Pfizer CEO Kindler Has His Work Cut Out for Him

(page 2 of 2)

More Money in Oncology

Pfizer is also refocusing its research efforts, pouring resources into lucrative opportunities such as oncology (BusinessWeek, 12/20/07) and less into areas such as heart disease and obesity. He says he will invest only in research that fits two criteria: There aren't enough good drugs on the market already for the target disease, and Pfizer possesses enough scientific knowhow to find new and truly groundbreaking ways of treating it. "Our view is we need to invest to win," Kindler says. "Our shareholders expect us to deploy our capital where it provides the greatest value."

Kindler's changes haven't been enough to satisfy many shareholders, though. Scott Richter, portfolio manager at fund manager Fifth Third Asset Management, says he sold his Pfizer shares earlier this year because he didn't feel Pfizer was making enough progress in research and development. "Cost-cutting can help earnings in the short term, but it's not transformational," Richter gripes. "I don't see the building blocks for something transformational."

A large merger would do the job, and with $26 billion in cash and a strong balance sheet, Kindler could afford to do it. Analysts have been calling for him to make a big move for much of the past two years, and with the credit crisis pushing down valuations of potential targets, those cries are getting louder. "They shouldn't be the Bank of Pfizer, holding all that cash, for God's sake," says Seamus Fernandez, an analyst for health-care investment bank Leerink Swann & Co. "Acquiring a company would give them access to a larger pipeline of products, and it would allow them to wring out more efficiency." Kindler says the company will only consider additions that add expertise in the therapeutic areas he has committed to pursuing aggressively. As for the bargains that may be out there post-crisis, he says, "It's a dynamic environment. We're taking into account how things are changing."

Some analysts are still waiting to see how Kindler's strategy plays out over the long run. "We don't want Pfizer to do a deal just to do a deal," says Linda Bannister, an analyst for Edward Jones, which has a buy rating on the stock. "Restructuring R&D so they can get more drugs to market is what they need to do. What will Pfizer look like post-Lipitor? It's too early to tell."

Kindler refuses to get bogged down in Wall Street's day-to-day mood swings. He has spent much of his time learning the business up-close, going on sales calls with field reps all over the country and, most recently, visiting Pfizer's operations in Korea. "It's continuous improvement, but we've made enormous progress," he says. "We're a leaner organization with clear lines of accountability and less bureaucracy."

A shelf in his New York office serves as a constant reminder of his non-pharma past: It houses a Ronald McDonald shoe and a rubber chicken he got from his McDonald's bosses when he left the fast-food giant. Outsider? Perhaps, but Kindler remains convinced that his inclusion in the fraternity of new drug-industry CEOs can Ω mean only good things for the future. "Innovation of the business model is very important," Kindler says. "I look across the industry and see a substantial openness to change."

Weintraub is a senior writer for BusinessWeek's science and technology department.