Pfizer: misread the room
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Ian Read simply could not leave well enough alone. The chief executive of pharma titan Pfizer is known for being outspoken. In the past, he has railed about the US corporate tax code. He insisted the system put American companies at such a disadvantage to foreign rivals that he tried, controversially, to re-domicile to Europe.
Enter Donald Trump, whose tax reform slashed the US corporate tax rate and allowed companies to bring cash home on more favourable terms. This has been a huge boon to American multinationals such as Pfizer. Its effective tax rate has fallen from 23 per cent to just 17 per cent — providing a near $11bn gain.
But Mr Read’s latest eye-catching plan has failed to work in his favour. Pfizer’s intention to raise prices on numerous drugs, including Viagra, caught the attention of Mr Trump. The president tweeted his displeasure, leaving the company to backtrack.
Pfizer has to find a way to deal with upcoming patent expirations. If raising prices is off the table, then how about restructuring?
On Wednesday, Pfizer announced yet another corporate reform that will see it report results in three units. One unit will be for high-growth products including its Hospira biosimilars group, another for off-patent treatments and a third for the over-the-counter business which it recently tried and failed to sell. The hope is that each will be valued separately by investors.
This could work. The US pharma sector already trades at a discount to the S&P 500, according to JPMorgan. Within that, Pfizer, at 13 times 2018 estimated earnings, is below the median — dragged down by its slowest growth businesses. But Mr Read’s penchant for drawing attention to Pfizer is unmistakable. It is natural to wonder if the discount comes, at least in part, from its chief executive’s ability to strike the wrong note at exactly the wrong time.
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