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Sunday, December 5, 2010

Kindler quits

Talk about unexpected. The CEO and Chairman of the largest pharmaceutical company in the world, Pfizer, Jeff Kindler announced an immediate retirement.

I can certainly speculate endlessly about this, ranging from:

He quit because he feared the market effect of the potentially non-productive short-term pipeline.

or

The board let him go because within in 5yrs the stock went from a high of 23 to 17. A 26% decline. (The further one goes back, the uglier it gets.)

Having a lot of cash, and a very nice cash flow, can fog up an investor's judgment quite a bit. Pfizer bought Wyeth to make up for its potential cash-flow issue due to patent expiration. Instead of innovating itself out of their hole, they took a strategy out of their predictive play book. Acquire, and reduce. (Anyone that has studied these types of M&As can attest that 'acquiring and reducing expenses' is not an efficient strategy.)

The problem with certain acquisitions is that they do not work when both companies are projected to lose a substantial amount of revenue w/in the next 1-2yrs. Synergies will simply not cover high revenue losses, especially biotech/pharma synergies. (This is simply fact, and the nature of the specific-product-dependent driven pharma business.)

There is no question Pfizer is an efficiently run company, and I am sure Kindler facilitated in creating the efficiency, but it has been lacking the proper strategic vision. Unfortunately, under Kindler's leadership, the company has talked a big game, but its actions were not innovative and seriously questionable.

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