Analysts see Pfizer job cuts and plant closings in overhaul

NEW YORK - Pfizer Inc. may announce $2 billion in cost cuts including plant closings and slashing up to 10 percent of the workforce when new chairman and CEO Jeffrey Kindler announces his plan today for a strategic overhaul of the world's largest drugmaker, analysts say.

They also want to hear how he plans to boost revenue.

Already stung by numerous patent losses, Pfizer suffered a huge blow in November when it announced it was halting development of the star of its drug-development pipeline, torcetrapib, because of patient deaths and complications.

Torcetrapib was expected to replace the revenues that will be lost when its top seller, the cholesterol treatment Lipitor, loses patent protection, which could happen in 2010. Other patent expirations will rob Pfizer of $14 billion in revenues annually between 2005 and 2007, and analysts said the company's current pipeline just wasn't strong enough to forge major sales growth.

Pfizer declined to comment on the announcement expected today.

Beyond the particulars of the cost-cutting plan, analysts are looking for details of Pfizer's tactics to increase sales, including specifics on the types of acquisitions it is pursuing and how it will improve the productivity of its own research labs. Pfizer hasn't introduced a blockbuster it discovered since the erectile dysfunction drug Viagra in 1998.

"Cost-cutting isn't a strategy," said Jason Napodano, an analyst at Zacks Independent Research. "I'm more interested in how they are going to grow the top line," or revenues.

In the short term, all Pfizer can do is reduce costs because acquisitions and drug development take time, said Barbara Ryan, an analyst at Deutsche Bank. That's already started: Pfizer announced two months ago that it was laying off about 20 percent of its U.S. sales representatives - about 2,200 layoffs - a move analysts estimated would save $400 million to $500 million annually.

Ryan forecast Pfizer would announce an additional $2 billion in cost cuts today that go beyond the $4 billion it previously pledged to chop by 2008. She thinks the company could announce it would close at least one manufacturing plant and predicted Pfizer would lay off 8,000 to 10,000 people, including the previously disclosed reduction in the U.S. sales force.

Bank of America analyst Chris Schott wrote in a report that Pfizer could save $800 million annually by cutting 30 percent of its international sales force, which Pfizer said includes 24,000 people.

Schott believes that Pfizer's pipeline, which includes products in late-stage testing to treat obesity and transplant rejection, is underappreciated. Pfizer expects to introduce three new drugs this year, but analysts predict that only one, an AIDS treatment, will hit $1 billion in sales. That's why some analysts don't see how Pfizer will replenish sales lost as blockbusters' revenue is eaten away by generic competition. This year, Pfizer predicts its sales will be flat with 2006 levels.

"There is some upside, but on the whole, the core business is uninspiring," said Les Funtleyder, an analyst at Miller Tabak & Co. "I'd like to see a vision for growth."

Last year, Pfizer killed at least two development deals involving what were touted as promising candidates when the products didn't live up to expectations. Still, Funtleyder thinks Pfizer will buy companies with, or license, late-stage products, hoping they prove successful before Lipitor loses its patent. Ryan said Pfizer had "tons of development deals" but that it needed some that bring in revenue so she thought it would buy a company with products on the market.

Despite the challenges, analysts are generally impressed with Kindler, who took over as CEO during the summer and was named chairman last month. He has reshuffled top management, raised the dividend, and generally been more open to analysts.

"So far, he has done an excellent job," Ryan said. "He's done the right things, but he needs to do other things, too."

Pfizer shares are up about 3 percent since Kindler took over. They finished up 5 cents at $27.22 Friday on the New York Stock Exchange, where they have traded between $22.41 and $27.22 over the last 52 weeks.

Pfizer, which also reports earnings today, predicted 2006 revenues would be static compared with 2005, which totaled $47.5 billion, excluding the sale of its over-the-counter drug business last year.

Earnings for 2006 are expected to increase 5 percent.