Pfizer Expects a Profit Decline

PHARMACEUTICALS

Pfizer CEO Hank Mckinnell told financial analysts in New York City that 2005 will be a "transition year" for his company in which sales will be flat and earnings will drop by 6%. He predicted a return to double-digit earnings growth in 2006, driven by a program to save $4 billion per year.

McKinnell and other executives at Pfizer, the world's largest drugmaker, sought to assure analysts that the company's global scale, R&D prowess, and financial strength will help it clear a number of current and upcoming hurdles. These include falling sales for the COX-2 pain relievers Bextra and Celebrex and the emergence of generic competition to high-sales drugs such as Camptosar for cancer, Neurontin for seizures, and the antibiotic Zithromax.

Another hurdle emerged two days after the April 5 meeting when Pfizer announced that it is withdrawing Bextra in the U.S. and Europe following discussions with FDA about the risks of a rare skin reaction. The company will also include a strong warning of potential heart risk in packaging for Celebrex.

At the meeting, the company said it will achieve the $4 billion in annual cost savings by 2008, at a price of up to $6 billion, but analysts were disappointed at the firm's refusal to detail how it arrived at the figure. After the meeting, David R. Risinger, a pharmaceutical analyst at Merrill Lynch, told clients that "at this point, it appears to be somewhat of a phantom number." Risinger expects that the company will leave its sales force largely intact and look for savings in procurement, information technology systems, and manufacturing.

Despite the planned cuts, Pfizer revealed that R&D spending will increase this year, to about $8 billion compared with $7.7 billion in 2004. John L. LaMattina, president of Pfizer's global R&D operations, told attendees that the firm has 149 new molecular entities in its pipeline, including 102 in early development, 33 in midstage development, eight in advanced development, and six in registration.