Africa/Middle East and Latin America.

"The appointment of Ian Read as CEO was a logical one," said Deutsche Bank analyst Barbara Ryan in a same-day note. "He is well regarded within the organization, having had leading operational and strategic roles at Pfizer during his long tenure there."

But Barclays Capital analyst C. Anthony Butler questioned if Read will bring about the necessary change in a Dec. 6 note. "We believe Read will stay on course with the leadership's recent focus on capital deployment in terms of share repurchase, dividend strategy and divestitures," he said. "Despite Read's extensive history with the company, it remains unclear to us if he will be able to accelerate R&D productivity for the company outside of an inorganic approach."

R&D productivity has been Pfizer's biggest failure in the last four years, though not unlike the failings of other big pharmas in the industry. But with the Lipitor patent cliff looming, and with the loss of other important drugs like Aricept and Caduet as well, Pfizer's need for new drugs to make up the billions of dollars in lost revenues is more acute. The 2006 failure of the Phase III drug torcetrapib - a CETP inhibitor that Pfizer at one time thought would replace Lipitor as a blockbuster cholesterol medication - is a cloud the company has not been able to get out from under (Also see "Pfizer Terminates Torcetrapib Program" - Pink Sheet, 3 December, 2006.).

Kindler moved to pad Pfizer's patent fall, most notably by completing the acquisition of Wyeth in 2009, a transaction that added more than $22 billion in sales to Pfizer's top-line and diversified the portfolio with harder-to-replicate biologics and vaccines like Enbrel and Prevnar ([A#20090202]). With the addition of Wyeth, management told investors it would deliver flat revenues of $70 billion in 2012, the year after Lipitor goes off patent, though it later lowered the 2012 guidance early this year to $66 billion to $68.5 billion. Kindler also got to work cutting costs, with the company on track to eliminate $4 billion to $5 billion in costs by year-end 2012.

Pfizer's stock has hovered under $18 most of the year. The stock is down about 36 percent from its closing price on July 28, 2006 when Kindler was appointed CEO.

"Despite [his] accomplishments, Jeff was not able to develop a sufficient level of support from the investment community," Ryan said.

In contrast, the average stock price of nine of Pfizer's pharmaceutical peers was down 10 percent from 2006 to today's opening price, according to the tracking firm Evaluate Pharma. Pfizer has under-performed on other measures as well, including sales and earnings per share. From 2006 to 2010, Pfizer's sales are up 2 percent compared to 39 percent among the peer average, and earnings per share increased 13 percent compared to 60 percent among the peer average, Evaluate Pharma said.

It's unclear what is next for Kindler. "I am excited at the opportunity to recharge my batteries, spend some rare time with my family and prepare for the next challenge in my career," he said in a statement.

The announcement comes just days after Pfizer's rival Merck & Co. announced its own leadership change, the appointment of President Kenneth Frazier to succeed Dick Clark as CEO effective Jan. 1 (Also see "Merck's Frazier Promoted to CEO to Steer Merck To Post-Schering Success" - Pink Sheet, 1 December, 2010.). The circumstances in that succession are quite different, however, since Clark was due to step down because of Merck's age-based retirement policy and Frazier - best known for steering Merck through the Vioxx litigation - was widely anticipated to succeed him.

- Jessica Merrill (j.merrill@elsevier.com)

Pfizer Turns To Insider Ian Read To See It Into Post-Lipitor Era

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