Pfizer management looks to show turnaround as Starboard looms

By Michael Erman

NEW YORK (Reuters) - Pfizer's quarterly financial report on Tuesday comes at a critical moment for the U.S. drugmaker and its CEO, as activist hedge fund Starboard Value ramps up the pressure to demonstrate concrete results of a promised turnaround.

Investors and analysts said they want to see improved profitability following the company's billions in cost cuts over the past year, as well as revenue growth, particularly from the cancer drugs picked up in the company's 2021 to 2023 acquisition spree.

Pfizer management also needs to be laying the groundwork for faster growth in 2025, they said.

"You should see a pretty big improvement in earnings next year for a lot of reasons," said Jeff Jonas, portfolio manager at Gabelli Funds, which holds Pfizer shares.

Jonas said improving sales should lead to a better balance sheet, which will protect the company's dividend. Pfizer's nearly 6% dividend yield is much higher than most big pharmaceutical companies and has given some investors reason to hold on to the stock as revenue dropped.

Investors have fled Pfizer as pandemic worries eased and billions of dollars in COVID-19 vaccine and treatment sales disappeared. The roughly $162 billion company's stock is trading at about half its pandemic-era high.

Starboard has argued that Pfizer's board needs to hold management accountable for the underperformance, particularly questioning its record for producing profitable new drugs from internal research and development or acquisition.

In an interview on CNBC, Starboard CEO Jeff Smith said a change at the top of the company could make sense but stopped short of calling for the resignation of Pfizer CEO Albert Bourla.

"Something material needs to change. They can't just close their eyes and assume it's going to get better," he said.

'NOT REALLY FOCUSED'

Beyond the loss of COVID-19 revenue, Pfizer has also had to contend in recent quarters with disappointing data for a closely watched experimental obesity drug, the weak launch of its respiratory syncytial virus (RSV) vaccine, and pulling its sickle cell disease treatment Oxbryta due to deaths in clinical trials.

Pfizer declined to comment for the story.

Gabelli's Jonas said he would like Pfizer to tighten its focus on three or four key therapeutic areas, noting that the company has had recent successes in oncology and vaccines.

"They've kind of done a little bit of everything, and not really focused," he said. "So I think there's room for improvement."