Dec. 4 (Bloomberg) -- Pfizer Inc.'s shares fell 11 percent, wiping out $21 billion of market value, after the world's biggest drugmaker ended development of its most important new treatment, a cholesterol medicine designed to replace Lipitor when its patent expires.

Pfizer ended studies of the cholesterol pill torcetrapib Dec. 2 because deaths among patients taking it were 60 percent higher than in a group who didn't get the drug. The stock plunged $2.96 to $24.90 at the close of New York Stock Exchange composite trading. The shares earlier touched $23.50.

The loss of torcetrapib thrust Chief Executive Officer Jeffrey Kindler, a 51-year-old former McDonald's Corp. executive who took the Pfizer helm in July, into one of the biggest financial crises in the New York-based company's 157-year history. Pfizer invested $1 billion in developing the medicine and needed it to replace Lipitor, the source of a quarter of its $51 billion in annual revenue and almost half of net income.

``The bet-the-ranch-on-one-drug approach was in place before Kindler got there, so now he has a chance to change course,'' said Les Funtleyder, an analyst with Miller Tabak & Co. in New York, in a telephone interview. ``This announcement offers him political cover to make really radical changes.''

Patent Protection

Lipitor, the world's biggest-selling drug at $12.2 billion last year, is one of six Pfizer products losing patent protection by 2011 that together generated almost half the company's 2005 revenue.

Pfizer said during a meeting with analysts and investors last week it planned to seek U.S. marketing approval for torcetrapib in the second half of 2007. Orbimed Advisors LLC analyst Trevor Polischuk last week estimated annual sales of the drug might have reached $20 billion.

``The new CEO basically will have to buy his way out of trouble,'' Navid Malik, an analyst with Collins Stewart Holdings Plc, said in a telephone interview yesterday from London. ``When you get to 2010 and 2011, you are facing a cliff where Pfizer sales are going to drop quite dramatically.''

Shares of Pfizer had climbed 19.5 percent in 2006 through Dec. 1. Today's plunge, the biggest in two years, reversed the shares gains since the board ousted Hank McKinnell as chief executive in July and installed Kindler. Analysts at JPMorgan, Lehman Brothers and Morgan Stanley all cut their ratings on Pfizer shares today.

``It's very disappointing,'' said James Stein, director of preventive cardiology at the University of Wisconsin, in a telephone interview yesterday. ``Torcetrapib was the first in a new class and if successful, it's one that would have filled an important niche in our armamentarium.''

Heart Disease

The focus will remain on finding new ways to boost good cholesterol, doctors said, because statin drugs like Lipitor prevent only about 35 percent of heart attacks, strokes and deaths from heart disease. It remains the No. 1 killer.

``In terms of this terribly important disease, we've really hit a dry patch,'' said Steven Nissen, head of cardiology at the Cleveland Clinic, the top U.S. heart hospital in the U.S. News & World Report ranking, and president of the American College of Cardiology. ``It's profoundly important that we continue to work on these things because statins just aren't good enough.''

While most investors were selling Pfizer shares, some were buying on the notion that the stock is unlikely to go lower. The price may be driven up over the next year if Pfizer increases its dividend, makes attractive acquisitions and significantly cuts costs, analysts and investors said.

`The Floor'

``This is the floor, so the stock will come back from this, whether that is in three months, six months, or 12 months isn't clear,'' said Polischuk, whose fund bought more Pfizer shares today. ``There is not another shoe to drop.''

The setback may immediately benefit AstraZeneca Plc and Abbott Laboratories. AstraZeneca's Crestor is the most potent drug to cut bad cholesterol. Abbott is purchasing Kos Pharmaceuticals Inc. to obtain its Niaspan drug, the most effective way to raise good cholesterol. The companies are also working together on cholesterol drug combinations.

Shares of London-based AstraZeneca rose as much as 1.9 percent today. Shares of Abbott Park, Illinois-based Abbott rose $1.53, or 3.3 percent, to close at $48.15 in New York Stock Exchange composite trading.

``With one possible competitor dropping out, Crestor is now facing a clearer run and is under less pressure to find a suitable combination to match competitors,'' UBS analyst Michael Leuchten said in a note to clients.

Debt Rating

Pfizer may lose its top rating on long-term debt from Moody's Investors Service. The debt is under review for a possible downgrade because of concern Pfizer's credit profile may no longer match the Aaa rating without the prospect of marketing torcetrapib, Moody's said today in a statement. Standard & Poor's Ratings Service revised Pfizer's outlook to negative.

The Moody's action affects about $5.6 billion of rated long- term debt. The company's 4.5 percent bonds due in February 2014 fell 0.86 cents on the dollar to 97.47 cents on the dollar, according to Trace, the bond-price reporting service of the NASD. The yield rose to 4.92 percent from 4.78 percent.

Pfizer and competitors Merck & Co. and Roche Holding AG have been racing to develop a new generation of drugs to lower cholesterol, a fatty substance in the blood linked to heart disease. Torcetrapib was designed to elevate HDL, or good, cholesterol, which helps to lower the LDL, or bad, form of the protein. Drugs like Lipitor reduce overall cholesterol.

``It didn't work out for Pfizer, but stopping the trial was obviously the right thing to do,'' Nissen said.

Roche

Roche said today that the experimental cholesterol medicine it's working on hasn't increased blood pressure in clinical trials. The Basel, Switzerland-based drugmaker still expects to submit the medicine for approval after 2009.

Pfizer has two other HDL raising drugs in the earlier stages of human testing, neither of which have shown an increase in blood pressure.

Doctors yesterday cautioned, though, that torcetrapib's impact on blood pressure wasn't seen until phase 2 studies were complete. The side effect worsened during the third and final stage, the doctors said.

Roche shares rose as much as 1.2 percent in Zurich today. ``So far it looks OK, but the drug is less advanced than torcetrapib,'' said Romain Pasche, who manages $800 million in pharmaceutical stocks at Vontobel Asset Management.

83 People Died

Pfizer immediately informed the U.S. Food and Drug Administration about its decision and told research physicians to stop treatment on all study participants, the company said. Eighty-two patients taking the combination of torcetrapib and Lipitor died compared with 51 deaths among patients who were only given Lipitor, Pfizer spokesman Andy McCormick said in an e- mailed response to questions.

Pfizer was told about the by a panel of experts evaluating the drug's safety data. CEO Kindler may accelerate job cuts, plant closings and a search to acquire new products after torcetrapib's failure, analysts said.

``We understand the challenge that this represents, and we will respond quickly and aggressively to it,'' Kindler said in the company's Dec. 2 statement. ``It is important to put this information in the context of both our commitment to transform Pfizer and our overall product and financial strength.''

Pfizer will increase its hunt for new drugs through acquisitions and deepen job cuts already under way, Kindler said today in an interview with CNBC. Pfizer, the world's largest drugmaker, will seek ``strategic'' acquisitions in areas such as biotechnology, vaccines and oncology and focus its efforts on the 242 drugs it is developing internally, Kindler said.

``We are a very financially strong and profitable company,'' Kindler said. ``We have the best early and mid-stage pipeline in the history of our company and perhaps in the industry in general.''

Pfizer previously said it has earmarked as much as $17 billion for acquisitions. The company will have $29 billion in cash after the $16.6 billion sale of its consumer-products unit to Johnson & Johnson.

``My guess is this may force their hand a bit in terms of making a sizeable acquisition,'' said Paul Diggle, analyst at Code Nomura in London.

The torcetrapib announcement came two days after Pfizer told analysts and investors in a meeting that the company was in the early steps of studying two other drugs as potential candidates to replace Lipitor.

To contact the reporters on this story: Shannon Pettypiece in Washington at spettypiece@bloomberg.net; Michelle Fay Cortez in Minneapolis at mcortez@bloomberg.net

Last Updated: December 4, 2006 16:18 EST