Healthy Skepticism Library item: 7464

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Publication type: news

Ritter S.
Pfizer May Speed Layoffs After Recent Drug Failure
TheDay.com (Connecticut) 2007 Jan 14
http://www.theday.com/re.aspx?re=3d07752a-2ef4-4226-b533-c7da067385a1

Full text:

Pfizer Inc., stung by the loss of a potential blockbuster cholesterol drug and facing competition from generics, is likely to redouble its efforts to cut costs with layoffs and to boost its product pipeline by acquiring smaller pharmaceutical or biotechnology firms in coming months.
The nation’s largest drug maker is expected to announce new measures to shore up its balance sheet when it meets with industry analysts in New York on Jan. 22, the day it will report its fourth-quarter earnings. Among the possibilities: more reductions to its worldwide stable of 100,000 salespeople, scientists and manufacturing workers and the shuttering of additional plants.

“They’re so bloated in some areas,” said Jason Napodano, who follows the drug industry for Zacks Equity Research. “They’ve got all these levels of organizational structure between the CEO and the guys in the lab that they’ll probably look to streamline that.”

Jeffrey Kindler, a corporate lawyer tapped in July to remake the drug company, faces some difficult challenges in his new job as chairman and chief executive. In early December, Pfizer was forced to scrap its promising cholesterol drug torcetrapib after an unexpected number of deaths and other complications in a clinical trial.

Moreover, Pfizer must contend with growing competition from makers of generic drugs. Several of the company’s drugs, with combined annual sales of $14 billion, have lost or will lose patent protection from 2003 to the end of this year. Lipitor, the company’s top drug with sales of about $13 billion last year, faces generic competition in 2011.

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There are some bright spots for Pfizer. The company is flush with cash, estimating that it will have $34 billion to work with over the next couple of years. It plans to use up to $17 billion of that to continue acquiring or partnering with pharmaceutical and biotech companies with promising drugs in development.

Pfizer said it could spend as much as $10 billion to buy back stock in 2007, and analysts say it might also repay short-term debt, bolstering the bottom line. Meantime, sales of some of its newer products, like Chantix, a smoking-cessation drug, Exubera, an inhalable insulin, and Sutent, a cancer drug, are expected to grow.

Pfizer’s “drug portfolio is unmatched in terms of breadth and depth in the global drug market,” Standard & Poor’s analyst Herman B. Saftlas told clients last week. While his firm downgraded the stock to a “hold” on the torcetrapib news, Saftlas said Pfizer’s size and financial resources continue to give it important competitive advantages over its rivals.

Banc of America Securities analyst Chris Schott said in a research note last month that he was maintaining a “buy” recommendation on the stock based on the strength of its drug pipeline and because “the company’s cost-cutting abilities are under-appreciated by the market.”

But some on Wall Street worry that the drugs Pfizer has under development won’t make up for the hit it will take when Lipitor loses patent protection. The company, which spent about $7.4 billion on research and development in 2006, is desperately in need of new blockbusters, Napodano said.

“The reason that they’re in this position is because of all the generic exposure they’ve got,” he said.

In Groton, Pfizer’s largest research facility, employees say rumors of layoffs are swirling in anticipation of the Jan. 22 presentation to Wall Street analysts.

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The company has already announced the closure of its Groton manufacturing plant, which will eliminate 300 jobs. That site could become home to additional research operations, Pfizer officials have said.

Shuttering the Groton plant was part of broader restructuring, dubbed “Adapting to Scale,” which Pfizer launched in 2005 to trim $4 billion in annual costs over the next several years. In November, Pfizer reduced its U.S. sales force by 20 percent, or 2,200 jobs.

Kindler has vowed to refocus on cost cutting to create a leaner, more nimble company, and analysts expect that to accelerate with the loss of torcetrapib.

Indeed, it was torcetrapib that the company was banking on to fill the void when Lipitor goes “off-patent” in 2011. The prospective drug, developed in Groton, would be combined with Lipitor to raise the body’s production of good cholesterol while reducing levels of bad cholesterol. It was seen as a potential breakthrough in the fight against cardiovascular disease.

The drug’s failure isn’t likely to damage Kindler’s credibility, because he only recently took the top position, Prudential Equity Group analyst Tim Anderson said in a report last month.

“Torcetrapib biting the dust, while clearly a negative, does remove a big source of uncertainty,” he wrote. “The next big uncertainty is (earnings per share) growth in 2011 and beyond, but that is far away and many things can change between now and then.”