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Kindler Fails to Offset Revenue Pfizer Will Lose

Oct 17, 2007 | Shannon Pettypiece | Bloomberg News

Pfizer Inc. is promising investors that acquisitions and quicker drug discovery will replace $21 billion in annual sales it will lose to generic competition.

So far, there is no evidence either strategy is succeeding.

Pfizer, with more cash and short-term investments than Chevron Corp. or Google Inc., may report tomorrow that revenue fell for the second straight quarter. Chief Executive Officer Jeffrey Kindler has yet to make a purchase large enough to replace products, responsible for almost half of Pfizer's 2006 sales, that are losing patent protection.

Only one of 26 analysts surveyed by Bloomberg rates the world's largest drugmaker a sell. Pfizer's shares are considered a bargain as its price-to-earnings ratio of 12 is the lowest among large-cap U.S. drugmakers. The New York-based company's value has dropped 11 percent in the past 12 months as investors doubted revenue losses can be offset with new products. Kindler is cutting 10,000 jobs to reduce costs.

``I don't know what his strategy is,'' said Jon Fisher, a fund manager with Fifth Third Asset Management in Minneapolis who helps manage $21 billion in assets that don't include Pfizer shares. ``He cut costs, but that is something their peers in the industry were doing years before. I'm not going to pat him on the back for keeping up with the rest of the pack.''

While Pfizer has a 4.5 percent dividend yield and the stock may increase modestly over the next few years, Fisher said there are much better investments in health care. Schering-Plough Corp.'s shares gained 43 percent in the past 12 months, and Merck & Co. has increased 21 percent.

Pfizer Shares

Pfizer shares fell 37 cents, or 1.5 percent, to $24.63 yesterday in New York Stock Exchange composite trading. The stock is down 5 percent for the year.

Analysts backing Pfizer say the drugmaker will use part of its $23 billion in cash and short-term investments to make acquisitions. In Kindler's 15 months at the helm, his biggest deal, worth as much as $1 billion, was for joint marketing rights to the blood thinner apixaban, developed by Bristol-Myers Squibb Co.

Pfizer will lose patent protection as early as 2010 on the world's best-selling medicine, the cholesterol pill Lipitor. The product's $13 billion in 2006 sales accounted for about 40 percent of Pfizer's profits, according to analysts.

This year, the blood-pressure medicine Norvasc, Pfizer's second-best-selling drug with $4.9 billion in 2006 sales, began facing generic competition. The antidepressant Zoloft, the Alzheimer's drug Aricept, and the colorectal cancer treatment Camptosar will also lose revenue to generic copies between 2008 and 2010.

Kindler's Plan

Pfizer is also trying to boost sales and find new uses for existing products. It is studying the nerve pain treatment Lyrica for generalized anxiety disorder, restless leg syndrome, and post-surgical pain.

Kindler also has said the company plans by 2010 to start introducing two medicines a year that were acquired from other companies. Kindler brought on biotechnology entrepreneur Corey Goodman this month to run a new California-based research center and to scout for new medicines developed outside Pfizer.

One possible acquisition may be Cambridge, Massachusetts- based Biogen Idec Inc., the world's biggest maker of multiple sclerosis drugs, analysts said. Billionaire investor Carl Icahn, who made a takeover bid for the company last week, said it may be an attractive target for a pharmaceutical maker in need of new treatments.

Pfizer spokeswoman Shreya Prudlo and Biogen spokeswoman Naomi Aoki declined to comment on acquisition speculation.

In addition to Biogen, ImClone Systems Inc. is a potential acquisition candidate for Pfizer, Citigroup Inc. analysts said in a note to investors today.

Acquisition Strategy

An acquisition strategy provides no guarantees, as it didn't succeed for Kindler's predecessor, analysts and investors said. Former CEO Hank McKinnell paid $58 billion for Pharmacia Corp. to get its two biggest drugs, the painkillers Bextra and Celebrex.

Bextra was later pulled from the market after studies suggesting it increased the risk of heart attacks and stroke. Sales of Celebrex, which works similarly, declined 39 percent between 2004 and 2006.

``McKinnell and his management thought they could acquire their way out of the problem, and none of those deals worked,'' Fisher said. ``The company wasted so much capital over the last few years it is embarrassing.''

Pfizer has also had research setbacks with products it acquired through collaborations. This year it ended development with Coley Pharmaceutical Group Inc. of a lung cancer treatment, which some analysts predicted might have generated about $800 million in annual sales.

Pipeline Dries Up

Pfizer also pulled out of a deal in November to co-develop the schizophrenia treatment asenapine with Akzo-Nobel NV. Schering-Plough, based in Kenilworth, New Jersey, later acquired Akzo to get access to the drug. Last year, Pfizer also stopped work on a sleeping pill being developed with Neurocrine Biosciences Inc.

The company spends more than $7 billion a year on research. Kindler has said the company will start selling four new internally developed drugs by 2011, though he doesn't identify which products. This year Pfizer has had only one new drug approved in the U.S., the AIDS drug Selzentry.

The company has just three internally developed drugs in the late stage of human testing. One of them, an obesity drug, may have trouble winning U.S. regulatory approval after a similar medicine by Sanofi-Aventis SA was rejected by U.S. regulators this year.