Activist Investors Eyeing Big Pharma: What It Means for the Industry
Last month, hedge fund Starboard Value acquired a $1 bn stake in Pfizer, at the same time, sharply criticizing the company's management for recent underperformance and strategic missteps. According to Starboard, Pfizer has seen at least $20 bn in value evaporate since 2019.
This move is a textbook example of activist investing. Investors - individuals or institutions - buy a significant stake in a company to influence its management and strategy with the aim of boosting the company’s value and, ultimately, profit from their investment.
But why target Pfizer? And why now?
Why Activist Investors Are Targeting Pharma
While the pandemic dealt a blow to many sectors, pharmaceutical and biotech companies saw their value soar as they raced to develop and produce vaccines and treatments. As the urgency around COVID-19 has subsided however, so have a lot of the peaks in valuations, and companies like Pfizer are under pressure to maintain their pandemic-era financial performance.
Activist investors like Starboard Value are seeing opportunities where they believe leadership has failed to build on past successes or where operational inefficiencies remain. Pfizer’s case could signal the beginning of a broader trend: activists pushing biopharma companies toward greater accountability, strategic realignment, and optimized use of resources for better profitability.
Almost simultaneously to the Pfizer announcement, Starboard also invested in Kenvue, a Johnson & Johnson spinoff in the consumer goods sector. Elliott Investment Management - another major U.S. hedge fund - has also been active. Over the past 18 months, it has invested more than $1 bn in BioMarin, a biotech focused on hemophilia treatment, and took a significant stake in CDMO Catalent before its proposed acquisition by Novo was announced.
What This Means for Biopharma
As biopharma companies adjust to increased pressure from shareholders, activist investors may see more opportunities to intervene - particularly in firms that have struggled to maintain momentum post-COVID.
Investors like Starboard and Elliott are likely to push for streamlining operations, reducing costs, and concentrating resources on high-growth potential areas. This is likely to mean divesting non-core divisions or underperforming assets while ramping up investment in innovation and key R&D projects.
In addition to strategic shifts, activists may advocate for tighter financial discipline, especially in high-cost areas such as R&D and manufacturing.
For CDMOs, this trend could be beneficial. Streamlining at large biopharma companies could lead to more outsourcing, relying on CDMOs to manage the complex scientific services that bring products to market more quickly and efficiently.
The Risks of Activism
However, while investor activism often promises improved performance, there’s a risk that activists - especially those without deep biopharma expertise - could misstep. Biopharma R&D is notoriously complex, with long development cycles, high costs, and uncertain outcomes. Outsiders focused solely on financial returns may struggle to navigate these challenges. Add in regulatory hurdles and fierce competition, and it becomes clear that decisions driven by short-term financial motives could backfire, potentially disrupting key areas of a company's operations.
With investment deals on the rise, increasing CDMO activity, and ever-growing shareholder demands, could the biopharma sector be on the verge of a new wave of activist investment?
