Video: Pfizer shake-up

updated 4/5/2005 1:54:53 PM ET 2005-04-05T17:54:53

Pfizer Inc., the world’s largest drugmaker, on Tuesday forecast a 6 percent decline in earnings this year as it launches a cost-cutting plan aimed at saving $4 billion by 2008 amid concerns over patent expirations and the safety of its popular painkiller Celebrex.

The company said its 2005 earnings are expected to be $2 per share, short of the average view of $2.13 per share from analysts surveyed by Thomson Financial and below the $2.12 earned a year ago. Accounting for one-time items, full-year income is estimated at $1.16 per share.

However, New York-based Pfizer projected earnings for the first quarter ended March 31 at 53 cents per share, topping the analyst consensus of 52 cents, and gave an optimistic profit forecast for 2006 and 2007.

Pfizer’s targeted savings amount to twice the $2 billion figure analysts were expecting. While the company is looking to trim yearly spending by $4 billion — about 12 percent of its costs — implementing the plan will cost between $5 billion and $6 billion through 2008, Pfizer said.

Some analysts were awaiting major changes at the pharmaceutical giant, including widespread layoffs. Chairman and Chief Executive Hank McKinnell, speaking to analysts at a Tuesday conference in New York, indicated that the company intends to reduce its overall headcount of 115,000 but did not say by how much.

Other company officials, however, said Pfizer is whittling down its U.S. sales force of about 12,000 to carry just two representatives per product for each doctor — decreased from a current level of two to five reps.

“We are restructuring the field force to better meet ongoing customer needs,” said Pat Kelly, president of U.S. pharmaceuticals. “... We have geographically re-deployed. There will be some modest reduction, but that will be achieved through attrition and sales-force management.”

Pfizer faces “a number of uncertainties,” including the loss of patent exclusivity on a number of key products, the outlook for its Cox-2 franchise — which includes painkillers Bextra and Celebrex — and “continued pricing pressures and market acceptance of new products,” McKinnell said.

But the cost cutting is expected to yield “significant” benefits beginning next year, according to Pfizer, which is predicting a return to double-digit earnings growth in 2006. The following year, expanding revenue from new and existing products will accelerate that growth, Pfizer said.

The company’s outlook is a sharp contrast to analysts’ current estimates for Pfizer’s earnings to rise 4.2 percent in 2006 but fall flat again the year after. By comparison, the industry is expected to grow profits by an average of 2.1 percent this year, 6.9 percent in 2006 and 7.4 percent in 2007.

As it undertakes its cost-cutting strategy, Pfizer’s challenges are formidable: The company is slated to lose as much as $9 billion in revenue in the next four years when patents expire on some of its most lucrative drugs, including anti-depressant Zoloft, allergy medicine Zyrtec and blood-pressure medicine Norvasc.

Pfizer is also struggling with sagging sales of arthritis-drug Celebrex, its fourth biggest-selling medicine, which brought in $3.3 billion in sales last year. Like Merck & Co.’s Vioxx — also a Cox-2 inhibitor — Celebrex has been linked to an increased risk of heart attack and strokes. Analysts see revenues in the range of $2 billion this year.

“We are facing the toughest years ever,” Karen Katen, Pfizer’s Human Health division president, told analysts at Tuesday’s conference. “... We do get it. We understand the issues. We spend a lot of time and energy thinking about how we can deal with them.”

Katen, however, said the company believes that sales of Celebrex and Bextra will resume growing in the future.

Meanwhile, Pfizer is still facing financial hurdles in the near term, with 2005 revenue expected to be nearly unchanged from last year’s $52.52 billion. Analysts are concerned that Pfizer does not have enough products in the pipeline to bolster its top line — much less fatten revenues — with the patent losses and other problems looming.

At the meeting, Chief Financial Officer David Shedlarz said the company is planning to step up its search for new products, validating speculation by analysts that Pfizer would expand through acquisitions.

“We expect to intensify our effort to find new products,” Shedlarz said.

Pfizer is expecting to repatriate more than $28 billion in overseas profits under a provision in the American Jobs Creation Act that provides a significant tax break this year to U.S. companies who do business overseas but intend to return those funds to its domestic operations.

“This will strengthen Pfizer’s ability to pursue strategic opportunities while enhancing the company’s flexibility to invest in our research and development pipeline and new product potential in the United States,” Shedlarz said.

A tax charge of $2.2 billion will be recorded in first-quarter results, but pending changes to the law could reduce the expense by about $850 million, the company said.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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