NEW YORK (AP) - Pfizer Inc., struggling with fierce competition from makers of generic drugs, announced Monday it will cut 10,000 jobs and close at least five facilities to slash its annual costs by up to $2 billion.
The drastic measures being taken by the world's largest drugmaker highlight the challenges faced by many pharmaceutical companies these days. In addition to patent expirations, big drug companies are struggling with a business climate where insurers and other large purchasers of medicines are demanding lower prices and more evidence of products' worth.
It's the second time in two years that the maker of Viagra and Lipitor has announced a major cost reduction plan in order to combat the loss of about $14 billion in revenues this year due to expiring patents on key drugs. The company is at risk of losing 41 percent of its sales to generic competition between 2010 and 2012, according to one analyst.
The latest cuts come on top of a previously announced plan to cut costs by $4 billion a year by 2008. The 10,000 layoffs amount to about 10 percent of the company's global work force and include the elimination of 2,200 jobs from the U.S. sales force, which Pfizer announced late last year. The company said Monday it would cut 20 percent of its European sales force but couldn't immediately say how many drug representatives it employed there.
Pfizer will close three research sites in Michigan and two manufacturing plants in New York and Nebraska. It may also sell another manufacturing site in Germany and close research sites in Japan and France.
Pfizer also announced it would restructure its U.S. commercial business into five distinct units, each with a general manager responsible for that group's performance.
"I believe we must transform the way we've done business in the past in order to be more successful in the future," said Jeffrey Kindler, who became Pfizer's CEO last summer and chairman last month.
"Incremental evolution is not enough. Fundamental change is imperative - and it must happen now," Kindler added.
Pfizer reiterated that its revenue would be flat this year and next year, but said it expects its earnings will jump by between 6 percent and 9 percent in both 2007 and 2008.
Analysts are skeptical that Pfizer's current and pipeline drugs can generate enough sales to compensate for revenue it stands to lose. Pressure on Pfizer has intensified since safety issues forced it to halt development of the star drug in its pipeline, which was slated to replace the best-selling Lipitor as it loses patent protection as early as 2010.
"You can't cost-cut your way to prosperity," said Les Funtleyder, an analyst at Miller Tabak & Co
Still, the cuts do help shore up business and remain a good short-term strategy as the company seeks acquisitions to boost revenue, said Barbara Ryan, an analyst at Deutsche Bank.
The sites in Michigan employ about 2,300 people, while the plant being closed in the Brooklyn borough of New York employs 600 people. Only 25 jobs will be lost in Nebraska. Pfizer said many of the Michigan workers will be offered jobs elsewhere in the company.
Pfizer's fourth-quarter earnings report, issued earlier Monday, illustrated the company's woes. Net income for the period rose sharply because of the $16.6 billion sale of its consumer health-care business last month, resulting in an after-tax gain of $7.9 billion. However, after adjusting for that gain and other items, Pfizer's earnings fell 15 percent on flat sales, hurt by the patent expiration of antidepressant Zoloft last year.
Meanwhile, U.S. sales of Lipitor, Pfizer's top-selling drug, slipped 6 percent to $1.95 billion. Last summer Zocor, a rival cholesterol treatment made by Merck & Co., lost patent protection and insurers have pushed the cheaper versions of that drug over Lipitor when appropriate.
Pfizer's struggle with patent expirations comes as insurers and the government are pressuring drugmakers to keep prices down and refusing to pay for new treatments that are essentially the same as those they are intended to replace.
That means drugmakers are taking bigger risks to find new types of medicines. But their attempts can fail. Last year, safety issues forced Pfizer to scrap its drug torcetrapib, a novel cholesterol treatment, after spending $800 million on its development.
Overall, Pfizer's own labs haven't been very productive. It hasn't introduced a blockbuster since it discovered the erectile dysfunction drug Viagra in 1998.
Meanwhile, some recent deals to bolster its pipeline haven't produced new treatments. Last year, Pfizer killed at least two development agreements after the drugs didn't live up to expectations.
At the same time, key drugs are losing patent protection. This year, Pfizer will face generic competition on blood-pressure medicine Norvasc, which brought in $4.9 billion in sales last year, and allergy treatment Zyrtec, with $1.6 billion in revenue in 2006.
Analysts differ on the approach they believe Pfizer will take to bolster revenues. Funtleyder thinks Pfizer will continue to ink development deals with companies that have products that will be ready for market by the time Lipitor loses patent. He thinks it won't be forced into a mega-merger unless many of those deals falter.
Ryan believes Pfizer will buy a company with a product flow so it can use the revenue to add to its earnings.
For the fourth quarter, net income soared to $9.45 billion, or $1.32 per share, from $2.73 billion, or 37 cents per share, a year ago. Excluding the gain from the sale of the consumer division, earnings totaled $3.05 billion, or 43 cents per share, down from an adjusted $3.59 billion, or 49 cents a share, a year ago. The earnings beat the consensus estimate of analysts surveyed by Thomson Financial by a penny per share.
Revenue was essentially flat at $12.60 billion compared with $12.55 billion a year ago. Analysts expected sales of $12.62 billion.
Zoloft sales sank 79 percent to $166 million. In the United states, Zoloft sales plunged 88 percent to $76 million.
For the year, Pfizer earned $19.34 billion, or $2.66 a share, up from $8.09 billion, or $1.09 a share, in 2005. Revenue rose to $48.37 billion, up from $47.41 billion in 2005.