Pfizer plan fails to wow Wall Street

No. 1 drugmaker will cut thousands more jobs, close plants, but analysts wonder whether the plan is enough.

By Aaron Smith, staff writer

NEW YORK ( -- Pfizer appears to be getting ready to slash thousands more workers and shut down some of its plants, but part two of CEO Jeffrey Kindler's plan to revitalize the struggling drugmaker did not inspire rave reviews on Wall Street Tuesday.

Pfizer is set to announce earnings and meet with analysts next Monday and at the meeting Kindler and other executives will outline another round of job cuts, a Pfizer employee with knowledge of the plan said. The plan is also likely to call for plants to be closed as part of a broad overhaul of how the world's biggest drugmaker develops and markets its products, the employee said.

But industry analysts and investors were split on whether the plan was enough to help Pfizer overcome sluggish sales growth and the loss of patent protection on some of its biggest medicines. Pfizer (up $0.00 to $26.77, Charts) stock barely budged and volume was light, even though reports of job reductions and other cost cuts can often boost a company's shares.

Last November Kindler said he would cut 20 percent of his U.S. sales force, or about 2,000 jobs. "This is an important step toward making Pfizer a more agile and effective company," Kindler said at the time, and promised more of Pfizer's plan in January.

Barbara Ryan, analyst for Deutsche Bank North America, said that if Pfizer goes ahead with more job cuts, it would probably be a similar number: another couple thousand layoffs, applied company-wide instead of focusing on the sales force.

Ryan also said the company will "definitely close down additional plants," but she would not speculate on how many. The analyst said that such sacrifices are necessary for Pfizer to grow its earnings, though the company is so massive, that it's growth rate will probably remain below 10 percent.

Les Funtleyder, drug analyst for Miller Tabak, said, Pfizer needs to be thinking about the long term as well.

"They need really to start thinking about 2011 and beyond, which is when you get the Lipitor cliff," said Funtleyder, referring to the patent expiration of the cholesterol drug, Pfizer's biggest seller. "I think the smarter thing to do would be to start buying [companies with early-stage pipelines] that would be coming out then."

One investment firm, though, said at least Pfizer was moving in the right direction.

"A lot of times when you do have a new top management you get a new set of eyes and a new way of thinking about the strategy," said Ariel Capital Management analyst Sabrina Carollo, referring to Kindler, who became CEO last July. "Statistics have shown that doctors are being bogged down with sales force, and their time with a doctor is very minimal. So if there is a way to cut down the sales force and redeploy them and make them more efficient, then we would support that."

Pfizer - like most of the rest of Big Pharma - is feeling the pressure of trying to fill its pipeline with experimental drugs and potential products as patents expire on old blockbusters, opening them up to generic competition and plunging revenues.

Pfizer's patent expired on the antidepressant Zoloft in 2006, eliminating $3.3 billion in annual sales. The pressure increased in early December, when Pfizer abruptly pulled the plug on its experimental cholesterol drug torcetrapib after patients died in a clinical trial, just days after the company raised its guidance at an analysts' meeting.

In addition, the company's patent expires in 2007 on the blood pressure treatment Norvasc, which totaled $4.7 billion in 2005 sales, and the allergy drug Zyrtec, with 2005 sales of $1.3 billion. Pfizer won't be able to count on these drugs as billion-dollar blockbusters for much longer.

But this is nothing compared to the impending patent expiration of the cholesterol-cutter Lipitor, the world's top-selling drug with more than $12 billion in annual sales, representing a quarter of Pfizer's total. The company's failed experiment torcetrapib was intended as a combination with Lipitor, to help it not lose sales after its patent runs out it 2011.

While the Lipitor expiration is years away, the company had better get ready for it now by timing its mergers accordingly, said Miller Tabak's Funtleyder. Like its rival Merck (up $0.00 to $44.95, Charts), Pfizer has been seeking biotechs and smaller drugmakers with promising pipelines as potential takeover targets.

Funtleyder said that Pfizer will continue to have "rolling job cuts" where they cut a few thousand jobs from time to time and then gauge how sales and earnings are affected.

Pfizer spokesman Paul Fitzhenry was mum on details of the upcoming meeting. "We have been conducting a strategic review of every aspect of our business and we will be providing an update on our progress on Jan. 22 at a meeting here in New York. At the meeting, we'll share our plan metrics and milestones."

Analyst projections are less than impressive for Pfizer going forward, though they suggest the company will eventually return to growth.

Sales are expected to fall 10 percent to $12.2 billion for the fourth quarter, 2006 and drop 6 percent to $48.2 billion for all of last year, according to analyst consensus compiled by Thomson Financial. The same consensus of estimates suggest that earnings per share will plunge 18 percent to 42 cents for the fourth quarter of last year, but grow 2 percent for the whole of 2006, to $2.05. Estimates for 2007 are better, with only a 1 percent decline in sales and a 6 percent gain in EPS.

Behind Pfizer, Johnson & Johnson (up $0.00 to $66.54, Charts) is the second-largest U.S. drugmaker in terms of sales, followed by Abbott Laboratories (up $0.00 to $50.61, Charts), Merck, Bristol-Myers Squibb (up $0.00 to $26.57, Charts) and Wyeth (up $0.00 to $50.47, Charts).

The analysts quoted for this story do not own shares of Pfizer stock. Deutsche Bank of North America makes a market with Pfizer, but Miller Tabak does not.

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