Pfizer announces $4 billion cost-cutting plan

Drugmaker facing loss of patents, falling demand

April 06, 2005|By Bruce Japsen | Bruce Japsen,CHICAGO TRIBUNE

Pharmaceutical giant Pfizer Inc. said yesterday that it will cut $4 billion in costs by 2008 to bolster profits, as demand wanes for its controversial painkillers Celebrex and Bextra and patents expire on some of its other popular brand-name medicines.

During a conference call, Pfizer warned its 2005 earnings are expected to fall 6 percent this year - to $2 per share, short of the average view of $2.13 per share analysts expected. Pfizer said 2005 revenues would be flat, matching the $52.5 billion it made in 2004.

Pfizer said it was enacting the cost-cutting plan, which it did not detail, to help return the company to double-digit earnings growth by 2006 or 2007. The cuts represents about 12 percent of the company's current cost base.

Such decisions by New York-based Pfizer, the world's largest drugmaker, could have a huge impact on the pharmaceutical industry. A major expense reduction by Pfizer could benefit investors if others follow suit, or if Pfizer's retrenchment results in rival drugmakers gaining a competitive edge, some analysts have said.

The announcement triggered a boost in the share prices of several rival pharmaceutical companies. Abbott Laboratories and British giant GlaxoSmith- Kline PLC were up about $1 each, or more than 2 percent, on the New York Stock Exchange.

Pfizer's shares spurted nearly 4 percent, closing at $26.90 on the NYSE.

Part of the cost-cutting will come through "streamlining" the organization, Pfizer executives said. That could include eliminating a portion of the company's worldwide 38,000- member sales force - the largest in the industry - although Pfizer said it would not disclose specific numbers of reductions in sales representatives.

"We expect natural attrition among the sales force, but we are not cutting the sales force," said Pfizer spokeswoman Mariann Caprino. "We are not taking steps to shrink."

Pfizer wouldn't say where specific cuts would come from, but given the company's size, with a worldwide work force of 115,000 and a large marketing budget, analysts say there are places to trim.

For example, Pfizer is expected to save tens of millions of dollars this year on advertising for the painkiller Celebrex since the company's decision late last year to voluntarily pull direct-to-consumer ads after a study revealed heart risks.

Pfizer is the industry's biggest spender on TV ads for its drugs - including spots for its impotency pill Viagra, the cholesterol-lowering drug Lipitor and its antidepressant Zoloft. Some analysts have speculated most of the cuts to Pfizer's sales and marketing budget would come outside the United States, where analysts deem the company's sales force is less effective and where the company, like other drugmakers, can't make as much money because many large foreign countries have price controls.

"2005 will be a transition year," said Pfizer Chairman and Chief Executive Officer Hank McKinnell. "In addition to the loss of exclusivity on several important products, we are facing a number of uncertainties."

Chief among the unknowns is the fate of its COX-2 painkillers, Celebrex and Bextra, which await word from the Food and Drug Administration on how future marketing will be restricted Worldwide sales of Bextra and Celebrex were more than $5 billion last year.

In February, an FDA advisory panel said COX-2 drugs Bextra, Celebrex and Merck & Co.'s Vioxx "significantly increase" the risk of heart attack or stroke. The advisers recommended all three drugs carry a so-called "black box" warning label, the agency's stiffest warning.

Meanwhile, the patent on Zoloft, Pfizer's third-largest product, with $3.36 billion in sales last year, expires in 2006, while the patent on the blood-pressure treatment Norvasc, the company's No. 2 drug, expires in 2007.

Pfizer's biggest-selling drug, Lipitor for cholesterol at $10.9 billion last year, has patent protection until 2010, the company said.

Pfizer's targeted savings amount to twice the $2 billion figure analysts were expecting.

Implementing the plan will cost between $5 billion and $6 billion through 2008, Pfizer said, but the cost cutting is expected to yield "significant" benefits beginning next year.

"We expect our performance to rebound quickly in 2006 and accelerate in 2007 as we increasingly realize the benefits of the continued growth of major in-line products, new product launches and productivity initiatives," McKinnell said.

The Chicago Tribune is a Tribune Publishing newspaper. Wire services contributed to this article.

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