Pfizer to cut 10,000 jobs, close 5 facilities
Big Pharma is putting itself on a big diet.
Pfizer Inc., the world’s largest drug company, announced Monday that it’s cutting 10,000 jobs, or 10% of its workforce, and shuttering at least five plants in the U.S. and abroad. Following big cutbacks by other industry players, it is the latest sign that the golden age for pharmaceutical development that began more than a decade ago might be ending as companies are unable to come up with as many new high-profile drugs while facing tougher generic competition.
Analysts believe Pfizer’s larger-than-anticipated cost cutting might accelerate the industry’s downsizing trend, as competitors become more comfortable with smaller sales and marketing teams.
The result could be a double-edged sword for consumers. They can expect lower overall drug costs as fewer high-priced name-brand medicines come on the market. But they aren’t likely to see as many breakthrough medical treatments as they’ve become accustomed to over the last several years.
Joseph Tooley, a pharmaceutical analyst with A.G. Edwards & Sons Inc., said the cutbacks signal that drug companies understand the difficulties they face and that they have to get leaner.
“There’s too much insecurity in the industry right now for them to keep expanding as they have been,” he said.
One of the main culprits for the industry’s woes is an unprecedented wave of generic drugs hitting the market.
Four of the nation’s 10 best-selling prescription medicines -- for conditions such as high cholesterol and asthma -- are due to lose patent protection by 2010.
Never have so many branded drugs, with annual sales of as much as $75 billion, lost their patents in so short a time, experts say.
Top-sellers such as Merck & Co.’s Zocor for lowering cholesterol and Pfizer’s antidepressant Zoloft have already come off patent. Pfizer’s cholesterol medication Lipitor, the world’s best-selling prescription drug, will lose its patent protection in 2011.
Meanwhile, drug companies haven’t come up with enough new name-brand medications to make up for those losses. One reason is that many drug companies recently have delved heavily into researching a handful of potential blockbuster drugs rather than many smaller bets. As several of those high-priced wagers have faltered, they’ve been left with little to fall back on.
Last year, only 26 medicines or vaccines were approved by the Food and Drug Administration, half the number of a decade ago when Lipitor arrived.
It’s not all bad news. The pharmaceutical industry still enjoys some of the fattest profits around, and it has several trends working in its favor. The aging population is likely to increase the demand for drugs, and the federal Medicare prescription drug benefit has provided the industry a sales boost that’s most likely here for good.
That partially explains why companies continue to increase the amount of money they spend on research and development, estimated at $50 billion a year.
But drug companies clearly are under more pressure than ever to prove themselves. A year ago, Merck, the world’s second-biggest drug maker, sliced about 11% of its staff worldwide and shed five manufacturing plants. Smaller drug makers such as Wyeth Pharmaceuticals Inc. and Sanofi-Aventis have also made cutbacks.
Still, no one is feeling the heat more than the industry’s leader, New York-based Pfizer.
The company has an anemic pipeline of promising new drugs and is racking up development failures.
Most disappointing was the failure in December of torcetrapib, a drug that boosts the production of so-called good cholesterol but was shown in clinical trials to increase blood pressure. Other troubles include worries about the long-awaited inhaled insulin product, Exubera, which the company is rolling out.
In a recent report, Richard Evans, an analyst at Sanford C. Bernstein & Co., said Pfizer’s sales could fall from $47.1 billion this year to $41.7 billion in 2008. Other analysts are predicting the company may lose 41% of its sales to generic competition between 2010 and 2012.
In a statement Monday, Chief Executive Jeffrey B. Kindler said, “Pfizer is a great company with a great future,” but is facing challenges “in a profoundly changing business environment.”
The company said it planned to close three research sites in Michigan and two manufacturing plants in New York and Nebraska. It might also sell a manufacturing site in Germany and close research sites in Japan and France.
For the fourth quarter, Pfizer’s net income rose to $9.45 billion, or $1.32 a share, from $2.73 billion, or 37 cents, a year earlier.
Excluding gains from the recent sale of a consumer division, earnings were $3.05 billion, or 43 cents a share, down from an adjusted $3.59 billion, or 49 cents, a year earlier.
Some analysts say the company has little choice but to acquire new products by partnering with small biotechnology or drug companies, a strategy Pfizer has hinted it may adopt soon.
“It could be the clearest way for them to get new products,” Tooley said.
For the moment, however, Wall Street appears to be waiting for more details. Typically, a round of job cuts bumps a company’s stock price, but Pfizer shares fell 27 cents to $26.95.
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