Bitter pill: disappointing results have seen Hank McKinnell (left) removed as Pfizer's chief executive to make way for Jeff Kindler.

As chief executive, Hank McKinnell cut an avuncular figure in his company's television commercials, reassuring viewers that when their doctors needed medicine, Pfizer would be there.

But when the board of the world's largest drug firm brought McKinnell's five-year tenure to an abrupt close last month, few on Wall Street were complaining. The fact that his replacement — Jeff Kindler, a 51-year-old lawyer — is a relative newcomer to the firm was loudly applauded by observers who want to see Pfizer ring the changes.

“They are trying to send a message that they are willing to look at something different,” says Al Rauch, an analyst at stockbroker A G Edwards in St Louis, Missouri. Pfizer, he says, has “a very consensus-driven corporate culture that is not always conducive to innovation”.

But despite the generally upbeat reaction to Kindler's appointment, the value of Pfizer's stock has remained unmoved. And close observers of the company question whether the appointment will do much to change its outlook.

Like other major pharmaceutical firms, Pfizer is in a hole. Patents will soon run out on its major products, including the world's best-selling drug, cholesterol treatment Lipitor (atorvastatin). “They need to generate $10 billion in extra revenue each year and that's impossible,” says Peter Rost, a former vice-president of Pfizer who runs a carping blog, http://peterrost.blogspot.com, on its predicament. “The only way they can stay afloat is as a black hole, sucking in other companies to boost revenue. I think they are going to collapse under their own weight.”

Pfizer's $190-billion market capitalization suggests that this prognosis is a little harsh. And close observers of the drug industry say that the New York-based company has done better than most of its peers in responding to the strategic challenges that the sector faces.

“In some ways, Pfizer has led the industry,” says Martyn Link, a pharmaceuticals analyst at Wood Mackenzie in Edinburgh, UK. He notes as examples the cost-cutting programme launched by McKinnell last year to achieve annual savings of $4 billion by 2008; the successful offload in June of its consumer drugs business to Johnson & Johnson of New Jersey; and an aggressive strategy of purchasing hot biotechnology companies.

Strategic switch

The drive for biotech acquisitions, which aims to buy two or three substantial operations each year for between $1 billion and $3 billion, has seen Pfizer get its hands on stars such as California-based antibody specialist Bioren and Vicuron Pharmaceuticals, a Pennsylvania company that is developing anti-infective drugs.

But the company hasn't convinced investors of its successes, Link says. He argues that Pfizer has a number of potentially lucrative products that have recently entered the market — notably the cancer treatment Sutent (sunitinib) and Exubera, an inhalable form of insulin. “They need to be able to sell their story to investors,” he says.

McKinnell, a Canadian business-school graduate who has spent 35 years at Pfizer, was responsible for much of this progress. But with the share price in steady decline since his appointment, the board announced on 28 July that he would retire a year earlier than planned, and that Kindler, the company's chief lawyer for the past four years, would take his place.

The manner of the appointment has left blood on the walls. Kindler's two rivals for the position, Karen Katen, head of the firm's dominant pharmaceutical division, and David Shedlarz, its finance chief, haven't been offered any of the usual sops, such as board positions. US press reports suggest that Kindler's early efforts to reach out to the duo have fallen on deaf ears, and there is speculation that they will leave. The appointment of a lawyer whose main operational business experience was at McDonald's is also unlikely to inspire Pfizer's increasingly restive research staff.

Link is sanguine about that. “Pfizer's culture is accepting to people of quality and ambition,” he says. But he adds that there isn't much Kindler can do in the short term to speed McKinnell's reforms. “There really aren't a lot of strategic options that Pfizer hasn't already tried,” he says.

One area of strength for Kindler is patent law: he has been closely involved in critical court battles to preserve exclusive rights. But elsewhere, his room for manoeuvre may be restricted. “It's going to be difficult to change the corporate culture,” says Rauch, adding that attempts to do so “are likely to meet resistance”.

For investors, the reality is that they will have to get used to slower growth, and perhaps more modest margins, from major drug firms. “Investors came to expect double-digit growth every year,” Link says. “Now that's unrealistic. It is a much more challenging environment.”