Pfizer Seeks to Cure Its Ills
At the start of Pfizer's (PFE) Nov. 30 meeting for Wall Street analysts, a crowd gathered around a poster about torcetrapib, the drug giant's experimental product to treat high cholesterol. Torcetrapib could be the crown jewel in Pfizer's pipeline—a newfangled treatment that simultaneously raises "good" cholesterol while lowering the "bad."
But recent trial results suggest it raises blood pressure in some patients, a side effect that could stifle the market potential of what was to be a blockbuster replacement for Pfizer's Lipitor, the world's top-selling drug, which is facing generic competition. "Have you identified what causes the increase in blood pressure?" asked an analyst of a Pfizer scientist. "No," came the simple reply.
The Street's Skepticism
The torcetrapib drama underscores a lingering concern on Wall Street over whether Pfizer will ever regain the red-hot growth that turned it into the world's largest drug company (see BusinessWeek.com, 2/28/05, "Pfizer's Funk"). In July, the company threw out Chief Executive Henry "Hank" McKinnell a full year before his expected retirement. A few months later, his replacement, Jeffrey Kindler, warned that revenue growth could be flat and that earnings would grow only in the single digits for the next couple of years. That growth would come largely from cost-cutting, he said.
Indeed, on Nov. 28, Pfizer announced that it would lay off 20% of its sales force, or 2,200 people—bringing an end to its hyperaggressive style of having several reps calling on the same physicians to pitch the same products.
The Nov. 30 event began with a bit of unexpected good news. Kindler said Pfizer would earn $2.05 per share in 2006, slightly outpacing the $2 earnings the company had expected. He attributed the results to higher-than-expected revenues and falling costs. "We have already begun our transformation into a more agile, flexible enterprise, and we know we have a lot to do," he told the analysts. Pfizer's shares—which lost 43% of their value during McKinnell's five-year reign—rose a modest 1.6%, to $27.49. "People won't walk away today saying 'I love Pfizer,'" predicts Morgan Stanley (MS) analyst Jami Rubin. "But clearly [Pfizer executives] have an eye set on the right goals."
Wall Street likely won't regain its confidence in Pfizer until the company starts churning out replacement hits for aging products such as Zoloft, its antidepressant, which lost patent protection earlier this year. Toward that end, Pfizer provided details on 30 of its experimental compounds, half of which it had not revealed before.
"Clarion Call to Scientists"
Among its new projects: A protein-based drug that treats obesity by suppressing appetite, a new approach to treating HIV, and an oncology drug that's showing promise in breast, thyroid, and lung cancers. The company will also look more aggressively beyond its own labs for new ideas, some of which will come from a new collaboration with the Scripps Research Institute in La Jolla, Calif. Overall, Pfizer hopes to triple the number of compounds in late-stage clinical trials by 2009.
But the company also plans to license or acquire innovative new products being developed by small pharmaceutical and biotech companies, with the goal of launching two new "externally sourced" products per year. "There's a tremendous amount of great science that goes on beyond our walls," Kindler said in a press conference following the event. "Today is a clarion call to scientists around the world to make it clear that we want to work with them."
Part of Pfizer's growth strategy hinges on finding new uses for drugs that are already on the market. For example, the company continues to study Lyrica, a drug currently approved to treat neuropathic pain and epilepsy.
The drug, which is expected to bring in $1 billion in sales this year, is showing early promise in treating fibromyalgia, a painful disease that affects mostly women. Physicians have been slow to recognize the condition as something that should be treated, so many drug companies have not pursued it aggressively. "It's an underdeveloped area, and we're really excited about the potential," Lloyd Knapp, development team leader for the drug, told BusinessWeek on Nov. 30.
Different Sales Approach
The next event that will provide more color on Pfizer's future course will likely occur in January, when Kindler expects to announce further restructuring moves. At the Nov. 30 event, Vice-Chairman David Shedlarz previewed some of the changes. He explained that the company would link together its venture capital, merger and acquisitions, and licensing and business development groups to better identify investment and partnering targets. The idea, he said, is "to seize on new opportunities."
In the press conference, Kindler added that Pfizer would improve its focus on developing drugs that offer measurable advantages over current treatments, largely to appease insurance companies. "Payers are very focused on seeing evidence of value, as well as safety and effectiveness. We're getting very disciplined on focusing on where we can bring something to the market that is differentiated (see BusinessWeek.com, 8/3/06, "The Lawyer Is In at Pfizer").
As for the sales force cuts, Kindler said they weren't made based on how many drugs the company expects to be selling, but rather on the notion that each salesperson could be trained to be more efficient. "Spending a quality 30 minutes every couple of weeks with a doctor is better than doing a series of 30-second sample drops," he said. "We're looking for means of making our sales force more effective."
Jury's Out Until Spring
It won't be until late March that investors will get the news for which they're waiting on the edge of their seats. That's when Pfizer will present key data on torcetrapib, the cholesterol drug. "We don't know the degree of efficacy, but we do know there's a small but definite increase in blood pressure," says Kris Jenner, an analyst and fund manager at T. Rowe Price (TROW). "We need [the data] to see how good a product it is."