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Pfizer Inc. (NYSE: PFE) surprised analysts and investors Sunday by announcing the replacement of Chief Executive Officer Jeffrey B. Kindler with Ian C. Read, the company's head of global biopharmaceutical operations. The move was made as the world's largest drugmaker prepares for generic competition for its top-selling cholesterol drug Lipitor.
After four and a half years in the top spot, Kindler suddenly announced his retirement, saying in a statement that the job had been "extremely demanding on me personally" and he needed to "recharge my batteries."
Pfizer needs sharp, powerful management to ready the pharmaceutical giant for the November 2011 patent expiration of cholesterol pill Lipitor, the world's top-selling drug. Lipitor accounted for $11.5 billion in sales last year – 23% of Pfizer's $50 billion total annual sales.
Read has led worldwide sales and marketing for the company's pharmaceuticals businesses, which account for about 85% of Pfizer's revenue and 40,000 employees.
"We are confident that the transition will be smooth and likely beneficial to the company as it becomes increasingly diversified, given Mr. Read's extensive experience with the company's key operations," Holford wrote in a note to clients.
Read joined Pfizer in 1978 and has managed the company's businesses in Latin America, Europe and Africa.
"The good news is we've got a guy with experience," said Raymond F. Kerins Jr., Pfizer's vice-president for communications. "Ian Read basically has been running 85% of the company anyway."
Specifically, Read's global experience is a huge attraction to investors as he takes the helm. Branching farther into emerging markets can help Pfizer reach a customer base needed to make up for the sales losses Lipitor is expected suffer.
"They know they're behind in China, and want to do more," David Maris, a healthcare analyst at CLSA, told Bloomberg. "They know they want to do more in Brazil. China, Brazil and Latin America will be the highest priorities. Now, when they need to drill down and buy individual companies, they will have someone who is much more operationally focused, who can ask the right questions, someone who has been in the drug industry."
Since Kindler's appointment to the position of CEO in July 2006, Pfizer has watched its shares fall 35%, faced the largest healthcare fraud case in U.S. history, and stumbled upon numerous roadblocks in its drug pipeline.
"It hasn't been an easy ride for him," Les Funtleyder, portfolio manager at Miller Tabak & Co. LLC., told Bloomberg of Kindler. "The stock has underperformed. Pharma in general and Pfizer in particular have had a tough couple of years."
Kindler last year helped orchestrate the $68 billion acquisition of rival Wyeth Pharmaceuticals.
"I don't think the Wyeth acquisition met the expectations that a lot of people had for how much it would improve Pfizer's standing, in contrast to Merck-Schering-Plough," said Funtleyder. Rival Merck & Co Inc. (NYSE: MRK) bought Schering-Plough Corp. for $41.1 billion in March 2009.
The Wyeth purchase gave Pfizer the Enbrel arthritis treatment and Prevnar pneumonia vaccine, but Pfizer also this year lost four developing drugs in its research pipeline.
Pfizer and Bristol-Myers Squibb Co. (NYSE: BMY) last month stopped a trial of experimental drug blood-thinner apixaban. In March, the company saw Alzheimer's drug Dimebon fail in late-stage testing, after experts predicted the new medicine could generate $5 billion in annual sales. Pfizer also lost two cancer drugs when they failed testing that same month.
Pfizer pleaded guilty last year to a federal criminal charge of illegal marketing, and paid $2.3 billion for illegally promoting the sale of painkiller Bextra and other medicines for unapproved uses. The settlement included a $1.3 billion fine – the largest criminal fine and healthcare fraud case in U.S. history.
Kindler tried to offset losses by letting go 14,000 workers and closing labs and manufacturing plants. He also restructured Pfizer into business units hoping for more efficient and cost-effective operations.
The company had been improving in recent months, with its stock climbing almost 15% since June. It was approved to sell the childhood vaccine Prevnar 13 and completed a couple successful clinical trials. Pfizer also has enjoyed a growing emerging market presence in China.
Pfizer in October bought King Pharmaceuticals for $3.6 billion, helping to boost Pfizer's stake in the painkiller market, after analysts worried the effect of losing the Lipitor patent would take a harder toll on the drugmaker than originally predicted.
Chief Financial Officer Frank D'Amelio said in a conference call after the deal that it fit Pfizer's strategy of looking for "bolt-on" acquisitions in emerging markets, generic drugs and targeted disease areas.
But the efforts weren't winning over stakeholders, leading some experts to question how voluntary Kindler's exit is.
"The departure is sudden but I doubt there was one event per se that caused Kindler's" retirement, Tim Anderson, a Sanford C. Bernstein & Co. analyst, told Bloomberg. Anderson said it was "highly likely he was pushed."
Kindler came into the chief role after spending four years as the company's general counsel. Before that he held an executive role with McDonald's Corp. (NYSE: MCD) and was a director at the New York branch of the Federal Reserve. His goal was to diversify the company's products to have broad protection against expiring patents.
This is the second surprise exit of a Pfizer executive this year. Martin Mackay, a co-head of research, left suddenly in May to lead research at rival AstraZeneca PLC (NYSE ADR: AZN).
Pfizer's Lead Independent Director Constance J. Horner supported the move and praised both the exiting and incoming leaders. He said Kindler's actions – like the King acquisition – made the company "stronger, more diversified and more focused."
Horner said Read "has brought to product development a focus and commitment to advance only medicines that have clear value to our customers."
"Today's business leaders need to understand global markets, drive change and innovation, and move quickly to adapt to competitive pressures. Ian's track record throughout his career has demonstrated these exact strengths," said Horner.
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