Shares of Pfizer (PFE 2.15%) have been stuck in the mud since December 2022, with its shares down more than 45% over that stretch. Despite its underwhelming performance, many individual investors are attracted to the drug giant's robust dividend, with the stock now having a forward dividend yield of about 5.7%. And despite its performance, one large institutional investor just revealed a billion-dollar bet on the company.
According to the Wall Street Journal, the activist-investor hedge fund Starboard Value, run by billionaire Jeffrey Smith, has taken a $1 billion stake in the company and is looking to help turn it around.
The question for individual investors: Should you follow suit and pick up shares of Pfizer?
Recent struggles
While it became a pandemic darling as one of three main makers of COVID-19 vaccines, Pfizer has struggled in the last couple of years. Using the cash windfall from its COVID-19 vaccine, the company made several large acquisitions. This includes spending $43 billion for cancer medicine company Seagen, $11.6 billion for migraine-drug maker Biohaven Pharmaceutical, $6.7 billion to purchase Arena Pharmaceuticals, $5.6 billion for blood disorder drugmaker Global Blood Therapeutics, and $2.2 billion for immuno-oncology company Trillium Therapeutics. In total, the company has spent about $70 billion on acquisitions since 2021.
However, not all the deals have gone as planned. For example, Pfizer recently had to pull Global Blood Therapeutics' leading drug Oxbryta (used to treat sickle cell disease), from the market after it determined that the risk of the drug outweighed the benefits. Meanwhile, it's also had some internally developed disappointments, including an obesity pill that failed clinical trials, and an RSV shot that received a lackluster response.
Meanwhile, two of the company's larger drugs -- Ibrance for breast cancer and Xtandi for prostate cancer -- both go off-patent in 2027. Ibrance accounted for $1.13 billion in revenue in the second quarter, while Xtandi generated $495 million in revenue.

Image source: Getty Images.
Betting big on cancer drugs
While Pfizer has made a number of acquisitions, its biggest bet is on Seagen. Pfizer wants this to be a transformative acquisition, and it projects Seagen to contribute $10 billion in sales by 2030. It said following the deal, it now has eight or more potential blockbuster drugs in its pipeline.
In conjunction with the Seagen acquisition, Pfizer shifted its oncology focus from chemically made small-molecule drugs to biologic drugs. As a result, it sees its oncology revenue going from being 6% biologics in 2023 to about 65% in 2030.
Biologics offer a couple of benefits to their makers. They have longer patent protection, and after their exclusivity ends they tend to continue to have strong sales. The reason is that generic-drug makers can't make exact copies, the way they can for chemically made drugs, and instead can only make similar products. For this reason, most doctors continue to prescribe the brand-name drug instead of biosimilars.
While Seagen brought with it four leading cancer drugs, for the acquisition to really pay off, Pfizer will also need to see some blockbusters come from its pipeline. Thus, it will take years before the company can decide whether this was the right strategy.
Starboard's involvement
As an activist investor, Starboard is not waiting around to see if Seagen's product pipeline will turn out to be the transformative acquisition Pfizer hopes. According to reports, Starboard has not been enamored with CEO Albert Bourla's acquisition spending spree, and it thinks Pfizer needs to return to focusing on cost discipline and developing novel drugs.
Supposedly, Starboard has approached former Pfizer CEO Ian Read and CFO Frank D'Amelio about helping turn the business around. Read led the company from 2010 to 2019, with a focus on core products and cost discipline.
Starboard is a powerful investment company, and often gets seats on company's boards and enacts changes. However, its track record can be pretty mixed; it's had both big wins, as with Darden Restaurants, and some losses. Its investments in healthcare-related names like Elanco Animal Health and eHealth have not gone well.
Is it time to buy Pfizer stock?
Given Starboard's history with healthcare companies, I wouldn't rush in and buy this stock based on that alone. I actually think Bourla's strategy of taking COVID-19 vaccine cash flow and acquiring new companies wasn't a bad idea. While it hasn't worked out so far, its ultimate success will largely depend on the success of Seagen's pipeline.
Trading at a forward price-to-earnings (P/E) ratio of 10, Pfizer's stock is not expensive. Meanwhile, it has an attractive yield as well.
PFE PE Ratio (Forward 1y) data by YCharts.
I think investors can buy the stock now and wait to see how the Seagen acquisition unfolds over the next few years while collecting its attractive dividend. However, Starboard's actions would not be my reason for jumping into the stock.