Why Pfizer will find it hard to appease its activist investor

The problem for the company and its new activist investor: There aren’t a lot of easy changes Pfizer can make to right itself quickly.

It will be hard for the company to increase sales of new products, such as a vaccine for RSV, fast enough to lift shares. A closely watched weight-loss drug won’t finish testing until next year at the earliest. And Pfizer’s debt load is too high for the company to make a game-changing acquisition.

The drugmaker could do more cost-cutting, but it is already in the midst of multibillion-dollar efforts that have soured many employees.

“We don’t anticipate major stock-moving pipeline catalysts in the near term," said David Risinger, a Leerink Partners analyst. Perhaps Pfizer could schedule an event for investors to showcase the company’s pipeline, he said.

The limited options mark the downside of Pfizer’s yearslong efforts to double down on its innovative but risky drugs business. The company hived off other businesses—such as animal- and consumer-health units—that provided a steady cash flow in order to pursue faster growth through innovative drugs.

During the pandemic, the shift paid off: Sales and shares soared thanks to a Covid-19 vaccine and antiviral. Since the emergency has receded, however, the strategic rejiggering has left the company smarting from overly optimistic pandemic-product forecasts and research-and-development setbacks.

Pfizer shares rose 2.2% on Monday after The Wall Street Journal reported that Starboard took a $1 billion stake and is looking for changes. The increase was a bright spot for the stock, which has held steady this year after losing about half its value since peaking in 2021.

Chief Executive Albert Bourla began this year apologizing for Pfizer’s overly rosy forecasts of Covid-19 sales and vowed aggressive changes to improve the company’s prospects.

Starboard’s move was surprising, Risinger said, because Pfizer had already undertaken the obvious ways to turn around the company, including two cost-cutting programs totaling roughly $1.5 billion and at least $4 billion, respectively. Meanwhile, its $57.5 billion in debt, as of June 30, prevents the company from pursuing major deals.

Further adding to Pfizer’s challenges is looming competition for some of the drugmaker’s biggest-selling products, such as blood thinner Eliquis and arthritis therapy Xeljanz.

To aid in its efforts Starboard has approached former Pfizer Chief Executive Ian Read and former Chief Financial Officer Frank D’Amelio, and each has expressed interest in helping, the Journal reported.

Both men spoke by telephone with at least four board members on Sunday before Starboard’s stake became public, according to a person familiar with the matter. The pair recommended during those conversations that Pfizer’s directors listen to Starboard’s proposed changes.

To appease Starboard, Risinger said, Pfizer might exit from certain businesses, such as hospital products, that might not be viewed as part of its innovative core. The company could also sell more shares from consumer-health business Haleon, which formed through the merger of units from Pfizer and GSK.

And Pfizer could afford small deals to improve its long-term growth, especially in the pharmaceutical industry’s fast-growing weight-loss market, which the company has yet to crack.

Unable to take bigger steps, Pfizer will probably have to count on its own R&D to show the way to a new course. “The company’s internal pipeline will hopefully generate compelling new blockbusters, but we’ll have to see the cards turn over," Risinger said.

Bourla has sought to bolster the stock price by slashing jobs and revising the company’s manufacturing footprint. He shook up the executive ranks, with changes that included the addition of a Wall Street analyst. He also pointed to the promise of the $43 billion acquisition of biotech Seagen and its pioneering cancer treatments.

Company executives have said this year they are giving priority to paying down debt from the Seagen and other deals. In its second-quarter earnings call, Pfizer raised its outlook for the year, and Bourla praised the company’s drug-development programs that led to nine new drug approvals last year.

But some drugs that could have helped the company instead experienced recent setbacks. Over the summer, a late-stage study for an experimental drug treating the muscle-wasting disease Duchenne muscular dystrophy, was unsuccessful.

A Covid-flu combination vaccine, under development with BioNTech, yielded mixed results, prompting the companies to consider changing the experimental shot. Pfizer recently said it would pull from the market a sickle-cell drug called Oxbryta.

Pfizer is hoping that its RSV respiratory virus vaccine Abrysvo, which was among last year’s approvals, will capture more market share than a year ago, when the product was outflanked by rival GSK’s new shot.

The company expects lung-cancer treatment Lorbrena, which was recently found in a study to keep tumors from advancing for five years, to generate more than $1 billion in annual sales by 2030. And Pfizer expects data this year or next for several cancer-drug candidates.

Yet analysts say the company lacks a major catalyst, such as important study results or a significant new drug approval, that could provide a near-term boost.

The company’s next crucial event is an update on Pfizer’s latest attempt to crack the white-hot weight-loss market. Investors are eagerly waiting for data from Pfizer’s once-daily weight-loss drug called danuglipron.

Pfizer is currently doing studies to find the best dose and expects that research to be completed during the first three months of 2025. The company hasn’t committed to releasing that data, only to providing an update on the drug’s development.

The company will need to conduct further testing, which could take many more months to finish.

Lauren Thomas contributed to this article.

Write to Jared S. Hopkins at jared.hopkins@wsj.com