Pfizer to Unveil Its Corporate Medicine
Pfizer Inc.’s stock price has tumbled by about a third this year amid worries about expiring patents, the safety of its pain reliever Celebrex and the company’s generally sub-par outlook. Still, Wall Street expects few dramatic changes when the world’s largest drug maker holds a meeting for analysts and investors Tuesday.
The event in New York, where the company will announce a strategic plan and issue earnings projections, is expected to be relatively sedate. Analysts expect the company to announce at least $2 billion of cuts in annual costs and a staff reduction through attrition.
No epic strategy shift or executive departures are predicted, however, despite the last year’s difficulties and broader industry issues, including intensifying political pressure to lower the cost of medicine.
“Expectations are low,” said Barbara Ryan, a managing director at Deutsche Bank. The stock is trading at about 12 times her 2005 estimate of $2.15, which is below the average earnings multiple of 14.4 for other large drug makers.
That cheap multiple, a winning company history and respect for Pfizer’s management team seem to be pacifying investors -- at least for the time being. Pfizer’s stock price, which fell 12 cents Friday to $26.15 on the New York Stock Exchange, is about half what it was six years ago.
“I don’t know why people aren’t really bashing the company,” said Jason Napodano, an analyst at Zacks Independent Research. “I guess investors think the stock is cheap.”
Some had speculated there would be major changes. After Pfizer disclosed in January that it was preparing a new business plan, Lehman Bros. analyst Tony Butler said that to save money and boost earnings Pfizer would lay off 30% of its sales force, now 38,000 people after its 2003 acquisition of Pharmacia Corp.
The challenges are formidable: Pfizer is slated to lose as much as $9 billion in annual revenue over the next four years as patents expire on some of its most lucrative drugs, including antidepressant Zoloft, allergy medicine Zyrtec and blood pressure medicine Norvasc.
Last year, Pfizer earned $11.36 billion, or $2.12 a share, on revenue of $52.52 billion. Analysts surveyed by Thomson First Call on average expect Pfizer’s net income to edge up this year to $2.13 a share, followed by an increase of 4.2% in 2006 and flat earnings in 2007. That amount of projected growth is less than that forecast for the industry overall, which is expected to post earnings increases of 2.1% this year, 6.9% in 2006 and 7.4% in 2007.
Pfizer also is struggling with sagging sales of its fourth-biggest-selling medicine, arthritis drug Celebrex, which brought it $3.3 billion in revenue last year. Like Merck & Co.’s Vioxx, Celebrex has been linked to an increased risk of heart attacks and strokes. Analysts expect revenue in the range of $2 billion this year.
Some analysts contend that cutting $2 billion in annual costs is modest for a company that spends $17 billion a year on selling, general and administrative expenses and nearly $8 billion on research. But others insist that massive reductions won’t help sales and that slashing research will hinder the company’s ability to find new drugs. And firing sales staff may hurt revenue.
Deutsche Bank’s Ryan believes that investors will cut Pfizer some slack because of its still-solid business and a management team with a history of making audacious, lucrative moves such as buying Warner-Lambert Co. in 2000 and Pharmacia three years later.
Pfizer has $24.4 billion in cash and investments, funds Ryan said could be used to buy new products or smaller companies or to finance a major merger.
“This management is smart, tough and competitive,” Ryan said. “There is a sense of urgency about the situation.”
