Shares of Pfizer Inc., the world’s largest drugmaker, sank Monday on news that the company had halted development of a key new cholesterol treatment that was heralded as the engine to re-ignite the company’s stagnant sales.
Pfizer said Saturday that an independent board monitoring a study for cholesterol treatment torcetrapib recommended that the work end because of an unexpected number of deaths and other complications.
The news is devastating to Pfizer, which had been hurt by numerous patent expirations on key products. It spent around $800 million to develop torcetrapib, which was supposed to fill the void when its best-selling drug, cholesterol treatment Lipitor, loses patent protection in 2010 or 2011. Lipitor sales totaled $12.2 billion last year.
Moody’s Investors Service placed Pfizer’s long-term Aaa debt rating under review for possible downgrade because of the announcement. Meanwhile, Merrill Lynch downgraded the stock to “neutral” from “buy”; Morgan Stanley dropped it to “equal weight” from “overweight” while Lehman Brothers’ ranking fell to “underweight” from “overweight.” Lehman Brothers analyst Tony Butler wrote in a report that Pfizer may not return to revenue growth for the next seven years, with the exception of 2009.
Pfizer will likely slash staff and accelerate merger and licensing deals as the pressure on it to improve its financial performance intensifies, analysts said. The good news for Pfizer is that it has solid cash flow and a management team that understands its challenges and seems motivated to address them, analysts said.
Two months ago, Pfizer said it would detail plans in January to turn the company into a more nimble organization — plans that would go beyond the program announced last year to cut $4 billion in expenses by 2008. Patent expirations will cost the company $14 billion annually between 2005 and 2007.
In the statement Pfizer issued Saturday, CEO Jeff Kindler said the company’s pace of transformation will be quickened because of the loss of torcetrapib, although he didn’t give any specifics. Last week, Pfizer announced it was cutting 20 percent, or 2,200 jobs, of its U.S. sales force.
Deutsche Bank analyst Barbara Ryan said Pfizer may lay off as many 10,000 people in the near future. Pfizer employs roughly 100,000 people. Ryan expects Pfizer to hike its annual dividend from 96 cents to $1.10 per share in upcoming weeks in the hopes of putting a floor on the stock.
But Jason Napodano, an analyst at Zacks Independent Research, doesn’t think the dividend will be enough to prop up the shares. He points out that at the end of last month, Pfizer pulled out of its deal with drugmaker Organon to develop schizophrenia treatment asenapine. Napodano said he expected that drug to add $500 million in sales by 2010 while by that time torcetrapib’s sales would total $3 billion.
“Losing asenapine was a hole in the boat. Now they have hit an iceberg,” said Napodano.
Pfizer reiterated it hopes to introduce six new products to the market by 2010, but Napodano said its pipeline just doesn’t have another drug which offers the sales potential of torcetrapib.
Ryan and Napodano both expect Pfizer to act swiftly to bring new products into the fold, either through acquisition or licensing. But Napodano said until investors see what those products are, he sees little reason to buy the stock and intends to review his “hold” rating on Pfizer.
Torcetrapib was designed to raise levels of HDL, or what’s commonly known as good cholesterol. Pfizer has two other products in early development to raise HDL, using the same method as torcetrapib. It is too soon to say whether they will be affected by the compound’s demise because it is still unclear what caused the patient deaths in the trial.
Torcetrapib had been shown to raise blood pressure in some patients but the other two compounds haven’t displayed such a side effect, according to Pfizer.
Dr. Steven Nissen, chairman of cardiovascular medicine at the Cleveland Clinic, said it is too soon to say whether the entire class of drugs known as CETP inhibitors is dangerous or if there was something specific to torcetrapib that caused the deaths. He said that Roche Holding AG is developing drugs of the same type, and there’s speculation that Merck & Co. is too. Merck declined to say if it had such a drug in its pipeline.
The safety concerns that doomed the cholesterol drug will lead to more U.S. scrutiny of similar medicines in development, a top Food and Drug Administration official said Monday.
“The products in development from Pfizer and other companies in the same class are going to receive more scrutiny,” Dr. Steven Galson, director of the FDA’s Center for Drug Evaluation and Research, told reporters.
Roche spokesman Darien Wilson said its compound, slated for introduction in 2009, has not shown a risk of elevated blood pressure in clinical trials.
Pfizer was hoping to seek approval for torcetrapib in the second half of next year.
Nissen said he will examine the results of the study, and if the trial showed the drug actually increased plaque, it would indicate that there is something wrong with the way the class of drugs works.
Nissen, an outspoken critic of the pharmaceutical industry, said he doesn’t believe Pfizer will face any liability issues over the trial because it acted swiftly to tell the public and researchers about the problem. The results were unexpected because the review board examined the trial data in October and didn’t see an increase risk of death, Pfizer said.
“I have to give Pfizer credit. They did everything the right way,” Nissen said.
Analysts said that patients sign waivers, acknowledging that they are willingly participating in an experiment, which protect companies from most lawsuits. However, Fordham University School of Law professor Benjamin Zipursky said warning patients of risks doesn’t necessarily mean they can’t sue later, especially if information about the trial wasn’t adequately detailed or the company downplayed or hid any potential negative data about the drug.
Pfizer was planning to sell torcetrapib in combination with Lipitor. According to Pfizer spokesman Paul Fitzhenry, 82 patients taking the combination of torcetrapib died, compared with 51 deaths among patients taking Lipitor alone. Each arm of the study had 7,500 patients. Pfizer said the study didn’t raise any questions about Lipitor’s safety.