The Stress Test Every Business Needs

3Are you allocating capital across the enterprise to reduce C-suite stress?

Jeffrey R. Greene

After joining Pfizer as CFO in September 2007, one of Frank D’Amelio’s first priorities was to ensure that the company’s capital allocation process supported effective decision making across the enterprise. He and Ian Read, who became CEO in late 2010, have transformed Pfizer into one of the most shareholder-friendly companies in the life sciences industry, as acknowledged by equity analysts. That contrasts with prior years, when the consensus view was less positive.

D’Amelio focuses on both the macro and micro dimensions of prudent capital allocation. On the M&A front, Pfizer has been a serial acquirer, executing a range of transactions from the US$68 billion Wyeth megadeal to the US$17 billion Hospira generics bolt-on to the US$645 million tuck-in of gene therapy developer Bamboo Therapeutics. Pfizer has also been a disciplined divester of noncore businesses like Capsugel and Zoetis. In recent years, R&D spending has averaged close to US$8 billion, while the company has returned more than US$12 billion per year to shareholders in dividends and share repurchases. Pfizer has driven across-the-board improvements in working capital management to free up billions of dollars in cash and reduce its cash conversion cycle. During Ian Read’s tenure as CEO, Pfizer’s annual total shareholder return (TSR) has averaged approximately 15%, compared with 11% for the NYSE Arca Pharmaceutical Index ...