The company hopes to turn around its drop in earnings with staff reductions and possible plant closings.

01:00 AM EDT on Wednesday, April 6, 2005

BY THERESA AGOVINO
Associated Press

NEW YORK -- Pfizer Inc. yesterday said its earnings will fall 6 percent this year and the company, which has been struggling with patent expirations and drug safety concerns, announced a cost-cutting plan aimed at saving $4 billion by 2008.

Pfizer said the program would help return the company to double-digit earnings growth in 2006 and 2007, and Wall Street responded by driving the company's shares up 97 cents, or 3.7 percent, to $26.90 yesterday on the New York Stock Exchange.

Details of the plan were sketchy, but will include staff reductions, changes to purchasing arrangements, and possibly more plant closings. Further acquisitions are likely to add new technologies, the company said.

Pfizer declined to give a specific blueprint for the cost cuts, although Pfizer chairman and chief executive officer Hank McKinnell said the employee count of 115,000 would eventually be reduced. Several hundred Rhode Islanders work at Pfizer's research center in New London, Conn.

Pfizer said there would be no huge reduction in the sales force, although there would be changes to how it operates. Its U.S. sales force of about 12,000 will have just two representatives per product for each doctor -- down from a current level of two to five representatives.

Pfizer's projection for this year fell below analysts' estimates, but the promise of a return to double-digit earnings growth by next year exceeded their expectations.

While analysts applauded the cost cuts, they remained wary that existing and pipeline products would generate enough sales to replace revenues lost as patents expire on some of its most lucrative products

Pfizer is slated to lose as much as $9 billion in revenue in the next four years when patents expire on antidepressant Zoloft, allergy medicine Zyrtec and blood-pressure medicine Norvasc.

"There won't be a single 'magic bullet' or 'big bang' new strategy or business model," said McKinnell, speaking to analysts at a conference in New York. "It will take a combination of both long-standing strategies and new approaches to prosper during the next decade."

McKinnell said the company hadn't started to implement the plan. "We have a lot of work to do," he said.

Pfizer said cutting costs will drive earnings growth in 2006, but stronger sales should boost profits in 2007.

It said its 2005 earnings are expected to be $2 per share, short of the $2.13 consensus from analysts surveyed by Thomson Financial and below the $2.12 earned a year ago. Accounting for one-time items, full-year income is estimated at $1.16 per share.

Its longer term outlook is a sharp contrast to analysts' current estimates for Pfizer's earnings to rise 4.2 percent in 2006 but fall flat again the year after, however. By comparison, the industry is expected to grow profits by an average of 2.1 percent this year, 6.9 percent in 2006 and 7.4 percent in 2007.

Pfizer's targeted savings amount is double what analysts were expecting. While the company is looking to trim yearly spending by $4 billion -- about 12 percent of its costs -- implementing the plan will cost between $5 billion and $6 billion through 2008.

"We are restructuring the field force to better meet ongoing customer needs," said Pat Kelly, president of U.S. pharmaceuticals. "We have geographically redeployed. There will be some modest reduction, but that will be achieved through attrition and sales-force management."

McKinnell said there were other areas that could produce significant savings. Pfizer already has a plan to cut its plants to 73 by the end of the year, from 93 two years ago, for example.

Analysts say Pfizer may have to use its $24.4 billion in cash and investments and its $16 billion a year in cash flow to make acquisitions that will add to its product line.

"We expect to intensify our effort to find new products," chief financial officer David Shedlarz said.

Pfizer said that it believed its arthritis drugs will resume growth, but analysts don't see that as likely. Bextra and Celebrex are cox-2 inhibitors, and like Merck & Co.'s Vioxx, they have been linked to increased risk of heart attack and strokes. Sales have fallen.