Orlando, FL 5/2/12 (
StreetBeat) -- For years, drug companies have known that their days of plenty were numbered, that the moment would arrive when the best-selling drugs that had driven two decades’ worth of profits would lose their patent protection and succumb to competition from generic alternatives. Without new blockbusters to replace them, profits would tumble.
For Pfizer, that day has arrived. Pfizer (
NYSE: PFE) profited from hits like Lipitor and Viagra, and swallowed up smaller companies from the 1990s onward.
But it has no immediate successor to Lipitor, the best-selling drug in history, which lost patent protection last fall. The problem was punctuated on Tuesday when the company said that profit declined 19 percent last quarter, largely because of declines in Lipitor sales.
Pfizer — once the Big in Big Pharma — is making a radical shift, one being watched closely by the rest of the industry. It is getting smaller.
Last week the company announced it was selling its infant nutrition business to Nestlé for $11.85 billion, and it is expected to divest its profitable animal health business by next year. At the same time, the company is slashing as much as 30 percent of its research budget as part of a plan to focus on only the most promising areas, like cancer and Alzheimer’s disease.
“It’s not necessarily smaller per se, it’s focused,” Ian C. Read, Pfizer’s chief executive, said in an interview Tuesday. “We are at our heart a biopharmaceutical company focused on applying science to improving people’s quality of life. That is what our core is. That is what will determine our success.”
Pfizer is one of many pharmaceutical companies racing to reinvent itself. This year alone, at least 19 drugs — including the antistroke drug Plavix — are scheduled to lose patent protection, a potential $38.5 billion in lost sales, according to an analysis by Barclays (
NYSE: BCS).
Drug executives are asking themselves: “What is it that we now face, given that in the past decade — when everything was going right — we didn’t build with this future in mind?” said Jeremy Levin, who oversaw a similar reorganization of Bristol-Myers Squibb and is about to take over as chief executive at Teva Pharmaceuticals.
At Pfizer, skeptics have questioned the decision to shed some of its most profitable units in favor of doubling down on the risky pharmaceutical business. Pfizer’s nutrition unit grew by 15 percent and animal health by 17 percent in 2011, while its pharmaceutical sales dipped by 1 percent. And Pfizer has suffered some notable flops over the last several years, including the failure of an experimental cholesterol treatment that was seen as a potential successor to Lipitor and poor sales of an inhaled insulin drug that the company eventually abandoned.
“It’s a high-risk plan,” said Erik M. Gordon, who teaches business at the University of Michigan. “They’re focusing on what they don’t have the best track record in and they’re spinning off things that are doing pretty well.”
Pfizer spent the last decade buying other big companies. In 2000, it acquired Warner Lambert and with it the rights to Lipitor, which Pfizer had been co-marketing with the company. In 2003, it merged with Pharmacia and added the painkiller Celebrex to its lineup. It acquired Wyeth in 2009 in a $68 billion deal that brought a portfolio of biologic drugs. Last year, Pfizer bought King Pharmaceuticals, a maker of pain drugs.
The acquisitions, some said, turned Pfizer into a Frankenstein’s monster — a giant stitched together from the scraps of smaller companies that lurched forward with little purpose.
“I think the company sort of lost their way in the years before the Wyeth acquisition,” said Catherine J. Arnold, an analyst for Credit Suisse (
NYSE: CS).
Mr. Read said he agreed. “I think it was broken — I think we were spending huge amounts of money,” said Mr. Read, who took over as chief executive in late 2010 after Jeffrey B. Kindler resigned abruptly. “We weren’t producing the drugs we needed and frankly that was seen in the marketplace.”
Analysts said Pfizer’s nutrition deal and the divestiture of the animal health business is a way to tide over shareholders while it undertakes more substantial changes to its business model. The company has said it plans to use most of the cash from the deals to buy back stock, though studies have repeatedly cast doubt on the efficacy of such moves by corporations.
Pfizer said Tuesday that it had repurchased $1.7 billion in stock in the first quarter, and expects to buy back about $5 billion by the end of the year. The company reported earnings of $1.79 billion last quarter, or 24 cents a share, compared to $2.22 billion, or 28 cents a share over the same period last year.
Investors seem to be buying into the company’s strategy so far: Pfizer stock has risen nearly 8 percent over the last year. Pfizer’s stock closed at $22.78 on Tuesday, down 12 cents, or less than 1 percent.
Even so, the company’s decision to cut research budgets as it is planning to recommit to its pharmaceutical core struck some as risky. Mr. Gordon, the Michigan business professor, called it a “magic trick.”
It’s a magic trick, however, that most major pharmaceutical companies are also trying. “The question is how do you remain successful and sustain your operations if you’re investing less and less in R&D?” said Kenneth I. Kaitin, a professor and director of Tufts University’s Center for the Study of Drug Development. “The answer to that is to try to find a new way and a more efficient mechanism for discovering and developing drugs.”
Pfizer plans to reduce its research budget from $9.4 billion in 2010 to $6.5 billion to $7 billion this year. It closed a research center in Britain and has been trimming its facility in Groton, Conn., and moving resources to areas closer to universities in Boston and Cambridge, England.
In 2011, the company ended 91 projects, canceling programs aimed at treating bladder infection, for example, as well as one to treat nasal symptoms from allergies. Company executives have also said they will be on the lookout for smaller acquisitions to fill gaps in their portfolio, and will expand partnerships with academic institutions.
Mr. Read said the cuts would not affect the areas that the company has prioritized. “Most of what I cut had a low probability of success,” he said.
While Pfizer does not have another Lipitor, analysts say several drugs seem promising. On May 9, a Food and Drug Administration advisory panel is to consider recommending approval of an oral pill for rheumatoid arthritis. In June, the agency is expected to weigh approval of Eliquis, an antistroke drug that Pfizer is developing with Bristol-Myers Squibb (
NYSE: BMY).
In corporate strategy, Pfizer is following the path of Bristol-Myers, which in 2009 announced plans to spin off the nutrition company Mead Johnson to focus on acquiring small biotech companies. The company has since fared well despite the loss of patent protection for Plavix on May 17. “So long as the blockbuster game was working, people kept playing it,” Mr. Gordon said.
Please contact
www.thestreetbeat.com for interest in our latest investor relations platform the “CEO Interview Series” with its host Steve Kanaval. The package includes a one-on-one interview with a seasoned industry professional; published segment to our web site with embedded audio/video file; and a compressed file that can be easily e-mailed out to your current and/or potential investors. Please e-mail bflautt@gmail.com or call (662) 392-0740 for pricing and scheduling.
StreetBeat DisclaimerDistributed by Viestly
Orlando, FL 6/14/12 (StreetBeat) – Below are some of the most active stocks in U.S. trading on Thursday:
Naples, FL 3/15/2012 (