Pfizer's election of Ian Read as president, CEO and director of the company sets the stage for a management transition at the firm, which has underperformed its peers on several measures in recent years.

Read succeeds Jeffrey Kindler who spent four-and-a-half years at the helm.

The Dec. 5 announcement surprised Wall Street, although analysts could not say it was unforeseen.

Even as other companies facing similar challenges saw their stock performance swing up in recent months, Pfizer's stock price has languished, despite significant changes during Kindler's tenure.

Pfizer vet Read takes CEO reins

Ian Read, with Pfizer since 1978, succeeds Jeffrey Kindler as CEO.
As Lipitor patents expire in 2011, Read may lead Pfizer's attempt to switch the statin OTC.
Pfizer still has cost-cutting ahead, and may divest Capsugel.

These changes included completing the largest merger in pharmaceutical history, Pfizer's $68 billion acquisition of Wyeth, which returned Pfizer to the consumer health products arena.

Read will be tasked with navigating Pfizer past the Lipitor (atorvastatin) patent loss in November 2011 and ultimately defining what the world's largest pharmaceutical manufacturer will look like in the post-Lipitor era. The looming loss of $11 billion plus in revenues from the blockbuster cholesterol medicine will be difficult for any chief executive to surmount.

Pfizer is expected to attempt an Rx-to-OTC switch of Lipitor, though it will have to convince FDA of the nonprescription suitability of statins; Merck & Co. has failed three times to switch Mevacor (lovastatin) to OTC (Also see "Crestor Indication Grows User Pool, But Self-Selection Hinders Statin Switch" - Pink Sheet, 1 March, 2010.).

With Pharma Experience, Read Is Ready

Read, 57, is a pharmaceutical industry veteran who clocked 32 years at New York-based Pfizer, most recently as head of global biopharmaceutical operations.

He likely will not 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 four years before 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.).

Read's years of experience integrating complex internal pharmaceutical operations may have appealed to Pfizer's frustrated board.

As head of the firm's worldwide biopharmaceutical business since 2006, he essentially had responsibility for 85% of Pfizer revenues and more than 40,000 employees.

The looming loss of $11 billion plus in revenues from the blockbuster cholesterol medicine will be difficult for any chief executive to surmount.

Pfizer's pharma business comprises five global business units (Primary Care, Specialty Care, Oncology, Established Products and Emerging Markets), following a reorganization Read helped to orchestrate.

That restructuring, part of the Wyeth integration, also consolidated the combined companies' consumer, nutritional and animal health units under the Diversified Businesses umbrella (Also see "Pfizer To House Consumer, Nutritional Divisions In Diversified Businesses Unit" - Pink Sheet, 13 April, 2009.).

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. Read became corporate VP in 2001, overseeing Canada and Europe, and eventually the Africa/Middle East and Latin America regions as well.

"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 effect necessary change at the company.

"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 in a research report.

"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."

Desperately Seeking Blockbusters

R&D productivity has been Pfizer's biggest failure in the last four years, though the rest of big pharma scarcely has performed better.

"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."

– Barclay’s analyst C. Anthony Butler

Still, with the patent cliff looming for Lipitor and for other major Rx products such as Alzheimer's treatment Aricept (donepezil) and tandem cholesterol drug Caduet (amlodipine besylate/atorvastatin), Pfizer acutely needs new drugs to make up for the billions of dollars in impending lost revenues.

Kindler moved to pad Pfizer's patent fall, most notably by acquiring Wyeth, a transaction that gave Pfizer more than $22 billion in additional sales and diversified the portfolio.

Pfizer management told investors post-merger it would deliver flat revenues of $70 billion in 2012, the year after Lipitor goes off patent, though it subsequently lowered the 2012 guidance to a range of $66 billion to $68.5 billion.

Wyeth Consumer Healthcare brands such as Advil pain relievers, Centrum multivitamins and Robitussin cough/cold remedies have an opportunity to grow within Pfizer, Kindler promised in 2009 (Also see "Pfizer Exits Eight Manufacturing Sites And Slices Jobs In Six More" - Pink Sheet, 24 May, 2010.).

Pfizer previously sold its consumer business – including Zyrtec antihistamines, Listerine mouthwash and Nicorette nicotine-replacement therapies – to Johnson & Johnson in 2006 for $16.6 billion.

Given that many now view that move as a mistake, Pfizer likely will not unload the Wyeth OTC portfolio wholesale. Still, the company is looking to pare costs where it can.

Leading up to his retirement, Kindler put the company on track to eliminate $4 billion to $5 billion in costs by year-end 2012.

In October, Pfizer announced it will consider shopping around Capsugel, the manufacturer of empty gelatin capsules within its Diversified Businesses unit (Also see "Capsugel Could Land In Private Equity Crosshairs If Pfizer Divests" - Pink Sheet, 11 October, 2010.).

In 2010, Pfizer also realigned its consumer products manufacturing operations and is evaluating animal health and nutritional facilities for further cost savings.

Taking Stock Of The Kindler Era

What is next for Kindler is unclear. "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.

Despite Kindler's accomplishments as chief executive, "Jeff was not able to develop a sufficient level of support from the investment community," Deutsche Bank's Ryan said.

Pfizer's stock has hovered under $18 most of 2010. The stock is down about 36 percent from its closing price on July 28, 2006, when Kindler became CEO.

In contrast, the average stock price of nine of Pfizer's pharma peers was down 10 percent from 2006 to the Dec. 6 closing price, according to tracking firm Evaluate Pharma.

Pfizer has underperformed on other measures as well, including sales and earnings per share. From 2006 to 2010, Pfizer's sales are up 2% compared to the peer average 39%, and earnings per share increased 13% compared to 60% among peers, Evaluate Pharma said.

By Jessica Merrill

Pfizer Turns To Insider Ian Read To Lead Into Post-Lipitor Era

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